Value-based contracts will hurt profits, execs say

Healthcare providers expect the industry shift to value-based contracts will negatively impact their organizations' bottom lines, according to a new survey by KPMG, LLP.

Nearly one-third of the 240 representatives from hospitals, physician practices, health plans and pharmaceutical companies polled said they expect value-based contracts to hurt profits. More than 12 percent said operating income will likely fall 10 percent or more due to these agreements.

KPMG, a U.S. audit, tax and advisory services firm, conducted the polls as part of a series of webcasts held in April and May. The results show that providers are pessimistic about the value of these contracts, which link reimbursement from health plans and government payers to efficiency and the quality of care.

When asked about the risk involved in moving to value-based contracts, 17 percent of hospital, system and physician practice providers said they expect a big drop in operating income. Only 4 percent were optimistic that the new model will result in a large rise in reimbursement.

"I think there is still a lot of angst in the system, fear of the unknown, particularly in the markets fully baked in the fee-for-service environment," Joseph Kuehn, a partner at KPMG's Healthcare Advisory Services practice, told FierceHealthcare Thursday in an exclusive interview about the survey findings. "As they start thinking about the payment mechanism, it scares them."

Respondents believe the value-based model will create an enormous change to their organization's patient care approach. Twenty-eight percent expect they will spend more time and resources on disease management to help patients cope with chronic illness like diabetes and cardiovascular disease. Nineteen percent view a greater reliance on nurse practitioners and physician assistants as the most significant change that will occur because of the new reimbursement model.

The results of the survey follow the release of a study by ORC International that shows the majority of hospitals and payers currently implement a mix of value-based reimbursement and fee-for-service models, FierceHealthPayer previously reported. The study noted that 15 percent of payers and 22 percent of providers state the pay-for-performance model is extremely difficult to implement. Many cited technology impediments as a core problem, noting it's hard to standardize and analyze data.

However, nearly one-third of the respondents to the KPMG survey expect clinical information technology to have the biggest impact on the quality of care and patient outcomes--ahead of financial performance (15 percent), clinical operations (13 percent) and patient engagement (7 percent).

Thirty-three percent expect the investment in more sophisticated clinical information systems will result in more effective use of clinical data and cost reductions of 5 to 10 percent; 17 percent expect to see cost reductions of more than 15 percent.

Kuehn said that organizations that started to slowly incorporate value-based mechanisms into their models are beginning to see the benefits of them. He said it will take time for healthcare organizations to learn how to practice population health management and analyze data in a way to identify variability in care and costs.

The transition "will be difficult," Kuehn acknowledged, as organizations must identify communities' needs, implement care coordination transitions, establish appropriate protocols and processes, and set up compensation incentives. However, he said that "if they can get past that initial fear, they will see that the transition is ultimately achievable and financially sustainable."

To learn more:
- here's the announcement