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Leaping and Limping to Value-Based Payments

Robert E. Goff
Executive Director & CEO, University Physicians Network, New York, NY

Of the many things brought to you by the Accountable Care Act (ACA), proudly or derisively referred to as Obamacare, is putting the fee-for-service (FFS) payment system for medical services on a glide path to the scrap heap.

Not that FFS is going to go out without a fight, but the stars are aligned to usher in value-based payments (VBP), perhaps faster than had been projected.

For the first time, a major change in the concept of payment for medical care has been endorsed and is being led by a federal government initiative. Past efforts, largely by commercial health plans such as shared savings, physician-owned distributorships (POD) and capitation, could never gain traction with the majority of medical care being paid for by Medicare under the FFS model.

This time Medicare is leading the change, and Medicare is where the real dollars are, and they are controlled by a single payer—government. The Obama administration wants 30 percent of payments for traditional Medicare benefits to tie to alternative payment models, such as accountable care organizations, by the end of 2016, increasing to 50 percent by the end of 2018.

Hospital payments are being fast-tracked with a goal of 85 percent of payments to be through the Hospital Value-Based Purchasing Program or the Hospital Readmissions Reduction Program by the end of 2016, rising to 90 percent two years later.

Not to be left out, and more in the sense of riding the coattails than showing originality and creativity, the major commercial plans have announced a coalition to promote VBP contracts with a goal of 75 percent of lives under such by 2020. If the writing is on the wall that FFS payments are to become the past, that writing is in bold spray paint.

We are just getting going in the move to VBP. The current payment environment is a hodgepodge of continued FFS, with a growing alternative structure being rolled out by government as well as the commercial carriers.

Shift That Risk

We all are striving to move away from FFS to “align incentives” and “shift risk” in the belief that only by making the providers of medical services accountable financially for the cost of the care they provide, order, refer and arrange, will there be any hope at “bending the cost curve.” That is, to bring the rate of the increase in medical costs closer to inflation rather than the historical rate of more than twice the rate of inflation.

This push comes after a long drum beat in the public press of the flaws, fallacies and failings of the healthcare industry to deliver care—of quality affordability.

The Institute of Medicine’s 2012 report indicates that the healthcare system wastes $750 billion a year in poor quality, fraud, unnecessary services and inefficiencies, coupled with a public perception of a system that is unresponsive to the needs of people and absent any hint of customer centricity.

VBP arrangements seek to put the providers at risk to deliver care that meets quality measures and does so under some financial restraint or goal. There simply is not enough money to maintain the status quo. Therefore, let the providers organize into to structures that encourage them to earn their compensation by reducing the overall medical spend.

The initial models are incentive programs that track the medical spending of provider groups under a FFS payment model. If the costs increase less than a target, generally how the group is doing in comparison with themselves or the market, additional “bonus” payments are made to those involved.

If costs rise more than the targets, no bonus is given, and perhaps the next year’s FFS payments are reduced.

Over time, the models will move more of the economics from FFS to the earned bonuses, so that while the initial models may provide the comfort of 80-90 percent of the dollars flowing through a FFS payment, with bonuses potential of 10-20 percent, the expectation is that FFS dollars will shrink and an increasing part of compensation will be “at risk” for performance

A Glide Path for FFS to the Scrap Heap

To counteract the fear that these provider groups will sacrifice quality of care for their bonuses, quality measures (or quality gates) have to be passed before there bonuses are paid. Promoters of VBP want to avoid the stigma Health Maintenance Organization (HMOs) earned under capitation when the economics rewarded depriving patients of care.

In the evolving world of VBP, physicians who understand and can shift their thinking from only providing care one patient at a time, while also managing their patient’s care in an effective and efficient manner, will be successful. The responsibility for patient care will have to extend beyond the walls of the office and the provider must be the patient’s advocate for the needed preventive care as well as their efficient navigator through a network of cooperative and collaborative providers.

All of this, of course, aligned to deliver the right care at the right time and place. Moreover, given the rise of patient consumerism, all provided with sensitivity and respect for the patient.

The time to prepare for this future of payment based on value and performance is now. Proactively look at your own practice, how it functions and how it functions as part of a medical community. Assess your own strengths and weaknesses, as well as the numerous opportunities that are developing in your community, or perhaps look to create your own opportunity with like-minded practices.

May I repeat: Now is the time to prepare, to maximize opportunity and positon your practice for the future.


Robert E. Goff serves as Executive Director and CEO of University Physicians Network (UPN) in New York City. He is a recognized expert in healthcare delivery, organization and financing. He is the co-author of the book; The Patient, The Doctor and The Bill Collector: An Obamacare and Medical Debt Collections Survival Manual. Robert resides in New York and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..


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