Editor’s Note: Hospitals and health systems across the country are redesigning care delivery to improve quality and outcomes, enhance the patient experience, reduce costs, and, ultimately, produce better population health. The payment landscape for healthcare services has evolved to support providers’ transition to new care delivery models. Over the past ten years, payers have transitioned a growing portion of payments made to providers to alternative payment models (APMs). Also commonly referred to as value-based payment models, APMs incent providers for quality and value rather than volume.
In a new report released by the American Hospital Association (AHA) Center for Health Innovation, summarized below, the AHA and Manatt Health collaborated to present an overview of the successes and challenges that providers have experienced in aligning care delivery models with APMs and to share lessons for those in the midst of the transition. In addition, the AHA and Manatt Health have created a list of 23 questions for hospital leaders and their teams who are grappling with how to evolve their care delivery models and which payment models can support their transformation goals. Click here to download free the full report and the list of 23 questions.
The Changing Landscape of Alternative Payment Models
Today, more than a third of U.S. healthcare payments are value based, up from 23% in 2015. This significant shift from traditional fee-for-service (FFS) reimbursement models has been fueled in large part by Medicare, which has rolled out a number of programs that shift payment toward value, including the Medicare Shared Savings Program (MSSP) in 2011. The passage of the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015, which made sweeping changes to how Medicare reimburses physicians for their services, created an additional platform to drive APMs in Medicare.
What States Are Doing With APMs
State Medicaid programs also are putting substantial pressure on plans in Medicaid managed care, as well as providers, to transition payments to APMs. Most states have some kind of APM or care delivery model in place (such as an accountable care organization), and many include mandatory value-based payment targets in their contracts with Medicaid managed care organizations.
What Private Payers Are Doing With APMs
Movement toward APMs is also accelerating in the commercial market. For example, the Healthcare Transformation Task Force—a consortium of key providers and payers, including Aetna, Anthem, several state-level Blue Shield plans, Geisinger, Kaiser Permanente and Sentra Healthcare—had nearly 50% of its provider and payer members’ payment arrangements in APMs by the end of 2017 and aims to reach 75% by 2020.
In addition, a small but growing number of employers are experimenting by directly contracting with health systems for certain groups of employees and/or through center of excellence programs, which typically negotiate bundled payment arrangements with a limited number of high-quality, low-cost providers for specific episodes of care. In certain cases, public and private payers are working together—at both the national and state levels—to align payment models.
Evolution in Care Delivery Models
By redefining care models and implementing value-based strategies, hospitals are taking steps to develop a culture in which driving patient-centered value and making a sustainable difference in patients’ health are major focus areas. Alternative approaches to care delivery have clustered around four models—accountable care organizations (ACOs), medical homes, bundled payment programs and provider-sponsored health plans (PSHPs). ACOs and medical home models, in particular, have increased dramatically.
Various service delivery and payment models with a goal of achieving better patient care, smarter spending and healthier communities are still evolving. Health systems are implementing and refining a wide array of care delivery models.
Health system leaders who have embarked on the change say that they are committed to continuing the evolution because the approach is better for patients. They caution, however, that there is no silver bullet that can substitute for setting an inspiring vision for care delivery, engaging clinicians to develop evidence-based protocols and care plans, retraining staff to support the new approach, and building feedback loops to measure performance and adjust as needed.
The Alternative Payment Model Framework
The Centers for Medicare & Medicaid Services (CMS) Health Care Payment and Learning Action Network (HCPLAN) framework classifies payment models into four categories along a continuum of clinical and financial risk for provider organizations:
- Category 1: FFS with no link to quality or value
- Category 2: FFS with a link to quality or value, such as pay for reporting or pay for performance
- Category 3: APMs built on an FFS architecture, such as APMs with shared savings or with shared savings and downside risk
- Category 4: population-based payments, such as condition-specific population-based payment, comprehensive population-based payment, and integrated finance and delivery systems
Despite increasing adoption of APMs across payers, most of the dollars in value-based arrangements still flow through an FFS chassis, with few providers assuming responsibility for financial losses and just 4% of arrangements flowing through population-based payments (category 4). As a result, many health systems are grappling with how to meet the objectives of APMs, while the majority of their payment arrangements are still in FFS.
Eight Common Principles of Evolving Care Models
Health systems are evolving their care models in different ways to meet their patients’ needs and align with their organizational cultures. While specifics differ, there are eight common underlying principles:
- Organize care delivery around the needs of patients across the care continuum through ownership or partnerships with affiliated providers to better manage patients post-discharge and avoid readmissions.
- Significantly broaden the provider’s scope from a narrow focus on disease states and episodes of care to a broad focus on the health of populations, including health-related social factors.
- Redefine the role of the physician from an autonomous actor to the leader of an integrated care team.
- Introduce complex new workflows and technologies, such as real-time data to drive clinical decision making, proactive care management and telehealth programs.
- Deliver evidence-based clinical care and use care management to support high-needs patients.
- Adopt IT infrastructure and analytic capabilities to track patient quality and cost outcomes.
- Evolve financial management processes to manage risk-based contracts.
- Align governance and management processes to support alternative payment and care delivery models.
Addressing the Challenges in the Transition of APMs
While government payers have sparked a paradigm shift around how to pay for healthcare in the past decade, they have allowed for a transition, granting providers time to build new capabilities without significant exposure to downside risks. Government payers, however, are just one part of the reimbursement landscape. Commercial payers have lagged in their use of APMs. As a result of the slow ramp-up and divergent reimbursement strategies across payers, adoption of APMs by health systems has been wide rather than deep, with many participating in some form of APMs but most not taking downside risks. Many health systems now find themselves with one foot in FFS and the other in alternative reimbursement models.
Providers experimenting with APMs based on an FFS architecture have identified seven key challenges:
- Delivering care in new ways requires a source of funding that is often not available under a shared savings model.
- Health systems that implement APMs with a subset of payers may jeopardize reimbursements under FFS contracts.
- Reducing revenue under a shared savings APM may not immediately lead to a proportional decrease in expenses, because health systems have substantial fixed costs.
- The opportunity to achieve shared savings decreases over time, as successfully decreasing spending leads to lower benchmarks in subsequent years.
- Technical decisions related to setting the cost benchmark can lead to highly variable results.
- Attribution models are imperfect, often causing providers to have limited or no relationship with attributed patients and little ability to influence their care.
- Success under shared savings or risk depends on scale.
Preparing for the Road Ahead
Once providers begin implementing care delivery changes—such as team-based care, care management for complex populations and robust analytics—they quickly see those changes as superior ways to deliver care. Payment model changes, however, are insufficient to finance the truly transformative changes that health system leaders are seeking to provide.
Providers agree that payment models will move into more advanced levels during the coming years. The pace of change, however, will vary by local market. Although the pace of change may differ, the lesson from the field is clear. Transformed care delivery works best with a transformed payment model.
Maturity Framework for New Care Models/Risk-Sharing Arrangements
Hospitals are in the midst of navigating significant changes in how they operate and deliver care. The AHA Center for Health Innovation and Manatt Health collaborated to create a maturity framework to help health systems assess their current capabilities to determine the optimal type of value-based care for their organizations. The maturity framework presents the characteristics that define basic, foundational and advanced levels of system maturity across five capability areas: care continuum and provider network management, critical and care management, IT infrastructure and analytics, financial management, and governance and provider engagement. Click here to view the full maturity framework.
Roadmap to Advance Along the Maturity Model
Once an organization determines its place on the maturity model, there are six steps it can take to accelerate its transition to greater levels of risk:
- Develop and commit to a transformed vision of care delivery, recognizing that the new approach may risk short-term financial losses but will drive long-term success. Health plans that implement new care delivery models see better health outcomes, more satisfied patients and more engaged providers.
- Identify a source of financing for the care delivery transformation.Building networks, transforming delivery processes and investing in support systems all require capital.
- Develop a proof of concept. Implement changes and test the model, carefully tracking outcomes related to quality and cost for the relevant population.
- Build financial management capabilities to manage risk contracts. As providers advance along the risk spectrum, additional financial management capabilities are critical to translating care delivery innovation into success.
- Leverage the proof of concept to negotiate more advanced APMs with other payers. Rather than wait for payers to evolve their models, providers can use their proofs of concept to proactively bring a value proposition to payers.
- Align physician incentives with broader APMs negotiated with payers.Provider organizations can work collaboratively with physicians to develop new compensation models—generally incorporating a base salary, a portion tied to quality and a smaller portion tied to volume—that align physician incentives with APMs.
Accelerating Care Delivery Transformation
While APMs were an initial catalyst to care delivery transformation, payment models have not evolved sufficiently to finance new care delivery approaches. Leaders of organizations engaging in advanced models are experimenting with new care delivery approaches based on the belief that these changes will improve patients’ health, but they are also struggling to transform care delivery under a payment system that is still largely FFS.
Hospital and health system leaders can positively influence each other in addressing the challenging dynamic between care delivery and payment models. By building care delivery prototypes, testing their models and bringing a value proposition to payers, health systems can achieve greater alignment in reimbursement from government and commercial payers, further accelerating care delivery transformation. Such an approach creates a cycle where initial successes in care delivery and payment reform drive bolder care model changes and increased levels of financial risk.
As payers continue to shift higher levels of risk onto providers, hospitals and health systems that leverage this positive feedback loop to transition a substantial portion of their payment stream to APMs will be well positioned for success. Through the hard work of changing their care models, providers are poised to lead care delivery change to improve patient outcomes.