Topic 4 - Provider Reimbursement

Question 1

Reasons why a health plan wants to contract with providers

Answer 1

(also referred to as contracting goals)

1. Obtain favorable Pricing (less than full billed amounts)
2. Obtain payment terms that result in an underwriting gain
3. Get the provider to agree to provide services to the plan’s members
4. Meet service area access standards required by the states and Medicare
5. Obtain contractual agreement for several clauses, many of which are required by states and Medicare. The provider agrees to:
   a) Submit claims directly to the plan, not the member
   b) Not balance bill the member for any amount above the agreed-upon payment terms
   c) Hold harmless the member (not bill any amounts owed by the plan)
   d) Cooperate with the plan’s utilization management program
   e) Cooperate with the plan’s quality management program
   f) Give the plan the right to audit clinical and billing data for care provided to plan members
   g) Not discriminate (and other similar requirements)

Kongstvedt Chapter 4, Pages 58 and 80

Question 2

Reasons why a provider wants to contract with a health plan

Answer 2

(Also referred to as contracting goals)

1. Obtain favorable pricing when in a strong negotiating position
2. Ensure that it will not be excluded from the network of a large payer
3. Receive direct payment from the plan, thereby avoiding the need to collect form the patient
4. Receive timely payment (usually 30 days or less)
5. Have plan members directed or steered to it
6. Not lose business (or medical staff) as a payer steers members to others who are contracted providers
7. Receive defined rights around disputing claims and payments

Kongstvedt Chapter 4, Pages 58 and 80

Question 3

Capabilities of a well-functioning contract management system

Answer 3

1. Identify network (G)aps or where provider recruiting is most needed
2. Track (R)ecruiting efforts, provide reminders, and generate recruiting reports
3. Generate new contract (B)lanks and new contracts with information filled in
4. Store copies of different (V)ersions of a provider’s contract
5. Track and report contract (C)hanges for each provider
6. Track and manage (P)ermissions and sign-offs on contracts
7. Store (I)mages of signed documents and converted imaged documents into machine-readable forms
8. Support and entirely (P)aperless contracting process
9. Provide (E)arly notification of reminders for upcoming actions such as re-credentialing and renegotiation
10. Direct electronic feed of required (D)emographic information to other internal functions
11. Direct electronic feed of (M)arket-facing systems such as internet physician searches
12. Be (S)earchable on multiple attributes
13. Analyze the potential impact of changes in contract (T)erms

Mnemonic GRB TP MDS VE CHP-> GRaB ToP MDS VEry CHeaP

Kongstvedt Chapter 4, Page 60

Question 4

Types of physician and other professional providers

Answer 4

1. Primary care physicians (PCPs) and specialty physicians (SCPs) - for traditional HMOs, the distinction between PCP and SCP is very important because the PCP acts as a gatekeeper and must authorize any visits to a specialist
2. Hospital-based physicians - specialties include radiology, anesthesiology, pathology, emergency medicine, and hospitalist. These physicians often have exclusive rights at a hospital, so they are reluctant to contract for anything less than full charges.
3. Nonphysician or mid-level practitioners that provide primary care - the most common are physician assistants and nurse practiioners. These are a great asset in managed care because they deliver excellent primary care, tend to spend more time with patients, and are well accepted by most members.
4. Mental health providers (separate list)
5. Other types of professionals - podiatrists, dentists, orthodontists, optometrists, chiropractors, physical therapists, occupational therapists, nutritionists, acupuncturists, audiologists, respiratory therapists, and home health care providers

Kongstvedt Chapter 4, Page 62

Question 5

Types of Mental health providers

Answer 5

1. Psychiatrist - a physician who specializes in mental health and is able to prescribe drugs
2. Psychologist - a doctoral degree in psychology and two years of supervised professional experience
3. Clinical social worker - a counselor with a master’s degree in social work
4. Licensed professional counselor - master’s degree in psychology, counseling, or a related field
5. Certified alcohol and drug abuse counselor - has specific clinical training in alcohol and drug abuse and provides individual and group counseling
6. Psychiatric nurse practitioner - a registered nurse practitioner with special training in psychiatric and mental health nursing
7. Marital and family therapist - a counselor with a master’s degree and special training in martial and family therapy

Kongstvedt Chapter 4, Page 65

Question 6

Contracting considerations for different types of physician groups

Answer 6

1. Individual physicians - advantage is the direct relationship with the physician. Disadvantage is the effort to maintain the relationship is large for just one physician
2. Medical groups - advantage is the same contracting effort yields a higher number of physicians. Disadvantage is that if the relationship is terminated then there is greater disruption in patient care
3. Independent Practice associations (IPAs)
   a) Advantages: A large number of providers come along with the contract, the IPA may accept more financial risk, and some IPAs perform network management, credentialing, and medical management
   b) Disadvantages: The IPA can hold a considerable portion of the delivery system hostage to negotiations, and the plan’s ability to select and deselect individual physicians is limited
4. Faculty practice plans (medical groups that are organized around teaching programs)
   a) Advantages: These programs provide highly-specialized care and they add prestige to the plan by virtue of their reputation for quality care
   b) Challenges include: Tend to be less cost effective in their practice styles, and they are not set up for case management, so care is not well coordinated
5. Physicians in integrated delivery systems (IDSs) - there are two types:
   a) Hospital systems that affiliate with private physicians
   b) Hospital systems that employ physicians - these often have substantial negotiating leverage
6. Patient-centered medical homes - these coordinate all the care for a group of patients
7. Specialty management companies - these focus on managing very specialized services using physicians (e.g., single-specialty case management of neonatal care)

Kongstvedt Chapter 4, page 65

Question 7

Elements of a typical physician credentialing application

Answer 7

1. Demographics, licenses, and other identifiers (such as national provider identifier)
2. Education, training, and specialties
3. Practice details - such as services provided and office hours
4. Billing and remittance information
5. Hospital admitting privileges
6. Professional liability insurance
7. Work history references
8. Disclosure questions - such as suspension from govt programs or felony convictions
9. Images of supporting documents - such as state license certificate

Kongstvedt Chapter 4, Page 69

Question 8

Types of health care facilities

Answer 8

1. Community-based single acute care hospitals
2. Multi-hospital systems (MHSs) - consolidation has led to most hospitals now being part of an MHS, which gives them negotiating leverage
3. For-profit national hospital companies - because these hospitals are owned by national companies, they have much less local autonomy
4. Specialized hospitals - these provide care to only a certain type of patient (e.g., children’s hospitals and psychiatric hospitals)
5. Physician-owned single-specialty hospitals - these restrict themselves to elective procedures within a single specialty, so they are not equipped to handle emergencies and severe conditions
6. Accountable care organizations - these coordinate care for designated Medicare FFS beneficiaries and participate in shared savings program
7. Government hospitals - may be county-run, state-run, or federal
8. Subacute care (skilled or intermediate nursing facilities) - these are well suited for prolonged convalescence or recovery cases. The cost for a bed day is much less than in acute-care hospital
9. Ambulatory surgical centers (ASCs) and procedure centers - are typically equipped to handle only routine cases
10. Hospice - a broad term referred to health care services provided at the end of life, which may be at an inpatient facility, ambulatory facility, or no facility
11. Retail health clinics - small clinics usually associated with a retail store (such as Target or Walgreens). Provide basic primary care services, such as immunizations and preventive screenings.
12. Urgent care centers - a hybrid of a low-level emergency department and a PCP practice
13. Other types of ambulatory facilities - includes centers for birthing, community health, diagnostic imaging, occupational health, pain management, and women’s health

Kongstvedt Chapter 4, Page 76

Question 9

Types of ancillary services

Answer 9

1. Diagnostic
   a) Laboratory
   b) Imaging
   c) Electrocardiography
   d) Cardiac testing
2. Therapeutic
   a) Cardiac rehabilitation
   b) Noncardiac rehabilitation
   c) Physical therapy
   d) Occupational therapy
   e) Speech therapy
   f) Other long-term therapeutic services
3. Pharmcy
4. Ambulance and medical transport services

Kongstvedt Chaputer 4, Page 81

Question 10

Ways in which bundled payments have been used

Answer 10

1. By providers to attract more business, including from self-pay patients and medical tourism
2. By providers to engage physicians (especially surgeons)
3. By providers to gain the cooperation of physicians to reduce hospital cost
4. By payers to reduce payments
5. By payers to encourage patients to use lower-cost or higher-quality providers

GHDP-102-13 (Bundled Payment Contracting), Page 1

Question 11

Considerations in contracting for bundled payments

Answer 11

These include the key financial, operational, and quality issues

1. Defining the episode - what is the trigger date and when does the case end? Which services are included?
2. Evaluating catastrophic risk - need to do an outlier risk analysis that includes a classical stop loss analysis
3. Financial stability for low case loads - random fluctuation may be greater for provider groups with low case loads
4. Determining provider allocation of funds - the allocation should consider financial incentives for physicians to encourage them to promote more cost-effective care
5. Distinguishing case severity - could limit risk by removing higher-severity patients from the bundled payment approach
6. Quality outcome requirements - minimum thresholds may be needed to ensure quality is not compromised as services are reduced
7. Administrative complexity of supporting the contract
8. Risk-sharing alternatives - contracts that share financial risk between the provider and payer may be more viable than pure bundled payments
9. Potential for increased utilization - contracts for individual providers should not give them incentives to increase utilization to get a larger share of the bundled rate

GHDP-102-13 (Bundled Payment Contracting), Page 5

Question 12

Definition of Accountable Care Organizations

Answer 12

1. ACOs are a new category of health care provider created by the ACA as part of the Medicare Shared Savings Program
2. Definition - A legal entity composed of certified Medicare providers or supplier. These providers and suppliers work together to coordinate care for a defined population of Medicare FFS beneficiaries, and they have control over the ACO’s decision-making process.
3. ACOs that meet specified quality performance standards are eligible to receive payments for shared savings if they can reduce spending growth below target amounts
4. Medicare beneficiaries will be assigned to ACOs based on where they received the greatest amount of primary care and preventive services in the most recent 12 months, as measured by allowed changes

GHDP-110-15 (Medical Shared Savings Program), Page 1

Question 13

Eligibility requirements for ACOs to participate in the Medicare Shared Savings Program

Answer 13

1. Must be an ‘eligible type’ of provider (separate list)
2. Must be capable of receiving and distributing ‘shared savings’, repaying shared losses, ensuring all providers comply with program requirements, and performing other required functions
3. The ‘governing body’ must be composed of primarily (at least 75%) participating providers and must also include Medicare beneficiaries served by the ACO
4. ‘Leadership and management’ criteria must include:
   a) Clinical oversight must be done by a senior-level medical director who is a board-certified physician
   b) Providers must take a meaningful financial or human investment to the clinical integration program
5. Must exhibit a strong ‘patient-centeredness’ element (separate list)
6. Must have ‘sufficient’ number of beneficiaries (at least 5000) and primary care providers
7. Must have ‘compliance’ plan, a lead compliance official, and mechanisms for identifying compliance problems.

E S G L P S C

LEGS

PLS

UGH

GHDP-110-15 (Medical Shared Savings Program), Page 1

Question 14

Providers eligible to participate in an ACO

Answer 14

1. Professionals in group practice arrangements
2. Networks of individual practices
3. Join venture arrangements between hospitals and professionals
4. Hospitals employing professionals
5. Critical access hospitals that are paid by Medicare in a way that supports the collection of data needed to assign patients to providers
6. Rural health clinics
7. Federally qualified health clinics

GHDP-110-15 (Medical Shared Savings Program), Page 1

Question 15

Ways ACOs must demonstrate patient-centeredness

Answer 15

1. A beneficiary care experience survey
2. Patient involvement in ACO governance by representation in the governing body
3. A process for evaluating the health needs of the population
4. Systems in place to identify high-risk individuals and develop individualized care plans for targeted populations
5. A mechanism in place for the coordination of care
6. A process in place for communicating clinical knowledge to beneficiaries in an understandable way
7. A process to allow beneficiaries to access their medical records
8. Processes for measuring clinical or service performance and using these results to improve care and service

GHDP-110-15 (Medical Shared Savings Program), Page 4

Question 16

Methodology for measuring ACO quality performance

Answer 16

1. ACOs are scored based on performance in 33 measures that are grouped into the following domains:
   a) Patient and caregiver experience - measures include access to specialists, health promotion and education, and health and functional status
   b) Care coordination and patient safety - measures include risk-standardization readmissions, medication reconciliation, and screening for fall risk.
   c) Preventive Health - Measures include influenza immunization, adult weight screening and follow up, and tobacco use assessment
   d) At-risk populations - measures include diabetes measures (such as hemoglobin control), blood pressure control for hypertension patients, and coronary artery disease measures
2. In each domain, the points earned are divided by the total possible points to determine the percentage for that domain
3. The ACO’s quality performance score is the straight average of the four domain percentages

GHDP-110-15 (Medical Shared Savings Program), Page 40

Question 17

Methodology for calculating ACO shared savings payments

Answer 17

1. Expenditure baseline
   a) Calculating from spending data from beneficiaries that would have been assigned to the ACO in the most recent three-year period
   b) Data is trended to the most recent year using Medicare national spending growth rates, and is adjusted based on risk scores
   c) The three years are combined using weights of 60%, 30%, and 10% (largest weights for most recent years)
2. Spending benchmark - calculated by trending the expenditure baseline and adjusting for changes in health status (based on age and sex for continuously-enrolled beneficiaries whose risk scores increase, and based on risk scores for all others)
3. Actual spending - CMS will use a 3-month run-out of claims when determining the ACO’s actual spending
4. In each contract year, savings = spending benchmark - actual spending
5. Maximum sharing rate = 60% for two-sided models and 50% for one-sided models. ACOs using the one-sided model do not share losses, and therefore receive a lower sharing rate for savings.
6. Shared Savings
   a) Shared savings rate = maximum sharing rate * quality performance score (separate list)
   b) Shared savings = savings * shared savings rate
   c) Shared savings are capped at 10% of the benchmark (onesided) and 15% of the benchmark (twosided)
   d) A minimum savings rate (MSR) is used to reduce the chance of payments due to random fluctuations. This rate is 2% in the two-sided model and for ACOs with 60k or more beneficiaries in the one-sided model. Spending must exceed this rate to trigger savings, but once the MSR is met, all savings are shared (even those below the MSR)
7. Shared losses (two sided models only) = losses * (1 - shared savings rate)
   a) Shared losses have an upper limit of 60%
   b) Shared losses are also capped, starting at 5% in the first year
   c) A 2% minimum loss rate is applied in the same way as the MSR

GHDP-110-15 (Medical Shared Savings Program), Page 12

Question 18

Major Physician remuneration models in Canada

Answer 18

These are the major ways in which physicians are paid for their services:

1. Traditional FFS - the physician bills for each service provided. Each province establishes a schedule of benefits that lists the fees paid for the different services
2. Enhanced FFS - most provinces offer bonuses and fee schedule enhancements for family physicians and some specialties. Enhancements include bonuses for chronic disease management, additional funding for treating special-needs populations, and an increase in fees in qualifying rural or remote areas
3. Alternative payment plans (APPs) - these methods are an alternative to traditional FFS payment (separate lists)
4. Salary - a regular payment which is specified in an employment contract. Remuneration is often done through “time-based payments,” such as annual salaries or hourly rates

GHDP-119-18 (Provider Remuneration Options), Page 3

Question 19

Types of payments included in APPs

Answer 19

1. Fees for clinical services
2. Capitation
3. Time-based payments, such as hourly pay
4. Rewards for participation in specific clinical initiatives
5. Bonuses for achieving specific quality targets
6. Remuneration for administrative duties and costs
7. Financial contributions for medical information technology
8. Additional payment types for academic physicians:
   a) Compensation for teaching
   b) Research funding
   c) Stipends for administrative duties
   d) Partial compensation or subsidies for staff, facilities, and equipment

GHDP-119-18 (Provider Remuneration Options), Page 5

Question 20

Components that may be included in APPs that target primary care physicians

Answer 20

1. Patient-enrolled models - these models require providers to formally enroll patients in their practices and register this enrollment with the ministry of health (MoH)
2. Rostering - this is the process of enrolling patients that enrollment with the MoH. Many APPs pay the physician a fee for the administrative work of rostering patients.
3. FFS Billing - payment is made based on the provincial fee schedule. An APP may incorporate a bonus top-up, such as an extra percentage of the fee for enrolled patients
4. Capitation payments - the physician receives a fixed payment for comprehensiveness annual care of a rostered patient. The payment varies by age and gender
5. Shadow FFS billing - physicians who participate in a capitation APP must still submit FFS invoices for services provided to rostered patients. The MoH needs this information for evaluating patient access and utilization.
6. Preventive care bonus - annual bonuses are offered for physicians who meet certain percentage targets for preventative health care.
7. Comprehensive care management fee - a pyament for ongoing administrative work and upkeep that comprehensive family doctors do in addition to seeing their patients
8. Chronic disease management bonuses - an annual bonus for managing chronic diseases
9. New patient incentives - fixed bonuses to physicians who accept “orphaned” patients (i.e., those who do not have a family doctor) as new patients into their practices
10. Administrative fees - per-patient fees paid annually to help cover criteria of capitation APPs
11. Sessional fees - fees based on hourly rate and paid for specific services. Many emergency departments offer physicians a guaranteed sessional fee for working as the doctor on duty
12. Flock funding - a guaranteed payment to provide medical services for patients in a specific location (typically a rural or remote area) for a defined interval of time.

GHDP-119-18 (Provider Remuneration Options), Page 5

Question 21

Description of the unintended incentive in ACO payment models

Answer 21

1. Current rules suggest CMS will calculate benchmarks for a new three-year period in the way original benchmarks were calculated. For example, a 60% weight will be applied to the most recent year.
2. This creates an incentive to increase spending in that year in order to increase the benchmark
3. Conversely, this removes the incentive to create savings in that year, penalizing ACOs that do so by giving them a lower benchmark
4. As a result of the unintended incentive, the current payment model may result in higher rather than lower Medicare FFS spending

GHDP-120-18 (Unintended Incentives ACO), Page 144

Question 22

Proposed strategies for improving incentives in ACO payment models

Answer 22

1. Modify the benchmark weights to give equal weight to each of the three years that are used for calculating the benchmark
   a) This would reduce the incentive to increase spending in the last year before a new contract
   b) Alternatively, even more than three historical years could be used when calculating benchmarks
2. Introduce a form of “yardstick competition”
   a) Based on ACO’s benchmark not on the performance of other Medicare providers or on a local benchmark
   b) This would introduce competition into the payment model. The more an ACO lowered its spending relative to that of its competitors, the greater its cumulative rewards would be.

GHDP-120-18 (Unintended Incentives ACO), Page 147

Question 23

Process for developing episode based measures of quality performance using claims database

Answer 23

1. Opportunities are identified
2. Quality measurement event (QME) opportunity is attributed to physicians using fixed attribution rules
3. A compliance rate is calculated for each physician by comparing opportunities with successes
4. Performance can be assessed in terms of a relative compliance rate

GHDP-122-19 (Episode-based physician profiling), Page 3

Question 24

Major advantages of episode-based profilng

Answer 24

1. Administrative feasibility
2. Minimal administrative burden for data collection
3. Comparable performance against defined standards
4. The “episode” view can be considered more “Patient-centered”

GHDP-122-19 (Episode-based physician profiling), Page 3

Question 25

Limitations of episode-based profiling

Answer 25

1. Misidentification of high and low performing physicians
2. Comparative bias of providers
3. Physicians’ cost efficiency scores may be inaccurate if:
   a) Episode responsibility is attributed incorrectly
   b) Cost outliers distort estimates of underlying performance
   c) Episodes considered in profiles are not representative of a physician’s usual practice
   d) Risk adjustment is inadequate to control for effects of patients’ comorbid conditions
   e) The number of episodes available for profile calculations is insufficient for reliable estimation
4. Inclusion of hospital costs in episode-based profiles represents other challenges
   a) Cost efficiency measures can be heavily influenced by hospital costs
   b) Hospital costs are largely beyond physicians’ control
   c) Adverse impact for physicians practicing in high-cost settings, academic medical centers

GHDP-122-19 (Episode-based physician profiling), Page 4

Question 26

How episode-based profiling is likely to improve and become more standardized over time

Answer 26

1. Electronically submitted claims will increase accuracy
2. Fully documented claims have more reliable episode profiles
3. Comorbidities and other risk-adjustment factors will be credited more accurately
4. Organized and supported practice infrastructure will distinguish performance characteristics
5. Catalyze the medical profession to develop administrative evidence-based performance measures

GHDP-122-19 (Episode-based physician profiling), Page 4

Question 27

Factors that determine reliability of physician cost profiles

Answer 27

1. The number of observations (i.e., episodes of care)
2. The variation among physicians in their use of resources to manage similar episodes
3. Random variation in the scores

Quanty, Variation, Randomness (QVR)

GHDP-123-19 (Physician Cost Profiles), Page 2

Question 28

Steps to construct physician summary cost profile

Answer 28

1. Calculate the average cost of each episode type assigned to physicians in each specialty
2. Adjust the cost using the patient-specific risk score producing the expected cost
3. A physician’s cost profile = sum of (observed costs / expected costs) for all assigned episodes

GHDP-123-19 (Physician Cost Profiles), Page 2

Question 29

Equation for physician-specific reliability

Answer 29

1. Physician-specific reliability = (Physician to physician variance) / (physician to physician variance + physician-specific error variance)
   a) Large variations in cost would have a large physician-specific variation
   b) Physician-to-physician variance is larger when there is a wider distribution of cost profile scores

GHDP-123-19 (Physician Cost Profiles), Page 3

Question 30

Significant findings in the reliability of physician cost profiling

Answer 30

1. Median reliability of physician costs profiles had a wide range by specialty
2. Overall, the majority of physicians did not have cost profiles that met common thresholds or reliability
3. Doubling the number of episodes produced only modest gains
4. It is recommended that users of physician cost profiles directly assess reliability
5. Surgical specialties in particular appear to have low reliability scores
6. Opportunities for cost control still exist among physicians with more reliable scores
7. Misclassifications presents difficulties achieving cost control objectives
8. Developing better measures of cost performance at the physician level appears to be the most promising method to increase the reliability of cost profiles
9. Consumers, physicians, and purchasers are all at risk of being misled by the results produced by these tools

GHDP-123-19 (Physician Cost Profiles), Page 6

Question 31

Criteria to be considered an Advanced APM (Alternative Payment Models)

Answer 31

1. Criterion 1: requires use of certified electronic health record (EHR) technology
   a) At least 50% of the clinicians use certified EHRs to document and communicate clinical care
   b) Each ACO participant, tax ID, submits data on the advancing care information performance category
2. Criterion 2: Requires Merit-based Incentive Payment System (MIPS) comparable quality measures
   a) Ties payment to quality measures that are evidence-based, reliable, and valid
   b) At least one measure must be an outcome measure if an appropriate measure is available
3. Criterion 3: Bear a more than nominal amount of financial risk
   a) Either it is a Medical Home Model expanded under CMS Innovation Center authority, or it requires participants to bear a more than nominal amount of financial risk

GHDP-124-19 (Quality Payment Program), Page 21

Question 32

Models that are considered Advanced APMs, in the 2017 performance year

Answer 32

1. Comprehensive End Stage Renal Disease Care Model (2-sided risk arrangement)
2. Comprehensive Primary Care Plus (CPC+)
3. Shared Savings Program Track 2
4. Shared Savings Program Track 3
5. Next Generation ACO Model
6. Oncology Care Model (2-sided Risk Arrangement)
7. At a later time Shared Saving Program Track 1+ was added to the list

GHDP-124-19 (Quality Payment Program), Page 25

Question 33

Steps for eligible clinicians to becoming qualifying APM participants (QPs)

Answer 33

1. Qualifying APM participant determinations are made at the Advanced APM entity level
2. CMS determines “Threshold Score” for each Advanced APM Entity using two methods:
   a) CMS will use the method that results in more favorable QP determination
   b) Payment amount method: (Cost for Part B Professional services to attributed beneficiaries) / (Cost for Part B professional services to attribution eligible beneficiaries) = Threshold Score %
   c) Patient count method: (# of attributed beneficiaries given Part B professional services) / (# of attribution-eligible beneficiaries given Part B professional services) = Threshold Score %
3. The Threshold score for each method is compared to a QP threshold table
4. If a Treshold is met the eligible clinicians in the Advanced APM Entity become QPs for the payment year
5. QPs are excluded from MIPS, receive a 5% lump sum bonus, and receive a higher FFS update in 2026

GHDP-124-19 (Quality Payment Program), Page 27

Question 34

Formula for ACO’s initial and adjusted benchmark costs for Performance Year 1 (PY1)

Answer 34

1. C(0) = [0.1] C(B1) [ 1 + t(B1) ] [ 1 + t(B2) ] [ R(B3) / R (B1) ]
   + [0.3] C(B2) [ 1 + t(B2) ] [ R(B3) / R(B2) ]
   + [0.6] C(B3)
   -> Bt = Bnechmark Year t (B3 is last Benchmark year prior to PY1)
   -> C(Bi) = Cost PMPY in benchmark year i, i = 1,2,3
   -> C(0) = Cost PMPY in initial year
   -> Trend Factors: (1+t(i)); i = B1, B2, are increases in PMPY costs from year i to i+1 in the two years prior to B3
   -> Average risk scores: R(t) is the average risk score applicable in year i for Performance Year i, including benchmark year RIsk Score, R(B3)
2. Updated (adjusted) benchmark. The Benchmark year cost PMPY (C(0)) is updated to the first performance year claim cost, C’(PY1), in two ways:
   - > With the change in risk profile of the population: C’(PY1) = (C(0))* (R(PY1)/R(B3))
   - > By adding the absolute increase in National Parts A and B PMPY. This increase is not risk- or trend-adjusted
   - > The risk ratio (R(PY1) / R(PY3) is calculated in accordance with section 22.5 (adjusted risk ratios correctly according to how the risk score changes, demographic risk scores changes, and mix of population like including newly attributed members)

GHDP-125-19 (ACO Savings Calc), Page 446

Question 35

As of 2018, the ACO tracks available and their potential gains/losses

Answer 35

1. Track 1: One-sided basis (gainsharing only). Potential savings are limited to 50% of gains to a maximum of 10% of benchmark costs
2. Track 1+: Two-sided basis. Potential gainsharing up to 50% of savings to a maximum of 10% of benchmark costs. Loss sharing is fixed at 30% of losses. Loss sharing is limited to 4% of benchmark costs OR 8% of fee-for-service revenues.
3. Track 2: Two-sided basis. Potential gainsharing up to 60% of savings to a maximum of 15% of benchmark costs. Loss sharing is between 40% and 60% of losses. Loss sharing is limited to between 5% and 10% of benchmark costs, depending on year.
4. Track 3: Two-sided basis. Potential gainsharing up to 75% of savings to a maximum of 20% of benchmark costs. Loss sharing is between 40% and 75% of losses. Loss sharing is limited to 15% of benchmark costs.

GHDP-125-19, Page 458 (ACO Savings Calc), Page 458

Question 36

Steps for an insurer to design a Tiered Network Health Plans (TNHPs)

Answer 36

1. Start with an existing plan
2. Select a provider category to tier
3. Next, tier providers in the chosen category on cost and quality measures
4. Finally, add additional cost share to providers not meeting desired standards

Design & Pricing of TNHPs, Page 2

Question 37

Components of the TNHP Pricing formula

Answer 37

1. Claims under the control of non-preferred providers: N%
2. Cost differential: P% = 1 - (Average preferred cost / Average non-preferred cost)
3. Member liability differential = M% = change in non-preferred providers’ cost due to additional cost share
4. Shift = the assumed percentage of non-preferred users reacting to increased member liability by switching to preferred providers
5. TNHP savings formula = N % * [M% + Shift * (P% - M%)]
6. Equilibrium at M% = P%

Design & Pricing of TNHPs, Page 3

Question 38

Constraints of the TNHP shift estimation

Answer 38

1. Demand curve constraint: Shift will increase as member liability differential increases
2. Maximum shift constraint: At most, all non-preferred users can shift to preferred providers
3. Limited network pricing constraint: Most TNHPs should never be priced less than a plan requiring members to access only preferred providers

Design & Pricing of TNHPs, Page 4

Question 39

Shift assumption equation when shift = 100% for member liability greater than equilibrium

Answer 39

1. Shift Line: Y = m X + b = (100% / Equilibrium) * Member Liability Differential
2. Y-intercept = b = 0%, i.e., no shift is expected without a cost share differential
3. Slope = m = 100% / Equilibrium
4. X variable = Member Liability Differential

(Look at or draw graph and think about it)

Design & Pricing of TNHPs, Page 4

Question 40

Practical Issues that have determined the success or failure of previous value-based arrangements

Answer 40

1. Engaging all stakeholders (e.g., policymakers, actuaries, and providers) is important
2. Payment reform is organization-specific - there is not one payment structure that is the best in all circumstances
3. Results of payment reform are decidedly mixed, with both successes and failures
4. Success in provider payment arrangements depends on good holistic risk management by the payment reform team
5. Organizations need various qualities in succeed under payment reform (separate list)
6. Insurance companies have an important role in payment reform since they can pool an reduce insurance risk. Providers must be required to take on some insurance risk, which they must carefully monitor
7. The mechanics and administration of payment models that incorporate provider risk have improved since the 1990’s consumer backlash against them

Provider Payment Arrangements, Provider Risk, and Their relationship with Cost of Health care, Page 1

Question 41

Definitions related to payment reform

Answer 41

1. Value-based arrangement - a payment model or contract agreement that reimburses serviced based on quality measures such as patient outcomes and efficiency, often at a predetermined price. Opposite of volume-based arrangement
2. Payment reform - the environment where more contracts move to value-based arrangements
3. Payment model - the arrangement between a payer and provider to reimburse the provider for services
4. Service delivery model - the manner in which providers organize and deliver care to patients. Can refer to an approach (such as an accountable care organization (ACO).

Provider Payment Arrangements, Provider Risk, and Their relationship with Cost of Health care, Page 3

Question 42

The Actuary’s role in payment reform

Answer 42

1. Lead the pricing exercise
2. Help quantify risk - help the provider understand the various risks the provider is taking when selecting a payment model
3. Calculate the correct price for the selected payment model
4. Help the project and model cash flows

Provider Payment Arrangements, Provider Risk, and Their relationship with Cost of Health care, Page 4

Question 43

Types of risks associated with payment arrangements, from the provider’s perspective

Answer 43

1. Utilization risk - the risk that changes in utilization will impact provider profitability
2. Technical risk - the risk of appropriately structuring technical elements of a contract
3. Insurance risk - the risk of variation in demand for medical services over time and the risk of differences in utilization within segments of the insured population. Examples:
   a) Age, gender, acuity diff
   b) Number of high-cost cases vs. average
   c) Year-to-year variation in patient demand for services
   d) Proportion of the population that has zero claims in a year
4. Performance risk - the risk of inefficiency, suboptimal quality, and high cost of care

Provider Payment Arrangements, Provider Risk, and Their relationship with Cost of Health care, Page 6

Question 44

Types of provider payment models

Answer 44

1. FFS - providers are paid for each service they perform, either through a fee schedule or as a percent of charges
2. Global capitation - providers are paid a fixed rate for each member they agree to service. They payment is based on the average costs of the population, rather than the services provided
3. Shared savings - providers typically get reimbursed using FFS, but they also receive a percentage of the savings they create by reducing utilization below a benchmark. Usually, providers only receive the bonus if they meet certain quality targets
4. Diagnosis-related groups (DRGs) and case rates - The hospital is paid a single price (care rate) for an admission rather than a price per day or for each service provided during the stay. There is often an outlier adjustment where the provider gets paid an outlier per diem rate if the admission exceeds a certain number of days
5. Bundled payments - a single payment is made for an episode of care, which usually starts with a specific DRG or a surgery and extends for a specific future period (30/60/90 days)
6. Reference Pricing - a benefit limit (reference price) is established for a specific medical procedure or device. The patient must pay the difference between the allowed charge and the reference price.
7. Provider excess loss reinsurance - protects the provider from high-cost outliers. It is generally paired with one of the previous payment models
8. Pay-for-performance (P4P) - any payment arrangement can include a P4P aspect by including incentives for higher quality of care or disincentives for lower quality. This adds performance risk.

Provider Payment Arrangements, Provider Risk, and Their relationship with Cost of Health care, Page 9

Question 45

Risks to the provider under FFS

Answer 45

1. Utilization Risk - For most services, Profit Increases and Utilization Increases
2. Technical Risk - This risk is low because FFS is easy to implement, design, and monitor
3. Insurance Risk - Providers have very little insurance risk. They are not at risk for the year-to-year variation in claim cost of a specified population
4. Performance Risk - This risk may exist if the claim admins do not carefully monitor nonspecific codes

Provider Payment Arrangements, Provider Risk, and Their relationship with Cost of Health care, Page 9

Question 46

Risks to the provider under Global Capitation

Answer 46

1. Utilization Risk - Changes in utilization have the opposite impact as FFS; Profit increases as utilization decreases
2. Technical Risk - Quite high - provider org will need complex structures in place to allocate money among various providers
3. Insurance Risk - All the insurance risk is transferred to the provider. Provider takes on risk that members will need more services than expected when negotiating a cap rate
4. Performance Risk - Provider is at high risk since it takes all financial responsibility for all the care patient receives

Provider Payment Arrangements, Provider Risk, and Their relationship with Cost of Health care, Page 10

Question 47

Risks to the provider under Shared Savings

Answer 47

1. Utilization Risk - Because of the complexity of contracts, this risk is hard to quantify
2. Technical Risk - Risk is high due to complexity of calculating benchmarks, reconciling savings, measuring quality, and distributing savings/losses
3. Insurance Risk - There is a risk that year-to-year variation in claims costs will result in claims costs that are different than benchmark
4. Performance Risk - There is significant risk regarding whether care management efficiencies can be achieved and whether the benchmark can be met

Provider Payment Arrangements, Provider Risk, and Their relationship with Cost of Health care, Page 10

Question 48

Risks to the provider under DRG/Case Rates

Answer 48

1. Utilization Risk - increased admissions lead to increased profits. But the provider has an incentive to reduce the length of stay because for longer stays the provider has additional costs but no additional reimbursement
2. Technical Risk - this risk is low to medium because DRGs have existed for some time and there are established models for creating DRG groupings
3. Insurance Risk - the provider is at risk for longer length of stay, but not for incidence risk
4. Performance Risk - the hospital must be cautious of discharging patients too early. That could increase the risk of readmissions, which carriers financial penalties from Medicare

Provider Payment Arrangements, Provider Risk, and Their relationship with Cost of Health care, Page 11

Question 49

Risks to the provider under bundled payments

Answer 49

1. Utilization risk - when the number of episodes increases, provider profits can increase. But within an episode, providers will need to decrease medically unnecessary services in order to make a profit
2. Technical risk - this risk is quite high due to challenges such as defining conditions, coordinating care, and partnering among different providers
3. Insurance risk - provider is at risk for members who have higher allowed costs than the average episode
4. Performance risk - there is risk related to proper discharge planning and communication

Provider Payment Arrangements, Provider Risk, and Their relationship with Cost of Health care, Page 12

Question 50

Risks to the provider under reference pricing

Answer 50

1. Utilization Risk - members will be less likely to use provider services as their out-of-pocket share increases
2. Technical Risk - There is risk related to educating the policyholder on reference pricing
3. Insurance Risk - some patients may need high-cost care, which which case the insurance risk is shifted to patient and away from both insurer and provider
4. Performance Risk - Patients who are charged high amounts for procedures may be unhappy with both their providers and their insurers

Provider Payment Arrangements, Provider Risk, and Their relationship with Cost of Health care, Page 12

Question 51

Risks to provider under provider excess loss reinsurance

Answer 51

1. Utilization Risk - the risk is shifted to the reinsurer
2. Technical Risk - this risk will vary with the structure of the stop-loss contract. The most common approach is a coinsurance arrangement, which has low technical risk.
3. Insurance Risk - the provider’s risk of high outlier costs is somewhat mitigated
4. Performance Risk - this risk is highly dependent on the structure of the reinsurance policy

Provider Payment Arrangements, Provider Risk, and Their relationship with Cost of Health care, Page 13

Question 52

Domains of quality from Agency for Healthcare Research and Quality

Answer 52

1. (A)ccess to Care - whether a patient can readily obtain needed services. Performance measures include the number and geographic distribution of providers
2. (S)tructure of care - whether care is provided by appropriate providers who use up-to-date technology. Measures include assessment of referral policies and use of electronic health records.
3. (P)rocess of care - whether services have been provided to appropriate member subpopulations. One measure is hospital readmission rates.
4. (O)utcome of care - whether treatment has been effective. Measures include what percentage of patients with diabetes reach blood sugar targets
5. (E)xperience of care - whether patients are satisfied with the care they have received. Generally measured by surveys

Mnemonic - ASPOE of Care -> SPA On Every Corner (C for Care)

Provider Payment Arrangements, Provider Risk, and Their relationship with Cost of Health care, Page 16

Question 53

Qualities an organization needs to succeed under payment reform

Answer 53

1. Highly integrated system
2. Effective care management initiatives
3. More efficient health system than the rest of the market
4. Select and restricted networks
5. Collaborative relationship between provider organizations and payers to reduce costs
6. Reasonable methods to establish capitation rates, episode payments, and other payments
7. Equitable methodology for allocating global capitation payments or quality incentives among the individual participating providers

Provider Payment Arrangements, Provider Risk, and Their relationship with Cost of Health care, Page 48

Question 54

Factors to consider when modeling payments and cash flows for a provider payment model

Answer 54

1. What types of unintended behaviors may occur due to incentives created by the payment model?
2. What other factors would jeopardize achievement of forecasted results?
3. How will results achieved during the model test be replicated
4. Will the structure and the dimensions of the payment model change over time?
5. Will there be a phased-in approach?
6. How will the payment model promote continuous improvement of the service delivery model?
7. What key factors, including other delivery and payment reforms, may affect this progression?

Provider Payment Arrangements, Provider Risk, and Their relationship with Cost of Health care, Page 17

Question 55

Formula for determining Medicare allowed amounts

Answer 55

1. Weights are determined based on:
   a) Relative value units (RVUs) - these are categorized by CPT codes. There are three components for each RVU: work/practice cost (w), facility/cost of living (f), and malpractice (m).
   b) Geographic Practice Cost Index (GCPI) - these are based on provider ZIP codes
2. Medicare allowed amount = (GPCI-w * RVU-w + GPCI-f * RVU-f + GPCI-m * RVU-m ) * conversion factor
3. Payments are also adjusted for various reasons, such as who performs the service (e.g., professional surgeon vs. assistant surgeon) and where the service is performed.

Provider Payment Arrangements, Provider Risk, and Their relationship with Cost of Health care, Page 19

Question 56

Ways in which provider group-based ACOs are expected to generate savings

Answer 56

1. Redirecting care to cost-efficient providers
2. Reducing duplication of services and unnecessary care
3. Preventing medicare errors

Provider Payment Arrangements, Provider Risk, and Their relationship with Cost of Health care, Page 22

Question 57

Profit formula for ACOs in the MSSP (Medicare shared savings Program)

Answer 57

Net gain/loss =
- Revenue reductions
\+ Bonus/share of revenue reductions
- Start-up costs of the ACO
- Administrative costs of operating the ACO
\+ Reduction in direct expenses

Provider Payment Arrangements, Provider Risk, and Their relationship with Cost of Health care, Page 23

Question 58

Considerations when negotiating terms of commercial ACO contracts

Answer 58

1. Target costs - how are baseline costs developed? Is there rebasing from one year to the next?
2. Risk adjustment - the actuary can help the payment reform team understand the benefits and impacts of the different risk adjusters to use in creating the target cost
3. Trend - will the baseline and measurement years be trended, and at what rate?
4. Shared Savings - what are the savings rate and loss rate, and are the targets achievable?
5. Attribution - the attribution method is extremely important, but the details can be quite complex
6. Random variation - Is the number of members attributed to the ACO large enough that gains and losses will not just be due to statistical fluctuation
7. Stop loss - the ACO and the payer may wish to negotiate specific and aggregate stoploss
8. Data and reports - the ACO will need member-level detail on enrollment, medical claims, and pharmacy claims. It will also need detailed reporting in order to reconcile gains and losses.
9. Quality - are there a sufficient number of measures to ensure reliable results and reasonably determined benchmarks and targets?
10. Infrastructure cost support - will there be a care coordination fee to help the ACO get up and running with its infrastructure?

Provider Payment Arrangements, Provider Risk, and Their relationship with Cost of Health care, Page 29

Question 59

Elements of a DRG contract

Answer 59

1. DRG/Case rate schedule - shows the case rate for each DRG for an initial length of stay and the per diem for days beyond that level
2. Maximum days - the number of days for which the case rate applies - cases that exceed that length of stays are then paid a per diem rate for each additional day.
3. Carve-outs for specialty drugs and impant devices - additional payments may be made for these items
4. Stop Loss - a contract may also have a stop loss to be applied on a case level
5. Transplants - Payment for transplants is usually negotiated separately
6. Readmissions - the contract must state whether payment will be made for readmissions

Provider Payment Arrangements, Provider Risk, and Their relationship with Cost of Health care, Page 32

Question 60

Steps for pricing bundled payments

Answer 60

1. Obtain Claims data
2. Select DRGs or conditions - look for enough volume, a population that will have similar treatment patterns, and potential for savings that is due to variation in care. Knee and hip procedures are popular selections.
3. Define the episode - specify the full time period and mix of services for which the organization is financially responsible and at risk. Typically includes:
   a) Anchor stay - period of time between admission and discharge
   b) post-discharge period or post-anchor event period - typically covers 30/60/90 days from discharge date
   c) post-episode period - covers 30 days past the episode end date as a quality control to make sure providers are not waiting until the end of the episode to provide services
4. Define exclusion criteria - should be easy to implement and not overly specific
5. Estimate cost of the bundle - done by analyzing claims data
6. Identify savings opportunities - these will be different for every episode and every organization. For example, discharging more knee replacement surgery patients in their home instead of a rehabilitation center will lead to savings

Provider Payment Arrangements, Provider Risk, and Their relationship with Cost of Health care, Page 34

Question 61

Major Issues with pay-for-performance methods

Answer 61

1. Unintended incentive to avoid most severely ill patients
2. Gaming the system by miscoding diagnoses or services
3. Selecting patients on the basis of the likelihood of a positive outcome
4. Compliance with treatment protocols rather than need
5. Unmeasured objectives could be ignored

Provider Payment Arrangements, Provider Risk, and Their relationship with Cost of Health care, Page 41

Question 62

Functions (or components) of patient-centered medical homes

Answer 62

1. Comprehensive care - provided through several different care providers
2. Patient-centered - a relationship-based process to educate patients and allow them to define the levels of care with which they are comfortable
3. Coordinated care - incorporating the entire health care system in order to facilitate communication about the patient and discuss best practices among different provider groups
4. Accessible services - providing multiple channels for the patient to be able to reach out and gather information or receive care
5. Quality and Safety - implementing quality improvement measures while taking into account the patient’s progress, concerns, and overall well-being

Provider Payment Arrangements, Provider Risk, and Their relationship with Cost of Health care, Page 41

Question 63

Roles of the payment reform team

Answer 63

1. Actuary - quantify risks and prepare financial models
2. Chief financial officer - set a budget and allocate resources to keep the health system within the budget
3. Clinicians - provide high-quality care in order to achieve customer satisfaction and good outcomes
4. Coding specialists, data analysts, and information technology specialists - making sure other team members are receiving timely and accurate information
5. Policymakers - address systematic issues such as shortages of primary care physicians

Provider Payment Arrangements, Provider Risk, and Their relationship with Cost of Health care, Page 47

Question 64

Key Updates to the ACO Gainsharing Calculation

Answer 64

The following changes apply to the second and subsequent years’ benchmark updates:

1. Equally weight benchmark years during subsequent years
2. Add ACO savings generated to the rebased historical benchmarks
3. Incorporate regional FFS expenditures into the rebased benchmarks
4. Fist year agreement benchmarking - Use assignable medicare FFS beneficiaries, not all FFS beneficiaries
5. Subsequent agreement period benchmarking
   a) Replace national trend factor with regional trend factors
   b) Rebased benchmark: reflect % difference between regional FFS expenditures and ASO’s historical expenditures
   c) Benchmark will be rebased annually for regional trend

GHDP-125-19 (ASO Savings Calc) - Page 455/456