Yearly shared-risk arrangement check-up considerations

Providers should review contract provisions with Medicare Advantage organizations (MAOs) as well as the Centers for Medicare and Medicaid Services (CMS) revenue adjustments yearly to understand the financial implications of their shared-risk arrangements. Milliman’s Simon Moody and Kim Hiemenz offer perspective in their article “Providers should do annual check-ups on Medicare Advantage risk-sharing contracts.”

Here’s an excerpt:

Many providers enter into shared-risk arrangements with MAOs. The most common method used in MA shared-risk arrangements is a medical loss ratio (MLR) target, i.e., claims divided by revenue. This type of arrangement is often referred to as a “Percentage of Premium.” Revenue includes both member premium and CMS revenue. This approach is often used for MA risk deals because it aligns the carrier’s and provider’s incentives, particularly the incentive to ensure accurate coding. An MAO’s revenue from CMS is directly tied to its risk score; that is, if an MAO’s risk score improves, then its revenue increases. All else equal, as revenue improves, the medical loss ratio also improves. Thus, MA coding improvement creates a win-win situation for both plan and provider in MLR target arrangements.

Significant revenue components are outside the control of MAOs

Cost targets based on revenue introduce additional considerations because there are a number of factors that affect the revenue an MAO will receive from CMS. Many of these factors are beyond the control of both the MAO and the provider because they are set by CMS. Changes in these “external” factors will directly affect the MLR and significant changes in these factors from one year to the next could inadvertently make the target MLR stated in the shared risk arrangement inconsistent with the parties’ goals.

Figure 1 includes key factors set by CMS that influence an MAO’s revenue.

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