United Physicians Inc. has created a joint venture with Texas-based service organization Agilon Health to boost outcomes and profit margins for care of its 37,000 Medicare Advantage patients.
Under the deal, Agilon will put money in escrow for United’s Medicare Advantage patients so the providers can enter into contracts under Medicare that tie their payments to outcomes and costs, a practice known as full-risk, value-based care.
Risk-based contracts allow providers to charge a fee for service, but they share the risk in the outcomes and costs with their patient and insurer. Physician practices’ payment is linked to whether they can improve patient outcomes and reduce total costs of care.
This is a departure from the traditional fee-for-service approach to payment, where physicians are compensated for every service a patient receives regardless of outcome.
Under a value-based model, if the patient’s health or condition improves under their care, the provider will see a upside payment at the end of the year. If their health diminishes and costs the insurer more in claims, the provider is on the hook for some of those extra costs.
Terms of the contract were not disclosed, but it’s expected Agilon would take a cut of any upside payments United receives.
United accepts patients from 13 different Medicare Advantage plans and will now negotiate full-risk contracts with those insurers.
A third-party organization is often necessary because provider networks most often do not have the liquidity to keep hundreds of thousands and sometimes millions of dollars in escrow to cover the risk, as required by ACOs.
“We feel the economics of the healthcare world are going to drive us to more responsible contracts with upside and downside risks,” said Michael Williams, primary care doctor and CEO of United. “It’s not an if, but a when. Full-risk contracts are coming, and we’re already a leader in clinical quality. So we believe we can reduce financial spend while delivering the best care.”
The joint venture, whose name was not revealed, effectively operates in tthe background of United’s operations, which is a network of more than 1,900 providers at 750 doctors’ offices.
Besides capital, Agilon provides technology, additional staff and access to provider in their network to create more sophisticated groups to operate within the requirements of the Centers for Medicare and Medicaid Services and ACOs for value-based contracts.
The fast-growing Agilon, founded in 2016, went public last year in a $1.2 billion initial public offering.
Opportunity is abound for providers like United in taking on these full-risk, value-based contracts because of a growing Medicare community and insurers’ quest to reduce reimbursements.
By 2030, it’s expected that one in five patients will be over 65 years old and half of them will have Medicare Advantage insurance, Williams said.
“This kind of opportunity to a more self-directed path to take care of more patients is a dream come true for primary care doctors,” Williams said.
Medicare Advantage is a federal program that allows private insurers to sell Medicare plans. Typically, Medicare Advantage plans include not just inpatient and outpatient coverage, like traditional Medicare, but also include prescription coverage and other wraparound benefits.
Medicare Advantage plans have been one of the fastest-growing segments of private health insurance — a privatization of public health benefits that has been highly profitable for insurance companies.
More than 40 percent of Medicare beneficiaries were enrolled in a private Medicare Advantage plan by the of 2020, according to research by the Kaiser Family Foundation. In 2019, about 38 percent of Medicare recipients in Michigan were enrolled in a Medicare Advantage plan.
Medicare Advantage plans are growing in popularity because they are often a better deal for enrollees. Traditional Medicare recipients often have to acquire Medigap plans to cover associated healthcare costs that Medicare doesn’t cover, plus a prescription drug plan.
Medicare Advantage plans often add those benefits, plus dental, vision and hearing coverage in many cases, at little to no extra cost.
This story first appeared in our sister publication, Crain’s Detroit Business.