Risk-Based Payments in Healthcare: Key Benefits and Strategies for Success

Jan 08, 2023
Article Background

Many healthcare providers are reluctant to abandon their fee-for-service model for a risk-based model. Understanding the benefits can help ease the fears and ensure better cash flow.

Over the last few years, healthcare organizations and providers have begun transitioning from a volume-based or fee-for-service model to a value-based model. A subset of value-based models is the risk-based model. Although some providers may be hesitant, a risk-based model has the capability to provide quality healthcare at a lower expense. Despite the benefits, switching to a risk-based model can present some challenges that must be overcome before it can rise as the new standard in healthcare.

What's a Risk-Based Payment Model?

Healthcare is changing. The way in which physicians are paid, for example, is evolving. In the past, providers were paid based on the number of patients they saw and the services they provided. Under the value-based payment model, providers receive a fee per patient and then are responsible for treating the patient within a specific budget. If the expenses go above the budgeted amount, the provider is responsible for the excess, and there lies the risk. The goal is to provide quality care while maximizing profits.

The risk-based model — also called the “payvider” model — is where providers and payers agree to share the risk so that the provider doesn’t have to assume total financial responsibility. There are three main types of risk-based models:

  • Upside risk: If a provide treats a patient for less than what is budgeted, they share the profits with the payer, but if the provider goes over budget, they are not liable for the extra charges.
  • Downside risk: If a provider goes over budget, they are responsible for the extra expense.
  • Two-sided risk: This is a combination of both upside risk and downside risk.

What Are the Benefits and Challenges?

Understandably, some providers may be reluctant to give up their traditional volume-based or fee-per-service model they’ve always used. But there are obvious benefits for patients with the risk-based model that may sway even the most skeptical healthcare provider.

Provider compensation is tied to the efficiency and success of their treatment, and hospital administrators benefit by leveraging financial data to help physicians provide better patient care for less money. But there are still challenges to overcome before the risk-based model is adopted by most provider organizations. For example:

  • Not all markets are ripe for these types of models
  • Forming strategic partnerships between providers and payers is challenging
  • Data acquisition and technology costs are high
  • Care coordination is required among different healthcare providers to deliver long-term care
doctor working with a calculator

What Are Some Strategies for Successful Implementation?

According to a 2021 survey conducted by the Healthcare Financial Management Association (HFMA), more than half of health system administrators said they planned to start advancing risk-based payment models. Implementation will require planning and strong leadership to gain provider buy-in. And it’s important to understand you can’t do it alone. Accountable Care Organizations (ACOs) must work together to deliver coordinated, quality care to patients. Initiatives such as the Medicare Shared Savings Program can provide the startup funding new ACOs need to enter the market successfully.

One of the biggest requirements for adopting a risk-based model is implementing technology. Providers have gradually embraced many new technologies, including the electronic health record (EHR), but healthcare systems must advance interoperability efforts to better share these records. Strong data analytic capabilities are also necessary for better understanding the financials of a healthcare organization. These organizations will need to have strong platforms for managing telehealth and home-monitoring systems, as these technologies are becoming increasingly important for both providers and patients. Providers may also need to extend or alter their hours of service to accommodate all patients.

There’s little doubt that U.S. healthcare is evolving, and the traditional fee-for-service payment model is giving way to a value- or risk-based model. It will mean better patient care for less cost, but it also will require a great deal of planning and work to implement the new model. An experienced third-party RCM partner, like TruBridge, can smooth the road to implementation, either through consultation or by taking over the transition process for you.