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Value-Based Reimbursement is Not a Revenue Killer

By Gregory A. Freeman  
   August 24, 2015

The move toward value-based reimbursement is not only no guarantee of financial catastrophe, but the experience could even be a financially positive one, hospital CFOs say.

This article appears in the July/August 2015 issue of HealthLeaders magazine.

Many hospital CEOs and CFOs have been forced to straddle the two worlds of fee-for-service and value-based reimbursements for some time now, even if their organizations largely held to the more familiar approach and hoped others would show how to thrive when putting revenue at risk. As more healthcare systems are joining—or being swept along—in the movement toward increased bundled-payment and shared-savings contracts, those early adopters are revealing their secrets to success.

Their message is largely reassuring: You can move toward value-based reimbursement without any catastrophic effect on revenue. The whole experience could even be a positive one financially, they say.

Joel Perlman

An integrated delivery system in which virtually all of the entities in the healthcare system are geographically contiguous has proven to be a positive factor in Montefiore Health System's move to value-based reimbursement, says Joel Perlman, executive vice president and chief financial officer with the system based in the Bronx, New York.

Montefiore consists of eight hospitals and an extended care facility, with a total of 2,747 beds, a school of nursing, a home health program, and primary and specialty care provided through a network of more than 150 locations. Approximately 80% of Montefiore's revenue comes from government payers, and more than half of that is Medicaid.

The contiguous entities facilitate Montefiore's efforts at population health and care management, Perlman says. "You get the real richness and value out of managing care by keeping the individual in your care delivery network all or most of the time," he explains. Because most of Montefiore's patients are going to remain in the community for years—as opposed to members of a particular health plan who may change to another insurer frequently—the health system can focus more effectively on longitudinal prevention and chronic care.

Montefiore started transitioning to value-based reimbursement far earlier than most. In 1995, the system worked with its employed and voluntary physicians to establish an integrated provider association to align the medical center and physicians to take on greater financial risk and improve care delivery. The IPA board includes hospital and physician representation, with the latter involving employed, voluntary, primary care, and specialty physicians.

"We concluded that fee-for-service was a dead end for Montefiore, given the direction that payments from all payers were going. We anticipated that would only get worse because of our large government payer mix," Perlman says. "We decided that we had to execute a different business model and strategy for engaging the patient and payer communities that we did the most business with, and that took the form of developing our own infrastructure to manage that care."

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