Value-Based Payment Models May Help Hospitals Prepare for Surges

Hospitals and health systems can implement value-based payment models to ensure preparedness for seasonal and pandemic capacity surges, according to industry experts.

Hospitals experienced increased demand for tangible resources and staff during the COVID-19 pandemic, demand health systems typically only face during peak flu season.

Unlike organizations in other industries, hospitals and health systems tend to lose money during their peak seasons. They also face supply shortages, largely due to the fee-for-service payment model under which most hospitals operate, lead author Shereef Elnahal, MD, president and CEO of University Hospital and former Commissioner of New Jersey’s Department of Health, explains in the Harvard Business Journal. Co-authors of the article include Kushal Kadakia and Suhas Gondi of Harvard Medical School.

Fee-for-service models reimburse hospitals depending on the volume of patients they treat, not the quality of patient outcomes. For this reason, hospitals are more likely to operate at full capacity on a normal basis to ensure maximum reimbursement. However, this leads to little leeway when hospitals experience patient surges during peak seasons.

Hospitals may also struggle with seasonal demand due to static payment rates for inpatient care that they are unable to adjust to correlate with demand. In order to keep up with surges, health systems may have to hire more staff or order more supplies, which leads to increased expenses despite no increase in revenue.

During flu season, primary care providers increase their staff by 30 percent and still struggle with finances and capacity gaps, Elnahal et al. stated. The COVID-19 pandemic increased the need for healthcare professionals but staffing shortages have gotten worse across all healthcare facilities.

The authors argued that instead of relying on individuals, health systems should develop a model that can easily adjust healthcare delivery to fit any circumstance, including increased patient capacity and surges due to the pandemic. Creating a value-based payment model may give health systems more flexibility when it comes to dealing with demand surges.

“Like many delivery innovations, the viability of seasonality functions is contingent on sustainable reimbursement,” they wrote. “After all, hospitals will have little motivation to build flex capacity if fee-for-service payment incentivizes systems to keep beds filled.”

Value-based payment models reimburse providers based on the quality of care, not the volume. This model is more likely to motivate health systems to improve staffing procedures. Rather than dividing physicians’ time in a way that will lead to the highest volume of completed services, health systems could refocus their objective to addressing patient needs and improving health outcomes.

Under a value-based model, physicians are also less likely to transfer patients to high-margin care facilities if it is not medically necessary.

Maryland’s value-based all-payer model, which reimburses hospitals using global budgets for inpatient episodes of care, allowed hospitals in the state to successfully manage the influx of patients during the pandemic.

The all-payer model also reduced surgical spending and the rate of avoidable surgery complications, a separate study from JAMA Network Open noted.

If providers receive reimbursement based on outcomes rather than volume of services, they can set aside resources and supplies for peak seasons instead of constantly operating at full capacity.

The authors also noted several other ways health systems can increase their capacity to manage demand surges.

Utilizing home-based primary care services may help reduce hospitalization rates, especially for seniors. If patients have access to healthcare services at home, it could keep them out of the hospital and free up staff during peak capacity periods.

Similarly, health systems could leverage telehealth services to assess patients and determine if an in-person visit is necessary. Telehealth use could improve access to care for patients and save the hospital money, the authors said.

Hospitals could also deploy remote patient monitoring technology for patients to manage their acute conditions from home.

Elnahal et al. indicated that partnering with urgent care centers or retail clinics may help hospitals reduce the number of patients in the emergency department who do not necessarily require trauma care.