Risky business: What every CFO should know before taking on risk

When it comes to risk-based payment, success depends on a modern strategy for meeting patients’ whole-health needs and the analytical and operational support to drive performance.

Investment in value-based care quadrupled during the pandemic, and continued growth is expected across all lines of business. In Medicare Advantage alone, where the penetration rate climbed to 51% in 2023, compared with 42% in 2020 and 32% in 2015, value-based care arrangements dominate contracts between payers and providers. By conservative estimates, Medicare Advantage is projected to overtake traditional Medicare by 2030. 

Yet even as the appetite for value-based payment grows among physicians and health plans, hospitals and health systems — and especially those highly reliant on fee-for-service reimbursement — risk being left behind in the climb to value.

The good news: The right strategy for value-based payment models can carry an organization across risk-based arrangements by driving better outcomes for patients at lower costs, and this can also benefit traditional fee-for-service performance.

“You can create one strategy and one set of approaches that will help benefit your patients and your organization in any value-based payment model,” said Tammy Schaeffer, JD, BSN, RN, principal, healthcare consulting, Plante Moran. “It’s all based on creating better outcomes for any patient you treat.”

Taking a more strategic approach to risk

During HFMA’s Annual Conference this past June, Schaeffer spoke with HFMA’s Strategic CFO Council about the state of risk-based payment models in the United States and what it takes for healthcare organizations to succeed under these arrangements.

“Value and risk-based reimbursement is very different in that it is based on the expected cost of care,” Schaeffer said. “To succeed, organizations need to strengthen and manage their operations to screen for, diagnose and manage chronic conditions in a cost-effective way.

“In simplest form, diagnoses are weighted based on the expected costs and care associated with them. This weighting is called the risk adjustment factor, or ‘RAF,’ and when multiplied by your contract rate, this governs the amount paid per member per month. To be successful, organizations need to manage the conditions identified in a way that drives strong outcomes while also reducing cost of care. And that takes far more than just asking your providers to diagnose or document better.”

Although adoption of value-based care contracts remains uneven, they are becoming a daily reality for most CFOs.

“There was a lively discussion around what risk- and value-based arrangements look like now and where they are headed,” Schaeffer said of the Strategic CFO Council meeting. “There were some CFOs who asked, ‘Are these really common?’ while others shared examples like, ‘We have 100,000 patients at risk already,’ or ‘We have a huge contingent of patients in risk-based contracts in different pockets of the country.’”

Now, increased enrollment in Medicare Advantage — and with it, a population largely covered under value-based agreements — “really highlights the transition toward value-based care and away from fee-for-service models,” Schaeffer said. It’s a trend that foreshadows deeper penetration of risk-based payment across payers and lines of business and one that providers and health systems should pay attention to in their market, region and nationally.

Winning under risk-based payment models

How can organizations make the right moves to take on risk in an evolving landscape for payment? Here are key capabilities to focus on.

Know and leverage the full continuum of care. “Ensuring your full continuum of care is effectively and seamlessly functioning as one is the single most important things you can do to succeed in a value-based agreement,” Schaeffer said. “Hospitals and health systems should pay particular attention to their preventive, primary care and ambulatory enterprises. Strong primary care and outpatient enterprises drive effective and accurate diagnosis of patients that promotes accurate risk/RAF capture for accurate reimbursement. They also promote good management of patient conditions and treatment in the right environment, including their home, no matter where they are in their healing process. A strong continuum will accommodate any measure of risk and will avoid patients ‘falling through the cracks’ during transitions of care.”

Shift your narrative to value. Even as health systems continue to participate in fee-for-service arrangements, they must also ready themselves for a global shift toward value-based care. The most effective CFOs collaborate with other senior leaders to identify the core competencies needed to succeed under both fee-for-service and risk-based models and where to invest for long-term success. They also communicate what they’ve learned with physicians, clinicians and other healthcare professionals. “It’s critical for everyone in the patient care setting, not just providers, to understand how their actions contribute to the global care of the patient as well as global value-based reimbursement,” said Schaeffer.

Ensure primary care operations run efficiently. “Primary care operations can make or break your success in value-based care,” Schaeffer said. Provider operations must optimize visit capacity so physicians can see the high-risk patients at the right frequency and time to identify and manage chronic conditions. Every staff member plays a role in risk capture and condition management, and it is imperative that each team member is working at the top of their license, with operational protocols that support the ability to capture and manage chronicity.

“Under risk-based models, health systems can’t afford to wait until patients call for an appointment to provide care,” Schaeffer said. “They must proactively reach out to patients they know may be at risk and optimize the efficiency and capacity of their ambulatory operations so patients with significant chronic conditions may be seen more frequently.”

Know that acute care must run on value. Acute care is the most expensive care health systems provide. “When you have patients who have a longer than anticipated length of stay or are who are unable to schedule follow-up care only to readmit, this can dramatically impact the global cost of care and the patient’s outcomes,” Schaeffer said. “Effective length of stay management is the number one thing you can do to promote value in your acute care enterprise, and once patients are discharged, ensure they are seamlessly integrated into their next level of care.” To strengthen health outcomes while reducing long-term costs of care, leading organizations are even deploying teams to visit patients in their home environment to assess social determinants of health and connect patients to the appropriate resources, where needed. They also are tightly focused on processes to divert unnecessary ED visits to ensure prompt and cost-effective diagnosis and to engage community resources such as paramedicine in a patient’s post-discharge care.

Invest in analytic capabilities. “For many organizations, a quarter turn in one process element could make all the difference in performance on value-based measures,” Schaeffer said.

Investing in the capabilities to measure performance across the organization and report it in ways that allow physicians to see how they are performing individually drives success under risk-based contracts. It also offers a road map for performance improvement.

To accelerate performance, share data at the provider level with physicians on a regular basis — weekly, if possible. Just as important: Make sure data analysts have a clear understanding of how risk-based models work and what it takes to “win” under these models. Providers also should have a data view of which patients need to be seen to fulfill commitments under value-based contracts as well as to manage risk and the support needed to engage these patients.

Connecting the dots for risk-based payment

Today, many health systems that have entered into value-based contracts are leaving dollars on the table because operations haven’t been fully leveraged and leaders don’t have a clear view of where performance is lagging. Yet clinging to fee-for-service payment isn’t a long-term strategy. By taking a global look at the capabilities needed to facilitate participation in risk-based models, CFOs can lead their organizations to assume the right level of risk under the right contracts, improving the health of vulnerable populations while strengthening the organization’s ability to provide care.

About Plante Moran

Plante Moran is among the nation’s largest accounting, tax, consulting, and wealth management firms and provides full services to organizations. Our healthcare practice is a leading national financial and operational consulting practice, serving over 2,500 clients across the entire healthcare continuum. Our clients are large health systems, community hospitals, skilled nursing facilities, independent and assisted living facilities, home health and hospice agencies, medical groups and physician practices, health plans, community-based service providers, and private equity groups. For more information, visit plantemoran.com.

_{This published piece is provided solely for informational purposes. HFMA does not endorse the published material or warrant or guarantee its accuracy. The statements and opinions by participants are those of the participants and not those of HFMA. References to commercial manufacturers, vendors, products, or services that may appear do not constitute endorsements by HFMA.}