Healthcare Providers Did Not Take On More Financial Risk in 2019

August 20, 2020 - Nearly half of healthcare executives said 10 percent or less of their organization’s revenue came from risk-based contracts in 2019 despite expectations that financial risk in healthcare would be a lot further along by then, according to a new report from Numerof & Associates.

For its fifth annual report, released earlier this week, the healthcare consulting firm surveyed approximately 500 C-suite healthcare leaders between June 2019 and September 2019 in collaboration with David Nash, Founding Dean Emeritus of the Jefferson College of Population Health.

The survey found virtually no change in the amount of healthcare revenue tied to risk-based contracts from 2018 to 2019.

Two-thirds of executives in the survey said 20 percent or less of revenue was in a risk-based agreement in 2019. Another 18 percent said between 21 and 40 percent of revenue was at risk.

Meanwhile, just 2 percent of executives reported having over 81 percent of revenue at risk. Seven percent had between 41 and 60 percent at risk and 61 and 80 percent at risk, respectively.

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

Furthermore, nearly a quarter of executives (24 percent) in these risk-based contracts did not in fact have downside financial risk, only the possibility of earning a bonus if targets were exceeded, the report said.

Low levels of financial risk in healthcare come even as government agencies push providers to assume downside financial risk in existing programs and new alternative payment models.

Even providers themselves thought they would be a lot further along with risk-based contracts by now.

An overwhelming majority of executives still agreed in the latest survey that population health (operationalized through risk-based contracts) is important for future success.

When asked in 2017 how much revenue they thought would be at risk two years later, nearly one in three executives projected their organizations to have at least 40 percent of their revenues in risk-based contracts.

READ MORE: Number of MSSP ACOs Taking Downside Risk Doubles, CMS Reports

Only 16 percent of respondents in the most recent survey met that expectation, the report’s authors highlighted.

Nevertheless, healthcare executives still expect the market to move to alternative payment models.

In the survey, 99 percent of executives projected their organizations to have some revenue in risk-based contracts in two years. And like in year’s past, respondents’ median projection for the percent of revenue to be in risk-based models in the next two years remained between 25 and 30 percent.

Notably, 86 percent expect revenue from capitated payment models to increase.

As of 2019, only about half of respondents (52 percent) engaged in some capitated contracts, with most participating in a limited capacity.

READ MORE: Atrius Health Makes the Business Case for Risk-Based Payments

Healthcare provides have a lot of work ahead of them if they are to meet their risk-based revenue goals, the authors stated.

The top barrier to risk-based contract adoption among providers was the threat of financial loss, the survey showed.

Approximately one in five executives cited financial loss as the primary obstacle to moving to a risk-based payment model, followed by issues with systems like IT, tracking, and management (15 percent), uncertainty about when to make the transition from fee-for-service (13 percent), difficulty in modeling the cost of care across the continuum (10 percent), and trouble changing the organization’s culture (9 percent).

Understanding cost of care may prove to be more difficult than executives perceive though.

In the survey, only 35 percent of executives said their organization was better than average at managing cost at the individual physician level. And this result had not significantly changed since the inaugural survey in 2015, the authors stated.

In contrast, 65 percent of executives said their organization was better than average at managing quality at the individual physician level, a significant improvement compared to prior surveys.

Greater confidence in quality management may stem from broader implementation of “supportive management processes,” such as inpatient care navigators, referrals of patients to community organizations (e.g., food pantries, prescription assistance programs), and patient follow-ups after discharge, the report’s authors explained.

The 2019 data showed significant increases in the number of executives who said their organizations routinely use these processes. Although there was still room for improvement, the authors pointed out, since none of the processes were routinely employed by 75 percent of executives.

However, there is more room to progress with cost management, the report underscored.

Only 47 percent of executives reported that their organizations routinely used a process to identify physicians who were outliers in cost or quality. Even fewer (37 percent) said their organization had a process to address the variation.

Additionally, just 35 percent of executives reported linking compensation to cost and quality performance for any clinicians.

Establishing care paths, implementing order entry systems to identify deviations from the paths, providing physicians with comparative cost and quality data, and tying physician compensation to management of cost and quality will be key for providers moving forward with a risk-based payment model, according to the report.

Providers will especially need to better grasp cost management as organizations try to recover from historic financial losses during the COVID-19 pandemic and beyond.

Financial risk in healthcare could also help on this front, according to Rita Numerof, PhD, president of Numerof & Associates.

“One of the greatest ironies in all this is that because of Covid-19, people are realizing that there’s just as much – if not more – risk in staying in an antiquated, fee-for-service model than there is in embracing an alternative,” Numerof stated in a press release. “We expect to see the sentiments surrounding risk shift significantly next year, especially as awareness of providers’ success with capitated payments during the pandemic becomes even more mainstream.”