5 Must-Haves for Value-Based Purchasing Success

CMS will officially implement its Value-Based Purchasing program Oct. 1 of this year, withholding 1 percent of all acute-care hospitals' diagnosis related group payments in order to provide incentive payments to those hospitals with the highest quality scores.

While CMS' VBP program is one of the largest programs that seeks to pay providers based on value, the idea of "value-based" reimbursement for healthcare services, often referred to as "pay for performance" is increasingly being pursued by private payors.

"The wise payors in the market are doing this in partnership with strategic providers in the region," says Jim Evans, vice president, McKesson Health Solutions. Reimbursement based on value can be distributed in a number of models, ranging from fairly straightforward incentive payments or bonuses to bundled payments for episodes of care, accountable care models and capitated payments.

One of the more popular models currently in effect is incentive or "payback" payments from payors to providers that meet certain quality benchmarks for care. However, Mr. Evans says the industry will soon move beyond this, with providers eventually being paid case rates based on value or taking on risk for the outcomes of the care provided.

Providers may benefit by proactively reaching out to payors, if they haven't yet developed these sort of reimbursement models. "These partnerships would ideally give the provider the opportunity to influence the types of pilots as well as design reimbursement," says Mr. Evans.

However, preparing an organization for this sort of fundamental change certainly isn't easy. In fact, it can be difficult to know where to start. For organizations in this predicament, it's often best to start with the fundamentals. In terms of preparing for performance-based payments, Mr. Evans says there are five things organizations must have in place to be successful under advanced pay-for-performance or value-based models.

5 "must-haves" for success under value-based purchasing

1. An electronic medical record system and tools for clinical decision making. "They need to have an EMR. It's almost trite to say, but a strong repository of clinical data is crucial," says Mr. Evans.

Beyond an EMR system, health systems will eventually need to implement processes and tools — including evidence-based decision making and utilization management software, among other solutions — that bring outcome and quality considerations directly to the site of care, not as an afterthought or assessment completed after care is provided.

2. Care management competencies. Here, providers must be able to identify patients most at risk for chronic diseases, readmissions and costly hospitalizations and then have programs in place to better coordinate their care through preventative and care management services. Or, as Mr. Evans explains, providers must "develop a competence of delivery of care around data."

Identifying at-risk patients often requires collaboration with payors as payors have the data needed to identify and track these patients. "This will require a mindset shift that says, 'I can trust the data, and it's representative of what's going on in my population,'" says Mr. Evans.

3. An understanding of strengths. While it has always been important that hospitals understand their strengths and weaknesses, it will become even more critical as providers collaborate with payors on new models of reimbursement, particularly episodic models. Due to restricted resources, it's unlikely a provider can deliver the best value — that is the highest quality at the lowest cost — for all services. Instead, providers should identify service lines where they excel and continue to invest in them, using them as a selling point to payors.

"Providers need to make very strategic decisions on what to concentrate on as centers of excellence. They need to be much more selective at what they're going to get good at," explains Mr. Evans. "Then, they can 'sell' the services to payors at scale at a price point that allows them to be a preferred provider in the market without degradation in the revenue stream."

4. Clear knowledge of unit costs. "Many providers, for the first time, are trying to understand their cost by service A, B or C: 'What does it really cost us to deliver this?" explains Mr. Evans.

Traditionally, hospitals were more concerned with overall profitability of commercial contracts rather than specific services or procedures. However, Mr. Evans says that hospitals will increasingly be interested in adjusting (i.e., reducing) unit prices in order to be a payor's preferred provider — a designation given based on the value of the hospital's services. This can be beneficial to a hospital if the preferred provider status results in enough uptick in volume to account for the difference. "If I'm going to moderate a unit to be a preferred provider, the only way I can do that is to understand the overall profitability per service," says Mr. Evans.

5. Sensitivity to economic considerations. While the idea of value-based reimbursement is generally thought of as an element influencing provider-payor contracts, value will increasingly determine where patients choose to receive care. Accordingly, Mr. Evans believes providers will need to be able to provide clear cost and quality information to patients in order to remain successful.

"I think there has to be some change in the latency of financial information; it's not an afterthought. It's not just relevant to them as a provider; it's having greater and greater ramifications on the patient," says Mr. Evans. He believes providers that have some sensitivity to the economic status of patients will be best positioned. For example, if sending a test to Lab A versus Lab B saves the patient a significant amount of out-of-pocket expense, patients will appreciate selecting the facility that provides a greater value.  

He envisions a future where point-of-care systems will be available not only to help providers make better clinical decisions but also to help them make decisions that will deliver greater value in the delivery system.

More Articles on Value-Based Purchasing:

Value-Based Purchasing Requires Behavior-Based Hiring
Study Identifies "Break Even" Scores for Hospitals Under Value-Based Purchasing
8 Points on Dealing With Medicare Value-Based Purchasing

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