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Changing Stop Loss Formula Can Drive Interest in Risk-Based Models

There is a need for a new stop loss formula that ensures a level playing field and motivates accountable care organizations.
This is a realistic scenario. However, when I talk to physicians they worry about the worst case scenario in year 3 when the stop loss is 10%. In this case, they have to pay $4 million if they generate 10% losses—wiping out their entire annual Medicare revenue despite having the top quality scores needed for the 40% shared losses rate. A catastrophic 100% loss.
 
You can see why an extra 10% in the shared savings rate is not enticing physician-led ACOs to Track 2 in large numbers.
 
Why are hospital-led ACOs not flocking to that 10% bump? A hospital-led ACO with specialists might account for $60 million of that Medicare revenue and they have the same stop loss of $2million accounting for a mere 3.33% of their annual Medicare revenue. The worst case scenario only puts 6.67% of their revenue at risk. If the hospital-led ACO won’t take risk under this scenario, of course a physician-led ACO potentially facing financial ruin won’t take risk.
 
Using Risk to Motivate ACOs
Congress highlighted the use of risk-based models for motivation with the phrase “more than nominal financial risk.” The risk needs to motivate, it needs to be enough to matter, it needs to be more than very small in amount, but more than nominal clearly does not translate into financial ruin.
 
Rather than a stop loss of a percentage of total costs, I propose a replacement stop loss on the amount an ACO will be liable to Medicare as a percentage of Medicare revenue received by ACO participants. I propose a new stop loss set at 15% of the fee-for-service payments made by CMS to all of the participants in the ACO. This makes the risk greater than what physicians face under the Merit Incentive Payment System, but not ruinous.
 
Setting risk at this level motivates all ACOs rather than the current situation where a symmetric policy to recoup losses creates massive disparities in financial risk from ACO to ACO. This would not be rewarded with Track 3 like shared savings rates, but rather with Track 2 shared savings rates and qualification as a qualified entity in an alternative payment model minimizing the cost to Medicare. In this new scenario, according to our example the individual physician only has to write Medicare a stiff, but survivable, $18,000 check.
 
In short, there is a need for a new stop loss formula that ensures a level playing field and that formula should be based on percentage of Medicare revenue received by ACO participants, not a percentage of total costs.

 
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