CEOs weigh the risks and rewards of payment reform

Hospitals and health systems have been slowly wading into alternative payment models and many expect to take a deeper plunge in the next few years.

About half of respondents to Modern Healthcare's most recent CEO Power Panel survey said less than 5% of their revenue is currently tied to alternative payment models. Within two to five years, nearly 40% of the CEOs expect more than 25% of their revenue to be tied to bundled payments, accountable care organizations, population health initiatives, value-based contracts and other payment reforms.

"We've moved toward taking on more risk, now about a third of our total volume," said Dr. Marc Harrison, CEO of Salt Lake City-based Intermountain Healthcare. "This level of risk accelerates improvements in quality and cost, and that's good for patients."

Hospitals have traditionally operated in a world that rewarded them for each procedure and test performed. The push toward value-based payment models has caused providers to make larger investments in information technology, improve coordination across the continuum and deliver better outcomes at lower costs. Ideally, successful payment reform translates to reduced variation, the elimination of unnecessary tests and procedures, and managing a patient's total health, rather than doing it episode by episode.

"It forces us to look at the care continuum differently," said Julie Taylor, CEO of Alaska Regional Hospital in Anchorage. "If you are going to get the best outcomes from a value-based purchasing perspective, it can't be done in a silo."

The shift to value isn't easy, though. Nearly two-thirds of the CEOs surveyed said they are still wary of the financial risk involved across all payment reform. Engaging physicians and staff (63%) and revamping clinical processes (57%) were the next biggest obstacles in implementing new models, executives said.

"The challenge in moving from volume to value is doing more with less," said Dr. Susan Turney, CEO of the Marshfield (Wis.) Clinic Health System. "It's not just the providers; physicians and patients have increased financial risk as well."

Nonetheless, executives are managing the growing pains.

"We reorganized, particularly with our population health division, so we can comprehensively look at how we are doing payment reform," said Dr. Rod Hochman, CEO of Renton, Wash.-based Providence St. Joseph Health, a 50-hospital system created by last year's merger of Providence Health & Services and St. Joseph Health. "It is a journey."

While MACRA could reduce variation and drive quality outcomes over time, it also poses challenges for physicians in small practices, said Dr. Gary Kaplan, CEO of Seattle-based Virginia Mason Health System.

"It could lead to consolidation of small practices, as they may not have the size needed to drive alignment of quality measures and information systems," he said.

As healthcare leaders search for payment models that best fit their organizations, they are keeping a close eye on how new policies and regulations could transform the healthcare landscape. Around 83% of the CEOs expect the current administration to bring more uncertainty into the picture.

"We really don't know what elements of the Affordable Care Act will be sustained or modified," Kaplan said. "We just need to focus on our patients and create value."