From Volume to Value: Alternative Payment Models Win During a Healthcare Crisis

As patient volumes drop due to the COVID-19 pandemic, fee-for-service payment models hurt providers. Is this finally the time for value-based care?

COVID-19 is decimating provider finances. Hospitals are losing over $40 billion per month in lost revenue due to canceled non-emergent inpatient and outpatient procedures. Physician practice revenue has been cut in half. These financial impacts are the direct result of the volume-based contracts in place at many providers, leading some to ask if this might finally be the right time for value-based care. In the words of one payer executive, “If there’s a silver lining to the crisis, it’s that we will now explore a value-based model which is going to be good for patients, good for providers and good for the community.”

Let’s examine how fee-for-service reimbursement became the norm in healthcare, how it compares to value- and risk-based agreements, and how health plans are better positioned than ever before to successfully promote and implement alternative payment models like value-based care.

A Brief History of Healthcare Payments

Our last article in this series on the far-reaching impacts of the novel coronavirus pandemic called out that the structure of our healthcare industry has been in place for almost a hundred years. For the first half of the 20th century, fee-for service  payments made sense as there were limited numbers of interventions and medications that could be offered, and those were relatively low-cost.

Medical advancements raise complexity, cost

As medical advancements were made, complexity and cost increased. When the Medicare and Medicaid programs were created to help the elderly and low-income population receive care despite higher costs, their method of reimbursing for services provided the foundation for fee-for-service reimbursement. Later, as costs continued to increase, payment reform concentrated on payment caps but kept FFS reimbursement intact, which led to providers increasing the number of reimbursable services and patient throughput to maintain revenue.

The rise of managed care and value-based care

In the 1990s, “managed care” initiatives slowed the growth of healthcare spending by reducing utilization. But they also concentrated healthcare decision making outside of the patient-provider relationship, which unnecessarily increased friction and led to their demise. In 2010 the Affordable Care Act mandated a few value-based care programs administered by CMS. Bundled payments that offered higher fees for higher-quality providers were also introduced as a middle ground between FFS and capitation.

Though there have been gains in value-based care contracts, most provider revenues are still based on patient volume. A recent survey revealed that while 57% of provider respondents were participating in value-based care arrangements, 48% report that over three-quarters of their organization’s revenue is tied to FFS.

Why Continue Fee-for-Service

Especially in the short-term, fee-for-service reimbursement provides a straightforward, familiar model that encourages providers to continue to offer healthcare during a time when its most needed. And, as many states lift restrictions on elective procedures, many providers expect pent-up demand for healthcare to rebound patient volume and revenue right along with it. Close to 40% of people who had elective procedures canceled plan to reschedule.

ACO experiences

Accountable Care Organizations make up a big chunk of the providers participating in alternative payment models. But with their large Medicare populations, the coronavirus pandemic created more risk than they had planned on. In a survey, more than half of ACOs, which earn shared savings based on total spending, were considering exiting the program due to uncertainty and expected financial losses.

Fortunately for ACOs, CMS stepped in with a new rule that aims to protect them from unforeseen financial impacts. These changes remove spending on COVID-19 patients from performance calculations, expand the definition of primary care services to include telehealth, and more. Nevertheless, this scare may deter other providers from participating in value-based care arrangements.

Risk-averse providers

Historically, providers have been reluctant to take on the additional risk inherent in value-based care contracts. And, who can blame them? It has been difficult to come to consensus on what “value” and “quality” really mean, and lack of data interoperability only exacerbates that issue by keeping essential information on outcomes out of reach for providers. Furthermore, even before the COVID-19 crisis, many providers were already struggling due to burnout, financial issues and hospital closures.

When providers enter into alternative payment models, it takes significant resources. With increasing Medicaid and uninsured populations, they may not have it to spare. Physician practices are closing and increasing consolidations are expected in the wake of the novel coronavirus pandemic. This translates into reduced capacity for preventive care and less provider incentives to engage in risk-sharing.

Why Transition to Value-Based Care

While an immediate switch to at-risk contracts may not be advisable, long-term, value-based care promises to position the U.S. healthcare system to better respond to future healthcare crises. Those providers currently participating in alternative payment models haven’t experienced the same drop in revenues as those whose survival depends on patient volume. And they are more likely to pursue population health improvements that stand to keep their patients healthier during the pandemic.

Surprise assist from telehealth

One unexpected boon from the pandemic is the increased adoption of telehealth. Investments in telehealth and other methods of virtual care are key moves by providers that lend themselves nicely to value-based care initiatives of lowering the cost of care and increasing patient engagement. These investments were made because payment parity kicked in. Before, according to one survey, 60% of primary care clinicians reported the majority of their work was not reimbursed or funded, a big portion of which was telehealth.

Now, telehealth allows them to accommodate surges in capacity, if needed, and focus on caring for vulnerable populations, so important during a pandemic that disproportionately affects these groups. As one physician says about the pandemic recovery and the role of virtual care in population health management, “This is going to be a phased-in thing and the sickest of the patients are the ones that we need to continue to be able to see to provide care for and get reimbursed for in a virtual modality.”

Change slow but inevitable

Those providers who continue to cling to FFS may be left behind and unable to participate in many future healthcare initiatives. CMS, in particular, has been transitioning to value-based care at an accelerated rate since the ACA was passed 10 years ago. A 2019 report showed that 35.8% of total U.S. healthcare payments in 2018 were tied to alternative payment models, a year-over-year increase of 34%.

Moreover, the industry has begun to come together on value measurements and alternative payment model frameworks. Government payers and commercial health plans are still the primary drivers of value-based care, but universal standards go a long way towards removing uncertainty by increasing transparency.

How Health Plans Can Support Alternative Payment Models

We’ve written before about how payers can best support the transition to value-based care: improve provider relationships and data transparency with the help of advanced technology. That advice hasn’t changed, though the COVID-19 crisis may have increased the importance of these initiatives.

Provider communication

Collaboration and shared understanding enabled by real-time, two-way communication with providers is essential to the success of value-based care programs, and there is still plenty of work to do in this arena. A recent survey showed that as many as 18% of providers have zero trust in the payers they work with, and more than a third have no communication with those payers. We wrote in a previous article that the COVID-19 crisis has led payers to increase their support of providers, which may provide an opening for health plans to shore up these relationships.

Without trust, it’s difficult to ask providers to assume more risk. In fact, a survey found that primary care physicians who trust the health plans they work with are more than twice as willing to engage in risk-sharing. As a stakeholder at a regional commercial health plan puts it, “Value-based care is payer driven, but provider and hospital partners need to come together and recognize something bigger. We’re not just trying to do something niche. We’re trying to help people prosper across our population.”

Data transparency

Value-based care initiatives depend on data as well. Data that reveals which populations need targeted outreach and how healthcare impacts outcomes is valuable to payers and providers alike. Lack of data interoperability between payers and providers is the number one roadblock that prevents healthcare innovation.

Breaking down data silos can help mitigate the differing interpretations of value and quality that hold back progress on alternative payment models. So, measure everything. Every impact—clinical quality, consumer experience, return on investment, and more—should be quantified, analyzed, improved, reanalyzed and continually improved in collaboration with providers. Work with providers to implement an analytics and communications platform to share data insights and work together on continuous improvements and innovations.

Advanced technology essential

Value-based care promises to lower the cost of healthcare and improve outcomes. These goals were important before the emergence of the novel coronavirus and are now essential directives. But these risk-sharing contracts require advanced technology in order to implement them. CMS has suspended data collection and quality reporting so providers can focus on patient care, but health plans executing on advanced digital strategies won’t miss a beat.

With integrative technology like Pareo in place, health plans can seamlessly communicate with providers and ingest electronic clinical care and claims information without unduly burdening these valuable relationships. They can come together in identifying and engaging those members who are in most need and find efficiencies without sacrificing quality or the doctor-patient bond. It’s the future of healthcare and it’s achievable now.