Executive Insights

April 25, 2017

How to Prepare for the Transition to Value-Based Reimbursement

In the healthcare industry there is a great deal of discus­sion about the shift from volume-based to value-based reimbursement models, and regulatory requirements are continually changing. But what exactly are bundled payments, Accountable Care Organizations (ACOs) and value-based reimbursement? And what are the practical implications of these new models for healthcare providers and organizations?

To understand the implications of today’s healthcare landscape, it is important to have some background on value-based reimbursement.

From Volume to Value

The move from volume-based to value-based reimburse­ment is driving systemic change throughout the industry, not only in how healthcare services are being reimbursed but in how those services are being delivered. Under the volume-based reimbursement model, healthcare provid­ers were paid – by Medicare or other commercial payers – based on the quantity of services provided. Each patient’s office visit, diagnostic test or procedure would result in a separate reimbursement from Medicare or the commercial payer. In contrast, the value-based reimbursement model measures patient satisfaction and rewards healthcare pro­viders based on the quality of the care they deliver. In its simplest form:

Value-based reimbursement =
the impact of improving care quality and patient satisfaction + the impact of improving the health of populations + the impact of reduced cost of care

In addition to encouraging providers to reduce costs while improving care quality, patient satisfaction and the health of populations, this reimbursement model aligns with the Institute for Healthcare Improvement’s Triple Aim initiative, which is at the core of the recent shift in methodology.

The transition to value-based reimbursement has also led to the establishment of bundled payments. Diagnosis-related groups (DRGs) and ambulatory payment classifi­cations (APCs) were the government’s early attempts at bundling healthcare services. In each case, similar services were bundled into a category and billed as a complete unit, not as separate component parts. The bundling of services was designed to curb healthcare spending by paying a set fee for specific diseases, disease processes or procedures. In terms of reimbursement, it did not matter to Medicare or other commercial payers how much a pro­vider consumed by way of additional resources because the fee for that service was fixed.

Bundled payments are similar to DRGs and APCs – but on a much larger scale. Rather than grouping like inpatient or outpatient services, all services, as well as group provider types, are combined across the complete continuum of care. This grouping method­ology is known as episodes of care. Under the bundled payment model, Medicare or a commercial payer will pay one single fee for all provider services involved in a patient’s episode of care. The providers involved in that treatment will then split the payment. This model encourages providers to drive out unnecessary costs and rewards them for coordi­nating care and reducing duplicative efforts.

The value-based reimbursement model can be diffi­cult for providers because patients are all but guaranteed similar or improved access to care at a lower price point. For those providing the care, success is determined by the following:

  • Partnering with like-minded care providers across the entire continuum of care
  • Measuring and improving quality and patient satisfac­tion
  • Implementing a lower cost structure

Changing Healthcare Operations and Provider Impact

Where does this change leave providers of high-quality, cost-effective healthcare? Every aspect of care is being considered for improvement – from financial position to clinical operations to new and chang­ing provider relationships.

Financial Position

For several years providers have faced constant pressure to reduce the cost of delivering patient care. They have done so through various means, such as process improve­ment initiatives, right-sizing staff, group purchasing and more. Going forward, providers and suppliers will need to work together to create cost-effective means to supply patients with superior products at reduced prices. And because reimbursement will be based on collective performance, providers must address those delivering low value or ser­vice. Year-over-year improvement is critical to generating positive program results.

Financial success in the ACO and population health environment demands that detailed financial information be provided to the government on a near real-time basis. Providers who are already feeling the pinch must make material investments in information systems software and infrastructure to adequately capture the data needed to be successful in the value-based reimbursement arena.

Clinical Operations

New healthcare models and initiatives will require providers to improve clinical operations by designing an optimized pro­cess as though starting from scratch. Once new processes are designed, providers must implement them quickly and establish metrics to monitor the results and to ensure that the desired outcomes are being achieved. Collecting data now will help ensure proper reimbursement in the future.

Providers should also create integrated management teams that include physicians, non-physician caregivers and administrators from all aspects of the care delivery process. These teams will be responsible for enabling the participants to work together more effectively to improve care, modify processes, set quality and cost metrics, mea­sure results, manage provider behavior, establish and apply best practices, and more. Providers have to work together to improve care processes and develop closer re­lationships with payers to help drive the course of change.

Changing Relationships

Historically hospitals, physicians and insurance compa­nies have been focused on their own individual goals and objectives. In a value-based system, these key stakeholders must be more partner-oriented to ensure their success.

As the reimbursement model shifts to a value-based system, hospital-physician integration and alignment will increase as well. Alignment strategies are evolving from medical directorships and call-pay arrangements to service-line co-management arrangements and more integrated alignment structures such as bundled payments and ACOs.

Physicians and physician groups who historically sup­ported several hospitals are finding it harder to do so in today’s environment. At a group level, it is possible for a group to support more than one hospital, but it is not prac­tical for the individual doctor. The individual doctor must be familiar not only with the electronic medical record (EMR) system used by his or her practice but also with the EMRs of each facility or institution with which he or she works. For most physicians, it is simply too much.

Transitioning from transaction-based to population-based reimbursement is not easy, but, with careful planning, providers can ensure they are prepared to successfully navigate the transition from volume to value.

To read the article, click here: http://www.ksmcpa.com/blog/how-to-prepare-for-the-transition-to-value-based-reimbursement

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About the Author
John Martin is managing director of healthcare consulting with Katz, Sapper & Miller’s Healthcare Resources Group. John leads a team of healthcare consultants who provide financial, strategic and operational services to hospitals, health systems and physician groups. Connect with him on LinkedIn

 October 26, 2016

MACRA: The Final Ruling and What It Means for You

The Centers for Medicare and Medicaid Services (CMS) recently announced the long-awaited final regulations of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). The healthcare industry has been speculating for several months whether CMS would a) issue an extension or reprieve similar to the ICD-10 deferral, b) continue to moderate the effect of MACRA through the “pick your pace” approach or c) make minor cosmetic changes to the proposed regulations, which would leave the impact undiluted.

As it turns out, the answer is all of the above. The final regulations defer some elements – such as the cost and resource-use portion of the Merit-based Incentive Payment System (MIPS), which won’t start until 2018 – and allow providers to pick their pace for adoption. But, the final regulations do preserve the overall push toward embracing value-based payment structures, which has been a central focus during the implementation of healthcare reform.

MACRA replaces the Medicare Sustainable Growth Rate formula, which mandated adjustments to provider payments based on spending growth, and establishes two new pathways to value-based reimbursement: MIPS and APM (Alternative Payment Model).

  • MIPS consolidates several Medicare Part B billing adjustment programs into one. Elements found in quality measurement (PQRS), cost and resource-use (Value Modifier) and Electronic Health Record adoption (Meaningful Use) are now resident in MIPS.
  • APMs are structures for risk-bearing entities and population payment models, allowing providers to earn more for accepting more risk.

Concerns were voiced from the industry about the administrative burden of these proposals and the timeline for implementation. In response, Medicare made several concessions to encourage participation, but about 80 percent of the final ruling is the same as the previously proposed rules.

The 2,000-plus pages of the MACRA final rule contain thousands of details and nuances. Yet it continues on the established trajectory – that Medicare will pay for services in which value is documented, and it will pay more for services that have documented high value. This premise could also be inverted: Medicare will pay less, or nothing at all, for services that have low value. “Value” is almost always defined as the triple aim objectives of improving the patient experience (quality of care and satisfaction with the service), improving the health of the population and reducing the per capita cost of healthcare.

The final rule has three fundamental implications for providers:

  1. Providers need to ensure that their practice’s infrastructure, including information systems, are capable of capturing and reporting the information required by MACRA. It’s acceptable to start slow, but you must start. This means implementing an electronic health record system – no paper charts – and focusing on patient satisfaction, data security and performance improvement. This may include upfront costs to upgrade infrastructure and capture relevant reimbursement information.
  2. There is a progressive emphasis on the reporting of data and evidence-based patient care; physicians and providers still can practice medicine how they want, but CMS will only reimburse for effective and efficient services. To do so, CMS requires documentation of quality markers as well as process improvement activities.
  3. Providers must get comfortable with risk-based population payment models since they are an integral part of MACRA.

If you are a solo practitioner, here is what you need to do to comply with the minimum regulations:

  • Confirm whether you are required to participate. You are exempt if you have less than $30,000 in Medicare Part B allowed charges or fewer than 100 Medicare patients per clinician each year. The first reporting period starts Jan. 1, 2017, and the stakes are too high to guess whether you will meet this low-volume threshold. You can check your prior year’s billings from your internal system, or you can check the CMS Part B database. Have your administrator or billing service track your numbers by quarter. If you start the third quarter (July 2017) at a run-rate that is within 20 percent of either threshold, or anticipate growth that would put you close to the threshold, take steps to be in compliance as noted below.
  • Find a single quality measure you can report for 90 days. On the CMS website, there are 74 claims-based measures, many of which are not intrusive or data intensive.
  • Find an improvement activity you can focus on for 90 days. There are a total of 93 eligible improvement activities on the CMS website, and some may already be part of your practice routine. Transitions between care settings are good places to look to identify potential areas of improvement. Participation in humanitarian operations (i.e. mission trips) may also qualify.
  • Make sure your Meaningful Use system or process of documentation is adequate. The Advancing Care Information transition measures appear to roll forward the current Meaningful Use measures. For more information, visit the Advancing Care Information page on the CMS website.

If you are a medium- or large-sized independent group, here are actions you can take to ensure your compliance:

  • Determine your approach. The law gives physicians the option of two approaches that have the same goal – managing the outcomes and quality of care received by their patients. Providers can either own the data submission via the MIPS approach or can participate in an APM and rely on the contracting entity to manage the data. (Note that a standard Track 1 Medicare ACO does not qualify as an APM, and the proportion of your patients that must be in an APM steadily increases.) These two approaches are not mutually exclusive – you can do both. If at all possible, invest in the MIPS approach. You will be better served in the long run by controlling the data-reporting process. You will also be protected from accidentally not meeting the higher APM thresholds in future years.
  • Develop a performance improvement plan that includes at least four eligible improvement activities.
  • Consider pursuing a Patient Centered Medical Home or the specialist equivalent.

If you are employed by a hospital and/or part of a health system physician network, here are some actions you can take to ensure you are compliant with MIPS regulations:

  • Confirm that quality measures are being submitted on your behalf. It is very likely that network administration is addressing the mechanics of reporting and data submission; regardless, physicians should be aware of documentation submitted for MIPS compliance.
  • Ask the managed care contracting department of your institution to provide your group with education related to APMs, specifically any with which your group has been enrolled.
  • If you are paid on productivity, be informed regarding compensation adjustments that reflect value-based performance. Whether or not these adjustments are permitted under your existing contract is one issue, but at some point, the health system will push their financial risk to the providers as a performance risk to ensure that compensation is aligned with reimbursement.

Whatever your situation, KSM is here to help. We are actively consulting with clients on the impact of the new regulations and would be happy to answer any questions.

About the Author
David Blish is a director of healthcare consulting with Katz, Sapper & Miller’s Healthcare Resources Group. David’s expertise is in strategic and financial planning for hospitals, health systems and physician groups. Connect with him on LinkedIn.

September 30, 2016

What You Need to Know About Value-Based Reimbursement


In the healthcare industry we hear a great deal about the shift from volume-based to value-based reimbursement models, and regulatory requirements – such as the MACRA final ruling scheduled for Nov. 1 – are continually emerging. But what exactly is value-based reimbursement, and what are the practical implications of this new model for healthcare providers and organizations? Below we discuss the effects of moving to a value-based reimbursement model, and in upcoming articles we will review recent and proposed changes to regulations and how they affect your practice or facility.

The shift from volume-based to value-based reimbursement is driving systemic change across the industry, not only in how healthcare services are being reimbursed but in how those services are being delivered. Under the volume-based reimbursement model, healthcare providers were paid – by Medicare or other commercial payers – based on the quantity of services provided. Each patient’s office visit, diagnostic test or procedure would result in a separate reimbursement from Medicare or the commercial payer. In contrast, the value-based reimbursement model measures patient satisfaction and rewards healthcare providers based on the quality of the care they deliver.

As payers seek to improve quality and patient satisfaction, the change in reimbursement model is encouraging providers to reduce costs. Under the value-based model, reimbursement has moved from fee-for-service, where providers are paid an established amount for each service they provide, toward bundled payments. Under bundled payments, Medicare or a commercial payer will pay one single fee to all providers involved in a patient’s episode of care, from a patient’s first visit to the completion of their treatment. The providers involved in that treatment will then split the payment. This model encourages providers to drive out unnecessary costs and rewards them for coordinating care and reducing duplicative efforts. Shared savings and global payments are even more advanced value-based payment models.

It is important to note that value-based reimbursement’s success or failure is determined by assessing the financial impact on those who are paying the healthcare bill – not those who are providing the care. Care providers will achieve success through this model by partnering with like-minded colleagues across the entire continuum of care, measuring and improving quality and satisfaction while establishing a lower cost structure. The model can be very difficult for providers because patients are essentially guaranteed similar or improved access to care at lower price points.

From an operational perspective, this shift is requiring providers to rethink how they manage their businesses. As reimbursement moves away from fee-for-service to value-based, provider reimbursement will be at risk. Not all providers are equipped to accept value-based reimbursement and therefore may find a significant portion of their reimbursement at unfavorable levels. A big part of this risk is with Medicare, which has the largest number of covered lives and, at the same time, is already one of the lowest reimbursing payers in the healthcare reimbursement system.

As we have seen with the many healthcare changes already in place, the healthcare industry will continue to address many challenges and opportunities for better overall patient care. From provider operations, to financial position, to the growing collaboration among providers across the complete continuum of care, the healthcare landscape continues to change, but value-based reimbursement is here to stay.

About the Author
John Martin is managing director of healthcare consulting with Katz, Sapper & Miller’s Healthcare Resources Group. John leads a team of healthcare consultants who provide financial, strategic and operational services to hospitals, health systems and physician groups. Connect with him on LinkedIn.

Past Articles:

July 1, 2016

Hospital-Physician Alignment Options in a Rapidly Changing Environment

Healthcare reform has significantly changed the healthcare industry over the last several years, creating new reimbursement and care delivery models. As the competition for talent, technology, specialties and patients increases, many hospitals have aligned with physician groups as a way to streamline costs while increasing the breadth and quality of their services.

Hospital-physician alignment encourages providers to treat a patient’s entire episode of care, from the patient’s first visit to completion of the course of treatment, driving out unnecessary tests and expenses along the way. By reducing cost and increasing efficiency, providers hope to improve patient experience and population health as well as reduce per capita cost of care, fulfilling the Institute for Healthcare Improvement (IHI) Triple Aim Initiative. Providers also hope this enables them to serve more patients and retain enough margin to support continuing operations.

While an increasing number of physician groups have already aligned with hospitals, there are still opportunities for alignment in the marketplace. As hospitals are competing head-to-head with one another for the same patients, many are looking to strengthen their positions by developing subspecialty services such as surgery programs and other preventive care programs.

Overcoming history

The current day consolidation is not the first time hospitals and physicians have tried to align. In the 1990s, in response to more aggressive managed care and capitated reimbursements, the healthcare industry attempted to align incentives through hospital employment of physicians.  These partnerships were often unsuccessful due to large hospital losses on physician employment arrangements.

Because of the rocky history with hospital-physician integration, alignment arrangements, practice integration or employee absorption can be touchy issues. Parties can be skeptical, so navigating alignment conversations requires careful negotiation and compromise. Having several conversations prior to discussing the actual logistics of an alignment arrangement will help build trust between the parties before moving forward.

New structures

There are many different types of alignment models with scaled levels of integration. For example, a medical directorship agreement does not require a significant level of integration between the hospital and physician, but a co-management agreement requires greater trust and integration among the parties. Once the hospital-physician alignment arrangement enters the bundled payment or ACO level, providers are much more integrated and closely aligned.

The list below outlines various alignment structures from least to most integrated.

  • Medical Directorships and Call Coverage Stipends: As the lowest risk options during early alignment, these compensation structures may help begin the transition for incoming physicians or practice groups who must also assume additional hospital-related responsibilities like call coverage.
  • Management Services: This structure covers such variables as developing clinical pathways and protocols, revenue cycle, HR, and IT and can be hospital-owned, a joint venture or owned by the physician practice. It also provides compensation to the physicians for time invested outside of direct patient care.
  • Clinical Co-management/Service-line Management: These two structure compensate physicians for administrative services in addition to providing incentives for meeting established metrics. Metrics may include patient care, patient experience, improved quality and improved financial performance.
  • Institute Development: While very similar to co-management and service-line management arrangements, institutes differ in that they are more formal. Institutes are designed to include a variety of providers who participate in the delivery of patient care for a specific service line. They also tend to focus on delivery of care across multiple facilities.
  • Employment Lite/Professional Service Agreements: The practice remains private in this lite version of conventional employment, but the hospital owns its receivables, providing payments to the practice on a work relative value unit (wRVU) basis.
  • Traditional Employment: In this model, the physicians and their employees become employed by the hospital.
  • Bundled Payments: Bundled payment initiatives may be formed regardless of the provider’s employment status with the hospital or health system. The Center for Medicare and Medicaid Services (CMS) is beginning to evaluate providing a single payment for services to a single entity and allowing that entity to distribute the reimbursement based on internally developed criteria. These payments are generally for the entire episode of care. Bundled payment arrangements work best after providers throughout the continuum of care have started working together in the previously mentioned structures.
  • Accountable Care Organizations (ACOs): These organizations are being formed by providers to span across the full continuum of patient care. ACO development is designed to integrate providers, enabling them to work together to improve patient care and divide reimbursement equitably. Short of full employment, this is the most integrated model seen in healthcare today. The full continuum of care includes: initial patient visits, outpatient testing and diagnostics, inpatient and outpatient hospital care, and post-acute and rehabilitation services. ACOs are encouraged and rewarded by CMS.

After initial conversations lead to a more detailed discussion of hospital-physician alignment options, it is crucial to go slow and be thoughtful. Not every relationship works out, so it is critical to plan and establish long- and short-term goals. Creating an affiliation structure that brings both parties together in a non-threatening arrangement is the first priority. The initial contract for these alignments is typically three to five years, and most renewals are also three to five years. In these arrangements, hospitals do have an advantage at contract renewal, particularly when there is a non-compete agreement in place. As the relationship grows, the affiliation can be reevaluated and may include tighter alignment alternatives that benefit both parties.

The Future

Market forces are driving these alignment options; until the market changes – and rather drastically – these models are likely here to stay. Given the new reimbursement and care delivery models, hospital-physician alignment is one of the primary means by which medical providers are staying competitive. It’s important for providers to figure out the best alignment option for them to maintain the viability of their practices in this environment of consolidation.

About the Author
John Martin is managing director of healthcare consulting with Katz, Sapper & Miller’s Healthcare Resources Group. John leads a team of healthcare consultants who provide financial, strategic and operational services to hospitals, health systems and physician groups. Connect with him on LinkedIn.

October 15, 2015

Institute Development: Creating Meaningful Partnerships Between Hospitals, Physicians


Healthcare reform is driving systemic change. Providers are now compelled to completely rethink how patient care is delivered, and that means working together in new, different and more productive settings. As a result, hospitals and physicians need to develop collaborative working relationships in order to take steps – together – toward the ultimate goal of achieving market success and improving the health of the community.

There are several steps along the path to clinical and market success. One such building block is developing an “institute” focused on a specific clinical specialty, which create a meaningful partnership between hospitals and physicians. A key component of any care redesign and clinical integration activity is how well it meets the Institute for Healthcare Improvement’s Triple Aim Initiative of:

  • Improving patient experience
  • Improving population health
  • Reducing per capita cost of care

A properly designed and executed institute will enable market success for the founding physicians and hospital, as well as become the launching point for success in population health.

Developing Goals and Defining Services

Clinical institutes create more efficient systems of care. They focus on creating comprehensive programs that grow based on exceptional quality, satisfaction and providing value-based care delivery.

A very early step in the institute-development process is for physicians and hospital administrators to co-develop a vision of the institute’s goals and define the services. Once those are established, the parties need to define what success looks like by asking, “What are the drivers of a successful institute?”

Using Triple Aim Goals as Drivers of Success

While institutes can take many forms and structures, they often measure success along three dimensions:

  • Improving population health – deliver a high-quality clinical product with excellence in outcomes.
  • Improving patient experience – provide a comprehensive and accessible service spanning the care continuum that delights the customer.
  • Reducing cost of care – realize the synergy of partnership to improve the value proposition to payers by reducing costs and eliminating waste.

These are the Triple Aim objectives. A successful institute is positioning itself for success in population health.

Redesigning Clinical Functions

Many hospital leaders have realized that the incremental improvement of current processes is not sufficient for today’s challenging healthcare market. In many cases, the current process must be completely redesigned and reconstructed to achieve substantial success. To effectively restructure these clinical functions, hospital administrators, clinical leadership and physicians must be actively engaged and committed to the process. Physicians want to be meaningfully involved in clinical decision making, and, to be successful, hospitals need physicians to be actively involved.

While physicians are trained to make methodical yet timely decisions, hospitals are often less flexible (and therefore slower to make decisions) due to their size and structure. Managing the pace of change is an important consideration for institutes. We recommend establishing an early commitment to these values that will move the institute forward:

  • Improvements to quality
  • Patient, physician and staff satisfaction
  • Improvements to leadership and decision making
  • Physician and  group practice involvement
  • Clinical excellence
  • Higher value care