It is necessary to modify or replace the conventional fee-for-service healthcare delivery approach. Payer-facilitated alternative payment models offer incentives that align professional values with financial rewards. However, many providers need help to participate in these programs. They often require more resources and competency to navigate new models, metrics, and documentation requirements.
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What Is Value-Based Reimbursement?
Value-based reimbursement is a payment model incentivizing healthcare providers to deliver high-quality patient care and better health outcomes. It’s becoming increasingly popular with private payers and has been rolled out as an alternative to, or replacement for, fee-for-service models. In the past, the traditional volume-based payment model often incentivized healthcare providers to order more tests and perform more procedures – even when those services were unnecessary or redundant. With value-based reimbursement software, providers have new incentives to collaborate with their peers and reduce unnecessary testing, courses and hospital admissions.
A value-based care approach emphasizes positive outcomes and connects clinicians with their patients. For example, improved health outcomes can decrease the need for ongoing treatment and lower costs. For instance, reducing the number of people with diabetes who progress to kidney disease or neuropathy would save money in the long run, as these comorbidities require more care and can cost more than treating diabetes. However, it’s important to recognize that value-based care models still have many challenges. As such, all parties must be prepared for the transition. It includes understanding the various ways value-based care can be implemented and identifying the key elements of each model.
Pay-for-Performance Models
Healthcare providers are incentivized through pay-for-performance models to meet quality goals linked to patient outcomes and cost savings. The programs are designed to impose financial penalties on providers who do not meet agreed-upon benchmarks in a specified time frame, creating a clear linkage between performance and payment. These programs can include process measures (such as lowering hemoglobin A1c in diabetic patients) and outcome measures (reducing avoidable hospital readmissions).
Developing a successful pay-for-performance compensation model requires strong leadership and careful planning to ensure employee incentives align with company objectives. It’s important to clearly communicate how the system works, set expectations, manage employee expectations and regularly assess and revise as needed. Compensation tools can help you create a clear and effective pay-for-performance compensation strategy that promotes and rewards employees’ achievements and aligns them with your organizational goals.
Bundled Payments
Bundled payments are a form of value-based reimbursement that pays providers a single fixed price for a predefined episode of care, such as all services related to a knee or hip replacement or treatment of a specific medical condition. This approach incentivizes healthcare providers to reduce costs by coordinating care and avoiding unnecessary or duplicative tests, treatments, and procedures. Healthcare providers are also incentivized to develop and implement patient care pathways that follow evidence-based guidelines. Bundled payment models commonly include a variety of safeguards that limit the downside financial risk for providers, including criteria excluding patients with serious comorbidities and tail risk limits on the number of negative outcomes beyond an agreed-upon threshold.
The Medicare program has seen the most bundled payment experimentation, with the Centers for Medicare & Medicaid Services (CMS) implementing various models. However, a few large self-insured employers have developed bundled payment arrangements for their employees’ medical care, and private insurers are experimenting with the model.
One notable bundled payment model combines a prospective, bundled payment with performance-based payment to address some of the challenges other value-based reimbursement models have encountered. For example, the payment model rewards physicians for reducing pain levels one year after surgery rather than relying solely on patient-reported outcome measures, which can be difficult to measure accurately.
Capitation Models
It is the opposite of the fee-for-service model, where doctors are paid for each service rendered. In this model, patients are assigned a primary care physician and the health plan is reimbursed on a predetermined schedule for the entire population that the provider covers. It allows for a more predictable monthly cash flow for physicians, and it can simplify medical billing and coding. The provider manages the patient’s costs, which may incentivize them to minimize utilization of more costly procedures or unnecessary tests. One challenge with this type of payment is that it may encourage up-coding of comorbidities, as the more comorbidities documented for a patient, the higher the price will be received. It can lead to over-coding and result in inaccurate or fraudulent claims. It can also negatively impact a patient’s ability to secure reasonably priced supplemental or life insurance.
Another consideration of this payment model is that it shifts the risk from the payer to the provider, so reinsurance or stop-loss protection should be considered to mitigate financial exposure for providers. It can be done either through the payer or a third-party reinsurer. It should be tailored to the contract and provider’s risk appetite. Payers should also consider implementing and communicating capitation rates with providers consistent with their tolerance level for taking on risk, assessing different phase-in models, managing patient costs, and reporting financial and quality results.
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