Healthcare providers encounter a range of barriers to success in value-based payment models, from a complex reimbursement landscape that varies by payer and line of business, to the lack of capabilities needed to effectively manage population health. This has led to value-based bonuses across the commercial, Medicare, and managed Medicare and Medicaid lines of business being left on the table—bonuses that could enhance yield and improve revenue.
Take the Medicare Shared Savings Program (MSSP), where, on average, accountable care organizations earned $21 per member per month (PMPM) in performance year 2022.1 These bonuses can be captured by participating in MSSP for traditional Medicare beneficiaries currently passing through a provider’s network of care.
With intense pressure to offer a differentiated value proposition for primary care physicians, while creating the care experiences consumers desire, providers need a financially practical approach to value. It should enable them to navigate market pressures and retain physicians and patients, while simultaneously continuing to deliver high-quality care and meet payer goals of care in lower-cost settings.
In many cases, value-based arrangements can become a tug-of-war between payers and providers. The first step in balancing expectations is to achieve agreement on the incentives that will improve outcomes and attract and retain both clinicians and consumers. Leading providers and payers are evolving their payment strategies with value-based revenue portfolios that break down barriers to create a stronger yield for providers and enhanced utilization management for payers—all while delivering better care experiences at reduced costs.
As healthcare providers confront today’s economic realities—operating margins that have not yet returned to pre-COVID levels and a cash crunch on not-for-profit organizations—new value-driven partnerships are forming between providers and health plans to modernize care and transition from cost reduction to revenue generation.
CareMax’s 2022 acquisition of Steward Health Care’s Medicare business is an example of tailoring a value-based strategy by line of business.2 Transitioning an employed medical group’s legacy care delivery model to a hybrid or fully customized approach by line of business is an extensive, multi-year effort. Balancing the goals of both organizations—the health system and the value-based care enabler—is critical to mutually achieving and sustaining success. While reducing readmissions and bending the cost curve may be beneficial for a value-based program, these initiatives could be unfavorable for the provider without an investment structure that allows both parties to benefit from results.
Other types of value-based arrangements by line of business include:
As consumers demand convenience and non-traditional players flood the market, the status quo is no longer sustainable. Health system survival requires new growth and leakage prevention. For providers, improving revenue through value-based partnerships with payers holds strong potential to strengthen financial stability and their position in the market with services that meet consumer needs. It also offers a better basis for incentives that appeal to clinicians and keep them engaged in partnering with the healthcare provider or system around value.
Additionally, such investments help payers ensure members receive the right care in the right settings from the right professionals, reduce costs per existing life, strengthen their standing with employers and purchasers, and enhance member satisfaction.
The right mix of fee-for-service and value-based revenue sources can position organizations to address margin compression, improve financial stability, and achieve market growth. By prioritizing the components of the Quadruple Aim during the contracting process, providers and payers could gain a lever for achieving:
Payment arrangements seen under these partnerships include a PMPM or care management fee; shared savings, such as a percentage of total cost of care that falls below budget; arbitrage, wherein money that falls below the benchmark for total medical spending in a premium risk deal goes to the provider; and upside/downside risk, a one- or two-sided risk model with levers for shared savings and shared cost.
It is important to note that a path to value does not require provider organizations to adopt downside risk—at least not initially. The first value-based payment models forced providers toward a level of clinical integration that might not have aligned with the vision of the organization (e.g., capitation models, provider-sponsored health plans, integrated delivery systems, narrow networks). While these operating models may prove fruitful in the long term, they require significant investments to successfully navigate risk—without a clear line of sight into the return on investment.
At a time when many provider organizations are netting less from Medicare Advantage than traditional fee-for-service Medicare, payers must acknowledge that the move toward value-based contracting is a balancing act for providers, especially for organizations that are doing well under fee-for-service.3 This ups the ante for payers to make value-based arrangements attractive for both payers and providers. Partnerships around value-based portfolios—with mutual investments from payers and providers that support new revenue sources for both sides—represent a crucial mindset shift toward enhancing value for payers, providers, and healthcare consumers.
Initial value-based revenue initiatives have demonstrated short-term success. Health plans have invested in automated care capabilities so that providers can reduce emergency department visits among people with chronic kidney disease or improve maternal health in rural areas, as well as staff training and integrated technology capabilities to support care-at-home initiatives.
Now, early movers in this space are focused on longevity, wherein both parties can experience long-term success. For care-at-home models, for example, this may involve backfilling volume in hospitals when cases that formerly received inpatient treatment are discharged to home.
Ultimately, the goal is to seek alignment, mutual investment, and increased engagement between providers and health plans. Here are six key considerations for organizations in determining where advanced and sustainable opportunities for payer-provider partnership exist and how to facilitate long-term success.
1. Transparently communicate where the organization is on its value-based journey
This establishes the appropriate basis for a conversation around creating alternative sources of revenue that are grounded in value. When providers overstate their capabilities around population health management (e.g., people/process/technology), for example, a payer may not be prepared to provide the right support. They also risk creating distrust before the initiative takes off, limiting the chances for long-term success.
2. Build strategies to coordinate care across the continuum effectively
Gain an understanding of how the organization will attract members to the care network. If your care network contains acute- and post-acute care hospitals, ambulatory surgery centers, medical groups, rehabilitation centers, etc.: Does each asset have the capabilities needed to support a value-based revenue portfolio? Are the assets along the continuum of care integrated to provide a continuous and seamless experience? What is the extent of your footprint and how coordinated are the interrelated parts? Organizations that are highly coordinated will be better positioned to attract payer partnerships for value.
3. Create a willingness to move away from fee-for-service payment models
A commitment to value-based payment must extend across the organization and its medical staff if the organization is to pursue value-based sources of revenue through payer-provider partnerships. Otherwise, efforts to design the right incentives to support success could prove futile.
4. Assess the organization’s capabilities for tracking performance
Does your organization have actuarial expertise to model changes in performance, such as reductions in cost per member? Does it have the analytic and software capabilities to track the claims data from a value partner and link performance to incentives? Organizations need these capabilities to build solid footing in revenue discussions.
5. Determine the right strategy for each line of business to manage value-based programs
Providers may consider an approach to managing value-based programs that are tailored to each line of business. Considerations include identifying primary care providers that can manage government and/or commercial risk programs, concierge-style medicine, and other programs, to drive economies of scale and produce improved results. How these providers are incentivized and paid may require a unique approach tailored to the model in which they participate.
6. Evaluate the dynamic of relationships across care providers in the market
Is the market highly concentrated or highly fragmented? Is there a compelling value proposition for a particular service in your market—and would your organization have the support of care partners in providing a holistic approach to care? If the market is highly concentrated, what is the potential for another provider to beat your organization to the punch?
It’s time to rethink the goals of value-based payment models and reimagine the possibilities for mutually beneficial—and highly sustainable—approaches to care delivery. By creating aligned incentives within a comprehensive value-based portfolio, healthcare organizations can more effectively move from cost reduction to revenue generation—and create lasting desirable care experiences for those they serve.
Co-authors: Jeff Leibach, Michael Lenahen, and Michael Ruiz
1.“Centers for Medicare & Medicaid Services Data.” Data.cms.gov, data.cms.gov/medicare-shared-savings-program/performance-year-financial-and-quality-results.
2.“CareMax, Inc. to Acquire Medicare Value-Based Care Business of Steward Health Care System.” https://ir.caremax.com/news/news-details/2022/CareMax-Inc.-to-Acquire-Medicare-Value-Based-Care-Business-of-Steward-Health-Care-System/default.aspx
3.“The “Advantage” in Medicare Advantage for Providers.” Guidehouse.com, guidehouse.com/insights/healthcare/2023/the-advantage-in-medicare-advantage-for-providers.
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