Transitioning to Value-Based Care While Reducing Risks

Over the next five years, every healthcare organization in the country will face changes in their Medicare reimbursement.

With the US federal deficit at an all-time high, healthcare spending makes up the biggest and fastest-growing share. To get healthcare costs under control and “bend the cost curve,” the Centers for Medicare & Medicaid Services (CMS) is driving a shift from the fee-for-service (FFS) reimbursement model, which rewards quantity over quality, to value-based care (VBC) payment models, which encourage providers to deliver the best care at the most reasonable cost, thus improving the overall value of care.

The goal is to have close to 100 percent of reimbursements tied to value-based contracts by 2025. Currently, less than 20 percent of Medicare spending is value-based. That means $1 trillion of healthcare risk will be shifting from the government to hospitals, health systems, and physician practices across the country.

Many healthcare providers are uncertain about the downside exposure or if they can afford this change. In order to be successful, providers need to have a deep understanding of the value-based programs they are pursuing, their opportunities for revenue growth, and the risk of loss.

A shifting business model

In 2018, Medicare covered 59.9 million people—51.2 million people aged 65 plus and 8.8
million people with disabilities. VBC models currently account for 10 to 15 percent of Medicare beneficiaries, but voluntary adoption by providers of population-based models with significant downside risk is steadily increasing. In 2012, when Center for Medicare & Medicaid Innovation (CMMI) introduced the first population-based risk program, there were fewer than 1 million providers participating. The number hit 4 million in 2017, the first performance period under MACRA, and in 2018, it hit 6 million. The growth continued in 2019 and is projected to reach more than 9 million by the end of 2020.

As a business model, FFS has always been unusual because it doesn’t connect the cost of delivering healthcare to the price of services provided. Physicians who treat patients are even further removed—and in many cases shielded entirely—from cost and price conversations. New payment models are trying to fix that. CMS leadership takes a more entrepreneurial view and sees room for business practices in healthcare that would help curb costs.

However inconvenient the push to value-based care may be, one reality is unavoidable: FFS as a payment model is actuarially unsustainable.

Since 1960, US national health expenditure (NHE) growth rates have typically outpaced economic growth rates. From 2008 to 2015, expenditures from the Hospital Insurance (HI) Trust Fund exceeded income each year, and in 2018, HI expenditures exceeded income by $1.6 billion.

Shifting demographics in the US explain this surge in expenditures. In this
century, America has become home to an aging population. In 2020, an estimated 17 percent of the US population will be 65 or older. That’s 50 million adults with an escalated reliance on healthcare. By 2030, the last of the baby boomers—76.4 million people or 20 percent of Americans—will have moved into the ranks of the older population, with the eldest of this group (aged 85 and older) reaching 8.7 million people.

A closer look at new value-based payments

To help, CMMI has developed over a dozen new voluntary and mandatory value-based payment models. These new programs generally follow two basic models: accountable care organizations (ACOs) and bundled payments. While these programs come with real financial risk, participating providers who deliver care efficiently and meet quality outcome measures can significantly increase their revenue through performance-related bonus payments. Another benefit is the increased autonomy that specialists have in providing care and running their businesses.

The shift from volume to value is still in the early stages, but it is already having a dramatic effect on how care is delivered and paid for, as well as on who assumes the risk.

Impact of COVID-19

For providers on the front lines of the COVID-19 crisis, the focus will obviously be on helping as many infected patients recover as quickly as possible and getting their facilities through the pandemic. Non-frontline care providers have seen volume and revenue significantly reduced as elective procedures and routine visits were canceled or postponed. As a result, CMS is offering some downside forgiveness in VBC programs for the duration of the pandemic, as providers shift their attention to more urgent patient care and business operations.

Brad Smith, the Director of CMMI, said in late-May 2020 spoke during a deep dive webinar on the "Future of APMs" hosted by America's Physician Groups (APG), “I think we’re only going to double down on our commitment to value-based care based on what we’ve seen in the public health emergency.”

As we move past the crisis, COVID-19 is expected to accelerate the shift to VBC as budgets face new and sizable constraints at all levels. The federal government has allocated over $3 trillion to support the economy during the crisis, and many states have also invested in major relief efforts. This spending will exacerbate existing deficits and increase pressure to reduce healthcare costs into the future.

Major opportunity to grow your business

The flight from volume to value is accelerating, and it represents a major opportunity for providers to grow their businesses. It is also the beginning of a massive shift in risk from payers to providers.

To be prepared, providers need to fully understand what programs are available to them, whether they’re positioned to win or lose, how their performance compares to that of their peers, what opportunities they have to earn new revenue, and their level of risk to financial loss. Forward-leaning provider organizations are bringing together key stakeholders from their risk management, clinical quality, contracting, and medical management teams to assess the risk contracts they currently have, as well as other programs they may be interested in pursuing.

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