Value-Based Readiness: Setting the Right Pace

HEALTHLEADERS MEDIA INTELLIGENCE REPORT MAY 2017 Value-Based Readiness: Setting the Right Pace An Independent HealthLeaders Media Report Supported by: An Independent HealthLeaders Media Report Powered by: W W W. H E A LT H L E A D E R S M E D I A. C O M / I N T E L L I G E N C E

PERSPECTIVE Time to Accelerate the Shift to Value-Based Care As the new presidential administration and Congress debate how best to address the evolution of U.S. healthcare, there is little doubt that the industry will continue to move away from paying for volume and focus more on value. A snapshot: The state of provider readiness Mike Boswood President and CEO Truven Health Analytics, part of the IBM Watson Health Business General Manager, Value-Based Care, IBM Watson Health A look at the results of the HealthLeaders Media 2017 Value-Based Readiness Survey reveals providers are still preparing for an anticipated shift in net patient revenue, expecting revenues from value-based payment models to more than double in three years, accounting for almost half (48%) of all net patient revenue. According to the survey, respondents participating in value-based programs are still seeing uneven results in terms of lowering costs and improving quality. Fee-for-service programs with upside rewards, such as performance awards, and bundled payment programs have garnered the best results so far, with 22% and 20%, respectively, reporting both improved outcomes and reduced costs. But a significant percentage (up to 27%) of providers embarking on some sort of alternative payment model or incentive program are reporting that they are achieving quality improvements with no associated cost reductions. In addition, up to 18% of respondents say they are achieving neither improvements in quality nor cost. To address these uneven results, 79% of providers surveyed are focused on developing financial competencies in value-based performance metrics, while 66% are developing collaborative relationships with payers and 27% are committed to sponsoring their own health plans; also, 50% are focusing on being able to model payer contracts. On the care delivery side there is clear recognition that care coordination, clinical integration, broader access to care, care standardization, and patient self-management are key, with a majority of survey respondents (ranging from 79% to 66%) saying they are focused on competency in those areas. But only 3% surveyed say their existing care systems and processes are fully mature when it comes to supporting their care teams and practices in coordination, communication, and patient outreach efforts. Over half of those surveyed (54%) say they are either in the beginning stages of evolving their processes and systems (43%) or are still evaluating the requirements (11%). PAGE 2

Next steps: Advancing provider readiness From our perspective, status quo information technologies are not going to be adequate to the challenges providers are facing. The combination of claims and clinical and socioeconomic data is needed for deeper insights into the overall population and to help enable holistic, person-centric care. Comprehensive data and the ability to derive actionable insights will potentially drive process improvement, improve personalized consumer engagement, and enable care teams to help individuals optimize their overall health by addressing clinical as well as psychosocial determinants. The new model for care coordination and management is hard: It s labor-intensive and expensive but it is also key to succeeding in value-based care, as evidenced by the survey and the nearly 80% of survey respondents that are committed to it. To make it work and to make it scalable, they will need information technology that provides a learning system that can improve over time. A learning system will help promulgate best practices across the whole care team, help connect the dots about a person s health through all the myriad notes, documents, and data points about their health, and enable an organization to scale its care management efforts. All of this requires a modular and cloud-based approach to solution design. It also requires not just vendors, but partners invested in organizations success to enable healthcare organizations to leverage what they need when they need it, and do it efficiently and cost effectively. We re looking at a paradigm shift in how to think about healthcare transformation, as well as the information technology and relationships needed to support it. As the survey results show, the time to accelerate this shift is now. Note: This is an independent HealthLeaders Media Intelligence Report, which was conceived, developed, and published solely by HealthLeaders Media. IBM Watson provided financial support in order to be aligned with the topic. The opinions expressed are those of the individual bylined authors, and of any identified sources quoted in the report. PAGE 3

TABLE OF CONTENTS PERSPECTIVE.... 2 FOREWORD... 5 ANALYSIS... 7 SURVEY RESULTS... 14 FIGURE 1: Level of Strength...14 FIGURE 2: Developing Financial Competencies.... 15 FIGURE 3: Assessing Financial Strengths...16 FIGURE 4: Developing Care Delivery Competencies.... 17 FIGURE 5: Assessing Care Delivery Strengths...18 FIGURE 6: Existing Processes and Systems... 19 FIGURE 7: Developing IT Competencies....20 FIGURE 8: Assessing IT Strengths...21 FIGURE 9: Approach to Operational Excellence...22 FIGURE 10: Implementing New Software Capabilities...23 FIGURE 11: Patients in Value-Based and Fee-for-Service Programs...24 FIGURE 12: Experience With Payment Models...25 FIGURE 13: Principal Payment Models....26 FIGURE 14: Net Patient Revenue in Value-Based and Fee-for-Service Programs...27 METHODOLOGY... 28 RESPONDENT PROFILE.... 29 PAGE 4

FOREWORD Value-Based Readiness: Progress Continues, But Challenges Remain Pamela J. Stoyanoff, MBA, CPA, FACHE Executive Vice President Chief Operating Officer Methodist Health System Dallas Lead Advisor for this Intelligence Report In 2006, the Centers for Medicare & Medicaid Services launched its first value-based purchasing demonstration project, involving physician group practices. Since then, payfor-performance programs and initiatives have evolved to include physicians; hospitals; medical groups; and other healthcare providers, offering financial incentives for meeting certain performance measures. This partial conversion from traditional fee-for-service to pay-for-performance has received mixed reviews. Although most believe that incentive programs can influence quality of care and drive down cost, many express concerns with the validity of the measures chosen in addition to increased administrative burden that is placed on providers to manage these programs. The 2017 HealthLeaders Media Value-Based Readiness Survey explored the current environment surrounding value-based readiness. In general, 73% of respondents say their overall preparation for value-based delivery changes are very strong (21%) or somewhat strong (52%). A greater number than in previous years surveys are developing value-based performance metrics and are concentrating on developing care coordination for patients, clinical integration, and broader access to care (Figures 2 and 4). Irrespective of the progress being made, there are still several areas of concern. When asked about their ability to deliver value-based care (from a healthcare finance perspective), survey respondents seem to be much more comfortable with their payer relationships than with their physician relationships (Figure 3). Yet they believe clinical integration is a competency for value-based care. One cannot exist without the other, which would suggest that much more work still needs to be done with respect to physician alignment, especially with those physicians who are independent and not employed. Respondents also seem to be concentrating on providing services within their own boundaries versus developing longitudinal care. It is understandable that health systems do not want to expend resources to develop wholly owned SNFs, rehabilitation hospitals, LTACHs, etc. However, reducing readmission rates necessitates some dialogue and relationship with these providers. Only 40% of respondents said that they were committed to developing (or have PAGE 5

already developed) competencies in this area in preparation for value-based care. It seems to be an area of disconnect. The top three areas of IT development this year were the same as last year and include EHR standardization, enhanced efficiency through EHR usability, and EHR interoperability. Yet organizations still cite these areas as somewhat weak or very weak. IT systems are an expensive proposition with many competing models, especially in the population health arena. I suspect that with the current regulatory and political environment and uncertainty around President Trump s healthcare policies, many will take a wait-and-see approach before committing to further costly implementations. PAGE 6

ANALYSIS Cautious Optimism Prevails as Value-Based Transformation Continues Providers continue to take a cautious approach as they prepare their organizations for a valuebased future, focusing their efforts on making the necessary changes to care delivery, finance, and infrastructure they will need to transition from fee-for-service successfully. While their approach has generally been one of restraint, there are reasons for optimism given the level of progress that has been made. Jonathan Bees HealthLeaders Media Senior Research Analyst According to the 2017 HealthLeaders Media Value-Based Readiness Survey, for example, respondents have a much more positive appraisal when evaluating their organizations level of strength in preparing for value-based care compared with last year s survey results (Figure 1). Seventy-three percent say that their level of strength is very strong (21%) or somewhat strong (52%) for overall preparation for value-based care delivery changes, up 18 percentage points, and preparation for value-based financial changes is also very positive, with 72% saying that their level of strength is very strong (16%) or somewhat strong (56%), up 21 percentage points. Further, preparation of a value-based infrastructure is also encouraging, with 65% reporting that their level of strength is very strong (14%) or somewhat strong (51%), up 21 percentage points. However, while respondents paint an optimistic picture of their level of strength in these areas, survey results also reveal that gaps in value-based competencies still exist. People think that they re ready for value-based care, but based on some of the other survey results, I m not sure they are, says Pamela J. Stoyanoff, MBA, CPA, FACHE, executive vice president, chief operating officer at Methodist Health System, a Dallas-based nonprofit integrated healthcare network with 10 hospitals and 28 family health centers, and the lead advisor for this Intelligence Report. Care delivery competencies. Survey results for care delivery competencies (Figure 4) are revealing, with the majority of respondents demonstrating broad commitment to the discipline s areas. For example, the top three care delivery areas that respondents say that their organization has committed to developing or has already developed competencies to prepare for value-based care are care coordination/guiding patients to appropriate care (79%), clinical integration (73%), and broader access to care (68%), and the top five areas all receive a response greater than 65%. PAGE 7

On the other hand, longitudinal patient care (40%) is low on the list of responses and is the only area below a 50% response, although its result is up nine points over last year s survey. The response for this critical area indicates the early stage at which most respondents currently reside in the transition to value-based care. Note that as providers continue to commit to developing care delivery competencies to prepare for value-based care, longitudinal patient care will play an increasingly important role as providers manage patient care over longer periods of time and across multiple care settings. Survey results also reveal that respondents are confident in their ability to deliver value-based care within the various areas of care delivery (Figure 5). For example, 73% say that their level of ability is very strong (20%) or somewhat strong (53%) for broader access to care, 72% say that their level of ability is very strong (21%) or somewhat strong (51%) for clinical integration, and 72% say that their level of ability is very strong (20%) or somewhat strong (52%) for care coordination/guiding patients to appropriate care. Consistent with the results in Figure 4, longitudinal patient care receives the lowest rating for respondent organizations ability to deliver value-based care in this area. For example, 54% of respondents indicate that this is very weak (11%) or somewhat weak (43%), an indication that it remains a work in progress for respondents. According to respondents, moderate progress has been made in supporting care teams and practices in their coordination, communication, and patient outreach efforts (Figure 6), another important aspect of value-based care. For example, 44% say that their care processes and systems are evolving to a mature state, up 11 percentage points from last year s survey, and 43% say that they are in the beginning stages of evolving their processes and systems, WHAT HEALTHCARE LEADERS ARE SAYING Here are selected comments from leaders regarding the value-based activity that has produced the most positive impact on their organization, and why it was successful. Aligning the organization with an ACO for support (both financially and clinically) over the past 10 years. The practice is in a good spot to survive and succeed in the future. As long as the host organization can hold on, the practice will survive. Administrator at a small physician organization Bundled payments. It enabled physicians and administrators to work toward consensus on cost and quality parameters. Chief medical officer at a large health system Clinical integration across our health system. We are aided greatly by both a common EHR platform and extensive physician involvement in leadership. Chief executive officer at a large physician organization Improving efficiency of teams to wring out costs in our system using LEAN. Success is due to clear commitment of senior leadership with a lot of experience in using LEAN tools and visibility of approach in having a positive impact. Executive director, partner, board member at a small health system Implementation of standardized clinical protocols across the system. The initiative was successful because it made it easier to measure outcomes, resource utilization, and costs. VP at a large health system Full capitation provides the incentive to fully coordinate care for the purpose of providing quality care while effectively controlling cost. Chief financial officer at a medium health system Measuring and reporting CMS value-based purchasing metrics to all stakeholders. Chief medical officer at a medium hospital Integrating data across multiple sources for decision support and risk stratification. Improving coding and documentation for more accurate MRA and care coordination. These programs reveal areas for ongoing improvement and have begun to show impact on cost and outcomes. Chief financial officer at a large physician organization PAGE 8

down nine points. However, only 3% say that their care processes and systems are fully mature, and 11% say that they are still evaluating required changes, results that are identical to last year. A close examination of the survey data reveals that health systems and hospitals are further along in the evolutionary process than physician organizations. For example, a greater share of health systems (51%) and hospitals (49%) than physician organizations (31%) say that their care processes and systems are evolving to a mature state. On the other hand, a greater share of physician organizations (49%) than health systems (42%) and hospitals (40%) say that they are in the beginning stages of evolving their processes and systems, and a greater share of physician organizations (16%) than hospitals (10%) and health systems (5%) indicate that they are still evaluating required changes. Similarly, based on net patient revenue, a greater share of large organizations (51%) than medium (44%) and small organizations (39%) say that their care processes and systems are evolving to a mature state. At the other end of the spectrum, a greater share of small organizations (14%) than medium (10%) and large organizations (4%) indicate that they are still evaluating required changes. Value-based finance. The survey results for healthcare finance competencies (Figure 2) tell a similar story as the results for care delivery, with most respondents demonstrating commitment to the discipline s areas. For example, the top healthcare finance areas that respondents say their organization has committed to developing or has already developed competencies to prepare for value-based care are value-based performance metrics (79%), followed by collaborative relationships with payers (66%), and aligning employed physicians/providers (60%), and these three areas are joined by two others in receiving a response that is 50% or greater. People think that they re ready for value-based care, but based on some of the survey results, I m not sure they are. Notably, aligning independent physicians/providers (41%) is rated low on the list of responses it joins linking provider compensation to value-based metrics (49%) and providersponsored health plans (27%) as areas with a response less than 50% an indication that providers are initially focusing their efforts more on developing performance metrics and risk-based relationships with payers and employed physicians. Stoyanoff identifies one of the key challenges for providers thinking about a provider-sponsored health plan. We ve looked into it a little bit, but it was going to take years to break even. The investment is substantial and you have to wait a very long time. And for healthcare institutions who don t have running a health plan as a core competency, which most of us don t, I don t know that we have more than 10 years to wait and see if things are going to happen in our favor. According to respondents, large organizations in particular are developing value-based healthcare finance competencies in the top three areas. For example, based on net patient revenue, a greater share of large organizations (90%) than medium (78%) and small organizations (76%) mention developing value-based performance metrics, and a greater share of large organizations (80%) than small (64%) and medium organizations (63%) cite collaborative relationships with payers. Further, a greater share of large organizations (84%) than small (59%) and medium organizations (52%) cite aligning employed physicians/providers. PAGE 9

Survey results indicate that respondents have a fairly positive view when rating their organizations ability to deliver value-based care within various areas of healthcare finance (Figure 3), and the three areas with the strongest ratings are the same ones identified in Figure 2 for areas of healthcare finance competencies that organizations are committed to developing or have already developed to prepare for value-based care. For example, 76% say that their level of ability is very strong (27%) or somewhat strong (49%) for developing value-based performance metrics, 72% say that their level of ability is very strong (19%) or somewhat strong (53%) for collaborative relationships with payers, and 66% say that their level of ability is very strong (19%) or somewhat strong (47%) for aligning employed physicians/providers. Digging into the data reveals that respondents from large organizations rate their ability to deliver value-based care within the same top areas of healthcare finance mentioned in the previous paragraph more strongly than small and medium organizations, likely because their greater financial resources allow them to do so. For example, based on net patient revenue, a greater share of large organizations (89%) say that their level of ability is very strong (35%) or somewhat strong (54%) for developing value-based performance metrics than small (74%: 28%, 46%) and medium organizations (69%: 21%, 48%). The areas of healthcare finance receiving the weakest ratings according to respondent organizations ability to deliver value-based care are generally the same areas found lower on the response list for respondent organizations commitment to developing healthcare finance competencies to prepare for value-based care in Figure 2. For example, 62% of respondents indicate that their provider-sponsored health plan is very weak (33%) or somewhat weak (29%), 54% say that aligning independent physicians/providers is For healthcare institutions who don t have running a health plan as a core competency, which most of us don t, I don t know that we have more than 10 years to wait and see if things are going to happen in our favor. very weak (15%) or somewhat weak (39%), and 53% say that linking provider compensation to value-based metrics is very weak (12%) or somewhat weak (41%). Aligning independent physicians/providers for value-based care is one of the more challenging areas of healthcare finance, and one of the more important because of the role they play in the continuum of care. Stoyanoff points out the essential connection between independent physicians/ providers and longitudinal patient care. I think a lot of folks feel like value-based care is providing care to patients you have within your network and within your physician group. That is part of it, but it s also providing longitudinal care across the continuum, wherever they might seek it, says Stoyanoff. That s where it involves the independent physicians and other providers that you might not have control over and that s where value-based care will really come into play. So if we don t have the independent physicians aligned and we re not ready for longitudinal patient care, what we can deliver in terms of value-based care is only within our own systems and hospitals. We can do it with patients that we have full control over, but when it gets beyond us, then we re going to struggle. PAGE 10

IT competencies. Developing IT competencies is critical to the effective delivery of value-based care, and the majority of providers consider this area a strategic priority. Notably, EHR capabilities dominate the top three IT items that respondents say their organization is committed to developing or has already developed competencies to prepare for value-based care (Figure 7), led by EHR standardization among care partners (64%), and enhancing provider efficiency through EHR usability (62%) and EHR interoperability (62%) in a tie. According to respondents, a greater share of health systems (74%) than hospitals (69%) and physician organizations (51%) mention EHR standardization among care partners, and a greater share of physician organizations (71%) than health systems (64%) and hospitals (60%) cite enhancing provider efficiency through EHR usability. Further, a greater share of respondents from health systems (69%) than hospitals (64%) and physician organizations (57%) mention EHR interoperability. Note that while the response for prescriptive analytics (predictive plus suggested solutions) (33%) is lower on the list of responses, this will likely change over time as providers place greater emphasis on developing skills and investing in IT staff to leverage this important tool. A greater share of health systems (49%) than physician organizations (33%) and hospitals (16%) mention prescriptive analytics. Survey results indicate that the respondent commitment to developing EHR competencies to prepare for value-based care is starting to produce results (Figure 8) 55% of respondents say that their EHR standardization among care partners is very strong (17%) or somewhat strong (38%), and 53% say that their EHR interoperability is very strong (15%) or somewhat strong (38%). Rounding out the top three, 50% of respondents say that enhancing provider I think a lot of folks feel like value-based care is providing care to patients you have within your network and within your physician group. That is part of it, but it s also providing longitudinal care across the continuum. efficiency through EHR usability is very strong (10%) or somewhat strong (40%). At the other end of the spectrum, prescriptive analytics (predictive plus suggested solutions) and staff actuarial skills for financial risk assessment are low on the response list, with 73% of respondents saying that prescriptive analytics is very weak (25%) or somewhat weak (48%), and 71% saying that staff actuarial skills for financial risk assessment is very weak (33%) or somewhat weak (38%). Payment models. The transition from fee-for-service to value-based care is still in the early stages, and survey results reveal that respondents are all over the map in terms of their exposure to the various value-based models. This is likely because providers are experimenting with value-based payment models and programs to determine which is most appropriate for their organizations, and ultimately weighing improved outcomes on one hand and reduced costs on the other. I would call it a dipping your toe in the water kind of thing, says Stoyanoff. For example, we have an MSSP ACO. We have some narrow network contracts where we re responsible for all outcomes throughout the continuum, but they re small and don t include a lot of covered lives. And PAGE 11

we ve done a little bit of bundled payments, but again, on a very small scale. It probably comes as no surprise that respondents say that the fee-for-service with no value-based component payment model is the least effective model in terms of quality and cost improvements (Figure 12); more than one-third (37%) say that it offers neither improved outcomes nor lower costs. This result is more than double the response of any other payment model on the list, and has the highest participation rate by respondents only 7% say they have no involvement with this program. On the other hand, full capitation (9%) receives the lowest response for yielding neither improved outcomes nor lower costs; however, it also has the lowest participation rate by respondents 40% report they have no involvement with this program, and only 10% report improved outcomes and lower costs, indicating that the model has yet to yield much value. Notably, fee-for-service with upside rewards, such as performance awards (22%), has the highest response for improved outcomes and lower costs, although its response is only marginally higher than bundled payment programs (20%). Interestingly, the top three responses for improved outcomes, no cost reduction are all fee-for-service based: fee-for-service with upside rewards, such as performance awards (27%); fee-for-service with no value-based component (23%); and fee-for-service with downside risk, such as reimbursement penalties (19%). Looking to the future, respondents indicate that fee-forservice with upside rewards, such as performance awards (29%), is the first-ranked payment model they expect will evolve into one of their organization s principal payment models for value-based care (Figure 13). That model receives a significantly higher response than for the next two payment models: fee-for-service with downside risk, such For hospitals to manage populations and really truly improve health, we have to manage along the whole continuum of care, but right now we re not paid or incented to do that very much. as reimbursement penalties (16%), and shared risk, such as ACO (14%). At the other end of the spectrum, the payment models receiving the lowest responses are partial capitation (2%) and full capitation (4%), indicating respondents low expectations that these value-based models will become their principal payment model. Taken in aggregate, combining first-, second-, and thirdplace rankings, respondents say that the top three payment models are bundled payment programs (58%); fee-forservice with upside rewards, such as performance awards (55%); and shared risk, such as ACO (52%). Prospects for value-based growth. While value-based care is still in the early stages of adoption, respondents expect robust growth in the share of patients in value-based programs (Figure 11). For example, they indicate that 26% of their patients are currently in value-based programs, but in three years time, that number will double to 52%. Survey results also reveal that hospitals are leading the way in value-based adoption according to respondents, a greater share of hospital patients (32%) are currently in value-based programs than those in health systems (27%) and physician organizations (20%). Looking ahead three years, a greater share of patients will be in value-based PAGE 12

programs at hospitals (58%) and health systems (55%) than physician organizations (45%). Consistent with the survey results for growth in the share of patients in value-based programs, respondent expectations for net patient revenue growth from value-based payment models is also bullish (Figure 14). For example, respondents say that their net patient revenue percentage is currently 23% value-based, and they say this will more than double to 48% in three years. According to respondents, hospitals (32%) currently have larger shares of net patient revenue coming from valuebased payment models than health systems (24%) and physician organizations (17%). Looking ahead three years, hospitals (56%) will continue to have larger shares of net patient revenue coming from value-based payment models than health systems (48%) and physician organizations (44%). Value-based challenges. Although respondent expectations for value-based growth are strong, they may be overly optimistic. There are many hurdles still remaining, such as developing care and payment models and competencies that address longitudinal patient care and the alignment of independent physicians/providers, to name just two. Without such things, value-based care will still exist, but in a more limited form. Stoyanoff describes the hurdles holding back widespread adoption of value-based care this way: Even though we talk about population health, we are still paid largely for episodic care, not longitudinal care. That s been the issue for years. In order for hospitals to manage populations and really truly improve health, we have to manage along the whole continuum of care, but right now we re not paid or incented to do that very much. The right thing to do is try and help patients so they don t have to be readmitted. But the financial incentive is certainly not there for everybody to invest lots of resources on that effort. Jonathan Bees is senior research analyst for HealthLeaders Media. He may be contacted at jbees@healthleadersmedia.com. PAGE 13

SURVEY RESULTS FIGURE 1: Level of Strength Q Considering the industry s direction toward value-based care, what is your organization s level of strength in each of the following? Very strong Somewhat strong Somewhat weak Very weak Base Overall preparation for value-based care delivery changes 21% 52% 22% 6% 215 Overall preparation for value-based financial changes 16% 56% 20% 8% 216 Overall preparation of a value-based infrastructure 14% 51% 27% 7% 215 Base size varies according to the respondents knowledge of the question Compared with last year s survey results, respondents have a much more positive appraisal when evaluating their organizations level of strength in preparing for value-based care. For example, 73% say that their level of strength is very strong (21%) or somewhat strong (52%) for overall preparation for value-based care delivery changes, up 18 percentage points over last year s result. Only 28% say it is very weak (6%) or somewhat weak (22%). The response for overall preparation for value-based financial changes is also very positive, with 72% saying that their level of strength is very strong (16%) or somewhat strong (56%), up 21 percentage points over last year s survey. Only 28% say it is very weak (8%) or somewhat weak (20%). While marginally lower, the response for overall preparation of a value-based infrastructure is also encouraging, with 65% reporting that their level of strength is very strong (14%) or somewhat strong (51%), up 21 percentage points over last year s survey. Another 34% say it is very weak (7%) or somewhat weak (27%). PAGE 14

SURVEY RESULTS FIGURE 2: Developing Financial Competencies Q In which of the following areas of healthcare finance is your organization committed to developing (or has already developed) competencies to prepare for value-based care? Developing value-based performance metrics Collaborative relationships with payers Aligning employed physicians/providers Financial risk assessment capabilities Ability to model payer contracts Linking provider compensation to value-based metrics Aligning independent physicians/providers Provider-sponsored health plan Other area(s) of finance None Don't know 3% 3% 2% 27% 66% 60% 54% 50% 49% 41% 79% Base Base = 216 = 216 Multi-Response The top healthcare finance areas that respondents say their organization has committed to developing or has already developed competencies to prepare for value-based care are value-based performance metrics (79%), followed by collaborative relationships with payers (66%), and aligning employed physicians/providers (60%). Note that aligning independent physicians/providers (41%) is rated low on the list of responses as providers are initially focusing more on developing performance metrics and risk-based relationships with payers and employed physicians. Large organizations in particular say that they are committed to developing or have already developed healthcare finance competencies to prepare for value-based care in these top three areas. For example, based on net patient revenue, a greater share of large organizations (90%) than medium (78%) and small organizations (76%) mention developing value-based performance metrics, and a greater share of large organizations (80%) than small (64%) and medium organizations (63%) cite collaborative relationships with payers. Further, a greater share of large organizations (84%) than small (59%) and medium organizations (52%) cite aligning employed physicians/providers. PAGE 15

SURVEY RESULTS FIGURE 3: Assessing Financial Strengths Q Please rate the following areas of healthcare finance according to your organization s ability to deliver value-based care. Very strong Somewhat strong Somewhat weak Very weak Base Developing value-based performance metrics 27% 49% 18% 6% 213 Collaborative relationships with payers 19% 53% 22% 7% 213 Aligning employed physicians/providers 19% 47% 25% 9% 205 Ability to model payer contracts 15% 44% 35% 6% 212 Linking provider compensation to value-based metrics 13% 34% 41% 12% 213 Financial risk assessment capabilities 12% 49% 32% 6% 216 Provider-sponsored health plan 12% 26% 29% 33% 193 Aligning independent physicians/providers 8% 38% 39% 15% 207 Other area(s) of finance 16% 16% 26% 42% 19 Base size varies according to the respondents knowledge of the question Respondents have a fairly positive outlook when rating their organizations ability to deliver value-based care within various areas of healthcare finance, and the three areas with the strongest ratings are the same ones identified in Figure 2 for areas of healthcare finance competencies that organizations are committed to developing or have already developed to prepare for value-based care. For example, 76% say that their level of ability is very strong (27%) or somewhat strong (49%) for developing value-based performance metrics, 72% say that their level of ability is very strong (19%) or somewhat strong (53%) for collaborative relationships with payers, and 66% say that their level of ability is very strong (19%) or somewhat strong (47%) for aligning employed physicians/providers. Respondents from large organizations rate their ability to deliver value-based care within the same top areas of healthcare finance mentioned in the previous paragraph more strongly than small and medium organizations, likely because their greater financial resources allow them to do so. For example, based on net patient revenue, a greater share of large organizations (89%) say that their level of ability is very strong (35%) or somewhat strong (54%) for developing value-based performance metrics than small (74%: 28%, 46%) and medium organizations (69%: 21%, 48%). The areas of healthcare finance receiving the weakest ratings according to respondent organizations ability to deliver value-based care are generally the same areas found lower on the response list for respondent organizations commitment to developing healthcare finance competencies to prepare for value-based care in Figure 2. For example, 62% of respondents indicate that their provider-sponsored health plan is very weak (33%) or somewhat weak (29%), 54% say that aligning independent physicians/providers is very weak (15%) or somewhat weak (39%), and 53% say that linking provider compensation to value-based metrics is very weak (12%) or somewhat weak (41%). PAGE 16

SURVEY RESULTS FIGURE 4: Developing Care Delivery Competencies Q In which of the following areas of care delivery is your organization committed to developing (or has already developed) competencies to prepare for value-based care? Care coordination/guiding patients to appropriate care Clinical integration Broader access to care Care standardization Encouraging patients to be engaged in their own care Care team coordination/primary care as care team leader Longitudinal patient care Other area(s) of care delivery None Don't know 3% 2% 1% 40% 56% 79% 73% 68% 67% 66% Base = 216 Multi-Response Respondents indicate that the leading areas of care delivery competencies their organization has committed to developing or has already developed to prepare for value-based care are care coordination/guiding patients to appropriate care (79%), clinical integration (73%), and broader access to care (68%). The majority of respondents indicate that they have ample commitment to care delivery competencies to prepare for value-based care, with five of the areas receiving a response greater than 65%. Note that, while longitudinal patient care (40%) is low on the list of responses and is the only area below a 50% response, its result is up nine points over last year s survey. The relatively low response is an indication of the early stage at which most respondents currently reside in the transition to value-based care. However, as providers continue to commit to developing care delivery competencies to prepare for value-based care, longitudinal patient care is expected to play an increasingly important role as providers manage patient care over longer periods of time and across multiple care settings. Responses for health systems indicate that they are further along in their commitment to developing or having already developed care delivery competencies to prepare for value-based care than hospitals and physician organizations. For example, a greater share of health systems (87%) than physician organizations (80%) and hospitals (73%) mention care coordination/guiding patients to appropriate care, and a greater share of health systems (87%) than hospitals (67%) and physician organizations (59%) cite clinical integration. Further, a greater share of health systems (82%) than hospitals (67%) and physician organizations (59%) cite broader access to care. PAGE 17

SURVEY RESULTS FIGURE 5: Assessing Care Delivery Strengths Q Please rate the following areas of care delivery according to your organization s ability to deliver value-based care. Very strong Somewhat strong Somewhat weak Very weak Base Care team coordination/primary care as care team leader 21% 41% 32% 6% 210 Clinical integration 21% 51% 22% 6% 214 Broader access to care 20% 53% 22% 4% 215 Care coordination/guiding patients to appropriate care 20% 52% 24% 4% 214 Encouraging patients to be engaged in their own care 18% 39% 34% 9% 211 Care standardization 13% 43% 36% 7% 209 Longitudinal patient care 11% 36% 43% 11% 205 Other area(s) of care delivery 31% 31% 8% 31% 13 Base size varies according to the respondents knowledge of the question Respondents rate their organizations ability to deliver value-based care within various areas of care delivery as effective, with responses falling in a tight group at the top of the response list. Seventy-three percent say that their level of ability is very strong (20%) or somewhat strong (53%) for broader access to care, 72% say that their level of ability is very strong (21%) or somewhat strong (51%) for clinical integration, and 72% say that their level of ability is very strong (20%) or somewhat strong (52%) for care coordination/guiding patients to appropriate care. As with Figure 4, longitudinal patient care receives the lowest rating for respondent organizations ability to deliver valuebased care in this area. For example, 54% of respondents indicate that this is very weak (11%) or somewhat weak (43%), an indication that it remains a work in progress for respondents. In addition, based on net patient revenue, a greater share of medium organizations (63%) say that their level of ability is very weak (13%) or somewhat weak (50%) for longitudinal patient care than small organizations (53%) that say that their level of ability is very weak (9%) or somewhat weak (44%) and large organizations (45%) that say that their level of ability is very weak (10%) or somewhat weak (35%). PAGE 18

SURVEY RESULTS FIGURE 6: Existing Processes and Systems Q How well do your existing processes and systems support your care teams and practices in their coordination, communication, and patient outreach efforts? Our care processes and systems are fully mature 3% Our care processes and systems are evolving to a mature state 44% We are in the beginning stages of evolving our processes and systems 43% We are still evaluating required changes 11% Base Base = 215 = 216 Respondents indicate that moderate progress has been made in supporting care teams and practices in their coordination, communication, and patient outreach efforts. For example, 44% say that their care processes and systems are evolving to a mature state, up 11 percentage points from last year s survey, and 43% say that they are in the beginning stages of evolving their processes and systems, down nine points. However, only 3% say that their care processes and systems are fully mature, and 11% say that they are still evaluating required changes results that are identical to last year. Note that responses indicate that health systems and hospitals are further along in the evolutionary process than physician organizations. For example, a greater share of health systems (51%) and hospitals (49%) than physician organizations (31%) say that their care processes and systems are evolving to a mature state. Conversely, a greater share of physician organizations (49%) than health systems (42%) and hospitals (40%) say that they are in the beginning stages of evolving their processes and systems, and a greater share of physician organizations (16%) than hospitals (10%) and health systems (5%) indicate that they are still evaluating required changes. Based on net patient revenue, a greater share of large organizations (51%) than medium (44%) and small organizations (39%) say that their care processes and systems are evolving to a mature state. At the opposite end of the spectrum, a greater share of small organizations (14%) than medium (10%) and large organizations (4%) indicate that they are still evaluating required changes. PAGE 19

SURVEY RESULTS FIGURE 7: Developing IT Competencies Q For which of the following IT items is your organization committed to developing (or has already developed) competencies to prepare for value-based care? EHR standardization among care partners Enhancing provider efficiency through EHR usability EHR interoperability IT-based clinical decision support Integrating data sets from various sources, including payers More rigorous data accuracy standards than required by FFS Staff analytics skills to identify patient cohorts Prescriptive analytics (predictive plus suggested solutions) Staff actuarial skills for financial risk assessment Other infrastructure element(s) None Don't know 2% 3% 4% 24% 33% 45% 43% 42% 54% 64% 62% 62% Base Base = 216 = 216 Multi-Response EHR capabilities dominate the top three IT items that respondents say their organization is committed to developing or has already developed competencies to prepare for value-based care, led by EHR standardization among care partners (64%), with enhancing provider efficiency through EHR usability (62%) and EHR interoperability (62%) in a tie. A greater share of respondents from health systems (74%) than hospitals (69%) and physician organizations (51%) mention EHR standardization among care partners, and a greater share of physician organizations (71%) than health systems (64%) and hospitals (60%) cite enhancing provider efficiency through EHR usability. Further, a greater share of respondents from health systems (69%) than hospitals (64%) and physician organizations (57%) mention EHR interoperability. Note that while the response for prescriptive analytics (predictive plus suggested solutions) (33%) is lower on the list of responses, this will likely change over time as providers place greater emphasis on developing skills and investing in IT staff to leverage this important tool. A greater share of health systems (49%) than physician organizations (33%) and hospitals (16%) mention prescriptive analytics. PAGE 20

SURVEY RESULTS FIGURE 8: Assessing IT Strengths Q What is your organization s level of strength in each of the following areas of IT, specifically in relation to the change from fee-for-service to valuebased care? Very strong Somewhat strong Somewhat weak Very weak Base EHR standardization among care partners 17% 38% 29% 16% 212 EHR interoperability 15% 38% 33% 15% 213 IT-based clinical decision support 11% 36% 41% 13% 209 Enhancing provider efficiency through EHR usability 10% 40% 38% 12% 209 More rigorous data accuracy standards than required by fee-for-service 10% 31% 46% 13% 210 Staff analytics skills to identify patient cohorts 8% 28% 40% 24% 204 Integrating data sets from various sources, including payers 8% 29% 40% 23% 209 Prescriptive analytics (predictive plus suggested solutions) 6% 21% 48% 25% 207 Staff actuarial skills for financial risk assessment 4% 24% 38% 33% 203 Other infrastructure element(s) 40% 0% 10% 50% 10 Base size varies according to the respondents knowledge of the question Respondents indicate that they are especially committed to developing EHR competencies to prepare for value-based care (Figure 7), and Figure 8 reveals that this commitment is starting to produce results 55% of respondents say that their EHR standardization among care partners is very strong (17%) or somewhat strong (38%), and 53% say that their EHR interoperability is very strong (15%) or somewhat strong (38%). Rounding out the top three, 50% of respondents say that enhancing provider efficiency through EHR usability is very strong (10%) or somewhat strong (40%). As with Figure 7, prescriptive analytics (predictive plus suggested solutions) and staff actuarial skills for financial risk assessment are low on the response list. For example, 73% of respondents say that prescriptive analytics is very weak (25%) or somewhat weak (48%), and 71% say that staff actuarial skills for financial risk assessment is very weak (33%) or somewhat weak (38%). PAGE 21

SURVEY RESULTS FIGURE 9: Approach to Operational Excellence Q With respect to delivering value-based care, please assess the status of your organization s systemic approach to operational excellence (e.g., Lean, Six Sigma, etc.). 38% 30% 16% 12% 5% Very strong Strong Neutral Weak Very weak Base Base = = 216 216 Fifty percent of respondents rate their organization s systemic approach to operational excellence when delivering valuebased care as very strong (12%) or strong (38%), and only 21% say that this is very weak (5%) or weak (16%). Another 30% rate this as neutral. A greater share of respondents from hospitals (60%) indicate that their organization s systemic approach to operational excellence when delivering value-based care is very strong (11%) or strong (49%) than health systems (49%) that say this is very strong (14%) or strong (35%) and physician organizations (39%) that say this is very strong (6%) or strong (33%). Based on net patient revenue, a greater share of respondents from large organizations (59%) indicate that their organization s systemic approach to operational excellence when delivering value-based care is very strong (12%) or strong (47%) than small organizations (49%) that say this is very strong (10%) or strong (39%) and medium organizations (44%) that say this is very strong (12%) or strong (32%). PAGE 22

SURVEY RESULTS FIGURE 10: Implementing New Software Capabilities Q With respect to delivering value-based care, please assess the status of your organization s ability in creating new workflows and care models to align with the implementation of new software capabilities. 39% 31% 11% 13% 5% Very strong Strong Neutral Weak Very weak Base Base = = 216 216 Fifty percent of respondents assess their organization s ability in creating new workflows and care models to align with the implementation of new software capabilities when delivering value-based care as very strong (11%) or strong (39%), and only 18% assess that it is very weak (5%) or weak (13%). Another 31% assess it as neutral. A greater share of respondents from health systems (56%) assess that their organization s ability in creating new workflows and care models to align with the implementation of new software capabilities when delivering value-based care is very strong (12%) or strong (44%) than physician organizations (49%) that assess it is very strong (8%) or strong (41%) and hospitals (47%) that assess it is very strong (10%) or strong (37%). PAGE 23

SURVEY RESULTS FIGURE 11: Patients in Value-Based and Fee-for-Service Programs Q What share of your organization s patients are/will be in one or more of your value-based and fee-for-service programs, currently and in three years? CURRENTLY IN THREE YEARS 26% 48% 52% 74% Patients in value-based programs Patients in fee-for-service programs Base = 151 Patients in value-based programs Patients in fee-for-service programs Base = 151 Respondents expect robust growth in the share of patients in value-based programs. For example, they indicate that 26% of their patients are currently in value-based programs, but in three years time, that number will double to 52%. According to respondents, a greater share of hospital patients (32%) are currently in value-based programs than those in health systems (27%) and physician organizations (20%). Looking ahead three years, a greater share of patients will be in value-based programs at hospitals (58%) and health systems (55%) than physician organizations (45%). PAGE 24

SURVEY RESULTS FIGURE 12: Experience With Payment Models Q Overall, what has your organization s experience been with the following payment models? Improved outcomes and lower costs Improved outcomes, no cost reduction Neither improved outcomes nor lower costs Don't know results of our experience No involvement with this program Don't know if we have experience with that program Fee-for-service with upside rewards, such as performance awards 22% 27% 17% 14% 11% 9% Bundled payment program(s) 20% 12% 14% 14% 27% 12% Medicare Shared Savings Program with upside rewards only 17% 17% 14% 15% 25% 13% Shared risk, such as ACO 16% 15% 10% 18% 29% 12% Fee-for-service with no value-based component 14% 23% 37% 13% 7% 6% Fee-for-service with downside risk, such as reimbursement penalties 14% 19% 18% 16% 22% 12% Medicare Shared Savings Program with upside and downside 11% 9% 13% 16% 34% 17% Full capitation 10% 4% 9% 17% 40% 19% Partial capitation 10% 8% 12% 19% 36% 16% Other 10% 0% 10% 10% 20% 50% Base = 216 Base = 216 According to respondents, the fee-for-service with no value-based component payment model is the least effective model in terms of quality and cost improvements; more than one-third (37%) say that it offers neither improved outcomes nor lower costs. This result is more than double the response of any other payment model on the list, and has the highest participation rate by respondents only 7% say they have no involvement with this program. At the other end of the spectrum, full capitation (9%) receives the lowest response for yielding neither improved outcomes nor lower costs; however, it also has the lowest participation rate by respondents 40% report they have no involvement with this program, and only 10% report improved outcomes and lower costs, indicating that the model has yet to yield much value. Fee-for-service with upside rewards, such as performance awards (22%) has the highest response for improved outcomes and lower costs, although its response is only marginally higher than bundled payment programs (20%). Interestingly, the top three responses for improved outcomes, no cost reduction are all fee-for-service based: fee-for-service with upside rewards, such as performance awards (27%), fee-for-service with no value-based component (23%), and fee-for-service with downside risk, such as reimbursement penalties (19%). PAGE 25

SURVEY RESULTS FIGURE 13: Principal Payment Models Q Please rank the top three payment models (first, second, third) based on the prospects that they will evolve into one of your organization s principal payment models for value-based care. Bundled payment program(s) 13% 19% 26% 58% Fee-for-service with upside rewards, such as performance awards 29% 16% 10% 55% Shared risk, such as ACO 14% 22% 16% 52% Medicare Shared Savings Program with upside and downside 12% 14% 14% 40% Fee-for-service with downside risk, such as reimbursement penalties Medicare Shared Savings Program with upside rewards only 10% 16% 11% 11% 7% 7% 28% 34% First Ranked Second Ranked Partial capitation 2% 6% 12% 20% Third Ranked Full capitation 4% 1% 5% 10% Base = 216 Ranking Respondents indicate that fee-for-service with upside rewards, such as performance awards (29%) is the first-ranked payment model they expect will evolve into one of their organization s principal payment models for value-based care. That model receives a significantly higher response than for the next two payment models; fee-for-service with downside risk, such as reimbursement penalties (16%) and shared risk, such as ACO (14%). The payment models receiving the lowest responses are partial capitation (2%) and full capitation (4%), indicating respondents low expectations that these value-based models will become their principal payment model. Taken in aggregate, combining first-, second-, and third-place rankings, respondents indicate that the top three payment models are bundled payment programs (58%), fee-for-service with upside rewards, such as performance awards (55%), and shared risk, such as ACO (52%). PAGE 26

SURVEY RESULTS FIGURE 14: Net Patient Revenue in Value-Based and Fee-for-Service Programs Q What share of net patient revenue does/will value-based and fee-for-service payment models represent in your organization s most recent reconciled fiscal year and in three years? CURRENTLY IN THREE YEARS 23% 52% 48% 77% Value-based models Fee-for-service Base = 105 Value-based models Fee-for-service Base = 118 Base size varies according to the respondents knowledge of the question As with the survey results in Figure 11 for growth in the share of patients in value-based programs, respondent expectations for net patient revenue growth from value-based payment models is also bullish. For example, respondents indicate that their net patient revenue percentage is currently 23% value-based, and they say this will more than double to 48% in three years. According to respondents, hospitals (32%) currently have larger shares of net patient revenue coming from value-based payment models than health systems (24%) and physician organizations (17%). Looking ahead three years, hospitals (56%) will continue to have larger shares coming from value-based payment models than health systems (48%) and physician organizations (44%). PAGE 27

METHODOLOGY The 2017 Value-Based Readiness Survey was conducted by the HealthLeaders Media Intelligence Unit, powered by the HealthLeaders Media Council. It is part of a series of monthly thought leadership studies. In February 2017, an online survey was sent to the HealthLeaders Media Council and select members of the HealthLeaders Media audience at healthcare provider organizations. A total of 216 completed surveys are included in the analysis. Base size varies between 105 and 216 according to respondents knowledge of the question. The margin of error for a base of 216 is +/-6.7% at the 95% confidence interval. Totals do not always add to 100% due to rounding. UPCOMING INTELLIGENCE REPORT TOPICS JUNE Cost and Revenue Strategies JULY/AUGUST Patient Experience SEPTEMBER Analytics in Healthcare Click for information on joining. Copyright 2017 HealthLeaders Media, a division of BLR, 100 Winners Circle, Suite 300, Brentwood, TN 37027 Opinions expressed are not necessarily those of HealthLeaders Media. Mention of products and services does not constitute endorsement. Advice given is general, and readers should consult professional counsel for specific legal, ethical, or clinical questions. ABOUT THE HEALTHLEADERS MEDIA INTELLIGENCE UNIT The HealthLeaders Media Intelligence Unit, a division of HealthLeaders Media, is the premier source for executive healthcare business research. It provides analysis and forecasts through digital platforms, print publications, custom reports, white papers, conferences, roundtables, peer networking opportunities, and presentations for senior management. Intelligence Report Senior Research Analyst JONATHAN BEES jbees@healthleadersmedia.com Vice President, Product Development & Content Strategy ERIN E. CALLAHAN ecallahan@h3.group Editorial Director BOB WERTZ bwertz@healthleadersmedia.com Marketing Specialist, Intelligence Unit AMANDA WAGNER awagner@healthleadersmedia.com Managing Editor ERIKA BRYAN ebryan@healthleadersmedia.com Senior Client Services Manager CATHLEEN LAVELLE clavelle@healthleadersmedia.com Intelligence Report Contributing Editor PHILIP BETBEZE pbetbeze@healthleadersmedia.com Intelligence Report Design and Layout KEN NEWMAN Intelligence Report Cover Art DOUG PONTE dponte@healthleadersmedia.com PAGE 28

RESPONDENT PROFILE TITLE Respondents represent titles from health systems; hospitals; physician organizations; long-term care/snfs; and ancillaries, allied providers. 57% Base = 216 TYPE OF ORGANIZATION Base = 216 Health system (IDN/IDS) 36% Hospital 32% Physician organization (MSO/IPA/PHO/clinic) 24% Long-term care/snf 5% Ancillary, allied provider 3% 19% 16% NUMBER OF BEDS Base = 70 (Hospitals) 1 199 (small) 50% 200 499 (medium) 36% 500+ (large) 14% 4% 3% 1% NUMBER OF SITES Senior leaders Clinical leaders Operations leaders SENIOR LEADERS CEO, Administrator, Chief Operations Officer, Chief Medical Officer, Chief Financial Officer, Executive Dir., Partner, Board Member, Principal Owner, President, Chief of Staff, Chief Information Officer, Chief Nursing Officer, Chief Medical Information Officer CLINICAL LEADERS Chief of Cardiology, Chief of Neurology, Chief of Oncology, Chief of Orthopedics, Chief of Radiology, Dir. of Ambulatory Services, Dir. of Clinical Services, Dir. of Emergency Services, Dir. of Inpatient Services, Dir. of Intensive Care Services, Dir. of Nursing, Dir. of Rehabilitation Services, Service Line Director, Dir. of Surgical/ Perioperative Services, Medical Director, VP Clinical Informatics, VP Clinical Quality, VP Clinical Services, VP Medical Affairs (Physician Mgmt/MD), VP Nursing Financial leaders Marketing leaders Information leaders OPERATIONS LEADERS Chief Compliance Officer, Chief Purchasing Officer, Asst. Administrator, Chief Counsel, Dir. of Patient Safety, Dir. of Purchasing, Dir. of Quality, Dir. of Safety, VP/Dir. Compliance, VP/Dir. Human Resources, VP/Dir. Operations/Administration, Other VP FINANCIAL LEADERS VP/Dir. Finance, HIM Director, Director of Case Management, Director of Patient Financial Services, Director of RAC, Director of Reimbursement, Director of Revenue Cycle MARKETING LEADERS VP/Dir. Marketing/Sales, VP/Dir. Media Relations INFORMATION LEADERS Chief Technology Officer, VP/Dir. Technology/MIS/IT Base = 77 (Health systems) 1 5 (small) 14% 6 20 (medium) 38% 21+ (large) 48% NUMBER OF PHYSICIANS Base = 51 (Physician orgs) 1 9 (small) 27% 10 49 (medium) 27% 50+ (large) 45% REGION 19% 27% 36% 19% WEST: Washington, Oregon, California, Alaska, Hawaii, Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, Wyoming MIDWEST: North Dakota, South Dakota, Nebraska, Kansas, Missouri, Iowa, Minnesota, Illinois, Indiana, Michigan, Ohio, Wisconsin SOUTH: Texas, Oklahoma, Arkansas, Louisiana, Mississippi, Alabama, Tennessee, Kentucky, Florida, Georgia, South Carolina, North Carolina, Virginia, West Virginia, D.C., Maryland, Delaware NORTHEAST: Pennsylvania, New York, New Jersey, Connecticut, Vermont, Rhode Island, Massachusetts, New Hampshire, Maine PAGE 29

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