The most widely understood use of risk in healthcare relates to the process of identifying patients at high, intermediate or low probabilities of certain outcomes such as admission to the hospital, dying within 12 months, or accruing high levels of medical utilization and costs.

Given sufficient data, sophisticated algorithms can help identify these patients.  Having complete and accurate data is critical.  Patients often receive care in many settings, so typically a single electronic health record (EHR) system will not contain complete data.  Conversely, claims data cover many places of service but may not contain the level of detail – like lab results – required to fully understand the patient’s risk.   Aggregated EHR and claims data offer an algorithm the best chance of successfully identifying at-risk patients.

Once these potentially at-risk patients are flagged by the algorithm, providers usually vet these identified patients to confirm who will benefit from certain services, such as a Nurse Practitioner home visit, an RN Care Management phone call, or assignment to a Disease Management program.


A second meaning of risk is used when a healthcare group or organization takes on financial responsibility for the care of a population.  The organization must work within a certain budget to provide appropriate, quality care for that cohort of patients.

These financially risk-based arrangements require a different mindset for providers. Traditionally, providers have been paid for each service rendered to a patient. In that fee-for-service healthcare economy, providers have no financial risk, other than the risk of not seeing enough patients or not performing enough services. That dynamic can create a tilted incentive to provide “too much care”.

But as organizations mature and have the systems and confidence to care for patients within a budget, they may take on so-called “upside” and “downside” risk.  Upside risk is the surplus providers may earn by hitting certain quality measures and keeping all medical expenses within a budget.  Downside risk is the financial loss that may occur if providers do not hit the quality measure benchmarks and/or utilize and spend above the agreed-upon budget.

Complete and accurate data is equally important to support organizations grappling with this kind of financial risk.  Organizations need to understand how their patients are utilizing services which then rolls up to the aggregate total medical expense (TME).


A third meaning of risk relates to both definitions above because an individual patient’s likelihood of negative outcomes impacts how much a provider organization is compensated for the care of that patient.   This risk is defined as the combined or aggregate conditions that a single patient accrues over the calendar year.

A risk score is used to represent a patient’s conditions numerically, to facilitate easier comparison of patients, panels, or analysis of an entire population.  Different methodologies can be used to calculate risk scores; when an organization takes on financial risk, the risk scoring methodology is defined contractually.

A patient’s risk score starts at zero on January 1, and the risk begins to accumulate as codes for visits and procedures are submitted to the payor.  Some providers are unaware that the individual patient’s risk reverts to zero on January 1, and all known diagnoses need to be re-entered each year.  The importance of this relates to how budgets are calculated.

Though the methodologies differ between Medicare, Medicaid and commercial insurers, the budgets in all global payment arrangements are related to the “aggregate risk” of the patients in a given cohort. For example, for a cohort of 10,000 patients, the aggregate risk includes all the codes entered for all of those patients between January 1 and December 31 of the measurement year. The higher the aggregate risk score, the higher the payments will be relative to the baseline budget.

This fact highlights the importance of complete and accurate coding. In general, doctors and other providers who have been working in a fee-for-service environment have not had any financial incentive to code fully, and hence undercoding is common. Complete and accurate coding can be enhanced by a high functioning analytics system that can identify likely missing diagnoses. Offices then conduct outreach to patients who may not have come in for many months to ensure their care is complete and all relevant codes are entered.

In summary, the word “risk” has at least three usages in the medical lexicon. Risk using all of them!

Rich Parker, MD is the chief medical officer at Arcadia Healthcare Solutions.

Dr. Rich Parker - Arcadia's Chief Medical Officer

Dr. Richard Parker

Dr. Parker serves as chief medical officer for Arcadia with overall responsibility for the design and implementation of clinical strategies, input into the roadmap and development of Arcadia’s technology and service programs, thought leadership in support of providers transitioning to value-based care, and strategic advisory work for physician leaders at Arcadia’s clients.

Previously, Dr. Parker was an internist with a 30-year history at Beth Israel Deaconess Medical Center. From 2001 until 2015, Dr. Parker served as the medical director and chief medical officer for the 2,200 doctor Beth Israel Deaconess Care Organization. He oversaw the physician network evolve from a fee-for-service payment system to a nationally recognized global payment pioneer Accountable Care Organization. Dr. Parker’s other areas of expertise include end of life care, medical malpractice, care of the mentally ill, electronic medical records, and population health management. Dr. Parker served as assistant professor of medicine at Harvard Medical School. Dr. Parker graduated from Harvard College in 1978, and the Dartmouth-Brown Program in Medicine in 1985.

Dr. Parker is an in-demand speaker to associations, companies, and academic institutions on the topics of population health management, electronic health records, value-based care, and evolutionary, medical and business impacts of stress.

The Multi-Million Dollar Value of Clinically Enhanced Risk

Organizations that rely only on claims-based information to manage risk are at a disadvantage.  Enhancing claims-based information with rich, high-quality clinical detail from the EHR improves accuracy of risk calculations and associated risk-adjusted premium payments.  An organization with 50,000 or more Medicare Advantage beneficiaries may be leaving $29M on the table by only using claims-based data. 

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