Shared-Savings Payment Arrangements in Health Care: Six Case Studies
Authors:
Michael Bailit, Christine Hughes, Megan Burns, and David H. Freedman
Editor:
Sandra Hackman
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Citation
M. Bailit, C. Hughes, M. Burns et al., Shared-Savings Payment Arrangements in Health Care: Six Case Studies, The Commonwealth Fund, August 2012.
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Overview
Driven by widespread interest in improving health care quality and reducing costs and by the Affordable Care Act’s "accountable care" provisions, shared-savings programs are gaining traction as an alternative approach to paying health care providers. Providers receive a share of the savings they achieve by reducing the growth in costs for delivering care to a defined patient population. This report presents six case studies of pilot shared-savings programs across the country. The cases reveal program variation in the patient populations subject to shared-savings approaches, the health care services covered, the determination of cost savings and payouts to providers, the use of performance targets, and performance measurement. Early results from the pilot programs also vary. Exploring differences in shared-savings approaches, and the outcomes they achieve, will be essential to determining whether they work, how to improve them, and whether and how to diffuse them.
Executive Summary
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.
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EXHIBIT ES-1. KEY DESIGN FEATURES OF SHARED-SAVINGS PILOT PROGRAMS
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MARYLAND MULTI-PAYER PATIENT-CENTERED MEDICAL HOME PROGRAM (MMPP)
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MEDICA AND FAIRVIEW HEALTH SERVICES
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HEALTH CARE INCENTIVES IMPROVEMENT INSTITUTE (PROMETHEUS PAYMENT)
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| Patients, Services, and Payments |
| Patient population(s) |
Commercial; Medicaid
managed care
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Commercial
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Commercial; Medicare Advantage
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| Methodology for attributing patients to provider groups |
12-month claims history
Most frequently visited provider (most recent if tied)
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Johns Hopkins ACG software
and a 12-month look-back to determine site of at least
50% primary care spending
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Not required
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| Type of payments |
Semiannual lump-sum payment
Incentive payment based on
cost savings
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Per-patient, per-month management fee for disease
care coordinator
Shared savings based on comparison with a control group
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Shared savings for reducing potentially avoidable complications (PAC) associated with treating a chronic condition
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| Special Adjustments to Shared-Savings Calculations |
| Adjustments for patient risk |
None at the time
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ACG grouper
High-cost claims truncated at $250,000 to $500,000, depending on contract
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Stop-loss provision
High-cost claims (episodes exceeding two standard deviations) truncated
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Supports for providers
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With state funding, University of Maryland and Johns Hopkins School of Medicine provide
training on care coordination and evidence-based medicine, etc.
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Data support and analysis
Some care management and health coaching may be available
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Tools and services to help payers and providers use the Prometheus Payment software and share best practices
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| Inputs for Calculating Savings |
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Minimum number of patients per practice group
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None
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15,000–20,000 member-months
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Minimum number of patients with certain conditions and treatments
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Retention of initial percent of savings by payer
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None
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None
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Payer takes upfront share (discounted PAC allowance)
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| Method for Calculating Savings |
| Comparison with: |
External benchmark (TBD)
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Control group
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Budget
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| Method for Distributing Savings |
Percent cost savings eligible
to providers |
30%–50%, depending
on performance
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Up to 75%, split among providers: one-third to hospital; one-third to care management; one-third to physician groups
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Varies by payer, but PAC allowances
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Performance targets
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21 quality measures; and reductions in use of high-cost services, such as emergency department and hospital readmissions
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Minimum quality gate, then confidential algorithm
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Must achieve net 6% reduction in cost of PAC to receive payout
Quality scorecard available for use
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EXHIBIT ES-1. KEY DESIGN FEATURES OF SHARED-SAVINGS PILOT PROGRAMS (CONTINUED)
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BLUE CROSS BLUE SHIELD
OF ILLINOIS AND
ADVOCATE HEALTH CARE
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HEALTHPARTNERS
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HARVARD PILGRIM HEALTH CARE
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| Patients, Services, and Payments |
| Patient population(s) |
Commercial
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Commercial; Medicaid (two of the latter providers opted to participate, but with separate calculations)
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Commercial |
| Methodology for attributing patients to provider groups |
Jointly developed confidential methodology with a two-year look-back and tie-breaking algorithm
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Retrospectively attributed using internally developed algorithm
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Prospectively assigned using internally developed algorithm
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| 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
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ACG software
High-cost claims truncated
(amount confidential)
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DxCG software
High-cost claims (>$50,000) truncated
Services excluded: transplantation, behavioral health, and out-of-area services
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| 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
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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
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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
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| 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)
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None
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2%
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| Method for Calculating Savings |
| Comparison with: |
Control group:
nonparticipating provider network
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Jointly negotiated target
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Budget
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| Method for Distributing Savings |
Percent cost savings eligible
to providers |
Up to 50%
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50% (commercial and Medicaid savings calculated separately)
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50/50 split of savings up to 6% of total budget, after plan takes 2% (3% max for provider group)
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| Performance targets |
Minimum quality gate includes
12 measures;
Year 1: maintain performance
Years 2 & 3: negotiated targets
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None
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No, but separate pay-for-performance program
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Citation
M. Bailit, C. Hughes, M. Burns et al., Shared-Savings Payment Arrangements in Health Care: Six Case Studies, The Commonwealth Fund, August 2012.