Monday, 10 August 2015 03:41

Risk Aversion: How Community Hospitals Can Successfully Tackle Value-Based Arrangements

Written by Phil Kamp

Traditional health insurance as we know it is evolving. And with recent consolidation in this arena, most recently Anthem’s acquisition of Cigna, hospitals and health systems will be forced to rethink their payor strategies. Many healthcare organizations already are evaluating their ability to enter into new risk-based arrangements that would give them clinical and financial responsibility for their patient populations.

You may have heard that value-based purchasing models only work for academic medical centers or large hospital systems. The argument is that owning physicians is how a hospital can exert control and controlling specialists is how to manage costs efficiently. And it seems that larger systems and academic players boast the billboard-worthy brands required for value-based success.

While this may be true in some circumstances, it’s not a hard-and-fast rule. In fact, hospitals in the middle market – such as community medical centers and smaller systems – are ideally positioned with distinct advantages to sign value-based contracts.


Before entering into a risk-based contract, there are four questions all community hospital executives should answer:

1. Do you have significant control over the care continuum?

Having control of patients and their care plans is imperative because it enables hospitals to boost quality and decrease costs. But it’s important to note that control doesn’t necessarily equate to ownership.

You must determine if you’re equipped to build the necessary structure to enable primary care physicians and specialists, as well as acute and post-acute providers, to work together effectively. As an example, imagine if your hospital is the only one in your town or county. In order to be positioned to coordinate care effectively, you must have strong relationships with local physicians and a well-functioning physician hospital organization, as well as relationships with labs, urgent care centers, imaging centers, and rehab and long-term care facilities. It’s not raw scale that counts in value-based care, but rather the ability to coordinate and integrate all aspects of a patient’s care and utilizing an efficient network of aligned providers.

2. Do you have a target patient population that comprises a significant portion of physician panels and payor members?

The number of patients you identify to manage is important in two ways. Value-based care requires changing the behaviors of both physicians and patients. Research shows that patients will respond to physician-led health management, so encouraging new physician behavior is critical. However, the desired value-based arrangements must impact a significant percentage of physicians’ patient panels – ideally, 30 percent or more – to drive true change. If the percentage is less than that, the inertia to change workflow is usually too daunting and the financial rewards too small for success.

At the same time, the scale of the managed patient population must provide an upside opportunity for payor organizations. While this certainly can be construed to be a “size” issue, the reality is that the critical mass will vary greatly based on market conditions. In some markets, you may only need to aggregate 5,000 to 10,000 patients to attract payors to a risk-based contract. The good news, though, is that the number of patients needed may not be extraordinarily large – and this certainly does not preclude middle market and community players from entering into and being successful in these arrangements.

3. Are you the low-cost healthcare provider in your market?

You likely already know the answer to this question, and if you don’t, you can determine it by reviewing a cost database. Community hospitals likely have a significant advantage in this area, given the cost burden often carried by academic medical centers and large hospital systems due to teaching, research, real estate, and the purchase of the latest and most expensive technologies. Middle-market and community providers also usually carry less debt than larger systems because they haven’t purchased physician practices. So, if a risk contract includes primary care quality goals or bundled payment options, a middle-market or community hospital with ties to primary care providers can be more efficient and nimble than much larger and research-centric institutions and systems.

4. Can your organization’s leaders commit to aligning incentives and making required changes?

It takes committed leadership to ensure that your reimbursement model will make sense for everyone involved in the healthcare experience, including patients, providers, and payors. Fortunately, leadership capabilities are in no way related to organizational size, but rather where an organization chooses to focus its efforts. We’ve found that a lot of recent conversations have centered on new reimbursement models, and it’s worth noting that very few people – hospital administrators included – are involved in medicine simply to make money. Their personal mission is to care for people and help them live full and healthy lives. Of course, hospitals must make a profit to survive, so a successful leader will leverage clinical and financial rewards as well as moral calls to action in order to motivate change.

If you’re able to answer “yes” to the majority of these questions, your organization likely will have the ability to succeed in risk-based arrangements, even if you aren’t a part of the largest hospital in your market.

Once an organization has made the decision to venture into value-based care, the next step is to identify an appropriate risk model. Every hospital, regardless of size, has its own unique characteristics, so no one model will work across the board. You also will need capabilities to manage risk while continuing fee-for-service operations as things play out in your specific environment.

It may make sense for providers to consider creating a pilot program in a certain area and establishing defined risk parameters in a given value-based contract – this will enable the hospital to see what works and determine final models for broader implementation. Success is, of course, dependent on effective executive and physician engagement and leadership, combined with risk arrangements that are structured to succeed.

What’s the bottom line? Given the right market conditions, every provider organization should consider taking on some form of risk. In today’s rapidly changing healthcare landscape, it appears that the sphere of influence and cost structure, not size, are the critical factors for success in value-based care.

About the Author

Phil Kamp has more than 30 years of managed care experience focusing on integration strategies for health systems. As co-founder and chief strategy officer of Valence Health, Phil provides leadership and direction for the company, leading its efforts in creating patient-focused, data-driven solutions that can be implemented across a healthcare organization. 

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Last modified on Wednesday, 26 August 2015 07:54