The COVID-19 pandemic hurt revenue for mid-tier and large health systems through the early part of 2020 because patients delayed elective procedures, which comprise up to 37% of hospital spending. Millions of Americans also skipped routine screenings and visits to their primary care providers as COVID-19 cases continued to soar across the country. As a result, physicians now are seeing patients with more advanced diseases than these patients would have had if they hadn’t delayed care.
The pandemic-related disruption to their revenue streams has caused many health systems that historically have relied on “fee for service” (FFS) models to realize they need to increase revenue through value-based programs. However, the transition to value-based care (VBC) seldom is smooth. And many health systems that have implemented alternative payment models are mostly experienced in upside risk contracts, where providers face no financial penalties should costs and utilization exceed the amount agreed upon with the payor.
Increasingly, though, payors are pushing downside risk onto providers, putting more pressure on hospitals and health systems to control costs. This is a challenge for provider organizations that have focused solely on improving their quality ratings and paid little or no attention to cost or utilization. But the reality is most of these risk-based contracts have a significant component relative to cost and utilization, which is a hurdle providers must clear before they even qualify for bonus payments from a quality perspective.
Another challenge for providers shifting to value-based contracts is that the payor often sets the terms of the agreement because providers aren’t as skilled in effectively negotiating financial terms. And provider groups may not fully understand how to model and predict their performance and the impact of that performance on those contracts.
Beyond those considerable disadvantages, many provider organizations doubt their ability to manage in an environment that requires balancing quality and cost. This is a perfectly understandable concern given that so many providers typically lack visibility into their performance, especially since historically this was not as significant a barometer in a fee-driven environment.
Yet if providers had that information, they would know where to make improvements from a quality perspective that simultaneously would boost cost and utilization performance. They would understand the tradeoffs of certain medical procedures. They could identify gaps in care and take action to close them.