Shared savings programs are useful in driving provider behavior toward value, but they are not a true payment model that can sustain a health system, according to one executive.
“Shared savings contracts are a really great mechanism for getting people to start paying attention to value, but their structure, by definition, is generally not how we’re going to get paid for our care,” Patrick Runnels, chief medical officer at University Hospitals Cleveland, said during an interview last month at the Reuters Total Health conference in Chicago.
He noted that teaching hospitals earned about $50 million in shared savings last year, but that was still less than 5% of their total revenue. Even if the health system doubled or tripled that amount, the shared savings would not be a major revenue generator, Runnels said.
To significantly change incentives, health systems need more downside risk and more capitated contracts, or much larger shared savings incentives, than exist today, he stated.
In their view, the economics of value-based care are simply misaligned: Every value-based dollar earned often requires giving up more lucrative fee-for-service dollars.
Runnels said University Hospitals is working with a health care economist to identify the tipping point at which reducing low-value care becomes financially rational under current incentives.
“Most systems will be reluctant to shift their economic engine to a value-based payment mechanism that will actually make them less money and be less sustainable. As a caveat, certainly part of the idea behind value-based contracts is that we reduce overhead and overhead costs, and health systems have work to do to figure out how to reduce costs,” he explained.
He noted that lower utilization only works if costs are also reduced.
For example, university hospitals increased colorectal cancer screening from about 40% to 75%, cutting surgeries in half. But if the health system doesn’t reduce the cost structure around colorectal surgery, it will still have the same fixed costs despite lower surgical volume, Runnels said.
Many hospitals are not built to quickly reduce their internal cost structures, he added.
He also mentioned that most of the teaching hospitals’ shared savings come from Medicare. Runnels believes CMS should change payment incentives, not necessarily by eliminating fee-for-service models, but by reframing them so that they reward high-value care and penalize low-value care.
Options include increasing shared savings percentages, adjusting fee-for-service rates to favor high-value services and paying more temporarily to avoid unnecessary procedures, he said.
Until those incentives change, he warned, shared savings will continue to be a useful pilot, but not a scalable business model.