Shared-Savings Payment Arrangements in Health Care: Six Case Studies

×

One of the most talked-about new ideas in health care is rewarding providers for reducing medical spending by giving them a share of the net cost savings. Driven by an interest in seeing medical homes and other providers shift to some form of performance-based payment, as well as by the Affordable Care Act’s push for "accountable care," shared-savings approaches are currently being tested by numerous payer and provider organizations across the United States.

Given uncertainties regarding an ideal shared-savings approach and how best to implement it, we examined six shared-savings pilot initiatives. For each case study, we interviewed leaders at payer and provider organizations and state agencies about their attempts to design and implement shared-savings programs.

These pilot programs, we found, vary considerably on several dimensions (Exhibit ES-1). These include the patient populations subject to shared-savings arrangements, the health care services those arrangements cover, how payers determine cost savings and payouts to providers, whether the model incorporates performance targets, and how it measures performance. These pilot projects also vary in their early impact on health care costs and payouts to providers. For example:

  • One initiative measures cost savings related to preventable complications from specific procedures, and is on track to make a substantial payout to providers.
  • A second initiative does not require providers to serve a minimum number of patients to participate, uses a control group and 21 quality measures to determine payouts to participating providers, but has not yet demonstrated cost savings.
  • A third initiative requires providers to serve a minimum number of patients to participate, uses the average per-patient cost of health care in a metropolitan area as a benchmark, and has paid out up to 75 percent of shared savings to a provider.

Despite these variations, the case studies reveal consistent themes regarding shared-savings approaches to payment for health care services. These common elements include a willingness among most payers to absorb many of the costs entailed in setting up and sharing tools for measuring health care performance and cost savings. Overall themes also include a belief that shared-saving programs must evolve to include shared risk, and a conviction that even when pilot programs fail to achieve savings, they are moving in the right direction.

We do not yet know whether this approach is a long-term strategy for promoting better health care while lowering costs, or a transitional strategy to some other model, such as global payments for which the provider also assumes risk if spending is higher than a budget target. Exploring the organizational and environmental differences in how participants pursue shared-savings approaches, and the outcomes they achieve, will be key to determining whether they work, how to improve them, and whether and how to diffuse them.

EXHIBIT ES-1. KEY DESIGN FEATURES OF SHARED-SAVINGS PILOT PROGRAMS

MARYLAND MULTI-PAYER PATIENT-CENTERED MEDICAL HOME PROGRAM (MMPP)

MEDICA AND FAIRVIEW HEALTH SERVICES  

HEALTH CARE INCENTIVES IMPROVEMENT INSTITUTE (PROMETHEUS PAYMENT) 

Patients, Services, and Payments
Patient population(s) 

Commercial; Medicaid
managed care

Commercial

Commercial; Medicare Advantage

Methodology for attributing patients to provider groups

12-month claims history

Most frequently visited provider (most recent if tied)

Johns Hopkins ACG software
and a 12-month look-back to determine site of at least
50% primary care spending

Not required

Type of payments

Semiannual lump-sum payment

Incentive payment based on
cost savings

Per-patient, per-month management fee for disease
care coordinator

Shared savings based on comparison with a control group 

Shared savings for reducing potentially avoidable complications (PAC) associated with treating a chronic condition

Special Adjustments to Shared-Savings Calculations
Adjustments for patient risk 

None at the time

ACG grouper

High-cost claims truncated at $250,000 to $500,000, depending on contract

Stop-loss provision

High-cost claims (episodes exceeding two standard deviations) truncated

Supports for providers

With state funding, University of Maryland and Johns Hopkins School of Medicine provide
training on care coordination and evidence-based medicine, etc.

Data support and analysis

Some care management and health coaching may be available

Tools and services to help payers and providers use the Prometheus Payment software and share best practices

Inputs for Calculating Savings

Minimum number of patients per practice group 

None

15,000–20,000 member-months

Minimum number of patients with certain conditions and treatments

Retention of initial percent of savings by payer

None

None

Payer takes upfront share (discounted PAC allowance)

Method for Calculating Savings
Comparison with: 

External benchmark (TBD)

Control group

Budget

Method for Distributing Savings
Percent cost savings eligible
to providers

30%–50%, depending
on performance

Up to 75%, split among providers: one-third to hospital; one-third to care management; one-third to physician groups

Varies by payer, but PAC allowances

Performance targets

21 quality measures; and reductions in use of high-cost services, such as emergency department and hospital readmissions

Minimum quality gate, then confidential algorithm

Must achieve net 6% reduction in cost of PAC to receive payout

Quality scorecard available for use

 

EXHIBIT ES-1. KEY DESIGN FEATURES OF SHARED-SAVINGS PILOT PROGRAMS (CONTINUED)

BLUE CROSS BLUE SHIELD
OF ILLINOIS AND
ADVOCATE HEALTH CARE

HEALTHPARTNERS

HARVARD PILGRIM HEALTH CARE

Patients, Services, and Payments
Patient population(s)

Commercial

Commercial; Medicaid (two of the latter providers opted to participate, but with separate calculations)

Commercial
Methodology for attributing patients to provider groups

Jointly developed confidential methodology with a two-year look-back and tie-breaking algorithm

Retrospectively attributed using internally developed algorithm

Prospectively assigned using internally developed algorithm

Type of payments Shared savings based on comparison with a control group Shared savings based on comparison with a negotiated target Shared savings compared with a budget
Special Adjustments to Shared-Savings Calculations
Adjustments for patient risk

DxCG software

Services excluded: transplantation

ACG software

High-cost claims truncated
(amount confidential)

DxCG software

High-cost claims (>$50,000) truncated

Services excluded: transplantation, behavioral health, and out-of-area services

Supports for providers

Reports, data feeds, and software
tools to download data directly into electronic medical records systems

Analytical support for targeted
high-risk members

Detailed analysis of performance, including cost and use of services, location of services, medical conditions, and specialty

Some grant money to help build
needed infrastructure

Basic reporting tools for tracking performance; access to best-practice examples

Care management tools, hospital utilization review, and in-depth reports available for extra fee

Inputs for Calculating Savings
Minimum number of patients per practice group None, but only provider groups with >100,000 members are participating None, but only large provider groups are now participating 3,000–5,000 patients
Retention of initial percent of savings by payer

Yes (amount confidential)

None

2%

Method for Calculating Savings
Comparison with:

Control group:
nonparticipating provider network

Jointly negotiated target

Budget

Method for Distributing Savings
Percent cost savings eligible
to providers

Up to 50%

50% (commercial and Medicaid savings calculated separately)

50/50 split of savings up to 6% of total budget, after plan takes 2% (3% max for provider group)

Performance targets

Minimum quality gate includes
12 measures;
Year 1: maintain performance
Years 2 & 3: negotiated targets

None

No, but separate pay-for-performance program

e-Alerts and Newsletter Sign-up

Publication Date:
August 20, 2012
Authors:
Michael H. Bailit, Christine Hughes, Meghan Burns, David Freedman

Downloads

Related Topics
Health Care Delivery