Myriad changes in the healthcare landscape are making it difficult for providers to deliver

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1 The Provider Crossroad to Value-Based Reimbursement The acceleration of VBR in the ambulatory/physician practice setting Authored by: Pamela Lewis Dolan, with Daniel Dooley and Ronald Spoltore Myriad changes in the healthcare landscape are making it difficult for providers to deliver healthcare services and remain profitable. One of the biggest challenges they face is the shift toward value-based reimbursement (VBR). In order to meet the demands of a value-based structure, revenue cycle support operations need to change. Current systems aren t equipped to perform necessary functions such as advanced analytics, predictive modeling, population health and care coordination. In many healthcare systems, this change is not occurring fast enough, or at all. In a fee-for-service scenario, the model is straightforward: healthcare costs are directly related to the amount of services delivered, regardless of outcome. A value-based model is far more complex, requiring providers to make the right investments at the right time, and have resources, talent and processes that can be scaled as needed. Ignoring the transition isn t an option. The percentage of net patient service revenue tied to VBR was between 5 and 8 percent in That number is expected to grow to 25 percent by 2017 and to 50 percent by By not responding, providers will face a significant loss of revenue. 1 New Landscape, New Challenges Value-based reimbursement is not new, however the passing of the Affordable Care Act led to a renewed focus on higher quality and better outcomes while reducing costs and eliminating waste. This has been the aim of both government and private payers who have a vested interest in eliminating the estimated $750 billion in healthcare waste that occurs annually. 2 What started as an acute-care initiative, valuebased care is now moving into the ambulatory setting. Physicians are not yet convinced this transition to value-based care will have a positive impact on their bottom lines. A recent survey of physicians found only 11 percent expects a boost in revenue from the transition to fee-for-value payment models. 3 The strategy behind value-based plans is to ensure providers have an incentive to give their patients the right care, at the right time, and in the right setting or penalize them for not delivering. This requires a high level of coordination between all members of a patient s care team. This model is also counter to the fee-for-service model in which physicians are paid for delivering services, regardless of outcome. A reduction in utilization would mean a reduction in revenue. 1

2 Survival in a value-based world relies on the revenue cycle evolving. Not only does the technology have to change, but the operational processes must, as well. In stark contrast to the blank check mentality many insured patients had in the past when it came to their healthcare, thanks to high-deductible health plans (HDHPs), they are now more judicious about when and from where they access care. But in some cases, it leads to the delay or avoidance of care when patients can t afford their share of the bill. Projections show HDHPs are becoming the most popular plans with nearly half of all employers offering them as the only option in Patients are often confused about how their insurance works and that a large portion of the bill is still their responsibility, despite their insurance status. The American Medical Association found in its 2013 Annual Health Insurer Report Card that patients were responsible for a quarter of total medical bills. 5 Patients are also more difficult and expensive to collect from compared with health plans, which has negatively impacted cash flow for many healthcare organizations. As high deductible health plans replace traditional plans, margins are becoming more narrow as providers must spend more to collect less. According to the Medical Group Management Association (MGMA), providers will send an average of 3.3 billing statements at a significant cost before the patient s balance reaches zero. And there is a good chance it may never reach zero. When bills are turned over to collections, providers, on average, see only $15.77 for every $100 owed. 6 Administrative burdens are also increasing for physicians, forcing them to spend more time on clerical tasks and less time on clinical care. In 2014, the Medical Group Management Association found a per full-time physician increase of 4.6% in spending on operations staff compared with the previous year. The MGMA pointed to the managing and reporting of multiple metrics to comply with government quality and regulatory programs as a likely cause for the increase. 7 Adapting to this new healthcare landscape is not only costing practices financially, but also in physician time. Physicians now spend 20% of their time on non-clinical paperwork. 8 From 2008 to 2014, physicians have seen a decrease in the number of patients they day %see per According to the American Medical Association, physicians spend, on average, about 20hours per week dealing with pre-authorizations. 9 2

3 Government mandates are also forcing providers to make significant capital investments, for which they may not see a return: Electronic Health Records The federal government implemented an incentive program through the Health Information Technology for Economic and Clinical Health (HITECH) Act meant to help providers with the cost of adopting electronic health record (EHR) systems. But, in many cases, the incentives won t fully cover the cost of implementation, which ranges from $15,000 to $70,000 per provider. 10 In addition to the cost of the technology, most providers have experienced a loss of productivity post-implementation, an average of about 108 patients per quarter. 11 However, providers who don t make the investment face financial penalties from Medicare. Conversion to ICD-10 As providers spend time and resources going paperless, they are also being forced to upgrade or change their EHRs and billing systems to support the use of ICD-10 code sets. The deadline to have systems in place and staff trained to use them is October Cost of this conversion is estimated to be between $28,500 for a small practice and between $1.5 million and $5 million for large hospitals. 12 Revenue Cycle Management Systems Revenue cycle management (RCM) systems able to support the reimbursement and practice models being adopted by Medicare will require a higher level of sophistication than old RCM systems. The system must be ICD-10 ready, and have the capability to capture and analyze clinical data, and assign responsibility for outcomes. Many hospitals and practices are also looking for better integration among their EHRs, practice management and RCM systems. All of these changes and investments are being made at a time when the market remains uncertain. During this transition, providers must have technology and processes in place to simultaneously manage multiple pay models, including fee-for-service. 1 REGULATORY UNCERTAINTY Adopting needed infrastructure and processes to prepare for execution Investments made in EHR systems Phases of VBR Implementation 2 MARKET TURBULENCE Piloting of payment and delivery models occurs Hospitals go on a buying spree of primary care practices Acute care makes significant progress toward VBR preparedness, ambulatory does not 3 NEW NORMAL COMPETITION Stable model(s) emerge Patient care managed and coordinated by primary care physicians Fee-for-service reimbursement declines 90 percent of overall payer yield to be based on value 3

4 The industry is currently in the second of three phases of the transition to a value-based model. Payers and providers are figuring out how VBR will impact overall provider revenue and profit. The reimbursement tied to VBR during this phase is limited mostly to a number of demonstration programs and incentive plans aimed at finding the best designs and programs for the VBR model. Some models that have emerged include: Pay-for-Performance (P4P): Physicians are compensated when they meet or exceed quality benchmarks set by the payers. Patient Centered Medical Home (PCMH): Primary care physicians coordinate the care of their patients across multiple care settings. They are reimbursed for these coordination efforts and rewarded when those efforts translate to a reduction of duplicative or inappropriate use of services. Bundled Payment: Providers are paid a set price for an episode of care. Providers must manage the care in a way that produces value for the amount they collect. Shared Savings/ACOs: Similar to patient centered medical homes, the patient s care is managed across several care settings. The money that is saved as a result of the care management is shared among those involved with the patient s care. As payers started implementing the various versions of value-based plans, many hospitals reacted to the transition by going on buying sprees of primary care and other ambulatory practices. They wanted to better align and engage with physicians on discussions surrounding cost and quality. They also wanted to strengthen their alignment with primary care. By owning primary care practices, the hospitals are able to better coordinate, track and manage the care of patients. But many found the business operations of an ambulatory practice were much different than acute care settings. Many lacked the expertise needed to run ambulatory practices. The acute care setting has made significant progress toward preparing for VBR, the ambulatory setting has not. Value-based collection rates in the acute care setting are at 80 percent, compared with an average 30 percent collection rate on the ambulatory side. Improving those collection rates will be crucial to the survival of primary care as the industry moves into the third phase of the transition to VBR. By 2017, providers can expect reimbursement tied to fee-for-service to decline to 75 percent of overall revenue, compared with 98 percent in The remaining mix will include VBR in the acute setting (8 percent); VBR in the ambulatory setting (7 percent); and global capitation (10 percent). 1 In January 2015, CMS announced it would be shifting its providers to value-based models. By the end of 2016, it wants 30 percent of traditional or fee-for-service payments to be shifted to alternative payment models, such as those outlined above. It set the goal of tying 85 percent of all traditional Medicare payments to quality or value by 2016, and 90 percent by 2018 through programs such as the Hospital Value Based Purchasing Program and the Hospital Readmissions Reduction Program. 13 Once CMS conversion to VBR is complete, providers can expect 90 percent of their overall payer yield to be based on value. 4

5 Impact of VBR on Margins and New Payer Yield Few would disagree there is a need to control healthcare spending. How effective value-based reimbursement will be toward that endeavor remains to be seen. But one thing the experimentation phase has shown is that value-based payment models produce a lower collection rate than fee-forservice because of the leakage it creates. Leakage is defined as the reimbursement an organization is entitled to, but does not collect. Data have shown value-based models in the ambulatory setting yield a collection rate of only 30 percent, meaning 70 percent goes uncollected. This is compared with fee-for-service, which has a collection rate of 98 percent. 1 Analyses of industry trends show that by 2020, the payer mix (not including Medicare) will be 55 percent fee-for-service, 15 percent value-based in ambulatory setting, 15 percent value-based in the acute setting, and 15 percent global capitation. What this will mean to the payer yield (the amount organizations will actually collect after leakage) is that the current 96 percent yield will drop to 85 percent. Many factors play into how organizations are paid in a VBR model. When any of these areas are not operating at an optimal level, it creates opportunities for leakage to occur. Currently, most organizations are collecting between 55 and 65 percent of possible value-based revenue. The remaining amount goes uncollected due to leakage in direct clinical care, patient experience, and structural. The largest source support operations accounts for nearly two-thirds of all leakage. Leakage Sources 20% DIRECT CLINICAL CARE 65% 10% This is an area of leakage that can only be controlled by those who deliver direct patient care. It includes refusal of payments for things such as hospital-acquired infections, or the loss of an incentive for not meeting certain treatment measures. PATIENT EXPERIENCE In 2013, the Medical Group Management Association s annual Physician Compensation and Production Survey found 2 percent of primary care physician pay and 1 percent of specialist pay was tied to patient satisfaction metrics and those percentages were expected to grow. 14 Medicare is also using results from its Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey to calculate valuebased pay. 5% SUPPORT OPERATIONS Every facet of support operations has potential sources of leakage, including patient outreach, riskbased coding, care coordination and admissions rules. The conversion to VBR will require a complete overhaul of the revenue cycle from end to end. STRUCTURAL Providers are spending a lot of money to satisfy new mandates, such as EHR use, to set up infrastructure in support of new delivery networks. Incentive programs in place to offset those costs do not cover the entire cost of implementation, including the cost of technology and the loss of productivity. 5

6 Barriers to Addressing Support Operations Leakage To be successful in a value-based model, support operations must evolve from a reactive approach focused on the face-to-face care of patients, to the pro-active outreach, engagement and management of patients not actively receiving care in the traditional brick-and-mortar setting. This means the integration of financial and clinical operations and the simultaneous management of the fee-for-service and fee-for-value requirements. Until that evolution occurs, organizations will continue to see leakage originating in all areas of operations. But there are many barriers to that evolution occurring. Research by the RAND Corp. and the American Medical Association, which included case studies of 34 physician practices transitioning to value-based models, found: Physicians and practice leaders were, almost universally, uncertain about the best paths forward and whether their chosen strategies would ultimately succeed. 15 The study cited the need for more guidance and support as providers go through this transition. Physicians realize the need to work on patient engagement and outreach. But because of the level at which they are being squeezed due to other mandates and administrative burdens, they don t have the time or resources to effectively engage patients. The percentage of physicians able to spend more than 70 percent of their time on patient care shrank 16 percent from 2013 to And narrowing margins are making it difficult for them to take on additional full-time employees to handle communication with patients. 16 The ineffectiveness of patient outreach efforts accounts for 50 percent of support operations-related leakage because it touches every area of the revenue cycle: the front end, middle and back end. Communicating with patients between service encounters will help ensure they are coming in for well and preventive service visits. Effective patient engagement also contributes to the smooth transition of care, and a higher level of patient satisfaction. Another area of frustration is coding. Inaccurate and incomplete coding accounts for 30 percent of all operations leakage; about 80 percent of coding leakage occurs in the ambulatory setting. Challenges include proper use of risk-based coding or hierarchical condition coding. Providers also lose out on earned pay from Medicare for incomplete documentation. As an example, Medicare will not pay for Hospital Acquired Conditions, therefore the documentation must clearly show the conditions were present upon admission to avoid denials. 17 Coding challenges will be exacerbated by the implementation of ICD-10 and many providers do not have an audit in place to catch insufficient documentation. It takes a high-level of expertise to optimize the coding process. A practice aimed at gaining that expertise in-house will need to invest in talent development. Providers also leave money on the table that is owed to them by failing to properly report and bill for quality measures including the Healthcare Effectiveness Data and Information Set (HEDIS) and the Physician Quality Reporting Set (PQRS). This is the source of 12 percent of operational leakage. These programs are considered by many to be another layer of administrative burdens that are taking them away from patients and adding to the squeeze they are feeling. 6

7 Physician Success = System Success Operational support leakage is the largest source of lost revenue opportunities. But it can be solved with the transformation of the revenue cycle, and with investments that will maximize the time physicians have with patients. Improved efficiencies and transparency at each phase of the revenue cycle will ensure providers thrive in a value-based world. This involves the re-engineering of the front, middle and back end of the revenue cycle to meet the demands of a value-based system. Front End In a fee-for-service revenue cycle, patient engagement is primarily limited to eligibility verification, calculating the patient s responsibility and collecting outstanding debt. The value-focused revenue cycle will anticipate the needs of the patient, as well as the objectives for each visit, before or at the time of registration. Proactively engaging patients will help ensure they are receiving the necessary preventive care and that providers are identifying any gaps in care that could negatively impact patient outcomes or provider quality scores. Achieving this level of engagement will require rules-based queries that help providers identify gaps and opportunities, such as age- or condition-based tests or services, or needed chronic care management services. The tools must also correctly attribute each patient to his or her primary care provider, and align and reconcile all the clinical and financial data about the patient into one cohesive record. Correct attribution will ensure that all quality gains or losses are appropriately assigned. Middle In a volume-based world, the middle of the revenue cycle focuses on documenting the reason for an encounter and the medical necessity of a treatment. Systems optimized for value-based reimbursement will be far more comprehensive in their coding capabilities and documentation. They must also include clinical advisory services that enhance the patient experience. The adoption of a system of checks and balances that ensures there is documentation to support certain codes or quality reporting will result in cleaner claims and the best pay-for-performance outcomes. Systems should have the ability to send physicians point-of-care reminders so that relevant information is not missing in the documentation, and necessary care is not missed during the encounters. Provider education is also key to strengthening this phase of the revenue cycle. Physicians must know the level of detail needed in the documentation and how to correctly capture it so the integrity of the coding process is strong. Back End Advanced analytics are another necessary layer of the revenue cycle in a value-based system. In fee-for-service models, analytics focus primarily on financial metrics such as A/R, denials, collection rates, and profit and loss. Value-based models will need to include analytics on utilization, care gaps, collection rates and performance. Root problems contributing to leakage also need to be identified through back-end analytics that focus on financial sustainability. While a health system s operational structure has three distinct elements (front, middle, back), in a valuebased model, all three elements meld together in a seamless, continuous cycle that is clinically integrated and patient and physician-centered. An operational structure that successfully supports a VBR model will also incorporate strategies for controlling costs and reducing waste. When each aspect of the revenue cycle is running efficiently, the administrative burdens are made lighter for physicians, allowing them more time to focus on direct patient care. 7

8 Conclusion As value-based reimbursement is slowly rolled out, providers must be prepared when their payers are ready. But they also must survive in a fee-for-service world at the same time. If they implement too soon, the payers may not be ready. If they move too slowly, they may be squeezed out by payers who are moving more quickly. Adapting to a value-based model is a time-consuming and expensive process. It requires the investment of technology and manpower investments many providers can only afford to make once, if at all. Providers need solutions that are scalable to future needs or industry changes. This is why investing in centralized support operations and scalable technology is a more sound, cost-efficient strategy than making investments in-house that may not be a good fit in the long-run. A revenue cycle management partner that provides these economies of scale will allow providers to access technology, services, tools and talent they may not otherwise be able to afford. That partner will not just focus on cost reduction, or only on a portion of the revenue cycle, it will: ensure cost-effective patient outreach occurs; strategically manage and prioritize all accounts in A/R, including denials; flag required clinical activities at the point of service, assuring all data needed for quality reporting and payer contract requirements are collected; capture and review population health data, delivering it to the hands of providers to assist their decision making; analyze and review quality data, facilitating continual improvements; decrease overhead by eliminating the need for full-time employees on the provider s payroll; eliminate the administrative burdens associated with the rapidly changing healthcare landscape. Although most providers realize the transition to VBR is inevitable, they need to move more quickly to understand their own roles in this transition and make the necessary structural and operational changes. Most realize they can t do it alone, nor should they. A smooth transition will require the right partners who bring the necessary expertise. The most effective RCM partner is one that has a singular focus: the success of its clients. A good RCM partner brings the expertise and talent needed to facilitate the transition, and positions its clients for continued success under new payment models. By allowing the RCM partner to take on this role, it allows providers to focus on what should be their singular focus: caring for patients. About Accretive Health Accretive Health aligns with provider organizations to help them navigate the rapidly-changing healthcare industry landscape. The company supports the mission and business objectives of hospitals, health systems and their affiliated ambulatory clinics and physician practices by deploying people, processes and technology in all areas of the revenue cycle. It helps clients adapt their revenue cycles to simultaneously meet the demands of both fee-for-service and value-based reimbursement models. For more information contactus@accretivehealth.com 8

9 Footnotes 1 Analysis of Accretive Health s Data Warehouse 2 Report Brief, Institute of Medicine, Sept. 6, Annual Practice Profitability Index, CareCloud, Medical Cost Trends: Behind the Numbers 2014, PwC, June New AMA Study: Patients Responsible for Nearly One-quarter of the Medical Bill, American Medical Association, June 17, Perspective on Patient Payments, Medical Group Management Association, April MGMA Survey Report: Medical Practices Report Increased Spending on Total Business Operations Staff, Medical Group Management Association, Sept. 30, Survey of America s Physicians Practice Patterns & Perspectives, The Physicians Foundation, New AMA Survey Finds Insurer Preauthorization Policies Impact Patient Care, American Medical Association, Nov. 22, How Much is This Going to Cost Me? HealthIT.gov 11 JAMIA: EHR implementation results in increased revenues, but reduced productivity, Clinical Innovation+Technology, Aug. 28, The Expense of the ICD-10 Conversion, Health Capital, December Better, Smarter, Healthier: In Historic Announcement, HHS Sets Clear Goals and Timeline for Shifting Medicare Reimbursements from Volume to Value, Department of Health and Human Services, Jan Ouch! Patient Satisfaction Hits Physician Pay, Forbes, July 2, Effects of Health Care Payment Models on Physician Practice in the United States, RAND Corp./American Medical Association, March Survey of America s Physicians, Physicians Foundation, 2013 and Hospital-Acquired Conditions and Present on Admission Indicator Reporting Provision, Medicare Learning Network, September