Announcements from several commercial payers along with the Centers for Medicare and Medicaid Services (CMS) early in 2015 around increased efforts to form value-based contracts with providers seemed to point to an impending rise in risk-based contracting.
In addition to this increasing market pressure, the reality of hospitals and health systems nationally continuing to see a steady decline in admissions and shrinking reimbursements has laid a foundation for risk contracts to grow in significance. In fact, the high cost of health care was cited by 59 percent of decision makers in one recent survey as the reason for their interest in business models that facilitate value-based care.
With a need for change sought by the payers and providers of health care, like many industries before it, the health care industry is prime for disruption and taking steps toward transformation. Ubiquitous information allowed innovators to create new business models of efficiency and consumer empowerment in industries such as telecommunications, technology and entertainment, to name a few. With the lack of price transparency and health outcomes measurement but increasing access to valuable data, health care is on a similar path.
Health care leaders are reading the tea leaves, wrote Jonathan Rauch, senior fellow at the Brookings Institute.
“Incumbent companies are fearful, in a way they had not been, of being left behind if they ignore value-seeking innovation. They are focused as never before — as one executive put it — on not becoming Kodak.”
Rather than wait for disruption from the outside in, providers are making inroads on collaborating with payers on various risk-based contracting models to increase the value of health care from within. According to the latest statistics from the American Hospital Association*:
- One in five U.S. hospitals have established accountable care organizations in 48 states
- More than 20 percent of hospitals have created patient-centered medical home programs
- Nine percent of hospitals engage in bundled payment programs
- About seven percent are party to some form of capitation
- Another seven percent have shared risk arrangements
Another survey of hospitals showed 42 percent of reporting hospitals had at least 10 percent of their revenue coming from risk contracting in 2014, up from only 22 percent in 2013 — an increase of more than 90 percent in one year. On the physician side, one survey had respondents estimating that half of their total compensation over the next decade will come from value-based contracts. While each provider organization may be approaching their transformation uniquely, there are some common areas of focus. For example, two out of three health care decision-makers listed implementing analytics systems as among their organization’s top three priorities, while investment in patient engagement technologies is growing.
Instead of short-term solutions to weather an economic dip, sustainable budget strategies will need to be implemented. This will include a stronger emphasis on primary care, improvements in outpatient clinical utilization, streamlined overhead, competitive differentiation and smart technology investments.
* American Hospital Association hospital statistics, 2015 edition. Health Forum, LLC.
About the author
Elena White currently serves as Vice President of the Risk Quality & Network Solutions division for Optum. She has over 18 years experience leading network optimization initiatives, network development and expansion, business planning, provider reimbursement development, transformation to risk based arrangements and medical cost management strategies for both health plan and provider organizations.
Elena holds a Bachelor’s Degree from University of California at Riverside and Master’s Degree in Business Administration from Loyola Marymount University.