Traditionally, US healthcare providers (IYH) like hospitals and physicians have been reimbursed based on the volume of services provided. This payment model is known as a “fee-for-service” model.
The fee-for-service model encourages healthcare providers to provide unnecessary services to earn higher payments. This leads to excessive healthcare spending. To reduce this spending, the ACA (Affordable Care Act) requires the Medicare program to gradually shift away from the fee-for-service approach to a value-based payments model.
The above graph shows that Anthem’s value-based spending will rise from $38 billion in 2014 to $65 billion in 2018. Currently, about 30% of its total health providers—approximately 40,000—are involved in value-based payment contracts.
Anthem (ANTM) has value-based payment contracts with 33,000 primary care physicians, which implicates over 3 million members. The company attracts these physicians by providing them with health data support and incentives for telehealth visits and after-hours visits—care that wasn’t traditionally compensated.
Anthem (ANTM) reimburses providers for these services using three methods that we’ll look at here.
Accountable care organizations
Anthem’s accountable care program involves the creation of 118 ACOs (accountable care organizations), which are groups of hospitals and physicians that fulfills certain qualifying criteria. ACOs are encouraged to offer patients cost-optimal care. In exchange for finding efficiencies in a Medicare beneficiary’s treatment, ACOs get a share of any savings that are generated.
Although ACOs were originally introduced by the Affordable Care Act for the Medicare program, they’re slowly being adopted by managed care organizations such as UnitedHealth Group (UNH), Anthem, Humana (HUM), and Cigna (CI). ACOs control the medical costs of the employer-sponsored and individual insurance segment.
With the P4P (pay-for-performance) approach, healthcare providers are paid bonus-based incentives for improving the quality of patient care while reducing the costs involved with that care.
With bundled payments, the provider is reimbursed a single negotiated amount for all of the services provided for the treatment of a condition. This is also called an “episode of care.” The healthcare provider can benefit from improved efficiency and lower costs, as as any savings generate profits.