Hang On for Risk-Bearing Contracts, Rewards

This article appears in the January/February 2013 issue of HealthLeaders magazine.

Of all the strategic shifts facing health systems in the coming years, none involves so many underlying fundamentals of the business as the shift away from a fee-for-service model of reimbursement to one based more on risk-bearing contracts and population health models.

Roundtable panels of members at the HealthLeaders Media CFO Exchange and CEO Exchange, invitation-only events held last fall, described the shift as a great leap forward with both high potential and a big downside.

"It's definitely an opportunity, but it's the most unpredictable opportunity I've ever seen in my career," says Chris McLean, executive vice president and CFO at Methodist Le Bonheur Healthcare in Memphis, Tenn.

McLean says the shift poses questions such as, "Are we really prepared for a different model and different way of taking care of patients? Are we big enough to be able to really pull that off with the infrastructure that's going to be needed? How do you know you're taking the right steps to prepare?"

CEOs and CFOs alike agreed that a move away from a sick care model to one based on health is the right direction for healthcare, but the mystery is in how fast to get there.

"We are moving incrementally into population health because we believe that is the only future," says Chris Van Gorder, president and CEO of Scripps Health in San Diego. "I often get myself in trouble for saying this, but I think accountable care organizations are a fad, because it's still episodic care payment for the most part. What we're moving toward is full risk capitation again, but we want to do it in a risk-adjusted model."

Some of the more integrated health systems already have several of the components for risk-based contracts in place and are already involved in pilot programs.

"We've been an early adopter, opting into the Pioneer [ACO] program in a significant way with 50,000 Medicare members," says Dennis Dahlen, senior vice president of finance and CFO for Phoenix-based Banner Health.
"And we have learned some very good insights from the program in just the nine months it's been up and running, results that suggest there is a way to save the Medicare program by just being smarter about how we treat Medicare patients."

Dahlen says that about 18% of Banner's revenue is risk-based today, but in five years the organization projects that figure will be upwards of 45% across its 23 hospitals. "So we're moving pretty fast. The pace may not be as important as the direction, but we're pretty certain of that direction and that faster is better than slower at this point."

Britt Berrett, president of Texas Health Presbyterian Hospital Dallas and executive vice president of Texas Health Resources, says that "the name of the game now is outside the walls of this hospital."

Under the fee-for-service model, there has been little incentive for the hospital to manage postdischarge medication reconciliation or navigation, but that is changing. "We [are] forced to do something we should have been doing in the past. We have an obligation to identify what the needs are, where before we just didn't worry about it."

Van Gorder says that to succeed, hospitals must recognize that the shift to population health changes more than just a business model; it also creates a new relationship with patients.

"I asked my people the other day, 'What is it we really sell? Is it healthcare?' I said we sell relationships, and yet we really haven't cared much about the relationships." Van Gorder remembers his own experience as a patient in a gatekeeper health maintenance organization, where he had to sign up for a primary care doctor and never heard from that physician again.

"So, I think, for the time first ever, we're going to have to actually build an ambulatory relationship with our patients," he says, "and then find out what their needs are and find a way of meeting those needs to keep them healthy."