Advisory Board’s Kerns: Watch For the Policy Landscape Around Shift to Risk in the Next Two Years

The policy year that’s unfolding in 2021 is already off to a dramatic start, with the U.S. Congress passing the American Rescue Plan in February. And it will no doubt be a complex year in Congress, with strong partisan-political divisions and other influences and counter-influences buffeting that body. What are the prospects for significant healthcare-related legislation, and what regulatory and administrative developments might emerge under the new Biden administration? And, in the next two years, how might the policy landscape around two-sided risk begin to shift, in the next two years or so?

The March-April issue of Healthcare Innovation, in its cover story package, “Ten Transformational Trends,” included a Trend article on “The Healthcare Policy Year Ahead,” looking at the emerging policy trends and possibilities in the year-plus ahead. Among those interviewed was Christopher Kerns, vice president, executive insights, at the Washington, D.C.-based Advisory Board. Kerns was also interviewed for the Trend entitled “The Plunge Into Risk: A New Calculus for Physicians and Hospitals.” Below are excerpts from the full-length interview that Kerns gave to Editor-in-Chief Mark Hagland on those two subjects, in February.

Congress is addressing the COVID-19 pandemic right now. What does the year ahead look like in Congress after that [the American Rescue Plan passed the Senate on March 11, and was signed into law by President Joe Biden on March 12]?

I’m going to start with the premise that the filibuster will not be eliminated, given what Senators [Joe] Manchin and [Kyrsten] Sinema have said, and also, that the Byrd rule will stay in place, that very significant pieces of legislation will need a filibuster-proof majority. I can’t say that for certain, but I’ll start with a basic premise. So one of the things we know that’s on the table, from the campaign, is a focus on greater Medicaid expansion. So some bills working their way through Congress will probably sweeten the deal for expansion, through increased federal match or various subsidies to the states. So the coverage expansion is likely to take on potential incentives to get recalcitrant states—most likely Florida and Texas—to go along, so that other likely dominoes will fall.

Meanwhile, it seems like that the administration will be moving forward with regulatory changes. Special enrollment periods, restorations of cost-sharing subsidies, restoration of transgender rights, and renewed protections for reproductive rights, etc. And some of those will come through executive orders. I think so. These are generally areas in which the administration has established authority, and can simply declare them. And reproductive rights regularly switch whenever the White House changes party. There haven’t really been many surprises.

Do you think that there’s any chance for a public option being passed by Congress?

I think the thing to watch for is not so much the elimination of the filibuster but the elimination of the Byrd rule. And overruling that would mean that we could get four more senators, from Puerto Rico and the District of Columbia. And that could lead to the passage of a public option. If they expand representation, that gives them a lot more options without having to abolish the filibuster entirely.

So as of now, I would say that most of the efforts that the Biden administration has said it wants to pursue are related to COVID, climate change, and voting regulations. Healthcare seems like fourth on that list, but that could change if they expand to DC and PR representation.

And right now, the Medicare Hospital Trust Fund is expected to go into deficit in 2024, or possibly even as early as 2023. And Congress will have to address it, most likely because new borrowing might not address it. So Congress will likely double down on value-based payment, rather than either cutting reimbursement or raising taxes.

What’s your sense of what the interaction will be like between CMS [the Centers and providers, around risk, per the tension playing out that existed last year between Seema Verma and NAACOS?

My sense of that tension is that the providers that are pushing back had better hope that downside risk works, because the alternative is huge payment cuts. There were lots of changes under the Obama administration, but when it came to value-based care, it was more evolutionary than revolutionary. The one difference between the Trump administration and the Obama administration is that the Trump administration people valued performance over participation. And frankly, some of the programs developed were designed to increase primary care physician (PCP) participation, in order to decrease referrals to specialists. If you look at why Seema Verma was pushing hard on downside risk, upside-only risk doesn’t generate a lot of savings, but does encourage hospital-physician partnerships. So hospitals are trying to navigate wanting to collaborate with physicians, but at the same time maintaining referrals to inpatient care. If you expect the Biden administration to be more like the Obama administration, it will mean that they’ll favor participation over performance.

But there’s an equally strong chance that they’ll double down on what the Verma team did. There have been learnings in the past four years that physician-led risk generates savings; bundled payments generate savings. And when it comes to irritating the hospitals by making risk mandatory versus cutting reimbursement, I think that most hospitals will go to taking on risk. So that’s why I think you’ll see a doubling down on risk, because it won’t be relying as heavily on payment cuts, which are always unpopular.

Compared to physician groups, hospitals and hospital-based health systems have been far slower to plunge into two-sided risk. Do you see that changing anytime soon?

Hospitals have definitely been slower to get into two-sided risk; there’s no doubt about it. You still see a lot more receptiveness towards two-sided risk on the part of physician groups and especially primary care physicians. This isn’t just a Medicare thing; it’s Medicare, Medicaid, and private payers, all for different reasons. But there’s this confluence of consensus that physician-led risk-based contracting is the way to go. For private payers, the logic is that they can send members to lower-cost providers. For Medicare, it’s outpatient versus inpatient. So you’re either sending patients to a lower-priced facility or to a lower-intensity site of care.

And there are nuances involved in that calculation, correct?

Yes. For one thing, physicians, especially PCPs, don’t have large fixed costs; so for them, every admission or hospital-based procedure averted is shared savings that accrues to them directly and personally. Meanwhile, hospitals have extremely high levels of costs that have to be paid down. And fee-for-service is a lot easier to manage. So when you have huge fixed-cost assets to pay down, you go for what’s easier, which is more fee-for-service encounters, rather than ensuring a wider catchment of patients assigned to you, and keeping them out of inpatient. It’s not that hospitals have anything but the best interests of patients in mind, but they have ORs and staff, and have to cross-subsidize a lot of operational costs that frankly, primary care physicians just don’t have to do. But in the next two years, you’ll see all payers pushing more downside risk onto all providers. So you’ll see Medicare Advantage [MA] growing significantly over the next couple of years. Just remember, with ACOs, you might achieve savings, but it’s not so certain, whereas MA has a lot more certainty, because of the risk adjustment scores, so physicians can more accurately prospectively prepare for their risk, whereas in ACOs, it’s retrospective. For example, if you’re a physician in Florida, how can you be sure that that snowbird will be your patient or that that patient be assigned to a physician in New York? Whereas with MA, you know in advance about attribution.”

Indeed, that’s why you’ll see more elements like those in NextGen, where there’s going to be more prospective risk. The big open question is whether they want to make this mandatory for the whole country. And if they start to mandate all sorts of downside risk, there could be a lot of opposition to that. But if Medicare finds itself up against the wall, meaning that it has to cut spending growth, there are things like risk-based payments that would blunt the effect of certain reimbursement cuts or tax hikes. That’s why providers had better hope that risk-based contracting works, because if they can’t generate the savings that Medicare needs through value-based payments, the alternative will be major cuts to reimbursement, which no one will like.