Shift from fee-for-service to value-based models slower than expected

Although the federal government has launched a plan to speed up the transition to value-based care, a new report shows that the health industry's move away from the traditional fee-for-service model is going slower than expected and faces many challenges.

Medicare will tie 30 percent of all fee-for-service payments to quality initiatives through alternative payment models--particularly accountable care organizations and bundled payments--by 2016. It will rise to 50 percent by 2018.

Markets with multiple alternative payment efforts are making the most progress in the move to value-based payments, according to PwC's Health Research Institute's (HRI) new research, "Healthcare's Alternative Payment Landscape." But the prevailing sentiment in the industry is a "go-slow, dip-the-toe-in-the-water approach."

Analysts found that although healthcare executives publicly support the move to value-based care, they privately fret about losing the predictable stream of revenue. So instead, many healthcare executives wait to see which value-based models are most successful before they take on the risk.

The report cites Cooper University Hospital in New Jersey as one example. Ninety-five percent of the organization's reimbursements are tied to fee-for-service. The remaining 5 percent comes from risk-based contracts. "When do you take the leap," wondered Douglas Shirley, senior vice president and chief financial officer at Cooper, in the report. "At this point, it's not one or the other but finding the right balance. It's not something you want to change overnight."

So instead, Shirley said that Cooper will take a slow path as it watches what works well in other markets. But those early adopters that master population health management will be in a better position as the federal government and private insurers push to reimburse providers based on quality outcomes. Those organizations will have more time to learn, make adjustments and capture market share ahead of their competitors.

"A potential concern is that someone else in the market figures it out and grabs a large percentage of the population and links them up to an ACO-type model," Shirley told PwC. "To truly manage populations you need a substantial market share or well-defined partnerships or alliances."

Because there is no one-size-fits-all value-based model, the report states that healthcare organizations must evaluate their own strengths and weaknesses, have a deep understanding of actual costs, identify long-term priorities, and understand the market landscape and tolerance for change. In addition, analysts said hospitals and health systems must look at what competitors, insurers and employers plan to do to improve quality and lower costs before they determine which model is right for them.

The report also recommends healthcare organizations just embarking on the move to value-based care consider the following:

  • Organizations won't achieve sustainable results if they pursue savings separately from quality improvement efforts. They may also alienate physicians and nurses in the process.
  • Before hospitals can move to value-based payment and reduce costs, they must know the actual costs of procedures and treatments that they currently provide.
  • Plan to lose money at first. The report notes that most organizations will see lower reimbursement as they tradition to alternative payment models.
  • Replicate proven models. Analysts said that ACOs that formed primarily in markets where Medicare Advantage plans have shown an ability to reduce unnecessary care and lower costs. Another study shows that ACOs are only half as likely to locate in regions where Medicare Advantage plans struggle.

To learn more:
- download the report