Value based healthcare is expected to impact debt collections for the average 350-bed hospital, a classic American institution that is losing about $22 million each year according to the Advisory Board. The transition from the traditional fee-for-service payment model to value based healthcare is expected to be “painful” in the short term, but most experts believe the final results will be favorable for patients, providers and payers.
The reasons cited by the Advisory Board (a research, technology and consulting company) in conjunction with other challenges faced by the healthcare industry are creating the perfect storm to prompt needed reform in the healthcare revenue cycle. Many institutions are already engaged in the transition process.
If the inevitability of the forthcoming change wasn’t clear enough, then consider the American Medical Association’s $42.2 million investment in Health2047, a technology start-up focused on value based healthcare, physician productivity and other healthcare challenges.
This first installment of a two-part series provides background information, a comparison of the existing fee-for-service and value based models, and current healthcare challenges. Part two looks at the transition, related analytics and results.
The Existing Model Versus Value Based Healthcare
The traditional model — aka “fee-for-service” or “volume based reimbursement” — is effectively a time-and-material method of 
calculating compensations for office visits, hospital stays, laboratory tests, x-rays and scans, surgeries and other procedures. The revenue cycle starts with patient access and transitions to healthcare services, charge capture and coding before culminating in claim reimbursement or denial management.
Under a value based healthcare system, providers such as private-practice medical offices, specialists and hospitals receive financial compensation for creating the most desirable patient outcomes at the lowest cost. The “value” component is represented by the ratio of favorable outcomes to the cost of delivering them.
Furthermore, the value cycle includes factors such as clinical outcomes, operational efficiency and risk management in addition to the traditional revenue cycle stages of pricing, charge capture, claims processing, account resolution and financial management.
Current Healthcare Challenges
The implementation of value based healthcare is occurring during tough times for the industry, a fact that is underlined by the $22 million per year per hospital loss mentioned above. The Advisory Board detailed the nature of the four-sided problem.
For openers, commercial healthcare payers are “scrutinizing more claims than ever,” a trend that is precipitating an average margin loss of five percent among hospitals due to denied claims, underpayments or poorly negotiated contracts.
Patients continue to face financial stress nearly 10 years removed from the Great Recession. For example, a survey by the Kaiser Family Foundation indicates that “U.S. workers with deductibles greater than $2,000 grew from 5.0 to 19.0 percent from 2008 to 2015.” Even more alarming is the fact that the portion of patient obligations being written off as bad debt rose from 0.9 to 4.4 percent over the same period.
Another challenge is the slow integration of accountable care organizations (ACO) that manage and consolidate the efforts of all healthcare providers in order to deliver the finest care at the lowest possible price. This situation has created a void in three critical areas:
- A business intelligence platform encompassing system-wide entities and service lines
- The ability to generate one patient bill for all physician and hospital services
- The use of integrated coders to drive further understanding and coding accuracy
Lastly, the Medicare Access & Chip Reauthorization Act of 2015 (MACRA) has added time-consuming accountability that may result in healthcare providers being penalized for “poor quality, cost performance and insufficient reporting.”
Beyond the challenges described above, healthcare providers face even deeper layers of bureaucratic programs (i.e. red tape) designed to generate value, including those under the auspices of the Centers for Medicare & Medicaid Services (CMS):
- Hospital-Acquired Condition Reduction Program (HAC)
- Hospital Readmissions Reduction Program (HRRP)
- Hospital Value-Based Purchasing Program (VBP)
- Physician Value-Based Modifier Program (VM)
- Skilled Nursing Facility Value-Based Program (SNFVBP)
- Home Health Value Based Program (HHVBP)
Furthermore, as Baby Boomers continue to age and commercial payers diminish in number, healthcare providers are receiving lower compensation rates from Medicare and Medicaid — a trend that is expected to continue.
Potential Benefits of Value Based Healthcare
Value based healthcare can potentially improve the quality of life for most Americans in the form of true healthcare reform, but it will take a sincere commitment by government and the industry to make it successful.
The concept and legal framework were mandated by Title III and Title IV of the Affordable Care Act, a 20,000-page document offering considerably more than just “affordable care.”
Potential changes include many advantages for patients and providers alike, but late-stage revenue cycle management — and particularly debt collections — are expected to be necessary components of future healthcare.
Contact us today to learn the importance of applying an effective debt collection strategy in anticipation of value based healthcare, and how Optio can help your organization garner a favorable ROI, brand protection and customer retention.
