Actuarial Notes

Provider Payment Arrangements, Provider Risk, and Their Relationship with the Cost of Health Care

By Juliet M. Spector, Brian Studebaker and Ethan J. Menges · Society of Actuaries · 2015

Study guide: Exam GH-301

An October 2015 report prepared by Milliman for the Society of Actuaries on payment reform, in which providers and payers share financial risk to align incentives toward quality care at more affordable prices. It introduces a framework of four risks (utilization, technical, insurance and performance), defines eight payment models, walks through the pricing process, and works ten case studies.

On the syllabus

  • Exam GH-301 — Provider Contracting and Reimbursement, outcomes 1b, 1c, 1d; excluding the Appendices.

Glossary of Terms and Abbreviations

I Executive Summary

  • Payment reform is organization-specific, and a framework of four risks is introduced: utilization risk, technical risk, insurance risk and performance risk.
  • Eight payment models are defined: fee-for-service, global capitation, shared savings, DRG/case rates, bundled payments, reference pricing, provider excess loss reinsurance and pay-for-performance.
  • Ten case studies illustrate the general pricing process.
  • Success in provider payment arrangements comes down to good holistic risk management by the payment reform team.

II Introduction

  • The report was prepared for public educational purposes for a multidisciplinary audience of providers, health insurers, health actuaries, policymakers and those pursuing an actuarial career.
  • The main body has four sections: the risks and payment models, general pricing implications, ten case studies, and best practices and key takeaways.

III Payment Models and Risk

  • Introduction to payment models
  • Fee-for-service
  • Global capitation
  • Shared savings
  • Bundled payments
  • Reference pricing
  • Provider excess loss reinsurance
  • Pay-for-performance

IV Population Pricing Implications

  • General pricing process
  • Quality
  • Other considerations when modeling payments and cash flows
  • Case studies
    • Fee-for-service
    • Medicare Shared Savings Program (MSSP)
    • Pioneer ACO Model
    • Commercial ACO contracts
    • Illinois' care coordination entities
    • Commercial DRG contract
    • Bundled Payments for Care Improvement (BPCI)
    • Reference pricing
    • Pay-for-performance
    • Patient-centered medical home for complex patients

V Conclusions and Best Practices

  • Program results
  • ACO results (Medicare and commercial)
  • Patient-centered medical homes
  • Pay-for-performance
  • Best practices
  • Overall conclusions

VI Limitations and Reliance

Appendix A Methodology and Assumptions

Appendix B The Role of the Affordable Care Act in Payment Reform

Appendix C Hospital and Physician Organizations

Appendix D Types of Other Provider Organizations

Appendix E Data Tools

Sources