Key Capabilities for Value-Based Reimbursement Models
The AHA identified key resources and processes hospitals and health systems should have for a range of value-based reimbursement models.
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By - Rising healthcare costs, shrinking reimbursement rates, and federal policies are driving hospitals and health systems to adopt value-based reimbursement, according to a new American Hospital Association (AHA) report.
But the models are not one-size-fits-all and providers should carefully consider the skills and infrastructure needed to succeed in certain models, including pay-for-performance, bundled payments, and capitation arrangements.
In the new TrendsWatch report, AHA researchers interviewed leaders at seven hospitals and health systems at different levels of value-based reimbursement and financial risk adoption. The discussions uncovered the provider network, clinical, technical, financial, and operational capabilities healthcare organizations should have to succeed in value-based reimbursement models from pay-for-performance to global budget payments.
Provider network management and contracting
While experience was the top capability for success in value-based reimbursement, healthcare organizations can boost their chances of reducing costs and improving care quality in any model by enhancing provider alignment, the report stated.
Value-based reimbursement hinges on physician and clinical leadership buy-in. Shifting to a dual reporting structure or dyad management model that includes both corporate and clinical leadership helps to boost buy-in across the organization.
READ MORE: Understanding the Value-Based Reimbursement Model Landscape
In a dual reporting structure, physician leaders report to both the organization’s clinical lines and the medical group, whereas clinical leaders and administrators jointly oversee services or clinical lines in a dyad management model.
Milwaukee-based Aurora Health Care chose the dual reporting structure and saw several benefits. Under the model, the health system’s contracting leaders better understood population health and value-based care, which helped them to better negotiate value-based reimbursement contracts and the quality measures detailed in the agreements.
Billings Clinic in Montana also saw positive results after adopting a dyad management model. The hospital’s CEO is a physician and clinicians are represented on internal and community governing boards. The clinical and administrative partnership helped to spread value-based reimbursement across the organization.
Additionally, healthcare organizations should consider provider alignment across the care continuum, not just within their offices. As value-based reimbursement models contain more financial risk, providers are responsible for the outcomes and costs even after patients are discharged.
Gaining control throughout the care continuum is key to value-based reimbursement success. Healthcare organizations should leverage internal capacity and affiliations to offer patients the full continuum.
READ MORE: Best Practices for Value-Based Purchasing Implementation
For example, Saint Luke’s Health System in Kansas City, Missouri is building a preferred network of post-acute care providers. The post-acute care providers are not owned by the health system, but partners.
Additionally, the Billings Clinic is partnering with critical access hospitals because one-half of their hospital patients come from outside of the county in which its flagship hospital resides.
Developing affiliation and participation agreements with providers is critical for organizations joining bundled payments, upside shared savings, and upside and downside shared savings arrangements, the report stated.
Organizations in risk-based models, such as global budget and capitation arrangements, should have network adequacy, as well as division of financial responsibility and provider payment terms for value-based reimbursement success.
Clinical and care management
Under value-based reimbursement models, providers earn payment based on improved patient outcomes at the lowest possible cost of care. To maximize revenue in the new payment world, healthcare organizations need to redesign care delivery and care management.
READ MORE: Preparing the Healthcare Revenue Cycle for Value-Based Care
For pay-for-performance models, the AHA advises hospitals and health systems to establish quality improvement and chronic disease management programs. Patient engagement should be a staple in the programs.
Healthcare organizations should also create registries and performance dashboards to track and report quality targets. All providers in the network should have access to the quality performance data.
As organizations take on more financial risk under bundled payment models and upside-only shared savings arrangements, the AHA recommends that hospitals and health systems master care coordination capabilities, especially discharge planning. Leaders should also set quality and utilization benchmarks and standards, as well as establish clinical protocols and coordinated workflow processes.
Under value-based reimbursement with two-sided financial risk, healthcare organizations should graduate from care coordination to care management capabilities, including high-risk case management. Hospitals and health systems should also build on their disease management programs to include targeted disease management initiatives.
In addition, the organizations should integrate clinically with affiliated providers, the AHA suggests.
For hospitals and healthcare organizations assuming the greatest financial risk through global budget or capitation payments, the AHA recommends the following capabilities:
• Utilization management and review
• Post-acute care management and coordination
• Pharmacy benefits management
• Prevention and wellness programs
Technical and analytics capabilities
Health IT and data analytics go hand-in-hand with value-based reimbursement models across financial risk levels. Providers need data and reports to track quality and cost performance, as well as follow patients along the care continuum.
The technological capabilities needed for value-based reimbursement success increase as hospitals and health systems take on additional financial risk. But organizations should start with the basics for pay-for-performance models. The health IT and data analytics capabilities for low-risk value-based reimbursement models include:
• Clinical, financial, and patient experience performance reporting
• Clinical and administration data integration
• Disease registries, reporting and analysis
Hospitals and health systems further along the value-based reimbursement journey under bundled payments, upside-only shared savings, and two-sided shared savings models should build on the basics by adding population health capabilities. Population health systems and analytics should:
• Risk stratify patients and identify high-cost patients (ie, hotspotting and frequent flyers)
• Track utilization, protocol and guideline adherence, and care variations
• Pinpoint high-risk patients and connect them to care management programs
• Report and analyze quality, utilization, and financial metrics
Once healthcare organizations build the health IT and analytics infrastructure for population health management, the AHA advises the organizations to implement actuarial analytics and predictive modeling. The technical capabilities are key to succeeding under global budget and capitation payments.
At any point in the value-based reimbursement continuum, healthcare organizations can either develop in-house health IT and data analytics systems or partner with vendors.
Phoenix, Arizona-based Banner Health started by creating their own consumer-centric care management infrastructure, data analytics, and electronic systems (eg, EHR system and registries).
However, the health system eventually decided to work more with population health vendors and health plans to build health IT infrastructure. Partnering with other stakeholders allowed Banner Health to quickly develop health IT systems and focus more on quality outcomes, patient satisfaction, and affordability, the report stated.
Financial management
Healthcare organizations should develop financial management capabilities depending on their value-based reimbursement portfolio, the report explained.
Developing financial and payment modeling of pay-for-performance measures is key for pay-for-performance, bundled payments, upside-only shared savings, and two-sided risk shared savings models.
However, pay-for-performance models also require healthcare organizations to have performance-based funds to share with affiliated providers.
The other models have a more sophisticated requirement. Healthcare organizations should be able to manage funds for distributing incentive payments to affiliated providers and repaying payers for financial losses under bundled payments, upside-only shared savings, and two-sided shared savings models.
Value-based reimbursement models using global budget and capitation payments require a different set of financial management skills. Organizations should have the following capabilities:
• Payment processing and claims adjudication skills
• Underwriting
• Reinsurance
• Reserves maintenance
Healthcare organizations can build financial management capabilities for value-based reimbursement on their own or partner with other stakeholders or vendors, the report stated. But either way, the financial investment is significant.
For example, ACOs spent about $4 million on start-up costs, including health IT infrastructure development, in 2013. Start-up costs for provider-sponsored health plans in 2014 were around $9 million.
Hospitals and health systems can partner with health plans or vendors to shoulder the economic burden of value-based reimbursement implementation. For instance, Aurora Health Care entered a joint venture insurance company initiative with Anthem. The health system offers up risk management capabilities, while the payer provides predictive modeling and service center capabilities.
Governance and organization
Aligning culture and organizational structures with value-based care is critical to alternative payment model success and generating buy-in across the hospital or system. Cultural alignment with quality was one of the top contributors to value-based reimbursement success, behind analytics, a 2016 survey of hospital executives found.
Establishing a high-value culture, however, can become challenging as organizations add new providers, specialties, and care coordination capabilities. Organizations engaging in pay-for-performance models should start by creating medical direction and quality improvement oversight structures and provider engagement initiatives. Leaders should also develop change management expertise or seek expert advice in the field.
As organizations mature to bundled payments and upside-only shared savings, hospital and health system leaders should graduate to medical oversight programs for provider engagement in quality, care coordination, and protocol and standards development.
Organizations transitioning to two-sided shared savings structures should include medical oversight of care and disease management programs. Clinical integration governance and legal and antitrust evaluations are also key at this stage as organizations continue to build services along the care continuum.
Under the advanced global budget and capitation payment models, hospitals and health systems should have a corporate governance structure that includes clear roles for the board, executives, medical direction, state regulatory reporting, compliance, management, and operations.
The AHA noted that healthcare organizations at any point in the value-based reimbursement journey should have strong leadership and consistent incentives across management, operations, and clinical areas.
For example, Heath First in Florida stopped tracking net operating performance for each facility in the system to promote high-value culture and incentives across the organization as a whole. The health system now uses single system-wide key performance indicators, which prompted a cultural shift to care coordination and value-based care.
Providers have many options when it comes to value-based reimbursement models. They should decide on which model to choose by assessing their available resources, externally and internally, and selecting the model that best fits their position.
