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Movement away from fee-for-service reimbursements has begun Date: 02/11/14

René Letourneau
René Letourneau

Among health plan executives, there’s a lot of talk about moving from volume to value. But identifying what this expression means in practice can be challenging because health plans all define value differently and they are developing ways to deliver more value to their employer and consumer customers. In fact, the movement to value-based payment is so challenging that while hospitals, physicians, and other providers understand the need to move away from fee-for-service, many are unsure of how to do it, are unable to do it, or are trying to figure out how best to do it, according to a recent article in MedPage Today.

Despite the challenges, some payers and providers are in fact shifting away from volume-based payments, commonly known as fee for service, and adopting value-based payment methods, as René Letourneau, a senior finance editor with HealthLeaders Media, reported in a recent cover story, Restructuring Reimbursements. She found, for example, that a group of hospitals contracting with a health plan had agreed to have 15 percent of their income based on patient outcomes. As the health plan executive explained, “If you want to change behaviors, you’ve got to change incentives.” Letourneau explained that the risk of not being paid 15 percent of their contracted reimbursement rates if they do not meet certain outcome measures appears to be motivating hospitals to find ways to deliver better care. Here’s Letourneau’s explanation of how she reported this story.

By René Letourneau

As health reform begins to take hold, provider organizations are bracing themselves for the shift from a fee-for-service payment structure to one based on value. No longer will physicians and hospitals be paid for individual patient visits and treatments regardless of the clinical outcomes. They will soon be on the hook for assuring that they are delivering quality care that improves the health of their patients.

The change in reimbursements may not have happened yet in large numbers, but there is no doubt it is coming. The federal Centers for Medicare & Medicaid is leading the charge with its Hospital Value-based Purchasing Program in which payments to hospitals and clinicians will create financial incentives that align them with the goals of transforming the quality of their care delivery.

As is often the case, commercial payers are quickly following suit and also are structuring payment agreements with health care providers to ensure their dollars are being well spent. In short, government and private payers are moving away from reimbursing providers for an endless stream of patient appointments, and with the new payment models, providers will now be induced to look for ways to cut costs and improve quality.

Providers appear to realize these new payment models represent a chance to receive compensation for improving the quality of the care they deliver. In the HealthLeaders Media Industry Survey 2013: Strategic Imperatives for an Evolving Industry, 64 percent of respondents cited value-based purchasing as an opportunity for their organization, while only 20 percent labeled it a threat.

But what do the new models really look like? This is the question I started with when I began researching and writing my article, “Restructuring Reimbursements” for the September issue of HealthLeaders magazine.

I first spoke to Hilton Raethel, chief health officer at Hawaii Medical Service Association, an independent licensee of the Blue Cross Blue Shield Association, which in 2011 partnered with its statewide network of hospitals and the Premier health care alliance to launch a four-year program called Advanced Hospital Care. The program ties 15 percent of reimbursements to outcomes because, as Raethel told me, “If you want to change behaviors, you’ve got to change incentives.”

The risk of not being paid 15 percent of their contracted reimbursement rates if they are not meeting certain outcome measures appears to be motivating hospitals to find ways to deliver better care. Raethel noted that the results that have been achieved so far through the AHC program have been significant, including a 12.5 percent reduction in hospital readmissions and a 43 percent drop in hospital-acquired infections. Spurred by the quality improvements, HMSA plans to introduce the next generation of its program this year, which will tie up to 30 percent of reimbursements to outcomes.

After gaining a better understanding of how this new risk-based contracting works, I spoke to David Okabe, executive vice president, CFO, and treasurer of Hawai’i Pacific Health, a 564-licensed-bed system based in Honolulu and the first hospital to enroll in HMSA’s program.

I was curious to learn if Okabe was concerned about the new approach to payments and what it means for providers in terms of improving the quality and value they deliver.

What I found was surprising. In fact, Pacific Health has upped the ante by tying even more of its reimbursements to quality. “If you include hospital and physician payments, which are tied to pay-for-quality, more than 60 percent of expected, incremental payments under our HMSA commercial agreements are based on performance,” Okabe told me.

Okabe sees the new reimbursement structure as an opportunity for “mutual success” for Hawai’i Pacific and HMSA and believes it is these kinds of incentives that will push the healthcare industry in a new and better direction.

“ system is not sustainable. No matter what happens in the future with federal healthcare reform, our view is the underlying healthcare system needs to fundamentally change. Healthcare organizations can decide to embrace the change or be reactionary, but either way, there is no option to stay in place,” he said.

Next, I spoke to Benjamin Carter, executive vice president for finance at CHE Trinity Health, a health system inLivonia,Mich., with $13.3 billion in annual operating revenue. Recently CHE Trinity Health entered into a value-based reimbursement agreement with Blue Cross Blue Shield of Michigan.

Carter told me his organization wanted to turn its relationship with Blue Cross into a partnership as a way of moving toward effective population health management.

“We still had to renegotiate our rates, which we did, but we also created an opportunity to have a partnership relationship in terms of what we considered to be a value-based contract. … We crafted a methodology that would allow us to take an attributed population of Blue Cross members, group them together, understand the cost per member, and join in the goal of reducing overall cost per member per month,” Carter said.

Hawai’i Pacific and CHE Trinity are at the forefront of the movement away from fee-for-service payments, yet most health care executives I speak to know the transition to a value-based reimbursement system is coming sooner rather than later. It’s a monumental shift for the provider community and will lead to the thinning of the herd: the nimble will survive and thrive, and those who can’t evolve their care delivery models will eventually become extinct. It’s a juicy topic for any health care finance journalist, and one I expect to be covering for years.