However, many discover in the short run that moving too quickly to the value model can cost them potential revenue they need. On the other hand, starting too late can prove to be a competitive disadvantage. And on the frontier road between the two, providing the old model to some patients and the new one to others has its own pitfalls.
Momentum has steadily increased for the U.S. health care system’s shift away from its historic transactional orientation to a more value-centric one focused on the triple aims of reducing per capita cost, clinical quality and the patient’s experience of care. With the new emphasis on value, providers are moving to risk-based reimbursement, which aims to compensate providers and facilities for the value of the triple aims rather than units of service or procedures. Under fee-for-service, the provider is paid for every defined service provided. Under value-based, the provider is paid only for the defined value of those services to the patient and the insured population — the risk for providers is that they won’t measure up under the new metrics for value, resulting in lower reimbursements than in the past. Further complicating this transition for traditional providers is a variety of new delivery models (see figure below), all competing with them and each other to deliver more cost-effective care with improved customer/patient satisfaction.
While the fee-for-service model still prevails for most purchasers of health care, radical change is clearly coming. The U.S. government (notably, the Department of Health and Human Services, and the Centers for Medicare & Medicaid Services [CMS] — by far, the largest payer for health care in the U.S.) is leading the charge, shifting a majority of its health care reimbursement to value-based models by the end of 2018. Approximately 750 accountable care organizations (ACOs), aligned with the triple aims, are in operation already, covering approximately 23.5 million lives under Medicare, Medicaid and private insurers. Where CMS goes, the insurance industry cannot be far behind. Last year, 16 commercial carriers committed to changing 75% of their provider contracts by 2020 from fee-for-service to value-based, using various alternative payment models to fee-for-service.
While private sector employer HR executives are traditionally risk averse when it comes to sweeping changes in providing health benefits for their workforces, our latest research shows an accelerating shift to value-based benefit designs in the marketplace, including some direct contracting with ACOs. Early-adopter providers in these arrangements have tended to be those with prior experience managing defined populations and risk under managed care, while early-adopter employers have tended to be those with a strong commitment to advancing accountable care via value-based reimbursement.
Recently released data from Willis Towers Watson’s 2016 Best Practices in Health Care Survey of 540 large and midsize employers indicate that employers are planning an aggressive response to the shifting health care landscape, including transition to value-based payment strategies and plan designs. Nearly half (45%) use centers of excellence (COEs), a significant increase from just 37% the year before, with another 32% planning or considering it by 2018.
Few companies (8%) are contracting directly with providers today to secure improved pricing and greater value on medical services and services from COEs and ACOs/patient-centered medical homes (PCMHs), but that grows to nearly a quarter in the next few years.
Based on these trends, it is only a matter of time before this new value-based paradigm is fully embraced. Most providers have already begun the process of self-evaluation, planning and modeling, examining best practices, and seeking advice from others who are further along in this transformation process. Many health care systems are already modifying their organizational structures, compensation, leadership, culture, delivery models and information platforms to adapt as quickly as possible to attract value-based business ahead of local market competitors.
Bridging the gap between fee-for-service and value-based care
To alleviate many of the risks involved in navigating the transition to value-based care, timing is everything.
Starting the transition prematurely may leave potential fee-for-service revenue on the table, while starting too late may mean not having a desirable seat at the value-based-care table when finally ready. Moving too quickly through the process may lead to overlooking critical competencies, talent and proper infrastructure, whereas moving too slowly may lead to ceding market share to more advanced competitors. Those who choose to proceed alone may bear substantial design and execution risk alone, while those who proceed with partners must be careful to be strategically aligned to navigate differing priorities and coordination challenges.
For providers, then, there is a challenging gap period between managing health care proficiently and profitably under fee-for-service, and achieving the same proficiency and profit under value-based-care reimbursement. During this period, systems must cope with both paradigms for different subsets of their covered population concurrently. Simultaneously unlearning old fee-for-service habits, designs and operating processes while negotiating and implementing new value-based care models is challenging, complex and confusing for all stakeholders. This gap time presents a behavioral dilemma for providers since the financial consequences of alternative care options are no longer generalizable to all patients.
For example, does a hospital admission or readmission now represent profit or loss? Does telemedicine substituted for a doctor’s office visit save or cost more money? Providers often find it impossible to tailor their clinical behavior to the reimbursement method for each patient, preferring to practice the same way for all patients and some even regarding it an ethical imperative consistent with their Hippocratic Oath and professional obligations. A total shift to care designed around value has the benefit of encouraging the use of standardized, evidence-based care of the highest quality and reliability.
However, when to make the shift is a matter of debate even for providers that prefer making a clean break. At what point does it make sense to do it? While one might reasonably expect behaviors to change when more than half of health system reimbursement is value-based, it often begins earlier. During the 1990s shift to managed care in California, the most successful provider groups shifted to value-based care behavior for all patients when 30% to 40% of their covered lives were under global capitation. Coping with mixed financial impacts under mixed reimbursement methods adds to value-based care transformation challenges. However, we believe they can be managed.
Strategies to bridge the gap
With a clear understanding of the challenges in transitioning to value-based care, a number of strategies can be utilized to minimize risk and maximize a health system’s potential of success in this challenging period. Here are seven tips for successfully navigating the transition:
- Grow market share via wholesale (B2B) and retail (B2C) strategies.
- COEs, high-performance networks, ACOs: destination care for large employers
- Use company employees and their health plan as a learning laboratory.
- Self-insured employers gain immediate financial returns from domestic value-based care
- Embrace consumerism in parallel with standardization.
- Triple aim transparency is key for attracting incremental market share
- Master population health competencies.
- Team-based primary care delivery models (PCMHs)
- Clinical pathways, decision support, patient engagement, early intervention
- Perfect seamless handoffs across a continuum of care.
- Key to reducing avoidable readmissions, ER visits, excessive lengths of stay
- Requires coordination with providers outside and inside the system
- Use data analytics to identify gaps and perfect the care model over time.
- Don’t assume the natural progression of good data > good reports > clinical insights > value-based care behavior
- Embrace a commitment to a collaborative culture, effective leadership and attractive incentives.
- Fundamentals significantly impact provider engagement and behavior
Success in value-based care
To successfully bridge the gap in transitioning to value-based care, health system leadership should first take inventory of the organization’s vision, mission, values, preliminary strategy, budget, leadership, talent pool, employee value proposition, and alignment of the board and organization. Engaging a trusted third-party advisor to assess readiness for the transformation can then help organizations identify key questions, including whether the dominant players are ready for value-based care and how competitors are pursuing the transition. The answers to these key questions can be used by health system leadership and external advisors to create an individualized road map toward value-based care that identifies key priorities and dependencies.
Such a road map should accommodate learning and adapting over time while also having a clear definition of the timing of the steps toward value-based care with clearly defined roles for key players. Further, an effective road map toward value-based care will take into account an organization’s assets and liabilities, and take stock of contingencies available if needed. In addition to these elements, well-defined success criteria are necessary in the journey to value-based care. Once the road map is in place, leadership must engage broader staff participation, focusing on the following areas: care design and delivery model, population health data and analytics, value-based care financial/risk optimization, and change management. With the necessary planning and teamwork, health systems can successfully bridge the gap to value-based care, but it will often require a stretch.
