Alternative payment models (APMs) have transformed the way healthcare providers and insurers do business. APMs are risk-sharing agreements that incentivize high-quality, cost-effective care. These agreements continue to increase in popularity among providers and insurers. Now the idea of using APMs as a payment mechanism between pharmaceutical manufacturers and insurers is warming up.
While it’s unlikely that APMs will become the dominant contracting strategy for pharmaceuticals any time soon, the status quo in not tenable. In this article, Milliman’s Maggie Alston and Bruce Pyenson consider several issues that must be addressed for pharmaceutical manufacturers to widely embrace APMs.
Capitation arrangements are traditionally used as an alternative to fee-for-service reimbursement to facilitate a transfer of risk from the funder to providers of healthcare services. The objective of introducing risk sharing between funders and providers is to encourage the delivery of efficient and patient-centred care by incentivising the integration of services and minimising unwarranted variation in care. This paper by Milliman’s Joanne Buckle and Tanya Hayward explores how the principles of a traditional capitation arrangement may apply in a regional National Health Service system where the stakeholder roles differ and the implementation of various key capitation principles is not possible.
In an effort to reduce healthcare expenditures and improve quality and coordination of care, there has been a push for price transparency and realignment of provider accountability. As part of this push, there are now many risk-sharing agreements between providers and payers, all of which are attempting to move providers’ payments away from the fee-for-service model. This paper authored by Chris Dugan, Howard Kahn, and Rob Parke provides a “checklist” of key contractual provisions found in many risk-sharing arrangements, developed from work with both providers and payers.
What would Marty McFly and Doc Brown have thought about the present provider risk-sharing environment had their mission been to scout its arrangement in Back to the Future Part II? Encountering Milliman consultant Courtney White’s article “Back to the future: Provider risk-sharing: 1985 or 2015?” during their time travel would give them good perspective.
Here’s an excerpt of what they would read:
While the current provider risk posture may seem much like the 1990s, the lessons learned from that time, coupled with the recent legislative initiatives, have created a risk-taking environment that is very different from the past. A renewed (and justified) interest has emerged in creating provider organizations and in seeing providers take on more risk.
There are a number of initiatives influenced by the Patient Protection and Affordable Care Act (ACA), such as accountable care organizations (ACOs), the level playing field created by risk mitigation, the product transparency existing on the exchanges, and carrier loss ratio requirements, along with a focus on quality and innovation. The ACA created a number of issues that are distinctly different from the past and that a provider organization should consider when structuring a risk-taking arrangement, including:
• Homogeneity of the covered population
• ACA-enabled parameters such as:
– Cost-sharing reduction subsidies for low-income individuals
– Risk adjustment
– Risk corridors
In the 1990s, managed care programs faced a series of difficulties. Providers who accepted risk experienced financial trouble and consumers resented and abandoned plans that placed limits on access and choice, leading to a perception of medical care rationing. These problems resulted in a widespread return to fee-for-service reimbursement and an escalation in medical utilization and costs. Now, insurers and their employer clients are looking for ways to shift some financial risk back to providers as a way to encourage the alignment of incentives to achieve better care delivery.
Jill Van Den Bos’ explores this topic in her new paper, “Sustainable provider payment arrangements: What are the key elements conceptually?” The paper takes a brief look at the shortcomings of provider payment during the 1990s and considers payment arrangements that may make provider risk sharing sustainable in the future.
An article in Biotechnology Healthcare looks at the new trend toward risk sharing among biotechs and pharmaceutical companies. Here is an excerpt:
[I]f you’ve been in the healthcare business for a while, you may remember that sharing risk was a big deal back in the 1990s.
“Risk sharing in general has ebbed and flowed,” notes Bruce Pyenson, FSA, MAAA, principal and consulting actuary with Milliman Inc., the actuarial consultancy. “In the 1990s, we saw physicians and hospitals taking risk in the form of capitation and other kinds of arrangements. Some of those survived, many of them did not. Ultimately, the market decided that it was willing to pay more money for doing business the usual way. We’re now at a point where that may be unsustainable.”
Which raises the question: How does an organization go about setting up such a contract?
“Payers are used to making risk arrangements for behavioral health, laboratory services, and other services that they buy,” he says. “Radiology carve-outs, for example, are another category that’s growing.”
That may be, but not all payers think or act alike.