We've learned hard lessons in healthcare over the past two years, but when it comes to value-based care there's a particularly important one: A reimbursement system that depends on healthcare volume is extremely fragile. Hospitals and healthcare providers discovered that firsthand, as the COVID-19 pandemic caused volumes and revenues to plummet.

Now we're on the cusp of a tipping point toward value-based payments and payment risk-sharing agreements that reward healthcare quality over quantity. In a recent DataGen survey, the majority of health system executives responding (over 60%) said their organization plans to enter or expand value-based payment participation in the next year or two. And many of the surveyed healthcare organizations already have an average of 25% of their revenue tied to value-based payments. 

Although this "new order" in payment has already begun, many hospital and health system providers and leaders haven't fully explored the value-based payment systems available to them. Or, they readily cite reasons—including provider resistance, low incentives, and lack of resources and knowledge—why they think value-based payment is unlikely to replace fee-for-service in the short term.

Here are five things to know about value-based payment and risk in 2022.

1. The basics

Value-based care isn't just about saving payers and health systems money: Value in healthcare is defined by the measured improvement in healthcare outcomes versus the cost of achieving those improvements, according to researchers.

Traditionally, payers have compensated healthcare providers/provider organizations using fee-for-services (FFS) models that pay based on the volume of services provided. Under the FFS models, more patients and services mean more payments. The value-based care model, on the other hand, emphasizes quality over quantity.

There are a variety of value-based reimbursement models in use, each with a different level of financial risk for the healthcare provider (more on that later). They're also tied up with bigger-picture ideas, such as population health and care coordination.

2. Choosing which reimbursement models to use will be key

Value-based reimbursement is more nuanced and complex than paying providers based on volume. That's why when making the shift to value-based care, it's important for payers and providers to work together to determine the reimbursement arrangements that work best for them and the populations they serve. There are many alternative payment models (APMs) out there, but here are a few common ones as defined by the Health and Human Services’ (HHS) Assistant Secretary for Planning and Evaluation:

  • Pay-for-performance: Although these programs still use FFS as their framework, payments are adjusted up or down based on performance standards like quality, appropriateness of care, patient experience, and patient safety.
  • Fee schedule payments with performance accountability: This takes the concept of pay-for-performance a step further by integrating care across settings (such as multiple practices or specialties) and using spending accountability as a performance measure. Accountable Care Organizations that share savings use this model.
  • Care management payments: In this model, providers receive a per-beneficiary, per-month payment for activities like care management and care coordination in addition to other standard fee-schedule payments. Care management payments are usually provided in targeted amounts for particular activities. Failing to meet performance standards results in lower care management payments the following year.  
  • Population-based payments: These prospective payments cover healthcare services and activities that are anticipated for a defined population over a specified time period. This is called capitation. Providers are paid a set amount per person and spend the money on providing the care they think is needed to keep their patients healthy. There are different levels of capitation, ranging from full (or global) capitation (where upfront per-patient payments are intended to cover all needed services and providers must cover costs that exceed the capitated rate) to partial capitation (which pays upfront for some services, but not everything).
  • Bundled (or episodes of care) payments: These payments cover all the care that's provided to a patient during treatment for a specific condition or intervention and covers multiple services. Bundled payments encourage care coordination between providers.

3. Value-based payment success depends on flexibility and accepting risk

The Centers for Medicare & Medicaid Services (CMS) and other payers' eventual goal is for value-based APMs to one day fully replace FFS, but for that to happen, providers need to be comfortable with a certain degree of payment risk.

Basing reimbursement on value and patient health outcomes is inherently risky: What if the outcomes aren't good or a patient's healthcare costs are higher than expected? That's why payers and providers must fully understand the risks involved for each payment model to determine which is right for them. A value-based arrangement like pay-for-performance, for example, is much less financially risky than full capitation where providers need to accept the financial risk of taking upfront payments and spending appropriately so they don't lose money.

Payers and providers will also need to be flexible in reimagining the way that care is provided in general. For example, under an FFS model, where every procedure and intervention is billed individually, there's typically no method for providers to get reimbursed for care management activities like responding to patient emails or addressing social determinants of health (e.g., helping patients get access to healthy food).

Value-based payments, on the other hand, provide a framework for holistic and complete care. For instance, RAND Corporation research has shown that "medical home programs and shared savings models (based on virtual global capitation) have allowed [primary care practices] to fund care manager positions."

There are also different kinds of risk: In upside-only risk models, providers share in the savings but aren't responsible for financial losses. In two-sided risk models, providers not only share savings "but are also responsible for some of the loss if spending is above the benchmark," according to a Health Affairs article.

Provider organizations must calculate how much risk they're willing to take on, determine whether they have the appropriate staff for tasks like care coordination, and adopt the right technology to track outcomes.

4. Robust technology is needed at every stage for value-based reimbursement

Under the FFS models, calculating reimbursement for a certain procedure is more straightforward than when the reimbursement model is based on value. That's why technology is so important.

Because patients have different healthcare needs, they need to be stratified by risk and allotted different payment amounts according to their likely healthcare utilization. Patients might be stratified by age, diagnosis, lifestyle, medical history, and behavior. Data analytics, along with interoperability and data sharing between providers, is needed for this to be done well and accurately.

Technology is also critical for tracking, benchmarking, and reporting patient outcomes. Without that data, providers won't be able to show payers how well they're providing care and allocating resources, among other important measures.

5. Value-based care and value-based payment are already in action

Although 39.3% of payments in 2020 were traditional, the rest were linked to quality in some way, according to the most recent survey from the Health Care Payment Learning & Action Network.

There's also evidence of these value-based programs' effectiveness:

  • UnitedHealth Group research found that patients treated under global capitation compared to FFS were screened at higher rates for breast cancer and colorectal cancer, demonstrated higher controlled blood sugar levels, were given more eye exams, and received higher rates of functional status assessment and medication review.
  • Humana's newest value-based care report shows that incidents of costly hospital admissions were reduced by 7% and emergency room visits by 12% for Humana individual Medicare Advantage beneficiaries receiving care from primary care physicians in value-based payment models, compared to those with Humana non- value-based care providers
  • A New England Journal of Medicine study of a two-sided risk, population-based payment in Massachusetts showed that from 2009 to 2016, the increase in the average annual medical spending on claims for the enrollees in organizations in an alternative quality contract in 2009 was $461 lower per enrollee than spending in the other states.

Whatever model your healthcare organization adopts, value-based care and alternative payment models require partnerships, so it's incumbent on payers to help healthcare providers understand the changes that are underway.

Payers also need to find the right criteria, quality methods, targets, and technology to use in contracting with provider networks for value-based payment success.

Whether your organization is a payer or provider, symplr offers the technology and services to help you navigate change toward value-based payment and value-based care. 

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