Hospices Need to Understand Risk Within Medicare Advantage

As hospices wade into the complexities of value-based reimbursement models in 2021, they must learn to understand the relationship between payment and risk within programs like Medicare Advantage.

Starting in 2021, providers will have the option to participate in a demonstration project testing the inclusion of hospice in the value-based insurance design model, commonly called the Medicare Advantage hospice carve-in.

Health care value-based payment has been gravitating towards risk-based models in recent years. Many Medicare Advantage plans are founded on risk.


“They’re risk bearing in the sense that they operate on the total cost of care basis. They’re paid typically some form of a capitated per member per month payment. Then they’re responsible for the full cost of care and quality of all the members that are enrolled with them, but they’re also an emerging group of other very often provider-focused risk bearing organizations, said Gary Bacher, chief of strategy, policy and legal affairs for Virginia-based Capital Caring Health in a Hospice News Virtual Summit on Value-Based Care. “We can think of risk in two ways. There’s taking longitudinal risk, which means risk spread over a long period of time, year over year even. And then there’s episodes, where somebody might be responsible for a particular episode of care and a time period that follows the episode. These organizations, whether they’re involved in taking longitudinal risk or episodic risk, are responsible typically for a total cost of care and quality for beneficiaries.”

Bacher is the former chief strategy officer for the Center for Medicare & Medicaid Innovation, and a member of Hospice News’ Changemakers Class of 2020.

Risk-based contracts with payers are structured around estimates of the expected costs necessary to address the patients’ health care needs. These models typically involve capitation, bundled payments and shared savings arrangements.


In these arrangements, providers must understand how to manage their anticipated utilization and the related expenses, with efficiency and cost control essential to maximizing their margins.

In some contracts, the aforementioned shared savings arrangements, the provider could receive a percentage of any savings, called upside risk, or losses, known as downside risk. In downside risk, the provider may be required to cover the difference if actual costs of care exceed the budgeted costs.

A key consideration as hospices move towards value-based care is service diversification. Hospices nationwide have begun offering additional services in the hopes of bringing patients and families into their care further upstream in the course of their illnesses and to create new lines of revenue. According to Bacher, risk-based payment structures are better equipped to handle these diversified suites of services.

“Focusing on these upstream services, that’s where we think a lot of our future lies in terms of being able to serve a greater number of patients earlier in time,” Bacher said at the Summit. “One of the challenges when you start thinking about upstream services is traditionally, the fee-for-service payment system isn’t really adequate to support these kinds of services. The focus really becomes working with risk-based organizations or risk-bearing organizations.”

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