The Problem of Skewness

It doesn’t matter how large the reward of success if the cost of failure is too great to bear.



That’s called skewness.



More and more clinicians are about to see it.



Here’s what it is and what you can do.



Many ACOs and Medicare Advantage organizations (MAOs) are moving toward total-risk models of compensation for their clinicians.




Under these plans, clinician compensation will consist of what’s left over of the premium dollar after the cost of patient care has been deducted.




And that’s where we come to “skewness.”



If they’re well executed, the rewards of these products for clinicians can be massive—more money, more autonomy, lower work intensity. But at the same time, the potential  financial losses can be higher still—possibly everything and then some more.




Fortunately, for now, these models are voluntary.




But as the government figures out that these “Next Gen” ACOs and Medicare Advantage “value-plans” can transfer the financial risk of healthcare off of their shoulders and onto the providers, they won’t be voluntary for very much longer.




Sensing an opportunity for big profits, organizations will take these contracts hand over fist. They’ll be thrilled to take the financial risk if it means big gains. But they’ll soon learn that without their primes having skin in the game, they’re gonna lose their shirts.




How can I be so certain?




My practice was one of the first ones to work a total-risk Medicare contract 15 years ago.  It took a lot of mistakes and false starts, but we eventually we had fabulous success.




And here’s what we learned . . .




These “Next Gen” ACOs and total risk MAOs live and die based on hospitalization rates.




Not on controlling the costs generated while patients are in the hospital, but keeping the patients entirely out of the hospital in the first place.




Many organizations have tried to do this with multiple layers of expensive “case management.” They may have had some short-term success, but measured against what actually counts, global healthcare dollars spent, they have actually failed miserably.




There’s an important place for case management, but using it as the primary method of reducing hospitalization rates is not one of them.




No, the most effective — the most cost-effective — tool for limiting admission rates are motivated primes connecting with a modest panel of 300-500 patients with whom they have a trusting relationship.




The problem is . . . how do you motivate the primes to do the hard emotional labor which keeps patients out of the hospital?



Our practice showed the primes how the system worked, gave them skin in the game and let each one achieve their goals how they see fit.



The corporate answer will be—make the primes uncomfortable.




Put more of their pay at risk.




Use fear of loss as a tool of influence.




I’ve  been in the room when such compensation changes have been discussed. It was all about the penalty and nothing about the “win-win”.  The utter disregard for the dignity of the workforce was breathtaking.



And it will fail horribly, but in the meantime you’re going to have to live through it.




So how much of a clinician’s pay can you put at risk before they decide the game’s not worth playing and simply quit?




The answer is all of it—if you do it right. If you make a real “win-win.”




Like I said, I’ve practiced in a total risk system. As our plan was first conceived, if I had spent more of my patient’s premiums on their healthcare than I took in, I would have had to pay the difference—out of my pocket—without limit.




Talk about “skewness!”




That was actually too much skew for me. Fortunately, I was able to recognize it.




And of course was a non-starter. I declined to participate.




So we created a system of fail-safes—including a good stop-loss insurance plan. These fail-safes were expensive, but they adjusted the “skewness” of the compensation system so utter failure was tolerable. No matter how catastrophic my financial performance, a bad year would not have broken me.




However, some of my partners had different ideas.





Despite the leadership’s warnings and role-modeling, they didn’t take advantage of all our loss mitigation tools—not wanting to pay for the fail-safes in the hope of earning an outsized reward.




Some of the checks they had to write back to the insurance company to cover their losses were pretty large.




After writing those checks, though, their mind focused wonderfully.





Why is this important?




These high-risk contracts and compensation formulae are absolutely coming your way.  It’s the only way for your employer to succeed in a total risk system.




If they’re poorly constructed, if the cost of poor performance is more than you can bear, you will feel it in your soul.




You MUST be able to recognize a skewed compensation system from the outset. There is too much health destroying anxiety at stake—and life is to damn short.




Your tactic?





As the very first step, analyze changes in your compensation formula with an eye toward the worse case scenario.





Remember, the more “value-based” a compensation plan is, the more the results will be based on randomness. Much of the “prevention” benefit of medical care is seen in the medium-to-long term.  Disaster will strike—cancer, accidents, stroke—and it will do so pretty much at random.





And you’ll be financially responsible.




If the worse case scenario of your compensation plan is unacceptable, speak up, suggest changes that could mitigate the financial consequences of utter failure.




Remember, your administrators will NOT be at near as much financial risk. Their minds won’t be as focused as yours.




If you can’t mitigate the consequences of failure under the proposed plan, quit.




I mean it.




Quit.  Immediately.




Working in a skewed compensation plan will literally kill you with stress.




It will burn the heart out of you.




And you will do even worse than losing joy time.




You will lose yourself.




And no amount of money is worth that.



You’re too valuable.



We need you.






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