Changes to governmental and other payor programs are prompting a need for new provider (re)insurance coverages to be developed.
The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) repeals the Medicare Sustainable Growth Rate (SGR) methodology for physician fee schedules and replaces it with the Quality Payment Program that rewards the delivery of high-quality patient care. MACRA works through two models: 1) Advanced Alternative Payment System Models (APMs); and 2) the Merit-based Incentive Payment System (MIPS). It is through these two models that the government is replacing the current dynamic of a fee-for-service payment system, to one aimed at compensating providers for quality and value. As these new payment methodologies are emerging, the traditional filed forms and rates for “provider stop loss coverage”, which were originally created for PMPM capitation arrangements, are not adequate to handle these unique variations in these payor and provider arrangements.
Currently, the Center for Medicare and Medicaid Innovation (CMMI) has over 4,000 active payment models in place with various providers. Examples of these new APMs/ Value-Based Payment Arrangements, are: Accountable Care Organizations (ACO); Bundled Payments for Care Improvement; Alternative Primary Care (APC) models; numerous Medicaid and CHIP (women and children) models; and other varieties of demonstration type of projects. The goal of CMMI is to develop and test different payment models, and over the long term, put these risk-based arrangements firmly in place to replace fee-for-service reimbursements.
The Commercial payor markets are following along in parallel with CMS, with their own versions of ACO and bundled payment arrangements. Additionally, employers, plans, and providers are teaming to reduce the costs of employer health plans, in arrangements often called Accountable Care Network (ACN) arrangements. These are just a few examples of these new emerging models.
Typically, these models initially emerge as “shared savings” models, however by year 2 or 3 of the arrangement, the providers are accepting “shared loss” risk. The word “shared” means that the provider and payor are sharing in both savings and losses. In many ACO arrangements, the downside potential for providers can be several million dollars…even greater than $25MM+. These are financial fluctuations the providers cannot withstand.
In a broad sense, the financial dynamics of these varied arrangements put a provider at risk for the financial value of the difference between actual claims costs, versus some “fixed” expected claims value. CMMI and the payors control the computation of the expected claims values, which are derived from the provider’s own fee-for-service data, as well as control the computation of the shared savings or loss. The providers often employ a variety of IT and care management resources to try to achieve the expected claims cost, through changing the operational dynamics in their organizations.
These APM financial arrangements put providers at significant financial risk for the difference between actual fee-for-service claims costs, versus some “fixed” expected claims value.
The “expected claims” emerge as a CMS “Benchmark” or Commercial payor “Medical Cost Target” for ACO arrangements. In an ACO arrangement, these actual versus expected costs are typically measured for a one year period.
The “expected claims” emerge as a “Bundled Payment” (fixed dollar-value case rate) for bundled payment arrangements, whereby the provider is responsible for a service or surgery to be delivered plus a time period post-service. In a bundled payment arrangements, these actual versus expected costs are typically measured on a per person basis per a given individual episode of care for a 30-, 60- or 90- day period post medical or surgical incident.
When actual fee-for-service costs are greater than the benchmark or bundled payment, the provider incurs a financial loss. CMMI and the payors control the computation of the expected claims values, which are derived from the provider’s own fee-for-service data. As each provider’s fee-for-service costs are unique to that provider, every payor and provider arrangement is essentially “custom”.
Based upon the financial risk assumed by the provider, specific excess of loss or aggregate excess of loss coverage may be needed. However, given the customer nature of each payor and provider risk arrangement, developing a manual rate, especially in this emerging market, is not possible. Rather, to develop (re)insurance solutions to meet the individual provider’s needs, each deal must be reviewed, to customize pricing based upon the provider’s fee-for-service costs and the payor’s expected claims value, to which the payor is imposing financial responsibility upon the provider.
In the payment models described above, many providers are accepting financial risk. Some organizations are entering shared loss models in their first year of contracting. As health care providers are not capitalized, as an insurance company would be, (re)insurance is great way for the provider to mitigate their financial risk and protect their business.
Obtaining the claims experience that the Payor has based the ACO or bundled contractual arrangement on with the provider is a must. Each deal is uniquely priced, as actual fee-for-service claims are modeled against the Payor fixed expected value. PartnerRe offers flexible, customized solutions, tailored to each provider’s needs.
The development of the MACRA Quality Payment Program implementation will allow providers to pick their pace of participation in these new risk arrangements for the first performance year measurement that begins January 1, 2017. This is the beginning of a two-year transition, when MACRA will begin financially penalizing providers for not entering value-based reimbursement arrangements. As previously stated, CMMI already has over 4,000 APM arrangements currently in place, with the Commercial payor arrangements soon to outnumber those of CMMI. Financial risk arrangements for providers are in need of (re)insurance protection.
With more than twenty years of experience in developing solutions for our customers, PartnerRe is a leader in the development of (re)insurance solutions in the emerging market, customizing coverage for these Alternative Payments Models.
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