How to Financially Optimize Value-Based Care (Part 1)

Value-based care goes much further than managing cash flow differently.

As healthcare increasingly shifts toward value-based care (VBC), CFOs are facing both challenges and opportunities.

Value-based care emphasizes improved patient outcomes while managing costs, something easier said than done. The transition requires CFOs to rethink their financial strategies to not only ensure the health system’s sustainability, but also to strengthen its role as a vital community partner.

HealthLeaders spoke with HFMA Senior Vice President for Content and Professional Practice Guidance Rick Gundling to get some insight into what goes into value-based care financials and where CFOs need to focus.

Being a Community Partner

The success of value-based care is based in part on being a successful community partner. Through VBC, CFOs can help health systems invest in community-based interventions that address health disparities and improve the well-being of underserved populations. This might include partnerships with local organizations that provide resources for social services, transportation, mental health support, and preventive care initiatives.

These efforts not only benefit the community but can also result in long-term financial benefits by reducing the overall demand for acute care services and improving population health metrics.

Moreover, by being good stewards of public health, health systems foster trust within the community. This trust can translate into stronger relationships with patients and better patient retention.

Involved community partners provide not only timely primary care, but preventative care as well. CFOs can support this strategy through funding for health and wellness initiatives, such as health tracking apps and programs that encourage patients to take more control over their own health. The argument to support funding for these initiatives includes reduced urgent care, emergency and long-term chronic care costs.

Payers, Claims and Population Health

To succeed in VBC, health systems must develop strong partnerships with insurance companies and other payers. CFOs should work with payers to create contracts that incentivize quality care that aligns both parties’ goals. Examples include data sharing, setting transparent performance targets, and participating in collaborative initiatives to improve population health management.

However, it’s important to note that not every patient is going to fall in line with a health system’s VBC cost projections.

“The reality is when you’re managing a population, there are going to be some patients that are outliers that are just going to be high cost,” says Gundling.

This is where reinsurance can come into the picture, Gundling says. This can give providers some peace of mind in addressing consistently high claims. 

Reinsurance can help CFOs manage the financial burden of catastrophic or high-cost patient cases, such as ones that involve complex surgeries, long-term care, or rare diseases. By purchasing reinsurance, a hospital can transfer some of the financial risk of these high-cost cases to a reinsurer. Reinsurance allows CFOs to stabilize finances and avoid budgetary strain from unpredictable, large claims.

“You have that reinsurance on that 3% of the population, but then focus your efforts to manage the care on those 97% of the population,” says Gundling.

Rick Gundling, HFMA Senior Vice President for Content and Professional Practice Guidance

Aligning Financial Incentives

Under VBC, providers are typically rewarded for achieving specific quality and outcome metrics, such as reducing hospital readmissions or improving chronic disease management.

CFOs should work with payers to ensure that financial incentives are appropriately structured. Consider detailed risk-sharing agreements, where health systems are paid based on their ability to reduce costs while maintaining high-quality care.

CFOs should also focus on aligning physician compensation with quality performance to drive desired behaviors across the organization. And they can collaborate with CMOs to jumpstart physician initiatives to align with new care models.

If value-based care is designed correctly, with a focus on aligning financial incentives and population health, everybody can win, says Gundling. 

Stay tuned for Part 2 to learn how CFOs can get down to the nitty-gritty of value-based care and what other tools and strategies can set a system up for success.