Executive Session: Managing the transition from volume to value

Randy Pirtle, FACMPE, chief executive officer of Blue Ridge Medical Center in Virginia, has been fascinated with the transition away from fee-for-service (FFS) reimbursement to value-based care for some time.

As part of his ACMPE Fellowship in 2019, Pirtle published a substantial look at this migration, offering what he called “an uncomplicated conceptual framework for understanding” how to keep a healthcare organization’s financial performance on track “during the inevitable period of transition to value-based care.” That paper was later adapted for MGMA Connection magazine, which you can read here.

These concepts — illustrated via an X-bar analysis — reflect past publications on the issue of capitation and global payments, which were poised to make a resurgence after the passage of the Affordable Care Act in 2010. In the decade since, the shift to value-based care has been gradual, but the realities of increased contracts based on capitation and other payments that involve risk for providers has been realized.

In his March 2011 Data Mine article for MGMA Connection, MGMA senior fellow for industry affairs David N. Gans, MSHA, FACMPE, pointed to the potential for a “dead zone” in which practices fall somewhere between fully embracing new payment models and avoiding them altogether.

In Pirtle’s recent interview with Gans for the MGMA Executive Session podcast, he reflects on what’s happened in the healthcare industry since the passage of the ACA and where practice leaders need to pay close attention to their forays into value-based contracts to ensure they avoid the “dead zone” that Gans observed more than a decade ago.

Pirtle’s article gives a succinct overview of the path from fee-for-service to capitation bundling, with numerous steps in between on the transition from volume.

FEE-FOR-SERVICE

FFS reimbursement is the traditional method of reimbursement. A provider sees a patient and submits a combination of E/M, ICD-10, CPT and other codes, and is reimbursed based upon a particular level of service. The more services performed or a higher level of service generally results in higher reimbursement. This is a volume-driven paymnet method.

FEE-FOR-SERVICE WITH PAYMENT ADJUSTMENTS

Under new MIPS rules, Medicare Part B payments are subject to future adjustments based on performance in four areas: improvement activities, quality, cost and promoting interoperability. A scoring rubric using measurements from the four performance elements determines future CMS payments two years ahead of the measurement year. The adjustment can be as much as +-9% (by 2022), which represents substantial future upside and downside risk for the practice.

FEE-FOR-SERVICE WITH SHARED SAVINGS

CMS has offered various accountable care organization (ACO) and clinically integrated network (CIN) models to providers for implementation. Although these include a consortium of facilities and cooperating specialists, the core of these programs is generally primary care providers coordinating patient care. At the end of a period of time, any savings over actuarial expectations for the population served are shared with the ACO or CIN participants. Thus, total reimbursement is a combination of FFS and shared savings dollars.

FEE-FOR-SERVICE WITH SHARED SAVINGS AND RISK

In addition to an FFS component with shared savings, some plans combine downside risk. With this approach, the shared savings opportunity can also become a shared loss opportunity when costs exceed actuarial expectations for the population served. Downside risk is a serious matter during a transition from FFS to value-based care. A bad year can drive a practice out of business.

CAPITATION/BUNDLING

Full capitation and bundling models represent the reimbursement approach most removed from pure FFS. Here, a per-member, per-month (PMPM), per-member, per-year (PMPY) or bundle payment is made by the payer to the provider up front. For the service period or major procedure, the amount paid will either fully cover the cost of care provided by the practice or not. The practice administrator works to an absolute budget with no recourse if losses appear on the bottom line.

It is extremely important for the practice administrator to recognize that the total patient panel does not just reflect the traditional idea of a payer mix. The total patient panel consists of several payers, with many offering multiple plans. These plans from multiple payers must be grouped into patient panels subject to the same reimbursement method. This constitutes the reimbursement mix.

Editor’s note: The following Q&A is an abridged version of the podcast episode.

Q. Can you describe how practice leaders need to rethink analyzing payer mix — not from a payer perspective, but by the type of contract that you have?

A. The idea with reimbursement mix is not to be payer-centric, but reimbursement-model-centric. Look at your full patient model and divide your patients into sub-panels by reimbursement method. You may have patients in reimbursement panels which represent multiple payers. Technically, you're dealing with them in virtually same way, so it becomes a very powerful way of looking at how you have to structure your costs and manage your revenue stream.

If you create the reimbursement mix in your full patient panel, you're going to find out how many of your patients fall into a value-based reimbursement panel, and which fall into a primarily fee-for-service panel. You can then think through exactly how you can structure your business as far as the services provided, the service expectations, the kind of services you have to provide to people in each of the reimbursement panels.

If you're dealing with the fee-for-service reimbursement panel, the primary approach is higher volume. … You're structuring in a certain way to efficiently provide high-volume, face-to-face encounters to your patients. As you move to the other extreme, you're starting to realize you're going to have to restructure the way you provide care and the way you handle patients. In the more value-based care structure, you're going to be looking more like a patient-centered medical home (PCMH) or primary care medical home. You're dealing with multiple disciplines, you're dealing with team care, you're dealing with high interactivity across multiple kinds of encounters.

It's a very different structure: You're dealing with population health management, you're dealing with care registries, care management — it's a different environment, and it involves different costs. Scaling those various special resources has a lot to do with your cost model.

As you're moving from one extreme to the other, you have to be very careful about that cost model and the way you're structuring your practice.

Q. Can you give us a little bit more insight into how a practice calculates its margin and its implications as we move from a volume-based payment system to one that rewards value?

A. The next piece to simplify some of this down to the [margin for] two major reimbursement panels: Patients who are mostly or profoundly fee-for-service, and then the rest of your, of your full patient panel would be on some level of value-based reimbursement. It's important to know what that number is in each of in each reimbursement panel.

What's the average cost to provide those encounters to that population, and then what's the total amount collected to provide, because you provided services to those folks and then divide by the total number of counters, and you will get the total margin.

To understand what your total margin is, you would add together — for a point in time — the total contribution, the total margin from all your free-for-service patient activity, and the total margin generated by your value-based care activity: My margin times the total volume, the total encounters at that instant in time. You can do that for both the fee-for-service side, and you can do that for the value side, you add those together. That creates a top line of our X-bar analysis so at any point in time, you can see your contribution from that panel. You can watch it change graphically over time.

Take out a pencil or a pen and draw an X on the paper and then over the X, draw a straight line. If you take the leg of the X, which starts in the upper left and ends in the lower right, that's your fee-for-service panel. That represents the volume and the margin contribution from your fee-for-service panel. If you take the other leg of the X — which starts at the bottom left and ends at the bottom right — that's your growing value-based panel. The line at the top, that's your total margin. At every point, if you draw a straight vertical line, you'll find that there's a contribution of margin from the declining fee-for-service leg and a contribution margin from the increasing value-based leg. Where those two legs cross, that intersection is where roughly half of your patients are in one panel and half are in the other panel.

You’ve got to make sure that you've got a place for those patients to land in your practice. And that's contracting — if you're not participating in the value-based plans in your region, where are your patients going to go as their employer moves them around, for example? They're probably going to find another practice. Part of the answer of survival here is make sure you're well stocked on the value-based side, contractually.

There's nothing like being able to visualize the transition to understand how you're doing, and a lot of it isn't just how profitable your contracts would appear to be. It also is, are you managing the structure — the cost model of your practice — as it moves from fee-for-service to value? The cost of a pure fee-for-service practice is very different than the cost model and the richness of services and disciplines involved in a full blown PCMH team.
 
Q. In the 2011 Data Mine article that examined what happens for organizations who had capitation in the late 1990s, perhaps the peak of capitation among medical practices. And in 1996, 68.3% of multispecialty groups reported having capitation contracts. We ultimately saw that the practices that had no capitation had excellent financial performance, and the financial performance of practices that had more than 50% of contracts capitated was as good as the practices that had no capitation. However, those practices who had both fee-for-service and capitation, in various percentages, saw worse financial performance than the extremes of no capitation or more than 50% capitation. The practices with the worst financial performance were those who had 11% to 50% capitation. Can you give us some of your thoughts on what we saw in that data?

A. That column that you wrote in 2011 pre-saged a lot of what we're discussing today, it is exactly the same phenomenon. That center area [of the X-bar] is sort of the valley of woe. In that area, if you are not managing properly, you could suffer major losses, and you could actually lose your business. That's a very dangerous place. … You have a foot in two canoes.

Let me give you a basic example. In my past work in charge of a large practice where it was profoundly managed care and capitated contracts, one of the typical parts of that model is to have a whole staff of triage nurses. … Later on, that same medical group lost a lot of its capitated business, primarily because of contract failures. They ended up with their fee-for-service panel growing suddenly. But they were set up for value-based care work. I had to lay off a bunch of triage nurses, because we needed volume to survive. … By the way, both models provided excellent quality of care. One model wasn’t better than the other as far as the care of the patients. You had to be aware of which reimbursement panel was more dominant; otherwise, you are going to run into serious financial trouble.

Q. Anything else you’d like to add?

A. We came through COVID-19, and there's a sense that the brakes were put on the transition to value-based care and reimbursement. It's important that we all keep in mind that this is restarting. … Be very cognizant of what's going on in the market, for the patients you serve. Are the plans providing more capitated or managed care types of products, and are you ready for that? Do you understand what you need to do to move your staff to a different kind of structure in a way that scales properly so you don't find yourself in that dead zone that Dave wrote about back in 2011? You want to stay out of that dead zone.