The Good and the Bad of Risk-Based Contracting: Large Integrated Groups Are Adapting Another Form of Managed Care with Limited Consumer Choice and Restricted Networks?

"Should I refer out of network?"

What is the secret health reform sauce of those famous large integrated medical groups?  Come to think of it, do they even have secret sauce?

To better understand the apparent success of household names like Dean, Geisinger, Group Health, and Mayo, Rob Mechanic and Darren Zinner surveyed and then interviewed the CEO or the Chief Medical Officer (CMO) of 21 famous large provider groups to understand their operational approach to risk based contracting.
 
That's important because emerging payment public and private insurer reform will include "bundled payments," upside risk-sharing and forms of capitation.  In these kinds of arrangements, the financial "risk" from high overhead, overutilization or excess costs will be the provider groups' problem, not the insurers'.

In other words, if ACO wannabes want to succeed when it comes to risk-based contracting, they may learn about the good and the bad of the large integrated group business model.

The authors discovered that about half of these groups had less than a third of their income coming from risk-based contracting (RBC).  In these ten groups, an average 88% of income was fee-for-service.

The other half (eleven) had more than a third of their income coming from risk based contracting.  In these groups, 71% of income was risk-based.

The authors then compared the approaches of the "low" risk and "high" risk groups.

While Disease Management Care Blog readers will be very familiar with elements making up the "good" secret sauce of risk-based contracting, they may be surprised at the reemergence of two bad downsides.

The good ingredients included 1) blunted physician financial incentives to "churn" patient visits, 2) a slight but significant increased emphasis on using quality measures to reward physicians and 3) a significant investment in data warehousing, analytics, patient registries and point-of-care patient-tracking.

In particular:

9 out of 10 low risk contracting groups based the "majority" of physician income on productivity. In contrast, five of the capitated groups paid 80% of their PCPs with a salary, while the other half paid 80% of income based on productivity

"Quality" measures drove a small percent of PCP income in both groups, though it was higher in the capitated groups (5% vs. 12%)

85% of all groups had invested in electronic health records; 100% of the capitated groups had invested in data warehouses with analytic software and two thirds had patient registries.  Only one of the FFS groups had those capabilities. While both types of groups had a low rate of "patient engagement" programs, the high risk groups were more likely to have care management programs in place. 

And the bad? 

The DMCB was surprised to read that the risk-based groups were far more likely to have mechanisms in place to limit their patients' out of network utilization (90 vs. 20%) and 2/3 vs. 1/3 had preferred relationships with "efficient" hospitals and providers.  In other words, these role-model and state-of-the-art organizations could be limiting patient choice and economically credentialing their provider groups.

Much depends on the details.  Insurers have probably not forgotten the abuses and resulting backlash that arose from unfettered capitation.  Good risk contracting typically includes quality and satisfaction metrics side by side with utilization targets and specifically prohibits windfall profits. Modern consumer protections at the state and federal oversight level are also far more rigorous.

That being said, the DMCB points out that it's no accident that this study shows risk-based contracting is associated with limits on choice and restricted networks.  We may not call it "managed care," but in many respects it is.