News and Updates   /   February 2018

Healthcare Industry Shifts Toward Value-based Outcomes

Healthcare Industry Shifts Toward Value-based Outcomes

Although there is political uncertainty regarding the future of the U.S. healthcare system, one fact is clear: the shift toward value-based outcomes is reshaping how payers and provider organizations think and operate.

Value-Based Care: A New Measurement for Reimbursement

Value-based care (VBC) is built on the premise that providers’ pay should be dependent on the quality of care received by patients. That is to say: providers are rewarded for positive patient outcomes as opposed to the volume of patients who receive treatment. The older model of paying for number of patients served—that is, fee-for-service payments (FFS)—remains but is no longer the only option.

FFS falls short because it incentivizes providers to value volume of care over quality of care.

More and more payers are negotiating and implementing value-based contracting or outcome-based contracting for clinical care and pharmaceuticals. Value-based contracts specify that healthcare product providers must track the effectiveness of a product (i.e., a drug) in a specified patient population. Reimbursement is then based on overall effectiveness of the treatment.

The Drivers of Value-based Healthcare

There are several impetuses behind the move toward VBC. First is the skyrocketing expense of healthcare in the U.S., with chronic diseases accounting for most of the spending. In such an environment, FFS falls short because it incentivizes providers to value volume of care over quality of care. Instead, the incentives of FFS are oftentimes in conflict with the goal of providing high-quality care to every patient. Legal regulations have encouraged value-based care. Changes to the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) passed in October of 2016 cement the move toward VBC. The new MACRA encourages payers and providers to work together with the goal of reducing costs while tracking outcomes to improve the quality of care. MACRA offers incentives to providers who adopt new practices consistent with VBC, while providers who fail to adopt recommended guidelines will be penalized. Although MACRA is specific to Medicare, it is part of a larger trend toward VBC. It is highly likely that even greater numbers of payers will begin to adopt value-based reimbursement in the near future. Value-based care is potentially the best way to practice medicine and allows payers to receive greater clinical and, ultimately, financial value. However, value-based contracting is a relatively novel concept that has yet to be fully proven across the entire practice of healthcare.

What this means, in brief

Payers will view VBC as positive:

  • Payers will see more value for their money and have a real opportunity to influence the healthcare system by aligning provider decisions with improved outcomes.
  • They will likely follow CMS’s lead in implementation.
  • Implementation will mean setting up contracting terms that are focused on the quality of care; this might include penalties or proving specific care activities prior to payment.

Provider organizations may be financially impacted:

  • Provider organizations will need to meet the VBC part of payer contracts in order to be paid.
  • The VBC piece of the contract puts the burden on them to show that they performed as required; this will mean increased care activities as well as better means of tracking and providing proof of care.

Providers will be financially incentivized:

  • Payers may offer financial runway— such as an up-front bonus—for providers to prepare for VBC.
  • After a few years, the financial incentives may turn into penalties if VBC measures are not met.

Patients will view this as positive:

  • As a whole, patients should see better health outcomes.
  • For those that pay for their own healthcare, they should also see more value—in the form of better quality care—for every dollar spent.

The industry as a whole will see:

  • Additional regulations.
  • The importance of data collection and storage: VBC increases the administrative burden for the entire industry to capture, store, track, share and make decisions based on VBC data, such as patient satisfaction, complications and more.
  • We’ll see new well-intentioned programs and different ideas for how to implement the VBC paradigm. As with any new initiative, some ideas will work, and some won’t.
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