New Value-Based Reimbursement Models to Eclipse Fee-for-Service by 2020 | Healthcare Informatics Magazine | Health IT | Information Technology Skip to content Skip to navigation

New Value-Based Reimbursement Models to Eclipse Fee-for-Service by 2020

June 11, 2014
by John DeGaspari
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Technology to engage clinicians will be crucial to success, according to study

Healthcare is moving rapidly to incorporate measures of value into payment models, with more than two-thirds of payments expected to be based on value measurement in five years, up from just one-third today, according to a study released today by McKesson Corp.

The study, “The 2014 State of Value-Based Reimbursement,” which involved 464 payers and hospitals, was conducted by ORC International and commissioned by McKesson. It was released this week at America’s Health Insurance Plans (AHIP) Institute 2014 conference in Seattle, Wash.

This study found that 90 percent of payers and 81 percent of hospitals are already deploying some mix of value-based reimbursement combined with fee-for-service. That’s adding complexity to a system that’s already overburdened, said Emad Rizk M.D., president of McKesson Health Solutions, in a prepared statement.

For this study, McKesson commissioned ORC International to determine a baseline for the state of the industry's transition from volume (fee-for-service) to value-based reimbursement. The goal: is to to get an evidence-based understanding of how stakeholders are reacting to industry change and demands, what reimbursement models and technology they’re using, how they’re managing, what’s working, what’s not working, and where they expect to be in the next few years, according to the company.

Key findings include:

  • Payers and hospitals are aligned on embracing payment with value measures. Ninety percent of payers and 81 percent of hospitals now offer a mix of fee-for-service and other reimbursement models. Those payers expect fee-for-service to decrease from 56 percent today to 32 percent in five years. Hospitals using mixed models agree, projecting that fee-for-service will decline from 57 percent today to 34 percent in five years. Essentially, payers and hospitals anticipate two-thirds of payment will be based on complex reimbursement models with value measures by 2020.
  • Alignment with value-based reimbursement adoption varies depending on what the region looks like. Collaborative regions, where one or two payers and hospitals are market leaders, are closer to value-based reimbursement. Fragmented regions, where there are multiple payers and hospitals and no clear market leaders, are closer to fee-for-service models.
  • Alignment is also influenced by the care delivery model. Accountable Care Organizations (ACOs) are significantly closer to value-based reimbursement adoption than non-ACOs. Forty-five percent of hospitals surveyed are already part of an ACO. Among hospitals that are not part of an ACO, 59 percent anticipate joining an ACO within five years. Whether a provider is part of an ACO is important because it affects other factors, such as their alignment with value-based care systems.
  • Fee-for-service is expected to be largely replaced by pay-for-performance. Payers say the proportion of their business that is aligned with pay-for-performance will increase from 10 percent today to 18 percent in five years. Hospitals agree, projecting their alignment with pay-for-performance will jump from 9 percent today to 21 percent in five years.
  • Pay-for-performance is poised to take hold most strongly, but payers and hospitals say it is the most challenging to implement, with 15 percent of payers and 22 percent of hospitals characterizing pay-for-performance as “very difficult” or “extremely difficult.” They also cited episode of care/bundled payment (payers 9 percent, hospitals 15 percent) and others (e.g., shared savings; payers 15 percent, hospitals 22 percent) as “very difficult” or “extremely difficult.” Both payers and hospitals point to a lack of standards, analysis tools, and the need for better business IT infrastructure and systems as key reasons why pay-for-performance is tough to implement.
  • All key obstacles payers and hospitals “urgently need” to overcome are technology related, led by the need to integrate internal, vendor, and collaborative IT systems (41 percent payers, 23 percent hospitals); and data collection, access, and analytics (22 percent payers, 20 percent hospitals).
  • Likewise, technology to catalyze clinician engagement will be crucial for value-based reimbursement to succeed, as 20 percent of payers and 17 percent of hospitals—the largest slices in both groups—say the primary challenge in getting to value-based reimbursement is obtaining buy-in and engagement on the part of the clinicians.

“Healthcare is at a tipping point,” says Dana Benini, Vice President at ORC International. “If we look at where institutions fall on the continuum towards value-based reimbursement and how that’s evolving, we see that the pace of change is a lot faster than many believe. This is particularly apparent in the growth of accountable care. The number of ACOs has tripled in just two years.”

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