How to reap the benefits of value-based reimbursement

It’s been said that the current value-based reimbursement environment is akin to the wild wild West with lots of different models attracting all sorts of pioneers, tempting them to embrace risk and seek greener reimbursement pastures.

Like any good analogy, this one holds a grain of truth: value-based reimbursement, in its various forms, represents a 180-degree shift in how organizations deliver and receive payment for care. Instead of being incentivized to run a lean, low-overhead business that emphasizes seeing as many patients as possible, providers are now being pushed to take on more risk, collaborate across care settings and welcome shared savings opportunities.

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Practices looking to reap the benefits of this new path must leave their old fee-for-service life behind and set a course for parts unknown. What this ultimately means for the healthcare industry is still unclear because it is early in the process, and everyone is just trying to figure out how to sort through the wide array of diverse options.

An essential-and underappreciated-part of the journey

As providers commit to pursuing risk-based arrangements, they often focus primarily on restructuring patient care processes to improve quality. Although this is a necessary and valuable strategy, there is another equally-if not more important-step that frequently gets overlooked: the need to accurately and consistently quantify the true costs of care.   

Next: Deciding right level of risk to take

Cost accounting-recording all the costs involved in creating a product or providing a service with the goal of enhancing performance and making informed decisions about risk-is a relatively new concept in healthcare, although it has been around for years. In fact, healthcare is one of the only industries that does not utilize cost accounting as a tool for reimagining processes. Manufacturing, for example, uses it to enhance productivity, evaluate profits by product, customer or job, maintain ideal inventory levels and assess the potential advantages of in-house operations versus outsourcing.

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Physician practices have not historically examined this amount of financial detail because the fee-for-service reimbursement model doesn’t take costs into consideration, but they should begin doing so now. This method can help determine the price of delivering patient care to certain populations and in particular settings. However, it is crucial to review claims data alongside the bigger picture of your practice’s cost data.

Without robust cost accounting, providers will struggle to negotiate risk-based contracts successfully and identify the best methods for cultivating value. For example, if a practice doesn’t know how much it costs to provide treatment and services, how can it establish appropriate reimbursement? How can it decide on the right level of risk to undertake?

Next: Challenges and where to go from here

The challenges with getting a handle on costs

Realizing the need for cost accounting is just the first step. Healthcare organizations must also work to reliably and regularly access data that can inform the cost accounting process. Such information includes data about utilization, time spent with patients, use of resources, claims, clinical protocols and so on.

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Until now, healthcare information technology has not facilitated smooth access to these various kinds of data, meaning that practces must gather and interpret the information on their own. This can be time consuming and resource intensive; however, technology and service are evolving. In the not-so-distant future, there will be technologies that can bring healthcare organizations the data they require in a useable and meaningful format.

Where to go from here

Even though healthcare organizations’ ability to engage in true cost accounting is still evolving, there are strategies you can follow to get started on capturing reliable cost information.

First, look closely at the value-based models you are participating in or thinking about pursuing. What are the costs associated with treating these patients? For example, what resources are used? How much time does it take? What percentage of your patients follow a similar course and how many outliers are present? What are the costs involved in treating average patients versus those that fall outside the norm?

Next: Acknowledging the need

To get answers to these questions, practices should examine claims data, utilization information, clinical protocols and time and motion studies. If this seems like a daunting prospect, perhaps start with one or two patients to develop the methodology. From there, expand and apply it to other patients, and even other population groups, at a later time.  

Acknowledging the need

As an industry, we must appreciate the significance of robust cost accounting in order to adopt risk-based models. Without it, we will never completely leave fee-for service behind. To advance from the wild wild west to a more established frontier, healthcare providers must commit to uncovering and interpreting this level of financial detail and start finding ways to effectively and accurately quantify the cost of care.
 

About the author

Monte Sandler is the executive vice president of RCM services at NextGen Healthcare.