One Foot In the Boat, One On the Shore: A Scenario Suddenly Made More Complex
One of the most common phrases in U.S. healthcare in the past few years has been this one: “one foot in the boat, one on the shore,” or, alternatively, “one foot in the boat, one on the dock.” Either way, the idea is that the leaders of patient care organizations—hospitals, medical groups, and health systems—are having to adapt to a split-screen payment landscape, in which they will continue to receive a significant portion of their reimbursement in the form of discounted fee-for-service payment, even as they move ahead into value-based reimbursement, via such vehicles as accountable care organizations (ACOs), bundled payments, and other incentive-based forms of payment, with the federal government through the Medicare program, with state governments through Medicaid managed care programs, and with private health plans.
Now, with the COVID-19 pandemic creating massive shocks to the U.S. healthcare system, some of the forward march of value-based payment systems has slowed at least somewhat; for example, six weeks after the federal Centers for Medicare and Medicaid Services (CMS) had essentially called a halt to virtually all elective procedures in hospitals, because of infection, patient safety, and capacity concerns around the pandemic, and in the wake of a terrible financial crash for patient care organizations, CMS Administrator Seema Verma was compelled to alter that agency’s aggressive course on the Medicare Shared Savings Program (MSSP). On April 30, CMS announced that, “Because the impact of the pandemic varies across the country, CMS is making adjustments to the financial methodology to account for COVID-19 costs so that ACOs will be treated equitably regardless of the extent to which their patient populations are affected by the pandemic. CMS is also forgoing the annual application cycle for 2021 and giving ACOs whose participation is set to end this year the option to extend for another year. ACOs that are required to increase their financial risk over the course of their current agreement period in the program will have the option to maintain their current risk level for next year, instead of being advanced automatically to the next risk level.”
Looking past the crisis
Nevertheless, even as the leaders of patient care organizations nationwide are, appropriately, focusing on moving their organizations forward through the coming months of the pandemic and its impacts, industry experts and observers agree that the future remains one of gradual progress towards a bigger and bigger share of patient care organization revenues coming from value-based contracts.
One industry leader who is absolutely convinced that things will inevitably move forward towards a greater and greater share of value-based payment as the norm, is Donald Crane, president and CEO of the Los Angeles-based America’s Physician Groups (APG). “When I think about that, I think mostly of hospitals, and they are changing their attitude towards the whole thing. As for physician groups, many have a mix. They have some risk-based contracts, some of them capitated, some of them not, as well as some discounted fee-for-service payment. They would prefer to live in a capitated model.”
Indeed, Crane offers, the COVID-19 pandemic itself is argument number-one for capitated payment. “That’s been brought home dramatically in recent weeks,” he says. For a period beginning in mid-March, he notes, “For many of my members, IPAs and staff-model alike, their fee-for-service business just dried up,” and only began to resume two months later. “Patients weren’t coming in; they might have an elective surgery that’s now canceled, and some have been afraid to come into clinics. And that was causing the volume of the normal fee-for-service-patient traffic to dry up; for a time, it largely stopped. So depending on your level of dependence on FFS, you’re in deep yogurt” in such a situation. And, living through that, he says, “So many of our members were wishing they were entirely capitated.”
A fundamental truth underlies the march into value-based payment systems, certainly for physician groups, Crane says. Under value-based contracting, he says, “Physicians treat the patients all the same, which is to say, very well. And many of the PPO patients are automatically swept into the better practices of the HMO patients. So this is the halo effect. So half of your patients you’re prospectively paid for, and so the fee-for-service patients, often the PPO patients, receive the benefit of that. Doctors ethically don’t want to give one patient a lesser level of quality to any patient. And payers want to get to global capitation. But you can’t get there overnight; you have to build systems, and you have to get comfortable with it.” One of the biggest challenges, he says, remains benchmarks and risk-adjustment rules, which he says largely “are screwed up. But they’re on the way, they’re on the path.” And in his view, ultimately, capitation will become the dominant form of reimbursement, at least for physician groups.
Christopher Kerns, vice president for executive insights for Advisory Board, a Washington, D.C.-based research division of the Minneapolis-based Optum, believes that the COVID-19 pandemic will create a short-term aversion to risk-based contracting, but that the push forward will resume once things get back to normal again. “Will it [the financial impact of the COVID-19 pandemic] dampen the incentive for providers to participate? Potentially, yes, because no one wants to take income decline-based risks,” Kerns says. At the same time, if you can win at downside risk, you can earn extra income. What CMS has effectively telegraphed is that upside-only risk models will no longer be available. But if you don’t want to do downside risk, you probably wouldn’t be successful at upside risk, either. So this may halt providers’ near-term interest in aggressively going after it, because of near-term financial issues.”
Still, Kerns says, “Long-term, what will drive hospitals and health systems into risk-based models will be their physicians. And the direct contracting model will be appealing to many physicians. So in the long term, I don’t think this will change the fundamentals.”
Challenges in tacking value-based payment onto the existing system
Pam Arlotto, CEO of the Atlanta-based Maestro Strategies consulting firm, notes that, “In our new book, Orchestrating Value: Population Health in the Digital Age, we suggest that part of the ‘two feet’ challenge is that value-based care and population health have been tacked onto the existing bricks and mortar delivery system. Our silo-based culture, hierarchical organization structures and conflicting incentives have created roadblocks and barriers to the transition.”
In that regard, Arlotto says, “Interestingly, times of crisis and chaos, force innovation and creativity. Rather than going back to business as usual, the healthcare industry has an opportunity to think differently as we go forward. COVID19 and its challenges drive collaboration across government, community, economic, care delivery and social sectors – ultimately, the very definition of population health. Arlotto notes that, “A recent survey by the National Association of ACOs (NAACOS) indicates that 94 percent of Medicare ACOs are “very or somewhat concerned” with COVID19’s impact on organizational performance. Many at-risk ACOS are weighing whether to quit the MSSP or Next Generation models. This could portend a very different business or operating model for the future.”
Indeed, Arlotto says, “Telehealth and digital health, for example, have already driven dramatic change in the ‘flatten the curve’ stage of the COVID19 crisis. As we move to the next stage, health systems will have to intentionally design hybrid (digital-plus-onsite) care delivery models in concert with regional plans that integrate public health, economic and social strategies to mitigate, manage and support patients and the broader population.”
Asked how she sees the issue playing out among hospital-based integrated systems in the next few years, Arlotto says, “We are working with a number of health systems to use advanced analytics strategies to inform their next stage hybrid strategies. Data provides insights on emerging patterns which can drive design of services, patient experiences and revenue implications. For most of our clients, this means combining traditional score cards with real time analytics and eventually moving into the predictive and prescriptive space – ultimately creating a new data ecosystem and platform.”
Riding out the fee-for-service wave
What about the hospital-based organizations for whom the bulk of reimbursement remains fee-for-service? What are the medium-term and longer-term motivations that might move their leaders forward into value-based contracts? “Astute organizations recognize that they need to continue to ride the fee-for-service wave as long as they can, so they’re continuing to harvest and maximize that environment, while preparing for the value-based world,” says Peter Smith, CEO of the Naperville, Ill.-based Impact Advisors consulting firms. “They’re putting in all the infrastructure needed—the people infrastructure, the population health management, the wellness element, and of course, the data analytics. And so they’re using the more cash-flush world of fee-for-service to help fund their preparation for the value-based world. So they’re doing the right things, and it’s been an accelerant for doing the right things.
Does Smith see widening gap between the forward thinkers and the not-so-forward thinkers among patient care organization leaders nationwide? “Yes, I absolutely do, and it’s unfortunate,” Smith says. “And it would portend that there are going to be some winners and losers. But there is regional variation. Some areas are more heavily penetrated with value-based payment than others. So you get some laggards because the wave hasn’t hit them yet. But if were them, I’d prepare for the wave that’s going to hit them. But I agree with you. Like any industry in transition, you’ll have leaders who step up, others who follow and survive, and then a group of leaders who don’t adapt.”
And, in the end, says APG’s Crane, the leaders of physician groups will help show the way for hospital and health system leaders. “If I were a hospital guy, “I’d be doing approximately what they’re doing,” he says of physician group executives. “They’re making expenditure cuts but are still trying to maximize revenue. And they still live in a quasi-fee-for-service world. But they’re also making the new world work for them.”
