By Jonathan Bradley, Principal, Ironwood Health
December 2020- Many recent articles correctly point out that the widespread and full-throated adoption of the principles of value-based care are moving at a casual pace, at best. To be sure, there are pockets of rapid progress, but the overall adoption of advanced payment methodologies, and with it, the realization of the benefits of value-based care, is lagging. Why is this? I think there are two main reasons:
First, most people do not have a complete understanding of the ultimate purpose of value-based care, which is to fundamentally change the financial arrangement between purchaser and provider so the provider has the incentive to drive cost out of the system. It is partly about managing care better, but it is especially about transforming the delivery of care by employing lower-cost sites and modalities – which often are delivered more quickly and at greater convenience to the consumer. The trick is to ensure financial viability for the provider while revenue per unit of service declines. Revenue needs to be decoupled from units of service and the provider needs to cut costs at a faster rate than revenue declines to continue to maintain a sustainable margin. At the end of the day, they need to deliver more units of service at a lower cost per unit and – most importantly – at a lower cost per belly button. They need to make it up on volume — so scale and efficiency matter.
Second, everyone seems to be waiting for someone else to blink first. A few months ago, I met with a health system executive and we talked about health systems’ readiness and willingness to accelerate to alternative payment models. She said the delivery systems, while not completely ready, were willing to move forward because it was the right thing to do. I asked what was holding them back, and she said the health plans didn’t seem ready to move forward. A few days later I met with a health insurance executive and asked him the same question. He said health plans were ready, but the hospitals didn’t seem to be interested. And so it goes.
As in any other industry, the customer has the ultimate power of the pocketbook to stimulate change. Healthcare purchasers, especially commercial employers and state governments, can be a powerful force if they align their interests with each other to create critical mass to change the financial structure and the social contract between purchaser and provider. As you may recall Kevin Hutchinson mentioning in his article two months ago, the COVID-19 pandemic has highlighted the importance of financial viability for the healthcare delivery system. But it has also revealed the ability of the industry to quickly innovate to make care more accessible and affordable – in the form of virtual visits – when the chips are down. The permanent structure needs to create incentives for more things like virtual visits while keeping provider organizations financially whole.
To systemically advance the principles of value-based care, here are some suggestions for each constituent in the healthcare value chain:
Employer purchasers and the benefit consultants who advise them:
- Acknowledging that wide-open PPO networks with fee-for-service payment structures are the enemy of cost control, seek out long-term relationships with capable delivery systems who are willing to enter into total cost of care contracts
- Design financial incentives into benefit plans that motivate employees to consume care in the most efficacious manner possible and support them with effective engagement and health management tools in collaboration with delivery partners
- Magnify the influence of a single employer by actively participating in trade associations, chambers of commerce, and business groups on health to present a unified voice for the industry
- Leverage the tremendous purchasing power a state has through Medicaid contracting by executing full capitation arrangements with MCOs and requiring value-based arrangements downstream with their contracted providers
- Combine forces with state employee benefit programs and structurally align them with Medicaid contracting and the promotion of value-based care policy
- Establish state-wide standards for quality and performance measures that all entities – government and commercial – will abide by to simplify the conformance to these measures by providers
- When presented with options, choose carefully, and think about how an individual provider fits into a system of care, not as a standalone entity
- If you have health issues, a well-designed benefit plan will reward you financially if you adhere to the recommended treatment protocol, and your health will be the better for it
- If you are healthy, get engaged with the system now so you will be a more efficient consumer when you do have healthcare needs in the future; if an app is offered, download it
Health plans and TPAs:
- Lead the charge to help you and your network partners enhance value by accelerating the adoption of alternative payment models
- Back up provider organizations who want to take on risk by offering the administrative, data analytics, and advanced population health management capabilities they need
- Through tighter relationships with provider systems, aggressively cut non-valued added administrative friction that wastes money and antagonizes customers
Hospitals, health systems and medical groups:
- Get focused on the definition of value and the delivery system’s crucial role as the primary driver of cost containment
- Design a future-state plan that clearly shows what success looks like in the new model
- If you are not already there, organize yourself into an integrated system – either virtually, with partners, or within your four walls – to present the capabilities necessary to take on risk-based contracts
I saved the providers for last because they have the biggest job ahead of them. That means they need to get started first. In the world of value-based care the providers’ revenue model gets turned upside down; they need to restructure their operating model to conform to it. Done well, they have the keys to transform the healthcare industry to make it work better for all of us. It begins with getting aligned on the definition of value.
About the Author
Jonathan Bradley is the founding partner of Ironwood Health LLC, a management consulting firm serving the healthcare industry. Ironwood Health is focused on helping health plans, TPAs, health systems and other healthcare industry stakeholders develop the capabilities needed to succeed in the world of value-based care. (www.ironwoodhealth.com) (firstname.lastname@example.org)