Health care contracting has been cyclical for decades.  During this time, both organizational structures and payment structures have continued to evolve.  Solo practitioners have continued to operate independently, but financial pressures and technology requirements have pushed many into corporate employment, affiliations, and practice associations. Provider group size has helped transition payment structures from simple Fee-for-Service (FFS) models to coordinated care arrangements with primary care capitation and incentive models based on risk and quality performance. And there is everything in between as CMS has innovated to offer a variety of models in value-based primary care. Each of these structures has its own inherent risks, and the risks change with the size of the risk-bearing organizations, so this article will outline the major concerns in each case.

History Repeats Itself

In the 1990’s, many health plans introduced physician-level risk contracts via Management Services Organizations (MSOs), Independent Practice Associations (IPAs), and Physician Hospital Organizations (PHOs).  In response, these organizations consolidated practices in hopes of creating economic value for their providers (and shareholders) by expanding the scope of patients they could reach and increasing their leverage in negotiations.

But scale for scale-sake wasn’t all that was required to be successful.  Some organizations grew too fast and too early, before the technology they needed to understand and administer the complexity of their contractual responsibilities could be realized and before they established clinical operating capabilities like patterns of care and consistent staffing models which could support their strategic goals.  These integration challenges were confounded by competing interests among partners, and many failed, grew apart or restructured in the first part of the 2000’s.

However, as business technology capabilities expanded, it became easier to manage the information associated with coordinating care.  Electronic Medical Record systems proliferated and were subsidized by the HiTech Act, and data management tools became more accessible.  Database management systems grew in capability in parallel, and Coordinated Care Plans (CCP) like Humana, Aetna and WellCare, among others, created contracts which transferred Substantial Financial Risk to provider groups.

In 2010, this expanded with the advent of the Affordable Care Act (ACA), as The Centers for Medicare and Medicaid (CMS) began implementing Accountable Care Organizations (ACO), including the Next Generation ACO Model, the REACH ACO model and other models that blended obligations to deliver on quality metrics with financial performance goals, the essence of Value-Based Care.

By 2022, according to a Health Care Payment Learning & Action Network survey which gathered data from 63 health plans across five U.S. states, of the survey sample approximately “40.5% of payments were involved in pure fee-for-service contracts. Additionally, 19.5% of payments involved pay-for-quality contracts, 32.6% involved shared savings contracts, and 7.4% of payments involved contracts that were population-based or capitated. This amounts to 59.5% of contracts being value-based.”

Ultimately, the introduction of “risk sharing,” “value based,” “incentive based,” “patient centered,” and “population health management” healthcare practices, along with many other similar initiatives, will yield improved health outcomes for many, but it has had documented improved results for some, according to the organization of America’s Physician Groups. However, it doesn’t happen overnight.

Get on the Bandwagon, but Watch Your Step

The following section details the potential pitfalls to be aware of and suggestions of how to prevent them from negatively impacting the longevity of the MSO, IPA, PHO, and physician-owned businesses.

Risk 1:  Internal Capabilities

Harold Leavitt’s People, Process and Technology framework can be used to evaluate an organization’s capabilities.  Applying this framework means thinking critically about the providers who see patients and the MSO teams who support them in terms of who they are, how they do their work and the tools they must have to be successful.

In this context, first and foremost, all physicians are not the same. To succeed in the incentive-based contract space, physicians must have a desire to partner with patients to effectively manage all aspects of their health care.  Physicians accustomed to FFS medicine may have visit slots that are too short to build engagement and miss the importance of capturing all active diagnosis codes for all encounters when risk adjustment coding is important.   These individuals need consistent and reliable information at the point of care to capture their clinical notes and be prompted with action items for each encounter.

MSO team members need to know and be able to advise providers on HEDIS and what management of a customer’s health care conditions truly means in contrast to treatment of active conditions.  If Medicare Advantage is a line of business, the MSO needs a staff of HCC Coders and a set of policies to guide their work.  Care coordination nurses and credentialing representatives and provider relations team members round out the clinical team.  The finance team needs individuals who can quickly analyze data from a variety of sources like cash statements and expense tallies for salaries, rents and supplies, but the team also needs the technical capability to develop and monitor medical cost trends, which requires database management expertise.  Negative trends in such figures as average IP cost by facility, IP admits/K, ER utilization/K, ER frequent fliers, high cost customers, capitation leakage, high cost medications, etc. can sink an enterprise.  This work will require an information system backbone in the form of a cloud or vendor-based data warehouse.

Risk 2: Health Plan Partner Attitude and Capability

One pitfall that physicians and provider groups should be aware of is failing to understand the importance of working with an engaged health plan. At the end of the day, the health plan is 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 provide data, tools, guidance, and expertise to ensure the relationship being built is a long-term success to both partners.  Failure to provide any one of these elements, or at least ensure the MSO has the capability to manage and act on the information provided can be catastrophic for the partnership.

Risk 3: Shared Service Capabilities

For an MSO to be successful, administrative staff and provider team members need to divide and accomplish the run the business tasks in an optimized and coordinated way.  Providers need to be able to devote their time to seeing patients, and the MSO needs to provide the wrap around services to support them in that activity in a cost-effective and coordinated way.  Such services include day-to-day involvement and oversight for the daily hospital census, perform outbound and inbound scheduling and offer HEDIS and coding (CPCs) education, audits, and review services. Additionally, the MSO should provide HR, credentialing, finance, contracting, purchasing, maintenance, and business technology services, among others, in a centralized way to ensure consistency, efficiency and visibility.

Risk 4: Avoiding Holdup

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 must 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 MSOs; in this circumstance, your MSO would not benefit from its efforts.

Risk 5: Stay Relevant

Successful MSOs offer value-added services and anticipate the need to add or replace services in the support portfolio. This could include services like co-op supply purchasing and insurance options, including malpractice, billing services, EMR and IT services.  The degree to which these items are not provided and when new needs arise are not addressed and supported can drive providers away from the MSO.

Risk 6: Audit and Monitor Revenue Processes

In a Medicare Advantage agreement, doing the best medical care won’t translate to sustainability of a practice unless conditions are observed, documented, submitted, and accepted by CMS.  There are lots of points along the value chain of risk adjustment where details can get lost: the patient was never seen, conditions were not documented, billing was only CPT and primary diagnosis, the diagnosis was dropped by claims intermediary, the Health Plan didn’t submit to CMS, … Failing to record and report all appropriate condition codes is a potentially devastating pitfall which hurts both the health plan and the provider group because it is these steps which ensure proper premium is received to cover the medical costs.

Since there are many hand-offs in the claim/encounter submission process, the MSO must provide the resources to ensure the codes it documents are actually received by CMS.  This means demanding and reviewing the return files.  And the individuals responsible for ensuring these transmissions must be qualified and trained to pay special attention to the compliance importance of accurate diagnosis coding so that the MSOs can limit the risks and negative consequences of upcoding.  Use a service if you can’t staff it.

The Future of Incentive Based Contracts

Considering the gradual integration of value-based healthcare models and the continued efforts from CMS to refine and incentivize Value Based Care since the passage of the Affordable Care Act, it is safe to assume that value-based care will continue to grow in the 2020s. As healthcare technology becomes more sophisticated, robust and comprehensive data modeling will follow.

Additionally, data transparency will improve in the process. According to an article by SpectraMedix, “As more data becomes available quicker, payers and providers will be empowered to make better decisions that lower costs, improve quality, and improve the patient and provider experience.”

FRG has decades of experience helping health plans and physician groups create transparency in risk contracting and improve the financial performance of their service funds. If you would like any additional information about this topic or our services, contact FRG by emailing info@frgsystems.com.