Value-Based Contracting in the "Era of Unknowns"

In a Tuesday session at the American College of Rheumatology’s 2017 Annual Meeting in San Diego, California, Greg Mertz, MBA, FACMPE, managing director for Physician Strategies Group, LLC, presented a talk title “Value Contracting: Opportunities of Fantasy?” in which he outlined the current landscape for performance-based contracting.

What Is Value in Healthcare?

Mertz began by giving his definition of value in healthcare: “a term used to describe the need by governmental and private payers to lower the cost of care…We always have to use quality along with value—we have to say it’ll still be quality care.” He added, “You can’t call it ‘rationing,’ because people won’t like that.”

Mertz gave a brief overview of the evolution of value in the American healthcare model, saying that, beginning in 2008, reporting certain indicators to the government was “a fishing expedition” designed to help CMS understand the key drivers of cost. “They simply began to collect a lot of data at your expense,” he said.

Meaningful use incentives followed for those physicians who implemented certified electronic health records (EHRs), and meaningful use eventually evolved into the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) which includes the the Merit-based Incentive Payment System (MIPS).

The next phase of evolution was the development of accountable care organizations (ACOs), which Mertz described as “these big, amorphous organizations of physicians that are supposedly caring for populations,” followed bundled payments under Medicare and the chronic care management program.

Value Opportunities for Rheumatologists

Among the top models of value-based contracting—ACOs, bundled payments, and employer-based contracting—Mertz sees ACOs as being the most pertinent to practicing rheumatologists.

Currently, 432 US ACOs are Medicare-approved. However, only 22 of them assume risk; 410 ACOs are “upside only,” meaning they receive incentives if they are successful in reducing costs, but are not subject to penalties if they fail to do so. Among those 410 ACOs, 56% (242) together generated $652 million in cost savings in the most recently reported data, with an average savings of $2.7 million per ACO.

“[The] savings per patient is actually kind of modest,” said Mertz, who suggested that the cost savings produced do not necessarily merit the heavy investment needed to adapt a practice to ACO guidelines. Furthermore, Mertz said, Medicare paid $691 million in incentives to the ACOs that saved on costs, creating a loss for the government of $39 million.

Upside-only arrangements are unlikely to continue in the long term, Mertz cautioned: “[Medicare] paid out more than they saved. That’s government math…even the feds are bright enough to figure out that that’s not right.”

Ultimately, Mertz said, the United States may be moving toward a system of global capitation, in which a fixed amount of money is paid to a practice per patient. For now, the government’s approach is, according to Mertz, “Throw spaghetti against the wall and see what sticks,” and most commercial payers will follow the government’s lead once it makes a decision on the best way to deliver healthcare.

In the current “era of unknowns,” as Mertz called it, rheumatology practices considering joining an ACO should take into account the following as part of the decision-making process:

• Investment. Most practices will need to invest in people and technology to meet ACO standards.
• Cost. Practices should determine how much it will cost them to join an ACO, and assess whether future savings can be used to cover that initial investment.
• Alternatives. In some markets, there are few alternatives to joining an ACO; while in less competitive markets, a practice may not suffer a loss of patients if it decides not to join an ACO.
• Patient volume. In some markets, increased patient volume or shared savings may offset the costs of joining an ACO.
• Patient Engagement. “How does the patient play into this value-based world?” asked Mertz, adding that costs can never truly be reduced unless patients are compliant with their treatments.
• Data. Mertz suggested that practices consider whether the data that will collected and reported will correlate to care, or whether it will simply be “busy work.”
• Compensation. Some practices will have to change the ways in which they pay their employees under an ACO.

If they are ready to join an ACO, practices should ask the organization the following questions:

• What other physicians are in the network?
• Does the payer have good data on the drivers of cost?
• What are the historic care patterns for the population being treated?
• What is the highest-cost setting?
• Are the patients coming from other practices or from within the network?
• How are incentives distributed?

Where Is Value Headed?

Looking to the future, Mertz predicted that value models will continue to change and evolve, that commercial payers will wait to see which Medicare-approved models generate success and savings before making their own changes, and that practices may not see any return on value for investing in an alternative model.

Finally, Mertz said, the greatest barrier to value in healthcare is patient compliance.

“We should start educating 6-year-olds on lifestyle and diet,” he said, but noted that lifestyle education would, even if effective, take many years to have a sizable effect. “They’re going to hold [practices] responsible for patient compliance,” said Mertz. “Good luck with that.”