How value-based payment models are changing healthcare
New value-based payment models have rewritten the healthcare playbook, creating an entirely new dynamic between employers, health plans and providers. How are they adjusting? Surprisingly, the rise of accountable care organizations, narrow networks and bundled payment models has actually brought the three constituencies closer together.
I saw this change in dynamic first-hand at a roundtable I recently hosted with some of the largest health systems, multinational employers, and health plans to discuss their biggest challenges and strategies for incorporating value-based care into their respective business models. Not long ago, a discussion like this would have involved a fair amount of veiled finger-pointing: employers would complain about high insurance costs, health plans would vent about ever-increasing provider costs and providers would say they weren’t getting paid enough.
This year was different. The group was much more unified in their approach to the challenge of running their businesses in an environment where payment is linked directly to outcome. The common bond bringing them together? Shared risk.
Beyond all of the politics of healthcare reform and the think tank analyses [EA1] of value-based care, the central underlying issue confronting every type of healthcare businesses right now is a requirement to manage population health risk.
Under the old model of healthcare, risk was largely the domain of health plans that needed to project a population’s relative health risk levels in the course of doing the actuarial calculations necessary to develop a profitable benefit design. The employer — who then and now pays for the benefits — was a very cost-conscious but unhappy bystander in this, and the provider just wanted to make sure they maximized their billable fees.
Today, the balance of risk has shifted dramatically to the provider, who is now ultimately responsible for delivering the most cost-effective treatment to achieve the best possible health outcome. This changes everything. Whereas building a new cardiac catheterization unit or imaging suite used to be a profit center for hospitals, those facilities now become cost centers as the focus moves from keeping resources running at maximum capacity to delivering care at maximum efficiency.
This has also changed the dynamic for health plans and employers who are now increasingly adopting the role of a broker, forming partnerships with one another and, in some cases, with health systems and hospitals to form package deals and incentives to win their business. Right now, it’s only happening with some of the most advanced players: Employers like Boeing, Pepsi and FedEx have been in the news for their sophisticated approach to population health, and they have the purchasing power to get the attention of providers.
Likewise, more advanced provider organizations such as Kaiser Permanente, Advocate Health Care, Intermountain Healthcare, and Geisinger Health System, which have been implementing value-based care models since long-before the Affordable Care Act mandate, have been in the news as they emerge in the best position to provide the benchmark data and quality reporting metrics necessary to support these kinds of initiatives.
It’s still early in the transition toward value-based care, but the evidence we’re seeing from leading organizations on all sides of the healthcare continuum suggests that the future will bring an increased level of convergence between employers, health plans and providers as they carve out a new relationship based on shared risk. The mechanisms for payment are still experimental, such as the uncertain future of private exchanges, but the Centers for Medicare and Medicaid will continue to drive this payment reform.
Before this collaborative ideal becomes a reality, major obstacles will need to be overcome. For one, many more health systems, employers and health plans will need to get serious about the ACO revolution before truly sustainable healthcare models can be rolled out nationally. This is a challenge confronting employers with large, geographically dispersed employee populations. While the headquarters of a Fortune 100 company may command significant negotiating power in its hometown, its hundreds of smaller offices around the country will not have the same leverage in negotiating value-based packages with providers.
Ultimately, a value-based approach to healthcare will only be as good as the ability to measure the cost and quality of care. That means accurately benchmarking the proven thresholds of performance against nationwide norms, and stratifying those metrics across a wide variety of geographic and demographic groups. It’s an arduous task, but with the lofty goal of creating a new system where employers, health plans and providers are equally incentivized by the common goal of improving population health, it’s certainly worth the undertaking.