Key Capabilities for Population-Based Alternative Payment Models

May 16, 2017 - To succeed in population-based alternative payment models with two-sided financial risk, health systems should embrace assuming the role of the payer and work to get all staff on board with the model, suggested Jackie Selby, a healthcare and life sciences member at the consulting firm Epstein Becker & Green, PC.

Population-based alternative payment models, such as capitation payments, require providers to assume the majority of financial and clinical risk for select patient groups. The models aim to incentivize providers to improve care quality while ultimately reducing overall healthcare costs.

However, the shift of financial risk from payers to hospitals for the population-based alternative payment models may unnerve some health system leaders.

Only one-third of healthcare organization received more than half of their revenue from a risk-based alternative payment model, a 2016 American Journal of Managed Care study revealed.

Another recent report from Leavitt Partners also indicated that most accountable care organizations (ACOs) are either risk-adverse or still experimenting with financial risk models. About 61 percent of ACOs were in upside-only risk-based alternative payment models, meaning the providers did not have to repay financial losses.

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

One-half of ACO leaders also shared that they would prefer to enter more shared savings arrangements in the future verse two-sided financial risk models.

Despite health system trepidation, industry stakeholders continue to push for more risk-based alternative payment model adoption.

CMS recently launched MACRA’s Quality Payment Program with two value-based reimbursement tracks. While the federal agency anticipates most eligible clinicians to participate in the Merit-Based Incentive Payment System, it offers the greatest incentive payments to those partaking in an Advanced Alternative Payment Model.

All Advanced Alternative Payment Models require eligible clinicians to take on two-sided financial risk for either patient populations or care episodes. In exchange, the clinicians will earn an automatic 5 percent value-based incentive payment for sufficiently participating in a model in 2017.

CMS intends for the higher incentive payments to encourage more eligible clinicians to join a risk-based alternative payment model.

READ MORE: Understanding the Value-Based Reimbursement Model Landscape

With industry-wide pressure, more health systems are turning to population-based alternative payment models. Selby advised these systems to address key components of population-based risk structures that payers traditionally managed, including population size, provider networks, data analytics, and utilization management.

"You can spread the risk more with a bigger population, just like with an insurance company."

A major capability health systems need to successfully implement population-based alternative payment structures is a large patient population.

“There is no one population size that's ideal for population health, but the large is important,” said the former Deputy General Counsel of United Healthcare and Vice President for Oxford Health Plans. “There's a reason I think there are minimums in the laws, such as the Medicare Shared Savings Program which is 5,000 lives and in New York where it’s 25,000 lives for its biggest risk sharing contract.”

“You can spread the risk more with a bigger population, just like with an insurance company,” she added.

READ MORE: How to Prepare for Alternative Payment Model Implementation

Health systems that feel their population size may not support population-based alternative payment models with added financial risk should look to their patient attribution models.

“It depends on their own system and who they're contracted with and how the patients would be attributed to them,” she explained. “If it's mostly a primary care attribution model, which is pretty traditional, a hospital system could affiliate with more primary care doctors in the community to add more population to the model.”

Health systems should also take over the payer responsibility of developing provider networks that encompass the necessary physician types and services for population health management.

“Normally the health plan, without sharing risk with the hospital system, would be providing their members with the network,” Selby said. “This is managed care. It would be a PPO or an HMO-type product and there might be a gatekeeper, like a primary care doctor, from who you have to get a referral.”

“If the plan is then sharing the risk with a hospital system for members who get services at the hospital system, then they may expect the hospital system to be able to have a network of providers,” she continued.

From inpatient to outpatient and post-acute care to specialty services, health systems must offer a wide range of provider services to prevent leakage as health plans do with their networks.

"The move to value-based payment aims to keep patients out of the hospital and as close to the home as you can get."

“They're acting like the health plan for a portion of the population,” she pointed out. “The network that they have has to be robust enough to have all the services available. It must also have access to all those providers within their own network because once you go outside of the network, you can't really control the cost as well. Ideally, you have a very robust network to be able to provide all these services and to contain the cost.”

Generally, health systems already include acute care and a variety of provider types. But Selby noted that post-acute care may be more of a challenge for building robust provider networks.

“The move to value-based payment aims to keep patients out of the hospital and as close to the home as you can get,” she said. “Along that spectrum, you have ambulatory surgery centers, post-acute rehab, skilled nursing facilities, and then home care, and, on the facility side, they want to be able to have those options to keep the cost under control. They don't want to put everyone in hospital beds where it is the most expensive care.”

Health systems with extensive provider networks and larger population size will accumulate copious amounts of healthcare data to support population-based alternative payment models, Selby pointed out. But providers will need claims data access to be successful with the two-sided financial risk structure.

“The payers already have all that information and when they share the risk and have a hospital system do population management for a portion of the population, the hospital system really needs that same data,” she explained.

As a result, providers may need to collaborate with payers to supplement their information sets. When partnering with payers for claims data, Selby advised health systems to ensure they can access enough historical data to correctly identify patient populations that could result in financial losses under population-based alternative payment models.

“Health systems want to be able to identify patients with chronic conditions and get ahead of the spend, not wait for something to happen and the patient to end up with an admission into the hospital, but to be able to predict where those patients are going to be,” she said.

“The adage is 20% of patients are 80% of the cost,” she continued. “Hospital systems want to focus on the heaviest utilizers and the more data you have for them to be able to coordinate their care and not have them end up in the hospital when they don't need to, the better. That's data that they may not have at the beginning of one of these arrangements if they are new to population health.”

However, accessing the right claims data may be an obstacle for health systems in population-based alternative payment models.

“The problem with claims data is typically it's old. The service has been provided, a bill gets sent, gets processed, the claim gets paid, and it could be 90 days,” Selby pointed out. “In a perfect world, you would have more real-time information. That's the gold standard that everyone would like.”

Once health systems acquire the data necessary to monitor healthcare costs and care quality, providers and executives should focus on developing utilization management policies. 

"The system takes on the administrative services that the plan would otherwise be doing and utilization management and claims payment would be the biggest."

Providers oftentimes face utilization management requirements, such as prior authorizations and step therapy, when submitting claims to payers.

However, health systems participating in population-based alternative payment models may want to consider creating internal utilization guidelines to align their providers with the model’s goals.

“Usually population health comes along with taking on the insurance risk for a whole population,” she pointed out. “The system takes on the administrative services that the plan would otherwise be doing and utilization management and claims payment would be the biggest. It would be unusual to take on the insurance risk and let the plan decide what's medically necessary for a member. Same with claims payment.”

To develop appropriate utilization management policies, Selby advised leaders to turn to clinicians.

“The system would have its own clinical team that would decide what the utilization management policies would be,” she said. “The plan, because of various laws, usually would have to adopt these policies. There are utilization review or utilization management laws in most states that require that a certain type of clinician make the decision to deny any service. Usually it would have to be a licensed physician or sometimes a peer in that specialty would have to be making any decision to deny approval of a service or coverage of a service.”

With key capabilities in place, health systems should be prepared to enter population-based alternative payment model contracts with payers. However, Selby added that executives and providers should align the health system’s culture with the risk- and population-based models to ensure success.

From clinicians, revenue cycle management, and health IT staff, health system employees should be able to participate in the alternative payment model. They should also facilitate contract development to ensure the health system appropriately covers the continuum of population health management.

"Hospital systems want to make sure theat their clinical departments and their finance departments are very much aligned with respect to the population health contract that the system is negotiating," she concluded.