Health Policy

Providers Don’t Take Enough Risk to Bend the Cost Curve

By KEN TERRY

Back in 2015, 20 major health systems and payers pledged to convert 75% of their business to value-based arrangements by 2020. Today, more than two-thirds of payments from U.S. commercial health insurers are tied to some kind of value-based model. By 2021, the health plans expect three-quarters of their payments will be value-based.

However, a recent analysis of Change Healthcare data by Modern Healthcare found that the percentage of value-based revenue tied up in upside/downside risk contracts was in the single digits. Among the types of two-sided risk contracts that provider organizations had were capitation or global payment (7.3%), pay for performance (6.5%), prospective bundled payment (5%), population-based payment (5.8%), and retrospective bundled payment (4.1%).

An AMGA survey picked up signs of a recession in risk contracting in 2016. A year earlier, survey respondents—mostly large groups–had predicted their organizations would get 9 percent of revenue from capitated products. In 2016, the actual figure was 5 percent, according to a Health Affairs post by the AMGA’s Chet Speed and the late Donald Fisher.

The authors cited a number of obstacles to the spread of risk contracting, including “limited commercial value-based or risk-based products in their local markets; the inability to access administrative claims data from all payers; the massive administrative burden of submitting data in different formats to different payers; lack of access to investment capital; and inadequate infrastructure.”

Fast forward a few years, and most of the same ingredients for risk-contract aversion remain. In researching my new book in progress, for example, I discovered that ACOs were having a hard time getting claims data from commercial payers. That made it more difficult for them to manage population health and to measure physician performance, which is critical to improvement and to the selection of high-value specialists. The insurers apparently did not want to reveal what they were paying providers, despite the value of ACOs to their bottom line.

Even if plans are willing to meet providers halfway, they still find a high resistance to risk. Hospitals don’t want to empty their beds, and they employ physicians, at least in part, to keep them filled. While they talk a good game about value-based care, they’re not necessarily committed to reducing costs if it hurts their bottom line.

Not surprisingly, a study found last year that “the growth of population-based payments has not been associated with a decrease in market-level cost growth.” The population-based arrangements that the study authors looked at included shared savings, two-sided risk, and global budgets. Their conclusion: providers were still not taking enough risk to make a dent in spending growth.

“The current level of population-based VBP penetration may be insufficient to move the needle on health care spending. Increased participation in VBP models that include downside risk may be needed for these models to lead to reductions in overall health care spending,” they wrote.

Because of the low volume of patients in these models, they also noted, many providers have continued to focus on maximizing fee for service revenues. “Without significantly more volume of payments flowing through APMs [alternative payment models], providers cannot make the business case to abandon fee for service.”

So what does this all add up to? In short, little progress has been made in the past five years to move U.S. healthcare from pay for volume to pay for value. As a consequence, not many providers have yet made the crucial switch to a model in which they can be financially rewarded for saving money and improving outcomes.

Until that begins to happen, costs will continue to rise at current or higher rates, and U.S. healthcare will remain dysfunctional and will fail to serve the needs of all patients. It is past time for physicians to wake up and realize they can make money by reducing waste, and for hospitals to get out of the way.

Ken Terry is a veteran healthcare journalist and the author of Rx for Health Care Reform (Vanderbilt University Press, 2007). This article is adapted from a forthcoming book.

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mattcox5Barry CarolPaul @ Pivot ConsultingLLCKen TerryLeoHolmMD Recent comment authors
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mattcox5
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mattcox5

Appreciate this discussion and totally agree on physicians and health systems needing to take downside risk. It is very complicated though and I bristle at the constant drumbeat of commercial insurance is 200%+ of Medicare. As Nate Kaufman points out (routinely) there needs to be a discussion on the blended rate, to include Medicaid reimbursement below Medicare, self-pay and charity care. Let’s not forget, we have a system that is required to see everyone walking in the door. 20% of your business (Commercial) is paying at 240% of Medicare, 13% (Medicaid) pays at 80% of Medicare and 7% (Self-Pay) at… Read more »

Paul @ Pivot ConsultingLLC
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I am surprised the May 2019 Rand study hasn’t gotten more attention….thank you for focusing on it. I agree the non profit and for profit health/hospital systems with protection from anti trust laws, secret (and surprise) prices/billing are the problem. …usually with protection…even collusion with big insurance companies (often the major domo a non profit). Rand shockingly showed New York hospital charges were only 170% of Medicare vs the national average (as you point out) were 240: strongly indicating the massive hospital/heath system in near monopoly/oligarchs geographies. [More competition in New York]. But I think there are more effective and… Read more »

Barry Carol
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Barry Carol

A couple of days ago, journalist and former emergency medicine doctor, Elisabeth Rosenthal, wrote a very good article in the New York Times about price gouging by hospitals, especially well known hospitals that most insurers want in their network and certain rural hospitals that may be the only hospital for many miles around. This issue receives scant publicity because hospitals are located in every congressional district, and they are often the largest employer in the area. Also, the American Hospital Association is a powerful lobbying group. Even large cities including Cleveland and Pittsburgh that were once manufacturing powerhouses now have… Read more »

Paul @ Pivot ConsultingLLC
Member

Thanks for reference to Rosenthal piece…and for the doubling of support of my proposals!

Paul @ Pivot ConsultingLLC
Member

The New York Times Elizabeth Rosenthal piece published September 1 is excellent! Here is a bit “It would be unseemly for these nonprofit medical centers to make barrels of money. So when their operations generate huge surpluses — as many big medical centers do — they plow the money back into the system. They build another cancer clinic, increase C.E.O. pay, buy the newest scanner (whether it is needed or not) or install spas and Zen gardens.”. Who doesn’t love a Zen garden!

LeoHolmMD
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LeoHolmMD

Your system will remain as it is until you stop blaming Providers for things they have no control over. No one knows what “value” is anyway. Depends who you ask. And I don’t know how you expect hospitals to “get out of the way” when they employ everyone, negotiate all the contracts, set up the payment schemes, etc. “Not surprisingly, a study found last year that “the growth of population-based payments has not been associated with a decrease in market-level cost growth.” No surprise, and it has nothing to do with risk assumption. VBP is a failure at controlling cost.… Read more »

Ken Terry
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Ken Terry

The author replies: Dr. Holm asks, “Why should doctors take risk, and why should hospitals get out of the way?” Simple—it’s the only way to make our health system sustainable while giving everyone access to high-quality care. Hospitals and health systems are the main obstacle to progress, because they have no incentive to prevent admissions. Instead of trying to maintain or improve population health, hospitals are busy merging with each other and jacking up prices. Commercial insurers paid hospitals an average of 241% of Medicare rates in 2019, according to a RAND study. And in markets dominated by one or… Read more »