Healthcare executives who have embraced the task of determining the true cost of providing care at their organizations are in a better position to offer transparency, and see doing so as a competitive differentiator in the healthcare industry.

This article first appeared in the June 2017 issue of HealthLeaders magazine.

In an ideal world, business leaders are able to maintain financial growth and stability simply by driving down costs and preserving or even increasing revenue through conventional means. However, the healthcare industry—with its mix of third-party payers, for-profit and nonprofit entities, and increasing reimbursement pressures—creates unique challenges for its leaders.

Note that the healthcare industry is making steady progress—the transition from fee-for-service to value-based care encourages healthcare organizations to embrace a financial and clinical mission of providing high-quality care at more affordable costs.

According to the 2017 HealthLeaders Media Cost and Revenue Strategies Survey, for example, 49% of survey respondents say that the transition from fee-for-service to value-based care has either significantly improved or somewhat improved their cost containment efforts, and only 24% say that this has significantly hindered or somewhat hindered their efforts. 

However, while positive change is being achieved through healthcare reform efforts, progress is moving at a slower pace than many would prefer. In the interim, traditional methods such as driving down costs through purchasing and supply chain efficiencies and maximizing revenue collection through disciplined revenue cycle practices remain effective strategies.

Further, initiatives focusing on process redesign and care standardization, to name just two, are also yielding positive results. But one issue that remains an obstacle is the industry’s inability to determine the true cost of delivering care.

True cost of care

Survey results reveal that the biggest barrier to achieving sustainable cost reductions is the lack of data on the true cost of care (58%). This is followed by a closely grouped series of responses that cover a range of different areas: insufficient integration with care partners (45%), lack of technology in place to achieve goals (34%), with lack of patient engagement in their care (33%) and regulatory compliance (33%) in a tie. Responses are fairly evenly spread across most of the factors, an indication that achieving sustainable cost reductions touches on all aspects of provider organizations.

While most providers recognize the need to determine the true cost of providing care, actually being able to collect and analyze this data is another matter. For example, 36% of respondents say that they can determine the true cost of care for all (6%) or most (30%) care provided, and 51% say they can do this for some care provided, but 13% are unable to determine the true cost for any of the care they provide.

These results are nearly identical to last year’s survey: 6%, 29%, 51%, and 15%, respectively, and more improvement will be needed for providers to succeed in controlling costs and delivering value.

While responses for unsupportive organizational culture (23%) finish near the bottom of the response list, it remains a point of emphasis for most providers due to the critical role it plays in the implementation of cost containment initiatives. 

"The most important opportunity that we deal with is culture change and change management," says Chad A. Eckes, MBA, executive vice president of corporate services and CFO at Wake Forest Baptist Medical Center, an integrated health system in Winston-Salem, North Carolina, that operates more than 1,000 acute care, rehabilitation, and psychiatric care beds, and offers outpatient services and community health and information centers. Eckes also is the lead advisor for this Intelligence Report.

"We have the data and technologies in place. We know all of these things. We don’t think it’s going to adversely impact quality or safety. The biggest thing is getting people to standardize their approach to doing things and realize that cost management and reducing some of the waste is as important as the rest of their job."

Price transparency

Price transparency is increasing in importance for the healthcare industry as patients have become more actively involved in the process of being healthcare consumers, and in response to the growing use of high-deductible plans.

For example, survey results reveal that 40% of respondents are able to provide price transparency to patients for all (12%) or most (28%) care provided, 41% say they can do this for some care provided, and 18% are unable to provide price transparency for any of the care they provide. 

Note that responses indicate that physician organizations are further along in providing price transparency than hospitals and health systems.

For example, a greater share of physician organizations (58%) than hospitals (35%) and health systems (33%) say that they provide price transparency to patients for all or most care provided. Still, these organizations report double-digit responses for being unable to provide price transparency for any care delivered: 24% of hospitals, 18% of physician organizations, and 13% of health systems. 

Eckes says that Wake Forest Baptist Medical Center identified price, cost, and quality transparencies as key development initiatives several years ago. 

"Bringing transparency to our costs, in general, has been a core focus of ours for the last three years, and there’s a couple elements to that: having the pure, raw financial data, then having analytic systems that are able to drill down to the process level and look at it from an activity-based costing perspective, and then being able to do the same view but at a service-line level. One of our key focuses is you can’t manage what you can’t measure, and we had to put those measurement systems in place."

Healthcare quality transparency

Another critical aspect of the industry’s move to transparency is the need to address healthcare quality transparency. The good news is that nearly three-quarters (73%) of respondents say that they provide healthcare quality transparency to patients for all (34%) or most (39%) care provided, while 20% say they can do this for some care provided, and only 7% are unable to do this for any of the care they provide. 

Survey results for healthcare quality transparency reveal some interesting correlations with both value-based care and the ability to determine the true cost of providing care, likely because both require in-depth study and analysis of provider organizations’ processes and costs.

For example, responses for providing healthcare quality transparency to patients for all care provided are higher among respondents who say the transition from fee-for-service to value-based care has either significantly improved or somewhat improved their cost containment efforts (40%), compared with respondents who say that this has had no impact on their efforts (30%) or significantly hindered or somewhat hindered their efforts (25%).

Further, responses for providing healthcare quality transparency to patients for all care provided are higher among respondents who say they can determine the true cost of care for all or most care provided (47%), followed by some care provided (29%) and respondents who have no data on the true cost for any care provided (16%).

Transparency: Threat or opportunity? 

For the most part, providers appear to welcome the advent of greater transparency in healthcare. For example, more than three-quarters (81%) of respondents indicate that the industry shift to price and healthcare quality transparency represents an opportunity
for their organization, while only 11% say that it is a threat. Nine percent don’t know.

Interestingly, responses for price and healthcare quality transparency as an opportunity are higher among respondents who say the transition from fee-for-service to value-based care has either significantly improved or somewhat improved their cost containment efforts (88%), compared with respondents who say that this has significantly hindered or somewhat hindered their efforts (70%) and has had no impact on their efforts (68%).

In addition, responses for price and healthcare quality transparency as an opportunity are higher among respondents who say they can determine the true cost of care for all or most care provided (85%), followed by some care provided (81%) and respondents who have no data on the true cost for any care provided (68%).

These two findings indicate that provider organizations that have undergone the demanding process of value-based transformation or that have embraced the difficult task of determining the true cost of care for their organization are in a better position to offer transparency, and they see this capability as a competitive differentiator.

Operations and clinical cost containment 

According to respondents, purchasing and supply chain efficiencies (60%) and process redesign (54%) provide the two highest dollar values in cost containment contributions for organizations’ operations/administrative activities in the most recent fiscal year—the results are comparable to last year’s survey: 64% and 58%, respectively.

Forming a second tier of responses are targeted budget reductions (39%), consolidating/

centralizing business functions (39%), and reducing incomplete or inaccurate coding (37%).

Purchasing and supply chain efficiencies continue to be an area of focus for providers, and there is no sign that it has reached diminishing returns. Eckes says, "I don’t know one organization that believes they’re completely tapped out on purchasing and supply chain efficiencies. In my opinion, this is just one of those things where as you shine a light on efficiencies, you see the improvement, and the minute that you’re not shining that light on it, you see the opportunities creep in again."

Perhaps not surprisingly, survey results for process redesign reveal a correlation with value-based care.

For example, responses for process redesign are higher among respondents who say the transition from fee-for-service to value-based care has either significantly improved or somewhat improved their cost containment efforts (63%), compared with respondents who say that this has significantly hindered or somewhat hindered their efforts (48%) and had no impact on their efforts (47%).

Respondents say that the top three contributors to clinical cost containment are clinical documentation improvement initiatives (57%), care standardization (49%), and efficient use of clinical labor (40%). 

As with operations/administrative cost containment activities, there is a correlation between clinical cost containment and value-based care.

For example, responses for care standardization are higher among respondents who say the transition from fee-for-service to value-based care has either significantly improved or somewhat improved their cost containment efforts (58%), compared with respondents who say that this has had no impact on their efforts (47%) and significantly hindered or somewhat hindered their efforts (39%).

However, Eckes points out that, while there is a positive correlation between value-based care and cost containment efforts such as care standardization, value-based care is not the only driver of activity in this area. "Before value-based care was ever in the discussion, many of us talked about the priority to standardize clinical processes and the efficiencies born from it."

Revenue 

Respondent expectations for top-line revenue growth over the next three years are bullish, with 63% saying that they expect either major growth (13%) or moderate growth (50%). Slightly more than one-third (35%) say they expect either minor growth (31%) or no growth (4%), and only 3% expect negative growth.

Interestingly, survey results for top-line revenue growth reveal a correlation with the ability to determine the true cost of providing care.

For example, responses for moderate to major growth are highest among respondents who say that they can determine the true cost of care for all or most care provided (76%), followed by respondents who say that they can determine the true cost of care for some care provided (60%); lagging are those who cannot determine the true cost of care for any care, with just 36% projecting moderate to major top-line growth. 

Furthermore, a significantly greater share of those unable to determine true cost for any care expect either no growth (11%) or negative growth (11%), for a combined 22%. That 22% non-growth outlook compares poorly to the 3% share among organizations that can determine the cost of all or most care, and the 5% share among those that can determine the cost of some care.

Revenue cycle

The majority of respondents (51%) indicate that revenue cycle activities have a high impact on their organization’s ability to achieve financial goals, and 39% say that this has a moderate impact. Only 10% say that revenue cycle activities have a low impact, and no respondents say that this has no impact.

According to Eckes, revenue cycle initiatives continue to produce significant contributions to the balance sheet, lessening some of the burden of continued cost cutting.

"We manage revenue cycle aggressively, and look to focus on revenue yield improvement. For example, over the last three years, we’ve had a three-phase revenue cycle improvement effort that has enhanced revenue yield annually to the bottom line and lessened the need for cost reduction."

Respondents indicate that improving clinical documentation (68%) is the revenue cycle activity expected to have the most positive financial impact—its response is in line with last year’s survey (70%), where it also was the top response. Minimizing denials (60%, up 13 points) and using IT to automate revenue cycle functions (39%, up six points) round out the top three responses.

Eckes points out that preservice collection efforts will be of growing importance going forward. "The share of payments coming from self-pay versus the insurance company is increasing. As the share of out-of-pocket payments increases, there will be the need to provide patients with creative payment solutions to ensure the timely collection of funds due."  

Savings from cost reduction programs

Forty-nine percent of respondents indicate that cost reduction efforts yielded year-over-year savings of 5% or more for their most recent fiscal year—this result is identical to last year’s survey (49%). At the upper end of the scale, 12% of respondents had cost reductions of 11% or more. Both results indicate that there is room for further savings from cost reduction programs.

Note that there is a correlation between the level of savings respondents say they receive from cost reduction programs and their organizations’ ability to determine the true cost of care.

Sixty-three percent of respondents who are able to determine the true cost of care for all or most of their care report year-over-year savings of 5% or more for their most recent fiscal year, while 44% of those who are able to determine this for some of their care indicate savings of 5% or more, and just 32% of those who are unable to determine true costs for any of their care are achieving such savings.

Fifty-seven percent of respondents expect average annual cost reductions of 5% or more over the next three years, up eight percentage points over last year’s survey. At the upper end of the range, 13% of respondents are expecting average annual cost reductions of 11% or more. Respondents remain optimistic about their ability to bend the cost curve on a healthcare system long cited for its inefficiency.

Survey results indicate that there is a correlation between the level of savings respondents say they expect to receive from cost reduction programs and their organizations’ ability to determine the true cost of care.

Sixty-six percent of respondents who are able to determine the true cost of care for all or most of their care project annual savings of 5% or more over the next three years, while 54% of those who are able to determine costs for some of their care indicate annual savings of 5% or more over the next three years, and just 42% of those who are unable to determine costs for any of their care are achieving such savings.

Operating margin 

Twenty-one percent of respondents estimate a negative operating margin for the most recent fiscal year, and 78% estimate a positive margin. These results are comparable to last year’s survey in which 17% estimated a negative operating margin and 78% estimated a positive margin. Only 1% of respondents report flat results for this year’s survey.

Interestingly, the share of respondents estimating a negative margin is slightly higher for those who are able to determine the true cost of care for all or most of their care (25%) than for those who are able to determine this for some of their care (21%), and those who are unable to determine the true cost for any of their care (16%).

However, the share of respondents estimating a positive margin of 6% or more is much higher for those who are able to determine the true cost of care for all or most of their care (31%) than for those who are able to determine this for some of their care (20%), and those who are unable to determine the true cost for any of their care (12%).

The outlook for the next three years shows some improvement, with only 7% of respondents saying that they expect to average an annual negative operating margin over the next three years, and 91% expect to average a positive margin during that same time period. These results are comparable to last year’s survey, in which 7% expected to average a negative operating margin and 87% projected positive annual margins over the next three years.

According to the survey results, margin performance is correlated with the ability to determine the true cost of providing care. For example, the share of respondents expecting to average a negative margin over the next three years is slightly higher for those who are unable to determine the true cost of care for any of their care (15%) than for those who are able to do this for all or most of their care (11%).

At the other end of the spectrum, the share of respondents projecting an annual margin of 6% or more over the next three years is higher for those who are able to determine the true cost of care for all or most of their care (29%) than those who are unable to determine the true cost for any of their care (15%).

Eckes mentions a key initiative that yielded insights as to where the organization stood regarding the difficult task of keeping costs and revenue in balance. 

"Wake Forest Baptist Medical Center has a formal cost management plan in place. And I don’t know if there’s any CFO of a large institution in this industry that hasn’t engaged one of the big firms to come in and help do that plan. And one of the core pieces is being able to benchmark against other organizations, determine whether we are doing well, and if we are doing well compared to the industry." 

One in four hospital patients are currently in value-based programs, but in three years’ time, that number will double, survey data suggests.

Despite hurdles, expectations for net patient revenue growth from value-based payment models is bullish.

Respondents in the May 2017 HealthLeaders Media Value-Based Readiness Survey indicate that while value-based care is still in the early stages of adoption, they expect robust growth in the share of patients in value-based programs.

Survey respondents say that 26% of their patients are currently in value-based programs, but in three years’ time, that number will double to 52%.

Survey results also reveal that hospitals are leading the way in value-based adoption. A greater share of hospital patients (32%) are currently in value-based programs than those in health systems (27%) and physician organizations (20%). Looking ahead three years, a greater share of patients will be in value-based programs at hospitals (58%) and health systems (55%) than physician organizations (45%).

Consistent with the survey results projecting growth in the share of patients in value-based programs, respondents' expectations for net patient revenue growth from value-based payment models is also bullish.

Respondents say that their net patient revenue percentage is currently 23% value-based, and they say this will more than double to 48% in three years.

Hospitals (32%) currently have larger shares of net patient revenue coming from value-based payment models than health systems (24%) and physician organizations (17%).

Looking ahead three years, hospitals (56%) will continue to have larger shares of net patient revenue coming from value-based payment models than health systems (48%) and physician organizations (44%).

Although expectations for value-based growth are strong, they may be overly optimistic. The survey results indicate that there are many hurdles still remaining, such as developing care and payment models and competencies that address longitudinal patient care and the alignment of independent physicians/providers, to name just two areas cited by respondents. Without such things, value-based care will still exist, but in a more limited form.

Pamela J. Stoyanoff, MBA, CPA, FACHE, is executive vice president, chief operating officer at Dallas-based Methodist Health System.

She describes the hurdles holding back widespread adoption of value-based care this way: "Even though we talk about population health, we are still paid largely for episodic care, not longitudinal care. That's been the issue for years. In order for hospitals to manage populations and really truly improve health, we have to manage along the whole continuum of care, but right now we're not paid or incented to do that very much."

Healthcare leaders are cautiously optimistic about the transition from fee-for-service to value-based care.

This article first appeared in the May 2017 issue of HealthLeaders magazine.

Providers continue to take a cautious approach as they prepare their organizations for a value-based future, focusing their efforts on making the necessary changes to care delivery, finance, and infrastructure they will need to transition from fee-for-service successfully. While their approach has generally been one of restraint, there are reasons for optimism given the level of progress that has been made.

According to the 2017 HealthLeaders Media Value-Based Readiness Survey, for example, respondents have a much more positive appraisal when evaluating their organizations’ level of strength in preparing for value-based care compared with last year’s survey results. Seventy-three percent say that their level of strength is very strong (21%) or somewhat strong (52%) for overall preparation for value-based care delivery changes, up 18 percentage points, and preparation for value-based financial changes is also very positive, with 72% saying that their level of strength is very strong (16%) or somewhat strong (56%), up 21 percentage points. Further, preparation of a value-based infrastructure is also encouraging, with 65% reporting that their level of strength is very strong (14%) or somewhat strong (51%), up 21 percentage points.

However, while respondents paint an optimistic picture of their level of strength in these areas, survey results also reveal that gaps in value-based competencies still exist.

“People think that they’re ready for value-based care, but based on some of the other survey results, I’m not sure they are,” says Pamela J. 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, and the lead advisor for this Intelligence Report.

Care delivery competencies

Survey results for care delivery competencies are revealing, with the majority of respondents demonstrating broad commitment to the discipline’s areas. For example, the top three care delivery areas that respondents say that their organization has committed to developing or has already developed competencies to prepare for value-based care are care coordination/guiding patients to appropriate care (79%), clinical integration (73%), and broader access to care (68%), and the top five areas all receive a response greater than 65%.

On the other hand, longitudinal patient care (40%) is low on the list of responses and is the only area below a 50% response, although its result is up nine points over last year’s survey. The response for this critical area indicates the early stage at which most respondents currently reside in the transition to value-based care. Note that as providers continue to commit to developing care delivery competencies to prepare for value-based care, longitudinal patient care will play an increasingly important role as providers manage patient care over longer periods of time and across multiple care settings.

Survey results also reveal that respondents are confident in their ability to deliver value-based care within the various areas of care delivery. For example, 73% say that their level of ability is very strong (20%) or somewhat strong (53%) for broader access to care, 72% say that their level of ability is very strong (21%) or somewhat strong (51%) for clinical integration, and 72% say that their level of ability is very strong (20%) or somewhat strong (52%) for care coordination/guiding patients to appropriate care.

Longitudinal patient care receives the lowest rating for respondent organizations’ ability to deliver value-based care in this area. For example, 54% of respondents indicate that this is very weak (11%) or somewhat weak (43%), an indication that it remains a work in progress for respondents.

According to respondents, moderate progress has been made in supporting care teams and practices in their coordination, communication, and patient outreach efforts, another important aspect of value-based care. For example, 44% say that their care processes and systems are evolving to a mature state, up 11 percentage points from last year’s survey, and 43% say that they are in the beginning stages of evolving their processes and systems, down nine points. However, only 3% say that their care processes and systems are fully mature, and 11% say that they are still evaluating required changes, results that are identical to last year.

A close examination of the survey data reveals that health systems and hospitals are further along in the evolutionary process than physician organizations. For example, a greater share of health systems (51%) and hospitals (49%) than physician organizations (31%) say that their care processes and systems are evolving to a mature state. On the other hand, a greater share of physician organizations (49%) than health systems (42%) and hospitals (40%) say that they are in the beginning stages of evolving their processes and systems, and a greater share of physician organizations (16%) than hospitals (10%) and health systems (5%) indicate that they are still evaluating required changes.

Value-based finance

The survey results for healthcare finance competencies tell a similar story as the results for care delivery, with most respondents demonstrating commitment to the discipline’s areas. For example, the top healthcare finance areas that respondents say their organization has committed to developing or has already developed competencies to prepare for value-based care are value-based performance metrics (79%), followed by collaborative relationships with payers (66%), and aligning employed physicians/

providers (60%), and these three areas are joined by two others in receiving a response that is 50% or greater.

Notably, aligning independent physicians/providers (41%) is rated low on the list of responses—it joins linking provider compensation to value-based metrics (49%) and provider-sponsored health plans (27%) as areas with a response less than 50%—an indication that providers are initially focusing their efforts more on developing performance metrics and risk-based relationships with payers and employed physicians.

Stoyanoff identifies one of the key challenges for providers thinking about a provider-sponsored health plan. “We’ve looked into it a little bit, but it was going to take years to break even. The investment is substantial and you have to wait a very long time. And for healthcare institutions who don’t have running a health plan as a core competency, which most of us don’t, I don’t know that we have more than 10 years to wait and see if things are going to happen in our favor.”

According to respondents, large organizations in particular are developing value-based healthcare finance competencies in the top three areas. For example, based on net patient revenue, a greater share of large organizations (90%) than medium (78%) and small organizations (76%) mention developing value-based performance metrics, and a greater share of large organizations (80%) than small (64%) and medium organizations (63%) cite collaborative relationships with payers. Further, a greater share of large organizations (84%) than small (59%) and medium organizations (52%) cite aligning employed physicians/providers.

Survey results indicate that respondents have a fairly positive view when rating their organizations’ ability to deliver value-based care within various areas of healthcare finance, and the three areas with the strongest ratings are the same ones identified in areas of healthcare finance competencies that organizations are committed to developing or have already developed to prepare for value-based care. For example, 76% say that their level of ability is very strong (27%) or somewhat strong (49%) for developing value-based performance metrics, 72% say that their level of ability is very strong (19%) or somewhat strong (53%) for collaborative relationships with payers, and 66% say that their level of ability is very strong (19%) or somewhat strong (47%) for aligning employed physicians/providers.

Digging into the data reveals that respondents from large organizations rate their ability to deliver value-based care within the same top areas of healthcare finance mentioned in the previous paragraph more strongly than small and medium organizations, likely because their greater financial resources allow them to do so. For example, based on net patient revenue, a greater share of large organizations (89%) say that their level of ability is very strong (35%) or somewhat strong (54%) for developing value-based performance metrics than small (74%: 28%, 46%) and medium organizations (69%: 21%, 48%).

The areas of healthcare finance receiving the weakest ratings according to respondent organizations’ ability to deliver value-based care are generally the same areas found lower on the response list for respondent organizations’ commitment to developing healthcare finance competencies to prepare for value-based care. For example, 62% of respondents indicate that their provider-sponsored health plan is very weak (33%) or somewhat weak (29%), 54% say that aligning independent physicians/providers is very weak (15%) or somewhat weak (39%), and 53% say that linking provider compensation to value-based metrics is very weak (12%) or somewhat weak (41%).

Aligning independent physicians/providers for value-based care is one of the more challenging areas of healthcare finance, and one of the more important because of the role they play in the continuum of care. Stoyanoff points out the essential connection between independent physicians/providers and longitudinal patient care.

“I think a lot of folks feel like value-based care is providing care to patients you have within your network and within your physician group. That is part of it, but it’s also providing longitudinal care across the continuum, wherever they might seek it,” says Stoyanoff. “That’s where it involves the independent physicians and other providers that you might not have control over and that’s where value-based care will really come into play. 

“So if we don’t have the independent physicians aligned and we’re not ready for longitudinal patient care, what we can deliver in terms of value-based care is only within our own systems and hospitals. We can do it with patients that we have full control over, but when it gets beyond us, then we’re going to struggle.”

IT competencies

Developing IT competencies is critical to the effective delivery of value-based care, and the majority of providers consider this area a strategic priority. Notably, EHR capabilities dominate the top three IT items that respondents say their organization is committed to developing or has already developed competencies to prepare for value-based care, led by EHR standardization among care partners (64%), and enhancing provider efficiency through EHR usability (62%) and EHR interoperability (62%) in a tie.

Note that while the response for prescriptive analytics (predictive plus suggested solutions) (33%) is lower on the list of responses, this will likely change over time as providers place greater emphasis on developing skills and investing in IT staff to leverage this important tool. A greater share of health systems (49%) than physician organizations (33%) and hospitals (16%) mention prescriptive analytics.

Survey results indicate that the respondent commitment to developing EHR competencies to prepare for value-based care is starting to produce results—55% of respondents say that their EHR standardization among care partners is very strong (17%) or somewhat strong (38%), and 53% say that their EHR interoperability is very strong (15%) or somewhat strong (38%). Rounding out the top three, 50% of respondents say that enhancing provider efficiency through EHR usability is very strong (10%) or somewhat strong (40%).

At the other end of the spectrum, prescriptive analytics (predictive plus suggested solutions) and staff actuarial skills for financial risk assessment are low on the response list, with 73% of respondents saying that prescriptive analytics is very weak (25%) or somewhat weak (48%), and 71% saying that staff actuarial skills for financial risk assessment is very weak (33%) or somewhat weak (38%).

Payment models

The transition from fee-for-service to value-based care is still in the early stages, and survey results reveal that respondents are all over the map in terms of their exposure to the various value-based models. This is likely because providers are experimenting with value-based payment models and programs to determine which is most appropriate for their organizations, and ultimately weighing improved outcomes on one hand and reduced costs on the other.

“I would call it a dipping your toe in the water kind of thing,” Stoyanoff says. “For example, we have an MSSP ACO. We have some narrow network contracts where we’re responsible for all outcomes throughout the continuum, but they’re small and don’t include a lot of covered lives. And we’ve done a little bit of bundled payments, but again, on a very small scale.”

It probably comes as no surprise that respondents say that the fee-for-service with no value-based component payment model is the least effective model in terms of quality and cost improvements; more than one-third (37%) say that it offers neither improved outcomes nor lower costs. This result is more than double the response of any other payment model on the list, and has the highest participation rate by respondents—only 7% say they have no involvement with this program.

On the other hand, full capitation (9%) receives the lowest response for yielding neither improved outcomes nor lower costs; however, it also has the lowest participation rate by

respondents—40% report they have no involvement with this program, and only 10% report improved outcomes and lower costs, indicating that the model has yet to yield much value.

Notably, fee-for-service with upside rewards, such as performance awards (22%), has the highest response for improved outcomes and lower costs, although its response is only marginally higher than bundled payment programs (20%). Interestingly, the top three responses for improved outcomes, no cost reduction, are all fee-for-service based: fee-for-service with upside rewards, such as performance awards (27%); fee-for-service with no value-based component (23%); and fee-for-service with downside risk, such as reimbursement penalties (19%).

Looking to the future, respondents indicate that fee-for-service with upside rewards, such as performance awards (29%), is the first-ranked payment model they expect will evolve into one of their organization’s principal payment

models for value-based care. That model receives a significantly higher response than for the next two payment models, fee-for-service with downside risk, such as reimbursement penalties (16%), and shared risk, such as ACO (14%).

At the other end of the spectrum, the payment models receiving the lowest responses are partial capitation (2%) and full capitation (4%), indicating respondents’ low expectations that these value-based models will become their principal payment model.

Taken in aggregate, combining first-, second-, and third-place rankings, respondents say that the top three payment models are bundled payment programs (58%); fee-for-service with upside rewards, such as performance awards (55%); and shared risk, such as ACO (52%).

Prospects for value-based growth

While value-based care is still in the early stages of adoption, respondents expect robust growth in the share of patients in value-based programs. For example, they indicate that 26% of their patients are currently in value-based programs, but in three years’ time, that number will double to 52%.

Survey results also reveal that hospitals are leading the way in value-based adoption—according to respondents, a greater share of hospital patients (32%) are currently in value-based programs than those in health systems (27%) and physician organizations (20%). Looking ahead three years, a greater share of patients will be in value-based programs at hospitals (58%) and health systems (55%) than physician organizations (45%).

According to respondents, hospitals (32%) currently have larger shares of net patient revenue coming from value-based payment models than health systems (24%) and physician organizations (17%). Looking ahead three years, hospitals (56%) will continue to have larger shares of net patient revenue coming from value-based payment models than health systems (48%) and physician organizations (44%).

Value-based challenges

Although respondent expectations for value-based growth are strong, they may be overly optimistic. There are many hurdles still remaining, such as developing care and payment models and competencies that address longitudinal patient care and the alignment of independent physicians/providers, to name just two. Without such things, value-based care will still exist, but in a more limited form.

Stoyanoff describes the hurdles holding back widespread adoption of value-based care this way: “Even though we talk about population health, we are still paid largely for episodic care, not longitudinal care. That’s been the issue for years. In order for hospitals to manage populations and really truly improve health, we have to manage along the whole continuum of care, but right now we’re not paid or incented to do that very much.

“The right thing to do is try and help patients so they don’t have to be readmitted. But the financial incentive is certainly not there for everybody to invest lots of resources on that effort.”

The greatest rise in merger, acquistion, and partnership activity will occur in the West and South, HealthLeaders survey data shows.

According to the 2017 HealthLeaders Media Mergers, Acquisitions, and Partnerships Survey, healthcare leaders cite that they expect the current high levels of merger, acquisition, and partnership activity to continue for the foreseeable future.

For example, 87% of respondents say that their organization's MAP plans for the next 12–18 months involve either exploring potential deals or completing deals underway, or both.

The breakdown: 40% of respondents say that their organization will be both exploring potential deals and completing deals underway, 34% say they will be exploring potential deals, and 13% say they will be completing deals underway.

Only 13% of respondents say they have no MAP plans, which is down 12 percentage points from 25% in last year's survey. These results indicate a continued positive trend for MAP activity.

Further, 61% of respondents expect their organizations' MAP activity to increase within the next three years, and 32% expect this to remain the same. Only 6% expect MAP activity to decrease, indicating that the overall trend will likely continue for some time. These results are nearly identical to last year's survey results, which were increase (63%), remain the same (33%), and decrease (3%).

Interestingly, there are some regional differences in expectations for MAP activity. For example, a greater share of respondents who say they expect MAP activity to increase are from the West (82%) than from the South (57%), Midwest (53%), and Northeast (53%), and a greater share of respondents who say they expect this activity to remain the same are from the Midwest (47%) than from the Northeast (37%), South (35%), and West (12%).

Note that a greater share of respondents who say they expect this activity to decrease are from the Northeast (10%) and South (9%) than from the West (6%) and Midwest (0%).

One factor with the potential to slow MAP activity is uncertainty around the Trump administration's healthcare agenda. However, more than half (54%) of respondents say there are no changes to their organization's MAP plans because of the Trump administration.

On the other hand, 19% say they are putting some things on hold until they know more, and 9% are revising and updating some plans, an indication that some providers are being more cautious in their planning. No respondents (0%) say that their organization is making extensive changes to its plans.

"I don't think there's enough clarity out of the administration on the healthcare front to be able to pivot yet, and it's been such a short period of time that I'm not surprised to see people waiting to know more before reacting," says Kevin Griffin, MBA, senior vice president of financial planning and analysis at Novant Health.

Novant is a nonprofit integrated healthcare network with 2,655-licensed beds, 14 medical centers, and approximately 1,500 physicians in more than 500 locations, based in Winston-Salem, North Carolina.