60% of Federal Revenue to Come from Risk-Based Models by 2019

December 14, 2017 - Almost 60 percent of federal revenue and 37 percent of commercial revenue will stem from risk-based models by 2019, according to a new AMGA survey.

The survey of 74 AMGA medical groups uncovered that Medicare and Medicaid fee-for-service revenue currently accounts for 46 percent of federal revenue. But the groups plan to decrease the percentage to 45 percent by 2018 and 39 percent by 2019, respectively, as the organizations favor risk-based models, particularly through Medicare Advantage.

Medical groups expect Medicare Advantage revenue to grow from one-quarter of federal revenue in 2017 to 28 percent by 2019.

Revenue will remain relatively stable from other value-based reimbursement models, including bundled payments (about 2 percent of federal revenue), Medicaid Managed Care (14 percent), and accountable care organizations (around 14 percent).

Although Medicare Advantage plans still primarily reimburse providers through fee-for-service, the medical groups reported that they view the program as a “strategic priority” for value-based reimbursement because the plans “serve as a gateway” to risk-based models.

READ MORE: Exploring Two-Sided Financial Risk in Alternative Payment Models

Medical groups may also be relying on Medicare Advantage as they transition to risk-based reimbursement because limited commercial options exist. Over 71 percent of commercial revenue was paid via fee-for-service in 2017 and medical groups only expect that percentage to fall to 70 percent by next year and 63 percent by 2019.

In terms of value-based reimbursement in the commercial space, medical groups earned revenue from the following:

• 15 percent shared savings

• 6 percent shared risk

• 4 percent full capitation

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• 4 percent partial capitation

• 1 percent bundled payments

Surveyed groups estimate that the share of revenue stemming from each value-based reimbursement model will remain stable, increasing by about one percentage point by 2019. Shared risk was the only exception, with the projected revenue share jumping to 10 percent by 2019.

Value-based reimbursement from federal sources is projected to grow faster than commercial revenue because the federal government incentivizes providers to join risk-based models. HHS operates risk-based alternative payment models (APM) for the Advanced APM track of MACRA. Medicare providers who join a qualifying risk-based alternative payment model can earn a 5 percent incentive payment.

Private payers, on the other hand, do not offer as many risk-based models or incentives to join one. About 17 percent of respondents reported having no access to any commercial risk-based plans in 2017 and another 41 percent stated less than one in five plans had risk products in their markets.

READ MORE: The Future of Accountable Care Organizations Involves Risk

But private payers are stepping up their risk-based products compared to the inaugural survey. Approximately 70 percent of medical groups had little to no access to commercial risk plans in 2015.

However, private payers are still not meeting provider demands for risk-based models. The lack of risk-based products may be contributing to a slowing of the value-based reimbursement transition.

In the 2016 survey, respondents predicted commercial fee-for-service revenue would represent 61.3 percent of total revenue by 2018. But in the latest survey, respondents project 2018 commercial fee-for-service revenue to total 70 percent.

Medical groups in the 2016 survey also projected shared risk revenue to account for 11 percent of total reimbursements by 2018, but that portion dropped to just 6 percent in the most recent survey.

Similarly, of 2018 revenue predictions for shared savings fell from 18 percent in the 2016 survey to 15 percent in the latest survey.

Respondents from both years only agreed that partial and fully capitated revenue would increase by 2018.

In addition to limited commercial options, medical groups also identified other reasons why the transition to value-based reimbursement may be decelerating.

External obstacles included a lack of claims data access for federal and commercial value-based reimbursement models.  Medical groups also stated that federal rules for risk adjustment and financial benchmarking prevented organizations from assuming more risk.

In the commercial space, respondents were especially troubled by differing data reporting and submission processes by payer.

Medical groups also reported internal impediments to downside risk value-based reimbursement adoption. The challenges included a lack of infrastructure, such as skilled clinicians for care coordination, EHR and data analytics capabilities, and administrative and financial processes.

Additionally, respondents agreed that access to capital was a major challenge to risk-based model adoption.

“Infrastructure costs are enormous, and accessing the capital that allows groups to make these investments is a challenge,” the report stated. “Capital is also needed to maintain reserves to take on increasing levels of risk. This issue is particularly true for physician-owned medical groups whose retained earnings are taxed at the state and federal corporate level.”

While the value-based reimbursement transition is not a smooth road, 60 percent of medical groups still stated that they would be able to implement downside financial risk models within two years.

The number of groups willing to assume downside financial risk is up 42 percent from 2015.

Despite the challenges, survey participants stated that they are interested in moving to risk-based models in the near future to qualify for maximum incentives payments under MACRA’s Advanced APM track.

Respondents also wish to assume downside financial risk sooner rather later so their organizations learn best practices and implement the necessary infrastructure before the market matures. Being the first to enter risk-based plans in a market also boosts market power since employers and payers are already demanding high-quality, affordable care.

With medical groups showing an interest in moving to downside financial risk, AMGA suggested that federal healthcare leaders address the challenges providers face with taking on risk-based value-based reimbursement models.

Policymakers should also extend value-based reimbursement adoption incentives and mandates to other industry players, such as payers, the association advised.