Survey: Providers lack tools to manage new payment models

Finance departments at healthcare providers are aware of the changing reimbursement environment. However, they need to develop their capabilities more fully to manage various forms of alternative payment mechanisms (capitation, bundled payments and quality-based payments), including revenue recognition for financial statement reporting purposes, according to a survey by KPMG.

Read: Plans, providers must collaborate for value-based payment models to succeed

“This will require updating analytic tools and improving other capabilities so they can have a better sense of the true costs of care, grasp the most relevant quality measures to target and monitor provider and patient performance,” says Joe Kuehn, a partner at KPMG LLP. “The survey indicates that there is a lot of work to be done to get ready and avoid the pitfalls of the 1990s, when hospitals attempted to take on more financial risk.”

Survey results were derived from a survey taken during a May 13 webcast. The analysis was centered on 164 participants who identified themselves as being associated with a healthcare provider.

Key Survey Findings

• According to the survey only 15% of respondents say they have “very sophisticated” capabilities to support capitation, bundled payments, and quality-based payments that account for an increasingly larger component of revenue.

• Meanwhile, 61% said their finance departments are gathering tools and conducting analysis about getting their finance function ready for this move.

• Another 13% described their finance function as “undeveloped” for managing risk and accounting for these new payment mechanisms.

NEXT: What Providers are Doing to Address Reimbursement Changes

What Providers are Doing to Address Reimbursement Changes

Providers see two significant tactics to address reimbursement changes from commercial and government payers.  Twenty percent of survey respondents said they are measuring risk and accounting for it in their fees and another 23% said they are using data and analytics to measure and improve efficiency and quality. Other respondents said they are revamping finance/accounting functions or updating their contracts. 

Regarding the needs of finance departments at healthcare providers, predictive modeling (30%) and analytic tools (27%) were where respondents said they needed the most help, surpassing organizational culture, measuring clinical variability, showing the connection between quality and incentives, and improving reporting transparency to stakeholders.

Read: How healthcare executives can turn data into action

The industry is migrating away from fee-for-service payment/ reimbursement for services provided toward a system where all participants will be paid based on the value or outcome of the services provided to the populations being treated. Medicare, Medicaid, and commercial health plans are all beginning to contract with hospitals and physicians for value, effectively pushing financial risk upon providers, Kuehn points out.

“In order to manage this risk, and this new type of revenue stream, finance departments will need to prepare to manage these challenges and have better financial and business intelligence systems to monitor provider performance, patient outcomes and measure cost and quality of services provided to adapt to this new reimbursement climate,” he says.

Next: Providers say they lack necessary tools

Providers say they lack necessary tools

In order for alternative payment mechanisms to work effectively in helping to achieve the “Triple Aim,” the participants must collectively have the infrastructure and capabilities to manage in a population health and value-based payment environment, according to Kuehn.

Read: HHS announces historic changes to Medicare

“If they do not, then the new care delivery systems and business models being developed will not be sustainable or achieve the desired results,” he says. “As managed care decision makers contemplate entering into alternative payment arrangements, it will be important for them to fully understand what it will take for them and their ‘partners’ to be successful in managing health.” 

According to the survey, many providers are well aware of the challenges of adapting to value-based payments. Only 4% of provider organizations view their senior management as uninvolved in addressing alternate payment arrangements.  

Although 57% of respondents understood the types of tools needed to manage alternative payment arrangements effectively, only 15% actually believe they have the sophisticated tools needed.

“Given recent announcements by CMS, large commercial health plans and Medicaid redesign plans, it will be critical for the finance function to quickly evaluate their needs and implement the necessary solutions,” Kuehn says.