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Health Care Payment and Financing
Blog Post
Risk-Based Contracts Are Unlikely to Cut Waste in Medicare Advantage
Risk-Based Payments May Fail to Lower Low-Value Care, a New Study Shows
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Unlike traditional fee-for-service payments, risk-based models use financial incentives to get health care organizations to lower total spending and use.
Risk-based payment models have grown in popularity. And across insurance segments, Medicare Advantage has the highest adoption of risk-based contracts.
A new retrospective cohort study by LDI Senior Fellows Aaron Schwartz, Sumedha Chhatre, and Amol Navathe examined whether choosing to switch to risk-based contracts was linked to health care use changes in Medicare Advantage.
“There is a widespread assumption that financial risk will change clinical behavior,” said Schwartz. “Our findings suggest that the reality is more complicated.”
The study found that the effects of switching to risk contracts in Medicare Advantage on utilization were mixed, modest, and often absent.
Reducing low-value health care use—which refers to any health service where the costs and/or harms outweigh the benefits—is of particular concern in the U.S. “These results suggest payment reform alone may be insufficient to meaningfully reduce low-value care in Medicare Advantage,” said Schwartz.
Difference-in-Differences Analysis Used Beneficiary Claims From January 2015 through December 2021
The team used a difference-in-differences analysis to measure changes in broad health care and low-value service use for Humana health care organizations that transitioned to upside only or two-sided risk contracts.
In the former, providers can earn bonuses for keeping costs down and meeting spending or quality targets. In two-sided risk contracts, providers can also lose money if costs are too high.
Lack of Consistent Changes in Broad Health Care and Low-Value Service Use
The team looked at nine measures of health care use across three domains: inpatient encounters, outpatient visits, and testing. After accounting for preexisting trends in use, switching to upside-only risk contracts was linked to reductions in emergency department visits and cardiovascular stress testing.
However, switching to upside-only or two-sided risk contracts was not linked to any changes in 26 measures of low-value service use across six clinical domains: cancer screening, diagnostic and preventive testing, preoperative testing, imaging, cardiovascular testing and procedures, and other surgeries. Moving to risk-based contracts did not lead to clear changes in broad health care use and did not reduce low-value service use specifically.
Possible Factors Behind Apparent Lack of Changes
Reasons for the lack of consistent changes are unclear, the team noted, leaving room for future research.
One possible factor may be the selection of organizations in the study. Those that were already on the way to meeting risk-based incentive targets may be more likely to opt into a risk-based payment model, so changes from the contract might be limited.
The article, “Changes in Health Care Utilization and Low-Value Service Use After Risk-Based Contract Adoption in Medicare Advantage,” appeared in JAMA Internal Medicine in November 2025. Authors include Aaron Schwartz, Soohyun Kim, Sumedha Chhatre, Amanda Sutherland, Aina Katsikas, Sara Riaz, Gosia Sylwestrzak, Emily Boudreau, and Amol S. Navathe.
Author
Joanna Kim, MPH
Project Manager
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