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The Changing Tide of Value-Based Payments

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07/06/2015

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How Will They Impact Billing Companies?

By Jim Sholeff


On April 15, 2015, President Obama signed a bill into law that finally fixed the dreaded sustainable growth rate (SGR) formula. For years, Congress had been postponing an overhaul of the SGR. Many were surprised that a bipartisan "doc fix" solution appeared at the last minute this year to save the day.

One of the interesting components of this legislation is a two-tiered payment system where providers who participate in value-based programs get reimbursed at a higher rate. While speaking to the House about this bill, House Minority Leader Nancy Pelosi called the bill "transformative in how it rewards the value, not the volume."

That the Centers for Medicare and Medicaid Services (CMS) and Congress are pushing for more reimbursement tied to quality of care and outcomes should come as no surprise at this point. There has been a growing trend in this direction across the industry.

From Quantity to Quality
Prior to the passing of the "doc fix" bill, CMS announced a goal of tying 30 percent of traditional Medicare payments to quality or value through alternative payment models by the end of 2016. Fifty percent of payments will be tied to quality initiatives by the end of 2018. Starting in 2017, the CMS value-based modifier (VBM) will be required across practices of all sizes. The VBM is already in use in larger practices and it provides a "differential payment to physicians under the Medicare Fee Schedule based upon quality of care furnished compared to cost during a performance period."

Earlier this year, Anthem Blue Cross announced it will increase its investment in value-based programs. "We're changing the way providers and insurers interact with one another to lower medical costs," said Anthem CEO Joe Swedish in a call with analysts. "Currently, we have more than $38 billion in spend tied to value-based contracts, repre-senting 30 percent of our commercial claims and approximately 40,000 providers."

UnitedHealthcare, which is also growing its value-based programs, recently announced a bundled payment program with MD Anderson Cancer Center. This payment structure pays a flat fee for head and neck cancer treatment and includes an incentive to focus on the essential element of care. UnitedHealthcare said it is generating 1 to 6 percent in savings from its various value-based reimbursement approaches.

There is no doubt that other payors will follow in the footsteps of these giants, and other big players are lauding the move away from quantity toward quality. For over 10 years, the American Academy of Family Physicians (AAFP) has had a policy in place supporting programs like these. "The current focus on fee-for-service payment must end and be replaced with better alternatives, such as blended or prospective global payment models that promote value over volume," said Amy Mullins, medical director for quality improvement at the AAFP.

What Is Value-Based Reimbursement?
Many providers and their staff (and billers and billing companies) are still a little unclear on what exactly constitutes value-based reimbursement. And no wonder – there are many different ways it can manifest itself. Most practices are probably involved in something that falls under value-based payments but may not know it.

Healthcare attorney Matt Fisher summed it up well in a recent discussion on the topic. "Value-based reimbursement means any form that pays on a methodology other than fee-for-service," Fisher said. Wilson Pho, MD, added, "It is centralized around outcomes as a measurement for success rather than rendering services as the basis for reimbursement."

Rick Kaufman, owner of Billing Advantage, a medical billing company that services over 200 providers in 22 states, points out that since these programs depend on cost savings and outcomes, "practices will need to track clinical and financial outcomes, often using a wide array of measurement tools."

Different models and programs have been tried over recent years, including pay-for-performance (P4P), patient-centered medical homes (PCMH), and accountable care organizations (ACOs). Both the response and outcomes have been mixed, but that hasn't stopped payors from looking to grow these types of value-based payment programs.

Some models are based on capitated payments for certain types of care, while others offer higher reimbursement for better outcomes or more efficient processes.

What is the Impact on the Industry?
The long-term impact on physicians, hospitals, billing companies, and the industry overall is uncertain, though many hope these programs will increase efficiency and outcomes while reducing the staggering cost of healthcare in the US. What is not uncertain is that any major change in a medical practice (e.g., implementing an EHR, transiting to ICD-10, attesting for Meaningful Use) takes time, resources, and often money. So these big changes usually result in a dip in revenue and productivity for the practice.

Providers are seeing the trend in their own practices, but most are unsure if it is a positive one. A 2014 study by Physicians Practice showed that nearly 49 percent of practices indicated that they expected fewer than 10 percent of 2015 revenue to come through non-fee-for-service contracts, while 11 percent said more than half of their 2015 revenue would come from such contracts. When asked if these payment models would be good for their practice, only 20 percent said yes.

Even a temporary loss of revenue can be hard on a practice. And when practice revenue goes down so does the revenue at the billing company that serves that practice. A company might be able to mitigate a reduction in revenue in one or two practices, but a loss across many practices—even a short-term loss—will have a big impact.

On the flip side, as payors change to reimbursement that is higher for value-based care, and practices get the right technology and processes in place, revenue may increase. As a result, so will the revenue at the billing company. In the long term, this means that it makes sense for billing companies to support this transition and help practices do it successfully.

How Can Billing Companies Take Advantage of This Change?
The move to value-based reimbursement is not like the trend toward concierge medicine. Practices with a mix of value-based and fee-for-service still need their billing service. In fact, they may need their billing company more, and the billing company might need to look at whether or not to add new services like coding or practice consulting to help the practice get the most from these new payment programs.

The first priority for any billing company is getting familiar with value-based reimbursement programs for the payors the company works with. Also, sign up for any email lists available from those payors to stay on top of changes and aware of educational resources like free webinars. Staff need to get familiar with these programs and understand how to bill correctly.

"The services provided by medical billing companies vary widely," said Kaufman. "Some include coding and some do not. For many billing services, the provider is responsible for supplying the correct diagnosis and procedure codes, as well as any needed modifiers. In these situations, the coding is ultimately the responsibility of the practice. However, it is helpful if the billing service has some understanding of the new codes and modifiers so that errors can be caught, and the practice can be informed of any needed changes in their coding practices. For other billing services, coding is a major part of what they do. In these situations, the changes in billing requirements are the direct responsibility of the billing service."

Kaufman also points out that some of these programs require more than billing changes. They require the practice to provide outcomes reporting. Generally, a billing company would not be involved in this process, but having an awareness of educational resources for the specialty or specific payor can help the practice be more successful. When higher reimbursement is at stake, it can make sense for the billing service to have these resources handy to share with customers. If the billing company opts to provide some kind of consulting service, then this might be a component of that offering.

How do you know if you should add coding or consulting to your roster of services? There is a standard set of key questions you need to ask to decide if adding a service makes sense:

  • Do you have the expertise? (Or can you get it?)
  • Does the service add revenue/profit? (Or just make you busier?)
  • Would the new service diminish existing services by stretching resources?
  • Does the service strengthen your current offerings?
  • Does it add risk to your business?
  • Will the service add value and increase customer retention?
  • Is this something that makes sense for most or all customers?
  • Does it create opportunity for recruiting new customers?

Another option is to partner with a consultant who has expertise in value-based payment programs and can help your practice customers take advantage of these programs as effectively as possible. The sooner the practice is able to get it right, the faster revenue and productivity are restored.

Be Informed
Whether a billing company opts to add consulting or coding services to support the transition or provide them through a third-party service, some action will be needed. "Billing companies need to stay up to date on these changes and keep staff up to date," said Kaufman. "And they also need to advise practices on where to seek additional information to minimize the impact of these changes on the revenue stream."


Jim Sholeff is the director of mergers and acquisitions at Kareo. Prior to Kareo, Jim founded ECCO Health in 2004 and built the company to over 250 customers before selling the business in 2013.

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