Financial modeling for an accountable care organization

Challenge

A pilot accountable care organization (ACO) comprised of five health care delivery systems and four commercial health insurance carriers needed to develop a common ACO financial framework. They also needed financial scenarios within that framework to be used by pilot sites and health insurance carriers in their ACO contract negotiations.

In the ACO model, networks of providers would operate under contractual arrangements in which a provider and a carrier initially share in savings in the cost of care – compared to a negotiated benchmark – if the provider renders efficient care that also meets quality benchmarks for the population served. Over time, the ACO members would assume some of the risks under the arrangements, with both savings and losses shared between the providers and carriers. The client saw significant value in developing a common financial and contracting framework for use by each of the five participating health systems in negotiating contracts with each of the participating carriers.

Approach

BerryDunn advisors helped specify the major design features of the ACO model’s financial structure that would be common to all ACO member/carrier contracts in the pilot. ACOs and carriers negotiated specific contract terms employing those indicators. We also recommended designs for selected elements, including:

• Methodologies for assigning member populations to an ACO, including consideration of prospective and retrospective approaches, use of alternative service and provider types for attribution, and various measures and rules for determining attribution thresholds
• Financial benchmarks for evaluating the overall cost of care, including rules for setting baseline budgets, target cost growth rates, and thresholds for target variance and generating savings/loss pools
• Risk-sharing structures/formulas for allocating the savings or loss pool to the ACO and carrier

BerryDunn advisors also:

• Developed a plan which detailed the specific analyses to support the final recommendations for the financial framework
• Worked with client leadership to execute the analytic plan using data from the state’s all-payer claim database
• Evaluated empirical results of various design options to formulate recommendations
• Periodically met with the ACO pilot team to present the results of analyses, make recommendations, discuss issues, and solicit feedback
• Presented a recommended financial framework to the ACO pilot team

Outcome

This project resulted in a recommended financial framework for the participating ACO pilot sites and health insurance carriers to use in their contract negotiations for the ACO pilot period. These recommendations provided the participants with a common starting point for negotiation and a better understanding of the issues, risk, and potential cost savings and benefits inherent to ACO arrangements.