How To Get Comfortable With Alternative Payment Methods

By Joe McDonald, co-founder, Epharmix

Healthcare payment models are evolving, and it is vital healthcare providers evolve along with them. Although change can be stressful, this shift represents an opportunity for providers to operate more efficiently while also increasing the quality of care.

The use of alternative payment models has increased among providers and payers alike by nearly 40 percent in the past year. The top contributing factors are legislation, including HRRP, and innovative provider networks, such as ACOs. While much of the change is being spurred by CMS for Medicare and Medicaid patients, commercial plans are generally close behind in replicating successful CMS initiatives.

Shrinking Profits, Rising Innovation

In the current healthcare payer market, shrinking profits are leading to consolidation throughout the entire field. “Recent regulations, the transition to value, and management of new populations are leading to significant struggles with both medical and administrative cost management,” states a recent Managed Healthcare Executive article. “Successfully achieving scale efficiencies from an acquisition hinges heavily on integration and execution success. A plan that roughly doubles its membership can reduce administrative costs by 20 percent.”

Given the move toward consolidation, the increased negotiating power of payers allows them to pass along more risk downstream to the providers. Because CMS has stimulated the market’s appetite for alternative payment methods, commercial payers will continue to push more risk to providers in terms of increasing performance-based payments.

Do Risk-Based Contracts Make You Nervous? Should They?

The reality is healthcare providers will be increasingly reliant on performance-based contracts. That’s scary, considering the status quo for so long has held providers responsible for patients only when they’re in the physical healthcare facility or offices.

This shift toward alternative payment models means healthcare providers’ responsibility extends outside of the facility. And that’s a lot of responsibility.

It’s natural for providers to feel uncomfortable with the prospect of switching completely from a fee-for-service environment to one based on value and outcomes. For many, the fundamental fear is financial. Beyond the penalties associated with poor outcomes, if providers continue to operate as they always have, they will slowly begin losing large commercial contracts to providers that show improved patient outcomes.

Playing out game theory, commercial payers will start sending their patients to providers that produce improved outcomes via risk-shared contracts. It follows, then, providers that make early investment in the appropriate value-based infrastructure will not only increase profits for existing patients, but also increase total patients through winning more commercial payer contracts.

How to Get Comfortable With Alternative Payment Models

Medicare payment margins are expected to reach negative 9 percent, so providers must find other payment models to offset these losses. Fortunately, you don’t have to reinvent the wheel to adapt to alternative payment models. Many providers have already figured out the best value-based infrastructure through ACOs and other innovative provider groups.

For instance, after making strategic investments to manage chronic illnesses, Geisinger Health System was able to capture a larger percentage of the capitated reimbursement model. The healthcare system now realizes a positive margin on patients enrolled in its managed-care plan.

This approach is becoming more widespread: “Healthcare delivery systems throughout the country are working to effectively treat patient populations while at the same time decreasing health risks and health care costs,” states an Agency for Healthcare Research and Quality report. “Care management has emerged as a primary means of managing the health of a defined population.”

Following the examples of health systems that have successfully adopted alternative payment models, the keys to thriving in the new healthcare environment include the following.

• Building a centralized care team. An essential element of a strong performance-based culture is a centralized care management team. Care managers are the Swiss army tool of value-based reimbursement. Rather than relying on individual nurses who can become distracted caring for patients, care managers can centralize coordination and ongoing monitoring responsibilities. Improved biometrics, such as blood pressure and A1C levels, help make centralization easier and more financially viable to accomplish.
• Equipping care managers with software that automates repetitive tasks. Centralizing care management is a good first step, but it’s not enough. Most care managers are RNs with significant clinical experience, so they aren’t cheap. It helps to leverage the centralized operation to automate repetitive tasks, allowing care managers to operate at the top of their license.
• Aligning employee bonuses with performance-based metrics. In alternative payment models, providers stand to benefit when they meet or exceed their objectives. If healthcare staff get a piece of these bonuses, as well, they’ll be more encouraged to ensure that the health system as a whole meets its goals.

Change is stressful, but it also often represents a golden opportunity to improve. With these strategies in place, you can embrace alternative payment models and be well equipped to thrive in the changing healthcare environment.

About The Author
Joe McDonald is co-founder of Epharmix, a St. Louis company at the intersection of medicine and consumer technology offering interventions that use automated phone calls or text messages to monitor patients’ conditions while collecting disease-specific data. With interventions designed by leading doctors and clinically proven at medical institutions, every patient can benefit from Epharmix.