by Jonathan Romero

Earlier in 2022, Tampa-based Physician Partners announced a $500 million investment by an investment firm with a third of its portfolio in healthcare services – earmarked for the organization’s continuing expansion in and outside Florida. 

It was Physician Partner’s first private capital investment. And it speaks not only to the healthcare community’s accelerating transition to Value-Based Care (VBC), but to the increasingly important role of intermediaries like Physician Partners for making it work as a key safeguard against risk.

Value-based care, which incentives reimbursements around quality of care versus volume, was first unveiled by the Centers for Medicare & Medicaid Services (CMS) in 2013. It will be a required payment model for Medicare providers by 2025. Private insurers are also supportive.

Adoption of “bundled payments” was building before the pandemic but moved into high gear in its wake. The fee-for-service payment system, once the standard, lost relevance when in-person physician services couldn’t be provided during the COVID shutdown. 

By one count, 8%, or 16,000, of all U.S. physician practices closed when the payment spigot turned off. On the other hand, orthopedic specialists at one organization using the value-based care model saw steady cash flow of about $160 per member per month even though procedures plummeted by 90%. In 2020, only 20% of Medicare spending was value-based; that reached 40% by 2021’s end.

Under value-based care, contracts for medical procedures are built around target prices for the total cost of providing care. They are built around specific areas of care like oncology, but also primary care cases, like the long-term, holistic management of diabetes. On the upside, when the caregiving team comes in under the contract target price, it benefits financially. Then there’s the flip side. Providers must reimburse payers for costs exceeding the target.

It presents a set of risks that healthcare providers aren’t necessarily comfortable dealing with. Providers need to understand the risks to decide their participation in this evolving reimbursement model. 

Risk #1: Cost management 

The shift to feel-for-value reimbursement is a big one. It not only changes payer relationships but has a big, long-term effect on revenues, cash flow, costs and, importantly, how profitability and growth are managed. Not only that, but affecting the shift is not an easy process. The application for CMS payment contracts, for example, is very detailed. Among other requirements are a thorough presentation of how methodologies for sharing savings would be  developed and regulatory compliance met and maintained. Then too, sophisticated data analytics are essential to guiding the coordination of care – typically provided by a knowledgeable outside vendor.

Solution: Intermediaries, or “conveners”

Groups like Physician Partners have gotten significant traction as a solution to successfully managing all the facets of participation in value-based care contracts (except for providing the care itself). These intermediaries bring together all the providers needed to deliver care under the value-based contracts, distributing the bonus and ensuring provisions are in place to cover any penalties. They are essential for providers that hope to make the shift to value-based care without being burdened by excessive costs, and there are strategies to offset their fees.  One solution is to split a percentage of projected savings on contracts (versus paying conveners upfront) to fund data analytics and facilitate care coordination.

Risk #2: On the downside

Yes, there is a real chance that the negotiated target price on the contract will be exceeded, incurring a stiff financial penalty. That could be beyond the medical practice’s collateral wherewithal.

Solution: Transfer the risk 

Stop loss insurance is an effective way to transfer the risk. It’s growing for physician groups as value-based programs continue to expand. Its pricing is tied to the contract’s target price, and other factors also come into play, including data analytics and care coordination. The high costs of stop loss, though, mean many providers must seek out financial partners to help meet them. The availability of affordable capital is key if independent physicians are to participate in VBC.

Risk #3: Programmatic risk

CMS regularly tests new programs, but is the pace and number sufficient? As noted, enrollment can be onerous. And the downside risk has private insurers cautious, even though their VBC contracts are starting to expand. Still, programs designed to simplify the system and lead to higher quality care and improved patient outcomes are being piloted across the U.S.

Solution: Time

It’s only a matter of time before private payers fully embrace the VBC model. That leaves a window of opportunity for practitioners to get educated so they are prepared to do the same.

Jonathan Romero is a commercial advisor with global insurance brokerage Hub International in Florida. He specializes in medical and white-collar professional risks, advising on professional, malpractice and management liability exposures and coverages. He also provides comprehensive property, casualty and benefits consulting to these clients, both for smaller, private clientele and for the large, public groups. Jonathan works with the State of Florida’s medical association and the local medical society in Leon County and the surrounding areas.