As accountable care organizations form across the country, their leaders are still determining which payment arrangements best align the organization's physicians with performance improvements and incentivize them to work toward the triple aim of ACOs: improving the quality of care and patient outcomes while lowering costs. Along with that goal, provider organizations must also consider the amount of risk they are willing to assume in a payment model.
The American Academy of Actuaries broke down five popular ACO payment models in a recent report.
However, this arrangement may lead to misaligned incentives, according to the report. "If bonuses are benchmarked on historical costs, an ACO has an incentive to increase utilization and incur higher costs in the benchmark period, thereby creating opportunities for saving in future years," the report's authors wrote. Also, this model may reward organizations that used to be very inefficient and punish cost-efficient providers.
To be successful in this model, providers need systems similar to those that payors use to monitor and manage cost and utilization, according to the report.
All of these payment arrangements have their pros and cons for both provider organizations and payors. However, the payment of individual care providers in an ACO needs to be considered as well, according to the report. "The success of an ACO is affected by the degree to which its individual providers are aligned and willing to participate and coordinate care," the report says. Therefore, the chosen payment model should impact a large portion of the providers in the organization and be easy to understand so the providers are invested in the ACO and improving care delivery.
The American Academy of Actuaries broke down five popular ACO payment models in a recent report.
"One-sided" shared savings
In this arrangement, providers can share in a portion of the savings they achieve in a modified fee-for-service model. This benefits providers because it is only upside risk. They will not share in any financial losses.However, this arrangement may lead to misaligned incentives, according to the report. "If bonuses are benchmarked on historical costs, an ACO has an incentive to increase utilization and incur higher costs in the benchmark period, thereby creating opportunities for saving in future years," the report's authors wrote. Also, this model may reward organizations that used to be very inefficient and punish cost-efficient providers.
"Two-sided" shared savings
Providers take on downside and upside risk in this fee-for-service based payment model. According to the AAA report, this model strongly incentivizes providers to reduce costs due to the downside risk. As with the one-sided model, there is a possibility of misaligned incentives with this arrangement.Bundled/episode payments
In a bundled payment scenario, providers get a single payment for all of one patient's services for one episode of care. Providers take on most of the risk in this area, according to the AAA report. "The…providers bear the severity of risk – or the risk related to the degree of complication in the patient's case," the report says. They take on the financial risk if the cost of treating an episode of care exceeds the payment. However, the report notes that the ACO does not take on the incidence risk in this arrangement.Partial capitation/global payments
The ACO assumes partial risk in the partial capitation payment arrangement. "An ACO may be at risk for some or all of physicians' services…but not for hospital or other non-physician services," according to the report.Global payments
The provider organization assumes a great amount of risk with global payments. With this arrangement, providers receive monthly or annual payments, regardless of the care services they performed in that time period. It strongly incentivizes providers to lower the cost of care. "The only way for a provider to increase its financial benefit is to increase efficiency and reduce costs," the report says.To be successful in this model, providers need systems similar to those that payors use to monitor and manage cost and utilization, according to the report.
All of these payment arrangements have their pros and cons for both provider organizations and payors. However, the payment of individual care providers in an ACO needs to be considered as well, according to the report. "The success of an ACO is affected by the degree to which its individual providers are aligned and willing to participate and coordinate care," the report says. Therefore, the chosen payment model should impact a large portion of the providers in the organization and be easy to understand so the providers are invested in the ACO and improving care delivery.
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