How does shared savings work

This type of partnership requires the meaningful sharing of data, assumptions, and expectations between both parties. John J. View Larger Image. The table below shows the simplified development of a cost of care PMPM financial target:.

Some examples of these adjustments are: Prior Year Savings or Losses Adjustment Under some multi-year shared savings agreements the financial targets for the entire contract are set in advance. To combat the ratchet effect, these types of shared savings agreements often include an adjustment for a portion of prior period savings or losses achieved by the provider.

Adjustment for Insurance Risk To encourage provider groups to take more financial risk over time, many shared savings agreements start as upside-only, and transition to two sided agreements where the provider is responsible for a larger percentage of any shared savings or losses.

As the provider sharing percentages increases, these contracts often include a small discount to the financial target.

This discount serves as backstop for the payer, to ensure that they are able to cover their expenses before they begin sharing savings with the providers.

Alternatively, some contracts may include a small increase to the target for the benefit of the providers, as the providers assume a portion of the insurance risk and should receive a portion of the profit margins built in to the insurance premium.

Reconciling Financial Results to Shared Savings Financial Targets Adjustments Needed for an Equitable Comparison A shared savings agreement is ideally intended to measure savings created by the providers and not reward random fluctuations or simple good luck. Large Claimants By their nature, the number of large claims in any given year is unpredictable, and the costs of the large claims that do occur often cannot be managed in any significant way.

Normalizing for the impact of large claims should be considered when setting the target and measuring results. Similarly, a provider organization could see any potential shared savings eliminated by a small increase in the number or size of catastrophic claims. The table below shows an example of an adjustment for a variety of types of mix changes:.

Cohort Selection Shared savings agreements typically do not use the exact same population in both the experience period and measurement periods.

As a provider organization approaches this point, success under VBR may become more difficult. Does the provider organization have sufficient influence on individual providers? A provider organization cannot succeed under VBR unless the actual providers are motivated to change the way they deliver care to focus on quality and efficiency. Is the provider organization prepared to manage care well enough to generate savings? For example, provider organization will need to have sufficient monitoring and reporting capabilities to identify care management opportunities.

Does the provider organization have the correct internal payment model to be successful under VBR? A successful payment model will appropriately incentivize primary care providers since they can have a large impact on efficient management of care. Can the provider achieve sufficient margins under the proposed rates? Many shared savings agreements include reduced fee schedules as part of the agreements, and provider organizations need to consider whether or not they can cover their expenses under the new rates with, or without earning shared savings.

Conclusion The success of a value-based reimbursement arrangement, including shared savings arrangements, ultimately relies on the existence of an open and cooperative partnership between the provider organization and the payer. About the Author. Download Bio. Share the latest from AHP! Facebook Twitter LinkedIn Email. Go to Top. Formula Key. Cost of Care Trend. Aggregate Adjustment Factor. Age Group. Expected Member Months. Actual Member Months. Premium PMPM. Loss Ratio. Price Weighted Average.

Actual Weighted Average. Base Period. Measurement Period. Risk Score. This course is targeted at a variety of professionals in the healthcare sector in order to realise a common language. Are you a provider, board member, working at a public or private payer or researcher working in the health sector, this course is relevant for you!

If you wish to find out more about this program see the last reading of this Course! What is an Alternative Payment Model? In this module we take a closer look at the most prominent APMs; pay for performance, shared savings models, bundled payment and capitation. We will look at the incentives that are linked with each APM-type and the way by which they shift financial accountability.

Shared Savings. Population Health: Alternative Payment Models. Enroll for Free. This Course Video Transcript. Skills You'll Learn design alternative payment models, implementing, Evaluation, design value based payment models, Critical Thinking. From the lesson What is an Alternative Payment Model?

Developing effective shared savings payment methodologies does not come without complications. First, these payment methodologies can be complex to design and hard to explain to stakeholders.

For that reason, it is important to involve actuaries or others with claims data and payment expertise who can help forecast the impact of different approaches on provider participation, quality, and cost. Second, adjusting benchmarks can lead to concerns about the legitimacy of the results and muddle the true impact of the program on cost reduction. For example, Medicare MSSP benchmarks have been adjusted to help accomplish policy objectives , such as increasing provider participation.

Starting in , Medicare will be integrating regional adjustments to rebased benchmarks for MSSP ACOs; this means that cost benchmarks may be adjusted upwards for historically efficient ACOs to provide more opportunities for savings. Even with the uncertainties surrounding potential Medicaid policy changes at the national level, states have continued to pursue Medicaid payment and delivery innovations, including ACOs. Ongoing concern about the high-cost and poor outcomes of health care in the U.

Promising reforms such as Medicaid ACOs — offering demonstrated success in bending the cost curve while maintaining or improving quality of care — are more appealing than ever before.

This site uses Akismet to reduce spam. Learn how your comment data is processed. This is an interesting, useful, and timely post. I would just note that it somewhat mischaracterizes the state of Vermont Medicaid program.

Vermont ended its Medicaid Shared Savings Program in The program makes risk-based all-inclusive population-based payments, and the ACO is taking on downside risk.

Both Vermont and Massachusetts had exclusively used shared savings approaches for their initial Medicaid ACO programs and have since evolved their payment models. July 28,