VBC Expert Talks Best Practices to Optimize Value-Based Contracts for Providers


Spencer Lilly, VBC Reimbursement Expert & Consultant at abeo

In a bid to shift the foundation of healthcare reimbursement, CMS is pushing for significantly more reimbursements for Medicare and Medicaid services to be tied to value-based care (VBC) contracts. To accomplish this, tackling the biggest healthcare cost line items, such as anesthesia, will be at the top of the list.

Additionally, anesthesiology, with its convoluted hospital/practice ties and complex reimbursement process, represents a prime example of the challenges and exponential potential of VBC in healthcare. We recently spoke with Spencer Lilly, a former Atrium Health executive and consultant at abeo to understand some of the key drivers of high anesthesia and best practices to optimized value-based contracts for providers. 

HITC: In a COVID-19 pandemic, what are the key drivers of high anesthesia costs, and how they can be lowered? 

Lilly: The biggest driver of anesthesia service line costs is the disconnect between revenues from patient services and charges for labor required to deliver these same services. This disparity is amplified by lower surgical volume caused by COVID-19. Without a foreseeable decrease in labor costs the number, mix of providers and their associated salary/benefits have often been reassigned to provide their skills in the ICUs managing COVID patients. Due to severe volume swings during the pandemic, there must be a laser focus on staffing flexibility to match daily/hourly volumes instead of historical “fixed” staffing that may have been acceptable in the past. Many hospitals and health systems will be making tough decisions regarding the total number of ORs operating and services performed. Employed providers are seeing reductions in vacation time to lessen costs and improve productivity.

As a result, everyone is adjusting, and anesthesia is no exception. While many physicians prefer the MD only staffing model, there will be challenges with this methodology as systems seek to implement lower-paid, high performing CRNAs into the staffing mix. This change will be aggressively pursued in lower acuity settings (ASCs, screening endoscopy centers, etc.), due to a simpler implementation model.

HITC: What can providers implement to optimize bundled payments for surgery? 

Lilly: A clear understanding of a provider’s cost structure in relation to the proposed payment is key to uncovering the opportunities associated with bundled payments. One approach is to view bundled payments as a “new” business. The application of a bundled payment structure can result in a lower profit margin while yielding an increased caseload. This paradigm is difficult to evaluate unless there is a firm grasp of cost per case by all providers involved in the equation (surgeon, the hospital or ASC, and the anesthesia provider). Bundled payments can reward efficiency and care delivery at the lowest cost setting. A successful outcome is dependent on explicit knowledge of costs, patient flow, pharmaceutical use, and safety.

HITC: What are the best practices for hospitals looking to contract directly with anesthesia teams?

Lilly: Hospitals should first seek anesthesia teams to contract with who share the organization’s mission, vision, and strategic priorities and can demonstrate the ability to advance each of these through effective management of the anesthesia service line.

The hospital should share its strategic priorities and goals for the proposed contracting period and require the anesthesia team to develop measurable metrics and improvement goals in all relevant areas – this becomes a “scorecard” for performance and future contracts. Imagine there is a proposed subsidy by the anesthesia team. In that case, full financial transparency is a requirement, particularly around the anesthesia team’s revenue cycle activities, as well as “benchmarked” compensation parameters that assure the parties their labor is respected and compensated appropriately. The hospital should have a clear understanding of an efficient, flexible staffing plan for the anesthesia team and not assume the bidding group has put forth the best model.

HITC: What lessons learned can other specialties and clinicians pull from the reimbursement challenges of anesthesiologists? 

Lilly: Medicare and Medicaid reimbursement for anesthesia services has presented significant challenges for several years. In many cases, the reimbursement level is not sufficient to offset the cost of the services performed. A major point of contention for insurance companies is the disproportionate burden they have carried due to this lack of compensation for these government services. As a result, they are now working aggressively to reduce their payments. Their efforts are forcing practices, contracting hospitals, and clinicians to struggle with the next steps. Hospitals must scrutinize the way services are delivered to avoid waste, reduce costs, and streamline patient engagements for 2021 and beyond. Changes in anesthesia are the tip of the iceberg: this is the service line with the biggest visible issues. However, emergency medicine, hospital medicine, and radiology are not far behind with similar problems. These modifications are causing increased billing issues for hospitals and health systems resulting in an inability to maintain a payment structure enacted to cover the reimbursement gap.

This “squeeze” is forcing health systems to look at every avenue possible for reductions in costs, including employing the clinical staff, closing ED and OR beds, and changing the workload of the remaining clinicians to decrease overall expenses. Provider groups who embrace partnerships can lessen the overall cost of care (thus reducing support costs) allowing health systems to support their mission and be the survivors.

HITC: What are some key trends/themes do you envision regarding value-based care for providers in 2021? 

Lilly: The objective of value-based care is to lower the cost of care while improving safety and patient outcomes. Providers should challenge themselves to help in the traditional “boundaries” of their specialty. Additionally, providers must be willing to assert their expertise to hospital and health system value-based objectives such as patient flow, care delivery at lesser cost settings, and leveraging technology to improve data analytics and efficiency. Employing this approach will further the value-based care model while improving efficiency.


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