Community Health Centers and the Complex Change to Value-Based Payments

Imagine being a patient on Medicaid. You’re struggling to make ends meet, and you have a cough that you tried to push through over the past few weeks, but it’s getting worse.

You have few options to receive medical care that will accept your insurance.

Fortunately, you have a Community Health Center (CHC) in your area.

CHCs are essential access points to primary care for almost 29 million US patients, of whom 47% are Medicaid enrollees. Yet, CHCs desperately need more predictable income and more funding to scale services for Medicaid, Medicare, and uninsured patients.

As a result, the core of the healthcare safety net is in jeopardy.

Why CHCs Are an Ideal Investment

Better CHCs are a win-win for Medicaid agencies because Medicaid agencies also need predictability, and CHC stability is crucial for this and for reducing the total cost of care (TCOC).

For reference, CHCs as the primary source of care was found to reduce the TCOC for Medicaid patients by 24% compared to other primary care settings.

Value-based payments (VBPs) offer hope for more predictable and potentially greater reimbursement.

The Center for Medicare and Medicaid Innovation knows this because they announced in October 2021 that one of its strategic goals for the next decade is to “create more opportunities for [FQHCs and other safety-net providers] to join” VBP models.

Why Would a CHC Want VBPs

While VBPs have the potential to increase revenue for CHCs, the primary goal is predictable income and to redirect incentives from volume to value. This approach focuses on achieving better health outcomes and enhancing patient experiences at lower costs for underserved populations.

This stability can help CHCs better plan their finances and operations.

VBPs are also intended to address the limitations of the Prospective Payment System (PPS). The COVID-19 pandemic highlighted the vulnerability of a payment system that relies heavily on the volume of in-person visits, even in an era where telehealth is prevalent.

Money saved from VBP models are usually flexible and can be utilized for a variety of purposes.

These benefits may include shared savings or bonuses awarded by payers as a reward for achieving better health outcomes and reducing overall costs.

This includes:

• Funding services beyond “medically-necessary primary health services” and “qualified preventive health services”

• Paying for services furnished by someone other than an ”FQHC Practitioner.”

• Delivering care at any location.

• Aligning payment with good care.

• Funding innovative pilot programs.

• Achieving sustainability for interventions currently funded by grants.

Terminology You Need to Know

• Upside Risk for CHCs: If a CHC achieves cost savings compared to a predetermined baseline, they receive a percentage of those savings as a financial incentive. This encourages CHCs to efficiently manage resources and reduce costs while maintaining quality care for their patients.

• Downside Risk for CHCs: In this scenario, if a CHC achieves savings relative to the baseline, they receive a percentage of those savings. However, if costs exceed the agreed-upon baseline, the CHC may be required to pay a portion of these additional costs or losses. This model motivates CHCs to carefully monitor expenses and strive for cost-effective care delivery to avoid financial penalties.

Here's why the above is important:

• When CHCs take on downside risk, they are exposed to financial losses if they fail to meet performance targets.

• However, in exchange for taking on this risk, they often have the opportunity to earn a larger share of any savings they generate if they perform better than expected. This can include sharing in savings achieved through better care coordination, reduced hospital admissions, or improved patient outcomes.

• In contrast, in models with only upside risk (where there are bonuses for achieving targets but no penalties for missing them), the financial rewards may be more limited because the organization does not bear the same level of financial risk.

Therefore, while downside risk does involve financial risk for CHCs, it also offers them the potential to earn more substantial financial rewards if they successfully manage patient care and reduce healthcare costs beyond expected targets.

Something to note is that downside risk can only be undertaken when a CHC is under an ACO or IPA.

However, the razor-thin margins on which CHCs operate make it challenging for CHC leaders to pursue downside risk.

(If you want to learn more on VBC, check out my VBC resource directory.)

Here Are Some VBP Options For CHCs

1. Prospective Payment System (PPS):

   • Description: This is the payment model most CHCs are currently on. CHCs receive predetermined payments for each patient episode of care or for managing the healthcare needs of a specific population over a defined period. Payments are fixed and based on predetermined rates for services provided.

   • Risk Level: Moderate risk as CHCs must manage costs within the fixed payment amount while maintaining quality of care.

   • Example: Capitation payments or bundled payments for certain services provided by the CHC.

2. Shared Savings/Risk Contracts:

   • Description: CHCs participate in agreements where they share in the savings generated if healthcare costs are below a predetermined benchmark, or share in the financial losses if costs exceed the benchmark. Payment structures often involve a mix of fee-for-service, per member per month (PMPM), or percentage-based incentives tied to cost and quality outcomes.

   • Risk Level: Significant risk as CHCs share financial risk based on cost and quality outcomes.

   • Example: Participation in an Accountable Care Organization (ACO) where CHCs are incentivized based on performance metrics related to quality and cost.

3. Bundled Payments:

   • Description: CHCs receive a single payment for a bundle of services related to a specific episode of care, such as managing chronic conditions or delivering maternity care. This lump-sum payment covers all services within the defined bundle, requiring careful cost management to avoid losses.

   • Risk Level: High risk as CHCs are responsible for managing all costs associated with the episode of care provided.

   • Example: Receiving a bundled payment for comprehensive diabetes management services provided to patients.

4. Full Capitation with Downside Risk:

   • Description: CHCs receive a fixed payment per member per month (PMPM) and are also responsible for paying back a portion of any costs that exceed the fixed amount (downside risk). This model holds CHCs fully accountable for managing all healthcare costs and outcomes for a defined population, with potential financial penalties for exceeding the agreed-upon budget.

   • Risk Level: Highest risk as CHCs are fully accountable for managing all healthcare costs and outcomes for a defined population.

   • Example: A CHC that is part of a CHC ACO contracting with an MCO. This CHC must manage healthcare costs within a capitated budget and may need to reimburse payers if costs exceed the agreed-upon amount.

Below, Shin et. al does a great job at understanding how CHCs should start to adopt VBP models:

Reasons Not to Purse VBPs and Barriers

A major challenge faced by CHCs is the growing number of uninsured patients they serve. CHCs need to care for insured patients to subsidize the cost of uninsured patients.

This is one of the reasons why CHCs are different when it comes to VBPs. CHCs have an obligation to care for uninsured patients and the community at large.

Among those CHCs that do not participate in VBP arrangements, the most common reasons include not having enough Medicaid patient volume to realize significant benefits, lack of understanding of their financial risks, and perceived fear of change.

And for those that do choose to participate in VBP agreements particularly as CHCs scale up to take on greater risk, significant barriers hinder their implementation of VBPs.

To overcome these barriers, partnerships are key.

Partnerships with other CHCs.

Partnerships with the local health system.

Partnerships with MCOs.

Partnerships with CBOs.

Partnerships with a CHC’s state Medicaid agency.

Partnerships between providers and the CHC leadership.

With these partnerships, the primary bottlenecks may still exist: data sharing and care coordination.

Technology for Risk Stratification & Quality Reporting

Successful implementation of VBPs hinges on robust data systems for monitoring and reporting population health. Key components include data aggregation, analytics, risk adjustment, coding, and care coordination.

Accurate data and analytics is needed to assess risks and set fair payment rates. State and health center data discrepancies often lead states to use their own data for negotiating terms in their favor.

These tools also enable CHCs to effectively identify and oversee high-risk patient populations, particularly those with chronic conditions or frequent healthcare needs. Leveraging population health management tools facilitates proactive interventions, preventive care strategies, and personalized treatment plans.

This is necessary because you are now making your money on the value you bring to patient health outcomes.

From a billing perspective, you also need to be able to report on your quality metrics set with the MCO.

Workforce Support Needed for Engagement & Coordination

Despite having the necessary technology, CHCs may lack additional staff—such as care coordinators, community health workers, and data analysts—to effectively coordinate and engage with patients.

VBPs enable the coverage of staff who can support integrative care teams in ways that PPS cannot.

However, fundamental shortages of providers in rural areas persist and CHCs struggle to compete with local health systems in more densely populated regions for hiring.

Implementing VBC without careful consideration may further strain already overburdened providers.

Moreover, staff members require extensive training to grasp the operational implications of VBC on a daily basis.

CHCs also need significant lead time to negotiate, adopt, and adapt to new payment structures.

In other words, even with the necessary capital, staff, and technology, changing workflows at CHCs necessitates a big shift in workplace culture.

Some Barriers for VBC for CHCs

1. Collaboration with other entities to share risk and resources.

2. Technology.

3. Work culture changes.

4. A lack of infrastructure and resources around addressing social drivers of health.

5. Securing capital for implementation.

6. Staff retraining.

7. New coordination, engagement, and administration staff may need to be potentially added.

8. Adapting workflows.

9. Clinical resources and capabilities.

10. Lack of being clinically integrated.

11. Legal compliance challenges.

Some Potential (Overlapping) Opportunities To Build

There are some players in the field, but in my view it is still not a saturated market.

1. Risk stratification and quality reporting software. (There are some interesting companies that exist. Some of the biggest challenges, in my view, are a lack of margin, workplace culture changes, and having the workforce to act on clinical insights.)

2. Facilitating partnerships. Including contracts with MCOs and between other CHCs.

3. Social drivers of health VBC contracts between CBO-MCO-CHC.

4. Taking a specific and complex tech-enabled clinical service off the plate of the CHC.

5. Workforce training and recruitment.

Is Now the Right Time for CHCs

Yes.

Though, I think there is a chicken-and-egg problem—CHCs need initial resources for this transition, such as the barriers I mentioned, but lack the funding to invest upfront.

As mentioned above, the best way to achieve this is by pooling resources together through a CIN (Clinically Integrated Network), PCA (Primary Care Association), IPA (Independent Practice Association), or ACO (Accountable Care Organization).

This is particularly critical because CHCs may have relatively small numbers of patients to take risk on, so they might struggle to reach the number of patients with a given payer needed to have actuarially-sound risk pools.

And, as mentioned earlier, engaging in an IPA or ACO arrangement allows CHCs to take on downside risk, which facilitates shared risk management. Margins are so low for CHCs that if downside risk did not work, a CHC may have to lay off staff.

Additional funding sources may also come from:

• MCOs.

• Policy, such as the 1115 waiver.

• Partnerships working with a third-party company.

Conclusion

Keep in mind that true VBC should remove as much administrative burden as possible to deliver patient-first care.

With greater scale comes greater emphasis on staying lean while being effective.

And on a final note, VBPs have the potential to improve CHC predictability, the ability to enhance patient outcomes, and potentially increase revenue.

Yet even with VBPs at capitated payments with down-side risk my current view is that CHCs still need more federal funding to expand coverage to both insured and uninsured patients. VBPs is part of the solution, not the whole solution.

This is particularly critical due to Medicaid unwinding where CHCs are not seeing enough Medicaid patients to be sustainable.

CHCs are ideally positioned to scale healthcare and social services to communities to deliver healthcare outcomes for the most vulnerable Americans. Policy leaders need to view this as a part of a beneficial way to reduce the total cost of care of patients on Medicaid.

I’m always learning. If you have any thoughts, please let me know.

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