Under pressure from employers and federal and state governmental authorities, payors are driving a shift from fee-for-service payments that reward higher utilization of services to alternative reimbursement methodologies designed to hold providers accountable for care costs and quality. While this shift can benefit providers, payors, and patients alike, payors have found few templates to guide them through the complex business and legal challenges. Those that invest in innovating value-based models now, however, may gain first mover advantages that enable them to compete more effectively in the future.

Value-Based Care in an Evolving Healthcare Landscape

Unsustainable increases in health care spending (particularly for prescription drugs), regulatory changes under the Affordable Care Act (ACA), the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), and other federal and state health reform laws, and widespread adoption of electronic health information systems and analytics are just a few factors accelerating the shift to value-based payment models in the commercial health insurance market. While the future of mandatory models implemented under the ACA, such as the Comprehensive Care for Joint Replacement (CJR) program, is politically uncertain, value-based payment initiatives underway in the private sector are likely to continue apace.

Identifying Well-Positioned Partners

Successful early adopters of value-based payments actively seek health systems and other provider organizations with experience successfully coordinating care and managing population health. Established accountable care organizations (ACOs) formed by hospitals or health systems, as well as clinically integrated physician networks (CINs), can present a compelling value proposition and a willingness and ability to assume downside financial risk. Similarly, certain health systems and hospitals in a given region may have a demonstrated record of providing higher quality and more cost-effective care. In each case, providers that articulate a sound population health strategy, deliver coordinated and cost-effective care, monitor and improve care quality, demonstrate a willingness to take on financial risk, and provide solutions that justify payors’ investments (even taking into account challenges to return on investment analyses presented by membership transience in commercial plans) will increasingly be the preferred partners.

Expansion of Alternative Payment Methodologies to Biotechnology

In an effort to reduce overall health care costs and promote outcome measures, payors increasingly are partnering with pharmaceutical companies in value-based contracts, with either the drug price or the rebate subject to adjustment based on its performance.  Moving outside of traditional purchasing relationships, payors also have begun to engage with medical device manufacturers to measure and reward use of devices that indeed reduce overall expenditures.  Similar arrangements are developing with providers of digital health products, which provide technology-based solutions to track, manage, and improve patient health, with performance-based payment arrangements with health plans.   

Navigating the Regulatory Landscape

Payors must navigate a complex and interwoven set of laws and regulations, including federal and state fraud and abuse, data privacy, security, and breach notification, antitrust, licensing, network adequacy, any willing provider, and consumer protection laws, among other managed care laws. The shift to value-based payments presents particular challenges. For example, federal and state waivers of certain fraud and abuse laws in connection with Medicare and Medicaid alternative payment models may not extend to initiatives implemented by health plans and other private payors. Similarly, efforts to establish limited or tiered networks of preferred providers have met legal challenges, as have so-called “anti-steering” or “anti-tiering” provisions providers may seek to negotiate. In addition, states have developed differing approaches to regulating risk-bearing provider organizations and risk contracts between payors and providers.

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