Seven risk-sharing mistakes to avoid in healthcare

March 1, 2016

Considering entering into a risk-sharing agreement with another payer or provider? Avoid these top mistakes.

Change always requires risk, but neither payers nor providers can sit on the sidelines in the bold new world of value-based care. Those considering entering into risk-sharing agreements need to focus first and foremost on their long-term goals and realize the importance of partnership and collaboration, says Howard Kahn, principal and consulting actuary with Milliman, where he works primarily with commercial payers on Medicare Advantage risk management contracts. When payers and providers fail to adopt this perspective, the negotiations that lead up to agreements can quickly turn into standoffs, during which both parties “red line” the contract in an attempt to get the most money out of the other. “That’s not a win-win situation,” says Kahn. “And it’s not a great way to enter into an agreement.”

Instead Kahn advises focusing on producing a reasonable and fair methodology that works for all parties involved. What both sides need to realize is that they’re aligned in terms of trying to minimize the cost of care, getting better rates for premiums, improve quality, and create better relationships that will drive patients to the provider.

Here are six more mistakes to avoid when embarking on a risk-sharing agreement:

1. Overestimating your partner

It’s tempting for payers to try to shift as much risk as possible to providers, says Mike Thompson, principal with global human resources services at PwC. But if providers aren’t capable of taking on that risk, the end result could be a negative event that the provider can’t manage and the payer assumes isn’t its responsibility.

As Thompson sees it, if providers take on more risk than they can handle, it can lead to one of three potential negative outcomes:

  • The payer bails them out and doesn’t require the provider to live up to the terms of the contract-this can lead to ill will and unexpected losses for the payer.

  • The provider accepts the losses and then terminates the contract-ill will builds up here, too, in addition to discontinuity of care with the provider

  • The provider organization goes bankrupt and the courts decide that either the payer or the providers are liable-and that translates into ill will for everyone involved.

To head off the chance that a provider is taking on too much risk, both parties have to be thoughtful as to how these risk-sharing agreements are structured. For example, a thoughtful approach might be to put a cap on the provider’s potential losses-meaning that the provider is at risk but has a limit on the percentage of fees at risk, perhaps 20%, says Thompson. Placing a cap on potential losses becomes increasingly important when the care providers are at risk for providing-such as pharmacy and hospital costs-isn’t directly provided by them.

Some of the partnerships that grew out of the Medicare Shared Savings Program (MSSP) exemplify how risk-sharing agreements can fail if participants overestimate their readiness to take on risk, says Thompson. Many providers have decided to change programs or drop out of accountable care organization (ACO) programs altogether because their organizations weren’t prepared to deliver value-based care in a way that didn’t negatively impact their business.

Thompson’s advice is for payers to be both realistic and patient when considering a provider’s ability to organize itself into a high-value delivery system. “It takes time to turn that ship. You can’t assume they’re going to assume maturity overnight. You have to find a way to consider the right level of data sharing and determine the right targets to make for meaningful, substantive change-without blowing up the partnership effort,” he says.

Gerald Meklaus, managing director at Accenture, also advises payers to take an historical look at providers’ ability to take on risk when structuring risk-sharing agreements.

Next: 2. Overlooking technology red flags


2. Overlooking technology red flags

Many of the provider organizations that participated in the MSSP (and had difficulty doing so) didn’t have access to enough real-time information about the patients they serve to make timely decisions, says Ben Isgur, director of the Health Research Institute at PwC. This brings up another major pitfall to avoid when entering into risk-sharing agreements: Failing to check up on technology capabilities.

Payers must consider whether providers have the technology infrastructure to improve care delivery, says Kahn. If, for example, a provider isn’t using data analytics or doesn’t have a robust technology solution to enable population health management, payers should consider providing financial incentives to the provider to help them build out their practice.

It can be in the best interest of a payer to provide these types of infrastructure payments to a provider-that is, if the end goal is to help the provider meet their quality goals and financial targets, he says.

Next: Failing to prepare for tense discussion points



3. Failing to prepare for tense discussion points

One sticking point in the negotiation can be who takes on the high cost of drugs, says Ira Rosenberg, president of Managed Care Resources, a consulting firm. Providers often try to get devices and high-cost drugs carved out of risk-sharing arrangements, but payers don’t want to take that on. "You see a lot of negotiations break down over those specific issues," says Rosenberg. This is because providers typically look at the costs they have the greatest opportunity to control and which services have a high degree of variability. There are a lot of new drugs and devices entering the market each year-and that introduces a great deal of variability in terms of cost. That’s why it would be in the interests of the provider to not include these new drugs and devices in the contract. On the other side, payers would rather have those items included in the cap so as to limit their risk exposure.

Payers and providers also need to realistically consider which patients are included in the risk-sharing structure, says Meklaus. There’s no point in connecting a provider group with very sick patients and paying a rate for a healthy population, he says. “The sicker population will need more care, so you’re only setting up a provider for failure if you’re not paying them appropriately.”

Another huge point of contention when negotiating agreements is how you measure savings, says Kahn. The Centers for Medicare & Medicaid Services (CMS) has done some work on this-in terms of coming up with minimum savings rates determined by an actuarial analysis. The intention behind a minimum savings rate is to minimize the chance that providers share in a surplus that’s generated by pure chance-rather than a surplus that’s generated as a direct result of changes implemented by the provider, he says. For example, the same patient population from year to year is expected to incur different claims costs, even if medical care doesn’t change. The size of the attributed population under the risk contract, internal stop-loss built into the risk contract, and the line of business involved-such as commercial, Medicare, or Medicaid-can all contribute to random fluctuations.

The philosophy behind a minimum savings rate will be different from payer to payer. Kahn says he typically sees rates close to 0% and ranging upwards to about to 2% to 3%.

Next: Not considering the bigger picture



4. Not considering the bigger picture

Since the priority is to create a winning proposition for both parties, payers need to make sure that the provider is focused on aligning the incentives of high-value healthcare throughout the healthcare delivery system, says Thompson. A great way to gain insight into a provider’s current capabilities is to take a look at how they’re using technology and analytics to support the delivery of high-quality care.

If you don’t pay attention to this, and you’re more concerned about signing a one-year deal, the whole thing could blow up if the provider is on the losing side and can’t provide care for patients, he says.

If a provider is already organized as a patient-centered medical home (PCMH), that’s an easy way to determine that they’re already thinking about providing team-based care, which is key to reducing costs while delivering high-quality care, says Isgur. “Many of those non-physician clinicians-such as nurse practitioners and nutritionists and social workers-are the ones helping to manage cost and improve quality.”

Consider, for example, the fact that obesity is a big problem in our country, he says. “If you ask who’s going to do a better job in terms of helping people to reduce weight and live a healthier lifestyle, it isn’t going to be a physician who has that to worry about-out of about 500 things. It’s a nutritionist.

“[Payers should] think about quality first. Who’s going to do a better job of managing the patient’s care. Secondarily, a nutritionist is paid less by the hour. That’s the framework we think payers should be looking for: quality first, cost second. Often the answer is a team of care givers,” he says.

Next: Not evaluating the broader network



5. Not evaluating the broader network

Payers need to make sure they evaluate the network they have before embarking on a risk-sharing agreement, says Meklaus. “Performing a rigorous assessment of capability is valuable in understanding those differences and not extending risk to organizations ill-prepared to manage it; or conversely, failing to extend risk to those capable of managing it. Within this context, payers should be evaluating ACOs for governance, leadership, infrastructure, and technology, especially analytics,” he says.

Narrow networks, which are becoming more common across the country, are being used to manage costs. Payers are selecting providers to join these narrow networks based on their history of managing costs while providing high-quality care, says Meklaus. Still, those networks can’t be too narrow-or they won’t be acceptable to members making provider choices. “It’s always a balance. It’s about geography and specialty coverage, and the ability to accept risk….that’s why evaluating your network is important.”

Next: Failing to support your partners



6. Failing to support your partners

Payers must be willing to release helpful information to providers, such as which patients are included in the risk pool, claims data, and detailed information about labs and pharmacy that provide a comprehensive picture of the provider’s patient population, says Meklaus. Once providers have access to this information, they’ll need to effectively identify sub-segments of that population that are at risk and create interventions that apply to those populations, he says.

Payers also need to be realistic about their ability to provide the appropriate claims and other data to providers.

For instance, adjudicated data may help providers. While this data may be lagging in time, it can be helpful when trying to identify areas of high utilization and opportunities to address over-utilization. It may be easier for traditional HMOs to provide adjudicated data to providers since their members have a primary-care provider, who serves as their gatekeeper for referrals. With PPO plans, it’s a bit more complicated to appropriately attribute members to a network. First you need to take a look at where members have received a majority of their primary care by looking at claims data and then patients can be attributed to primary care providers. Meklaus recommends working with a software analytics vendor that is able to do this type of analysis.

Keep in mind that adjudicated data can fall short in addressing specific patients-specifically because of time lags, says Meklaus. Often, by the time a patient shows up as at-risk in the claims data, their status has changed, which could mean their heath has improved, gotten worse-or they may have died, says Meklaus. For this reason, giving providers timely access to information about the patients they serve is another key to success, he says. If payers can provide up-to-date health information to providers, providers will be able to proactively identify patients who are in most need of care-especially those with chronic conditions, such as heart disease, diabetes, or obesity, he says. Once they have this information, they can craft strategies to keep high-cost patients out of the hospital or the emergency room.

Next: Failing to shift provider compensation



7. Failing to shift provider compensation

How physicians are being paid after a provider decides to take on full risk or close to full risk can also impact the success of a risk-sharing arrangement, says Thompson. If physicians continue to be paid on a fee-for-service basis, their daily workflows won't align with the value-based reimbursement model the organization has taken on.

That can be a very dangerous scenario, says Thompson, who notes that this often happens with independent practice associations.

Providers are “in between a rock and a hard place,” says Meklaus. “They’re seeing their reimbursement drop for fee-for-service visits. Margins are tight. Yet we’re asking them to add new capabilities. In many cases, they have no capital to make these investments. Any help that payers can provide to providers to help build out their capabilities will go in the right direction so that providers can take on more risk over time.”

Aine Cryts is a writer based in Boston