Meaningful progress has been made in value-based care, but the documented advances in reducing costs and improving patient outcomes have taken place predominately in the primary care sector. Significantly less headway has occurred in specialty care. But to be sustainable the value-based initiatives have to connect the primary care and specialty care.

Primary care providers (”PCPs”) typically represent a patient’s constant and most trusted relationship within the healthcare system, providing not only routine advice and counseling on a myriad of health issues, but also serving as the principal care coordinator when it comes time to involve a cardiologist, orthopedic surgeon, oncologist or other specialty provider. While significant positive changes have occurred in primary care through value-based payment models, PCPs represent only a small fraction of total cost of care.

Indeed, specialty care represents over 60% of total medical expenditures in America and accounts for more than 90% of total medical professional expenses[1]. For the most part, specialists are still doing business under traditional fee-for-service payment models. That is, most specialty care providers continue to be financially rewarded based on volume, rather than quality outcomes.

The integration of PCPs and specialists is a critical step (and an enormous opportunity) in value-based care program development and growth. With PCPs and specialists connected and coordinated, patient care can move from a disjointed, slow process to an integrated patient journey that includes earlier diagnosis, quicker access to the right providers, improved patient outcomes and greater opportunities for total cost of care reduction.

Integrating specialists with PCPs is, however, something of a conundrum due to a number of dynamics:

• Accountable care organizations, Medicare Advantage Plans and other at-risk PCP arrangements (collectively, “PCP Risk Arrangements”) typically use patient attribution to designate which provider receives capitation payments;
• PCPs are only able to manage a small percentage of a patient’s total cost of care (“TCOC”);
• Current capitated arrangements between PCPs and specialists are at best only notional and do not truly set a defined chain for managing and owning TCOC risk; and
• Under current financial arrangements, specialists, who control most of the TCOC, are not incentivized to work to reduce costs.

With respect to attribution, PCP Risk Arrangements are hesitant to bring specialists into the mix for fear of losing the monthly capitation payments associated with the patient. For example, in the nephrology space, once a Medicare patient engages in full-scale kidney care, the patient will typically be attributed by CMS to the specialist, and the PCP loses the entire capitation payment. Additionally, once a PCP refers a patient to a specialist, little to no information ever makes its way back to the PCP. And if the PCP is participating in a PCP Risk Arrangement, then the specialist’s charge under a fee-for-service basis (“FFS”) impacts the PCPs benchmark and shared savings.

Under current financial arrangements, typically the PCP Risk Arrangement provides for participating specialists to agree to a small percentage FFS reduction for their services in return for the expected volume of referrals from the PCPs. Current arrangements with specialists are at best notionally capitated, with claims ultimately paid out on FFS basis. While the savings from even minor FFS discounts from specialists will drop straight to the bottom line for the PCP Risk Arrangement, a minor FFS discount in return for patient volumes is generally not meaningful for the specialists, and with no conditions attached will not motivate them to do anything different than they are currently doing. For specialists to get motivated to bend the cost curve, they need to work across a significant number of patients’ lives and be compensated through a value-based arrangement that aligns with the PCP Risk Arrangement to lower the cost of care across these lives.

Payers recognize the gains that have been made as a result of PCP Risk Arrangements and realize the next big opportunity lies in specialty care. And increasingly, sophisticated specialty providers realize the potential of participating in similar risk- and value-based arrangements. Left unmanaged, specialists will start going directly to payors and leave PCPs out of the process. As a result, a PCP Risk Arrangement may be forced into partial- or sub-capitation solutions that carve out specialty care and the PCPs may lose control over attribution decisions.

Fortunately, there is a solution! The way to overcome these problems is to use a value-based enterprise (“VBE”), creating a low-risk regulatory environment to develop mutually beneficial integrated contractual relationships between PCPs and specialists. The concept of a VBE emerged from the new Stark Law[2] and Anti-Kickback Statute[3] (“AKS”) regulations that were finalized a few years ago. A VBE may be established as a separate, intermediate entity that will serve as a contracting vehicle. The VBE acts as a hub to plug providers into new Stark exceptions and AKS safe harbors. These new rules are designed to protect compensation relationships for providers who are collaborating through a VBE to achieve value-based care purposes by permitting providers to enter into participation agreements with the VBE to participate in its activities.

The new Stark exceptions and AKS safe harbors are designed to work in tandem. Both set forth four permitted purposes. Providers will qualify for these new rules if the VBE activities are designed to accomplish these purposes, which are (i) care coordination, (ii) improving the quality of care, (iii) reducing the cost of healthcare expenditures to payors without reducing quality and (iv) transitioning providers from FFS to value-based payment arrangements. These rules are designed to accelerate the transition of providers from FFS payments to value-based payment arrangements by relaxing the regulatory standards, and they are available to PCPs and specialist alike.

A VBE is unique, as the new rules permit and encourage participating providers to experiment and create their own value-based initiatives and activities. No protocols or steps are prescribed. In effect, the VBE can serve as the participants’ own “Innovation Center” to allow for the creation of protocols and care processes designed to achieve high-quality, lower cost outcomes.

A VBE is required to have a governing body that defines the purposes, activities, and protocols of the VBE and monitors the achievement of quality and efficiency standards that the providers are working towards to realize higher-quality outcomes.

There are basically three models within the regulatory framework that are designed to transition providers from FFS to risk-bearing value-based contracts. These are the Care Coordination Model, the Partial-Risk Model and the Full-Risk Model. It is important to understand that you don't have to migrate to the Full-Risk Model to achieve the full protections of these new rules. There are significant protections under the Care Coordination Model, and one can obtain full protections by migrating to the Partial-Risk Model.

Some of the significant benefits of the new Stark and AKS rules when utilizing a VBE, which are substantial departures from the classic Stark and AKS rules, include:

1. One party to the VBE can subsidize care coordination expenses of another party.
2. There is no fair market value requirement for compensation paid to a provider for participating in the VBE activities.
3. There is no prohibition on compensation varying with the volume or value of referrals for compensation paid to a provider participating in the VBE.
4. Profits from ancillary services can be paid directly to physicians in group practices who are participating in the VBE even if payments are made in direct proportion to referrals (if facility or ancillary service referrals are made for value-based purposes).
5. Participating providers may be required to refer patients to other participants in the VBE (including facilities), except where a patient chooses another provider, or the patient's medical interests will likely be served better elsewhere.
6. The new rules can wrap around and expand protections for other programs (ACO, CIN, Innovation Center Programs, etc.).

If properly operated, a VBE can provide protection from an AKS violation for activities conducted through the VBE even when the transaction doesn't fit within an AKS safe harbor (due to differences in the Stark and AKS standards). This aspect makes the VBE even more useful when trying to mitigate regulatory risks.

So how can you leverage a VBE to create mutually beneficial relationships between PCPs and specialists? The answer is clear. The PCP Risk Arrangement should embrace owning PCP patient attribution, pursue capitation payment arrangements, contract with high quality specialists, and pay those specialists in a value-based arrangement to significantly reduce costs while improving the quality of outcomes. By doing so, the PCP Risk Arrangement will have more control over the total cost of care (a significant portion of which PCPs do not directly control because of the costs imbedded in specialty care) and can derive more savings than it will by requesting minimal discounts (i.e., 5-10%) from specialist’s FFS rates. The VBE provides the perfect vehicle in which to develop these contractual relationships because it creates a low-risk regulatory environment.

Specifically, through the VBE the PCP Risk Arrangement using the Care Coordination Model and a care management plan can accomplish the following:

1. PCPs steer patients to high quality specialists participating in the VBE (“Specialists”).
2. The Specialists work with the PCPs during the diagnosis phase (including virtual consults between the Specialists and PCPs to keep the diagnosis at the PCP level where the work can be performed more efficiently) and develop protocols for efficient patient referral and transition, including post-procedure communication and follow up. This step also maintains PCP attribution and minimizes patient leakage and improves the patient experience through better coordination.
3. The VBE develops protocols and processes to significantly improve quality and lower costs for specialty care (this can include directing referrals to specific providers or facilities that are deemed able to provide higher quality, lower cost services), which both the PCPs and the Specialists agree to abide by.
4. The PCP Risk Arrangement, via the VBE, pays the Specialists for their work in the diagnosis and cost management phases under a value-based arrangement that includes incentives designed to control costs and produce improved patient outcomes (initially under a shared savings model but evolving over time to partial- or full-risk procedural and total cost of care models).
5. The VBE can aggregate multiple PCP Risk Arrangements within the VBE to gather a large pool of covered patients, so that Specialists can effectuate meaningful changes in quality and cost of care, and the VBE can also build a network of participating specialists to present to PCPs in manageable, scalable manner.

If implemented correctly, using sound data and a concerted, integrated PCP and Specialist effort, the VBE is positioned to deliver high quality patient-centered solutions designed to reduce and control costs and deliver best-in-class outcomes.

For more information on the topic of value-based enterprises, please contact one of our authors. Ed White is the Co-chair of Nelson Mullins Value-Based Care Group and practices in the areas of corporate, partnership, healthcare, taxation, and nonprofit law. Mike Segal is the Co-chair of Nelson Mullins' Value Based Care Group and practices in a business management environment. Robert Ball serves as General Counsel and Chief Privacy Officer at Enlace Health, where he manages all legal, regulatory, privacy compliance and legislative policy matters.