As the health system moves toward value-based care (VBC) models, many are finding it’s slow going — or at least slower than they originally hoped. Several challenges are impacting the transition, not the least of which is the design of alternative payment models (APMs).
Since the passage of the Affordable Care Act, the U.S. government has been the main engine driving change with respect to VBC, followed by the private sector, in which a variety of contracting arrangements are incentivizing providers to focus on value. Even so, only the minority of alternative payment models expect two-sided risk thus far.
That’s significant because the two-sided risk APMs are the most likely to yield value. While CMS has a vision to funnel Medicare providers into models with upside and downside risk, everyday financial concerns pose significant barriers to adoption.
Untangling fee for service
Most providers are still paid through volume-based, fee-for-service (FFS) structures or through models fundamentally anchored to fee-based compensation. In 2020, about 60 percent of the payments received by providers were in some way tied to value, however. Another recent study concluded that volume-based compensation was the most common type of base pay used among 80 percent of primary care and 90 percent of specialist practices owned by health systems.
The basic financial proposition of the models will remain value-based care’s biggest challenge. After all, providers find the business side of FFS financially beneficial and are reluctant to step away from it. Who can blame them. Providers are understandably clinging to sure things and don’t have much appetite for risk-taking activities.
Factor in the recent issues wrought up by the pandemic, such as the tight labor market and the drop in medical procedures, however, and many providers are beginning to witness good reasons to renew their interest in value models. The pandemic displayed the advantages of APMs when risk-based capitation provided revenue flow for those providers who had already taken the leap. On the other hand, it takes expertise, adequate health IT systems, and deep study of the market to move effectively into risk.
Beyond the financial aspects, there are a number of equally harsh headwinds putting a drag on the forward progress of VBC. As the system builds a new paradigm, each challenge must be addressed in kind. Without removing these barriers, VBC is less likely to reach critical mass.
1. Data isn’t as readily available as it should be
Obviously, data is critical to care delivery at the individual patient level and at the population level. Rarely do providers have the data they need at the point of care to deliver high-quality services for the patient in a holistic way.
One of the culprits is the prevailing lack of interoperability among networks. Even in major U.S. cities, very few have reached even 60 percent of the four key domains of interoperability for the local healthcare market. Without access to patient data from across the ecosystem, services might be repeated and care gaps will go unaddressed.
Hope rides on the continued implementation and enforcement of new information blocking rules from ONC, which are designed to make information sharing a practical priority. Meanwhile, health information exchanges will also help overcome the hunt for data. Recently, California pledged a statewide exchange meant to share data for all 40 million residents — a huge undertaking that will ultimately pay off.
Of course, any provider’s tech-enabled journey toward VBC must start with a foundational target model that includes overarching strategies. For example, they will need data collection and data use plans that take into account subsequent, downstream use of data for multiple purposes — including reporting of outcomes. Many will also need to audition new digital systems and choose the ones that meet their needs for today and tomorrow. A transformational plan for technology and data will advance VBC faster than an on-the-fly approach.
2. Provider costs are more variable these days
Provider costs are going up, and APMs don’t account for that. APMs are multi-year commitments and they have no guarantee that the payments a provider receives will be adequate to cover the cost of high-quality, appropriate care. Generally, APM payments are based on total spending on all of the services the patient receives from all providers, however, many providers don’t truly know what their own total cost of care really is.
Meanwhile, costs for providers have become even harder to manage. Workforce cost increases are just one example. Even the largest providers are now offering generous signing bonuses and extra pay to recruit and retain clinicians — all of which eat away at margins.
Recent reports indicate that hospital margins are still in negative territory through early 2022, and expenses per patient are up more than 20 percent since the start of the pandemic. Labor expenses alone are up more than 15 percent since last year. And all this is happening against a backdrop of staggering inflation, which hit a 40 year peak in February.
High volume providers might be able to seek higher rates or gain ground through internal efficiencies. Others may have to assess the relative effects of diversification with lower revenue per unit as a means to address cost pressures. Market data can help shed some light on growth opportunities in the future, and a competitive assessment can help providers recalibrate their comprehensive marketing strategies.
3. Patient engagement has become more important than ever
In VBC models, providers miss out on financial reward when patients don’t adhere to care plans. It can be frustrating to get patients to make follow up appointments, follow self-care plans for chronic conditions, and take their medications as prescribed. In fact, only about 50 percent of patients with chronic conditions tend to be adherent to their medication regimens. That means less than stellar outcomes — in spite of the quality of care the provider delivers.
Providers and their community-based partners must work in tandem to engage patients more often and deliver better outcomes. For example, more providers are addressing social determinants of health, such as food security, housing, and transportation to improve the patient’s ability to access services and stick with care plans. By extending care throughout the community, they can more fluidly deliver whole-person care that produces good clinical results that also pay off financially.
But engagement is hands-down the challenge that providers have the least control over. Tools such as patient portals, virtual care, reminder texts, and patient-facing apps to help manage chronic conditions have become ubiquitous in the past few years, boosting engagement to an extent.
Human nature cannot be solved with an app, however. It’s far easier for patients to do nothing than to engage. Unengaged patients represent a frustration for providers who, as a result, miss out on financial quality rewards. Let the team at Canton & Company help you set a new course in value-based care with market data, strategic guidance, go-to-market, and hands-on execution. Our growth acceleration services are designed for all types of healthcare businesses, including, providers, health IT innovators, community health centers, payers, and investors who are managing portfolios of healthcare assets. Request a quick discovery call here.