Two years into the global COVID-19 phenomenon, it’s become very clear that patient care organizations in the United States have taken a big financial hit from the pandemic. Not only has caring for COVID-19 patients turned out to be extremely expensive, the pandemic has also scrambled hospital operations in particular, as numerous nurses, physicians, and other clinicians have become infected the by virus, and others, burned out by the many months of stressful, often overtime, labor, have left the field altogether or, in the case of many nurses, quit their existing jobs in order to cash in as traveling nurses, at a time when those nurses are in extreme demand.
As a result, the leaders of some of the patient care organizations that had either not moved very far along on their paths into value-based contracting and care delivery, or not begun the journey at all, have remained semi-frozen, tremulous over the financial risks involved in moving forward into risk-based contracting at a time when their organizational finances were already teetering.
At the same time, the leaders of patient care organizations that had already assumed a great deal of financial risk prior to the spring of 2020 found that their capitated contracts helped save their organizations financially during those difficult months during the first half of 2020, when the federal Centers for Medicare and Medicaid Services (CMS) effectively banned nearly all elective surgical and medical procedures, sending fee-for-service revenues plummeting at hospitals, medical groups, and health systems nationwide. As Stacey Hrountas, CEO of the San Diego-based Sharp Rees-Stealy Medical Group, said in a Nov. 17, 2020 panel discussion during the first day of the APG Colloquium 2020, sponsored by the Los Angeles-based America’s Physician Groups (APG), and held virtually, “Seventy percent of our revenue is prepaid, and, hallelujah, because it saved us during COVID!” Indeed, even as many multispecialty group practices nationwide were crashing financially during the first half of 2020, Sharp Rees-Stealy did just fine, because its capitated contracts prevented its revenues from bottoming out during an exceptionally difficult time for medical groups.
So, what impact has the pandemic had on the forward evolution of value-based contracting, as it’s stretched on now into its third year? Well, the answer is complicated, say all those interviewed for this article, both on the health plan and provider sides. But things are moving forward when it comes to alternative payment models (APMs), accountable care organizations (ACOs), and other types of payment vehicles.
In Minnesota, payers and providers move forward into risk
The senior leaders of some of the most progressive health plans in the U.S. are not sitting around waiting to find out how things will shake out; instead, they’re moving forward to help guide providers into risk, now. That certainly is true at 2.5-million-member Blue Cross Blue Shield of Minnesota, based in the Minneapolis suburb of Eagan, where Eric Hoag, vice president of provider relations, has been working very actively all along to deepen partnerships with provider organizations. “I do think that the pandemic has shone a spotlight, frankly, on the fact that the fee-for-service payment system is not sustainable for the nation as a whole, or for providers themselves,” Hoag says. “I’ve been here ten-plus years, and came from the provider side, to launch value-based care. We’ve been doing value-based care for about eight or nine years now, and we’ve been looking for ways to really ratchet things up a bit, towards transformation. We have a goal of having 50 percent of providers accepting downside risk.” That initiative, he reports, was launched in 2019, and it led to the first agreement of its type signed with Allina Health in March 2020.
And, Hoag says, “Since then, we’ve been trying to get other providers to move towards that. There’s a lot of noise around the up-and-down volume issue,” he concedes. “But for providers who had been harder to convince, there’s been more interest in going to this kind of model, especially per nurse staffing. The pandemic has clearly put pressure on staffing. So if you can transform your model towards value-based care, including through the use of technology and virtual care, there’s more interest now.” Indeed, he says, “We have seven or eight major systems here in Minnesota, and by the end of the year, we will have every major health system except for one, involved in some kind of downside-risk agreement.”
Meanwhile, at the 1-million-member, Harrisburg, Pa.-based Capital Blue Cross, Stacy Mays, who joined the organization as executive vice president, healthcare delivery, after nearly four years as senior vice president and COO at the Golden Valley, Minn.-based Preferred One plan, says that things are definitely being learned on both sides, as the pandemic rolls forward. “While providers were stressed earlier in the pandemic from a revenue perspective, payers have become stressed as the pandemic has continued, particularly with the last spike we’ve seen that wasn’t anticipated in the way it’s happened. So you see major fluctuations in both cost and revenue on both sides of the equation. I do think that for certain that capitation and other advanced value-based structures really do stabilize the financials on both sides of the equation, and also on behalf of employer groups, who are now seeing very significant swings in their cost structures. So if you can stabilize, you can do better.”
That said, Mays says, the crises around staffing and expenses are making it harder for providers to move forward right now. The solution? Over time, a broad focus on wellness and on the social determinants of health (SDOH). In that regard, she says, providers are beginning to look towards “their community-based programs, including primary care and wellness—onsite, near-site for employer groups. Also, there’s a lot of receptivity to joint clinical rounds on complex members in particular, to ask how we can use all the resources we’re engaged in, to get the best outcome for individuals. And in that regard, she says, “I’m frequently getting calls from systems asking how we can partner, how we can work together for the long term, how we can align our systems and resources. Historically, it was from the payer side trying to get traction. Now, there’s more joint interest on changing the way we interact with each other.”
The view from an experienced physician-led organization
If one wants to get a sense of where all this is headed, it’s important to speak to leaders of very advanced provider groups. One person who sees the landscape clearly is Melanie Matthews, CEO of the Olympia, Wash.-based PSW, a Population Health Company. PSW—originally Physicians of Southwest Washington, but now simply “PSW,” originated as an independent practice association of 1,000 providers. The organization has expanded over time to embrace more business activity and a broader geography. “We help organizations to execute on population health management,” Matthews explains. “We run several networks through our platform, taking on Medicare Advantage and accountable care organization contracts, while also running the entire population health management program for the seven-hospital, Tacoma-based MultiCare integrated health system. Over time, Matthews and her colleagues have come to assume responsibility for population health management activity in physician-led and hospital-based organizations in several states. PSW is responsible for population health management of 200,000 lives in the Pacific Northwest, but now also provides advisory and management services in 17 states.
Matthews says that the pandemic has had a significant impact on the value-based contracting landscape, along multiple dimensions. For one thing, she says, “Any structures that accountable care organizations had in place allowed those ACOs to learn to understand their populations that fee-for-service payment simply doesn’t. When you’re in an ACO, you have the claims and clinical data to identify members, beneficiaries, members, who might need additional support.” And, during the pandemic, she says, “We’ve been able to do things like making sure that our diabetics were getting their insulin and also were consuming healthy meals. The ACOs had infrastructure and experience, including around social isolation and social determinants, including such elements as food deserts. And, making use of HRSA [the federal Health Resources and Services Administration] data, we could determine how to keep patients safe, comfortable, and COVID-free. We were also able to address social isolation particularly for our seniors who were isolated during COVID. And also prioritizing outreach for vaccination.”
Meanwhile, Matthews says, “Because of our capitated payments, we were able to advance payments to our providers during a time of significant revenue reduction. So capitation is both good from a care management perspective and from a revenue perspective.” And the pandemic, she says, has proven that “the capitated, ACO model is the right approach. The pandemic showed us how dependent on volume in the fee-for-service world.”
Where all of this is headed, Matthews says, is illustrated by how her organization has evolved forward in the past several years. “We’ve been working with delegated agreements for 28 years. We have been partnering with health plans to take a percentage of premium and maintain a network, do utilization management, care management, claims, and medical management, working as partners with the health plans. And our contracts have just been maturing over time, such as with self-insured purchasers. So we’re seeing more and more value-based contracts across the payer landscape.” And in that context, she says, “illuminated an opportunity for organizations to see that in a pandemic environment, capitated care delivery provided value. I think that innovation is hard; and there are true believers, including me.”
The choices for the overall U.S. healthcare system will be stark going forward, she says: “Either we will need to reduce care, reduce payment—meaning cutting payment rates under fee-for-service—or we’ll need to get really good at providing care at the right level, in the right place, in the right time.” Indeed, she says, as the U.S. healthcare system heads closer to a devastating cost cliff—the Medicare actuaries have predicted that overall annual national healthcare expenditures could continue to soar, beyond 2020’s $4.1 trillion, to $6 trillion and beyond in the next several years—a care management-based approach will prove to be the only way forward.
Fortunately, Matthews says, CMS officials have been listening to providers. “At the end of the day, the financial model is going to need to be made attractive. And we’re going to see, through the CMMI [Center for Medicare and Medicaid Innovation] refresh and the LAN [Health Care Payment Learning & Action Network] announcements, through commercial payers as well as Medicare and Medicaid—we’ll see that those organizations with downside risk will be doing better.”
Coming together over data—for long-term success
One of the encouraging elements in all this is the progress that providers have shown after collaborating with health plans on APMs, including ACOs, over a period of several years. That’s certainly true at the Scottsdale, Ariz.-based HonorHealth, where James Whitfill, M.D. is senior vice president and chief transformation officer.
“Now that we’ve spent six or seven years ingesting claims-based analytics across all the different APM products, we’ve become much better at being able to look across the entire population, but also explain to our colleagues what we’re looking at. We have to coach them on what’s going to be very reliable, versus what’s going to be directional,” Dr. Whitfill says. “If I want to say, ‘Dr. Whitfill, you tend to manage your patients with asthma well. With your insurance carrier A’s patients, we see that you’re an outlier, and maybe you need extra training,’ I might say, ‘I’m not sure I trust that data.’ But now, we’ve been able to manage data across five or six different insurance products. So showing them data across payers builds tremendous credibility with the physicians. And with back pain, for example, we’ll bring the clinician leaders together, and we’ll have orthopedic surgeons, neurosurgeons, physical therapists, anesthesiologists, and we’ll show them the data and say, this is what we’re seeing; what do you-all think we should do? And we’ve found it very powerful to show them that higher-level view; they’ll share excellent insights with us.”
Advice from the trenches—on both the provider and payer sides
Meanwhile, how can the leaders of hospital-based health systems can move forward? PSW’s Matthews says that, “For hospital systems, the competencies to be successful in value-based care delivery aren’t inherently already built; it takes a new way to think about things. So attracting and building and utilizing new types of talent into the system and having a cultural adoption, is a big part of the change management aspect of this. And you need to test it out on a small scale. You can’t just say in an executive meeting, ‘We’re going to be good at this everywhere by just giving it to Mike and Susie to do it,’ because you’ll gravitate towards the way you’ve always done things. It takes a different way of thinking. One of the hospitals we work with, we helped to develop population health. And to get good at pop health, you have to think about the competencies, skills, processes, and culture involved. It can’t just be a side hustle.”
And, adds HonorHealth’s Whitfill, “There’s probably at least two overarching elements that are important to learn. The first is getting experience with claims-based data that tells you the total cost of care. That’s probably going to be a multi-year journey for most folks. Clinicians have experience with clinical data, but on the claims side, it’s a murkier image, it’s more like an Impressionistic painting that a crisp, photo-realistic painting and you need to develop the capabilities to understand where you can trust the data at a deep level, whereas versus where you need to make broad inferences. And with claims-based analytics, which is essential to success in APMs, it might take you three to five years to develop that acumen. That’s why I encourage people on this journey to try to get that part started as soon as possible, because you’re probably going to skin your knees on a lot of cases early on; so, start early. The second piece is how you merge clinical and financial—meaning, claims-based—data. And people think there will be this magic black box that will bring things together, and it will be like a photo-realistic picture. But it’s not like that.”
BCBS Minnesota’s Hoag says that “My explicit advice for providers is, think about how you want to redesign care, and what that can look like in a population health model, and then create a financial model around that, to support it. Don’t start with the financial model. First, you have to be willing and interested in wanting to change your care model, and then determine how to finance that.” And the early-stage forms of shared savings simply will not get providers there; two-sided risk will be absolutely necessary in order to move the industry fully forward, he emphasizes.
Looking at the longer term, asked whether he feels optimistic about the journey ahead, Hoag says, “I do. I’ve been at this for a while, but what I’ll say is that we’ve seen true culture change and engagement, ten-fold, this go-around, compared to previously. We have clinical folks meeting in workgroups. We’ve had meetings about how you do outreach to complex members. And even our independent primary care groups are coming to us saying, we maybe want to go to a capitation model. So COVID has been the crisis that this industry probably needed, to get over a hump; so, yes, I am optimistic.”