The State of Value-Based Reimbursement, Financial Risk in Healthcare

Where progress is happening

Traditional Medicare and Medicare Advantage are the business lines leading the value-based reimbursement charge, the APM Measurement report showed.

In 2020, just 15.0 percent of traditional Medicare and 38.0 percent of Medicare Advantage payments were strictly fee-for-service. Both of those percentages are also down from 2019’s data, which showed 14.1 percent of traditional Medicare and 46.0 percent of Medicare Advantage payments being strictly fee-for-service.

Additionally, the proportion of value-based reimbursement in two-sided risk alternative payment models increased significantly across both programs. In traditional Medicare, 24.2 percent of payments were part of some two-sided risk model compared to 20.2 percent in 2019. In Medicare Advantage, the percentage of payments in two-sided risk models increased from 28.6 percent in 2019 to 29.3 percent in 2020.

Medicaid also saw some progress with value-based reimbursement adoption, increasing the proportion of payments from two-sided risk models from 10.6 percent in 2019 to 14.5 percent in 2020. This was despite a slight increase in fee-for-service payments, which represented 59.0 percent of Medicaid payments last year.

Commercial lines of business come to lag with value-based reimbursement adoption, the report also revealed. Private payers covered 62 percent of the lives represented in the LAN’s data, yet over half (51.5 percent) of payments made by the payers in 2020 were from fee-for-service and just 10.8 percent were from two-sided risk models.

Additionally, more payments made to providers by private payers (11.1 percent) were tied to two-sided risk models in 2019. The report shows that 53.5 percent of payments were from fee-for-service, too.

Where Medicare and MA excel

When asked why Medicare lines of business are progressing faster with value-based reimbursement adoption, chief strategy officer at the CMS Innovation Center Purva Rawal, PhD, said acceleration in 2020 is because of the Medicare Shared Savings Program and other CMS-run alternative payment models.

“Much of this increase was driven by the Medicare Shared Savings Program and more payments going through the Basic Levels C and D and the Enhanced track of the program,” Rawal said at the 2021 LAN Summit.

“We also saw contributions to the overall increase from Innovation Center models. Some of those include the two-sided risk track of the Comprehensive [End-Stage Renal Disease] Care Model, our Bundled Payments for Care Improvement Advanced Model, or BPCIA, and our smaller models like the Pennsylvania Rural Health Model,” Rawal added.

Rawal told attendees that the Innovation Center is looking at the models that helped to move the needle with value-based reimbursement adoption and using lessons learned to inform where the Center is headed next with alternative payment models to encourage greater provider participation. The Innovation Center recently revealed its new strategic vision, which according to Rawal, will also focus on encouraging specialty provider participation in population-based and targeted episode-based models and building a set of harmonized models to support risk assumption and accountability.

But co-panelist Will Shrank, MD, MSHS, also noted that the structure of the Medicare Advantage has encouraged greater value-based reimbursement adoption in that particular line of business, which has historically seen the highest adoption rates.

“The Medicare program, as it’s structured, doesn’t have the kind of resources that provide the partnership with providers that Medicare Advantage may have,” said the chief medical officer at Humana, which operates a range of Medicare Advantage plans across the country.

“For example, when we move to full risk arrangements with providers, we have the ability to turn off prior authorizations…Similarly we have resources in the markets where we operate with community-based organizations and the places where our members congregate to help them address health-related social needs,” Shrank explained. “We’re able to wrap services around our providers in ways that Medicare never really could. Medicare isn’t organized to have those relationships.”

Importantly, Shrank pointed out that data access for providers in risk-based Medicare Advantage arrangements is more tailored compared to larger, less frequent CMS data dumps. Providers have long complained that data reporting and lags have hindered their transition to value-based reimbursement models.

And while private payers run the Medicare Advantage plans, they experience unique challenges with getting providers to assume financial risk in commercial lines of business.

“Providers feel less able to influence things in the commercial space,” shared John Bulger, MD, chief medical officer for Geisinger Health Plan. “So when you look at those building blocks that make taking risk palatable from a provider’s perspective, commercial just doesn’t look as good as Medicare Advantage or even Medicaid.”

With commercial lines of business, in particular, patients have more choice when it comes to selecting a plan. However, providers rely on attribution to impact care. Patients switching employers and therefore, insurance coverage, can complicate a provider’s value-based reimbursement strategy with their commercial plan partners.

How to accelerate value-based reimbursement, risk adoption

Results from the 2020 APM Measurement report indicate a value-based reimbursement adoption lag, industry experts at the 2021 LAN Summit agreed. However, there is hope that adoption of risk-based models accelerates this year and the next.

A survey of payers participating in the report showed that 87 percent think alternative payment model activity will increase; none said it would decrease. The majority also agreed that adoption will result in higher quality, affordable care, as well as improved care coordination.

But from the payer’s perspective, provider willingness to assume financial risk, their ability to operationalize models, and interest and readiness are still the top barriers to value-based reimbursement adoption.

Lack of courage and urgency is a problem, admitted Marc Harrison, MD, president and chief executive officer of Intermountain Healthcare.

“People who are making the decisions about whether value-based care gets rolled out and as an expectation tend to be rich people who are just fine in the transactional healthcare system,” Harrison explained at the Summit.

But when even the most comfortable provider organizations are up against a hard place, system transformation is possible and can occur very quickly, Harrison stated. The pandemic, for example, prompted health systems to redeploy much of their workforce to combat the virus and implement new ways of delivering quality care. This also happened seemingly overnight.

“We know that value-based care Is better for people than volume-based care…I think courage on the part of us as leaders is lacking,” Harrison said.

For others like Humana’s Shrank though, that courage and urgency are gaining traction and could drive value-based reimbursement adoption.

“The level of partnership between payers and providers has grown exponentially and we’re seeing more and more providers, unsolicited, bringing to us the conversation about moving into risk arrangements. I do think the pandemic accelerated that willingness and openness to move toward risk arrangements,” Shrank said.

But payers still need to offer the right combination of incentives to get providers on board with value-based reimbursement and eventually downside risk.

Financial risk in the Medicare Shared Savings Program and other alternative payment models has been a barrier to provider participation in the models, according to Jose Peña, chairman of the board of managers and chief medical officer at Rio Grande Valley Accountable Care Organization Health Providers.

“We need a little bit more upside and less downside to be able to attract more clinicians. Otherwise, private equity, large insurance companies are taking the lead. They have bigger pockets, and they understand the risk side of the equation,” Peña said.

This is especially a problem for smaller primary care practices that lack the resources to dive into risk-based, value-based reimbursement. “Some change needs to happen and soon before big insurance and private equity dictate what to do and in what direction,” Peña stated.

Physician buy-in, practice champions, and “people who really believe” in value-based care and reimbursement are key to making the necessary changes, added Chad Perman, who co-designed and manages Maryland’s Primary Care Program, a state-wide advanced primary care demonstration.

“We find that across models, if you don’t have a team or a leader who says this is important and this is how we’re going to do things moving forward, it doesn’t happen,” Perman said.

Leadership, buy-in, and aligned incentives are all key to keeping the momentum going with value-based reimbursement and risk adoption in healthcare.