Value-Based Care: Operational Context Matters
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June 30, 2023
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The advent of value-based care, based on the Institute for Healthcare Improvement “Triple AIM” framework — improving the health of populations, reducing the per capita cost of care and improving the individual experience of care — has motivated providers to shift their focus from volume to value.1 And, as providers shift to value-based activities, their reimbursement model is also more in alignment with payers. Like payers, providers now benefit from a fundamental understanding of and ability to manage risk.
Managing the total cost of care is essential. This includes investment in information technology (digital tools), analytics and select personnel, e.g., care coordinators. The chronic-disease life cycle is typically progressive, subject to acute, intermittent events and best managed by a team-based integrated care approach.
In this article, we propose a value-based care operating model within the context of organizational maturity.
Medicare: Approaching a tipping point
Value-based initiatives are being driven by Medicare. The Centers for Medicare & Medicaid Services (“CMS”) estimated that, in 2022, 64.0 million Medicare beneficiaries incurred total expenditures of $991.9 billion, or $15,508 per enrollee.2 Because of a rapidly aging population and increased condition severity, Medicare expenditures are forecast to reach $1,669.9 billion in 2030, with spending per enrollee reaching $21,977. Medicare’s focus on value-based reimbursement will gain urgency as the population ages and costs rise.
The Medicare Advantage market is projected to increase from a 48 percent market share in 2022 to 60 percent in 2030; it currently accounts for 55 percent of Medicare expenditures.3 The growth in Medicare Advantage enrollment (5.2 percent compound annual growth rate) is far surpassed by the increase in expenditures (9.8 percent CAGR).4 Medicare Advantage represents an entrée for providers to capitate payments.
A common structure used to manage value-based initiatives is an accountable care organization (“ACO”), which comprises “groups of doctors, hospitals, and other health care providers and suppliers who come together voluntarily to provide coordinated, high-quality care at lower costs to their original Medicare patients.”5 Most ACOs have multiple participating providers comprising hospitals, health systems, physician groups and solo practitioners; 1,450 hospitals, 28.2 percent of the total participate in ACOs.6 CMS is making progress toward achieving its 2030 goal of 100 percent ACO participation by fee-for-service Medicare beneficiaries.7
In 2023, approximately 10.9 million beneficiaries were enrolled in 456 Medicare Shared Savings Plan (“MSSP”) ACOs; another 2.1 million were enrolled in 132 REACH ACOs.8 The average size of an MSSP ACO is 23,464 members.9 REACH ACOs replace the Direct Contracting model and offer advanced level of risk such as capitation restricted to primary care or the total cost of care.10
The MSSP requires ACOs to meet quality and performance benchmarks; goal attainment results in shared savings. In 2023, the shared savings was $2.0 billion.11 The majority of MSSP participants, 67 percent, were enrolled with two-sided, upside/downside risk and the remaining 33 percent were enrolled with one-sided, upside-only risk; the near opposite in terms of percentages was true only two years ago.12 In 2023, 31.7 million beneficiaries, 48.3 percent of the Medicare population, were enrolled in Medicare Advantage (“MA”) plans.13 MA plans receive a fixed revenue per member per month (“PMPM”) based on the demographics of the plan’s member population, overall level of health (e.g., risk-adjusted factor score) and quality bonuses (e.g., STARS).
The Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”) requires CMS to implement an incentive program, the Quality Payment Program, with two tracks: Merit-Based Incentive Payment System (“MIPS”) and the Advanced Alternative Payment Model (“AAPM”).14 MIPS combines the Electronic Health Record Incentive Program (Meaningful Use), the Physician Quality Reporting System (“PQRS”) and the Value-Based Payment Modifier (“VBPM”) and applies to most physicians.15 AAPM applies to ACOs, episodes of care and medical home, and will increase focus on a composite score of quality, cost, the use of information and clinical practice improvement. The maximum MIPS bonus and penalty for 2023 is 9 percent. with attainment of the median score to avoid a penalty.16
Value-based payment models are also being applied by Medicaid in several states.17 Designated Principle Accountable Providers (Arkansas), Administrative Services Organization (Connecticut), patient-centered Medical Home Program (Maryland), Integrated Health Providers (Minnesota), public Managed Care Organization (Oklahoma) and Coordinated Care Organizations (Oregon) includes high-risk patients, episodes of care, upside (shared savings) and downside risks and performance payments based on quality and cost.18
Value-based Care Operating Model
The FTI Consulting Value-based Care Operating model has three major components: Clinical & Service Integration, Operations and Financial Performance.
Clinical & Service Integration
Clinical and service integration requires an (analytic) focus on engaged providers, population health and effective network management.
Provider engagement with value-based care is somewhat limited. Less than 20 percent of payments consider two-sided risk and only 8 percent are capitated.19 According to a Care Allies-Modern Healthcare Survey (n=138), only 23 percent of respondents said most physicians are engaged with their organization’s value-based care strategy; 27 percent stated that about half of physicians are engaged.20 Physician alignment with organizational goals, expectations, and measures (and compensation) is essential.21 Risk-based contracts, data consolidation (from multiple sources), acuity-adjusted analytics and comparative (competitive) scorecards are also necessary to facilitate value-based engagement.
Population health is “the health outcomes of a group of individuals, including the distribution of such outcomes within the group”.22 Healthcare costs are concentrated, with 18 percent of the Medicare population accounting for 54 percent of costs.23 Conversely, 31 percent of beneficiaries account for 6 percent of costs. The number (and severity) of chronic conditions is a predictor of costs, which are somewhat persistent from year to year.24 The key to effective chronic care management is risk stratification, proactive intervention and transition management. The total cost of care is driven by hospital admissions, re-admissions and emergency department visits.25,26
Network contracting complexity has increased. Changing program rules, new reporting requirements and budget calculations all create potential barriers to achieving the desired outcomes for both payers and provider groups.
Capturing the program’s intent and specific parameters as part of the contract between the payer and provider ideally would eliminate unaccounted-for risks, but these parameters are often overlooked and not typically addressed after being negotiated. Examples of contract risk include non-universal terms, program complexity and complex calculations.
Expense components of the total cost-of-care (“TCOC”) budget are often payer-specific and can vary greatly; TCOC components include unique concepts such as corridors, exclusions and partial or full capitation, which are often new to providers just entering VBC arrangements.
Operations
Operations include member engagement, analytics and technology and risk adjustment and quality.
Member engagement requires self-management and supportive provider and/or payer interventions. Patients (and their caregivers) need to be active participants in optimizing their own care inclusive of changes in lifestyle, treatment (drug) adherence, condition monitoring and intervention. Mobile applications, remote monitoring, smart home sensors and telehealth have become widely available and increase engagement. Patient skills and confidence are still required for better management of health problems.
Analytics support the “Triple Aim” and are used for identifying the highest cost and risk patients (i.e., risk stratification), monitoring performance and variation, enhancing quality, assessing risk-adjusted resource utilization and measuring the experience of care. Attribution is used to affect change and align financial incentives (within the confines of the Stark Law) to individual providers.
Technology is advancing at a rapid pace, posing investment challenges to CTOs. Electronic medical records, interoperability, (multi-) cloud migration, remote monitoring, mobile applications, artificial intelligence/machine learning and deep learning (neural networks) have entered the vernacular. Data-driven decision making in radiology, pathology and elsewhere has shown preliminary success.27
At the University of California San Francisco (“UCSF”) investigators are using “Big data” from electronic medical records to document pharmaceutical treatment variation in Type II diabetics and match that variation to outcome measures; rationalization of American Diabetes Association algorithms is ongoing.28,29
The Risk Adjustment Factor (“RAF”) score, based on demographic factors (age, sex), and Hierarchical Condition Categories (“HCC”), “sets of medical codes that are linked to specific clinical diagnoses,” are used by CMS to project the expected risk and future annual cost of a patient.30 They are used by CMS to calculate PMPM payments to managed care plans and accountable care organizations. The PMPM payment is set irrespective of actual utilized services. HCC documentation is essential to obtain full reimbursement.31
Healthcare risk management “comprises the systems and processes employed to uncover, mitigate, and prevent risks in healthcare institutions.”32 Originally focused on patient safety and medical liability, risk management now extends to strategic, operational, technology and financial risk, the latter given the advent of value-based care and the transfer of risk to providers.33 Strategies to manage financial risk include appropriate coding of patients, a high recapture rate and processes of care focused on prevention, proactive intervention, transitions of care and a reduction in emergency department visits, hospitalizations and re-admissions.
Financial Performance
Financial performance includes actuarial services, risk models and strategy and compliance.
Actuarial services enable providers to make data-driven decisions, manage financial risk and optimize the financial performance of their organization. Sustainable price setting is based on demographics, market trends, medical utilization, and claims history. Actuaries determine the appropriate level of reserves based on historical claims data to cover potential future claims, and risk mitigation strategies such as reinsurance may be required. They also generate longer-term financial projections, ensure regulatory compliance (e.g., actuarial standards, financial reporting and documentation) and contribute to the design and evaluation of health plans offered by a subset of providers.
Actuarial services support the analysis of (a) provider efficiency, benchmarking and network adequacy (b) primary care physician (“PCP”) attribution, performance and value-based contracting, (c) treatment plan costs and the evaluation of care management programs, (d) financial risk associated with risk-bearing contracts and (e) site of service and length-of-stay opportunities.34
Actuarial models are used to illustrate the financial risks inherent in healthcare-provider operations. Models are used to identify, analyze and evaluate (comparative) risks and to prioritize, manage and monitor them.35
Traditionally, compliance involves the reporting of “certain types of incidents, including sentinel events, medication errors, and medical device malfunctions” as mandated by the Joint Commission and federal/state regulatory bodies.36 More broadly, there are five main fraud-and-abuse laws, the False Claims Act, Anti-kickback Statue, Physician Self-referral Statue (“Stark Law”), Exclusion Statue and the Civil Monetary Penalties Law.37 Revisions to the Anti-kickback statue and Stark Law, effective January 19, 2021, focused on facilitating care coordination and value-based [compensation] arrangements.38
Compliance is a strategic function necessitating a culture of integrity, encouraging employees (and others) to report potential violations. A proactive compliance program consists of the following components: written policies and procedures, training and education, regular monitoring and auditing, reporting and investigation, corrective action, non-compliance risk assessment and a code of conduct.
Stage of Maturity Requires Consideration
Optimizing performance in a value-based care environment requires management to focus on continuous improvement in their clinical, operational and financial organizations. Healthcare is evolving at an accelerated, though still incremental, rate of change. Hospitals and health systems have become the largest employer of physicians.39 Recent acquisitions of Kelsey-Sebold and Atrius Health highlight the intentions of a major insurer to provide direct healthcare services. Retail entrants are expanding their presence via acquisitions, investment and internal development.40 Increased competition necessitates change.
A current-state assessment of the FTI Consulting Maturity Model provides leadership with an overview of organizational need and its phase of development. The assessment can be used to refine the longer-term (aspirational) vision and identify near-term objectives and specific areas of under-performance.
In 2019, the top 1 percent of persons ranked by their healthcare expenditures accounted for 20.7 percent of total expenditures; the top 5 percent of the population accounted for 48.8 percent of total expenditures.41 The bottom 50 percent accounted for only 3.0 percent of total healthcare expenditures. A data-driven population-based approach is necessary to identify, manage and monitor patient risk.
A clinical focus on value-based care requires member and provider engagement, fewer gaps in care and proactive intervention to reduce ED visits, hospitalizations and re-hospitalizations. Compliance with evidence-based practices and enhanced transition management (from the hospital) are necessary to reduce practice variation.
Digital transformation will accelerate the transition to a value-oriented, proactive, personalized and home-centric delivery model focused on the total cost of care. Primary care, rather than procedure-oriented specialists, requires primacy.
Operational improvements require process excellence, targeted investment, staffing at the top of one’s license and the use of informed analytics. Among the relevant Key Performance Indicators include net margin/(investment) per physician FTE, annual work RVUs per physician FTE, net patient revenue per work RVU, total operating expense per work RVU, support staff FTE per 10,000 visits, support staff expense per work RVU, annual patient encounters per physician FTE and annual procedures per physician FTE.
Hospitals remain challenged in 2023 because of staffing shortages, supply-chain inflation, reimbursement limitations and a longer length of stay.42 Inpatient volumes are expected to decline whereas (profitable) ambulatory cardiac procedures and orthopedic surgeries rise.43 Investment returns have also declined.44 Financial reporting and analysis remain critical, whereas the use of data sciences and predictive analytics to enhance productivity and improve outcomes are increasing.
Bottom line
Value-based care is here to stay, gaining momentum and increasing in relative importance. Having a VBC operational structure that is reflective of the populations served will be key to success.
Footnotes:
1: “IHI Triple Aim Initiative.” Institute for Healthcare Improvement (last visited May 24, 2030) http://www.ihi.org/Engage/Initiatives/TripleAim/Pages/default.aspx
2: National Health Expenditures — Projected. Table 17. Centers for Medicare and Medicaid Services.” Centers for Medicare and Medicaid Services. (last visited April 24, 2023). https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected
3: Meredith Freed, et al. “Medicare Advantage in 2022: Enrollment Update and Key Trends.” Kaiser Family Foundation. (August 25, 2022). https://www.kff.org/medicare/issue-brief/medicare-advantage-in-2022-enrollment-update-and-key-trends/
4: Ibid.
5: “Next Generation ACO Model.” Centers for Medicare & Medicaid Services. (last visited April 21, 2023) https://innovation.cms.gov/innovation-models/next-generation-aco-model
6: “Medicare ACO Participation Grows in 2023. National Association of ACOs (NAACOS) See This Year as a Turning Point in ACO Growth.” National Association of ACOs. (last visited April 21, 2023) https://www.naacos.com/press-release--medicare-aco-participation-grows-in-2023
7: “CMS Announces Increase in 2023 in Organizations and Beneficiaries Benefiting from Coordinated Care in Accountable Care Relationship.” Centers for Medicare and Medicaid Services. (January 13, 2023). https://www.cms.gov/newsroom/press-releases/cms-announces-increase-2023-organizations-and-beneficiaries-benefiting-coordinated-care-accountable
8: Ibid.
9: FTI Consulting
10: “Comparing ACO Reach and MSSP.” Aledade. (last visited April 21, 2023) https://resources.aledade.com/guides/compare-aco-reach-mssp
11: “Shared Savings Program Fast Facts— As of January 1, 2023.” Centers for Medicare and Medicaid Services. (last visited April 21, 2023) https://www.cms.gov/files/document/2023-shared-savings-program-fast-facts.pdf
12: Sherrie Wang. “Performance Results of the Medicare Shared Savings Program In 2021: Continued Uncertainty with Positive Movement.” Health Affairs. (October 20, 2022). https://www.healthaffairs.org/content/forefront/performance-results-medicare-shared-savings-program-2021-continued-uncertainty-positive
13: Nick Herro, Atul Pathiyal, Julianna Wokurka. “In a Shifting Market, Medicare Advantage Shows Continued Growth: 2023 Medicare Advantage Competitive Enrollment Report.” Chartis Group. (March 23, 3023)
14: “Quality Payment Program.” Centers for Medicare and Medicaid Services (December 1, 2021) https://www.cms.gov/Medicare/Quality-Payment-Program/Quality-Payment-Program
15: Aledade “An Introduction to Value-Based Care for Independent Primary Care Practices.” P. 6 February 5, 2021. https://resources.aledade.com/guides/a-comprehensive-guide-to-value-based-care-for-primary-care
16: Michelle P. Lin, Bill Malcolm. “MIPS 2023: Prepare Now to Avoid Financial Penalties.”ACEPNow May 12, 2022 https://www.acepnow.com/article/mips-2023-prepare-now-to-avoid-financial-penalties/
17: “Value-Based Payment.” Medicaid and CHIP Payment and Access Commission. (last visited April 24, 2023). https://www.macpac.gov/subtopic/value-based-purchasing/
18: “State Medicaid Reforms Aimed at Changing Care Delivery at the Provider Level.” State Health Access Data Assistance Center (shadac). (last visited April 24, 2023) https://www.shadac.org/publications/state-medicaid-reforms-aimed-changing-care-delivery-provider-level
19: Global Healthcare Private Equity and M&A Report 2023. Value-based Care: Opportunities Expand, p.40-46. Bain & Company. (2023). https://www.bain.com/insights/topics/global-healthcare-private-equity-ma-report/
20: “Physician engagement in value-based care strategy remains a challenge.” Modern Healthcare. (May 16, 2022) https://www.modernhealthcare.com/patient-care/physician-engagement-value-based-care-strategy-remains-challenge
21: William Faber and John Malone. “Practical Physician Engagement Strategies for Value-Based Care.” Health Finance Management Association (“HFMA”). (June, 18, 2018) https://www.hfma.org/physician-relationships/61020/
22: David Kindig and Greg Stoddart. What Is Population Health? American Journal of Public Health 93, no. 3 (March 1, 2003; last visited May 23, 2023): pp. 380-383 https://ajph.aphapublications.org/doi/full/10.2105/AJPH.93.3.380
23: “Chronic Conditions among Medicare Beneficiaries.” Chronic Conditions Charts: 2018 Centers for Medicare and Medicaid Services (last visited May 18, 2023) https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Chronic-Conditions/Chartbook_Charts
24: Steven B. Cohen. “The Concentration and Persistence in the Level of Health Expenditures over Time: Estimates for the U.S. Population, 2012-2013.” Agency for Healthcare Research and Quality, September 2015 http://meps.ahrq.gov/data_files/publications/st481/stat481.pdf
25: Audrey J. Weiss, H. Joanna Jiang. “Overview of Clinical Conditions with Frequent and Costly Hospital Readmissions by Payer, 2018.” Statistical Brief #278. Agency for Healthcare Research & Quality. (July 2021). https://hcup-us.ahrq.gov/reports/statbriefs/sb278-Conditions-Frequent-Readmissions-By-Payer-2018.jsp
26: Rita Rubin. The Costs of US Emergency Department Visits. JAMA Network 2021;325(4) https://jamanetwork.com/journals/jama/article-abstract/2775429
27: Stephanie A. Harmon, et al. “Artificial Intelligence at the Intersection of Pathology and Radiology in Prostate Cancer.” Diagnostic Interventional Radiology. (May 2019). https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6521904/
28: “Standards of Care in Diabetes—2023 Abridged for Primary Care Providers.” American Diabetes Association. Clinical Diabetes Volume 41(1). (Winter 2023). https://diabetesjournals.org/clinical/article/41/1/4/148029/Standards-of-Care-in-Diabetes-2023-Abridged-for
29: Atul Butte. “What Happens When We Mix Real Doctors, Big Data, and AI?” TEDx Talk (December 11, 2018; last visited May 18, 2023) https://www.youtube.com/watch?v=4vBkzRJKBdk
30: Lauren Stockl. “HCC 101: What You Need to Know about Hierarchical Condition Categories.” Intelligent Medical Objects; August 28, 2020 https://www.imohealth.com/ideas/article/hcc-101-what-you-need-to-know-about-hierarchical-condition-categories/
31: Ibid.
32: “What Is Risk Management in Healthcare?” NEJM Catalyst. (April 25, 2018). https://catalyst.nejm.org/doi/full/10.1056/CAT.18.0197
33: Ibid.
34: William Bednar. “Building Actuarial Cost Models from Health Care Claims Data for Strategic Decision-Making.” Axene Health Partners (last visited May 20, 2023) https://axenehp.com/building-actuarial-cost-models-health-care-claims-data-strategic-decision-making/
35: Pascarella G, et al. “Risk Analysis in Healthcare Organizations: Methodological Framework and Critical Variables.” Dovepress. (July 8, 2021). https://www.dovepress.com/risk-analysis-in-healthcare-organizations-methodological-framework-and-peer-reviewed-fulltext-article-RMHP
36: “What Is Risk Management in Healthcare?” NEJM Catalyst. (April 25, 2018). https://catalyst.nejm.org/doi/full/10.1056/CAT.18.0197
37: A Roadmap for New Physicians: Avoiding Medicare and Medicaid Fraud and Abuse. Office of Inspector General, Department of Health and Human Services. https://oig.hhs.gov/documents/physicians-resources/947/roadmap_web_version.pdf (last visited April 24, 2023)
38: Rebecca Gwilt. “Discover How Six Important Additions and Amendments to the Physician Self-Referral Law (‘Stark’) could Create Opportunities to Grow your Healthcare Business in 2021,” NixonGwilt Law; December 9, 2020. https://nixongwiltlaw.com/nlg-blog/2020/12/8/discover-how-six-important-additions-and-amendments-to-the-physician-self-referral-law-stark-could-positively-impact-your-healthcare-business-in-2021
39: Kelly Gooch. “74% of physicians are hospital or corporate employees, with pandemic fueling increase.” Beckers Hospital Review. (April 19, 2022) https://www.beckershospitalreview.com/hospital-physician-relationships/74-of-physicians-are-hospital-or-corporate-employees-with-pandemic-fueling-increase.html
40: David Lareau. “Big Retail Enters Healthcare: Disruption Can Be A Good Thing.” Forbes. (January 30, 2023) https://www.forbes.com/sites/forbestechcouncil/2023/01/30/big-retail-enters-healthcare-disruption-can-be-a-good-thing/ ?sh=21bc88777156
41: Emily Mitchell. “STATISTICAL BRIEF #540: Concentration of Healthcare Expenditures and Selected Characteristics of Persons with High Expenses, U.S. Civilian Noninstitutionalized Population, 2019.” Medical Expenditure Panel Survey. Agency for Healthcare Research & Quality. (February 2022) https://meps.ahrq.gov/data_files/publications/st540/stat540.shtml
42: Michael Schroeder. “The Top 5 Financial Challenges Hospitals Face in a Post-Pandemic World.” Healthcare Brew. (October 21, 2022). https://www.healthcare-brew.com/stories/2022/10/03/top-financial-challenges-hospitals-face
43: Frank Diamond. “These Are the Major Challenges Hospital Executives Expect to Face in 2023.“ Fierce Healthcare (March 10, 2023). https://www.fiercehealthcare.com/providers/hospitals-must-take-realigned-economic-system-trying-bounce-back-2022-disaster-survey
44: Dave Muoio. “Taxpayers Shouldn't Foot the Bill for Health Systems' Massive 2022 Investment Losses, Health Economists Say”. Fierce Healthcare. (March 24, 2023) https://www.fiercehealthcare.com/providers/taxpayers-shouldnt-have-subsidize-health-systems-massive-2022-investment-losses-health
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