Financial Risk Sharing in Healthcare Improves Quality, Costs in CA

April 26, 2019 - Financial risk sharing in healthcare led to total costs of care being 3.5 percent lower in 2017, reveals the third edition of the California Regional Health Care Cost & Quality Atlas.

Providers in risk sharing arrangements in California also scored 9.2 percentage points higher on average clinical quality performance rates compared to providers taking on no risk via fee-for-service, the report known as Atlas 3 also shows.

“There has been much discussion regarding value-based care and shifting the payment model from ‘volume to value,’” Jeffrey Rideout, president and CEO of IHA, states in a press release. “However, until the Atlas 3 release, limited data existed on the prevalence of financial risk sharing among provider organizations and the association between risk sharing and value.”

Atlas 3 shares insights from 2017 data contributed by seven health plans representing 7.2 million lives in California and all types of contracts, including health maintenance organizations (HMOs), preferred provider organizations (PPOs), accountable care organizations (ACOs), and more.

The report shows that, like the rest of the country, the majority of providers in California are not engaging in financial risk sharing in healthcare. The percentage of the commercial population cared for by providers sharing financial risk ranged from 18 percent in central California and 24 percent in northern California to 45 percent in southern California.

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

Researchers found similar percentages of the commercial population in each region receiving care from providers sharing financial risk. However, the levels of financial risk sharing in healthcare were substantially different.

Full financial risk sharing through professional and facility capitation was very limited in northern and central California, representing just nine and four percent of the commercial population, respectively.

Capitation payments and full risk sharing were more common in southern California, with 23 percent of the commercial population obtaining care from a provider with full financial risk in 2017.

Full financial risk sharing in healthcare may not be widely adopted yet. But the evidence shows that the greater level of financial risk sharing, the greater care quality and costs benefits.

Commercial patients care for by providers accepting full financial risk through professional and facility capitation payments had total costs of care of $4,428 in 2017, compared to $4,501 for patients receiving care from providers sharing risk for professional services only and $4,589 for patients with fee-for-service providers.

READ MORE: How Accountable Care Organizations Can Prepare for Downside Risk

Providers sharing greater financial risk not only reported lower costs in 2017, but they also had pharmacy costs 13 percent lower compared to fee-for-service providers. Their patients also paid $268 per year in out-of-pocket costs for medical services compared to $672 per year for patients treated by fee-for-service providers.

Additionally, providers taking on greater financial risk through capitation payments had a preventative screening rate 11 percentage points higher compared to providers not sharing risk.

If providers shared financial risk care for all patients in California, then 60,000 more women would have been screened for breast cancer and 1,500 fewer patients would have received a combination of opioids and benzothiazines, the report adds.

Greater financial risk sharing in healthcare may lead to stronger quality results because providers are “using the greater flexibility of capitated payment to invest in infrastructure, such as care management programs, that supports population health and quality improvement,” the report states.

The report gives concrete evidence that financial risk sharing in healthcare adds value to the entire system, concludes IHA in the report.

READ MORE: Practices Still Averse to Risk-Based Alternative Payment Models

“To support delivery system transformation, we need better ways to measure clinical integration and coordination, and to reward strong performance on delivery of patient-centered care,” the non-profit regional health care improvement collaborative writes. “Risk sharing is an important part of the puzzle, because it allows provider organizations to shift from a transactional approach to a patient-centered perspective.”

Shifting providers to at-risk arrangements has been an industry-wide challenge. Implementation of risk-based contracts appears to be stalling, with the median percentage of revenue at-risk remaining at ten percent for three consecutive years, according to a recent survey of more than 500 C-suite executives.

Additionally, the majority of healthcare executives in another poll say financial risk sharing is still three to five years away.

Data sharing issues, a lack of agreement on outcome measures, missing incentives for payer and provider collaboration, financial troubles, and other challenges are stopping providers from sharing financial risk with payers, especially full financial risk, the surveys show.

But at-risk providers in California say the Atlas 3 report validates their efforts and should help to accelerate the adoption of risk-based contracts.

“The Atlas validates Sharp Rees-Stealy Medical Group's approach to comprehensive, coordinated care for the whole patient,” Stacey Hrountas, Sharp Rees-Stealy Medical Centers CEO, says in the press release. “We've been pursuing full risk contracts with health plans for decades, because we know that providing care coordination, population health and focusing on prevention results in healthier patients who avoid using expensive health resources such as hospitalizations.”

“The Atlas provides the evidence for health plans, employers and legislators to support the growth of HMO and MA plans for the best value and a healthier population,” she continues.