How To Design Advanced Payment Models That Work For Providers

For commercial payers looking to initiate or expand accountable care organization (ACO) programs, understanding provider concerns is crucial. The primary obstacles to providers participating and succeeding in ACO programs are both well-known and addressable by payers. Experience demonstrates that effective ACO programs minimize administrative burden, have transparent methodology, and contain a blend of positive and negative incentives appropriate for individual providers.

Learning from provider experience in APMs

A recent Health Affairs article suggests that although the number of federal and commercial ACOs continues to grow, recent years have seen a tapering in the number of patients covered by ACOs and an increase in ACOs leaving Advanced Payment Models (APMs). Although the interest in value-based care remains strong, many providers remain understandably hesitant to enter risk-based performance contracts that may hold them responsible for an unknown batch of patients, include onerous regulatory and reporting requirements, and lack upfront payments necessary to transform healthcare delivery and lower costs.

Luckily, the history and scale of market-based APMs is now significant enough to provide a clear roadmap for designing provider-friendly models. According to the organization’s 2020 Sustainability Report, UnitedHealth Group has 1,500 ACO relationships covering 15 million people in 50 states. Other predominant payers’ ACO programs are similarly large.

While each provider network and region differs, RTI Health Advance has identified some of the most common reasons providers leave or hesitate to participate in APMs and solutions to remedy

Inaccurate benchmarking or risk adjustment

Providers frequently cite benchmarks that are too low or don’t properly adjust for risk as explanations for ceasing or declining ACO participation. Because benchmarks are calculated using prior ACO expenditures, many APM models implicitly assume that costs can be lowered in perpetuity without corresponding decreases in quality. This “ratcheting down” of benchmarks is especially severe for ACOs that have shared in savings in prior years, who may feel punished for historical savings. 

In addition to low benchmarks, providers often worry about how claims-based risk adjustment fails to account for the complex risks of their patients. This issue is particularly acute for providers that operate in rural areas, see a high proportion of complex cases, or serve socioeconomically at-risk populations. While there is a growing body of literature on adjusting for social determinants of health, most risk adjustment in APMs continues to rely on historical claims. It may therefore understate the true risks of patients who rarely seek medical care or face systemic obstacles beyond providers’ control.

Solution: Explore establishing benchmarks through ACO or regional-level baselines that don’t “ratchet down” due to prior cost savings and payment methodologies that allocate additional resources for the care of underserved groups, potentially through population-based payments.

Bumpy glidepaths to higher risk

Many commercial APMs automatically move ACOs into higher degrees of two-sided risk over time. These providers, particularly smaller, less capitalized providers, experience these risk “glidepaths” not as smooth transitions but rather as confusing, uncertain jolts.

In practice, ACOs may not be aware of their risk model status until immediately before the performance year. Even when ACOs can plan for the transition to higher risk, smaller providers may not feel confident without prospective, capitated, or advance payments from payers, which would allow them to transform their care-delivery processes.

Solution: In response, payers should identify opportunities to ease the transition to two-sided risk and proactively identify providers with justifiable reasons for struggling with this shift. To achieve the scale necessary to move the healthcare landscape towards value-based care, APMs cannot operate on a “take more risk or you’re out” model, even if downside risk remains a core APM feature. Historical underinvestment in particular communities, regions, and care settings means that it’s okay if some providers take longer to adopt higher levels of risk, especially if they improve healthcare quality and equity in the meantime.

Balancing quality and cost

Most APMs include a quality threshold ACOs must exceed to share in savings. However, success is primarily determined by financial performance against historical benchmarks. While this may be an appropriate paradigm for providers with patients who have traditionally had access to high-quality healthcare, providers who work in settings without a strong healthcare baseline may have a greater opportunity to improve healthcare quality and equity.

Solution: Because payers and providers are united in the goal of improving patient outcomes, providers should be incentivized to close healthcare quality gaps. In some APMs, the balance between quality and financial incentives could be rebalanced.

Inadequate data access

Another common obstacle experienced by providers participating in APMs is inadequate access to historical claims data. This prevents providers from estimating benchmarks and simulating aligned member populations in advance of the performance year to understand how changes to patient care may alter their APM performance. Many ACOs even pay third-party vendors considerable sums of money for claims analysis.

Solution: Payers are positioned to rectify this issue by providing access to the same disaggregated and aggregated claims data used to calculate historical benchmarks and make determinations about risk model eligibility. This data would allow providers to make informed decisions about APM participation.

Aligning complex cases to specialists

Because many APMs base member alignment on primary care services, ACOs with a large proportion of specialists can experience unexpected alignment results. Specialists become functional primary care providers for patients with complex diseases like renal failure or cancer.

Solution: To account for this, payers could adjust alignment algorithms to ensure that patients seen frequently by specialists are aligned to appropriate providers, perhaps via disease-specific payment models.

Model complexity

Among the most frequent frustrations experienced by providers is the morass of regulatory and reporting requirements required to participate in APMs. Documentation requirements often shift annually or between disease-specific models.

Solution: Because each change in reporting requirements introduces additional costs for providers, payers should keep the information requested from providers consistent and avoid regularly changing data reporting platforms.

The success of value-based care hinges on the provider experience in APMs

While the past decade has seen substantial shifts towards value-based care, evaluations have consistently demonstrated that small shifts away from the fee for service paradigm generate only modest system-wide impacts.  Although APMs have grown large, they need to increase scale and retain existing providers to generate further improvements to healthcare delivery.

The experts at RTI Health Advance have decades of experience designing, implementing, and evaluating APMs with CMS and commercial providers. Our unique emphasis on the intersection between provider operations, patient experience, and payment model design allows our team to design APMs that satisfy provider concerns and improve patient outcomes.