Analyzing Risk:
How Data Informs Value-Based Agreements
Health care leaders continue to face the pressures of predicting, measuring and communicating accurate benefits and threats associated with the shift to value-based agreements. Executives’ ability to ensure success under these agreements requires a predictive outlook that heavily depends on the merging of clinical and financial data, which can be a new and unfamiliar territory for some organizations. Leaders must have an understanding of their strengths and vulnerabilities before they take on risk.
Modern Healthcare Custom Media discussed provider and payer sentiment around the shift to value-based arrangements with executives from Optum Advisory Services, who offered best practices for leaders actively considering value-based deals. Their responses provide insight for health care leaders looking to manage risk and make the right decisions when considering a potential agreement.
Jeremiah Reuter’s primary career focus has been in the area of U.S. health care consulting for providers. Jeremiah assists provider organizations in identifying and managing risk and is also currently consulting with health care providers as they continue to expand their risk portfolios.
Greg Warren has worked as a health care actuary for nearly 25 years, providing strategic and financial risk guidance to payers, providers and employers in the public and private health care markets.
Many providers seem more willing to take on upside risk rather than downside risk. From an actuarial point of view, why might this be? What industry trends or regulations may be impacting this?
JR: Provider organizations typically shy away from downside risk. If providers don’t have certainty of savings and hit downside periods, they simply exit these contracts. You’re going to see this behavior play out in both Medicare and commercial contracts because most providers are not mature risk-bearing entities. Many providers don’t have the same risk management and actuarial capabilities that payers have. Payers are better equipped to understand and measure risk while understanding how the risk will impact their entire organization.
GW: I think the first step to understanding risk is looking at the data. Then, we can shift to looking at how to monitor, manage and ultimately exploit it for upside. Those that want more upside in the value-based contracts are not necessarily understanding how much downside risk they need to take, if they were to look at the economics through the payer’s lens. There’s a balancing of the levers — the rates you take, the access you receive and market share — combined with the degree in magnitude of downside risk. Then upside can be achieved with a balancing of all those levers, as well as the definition of risk that’s being taken up or down, and what narrow definitions or performance calculations have to be met to achieve it.