Health care organizations are continuing to work toward sustainable value-based care arrangements. Although significant progress has been made over the past decade, the pace of adoption has remained slow. But overcoming key barriers while sustaining momentum can help.
Payment methods within value-based care arrangements are intended to help motivate changes in care delivery to further goals of evidence-based, preventive and coordinated whole person care. Underlying payment methods involves several key domains including:
- Patient attribution, which assigns patients and associated medical costs to a specific physician or entity.
- Benchmarking (or financial targets), which compare value-based care payment arrangements against performance-year expenditures.
- Risk adjustment, which is a statistical method that converts the health status of a person into a relative number.
To align value-based care with payment, physician practices need a basic understanding of each domain and how they intersect with one another, said Stephen Parodi, MD, an infectious diseases physician and executive vice president of The Permanente Medical Group. Dr. Parodi is also vice chair of the AMA Integrated Physician Practice Section.
They should also understand the nuts and bolts of negotiating within each of these domains, he continued.
“You must have a modicum of trust with your payer. There's a balance between how much resourcing you put into this and how many different arrangements you can juggle at a given time. There has to be enough upside arrangements to justify it,” said Dr. Parodi, who joined Jerome Finkel, MD, senior vice president and chief primary health officer of Henry Ford Health on an AMA STEPS Forward® webinar about aligning payment in value-based care.
Drs. Parodi and Finkel summarized the current landscape and associated challenges with these domains associated with underlying payment methods and identified strategies to overcome key barriers to aligning payment with intended value-based care goals.
The webinar also highlighted AMA’s “Future of Value” initiative, a collaboration with America’s Health Insurance Plans and the National Association of ACOs, focused on advancing voluntary adoption of VBC arrangements by creating a foundation of best practices, informed by real-world experiences, that help ease participation for physician practices. Efforts include resources on “Voluntary Best Practices for VBC Payment Arrangements” (PDF) and “Voluntary Best Practices to Advance Data Sharing Playbook” (PDF).
Some practices may create their own “playbook” that reflects their expertise in particular models and ensures that their payer partnerships address these areas of expertise, Dr. Finkel said.
Henry Ford Health and The Permanente Medical Group are part of the AMA Health System Member Program, which provides enterprise solutions to equip leadership, physicians and care teams with resources to help drive the future of medicine.
Patient attribution challenges
Value-based contracting for the most part is much more complicated than fee-for-service, noted Dr. Finkel. It requires “a high level of understanding of your population and of your organization.”
This is especially relevant with patient attribution, which involves accurately identifying the population that a value-based care entity or participating practice will be held accountable for during a performance period. The biggest challenges with patient attribution include:
- Missing, inaccurate or delayed data, which can lead to misattribution.
- Correctly identifying the accountable physician.
- Tradeoffs between accuracy and predictability (prospective vs. retrospective methods).
Prospective tends to be more predictable, whereas retrospective tends to be more accurate, but there are some blended methodologies that can take each of those into account.
“One of the biggest challenges we have is reconciling who's actually attributed based on what the payer thinks and on who the providers are managing,” said Dr. Finkel, who has seen as much as a 40% discrepancy in some contracts.
Building turnover factors into your payment model is important, said Dr. Parodi. If a practice is responsible for a general patient population, it should consider the patient turnover and turnover within the practice.
Make sure that you've got agreement with your payer on the list of physicians who are going to be attributable for the primary care of these patients, he emphasized.
Depending on the way a practice is set up, it may have patients who see a nonprimary care specialist as the clinician who is principally responsible for managing their care. For example, there may be a specific program for heart failure in which the cardiologist is the principal treating physician. In these cases, “you've got to have a preexisting agreement with your payer if you want to have attribution to that specific set of specialists,” Dr. Parodi advised.
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Solutions align payers, practices
Dr. Finkel’s health system has a team of individuals whose primary job is to reconcile the payer attribution rosters with its own EHR attribution rosters. This way, the system and the payers can effectively collaborate and manage the same population that they’re both being evaluated on, he explained.
They also have a direct-to-employer contract that assigns patients to physicians in two different ways. Under one model, the patient selects a product that says, “This is the group that I want to be managed by because I like this particular product, or I like that network.”
Another scenario that offers less patient awareness is attributing a patient to the practice by the predominance of care that they've received from a particular physician.
It's important to understand the difference between the two models, Dr. Finkel advised. The attributed model essentially creates adverse selection “because you are only going to end up with patients attributed to you who have sought and received a significant amount of care.”
Targets for a population that selects you versus a population that’s attributed to you are going to be fundamentally different, he explained.
There are so many nuances to attribution, as simple as it sounds, Dr. Finkel said, adding “there are so many things that can determine how you might be judged…or rewarded for the value that you've created in that population.”
Benchmarks call for longitudinal data
With benchmarks, practices need to establish an agreed upon underscoring and cost target that incentivizes these transformations. They also need to ensure that goals are agreed upon up front and that targets are predictable, accurate and transparently set.
Anticipating what will be next year’s medical spend in this year's contract is a difficult prospect, said Dr. Finkel. “If you made a deal that said: We're going to get a 6% increase per year, there are years where you would do fantastic and years where you might not.”
Retrospective benchmarking poses other challenges. A practice may think they’ve performed well, but in a year like 2022 where few cost increases occurred, they might end up owing money back.
What are the observed costs versus the expected costs? The incredible volatility in the current health care market makes it challenging to assess and predict this, whether you're a payor or a physician practice, noted Dr. Finkel.
Will the practice be judged based on historical or regional trends or something else? Sometimes a cost trend might be very different than what the regional trend is.
“And if we're being judged by the regional trend by that specific payor, we're going to be in real trouble,” Dr. Finkel said.
It’s important to do multiple years of data to smooth out some of this volatility, Dr. Parodi suggested. There's also the prospect of having some stop-loss gaps in terms of the amount of upside or downside risk that either entity, whether it's the payer or the physician practice, is taking, he said.
There will likely be a need to negotiate the corridor between the two to adjust for this, “which means in the good years, you're limiting your upside…but on bad years, you limit or minimize the downside to the physician practice,” said Dr. Parodi.
In conversations he’s had with payers that participated in the development of the AMA playbook, “they’re cognizant of the fact that the physician practices do need to remain viable in those down years,” Dr. Parodi added.
It is very hard to predict utilization year over year, he continued. “It is very hard to know in this context with the aging population where expected medical costs are going to go. So, you need to build that uncertainty into those negotiations and probably anticipate that utilization is going to go up and to be able to speak to that, particularly in specialty care.”
The Permanente Medical Group discusses the benchmarks they can achieve in a certain year or a given set of conditions.
“Do we think that's a reasonable benchmark that we think we can hit? And then we negotiate that,” Dr. Parodi said, adding this is about understanding your practice, your population, the data for that population and if necessary, working with a competent analytic group to predict benchmarks.
Simplify the risk adjustment model
Risk assessment is about adjusting payment in a clear and understandable way between payers, physicians and value-based care entities, accurately reflecting the intensity and acuity of the attributed population. Practices can use known risk categories such as hierarchical condition categories or other independently verified and concurrent models or update the risk scores within the performance year.
It’s important to avoid resource-intensive processes and practices and mitigate for the potential of overpayment or underpayment because of differences in coding capabilities. To check off these boxes, make sure that you have a good relationship with your payor partner, said Dr. Finkel.
Evaluating the burden of illness isn’t easy. “It doesn't really account for prevalence in the same way as it does for severity but nevertheless remains a challenge. So, I think that making sure that you do this accurately is really critical,” he said.
One strategy in negotiating these contracts is to simplify the risk adjustment model, offered Dr. Parodi. This might be controversial, but some of it just comes down to basic demographics. What's the age of the population? What's the institutional status of the population?
Practices can focus on key areas and perhaps a few substantiated conditions, depending on what they’re going to base the value-based arrangement on, he said. “So, there are opportunities to simplify risk adjustment depending on what you want to negotiate with the payer.”
Physicians can also advocate for better risk adjustment models, particularly with government payers, given that commercial health plans often follow what the government payers do, Dr. Parodi suggested. From the standpoint of a physician practice, “ideally you would prefer to not have multiple risk adjustment models with all your different payers. It would be nice for some standardization around this.”
Learn more with the AMA about value-based care, including ways to improve data sharing and best practices for payment methods.
