Value-based Care After COVID-19: What Healthcare Leaders Need to Know

October 7, 2020

COVID-19 emphasized providers’ need to diversify

There is no denying that COVID-19 threw an unexpected wrinkle into value-based care (VBC) contracts—but it might not be exactly the wrinkle we thought we’d see. Initial concerns that COVID-19 might scuttle VBC have calmed, largely due to Medicare’s efforts to work with providers carrying downside risk.

In truth, COVID-19 only emphasized providers’ need to diversify by augmenting fee-for-service (FFS) income with VBC revenue streams. As patient volumes and FFS payments dried up, provider performance data shows that savings per case in bundled payment programs remained high and capitated payments continued. Financially, providers who chose to stay in VBC contracts but opt out of the risk associated with COVID-19 patients will likely fare better than those who did not.

That’s good, because there are unmistakable signs that VBC is poised to accelerate.

First, the economic burdens caused by the pandemic have intensified pressure to reduce healthcare spending. Governments, employers and consumers all are demanding greater value for their healthcare dollars. Moreover, the Centers for Medicare & Medicaid Services (CMS) has voiced its intent to double down on VBC and accelerate new mandatory bundled payment models.

Although prior to the pandemic less than 20% of Medicare spending was in VBC contracts, CMS has announced it wants to move 100% of Medicare providers into two-sided risk arrangements by 2025. Likewise, CMS wants half of its Medicaid and commercial contracts in VBC models by 2025—and most commercial payers are following their lead.

But even if Medicare fails to reach 100% participation by 2025, the momentum shift is clear. VBC ismoving ahead.

Join the race in progress

In some organizations, historical payer/provider tensions fuel a mindset that VBC contracts are stacked against providers. What providers should understand, however, is that VBC arrangements actually offer opportunities to improve care for their patients while also increasing revenue as compared with fee-for-service.

One key to doing so is to join the VBC race sooner rather than later. CMS has offered voluntary VBC initiatives since 2012, which means a sizable number of providers are already gaining valuable experience. Keep in mind:

  • Experience matters. Our data show that providers’ performance improves as they learn how to manage risk. Providers do better in Year 2 than in Year 1, and better in Year 3 than Year 2, etc.

  • Peer pressure exists. Payers increasingly use regional trends to set target prices in risk arrangements. In other words, quality and cost benchmarks are based on peer performance. Data already exist from participants in over 400 accountable care organizations and other programs. The successes these early adopters have achieved will be used to help set pricing going forward. The longer providers wait to participate, the further behind their peers they will be on the performance curve.

  • The training wheels are coming off. Each VBC program iteration comes with greater downside risk. Easing into VBC while downside risk is minimized increases the ability to learn and the odds of success.

Manage risk through knowledge

After deciding to make the shift to VBC, there are ways to manage risk and increase the upside potential. To start, providers must understand how each VBC program works and where the risk lies.

There are dozens of VBC options available from both government and commercial payers, and most are complicated. Medicare programs, though challenging, typically are more accessible and transparent than most commercial plans. For that reason, it generally makes sense for providers to make their initial foray into VBC through a Medicare initiative.

Regardless, it’s essential to understand exactly how a given VBC arrangement works. For example, organizations must know the standards against which they will be measured. Make sure to recognize the biases in the model as well. Regional wage indices, for instance, create better pricing in some markets and pricing disadvantages in others. Similarly, peer-adjusted trend factors in the Bundled Payments for Care Improvement Advanced (BPCI-A) program have created favorable price opportunities for some bundles and negative pricing for others.

ACOs must understand how their benchmarks are set, and how that affects their ability to succeed against those benchmarks. Even the best-designed contracts have biases, so it is imperative to understand what they are and how they could impact the ability to perform within the contract.

Since risk mitigation depends on properly managing episodes of care, providers should also assess their capacity to redesign care pathways. Ask questions such as:

  1. What process will be used to identify patients in the program?
  2. Is a preferred provider network in place?
  3. How will we engage patients “downstream” in the continuum of care?

Once providers fully understand how a VBC program works and their capacity to operate within it, data analysis is crucial to risk management. Through data, providers can see whether the juice is worth the squeeze by quantifying risk, improvement opportunities and potential reward.

That process starts with looking at historical performance in the areas where organizations will be measured—such as hospital readmission rates or skilled nursing facility lengths of stay, for example. Organizations should evaluate how their providers measure against regional peers on those metrics. Also consider the organization’s appetite for loss. In situations where the data identify an unpalatable risk level, providers can use insurance products designed to protect against downside risk in specific programs.

Welcome new opportunities

COVID-19 has solidified the need for VBC; it’s here to stay.

Although VBC represents a substantial shift in the healthcare ecosystem, providers must not overlook the tremendous revenue potential it affords in addition to its patient care benefits. The transition may seem daunting, but there are ways to box and manage the risk. The earlier providers start down the VBC path, the greater their chances for long-term VBC success.

York is vice president of value-based care at Coverys. Terry is CEO of Archway Health