Significant Barriers Still Exist for Risk-Sharing Contracting

Published: January 10, 2017

Despite the sudden surge of interest in risk-sharing contracts, a by-product of a recent wholesale legislative shift towards value-based care, multiple barriers remain that will limit widespread adoption, both for clinical content management and wider healthcare IT.

Here’s our take:

Providers’ ability to measure ROI is poor

Risk-sharing contracts take many forms, though the most common models rely on the ability of vendors and healthcare providers to define and measure agreed “key performance indices” (KPIs) targets. If a vendor’s technology or software solution fails to meet these agreed KPIs, financial penalties are incurred – exceed and bonuses are available. While this may seem attractive to health providers as a tangible way to hold vendors to account, there is a fundamental flaw: most health providers do not have robust systems in place for measuring KPIs, let alone return on investment (ROI). Without accurate and robust data, it may prove challenging for providers to hold their vendors to account when KPIs are missed.

It’s easy to forget that healthcare providers are relatively new to healthcare IT adoption. Ever changing legislation, tightening budgets and connecting a patchwork of disparate legacy IT systems have been primary concerns of late, leaving little focus and investment in quality performance metrics and analytics. Even radiology, an early adopter of IT and digitalised for almost two decades, is only beginning to implement analytics and dashboarding capability for KPI and ROI measurement.

If this remains the case, there will be two potential outcomes in the short to mid-term; providers will avoid risk-sharing contracts until they can improve their own KPI and ROI measurement, or professional services and consulting on KPI and ROI will be incorporated into risk-sharing contracts to improve reporting over the course of a contract term. The second option also has further complications in vendor self-interest, in that the same vendor could be advising the provider on how best to meet KPIs, while inherently also protecting itself from contractual penalties. One way around this is to bring in a third party integrator, consultant or specialist vendor to offer the advisory and optimisation services, though to date there have been few examples of these services rendered at scale.

Healthcare remains heavily capital expenditure focused

Despite the increasing focus on risk sharing and managed services contracts, most of healthcare remains based on annualised capital expenditure models. In public healthcare, the root lies in the process of governmental budgeting and rigid procurement frameworks, limiting providers’ ability to be more innovative in contracting. Imaging IT software and services may also be part of larger procurement deals for imaging modality hardware.

Admittedly, private healthcare providers have more flexibility for contract innovation and are likely to be more open to sharing risk with technology vendors, especially if a case can be made for making future expenditure more predictable. That said, few have been willing so far to stray from the traditional business model. To put this in context, we should look at managed services adoption; the benefits of a managed services contract are generally clearer and simpler to implement than risk-sharing contracts, yet to date uptake of managed services has been very low. This suggests the more complex risk-sharing has a long way to go before it becomes a common approach.

The interoperability chasm has only shrunk slightly

Healthcare providers are under increasing pressure to connect disparate health IT systems to drive the interoperability of patient and health data. Using imaging as an example, providers increasingly want to share standardised and unstructured image data within and between networks, spurring the advent of enterprise imaging platforms and clinical content management solutions. While some progress is being made, interoperability of images between common software such as EMR and imaging IT still has significant challenges and barriers.

Put in context of risk-sharing contracts, this is a major concern for providers. Firstly, without full and centralised access to the correct data in a structured format, gaining confident and accurate insights for KPI measurement is very difficult. Furthermore, there is today a far greater focus on care quality and coordination between disciplines and providers. Without improvements in interoperability and the interfacing of current provider systems on complex patient care, especially comorbid pathways, the value of risk-sharing contracts for providers will be significantly reduced.

Some way to go

It’s true that in some instances risk-sharing could be successfully implemented today, but these are relatively few. For imaging IT and clinical content management, scale is a major factor. Small private radiologist reading groups or imaging centres may look to adopt this model to make operations more predictable. These use-cases are relatively simple in purpose and do not have the complex issues associated with multi-department, multi-site hospital providers, not to mention the scale of risk.

When the above is considered with the healthcare environment of changing legislation and tightening healthcare budgets, the argument for risk-sharing contracts will not be enough to sway most healthcare providers in the short to mid-term. The rewards are simply not yet well known to counter the severe cost of failure.