We can now say with certainty that healthcare delivery is moving in one direction: towards value-based care. The affordability crisis is causing unprecedented changes in the healthcare landscape, the most significant of which is the transition from the current volume-based model to myriad models based on measures of value.
To remain relevant and competitive, payers, hospitals, health systems, and clinicians must respond now to integrate value-based models into their existing systems. However, most of these systems are already overburdened, inefficient, and poorly integrated (if they are integrated at all). Without the appropriate investments in contemporary healthcare IT that enables value-based care, existing systems will be pushed beyond the breaking point, and administration of these models will exceed the human capacity to fund and manage them.
The winners will be those who act and collaborate decisively. But good decisions require timely and accurate information. There is a strong need to benchmark and monitor the pace of change in the payer-provider landscape, understand how key stakeholders are reacting, and know, to the extent possible, how things will play out over the next several years. Indeed, this knowledge is critical to the long-term success of payers and providers and, most importantly, to improving care quality for patients and reducing healthcare costs for the nation.
Unfortunately, it hasn’t been clear what key stakeholders were (or were not) doing and how they were faring in this maelstrom of change. To address that, McKesson commissioned ORC International, a leading research and business intelligence firm with 15 offices worldwide and strong healthcare expertise, to study the issue.
We wanted to answer questions such as these:
- How are payers and providers reacting to industry change and demands?
- How far along are they in this transition?
- What reimbursement models are they using?
- What are their key obstacles and concerns in the face of complex and sweeping change?
- What attributes align an institution with value-based reimbursement?
ORC conducted a national baseline research study on the state of the transition from volume (fee-for-service) to value-based care. The study included a 20-minute online survey of high level executives within 114 payer and 350 provider organizations, representing a range of sizes and regions.
Seven Major Trends
The results are in, and there can be no question as to healthcare’s embrace of value-based models. The bottom line: Most payers and providers expect value-based reimbursement to overtake fee-for-service (FFS) by the year 2020, but they face daunting complexity in integrating complex reimbursement models, and say they have an urgent need for next-generation healthcare IT to successfully transition to value-based models. Overall, the research identified seven major trends:
- Rapid adoption of VBR. The reimbursement landscape is changing faster than many had anticipated, with payers and providers decidedly aligned on embracing payment with value measures. Remarkably, 90% of payers and 81% of providers are already using some mix of value-based reimbursement (VBR) combined with fee-for-service (FFS). Stakeholders using mixed models are anticipating significant expansion in value-based care, projecting that payment with some form of value measurement will make up two thirds of the market by 2020, up from one-third today. Providers using mixed models expect FFS to decrease from about 56% today to 34% five years from now.
- Collaborative regions are more aligned with VBR. Collaborative regions, where one or two payers and providers stand out, are more aligned with VBR. Fragmented regions, where there are multiple payers and providers and no clear market leaders, are more aligned with FFS. Moreover, the larger the institution, the further along the continuum towards VBR it falls.
- Alignment with VBR is influenced by the care delivery model. Accountable Care Organizations (ACOs) are significantly closer to VBR adoption than non-ACOs. Forty-five percent of providers surveyed are part of an ACO. These providers are significantly more likely to feel that the transition to VBR will have a positive financial impact on their organizations compared to those not in an ACO. That said, 59% of those not in an ACO anticipate joining one within five years.
- Pay-for-Performance leads the pack. Of the existing value-based models, payers and providers project that the proportion of their total business (inclusive of commercial and Medicare) that is aligned with pay-for-performance (P4P) will experience the most growth. Payers using a mix of reimbursement models say the proportion of their business aligned with P4P will increase from 10% today to 18% in five years. Providers using a mix of reimbursement models project their alignment with P4P will jump from 9% today to 21% in five years.
- Existing healthcare IT systems are not aligned with VBR. Though both payers and providers predict that P4P will be a critical part of their reimbursement model, 15% of payers and 22% of providers characterize P4P as “very difficult” or “extremely difficult” to implement. They also rated Episode of Care/Bundled Payment and others (e.g., Shared Savings) as very or extremely difficult. The key obstacles to implementing these value-based models, payers and providers agree, are a lack of standards, analytical tools, and the need for better business IT infrastructure and systems that support these models—all while taking action to reduce administrative burdens and costs to remain financially sound.
- The primary obstacles payers and providers “urgently need” to address in order to enable VBR are technology related. This is led by the need to integrate internal, vendor, and collaborative IT systems (41% payers, 23% providers); and data collection, access, and analytics (22% payers, 20% providers).
- Technology to catalyze clinician engagement will be crucial to VBR’s success. The largest proportion of payers and providers pointed to a lack of clinician buy-in and engagement with VBR as the number one challenge to its success (20% of payers and 17% of providers). This underscores a broader need within the industry for tools that enable clinician engagement with value-based models.
Seven Steps to Value-Based Care
McKesson’s research identified seven key trends (above) that are evident in the transformation from volume to value. Coincidentally, there are also seven key steps that payers and providers can take to facilitate movement towards value-based design, reimbursement, and care.
These seven steps should be considered now because, as the 2014 State of VBR study documents, the industry is at a tipping point. The study data indicates an accelerating pace of change, and while FFS isn’t going away entirely, VBR is expected to eclipse FFS-only models by 2020. For stakeholders, it’s a matter of taking action now or risking being left behind, as dollars increasingly flow through value-based models.
Here are seven steps you can take today to help avoid falling behind:
- Take the plunge together. Value-based delivery changes depend on value-based payment changes. Who will make the first move? If payers decide to wait until the new care delivery system is in place, and if providers decide to wait until they know they’ll get paid for value-based care, neither will move forward. Instead, payers and providers need to collaborate or at least align with each other as they take steps towards adopting value-based payment models.
- Build a critical mass. Multiple payers in a region are necessary to make it worthwhile for providers to participate in VBR in an efficient and automated fashion. Otherwise, it’s like launching a pilot program that is difficult to administer, inefficient, and not scalable.
To this end:
- Find many local partners. Align with other payers, hospital systems, and employers. This study shows that healthcare is evolving in a regional fashion and will continue to do so.
- Payers are well-positioned to take the lead, bringing together multiple providers to talk about new types of reimbursement and what they’re trying to accomplish. Payers have the capital, infrastructure, and relationships (with employers, providers, and regulators) that allow them to invest in innovation and change through these partnerships.
- Find a neutral party. Convening an open forum for stakeholders to talk freely about general ideas facilitated by a neutral party can be an effective approach. For example, the neutral party could be a local non-profit organization, or a state or county agency. In some cases, you could seek to participate in one of several federal initiatives, such as the CPCI program or through the State Innovation Models grants being awarded through CMS.
- Reach out to employers. Employers are starting to embrace value-based care and payment arrangements, particularly episode-based reimbursement. Many companies are increasingly embracing health plan strategies that use financial incentives to hold providers accountable. That’s a big leap from where they used to be. There’s no time like the present to engage with employers in the discussion about value-based care and payment. Employers, providers, and payers all need to educate employees (i.e., patients) about value-based care so they understand it and can be part of the solution.
- Find seed money. There has been a wave of grants to promote healthcare delivery reform. Look for federal, state, and foundation grants for pilot projects on delivery system design reform. In doing so, focus on one or two areas of reform to get value. Don’t try to do everything at once. You can’t boil the ocean. Land and expand instead. Conduct analytics to find out what your organization’s key pain points are, and focus only on the top one. For example, some organizations start by focusing on using episode of care for hip and knee replacements. Once they have that established, they target their next value-based innovation.
- Have a five-year plan. This study shows that in five years, VBR will outpace FFS. Providers in particular tend to think in the short term, one pilot program at a time. But now you need to think longer term. Moving from pilot to standard operations requires scale. And technology can be an extremely effective enabler of scalability. Create a long term strategic road map that details where your organization needs to be in five years, and how it’s going to get there. Ensure the road map is flexible, however, because the environment is changing fast. Revisit the road map annually and rationalize the five-year plan against current industry trends.
- Educate your people. Look for internal stakeholders within your organization, and together, get educated about marketplace trends identified in this study and be aware of what pilot studies are showing. Make sure you have benchmark data, because your people will need to be convinced that this is a real and crucial opportunity. Look for other health systems or plans that are ahead of you. Find champions in your organization (such as medical directors) who can lead, are highly respected, already have a key leadership role, and are diplomatic in building coalitions.
- Adopt the new technology. Many believe the reason this change in healthcare delivery is happening now is simply because we finally have the technology that can make it happen. Value-based reimbursement models, especially when implemented as mixed reimbursement models—which is the current industry direction—are too complex and costly to design, administer, manage, measure, and scale without the right tools. When it comes to VBR, next-generation healthcare IT is crucial in four key areas: process reengineering and automation, connectivity, analytics, and decision support.
- Process reengineering and automation is critical to the success of VBR. The fast-growing mix of payment models is creating major complexity in the system. As the industry approaches 2020, this will intensify and trigger increased administrative costs that no organization can afford. To efficiently and effectively scale VBR, today’s FFS processes must be reengineered, and hand-offs that might be manual must be automated.
- Connectivity is key to enabling payer and provider organizations to synchronize and streamline their own processes. It is also key to allowing effective communication with other stakeholders who are sharing information as well as the clinical and financial risk.
- Analytics help organizations support continual improvement by identifying problem areas and assessing trends inside the organization and in interactions with other stakeholders.
- Decision support helps payers, providers, clinicians, and even patients to use clinical evidence, as well as provider network and cost implications, to help make informed decisions at the point of care.
How does a payer, provider, clinician, or patient know what care is needed and when, let alone where it should be provided, what it will cost, and who should pay for it? It’s not clear cut and it’s not the same “patient-by-patient, plan-by-plan, send-me-a-fax” world. The only way to scale mixed reimbursement models across markets is to understand and use the new technology. By doing so, we can automate the complexity out of the human and organizational experience, and engineer better decisions across the board—all for better health in 2020.
VBR is not only here; it’s here to stay. The vast majority of payers and providers in this study say that value-based models are not a fad. The choices for payers, providers, and clinicians are clear. And the time to act is now.
To read the entire white paper, click here (PDF, 1.3 MB).