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Unlocking the potential of value-based care arrangements
Deloitte’s 2015 Study of Medicare Advantage Health Plans and Providers
New survey results suggest that there is great—as yet unrealized—potential for both health plans and providers in Medicare Advantage value-based care arrangements. How can health plans and providers join forces to achieve the triple aim and realize the growing opportunities available?
Are health plans effectively engaging providers in testing value-based care arrangements in Medicare Advantage?
Results from Deloitte's 2015 Study of Medicare Advantage (MA) Health Plans and Providers suggest that there is a great—and unrealized—potential. As yet, the business case for value-based care (VBC) in MA is not evident to all stakeholders.
Several forces are aligning to encourage VBC arrangements in MA. While many health plans' MA enrollment may be smaller than their commercial lines of business, it represents a growing opportunity, especially given the potential for care and cost improvements in this population. In addition, MA business contributes considerably to overall health plan revenue, and profit margins are holding steady at 5–6 percent. Finally, the combination of Medicare Star ratings bonuses, risk-adjustment revenue, and the federal government's focus on strengthening value and quality in Medicare has helped to refine the approach to MA contracts.
Four overarching themes about VBC in MA emerged from this study:
- Most health plans and providers are experimenting with VBC arrangements in MA:
Nearly all of the surveyed health plans and providers have some type of VBC arrangement in place for their Medicare populations. Patient-centered medical homes (PCMH) are the most common arrangement reported by health plans. Providers report more VBC activity with traditional Medicare than with MA health plans.
- VBC strategies are similar in commercial and MA lines of business, but health plans see greater value potential in MA:
Most health plans’ overall VBC strategy is strongly aligned across commercial and MA lines of business. However, MA’s high per-member/per-month (PMPM) costs and disease burden can present greater opportunities for savings and quality improvements.
- Federal policies, initiatives, and regulations influence MA VBC strategies:
Aspects of the MA program that help health plans optimize revenue (e.g., quality bonuses and risk adjustment) are important drivers of VBC strategy in MA. Medicare Star ratings bonuses and other quality-focused initiatives encourage a systematic approach to quality improvement that is best achieved through health plan and provider collaboration.
- Health plans and providers have challenges to overcome in the MA VBC space:
Many of the surveyed health plans struggle to identify the right provider partners and work with them effectively. Meanwhile, providers have mixed feelings about VBC contracting in MA. Provider respondents acknowledge that VBC arrangements can lead to higher-quality care and patient satisfaction, but many are skeptical about VBC’s impact on cost, their bottom line, and staff satisfaction. Few are convinced that VBC arrangements with health plans are a win-win. As a result, many providers are reluctant to take on risk, which has slowed adoption of VBC models. Moreover, despite active encouragement from health plans, there is little evidence of provider adoption of clinical innovation in care delivery.
MA program elements create opportunities for VBC arrangements
Three distinct characteristics of the MA program create opportunities for health plan-provider collaboration and contracting tied to revenue optimization, quality improvement, and cost reduction.
- Health plans’ revenue is risk-adjusted based on the documented conditions of their enrolled beneficiaries, which encourages collaboration between plans and providers to accurately capture diagnoses and aligns financial incentives through CMS-compliant revenue optimization gain-sharing arrangements.
- Health plans’ revenue is also affected by Medicare Star ratings, which present another opportunity to align plan-provider gain-sharing incentives to drive quality improvement. The quality bonus program that is tied to the ratings can have a substantial impact on many health plans’ revenue; those that receive at least four stars earn 105 percent of the benchmark. For instance, one large health plan gained an additional $533 million in revenue from its 2016 Star ratings, while another lost $244 million for the same year. The ratings also have market share implications: health plans with ratings lower than two stars face a threat of contract termination, while health plans with five-star ratings enjoy the benefit of continuously marketing to and enrolling beneficiaries throughout the year outside of the open enrollment period.
- The fact that health plans’ revenue is risk adjusted and capitated serves as an economic incentive for plans to proactively identify and manage high-risk members, close gaps in care, and drive cost reductions. This creates opportunities for plans and providers to collaborate on CM and wellness initiatives at the point-of-care to control costs and improve care coordination. Risk adjustment also mitigates “adverse selection,” so plans are less likely to suffer financial consequences for enrolling higher numbers of individuals with chronic diseases and comorbidities than their competitors.