Question

Why do payers nevertheless persist in using shared savings components of alternative payment models?

Answer 1

SOLUTION

APM PAYMENT MODELS

Alternative payment models (APM) are central to the efforts to reduce the growth in healthcare costs and improve outcomes for patients. Yet some stakeholders remain skeptical of their potential. This is understandable, because APMS have shown mixed results. We have identified five characterstics of well- designed models that mean meaningful savings for payers, improve margins for high value providers, and improve patient outcomes

1 DENSITY AND SCALE

For an APM to succeed, the propotion of the providers book of business included in the model must be sufficiently large ( high density ) to motivate providers to change, justify investments and adopt dedicated clinical - operational workflows . When the propotion is small ( low density ), the incentive to change is weak. Worse, the provider's economics may be adversely affected if changes spill over to fee- forservice patients.

2 STRATEGIC LEVERAGE

The leverage available to APM contractors varies considerably. Physician- led APMs can realize savings by reducing admissions, rationalizing diagnostics pathways, and refering patients to lower- cost hospitals - all without incurring revenue loss. With relatively small operating budgets ( compared with the total costs of care ), savings can have substantial impact on revenue and margins. For hospitals, these " savings " would be realized largely at the expense of their own revenues, which may explain the more modest savings seen in hospital led - APMs

3 SKIN IN THE GAMES

Successful APMs tend to include financial risk. Financial accountability for looses ensures providers' organizational commitment. Models that share both savings and losses with providers allow payers to offer higher shared savings percentages up to 100 % which helps providers justify needed investments.

4 ACCOUNTING FOR CONSUMER BEHAVIOUR

Misalignment of the contractors incentives with consumer incentives can threaten an APM's success. APM contractors can identify and target specific value "leaks" and introduce initiatives to improve consumer behaviours, treatment adherence, and referrals to high - value providers. Payers can also encourage behaviours through well- designed benifits and value based insurance providers.

5 CALIBRATION OF RISK AND REWARD

Successful APMs are designed upon changes that balance the payers interest in reducing medical costs and the providers in minimizing risks and maximising savings. Successful APMs drive predictable savings for payers but remain suffieciently attractive to providers to maximise participation in voluntarly models and avoid demotivation in manditory ones.