Alternative Payment Models (APMs) as the “New Norm:” Is Your Provider Organization Ready
A national survey of providers showed that providers expect 39% of commercial payments will come via APMs in 2019. That’s an enormous, if not monumental, shift from fee-for-service arrangements made with PPOs. There are several emerging APMs: is your organization ready to accept payments from the APMs gaining the most traction? Reference Based Repricing (RBR), Bundles, Direct Contracts, Exclusive Narrow Networks and Carrier-Free Arrangements all bring unique challenges and opportunities if your organization understands them and is prepared to interface with some or all options.
Reference Based Repricing (RBR) is probably the most mature and commonly used APM, but it’s also the one providers struggle the most with. Most providers are intimately familiar with RBR, but if RBR hasn’t hit your market yet, it will in 2019. Essentially RBR is a fee-for-service model that pays a percentage of Medicare instead of using discounts from billed charges. National trends indicate that providers will need to be able to accept 125% of Medicare for professional services and 140-150% of Medicare for facility and technical charges. Being able to accept these rates is not something every provider is willing or able to do. If the employer adoption rate of RBR models continues at its current pace, there will be many markets where not being able to function at those reimbursement levels will be survival limiting. If the largest employers in your market choose RBR as their primary cost containment strategy and your organization does not have an RBR strategy that includes some level of acceptance, the threat becomes internal. Not seeing and preparing for this trend is unthinkable for a hospital leader. Like it or not RBR is here to stay, at least for the foreseeable future.
Bundles are another emerging and more provider-driven APM. There are many forms that bundling solutions can take. Many rely on a short list of common high dollar procedures and non-technical operations; others address hundreds of episodes of care and offer an alternative to conventional billing and coding that integrates with existing TPA and hospital infrastructure. Some use CMS bundling or (Diagnosis-Related Groups) DRGs to define episodes of care, while others have invented their own bundling structures which may be more “provider-friendly” as they define episodes of care in a manner more suitable for working-age persons rather than the chronically ill, disability recipients and senior citizens. Pricing methodologies range from single price solutions (where the vendor sets the price) to free-market solutions where providers set the price, to the extreme, a reverse eBay type solution where providers bid on elective procedures to catch the patient.
Each of these solutions interfaces with providers in differing ways. Proactive, provider-driven bundles may prove easier for providers to manage than other methodologies, but all have some common operational areas that need to be considered. Ease of billing, reduction or elimination of duplicate charges, user engagement, and integration with existing processes and infrastructure are all operational issues that should be considered when engaging a bundling solution.
Direct Contracts are certainly something that large employers, business groups, and captive organizations are favoring in lieu of or in addition to PPOs or, in some cases, carriers. Each of the major national initiatives that have been announced has worked more directly with providers, eliminating middlemen as a primary objective. Direct contracts are the quickest route to that goal. Amazon/JP Morgan/Berkshire Hathaway, Apple, Walmart and other business groups have each announced that they see diminished value in networks, non-transparent TPAs, Pharmacy Benefits Management programs and carriers that refuse to share data or that limit the use of bolt-on vendors to control how they spend their own money. The industry is pushing back against this effort but the momentum is too great, and the narrative favors employers and their employees. Insisting that purchasers pay more so PPOs can achieve or maintain discounts (which are being proven to be inferior by the lower cost offering) is not an argument that can be won in the court of public opinion, which is exactly where these issues will play out in the new world of healthcare communication, via social media and internet news. (Think the $700 EpiPen).
Why is this happening? Two principal drivers are 1) The unsustainable total cost of care/insurance, and 2) Increased fiduciary scrutiny placed on CEOs and CFOs for assuring that the “plan” is getting the right deal for the employee.
The first is easy to understand because it’s affecting nearly every one of us. Over the past decade, the insurance norm has become a high deductible plan with an even higher maximum out of pocket. Now a $6,500 deductible for a family of 4 or more and a maximum out of pocket of $11,300 is very common. The median household income hovers around $50,000 for most of the country. That same family is likely paying about $750 per month for premiums. Their total cost of care (if something should happen) could easily be $20,000 or more. It’s crystal clear that this family can not afford that bill.
The great recession, the Affordable Care Act and the launch of the exchanges precipitated a wave of employee cost shifting. Lower cost options were erased and many employees with insurance and a steady job felt obligated to continue with whatever their employer offered. With an improving economy, the shortage of qualified workers focused attention on health care’s inflated cost, rapidly changing consumer perceptions.
This led to a second trend. Many employers now offer coverage their staffs can’t afford to use. When faced with horrendous medical bills employees/patients have begun to look at the root cause of their situation, and in many cases are finding that low cost and or high-quality options were not presented or even made available to them. The leadership of the organization makes decisions about which PPO to use. If the PPO is paying 300% of what a bundled or directly contracted plan pays, the employee has a strong case that the plan (employer) caused them to overpay, and was a poor fiduciary of the funds they entrusted to them.
In an effort to combat this liability, employers are entering new arrangements that increasingly utilize narrow networks to obtain discounts beyond what a broad-based PPO typically achieves. This may be a win for the employer in the short term, but reducing competition and limiting choice to a single solution could have negative long-term repercussions.
Captives are also growing in popularity. The most rapidly growing captive organizations have already adopted one or more APMs and are sorting captive members by their adoption and engagement of and around APMs. The largest and most successful captives are at the front line of this movement and are foundationally the base of the employer shift to value paradigm.
The opportunity to grow, stabilize and increase profits abound with APMs. Organizations that learn to glean out the most promising APM opportunities and prepare for the next generation of self-funded plans will thrive. Those that take a wait and see or “we’ll react to what comes our way” solution risk only interfacing with the most disruptive and profit reducing models. Ultimately plans want to buy and providers want to sell. Seeing and then capturing that opportunity will be the difference between success and ultimately failure. Is your organization ready to adapt and win, or might holding on to “how we’ve done things for the past 45 years” limit success in this brave new world?
Click here to see the next Valid Points article: An Interview with Eric Haberichter, CEO of Access HealthNet.