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.
Healthcare reform created the Medicare Shared Savings Program, which established financial incentives for accountable care organizations (ACOs) to deliver more effective and efficient care to Medicare beneficiaries. But shared risk is not unique to Medicare. There has been major activity among health systems and payors in commercial and other insurance markets. Shared risk agreements are a starting point for health system organizations to move from fee-for-service payment structures to population-based payment arrangements. Milliman’s Simon Moody provides some perspective in this article.
Health insurance models vary from country to country. As highlighted in our first series of articles on international health markets, governments often dictate the role of private and public health insurance within any country. Milliman has produced a new series of blogs focused on the medical underwriting and risk adjustment practices of eight countries: Australia, Ghana, Ireland, New Zealand, Saudi Arabia, South Africa, Spain, and United Arab Emirates. This is the fourth article in our series.
The publicly funded health system in New Zealand is a tax-funded system that provides (largely) free healthcare at the point of use to New Zealand permanent residents and citizens, plus various other eligible groups.
The Ministry of Health allocates more than three-quarters of the $14 billion of public funds it manages through government health funding to 20 regional district health boards (DHBs). DHBs use this funding to plan, purchase, and provide health services within their areas, including primary care, hospital services, public health services, aged care services, and services provided by other nongovernment health providers including Māori and Pacific providers.
Most of the remaining public funding provided to the ministry is used to fund national services such as disability support, public health, specific screening programs, mental health, elective services, well child and primary maternity services, Maori health, and postgraduate clinical education and training.
Health insurance models vary from country to country. As highlighted in our first series of articles on international health markets, governments often dictate the role of private and public health insurance within any country. Milliman has produced a new series of blogs focused on the medical underwriting and risk adjustment practices of eight countries: Australia, Ghana, Ireland, New Zealand, Saudi Arabia, South Africa, Spain, and United Arab Emirates. This is the first article in our series.
The national public health system in Australia—”Medicare”—provides universal health coverage for all Australian citizens and most permanent residents. It provides free or subsidized access to most medical services and prescription pharmaceuticals. It is largely funded from general taxation, including a statutory insurance levy, which is 1.5% of taxable income (some low-income people are exempt or pay a reduced levy). Individuals and families on higher incomes who do not take out private hospital insurance pay an additional means- tested Medicare levy surcharge of 1%-1.5% of taxable income. The remaining funding comes from private out-of-pocket payments.
The benefits received from Medicare are based on medical and pharmaceutical fee schedules set by the government. Medicare usually pays the full schedule fee for general practitioner (GP) services, 85% of the schedule fee for other outpatient services, and 75% of the schedule fee for inpatient services when treated as a private patient in either a public or private hospital. Services provided to public patients in public hospitals are free of charge. GPs and specialists charge on a fee-for-service basis and can choose to charge more than the fees in the schedule.
The role of private health insurance differs significantly from one country to another. A key reason for this relates to the availability and the delivery of public healthcare within each country. In addition, governments often dictate the role of private health insurance within any particular country. This eight-part series focuses on international health markets, comparing and contrasting the key elements of risk selection practice in the public and private health insurance markets in each region.
Health insurance market summary
The publicly funded English National Health Service (NHS) is a tax-funded system that provides (largely) free healthcare at the point of use to all UK citizens. It is funded out of general taxation, rather than by a social insurance scheme or earmarked tax.
The NHS budget is currently devolved to regional bodies, called primary care trusts (PCTs), which must then fund care for their geographically defined populations, ranging from 90,000 people to over 1 million. PCTs sometimes provide primary care service by employing clinicians directly, but more likely are involved in ‘commissioning’ and paying for the care deemed necessary to meet the needs of its population. As there are few defined benefits under the NHS, a PCT must perform a juggling act and identify needs and clinical priorities to ensure that they have enough budget throughout the year to pay for care.
PCTs receive their budget allocation based on a risk-adjusted methodology, which takes into account the demographic structure of each population, as well as loadings for ‘deprivation,’ which is deemed to be a broad indication of clinical need. However, there is little sophisticated use of past clinical data to risk adjust the budgets according to a future perceived demand based on past health status. In addition, a PCT that underspends its allocation is likely to have the surplus redistributed to another PCT that has overspent. In this way, a very informal and uncodified ex-post experience adjustment is made to the budget allocation, but this adjustment could be as much to do with poor management as true risk differences.
Under proposed reforms, PCTs will be formally abolished and instead the funds will be held directly by clinicians (mainly GPs), grouped together in clinical commissioning groups (CCGs). Estimates vary on the size of these groups, but they are likely to cover populations similar in size or slightly larger than PCTs. It is unclear how budgets will be allocated to CCGs, or budgets allocated to practices within CCGs, but it is likely there will be a more sophisticated type of risk-adjustment methodology required than is currently used. In addition, there is an expectation that CCGs may be held fully accountable for their allocated budget with a series of penalties for overspending through poor performance, and financial incentives for underspending (combined with quality outcomes). But this is not clear as the new reforms are still evolving.
The role of private health insurance differs significantly from one country to another. A key reason for this relates to the availability and the delivery of public healthcare within each country. Private health insurance usually fulfills one of three roles, each role being inextricably linked to the underlying features of the public health insurance system that operates within the country concerned. These three roles are:
- Provision of primary care, for example where public health insurance is not available, or where private health insurance is mandatory for all or much of the population.
- Provision of supplementary care, for example where the public healthcare system either charges for, or excludes access to, certain services.
- Provision of duplicate care, enabling the insured to receive care that is also available within the public system, but usually with quicker access and/or with a higher quality of care.
Governments therefore often shape the role of private health insurance within any particular country. This is particularly true where private health insurance is used to address certain challenges within the public health delivery system, most notably those related to financing and capacity.