Tenet: Value-based care 'increasingly affecting' hospital operations

Many health systems are expanding value-based care strategies and taking a more nuanced approach to the site of service for care, but Dallas-based Tenet Healthcare warned investors that the "trend toward value-based purchasing and alternative payment models may negatively impact our revenues."

Value-based purchasing and alternative payment models through CMS and commercial payers tie financial incentives to care quality and efficiency.

These programs are "increasingly affecting the results of operations of our hospitals and other healthcare facilities, and may negatively impact our revenues if we are unable to meet expected quality standards," the for-profit health system said in a Form 10-K published Feb. 16.

CMS provides increased reimbursement to hospitals that meet or exceed certain quality metrics while those that see "excessive readmissions" for specified conditions receive reduced reimbursement. 

However, the COVID-19 pandemic threw a spanner in the works of CMS' quality measurement programs and Tenet expects there "will continue to be volatility with respect to readmission penalties in the near term." 

CMS also no longer pays hospitals more for the treatment of certain hospital-acquired conditions unless the conditions were present at admission. Hospitals that rank in the worst 25% of all hospitals nationally for HACs in the previous year receive reduced reimbursements. In addition, the ACA prohibits the use of federal funds under the Medicaid program to reimburse providers for treating certain provider‑preventable conditions.

Provider participation in some bundled payment models is voluntary, but other bundled payment arrangements are mandatory for providers located in randomly selected geographic regions. For example, CMS' radiation oncology model requires participation from radiotherapy providers and suppliers that provide services within randomly selected geographic areas that contain about 30% of all eligible Medicare fee-for-service radiotherapy episodes nationally.

Under the mandatory models, hospitals are eligible to receive incentive payments or will be subject to payment reductions within certain corridors based on their performance against quality and spending criteria.

"It is difficult to predict what impact, if any, these demonstration programs will have on our inpatient volumes, net revenues or cash flows," Tenet said in its annual report. 

Large commercial payers are also leaning into value-based purchasing and alternative payment models, expecting hospitals to report quality data, and several of these payers will not reimburse hospitals for certain preventable adverse events, according to Tenet. 

Value‑based purchasing programs, including programs that condition reimbursement on patient outcome measures, may become more common and involve a higher percentage of reimbursement amounts in the coming years.

"We are unable at this time to predict how the industry trends toward value‑based purchasing and alternative payment models will affect our future results of operations, but they could negatively impact our revenues, particularly if we are unable to meet the quality and cost standards established by both governmental and private payers," the company said. 

Tenet's revenue increased 7.2% year over year to $20.5 billion in 2023, while operating income was up 12.2% to $2.5 billion.

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