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Hospital leaders increasingly face a decision to invest in value-based care (VBC) models that can improve patient care and curtail unsustainable systemic costs. The transition to risk-based contracting has proved unworkable for many health systems over the past decade, but the need for a renewed focus on VBC is pressing due to continued reimbursement pressure and rising delivery costs exacerbated by the COVID-19 pandemic. The Centers for Medicare and Medicaid (CMS) and the Center for Medicare and Medicaid Innovation (CMMI) are encouraging hospitals to adopt VBC arrangements to enhance the quality and coordination of care. EY-Parthenon analysis indicates that VBC risk contracting, which rewards patient-oriented outcomes, can lead to long-term growth for health systems willing to transform their operations with a well-defined financial strategy. The analysis highlights that VBC contracts can alter the traditional revenue engine and margin profile of a hospital system compared to fee-for-service (FFS) contracts. While there may be short-term financial disruptions during the transition, the potential for steady margin recovery exists as systems mature in their VBC capabilities. The analysis also identifies key areas for health systems to focus on during their VBC adoption to mitigate financial risks and enhance their chances of success. These include growing patient attribution, ensuring accurate risk coding, optimizing medical management and site of care, managing operating expenses, and aligning governance and physician engagement. By prioritizing these areas, health systems can better manage the total cost of care for at-risk populations and improve their financial performance over time. In summary, while the transition to full risk for managed populations may not be suitable for every health system, those that develop a coherent strategy and transform their operations to target new financial performance drivers can navigate initial margin disruptions and potentially benefit from the long-term growth opportunities that VBC presents.
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