How to Prepare for Value-based Purchasing in 4 Steps

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Value based purchasingWatch a webinar on success with value-based purchasing featuring Bobbi Brown and healthcare consultant Jane Felmlee.

I spent many years of my career as a healthcare finance executive in the state of California, where I had the opportunity to participate in several groundbreaking pay-for-performance (P4P) initiatives. It was exciting to work with providers as they began to understand that payers were willing reimburse them for quality. One of the reasons this was such a positive experience is that the California payers had collectively determined what they wanted to measure, which meant that the quality measures providers needed to track were consistent regardless of payer.

Let’s face it: measuring quality is rarely so straightforward today. As a result, transitioning from fee-for-service reimbursement to value-based payments is a goal that many healthcare organizations embrace but are having difficulty implementing as they juggle a number of other high priorities.

In 2015 the Obama Administration set a goal of providing at least half the CMS patient care through so-called “value-based” arrangements by 2018. To gauge the healthcare industry’s progress towards value-based reimbursement, Health Catalyst conducted an online survey in May 2016. Seventy-eight healthcare professionals participated, representing 190 well-known multi-hospital and multi-state health systems. Over half of the respondents (51 percent) were CEOs or CFOs of large hospital-owned physician groups and hospitals ranging in size from 15 acute care beds to over 1,000 beds. The remaining respondents all held executive roles, including several Chief Medical Information Officers, Chief Medical Officers and Chief Nursing Officers.

According to survey results, health systems are making some progress towards value-based care but none too quickly. Currently, fewer than a quarter of U.S. hospitals are on track to hit the 2018 target. More specifically, just 3 percent of health systems today meet the target set by the Centers for Medicare and Medicaid Services (CMS). Only 23 percent expect to meet it by 2019, a year after CMS had hoped that half of all Medicare reimbursements would be value-based.

Survey results also indicate that the majority of health systems—a full 62 percent—have either zero or less than 10 percent of their care tied to the type of risk-based contracts identified by CMS as “value-based,” including Medicare accountable care organizations (ACOs) and bundled payments. Small hospitals (fewer than 200 beds) comprise the majority of those reporting no at-risk contracts. A contributing factor may be that smaller hospitals are five times less likely than larger organizations to have access to sufficient capital to make risk-based contracting work, according to the survey.

Despite lagging behind the federal government’s goal, healthcare executives across the board intend to steadily increase value-based care and at-risk contracts. In the next three years, all but 1 percent of respondents expect their organizations to be engaged in at-risk contracts. Sixty-eight percent said they expect risk-based contracts to account for less than half their total care in that time frame. Only 23 percent expect value-based care to account for more than half of their care in the next three years. A remaining 8 percent of respondents cannot predict the answer.

Though the industry’s slow movement toward value-based purchasing might suggest that the process is difficult, it in fact doesn’t have to be. Here are four steps your organization can take to prepare to manage value-based purchasing effectively.

1. Assess your current performance

A successful value-based purchasing strategy requires you first to understand where you stand now. Ask yourself about your past and current performance:

  • Have you had past quality-improvement strategies? What were the results?
  • How do you compare to peers and national benchmarks?
  • What are your top three areas for clinical and financial improvement?

You will also benefit from modeling the potential drop or increase in revenue by year and by payer for the various value-based programs. This will help you identify which programs and measures will be the most important for you to focus on.

2. Implement education programs

All levels of management, physicians and staff require education on the new value-based reimbursement environment. Such education improves buy-in for your quality initiatives.

A good example of how education pays off is Texas Children’s Hospital. The State of Texas is adopting a new APR-DRG payment structure. Since Medicaid is a big part of Texas Children’s business, hospital leaders knew they needed to make sure all employees understood what this change would mean to the organization. They got physicians very involved in determining the best ways to decrease costs to drive better performance under the new payment model. Now, with the help of physicians and other staff, the hospital is identifying and addressing areas of clinical variation and demonstrating quality and cost improvement.

3. Develop a healthcare analytics strategy

The effectiveness of any analytics strategy depends largely on two things: (1) the right approach to gathering and organizing data and (2) getting the right data to the right people to drive improvements. I advocate a healthcare enterprise data warehouse (EDW) that combines clinical and financial data as the best method for aggregating and optimizing data for analysis. And once you have the data, you want to make sure you have an infrastructure that allows you to deliver linked clinical and financial data to clinicians on the frontlines of care. The best approach involves creating permanent, frontline teams of clinicians, analysts and quality personnel who analyze the data to identify quality problems and determine the right protocol for addressing the problem.

Respondents to the value-based reimbursement survey identify analytics as the most important organizational element for success in risk-based contracting. In fact, 52 percent of respondents cite the prime importance of analytics, more than double the second most-selected answer: a culture of quality improvement.

You can find detailed recommendations on how best to do this here.

4. Identify areas for clinical quality and cost improvement

Identify the areas of greatest variation within the measures you choose to focus on. An EDW enables you to examine each measure by specialty, by provider and any other applicable grouping to pinpoint variation. Use the EDW as well to identify opportunities for waste reduction. This involves determining which clinical areas can benefit from increased standardization and evidence-based protocols.

Be sure to focus on cost structure rather than revenue increases. In a value-based environment, revenue increases will be small and will depend on your performance on quality measures. You must shift your focus to understanding how much it costs to deliver care and lowering those costs without sacrificing quality. Twenty-four percent of survey respondents cite cultural alignment on quality as having the most impact on value-based care success.

Learn more about preparing for value-based payments from Bobbi  Brown in her webinar Surviving Value-Based Purchasing: A Road Map to Success Under the New Reimbursement Model.

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