4 strategies for mitigating risk under value-based payment
Hospitals should understand the risks inherent in new value-driven payment models and employ strategies for managing, mitigating, and ultimately monetizing these risks.
The industrywide transition from fee-for-service to value-driven payment models shifts some risk from insurers to providers and presents both opportunities and challenges.
Although assuming more risk gives providers unique potential for revenue growth, it also presents a host of variables and uncertainties. For example, how do accountable care organizations (ACOs) and providers operating within other value-driven collaborations determine what level of risk is right for them? And once that decision is made, what new clinical, operational, and technological capabilities are needed to successfully manage risk in this new era of health care?
Taking on greater financial responsibility gives providers a greater incentive to deliver care in the most efficient, cost-effective manner possible. In many cases, risk can act as the driving force that pushes an organization toward the transformation needed to achieve the Triple Aim, as defined by the
Risk also is fundamental to building the business case for accountable care. With greater risk comes the potential for greater reward. Organizations that assume more risk can tap new revenue streams and drive the growth required for success in today's rapidly changing healthcare marketplace.
Facing Risk
Before taking advantage of the new revenue opportunities that value-driven care offers, providers in the early stages of accountable care development should first understand the following types of risk inherent in new payment models and how they can best manage such risk.
Performance and quality risk. Performance and quality risk represents the lowest level of financial risk. Providers are most familiar with this type of risk because they assume such risk each time they deliver the care they are paid to provide.
Consider a typical workflow, for example: A shoulder X-ray is requested by a physician, scheduled, performed, reviewed, and presented to the patient. The physician then addresses any necessary follow-up (e.g., makes a referral for physical therapy, schedules additional tests, prescribes medication) and collects payment. In this case, the risk lies in the potential for a negative performance outcome, such as the lack of a diagnosis, a misread X-ray, or a scheduling error.
Utilization risk. With utilization risk, providers assume a greater degree of financial risk than with performance and quality risk, but they are still afforded some protections. A target or limit typically is set around the quantity of services available or on what services should be performed. If the service is not completed within the allotted number of days, scans, or visits, the provider receives no further compensation. Depending on the financial arrangement, there may be no upside threshold, but there are limits on the downside risk. For example, a provider may be at risk for 15 percent of the overage in avoidable medical bed days, magnetic resonance imaging/computed tomography scans, or emergency department (ED) visits, but not additional overages above the 15 percent limit.
Actuarial risk or pricing risk. This type of risk includes ownership of a product and accountability for the total cost of the population. Unlike utilization risk, actuarial risk does not provide any level of protection or limits on downside risk. Building on the earlier example, the provider would be at risk for all overages from the targeted level of performance.
Mitigating Risk
Mitigation strategies will vary depending on risk type, but the tools generally are the same. To properly manage risk, providers should first identify and address any capability gaps that exist within their organization. Then, they should leverage any additional technologies, tools, and workflows needed to help them better manage and monetize risk across the following four key areas.
Data. The lifeblood of a successful risk management (RM) program, data allow providers to more effectively evaluate the efficiency and economic value of processes, products, and procedures.
Information. The bones of a successful RM program, information enables organizations to study the successes and failures of their processes, products, and procedures and learn how to accentuate or mitigate them.
Knowledge and insight. The heart of a good RM program, knowledge and insight empower organizations with the understanding they need to build strategies and processes that enhance the services and products they offer. Knowledge and insight give healthcare leaders a better sense of what the communities they serve need and how best to address those needs with approaches such as population health management and risk stratification.
Application. The brains and overall modulation of an effective RM program, application involves putting knowledge and insight into action, allowing organizations to better manage risk and increase the value of their products and services, such as care management programs and other forms of patient outreach.
Getting Started: Real-World Scenarios
Providers can employ a wide range of strategies to mitigate risk across their organizations. It is helpful to look at the experiences of early adopters to see how different strategies have been applied in real-life settings. By doing so, providers making the transition to value-driven care can identify best practices and position their organization for success.
The following are common attributes, programs, and approaches that have resulted from initial risk management efforts within a value-driven environment.
Informatics and reporting. One of the most effective ways providers can mitigate risk is through informatics and reporting programs. These programs regularly inform managers of performance results and show how they vary from established internal targets and external benchmarks.
For example, a large physician-owned delivery system based in the northeast uses payerprovided claims data to power an informatics program that allows the organization to evaluate a series of financial and clinical metrics. Various leading indicator metrics are used to determine potential cost drivers that cause the organization to be more expensive than its competitors.
In early 2014, the metrics showed an unusually high number of ED visits, with most taking place on weekdays during normal business hours. Upon further analysis, the health system found that all of the ED referrals were coming from the same group of primary care facilities. Health system leaders approached the practice managers at these physician offices and explored why the ED usage spiked during these hours. The answer was tied back to a simple workflow issue: When practice staff at these offices became overwhelmed, they rolled the phones over to the answering service. If patients called with a health concern during those times, the answering service sent them directly to the ED rather than encouraging them to schedule a visit with their primary care provider.
By using the analytics produced through its informatics program to gain insight into the problem, the health system was able to address the issue, encourage more appropriate utilization, and significantly reduce costs.
Pilot programs. When it is time to test recently developed or untried population health management techniques, a provider can minimize the associated risks by starting with a small subset of patients. This group can serve as a learning lab, giving the provider a chance to learn from patients' experiences and further refine its approach before expanding to a broader population. One of the most common examples of this approach is when a health system that self-funds its healthcare benefits uses its own employees as a sample population to pilot new techniques in care management and coordination before rolling out these techniques on a larger scale.
The same principle also can be applied to improvements or enhancements to existing programs. For instance, when a multihospital integrated delivery system (IDS) and leader in its local market sought to optimize one of its advanced illness programs, it began by conducting on-the-ground learning sessions with physicians, care managers, social workers, and palliative care experts to explore best practices, evaluate new methods for risk identification, and pinpoint opportunities to drive additional savings and revenue. The change process focused on four key stages: plan, do, study, and act. The findings were used to advance quality improvement efforts.
By bringing all influencers together and having them work collaboratively from the outset of the initiative, the IDS was able to create a strategy that wrapped its clinical goals around its financial and technology road map, establish check-in points to assess and refine its efforts, and drive meaningful change that could easily be replicated across other programs and populations.
Provider incentives. One of the biggest challenges ACOs and other value-driven collaborations face is provider engagement. This challenge is commonly seen when a large percentage of physicians work in independent group practices. By putting a compensation structure in place that aligns with and promotes population health management goals, ACOs can use financial incentives to encourage specific behaviors and promote desired outcomes. For example, a health system may opt to reward providers for conducting wellness visits or performing health risk assessments for certain high-risk groups, such as diabetes patients.
Provider Steps Key
Although every market is unique, several considerations should be kept in mind by all accountable care entities as they set up their provider incentive structures.
Compensation goals. The organizations should identify what behaviors they want to achieve and how incentives can be used to help produce the desired outcomes. Payments and penalties should align with the behaviors the organization is trying to promote or change.
Performance evaluation. The appropriate level of incentive for each physician should be calculated by analyzing quality and efficiency metrics across key categories, including operational metrics and metrics focused on citizenship and engagement (e.g., member experience and clinical efficiency). The dollars should tie into behaviors requiring significant change. The organization should consider requiring a minimum-threshold performance before any incentives are paid.
Primary care physicians versus specialists. A onesize-fits-all approach rarely works with incentive structures, particularly because some medical specialties, such as primary care, lend themselves to value-driven compensation more readily than others. Consideration should be given to the roles each specialty plays and how best to motivate the specialists to strive for the desired outcome. For example, offering a bonus payment to primary care physicians who create a comprehensive action plan for the 5 percent of patients at the highest risk might be an effective strategy. The same level of bonus for a specialist may not be enough to induce a change in behavior.
Individual versus group performance. Creating opportunities for both individuals and entire practices to be rewarded for their efforts toward achieving population health management goals can put pressure on less engaged physicians to improve and reward teamwork to encourage the desired objectives.
Product Development
Hospitals seeking growth in a value-driven environment can tap new revenue streams by introducing accountable-care-based insurance products to the local marketplace. Although hospitals and health systems that own an insurance product must assume the full economic gain or loss for the offering, this approach presents a valuable opportunity to control more revenue, reduce costs, and capture growth.
As an alternative, by launching a co-branded health plan with a commercial insurer, providers can achieve growth in revenue and volume while sharing risk with an experienced risk management partner.
Provider-led health plans and co-branded health products can create a cost advantage, allow the organizations to competitively price their products, and deliver greater value by using pricing levers such as network and plan design, clinical efficiencies, and unit-cost discounts. Such products also can increase revenue by enabling the organizations to develop relationships with self-insured employer groups and helping them to better manage employee health and wellness. These types of initiatives ultimately can generate higher volume and result in happier, healthier, more educated patients.
Looking to the Future
As healthcare reform continues to radically transform care delivery and payment models, provider organizations face new opportunities and new risks. To mitigate the risks, hospitals and health systems must leverage new types of data, information, analysis, knowledge, and action on a broader scale than they have ever managed in the past. With the right tools and strategies, providers can position themselves for financial success and make strides toward achieving the Triple Aim of better care, improved health, and reduced costs.
AT A GLANCE
Hospitals considering a move toward value-driven payment models should follow four steps:
> Determine the types of risk inherent in new payment models and how they can best manage them.
> Fill capability gaps and add resources to help manage risk.
> Use a wide range of strategies to mitigate risk across the organization.
> Carefully craft the provider incentive structure.
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