Can Value-Based Reimbursement Models
Transform Health Care?
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White Paper
Optum
www.optum.com
Can Value-Based Reimbursement Models Transform Health Care?
Traditional fee-for-service (FFS) reimbursement contributes to the high
cost and low quality of care that plague the U.S. health care system
today. FFS reimbursement rewards providers for delivering more services
and fails to differentiate payment based on quality. Value-based
reimbursement (VBR) is designed to shift the basis of reimbursement
from volume to value by incorporating incentives to improve financial
and clinical performance. However, simply changing incentives is not
sufficient to achieve the transformation that policymakers and private
industry seek in an effort to meet the health care needs of an aging
population. That transformation will require a holistic approach to
VBR that includes a new emphasis on population health, new alliances
between health care organizations, and investments in the tools and
services needed to support innovative models of care.
There is a simple truth about U.S. health care: Americans do not necessarily receive the
value they could experience for the money they spend. Health care costs nearly doubled
from 1980 to 2010,1 and Americans now spend on health care — as a share of gross
domestic product — nearly twice as much as people in other developed countries do.2
At the same time, whether Americans benefit from spending so much on health care is
unclear. U.S. patients are hospitalized more often for chronic conditions than are people
in many other developed countries, and the United States ranks low internationally on
measures of patient safety, care coordination and patient centeredness.3
The current fee-for-service reimbursement system rewards physicians and hospitals
when they deliver more care to their patients — often without regard to the
effectiveness of that care. FFS actually penalizes providers financially for maintaining
the health of their patients and reducing patients’ need for clinical services. The net
effect is to encourage the delivery of services that result in potentially little or no clinical
benefit. At the same time, a study published in the
New England Journal of Medicine
that examined the relationship between increased health spending and changes in life
expectancy in the United States from 1960 to 2000 found that increases in spending
have provided “reasonable value” in the aggregate.4 However, the authors also seem to
find diminishing marginal returns to additional spending — especially among the elderly,
whose spending rose most dramatically. The authors argue that discussions about health
spending need to consider the incremental benefits associated with that spending.
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Can Value-Based Reimbursement Models Transform Health Care?
Rewarding providers for delivering greater value to their patients has become a matter
of national policy. The Patient Protection and Affordable Care Act (PPACA) calls for “a
greater quality system that wastes less and encourages efficient and effective care” by
accelerating value measurement and VBR efforts.5 The PPACA mentions “value” 214
times in Title III: Improving Quality and Efficiency of Health Care.6
But simply paying providers for more value is not sufficient. VBR is one component of
a more complete transformation that will take time — and investments — to achieve.
That’s one of the reasons that the PPACA also calls for a series of demonstrations to
explore the effect of new organizational arrangements and innovative models of health
care delivery. Experimenting with different tactics and approaches will enable the
industry to learn which clinical models are most effective, how the attributes of local
markets influence the performance of clinical models and organizational structures, and
when to expand pilots into larger health care initiatives.
The VBR evolution
VBR changes the rules that govern provider reimbursement so that income depends
“not just on the provision of a service but also on other factors, such as quality and
safety measures, provision of recommended care and avoidance of wasteful care.”7
VBR encompasses two components: measuring value and reforming payment so that
payment reflects value.
In practical terms, VBR is not new and includes a variety of payment methods designed
to establish and align incentives for efficient and effective care, hold providers
accountable for adverse clinical events, and adopt transitional strategies to create the
right infrastructure for support of VBR.
Figure 1: Aligned incentives due to value-based reimbursement
VBR: Aligned incentives, focused
on the member
Member
Gov’t
Provider
Health
Plan
Leading to lower cost and
higher quality service
•
Lower cost
– Generate savings for potential
gain-sharing
– Focus on the clinical need
for procedures
– Encourage more evidence-based
clinical decisions
– Focus more clinical attention on
population health rather than on
individual patients
•
Higher quality
– Provide rewards for good outcomes
– Reward providers for adhering to
established protocols
– Lower reimbursement for
adverse events
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There are four distinct VBR models:
• Pay-for-performance (P4P): A financial model that links a portion of a provider’s revenue
to quantifiable performance standards that can reflect process or outcome criteria.
• Patient-centered medical home (PCMH): A care model in which a primary care practice
or a group of practices accepts responsibility for managing the health of — and the
delivery of specific services to — a defined population. This model often requires use
of specific information technology (e.g., electronic health records [EHRs]).
• Bundled payment: A financial model in which one or more provider organizations accept
a prospectively determined price to manage an entire episode of care. Bundled payments
usually are applied to acute episodes but can be adapted to chronic conditions.
• Shared savings/accountable care organization (ACO): An administrative model in
which provider organizations collectively accept responsibility for managing the health
of a defined population across a broad scope of services.
Figure 2: Value-based reimbursement payment methods
Type of VBR
Description
Comment
Pay for reporting
Providers receive additional fees when they supply information — usually
clinical or quality data — that is not part of the standard claim form.
Transitional strategy designed to collect information needed for
other models
Pay for adoption
Providers receive financial support to subsidize investments in
clinical infrastructure and technology (e.g., EHRs).
Not tied directly to patient care objectives
Prospective payment
Providers are paid according to rules that are set in advance depending
on a patient’s underlying clinical condition care requirements.
Aggregates services into a single payment unit over time but
usually not across providers
Warranty services
Providers are not paid for services that result from adverse
outcomes or ineffective treatments. Includes policies related to
hospital-acquired conditions and never events.
Risk adjustment is an issue. Warranty services often not provided
by initial clinician
Gainsharing
Financial model in which providers receive a portion of the savings
attributable to changes in clinical practice that achieve specified
financial objectives.
Constrained by existing statutes
Source: Optum
The federal government has been conducting demonstration projects to assess these
tactics because it recognizes that the Medicare program “has an important influence
on the shape of the health care delivery system in the United States” and that it is
“incumbent on the Medicare program to spend limited funds wisely by providing
incentives for beneficiaries to seek, and providers to deliver, high-value services.”8
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However, Medicare, “as mighty as it is, can only move the needle so far,” according
to
Health Affairs editor in chief Susan Dentzer, who says that “unless private insurers
implement similar reforms, providers will rationally try to maintain their incomes by
charging those insurers more.”9 In this context, the development of health benefit
exchanges under the PPACA will strengthen the competitive pressures on private
insurers and force them to identify and adopt new strategies for improving the value
that customers receive from their health care dollars.
Existing research involving federal and commercial VBR pilot programs does not suggest
that any single model is clearly superior. The Centers for Medicare & Medicaid Services
(CMS) continues to explore a variety of options involving prospective payment, shared
savings and bonus arrangements tied to specific performance criteria. There is a lot to
learn, and it is important not to embrace policies without thorough assessment. This is
illustrated by the Medicare Premier pay-for-performance demonstration wherein findings
were promising but later research found no improvements in patient outcomes.10 What
seems clear is that strong financial incentives are needed to influence provider behavior
and that the public and private sectors will need to work in tandem and send providers
consistent signals “if we are to witness the full benefit of lowering health care spending.”11
Patient-centered medical homes have drawn considerable attention from both
public and private organizations because of their emphasis on health promotion and
the potential shared-savings aspects of that care model. A study of PCMH pilots in
Colorado, New Hampshire and New York primary care practices showed encouraging
signs of meeting cost, utilization and quality objectives.12 Another evaluation — which
focused on the Massachusetts Patient-Centered Medical Home Initiative involving 45
primary care practices participating in the Massachusetts Medicaid program — illustrates
some of the complexities and opportunities the industry faces in developing new and
effective care models. In particular, the evaluation found that:
•
Specification of the model can be contentious. (“Each design choice exhibits
tensions between conflicting goals and interests, and a balance must be struck”13)
•
Entities need and must be able to pool payer data and align performance
measures. (“The lack of a coherent and unified program works at cross purposes with true
system redesign”14)
•
Providers must be grouped together for the purposes of measurement and
incentive distribution. (“Without grouping, the statistical instability of measures
leads to very wide confidence intervals, which precludes the use of meaningful
payment thresholds”15)
•
There is a need for risk adjustment to account for patients with varying
needs and health behaviors. (Payers might unintentionally discourage providers
“from caring for the highest-need patients unless mitigating strategies such as outlier
provisions and risk adjustment are employed”16)
•
Providers need better information about the care their patients receive
outside their practices. (“Insurers must begin to share meaningful, user-friendly data
in a timely fashion that allows willing practitioners to identify high-risk patients, assess
potential overuse, and track quality metrics”17)
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Attempts to implement specific tactics can be difficult and the benefits uncertain,
but health care organizations engaged in VBR experimentation can learn valuable
lessons about what works for them. How much the industry can learn from individual
prototypes is less certain because different tactics may be more appropriate for different
delivery systems, market conditions, or insurance products. That said, the industry as
a whole will benefit by accumulating evidence from individual prototypes, and recent
efforts by CMS to promote demonstrations will accelerate our learning.
In a January 2012 interview with the
Wall Street Journal about ACOs, former CMS
administrator Donald M. Berwick said, “Many capable organizations seem to want
to try. Some of those that try will fail, but, in an era when new methods of care
coordination are emerging and thriving, I suspect that many will succeed.”18
A December 10, 2012, article in
American Medical News supports Berwick’s statement
that many organizations are eager to try the ACO model. According to the article, “the
number of ACOs is expected to go up fast in 2013” as CMS approves new Medicare
program participants and as commercial insurers announce “new ACO program
participants on a regular basis and plan to expand these initiatives so even the smallest
participants can take part.”19
Taking incremental steps toward VBR
Early-adopter payers and providers that have started or are about to start down the road
toward linking reimbursement and quality will benefit from the firsthand experience
they gain — either with actual savings and/or improved outcomes or with valuable
feedback and information that will help them refine their VBR strategies.
Efforts by CMS and commercial health plans to develop and deploy VBR strategies
already suggest certain important issues:
• The right technology and data methodologies/transparency are intrinsic to success.
• Relationships among providers must change dramatically.
• VBR program failures actually are important learning opportunities.
Organizations participating in successful VBR arrangements generally need to make
significant new investments in information technology. At a minimum, health care
organizations need technology to administer payment and clinical operations. Depending
on how such operations get implemented — for example, bundled payments — the
arrangements can require a risk-bearing provider entity to consolidate claims from
participating providers and submit a combined billed to the payer. The risk-bearing provider
will also need technology to distribute payments to other participating providers, to reconcile
payments as appropriate and to otherwise administer the bundle. Alternatively, payers can
accept responsibility for bundling claims, in which case they too will require new technology.
Regardless, payers will need an expanded claim-editing function to ensure payment accuracy
and enhanced reporting that monitors provider performance.
Value-based reimbursement presents
special challenges to the traditional
functions of a health plan, especially
when each function operates in its own
isolated silo. For example, network
management will usually be responsible
for developing VBR arrangements and
deploying them across segments of the
provider network, but claims operations
will ultimately be responsible for
administering whatever is agreed upon
by the health plan and its network. Many
forms of VBR require more timely and
complete sharing of clinical information
among providers and the health plan,
which means that information technology
departments need to be part of the
planning process as well. Because VBR
aligns financial incentives across health
care organizations, it should also promote
more cooperation both within and across
organizations to serve the common
interests of those organizations’ members
and patients.
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Improved health information technology is also important to support clinical
enhancements (e.g., care redesign and care coordination). Because providers often share
financial and clinical risk with health plans under VBR, it is essential that all parties also
share information about patients’ clinical conditions and the services patients receive.
At a high level, health care organizations participating in VBR arrangements need timely
access to appropriate clinical information, performance measurement and monitoring,
clinically meaningful risk adjustment, and transparent and actionable information
that describes provider performance. Ideally, all of this needs to be built on top of a
dynamic data warehouse that pools information from multiple sources and then delivers
actionable information to providers at the point of care.
On the provider side, the adoption of EHRs is one of the first steps toward VBR. One of
the hallmarks of the PPACA is financial incentive to encourage the implementation of EHR
systems, because EHR systems serve as the technological foundation for improved clinical
data management. Although the adoption of EHRs five years ago was sporadic, the U.S.
Department of Health and Human Services Office of the National Coordinator for Health
Information Technology recently found that since the 2009 enactment of the Health
Information Technology for Economic and Clinical Health (HITECH) Act, the percentage of
doctors who have implemented EHRs has increased from 48 percent to 72 percent.20
EHR implementation is an important piece of the VBR puzzle — especially in an
integrated delivery network — because EHRs enable multiple providers to view and
understand what has been done to treat a patient. Providers can make clinical decisions
knowing what tests have been performed, what the results were, what prescriptions
have been written, and what the current status of the patient is from a comprehensive
clinical perspective. Without EHRs, inclusive care coordination would be virtually
impossible to achieve. EHRs, in tandem with important information provided by patients’
health plans, enable physicians to quickly query all of the data in the system to inform
their care plans.
The creation of a shared data asset that supports both payer- and provider-oriented
functions illustrates how VBR can reconfigure relationships between payers and
providers. Advocates of VBR envision a world in which payers and providers depend
on each other and work collaboratively to deliver increased value to their shared
customer base. In other words, VBR has the potential to align the incentives of various
stakeholders and to blur current distinctions between payer and provider organizations.
In the context of a marketplace in which health plans and provider organizations
compete more aggressively for covered lives through various types of exchanges, it is
easy to speculate on how VBR could radically change the way we organize the delivery
of health care services.
Lessons learned:
Provider-payer alliances
In Maine, a payer and a provider recently
worked together on a Medicare Advantage
(MA) program that is similar to an
accountable care organization in that the
MA program focused on shared data,
financial incentives and care management
to improve health outcomes for about
750 MA members.21 A case study of this
arrangement found that the patient
population in this program had 50 percent
fewer hospital days per 1,000 patients,
45 percent fewer admissions, and 56
percent fewer readmissions than statewide
unmanaged Medicare populations.
The case study authors identify
the following components of that
arrangement as contributing to such
success: robust data sharing and
information systems that support it,
analytical support, care management
and coordination, and joint strategic
planning with close provider-payer
collaboration.22 They note that a provider-
payer collaboration “drives both parties
to refine and improve care delivery,
particularly for members with chronic and
advanced illness.”23
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Examining the experiences of others that have forged new alliances demonstrates that
the recasting of relationships can be difficult but is important to long-term success.
VBR implementation considerations
Although plans and providers have been living with such VBR approaches as P4P,
prospective payment and various forms of capitation for some time, new challenges —
as well as new opportunities — are emerging as VBR gains more traction as a linchpin in
PPACA implementation.
That said, the current, modest pace of progress reflects the uncertainty regarding
which models would be most effective and the cost of the investments that will be
required. Most payers have some experience with P4P. Many have experimented with
models that promote coordinated care and high performance. Some are considering
or piloting patient-centered medical homes, bundled payment and ACO initiatives.
However, the truth is that most health services are still reimbursed under traditional,
fee-for-service arrangements.
The payer/provider convergence continuum
Most payers are migrating toward models that promote more-coordinated care and
high performance by using new reimbursement models to recast financial incentives and
transfer risk to providers.
Figure 3: Traditional fee for service still the most common
payment method
Reform Driving Alternative Care Models and Reimbursement Structures
Traditional fee for service
Incentive-based pay
Transfer of risk
Most payers fall here on this continuum. Have implemented some form of pay for performance
and have at least begun to consider or rollout PCMH, Bundled Payment and ACO initiatives.
Fee For Service
Pay For Performance
Patient-Centered
Medical Home
Bundled Payments
Accountable Care
Organization
Payment for services rendered.
Payment based on
improvements in cost
or outcomes
Payers are encouraging
physician practices to become
accredited PCMHs that
promote better-coordinated
care, thereby leading to better
outcomes and lower costs
Procedure- or condition-based
bundled payments, also known
as case rates, whereby a
single payment is made for
all services related to a specific
procedure, event or condition
Accountable care organizations
go a step beyond integrated
care systems by
transferring
risk to providers
Source: Optum
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As health plans assess where and how to deploy VBR models, they need to consider the
amounts of clinical integration, organizational integration and financial integration that
may be required for success.
• Clinical integration involves population health management and tools (e.g., predictive
analytics, patient registries, and provider/member engagement), evidence-based-medicine
(EBM) strategies and tools (e.g., EBM methodology and clinical pathways), and clinical
decision support tools, such as clinical work flow and outcome variance reporting.
• Organizational integration involves the development of a shared infrastructure that
enables payers and providers to collaborate in support of their common clients.
Connectivity, performance management, product formation and claims/payment
transformation are the main operational elements that must be in place. Without
an underlying architecture that enables payers to connect to and share data with
providers, the transition to VBR will be difficult. Payers also need measurement and
feedback tools, new products (e.g., contracting and risk pricing), and grouping
methodology and claims administration.
• Financial integration involves the creation of new work flows and processes to support
VBR. Some of the barriers to the transition from FFS to VBR involve simple things, such as
processes for preparing and adjudicating claims that bundle services across providers and
time. Payers and provider organizations exploring VBR models will need financial and risk
management tools to manage the changes associated with risk sharing, including patient
financial management, network assessment and risk adjustment.
For example, if a plan’s network includes a few relatively large, integrated delivery systems,
opportunities for clinical and organizational coordination across the delivery system
enhance the chances that a bundled-payment or pay-for-performance model will be
successful. Conversely, a plan that does not have a significant concentration of services
within its network may not have enough mass to influence the behavior of individual
providers. Such plans might want to consider narrowing their network and using a
medical home model to encourage at-risk providers to manage cases more effectively.
During a plan’s exploration of different options, communication with providers and a
steady flow of data and information will be important in making care improvements and
building an infrastructure to better manage care at both ends of the care continuum.
There are three primary facets
to a comprehensive value-based
reimbursement strategy, according to
Optum: (1) delivery system infrastructure,
(2) health plan infrastructure, and (3)
methodology and analytics. Around each
element are enabling services that help
the elements achieve their VBR goals:
change management and other support,
operational and network management
support, and customization for market
conditions. At the center of the triangle
are data and information, which enable
entities to make informed decisions
and analyze results. Shared data assets,
according to Optum, represent the core
or foundation upon which effective VBR
should be based.
For the data and information used in
facilitation and support of VBR to be
effective, they must be transparent.
A plan needs to determine how it is
measuring value conceptually (e.g.,
over entire episodes), whether its
measurement process is tightly associated
with the payment process, and how
broadly it is defining the unit of care
for which payment is being made.
Operationally, plans must determine (1)
whether clinicians should be allowed
access to information that improves
clinical decision making and (2) the
support that exists within the delivery
organization to foster new care models.
Change Management & Other Support
Delivery System
Infrastructure
Operational & Network Management Support
Health Plan
Infrastructure
Methodology
and Analytics
Data
Warehouse
Customization for Market Conditions
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Changing reimbursement paradigm that requires trial and error
Today, early adopters are in a period of trial and error. Health care organizations are
learning what works and what does not work for their populations and markets. The
lessons learned will enable the industry to refine current reimbursement and care models
and to determine the circumstances under which different models are appropriate.
Optum content experts have experience on both the provider and payer sides of
the care equation, and they can act as agents to help health plans understand their
options and build on their offerings. As an impartial broker and adviser, Optum brings
clients knowledge about (1) tactics; (2) VBR implementation such as performance
measurement, architecture and clinical redesign, pricing services and risk management;
and (3) the right tools to help them navigate the VBR maze.
For a VBR strategy to work, it has to be built around a plan’s business needs, priorities
and capabilities. Optum works with plans to understand their preferences and the
context within which they operate. Optum also can help a plan lay the foundation
for a reimbursement program that will help the plan manage its medical costs while
increasing benefits to members. As plans explore which tactic is the best fit for their
businesses, the journeys they take will also help them determine ways to differentiate
themselves from competitors.
Under the PPACA, reimbursement change is inevitable. Moving toward a value-based
system will not be easy or quick, but it will lead to sharper focus on the health of a
plan’s members and on more-appropriate and cost-effective care. The only way for plans
to find out which approach will work best is to start.
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About Optum
Optum is an information and technology-enabled health services business platform
serving the broad health marketplace, including care providers, plan sponsors,
life sciences companies, and consumers. Its business units — OptumHealth™,
OptumInsight™, and OptumRx™ — employ more than 35,000 people worldwide who
are committed to building sustainable health communities.
www.optum.com
13625 Technology Drive, Eden Prairie, MN 55344
All Optum trademarks and logos are owned by Optum. All other brand or product names are trademarks
or registered marks of their respective owners. Because we are continuously improving our products and
services, Optum reserves the right to change specifications without prior notice. Optum is an equal
opportunity employer.
OPTPRJ1742 8/13 © 2013 Optum. All rights reserved.
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References
1. Medicare Payment Advisory Commission, “Report to Congress: Medicare Payment Policy,” March 2012.
2. Commonwealth Fund, “The U.S. Health System in Perspective: A Comparison of Twelve Industrialized Nations,”
July 27, 2011.
3. Ibid.
4. The Value of Medical Spending in the United States, 1960 –2000. David M. Cutler, Ph.D., Allison B. Rosen,
M.D., M.P.H., Sc.D., and Sandeep Vijan, M.D. N Engl J Med 2006;355:920-7.
5. Mark Rattray, MD, “Value-Based Physician Reimbursement: Challenges and Opportunities for
Physical Medicine and Rehabilitation,
Physical Medicine and Rehabilitation, vol. 1, 706-708, August 2009.
6. Deloitte Center for Health Solutions Issue Brief, “Value-based purchasing: A strategic overview for health care
industry stakeholders,” 2011.
7. Mark Rattray, MD, “Value-Based Physician Reimbursement.”
8. Medicare Payment Advisory Commission, “Report to Congress: Medicare Payment Policy,” March 2012.
9. Susan Dentzer, “Payment Reform: Parlous, and Yet Still Promising,”
Health Affairs, September 2012.
10. Rachel M. Werner and R. Adams Dudley, “Medicare’s New Hospital Value-Based Purchasing Program Is
Likely To Have Only a Small Impact on Hospital Payments,”
Health Affairs, September 2012.
11. Stuart H. Altman, “The Lessons of Medicare’s Prospective Payment System Show That the Bundled Payment
Program Faces Challenges,”
Health Affairs, September 2012.
12. Ruth S. Raskas, Lisa M. Latts, Jill R. Hummel, Douglas Wenners, Harlan Levine, and Sam R. Nussbaum,
“Early Results Show WellPoint’s Patient-centered Medical Home Pilots Have Met Some Goals for Costs,
Utilization, and Quality,”
Health Affairs, September 2012.
13. Joel S. Weissman, Michael Bailit, Guy D’Andrea, and Meredith B. Rosenthal, “The Design and Application
of Shared Savings Programs: Lessons from Early Adopters,”
Health Affairs, September 2012.
14. Ibid.
15. Ibid.
16. Ibid.
17. Ibid.
18. Anna Wilde Mathews, “Can Accountable-Care Organizations Improve Health Care While Reducing Costs?”
Wall Street Journal, January 23, 2012.
19. Victoria Stagg Elliott, “ACOs, already surging, poised for even more growth,”
American Medical News,
December 10, 2012.
20. Department of Health and Human Services press release, “More doctors adopting EHRs to improve patient
care and safety,” December 12, 2012.
21. Thomas F. Claffey, Joseph V. Agnosti, Elizabeth N. Collet, Lonny Reisman, and Randall Krakauer,
“Payer-Provider Collaboration in Accountable Care Reduced Use and Improved Quality in Maine
Medicare Advantage Plan,”
Health Affairs, September 2012.
22. Ibid.
23. Ibid.