Smaller systems aren’t embracing value-based care

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Most healthcare organizations with revenue under $1 billion surveyed by the Ernst & Young Advisory Health practice reported having no value-based reimbursement initiatives and placed a lower priority on bundled payments and alternative payment models than larger systems.

Two-thirds of systems with revenue between $100 and $499 million said they have no value-based initiatives in place, while 61 percent of systems with $500 million to $999 million in revenue said the same. The higher a system’s revenue, the more likely value-based reimbursement was to be adopted, with only 8 percent of systems with $5 billion or more in revenue reporting zero value-based initiatives.

“This creates a competitive disadvantage for smaller hospitals, and quite frankly, puts their financial futures, sustainability and corporate existence in jeopardy,” said Yele Aluko, MD, an executive director in the Advisory Health practice at Ernst & Young, a former hospital system physician-executive and a co-author of the report. “The new world order in healthcare will require clinical, administrative and financial innovation to meet the needs of consumerism and industry demands for value transparency. Many smaller hospitals and health systems lack the strategic management processes, corporate resources and capabilities to remain competitive in the short term or relevant in the long term.”

A similar split was seen for other reimbursement priorities. For bundled payment models, 7 percent of $100-$499 million systems and 12 percent of $500-$999 million systems were undertaking or planning to participate in one in 2017, compared to 47 percent of $5 billion systems. Provider-sponsored health plans were relatively rare, most commonly being set up by systems with $1 billion to $2.49 billion in revenue.

The survey said these results showed a “value gap,” where 95 percent of systems said they were undertaking cost control measures, but far fewer were taking on value-based initiatives to optimize their costs. According to the survey authors, this encourages “incremental improvement over transformative gains.”

There was wide variation in what control initiatives have been planned or are currently in place. The most common were initiatives around reducing medical errors, with 58 percent of respondents currently undertaking those initiatives with an additional 18 percent planning to do so. Peer and competitive benchmarking seemed to be the most popular new initiative for 2017, with 40 percent planning on adopting those measures to control costs this year.

“Transitioning to value-driven care is hard. It demands a whole new approach to operations and patient care, the adoption of advanced data analytic technologies, and an enormous shift in culture,” said Dana Alexander, an executive director at EY and a co-author of the report. “But the hospitals and health systems that make these strategic changes will see a huge payoff in terms of financial resiliency, a more engaged workforce and improved patient outcomes. What that means for the health of individual Americans and the overall American healthcare system cannot be understated.”