Population health Q&A: Better Patient Outcomes at Lower Cost Requires Risk-Sharing

By Brian Murphy 

What is population health, this buzz-phrase we keep hearing about in the hospital mid-revenue cycle. And, why should we care about it? I sat down with Jason Jobes, Senior Vice President of Consulting for Norwood, to hammer out some high-level concepts including definitions, and why and how organizations enter into agreements with insurers to improve the health of patient populations. Jason shares a few ideas on how to succeed in this environment as well.

Brian: What is population health and why has it become important to hospitals and health systems?

Jason: For me, at its core, population health is about providing better outcomes, and ultimately treating patients in a given population at a lower cost. It’s thinking about, how do we improve efficiency and outcomes, and at a cost that is lower than expected?

I stress expected, because not all populations are the same, and the expected cost is driven by patient complexity—and is ultimately risk adjusted.

Since the implementation of private insurance, the U.S. healthcare system has resembled a push and pull. Insurance companies make money by collecting premiums, and paying out less in costs than the premiums they collect.

Population health became a buzzword when Medicare began the shift from volume to value, and pushing this with value-based incentives and penalties. Medicare wants to have higher quality outcomes at lower cost.

The balance seems to have swung in the favor of private insurers (i.e., Medicare Advantage organizations), since the implementation of value-based reimbursement. 3 out of every 5 Medicare-eligible patients are expected to be insured by Medicare Advantage within the next 10 years.

Organizations struggle because they see their margins in the low single digits, while payers are reaping significant benefits. There is a thirst to join in on that, and force collaboration with either Medicare or the payers to share in some of that profit. That is the free market working.

Brian: How does a typical risk-sharing agreement work between payer and healthcare organization work?

Jason: Funds flow from Medicare, to the payer, to the contracted entity (hospital/healthcare organization). But within each of those steps there is variability. For example, a payer will negotiate with CMS what their rate needs to be, and negotiate a per member per month rate needed to treat the patient. That then goes into the beneficiary’s premiums. That happens annually via bid process.

But organizations then enter into arrangements with payers. They will come together and decide what kind of risk arrangement they want, if any. They might simply want to be paid fee-for-service (X dollars for each different procedure or visit). The next arrangement is upside-only risk, where organizations are paid fee-for-service, but at the end of year the payer performs a review of the hospital’s medical expenses divided by premiums received, which derives something called a medical loss ratio. Hospitals would then say, if we’re below 85%, we want a percentage of those shared savings.

That’s great, but payers were capping the amount of shared savings, because they were responsible for paying costs in excess of the medical loss ratio. So, there’s been a recent shift to upside AND downside sharing risk agreements. At the far end of that spectrum an organization can be fully at risk and be fully capitated—an organization may say, “you know what? We’re just going to take all 85% of the premium from you the payer, you get to make your 15%, we will own all of the risk, so therefore if we perform well we get 100%, if we don’t, we have to pay more.”

It’s (risk-sharing) individual to each organization, who must determine which and how far on the spectrum they want, with the payer included in that discussion.

Brian: We often hear of population health as a team/organizational effort. Who are the members of a typical population health team?

Jason: It’s a mix of finance—CFOs interested in improving their bottom line—and clinical—clinicians wanting the best outcomes for their patients, because they want to drive high quality care.

It’s also other members of the clinical team, nurses and others, supporting clinicians and their ability to depict the acuity of the patient population.

There are other operational arms of the organization that drive access to care (registration, scheduling), efficiency in care delivery (case management, UR), and followup from care given at a particular access point. For example, if a patient is admitted as an inpatient, it might be someone who follows up with them upon discharge to reduce the chance of readmissions (clinical social workers).

It is multi-disciplinary, and it is across multiple care settings too. Good organizations do this across the entire continuum—the acute side, the medical office side, dialysis clinics. It spans the spectrum, because organizations are ultimately on the hook for the total cost of care.

Brian: Is population health truly the whole patient population, or is it a subset/more granular population you’re treating, for example dialysis patients or cancer patients, certain payers, etc.?

Jason: I think people use it to mean all, but it truly isn’t. I have not seen any organization take on full-on risk for every single patient. I think what you see is, the vast majority of organizations start in the Medicare space, partially driven because Medicare pushed some of this on organizations. Then Medicare Advantage came second. Then you’ve got the whole world of the formation of Accountable Care Organizations. That’s been the primary space.

It’s also Medicaid. Inherently, because it’s a zero-sum game within a state funding mechanism, organizations take on risk in the Medicaid space, even more than they even understand. For example, in Massachusetts the funding for Medicaid could be capped, so if one organization does a better job at capturing the acuity of their patients, and they move up by 10%, and another organization only moves up by 3%, they may wind up getting paid less at the end of the day because there is a fixed pool of dollars. So there is inherent, explicit risk that organizations enter into with payers, but then there is implied risk depending on the population that you serve.

Some organizations will carve out certain populations to both include and exclude that segment from risk. For example, behavioral health is often a carve-out from many risk-based arrangements.

Brian: What is the benefit of this type of arrangement for Medicare, and for Medicare Advantage organizations/Accountable Care Organizations?

Jason: For Medicare, it’s about shifting risk to a different entity. If a patient comes in to a hospital 100 times in a year, under traditional Medicare they have to pay for all of it. If on the other hand they are paying UnitedHealth $1,000 per member per month to care for that patient, it is up to UnitedHealth to manage and pay those costs.

The Medicare Advantage organization is incentivized to increase their risk score so that they generate more revenue. They know it’s easier to capture a risk score than to control utilization. I think that could be the ultimate downfall of population health—organizations have focused exclusively on the risk side of the house, and have really struggled to actually curb healthcare utilization.

Both sides need to happen for this new model to succeed. We’re at an interesting time in the population health spectrum. It’s forcing organizations to understand their risk arrangements—what’s included, what’s carved out, what risk are you taking on which populations—and really know who their patients are.

Brian: How can hospitals/healthcare organizations succeed in this new environment?

Jason: They need to really understand their risk arrangements. And then, once you know what risk arrangements you’re in, you need to understand how you may need to care for those patients differently than fee-for-service.

For example, if you’re serving a segment of your patient population with certain clinicians, those clinicians need to have aligned incentives tied to quality, and an understanding of that medical expense ratio. So, their sole goal is to make sure annual wellness visits are done, accurate risk profiles done, see patients more often, reduce downstream utilization of services, and contain the overall total cost of care. You may need to segment the delivery of care mechanism for your patients based on the risk arrangements your PCPs are in.

It has to be something that works for everyone involved—it has to work for the patients, the clinicians, and the organizations involved (provider and payer). Aligned incentives are imperative—it has to be there in my mind. It’s a three-legged stool: Patient, provider, and payer—and population health has to involve all of them.

Ultimately it all centers around the patient and how we can drive better outcomes.

Interested in learning more? Does your organization need a review of its risk-based contracts? Contact Jason Jobes at jason@norwood.com. We’d love to hear from you.