Risk Management News

72% of Execs Ready for Risk-Based Alternative Payment Models

Hospitals and health systems will be prepared to participate in risk-based alternative payment models in one to three years, executives said in a new survey.

Risk-based alternative payment models

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By Jacqueline LaPointe

- Providers are gearing up to participating in risk-based alternative payment models through commercial payers and Medicare, according to a new Navigant analysis based on a survey conducted by the Healthcare Financial Management Association (HFMA).

Seventy-two percent of the 170 hospital and health system senior finance executives surveyed reported that their organizations will have the capabilities to adopt alternative payment models with higher levels of financial risk in the next one to three years, and they plan to take on additional risk through the following:

  • Commercial payer models (64 percent)
  • Medicare value-based care models (57 percent)
  • Medicare Advantage (51 percent)

“The Affordable Care Act left many providers assuming that risk-based models would be the new normal, but the transition has not been as successful or widespread as anticipated,” Richard Bajner, Navigant managing director and healthcare value transformation practice leader, stated in an announcement.

“With most health systems anticipating continued downward pressure on margins, accepting risk can represent a lever for revenue growth, as long as providers clarify internal accountabilities and commit enough of their resources to risk models,” he continued. “These results show the value-based movement may be coming full circle, and this time providers will benefit from previous experiences in designing their approach.”

The survey also found that provider-sponsored health plan participation may be a key pathway to accepting downside financial risk. Forty-four percent of finance executives said their organizations are already part of a provider-sponsored health plan or plan to launch on in the future.

Provider-sponsored health plans require hospitals, health systems, and other provider organizations to take on the risk typically accepted by payers.

While the integrated system created by the provider-sponsored health plan necessitates significant investment and infrastructure, industry experts have argued that participating in one of these plans is the natural next step for providers already entrenched in value-based care and risk.

But to get on board with a provider-sponsored health plan and other risk-based arrangements, providers need greater payer-provider collaboration, the survey found.

“Sharing risk must be a collaborative pursuit between payers and providers,” said Kai Tsai, managing director at Navigant. “It’s clear that providers are building the capabilities needed to support enhanced levels of risk and are planning to increase their risk assumption. Both entities need to partner more closely to lessen the gap between the supply of and the demand for risk arrangements in markets nationwide.”

Sixty-two percent of respondents said that they plan to boost payer-provider collaboration for downside risk adoption through IT capabilities. Another 57 percent plan to partner with payers on physician engagement efforts and 56 percent expect to increase member engagement investments to enhance payer collaboration and support higher levels of financial risk.

Failing to enhance payer-provider collaboration could delay provider adoption of downside financial risk, the survey indicated.

Among executives suggesting their organizations will not engage in higher levels of risk in the near future, more than half (56 percent) said it was because of limited local market demand for risk-based alternative payment models.

Another 26 percent reported that a lack of payer partnership opportunities is stymieing financial risk adoption.

In addition, 42 percent of executives cited operation processes, such as contract execution and care coordination management, as their top challenges of maintaining risk-based capabilities. Other challenges with maintaining risk-based capabilities included scale (23 percent), reporting (22 percent), and data integrity (13 percent).

“Providers will inevitably continue to operate in a market primarily driven by fee-for-service (FFS) payments, but the path forward does not have to be an either/or scenario,” researchers stated.

Hospitals and health systems can successfully manage having one foot in FFS and the other in value-based care by engaging physicians to improve clinical standardization, focusing cost reduction on discrete areas (e.g. post-acute care), and reducing patient leakage through tighter provider networks and referral management.