A look at risk-based payment models

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Value-based care is becoming increasingly popular with payers because it reimburses for outcomes rather than services putting a greater focus on the long-term health of the insured. Physicians have been slow to move away from traditional fee-for-service, but there are growing cost pressures in health care to reduce spending and payers see value-based care as the best method to address the issue.

In order to entice more physicians to make the jump to value-based contracts, payers will often offer risk-adjusted models where the physician assumes some of the financial risk, but also shares in the savings. If a practice is efficient and invests in preventive care for its patients, revenue and profit can be increased, but only if the right investments are made in technology and tracking.

Medical Economics spoke with Patrick Sulzburger, CPA, owner of Coding and Compliance Initiatives, about the pros and cons of risk-adjusted payment models and what a practice needs to do to be successful with them.

Medical Economics: What are risk adjusted payment models and why should physicians consider participating in them?

Patrick Sulzburger: If we think about how our health care systems have been glued together in the past, we're in a model that the government and commercial insurance payers refer to as volume-based models, where every time we bill a CPT code, we're getting paid a certain amount for that code that we're billing. The concern from a payer’s perspective is, do we have enough incentive to be efficient with the way we run our health care business, bill for those services, and asked to be paid. The evolution of this is risk-based payment models that are asking us on the provider side to be willing to take some risk that we're able to deliver good quality care in a cost-effective manner.

What risk-based models are saying is, we recognize in the industry that all patients are not equally complex. We have to have some way of paying providers in the health care system fairly for taking care of these patients across the spectrum. So, someone who's a very complex diabetic and maybe has COPD isn't going to cost the same as someone like me, who's a wellness patient. What the industry is trying to get to is, how much should it cost to take care of a patient based upon their complexity and risk? And so that's our first step in the evolution of value-based health care is saying, how do we engage health care providers in being efficient, but making sure we're paying them fairly for the complexity of the patient?

Medical Economics: For physicians who have never participated in a risk-based payment model, how do they get started? And what will they need in terms of technology?

PS: The good news is most of their existing technology around their medical record system and their billing system is going to be just fine. What we're going to see though is a little more accountability around data collection and reporting around quality metrics and things like that. One of the ways to get started is for them to look at their major payer mix. What's your proportion of Medicare, for example, what's your proportion of Anthem, or Blue Cross or United? Because many of the Medicare and commercial programs and even some of the state Medicaid programs are all very interested in the same thing, which is how do we engage the provider community with efficiency and quality. When you look at your payer mix, if for example, you said 50% of my payer mix is Medicare, then you may want to reach out to Medicare and look at some of those Medicare Shared Savings Programs, which are typically in the form of an accountable care organization. And you can visit with Medicare about how do I enroll to be engaged in this? Same thing, if you were 25 or 30% commercial insurance, reach out to those bigger commercial payers and ask how can we engage with you in value-based health care, because what it can represent for those providers is an additional revenue stream.

I'd start with looking at your payer mix, look at those top two or three biggest payers, and then contact them and ask what type of value-based programs do you have available for us. The good news is, I've not found my clients needing a big investment in technology, but what you will find is there's more data collection, so you might have a little more administrative costs in those first years as you're ramping up to understand how to report.

Medical Economics: How is risk measured and how are payments typically calculated?

PS: There's a variety of risk-based models out there, but one that's very big is called hierarchical condition category codes, or HCCs. Medicare uses this, and all of their ACOs and many commercial payers follow them. Those HCC categories tell us about a patient's risk, and they have what are called weights assigned to them. When we think about a risk factor, it's a numerical score that tells you something about that patient's complexity compared to the rest of the population. If you and I were in the same insurance plan, and we were in a value-based program, the baseline or average in that population would have a risk level of say one. So if I'm at point five, then what that's basically telling a payer is I'm about half as complex in my clinical conditions as the average in that population, so there'd be an expectation that I would cost less to take care of in the next 12 months based on that complexity. In those HCC categories, things like diabetes, obesity, and other types of chronic conditions have weights assigned to them. And those weights then go into a score, multiplied by an average cost in that population to tell us how much it should cost to take care of them.

The way that we would typically get paid is there's actually multiple ways we can do it. But if we were in a value-based Shared Savings Program, then at the end of the year, we're going to look at were we able to take care of this population of patients in a cost-effective and quality manner and bring that cost down below that historical level. And if we are, then we get to share in that savings. For example, if we were in a population of 50,000 patients and it had cost, $5 million to take care of them, and we're now in a Shared Savings Program with some other organizations and we bring that cost down to $4 million, those payers are happy to share some of that $1 million savings back with all of us because they're still to the good even if they share half of it back. So those HCC categories are really where the patient risk score comes from, and that maps from diagnosis codes and demographic data.

Medical Economics: What kind of financial impact can practices expect to see from participating in risk-based payment models?

PS: There's usually a ramp-up period as we get started and we learn about how to capture data and code better. With risk-based models, it's the diagnosis coding that tells you about the patient's condition. So we're very used to the CPT coding, which drives the payment in a volume-based model. But in a value-based model, the diagnosis coding tells us about the complexity of the patient and that's what maps into these HCC categories that tell us about weights and complexity and how much it should cost. I have clients that had been in value-based programs like shared savings now for say, six to seven years, and by year four, five and six, in a group with 20 providers, I have some of my clients that are earning an additional $600,000-$800,000 a year in revenue to the group on the Shared Savings Side in addition to their regular volume-based revenue streams. Depending on the type of program, there are chronic care management programs as well that you can get into in addition to potential risk-based models with shared savings. The good news is, there are lots of opportunities, there are lots of different ways to participate in value-based health care. Usually what I've seen though is you'll have a little bit of a ramp up as we learn how to capture data, and manage and report on those chronic patients in a little more effective way, because we haven't had to do that in the past. The doctors and clinicians have needed to take care of them, but we haven't had to report on the data the same way. This is a long-term play. Value-based health care in my estimation is here to stay, and I think Medicare is pretty clear about that. It's worth a couple year ramp up when you're thinking about your practice in five, 10, 15, or 20 years.

Medical Economics: Which employees in a practice will need additional training to help physicians be successful and with these risk based payment models, will additional hires be necessary?

PS: It's absolutely a team effort. You're going to want your physicians and your mid-level providers being educated because they're a critical part of your revenue cycle. The diagnosis coding is huge and telling us about the complexity of the patient, and the people who do coding are going to need that education because they're going to need to understand how the diagnosis coding specificity maps us into these risk categories. And if we're not coding to the highest levels of specificity, that can have a gigantic impact on our revenue stream. The people in our check-in area will need to be educated as well, because capturing the demographic data is critical, as is assigning them into risk categories.

Another big piece of this is increasing patient engagement. If we're going to keep people well, they want patients like you and I coming in for wellness exams, which means we've got to help our providers to be more productive. The way we do that is our scheduling team needs to know how to be efficient in opening up those slots, and we need our M.A.s and our nurses team up in those rooms so that providers are not wasting time doing work that other people can be doing. We need the physicians diagnosing and treating patients, not looking for supplies. Everyone's got to be educated about how they help us to succeed in that value-based model. I've not seen a need for a lot of additional staff; it's more about being efficient. If I've seen any need for additional support, it would be around chronic care navigators. When we think about chronic patients and keeping them engaged with their meds and so forth, we may need some chronic care navigators to help us do that on that clinical side, but most of it is just helping people understand their role as we keep transitioning to value-based health care. The good news is it helps us on the non-value based side too, because when we improve our efficiency, we're also going to do better with our volume-based payments.

Medical Economics: How long does it take to prepare a practice for these risk-adjusted payment models, and will they see positive results right away?

PS: You are not going to necessarily see positive financial returns right away. It may be a couple of years before you're really getting good at how to document and code to the highest specificity or really manage those chronic patients more effectively from a reporting perspective. But I would say you give a good clinical team and revenue cycle team 12 to 18 months of practice with this and they're going to start becoming very proficient, they're going to understand where those strengths and weaknesses are, and they're going to start really being able to roll more effectively moving forward. It's really worth it, because all of the payers right now that I've at least worked with, they're not interested in negotiating on fees. So if you think you're being not paid as much as you should be paid as a physician, going to a payer and negotiating rates commercial with commercial payers, for example, most of them aren't very open to negotiating on fees. What they're going to say is if you want to increase your revenue stream, then you're going to need to create value, which means you're going to need to get into these value-based programs. It's really the way we're going to add new revenue streams in the future, whether it's Medicare or commercial.

Medical Economics: Do you see these risk-based models becoming more prevalent in the future as the health care industry continues to fight to contain costs?

PS: Yes, I think that this is absolutely here to stay. And I think what you're going to see is a migration where in the past, 100% of our revenue came from the volume-based payment model, I think you're going to see that proportion go down to where it's maybe 80% is volume, 20% value, then 60%, volume, 40% as value. As we keep moving forward over the next decade or so, more and more of our revenue stream will come from these risk-based, value-based payments, because we've got to do something to not only contain the cost, but make sure we're delivering and reporting on great clinical outcomes, as well.