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The Key to Transitioning from Fee-for-Service to Value-Based ReimbursementBy Bobbi Brown and Jared Crapo
Shifting Revenue Mix The Rise of Medicare and Medicaid The first hospital challenge we to want address, shifting revenue mix, is clearly seen in the graph below. The percentage of commercial payers will continue to shrink, while payer types with lower reimbursement rates will increase.
Shifting Revenue Mix The Rise of Medicare and Medicaid We’ve known for a long time that Medicare expenditures would grow as the baby boomer population aged, but over the same time period, Medicaid has grown at a faster rate. We expect this trend to continue as the boomers continue to age — and as the Medicaid expansion authorized in the Affordable Care Act is fully implemented.
Transitioning to Value-based Payments The transition from the fee-for-service (FFS) reimbursement system to one based on value is one of the greatest financial challenges health systems currently face. This challenge is so big that we will only address of few of its aspects here. Visit value-based purchasing for expanded information on this topic.
Transitioning to Value-based Payments Value-based payment contracts are in their infancy; most are structured according to a shared savings model. Shared savings arrangements differ, but in general they incentivize providers to reduce spending for a defined patient population by offering them a percentage of any net savings they realize. The Medicare Shared Savings Program is the most well-known and standardized example of this new model. Reconciling Value-Based Payments in a Fee-for-Service Environment
Transitioning to Value-based Payments Tracking performance in this kind of arrangement is a significant challenge for health systems because it requires keeping track of two very different payment systems simultaneously. Medicare continues to reimburse health systems on a FFS basis; then, at the end of the year, shared savings bonuses are calculated. If a hospital did better than that the FFS population, they get a piece of the savings. Reconciling Value-Based Payments in a Fee-for-Service Environment
Transitioning to Value-based Payments Tracking shared savings reimburse-ments that come in at the end of the year requires health systems to be much more sophisticated in their accounting capabilities than most are today. It simply won’t work to account for all payers and all patients in the same way. A hospital has to know every patient in the accountable care organization (ACO), what services they’re getting, and what it costs. Reconciling Value-Based Payments in a Fee-for-Service Environment
Transitioning to Value-based Payments A lot of today’s value-based incentives — and penalties — rely on quality measures. For many years, providers have submitted quality measures for programs such as Hospital Inpatient Quality Reporting (IQR), Hospital Outpatient Quality Reporting (OQR), and Physician Quality Reporting System (PQRS). T he fact that these measures are now tied to penalties and incentives is new. Tracking a Wide Variety of Quality Measures
Transitioning to Value-based Payments Providers need sophisticated analytics to help them measure financial and quality performance for each population of patients. They don’t want to learn that their reimbursement is going to be poor after it’s too late to do anything about it. If they aren’t meeting quality standards, they need to be able to pinpoint the cause Tracking a Wide Variety of Quality Measures
Transitioning to Value-based Payments It’s one thing to handle this level of performance analysis for a single patient population or a single quality measure. It’s another story altogether when you consider how quickly the number of measures a health system must track is multiplying. A small but important area of performance measurement: tracking 30-day readmissions. Tracking a Wide Variety of Quality Measures
Transitioning to Value-based Payments For the last few years, Medicare has required hospitals to track their 30-day readmissions rates for heart attack, heart failure, and pneumonia patients. Medicare is about to add three additional populations to this requirement. And now health systems are being asked to track 90-day readmission rates. With all the potential quality measures and patient populations this becomes a highly complex process. Tracking a Wide Variety of Quality Measures
Transitioning to Value-based Payments The transition from FFS to value-based reimbursement is one that will occur over many years. Frankly, that transition is going to hurt in the short run. To meet value-based goals, hospitals are going to have to reduce utilization among their populations, which will reduce their procedure volume, which will reduce their revenue. The next slide illustrates this trend. Optimizing Margins as Revenue Drops
Transitioning from Fee-for-service to Value-based Reimbursements No one really knows how long this process will take. We do know there will be a transition period during which time total revenue is likely to decrease because the pressure on a hospital’s FFS revenue will increase faster than it can grow its revenue through value-based reimbursement. The key to success during the transition and beyond is to constantly wring out costs and improve margins. To do so, hospitals need to focus on doing three key things:
Transitioning from Fee-for-service to Value-based Reimbursements Effectively manage shared savings programs to maximize reimbursement. Hospitals must expertly manage shared savings contracts to qualify for every possible bonus. Effective contract management not only gets shared savings payments, but it also improves quality and lowers costs.
Transitioning from Fee-for-service to Value-based Reimbursements Improve operating costs to deliver care more efficiently than today. In a value-based environment, any investment in streamlining operations and eliminating waste from the system goes directly back to the hospital, not the payer. Hospitals must understand their cost structure in detail.
Transitioning from Fee-for-service to Value-based Reimbursements As hospitals eliminate waste, improve quality, and reduce costs, they will attract increased patient volume. Payers will see that a given hospital is a top performer and will include it in their networks. Payers and even large employers like Wal-mart are becoming laser-focused on this issue.
An Analytics Infrastructure to Meet These Challenges The challenges health systems face may seem insurmountable. A healthcare enterprise data warehouse (EDW) creates an analytics foundation that makes meeting these challenges possible. Sure, an EDW can’t stop the influx of baby boomers into the Medicare ranks, but it can give the tools and insight needed to: Understand the complete picture of the cost structure Succeed in shared savings arrangements Automatically track quality measures Improve performance Streamline operations Reduce waste And, ultimately, improve margins
More about this topic Surviving Value-Based Purchasing: Connecting Clinical and Financial Data for the Best ROI – Bobbi Brown, VP Financial Engagement Value-Based Purchasing: Start with These Patients – Dale Sanders, Senior Vice President, Strategy Surviving Value-Based Purchasing Webinar (including slides and transcripts) – Bobbi Brown, VP Financial Engagement Rising Healthcare Costs: Why We Have to Change – Jared Crapo, Vice President Becoming the Change Agent Your Healthcare System Needs – John Haughom, MD, Senior Advisor
Other Clinical Quality Improvement Resources Click to read additional information at www.healthcatalyst.com Bobbi Brown is Vice President of Financial Engagement for Health Catalyst, a data warehousing and analytics company based in Salt Lake City. Ms. Brown started her healthcare career at Intermountain Healthcare supporting clinical integration efforts before moving to Sutter Health and, later, Kaiser Permanente, where she served as Vice President of Financial Planning and Performance. Ms. Brown holds an MBA from the Thunderbird School of Global Management as well as a BA in Spanish and Education from Misericordia University. She regularly writes and teaches on finance-related healthcare topics. Jared Crapo joined Health Catalyst in February 2013 as a Vice President. Prior to coming to Catalyst, he worked for Medicity as the Chief of Staff to the CEO. During his tenure at Medicity, he was also the Director of Product Management and the Director of Product Strategy. Jared co-founded Allviant, a spin-out of Medicity, that created consumer health management tools. In his early career, he developed physician accounting systems and health claims payment systems.