5 Value-Based Care Strategies to Control Patient Care Costs

The staggering reality that health care could soon account for one fifth of all domestic spending has put a bull’s eye on health care cost control. Is your ACO, health system, or physician organization ready to manage the coming congressional budget cuts? The only effective way to tackle Total Costs of Patient Care (TCoC) without cutting services is through a curated value-based care approach. Here are the fundamentals you need to know and five strategic steps to formulate your approach:

What Is the Total Cost of Patient Care?

As a provider, you may think of your patient as generating costs. Or, you may think of your own cost outlays to provide care. Those factors figure into your internal budget and pricing, of course. But under value-based care payment models (and also Managed Care contracts), the Total Cost of Patient Care is a tally of expenditures for a population of patients who are attributed to your providers. In other words, TCoC is defined by the market/customer. It equals your total payout in expenditures through claims. Because the definition applies to a population of patients, out-of-network claims are usually included in TCoC.

TCoC places responsibility on the provider to manage the costs of care. Not only your own costs, but also your specialty referrals, your care plans, your admissions and treatments are included in TCoC. The derivative of Total Costs of Patient Care, or Total Per Patient Cost (TPPC), is how the market puts pressure on you to evaluate and reduce costs under various payment models and contracts.

The TCoC approach creates vulnerabilities for provider organizations. Under network consolidation, providers have expanded their patient reach and will be vulnerable to more patients needing specialty care. For ACOs, TCoC will change depending on how patients are attributed to your providers; if you include specialists, you may be more exposed to higher total patient care costs. We will focus on how to manage TCoC and TPPC through value-based care.

Is Claims Data Enough to Identify Cost Opportunities?

If claims data is the basis for TCoC calculations, why shouldn’t it be enough for examining cost? First, let’s examine what special benefits you gain with claims data from payers:

• If claims data is complete with diagnoses, provider details, sites of service, and prescription and other costs, it will give you the basis for calculating TCoC.
• It will provide a view of your admissions and emergency visit data, so that you can examine admissions and length of stay, and use that data in population health.
• Medicare data will give you HCC risk adjustment scores, which may help define patient risks.
• Your out-of-network costs and providers will be illuminated.

However, claims data alone, is not sufficient for TCoC calculations:

• You can’t evaluate clinical reasons for costs beyond the diagnosis.
• You can’t see co-morbidities that are not identified in patients with claims.
• Claims data on its own does not give you the story and tools your providers need to manage the costs of care per patient. It is a mishmash of services and charges that is codified for billing purposes and not cost-of-care management.
• You won’t have longitudinal data on patients with changes in coverage, gaps in claims data availability by payer, which will include Medicare and Medicaid, unless you are an ACO or other payment models that provide claims data. The more holes in your data, the more limited your approach to cost control.

Value-Based Care Strategies to Control Patient Care Costs

Value-based care focuses on data-driven improvements in outcomes and costs, replacing guesswork. Prior approaches to cost management required payers to question and deny services after the fact, or to mediate necessity of services through prior authorizations. That created a rat’s nest of trouble for payers, consumers, and providers.

Successful participation in value-based payment models involves data and technology to help clinicians improve outcomes, avoid complications and events for patients, and prevent problems before they occur. However, providers are still in the process of understanding and developing systems, as well as transforming clinician teams, to optimize care and costs.

The key strategies for implementing value-based care strategies aimed at controlling patient care costs include these five critical steps:

1. Organize your cost efforts by impact (patient volume and total cost) and by where you can effect change.

Your first task is to determine how to begin your effort. This is easy—go for your highest volume and highest cost areas. This is what the payers do, and it will matter most to your bottom line.

2. Develop your method for curating cost data.

Traditional approaches used by ACOs and health systems have used risk adjustment methods like HCC scores for Medicare patients to segment risk. This is low hanging fruit, but it is retrospective, and will not allow you to change costs for patients with prospectively advancing problems. Also important, it does nothing to reduce cost variation in specialty care, a high contributor to cost escalation.

Among the best tools for reducing cost variation are procedural and treatment episodes of care, which require both claims and clinical data. You can evaluate the reasons why costs were higher compared to others, and then work to effect solutions. Episodes of care are a tool to involve providers in improved care and costs. The transparent case-oriented method is similar to training approaches for physicians and can be undertaken as a learning process.

But here’s the important point to using patient episodes of care to fix costs:  they must be clinically focused on a single type of procedure or treatment and not reflect the “market basket” grouping used for bundled payments. Having clinical integrity allows your providers to see what is driving costs for either clinician or patient reasons.  

Chronic disease episodes are also needed to manage the costs of a high-risk pool of patients. In this case, you use the data to identify the longitudinal trend of the patient, the progression of disease over time, and the improvement or worsening of outcomes over a long period. While Charlson or other risk scores can also be included, the most important goal is to prevent unnecessary healthcare utilization and worsening conditions. 

3. Aggregate and integrate claims and EHR data, along with financial data sources.

Recognize that worsening patient outcomes is a primary driver of costs in the subset of patients with existing disease, so obtaining detailed patient outcome data is essential. Patient comorbidities, historical hospitalizations and diagnoses, and medications are also needed. Financial data sources are critical to this aggregation. You will need to benchmark all episodes using a common fee schedule (e.g., Medicare) as well as actual claims for each payer. The cost investigation is not about payments; its purpose is to identify cost drivers. But when you do receive claims from payers, you need to understand their costs for successful negotiations.

For specialty care, the incorporation of specialty data is beneficial to collaboration and communication on the cost of care.  Revelations from cost variation will show opportunities for improving pathways of care and better predicting risk factors for patients pre-procedure.

4. Adopt Value-Based Care Technology.

A key issue is where your data is stored and how it is used.  Aggregated and curated data could be in your own repository. To be used effectively, however, the data must go into a patient-centric value-based care platform that segues episodes into interventions and improvement plans. Those might include clinical team review, outreach, or a change in clinical plan. You will most likely engage a Value-Based Vendor for the data aggregating, curating, and queuing up for action.

5. Implement improvements and interventions.

There are limited possibilities for changing the trajectory of costs. Trimming specialty costs will involve collaborating with specialty groups and potential changes in referrals, but also a clear consensus on communication and clinical pathways for patients. During the next few years, we will see episodic payments expand and more global risk payment models.  We should expect that specialty care will be subcontracted episodically under global payments or paid through individual episodes.  Both of these put specialists at risk.

Developing a short list of interventions for chronic disease and establishing a queue of patients for clinician or proceduralist review will be critical to the process. Clinical teams to support primary care physicians, as well as incorporating methods of carrying out large-scale improvements in chronic disease management and patient interventions will be essential to change.

About Theresa Hush 

Theresa Hush is a health care strategist and change expert with experience across the healthcare spectrum. Terry’s broad range of health care experience includes executive positions in public, non-profit and private sectors, from both payer and provider sides of the business, peppered with health care public policy and regulation experience. She is co-founder and CEO of Roji Health Intelligence, formed in 2002 to help providers implement Value-Based Care with technology and data-guided services.