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

By | September 4, 2019

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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