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How To | Medicare Payment and Reimbursement

3 starter steps for health systems pursuing value-based contracts

How To | Medicare Payment and Reimbursement

3 starter steps for health systems pursuing value-based contracts

At a glance

To succeed under the new Medicare value-based payment models, health systems must:

  • Establish a team approach
  • Ensure providers are mindful of the need for accuracy in hierarchical condition category coding
  • Create a solid data platform for population health management


Are you ready for the move to two-sided risk required by Medicare’s new value-based payment models?

Whether a health system’s entry point into Medicare risk contracting is through Pathways for Success as an accountable care organization (ACO) or through either the new Primary Care First program or the Direct Contracting program, its success will be contingent on the clarity and focus of its strategic approach. First and foremost, there are three primary strategic imperatives for health systems embarking on risk contracts with the prospect of taking on downside risk.

1. A team approach is necessary for success

Using a team-based approach to care is a cornerstone for success. Change is always hard, but it is even harder without a team-based approach using advanced care practitioners and workflows that embrace a care team. Team-based care requires an interdisciplinary group of healthcare providers who work together collaboratively to deliver care for the health system’s patients. These teams typically include a physician leader and various combinations of nurses, physician assistants, social workers, case managers, pharmacists and other healthcare professionals.

Each team member brings a specific set of strengths and perspectives to complement those of other team members so the team, collectively, can deliver the highest-quality care possible for patients while closing care gaps. Building such a team requires first stepping back to understand all the work that a health system, department or practice needs to do for patients. This information can provide a basis for identifying who should be on the team to ensure the specific needs of the population and ecosystem are well-managed. Adopting an interdisciplinary-team-based culture can foster greater satisfaction among all team members, and among physicians in particular, as each member is able to work at the top of his or her license. It also can serve as a remedy for clinician burnout.[1]

These benefits are corroborated by the experience of Stuart Baker, MD, executive officer and president emeritus for St. Louis-based Navvis:  "Practicing team-based medicine — especially for chronic illnesses and preventive care — has been consistently shown to improve performance. Quality, productivity, efficiency and the joy of practice all increase. When clinicians and staff work together collaboratively in a disciplined fashion, the practice is better able to meet patients’ needs and increase access and capacity."

2. Emphasis on HCC coding can impact compensation

The second important step is to use ongoing provider education and chart review to instill in providers a greater attentiveness to accurate hierarchical condition category (HCC) coding. Accuracy with HCCs is essential to establish accurate benchmarks and receive fair compensation. For the new Primary Care First payment model, population-based payments are risk-adjusted to the average HCC score of the provider’s panel. And for ACOs in Pathways for Success and participants in Direct Contracting, they are risk-adjusted at the benchmark or expected population cost.

Success in any risk-based contract requires having an accurate expected cost as the organization’s starting point. Otherwise, it is akin to using an incorrectly calibrated scale as a basis for recommending to healthy patients that they need to lose 10 pounds. Such advice is not helpful to a patient if the baseline for it is inaccurate.

HCC risk adjustment is used to forecast future expenses based on current ICD diagnosis codes with associated risk scores and weights along with demographic factors that correlate to expected costs. The risk score is calculated at the patient level and then is rolled up to panel or population level, which is factored into the score to determine its predictive cost. The risk score is adjusted so ‘1’ represents the mean or average expected cost for the population. A score of 0.9 means the population is 10% healthier and a score of 1.10% means the population is 10% sicker.

Put in financial terms, if the average patient cost is $10,000 (risk score of 1.0), then a 0.9 risk score means the expected cost of the patient is $9,000. If the health system has a population of 10,000 patients, Medicare’s or the health plan’s expected cost is $10,000,000 less ($1,000 × 10,000 patients = $10,000,000). If 0.9 is accurate, the health system can expect to be successful. An inaccurate starting point, however, yields a lower benchmark for the population than the actual cost, resulting in lower population-based payments under the new models.

The CMS-HCC Risk Adjustment model is now used by Medicare Advantage plans and ACOs and in the Comprehensive Primary Care Plus (CPC+) model and the new models under Direct Contracting and Primary Care First. And a similar HCC model is used for all commercial members on the health insurance exchange established by the Affordable Care Act.

Most value-based population programs aim to bend the cost curve by 5% to 7%, which is entirely possible with the right initiatives. However, a health system will face insurmountable difficulties, and its providers will be unfairly penalized, if it starts with a 10% handicap due to poor HCC coding and is unaware of the situation.

Moreover, the problems posed by such a system are compounded by the use of this inaccurate data by CMS and its actuaries to predict future costs for the Medicare Trust Fund. It is critically important for those estimates to be accurate for the future benefit of a health system as a Medicare beneficiary and taxpayer. The lesson here, therefore, is that health systems need to educate their providers on the full scope of the rule changes, giving them financial examples to impress upon them the importance of proper coding, to ensure the true acuity of every patient panel is recognized. Then the primary focus between now and the end of the year should be on educating providers in three areas:

  • The importance of ICD-10 specificity
  • The HCC codes for the top chronic conditions for the patient population
  • The importance of accurate and complete documentation that supports the diagnosis

Health systems should invest in chart reviews to ensure this education is timely, and they should ensure patients undergo annual wellness visits to capture all relevant diagnoses and to improve patient attribution.

3. Data to support population health management

The third key to success for a health system under new value-based payment models is to make effective use of data to identify and develop its top initiatives and then widely communicate its goals around those initiatives. Moreover, if the health system is to achieve these goals, it also must provide actionable reports. Success with such efforts start with having the right population health platform. An effective platform can:

  • Provide accurate measurements on gaps in care, quality, cost and utilization
  • Allow for the use of analytics to stratify patient cohorts (e.g., risk, diagnoses, cost or utilization) for care coordination and for population health initiatives
  • Help clearly identify areas and drivers of high cost and utilization

It also is important to make optimum use of the population heath platform. The best-practice approach is to use data from the platform to identify three to five strategies each year for lowering the health system’s cost, improving its quality of care and closing gaps in care. For example, data may show high rates of readmissions, indicating a need for discharge planners to ensure patients are scheduled for post-discharge visits with their primary care physicians to improve transitions in care. Or it might point to low-quality scores in preventive screenings, such as diabetic eye exams or colorectal screening, where patient outreach campaigns could close gaps and improve outcomes.

An essential step is to furnish providers, care teams, coordinators and management with timely reports that support these strategies and can be acted upon. Providing transparent comparative analytics and sharing best practices fosters change and drives results.

The big picture: Top areas of strategic focus

In addition to the three starter steps, there are many other strategic considerations health systems need to address to succeed under value-based payment models, no matter what level of risk the health system is taking. The Office of Inspector General (OIG) issued a report in July 2019 with findings of a study of 20 high- performing ACOs and the strategies they had used to successfully reduce spending and improve quality of care.[2]

The OIG lays out strategies that fall into seven broad categories:

  • Working with physicians
  • Engaging beneficiaries
  • Managing beneficiaries with costly or complex care needs
  • Managing hospitalizations
  • Managing skilled nursing and home healthcare
  • Addressing behavioral health needs and social determinants of health
  • Using technology for information sharing

“These strategies can apply not only to ACOs but also to other providers committed to transforming the healthcare system towards value,”  the OIG says.

The OIG also highlights an adage from an ACO official: “Changes happen by just making [physicians] aware of the data.” This adage is true for administrators, as well.

Based on the author’s experience, once a health system has addressed the three strategic imperatives described here, its ability to be successful under value-based payment models also will depend on how effectively it accomplishes the following additional actions:

  • Building an Annual Wellness Visit  process that utilizes data to identify  care gaps, and then implementing daily huddles and integrated care teams to close those care gaps.
  • Reducing unnecessary emergency department (ED) utilization through care coordinator diversion programs or by targeting frequent users of ED services.
  • Ensuring patients have post-discharge/transition care management visits with their primary care physicians to reduce readmissions.
  • Reducing post-acute-care spend by moving toward developing high-functioning post-acute-care networks and the use of three-day skilled-nursing-facility waivers.

Health system leaders also should undertake five actions that promote success under value-based contracts.

By focusing on all these areas, a health system can successfully navigate and succeed across value-based contracts. With a team, an accurate map and the ability to track its course, the health system can use its value-focused strategy to achieve greater transparency and succeed in improving patient outcomes, lowering costs, generating revenue and increasing provider satisfaction. 

[1]  Smith, C.D., Balatbat, C., Corbridge, S., et al., Implementing optimal team-based care to reduce clinician burnout, National Academy of Medicine, Discussion paper, Sept. 17, 2018.

[2]  HHS Office of Inspector General, ACOs' strategies for transitioning to value-based care: Lesssons from the Medicare Shared Savings Program, Report in Brief, July 2019.

About the Author

Sheila H. Fusé

is senior vice president, policy and payment models, Navvis
(Sheila.fuse@navvishealthcare.com).

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