Episode 51: Leveraging Value-Based Enterprises to Create Business Model Flexibilities with Luis Argueso of InHealth Advisors

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In this episode you’ll discover:

  • A simple definition of a value-based enterprise 

  • Why are Value-Based Enterprise arrangements very well suited to digital health companies? 

  • How Value-Based Enterprises reward teamwork between organizations

Keep scrolling for a transcript of this episode.

Key Takeaways

  • A value-based enterprise or VBE, is essentially a regulatory construct that permits substantial freedom in how organizations can pay providers for services. That freedom is gained in exchange for adhering to certain requirements around the relationship between the parties and how providers participate in value-based care initiatives. 

  • Digital health companies come from the tech world, and the tech world is all about subscription-based revenue. Payment based on a capitated model is one of the explicitly contemplated types of payment systems within the value base enterprise exception. Digital Health Companies have a leg up on other businesses because they're working within that capitated framework.

  • The promise of value-based enterprises is that they really reward the organizations that are able to get together and work as a team. The government has recognized this and has built constructs that allow people to dip their toes in the water and explore to see how it works and maybe build something better. 

Learn more from Carrie and Rebecca: 

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Website | Carrie on LinkedIn | Rebecca on LinkedIn | NGL on LinkedIn

 
 
“I discovered a lot of things that I think make value-based enterprises very well suited to digital health companies. They have a leg up on other businesses because they work within that capitated framework. A lot of the benefits that come with being a tech-oriented business can carry over into that quality accountability type world.”
— Luis Argueso
 

Read the transcript

Rebecca Gwilt (00:01):

You are listening to Decoding Healthcare Innovation with Carrie Nixon and Rebecca Gwilt. A podcast for novel and disruptive healthcare business leaders seeking to transform how we receive and experience healthcare. Welcome back to Decoding Healthcare Innovation. Today, both Carrie Nixon and I are hosting the pod. Hey Carrie.

Carrie Nixon (00:24):

Hey Rebecca. We haven't done this in quite a while together. I'm excited.

Rebecca Gwilt (00:28):

Yes. Yeah, I'm super excited. I know this is a topic we've both been thinking about for a while. For those of you who may have forgotten, Carrie and I are the co-founders of Nixon Gwilt Law, where we help digital health companies navigate law and policy to build great businesses. Today I'm delighted to share the pod with Luis Argueso, partner at InHealth Advisors, self-described expert in value-based care, and new dad. Welcome to the pod, Luis.

Luis Argueso (00:53):

Thank you for having me, Carrie and Rebecca.

Rebecca Gwilt (00:56):

Yeah, so Luis and I met at a lawyers conference. If you attended one, it's not exactly BravoCon. Very serious topics, very serious people. But Luis did a really creative spin on his presentation rooted in ancient Rome, maybe Latin phrases. What was that, Luis?

Luis Argueso (01:17):

I tried to make the content a little fresh. Like you said, when you have a room full of attorneys, oftentimes the temptation is to get straight to the law and the details and I just wanted people not to doze off. Especially since it's a topic that can have a lot of nuance, especially when it comes to the regulations and getting into the details of what's required there.

Rebecca Gwilt (01:39):

Yeah, yeah. So even if I wasn't interested in the topic, it was a very creative spin and kept me rooted and excited to jump into it. Today we'll probably go less deep than we did on the legalities there cause I really want to talk about how this is happening in the real world. So anyway, what I've gathered from the presentation was that Luis has been thinking through something Carrie and I have been thinking through for a few years since they were introduced. And that is the newish concepts of the value-based enterprises in particular. I want to explore today what they are, how companies can leverage them to create some flexibilities in their business model and still avoid the scary Stark and Anti-Kickback implications. So I'm excited to jump right into it. You ready?

Luis Argueso (02:33):

Absolutely.

Rebecca Gwilt (02:34):

All right. So completely non-legal terms. Just give us a high level understanding of what a value-based and value-based enterprise is. And we're going to call this a vbe E for short, but what is a value-based enterprise?

Luis Argueso (02:49):

Yeah, absolutely. So a value-based enterprise or vbe is, it's essentially a regulatory construct. So a business, although the requirements to create aren't necessarily as formal as forming a business, but it's a construct that permits substantial freedom in how an healthcare organization can pay providers for healthcare services. And that freedom is gained in exchange for adhering to certain requirements around the relationship between the parties and how the providers of healthcare services are participating in value-based care initiatives. So doing things like improving quality for patients or controlling the cost of healthcare. So in exchange for participating in those initiatives, you get a little more freedom in terms of how you can pay providers. And this comes within the framework of the Stark Law and anti-kickback statute that governed all sort of payment relationships between healthcare entities

Carrie Nixon (03:46):

And Luis. This the stark and anti-kickback statutes are really kind of the bane of lawyers' existence and maybe non-lawyers alike, right? Because they impose some significant constraints on the types of arrangements that healthcare providers and entities that facilitate healthcare and healthcare payers can enter into, and even to the point of really stifling new and innovative ways of providing care and paying for care. So the Anti-Kickback Statute and Stark, I believe, were really created in a construct around a fee for service model. And it seems to me as we've shifted and as we're trying to shift to value-based care, these new Safe Harbors are an effort to free up to some of those constraints and to allow for some new and innovative types of arrangements and business relationships that frankly are typically allowed in any other sort of industry, commercial industry, but are typically prohibited in healthcare. Is that sort of keeping with how you are viewing these?

Luis Argueso (05:02):

Yes, absolutely. So my background is in economics and it's all about incentives. So in the fee for service world, the incentive is to do more. And of course if your incentive is to do more is to go to payers and say that you've done a large number of services to get paid more, well, there's always then bad actors, the small percentage of the bad apples out there that are going to try to take advantage of that system. And so the stark in anti-kickback statute are essentially the protection that the government has tried to build into the fee for service world to make sure that entities aren't being, aren't engaging in fraud, waste and abuse. What's neat about value-based care and something that the government recognized with these value-based enterprises is that if you do them, that is if you build the structure for compensating folks for delivering good value-based care correctly, a lot of the concerns that were associated with fraud, waste and abuse around fee-for-service medicine go away.

(06:00):

And so the value-based enterprise construct was designed to say, all right, let's take those bits and pieces of value-based care that essentially have in-built protections in them. Let's make them requirements of these value-based enterprises. And let's say that if you do that, then we no longer hold you to a lot of the very high and complex standards that are associated with the Stark and antique back statute demonstrating fair market value, like demonstrating commercial reasonableness, like prohibiting any sort of payment based on the volume or value of referrals, which as you mentioned, are things that in any other context or any other industry are just norms.

Rebecca Gwilt (06:36):

And you mentioned that this was, that this is particularly applicable for healthcare systems that want to pay their providers in a more sort of creative way to align incentives. Have you seen any other applications of this other than getting around physician comp?

Luis Argueso (06:54):

Most of it focuses on physician payment. And I would add to that description that the idea around, all right, let's say we have an existing relationship with a provider. I'm a healthcare organization now, and noting the status of healthcare organizations nowadays, especially large systems, difficult financial times for them, they're having a lot of cost pressure. At the same time, physician practices are seeing a lot of that as well, but your payers are may not necessarily be sort of in the same boat. And so you have health systems and they're affiliated providers get together and say, look, we think that we can do better for our patients while at the same time controlling the cost of care, but that's going to take a lot of effort on our part and we want to make sure that doing that is something that we can receive is some activity from which we can receive financial reward.

(07:45):

So I think a lot of the conversation around these value-based enterprises is finding ways to say, all right, we know it's going to take some upfront lift for us to develop a value-based care program, but we know that by doing so, we can demonstrate consistent benefits to patients in terms of the quality they receive and benefits to payers in terms of controlling the costs. So it's really a negotiating tool that those two parties can use and then take to payers to say, look, we've already demonstrated through this value-based enterprise that we have a framework in place that holds our providers accountable. We can match this framework to a lot of the same sort of initiatives that payers are targeting. They payers are evaluated based on their hees measures. A lot of those measures carry over into things like MIPS measures that physicians are held accountable to through Medicare. So a lot of the existing infrastructure is there in these organizations. It's tracked, it's a matter of pulling in all the different bits and pieces together to create something that's more formal so that you can really start to do things like generate shared savings and share and the financial benefit through those shared savings between those organizations and providers.

Carrie Nixon (08:53):

So Luis, I think you and I share the belief that these V B E arrangements can provide a real opportunity for digital health companies who usually frankly are not really allowed to be directly involved in the mix with getting reimbursed for care. They can provide a service and get a fee for it, but they're not really involved in moving the needle on costs and care directly. Talk a little bit about your views on how these V B E safe harbors and B B E arrangements might really benefit digital health companies and the healthcare providers that they work with.

Luis Argueso (09:41):

It's a great question and one that I have a lot of thoughts on. In a prior life, I did a lot of work with digital health companies getting into the nitty gritty of their business plans and in particular helping them navigate the rules around corporate practice of medicine and finding payment streams between the professional corporation and the telemedicine entity itself. I won't dive into the details there. That's something that Rebecca covered very well in her presentation at the conference we were at. But nonetheless, in doing that, I discovered a lot of things that I think make value-based enterprises very well suited to digital health companies. The first thing that I'd say, and the biggest and most important thing is a lot of digital health companies come from the tech world. They're kind of the splicing of the tech and healthcare industries and the tech world is all about subscription based revenue.

(10:30):

So revenue streams that are derived by taking a fixed revenue number per a customer, however you might envision it, and finding a way to generate a scalable business off of that fixed revenue stream. And quite fortunately, for digital health companies within the context of healthcare, that idea of a subscription fee revenue is basically, essentially what capitation is. Capitated reimbursement effectively is taking either all the care that's provided to a patient or some subset of that care and turning it into a regular per patient per month payment. And many of the telemedicine businesses that I worked with, either they directly had contracts with payers that were capitated, they were reimbursed on a per patient per month basis for the services that were provided or for the purposes of budgeting. They basically looked at the revenue streams on a per patient per month basis. So why is this important in the context of value-based care?

(11:27):

Well, capitation is one of the payment based on a capitated model is one of the explicitly contemplated types of payment systems within the value-based enterprise exception that enable an organization to meet the exception. And that oftentimes is a big headache for a lot of healthcare provider organizations because for decades they've been used to the fee for service world where they're looking at trying to find and maximize the amount of codes that they can bill for a service. Well, that's flipped when it comes to digital health companies working within a capitated framework. So already from the revenue that they take in from the basis of how they're generating revenue to be a sustainable business, they have a leg up on other businesses because they're working within that capital capitated framework. So that's kind of prong one. Prong two then is participating within value-based care is heavily driven by quality metrics.

(12:24):

And a lot of the benefits that come with being a tech-oriented business can carry over into that quality accountability type world. So a lot of these digital health companies already have in place platforms that are capturing a lot of the data that feed into determining the quality of care that their services delivering. So they already have the tech infrastructure that's needed to make value-based care a success for their organizations. And so they're able to capture a lot of the information that either a payer wants to see or their partner healthcare organizations want to see in order to determine whether or not the quality of care that's being delivered is there or isn't there. And kind of a sub prong to that coming from the tech world as well is there's a lot of focus within digital health on consumer experience. So I did a lot of work with direct to consumer companies, and they did a great job in terms of having a website or platform that were very user-friendly. And these are things that also carry over well into value-based care, whether you're talking about measuring patient satisfaction scores, things of that nature. So from those two prongs, I would say digital health, unlike many other healthcare organizations out there, are really built on the foundation of looking at things on a capitated basis and working with data analytics that can easily be flipped into some sort of quality program that can be tracked and compensation can be tied to it.

Carrie Nixon (13:51):

And in the end, these digital health companies can actually end up making more revenue than they otherwise would have if they were just providing the services fee on a per patient per month's fee for service basis. So my presumption is once you have the data to know that your intervention, let's say it's a remote patient monitoring company that's doing, that's monitoring for hypertension, once they've really nailed care management for hypertensive patients and how to move the natal on costs and outcomes, they can do that on a fee for service basis, but if they go into a value-based arrangement, they actually then have the opportunity to go at risk and to even earn a little bit more. Is that right?

Luis Argueso (14:42):

Yeah, that's absolutely correct. So the first thing I'd say is from the payer perspective, if you look at all these value-based programs and capitated programs, the starting point is always, where are we at now today with fee for service? And so that's looking at what's the cost per patient using the existing utilization? Well, because of the incentives built into the fee for service model, there is kind of inbuilt into it some waste that can be addressed by these digital health companies in bringing their tool or service to the patient. And so really, at least the digital health companies that I've worked with, and I'm sure the ones that you worked with, they're built along the concept of scale scalability. And that's something that is an excellent concept to apply to when you're working within a capitated reimbursement framework because you can say, Hey, look, historically these patients have been costing you a hundred dollars per patient per month.

(15:38):

We're going to come in and contract with you on a $90 per patient per month basis. And if we're able to save $10 per patient and we're able to consistently save $10 without Dimi ion quality let's you and I share $5 of that revenue nut. Well, as that business grows and as the number of covered lives within the organization increases, then the business is able to leverage their scale. And now all of a sudden we have a little more of a revenue base that we can use to fund maybe enhancements to our care platform that further increase our ability to reduce costs, say for example, by splicing in predictive analytics that allow us to identify the really high risk patients that might be at risk for say things like costly events like readmissions and ED utilization and things like that. So it's one of those things where you can start, like you said, at a better revenue position and even leverage it further as the organization scales upwards.

Carrie Nixon (16:37):

So we mentioned briefly that a value-based enterprise requires value-based participants, value-based participants, and that includes a payer who is somehow sort of at risk, which most are in general, but in some sort of risk-bearing relationship. And it also requires providers of course. And then it can include things like digital health companies or vendor companies that are participating as well. Those are it, it can be hard to get those participants, the participants coming from different angles to align around what an arrangement looks like or should look like. How do you think about that? How do you first of all get those participants together and then how do you get them aligned on what they're trying to do?

Luis Argueso (17:33):

Yeah, it's a great question. One of the things that I did in the presentation that Rebecca mentioned off the top is kind of talk about the state of the healthcare industry and highlight a couple of statistics. One of the big ones that really stood out to me is I think if you look at surveys nowadays, over half of providers are reporting that they have a lot of burnout. And on top of that, you're looking at healthcare organizations and their profit margins and things are, especially nowadays, are very challenged. So I think the place to start the conversation is what problems can this value-based enterprise solve for us to motivate us to sit down together at the table, to come up with a business plan that's mutually beneficial for everyone? And I can come at it from a couple of different angles. The loss aversion angle that I come at it with is if you're having difficulty getting providers to have a seat at the table, the first thing I'd say to them is payers are figuring out how to succeed in value-based care.

(18:33):

If you look at whether it's an organization like Optum or now, you know, had the Kaiser's kind of joint venture with Geisinger, organizations are figuring out how to meld the insurance and provider side of things to really benefit from things like shared savings on top of the payers, though you even have health systems that are more and more entering into these value-based contracts. You can look at some of the Medicare's innovation models. So you provider group don't want to be the last person at the table when it comes time to figuring out how to divvy up the benefits of providing high value care, especially since you provider are oftentimes the person most directly involved in achieving those outcomes. So I think a lot of it is getting seats at the table exercise, and then it's a change management exercise. It's a exercise of saying, how do we see this as an opportunity for us, ensure health system payer to work together?

(19:32):

Because oftentimes there can be a tendency to view each other as adversaries. The promise of value-based enterprises is that they really reward the organizations that are able to get together and work as a team. Now, the nice thing about value-based enterprises that the government recognized is that that's not going to happen overnight. And so they have built into the exceptions, some of those transitional exceptions where, for example, the Antica back statute has what's called a care coordination exception, where revenue doesn't necessarily have to be at risk, but a healthcare system can do something like contribute infrastructure to a provider group that is going to enable them to participate in value-based care. So it can do things like contribute care coordinators or health infrastructure, health, health information technology infrastructure to help the practice get in place the systems and processes that are needed to succeed. And it can do that at a discounted rate.

(20:30):

Under that exception, the provider groups only responsible for paying at least 15% of the cost of those contributed in kind forms of remuneration. So I think that's a big way that you can get folks at the table together is to say, look, we may not be able to right off the bat, but built into the value-based enterprise are these constructs that allow us to dip our toes in the water and explore and see how this works and maybe build something better so that down the road we can start to take on that reimbursement risk and really benefit from the shared savings we generate through it.

Rebecca Gwilt (21:04):

Yeah, I recall, Carrie, we had a client probably five years ago that that was exactly their model. They wanted to go into hospitals, offer their digital health solution at a discount to other healthcare providers to improve care coordination and the handoff between at discharge to s sniff to home health, et cetera. And we had to tell them it was quite risky. There were no exceptions. And so this is exactly the kind of thing that these new safe harbors are enabling. One thing that is occurring to me as I'm listening is if I had never heard about this, I would be saying, what in the world is the lift for this? Right? Because a lot of these companies are familiar with what it takes to become an aco, for instance, or a clinically integrated network, for instance, which is an enormously high bar, big undertaking, big costs. It's my understanding that the creation of A V B E is a much lower bar in terms of level of effort. The kinds of quality improvements can be as simple as one metric, for instance, that the companies are working together to tackle. Can you talk a little bit about practically what it looks like to create a vbe E without going too deep into the details? I know it's a complex undertaking.

Luis Argueso (22:23):

Yes, absolutely. So I think that's well said. We have these existing structures like accountable care organizations and clinically integrated networks that have a lot of requirements attached to them and explicitly acknowledged in, if you look at the federal kind of record with regard to value-based enterprises was the government didn't want to replicate that. They didn't want to create so much red tape around these value-based enterprises so that these organizations aren't formed. So they wanted to allow for a great degree of flexibility in terms of who can participate, what sort of patients can be covered, how can payment be structured, all those sorts of things. So in terms of setting up a value-based enterprise, the lift isn't to the same extent that you see with ACOs and cis. Now the question is, okay, if that's the case, why haven't we seen more of these? And I think

Rebecca Gwilt (23:17):

If you look, yeah, exactly, that's what I'd like to get to.

Luis Argueso (23:19):

Yeah, absolutely. So I think if you look at the regulatory commentary that the government solicited from folks, oftentimes over and over again, you'll see commenters say, Hey, give us a more precise definition of what is care coordination or tell us more explicitly what sort of patients can be covered by these value-based enterprises. And the government, again and again and again, chose not to do that. They chose to say, we don't want to be inhibitors to innovation, so we're going to leave this open-ended. The problem associated with that is one that in the economics world you might refer to as decision fatigue, where there is so much flexibility, there is so many different things that I can do with these types of contract constructs that folks oftentimes don't know where to begin, where to start. And so that makes them nervous, and especially on the legal side of things, when you don't have a number of clear cases or OIG advisory opinions out there saying, Hey, here are the guardrails that are okay for these types of entities, oftentimes there can be a desire for conservatism or let's just not even get there.

(24:22):

Let's wait until other folks do that. And so that's where myself and our company comes in. What we're really looking to do is help organizations set up these value-based enterprises. We've spent a lot of time within the regulations themselves looking at the different components of the definitions and requirements under the different risk models and trying to find ways to make it simple in terms of what makes sense for an organization regarding how they structure their value-based enterprises. So I think you guys have a great resource, and I would recommend folks check it out, and hopefully it can be linked in the description to this podcast episode, but you have a great resource kind of describing the different components of the value-based enterprise, the different definitions that go into them, things like target patient population, things like value-based activities, value-based purposes. Won't get too much in the details of that here, but I think the neat thing is that while the definitions, while there are clear and explicit definitions, there's a lot of flexibility to them.

(25:23):

So it's a matter of sitting down and finding out how to make the construct work for you. And that's where I, I'd like to hope that we can come in and help organizations see the potential benefit with regard to these value-based enterprises, because there is a lot of benefit there. There's a lot of flexibility there. It's just one of those things where you kind of have to dive in and take the plunge despite the fact that other folks haven't done it. But of course, going back to my background in economics time and time again, what do we see in terms of business success there? There's a big first mover advantage. Those entities that are able to figure this out early and figure it out well are going to have a big advantage over the competition.

Carrie Nixon (26:00):

Yeah, I mean, I agree 110%. I think that there is an element of fear and a little bit of disbelief that the government really means it when they're like, we're going to be flexible around this because no one wants to be the first to try to take on that allowed flexibility and then be told, Uhuh, you went too far, now you're in trouble. Right? But I do think that that desire is genuine. I do think that there is a real understanding that sort of the anti-kickback statute and Stark law constructs do not fit in a value-based world where there are reimbursable activities that we want to incentivize. And so I'm right there with you. I would urge folks to dive in to do this carefully, but to dive in, and you're absolutely right. The first mover is going to have, I mean, they do have quite an advantage.

Luis Argueso (26:57):

And just to build on that, the government has, in the Medicare innovation unit of cms, they have all these shared savings type models, and there's nothing stopping someone from looking at that and saying, all right, what is working well here? How can we mirror that within our organization? And if anyone ever questions what we're doing, say, look, we are trying to set up the same sort of things that you're doing within the C M M I program with the same sort of safe guardrails around it, and use that as kind of a starting point. Because the government isn't going to complain if, say, for example, an organization set up a value-based enterprise that is sharing savings by controlling cost growth based on, let's say historical Medicare expenditure numbers. If you're showing Medicare that, hey, we can reduce expenses to you, that's not going to be kind of slap you on the wrist and say, shame on you for doing that, that's going to be something that they want to see. Of course. Now that said, I'm not the attorney. You guys are, and there's other very important consider legal considerations to build within that and would encourage folks to talk to you about those. But from a business perspective, I think taking what we've seen in the marketplace that's been done by Medicare and other payers is a good place to start to see for potential use cases for these vbs.

Rebecca Gwilt (28:18):

Yeah, I think this is an opportunity for innovators in the digital health space outside of the traditional institutional players, hospitals, big health systems, big payers, to put together a model of what this might look like since they're looking for ways to set themselves apart, and they tend to have lower risk or higher risk tolerance rather than other folks in healthcare. I mean, I think this is an opportunity for them to solve a problem on behalf of the people they're trying to sell their wares to. So anyway, so I loved this discussion. Thank you so much for your time today, Luis. If folks want more of the kinds of insights they heard about today on the show, or if they're interested in talking to you about the infrastructure of A V B E and how to put that together, what's the best way to get in touch?

Luis Argueso (29:09):

Yeah, absolutely. I direct folks to our website. It's www.inhealthadvisors.com, and there's a nice little form there that folks can fill out if they have any questions. And I'm always happy to reach out, as is my partner, Jim. And we make it a priority to reach out to folks very quickly. So we welcome any questions or comments or even challenges to any of the things that I've had to say, and happy to start a conversation there.

Rebecca Gwilt (29:38):

Wonderful. And we'll make sure we drop that into the show notes. Thank you so much. To those of you listening to degrading Healthcare Innovation, I'm Rebecca. This is Carrie Nixon. Come on, Carrie, where are All right. We'll see you next time on Decoding Healthcare Innovation. I hope you enjoyed today's discussion with Luis Arso and of in Health Advisors about building value-based enterprises. If you haven't already, please subscribe to decoding Healthcare innovation, follow us on LinkedIn and Twitter. As always, you can check out all the links and resources in the show notes, and you can find out more about our work with Healthcare innovators@nixonwiltlaw.com. See you next time. Thank you. Thank you, Carrie.

Outro (30:20):

Thank you, Rebecca.

Rebecca Gwilt (30:24):

Thank you for listening to Decoding Healthcare Innovation. If you'd like the show, please subscribe, rate and review at Apple Podcast, Spotify, or wherever you get your podcasts. If you'd like to find out more about Carrie, me, or Nixon Quilt Law, go to nixon law.com or click the links in the show notes.



Compliance, Digital Health, healthcare policy, Value-Based CareNixon Gwilt Lawluis argueso, InHealth Advisors, VBE, Value-Based Enterprise