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Commercial Payors Lag Behind Medicare in Offering ACOs Shared Savings Programs

June 5, 2013
by John DeGaspari
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Research suggests lower-risk payment structures most common among Premier healthcare alliance members

Commercial payors aren’t offering as many of the upside-only payment structures that are most popular among early accountable care organizations (ACOs), according to an analysis by the Charlotte, N.C.-based Premier healthcare alliance of 85 payor arrangements.

A white paper released today Premier healthcare alliance found that more than one-third of the 85 arrangements are for upside only shared savings. Of all the upside arrangements, most fall within the Medicare Shared Savings Program or Medicare Advantage (57 percent).

Other upside only options were reported with Medicaid (7 percent), provider-owned plans (7 percent) and self-insured employers (7 percent).

However, Premier found that upside arrangements are lacking in commercial markets. Among the ACOs analyzed, only 21 percent of commercial arrangements offer upside shared savings, and these were clustered in just four markets. In addition, agreements tended to be smaller in scope, usually for 5,000 covered lives or less.

“ACOs invest millions of dollars in permanent infrastructure such as preventive care, chronic disease management, medical homes, technology and provider networks,” said Blair Childs, senior vice president of public affairs for the Premier healthcare alliance in a statement. “Shared savings helps offset the costs of these investments, as well as losses that come from decreased utilization.”

“The Medicare program realizes this and has made a significant investment in shared savings, but some commercial carriers are seeing this as a free ride,” Childs noted. “Their beneficiaries have equal access to the ACO infrastructure, even though Medicare and providers are footing the bill. While there is growing commercial support of ACOs, it is important that this trend continues to accelerate.”

Although commercial payors appear to be in the early stages of offering upside shared savings, nearly 70 percent of commercial payment arrangements to date have been limited to either care management fees or downside shared savings models.

In exchange for the downside risk, however, commercial payors tend to be more generous than the Medicare program, offering savings splits that typically range between 50 and 80 percent, but can go up to 100 percent provided cost targets are achieved. Medicare, in contrast, only offers a maximum of 60 percent of savings, even though the assumed risk is comparable in the public and private market.

The 22 ACOs in the study cover 1.8 million beneficiaries and participate in Premier’s Population Health Collaborative (PACT), a group of health systems developing value-based care delivery and population health capabilities. These ACOs are partnering with public payors such as Medicare to rearrange their payment structures for value-based reimbursement, by establishing bundled payment, shared savings and limited capitation arrangements.

According to the paper, there are various types of value-based payments that incent accountable care depending on the relationship and appetite for change. Upside only shared savings, the most popular choice, covers nearly 42 percent (or 750,000) of lives in the study. In this model, key care management programs are established to manage high risk and chronically ill populations using claims analytics to predict outcomes, and savings that accrue are split equally between insurers and providers, with no penalties for failure to achieve the goals.

Particularly in the early years of accountable care, upside options are more attractive because they allow providers to test care delivery models without the fear of financial losses, while also offering the opportunity to earn enough in shared savings to offset expenditures.

Other lower risk options include care management fees. About 22 percent, or nearly 400,000 lives, are covered under this option. However, care management does not offer the financial returns of shared savings. This option typically pays a $3-$5 per member, per month fee, as opposed to the sharing avoided costs from improving patient safety or reducing utilization, hospitalization and other indicators of spend, which potentially can be much higher.

Of the members prepared to assume greater risk, most lives (nearly 470,000) are covered under a downside risk shared savings program, followed by bundled payment (165,000). Very few members of the collaborative are yet prepared to assume the risk of capitated payments, and generally experiment with this form of reimbursement using a smaller sized population (52,670 covered lives across all members of the collaborative) with a limited capitated risk model.

"Although many assume that the way to enter accountable care is to contract with Medicare through the shared savings program, lessons learned from PACT ACOs show a much broader picture,” said Joe Damore, vice president of Population Health Management at Premier. “Contracts can take on different forms depending on the organizations’ readiness and ability to manage transitions. A key is implementing the care delivery changes at the same pace as the new payor arrangements.”

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