The shift from traditional fee-for-service models to value-based care is slowly gaining traction. The need to manage escalating healthcare expenses and create a more sustainable, patient-centered healthcare system fuels this transition.

Fee-for-service or volume-based care models compensate providers based on the quantity of service provided, often leading to higher costs and overuse of services without necessarily improving patient outcomes. In contrast, value-based care encourages a holistic approach to patient care, rewarding healthcare providers based on the quality of care they deliver and the health outcomes of their patients.

Transitioning to a value-based reimbursement model can be challenging, dissuading many providers from taking this step. However, alternative payment models like risk-adjusted models offer healthcare providers various opportunities to choose payment models based on their health IT capabilities and specific needs.

Let's explore the nuances of risk-based payment models, their benefits, and strategies for adopting a value-based model that fits your practice's needs.

What Are Risk-Based Payment Models? What Are Their Types?

Risk-based payment models are a type of value-based care model where reimbursements for healthcare services depend on the quality of care delivered rather than the quantity of services provided. While these models may transfer some financial risk from payers to healthcare providers, they also enable providers to share in any cost savings achieved.

Not all patients require complex care. Risk-based healthcare models account for this varying complexity and care costs of patients by assigning risk scores that reflect how each patient's complexity compares to the average population.

Hierarchical Condition Category (HCC) codes are a widely used risk adjustment model, especially by Medicare and many commercial payers, to assess patient complexity. These codes assign weights to various health conditions like diabetes and obesity, creating a numerical score that indicates a patient's risk level relative to the average population. For example, if the average risk level is 1, a score of 0.5 suggests that a patient is half as complex as average, predicting lower healthcare costs for the coming year.

Types of Risk-Based Payment Models

Risk-based payment models can be categorized based on the level of financial risk involved for healthcare providers. Here's how they can be classified:

• Upside Risk Models — The upside risk model, also known as a "one-sided risk arrangement," allows providers to share in cost savings if they meet or exceed specific performance or cost-saving targets. However, they do not face financial penalties if they fail to meet these targets, putting the risk entirely on payers.
• Downside Risk Models — Downside risk models involve financial penalties if healthcare providers fail to meet performance targets and exceed the allocated budget. However, providers can earn greater rewards if they treat patients below the payer's budget, often receiving higher profits according to contract terms. It's also known as the "two-sided risk model."

Benefits of Risk-Adjusted Payment Models

The 2023 APM Measurement by LAN indicates that 41.3% of U.S. healthcare payments were processed through one-sided and two-sided financial risk contracts. Notably, 24.5% specifically came from two-sided financial risk contracts, underscoring providers' increasing adoption of models involving shared financial risk and incentives for cost containment and quality improvement.

Value-based care models are a win-win for both providers and payors:

• Benefits for providers:
  • Enhanced patient outcomes
  • Improved care coordination
  • Financial incentives for achieving quality and cost-saving goals
• Benefits for payors:
  • Cost containment through efficient care practices
  • Risk mitigation by sharing financial responsibilities with providers
  • Improved overall population health through proactive care management

Research by UnitedHealth Group shows that primary care physicians under global capitation — a risk model with a set monthly amount per patient — achieved higher quality metrics than those under fee-for-service (FFS). Patients treated under global capitation had higher cancer screening rates, better-controlled blood sugar levels, more eye exams, and higher rates of functional status assessments and medication reviews.

Furthermore, Intermountain Healthcare, a Salt Lake City-based network with 22 hospitals and over 1,400 employed physicians, successfully transitioned from a volume-based, fee-for-service model to a value-based approach. In 2016, they achieved significant cost savings by billing $700 million less than they would have under their previous care model.

How Do You Select the Most Effective Value-Based Reimbursement Structure for Your Healthcare Practice?

Before delving into strategies for selecting a risk-based payment model that aligns with your private practice, it's essential to understand the landscape of payment models available in healthcare today. These models vary widely in structure and incentives, each offering unique opportunities and challenges for providers. Let's explore some of the most prevalent ones.

• Shared Savings — Providers receive bonuses if they meet quality and cost-saving targets, sharing the savings achieved with payers. This model encourages efficiency and collaboration.
• Bundled Payments — Providers receive a single payment for all services related to a specific treatment or condition over a defined period and assume financial risk for managing the entire episode of care.
• Pay-for-Performance (P4P) — Providers receive incentives based on achieving specific quality measures and patient outcomes, with payments contingent on meeting predefined performance benchmarks.
• Capitation — Providers receive a fixed payment per patient per month or year, regardless of the services provided. This model incentivizes preventive care and cost-effective management.
• Accountable Care Organization (ACO) — Groups of healthcare providers work together to coordinate patient care, aiming to improve quality and control costs. ACOs often use shared savings or capitation models.

Now that you understand the range of payment models available, the first step is to assess your payer mix. Analyze the composition of payers contributing to your revenue streams and identify key stakeholders. Approach these payers first to explore available value-based care programs. It could be Medicare, Anthem, Blue Cross, or other commercial insurers. Understanding this mix is essential for aligning with appropriate value-based care initiatives.

If Medicare constitutes a significant portion of your payer mix, initiate discussions with them regarding Medicare Shared Savings Programs. These programs are often structured as Accountable Care Organizations (ACOs) and can provide substantial support and incentives for your transition to value-based care. For other commercial insurers like Anthem and Blue Cross, engage in dialogue to understand the range of value-based initiatives they offer. Proactively seeking these partnerships allows you to leverage your relationships and enhance your practice's involvement in advancing value-based healthcare delivery.

Venturing into risk-based care demands comprehensive data collection to accurately assess patient outcomes, treatment efficacy, and overall care quality. Fortunately, your current technology infrastructure, including your medical record and billing systems, would be sufficient to support this transition.

Transitioning to a New Payment Model

Transitioning from a fee-for-service to a value-based care model represents a significant shift in healthcare delivery and payment structures. The initial years following the transition will likely involve a crucial adjustment period to master data collection and reporting processes. You may also incur additional administrative costs associated with comprehensive reporting requirements.

Here are steps to smoothly navigate the transition to value-based care.

1. Educate and Train Your Team

The success of a risk-based care model relies on comprehensive data collection and reporting. Educate physicians, mid-level providers, and administrative staff about accurate diagnosis coding and data collection. The accuracy of your codes significantly impacts your revenue stream. If your diagnosis coding fails to place patients accurately in the correct risk category based on their complexity, it can affect your reimbursement. 

Provide tailored training to staff in various roles. For example, train front desk staff to accurately capture demographic data while ensuring that medical assistants and physicians are skilled in assigning patients to appropriate risk categories.

2. Enhance Data Collection and Reporting Systems

Ensure your IT infrastructure — electronic health records (EHR) and billing systems — supports enhanced data collection and reporting requirements. Accurate and comprehensive data is essential for tracking patient outcomes and meeting value-based care criteria.

Moreover, you can improve decision-making and performance monitoring by using advanced analytics tools to interpret complex data, identify trends, and enhance care quality.

Glenwood's advanced practice management tools — GlaceEMR, GlaceRCM & GlaceScribe — have assisted several healthcare providers in ensuring comprehensive data capture and reporting. Our cutting-edge AI-assisted medical documentation technology alleviates documentation burden, enhances accuracy, and improves workflow efficiency, empowering you to thrive in this competitive landscape.

3. Improve Operational Efficiency

Value-based care prioritizes patient wellness through proactive measures like wellness programs and disease screenings. Integrate efficient appointment scheduling systems to ensure enough open slots for these initiatives. It's imperative to maintain a balance between treatment and preventive care.

Additionally, fostering a collaborative environment where medical assistants and nurses actively support screening programs enables providers to dedicate more time to direct patient care.

4. Develop Chronic Care Management Strategies

Evaluate the need for specialized roles, like chronic care navigators, to support patients with chronic conditions. These roles help keep chronic patients engaged and ensure adherence to treatment plans.

5. Monitor Performance and Adjust Strategies

Regularly monitor performance reviews to assess the effectiveness of the value-based care initiatives. Identify strengths, weaknesses, and areas for improvement, and adjust your strategies accordingly.

6. Engage Patients in Their Care

Value-based care focuses on patient outcomes, which hinges on patient engagement. So, it's necessary to develop programs to motivate patients to participate in their healthcare journey. Engaged patients are more likely to adhere to treatment plans and maintain better health, ultimately improving health outcomes.

The strategic shift to a risk-based payment model can be challenging at first. It may take time for your team to become proficient in documentation and chronic patient management. But, the long-term benefits of improved patient outcomes and financial stability make it a worthwhile investment for healthcare organizations.