Shared Savings

Shared Savings

Concepts and Introduction

Shared savings programs have been proposed as a middle ground between pure capitation (see below) and offering incentives for providers across multiple specialty settings and hospitals to manage defined populations of patients. Shared savings uses two tracks of payment streams: a traditional stream based in fee for service (FFS) payments and a target budget for the managed population based on a “control group” or market baseline trend. The target budget is more or less a virtual per member per month amount with a mix of clinical and process benchmarks to be met as indications of quality improvement. If the first track of FFS payments comes under the target budget and quality metrics are achieved, then a percentage of the savings is shared with the participating providers.

Shared savings models are attractive because they lessen the business risk of new provider organizations trying to mature into ACOs and at the same time meet hard capitation payments; moreover, shared savings can be flexibly adapted to a number of provider arrangements. Two well-known examples are both Medicare initiatives: the Physician Group Practice (PGP) Demonstration and the Medicare Shared Savings Program as enjoined by the Patient Protection and Affordable Care Act.

Lessons Learned

ROI risk – As a study published in New England Journal of Medicine showed, it is imperative that organizations contemplating shared savings understand the trade-offs between up-front investments to make shared savings work and potential down-stream profits. The earnings that could be made by beating the target budget can look very attractive – at first, but unless provider organizations perform robust return-on-invest (ROI) analyses that are grounded in reality, the gains can easily be offset by the costs of necessary re-engineering efforts.

An analysis of the Premier Health Care Alliance’s Accountable Care Collaborative highlighted several core structural components that are needed to implement an effective Accountable Care Organization. Key were putting patient’s at the center of decision making, aligning incentives through value-based payments, investing in the necessary technology, and assuring the ability to measure performance on a broad range of clinical quality, patient satisfaction and efficiency metrics.

The “quality” of quality measures – there is a strong correlation between the power of incentives and the quality of measures; i.e., if measures do not fully capture the most salient aspects of what really matters in care improvement, the power of incentives can either be diluted or push in the wrong direction. Payers and providers have to be sure that measure selection is potent, and can be reliably captured and disseminated. Part of the pushback CMS received for its original ACO rule was from providers who thought that various feedback reports from Medicare were inadequate to support their efforts under the quality metrics.

Are hospitals ready for accountable care? A survey of hospital readiness to participate in ACOs found that as of September, 2011 only 13 percent of hospital respondents reported participating in an ACO, while 75 percent reported not considering participation. Significant gaps in infrastructure requirements needed to take on financial risk and to manage population health were cited as significant obstacles. Payer-led models are rare, while physician-led ACOs are the second most common governance model. This may point to an encouraging shift away from acute care focus toward primary care.