Ralph de la Torre recently spoke with HealthLeaders to discuss the organization’s success with the VBC model.
Editor's note:This article appears in the March 2023 edition of HealthLeaders magazine.
Steward Health Care Systems prides itself on being a leader in the transition to value-based care (VBC). This Dallas-based operator of 39 hospitals across Arizona, Arkansas, Florida, Louisiana, Massachusetts, Ohio, Pennsylvania, Texas, and Utah generates roughly $6.5 billion in annual revenue and was founded on the VBC model.
CEO Ralph de la Torre, MD, recently connected with HealthLeaders to discuss the organization’s success with the VBC model, why hospitals may be reluctant to adopt a VBC model, and why that could change in 2023.
HealthLeaders: Why is VBC a better payment model?
de la Torre: In VBC models, the providers as a group, form an integrated care delivery network, now referred to as an accountable care organization (ACO), whereby all the participants agree that they are going to take care of a pool of patients. In return for caring for this pool of patients, the insurer, Medicaid, or Medicare agrees to pay a fixed amount per patient per year. If the ACO meets certain quality standards and the TME [total medical expense] is less than the amount allowed by the insurer, then the ACO gets to keep some or all the difference between the fixed amount per patient per year and the actual money spent on caring for the patient during the year. The opposite is also true. If the actual expenditures for caring for the patient exceed the aggregate fixed amount per patient per year, then the ACO must pay some or all the difference to the insurer.
The VBC model works best if the patient stays within the ACO that is handling the care. First, ACO is generally linked through the electronic medical record. Second, the providers in the ACO are out of the “click” mentality and are free to focus on the right care, right time, and right place.
HL: Are doctors and hospitals reluctant to adopt VBC?
de la Torre: Change is a big deal. And VBC models are a big change that requires a big scale to support the TME risk and the cost of the infrastructure. It takes many PCPs to get an ACO going. Or they can be a smaller group with a decent-sized financial backer that is hoping to invest in the smaller group as a platform for growth. But the true “currency” of the VBC/ACO model is "covered lives." And basically, only PCPs get covered lives.
So, a small PCP group may be offered a VBC contract by an insurer but they need to consult with an actuary to first see if they have enough lives to take on any “downside” risk. Generally, the more downside risk you are willing to take, the greater the upside opportunity is as well. Then the group has to determine, even if they have the right number of covered lives, do they have the ability to manage the care of those patients successfully throughout the whole continuum. Then there are subtle factors like the homogeneity of populations. Obviously, patients of similar geography and socioeconomic status are easier to manage for smaller groups.
If the answer to either of those questions is "no," then they are looking at a big change. To be in a VBC model, they will have to join with other physicians. That will involve some loss of autonomy no matter what the model. That is something that physicians remain reluctant to do.
HL: Is a VBC model financially beneficial to a hospital or health system?
de la Torre: It would depend on the system. For Steward, because we have been thoughtful about creating and investing in the infrastructure and the information technology backbone as well as the human capital to support the network, we routinely reap tens of millions a year in profit from our contracts.
As to whether a hospital or health system can be successful in a VBC model, it will depend on that entity’s willingness to embrace change. Are they willing to work together, knowing that there is a learning curve and some economic risk to do what they originally wanted to do—provide patients with the best care, at the right cost. There are a million details that flow from there that will determine success or failure but if management and the physicians cannot agree on that first part, the venture is doomed to fail.
HL: Do you think more providers will adopt a VBC model in 2023?
de la Torre: Yes. Because it works. The numbers show it. Medicare saved $1.6 billion in 2021 alone. Think about what will happen when all Medicare recipients are in a program. Payers get it. Big corporations get it (or are at least investing in it). Walgreens, CVS, and Amazon—all of the executives that were assigned as “talking heads” after their big acquisitions stated that the new businesses were part of their move to value-based care.
We all thought we’d be further along towards value-based already, so I’ll be more measured in my view than I offered years back. We will certainly advance VBC in 2023. More commercial payers are getting more constructive on the model and providers are more aware of not only the patient benefit but the financial opportunity. And of course, Medicare has put out 2030 as the target for all beneficiaries to be treated by a value-based care provider. We’re still not to the point of leaps, but we will see gains in value-based contracts.
Amanda Schiavo is the Finance Editor for HealthLeaders.
Steward Health Care System has had over a decade of successfully implementing a VBC model.
The healthcare provider pulls in tens of millions a year in profit from its VBC contracts.
VBC models are a big change that requires scale to support the TME risk and the cost of the infrastructure.