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September 2014

Strategies for Success In a Value-Based World
By Susan Chapman
For The Record
Vol. 26 No. 9 P. 18

The new system pays for quality rather than volume, a fundamental shift that organizations need to meet head-on.

When it comes to the bottom line, the health care industry is in the midst of cataclysmic change. No longer will providers be paid based on their volume of services. Instead, their livelihoods will depend on the quality of care they deliver.

The switch to value-based care requires providers to offer evidence-based, patient-centered treatment. The idea is to reward organizations for achieving quality and cost outcomes and, in some cases, penalize them for not meeting those goals.

The Affordable Care Act of 2010 states that the Centers for Medicare & Medicaid Services must begin applying a value modifier under the Medicare Physician Fee Schedule by 2015. At that time, cost and quality data will be factored into the calculation of physicians’ value modifier. By 2017, the value modifier will be applied to all physicians who bill Medicare for services provided. As the health care industry begins to shift from fee-for-service to value-based reimbursement, facilities and practitioners are searching for ways to ensure a smooth transition and devising strategies for long-term success.

Moving Forward
According to industry experts, the first step in the transition process is for organizations to gain a clear picture of their population’s current health profile. Assessing components such as risk factors, a clinically integrated network, and governance structure help sets the baseline of where an organization stands. Lorren Pettit, vice president of market research at HIMSS, believes a large part of any strategy must acknowledge that business is being done differently, which translates into a cultural shift. “It takes time to turn the Queen Mary, yet we’re trying to do it in a short window. We need to change our philosophies,” he says. “Health care organizations have to be analytical to be successful. We’ve been collecting data and using EMRs. Now, though, we have to not only collect data, but we also have to analyze it for prediction.”

Matt Siegel, a senior vice president of population health at Verisk Health, agrees: “It is really important to be data-driven in your approach, asking such questions as what population are you accountable for? What population are you proposing to be accountable for? Could you be proactive about how care is being delivered across your network, and where is there variation? All these are important factors in understanding where an organization can improve performance to maximize its chances of success under a value-based contract. Therefore, risk adjustments, costs, conditions, and risk factors—comprehending all of those is critical.”

To that end, Siegel believes analytics are essential. “How do I look at what parts of the network that are caring for people are performing? How can we provide the highest quality of care for the lowest cost?” he asks. “To do this, we need to risk-adjust for the sickest patients then look at how much imaging is being done, how many inpatient admissions are happening, for example, and look at how that varies across the network. The analytics alone are not going to give you the complete answer, but they inform the conversation.”

Andrew Cohen, vice president of Kaufman Hall, a management consulting service, notes that for providers to succeed in a value-based model, they must understand which clearly defined populations they serve and determine how much control they have over those populations. “It’s difficult to say that we’ll manage this group of people when their benefit design gives them the ability to go anywhere for any type of service,” he explains. “Facilities need to align reimbursement with their ability to control the care for the population. The less control there is, the less the likelihood of success.”

Cohen believes the most successful organizations are able to stratify their population against a risk continuum. “Many providers will need to think differently about how to proactively treat people to keep them healthy, as opposed to being reactive once they are ill,” he says. “Insurers, employers, and providers need to invest money upfront to keep people healthy, which will ward off more costly acute care down the line.”

The transition to a proactive approach especially will affect physicians, who Pettit says will play a somewhat diminished role in the new model. “Physicians are going to have to take a backseat to what the data say,” he says. “It could take almost a generation to make that shift from being an individual who leads to one who is part of a team, and that team will have to include the patient’s voice.”

Although the transition will be significant, physicians already have the skills necessary to perform in the new model. However, “the incentives will have to change,” Cohen says. “The information available has to change, as does the way it is delivered to physicians. Data can be an accelerator to help physicians understand who is really at risk in the population. Employers and insurers are becoming front-line assistants to physicians, and physicians need the right incentives and tools in order to make progress.”

Incentives are delivered through accountable health care, a type of value-based care in which payers and providers share the risk of meeting outcomes and provider reimbursement is tied to cost reductions and quality of care. Providers can form accountable care organizations (ACOs) that can contract with payers using alternative reimbursement models. If an ACO meets established quality outcomes and provides care below a predetermined cost goal, then its members can be rewarded with all or a portion of the amount saved.

Technology’s Role
Technology is a critical piece of the value-based care equation, spanning several activities from data gathering and analysis to telemedicine. Hospitals already are collecting data from disparate sources in the form of structured information in the EMR and unstructured notes in both the EMR and paper records. Technology, which will play an increasingly important role in gathering and analyzing such information, is destined to become one of the principal facilitators of health care’s cultural shift. “We’re seeing a number of organizations that have data-mining capabilities, the tools for predictive analytics,” Pettit says. “Leadership needs to take a front-and-center role in defining value and monitoring, which will drive where an organization needs to focus its efforts. Having a cohort of analysts on board at an organization is critical to defining, monitoring, and recalibrating in order to become a value-based organization.”

Cohen says technology’s strength is too powerful to overlook. “The real-time availability of the data and the analytics of that data will make this successful. Data do not live in one place,” he notes. “To use that information in an actionable way, in a timely manner, is the way to make the leap. Big insurance companies are just now figuring out how to leverage that data to use it in a meaningful way.”

Additionally, as health care providers and facilities take a more proactive approach to monitoring chronic disease and reducing expenses, home monitoring devices and other forms of telemedicine may loom large. “There is a lot of hope that home monitoring can reduce cost, improve quality, and enhance the patient experience,” Siegel says. “It has the potential to improve quality because you’re doing a more proactive job of monitoring. What facilities need now, in terms of analyzing such data, is centrally collected data access to see how these remote tools are working.”

The Timeline
According to UnitedHealthcare, in 2013, more than $20 billion of its reimbursements to hospitals, physicians, and other providers were linked in some way to cost efficiency and quality measures. By 2017, the company expects that number to increase to $50 billion. However, Pettit maintains that because the federal government’s role in this shift is so influential, market forces are not dictating the timeline for any one organization. “Instead, we have to respond to governmental mandates. We also have to be thinking about ICD-10,” he notes. “When we look at value-based purchasing, it is a morphing entity in front of our eyes. In 2013, value-based purchasing was based on two metrics: patient care and political processing of care. In 2014, we’re examining outcomes and, by 2015, we’ll be adding efficiency to that mix.”

Cohen believes the transition to a value-based model will be gradual over a period of time, with “break even” occurring in three to five years or possibly in five to 10 years in some organizations. “I look at provider organizations that have been at it for 15 years and are still fine-tuning their model. You don’t sign a contract in August and expect your first bonus check in January the following year. It’s about changing physician, patient, and employer behavior,” he says. “And, although it will likely take more than a decade for the market to shift, the time to start investing in these skills and capabilities is now. There will always be fee for service on some level. The challenge will be how can we manage a variety of different models as reimbursement fragments.”

Although the business model will continue to change, some strategies will remain constant. For example, providers must ensure transparency from a consumer perspective. Providers also must determine their retail strategies. “Patient centricity, branding, and price will become more important,” Cohen says. “More people will shop for services, particularly outpatient services. To be competitive, providers should focus on strategic cost management, regardless of when the industry moves or how quickly it transitions.”

To reach organizational goals, Cohen recommends providers engage in strategic planning and stay ahead of the market. “They need to proactively talk to stakeholders and understand how these stakeholders are driving change so that they can plan and act accordingly,” he says.

Payer and Provider Collaboration
Through the advent of the ACO, payers and providers have aligned incentives to be successful. Siegel believes that if a mechanism is in place to allow the provider to successfully transition to value-based care, the payer then has better visibility into the provider’s costs. “And payers should share information with the providers,” he says. “Wouldn’t you want the provider that you’re holding accountable to have the same information you do in order to work together to have the best possible outcomes?”

For that to happen, communication is key. Pettit notes that the common language for payers and providers is analytics. Understanding what measures are being used, how efficiency is defined in a hospital, and what efficiency looks like to a payer all create a shared language with shared definitions. “That is going to be a really difficult component,” he says. “In a hospital, what we say is efficiency can be different than what it is considered at the hospital down the street. Opening those dialogues is important. It’s not easy to actualize, even though it’s easy to understand. We’re moving into uncharted territory. We have no role models to learn from in this climate. Having a shared dialogue—what works, what does not—is what will make us successful.”

In this environment, Cohen views physicians as the lynchpins who will move the model forward and benefit from financial incentives. If physicians are being paid based on the health of a population as opposed to providing an array of services, they have to consider both the cost and quality of care when deciding whether to send a patient to one hospital over another. “Physicians need to think of the long-term health of a patient, proactively identifying when a patient needs care and the consequences of the care they prescribe,” he says. “They’ll have to work more collaboratively as well. Doctors and hospitals need to be thinking beyond the four walls of their own facilities.”

Short-Term Strategies
In the short term, hospitals should establish an infrastructure to capture, share, and report data. “It’s going to be critical as a building block to identify and demonstrate the short-term wins that we can define,” Pettit says. “Essentially, we need to eat the elephant one bite at a time. Once the infrastructure is in place and we can collect data, we then can target a few areas where the data are pointing to value. And, once we have wins, we can expand them to other areas. I believe hospitals will then have to hold back the gates from different physicians and departments who want to be next. This will help the long-term gain.”

As soon as possible, get physicians on board with the facility’s plan. Pettit notes that without physician support, a strategy cannot sustain itself, adding that consistent communication helps ensure their buy-in even if it means getting creative. “I heard of an organization that recognized nonproductive times for physicians; for instance, when they were commuting to and from the hospital,” he explains. “So they created talking points of information they wanted the physicians to know and had a peer record them. From there, the hospital burned CDs, which they sent to physicians at their offices or homes to keep them in the communication loop.”

Cohen points out that while hospitals focus on short-term cost management, they are not able to compete with freestanding service providers in the outpatient market. “Hospitals need to examine whether they are competitive in their pricing,” he explains. “With the advent of new benefit designs and meaningful price transparency tools, patients now have the incentives and means to shop for services. If their pricing structures are way out of line with other sites of care in the marketplace and there is no perceived quality difference, then people are going to choose to go to other facilities. Consequently, hospitals need to become more retail-focused to maximize the chances for success.”

— Susan Chapman is a Los Angeles-based writer.