Primer on Value-Based Revenue

There are a few types of value- or quality-based reimbursements out there, and I think as we try to increase the amount we can collect it is helpful to be sure everyone understands the differences between them, whose actions result in their being available, and potential strategies to distribute them.

  • “Quality Incentives” are paid directly to primary care providers by the payers. They track metrics of their choosing (things like A1c levels for diabetics), and they give the provider monetary reimbursement for achieving them. These can be process (getting A1c levels, regardless of how high they might be) or outcome (having a percentage of diabetics below 8).  There are numerous other measures, as well, and are decided by the individual payors.
  • “Shared Savings” is more complicated. There are quality measures that have to be met to be even eligible for shared savings; these are generally similar to those described above. Once you are eligible, the payer determines how much the expected spend should have been for the panel of patients, based on the number of lives covered and the overall sickness of those patients (HCC score). If the spend is less than what would have been expected for that cohort of patients, there are shared savings dollars available.  The physicians get (as a group, not individuals) a percentage of that saved money. The percentage varies depending on multiple factors, including whether the group took downside risk, meaning if the spend was higher than expected they would have paid it back; and exactly how well they performed on the quality measures.

Numerous choices made by providers impact how much shared savings might be on the table. For example, a PCP might not order an MRI on a patient with new onset non-radicular back pain. A surgeon might choose to do an operation in a “low-cost center” such as an outpatient ASC rather than a much more expensive hospital setting. A PCP might send a patient to a specialist who doesn’t order as many labs and imaging studies. Other examples are use of generic or formulary drugs, avoidance of readmissions, and hospital discharges to home rather than facilities.

An important point is that the entry criteria to get the shared savings is in large part based on work done by primary care, but the actual savings are driven by the efforts of everyone in the group to differing degrees (and not necessarily in direct proportion to effort).  This makes the allocation of shared savings a more nuanced issue than the Quality Incentive money.   Data suggest that one third of medical spend is by primary care and two-thirds is by specialists.

Although we did bring in a significant amount of shared savings last year, our goal is to increase these sources of revenue a great deal. This and “risk contracting,” which is the extreme version, are the only sources of “new” money out there for direct clinical work. We all know Medicare, and by extension the commercial payers, aren’t giving us raises that even keep up with inflation. Over time, as the shared savings or risk income increases, it will become even more important to have a thoughtful mechanism for distributing it. There is a committee of your partners working on this issue already.