Actuarial Weigh-in On ACO Payment Models

The American Academy of Actuaries has released a report that describes the five common accountable care organization (ACO) payment models. This report comes at a time when ACOs are forming across the country, faced with making payment arrangement decisions that will lead member organizations and providers toward improved care quality and outcomes with reduced cost.

The five models included in the report are:

  • One-Sided Shared Savings. This arrangement offers a bonus only—providers are eligible to receive a portion of savings when they meet quality care standards and deliver care at reduced cost.
  • Two-Sided Shared Savings. In this arrangement based on the fee-for-service model, ACOs are at risk for a portion of spending over a designated target.
  • Bundled/Episode Payments. This arrangement gives providers a single payment for a patient’s services in one episode of care. Most of the risk is taken by providers in the event care exceeds projected cost.
  • Partial Capitation/Global Payments. In this arrangement, ACOs assume part of the risk for physician services, but not for other non-physician services.
  • Global Payments. Provider organizations assume a large amount of risk with this arrangement, where providers receive monthly or annual payments regardless of the care services performed in that time.

Each payment model has pros and cons for different provider organizations, payers, and stakeholders. The report recommends organizations approach the selection carefully, taking all factors into account. “The success of an ACO is affected by the degree to which its individual providers are aligned and willing to participate and coordinate care,” according to the report.

Organizations can leverage risk adjustment methods as tools to mitigate any possible concerns. “Financial and utilization targets against which savings will be measured should be set and adjusted to ensure a fair assessment, balancing past performance with high performance standards,” the report recommends.

The report addresses several other key points, including careful consideration for the assignment of patients to a particular ACO, the ability of ACOs to assume varying degrees of financial responsibility and risk, the creation of incentive structures for individual providers within an ACO, and the importance of comprehensive databases from multiple sources to performance metrics and financial targets.

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