Establishing Healthcare Market Essentiality

In 2022, healthcare purchasers pushed for better value for their healthcare dollar.

Their priorities were increasing access to care (including shifting the care delivery setting and introducing more digital health options), expanding benefits (particularly for mental health and wellness programs), engaging in new models of payment for care (including more value-based care programs), and evaluating ways to achieve greater equity across populations. Purchasers favored healthcare providers who delivered on those priorities. In turn, those providers enjoyed the financial rewards of participating in value-based arrangements, increased market share, and mutually beneficial relationships with payers.

As 2022 comes to an end, what can providers learn from their successful counterparts as they try to balance the need to excel in value-based, alternative payment and legacy fee-for-service (FFS) models? Exclusive research from Guidehouse uncovered five value-based performance benchmarks that successful providers had in common in 2022. Those benchmarks translate into four strategies for success in 2023.

Healthcare Headwinds Ahead

Before revealing the benchmarks and strategies, let’s review a few of the major economic trends swirling around providers that will make 2023 even more challenging than 2022.

• Commercial health plan enrollment has stagnated. The Centers for Medicare & Medicaid Services’ (CMS) Office of the Actuary forecasts a 0.2% average annual enrollment rise in employer-sponsored health plans and a 0.4% average annual enrollment rise in all commercial health plans expected over the next five years
• Medicare and Medicaid enrollment, though, is growing more than twice as fast. CMS projects average annual enrollment increases of 1.1% and 0.9%, respectively, over the next five years
• Medicare and Medicaid are committed to value-based payment (VBP) models. For example, the Center for Medicare and Medicaid Innovation (CMMI) announced Accountable Care Organization (ACO) Realizing Equity, Access, and Community Health (REACH), a program with a health equity focus and mandatory partial capitation. Twenty-nine states with Medicaid managed-care programs now include value-based requirements in their requests for proposals or provider contracts. Moreover, in its Innovation Center Strategy Refresh, CMS said it wants all Medicare FFS beneficiaries and most Medicaid beneficiaries in accountable relationships by 2030
• Health plans are rebranding around “whole health” and partnering with clinical platforms and physician groups to shift more of their business into VBP models
• With the growth of Medicare Advantage and preferred versus standard FFS Medicare, as well as the rise of innovative primary care physician (PCP) groups, hospitals are netting less from Medicare Advantage than traditional FFS. Meanwhile, health plans are laser-focused on capitalizing on the economics of Medicare Advantage, shifting expenditures to rebate and bonus pools that are largely achieved through provider performance
• States are cultivating a market where Medicaid managed care organizations must focus on population health and prove they can establish successful VBP programs with healthcare providers

As a result of these trends in commercial and government-funded programs, providers face complex decisions in 2023, including competing for a shrinking pool of commercially insured patients, allowing other organizations to reap their financial performance rewards, and facing an increasingly unprofitable payer mix.

Providers Can Win in All Payment Models with the Right Tools

Successful providers will not see VBP as an either/or proposition in 2023. High-achieving healthcare leaders understand that VBP is more than forming a clinically integrated network (CIN) or participating in CMS’ latest next-to-zero-risk ACO model. VBP must be incorporated into the path to financial health and sustainable enterprisewide growth.

Investing in infrastructure to succeed in VBP is both a hedge against future uncertainty and a revenue diversifier that fosters cash flow independent of FFS volume. With an aging population, a focus on value-based care, and limited opportunity to grow commercial patient volume, an accelerated path to full capitation and access to first-dollar premium revenue offers providers sustainable growth opportunities across government lines of business.

Leaders should look to VBP models as programs that complete their payment strategy by incorporating the core competencies needed to establish market essentiality with consumers, payers, purchasers, and clinicians and other critical workforce.

However, providers that established an ACO or CIN over the past 10 years and:

• have been unable to reduce service costs by at least 8.5% over three years, or
• have been unable to reduce service costs by at least 11% over five years, or
• did not enjoy 6.5% in Medicare Shared Savings Program shared savings
• did not reap the full financial benefits potential of their ACO or CIN, according to benchmarking data from Guidehouse’s research

Such providers are not alone. About 90 ACOs that didn’t generate savings in 2020 also didn’t generate them in 2019 or 2018. They didn’t take the right steps to create a value-based infrastructure. They may have invested in VBP but did so without an aligned and coordinated enterprisewide strategy for value that also continued to support their FFS contracts.

Through research and boots-on-the-ground client experience, Guidehouse identified five performance benchmarks of providers (and primary-care practices) that each have a well-defined VBP strategy that also works for FFS and other types of payer contracts.

Key commonalities for providers and PCPs whose patient panels were at least 25% Medicare:

1. Providers completed at least 80% of scheduled annual wellness visits (at least 76% for PCPs)

2. Providers and PCPs were in-network providers with Medicare Advantage plans that had five-star ratings from CMS

3. Providers completed at least 61% of transitional care management services for eligible patients (at least 54% for PCPs)

4. Providers had a readmission rate of 6% or less (7% or less for PCPs)

5. Providers’ and PCPs’ rate of potentially avoidable emergency department visits was 15% or less

Additionally, the ability to attract and retain patients by coordinating at least 60-70% of care in-network is key. These performance benchmarks essentially were the cutoffs between providers and PCPs who reduced service costs and turned a profit on Medicare VBP programs and providers and PCPs who didn’t. What’s the thread? The commitment to see patients and intervene before any health problems intensified and required high-cost care coupled with the commitment to steer patients to the right setting for their conditions.

Converting Benchmarks into Strategy

The benchmarks uncovered by Guidehouse’s research point to four foundational components of an enterprisewide VBP strategy that continues to support legacy FFS contracts and other non-VBP arrangements with other payers and patients. 

1. Establish a growth strategy

A successful growth strategy should be rooted in retaining care within the network, demonstrating high-quality performance and experiences to attract new members, and creating a clear ambulatory plan to transition into new markets. The ability to direct people to the best care settings is key to managing risk and growing a provider network.

Population health capabilities like case management, utilization management, post-acute-referral network management, consumer experience, and risk stratification determine the readiness to manage patient lives under contract. However, these capabilities must grow stronger over time to support successful shared savings models that can transition into financially sustainable VBP programs that capture more of the premium dollar by moving to capitation and increasingly assuming risk. ACOs and CINs especially must reach economies of scale and establish a clear path to increasing their covered lives under contract.

Highly challenging economics have put nearly every provider “at risk” for their Medicare and Medicaid populations, no matter their payment model. Providers should be preparing today to manage the total cost of care for these populations. By attaining critical mass effectively, organizations can negotiate favorable contract terms that help drive savings from care model improvement.

Additionally, a provider growth strategy for the future requires a health equity-driven approach. Successful organizations understand where the vulnerabilities are in their population and create evidence-based programs that support the investment in, and care for, their communities. A robust social health strategy must be embedded within payment models that support and sustain investment in total cost of care and quality outcomes for the most vulnerable.

2. Pursue a model of care through operational excellence

Operational excellence should exist across the continuum of care. As stated, providers are already “at risk” for Medicare and Medicaid reimbursement. Managing the total cost of care for a patient population means incorporating VBP programs with the best opportunities to drive value as part of a comprehensive payment strategy.  Implementation of successful FFS and VBP programs require providers to master the following processes:

• Measuring and tracking program return on investment and relevant quality measures
• Standardizing programs around care models through staffing ratios and patient volume
• Gaining buy-in from the frontline administrative and clinical staff
• Managing population health investments as a true P&L

Providers also must be prepared to adopt innovative models of care with a health equity backbone, such as by participating in ACO REACH or launching hospital-at-home initiatives. For example, CMS has opened the regulatory door to improve health equity, speed whole-person care, and support patient preferences for home- and community-based care. CMS also has expressed its desire to integrate specialists into total-cost-of-care management. Exploring how to build care “bundles” within ACOs or other total-cost-of-care programs to engage specialists will help position organizations for success.

3. Enable technological support where applicable

Data and technological enablement are critical success factors from several perspectives. One is the need to meet new regulatory requirements, including CMMI’s pronouncement that all new VBP program models will require participating providers to collect and report on demographic data. Second, data and technological enablement are imperative to the implementation of programs that drive cost and clinical outcomes. Improvement requires measurement. Data and technological enablement will help providers quantify operational and financial effectiveness across their payment programs.

Leaders should identify and embrace the technology platform that satisfies the data and advanced analytics requirements needed to track and measure metrics such as initiative progress and ROI. Technology platforms also need to be seamlessly incorporated into daily workflows to reduce the administrative burden on staff and frontline clinicians.

4. Implement change management

People need to come before processes and technology. Throwing more administrative tasks and performance objectives at staff and frontline clinicians is like putting a Band-Aid on a gaping wound. Not only is it the wrong solution, but it will also make the problem worse. Providers need solutions that ground themselves in practice transformation.

With most health systems already feeling the fallout from pandemic-induced staff burnout, leaders need to rethink their usual approach to change management as they adopt an overarching payment strategy. Many new initiatives at any organization in any industry fail because they’re not grounded in behavioral science or aren’t well thought out from the user’s point of view. Providers should embrace science-based, data-backed change management strategies that leverage people-centric change, human-centered design, and behavioral economics.

The Way Forward

The hallmarks of the post-pandemic healthcare economy will be continued change and volatility. The most effective way for healthcare provider organizations to thrive in that new economy will be to embrace a new way of thinking. VBP model success and FFS-based payment model success are not mutually exclusive goals. By implementing an overarching payment model strategy composed of these four foundational principles, providers can win in all payment models, establish essentiality in the market, and build an infrastructure for financial resiliency and growth.