Value-based reimbursement (VBR) and alternative payment models (APMs) are the future of health care delivery and reimbursement. In fact, in a survey by Lazard, the New York-based financial management firm, more than 200 C-suite health care executives ranked “value-based/risk-sharing pricing models” as the innovation that will have the most transformative impact on the health care industry in the years ahead.

Yet survey after survey of physician groups finds that medical practices are unprepared for the future with many even unfamiliar with the terms. On a scale of 1 to 10, I would give most specialty practices a five or less on their overall knowledge of value-based care, APMs, MACRA (Medicare Access and CHIP Reauthorization Act) or MIPS (Merit-based Incentive Payment System).

Consequently, I’d like to review some VBR basics and the actions specialty practices can take to ready themselves for an environment that rewards clinical quality improvement and cost reduction rather than quantity of patients seen.

Practices should understand the value-based reimbursement contracting continuum
Preparing Specialty Practices for Alternative Payment Models

Not all VBR models are created equal. Each comes with its own level of economic risk for participating practices.

  • Fee-for-service: At the lowest end of economic risk before a practice starts climbing the VBR ladder is traditional fee-for-service medicine. Practices receive a fee for each service they provide regardless of outcome. The only economic risk is not performing a service and therefore, not receiving a fee. It requires little or no integration with other providers.  
  • Performance-based reimbursement: With slightly increased financial risk is performance-based reimbursement. Such models pay practices fees for their services with part of the fees being performance-based. Practices receive their fees, but can earn more if they meet specific clinical or financial targets.
  • Bundled payment arrangements: After performance-based reimbursement comes bundled payment arrangements on the value-based contracting continuum. Under a bundled payment arrangement, the specialty practice along with other provider partners agree to accept a fixed fee for an entire episode of patient care, most often for a surgical procedure. The fee covers all the pre-surgical care, the procedure itself and post-operative care, like physical rehabilitation. The economic risk comes from the practice’s ability or inability to care for the patient at a cost below the fee, similar to a Diagnosis Related Group (DRG) payment.
The four APMs with the highest-level of financial risk on the value-based contracting continuum

The next four models on the value-based contracting continuum – shared savings, shared risk, full risk or capitation and global payments – are more advanced forms of APMs, and each carries an escalating amount of financial risk.

Preparing Specialty Practices for Alternative Payment Models 2
  • Shared savings: Under a shared savings model, practices share in any savings with the payer when care produces the same or better clinical outcome but is provided at a lower-than-expected cost. No savings, no sharing.
  • Shared risk: These models are similar to shared savings models with a financial catch. Practices share in any savings with the payer when care is provided at a lower-than-expected cost, but they also share the losses with the payer when care is provided at a higher-than-expected cost meaning the practice could potentially owe money to the payer. There is both an upside and a downside.
  • Full risk or Capitation: This is a reimbursement mechanism where a provider or group of providers accept a monthly capitated payment (per member per month) for a defined population to render all care to a patient within pre-defined categories of services. In these situations, the provider assumes responsibility for the total cost of care but also assumes insurance risk and risk inherent in demographics as well.
  • Global payment arrangement: The model with the greatest economic risk is global payment arrangement. A payer makes a fixed annual or monthly payment per patient to a practice or integrated delivery network for any health care service the patient needs over that year. One example of this model would be a Stem Cell Global case rate.
Participating at one level prepares practices for the next step up the VBR ladder

Specialty practices that participate at one level of the VBR contracting continuum prepare themselves for the next level by acquiring and mastering the competencies and skill sets needed to succeed as the economic risk rises.

That progressive education is especially important for practices because VBR models are accelerating on two payer tracks—Medicare and commercial health plans. Not only do practices need to acquire and master competencies and skills sets as they move along one track, they need to acquire and master competencies and skills sets to be able to jump to the other track.

In fact, commercial health plans are bound by fewer regulatory constraints than Medicare. Not only are they borrowing VBR methodologies from Medicare, many are experimenting with specific payment mechanisms within value-based reimbursement deals. For example, some are using tiered drug fee schedules. Others are offering incremental increases to established fee schedules or lump sum bonus payments for meeting specific clinical or financial metrics. Yet others are instituting patient-centered care payment criteria.

Practices must recognize the opportunities and risks of entering an APM arrangement

Before specialty practices enter an APM arrangement either with Medicare or a private payer, they must educate themselves on the opportunities and risks with each APM. Practices must do their due diligence and know the upsides and the downsides of each VBR contract awaiting their signature.

In general, the opportunities from participating in an APM are:

  • Increasing revenue that supports the practice’s ability to provide high quality, safe care
  • Ensuring high quality and safe care by meeting specific outcome measures
  • New processes and provider behavioral changes that focus on patient satisfaction
  • Improving relationships with payers and building collaborative partnerships
  • Using those relationships to share relevant information and build the practice’s evidenced-based medicine knowledge base
  • Optimizing Electronic Health Record (EHR) systems and other technologies to collect, track and report outcome measures, in addition to creating shared information interfaces
  • Maintaining the practice’s position as a leading clinical decision-maker and innovator

The risks, in turn, are more specific and emanate from the language in each VBR contract. A practice must be aware and agree with the payer on terms, including:

  • Performance metrics and benchmarking, as well as comparative data from providers in their market
  • Percentage of compliance with the performance metrics
  • How the practice will be reimbursed for compliance, analytics, methodologies and timeframes
  • How much the practice will be reimbursed for compliance (upside and downside potential)
  • Prior authorization and other requirements for certain services and drugs
  • Site-of-care differentials
  • End-of-life and hospice protocols

Clearly, all of this – from different types of VBR models and their inherent economic risk to specific performance and compliance terms in VBR contracts – can be overwhelming to a specialty practice, the practice’s physicians and the practice administrator. But, it is the future. The time for practices to educate themselves on value-based care is now before they sign on the dotted line.

Related: Learn more about McKesson’s value-based reimbursement consulting services for specialty practices.
Jane Clayton

About the author

Jane Clayton is the Director of Managed Care with Innovative Practice Services at McKesson Specialty Health serving multi-specialty providers in community-based practices across the US.  She has more than 25 years of experience in all aspects of health care, including hospitals and health systems, community-based physicians and health plans/insurance companies.

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