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Value-Based Payment: A Five-Step Makeover for Health Plans

Value-based payment (VBP) is a buzz term that has been discussed for several years now as an imperative for our country. Why? Our projected national healthcare spending is set to grow at an average rate of 5.5% per year and it is expected to reach nearly 20% of gross domestic product (GDP) by 2026, which is unsustainable.

This means that by 2026 we will be spending 20 cents of every dollar on something healthcare-related; whereas in 1965 when we created Medicare and Medicaid, healthcare spending was just 5.6% of GDP[1].  

Today, these ever-increasing costs still correlate poorly to the goals of the Quadruple Aim[2] to improve the care experience, better health, lower costs and help healthcare professionals find joy in work. The transactional nature of the predominant fee-for-service model is widely recognized as a major contributor to wasteful spending and a barrier to improving healthcare delivery. For these reasons, payment models are at a crossroads with fee-for-service sunsetting rapidly as new, emerging VBP programs become adopted. 

VBP ties healthcare payment to measurable improvements in the quality and efficiency of patient care and shifts the emphasis from managing resource-based healthcare to managing outcomes-based health. 

This shift, however, places patient-associated risk with providers, creating herculean change in terms of cultural, technology and process transformation. Plans are being challenged to move away from paying providers based on productivity (transactions) to payment that is driven by analytics based on defined value and quality performance.

Let’s look at an example. A practitioner performs a chest X-ray on a patient. The question is: “Did he contribute to an improvement in the patient’s health status as part of a coordinated care team effort?” If the answer is yes, then the plan should pay the provider a higher rate. If not, and if the provider’s actions are driven by his priority goal of making his digital x-ray machine a revenue center, then he is delivering low-quality, high-cost care that should not be rewarded. Payment is differential.

How does a health plan perform this payment makeover? We recommend five best practices, understanding that the pace of change will vary by markets (e.g., state VBP mandates, provider culture, complexities of administration).

1. Inventory your current payment arrangements, current technology, available providers, and VBP activities underway in your market by line of business. This will define where you are in terms of the next steps. Do alternative payment models (APMs) already exist in your market?  Who are your top performers? Is it time to modernize your infrastructure?

2. Develop your strategic roadmap. Roadmaps may vary by line of business, markets and model types.  Collaborate with network providers. Educate staff. Architect VBP arrangements that make business sense from a financial and quality improvement perspective.

3. Ensure your operations and infrastructure are updated. Nearly all plans have core systems engineered to administer transaction-oriented payment based on a fee schedule. VBP drives payment from an analytics angle. While you still have to cut a check and create an explanation of payment (EOP), analytics-based payment requires data algorithms, business logic configuration, measure development, claim-bundling, and advanced analytic systems. Many technologies are new and evolving as are service offerings.

4. Integrate payment design with population-based analytics and management. The design of your VBP program should include strengthening the provider-payer partnership through data-sharing targeting measures that drive success for the patient, provider and plan. For example: selecting measures that not only support your HEDIS performance but also harmonize with quality measures under a state Medicaid program and/or Medicare under the Medicare Access & CHIP Reauthorization Act (MACRA), means administrative simplification for your doctors – and stronger performance for you and your members.

5. Deliver care through provider collaboration. Data-sharing to help your providers manage populations of patients is vital for a sustainable VBP program.  Data insights will help them understand the burden of disease across their patients, enable the closing of gaps in care, and allow your providers to practice medicine proactively instead of reactively. Imparting longitudinal patient information and peer-comparative results will create both action and competition in a meaningful way.

Of course, there will be challenges and successes for providers, payers, vendors and patients in this journey. For health plans, in addition to a cultural change, VBP also means a substantial change within your operations. As I travel around the country speaking to health plan executives, I can confirm just how challenging most find modernization to be. 

This is especially true for small to medium-sized insurance companies with little capital to invest, the need for new expertise, and resource constraints that come with competing priorities. These plans can become stymied in trying to move forward with modernization. Value-based payment is complicated but essential to remain competitive and/or comply with a plethora of new federal and state regulatory requirements coming from all directions.

I refer to this as the chicken-egg situation for health plans. You need expertise. You need skills. You need the infrastructure to drive future income.  Yet, all that requires revenue. So, no matter which came first, it’s important that you break the cycle and move forward.

I wouldn’t be writing this blog if we couldn’t assist you in this journey. You need more than just a claims system that is good at doing fee-for-service pricing and fee-for-service payment. SS&C Health Solutions now offers health plans value-based payment analytics, bundling and pricing – essentially the ability to administer APMs – as a service. VBP-as-a-service frees you from the heavy lift associated with a huge implementation and can deliver the new infrastructure you need to meet legislative mandates and remain competitive. 

SS&C Health Solutions is here to help. By telling us what you need, we can create a makeover that allows you to step forward with confidence on the VBP runway. 

CMS, National Health Expenditure Data, Projected NHE, 2017-2026,, accessed Jan. 17, 2019.

West C.P. (2016) Physician well-being: expanding the triple aim. J Gen Intern Med 31:458-459., accessed Jan. 17, 2019.

[1] CMS, National Health Expenditure Data, Projected NHE, 2017-2026,, accessed Jan. 17, 2019.

[2] West C.P. (2016) Physician well-being: expanding the triple aim. J Gen Intern Med 31:458-459., accessed Jan. 17, 2019.

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