Payment reform unlikely to require legislation or raft of new regulations, but shift to value-based payment model will cost clinical labs and pathology groups

Today there is wide recognition in healthcare that the days of fee-for-service (FFS) medicine are numbered. But what is less certain is how fast government and private payers will introduce other reimbursement models, such as bundled payments and budgeted payments. Clinical laboratories and anatomic pathology groups likely will be the most impacted by this payment shift since their economics are driven by high volumes and FFS payment.

Payment Reform is Coming, Perhaps Faster than Expected

The largest health insurer in the state of Massachusetts, Blue Cross Blue Shield, recently announced it will extend its quality-based payment system to more than 1 million health plan members, a move the Boston Globe says may be the “biggest initiative of its kind in the state and probably the country.”

“This is definitely a new phase,” Blue Cross Chief Executive Andrew Dreyfus told the Boston Globe in a March 5 article . “It’s a very important signal to the community and to the market that we want to continue to advance payment reform, promote accountability for quality and costs, and continue to move-away from the fee-for-service system.”

Andrew Dreyfus, Chief Executive of Blue Cross Blue Shield of Massachusetts, which recently extended its quality-based payment system to more than 1 million health plan members. (Photo copyright Blue Cross Blue Shield of Massachusetts)

Andrew Dreyfus, Chief Executive of Blue Cross Blue Shield of Massachusetts, which recently extended its quality-based payment system to more than 1 million health plan members. (Photo copyright Blue Cross Blue Shield of Massachusetts)

While Blue Cross Blue Shield of Massachusetts is rapidly shifting its payment model, other insurers are moving incrementally, as Dark Daily previously reported in a May, 2015, article on MD Anderson Cancer Center and UnitedHealthcare’s bundled payment agreement for treatment of certain types of cancer.

More than three-quarters of healthcare leaders questioned in Modern Healthcare’s April “CEO Power Panel” survey support a shift to value-based payment systems, which were defined as capped, per-patient reimbursement, bundled payments, and pay-for-value rewards or penalty programs.

“I’m encouraged by the early pay-for-value work,” explained Gary Kaplan, M.D., Chairman and CEO of Virginia Mason Health System in Seattle. The switch to value-based reimbursement is “a good thing,” he said, noting that the current and still-dominate FFS payment model contributes to the high cost of care.

Medicare Embraces Value-based Payment Models: Clinical Labs Affected

The U.S. Department of Health and Human Services (HHS) earlier this year outlined its plan to move from volume to value in Medicare payments. Such a change ultimately will impact how clinical laboratories and pathology groups get paid for tests, screenings, and other work.

HHS stated Medicare’s goal is to tie 30% of traditional fee-for-service payments to value-based payment models by the end of 2016, and 50% by the end of 2018. In addition, HHS set a goal of tying 85% of all traditional Medicare payments to quality or value by 2016. This jumps to 90% by 2018. Medicare officials expect to accomplish this through initiatives such as the Hospital Value-based Purchasing and Hospital Readmissions Reduction programs.

Private Sector Leading Medicare Away from FFS

“In alternative payment models, providers are accountable for the quality and cost of care for the people and populations they serve, moving away from the old way of doing things, which amounted to, ‘the more you do, the more you get paid,’” said HHS Secretary Sylvia Mathews Burwell in an HHS blog, in which she cited Accountable Care Organizations and Patient Centered Medical Homes as examples of payment systems that “put patients first.”

While HHS’s new guidelines are fueling the transition to value-based payment models, many private payers need no coaxing to embrace a new way of paying for health care.

“Medicare is aligning with what is already working in the private sector to move away from fee-for-service,” stated Justine Handelman, Vice President for Legislative and Regulatory Policy at the Blue Cross and Blue Shield Association, in a Bloomberg article. “The private sector is further ahead than Medicare right now.”

Justine Handelman, Vice President for Legislative and Regulatory Policy at the Blue Cross and Blue Shield Association, says Medicare is following the private sector’s lead in moving toward value-based reimbursement. (Photo copyright Blue Cross and Blue Shield Association.)

Justine Handelman, Vice President for Legislative and Regulatory Policy at the Blue Cross and Blue Shield Association, says Medicare is following the private sector’s lead in moving toward value-based reimbursement. (Photo copyright Blue Cross and Blue Shield Association.)

Charles N. Kahn III, President and CEO of the Federation of American Hospitals, which represents for-profits, also issued support for shifting the focus of Medicare payments to a value-based system, but he warned that hospitals must not be penalized financially in the process.

“As we proceed, it is important that Medicare take the time to test new approaches and ensure that only reforms proven to be efficient and effective are put in place,” he said in a news release. “Since 2010, hospitals have been forced to weather a steady stream of cuts totaling $122 billion. Further cuts would undermine our ability to invest in delivery system innovations needed to continue this trend.”

Clinical laboratory executives, pathologists, and pathology practice administrators would be wise to recognize the significance of the share of the healthcare market that is already shifting away from fee-for-service payments, as listed above. This is a trend where it is essential that every medical laboratory and pathology group respond before it is too late. Nothing less than the ability to deliver high-quality clinical services in a financially sustainable manner is at stake for every lab organization in the United States.

—Andrea Downing Peck

Related Information:

Days of Fee-for-Service (FFS) Medicare and Medicaid are numbered

Progress Towards Better Care, Smarter Spending, Healthier People

Time on Obama’s Side in Death Knell for Health Fee-for-Service

Blue Cross Vastly Expands Quality-Based-Payment Systems

Attention Pathologists! MD Anderson and UnitedHealthcare Ink Bundled Payment Agreement for Cancer Care

WellPoint’s New Pay-for-Performance Program to Pay Hospitals More for Meeting Quality Measures

Fee-for-Service Payment to Phase Out in Five Years? That’s the Recommendation of National Commission on Physician Payment Reform

Facing the Looming End of Fee-for-Service, Clinical Laboratories and Anatomic Pathology Groups Look for New Business Models