Progress With Risk-Based Agreements Failing to Keep Pace With Expectations

Through the move from volume to value in healthcare, new reimbursement models have been important, but the shift to new models that require providers take on more risk has been slower than expected, according to a new study released by Numerof & Associates in collaboration with David B. Nash, MD, MBA, dean of the Jefferson College of Population Health.

This is the third survey report, and responses from C-suite executives at provider organizations indicated that actual progress with risk-based agreements has not lived up to the expectations from a few years ago. In the 2015 version of this survey, 59% of respondents in the 2015 survey predicted they would be “very prepared” to take on risk in 2017; but only 21% in the 2017 survey felt they had achieved that mark in this current survey.

The leading reason why organizations have been slower to move into risk-based arrangements than initially projected 2 years ago is that they don’t feel they are adequately managing unnecessary variation in cost and quality, said Michael N. Abrams, MA, managing partner and co-founder of Numerof & Associates.

“If they don’t feel like they have adequate control over cost and quality, they’re going to be very hesitant to move into that at-risk arrangement,” he explained. “And most of them acknowledge that they are not.”

Abrams found it striking that where organizations are at this point is not nearly as far along as they predicted they would be back in 2015. Instead, respondents have consistently overestimated the exposure they would have to risk-based arrangements.

“I think that’s because they underestimated the anxiety connected with taking on risk, and they underestimated, perhaps, the challenge of gaining control over cost and quality so they could feel confident in being at risk,” Abrams said.

He added that risk is still a “marginal activity.” While more than three-fourths of respondents said they are in at least 1 agreement with a payer that includes risk, 70% of those organizations reported that just 20% of their revenue comes through risk-based arrangements. Furthermore, only 38% of respondents in at least 1 risk-based contract had only upside risk, or the possibility of earning a bonus if they met targets.

Hospitals, historically, have never taken on risk, which has added to the challenge of implementing these agreements. Being responsible for cost and quality and at risk of losing revenue if those targets aren’t met, is a new concept and “very frightening” to hospitals, Abrams explained.

In addition, being successful in risk-based arrangements will mean a big change in how they do business. Typically, hospitals want to keep physicians happy because physicians control the flow of patients to a hospital—now, hospital administrators have to compare providers to one another and analyze why 1 costs 25% more than another or why 1 has more complications than another. Explaining those findings to providers is not easy, Abrams said, and the “dynamic there is going to take some time to resolve itself.”

However, respondents remain confident that population health is the future with 83% reporting that it was very or critically important for future success. No respondents said that population health was “not important at all,” of “low importance,” or only “slightly important.”

Abrams likened population health to the Boston Marathon—there is a small knot of leaders out in front and the rest of the participants spread out across the next mile. The same thing is happening in healthcare with population health: progressive organizations are running with the concept and implementing forward-thinking programs on cost and quality while the rest of the crowd lags behind.

“That small knot of leaders is getting farther and farther ahead of the rest of the crowd,” Abrams said.