A value-based enterprise (VBE) is not a complex new physician alignment model. In essence, a VBE can be used to construct a value-based framework around many existing physician alignment strategies. VBEs can be built from existing employment arrangements, professional services arrangements, or hospital coverage arrangements. Despite the “enterprise” nomenclature, a VBE does not need to be complicated, and you certainly do not need to form a new legal entity to develop a VBE. In fact, a VBE can be as straightforward as a value-based arrangement between two parties, such as a hospital and a physician.
One of the most daunting challenges in adopting risk-bearing payor contracts is the notion of aligning physician behavior with the new economics of value-based care. Value-based enterprises can help facilitate this transition for physicians before the hospital or health system assumes a significant amount of risk from payors. In fact, you can even utilize the flexibilities of VBEs if you don’t yet have any risk-bearing payor contracts. As long as the related value-based arrangements are structured to meet applicable regulatory requirements, the compensation provided under those arrangements can utilize the new flexibilities offered by the VBE model.
Value-based agreements in risk-bearing VBEs do not have the typical limitation that precludes compensation from varying with the volume or value of referrals. This flexibility permits compensation plans, particularly incentives, to be structured in ways that most professionals in the provider compensation space never imagined possible. For example, assume a particular treatment protocol has been demonstrated to yield better outcomes for a particular disease than another similar treatment protocol. A VBE designed to improve quality could reward a provider for ordering the first protocol over the second. Alternatively, if an expensive test has been shown to have no meaningful impact on outcomes in certain situations, a VBE designed to reduce costs could incentivize a provider to not order that test in the appropriate circumstances. Additionally, participants in a VBE generally can be required to direct referrals of the target patient population within the VBE, subject to the usual limitations of patient choice, physician decision making, or insurance requirements.
A core requirement to establish a value-based enterprise is that the parties collaborate on a “value-based activity,” which can include providing an item or service, taking an action, or refraining from taking an action. Importantly, value-based activities must be designed to achieve at least one “value-based purpose.” In the context of VBEs, the Centers for Medicare and Medicaid Services (CMS) and the Department of Health and Human Services Office of Inspector General (OIG) highlighted four permissible value-based purposes in the new value-based exceptions set forth in the Physician Self-Referral (PSL) Regulations [i], commonly referred to as the “Stark Law”, and the value-based safe harbors set forth in the Anti-Kickback Statute [ii]. Those enumerated value-based purposes include:
[i] United States, Department of Health and Human Services, Centers for Medicare and Medicaid Services, “Medicare Program; Modernizing and Clarifying the Physician Self-Referral Regulations.” 85 Fed. Reg. 77492
[ii] United States, Department of Health and Human Services, Office of Inspector General, “Medicare and State Health Care Programs: Fraud and Abuse; Revisions to Safe Harbors Under the Anti-Kickback Statute, and Civil Monetary Penalty Rules Regarding Beneficiary Inducements.” 85 Fed. Reg. 77684 (December 2, 2020)
The value-based enterprise structure was created to facilitate relationships with and between healthcare providers in a value-based world. The flexibilities introduced by the VBE structure not only permit, but encourage, the creation of value by VBE participants. Value occurs, in part, when all members of a care team perform work that utilizes the entirety of their skills and maximizes each individual’s contribution to better health for the patient. For physicians, that may mean focusing most, if not all, clinical activity on patient-facing encounters and complex medical decision making. Many physicians will tell you that is the work they wanted to do when they chose to attend medical school. VBEs enable optimal care team workflows by removing the constraints of individual productivity (at least in the contemporary definitions of provider productivity) or demonstrated FMV compensation.
The same flexibilities afforded by value-based enterprises that help reduce provider burnout can also offer novel solutions to reducing health disparities. Current compensation systems often penalize financially those providers who are willing to care for underserved populations. As they manage both clinical complexity and social risk factors, both their efficiency and their achievement of traditional quality metrics often suffer. Such providers frequently find themselves doing the most difficult work but earning far less than their peers who practice in affluent or middle-class neighborhoods. The compensation flexibilities inherent in the VBE framework permit healthcare organizations to “level the playing field” in pay for those providers willing to dedicate their work to improving the health of vulnerable patient populations.
CMS and OIG concluded that the value-based enterprise structure greatly reduces the incentives for overutilization. Accordingly, both agencies significantly relaxed the typical compensation arrangement requirements of fair market value (FMV) and commercial reasonableness for value-based arrangements. This relief reduces the compliance risk of the arrangement and the cost and time associated with ensuring compliance. For example, payments made to participants in risk-bearing VBEs for providing value-based activities are assumed to be consistent with FMV and, therefore, do not require FMV analysis or documentation. Risk bearing value-based arrangements are also considered to be commercially reasonable on their face.
Care coordination VBEs, which permit in-kind compensation only, offer a unique solution to the resource challenges provider groups often face as they attempt to assume reimbursement risk from payors. The added expense of the infrastructure resources needed to succeed in value-based care often serves as a hindrance for such groups. However, in cases where a provider group is collaborating with a hospital or a health system to achieve certain quality or cost objectives, the hospital or health system has the ability to subsidize information technology and personnel resources that employed and independent practices need to successfully achieve the VBE’s value-based purpose. The provider group must cover only 15 percent of the cost of such resources.
The value-based regulations permit a hospital, health system, or medical group to form a value-based enterprise with one or more licensed providers. Specifically, VBE participants can be any type of licensed provider, including physicians, advanced practice providers (APPs), psychologists, clinical social workers, therapists, nurses, and technologists, noting that the Physician Self-Referral Regulations obviously apply only to relationships with physicians. Additionally, the regulations do not limit VBE participation to any particular type of relationship, so VBEs can be formed with employees, independent contractors, or both.
The value-based activities that are performed within value-based enterprises must be reasonably designed to achieve the VBE’s value-based purpose(s). In other words, the VBE participants must believe that performing those activities produces a reasonable chance of realizing the VBE’s objectives. In some instances, a VBE must specify process or outcome measures to gauge its progress toward those objectives, monitor its performance relative to those measures, and may alter the value-based activities if it concludes they are not likely to achieve the VBE’s purpose(s) as currently designed. That said, if it turns out that well-designed value-based activities simply failed to achieve the desired outcomes at the conclusion of the value-based agreement term, the VBE has not created any regulatory risk.
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