Actuarial Notes

The Cost of Value-Based Care: A look at enterprise and financial risk strategy development and support

By Kelsey Stevens · Society of Actuaries · 2020

Study guide: Exam GH-301

An April 2020 article in The Actuary magazine, part of a Society of Actuaries Health Section strategic initiative on value-based care (VBC). It looks at how actuaries can support providers with enterprise and financial risk management as providers move from fee-for-service toward fee-for-value contracts.

On the syllabus

  • Exam GH-301 — Provider Contracting and Reimbursement, outcome 1d; the whole article.

Strategic Considerations

  • "Enterprise and financial risk management" refers to business and financial matters related to health care delivery and involves a dynamic risk assessment of both an organization's revenues and costs.
  • "Costs" here means the actual cost of delivering health care services, such as labor and supply costs within a hospital, not the provider claims expense that health care actuaries usually mean; the latter is equivalent to the revenues of providers.
  • Actuaries have traditionally supported providers' fee-for-service contracting by modelling total revenues and benchmarking contracted rates; with VBC their role extends to the revenue aspects of contingency-based contracts and the management of the cost component.
  • A provider's strategic motivations inform its appetite for risk and its level of VBC contracting.
  • Actuaries can model traditional financial levers, clinical interventions and the provider's internal cost structure to inform decisions.

Developing A Strategic Plan

  • Alternative payment models range over bundled payments, accountable care organizations (ACO), shared savings, shared risk and global capitation, each requiring a different level of transformation and risk.
  • Providers need to consider where they operate today and how far up the continuum of VBC options they are ready to move, and by when.
  • Moving from fee for service to fee for value has immediate and longer-term cash flow implications, and the upside reward and downside risk need to be understood in size, timing and resource requirements.
  • Metrics that actuaries assess include the mix of business across payers, cost to charge ratios, fixed and variable costs, quality measures, current contracting arrangements, market share and the amount of risk a provider is legally allowed to take.
  • Marketplace data they may consider includes uninsured versus insured populations, insured populations by segment, population growth projections, competitors, market opportunity analysis and changes in policy.

Sources