It is widely understood that healthcare payment is shifting toward value-based care. What is not appreciated is that value-based payment rests on a ramshackle foundation: the unloved, partially automated and often poorly integrated healthcare revenue cycle. Many institutions and practitioners will muff the transition to value-based care because their revenue-cycle activities—from patient identification to registration to documentation and coding of care provision—do not fit together as a functioning whole. In other words, getting the revenue cycle right is essential for care systems to execute the leap to a value-based system.
The transition to value-based payment has begun against a threatening economic background.
After leveling at roughly the rate of the rate of inflation during the healthcare reform debate, hospital and physician unit price growth (all payers) plummeted during 2015, the lowest wholesale price growth since the Commerce Department began keeping records. Health services pricing has been below inflation for nearly five years.
Historically, health systems compensated for disappointing clinical volumes or reductions from public payers like Medicare and Medicaid by raising rates to private health plans. With private insurers rolling out new narrow network, value-based Exchange products, however, cost shifting abruptly ceased.
Moreover, with high-deductible health plans, tens of billions of first-dollar healthcare costs have been shifted onto household budgets. According to the Kaiser Family Foundation's annual benefits survey, cost sharing per worker rose almost 230% from 2006 to 2015, six times faster than wages. According to Bruce Hallowell of Navigant Consulting, it is not unusual for a third of these deductibles never to be collected. Once they are deemed bad debts, the collection rate falls to 15%.
As a result of these two trends, even healthcare systems sitting confidently astride their local markets found operating earnings disappear in 2014 and 2015. For reasons this industry veteran still does not understand, when earnings disappear, instead of turning immediately to strengthening their revenue cycle functions, C-suite executives turn instead to reducing their workforce. Often, both expense reductions and revenue enhancement are required, but the relative disruption strongly argues for attacking the revenue problem first.
It is not unusual for 3% to 5% of a hospital or medical practice's cash flow simply to evaporate through the revenue cycle for a variety of mundane reasons: because the patient and his insurance status is not correctly identified, or the services provided are never recorded or coded improperly, or because the bill is denied by the insurer and not aggressively pursued.
Many health executives and clinical leaders believe that value-based payment will be a completely new system focusing on managing population risks of the attributed or enrolled population. However, if one looks closely at the three generations of Medicare accountable care organizations, and bundling programs such as Bundled Payment for Care Improvement and Comprehensive Care for Joint Replacement, they all share a common characteristic: They are “shadow” systems that are laid on top of the current per-incident fee-based payment system.
When a health system transitions to value-based contracts or Medicare payment models, it does not cease registering patients, nor scheduling, enumerating and coding individual patient encounters; value-based systems add another (costly) layer of documentation requirements and attach new clinical and financial goals to them.
What this means is that if the core revenue-cycle functions—particularly registration, documentation and coding—are poorly executed or do not fit together properly, the organization gets hurt twice: it loses fee-based revenues and cash flow and it also does not get proper credit for the value improvements and cost savings that generate bonuses under value-based models.
Many ACOs failed to generate bonuses not because they did not improve care, but because they did not accurately attribute patients and their costs to the ACO, or else did not capture changes in the acuity of those patients that affected the cost trend; that is, failure of the core revenue-cycle functions was the root cause of the ACO's failure to meets its savings targets.
There is likely to be a lot of variation in the pace and intensity of the transition to value based care depending on your market. However, to make this transition successfully will require that the core revenue-cycle functions work together to define the patient's experience and pull through revenues needed for your health system to function.
If these seemingly mundane but important management routines do not work effectively, your institution will be at risk not only in the short term, but will also not make a successful transition to a value-based system.
Jeff Goldsmith is national adviser to Navigant Healthcare and an associate professor of public health sciences at the University of Virginia.