The road to risk-based contracting

Healthier patients, stronger clinical services and reliable costs for care don’t happen all by themselves.

As providers consider risk-based contracts, they first must have a firm grasp of their own cost structures, understand where their outliers are and be prepared for more transparency, be it with their own service outcomes or the level of predictability sought by the patients and payers of today’s health marketplace.

The push for embracing new payment models has grown since the creation of the Center for Medicare & Medicaid Innovation (CMMI), which tests various models incorporating risk in hopes of pushing the healthcare industry away from fee-for-service reimbursement.

But the pace of practices embracing risk-based contracting is arguably still slow, with predictably small returns. A 2016 survey by Modern Healthcare found about two-thirds of respondents from hospital systems claimed to generate 1% or less of their net patient revenue from risk-based contracts.

Regardless of how far into the risk-based world your practice wants to go, even as far as full capitation, there are a series of critical processes to have in place to have a truly successful risk-based contract, according to Kim White, MBA, vice president and senior consultant, Numerof & Associates, Inc., St. Louis. These steps can also help practices that are still in a more traditional reimbursement world. 

“The work you’re doing to think about transforming your practice to assume [risk] in whatever model you may choose will help you not only be prepared for the future where the market is definitely going, but also [will help you] make more money today in a fee-for-service environment,” White said at the 2017 MGMA Financial Management and Payer Contracting conference in Las Vegas.

The Centers for Medicare & Medicaid Services (CMS) projects health spending to grow at an average rate of 5.8% per year through 2025, with national health expenditures as a share of gross domestic product to be about 20.1% by 2025. White points to these rising costs and the subsequent pushback from consumers and employers as key reasons to expect the market to continue to move toward risk-based arrangements regardless of political realignment.

“Even though there’s been some slowing recently, the costs continue to rise. … It really doesn’t matter who gets into office,” White said, adding that customers are taking notice. “Consumers and employers are starting to push back more and more. They’re asking a lot of questions about, ‘Is what we’re getting worth it for the money we’re spending?,’ and they’re asking that more and more because a greater proportion of cost is coming out of their pockets.”

Savvier consumers with more resources to shop for their care — such as online review sites — only amplify the push for linking payment to outcome, as outlined by the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), which White believes is here to stay regardless of what happens to the Patient Protection and Affordable Care Act (ACA).

“What’s not going to change is this focus on value,” says White, and one of the pieces of that is MACRA.

"This process is a very difficult one for most organizations. … In essence, you’re going to have to call peoples’ babies ugly. No one wants to hear that … but you’ve got to be willing to have the conversation." - Kim White, MBA

Adding transparency and value

Going to an at-risk model, White says, is akin to embracing a market-based model where there is transparency on what services patients receive and what the outcomes will be, and there is a “predictable and transparent price,” which is becoming just as important for individuals paying out of pocket as it is for your practice’s payers.

Achieving that transparency means being able to define your practice’s services from start to finish and understanding the costs down to the procedure and physician level, both fixed and indirect, White says, because you can then define your desired revenue levels, both current and future. 

That procedure-level look at your practice’s inner workings should then yield useful information to identify patient cost outliers. “We want to be able to understand what were the drivers behind that,” White says, and to review your coding for any discrepancies or instances where documentation and reimbursement aren’t matching up.

While this level of inquiry is focused on having a better understanding of where a practice can link service prices to quality commitments and guarantees, it also becomes an accurate gauge of where your practice stands in the market.

White worked with one large multispecialty practice that prided itself on its work in orthopedics, measuring how quickly patients moved through the system and how quickly patients got back to full function of the areas where they were treated. That data, relative to the competition, was proof that the practice was among the top performers in the market. White hailed the practice because it established “more value in the eyes of the payer” based on demonstrable value, both economic and clinical.

“You’re capturing data and information you need to be able to tell your value story,” White said, which can be the difference in making a customer choose your organization over another once you can communicate that value beyond your contracting.

“What we found was they had 28% of the market and they had no idea where these patients were coming from.” - Kim White, MBA

The road to risk

White points to two main factors in preparing to add risk-based agreements: the degree of difficulty of the procedures you’re looking at and how comprehensive you can be. Readiness assessments and diagnostic evaluations to identify gaps in procedures and coding allow a practice to start with something as simple as a patient visit and then move into services that are more complex, such as pregnancy or rehabilitative services. The broader you go into the overall continuum of care — including prevention, diagnosis and treatment — the closer your practice gets to population health management.

“You’re getting closer and closer to being able to assume risk for your entire patient population,” White says. “And that’s ultimately where healthcare is going … the better able you are to get yourself in that position to minimize some of the variation in cost and quality that’s occurring … the better able you will be to deliver consistently and, ultimately, make money today as well as tomorrow.”

And since the bottom line is always money, White stresses creating alignment between clinical and administrative goals so that as payer contracting methodologies shift, so do your compensation plans. When it comes to physicians, most practices are “still measuring them and rewarding them on work RVUs,” White says, and building incentives to support your risk model can help bridge that gap.

White noted that beginning the conversation isn’t always easy, but it can be a good opportunity to put your data to work. “This process is a very difficult one for most organizations. … In essence, you’re going to have to call peoples’ babies ugly. No one wants to hear that,” White says. “So you need to think about, ‘How do I have that conversation respectfully with someone?’ and ‘Do I bring data to help them see that?’ But you’ve got to be willing to have the conversation.

“Failure to have the conversation means you’re only encouraging somebody to do what they’ve been doing, and you’re going to continue to have a problem in delivering what you know the practice can deliver,” White adds.

Beyond your walls

If you succeed in being ready to accept more risk-based contracts, White recommends identifying and engaging other provider partners so that you can make better referrals in line with your level of service.

“If you’re referring patients into a particular system, is that system providing them with the same level of care that you’re providing in your offices?” White says. Providing better information to another provider about a patient’s care and setting the expectation for what paperwork you’ll receive once the patient is dismissed helps make the transition go smoothly and helps you deliver better service across the continuum of care.

In one case study White shared, a provider’s cardiology line was evaluated with its congestive heart failure treatment mapped for patient flow. In looking at its volume, referral and transfer patterns, the provider learned its market share but had trouble tracking how it got to that point.

“What we found was they had 28% of the market and they had no idea where these patients were coming from,” White says. “We could only track some of them back to the physicians with whom they had agreements for service, but not all of them.” In subsequent talks with physicians, White found referrals were going to multiple systems, “so there was a lot of leakage that happened.”

When asking the question about referrals, a dialogue was started not just about why some doctors didn’t refer back to the system – it brought up discussions of quality and performance that the provider had not heard before. Those talks served as the impetus to “find ways to fix some of the gaps in some of their services,” White notes.

“It gave them a starting point to be able to think about where they could take the organization, and they used that as a rallying cry to create alignment within the organization.”