In January 2015, the Department of Health and Human Services (HHS) announced that it intends to link half of all traditional Medicare payments to a value-based reimbursement model by the end of 2018.
The announcement, followed quickly by the unveiling of the MACRA framework that focuses on alternative payment models (APMs) for quality care improvements, led many providers to start investigating the switch to value-based care. But the transition is not an easy one for many organizations. Value-based reimbursement models require extensive data analytics capabilities, population health management programs, and the ability to successfully use electronic health records for documentation and reporting.
Fortunately for providers, alternative payment models come in a variety of shapes and sizes to suit a number of different needs and competency levels.
According to CMS, alternative payment models are a “specific subcategory of value-based purchasing initiatives that require providers to make fundamental changes in the way they provide care” and they “shift financial incentives further away from volume by linking provider payments to both quality and total cost of care results.”
The broad definition allows for a spectrum of value-based reimbursement arrangements. Providers can select the most appropriate model based on their health IT capabilities and healthcare spending trends and continue to work their way up the continuum to achieve full value-based care.
What are some of the value-based reimbursement options available to providers, and how do they impact potential revenue?
Starting on the path to value-based reimbursement
For providers dipping their toes in the value-based care pool, pay-for-performance models offer a straightforward approach to linking claims reimbursement to quality and value. Under these models, providers are typically reimbursed for services using a fee-for-service structure, but they can also qualify for value-based incentive payments or penalties based on quality and cost performance.
For example, providers in Medicare’s Hospital Value-Based Purchasing program receive positive or negative payment adjustments based on their scores on quality and cost measures. CMS assesses participants using a myriad of measures, such as influenza immunization rates, Medicare spending per beneficiary, and performance on patient experience surveys.
Depending on how hospitals score on the measures relative to their established baselines and if they have improved their performance, providers can either earn financial rewards on top of their fee-for-service payments or see their Medicare revenue decrease.
Pay-for-performance models benefit small and rural practices that need time and resources to implement value-based care.
Pay-for-performance arrangements do not require as much familiarity with robust health IT and data analytics infrastructure compared to other alternative payment models, making them popular among small practices that do not have the resources to implement expensive technologies. However, providers do need to have the ability to monitor and report clinical quality and cost data.
The model also does not involve financial risk, meaning providers are not liable to repay any financial losses.
While some critics have argued that pay-for-performance structures do not offer large enough incentives to change physician behaviors, an August study from the American Journal of Managed Care found that financial penalties alter behavior to a greater degree than other quality improvement programs, such as public reporting. Two-thirds of hospital leaders stated that the Medicare Hospital Readmissions Reduction Program, which penalizes hospitals with excess readmissions, had a significant or great impact on their organization’s efforts to decrease readmissions.
Taking the next step with shared savings alternative payment models
Shared savings arrangements offer providers a higher level of financial reward than pay-for-performance models. Providers are reimbursed under a fee-for-service model, but if a provider can reduce healthcare spending below an established benchmark set by the payer, then he can retain a portion of the savings produced.
Bundled payments are a common example of how shared savings are incorporated in value-based reimbursement models. Under a bundled payment structure, providers are paid a fixed amount for all the services performed to a treat a patient during an episode of care, such as a specific condition (i.e. bypass surgery) or a defined period of time (i.e. 90 days from the encounter initiation).
If providers involved in the patient’s episode of care are able to deliver treatment for less than the set reimbursement amount, then they can keep a portion of the difference, depending on their contract with the payer. However, if healthcare costs exceed the set amount, providers lose out on the revenue they would have received from a traditional payment structure.
Medicare launched a bundled payment program for 48 types of episodes of care in 2015. The Bundled Payments for Care Improvement Initiative aims to improve care coordination and decrease healthcare spending by reimbursing providers for furnishing care from the healthcare encounter initiation to up to 90 days of post-acute care, depending on the specific payment track. Participants are either paid on a retrospective or prospective basis and they can share a specified an amount of any savings generated with CMS.
Shared savings programs, however, can be difficult for providers to initiate and sustain. Providers may need to invest their own resources into the health IT and care delivery systems necessary to track healthcare spending, quality improvement, and care coordination. Shared savings payments also may not reimburse providers for related services, such as phone calls with patients and other providers, email consultations, and nurse care managers.
The alternative payment model may also be difficult to sustain because providers are generally assessed based on a historical benchmark. Once healthcare costs are low, they must remain low or be further reduced to realize shared savings.
Despite some shortcomings, shared savings agreements are better suited for healthcare facilities that may have high rates of healthcare spending, hospital admissions, and resource use. These providers have the most opportunity to improve quality and cost performance, therefore they are eligible to earn greater shared savings compared to more cost effective facilities.
Embracing shared risk leads to greater value-based reimbursement
Shared savings and shared risk are two sides of the same coin. While providers under shared savings programs can retain a part of the savings, shared risk arrangements require providers that fail to come in below their benchmark to repay the payer for a portion of the financial loss.
Through shared risk models, also known as downside risk models, payers and providers agree upon a set budget and quality performance thresholds. Providers must cover part or all of the healthcare costs if they are unable to keep costs lower than the set benchmarks. However, participants in financial risk contracts generally have a greater opportunity to share in potential savings compared to a shared savings-only arrangement.
Many providers enter into shared risk models through accountable care organizations (ACOs). For healthcare organizations already engaged in care coordination efforts, Medicare designed the Pioneer ACO Model. The ACO model offers higher levels of shared savings and risk compared to the Medicare Shared Savings Program.
In August, CMS announced that Pioneer ACO Model participants generated over $37 million in savings during 2015. While eight out of twelve ACO participants produced healthcare savings, only six ACOs managed to save more than their minimum rate to earn shared savings.
Four Pioneer ACOs generated losses, CMS added, and one participant had to repay CMS over $1 million in shared losses because their healthcare costs exceed the minimum loss rate.
“You cannot be fully accountable for patient population until you're willing to accept financial risk when things do not go as planned."
While providers may be liable to reimburse payers a significant portion of their revenue, additional financial risk is what makes providers accountable in ACOs, April Wortham-Collins, Manager of Customer Segment Analysis at Decision Resources Group, stated in a 2015 interview.
“You cannot be fully accountable for patient population until you're willing to accept financial risk when things do not go as planned,” she added. “We won't see the full potential of ACOs until we have more folks accepting that financial risk.”
Avoiding shared risk agreements may also become more difficult for providers because CMS plans to add more financial risk provisions to their ACO and bundled payment models. CMS recently stated that it plans to implement bundled payment models for cardiac and hip care that include a downside financial risk structure and qualify under MACRA’s Advanced APM track.
Many ACOs in the shared savings-only track of the Medicare Shared Savings Program will also have to take on shared risk after its first agreement period or renewed shared savings agreement period ends. Other Medicare ACOs, such as the Next Generation model, also have shared risk provisions built into reimbursement program.
Source: National Association of ACOs
Completing the value-based care journey with capitation payments
On the furthest end of the value-based reimbursement spectrum is capitation payments. This alternative payment model requires providers to take on full financial risk for care quality and healthcare spending.
Capitation models pay providers a fixed amount per patient, per unit of time, which is reimbursed prospectively to the provider for furnishing a set of services or all services. If a provider produces healthcare savings, then he retains all of the payment. But if he cannot reduce costs below the payment amount, then he is fully responsible for the loss in revenue. Most capitation models also include value-based incentive payments and penalties based on quality and cost performance.
The alternative payment model has two basic tracks: global or partial capitation. Global capitation arrangements reimburse providers with a single, fixed payment for all the healthcare services given to a patient, including primary care, hospitalizations, and specialist care.
Partial or blended capitation agreements pay providers a single monthly fee that covers a set of services furnished to a patient, such as laboratory services or primary care. All other care is reimbursed using a fee-for-service model.
Providers may benefit from capitation models because the reimbursements are prepaid, stated representatives at Sharp Rees-Stealy Medical Group in a guide published by CAPG. Since revenue is already in the provider’s hands, organizations can invest in innovations that improve patient care.
“The lack of alignment of quality metrics across payers represents a costly burden and an opportunity for improvement."
However, participants in capitation models often face challenges with quality measures and data sharing, the guide added. Without standardized healthcare data and interoperability, providers experience difficulties acquiring health data and reporting it for payments.
“The lack of alignment of quality metrics across payers represents a costly burden and an opportunity for improvement,” said members of the Sharp Rees-Stealy Medical Group, which works under a global capitation structure.
Using the alternative payment model spectrum, providers can find the most appropriate value-based reimbursement structure to maximize revenue. The spectrum also gives providers an actionable plan for transitioning more healthcare payments to value-based care models as their organizations implement more sophisticated systems.