Value-Based Reimbursement Grows as Providers Take on More Risk

October 30, 2023 - Over half of healthcare payments last year were made through value-based reimbursement models, with most of those payments tied to some degree of financial risk, according to the latest data from the Health Care Payment & Learning Action Network (LAN).

This year’s “APM Measurement Effort” found that just 40.6 percent of payments across public and private payers were strictly fee-for-service. Meanwhile, 18.1 percent of payments had some link to quality and value.

Slightly more payments this year were tied to more meaningful value-based reimbursement efforts, with 31.7 percent of payments from alternative payment models (APMs) with upside-only or upside and downside financial risk for appropriate care and 9.6 percent from population-based payment arrangements, such as condition-specific and comprehensive population-based payments, as well as payments from integrated finance and delivery systems.

The healthcare payment data used by LAN to track APM efforts represented 86.7 percent of the market, spanning across 64 plans, 4 states, and traditional Medicare.

RevCycleIntelligence spoke with a LAN spokesperson to break down this year’s data to see where the industry is making progress and why payments made in 2022 may propel healthcare forward into value-based care.

Making APM progress

The latest data shows progress toward risk-based models, albeit at a slow pace. Nearly a quarter of payments (24.5 percent) were from Categories 3B to 4C, which represent two-sided risk APMs from upside and downside risk for appropriate care (3B), condition-specific population-based payments (4A), comprehensive population-based payments (4B), and integrated finance and delivery systems (4C).

This is a significant increase from the previous year, when 19.6 percent of payments were in 3B to 4C APMs.

The total increase in payments flowing through two-sided risk APMs signals appetite across all lines of business, according to Andréa E. Caballero, MPA, program director for Catalyst for Payment Reform (CPR), an independent nonprofit corporation working to improve the functioning of the healthcare marketplace and the value of healthcare.

“When I look at each market segment, I see the commercial market increased by almost four percentage points from 12.7 percent in 2021 to 16.5 percent last year,” Caballero, who is also the technical project lead for the LAN’s APM Measurement Effort, told RevCycleIntelligence.

“Medicare Advantage also had a 3.7 percentage point increase, and even Medicaid had a 2.1 percentage point increase. But the largest increase in downside risk arrangements — that's categories 3B and all of 4 — was in traditional Medicare, which went up 6.2 percentage points. Traditional Medicare is now at 30.2 percent of payments in Categories 3B and 4,” Caballero continued.

The appetite is growing for downside financial risk, which LAN has set goals against. The group aims to have all Medicare payments, including Medicare Advantage payments, in these APMs by 2030. They also want to have at least half of Medicaid and commercial payments in similar models within the next seven years.

Moving to downside risk APMs and population-based payments is important because these APMs have “shared alignment on improving quality and containing costs,” explained Caballero. In other words, these models have incentives in place to transform care delivery to meet cost and quality targets.

Medicare Advantage has historically pulled ahead in the move to risk-based APMs, and this market segment continued to have the most risk-based payments in 2022 at 38.9 percent of payments in Categories 3B to 4.

However, significant strides in the commercial and Medicaid market segments indicate a real appetite for risk considering how few payments have been made through risk-based APMs in the past.

“For Medicaid, historically, moving providers into downside risk has been more of a challenge, so the fact that the Medicaid data shows that there are more dollars in downside risk arrangements is an interesting sign, perhaps Medicaid agencies and MCOs are moving providers into downside risk,” Caballero emphasized.

What the data didn’t show

The healthcare industry is progressing toward value-based reimbursement; fee-for-service is no longer the norm for healthcare payments and risk-based APM adoption continues to grow. However, industry analysts like Caballero thought the state of healthcare payments would be more risk-based by now, especially after the COVID-19 pandemic.

“The pandemic taught us about the fee-for-service system,” Caballero said. During the pandemic, providers lost hundreds of billions of dollars collectively when the public health emergency necessitated the closures of entire facilities and service lines to stop the spread of COVID-19. The fee-for-service system became unpredictable for providers.

“There was a lot of speculation that, in order to get out of this cycle of unpredictable payments on the fee-for-service system, providers would move to a more predictable system with capitation or per-member-per-month-type payments. So, we thought that we would see a shift into 4B,” Caballero said.

Research released during the height of the COVID-19 pandemic showed that even low capitated payments paid per member per month could have neutralized gross revenue losses from the pandemic. These types of payments could also offer a stable revenue source for providers even in times of crisis.

“But the data didn’t really show us that there was a big movement into 4B,” Caballero said, referring to comprehensive population-based payments in Category 4.

Payers and providers did not take the leap many industry analysts thought they would have by now. Some obstacles to risk-based APM adoption may be getting in the way of implementing population-based payments and other APMs.

What’s holding APM adoption back

LAN’s survey of health plans continues to show a deep commitment to APMs. Almost three-quarters of health plan leaders in this year’s survey (72 percent) said they think APM activity will increase. Few respondents said APM activity would stay the same (16 percent), and even fewer respondents said it would decrease (4 percent). The rest (about 7 percent) were not sure or did not answer.

Health plans are likely to see APM activity increase in Category 3B (e.g., fee-for-service-based shared risk APMs and procedure-based bundled payments) within the next two years, according to survey results. About 43 percent estimated 3B APM activity to increase in that time, followed by traditional shared savings and utilization-based shared savings APMs in Category 3A, with 31 percent of respondents.

Nearly a quarter of respondents estimated increases in payments through Category 4 APMs, including 14 percent saying 4B (e.g., population-based payments that are not condition specific and full or percent of premium population-based payments), 8 percent saying 4A (e.g., condition-specific population-based payments and condition-specific bundled payments), and 2 percent saying 4C (i.e., integrated finance and delivery programs).

What may be holding healthcare back from greater increases in APM activity is provider willingness to take on financial risk. Health plans identified that as the top barrier to APM adoption, followed by provider interest/readiness, and provider ability to operationalize.

However, Caballero noted that these barriers are not necessarily universal to healthcare since LAN collected insights just from health plans. Providers definitely have some hesitation around APM and risk adoption, likely because of panel size challenges. For example, providers with a small patient population attributed to a risk-based APM stand to lose more money if even just one patient experiences an event that throws off spending and outcome targets.

Moving providers to risk-based APMs is a general challenge for the healthcare industry, but operationalizing these models is also a health plan issue.

“Anecdotally, I can say that even health plans have difficulty operationalizing some of these arrangements, too,” Caballero explained. “They're used to paying on a fee-for-service basis and have been doing so for a very long time. Their ability to operationalize and move from a claims payment system that is fee-for-service to a different type of payment system is a challenge. So, it isn’t just one side unable to do something.”

“If you're going to be held accountable for quality and cost, you need data and you need it to be timely so you can manage your financial and quality targets. You need to be able to adjust,” Caballero added.

Payers and providers may not be fully there, yet. Data sharing continues to be a pain point for both sides navigating value-based care and APMs. However, Caballero still sees a big appetite for greater adoption of risk-based APMs.

“Not only does there seem to be appetite, but there's also movement toward it,” Cabellero said. “Yes, we are still based on fee for service and I don't know exactly why. There's maybe more comfort in that, but I think a lot of moving to population-based payment has to do with providers’ panel sizes and whether full risk is something that is in their best interest.”

However, the overall data shows promise. “It is a really interesting note from this year's data that, across the board, everybody increased shared risk arrangements. We’re making progress,” Caballero said.