Taking the Alternative Payment Route

It has been a fascinating six months with employer-bundled payment programs.

They have resurfaced as a critical growth strategy, especially with midsize regional health systems and specialty provider practices. The conversation lately goes something like, “We put this on hold when COVID hit, but we are now ready to develop that maternity bundle. We have a broker with five to 15 groups interested in a direct model in the northwestern part of the state. We will need some help designing an episode-based payment model with cost predictability and a low administrative burden attractive to employers.”

In the past, these conversations have followed a similar arc where the conceptualization process produced an innovative programmatic and payment approach. Still, the product ultimately implemented was watered down to a slightly camouflaged fee for service. Most providers who participate in value-based payment choose arrangements without downside financial risk rather than jumping to advanced alternative payment models (APMs) that use two-sided risk (i.e., shared savings and losses) and workflows built up to support it.

More than a decade after the passage of the Affordable Care Act, the vision of moving the U.S. healthcare system “from volume to value” has only been partially realized, with few value-based payment transitions systematically reducing spending or improving quality. While participation in value-based payments continues to grow, the adoption of advanced forms of value-based payment through alternative payment models needs to catch up to both the goals set by the secretary of Health and Human Services in 2015 and the threshold required for widespread transformation.

A Few Paths to Adoption Emerge

There are many reasons why value-based care hasn’t taken off the way everyone hoped, but provider consolidation is a big reason. Large hospitals that get most of their revenue from fee-for-service programs don’t have a considerable incentive to shift.

Value-based care adoption is highest in primary care, but other specialties have seen meaningful and growing traction. Capitation-based models are based on risk-adjusted payment arrangements where a physician receives a certain amount of money for each patient, per period of time, regardless of the volume of services that person seeks. Episodic and condition-based capitation models—which tie payment to a predetermined single episode or medical event, instead of separate compensation for each service and provider along the way—should thrive, as they continue to propel improved medical cost performance, and so should specialty subcapitation models.

Even with the growth of value-based adoption in primary care and some specialties, a highly representative survey by the Medical Group Management Association (MGMA) shows that only a fraction of the total revenue of primary and specialty practices is tied to value-based contracts. That’s consistent with the most recent research by the Health Care Payment Learning and Action Network that shows that, at most, $1 in $3 paid by payers is covered under advanced alternative payment models.

In other words, more than a decade after the Center for Medicare & Medicaid Innovation was formed to accelerate the deployment of value-based payments and two decades of employers asking their third-party administrators to implement real-risk contracts with providers, we’re far from critical mass.

However, some examples show a path to greater adoption of advanced alternative payment models, the most prominent being Medicaid. Medicaid agencies include clear stipulations on the nature and quantity of risk contracts they must implement with network providers in their agreements with managed care organizations (MCOs). Medicaid agencies that have not delegated the management of the program to MCOs are designing and implementing programs on their own and making them mandatory.

Some employers, tired of waiting for their plan administrators to create risk contracts with network providers, also do it independently. They are carving out centers of excellence and, more generally, all surgeries. They also contract all care with a single health system in a narrow network offering. What they haven’t done yet is what Medicaid agencies have done: implement real-risk contracts with network providers as a condition of contracting with the third-party administrator. If Medicaid MCOs can do this, why not the MCOs managing employer groups?

The short answer is that employers can stand up and demand this with assistance from benefits consultants who can review and help optimize the contract between the employer and the TPA. They can ensure that the contract specifies this condition, performance metrics, and accountability mechanisms. With the negotiated rates for in-network providers now public information, a renewed emphasis on fiduciary obligation as the plan sponsor, and the gag clause prohibition going into effect this year, consultants have an opportunity to proactively lead change in the area of APMs with employers, who are already orienting themselves to a new era of transparency and accountability.

Offering alternative payment options demonstrates a commitment to cost management, value-based care, and client-centric solutions, which can attract and retain downmarket administrative services only (ASO) clients. Super-regional brokerages that are focused on employers in their backyards are in a great position to consider alternative payment models for several reasons: their existing local market knowledge, cost savings, alignment of incentives, enhanced service quality and competitive advantage. By adopting innovative payment models, benefits consultants can proactively differentiate themselves from their competitors in the market and develop capabilities that will no doubt be prerequisites for success in the shifting landscape of healthcare payment and delivery as we head toward 2030.
Cheryl Matochik is a managing director at Third Horizon Strategies.