As we noted in our January/February issue feature on risk-based and value-based contracting, “A lot has happened in healthcare over the past three years; in January 2020, the COVID-19 virus was first officially documented as having arrived in the U.S., and by March, a full public health emergency had been declared, shutting down the vast majority of non-emergency surgical procedures and throwing the U.S. healthcare system into crisis, with COVID cases overwhelming the system and leading to tremendous challenges, some of which are lingering even now. Indeed, the clinician and other staffing shortages, the increase in staffing and supply costs, and the burnout and subsequent departure of large numbers of nurses in particular, have all been devastating for the healthcare system, with revenue margins of many hospital-based health systems sliding into the red nationwide.”
And it is in that context that the leaders of patient care organizations are trying to figure out which way to go with regard to value-based, and especially risk-based, contracting, in the next couple of years. One of the industry experts we spoke to for that feature was John Klare, managing director at the Naperville, Ill.-based Impact Advisors consulting firm. Here are excerpts from the interview with him conducted in December, about that exceptionally topical subject.
When you look at the overall landscape around value-based contracting, what do you see right now? Specifically, I’m looking at what moves might be made by provider leaders who prior to the pandemic had not gotten significantly involved in risk-based contracting with payers (either governmental or private). Some observers are saying that provider organizations that hesitated to plunge into risk-based contracting prior to the onset of the pandemic in early 2020, are hesitating now still, because of the straitened financial situations in which they find themselves. What’s your perception of that?
You would think. But right now, it’s almost as though everyone’s doubling down on whatever their position was [prior to the emergence of the COVID-19 pandemic in the spring of 2020]. Organizations that have dabbled in risk are feeling that that’s one of the few areas where they think they can grow business. But yes, for those who were afraid before, it’s got to seem a little scarier. That said, as everyone knows, labor issues are a pressure point right now for every healthcare organization in America. And one of the interesting aspects of this is that if you think about your opportunities to decrease pressure on the workforce, having a full-risk contract in place will decrease inpatient admissions, and that could actually be helpful in the overhead-cost area, particularly in the Medicare Advantage space and in the MSSP [Medicare Shared Savings Program] space.
Will the disruptors possibly push more organizations into risk-based contracting?
For those organizations reading the tea leaves, that would be a very smart move. So—if I’m a provider who’s been afraid of risk for a long time, and I see Walgreens and CVS taking Medicare Advantage patients, I’m losing some of my patients and it’s becoming darker, obviously. But for those organizations that see it as an opportunity, it’s a significant opportunity.
And we’ve found in our reporting that multispecialty medical groups continue to advance far faster than do hospital-based organizations, in terms of taking on risk. Would you agree?
Yes, absolutely.
Hospital-at-home programs have been emerging as a very important new element in all this. Do you see their emergence as having any overall impact on thinking in this area?
I agree that hospital-at-home programs are becoming very important; but the reality is that, if I’m still trying to figure out how to do this. That makes perfect sense from a population health perspective, but look also at how disruptors like Optum, CVS, and Walgreens are moving into care management; there’s a ton of private equity moving into the space. I’m seeing more and more disease-specific and acuity-specific private equity-funded organizations coming into the space, too; and that means that the leaders of hospital-based organizations have to think multi-dimensionally about how to proceed in some of these emerging areas.
The ”one foot in the boat, one foot on the shore” problem has been extensively discussed now for years in healthcare. While the leaders of hospital-based organizations in particular have been trying to move forward into risk, they still, fundamentally, have to fill beds, as the vast bulk of their reimbursement remains discounted fee-for-service. Your thoughts?
People have been struggling with that problem for a long time. Number one, I need to isolate an environment to care for specific populations. If you try to spread capabilities across too broad a platform, it doesn’t work very well, because there’s still too much emphasis on the foot on the dock, as it were. So one needs to separate and align the resources around that risk-based business. And there are options to partner in that space now; and that might be a very good option. Doctors caring for a particular population of patients don’t want to give up relationships with patients; and physicians unwilling to delegate can keep you stuck [as a hospital-based organization]. So, joint venturing—a comprehensive joint venture to create a new risk-bearing entity—will often be the answer. Subcontracting doesn’t solve the alignment problem. So maybe that physician willing to delegate the care of a particular patient to a new or outsourced entity. A separate new joint venture and risk-bearing entity can really focus on that population. And people get confused about what risk is. You need to look at full risk, including downside.
So patients would be assigned to that entity. I own my patient now, my patient signs up for MA; and I now need to delegate the responsibility for primary care and follow up to that entity; I’ll be linked into it and will coordinate that. We’re talking about the delegation of components of care under the supervision of the doctor to whom the patient is attributed. I’m increasingly hearing fear from hospital-based health systems that MA programs are taking patients. Something like 46 percent of seniors opted for MA.
One element that’s been emerging very clearly is the need for organizations need to develop really good analytics capabilities in order to be successful in value-based contracting, correct?
That’s right, and we’re not necessarily even talking about sophisticated analytics; simply having enough capability to see clearly a patient’s preexisting conditions shouldn’t be that difficult, yet organizations are struggling. HER, medication data, payer data—you’ll need a comprehensive view of the patient to be successful.
What do you think this landscape will look like in two or three years from now?
You’re seeing the awareness of the need to assume full risk gaining momentum; and hopefully you’ll see organizations stepping up. I hope that hospital systems will step up and take responsibility for those patients. There’s another scenario where other entities like Optum and VillageMD and Agilon take patients away from hospitals in certain areas, and that would just create more strain. Hopefully, they can find the path forward.
