Improving Incentives Newsletter: Shared Savings or Shared Risk? For Each Model, More Experience Is Needed

Improving Incentives Newsletter: Shared Savings or Shared Risk? For Each Model, More Experience Is Needed

A Quarterly Publication of HCI3 Volume 1, Issue 2  |   July 2011


Shared Savings or Shared Risk? For Each Model, More Experience Is Needed 

By Suzanne F. Delbanco, PhD

Shared-savings programs are likely to become more common in the coming years. One force driving the increase in this form of payment will be efforts by the federal Centers for Medicare & Medicaid Services (CMS) to introduce accountable care organizations (ACOs) that have both shared-savings and shared-risk arrangements.

In March, CMS proposed rules for ACOs (The Medicare Shared Savings Program: Accountable Care Organizations Notice of Proposed Rule) and asked for comments.

The proposed rules are significant for two reasons. First, CMS is the nation's largest health care purchaser and private health plans tend to follow its lead. Second, as the title implies, the proposed rules call for shared savings but CMS also built in a sharedrisk component, meaning there is a potential upside for participating providers from any shared savings and a potential downside as they take on shared risk. In fact, for ACOs that agree to share risk in the first year, there is a potential for greater reward than in arrangements that share such risk in later years.

Although CMS has not announced when it will issue a final rule, when it does so, it could revise the proposal or leave it as is.

Social psychology suggests that people feel potential loss more powerfully than they feel potential gain. Therefore, some health policy experts believe shared-risk models could present stronger incentives to providers to manage care appropriately than sharedsavings do. In truth, this theory has never been tested and few shared-risk models exist.

For a research project funded by the Commonwealth Fund, Catalyst for Payment Reform worked with Booz Allen Hamilton to identify private-sector programs that were operating as ACOs would. In other words, providers agreed to be responsible for the full range of care a patient would need, had meaningful quality incentives, and assumed some financial risk for not meeting specified financial or quality targets (though some ACOs will have only shared-savings arrangements).

After interviewing 16 health care payers involved in ACO-like programs in the private sector, we found that just eight met our criteria for inclusion in the study and only five had already implemented shared risk. Several more were moving along a path toward meeting the definition but had not yet made shared risk operational. We found some programs beginning with shared savings and planned to move to shared risk. Other shared-savings programs have no intention of evolving to shared risk. Programs that incorporated shared risk from the start were the most rare.

From our research we draw a number of conclusions. First, few physicians and hospitals have experience with shared-risk arrangements; those who do are still quite new to it.

Second, the models of shared risk vary, and it is unlikely there will be a one-size-fits- all program.

Third, while shared risk suggests powerful incentives, many providers may not have the infrastructure to do it well. Taking on risk requires effective monitoring of spending and the quality of care delivered. Providers will likely need support to handle these tasks, but exactly what type of support is unknown.

Fourth, there is much room for experimentation with shared-risk arrangements and such experiments should be monitored carefully for their effect on patient care and on costs. Any new payment arrangement creates incentives and disincentives, and intended and unintended consequences. While shared-risk arrangements may have promise, having so few shared-risk payment models implemented to date provides little opportunity to evaluate how they work and how they align incentives.

It will be critical for the private sector to continue to experiment with both shared-savings and shared-risk arrangements in the search for successful ways to align incentives for high-value care. Researchers then can analyze what effects these program have—both positively and negatively—on the quality and cost of care.

Suzanne Delbanco, PhD, is the executive director of Catalyst for Payment Reform in San Francisco and a member of HCI3's board of directors. She can be reached at