Information Asymmetry Impedes Value-Based Care Contracts

Most large payer and provider organizations are well aware that value-based care is the future, but that doesn’t mean they’re prepared for this seismic shift in how we pay for health care.

Success in this era of value-based care and alternative payment models will require many health care organizations to take on more reimbursement risk than in the past. This situation creates uncertainty as hospital and health insurance executives seek to understand this new environment.

That apprehension is understandable. The fee-for-service payment model that incentivizes volume over value has been, and continues to be, very lucrative for some organizations. Nonetheless, the transition to payment models that reward outcomes, high quality, and lower costs rather than volume holds the potential to usher in a new era of patient-centric care. Organizations that fail to move quickly enough in that direction risk being left at a competitive disadvantage.

No one could realistically expect the adoption of value-based initiatives to be easy, but what’s making the transition so difficult for many health care organizations is simply the number of wide-ranging challenges that the shift requires. For example, a recent report by Ernst & Young warned that the transition to value-based care “demands a whole new approach to operations and patient care, the adoption of advanced data analytic technologies and an enormous shift in culture.” The technology that supports today’s health care delivery system—from the point-of-care systems to claims processing and reimbursement systems—is all based on the FFS payment models.

The larger issue

But there’s a larger, all-encompassing problem when it comes to value-based care that often prevents payers and providers from reaching mutually beneficial agreements around alternative payment models: information asymmetry. As it stands today, rarely do both parties have access to the same information when negotiating contracts and that breeds distrust, making the negotiating process far more arduous than it needs to be.

Take, for example, a provider group that is being evaluated on quality and cost measures as a condition of membership in a payer’s network. This provider group will have access to the cost and quality metrics that pertain to its own practice, but will not be able to examine corresponding metrics from other nearby, competing practices within that payer’s network. In this case, the lack of information may have a negative effect on the provider group in two ways. If the group is among the highest performers in the payer’s network, the group would be in a better position to negotiate more favorable rates. Conversely, if the group is among the lowest performers, its leadership could point to the payer’s cost-and-quality data as a catalyst for changing provider behavior.

From the payer perspective, the situation is similar. A provider group may be enrolled in dozens of payers’ networks, and is able to see its own cost and quality metrics across all of those health plans. However, the payer can only view metrics for that provider group as it relates to its own network, depriving it of potentially useful information about how that provider group performs across all health plans, including competitors.

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More options, more potential confusion

The challenges of value-based care and alternative payment models don’t end with information asymmetry. Part of what’s so confounding about the transition to value-based care is the number and different characteristics of alternative payment model options that are available to health care organizations. There are four major types of value-based payment models, though the primary goal driving each one is the same: aligning providers’ and payers’ bonuses and penalties with measures of cost, quality, and outcomes, according to a report from Deloitte Consulting.

Following is a brief description of each major value-based payment model:

• Shared savings: Organizations are paid via fee-for-service and then at the end of the year, total spending is compared with a target-spending amount. If spending is below the target, the organization may be awarded a bonus based on the difference between target spending and actual spending.

• Bundled payments: Payment for services for a given condition are “bundled” together, rather than separate payments for services from hospitals, physicians, and other  providers. Participating organizations may save money through reduced spending on some component(s) of the bundle.

• Shared risk: Similar to shared savings, but in this case, if an organization overspends on the target amount, it must repay some of the difference as a penalty.

• Global capitation: A provider organization receives a per-member, per-month amount that is intended to cover the cost of care, regardless of services that any individual member used in that month.

Aligned ecosystem

To address the unease associated with transitioning to value-based care, payers and providers need a neutral third-party partner who can assist them with the design, measurement, and collaboration of value-based reimbursement programs. This partner must deliver efficiency, predictability, and consistency in value-based care programs while creating an ecosystem that aligns payers’ and providers’ financial goals with patient outcomes. Additionally, payers and providers benefit from assistance in comparing a variety of different payment models, and identifying which reimbursement models or risk-based  contracts work best for their patient or member population.

It’s a matter of trust

Payers and providers have years of experience in sometimes adversarial relationships, so a shift toward transparent information exchange is not going to materialize overnight. Ultimately, the neutral third-party partner will serve as the catalyst to bridge the trust gap and facilitate collaboration, data sharing, and risk-adjustment between payers and providers as they negotiate value-based contracts. Failure to include a neutral, third-party advisor in the process could lead to a lot more pain and distrust among payers and providers, and that’s something our health system can’t afford as it accelerates toward the inevitable value-based future.

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