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Changeover to value-based reimbursement could take longer than thought, report says

Currently, 53 percent of physician revenue is based on fee-for-service payments, with alternative models making up a small percentage.

Susan Morse, Executive Editor

A new report by the Health Research Institute of PricewaterhouseCoopers says the transformation from fee-for-service to value-based reimbursement will take longer than the ambitious timeline announced in January by Health and Human Services Secretary Sylvia Burwell.

Burwell announced a target date of 2018 for having 50 percent of Medicare payments tied to value-and-risk-based reimbursement models and of having 90 percent of payments linked to quality improvement efforts.

"That's the goal," said David Harris, a partner with the Healthcare Industries Advisory practice of PricewaterhouseCoopers in New York. "Our research is, it's going to take longer. Healthcare is such a complex industry, changes take longer."

The three years given for the value-based changes is not so much a deadline, as a goal, he said.

[Also: ICD-10 arrives: Reactions from the first day]

"How many times did ICD-10 get pushed back?" he said. "This wave of change around alternative payment is going to take time. It's not going to happen overnight. We're just getting our feet wet."

However, now that ICD-10 has been implemented, and the Centers for Medicare and Medicaid has finalized the rules for meaningful use for electronic health records, providers can start to turn their attention to value-based care in earnest, according to Harris.

It will be challenging, according to the PwC report. Health systems may be reluctant to walk away from healthy revenue streams. Currently, 53 percent of physician revenue is based on fee-for-service payments, with alternative models such as capitation, bundles and other incentive-based programs making up a much smaller percentage.

The providers that will make the most progress are in urban areas that have a heavy penetration of Medicare Advantage plans, as the PwC study shows alternative payment models cluster around what already works.

[Also: CMS issues final rules on meaningful use for electronic health records]

To get ready, providers need to have their electronic health records in place, and then set their sights on cost accounting, Harris said.

In bundled payments, there is one bill to cover all services from varied departments that don't generally communicate that information, like anesthesiology and rehab.

"How do you get together a fixed price when you don't have all of the information?" he asked.

The insurers have the easier time when it comes to pricing, he said. Payers always know what they're paying, as compared to providers, who don't always know what services costs.

The Centers for Medicare and Medicaid this year mandated bundled payment with hip and knee replacements and plans to set a similar model around chronic disease management next.

Purchasers, notably employers and the federal government, have probably the greatest leverage in moving healthcare markets toward a true value-based system, Harris said.

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Consumers will also become more knowledgeable about cost in an era of rising deductibles, and they should expect increased engagement from their healthcare providers.

"That copay component will drive change quicker," Harris said. "That's not going to go away anytime soon."

New models such as accountable care organizations that have providers, employers and the government bearing more of the risk, leaves payers in the position to figure out their roles in the changing landscape, according to Harris.

"The challenge for the insurance industry," he said "is, how do I remain relevant?"

Twitter: @SusanJMorse