Emerging Value-Based Payment Trends Transforming Health Care in 2018

Hospitals and health systems plan to build on the care delivery reform lessons of recent years and push a range of initiatives in 2018 that are encouraged by a growing number of public and private payment models.

Following a post-election year of federal healthcare policy uncertainty, hospitals and health systems plan a renewed focus on care delivery and payment innovation in 2018. And these organizations’ leaders say they expect the decades-long shift to value-based care to pick up in some important ways.

Healthcare delivery innovations continue to spread and undergo local modifications to better reflect specific organizations’ circumstances, available resources, and varying patient needs. Meanwhile, however, the adoption and use of different delivery reforms continues to be fueled by public and private payment models, so changes in the prevalence of payment models also will indicate where providers will focus their resources.

Medicare Push

Some of the highest-profile payment models have come in past years through the Medicare program, and 2018 will be no exception. Throughout the coming year, Medicare is expected to expand its value-based payment push—mainly through voluntary payment models—after some uncertainty in 2017, when it dropped three planned mandatory models and scaled back an existing mandatory model.

Such changes were seen, in part, as a consequence of the opposition to such models of Tom Price, MD, who was secretary of the U.S. Department of Health and Human Services (HHS) until he resigned in September.

The nominee to lead HHS, Alex Azar, is expected to renew the value-based payment push.

“Azar is focused on the value push in a way that Price was not,” says David Muhlestein, PhD, chief research officer for Leavitt Partners.

Delivery innovations are a little more likely when both a “push and a pull” by payers and providers, respectively, focuses on their implementation, says Kevin Holloran, a senior director at Fitch Ratings. Some of the payer push may decrease if the Affordable Care Act (ACA) is “pulled apart” in 2018, but Holloran expects the value-based payment push to continue, overall.

One of the biggest drivers of providers’ care delivery reforms in 2018 has been the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). Under that law, starting in 2017, all physicians paid through Part B—unless exempted—were required moving forward to participate in either the Merit-based Incentive Payment System (MIPS) or any of a variety of advanced alternative payment models (APMs).

Although the Centers for Medicare & Medicaid Services (CMS) has encouraged physicians to move into APMs, the vast majority who are not exempt from MACRA are expected to default to MIPS, which carries steeper potential cuts and greater quality reporting requirements.

However, a greater number of physicians in 2018 than in 2017 are expected to shift into one of several types of available APMs, such as the Comprehensive Primary Care Plus (CPC+) initiative. In that model, CMS pays primary care practices a monthly care management fee in addition to the fee-for-service (FFS) payments for treatment. Instead of full FFS payments for evaluation and management services, practices receive a hybrid of reduced FFS payments and up-front comprehensive primary care payments. Practices also receive up-front incentive payments, which they will either keep or repay based on their performance on quality and utilization metrics.

A Focus on Mental Health Care

Sanford Health, based in Sioux Falls, S.D., plans to participate in CPC+ under a Jan. 1 expansion of the program into North Dakota. The 1,400-physician health system had a six-year head start on the incentives in CPC+ through its aggressive expansion of patient-centered medical homes in recent years, says Martha Leclerc, vice president of corporate contracting for Sanford Health. However, the CPC+ model’s emphasis on integrated mental health care did create some challenges because the state suffers from a shortage of mental health personnel.

To overcome previous challenges in identifying the patients who would most benefit from early care interventions, Sanford Health has consolidated various functions into a new enterprise decision support and analytics group.

“Earlier, we had tried to identify the top 5 percent most expensive patients only to discover that they were too far gone in their disease state to benefit from more aggressive interventions,” Leclerc says. “So we had to move on to those earlier in their disease.”

To make such initiatives work and to identify the right patients, the health system found that a strong data analytics team was needed.

Prospects for ACO Expansion

Also expected in early 2018 from CMS is the revelation of the newest Medicare accountable care organizations (ACOs). There are some indications that MACRA may produce the largest surge in new ACOs in the history of the Medicare ACO program.

For instance, Joe Damore, a vice president for Premier Inc., which advises healthcare providers on payment reform and delivery innovation, has seen twice as many hospital clients as in any previous year apply to launch a Medicare ACO. He expects pressure on hospitals and physician practices from MACRA and the advantages of implementing APMs in the MIPS track, to drive an increase in new 2018 Medicare ACOs to exceed the 99 new ones launched in 2017. 

Advisers say most new Medicare ACOs applicants aim to launch Track 1 ACOs. Although the organizations in this track do not meet MACRA’s definition of an APM, the track offers participating physicians other benefits, such as less onerous reporting requirements, which are limited to reporting on meaningful use of electronic health records and which allow physicians to avoid having to undertake their own quality reporting.

“It’s a great option for physicians because it lowers their burden,” Damore says.

Muhlestein points to previous challenges that have caused about 100 ACOs to drop out of both Medicare and commercial plans, including an inability to engage physicians in the payment model. Other organizations struggled, he says, when they made minor changes but were not actively trying to transform the care they provided. Some hospitals found other partner organizations were not committed to undertaking the required care delivery changes, so they needed to search for new partners.

Beyond the physician-engagement requirements, ACO preparations in 2018 are likely to focus on hiring critical staff, Premier found in a recent survey of its member hospitals that operate ACOs. Ahead of physicians, the staff those organizations identified as most needed include clinical informaticists, data analysts, community liaisons, social workers, transition managers, and care navigators.

Bundled Payment Changes

Other high-profile Medicare models pushing providers to undertake delivery reforms in 2018 are the various bundled payment programs.

In November, CMS canceled mandatory bundled payment programs for cardiac care and surgical hip and femur fracture treatment (collectively known as episode payment models [EPMs]). The agency also canceled the cardiac rehabilitation incentive payment model.

Nearly two years into the Comprehensive Care for Joint Replacement model, CMS also switched participation from mandatory to voluntary for hospitals in 33 of the 67 selected geographic areas.

The canceled mandatory bundles are expected to be replaced in 2018 with a large voluntary program, called the Bundled Payments for Care Improvement (BPCI) Advanced initiative—and possibly other models. However, the release of rules for BPCI Advanced was initially promised in the summer of 2017, and as of mid-December, the rules were yet to be released.

“Some organizations that put a lot of time and money into preparing for mandatory bundles are now looking for voluntary options,” says Yulan Egan, practice manager for Research at the Advisory Board.

VCU Health in Richmond, Va., has purchased the needed data and is preparing in 2018 to choose one of the new voluntary bundles once they are released, says Melinda Hancock, CFO and senior executive vice president for the health system, and past chair of HFMA.

“We have created a preferred post-acute network based on previous utilization and quality indicators,” Hancock says. “We meet monthly with the selected partners and share data. We have placed some money at risk for some providers to create incentives to get to the next tier of performance. This helps all of us as providers and is best for the patients.”

Such active management of post-acute care providers—as opposed to just establishing a post-acute care network—is a common feature among hospitals obtaining better ROI under value-based contracts, says Richard Bajner, a managing director and co-leader of the healthcare strategic transformation practice at Navigant.

“They’re doing it to drive results; funneling patients to high performers,” Bajner says about the selection of post-acute care providers by hospitals.

Some providers have had success engaging physicians in bundled payment programs through the use of gain-sharing—payments based on quality or operational metrics—says Darcie Hurteau, a director at DataGen, which helps hospitals overhaul care to meet payment model incentives.

Hurteau notes that hospitals have found it more challenging to engage community physicians than their own employed clinicians but that successful engagement usually follows early outreach in any care delivery transformation process.

VCU Health also is creating an enterprisewide data warehouse (EDW) and analytics to provide the data needed for tracking care across the continuum.

“Our new EDW will serve clinical and operational needs, as well as serve as a robust platform for clinical and population research by VCU faculty along with colleagues across the nation,” Hancock says.

Hospitals with advanced data analytics capabilities “are getting great results” under Medicare bundled payment programs, says Clay Richards, CEO of naviHealth, which advises hospitals. Those that have struggled under the payment programs generally have not developed clinical protocols for such patients, improved their networks, or developed their analytics capabilities, he says.

Richards says the hospital-led bundles have been the most successful, so he expects Medicare to offer more voluntary bundled payment programs in 2018.

Mix and Match of Models

Some providers have improved overall ACO performance via bundled payment approaches that include identifying groups of patients with certain conditions and focusing various care innovations on them can improve overall ACO performance.

“ACO participants are starting to apply their learnings from bundled payment programs to ACOs so they can focus their efforts on delivery changes that have shown to be successful both in patient outcomes and financially,” Hurteau says.

Such cross pollination between various payment and delivery reform models is increasingly common, as health systems move away from siloed care management programs, says Katherine Ziegler, a director for Navigant. Health systems also are moving away from “broad, one-size-fits-all case management programs.”

Among the delivery reforms Denver-based Catholic Health Initiatives (CHI) is considering to help it meet the quality improvement targets of Medicare pay models and other value-based purchasing programs is the health system’s Virtually Integrated Care Team.

The model includes a hospital-based team headed by a virtual nurse leader who works off the floor, away from the duties and potential distractions of a unit. The nurse leader, who holds a master’s degree in nursing, coordinates and manages patient care using a two-way camera. Under the model, the nurse appears on a screen in the patient’s room and is available to answer the patient’s questions or to virtually join and consult with physicians on rounds.

The initiative, piloted in recent years at several hospitals and under consideration for wider expansion in the system, has been found to reduce length of stay, readmission rates, falls with injuries, and call light response time, says Kathleen Sanford, senior vice president and chief nursing officer for CHI. The program also was associated with improved patient experience HCAHPS scores, communication with physicians, and staff responsiveness scores.

“It’s a real comfort to the patient because they have somebody at their beck and call that they are able to talk to,” Sanford says. “The nursing units at our pilot hospitals have all adapted the model with slightly different care team members and responsibilities, and this flexibility has been very effective. Although results have been positive, they have varied according to the team mix and location.”

At the most-recent pilot site, in Colorado, per-patient-per-hour costs were reduced from $124.85 to $118 after eight months, and the approach demonstrated a solid ROI, Sanford says. The savings were attributed to a reduced need for registered nurses, with different combinations of other types of staff—including paramedics, licensed practical nurses, and nurses’ aides—assisting the remote nurse and floor nurses.

“This is not about the technology; it’s about changing the people who do everything and changing the teams,” Sanford says.

Eventually, the approach could move beyond virtual nursing to include virtual hospitalists, virtual health coaches, and other personnel, she says.

“The plan is that this would become quite widespread; however, you always start with looking at research first,” Sanford says. “We wouldn’t have taken this approach if we didn’t think it was something worth looking at and feasible to duplicate across the system.”

It’s an approach to implementing delivery reforms that differs from those adopted by some other hospitals and health systems.

“Oftentimes, we see organizations implement programs based on what others have done, without specifically identifying how those programs will impact them,” Ziegler says. “We encourage them to use their own data to validate which opportunities are right for them.”

Advantages for Medicare Advantage

Also expected to drive delivery reforms in 2018 is Medicare’s growing private payer arm, Medicare Advantage (MA). Those plans are projected to cover more than half of Medicare enrollees in the coming decade—up from 34 percent in 2017, says Bajner of Navigant.

Damore of Premier expects even faster MA growth, with such plans enrolling half of Medicare enrollees within as few as five years, as the Trump administration loosens its rules to encourage the “privatization of claims processing” within Medicare.

Bajner suggests the “more permanent structures” of such plans also are likely to have a bigger impact on pushing providers to implement care delivery reforms compared with payment pilots from CMS.

Executives of MA plans surveyed by PwC’s Health Research Institute (HRI) say they believe consumer demands and expectations, along with consumers and providers taking on more risk, will have the greatest impact on how they do business in the next five years, according to Benjamin Isgur, leader of HRI.

The key MA plan goal of improved star ratings requires payers to enhance collaboration with providers through value-based MA arrangements, Bajner says. “Such partnerships can offer significant opportunities for providers to share in improved plan performance, and for MA plans and their managed care organizations to achieve the highest possible ratings,” he says.

Bajner cites the example of the Cleveland Clinic, which announced in the latter half of 2017 that it would enter the MA market through two health plans offered in partnership with Humana. The partnership’s plans will give enrollees access to the full Cleveland Clinic Health System and independent physicians in the Cleveland Clinic Quality Alliance, while focusing on prevention and coordinated care.

Such partnerships constitute one way providers are avoiding some of the cost and management challenges of launching health plans.

“Many have dabbled [in health plans] and not done well,” says Holloran of Fitch.

Reasons for those financial struggles have included the steep costs of launching health plans large enough to achieve actuarial soundness—at least 100,000 lives, according to Holloran—and a lack of alignment between the sponsoring provider and its payer arm.

Commercial Plan Models

Damore is seeing an acceleration in the shift toward value-based payment arrangements by the Blue Cross plans and the largest for-profit health plans. Although that shift has happened at a slower pace than those payers want, he recently has seen a growing number of contracts that start as upside-only risk and then shift into two-sided risk in later years.

Damore points to early shifts in care delivery based on that value-based payment trend by commercial payers occurring in Hawaii, where Blue Cross and Blue Shield of Hawaii (HMSA) converted 550 employed and independent physicians to a per-member, per-month payment model in July 2017. The payment shift incentivized many to move toward team-based care that included more mid-level nurses and licensed clinical social workers.

“So physicians may not see every patient because these other healthcare workers are handling routine patients,” Damore says.

Other delivery reform drivers are commercial plan ACOs, which cover twice as many lives as Medicare ACOs, says Muhlestein. He says such payment models are still in an “experimentation period,” with payers and providers trying to figure out how best obtain the desired cost and quality improvements.

In 2017, Sanford Health began adopting an updated version of its value-based payment arrangement with Blue Cross North Dakota, and that helped identify improvements in quality metrics that could improve financial results, Leclerc says. Analytical assistance from the payer led the health system to add well-child visits, which were credited with producing about a $1 million in savings by the end of 2017, she says.

Sanford Health, a 44-hospital health system in nine states, has entered value-based payment arrangements with Blue Cross plans in four states, as well as some with its own health plan and other commercial insurers. As a result of those efforts, as much as 60 percent of the organization’s commercial plan business includes value-based payment, ranging from quality incentives only to shared savings with a quality component, she says.

Sanford Health also recently saw strengthening value-based relationships with Blue Cross Minnesota, which helped identify a pattern of missing diagnosis codes among the health system’s clinics participating a value-based payment model. The addition of the codes ensured that patients’ illness burden was accurately reflected in the risk weights of the commercial payment model, Leclerc says.

One key to good results under value-based payment models for VCU Health is to carefully review of various models before joining them to ensure they are a good fit.

“We have recognized what we are, and we are careful in our selection of payment models because of that,” Hancock says about the system’s limited primary care network and leading academic medical center. “We want to be selective in our models to ensure that they optimize our strengths and respect our place in the healthcare delivery system.”

Another key to VCU Health’s value-based payment performance is ensuring the community partnerships the health system has established with local agencies are expanded to provide wraparound services for patients both before and after treatment.

“We want to be sure we are choosing payment models that optimize these relationships and provide additional funding for these programs that are essential for a full focus on health in our community,” Hancock says.

More Medicaid Models

Providers also are responding to increasing value-based payment incentives from Medicaid programs with delivery changes, say industry analysts. In 2017, 40 state Medicaid programs had implemented a delivery system reform initiative—such as patient-centered medical homes or ACOs—and 22 planned new or expanded initiatives in 2018, according to the Kaiser Family Foundation’s annual Medicaid directors’ survey.

Many Medicaid providers are responding with a greater focus on the social determinants of health, Egan says. Addressing the effects of life outside the hospital’s four walls frequently means adding social workers into the health system’s care structure and using technology to identify which social factors are having the greatest impacts on its specific patients.

Other providers are taking on bundled payments under Medicaid managed care plans. A big difference from Medicare bundles is the types of episodes covered by Medicaid pilots, which in Tennessee’s Medicaid program include maternity care and chronic health conditions, says Hunter Sinclair, a vice president at the Advisory Board.

Amid continued uncertainty among healthcare organizations about how each can derive the highest-quality results and achieve the greatest cost improvements for its given patient population, the one certainty is that organizations will continue their search in 2018.