There is a new need to tolerate risk in a value-based purchasing world.
Right now, most hospitals are already at risk for decreased reimbursement from CMS’s value-based programs.

Complete Change in Payment Model

•    Financial Viability
•    Risk
•    Value Based Revenue
•    Marketing and Branding to Attract Patients
•    Efficiency
•    Outcomes

CURRENT MODEL

TRANSFORMATION

GOAL

Build a sustainable healthcare system that provides access to quality care at a reasonable cost.
UNSUSTAINABLE
DOESN'T MEET THE NEEDS OF MANY PATIENTS
DOESN'T MEET THE NEEDS OF MANY PHYSICIANS
DOESN'T MEET
THE NEEDS
OF PURCHASERS
VOLUME DRIVEN BUSINESS MODEL
HEALTH VALUE DRIVEN BUSINESS MODEL
Fee for Service
Pay for Quality, Safety, and Efficiency
BEFORE PAYMENT REFORM

5%

15%

AFTER PAYMENT REFORM
REWARDING RESULTS
HMSA Provider Reimbursement Tied to Quality Measures
CLAIM PAYMENTS
QUALITY BONUS
QUALITY BASED REIMBURSEMENT
RISK ADJUSTED CAPITATION

But some risk isn’t based on risk tolerance, and right now, most hospitals are already at risk for decreased reimbursement from CMS’s value-based programs. For example, if a hospital performs poorly in all three programs (hospital-acquired conditions, high readmissions, and value-based purchasing), it is at risk for a 5.5 percent reduction during 2015. For hospital-acquired conditions alone, Medicare is reducing payments by one percent for 721 hospitals this year.

Financial viability continues to be a significant concern for healthcare CEOs.

Wall Street Building with Flag

A main concern for hospital CEOs continues to revolve around the financial position of their organizations. Other concerns include new CMS mandates and rulings, patient satisfaction and quality scores, population health management, and personnel shortages—all of which end up impacting the bottom line if health systems can’t overcome the related challenges.

Because of the significant trials the industry as a whole is facing, three major credit rating agencies (Standard & Poor’s Financial Services, Fitch Ratings, and Moody’s Investors Service) have all given the healthcare and hospital sectors negative outlooks for the 2015 calendar year. Specific forecasts include the following:
 
  • Standard & Poor’s Financial Services forecasts more ratings downgrades in 2015. The agency is also updating its methodology for credit ratings of acute-care, stand-alone hospitals. Specifically, these new criteria assign ratings using a framework that considers enterprise risk (enterprise profile) and financial risk (financial profile) factors. The credit rating agency expects almost one-quarter of stand-alone hospitals to have non-stable outlooks.
 
  • Moody’s Investors Service predicts another year of weak performance based on the slow revenue growth and the fact that expenses still outpace revenue.
 
  • Fitch Ratings gave a negative outlook for the non-profit hospital sector, but said the ratings outlook for the industry as a whole is stable.
 

There is a new need to tolerate risk in a value-based purchasing world.

Hopefully, health systems have already determined their tolerance for risk and started to implement risk strategies to survive value-based payment models. Examples of risk strategies include applying for CMS’s Accountable Care Organization (ACO) status and participating in bundled payment arrangements. Some organizations are more risk averse than others and having the data enables good decision making.

The healthcare industry as a whole is also experiencing the proliferation of value-based contracts for the commercial sector. In fact, the independent non-profit organization, Catalyst for Payment Reform, estimated 40 percent of payments made to healthcare providers in commercial plans are based on value. This is an 11 percent increase from 2013. Fifteen percent of value-based payments are paid under full capitation arrangements and 12.8 percent are fee-for-service payments with pay-for-performance built into the contracts. Over half of these arrangements have performance risk built into the contracts.
 
Also a new kind of risk looms on the horizon. When Medicare reduces payments, the names of affected hospitals are publicly listed. Patients search online for public information and patient reviews before selecting where to receive care. Seeing that a provider has been penalized for a high rate of hospital-acquired conditions could cause damage to the organization’s reputation that is difficult to overcome. Social media also makes it easy for a bad reputation to spread quickly.

Then details that you need to understand

In fiscal year 2013, the Centers for Medicare & Medicaid (CMS) began withholding a portion of hospitals’ payments based on their performance. CMS makes adjustments to measures and domain weights each year to reflect an emphasis on those areas most in need of improved performance. There are four domains that will impact up to 2% of a hospital’s Medicare reimbursement in FFY 2017: process of care (core measures), patient experience (HCAHPS), efficiency of care, and outcomes.

In addition to value-based purchasing, the Affordable Care Act authorizes CMS to reduce payments based on other factors such as readmission rates and hospital-acquired conditions. Hospitals could witness substantial losses if they fail to keep abreast of the increasingly stringent regulatory initiatives.