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Brief analytical summaries or syntheses #48

Shared-savings payment arrangements in health care.

Six case studies

Summary

American shared-savings programs are an alternative approach to paying health care providers. Providers receive a share of savings achieved by reducing costs for care. This Commonwealth Fund paper presents six case studies of pilot shared-savings programs.

Background

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.

A previous Commonwealth Fund policy brief summarized 27 examples of shared-savings initiatives and found wide variation in how participants implemented such initiatives.

These variations included how payers assign patients to providers to evaluate cost savings, how payers adjust the risk profiles of pools of patients based on their health care needs, and how payers actually calculate and distribute savings.

That earlier study also made clear that payers and providers must resolve a number of key challenges if shared-savings plans are to realize their promise. These include ensuring that identified savings do not merely reflect random variations in health care costs — which is particularly important if providers incur no explicit penalty if they fail to achieve savings. Other key challenges include selecting measures that focus providers on improving performance as well as reducing costs, and equipping them with the data and tools they need to improve their effectiveness and efficiency.

To help resolve some of the uncertainties regarding an ideal shared-savings approach and how best to implement it, the researchers examined six shared-savings pilot initiatives. For each case study, they interviewed leaders at payer and provider organizations and state agencies about their attempts to design and implement shared-savings programs.

Analysis and results

These pilot programs vary considerably on several dimensions. These include the patient populations subject to shared-savings arrangements, the healthcare 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 healthcare 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.

These six case studies demonstrate that these programs have the potential to spur essential changes in the delivery and cost of patient care, given an existing system widely recognized as untenable.

Conclusion

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.

It remains unclear 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.

Implications and recommendations

This study simply presents the six case studies. It does not offer any recommendations, but rather summarizes each of the experiments.

  • Maryland Health Care Commission
    The commission began distributing MMPP payments in July 2011. It has not yet evaluated the results of the shared-savings model.
  • Medica
    Medica has been evaluating and tweaking its model, and is encouraged by preliminary drops in the cost of treating patients with chronic diseases.
  • HCI3
    In the first pilot program, participating providers came in 1 percent over budget, and therefore did not receive any payout. As of the date of the interview, HCI3 had not yet calculated savings for the other two pilots, but the highest score among providers so far was 72 out of 100. If providers sustain that score, they would receive 50 percent of the withheld PAC budget—or 25 percent of the total PAC budget.

    HCI3 says it is satisfied with these results, on balance, because the program has spurred desired behavioral shifts among providers. HCI3 emphasizes that transitioning to a shared-risk approach will further fuel behavioral change and ensure the financial viability of the payment model. HCI3 advises other organiza- tions considering a shared-savings model to spell out the “glide path”—an explicit timeline—for moving to sharing downside risk with payers and providers.
  • BCBS IL
    While the model is still relatively new, BCBS IL believes that its basic framework — especially the quality targets — is sound. Although it notes that the methodology may evolve, BCBS IL hopes that participants in other markets can use it as a template.
  • HealthPartners
    HealthPartners had just begun calculating shared savings and does not yet have findings. Health Partner interviewee observed that transparency in all aspects of the approach is critical.
  • HPHC
    HPHC believes that its shared savings model will remain a long-term option for some provider groups. HPHC believes in building a collaborative relationship with providers, and has no intention of forcing groups into this or a full-risk payment model. In fact, HPHC believes that provider groups with historical efficiencies can remain in the fee-for-service model while receiving pay-for-performance bonuses.

Source

Shared-savings payment arrangements in health care. Six case studies