As outlined in part one of this series, choosing a starting point for accountable care requires a thoughtful evaluation of four important factors:
- Your organization’s current structure
- Whether a strategic plan is in place
- Your leadership alignment
- Projected budget
Once the decision has been made to initiate this transition, there is an immediate need to begin long-term financial planning. While your organization is working to drive down costs, it must also look for ways to maintain profitability. This is especially true where acute care services represent a large portion of revenue.
Leverage a market level view
One approach is to take a market level view. This approach relies on market growth to offset the initial revenue declines from changing reimbursement models. If your organization currently serves 100,000 patients under fee–for-service, you may need to extend these services to 150,000 patients to maintain profitability.
But the model isn’t purely a volume-offset play. It relies on you taking a proactive care delivery approach where you focus not only on the patients who seek care, but managing the health of the entire population you serve. For example, you will need to focus on extending preventive care and other services to patients. By using this approach, your organization can take advantage of accountable care payments. These fees are typically paid on a per member per month basis by payers/employers. To tap into this this revenue source, you will be required to support patients in between traditional care interactions. By managing a larger population and keeping these individuals healthier, your organization can access this additional revenue as well as shared savings opportunities.
Pursue a medical economic view
Taking a medical economic view to financial planning requires a thoughtful analysis of your current strengths and opportunities to improve quality. For example, you may want to examine your rates of ED utilization and generic prescribing. Other potential areas might include the number of high-cost surgeries and high-tech radiology. Once you have this data, you must look externally to understand how you stack up against peers in the market. Taking this one step further, you should also analyze how you’re comparing against the best physician groups nationally.
For example, looking nationally at all health systems, you may find average generic prescribing rates of 50 percent. However, high performers in the industry could achieve upwards of 80 percent. If your organization is aligned with the national average currently, there is an opportunity to generate cost savings and receive shared savings or quality payments increasing the generic prescribing rate.
During this process, you may also identify opportunities to improve chronic condition management. This can be accomplished by promoting clinical best practices at the point of care and developing care management approaches to improve patient compliance, reduce complications and even inhibit the progression of diseases. By zeroing in on these high cost patients, you can more effectively move the needle on quality metrics and meet shared savings goals.
The savings resulting from these efforts could be used to increase incentives for physicians and other key investments. Then, based on whether you’re in a risk contract or gain-share (upside only) model, you can determine what your incentive payment would look like with these improvements. Some of these areas—such as generic prescribing—may be low hanging fruit. But it’s also important to look at the total improvements your organization can make across a variety of areas.
Timelines to ROI
Both of these models offer a path to maintain profitability for organizations pursuing value-based care. Many health systems question how long it will take to generate a return on their investments. The answer is unique to each organization based on its value-based care contract, population size and performance. However, a large integrated medical group could potentially start seeing returns from day one. This is especially true if it is receiving payments to support infrastructure and growth.
On the other end of the spectrum, some systems with a large portion of revenue from acute care services may spend two or three years to reach a breakeven point. However, there are examples where these organizations have realized upside potential within 12 months. There must be a delicate balance between reduced costs, optimal growth and improved quality to achieve this goal. A combination of incentive payments, referral strategies and patient loyalty strategies can help offset revenue losses.
As the entire industry begins to shift from a volume-based approach to one focused on higher quality and lower overall costs, the old financial models must be completely retooled. Provider organizations must begin to focus on how best to manage larger populations and the health of their patients more effectively. Only then can value-based care become a sustainable strategy benefiting providers, payers and patients alike.
This is part two of a three-part series on ACO success strategies. Find part one here.