Insights: Article

Preparing for Alternative Payment Models

By   Ralph Llewellyn

January 21, 2016

The growth of Alternative Payment Models in the health care arena has many critical access hospitals asking themselves, “How does this impact our facility and how can we play in this new reimbursement environment?” This is a valid question; some of the alternative payment models require a significant financial investment and/or a larger population base than many rural providers have. Long-term success and survival will require all providers to explore how they can adapt and fit into the new payment methodologies.

Perhaps the easiest area for critical access hospitals to enter into new payment models is in the area of value-based and readmission programs. These programs may provide some challenges due to the potential impact a couple of outliers can have on a small population, but in reality it’s assumed critical access hospitals will become part of these Medicare programs at some time in the future. It is prudent that providers begin to analyze their data to determine the potential risk or opportunity they may have under each of these programs.

Value-based models typically hold back a portion of the base payment for services rendered during the payment year. Funds that are held back by the payor are then available for distribution to providers demonstrating the greatest value. Readmission programs, on the other hand, hold back reimbursement for providers that demonstrate a higher than expected readmissions for specifically identified services. Funds that are held back under the readmission programs are retained by the payor and not distributed to any providers.

Start Monitoring Values Now
Providers that are preparing for value-based reimbursement models must first understand the components considered in the definition of value by the payors. Overall, Value = Quality/Cost, but how does the payor define quality and cost? Medicare defines values with four factors:

  • Clinical process of care
  • Patient experience
  • Outcomes
  • Efficiency

These factors measure processes, satisfaction, outcomes and cost associated with care rendered by the provider. Providers of all sizes can and should be monitoring these factors within their organization to determine how they measure up today, what opportunities and risks their current status provides and what steps they can and should take to improve their positioning for a value-based reimbursement model.

Readmission rates can also be tracked and compared to national averages to determine future opportunities and risks.

It is important to note that the time to address the factors in value-based and readmission payment models is before the payment model is applied to the facility since these payment models usually uses historical factors to adjust current payment levels.

Leverage Bundled Payment Options
Bundled payment models could provide the greatest challenge to many critical access hospitals. This is due to the nature of the services that are most often bundled by payors and the availability of complete information by the critical access hospital. The early adoption of bundled payments appears to be focused on specific surgical services and maternity care. This may limit the ability for many smaller critical access hospitals to be the lead provider in a bundled payment methodology. However, this should not count them out as critical access hospitals can provide many of the ancillary services surrounding the initial care.

Bundled payment models can include the physician, hospital and post-acute care services. At a minimum, the critical access hospital may be in place to provide the post-acute care services and physician follow-up. This could include swing bed, nursing home, home health and physician follow-up. Due to the ability to provide many of the post-acute care services, it is recommended that critical access hospitals explore what opportunities may exist to contract with larger providers for a portion of the bundled payment. Larger critical access hospitals may also explore the opportunity to take the lead on those services originating within the critical access hospital.

Consider Rural ACO Models
Being a part of an Accountable Care Organization (ACO) initially seemed to be out of reach for many providers. Very few critical access hospitals could meet the requirement of 5,000 Medicare lives attributed to them and, even if they could, they most likely would not have the funding available for start-up and ongoing costs of the ACO. Fortunately, we have seen the development of rural ACO models that allow providers to come together to share the costs of start-up and ongoing costs while also capturing the necessary 5,000 – 10,000 lives to become an ACO. These models can vary, but all allow the rural provider to take advantage of the economy of scale that comes with a larger group. In addition, these organizations can provide the technical assistance needed by many smaller providers.

One common thread for all of these models is the need for patient data and the expertise to manage and interpret this data. At a minimum, providers should begin developing strategies for gathering and interpreting data on its patient population. This data will allow the providers to identify opportunities and risks that may exist under the various payment models. It can also provide the necessary information to begin developing strategies in preparation for the new payment models.

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