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

Over the past few years, we have continued to see an increase in provider clients interested in pursuing not only global risk but specifically capitation. This interest has accelerated with the COVID impacts on fee-for-service (FFS) visit revenue as well as the former Medicare Direct Contracting and current REACH ACO programs from CMMI which include capitation in their models. Some clients are targeting the move to capitation as soon as next year, leveraging expected new REACH ACO designations, while others are aiming for a two- to five-year transition, depending on their current state.

What is driving this ongoing increase in interest from providers in managing population health and changing attitudes about taking on accountability for premium risk?

Even as we enter a “post-COVID” phase, providers are seeing FFS rates continue to be squeezed even as supply chain woes and inflation further cut into their bottom line, in tandem with denials or blanket refusals to pay for certain services. Those remaining in FFS continue to struggle with margin deterioration, inconsistent cash flows, high administrative burden and limited referral networks.

During the first COVID-19 wave, it became very clear that providers taking global risk and capitation were much better positioned than those in FFS and 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 also is a game-changer with relation to aligning financial incentives for employed and contracted providers.

Another impetus: The Centers for Medicare & Medicaid Services (CMS) has continued to maintain a push towards putting providers at risk and aligning financial incentives (with the recent release of a 2030 vision aimed to have all traditional Medicare beneficiaries treated by providers in value-based payment arrangements). This causes providers to consider and look for additional options for capitated and global risk arrangements across all lines of business, including 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 de-risks the path to global risk, minimizing 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 (VBP) 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 capabilities assessment will enable alignment around VBP and membership goals.

This strategic alignment phase is generally complemented by a market assessment, contract analysis and high-level financial opportunity 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:

  • Align on current state for their organization and market
  • Determine what type of 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
  • 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 for each required capability such as care management, utilization management, network readiness, contractual leverage, financial solvency and others:

  • 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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