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The migration toward a value-based payment system—and away from payment for services rendered—continues to evolve, and it is clear that a complete reorientation across the healthcare industry is certain. This includes a trend toward healthcare providers assuming more financial risk, which requires critical capabilities for success.
The shift toward alternative payment models (APMs) is requiring providers take an increasing amount of financial risk, whether it be through a shared savings, capitation or global payment model. Regardless of the approach, this provides more financial incentives for providers to keep patients healthy and minimize waste. But, most providers are not yet equipped to take on this financial responsibility and organizational overhaul.
It takes years of work to do well under risk-based models. In fact, the most highly correlated predictor of whether or not a Medicare accountable care organization (ACO) will generate shared savings is the number of years in the program. A step-wise progression with a clear pace of change is tremendously important. Providers should first learn the ropes of value-based payment and adjust to a population health management approach by taking on a small level of risk. One-sided risk models allow providers to share savings with payers, without being on the line to accept downside financial consequences (with the exception of not recouping initial costs to build an APM).
The next step is a two-sided risk arrangement, in which providers share savings and losses with payers. And, with greater risk comes the potential for greater reward. Risk-based contracts offer stronger incentives to manage costs and the opportunity for higher payments.
Data on two-sided risk models is just starting to emerge, and it’s promising. A Health Affairs analysis showed that in 2016, while two-sided risk models accounted for just 10 percent of ACOs, they generated 30 percent of total savings versus benchmarks. Even more importantly, care quality improved across more than 90 percent of the measures.
As ACOs mature and the healthcare industry continues to shift, two-sided risk arrangements are gaining favor. Another survey indicates that nearly half of ACOs firmly plan to take on downside risk in the future.
Now is the time for providers—particularly in high-cost, high-utilization areas—to leverage favorable payment policies (e.g., MACRA) and incentives from government and commercial payers, and begin preparation for two-sided risk. First and foremost, providers must thoughtfully assess their readiness, in terms of ability to take on risk and capabilities needed to succeed.
Medicare ACOs that participate in Premier’s Population Health Management Collaborative have proven to be trailblazers in the realm of payment and delivery reform, outperforming their peers in achieving shared savings.
Learning from the successes of our members and prior experiences, Premier has identified five capabilities critical for effective two-sided risk arrangements.
If successfully implemented, two-sided risk models are a means to align interests across payers and providers, improve population health management, and empower and encourage providers to deliver high-value care. Like any investment, providers must carefully weigh the potential for reward, their ability to manage risk, and likelihood for success.