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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.
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MAY/JUNE 2015
11
Reprinted with permission. All rights reserved.
Shifting Gears: The Move Toward Value-Based Payment
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
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Reprinted with permission. All rights reserved.
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 valuebased 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
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?”
“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.
“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.”
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
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.
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
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Reprinted with permission. All rights reserved.
“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
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 payfor-performance contract. “It is an
attempt to put together a risk-based
product that employers would find
Inpatient Surgical Care Improvement Project
Appropriate Care Score Target=96%
100
98
96
94
92
Source: Salem Health.
Dec-14
Oct-14
Sep-14
Nov-14
Inf-1
adjust
Inf-2-3
Inf-1
Aug-14
Jul-14
Apr-14
May-14
Jun-14
Card-2
Inf-9
Feb-14
Jan-14
Oct-13
Nov-13
Sep-13
86
Dec-13
Start
88
Mar-14
90
Jul-13
Sep-­‐13
91.84
96
Oct-­‐13
93.44
96
Generally,
the amount
of revenue
at
Nov-­‐13
94.03
96
risk under
pay-for-performance
Dec-­‐13 Salem’s89.55
96
Jan-­‐14
95.31
96
contracts equals the difference between
14-­‐Feb
95.59
96
the health
requested rate96increase
14-­‐Marsystem’s96.36
14-­‐Apr
91.75Gruber 96
and the
payer’s offer,
says.
14-­‐May
90.53
96
14-­‐Jun
97.64
96
Salem14-­‐Jul
uses Centers
for Medicare
97.98
96 &
14-­‐Aug
99.5
96
Medicaid Services quality indicators
14-­‐Sep
97
96
as a platform
for 94.35
preparing for96
14-­‐Oct
14-­‐Nov
97.12
96
14-­‐Dec
98.92
96
The health system’s efforts so far have
resulted in improved patient satisfaction,
improved compliance with evidencebased measures and flu vaccinations
for employees, and a reduction in
hospital-acquired pressure ulcers.
Aug-13
“It’s only a bonus if you think it’s
extra money,” he says. “The reality is
we’re building
these measures
into
SCIP ACS
Goal
the contracts,
but
we
hope
we
May-­‐13
92.42
96get the
Jun-­‐13
91.53
bonus because that’s how we 96
manage
Jul-­‐13
88.89
96
our revenue
Aug-­‐13 expectations.”
88.89
96
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.
Jun-13
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.
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.
May-13
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.
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.
Percent
opportunity for providers to wade
into value-based payment waters without taking a full plunge, Eggbeer says.
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
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, datasharing 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 payerprovider partnership, its service area and attributed membership,
and its commitment to action.
Healthcare Executive
MAY/JUNE 2015
15
Reprinted with permission. All rights reserved.
Shifting Gears: The Move Toward Value-Based Payment
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 valuebased models, Kile says. (See the sidebar on page 15.)
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.
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.
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 volumeand fee-for-service-based to valuebased reimbursement.”
The tool also will enable LVHN to
conduct such complex tasks as preCurrently, just 67,000 lives—about
dictive analytics and risk modeling to 2 percent of the health system’s combetter identify high-risk patients and
mercial insurance patients—are
then create care strategies to prevent
under shared-savings contracts;
these patients from becoming highhowever, Kile says the potential for
cost patients, Kile says. Capabilities
accelerating the pace of growth for
The Aurora Network is modeled after
around predicting performance are
such contracts is strong. “The indusan internal ACO developed several
preparing the health system to enter
try is getting a bit of a nudge right
years ago for Aurora’s 45,000 covered
into shared-risk contracts, which
now, so shared-savings contracts with employees and their dependents.
Options for Risk-Based Payment: Hospitals and Health Systems
include a penalty for not achieving
Options for Risk-Based Payment: Hospitals and Health Systems
quality targets. “We’ve had conversations with our payers. We’re positioning for that,” Kile says.
Contract
Partner
Go it
with Health Plan
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
16
Healthcare Executive
MAY/JUNE 2015
Reprinted with permission. All rights reserved.
Fee-forService
Contract
P4P
Contract
Lower
SharedSavings
Contract
with Health Plan
Full
Capitation /
Global
Payment
Budget
Contract
PrivateLabel
Product
Partnership
Risk / Reward Tradeoffs
Alone
ProviderSponsored
Health Plan
–
Outsourced
Services
ProviderSponsored
Health Plan
Higher
Source: BDC Advisors.
Copyright © 2015 BDC Advisors, LLC. All rights reserved.
0
Shifting Gears: The Move Toward Value-Based Payment
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
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Reprinted with permission. All rights reserved.
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 valuebased 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.