How Does the Shift to Value-Based Care Affect Children’s Hospitals?
The health care landscape is undergoing a transformation to value-based care. Many of our clients have felt the impact of this shift throughout 2015. However, since children’s hospitals operate in a unique environment with their own set of rules, value-based care looks very different for them. The impact of value-based care on pediatric providers is equally significant as the impact on adult providers, but the models themselves, incentives, external pressures and strategic considerations vary considerably. Highlighted below are key strategic takeaways for children’s hospitals and pediatric providers in large health systems as they transition to value-based payment (VBP).
Children’s Hospitals Can Choose to Take on Risk
For the most part, children’s hospitals control their own destiny in the transition to value-based payment. While adult providers are faced with external pressures to take on risk, the same federal mandates or CMS-led regulations (such as readmission penalties) do not exist for pediatric providers.
Value-based care models developed in pediatrics are often driven by institutional motivation and internal mission and values. Many children’s hospitals have made the decision, independent of market readiness and payment pressures, to proactively pursue the path of value-based care because it directly supports their long-term strategy and mission.
Consolidation and Convergence Will Accelerate the Move to VBP
However, it is important to recognize the increasing market pressures children’s hospitals will face to transition to VBP. These pressures’ timing will be heavily dependent on individual market dynamics. Two significant trends accelerating the shift to VBP are consolidation of hospitals and health systems and convergence (what Sg2 defines as the blurring of lines between providers and payers). A health system that provides comprehensive pediatric services and participates in VBP contracting, either through ownership of its own health plan or through direct contracting with employers, can offer attractive, alternative payment contracting for pediatrics. Mergers and acquisitions (M&As) have fueled this trend through consolidation of pediatric offerings, enabling new providers to enter the pediatric realm and, in some cases, offer competitive VBP contracting. In these instances, health systems gain an important payer contract, driving the traditionally dominant children’s hospitals to move to VBP sooner.
Children’s Health in Dallas, TX, Successfully Manages 100K Members
Sg2 clients recently heard from Peter Roberts of Children’s Health in Dallas about its move to take on financial risk for some of its ~100,000 members. The children’s hospital originally sought a partner in its market to manage risk, but, unable to find the ideal partner, it created its own health plan. It now uses several financing vehicles, including its fully owned children’s health plan, a licensed HMO and an ACO. Both the HMO and the ACO have expanded to cover whole families, not just children. Keys to success include its community health programs that support kids at school, church and home to help them and their families manage their diseases, decrease unnecessary utilization of the ED and reduce readmissions.
Pediatric ACOs Will Become More Prospective
In pediatrics, fee enhancements and shared savings programs will gradually be replaced with more robust prospective per member per month (PMPM) payments. Unlike in the adult realm, episodic bundled payments are not applicable in pediatrics, since much of pediatric care is not procedure based.
Children’s hospitals may develop pediatric-specific ACOs via Medicaid managed care, improving care quality while earning financial incentives for a defined population. For example, Partners for Kids, a pediatric ACO serving 300,000 Medicaid enrollees in Ohio, was able to achieve lower cost and lower cost growth than other state Medicaid contracts, while maintaining overall quality of care. It achieved these results using a PMPM financial model. However, we have found that more and more ACOs are evolving to include adult partners for more comprehensive family contracting.
Overall, ACOs are attractive to children’s hospitals that do not wish to develop their own health plans. Nonetheless, the financial incentives are usually more limited than those for organizations taking on full risk, and they are not usually enough to support investment in full care redesign.
Children’s Hospitals Are Not Immune to Price Sensitivity
Even in fee-for-service models, the cost of care is being increasingly scrutinized. Narrow or tiered networks, used by payers to exclude or limit providers from their health plans, are primarily focused on cost. Children’s hospitals are not immune to exclusion from large payer networks based on prices alone. This is already occurring in markets with alternative lower-priced pediatric providers.
Pricing will matter. However, children’s hospitals providing pediatric offerings from primary to tertiary care have strong leverage in gaining payer contracts despite higher prices, because the comprehensive care they offer cannot be easily replaced. While price is front and center in contracting today, expect clinical outcomes and total long-term cost of care to be increasingly factored in when payers contract with children’s hospitals. Consider a recent example from the adult realm: a cancer specialty hospital in the Southeast that was excluded from a payer contract due to pricing was able to demonstrate lower long-term costs due to improved quality and regain its standing with the payer. Developing quality and cost metrics that justify higher pricing will be essential for future successful contracting.
Price Transparency and Consumerism Are Slowly Evolving
Emerging price transparency tools identify variation in price per procedure by provider and site of care. For example, Blue Cross and Blue Shield of North Carolina’s Health Cost Estimator online tool identifies variation in total costs by individual providers for many relevant pediatric services, including tonsillectomy, preventive exams for patients younger than 1 year and allergy testing.
These tools have not yet made a large impact on consumers’ health care decisions. With the complicated, complex nature of pediatric care provided at children’s hospitals, we find that physician referrals still play a large role in parents’ and caregivers’ care decisions. However, as the data become more meaningful and accessible and consumers become more savvy, we expect that price transparency tools will be commonly used in site-of-care decisions about elective and lower-acuity services, such as labs, chest x-rays, sports physicals, urgent care and certain scheduled procedures. The increase in high-deductible health plans will accelerate the use of these tools by families who shop for care, electing to receive treatment at less-expensive care sites, such as retail clinics.
Focus on Ambulatory Care, Improved Access to Thrive Under VBP
To succeed in the more competitive value-based environment, children’s hospitals must embrace thoughtful strategies focused on differentiation and relevance. Fundamental to this approach will be a comprehensive System of CARE providing open access to well-integrated specialty services. As a children’s hospital, how do you attract and retain patients in your system by offering unparalleled family-centered care? How do you reach families where they are? How do you develop new programs and channels that improve disease management and result in better outcomes? What partnerships do you need to develop to build on this channel strategy? These are important considerations across the pediatric care continuum. (The diagram below depicts access points by relative maturity in pediatrics.)
As children’s hospitals shift to VBP, efficiently managing patients across the inpatient and outpatient continuum will require a focus on ambulatory care coordination and improved access. Having a multichannel approach is essential. Channels can be thought of as physical sites (eg, ambulatory specialty centers, urgent care centers), programmatic offerings (adolescent or fetal care programs), or relational access points (clinical contact centers, virtual urgent care) that attract new populations and improve multidisciplinary disease management by designing care around the patient’s and family’s needs.
Sg2 Consultant Karyl Kopaskie, PhD, contributed to this post.