Where Providers Are Finding Value-Based Profit
The long-heralded shift to value-based payment is still a work in progress that is advancing at an uneven pace across the country.
The growing perception that the value-based payment shift is inevitable has led a growing number of provider organizations to experiment with payment approaches that might best suit their circumstances. These organizations’ primary aim in these efforts is to determine how to achieve financial success—or at least minimize losses—in their early efforts to shift away from traditional fee-for-service (FFS) payment.
Some of the earliest provider-leaders in the value-based payment shift have seen varying levels of success and have adjusted their value-focused approach based on their financial experience.
The experience of San Francisco-headquartered Dignity Health with value-based payment models has included participation in the Medicare Bundled Payments for Care Improvement (BPCI) initiative and in capitated risk models with some commercial plans.
And that value-based footprint is steadily expanding. The health system cares for 1.2 million patients in value-based models and expects the number to reach 2 million patients within two years, says Julie Bietsch, vice president of population health management at Dignity Health.
As anticipated, Dignity Health’s experience with the 90-day BPCI model started with financial losses in 2014, its first year in the program. The health system’s 25 hospitals in BPCI were able to turn around their performance, however, through patient construction of the needed infrastructure—and the assistance of the system’s risk-bearing partner, naviHealth, based in Brentwood, Tenn.
“When you have a partner who shares savings and losses with you, you know they are invested in your success,” Bietsch says.
But even with the financial assistance of partners, providers still need to find the revenue to launch and operate value-based payment models. Among the sources of funding Clay Richards, CEO of naviHealth, sees providers using are “double-digit savings in the post-acute care side across program.” Moreover, if a provider establishes clinically beneficial relationships with patients cared for under a bundle, those patients will be predisposed to view the provider as their preferred choice for ongoing care under the Medicare FFS system.
“So it is the best of both worlds where you are betting better-quality outcomes but the provider also is able to stay engaged and create a longer-term and more meaningful relationship with some of the patients,” Richards says.
In its first year in BPCI, Dignity Health focused on building the infrastructure to manage the program, which included naviHealth’s hiring of ambulatory care nurses to work in the skilled nursing facilities (SNFs) to which Dignity hospitals were discharging patients. Other steps included identifying the patients who qualified for bundles, performing assessments to confirm those findings, directing patients to the correct post-acute care setting, and helping to manage them there.
“Your year one is spent on building the infrastructure, so you have a lot of investment, and you typically do not do well financially in that year,” Bietsch says. “By year two, we got it. We knew what we needed to do, and we had data.”
That experience reflects the perspectives of Sean Henson, vice president of Irving, Texas-based Lightbeam Health, who says providers’ financial performance in value-based payment models most frequently turns around when organizations start making decisions based on data, rather than on feelings. Key advantages of expanded data use include the ability to identify low-spend patients those organizations are mistakenly focusing on because they do not qualify for the program, as well as missing high-spend and qualifying patients.
“The dramatic turnaround comes when organizations start to take seriously the breakdown in the understanding of data and how these plans work,” Henson says.
Analyses also identified which Dignity Health hospitals in BPCI had costly shortcomings, such as unusually high utilization post-discharge of long-term care hospitals (LTCHs) and inpatient rehabilitation facilities (IRFs). Other challenges included unusually large number of SNFs in a market, which created logistical hurdles for ambulatory care nurses managing post-discharge care. The system also created a list of preferred SNFs.
The improvements led to second-year reductions in the use of LTCHs, which average $40,000 per admission, from 6.4 percent of discharges to 3.6 percent. Similarly, patient stays in Dignity Health’s preferred SNFs decreased from 24 days to 19 days. And readmission rates dropped from 40 percent in 90 days to 32 percent.
Dignity Health’s second-year success also stemmed from hard lessons learned, including a need for the health system to limit its early ambitions. Specifically, the health system started in BPCI with two hospitals in all 48 available bundles.
“Don’t do that,” Bietsch says. “We learned you have to really understand where your opportunities are to manage. And those opportunities are not across all bundles.”
The health system’s BPCI experience is not unique, according to data reviewed by David Muhlestein, PhD, chief research officer for Salt Lake City-based Leavitt Partners. Only three types of BPCI bundles showed meaningful savings across the program, and the rest fell short, overall, he says.
The addition of an experienced partner by Dignity Health also brought financial benefits, such naviHealth’s ability to hire critical staff.
Also critical for success was remaining on top of the incoming clinical and financial data under the value-based payment model. Dignity Health found in some models they were not looking at the data frequently enough to identify emerging needs. Bietsch found value-based payment models frequently require examining patient data weekly, as well as looking for longer-term trends.
Henson’s hospital clients also have found BPCI success through the use automated care management, which tells clinical leaders when qualifying patients are discharged, assigns a care manager, and tracks whether patients keep follow-up visits. Such an approach is especially effective at managing readmissions.
BPCI wrapped up in September 2018 and its successor program, BPCI Advanced, launches in October. And Dignity Health’s experience has left the system confident it can participate—and succeed—in the new model.
Catholic Health Initiatives (CHI) is another not-for-profit health system that has moved aggressively into value-based care, with more than 839,500 patients cared for through value-based programs and payment models across all population segments.
“Three years ago, we went in a big way on developing value-based capabilities,” says Dean Swindle, president of Enterprise Business Lines and CFO for the Englewood, Colo.-based health system. That move has included managing the population health of more than 200,000 commercial plan enrollees through value-based payment contracts that include shared saving models, episode payments, partial risk, and capitation.
Another 215,000 Medicare beneficiaries are covered by the system’s accountable care organizations (ACOs) launched through the Medicare Shared Savings Program (MSSP).
And the largest group in value-based payments is the more than 225,000 Medicaid managed care plan enrollees that are covered by various value-based contracts.
But the aggressive push into value-based care came with steep costs, amid industrywide declines in patient volume. Such costs included the launch of an insurance plan and $100 million in other initiatives, such as the development of clinically integrated networks in the health system’s markets.
Amid operating losses that topped out at $585 million in FY17, the system moved to control costs—including those incurred through value-based payment. The system decided to move out of its health plan—the most costly part of its move into value-based payment—which reached operating losses of about $100 million and required another $100 million in reserves.
Kurt Wrobel, FSA, MAA, CFO and chief actuary of the Geisinger Health Plan in Danville, Pa., agrees that succeeding with a provider-sponsored health plan is difficult. Challenges include the need for specialized expertise providers typically lack, higher fixed costs and administrative costs, and the potential for significant financial volatility among smaller enrollee populations.
“You need some size to smooth out that potential variability,” Wrobel says.
Provider organizations also need to understand that insurers tend to have lower margins but a higher return on capital, and the competitive challenges among insurers can be much sharper in some markets than those faced by providers.
Another cost-saving effort related to value-based payment has come in its physician workforce, which had grown to more than 4,000 providers after more than a $600 million investment.
“We’ve been working on making that model more efficient to minimize operating losses and more effective in driving quality initiatives and others,” Swindle says.
Increasing clinical efficiency has included increasing productivity and maximizing network integrity. That effort has included reassessing all of its physician offices to ensure they are the right size, have the right services, and are in the right location.
“Minimizing network leakage helps in a FFS world but that is critical in a value-based world,” Swindle says.
Staff reductions have served a leading role in reversing the system’s financial losses in recent years, but the tactic ran into the frequent need for increased staff under value-based payment models. So the system made the strategic decision to cut staff in some areas so it could add staff in areas such as value-based payment models. After administrative positions were cut, the system used analytics to adjust bedside staff where volumes were declining.
“If a market had good payment rates over the last five to 10 years, they weren’t paying as much attention to costs,” Swindle said. “So there were some opportunities there to make them consistent with the existing staffing models.”
Although Medicare ACOs expect potentially significant rule changes soon, that model has emerged as one of the leading ways for organizations to gain experience managing a population, understanding what it entails, and how you achieve success under it, says Ken Steele, a principal at ECG Management Consultants.
Although various Medicare ACO models allow participating providers to operate either with or without downside risk, ACO results have been mixed around the country. In studying ACOs results to identify characteristics associated with savings, Leavitt Partners’ Muhlestein found some factors were significant but explained very little of the variation among ACOs. For instance, physician-led ACOs were somewhat more likely to find savings, but in some regions, hospitals had a greater likelihood of doing so.
Based on his analysis, Muhlestein’s identified two factors as being most predictive of ACO financial success. First, better performance is associated with the length of time that providers are in the program. “The organizations that stick with it get better over time,” Muhlestein says.
The second predictor of success is the size of each ACO’s financial benchmark. Those that start with a larger benchmark have found it is easier to save money, Muhlestein says.
One key to improved ACO performance Henson has seen is the use of data to help identify the low-cost patients attributed to those entities and making sure those patients receive care so they count toward the ACO’s total spend under end-of-the-year reconciliation. ACOs frequently lose the financial benefit of healthy patients attributed to them because CMS drops such patients from the ACO’s performance if they receive no care during the year.
Outside of Medicare, value-based payment models frequently are challenged by typically healthier populations in commercial plans, who have fewer care management opportunities to bring the costs down, Henson says.
Commercial payers’ adoption of such programs is only half as extensive as was anticipated in 2015, according to an HFMA survey of 117 senior health finance executives, sponsored by Humana. However, share of private payers adopting value-based payment doubled from 2015 to 2017, the survey finds. And rate of commercial payments coming through such models—24 percent—ranks second only to the 26 percent of payments coming through Medicare Advantage and Medicaid managed care plans. a
Among the keys to success Dignity Health has found in its value-based payment models with commercial plans is controlling high utilization of emergency departments (EDs). An indication that a hospital has excessive ED use is when such use surpasses the standard of 150 annual visits per 1,000 plan enrollees identified by Milliman.
“The industry is struggling with ED use across the system,” Bietsch says. “It’s struggling because there are so many factors that drive that use: 5 percent of [enrollees] drive a significant portion of our costs in the ED because of frequent utilization.”
Among the keys to success in such models, Dignity Health has found, is the development of an analytics team focused on tracking the incoming data and then integrate the results into the care team workflows to make needed changes.
Another lesson learned in commercial full-risk models that include medical risk is the importance of focusing on specialty Part B drugs. That focus should include ensuring patients taking such high-cost medications are taking the correct drug, compliant, and not eligible for lower-cost alternative medications.
In terms of which VBP model to choose, providers’ financial outcomes are more closely linked to their implementation than which one they choose, say industry advisers.
“Usually when they are successful it is because they have done all of the things to support success under that payment mechanism—they have the infrastructure in place, they have changed the way they deliver care across the continuum, they have the information technology to study outcomes,” says Terri Welter, a principal at ECG Management Consultants. “It’s not that this is a bad model or that is a bad model. When they have not done well it is because they have taken on a model that they were not clinically or operationally prepared to implement.”
Swindle says some markets will perform better in a value-based world than they did in traditional FFS. For instance, the health system has long had challenges with the FFS rates in Arkansas, and now the health system is pursuing a large, not-yet-public VBP model in that state.
Another key for hospitals and health systems analyzing their overall VBP participation is to understand what share of the potential earnings they are getting out of models in which they already participate.
Most hospitals and health systems analyzed by Charlotte, N.C.-based Premier earn only 10 to 20 percent of the VBP bonuses already available to them through commercial plans, says Joe Damore, FACHE, vice president of population health management for Premier.
Premier has found that part of the reason for such broad provider failure under commercial value-based payment models stems from contracts written to favor insurance company partners, Damore says. For instance, one contract required the participating health system to lower the medical loss ratio (MLR) by an “impossible” five points in one year, he says, instead of requiring an “incremental” reduction in the MLR over a longer period.
Another lesson for health systems operating multiple value-based payment models is that there needs to be aligned management of those models. Dignity Health created the position of a single clinical leader who is responsible for all the acute care case management, post-acute care, and ambulatory case management of the more than 1.2 million enrollees in its models with differing types of risk across the different models. The health system also implemented a unified clinical ambulatory care management system, which provided that clinical leader with a single workflow showing results from all the models’ ambulatory and post-acute care teams.
“This clinical leader can see what is happening from a clinical and financial perspective,” Bietsch says. “In her work flow, we can push cases to her for her team to manage—regardless of the type of risk model—and we can manage those with the same nurses. Then, she developed one complex care program that applied to all of them. You can’t afford to resource each model independently; they have to look for synergies to be aligned to be successful.”
Among the common success factors that Premier has found across various value-based payment models is the use of a hybrid approach involving both clinical and nonclinical staff working on care management and care coordination.
Premier has found this approach is needed because almost half the problems people experience are not related to clinical issues, Damore says, pointing to patient complaints such as “I don’t have transportation to get to the diabetic clinic once a quarter,” and “I don’t have pharmaceutical coverage for all of my drugs.”
Premier has found that addressing such so-called social determinants of health has as big a financial impact on value-based payment models’ success as clinical steps.
Some also find the multiplication of value-based payment models has carryover financial benefits amid industrywide declines in patient volumes and increasing consumerism.
Swindle says providers can use participation in valued based payment contracts to counter declining patient volume by becoming higher-performing organizations. “You make the experience for your customers and your patients better as part of the value-based strategy,” he says.
Aggressive participation in value-based payment models can differentiate a hospital or health system within a market and make more patients want to come to you for care, Swindle says. Moreover, the same technologies that help providers improve their cost-effectiveness and increase care quality can be used to engage with patients wanting better customer service and increased information under consumerism.
Provider experience to-date shows a wide range of financial outcomes and opportunities from VBP models. But the growing body of successful tactics also paints an increasingly clear picture that there are ways all hospitals and health systems can navigate to financial success within such models.
a. “HFMA Executive Survey: Value-Based Payment Readiness,” hfm, February 2018.