TEN TRANSFORMATIVE TRENDS 2021
The Plunge Into Risk: A New Calculus for Physicians and Hospitals
Multispecialty medical groups continue to move more rapidly and fully into two- sided risk-based contracting, but the underlying policy imperatives speak to hospitals engaging in two-sided risk, too, over time By Mark Hagland
O
ne trend that has become marked in the past few years, but that perhaps remains underappreciated, is this:
that independent multispecialty physician groups are moving ahead of hospital-based health systems in taking on two-sided risk. It is not so much that the fact of that trend in itself is shattering or even surprising; but some of the implications involved are signifi cant. The reality, of course, is that the leaders
of hospital-based organizations still have to fi ll beds, and that they have very high overhead costs compared to clinics and physician practices. And given that the vast bulk of reimbursement to hospitals remains discounted fee-for-service payment, the incentives remain very complicated and layered for hospital-based health systems. Things remain rather a mixed picture on
the ground. In the January-February issue of this publication, we presented results from our State of the Industry Survey. With regard to value based contracts, sur- vey respondents reported the following: 35 percent were involved in the Medicare Shared Savings Program (MSSP), 22 percent were involved in the Next Generation ACO (accountable care organization) program, 27 percent were involved in a Medicaid ACO; and 42 percent were involved in an ACO with one or more private health insurers. Still, only 4 percent of respondents reported that more than 20 percent of their overall reimbursement involved two-sided risk. Meanwhile, 4 percent said that 15 to 20 per- cent involved two-sided risk; 18 percent said that 10 to 15 percent of their reimbursement involved two-sided risk; 12 percent said that 5 to 10 percent involved two-sided risk; and 22 percent said that 0 to 5 percent of their reimbursement involved two-sided risk. Nevertheless, say industry experts and
observers, the reality is that both the Biden administration and Congress will inevitably be stepping hard on the gas pedal around value-based reimbursement in the coming year or two, as the alternative is unpalat- able—large provider reimbursement cuts. So how will this all play out? Christopher Kerns, vice president, execu-
tive insights, at the Washington, D.C.-based Advisory Board, puts it this way: “Right
now, the Medicare Hospital Trust Fund is expected to go into defi cit in 2024, or pos- sibly even as early as 2023. And Congress will have to address it, most likely because new borrowing might not address it. So Congress will likely double down on value- based payment, rather than either cutting reimbursement or raising taxes.” Asked to comment on the ongoing and
very public battle of wills that played out last year between the leaders of NAACOS (the Washington, D.C.-based National Association of ACOs) and Seema Verma, the Administrator of the federal Centers for Medicare and Medicaid Services (CMS), over some of the parameters around bench- marks and risk in the Medicare Shared Savings Program for ACOs, Kerns says this: “My sense of that tension is that the providers that are pushing back had bet- ter hope that downside risk works, because the alternative is huge payment cuts. There were lots of changes under the Obama administration, but when it came to value- based care, it was more evolutionary than revolutionary. The one difference between
doesn’t generate a lot of savings, but does encourage hospital-physician partnerships. So hospitals are trying to navigate wanting to collaborate with physicians, but at the same time maintaining referrals to inpatient care. If you expect the Biden administration to be more like the Obama administration, it will mean that they’ll favor participation over performance. But there’s an equally strong chance that they’ll double down on what the Verma team did.” In that context, he says, more hospital-based organizations will inevitably enter into two-sided risk contracts as the market dynamics shift and encourage doing so. “Hospitals have defi nitely been slower
Christopher Kerns
the Trump administration and the Obama administration is that the Trump admin- istration people valued performance over participation. And frankly, some of the pro- grams developed were designed to increase primary care physician (PCP) participation, in order to decrease referrals to specialists. If you look at why Seema Verma was push- ing hard on downside risk, upside-only risk
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to get into two-sided risk; there’s no doubt about it,” Kerns says. But, he adds, it’s important to understand the incentives being put in place by payers. “This isn’t just a Medicare thing; it’s Medicare, Medicaid, and private payers, all for different reasons. But there’s this confl uence of consensus that physician-led risk-based contracting is the way to go. For private payers, the logic is that they can send members to lower-cost providers. For Medicare, it’s outpatient versus inpatient. So you’re either sending patients to a lower-priced facility or to a lower-intensity site of care.” One element, Kerns says, remains a
stumbling block: “Physicians, especially PCPs, don’t have large fi xed costs; so for them, every admission or hospital-based procedure averted is shared savings that accrues to them directly and personally. Meanwhile, hospitals have extremely high levels of costs that have to be paid down. And fee-for-service is a lot easier to manage.
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