Tag Archives: alternative payment contracts

What should payers and providers understand about joint venture health plans?

Joint venture health plans are still relatively new to providers and payers. It’s important for both sides to engage a skilled actuary who can assess the potential risks and benefits of such a partnership. In this article, Milliman actuary Lynn Dong provides some perspective on the following questions that providers and payers must consider concerning joint venture arrangements.

• How much is the provider system’s volume likely to increase?
• What is the provider’s range of potential outcomes under the rate concession or risk-sharing arrangement? How does this compare with the current contractual reimbursement arrangements?
• What insurance risks are transferred from the payer to the provider, and how will these risks be managed?
• How will the responsibility for care management, ongoing data and financial reporting, and financial settlements be allocated? What additional resources will be needed from the provider and payer to perform these functions?
• What ongoing data and reports will be made available to the provider? What level of detail will be available, and how often will this information be provided?
• What are the key financial, strategic, and business risks for the provider and payer?

Three-pillar strategy for value-based contracting

Healthcare providers can improve their financial performance under value-based contracts by implementing an effective contracting strategy. Milliman consultants David Williams, David Liner, and Colleen Norris discuss how providers can accomplish that by prioritizing and measuring operational and contractual elements against three core pillars: transparency, stability, and control. Here is an excerpt from their article “Building a successful value-based payer contracting strategy.”

Providers prioritize each pillar and attribute to create weights for each cell. Contractual elements are then evaluated against those pillars to produce a score for each cell. This can be either a subjective evaluation or a more rigorous analytic evaluation depending on the nature of the element. The weighted scores can be used to prioritize areas of administrative concentration and to compare payer contracts on a similar basis. This prioritization is a critical step to a successful contracting evaluation process….

…The exercise of scoring the grid identifies high-risk elements and compares contract structures from different payers that require revisions. When performed rigorously, this process brings focus that allows management to spend more time on contracts with the greatest risk and potential for improvement. Applying each pillar to specific payer contract elements identifies specific risks and creates areas of focus for providers during negotiation. However, this analysis alone does not enable providers to easily compare value-based contracts in their entirety.

The complex evaluation process is illustrated below in a simplified form. The intent of this illustration is to highlight important aspects of the decision-making process required to effectively manage complex payer relationships.

First, the contract is scored for each pillar and element cell in the scoring grid. Each contract is evaluated separately and may contain different elements. The provider may require independent help.

Second, the provider weights each cell in the grid based on priorities. These weights would likely be consistent across contracts. The provider may counsel with outside help to prioritize, but ultimately will be responsible for the focus of their efforts.

Finally, the total score is calculated by applying weights in each cell based on prioritization of the contracting elements. Figure 2 illustrates this contract-scoring approach.

MACRA considerations for Medicare Advantage plans

The Medicare Access and CHIP Reauthorization Act (MACRA) makes significant changes to the Medicare payment system by introducing a quality-based payment model. While MACRA primarily affects Part B clinicians, there are numerous implications that Medicare Advantage (MA) plans should consider. A strategic approach can help MA plans understand and respond to the legislation.

In the article “MACRA and Medicare Advantage plans: Synergies and potential opportunities,” Milliman actuaries explore the answers to the following questions:

• How will MACRA affect MA plans’ provider payments?
• What synergies exist between MACRA’s quality scoring and the MA Stars quality program?
• How can MA plans help providers achieve Qualifying Participant (QP) status?
• What incentives exist under MACRA for providers to improve risk score coding?
• How are MA plans in the market responding to MACRA?

Read Milliman’s “MACRA: The series” to learn how the legislation will affect providers, alternative payment models, and health plans

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.

Developing population health management programs under risk-based contracts

Risk-based contracts are driving the development of population health management programs (PHMPs) that are designed to achieve the Institute for Healthcare Improvement’s Triple Aim goals. Health systems may need to redesign how they deliver healthcare to meet these goals. Risk-based contracts often give providers both the financial flexibility and incentive to redesign care.

In the article “Population health management program development: The path to the Triple Aim,” Milliman’s Nick Creten and Blaine Miller discuss the following five steps healthcare organizations must address when developing a PHMP in a risk-based contracting environment.

Step 1: Assess population costs, utilization, and risk
Step 2: Identify opportunities
Step 3: Segmentation
Step 4: Intervention development
Step 5: Monitor, assess, and improve

Qualifying APM participant considerations

This paper by Milliman’s Charlie Mills, Pamela Pelizzari, and Christopher Kunkel explores the challenges and opportunities regarding participation in an Advanced Alternative Payment Model (APM) track under the Medicare Access and CHIP Reauthorization Act (MACRA). The authors also discuss why becoming Qualifying APM Participants (QPs) may be desirable to some providers as well as the risks they might encounter through the process.

Here is an excerpt from the article:

Opportunities associated with QP status

Financial opportunities

Despite the potential downsides to participating in Advanced APMs and seeing QP status, there are also potential financial benefits, including the following:

A lump-sum payment equal to 5% of their prior year’s payments for Part B covered professional services. QPs can become eligible for this lump-sum incentive payment for years 2019 through 2024. Overall, this is the primary financial opportunity for QPs.

Insulation from the potential downside of the MIPS adjustment. In general, MIPS is a budget-neutral (i.e., zero-sum) program, with a financial downside of 4% in 2019, growing to 9% in 2022. Because QPs and Partial QPs are excluded from MIPS, they are not exposed to MIPS’s downside and do not have to navigate the hundreds of quality and performance measures that make up MIPS.

Opportunities for shared savings from the Advanced APM. QPs will have the opportunity to share in gains (and will generally be required to share in losses) from the Advanced APMs they participate in.

Higher conversion factor increases starting in 2026. Starting in payment year 2026, QPs will receive a conversion factor increase of 0.75% compared with 0.25% for non-QPs. Over time, this could result in significantly higher payment rates for QPs versus non-QPs.

Clinical integration benefits

Several of the currently available Advanced APMs aim to align incentives across different types of providers. For example, ACOs encourage physicians and hospitals to work together to ensure beneficiaries receive appropriate care that can keep them healthy and out of hospitals. In many cases, however, individual physicians do not see the financial benefits of these programs without entering into what can be complex and time-consuming gainsharing arrangements. By providing a 5% lump-sum incentive payment to QPs, MACRA serves to create an even greater incentive for physicians to participate actively in Advanced APMs.

While other payer Advanced APMs do not contribute to QP threshold calculations until performance year 2019 (incentive payment year 2021), it’s possible that the increased engagement physicians have in Advanced APMs that is due to MACRA will have trickle-down effects on other lines of business and patient populations beyond Medicare fee-for-service. This could serve to improve the quality of care and reduce costs for patients covered by other payers.