Given the importance of developing competencies and investments in population health, it is somewhat surprising that the industry isn't further along in this mission.

If there is one thing that nearly all providers agree about regarding population health, it's the importance of improving their organizations' ability to manage the health of defined populations.

In the 2018 HealthLeaders Media Population Health Survey, for example, 87% of respondents say that improving their organization's ability to manage the health of a defined population is very important, indicating that population health is a top priority for nearly all providers.

Note that only 1% say that this is somewhat unimportant, and only 1% say that this is not at all important.

However, given the importance of developing competencies in population health and the resources being invested in its ongoing development, it is somewhat surprising that the industry isn't further along in this mission.

One barometer of progress is net patient revenue from population health activities, which appears to have plateaued.

Thirty-eight percent of respondents say that 25% of more of their organization's net patient revenue is attributed to risk-based population health management activities, down two percentage points from 40% in last year’s survey.

In addition, there are fewer respondents dabbling in population health activities at more modest levels. For example, in this year’s survey, 23% of respondents say that this activity represents less than 10% of net patient revenue, down 11 percentage points from 34% in last year’s survey.

Overall, survey results suggest that respondents remain committed to becoming more involved in risk-based population health activities.

But this undertaking is not for the faint of heart—after making significant investments in people, infrastructure, and IT, providers face real consequences if they misjudge their capabilities or lack insight into the quality of their risk pool.

Population health barriers

Respondents say that the top barrier to successfully deploying population health programs is up-front funding for care management, IT, and infrastructure (51%), an indication that getting the financial aspects of population health right is just as important as the clinical considerations.

Rounding out the top three barriers are engaging patients in their own care (45%), and getting meaningful data into providers' hands (33%).

Note that one of the reasons that respondents are so concerned about up-front investments in infrastructure is uncertainty regarding risk-based reimbursement models—they must make a leap of faith that finances will work out.

This is the reason many are investing in analytics, with the hope that analytics will provide data to guide strategy, and ultimately help improve clinical outcomes and reduce costs.

"Providers are really interested in minimizing costs, length of stay, and readmissions because of what CMS has done," says Frank E. Belsito, DO, MMM, chief physician executive, and chief population health officer at Metro Health – University of Michigan Health.

Based in Wyoming, Michigan, and affiliated with University of Michigan Health, Metro Health is an integrated health system that features a 208-bed acute care hospital and numerous outpatient locations throughout western Michigan.

"But the big challenge is the financial piece, where we really struggle to know what it actually costs us to deliver care," he says.

Momentum is building for value-based programs, with respondents expecting strong growth in the share of patients in value-based programs over the next three years.

Providers report a wide range of experiences with the payment models they use for reimbursement, both fee-for-service and value-based, according to the 2018 HealthLeaders Media Value-Based Readiness Survey.

Not surprisingly, they say that the fee-for-service with no value-based component payment model is the least effective in terms of quality and cost improvements, with approximately one-third (32%) saying that it offers neither improved outcomes nor reduced costs.

This result is higher than any other payment model, and it has the highest participation rate by survey respondents—only 3% say they have no involvement with this program.

On the other hand, partial capitation (12%) and full capitation (10%) receive the lowest response for yielding neither improved outcomes nor reduced costs.

However, they also have the lowest participation rate by respondents—49% and 54%, respectively, report they have no involvement with this program. And only 4% and 3%, respectively, report improved outcomes and lower costs, suggesting that this payment model has yet to yield much value.

Fee-for-service with upside rewards, such as performance awards (28%) is currently the top model for improved outcomes and lower costs, coming in nine percentage points higher than bundled payment programs (19%).

Notably, the three highest responses for improved outcomes, no cost reduction are all fee-for-service based: fee-for-service with no value-based component (34%), fee-for-service with upside rewards, such as performance awards (24%), and fee-for-service with downside risk, such as reimbursement penalties (21%).

Going forward, respondents say that fee-for-service with upside rewards, such as performance awards (63%) is the top payment model they expect will evolve into one of their organization’s principal payment models for value-based care, followed by bundled payment programs (50%), and shared risk, such as ACO (49%).

Value-based growth
 

Survey results suggest that momentum is building for value-based programs, with respondents expecting strong growth in the share of patients in value-based programs over the next three years. For example, they report that 23% of patients are currently in value-based programs, and in three years’ time they expect this to double to 46%.

Likewise, they indicate that 21% of current net patient revenue comes from value-based programs, and that this will more than double to 44% in three years.

While expectations for value-based growth are robust, a fundamental hurdle facing providers is reconciling the existence of two distinct payment models: fee-for-service and value-based care.

“I think to fully immerse yourself in a value-based world, you have to have a heavy weighting of your payer mix aligned with that model,” says Karen Hanlon, CPA, executive vice president, chief financial officer and treasurer at Highmark Health.

Based in Pittsburgh, Highmark Health has a diversified portfolio of businesses, including Highmark Inc., a Blue Cross Blue Shield affiliate, and Allegheny Health Network, a health system that features eight hospitals.

“It’s too hard to live in two different worlds. If you have a commercial payer that represents 10% or 15% of your book, and that's the only payer that's really moving down a value-based path, as a provider I don’t know how you’d do that,” Hanlon says.

When rating their organizations' ability to deliver value-based care within various areas of healthcare finance, providers generally indicate a strong ability.

Healthcare providers report that they are making solid progress as they develop a variety of financial competencies in support of value-based activities, according to the 2018 HealthLeaders Media Value-Based Readiness Survey.

For example, the top two healthcare finance areas in which respondents say their organization has developed competencies to prepare for value-based care are value-based performance metrics (63%) and aligning employed physicians/providers (63%).

At the other end of the spectrum, survey responses show that developing a provider-sponsored health plan (24%) can be challenging. This is because the skill sets and staff necessary to be successful in this area are typically outside of the provider domain.

Also difficult for providers is aligning independent physicians/providers (28%), as it can be problematic to develop risk-based relationships with physicians outside of their organizations.

When rating their organizations' ability to deliver value-based care within various areas of healthcare finance, respondents generally indicate a strong ability.

For example, 79% say that their level of ability is very strong (25%) or somewhat strong (54%) for developing value-based performance metrics, and 73% say that their level of ability is very strong (25%) or somewhat strong (48%) for aligning employed physicians/providers.

Weakest ratings

Sixty-three percent of respondents indicate that their provider-sponsored health plan is very weak (33%) or somewhat weak (30%), and 58% say that aligning independent physicians/providers is very weak (18%) or somewhat weak (40%).

While aligning independent physicians/providers for value-based care is one of the more difficult areas of healthcare finance, it is also one of the more critical.

It is one thing for a provider to be able to deliver value-based care throughout its network, and quite another to provide it across the full continuum of care that includes outside organizations.

The problem is not necessarily caused by a lack of management control over independent physicians/providers, but conflicting financial models, says Karen Hanlon, CPA, executive vice president, chief financial officer and treasurer at Highmark Health.

Based in Pittsburgh, Highmark Health has a diversified portfolio of businesses, including Highmark Inc., a Blue Cross Blue Shield affiliate, and Allegheny Health Network, a health system that features eight hospitals.

"I think that if you're a system that's in a value-based model and you're working with independents that are not in the same model, it's hard to get alignment of financial interests,” Hanlon says.

"One of the things that we're doing at Highmark Health that is having success is establishing clinically integrated networks. These are comprised of our Allegheny Health Network employed physicians as well as independent physicians that join the reimbursement program between our insurance company and the clinically integrated network, which is a value-based contract," she says.

Hanlon continues, "Those independent physicians have signed on to live in that world and are very aligned to a value-based model. But I think absent the aligned economic interests between you as a health system and the independent physicians, it's going to be hard to operate."

Considering a merger? Make sure the prospective partner's financial liabilities and operational challenges are apparent by the time the due diligence phase is completed.

When providers identify a potential M&A candidate and perform due diligence, there are no guarantees that a formal agreement will be concluded. In fact, there are a number of financial and operational ways that a potential deal can be derailed.

According to the 2018 HealthLeaders Media Mergers, Acquisitions, and Partnerships Survey, respondents report that the top three financial reasons an M&A involving their organization was abandoned before or during the due diligence phase are concerns about assumption of liabilities (21%), costs to support the transaction were too high (19%), and concerns about price (19%).

Note that the full extent of a prospective organization’s financial liabilities may not be apparent until the due diligence phase is completed, which may explain why this aspect plays a major role as a deal breaker.

Operational challenges

Respondents say that the top three operational reasons that an M&A involving their organization was abandoned before or during the due diligence phase are incompatible cultures (30%), concerns about governance (24%), and concerns about the operational transition plan (21%).

Interestingly, based on net patient revenue, a greater share of large organizations (47%) than small (25%) and medium (17%) organizations mention incompatible cultures, an indication of some of the challenges providers face when integrating large organizations with disparate cultures.

Pamela Stoyanoff, MBA, CPA, FACHE, executive vice president, chief operating officer at Methodist Health System, a Dallas-based nonprofit integrated healthcare network with 10 hospitals and 28 family health centers, says that organizational culture exists both at the senior leadership level as well as throughout an organization, and problems can arise because sometimes they can be different.

“You have two senior leadership teams sitting in a room trying to agree on deal points and reach a philosophical agreement. Oftentimes, you have cultural compatibility at the senior level (those who are consummating the deal) but find that culture throughout the remaining levels of the organization is not as conducive to a merger. That is something you don't necessarily see until later, after the deal is done,” she says.