As pressure mounts to reduce inpatient and some physician office visits, a leading Massachusetts health system has moved toward a growing reliance on risk-based contracts to offset losses from fewer patients. Peter Markell, CFO of Partners HealthCare System in Boston, has helped lead his organization’s move toward contracts that require hospitals and physicians to absorb financial losses when healthcare spending exceeds targets. Such contracts also can reward both parties when cost-reduction or care-quality goals are met.

Public and private payers view such contracts as a way to give providers incentives to help avoid unnecessary and too-long hospitalizations. But providers facing losses from fewer and shorter inpatient stays are beginning to see global risk-based payments as a means of offsetting losses stemming from the move away from traditional fee-for-service care. In Massachusetts, the movement toward such global payment contracts reached 39 percent of total commercial payments in 2012, according to the Center for Health Information and Analysis. That was reflected in revenue at Partners, the state's largest health system, which received one-quarter of its revenue in 2012 from financial-risk contracts. 

Markell sees growing potential in the use of risk-based contracts to curb spending growth while strengthening his system’s long-term financial future. Here, he shares his views in a conversation with hfm about the role of risk-based contracts in an evolving healthcare marketplace.

hfm: Could you outline your experience to-date with risk-based contracts and what the future outlook is for them?

Markell: If you go way back into the late 1990s and early 2000s, we were in risk contracts back then. People referred to them as capitated or managed care contracts in those days. After coming out of that approach to some degree, we moved into performance-based risk contracts versus global or capitated-risk contracts. 

Then, Massachusetts enacted its own healthcare reform focused on access. Once that was done, people shifted their mindset: “OK, now that we’ve got everybody insured, how do we deal with cost of health care?” A state commission was formed to focus on costs. The commission concluded that the way to really control cost is to encourage providers to take on greater risk—to make them accept global payments because doing so would force them to become more efficient. The combined push toward global payments and greater transparency was really the big driver.

After the commission issued its report, another piece of healthcare reform legislation—affectionately known as Chapter 224—came with a real emphasis on improving quality of care and reducing costs through increased transparency, efficiency, and innovation. So we thought, “OK, if global payment, or capitation, is the way we’re going to go, and providers are going to need to take on more risk, then how should we proceed?” That led us to put a heavy focus on population health management, which is really about the continuity and the coordination of care for patients or members—the lives we take on.

Our first focus has been around high-risk patients, both in the Pioneer ACO [accountable care organization] and in our commercial contracts. Figuring out how you manage high-risk and high-cost patients is important, because 5 percent of the population drives about 60 percent of healthcare costs. So if you can make a dent in costs related to that population, that’s where you should focus.

That led us to set up population health management programs and patient-centered medical homes and really work with our primary care physicians and their patients on better managing their health care.

Once you start such an effort, you learn that the real issue in population management is the need to reduce emergency department visits, hospital admissions, and specialist visits. That’s how you reduce the cost of health care. And the only way to achieve those reductions is to reward the provider for essentially taking on risk or getting the premium dollar. That’s really the big transition going on right now, so we’re evaluating how much risk we should take on in our contracts and how well we can manage all of that risk. How far up the risk continuum do we go? Do we take all the risk, or do we share the risk with insurers? 

In our last round of commercial contracts, we structured the contracts to share risk with payers, but there’s a cap in there on how much we can lose or gain. The purpose of those caps was to allow us to determine how well we can manage these types of contracts. Then, based on our experience, we could decide whether to take on more or less risk going forward.

At the same time, we also entered the Pioneer ACO program. We had already been in the Medicare high-cost program, and we knew we had performed well under that program at Massachusetts General Hospital. We expanded the program to a couple of our other organizations. The first full year of risk-based performance was in 2012, and fortunately, we did very well under the Pioneer ACO program; we were one of the best performers in the program, if not the best performer. In our commercial contracts, we generated a positive surplus. We’ve met or beat our targets under both of those risk programs.

Overall, I’d say not only that this approach is working on a reasonable financial level, but also that our clinical leaders, physicians, nurses, and others are telling us that population health management and the patient-centered medical home are delivering better care and a better experience for our patients.

hfm: Could you tell us about the types of targets in those programs and give some examples of how Partners is meeting its targets?

Markell: In the Pioneer ACO, a shared-savings program, we’ve got a 2.4 percent outperformance of the trend. On the commercial side, we are outperforming the trend by 1 percent. Some may hear “1 percent” and “2 percent” and say, “Well, that’s not very much.” But 1 or 2 percent positive performance on trend is significant.

hfm: What is the scale of the risk-based contracts within Partners’ overall revenue?

Markell: About 30 percent of our revenue is at risk. That translates to a little more than 500,000 patients.

hfm: Are there any targets for expanding risk-based contracts in the future?

Markell: Well, we don’t control the insurance market, and the way that the market evolves partly determines how much growth we will see. But we’d love to see the 500,000 covered lives in those risk-based contracts grow larger so that we would have many more lives under risk agreements and management. A lot depends on how the marketplace evolves between HMOs and PPOs. Risk taking under a PPO is pretty difficult, because there are no primary care physicians, per se, to whom savings or costs can be attributed. But insurers are working on models for tracking costs and savings. 

hfm: Has there been any impact from risk-based contracts on the prices that Partners has charged?

Markell: Yes, but there are a lot of factors that affect the price increases. The rate increases we’ve been getting in the commercial marketplace are in the 1 to 3 percent range, with the bulk of them around 2 percent. Those increases are pretty much in line with general inflation, which is what we’ve committed to be in line with the payers.

hfm: Are there any lessons learned from Partners’ experience with these risk-based contracts, so far?

Markell: I would say there are two lessons. You really have to have alignment around the continuity of care, and particularly focus on your high-risk, high-cost patients. And then, like everything else in life, it’s all about execution, execution, execution. You have got to execute, you have to measure, you have to execute again, measure, and keep on going. So it’s about alignment and continuity of care. You’ve got to be focused on your high-cost, high-risk patients, and then you’ve got to have real good execution. And we’re blessed here to have some very talented people who are experts in population management driving this effort, putting the care plan diagram together, and building systems to really measure, monitor, and provide real-time information to the caregivers.

hfm: In terms of the future, you mentioned that a lot depends how the market evolves. Are there any other factors that are going to affect how much further down the road Partners intends to go toward these kinds of contracts?

Markell: I think there are two issues: There is the way the market evolves, and then there is the matter of how well we can execute and achieve what we say we want to do. If I were a betting man, I’d say we’re going to be more and more into this. But we can’t do it ourselves. The market has to evolve that way, and then the burden is on us to make sure we effectively execute. The basic part of the challenge is to develop agreements with payers and execute well. But most places still have to find the reward mechanism for participating physicians in hospitals and determine how the funding flow will work and how the success or pain will get distributed to everyone.

hfm: Are the rates that you are receiving under the Pioneer ACO and in your private commercial contracts sufficient?

Markell: Our assumption, at least for the near term, is that our pricing is going to increase at best only by general inflation. So we’re modeling everything around that. 


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter.


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About Partners HealthCare 

Partners HealthCare in Boston is a not-for-profit healthcare system that is committed to patient care, research, teaching, and service to the community locally and globally. A teaching affiliate of Harvard Medical School, Partners HealthCare is a national leader in biomedical research.

Founded in 1994 by Brigham and Women's Hospital and Massachusetts General Hospital, Partners HealthCare includes community and specialty hospitals, a managed care organization, a physician network, community health centers, home care, and other health-related entities.

As an integrated healthcare system, Partners HealthCare works to advance health care in many ways, such as by finding new ways to apply technology to patient care, facilitating discoveries in biomedicine, and demonstrating ways to make the delivery of health care more accessible, safe, and efficient. 

Learn more at partners.org.

Publication Date: Monday, December 02, 2013

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