The Advisory Board’s Kerns on the Longer-Term Prospects of Risk-Based Payment Models

June 19, 2020
In the wake of recent developments, more ACOs will be physician-led going forward, predicts the Advisory Board’s Christopher Kerns—but the shift towards risk will inevitably move forward

Among the industry experts who spoke with Healthcare Innovation in participating in the development of this year’s Ten Transformative Trends cover story package in the May/June issue of the publication was Christopher Kerns, vice president for executive insights for Advisory Board, a Washington, D.C.-based research division of the Minneapolis-based Optum. Editor-in-Chief Mark Hagland interviewed Kearns for the “ACOs on the Edge” Trend article, which focused on the complex landscape around the ongoing evolution of accountable care organizations.

As the “ACOs on the Edge” article noted, “There couldn’t possibly be a more fragile or complex moment for the nation’s accountable care organizations (ACOs), which were already being buffeted by winds of policy and payment change—particularly those participating in the Medicare Shared Savings Program (MSSP) and Next Generation (NextGen) ACO Program, sponsored by the federal Centers for Medicare & Medicaid Services (CMS).” And, in the face of the crushing impact this spring of the COVID-19 pandemic, CMS Administrator Seema Verma was forced to backtrack somewhat, given CMS’s nationwide order to shut down all elective procedures on March 18, which led to two or more months of severe financial repercussions nationwide.

In that context, Verma announced a dramatic change in policy on April 30. The agency stated on that date that, “Because the impact of the pandemic varies across the country, CMS is making adjustments to the financial methodology to account for COVID-19 costs so that ACOs will be treated equitably regardless of the extent to which their patient populations are affected by the pandemic. CMS is also forgoing the annual application cycle for 2021 and giving ACOs whose participation is set to end this year the option to extend for another year. ACOs that are required to increase their financial risk over the course of their current agreement period in the program will have the option to maintain their current risk level for next year, instead of being advanced automatically to the next risk level.”

Still, even as hospitals and health systems nationwide begin to recoup some of the financial losses from this spring, the future of ACOs remains somewhat uncertain. Below are excerpts from Hagland’s more extensive interview with Kerns for the Trend article, which took place in late April.

How do you see things playing out in the next several months and couple of years, around providers’ willingness to participate in ACOs and other types of risk-based payment contracts?

Remember, the downside risk model isn’t mandatory. I don’t think this will have that much of an impact on that. Will it [the financial impact of the COVID-19 pandemic] dampen the incentive for providers to participate? Potentially, yes, because no one wants to take income decline-based risks. At the same time, if you can win at downside risk, you can earn extra income. What CMS has effectively telegraphed is that upside-only risk models will no longer be available. But if you don’t want to do downside risk, you probably wouldn’t be successful at upside risk, either. So this may halt providers’ near-term interest in aggressively going after it, because of near-term financial issues.

Still, long-term, what will drive hospitals and health systems into risk-based models will be their physicians. And the direct contracting model will be appealing to many physicians. So in the long term, I don’t think this will change the fundamentals.

Let’s talk about the MSSP Program, and Seema Verma’s insistence that providers quickly take on downside risk. What happens if CMS keeps pushing forward, even at risk of ACOs bailing?

CMS has been pretty clear that that’s where they’re going. And physicians naturally have the best incentives to generate savings, because they have the best access to patient information and the best abilities to modify care management, and they don’t have to make huge choices between utilization and non-utilization, because they don’t have huge overhead; their interest will be in delivering value.

Meanwhile, a lot of demand for those elective procedures has been destroyed in the recent months. If people have to wait, they’ll make alternative plans; if they were going to have a knee replacement, they might go for physical therapy instead. And because of personal economics, people won’t necessarily have the incentive to participate in elective procedures. After the 2008-2009 recession, the general consensus is that it probably took about three years for demand to return to normal.

So what do ACO programs look like three years from now?

I think the ACO programs will largely be physician-led and may or may not have hospital partners, but either way, they’ll be physician-led, and the organizations will have strong incentives to create savings for CMS, because they’ll be mostly downside-risk. The only thing that changes in the short term is the unpredictability of hospital finances. The only thing that would change this significantly would be if we saw a massive wave of hospital purchases of physician practices. So I think we’ll just see an acceleration of the trend of the last few years which is of physician-led risk-based arrangements. There will be a lot of demand for primary care physicians, to lead or coordinate care.

What advice might you offer to patient care organization leaders in all this?

I think one of the biggest changes right now that physicians, hospitals, health systems, and IT leaders will have to embrace, will be telehealth as a main delivery mechanism. The problem is, no one has wanted to pay for it. The payers have been wary of juicing utilization. The providers have been wary of it because it’s not as remunerative on a click-by-click basis. So I see it as an element of risk-based contracting. So find a financial payment system that works for both providers and payers, because patients are almost certainly going to be demanding it from their PCPs.

The other thing is that economic challenges will drive purchasers and payers to drive down healthcare spending. And while there may be a push to support hospitals that have had to let go of elective procedures in the short term, in the long term, the cost pressures won’t go away. And providers will still have to be a part of the solution around spending, and that’s not spending.

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