Buckle Up for a Bumpy Ride to Value-Based Payment

No topic has generated more questions for Sg2 this fall than CMS’s proposed Comprehensive Care for Joint Replacement (CCJR) Model. This bold initiative will make bundled payment for joint replacement mandatory in 75 regions across the US. Add CCJR to the ever-growing list of new payment models flowing from Medicare, state Medicaid programs and commercial payers, and a tidy narrative seems to emerge about a long-awaited shift to value-based reimbursement.

Before we pop the champagne bottles, however, it’s worth noting that there is nothing tidy at all about this unfolding narrative. As the accountable care organization (ACO) model now reaches its tenth birthday (remember the 2005 Physician Group Practice Demonstration program?), a basic question hovers over our industry: “Is any of this really going to work?” The short answer is yes, but it’s going to be a bumpy ride.

Despite CMS’s stated goal of moving half of Medicare payments to alternative, value-based arrangements, the on-the-ground view of current value-based programs (and the clinical integration required to achieve them) remains mixed. The number of ACO contracts—perhaps the most visible foray into value-based care—continues to grow, yet the actual financial and clinical performance of ACOs has been inconsistent. Through March 2015, 744 ACOs (both public and commercial) have formed across all 50 states. More than half of all ACO contracts are tied to Medicare and Medicaid, but commercial insurers are rapidly expanding their involvement. In fact, about 320 ACOs participated in at least 1 commercial contract this year, and such arrangements actually cover more patient lives than all Medicare ACOs combined. Altogether, approximately 132 different payers are participating in ACO arrangements covering 23.5 million Americans—about 7.4% of the population.

In the short-term, ACOs will continue to cover a significant number of patient lives, but it remains unclear if they’re actually providing less-costly care. According to CMS’s most recent performance data, 20 Pioneer ACOs and 333 Medicare Shared Shavings Program ACOs generated more than $411 million in total savings (net of all savings and losses) in 2014. Yet, when Sg2 compared the 2014 performance data for ACOs in the Medicare Shared Savings Program to a variety of market cost and utilization indicators, what we found was somewhat surprising—the ACOs achieving the greatest savings tended to be in markets with higher costs and (by some measures) more limited access to clinical care than the ACOs that failed to recoup savings bonuses. Thus, it may be that the ACOs that have done the best financially are those with the most “low-hanging fruit” in their markets.

There may also be little correlation between cost savings and improvements in clinical quality. CMS recently announced that savings awards for 65 ACOs would be reduced by a combined $41 million due to poor performance across key quality measures in 2014. In fact, none of the top-performing ACOs ranked in the 90th percentile nationally for any of the quality measures tracked by CMS—and many ranked near the bottom of the list.

Beyond these cost and quality issues, providers are reporting numerous practical, systemic challenges to the ACO model that could jeopardize future participation. These include:

  • Opaque, inaccurate attribution methods
  • Significant patient leakage outside the ACO’s network due to an inability to steer patients
  • High start-up infrastructure costs for new ACOs and high ongoing maintenance costs for existing participants
  • A flawed economic model that fails to sufficiently compensate providers for reduced inpatient volumes

Ultimately, Sg2 believes that these flaws emphasize the fact that ACOs are a stepping-stone toward broader value-based arrangements that must eventually include some degree of prospective or up-front payment for ongoing care management. The journey to value-based reimbursement is not and will not be a smooth road. Innovation is messy work; you should expect setbacks and outright failures as these payment models continue to evolve.

Much like selecting a fitness program that addresses your current physical condition and achieves future performance goals, organizations will need to select the right value-based programs based on system readiness and aspirations to compete in the accountability game. Your success will depend on your ability to expand a clinically integrated network, scale your infrastructure investments and tailor your approaches to the needs of specific communities and populations. Health systems that have achieved some degree of success thus far have not only improved their “fitness,” they have taken the first steps toward overhauling their cultures with new organizational structures, leadership models and incentives.

So where do we go from here? The jumble of acronyms that define today’s payment landscape will surely change. Expect CMS and commercial payers to continue to tweak the payment models as they expand their scope and degree of risk sharing. Pay attention to the wide range of experimentation going on at the state level (eg, Maryland, North Carolina, Oregon). Keep a close eye on systems that succeed and those that struggle with provider-sponsored health plans. Prepare for continued expansion of Medicare Advantage and, most importantly, challenge yourself on the rate of change that is appropriate for your system and your market.

Sg2 is here to help you navigate the bumpy road ahead.

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As of February 11, 2016, Vizient, Inc. has completed its purchase of MedAssets Sg2 and spend and clinical resource management segments from Pamplona Capital Management, LLC. MedAssets revenue cycle business will continue to operate as a wholly-owned subsidiary of Pamplona Capital Management LLP.

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