How To Find the Upside in Downside Risk

Wary of factors that are outside their control, almost two-thirds of healthcare leaders would rather bail out of their accountable care organizations (ACO) than make the leap to a model that includes downside risk.

In a survey by the National Association of ACOs, 71.4% of Medicare Shared Savings Program Track 1 participants said they are likely to leave the ACO rather than accept downside risk. 

Track ACOs are limited to two performance periods

Respondents said they are wary of two-sided risk models because of the unpredictability of CMS rules regarding ACOs as well as uncertainty about the amount of risk they would have to take on and the reliability of financial projections.

Yes, there is a significant amount of uncertainty entailed in downside risk models. However, bailing out now is a bad idea. As I said in a recent blog, the time is coming (and it’s sooner than you might think) when you won’t have a choice but to accept greater downside risk. With fee-for-service reimbursements trending downward and costs continuing to climb, margins on FFS revenue streams could well drop into negative territory within just a few years.

Forming Your Risk Strategy

One way to reduce the uncertainty and improve your financial odds is to set a strategy for taking on the appropriate level of risk. The following strategic actions will help propel your organization in the right direction.

Actions to help form your risk strategy

Determine the risk model

1. Determine the risk model that is appropriate for your organization.

Risk-based payment models generally fall into one of three categories: one-sided (upside only), two-sided (upside and downside), or full capitation. Sticking with upside-only risk as long as possible—or avoiding risk-based models altogether—may seem more palatable, but the slow-and-steady approach can put your organization at a disadvantage in the increasingly value-based environment.

Consider the experience of one Southern hospital: After several profitable years, the hospital saw financial performance tank in 2017. When they started digging into the data, they discovered that a large number of their Medicare patients had moved into Medicare Advantage plans, and the pressures to improve patient outcomes and drive down costs led to a dramatic decrease in the inpatient services, which had been the source of most of the hospital’s revenue.

Moving forward, embracing Medicare Advantage plans will not be optional for healthcare providers. Medicare Advantage is increasingly attractive to younger Baby Boomers, many of whom are healthier than their older peers and are attracted by the greater choice and flexibility in these managed care plans.

Get to know your population

2. Get to know your population.

The right risk strategy is determined by the population you serve. Earlier this year, we encouraged healthcare providers to apply for the Bundled Payments for Care Improvement Advanced (BPCI-A), in part, to gain access to a treasure trove of data on the patients in their service areas. This data—such as where patients are migrating from and what services they are utilizing—can prove invaluable in making strategic decisions about what level of risk and which payment models offer the best opportunities for success. At a minimum, know the number of lives that you anticipate will be included in a given risk-based contract as well as the demographics of the population.

Manage the scope of services

3. Manage the scope of services.

Successful risk management requires a clear understanding of the variables that influence that risk. Where possible, eliminate some of the unknowns by assuming risk only for services that are within your organization’s control. While Medicare contracts tend to be pretty standard, commercial contracts (including Medicare Advantage) always have opportunity for negotiation. Come to the table prepared to carve out an appropriate scope of services.

Engage patients and stakeholders in health and wellness

4. Engage patients and other stakeholders in health and wellness.

There is growing recognition of the power of social factors—such as food insecurity, domestic abuse, and substance abuse—to influence an individual’s health status. One of the most pervasive problems is a lack of basic understanding of how to live a healthy lifestyle. Any risk strategy should incorporate engagement with patients as well as community partners in education, public health, food and assistance programs and other stakeholders. By focusing on these critical social determinants of health, you will improve the health of the populations you serve and your financial margins, since preventive care is less expensive than highly intensive “rescue” care.


At what point does it make sense for your organization to embrace downside risk? That answer only comes from knowing the population you serve and your own capabilities.

What is clear is that healthcare organizations must build their capabilities and toolsets to successfully accept and manage risk. Those that ignore this imperative will follow the path of Blockbuster and Nokia, displaced by the Amazons and Apples of the healthcare world.

Well, they might actually be displaced by Amazon and Apple, but that’s for another post…

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Topics: Value-Based Care

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