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Why the Fee-For-Service Chassis Continues to Dominate Value-Based Purchasing and What to Do About It

Analysis  |  By Laura Beerman  
   July 26, 2021

The FFS claims submission process is still the primary means for capturing the broader encounter data needed for VBP analysis and payment.

Value-based purchasing (VBP) has been part of the national healthcare vocabulary for more than a decade. And while there is much to suggest that VBP is finding its place in the delivery system—with numerous government programs and thousands of payer-provider contracts spanning managed Medicare, commercial, and even Medicaid programs—VBP also has a long way to go. And the still-entrenched fee-for-service (FFS) chassis linked to every functional aspect of healthcare is why.

Value-based purchasing—sometimes referred to as alternative payment model (APM)—does not have a conceptual problem or even a "will" problem. There is a general consensus that healthcare is too expensive and that new strategies are necessary to control costs. Healthcare already represented 17.7% of U.S. Gross Domestic Product in 2019 and could represent nearly one-fifth of GDP by 2028.

As Brian Wheeler, vice president, provider collaboration and network transformation at CareFirst BlueCross Blue Shield, notes: "Payers and providers can't continue to haggle over unit cost."

What VBP does have is a functional problem that manifests operationally, technologically, and programmatically. Why? Because FFS is still the primary mechanism by which most services are billed, even in value-based contracting models. This billing is largely retrospective and occurs through the only means available to capture broader, patient and population encounter data: claims submission. Claims, in turn, are linked to multi-setting reimbursement coding, all of which are preset and hard-wired into existing program designs and platforms.

"Healthcare delivery system partners and payers are still very dependent on the flow of fee-for-service claims," says Wheeler. "Many benefit designs cannot be administered without a known unit cost for the service provided. Electronic health records [EHRs], the billing systems, the accounting systems—the whole system is built around this." Or as industry expert and policy analyst Paul Keckley has written: "The transition from volume to value is inevitable but the road from here to there is bumpy."

Current strategies, in essence, are work-arounds (e.g., FFS payments reconciled retrospectively to pre-defined VBP cost and quality targets, with assessment of provider performance over time.) On the pharmacy side strategies are even more challenging, with some health plans using retroactive rebates to account for VBP payments linked to prescription drug metrics. "The only way any plan has been able to figure out the drug portion is through providing back rebates," says Winston Wong, a former payer pharmacy management executive and now industry consultant. "It’s the only way for financials to go from a manufacturer back to a health plan. The financial processes are just not in place."

So how can payers and other stakeholders make more rapid and substantial VBP progress and move away from the FFS chassis while it’s still in place? Two solution categories are IT and integration. For the former, encounter data relevant to VBP must be liberated from the claims process.

CareFirst’s Wheeler reports: "We do this using analytic tools that capture patterns in utilization and quality based on the claims data. Once baselines are established, and adjustment factors are agreed on (e.g., changes in population size, changes in risk characteristics), progress can be measured and (the best part) rewarded."

CareFirst also has a unique provider partnership approach, a four-fold model that ranges from enterprise managers who provide total relationship management (for larger providers) to payment transformation, practice transformation, and care management teams that target improved data, workflow management, practice economics, and outcomes opportunities, including for high-risk patients. The carrier’s practice transformation team, for example, includes "master's-prepared" consultants who identify key, actionable insights from practice data. Practice transformation team members also share best practices for skilled, focused consulting.     

There are many other industry factors that will impact VBP’s ability to fully migrate from the FFS chassis. Lack of model consensus and operationalized standards is a challenge. For example, Bailit Health has reported that state-designed Medicaid VBP contract designs follow a mix of Medicare- and/or commercial-based VBP strategies as they strive for harmony but grapple with market dynamics.

"MCOs noted that multi-payer alignment was beneficial to providers and plans, since they felt that providers would be more likely to engage in VBP arrangements if these arrangements were more standardized across plans and lines of business," the authors state. This hints at another VBP challenge: more providers with the desire and ability to assume downside risk (i.e., financial penalties in addition to rewards).

There is also the government's role. The Centers for Medicare & Medicaid Services (CMS), for example, prescribes much in the way of initiatives while mandating very little of how those initiatives should be achieved—a perpetual blessing and curse to the industry’s stakeholders. The agency’s 2020 proposed rule is another attempt to bring specificity and more results to VBP, this time related to prescription drugs.

But how fast should, or can, the industry move? Healthcare has a habit of racing to the next problem before fully solving the existing one, an expensive and inefficient strategy. The speed of innovation and digital transformation make some of this inevitable.

Artificial intelligence (AI), for example, could help decouple data locked in legacy systems for broader analytics needs. Olive AI hopes to achieve an "Internet of Healthcare" vision by using artificial intelligence to connect "all of healthcare’s disparate technology," eventually linking payer and provider revenue cycle from start to finish.

EHRs are a prime example and also critical to achieving VBP’s full potential. EHRs are still struggling with the core issues of burdensome, inconsistent data entry; maximum clinical decision support; and their chief aim: interoperability. One need only look at the Cerner EHR modernization debacle at Veterans Affairs (e.g., "Clinical and interdisciplinary workflows were not tested prior to ‘go-live’ in a manner that effectively reflected a real-world environment") to recognize that successful IT implementations are an abiding challenge—in healthcare and otherwise.

Maybe it’s something about the 10-year mark. The industry is entering its second decade of not only The HITECH Act and VBP but The Affordable Care Act and Clayton Christensen’s The Innovator’s Prescription. In that work, Christensen and colleagues Jerome H. Grossman, MD, and Jason Hwang, MD, highlight the challenge that ties healthcare’s hands as it attempts to disrupt itself: cost: "Reformers who focus solely on how to pay for rising healthcare costs fail to address the root problems of why care is so costly to begin with."

In this way, VBP remains dependent on not only the FFS chassis but how to deliver savings alongside ballooning expenditures.

“Many benefit designs cannot be administered without a known unit cost for the service provided. Electronic health records, the billing systems, the accounting systems—the whole system is built around this.”

Laura Beerman is a contributing writer for HealthLeaders.


Claims effectively trap data needed for broader initiatives.

Legacy EHRs, billing, and accounting systems contribute.

Analytics and payer-provider integration are among the solutions.

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