premier white paper commercial payors

7/28/2019 Premier White Paper Commercial Payors

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Payor Partnerships

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2 |,QVLJKWVIURP3UHPLHUV3$&73RSXODWLRQHealth Collaborative

Executive summaryAccountable Care Organizations (ACOs) hold promise as newmodels that can better coordinate care delivery to improvepopulation health and reduce cost trends. To assistorganizations in developing the skills needed to delivercoordinated, accountable care, the Premier healthcare alliancelaunched its Partnership for Care Transformation (PACTPopulation Health Collaborative in 2010. Through this effort,Premier works with member health systems across two tracks:those ready to implement ACOs in local markets through theImplementation Collaborative, and those interested inidentifying their gaps and building the necessary capabilities tolaunch an ACO through the Readiness Collaborative.

After nearly three years, PACT members have found that

establishing a healthy payor partnership based ontransparency, shared value propositions, aligned incentivesand shared risk for the management of population health is afoundational capability for an effective ACO. Though manypayor/provider arrangements exist, there is little information onwhich ones are the most prevalent. This white paper providesdetail on the various ACO/payor arrangements of 22 PACThealth systems, as well as their corresponding paymentstructures and covered lives.

3D\RUSDUWQHUVKLSVFDQWDNHRQPDQ\GLIIHUHQWIODYRUVdepending on the payor relationship and appetite for change.PACT members are engaged in a range of value-based

payment arrangementsincluding pay-for-performanceincentives, shared savings and capitation contracts. Typically,these contracts pay claims according to the preexisting fee-for-service arrangements, but then add care management fundingand/or shared savings distributions. In the future, theexpectation is that the providers will take on additional riskuntil they reach capitated arrangements.

In the public market, the most popular choice for PACTmembers is to participate in the Medicare Shared SavingsProgram (14 out of 22 members). Within that program, most(13) members have elected to participate in the less riskysavings structure (called track 1), which does not impose

penalties on providers that fail to meet cost savings goals.Other options members are implementing include Medicaidprograms (10), usually to provide coordinated care to patientswith one or more serious chronic illnesses.

Payor Partnerships
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It is much more common for shared savings tocarry downside risk in commercial markets, asPACT members report 11 downsidearrangements in place with commercial plans.Added risk requirements may be due to thefact that commercial payors have bottom lineobligations, and are less tolerant than publicpayors of losses. The most popular way tobegin a value-based relationship with acommercial payor at a lower risk level is toimplement care management agreements,and eight such commercial agreements werereported by members of the collaborative.

Additional contracting options include those

with provider-owned plans (9 agreements),Medicare Advantage (13 agreements) andself-insured employers (8 agreements).

Beyond looking at the number of agreementsin place, the largest number of people(748,430) are covered under a no risk sharedsavings agreement. Particularly in the earlyyears of accountable care, when investmentrequirements are high and new models of caredelivery are still being tested, this is proving tobe the most attractive option for PACTmembers. In the commercial markets,

Medicare Advantage and Medicaid, manyproviders are also experimenting with caremanagement fees, managing 393,630 livesunder these types of arrangements.

Of the members prepared to assume greaterrisk, most lives are covered under a downsiderisk shared savings program (469,305),followed by bundled payment (165,000). Veryfew members of the collaborative are yetprepared to assume the risk of capitatedpayments, and generally experiment with thisform of reimbursement using a smaller sized

population (52,670 covered lives across allmembers of the collaborative).

PACT members also reported different waysto share savings with payor partners. In thepublic market, the range of savings providedto the ACOs by payors such as Medicare andMedicaid runs between 25 to 60 percent,depending on the risk assumed by theprovider. Arrangements with commercialpayors are usually more generous, typicallyoffering providers between 50 and 80 percent

of any achieved savings. However, privatesector agreements are more likely to includedownside risk for failure to achieve cost andquality goals.

Members of the PACT Collaboratives havedeveloped a number of key insights andlessons learned on how to appropriatelystructure a successful payor partnership.These lessons are vital to those consideringvalue-based contracting, as many providerorganizations underestimate the complexity ofthe new relationships they must form. Basedon the experiences of PACT Collaborativeparticipants, the most successful provider

organizations entering into value-basedcontracts with payors do the following:

Perform upfront financial due diligenceto appropriately fund new operatingactivities, such as population healthdata and care management;

Receive, share and analyze data; Clearly delineate the roles and

responsibilities of the respectivepartners;

Engage senior-level leaders to createa culture to support internal changesand collaborate with payor leaders to

build trust and a long-termrelationship;

Risk-adjust the population andestablish outlier protections for theprovider;

Move from silos to integrated activitiesto support population management;

Integrate care management activities; Measure quality, cost and satisfaction

to set contract terms with realisticexpectations;

Reconcile savings; Design effective shared-savings

distributions and incentives forproviders that effectively changephysician behavior and practicepatterns to deliver against ACO goals;and

3DFHWKHHIIRUWVRIWKHRUJDQL]DWLRQVcare management activities withvalue-based contracting efforts.

Payor Partnerships


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Why Payor/Provider CollaborationIs NecessaryThe transition to accountable care isexpensive. According to the AmericanHospital Association, organizations beginningthe ACO journey should expect to spendbetween $1.7 to $12 million to develop theinfrastructure and resources needed.

Not only do ACOs require extensive capital inorder to rework care models, invest ininformation technology, develop deeperanalytics capability and recruit new staff withpopulation health management skills, theyalso need to reduce costs and utilization

through improved chronic diseasemanagement and improved health outcomes.However, considering the infrastructureinvestments required, few providers can affordto sacrifice revenues from reduced utilizationwithout being compensated for the additionalcare management programs and a portion ofthe savings these efforts generate.

This is where payors join in this newpartnership. Payors are able to incent effortsto improve overall health and reduce utilizationof healthcare services through shared savings

payments to providers, or by paying forinterventions that positively affect health,including care management, patient portalsand other services that traditionally are notreimbursed but that yield longer term savings.Moreover, payers can protect providers, whoare taking performance risk in improvingquality and lowering the cost of care, fromunanticipated outlier costs and risks.

But payors are more than just a financingengine. They are able to quickly organizelarge populations of people through theirinsurance products, and also have data andanalytical capabilities that providers need inorder to manage population health andevaluate the effectiveness of individualproviders, including claims data on utilization,population demographics and healthoutcomes. Payors also have deep experiencein population health analytics. This informationis required to conduct predictive modeling,appropriately target services based on theneeds of the population, and establishperformance targets and other interventions.

Because ACOs take responsibility for anentire population, it also is critical for them totrack services received outside the ACOnetwork. This can only be done if payorpartners provide cross-continuum claims data,giving a full picture of services provided inorder to identify opportunities to improve care,contain costs and prevent duplication ofservices.

Payors also play a vital role in healthengagement. To encourage individuals tomake better health choices, payors can create

benefit design plans in collaboration withproviders to remove barriers to healthy living,such as waiving co-pays for maintenancemedications needed to manage chronicdisease or providing free preventive healthscreenings.

Payor Partnerships

Payor partner contributions needed for success ACO investments are significant, and often need to be supported with incentive

payments from payors that will benefit from the transition. ACOs need access to all claims data to know what services are being used and

accessed out of network, whether pharmacy prescriptions are being filled, etc. Without payment and incentives for coordination, reduced utilization, enhanced quality,

etc., the goals of the ACO are not financially sustainable. Payors can assist with medical management goals, including population management,

disease management, formulary development, etc. Payors are instrumental in developing value-based benefits, such as reduced co-pays

for maintenance medication, waived payments in exchange for health assessments, etc.


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Payor Partnerships Options forValue-Based Payment,QWKHSDVWSURYLGHUVFRQWUDFWVZLWKSD\RUVwere limited to payment terms, which usuallyinvolved fee-for-service reimbursement,occasionally with quality bonuses or capitationfor some portions of covered lives. Thecontracts that ACO leaders are enteringcurrently include much broader terms such aspatient-centeredness criteria, quality metrics,information technology capacity, delegatedand aligned care management functions andexpanded financial incentives. Typically, thesealternative contracts pay claims according tothe preexisting fee-for-service arrangements,

but then add care management funding and/orshared savings distributions. In the future, theexpectation is that the providers will take onadditional risk until they reach capitatedarrangements with risk corridor protection orexceptions for outliers.

Many organizations pursuing accountable carealready participate in alternative paymentmechanisms in the private sector, albeit on alimited scale. Moving toward risk-basedarrangements with payors allows a providerorganization to incrementally build the

financial and clinical infrastructure necessaryto support accountable care. In fact, based onGDWDFROOHFWHGIURP3UHPLHUVPDUNHW -basedassessments of ACO readiness, providers thatare the most prepared to become ACOs haveat least some experience with risk-basedrelationships and alternative contracts withpayors.

Payor Partnerships

Value-based contracting comes in manyIODYRUVDQGSURYLGHUVXVXDOO\VHOHFWWKHLUentry point based on their opportunities to shiftutilization patterns, as well as their risktolerance and capacity for change. However,EDVHGRQQHDUO\WKUHH\HDUVH[SHULHQFHamong members of the Premier collaborative,some common attributes have started toemerge across these different entry points:

x No matter what the model, providerswill not be entitled to bonus orincentive payments unless quality andefficiency standards are met

x In many of the models, the provider isheld accountable for overall medicalcosts, including costs for caredelivered outside of the providernetwork with the exception of outliers

x Many models require providers toaccess and analyze large payorclaims data sets to evaluate thequality and cost of care, includingwhether providers are implementingevidence-based clinical guidelines


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Below is a summary of the different forms ofvalue-based contracting, presented by theirlevel of assumed risk.

Care Management FeesIn this model, payors will reimburse providersfor offering care management programs, suchas disease management or a Patient-Centered Medical Home (PCMH). Thesepayments are typically based on per member,per month management fees, or an increaseWRDSURYLGHUVIHH-for-service payments rates(e.g., a 10 percent enhancement for PCMHcompared to typical primary care). Thesearrangements usually include bonus programs

for those practices that meet quality targets.

Bundled Payment/Episode of Care PaymentUnder bundled payment, payors and providerscreate a target price for hospital, physicianand possibly post-acute services providedduring an episode of care, usually set byapplying an agreed upon discount to historicalcosts. In a retrospective model, participantsare paid under the existing fee-for-service(FFS) system, but at a negotiated discount. Atthe end of the episode, the total payments arecompared to the target, risk-adjusted price,

and providers are able to share in anyresulting savings. In a prospective model, thetotal discounted payment is made in a bundlein advance, and providers are paid forservices out of the bundle. Over time, thispayment model is intended to align incentivesand reduce overall spending. However, inorder to ensure that spending declines andquality improves, payors may put in place apenalty structure to recoup funds fromproviders that do not achieve these goals, orpay prospectively to ensure higher spendingdoes not occur. This payment model can be

helpful in aligning specific specialists andhospital services.

Shared SavingsUnder shared savings, the payor pays allclaims for a specified target population at pre-agreed fee-for-service rate, while providersfocus on the interventions most likely tooptimize outcomes and reduce utilization. Ifthe actual cost of care for the population isless than the projected risk-adjusted cost(possibly minus a target or confidenceinterval), the excess funds are placed in asavings pool. The provider then receives apercentage of the savings, subject to itsachievement of benchmark levels ofperformance on measures of quality andpatient experience. Shared savings models

generally take two forms one where there isno downside risk for failing to achieve costtargets, and one where the provider agrees toSD\EDFNVSHQGLQJDERYHWKHEenchmark.The one-sided risk model is usually utilized inthe first two to three years of the arrangementif the provider network does not havesignificant risk management experience.

Partial or Full CapitationCapitated payments typically are paidperiodically (e.g., monthly), or fee-for-servicecan be paid initially with an annual

reconciliation against a global cap, based onthe terms of the agreement. These rates canbe set based on projected spending, andadjusted on the risk scores of the attributedpopulation. Capitation rates may beaugmented based on a quality and/or patientsatisfaction measures. Furthermore,capitation programs do not necessarily needto cover all medical costs. Partial capitationmodels may include specified components ofmedical spending such as physician servicesor inpatient hospital care.

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Implementing a Successful PayorPartnershipRecreating the relationship with a payor is acomplex undertaking that involvesconsiderable risk. Because of this, many havebeen wary to enter into these new types ofrelationships. On the provider side, manyconsider a value-based payor contract toorisky because of the high cost to redesign carefor the current fee-for-service system, lack ofoverall incentive and weak adoption of theseshared savings models by payors. On thepayor side, many are nervous to work withemerging ACOs that most need the financialsupport, opting instead to go with more

established organizations that have alreadymade all the necessary investments inpopulation management, with a track record ofproven results. Both payors and providersmust meet somewhere in the middle for theaccountable care relationship to begin.

To help providers better understand how toinitiate and maintain a successful payorpartnership, Premier and more than 20 otherhealthcare experts defined requirements,specific capabilities and business functionsthat are necessary for success. What follows

are the essential activities that need to becompleted in order to create successfulworking relationships with payors.

Establish or redesign relationships with payorpartnersValue-based contracts involve considerablerisk. To avoid unnecessary strain to theoperational health of the organization, contractterms must be achievable and adequatelyfunded. As such, ACOs need to performextensive due diligence in order to have anaccurate process and plan for targeting high-cost populations, identifying areas of potentialsavings and funding care delivery changes thatwill achieve gains in health outcomes at a pacethat can be accomplished. Essential to theprocess is predictive and financial modeling toaccurately estimate the bottom line impacts of

value-based contracting to the hospital,physicians and the ACO. Also essential to therelationship is ensuring the provider is heldresponsible for risks it can control. Thisinvolves risk-adjustment and protections againstoutlier costs. The results of this planningshould inform decision-making around theSURYLGHUVDELOLW\WRDFFHSWULVNDQGLQWXUQWKHtype of value-based contract they choose topursue.

Payor Partnerships

Do Your Financial Due DiligenceHawaii Pacific Health and Hawaii Medical Service Association (HMSA), the parent company ofBlue Cross Blue Shield of Hawaii, made national headlines with an extensive five-yearpartnership that aligns the two organizations to push for improved quality at a reduced cost. The+DZDLLDJUHHPHQWFRYHUV+DZDLL3DFLILFVIRXUKRVSLWDOVRXWSDWLHQWVLWHVDQGFDUHSURYLGHGby its 1,300 affiliated physicians.

The shared-savings agreement makes 50 percent RIWKHKRVSLWDOVDQQXDOSD\LQFUHDVHVRYHUthe contract term dependent on achieving quality improvement and cost savings thresholds. Themore savings Hawaii Pacific generates, the more HMSA will pay them. If financial losses occur,HMSA and Hawaii Pacific share in the loss.

Before settling on the financial terms, Hawaii Pacific used multiple data sources and financialmodelsincluding Premier, an actuarial firm and health plan modelsto get an accurate handleon costs, revenues and savings opportunities under a risk-based deal. It is crucial providersinvest in deep financial analysis, use different economic models and engage in clinicalopportunity analysis to truly understand the implications before inking any partnership deals.


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Design and maintain integrated contractingmechanisms with ACO participants and payorpartner(s)Once a payor relationship is established, itneeds to be maintained with a clearunderstanding of evaluation measures that willbe used to assess performance over time,sharply delineated roles and responsibilitiesfor contract management, and a set structurefor reviewing progress and reconcilingfinancial results.

A key part of this process involves designingand implementing new compensation systemsfor primary care, specialists, hospitals and

post-acute providers that align and incentcontinuous improvement around accountablecare goals of lower costs, better outcomesand improved quality. Although a range ofcompensation models are possible, includingbonus systems, pay-for-performanceprograms and shared savings, it is bestpractice to ensure that providers who will bepaid under these new mechanisms have inputinto selecting the final compensation model,

the amounts of compensation that will be tiedto outcomes and the pace of transition in orderto gain their support. Moreover, each of thesemodels may require their own processes fordistributing financial incentives, which must becreated beforHWKHFRQWUDFWJRHVOLYH

Collaborate with payor partners to manage thepopulation experienceEssential to the process of managing thepopulation experience is case management.In almost every market, a small proportion ofthe population consumes the majority ofKHDOWKFDUHVHUYLFHV7KHVHKHDY\XVHUVneed to be identified and engaged early, as

they often are the sickest and most in need ofpreventive care interventions. Part of thesolution may be a collaborative redesign ofbenefit plans to remove barriers to healthyliving, such as waiving co-pays formaintenance medications needed to managechronic disease or providing free preventivehealth screenings. Other options may involvetargeted outreach by nurses or casemanagers to help coordinate care.

Payor Partnerships

Sharing Data With PartnersWhen Blue Cross and Blue Shield of M LQQHVRWDLQHQWHUHGLQWRDVKDUHGLQFHQWLYHpayment agreement with Fairview Health Services, the insurer realized it had to change itstraditional approach in order for both parties to succeed.

Unlike traditional contract negotiations, the parties instead entered into a long-term, collaborativepartnership. Under the arrangement, Fairview gets paid a basic rate, but over time the focusshifts to incentive payments based on measureable improvements in cost and quality. As bothSDUWLHVIRUWXQHVDUHlinked, Blue Cross plays a key role in working with Fairview to identify andaddress cost drivers and quality gaps by sharing data and trends that inform care systempractices.

As Fairview takes responsibility for an entire population, they need to be able to track all of the

VHUYLFHVSHRSOHUHFHLYHRXWVLGHWKHQHWZRUN7KHZD\WRGRWKLVLVYLD%OXH&URVVKLVWRULFDOclaims data tracking patients from across the care continuum. The data also provides Fairviewwith a better understanding of where opportunities exist to improve care and contain costs. It iscrucial that providers considering an ACO arrangement are able to get timely, trendedperformance data with targets and benchmarks, and that they have the ability to analyze thedata.


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Traditionally, this has been a challenge in therelationship, as payors and providers bothneed to assume a role in better managing,coordinating and integrating servicesprovided. Successful relationships have inplace clearly defined roles to understandZKRVGRLQJZKDWIRUWKHKLJK-risk individuals,and ensure that all interventions from eitherthe payor or the provider are coordinated, andnot duplicative.

Because of the careful coordination needed,LWVQRWHQRXJKWRMXVWPanage value-basedcontracts from a financial perspective. Instead,payors and providers need to create broad

governance systems to jointly manage ACOstrategy, offerings, beneficiary outreach, aswell as the participant network to ensureadherence to cost and quality goals.

Ensure transparency of information needed tomanage defined ACO population(s)Extensive data exchange between providersand payors needs to happen if ACOs are toachieve their goals. This requires anestablished system whereby data from payors(e.g., claims, pharmacy, and lab utilization andcost data) and providers (e.g., clinical

information) are shared to support joint caremanagement and ACO operations. Often, thisrequires rules for data exchange that specifywhat data will change hands, the frequency ofexchange, specific reporting mechanisms andelements of reports, which will meet legalrequirements concerning transferredconfidential data.

Overall State of Readiness of PACTCollaborative MembersBased on the requirements, specific operatingcapabilities and business functions identified,LWLVSRVVLEOHWRDVVHVVSURYLGHUVUHDGLQHVVWRimplement various elements of an ACO,including payor partnerships.

Premier Implementation CollaborativeMembers of the Implementation Collaborativeconsist of health systems that are able topursue accountability for a portion of theirpopulation today, evolving from fee-for-serviceto value-driven business models.Implementation members self-report an

average readiness score of 42 percentregarding payor partnerships. In other words,Implementation Collaborative members at thestart of the initiative, on average, wereconsidered to be in the second of four stagesof readiness.

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Premier Readiness CollaborativeMembers of the Premier ReadinessCollaborative are working to develop theorganization, skills, team, operationalcapability and tools necessary to develop acoordinated care delivery model. As such,they tend to be in the early stages of ACOformation, and have less mature payorpartnerships, as the diagram shows.

Organizations that are further along thejourney to accountable care generally haveexisting value-based contracts, includingbundled payments or pay-for-performancecontracts, or they own a provider-sponsored

health plan. Outside of these examples ofvalue-based contracting, few ReadinessCollaborative members had developedpartnerships with payors that included sharedsavings or other risk-sharing reimbursement.Further, some members also reportedadversarial relationships, which will need to beovercome before a true payor partnership canbe entertained.

Potential Payor PartnersFor organizations that are prepared to enterinto more mature risk-based contracts, suchas shared savings or capitation, it is importantnot to take a myopic view of the potentialpayor partners in any given market. Medicareis one potential partner through the MedicareShared Savings Program, Bundled Payments,the Pioneer Program and other paymentdemonstrations through the Center forMedicare and Medicaid Innovation (CMMI).Still other providers are looking to createpayor partnerships within state Medicaidprograms.

Payor Partnerships


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In private markets, accountable care principlesare being implemented in many places asproviders and payors drive toward new, value-driven models of care in lieu of traditional fee-for-service. Effective, private payorpartnerships are perhaps most well known inMinneapolis, where Fairview Health Serviceshas been a leader in implementing four value-based ACO agreements with commercialpayors. +RZHYHULWVQRWMXVWFRPPHUFLDOplans that are interested in partnering todeliver more accountable care. As anexample, major employers are beginning to

see the value of applying accountable careprinciples to their self-funded employee healthplans. Many provider organizations areworking with their own employees and self-insured plan to pilot test accountable careprograms. Still other provider groups arestarting their ownor expanding existinghealth plans. In fact, members of theImplementation Collaborative have executed,value based contracts in place with a widearray of payor types.

Payor Partnerships

Private market options include:

x Commercial plans - Insurers are beginning to enter into accountable care agreementswith health systems as an insurance product. The rewards for meeting mutually agreedon quality standards and cost reductions include bonus payments and shared savings tothe accountable care network.

x Self-funded employers - Large self-insured employers are ripe for turning to ACOs toprovide their care. In some markets, employers project health spending on a per-capitabasis for employees over a multi-year time period, and make agreements withpartnering health systems to share in savings if total costs are below the per-capita

benchmark.x Provider health plan - Organizations that own health plans have experience reducing

unnecessary services, hospitalizations and emergency visits through care and utilizationmanagement, and acute and chronic care management strategies. As these arefundamental requirements for ACOs, these organizations should be poised to movemore quickly than others. Moreover, working with an owned health plan provides a safeOHDUQLQJODERUDWRU\WKDWZLOOKHOSPLQLPL]HULVNZKHQDVVXPLQJDFFRXQWDELOLW\IRUadditional populations.


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Payor Partnerships

Potential Contract OptionsMembers of the Premier ImplementationCollaborative participate in a broad range ofvalue-based contracts with a host of differentpayor partners.

In the public market, the most popular choicefor members is to participate in the MedicareShared Savings program (14 out of 22members). Within that program, most (13)members have elected to participate in theless risky track 1, which does not imposepenalties on providers that fail to meet costsavings goals.

Other options in the public market include theMedicaid population. Despite early fears thataccountable cDUHZRXOGFKHUU\SLFNWKHhealthiest, lowest cost populations, that hasnot been the experience of membersimplementing these new models. In fact,members of the Collaborative report nineagreements with state Medicaid programs,usually to provide coordinated, accountablecare to patients with one or more seriouschronic illness. These contracts may beattractive to health systems because chronicpatients generally have higher healthcare

costs, thus representing a large cost savingsopportunity (and a larger shared savingspayment) with appropriate disease andprimary care management.

In commercial markets, it is much morecommon for shared savings reimbursement tocarry downside risk. In fact, members of the

Implementation Collaborative report 8downside shared savings arrangements inplace with commercial plans. Added riskrequirements in the commercial markets maybe due to the fact that these payors havebottom line obligations, and are less tolerantthan government payors of losses in earlyyears ofWKHSURJUDP$OWKRXJKQRULVNarrangements in the commercial market arerare, there remain options for providers thatwant to implement value-based contracting.The most popular way to begin a value-basedrelationship with a commercial payor at a

lower risk level is to implement caremanagement agreements, and 11 suchcommercial agreements were reported bymembers of the Collaborative.

The chart below summarizes the number ofcontract agreements that are in place amongmembers of the Implementation Collaborative,organized by payor and contract type.


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Payor Partnerships

Beyond looking at the number of agreementsLQSODFHLWVLOOXVWUDWLYHWRVKRZWKHVFRSHRIthese value-based contracts, as measured bycovered lives. Based on reported numbersfrom members of the ImplementationCollaborative, nearly 1.8 million lives arecovered under some form of value-basedcontract.

The largest number of people (748,430) arecovered under a no risk shared savingsagreement. As noted earlier, theseagreements provide an opportunity fordeveloping ACOs to test and participate in avalue-based relationship with a payor, without

fear of experiencing losses if cost and qualitytargets are not met. Particularly in the earlyyears of accountable care, when investmentrequirements are high and new models of caredelivery are still being tested, this is proving tobe the most attractive option for members ofthe Implementation Collaborative.

In the commercial, Medicare Advantage andMedicaid markets, many are alsoexperimenting with care management fees,managing 393,630 lives under these types ofarrangements.

Of the members prepared to assume greaterrisk, most lives are covered under a downsiderisk shared savings program (469,305),followed by bundled payment (165,000). Veryfew members of the Collaborative are yetprepared to assume the risk of capitatedpayments, and generally experiment with thisform of reimbursement using a smaller sizedpopulation (52,670 covered lives across allmembers of the Collaborative).

Based on the experiences of Collaborative members, selection of a payor partner and avalue-based contract option depends largely on:

x 3URYLGHUVFDSDELOLWLHVWRDVVXPHresponsibility for population health

x 3URYLGHUVDELOLW\DQGZLOOLQJQHVVWRDVVXPHDGGHGULVN x 3D\RUVZLOOLQJQHVVWRWUDQVSDUHQWO\VKDUHFODLPVGDWD

x 3D\RUVZLOOLQJQHVVWRVKDUHVDYLQJVLQDQHTXLWDEOHPDQQHU


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Range of Savings Provided to the ACOMembers of the Implementation Collaborativereport a range of different ways to sharesavings with payor partners. The type and thesize of the split generally varies by payor.

Public payorsBased on the experience of organizationsparticipating in the ImplementationCollaborative, the range of savings provided tothe ACOs by public payors as Medicare andMedicaid runs between 25 percent to 60percent. The size of the split is usuallycontingent upon the level of risk assumed bythe provider, with those prepared for downside

risk eligible to earn up to 60 percent of thesavings. Lower risk options such as caremanagement generally offer more modestfinancial incentives. To mitigate risks for outlierclaims, most of these arrangements tend to beno-risk models, but in downside or capitatedforms, typically will include a cap to limitprovider losses.

Commercial payorsACO-type arrangements with commercialpayors are usually more generous, typicallyoffering providers between 50 percent and 80percent of any achieved savings. Somemembers also report arrangements that offerproviders 100 percent of all achieved savings,but these are not as common as those thatprovide a savings split. However, as notedearlier, private sector agreements are morelikely to include downside risk for failure toachieve the cost and quality goals than thosein public markets. To mitigate the risk foroutlier claims, some providers will negotiateULVNFRUULGRUVWKDWH[FOXGHKLJKFRVWFDVHV

such as burns or transplants, or set an outliercap for claims above a specific dollar amount(i.e., $200,000).

Employer payorsEmployers offer a broad range of splits,ranging from 100 percent of savings withdownside risk, to 50-50 splits in upside onlyarrangements.

Payor Partnerships


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/HVVRQV/HDUQHGIURP3UHPLHUVCollaborativeIt is easy for provider organizations tounderestimate the complexity of the newrelationships they must form with payors.Sharing data, integrating care managementactivities, measuring quality, cost andsatisfaction, reconciling savings, settingrealistic performance expectations anddesigning effective shared-savingsdistributions are all important and intensiveefforts that emerge when negotiating payorcontracts. The potential barriers manyproviders will face in this area include:

x Contract terms with initial cost andquality performance expectations thatare unrealistic;

x Underinvestment by the ACO in keynew operating activities (such aspopulation health data and caremanagement);

x Inability to effectively changephysician behavior and practicepatterns to deliver against ACO goalsbecause of uncertainty aroundrevenue impact of new contracts;

x 3DWLHQWVFRQFHUQDERXWWKHQDWXUHRI

the contract terms and potentialnegative impact on their health; and

x Lack of broad buy-in from operationalmanagers in both organizations.

Based on work with leading providers in theaccountable care space and more than 100health system readiness assessments,Premier has the following observations forproviders as they develop new relationshipswith payor partners.

Financial due diligence is a necessary

exercise: Any provider considering an ACOmust have a firm grasp of the financialimplications before negotiating with payors.Understanding total costs of the population,including outlier risks and risk adjustment;conducting utilization and benchmarkinganalyses; and forecasting the impact on bothrevenue and expenses are all part of theprocess. Having a working knowledge of

various payment alternatives is also important.There are many financial scenarios,depending on bundled payment, caremanagement, capitation options and specificbonus structures. The use of multiple data andfinancial models to set appropriate goals isrecommended. To their disservice, manyproviders are not appropriately investing in thislevel of financial analysis before enteringdiscussions with payors.

Access to data, and the ability to analyze it,will make or break partnerships: BecauseACOs take responsibility for an entirepopulation, it is critical to track all of the

services people receive outside of the ACOprovider network, and identify high-costpatients. This can only be done if payorpartners provide historical claims data fromacross the care continuum. A full data setexchange should be part of any partnershipagreement. Further, having the full picture ofservices provided is critical to understandingwhere opportunities exist to improve care andcontain costs, and to evaluate theperformance of individual providers in areassuch as the application of evidence-basedcare. Negotiating comprehensive and timely

access to data is a critical point of discussionas new partnerships are being formed.Meanwhile, it is also critical for providers to beready to process and analyze the data that isbeing shared. Efficiently sifting through thismountain of information and effectivelyleveraging it to manage populations willrequire a sophisticated data platform andspecific analytical expertise.

Payor Partnerships


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Clear delineation of strengths, responsibilitiesand accountability-The new relationshipbetween payors and providers is not simplyfinancial. There is also a division of labor thatwill most likely result in new responsibilities forNH\IXQFWLRQVVXFKDVFDUHPDQDJHPHQW,WVimportant to gain clarity on how the twopartners will collaborate to care for patients,and which party has responsibility for thevarious functions and activities,WVDOVRimportant to ensure that each organizationdoes what it does best. The ACO contractshould clarify the new roles andresponsibilities related to these pre-existingactivities, as well as the parties that will be

responsible for each new populationmanagement activity, including casemanagement, beneficiary outreach, diseasemanagement programs, etc. Both partiesshould also agree on the measures that willdetermine success, and there needs to be aneffective member attribution process.

Changing Culture Starts at the TopPhoenix-based Banner Health Network is a predominant player in the emerging field ofaccountable care, having partnered with Aetna to offer a commercial ACO, being accepted as

the first ACO into the CMS Pioneer program and teaming up more recently with Blue Cross BlueShield of Arizona to deliver enhanced services to Arizonans.

There are many challenges when partnering with other organizations, but one of the biggest inFUHDWLQJDQ$&2LQYROYHVFKDQJLQJFXOWXUHVD\V&KXFN/HKQ%DQQHUV&(2&KDQJLQJWKemindset of industry, patients and organizations from focusing on treatment to a broader focus onprevention and wellness needs to start at the top.

To transform healthcare, the executive leadership and governance at the partneringorganizations must set the tone, committing to change and providing the resources to supporttransformation. Changing cultures also requires leaders, who were once adversaries orcompetitors, to collaborate and learn to trust one another so that ACO arrangements cansucceed. This requires frequent engagement, complete transparency of information and otherHIIRUWV(YHU\RQHLVJRLQJWRKDYHWRFKDQJHWKHLUWKLQNLQJDQGEHKDYLRUVLQVRPHZD\VIRUWKLVWRZRUNVD\V/HKQ

Payor Partnerships


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Payor Partnerships

Cultures must adopt and adapt to newrelationships: To achieve success inaccountable care, payors and providers mustcome together like never before as part of thesame team. The long history of approachingcontracting as adversaries must be put aside.This effort starts at the top levels of bothorganizations, which must lead and invest inchange management to ensure theirrespective staffs are operating with newmindsets and viewing the other side as a truepartner. Activities that will support effectivecultural change include setting realisticexpectations for ACO outcomes, effectivelyaligning incentives, putting past differences

behind, and committing to ongoingcommunication and training. There must be anovert recognition that both parties need oneanotherand must collaborateto succeed inbending the cost curve, improve quality andsupport the backfill in lost revenue. On thatpoint, there should be recognition that thepayor partner will increase the number ofpeople in the network or grow market share,which helps to offset losses the providerpartner can expect to experience. No moreannual contract negotiations. Any agreementshould include a three-year arrangement and

imply an even longer-term commitment.

Collaborative, consistent leadership is neededto achieve success: Joint leadership isrequired for effective change managementand contract execution. Leaders from both theprovider and payor organizations shouldregularly meet to coordinate activities,evaluate metrics and results, discuss qualityimprovement opportunities, tackle issuestogether and make other efforts that build trustbetween the parties. Formalizing the structureby forming a joint operating committee also

helps with change management and adoptionof new processes and protocols. Mostimportantly, the leaders of the twoorganizations must set the tone based upon acore set of partnership values that includetransparency, honesty and sharing.

Shared savings distribution strategies are achallenge: Aligning various providers throughappropriate distribution of financial incentivesand rewards based on performance is acomplicated activity. Failure to develop analigned strategy for shared savings willXQGHUPLQHDQ$&2VDELOLW\WRGULYHGHVLUHGprovider behaviors and achieve targetedoutcomes. Shared savings and how that iscalculated is crucial and must be crafted as awin-win for both parties. Many organizationsare wrestling with how to effectively mapsavings and incentives for individual providers.Leaders need to ensure that primary care andspecialty physician incentives are designed

collaboratively, based on pre-definedmeasures and awarded for the delivery ofhigh-quality care. All parties health systems,providers, and payors must be aligned andrewarded for achieving higher quality at alower cost.

The complexity of relationships makesreconciliation a challenge: The financialarrangements of an accountable carepartnership are more complicated, and theprocess for reaching agreement andmeasuring contract terms is even more

complex. It may be three to six months afterthe close of a rate year before the finalpayment reconciliation occurs. Providers mustkeep this front of mind as they make financialand operational plans. This is why upfrontfinancial due diligence is so crucial, as ishaving senior leaders invest in the time tobuild trust with their counterparts at payororganizations.

7KHSDFHRIDQRUJDQL]DWLRQVFDUHmanagement and value-based contractingefforts must move harmoniously. Like many

things in life, striking a balance betweenGHYHORSLQJRQHVFDUHPDQDJHPHQWDFXPHQand value-based contracting efforts is crucial.$ELJSXVKWRGHYHORSLQJ\RXURUJDQL]DWLRQVcase management capability without thesavings opportunities means reducingutilization and revenue for the hospital orhealth system, undesirable in a fee-for-serviceenvironment. And, getting into shared savingsagreements without care managementcapabilities means repeating the mistakes withrisk-based contracting in the 1990s.


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Appendix

Structure

About the Premier healthcare alliance, Malcolm Baldrige National

Quality Award recipient

3UHPLHULVWKHQDWLRQVODUJHVWSHUIRUPDQFHLPSURYHPHQWDOOLDQFHRIPRUHthan 2,800 U.S. hospitals and nearly 100,000 other sites using the power of

collaboration and technology to lead the transformation to coordinated, high-

quality, cost-effective care. Owned by healthcare providers, Premier

operates a leading purchasing network with more than $5 billion in annual

savings. Premier also maintains clinical, financial and outcomes databases

based on 1 in every 4 patient discharges. A world leader in measurably

improving patient care, Premier has the largest performance improvement

collaboratives in America, including one in partnership with the Centers for

Medicare & Medicaid Services. Headquartered in Charlotte, N.C., Premier

also has an office in Washington.https://www.premierinc.com. Stay

connected with Premier onFacebook,Twitter,LinkedInandYouTube.
https://www.premierinc.com/https://www.premierinc.com/https://www.premierinc.com/http://www.facebook.com/premierhealthcarealliancehttp://www.facebook.com/premierhealthcarealliancehttp://www.facebook.com/premierhealthcarealliancehttp://twitter.com/premierhahttp://twitter.com/premierhahttp://twitter.com/premierhahttp://www.linkedin.com/company/premier-healthcare-alliancehttp://www.linkedin.com/company/premier-healthcare-alliancehttp://www.linkedin.com/company/premier-healthcare-alliancehttp://www.youtube.com/user/premieralliancehttp://www.youtube.com/user/premieralliancehttp://www.youtube.com/user/premieralliancehttp://www.youtube.com/user/premieralliancehttp://www.linkedin.com/company/premier-healthcare-alliancehttp://twitter.com/premierhahttp://www.facebook.com/premierhealthcarealliancehttps://www.premierinc.com/

premier white paper commercial payors

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