Success Strategies for Managing Risk-Based Contracts

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Bethany Carter
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ROUNDTABLE Success Strategies for Managing Risk-Based Contracts With the shift from fee-for-service to value-based payment

programs, MACRA, and directto-employer health plans.

essential competencies required to manage risk-based contracts with government and commercial payers.

LEVITT, MD vice president and physician, The Centers for Advanced Orthopaedics, Bethesda, Maryland RICK LOPEZ, MD SVP of population

1 ROUNDTABLE Success Strategies for Managing Risk-Based Contracts With the shift from fee-for-service to value-based payment accelerating, most healthcareprovider finance leaders are focused on adopting and operating risk-based reimbursement models for medical services. A variety of reimbursement arrangements are at play, including bundled payments, accountable care organizations, shared savings programs, MACRA, and directto-employer health plans. To succeed in this business model shift, health systems, hospitals, and physician practices face daunting challenges to develop the essential competencies required to manage risk-based contracts with government and commercial payers. These competencies range from assessing risk in patient populations and risk-based payment models to containing clinical risk through patient engagement strategies. PANELIST PROFILES ALAN LAZAROFF, MD co-founder and coding medical director, Physician Health Partners, Denver, Colorado LOUIS LEVITT, MD vice president and physician, The Centers for Advanced Orthopaedics, Bethesda, Maryland RICK LOPEZ, MD SVP of population health, Atrius Health, Newton, Massachusetts KERRI SCHROEDER SVP and credit products executive, Bank of America Merrill Lynch, Seattle, Washington CHRISTOPHER CHENEY (MODERATOR) Senior Finance Editor, HealthLeaders Media, Middleton, Massachusetts SPONSOR General disclaimer for Bank of America Merrill Lynch, visit baml.com/disclaimer. AR# ARF39YCT YOZAYO/ GETTY IMAGES PLUS DANA THOMAS PHOTOGRAPHY 2 HealthLeaders n July/August 2017 Sponsored Material n

2 HEALTHLEADERS: For healthcare providers, what are some of the prime strategies for managing risk-based contracts? Roundtable Highlights LISTENING TO YOUR DATA LOUIS LEVITT: In the world of orthopedics, most of the successful bundling of payments has involved learning how to manage the episode of care. You also need to have a stakeholder in the game, and that stakeholder principally is the doctor. We have convinced our doctors that they are the care managers and no longer just orthopedic surgeons. That s a reorientation in thought process because there is no training program in the United States that does anything other than train doctors in orthopedics to be surgeons and operate. Surgery represents 1% of the entire episode of care, so they are spending five years learning how to manage 1% of the episode. We know the postacute care world is where the best gains can be made, so we spend a lot of time in that area with our 175 doctors. RICK LOPEZ: Our commercial risk arrangements are much more predictable and secure than our governmentfunded risk arrangements, whether it s Medicaid or Medicare. On the commercial side, we work with three or four large regional health plans. In our commercial agreements, we receive revenue increases through risk adjustment if our population is sicker, and we also receive increases based on what is happening in the community. So, if the medical expense trend in the community goes up 3%, we will get 3%. We tend to be less expensive, and the health plans are just fine with that because we produce high quality scores. Also on the commercial side, we have a few contracts where we receive a percent of the premium collected by the health plan, so it s not even about what is happening in the community. If the health plan receives $100 in premium for its members, we receive a Alan Lazaroff, MD Co-founder and Coding Medical Director Physician Health Partners The timing is so critical. If you get efficient before the program year starts, you re in trouble. percent of that. Then it s up to us to manage it. The Medicare ACOs are different; they have many more variables and formulas and are more complex. There are lots of factors that can go in different ways, and if you take downside risk and those factors all go the wrong way, you could experience a loss. KERRI SCHROEDER: We ve heard that consistently about the ACOs, that the efficient providers got burned. Many of the Pioneer ACOs fell away because they saw they were not getting any of the upside. It was all going to their competitors, and they were already the lowest-cost provider in the market. ALAN LAZAROFF: The timing is so critical. If you get efficient before the program year starts, you re in trouble. LOPEZ: That s to the question about how you mitigate risk. You have to know what the risk arrangement looks like going in. You have to know exactly the details of the program. When you are evaluating a risk agreement, you have to look at what your baseline cost trends are, what the risk corridors are, whether you are taking upside or downside risk, and who you are being compared to as part of the benchmark. Number one, you have to know that you are going to get the data from the payer and you are going to be able to work with the data yourself. n Sponsored Material HealthLeaders n July/August

3 ROUNDTABLE: SUCCESS STRATEGIES FOR MANAGING RISK-BASED CONTRACTS Another factor to look at is the patient population. With respect to clinical risk management, there are very different issues between commercial, Medicaid, and Medicare populations. In Medicare, you are managing the postacute state and chronic illness among the elderly. In the commercial space, there typically are biologics and surgical procedures to manage as these are the high-cost items. You also have to have a large enough population to take risk. Typically, that is considered 5,000 to 10,000 lives, but even that is kind of risky from an underwriting perspective. We typically just do fee-for-service until the at-risk population gets to at least 10,000. LEVITT: From an ACO perspective on the expense side, how do you know how many additional care managers or ancillaries are required to keep track of your patient population? SCHROEDER: It boils down to the population in a big way. In the surgical population under bundling, emergency rooms are sensitized to know to call the nurse manager if the patient is in a bundle. LAZAROFF: Absolutely. It s all case-mix dependent. LOPEZ: What our Medicare Advantage payer requires us to have in terms of ratios is one case manager for every 800 patients. If you go to our commercial payers, they say one case manager for 25,000 to 50,000 patients. There is a small percentage of commercial patients who need nurse case manager coordination. The vast majority of commercial patients are healthy working people. Louis Levitt, MD Vice President and Physician The Centers for Advanced Orthopaedics LEVITT: There s got to be some data that would show that adding more case managers really does not produce any improvement in the overall cost of healthcare. You reach a critical mass where it no longer is beneficial. LOPEZ: Ten years ago, we would say, We need a nurse case manager to do this job. Now, we are becoming more discerning about these roles and what kind of licensed or non-licensed staff we need. We need a nurse case manager for some patients; for other populations, a social worker is a better care manager. For the commercial population who are using really expensive biologics, a clinical pharmacist is actually the better case manager because you are trying to manage those costs. In the past two or three years, we have begun to hire more non-licensed facilitators. These are our articulate and educated college graduates who we put in roles to deal with social determinants of health. It s like a community health worker, except they are in the office. So, there is a gradation in staffing. It s not all about plug-and-play with nurse case managers because nurses are expensive. SCHROEDER: Do you look at how the chronic conditions or comorbidities of a patient influences staffing? LOPEZ: We have ways to identify high-risk patients, and we apply more resources to those patients. LAZAROFF: You have to do risk stratification for care management, particularly in the Medicare space. About 10% to 20% of the Medicare population are in need of care management. LEVITT: In the surgical population under bundling, emergency rooms are sensitized to know to call the nurse manager if the patient is in a bundle. The nurse manager can evaluate patients and decide whether they need to stay in the hospital or leave. 4 HealthLeaders n July/August 2017 Sponsored Material n

HEALTHLEADERS: What are some of the prime success strategies to manage the care of high-risk patients? LAZAROFF: There are a lot of different risks that people face.

4 HEALTHLEADERS: What are some of the prime success strategies to manage the care of high-risk patients? LAZAROFF: There are a lot of different risks that people face. For example, in geriatrics, one of the worst risks is the risk of having to go to a nursing home. The risk factors for that are completely different than the risk factors for going in the hospital. If you have Alzheimer s disease, that is the risk factor for going into the nursing home. Alzheimer s probably affects the hospitalization risk, but not as much as heart failure or coronary artery disease. LEVITT: You have to define the goals you are trying to achieve. If you can t define goals and dementia is a tough one to define it is hard to be successful. If you are successful, what will you see changed? Keeping patients at home? Keeping them out of the hospital? LOPEZ: In the commercial population, people who are at high risk of hospitalization tend to be the sicker commercial patients who almost look geriatric in terms of their conditions. We developed a separate algorithm to predict the risk of spending more than $100,000 in the next year, and when you apply that algorithm to the commercial population, the big costs are not the hospital costs. The big costs are the pharma costs and the physician procedures. SCHROEDER: Are you using those data algorithms to support the diagnostic information for risk adjustment to make sure all chronic conditions are identified? Are you feeding that information back to the doctors to help maximize risk adjustment? LOPEZ: We have lots of registries, and we use these risk adjusters as part of those registries. If you have a list of your patients with chronic pulmonary COPD, you might have a pretty big list. We apply this risk algorithm and identify the ones who have a risk of hospitalization to determine the ones we need to focus on. Rick Lopez, MD SVP of Population Health Atrius Health In the commercial population, people who are at high risk of hospitalization tend to be the sicker commercial patients who almost look geriatric in terms of their conditions. HEALTHLEADERS: What are the main pitfalls to avoid in risk-based contracting? SCHROEDER: My sense is that most providers are providers are struggling with data having congruent access to data with the payers, so you have all that claims data in a way that you can consume it. You need data analysts who can merge claims data with EHR data and any other data sources related to socio-economic issues that can help predict risk in patient populations. You need clarity about the composition of the population, how you are going to measure success, and the spending benchmarks. Another problem is that every provider is dealing with multiple payer contracts, and the rules are different for each one. So, how do you create one process and one set of business rules that work for all of the different payment arrangements that you are under? That is a huge challenge. LEVITT: When you look at readmission rates, some Medicare readmission rates typically are 16% to 17%. If I was a hospital CFO, for every Medicare patient admission, I m going to get 16% additional revenue because there is a likelihood that the patient is going to bounce back. Compared to a 2% penalty it seems insufficient. HEALTHLEADERS: Medicare Advantage is a hot topic, in part because it has several elements in common with Medicare s new reimbursement system for clinicians under n Sponsored Material HealthLeaders n July/August

ROUNDTABLE: SUCCESS STRATEGIES FOR MANAGING RISK-BASED CONTRACTS LEVITT: Tight specialty referral is important in any risk arrangement or global payment contract because specialty costs are high.

5 ROUNDTABLE: SUCCESS STRATEGIES FOR MANAGING RISK-BASED CONTRACTS LEVITT: Tight specialty referral is important in any risk arrangement or global payment contract because specialty costs are high. SCHROEDER: We hear the same thing about the ACOs under Medicare the attribution of patients is challenging because when Medicare ACOs were established, they did not want to restrict patient choice. This is challenging when it comes to controlling costs. It is one of the reasons that we see a lot of hospitals trying to create direct-to-employer health plans. If you can partner with a large employer in your market, you can keep patients in the system and control all the inputs. the Medicare Access and CHIP Reauthorization Act (MACRA). What are the keys to success in Medicare Advantage contracting? LAZAROFF: In the MA model, we could predict what the target was going to be. We never expected to lose money. We knew how we did last year, we knew how we did the year before, and we gradually increased the amount of risk that we would take based on our historical experience. In the Medicare ACO models, the target is completely unpredictable for us. LOPEZ: In our view, Medicare Advantage is a much more desirable contract than the Next Generation or Medicare Shared Savings Program ACO models. This is due to a couple of factors. One is the payment mechanism. We have a percent of premium arrangement, which is very reliable, so you know your revenues. But, even more importantly, is the issue of choice. When someone joins Medicare Advantage, they agree to pick a primary care provider, and they agree to be cared for within the PCP s referral circle. Kerri Schroeder SVP and Credit Products Executive Bank of America Merrill Lynch High deductibles were supposed to get the consumer more engaged in how much they are spending and how they consume healthcare. On the ACO side, whichever Medicare ACO you pick, the Centers for Medicare & Medicaid Services have been very clear that beneficiaries have all the choice and all the options as do fee-for-service Medicare beneficiaries not in an ACO. When we have looked at the patients who have been attributed to us in the Medicare ACO world, typically they do get 90% of their care from us and it works out OK, but we don t have the ability to fully manage it. HEALTHLEADERS: How are high-deductible health plans impacting risk-based contracts? LEVITT: My business has become seasonal because of high deductibles. In the beginning of the year, every doc is crying the blues that his practice is drying up. Midseason hits in the summer, when surgeons are starting to get busier. Within the last three months of the year, everybody s deductible has been paid, and they have to get procedures done before the end of the year. It s a crush to get cases done. SCHROEDER: You can sympathize with the reason behind it. High deductibles were supposed to get the consumer more engaged in how much they are spending and how they consume healthcare. But high deductibles can create a significant misalignment of interests. Procedures get shifted to the end of the health plan year, or might be put off entirely. For some patients, high-deductible plans discourage early intervention. LAZAROFF: Many services are not subject to deductibles all your preventive and routine stuff. But if you get sick, that s a problem. There s no doubt about it. Reprint HLR0817-? 6 HealthLeaders n July/August 2017 Sponsored Material n

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