Value-Based Payment Hits the Tipping Point

New research finds healthcare closing in on full VBR, bundled payment growing fastest, network strategies changing, but many payers & hospitals struggling to scale

LAS VEGAS, NV – June 13, 2016 — (AHIP Institute & Expo) The rapid pace of change in healthcare payment continues unabated, with payers reporting they are 58% along the continuum towards full value-based reimbursement, a 10% leap since 2014. Hospitals aren’t far behind, reporting they’re now 50% along the value continuum, up 4% in the past two years.

These insights and more are revealed in Journey to Value: The State of Value-Based Reimbursement in 2016, a new national study of 465 payers and hospitals conducted by ORC International and commissioned by McKesson. The research follows up on McKesson’s inaugural 2014 study, which established a baseline for healthcare’s transition to value and made it possible for this new research to look at trends over the past two years.

Among the findings: Payers estimate that nearly 60% of payment will be a mix of capitation/global payment, pay for performance (P4P), and episode of care/bundled payment in five years, with bundled payment growing fastest. Health plans project bundled payment will grow 6% over five years, edging ahead of capitation/global payment and shared risk growth. And both hospitals and payers project bundled payment will top 17% of medical payment in five years. But just half of payers and only 40% of providers say they’re ready to implement bundles, and only a quarter have the tools in place to automate these complex models.

Network management, a key component of VBR, is also changing dramatically. Over 60% of payers have changed network strategy since 2014, with 53% using tiered and 42% using narrow networks now. And over 80% say they’re more selective about who are in their networks, with care quality the top criteria at 75% of payers. But hospitals say these network strategies are driving up patient confusion, denials, directory inaccuracies, referral management problems, and network leakage.

VBR’s fast rise is also intensifying system complexity, as evidenced by the finding that the majority of providers are not meeting their goals. Of the metrics in place for measuring VBR success, a mere 22% of hospitals are meeting their goal to reduce administrative cost of care, only 26% are meeting goals to lower healthcare costs, just 30% are meeting care coordination goals, and 40% are meeting goals for improving patient outcomes.

“Payers and providers are clearly beginning to scale VBR,” said Rod O’Reilly, president of McKesson Health Solutions. “The swift pace of change, coupled with the daunting complexity of these payment models, is putting extreme pressure on the healthcare system. As we move beyond pilots, the ability for payers and providers to automate the complexity inherent in these models will be a deciding factor to success.”

Journey to Value: The State of Value-Based Reimbursement in 2016 will help healthcare stakeholders see how their colleagues are reacting to industry change and demands, what reimbursement models and technology they’re using, how they’re managing, what’s working, what’s challenging, and where they expect to be in the next few years.

The distribution of health plans, providers, and screening criteria mirrored that of McKesson’s 2014 study. Respondents were comprised of senior executives, director level and above, across medical management, finance, technology, and strategy who were familiar with value-based reimbursement activities at their organization.

The study included 115 payers across a range of organization sizes and included Managed Medicare, Managed Medicaid and commercially focused; with 38% covering 100,000 to 500,000 lives, 35% covering 500,000 to two million lives, and 27% covering two million lives or more. Payers encompassed multiple regions, with 24% payer-centric, 24% provider-centric, 34% collaborative (where one or two payers and hospitals lead the region), and 17% fragmented (where there are no clear leaders among payers or hospitals).

The study also included 350 hospitals representing a similar range of sizes and locations. From the sample of hospitals, 19% have less than 100 beds, 40% have between 101 and 250 beds, and 41% have more than 250 beds. As for regions, 20% of hospitals are in payer-centric, 29% are in provider-centric, 27% are in collaborative, and 20% are in fragmented regions.

The complete research paper, Journey to Value: The State of Value-Based Reimbursement in 2016, is available at no charge at http://MHSvbrstudy.com. McKesson executives will also present the first exclusive look at the full research results at AHIP’s Institute 2016 session, Market Update: New Research Insights on Reimbursement Models, at the Wynn/Encore Las Vegas, Thursday, June 16th at 2:15 p.m. PDT in room Mouton #1.

For more information on McKesson Health Solutions, please visit website, hear from experts at MHSdialogue, follow on Twitter, like onFacebook, or network on LinkedIn.

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About McKesson
McKesson Corporation, currently ranked 5th on the FORTUNE 500, is a healthcare services and information technology company dedicated to making the business of healthcare run better. McKesson partners with payers, hospitals, physician offices, pharmacies, pharmaceutical companies and others across the spectrum of care to build healthier organizations that deliver better care to patients in every setting. McKesson helps its customers improve their financial, operational, and clinical performance with solutions that include pharmaceutical and medical-surgical supply management, healthcare information technology, and business and clinical services. For more information, visit www.mckesson.com.

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