The Centers for Medicare & Medicaid Services (CMS) anticipates that, by the end of 2016, at least 30 percent of Medicare payments will have shifted to alternate payment models and that by 2018 that percentage will have shifted to 50 percent.
Carl BloomfieldThe most notable payment models are Accountable Care Organizations (ACOs) and bundled-payment arrangements. These new alternative payment arrangements will require changes in the operations of all affected providers. While providers are busy readying themselves for these alternate payment models, they may be failing to take the most important steps to mitigate risk and protect their businesses.

Preparing For The New Alternatives

Regardless of type, the new alternative payment models require providers to optimize their quality outcomes and collaborate with other providers within the continuum of care. Toward that end, and to improve their Five-Star CMS ratings, providers are taking several measures, including optimizing their quality outcomes by analyzing their quality measures and benchmarking various rehabilitation metrics, such as length of stay.
Many providers are also sharing the results of their quality assurance performance improvement (QAPI) projects with other providers in the continuum of care to convey their commitment to being an effective partner. There are many proactive providers that have worked with hospitals to improve the hospital readmission rates by streamlining the hand-off process at patient discharge. Another way to improve rates is to interface among providers and their electronic health records to optimize better sharing of pertinent data to minimize errors in prescribing, facilitating accurate discharge instructions, and promoting compliance with follow-up visits.
While these operational improvements in efficiency and quality of care make a provider an attractive partner for inclusion in a network or an ACO, these are not the most important steps to ensure success under these new payment arrangements.

Potential Risks With New Payment Models

As traditional fee-for-services payment shifts to the new alternative payment arrangements, providers are being required to enter into some type of risk-sharing arrangement. For example, under an ACO, providers can bear risk to the adverse impact of unforeseen, catastrophic claims.

Additionally, the Bundled Payment for Care Improvement Initiative (BPCI) sets a payment for an episode like a joint replacement and after-care rehabilitation. Under a BPCI, some providers may be responsible for the actual cost of care for some patients because it may be greater than the standard benchmarks, leaving the provider to pick up the check for the difference.

Despite the payment model that is in place, many providers are reluctant to venture into an ACO due to these risk-sharing arrangements and their potential financial business risks. As a result, many providers have adopted a “wait and see” approach. However, choosing not to pursue these alternative payment networks and care organizations is not ideal. If a provider is not involved in these collaborations, it may result in that provider being excluded, which can inevitably affect the organization’s future viability.

Navigating Risk In An ACO

Providers that enter risk-sharing arrangements need protection from the potential of substantial financial loss due to catastrophic claims or high-cost cases. Provider Excess Insurance, otherwise known as stop-loss insurance coverage, can protect the financial business risk of providers in an ACO. This coverage offsets the impact of unforeseen, catastrophic claims or excessive care costs under either a capitation payment or other risk-sharing arrangement.

While this insurance coverage has been available for years, most providers did not opt for it because the same financial risks and exposures simply did not exist under conventional fee-for-service payment arrangements.

To better demonstrate how stop-loss insurance works, consider if a post-acute care provider accepted a client under a bundled payment arrangement for joint replacement aftercare and rehabilitation and the cost of care due to unforeseen complexities far exceeded the benchmark target and totaled $300,000. If the applicable deductible is $100,000, the stop-loss insurance policy would reimburse (if the coverage was 100 percent) the remaining $200,000.

According to Michael Smith, RN, LNHA, regional director of Mid-Atlantic Operations for Marquis Health Services, a third-generation, family-owned company that acquires and operates subacute rehabilitation and skilled nursing facilities throughout the Northeast corridor, capitation payment is generally a foreign language to some health care operators today. In fact, senior care providers have historically provided individualized care for each resident—care that is not based on statistics or benchmarks.

Because each person has differing abilities and challenges, a provider must adapt a care plan according to the resident’s needs. Perhaps that means more time in the physical therapy gym or more days in the skilled rehabilitation unit so less therapy can be provided over more days. Neither of these adaptations may fit into the actuarial data used by these alternate payment arrangements and, therefore, providing care that best fits a resident’s needs can be costly.
Because there are so many risks to consider in an alternate payment arrangement, stop-loss insurance can cover any anticipated losses.

Coverage for this insurance varies in each policy, and the financial protection is substantial. After any applicable deductible or coinsurance, the policy covers 80 to 90 percent of financial loss of the provider.

The Future Of ACOs

Because traditional fee-for-service payment has proven to be an unsustainable payment model, the health care industry continues its transition to new alternatives that require a risk-sharing arrangement among providers. Long term/post-acute care providers are working to streamline their operations and promote collaboration with various providers in order to be included in future ACOs.

These operational improvements cannot protect an organization from unforeseen catastrophic losses nor mitigate the risk of higher costs of care outside industry benchmarks. However, stop-loss insurance can offset some of these risks and financial exposures and ease concerns about entering risk-sharing arrangements and securing a spot within an ACO or other network. 
Carl Bloomfield, AAI, is a vice president and leader of the Health & Human Services Division at The Graham Co., an insurance and employee benefits brokerage in the Mid-Atlantic region. He can be reached at or (215) 701-5420. Follow @TheGrahamCo.