The Challenges
There are three main challenges providers face in the transition from a fee-for-service payment model to a value-based one.

Let's examine each.

1. Providers need to reconcile value-based payments in a fee-for-service environment. Most of the value-based payment contract for acute care are shared-savings programs. Remember, these are a good first step into the value-based payment arena because they allow the provider to participate in a value-based payment model without the downside risk usually found in value-based payment environments.

Hospitals participating in a shared savings payment model for the first time need to keep track of two different payment systems throughout the year. Medicare continues to reimburse on a fee-for-service basis. At the end of the year, Medicare calculates shared savings bonuses and pays them. Using the benchmarks Medicare developed at the beginning of the provider’s participation in the new payment arrangement, their performance is compared to the fee-for-service population. If they were able to care for their patients at a lower cost, and still make the care goals, they get to share in the savings. But these savings are only paid at the end of the year. For this reason, in order for the provider to maximize their chances for a piece of the savings they need to know each patient group they treat, what will their financial performance be and how will that compare to their benchmarks.
2. Providers need to be able to track a wide variety of quality measures. Value-based payment models offer incentives for providing quality care at a savings, and these are paid out based on performance compared to certain quality measures. Hospitals, for instance, have been submitting quality measures for programs such as the Hospital Outpatient Quality Reporting (OQR), Hospital Inpatient Quality Reporting (IQR), and Physician Quality Reporting System (PQRS) for years. These new programs are now tied to the incentive payments and penalties they receive. Providers need quality data to help keep them on track throughout the year. Providers don’t want to learn at the end of the year that their reimbursement is going to be reduced when it’s too late to do anything about it. Better to track performance accurately and make adjustments throughout the year to those areas that need it.
3. Providers need to optimize their margins while revenue decreases. In order for providers to meet their value-based payment goals they will need to reduce the utilization of resources by patients, which in turn (remember this is still a fee-for-service billing environment) will decrease their volume of procedures and, therefore, revenue (less patient visits means less revenue). This is necessary In the long run for success in a shared savings model, but short-term it means less money for the provider. The graph below shows the “Revenue Transition Period” where fee-for-service revenues drop while value-based revenues increase. As we will see there are some changes which need to happen at the provider level.

3 Key Areas for Success
While margins decrease, providers need to concentrate on three key areas:
1. Managing their shared savings programs so they can maximize reimbursement. Providers will want to manage the various programs they are participating in so as to maximize their shared savings payments, with the added bonus that they will be improving quality and costs at the same time.
2. Delivering care in the most efficient way possible. This means eliminating waste from every category, be it non-standardized care, unnecessary services being provided, to patient injuries.
3. Increasing the volume of patients. This is absolutely necessary in order to make up for the loss in revenue attributable to the increased efficiency realized by streamlining operations (less billable procedures means less revenue, but more patients can make up that lost revenue).