A Checklist for Entering Shared Savings Contracts: Practical Considerations

by Smith Anderson

It’s no secret that payment for health care services is moving away from a fee-for-service world that rewards volume towards new value-based models that encourage higher quality and more efficient care. Perhaps no value-based payment method has received more attention in the last several years than shared savings, which holds providers accountable for the total cost of care for a defined patient population. Shared savings contracts offer a strategy for improving community health and wellness, but require careful planning and analysis to achieve desired goals. This client alert focuses on practical considerations when negotiating shared savings agreements with private payers, offering an easy-to-use checklist that can be referenced before drafting a contract. 

Prepare Before You Negotiate

A well-negotiated shared savings agreement merely creates the framework for providers to succeed. There must be a team committed to the shared savings principles who share a common culture of trust and a willingness to be flexible and welcome changes. It is also important to know who are your accountable care partners. Your facility or practice group could be doing a great job, but the endeavor will fail if others do not provide the necessary quality and efficiency. You must match the strengths of your accountable care organization with any gaps in care for your target patient population and determine whether the predicted return on infrastructure investment will be positive.

Checklist of Key Contract Issues:

  • Know Your Patient Population: The arrangement could start with one population and eventually expand. Since the premise of determining savings depends on comparing actual costs with the anticipated unmanaged costs of a defined population, it is crucial to know exactly who is in the patient pool to determine baseline historical spending.
  • Understand How Patients Are Assigned to Physicians: The predominant shared savings model, the Medicare Shared Savings Program (MSSP), attributes patients to an ACO’s primary care physicians based on where they receive a plurality of primary care services. Medicare patients have freedom of choice, so, in some areas, there is problematic patient leakage that makes care management and financial forecasting difficult. While this may become the default assignment standard, it is preferable in agreements with private payers to have the patient assigned to the network and reflect this on a patient’s enrollment card. It is important to determine how long patients must be enrolled before their performance measurements should occur.
  • Identify Any Service Carve-Outs: Most arrangements cover the full range of services, which makes savings calculations much easier. However, sometimes pharmacy, mental health, organ transplants, dental, pediatric, out-of-area, emergency, catastrophic, or untrackable services are carved out. It is possible that a specialty or type of service not provided within a network may be excluded.
  • Strive to Achieve More Than Cost Savings: The goals and performance metrics are to uphold the Centers for Medicare and Medicaid Services’ (CMS) Triple Aim Vision—improved population health, enhanced patient satisfaction, and decreased cost. Only if the hurdles of the first two are met are you eligible for shared savings.
  • Think Beyond Performance Metrics: Performing well on payers’ list of metrics is the way to maximize reimbursement; however, it is not sufficient just to teach the test. In order to succeed, an ACO needs to have the right infrastructure investments in place to deliver better quality and lower cost care for populations of patients. This includes investments in care management for engaging patients inside and outside of the health system and information technology for tracking gaps in care and clinical outcomes over time. Metric selection should align with hospital initiatives to successfully redesign the delivery of care for patients and families. It is also prudent to standardize metrics across payers to the extent possible.
  • Pin Down How Savings Are Determined: Although the concept is simple—the ACO gets a share of savings if it is able to do a good job at managing costs of the attributed population—carefully reviewing how savings will be determined is essential. For example, shared savings contracts may include downside risks to the provider if cost targets are not met, and it’s important to consider your organization’s appetite for financial risk before entering into such an agreement. It is also recommended not to focus solely on year-over-year performance. Accountable care is a marathon, not a sprint, and requires a dedicated commitment from leadership to transform into an effective population manager.
  • Obtain Payer Support: Increasingly, payers are providing resources and support to fledgling ACOs to help achieve the goal of higher value care. Consider negotiating for such things as the following:
    • Data – Seek supplementary claims and other health and financial data. Payers sometimes offer database access, reporting tools and utilization, cost, and other reports. ACOs cannot effectively assess where the waste is or how they are doing without access to this type of information;
    • Help with Patient-Centered Medical Homes (PCMHs) – Payers often assist providers in establishing accredited PCMHs and providing enhanced fee-for-service or performance payments to support practice transformation;
    • Payer-supplied care coordination training;
    • Participation rights to roundtables and forums.
  • Other Contract Considerations: A shared savings negotiation checklist should also include consideration of the following:
    • Flexibility for the ACO to localize the most appropriate value-adding programs;
    • Description of duties of payor and providers;
    • Description of the association of shared savings with fee-for-service payments;
    • Benefit design and co-pays to facilitate achieving your care management goals; and
    • Marketing and steerage—will your organization be in a “narrow network?”

Shared savings negotiations will likely have a different tone, as the incentives to partner to lower costs while improving quality and patient satisfaction are shared; and negotiations will certainly have different priority issues. Value-based care is coming, and shared savings arrangements will be an early entrant. So, being unprepared is not an option.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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