Downside Risk Pacts Are Eyed As Health Insurers Consolidate

Reprinted from AIS’s VALUE-BASED CARE NEWS, a hard-hitting monthly newsletter with news and business strategies on ACOs, medical homes, bundled payments, coordinated care and global payments.

By Jane Anderson, Editor

August 2015 Volume 6 Issue 8

With massive consolidation on the horizon for large health insurers (see story, p. 1), both provider groups and payers are anticipating an even stronger push toward value-based payments in commercial contracts.

And as those value-based contracts evolve, they’re more likely to move away from the upside-only shared savings agreements that are commonplace today, and toward new arrangements that push more risk — including downside risk — onto providers, industry stakeholders told attendees on June 16 at the Accountable Care Organization Summit in Washington, D.C., sponsored by Global Health Care, LLC.

“A lot of payers are experimenting,” said David Muhlestein, senior director of research and development at Leavitt Partners LLC. “On the commercial side, provider arrangements are more flexible. They might start with creating a patient-centered medical home and providing care management fees, or start paying for [providers to collect] quality measures. Over time, they move up the risk spectrum.”

According to Leavitt’s data, private payers have about 14 million people enrolled in accountable care, while Medicare has 7.8 million and Medicaid has 1.7 million lives in accountable care.

ACO growth “initially was really being driven by the commercial space — before MSSP [the Medicare Shared Savings Program],” Muhlestein said.

Now, Leavitt Partners counts about 528 commercial contracts and 523 government ACO contracts, he said. “It’s about the same number of contracts, but commercial ACOs tend to be much larger,” so there are many more members enrolled in commercial ACOs than in Medicare and Medicaid ACOs.

There are 136 different payers — both government and commercial — who have ACO contracts. Of these, three have 51 or more contracts (one of these is CMS), and three more have between 21 and 50 contracts, Muhlestein said. Most — 81 payers — have just one contract, and 19 have just two contracts in force.

About 30% of Aetna’s contracts are in value-based pacts currently, Charles Saunders, M.D., CEO of Health-agen, an Aetna Inc. subsidiary, told conference attendees.

Saunders, who spoke before the proposed Aetna-Humana Inc. merger was unveiled, predicted the number of contracts in value-based payments would grow substantially and rapidly for Aetna. “At five years [from now], 15% of our network will be capitated, and 70% will be in some sort of value-based reimbursement. A small percentage of the marketplace will be in care bundles, and a very small percentage will be in percentage of premiums, participating in underwriting margin as provider-owned health plans or joint ventures.”

With Aetna and other large health insurers moving this fast into value, close relationships between provider groups and commercial payers are important, said D. Keith Fernandez, M.D., president and physician-in-chief for Memorial Hermann Physician Network and chief medical officer for Memorial Hermann ACO in Houston.

ACO Attributes Success to Aetna

Memorial Hermann ACO saved nearly $60 million for CMS during the first reporting period for the MSSP, earning a shared savings payout of about $30 million. But Fernandez told conference attendees that much of the ACO’s success as an ACO is “directly related to our relationship with Aetna,” which was the first commercial payer to approach Memorial Hermann about value-based payments. The Aetna-Memorial Hermann ACO took about a year of planning and opened its doors in January 2013.

“With Aetna, we have this great partner. Every week, we’re talking to Aetna. When we look at how we interact with them, it just looks like one group of people trying to solve problems,” he said.

The ACO ultimately took what it learned from its pact with Aetna and used it to become successful in MSSP, which it actually joined in July 2012, before the Aetna deal formally launched, Fernandez said.

He added that he anticipates similar stellar financial results from the second MSSP reporting period later this year.

H. Scott Sarran, M.D., divisional senior vice president and chief medical officer, government programs, for Health Care Service Corp., said commercial payers such as HCSC need to deploy increasingly innovative products that are attractive and affordable enough to win customers.

Provider partners, he said, can help moderate price increases, create predictable pricing and facilitate price stability over time, all of which are critical in an environment where employers — both large and small — are demanding the option of lower-cost products.

“Do ACOs in and of themselves get us there? The answer is, probably not,” Sarran said. “The value created purely by the ACO contract, absent any other benefit design changes, is not sufficient to create the end stage we all want. There are a variety of ways to do that with benefit design and network design strategies.”

Right now, Sarran said, HCSC has about 35% of its provider payments in value-based contracts, which is “enough to cause some focused attention” but not enough to truly drive change. “It’s not enough to optimize products — we need to shoot for a tipping point of 50% or greater” in value-based contracts, he said.

Advocate: Narrower Networks Are Coming

Dana Gilbert, COO of Advocate Physician Partners in Chicago, noted that Advocate has contracts for ACO-style shared savings — both one- and two-sided risk — plus global capitation contracts. Its commercial ACO shared savings contracts are delivering results that are about 2% below trend, he told ACO Summit attendees.

Gilbert said that success in the commercial ACO space ultimately will involve a move toward narrower networks “where there is a primary care physician selected and the member knows they’re a part of this product.”

Narrow network products are “really the kind of product you need to do to get the significant changes in health care costs I think people are really looking to see, and that the payers in health care are really expecting,” he said.

Creating these types of narrow network products will allow fully capitated ACOs to sell their own branded products directly on the exchanges, Saunders said. “Even when we do partnerships with health systems, we tend to subordinate our own brand to theirs. To a buyer, a narrow network’s not a narrow network if your doctor is in it.”

To that end, he said, payers and providers need to clearly distinguish between narrow networks chosen for their performance — like ACO-based networks — and narrow networks formed solely on the basis of the lowest unit price possible.

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