Forging A Path To Value

Forging A Path To Value 1200X630

With the passage of the Medicare Access and CHIP Reauthorization Act (MACRA), Congress and CMS have signaled a permanent shift away from pure fee-for-­service reimbursement in favor of value-based payment. This has been echoed by CMS’s stated desire to move 50% of Medicare payments to alternative models by 2018. We should not expect MACRA to be the last major change; instead providers should expect a continued migration toward ever-greater accountability for cost and quality. This article describes the process for setting a value-based reimbursement strategy. It is the first in a series that ECG will be producing to help the industry thrive in the value-based world.


In recent years, Congress and CMS have been signaling their intent to move away from a purely fee-for-service physician reimbursement model in favor of greater emphasis on cost and quality improvement. On an almost annual basis, Part B reimbursement modifications have been introduced as well as entirely new models. Most recently, with the passage of MACRA in April 2015, Congress has made a definitive statement that it intends to move permanently away from the traditional Part B fee-for-service reimbursement model. As a result, remaining on the sidelines of payment reform is no longer an option; provider organizations that bill for Medicare Part B are now in the value business, whether they like it or not. This includes financial incentives for all medical specialties, whereas existing programs tend to focus on primary care or specific medical and surgical specialties.

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Even so, some providers have expressed the position that the array of current programs is so complicated, confusing, and unwieldy that actively managing performance under their incentives is not a realistic or worthwhile exercise. In their view, the only feasible approach is to adopt hope as a strategy and let the Medicare “chips fall where they may”; they believe that while the dollars at stake are not insubstantial, there are other, perhaps more promising, opportunities for improving operating margins. This is certainly an understandable point of view, and might actually be a prudent course of action if one expects that the current Medicare models represent the end game, or that commercial payers will not follow suit.

However, we believe that these would be unrealistic expectations, rendering this approach short-sighted. The developments described above should not be viewed as isolated events, but rather a trend that will likely continue for the foreseeable future, first with Medicare and then with commercial payers.

Therefore, absent a radical overhaul of Medicare’s benefits design, for which we do not foresee the political will, one should expect Medicare to push more and more financial responsibility (i.e., risk) down to providers over a protracted period of time. CMS has already stated its objective of moving 50% of healthcare expenditures into value-based models by 2018, and all indications are that they will set their sights higher in subsequent years. Like-wise, we should expect that commercial payers will follow Medicare’s lead and introduce similar payment models, as they have consistently done over the past 3-4 decades (see sidebar 1). Accordingly, provider organizations need to be thinking about how to perform under existing Medicare value-based models, in order to prepare for a future beyond what the current reimbursement landscape brings. Even if the existing models’ financial incentives are not sufficiently compelling on their own, they are a harbinger of things to come and therefore need to be taken seriously, now.


Provider organizations are faced with a dizzying array of Medicare reimbursement models (Merit-Based Incentive Payment System [MIPS], Medicare Advantage, Advanced Alternative Payment Models [APMs], other APMs, etc.). This necessitates the development of a strategy for determining how to participate in Medicare Part B and other payers’ programs. The right path forward will vary from one organization to the next, based on its readiness to perform under value-based reimbursement, its willingness and ability to invest in the development of future capabilities, and also the applicability of the models themselves. These decisions are very complex and require a thoughtful, fact-based approach across four major phases.

Assessing Value-Based Readiness

Wanting to shift toward value-based reimbursement and being adequately prepared to are not necessarily synonymous. Embarking on a practical path to value begins with a critical and dispassionate assessment of an organization’s core competencies and overall readiness to make the transition. A systematic and honest assessment of a health system’s current capabilities provides leadership with a complete picture of their organization and its ability to evolve—strategically, financially, operationally, and technologically. Those that are most successful under value-based reimbursement are almost always fundamentally sound across six key domains:payment models, organizational foundation, provider networks, care model transformation, provider incentive design, and clinical and business informatics (see figure 1).

Understanding where the organization stands relative to these factors is essential not only so that it can identify priorities for development and/or improvement over the long term but it also gives the health system the confidence and footing to pursue the most appropriate payment models in the near term.

Identifying Viable Payment Options

Making informed choices about which strategies to pursue requires an understanding of the organization’s readiness to take on value-based payments and the payment models themselves. Medicare has introduced a wide variety of payment models to consider and is likely to introduce more in the coming years. For those organizations that employ large numbers of physicians across a broad spectrum of specialties, it is necessary to hone in on a limited number of options.

Not all models are even applicable to all organizations (see sidebars 2 and 3). For those that are applicable, a selection process should be informed by a crosswalk between the organization’s capabilities (as described in the previous section) and the needs placed upon it by the models themselves. Different reimbursement models will stress organizations’ value-based readiness (VBR) capabilities to varying degrees, and understanding where that fit, or lack thereof, occurs will be important. The illustration below provides a hypothetical example of this concept.

In this example, the organization has a very good organization foundation due to solid financial performance and efficient operations, and it also has a fairly well-developed provider network. However, it is less capable in the areas of care model transformation, provider incentives, and technology. Its strengths line up well with the characteristics required in Payment Model A, and its weaknesses are not prohibitive with this model. Therefore, Payment Model A may be a good option for this organization. Conversely, Payment Model B may not be a viable option because it requires much stronger capabilities in the areas of care model transformation and provider incentives than the organization possesses.

Assessing Financial Implications

Once the range of potential options has been narrowed, it is time to take a closer look at which options might be priorities for development. One of the key considerations at this phase is to understand their financial implications. We are not suggesting that financial considerations should be the chief determinant of an organization’s strategy, but it is certainly a relevant input and at the very minimum, necessary for planning purposes. Some of the key aspects that the assessment should include are the following:

Range of outcomes for Part B reimbursement

Obviously, it is important to have some idea of how well the organization will fare under any given reimbursement model. This is difficult to predict with precision since many of the inputs are outside of the organization’s control and/or will not be known in advance. Nonetheless, understanding the likely range of outcomes, particularly when comparing APMs to MIPS, is important. Even with the 5% bonus, an organization could potentially fare worse under APMs than under MIPS if the performance standards of a particular APM model are significantly higher under MIPS.

Congruence with existing commercial payer arrangements

As we mentioned previously, an organization might rightly conclude that the investment and effort involved in succeeding under value-based reimbursement outweighs the financial benefit of doing so, at least in the near term. However, to the extent that commercial contracts can be made to reflect government incentives, there can be a significant multiplying effect.

Impact on both physician and hospital revenues

Many payment incentives under Part B are designed to reduce overall Medicare spending of which Part A is a major component. Therefore, success under Part B is likely to come at the cost of reduced Part A reimbursement, so this relationship needs to be understood and forecasted. Again, we are not suggesting that the outcome of this assessment should be the driving factor in decision-making, but it is a factor that must be understood and planned for.

Investment required

Developing the infrastructure to manage care and succeed in a value-based world is a significant investment. This will entail investments in electronic medical records, health information exchanges, business intelligence/ decision support capabilities, care coordinators, protocol development, training, etc.

Scenario planning/sensitivity analysis

Any financial assessment must consider a range of possible outcomes, particularly given the uncertainty involved. For example, an organization may set its sights on qualifying for the APM track of MACRA, but what would the result be if it fails to meet the threshold criteria? In most cases, the effort would set the organization up well for performance under MIPS which may or may not be an undesirable outcome. Similarly, provider organizations should think through the financial implications of pushing hard to meet APM participation thresholds and collecting the 5% bonus, versus ramping up more slowly and focusing on attaining better results along the way.

Finalizing the Strategy

After an organization assesses its readiness for value-based reimbursement, identifies viable reimbursement models/MIPS measures, and weigh their potential financial impact, organizations should have the full complement of information necessary to make decisions about which models and metrics to pursue, and in which order. In many cases these decisions will be complex and based as much on intuition and judgment as on objective data. Determining the strategy should incorporate key stakeholders across the continuum of care, from medical group, hospitals, and increasingly health plans. While designing your strategy, some of the key questions to consider are:

  1. What will ultimately serve our patients best?
  2. What is our level of risk tolerance? How confident of attaining upside opportunity must we be in order to accept the possibility of greater downside risk?
  3. What is the likelihood that we can achieve high levels of performance? What are the consequences of not meeting our goals (for example, if we fail to qualify for the APM track of MACRA, would superior performance under MIPS serve as a consolation prize?)
  4. How difficult will it be to close any gaps in our capabilities? How long will that take? What level of change management is required? How many major initiatives can we manage concurrently?
  5. How will participation in a given payment model help prepare us for other models that may be introduced in the future? Will it force us to embrace the future or allow us to kick the can down the road?

Addressing these questions in a thoughtful manner, with input from stakeholders is a challenging process but necessary to balance competing interests and achieve buy-in. At the end of this process your organization should have a defined strategy that provides: clarity on which reimbursement path the organization is best aligned with; confirmation of any capability gaps; and quantification of the financial opportunity associated with the desired strategy.


Whatever the selected strategy, it will require an implementation plan with discrete projects, realistic time lines, and identifiable milestones/deliverables so that progress can be effectively tracked and accountability maintained. For most organizations, implementing a value-based reimbursement strategy will be a multi-year endeavor that involves upgrading capabilities in: exploring effective payment models; building a strong organizational foundation; expanding provider networks; transforming care models; designing provider incentive models; and, enhancing clinical and business informatics. Each of these domains is a large and complex, so during the coming months ECG is publishing a series of in-depth articles that focus specifically on each of these domains in order to help healthcare organizations become thriving value-based enterprises.

In the meantime, it should by now be clear that the days of fee-for-service payment with no emphasis on quality and cost management are rapidly drawing to a close. The transition, which began in earnest with the passage of the Affordable Care Act, is accelerating, and we do not believe that MACRA will be the final word on the topic. This is likely the most pervasive and tumultuous change in the healthcare industry that we will experience in our professional careers. Organizations that succeed will be the ones who embrace this change and begin planning now for what inevitably lies ahead.