Understanding and validating program assumptions In most cases, a provider organization will not be able to know the specific financial objective against which it will be measured before entering into a joint savings agreement. However, the organisation should be able to understand and determine the fairness of the methodology used to develop the specific parameters for the final calculation of common economies. Two components of many common savings contracts that can offset or break a provider`s success are care management fees and quality goals. The cost of maintaining the MPDP and the loss ratio targets used in joint savings agreements are generally set by the payer`s actuarial staff and are often subject to actuarial judgment. Understanding how the assumptions and adjustments used to set end goals are calculated can help providers better understand whether those goals are appropriate and achievable. Shared savings and shared risk are two types of agreements that exist under the umbrella of value-based repayment. Both agreements compare a supplier`s actual experience with a contractually agreed financial goal. Under joint savings agreements, providers receive a portion of the savings generated when their actual experience is below the financial goal. Under risk-sharing agreements, suppliers are also required to reimburse a portion of losses incurred when their actual experience exceeds the financial target. Care management fees are often used as a temporary incentive for provider organization to encourage participation in joint savings agreements.
Fees are usually only paid for the first few years of a particular agreement, which assumes that providers have successfully established managed care practices. It is assumed that these practices generate joint savings payments and that, as a result, care management fees are no longer needed to “close the gap.” For example, risk-sharing agreements between suppliers and manufacturers not only accelerate market access and contribute to competitive differentiation, but also require manufacturers to demonstrate product use and expected sourcing results and to focus their distribution strategy on clinical quality rather than cost. Want to learn more about how the transition to value-based care affects different aspects of healthcare and cost-cutting strategies? Check out our latest webinar on value-based care here: For the most part, AI is considered artificial intelligence – where computer technologies have been designed to replace roles traditionally held by humans. Many people in the healthcare industry are starting to think of these technologies as “augmented intelligence.” This not only means that all members of a team are also involved in their patient`s treatment, but they are also invested in risk if they do not meet certain performance criteria or do not maintain low care costs. To accelerate adoption, the Medicare program now offers physicians less risk of participation than its predecessor. When providers save money while achieving quality benchmarks, they share the savings with Medicare. But if they spend too much, there is no downside – Medicare will absorb the cost for the first few years. Evolution of the premium rate The premium component of a loss ratio objective is developed by the payer`s actuaries in two stages. In the first step, the projected portion of the claim cost of the premium is developed by trending historical experience and taking into account expected changes between experience and actual periods. The final premium rate starts with the projected claims and then adds the projected non-performance costs for administrative costs, brokerage commissions, taxes, fees, risk burden, etc.
Similar to the changing trends used in a pension cost target, projected claim costs and non-benefit expenses may be subject to an actuarial valuation that could lead to a loss ratio target higher or lower than is appropriate. The premium component of the loss ratio objectives may also be left to management`s discretion as to the competitiveness of the premium price. The success of a value-based repayment agreement, including joint savings agreements, ultimately depends on the existence of an open and cooperative partnership between the provider organization and the payer. This type of partnership requires a meaningful exchange of data, assumptions and expectations between the two parties. To be part of a value-based repayment agreement, a supplier organization must be able to make informed decisions about the proposed agreement, including the appropriateness of the financial objective, the likelihood of financial success of the organization, and the financial impact of specific contractual terms. In addition, as provider organizations move from trend-only shared savings to two-way risk-sharing arrangements, they will be responsible for some of the insurance risk that was previously entirely the responsibility of the payer. Therefore, provider organizations should not only understand, but also have some degree of control over the final evolution of the rate of an underlying insurance product. Loss Ratio Objectives The target`s loss ratio method adds a premium component and bases the target on the ratio of expected losses to expected premium. One of the advantages of this type of goal is that it encourages the provider to maximize the effort required for diagnostic coding, which in turn optimizes the payer`s risk adjustment and overall revenue position. Risk adjustment is an important part of Medicare Advantage and ACA plan revenue.
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