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  • Writer's pictureGene Preston

Value Based Risk Assessment

As healthcare organizations rush into developing infrastructure to be able to compete in a value-driven healthcare environment, pause should be given to consider the risks and other external market drivers. Commercialization of value-based modalities is gaining more and more popularity with non-governmental payers and is becoming integrated into their provider contracting methodologies. Providers who win under a value-based contract may find themselves in a loss position, overall.

We can look at the history of managed care proliferation in California and the embracing of capitation to illustrate potential pitfalls when changing payment modalities. Many healthcare organizations accepted managed care capitated contracts at a conversion rate equal to a fee-for-service equivalent. Providers quickly learned and developed infrastructure that facilitated more efficient care delivery in order to gain under the agreement. Third-party payers, armed with claims data, began to shift provider margins by reducing the provider payment updates. In response, providers became more efficient and implemented additional cost controls in order to maintain equilibrium. If the story stopped here, then all is well; however, payers once again shifted the margin back by simply converting their contracts back to a fee-for-service equivalent, thus, eliminating any margin that providers were gaining under a capitated contract.

Healthcare organizations embracing the value-based payment methodologies must reduce cost while growing market share to back-fill and offset the reduced utilization that is likely to manifest. Pressure to cost shift losses to non-governmental payers will occur at the same time reference based pricing, price transparency and tiered networks are becoming increasingly popular to employers and third-party payers. Healthcare organizations should carefully plan their move to value-based contracts and consider all of the programs currently being implemented by employers and third-party payers.

The following are a few recommendations as you begin your journey.

  • Perform a thorough risk analysis that facilitate "What can go wrong?" considering all business segments and market dynamics.

  • Continue to reduce your cost structure through expense management and resource utilization.

  • Consider alignment initiates through co-management agreements with physicians over high-cost service lines.

  • Have a marketing plan to back-fill lost utilization with new growth.

  • Look for minimum volume commitments form third-party payers in a value-based contract including but not limited at risk, bundles, and shared savings.

Remember, "A world class quarter back does not throw the football at a receiver but rather an empty space on the field where he expects the wide receiver to be." We can't see into the future but we can learn from lessons of the past.

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