Mitigating Financial Risk in Value-Based Care Models

This article was first published in the Healthcare Financial Management blog on August 11, 2016.

ovczinrlhhupoafsouajThe shift from volume- to value-based payment is changing the financial incentives in the health care industry. New payment initiatives such as the Bundled Payments for Care Improvement (BPCI) Initiative and the Medicare Access & Reauthorization Act (MACRA) reflect new Medicare policy aimed at fostering the development of cross-functional, collaborative models of care. The healthcare community has embraced the essential concept of value underlying these initiatives.

However, the tactical details required to deploy such value-based care models have yet to be solidified. Strong policy will be most effective if the designers of the regulations collaborate with those responsible for operationalizing the plans. Providers should be proactive in developing models that achieve desired clinical outcomes while also keeping their financial exposure to a minimum.

Providers will continue to engage in conversations about the creation of value-based models not only with federal agencies such as the Centers for Medicare & Medicaid Services (CMS), but also with insurance companies, self-insured employers, and community organizations. Providers may want to explore the following topics during these discussions.

Collaborating with patients on desired outcomes, but offering a discrete set of services. One of the key challenges in value-based care is to determine the definition of value. Value is derived from a perceived benefit of receiving goods and/or services in exchange for resources. In health care, the level of value will vary from patient to patient based on factors such as demographics, personal history, service, and clinical expectations. Although it is essential for providers to help patients set personal goals, U.S. regulations prohibit providers from allowing patient preference alone to dictate care outcomes.

Instead, outcomes are treated as indicators of the effective delivery of clinical services, accompanied by measures of quality and patient satisfaction. Payment models should be developed to promote an approach to care for each clinical condition requiring that a discrete set of services be delivered to all patients that will ensure the needs of the majority of patients are met. Consideration then would be given to each patient’s need or desire for additional care that might be required to achieve the outcome stipulated under the payment model. The simplest short-term solution would be to offer any additional care at a payer’s negotiated fee-for-service rates. Once the value-based models stabilize, providers and payers may revisit how to optimally structure the bundles.

Incorporating accountability into an outcomes-based payment scorecard. Optimal outcomes depend upon patient adherence to clinical guidelines including smoking cessation, weight reduction, and medication adherence. Providers can prescribe, counsel, and encourage patients to abide by their recommendations. Ultimately, however, the patient has control over whether to follow these guidelines.

Care plans developed for value-based models should specify constituent ownership. Helping patients to understand that they are accountable for their own outcomes is an effective way to engage them in their care. Providers can support patients’ efforts to achieve their goals by leveraging patient engagement apps, telemedicine, and care coordinators. However, providers should continuously evaluate the effectiveness of these tools and provide only those support services that best motivate patients to achieve their accountability milestones.

Understanding the difference between costs and claims. America’s tradition of providing care in a not-for-profit environment has led to a lack of clarity regarding the true costs of care delivery. When an organization’s anticipated “bottom line” is zero, its revenue equals its expenses. This revenue-equals-cost philosophy has been adopted to the point that many people assume the amount paid for a procedure in the fee-for-service environment equates to the cost to deliver it. This simplistic idea of cost-accounting reflects an incomplete and inaccurate view of the actual costs of health care.

In the absence of properly allocated cost figures, providers will rely on claims data to calculate the baseline of their bundled payments models. Claims data are detailed and comprehensive, but they reflect the amount that a provider was paid for care, not the actual cost to deliver it. Providers therefore should undertake robust cost-accounting initiatives as part of the bundled payment development process to ensure they are not contracting for payment rates that are lower than the actual costs to deliver the agreed-upon services.

Preparing for the operational impacts of delivering value-based care. Value-based models are expected to transform the delivery of care. The goals of outcomes-based payment will not be achieved simply by offering a discounted rate on a collection of services delivered in a fee-for-service environment. Significant start-up investments and operational changes will be necessary. In fact, many health care organizations may find that the processes associated with prequalifying patients for value-based care alone will be operationally onerous.

Changes should be expected throughout the care delivery continuum. The hallmark of many value-based care models is a patient’s initial consultation with a cross-functional team that evaluates that patient’s history and clinical data. Providers should ensure that the necessary prework—including patient history questionnaires, comprehensive medication information, lab work, and imaging—is completed prior to patient’s arrival. Scheduling the patient’s encounters with each member of the cross-functional team also can be a challenge, because the availability of team’s multiple providers will have to be coordinated. The patient engagement activities required to encourage, track, and measure progress could become financially burdensome if not managed correctly. And of course, a reliable IT backbone will required to support the value-based care programs.

Setting milestones to measure success — and receive payment. In the fee-for service world, providers bill for services as they are rendered. In value-based care, providers may identify one dollar amount to cover all the services included in a bundle. However, the singular dollar amount should not represent one payment. Providers should receive payments for services delivered throughout the care pathway, as resources will be expended at each step of the way.

The number of payments should be minimal—perhaps two to four—because the billing structure will become more complex as the number of payments increases. One payment might be received after a collaborative care consultation and presentation of a care plan to a patient; another might be received after a milestone event such as a surgery is successfully completed. A final payment could be received upon the achievement of the specified outcome.

Prioritizing the deployment of models based on provider expertise. One of the best ways to mitigate risk is to reduce the number of unknown factors that could undermine program success. Care models, provider roles, patient expectations, and payment structures are all expected to change with value-based care. In this environment, providers should focus on what they do best, implementing value-based care programs first in specialty areas where they have significant expertise.

The confidence of the clinical and administrative staff is strengthened with such an approach. Care team members already know they can deliver excellent outcomes, so they can focus on addressing the operational challenges associated with delivering these outcomes in a new environment. Further, clinical expertise often correlates with high volumes of patients. Implementing value-based care for specialties with many patients can maximize resource efficiency. New programs will require continuous improvement, so incorporating feedback from a significant cohort of patients will be highly beneficial.

An Iterative Process

Implementing value-based care will be a challenging, iterative process. All participants—payers, providers, patients—should continue to support innovative solutions that improve patient health. The fair and measurable assignment of risk will ensure that all constituents are motivated to achieve clinical goals within a financially responsible framework.

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