Five steps to enhance margins in a volume or value world

In what seems like a weekly occurrence, press and political pundits are promoting conflicting messages about healthcare’s movement from fee-for-service (FFS) to value-based payment models.

On one hand, Medicare cancelled its mandatory bundled payment programs late last year, and we’ve recently seen an exodus of accountable care organizations (ACOs) from Medicare’s Next Generation ACO Model.

Yet, in January, Health and Human Services Secretary Alex Azar used one of his first public appearances to suggest that value-based care “needs to accelerate dramatically.” Furthermore, private sector momentum continues to grow, with the nation’s largest private payers now paying out approximately half of their reimbursements via value-based models.

Through this volatility, one fundamental truth is clear: While the future of value-based contracting is foggy, the industry remains committed to the value-based care concept. And we have to, given how much we spend on healthcare with inconsistent quality outcomes in return. With expenses rising faster than revenues even for high-performing systems – all at the top of a strong economic cycle – providers have a minimal margin of error to make value-based investments that don’t yield a positive return, or even reduce top-line revenue.

Now more than ever, it’s critical for providers to both drive revenue and margin growth, while also preparing for an uncertain value-based payment future. Following are no-regret strategies providers can pursue now that, if completed in succession, can help achieve these dual purposes.

1. Emphasize in-network customer keepage
Studies suggest a five percent increase in customer retention can increase an organization’s profits by 25 percent to 95 percent.

As with any other consumer-centric industry, maximizing in-network “keepage” of existing patients is essential to driving revenue capture. Providers should focus on retaining customers by building tight provider network relationships through technical connectivity, a shared referral management infrastructure, and common standards for access, quality, and cost.

2. Consider Medicare Advantage (MA) partnerships
Rather than focusing on FFS through standard Medicare ACO arrangements, many providers are turning to MA to achieve network objectives. Among the reasons, MA plan benefit design:
- Aligns with providers’ value-based strategies with its focus on care quality and in-network utilization;
- Creates revenue opportunities above traditional Medicare and other commercial sources, without compromising FFS revenue;
- Offers providers flexibility in building a pathway from value-based upside contracts to those with partial and full capitation.
As MA increases in popularity, plans must implement strategies that enhance their value to beneficiaries and Medicare, and preserve enrollment. According to a Navigant analysis, increasing a plan’s MA star ratings is key to attracting new enrollees and increasing revenue.

Improving star ratings requires enhanced payer-provider collaboration through value-based MA arrangements. Such partnerships offer opportunities to increase plan satisfaction and quality, and share the financial benefits of such improvements.

3. Engage physicians to drive internal clinical standardization
Physicians can be engaged through a Hospital Quality and Efficiency Program (HQEP), a contract between a health system and an ACO or clinically integrated network (CIN). HQEP benefits include:
- Serves as a vehicle for rewarding physician quality and efficiency achievements while maintaining regulatory compliance;
- Provides a funding mechanism for ACO infrastructure development; and
- Generates savings that provide a payback to the health system.

HQEP participation was key to helping Flagler Hospital better collaborate with physicians to reduce length of stay by 65 percent and save $3 million in one year.

4. Focus care coordination on patient populations driving negative margins
Deploy your most intensive population health capabilities to serve Medicaid patients and uninsured, populations for which payment does not cover the cost of care, and where community need is the greatest.

Take Chicago-based Medical Home Network, which virtually integrates more than 20 academic medical centers and community hospitals with more than 300 primary care providers through patient-centered care and real-time data sharing. Doing so has helped providers improve the health of more than 180,000 safety-net patients through reductions in emergency department use and patient length of stay.

5. Reduce total cost of care in targeted areas
While providers should not deconstruct their business models while still being paid on a FFS basis, it is possible to reduce total cost of care to: 1) deliver on community missions 2) ward off competitive threats 3) capture benefit from value-based contracts, and 4) create a mutually beneficial relationship with payers.

Focusing efforts on such discrete areas as post-acute care, pharmacy care, and management of high-risk patients is essential to clinical and financial outcomes. Iowa-based UnityPoint Accountable Care, one of the nation’s largest ACOs, points to post-acute care as a reason for its success in its first year of Next Generation ACO participation, and why it’s well-positioned to thrive in such models going forward.

While the transition to value-based payment models has been slower than anticipated, the shift to value-based care remains inevitable. As such, “business as usual” or “doubling down” on costly value-based care investments is not an option. Instead, provider executives should use value-based care strategies as a vehicle for driving revenue and margin growth in any scenario.

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