Succeeding in Risk-Based Contracts: A Guideline for Healthcare Providers (Part 1)

Shahyan Currimbhoy
November 10, 2015

Part 1 – The State of Healthcare Risk Adjustment

We are in the midst of a seismic shift from a fee-for-service reimbursement model to a value-based one. In a historic announcement on January 26, 2015, U.S. Health and Human Services (HHS) set a goal of tying 30 percent of traditional, fee-for-service Medicare payments to quality or value through alternative payment models, such as Accountable Care Organizations (ACOs) or bundled payment arrangements, by the end of 2016. Furthermore, this included tying 50 percent of payments to these models by the end of 2018. This is the first time in the history of the Medicare program that HHS has set explicit goals for alternative payment models and value-based payments.

There are similar goals and strategies being aggressively adopted by payers as well. UnitedHealthcare, for example, cited that their total payments to physicians and hospitals tied to value-based arrangements have nearly tripled in the last three years to $36 billion (full disclosure: UnitedHealthcare is a longtime customer of ours). Those payments are expected to increase to $65 billion by the end of 2018.

This is a fundamental shift for healthcare providers that requires them to master two core competencies that are largely new for most:

  1. Risk-Based Contracting – Provider organizations must become experts in risk adjustment and structuring risk contracts with payers and other providers within their network. Setting accurate payment benchmarks and optimal reimbursement levels required to cover the cost of care is important to successfully participate in these programs.
  2. Population Health Management – This includes the set of activities and processes required to deliver the highest quality of care at a reasonable cost. It entails stepping beyond an acute, episodic care delivery model to a more coordinated, continuous care management approach that emphasizes proactive outreach and preventative care.



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While there has been a significant focus on population health management with an array of solutions and consulting services that help organizations address this, the criticality of optimizing reimbursement levels for risk-based contracts is often overlooked. This is evident by the latest ACO performance data published by the U.S. Centers for Medicare & Medicaid Services (CMS), where more than 96 percent of participating ACOs met the quality benchmarks. However, only 27.6 percent of these organizations were able to set accurate expenditure benchmarks that allowed them to generate shared savings above their minimum savings rate. ACOs failed to realize that improving quality doesn’t necessarily translate into increased shared savings. This is why excelling in risk adjustment and understanding the levers that determine their shared savings rate is vital.

Although there are differing techniques used to determine reimbursement relative to risk, quality and performance levers, one of the most prevalent is risk adjustment. Risk adjustment is currently being used to set benchmark payments for Medicare Advantage, ACOs, Commercial Exchanges and many others. For organizations that are currently taking on risk or looking to do so for these populations, it is critical for them to understand and accurately manage risk adjustment.

Why is Risk Adjustment so Challenging?

At its core, risk adjustment requires a fundamental change in how clinicians and coders approach documentation and coding. Typically, they focus on coding the acute or chronic conditions related to the patient’s reason for the visit. For risk adjustment purposes, however, clinicians and coders are required to review, document and code all chronic conditions and statuses for the patient regardless of whether they are related to the reason for the visit or the chief complaint. This is a significant departure from current coding practices in most organizations and has been a huge stumbling block for risk-bearing organizations.

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A recent study published in the Canadian Medical Association Journal showed that 38.1 percent of diagnosed diabetic patients in the analyzed population did not actually have a diabetic diagnosis coded in their medical record. They were only identified by the presence of diabetic medications and lab values. As you might imagine, there is a significant downside risk for providers who fail to identify and code their diabetic patients, which impacts reimbursement, because these organizations are still responsible for covering the costs associated to treating and managing these patients.

For providers who are currently focused on improving clinical documentation and coding best practices, this is typically an extremely time-consuming and labor-intensive process. In some cases, it involves hiring a number of additional risk adjustment coders or chart auditors who perform retrospective chart reviews to identify missed codes. This is inefficient and has significant overhead costs associated to it, as identified patients need to be brought back in order to assess, manage and document these conditions.

To alleviate this, some organizations are looking to put the onus on clinicians to better identify potential or previously diagnosed and coded conditions at the point of care. Given how little time clinicians get with their patients, and the diminishing amount of prep time they have in advance of patient visits, such strategies are little more than set-ups for failure. Who has the time these days to sift through numerous charts and the patient’s historical documentation to identify these conditions? While this sort of set-up can have benefits, typically there is a large miss rate as conditions and associated codes get overlooked, especially if they are buried deep within a patient’s history.

Next week, I’ll share key strategies and capabilities for providers to succeed at risk adjustment. Stay tuned!

Shahyan Currimbhoy is the SVP of Product Management & Engineering at Talix.
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