Population-Based Payment Models

This week I attended the virtual Health Care Payment Learning & Action Network (HCP-LAN) Summit. For those who don’t know, the HCP-LAN, or “LAN” for short, is, in their own words, “an active group of public and private health care leaders dedicated to providing thought leadership, strategic direction, and ongoing support to accelerate our care system’s adoption of alternative payment models (APMs).” 

CMS, along with a host of private payers, is interested in motivating health care entities to share in risk alongside insurers to lower healthcare costs and slow down out-of-control healthcare spending. The LAN works to make this transition to risk-sharing between insurers and providers happen.

So how does this fit into population health management?

Before going on, it might help to understand what risk-sharing means exactly, and the reasoning behind this paradigm shift. I found a good, straightforward formulation of this on a blog for a health insurance company I’ve never heard of called “Oscar.” I’m not endorsing this company, but I like their wording:

By sharing the risk, you (i.e. the patient), your insurance company, and doctors/hospitals are protected from individually bearing the costs for those who need a lot of health care or have medical emergencies during the year…From a statistical perspective, risk sharing works best when there are more people in a group – and this is especially true for health insurance.

Source: https://www.hioscar.com/blog/how-health-insurance-works-risk-sharing

For the sake of clarity, I added the “(i.e. the patient)” to the quote. And there’s more nuance to this, such as the fact that this kind of pool is optimized when not only older and less healthy people, but also younger, healthier people are included. But for our purposes, the above quote serves as a good starting place.

Suffice it to say that there is a big transition going on right now in the way medical providers are reimbursed, and the LAN is working to build a smooth glide path for that change. In the past, insurance companies (whether public or private) have paid doctors based on individual services rendered to patients under a pay structure called “fee-for-service” (FFS). But this approach led to a wasteful, inefficient system where care hasn’t been tightly integrated, costs have spiraled out of control, and quality outcomes haven’t kept pace with our peer nations. This result is down to care delivery not being viewed holistically, but rather as one-off events that don’t take the full scope of each individual patient into account.

To remedy this, CMS and a growing number of private insurance companies are transitioning to a value-based, coordinated care environment where the reimbursement structures (or payment models) are based on shared risk. In other words, providers who hit certain pre-determined cost and quality targets and who consequently save the health system money can share in these cost savings by receiving payment bonuses. This is what’s called an “upward payment adjustment.” In some payment models in this space, there are only “upside-only” or “one-sided” risk-sharing arrangements in which doctors are only rewarded if they beat expectations, but don’t get dinged financially if they don’t.

But in the future, if CMS has their way, it appears that all doctors and healthcare entities will move into two-sided risk models. The idea behind this flavor of payment model is that costs are held down and quality patient care is enhanced when providers are held accountable for patient outcomes. The most prominent kind of two-sided payment model is the accountable care organization, or ACO. “Health Affairs” has a handy definition of the two-sided risk payment model:

In two-sided risk models, providers still share in the savings but are also responsible for some of the loss if spending is above the benchmark.

Source: https://www.healthaffairs.org/do/10.1377/hblog20181011.442864/full/

That’s where the LAN comes in. They act as a bridge between the current, mostly FFS landscape and a future where healthcare providers are held accountable for cost and quality care. This group brings together payers, providers, manufacturers, policymakers, patients, and others to figure out new ways to, as they say, “lower care costs, improve patient experiences and outcomes, reduce the barriers to APM participation, and promote shared accountability.”

So this past week I attended a few LAN Summit sessions, and I noticed something that only earned a passing mention during one of the presentations: population-based payment (PBP) models. Although one of the less utilized alternative payment models, it seems to have made steady progress in the past couple of years toward adoption by a growing number of healthcare practitioners.

So what are population-based payment models? I actually didn’t know anything about them until this meeting, so I decided to look into them. Here is a helpful definition by the LAN:

The core premise of a PBP model is that providers are accountable for patient-centric care for a specific population over a fixed timeframe and across the full continuum of care.

Source: https://hcp-lan.org/2016/05/pbp-models-overcoming-barriers-accelerating-adoption/

The LAN has convened a PBP Work Group, which has identified four priority areas essential to adoption of these models:  patient attribution, financial benchmarking, data sharing, and performance measurement. One reason these models have lagged in their uptake among healthcare providers seems to be because, unlike other, more popular models, the PBP model is completely uncoupled from FFS. As the site Health Payer Intelligence notes:

Population-based payment models are models that are detached from fee-for-service reimbursement altogether, as opposed to other alternative payment models that continue to build off of fee-for-service structures…

Source: https://healthpayerintelligence.com/news/how-payers-can-support-population-based-payment-model-uptake 

Evidently the LAN has identified three types of PBP models, which are as follows: condition-specific population-based payment model, comprehensive population-based payment model, and integrated finance and delivery systems model. I won’t go into the finer points of these, which can be found in a 2017 white paper published by the LAN, but overall, as they say, “…(PBP models) represent the furthest departure from traditional FFS payments, while they simultaneously ensure that providers possess the strongest possible incentives to deliver high-quality and efficient care.”

I could easily see writing a future blog post that breaks down the details of each type of PBP model. I have a feeling that motivating providers to enter into this kind of forward-thinking model will involve developing new quality metrics that incentivize them to do so. I will keep track of this and update the blog with any new developments I come across. 

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