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Why Risk-Based Contracts Are Worthwhile

Karen Minich-Pourshadi, for HealthLeaders Media, October 8, 2012

Building a case for risk-based contracts requires gaining access to metrics which some organizations are still working toward acquiring, and access to payer patient data, which isn't necessarily forthcoming...

Bundled payment schemes lump patient populations and then push the risk to providers to make an agreed-upon percentage healthier or lose money. It's easy to see how risk-based contracts might not be all that appealing when the financial risk—regardless of the patient's level of participation in care—falls squarely onto the providers.

Hospitals and health systems can absorb some small margin declines, but smaller physician practices may not be financially capable of doing. Moreover, these contracts require that providers get their costs under control, which means providers much have a true understanding of what their costs actually are—no small undertaking.

"We're finding there's usually up-side, not down-side risk [to these contracts], but we're in the infancy," says Elizabeth Ward, CFO at University Hospitals UT Southwestern in Dallas, TX. Ward's response reflects the MMS' survey finding that University Hospitals are more open to these ventures.

"The insurers are putting a little bit of their skin in the game, and the insurance companies have an expertise to bring to the table that we, as hospitals, don't have; that's the actuarial analysis and the data. We're trying to see how we can use that to our advantage, particularly in these risk-based contracts to become partners," she says.

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