Buffering risk

Market aims to help ACOS navigate potential losses

The move toward accountable care contracts has exposed some providers to new levels of financial risk, prompting an emerging market of insurance and other vehicles to help hospitals and doctors mitigate that risk.

Medicare, which in January began to contract with hospitals as accountable care organizations, requires some assurance from providers of their ability to repay any losses, either through cuts to future payments, reinsurance, escrow accounts, credit lines or surety bonds.

Some insurers have moved to capitalize on the potential market by targeting products specifically to ACOS. Last November, the Star Line Group, an underwriter, joined with an insurance broker and a consulting firm to market ACO reinsurance. HCP National Insurance Services in March called accountable care “a big growth area.” Two more accountable care insurers said they would enter the market that month.

Accountable care organizations tie potential bonuses or financial penalties to how successfully hospitals and doctors improve quality and control healthcare costs. Hospitals and medical groups that lower costs below projections may earn bonuses. When costs instead accelerate, providers may be at risk for penalties.

Financial risk has not been hugely popular, so far, under one Medicare accountable care effort, the shared savings program. Of the 27 organizations named in April to participate in the Medicare shared savings program, two participants agreed to risk financial penalties tied to cost-control performance. The rest opted for a safer route with no downside risk.

But the 32 providers included in the CMS Innovation Center’s Pioneer ACO Model will see downside risk, and the contracts address it in multiple ways. The Innovation Center offered providers five payment options that set various caps on the maximum bonus and loss ACOS will see, as well as a stop-loss option that limits the total per capita expenditures for any individual patient to the 99th percentile. And the agency required ACOS to secure reinsurance or another buffer against downside risk.

Banner Health, a Phoenix-based health system that is participating in the Pioneer Model, selected a line of credit to comply with Medicare’s requirement that ACOS prove they have ability to repay any downside losses, said Chuck Lehn, CEO of Banner Health Network, the system’s accountable care organization. And the system agreed to the CMS’ stop-loss option for individual risk, he said.

OSF Healthcare system, another Medicare Pioneer, decided a line of credit was the least expensive option to satisfy federal officials, said Robert Sehring, CEO of OSF’S ambulatory and accountable care divisions. Peoria, Ill.-based OSF also opted for the CMS’ stop-loss option. Sehring said that as the system gains more experience, it may seek commercial reinsurance as an alternative. The system modeled its potential liability to better understand its risk. With monthly data on quality and financial outcomes from the CMS, the system is expanding its data analyt- ics to monitor performance that might leave the system vulnerable to financial penalties, he said.

Sehring said he believes the system entered into its Medicare ACO contract with the best available understanding of its risk. And OSF includes many healthcare services that will benefit ACO operation, including primary-care doctors, hospitals, home care and skilled-nursing facilities, he said. “I don’t know if I would say if we’re comfortable yet,” Sehring said. “We do believe we’ve got the resources and the strategies that should position us well to take on this risk.”

Commercial insurer Wellmark Blue Cross and Blue Shield and Mercy Medical CenterDes Moines launched an accountable care organization last month with more than 20,000 enrollees. Mercy Medical Center will face downside risk in addition to the potential for bonuses during the final three years of a five-year contract. During the first two years, the hospital will be eligible for bonuses based on quality and cost-control targets without the risk of penalties, should costs accelerate.

“We’re willing to take the risk, particularly with a little time to gear up,” said Dr. David Swieskowski, the hospital’s senior vice president and chief accountable care officer and CEO of its accountable care organization. Mercy officials are fairly confident, he said, that efforts will at least hold spending growth stable.

Plus, Mercy will likely earn up to $1.8 million each of the first two years for achieving quality targets. Some of that can be set aside to cover future potential penalties, he said.

Nonetheless, Swieskowski said the hospital can opt out of the contract after the third year. And Mercy has the support of its corporate parent, Catholic Health Initiatives, one of the largest U.S. health systems. “They did sign off on the contract and they understand it goes to their deep pockets,” he said.