Value-Based Reimbursement Shift Slows, But CEOs Still Preparing

October 25, 2017 - Hospital and health system CEOS are gearing up for alternative payment models and population health management, but the transition to value-based reimbursement is taking more time than expected, a recent survey from Deloitte Center for Health Solutions showed.

The value-based reimbursement shift slowed primarily because of a lack of alternative payment models available in the commercial payer space, explained 20 CEOs from healthcare organizations that generate over $1 billion annually.

“[Value-based care] is a major [concern], [but] it is moving backwards,” stated a CEO from a large non-profit health system. “We can’t find payers, whether it be insurers or businesses, who seem tremendously interested in moving in that direction.”

Commercial payers have been less aggressive with shifting to value-based reimbursement compared to Medicare and Medicaid. About 18 percent of provider organization leaders stated that no payer offered risk-based alternative payment model products in their market in 2016, an AMGA analysis showed.

Another 46 percent of leaders said there only 1 to 19 percent of health plans in their market had risk-based models.

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With limited commercial payer options, Deloitte reported that health systems engaged in fewer value-based reimbursement contracts with downside financial risk than CEOs expected by this time.

Health systems are also managing two different reimbursement systems as a result, the survey showed.

“As a large integrated delivery system, I could be stuck between a Medicare payment system that rewards outcomes, and a commercial payment system that is stuck in a fee-for-service world,” the non-profit health system CEO wrote. “That makes constructing and managing and leading an organization like this challenging as the economic incentives will essentially point to polar opposite directions.”

In addition to operating misaligned payment systems, CEOs expressed concerns about population-based alternative payment models. The leaders agreed that implementing population health management and bearing downside financial risk will require a large patient population.

“If we were at risk for an entire population, we would have more success than being at risk for 10 to 20 percent of the people under fee-for-service,” stated a CEO of a large faith-based health system. “It’s hard to operate both.”

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Despite the slow value-based reimbursement transition, health systems are still preparing for risk-based alternative payment models and population health management.

Leaders of children’s hospitals are particularly forging ahead with preparing for risk-based alternative payment and care delivery models. The CEOs stated that their organizations engage with alternative payment models, such as accountable care organizations, as well as use retail clinics, telehealth, and advanced nurse practitioners to improve care.

However, developing risk-based, value-based reimbursement capabilities has been on hold for some children’s hospitals as policymakers debate healthcare reform.

“[A] lot of that has just been paused until people know what the feds will do,” said a large children’s hospital CEO. “It’s like all that momentum that was building towards value-based care model[s], towards innovative, care coordination and delivery models…has pretty much been paused.”

Most executives are also looking to their Medicare Advantage plans for value-based reimbursement options.

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While most providers in Medicare Advantage contracts still receive fee-for-service payments, about 41 percent of Medicare Advantage plan spending flowed through population-based alternative payment models in 2016, the Health Care Payment Learning and Action Network reported.

“I think if MA [Medicare Advantage] is going to grow, or if there’s going to be a successor to the exchanges, it’s likely to be in a population health model rather than a FFS [fee-for-service] model,” the lead executive at a large academic health center stated.

To prepare for current and future value-based reimbursement arrangements, surveyed CEOs stated that their organizations are partnering with other stakeholders to monitor patients throughout the care continuum.

The majority of hospitals and health systems represented are collaborating with outpatient ambulatory care organizations and implementing health IT, including telehealth, to stretch their reach beyond their organization.

Some organizations are also partnering with urgent care clinics and post-acute care facilities to keep patients out of the hospital and support value-based reimbursement goals.

“The engagement along the full continuum of care is a major focus of ours as well; i.e., digital connectivity and connecting with customers, urgent care centers, micro-hospitals, in-patient activity, outpatient activity, post-acute care,” explained a large academic medical center CEO. “We are looking at how we partner with those in that part of the world, post-acute care specifically, since that plays a huge role in our overall.”

Executives are also focusing on social determinants of health and community health needs to transition to population-based alternative payment models.

Additionally, the survey found that physician engagement was key for healthcare CEOs implementing value-based reimbursement. Executives stated that instead of merely discussing value-based care and population health management implementation among leadership roles, hospital and health systems are now calling on physicians to drive the transition.

However, differing financial incentives at the organization and physician level challenged physician engagement.

“How do I create the alignment with our physicians, in particular, when they are under a different set of economic incentives than we are, to transform both the payment system and the care delivery system,” asked the CEO of a large non-profit health system.

To overcome financial incentive shortcomings, hospitals and health systems are using clinical integration, employment contracts with incentives, and accountable care organizations and risk-sharing agreements.

CEOs also reported that their organizations are using the following methods to improve physician engagement in value-based reimbursement:

• Collaborating with payers to develop alternative payment models

• Establishing clinically integrated networks, partnerships, and infrastructure to support population health management efforts and develop a referral base for tertiary services

• Preparing their organization to engage in risk-sharing models with payers

• Focusing on patient quality, safety, and experience

• Investing in health IT that improves care delivery

• Changing patient access culture and fostering improved communication capabilities at the staff and physician levels

Hospitals and health systems are still developing the skills necessary for value-based reimbursement even though the transition away from fee-for-service is taking longer than expected, the report concluded.

Surveyed CEOs recommended that other hospitals and health system leaders start to focus on health outcomes and costs because they were confident that the value-based reimbursement shift will continue.