There's a lot to overlook when evaluating risk sharing arrangements and value-based care reimbursement

The transformation to value-based care and its definition will impact your business strategy for several years in the short and medium term. Are you ready? Don't feel like you are alone. Few are.

Risk sharing pricing models aren't developed and tested overnight. There's a heck of a learning curve. And from the looks of market indicators, it appears that these innovations will run for the next 5-10 years.

Medicare's Bundled Pricing Initiative is, in my professional opinion, a losing proposition that was designed incorrectly from the beginning. I've been negotiating and operating bundled price arrangements with tremendous success since 1998. I know for a fact that self-funded employers and unions love the model, are more willing to contract with hospitals and integrated health systems that offer this - even if they have to defy their ASO and TPAs.

Domestic medical travel programs are proliferating in the USA and the ones that are doing the best are the ones who can offer a flat fee, bundled case price to a self-funded employer, union or Medicare alternative programs for retired public employees like PERA and CALPERs. Will they fly right over your door to buy the services you currently offer from someplace else? YOU BETCHA!

Medicare's stall on the model is also not going to stop commercial insurance carriers and from continuing on with bundled pricing and risk sharing. If you haven't learned the perils and pitfalls and best practice formulas for this complicated pricing method, what are you waiting for?

How to evaluate a consultant you might hire to help you

I get so upset when I hear that another "wannabe" (yes, I wrote that in public) consultant got hired to help with value-based contracting and risk sharing and the hospital paid them a fee of $20-$50K for their services and led them down the pricing and "eat up the doctors" to order tests and prescribe differently. That is so not what this is about. You'll not only pay the consultant that $20-50K, you are about to pay and pay and pay and pay going forward the deeper you go down the wrong rabbit hole with their guidance and the strategy that they left you with.

After you've read this article, you'll understand why a different approach is necessary. The approach I am about to recommend comes from working on capitation, risk sharing and studying and executing population health management projects since 1991 - what's that--- 26 years? After you've read this, perhaps you'll have a better idea how to hire or evaluate a consultant and specify the Terms of Reference (ToRs) for your work with the consultant. If I just bash on the wannabes that are good "salespeople" but don't have the chops for this kind of a project, I risk sounding like sour grapes by a competitor. So in this article, I am going to share some of the more substantive points of preparing a strategy led by the C-Suite to prepare for value-based care. Then you can decide for yourself whom to hire and what to assign them to do - and what to expect you'll have to do from within or hire out altogether.

Buying "stuff"

Even if you have a strategy to buy new technology, EHR, and other gizmos and gadgets, which ones should you buy? What's the procurement strategy? Are are you just going to wing it and respond to what the CEO up the street decides to do? Going second is a strategy, right?

With which organizations will you partner going forward? Are you musing over options for mergers and acquisitions, partnerships and collaborations, including nontraditional competitors to help you execute a strategy for value-based care? How will big data and analytics figure in? What will you do with the data you amass? How will you use it to make decisions? Will you trust it?

The Ad hoc committee you'll appoint

How will you decide on new clinical policies, innovate for better clinical and patient delight outcomes? How will you move the needle on your Community Health Needs Assessment from the last assessment 3 years ago to the next three years? How will you engage with and educate your communities about the overall future of health and disease?

Each one of the questions above came from projects I've worked on for hospitals and their C-Suite leadership team over the past 26 years. But with more than 7000 hospitals in the USA and over 9000 ASCs, my work is but a drop in the bucket of the visionary few that don't let grass grow under their feet. I've been invited to teach workshops and lead strategic planning retreats at hospitals and ASCs and work with their key medical staff, members of the C-Suite, managed care contract analysts and decision support folks, revenue management team and managers and compliance advisers.

At the association level, I've been invited to speak at HFMA multi-chapter events, webinars, and more. At the investor level, hedge funds tap me almost weekly through Maven, Gerson and Third Bridge to ask me for an hour to discuss a strategic concern and gain insight to the market.  The options to proceed down the path of risk sharing are limited only by creativity and experience.

Rational and grounded ideas and solutions are paramount

The healthcare industry is so uncertain right now. Clients ask me to mastermind their framework for a strategy to cope and thrive over the next 5-10 years with value based care transition. They look to me for a rational and grounded answer and ideas that can be executed in the short term at a low cost and lowest possible risk.

Many ask me how to backstop the risks they decide to accept. What they really want is for me to cut through the fog and guide them to safety. They cannot afford to make mistakes on this.  Some of my client hospitals run on $15million annual revenues. A mistake in a risk sharing offer is critical!  If repeat business and confidence is any indicator, I must be doing what they want. I believe in risk when the client is ready and experienced. Up until that point, I make every effort to guide them down a path where risk comes in bite size nibbles until they have experience and skills needed to dodge bullets. Meanwhile, we accept less risk, grab low hanging fruit in terms of measurable improvements, and perfect the workflows in the due diligence phase before agreeing to accept risk and simply "hope" for the best.  

The payers get this and respect it. Why? Because if that little critical access hospital implodes, how will they continue in the market. Most state laws require network adequacy starting with a hospital in a county to obtain a certificate of authority. No hospital provider, can't sell the coverage policy. So if they kill their supplier, they kill themselves. The insurance company is required to show that they can handle the risk they've underwritten. They usually buy reinsurance for this. A cool, calm and collected negotiator knows this and knows how to bob and weave around the bullets and land mines in the first offer draft boilerplate agreements. In my case, I rarely leave a draft boilerplate contract intact. 

Another reality I've learned along the way: Many health plans and their attorneys also don't know how to draft or structure a shared risk agreement. I've learned that most don't have nefarious intent. What they lack is competence and experience in sharing risk with providers. So when I am at the table, often I find myself offering alternative arrangements that mutually benefit both parties. In the 1990s, I had to do that at Humana in San Antonio. The doctor was ready to walk because he felt disrespected. The contracting manager had just been promoted from director of medical records!  I utilized my mediator training to guide the negotiations between the two and we got to a happily ever after on that one - for 3 years and everyone made money and people got great care!

I am cautious. Some health plans get really frustrated with me because I dot I's and cross Ts so nobody steps in quicksand that they'll have to dig out of once I've signed off the project.

In shared risk agreements, people often think capitation or pay for performance. One of the most valuable benefits I lay on the table is the recipe for bundled case pricing that protects my clients from untoward financial risk and the payers enjoy predictability.  By using my clinical and managed care skills to come up with a practicable, priceable, beginning and ending of an episode of care and the disqualifying criteria for ever using the bundled case rate in the first place on the wrong patient.

Once my clients understand and feel confidence in their skills, and their ability to follow the formula, they begin to trust their training like a Navy Seal. They continue to expand their portfolio of bundled case rates for different specialties in both the inpatient and outpatient setting.  This is attractive to insurers and to self-insured employers and labor unions seeking to contract directly with hospitals, ASCs, PHOs, IPAs and ACOs. The reason it wasn't as attractive ten or more years ago was because there was no way to process bundled claims other than by hand which was too tedious. Now Oracle has the tool and some TPAs are using it across America and they can process bundled claims without human intervention just the same as they process other claims in an automated manner. So part of the due diligence I conduct includes asking what the plan or TPA or ASO uses in terms of software to process claims and generate reports.

Capitation, pay for performance, bonuses and penalties-- these are all child's play for me. Success is contingent on due diligence, market intelligence, good solid population health tools used as intended, predictive modeling skills, and a solid formula coupled with physicians with an open mind and solid reinsurance coverage to cover your ass-etts. For many of my clients, it isn't child's play because they lack these skills and the staff to work the workflows. That is in and of itself critical risk exposure. The training isn't something that is accomplished in a few days of a seminar either. That merely introduces concepts. Training delivers skills. Education - over a longer period of time imparts the "why" and the "when" to use the skills. If you lack both the training and education at your hospital, ASC, ACO, IPA, PHO, or the tools and software in the MSO setting, you must either hire the person with the education and skills to guide you and buy the software and tools for the MSO or stand down and not accept the contract draft as offered.

Another thing I am asked to do quite often is to explain the risk sharing strategy to non-medical people with fiduciary responsibility who are on the Board of Trustees of the hospital. This is for one reason: to obtain approval and buy in on the strategy and execution plan. That's teaching and its what I love to do most.

Fee for service payments are still going to exist.

This is for sure. But already, phones ring at the hospital and ASC and consumers ask "Can I get the bundled price you give Medicare or your best managed care payer if I pay you cash?" That's because savvy consumers know that they can get a knee surgery or shoulder surgery practically anywhere there is a licensed surgeon and facility. So, if they have a relative in healthcare (15% of us work in healthcare in America) the healthcare family coach says go to a place where rents and labor costs are lower and you'll find the cheaper fees.

If you respond with a "no", what will be your defensible argument? This is the result of the 2003 Medicare Modernization Act that introduced Consumer Directed health care, high deductible health plans, HSAs and HRAs that cover the cost of travel to a trusted and branded healthcare provider that offers saving on out of pocket costs. Then again, a new case on the books when you have excess capacity or you are a little tiny critical access hospital running on a $15m income, WHY would you say no?

You'd be surprised at the nooks and crannies where hidden risks exist.

For example,

  • You can have excellent surgeons and a well-equipped hospital with the latest gizmos and gadgets and little Mary Lou working as the doctor's receptionist loses the hospital $20 million a year in opportunities. Why? Because when she answered the phone, she acted brusque and indifferent for her $9 an hour and they went somewhere else.
  • Eileen in the OR dutifully picks, unwraps and places instruments consumable supplies and other listed surgeon preference card items on the Mayo stand and back table for each and every scheduled surgical case. At the end of the case, she counts everything as required and then grabs the Mayo stand cover and back table drape and tosses a whole bunch of single use items in the red bag trash container. She ships back the remaining back table and Mayo stand items using the back table to the cleaning area so they can be re-sterilized, re-wrapped and re-placed on the shelf for the next case. How much was never touched or used? What is the cost of this waste? How could it be approached differently?
  • Mike, your marketing director has been asked to join the contracting team. A new contract offer has been received from a local health plan. This contract has a "pay for performance" bonus/penalty program based on how well your IPA, PHO, or ACO manages the health of your population. Your hospital is not required to produce a community health needs assessment (CHNA). He's unaware that the hospital should first research and prepare an Area Deprivation Index (ADI) which measures income, education, and other economic and social risk factors affect individual health and well-being. The ADI is a validated, community socio-economic composite measure developed specifically for a community and measures the distribution of socio-economic disadvantage within a community at the U.S. Census block group level. Higher socio-economic deprivation levels in communities are often associated with poorer health and health delivery outcomes. While the ADI does not provide information on specific health needs in a community, it does provide context and information about segments of communities in which greater health disparities may be expected and where implementation strategies could be targeted. Andy, the contracting team director does not ask the payor for an age, gender, and zip code analysis for the population you will be assigned and responsible for under the contract and also fails to ask for anything that gives the plan's baseline measure. Baseline and target metrics are not attached to the the contract as an Exhibit. How will you measure and prove you are due a bonus and not a penalty at the end of the contract's measurement period?
  • Sandra, your managed care analyst reads through the rate sheet proposed by the local payer and deems the cardiac stress test bundled case payment is adequate without checking if it includes payment for the isotope. She looks at the OB case rate for mom and baby and doesn't check to see if this is for one baby or a multiples delivery, vaginal or C-section. Shall I continue? Are are your hands already covering your face?
  • Capitation contracts are built on "rate cells". Each set of services, (e.g., Evaluation and Management (E&M) encounters, psych encounters, prescriptions issued and filled, in-house diagnostic testing, and other services) are all assumed and embedded in the capitation rate which is adjusted by age and gender. If the rate cell is loaded with 3 visits for "dysthymia"( a persistent depressive disorder that is a continuous long-term (chronic) form of depression. People lose interest in normal daily activities, feel hopeless, lack productivity, and have low self-esteem and an overall feeling of inadequacy. These feelings last for years and may significantly interfere with your relationships, school, work and daily activities. This often goes unreported to the physician until they hit overload. It has many other somatic touch points, though which manifest in pain and other complaints which then drive up testing, technology and medication costs that were outside the capitation budget for the anticipated utilization.) By the time it is reported, if the physician attempts to manage this on his or her capitated risk contract, he or she is performing services that are actually loaded into the psych network's capitation rate cells. Perhaps his or her own contract only assume a maximum of 3 visits for this before referring the patient to the psych carve out network. So the risk here is the doctor is managing financial risk for services he or she has not been paid to assume while the psych network is getting paid for dysthymia management and medication and not having to do the work. So the key here is to ask "what's loaded in the rate cells and to what extent?" The response I look for from the plan is an actuarial table. Anything sort of this as a revert raises my risk aversion antennae real high.  
  • Here's one more: The cops come to your ED with a detainee they've arrested who got cut or injured in the arrest scuffle. They "unarrest them" and leave them to be treated. They instruct the nurse that when treatment is concluded, to please call them so that they can -"re-arrest" them and haul them off to the jailhouse. Then when the bill is sent, insurance denies the claim because the injuries were sustained in the commission of a crime. The cops say "he wasn't under arrest when you treated him so the bill isn't our problem." How will you get paid on that bill?

All these are shared risk perils and pitfalls staring you in the face even though they are rarely mentioned in the conversation about shared risk contracts and reimbursements. I see them as if they glow, but it's what I do day in and day out.

Pre-risk assumption due diligence and research of your assigned population

When you share risk for the treatment and health status of a population, some of the elements you must examine include, but are not limited to the following:

  1. Median family income (dollars)
  2. Income disparity
  3. Percent of families below poverty level
  4. Percent of population below 150 percent poverty threshold
  5. Percent of single parent households with dependents under age 18
  6. Percent of households without a motor vehicle
  7. Percent of households without a telephone
  8. Percent of housing units without complete plumbing
  9. Percent occupied housing units 
  10. Percent of households with less than one person per room
  11. Median monthly mortgage (dollars)
  12. Median gross rent (dollars)
  13. Median home value (dollars)
  14. Percent of employed persons over age 16 with a white collar occupation
  15. Percent of unemployed civilian labor force over age 16
  16. Percent of population over age 25 with less than nine years of education
  17. Percent of population over age 25 with at least a high school education

Ask for the data you need from the health plan

When I first begin working with a client who is planning a risk sharing agreement with a third party payer for value-based contracting, I ask for all this data for the zip codes that will be assigned. One mistake many clients do is try to attract as much market share as possible from the widest geographic range. That's consistent with a fee for service mindset of capturing "more" market share.

In strategies for value-based contracting and sharing risk, your strategy begin with research and interpretation of data to know everything you can about the population assigned. The ADI is so helpful for this.

The next thing is to know what their utilization has been in the past. ICD-10 data, by zip code or by community, is one way to examine the population health risk. Another is visit frequency for certain procedure codes. Any predictive modeling that the plan has done is helpful to complement your internal data review to see if they simply "make sense" when placed side by side.

To present the information, create heat maps for each of the data elements. Doing this will add thousands of dollars to the cost of contract preparation, but if you intend to engage in shared risk and value-based contract reimbursement, you should do this step every few years. That's one way to predicatively model if the contract offer is worth the paper it is written on. I once had a contract offer on the table for a small hospital who was asked to accept a shared risk contract and the payer offered $1 PMPM as a "medical management fee". I am not sure what they thought we might do with $1 PMPM but the politest words I could muster were "Really, please show me how that works. Otherwise, we'll just let you do it and keep your dollar."

Brand Value and Value based Care

What is your hospital known for, specifically? How is your local brand positioned in the mind of the population? If you are highly regarded as the place to go when you are really, really sick or have a particularly complex condition, you've set yourself up to face a double edged sword in risk sharing agreements. That's because you'll tend to attract what insurers call "adverse selection" -- when sicker people choose you. While that's great for branding and marketing, in risk sharing arrangements service often equals expense instead of revenue. This is true whether your are paid in capitation (prospective per member-per month flat fee reimbursement) or measured only on dollars paid per time period as a fee for service reimbursement according to a fee schedule.

Prioritization of risks in population health management

Part of what I review in my consultations with clients is prioritization. This is a public health study which I can usually muster assistance from anyone on the client's internal team that has a Master of Public Health degree and adequate experience. If they don't have someone with a MPH on their team, one must be hired. I have several physicians on our team who will join our team of experts who have this training and experience if they cannot supply it from within. Prioritization involves identifying 16 dimensions, determining the weight for each, evaluating the broad health issues on those dimensions, and calculating scores to identify the significant health need and its associated risk from a health status and financial perspective. These dimensions include, but are not limited to the following:

  • Affordability: the degree to which addressing this health issue can result in more affordable healthcare (14%)
  • Alignment: the degree to which the health issue aligns with my client's mission and strategic priorities (11%)
  • Community input: the degree to which community input meetings highlighted it as a significant health issue (11%)
  • Feasibility: the degree to which the health issue is feasible to change, taking into account resources, evidence-based interventions, and existing groups working on it (14%)
  • Health equity: the degree to which the health issue disproportionately affects population subgroups (12%)
  • Seriousness: the degree to which the health issue is associated with severe outcomes such as mortality and morbidity, severe disability, or significant pain and suffering or other acuity (12%)
  • Size: the number of people affected by the health issue (12%)
  • Upstream: the degree to which the health issue is upstream from and a root cause of other health issues. (14%)

Assignments for the ad hoc task force

 The percentages assigned to the relative weight of each dimension usually ends up at ore near the percentages I've indicated next to each dimension. If you embark on this route, be sure to bring in your local health department officer and state health department leaders to your ad hoc task force along with the payer's medical officer and CFO and COO, along with your organization's Administrator/Chief Executive, Financial, Medical, Nursing, and Operations Officers, Strategic Planners, Community Benefit Manager, Communications Director, and members of your Governing Board or Trustees from the community. These are the folks who will give input to the prioritization ratings noted above.

To help them prepare to opine, you'll need to supply them three things:

  1. An executive summary of the hospital’s community input meeting
  2. A summary of the 100 publicly reported health indicators for the hospital community
  3. An Area Deprivation Index (ADI) map of the hospital community

If you don't have these things ready and accessible, the preparation and creation of these materials must be undertaken first or the ad hoc committee will simply be winging it. If that's the case take out your checkbook.

Pre-assignment guidance

I usually give the following guidance to the ad hoc committee once these 3 reports have been given to them:

  1. Rate the health issues on four dimensions (alignment, feasibility, seriousness, upstream) using a scale of low (1), medium (2), or high (3).
  2. Then assign ratings for the remaining dimensions (affordability, community input, health equity, size) based on the following criteria:
  • Affordability: reduction of costs associated with addressing the health issue being small (1), moderate (2), or large (3), provided by the payer's or employer's population health analytics team.
  • Community input: not mentioned by the community as an issue (1); mentioned, but not a common theme (2); common theme mentioned by several community members (3).
  • Health equity: calculated by creating a disparity score using race as the only indicator of disparity. The highest number in the race categories was subtracted from the lowest number, divided by the lowest number, and then multiplied by 100 to get a percentage (% disparity). 1 = 0-100% disparity; 2 = 101-300% disparity; 3 = >300% disparity.
  • Size: prevalence: 1 = 0 – 9%; 2 = 10 – 24%; 3 = ≥ 25%; incidence: 1 = 0-49 per 100k; 2 = 50-99 per 100k; 3 = 100+ per 100k. Scales reflect national metrics.

Some of the risk indicators that will vary community by community include:

Key Issues

  • Lack of education about and motivation for preventive care and healthy behaviors
  • Safety concerns and lack of infrastructure to promote physical activity, especially for children and adolescents
  • Connection of poverty to chronic diseases, ability to purchase healthy food, inadequate housing
  • Prevalence of depression among all ages and other mental health conditions affecting children
  • Substance use and lack of treatment facilities
  • Prevalence of suicide

Chronic diseases, weight, and unhealthy behaviors

  • Physical activity and motivation to eat healthy are not priorities
  • Mental health and depression contribute to chronic illness and unhealthy behaviors
  • Poverty and its effect on obesity
  • Need for education about the cost of healthy food and meal preparation
  • Community infrastructure doesn’t support active lifestyle; lack of safe walking paths or bike riding paths
  • Lack of preventive care
  • Employer wellness programs work well in the community

Access to healthcare

  • Transportation is a barrier to accessing care, especially for elderly population
  • Lack of insurance among college student population; students report financial challenges which are barriers to accessing care
  • Need for education to understand health system and how to access services
  • Poverty and homelessness are barriers to accessing care

Access to mental health

  • Lack of suicide prevention programs and support programs
  • Relative lack of integrated healthcare, especially with mental health
  • Childhood trauma and lack of access to mental health services
  • Prevalence of substance use
  • Lack of residential drug treatment facilities, no detoxification facilities
  • Need for education on how to access mental health resources

Children’s health

  • Excessive screen time and technology and effects on mental health; and disconnect between games and consequences of real-world events
  • Prevalence of substance use, especially cocaine and heroin and prescription medication misuse
  • Lack of motivation for physical activity and relationship to obesity and depression
  • Prevalence of obesity
  • Homelessness and poverty effect children’s health
  • Lack of affordable childcare
  • Prevalence of childhood stress and trauma
  • Lack of parental involvement, need for parenting education

In my medical tourism source market evaluations for both domestic and international medical tourism, I try to capture as many of these source market dimensions and metrics as possible in the framework of "know your customer, the basic mantra of branding. Brand equity and brand value tie into risk-based contracting and when I explain this in my presentations, I always watch the audience because I know everyone is going to write that down on their notes.  It is interesting to me how the intersection of managed care, risk sharing, branding and medical tourism marketing all cross paths here, isn't it?

Why would I discuss brand value and brandy awareness in a risk sharing and value based care article? Because the impact of brand awareness is often overlooked it or never considered in these instances. Hmmm. Does that mean that most of you need some help with brand value and brand equity training from my colleague Ilan Geva as part of the value-based care strategy you'll develop? Perhaps so. The key impact here is all about Adverse Selection... when sicker people choose to receive their care from you because your brand has earned their trust and your doctors are viewed as the authorities.

Adverse selection is a topic worthy of discussion all on its own for another day and time. Cogitate on what you just read and start drawing out your risk sharing strategy outline. If you need help, call me.

Want to learn more on this topic?

Register to attend a MASTER CLASS with Dr Maria Todd on Analyzing & Negotiating Shared Risk Agreements®  
  • Mon, Aug 14, 2017  
  • Monday, Nov 6, 2017
Master Classes are open to the industry and limited to 12 participants. (Intermediate / Advanced level)

Need to train the Board and your Managers and Execs and Physician Leadership?

Bring this Master Class to your organization or facility and train everyone for a flat fee regardless of how many participants you'd like to include. Or, our training coordinators will help you schedule a retreat at the luxury golf resort training center we use in Southern Utah, just 90 minutes north of Las Vegas.
speaker confirmed maria k todd, hfma mississippi

About the Author

Dr. Maria K. Todd is a seasoned professional in managed care contracting and risk sharing arrangements for hospitals ASCs, IPAs, PHOs, MSOs ACOs and Co-ops. She works with executives, managers, analysts, and finance officers who have the daunting task of negotiating contracts for medical services. She leads C-Suite executives and reimbursement managers through in-depth examinations of their go-forward risk sharing and reimbursement strategies and coaches them in key areas such as pay-for-performance initiatives, reimbursement methods, contract law basics, and negotiating strategies.   Contact her at 800.727.4160 or via email and follow her on LinkedIn.

Books You Can Order

Available from Amazon or your favorite bookseller.