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Risk-Based Contracting: Background, Assessment, and Implementation

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PYA Principal Bob Paskowski presented “Risk-Based Contracting: Assessments and Implementation,” at the National Association of Managed Care Physicians Fall Managed Care Forum, November 10-11, 2016. The presentation allows participants to:

Understand the different types and core elements of risk-based contracting (RBC).
Prepare for additional discussions with key stakeholders regarding RBC assessment and readiness.
Make informed decisions as to next steps while evaluating associated financial risks.

Published in: Healthcare
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Risk-Based Contracting: Background, Assessment, and Implementation

  1. 1. Fall Managed Care Forum November 10, 2016 Presented by: Bob Paskowski BACKGROUND, ASSESSMENT, AND IMPLEMENTATION Risk-Based Contracting
  2. 2. Fall Managed Care Forum Objectives Determine critical success factors Understand types and key elements of RBCs Assess RBC readiness Make an informed decision while evaluating financial risk
  3. 3. Background and Education
  4. 4. Fall Managed Care Forum 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
  5. 5. Fall Managed Care Forum 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 Risk Primary Care Payments Care Management Payments Pay/Penalty for Performance Bundle Payments Comprehensive Payments $ Bank
  6. 6. Fall Managed Care Forum Medicare Timeline By 12/31 2016 By 12/31 2018 85% of Medicare fee-for- service payments tied to scores on quality and efficiency measures 30% of traditional Medicare payments through APMs 90% of Medicare fee-for- service payments tied to scores on quality and efficiency measures 50% of traditional Medicare payments through APMs
  7. 7. Fall Managed Care Forum 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
  8. 8. Fall Managed Care Forum 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.
  9. 9. Fall Managed Care Forum Common Types of Private Sector RBCs Type FFS Care Coordination Fee 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 meeting quality measures 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 meeting quality measures % Surplus/Deficit above/below MLR target; contingent on meeting quality measures 100% of surplus/deficit above/below MLR target
  10. 10. Fall Managed Care Forum 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
  11. 11. Fall Managed Care Forum 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 provisions to apply Products Defines 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
  12. 12. Fall Managed Care Forum 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
  13. 13. Fall Managed Care Forum Sample Settlements Commercial – 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
  14. 14. Fall Managed Care Forum Sample Settlements Medicare 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
  15. 15. Assessment and Implementation
  16. 16. Fall Managed Care Forum Phase 1: Internal Assessment Conduct 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?
  17. 17. Fall Managed Care Forum Phase 2: External Market Analysis Conduct 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
  18. 18. Fall Managed Care Forum Phase 3: Contract Development Prepare 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
  19. 19. Fall Managed Care Forum Phase 4: Implementation Establish 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
  20. 20. Fall Managed Care Forum 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
  21. 21. Fall Managed Care Forum Questions?

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