Health Care

It doesn’t have to be ‘either/or’ with value-based payment

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Population health and fee-for-service are not a rigid dichotomy. Treating them as such misses a major opportunity for healthcare executives looking to advance strategies to protect fee-for-service payments and volumes from eroding while preparing for the eventuality of a greater share of revenue coming from risk.

I should know. At my organization, I am the executive who is saying both “I’m your revenue source” and “I’m your future,” in reference to a quote from Dr. Mai Pham in the recent Modern Healthcare feature “Population health still at odds with fee-for-service.” This is despite my organization having less than 30% of revenue tied to risk. At Memorial Health System, a $1.4 billion net revenue system in central Illinois, we have tried to steer our strategy and approach away from “either/or” thinking and toward a “both/and” focus when it comes to investing in infrastructure for our risk-based future while protecting current revenue drivers. The key has been to look at the various payment models that we participate in on a gradient scale of both value and volume incentives while building common competencies and infrastructure that can be tailored to suit both.

There is no doubt that providers and hospitals face downward pressure on fee-for-service volumes and rates. Yet the incredibly high fixed cost and operating leverage inherent in these business models make most healthcare executives very nervous to put their income stream at risk or invest in infrastructure and services that may reduce that income stream. Looking at value-based care and risk-based payment models on a gradient and as a tool that can be used to secure fee-for-service income streams and volumes in the short-run is the solution.

Not all risk or value models have to be full capitation. Partial capitation, bundled payments, shared savings, quality incentives and other models all have their own specific drivers of value-based payments, but they also have specific drivers of volume-based payments. For example, Memorial Health has successfully implemented direct partnerships with employers and payers that include elements of partial capitation, shared savings and quality incentives in exchange for narrowed networks on areas that drive volume-based results.

In essence, this is a strategy that attempts to capture a larger slice of a shrinking pie. Not only does the narrowing of the network allow for additional capture of volume, but it also sets us up very well for better control of the services that are utilized as we collectively progress with our partners along the risk continuum. Meanwhile, should our efforts to control expensive utilization with this population pay off, we have the alignment on the shared-savings side to compensate.

This gradient or continuum even works in the opposite direction. As net reimbursement for fee-for-service care decreases and variable costs associated with labor and supplies increases, some payers with purely fee-for-service models will have services that ultimately have a negative contribution margin within the hospital. Take Medicaid psychiatric inpatients as a prime example. For many states and hospitals, the cost to care for these patients vastly outweighs the reimbursement to the point where many hospitals have shut down their inpatient psychiatric units despite the impact on the community. In essence, this is a form of “FFS risk.” If health systems and hospitals could instead look at the inherent incentives of building competencies and infrastructure to keep targeted patients from needing these high-cost, low-reimbursement services, advances in preparations for risk-based payments would be made, patients and communities would receive better care, and payers would have savings to share with providers.

The operational competencies and skills needed for accepting risk do not solely have to be used on risk. In short, population health can be applied across the entire fee-for-service to full premium ownership continuum. Having been a student of population health during my more than 10 years in healthcare executive leadership, I can summarize the needed competencies to these:

• Using data and analytics to identify which patients are “at-risk” and why.

• Reaching out and engaging those who are “at-risk” at the right time and place, and in the right way.

• Providing healthcare professionals, patients and stakeholders the right information and the right tools to manage the identified “risks.”

• Ensuring coordination and follow-though that enables the tools and information to transform into sustained action and behaviors, even under times of great stress.

The less we, as healthcare executives, think of risk and fee-for-service as two clashing opposites, the more we can focus on building the population health competencies that allow for success across the continuum of payment models. After all, it may be a slow and painful road to risk so far, but we are still on it and we need to be ready for when we arrive. Our country and the communities we serve can’t afford any less.


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