The CMS says it's well on its way to dragging hospital systems into the brave new world of risk-based contracting.
The systems say, not really.
Though the CMS contends nearly 30% of its reimbursement to hospitals is tied to some level of performance, providers themselves say they are deriving a minuscule amount of their net patient revenue from risk-based contracts rather than fee-for-service medicine.
The response to this year's Modern Healthcare Hospital Systems Survey is illustrative. Only 13 hospital systems out of 80 respondents said they derived 10% or more of their net patient revenue in 2015 from risk-based contracts. Two-thirds of the respondents estimated that risk-based contracts generated 1% or zero of their net patient revenue.
Hospitals are either not eager to bear downside risk because they are afraid, or they cannot find health plans willing to share the data needed to negotiate contracts perceived as fair to both parties, said Len Nichols, director of the Center for Health Policy Research and Ethics at George Mason University in Fairfax, Va. “Both phenomena are operational across America today,” Nichols said.
Moreover, hospitals appear to have good reason to be skittish about taking on risk-based contracts, according to a recent survey of 142 providers by accounting and consulting giant KPMG. The firm found that 52% expected their value-based contracts to lead to a drop in operating profit or surplus. That contrasted with 47% two years ago.
Of those expecting some decline in operating profit, 27% expected that drop to be 10% or more, according to the survey. Only 10% of the 142 respondents felt that value-based contracts would produce an improvement in operating profit of more than 10%.
Nichols said hospitals are approaching risk-based contracting very cautiously. First, they are just getting back on their feet from the Great Recession of 2007-09. They saw their volumes sink and red ink rise as out-of-work people or those scared of losing jobs put off discretionary procedures, he said.
Then, hospitals had to bear the financial brunt of the first few years of the Affordable Care Act as the CMS cut rates as hospitals waited for volumes to slowly rise and for some states to expand Medicaid coverage, he said.
Now that they are finally seeing surpluses—average hospital margins reached a 30-year high of 7.3% in 2014—they aren't thrilled about venturing into the uncertainty of risk-based contracting, Nichols said.
Risk-based contracts come in a variety of shapes and sizes. The highest form is full capitation, in which hospitals or physician groups receive a monthly payment to provide all care for an enrollee. Lesser-risk contracts include bundled payments for conditions such as joint replacements, Medicare shared-savings contracts and those with provider bonuses or penalties for quality, readmissions and patient satisfaction.