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November 29, 2023
David Burda
Economics Outcomes System Dynamics

US Healthcare Continues to Be Risk Averse

Show me the incentive, and I will show you the outcome.” —Charles Munger, Vice Chairman, Berkshire Hathaway, who passed away this week at the age of 99

U.S. health outcomes worse than OECD nations on most measures.” —Axios on OECD Health at a Glance 2023 report

The juxtaposition of those statements explains the healthcare system in the U.S. We get the outcomes we pay for. We won’t get the outcomes we want until we change how we pay for them.

The statements also explain some interesting findings in a new study published in the American Journal of Managed Care. The study garnered some gushing headlines in the healthcare trade press for its data that showed that 75% of provider participants in Medicare accountable care organizations (ACOs) also had value-based reimbursement (VBR) contracts with commercial health plans.

As you know, I’m more of a glass-half-empty, bad-news kind of guy, not a glass-half-full, good-news kind of guy. Especially when our health outcomes in the U.S. continue to fall below health outcomes in other high-income nations despite more providers having VBR contracts with commercial insurers. Big deal.

Here’s the data that caught my pessimistic eye. Overall, providers cared for just 10% of the lives covered by any VBR deal under full-risk contracts. By comparison, 48% were under one-sided risk contracts, and 42% were under two-sided risk contracts.

Under one-sided risk contracts, providers share in the savings generated caring for those covered lives. Under two-sided risk contracts, providers share in savings or losses caring for those covered lives. Under full-risk contracts, insurers pay providers a capitated rate, and providers assume 100% of the financial risk caring for those covered lives. Providers are “all in,” so to speak.

The fact that providers are all in on only 10% of the patients under their VBR contracts explains why we get the outcomes we pay for. There’s little incentive to generate the best possible outcomes.

The percentage of covered lives under full-risk contracts varied by payer and VBR contract type:

  • 19% for direct-to-employer contracts.
  • 19% for traditional Medicaid.
  • 18% for Medicare Advantage.
  • 9% for commercial health plans.
  • 8% for Medicaid managed-care organizations.
  • 7% for Medicare ACOs.

Interestingly but maybe not surprisingly, employers, not public or private payers, are taking the lead on full-risk contracting. They’re saying to providers, “Here’s my money. Keep my employees healthy and do a good job taking care of them when they’re sick. It’s on you.”

Employers in any industry are, by definition, in the full-risk business. Do a good job serving customers, stay in business. Do a poor job serving customers, go out of business. Any industry except healthcare, that is.

It’s time to get risky in healthcare.

Thanks for reading.

To learn more about this topic, please read, “Physician APM Participation Is Like Eating Cauliflower,” on 4sighthealth.com.

About the Author

David Burda

David Burda began covering healthcare in 1983 and hasn’t stopped since. Dave writes this monthly column “Burda on Healthcare,” contributes weekly blog posts, manages our weekly newsletter 4sight Friday, and hosts our weekly Roundup podcast. Dave believes that healthcare is a business like any other business, and customers — patients — are king. If you do what’s right for patients, good business results will follow.

Dave’s personnel experiences with the healthcare system both as a patient and family caregiver have shaped his point of view. It’s also been shaped by covering the industry for 40 years as a reporter and editor. He worked at Modern Healthcare for 25 years, the last 11 as editor.

Prior to Modern Healthcare, he did stints at the American Medical Record Association (now AHIMA) and the American Hospital Association. After Modern Healthcare, he wrote a monthly column for Twin Cities Business explaining healthcare trends to a business audience, and he developed and executed content marketing plans for leading healthcare corporations as the editorial director for healthcare strategies at MSP Communications.

When he’s not reading and writing about healthcare, Dave spends his time riding the trails of DuPage County, IL, on his bike, tending his vegetable garden and daydreaming about being a lobster fisherman in Maine. He lives in Wheaton, IL, with his lovely wife of 40 years and his three children, none of whom want to be journalists or lobster fishermen.

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