January 8, 2015 katharina.janus

New on the Health Affairs Blog: Implementing value-based payment in practice

This post is part of a series on the Health Affairs blog related to the 4th European Forum on Health Policy and Management: Innovation & Implementation, to be held in Berlin, Germany on January 29 and 30, 2015. For more information or to request your personal invitation contact the Center for Healthcare Management.

Implementing value-based payment in practice
By Susan Browning


Meeting the objectives of a value-based care model requires hospitals and health systems to realign operational processes, invest in targeted resources (such as physician extenders, educational initiatives and care coordination structures), educate physicians and staff, change organizational culture, and invest in capital (such as physical locations and information technology).

Within hospitals, quality measures have been evolving from purely structural-based outcomes (such as the existence of attributes or features like a hospitalist program or an electronic medical record) to process-based (the percent of surgical patients who received prophylactic antibiotics or acute myocardial infarction patients who received aspirin within 24 hours of arrival) to patient-centered outcomes (return of a patient’s functional status post-surgically or measurement of post-surgical pain).

Performance and Reimbursement

Now performance includes process measures, efficiency measures, outcome measures and patient experience measures, with increasing amounts of reimbursement at risk annually. Hospitals are also at risk for readmissions and hospital-acquired conditions (pressure ulcers, falls, infections, etc.).

By 2017, six percent of a hospital’s Medicare reimbursement will be at risk, based on performance against the stated objectives; commercial payors also have risk-based components within their respective reimbursement models. As hospital margins continue to decline, and the percentage of reimbursement at risk climbs to substantial levels, a hospital’s entire margin could be eroded if it does not achieve its expected incentive payment.

Although many hospitals and health systems are continuously evolving their operations, meeting evermore rigorous performance goals does require an investment of time, knowledge, staff education, and redirection of resources. Hospitals with historically poor financial performance may not be able to dedicate this investment up front in order to achieve the desired return on investment. Therefore, it is important that hospitals not be held to an “all or none” incentive model, but that partial improvement towards a goal can also yield incentive payments, allowing for incremental investments in process redesign.

Physician Support

Meanwhile, approximately 80 percent of physicians surveyed (2014 Survey of U.S. Physicians, Deloitte) do not support a change in reimbursement or economic incentives, although many acknowledge that the current system does not offer value to those it serves. Amongst those physicians surveyed, there is overwhelming concern that they will be held accountable for metrics whose outcome they cannot control, without receiving any credit for aspects of care that demonstrate a longer term impact on outcomes improvement, such as care coordination and patient and family education.

These survey results support the theory that if physicians are to actively focus on the key objectives of value-based care (quality/outcomes and cost/price), then processes of care and systems need to be aligned with appropriate care provider teams, organizational structures to facilitate communication and coordination, and data to support analysis and process change from both a clinical and financial perspective.

Physicians acknowledge that although only 10 to 20 percent of their total income is now tied to performance metrics, the changing economics in health care, including the increasing adoption of bundled payments and reimbursement for care coordination and disease management activities, may drive the percentage of income at-risk closer to 50 percent within the next ten years. This further supports the need for re-alignment of systems and staff training and education with the overarching objectives of value-based care models.

In summary, compensation and incentives must be viewed within broader objectives of value based care—cost and quality—rather than simpler data points, which tend to yield an oversimplification of the model’s goals. And physicians and hospitals must be brought more closely into the discussion to facilitate more sustainable process redesign.