Friday, March 29, 2013

The dangers of risk-taking

Several weeks ago, I suggested that the MA Division of Insurance was not doing its job properly in implementing a provision of recent state legislation.

There is a provision of the law ("Chapter 176T, Risk-bearing Provider Organizations") that was written to provide some assurance that provider organizations--physician organizations, physician-hospital organizations, independent practice associations, provider networks, accountable care organizations and any other organization that contracts with carriers for payment for health care services--would be financially capable of bearing the risk of alternative payment contracts.

A recent post on Disease Management Care Blog, reprinted later on The Doctor Weighs In, shows that this is not an academic concern.

"Wellspan" is a highly regarded and well-run hospital system that is local to the DMCB. This recent news report is telling because Wellspan's success and challenges probably apply to other emerging integrated institutions that have an appetite for risk contracting. 

According to the press report, Wellspan garnered an excellent credit rating because... 

"766 physicians — more than 75 percent of those in the hospital's market — are affiliated with WellSpan, which [was] counted as a key credit strength."

 But the bad news is that the rating also.... 

.....noted that WellSpan's physician group, which employs 411 of those doctors, generated losses of $19.6 million in 2011 and $21.4 million in 2012 (bolding DMCB). 

The DMCB has heard similar statements from seasoned health system administrators both locally and nationally.  If "physician integration" is supposed to be the bedrock of ACOs, how is it that the docs are responsible for millions of dollars in losses?  What is the likelihood that these organizations will finish December 31, 2013 in the black?

A few Massachusetts hospitals and physicians have long experience with risk. Others are new to the concept and, according to the word on the street, do not have in place the kind of care management regime and data sophistication needed to avoid a deficit in these plans.  That is especially the case because Blue Cross padded first-year global payment budgets to entice hospitals and doctors to sign on.  Now that those plans are starting to bite, look for losses to emerge. 


Mitch said...

You are wise to point out the perils of risk-sharing, and it is just that. Outsiders have a tendency to underestimate the challenges on risk/insurance, they see the profit sharing and are ill prepared to accept the inevitable losses. It will be interesting to see what happens when a large system suffers two or three years of major losses. It will not be pretty.

Mark said...

Considering that ACOs are some sort of yet to be determined species---or the clone of one having become extinct; there seems little reason to believe that they will be of any more usefulness than the return of the Dodo bird. When the hedgefund guys come sniffing around heathcare and looking for revenue streams, we all need to worry. Is commodity trading next in heathvare?