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Developing Value-Based Payment Models

 |  By Christopher Cheney  
   October 14, 2015

 

Industry stakeholders are trying new ways to deliver and pay for care, but the shift to value remains an unfinished journey.

The ongoing shift from a volume-based business model to payment for services based on value has prompted a back-to-the-future scramble in the healthcare industry.

A generation ago, healthcare providers were called upon to assume more risk in the delivery of their services, including the first ill-fated formation of health maintenance organizations across the country. Most providers eventually backed away from both the financial burdens of bearing risk as well as a consumer backlash to managed care, retreating to their familiar fee-for-service payment model. But a select few, such as Salt Lake City-based Intermountain Healthcare, have remained at risk in delivery of services to this day.

"We have a long history with full-premium payments—full, at-risk healthcare," says Greg Poulsen, senior vice president and chief strategy officer at Intermountain. "We think at-risk contracting is, by far, the best approach. There are games you can play with almost all the other value-based payment models. For example, shared savings programs frequently end up being anemic in terms of return on investment and don't do enough to overcome the volume incentives for providers. If you simply get bits and pieces of value-based contracting, you may not be able to overcome the inertia that is U.S. healthcare."

Now, with Medicare transforming reimbursement metrics, health systems are taking up the challenge anew to emphasize value rather than volume in their business models.

The Centers for Medicare & Medicaid Services threw down a value-based gauntlet earlier this year, announcing a drive to link at least 50% of Medicare payments to value-based financial models by 2018. This year, about 20% of Medicare payments to providers are linked to programs designed to boost quality and reduce costs, according to CMS.

In Washington, D.C., this past January, with representatives from nearly two dozen healthcare industry stakeholders at her side, U.S. Health and Human Services Secretary Sylvia Burwell described her vision for the shift from volume-based to value-based payment.

"Whether you are a patient, a provider, a business, a health plan, or a taxpayer, it is in our common interest to build a healthcare system that delivers better care, spends healthcare dollars more wisely, and results in healthier people," Burwell said. "We believe these goals can drive transformative change, help us manage and track progress, and create accountability for measurable improvement."

Large health systems, which generally have the most resources among providers, are leading the adoption of new care and payment models. Based mainly on key local factors such as the patient population, market economics, and organizational culture, large health systems are implementing a range of value-based payment models, with many of the early adopters reporting gains in clinical outcomes and cost efficiency. However, setting the pace of transformation is perilous, with public and commercial payers just beginning to roll out payment models that can finance redesigned delivery of services based on value.  

Survey results published in the Premium edition of the March 2015 HealthLeaders Media Intelligence Report, Payer-Provider Strategies: New Rules for Facing Risk Together, show that health systems lead providers in adoption of at-risk contracting for healthcare services; only 12% are not participating in any type of at-risk programs, which is smaller than the 23% among hospitals and 28% among physician organizations. Also, more than one-quarter of health systems (26%) report that they own or operate a payer business unit or health plan, which is greater than the 16% of hospitals and 7% of physician organizations that have that component as part of their business.

Harold D. Miller, president and CEO at the Pittsburgh-based Center for Healthcare Quality and Payment Reform, says the biggest advantage for large health systems in the shift from volume to value is deep pockets. "Are the big health systems doing value-based care because they want to do it or because they are the only ones who can do it?" he says.

Citing Oakland, California-based Kaiser Permanente as a prime example, Miller says health systems achieving the most success in the value-based space have payer business units to help finance value-based care while Medicare and commercial payers develop value-based payment models.

"They have their own health plan. They can at least pay themselves differently for at least some of their value-based business. A lot of these systems are making a bet—it's sort of at a tipping point. They're not making a bet that they are going to be paid for value. They are arranging to pay themselves."

Indeed, the March Intelligence Report indicates that 29% of health systems are considering establishing or acquiring a health plan, more than twice the share reported by hospitals (14%) or physician organizations (10%).

Until more value-based payment models are available down to the physician-specialty level—and more payers deploy more value-based payment models—large health systems are best equipped to lead the drive to value-based care, Miller says.

"It's not automatic that they can do that. Some systems have leadership that really wants to move to better health. Some are able to do it because they have a monopoly in their community. They are reinventing healthcare, which is a good thing. And they have a lot of money to do this thing."

Flexing financial muscle

Kevin E. Lofton, FACHE, CEO of Englewood, Colorado–based Catholic Health Initiatives, says CHI has spent several billion dollars over the past four years on the value-based retooling of the health system—which includes 105 hospitals and 10 health plans with 104,000 covered lives—bankrolling the nonprofit organization's effort with its massive cash reserves. He says CHI made a strategic decision to dedicate a substantial portion of the system's cash reserves toward value-based care rather than generating investment income.

"We're not a bank. We still have about $7 billion in investible cash, even after spending $2.5 billion on [healthcare information technology]," Lofton says. "We're still spending $1 billion to $1.5 billion in capital expenses to make this transition [to value-based care]. We definitely have been utilizing the strength of our balance sheet." The system reported total assets of nearly $22 billion in fiscal year 2014.

CHI's vigorous effort to adopt value-based care features several elements, including direct managed care contracting with large employers, developing its Prominence Health payer business unit (a wholly owned for-profit subsidiary), and physician-led adoption of value-based payment models.

"First, we have made investments knowing we were not going to be paid for our services. We had to begin implementing these investments before payment models were in place," Lofton says. The hit to the balance sheet from these efforts for the fiscal year that ended in June is estimated between $250 million and $300 million. "The second part of it is that we have reached out directly to employers because we can demonstrate how we are gaining with our own employees through value-based care."

Large health systems are large employers, of course, and have a good measure of flexibility with their own employees in redesigning care and finding innovative ways to pay for healthcare services crafted to deliver value. "That's one of our larger value-based programs," says Christopher Stanley, MD, vice president of care management at CHI. "We are using our own employees as a kind of a canary in the coal mine."

Health systems can more quickly overcome the managed care learning curve by establishing such programs with their own employees, Stanley says, citing the importance of "quick feedback" drawn from CHI workers who were among the first to enroll in the health system's new value-based clinically integrated networks. CIN enrollment for CHI employees began soon after passage of the Patient Protection and Affordable Care Act in 2010.

 

At the outset, about 30,000 workers and their dependents enrolled in CHI's internal managed care initiative, Lofton says. This year, about 102,000 lives are covered in CHI managed care, including about 45,000 employees and about 58,000 dependents. CHI employs more than 95,000 people in 19 states.

"We began launching managed care initiatives about four years ago—as an initial pilot in Nebraska, then as the next wave in a pilot in Des Moines, [Iowa]," Lofton says. "The big launch really came at the beginning of last year, in 2014. We are still in the early stages. We now have about 50% of our employees and dependents in these programs. We've lowered costs in a few different areas. One is by managing high-risk individuals within our population, the 3% to 5% that drive 40% or 50% of healthcare costs. We have seen a drop in emergency department visits and hospitalizations, and an increase in medication adherence and preventive-medicine screening."

For employees and dependents who have received care through a clinically integrated network, ED visits have dropped 10% and the average length of stay for hospitalizations has fallen 10%, CHI reports.

In 2014, CHI launched Prominence Health. Lofton says Prominence has boosted CHI's health insurance know-how and opened new revenue streams. "We have built up an expert payer staff, when two years ago, we didn't have anybody."

With the additional acquisition in 2012 of a majority interest in Soundpath Health, a Medicare Advantage plan in Federal Way, Washington, and the 2014 purchase of QualChoice, a Little Rock, Arkansas-based commercial insurer, CHI is making market-share gains in Medicare Advantage, Lofton says. "It appears to be a little easier to manage that population, and you don't face the same level of competition as you do in other areas from commercial payers."

Lofton says physician leadership is a crucial component of CHI's adoption of value-based payment models and value-based redesign of care. "They're the ones who come up with the ideas. They have skin in the game."

The focal point for CHI physician leadership in the adoption of value-based care is the Medical Group Leadership Council, Lofton and Stanley say. MGLC members include about 26 physician enterprise leaders who represent each of CHI's markets. Council members have accountability in their markets for several key operational functions, including revenue cycle, clinical quality, labor productivity, patient satisfaction, legal compliance, provider compensation, managed-care contracting, and supply chain management.

Stanley says that "operational dashboards with key performance indicators—financial, productivity, supply chain, etc.—were put into place over the past couple years and are reviewed by MGLC members at frequently recurring leadership meetings. MGLC leaders are held accountable by their market CEO as well as by their peers [in areas] including goal-setting and transparency of information. Leadership
changes have occurred in circumstances where results did not meet expectations."

CHI's heavy investment in information technology combined with administrative support provided through an internal physician services business unit gives the MGLC significant resources, Lofton says. "We've relieved them of the electronic billing and business side of the value-based world."

With the health system's multibillion-dollar IT investment serving as an "absolutely critical" infrastructure component, CHI has focused care redesign efforts on enhancement of primary care capabilities, such as the formation of patient-centered medical homes, Stanley says.

He says one of the top goals of CHI's primary care transformation initiatives is to include behavioral health specialists in staffing. Adding social workers and mental health specialists to the resources available to primary care physicians "augments the physicians and augments the team approach," Stanley says.

CHI is banking on resource-rich patient-centered medical homes to help drive high quality at low cost, such as improvement in medication compliance, he says. "Sometimes, noncompliance is because of financial issues. Sometimes, it's because of psycho-social, mental health, or other behavioral issues, and the team can tackle these issues."

The health system is "just starting the journey" toward incorporating behavioral health resources in patient-centered medical homes, but the PCMH model of care is already generating patient engagement gains, Stanley says. "We are now identifying patients who are in need of care but are not following up the way they should. Using data to identify gaps in care, we are now making direct outreach to them and conducting collaborative interviews to get patients to take more direct care ownership."

Targeting primary care is part of a strategic decision to shift CHI away from reliance on hospital income as the dominant financial pillar of the organization, Lofton says. "We are at about 53% of our net patient service revenue coming from nonacute care sources. Our goal, which we set about five years ago, is to be at 65% of all net patient service revenue coming from nonacute care services by 2020. One of our biggest growth areas will be primary care, which is the real underpinning or foundation of all of our value-based programs.

"We are certainly going to see more and more outpatient procedures that were historically done in an inpatient setting, in part because our technology and care management is so much better," Lofton says. "We'll also be extending this care out to the communities—especially rural communities—through virtual health services."

Stanley acknowledges there are challenges to fostering physician leadership and quelling concerns among clinicians about the shift from volume to value. "That's probably what I spend 80% to 90% of my time on: leading the change in the organization," he says.

Among CHI physicians, eagerness to embrace value-based care varies widely, with three broad categories, Stanley says.

Physicians who have received training in population health and patient-centered care have stepped into leadership roles in the shift from volume to value at CHI, he says. "They're the champions. They're the leaders. They're the torchbearers."

Stanley says there are other CHI physicians "on the opposite end of the spectrum" who have spent their entire careers receiving volume-based payments for services and are deeply skeptical over the transition to value-based payments. He says CHI has eased the organizational tension from this clash of philosophies with a strategy rooted in an undeniable reality: There will always be health system settings and services such as emergency medicine that operate with volume-based payments. "There's a real value to physicians who just want to show up and see patients, and we have places for them to be successful."

 

Then there is everyone else in between.

"These are the physicians who can be convinced that value-based care is better for patients," Stanley says, adding that he sits down and talks with physicians about redesigning care to be patient-centered, prevention-oriented, and outcomes-based. "Most physicians will absolutely get there."

Even with a strong balance sheet, CHI has faced difficult decisions regarding opportunity costs in its four-year-long quest to conquer the clinical and financial dimensions of the value-based world, Lofton says.

"To come through that period, we had to also look at our operating model and look at places to trim back. It was not without turmoil."

Historically, CHI has posted an operating margin of about 3%, but investments in infrastructure for value-based care such as IT and the creation of clinically integrated networks drove the health system's financial performance below that benchmark for the 2013 and 2014 fiscal years, CHI officials say. While Lofton is forecasting that the costs of investing in value-based care will outstrip the financial gains again this fiscal year, he says CHI expects that to improve in 2016. "This is the fiscal year that we told our board that we would get operating performance back to historical levels."

CHI had considered cutting up to 1,500 jobs this year, but the reduction amounted to a loss of about 500 actual jobs and a decision to eliminate about 500 unfilled positions. CHI officials say the workforce reduction was not related to the transition to value-based delivery, but a recognition of the need to reduce the number of employees so the system could become more efficient in certain areas.

Lofton says a measure of turmoil has been linked to opportunity costs and an ongoing effort to wring out $250 million in overhead. "We have certainly looked at costs across the system—personnel and overhead—to become more efficient. Like other health systems, we are adapting to changing times. We have made a huge investment in information technology. That has caused us to ratchet back, at least for a time, some of the capital investments we typically make on a yearly basis in terms of infrastructure improvements, new construction, and upgrades."

Again emphasizing the importance of CHI's healthy balance sheet, Lofton says the health system has been able to help finance the adoption of value-based care with investment income. "During this time, the capital markets have been very strong. We still had a healthy bottom line because of the investment income we earned."

Lofton says it is imperative for health systems to plan carefully and act decisively as they shift from volume to value. "We need to make sure when it's the right time that we have made the right investments to be ready."

Embracing accountability

There is an assortment of options on the value-based menu, including accountable care organizations, bundled payments, capitation, shared savings contracting such as the Medicare Shared Savings Program, and warranty payments. But most models have limited track records, and some have had underwhelming appeal to providers.

Several factors are determining the overall appetite for value-based care at health systems and the taste for particular payment models, including corporate culture and local market circumstances.

Some health systems such as Intermountain Healthcare are enjoying the benefit of a track record of delivering care with assumption of risk.

Operating in Utah and Idaho, Intermountain has 750,000 members enrolled in the organization's health plan, SelectHealth, and the integrated health system features a 22-hospital network on the provider side. Intermountain's involvement with its own health plan stretches back three decades.

Poulsen, the senior vice president and chief strategy officer at Intermountain, says one-third of its healthcare services are tied to value-based payment, and the organization is seeking to double that figure.

"We call our program shared accountability as opposed to accountable care. It's partly the lifestyle of our patients, but it is also medical decisions designed to consume healthcare in the right way—the providers of healthcare have to be fully engaged. When we put those two together, we think we have something really powerful."

Intermountain is engaging providers to generate value by holding them accountable to total-cost-of-care budgets, Poulsen says.

"We create budgets that are essentially regional. We distribute accountability to four geographies, with a risk-adjusted budget for each region. Then the team in each region—doctors, hospitals, ancillary services, care managers—works together within their budget. There are rewards if quality and service measures are met at the team level. We believe value-based care is a team sport. We do not anticipate financial incentives will change any provider's behavior. Instead, financial incentives are simply a nod to the fact that doing the right thing will come with a cost in some cases," such as a lost opportunity to increase volume.

On a monthly basis in each region, Intermountain's Geographic Committees—which are composed of physicians, hospital administrators, actuarial specialists, and data analysts—gauge performance of the four budgetary regions and compare that to other value-oriented organizations recognized for operating with best practices. "They identify weak links and fix them. This is a way to get that information out in a transparent, actionable way," Poulsen says.

Intermountain's shared accountability approach to providing managed care services for 700,000 patients is sustainable financially, he says, noting revenue is outpacing costs. "The margin varies significantly by type of patient: Medicare, Medicaid, and commercial are all part of this group of 700,000. Overall, there is a 2% to 3% margin."

The primary metric Intermountain uses to assess the cost-effectiveness of its managed care efforts is total cost of care, Poulsen says. "We have been focused on total cost of care as a legitimate measure of public benefit for a long time, and population metrics suggest that our populations look pretty good on those metrics."

In the decade before passage of the PPACA, Utah was among the lowest-cost states for healthcare services, according to CMS. In 2009, the state posted the lowest annual per capita cost of care in the country at $5,031.

Local and national leadership

With its vision for a value-based healthcare future, a track record in care delivery innovation, and market power in northern New England, Lebanon, New Hampshire–based Dartmouth-Hitchcock Health has taken a regional and national leadership role in the adoption of value-based payment models.

The academic medical center includes a main hospital, a children's wing, a cancer center, an association with the Geisel School of Medicine at Dartmouth, and community group practices. About half of the health system's revenue is tied to value-based payment models, and it plans to increase that figure to 70% within two years, according to President and CEO James N. Weinstein, DO, MS.

 

Weinstein also is a founding member of the High Value Healthcare Collaborative, a coalition of value-oriented health systems across the country serving 70 million patients. "It's not just Dartmouth-Hitchcock trying to move New England; we're trying to move the country."

He says the HVHC has been involved in value-based care initiatives such as promotion of three- and four-hour bundled care protocols for sepsis treatment. Adoption of the Surviving Sepsis Campaign protocols at Dartmouth-Hitchcock led to dramatic improvements in clinical outcomes, Weinstein says. "By the way, saving lives also saves money, and also helps providers run their businesses better."

He says Dartmouth-Hitchcock has fully embraced the transformational power of value-based care.

"This is a time when there's an industrial revolution in healthcare and the old models are broken," says Weinstein, adding that Dartmouth-Hitchcock has become a leader in accountable care contracting because value-based care fits with the organization's culture. "We didn't go into this ACO work to make money. We did it because it matched our values and the way we practice medicine."

Dartmouth-Hitchcock's experience with value-based healthcare innovation stretches back years. The Dartmouth Atlas project was founded in 1996 to track variations in healthcare spending nationwide. In recent years, Dartmouth-Hitchcock has been among the early adopters of several value-based payment initiatives, including Medicare's first accountable care organization program featuring upside and downside risk, Pioneer ACO.

Dartmouth-Hitchcock has lost some money participating in Pioneer ACO, a demanding venture with a roster that has dwindled to 18 participants after launching with three dozen provider organizations in 2012. Like Medicare's most popular ACO program with providers, the Medicare Shared Savings Program, the Pioneer ACO is afflicted with a value-based innovation irony. Assuming they make effective value-based changes, providers that have been riding high on the fee-for-service model will gain more from the Pioneer ACO contract than providers that have historically posted low utilization rates.

Despite taking a financial blow in the Pioneer ACO program, Robert A. Greene, MD, MHCDS, FACP, executive vice president and chief population health management officer at Dartmouth-Hitchcock, says the chance to learn and lead is priceless.

"We have been disappointed with Pioneer ACO," Greene says. "We saved CMS about $20 million, but because of the ways that contract is structured, we may end up sending a couple million back to CMS. We view that as a tremendous learning process and opportunity. We have been more successful in
other contracts. But Pioneer ACO has been an opportunity to influence and give perspectives on future ACOs at CMS."

From Dartmouth-Hitchcock's financial perspective, Pioneer ACO has three primary flaws, he says.

"For the first three years of the contract, CMS used the 'matched cohort' methodology instead of applying a more time-tested risk adjustment methodology approach," Greene says. "This was corrected for the fourth year of Pioneer by converting to a version of the Hierarchical Care Condition methodology that is more similar to that used by Medicare Advantage plans. [Second,] benchmark trending factors were solely based on national trends, and therefore did not necessarily reflect the specific region and market that Dartmouth-Hitchcock's Pioneer ACO operated in. This has been somewhat addressed in the fourth year of Pioneer by adding a locality adjustment factor, but we don't believe this goes far enough to address the disparate differences between regions. [Finally,] the baseline is established by applying an algorithm to a defined set of historical claims incurred by an attributed population, and then trended. The challenge with this approach is that ACOs that start out with lower per beneficiary per year Medicare spends, and lower rates of utilization have less opportunity to generate shared savings results compared to ACOs that start out with higher per beneficiary per year Medicare spends and/or higher rates of utilization."

Dartmouth-Hitchcock has operated financially successful value-based payment models with Medicare and commercial payers, Greene says.

"Dartmouth-Hitchcock was one of 10 participants in Medicare's Physician Group Practice Demonstration model, which was the precursor to Medicare's shared savings programs. Over the five years of the PGP Demo, we met or exceeded quality measures in each year and earned $10.6 million in shared savings payments over the course of the five-year contract period. We have had a shared risk contract with Anthem since October 2010," Greene says.

"Over the past four completed contract periods," Greene says, "Dartmouth-Hitchcock has passed the quality gate in each year, and earned $6.7 million in shared savings payments over the course of the four-year contract period. We have also had a shared risk contract with Harvard Pilgrim Health Care since January 2011. Under this contract, we have earned $1.7 million in shared savings payments over the course of the past four completed contract periods.

"All three of these contract models have one thing in common: Our financial performance and quality scores are compared to our own performance year over year," he says. "Dartmouth-Hitchcock has been more successful under models that reflect our continuous improvement process. Because our utilization started low, compared to much of the U.S., we have been less successful under models that require Dartmouth-Hitchcock to produce results that are better than a 'reference population,' 'market,' or 'peer group.' "

Greene says Dartmouth-Hitchcock was able to make a significant impact on the rulemaking for the newest Medicare ACO model, Next Generation ACO, which was unveiled in March. "We can see in the changes they have made in Next Generation ACO, they have incorporated some of our ideas."

For providers with a history of low service volumes to succeed in the transition to value-based payment models, "redesigning care becomes imperative," Greene says, noting that Dartmouth-Hitchcock is focusing on developing patient-centered medical homes, telemedicine capabilities, and clinical partnerships.

Dartmouth-Hitchcock is leveraging telemedicine across a broad range of care delivery, including a telestroke program that, in collaboration with the Mayo Clinic Arizona, provides patients with 24/7 access to a neurological assessment.

"We see telemedicine as a huge opportunity. It solves some interesting problems that people have been thinking about for a long time, like rural patient management and remote sensing programs. The big question now is, how do we best integrate those things into patient-centered
medical homes?"

One of Dartmouth-Hitchcock's new partnerships is a clinical affiliation with Woonsocket, Rhode Island–based CVS Health's MinuteClinic. "There are people who just need convenient care and need to pop into someplace, and MinuteClinic has the same version of Epic for electronic medical records. That information will upload directly into Dartmouth-Hitchcock's electronic record. On Monday mornings, there will be an alert, and the doctors and nurses here will know what happened with their patients at MinuteClinic over the weekend."

Partnerships represent a huge building block for all healthcare providers as they transition from volume-based to value-based financing of their services, Greene says.

"You have affiliates instead of adding space for inpatient beds or spending on other costly investments," he says, noting the clinical affiliation Dartmouth-Hitchcock has established with New London (New Hampshire) Hospital, a federally designated Critical Access Hospital about 25 miles from the health system's main campus in Lebanon.

"New London used to run eight beds out of their 25, which was not sustainable. Now, we coordinate with them. We keep their care local, and we can start using our telehealth capabilities with this population of patients. Their average daily census is up to 20 patients. It's a win-win because it frees up more of our beds in Lebanon for tertiary care," Greene says.

As an organization, Dartmouth-Hitchcock continues its journey to adopt value-based care delivery, Weinstein says.

"We are already on the right side of this curve," he says. "We are going to put our money where our mouth is. We do not want to sustain an unsustainable health system. We need to change this system, and I have dedicated my life to doing that, and we're making incredible progress."

That progress includes solid performance in several value-based contracts with commercial payers, Greene says.

For example, Greene notes that despite not earning a shared savings payment from Cigna for the most recent contract performance period, Dartmouth-Hitchcock's rate for inpatient admissions per 1,000 patients was 4% below the New Hampshire market's, and the related cost of care for these inpatient admissions was 1% below the state market. Also, the advanced imaging scans per 1,000 patients rate was 8% below the state market's and avoidable emergency visit rates were 3% below the state market's, he says.

The attributed members assigned to its Anthem risk contract increased 32% from the 2013–2014 contract performance periods, yet it was able to keep admissions per 1,000 rates flat year over year, Greene says. Dartmouth-Hitchcock also was able to reduce emergency room visits per 1,000 patients by 6.5% during this same time period. Despite this significant growth in membership, overall cost of care increased just 1.9% between 2013 and 2014.

Greene also notes that the attributed members assigned to the Harvard Pilgrim risk contract increased 17% from the 2013–2014 contract performance period, yet Dartmouth-Hitchcock was able to reduce admissions-per-1,000 rates by 17% year over year and was able to reduce emergency room visits per 1,000 by 22% during this same time period. Despite this substantial growth in membership, the overall cost of care increased just 0.8% between 2013 and 2014," he says.

 

Embracing bundled payments

CHI has a shorter historical experience delivering value-based care than Dartmouth-Hitchcock, but the multistate health system is operating with a similarly broad set of value-based payment models.

Stanley says about 30% of CHI's healthcare service revenue is linked to some form of value-based payment, with more than 400,000 patients receiving care through value-based payment models such as Medicare Advantage, bundled payments, the managed care program for CHI employees, and direct managed care contracting in the employer-sponsored group insurance market.

He says bundled payments tied to episodes of care have been among the most rapidly adopted value-based payment models at CHI. "They really resonate well with our clinical staff and our administrative staff. We've been able to gain more traction in our organization in this area."

Bundled payments are relatively easy for all of the key clinical and administrative players to comprehend and operationalize, Stanley says. "A trigger event provides the starting point. There's a clear start and clear finish to when that episode occurs. Specialists can understand their sliver of care: procedure preparation, procedure, then procedure follow-up through a 90-day recovery period."

A robust healthcare IT capability is needed for large health systems to provide services through value-based payment models such as bundled payments, he says.

"There are multiple data elements. There's clinical data: status of patients, experience of care, and aggregate data as a program, not just data by patient. There's creating a real-time data capability alongside monthly and aggregate data collection," Stanley says, adding that the ability to track data digitally is indispensable to keep providers within their bundled payment bounds. "You have to not only have the data but also the analytics to drill down into it."

He says CHI monitors several classes of metrics in the health system's bundled payment programs.

"We track multiple metrics including clinical (complication rates, readmissions, and clinical risk), utilization (discharge locations such as rehab, skilled nursing facilities or home, and average length of stay in all settings), financial (total cost of care and supply cost during acute stay), and service and clinical quality metrics as determined by CMS. In our longest operating bundled payment program—St. Vincent Infirmary in Little Rock—our 90-day readmission rate has dropped by about 50%, average length of stay is now less than two days, and total cost of care has dropped significantly, with total reduction in costs of about $2 million in the first 12 months under the program for knee and hip replacements."  

Options for smaller organizations

Large health systems possess big advantages over other providers in the shift from volume to value. But independent hospitals and physician practices have several strategies at their disposal to survive the rigors of the transition to value-based payment models.

In some markets, commercial payers—a healthcare industry stakeholder that providers have often viewed as a business nemesis—can be the best value-based care comrade.

For the past decade, Detroit-based Blue Cross Blue Shield of Michigan has helped lead a statewide value-based initiative that features physician organizations and patient-centered medical homes. In 2005, BCBSM launched the Value Partnerships program with a set of provider partners featuring 10 physician organizations and 3,000 doctors, says David Share, MD, MPH, senior vice president of value partnerships at BCBSM.

"We started out 10 years ago with a recognition that the healthcare system was fragmented and had no meaningful accountability," he says. Value Partnerships has grown to 46 physician organizations, with 19,000 primary care physicians and specialists across the state.

"We wanted physician organizations to be responsible for cost and quality of care more and more over time. The physician organizations were held responsible for results on a population level," Share says.

In 2009, the Value Partnerships program launched a PCMH designation program that included variable reimbursement for physician practices based on cost and quality performance, he says. "If you had a good cost and quality experience, you got a bounce up in your fee. Providers can generate up to a 30% increase in value-based payments from success in the program."

As of July, the Value Partnerships program had designated 1,551 physician practices as PCMH sites eligible for value-based payments, Share says. "It's the largest such program in the country. The PCMH practices that are most involved achieve a 5% improvement in HEDIS [Healthcare Effectiveness Data and Information Set] scores and a 4% to 5% reduction in costs from effective preventive measures. For the past four years within the preferred provider organization, the trend for increases in cost has been 2% or lower, one of the lowest cost trends among comparison plans nationally."

Coping with costly investments

While costly investment in healthcare IT systems is essential for most health systems to deliver value-based care, providers of all sizes can adopt elements of value-based care without huge expenditures on digital technology, according to Miller, of the Center for Healthcare Quality and Payment Reform.

"The myth that has developed is that you need to spend a lot of money on information technology. It's a top-down approach. ... You're spending a ton of money on IT to be able to watch the doctors, instead of trying to involve the doctors themselves," he says.

But specialty practice leaders have proven they can redesign care based on value, as long as they can find a way to pay for it. Miller cites, for example, the New Mexico oncology practice of Barbara McEneny, MD, who also serves on the American Medical Association Board of Trustees. With grant funding, the New Mexico Cancer Center hired oncology triage nurses to track and coordinate patient care, which led to a significant reduction in treatment costs.

"There's a little bit of IT in there, but it wasn't a massive investment," Miller says. "The key investment there was not the IT. It was the triage nurses. They can figure out what to do as soon as patients get into trouble, like bringing someone in for IV rehydration as an intervention at the practice, which is far less costly than at the ER. But at most oncology practices, a chair at the practice for an IV gets paid relatively little, whereas that chair is far more profitable for the practice if someone is in it receiving chemotherapy drugs."

Dartmouth-Hitchcock's Greene says providers seeking to adopt value-based payment models can and should leverage capabilities beyond healthcare IT. "There are some very big bites you have to swallow, and healthcare IT is one of them. But people and processes are probably the biggest bite of them all."

David Lansky, PhD, president and CEO of San Francisco-based Pacific Business Group on Health, says providers seeking to improve managed care contracts directly with employers need to keep the motivations of these potential customers in mind. PBGH is a purchaser-only coalition, representing 60 public and private organizations across the United States that collectively spend $40 billion a year purchasing healthcare services for 10 million Americans.

"Whether it's direct relationships with [the] provider or health plan managed care products, the employers are still looking for the same kind of features," Lansky says. "For ACOs with shared savings and other value-based contracting, the employers want to see that contracting tied to a quality threshold. They feel a responsibility for the care of their employees. They need to feel especially confident about quality."

As a way to cater to that concern over quality, PBGH has established a centers-of-excellence program that features a handful of providers that its employer members may use—for example, Baltimore-based Johns Hopkins Health System. PBGH selects providers for the program based on a large set of factors, including patient experience scores such as complication rates and the collection of patent-reported outcomes.

"There's a long list of quality-based criteria, at a reasonable price," Lansky says. "It sends a lot of really powerful signals. For employees, they know they are getting top-notch care. And there's a strong message for providers: 'We're not going to take the community norm, and we'll put an employee on a plane to Baltimore if we have to.' "

Although value-based payment models are more demanding on providers than fee-for-service, and are likely to be less rewarding financially, there is a value-based promised land on the horizon, Weinstein insists.

"As doctors, we take the Hippocratic Oath to 'do no harm.' The wrong incentives—as in the fee-for-service system that we're in now—can lead to the wrong solutions. And there is a pot of gold at the end of the rainbow: It's the creation of a health system where patients, when well-informed, receive only the care they want and need—care that's delivered safely and at the lowest possible cost."

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Christopher Cheney is the CMO editor at HealthLeaders.


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