As Medicare moves away from a fee-for-service payment model to value-based reimbursement models, other insurers are following suit. According to a report from the Center for American Progress, two days after the Centers for Medicare and Medicaid Services announced its goals to move to value-based payment models, a coalition of some of the largest U.S. insurers and health systems announced they would move 75% of their business to value-based arrangements by the year 2020.
The two main payment models being employed by CMS and other insurers are affordable care organizations (ACOs) and bundled payments. According to Eric Chetwynd, director of Product Strategy at Curaspan, a technology company that manages care transitions, the challenge that providers face in participating in these programs is that they require a higher level of cooperation and insight into the care being provided across the care continuum. "In the past, the incentive for collaboration with non-owned providers remained rather minimal, so many providers were able to primarily focus on the care within their four walls and perhaps with other commonly-owned organizations," he says.
How the two models differ
Under the ACO payment model, providers are accountable for the total cost of care for an entire patient population. "Although there are several contract models varying from shared savings to capitation, the providers' financial success in the ACO model is dependent on their ability to manage total costs for their population regardless of where that care is received," Dr. Jonathan Niloff, vice president and chief medical officer for McKesson Connected Care & Analytics, says. Under the bundled payment model, providers receive a fixed payment for a single episode of care. "The providers' financial success is dependent on their ability to provide care for that episode efficiently," says Niloff.
Since under the bundled payment model providers must focus only on delivering care for a single episode efficiently, Niloff says from an economic perspective, and assuming that they have capacity, the incentive remains to do as many episodes as they can. "In contrast, in the ACO total cost of care model, the incentive is to do as few procedures—the typical marker of an episode—as is medically appropriate and consistent with high quality care," he says. "It is of interest that there is geographic variation in the frequency with which some common episodes, such as joint replacements, are performed. The ACO model addresses this challenge, but the bundled methodology does not."
Implications for providers
According to Niloff, the impact of bundled payments on providers is very different than that of ACOs. "Bundles only impact the providers involved in the bundles," he says. The costs and transition-related challenges are greater in the ACO model. "In the ACO model, all providers are affected, so the scope of change in practice is much greater," says Niloff. "The ACO model requires the funding and implementation of a more complex new IT infrastructure, a new management organization, more extensive new care coordination and management processes and functions and a global transition in the care model across all clinicians in the organization."
Under the ACO model, hospitals could initially face a decrease in admissions, as one of the primary objectives of ACOs is to reduce hospital admissions as a method of reducing the total cost of care. "Unless such hospitals can increase their market share—the number of patients that their ACO is responsible for—they will experience a decrease in admissions and their associated revenue," Niloff says. "This can be challenging for hospitals early in their transition to the ACO model, when a relatively small proportion of their patients are in the ACO model. It is common for all patients to be treated the same, so the decrease in utilization may initially be out of proportion to the upside revenue potential from their ACO patients, resulting in a revenue challenge."
Chetwynd says providers in both programs face the following common challenges:
- Building relationships with the best providers in their community to collaboratively manage patients. "This challenge has caused many participating organizations to build out narrow networks with a focus on access, quality and efficiency," says Chetwynd.
- Ensuring that patient care is provided by high-quality providers and that care transitions between each setting are efficient. "Readmissions due to poor care transitions is a driving factor that these programs are trying to address," Chetwynd says.
- Measuring success across the network so that there is transparency and so each provider understands where opportunities to intervene and to improve processes exist as patients move throughout the network.
Combining payment models
John Hansel, Vice President of Healthcare Provider Solutions at MedeAnalytics, says that bundled payments and ACOs are not mutually exclusive. "CMS has created a structure where providers can participate in both," he says. "Many providers view bundled payments as a lower-risk option that may provide a stepping stone to future ACO models. Bundled payments still reward the volume equation in a hospital-centric model, while also providing some incentives for care coordination, cost reduction and quality improvement. Some of these lessons from successfully managing bundled payments can be used as a foundational competency when building the infrastructure for an ACO model."