Jog before you run: Why health insurers should take a discerning approach to value-based care
The following is a guest post from members of the PricewaterhouseCoopers network.
The effort to shift to value-based payments for healthcare services is in full swing, and the reality is – over the longer term – there won’t be any going back. However, realizing the intended results of these changes will require fundamental, foundational and vastly transformative changes in care delivery. And those changes will be hard to come by. Therefore, health insurers need to move into this new reality with prudence and deliberation, keeping their focus on getting the basics right instead of — or at least before — pursing expensive, shiny objects.
With federal officials aiming to shift 30% of Medicare payments to value-based, or alternate-care, models by the end of this year – and 50% by 2018 – the entire healthcare industry is hurrying to find and implement models that charge for health services based on outcomes and on the quality, not the quantity, of care. By shifting towards these value- or outcomes-based payment models, the government, private payers and employers hope to let some of the air out of the ever expanding healthcare-cost balloon.
A number of outcome-based models have already emerged from this effort. Pay-for-performance initiatives, value-based contracting, patient-centered medical homes (PCMHs), care bundles and accountable care organizations (ACOs) have all gained varying degrees of momentum. Many payers have responded by pursuing aggressive technology-oriented transformation or vertical integration, which seeks to provide care for an entire population. Others have focused on basic, foundational, on-the-ground transformations of care delivery.
But whichever approaches they pursue, payers should proceed carefully. If they rush in and try to lead the transformation, particularly with big, bold ideas — health information exchanges, connectivity portals, the internet of things, social media, gaming, etc. — that attempt to fix the issues from the outside-in, payers risk stumbling into a game of Whac-A-Mole, where savings in one place are offset by higher costs elsewhere. Instead, payers should seek first to allow for and enable the foundational transformation of care delivery from the inside-out — focusing on mastering fundamental elements of the healthcare model.
For regional payers trying to transition to the value-based model, a fast-follower approach — where they track proven innovations then move quickly to emulate models that demonstrate success — likely makes the most sense.
Such an approach should be built around four key elements:
- Rationalize, refine and improve existing value-based care initiatives. Payers should assess pay-for-outcome programs already in use to identify foundational roadblocks (e.g., suitability of the program for a given provider, sensible metrics, aligned incentives, physician engagement) and then work with providers to optimize those programs – without making major modifications to core systems.
- Learn from others in order to adopt initiatives, such as care bundles (products designed for discrete, well-defined health episodes), that are limited in scope but have demonstrated success in both outcomes and market traction; then focus on enhancing the processes surrounding those initiatives — while making as few modifications to core systems as possible. This requires payers to monitor new initiatives from CMS and competitors.
- Treat members/patients as integral parties to any value-based arrangements. Payers should drop the if-we-build-they-will-come mindsets and approach value-based arrangements as three-way contracts between payer, provider and member. This is a fundamental shift away from the traditional two-party approach and will require payers and providers to rethink their models and to take steps such as creating a fundamentally different experience for members choosing to take a bundled-payment arrangement or align with an ACO.
- Maintain option value with critical provider systems by selectively investing in on-the-ground initiatives to transform the way care is delivered in order to prevent competitors from encroaching on their market positions. Payers should seek to retain first right-of-refusal over any deal between critical providers and competing payers – and continuously monitor competitive activity in their key markets.
- Pursue partnerships such as joint investments or vendor arrangements to limit risk. Joint investments with provider partners, non-competing payers or industry trade-group level initiatives can also help minimize investment costs and risks, as well as improve provider acceptance.
Given the uncertainty and dynamic nature of the healthcare market, prudent payers should be monitoring a few key market signposts and adapting their strategies accordingly. Important clues about the direction of the market can be gleaned from the market success of specific programs, provider success with risk arrangements, competitors’ successes with unique programs, collaborations with third parties or vendors, and regulatory programs or responses.
Recently, there has been something of a publicity arms race among health insurers around pay-for-outcomes initiatives, with a flood of press releases announcing new deals with ACOs and other new partnerships. But payers that want to survive the transition to value-based care, and thrive in its aftermath, are well-advised to learn to jog, if not walk, before they run — by focusing on mastery of the fundamental capabilities that will enable and drive the transformation of healthcare delivery.