We continue to report on more provider reimbursement arrangements that are shifting from volume-based reimbursement to some form of pay-for-performance contract – Magellan’s Shift To Gainsharing, Third Sector Selects Seven Awardees Considering Child-Focused Pay-For-Success Initiatives, and Missouri Child Welfare Services for High Needs Children Out To Bid On Case Rate Basis. While these individual changes in contracting may seem anecdotal, they represent a gradual sea change that is affecting every payer (40% Of Commercial Health Insurance Reimbursements Linked To Performance In 2014 and Medicare Physician Pay Cuts Averted & SGR Scrapped; Medicare To Phase In Value-Based Reimbursements).
The problem is that the executives of many provider organizations I’ve spoken with recently seem to be in denial about this not-so-new development in the field. I don’t think the shift to pay-for-value is going to go away. And it represents both a strategic opportunity and a strategic threat for most of these organizations. The strategic opportunity: being able to proactively go to payers with a pay-for-value proposal for your core consumer market. The strategic threat: being cut out of a portion of the market when your competitors succeed at doing just that.
That’s what I was thinking about when I read our coverage last week about the performance outcomes from the first six months of Texas’ foster care redesign contract (see Our Community Our Kids Releases Outcomes For First Six Months Of Foster Care Redesign Contract; Performance Exceeds Targets). The Texas foster care redesign is certainly an interesting example of the trend toward performance-based financing. First, a little background – the Texas Department of Family and Protective Services (DFPS) began a program to redesign its foster care system in 2010 (see Texas Considers Redesign Elements In Foster Care Blended Rate Contracts). Under the redesign, DFPS sought bids for a Single Source Continuum Contractor (SSCC) to provide all services needed by children in foster care in different regions of the state. These SSCC contracts are structured with a blended case rate tiered by clinical factors pegged to a historic length of stay (Texas Foster Care Redesign RFP Released For Seven North Texas Counties).
Our Community Our Kids (OCOK), a subsidiary of ACH Child & Family Services (ACH), serves as the SSCC and provides all services needed by children in foster care in Region 3b (Erath, Hood, Johnson, Tarrant, Palo Pinto, Somervell and Parker counties) – ACH Child & Family Services Launches Texas Foster Care Redesign Contract. Under their contract, OCOK receives the case rate to provide all services needed by the child/family. If the length-of-stay (LOS) for any given child is shorter than the historic benchmark, OCOK keeps the difference. If the LOS is longer, OCOK can’t charge the Texas Department of Family and Protective Services (DFPS) for the additional days in care. OCOK must also meet the quality of care targets.
After the first six months of this arrangement, OCOK announced that its performance has exceeded the contract baselines and targets. The performance data released by OCOK highlighted the following outcomes:
- The baseline for placements keeping siblings together is 70% and the contract target is 71%; OCOK placed 75.0% of siblings together during the first quarter and 76% in the second quarter.
- The baseline for placing children in family foster homes is 75% and the contract target is 77%; OCOK placed 79% in a family foster home in both quarters.
- The baseline for placing children within 50 miles of their homes is 71% and the target is 72%; during the first two contract quarters OCOK placed 88% of children no more than 50 miles away.
I’m familiar with ACH, and in the past, they operated like most provider organizations – contracting with human services through fee-for-service (FFS). When things changed in Texas with the foster care redesign, ACH and their leadership team challenged themselves to align with the change and market position their organization for future success. Knowing how difficult it is to change both strategy and business operations, I have to assume that this wasn’t a decision they made lightly. It had to take a good deal of communication with staff and board, assessments of their ability to achieve contracted outcomes, a total system redesign, and technology enhancements.
Does this sound like something you would be willing or prepared to do within your organization? Unfortunately, the success of programs like ACH in this type of financing arrangement means that we’re likely to see more of them – and organizations that are still hiding from this decision and shifting their focus to other areas will eventually run out of places to hide. This change may come in small increments in your particular state or market. But, nevertheless, FFS as we knew it will gradually erode and be replaced with a new type of reimbursement system focused on value.
If your organization is not already participating in some form of pay-for-value in your key markets, here are a few questions for discussion at your next executive team meeting.
- Is your board of directors and executive team up on the emerging trends in reimbursement and how these trends will change the way your organization will conduct business in the future?
- Do you know the competitive organizations (both local and national) that are talking to your customers about new value-based payment arrangements?
- Are you currently measuring the outcomes, performance, and consumer perceptions of your services? Are the results “excellent”?
- Does your organization have the ability (in terms of systems, structure, team competencies, etc.) to take on alternate payment arrangements – and if not, are you looking for partnerships that will give you the ability to compete as the market shifts?
- Is your organization planning to take the lead in your state in new initiatives focused on pay-for-performance or pay-for-success – or will you have to play catch up to innovative competitors in the future?
These are the questions that will start to frame your strategy in the months and years ahead. For more, be sure to join me in New Orleans next week at The 2015 OPEN MINDS Strategy & Innovation Institute (or follow our live coverage on Twitter @openmindscircle – #OMStrategy), when I’ll be joined by Elizabeth Gaynes, Executive Director, The Osborne Association; and Tyler Jaeckel, Government Innovations Fellow, Denver Department of Finance of the Office of the Deputy Mayor, for the session, An Update On Pay-For-Success Contracting & Social Impact Bonds: Lessons Learned From Executives Who Are Making It Work. Your executive team may decide not to participate in this evolution to pay-for-value – but it is dangerous to deny it is happening.