From the PresidentJoe Fifer

Joseph Fifer, FHFMA, CPA

Launching a new service line. Acquiring a physician practice. Avoiding malpractice litigation.

Historically, when healthcare finance leaders thought about risk, those are the kinds of issues that came to mind-all risks that are closely identified with the provider role. But in the new payment environment, the lines between providers and payers are blurring. Some providers have taken or are considering taking on insurance risk-that is, accepting financial responsibility for the care of a defined population over a period of time. As the transition to a value-based payment and care delivery system accelerates, more providers will consider taking the plunge into population health management.

Insurance risk is not for everyone. How can you know if it's right for you? For starters, understand the new risks that you are likely to encounter in the transition to value-based payment, as described in HFMA's recent Value Project report, Building Value-Driving Capabilities: Contract and Risk Management:

  • Transition risk-During the extended transition to a value-based payment system, how can you keep "a foot on the dock and a foot on the boat" without missing the boat entirely or falling overboard?
  • Performance risk-How can you minimize financial penalties associated with value-based payment initiatives?
  • Insurance risk-How can you manage the risks associated with providing all necessary healthcare services for a defined population of patients?

Many providers today are addressing transition risk and performance risk but are hesitant to dip their toes into the insurance risk pool.

It's certainly wise to be cautious. Before your organization can accept insurance risk, you need access to population data with the historical breadth and population depth required to model potential risk exposure-and the actuarial expertise to understand the ramifications of the data trends, which few providers have. Without that, you don't know how deep the water is. Your organization also needs the ability to weather unpredictable waves of utilization-related cost. That requires significant financial resources and balance sheet strength. Insurance carriers are subject to risk-based capital requirements intended to protect the companies, those they insure, and their communities against the wide, unexplainable cost swings that will invariably occur. Is your organization willing and able to put those reserves on the table? Without that financial strength, your new venture risks being washed away with the tide.

Those who are willing to test the waters are experimenting with population health management in a risk-controlled environment, through collaborative initiatives with payers, pilot projects with their own employees, or accountable care arrangements limited to selected medical conditions. Experimentation, within carefully established parameters, is essential to progress. It enables a learning environment, which in turn fosters future success. It may be the way to better coordinate care, reduce waste, and improve outcomes.

There is wisdom, however, in the words of investor Warren Buffett, who has said that risk comes from not knowing what you're doing. In health care, few providers have experience with insurance risk. So don't dive in head first without seeing the bottom. Be smart about it. Build your skills. Start small if you have to. But start somewhere.

Publication Date: Monday, September 03, 2012

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