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An SUD Dilemma: Why Value-Based Care is Good Business, and Not Just a Model
The transition to value-based care (VBC) in the substance use disorder (SUD) industry is a good sign, but the shift may be challenging for some providers. The good news is that it is attainable for most providers if they can deliver value across the 4P’s of healthcare:
- Patients;
- People (staff);
- Payers; and
- Partners (referral and investors).
To better understand this—and the barriers to accomplishing it—it’s helpful to look at how the industry has evolved. The SUD industry has undergone 3 distinct market shifts over the last 2 decades:
Legacy Models (Community-based social services, often abstinence-based 12-Step models).
Many of these have integrated medication-assisted treatment (MAT) while others are reluctant. Outcomes and performance are not standardized, and they are funded because of their social mission, not necessarily because of their outcomes. Because these models are localized, care gaps widened with the onset of the opioid epidemic.
Current Models (Growth-oriented, mainly outpatient companies backed by private equity (PE) or venture capital that are responding to the opioid epidemic).
These models are either opioid treatment (OTP) or office-based opioid treatment (OBOT) programs and cover regional care gaps, creating value for underserved communities and, subsequently, payer networks. They normally follow a “loss leader” model that engages with clinical services at a loss with medication and labs delivering the desired margin. Payers are grateful for the coverage but have expressed discontent over what they perceive as excessive billing.
Future Models.
Although value-based care is not a new concept, it is adolescent in the SUD industry. With the supply of providers outnumbering demand (i.e., the roughly 10% of those with an SUD diagnosis seeking care and diluted amongst the new entrants), payers can now be picky and are pushing for better outcomes, total cost reduction, and greater engagement of the 90% not in care. For those serving Medicaid patients, managed care organizations (MCOs) are demanding more value creation if providers demand higher rates. Today, very few SUD providers are fully value based.
So why is the transition so challenging?
Consider the value proposition dilemma. We should ask ourselves: Why is value creation in healthcare a separate business model in the first place? Would consumer products giant Procter & Gamble say, “Our consumers love our products, and Walmart makes money too?” The latter would not be a differentiator, but a necessity along their value chain—consumers, customers, organization, and shareholders. Value-based care is perceived as a model when it is just the essence of Strategy 101: value creation and capture, and your replaceability or irreplaceability in the market.
Here are 5 observations to consider:
The value proposition is not clear. This is true for 3 reasons:
- VBC is perceived as a contract structure and willingness to take risks vs. the byproduct of exceptional performance that justifies the risk. Because performance outcomes are not standardized, benchmarks for exceptional performance are vague. A good example is how providers quietly create their own definition for “retention” to back into a perceived vs. legitimate outcome.
- Providers believe patients are homogenous. Patients have different needs and value creation opportunity even if they require the same level of care. This is why high engagement of a population health list does not necessarily mean high cost reduction. It’s possible a small percentage of patients make up most of the cost of care.
- Many brick-and-mortar, hybrid, and virtual startups believe their technology is a value proposition and spend millions building proprietary intellectual property without a clear value proposition across the 4Ps. If you are a healthcare company, people generate revenue, not technology.
Operational strategy is unclear. Operational capability is often overlooked and perceived as daily task management, logistics, and dashboard reporting. True operations require deep knowledge of process improvement and throughput optimization often known as “Little’s Law,” and aligning clear metrics and key performance indicators (KPIs) that connect gross margin to patient, customer, staff satisfaction, and performance, all of which impact value creation.
Management teams are often hired because of their tenure in a previous position, not necessarily because of their strategic and operational capability. When I ask what a company should do and why, I get answers like, “grow contracts by x%,” “increase commercial volume because rates are higher,” “hire a marketing person to do marketing,” or “sales training to build more referral partnerships.” These are action items, not a justifiable strategy. This is why management consulting firms use case studies that assess capabilities, not just experience.
Performance incentive misalignment. The core functions—clinical, medical, marketing and outreach, operations (site and de novo), and finance—are interdependent, but are often incentivized in silos. For example, if an outreach liaison is incentivized by referral volume vs. retention, they will maximize referrals regardless of fit for care or capacity of a site, decreasing overall value creation and capture across the 4Ps.
Providers follow vs. lead contracting. Providers ultimately are responsible for creating and capturing their financial impact. It’s the payer’s job to determine relevance. If the provider waits for the payer, the provider will have several contracts and performance incentives.
However, the service offering should not be predicated on the contract, but the patients’ needs. How can a provider overcome these observations? Clearly identify a need you know, not what you believe is viable. Focus on function first, then form. Here are 5 drivers to consider:
Design a value-proposition that creates value across the 4Ps.
- Identify and define your target market by asking the following questions: What population is underserved, and how can I do better? What is the cost of care opportunity of this population? If I am considering a population health contract, what percentage of the payer’s list looks like my target? Will the payer allow walk-ins to be attributed? If yes, how big is the target market?
- Identify what or who incentivizes engagement in care. If it’s family, your customer is the family. If it’s specific referral partners, such as the criminal justice system or hospitals, then they are your customer. Develop your go-to-market plan around it.
- Although technology can increase customer experience, if you cannot validate its return on investment, then you are better off licensing at significantly less costs instead of building it.
Design an operational strategy supporting your patient’s need, and capacity constraints of your team based on the patient activity vector—total time needed, number of services, and revenue and cost associated with these services for each patient per day. This vector can be used to optimize scheduling practices. Implementing operational analytics like decision modeling can be helpful at forecasting capacity given demand. Optimal capacity management reduces staff burn out and is associated with higher patient retention.
Hire great thinkers, problems solvers, opportunity identifiers, and organizational leaders who can demonstrate how they created value, not just what they were responsible for. Give them a current problem to solve and assess how they would approach it and why. (Hint: Don’t limit yourself to the industry. Think about the capability needed. Competent leaders can learn quickly, but not all knowledgeable people make great leaders.)
Ensure your organizational metrics are aligned to the overall company goals, not unilaterally by function. Determine which functions directly impact revenue, gross margins, and patient/staff/customer experience goals. Develop clear work plans that are evaluated quarterly. This should include objectives and key tasks to meet those objectives that are tied to one or more of the financial targets. This will ensure each team is driven by the overall company goal(s) and fosters collaboration vs. fingering pointing.
If you have a clear target consumer and can do the math, you can build an appealing financial risk model. In your contract, include parameters for data-sharing, metrics, and KPIs on a bi-monthly or quarterly basis. This will help inform improvement areas for the business throughout the year. And if you’re good, you’ll have a quality model ready to go as well. (Hint: Payers are partners, and good partners create mutual value and lower risks for each other.)
There is one other attribute that encompasses all drivers: Ensure that purpose is at the center of your mission, team, and culture. Purpose is at the core of what we are all seeking in life, and deeply missing from many of those suffering from the disease of addiction. Remember: 90% of those suffering from SUD are not in care. If we put them first, value becomes the byproduct of a successful business, not a separate value proposition or model.
Nate Pelletier is a managing partner and behavioral healthcare management consultant with Leadgion Group.
The views expressed in Perspectives are solely those of the author and do not necessarily reflect the views of Behavioral Healthcare Executive, Addiction Professional, the Psychiatry & Behavioral Health Learning Network, or other Network authors. Perspectives entries are not medical advice.
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