Four considerations when moving to value-based payment

One of the most promising and durable developments of the post-Affordable Care Act era has been the shift to value-based payment models from traditional fee-for-service payment.  Part of this is driven by the Department of Health and Human Services' (HHS). The federal agency has set an ambitious goal of tying 90% of its Medicare reimbursement to some type of value-based reimbursement by 2018, up from the current 20%. 

The shift is no less dramatic in the commercial market where an estimated 40% of provider payments were value-based as of the end of 2014, according to a recent study by the Catalyst for Payment Reform. 

Value-based payment models can vary greatly but they each share a common goal: to re-align provider incentives away from simply providing more services to effectively managing the cost and quality of care for a defined population or for a defined episode of care.  Some common types are shared savings, shared risk, and bundled payment models.  These payment models hold great promise, but they raise a host of legal issues and strategic considerations that require managed care organizations to think outside of the fee-for-service box.   

Below are four critical considerations that are integral to successful implementation of a value-based payment model:

1. Provider risk assumption

Certain value-based payment models require providers to accept downside risk.  This raises a number of potential legal issues, including which benefit product types can be used to transfer insurance risk without the need for additional licensure on the part of providers. 

The effect of provider risk assumption largely depends on state insurance department requirements, which vary.  Some states, such as California, place significant limitations on provider risk assumption while other states have less restrictive requirements.

2. Network adequacy

Narrow networks have become increasingly common and they complement value-based payment by ensuring that there will be a sufficient volume of patients for providers that are willing to accept value-based payment.

Creating a narrow network comes with its own set of risks and legal considerations.  Network access and adequacy standards are rapidly evolving at both the state and federal level, and the standards vary depending on the product market and provider type.  In addition, evolving state standards regulate not only provider access, but also the process used to select narrow network or preferred tier providers. 

Providers are well-aware of network access and development standards, and there are recent well-publicized examples in several states of providers bringing legal challenges against their exclusion from a network or the preferred tier of a network.  Managed care organizations therefore need to ensure they adhere to network standards to avoid costly and disruptive legal battles. 

3. Data sharing

Providers’ success in value-based payment models depends on successfully managing health across a population or across an episode of care.  This requires access to timely and relevant data about their attributed enrollees, including information about the services provided by other providers.  This raises a host of issues under data privacy laws, including HIPAA and state privacy laws, and also could implicate confidentiality restrictions in health plans’ agreements with other providers.

4. Government payment models

The HHS’s efforts to encourage value-based payment in the traditional Medicare program include the Medicare Shared Savings Program, the Pioneer ACO Program, and the bundled payment pilot programs.  Managed care organizations should be familiar with these payment methodologies, and the provider financial relationships permitted and encouraged by HHS through fraud and abuse waivers and other legal guidance. 

The payment models and provider relationships developed for HHS’s programs can be leveraged by commercial payers as well as providers as they adopt new models of care designed to effectively manage population health.

Jeremy Earl is a partner in the health industry advisory practice at McDermott Will & Emery, and is based in Washington, D.C.