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Opinion: Shifting payment models increase provider risks

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Most of us know the United States spends much more on health care than our counterparts in other developed countries. Per the Kaiser Family Foundation, U.S. health care spending per person was double the comparable country average in 2016. Health care also is a much larger portion of an average U.S. citizen’s annual spending requirements compared with other nations.

So what are the health care payer sources in the United States doing to decrease the cost of care in our country?

Historical payment methods have reimbursed the provider on a fee-for-service basis, a natural incentive for providers to maximize utilization, while payers assume the risk that their premiums will be sufficient to cover payments for these services. Those days are changing. Both public and private health care payers are shifting risk to the health care providers.

Payers are starting to hold health care providers accountable for their performance in three major areas, often referred to as the triple aim:

  • quality of care;
  • patient experience; and
  • cost of care.

More and more, health care payers are tying the amount of payment for services to the performance of the provider in these three areas. This presents an upside and downside to the risk health care providers need to manage. If a provider contributes positively to the triple aim throughout the patient’s care over a given period of time, they have the potential for maximum payment benefits. To the contrary, a provider that falls short in its performance will experience a decrease in its payments.

Some common payment models used to shift risk to the health care providers include:

  • value-based purchasing;
  • bundles;
  • accountable care organizations; and
  • capitation.

Value-based purchasing, also referred to as pay-for-performance models, provides payment increases or decreases to the base fee for services in relation to the performance of the provider. Areas under scrutiny for providers include quality of service, patient experience and undesired use of health care services, such as rehospitalizations or emergent care.

This payment approach, however, still uses fee-for-service as the base payment model but does have financial implications for providers that don’t meet expected performance levels when providing care.

Bundled payments are informed case rates for which all health care service providers – i.e., hospitals, nursing homes, home health agencies – share a global payment for all of the services provided over a defined period of time during a patient’s care for a specific condition (often referred to as an episode of care). This payment model incentivizes collaboration between health care providers. It shifts risk to the providers to achieve the triple aim for the care needs for a specific patient condition during a defined period of time, say for joint replacements, cardiovascular procedures or conditions and pneumonia. Bundled payments usually include a payment adjustment factor for quality of care and patient experience as well.

While bundled payment models focus on payment for a specific patient condition for an episode of care, ACOs and capitation models focus on achieving the triple aim on the entire patient’s health care needs over time.

These managed-care models make a certain organization responsible for managing all the health care of specific patient populations. The at-risk organization is paid global rates, or premiums, for all the health care needs for the patient population, and the organization has to cover all the patient’s health care needs. The payments in these models often come in the form of per member, per month rates, a percent of premium or other capitated payment arrangements.

Given the shift of risk to health care providers, many hospitals, large physician groups and other health care organizations are developing their own health plans for an integrated health care delivery system. They’re basically getting into the insurance business.

The new payment models health care payers are using might just be part of the solution to U.S. health spending woes. Payers are forcing health care providers to put more skin in the game in an attempt to reel in the cost of care while still achieving quality outcomes and patient satisfaction.

During the transition to these models, providers will be challenged to live with both fee-for-service and risk-based models. Time will tell if the shifting of risk to the providers is successful in achieving the desired triple aim.

Mark Sharp is a partner at BKD LLP and leads BKD’s home care and hospice industry team. He is a board member of the National Association for Home Care & Hospice. He can be reached at


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