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Risk-based contracting: It’s NOT just about the shared savings

The first in a blog series to guide provider organizations through strategic risk contracting for population health

As health systems (hospitals and provider organizations) continue to transition to value-based care and population health, more and more contracts with payers are including some form of gain/risk sharing. Even if a system has not yet taken on any risk, a health plan has likely approached it about the opportunity. Providers are taking on population management contracts (gain or risk sharing), but often times they are not thinking holistically about the opportunity. Too often providers do not consider the big picture, or even realize what that big picture is, and instead focus only on whether they made or lost money during the contract financial reconciliation process at the end of the performance year.

This is not how systems should evaluate the success of a risk-based contract.

There is much more to this opportunity than the shared savings.

Inaction isn’t an option.

We see gain/risk sharing contracts as a necessity for health systems – even though the systems may not always benefit from them financially. Given the current financial state for health systems, providers must focus on shifting more of their contracts, revenue, and lives into risk-based contracts; this transition will need to occur over time, at a pace that allows systems to implement new value-based care capabilities as they scale up their risk contracts.

A holistic view highlights the importance of non-financial benefits in gain/risk sharing contracts.

In order for health systems to see benefit in gain/risk sharing contracts, the contract should ideally have some of the following attributes – most of which are not financial in nature.

  1. Strategic plays
    • Create market differentiation – These contracts should help the health system stand out compared to other providers in the region or within the same specialty
    • Become a leader – Health systems can use gain/risk sharing contracts to show their initiative and willingness to adopt to value based care
    • Attract physicians – Physicians will be looking for innovative systems to partner with or will be seeking employment with such systems, especially as MACRA becomes more relevant to them
    • Expand market share – Success in the world of value based care can lead to capturing market share from other health systems
  2. Financial benefits
    • Increase in-network usage – A narrow network will help drive more services to in-network providers, thus increasing net revenue
    • Create shared savings – If the health system is able to successfully control costs, there are likely opportunities to share in savings
    • Collect care coordination fees – Health plans often offer monthly per member payments to help providers better manage their populations
    • Earn additional bonuses – Contracts may offer bonuses for activities that the provider is already required to do, such as reporting quality metrics, showing coding improvements, and reducing readmissions
  3. Organizational investments
    • Invest in care management and ambulatory services – Investing in care management and ambulatory services will help improve patient outcomes and, consequently, result in better performance on risk contracts
    • Gain access to data – Payers typically provide claims and clinical data on their members to help providers analyze individual clinicians’ patient care patterns and patients’ needs
    • Build analytical capabilities – Leverage new data to build analytical capabilities and use the data to inform decision-making
    • Justify technology investments – Use these risk contracts as a catalyst to obtain funding for EMRs and population health tools that improve quality and patient outcomes

Health systems should take all of these attributes into account when considering potential risk contracts and when evaluating the contract’s potential for success. Focusing solely on the year-end reconciliation results of the gain/risk sharing arrangement ignores the system-wide implications, such as additional market share or increased in-network steerage. By taking an all-encompassing view of the financial and non-financial impacts of gain/risk sharing contracts, health systems will fully understand the effect of such deals and will be better equipped to truly measure “success.” Stay tuned for our next installment on this topic where we’ll explore year-end losses on risk-based contracts.

And a huge thank you to my colleagues Brian Rush, Chris Schmidt, and Molly Stormont for their thinking in this area and support in developing this series.

Author bio

Mr. Mark J. Bethke has been a healthcare consultant for Deloitte Consulting LLP since June 1999. He is a Fellow of the Society of Actuaries (FSA) and a Member of the American Academy of Actuaries (MAAA). Mark is the health actuarial and financial modeling leader for Deloitte’s Value Based Care and MACRA market offerings. Mark helps his hospital, physician, and health plan clients bridge their financial business needs through strategic collaboration in value-based accountable care models. Mark’s core competencies include value-based aligned incentive models and health information analytics by developing data models to help assess risk and model potential business scenarios. He works on issues such as provider contracting, risk/gain sharing, product development, financial analysis and management, data structure design, and health status-based risk adjustment. He has extensive experience in healthcare data analysis and modeling, benefits pricing, and healthcare provider payment systems.