Quality Measures Resource Guide: How to Transition From Fee-for-Service to Value-Based Payments

The transition from fee-for-service (FFS) to value-based reimbursement is one that will occur over many years. Frankly, that transition is going to hurt in the short run. To meet value-based goals, physicians must reduce utilization among their patient populations, which will reduce their procedure volume, which will reduce their revenue. No one really knows how long this process will take. What we do know, however, is that there will be a transition period during which time total revenue is likely to decrease because the pressure on a physician’s FFS revenue will increase faster than it can grow its revenue through value-based reimbursement. And that can be scary. The key to succeeding in the midst of this transition — and beyond — is to constantly wring out costs. With revenue going down, physicians have to improve margins as much as possible. To do so, they need to focus on doing three key things: 

1. Capture an increased number of patients. As physicians eliminate waste, improve quality, and reduce costs, they will attract increased patient volume. Payers will see that a given physician or physician group is a “top performer” and will include them in their networks. Payers and even large employers are becoming laser-focused on this issue – they want their employees and their members to go to the highest-performing facilities for care, and they will give them every incentive to do so.  Attracting a high volume of patients is the key to counterbalancing the loss of procedure volume that comes with a value-based system.

2. Effectively manage shared-savings programs to maximize reimbursement. Physicians are going to have to manage shared-savings contracts with real expertise to qualify for every possible bonus. Effective management of these contracts not only gets shared-savings payments, but it also improves quality and lowers costs. This brings problems as different parts of the country are reimbursed at different levels than others.  Also, different providers are paid at different contractual pricing indices than others (eg, podiatrist versus internist).

3. Improve operating costs to deliver care more efficiently than today. In a value-based environment, any investment in streamlining operations and eliminating waste from the system goes directly back to the hospital, not the payer. Physicians must develop the sophistication to understand their cost structure in real, granular detail. Reducing every category of waste — waste that occurs when work isn’t standardized, waste that stems from unnecessary orders, and waste that results from patient injury — is absolutely essential for improving margins.

Value-based payment contracts are in their infancy, and most are structured according to a shared-savings model. Shared-savings arrangements differ, but in general they incentivize providers to reduce spending for a defined patient population by offering them a percentage of any net savings they realize.¹ The Medicare Shared Savings Program (MSSP) is the most well-known and standardized example of this new model. Established by section 3022 of the Affordable Care Act, the MSSP is a key component of the Medicare delivery system reform initiatives included in the Affordable Care Act and is a new approach to the delivery of healthcare. Congress created the MSSP to facilitate coordination and cooperation among providers to improve the quality of care for Medicare FFS beneficiaries and to reduce unnecessary costs. Eligible providers, hospitals, and suppliers may participate in the SSP by creating or participating in an Accountable Care Organization (ACO). The proverbial jury is still out on this aspect of the Affordable Care Act.

To fulfill the intent of the Affordable Care Act, the MSSP aims to improve beneficiary outcomes and increase value of care by providing:

1. better care for individuals;
2. better health for populations; and
3. lowering growth in expenditures.

Tracking performance in this kind of arrangement is a significant challenge for health systems because it requires keeping track of two very different payment systems simultaneously. Medicare continues to reimburse health systems on an FFS basis; then, at the end of each year, shared savings bonuses are calculated. Medicare benchmarks each provider against the rate of increase for the overall FFS population. If a physician provider does better than the FFS population, he/she gets a piece of the savings. Eligible providers must operate in the FFS world while attempting to anticipate this value-based bonus.

Tracking shared-savings reimbursements that come in at the end of the year requires physicians within and outside of health systems to be much more sophisticated in their accounting capabilities than most are today. It simply won’t work to account for all payers and all patients in the same way. An outpatient physician practice has to know every patient in the ACO² (if applicable), which services they’re getting, and what they cost. An ACO environment requires considering questions such as: For each defined population of patients, what was the financial performance and how did it compare to the contract? The ability to measure performance at this level of granularity will require much more sophisticated information technology capabilities than most office-based health systems now have.

In essence, while this process is going to be very painful for physicians in the outpatient setting, it is (rightfully) near impossible for the individual provider in a solo practice setting to possibly have the resources and metrics to account for every patient and payer in their practice. The need for all physicians and hospital systems to partner up will arrive sooner rather than later for those who expect and anticipate the value bonuses that will be a part of this “new” healthcare system – unless there is major, ground-breaking legislation that corrects this before implementation in 2018. n

Eric J. Lullove is a staff physician at West Boca Center for Wound Healing, Boca Raton, FL; serves on the healthcare policy committee of the Association for the Advancement of Wound Care; and is the AAWC liaison to the Alliance for Wound Care Stakeholders. He also serves as a consultant for Hollister Wound Care (Libertyville, IL), Medline Industries Inc. (Mundelein, IL), and ABL Medical (American Fork, UT).

Resources:

1. Brown B. Healthcare Payers and Providers: The Best System for Process Improvement. Accessed online: www.healthcatalyst.com/healthcare-payers-providers-system-process-improvement.

2. Haughom J, Burton D. What is an Accountable Care Organization (ACO)? Accessed online: www.healthcatalyst.com/what-is-an-ACO-definitive-guide-accountable-care-organizations.