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Analysis: Early Years of VBP Models Show Limited Impact on Reducing Cost of Care

June 25, 2018
by Heather Landi
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The penetration of population-based value-based payment models is not yet having an impact on curbing growth in total cost of care, according to a new analysis by the Healthcare Financial Management Association (HFMA), Leavitt Partners and McManis Consulting.

The study, “What is Driving Total Cost of Care?” presents an analysis of factors influencing total cost of care in U.S. healthcare markets.

One of the key findings of the analysis is that the early years of value-based payment (VBP) models did not show a reduction of the total cost of care or improvement in clinical quality outcomes at the market level, according to researchers who analyzed performance results of accountable care organizations and other population-based VBP models. Researchers concluded that value-based payment models have penetrated broadly in some markets, but not deeply in most.

The three organizations, with support from the Commonwealth Fund, used commercial data from 2012 to 2014 and Medicare data from 2007 to 2015 to conduct two quantitative analyses: the first examined correlations between the penetration of population-based VBP models and total cost of care for Medicare and commercial payers; the second looked at other market factors related to baseline Medicare costs and cost growth. A qualitative study of nine geographically and demographically diverse markets also was conducted.

The study found no statistically significant correlation between the penetration of VBP models and growth in the total cost of care for Medicare (2012-2015 data) or commercial payers (2012-2014 data) in over 900 markets throughout the United States. Researchers attributed this finding to the limited prevalence of VBP models in many markets, the lack of strong financial incentives for managing the total cost of care, healthcare organizations’ preference for an incremental approach to risk, and employers’ reluctance to change benefit design, among other factors.

The researchers provided a number of explanations for the lack of correlation in VBP models and an impact on reducing total cost of care. The period studied was too early for effects on total cost of care to be realized, the researchers concluded, as participation in programs such as the Medicare Shared Savings Program (MSSP) was just beginning during the 2012-2014 period of analysis, and reports of outcomes on performance under the MSSP model indicate that success in achieving shared savings often requires several years of participation in the program.

“Many healthcare providers began making changes in how they provided care for patients during the years of this study,” David Muhlestein, chief research officer at Leavitt Partners, said in a statement. “But the penetration of value-based payments was generally quite low and appeared insufficient to drive market-level changes in cost growth for Medicare or commercial payers.”

According to the report, the efficacy of these VBP models in reducing growth in total cost of care has not yet been proven, however, as even in markets where these models are more prevalent, most models do not yet incorporate sufficient financial incentives to impact care delivery significantly.

“VBP contracts for most provider organizations interviewed for this study had upside risk only; very few organizations were yet taking on downside risk. Both health plans and provider organizations felt it was important to take an incremental approach to risk. The result, however, is that financial incentives are not in place for broad-scale changes to care delivery, the study authors wrote.

What’s more, across most provider organizations studied as part of this analysis, incentives have not yet been aligned from the system level to the clinical level, the study stated, as clinician compensation remains heavily reliant on productivity-based compensation.

According to the analysis, for organizations that are participating in population-based VBP models, the infrastructure costs for patient population analytics and care management can be significant and are likely to significantly offset any savings realized during early years in the models.

The researchers also contend that, although more time and evidence are needed to prove the efficacy of population-based VBP models, there are other models that may be more appropriate for different populations. “Alternative VBP models of interest to stakeholders interviewed for this study include episode-based payments, reference-based pricing, on-site health centers for employers and their employees, consumer-driven models tied to more effective transparency tools, and models that target the needs of specific patient populations,” the researchers wrote.

This study also revealed several key findings regarding the impact of industry consolidation on Medicare’s total cost of care. Markets that were less consolidated, or less aligned vertically, tended to have higher costs, the study found, and, conversely, costs were lower in markets with well-organized provider networks.

Additionally, the study found that consolidation in lower-cost markets had left between two and four health systems with good geographic coverage as competitors within the market. Physicians in lower-cost markets were typically employed by or closely aligned with the health systems, and the market usually included at least one integrated delivery system with a health plan, a hospital, and clinician capabilities, according to the study.

“These findings suggest that the type of competition may be more important than how much competition is in a market,” HFMA President and CEO Joseph J. Fifer, said in a statement.

What’s more, lower-cost markets had organized mechanisms for the sharing of information on healthcare cost and quality, whether through employer coalitions, statewide reporting agencies, or both. Effective consumer transparency has proved more of a challenge, but there was widespread consensus that with the right tools and incentives, it could have a significant impact.

Healthcare leaders across markets believe that further changes to payment and care delivery models are inevitable, particularly in Medicare and Medicaid programs, and these changes will likely include value-based components, according to the study. In most markets, however, it is not yet clear what or who will be the catalyst to push further change.

Researchers recommended that both government and commercial payers move toward population-based models that represent sufficient revenue to incentivize providers to actively manage the total cost of care, while acknowledging that other models may turn out to be more appropriate in some circumstances. Researchers also recommended other action steps for stakeholders, including balancing the benefits of competition with the benefits of integration and supporting more transparent sharing of information on healthcare cost and quality within markets.

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