Risk-Based Contracting: Background, Assessment, and Implementation

Fall Managed Care ForumNovember 10, 2016

Presented by: Bob Paskowski

BACKGROUND, ASSESSMENT, AND IMPLEMENTATION

Risk-Based Contracting

Fall Managed Care Forum

ObjectivesDetermine critical success factorsUnderstand types and key elements of RBCsAssess RBC readinessMake an informed decision while evaluating

financial risk

Background and Education


Key Facts

Payers report they are now at 58% along the continuum of full value-based reimbursement (48% in 2014); Hospitals report they are at 50% (46% in 2014)*

60% of payers have changed their network strategies since 2014*

63% of hospitals report they are part of an accountable care organization (up 18% since 2014)*

A large payer created a new service company to help providers achieve success under RBCs and even launch their own health plans

* 6/20/2016 Becker’s Hospital Review


Transition to Value-Based Payments

Fee-for-Service (FFS) Payments

Adjusted FFS Payments

Advanced Payment Models

(APMs) Incorporating FFS

Payments

Population-Based APMs

Traditional FFS Pay for Reporting Total Cost of Care Shared Savings

Condition-Specific Payments

Infrastructure Incentives Pay for Performance Total Cost of Care

Shared RiskPrimary Care

Payments

Care Management Payments

Pay/Penalty for Performance Bundle Payments Comprehensive

Payments

$ $$

Bank$


Medicare Timeline

By 12/312016

By 12/312018

85% of Medicare fee-for-service payments tied to scoreson quality and efficiency measures

30% of traditional Medicare payments through APMs

90% of Medicare fee-for-service payments tied to scoreson quality and efficiency measures

50% of traditional Medicare payments through APMs


Challenges and Benefits

Challenges Benefits

Payers aggressively pursuing risk-based arrangements

Improve quality performance and patient care

Unprepared providers need transition strategy to assume risk

Generate ancillary revenue and/or cost avoidance

Lack of understanding of key business terms impacting risk-based contracting

Enhance clinical documentation and treatment plans

Unable to quantify upside and downside risk

Scale population health activities across multiple risk-based contracts


Critical Success Factors Key provider stakeholders must be engaged in making the

cultural shift from a volume-based mindset to value-based mindset.

Providers must be educated in the basic concepts of risk-based contracts.

Providers must invest in care management infrastructure, activities, and information technology to manage populations.

Providers must align their objectives with the right payer partner.

Providers must assess their risk tolerance.


Common Types of Private Sector RBCs

Type FFSCare

CoordinationFee

Quality Incentives

Risk Option 1: Shared Savings

Risk Option 2: Shared Risk

Risk Option 3: Full Risk

Commercial Yes

Commonly yes; fee

counted as expense

under options 1-3

Commonly yes; based on meeting

pre-determined

quality measures

% Savings below medical claim PMPM

target; contingent on

meeting quality measures

% Surplus/Deficit above/below Medical claim PMPM target; contingent on


100% of surplus/deficit above/below medical claim PMPM target

Medicare Advantage Yes

Commonly yes; fee

counted as expense

under options 1-3

Commonly yes; based on meeting

pre-determined

quality measures

% Savings below Medical

Loss Ratio (MLR) target; contingent on


% Surplus/Deficit above/below MLR target;

contingent on meeting quality

measures

100% of surplus/deficit above/below MLR target


Key Contract Elements

Element Definition

Term Defines the period of time for the agreement

Termination Defines the provisions that would allow the agreement to terminate

Measurement Period

Defines the period of time under which the quality and financial provisions will be measured


Key Contract Elements (cont’d)

Element Definition

Attribution Defines the population to be measured during any measurement period

Minimal Panel Size

Defines the minimal # of attributed members for the risk provisionsto apply

ProductsDefines the products that will be included under the population; most common are fully insured commercial, self-insured employee health plans and Medicare Advantage

Benefits Defines the benefit options and cost-sharing for current and potential members

Network Defines the provider network that will be used to market the products that are included in the agreement

Quality Defines the quality measures that are typically tied to qualifying for full/partial savings or care management fees


Key Contract Elements (cont’d)Element Definition

Care Management Fees Payer provides a PMPM payment for care management services

Risk Corridor Defines the risk (upside or downside) assumed by provider

% of Savings and Losses

This provision will typically align with the risk corridor provision; defines the % of any savings or deficits paid or recovered from provider

Stop-Loss Provider may have option to apply individual stop loss on members

Base Target (Comm only)

Defined as the actual claims expense for the defined population during an initial baseline period

Risk Adjustment Factor Risk factors are applied to base target based on risk profile of members in measurement period

Medical Trend Factor The amount of medical trend applied to base target based on payer internal data

Benefit Change Factor Factor applied to base target for benefit changes in the measurement period

Medical Loss Ratio (MLR) Target (MA only) Defined as the medical expenses divided by the total premium


Sample SettlementsCommercial – Shared Savings based on 5,000 Members

Measurement Period Basis Scenario 1 Scenario 2 Scenario 3

Claims Expense Actual PMPM for baseline period $250.00 $250.00 $250.00

Claims Adjustment: risk adjustment factor Actual from payer 1.02 1.02 1.02

Claims Adjustment: benefit change factor Actual from payer 0.97 0.97 0.97

Claims Adjustment: medical trend factor Negotiable 1.03 1.03 1.03

Claims Adjustment: minimum savings of 2% Negotiable 0.98 0.98 0.98

Adjusted Claims Target Computed $249.68 $249.68 $249.68

Actual Claims Expense Actual $235.00 $245.00 $255.00

Savings - PMPM Computed $14.68 $4.68 $0.00

% of Savings Negotiable 50% 50% 50%

Provider Distribution Computed $440,400 $140,400 $0


Sample SettlementsMedicare Advantage - Shared Savings based on 5,000 Members

Measurement Period(typically Calendar Year) Basis Scenario 1 Scenario 2 Scenario 3

Total Expenses Actual $46,440,000 $45,360,000 $48,600,000

Total Revenue Actual $54,000,000 $54,000,000 $54,000,000

Actual MLR Computed 86.0% 84.0% 90.0%

Targeted MLR Negotiable 87.5% 87.5% 87.5%

Targeted Expenses Computed $47,250,000 $47,250,000 $47,250,000

Total Savings Computed $810,000 $1,890,000 ($1,350,000)

% of Shared Savings Negotiable 50% 50% 50%

Provider Distribution Computed $405,000 $945,000 $0

Assessment and Implementation


Phase 1: Internal AssessmentConduct a thorough gap analysis and prepare a specific action plan

Has the leadership team assessed its readiness for risk-based contracting?

Do all entity stakeholders fully understand risk-based contracting?

Has the operational infrastructure been established to meet critical success factors?

Has the provider entity invested in data analytics and care management?


Phase 2: External Market AnalysisConduct an external market analysis

Determine geographical service area Determine market share by payer by product Determine provider patients by product

based on common denominator (i.e., billed charges)

Determine “attributable” members for the provider entities primary care physicians


Phase 3: Contract DevelopmentPrepare for and engage in contract negotiations

Determine level of risk provider is willing and able to assume

Validate reasonableness of attributed membership

Develop criteria for key business terms Request proposals from interested and

aligned payers Negotiate key business terms


Phase 4: ImplementationEstablish contract governance and monitor contract performance

Regularly monitor and report performance to key stakeholders

Establish Joint Operating Committees to oversee the operations and performance

Establish data feeds from both parties Establish care management processes and

workflows between the parties Establish critical reports to manage the population

and performance


In Summary…use your “I”s Introduce risk gradually into your organization

Invest in care management and IT systems

Identify the right payer partner that shares aligned objectives

Integrate value-based care into your organization


Questions?

Risk-Based Contracting: Background, Assessment, and Implementation

Healthcare