[co-author: Matt Wolf, RSM US LLP]

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference discusses reimbursement trends for healthcare cacilities. It is authored by our colleague Ben Petitto and Matt Wolf of RSM US LLP.

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Investors in healthcare facilities – namely health systems, hospitals, long-term care facilities, surgery centers and behavioral health facilities – face many challenges in the current march towards value based care and payor integration but healthcare facility investments can still succeed in this environment if healthcare facilities diversify their specialty practice areas and commit to a forward-thinking payor contracting strategy, according to experts who spoke on a panel at the Annual Healthcare and Life Sciences Private Equity & Finance Conference in Chicago on February 20th.

Experts included Tushad Driver, Vice President at Gray Matter Analytics, Inc., Conor Green, Partner at TT Capital Partners, LLC, Brian Fortune, President at Farragut Square Group, and Michelle Werr, Principal at HealthScape Advisors, LLC. Matt Wolf, Director and Health Care Senior Analyst at RSM US LLP moderated the panel.

Here are three key points from the panel discussion.

1. Successful healthcare facilities are moving quickly to build strategies around value-based payor contracting. Blue Cross Blue Shield of North Carolina recently announced they would be instituting value-based contracts with all five major hospitals in North Carolina. Due to the dynamic nature of this new wave of value- based reimbursement and narrowing networks, healthcare facilities must critically evaluate which payors to target so they do not end up in a losing arrangement. The most successful value-based or bundled programs are excellent at standardizing care across an episode of care. Coordinating providers and facilities throughout the patient’s episode of care is key to achieving this crucial standardization. The panel agreed that while fee for service contracting is not going away anytime soon, the time is now for healthcare facilities to be evaluating potential relationships with payors for value-based care.

2. Payors are demanding that healthcare facilities provide more than just scale and a contractual partner; they want to see facilities adding value in other areas of the relationship. They want facilities to develop a varied reimbursement stream, provide risk management, and increased clinical effectiveness and efficiency. All these value-added functions are especially able to drive synergies in the bundling and population health arrangements and they can assist in aligning goals between the parties.

3. Healthcare facilities must continue to focus on high performing providers and diversity of specialties in order to receive the best possible reimbursement contracts with private payors. As younger physicians enter into private practice, they are less interested in the hassle of owning their own practice and more likely to seek out employment by a large group (either a physician group or hospital-based group). Healthcare facilities must be able to attract these doctors to their platform by offering a more balanced lifestyle and long-term incentives. Having a wide diversity of specialties is also attractive to payors when negotiating with healthcare facilities. The diversity of reimbursement streams is desirable for the facility investors, and the payors value the choices they can provide to their members in these networks. Some specialties such as dermatology, allergy, and ophthalmology may even allow healthcare facilities to break into cash pay and completely bypass the payors in some cases.