5 Elements Essential for Value-based Care Reimbursement

February 29, 2016 - The health insurance industry has been undergoing significant changes ever since the Patient Protection and Affordable Care Act became law and rising healthcare spending brought a need for payment reform. More payers have been targeting value-based care reimbursement and cost transparency in order to achieve the Triple Aim – improved patient satisfaction, quality health outcomes, and decreased medical costs.

Dr. Rita Numerof, PhD, Author, Co-founder and President of Numerof & Associates, offered her expertise in an interview about the ongoing trends in the health insurance market, the focus on value-based care reimbursement, and what to expect for the future of the health payer.

HealthPayerIntelligence.com: How can health insurers and providers work together to stabilize rising healthcare costs while improving patient outcomes?

Dr. Rita Numerof: “It’s important to look at this challenge in context because history would suggest that payers and providers working together don’t have real good odds. There’s been massive distrust and the distrust has been earned on both sides -- in part driven by the business model that we have in the whole sector of healthcare. The providers and payers are just a piece of it.”

“The first issue is that insurers over a long period of time have, quite frankly, perfected the art of saying ‘no’ in 27 different ways. They’ve said that to consumers, to patients, and to providers including primary care physicians, specialty physicians, or hospital institutions. Historically, there’s been an antagonistic relationship between commercial payers and the provider community.”

“Part of that is well-earned because of some egregious things on the provider side as well. It’s not about one at fault and the other is totally without blame. I think both parties need to step back and take a look at the dance they’ve done together, why, and begin to pave the way forward for a different dance.”

“Providers have been guilty of up charging and cost-shifting to commercial payers. That is publicly known. It’s been known for quite some time in part because the payment from Medicare and Medicaid has not been as rich as it has been on the commercial side. Somebody else has paid – somebody else being employers. The consumers haven’t had much line of sight to this until relatively recently.”

“We need to acknowledge the lack of trust that has historically characterized this relationship. The idea of a fundamentally different way of coming together is really challenging and is at the heart of what we need to have going forward.”

“There are very meaningful ways in which these two parties can collaborate. There are opportunities for them to look differently at how payment is derived and what gets paid for. There has to be transparency and trust. It means those parties need to change their business models. Obviously, that’s not a small feat.”

HealthPayerIntelligence.com: In what ways would cost transparency benefit consumers and patients? Could it bring more competition to the healthcare market?

Dr. Rita Numerof: “Cost transparency is really critical in terms of a market-based model, which is at the core of bringing value to healthcare. If you think about every other sphere of our lives, we understand the business services we’re buying, we understand the price points, and we understand the guarantees.”

“Outside of healthcare there are third parties that evaluate how these services are likely to perform. Historically, we really haven’t had that in healthcare. There’s been regulation and oversight, but we’ve known for years that hospitals, for example, are unsafe.”

“If you think about the appropriate outcry when we had problems with brake failures among Toyota vehicles. A number of people were killed as a result. It wasn’t even clear if it was because of the brakes themselves or some user error attributed to this. In healthcare, we’ve known that almost 100,000 people die each year because of medical error.”

“Yet, there hasn’t been that outcry. So transparency, not just from a cost standpoint, but from a meaningful outcomes perspective, is essential to changing the whole dynamic of the industry. We are a far cry from that, but I see green shoots moving in a direction of meaningful transparency related to safety and outcomes that matter to consumers. I think that payers have a role to play in that in terms of making available cost and safety issues.”

“The measures that are published have to be legitimate measures with data that people can stand behind. Today, we are not where we need to be, but I see a path forward. If we keep working towards increased transparency and the media remains focused on this, we are going to increase the likelihood that we’re going to get there.”

“Right now, there is a belief that healthcare services and outcomes are basically equal around the country. The only thing, then, that matters is the cost. I don’t believe that’s true. We also know that the cost, if we’re looking at the charge master for delivery, is a spurious charge. Nobody pays the charge master charge and we need to get to real value. Some of those dynamics need to take place as well.”

“I think there will be more competition. Whenever you have more real transparency, more people in the game, there will be real competition. People are hungry for that kind of information. They want more choice. They want choice in the products they buy.”

“Right now, the way the Affordable Care Act was established, there is very little choice other than looking at some services and copays. The basic offerings are mostly the same. I think that going forward, there will be some changes in the legislation. I think that will also enhance competition.”

HealthPayerIntelligence.com: What steps can payers and providers take to successfully implement value-based care reimbursement models such as bundled payments?

Dr. Rita Numerof: “There are some very specific things that providers must do to move down the path to value. And there’s an interesting component here that most provider organizations don’t realize: the competencies that are needed to move into a bundled price scenario for payment are the same competencies that, ironically, are needed to be successful in a fee-for-service environment today.”

“Let me walk you through what those components are. There are five elements that I believe are essential to being able to function effectively in a bundled payment, value-based arena where transparency will be the norm going forward. The first of these is to define clearly the services that are included in the bundle, whatever that bundle may be.”

“Is it going to be within the in-patient setting? Is it going to be across the continuum? I believe that the further out you go, the more value is going to be generated. I believe that hospitals were never meant to be destinations of choice, even though we’re still going to need them. They need to operate safely and efficiently, but it’s not a place that people choose or want to go.”

“The more we can deliver care outside of the hospital setting effectively, the more we’re going to lower cost, improve satisfaction, and get more value. Defining those services across the continuum, engaging employed physicians as well as independent physicians, and having an evidence-based approach to delivering that set of clinical services is absolutely critical.”

“There’s an awful lot of science that has not been hardwired into how healthcare systems practice. There still has been an orientation to using idiosyncratic approaches reflecting people’s training. It doesn’t mean that I’m advocating for cookie-cutter medicine because I’m not. But there is a base of science that we know increases the likelihood of getting good results versus not good results with certain kinds of conditions.”

“Within that, there is going to be variation based on a particular patient’s situation and that needs to be handled independently. I think that’s doable. There needs to be a way of managing compliance. Defining the services, which is the first of five elements, is not an easy task.”

“There are a lot of elements that need to be built into this and most providers are not set up to think like this. You have to think about panels of patients with a certain kind of condition. Oftentimes, particularly if we’re getting into more complex chronic conditions, individuals have many of them and we’re getting some of those complex, chronic conditions earlier in our life.”

“This means that there are likely to be more complications and more expense down the road. Getting a handle on this now is really important.”

“The second area is figuring out what the fixed price is for a set of services that you’ve defined. That has to do with projecting out what you think the costs are likely to be, assuming you’re able to get predictive care paths. You need to model out what those likely scenarios are. You need to understand your historical costs.”

“However, most finance systems in healthcare delivery are not set up to do this. They’ve been set up to do payment on a CPT code basis at the micro level. Rolling it up to the macro level is very challenging. That’s why it’s important, as we think about moving to value-based care, we do it in a defined way, focused on a particular service area that would be highly relevant to that particular institution.”

“The third piece of this is that you have to identify outcomes that really matter. They have to be at a high-enough level so that we’re not measuring everything that’s possible but measuring outcomes. Do we have diabetics under control? If we’re looking at bundling in mental health, do we have mental health issues under control?”

“There are specific outcomes that are relevant to the clinical area that we’re going after in the bundle. The satisfaction of the patient is going to be really important in outcomes. We’re going to have to look at quality outcomes. Those three things are very essential building blocks in the bundle.”

“The fourth element is you have to be able to manage variation in cost and quality to make this work. It means that clinicians and finance people have to learn different languages and develop different skills to be able to talk together in ways that historically they haven’t been able to. It’s not just the payer here – it’s within the delivery system that this needs to be addressed.”

“Clearly, there needs to be negotiation with payers and providers. Part of the reason that the trust has been so low is that payers understand legitimately that most providers don’t have the discipline to do what I just laid out. That’s part of the reason they’re very concerned about getting into joint products and joint collaborations. I think going forward, that’s essential.”

“The fifth building block is provider organizations need to have a compelling economic and clinical value argument that explains why consumers, why employers, and why payers should want to come to their institution for this set of services because they can stand behind their outcomes and guarantee the price and even warrantee the services.” 

HealthPayerIntelligence.com: What advice would you give to health payers looking to work with an accountable care organization?

Dr. Rita Numerof: “The first thing is that they need to understand the kinds of changes they need to make themselves in their business model because it’s not a situation where they can blame providers or others for the situation that we’re in today. They are also responsible for contributing to the conditions that we’re all wanting to change. To the extent that they’re willing to do that and they understand that they need to have skin in the game, have more transparency and trust, and be willing to look at how they define data and negotiate with a different outcome in mind, we’re in a position to really have a legitimate seat at the table and to begin a conversation where the outcomes can be extraordinarily positive for all of us.”