Value-based agreements continue to increase in volume, but some leaders are still hesitant to take on significant risk. Many executives are closely examining their business models, scrutinizing how value-based agreements may factor into their overall strategy. Experts say payers and providers alike should have a clear vision of their past performance, so they can predict financial risk and effectively judge potential opportunities.
Validating Value: Two key elements for leaders to confidently take on risk
Every health care organization has its own risk culture. Growing organizations may have an aggressive risk-reward mentality, while organizations with significant market share may be more hesitant, said Greg Warren, FSA, MAAA, FCA, senior vice president of risk management and growth advisory, and chief actuary of Optum Advisory Services.
“An organization that has a 60 percent to 80 percent market share in its space, for example, is less likely to ‘gamble,’ or even place smart bets,” Warren said. “The downside in many ways is much larger for them, in terms of margin, contribution to surplus and potential loss of volume.”
No two payers or providers are the same. When exploring how to structure a value-based partnership, leaders should ensure incentives are structured for optimal performance on both sides. Too often, risk-based contracts aren’t crafted to offer realistic, attractive incentives that actually move the needle, said Jeremiah Reuter, ASA, MAAA, MS, vice president at Optum Advisory Services.
“There are a lot of different incentives that providers and payers have that go far beyond sharing in a few percentage points of medical expenses,” Reuter said. “At their core, payers want to grow membership, and providers want to grow volume and margin. You have to consider how significant of an impact the shared saving dollar can have on that growth.”
A thorough examination of data can allow each party to understand the right incentives needed to ensure optimal performance, bringing to light both strengths and vulnerabilities that must be considered in structuring a risk-based deal.
Value-based agreements require significant payer-provider collaboration, and a major element behind such collaboration is access to data. Providers have access to rich, detailed EHR data that predict future medical needs, but often lack data from the wider breadth of providers a patient has seen, which is often found in claims data held by payers. Claims data also contains financial metrics that offer insight into costs. Both parties need to consider what they don’t know and agree to share as much information as possible to bridge those gaps and ensure a successful partnership.
“A value-based contract should contain risk over things you can manage — it shouldn’t include things you can’t,” Reuter said. “You definitely need to contract for your partner’s data, stating what you need to manage that risk.”
Executives exploring value-based deals may also want to consider acquiring benchmarking data from a third-party vendor, as even summary-level data can offer insights into an organization’s performance relative to their competitive landscape, Warren said.
Sophisticated data analytics enable health care organizations to make informed decisions that will allow them to effectively reap the benefits of value-based agreements. But leaders should also invest in the appropriate actuarial talent to perform accurate analyses and make expert predictions.
“You’ve got to have talent that knows how to isolate and drill into the drivers of that performance,” Warren said. Providers in particular often haven’t developed the actuarial talent necessary to effectively make use of the data they have at hand. As leaders continue their gradual shift from fee-for-service to value-based care, they should keep an open eye to potential opportunities that bolster their bottom line. If structured based on accurate information and expertise, value-based agreements can enable effective improvements to care, ultimately impacting patient lives.
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