Rural Health

Value-based Reimbursement

A rural health perspective

BY Terry J. Hill, MPH

• Better patient care.
• Improved community health.
• Smarter spending.

To achieve these three goals, a new type of payment system was designed within the Center for Medicare and Medicaid Services (CMS), based on value rather than the traditional payment for medical procedures.

The pay for procedures reimbursement system that emerged from the passage of Medicare and Medicaid in the 1960s resulted in American health care cost increasing at a rate far exceeding general inflation and resulting in American health care becoming far more expensive than any other country in the Western World. Unfortunately, the high costs did not result in better quality, as the United States consistently ranked low in the World Health Association’s annual quality ranking.

A basic problem was that a payment system designed on payment for procedures, without an accompanying reward or penalty for quality, often led to overproduction, waste, inadequate care coordination and quality breakdowns. With the DRG system that emerged in the 1970s as a method of containing health cost inflation, providers of excellent care were paid the same as providers of substandard care, and duplicate tests and medical procedures became common. It was not until 2017 that most physicians were placed into a modest type of pay for performance system called the Merit-Based Incentive Payment System (MIPS). This, however, did not include rural physicians who were doing a minimal number of medical procedures in their practice.

Rural hospitals and clinics have often outperformed their urban counterparts regarding both quality and cost.

In 2010, the Balanced Budget Act was passed, and within its provisions was the authorization of a new type of value-based payment model: the Accountable Care Organization (ACO). The ACO was designed to move Medicare payments into a shared savings model, thereby giving providers an incentive to contain medical costs. In this model, hospitals and physicians took on the responsibility of providing comprehensive care to an assigned group of Medicare patients—5,000 patients being a minimum number in each ACO. Patients were assigned to the primary care physician who have provided them the most care during the previous year. The providers continued to be paid under the normal fee for service schedule, but CMS built in financial incentives to lower the cost of over-all patient care. If the hospital or organization of physicians could lower the total cost of care for the assigned group of Medicare patients during the program year, then the total savings would be divided equally between CMS and the hospital and/or group of physicians in the ACO.



For example, if a hospital and its physicians took on responsibility for the cost and care of 5,000 Medicare patients, with their total cost to Medicare the previous year being $50,000,000, and during the subsequent year, the total cost of care for these patients was $48,000,000, there would be a total savings of $2,000,000. If that hospital and physicians met certain quality measures during the year, the savings would be divided equally between Medicare and the hospital, producing a bonus check of $1,000,000. If the cost of caring for these patients was higher than $50,000,000, initially there was no penalty; however, recently the new ACOs have incorporated financial penalties into the payment formula and have placed hospitals and providers in what is termed a “risk” situation. In other words, if they don’t save money but rather cost Medicare more money, these ACOs can be fined an additional amount at the end of the program year. This, as may be expected, is particularly threatening to small rural hospitals with limited cash reserves.

The number and size of ACOs have grown steadily since their introduction in the early years of the previous decade. Today, ACOs cover over a third of the entire Medicare population, and CMS has announced a goal of getting all Medicare payments into some type of value-based models in the next few years. Through three U.S. presidential administrations and multiple directors, CMS’s commitment to value-based payment has not waivered. In addition, many state Medicaid programs have moved into their own forms of ACOs, and private insurance providers appear to be initiating value-payment programs as well.

Rural hospitals and clinics generally lack the necessary 5,000 Medicare patients, so multiple rural hospitals and clinics have had to come together into ACO partnerships to gain necessary volume, share costs and to acquire needed ACO expertise. For example, ACOs need to be able to access comprehensive patient information and employ experts to both manage and interpret the data. They also need education on how best to implement the new model, as well as how to set up care coordination and wellness programs.

The largest ACO in America, Caravan Health, started as a small group of rural hospitals, but has grown to include hundreds of hospitals and clinics throughout the country. Caravan leaders report that rural hospitals and clinics have often outperformed their urban counterparts regarding both quality and cost. Being small is usually a liability in payment models, but when motivated, small health care organizations can change their processes and culture faster than large institutions. Since a great deal of ACO success depends on primary care physician referrals, rural ACO organizations also have an advantage with primary care physicians at the core of their medical staffs. Consequently, rural ACOs have often been able to achieve institutional change and physician support in less time than urban ACOs.

ACO Critical Success Factors

There is a growing body of ACO knowledge based on evaluation and the experiences of ACO leaders during the past decade. The following are critical success factors generated by more than a dozen ACO leaders and evaluators.

It is important to complete a comprehensive assessment of an organization’s readiness and capacity to deliver value-based care. For hospitals, the education of boards, leadership and medical staffs should be an important priority. After the initial exploration is completed, potential ACO leaders should then develop a strategic plan that lays out, on a step-by-step basis, the initiatives and resources necessary to achieve success. The transition to eventually having all an organization’s payment being based on value will require a transformation in both culture and service delivery. Culture change takes years to accomplish, so being realistic about a transition timeframe is advised. It’s going to take time and enlightened leadership.

Physicians have the greatest impact on ACO success or failure.

When the inter-organizational changes have been made—education completed, patient care processes redesigned, wellness programs initiated, care coordination teams in place, patient information systems operating—it’ll be important to turn the emphasis of value-based programs outward toward the third goal of the Triple Aim: improving the health of the entire community. This can best be accomplished by assessing community needs and then working in partnership with the community to address the highest priority health needs. Even the most outstanding clinical care cannot, by itself, produce healthy people. The social indicators of health—poverty, lifestyle, nutrition, housing, addiction, hunger, etc.—play an even bigger role in a person’s health than does access to clinical services. A larger scope of attention is necessary, and care coordination must expand from the hospital and clinic out to the entire community. This new initiative is often termed “community care coordination”, and it grows to include emergency care, primary care, acute care, rehab, long term care, mental health and home care providers all working together in an unduplicated care continuum. In addition, social service agencies, public health, aging service providers, businesses, schools and even churches are enlisted to play a role in the community-wide effort to improve the health of local citizens.

While this transition to community health care coordination may, at first glance, seem impractical and unaffordable, in many rural communities this transition to value and population health is already taking place. An accountable care organization of rural hospitals in Michigan, for example, has placed its primary strategic focus on population health improvement, and has hired a health coordinator to help it address the social indicators of health in its region. Rural hospitals throughout the country are working with schools, and many have established primary care or mental health clinics within the schools. Others have developed nutrition programs for hungry children, and still others have made investments in housing for the homeless. Small size has enabled many of these rural hospitals and clinics to more rapidly establish community partnerships and, in the process, enhance community trust and loyalty.

Conclusion

Hospitals and clinics participating in value-based payment models have brought a new energy and badly needed resources to population health improvement initiatives. In rural communities across the country, hospitals have assumed an important new role that is consistent with their mission statements. In addition, the quality of clinical care has been improved and, in most cases, access to services has been expanded. Emphasis has been placed on prevention and chronic illness management, and transitions of care have been improved. Finally, the overall cost of care for the Medicare patients has in many cases been reduced through better patient management and wiser spending. For these reasons, value-based payment models hold great promise. Myriad problems, however, remain to be addressed in virtually all these payment models (too many to be fully addressed here), and hundreds of hospitals and clinics have been unsuccessful in their transition to value. Physicians, as earlier noted, have frequently been left out of initial planning and decision-making processes, even though they are key players in these initiatives. Still, the goals articulated by Dr. Don Berwick in his Triple Aim are worthy of pursuing, and value-based payment models may well be the best method of achieving them. 



Terry J. Hill, MPA, is the executive director at Rural Health Innovations. He also serves as senior advisor for Rural Health Leadership and Policy at the National Rural Health Resource Center.