Value-Based Reimbursement (VBR) is an opportunity for payers and providers to establish and build new relationships based on shared goals, outcomes and incentives. Ultimately, patient mental and physical health outcomes are improved. Financial leaders must reevaluate their strategies and system. They must consider the investment in the patient experience, as well as clinical outcomes. Both will likely be measured. Key steps to position the financial systems of the organization to support VBR are outlined.
Step 1. Discern the Goals of the New Paradigm and Investment Needs
A first step is to understand the investment of new service lines, support systems and their staffing implications, technologies and other expectations by payers to successfully meet value-based care expectations in your region. This may include chronic care management, improved care coordination, and integration of physical health. Accreditation could also be required, which is a significant expense for a smaller organization. The clinical and operations teams will specify the resources needed and the finance team will help develop pro-forma to accomplish clinical and operations objectives.
Step 2. Bridge the Gaps Between Finance, Operations and Clinical Leadership
Examine your leadership culture, skill sets and silos. Many behavioral health provider organizations are mission-driven and may be ‘allergic’ to a ‘bottom line’ business model. However, VBR is a more complex reimbursement process that marries quality outcomes with cost effectiveness and ultimately defines reimbursements.
Finance leaders need to understand the clinical outcome and patient experience requirements and how to resource staffing and technology to support them. They must be properly funded. Operations and Clinician Leaders need to learn to formulate and present the ROI on additional resource needs and clearly articulate those in financial terms.
The finance department will need the new skill of correlating service data to VBR contract terms and projecting short and long-term cash needs. Keep in mind the financial analysis is only as good as the encounter data feeding the system. In turn, quality improvement can only be realized when the feedback loops are accurate. The lack of good data will diminish outcomes and over time, drive down cash flow. The finance department can often identify red flags in billing practices. In many organizations this may be a new role for the finance department and necessitates a closer working relationship between finance and operational departments.
Step 3. Evaluate Baseline Costs to Deliver Services
In order to evaluate cost effectiveness, you need a baseline of current costs. The average cost per visit is a good start, and this can also be broken down by service line. Engage with your finance department and ensure you are accurately tracking direct costs like staffing costs, and administrative costs that include occupancy, technology, and infrastructure.
Step 4. Determine the Investments Required
Consider the goals and investment needs discerned from Step 1. The development of VBR processes can be expensive. For instance, implementing a new evidenced-based practice can include ongoing trainings, certifications, and continuing education expenses. More to the point, can you afford the VBR plan you are planning? Remember you may have many options such as incentive-based ‘withholds’ that lower your financial risk. Having a sound understanding of your financial bandwidth allows you to effectively negotiate with payers and set up programs that will meet the need of the individuals you serve. Also, carefully assess hidden costs such as workforce training to accommodate a new payment model.
Step 5. Consider Your Cost Strategy
A more in-depth breakdown of costs will help increase that value for the consumer and the organization alike. Key tools are cost-driver analysis, activity analysis, and performance analysis. By understanding these crucial concepts, the move to operational implementation, changes and improved outcomes become viable. A few concepts to consider:
- Activity-based costing—Identify the key activities of a service. Key activities need to be broken down into definable tasks. Then we can identify the resources needed to complete the task. In turn, changes in productivity can be monitored and addressed on a systemic basis.
- Target costing—With our initial analysis we can identify the cost of a service to hit a specific target market rate to realize the required profit margin. While this type of analysis is derived from manufacturing processes it can be thoughtfully implemented in the behavioral health setting where profit margins are often slim at best. In the end Target costing balances three areas – price (what the consumers will pay), quality (the acceptable level of quality expected), and functionality (the service components expected).
- Value engineering—Define the functional outcome and identify ways to improve the process of reaching your goals. For instance, a new technology may be added to a service activity that reduces time spent traveling and associated costs like mileage and insurance. The role of the finance team in identifying cost drivers will be a key step in seeking cross-functional input from service line, IT and quality teams and transforming this information into a holistic view that incorporates the different perspectives on the path to better productivity.
Step 6. Take A Systematic Approach to Payer Contracting
It is a critical step to develop, hire or outsource the talent to negotiate payer contracts effectively. Practices should take small steps when entering into VBR. Gain experience with a few select outcome performance areas before entering into a full risk agreement. As you get experience with payer expectations and they with your practice’s cabilities, you can then broaden the contract risk. Identify the diagnoses or procedures you can most easily impact. Consider what matters to your payer by finding two to three diagnoses that comprise the most potential spend for them. It is ill advised to blindly enter into the contracting process without understanding your costs, reporting capabilities and current performance. As provider organization must objectively demonstrate both the improved results and ‘cost effectiveness’ of their approach, it will make it possible to negotiate to thrive, not survive. Also prepare the payer contracting function with national and regional benchmark data. Closely examine the underpinnings of benchmarks such as HEDIS measures. It will come in handy to level-set realistic expectations.
Step 7. Refine Your Revenue Cycle Management
A clear understanding of the hard and soft costs will help to determine the transaction price; an organization’s ability to identify the payment terms for the services provided. While the transaction price was is relatively clear in the fee for service system, the uncertainty of VBR needs heightened attention. Remember, many VBR reimbursements are not determined until the results are obtained. While an agile Electronic Health Record (EHR) can shorten this turn around, there can still be a lag in reimbursement timing. Having the economic stability to deal with these fluctuations is key to the organization.
Another key area of input by the finance department is timing of payment. If an outcome goal is reached over two fiscal financial periods, what is the contract language on how that incentive should be paid out. Again, the generally tight profit margins in behavioral health require a clear understanding of the financial terms of the VBR contract, including payment cycles.
Step 8. Evaluate Supplier Contracts
Consider your vendors and suppliers to be your partners in the delivery of value-based care. Under HIPAA rules, you are required to have business associate agreements with vendors who handle your organization’s Protected Health Information (PHI), which protects your organizational risk. Likewise, build in shared accountability into vendor agreements, whenever possible, to ensure timely metrics, adherence to system uptime slas, and data availability to obtain target reimbursements in providing cost-effective care. Perhaps you outsource your chronic care management program. You should have clear performance expectations in your contract to mirror payer performance. Insist upon performance guarantees and financial penalties if the vendor doesn’t perform to established expectations. Routine rebid of vendor relationships help organizations contain costs and maximize their quality.
Step 9. Bring Your Board “On Board”
A financially savvy provider organization executive team understands the need to align strategies for organizational performance with their ability to manage financial risk. The board has a fiduciary duty to oversee the financial investment and return on value-based care. An important element of this process involves effective education of the board or bringing the ‘board on board’. This topic is often neglected in literature, yet some resources exist (see Get the Board of Directors on Board for Change, Getting A Board On Board, and A Chaotic Environment Demands Fluid Strategic Planning).
Step 10. Leverage Technology for Efficient Cost Reporting
Many organizations are drawn to the belief that the VBR processes will be managed with EHR software. The good news is that EHRs have become increasingly more agile in the ability to output quality and financial data. The bad news is that there are pitfalls with over reliance on software. George Braunstein has been Executive Director of numerous behavioral health care provider organizations and has seen the evolution of ever more sophisticated software. He notes, “EHR software should be seen as support for VBR” and not a substitute for substantial planning and process implementation. George also noted that without consistent feedback and ongoing education at all organizational levels, there will be little functional change within your organization. (see the Financial Thought Leader article for the complete interview with Mr. Braunstein).
Final Thoughts: You’re Not Alone
Fluency in the language of finance is uncommon in the world of behavioral healthcare. Even seasoned administrators may struggle with the intricacies of alternative payment arrangements and shared risk. The evolution of VBR has made it a need to become familiar with financial processes, however, it does not mean you need to be an expert. Identifying and utilizing your available staff subject matter experts is always a good starting point. Once you have a sense of your organizational financial capabilities you can then move to process planning. Again, finding good resources is critical. For instance, an organizational preparation guide (see https://vbcforbh.com/does-your-strategy-prepare-you-for-success-in-a-value-based-market/) can demystify and give direction to successful VBR implementation. Finally, the use of an agile EHR can give you the systemic support throughout the VBR process.