Introduction to Value-Based Reimbursement: How to Get Started

With more than 1000 Accountable Care Organizations (ACOs) in existence today and, at last count, 32.7 million patients enrolled in ACOs, several documented successful strategies have emerged.(1) Up to half of the U.S. population may be served by ACOs within the next five years.(2)

How Did We Get Here?

If we stay on the current spending glide path, by 2035, healthcare costs in this country will amount to more than the total of all tax and other revenues collected, and by 2080, taxpayer-funded healthcare will equal all of our governmental revenues, meaning that everything else—defense, roads, education—must be funded by borrowing. In a 2014 report by the Commonwealth Fund, the United States “ranked last overall among 11 industrialized countries on measures of health system quality, efficiency, access to care, equity, and health lives.” Significantly, the United States was noted to have the highest costs while also displaying the lowest performance.(3)

The U.S. healthcare delivery system is undergoing a paradigm shift based on payment reform intended to drive value and improve the quality of care.

The Congressional Budget Office laid the groundwork for accountable care’s “pay-for-value” underpinning when it reported that much of the blame for our runaway healthcare costs should be placed on our fee-for-service payment system where “providers have a financial incentive to provide higher-intensity care in greater volume, which contributes to the fragmented delivery of care that currently exists.”(4)

The U.S. healthcare delivery system is undergoing a paradigm shift based on payment reform intended to drive value and improve the quality of care. This “volume-to-value revolution” is designed to reward those best able to provide efficient, high-quality services. Value-based business models require providers to undergo transformative organizational change to every facet of their operations. Reimbursement based on outcomes and taking on financial risk necessitates investment in clinical integration, redesign of traditional patient care models, and integrated information technology. Provider organizations that adequately invest in population health management capabilities and successfully shift to value-based contracts and capitated payments will have the greatest likelihood of success in the transformed healthcare market.

Payers, including Medicare, are pushing providers for increased accountability for the quality and cost of care delivered. Ongoing governmental policy changes since 2015 have greatly accelerated the healthcare market’s move from pure fee-for-service to value-based reimbursement. In 2015, Department of Health and Human Services Secretary Burwell announced the department’s goal was to move 50% of Medicare payments to value-based payment models by 2018; this goal was accomplished prior to the transition from the Obama to the Trump administration.

The Medicare Access and CHIP Reauthorization Act (MACRA) legislation further accelerated the broad move of the U.S. healthcare industry toward paying for medical services based on value rather than volume. The sustainable growth rate formula for physician payments was replaced with a fundamental shift to performance-based payments, with fee-for-service payments adjusted based on quality and cost through the Merit-based Incentive Payment System (MIPS) and the Advanced Alternative Payment Models (APMs) focused on population-level quality and outcomes performance that involve significant financial risk, but provide substantial bonus payments for those physicians who are in APMs rather than the modified MIPS fee-for-service based payment system.

Providers participating in qualified APMs will have a 5% basic bonus in Medicare fee rates from 2019 to 2024 and will not be subject to the penalties for poor performance in MIPS, which will increase over a five-year period to 9% reduction in fees.

Furthermore, organizations can qualify under MACRA for APM bonus payments by moving their non-Medicare patients to APMs, not just by changing how they receive payment for Medicare patients.

Over the next few years, these policy changes will greatly accelerate the transition of the healthcare delivery system to one differentiated by performance at the global system level. The ACO-covered lives are projected to increase from the current 37 million lives to 177 million lives by 2020—a more than 600% increase.(5)

As reimbursement moves from volume-based to value-based, the department-centered organizational model of most legacy healthcare providers must be reorganized around specific populations, conditions, and focused asset capabilities.

The 21st Century Cures Act enacted by Congress in December 2016 further accelerated federal healthcare payment reform via its emphasis on reducing administrative burden for providers addressing health information technology barriers, such as information blocking, interoperability, and the expansion of telehealth services. Current CMS Administrator Seema Verma continues to emphasize the reduction in regulatory burden and flexibility while also focusing policy on increasing incentives for providers to assume more risk in value-based payment models. In January 2019, she announced CMS is exploring ways to apply value-based payment models beyond Medicare and encourage more providers to buy into the programs and work with additional payers. The Trump administration, like the Obama administration before it, is committed to the transition to value-based care. The administration is pushing the envelope to accelerate the progression of contracts from shared savings to full capitation with market-based reforms emphasizing individual choice, decreased regulatory burden, and increased competition.(6)

Healthcare providers need a new set of skills and tools to successfully navigate this accelerating transition. As reimbursement moves from volume-based to value-based, the department-centered organizational model of most legacy healthcare providers must be reorganized around specific populations, conditions, and focused asset capabilities. Efficiency on a population level rather than volume-based unit level will become increasingly important for financial viability, with chronic condition management, “focused-factory” capabilities for bundled payments, and service offerings organized around specific patient populations driving profitability more significantly than investment solely in capacity. Strategic alliances across the continuum of care and investment in clinical and information integration will become increasingly important drivers of profitability.

The resources and capabilities necessary in reforming the healthcare delivery system are inadequate for the demand as the fee-for-service system shifts to value-based payment models. Proven models for success and adequate infrastructure are in short supply because the capabilities involving strategy, people, process, and technology required for the new delivery system paradigm are not intrinsic in current healthcare organizations’ structural framework, which has been built to maximize success in the fee-for-service payment system.

Given that governmental and commercial payers are moving to a value-based model of reimbursement over the next two to five years, it is remarkable that 95% of health provider organizations in the United States have no specific strategy for moving to that model. Even though physician reimbursement will increasingly be based on quality outcomes and patient satisfaction, there are few holistic, physician-inspired solutions that will support the people, process, and technology transitions required to lower operating costs and increase the quality of care.

The solution is to change the culture of the care team through innovative and proven care model redesign, reduce healthcare operating costs by providing process and technology tools to dramatically increase productivity and efficiency, and increase healthcare operating margins by providing process and technology tools to manage contracts and risk.

Because most patient populations require a full suite of healthcare services, providers must be able to enter into strategic partnerships with internal and external stakeholders across the entire spectrum of the healthcare delivery system network. Future integrated delivery networks will be focused around care models that operate at the intersection of the population segments and health conditions. New structures, such as internal care coordination and condition management hubs, clinically integrated networks (CINs), and high-performance networks (HPNs) will be required to provide the quality, breadth, and efficiency of healthcare services being demanded by the new paradigm.

The New Healthcare is a Team Game

Building on the momentum of other growing trends toward changing payments to incentivize better population health and lower costs such as the Medicare Shared Savings Program (MSSP) and MACRA will radically change America’s healthcare delivery landscape. The transformation of the delivery model has been progressing in recent years from fee-for-service (which has had the unfortunate unintended consequence of paying more money for more, not better, care) to pay-for-value (which rewards better outcomes at lower cost). However, to a large degree, the transformation has been implemented slowly. MACRA has fixed deadlines and significant financial bonuses and penalties and should not only significantly impact provider Medicare fee reimbursement but motivate other payers to shift as well.

A fundamental premise of value-based care is to achieve better health status and reduce avoidable overall costs for patient populations. This is almost impossible to achieve if providers continue practicing in silos, within a fragmented and uncoordinated “non-system.” Put another way, practicing in integrated care teams is the proverbial low-hanging fruit in the new healthcare to drive “value,” defined here as achieving the highest quality at the lowest costs.

Surveys show that the majority of affected providers with substantial Medicare beneficiary populations are totally or mostly unfamiliar with MACRA.(7) Anecdotally, it is clear that even fewer comprehend that the now-delayed “cost” measurement on which they will be graded within its MIPS and Advanced APM components of MACRA will generally judge them on the overall costs for the patients they encounter, not just their own costs.

The “accountable” part of accountable care organization denotes that all providers now depend on each other, across specialties, to manage the health status and total overall costs of their patient populations.

This is as radical as it is poorly understood. For example, as Mark McClellan, MD, PhD, wrote recently, although a primary care physician receives 6% to 8% of this sum, the patients of a typical primary care physician in this country consume roughly $10 million annually in healthcare costs.(8) The MSSP, MACRA MIPS, and advanced APMs models clearly require and incentivize coordinated care across the care continuum. The impact of MACRA virtually guarantees that value-based payment will be a dominant payment model.

Other private and public payment initiatives like accountable care organizations continue to grow as well. For example, the “accountable” part of accountable care organization denotes that all providers now depend on each other, across specialties, to manage the health status and total overall costs of their patient populations. No longer is doing well as an individual enough.

The bottom line is that the influence of MACRA removes all doubt that value care is inevitable and that thriving in such an environment, where providers are compensated based on the overall costs of their patients, requires interaction across specialties. The new healthcare is a team game.

The Move to Value is Not Going Away

MACRA was passed by both chambers of Congress with strong bipartisan support.(9) Implementing regulations have now been promulgated by both the Obama and Trump administrations.(10) HHS Secretary Alex Azar’s announcement of five new value-based primary care payment models on April 22, 2019 integrates direct input from primary care clinician stakeholders and is based on underlying principles designed to reward value and quality(11):

• Prioritizing the doctor-patient relationship;

• Enhancing care for patients with complex chronic needs and high need, seriously ill patients;

• Reducing administrative burden; and

• Focusing financial rewards on improved health outcomes.

Importantly, the five primary care models introduced are designed for primary care physicians in practice types across the organizational spectrum, from small, independent practices to integrated delivery networks. Primary Care First is designed for physicians in small, independent practices, whereas the direct contracting models are designed for ACOs, IDNs, and Medicare Advantage plans. These ambitious programs are designed to move 25% of Medicare patients out of the fee-for-service arrangement with primary care physicians and into value-based payment models.

Similarly, on July 10, 2019, HHS Secretary Azar and CMS Administrator Verma announced five new payment models focused on nephrologists and designed to transform kidney care: the End-Stage Renal Disease Treatment Choices Model; the Kidney Care First Model; and variations of the Comprehensive Kidney Care Contracting Models (Graduated, Professional, and Global). They also announced a proposed Radiation Oncology Model targeted to radiation therapy providers. These models are a harbinger of value-based care focused on specialists.

Change is Hard

Without question, we are moving to a team-oriented value-based payment model for integrated population health. This will require a disruptive transformation of healthcare delivery. Such a fundamental change is difficult for people and organizations, and there is a natural tendency to resort back to fee-for-service business practices even once in an integrated or alternative arrangement. Additionally, change is difficult even when there is universal support, which this movement has never purported to have.

The move to value is an opportunity for physicians and other health system leaders to drive positive change and create a sustainable, affordable healthcare delivery system. The so-called healthcare Triple Aim is based on the idea of delivering the right care at the right time at the right price. We should all embrace with enthusiasm the unprecedented opportunity to redesign the healthcare system to achieve these aims. These new payment models are the opening for physicians and other healthcare leaders to think about new and better ways of providing healthcare services and participate in the redesign opportunity of a lifetime.

A new set of skills is required for physician and other healthcare leaders to accomplish this goal. These skills include a working knowledge of design thinking and change management and an understanding of the new payment models and contracting parameters. Those who will be most successful in the move to value will be those who bring these new skills to the table in a way that integrates the vast expertise in patient care delivery already part of our skill set.

There is no way to thrive under the new model without collaborating and “integrating,” as it were, with other providers; moving to value care is no longer optional.

Value-based care done right is truly disruptive. It requires a major culture shift by stakeholders and a major reengineering of care delivery. It is no surprise that the most successful ACOs are the ones that have been at it the longest. Richard Zane, MD, while serving on the NEJM Catalyst Insights Council, stated, “I feel our current system of healthcare is so flawed and rife with anchoritic processes and perverse disincentives that the only likely way we’ll achieve the transformation is through disruption. . . .

[O]ut-of-the-box thinking is difficult for entrenched health systems because many are totally hooked on fee-for-service medicine.”(12)

References

1. Muhlestein D, Saunders RS, Richards R, McClellan MB. Recent progress in the value journey: growth of ACOs and value-based payment models in 2018. Health Affairs Blog. August 14, 2018. www.healthaffairs.org/do/10.1377/hblog20180810.481968/full .

2. Leavitt Partners. https://leavittpartners.com .

3. The Commonwealth Fund. US health system ranks last among eleven countries on measures of access, equity, quality, efficiency, and healthy lives. The Commonwealth Fund. June 16, 2014. www.commonwealthfund.org/publications/press-releases/2014/jun/us-health-system-ranks-last

4. Congress of the United States, Congressional Budget Office. Budget Options, Vol 1.: Healthcare. December 2008:72

5. Muhlestein D, Garner P, Caughley W, de Lisle K. Projected growth of accountable care organizations. White Paper. Leavitt Partners. Dec 2015. www.leavittpartners.com .

6. Goodman JC, Wedekind LJ. How the Trump administration is reforming Medicare. Health Affairs Blog. May 3, 2019. www.healthaffairs.org/do/10.1377/hblog 20190501.529581 .

7. HITC Staff. Survey: Less than 1 in 4 physicians are well prepared to meet MACRA Requirements. HIT Consultant. June 29, 2017. www.hitconsultant.net/2017/06/29/ama-kpmg-macra-qpp/ .

8. Mostashari F, Sanghavi D, McClellan M. Health reform and physician-led accountable care: the paradox of primary care physician leadership. JAMA. 2014;311(18):1855-56.

9. The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) was passed in April 2015 with a 92-8 Senate vote and 392-3 House of Representatives vote.

10. During the Obama administration, the Final Rule implemented by the law was published on October 14, 2106. During the Trump administration, a proposed rule to ease administrative burdens was published on June 30, 2017.

11. The Commonwealth Fund. US Health System Ranks Last Among Eleven Countries on Measures of Access, Equity, Quality, Efficiency, and Healthy Lives. The Commonwealth Fund, June 16, 2014. www.commonwealthfund.org/publications/press-releases/2014/jun/us-health-system-ranks-last

12. NEJM. Unlocking the Opportunities for Health Care Delivery Transformation. NEJM Catalyst. May 2019. http://join.catalyst.nejm.org/download/understanding-barriers-unlocking-opportunity-ebook2019/register .