Supplier risk management is difficult to do | FTI Council

Enterprise risk management in healthcare “includes the clinical and administrative systems, processes and reports used to detect, monitor, assess, mitigate and prevent risks.1. “Historically, risk management in healthcare has focused on patient safety and preventing medical errors. It has now broadened to include the whole business, including risk. strategic, operational, financial, human capital, legal / regulatory and technological.2.

The advent of value-based care based on the ‘Triple AIM’ framework developed by the Institute for Healthcare Improvement – improving the individual experience of care, improving the health of populations and reducing per capita costs of care – a pushed providers to shift their focus from volume to value3. And, as providers shift to value-based businesses, their reimbursement model is also more aligned with that of payers. Like payers, providers now have a fundamental understanding and ability to manage risk.

Risk-taking offers strategic, financial and technological opportunities to groups of providers. As providers assume greater responsibility for patient care in return for greater reimbursement, they need to understand the degree of risk-sharing associated with alternative business models. For example, the transition to risk sharing may be gradual, starting with opportunities for performance pay or unilateral shared savings and, with increasing experience, may extend to a full risk commitment consisting of a global capitation.

Financial risk continuum for providers

In 2021, approximately 11.9 million Medicare beneficiaries were enrolled in 518 responsible care organizations; $ 10.7 million (90%) in Medicare Shared Savings Program (MSSP) and $ 1.2 million (10%) in Next Generation ACOs4.5. The MSSP requires ACOs to meet quality and performance criteria, and then provides shared savings when ACOs meet their goals. A minimum of 5,000 members is required by the Centers for Medicare & Medicaid Services (CMS) for an ACO to participate in a shared savings program. As of January 1, 2021, the majority of MSSP participants, 59%, were enrolled with one-sided risk, upside only, and the remaining 41% were enrolled with bilateral risk, up / down.6. Next-generation ACOs allow participants to take on higher levels of risk and potentially higher rewards. The program ends after this year7.

Medicare Shared Savings Plans (MSSP)

Medicare Shared Savings Plans (MSSP)

In 2021, 26.4 million people, or 42% of the Medicare population, were enrolled in Medicare Advantage (MA) plans8. The Congressional Budget Office forecasts a share of 46% in 2025 and 51% by 20309. MA plans receive a fixed income per member per month (PMPM) based on the demographics of the plan member population, overall health level (e.g., risk-adjusted factor score), and quality bonuses (for example, STARS)ten. The income is offset by health-related costs (i.e. medical loss ratio) and selling and administrative expenses.

Calculation of the Medicare Advantage Risk Adjustment Factor begins by grouping ICD-10 codes into DxGroups that represent a medical condition11. The DxGroups are then combined into condition categories “which are clinically similar and in terms of cost.12. “Hierarchies are imposed such that a person is coded with the ‘most severe manifestation of the disease13. “A hierarchical status category is used to adjust Medicare Advantage base rates based on risk, lower of supply, or a plan’s baseline (the average fee-for-service Medicare spending in each plan). county adjusted for demographics and geography).

Medicare Advantage risk adjustment example

Advantage of Medicare

The attractiveness of capitation increased during the pandemic when ambulatory volume decreased. Key success factors include: (1) the minimum size of the risk pool for risk dispersion; (2) the primacy of proactive (preventive) intervention, acute and post-acute care by primary care physicians; (3) risk stratification with increased emphasis on the 18% of patients representing 54% of the costs; (4) availability of (analytical) tools and resources to manage care; and (5) contractual health plan arrangements with cost-effective specialists on a fee-for-service or sub-capitation basis.

Managing the total cost of care is essential. The chronic disease life cycle is generally progressive, prone to intermittent acute events and best managed by primary care physicians; acute care episodes up to 90 days after discharge account for 50% of Medicare spending14. Institute of Medicine attributed 73 percent of global Medicare spending variances to variations in post-acute care utilization15. Social determinants of health – “the conditions in the environments where people are born, live, learn, work, play, worship and age that affect a wide range of outcomes and risks to health, function and quality of life “- also affect commitment and results16. Only 1.59% of Medicare FFS beneficiaries had a request for code Z (social determinant)17.

Shift provider attention to chronic disease management from acute intervention to prevention, surveillance and proactive intervention

Chronic disease management

The viability of the risk pool requires a sufficient size consisting of a large section or risks. The objective of risk pooling is to share the costs of a sick population over a larger population (in better health). Insurance companies and health plans strive to increase membership to spread this risk and diversify their product lines to compensate for financial fluctuations from one group to another. Today, at-risk provider organizations are no different, with successful provider organizations managing large numbers of at-risk members (at least 5,000 members) and risky relationships between different populations – commercial, Medicare Advantage, Managed Medicaid and self-insured.


With the continued transition to value-based care, providers have an increased opportunity to engage in risky relationships with payers, both public and private. The success of these programs requires providers to develop skills and competencies outside of their traditional clinical expertise. The transition isn’t always easy, but the rewards are promising.

Footnotes :

1: What is risk management in healthcare? NEJM catalyst; April 25, 2018

2: ASHRM Enterprise Risk Management: Framework and Areas.

3: Institute for Healthcare Improvement

4: Centers for Medicare & Medicaid Services – Shared Savings Program Fast Facts – As of January 1, 2021.

5: Susan Morse. Update with list: Majority of next-gen ACOs have shared savings. Financing of health care; January 15, 2021

6: Centers for Medicare & Medicaid Services – Shared Savings Program Fast Facts – As of January 1, 2021.

7: Robert King. Biden’s administrator will end the next-gen ACO model after this year. FIERCE health care; May 21, 2021

8: Meredith Freed, Jeannie Fuglesten Biniek, Anthony Damico and Tricia Neuman. Medicare Advantage in 2021: Enrollment Update and Key Trends. KFF; June 21, 2021

9: Same.

10: Understand Medicare Advantage Payment and Policy Recommendations. Best Medicare Alliance; September 2018, p. 9.

11: Same.

12: Same.

13: Ibid.

14: 5 keys to managing the total cost of care for acute episodes. Physicians of Sound Webinar

15: Change in health spending: targeted decision making, not geographic. Institute of Medicine; 2013

16: Use of Z Codes for Social Determinants of Health Among Medicare Fee-for-Service Recipients, 2019. CMS Data Highlight # 24; September 2021

17: Same.

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