Still working to bring more value to relationships

For all the talk about a future of only paying for healthcare using value-based models, the tried-and-true fee-for-service reimbursement system is still the main way that most providers are paid. 

Brian Esser, associate principal at consulting firm SG2, remembers a healthcare system client in the Midwest that invested heavily in quality and value reimbursement starting around 2011. It was one of the first CMS accountable care organizations, and eventually about 30% of its patients were in a model.

“But they quickly realized that they couldn’t sustain it, because they were undercutting so much of their fee-for-service business that they had to pull back,” Esser recalled. “It comes down to, can you make your bond payments? And are you driving enough margin to sustain that legacy business model? That’s a tightrope you have to walk effectively.”

For hospital-based health systems, this can be a major challenge. The percentage of revenue the majority of organizations generate under value-based arrangements is still relatively small. So when a system invests in keeping patients out of acute care, good health outcomes can hit margins. Meanwhile, there are still questions about whether patients involved in alternative payer models actually see better quality.

“When you look at where the revenue comes from, as a total dollar amount, the biggest drivers are still highly specialized services that don’t fall neatly into value-based care programs, like transplants or complex surgeries,” said Dr. Robert Fields, chief population health officer at Mount Sinai Health System in New York. 

But Fields said pulling back on value-based pay is simply a failure of health system leadership. 

“If you see yourself as the CEO of a hospital system, then sure, you see value-based care as a detriment to your ultimate goal because it’s all about demand disruption and you have no incentive to grow it,” Fields said. “But if you’re having success in these models, and it’s better patient care, then the right maneuver is to rearrange what your delivery system looks like to match the needs of the population. It takes courage, of course.”


Mount Sinai in New York started out as a single hospital, but over the past decade it acquired seven other hospitals and now has over 300 ambulatory-care sites. The system has eliminated hundreds of hospital beds over those years, in part because of the shift to value-based care.

Starting with a small Medicare ACO population back in 2015, it now has nearly half a million patients in some form of alternative payment arrangement, with about 125,000 in a global risk plan for Medicare and Medicaid. More than half of Mount Sinai’s primary-care and ambulatory revenue now comes from patients involved in a reimbursement model other than fee-for-service. 

The health system takes varying levels of risk. Some models provide incentives for achieving quality metric goals. In other programs, the system is dinged if it doesn’t deliver quality outcomes or achieve savings. And in some cases, they take full-risk capitated payment. 

The move to value is credited to the Affordable Care Act, which created the Centers for Medicare and Medicaid Innovation with the goal of lowering healthcare expenditures.

“It’s about quality and cost control and the sustainability of the Medicare Trust Fund, that’s what’s going on here,” said Paul Martino, co-founder of VillageMD, a primary-care provider with payments largely in risk-based value-based contracts. 

Medicare now has over 53 ACOs for the non-Medicare Advantage population. CMS first developed the Pioneer ACO program in 2012, and then created the Medicare Shared Savings Program. Last year it introduced Direct Contracting Entities, designed to pay primary-care providers for outcomes rather than services.

VillageMD has about 60,000 patients in value-based payment arrangements. The national provider recently partnered with Walgreens to create co-located primary-care clinics in the retail pharmacies. There’s early evidence that the partnership is decreasing readmissions to hospitals among Medicare patients. 

“We’re starting to look at things like admission rates, readmission rates, avoidable emergency department utilization, all those kinds of utilization metrics,” Martino said. 

For their patients, readmissions are hovering between 8% and 9%, while readmissions across the country vary from 10% to 18%, according to Martino.

UnityPoint Health, a large health system operating in Iowa, Illinois and Wisconsin, has about 650,000 patients involved in value-based contracts, including commercial, Medicare and Medicaid. Over 100,000 of those are involved in the Next Generation ACO Model.

Dr. Megan Romine , medical director for UnityPoint Accountable Care, said the system homed in on the overall cost of care for patients, and saw that length of stay costs were mounting. The system obtained a waiver to be able to send patients directly to skilled-nursing facilities from home or ambulatory clinics, bypassing the need to stay in the hospital for three days before qualifying, a rule under traditional Medicare. 

“Advanced payment models have given us the ability to develop and fund care-management programs that aren’t usually reimbursed under a traditional fee-for-service model,” Romine said. “And we have demonstrated a significant reduction in inpatient and emergency department utilization for patients under our management program.”


Despite these experiences, it’s still unclear if value-based pay really moves the needle on quality for all health systems. A systematic review of 59 studies published in April 2020 showed overall that taking on risk does reduce costs due to things like reducing low-value services and moving complex patient care to outpatient setting. 

Overall, however, changes in quality were small, but better than their fee-for-service counterparts, according to researchers at McMaster University in Canada. 

“We’re at a stage where there’s been a lot of learning, but not enough consistency in what the models look like, or how the results have been evaluated or frankly, significant changes enough in patient results, that we can draw conclusions yet,” said Suzanne Delbanco, executive director of not-for-profit Catalyst for Payment Reform. 

Overall quality is not guaranteed to improve within the models themselves, and individual provider performance can also vary widely between payer programs. To move past just earning financial incentives for meeting quality benchmarks to a point where providers are actually ready to take on more risk, a serious investment has to go toward infrastructure like data analysis capabilities, predictive modeling and care management, according to the Integrated Healthcare Association in California. 

IHA has helped synchronize quality metrics and collects data on value-based arrangements—mostly in ambulatory settings—and is currently studying what specifically helps a health system achieve higher cost savings and better quality outcomes. 

“There’s so much difference in what (payers) define as an ACO, that you really don’t know what you’re being offered, unless you have some way of seeing the performance,” said Jeffrey Rideout, CEO of IHA. 
But across the board, at least in California, integrated groups that accept any level of risk through capitation have almost 10% higher quality scores than those that don’t, and those that accept full risk have quality scores 13% higher than their fee-for-service counterparts. That data from IHA is based on a composite score across 12 prevention and chronic clinical quality measures for roughly 7.5 million of the state’s commercial HMO and PPO population, excluding Kaiser.

The Catalyst for Payment Reform also collects quality data from payers that offer commercial-based value contracts. Delbanco echoed Rideout’s sentiments: Payers usually determine performance improvements based on only a few select measures. 

“So we created what we call sort of the nutrition label for ACOs, a set of metrics that we wanted comprehensive and full reporting on, and over the last three or four years we’ve asked the health plans to report on those,” Delbanco said. 

Those metrics include things like potentially avoidable ED visits, control of high blood pressure and depression remission at six months. Employers can access the organization’s database to see where these arrangements are actually working to lower costs and improve quality, and where they aren’t. Performance improvement can vary widely provider to provider, even within the same ACO. 

Esser at SG2 estimated that 20% of health providers are in some level of risk-based contracts, and will move toward more capitation because the pandemic brought the problem with fee-for-service payment into sharper focus. 

And then there are providers who still have feet in each payment model but haven’t invested heavily in creating more wraparound services so patients have a better chance of better-quality outcomes, like hospital shorter stays or fewer readmissions.

And the remaining majority still haven’t engaged. Maybe they experimented with an ACO in the early years and the potential return didn’t merit the investment and work involved. Esser estimated roughly a third of providers have either tried and quit participating in an alternative model or have yet to enter into such arrangements.

Fields at Mount Sinai said the provider experience can still be more about checking boxes for value-based tasks, and not really about getting innovative. 

Many of the providers that haven’t yet dipped their toes into value-based contracts include independent physicians, which is one big reason Blue Cross Blue Shield of Minnesota recently launched a program to provide primary-care physicians with some of that infrastructure needed: a tech platform from Stellar Health that offers data insights. The program offers incentives to physicians and staff for having a conversation about needing a breast cancer screening and then scheduling the patient. 

“What we are working on now through these value models is trying to free up some of their revenue that they historically have earned through fee-for-service and give it to them in a different way,” said Karen Amezcua, senior director of provider partnerships at the Minnesota Blues. 

Outside of the primary-care program, the majority of the insurer’s value-based contracts are with health systems. About 60% of members across all lines of business are involved in some sort of a value-based arrangement. 

One added benefit to being part of a value contract, Amezcua said, is the insurer decreases the use of utilization management techniques like prior authorization. “Because we know they’re at risk for performing, we don’t need to do that for them,” Amezcua said. “That is one of the benefits I think providers see in moving to value.”


It’s expected that in the next few years, CMMI will reduce the number of Medicare fee-for-service ACOs. There’s been criticism that there are too many programs to keep incentives aligned, which has added to the administrative chaos of managing various patient populations. 

Medicare Advantage itself is an alternative payment model. Plans that get a four-star or higher rating from CMS receive a 5% payment bonus, and another 5% in revenue is then passed on to at-risk medical groups. And the population choosing these private plans is growing. 

“If our star rating is a little bit higher, because we’re hitting marks for blood pressure (medication) refills and colonoscopies, then we get a bigger share of the pie,” said Dr. Matt Lambert, chief medical officer for Curation Health, a clinical support platform aimed at helping providers move from fee-for-service to value.
Lambert said he expects to see a lot of movement within CMMI under the Biden administration to develop more models and target what has worked and what hasn’t so far in an effort to get providers to take on more risk. 

And whatever the impact on quality, legacy health systems will be under increasing pressure in the coming years to shift to value-based care models to stay competitive with the growing prevalence of third-party providers like Oak Street Health or ChenMed. These disruptors take full-risk for their Medicare patient population, enabling them to take a population-health approach to individual care. 

“One could argue that it’s better to start to erode your business model in a planned manner over time, versus have a third party move into the market that’s eager and doesn’t have hospital balance sheets to worry about and will cut care utilization aggressively at the expense of legacy providers,” Esser said. “That’s even more risky.”

Martino at VillageMD said they’re in talks with a number of health systems to manage their involvement in value-based contracts.

“They would say, ‘We’re really good hospital operators, but we’re not so great physician managers.’ Maybe there’s a way to structure partnerships to help them through the change curves of value-based care,” Martino said. “And we’ll continue to be a really good specialty, institutional and ambulatory provider.”


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