Healthcare delivery has traditionally reimbursed providers on a fee-for-service (FFS) basis. This reimbursement system incentivizes volume over quality and leads to unsustainable growth in healthcare costs. In an effort to contain costs and reform the healthcare delivery system to prioritize value over volume, CMMI and commercial payers have introduced a multitude of value-based payment (VBP) programs.

Value-based payment programs are designed to reward healthcare providers for delivering high-quality, preventive, and appropriate care efficiently so that population health is prioritized over volume. These programs leverage a range of clinical and operational measures, as well as financial performance metrics, to align payments with the goals of lowering care costs, enhancing care quality, and promoting health equity.

The Importance of Financial Modeling in VBP

Incentive models within VBP programs vary significantly, addressing quality and cost improvement goals specific to different regions, providers, and patient populations. To navigate these complexities, it is essential for care delivery organizations to employ robust financial modeling and thoroughly understand their performance obligations and payment terms. Financial modeling allows organizations to predict how performance against key metrics will impact financial outcomes, ensuring that they can effectively allocate resources, manage risk, and maximize the benefits of available funding. By comprehensively understanding the contractual obligations and performance metrics, organizations can strategically plan and optimize their participation in value-based care programs. Additionally, VBP financial modeling should be used to support negotiations of key contract terms to ensure organizations are taking on manageable levels of risk and that effort is being adequately compensated.

There are a multitude of VBP arrangements spanning across the risk continuum, differing lines of business, governmental programs, and negotiated terms with various payers. Utilizing a financial model to understand the risk-reward trade-off for an individual program, as well as the expected investment needed to achieve and optimize the reward, is critical to navigate the risk continuum.

Providers must have a comprehensive understanding of all incentive revenues, including care coordination fees, quality incentives or payment adjustments, shared savings or risk, and capitation. Additionally, they need to be aware of the extra costs involved, the outcomes expected from their investments, adjustments needed to realize revenues, and the level of risk assumed. Managing a Value-Based Payment (VBP) program necessitates a robust financial model that is tailored to reflect the program’s terms and is supported by historical data, market trends, and expert insights. Care delivery organizations engaging in VBP programs should align the modeling of all their payer contracts to generate a cohesive and effective roadmap to successfully optimize value from their VBP contracts and for their patients. The number of VBP arrangements and the variability of contract terms adds considerable complexity to the evaluation process. A robust financial model allows a care delivery organization to forecast results across the portfolio of contracts under a number of assumptions and scenarios.

New and Emerging VBP Models

CMS & CMMI have developed many innovative VBP models designed to promote primary care engagement, enhance maternity care, and bundle payments for episodic cases. Programs such as Primary Care First, Medicare Shared Savings Program (MSSP), and ACO REACH include shared savings, capitation, and downside risk arrangements. Most of these models are also designed to incentivize early adopters and financially compensate investment in infrastructure to manage risk. They typically start with low-risk arrangements and provide a pathway to increased risk as organizations mature in their ability to manage population health. Robust financial modeling of these programs and a clear understanding of expendable funds and cash flow allow organizations to adequately plan and deploy key services that make these programs sustainable and profitable well into the future.

While adoption of these VBP programs have been more accepted by primary care physicians and some Integrated Delivery Systems, hospitals have been more reluctant to transition away from FFS. However, CMS recently announced the AHEAD program, which aims to help hospitals transition to a hospital global budget- a fixed payment VBP model. The AHEAD program utilizes a hospital’s prior years’ revenue and determines a trended level of cost for a hospital for the coming year. It then looks to replace a hospital’s FFS revenue with the calculated amount, flowing the funds to the hospital as a fixed bi-weekly payment. Annually, CMS will look to adjust the fixed amount for the hospitals based on observed trends in volume, market shifts and service line changes. In addition, The AHEAD model provides incentive payments for improvements in quality, reductions in potentially preventable ED visits and admissions and improvements in total cost of care in the hospital’s market area. The recently approved 1115 waiver in New York seeks to establish a Medicaid model similar to the Medicare AHEAD model. This program targets financially distressed hospitals that have suffered from unpredictable cash flow and have relied heavily on grant and other enhanced funding. The predictable cash flow through the hospital global budget allows the hospital to develop areas that support VBP goals and transition care to appropriately efficient settings conducive to improved quality and outcomes. Hospitals looking to enter into a global budget payment model must employ a robust financial model to understand the historical basis for their revenue and maximize the potential for additional incentive payments.

Conclusion

As VBP models become more sophisticated and evolve to include diverse types of care delivery providers and implement various types of incentivizes and penalties, it is imperative for organizations to adopt enhanced financial modeling capabilities to support and align with the strategies of these new models.

COPE Health Solutions has supported several healthcare organizations in successfully integrating financial modeling into their VBP programs, resulting in improved patient outcomes and financial performance.

If you would like to learn more about our value-based payment solutions, please reach out to COPE Health Solutions at info@copehealthsolutions.com or call 213-259-0245.