For several years you’ve been hearing about the transition to value-based payment. But enough talk—when it comes down to it, are providers really taking on downside financial risk with payers?
To answer this, our colleagues at the Financial Leadership Council surveyed over 100 CFOs—and the short answer is yes and no: yes, there’s been movement toward value-based payment, but no, hospitals aren’t putting a lot of dollars at risk through these types of contracts.
With that in mind, let’s take a moment and dispel some of the most common myths we hear about value-based payment.
Myth #1: Very few providers are voluntarily entering value-based payment
Reality: According to our survey data, a vast majority of hospitals (around 90%) had at least one voluntary alternative payment contract in 2015—and just over two thirds reported having at least two. (We only surveyed provider executives about participation in voluntary alternative payment models. Mandatory alternative payment programs were excluded.) Granted, we believe our survey cohort is comprised of some pretty progressive hospitals, but the fact stands that these numbers represent an increase from what we saw in our 2011 and 2013 surveys—participation in voluntary alternative payment models is definitely on the rise.
Myth #2: Most providers in alternative payment models take on downside financial risk with payers
Reality: Though many providers have opted in to alternative payment contracts, very few of their payer contracts actually require them to take on any downside financial risk. Case in point: Over 90% of provider ACOs participating in the voluntary Medicare Shared Savings Program (MSSP) have opted for Track 1, which is “upside only.” And further proving their aversion to downside risk, participation in the Bundled Payment for Care Improvement (BPCI) program dropped off significantly when CMS introduced new tracks that required providers to take on downside financial risk.
Myth #3: The majority of hospitals’ reimbursement is now tied to value-based payments
Reality: Actually, more than half of our survey respondents reported that over 60% of their total revenue still comes from fee for service (FFS) contracts. While they expect pure FFS contract revenue to decline over the next five to ten years, many still expect about half of their revenue to come from FFS or FFS-like arrangements, in this case, pay for performance.
Myth #4: While the value-based care payment movement started with government payers, commercial insurers have followed suit with the same, if not more, aggression
Reality: Private payers have pursued value based care contracts, but much less aggressively than anticipated. While CMS is focused on bundled payment and total cost of care contracts, commercial payers are pursuing more pay for performance contracts. And within those contracts, 77% reported that providers were rewarded for strong performance, while just 16% reported that providers were penalized for weak performance. In other words, an overwhelming majority of these commercial pay for performance contracts are upside only.
So is 'value-based care' much ado about nothing?
Now I won’t go that far. But the fact is that government and commercial payers are still trying to figure this out. Our take is that while the transition has been slower than expected, providers and payers will continue to pursue value-based care contracting. However, there’s still one fundamental question that remains unanswered—what does this mean for you?
- Providers are taking on risk at different levels. The onus is on you to do your homework and ask the right questions to figure out where a provider is in their transition to value-based payments.
- Those providers who are taking on more downside risk might be more likely to be open to risk-sharing or performance-based contracts with suppliers and service providers.
- This is still a steep learning curve, but we believe that providers will continue to make this transition albeit more slowly than originally anticipated. It’s important for you to meet provider customers where they are, but also help them get up this learning curve faster.