The majority of health care spending that is typically classified under “Value Based Care” does not meet the standard for real “Value Based Payments.” According to data published by the Health Care payment Learning and Action Network (HCPLAN), only 14.7% of payments for all Lines of Business (LOB) fall into their highest category of VBP for full-risk, fixed-cost payments1.. Payments made under the Commercial (employer group) line of business were even lower, at 7.8% of total payments1.
The HCPLAN survey of payers and other stakeholders (conducted under the auspices of AHIP and BCBSA) found that the number one barrier to APM adoption was “Provider willingness to take on financial risk”. In our experience working with payers, a significant portion of the incentive payments under these “upside only”. Many payers feel that these incentive-only payments have had a positive impact on their cost and quality of care and there is some evidence to support it in some lines of business such as Medicare Advantage.
We need to understand the importance of full risk Value Based Payments to the overall goal of managing health care costs. It comes down to two words: cost certainty. A health plan that enters into a provider agreement that includes only incentives for meeting cost targets but no penalties for cost deficits still requires the health plan to retain reserves if there is a deficit. This is also true if the VBC arrangement limits deficit repayment to less than the full amount. Money that the health plan pays a provider under an incentive-only arrangement is not available to offset deficits beyond the risk threshold or for other providers who overspend the plan’s budgeted amounts.
VBC programs that lack cost certainty pose additional problems for large, self-insured employers. Retrospective provider payments or recoupments that occur six months or a year after the employer’s plan year ends complicate accounting (esp. under ERISA) and the application of employee copayments and insurance. If VBC covers only a small percentage of an employer’s total claims cost—and there is the need to reserve for additional expenses—employers often do not see any cost-benefit advantage. The Commercial/employer group LOB has the lowest adoption rate of value based payments1.
If both public and private payers are asking for greater cost certainty and reduced costs through greater provider risk assumption, why hasn’t the industry delivered? In some markets and for some LOB’s you can make the case that the industry has delivered. The data tell us that these VBP arrangements are not widespread throughout the country.
The most common payer approach to VBC today is to work through primary care physicians or primary care driven groups (like Medicare ACO’s). The primary care providers may be at risk for their own services though per member per month (PMPM) capitation, but typically have incentive-only or limited risk for the total cost of care. Since primary care direct payments are typically 10% or less of total health care costs, this exposes the majority of a payer’s claims costs to uncertainty.
The fact that primary care physicians can influence referrals for specialty care and institutional services often increases cooperation from these non-primary care providers who account for the other 90% of total costs. Most of these primary care driven VBC arrangements do not put the specialty or institutional providers at risk (or at least substantial risk). Payers are assuming the cost containment focus of primary care physicians will trickle down to specialist and institutional costs.
Capitation payments for primary care services are fairly common. Primary care providers accepting full or substantial risk for total health care costs is not common. Asking a primary care provider or group to assume risk for the total cost of care when they only receive direct payment for 10% or less of the total has been a hard sell. Most primary care providers lack the reserves and capital to prudently assume this level of risk. Exceptions to this are usually primary care groups owned by health systems and corporations. The venture capital backed primary care organizations actually seek out substantial risk in order to get access to a portion of the 90%of total expenditure above their direct primary care payments. Primary care driven full risk VBC arrangements are not the norm.
The real question is why specialty physicians do not want to assume full or substantial risk for their services. If specialty physicians would offer cost certainty, both payers and at risk primary care groups would be able to lay off some of the open-ended risk for a substantial portion of the total cost of care. There are a number of barriers for specialty VBP but you should not discount the economic one: fee-for-service and access to patients are good, uncertain rewards and inconsistent VBP programs that increase costs and reduce revenue are bad.
Outside of the relatively few multispecialty groups, most specialists practice in single-specialty groups. VBP models need to be designed to reflect this so that an orthopedic group, for example, does not have to subcontract for neurosurgery services included in the model. Increasing the percentage of specialty costs covered under VBP cost-certain arrangements need to be developed using a number of options for each of the major specialties. The old joke about “How do you eat an elephant? One bite at a time” clearly applies. Payment for bundled services and clearly defined episodes of care relevant to each specialty have the greatest potential to expand VBP for specialists.
Some specialty groups are taking the initiative to develop and price bundled services and episodes of care and market them to payers. A number of large orthopedic groups have offered payers (mostly self-funded employers) bundled professional and facility services for high cost procedures like knee and hip replacements. These groups typically package their professional services with the facility services provided by their own ASC’s. Multi-site podiatry groups are offering episode of care pricing for diabetic foot care services.
Increasing the percentage of risk assumption by specialists will require developing multiple VBP models for each specialty. Requiring providers to accept all (or most) of the payers VBP models for that specialty would both enhance cost certainty and minimize the ability for a provider group to “cherry pick” only the most financially attractive models. For example, orthopedic providers participating the VBP program would need to accept the bundled payment for knee replacement, the bundle for hip replacement, knee arthroscopes, as well as the episode of care payment for back pain.
If we want to determine where VBP efforts may be headed over the next five years we need to look at what is underway in the payer market, particularly the Commercial/employer group LOB. The LANHCP focus is beginning to shift to “Patient Empowerment”. Some large self-funded employer groups see the patient empowerment movement as a rationale for reducing their efforts to directly intervene in the health care system to control costs. There are a number of new and start-up companies whose business plan is offering to manage a health insurance exchange for their employers. The employer would set a defined contribution for each employee and the employee would then choose a health plan from the employer’s exchange.
In addition to choosing a health plan through the employer exchange, employees would have the benefit of choosing VBP bundles either through their chosen health plan or directly through the exchange. For specialists, having direct access to “empowered” patients through the exchange could offset a reluctance to move away from fee-for-service and accept risk-based payments.