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By Sarah C. Threnhauser

Is your organization ready for a contract with down-side financial risk? Perhaps a bundled rate? A care coordination contract paid on a per-member per month basis? A six-month case rate for residential services?

Only 25% of executives answered “yes” (sort of) to that question in recent survey led by the Jefferson College of Population Health and conducted by Numerof & Associates (see 25% Of Health Care Provider Organizations Ready To Take On Risk-Based Contracts). Only 4% are “completely” ready, and only 21% are “very” ready. What I also found interesting was that 64% claim to be “somewhat” or “moderately” ready—and in my mind, that means they aren’t really ready at all.

The same survey of physician group executives or vice presidents, as well as individuals working in U.S. provider organizations including health care systems, hospitals, and academic medical centers found that about three-quarters of the organizations have at least one payer agreement that includes upside gain and/or downside risk—but less than 20% of revenue is at-risk. The median amount of revenue at-risk was 10% and the median amount of revenue in capitated contracts was 5%. For 31%, the risk-based agreement is one-sided and has no downside risk.

This squares with the results of our recent national survey—about 58% of specialty provider organizations are getting some revenue from value-based reimbursement agreements, and 9.3% have 20% or more of their revenue coming from VBR (see 2019 OPEN MINDS Performance Management Executive Survey).

And The Centers for Medicare and Medicaid Services (CMS) push for ACOs to accept downside risk is going to move the field (see The ACO ‘Savings Confusion’ and 4 Lessons From ACOs For Managing Downside Financial Risk). In addition, health plans are also starting pilot programs with value-based reimbursement (VBR) arrangements that include downside risk (see Health Plan Contracting Opportunities – More Consistency Emerging).

The “million-dollar question”? What are the most important organizational competencies needed to accept downside financial risk? I reached out to a few of my team members for their perspectives. They had a short list:

  1. An integrated tech platform with clinical data, interoperability, performance management analytics, and care coordination functionality
  2. Real-time performance data for real-time decision making
  3. An understanding of service delivery cost variables and the risk-based contracting process
  4. An organizational culture focused on performance metrics and performance management
George Braunstein

An integrated tech platform with clinical data, interoperability, performance management analytics, and care coordination functionality—One of the most common competencies needed to work effectively with a VBR contract is sufficient data management skills to address the financial risk. This starts with adopting an integrated tech platform and investments in tech infrastructure and data analytics so that you can integrate data from multiple sources, meaningfully analyze data for business intelligence, and inform stakeholders from front-line, to clinicians, to management, to payers, to health plans. OPEN MINDS Senior Associate George Braunstein noted:

In my experience with managed care as well as service delivery it would be unusual for any organization to enter into a risk-based contract without those basic tools. This does not mean that they always manage to effective outcomes, but they can ensure that they can monitor performance and manage the risk sufficiently to have a positive bottom line.

Ken Carr

OPEN MINDS Senior Associate Ken Carr also noted how poorly many organizations do this:

Based on our analysis of VBR readiness assessment results so far, the lowest scoring competency has been technology infrastructure. I think that this is one of the most important competencies for VBR-implementing the right technology in the most effective manner is the foundation for using data to drive quality outcomes and operating performance.

John Talbot

Real-time performance data for real-time decision making—Even if your organization has the right tech platform, it doesn’t mean you know how to use the data for decisionmaking. OPEN MINDS Senior Associate John Talbot explained:

You must have the ability to track VBR performance measures in as close to real time as possible. And then you need a team that can use that information to act quickly. This involves timely root cause analysis and being willing to change processes as needed.

Deb Adler

An understanding of service delivery cost variables and the risk-based contracting process—One element that is often overlooked in preparing organizations is understanding the cost of your current services and the drivers that would increase or decrease those costs. Success in a VBR arrangement relies on developing and maintaining contractual partnerships with payers and health plans and that can’t happen in a mutually beneficial way unless you know how to come to the table and can discuss your costs and the cost assumptions. OPEN MINDS Senior Associate Deb Adler noted:

The most common VBR competency needed is understanding your current unit costs so as you enter into alternative payment arrangements, you must know your current costs to confirm the financial modeling matches up to your business practices.

Peggy DeCarlis

An organizational culture focused on performance metrics and performance management—Another important competency needed is an organizational culture that values the use of timely data and responds with effective improvements in performance when needed. This cultural competency is usually built upon the use of evidence-based practices, open communication among staff at all levels, and aligning the measures of performance with great consumer care. This culture is essential for long-term sustainability because the relationship between health plans and provider organizations is shifting from vendor to partner, from volume to value. This means, to quote OPEN MINDS Senior Associate Peggy DeCarlis, that the key is “the ability for health plans and provider organizations to create authentic, transparent, mutually beneficial relationships.”

For more, check out these resources in the OPEN MINDS Industry Library:

  1. Preparing For Value-Based Reimbursement-Even Before The Contracts Are Signed
  2. Four Ps For Leading A VBR Evolution (Or Any Change)
  3. Pay For Value-The Glass Half Full, The Glass Half Empty?
  4. The Future Has Arrived For VBR
  5. VBR Jumping From Hospital-Centric ACOs To Community-Based Players
  6. Crawl, Walk, Run To VBR
  7. VBR & I/DD-The Wave Begins
  8. Value Comes To Pharmaceuticals, Devices & Digital Treatment
  9. The Hospital Perspective On ‘Owning’ Value-Based Reimbursement
  10. Building A Workforce For Value-Based Reimbursement = Advice From Four Executives

Elite members of the OPEN MINDS Circle can check out the OPEN MINDS web-based readiness self-assessment, Value-Based Reimbursement Readiness Assessment, focused on the organizational and technical competencies provider organizations need to be successful with value-based reimbursement.

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