In 2008, Congress passed the Medicare Improvements for Patients and Providers Act (MIPPA). This legislation started the trend for value-based care programs (also known as value-based contracts or risk contracts). The industry then began the transition from fee-for-service (FFS) to alternative payment models (APMs) and capitated services.

The different types of payments differ in terms of performance thresholds and reimbursement incentives. But each type shares two important things in common:

  • Reimbursement is based on the value of care delivered rather than volume, and
  • Reimbursement requires providers to assume more risk

There are a variety of risk-based models that place differing amounts of risk on participants. Before we go further, let’s first answer what risk-based payment are

Risk-based payment models aim to hold providers accountable for better, more efficient care. This model is also called risk-based payer contracts. Providers are paid a fee per patient (capitation) and are then responsible for treating the patient within this budget. Depending on the model, providers may be eligible for additional bonuses based on quality performance.

In risk-based models or risk contracts, physicians are accountable for providing quality care while avoiding excess readmissions. Parent facilities are expected to support their physicians with cost-efficient supplies and devices. The goal is to provide quality care while remaining below budget to maximize profit. If the budget is not achieved, the provider is responsible for paying excess expenses.

Medicare capitation agreement

There are different levels of risk a provider can agree to. This is called risk-sharing. Risk-sharing is when two or more stakeholders agree to share financial risk when a patient receives care. This agreement can occur between payers, providers, or manufacturers. Risk-sharing makes accountability more palatable by ensuring financial responsibility is not solely on the provider.

The ultimate goal is full financial risk-sharing, or true risk.

Medicare set a strong precedent for how well this can work, but the commercial sector has been slower to adopt across the US.  

The State of Florida has been a pioneer on Medicare patient population receiving treatment from a full or sharing-risk contract, around 2.3 million patients have choosen Medicare Advantage plans, meaning those providers are under some kind of risk contract. However, not all providers are willing to take the risk themselves there for the rise on medical centers, owned by non-clinical investors across Florida.

What is the purpose of risk sharing with providers?

The upside vs. downside of the financial risk

There are different types of financial risk models a provider can take part in. There are upside risk-only models, downside risk-only models, and models that combine the two.

Upside risk means that if a provider can treat a patient below budget, they will share profits with the payer. But if the provider goes over budget, they will not be penalized.

Downside risk is the opposite of this. If a provider goes over budget during treatment, they are held accountable for the extra expenses.

Models that have both upside and downside risk are called two-sided risk models.

Most providers prefer to enroll in models that favor upside risk exclusively.

As the Center for Medicaid and Medicare Services (CMS) rolls out alternative payment models, they encourage more providers to take part in downside risk-inclusive contracts.

Healthcare data and analytics can help providers with risk contracts

A strong healthcare data platform will have up-to-date records of key facility financials like total expenses, pharmacy costs, claims, etc. Data-driven organizations looking to help providers deliver better patient care can leverage this data for more effective sales and marketing tactics.

Since the key of risk contracts is to keep the expenses low and manage the patient from a managed care model, data will allow the provider to make inform decisions.

In the financial aspect, financial data will allow the practice to manage their revenue and determine ways to reduce costs without compromising the patients’ health.

Data analytics become essential in the world of risk contracts, since the provider are assuming some kind of financial risk they need to understand the patients cost, revenue and payments in order to succeed.

Ensure Data Solution- Population Health Management

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