As COVID-19 cases continue to rise in the U.S., the stress on the healthcare system is increasing exponentially. The impact is going to be multifaceted, some of which, from a health insurance perspective, was discussed by my colleagues Peter Manoogian and Shreesh Tiwari in their recent blog posts. A stressed provider system, as discussed in Peter’s blog, will potentially have an impact on value-based contracting as well. One of the unintended consequences could be that providers turn more risk averse, hurting the push from payers (commercial and CMS) to move to value-based payment models, especially the models with downside risk.

 Over the last few years, the proportion of contracts with downside risk has increased, both on the commercial and Medicare side. The proportion of two-sided risk for Medicare ACO contracts has moved from 18% in 2018 to 29% in 2019 to 37% in 2020. The increase in number of Medicare ACOs taking higher risk could be attributed to CMS’s Pathways to Success program, which was implemented in December 2018 and requires ACOs to start taking downside risk sooner. According to a HealthAffairs article, a similar trend is happening for commercial ACO contracts. For example, BCBS of North Carolina wants all of its customers in the state under value-based contracts, with shared risk, by 2024, and 30% of BCBS of Michigan’s membership is now covered with risk-sharing contracts.     


The provider organizations with two-sided risk contracts are expected to be under stress because of COVID-19 losses. Most ACOs are in geographies with higher population density, which are more stressed by COVID-19. Larger ACOs and hospital-led ACOs make up a greater share of ACOs with two-sided risk contracts. Again, hospital-led ACOs will be hit the hardest. Does this mean that provider organizations will become risk averse, impeding the growth of value-based care in recent years? A survey conducted by the National Association of ACOs discusses the possibility of Medicare ACOs dropping out of the MSSP by May 31, 2020,CMS’s deadline to quit the program. If this happens, it might also impact private plans as some of the same organizations might have contracts with private insurers and will be less likely to continue.


Health plans and other payers, including CMS, definitely don’t want to lose their progress on value-based contracting. Here’s how to reduce the impact in the short and long term:

  • Provide temporary relief from COVID-19-related losses. Either introduce a cap to COVID-19-related losses or suspend downside risk completely by waiving the losses or money providers will owe to the plan based on the terms of the value-based contracts. Temporary relief could also come in the shape of reducing the administrative load on provider organizations, meaning faster approval or waivers for prior authorization cases, provisional approval of claims or timeline extensions for submitting claims. CMS has announced similar measures for Medicare reimbursements, and private health plans can take it a step further. This relief will particularly be needed for provider organizations in severely hit states like New York, Washington, Florida and California.
  • Use analytics and provider profiling for targeted support. Some health plans are providing support to providers in the form of advance payments. Financial support helps, but a one-size-fits-all approach may overlook which provider’s needs are most acute. Use data-driven approaches with detailed provider profiles—including the amount of risk exposure (alternate payment exposure), patient mix, IT sophistication and admin capabilities—to provide targeted support and improve engagement and trust. The profile will make it easier to decide on the type and magnitude of support that will be most appreciated by the provider.
  • In the long term, help providers with risk management. Risk management is not a core competency for provider organizations, but they do need help with managing risk and unexpected losses due to COVID-19. Consider providing risk management and re-insurance services to providers, especially smaller organizations and individual providers. While designing future value-based contracts, leverage the stop-loss clause more regularly. According to a recent ZS study, inclusion of stop-loss improves trust between payers and providers. In fact, providers who receive stop-loss insurance support are willing to take higher downside risk (about 40%) as compared to providers who do not receive stop-loss (about 29%). In property and casualty insurance, “act of God” clauses absolve insurance companies from paying for losses that are caused by situations which are considered an act of God (sometimes flood and earthquake are included). Similarly, this type of clause in value-based contracts between health plans and providers would absolve providers from paying for the loses because of a global pandemic. 

Although provider organizations could clearly become more risk averse because of COVID-19, health plans can take measures to limit the damage and use this opportunity to gain provider trust. With some changes in their longer-term approach, and by thinking of providers as partners, health plans can reduce the fallout for value-based contracting programs as well.