Four Ways to Better Time the Transition to Value

Many hospital systems, physician groups, and other providers are working hard to transition to value-based care delivery, offering the "supply side" of care with improved quality, access, and outcomes at lower costs. Meanwhile, risk-based payment arrangements offered by healthcare purchasers-the "demand side"-are developing nationwide, but not evenly. Some payers and employers are moving the needle significantly in certain markets; in other markets, progress is slow or a wait-and-see attitude predominates among purchasers.A lack of alignment between supply-side and demand-side stakeholders presents timing and coordination challenges for healthcare organizations. Substantial investments of human and capital resources are required to build value-based care delivery vehicles, such as accountable care organizations (ACOs), clinically integrated networks (CINs), and patient-centered medical homes. Care delivery design, reporting, and governance often must be reshaped or developed anew. By the time healthcare systems are ready to operate these new care delivery models, payers and other purchasers may be offering arrangements that make these models financially unviable for the healthcare systems.Timing aside, provider organizations must ensure that their contracting strategies with purchasers are aligned with their delivery system strategies, within their acceptable risk tolerance parameters. How do healthcare providers ensure that they are appropriately addressing the timing and coordination challenges, thereby reducing overall risk?A S S E S S M E N T A C T I V I T I E S TO ENSURE A L I G N M E N T AND REDUCE RISKWe recommend four assessment and strategic planning activities that healthcare organizations can undertake. Based on organizations we have worked with, we describe a hypothetical hospital-Community Memorial Hospital (CMH)-that wants to develop a CIN for its region. Facing the same challenges as other organizations in the current national environment, CMH is considering a partnership arrangement with another health system in the area to build the size and scale needed to compete effectively.Evaluate Where the Market Is in Its Evolution Toward ValueThe organization must first understand the market's current stage of development in transitioning to value-based care delivery and payment, as well as how quickly the market is likely to change. Quantitative criteria to examine include the level of organization among hospitals and physicians (e.g., the extent of hospital consolidation, physician group size, provider network size, degree of clinical integration); competition among payers; vertical provider-payer collaboration; the sophistication of insurance products; enrollment in health insurance exchanges; employer benefit structures; the demand for inpatient and outpatient services; the supply of physicians and hospital beds; the pricing environment; and the regulatory environment.These criteria help the organization identify a likely trajectory for business lines according to payer (i.e., traditional Medicare and Medicaid; commercial insurance, including group and individual or exchange coverage for people younger than 65; Medicare Advantage; and managed Medicaid). This information provides a context for the timing and coordination requirements of the payer strategies that an organization might wish to pursue.An assessment of the hypothetical CMH's market area led to these key findings:* Local payers are moving selectively toward value-based arrangements, with some focusing on arrangements with hospitals and others on physician arrangements; the level of risk sharing and the terms and timing of the arrangements vary widely.* Narrow and tiered networks are gaining popularity in both the exchange and traditional commercial insurance programs. Such networks focus on attracting entities that offer organized systems of care rather than just the lowest cost.* Most payers and employers are unwilling to pay more for improved care delivery models (e. …