Last year, the U.S. Department of Health and Human Services announced a new payment model called Direct Contracting for entities that want to take on risk for fee-for-service (FFS) Medicare beneficiary expenditures. This program built upon existing Centers for Medicare and Medicaid Services (CMS) efforts to reduce healthcare expenditures while attempting to improve the quality of care for FFS Medicare beneficiaries. Although Direct Contracting is designed to appeal to a wide range of entities (including those that have not previously participated in risk programs with CMS) many current Medicare Shared Savings Program (MSSP) and Next Generation accountable care organizations (ACOs) are naturally going to want to understand the potential pros and cons of this program, and how it compares to their current ACO risk-sharing structures.
In this paper, Milliman’s Colleen Norris, Brent Jensen, and Dustin Grzeskowiak provide an in-depth technical evaluation of Direct Contracting, based on the CMS request for applications, along with comparisons to its sister programs MSSP and Next Generation ACO.
When employers facilitate health plan choices, the method for setting employee premium contributions can create selection bias toward certain options. Selection bias happens when a sicker and more costly population tends to choose one option over another. A common example is when a more open network preferred provider organization (PPO) attracts those employees who want a broader range of providers and use their benefits more than those choosing a limited network health maintenance organization (HMO).
To reduce the selection bias, employers should adjust each
option for morbidity. Because selection bias does not change the overall
morbidity of the group, it is important to set the premium contributions
without consideration for how healthy the subpopulation is within any one
option. Otherwise, the option with the sicker subgroup will become more and
Risk adjustment is used to adjust the costs of two or more cohorts of people so all cohorts can be compared as if each had the same morbidity. A risk score is calculated for each person using age, gender, and medical conditions. Risk adjustment is a way to level the playing field so that the cost differences among options reflect benefit differences as well as network and operational performance differences, but not morbidity differences.
In this paper, Milliman’s Will Fox, Brent Jensen, and Ben Diederich explain in more detail how employers can address health plan selection bias using risk adjustment.