New Marketplace

Opportunities for Risk-Taking Primary Care Providers

Article · May 8, 2018

In a world of MACRA alternative payment models, accountable care organizations, and Medicare Advantage plans, primary care physicians have the opportunity to embrace risk-based payment models and capitation. While capitation may rekindle ghosts from managed care in the 1990s for some doctors, its promise has also fueled a flurry of investments, acquisitions, and growth of risk-bearing primary care providers. A recent example is Optum’s proposed purchase of the DaVita Medical Group in December 2017 for $4.9 billion, which is undergoing regulatory review. The promise of financial rewards for risk-based models of care has also led to the growth of innovative primary care groups that are forgoing the fee-for-service (FFS) model.

Our experience is that practices that succeed at making the shift from fee-for-service to managing risk are routinely able to increase their practice profitability by at least 25%. The potential for robust economic benefit is associated with a provider’s ability to handle two-sided risk: both upside risk (sharing in cost-savings bonuses based on operational efficiencies) and downside risk (losing revenue based on failure to meet clinical and/or financial performance thresholds).

While many providers still depend on the relative safety and predictability of FFS revenue, the shift to value-based revenue is expanding and likely to be economically more attractive for primary care because it allows primary care to recapture revenue that formerly went to downstream providers. To succeed in such models, practices must fully commit to comprehensive workflow redesign to improve performance related to saving on clinical costs, attaining quality outcome measures, and documenting coding and reporting of risk-based quality metrics. Equally critical is the mind-set change necessary for primary care doctors to adopt a philosophy of solving the challenges of delivering on total patient health, cost, and quality instead of relying on the outdated production paradigm of maximizing RVUs, revenue, and downstream referrals.

Risk-based models of care generate income for primary care providers and cost savings for payers by reducing spending relative to benchmarks set by CMS or medical loss ratio targets negotiated with health plans. Most of the economic value comes from reducing hospitalizations, which can be dramatic; some risk-bearing practices are reducing hospital days by 38% on a risk-adjusted basis. Meaningful savings are also generated by reducing use of post-acute care facilities, emergency departments, diagnostic tests, and referring to more cost-effective specialists who do not add facility fees, order fewer expensive diagnostic tests, are better at engaging patients in their care, and are more judicious in their approach to procedures.

It is critical for risk-bearing providers to work with commercial payers to agree upon a high enough benchmark in order to have an opportunity to achieve savings. For Medicare ACO and Medicare Advantage patients, it is essential to code health risk accurately so the Medicare calculated benchmarks reflect the likely cost of caring for patients. Benchmarks should be adjusted up or down based on risk adjustment scores related to the patient, such as demographics, Medicaid eligibility, and health status.

Medicare Advantage plans receive a monthly member payment that is based on a county benchmark rate multiplied by a patient’s risk score minus Medicare’s coding intensity adjustment. Revenue based on risk adjustment coding differences can be enormous. For example, monthly payments can vary by 400% from about $550 to $2,250 depending on risk scores. Proper risk adjustment is important because it reduces the incentive for risk-based payers and providers to cherry-pick the healthiest patients. For ACOs, the risk score modulates the benchmark for savings that a practice needs to exceed to receive additional revenue from shared savings.

When risk-based practices redesign their care processes to improve health and reduce hospitalizations, they also need to achieve more accurate coding, which can lead to improved revenue. Specifically, providers need to make concerted efforts to complete annual wellness visits for the majority of patients, typically more than 70% of patients, to document all diagnoses annually. An effective process is to begin outreach for wellness visits in January and work through their rosters by summer. Once wellness visits are complete, they then spend the remainder of the year managing those diagnoses aimed at secondary prevention and closing gaps in care to improve quality metrics.

By repeating these processes annually, in addition to reductions in hospital utilization, the risk-bearing practices can increase the risk scores of their patient populations by about 20% per year and improve Medicare Star measure performance. Medicare does claw back some of these upward adjustments with “coding intensity adjustments,” which is currently set at a 5.91% reduction in Medicare Advantage payments.

Short-term revenue opportunities are not equally distributed across patient panels. Our practice’s data reveal that most of the savings are concentrated in patients with congestive heart failure, COPD, chronic pain, coronary artery disease, depression, and type 2 diabetes. This is because there are many proven outpatient treatment strategies that can dramatically reduce exacerbations of these conditions. Because patients typically stay with their doctors 5 to 7 years and these risk-bearing primary care doctors are not limited to billable procedures, efforts to change patient social determinants and lifestyle choices can yield significant results.

The common denominator for lowering total clinical cost appears to be more time spent with primary care physicians. For example, ChenMed doctors spend 189 minutes per year per patient, compared to 21 minutes on average for Medicare patients in traditional primary care practices. Some ChenMed providers conduct weekly visits for certain patients. Transitional care visits are particularly important and can reduce costs because timely primary care follow-up reduces readmissions. Risk-based providers also should augment frequent visits with sophisticated remote monitoring programs for indicators such as daily weight, ambulatory blood pressure, blood sugar, PHQ-9 scores, and physical activity. They also should use qualitative data captured from telephone calls with patients to determine when to bring patients into clinics for evaluation.

To reduce hospitalizations, risk-based providers employ same-day appointments (sometimes during evening and weekend hours) for urgent care patients to avoid ED visits. Unsurprisingly, it is easy for a Medicare patient seeking urgent care in an emergency department to meet admission or observation criteria despite having conditions that can safely be treated as outpatients by primary care physicians. When this happens, it costs the capitated primary care provider at least $1,000 in lost revenue, and much more if the patient is admitted.

An additional tactic we use to reduce hospitalizations is to conduct weekly discussions reviewing every hospitalization with the goal of identifying system issues that can be mitigated by more effective care processes. In these weekly discussions, we discovered the impact of poor medication compliance, adherence, and concordance in our population. This led to the creation of in-office medication dispensing and an increase in adherence of between 17 and 29 percentage points, depending on the medication. These interventions have allowed ChenMed to reduce risk-adjusted hospitalizations, resulting in an additional 15.3% reduction from 2015 to 2016, which results in revenue to the practice from the averted admissions.

We find that physicians learn quickly. Data from the Alternative Quality Contract in Massachusetts demonstrate that practices can achieve quality gains and cost savings in year one and that quality and savings improve annually. Moreover, data from the ACO program suggest that smaller, independent, and physician-led practices outperform large health systems.

We view the movement toward risk-based reimbursement as very positive for primary care physicians. It is much more rewarding to be a leader, identifying ways for each patient to achieve better outcomes at lower cost, than someone focused simply on addressing an isolated acute episode with a procedure or prescription. Risk-based models of care enable and encourage this new mind-set and, in our experience, yield higher job satisfaction and physician incomes. In fact, we have not yet discovered a practice that — after making the move to a fully committed risk-based group — has decided to revert to fee-for-service. But most important, these models create strong incentives to deliver care that is better at engaging patients and their caregivers, and is more coordinated, safer, and outcomes oriented.

New call for submissions ­to NEJM Catalyst

Now inviting longform articles


A weekly email newsletter featuring the latest actionable ideas and practical innovations from NEJM Catalyst.

Learn More »

More From New Marketplace
Shachar01_pullquote value-based care fee-for-service fraud and abuse laws

Are Fraud and Abuse Laws Stifling Value-Based Care?

To realize the true potential of value-based care, we must update the underlying assumptions in our fraud and abuse regulatory system.

Porter02_SBUs and IPUs pullquote1

What 21st Century Health Care Should Learn from 20th Century Business

Just as there is no such thing as good marketing or good manufacturing, there is no such thing as good primary care — it completely depends on how that care is tailored to meet the needs of patients with a particular medical condition.

Missouri Show Me Health Plans Cost Calculator for Health Insurance Enrollment screen shot - health insurance education

Facilitating Health Insurance Enrollment in an Uncertain Environment

Lessons learned from five years of open enrollment in Missouri.

Birkmeyer02_pullquote - national physician practices NPPs

Aggregators, Innovators, and the Resurgence of National Physician Practices

A perspective on the growth of NPPs and the ideological divide between for-profit and nonprofit providers.

Hospital-based ACOs Key Capabilities Are Different Based on Level of Risk

Hospital-based ACOs Face Challenges in Tracking Performance Indicators

A focus on bundled payments for specific episodes of care — versus the broad changes required in an ACO model — may be a more effective method for ACO participants to develop capabilities required to measure utilization, cost, and revenue metrics.

Medicaid Referral to Specialist by the Numbers without eConsults

Can eConsults Save Medicaid?

How eConsults unlock medical expertise for the underserved.

Transparency Can Improve Both Quality and Cost of Care

Survey Snapshot: Seeing Progress in Transparency, but the Quest for Value Continues

NEJM Catalyst Insights Council members agree that despite the challenges and caveats, transparency efforts are essential.

Growth in alternative payment models shared savings shared risk bundled payments population-based payments

The State of the Evidence on Payment Reform

Despite some successes among the many efforts to execute value-oriented payment models, the lack of rigorous independent research studies impedes robust progress.

University of Utah Health Buzz Survey Report Cost of Care and Physician Responsibility Out-of-Pocket Costs

Buzz Survey Report: Cost of Care and Physician Responsibility

An independent NEJM Catalyst report sponsored by University of Utah Health on how practicing clinicians and health care leaders view health care costs.

Donald Berwick Melinda Buntin Patrick Conway Raymond Vara Edward Prewitt head shots IHI forum panel on health care policy

Signal or Noise? Navigating Health Care Policy — Part 2

A discussion from the Institute for Healthcare Improvement National Forum. Part 2 of a two-part series.


A weekly email newsletter featuring the latest actionable ideas and practical innovations from NEJM Catalyst.

Learn More »


Value Based Care

181 Articles

Are Fraud and Abuse Laws Stifling…

To realize the true potential of value-based care, we must update the underlying assumptions in…

What 21st Century Health Care Should…

Just as there is no such thing as good marketing or good manufacturing, there is…

Disrupting the Health Care Landscape: New…

Traditional boundaries are disappearing in health care. Unlikely partners such as CVS Health–Aetna are teaming…

Insights Council

Have a voice. Join other health care leaders effecting change, shaping tomorrow.

Apply Now