Providers won’t be able to avoid downside risk much longer

Among hundreds of healthcare finance professionals at a Healthcare Financial Management Association (HFMA) conference presentation, no one could say their systems were taking on downside risk above 5 percent of their total revenue. Francois de Brantes, MS, MBA, vice president and director of the Altarum Institute’s Center for Payment Innovation, said that needs to change.

His talk was focused on both the intentions and unintended consequences of current alternative payment models (APMs). The aims were likely familiar to CEOs and CFOs—making the underlying production of healthcare more efficient and improving outcomes by rewarding value over fee-for-service—but he had a stern message that transformation can’t be avoided as purchasers and payors want to cut down on avoidable complications and waste in the delivery system which drives up costs.

“I no longer want to bear that risk of defects. You should be bearing that risk of defects,” de Brantes said. “Of course, no one in this room is really taking on downside financial risk, but you’re going to have start doing that.”

Government regulations will be one driver of the change, as downside risk is required for the Advanced Alternative Payment Models track under the Medicare Access and CHIP Reauthorization Act’s (MACRA) Quality Payment Program (QPP). On the commercial side, however, de Brantes said 90 percent of APM-related dollars are in contracts with upside-only arrangements.

Those models, while useful for opening the door to APMs, will soon to begin disappearing because the result has been “the payor always loses,” according to de Brantes. Without providers taking on risk, they lack the incentive to change how they’re delivering care. Insurers, too, have reasons to be hesitant about providers assuming downside risk and the impact it could have on their networks. De Brantes recommend both sides clearly define how payment will be handled if providers end up underperforming.

One of his major recommendations for commercial risk contracts was setting up a stop-loss arrangement, putting a hard limit on a provider’s financial risk. The example he used is setting a stop-loss limit of $75,000 on a knee replacement patient, meaning any risk above that amount is managed and maintained by the payor. This would solve many of the issues de Brantes identified with APMs, including encouraging adverse selection of patients.

“There are mechanisms to shift appropriate financial risk to providers in constructing deals…to institute stop-loss arrangements to avoid being in any excessive risk,” he said. “You still have risk, but it becomes completely manageable and your odds ratios of wins and losses become even.”

There would still be challenges, he said, particularly with clinicians “demoralized” or distracted by APMs with complex rules and uncertain outcomes, taking their focus away from improving the delivery of care. But his overall message was the pressure from specialty societies, government payors and patients on providers to assume financial risk will not be going away.

“You can stick with the status quo and contribute to the financial failure of the communities you’re supposed to serve, or actively participate in the restructuring of American health care,” he said.