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Poor risk contract results not common

Poor risk contract results not common

Survey finds commonalities of successful programs

Skeptical physician groups often say poor risk contract financial performance is the reason they stay away from capitation. As a result, capitation is usually associated with physicians not getting paid enough, although the payment method remains popular in California and other pockets of the country. However, a recent study found that poor results are not as common as has generally been believed.

The 2008 Capitation and Risk Contracting Survey, released by the American Medical Group Association (AMGA) and ECG Management Consultants, found the following:

  • Whether risk contracts are financially attractive depends heavily on the dominance of payers or providers in the market
  • The ability to participate in risk contracting largely depends upon whether a health plan offers the option in a group market’s area
  • Effective risk contract management requires significant investment in contract administration and oversight
  • Unfavorable contract terms are the single greatest barrier to risk contracting participation

ECG Management Consultants believes the findings are timely because of the anticipated changes in the U.S. healthcare system.

“Regardless of the changes to the healthcare system, organizations who are able to better manage risk and demonstrate true value to purchasers of healthcare services will likely have strategic advantages over other organizations,” says Josh Halverson, senior manager at ECG Management Consultants in St. Louis.

The 2008 capitation survey was based on 2007 data and focused on medical group leaders. Seventy-five AMGA member organizations responded to the survey, which was broken down into five topics: prevalence and scope, risk contract management, health plan characteristics and performance, physician acceptance, and barriers and limitations.

Of the 75 organizations that responded to the survey, 64% have participated in risk-bearing contracts in the past three to five years. Not surprisingly, west-ern states had the largest percentage of risk-contracting participation by region (84%), and 67% of respon-dents have been involved in risk contracts for at least 11 years.

Thirty-six percent of participants reported that the revenue derived from risk contracts is greater than half of their organizations’ total revenue, including 62% of respondents in western states. On the other end, 67% of respondents in the Northeast with risk-bearing contracts said risk contracts contribute to less than 10% of their total revenue.

Thirty-three percent of those with risk contracting own a health plan and are most likely to offer commercial HMO-POS and Medicare Advantage plans.

More than half of respondents described their organizations’ financial performance in risk contracts as above average or excellent in the past two years. Less than 10% cited poor financial performance.

The survey found that professional and primary care capitation are the most attractive to providers, whereas global risk is the least attractive. (See Figure 25 below.) Primary care and professional capitation are the most frequent contract types; global and carve-out contracts lag behind. (See Figure 26 on p. 21.)

“Under professional and primary care capitation, physicians are generally at risk for services they provide. Because they have the greatest degree of control, physicians are most willing to assume professional and primary capitation,” says Halverson. “Global risk includes any inpatient episodes, which expose the group to greater levels of risk to issues beyond their control. However, groups with access to hospitalist and/or intensivist programs often are able to better manage global risk.”

On the topic of how to influence physicians’ behavior, the highest percentage of respondents said they have referrals and prior authorizations to control utilization, with physician bonus payments as the second most popular. Pay for performance and group bonus payments were each used by less than 10% of respondents. (See Figure 27 on p. 21.)

“Managing capitation really requires a culture and a system of incentives that reward physicians for managing health. Many group practices have mixed incentives between traditional fee-for-service and capitation arrangements. To successfully manage risk, there must be an underlying culture and commitment to capitation,” says Halverson.

Half of risk-contracting respondents said they purchase stop-loss insurance to protect individual doctors from adverse contract performance, with the most common form of insurance an individual policy purchased from a separate reinsurance carrier.

Most groups perform multiple types of audits and analyses to ensure contract performance and health plan compliance, with adherence to contracted rates and coding audits the most frequently used methods.

Although more than 50% of risk-contracting respondents reconcile patient eligibility with premiums to ensure proper reimbursement, many organizations do not perform any type of premium audit. (See Figure 28 on p. 22.)

Relationships with health plans

Respondents were asked to describe their experiences in risk contracting with four major health plans: Blue Cross Blue Shield, Aetna, CIGNA, and United/PacifiCare. Researchers found that although health plans are providing eligibility data, they are not likely to supply claims data or premium data for which a group is at risk. (See Figure 29 on p. 22.) “This is cause for concern, because without this information, groups are unable to perform the necessary audits to ensure adherence to contracted rates for services rendered and proper premium payments for the covered population,” the survey stated.

Regarding primary reports, health plans most commonly provide information that share contract performance information. (See Figure 30 on p. 23.)

Most survey participants said the quality of data from health plans is within acceptable limits, but almost 30% suggested below average or poor data quality caused reporting delays and significant rework. Seventy-two percent of respondents described the timeliness of the data received from a health plan as average.

A health plan’s utilization management staff can help group practices in the areas of patient management and cost-control efforts, but most respondents said the staff was not helpful. That reaction is coupled with more than half of respondents saying their financial performance was good or excellent with a specific health plan, and it was appreciated when health plans provided more data and utilization support.

“Physician organizations indicated through interviews that valid and consistent data regarding utilization was more important than utilization management staff. Sharing of good utilization and medical expense information between health plans and physician organizations appeared to be uneven and represents a significant opportunity for improvement,” says Halverson.

Nearly 50% of survey participants said physicians’ interest in capitation within their organizations was mixed, although more than 30% suggested physicians were enthusiastic about increasing patient volumes under risk-bearing contracts.

More than half of respondents said their organization’s financial performance in risk contracts during the past two years was above average or excellent, with fewer than 10% claiming poor financial performance.

On the topic of barriers and limitations, respondents said unfavorable contract terms are the largest barrier to participating in risk contracts, with more than half of the participants pointing to physicians not willing to accept risk. (See Figure 31 above.)

Halverson says one way to avoid unfavorable contract terms is that “reimbursement must be commensurate with the level of risk assumed by groups. The most successful groups have the ability to prospectively conduct analysis to determine the level of risk and the expected reimbursement associated with contracts. Organizations must have the tools necessary to determine their risk and define an acceptable risk premium. Objective, data-driven analyses are the best tools to inform contract negotiations.”

Thirty-six percent of survey respondents said their organizations have difficulty administrating risk agreements and pointed to system limitation as the biggest barrier. (See Figure 32 on p. 24.) Those who have not had difficulty administrating the contracts say quali-fied staff members and clearly defined contract language and risk pools helped contract administration. (See Figure 33 on p. 24.)

One reason why some groups experience poor risk contract financial performance is they are unprepared to effectively manage the risk, Halverson says. Those groups often don’t have the necessary infrastructure, organizational expertise, and culture to do so. “In order to successfully manage risk, organizations must have systems and support to monitor utilization of services and medical expenses. System limitations were frequently cited as barriers. In addition, access to hospitalist and intensivist programs are necessary to effectively manage the expenses of inpatient care; these are often unavailable to groups,” says Halverson.

Brian Weible, FSA, MAAA, consulting actuary at Wakely Consulting Group, Inc., in Clearwater, FL, says many payers have discontinued risk contracting because the payer needs the fee-for-service claims data to receive accurate revenue when that revenue is contingent on diagnosis or other patient claim–specific information. These data are difficult to collect under capitation/risk arrangements.

“The exodus from acceptance of risk is really on both ends—many physicians went back to fee-for-service work, but others exited on the other side of the stage, meaning some of them actually became licensed risk-taking entities [usually HMOs or PSOs].Especially with the Medicare product, where CMS may reimburse at $1,000 per member per month or more, rais-ing $5 million to start an HMO may be quite feasible for mid to large physician groups who were successful under risk arrangements but wanted more control of product design and/or ownership of their patients,” says Weible.