How to successfully operate with fee-for-service and fee-for-value reimbursement models

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Hospitals and health systems today are balancing the demands of two very different payment models: the traditional fee-for-service model and emerging fee-for-value arrangements, which tie a portion of payment to providers' performance on cost-efficiency and quality performance measures.

Both commercial and government payers are clear about their plans to shift toward value-based models, but the shift will take several years. In that time, healthcare providers must strike a delicate balance today, maximizing their fee-for-service reimbursement while strategically planning and preparing their organizations to take on more risk.

Hospital and health systems CFOs often feel like they are living in two different economic worlds. How do they pace this transition? How do they involve clinicians and physicians? What are the most pressing challenges of operating under dual reimbursement models? We asked healthcare industry executives — Michael Moody, senior vice president of partnership integration and development of Walnut Creek, Calif.-based John Muir Health System, Victor Jordan, CFO of Detroit Medical Center and Robin Kilfeather-Mackey, CFO of Lebanon, N.H.-based Dartmouth-Hitchcock Medical Center — for their insights and answers to these questions and more.

Question: As the healthcare industry moves to FFV reimbursement, which elements of fee-for-service are important to preserve, if any?

Michael Moody: Certain tertiary and quaternary services may always have fee-for-service elements, and you need to be thoughtful about moving away from fee-for-service in these areas. The decision is market-specific and influenced by the size of the population you will be taking risk for. Examples of this are transplant, trauma and burn units — essentially things that are more difficult to manage from a population standpoint.

Victor Jordan: In the fee-for-service model, we're always going to need to be paid for the services we actually provide in hospitals. The challenge is moving away from getting paid for each encounter and moving toward some kind of risk-based methodology. Hospitals would get paid for services we provide, but there has to be some kind of incentive to ensure they're provided at the right level of care. This would be in the form of a shared savings pool that would be distributed to providers based on quality and outcome measures as well total cost of care for the patient population in the risk program.

From a hospital perspective, we want to be sure we are part of the solution. In other words, as we take costs out of the hospital, we want to be a partner as far as sharing in cost savings for payers. These savings will result in lower overall cost of care for the populations whose health we manage. As providers meet certain quality and outcome metrics, as population health is improved and as there are fewer readmissions, the incentives are aligned for all the players — hospitals, physicians, post-acute care providers and payers.

If you look at the hospital providers in the Southeast Michigan or the Detroit areas, a minority percentage of the business is reimbursed based on fee-for-value. We still need to focus on the majority of our enterprise, which consists of fee-for-service. The basic elements of service line development, physician alignment, and quality and safety will never go away. To a great extent, penetration of risk payment models will be dictated by local markets and states. One area that providers should move quickly on, if not already, is risk models for Medicaid payers. Fee-for-service schemes for this payer are not financially sustainable.

Robin Kilfeather-Mackey: My organization is in quite a few different payment models that all have the underpinnings of fee-for-service. Fee-for-service is the principle way providers currently show the payer how their money is being spent and what services are actually provided. If fee-for-service goes away, the industry will still need to have some type of recordkeeping mechanism to track how — in theory — that money was spent. Today, many people also use claims information to track, manage and measure care. We will still need this type of tool in a fee-for-value world.

There are also health interventions that advance the health of populations that we don't get paid for today, such as preventive care. The industry will need to also begin to track health services we don't get paid for and marry it with outcomes and patient data flow.

Q: What are the challenges of operating in dual reimbursement models?

MM: There are inherently conflicts in some of the operating models. From a clinical delivery standpoint and workflow, you can't ask physicians and other providers to behave differently based on fee for service versus fee for value. If you're going to preserve value, you're going to cannibalize your fee for service value.

We created a Medicare ACO and reduced our Medicare revenue. We thought it was important to pursue and it was important to preserve costs. We were successful, but we aren't sure in the long-term if that's the best way to go. We've decided not to move forward with it next year.

The bottom line is that you can't ask your physicians and providers to do two different things. It creates additional risk in customer service, patient safety and outcomes.  Providing the right care, at the right time and in the right setting is what we should all strive for.

VJ: One of the challenges is for hospitals to accept the mindset that they're not going to be paid for every patient encounter, and they probably shouldn't be. If patients are being readmitted after 30 days at an excessive or pre-agreed upon rate, providers should realize financial penalties. We have to move toward the mindset that patients need a defined continuum of care when they leave the hospital, and we're financially responsible if the health outcomes don't materialize.

Another challenge is moving from the mindset that we're only responsible for what happens inside our hospital toward being responsible for managing the health of a population. It's hard for physicians to move to a fee-for-service model and focus on the health of a population because they are consumed with their day-to-day challenges of managing their patients. They will, more and more, be affiliated with physician organizations that will help them move to fee-for-value and population health management.

An example of this model we have used in Detroit to ready us for the next level of population health management is Detroit Medical Center's Pioneer ACO. On a per-member, per-month basis, we had the most success of any Pioneer ACO in 2014 for our 18,000 members. The amount of savings realized by CMS through our efforts was significant, and our physician partners as well as DMC shared in the savings, thus defraying our costs of running such an ambitious population health program.

RKM: We are currently running a lot of payment models in our organization. Although it is very expensive to keep a fee-for-service engine going, it still is the underpinning of most of our payment models. What we've layered onto it is the topside recordkeeping required to settle performance for the various different payment models. We've participated in a Pioneer ACO in New Hampshire and a shared savings program in Vermont. Each of those payment models required dedicated infrastructure, so I've been paying for multiple models. There's a lot of costly infrastructure duplication that drives me crazy; each [agreement] comes with its own administrative bell and whistle. For me, that's the biggest challenge: The economic burden of having duplicate infrastructure that is a non-value add from a patient perspective.

The dual environment also tends to be confusing to our providers. We want the provider to drive the patient care path and not be influenced by the payment model. Sometimes the payment model gets in the way or creates an unnecessary burden for providers.

Q: Are your physicians engaged in your fee-for-value agreements?

MM: Absolutely. We have two commercial ACOs. We're also pursuing a San FranciscoBay Area-wide network that will take capitation from the health plans that involve a fee-for-value product.

VJ: I don't think we have one fee-for-value agreement where the physicians are not engaged. You have to have physicians engaged. They're the ones who are going to determine whether you hit those targets or not. We need to get their buy-in on provider goal metrics and the protocols for success.

RKM: Up until a couple months ago, we've asked our physicians to care for patients in a payer-blind way, which means they shouldn't let patients' payer/plan have any influence on the care or treatment they provide.

Now we want our physicians to be payer agnostic, which means we do want the clinicians to understand the payer/plan the patient is covered under. The providers should be aware of the exact plan the patient is covered by because there could be extra services available with a certain plan that could enhance the care experience and/or help with treatment adherence. We want to make sure the patients can take full advantage of the services, and oftentimes that happens via the physician.

Q: How do you know when your organization is ready to assume more risk-based agreements?

MM: You're ready when you have organized physician leadership committed to working in a risk-based environment, especially at the PCP level. You have to have the infrastructure to support them in areas like disease and case management, ambulatory case managers and quality. If you assume risk-based agreements, you have to build the infrastructure for the physician — especially in primary care — to operate in a different way.

VJ: The key is to understand your market. How do you know when the market is ready to assume more risk-based contracting? If the market is ready for it, the organization needs to make sure they're ready for it. You can't say you're doing it if the market's not there.

Once the market's ready, hospital providers need to strategically plan with the payers and physician organizations to get the infrastructure in place to be ready to take risk. You need a lot of information technology because you have to share information as close to real time as you can across all providers. IT is a big part of it, as is the establishment of a strong physician network. You also need the right incentives in place for physicians to be able to manage the patient population, and you must have the right post-acute strategy as well.

It's a lot of blocking and tackling. Over time, if you do a couple of these [things] and you're successful, then you're ready to go further.

RKM: Our prior experiences with various government demonstration projects and the Pioneer ACO provided real life experiences with various types of risk formulas and attribution models. Therefore, we've gotten pretty experienced with a variety of payment models — governmental and commercial — and understanding when we're ready to take on more or a new type of risk and what our risk tolerance is.

This does not mean we have not been challenged by the methodology differences that may inherently have put us at a disadvantage when compared to our benchmark peers, but we went into these risk arrangements with our eyes wide open. Knowing our organization's risk tolerance lets us enter these types of arrangements with confidence, understanding our participation is helping influence the design of future models.

As risk threshold levels significantly increase, we are performing more in-depth assessments of our operational preparedness to be successful because larger economic impacts are at stake.

Q: What are you doing to prepare your organization for increased risk?

MM: John Muir Health has a medical foundation, which is the employment vehicle for physicians in California. We are using the medical foundation in conjunction with the oversight of a group of key physicians to develop all the workflow processes and how we leverage the IT system. We have to change the care models and allow the physicians with a team to care for patients that have complications such as diabetes and congestive heart failure. The physicians can't do that by themselves — they need a structure.

All of this is hard and rewarding work, because it's cultural change. You can't lose sight of the fact that you're asking people to change their behavior. It's hard and people feel threatened by it, so you need to be respectful of everyone. Everyone needs to feel like a partner in the process. Most importantly, we can't do things to people; we have to do things with people.

VJ: Although only 5 to 10 percent of our business is risk-based or fee-for-value, we spend 25 to 30 percent of our time working on it. We have a senior vice president of population health at DetroitMedicalCenter. It's his job to manage our risk, develop new platforms for financial risk and look at entering risk-based contracts. Physician network development and alignment is also a big focus.

We also are leveraging the small (but growing) insurance company we own. More and more, you're going to see providers entering the insurance market. If you're assigned a population, you're responsible for those people. If we can be responsible, we can have a fully integrated solution we can offer directly to employers. As insurance companies move into the provider space, more providers move into the insurance space, which is natural when you're moving into population health. At some point, we would like patients thinking provider networks are a more important decision than which insurance company they use. Providers are best suited to manage care and create value for the health we provide.

RKM: Aside from continuing to advance our understanding of methodologies and performance measurements, we've been doing a lot in the last 18 to 24 months.

In the infrastructure and foundation space, we've recently moved our organization to an Epic-based billing, scheduling and registration platform that seamlessly integrates with our Epic EMR. Now we have the whole revenue cycle on an integrated platform, and think that'll bode well for us as we advance toward more sophisticated payment models. Also in the last 24 months, we've affiliated with three other health systems and plan to bring them onto this new integrated platform over time.

We've also made some investments in enhanced analytics and created an Analytics Institute that brings all of our analytic tools and team members together. Working in concert with [Hanover, N.H.-based] Dartmouth College, we have much experience with big data. Now it is time to turn big data into actionable data that can be used to benefit our patients in real time.

We're also looking at modifying our physician incentive compensation model, which will be coming up in the next year.

We just developed a provider/payer-owned population health management company. We have a variety of affiliated and unaffiliated health systems in our region that are working with one payer to provide services and products that advance the health of our region.

The last thing we're working on is trying to understand how to use advanced automated tools to assist the clinical team. We want to make sure the clinical record of each patient is complete and the treatment plan encompasses all relevant health factors.

We are not ready as a health system to have full capitation, but we are getting prepared for that. Over time, we are looking to assume more risk and achieve an 80 percent risk profile. Fundamentally, we feel the closer we are to fee-for-value, the more funds will be available to improve health.

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