The Future of Payment Reform: Two perspectives on making the most of key initiatives

DATE: February 2, 2017

As we look ahead to 2017—a year that’s sure to bring changes to the way healthcare is delivered under the new Trump Administration—Kelly Price, DataGen’s Vice President and Chief of Healthcare Data Analytics, sat down with Stephanie Kovalick, Chief Strategy Officer at Sage Growth Partners, to provide expert perspective on the current and future states of payment reform.

While Kelly is one of the industry’s foremost thought leaders on bundled payments, Stephanie has focused her energy on succeeding under capitated models. We asked them a series of questions to shed light on differences and similarities between these two areas when it comes to defining success.

Q1: What are the end goals of payment reform?

Stephanie: It’s finding a way to slow the growth of the healthcare cost curve. While healthcare costs in the United States continue to skyrocket, we’re challenged to slow the rate of increase without sacrificing the quality of care provided to patients or reducing their satisfaction levels.

Kelly: The goals are to rein in costs, and to do so by aligning the incentives of the payment system with flexibility on the part of providers, to give providers and payers what they need to deliver the best care to patients. There are different ways to get there, of course. Capitation is very comprehensive and encourages providers and payers to drive population health from the prevention and management of chronic conditions; savings come by making smaller changes on a wider population.

Bundled payments are much more event-based and rely on bigger changes in smaller areas. Bundles are more accessible to a wider range of providers of different types and sizes, offering the chance to make real positive change without being as overwhelming as capitation can seem to some providers.

Stephanie: That’s true, and bundles are rather narrowly focused today—just a handful of conditions are covered under a bundled event. While there are many benefits from bundled payment models, since they’re designed to target a smaller percentage of the population they carry some limitations in controlling costs over time.

Q2: Value-based payment reform is not the first attempt to fix what many perceive as a broken system. How can these new ways of dealing with care avoid the managed care failures of the past? 

Kelly: We are putting providers in the driver’s seat with respect to deciding what care is needed versus what care is not needed.  Providers have established relationships with the patients, and they have to look them in the eye when something doesn’t go right.   That makes the decision a much more complex one for the provider than for a managed care company because at that moment the provider is focusing on the patient who’s in front of them and what’s best for them.

Stephanie: The provider being in the driver’s seat is really important. There are a lot of things that we as an industry have learned from the implosion of health maintenance organizations (HMOs) during that phase of managed care history. Providers are well equipped to face decisions about utilization alone, but in the past, there wasn’t as heavy an emphasis on quality and outcomes. Providers were put in a position of having to rein in costs or take care of patients on a fixed budget, while insurance companies dictated when services were or were not needed.  This led providers to turn that function over to the chief medical officer at the HMO and wash their hands of it. They felt like care management decisions were the health plan’s call.  Patients became unhappy, leading to the implosion of the whole system.

Of course, there were also financial reasons for that collapse. Providers weren’t actuaries, and they didn’t understand what the health plan actuarial departments understood. They didn’t know that claims would lag for 90 days, or that they would have to be responsible for a certain financial piece of that puzzle during that lag. So they might have spent the money before the end of the month, creating deficits.

We’ve learned a lot since then. Giving providers the leeway to make decisions for their own patients and understanding that they need to drive toward quality outcomes at the same time is the right way to go. The industry hasn’t jumped right back into capitation, so we’re giving the providers small, safe opportunities to get their way back to that ultimate goal of fixed budget payments from a capitated environment. We’re doing this in a way that acclimates the healthcare provider world to this change to allow them to be successful years down the road.

Kelly: Definitely, Stephanie—and I’d argue that bundles are a great way for providers to wrap their heads around alternative payments. The fact that CMS is offering programs with an upside-only track gives providers time to get their practices in place and figure out their strategies.

Q3: How would you define success versus failure in these initiatives?

Kelly: Success is better outcomes at a lower cost, or, at least, better outcomes at the same cost. Success in the long term will be defined by the sustainability of these models. That becomes complicated because we have to figure out what is the lowest cost that allows us to continue innovating and continue creating other strategies. We have to continue to pay for innovations just like we have to continue to provide for capital reinvestment. When your buildings get old, you have to reinvest in them to keep them from falling down. Innovations will be expensive at the beginning, but hopefully, they’ll become less so as we go along.

Stephanie: It will take a while to understand if payment reform has been a success or a failure. One thing is for sure—there will be small successes and failures on the way. The Triple Aim has been out there for a long time, and it may have the ring of a buzzword, but it drives focus to access, costs, and quality. If you’ve seen improvements in access to care, I call that success. But, when patients need to schedule an appointment and can’t get a spot for three months, that’s failure.

In the United States, we spend more than any other industrialized nation in healthcare and we don’t see the same levels of health, wellness, or positive outcomes that other countries do. If we see improvements in chronic care conditions, fewer complications and deaths, and positive healthy lifestyle changes, then we can say we’re achieving the goals of payment reform. If we see changes in the growth rate of healthcare costs and we see flattening or even declining prices in the insurance world, that’s success.

Q4: When it comes to participating in value-based payment programs, is there one path to success that’s more accessible than others?

Kelly: For each organization, the best path is very dependent on who you are. A post-acute provider is not going to engage in capitation for an entire population of people. But they definitely can get their arms around bundling and prepare themselves for that.

Stephanie: The end game for payment reform is that there isn’t a single better alternative payment model. It shifts the incentive away from seeing a patient every month for a blood pressure check to seeing a patient every six months with remote visits in between. That reduces the number of services provided, but also increases your capacity as a physician to see more patients.

The capitated payment model really helps a primary care physician look at that entire landscape. Within that panel of patients, they might have someone who needs a hip replacement and in a global capitated environment, they’re responsible for the cost of that hip replacement. In that case, they would be very interested in a bundled payment model that caps that cost for them while providing the best possible outcome for that patient.

So these two models in the ideal world work very well together and can work together to create an environment that puts the right incentives in the right places for the right patients at the right time.


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