Optimizing physician enterprise performance in the shift to value

Value-based care is hard, and as Coker Group President Justin Chamblee, CPA, noted in a recent MGMA presentation, “it is practically impossible without a well-functioning physician enterprise.”

The work required to obtain value-based care success might be one of the key limiting factors amid the slow adoption of various alternative payment models (see Figure 1 for APM frameworks, Figure 2 for payment adoption trends).

From 2018 to 2022, the fee-for-service (FFS) arena stayed relatively consistent, but the share of APMs being adopted in that timeframe jumped from 29% to 40% — or about 38% growth for that model.

“It’s really not taking a cut out of [FFS], it’s more so shifting the FFS-plus-quality into higher realms of risk-based contracting,” Chamblee said

While the shift toward APMs is occurring at a much slower rate than most policymakers and industry observers expected, it’s interesting to note that the exceptional growth in Medicare Advantage enrollment in recent years (see Figure 3) is one of the few catalysts for getting provider organizations into true risk-based reimbursement.

“We don’t oftentimes think of the government as being that innovation hub,” Chamblee said. “But what we really have seen over the years with value-based reimbursement is they are pushing us in that direction and, in many instances, pulling the commercial payers along with them.”

That ability to push has been supercharged as Medicare Advantage plans’ penetration across the market surged from just 19% in 2007 to more than half (51%) in 2023, with the Congressional Budget Office projecting MA plan penetration to reach 60% as early as 2028.¹

Provider organizations still have a lot of say in how far they go into the value-based space, and many medical groups saw the unique advantages that some value-based arrangements with prospective payments offered during the height of the COVID-19. Still, Chamblee noted that getting many groups onto the value-based bandwagon is difficult.

“It’s difficult to take on that risk without a clear indication of an opportunity for return, and what we see in a lot of value-based care arrangements right now is they do connote risk, but it’s hard to gauge when that return will occur, if at all,” he said.

As a result, Chamblee expects growth not specifically from the traditional shared savings realm, but rather the FFS-based shared risk arrangements and a move toward more bundled payments, especially in light of Centers for Medicare & Medicaid data in early 2024 that highlighted federal policymakers’ “renewed emphasis in moving value-based care beyond just what has largely been a primary care focal point into more specialty care realms,” he noted.

Shifts in ownership and what success looks like

Another dynamic at play in the growth of MA plans is the ability for nontraditional healthcare players to enjoy success in the MA space at a time when many physician enterprises are undergoing a massive ownership realignment away from the traditional privately owned groups to private equity (PE) and payer ownership.

Chamblee opined that the entities rolled up under PE ownership — particularly, a physician  platform crossing multiple markets — ultimately have fewer potential buyers when  the PE ownership looks to sell in a few years, typically to either a larger PE firm or a payer.

“Payer [ownership] may be the end result of some of what PE is building, because payers then can get more vertically integrated through that,” Chamblee said.

Varying views of success

The shift in ownership of physician enterprises causes a shift in the value-based landscape, as the measures of success vary in different settings:

• Health systems with sizable health plans or significant covered lives work with operating margins of 6% to 12% and were somewhat insulated from pandemic disruptions.
• Health systems without risk work on tighter margins of 1% to 4% or even operating losses and are more likely to have major improvement initiatives to address this.
• For-profit companies with risk (e.g., primary care entities moving into the MA space) typically have seen considerable savings for the covered populations and boosted patient satisfaction scores in the process, with savings shared among the company and the payer/practice.

Sitting atop these financial concerns is how the growth of MA plans has impacted patients in general, Chamblee added, and it is not a rosy picture: Patients covered by MA plans were nearly twice as likely (22%) to report delays in approvals than patients in traditional Medicare (13%).³

As such, many provider organizations and health systems opted to drop MA plans from their networks over the past year given the administrative burdens, denials and delayed reimbursement. Additionally, the top MA providers “all had some level of compliance-related risks, either being accused of fraud or accused of overbilling the government” in recent years.⁴

“There’s a lot that continues to need to be done to allow Medicare Advantage to be successful,” Chamblee said.

Ongoing changes to watch

The Version 28 update to CMS’ HCC (Hierarchical Condition Category) risk adjustment model for 2024 was introduced with the aim of improving payment accuracy and a reduction in coding differences between MA plans and FFS Medicare providers. Thus far, Chamblee said, it has helped many entities that have gone further into risk adjustment coding to “realize some value.”

Through the mix of increasing HCC categories, decreasing the number of HCC codes and updating HCC coefficient values (e.g., the risk scores that map to each HCC category), there has been an overall reduction in MA risk scores of 3.12%, which translates into $11 billion net savings to the Medicare Trust Fund this year despite only being partially implemented as part of a three-year phase-in period.⁵ For providers that are heavily into risk-based contracts, Chamblee noted they see this change as having to truly focus on the cost of care and work to reduce it.

Retail’s retreat

At one point, industry observers estimated that retailers, payers and startups could capture 30% of the primary care market by 2030,⁶ but the recent moves by Walmart, Walgreen, Amazon and Optum to close or eliminate retail and/or virtual care offerings signals “significant volatility” for the continued growth in that space, Chamblee noted.

“A lot of money has shifted toward new companies, new entrants, and even very large companies like Walmart wanting to get into the healthcare space ... and they’re finding it’s not easy,” Chamblee said. “Many of these large national or multinational players forget the fact that healthcare is local, healthcare is relational in nature, and it’s hard to prescribe national protocols to solve local dynamics.”

Is success scalable?

As Figure 5 shows, more than 50 APMs were studied by the Center for Medicare and Medicaid Innovation (CMMI) for their potential to generate savings (estimated at one point to reduce spending by $34 billion), but ultimately the new models have resulted in higher federal spending — $9.4 billion more.7 Using CMMI’s specific standards to define success in these APMs, only six were deemed successful; of those six, only four were seemed to be scalabe.

“We can throw a lot of spaghetti on the wall, but just because we throw it doesn’t mean it’s all going to stick,” Chamblee said. “What we found is a lot of it has not stuck” on account of several key barriers:

• Data gaps
• Changing policies/programs
• Unpredictable revenue streams
• Inefficient resources and workflows
• Lack of buy-in and fragmentation.

Chamblee pointed to lack of timely financial performance results as a key challenge to building buy-in. Directing physicians in an ACO to do certain things in 2024 with uncertainty as to what the financial benefits will be until late 2025 makes it “really hard to connect those dots,” he noted. “We need more real-time results to incentivize physicians to buy into these changes in models.”

Where positive impact occurs

Success in primary care is often predicated on interventions that reduce readmissions, and the contributing causes often include timely primary care follow-ups,7 patient access and multicomponent interventions with pre- and post-discharge elements targeting high-risk populations.

But at a broader level, Chamblee’s thesis asserts that moving to value/risk is not possible without a well-functioning physician enterprise (see Figure 6 for defining characteristics). He acknowledged that the imbalance in supply and demand for clinicians is a tremendous headwind for achieving high performance, and added that it remains to be seen how much of an impact AI might have.

“I think it’s probably going to take more than just AI. I think it’s going to take tapping into advanced practice providers more so than we ever have,” Chamblee said. “I think it’s going to be tapping into telehealth and other means of providing care in a very efficient way, because I don’t envision the supply-demand dynamic fixing itself in the very near future.”

Return on investment

Most administrators in hospital-owned practices often face questions about system losses per physician, but Chamblee cautioned that the math isn’t simple, nor is the data used to determine losses in physician enterprises adequate.

Chamblee urged these organizations to ensure the physician enterprise has a fully loaded P&L on the revenue side (e.g., revenue reflected if the physician is providing services to a hospital) as well as the expense structure. “We want to make sure that we can map all of the services that are being performed in the hospital back to either the physician enterprise, or dental practices and physician levels,” Chamblee said. “So that then there’s clear data mapping that we can pull on an automated basis prospectively from the EHR, so we can take that loss or the investment and bounce it against the contribution margin.”

To get at a better sense of the return on investment for a physician enterprise, Chamblee recommended looking at the ratio of health system contribution margin (e.g., reimbursement less variable cost) by the physician enterprise investment (fully loaded of health system allocations) — “at the lowest level possible,” he added, whether that’s entity, specialty, practice or physician level.

Chamblee then outlined four tiers of results based on that ratio: Anything under 1.0 might be a signal to divest, while 1.0 to 3.0 signals performance improvement is needed. From 3.0 to 5.0 it’s likely there is a need to target key opportunity areas, while any ratio of 5 or more represents best practice in this space. [Figure 7 provides areas for targeted improvement.]

Above all, Chamblee stressed the need for physician involvement and ownership in aligning around achieving the characteristics of a high-performing enterprise. “Pushing physicians to solely be work RVU drivers, collections drivers, whatever it may be — and not tapping into their abilities and knowledge to affect patient care — is likely not moving us in the right direction.”

Notes:

1. Neuman T, Freed M, Biniek JF. “10 Reasons Why Medicare Advantage Enrollment is Growing and Why It Matters.” KFF. Jan. 30, 2024. Available from: https://bit.ly/3XQSBYm .
2. Kirk L. “Tipping point is in sight: Value-based care is driving meaningful financial results.” Healthcare Dive. Feb. 10, 2023. Available from: https://bit.ly/4bvT59J .
3. Jacobson G, Leonard F, Sciupac E, Rapoport R. “What Do Medicare Beneficiaries Value About Their Coverage?” The Commonwealth Fund 2024 Value of Medicare Survey. Feb. 22, 2024. Available from: https://bit.ly/3L9IqGP .
4. Market share data from Mark Farrah Associates. Published in Abelson R, Sanger-Katz M. “‘The Cash Monsters Was Insatiable’: How Insurers Exploited Medicare for Billions.” TheUpshot/The New York Times. Oct. 8, 2022. Available from: https://bit.ly/3L7QdVs .
5. CMS. “Advance Notice of Methodological Changes for Calendar Year (CY) 2024 for Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies.” Feb. 1, 2023. Available from: https://bit.ly/3RRTcFs .
6. Landi H. “Retailers, payers and startups could capture 30% of primary care market by 2030: report.” Fierce Healthcare. Aug. 2, 2022. Available from: https://bit.ly/3VSQCAj .
7. Avalere. “Analysis of CMMI Models Projects Costs Rather Than Savings.” Aug. 25, 2022. Available from: https://bit.ly/45Pcp09 .