Transition to Value-Based Payment Models
The foundation of reimbursement for healthcare services has consistently been maintained based on a fee-for-service concept. Modifications and adjustments to this concept have been introduced and adopted over the past 30 years: DRG's, APC's, capitation and more. While these approaches have changed the pricing for healthcare services, the methodology has remained volume multiplied by price.
Today, we see a new set of variables being added to the determination of reimbursement. Generally agreed upon measures of quality are being introduced by Medicare and most other payers to determine the level of value-based care being delivered. Value is defined as aiding a population in maintaining health and avoiding the need for expensive care. For those providers and health systems that can’t achieve required measurement scores, the financial penalties and lower reimbursements will create a challenging financial burden. For those that exceed required scores, new margin will be added to existing reimbursement. New tools and resources have quickly emerged to help with the gathering and reporting of these new critical measures.
Value-based payment contracts are in their infancy, and most are structured according to a shared savings model. Shared savings arrangements differ, but in general they incentivize providers to reduce spending for a defined patient population by offering the providers a percentage of any net savings they realize. The Medicare Shared Savings Program is the most well-known example of this new model. However, many commercial payers have also introduced their own shared savings models. Each model is based on a population view and rewards providers based on reduced cost of caring for their attributed population.
Today’s mandate is for providers and health systems to understand the various value-based models and the growing number of options for participation they have available. An honest assessment of the opportunity and the skills and resources for managing value-based care is critical. This assessment should include a comparison to other providers and health systems in your market. It is possible that current competitors may become tomorrow’s allies.
To meet value-based goals, providers and health systems will need to reduce utilization among their populations, which will reduce their procedure volume, which will reduce their existing fee-for-service revenue. A clear sustaining strategy and game plan is needed to weather this transition.