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KSM Blog | Katz, Sapper & Miller CPA

How to Prepare for the Transition to Value-Based Reimbursement

Posted 4:00 AM by


This article orginally appeared in The Journal of Medical Practice Management. To read the full article, click here

In the healthcare industry there is a great deal of discus­sion about the shift from volume-based to value-based reimbursement models, and regulatory requirements are continually changing. But what exactly are bundled payments, Accountable Care Organizations (ACOs) and value-based reimbursement? And what are the practical implications of these new models for healthcare providers and organizations?

To understand the implications of today’s healthcare landscape, it is important to have some background on value-based reimbursement.

From Volume to Value

The move from volume-based to value-based reimburse­ment is driving systemic change throughout the industry, not only in how healthcare services are being reimbursed but in how those services are being delivered. Under the volume-based reimbursement model, healthcare provid­ers were paid – by Medicare or other commercial payers – based on the quantity of services provided. Each patient’s office visit, diagnostic test or procedure would result in a separate reimbursement from Medicare or the commercial payer. In contrast, the value-based reimbursement model measures patient satisfaction and rewards healthcare pro­viders based on the quality of the care they deliver. In its simplest form:

Value-based reimbursement =
the impact of improving care quality and patient satisfaction + the impact of improving the health of populations + the impact of reduced cost of care

In addition to encouraging providers to reduce costs while improving care quality, patient satisfaction and the health of populations, this reimbursement model aligns with the Institute for Healthcare Improvement’s Triple Aim initiative, which is at the core of the recent shift in methodology.

The transition to value-based reimbursement has also led to the establishment of bundled payments. Diagnosis-related groups (DRGs) and ambulatory payment classifi­cations (APCs) were the government’s early attempts at bundling healthcare services. In each case, similar services were bundled into a category and billed as a complete unit, not as separate component parts. The bundling of services was designed to curb healthcare spending by paying a set fee for specific diseases, disease processes or procedures. In terms of reimbursement, it did not matter to Medicare or other commercial payers how much a pro­vider consumed by way of additional resources because the fee for that service was fixed.

Bundled payments are similar to DRGs and APCs – but on a much larger scale. Rather than grouping like inpatient or outpatient services, all services, as well as group provider types, are combined across the complete continuum of care. This grouping method­ology is known as episodes of care. Under the bundled payment model, Medicare or a commercial payer will pay one single fee for all provider services involved in a patient’s episode of care. The providers involved in that treatment will then split the payment. This model encourages providers to drive out unnecessary costs and rewards them for coordi­nating care and reducing duplicative efforts.

The value-based reimbursement model can be diffi­cult for providers because patients are all but guaranteed similar or improved access to care at a lower price point. For those providing the care, success is determined by the following:

  • Partnering with like-minded care providers across the entire continuum of care
  • Measuring and improving quality and patient satisfac­tion
  • Implementing a lower cost structure 

Changing Healthcare Operations and Provider Impact

Where does this change leave providers of high-quality, cost-effective healthcare? Every aspect of care is being considered for improvement – from financial position to clinical operations to new and chang­ing provider relationships.

Financial Position

For several years providers have faced constant pressure to reduce the cost of delivering patient care. They have done so through various means, such as process improve­ment initiatives, right-sizing staff, group purchasing and more. Going forward, providers and suppliers will need to work together to create cost-effective means to supply patients with superior products at reduced prices. And because reimbursement will be based on collective performance, providers must address those delivering low value or ser­vice. Year-over-year improvement is critical to generating positive program results.

Financial success in the ACO and population health environment demands that detailed financial information be provided to the government on a near real-time basis. Providers who are already feeling the pinch must make material investments in information systems software and infrastructure to adequately capture the data needed to be successful in the value-based reimbursement arena.

Clinical Operations

New healthcare models and initiatives will require providers to improve clinical operations by designing an optimized pro­cess as though starting from scratch. Once new processes are designed, providers must implement them quickly and establish metrics to monitor the results and to ensure that the desired outcomes are being achieved. Collecting data now will help ensure proper reimbursement in the future.

Providers should also create integrated management teams that include physicians, non-physician caregivers and administrators from all aspects of the care delivery process. These teams will be responsible for enabling the participants to work together more effectively to improve care, modify processes, set quality and cost metrics, mea­sure results, manage provider behavior, establish and apply best practices, and more. Providers have to work together to improve care processes and develop closer re­lationships with payers to help drive the course of change.

Changing Relationships

Historically hospitals, physicians and insurance compa­nies have been focused on their own individual goals and objectives. In a value-based system, these key stakeholders must be more partner-oriented to ensure their success.

As the reimbursement model shifts to a value-based system, hospital-physician integration and alignment will increase as well. Alignment strategies are evolving from medical directorships and call-pay arrangements to service-line co-management arrangements and more integrated alignment structures such as bundled payments and ACOs.

Physicians and physician groups who historically sup­ported several hospitals are finding it harder to do so in today’s environment. At a group level, it is possible for a group to support more than one hospital, but it is not prac­tical for the individual doctor. The individual doctor must be familiar not only with the electronic medical record (EMR) system used by his or her practice but also with the EMRs of each facility or institution with which he or she works. For most physicians, it is simply too much.

Transitioning from transaction-based to population-based reimbursement is not easy, but, with careful planning, providers can ensure they are prepared to successfully navigate the transition from volume to value.

About the Author
John Martin is managing director of healthcare consulting with Katz, Sapper & Miller's Healthcare Resources GroupJohn leads a team of healthcare consultants who provide financial, strategic and operational solutions for hospitals, health systems and physician groups. Connect with him on LinkedIn.

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