Buf­fer­ing risk

Mar­ket aims to help ACOS nav­i­gate po­ten­tial losses

Modern Healthcare - - THE WEEK IN HEALTHCARE - Me­lanie Evans

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.

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