Population health still at odds with fee-for-service

Year after year, surveys show the same thing: Healthcare providers’ evolution toward accepting risk to keep patients healthy—widely viewed as the holy grail of lowering healthcare costs—has been painfully slow.

So long as that’s the case, experts say the financial returns providers can expect to draw from population health management, where they gather patient data and use it to craft health improvement programs, will depend on how much of their revenue is tied to risk. If it’s not much, which is more than likely the case, they probably won’t see meaningful savings.

Not only that, providers’ population health teams often find themselves battling an entrenched, opposing strategy of growing per-transaction revenue. There have even been instances where a system’s fee-for-service spending goes on hyperdrive—adding more nursing homes or performing more procedures, for example—to compensate for savings achieved through population health programs.

“There are many stories where in the same organization, you literally have two executives battling it out in the CFO’s office: The fee-for-service executive says, ‘I’m your revenue source,’ and the population health person says, ‘I’m your future,’ ” said Dr. Mai Pham, a consultant who formerly served as CMS’ chief innovation officer. “So the organization as a whole ends up making a mishmash of decisions that aren’t internally consistent because they’re living in two worlds.”

The transition to paying for value has in recent years been more talk than action. Two-thirds of providers in risk-based contracts said less than 20% of their organization’s revenue was at risk in 2019, a smaller risk profile than they projected two years earlier, according to a Numerof & Associates survey. Unsurprisingly, fear of losing money was the biggest reason providers who took the survey said they’re hesitant to move into value-based payment models.

This environment prevents providers from wholeheartedly engaging in population health, which means following patients for years and using low-cost interventions to prevent serious illnesses, said Michael Abrams, co-founder and managing partner with Numerof & Associates. That’s a lot different from the current model, where most of a hospital’s money comes from expensive surgeries and other procedures.

“The philosophies are diametrically opposed,” Abrams said. “Culturally, that means that any population health effort within that broader context of fee-for-service, it’s an orphan. It’s an uphill slog to get anybody to really approach it in the right way or to entertain the notion that it’s a viable alternative to fee-for-service.”

In her role as a founding official with CMS’ Center for Medicare & Medicaid Innovation, Pham saw firsthand how providers struggle to balance their dependence on per-transaction revenue with dipping their toes into value-based payments.

Being largely fee-for-service creates a “natural ambivalence” to working hard on value-based care, she said. There were even cases where health systems’ fee-for-service arms worked to drive up reimbursement, having the effect of muting or even canceling out cost savings on the population health side, such as through Medicare accountable care organizations.

In one case, a health system—which Pham asked not be identified—was baffled when CMS said its skilled-nursing costs were an outlier. While the system’s population health efforts had helped lower hospital admissions, it was simultaneously adding more skilled-nursing units and steering more patient volume to them to drive up reimbursement.

“Over there, the CFO was equally happy with someone cranking up fee-for-service volume,” said Pham, currently CEO of the Institute for Exceptional Care, which works to improve care for people with intellectual and developmental disabilities.

Another health system was working to lower costs for Medicare patients by tying physician pay to hitting value metrics. But on the Medicare fee-for-service side, it was growing revenue by 20% per member per year by doling out more services.

“They used it in part to subsidize the system to make up for the good work they were doing over there,” she said.

Such situations are ultimately driven by the need to stay financially viable, which is the reality of today’s healthcare environment, said Kyrsten Chambers, vice president of population health with data analytics company Health Catalyst. Inpatient care still made up more than half of U.S. hospitals’ nearly $1.1 trillion in total revenue in 2019, although revenue from outpatient care is set to eclipse that in the near future, per data from the American Hospital Association. To avoid those conflicting strategies, she said providers should make sure all parts of the system—leadership and physicians included—are engaged in the transition to value-based care.

The bigger problem is that current revenue models and habits are configured around treating acute illnesses, said Dr. Don Berwick, president emeritus and senior fellow at the Institute for Healthcare Improvement. Until payments move toward global budgets or another type of holistic payment program, there won’t be financial incentive to reorient the system around population health management, he said.

“Right now there is no financial model for keeping the population healthy,” Berwick said.

Even health systems that tout sophisticated population health strategies admit they’re still light on risk in their contracts with commercial insurers, which limits the scope of their results.

ProMedica, a not-for-profit health system based in Toledo, Ohio, still derives most of its provider and senior care revenue from traditional fee-for-service arrangements, said Steve Cavanaugh, ProMedica’s chief financial officer. He declined to share a specific percentage.

The health system has seen encouraging results so far from a pair of ongoing population health projects, although that data covers a tiny sliver of ProMedica’s patient population. The test sample will expand with time.

An innovative program that distributes healthy food prescribed by its clinicians, for example, covered just 1,037 people. In one year, the system measured a 6% decline in per-member costs among Medicaid and Medicare patients who used the food clinic. They also visited emergency departments 18% less and had 5% fewer avoidable readmissions.

A program that provides financial literacy counseling also saw promising results, but it included just 66 people. In one year, those patients saw 24% fewer ED visits, 18% fewer inpatient visits, a 122-point average credit score increase and $210 higher average monthly income.

ProMedica in 2019 hired Washington, D.C.-based tech startup Socially Determined to further develop its population health management strategy. Cavanaugh declined to say how much the health system is paying Socially Determined, but he said the fact that the system owns a health plan makes it easier to justify the investment. If those patients are also plan members, the savings show up immediately on the health plan side, he said.

Danville, Pa.-based Geisinger Health, which also touts its population health strategy, has a “relatively small” portion of its commercial revenue tied to risk-based contracts, said Dr. Keith Boell, the system’s chief quality officer for population health. Roughly one-third of the health system’s patients are covered under commercial policies outside of Geisinger’s own health plan and most of that is still fee-for-service, he said.

“It’s not significant enough that we’ve done that math,” Boell said. “It’s pretty small.”

That’s partly a product of those insurers’ offerings. Even so, Geisinger has a large accountable care organization through CMS and its health plan covers more than 500,000 people. While members can still get care elsewhere, Geisinger treats many of those patients, Boell said. He wasn’t able to share specific examples of returns on investment for the system’s population health work.

In some cases, providers are dipping into philanthropic support to help fund population health projects, said Rob Saunders, research director for payment and delivery reform at the Duke-Margolis Center for Health Policy. The challenge is that money is limited and it often doesn’t provide the ongoing support necessary to scale up projects over time, he said.

ProMedica, for example, set a goal of raising $1 billion over eight years toward testing various strategies and scaling them, said Kate Sommerfeld, ProMedica’s president of social determinants of health. The health system also counts some of its population health investments toward the community benefit spending it is required to report to the federal government. Donations are not counted toward community benefits, she said.

Generating a return on a population health investment isn’t an all-or-nothing proposition. Rather, the level of financial return providers see exists on a continuum.

“The bottom line is the higher percent of your revenue that’s coming in through risk, the more it makes sense to do this,” said John Poelman, senior director with consulting firm Leavitt Partners.

Healthcare providers have to be calculated with the pace of their population health transitions. If they go in too quickly and reduce patient volumes while their revenue is still 85% fee-for-service, that could be a problem, Poelman said. But even if revenue is as low as 30% at risk, the investment in population health makes much more sense.

It’s also important to note that some providers aren’t transitioning to risk because commercial insurers or large employers in their particular region simply don't offer those contracts.

Even if population health management doesn’t pay off tomorrow, that doesn’t mean it’s not a good investment for the future. First and foremost, it improves people’s health and well-being, which should be the No. 1 goal of any healthcare provider.

And even if a health system is just toe-dipping, with 5% or less of its revenue at risk, that’s important practice for the industry’s eventual shift to paying for value.

Some experts said they think fee-for-service medicine is on its last legs. The COVID-19 pandemic further exposed weakness in the model when volumes dried up. The shift will finally happen when CMS pushes the issue through payment models with commercial payers following suit. Disrupters who can provide care cheaper will also force the issue.

Policymakers and insurers should work to make fee-for-service medicine less and less profitable, Pham said.

“It’s not good enough to make the population health side attractive, you have to make the alternative really unattractive,” she said, “That has not happened yet because no one has the political will to do that.”

And, yes, there is some evidence population health management saves money. In one case, every dollar a Medicaid plan spent hiring community health workers yielded a $2.47 average return, a 2020 Health Affairs study found.

Such findings show that sometimes doing the right thing for low-income patients can actually help a provider’s bottom line, said Dr. Judith Long, an author on the study and chief of general internal medicine at the University of Pennsylvania’s Perelman School of Medicine. Community health workers not only create meaningful jobs, they address unmet social needs like housing and food insecurity, she said.

“But let’s say you don’t care about any of that,” Long said. “We can say: Besides all of that, you might save money doing this. There are a lot of reasons you should be doing this, and this is one extra reason.”

Liam Bouchier, a principal with Impact Advisors, worked with a six-hospital system in South Florida that saved $15 million in 2018 through a CMS Next Generation ACO after only investing a couple million to get the project up and running.

That said, he’s noticed health systems aren’t always thinking about how such programs jibe with their fee-for-service sides.

“I’ve often seen a disconnect—‘Well, we know we can save some dollars here, but does it fit into the bigger-picture strategy?’ ” he said. “Is this model applicable to our environment? Maybe yes, maybe no.”