ACO Payment Reform
The advent of the Accountable Care Organization as well as other aspects of the current healthcare reform environment are expected to create a number of new forms of payment approaches that are intended to align incentives better to achieve quality as well as cost efficiency. As government and other payers begin experimenting with these new payment approaches, it is critical that your healthcare organization understand what arrangements you are participating in and how you need to operate to maximize your ability to maintain and enhance your revenue stream.
At CareSync, we are on the forefront of working with our clients to master the many nuances of payment reform including:
Pay For Performance:
How it Works: In a pay for performance model, providers are paid on a fee for service basis with either a penalty or a reward for achieving defined quality or other performance metrics.
Downside Risks: If penalties are involved, there is a potential loss of margin, if your healthcare organization does not meet the objectives. There is also the risk that the cost to achieve the quality or performance target may exceed the value of the reward.
Upside Risks: Complexity of the formulas and the relative immateriality of most pay for performance programs to date has made it difficult to get broad provider adoption and behavior change.
Shared Savings:
How it Works: Shared savings programs are based on defining a baseline cost for a group of patients and then comparing actual performance to that baseline after some defined period. If providers can manage the care to those patients effectively and create savings over the baseline, they share in these savings.
Downside Risks: While there is little financial risk for providers, there are some downsides. Due to the length of time between provider actions and the ultimate settlement of the shared incentive, it can be difficult to match investment and maintain engagement. Providers often view these payments as bonuses without attributing specific actions to the rewards.
Upside Risks: Communities that have the most to gain are ones who currently waste the most resources, so shared savings would be good for them and payers. However, in well managed communities, such as those on the west coast, margins are already thin and gains in savings will be very difficult to sustain over time. These ACOs will need to migrate to other payment schemes to achieve the desired cost reduction and quality improvement goals of health reform.
Global Budgeting:
How it Works: Global budgeting is tied to coordinated care delivery systems. It involves PMPM payments to ACO organizations who integrate physical, mental, and dental health into a seamless care delivery system for an enrolled population. Groups of participating providers would be at full risk for delivering all care within that budget, including outpatient, hospital, skilled nursing, home health and hospice. The payments are based on inclusive capitation rates based on actuarial formulas. The state of Oregon is planning to apply global budgeting to fund its Medicaid program.
Downside Risks: Extensive care coordination (and the associated costs) is required to make this payment scheme work and those added costs would be funded within the global budget. Providers will need to learn to deliver high quality care with much less funding and to work in teams that historically have not integrated well (e.g.: physical and mental health). Quality measures and reporting will increase to assure appropriate medical care is accessible to the population being served. Providers are at substantial financial risk if the care cannot be managed within the global budget agreed upon. This can be mitigated by stop loss insurance and other techniques, but requires a well capitalized and risk management savvy organization.
Upside Risks: Governments and potentially health plans will better control rising health care costs by imposing financial and performance risk onto providers.
Bundled Payments:
How it Works: Bundled payments are a hybrid funding scheme that could function in tandem with fee-for-service reimbursement. The concept involves paying groups of providers a single, predefined payment for episodes of care such as strokes, heart attacks, back surgery, etc. All providers participating in that episode of care, including primary care providers, specialists, hospitals, skilled nursing facilities, home health, etc., will then receive a portion of the bundled payment regardless of the overall cost of delivering the care.
Downside Risk: If participants cannot align incentives, manage utilization and transitions, or coordinate care across the continuum, the provider network will lose money. Those losses will likely be unequal. Participants will have difficulty determining how to fairly allocated payment across care settings.
Upside Risk: Payers, government and private entities, will be better able to predict and control costs for bundled episodic events. Providers will continue to receive fee-for-service payments on unbundled medical services, procedures, and devices.
Capitation:
How it Works: Full or partial capitation has some advantages over other payment schemes in that it provides funding up front and on a continuing basis. This allows providers and ACOs the ability to fund care coordination and integrated delivery systems necessary to reduce costs and improve quality.
Downside Risks: Return to the 1980s version of capitated managed care is not acceptable, as we know from experience this did not achieve the desired results of population based health care.
Upside Risks: Capitation within an ACO structure is similar to Medicare Advantage Part C, a program that many providers already participate and understand, albeit not very well. Layering in care coordination, patient centered medical homes, evidence based clinical protocols, integrated service delivery, and seamless transition of care across care settings will achieve the dual goals of lower per capita health care costs and improved patient outcomes.
For the foreseeable future, it is highly likely that providers will endure a combination of payment schemes as health reform and ACOs sort through the myriad of complexities inherent to any industry-wide transformation as that envisioned by the Patient Protection and Affordable Care Act of 2009. This transition will be difficult as financial software programs are retooled to accurately compile and administer a combination of payment methods and as personnel are trained to manage within an environment of conflicting financial incentives.
Being nimble and having the ability to evaluate many different approaches will be critical for healthcare organizations to survive and prosper over the next few years. CareSync Consulting is here to help, our team of experienced healthcare consultants can help your organization engage in alternative payment discussions, evaluate the impacts and implement solutions to successfully perform under them. For more information please contact us at www.caresyncconsulting.com.