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KSM Blog | Katz, Sapper & Miller CPA

What You Need to Know About Value-Based Reimbursement

Posted 2:39 PM by



In the healthcare industry we hear a great deal about the shift from volume-based to value-based reimbursement models, and regulatory requirements – such as the MACRA final ruling scheduled for Nov. 1 – are continually emerging. But what exactly is value-based reimbursement, and what are the practical implications of this new model for healthcare providers and organizations? Below we discuss the effects of moving to a value-based reimbursement model, and in upcoming articles we will review recent and proposed changes to regulations and how they affect your practice or facility.

The shift from volume-based to value-based reimbursement is driving systemic change across 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.

As payers seek to improve quality and patient satisfaction, the change in reimbursement model is encouraging providers to reduce costs. Under the value-based model, reimbursement has moved from fee-for-service, where providers are paid an established amount for each service they provide, toward bundled payments. Under bundled payments, Medicare or a commercial payer will pay one single fee to all providers involved in a patient’s episode of care, from a patient’s first visit to the completion of their treatment. 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. Shared savings and global payments are even more advanced value-based payment models.

It is important to note that value-based reimbursement’s success or failure is determined by assessing the financial impact on those who are paying the healthcare bill – not those who are providing the care. Care providers will achieve success through this model by partnering with like-minded colleagues across the entire continuum of care, measuring and improving quality and satisfaction while establishing a lower cost structure. The model can be very difficult for providers because patients are essentially guaranteed similar or improved access to care at lower price points.

From an operational perspective, this shift is requiring providers to rethink how they manage their businesses. As reimbursement moves away from fee-for-service to value-based, provider reimbursement will be at risk. Not all providers are equipped to accept value-based reimbursement and therefore may find a significant portion of their reimbursement at unfavorable levels. A big part of this risk is with Medicare, which has the largest number of covered lives and, at the same time, is already one of the lowest reimbursing payers in the healthcare reimbursement system.

As we have seen with the many healthcare changes already in place, the healthcare industry will continue to address many challenges and opportunities for better overall patient care. From provider operations, to financial position, to the growing collaboration among providers across the complete continuum of care, the healthcare landscape continues to change, but value-based reimbursement is here to stay.

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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