Risk-based Contracting for Value-based Care, a Founder's Playbook

TL;DR

Risk-based contracting incentivizes healthcare providers to focus on quality and cost outcomes rather than the quantity of services. This reimbursement model facilitates the transition from fee-for-service to value-based care and includes various structures such as pay for performance and global capitation. The model's effectiveness has gained prominence, especially in response to challenges highlighted by the COVID-19 pandemic.

Transcript

hi i'm julie and i'm justin and welcome to the  second piece in our series on new go to market   motions in digital health for our first video  we looked at the b2c2b go to market approach   and in this video we're going to dive into how  digital health companies are driving towards   value-based care using risk-based contracting but  to understand... Read More

Key Insights

• 😨 Value-based care aims to align value creation with value capture, shifting away from the fee-for-service payment system.
• ⚾ Risk-based contracts provide reimbursement mechanisms that incentivize providers to achieve quality and cost outcomes.
• ⚾ The impact of COVID-19 has highlighted the need for resilient healthcare systems and the effectiveness of risk-based models.
• 🏛️ Success in risk-based contracts depends on defining and measuring success upfront, as well as building broad coalitions with stakeholders.
• ⚾ Clinical and operational capabilities, technology, and data infrastructure are crucial for scaling risk-based models.
• ✳️ The path to risk varies across different providers and depends on clinical levers, patient populations, and financial readiness.
• 🧑‍🏭 The roadmap to full risk involves a phased approach, considering factors such as market readiness and regulatory tailwinds.
• 💪 Building strong partnerships, including aligning on vision and mission, is critical for scaling risk-based models.

Questions & Answers

Q: What is value-based care and how does it differ from the traditional fee-for-service payment system?

Value-based care focuses on preventative services and long-term healthcare outcomes, incentivizing providers to deliver quality care and achieve cost outcomes. In contrast, the fee-for-service system pays providers based on individual units of care using billing codes.

Q: What are risk-based contracts in healthcare?

Risk-based contracts are reimbursement mechanisms that align incentives for providers. Instead of being paid based on higher volumes and individual procedures, providers are rewarded for hitting certain quality and cost outcomes. Different models, such as pay for performance, bundled payments, and capitation, represent various types of risk-based contracts.

Q: What are some challenges and benefits of transitioning to risk-based contracting?

Transitioning to risk-based contracting requires balancing the potential downsides of taking on additional risk while also creating alignment between the business model, care model, and operating model. However, risk-based contracts can provide more freedom to define the care model and prove out the impact of novel care models.

Q: How do digital health companies navigate risk-based contracts?

Digital health companies that have successfully navigated risk-based contracts emphasize the importance of mission and vision alignment with partners. They also highlight the need for strong clinical and operational capabilities, early investment in data infrastructure and analytics, and strategic partnerships with payers and providers.

Summary

In this video, Julie and Justin discuss how digital health companies are driving towards value-based care using risk-based contracting. They explain that value-based care focuses on preventative services and long-term health outcomes, in contrast to the traditional fee-for-service payment system. Risk-based contracts are a reimbursement mechanism that aligns incentives for providers based on quality and cost outcomes. The video explores different types of risk-based models, such as pay for performance, per member per month, bundled payments, capitation, and global capitation. It also discusses the shift from fee-for-service to value-based care and the challenges and opportunities of taking on risk in the healthcare industry.

Questions & Answers

Q: What is value-based care?

Value-based care is a clinical approach and payment model that focuses on preventative services and long-term health outcomes. It aims to align value creation with value capture, in contrast to the fee-for-service payment system.

Q: How have fee-for-service payment models impacted healthcare costs?

Fee-for-service payment models, where providers are paid for individual units of care, have driven healthcare costs to nearly 20% of GDP without a corresponding improvement in clinical outcomes or patient experience. These models incentivize higher volumes of care, leading to skyrocketing costs.

Q: What are risk-based contracts?

Risk-based contracts are a reimbursement mechanism that aligns incentives for providers based on certain quality and cost outcomes and measures. They reward providers for hitting these targets, rather than paying based on individual procedures and services.

Q: What are the different types of risk-based models?

Risk-based models can be categorized into several types. Pay for performance involves adding clinical or operational performance guarantees to traditional fee-for-service rails. Per member per month (PMPM) models charge a set amount for clinical services and include some risk sharing. Bundled payments involve taking on full risk for a specific episode of care, such as maternity care or knee replacement surgery. Capitation models offer a flat rate of payment for a wider range of services, while sub-capitation models focus on subsets of clinical services. Global capitation involves taking on full risk for all clinical services for a given patient.

Q: How much of healthcare dollars flow through value-based care payment models?

In 2021, less than 40% of healthcare dollars flowed through payment models with substantial value components. Only 6% of dollars were in sub-capitation or global capitation arrangements. The shift from fee-for-service to value-based care is still in progress.

Q: How has the COVID-19 pandemic affected the adoption of risk-based contracts?

The COVID-19 pandemic has exposed the lack of resiliency in fee-for-service systems and highlighted the benefits of risk-based contracts. Companies with higher exposure to value-based contracts were often better positioned than those relying solely on fee-for-service revenue. Payers are now doubling down on risk-based and value-based models to address rising medical costs.

Q: How can purpose-built virtual care tech stacks contribute to better risk management?

Purpose-built virtual care tech stacks have the potential to drive better risk management and more nimble care models. They offer the ability to collect and analyze data, provide continuous monitoring and interventions, and learn over time. Traditional providers, built for fee-for-service, may struggle to adapt to these capabilities.

Q: How have some companies successfully navigated risk-based contracts?

Companies that have successfully navigated risk-based contracts have often taken a phased approach, starting with fee-for-service contracts and gradually transitioning to risk-based models. They focus on key clinical areas, build strong data infrastructure, and collect evidence to demonstrate superior outcomes and savings. Success requires a deep understanding of both the clinical and business models involved.

Q: What factors influence the level of risk a company should take on?

The level of risk a company should take on depends on various factors, such as the levers needed for the model to work and the company's financial ability to manage risk. Starting with fee-for-service and aligning incentives with payers can be a prudent approach. Different clinical areas may lend themselves better to specific risk models, such as global capitation for primary care and sub-capitation for specialty conditions.

Q: How do companies define success in risk-based contracts?

Success in risk-based contracts is defined by a combination of clinical, operational, and cost outcomes. Companies need to select relevant and validated measures that demonstrate the impact of their care model. Success also involves effectively managing utilization, quality, and patient satisfaction. Upstream process and operating measures are important for early monitoring and adjustments, as ultimate data readouts may take years.

Q: What are the considerations for scaling risk-based contracts?

Scaling risk-based contracts requires achieving success in early deployments, defining success measures, and having the right set of clinical and operational capabilities. It involves building partnerships, aligning missions and visions, and involving stakeholders from various functions within payer organizations. Companies need to carefully manage expansion to balance operational and financial risks and maintain scalability.

Takeaways

The shift from fee-for-service to value-based care is underway, driven by the need to align value creation with value capture. Risk-based contracts provide a mechanism to align incentives and promote better quality and cost outcomes. Success in risk-based models depends on building the right clinical and operational capabilities, defining success measures, and establishing strong partnerships. Companies should carefully consider the level of risk to take on and take a phased approach if necessary. Purpose-built virtual care tech stacks offer opportunities for better risk management and care models that go beyond traditional fee-for-service. Overall, there is a growing focus on value-based care in the healthcare industry, and companies that can navigate risk-based contracts effectively have the potential to create significant impact and drive better patient outcomes.

Summary & Key Takeaways

• Value-based care focuses on preventative services and long-term healthcare outcomes, aligning value creation with value capture and moving away from the traditional fee-for-service payment system.

• Risk-based contracting is a reimbursement mechanism that rewards providers for hitting certain quality and cost outcomes, with different models ranging from pay for performance to global capitation.

• While the shift towards value-based care is still in its early stages, the impact of COVID-19 has highlighted the need for resiliency in healthcare systems and the effectiveness of risk-based models.