From Surviving to Arriving: A Road Map for Transitioning to Value-Based Reimbursement

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I was given the luxury of reviewing the population health/ACO market and where Health Catalyst® might help its clients navigate this nascent space. After meeting with dozens of current and prospective clients to better understand their needs, two consistent questions stuck out:

  1. Why should I invest in reducing utilization when 90+ percent of my business is still fee-for-service (FFS)?
  2. Where do I even start?

These client and prospect questions revealed an unsettling disconnect: they didn’t align with the content being blasted out via mainstream healthcare outlets and advertised at the major HIT conferences (which seemed to be a lot of buzz around an imaginary silver bullet to reduce the cost of the riskiest, highest cost patients and that this was population health). How could our clients’ and prospects’ real pain points be so different from the solutions being sold and delivered?

It recently became clear why there is such a disconnect—the reality is that there is a lot of data and hype around the shifting economics in healthcare, but when it comes down to it, we are still living in an FFS world. A 2017 study by Philips highlights that reality—only seven percent of healthcare dollars are at risk; the other 93 percent are still FFS based. Having a few percentage points at risk for shared savings or quality measures from a small number of payer contracts does not constitute a true economic incentive (especially when nobody knows if they can even move the needle or how much it will cost to do so).

I am 100 percent bought into the premise that healthcare will not fundamentally change until economic incentives are aligned with the objectives of improving health outcomes at a lower cost, and that the incentives (or penalties) must be significant enough to drive new behaviors. But the fact is, we just aren’t there yet.

Destination Value-Based Reimbursement: A Road Map for Succeeding in Both Worlds (Shared-Risk and FFS)

On the one hand, this reality, combined with continued uncertainty about the direction of healthcare policy and how it will or will not impact the shift to a value-based world, makes it difficult for health systems to take action. Pretending like incentives are aligned is a dangerous endeavor that puts the financial stability of healthcare providers at risk. Many of them are surviving on razor-thin margins and don’t have the luxury of investing in what could be looked at as a risky experiment. Additionally, many of these leaders were burned by the failed HMO and capitation movement in the 90s, so they know that the reality of regressing back to our old ways is not implausible. And frankly, if I were in their shoes, I’d be overly cautious too.

On the other hand, you can’t just sit on the sidelines. You can’t flip on a switch and start operating in a value-based world. The fundamentals of how (and where) care is delivered and how you are paid are completely different. Getting a massive, complex organization to turn on a dime is impossible—it will take decades. So, what can health systems and providers do to make sure they are setting themselves up for success in a shared-risk world while facing the realities of living in an FFS world? Here’s a roadmap (Figure 1) to get you started:

Figure 1: Value-Based Reimbursement Roadmap

There are a couple important things to note about this roadmap:

  • This roadmap was created to address the top two client/prospect questions mentioned at the beginning of this piece: “How do I not damage my FFS business?” and “Where do I even start?”
  • This roadmap provides a strategy for pragmatic, tangible interventions providers can work toward—there is no single path for everyone, and each organization should assess its priorities based on its individual financial situation, readiness, and capabilities.

Given these caveats, here is a brief explanation of each stop within the roadmap:

Stop #1: Surviving

If you don’t get paid for the risk you take on, then you can’t survive in the long run. There are a few key revenue competencies to focus on that won’t damage (and can actually benefit) your FFS business:

Optimize risk adjustment: Risk adjustment is probably the most critical element to surviving an at-risk contract. The inherent risk of the population is real, and so is their utilization. If you aren’t getting compensated for that risk, then you are in trouble. The people caring for patients have enough to worry about without additional documentation work, so make sure you are arming your providers with the right technology, training, and understanding of why it matters to be able to impact this critical measure. Align incentives so they have a reason to spend time learning and changing the way they do diagnostic coding.

Maximize quality-based incentives: Make sure you understand how much you have at risk for the various quality measures across all your contracts (including traditional FFS contracts with quality bonuses/penalties). Leverage this information to strategically focus on the most impactful measures and create aligned incentives across your organization. Keep it simple—you can’t (and shouldn’t try to) move the needle on every measure.

Manage and minimize uncompensated care: The benefit plans for most at-risk contracts aren’t changing, and high-deductible plans and patient responsibility are increasing. This means that it is as important as ever to collect patient debts. Health systems should invest in the right processes and technologies, like mobile payments and machine learning to make this process better for everybody. We owe it to patients to make it easier to understand and pay their bills, while ensuring providers get compensated for the services rendered.

Stop #2: Sustaining

Numerous clinical interventions occur within the four walls of a hospital that health systems can focus on to help the bottom line in both economic realities. These interventions don’t require investing in new ways of delivering care or trying to change patient behavior outside of your purview:

All-cause patient harm: Patient falls, hospital-acquired infections, medication errors, etc., are hidden costs to most health systems. A 2016 article published in BMJ estimates that medical errors are the third leading cause of death in the US—a severely under-reported crisis, making it hard to act on.

A few people have given feedback that this, “is old news and isn’t population health,” so they ignore patient harm in their population health messaging. But not killing patients when they come into our hospitals is, without a doubt, a top population health priority and should be a part of every health system’s population health plan.

Not only do you typically not get reimbursed for the care delivered during one of these episodes (or you get penalized retrospectively), they also often lead to huge lawsuits and/or payouts that can total tens of millions of dollars each year across a large health system. It’s not easy to build the culture, processes, and technology to address this challenge, but it must be done.

Avoidable readmissions and length-of-stay (LOS): One way or another, most health systems are already getting penalized for readmissions and keeping people in the hospital longer than necessary. Building competencies to reduce these issues is good for patients and bottom lines, and will be even more important in a fully at-risk world.

Clinical process improvement: Optimizing clinical care delivery within your four walls can help reduce waste, improve outcomes, and increase margins regardless of the reimbursement model (because DRGs are basically just mini at-risk contracts). Identifying variation and following best practices in high-impact areas like sepsis, total joint replacement, etc., is a good place to start to build these competencies, and may directly or indirectly lead to financial improvements in these areas.

Stop #3: Succeeding

There is still a huge benefit to investing in changing the way you deliver care today, but I recommend doing it in a safe setting where your incentives are aligned (only for populations you are at-risk for). Not everyone can afford to invest in care managers, triage call centers, telehealth, etc., for an entire population when it may in fact damage their largest revenue stream. Be thoughtful and strategic about how you approach this. Build out and prove these competencies on a smaller population with aligned incentives so you can be armed to negotiate deeper alignment with key payers:

Care management for high-risk patients: We can’t overlook the importance of effectively treating the highest risk, highest utilizers. The opportunity is just too large. However, this is still an area with lukewarm results, at best—from what I have seen, death and leaving your network are the biggest contributors to lower cost in this area. That being said, new technologies, improved risk stratification, and patient engagement are showing promising early results. Start building out this critical competency thoughtfully—we must crack this nut.

Low-cost, targeted interventions for inlier populations: Everybody talks about the 5 percent that makes up 50 percent of the costs. But what about the other 95 percent of us that makes up the other 50 percent? We need to expand our thinking to include unnecessary ED visits, office visits, etc., that lead to unnecessary utilization. I call this inlier care management. The opportunity per person is significantly lower, but the overall impact is the same. I believe health systems can combine clinical data and healthcare analytics with targeted social media and marketing campaigns to cut out this waste at a price point that makes sense. For example, health systems need to leverage machine learning to identify populations that unnecessarily utilize the ED for conditions that could be treated in an outpatient setting and reach out to them directly (e.g., text or email) and indirectly (e.g., Facebook advertising) before they are likely to utilize the ED.

End-of-life care strategies: It’s time we openly address this topic as a nation—and it starts with individual providers and the patients they serve. Care in the last 12 months of life adds up to 25 percent of all Medicare spending (that’s $150+ billion each year). There is more research showing that not only is this care rarely improving outcomes, but it is also painful and tragic to patients and their families. Even though most Americans would prefer to die at home, only 24 percent of those over 65 do; the rest spend their last days in hospitals or nursing homes.

Get creative in engaging physicians, patients, and their loved ones to have the tough conversations early—it doesn’t help anybody to avoid these conversations. And handing out a paper pamphlet and an advance beneficiary notice (ABN) just isn’t cutting it. Make sure your patients understand the clinical, financial, and lifestyle ramifications of the various options, so they can choose the best treatment for themselves—this should result in more humane end-of-life experiences and lower costs.

Stop #4: Arriving

This is the ultimate destination, where the lines between traditional healthcare delivery and public health are blurred. I can’t imagine that we will get here as a country, even in my lifetime, but that doesn’t mean we shouldn’t strive to. Hopefully (and some systems are already working in this space), we can get the incentive pendulum swaying enough to make the following population-based initiatives feasible and sustainable:

Expand competencies from “sustaining” to the entire population: The first logical step is expanding your proven interventions to the entire population: care management, low-cost inlier interventions, and an end-of-life care strategy.

Policy, socio-economic, and community-based interventions: It is fairly well known that only a small percentage of health outcomes are related to actual care delivery, which means the rest is related to things outside the (current) control of health systems (e.g., socio-economic, behavioral, and genetic).

Eventually, I hope it makes sense for health systems to intervene at scale (or at least invest in) by impacting health outcomes by lobbying for policy changes, building community food programs, etc. But these interventions may take decades to see measurable improvements across a population, and unless state, community, and provider incentives are aligned and stable, it won’t make sense for anyone to invest in these long-term ventures. Fortunately, there are some very progressive organizations doing just this that give the industry hope.

Transitioning to Value-Based Reimbursement Requires a Pragmatic, Strategic Approach

It’s time the healthcare industry admits what it really is: a fee-for-service business dabbling in other areas. Hopefully, facing that reality with this value-based care roadmap’s four key stops and pragmatic, tangible strategies will help healthcare organizations start down the right road of successfully transitioning to a value-based reimbursement world.

Additional Reading

Would you like to learn more about this topic? Here are some articles we suggest:

  1. The Key to Transitioning from Fee-for-Service to Value-Based Reimbursement
  2. The Formula for Optimizing the Value-Based Healthcare Equation
  3. A Service Line Approach Improves Women’s Health at UPMC
  4. Against the Odds: How this Small Community Hospital Used Six Strategies to Succeed in Value-Based Care
  5. Surviving Value-Based Purchasing in Healthcare: Connecting Your Clinical and Financial Data for the Best ROI

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