Part 3- The Rise of Accountable Care

Accountable care has come about in an attempt to disrupt the misaligned incentives of the FFS payment system.  It does this by transferring “risk” to both patients and providers (but mainly providers).

In other words, the system is hoping to reduce waste, lower cost and decrease utilization by having providers and patients each have more skin in the game. Generally, this is done by having providers and patients “have skin in the game” by sharing in the financial upsides and downside of their decisions.

More on how this is done in a minute.

In America, there have been two periods of rapid growth of “accountable” healthcare systems. The first began in the 1970s with the rise in prominence of health maintenance organizations (HMOs) which tended to be (although not always) insurance company-run companies which attempted to manage utilization of healthcare services through by holding providers financially at risk for the services they offered.

The second, which I coin the “modern era of healthcare accountability” came about in the mid 2000’s.

In this new era there are many ways for accountability to be driven into an organization. These all involve some measure of “risk” where the provider is financially on the hook for how well they run the business of delivering healthcare. These models vary greatly, from systems which pay a bonus for achieving certain quality targets, to others which withhold money if metrics aren’t met, to others on the far end of the scale where organizations are paid a flat rate (per member/per month) to provide all of the services that an enrolled patient needs.

The goal of all of these payment models is to ensure that the people making the healthcare decisions– the physicians and other caregivers– are financially incentivized to do the right thing.

The other aspect of risk-sharing is the degree of direct financial responsibility insurers are transferring to patients.  Over the past decade there has been a significant rise in patient deductibles and co-pays which leave patients responsible for paying the first several thousand dollars of healthcare expense or the first percentages of any medical claim. The purpose of these direct payments is told patients accountable for some of the financial consequences of receiving healthcare. For the most part, these co-pays and deductibles are blunt instruments but they do serve as ways to make the patient more directly “acceptable” for the costs they incur.

We are also seeing a dramatic rise in the number of “high-deductible” health plans out there, which are meant to drive consumer behavior, reduce consumption and encourage price-shopping.  There are a double edged swords as they do seem to impact price transparency and cost as providers need to appeal to cash-wielding consumers on the basis of cost and service– but also lead to a fragmentation of care and barriers to prevention/ integration of care.

 The basic purpose of both of these transfers of risk, to providers, and patients, is to provide another “brake” to the system.


Ways of holding providers financially accountable

In the move away from FFS, with all of its inherent problems, insurers have created new models of reimbursement for healthcare services which are supposed to hold providers financially accountable for their decisions to prescribe services. New methods of payment for healthcare often rely on the following recent methods of reimbursements to healthcare providers (usually “risk bearing” groups of providers). These payment models differ from the traditional fee for service in that they push providers to generate improve value – by reducing costs and by generating better long-term outcomes.

Here briefly, are some of the payment strategies used to reward “accountability”

Bundled Payment:  in this model, the healthcare provider receives a fixed amount of payment (usually a nationally benchmarked amount) to provide a “bundle” of related services which can include both physician and hospital charges. For example, an organization may receive a flat fee for providing cardiac bypass. This fee may include physician services, operating room costs, supplies, overnight stays, and medications. An efficient organization can generate a profit through careful use of the services. An inefficient organization will lose money.

Case rate payment:   a hospital provider accepts a fixed fee for a given diagnosis. For example, it gets a fixed amount of money to provide all care for a case of appendicitis.

Performance-based fee-for-service, or value-based care:   providers bill on a fee-for-service basis, however some portion of the payment is either withheld, or bonuses offered if the provider achieves certain metrics with regard to utilization and quality.

Shared risk arrangements:   providers share with the insurance company any savings generated as compared to budgeted amounts for given procedures. In some cases they share in any losses generated as well.

Capitation:   an organization receives a fixed amount of money monthly to provide healthcare services to a given population.   The exec services are negotiated, and can include, for example, only professional services such as those offered by a group of specialty physicians. These rearrangements can also include additional services such as hospital charges, pharmaceuticals, and the like.

The most extreme form of capitation, known as global risk, involves a situation where the insurance company provides a per member per month payment to a provider organization.

In exchange for this fix monthly payment, the provider agrees to cover the cost of all medical services provided to the patient.

This can include hospital fees, professional fees, pharmaceuticals, physical therapy visits, skilled nursing days, etc.   In this relationship, the insurance company often delegates most medical management and utilization management to the provider organization was a strong financial interest in making sure that the healthcare delivers is appropriate both in quality and cost.

The global risk world

Global risk, which will be a focus of this blog, is often seen as the best fix for the dysfunctional American healthcare system because it manages to create better alignment amongst patients, providers, and insurance companies than fee-for-service or the “middle ground” risk-sharing arrangements between insurance companies and providers.

Under a global risk payment model, providers have an incentive to control unnecessary utilization of healthcare services. They also have strong incentives to create innovative models of healthcare delivery that reduce unnecessary expense while improving patient satisfaction. And, they created an incentive for provider organizations to provide preventive care, behavioral health and aggressive primary care – all of which are not well reimbursed in a fee-for-service environment.

 Global risk, while offering a promising way forward, is incredibly difficult model foremost provider groups to implement. It requires aggressive utilization, data analytics, quality management role, and poorly done threatens the provider organization with financial ruin.

The old model a fee-for-service, where revenue was dependent upon the volume of care delivered, the rate per unit volume is disrupted in the global risk environment. In the New World, the calculus looks quite different:

Profit= Revenue (Volume of enrolled patients x PMPM rate) – Organizational Expenses- Total Medical Expense

The two key drivers of profitability, in this new model, are the volume of enrolled patients (high numbers are better to amortize the high fixed costs of case and utilization management) and the need to control downstream total medical expense.

The volume of service delivered is no longer a profit driver, but is in fact a liability since care is paid from the global payments to the risk-bearing groups.

The system, however, does provide for far greater alignment amongst patient, provider and insurance company been a fee-for-service payment model.

Alignment in a global risk payment model. Key changes compared to the fee-for-service model are in bold.

Patient Provider Insurance
Transparency of Costs Medium High High
Healthcare Knowledge Low High Medium
Goal re. Cost per Unit Care Reduce Reduce Reduce
Goal re. Volume of Care Neutral Reduce Reduce
Goal re. Access to New Therapies Increase Depends on downstream effect+ length of relationship w patient Depends on downstream effect+ length of relationship w patient
Goal re. Providing Preventive Care Increase Increase Increase



  1. Pingback: Unbundling Healthcare | Dr. Marc-David Munk
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