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A New Financial Model for Primary-Care Providers

August 7, 2014

Article

Value-based reimbursement has a bad reputation because it is misunderstood. Done correctly, through an IPA, it could be primary care’s saving grace.

Primary care’s goal, regardless of how insurers pay for it, is not just to improve, but to reliably and consistently deliver the best possible patient-relevant outcomes at optimal cost and to continually improve by cutting waste and investing resources to improve health status.

If, as a primary-care provider, your plan is to continue to rely on fees for service, you are not just short-changing yourself; you will continue to be grossly undercompensated compared to your relative value, and impact, on the overall healthcare delivery system.

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No matter what it is called - pay-for-performance, value-based reimbursement, or revenue for results - the only reason not to embrace these new programs is, to put it bluntly, that you are incompetent.

New physician organizations, armed with enabling technologies, put primary-care physicians in charge of the whole dollar of care instead of their respective small fraction, which is about 4.4 percent of the average commercial healthcare spending, or, about $15 per member per month (PMPM) on average. That is out of the average $346 PMPM total Medical Loss Ratio, (MLR) or, the total spending per patient per month in a non-Medicare/Medicaid environment. Adding typical in-office basic laboratory testing and related diagnostics such as EKG among other services, the total average increases to about $18 PMPM.

This means that the typical primary-care physician directly controls (and receives) just 5.2 percent of total healthcare spending. A 20 percent decrease in controllable spending only results in a 1 percent impact to the total spend while rendering primary-care physicians financially unstable, if not financially untenable.

Fee-for-service reductions have exactly the same impact and have been proven to actually increase the overall cost of care.

This is because primary-care physicians affect much more. Improving health status of their patient panel, better managing third-party diagnostics, closing gaps in care and other clinical and quality measures contributes a much higher value relative to total spending, particularly by reducing utilization in the highest cost drivers: imaging, procedures, and hospitalization. Just a 10 percent impact on spending for a panel of 1,500 patients at $34.60 PMPM reduces spending by $51,900 per month, or, $622,800 per year.

Value-based reimbursement in a shared savings environment gives primary-care physicians a share of these savings.

It can’t be done alone except in a fairly constructed Patient-Centered Medical Home (PCMH) program, and then, only rarely. The problem is, without the tools, technology, and techniques in an integrated care environment, most PCMH practices don’t see much gain.

Properly equipped practices (in real terms, not just some care coordination) can generate real results: from 10 percent to 30 percent savings. Dozens of new independent practice associations that provide these capabilities are popping up with many more in the planning stages.

Enabling capabilities include population health platforms, risk, cost, and disease stratification, quality and service metric analytics including the ability to report and close gaps in care, and a clinically integrated network consisting of disease stratified team care organized around primary-care physicians who are ultimately responsible for coordination, documentation, and cost at the minimum.

The most effective are physician owned, controlled, and managed because hospital and hospital system controlled organizations include problematic conflicts of interest.

Choose wisely, and the value in value-based reimbursement is yours. After a 20 percent overall spending reduction in your practice, splitting the difference with the health plan and setting aside, for example, 45 percent of the remainder for technology, expenses, support, training, and overhead and splitting the remainder 80/20 with specialists (otherwise receiving 44 percent of the payer/provider split and 22 percent of the overall savings), the primary-care provider share is about $15.25 per patient per month.

With just 500 attributed patients in the program, that adds up to another $91,500 in reimbursement per year - after fees for service and another $5 or so per patient per month to cover added care coordination costs from the insurer, or, a nearly 85 percent raise.

It takes a lot of work and some uncomfortable cultural and operational changes to achieve these results. But, times are changing and the payoff can be well worth the trouble.