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Are Alternative Payment Models the Future?

Featured story in Population Health News,October, 2019 - Moshe Starkman, Senior Director, Value-Based Reimbursements, nThrive

Ask a dozen people “Has quality care become less expensive in the United States?” and you’ll get a dozen answers, ranging from an emphatic “No!,” to an equally confident “Yes.” All things considered, the most appropriate answer may simply be “Not yet.”

One could be curious as to why the question above results in such a broad spectrum of responses. The answer lies in the fact that we haven’t figured out what works best for each respective care necessity. For example, let’s contrast Medicare’s bundled payments initiative.

On the positive side, “a 2019 survey from the New England Journal of Medicine compared 280,161 hip- or knee-replacement procedures in 803 hospitals with 377,278 procedures in 962 control-group hospitals, and found a spending decrease of $812, or 3.1 percent, per episode in CJR hospitals.”

However, a 2018 study in the New England Journal of Medicine suggests that cutting costs with bundling is not as simple for non-orthopedic conditions. Looking at just the five most commonly selected medical conditions in the Bundled Payment for Care Improvement (BPCI) initiative from 2013-2015, which include congestive heart failure, pneumonia, chronic obstructive pulmonary disease, sepsis and heart attack), there was no significant difference in cost reductions or quality changes between participating hospitals and control group hospitals.

Ask an orthopedist if value-based care (or risk-based contracting) has made a significant impact on cost of care while maintaining the highest levels of quality and you’ll get anything from “yes” to “absolutely!” Ask that same question to a cardiologist and you could expect anything from “somewhat” to “not really.”

The cost of care in the United States

On the surface, the impact overall on alternative payment models appears disappointing, as U.S. health care spending grew 3.9% in 2017, reaching $3.5 trillion or $10,739 per person. As a share of the nation's Gross Domestic Product (GDP), health spending accounted for 17.9%.3 (Other industrialized nations spend between nine and 12%.)

A report from the Society of Actuaries (SOA) states that 17% of members included in the Healthcare Cost Institute (HCCI) Database are responsible for nearly 75% of all health care expenditures!

Let’s put this in perspective. Using an 80/20 model, 80% of the costs of U.S. health care are generated from 20% of the population.

More specifically, Rand Corporation has found that 28% of the U.S. population – representing three or more chronic conditions – account for over 67% of the overall $3.5 trillion cost of care in the United States.

Reflecting on the bundled payments example above, any failure to address chronic disease or otherwise identify an alternative payment model (APM) that demonstrates significant and reliable costs savings among the multiple-comorbidity population is an opportunity to innovate a new and possibly better APM.

Value-based reimbursements are the future!

Given that almost no contracts incorporated value even 15 years ago, value-based care has actually achieved remarkable traction.

Will value-based reimbursements become the predominant payment model for U.S. health care?

Forty two percent of respondents from a NEJM Catalyst Insights Council survey in July 2018 said they think value-based reimbursement models will be the primary revenue model for U.S. health care.

A 2018 survey by Damo Consulting on “Healthcare IT Demand in 2018” found that more than 60 percent of U.S. health care provider technology investments were attributed to value-based care initiatives.

Thinking outside the box!

Health data analytics can make a huge impact on pricing and planning for prospective care needs. In fact, predictive analytics already is being used to determine likely costs of a given patient, based on spending history, prescription drug coverage, age and gender.5 But not all solutions need to be technology-oriented, or a drastic change from current practices.

According to US News & World Report, South Carolina’s Beaufort Memorial Hospital found that it could save an estimated $435,000 annually by discharging patients just a half-day early. In Minnesota, the Department of Health discovered there were 1.3 million unnecessary trips to hospitals and ERs in the state every year – at a cost of some $2 billion. They were then able to work with health care providers to ensure individuals were getting care in a more appropriate setting.

Social workers, compliance specialists - a term that I use for care support staff who follow up with patients to ensure they’re taking their prescribed medicines and/or seeing a benefit from said medicines, outpatient services, telehealth and better life conditions (living space, sobriety, work/job opportunities, mental health support and more) have all shown initial promise in reducing trips to the emergency room and/or other high-cost, high-frequency services such as dialysis.

All said, strong analytics and the ability to accurately determine populations most likely to generate the highest care costs is key to effective preventative care initiatives, keeping people healthier longer, mitigating chronic disease complications and ultimately reducing costly acute medical episodes.

Barriers to Value-based Reimbursements, aka Risk-based Contracts

A 2018 study published by Deloitte highlights the challenges facing hospitals and health networks as they transition to a greater value-based contracts orientation.

In Figure 6, you may notice that both the first and third bar relate to analytics and maintaining a comprehensive data management solution, whereas the second bar relates to clinical considerations and identifying appropriate measures.

This isn’t news. Commanding actionable data and coupling clinical performance to operational costs has been a goal in our industry for over three decades. What’s different today is the level of specificity in our billing codes, a more uniform standard of documentation, the internet and Health Information Technology that can meet the data collection and processing needs of contemporary health data. While the internet of things (IoT) will require further evolution and greater data processing, we have what we need today to move closer towards achieving the Triple Aim of Population Health, which includes: (1) Quality care that is accessible and affordable, (2) a good experience, and (3), is patient centric

Alternative Payment Models ARE the future!

The U.S. health care fee-for-service payment model is not broken, it works exactly the way it was designed. The problem is that professional medical care was designed as a for profit enterprise that considered patients more as consumers than beneficiaries.

There are a myriad of examples demonstrating the high costs of U.S. care. According to researchers at Harvard Chan School, our drugs are more expensive, our doctors get paid more and our hospital services and diagnostic tests cost more. Additionally, we spend substantially more money on planning, regulating and managing medical services at the administrative level.

The net result of this is that the cost of care in the United States is sky high. Our hospitals and care centers are world-class but debilitatingly unaffordable for many people8 and/or not a financial priority for those who can absorb the cost.

It is for these and countless factors, not the least of which is an increasingly strong patient voice, that current volume-based payment models will yield to more patient-centric value-based care models. It is not a question of “if” Alternative Payment Models will become the predominant basis, but simply “when” and in what form.

If your health system does not have a strategic path forward to risk-based contracts and value-based care, you’re falling behind the U.S. health care revenue cycle management curve. Now is the time to step up and begin integrating APMs into your organization.

  3. Centers for Medicare & Medicaid Services
  4. Rand Corporation “Multiple Chronic Conditions in the United States” (2014)

Moshe Starkman

Moshe Starkman
Senior Director
Value-Based Reimbursements