Preparing for the Transition to Value-Based Reimbursement: What You Need to Know

In the healthcare industry there is a great deal of discussion about the shift from volume-based to value-based reimbursement models, and regulatory requirements are continually changing. But what exactly are bundled payments, Accountable Care Organizations (ACOs), and value-based reimbursement? And what are the practical implications of these new models for healthcare providers and organizations?

To understand the implications of today’s healthcare landscape, it is important to have some background on value-based reimbursement.

From Volume to Value

The move from volume-based to value-based reimbursement is driving systemic change throughout the industry, not only in how healthcare services are being reimbursed but in how those services are being delivered. Under the volume-based reimbursement model, healthcare providers were paid—by Medicare or other commercial payers—based on the quantity of services provided. Each patient’s office visit, diagnostic test, or procedure would result in a separate reimbursement from Medicare or the commercial payer. In contrast, the value-based reimbursement model measures patient satisfaction and rewards healthcare providers based on the quality of the care they deliver. In its simplest form:

Value-based reimbursement =
the impact of improving care quality and
patient satisfaction +
the impact of improving the health of populations +
the impact of reduced cost of care

In addition to encouraging providers to reduce costs while improving care quality, patient satisfaction, and the health of populations, this reimbursement model aligns with the Institute for Healthcare Improvement’s Triple Aim initiative, which is at the core of the recent shift in methodology.

The transition to value-based reimbursement has also led to the establishment of bundled payments. Diagnosis-related groups (DRGs) and ambulatory payment classifications (APCs) were the government’s early attempts at bundling healthcare services. In each case, similar services were bundled into a category and billed as a complete unit, not as separate component parts. The bundling of services was designed to curb healthcare spending by paying a set fee for specific diseases, disease processes, or procedures. In terms of reimbursement, it did not matter to Medicare or other commercial payers how much a provider consumed by way of additional resources—the fee for that service was fixed.

Bundled payments are similar to DRGs and APCs—but on a much larger scale. Rather than grouping like inpatient or outpatient services, all services are combined across the complete continuum of care. This grouping methodology, known as episodes of care, combines inpatient and outpatient care, as well as group provider types, across the healthcare continuum. Under the bundled payment model, Medicare or a commercial payer will pay one single fee for all provider services involved in a patient’s episode of care. The providers involved in that treatment will then split the payment. This model encourages providers to drive out unnecessary costs and rewards them for coordinating care and reducing duplicative efforts.

The value-based reimbursement model can be difficult for providers because patients are all but guaranteed similar or improved access to care at a lower price point. For those providing the care, success is determined by the following:

• Partnering with like-minded care providers across the entire continuum of care;

• Measuring and improving quality and patient satisfaction; and

• Implementing a lower cost structure.

From an operational perspective, this shift is requiring providers to rethink how they manage their businesses. In the volume-based model, providers are paid a set amount for each service provided. As reimbursement shifts away from volume-based toward value-based, more provider reimbursement will be at risk because success is determined by achieving and exceeding certain quality and patient experience measures. The challenge lies during this interim period of transition. Not all providers are prepared to accept the shift from volume-based to value-based reimbursement, and they may find a significant portion of their income at risk. A significant part of this risk is with Medicare, which has the largest number of covered lives and is one of the lowest reimbursing payers in the healthcare system.

Evolving Healthcare Programs

In recent years, a number of programs have been deployed to help accomplish the transition from volume-based to value-based reimbursement.

Medicare Shared Savings Program

The Medicare Shared Savings Program (MSSP), an early part of the Affordable Care Act (ACA), was designed by CMS to reduce the nation’s overall expenditure on healthcare. The MSSP, which is vital to Medicare reform under the ACA, rewards those who can reduce healthcare costs while meeting or exceeding quality of care standards.

Since the MSSP initiative was first implemented, other initiatives have taken shape (Figure 1), including the following:

Figure 1. Transition to value-based reimbursement. ACO, Accountable Care Organization; AMI, acute myocardial infarction; APM, Alternative Payment Model; CABG, coronary artery bypass graft; MIPS, Merit-Based Incentive Payment System.

• Bundled Payments for Care Improvement (BPCI). Starting in 2011, CMS requested applications from providers to participate in one of four bundled payment models.

• Comprehensive Care for Joint Replacement (CJR). Beginning in January 2016 and specific to hip and knee replacements, CJR was the first test of the new bundled payment model.

• Cardiac bundled payments. This program, which addresses acute myocardial infarctions and coronary artery bypass grafts, is scheduled to begin in 2018.

More initiatives like these will be considered and implemented as the industry continues its transition to value-based reimbursement.

The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) is driving many of these initiatives. Under MACRA there are two quality payment program tracks from which to choose: the Merit-Based Incentive Payment System (MIPS) and Advanced Alternative Payment Models (AAPMs).

Merit-Based Incentive Payment System

Prior to MACRA, physician reimbursement was intended to be adjusted annually using the Sustainable Growth Rate (SGR) model. Since the implementation of SGR, Medicare has designed various programs to modify physician payments for components of care beyond the volume of services delivered. Examples of those programs include: Meaningful Use (MU); the Physician Quality Reporting System (PQRS); and the Value-Based Payment Modifier (VBPM). These programs adjust physician reimbursement:

• For implementation of compliant physician billing systems (MU);

• For quality of the physician’s care for the patient (PQRS); and

• For physician participation in reduction in the cost of care (VBPM).

All of these are being replaced by a more quality-focused, value-based reimbursement model known as the Merit-Based Incentive Payment System. MIPS data collection begins in 2017, and providers can expect their payment adjustment based on 2017 data to be issued in 2019. The intent is for MIPS to be fully implemented by 2022.

Advanced Alternative Payment Models

AAPMs are the second track physicians can take to qualify under MACRA. Building upon the framework created by the MSSP, BPCI, and other bundling models, AAPMs are designed to encourage providers to work together more closely. However, details regarding AAPMs are still being determined. In 2015, CMS set a goal to have 30% of its 2016 provider reimbursement in some form of Alternative Payment Model (APM). By 2018, CMS expects 50% of its provider reimbursement to be in some form of APM. Many of the current APMs do not qualify as AAPMs under the new regulations.

Accountable Care Organizations

The ultimate goal of these regulations is to push the healthcare industry toward greater population health management, which will lead to lower healthcare costs, increased care quality, and greater patient satisfaction. Healthcare providers and patients will work together in an environment that encourages the patient to be more responsible in his or her consumption of healthcare services and to engage in wellness activities that reduce or eliminate the need for care in the future.

ACOs are the primary vehicle by which this shift will occur. ACOs are patient-focused organizations where providers and patients collaborate on care decisions and where providers and suppliers of services work together to provide seamless, quality care. According to CMS, ACOs are designed to “create incentives for health care providers to work together to treat an individual patient across care settings—including doctor’s offices, hospitals, and long-term care facilities.”(1)

Coordination of patient care is an issue that has plagued healthcare for decades and is a key focus of the effort to reign in healthcare spending. While aiming to reduce cost of patient care, payers are also emphasizing the quality of care in hopes that providers will move away from addressing patient health issues only when they arise and will instead work together to encourage wellness activities that will eliminate or delay the need for definitive care. Enacting this transition is particularly difficult for those specialty providers whose reimbursement has historically been based on how much care they provide.

Under the ACO model, providers are rewarded when they are able to meet or exceed a minimum savings rate and meet certain quality and patient experience metrics. One challenge for healthcare providers is that beneficiaries still maintain the option to select the provider of their choice. As a result, providers may be financially responsible for patient care delivered outside of their ACO.

As of March 2017, the ACO model is still being modified. In the current model, providers can benefit from potential savings without exposure to risk. However, the next-generation ACO model factors in an element of risk. The current ACO model has 480 participants, and the goal is to migrate participants to the next-generation ACOs, which have 45 participants enrolled.

Changing Healthcare Operations and Provider Impact

Where does this change leave providers of high-quality, cost-effective healthcare? The transition is causing a massive shift in care delivery models across the country. Every aspect of care is being considered for improvement—from financial position to clinical operations to new and changing provider relationships.

Financial Position

For several years providers have faced constant pressure to reduce the cost of delivering patient care. They have done so through various means, such as process improvement initiatives, right-sizing staff, group purchasing, and more. Now providers are faced with additional scrutiny to reduce healthcare costs through value-based reimbursement. Solutions to reduce the cost of patient care going forward will require participation from both providers and vendors. Providers and suppliers will need to work together to create cost-effective means to supply patients with superior products at reduced prices. And because reimbursement will be based on collective performance, providers must address those delivering low value or service. Year-over-year improvement is critical to generate positive program results.

Financial success in the ACO and population health environment demands that detailed financial information be provided to the government on a near real-time basis. Providers who are already feeling the pinch must make material investments in information systems software and infrastructure to adequately capture the data needed to be successful in the value-based reimbursement arena.

Clinical Operations

To manage the bottom line adequately, and to improve quality of care and patient satisfaction, operations must change beyond process improvement. The delivery of patient care can no longer be business as usual. New healthcare models and initiatives will require providers to improve clinical operations by designing an optimized process as though starting from scratch. Once new processes are designed, providers must implement them quickly and establish metrics to monitor results and to ensure desired outcomes are being achieved. Data collection now will help ensure proper reimbursement in the future.

Providers should also create integrated management teams that include physicians, non-physician caregivers, and administrators from all aspects of the care delivery process. These teams will be responsible for enabling the participants to work together more effectively to improve care, modify processes, set quality and cost metrics, measure results, manage provider behavior, establish and apply best practices, and more. Providers have to work together to improve care processes and develop closer relationships with payers to help drive the course of change.

Changing Relationships

Historically hospitals, physicians, and insurance companies have been focused on their own individual goals and objectives. In a value-based system, these key stakeholders must be more partner-oriented to ensure their success.

As the reimbursement model shifts to a value-based system, hospital-physician integration and alignment will increase as well. Alignment strategies are evolving from medical directorships and call-pay arrangements to service-line co-management arrangements, as well as more integrated alignment structures such as bundled payments and ACOs.

Value-based reimbursement is here to stay, and no aspect of healthcare will avoid change.

Physicians and physician groups who historically supported several hospitals are finding it harder to do so in today’s environment. At a group level, it is possible for a group to support more than one hospital, but it is not practical for the individual doctor. The individual doctor must be familiar not only with the electronic medical record (EMR) system used by his or her practice but also with the EMRs of each facility or institution with which he or she works. For most physicians, it is simply too much.

Transitioning from transaction-based to population-based reimbursement is not easy. In many ways providers are working in three reimbursement environments: the legacy transaction-based system; an evolving population-based system; and the interim period where both systems must run in tandem. Value-based reimbursement is here to stay, and no aspect of healthcare will avoid change. It can be challenging, but with careful planning, providers can ensure they are prepared to successfully navigate the transition from volume to value.

Reference

1. Medicare Shared Savings Program: A New Proposal to Foster Better, Patient-Centered Care. CMS.gov . https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2011-Fact-sheets-items/2011-03-314.html . Accessed December 5, 2016.