New Value-Based Payment Models Gain Traction Among Health Insurers

April 22, 2016

“Health insurers increasingly are moving away from traditional fee-for-service models toward value-based care under alternative payment arrangements,” according to John Barkett, director of policy affairs at Willis Towers Watson.

In January of 2015, the Department of Health and Human Services (HHS) announced the intention to have 50% of Medicare payments go to providers in alternative payment arrangements by 2018. This marks a seismic shift in how care is delivered and will inevitably change the way providers operate.

As the guest host of a recent Wharton Business Radio show on SiriusXM, Barkett discussed the topic with Seth Frazier, chief transformation officer of Evolent Health, a software and consulting services company that helps health systems transition to value-based care.

(If you are a SiriusXM subscriber, you can listen to the full interview here. If you are not a subscriber, read on for highlights from the interview.)

In their discussion, Barkett and Frazier first offered some background on value-based care and how it is different. Frazier explained that the current system is organized to reimburse by volume. However, as new models emerge that reimburse based on other metrics such as outcomes, quality, and value, the system is transitioning from “paying for volume” to “paying for value.”

Barkett noted that this is not the first time this transition has been attempted, though it is likely to be more successful this time. He recalled a previous attempt at Duke University in the 1990s.

“Thinking back to my policy class days, we discussed the cardiac intervention at Duke University,” said Barkett. “They found a great way to serve patients recovering from cardiac surgery that reduced readmission rates. However, they scrapped the program because it was losing too much money. They couldn’t share in the savings their program created. So why are we talking about this now, when Duke failed decades ago?”

Frazier explained the unique domestic and international circumstances that are driving a renewed look at payment models in the United States. Domestically, health care costs account for a disproportionate share of the GDP, and the growth in the cost of health care is outstripping growth of the GDP. This negatively impacts U.S. businesses global competitiveness, the federal government’s funding of Medicare and support for Medicaid, and state governments’ overall budgets. Internationally, in rankings of health care outcomes by country, the U.S. is “not at the top of heap.” The combination of cost and quality concerns is motivating U.S. private sector leaders and government entities to take action, making change “inevitable.”

So what steps should be taken to achieve this transition? Frazier outlined what providers can do to transition to a value-based path:

1) Physician alignment: Communicate clearly and align physicians currently employed by, as well as those affiliated with, your health system with your goals.

2) Revenue opportunities: Identify specific revenue opportunities connected with population health through federal government programs or through relationships with private payers, or with Medicaid.

3) Infrastructure: Understand what infrastructure is needed to support and share relevant medical information.

4) Business plan: Put together a cohesive business plan around the strategy, with goals and priorities.

Ultimately, Frazier concluded, changing the business model is the key: health systems need to get paid for value, not just providing more services.

Barkett and Frazier agreed that we will have to wait until 2018 to see if the ambitious targets of HHS are met. Even if the targets aren’t met, the shift to quality, not quantity, should result in better health outcomes for patients and cost savings for providers.

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