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Greg Anderson

Health Care

Setting Quality Metrics for Value-Based Pay, Part 1

New legislation requires careful consideration of physician incentive plans

Published: Thursday, September 8, 2016 - 14:36

Government and commercial insurers are transforming payment systems from a fee-for-service reimbursement model to arrangements that include incentives for quality, outcomes, improved patient satisfaction, and reduced cost.

In the fee-for-service environment, hospitals, physicians, and other providers have been subjected to insignificant financial risk relative to the risk borne by payers; however, with time, transformed payment arrangements have encouraged, if not required, more providers to assume downside risk (meaning they would be responsible for a portion of the difference between actual total costs and exceeded budgeted costs). Why? One reason is to hold providers accountable for the cost and quality of care. The table below by The Commonwealth Fund summarizes this need by showing where the United States ranks relative to other industrialized nations in health outcomes and risk factors:

Select population health outcomes and risk factors

Click here for larger image.
aSource: OECD Health Data 2015.
bIncludes: hypertension or high blood pressure, heart disease, diabetes, lung problems, mental health problems, cancer, and joint pain/arthritis. Source: Commonwealth Fund International Health Policy Survey of Older Adults, 2014.
cDEN, FR, NETH, NOR, SWE, and SWIZ based on self-reported data; all other countries based on measured data.

The quality dilemma is exacerbated by high costs, with the United States ranking highest among these countries in per capita healthcare spending and total health expenditures as a percent of gross domestic product.

The solutions to increasing quality, improving outcomes, and lowering costs are not easy, and holding facilities and providers accountable for such measures is only part of the equation. Medicare, for example, has changed the way it pays hospitals for services. The Hospital Readmissions Reduction Program, Value-Based Purchasing Program, and Hospital-Acquired Condition Reduction Program, all brought about by the Affordable Care Act, have changed how hospitals are held accountable for high quality services. The Affordable Care Act and other legislation also created innovative models that aim to achieve better care for patients, better health for communities, and lower costs through improvement of the healthcare system. Many of these offer a sharing of payer savings with providers, but several also include downside risk if quality and savings targets are not achieved.

April 2015 saw the passage of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), with the Centers for Medicare and Medicaid Services’ release of its proposed rule on MACRA in May 2016. MACRA ended the Sustainable Growth Rate formula for determining Medicare payments for physicians’ and other healthcare providers’ services, began a new means for rewarding healthcare providers for better care, and combined existing quality reporting programs into a single system. These proposed changes, which the Centers for Medicare and Medicaid Services calls the Quality Payment Program, replace the former Medicare Physician Quality Reporting System, the value-based modifier, (aka physician value-based modifier, and value-based payment modifier), and meaningful use reporting programs with a of two paths linking quality to physician payments: a merit-based incentive payment system and advanced alternative payment models.

The transition from fee-for-service model to a value-based payment system represents one of the greatest financial challenges facing hospitals and health systems, not only because of hospital reimbursement changes, but also because of the implications for physician arrangements subject to the changes brought about by MACRA. Approximately 19 out of 20 MACRA-affected providers will fall under the merit-based incentive payment system, meaning physicians, group practices, and hospitals employing physicians must begin now to plan for the merit-based incentive payment system measurement period beginning Jan. 1, 2017.

This includes taking critical action steps today, such as:

• Communicating upcoming changes to physicians and staff
• Assessing whether the physicians will fall under a merit-based incentive payment system or an advanced alternative payment model
• If under merit-based incentive payment system:

  • Evaluating optimum reporting for individuals and groups
  • Maximizing reporting under the Medicare Physician Quality Reporting System, value-based modifier, and meaningful use programs and assessing current performance to prepare to maximize merit-based incentive payment system score
  • Identifying preferred metrics
  • Evaluating current costs at the episodic level and benchmarking against peer data to identify outliers
  • Considering opportunities for advanced alternative payment participation
  • Determining whether and how hospitals and groups should adjust physician incentive compensation plans

Hospitals and physicians can benefit by partnering with an organization with experienced health care financial analysts who can help to interpret the reimbursement implications of MACRA and assist in evaluating quality measures and cost outliers, studying physician compensation plan impact, and optimizing quality reporting.

Next up: Part Two, Evaluating MACRA Metrics and Physician Impact.


About The Author

Greg Anderson’s picture

Greg Anderson

Greg Anderson is a partner in the healthcare practice group of HORNE LLP and concentrates his consulting on income distribution plans for physician group practices; design, implementation and fair market value studies related to hospital/physician employment and other compensation arrangements; and the valuation of medical practices, hospitals, diagnostic facilities, ambulatory surgery centers and other health care facilities. Anderson is a graduate of the University of Southern Mississippi. He is a certified public accountant accredited in business valuation and a certified valuation analyst.