Innovative health care delivery organizations are developing programs that aim to improve quality and demonstrate reductions in unnecessary use of acute care and costs. These programs are often incompatible with fee-for-service payment systems. Providers that seek to innovate how they deliver care can adversely affect their financial performance in two ways. First, payers may not directly reimburse important components of the care delivery program. For example, care coordination services have not typically been reimbursable services under fee-for-service. Second, to the extent that improvements in care decrease health care utilization, providers may face decreased revenue (Toussaint, Milstein, and Shortell, 2013). To address these issues, payers and providers have been using new payment methods to align financial incentives with quality improvement and cost reduction goals. To make these changes, providers are changing their business models, organizational structures, and how they deliver care. Accountable care organizations (ACOs), in which groups of providers coordinate delivery and are paid in relation to quality and total cost of care for a defined population, are perhaps the most visible of these changes.
Grants or related methods for funding pilots can provide time-limited support for health care organizations to identify effective methods of improving care for their patient populations. For programs to last beyond the end of grant funding, they must have a sustainable business model. Given the rapid changes in health care payment and delivery, it can be difficult for organizations to determine what types of programs are likely to be sustainable.
The objective of this study was to identify paths to sustainability for innovative care delivery programs. Using a sample of health plans and ACOs in Massachusetts, we sought to identify the methods they are using to reimburse new care delivery models, criteria that health plans use to determine eligibility for these models, and criteria that ACOs apply for their investments in delivery innovations.
We interviewed individuals with decisionmaking authority about financial support for innovative care delivery programs at seven health plans and five ACOs in Massachusetts. We asked respondents about the primary payment arrangements supporting these programs, the criteria they used to decide whether to support these programs, barriers to sustainability, and proposed solutions to those barriers. We defined innovative care delivery programs as newer methods for patient care that aim to improve quality and reduce inefficiencies, giving three examples based on real pilot programs: (1) in a community mental health care clinic, a nurse is assigned to coordinate care for medically and socially complex, high-cost patients; (2) in a hospital, a community health worker is assigned to coordinate care for medically and socially complex, high-cost patients; (3) in a community health center, a community health worker and pharmacist team to help complex patients by completing a full medication reconciliation.
The following themes emerged from these interviews:
- All of the respondents indicated that they were currently supporting innovative care delivery programs intended to improve quality and reduce costs. The most common short-term objective of these programs was to improve the coordination of care for the highest-risk patients.
- Health plans reported that the predominant type of payment to support care delivery innovations was global payment; plan representatives reported paying providers directly for nonvisit functions in only a few cases.
- Most respondents indicated that innovative programs were developed centrally by the plan or ACO and then disseminated to providers; cases where individual providers brought programs to the attention of the plan/ACO were rare.
- Decisions are based mainly on expected potential and less on demonstrated past performance. Generalizability, adequate provider capacity, experience in managing financial risk, leadership buy-in, and experience implementing similar programs are other criteria respondents commonly apply.
- Providers currently face conflicting payment incentives from fee-for-service and alternative payment models. Accelerating the shift away from fee-for-service could support changes in care delivery by reducing how much the innovations might negatively impact providers' revenue.
We identified a highly uncertain environment for the sustainability of care delivery innovations despite a high degree of interest in these programs. Dynamics in the current environment suggest that innovation will likely be concentrated in health care delivery systems that are able to manage financial risk and that have experience and capacity in delivery innovation. For providers seeking to innovate, the central challenge will be building the capacity to manage financial risk in global payment arrangements and to support improvements in care. This will be particularly challenging for smaller organizations. Payers interested in innovation should seek ways to provide support and build the capacity of smaller and less-experienced providers so that they, too, can innovate and improve how they provide care. While the Massachusetts health care context differs from other markets, many of the observations of local health plan and ACO representatives were quite general and would likely be widely applicable to other regions.
- We found widespread interest and activity in testing new care delivery models to improve health care quality and reduce costs in Massachusetts. However, the environment presents great uncertainty for the sustainability of these programs.
- There was little interest in establishing new fee-for-service payments for functions such as care coordination because of the possibility of higher total payments if utilization of other services did not decrease.
- Payers and ACOs are looking for models that can quickly reduce costs—approaches that will offset additional investments with immediate efficiencies. Respondents widely identified increasing the amount of provider payment that is “at risk” as a key to increasing the amount of innovation in care delivery.
- Innovation will likely be concentrated in delivery systems that can manage financial risk and have the experience and capacity to develop better ways of caring for patients. Payers interested in innovation should seek ways to provide support and build the capacity of smaller and less-experienced providers as well.
- Providers are unlikely to be able to sustain innovative care delivery models by seeking only additional fee-for-service payments for nonvisit functions.
- More clearly defined criteria for success, and guidance for health care providers on how to measure and demonstrate that success, could help advance innovation.
Toussaint, John, Arnold Milstein, and Stephen Shortell, “How the Pioneer ACO Model Needs to Change: Lessons from Its Best-Performing ACO,” Journal of the American Medical Association, Vol. 310, No. 13, 2013, pp. 1341–1342.
The research described in this article was conducted by RAND Health, a division of the RAND Corporation.