How does value-based health care fit into the planning and budgeting cycles for health systems, hospitals, and physician groups? Industry experts agree that risk-based payment will dominate the future market, and most healthcare organizations now acknowledge its importance. Nonetheless, providers are cautious in moving toward value-based payment.
Moving to a value-based payment model involves change, but there are very positive aspects for providers that embrace the tenets of such a model. If strategies are well supported, value-based payment models can be used to propel the organization into growing new patient volume and relationships for balancing aggregate cost with predictable revenues.
Provider caution stems from a change in the meaning of value-based care. Whereas it first embraced quality and its effect on cost of care, the concept now is more closely aligned with cost reduction and risk-based payment, including accountable care organizations (ACOs) and bundled payments. However, there is no time for timidity, because value-based payment and financial risk are becoming reality.
Have a Value-Focused Cost Strategy
Value-based payment will inevitably mature in the markets of every provider, regardless of size, specialty, type of provider, or geography. Risk-based models will vary, but cost accountability will be imposed on everyone, together with reinforcing payment. Providers should prepare their strategies to ensure their enterprises are sound and they are ready for the changes in payment that will come with the industry’s new focus on value.
Most providers that have developed ACOs have had a time-limited opportunity both to ensure they have a sufficient market share of patients and to be able to practice under a value-based payment model while it was painless. The window is rapidly closing, as the Centers for Medicare & Medicaid Services (CMS) is insisting that ACOs move to downside risk within a short time frame.
Provider organizations should act now to view their cost data, measure cost performance, and create initiatives to reduce costs. Their agenda for realizing their strategic plans should include the following fundamental yet highly complex tasks:
- Establish a database for the analysis of costs, integrating both provider source system data and claims data, where available
- Implement cost performance measures from CMS and other sources, and request feedback from physicians on performance with both positive and negative cost impacts
- Construct episodes of care based on procedures as well as some diagnoses, for continuous evaluation of costs over time and variations in care
CMS recently released episodes and cost measures that reflect its future direction in holding providers accountable for costs, and these episodes and measures have interesting twists to tie costs into less optimal care. For example, an acute kidney injury could be caused by use of contrast material in imaging in susceptible patients, as well as from other causes. And inpatient exacerbation of chronic obstructive pulmonary disease raises issues of medication and treatment adequacy. CMS also is proposing a change to the formula for calculating costs per patient that will improve attribution of patients but hold both group practices and individual providers responsible for improving results.
Focus on Patient Loyalty and Retention First
Providers know that keeping within expenditure targets will be a top priority under value-based payment models. But they may be surprised to discover that a focus only on expenses will not land them in the lower tier of comparative costs. Healthcare organizations will need not only to reduce the costs of existing patients but also to attract new healthy ones to lower the aggregate—without cherry-picking.
Costs are affected by patient selection of every practice or hospital, not just tertiary or specialized centers of care. Aging, lack of growth, and underlying community changes all affect the patient population and its health risks, and therefore aggregate costs. But patients who are attributed to providers for expensive services and who then attach to outside primary care physicians once they are well also pose adverse cost effects. Loyalty matters, and providers must engage in pro-consumer activities if they are to effectively expand their populations of healthy patients and improve costs for ill patients.
In developing an action plan, it is most important to do so based on knowledge of current issues. To obtain such knowledge, providers should seek to identify weaknesses in current network and patient operations, including whether current patients are accessing care outside the system. Data will be essential for this analysis, as well as queries of patients, to provide detail beyond Consumer Assessment of Healthcare Providers and Systems (CAHPS) survey results. Providers also should identify gaps in services or quality issues—perceived or real—that cause patients to seek services elsewhere. They should track cases where patients obtain services elsewhere after seeing internal primary care physicians or specialists and seek to determine why they do so—whether it might be due to scheduling, communication, or confidence issues, for example.
One goal is to foster loyalty among existing patients while improving their health status to reduce the cost of care. In this respect, value-focused cost strategy should include efforts aimed at reducing the costs for patients with high-risk or intensive conditions.
Appeal to New Consumers
Building a growth agenda focused on older adults doesn’t make sense despite the preponderance of this population in a typical provider’s services volume. It is appropriate, however, to have different strategies for different generations and cohorts, such as Baby Boomers and the Silent Generation, because of the stark differences among them. Research on younger Boomers show them as less willing to accept authority, more technology-savvy, and consumer-oriented—differences that are magnified within still younger groups. Such preferences should steer value-focused growth strategies.
Younger consumers may still be working and/or caring for their own parents and children, and they need responsiveness to time demands on top of clinical excellence. These needs include the following, for example:
- Access to provider time, research data, and processes that enable value-based medical decisions
- Price transparency for comparison of costs with other providers
- Online scheduling and other conveniences
- Digital clinical information for second opinions or treatment comparisons
The Appropriate Role of ACOs or Bundled Payments
The primary aim of a value-focused strategy should be to optimize the provider’s participation in financial risk. The current value-focused care models include medical home/neighborhoods (including Comprehensive Primary Care Plus [CPC+]), ACOs, and episode-based bundled payments. Other options offered by health plans include narrow networks and Medicaid options. A health system’s chosen path will depend on the structure of the organization itself, especially with regard to its network.
Organizations that are specialty players should concentrate their strategy on using episodic bundled payments that can be marketed to ACOs and health plans, rather than on developing ACOs. A value strategy that includes ACO development will intensify the need for improving patient loyalty, improving cost results, and achieving new growth, with money on the line.
Regardless of the direction the organization takes, every value-based payment strategy must include a focus on managing costs along with enabling growth of the enterprise. The details of that transformation and the timing of each initiative are the hard parts. But they also support the case for building a thoughtful, data-driven strategic plan for delivering value in health care.