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Risk Contracting and Operational Capabilities in Large Medical Groups During National Healthcare Reform
Robert. E. Mechanic, MBA, and Darren Zinner, PhD
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Anupam B. Jena, MD, PhD; Daniel M. Blumenthal, MD, MBA; Warren Stevens, PhD; Jacquelyn W. Chou, MPP, MPL; Thanh G.N. Ton, PhD; and Dana P. Goldman, PhD
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Risk Contracting and Operational Capabilities in Large Medical Groups During National Healthcare Reform

Robert. E. Mechanic, MBA, and Darren Zinner, PhD
Many large, well-integrated medical groups with infrastructure to manage care effectively continue to receive a majority of revenue from fee-for-service and pay physicians based on productivity.
Changes in information management capability. The proportion of groups reporting that they had fully implemented clinical guideline reminders, an enterprisewide data warehouse, and a disease registry increased measurably from 2011 to 2013; two-thirds of the progress was reported by “mixed payment” groups.

Changes in quality and cost management programs. The number of groups reporting that their program implementation was “far along” increased substantially across the 14 program categories between 2011 and 2013 (see eAppendix). Of groups reporting that they were considering or getting started with these programs in 2011, 40% to 70% (depending on the program) reported progress in 2013. The programs where the greatest number of groups advanced—care management and reducing treatment variation—are important for successful performance under risk contracts. Notably, by 2013, 16 of 19 groups reported that their high-risk care management program was far along or advanced.

Factors Affecting Medical Group Risk Contract Adoption

We asked the groups to rate the importance of selected factors on their ability or willingness to adopt risk contracts. In 2013, 55% of groups said that the need to improve care management capability was “very important” and 45% said that the need to improve data systems was “very important.” Twenty-two percent of the groups said that limited payer willingness or ability to offer risk contracts was “very important” and 48% said it was “somewhat important.”9 More than 60% said that local market dominance of preferred provider organization insurance products that were less suited to risk contracting was either “somewhat important” or “very important.” Only 7% of the groups said physician resistance was “very important,” whereas 24% said it was “somewhat important” (data not shown).

The federal government’s goal of moving half of Medicare spending into alternative payment models by 2018 is ambitious. The pace of change will depend on the nature and scope of public and private payment arrangements currently in place, future models or model changes that make these programs more (or less) attractive, and provider system readiness. Very little systematic information about providers’ payment arrangements or capacity to manage risk-based contracts is currently available. This study provides more detailed information for a subset of advanced delivery systems as one view of the progress of payment reform.

Commercial insurers have announced plans to expand their value-based contracts to 50% or more of their total payments to providers.10 However, “value-based” is used to describe programs ranging from FFS with small quality incentive payments, to patient-centered medical home “care management” fees, to full risk contracts. Industry sources suggest that contracts with downside risk are rare in most areas of the country. Pay-for-performance, the most common form of value-based payment today, has been widely studied with mixed results.11

New global budget programs, in which providers bear substantial financial risk, have had positive initial results,12,13 but such programs are a minority of value-based pay initiatives and it is unknown whether they could be successful at a larger scale. CMS’ decision to continue the upside-only MSSP option through 2018 reflects a continuing reluctance of providers to take on risk.

These study results suggest the need for realistic expectations about the pace of payment system change. Most participating groups would be considered prototypical ACOs that are well positioned to succeed under risk-based arrangements. Nonetheless, two-thirds of their 2013 patient revenue came from FFS payments and only 16% from global capitation; moreover, although one-third of the groups received half or more of their revenue from risk-based contracts, another one-third were paid mostly by FFS. Additionally, only one-third added risk contracts between 2011 and 2013 despite new Medicare and private plan options.

Although many of these advanced groups have embraced payment reforms, those newer to risk-contracting appear more comfortable building infrastructure before taking on additional risk. The ACA has made payment delivery system reform top-of-mind for provider systems and health plans. Medicare’s ability to drive delivery system transformation will depend on how aggressively commercial health plans push risk contracts and whether providers will accept them. This is beginning to happen—but relatively slowly—at least through 2013. Ultimately, the experience of the advanced groups in this study suggests that expanding risk-based arrangements across the health system will likely be slower and more challenging than many people assume. 

Author Affiliations: Heller School for Social Policy and Management (DZ), Brandeis University (REM), Waltham, MA.

Source of Funding: The Commonwealth Fund.

Author Disclosures: Mr Mechanic is a member of the Atrius Health 501(c)(3) physician group and Medicare Pioneer ACO, a consultant for xG Health Solutions—a professional service firm—and previously was a consultant for the American Hospital Association. The consulting projects pertain to Medicare bundled payment and have no conflict of interest with the submitted work.

Authorship Information: Concept and design (REM, DZ); acquisition of data (REM, DZ); analysis and interpretation of data (REM, DZ); drafting of the manuscript (REM, DZ); critical revision of the manuscript for important intellectual content (REM); statistical analysis (REM, DZ); obtaining funding (REM); administrative, technical, or logistic support (DZ); and supervision (REM).

Address correspondence to: Robert. E. Mechanic, MBA, Brandeis University, 415 South St, Waltham, MA 02454. E-mail: mechanic

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11. James J. Pay-for-performance: new payment systems reward doctors and hospitals for improving the quality of care, but studies to date show mixed results. Health Affairs website. Published October 11, 2012. Accessed May 2016.

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13. Nyweide D, Lee W, Cuerdon T, et al. Association of Pioneer accountable care organizations vs traditional medicare fee for service with spending, utilization, and patient experience. JAMA. 2015;313(21):2152-2161. doi: 10.1001/jama.2015.4930. 
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