A Glimpse into Alternative Payment Methodologies in Healthcare

The landscape of healthcare is continually evolving, and with it, the payment methodologies that underpin the industry. Traditional fee-for-service (FFS) models, while well-established, are increasingly being scrutinized for their ability to deliver value and quality of care. As a result, alternative payment methodologies are gaining traction. In this blog post, we'll explore two of these alternative approaches: shared savings and pay-for-performance (P4P).

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The Rise of Value-Based Care

Figure from: Dr. Easter's PHCY 609 Slides.

Value-based care represents a fundamental shift in healthcare delivery, focusing on quality, outcomes, and efficiency rather than the traditional fee-for-service model. This innovative approach centers on enhancing patient experiences and medical results while controlling costs.

For example, consider a patient with diabetes. In a traditional fee-for-service model, the provider might be incentivized to conduct multiple tests and procedures, often without a clear focus on the patient's long-term health. In a value-based care system, the focus shifts. The provider is motivated to ensure the patient receives preventive care, such as regular check-ups (BG & A1C) and lifestyle counseling, to manage their condition effectively.

Quality measurement lies at the heart of value-based care, as providers are assessed based on predefined metrics. This evaluation determines the allocation of financial incentives or penalties. The overarching goal is to reward providers who consistently deliver high-quality care and penalize those who fall short. The integration of advanced technologies, such as telemedicine and predictive analytics, is increasingly seen as a key enabler of this transformative model. While the transition from fee-for-service to value-based care is not without its challenges, it holds the promise of not only improving patient outcomes but also creating a more sustainable healthcare system.

Shared Savings: Promoting Quality Care and Cost Reduction

Shared savings programs offer a unique approach to healthcare payment reform, focusing on encouraging providers to deliver cost-effective and high-quality care. Under this model, healthcare providers and payers evaluate payments over a specified time period and set cost-saving targets for the upcoming period, often a year. When providers meet or exceed these targets, they share in a portion of the savings, termed "upside risk." However, if the targets are not met, the "downside risk" may be distributed across the providers. This system aims to reduce unnecessary services, tests, and costs, benefiting both payers and providers. Several successful shared savings initiatives are currently in place and demonstrating positive outcomes.

Medicare Shared Savings Program (ACOs)

The Medicare Shared Savings Program (MSSP) introduces rewards for participants who lower the growth in healthcare costs while meeting rigorous quality performance standards. Hospitals, providers, and suppliers serving Medicare Fee-For-Service (FFS) beneficiaries can engage in the MSSP by forming an Accountable Care Organization (ACO). The program's goals include enhancing beneficiary outcomes, increasing care value through accountability, and encouraging redesigned care processes and infrastructure investments. Early participants in the MSSP have reported significant success and savings. For instance, the NewHealth Collaborative within the Summa Health system achieved an 8.4% reduction in Medicare Advantage costs in 2011, largely due to reduced hospital use, including a 10% drop in readmissions. This success illustrates the positive impact of shared savings programs on healthcare quality and cost efficiency.

Blue Cross Blue Shield of Massachusetts Alternative Quality Contract

In 2009, Blue Cross Blue Shield of Massachusetts (BCBS) introduced the Alternative Quality Contract (AQC), a global payment system that engages hospitals and physicians in taking responsibility for the full spectrum of care provided to patients, regardless of where it is administered. The program includes both financial incentives and bonuses for quality. The AQC has led to remarkable improvements in healthcare quality and reduced medical spending growth. In the first year, there was a 1.9% slower growth in medical spending relative to non-AQC providers. This slowdown included incentive payments averaging around 3%. In the second year (2010), the program achieved even more significant cost reductions, with a 3.3% slower growth in spending. Notably, providers who had been paid on a fee-for-service basis before the contract realized even more substantial savings. These provider groups achieved a first-year savings of 6.3% and a second-year savings of nearly 10%. The AQC succeeded in reducing spending by referring patients to lower-cost facilities for services like imaging and lab testing and by decreasing utilization in these areas.

Texas Medicaid Gain Sharing Program and Quality Challenge Award

In Texas, Medicaid managed care contracts require Managed Care Organizations (MCOs) to engage in pilot "gain sharing" programs. These programs aim to collaborate with network physicians and hospitals to reduce inappropriate utilization of services, such as inappropriate admissions and readmissions related to Potentially Preventable Events (PPE). The programs include mechanisms for incentive payments to hospitals and physicians for quality care and specify quality metrics necessary for incentives. Texas Medicaid contracts also feature a Quality Challenge Award (QCA), enabling the withholding of 5% of an MCO's capitation based on performance-based measures. Unearned funds from the performance-based portion of an MCO's capitation rate are redirected to the QCA to reward MCOs demonstrating superior clinical quality, service delivery, access to care, or member satisfaction.

Conclusions on Shared Savings

While shared savings programs have demonstrated positive results across the country, some concerns have arisen. According to the Center for Healthcare Quality and Payment Reform, the current shared savings model may not be sustainable because it does not change the underlying payment system. It can also potentially reward high spenders rather than high performers, and it may result in revenue reductions for some providers and hospitals. However, shared savings can be refined in a few ways to make it more sustainable, such as sharing risk for value-improvement programs or recalibrating hospital payment levels to prevent hospitals from raising rates to compensate for lost revenue from reduced admissions.

Pay-For-Performance (P4P): Fostering Quality in Healthcare

Pay-for-performance (P4P) has gained increasing attention in healthcare payment reform. This model reimburses providers based on predetermined quality measures, which can be outcome-based or process-based. There is growing interest in P4P due to variations in quality across providers, challenges in rewarding high-quality, cost-effective care within the current payment system, and the lack of incentives for long-term health or cost savings in the current system. P4P programs typically use financial incentives to motivate providers to improve healthcare quality. Bonus payments, in particular, are common incentives, offering monetary sums in addition to standard service fees when specific quality goals are met.

In addition to bonus payments, various financial incentive methods in P4P programs include penalties, fee schedule adjustments, per-member payments, differential payment updates, payment for the provision of services, payment for participating or reporting, lack of payment for poor performance, shared savings, and quality grants or loans. These diverse incentives aim to promote quality care and improve patient outcomes while controlling costs.

As healthcare payment reform continues to evolve, shared savings and P4P programs represent significant steps toward achieving the goal of delivering high-quality, cost-effective healthcare. These initiatives emphasize the importance of patient-centered care and incentivize providers to offer efficient and value-driven services. By adopting these alternative payment methodologies, the healthcare industry can move closer to a more effective and patient-focused system.

Question: What is the primary objective of shared savings programs in healthcare?

• 0%Reducing hospital admissions and increasing patient visits.
• 0%Encouraging cost-effective, high-quality care.
• 0%Implementing a fee-for-service payment system.
• 0%Fostering competition among healthcare providers.

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Disclaimer:

The information provided in this article is for educational and informational purposes only. It is not intended as medical advice, diagnosis, or treatment. Always consult a qualified healthcare provider for any questions regarding a medical condition. The author and publisher of this article do not endorse or recommend any specific medical products or treatments mentioned in the text. The reader should rely on their healthcare provider's judgment and expertise in making healthcare decisions. The author and publisher shall not be responsible or liable for any errors or omissions in this article or for any actions taken based on the information provided.