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How are Providers Managing the Transition with Conflicting Incentives in Payment Structures?

Clive Riddle, September 7, 2012

In the just released September issue of Accountable Care News,the monthly subscription newsletter covering Accountable Care, a thought leader panel was asked: “Given the conflicting incentives of ACO and other FFS lines of business, how are providers managing the transition? Stratifying patient populations based on payment incentives? Managing all patients the same and absorbing the revenue losses? Structuring compensation differently for care team members and individual physicians?

It’s an interesting question. Here’s what the Accountable Care News thought leaders had to say about this issue:

Joel C. Hoffman, ASA, MAAA, FCA, Senior Vice President, OptumInsight Payer Solutions responds that “Provider-sponsored organizations (PSOs) are not going to change who sees which patients, how they manage/coordinate their care, or what they pay their salaried physicians depending on the type of reimbursement received.   Physicians must move to delivering value regardless of how they are reimbursed.   The historic fee-for-service (FFS) incentives for volume and high-intensity services are already shifting to a blended volume/value system, and this transition will continue to accelerate over time in favor of value.  Many of the leading PSOs are already acutely focused on simultaneously improving patient quality/safety while reducing costs of care, even in their legacy FFS reimbursement relationships. Provider reimbursement will evolve to keep pace with the delivery of clinically integrated, coordinated care – case in point, the growth of value-based reimbursement that is expected to help expedite the transformation of the nation’s healthcare delivery system and make it stick.  But FFS reimbursement by necessity will never totally disappear -- today’s PSOs are showing they can positively transform regardless.”

Douglas A. Hastings, JD , Chair, Board of Directors, Epstein Becker & Green, PC, states in part that  “there is not, nor should there be, any single or simple answer to managing the transition.  The pace of change varies around the country due to historical circumstances, current market activity, and a variety of other variables.  The constants are the need to perform well on evolving consensus quality measures and to contain costs in order to absorb reduced reimbursement in whatever actual form that takes.  In addition, there are affirmative investments necessary to make a successful transition, further underscoring the need for capital and operating cost reductions…..Nevertheless, even the most progressive providers will have a foot in both fee-for-service and value-based payment for a period of time.   Approaches to patient care and financial incentives while different payment methodologies co-exist will vary.   My sense from watching and talking to the most recognized and advanced “Triple Aim”– oriented delivery systems is that they aggressively align treatment protocols and financial incentives within the system toward Triple Aim goals from the outset, even though this approach may cost more in the short run.  They argue that such costs are the price of innovation and doing the right thing and that this approach will pay off in the long run.  I think that they are correct.”

Tom Cassels, Executive Director of Research & Insights, The Advisory Board Company says “disciplined providers aren’t waiting for the conflict created by today’s uncomfortable ‘foot in two boats’ transition to value-based contracting to sort itself out.  Rather they are executing clear strategies to identify areas where investments of time and resources in new care models can yield real near-term returns. For instance, these providers realize that they are already at risk for the total cost of their employee health benefits plans as well as the expense of uncompensated (e.g., uninsured) and under-compensated care (e.g., chronically ill Medicaid patients seeking primary care in the ED).  By following the flow of dollars to areas where reduced spending falls directly to their bottom lines, these organizations are making principled decisions to target segments of the populations they serve where their incentives match the objective of reducing the total cost of care.  This is why some of the most exciting innovation in enhanced primary care, patient navigation, and support for patient self-management is coming out of health systems’ management of their own employees and their dependents.  In the words of one progressive health system CFO, ‘Our own spending shows us where we have the opportunity to create value, and if we can learn to shave on our own face we’ll be more credible to other purchasers as a population health manager in the future.’ ”

Nalini K. Pande, JD, Principal Policy Director, American Institutes for Research  reports that “a recent Commonwealth Fund study has recommended that ACOs align as much of their business as possible with value-based payments.   In fact, providers are currently transitioning to a value-based model that uses incentives to reward value and moving away from the traditional fee-for-service (FFS) model that rewards volume.   How are providers managing this transition?   They have focused on changing their systems and the way they do business.  They are utilizing new care practice models to optimize utilization of services.  This includes predictive modeling to risk stratify a population to identify individual opportunities for intervention.  Providers are also engaging patients in managing their own care and using IT systems to assist with clinical decision support, medical error reduction, and patient safety.  Providers have also adopted new care coordination models with continuous quality improvement and a payment structure that recognizes the added value to patients.  Further, they have set up new infrastructures and systems that allow a shift from quality and efficiency ‘measurement’ to quality and efficiency ‘management’.”

Finally, Peter Boland, PhD, President, Boland Healthcare states in part that “hundreds of organizations are still struggling with variations of the ‘what do we want to be when we grow up’ syndrome. The realists understand that bearing increasing levels of financial risk (and reward) with payers and purchasers is becoming the norm. The straddlers still cling to fee for service and volume-based reimbursement despite the inability of Medicare and employers to support such payment. Many providers have recently taken the plunge into the ‘brave new world’ of Medicare Shared Savings Program with an eye towards a gradual transition to modest risk and gain sharing over a five-year period. ….It is an illusion to think that health delivery organizations can have it both ways.  The industry is at the tipping point where accountability for price and service (the value equation) is ‘the new normal’. Good medicine dictates that patients not be stratified by type of payment.  Good business requires meaningful performance metrics to be agreed upon – and tracked -- as the basis for compensation.”

Accountable Care News includes the Thought Leaders panel answering a timely question of the month in each issue, in addition to several feature stories, industry news briefs, and a profile interview with a prominent person involved with accountable care. You can check it out at

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