Sustained quality improvement and cost management initiatives are essential for providers’ success under value-based care.
In this interview, David A. Gregory, FACHE, principal and healthcare consulting practice leader at Baker Tilly Virchow Krause, LLP, discusses how risk contracting is affecting health systems’ cost containment and partnership strategies.
On the evolution of risk contracting across the country. The scope and scale of risk sharing varies considerably by market. In the Western part of the country and in specific pockets in the Midwest and South, providers are engaged in full and partial capitation and more advanced shared-savings models with upside and downsize incentives. Yet organizations in other parts of the Midwest, South, and particularly the Northeast are more likely to be involved in less mature pay-for-performance models, Gregory says.
MACRA, with its upside and downside risk, has raised provider interest in risk contracting. “Even though the rollout will take a few years, MACRA will contribute to additional risk transfer, and some progressive providers see it as an opportunity to build their infrastructure, capabilities, and reporting,” Gregory says. “I don’t think it will expedite risk transfer, but it will certainly help it along.”
On identifying the best opportunities to reduce costs. Medical cost containment is key in risk arrangements and requires a sophisticated level of analysis that is not usually resident within the typical health system, Gregory says. Identification of high-cost and high-utilization patients is usually manageable; however, the idea of identifying high-risk patients who have not yet been diagnosed with a chronic condition is critical and not as easy to execute.
Furthermore, there are several opportunities to reduce administrative costs associated with driving payment, particularly associated with risk-sharing contracts. “While the primary payment model is different, provider organizations will still employ the same work processes related to revenue cycle activities—mainly, patient intake, validation, billing, and collections,” he says. “With several of the new automation technologies available, providers should be taking advantage of things such as robotic process automation to reduce costs and rework.”
On risk contracts between providers, payers, and medical device companies. “As providers assume more risk, they will look at some of their cost centers to determine whether their vendors/partners are willing to take on some portion of the risk,” Gregory says.
In particular, medical devices are a focus for most hospitals and health systems. “Medical device companies recognize they need to be more creative with how they are rewarded for the adoption of their technologies,” he says. He points to arrangements with providers in which device manufacturers have taken on partial risk based on patient outcomes, such as reduced readmissions or adverse events.
Medical device companies also may take on risk based on financial outcomes, such as whether their product can help contribute to a more cost-effective pathway by promoting a faster recovery. Some payers and manufacturers also are exploring risk-sharing arrangements that align clinical and financial outcomes.
However, organizations should exercise caution with these arrangements, Gregory says. “The legal and regulatory environment is still evolving, and there are some barriers to these entities doing business together,” he says. For this reason, legal counsel should be involved.
On where providers make mistakes in risk contracts. Gregory says organizations often fail to effectively implement care pathways that physicians can follow to promote the most cost-effective care. “It’s often difficult for providers to get their medical teams and their infrastructure all working in the same direction,” he says. “Providers may miss opportunities to gain in a risk-sharing arrangement because they haven’t developed care pathways that clinically and financially align all providers toward a common goal.”
Another missed opportunity is when risk arrangements are not among the top-volume contracts for an organization. When this happens, physicians have little incentive to change their behavior. If only a small percentage of the physician practice is affected by the contract, clinicians are not likely to become engaged, Gregory says.
On pitfalls related to health plan contracting. Although many providers recognize the need to understand the patient mix in advance of entering a risk contract, they often fail to do so adequately. “It is important to profile the population thoroughly using payer data to determine whether you can manage the patients with their chronic conditions and comorbidities effectively with your existing infrastructure,” he says.
Reviewing this patient data also helps organizations set appropriate targets. “Many times, providers agree to too many targets,” he says. In extreme cases, payers may want as many as 90 metrics included in the contract, and providers may only earn a bonus if they hit 80 percent of those targets. “Providers need to push back and get a reasonable set of metrics that can be measured and managed effectively,” he says. “Some payers start off with a smaller number of metrics because they want the long-term relationship to be successful. Then, they can refine the metrics and take more on year after year.”
On the infrastructure needed to sustain risk contract success. Health systems should evaluate their workforces’ skill sets and assess needed skills for success in a risk environment. One area where many providers are lacking is managing patients with chronic conditions across the acute and post-acute continuum. “Hospitals have traditionally had inpatient utilization management resources, but they need to have broader clinical expertise for full-continuum care management,” he says. “Another uncharted area for providers may be longitudinal and predictive analytics, a skill set that was not warranted in the fee-for-service world.”
Another challenge is IT integration. “You need an electronic health record system that is integrated across acute, ambulatory, and post-acute providers,” Gregory says. Reporting, analytics, and cost accounting modules are also critical.
“Hospitals will need to make some tough choices about which providers they put in their risk contracts and which they don’t,” he says. Selecting the right combination of employed and community physicians to care for patients under the risk arrangement also is essential. The same is true for selecting skilled nursing facilities and other post-acute providers. “Make no mistake: The era of at-risk networks taking ‘all-comers’ from a participating provider standpoint is being replaced with a new era of provider selectivity, whether it is the health plan or the lead provider making the tough decisions,” he says.
On building the right incentives. “In a risk arrangement, RVU-based [relative value unit-based] incentives, which reward physicians for doing more and are still prevalent in the marketplace, are not going to incent appropriate levels of care,” he says. Finance leaders need to review physician incentives at the start of any risk arrangement and make sure they are aligned to the new risk contract.
Advice for finance leaders. A declining inpatient census has major ramifications for capital planning over the long term, and finance leaders need to be prepared. “As risk sharing proliferates, hospitals will need to master how they reallocate inpatient resources to outpatient and post-acute services within the system,” Gregory says. “This demands a re-evaluation of existing capital expansion plans and reorientation toward less restrictive settings of care for future construction.”
Interviewed for this article:
David A. Gregory, FACHE, is principal and healthcare consulting practice leader, Baker Tilly Virchow Krause, LLP, and a member of HFMA’s New Jersey Chapter.