Considering Capitation? Create a Roadmap to Advanced Value-Based Payments

In recent months, we’ve seen a significant increase in clients interested in pursuing not only global risk but specifically capitation. What’s surprising is not just the interest in pursuing global risk but the rate at which providers, hospital systems and physician groups alike, are looking to make this progression. Some clients are targeting the move to capitation as soon as next year, leveraging Medicare Direct Contracting, while others are aiming for a two- to five-year transition, depending on their current state.

What is driving this sudden zeal to manage population health and changing attitudes about taking on accountability for premium risk?

Providers are seeing fee-for-service (FFs) rates continue to be squeezed, in tandem with denials or blanket refusals to pay for certain services. Other FFS downsides: The lack of ability to align financial incentives to change behavior, less access to savings generated through shared savings arrangements and seeing some peers succeeding in global risk and capitation arrangements.

During the COVID-19 first wave, it became very clear that providers taking global risk and capitation were much better positioned than those in FFS and in low-level, upside-only shared savings arrangements. There is also an increased understanding from providers that capitation in particular not only improves cash flow but is a game-changer with relation to aligning financial incentives for employed and contracted providers.

Another impetus: The Centers for Medicare & Medicaid Services (CMS), which is rethinking its approach to value-based programs and has temporarily closed new applications for Medicare Direct Contracting (MDC), which requires providers to accept either 50% or 100% of risk. MDC is expected to be re-opened in 2023, and along the way, providers are looking at alternative capitated and global risk arrangements across all lines of business, including self-insured, Medicare Advantage, Medicaid managed care, exchange and commercial HMO.


Plan Your Strategy and Map Your Journey

What we’ve learned through helping clients navigate value-based care over the past decade is that progression from FFS and upside-only shared savings to full accountability for medical costs requires a system-wide strategy supported by a detailed roadmap or plan. A well-thought-out strategy that is successfully executed minimizes potential financial losses.

Before you can jump into developing the roadmap, you need to take several steps.


Step 1: Strategic Goal Alignment and Understanding of Key Requirements

The first step on the road to taking more risk is to gain clarity on goals related to:

  1. The people who you want to take accountability for as attributed members
  2. The geography you want to cover and in which you will ensure access to high-quality, lower-cost care options
  3. The medical and non-medical services provided through your network and for which you will take risk, as well as services which you would like payers to carve out and not hold you at risk for
  4. The population health management and administrative functions of managing risk that you want payers to delegate to you versus those you want the payers to maintain
  5. The people, processes and technology you want to maintain and manage directly versus those you may want to source to vendors.

To get everyone aligned around what is required for a “ticket to play,” it’s crucial to provide education to physician and administrative leadership on the general requirements for risk as well as specific requirements for value-based payment programs options such as MDC or state programs including the New York State Medicaid Innovator. Leveraging this foundational knowledge along with a market assessment and internal current state will enable alignment around value-based payment and membership goals.

This strategic alignment phase is generally complemented by contract analysis and high-level financial modeling. A deep dive into existing contracts allows leadership to develop a fundamental understanding of current contract terms and performance and gauge the ability to progress into risk with existing payer partners. A high-level financial modeling then allows the organization to assess its financial opportunity to move current contracts to higher levels of risk as well as test the financial viability of new risk arrangements.

During this phase, leadership should be able to:

  • Determine what type of value-based payment (VBP) arrangement(s) they’d like to participate in with a projected timeline
  • Understand the requirements and best practices for success in desired VBP arrangements
  • Agree on geographic regions for its services
  • Identify targeted populations by line of business and geography


Step 2: Network Assessment

With target markets and populations identified, the organization needs to evaluate its network for care coverage catering to needs of the population in each market, accessibility and performance. In each geographic area, it needs optimal numbers of:

  • Primary care physicians
  • Specialty providers by line of business
  • Behavioral health specialists
  • Ancillary providers, including community-based organizations, to help address SDOH and other services

Beyond the baseline of reach and adequate coverage, it’s important to assess network providers and provider organizations based on quality and cost. The organization can use this performance information to drive recruitment and optimization.


Step 3: Pop Health Capabilities Gap-to-Goal Assessment

At this point, the organization needs to conduct a current state assessment to identify gaps in required capabilities, infrastructure, technology, and workforce to support population health care management.

A gap analysis should go beyond just outlining current network and existing capabilities in a binary yes/no manner to actually assessing whether the capability is truly best in class, scalable and financially viable. A good gap assessment should answer the following:

  • Is this a capability that the organization wants to be accountable for and, if applicable, have delegated by the payer?
  • Does the organization have this capability? Do contracted network providers/partners have it?
  • Is it sufficient or can it be enhanced? Is it scalable?
  • Does the organization have the scale and/or efficiency to be financially sustainable?
  • Is there a more cost-effective or faster way to meet your requirement?


Step 4: Managed Services Gap Closure

With the capability gaps identified, the next steps are:

  • Prioritize the gaps from both a value and timing perspective
  • Create a build/buy/lease strategy and decision making framework
    • Which functions should be performed in-house versus outsourced?
  • Determine required investment and projected ROI
  • Develop an implementation timeline

When planning infrastructure and capability investments, the strategy should complement the level of risk the organization is looking to pursue. Striking the right balance between investing in needed population health capabilities and the level of risk being assumed over time is critical in order to avoid over-building or lack of required capabilities and infrastructure to enable success.

Organizations that preemptively enter risk while lacking key infrastructure to support it often don’t produce sufficient value for their partners. Conversely, organizations that invest in sophisticated pop health infrastructure yet minimize their risk participation create value that is absorbed by external players in the market and often end up incurring a negative financial return for those investments.


VBP Roadmap

Once the hard decisions, research and planning have been completed, it should be documented as a VBP roadmap which will be updated over time. This very clear roadmap will sequence your prioritized capabilities along with the decisions to build/buy/lease them and an implementation timeline. The VBP roadmap should be shared across the organization to ensure team alignment and accountability for successful implementation and performance.


For more information on developing and implementing VBP roadmaps, please contact us at

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