Value-Based Purchasing: Why Your Timeline Just Got Shorter

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CMS made a bold announcement in January 2015: It plans to ramp up its timeline for transitioning Medicare from fee-for-service (FFS) payments to value-based reimbursement. For the first time, CMS is being incredibly specific about its timeline and methodology. It plans to take the following two actions:

  • 30 percent of payments will be tied to alternative payment ACO or bundled payment arrangements by the end of 2016. Payments related to these models will increase to 50 percent by the end of 2018.
  • 85 percent of all traditional Medicare payments will be tied to quality or value by 2016 and 90 percent by 2018 through programs such as Hospital Value Based Purchasing and Hospital Readmissions Reduction.

At about the same time, on the commercial front, a group of payers, patients, providers, and purchasers formed a value-based coalition with similarly aggressive goals. The coalition, which includes Aetna, Blue Cross, Health Care Services Corporation, Ascension Health, and Trinity Health, stated that 75 percent of their respective businesses would be operating under value-based payments by 2020.

The transition to value-based purchasing (VBP) is necessary and important, but it is also giving provider organizations a level of heartburn that the newly accelerated timeline could exacerbate.

Challenges of the Transition to Value-based Purchasing

New payment models could create a significant financial burden for health systems. Medicare penalties for measures like hospital-acquired conditions (HAC) are starting to hit. In fact, more than 700 hospitals were hit with a one percent Medicare payment penalty for not meeting the HAC standard from 2011 to2013. Considering the fact that HAC is just one of many programs with penalties attached, one percent becomes a significant concern.

Providers are concerned that existing VBP models (the alternative payment models CMS referred to) are rife with challenges. These models are so new that the industry isn’t sure yet how well they are working. For example, the Lewin Group recently released the first analysis of the Medicare bundled payment program. The group’s conclusion was decidedly inconclusive: “We are limited in our ability to draw conclusions about the effects of (the Bundled Payments for Care Improvement program) because of the small sample sizes and short time-frames.”

Likewise, in response to CMS’s January announcement, the American Hospital Association stated, “We encourage the Administration to fully evaluate and improve on the delivery system reforms currently in place to ensure that we are learning from the pilot and demonstration projects to best meet patient needs.”

Simply put, VBP models need to be improved. Here are some of the specific problems that plague CMS’s models as they now stand:

VBP models

  • Incentives still aren’t well aligned with overall care delivery models. Providers have some dollars in VBP and some in FFS. Without better alignment of incentives, it is incredibly difficult to get providers to change the way they deliver care.
  • The upside/downside model of the Medicare ACO program wasn’t sophisticated enough to deal with provider organizations starting at different quality and cost benchmarks. CMS rewarded higher-cost providers that were able to lower their costs and penalized lower-cost providers that weren’t able to further lower costs sufficiently.
  • Providers didn’t have full control over the risk they assumed. Those participating in an upside/downside ACO model were responsible for the cost of the entire episode of care, even though they might have had no control over a particular outpatient physician or home health provider. Setting up all the collaboration needed to succeed takes time and effort. These ACO participants were getting penalized for care they didn’t control.
  • Beneficiaries have no incentive to seek care within the ACO; therefore, leakage is a problem.

The good news is that CMS is working to improve these areas. And, ultimately, despite the bumps in the road, we do know that incentivizing quality is delivering the most important result—better care for patients. CMS just published a report on quality metrics that showed that 95 percent of the 119 publicly reported measures improved between 2006 and 2012. We are moving in the right direction and getting the right result.

Preparing for Value-based Purchasing Success

Wise organizations don’t wait for CMS to iron out all of the kinks in its VBP models. Instead, they get started today improving quality and cost. An enterprise data warehouse (EDW) and analytics are key to help organizations make changes to meet whatever requirements for VBP will be set.

One thing that an EDW helps with is keeping track of all of the different VBP programs and measures. The days of being able to keep track of all of CMS’s and commercial payers’ programs with a spreadsheet are long gone. Not only is it difficult to track measures without an EDW—it’s also very difficult to make the necessary quality and cost improvements. An EDW helps organizations:

  • Track how they’re doing with each program and measure
  • Choose which measures to focus on for the greatest quality and cost benefits
  • Develop the right interventions to improve quality and cost
  • Track the results of the interventions

Healthcare is transitioning from a transaction-based, fee-for-service payment model to a value-based model designed to deliver higher-quality, less wasteful care at the lowest possible cost. An EDW can be the foundation to enable the sophisticated analysis necessary to be successful in an increasingly value-based reimbursement environment.

One pioneering, physician-led Medicare ACO, Crystal Run Healthcare, has implemented a healthcare-specific EDW to help them meet the many challenges of value-based purchasing. Like the majority of ACOs, Crystal Run still receives most of its reimbursement—approximately 80 percent—under the fee-for-service model, but the organization is beginning to experience the long anticipated shift toward more value-based reimbursement. To ensure financial stability as they assume more risk, Crystal Run is implementing a strategy focused on rapid growth. Crystal Run views its enterprise data warehouse (EDW) and applications as critical to the success of this strategy. This technology foundation enables the sophisticated analysis necessary to position Crystal Run for continued success in an increasingly value-based reimbursement environment.

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