Venturing into new territory--health systems as Medicare risk contractors

With each congressional budget debate, hospital and health system executives are reminded of their vulnerability to Medicare reimbursement rates. As health maintenance organizations (HMOs) have entered into Medicare risk contracts and negotiated separate hospital reimbursement rates, hospital and health system executives have recognized even less control of their Medicare reimbursement. One way for health systems to regain control of the Medicare dollar is to develop a Medicare risk contract that directly receives and distributes the Medicare risk premium. Before hospital and health system executives invest in the start-up and operational capital necessary to bid for a risk contract, careful analysis of the efficacy of the contract's contribution to the margin should be undertaken. The following will review observations and lessons from HMO Medicare risk contracting and introduce a methodology that health system executives can use to evaluate the annual financial impact of entering the business of direct Medicare risk contracting.