Transforming
healthcare to a value-based payment system
A marathon, not a sprint

While the U.S. presidential election may have created uncertainty for healthcare stakeholders and policy makers, the cost and quality challenges that have long faced providers, payers and patients remain a critical issue. The traditional fee-for-service payment model incentivized providers to over treat, over prescribe and over spend.

As we move into the New Year and a new administration, although the specific mechanics of healthcare reform are still uncertain, industry experts say value-based care initiatives will likely continue.

The Affordable Care Act (ACA) accelerated the movement towards value-based care delivery and payment models, with the Centers for Medicare & Medicaid Services (CMS) introducing and testing multiple value initiatives and alternative payment models over the past several years.

Much of this change is long overdue and will ultimately incentivize better care at a lower cost—and providers agree. But the transition from a fee-for-service payment system to one based on value creates a conundrum for these same providers. They must make significant investments in both people and technology today, while payoffs for those investments are uncertain and in the distant future. Moreover, already slim profit margins and a responsibility to their communities to provide access to care regardless of insurance coverage further limits room to maneuver.

The moral of the story:
transforming the healthcare system, hospital by hospital, is going to be a marathon, not a sprint.

Much of this change is long overdue and will ultimately incentivize better care at a lower cost—and providers agree.

Listening to healthcare executives

Surprisingly little is known about what hospital executives on the frontlines are doing to manage this tricky transition, and knowing this information is crucial for policy makers, other providers, industry players and patients.

This gap in knowledge was the impetus behind a joint research venture between the Washington Post BrandStudio and Insights teams and Philips, with the hope of gaining insight on where hospitals are and where they expect to go as they begin this transformative value journey.

Survey participants

Three-hundred-forty-six hospital executives responded to the Washington Post BrandStudio/Philips survey, representing hospitals in every region of the country and a wide range of sizes, from small hospitals with under 50 beds to large-scale health systems with 10 times that number.

The hospitals also reflect the diverse nature of our healthcare delivery system, ranging from rural and community hospitals to giant teaching hospitals and regional health systems, for-profit and non-profit institutions and those with large and small patient care revenue streams.

Size of institution
Acute care
hospitals
Health
systems
Other

<50 beds

51-100 beds

101-200 beds

201-500 beds

500+ beds

<50 beds

51-100 beds

101-200 beds

201-500 beds

500+ beds

Region

18%

West

35%

Midwest

35%

South

12%

Northeast

Type of institution
Acute care
hospitals
Health
systems
Other
Where they stand? Limited adoption

What they told us: Broad adoption of value-based payment models is in its adolescence.

Value-based payment models are designed to incentivize “hospitals, doctors and other providers to work together to provide high quality, coordinated care for patients,” said senior Medicare official Patrick Conway, M.D. This concept of delivering ‘value over volume’ seems a settled question for many in the healthcare arena, but broad implementation, as shown in the survey, has yet to be realized.

The data shows that only about a third of responding hospitals and health systems were participating in voluntary value-based payment models, such as bundled payments for major surgeries or Accountable Care Organizations that offer bonus payments for meeting cost and quality targets.

The data shows that only about a third of responding hospitals and health systems were participating in voluntary value-based payment models.

Participation in
value-based payments
No
Yes
Under consideration
Northeast
Midwest
South
West

Despite the Department of Health and Human Services’s (HHS) goal of shifting 50 percent of Medicare payments from fee-for-service to value-based payment models that emphasize quality and outcomes by 2018, the respondents said that only 14 percent of their payments were currently tied to value, as defined by CMS, and an even smaller 6.7 percent of their revenue was actually at risk.

Limited impact
14.1%

Payments tied to value as defined by HHS

6.7%

Actual revenue at risk under VBP

Tied to value
Actual at risk
Why they participate? Mixed motives

Still, 31 percent indicate that their organization did participate in value-based payment models in some form. The motivations behind their participation range from competitive considerations to federal mandatory requirements and those enacted by commercial payers, or as we saw in nearly 40 percent of respondents, it was a voluntary decision to move in the direction of value-based payment models.

For some, their decision encompassed more than one reason, reflecting the complex environment in which hospital executives must operate and complicating the challenge for healthcare leaders both in and out of government.

Reasons for participating
in VBP program
Voluntary
Competitive consideration
Federal laws
Commercial
payers
State laws
By model participation totals
No
Yes
Under consideration

Accountable Care Organization

Bundled Payment

Other

Why they don’t participate?
Question of size

The survey results confirmed a distinct difference between large and small institutions and their participation rates by payment model, with smaller hospitals testing value-based payment models much more slowly. Often, these hospitals have fewer resources and may not offer services that are covered by current value-based payment models. Also, so-called “critical access hospitals”—the small, often sole providers of care in mostly rural communities—are exempt from value-based payment models.

By model (>200 beds)
No
Yes
Under consideration

Accountable Care Org

201-500

500+

Bundled Payment

201-500

500+

Other

201-500

500+

By model (<200 beds)
No
Yes
Under consideration

Accountable Care Org

<50

51-100

101-200

Bundled Payment

<50

51-100

101-200

Other

<50

51-100

101-200

>200 beds
<200 beds
By model (>200 beds)
No
Yes
Under consideration

201-500

500+

Accountable Care Org

Bundled Payment

Other

By model (<200 beds)
No
Yes
Under consideration

<50

51-100

101-200

Accountable Care Org

Bundled Payment

Other

Good for business? Cautious now, optimistic for the future, assuming required investment

The fact that only a third of respondents said they were currently participating in some form of value-based payment model demonstrates that hospital executives are proceeding with caution.

A deeper dive into the data supports this notion with only 23 percent of respondents saying that value-based payment models have strengthened their competitive position, and only 25 percent agreed that value-based payment models had a favorable impact on their business, although large hospitals were more positive.

Going even deeper into value-based payment models’ current business impact, only 10 percent of respondents believe the models will improve their margins in the short run. Because hospitals currently operate with margins of 3 to 5 percent, we may see institutions consolidate to achieve the scale necessary for profitability while smaller hospitals struggle to remain independent and viable.

In the past, value-based payment models have:

<50 beds

51-200 beds

201+ beds

Had a positive impact on our business
52
13
35
35
12
54
9
18
73

Disagree

Neither

Agree

<50 beds

51-200 beds

201+ beds

Strengthened our competitive position
57
17
26
27
23
50
3
24
73

Disagree

Neither

Agree

In the next two years, value-based payment models will:

<50 beds

51-200 beds

201+ beds

Have a positive impact on our business
39
34
27
24
44
28
23
27
50

Disagree

Neither

Agree

<50 beds

51-200 beds

201+ beds

Strengthen our competitive position
32
41
27
25
33
38
12
23
65

Disagree

Neither

Agree

<50 beds

51-200 beds

201+ beds

Improve our margins
60
28
9
55
30
11
50
38
12

Disagree

Neither

Agree

But what about the future? The results were mixed but slightly more favorable, with 36 percent saying they believed value-based payment models would strengthen their competitive position. And although 32 percent of respondents expected value-based payment models to have a positive impact on their business in the next two years, most felt it would be more like two to five.

Although 32 percent of respondents expected
value-based payment models to have a positive impact
on their business in the next two years, most felt it would be more like two to five.
Investing for the future: Technology, talent and community

The survey found that hospitals and health systems are investing slowly in the technology, infrastructure and staff associated with value-based payment models. The survey showed a focus on electronic health records and IT security specifically—both are areas where concerns about mandates, incentives and risk can push investment.

We also see investment in patient portals, telemedicine and associated outpatient facilities, which can all help increase contact between patients and providers as part of value-based payment models. The survey also found that respondents increased hiring efforts over the past three years, and will continue to do so over the next two years, with an emphasis on their local communities.

Technology investments in response to VBP

Electronic health records

Patient portal

Predictive modeling

Care gap analysis

IT Security

Home monitoring

Telemedicine

76%
27%
75%
15%
19%
28%
23%
23%
59%
26%
21%
31%
55%
35%

Increased in last 3 years

Expect to increase in next 2 years

Staffing up: Hiring trends driven by VBP

Employed MDs

Affiliated MDs

Mid-level providers

Nurses, other clinicians

Population health management staff

Administrative

Analytics staff

61%
33%
38%
26%
67%
37%
44%
27%
45%
35%
24%
14%
37%
31%

Increased in last 3 years

Expect to increase in next 2 years

However, investments in analytics, remote monitoring, predictive modeling and other big data solutions remain longer-term objectives with less than 30 percent of respondents planning investment in the next two years.

Where value-based
investments are going
Primary care practices

Have increased in past 3 years

45%

Expect to increase in next 2 years

41%
Specialty care practices

Have increased in past 3 years

38%

Expect to increase in next 2 years

34%
Ambulatory procedures

Have increased in past 3 years

32%

Expect to increase in next 2 years

29%
Ambulatory testing

Have increased in past 3 years

35%

Expect to increase in next 2 years

24%
Inpatient beds

Have increased in past 3 years

14%

Expect to increase in next 2 years

14%
Inpatient rehabilitation

Have increased in past 3 years

14%

Expect to increase in next 2 years

17%
Home health care

Have increased in past 3 years

22%

Expect to increase in next 2 years

18%
Outpatient pharmacies

Have increased in past 3 years

14%

Expect to increase in next 2 years

16%
What we learned

The Washington Post/Philips survey places a microscope on hospitals and health systems’ evolution from fee-for-service to value-based care. The data tells us that hospital executives are cautious realists who accept that value-based care is the solution to the nation’s healthcare crisis.

They agree that it’s in their institution’s long-term interest to begin the transition and that making the transition also entails investment and risk. Value-based care is an idea whose time has come. While some institutions are already traveling on the road to value-based care, there are many who are trying to find the best path to start.

Successful adoption of value-based care requires more sharing of lessons learned, investment in technology, staff and facilities, risk-based payment models and, most importantly, an increased focus on quality and cost savings. This will be the only way to turn what was once just healthcare theory into a dynamic, patient-focused reality.