PYA Principal Bob Paskowski presented “Risk-Based Contracting: Assessments and Implementation,” at the National Association of Managed Care Physicians Fall Managed Care Forum, November 10-11, 2016. The presentation allows participants to: Understand the different types and core elements of risk-based contracting (RBC). Prepare for additional discussions with key stakeholders regarding RBC assessment and readiness. Make informed decisions as to next steps while evaluating associated financial risks.

1. Fall Managed Care Forum
November 10, 2016
Presented by:
Bob Paskowski
BACKGROUND, ASSESSMENT, AND IMPLEMENTATION
Risk-Based Contracting

2. Fall Managed Care Forum
Objectives
Determine critical success factors
Understand types and key elements of RBCs
Assess RBC readiness
Make an informed decision while evaluating
financial risk

3. Background and Education

4. Fall Managed Care Forum
Key Facts
 Payers report they are now at 58% along the
continuum of full value-based reimbursement (48%
in 2014); Hospitals report they are at 50% (46% in
2014)*
 60% of payers have changed their network strategies
since 2014*
 63% of hospitals report they are part of an
accountable care organization (up 18% since 2014)*
 A large payer created a new service company to help
providers achieve success under RBCs and even
launch their own health plans
* 6/20/2016 Becker’s Hospital Review

5. Fall Managed Care Forum
Transition to Value-Based Payments
Fee-for-Service
(FFS) Payments
Adjusted FFS
Payments
Advanced
Payment Models
(APMs)
Incorporating FFS
Payments
Population-Based
APMs
Traditional FFS Pay for Reporting
Total Cost of Care
Shared Savings
Condition-Specific
Payments
Infrastructure
Incentives
Pay for Performance
Total Cost of Care
Shared Risk
Primary Care
Payments
Care Management
Payments
Pay/Penalty for
Performance
Bundle Payments
Comprehensive
Payments
$
Bank

6. Fall Managed Care Forum
Medicare Timeline
By 12/31
2016
By 12/31
2018
85% of Medicare fee-for-
service payments tied to scores
on quality and efficiency
measures
30% of traditional Medicare
payments through APMs
90% of Medicare fee-for-
service payments tied to scores
on quality and efficiency
measures
50% of traditional Medicare
payments through APMs

7. Fall Managed Care Forum
Challenges and Benefits
Challenges Benefits
Payers aggressively pursuing risk-
based arrangements
Improve quality performance and
patient care
Unprepared providers need transition
strategy to assume risk
Generate ancillary revenue and/or
cost avoidance
Lack of understanding of key business
terms impacting risk-based contracting
Enhance clinical documentation
and treatment plans
Unable to quantify upside and
downside risk
Scale population health activities across
multiple risk-based contracts

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Critical Success Factors
 Key provider stakeholders must be engaged in making the
cultural shift from a volume-based mindset to value-based
mindset.
 Providers must be educated in the basic concepts of risk-
based contracts.
 Providers must invest in care management infrastructure,
activities, and information technology to manage
populations.
 Providers must align their objectives with the right payer
partner.
 Providers must assess their risk tolerance.

9. Fall Managed Care Forum
Common Types of Private Sector RBCs
Type FFS
Care
Coordination
Fee
Quality
Incentives
Risk Option 1:
Shared Savings
Risk Option 2:
Shared Risk
Risk Option 3:
Full Risk
Commercial Yes
Commonly
yes; fee
counted as
expense
under options
1-3
Commonly
yes; based
on meeting
pre-
determined
quality
measures
% Savings
below medical
claim PMPM
target;
contingent on
meeting quality
measures
%
Surplus/Deficit
above/below
Medical claim
PMPM target;
contingent on
meeting quality
measures
100% of
surplus/deficit
above/below
medical claim
PMPM target
Medicare
Advantage
Yes
Commonly
yes; fee
counted as
expense
under options
1-3
Commonly
yes; based
on meeting
pre-
determined
quality
measures
% Savings
below Medical
Loss Ratio
(MLR) target;
contingent on
meeting quality
measures
%
Surplus/Deficit
above/below
MLR target;
contingent on
meeting quality
measures
100% of
surplus/deficit
above/below
MLR target

10. Fall Managed Care Forum
Key Contract Elements
Element Definition
Term Defines the period of time for the agreement
Termination Defines the provisions that would allow the agreement to terminate
Measurement
Period
Defines the period of time under which the quality and financial
provisions will be measured

11. Fall Managed Care Forum
Key Contract Elements (cont’d)
Element Definition
Attribution
Defines the population to be measured during any measurement
period
Minimal
Panel Size
Defines the minimal # of attributed members for the risk provisions
to apply
Products
Defines the products that will be included under the population;
most common are fully insured commercial, self-insured employee
health plans and Medicare Advantage
Benefits
Defines the benefit options and cost-sharing for current and potential
members
Network
Defines the provider network that will be used to market the products
that are included in the agreement
Quality
Defines the quality measures that are typically tied to qualifying for
full/partial savings or care management fees

12. Fall Managed Care Forum
Key Contract Elements (cont’d)
Element Definition
Care Management Fees Payer provides a PMPM payment for care management services
Risk Corridor Defines the risk (upside or downside) assumed by provider
% of Savings and
Losses
This provision will typically align with the risk corridor provision; defines the % of
any savings or deficits paid or recovered from provider
Stop-Loss Provider may have option to apply individual stop loss on members
Base Target
(Comm only)
Defined as the actual claims expense for the defined population during an initial
baseline period
Risk Adjustment Factor
Risk factors are applied to base target based on risk profile of members in
measurement period
Medical Trend Factor The amount of medical trend applied to base target based on payer internal data
Benefit Change Factor Factor applied to base target for benefit changes in the measurement period
Medical Loss Ratio
(MLR) Target (MA only)
Defined as the medical expenses divided by the total premium

13. Fall Managed Care Forum
Sample Settlements
Commercial – Shared Savings based on 5,000 Members
Measurement Period Basis Scenario 1 Scenario 2 Scenario 3
Claims Expense
Actual PMPM for
baseline period
$250.00 $250.00 $250.00
Claims Adjustment: risk
adjustment factor
Actual from payer 1.02 1.02 1.02
Claims Adjustment: benefit
change factor
Actual from payer 0.97 0.97 0.97
Claims Adjustment:
medical trend factor
Negotiable 1.03 1.03 1.03
Claims Adjustment:
minimum savings of 2%
Negotiable 0.98 0.98 0.98
Adjusted Claims Target Computed $249.68 $249.68 $249.68
Actual Claims Expense Actual $235.00 $245.00 $255.00
Savings - PMPM Computed $14.68 $4.68 $0.00
% of Savings Negotiable 50% 50% 50%
Provider Distribution Computed $440,400 $140,400 $0

14. Fall Managed Care Forum
Sample Settlements
Medicare Advantage - Shared Savings based on 5,000 Members
Measurement Period
(typically Calendar Year)
Basis Scenario 1 Scenario 2 Scenario 3
Total Expenses Actual $46,440,000 $45,360,000 $48,600,000
Total Revenue Actual $54,000,000 $54,000,000 $54,000,000
Actual MLR Computed 86.0% 84.0% 90.0%
Targeted MLR Negotiable 87.5% 87.5% 87.5%
Targeted Expenses Computed $47,250,000 $47,250,000 $47,250,000
Total Savings Computed $810,000 $1,890,000 ($1,350,000)
% of Shared Savings Negotiable 50% 50% 50%
Provider Distribution Computed $405,000 $945,000 $0

15. Assessment and
Implementation

16. Fall Managed Care Forum
Phase 1: Internal Assessment
Conduct a thorough gap analysis and prepare a specific action plan
 Has the leadership team assessed its
readiness for risk-based contracting?
 Do all entity stakeholders fully understand
risk-based contracting?
 Has the operational infrastructure been
established to meet critical success factors?
 Has the provider entity invested in data
analytics and care management?

17. Fall Managed Care Forum
Phase 2: External Market Analysis
Conduct an external market analysis
 Determine geographical service area
 Determine market share by payer by product
 Determine provider patients by product
based on common denominator (i.e., billed
charges)
 Determine “attributable” members for the
provider entities primary care physicians

18. Fall Managed Care Forum
Phase 3: Contract Development
Prepare for and engage in contract negotiations
 Determine level of risk provider is willing and
able to assume
 Validate reasonableness of attributed
membership
 Develop criteria for key business terms
 Request proposals from interested and
aligned payers
 Negotiate key business terms

19. Fall Managed Care Forum
Phase 4: Implementation
Establish contract governance and monitor contract performance
 Regularly monitor and report performance to key
stakeholders
 Establish Joint Operating Committees to oversee the
operations and performance
 Establish data feeds from both parties
 Establish care management processes and
workflows between the parties
 Establish critical reports to manage the population
and performance

20. Fall Managed Care Forum
In Summary…use your “I”s
Introduce risk gradually into your organization
Invest in care management and IT systems
Identify the right payer partner that shares aligned
objectives
Integrate value-based care into your organization

21. Fall Managed Care Forum
Questions?