Determining the Speed of Transformation to Value-Based Payment

As the healthcare industry continues its movement from a volume-based model (fee-for-service) to value-based payment, hospitals and health systems face major challenges and opportunities in transforming their clinical, financial and operational models to align with new value-based payment policies while still living in a volume-based environment.

Many providers that have implemented alternative payment models are making significant investments and progress, and beginning to experience cost savings from improved quality and population health, operational efficiencies, and changes in utilization patterns. However, with these successes come additional challenges, such as decreases in volume in the emergency department, hospital admissions, and length of stay and admissions at skilled nursing facilities due to better management of the chronically ill and high-risk populations.

Additionally, payers are increasingly driving providers to accept greater risk, sometimes at a pace that's faster than the system can readily adapt and manage. With transitional barriers and significant dollars on the line, there are key attributes providers must consider as they create and implement value-based purchasing initiatives to ensure the proper speed of transformation for financial and market success, and ultimately to improve community health.

The billion dollar question every organization faces is what exactly is the speed of transformation for success? Through Premier's work with health systems in more than 200 markets across more than 40 states, we have identified 13 critical factors for planning and implementing a successful transition to value-based payment and increasingly taking on risk.

Critical factors for a successful transition to value-based payment

1. The organization of the medical practice (individual or small groups vs large groups or independent practice associations).
2. The homogeneity or heterogeneity of the hospital and physician EMRs in a community, and their connectivity to each other.
3. The medical community's culture, based on concepts such as the relationship and level of trust that exists between physicians and other health providers in the community, the application of evidence-based medicine principles, and the health system's empowerment of physician leaders.
4. The current total per capita expenditure for Medicare beneficiaries and commercial enrollees.
5. The supply, distribution and model for the delivery of primary care services.
6. The readiness of payers to participate in a value-based payment model (such as the willingness to share savings, unblinded claims data, etc.).
7. The integration of the delivery system into organized contracting and integrated delivery vehicles, such as a clinically integrated network.
8. The utilization patterns for healthcare services and the use of evidence-based practices, such as those contained in “Choosing Wisely” and CMS Hospital Compare.
9. The economic viability of a community, including the payer mix.
10. The organization's culture and readiness for change, and the financial stability of the health system (in order to manage risk and reward arrangements).
11. The core capabilities, tools and infrastructure in place to manage high-risk, high-cost and chronically ill populations.
12. The level of transparency that exists regarding key metrics, such as quality and safety data and pricing.
13. The readiness of competitors to move ahead with value-based payment arrangements as there may be advantages (such as maximization of primary care attribution) to be first in the market.

Many health systems are taking these key attributes into consideration as they build a transformation plan for success in value-based payment, as well as to predict risk and return. Building value-based payment models requires a methodical, financially prudent approach to determining the speed that an organization should take, with key considerations for core capabilities and provider readiness, culture, market dynamics, financial success, and sustainability. It is a very complicated and challenging process but there are keys to successfully navigating this major transition for physicians, hospitals, health systems and communities.

Do you have questions about transitioning to a value-based arrangement?

• Download our white paper Building Successful Two-Sided Risk Models
• Listen in on our webinar Preparing to Take Two-Sided Risk
• Visit www.premierinc.com/vbc