By Nan Tracy Zheng

In the shift to value-based care, the healthcare industry has made the most progress in the widespread adoption of alternative payment models (APM), which evaluate provider performance against both quality standards and cost benchmarks. According to AHIP, in 2020 more than 40% of healthcare payments flowed through an APM, representing steady growth in risk-based models among both commercial and government health plans.

In recent years, more primary and specialty care providers have entered into APM arrangements that include bundled payments as well as upside and/or downside risk sharing. These agreements tend to involve high-cost care episodes, usually centered around one triggering procedure, such as surgery, and the clinical services that precede or follow it, often within a 90-day window.
As health plans consider additional specialties that are ripe for APM development, they should consider assessing not only high-cost care episodes, but also lower-intensity services, such as outpatient physical therapy. To date, no major APMs are available for physical therapy (PT), which has high utilization rates across all health plans, although utilization varies across regions, providers, and patient cohorts.

A prime area of opportunity
In an analysis of health care spending for 154 health conditions over a 20-year period ending in 2016, one study found that lower back and neck pain was the most expensive (at an estimated $134.5 billion), followed closely by other musculoskeletal conditions and diabetes. Yet despite the disproportional increase in healthcare expenditures on musculoskeletal conditions, patient outcomes have not improved significantly.

Patients typically complete PT either at the start of their care journey, as a conservative treatment, or at the end of an episode of care, for postoperative rehabilitation. The vast majority of PT spending is for conservative treatment. Research indicates that beginning treatment with PT reduces the average cost of a care episode by nearly 20% when compared to an injection-first approach, and by 75% when compared to a surgery-first protocol.

Due to these characteristics—high utilization rate, high variability, and high potential savings—conservative PT is an ideal testing ground for payment innovation. Let’s take a look at how health plans can leverage existing data to quickly create an APM for PT.

Setting cost benchmarks and establishing quality standards
As with other mainstream APMs, a PT payment innovation program would require a cost benchmark for financial sustainability. Providers whose actual costs fall below benchmarks would earn shared savings or other incentives, while actual costs above benchmarks would lead to payment reductions.

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