Government Legitimacy, Commercial Payers and Value Based Reimbursement
Two weeks ago HHS Secretary Burwell announced the aggressive shift of 30% of Medicare fee for service payments to value-based performance models by the end of 2016. What will the commercial payers do with the government commitment to an entirely new payment paradigm? (Hint: the answer is revealed below by the recent announcement from the “Health Care Transformation Task Force” comprised of 28 payers and health systems.) In order to understand the industry-wide ramifications of this momentous change, let’s take a walk down memory lane.
Let’s start with DRG’s. Yale University started working on the Diagnostic Related Groups in the early 1970’s. The government wanted to move away from cost-based reimbursement and despite the tepid performance of DRG’s during the pilot program in New Jersey, the new payment model was finally adopted in 1983. Hundreds of poorly prepared hospitals went out of business. What did the commercial payers do? Sensing a windfall, within a few years, DRG’s became the predominant payment model for inpatient services throughout the country.
How about RBRVS? RBRVS was the “next big thing” as far as provider payment systems. The Harvard Study on Resource Based Relative Values was published in JAMA in 1988. Curiously, the AMA (excepting a few surgical-related professional associations) supported the new outpatient payment model. Again, the government was looking for a way to move beyond paying providers based upon “customary, prevailing, and reasonable” charges and developed a system based on effort. Usual, customary, and reasonable payment gave too much control to the clinicians and RBRVS was a lock-solid way to create an objective, not subjective reimbursement disbursement system. The states soon followed for Medicaid and Work Comp and guess what? Few payers had the budget or experience to develop their own fee schedule and RBRVS provided a way, legitimized by the government, to “lock-in” payment. Managed Care plans began to present fee schedules loosely based on RBRVS. When providers complained, the payers had an out by citing the innate credibility a government mandate provides.
Now we’re at the next stop down the road. Value-based performance models for physician payment. While RBRVS pays based on “effort,” a value-based system pays based on “effect.” As with DRG’s, clinicians who are unprepared for, and unaware of, what it will take to prevail in this “report card” that grades cost savings, proven efficacy, and population health will find themselves in financial limbo. What will the commercial payers do with the legitimacy government support of value based performance provides? Becker’s Hospital CFO online newsletter reported The Health Care Transformation Task Force, comprised of 28 major payers and health systems, “have pledged to turn 75% of business to value-based arrangements by 2020.
Value-based models are going to be around for the foreseeable future and will be the prevailing payment method for the industry. During this time of upheaval (MU Stage 2, ICD-10, RAC audits, etc.) I know it’s asking a lot, but take a moment to learn what you can. Your future reimbursement will depend largely on the quality of data you capture right now. George Bernard Shaw said, “If history repeats itself and the unexpected always happens, how incapable must Man be of learning from experience.” As my father used to say, “Don’t be that guy.”
In conclusion, it’s worth noting this value-based push will require the ability to create stellar data in order to exist. With the SGR bill vote looming in March, it would be duplicitous to delay ICD-10 while at the same time announcing a government mandate for value-based measurements. You can’t have one without the other. Along with the CMS commitment to E2E testing, the announcement of a move to value-based performance models signals that ICD-10 adoption this year is a good bet.
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