How cost management illuminates value-based reimbursement

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In the uncharted waters of pay-for-performance and value-based care, it's becoming harder for healthcare organizations to accurately predict revenue.

The Center for Medicare and Medicaid Services' (CMS') rules for episodic billing under alternative payment models (APMs) use complex algorithms to approximate the true levels of cost and reimbursement. And in many cases, the exact level of reimbursement will not be finalized until 36 months after the healthcare episode.

Under these circumstances, finance leaders are dealing with estimates when it comes to determining whether they are eligible to receive additional payments or liable to compensate for over payments. In both cases, a key tenet underpinning is the ability to determine and manage cost of care—even down to the case level. This has been an ongoing challenge for the healthcare industry.

Relying on existing IT systems to support cost management under fee for value is not a viable option for most hospitals, health systems and other healthcare providers. Finance executives will continue to find themselves using other IT systems, EHR workarounds and new workflow adaptions to understand and manage costs. This article identifies three cost-management strategies for finance executives to consider and describes how technology enables more effective expense control during uncertain times.

Three Areas for CFO Focus

The obvious place for providers to start when managing under value based reimbursement is expense control. In fact, according to the recent Advisory Board Annual Health Care CEO Survey , finding innovative ways to reduce expenses is the second leading C-suite concern in 2017.

Finance executives should begin by identifying items of service and cost that make a difference in overall case expenditures, but do not materially impact the quality of care. In surgical cases this may include use of lower cost prostheses and anesthetics with fewer side effects that result in higher levels of readmission, etc. A thorough review of resource utilization across the network reveals opportunities for savings through such common-sense strategies

Secondly, leadership teams should also understand repeated causes of revenue loss for their organization. Common culprits include:

• Patient leakage
• Poor quality of care
• Incomplete or insufficient clinical documentation
• Faulty eligibility checking
• Lack of prior authorization

Only when organizations correctly identify areas that are leaking revenue can they effectively realign services to prevent these losses. For example, identifying patients' needs to ensure they get the right care, in the right setting and at the right time plays a big part in managing costs. Primary care and outpatient visits are significantly less expensive than emergency department encounters. By investing in more effective patient education and engagement, visit behavior can be changed, presenting a significant savings opportunity in the majority of cases.

A third strategy is to improve discharge planning. Under value-based reimbursement, providers are not looking at single encounters within one specific care setting, but potentially across the many points of care including primary care, acute care, post-acute care, and rehab services. To manage the impact of episodic care across multiple care coordination sites, executives must think more effectively about discharge planning—including transitions between phases of care—to define the total cost of care. This is a complex undertaking since some of these points of care may be independent care provider organizations.

Each of these performance improvement areas—utilization review, patient engagement and care coordination—are easy to talk about, but difficult to accomplish without the support of appropriate IT solutions.

Tech's Role in Cost Management
Now more than ever, it is essential that systems support all aspects of healthcare clinical operations, finance, patient accounting, and other support areas. Data analytics platforms and population management systems need to be capable of drawing together and synthesizing data from all areas to illuminate new revenue risks.

An effective analytics platform is a key enabler in helping organizations manage key attributes of value-based care, including productivity, quality and cost. CMS has identified a number of APMs with stated goals of moving towards global budgets based on some form of global capitation.

Whether this is achievable for all organizations depends on a range of factors and the model chosen: membership in an Accountable Care Organizations (ACO), participation in bundled payments, MACRA and MIPS. The more organizations engage their patient populations and manage the health of their populations, the better their ability to understand and balance inherent risks. This is vital to effective planning and financial management.

Use of population management systems to provide a comprehensive view of patient health variables alongside predictive analytics will also become increasingly important. Providers should be able to identify patient-specific opportunities to intervene in emerging health conditions at an earlier stage. Early care intervention reduces costs while also improving outcomes. For example, providers must have the ability to identify high-risk patients before they become acute and keep them out of high-cost, high-risk modalities.

Furthermore, population management is increasingly a "whole organization" exercise where finance and clinical teams collaborate to provide the most clinically and financially effective patient care. By analyzing the organization's "frequent flyer" population, care teams dig down into underlying care gaps and ask the difficult, strategic questions to reduce cost and improve quality.

Meeting Value-Based Goals
A key requirement for effective management of value is for organizations to manage costs more effectively. Cost components such as best care modality, most appropriate resource, best drug therapy and outcome, most cost-effective prostheses for surgical cases, actions to reduce readmissions, all need to be considered. However, since CMS is going to estimate revenues and most EHRs are unable to support value based billing, there is lack of certainty on both sides of the finance equation: cost and revenue.

The onus lies on the organization to fully understand actual cost per case and what reimbursement would be provided under fee for service, and under fee for value. Only in this way can finance executives fully understand whether they are making money or not.

5 Cost Management Steps to Take Now
• Pinpoint highest costs and identify where in the process they can be reduced.
• Determine areas that are losing revenue and realign services.
• Think more effectively about discharge planning.
• Use data analytics to understand the risk pool.
• Use population management applications and data analytics to coordinate care for high-risk patients.

About the Author:
Jon Melling is a management consultant with over 30 years' experience working in health informatics in the United States and internationally. He also works with technology vendors looking to enter new markets or introduce new products into existing markets. Mr. Melling is a leading authority in planning for health information exchange and interoperability strategy. His specialties include IT strategies; systems procurement including negotiations, program management, change management, vendor business planning and marketing strategies, and eHealth strategies.

Mr. Melling is active in HIMSS. He is the Past Chair of the Health Business Solutions Committee, Member of the ICD-10 Task Force, the Revenue Cycle Improvement Task Force and the Alternative Payments Infrastructure Work Group. He is also Past President of the Arizona HIMSS Chapter and was awarded the 2011 HIMSS Chapter Leader of the Year.

The views, opinions and positions expressed within these guest posts are those of the author alone and do not represent those of Becker's Hospital Review/Becker's Healthcare. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.

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