4 KPIs to Increase Profitability Under Value-Based Payment Models

September 10, 2018 2:47 pm

An organization could have an extremely streamlined and compliant revenue cycle management department but still suffer financially due to its inability to contain costs and manage population health.

These days, every healthcare organization needs to improve its bottom line. Increased revenue allows organizations to invest in the latest technology, staff sufficiently, purchase physician practices, market service lines to patients, and more. However, organizations participating in accountable care or other types of value-based payment arrangements face unique challenges when trying to increase profitability. Monitoring traditional, financially focused key performance indicators (KPI) may not be sufficient in a value-based payment world. That’s because organizations ultimately earn more money when they lower costs and keep patients healthy and away from high-cost, resource-intensive services. John Kelly, principal business advisor at Edifecs, shares his thoughts on how and why KPIs are changing—and what we can expect in the future as organizations enter into more value-based contracts with payers.

What KPIs should organizations monitor if they want to increase revenue under value-based payment models?

Kelly: Increasing revenue shouldn’t be the sole goal. Organizations need to think about net profit—not total revenue. For example, some hospital leaders may assume that if their organization makes more money than it did last year, then it’s doing well financially. This may not be true.  They need to understand that theoretically, you could have a more successful business with less total revenue if you’ve got a higher margin. Value-based care is about changing financial incentives from volume to value and population health. It’s also about providing quality care at a lower cost. If a payer pays $1 for care, do patients actually receive care that’s worth $1? Does that care make a positive difference in terms of outcomes, and did the provider strive to contain costs as much as possible without compromising quality? This is what payers want to know.

Traditional KPIs, such as days in accounts receivable, volume of claims denied, or cost to collect, are not as relevant because they don’t capture the quality of care that’s rendered. An organization could have an extremely streamlined and compliant revenue cycle management department but still suffer financially due to its inability to contain costs and manage population health. Rather than focus solely on financial efficiency, organizations that want to increase profitability should monitor these KPIs instead:

Emergency department (ED) rates. Some payers specifically require organizations to stay below a certain volume of ED visits annually as a pre-requisite for shared savings. Others use it as a general barometer of the quality of care patients receive throughout the system and factor it into future payment rates. Regardless, organizations should monitor their ED rates closely and implement outreach programs to engage patients in primary or specialty care with the overarching goal of reducing ED visits.

Readmission rates. Some payers also specifically carve out readmission rates as part of a shared-savings contract while others use it to assess quality of care for future payment rates. Preventing readmissions often requires a coordinated effort that includes transitional care management, medication reconciliation, and patient education.

Admissions per thousand patients. Organizations should monitor this KPI and strive to reduce this number through patient engagement in chronic disease management. For example, consider monitoring patients with congestive heart failure (CHF) to identify those individuals at risk for an admission. Many electronic health records (EHR) include algorithms to help physicians assess populations based on their symptoms so they can outreach those individuals before an exacerbation or complication occurs.

Number of potential opioid abusers identified per day. Payer contracts could include a benchmark for identifying opioid use and abuse as a prerequisite for shared savings.

Ultimately, KPIs will move away from balance sheets, ledgers, and numbers to data that’s being collected and managed in the EHR.

What are some of the challenges that healthcare organization will encounter now that KPIs will become driven by EHR data?

Kelly: When you think about getting KPI data out of an EHR, you need to remember that every EHR implementation is different. There are huge differences in terms of usability, deployment, and training that can affect how this data is captured. That makes it difficult to establish benchmarks and compare KPI data across healthcare systems. This isn’t true for financial data. We also don’t know the actual effect of these new KPIs on profitability. We can assume, for example, that if ED visits go down, our profitability will go up, but there often is not a clear and direct correlation.

How can organizations ensure that the data driving these new KPIs is accurate?

Kelly: Organizations need to look at their methods of data collection. A single health system could include physician practices of various sizes and in various locations, some urban and some rural. Do doctors capture the same data in the same way? Recording dollars in a ledger is different than capturing clinical data and risk factors. These are questions we need to be asking. We need to validate and then change processes when there are discrepancies. We also need to automate some of the data collection. Automation decreases the burden on the data collectors, and it also reduces variation.

Do financial KPIs have any place in value-based payment models?

Kelly: Yes. Any prudent CFO will keep the old KPIs in place and continue to watch them because they do provide some insight into overall performance. For example, if your total revenue is going down, you better be getting a much higher margin. If not, then there’s a problem. As we obtain more data, hospitals will start to do a much better job at cost-allocation models so they understand how much it actually costs to see a patient for an episode of care. Importantly, better quality of care is about behavior change on the part of patients and providers. Once we have good cost allocation data, and the community standards of care normalize with significant reductions in quality deviation, we may actually trend back toward many of the old-fashioned KPIs because they’re more meaningful—the underlying data is better.

What do you think will happen if and when organizations begin to incorporate more patient-generated data and outcomes data into the EHR? Will or should this data affect value-based payments?

Kelly: Patient-generated data is critical. Organizations can also potentially use real-time patient-generated data, for example, to predict when an ED visit or readmission may be imminent. For example, if you can view a patient’s blood sugar continuously, you’ll be able to intervene when levels spike or plummet. You can also use this data to show improvements to payers for an entire population and ask for more favorable contract rates. But we’re not there yet. Physicians need to be able to trust the accuracy of the data, and the data also needs to flow seamlessly into the EHR and be presented in an actionable format.

Patient-reported outcomes data is also very important in the world of value. We spend a lot of time deciding what constitutes “value” to patients as opposed to letting patients decide—and paying providers based on patient-reported outcomes and quality of life. As we continue to move toward value-based payments, we’ll need to look at KPIs such as how quickly are people getting back to work after a knee replacement or sexual dysfunction rates one or two years after treatment for testicular cancer. Ultimately, if we’re truly moving toward consumer-centric care, then our payments should be tied in some way to this data.

Interviewed for this article:

John Kelly is a principal business advisor at Edifecs. 


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