ALTERNATIVE PAYMENT CONTRACTS A TWO PRONGED APPROACH TO MANAGING THE FINANCIAL RISK

2015

Earlier this year, the Centers for Medicare & Medicaid Services (CMS) announced measurable goals that will significantly shift the traditional fee-for-service payment model towards new models dependent upon quality and value metrics and incentives. The announcement included a specific timeline for accomplishing this goal – by the end of 2016, at least 30 percent of fee for service Medicare payments will shift to alternative payment models. By 2018, that percentage is slated to increase to 50 percent. Two of the most notable alternative models include Accountable Care Organizations (ACOs) and bundled payment arrangements.

Recognizing that CMS often sets the tone in the commercial payor arena, it is not far-fetched to assume that within the next three to five years, more than 50 percent of commercial managed care contracts will also include risk provisions for either the bundling of services stemming from a defined episode of care or the integration and delivery of medical services on a global basis to a defined population (akin to the ACO model).

Transforming payment models often leads to new financial risk relationships between health care providers and payors. Downside financial risk typically stems from the outlier cases that produce an unintended negative outcome on a health care provider’s overall budget. This financial risk inhibits the health care provider in two ways – 1) the provider becomes apprehensive when considering additional risk models which can impede the provider’s ability to evolve, innovate and compete (for fear of incurring unsustainable financial loss) and 2) the provider is unable to reap the rewards of a shared savings or other ‘performance based’ program that the provider otherwise would have earned (notwithstanding the impact of a few select cases that skewed its average result).

Theresa Galizia - Vice President & Product Manager, HMO Re & Provider Excess, IronHealth®Regi Schindler - President & CEO, BLIS, Inc.

TimeframePercentage of Medicare Payments

via Alternative Payment ModelsEstimated Payments in Alternative

Payment Models (Today’s Dollar)

2011 and prior 0% $0.00

Today 20% $72.4 billion

By 2016 Projected 30% $110 billion +

By 2018 Projected 50% $180 billion +

When considering an alternative payment model that is based on the average per patient cost for a set of medical services, a critical component of the analysis must include a contingency plan for outlier risk since few cases are ‘average’ in the world of health care today. The CMS has offered various tracks for easing providers into taking risk under the first few years of these innovation models (namely ACOs and bundled payments). Most providers have elected tracks with minimal to no downside risk. And, even the downside risk models have inherent risk protection via the capping of expenditures at a pre-determined percentile which, in theory, should normalize for cases at extreme ends of the cost curve that impede the provider’s ability to realize shared savings. Unfortunately, commercial managed care contracts, self-funded employer contracts or in instances where patients decide to “self pay”, such safeguards against outlier risk are often not available and it becomes the provider’s responsibility to ensure that the risk contract does not result in a lopsided equation.

Focusing on commercial risk contracts (including self funded employers and self pay patients), a well constructed insurance solution should mitigate the financial exposure related to outlier cases that skew the financial incentives of a bundled payment contract. The insurance solutions available at Ironshore, in addition to protecting providers from the cost of procedure complications, will also protect a provider’s assumed margin on each case. For providers accepting bundled payment arrangements for a particular medical procedure, but who are tepid about taking risk in excess of the “bundle price” for that procedure, post-procedure complications create significant financial risk. To address this risk, Ironshore offers first dollar protection for post-procedure complications via its exclusive BLISCare™ program.

BLISCare™ is an innovative and proprietary product developed by BLIS, Inc., a privately held company based in Oregon, that offers financial and insurance products designed to help improve access to surgery. BLISCare™ insures surgeons for the cost of complication-related care. BLISCare™ is available for a growing number of surgical procedures including most bariatric procedures, plastic and cosmetic procedures and orthopedic and spine procedures. BLIS continues to add new procedures spurred by demand stemming from the CMS decree. BLISCare™ is not a traditional health insurance product – it insures the surgeon, not the patient. Should the patient of a BLIS surgeon experience a covered complication following surgery, the BLIS surgeon can authorize additional medical services for the care and treatment of the patient. When this occurs, BLIS pays all the medical bills for the care ordered by the surgeon, up to the limit of liability. The patient, commercial payor, or self-funded employer has no financial responsibility for any authorized care.

In the context of a bundled payment arrangement, BLISCare™ will step in and pay for the cost of all complications (in excess of the bundle price with no additional deductibles or coinsurance) arising during the bundled payment episode (for periods of up to 60 months), and continue to pay for such complications for up to 365 days post-bundle or until the limit of liability is exhausted. BLISCare™ limits range from $20,000 up to $50,000 per episode of care.

Additionally, a properly constructed bundle inclusive of the BLIS program can protect the provider’s margin by building in the per-case premium charged by BLIS to provide its limit.

CONSIDER THIS EXAMPLE

A provider is negotiating a ’bundle price’ for a primary total knee joint replacement procedure with a self funded employer plan. As is typical with most bundled payment arrangements, in exchange for accepting the bundle price, the provider agrees to take on the full risk of costs related to the pre-op clinical fees (medical clearances), day of surgery professional fees and facility fees at an inpatient facility with an expected length of stay of 2.5 days. In addition, should the patient experience any complications, the provider will be financially responsible for the cost of complication care for up to 60 days post surgical event. Next, let’s assume that this ‘bundle’ is offered to the provider at a price of $28,000 per case; however, the price has contemplated minimal to no ‘risk margin’ (the expected average cost of additional medical care to treat known complications of the procedure). The provider works with BLISCare™ and decides to purchase protection for the ‘risk margin’. For purposes of this example, let’s assume that the provider purchases a $50,000 BLISCare™ limit, on a per case basis, that will insure the provider for the cost of all medical care stemming from known complication events for up to 60 days following surgery at a BLIS premium cost of $1,200 per case.

From the payor’s perspective (whether it be a commercial managed care plan, self funded employer plan or a self-pay patient), there is motivation to pay a slightly higher bundled rate that includes risk protection. In commercial bundled payment contracts, the BLIS protection gives the payor and the medical provider of complication services peace of mind knowing that complication services will be paid and there will be no balance billing of the patient. More often than not, the providers of complication care agree to accept the BLIS limit as payment in full for the cost of complications, even if the cost exceeds the BLIS limit. In any other scenario, the provider of the care stemming from surgical complications may be forced to seek payment via collection agencies or patient balance billing. Both of these scenarios cost the provider valuable time and money and build ‘ill will’ in the community. In simplistic terms, the value proposition is no different than warranty coverage for a brand new automobile.

Under this scenario, the provider can now negotiate a ‘risk protected’ bundle with the self funded employer at a price of $29,200 (the base bundle price of $28,000 plus the BLIS premium charge of $1,200 per case). If there is a complication event, the provider knows that BLIS will pay for the medical care stemming from the complication (up to its $50,000 limit). Together with BLIS, Ironshore has educated providers and demonstrated the value that these contracting methodologies offer. To date, Ironshore and BLIS have had over a 90 percent success rate in constructing arrangements that both insure against the risk of complications and also protect a provider’s margin.

While the BLISCare™ first dollar complication coverage and standard limits of up to $50,000 provide solutions for mitigating financial risk and protecting margin for most providers at risk under bundled payment contracts, additional solutions are available to address financial exposure in excess of the BLISCare™ limit.

Ironshore is the only carrier in the stop loss marketplace that is able to write both the first dollar complication coverage for bundled payments (via BLISCare™) and Provider Excess of Loss Insurance for complication events that exceed the BLISCare™ first dollar limit. Traditionally, the Provider Excess of Loss program is written with a deductible per episode of care, but Ironshore also offers aggregate solutions for qualifying risks. And, the traditional deductible per episode of care (that the provider traditionally self-insures) can be fully insured by taking advantage of a “stacked” program where the deductible is essentially the BLISCare™ limit. Consequently, Ironshore is uniquely positioned to construct a two-tiered program that leverages the BLISCare™ complication limit and the Provider Excess of Loss limit into a single, seamless program that offers unparalleled financial risk protection for providers.

Ironshore is well versed in constructing stop loss programs with various degrees of provider participation (via deductibles, inner aggregates, retained corridors, aggregating specific deductibles, etc.). Given our in-depth experience at constructing and pricing programs that lead to sustainable risk transfer, Ironshore is exceptionally well equipped to provide solutions for providers at all points on the risk-taking spectrum.

Please visit Ironshore.com for the full disclaimer

In time, Ironshore believes providers will have the opportunity to further increase and protect assumed margin on their bundled cases by building in a component for ‘risk’ that exceeds the base BLIS premium charge. In keeping with the example above, it is possible that the self funded plan would pay up to $30,000 or more for the risk protected bundle even though the ‘cost’ is $29,200. In comparison, the national average for the cost of total knee joint replacement surgery and up to 60 days of post operative care can easily exceed $50,000. Thus, even the $30,000 bundle price is significantly less than the national average cost of such care.

An Ironshore Exclusive … Leveraging BLISCare™ with Provider Excess of Loss