For years we’ve been hearing that the US healthcare system is moving towards value-based care, whereby providers are paid through alternatives to the traditional, fee-for-service payment model. These alternative payment models include financial incentives linked to effectively managing a population or episode of care, such as shared savings, at-risk, pay-for-performance, care coordination fee, bundled payments or capitated payments. Today, approximately 60% of healthcare spend is tied to some form of value-based payment.
The COVID-19 pandemic has upended healthcare services consumption and put significant strain on healthcare resources across the US. As a direct result, providers in value-based arrangements can be expected to face increased financial risk.
Financial Risks To Providers
The most obvious and broadly reported financial impact is the loss in revenue for providers from the many elective and preventative procedures and visits that have been delayed due to isolation and quarantine measures.
Moreover, providers with downside risk contracts in areas hit hard by the pandemic have annual cost targets that were set using a pre-pandemic baseline that doesn’t factor in the costs of mass testing, increased emergency visits, hospitalizations or ICU stays.
We must also anticipate the potentially deleterious effects to patient health of the current quarantine measures, such as:
- Delayed screening or preventative procedures
- Delayed elective procedures
- Reduced care coordination activities and follow ups
- Mental health issues exacerbated by self-isolation
- Potential metabolic and cardiovascular impacts of long periods of inactivity
The corollary to these negative health impacts is a likely increase in acuity and cost of medical visits and hospital stays or procedures over the long term.
Some providers may benefit from potential financial upside during the pandemic, thanks to:
- Reduced lower-acuity emergency department visits
- Reduced spread of communicable diseases other than the novel coronavirus
- Expanded use of telehealth visits
It’s too soon to calculate the overall impact on our health system, as the progress of the outbreak and our response are still uncertain, however the private practice providers and hospital executives I’ve spoken to in recent weeks have all seen a significant drop in overall billings.
Extreme and Uncontrollable Circumstances
Certain value-based programs and models have a policy for Extreme and Uncontrollable Circumstances which has been applied in the past by MIPS and the Medicare Shared Savings Program during natural disasters like hurricanes. While these policies may be used to mitigate shared losses for participating providers, they vary widely and most commercial, Medicaid and Medicare Advantage plans do not have such policies.
Payer Mitigation Tactics
Payers have many potential options at their disposal to mitigate the increased downside risk to providers in value-based arrangements during these exceptional times. They may choose to limit penalties in two-sided risk payment models for 2020, or make adjustments on financial expenditures, performance scores, patient attribution and risk adjustment. Given the impact of the pandemic on financial and administrative resources, payers may also revisit reporting obligations and quality assessments for the current year. The long-term impact on financial benchmarks, target prices and performance measures may also need to be re-calibrated for the current and future performance years.
The unprecedented scale and impact of the COVID-19 pandemic will undoubtedly affect the progress of value-based care transformation in this country. In these uncertain times, we may find many providers and accountable care organizations shy away from this level of risk.
We can also expect the pandemic to have transformative, long lasting effects on the delivery of care. We have observed some seismic shifts in practices that may continue long after the crisis is resolved: the massive expansion in the use of telemedicine and remote patient monitoring, the shift to remote work for non-clinical personnel, temporary regulatory changes that might last longer than planned, and the rapid implementation of novel automation tools like chatbots.
Institutions that have opted to participate in value-based agreements have had to make significant investments in clinical, business and technology transformations, to be amortized over long periods. In large health systems, these changes may not be unwound easily, so it is unlikely that many of them will quickly revert back to fee-for-service. Nevertheless, it can be expected that many organizations and providers will look for ways to limit their risk exposure and slow the pace of value-based care adoption that we were observing before this pandemic.