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© Copyright 2015, Accretive Health Inc.
M
yriad changes in the healthcare landscape are making it difficult for providers to deliver
healthcare services and remain profitable.
One of the biggest challenges they face is the shift toward value-based reimbursement (VBR). In order
to meet the demands of a value-based structure, revenue cycle support operations need to change.
Current systems aren’t equipped to perform necessary functions such as advanced analytics, predictive
modeling, population health and care coordination. In many healthcare systems, this change is not
occurring fast enough, or at all.
In a fee-for-service scenario, the model is straightforward: healthcare costs are directly related to the
amount of services delivered, regardless of outcome. A value-based model is far more complex, requiring
providers to make the right investments at the right time, and have resources, talent and processes that
can be scaled as needed.
Ignoring the transition isn’t an option. The percentage of net patient service revenue tied to VBR was
between 5 and 8 percent in 2014. That number is expected to grow to 25 percent by 2017 and to 50
percent by 2020. By not responding, providers will face a significant loss of revenue.1
New Landscape, New Challenges
Value-based reimbursement is not new, however the passing of the Affordable Care Act led to a renewed
focus on higher quality and better outcomes while reducing costs and eliminating waste. This has been
the aim of both government and private payers who have a vested interest in eliminating the estimated
$750 billion in healthcare waste that occurs annually.2
What started as an acute-care initiative, value-
based care is now moving into the ambulatory setting.
Physicians are not yet convinced this transition to value-based care will have a positive impact on their
bottom lines. A recent survey of physicians found only 11 percent expects a boost in revenue from the
transition to fee-for-value payment models.3
The strategy behind value-based plans is to ensure providers have an incentive to give their patients the
right care, at the right time, and in the right setting or penalize them for not delivering. This requires a
high level of coordination between all members of a patient’s care team. This model is also counter to
the fee-for-service model in which physicians are paid for delivering services, regardless of outcome.
A reduction in utilization would mean a reduction in revenue.
The Provider Crossroad to
Value-Based Reimbursement
The acceleration of VBR in the ambulatory/physician practice setting
Authored by: Pamela Lewis Dolan, with Daniel Dooley and Ronald Spoltore

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© Copyright 2015, Accretive Health Inc.
Survival in a value-based world relies on the revenue cycle evolving. Not only does the technology have
to change, but the operational processes must, as well.
In stark contrast to the “blank check” mentality many insured patients had in the past when it came to
their healthcare, thanks to high-deductible health plans (HDHPs), they are now more judicious about
when and from where they access care. But in some cases, it leads to the delay or avoidance of care
when patients can’t afford their share of the bill.
Projections show HDHPs are becoming the most popular plans with nearly half of all employers offering
them as the only option in 2014.4
Patients are often confused about how their insurance works and that
a large portion of the bill is still their responsibility, despite their insurance status.
The American Medical Association found in its 2013 Annual Health Insurer Report Card that patients
were responsible for a quarter of total medical bills.5
Patients are also more difficult and expensive to
collect from compared with health plans, which has negatively impacted cash flow for many healthcare
organizations.
As high deductible health plans replace traditional plans, margins are becoming more narrow as
providers must spend more to collect less. According to the Medical Group Management Association
(MGMA), providers will send an average of 3.3 billing statements – at a significant cost – before the
patient’s balance reaches zero. And there is a good chance it may never reach zero. When bills are turned
over to collections, providers, on average, see only $15.77 for every $100 owed.6
Administrative burdens are also increasing for physicians, forcing them to spend more time on clerical
tasks and less time on clinical care.
In 2014, the Medical Group Management
Association found a per full-time physician
increase of
in spending on operations staff compared
with the previous year. The MGMA pointed
to the managing and reporting of multiple
metrics to comply with government quality
and regulatory programs as a likely cause for
the increase.7
4.6%
Adapting to this new healthcare landscape
is not only costing practices financially,
but also in physician time. Physicians now
spend
of their time on non-clinical paperwork.8
20%
From 2008 to 2014, physicians have seen a
decrease in the
number of
patients they
see per day.8
16.8%
According to the American Medical
Association, physicians spend, on average,
about
per week dealing with
pre-authorizations.9
20hours

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© Copyright 2015, Accretive Health Inc.
Government mandates are also forcing providers to make significant capital investments, for which they
may not see a return:
Electronic Health Records
The federal government implemented an incentive program through the Health Information
Technology for Economic and Clinical Health (HITECH) Act meant to help providers with the cost of
adopting electronic health record (EHR) systems. But, in many cases, the incentives won’t fully cover
the cost of implementation, which ranges from $15,000 to $70,000 per provider.10
In addition to the cost of the technology, most providers have experienced a loss of productivity
post-implementation, an average of about 108 patients per quarter.11
However, providers who don’t
make the investment face financial penalties from Medicare.
Conversion to ICD-10
As providers spend time and resources going paperless, they are also being forced to upgrade or
change their EHRs and billing systems to support the use of ICD-10 code sets.
The deadline to have systems in place and staff trained to use them is October 2015. Cost of this
conversion is estimated to be between $28,500 for a small practice and between $1.5 million and
$5 million for large hospitals.12
Revenue Cycle Management Systems
Revenue cycle management (RCM) systems able to support the reimbursement and practice models
being adopted by Medicare will require a higher level of sophistication than old RCM systems. The
system must be ICD-10 ready, and have the capability to capture and analyze clinical data, and assign
responsibility for outcomes. Many hospitals and practices are also looking for better integration
among their EHRs, practice management and RCM systems.
All of these changes and investments are being made at a time when the market remains uncertain.
During this transition, providers must have technology and processes in place to simultaneously manage
multiple pay models, including fee-for-service.
REGULATORY
UNCERTAINTY
“NEW NORMAL”
COMPETITION
MARKET
TURBULENCE
Adopting needed
infrastructure and
processes to prepare
for execution
Investments made in
EHR systems
Piloting of payment and delivery models occurs
Hospitals go on a buying spree of primary care
practices
Acute care makes significant progress toward VBR
preparedness, ambulatory does not
1
2
3
Stable model(s) emerge
Patient care managed and
coordinated by primary
care physicians
Fee-for-service
reimbursement declines
90 percent of overall payer
yield to be based on value
Phases of VBR Implementation

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© Copyright 2015, Accretive Health Inc.
The industry is currently in the second of three phases of the transition to a value-based model.
Payers and providers are figuring out how VBR will impact overall provider revenue and profit. The
reimbursement tied to VBR during this phase is limited mostly to a number of demonstration programs
and incentive plans aimed at finding the best designs and programs for the VBR model. Some models
that have emerged include:
• Pay-for-Performance (P4P): Physicians are compensated when they meet or exceed quality
benchmarks set by the payers.
• Patient Centered Medical Home (PCMH): Primary care physicians coordinate the care of their
patients across multiple care settings. They are reimbursed for these coordination efforts and
rewarded when those efforts translate to a reduction of duplicative or inappropriate use of
services.
• Bundled Payment: Providers are paid a set price for an episode of care. Providers must
manage the care in a way that produces value for the amount they collect.
• Shared Savings/ACOs: Similar to patient centered medical homes, the patient’s care is
managed across several care settings. The money that is saved as a result of the care
management is shared among those involved with the patient’s care.
As payers started implementing the various versions of value-based plans, many hospitals reacted to the
transition by going on buying sprees of primary care and other ambulatory practices. They wanted to
better align and engage with physicians on discussions surrounding cost and quality. They also wanted to
strengthen their alignment with primary care. By owning primary care practices, the hospitals are able to
better coordinate, track and manage the care of patients. But many found the business operations of an
ambulatory practice were much different than acute care settings. Many lacked the expertise needed to
run ambulatory practices.
The acute care setting has made significant progress toward preparing for VBR, the ambulatory setting
has not. Value-based collection rates in the acute care setting are at 80 percent, compared with an
average 30 percent collection rate on the ambulatory side.
Improving those collection rates will be crucial to the survival of primary care as the industry moves into
the third phase of the transition to VBR.
By 2017, providers can expect reimbursement tied to fee-for-service to decline to 75 percent of overall
revenue, compared with 98 percent in 2011. The remaining mix will include VBR in the acute setting (8
percent); VBR in the ambulatory setting (7 percent); and global capitation (10 percent).1
In January 2015, CMS announced it would be shifting its providers to value-based models. By the end of
2016, it wants 30 percent of traditional or fee-for-service payments to be shifted to alternative payment
models, such as those outlined above. It set the goal of tying 85 percent of all traditional Medicare
payments to quality or value by 2016, and 90 percent by 2018 through programs such as the Hospital
Value Based Purchasing Program and the Hospital Readmissions Reduction Program.13
Once CMS’
conversion to VBR is complete, providers can expect 90 percent of their overall payer yield to be based
on value.

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© Copyright 2015, Accretive Health Inc.
Impact of VBR on Margins and New Payer Yield
Few would disagree there is a need to control healthcare spending. How effective value-based
reimbursement will be toward that endeavor remains to be seen. But one thing the experimentation
phase has shown is that value-based payment models produce a lower collection rate than fee-for-
service because of the leakage it creates.
Leakage is defined as the reimbursement an organization is entitled to, but does not collect. Data have
shown value-based models in the ambulatory setting yield a collection rate of only 30 percent, meaning
70 percent goes uncollected. This is compared with fee-for-service, which has a collection rate of 98
percent. 1
Analyses of industry trends show that by 2020, the payer mix (not including Medicare) will be 55
percent fee-for-service, 15 percent value-based in ambulatory setting, 15 percent value-based in the
acute setting, and 15 percent global capitation. What this will mean to the payer yield (the amount
organizations will actually collect after leakage) is that the current 96 percent yield will drop to 85
percent.
Many factors play into how organizations are paid in a VBR model. When any of these areas are not
operating at an optimal level, it creates opportunities for leakage to occur. Currently, most organizations
are collecting between 55 and 65 percent of possible value-based revenue. The remaining amount goes
uncollected due to leakage in direct clinical care, patient experience, and structural. The largest source —
support operations — accounts for nearly two-thirds of all leakage.
DIRECT
CLINICAL CARE
This is an area of leakage that
can only be controlled by those
who deliver direct patient care. It
includes refusal of payments for
things such as hospital-acquired
infections, or the loss of an
incentive for not meeting certain
treatment measures.
STRUCTURAL
Providers are spending a lot of
money to satisfy new mandates,
such as EHR use, to set up
infrastructure in support of new
delivery networks. Incentive
programs in place to offset those
costs do not cover the entire cost
of implementation, including the
cost of technology and the loss of
productivity.
PATIENT
EXPERIENCE
In 2013, the Medical Group
Management Association’s annual
Physician Compensation and
Production Survey found 2 percent
of primary care physician pay and 1
percent of specialist pay was tied to
patient satisfaction metrics and those
percentages were expected to grow.14
Medicare is also using results from
its Hospital Consumer Assessment
of Healthcare Providers and Systems
(HCAHPS) survey to calculate value-
based pay.
SUPPORT
OPERATIONS
Every facet of support operations
has potential sources of leakage,
including patient outreach, risk-
based coding, care coordination
and admissions rules. The
conversion to VBR will require a
complete overhaul of the revenue
cycle from end to end.
20% 65%
5%10%
Leakage Sources

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© Copyright 2015, Accretive Health Inc.
Barriers to Addressing Support Operations Leakage
To be successful in a value-based model, support operations must evolve from a “reactive” approach
focused on the face-to-face care of patients, to the “pro-active” outreach, engagement and management
of patients not actively receiving care in the traditional “brick-and-mortar” setting. This means the
integration of financial and clinical operations and the simultaneous management of the fee-for-service
and fee-for-value requirements. Until that evolution occurs, organizations will continue to see leakage
originating in all areas of operations. But there are many barriers to that evolution occurring.
Research by the RAND Corp. and the American Medical Association, which included case studies of 34
physician practices transitioning to value-based models, found: “Physicians and practice leaders were,
almost universally, uncertain about the best paths forward and whether their chosen strategies would
ultimately succeed.”15
The study cited the need for more guidance and support as providers go through
this transition.
Physicians realize the need to work on patient engagement and outreach. But because of the level at
which they are being squeezed due to other mandates and administrative burdens, they don’t have the
time or resources to effectively engage patients.
The percentage of physicians able to spend more than 70 percent of their time on patient care shrank 16
percent from 2013 to 2014. And narrowing margins are making it difficult for them to take on additional
full-time employees to handle communication with patients.16
The ineffectiveness of patient outreach efforts accounts for 50 percent of support operations-related
leakage because it touches every area of the revenue cycle: the front end, middle and back end.
Communicating with patients between service encounters will help ensure they are coming in for well
and preventive service visits. Effective patient engagement also contributes to the smooth transition of
care, and a higher level of patient satisfaction.
Another area of frustration is coding. Inaccurate and incomplete coding accounts for 30 percent of all
operations leakage; about 80 percent of coding leakage occurs in the ambulatory setting. Challenges
include proper use of risk-based coding or hierarchical condition coding. Providers also lose out on
earned pay from Medicare for incomplete documentation. As an example, Medicare will not pay for
Hospital Acquired Conditions, therefore the documentation must clearly show the conditions were
present upon admission to avoid denials.17
Coding challenges will be exacerbated by the implementation
of ICD-10 and many providers do not have an audit in place to catch insufficient documentation.
It takes a high-level of expertise to optimize the coding process. A practice aimed at gaining that
expertise in-house will need to invest in talent development.
Providers also leave money on the table that is owed to them by failing to properly report and bill for
quality measures including the Healthcare Effectiveness Data and Information Set (HEDIS) and the
Physician Quality Reporting Set (PQRS). This is the source of 12 percent of operational leakage. These
programs are considered by many to be another layer of administrative burdens that are taking them
away from patients and adding to the squeeze they are feeling.

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© Copyright 2015, Accretive Health Inc.
Physician Success = System Success
Operational support leakage is the largest source of lost revenue opportunities. But it can be solved with
the transformation of the revenue cycle, and with investments that will maximize the time physicians
have with patients.
Improved efficiencies and transparency at each phase of the revenue cycle will ensure providers thrive in
a value-based world. This involves the re-engineering of the front, middle and back end of the revenue
cycle to meet the demands of a value-based system.
Front End
In a fee-for-service revenue cycle, patient engagement is primarily limited to eligibility verification,
calculating the patient’s responsibility and collecting outstanding debt. The value-focused revenue
cycle will anticipate the needs of the patient, as well as the objectives for each visit, before or at the
time of registration. Proactively engaging patients will help ensure they are receiving the necessary
preventive care and that providers are identifying any gaps in care that could negatively impact
patient outcomes or provider quality scores.
Achieving this level of engagement will require rules-based queries that help providers identify
gaps and opportunities, such as age- or condition-based tests or services, or needed chronic care
management services. The tools must also correctly attribute each patient to his or her primary care
provider, and align and reconcile all the clinical and financial data about the patient into one cohesive
record. Correct attribution will ensure that all quality gains or losses are appropriately assigned.
Middle
In a volume-based world, the middle of the revenue cycle focuses on documenting the reason
for an encounter and the medical necessity of a treatment. Systems optimized for value-based
reimbursement will be far more comprehensive in their coding capabilities and documentation.
They must also include clinical advisory services that enhance the patient experience.
The adoption of a system of checks and balances that ensures there is documentation to support
certain codes or quality reporting will result in cleaner claims and the best pay-for-performance
outcomes. Systems should have the ability to send physicians point-of-care reminders so that
relevant information is not missing in the documentation, and necessary care is not missed during
the encounters. Provider education is also key to strengthening this phase of the revenue cycle.
Physicians must know the level of detail needed in the documentation and how to correctly capture
it so the integrity of the coding process is strong.
Back End
Advanced analytics are another necessary layer of the revenue cycle in a value-based system. In
fee-for-service models, analytics focus primarily on financial metrics such as A/R, denials, collection
rates, and profit and loss. Value-based models will need to include analytics on utilization, care gaps,
collection rates and performance. Root problems contributing to leakage also need to be identified
through back-end analytics that focus on financial sustainability.
While a health system’s operational structure has three distinct elements (front, middle, back), in a value-
based model, all three elements meld together in a seamless, continuous cycle that is clinically integrated
and patient and physician-centered. An operational structure that successfully supports a VBR model
will also incorporate strategies for controlling costs and reducing waste.
When each aspect of the revenue cycle is running efficiently, the administrative burdens are made lighter
for physicians, allowing them more time to focus on direct patient care.

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Conclusion
As value-based reimbursement is slowly rolled out, providers must be prepared when their payers are
ready. But they also must survive in a fee-for-service world at the same time. If they implement too
soon, the payers may not be ready. If they move too slowly, they may be squeezed out by payers who are
moving more quickly.
Adapting to a value-based model is a time-consuming and expensive process. It requires the investment
of technology and manpower – investments many providers can only afford to make once, if at all.
Providers need solutions that are scalable to future needs or industry changes.
This is why investing in centralized support operations and scalable technology is a more sound,
cost-efficient strategy than making investments in-house that may not be a good fit in the long-run.
A revenue cycle management partner that provides these economies of scale will allow providers to
access technology, services, tools and talent they may not otherwise be able to afford. That partner will
not just focus on cost reduction, or only on a portion of the revenue cycle, it will:
• ensure cost-effective patient outreach occurs;
• strategically manage and prioritize all accounts in A/R, including denials;
• flag required clinical activities at the point of service, assuring all data needed for quality
reporting and payer contract requirements are collected;
• capture and review population health data, delivering it to the hands of providers to assist their
decision making;
• analyze and review quality data, facilitating continual improvements;
• decrease overhead by eliminating the need for full-time employees on the provider’s payroll;
• eliminate the administrative burdens associated with the rapidly changing healthcare landscape.
Although most providers realize the transition to VBR is inevitable, they need to move more quickly to
understand their own roles in this transition and make the necessary structural and operational changes.
Most realize they can’t do it alone, nor should they. A smooth transition will require the right partners
who bring the necessary expertise.
The most effective RCM partner is one that has a singular focus: the success of its clients. A good RCM
partner brings the expertise and talent needed to facilitate the transition, and positions its clients for
continued success under new payment models. By allowing the RCM partner to take on this role, it
allows providers to focus on what should be their singular focus: caring for patients.
About Accretive Health
Accretive Health aligns with provider organizations to help them navigate the rapidly-changing healthcare
industry landscape. The company supports the mission and business objectives of hospitals, health systems and
their affiliated ambulatory clinics and physician practices by deploying people, processes and technology in all
areas of the revenue cycle. It helps clients adapt their revenue cycles to simultaneously meet the demands of
both fee-for-service and value-based reimbursement models.
For more information email: contactus@accretivehealth.com

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Footnotes
1
Analysis of Accretive Health’s Data Warehouse
2
“Report Brief,” Institute of Medicine, Sept. 6, 2012
3
Annual Practice Profitability Index,” CareCloud, 2014.
4
“Medical Cost Trends: Behind the Numbers 2014,” PwC, June 2013
5
“New AMA Study: Patients Responsible for Nearly One-quarter of the Medical Bill,” American Medical Association, June 17,
2013
6
“Perspective on Patient Payments,” Medical Group Management Association, April 2010
7
“MGMA Survey Report: Medical Practices Report Increased Spending on Total Business Operations Staff,” Medical Group
Management Association, Sept. 30, 2014
8
“2014 Survey of America’s Physicians Practice Patterns & Perspectives,” The Physicians Foundation, 2014
9
“New AMA Survey Finds Insurer Preauthorization Policies Impact Patient Care,” American Medical Association, Nov. 22, 2010
10
“How Much is This Going to Cost Me?” HealthIT.gov
11
“JAMIA: EHR implementation results in increased revenues, but reduced productivity,” Clinical Innovation+Technology, Aug.
28, 2014
12
“The Expense of the ICD-10 Conversion,” Health Capital, December 2011
13
“Better, Smarter, Healthier: In Historic Announcement, HHS Sets Clear Goals and Timeline for Shifting Medicare
Reimbursements from Volume to Value,” Department of Health and Human Services, Jan. 26
14
“Ouch! Patient Satisfaction Hits Physician Pay,” Forbes, July 2, 2013
15
“Effects of Health Care Payment Models on Physician Practice in the United States,” RAND Corp./American Medical
Association, March 2015
16 “
Survey of America’s Physicians,” Physicians Foundation, 2013 and 2014
17
“Hospital-Acquired Conditions and Present on Admission Indicator Reporting Provision,” Medicare Learning Network,
September 2014