Health sys­tems see­ing re­turns on risk-based re­im­burse­ment

Modern Healthcare - - HOSPITAL SYSTEMS - By Alex Kacik

De­spite a broad push to pay for value over vol­ume, health sys­tems are still largely re­liant on the fee-for-ser­vice model as they grad­u­ally take on more fi­nan­cial risk through new pay­ment meth­ods. But sys­tems that have the re­sources, in­fra­struc­ture and ap­petite to delve more deeply into value-based pay­ment re­form are start­ing to see a re­turn on their in­vest­ments.

In this year’s Mod­ern Health­care Hos­pi­tal Sys­tems Sur­vey, only nine out of 60 re­spon­dents said they de­rived 10% or more of their net pa­tient rev­enue in 2016 from risk-based con­tracts, which was largely in line with last year’s sur­vey. Three-quar­ters of the re­spon­dents es­ti­mated that risk-based con­tracts gen­er­ated 4% or less of their net pa­tient rev­enue, but most in­di­cated their share of risk-based con­tracts would slightly in­crease in 2017.

No­tably, 19 re­spon­dents said they recorded a sur­plus on risk-based con­tracts. At Mon­te­fiore Health Sys­tem, 22% of net pa­tient rev­enue was tied to risk-based con­tracts, rank­ing the sys­tem sev­enth on that mea­sure in Mod­ern Health­care’s sur­vey. The New York City-based health sys­tem has been mov­ing to­ward riskbased con­tract­ing since 1996, said Stephen Rosen­thal, se­nior vice pres­i­dent of pop­u­la­tion health man­age­ment.

“We have made an enor­mous in­vest­ment in our in­fra­struc­ture with al­most 1,000 full-time em­ploy­ees man­ag­ing 400,000 in­di­vid­u­als” cov­ered by risk-based con­tracts, Rosen­thal said, adding that about 235,000 pa­tients re­ceive care un­der full cap­i­ta­tion. “They are co­or­di­nat­ing care and help­ing man­age peo­ple’s health. It’s an in­vest­ment many or­ga­ni­za­tions to­day find dif­fi­cult be­cause they don’t have the op­por­tu­nity to sup­port in­fra­struc­ture through risk ar­range­ments. You have to start small and grow over time.”

An or­ga­ni­za­tion that has the scale to build in­fra­struc­ture and spread the cost over a wide pa­tient base can gen­er­ate sig­nif­i­cant re­turn on in­vest­ment. Case man­agers who han­dle co­horts of chal­leng­ing, high-cost pa­tients help Mon­te­fiore im­prove care qual­ity while min­i­miz­ing costs, Rosen­thal said. Mon­te­fiore also ed­u­cates doc­tors on elec­tronic health record uti­liza­tion, lever­ages data an­a­lyt­ics to bet­ter fo­cus care and part­ners with com­mu­nity or­ga­ni­za­tions to ad­dress all-en­com­pass­ing health needs.

“Tak­ing on risk re­quires a struc­tural change in the way an or­ga­ni­za­tion thinks about how it will man­age the chal­lenges of a pa­tient. It re­quires in­vest­ment in change,” Rosen­thal said.

Risk-based con­tracts cover a myr­iad of forms. Full cap­i­ta­tion—Mon­te­fiore’s pre­ferred ap­proach—is the most dras­tic mea­sure, with providers re­ceiv­ing a capped monthly pay­ment to treat a pa­tient.

Ac­count­able care or­ga­ni­za­tions re­quire health­care or­ga­ni­za­tions to build data an­a­lyt­ics tools, in­te­grate IT plat­forms and hire ad­di­tional staff in an ef­fort to im­prove co­or­di­na­tion across the con­tin­uum, re­duce vari­a­tion and re­dun­dancy, and de­liver bet­ter out­comes at lower costs. More than three-fourths of re­spon­dents said they par­tic­i­pated in an ACO, with most say­ing they con­tracted with Medi­care and a pri­vate in­surer.

Con­tracts that in­volve less risk in­clude Medi­care shared-sav­ings con­tracts, bun­dled pay­ments for such con­di­tions as spinal surgery, and con­tracts with bonuses for reach­ing qual­ity and pa­tient sat­is­fac­tion bench­marks or penal­ties for hos­pi­tal read­mis­sions.

Providers that lack the re­sources, in­fra­struc­ture and, per­haps, con­fi­dence, to has­ten their move to al­ter­na­tive pay­ment mod­els are in­stead opt­ing to slowly wade

Providers that lack the re­sources, in­fra­struc­ture and, per­haps, con­fi­dence, to has­ten their move to al­ter­na­tive pay­ment mod­els are in­stead opt­ing to slowly wade into the wa­ters through low-risk con­tracts, of­ten only bear­ing up­side risk.

into the wa­ters through low-risk con­tracts, of­ten only bear­ing up­side risk. Those wor­ried that they won’t be able to con­sis­tently meet the bench­marks needed to gen­er­ate sav­ings and not fall into deficits of­ten pre­fer agree­ments such as pay-for-per­for­mance con­tracts that in­cor­po­rate ef­fi­ciency met­rics, in­clud­ing to­tal cost of care and read­mis­sion rates, but shield them from down­side risk.

“Most of it is one-sided risk, which is also a re­flec­tion of a lack of con­fi­dence in the mod­els,” said Paul Gins­burg, di­rec­tor of the Cen­ter for Health Pol­icy at the Brook­ings In­sti­tu­tion and di­rec­tor of pub­lic pol­icy at the USC Scha­ef­fer Cen­ter for Health Pol­icy and Eco­nom­ics. “Steps will need to be taken to im­prove the mod­els and over­all con­fi­dence through new in­cen­tives or man­dates.”

Sioux Falls, S.D.-based San­ford Health gen­er­ally only takes on con­tracts with up­side risk, Chief Fi­nan­cial Of­fi­cer Joann Kunkel said.

The health sys­tem man­ages 45 hos­pi­tals across the up­per Mid­west and op­er­ates a health in­sur­ance plan with about 174,000 mem­bers. It has shared-sav­ings con­tracts in place that in­volve qual­ity, ef­fi­ciency and man­aged-care ini­tia­tives. In­clud­ing its health plan, about 20% of the sys­tem’s over­all rev­enue was at risk in 2016.

“We are se­lec­tive in what we do be­cause we are a ma­jor provider,” she said. “We don’t want to get into things that are risky that we think we can’t man­age well. Ev­ery­thing is set up in a fee-for-ser­vice world, and when you step into an­other process too quickly, it can be detri­men­tal.”

A key el­e­ment for San Diego-based Sharp Health­Care, which has been do­ing risk-based con­tracts for three decades, is a com­mit­ment to data an­a­lyt­ics. It has a data ware­house where it man­ages all its claims and iden­ti­fies pa­tients who have mul­ti­ple chronic con­di­tions and dis­patches care co­or­di­na­tors.

“That’s where the ma­jor­ity of costs are and where you can to an ex­tent man­age that proac­tively and help min­i­mize com­pli­ca­tions re­lated to chronic con­di­tions,” Pres­i­dent and CEO Michael Mur­phy said. “But pop­u­la­tion health is not some­thing that you just turn a switch and start ad-

dress­ing. You need med­i­cal groups to part­ner with you, align­ment with providers and pay­ers—that doesn’t hap­pen overnight.”

Sharp op­er­ates seven hos­pi­tals and man­ages a health plan that cov­ers al­most 130,000 mem­bers. It had 38% of its net pa­tient rev­enue tied to risk-based con­tracts in 2016, rank­ing third on Mod­ern Health­care’s sur­vey, and plans to in­crease that to 40% this year.

Providers such as As­cen­sion have more flex­i­bil­ity to cus­tom­ize their risk-based con­tracts when they con­tract di­rectly with self-in­sured em­ploy­ers, said An­thony Ter­signi, CEO of the na­tion’s largest not-for-profit health sys­tem. As­cen­sion has about 3.4 mil­lion pa­tients un­der risk-based con­tracts, he said.

While sys­tems of scale that own their own health plans are gen­er­ally more will­ing and ca­pa­ble of tak­ing on more risk, that isn’t nec­es­sar­ily a pre­req­ui­site. Part­ner­ships with com­mu­nity or­ga­ni­za­tions can take some of the ex­pense and risk out of the equa­tion and help keep broader pop­u­la­tions healthy.

“The more scale you have the more op­por­tu­ni­ties you have for suc­cess as you spread the cost of in­fra­struc­ture over a larger pop­u­la­tion of peo­ple,” Rosen­thal said. “But when tak­ing on fi­nan­cial risk, you need to part­ner with com­mu­nity or­ga­ni­za­tions who can pro­vide healthy food, shel­ter and the hous­ing needed to keep peo­ple healthy. You can’t do it alone.”

Even though most sys­tems are slow to em­brace risk-based con­tract­ing, man­dated change is com­ing. The Medi­care Ac­cess and CHIP Reau­tho­riza­tion Act re­quires physi­cians to par­tic­i­pate in one of two re­im­burse­ment tracks: the Merit-based In­cen­tive Pay­ment Sys­tem or ad­vanced al­ter­na­tive pay­ment mod­els. That ef­fort will drive more risk-tak­ing.

Also of note in the sur­vey, many sys­tems re­ported that they are in­creas­ingly part­ner­ing or ac­quir­ing physi­cian groups. Nearly 80% of the re­spon­dents said they own or part­ner with physi­cian groups, and half of those deals were made in 2016. Two-thirds of those that owned a physi­cian prac­tice said it did not ma­te­ri­ally af­fect their fi­nan­cial per­for­mance, while 24% said their fi­nances im­proved fol­low­ing the ac­qui­si­tion, and 10% said there was a de­cline.

The vast ma­jor­ity of sys­tems also re­ported that they do not plan to de­crease their share of in­pa­tient beds. Al­though many sys­tems have seen in­pa­tient ad­mis­sions grad­u­ally erode, nearly 90% of the re­spon­dents said that they would not be re­duc­ing their bed count.

As for a more wide­spread adop­tion of risk-based con­tract­ing, that could be about three years away, health­care ex­perts said. Part of the hes­i­ta­tion can be traced to po­lit­i­cal un­cer­tainty about the health­care de­bate in Wash­ing­ton.

“The ef­forts to re­peal and place the ACA have put a hold on risk-based con­tracts. The move to those con­tracts isn’t mov­ing as quickly as it should be,” Ter­signi said. “It’s dis­ap­point­ing be­cause the fee-for-ser­vice model is un­sus­tain­able.”

Mon­te­fiore gets 22% of its net pa­tient rev­enue from risk-based con­tracts.

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