Are You Ready for the Shift to Value-Based Payment Models? – Part 1

A recent conversation with my almost 70 year old father went something like this:

Dad: The orthopedist thinks it’s time to start planning on doing a total knee replacement.

Me: Yeah, how much is that going to run you out of pocket?

Dad: I have Medicare, it should be minimal.

Me: Did you speak to anyone in the business office to see if they could provide you with some numbers?

Dad: Uh….no?

Me: Well, did you find out what the cost is going to include after surgery follow up care?  What about physical therapy?  Is that included in the price or is that additional?  How many sessions will you get if it is included?  What if there are complications and you need additional surgery?  How much of that comes out of your pocket?  There seem to be quite a few hospitals in your area, is one of them cheaper than the others?

Dad: I’ll have to call you back.


Unfortunately, it’s all too common to forget that not only are we patients, but consumers and customers in the medical setting.  As such, we need to understand the fee and payment models that are being utilized.  No, they are not all the same at every organization, and yes, we all want to receive the best care.  But no one wants to pay an extra $5,000 out of pocket for the exact same service and level of care that they could have received at another facility.

How do organizations go about setting fees for service anyway?  Traditionally these schedules have been created with a Fee-For-Service (FFS) model, where charges were dictated by and large by providers employing UCR (Usual, Customary, or Reasonable) methodology.  Outcomes were never really tied to the fee schedule billed to patients and payers, which resulted in a model driven by volume versus favorable outcomes for patients.  Instead providers were free to set their own rates with little correlation between experience or expertise, and adjustments were never made as new procedures and techniques simplified and streamlined providers’ day-to-day work.  Regrettably, this has led to charges spiraling upwards for decades, despite the fact that patient satisfaction has headed in the opposite direction.

However, because the FFS model is simply not sustainable moving forward, the payment model being pushed by large commercial payers, including Medicare, is one of Value-Based Care (VBC).  A variety of programs including Pay for Performance, Clinical Integration, Shared Savings, Bundled Payments, Capitation Full Risk, Accountable Care Organizations, and Patient Centered Medical Homes are being utilized in an attempt to bring costs for both patients and payers in line with the work and risk being offered by providers.  Essentially, payers and patients are pressuring providers and hospitals to provide care in a more cost-controlled manner with better outcomes in a standard format.

As a patient and a consumer, it is important to know where your provider and organization fall on this spectrum.  Going back to the total knee replacement example, actual billed costs could vary wildly between $20,000 and $35,000 based on provider, location, and coverage; the portion of the bill the patient could be responsible for varies even more.

As a provider or organization, it’s important to understand the shift in the reimbursement models in order to leverage these newer models to remain competitive in the market.  Realistically, what model(s) are viable options for your organization?  How are you going to demonstrate the required benchmarks for these quality payment models?  More importantly, how are you going to manage the internal costs of implementing these changes while maintaining day to day operations?

Interoperability and data manipulation will be key for organizations moving forward.   A recent McKesson white paper examining the move to the VBC model states, “The key obstacles to implementing these value-based models, payers and providers agree, are a lack of standards, analytical tools, and the need for better business IT infrastructure and systems that support these models—all while taking action to reduce administrative burdens and costs to remain financially sound.”  The McKesson white paper goes on to state, “The primary obstacles payers and providers ‘urgently need’ to address in order to enable VBR are technology related. This is led by the need to integrate internal, vendor, and collaborative IT systems (41% payers, 23% providers); and data collection, access, and analytics (22% payers, 20% providers).”

Be honest and take a good hard look at your organization.  Do you have the internal staff, skill set, and knowledge base to make these changes?   Do you have the analytical skills and understanding of these various models to make an informed, accurate decision as to which of these models would best fit your organization, payer mix, and patient base?  Galen currently offers a variety of assessments and tools to assist with the implementation and management of VBC models.

In Part II and Part III of this series, we will go into further detail on the various payment models, the benefits, and constraints of each and the next step your organization needs to be looking at in the immediate future.



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