How to Pandemic-Proof Our Health Care Payment System


The pandemic has focused many policymakers’ attention  on strategies to make the healthcare system better. The obvious answer is one that we know is efficacious, if perhaps not the sexiest: value-based care.

The current healthcare payment system – built around the fee-for-service (FFS) model in which healthcare providers are reimbursed for the quantity versus quality of care – required $175 billion in bailouts and temporary modifications to remain whole during the crisis, a stance that’s unsustainable for both providers and payers.

The Centers for Medicare & Medicaid Services (CMS) admitted as much with its renewed national commitment to value-based care in late June: The movement to value is happening now.

The worth of value-based care models has long been detailed, from more coordinated care to lower costs. In fact, a recent survey conducted by our organization Premier Inc. found that healthcare providers in alternative payment models (APMs) were better positioned to respond to COVID-19 and support reopening plans through the rapid deployment of telehealth, care management and data analytics. These are the types of population health capabilities the industry must focus on spreading – and incenting – in the near future.

Value-based care could have kept providers’ finances off  life support.

In stark contrast to those in FFS, providers in value-based payment models such as global budgets and capitated arrangements faced fewer hurdles in the initial pandemic response. Participating in the most advanced type of APM, these providers were able to rely on existing capabilities to meet patient needs. Their revenue streams remained consistent, unlike providers in FFS or even APMs built on the FFS chassis such as the Medicare Shared Savings Program.

If all payments to healthcare providers were in global budgets or capitation, the response to the first wave of COVID-19 would have differed immensely. A consistent budget for an aligned population would have had more consistent revenue and been able to truly focus on shifting care delivery to meet pandemic-related needs. Perhaps more providers would have had population health capabilities in place, reducing the need for rapid expansion and investment.

Congressional stimulus could have been limited to increased spending directly related to COVID-19, such as testing costs and research into treatments. With more flexibilities inherently built into global budget and capitated arrangements, Congress and the Department of Health and Human Services would have spent less effort on designing and implementing temporary regulatory flexibilities.

Providers are beginning to consider how other payment arrangements may better serve them. Fourteen percent of respondents in Premier’s April survey of APM participants indicate they are considering renegotiating payer contracts.

So, how do we get to a new healthcare payment system?

While we have made gains in the movement to value, progress toward the most advanced models has been slow. Providers with local community ties and direct interactions with patients are best suited to manage the risk and health of populations. To speed the progression from no or low risk to advanced risk models, several changes are needed.

  1. Continue incenting providers to move to advanced APMs. 

    The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) correctly incented the movement to advanced APMs, providing a 5 percent bonus to providers who have a significant volume of payment through an advanced APM. But five years later we have not achieved the movement to value for which we once hoped. A slow rollout of new models and a low bar for performance under the Merit-Based Incentive Payment System have made it easier for providers to remain in FFS rather than moving to APMs. 

    With a renewed focus on value, we need to revisit the incentives. Congress should give CMS authority to shift the payment thresholds that providers must meet to qualify for a bonus. Both the lack of availability of advanced APMs and the structure of advanced APMs will make it increasingly difficult for providers to meet the threshold. The COVID-19 pandemic may exacerbate this issue, as the dip in in-office services could change attribution, and an increase in telehealth may impair providers’ ability to meet the thresholds. Additionally, Congress should extend the advanced APM bonuses, which are set to expires in 2024 (payment year 2022).
  1. Set a clear timeline for a transition to APMs. 

    Uncertainty remains in the movement to value. A 2019 Premier survey illuminated how the transition to risk-based contracting has been slow and market-dependent, with fewer than one in five respondents having more than half of their population covered by Medicare FFS, risk-based arrangements, and only 5 percent of respondents expecting to have more than 80 percent of their population in risk-based arrangements over the next five years. Medicare has led the charge in creating new models; however, the COVID-19 pandemic has stalled some progress, with no opportunity for new MSSP entrants in 2021 and insufficient direction from CMS to date on the future of Direct Contracting. 

    A vision for the transition from FFS to APMs is imperative so that providers can determine their approaches (i.e., models, arrangements) to prepare for a payment environment that is almost entirely value-based. 
  2. Enhanced flexibility in existing and new APMs. 

    Many of the regulatory flexibilities introduced during COVID-19 that providers would like to see made permanent have not historically been allowed in FFS due to concerns of cost, fraud or abuse. Some of these flexibilities (e.g., telehealth) have been tested in APM models but with more restrictions than allowed during the public health emergency. The fact that these models proved effective at the onset of the pandemic – in effect, during the worst of circumstances – shows that they should certainly be allowed as providers settle into a new normal. 

    When providers are required to manage to a budget while maintaining or improving quality, they will ensure patients are getting the right care in the right setting at the right time. Current models built on a FFS chassis maintain a lot of FFS requirements, yet expect providers to truly innovate care. In order to significantly shift care and address high-priority issues such as social determinants of health, providers need far more flexibility than currently allowed.
  3. Ensure adequate reimbursement in APMs. 

    Reimbursement inadequacy surfaced as the most significant barrier to APM adoption in the same2019 survey referenced above. The current benchmarking approach in ACO models creates a race to the bottom whereby providers must lower costs year over year to remain successful. For those who have made significant gains over past years, it becomes increasingly difficult to meet new benchmarks. New benchmark approaches should consider how to avoid penalizing those in low-cost regions or providers who are dominant in the market. Premier has long advocated for the Rural ACO Improvement Act (S. 2648)/Accountable Care in Rural America Act (HR 5212) to accommodate these improvements. 

    Beyond this fix, payment models need to be structured to assure their own longevity. Rather than increasing discounts each year, CMS should consider when it’s appropriate to cease discounts (e.g., after a certain level of cost reduction) or completely eliminate discounts (e.g., models directed toward rural providers). Additionally, payment methodologies must also account for the clinical risk of the population by removing caps on risk score increases for populations that become more complex over time.
  4. Ensure a level playing field for all providers. 

    High performers should be encouraged to participate in models regardless of provider type. Current CMS models, however, disadvantage certain provider types (e.g., MSSP high-revenue ACOs, a proxy for hospital-led ACOs, are forced to take on risk faster than others) or new entrants (in Direct Contracting, new entrants receive a more favorable benchmark than others). These efforts to advantage one type of provider over another create market distortions and encourage competitors to take steps to game the system. 

When put to the test, the current payment structures failed to serve healthcare providers or patients.

As public health needs place greater pressure on the healthcare system, providers must consider how they can morph their FFS-based operational and payment models. The changes outlined above will ensure providers can steadily and successfully progress into advanced risk models that better insulate their revenue, while raising the quality of care. History shows that when providers have a clear plan for moving to new models, they work aggressively to succeed rapidly advance to the risk-bearing echelon.

Key to igniting this movement is revisiting the incentives, which begins with Congress authorizing CMS to increase the availability and structure of advanced APMs so that providers accept the payment thresholds as accessible. The most effective way to drive high-quality, cost-effective care is with incentives that motivate all the providers across a system to collaborate, innovate and deliver.

Aisha Pittman, MPHis vice president of policy, and Seth Edwards, MHA, is vice president of strategy, innovation and population health at Premier Inc.