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Shifting Gears: The Move Toward Value-Based Payment

By Karen Wagner

Although fee-for-service contracts still dominate the healthcare payment landscape, the progression toward value-based payment models—which reward providers that achieve quality and cost targets—is picking up speed. But shifting gears to move toward value-based payment involves a different set of processes and resources than those used under fee for service. It also requires significant capital investment.

This past January, the federal government announced plans to shift Medicare away from fee-for-service payment, with 30 percent of Medicare payment to be value-based by the end of 2016 and 50 percent by the end of 2018. Shortly afterward, a group of large health system and insurers formed a task force aimed at shifting 75 percent of their business into value-based contracts that offer incentives for meeting targets related to health outcomes, quality of care and cost management. But with so many different models for value appearing in the marketplace, simply knowing where to begin is often the first obstacle for providers.

Some hospitals and health systems have begun the process of moving away from fee for service by forming partnerships with payers to develop new care delivery approaches and payment arrangements that strive to provide higher-quality, patient-centered care while lowering costs. Although many of these arrangements are new, some already are demonstrating measurable improvements in such areas as quality and utilization.

There are several key factors healthcare leaders should consider when exploring potential partnerships with payers in the move toward value— and lessons they can learn from organizations that have already begun their journey.

The Progression Toward Value

The pace at which hospitals and health systems are moving away from fee for service varies by market and organizational size, type and location. “Some healthcare markets are evolving faster,” says Bill Eggbeer, an ACHE member and managing director, BDC Advisors, a healthcare strategy consulting firm in Washington, D.C. “Other markets are still pretty firmly rooted in that fee-for-service space and are not changing nearly as quickly.” In those markets, Eggbeer says, the danger lies in sitting pat: “Once those markets begin to evolve, the transition toward value-based payment will happen quickly, and healthcare organizations want to be in a position to respond strategically.”

There are a number of reasons why the transition to value-based care has not occurred as quickly as some in healthcare had forecasted. In some instances, both providers and payers are reluctant to break long-term contractual fee-for-service agreements that are performing well for each organization. Additionally, when a hospital’s physicians, who are the greatest drivers of inpatient and outpatient volume, have not yet transitioned to value-based payment themselves, aligning the organization’s medical staff around value initiatives may prove more difficult.

Determining an organization’s capacity for risk also is a challenge for healthcare leaders, and simply selecting a value-based model from among the many options can be daunting. The range of value-based models is a confusing mix of no-risk, low-risk and high-risk arrangements. These models include:

  • Pay-for-performance, wherein providers receive incentives for meeting quality targets

  • Shared-savings contracts, in which payers share with providers the cost savings achieved through value based approaches to care

  • Bundled payments, in which healthcare facilities and providers agree to a single payment for all care and service associated with a specific condition or treatment

“A lot of organizations struggle to understand which of these models will gain the most traction—and those are the models they should invest in,” says Steve Gelineau, an ACHE member and a senior vice president at The Camden Group, Los Angeles, a healthcare management and consulting firm.

Shifting to a Higher Gear

For a healthcare organization to embark on the journey toward valuebased payment, it must first answer one critical question: where to begin. The answer depends largely on how quickly the organization’s market is shifting to value-based payment.

For example, in markets where payers appear reluctant to move away from fee for service, the move toward value will look quite different. “Have a conversation with payers separate and apart from your contracting arrangement with them,” Gelineau says. “Understand what their thinking is; what their timing is. Do they have an interest in partnering with the provider community on value? What does partnering mean to them?”

Determining the appropriate level of risk exposure under value-based payment models also is critical. For example, hospitals that have the infrastructure and data analytics support to manage population health would be comfortable taking on a higher level of risk than those that are developing such skills or are in the exploratory mode of value-based payment, Gelineau says.“Remember, there are models where your organization can agree to take on only the upside risk,” Gelineau says. “Those models offer a great opportunity for risk-averse organizations to learn what it takes to provide care under value-based models.”

Healthcare organizations might also wish to gain risk-management experience through participation in a Medicare Shared Savings Program or partnership with an experienced Medicare managed care plan to improve care coordination for dual eligibles (beneficiaries of Medicare and Medicaid who receive full benefits under both programs). On average, 30 percent of Medicare enrollees are in Medicare Advantage plans, so efforts by providers to manage the health of such populations in partnership with a health plan offers an Shifting Gears: The Move Toward Value-Based Payment Reprinted with permission. All rights reserved. Healthcare Executive MAY/JUNE 2015 14 opportunity for providers to wade into value-based payment waters without taking a full plunge, Eggbeer says.

Accelerating Toward Value

How are hospitals and health systems partnering with payers to improve value—and what lessons have they learned that could help other organizations in their journeys? Leaders from three organizations shared their experiences.

Salem (Ore.) Health. Salem Health, a two-hospital system with 414 beds, has several pay-for-performance contracts with commercial payers. Salem receives a bonus if it meets quality targets for such indicators as rates of hand-hygiene compliance and hospital-acquired infections, according to president and CEO Norman Gruber, an ACHE member. If Salem does not meet the targets, it does not get the bonus, which Gruber considers a penalty.

“It’s only a bonus if you think it’s extra money,” he says. “The reality is we’re building these measures into the contracts, but we hope we get the bonus because that’s how we manage our revenue expectations.”

Generally, the amount of revenue at risk under Salem’s pay-for-performance contracts equals the difference between the health system’s requested rate increase and the payer’s offer, Gruber says.

Salem uses Centers for Medicare & Medicaid Services quality indicators as a platform for preparing for performance-based contracts. The goal is to use the same metrics in all value-based contracts. “We’re trying to use that platform as we negotiate with other payers so that we’re not trying to measure and enhance our performance using 15 to 20 different quality metrics,” he says.

To prepare for meeting quality targets, Salem made changes to its operational infrastructure. All quality, safety and risk areas were moved under the responsibility of one administrator, the organization’s vice president of kaizen, quality and safety. Kaizen, a Japanese word that means “good change,” is a term used to describe continuous process improvement under Lean Six Sigma.

“Consolidating our operational infrastructure ensures that we don’t have 10 different departments doing the same thing 10 different ways,” Gruber says.

Salem also implemented a multidisciplinary quality operations committee that oversees improvement initiatives, deciding how much resources to allocate to specific problems and the timeframe for accomplishing them. The board-run committee is composed of about 25 people, including governing board members, administrators and physicians.

The health system’s efforts so far have resulted in improved patient satisfaction, improved compliance with evidence based measures and flu vaccinations for employees, and a reduction in hospital-acquired pressure ulcers.

Salem also recently joined a newly formed consortium of six area providers and one regional payer to offer a risk-based insurance product. The product was introduced to the marketplace at the end of 2014. The goal is for providers and the payer to share upside and downside risk of managing a population. Gruber says the approach is more strategic than a pay for-performance contract. “It is an attempt to put together a risk-based product that employers would find attractive because it would help them control their healthcare costs,” he says.

The consortium also developed a population health management initiative—the Population Health Alliance of Oregon—that will use an outside vendor to provide data management and analytic functions, Gruber says.

“As we develop this product, which is really an HMO product, we’re building the infrastructure to be able to manage health, coordinate care delivery and develop innovative health solutions for targeted populations as the number of lives grows,” he says.

Lehigh Valley Health Network, Allentown, Pa. A three-hospital system with 1,100 employed and affiliated physicians, LVHN has shared-savings contracts with four payers. If LVHN meets quality and utilization targets, which are designated by each payer, the health system shares in the cost savings resulting from the improved care practices. The percentage awarded to each side is negotiated, but under most shared-savings contracts, the provider and payer split the savings 50/50, says Gregory G. Kile, senior vice president for insurance and payer strategies and an ACHE member.

One of the first steps LVHN took in preparing for value-based partnerships was to survey payers to gauge interest and opportunity in developing such models. The survey included a description of LVHN’s infrastructure and clinical integration model to indicate the health system’s own level of preparedness and sought information on the payers’ infrastructure, timeframe for initiating a plan, and willingness to experiment with value based models, Kile says.

Sample Questions From LVHN’s Payer Survey

Corporate overview. Include a brief, but definitive, overview of your company’s mission, vision, financial position, local and national market position, and future local and national market projections.

Strategic road map for risk sharing with integrated delivery systems. Include a comprehensive corporate profile and strategy into your current value and risk-based partnerships with integrated delivery systems, and a road map for the next three, five and 10 years. References may be requested by the network for current partnerships in other markets served.

Current experience and future adaptations/enhancements. Describe the challenges you have faced in rolling out other valueand risk-based arrangements with provider organizations, the adaptations you have needed to make and the future enhancements that could add value to the partnerships.

Payer membership breakdown by geography, product and relationship. Include current and forward-thinking statements about your membership, including members covered by a value- or risk-shared relationship (countywide, statewide and nationally).

Access to information and data. Describe your data-sharing efforts with integrated delivery systems to better manage population health, including data warehousing, types of data shared, date ranges for and amount of claims stored, analytics and tools, data sharing platforms, and reporting.

Speed to market. Describe the resources your organization could bring to this effort and how it would accelerate its efforts with the health network. Describe your company’s culture of execution when taking on a new program such as the one contemplated in this survey.

Additionally, LVHN provides the payer with information related to the health system’s capabilities and commitment to action, including what the health system views as keys to a successful payer provider partnership, its service area and attributed membership, and its commitment to action.

LVHN also implemented a predictive analytics tool that imports claims data from the payer and matches it with clinical data in the health system’s electronic medical record. This marriage allows for a better view of the entire episode of care, Kile says.

The tool also will enable LVHN to conduct such complex tasks as predictive analytics and risk modeling to better identify high-risk patients and then create care strategies to prevent these patients from becoming highcost patients, Kile says. Capabilities around predicting performance are preparing the health system to enter into shared-risk contracts, which include a penalty for not achieving quality targets. “We’ve had conversations with our payers. We’re positioning for that,” Kile says.

By beginning its value-based journey with upside-risk-only contracts, LVHN can spend more time understanding its costs before putting revenue at risk. “You often don’t realize where all your spend is occurring,” says Sue Lawrence, FACHE, senior vice president of the care continuum for LVHN. “Some of it is within your control; some is out of your control. Is the majority of your spending in acute care? Is it in postacute care? What are your strategies for reducing that spend, and how will your organization conduct trials of those strategies to see if they actually work?”

LVHN’s longest-running sharedsavings contract, implemented in 2014, has demonstrated positive results among its attributed lives, including a 13.1 percent reduction in emergency department visits, a 9.4 percent reduction in admissions and a 13.4 percent reduction in CT scans, Lawrence says.

Currently, just 67,000 lives—about 2 percent of the health system’s commercial insurance patients—are under shared-savings contracts; however, Kile says the potential for accelerating the pace of growth for such contracts is strong. “The industry is getting a bit of a nudge right now, so shared-savings contracts with commercial insurers could take off rapidly,” he says.

Aurora Health Care/Milwaukee. About two years ago, Aurora Health Care, a 15-hospital system, launched The Aurora Network, an ACO that is offered to employers and insurers through partnership models. On a scale of no-risk to full-risk, Aurora president and CEO Nick Turkal, MD, an ACHE member, says Aurora’s ACO product is somewhere in the middle.

“If we perform better on quality and reduce costs, we are rewarded for that,” Turkal says. “We think that is the way we would like to see most of our contracts work as we go down the path from what has been volume and fee-for-service-based to value based reimbursement.”

The Aurora Network is modeled after an internal ACO developed several years ago for Aurora’s 45,000 covered employees and their dependents. That model is built upon a framework of clinical integration, evidencedbased care and standardized care practices, Turkal says.

Enhancing patient access to physician and other care services also was key. “We’re doing that in a number of ways,” Turkal says. “We have a lot of locations. We have a strong digital presence. We need to be accessible to all of our patients in a way that makes healthcare easier for them to obtain and more understandable.”

Aurora also relied on one of its insurer partners, Anthem Blue Cross and Blue Shield of Wisconsin, for cost data on various diagnoses. Pairing cost data with the health system’s own internal quality data enabled the health system to identify room for improvement in implementing more effective care practices. “It gives you a great model,” Turkal says.

By improving care processes, enhancing information exchange among providers and reducing the number of duplicated tests performed, employers see results. Overall for 2014, employers saw a per member per month savings of $31, a significant increase from the prior year. In addition, the ACO saved Aurora $220 million over a 10-year period.

“This model is working,” Turkal says. “We’re seeing more patients who are accessing us via these models, and it’s keeping costs down and is enabling us to meet our quality targets for care and service as well.”

Recently, Aurora also initiated a sharedsavings plan that is designed for primary care services. Physicians, for example, may earn an annual shared-savings payment if targets for quality and costs are met. They may also receive monthly payments for following designated practices, such as coordinating care and exchanging information with specialists, labs and the insurer.

5 Ways to Assess Value-Based Partnerships

In assessing potential partnerships with payers to improve value, there are five key factors providers should consider.

Willingness to collaborate. Is the payer willing to share claims data that will provide healthcare organizations with a view into the cost of care for its enrollees? Is the payer willing to educate the provider and share insights on the data?

Appropriate infrastructure. Aside from a willingness to share information, does the payer have the infrastructure to support the move toward a value based payment model? Many payers have legacy information systems that do not feature the requisite technology for extracting and sharing claims data with providers. Some payers are forming organizations and developing mechanisms to provide better reporting around their claims data, rather than the data itself, says Kile of LVHN.

Willingness to innovate. Creativity can be a key element in value-based payment models. Just how much is the payer willing to devise and experiment with different designs? For example, is the payer willing to develop new products that would improve patient engagement?

Reasonable timeframe. When does the payer foresee developing a value-based payment model or launching a product? If the payer requires time to develop more value-friendly infrastructure, how much time will be required? Would the payer would be in a better position to partner with the healthcare organization in three to five years?

Organizational agility. Given that the concept of value-based care is so fresh, learning curves are high. Healthcare organizations and payers should understand the importance of adjusting and adapting their approach as data regarding their efforts is received and as their level of partnership grows.

“To me, these are early experiments, some of which are going to work and some of which are not,” says Gruber of Salem Health. “We want to try to be in front of the curve, even though we’re not exactly sure what that curve is going to look like. If our model works, great. If we have to modify it, then that’s what we’ll do. Most everybody’s trying to figure out what the future looks like. Nobody really has that answer.”

Karen Wagner is a healthcare freelance writer based in Forest Lake, Ill.


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