Value-based reimbursement readiness: 3 critical questions

April 1, 2016

Here are three questions payers must ask to determine providers’ readiness to engage in risk-based reimbursement.

At a very basic level, payers need to be patient as they embark on risk-based reimbursement arrangements with providers, especially when providers are new to these types of payment models, says Howard Kahn, principal and consulting actuary with Milliman, where he works primarily with commercial payers on Medicare Advantage risk management contracts.

In essence, payers have to allow providers to “learn while doing,” he says.

Here are three questions payers must ask to determine providers’ readiness to engage in risk-based reimbursement

1. What’s the provider’s definition of risk?

The payer should assess how a provider is defining risk-and determine, for example, whether they define it as shared savings, capitation for a certain service or a collection of services, or full risk for all services on a budget and then sharing the risk between the payer and provider, says Kahn.

A good place to start with a provider that’s new to risk-based reimbursement is with a shared-savings program, says Kahn. With shared risk, the provider won’t need to have a lot of systems in place at the beginning. The goal with the shared-savings program is to provide a valuable learning opportunity for the provider. From a financial perspective, there’s no real downside for a provider. Of course, there is a reputational risk vis-a-vis the payer if a provider is unsuccessful, he points out.

2. What’s the provider’s philosophy toward risk-based reimbursement?

The philosophy of the provider’s leadership team toward these new payment structures will vary a great deal, says Brian Flanigan, a principal in Deloitte Consulting’s Chicago office and the firm’s value-based care integrated offering leader. The payer should be aware that hospital executives’ philosophies are going to range from those who are believers and innovators and leading the adoption of risk-based reimbursement-to those who are either very cautious or outright skeptical about the shift to value-based payment, he says.

Much of the provider’s leadership team’s perspective may depend on their experience with managed care in the 1980s and 1990s, when providers lost a lot of money when they took on risk through HMO-driven deals, says Flanigan. Executives with this experience are asking, “What’s different?” he says. That’s the reason the payer needs to understand a provider’s approach toward risk sharing, as this will set the tone in terms of the pace and the commitment of a provider to engage in risk-based reimbursement.

One way to learn about a provider’s philosophy is to look at the strategic moves it has already made into value-based care, such as investments in telemedicine, remote monitoring technologies, and the management of chronic diseases. Another sign to look for is if a provider has created its own insurance plan. That means the provider understands what it means to take on risk and what’s necessary to think about from a product or capabilities perspective, such as the importance of staffing a care management team, he says.

3. Are provider executives asking the right questions?

Provider executives should come to the conversation with ideas on ways the payer can help support them in the journey from volume- to value-based care, says Flanigan. Many of these executives remember from managed care that the risk was simply shifted from the payer to the provider.

Today, payers have more sophisticated data, analytics, and the full end-to-end claims data on individual members that can help fill gaps in terms of what a provider sees from a leakage perspective, given that patients may go to providers outside the network or the service area. A provider should be asking about these capabilities, Flanigan advises.