Health care contracting has been cyclical in nature for the last thirty years or so. Fee-for-service, capitation, incentive based (aka risk based) and quality based programs have come in and out of favor throughout the U.S. For example in the ’90s, many health plans introduced physicians-level risk contracts via MSOs, IPAs and PHOs throughout the U.S. However, by the late ’90s, these arrangements fell apart due to several reasons not the least of which was misaligned incentives between the health plan and the MSO/IPA/PHOs.

Incentive Based Contracts are Back

With the advent of the Patient Protection and Affordable Care Act (PPACA), incentive-based arrangements are back. The Centers for Medicare and Medicaid (CMS) began implementing Accountable Care Organization (ACO). There are varying levels of downside risk available to ACOs, with the Next Generation ACO Model extending 100% upside and downside risk to ACOs. Additionally, health plans are introducing incentive arrangements in states where “risk” has been off limits since the ’90s.

Ultimately the introduction of these “risk,” “value based,” “incentive based,” “patient centered,” “population health management” and many other terms, will yield improved health outcomes. However, it doesn’t happen overnight. The following are potential pitfalls to be aware of and suggestions of how to avoid them from negatively impacting the longevity of the MSO/IPA/PHO and physician-owned businesses.

Education & Tools: Critical to Incentive Based Contracts Success

First and foremost, all physicians are created differently. In order to succeed in the incentive based contract space, the physician must have a desire to partner with the customer, in this case the “patient,” to effectively manage all aspects of their health care. The MSO must manage the physician’s expectations and educate him/her with respect to MRA coding, HEDIS and what management of a customer’s health care conditions truly means.

Another pitfall is failing to understand the importance of working with an engaged health plan. At the end of the day, the health plan is ultimately at-risk even if the MSO has issued a letter of credit (LOC) to underwrite its downside liability. The health plan should want the MSO to succeed and therefore should provide tools, guidance and expertise to ensure the relationship being built is a long term success to both of the partners.

Next the MSO must have centralized service capabilities. It must offer day to day involvement and oversight for the daily hospital census; provide management of chronic conditions; offer HEDIS and coding–CPCs–education, audits and review; and outbound/inbound scheduling services. Additionally, HR, finance, contracting, purchasing, etc. should be centralized to gain consistency and efficiency of cost and process.

If the MSO has one MA contract, the MSO should have multiple MA contracts. The customer is core to the success of an MSO and customers expect choice. If the physician has to contract with additional MSOs, then those MSOs may not offer robust centralized services. This results in your MSO educating the physician how to successfully manage the customer for the other MSO and your MSO does not benefit from its efforts.

Failing to report all diagnosis codes to ensure proper premium is received which pays for the medical costs incurred by the customers. Since there are many hand-off’s in the claim/encounter submission process, the MSO must ensure the codes it expects to be received by CMS is actually received by CMS.

When it comes to incentive based contracts, successful MSOs offer valued-added services. This could include co-op supply purchasing, insurance options including malpractice, billing services, EMR and IT services.

Ensure that there’s a competent Excel and Access analyst on the team, someone who’s able to develop and monitor medical cost trends. Among other things, this includes average IP cost by facility, IP admits/K, ER utilization/K, ER frequent fliers, high cost customers, capitation leakage, high cost medications, etc. The medical economics analyst should work collaboratively with medical management team to add, remove and update items as appropriate.