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Analysis

Fee-For-Service Model Least Effective for Outcomes and Costs

By Jonathan Bees  
   July 12, 2018

Momentum is building for value-based programs, with respondents expecting strong growth in the share of patients in value-based programs over the next three years.

Providers report a wide range of experiences with the payment models they use for reimbursement, both fee-for-service and value-based, according to the 2018 HealthLeaders Media Value-Based Readiness Survey.

Not surprisingly, they say that the fee-for-service with no value-based component payment model is the least effective in terms of quality and cost improvements, with approximately one-third (32%) saying that it offers neither improved outcomes nor reduced costs.

This result is higher than any other payment model, and it has the highest participation rate by survey respondents—only 3% say they have no involvement with this program.

On the other hand, partial capitation (12%) and full capitation (10%) receive the lowest response for yielding neither improved outcomes nor reduced costs.

However, they also have the lowest participation rate by respondents—49% and 54%, respectively, report they have no involvement with this program. And only 4% and 3%, respectively, report improved outcomes and lower costs, suggesting that this payment model has yet to yield much value.

Fee-for-service with upside rewards, such as performance awards (28%) is currently the top model for improved outcomes and lower costs, coming in nine percentage points higher than bundled payment programs (19%).

Notably, the three highest responses for improved outcomes, no cost reduction are all fee-for-service based: fee-for-service with no value-based component (34%), fee-for-service with upside rewards, such as performance awards (24%), and fee-for-service with downside risk, such as reimbursement penalties (21%).

Going forward, respondents say that fee-for-service with upside rewards, such as performance awards (63%) is the top payment model they expect will evolve into one of their organization’s principal payment models for value-based care, followed by bundled payment programs (50%), and shared risk, such as ACO (49%).

Value-based growth
 

Survey results suggest that momentum is building for value-based programs, with respondents expecting strong growth in the share of patients in value-based programs over the next three years. For example, they report that 23% of patients are currently in value-based programs, and in three years’ time they expect this to double to 46%.

Likewise, they indicate that 21% of current net patient revenue comes from value-based programs, and that this will more than double to 44% in three years.

While expectations for value-based growth are robust, a fundamental hurdle facing providers is reconciling the existence of two distinct payment models: fee-for-service and value-based care.

“I think to fully immerse yourself in a value-based world, you have to have a heavy weighting of your payer mix aligned with that model,” says Karen Hanlon, CPA, executive vice president, chief financial officer and treasurer at Highmark Health.

Based in Pittsburgh, Highmark Health has a diversified portfolio of businesses, including Highmark Inc., a Blue Cross Blue Shield affiliate, and Allegheny Health Network, a health system that features eight hospitals.

“It’s too hard to live in two different worlds. If you have a commercial payer that represents 10% or 15% of your book, and that's the only payer that's really moving down a value-based path, as a provider I don’t know how you’d do that,” Hanlon says.

Jonathan Bees is the senior research analyst at HealthLeaders Media.


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