South Florida Hospital News
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August 2016 - Volume 13 - Issue 2


Transitioning to Value-Based Payment: Where to Begin?

The traditional model of healthcare reimbursement has been turned on its head as healthcare reform demands the transition from fee-for-service to value-based payment. Providers must control costs and improve care delivery to prepare for the inevitable shift to value-based reimbursement.

Prism Healthcare Partners, a healthcare management consulting firm with offices in Ft. Lauderdale and Chicago, helps hospitals and health systems understand their level of exposure and then assess and improve the infrastructure to prepare for value-based reimbursement. They recommend providers start small and build on successes with a certain payor/health plan/segment of population.
1. Understand the Impact of Value-Based Payment on Your Revenues
“Our recommendations to providers are to define exactly what they mean when they say value-based care or value-based payment, and then break that down into a couple of things,” says George W. Whetsell, FACHE, co-founder and managing partner of Prism Healthcare Partners. “Providers need to understand how their revenue stream is going to be impacted, if at all, by those various components.” For example:
• Where do you stack up relative to the value-based purchasing penalties and the high readmission rate penalties? Are you doing well? Are you incurring penalties?
• Can you project how much of your revenue stream might be impacted in the future?
• Can you look at your other major payors and understand what they are doing?
• Are there any value-based payment components from other commercial payors?
“This varies from one market to the next,” says Whetsell. “But this is the first step - understanding how much of your revenues are exposed and how much you are at risk. For example, if it’s only Medicare, and Medicare is 35% of your revenues and your exposure is for a 1%, 2% or 3% penalty, it may not be a huge amount of money. You still don’t want to lose it – but at least you put it into perspective. If you’re 65% Medicare and you have a 1%, 2% or 3% penalty, that is significant. That could be your whole bottom line.”
2. Focus on Utilization
“Many organizations want to set up clinical performance programs to look at utilization on an overall level as well as by DRG, by bundles of DRG or bundles of certain types of cases,” says Ramona Lacy, FACHE, also a co-founder and managing partner of Prism Healthcare Partners.
Whetsell adds, “Under Medicare, you already have DRG-based payments that put you at risk if you have high ancillary utilization and/or long lengths of stay, because they are paying a DRG rate rather than for individual services.”
With a Medicare DRG payment, hospitals are not reimbursed for individual lab tests or individual patient days; they receive a lump sum by case. If providers run too many lab tests, they incur costs but do not receive any extra revenue. Prism recommends organizations implement a utilization management program to carefully manage length of stay and lower non-reimbursed expenses.
“Assess variation in utilization across your patient populations and ultimately drill down by physician,” Whetsell says. “When we’ve looked at this for clients and assessed the performance of their healthcare provider plans, we often see tremendous variation in length of stay even after we control for case type, severity and age. We even see variation across physicians at the same hospital. In many cases, it’s just differences in practice patterns and there isn’t a good medical reason for it. Reducing variation helps remove some of the extra costs.”
Determining medical necessity and the proper level of care for each patient upon admission are also critical components of utilization management. Prism advises hospitals to establish guidelines for admission to ensure only patients who require specific levels of care are admitted to high-cost units like the ICU, which then allows the provider to staff each unit appropriately. Because hospitals are only reimbursed for each patient’s medical necessity category, applying the proper criteria for inpatient and observation status upon admission can also affect utilization and revenues. Inpatients receive higher reimbursement than observation patients and tend to require greater utilization of services. Observation patients must be managed on a more regimented timeline to either discharge or determine if they need inpatient services within the first 24 hours of their hospitalization.
Finally, Prism recommends planning for discharge from day one. Estimating the patient’s length of stay according to their diagnosis and communicating this information with the entire care team allows everyone, including the patient and family, to prepare for discharge. This helps keep the length of stay at the appropriate number of days for each diagnosis.
3. Manage the Revenue Cycle for Both Payment Models
Lacy also stresses that it is imperative that providers manage the revenue cycle for both fee-for-service and value-based payments.
“The revenue cycle is already complicated if you still have most of the reimbursement tied into fee-for-service,” says Lacy. “As you move toward value-based payment, hospitals now must address new things, and they will need both pieces in place.”
The complexities around revenue cycle increase significantly in a value-based reimbursement environment. For example, providers often struggle in determining if they are being paid accurately per the managed care contract. This becomes increasingly difficult when the payor is making adjustments for value. Prism helps hospitals implement a robust underpayment process to mitigate exposure and improve reimbursement.
 “This is going to be interesting because the old system is not going away particularly fast. Everything hospitals had to put in place with the current payment system will need to be sustained,” Whetsell adds. “Revenue cycle management must be constantly watched. What we find is that if you take your eye off the ball for a month, the whole thing can fall apart.”
To minimize the financial challenges inherent in the transition to value-based payment, Lacy and Whetsell emphasize that providers must decrease costs and increase revenue while also improving quality of care. Several capabilities and resources need to be in place to succeed.
“We specialize in helping healthcare providers reduce costs, improve revenue and enhance clinical performance - all of which are essential to value-based reimbursement,” says Lacy.
The challenges providers face as they shift to value-based reimbursement may, at times, seem insurmountable. But a partner like Prism can help your organization navigate the complexities, improve performance and ultimately increase your margins.

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