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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 proven 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 shifts payment structures to reward patient-oriented outcomes, can lead to long-term growth for health systems willing to transform their operations. The analysis suggests that while VBC contracts may initially disrupt financial performance, they can ultimately enhance cash flow and improve financial outcomes by increasing clinician accountability for patient outcomes and promoting cost-effective care delivery. The analysis also highlights that hospitals with thin margins and rising costs are often hesitant to adopt VBC due to the required upfront investment and the potential for short-term financial decline. However, systems with strong financial health and a commitment to transformation can navigate the challenges of VBC adoption. Key strategies for successful implementation include focusing on patient attribution, accurate risk coding, optimizing care management, controlling operating expenses, and ensuring physician alignment and governance. In summary, while the transition to full risk for managed populations may not be suitable for every health system, those that develop a clear strategy and transform their operations to target new financial performance drivers can mitigate initial margin disruptions and benefit from the long-term growth potential of VBC.
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