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August 01, 2018
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The U.S. healthcare system is slowly transitioning from a fee-for-service (FFS) reimbursement model to a value-based-care (VBC) model to improve patient outcomes and curb spending. While the move is being welcomed by many parties, questions remain, including how providers will react to this new reality.
The shift by U.S. healthcare organizations to a VBC model follows criticism of the current FFS reimbursement model, which some have blamed for the soaring cost of healthcare treatment.
According to CNBC, healthcare spending in the U.S. surged to $3.3 trillion in 2016, representing 18 percent of the U.S. gross domestic product (GDP). Annual Medicare spending was expected to grow by an average of 7 percent over the next decade, topping $1.2 trillion by 2028, according to FierceHealthcare.com.
The VBC model seeks to bring these costs down with a proactive approach that focuses on preventative maintenance and support of population health. Indeed, efforts have already been made in this regard with a model that puts patients at the center of care. The Affordable Care Act (ACA), for example, included an option for doctors and hospitals to be part of an accountable care organization (ACO). An ACO is a network of care providers who are able to share financial and medical responsibility for patients through a coordinated care approach that limits redundant spending.
Building on this idea, the Bipartisan Budget Act, signed into law on February 9 of this year, has established the Creating High-Quality Results and Outcomes Necessary to Improve Chronic Care Act, (CHRONIC Care Act), which provides greater flexibility for ACOs to coordinate care.
While the transition to a new reimbursement model will not occur overnight, healthcare providers must be thinking and acting proactively regarding financials and treatment. Those who familiarize themselves with both VBC models will be better positioned to serve their own organizations and, ultimately, the patient.
Transitioning from FFS to VBC
The FFS model seeks to align the interest of physicians and patients alike by offering services specific to a patient’s treatment. This model encourages the use of more tests, procedures and treatments — all of which are costly.
Some see this approach as a way of prioritizing volume over value when it comes to patient care and believe it has led to excessive spending on services not required. Additionally, opponents argue that an FFS model provides no motivation to care about a patient’s well-being during post-acute care, which can lead to repeat visits, increased spending and a lower quality of treatment.
There is no one-size-fits-all approach to implementing a VBC model.
Conversely, the merits of a VBC model are that reimbursement for healthcare providers is determined by the quality of care, rewarding better outcomes and less spending. The hope is that VBC will incentivize physicians and providers to focus on a higher quality of care, which would lead to more innovation in the sector. However, some argue that the transition is a blind one with the potential to upend healthcare stakeholders’ previous method of patient care.
So far, the VBC model has shown signs of viability. U.S. health insurance provider Humana reported that total healthcare costs associated with its VBC plans were 15 percent lower than its traditional FFS model. Additionally, healthcare providers in Humana’s VBC plans had higher engagement and provider satisfaction scores versus traditional FFS provider plans.
Still, there is no one-size-fits-all approach to implementing a VBC model. Some potential models include: shared savings; bundles; shared risk; and global capitation. Each model presents its own opportunities and risks, so healthcare providers beware — blindly transitioning to this new model could result in more harm than good if not performed with due diligence.
For healthcare providers tasked with making the financial decisions around reimbursement models, the following four work streams are essential for mitigating risk.
1. Assess Business Plan and Viability
First and foremost, organizations will need to analyze their business plans. Providers will want to review current and projected staffing patterns to forecast potential staffing adjustments.
Additionally, organizations will need to determine whether their assumptions regarding anticipated margin improvements are realistic and attainable. Understanding the current state of facilities, as well as the capital needs for future maintenance, will help organizations sensitize their business plans to prepare for various scenarios.
2. Gauge LiquidityNext, organizations should consider analyzing their current cash positions and their forecast cash flow. This includes reviewing the valuation of accounts receivable, the management of revenue cycles and current receivables.
Ultimately, having a comprehensive understanding of overall cash management will help organizations bolster their internal awareness of capital and know where they can be flexible. Providers will also want to ensure they are aware of underlying assumptions about cash flow forecast so they can fully understand and predict the short-term sourcing and use of cash.
3. Monitor Impact of Reimbursement ChangesAs stated earlier, healthcare providers must make sure they understand the impact of Medicare reimbursement policies across all budgeted revenues. Monitoring performance and reporting any unexpected shifts or adjustments is key here. Reviewing the clinical compliance program will also help decision makers consider the larger implications of reimbursement modifications.
4. Evaluate AlternativesUltimately, healthcare providers will have to take a comprehensive look at their organization’s infrastructure and consider the potential impact of future needs. This encompasses required future funding, sources of funding and the potential impact to capital structure. Again, there is no one-size-fits-all approach, so organizations will want to assess alternatives such as capital raise, asset divestitures and the potential of acquisitions.
The reality is that VBC is here to stay. With patients at the center of a new model, healthcare providers have an opportunity to provide exceptional quality of care. With novel reimbursement models still in their nascent stages, healthcare providers should consider the longstanding mantra: Before helping others, make sure you first help yourself.
© Copyright 2018. The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals.
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August 01, 2018
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