Is your healthcare captive ignoring risk dollars?
In today’s US healthcare market, providers are facing an additional stream of financial risk from a new source: value-based care. Aimed at targeting the rapid growth in healthcare costs and significant variation in care quality, value-based care programmes give providers the chance to improve quality and boost their revenue by finding better and less expensive ways of delivering care to patients.
We’re outspending ourselves
Healthcare spending in the US, already double what other developed nations spend, is expected to reach new heights: 20 percent of GDP by 2026, according to the Centers for Medicare and Medicaid Services (CMS). Because of this growth in spending and its impact on the total federal deficit, CMS is increasingly shifting the financial risk of providing healthcare away from the government and onto the books of healthcare providers.
“There is a significant opportunity for captives and other insurance products to play a central role in covering some of that risk at the organisation level.”
CMS wants 100 percent of its Medicare providers to take meaningful downside risk by 2025. The goals for commercial healthcare providers and the Medicaid market are both 50 percent. In 2017, depending on which market you’re looking at, rates of providers taking downside risk were between 7 percent and 24 percent.
Collectively, this shift will lead to trillions of dollars of healthcare risk moving from Medicare, Medicare Advantage and commercial health plans to providers in the next five years.
The risk and reward in value-based payments
Medicare is committed to moving the market toward two-sided risk through a variety of value-based care models. In 2019 alone, Medicare announced nearly a dozen new value-based payment programmes to target expensive populations and encourage providers to improve quality and reduce costs while taking on more financial risk.
Value-based payment programmes reward providers for innovating their clinical processes to increase the quality of care for patients, while decreasing spending. When providers successfully manage patients through population-based or episodes-of-care-driven models, they get to keep a portion of the savings. If spending exceeds expected levels, then participating providers owe money back to CMS or their health plan partner.
Value-based care programmes come in a variety of forms, and often focus on:
- Population health (eg, accountable care organisations);
- Full capitation (eg, managed care systems);
- Bundled payments (eg, Bundled Payments for Care Improvement Advanced);
- Shared savings (eg, Medicare Shared Savings Program); and
- Specialty-specific (eg, Kidney Care Choices).
Some of these programmes are voluntary, others are mandatory. Most have a number of different structures within them. Payment to providers under value-based care programmes is either delivered retrospectively after the defined patient episodes are complete, or prospectively as an incentive for providers to better manage a finite pool of dollars they receive from the payer.
Across all programmes and structures, value-based payment programmes are on the rise. More than one-third of all healthcare payments had some value-based care aspect to them in 2017—an increase from previous years.
This trend represents a paradigm shift in how providers think about and get paid for the care they deliver. To date, many of these models have been upside-only structures, but recently CMS announced that it is eliminating upside-only models in favour of initiatives that have increasing amounts of downside risk.
Teaching an old captive new tricks
With trillions of dollars in risk structures heading towards providers collectively through value-based payment programmes, there is a significant opportunity for captives and other insurance products to play a central role in covering some of that risk at the organisation level.
Traditionally, captive holders and insurance companies have had limited focus on the healthcare reimbursement risk that their contracting teams are taking on. Many provider organisations focus these tools on medical malpractice or property and casualty.
When speaking with chief risk officers and others who manage risk for providers, overwhelmingly we find that risk protection strategies are ignoring millions or tens of millions of risk dollars in new contracting programmes within their organisations.
A decade spent working with providers and national datasets in Medicare value-based payment programmes suggests providers need to understand their historical performance, variability, opportunities and risks as they pertain to the quality of outcomes and the cost of care. These factors significantly and uniquely affect the amount of opportunity and risk an organisation might face in value-based care programmes.
In addition to captives, providers are increasingly exploring alternative solutions to cover their value-based risk, including stop-loss insurance. There are emerging stop-loss solutions specifically designed to address the challenges of value-based care.
These programmes feature aggregate policies that account for variability and existing protections within providers’ value-based payment programmes and organisations. In other words, these stop-loss products reward organisations for measures they have already put in place regarding protection and performance improvement in their value-based care programmes.
Whether providers address it now or later, the financial risk of delivering healthcare is escalating, and their dollars are on the line. Forward-thinking healthcare organisations are actively considering how to optimise their upside while protecting themselves from loss, as they learn to navigate the new value-based care environment.
Dave Terry is chief executive officer and co-founder of Archway Health. He can be contacted at: firstname.lastname@example.org