Exploit vs explore: balancing focus on legacy business model while evolving in a dynamic environment.
Business leaders across industries can appreciate the importance of balancing exploration of new opportunities with optimizing the existing business model. Strategists have termed this the “explore vs exploit” paradigm. Health systems, like all businesses, must balance their traditional business models while exploring new opportunities for evolution and growth. With market dynamics continuing to stress financial margins for many health systems, it is tempting to overfocus on performance in the status quo, but this can inadvertently drive organizations to limit their potential for advancement.
Health systems are navigating increasing short-term challenges, underscored by the fee-for-service economic headwinds as reimbursement increases remain below current and expected inflation. Most recently, CMS’s proposed 2025 IPPS rule increase of 2.6% for inpatient hospital payments highlights the ongoing struggles health systems face amid rising costs. It is understandable to focus organizational resources on near-term initiatives, but organizations should be intentional about exploration in this rapidly evolving landscape. CMS’s flagship Accountable Care Program, the Medicare Shared Savings Program (MSSP), provides a structure for intentional strategic exploration and learnings, even for systems not fully committed to value-based care (VBC).
Participating in MSSP can provide health systems with strategic insights and capabilities that may not be garnered otherwise.
While MSSP is specifically targeted at VBC development, it also offers a formal structure for understanding your organizational strengths and weakness within the context of your current business model. For example, regular reports shared by CMS on accountable care organization (ACO) cost and utilization performance provides a wealth of information that can be used to refine system strategies, structure downstream investments and enhance physician alignment. These reports can also position a system to develop and highlight its value proposition for maximizing its potential with payers regarding other value-based care contracts.
MSSP insights can support system strategic development with:
- Performance analytics that offer enhanced insights into network integrity, specialist referral patterns and System of CARE partners
- Post-acute insights that can support development of preferred networks focused on ease of admission/transfer, readmissions and length of stay management
- Shadow bundle data that can navigate a system’s strategy around episode-based bundled payments—especially important given Center for Medicare & Medicaid Innovation’s proposed mandatory Transforming Episode Accountability Model (TEAM), an episode-based bundled payment model for select markets
MSSP focal areas can also provide a structure for related investments, including:
- Refining care coordination and high-touch primary care to improve outcomes and cost management for complex patients
- Identification and management of potentially avoidable admissions, coupled with moving care upstream—can ease staffing burdens while opening up capacity for the highest need patients
Similarly, MSSP can provide a program for advancing physician engagement through:
- Structure for facilitating physicians’ active participation in governance and decision-making to support the achievement of quality and utilization goals
- Identification of physician leaders who are engaged and effective in leading efforts to support transition to total cost of care models that yield improved quality, outcomes and patient satisfaction
MSSP enhancements create a re-entry point for prior MSSP participants. Systems that were early participants in MSSP, but exited the program due to negative experiences, should look at the exploratory benefits of re-entry for a renewed perspective on MSSP participation, such as:
- Changes in technology, analytic capabilities, benchmark methodologies and the marketplace
For organizations evaluating long-term potential in VBC, industry learnings demonstrate how MSSP can play a more reliable and impactful role in health systems’ business models.
Participating in MSSP does not constitute an “all-in” approach to value-based care, but it does offer a jumping off point for establishing the experience and resources needed to manage total cost of care strategies that offer downstream revenues. For those systems that have explored MSSP as a complementary strategy and have stayed the course, they are seeing greater returns on their performance results.
A Vizient analysis of 2022 MSSP results (see Figure 1) highlights how VBC performance takes time, often 3 to 5 years, to see enhanced financial performance. Organizations moving toward value should be encouraged by this ACO performance trend knowing that impactful results can take time. The analysis highlights ACOs in their third and fourth agreement period delivered greater gross savings compared to ACOs in their first agreement period.
Those increased returns over time can also be expanded as systems appropriately transition to two-sided risk models that bring greater opportunity for earned shared savings. For example, by participating in the ENHANCED track of MSSP, an ACO in its fourth agreement period could more than triple the amount of shared savings its peers in agreement period 1 receive via participation in one of the no-risk MSSP tracks (see Figure 2).
Overall, health systems evaluating their participation in MSSP should consider (1) the VBC trajectory for their organization and their market, as well as (2) the strategic exploratory benefits from the learnings and capabilities built.
With the upcoming Performance Year 2025 application cycle set to begin soon, now is the time to explore participation options for MSSP. As you weigh your existing strategic direction, consider how prepared you are as a health system to address the following:
- Has our health system explored VBC models with sufficient attention and focus? Have our competitors?
- Does our health system have a strong grasp of relative market position in terms of quality, cost and utilization?
- Could value-based enablement companies and/or conveners disrupt physician alignment? If they already are, what are they doing that’s different than our core model?
The good news is that you are not in this alone. Our value-based care experts are equipped to provide your organization with unique insights and impactful recommendations in prioritizing opportunities and positioning your organization for select value-based care undertakings. Please reach out to us for more information or to speak with a Vizient value-based care expert.
Related Resources:
Sustainable Value-Based Care Transformation Needs an Enterprise Approach