Manage Your Risk When Choosing Payment Models – One Size Does Not Fit All

When Congress passed the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), “risk” moved front and center as a feature of provider reimbursement models. These days, we’re using terms such as “at risk” and “risk-based” more and more, but what do they really mean? And why should healthcare providers be more concerned with risk now than they have been in years past?

Merriam-Webster defines risk as “the possibility that something bad or unpleasant (such as an injury or a loss) will happen.” In the current healthcare environment, risk could be defined as a loss of revenue – providers and payers are risking income when they provide services to patients. And the question has become, when treatments involve expensive services, drugs or procedures, who will pick up the check?

Risk isn’t new to payment models. Although traditional fee-for-service models are not generally considered at-risk payment models, they certainly involve risk. The risk, however, is born by the payer, not the provider. In fee-for-service, the payer issues a reimbursement when the provider renders the service. The payment is neither dependent upon the quality or success of the service provided nor dependent upon the payment falling below the total of the patient’s premiums.

In the fee-for-service model, higher service volume generates greater profits for the provider but lowers profits for the payer. The risk, therefore, is born by the payer.

Alternatively, in a full-capitation payment model, the provider bears the burden of risk because the payment received per patient is fixed, and the provider is responsible for delivering effective services in a cost-effective manner. In this environment, the ideal situation is for payment to be less than the cost of the treatment, allowing the provider to profit. By reducing costs, the provider can generate higher profits with a lower volume of services than in a fee-for-service model.

Capitation is only one approach to changing reimbursements, but as new payment models are emerging, risk is clearly shifting away from payers to patients and providers. These new “at-risk” payment models involve bundled payments, shared savings, pay-for-performance, and capitation, just to name a few. Some models are hybrids, including several different approaches. Others focus on maximizing savings for specific treatments. Still others exploit the benefits of coordinated care.

Some of the current alternative payment models supported by CMS include:

Why are so many payment models available? Because a single payment model does not fit all providers.

For example, a rural primary-care provider with a small, high-acuity patient population may be less likely than others to benefit from a fully capitated payment model, but may be profitable using a fee-for-service model. It’s likely that orthopedic providers in a community with one high-cost, post-acute care provider will not thrive under a bundled payment model without incentives for the post-acute care provider to manage its costs. The same orthopedic provider may, however, benefit from a shared-savings payment model.

So how do you choose the payment model that’s right for you? First, know your data. Spend some time assessing the following:

At-risk payment models can be complex but are likely here to stay. Thriving in this new environment means crafting a payment reimbursement model that works for you. You’ll want to maximize your use of internal resources, but healthcare consultants and industry advisers are also available to assist in evaluating the best payment model for you and your practice.

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