While risk-based contracts account for only a small percentage of the current reimbursement arrangements for hospitals, recent events indicate that payment based on outcomes and cost will dominate in the coming years. Most of those models will increase the financial risk for hospitals.

The January report from Medicare on the results of its most recent Accountable Care Organization (ACO) experiment showed only a fraction of participating hospitals actually earning a bonus, but many more achieving modest cost cuts while improving quality and the patient experience.

Following decades of double-digit healthcare inflation, the cost reductions, combined with improved care, are significant, and both public and private payers are taking note. In January, a bipartisan-commission recommended state governments take the lead on replacing “the nation’s reliance on fragmented, fee-for-service care with comprehensive, coordinated care using payment models that hold organizations accountable for cost control and quality gains.”

Clearly, a major adjustment in payment incentives is coming. Exactly what the new model will look like isn’t yet clear, but the onus will be on providers to improve outcomes and reduce costs.

Success is elusive for many

The January Medicare ACO report also made clear that succeeding under these cost-and-outcomes-based contracts is difficult. ACO participation was voluntary, so those participating were among the hospitals that are better prepared for managing risk. But only about a third did well enough to earn a bonus for their hard work.

So what differences allowed some to succeed where others failed? While the reasons for success and failure are complicated, both the winners and losers say analytics is a critical capability for success.

“One of our biggest successes has been using predictive analytics to define the high-risk patients and then get our arms around them,” said Greg Sheff, executive vice president of clinical services at Seton Healthcare Family in Austin. He made this comment during a panel discussion, “Pioneer ACOs: Lessons Learned from Participants and Dropouts,” which was hosted by the Commonwealth Fund’s Alliance for Health Reform last September. Seton was one of the original pioneer ACOs, but dropped out after the first year.

The panelists in the discussion all agreed that data quality and analytics are critical factors for success with risk-based contracts. To face the future, hospitals need to make analytics a strategic imperative.

Unfortunately, many hospitals have procrastinated on analytics, daunted by the task of integrating fragmented data systems and a lack of in-house analytics expertise. Given these restrictions, where do you begin in a move toward analytics?