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July 7, 2017
June 30, 2022

In the midst of a major shift in healthcare conceptualization resides possibly the most rudimentary of all aspects of care; the healthcare payment system.  This system, deeply rooted in the long standing traditional fee-for-service model is undertaking a dramatic transformation, shifting towards a model that better rewards providers for the quality of care they deliver to their patients, rather than the volume.

Unpacking the complexities of population-based payment models (PBP) is not an easy course to follow.  After all fees-for-service encourages productivity not to mention it's also very easy to measure in terms of outcomes and valuations.

One of the vehicles driving the change to value-based compensation has been the emergence of Alternative Payment Models (APMs).  These APMs are transforming how payers and providers work cooperatively with one another.   Since they require mutually agreed-upon goals and collaborative efforts to achieve cost and quality targets such initiatives would give providers access to cost data for instance, something that they traditionally wouldn't have been granted access too.

"New plans can be perceived as unfair, inequitable or too complex. It's also difficult to quantify and reflect quality improvements in valuation. Providers agree that physician compensation models should place less emphasis on volume and more on value, to align physician behavior with new revenue models"

-Karin Chernoff Kaplan, MBA, CVA, director at Veralon

Some important questions for consideration:

  • How will performance be measured?
  • What are the specific organizational and payer metrics?
  • Is compensation consistent with fair market value?

Considering the complexity inherent in the redesign and uptake of APM's and specifically population-based models it is a wise idea to incorporate physicians throughout the planning phases as this will assist in realizing and reaching objectives between the healthcare organization and the provider.

The establishment of an accurate baseline standard for cost of care is the most vital aspect of development when considering a population-based APM.  It serves as the yard stick for establishing the financial targets throughout the contractual terms of agreement. Under a population-based payment model, this benchmark is set at a level describing all members in the population such as using a per-member-per-month (PMPM) cost.

"Establishing the correct baseline benchmark for cost of care is perhaps the most critically important aspect of developing any APM."

-Joseph O'Connor, writing for Qcentive

Multi-year APMs utilize one of two balancing methodologies.  Either baseline benchmark recalculations are automatically recalculated on an annual basis or targets are established in the first year of a contract and then adjust annually.

On the spectrum of APMs, population-based payment models are the most comprehensive.  A key strategy for moving from volume to value, these models reward providers for meeting population-level targets.  

PBP model: providers are accountable for patient-centric care for a specific population over a fixed timeframe and across the full continuum of care.

Assessing financial benchmarks

Setting appropriate benchmarks in PBP models is indispensable to their success.  These benchmarks need to mirror the significance of purchasers, payers, patients, and communities to reduce health care spending in a relatively timely manner.  A realistic assessment of the pace at which providers can make the changes needed. Establishing and maintaining financial benchmarks, while important to all stakeholders, requires a fundamentally different relationship between payers and providers. At the outset, the need for transparency and trust between both groups is paramount. Both must have a mutual understanding of risk-sharing parameters and the target of the financial benchmark, as well as the ability to adapt to unforeseen events, such as the approval of a new blockbuster drug.

The PBP Work Group's Financial Benchmarking White Paper provides a blueprint for establishing and updating financial benchmarks in PBP models, with a discussion of approaches to risk adjustment.  They recommend payers and providers create a unified, shared, goal to move away from historic provider benchmarks and establish regional and, ultimately, national benchmarks over time.

One issue for consideration is the convergence phase to meet a regional or national benchmark. Throughout that time period, provider organizations may succeed, improve, or fail based on their performance.  Meeting the financial benchmark is one measure of success.