At the Margins

Why the CFO wants to put off value-based care—but shouldn't

by Austin Weaver, MBA and Eric Passon, MBA

The other month, we were meeting with a health system CFO to discuss his system’s transition strategy, and he told us, "Since we’re not trying to lead the market, we are just investing the minimum in value-based care so we don’t get left behind."

There’s fear of the unknown associated with being a first mover, and that is one of many reasons CFOs give us for why they are not investing in value-based care. Their reasoning is understandable, but in most cases we believe that it’s shortsighted. At this point, putting off value-based care is going to do more damage than taking it on now, and as strategic consultants, we are often in the position of making the case for value-based care investments to skeptical CFOs.

Here are a few of the most common excuses we hear from CFOs, and the arguments we make back.

"We make too much money on ER visits and preventable admissions."

There is no doubt that ER visits and admissions drive significant margin within the current fee-for-service model. But as the industry as a whole transitions to risk-based payment models, health systems need to start generating positive margins in two economic worlds. We are seeing on average approximately 60% of all ED visits are preventable or in other words could have been treated in an urgent care or primary care setting, and these visits are low hanging fruit for aggressive value-based payment strategies by employers and payers alike.

We have found that through focused intervention with self-insured, Medicaid, and Medicare patients, systems can keep unprofitable cases out of the hospital, proactively manage the health of these populations, and grow outpatient revenue at the same time.

"Our payers are still operating under fee-for-service, so we need to follow their lead."

Policymakers are doubling down on their commitment to value-based payment models. Today’s hospitals have significant (and growing) Medicare revenue tied to inpatient readmissions, the patient experience, and outcomes of care. Not to mention the imminent shift to site-neutral payments is expected to cut $1.4 billion from hospital’s Medicare reimbursements in 2016 alone. And HHS is aggressively expanding the percentage of Medicare payments to providers made through alternative models—with 2018 as a target for value-based payments to reach 50%.

Apart from this historic legislative commitment to accountable payments, health systems competing in the public and private exchange markets—where the financial risk is shifting to the consumer—have to think like population health managers and demonstrate a high-quality, efficient care model in order to win over market share. That’s why now more than ever, organizations must ensure they’re executing at a high level on the value-based care initiatives that promote growth no matter the economic model.

"We don’t want to build a health plan, so why move to value-based payment models?"

To be clear, value-based care does not always equal financial risk and no matter the economics, it is critical today to execute well on the "no regrets" value-based care initiatives that promote growth. These include investments that are a win-win for your top line and for your patients—better access to providers, efficient clinical workflows and EMR use, and streamlined ways to capture Annual Wellness Visits or other proactive care measures.

If the exchanges are any indication of the future trend, these initiatives will help prepare for what lies ahead. According to a McKinsey study, almost half of all insurance options sold on the public exchanges last year were narrow network plans—which excluded about 70% of the hospitals in a given market. Continuing to advance value-based care initiatives will help drive an operating model that minimizes variation, targets unnecessary utilization, and improves quality and convenience of care—all competitive features to maintain or gain status as a provider of choice for payers. And for those who are already operationally successful in managing the health of their own employees, that’s a powerful way to demonstrate value to payers in an increasingly selective market.

"We don’t have a good grasp of what we should be doing next."

This is arguably one of the most important issues that health systems face on the transition path. Our team has seen organizations approach their next step like a "frog in boiling water"—building value-based care capabilities ad hoc, taking on limited risk, and investing millions in one-off initiatives without a strong, comprehensive economic model guiding their decisions. But they’re essentially driving blind without an overall vision and plan, and with little grasp of the long-term financial impact.

For example, some health systems with good intentions build a CI network and then jump into shared savings—but if the fundamental pieces aren’t in place along the way, there are ultimately a lot of wasted resources and duplication in infrastructures. Instead, the most successful efforts involve a comprehensive economic understanding of how initiatives will impact the health system (along with the payers, physicians, and patients)—and a plan for how to roll them out to meet financial targets over the long term.

A new economic model

The operational and financial consequences of transitioning to value-based care seem immense and ambiguous. So when we hear hesitation from the CFO, or any member of the C-suite, we completely get it. But when systems set a strong foundation, and design a multi-year strategy that includes a solid operational and economic roadmap, they can pace those efforts for the best possible results over time.

Within the next few years, as new reforms take hold and disruptive innovation penetrates the market, those that are not making the same continued and intentional progress towards value-based care will struggle to keep up.

A story from the field

Learn how Sparrow Health System is becoming a market leader by developing a physician-led CI network, paired with central operations to manage population health management efforts.

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