We spend a lot of time talking about the importance of risk segmentation. Identifying the high-, rising-, and low-risk populations helps best-in-class population health managers scale and expand care management. All three groups also play a critical role in the economic model of risk management.
The baseline scenario (negative 8% margin in 5 years)
We modeled out the impact of different care management approaches on a hypothetical capitated contract with 25,000 Medicare patients. 5% are high-risk, 20% are rising-risk, and 75% are low-risk.
If the health system does absolutely no care management, the contract fails immediately. Costs for the entire group go up and in five years, the health system is losing nearly 8% of its margins.
Add high-risk care management (negative 3-4% margin in 5 years)
But no one enters into a risk-based contract and disregards care management. At a minimum, every population health manager starts with a care management model focused on high-risk patients. So we built that into the analysis—and found that even if the system bends the cost curve for the highest risk patient group, the organization is still losing money over the life of the contract.
That's because every year, nearly a fifth of rising-risk patients move into the high-risk category. Although costs are reduced for the highest risk, the system is overwhelmed by rising-risk patients who get sicker and move into the high-risk category. In other words, even if you manage your high-cost patients well, that alone will not be enough to ensure financial sustainability under risk contracts.
Why high-risk care management isn't enough
Instead of just focusing on high-cost patients, you need to stem the flow of moderate-risk patients into the top 5%. Watch the clip »
Add high- and rising-risk care management (3-4% margin in 5 years)
So we went a step further and ran the numbers for a third scenario. This is the top line, and this time, the system implements both high-risk and rising-risk care management, bending the cost curve for both groups and more importantly, stemming the flow of rising-risk patients into high-risk.
Previously, 18% of rising-risk patients moved into the high-risk category each year. Now that’s down to 12%. And that’s what makes the economics work: with both high- and rising-risk care management, the contract sees fairly consistent margins of 3-4%.
1. Simply doing a better job managing the costs for our sickest patients is not sufficient. Long-term success requires that systems also focus on the rising-risk patients, and make a meaningful change in the percentage of them who move into the high-risk category each year.
2. We do not have to save the world and solve every problem in six months. Success under risk-contracting—even full-risk capitation—does not require preventing every hospitalization, every ED visit, or even every new incidence of chronic disease. Instead, success is about reducing—not eliminating—avoidable utilization and spending. Find the handful of patients where an investment in more intensive care management will have a real impact.
3. We need to keep low-risk patients in our panel, and ideally grow this group over time. The PMPMs from managing the healthy population are what drive top-line revenue in this model and therefore fund all other care management investments.
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