Tag Archives: risk-based contracts

Best practice considerations for third-party provider risk-sharing contract audits

Shared-risk contracts between health plans and healthcare providers are becoming increasingly common and sophisticated. As these arrangements become more prevalent, there is an increasing amount of money at stake between health plans and providers. Transparency and verification are best practices in any relationship between parties that involves money, and this includes provider risk-sharing agreements. A settlement audit prepared by an independent third party is a recommended best practice for any organization considering entering into or already participating in one of these arrangements.

The underlying principle in these agreements is straightforward: healthcare providers are in the best position to identify and reduce unnecessary, duplicative, or inefficient care, and shared-risk arrangements provide a financial incentive for providers to do just that. While shared-risk contracts may be conceptually simple, the actual real-world financial adjudication of them is usually complex.

This paper by Milliman consultants Colleen Norris and Tom Snook explores some proposed best practices for an independent audit of provider risk-sharing settlements, and discusses the value of this review for all parties involved.

What actuarial skills are important to the NHS?

Actuarial skills are immensely relevant in regional National Health Service (NHS) environments and can be used to inform the design of risk-based accountable care system (ACS) contracts. An article in The Actuary by Milliman’s Joanne Buckle and Tanya Hayward highlights their recent experience helping to develop an ACS within a subsegment of the NHS encompassing a small number of clinical commissioning groups and local councils.





Implication of coding on risk adjustment and valued-based contracting

Healthcare providers are measured on certain performance metrics that dictate their payment amounts under value-based contracts. Risk adjustment plays an integral role in determining financial performance. In order for these contracts to be equitable for insurers and providers, risk adjustment must accurately capture changes in population morbidity to effectively measure the provider’s true cost impact.

In this article, Milliman’s Rong Yi, Howard Kahn, and Jared Hirsch highlight common data issues that affect risk scores. They also discuss practices that can improve coding efforts related to risk adjustment.





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