While risked-based contracts aren’t new, their use by both government and commercial payers is growing exponentially. CMS has implemented a voluntary ACO program (Medicare Shared Savings Program) that as of October 2017 has generated $48.3 million in savings. UnitedHealthcare, the nation’s largest health insurer, plans to bring the total number of ACOs it works with to well over 700. Other payers, including Aetna, Humana and Blue Cross Blue Shield, are on a similar trajectory. The Blue Cross Blue Shield Association says they are spending more than $71 billion annually on value-based care.

It’s becoming clear that risk-based models will at some point replace most traditional fee-for-service agreements in the healthcare industry. The impact of this change is not trivial and represents a significant change for providers. 

Roughly 60% of small and mid-sized providers indicated they had no immediate plans for value-based reimbursement initiatives.

It will require provider’s to make significant changes to their core processes, technology, and vendor relationships. Data and analytics are also core to driving success (both outcomes and financial performance) with risk based models.

Unfortunately many small and mid-sized providers are relatively immature in terms of their ability to leverage data. Recently I published a report that talked about the current analytic maturity of small and mid-sized providers. This report also highlighted their priorities for the next 18-24 months. While nearly every organization mentioned the shift to risk-based agreements as a priority, many still have a long way to go to get ready.

How Providers and Payers are Using Analytics
Six Ideas to Improve Your Analytics ROI
November 2017

Risk-Based Models Impact on Providers

Back in March of 2017, EY surveyed 700 qualified healthcare provider professionals. Respondents included chief medical officers, clinical quality executives, and chief financial officers at US-based healthcare providers. They were asked about the specific value-based reimbursement initiatives they were planning to undertake in 2017. While the survey shows that more than 80% of larger providers had plans for value based initiatives, roughly 60% of small and mid-sized providers indicated they had no immediate plans for value-based reimbursement initiatives.

EY Health Advisory Survey 2017
Provider health care organization by revenue

If you consider that Medicare Shared Savings Program is still voluntary, and many payers are rolling out their risk-based program with providers that can make the biggest impact for them, the EY finds seem logical. The real question is - How long do small and mid-sized providers have before they’re forced make the shift to risk-based contracts? It seems reasonable to think that in 2018-19 providers will begin to see an increase in their percentage of risk based contracts. Those with significant Medicare contracts are also likely to see risk-based contracts hit them sooner. Certainly by 2020 it seems likely the industry will be heading towards parity in their mix of fee-for-service and risk-based contracts.

How will providers manage the transition to value based models without being data driven?

So if you’re a small to mid-sized provider what does this mean for you? Let’s first talk about the impact that risk-based contracts (e.g. PCMH, Bundled Payments, Shared Savings, Shared Risk, Capitation, PSHPs) can have on your operations. In a Shared Risk model a provider shares in both the savings and the loss associated with a given population. Providers must become much better at not only managing patient outcomes and costs, but also at identifying and taking proactive action with patients who are at higher risk. The better providers can be at these activities, the better their financial performance. Accomplishing this requires small and mid-sized providers to get really good at:

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    Choosing the right risk model - for a given patient population and payer
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    Negotiating Price - by quantifying anticipated costs AND population risk
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    Coordinating care - to improve outcomes and optimize cost
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    Evolving the delivery of care - through acquisitions, partnerships, and networks
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    Restructuring partner relationships - to shift partners from FFS to value based agreements

All these points when looked at in total represent a fundamental shift in how providers deliver care to their patients. This shift involves a lot more than how providers use data. But how will providers manage this change without being data driven?

Getting your analytics capabilities to a more advanced state should be a precursor to providers successfully managing risk-based models. This means much more than simply putting technology in place to do enhance analytics. It means being able to integrate data into the organization's decision making process and using data to better coordinate clinical, operational, and financial functions.

Analytics Role in Risk-Based Models

Today most providers have some basic capabilities in place to analyze their performance. Most have basic financial and clinical metrics and dashboards in place. Some also have the ability to analyze exceptions and the effectiveness of basic clinical programs. While some also have revenue management capabilities, the majority of providers still focus the bulk of their analytic capabilities on clinical operations.

Unfortunately this strategy will prove inadequate in a landscape where risk-based models are the primary reimbursement model. Small and mid-sized providers will need to become much better at leveraging their data in the following six ways.

Quantifying Costs & Risks - Pricing risk-based contracts profitability requires a much better understanding of both cost and risk. To effectively negotiate pricing, providers will need to better understand the underlying activities that drive their cost of care and the risk associated with the proposed patient population. This is a level of analysis that will challenge the capabilities of most small and mid-sized providers. Even providers that outsource their analytics or put in place analytic software packages to perform this activity will struggle to create a repeatable process required to support a growth in the number of risk based contracts.

Predicting Future Results - historical reporting is the mainstay of most analytics functions. But value based care will require analytic teams to also predict and forecast costs and risks at a much lower granularity than today. Doing this for a single contract may be manageable, but forecasting across multiple contracts and multiple patient populations is significantly more complex. In the value based world, analytics teams will be asked to forecast at a level of granularity and accuracy that’s well beyond most teams’ current capabilities.

Improving Data Quality - The quality of your data takes on new meaning in the value based care model. Inaccurate data can skew forecasts, impact reimbursement rates, reduce incentive payments, and in some cases impact leader’s compensation. Organizations need to improve their ability to manage and improve the core data that drives their risk-based contracts. This goes beyond clinical data and requires a deliberate approach that cuts across functional boundaries. In addition, managing data quality is especially important as processes & systems shift from traditional fee-for-service models to value based models.

Coordination of Care - Current analytics teams will require a shift from report production to a more consultative approach in a value-based world. Coordination of care plays a more significant role in risk-based models. Data and analytics should play a significant role in accelerating coordination of care. Monitoring target populations, identifying improvement opportunities, and helping clinicians and administrators take corrective action all have to be done in a way that’s natural and embedded in the decision making process. Simply publishing reports and leaving decision makers to figure it out won’t be enough.

Managing Trading Partners - Like provider contracts, today’s vendor contracts are mostly based on a fee-for-service model. Over time those arrangements will need to change as a larger percentage of provider contracts become risk-based. Providers will then find themselves in the role of measuring and managing the risk associated with their own trading partners. Analytics teams will need to be able to help leaders define the right measures for the their vendor partners and evaluate their performance going forward.

Collaborating with Payers - In the fee-for-service world payers and providers operate independently of one another. Each analyzing their own data sets and metrics. In the value-based care world, providers and payers should collaborate in a different way. Providers and payers should work together to negotiate the risk-based criteria that optimizes outcomes and costs. As the industry consolidates, there will be more collaboration at this level and small to mid-sized providers who don’t will find themselves at a distinct disadvantage with providers who do. The common language in this collaboration is data. Analytics teams who can enable this type of collaboration will enable significant results for their organizations.

As you’re putting together plans for your value based programs, consider your current analytics capabilities. Is your analytics team ready to deliver in the six areas above? If not, it will take time to improve your analytics capabilities. The shift to risk-based reimbursement models is coming and your organization shouldn’t wait. Make sure that your analytics team is ready to help the organization take a data driven approach to value based models. It will not only make the change less stressful, but will make a tangible financial impact as well.

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Phil Kelly

Phil Kelly

Managing Partner at iPower Consulting
Phil Kelly is the founder and principal consultant of iPower Consulting. He helps healthcare organizations improve their ability to access and use data. With over 25 years’ experience, he has helped clients be more data-driven, deliver technology solutions faster, and improve collaboration. If you are a healthcare leader and have ideas about how you want to use data in your organization, but aren’t quite sure how to go about it, Phil may be able to help. You can learn more about Phil at www.ipowerconsult.com or contact him directly at 630.219.0047 or phil.kelly@ipowerconsult.com.

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