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Paying for value-based care: Strap in for a bumpy ride back to profitability

July 12, 2016 Article 2 min read
Positioning for long-term success in a value-based world requires significant investments in technology, processes, and programs to keep people healthy. But the investments will pay dividends.
Two women conversing“Healthcare providers need to adapt to the reality that no hospital, no doctor, and no medical device manufacturer or pharma company will be able to charge what they previously could … Every player in the healthcare industry is now tied into this new paradigm where value must be defined and measured before anyone is compensated.”

What a long, strange trip it’s been — and will continue to be for the foreseeable future.

Just about every healthcare organization is feeling the pinch. Positioning for long-term success in a value-based world requires significant investments in technology, processes, and programs designed to keep people out of facilities. In the short term, this means lower fee-for-service reimbursements that, for now, dominate the payer mix.

Providers can take comfort in the knowledge that they’re not alone. Kaiser Foundation Health Plan, Kaiser Foundation Hospitals, and the Kaiser subsidiaries showed a $1.2 billion drop in profit last year — a nearly 39 percent drop from $3.1 billion in 2014 to $1.9 billion in 2015. Most of our organizations don’t have quite that much money to lose, but chances are good that if you’re making the necessary preparations to play in the pay-for-performance game, then your organization is taking a financial hit.

But don’t lose hope. The time is coming when these investments will pay dividends by positioning your organization to deliver valuable services that keep people (and the providers’ bottom lines) healthy. In the meantime, focus your organizational efforts on consistently reducing costs and improving outcomes.

Before you can reduce costs, you have to know what they are.

Know your costs

See if you can answer this question: What does it cost to treat patients and deliver the services that keep them healthy?

Before you can reduce costs, you have to know what they are. Providers who participate in the value-based payment arrangements of the Centers for Medicare & Medicaid Services (CMS) consistently say that access to claims data is one of the biggest benefits of participation.

Of course, access to the data is one thing. Knowing how to manipulate and interpret that data is another. Consider whether your organization would benefit from heftier investments in data analytics resources.

Broaden your cost reduction perspective

Once you know your costs, the path back to profitability requires consistently delivering more with less.

In this cost-cutting quest, look deeper than the labor pool. Because people make up the biggest category in any healthcare organization’s budget, hospitals often focus their cost reduction efforts on labor. Although continual reevaluation of labor costs is necessary, broaden your cost reduction strategies to the entire spectrum of expense categories, from supply chain and contract management to supply utilization.

Make strategic quality improvements

The question is no longer whether your healthcare organization will play the value-based game. The new question is: Which of the many value-based arrangements will your organization choose (or be forced) to participate in?

If your organization is already subject to mandatory CMS programs, such as the Medicare readmissions reduction and Value-Based Purchasing programs, consider whether your organization can get a bigger bang for its buck by negotiating commercial contracts that reward you for improvements you’re already making.

Managing all the necessary compliance, cost reduction, and quality improvement initiatives is more than a full-time job. So be strategic about those investments. Zero in on the outcome improvements that will make the biggest impact on the bottom line.

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