Whether hospitals and health systems are ready for value-based contracts or not, the proliferation of those contracts cannot be denied.
Over the past few months, several major hospital-payer deals have reflected a significant shift toward paying for performance and outcomes. In May, Naples, Fla.-based Health Management Associates and health insurer Florida Blue rolled out a value-based, accountable care delivery model for all patients in Brevard County, Fla. In April, all 12 of Livonia, Mich.-based Trinity Health's hospitals in Michigan inked a new value-based reimbursement model with Blue Cross Blue Shield of Michigan. The three-year deal will focus on a value-based reimbursement model for hospital services, such as follow-up care and other proactive health measures.
UnitedHealthcare, the Minnetonka, Minn.-based health insurer subsidiary of UnitedHealth Group, upped the ante the most in July when it said it plans to more than double its accountable care health plan contracts with hospitals and physicians by 2017. UnitedHealthcare currently ties $20 billion of its reimbursements to quality and cost efficiency, and it hopes to bump that number up to $50 billion.
The rising interest in value-based contracting can be tied to three areas, says Miles Snowden, MD, CMO of Optum. One of the primary reasons is that hospitals want to convert physician practices they've acquired over the past five to eight years into sound investments.
"The initial purposes for the acquisitions were expanding services to meet patient needs and gaining or protecting market share," Dr. Snowden says. "Now that they have market share, both hospitals and physicians want to turn it into something that is more efficient and effective."
Providers are turning to value-based contracting with commercial payers in part because these contracts more closely mirror new payment programs by the federal government that begin to move away from fee-for-service. As CMS incorporates a mix of incentives and penalties with the goal of improving outcomes, commercial payers are following suit. As a result, hospitals and physicians are scrambling to adapt.
"Hospital executives are seeing commercial payers negotiate for certain reimbursement for year one, and then requiring advances in patient outcomes to achieve the [reimbursement] escalator in subsequent years," Dr. Snowden says. "But those quality gains can't be achieved unilaterally by hospital staff. They have to coordinate with the physician staff and align physicians as it pertains to the contract with the payer."
Lastly, physicians — especially those in primary care — see value-based contracting as an important way to improve the finances of their practices, says Dr. Snowden, who is board-certified in internal medicine. Primary care physicians have often struggled to keep sustainable margins at their practices. Value-based contracts provide opportunities to improve their margins if they are able to help patients with chronic conditions manage their health.
As a result, Dr. Snowden says providers are joining aggressive value-based contracting negotiations. However, these types of agreements are still somewhat new, and not every organization is guaranteed success. To ensure profitable outcomes-based contracts, Dr. Snowden recommends hospitals and physicians carefully work through the following four steps — steps he says are delivering positive results with several of Optum's clients.
1. Optimize network management. A fundamental principle of value-based contracting is finding the physicians who deliver the most appropriate care in the most appropriate setting at the lowest cost.
Dr. Snowden says physicians can be low-cost, high-quality providers if they utilize the right subspecialists and structure a network around those subspecialists. For example, if organizations direct heart patients to the most efficient, highest-quality cardiologists, and those cardiologists use high-quality subspecialists, suddenly the organization has built a high-functioning network.
Dr. Snowden says at Optum, he and others have seen an average of $10,000 to $15,000 in medical cost savings for care provided by a higher-performing specialist. "Physicians are quickly learning they can meet most quality and cost metrics by simply analyzing which of the subspecialists they use most often are delivering the best care," he says.
2. Manage care transitions across the continuum of care. The healthcare system is split predominantly into two categories: inpatient, facility-based care and outpatient, ambulatory-based care. The handoff between the two groups can often be "tricky," Dr. Snowden says.
"Hospitals have done a good job of preparing people to exit the hospital door, but discharge planning assumes the patient understands the instructions," he says. "No one in the hospital setting is following the patient down the street and back home to make sure there are no physical/mental/community barriers."
Hospitals and physicians need to focus on making seamless transitions because a bad handoff could potentially lead to poor outcomes and higher costs. Poor care coordination also does not live up to the goal of taking care of a defined population, Dr. Snowden says.
He recommends including physician gainsharing incentives in value-based contracts so physicians will have a financial incentive to coordinate care. "In this step, physicians can now be sufficiently reimbursed for taking proactive steps, such as outreach phone calls," he says.
3. Expand chronic disease management within the ambulatory setting. In 2012, Optum managed care for 5 million consumers, and it found that contrary to conventional wisdom, most healthcare costs are not incurred in the inpatient setting. Only 25 percent of costs were attributed to inpatient care, while the remaining costs were attributed to outpatient care and medications.
"Managing care in the ambulatory setting is the most important thing that can be done in controlling costs in a population," Dr. Snowden says. "This is exactly the opposite of what most healthcare executives think."
So what should hospitals and physicians do? They must invest heavily in managing the sickest population before they enter the hospital — a key tenet of healthcare reform. This means organizations must focus on patients who have diabetes, cancer, acquired diseases and musculoskeletal diseases, Dr. Snowden says.
However, it's not enough to merely direct these chronic disease patients to a physician's office. Often, these patients are not proactive on their preventive and wellness checkups, so hospitals and physicians must use data and analytics to find these patients and use care manager outreach strategies to bring them into the office setting when appropriate, Dr. Snowden says.
4. Invest in in-home interventions for the sickest, post-acute population. A patient's home is the lowest-cost site of care, and the healthcare providers who are most successful under value-based models recognize this.
Optum found that if a nurse practitioner or physician actively participates in the in-home care management of a Medicare patient, average acute-care admissions decrease by 64 percent — meaning the patient is in the right setting (and perhaps a more comfortable setting).
"There is no such thing as investing too much money in putting clinical professionals in home for the highest-acuity people," Dr. Snowden says. "Providing care to the sickest 1 percent with the assistance of a nurse practitioner or a registered nurse or even a physician in a home setting on a regular basis instead of in an inpatient setting is an investment that pays off very handsomely for both the physicians and the patient."
Value-based contracting is an art in healthcare today, and often, these arrangements are more involved than the four outlined steps. However, Dr. Snowden says providers who have done well in value-based contracting have focused on these areas the most — and all with the help of the right data analytics and predictive modeling tools.
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