November 3, 2015
Volume-based fee-for-service reimbursement has failed to align incentives across stakeholders. In fact, the current state of the U.S. healthcare system stems directly from plan sponsors’ narrowly focusing on reducing costs versus providers raising prices to battle mounting expenditures.
Shared-savings gained through accountable care organizations (ACO), however, promise to get self-insured Funds and providers rowing in the same direction in terms of achieving high-value, cost-efficient healthcare, and meeting financial goals.
So, what exactly are ACOs? ACOs are groups of doctors, hospitals, and other healthcare providers who come together voluntarily to give coordinated high-quality care to their patients. The goal of coordinated care is to ensure that patients, especially the chronically ill, get the right care at the right time, while avoiding unnecessary duplication of services and preventing medical errors.
When an ACO succeeds both in delivering high-quality care and spending healthcare dollars more efficiently, it will share in the savings it achieves for the program.
In this model, the ACO contracts with the self-insured Funds using a shared-savings arrangement that defines the responsibilities for costs and outcomes of a specific population for a specific time period. The goal is to pay more to the ACO when the population’s healthcare costs fall below the target amount. Conversely, the ACO may pay the employer a penalty if healthcare costs rise above the target amount.
With shared-savings, Funds are shifting a portion of utilization management risk to the ACO.
Any self-insured Fund that is considering an ACO arrangement should be aware of potential issues and carefully assess the financial savings opportunities, develop and implement a shared savings arrangement with an ACO, and manage the ACO relationship.
Fundswith fewer than 2,000 plan members are not ideal candidates for this arrangement because the plan may experience significant claims volatility from year to year. That said, smaller companies can explore a shared savings arrangement as part of a purchasing coalition.
Certain Funds will not see the benefit of a shared-savings arrangement, especially those that are already partnered witha high-performing provider delivery system, or who employ mostly young adults.
Large Funds employing a significant portion of workers with high-risk chronic conditions are ripe for the shared-savings arrangement. Members with high-risk chronic conditions create a larger variance in potential costs, while offering ACOs ample population health management opportunities.
It’s important for Funds to evaluate whether a shared savings arrangement will work for them. Therefore, they should have their healthcare utilization and costs benchmarked relative to expected costs based upon demographics (including population health), plan designs, geographic location, and provider discount level.
The key is to identifyan ACO that is able to achieve the goals outlined in the shared savings arrangement. Toward that end, Funds should do the following; consider the ACO’s track-record in meeting cost-savings goals for the plan; request information on the ACO’s analytic tools, care management systems, and personnel that are deployed to improve utilization management; and understand how the ACO’s physician financial incentives are structured to aid the evaluation of achieving cost savings
Funds with a large number of members that are geographically concentrated represent the best match for a shared-savings arrangement. What’s more, these Funds should be located in a highly competitive healthcare provider market, and have a record of healthcare costs that demonstrates the potential for greater efficiency and higher quality care.