To help reduce Medicare expenses while preserving or enhancing the quality of care provided to beneficiaries, the Centers for Medicare & Medicaid Services (CMS) introduced its Direct Contracting model in 2019.
The model builds on Next Generation Accountable Care Organization (ACO) concepts and combines them with designs from Medicare Advantage and commercial risk-sharing arrangements.
How Direct Contracting Works
To create a Direct Contracting Entity (DCE), health care providers and suppliers come together under a common legal structure and enter an arrangement with CMS that requires accepting financial accountability for the overall quality and cost of medical care furnished to Medicare fee-for-service (FFS) beneficiaries aligned to the DCE.
Incentives are heavily weighted toward health outcomes and patient satisfaction versus administrative improvements. The potential for success remains to be seen, but, from the reinsurance perspective, there is an interesting subset of the model, including the pros and cons of private sector options and pricing for DCE programs outside the corresponding CMS offering.
Types of DCEs:
Standard – Already serves Medicare FFS beneficiaries
New Entrant – Hasn’t traditionally provided services to Medicare FFS populations
High-Needs Population – Serves Medicare FFS beneficiaries with complex needs as defined by CMS
Risk-Sharing Options
In 2021, two voluntary risk-sharing options were made available: professional and global.
The professional option offers a 50 percent risk-sharing arrangement and provides Primary Care Capitation (PCC), a capitated, risk-adjusted monthly payment for enhanced primary care services provided by DCE participant providers and preferred providers participating in PCC.
The global option offers a 100 percent risk-sharing arrangement and two alternative payment types – either PCC or Total Care Capitation (TCC), a capitated, risk-adjusted monthly payment for all services provided by DCE participant providers and preferred providers participating in TCC.
How Payments Work
The Direct Contracting Model offers DCEs several options for receiving monthly payments. Capitated DCEs receive a capitation payment covering total cost of care or cost of primary care services, while Advanced Payment DCEs selecting PCCs receive an advanced payment of FFS non-primary care claims.
Under these arrangements, CMS can incorporate more robust care management not inherent to the traditional Medicare program. Claims paid for services occurring outside the TCC agreement are debited from the DCE’s TCC amount.
Protection from Extreme Costs
Unlike traditional reinsurance – and to protect against extreme scenarios – CMS withholds funds for each DCE and, at year-end, reconciles actual expenditures against the amount withheld. This aspect of the CMS “reinsurance” program has mixed reviews.
All DCEs have the option of participating in a stop loss reinsurance arrangement designed to reduce the financial uncertainty associated with infrequent – but high-cost – expenditures.
How Stop Loss Works
The CMS stop loss attachment points are developed based on expenditure data derived from the DC National Reference Population of Medicare FFS beneficiaries and adjusted to reflect regional differences in Medicare payment rates for each DCE. They are then calculated against the projected performance year benchmark. The stop loss payout is disbursed to the DCE by CMS as a reduction to the plan year expenditure; there is no separate payment for stop loss.
For the purposes of the stop loss arrangement, the payout is equal to a variable percentage of the expenditure incurred by an aligned beneficiary whose total expenditure exceeds the prospectively established attachment point. Essentially, CMS applies a PBPM stop loss charge to the DCE as an addition to the DCE’s plan year expenditure (claims).
The predetermined CMS model fits well for a start-up projecting smaller numbers of aligned beneficiaries or with a modest risk tolerance entering a new financial structure. Furthermore, a cash flow advantage exists, as there is no monthly premium payment to CMS as required by a commercial carrier.
The converse issue is the DCE needs to wait for reimbursement for high-cost claims months after the year-end settlement date, compared to immediate reimbursement in commercial markets.
Underwriting Challenges
Pricing is complicated – the data being used for commercial pricing is not typical experience data, but, instead, member data under FFS versus data from the DCE. Underwriters must do extensive work combing through the notorious “CCLF” (Claim and Claim Line Feed) files to understand what is being presented. Beneficiaries are only included in the current year’s data and dropped in the event of death, certain diagnoses, opt-out or settlement. Through experience, actual DCE claims will mature, and the drawbacks will diminish.
Additional difficulties for underwriters:
Retrospective effective dates
Disclosure limitations
Last minute regulatory shifts
Bringing options to this space has been well received by the buyers and their brokers. Offering corridors/aggregating specs and higher retentions gives pricing advantage to those who can manage the higher risks.
Looking Forward
The one-size-fits-all CMS model will continue to shift as both reinsurers and DCEs demand design flexibility and become increasingly comfortable with assumed risk. Time will reveal the program’s care management success. But we need to see how it plays out over the next three to five years. It’s a work-in-progress, but innovation isn’t going away, and we must determine how to work with it as programs evolve.
Information included in this article is based on HM Insurance Group internal research and experiences, as well as general industry knowledge.
Provider organizations, HMOs and other health plans are encountering considerable growth in catastrophic claim costs.
With that risk comes the potential for financial loss and volatility in their businesses. When confronting these multimillion-dollar challenges, purchasing excess risk coverage becomes an important business decision. And it’s vital these organizations find the right carrier if they want help protecting their bottom line.
Protecting Against the Growing High-Cost Claims Trend
With price tags commonly exceeding $1 million, pharmaceutical advancements like cell and gene therapies continue to be a major factor in claim cost growth. That said, as treatment capabilities evolve, the options for patients – and the claim costs created – are only expected to grow, making it essential to safeguard against these risks. Especially now, with an incredible pipeline of high-cost treatments moving closer to FDA approval.
And it’s not just pharmaceutical therapy costs creating this trend. Other medical care is associated with extremely high-cost claims, including preterm births and the accompanying stays in a neonatal intensive care unit (NICU), transplants, complex cancer cases and burn treatment. Each has the potential to create incredibly large claims that can arise and accumulate unexpectedly.
Determining Protection Needs
To assist with the management of these growing costs, financial protection is available. Health care entities can consider Health Plan Reinsurance or Provider Excess Loss Insurance to help protect them from the financial risks associated with high-cost claims. Experienced underwriters at a quality carrier will work closely with your broker to help determine coverage needs by assessing the potential for catastrophic claims and how they might impact the client’s balance sheet. The type of coverage will then correlate with the purchaser and can be for any combination of commercial, Medicare or Medicaid populations.
In addition, structures can range from global coverage with straight deductibles to very specific coverage forms and limits. Carriers need to be highly creative in the use of pricing tools, such as aggregating specifics, inner aggregates and other corridor-styled risk management pricing tools. It’s also important to see the implementation of a multidisciplined approach to cost management that involves specialty services and solutions for common challenges.
Finding The Right Coverage
When working to find the right coverage for their needs, health care organizations should first select a consultant or broker who has familiarity with the market, the available products, networks, medical management services and risk management techniques, as each of these will factor into the coverage decision. The broker also should be working with a carrier that has a record of positive year-over-year performance – not just short-term interest. There are just a few highly specialized carriers in this space, primarily because it requires exceedingly technical underwriting, is influenced heavily by in-depth experience analysis and often involves working with a significant amount of data.
Being Aware of Essentials
There are some key attributes to consider when selecting the right carrier. First, it’s important that the carrier be rated well by AM Best and have good scale, as financial protection should only be provided by a financially secure and stable organization. Also, be sure to find out who is ultimately making the decision to pay larger than normal claims – does it revert to a third party, or does it stay with the underwriting entity? The carrier also should have a watchful eye on trends so that the coverage it offers is designed to meet the challenges of market changes and needs. And don’t forget to take a close look at their claim payment resources – the fair and reasonable interpretation of contracts and claims should be central to the payer’s approach instead of the use of a micromanaged style.
Finally, consistency is a must in the managed care business. When all parties seek a mutually advantageous relationship for the long-term, everyone – broker, client and carrier – will work well together for the best outcomes.
Information included in this article is based on HM Insurance Group internal experiences, as well as general industry knowledge.
In a market that continues to see significant growth in catastrophic claim costs, provider organizations, health maintenance organizations (HMOs) and other health plans that want to protect their bottom line from the potential financial loss associated with these often multimillion-dollar challenges should consider excess risk coverage.
What’s Creating the Coverage Need?
The most visible cost-driving issue facing the reinsurance industry today is the continued advancement of cell and gene pharmaceutical therapies, which are being rapidly created and released with the intention of potentially helping to cure cancer, blood disorders and many rare diseases. Their costs can range from $500,000 to more than $2 million per treatment, which creates financial risk.
And the pharmacy pipeline is incredible, so this cost risk is only going to increase as new treatment options hit the market. Other medical care associated with extremely high-cost claims includes neonatal intensive care unit (NICU) stays, burn treatment and transplants. Each reinsurer handles these claims in a different fashion, so care should be taken when selecting a reinsurer.
How Is Medical Reinsurance Accessed/Distributed?
For medical reinsurance, there is a small network of highly specialized brokers and consultants who act as intermediaries to bring coverage to the markets. There also are a limited number of highly specialized carriers who participate in the assumption of risk. This coverage requires highly technical underwriting and is influenced heavily by in-depth experience analysis and manual ratings that have been constructed by a few actuarial health care giants. Submissions often involve large volumes of data.
How Is Coverage Determined?
The type of coverage correlates with the purchaser and can be for any combination of commercial, Medicare or Medicaid populations.
When determining the coverage need, experienced underwriters assess the potential for catastrophic claims and their impact on the client’s balance sheet, staying out of the “working layers,” as well as helping to evaluate any requirements that certain entities may have regarding coverage. There also are start-up health care organizations that may need protection, given the assumption of risk back to providers that should be considered as well.
Structures range from global coverage with straight deductibles to very specific coverage forms and limits. Carriers can be highly creative in the use of pricing tools, such as aggregating specifics, inner aggregates and other corridor-styled risk management pricing tools.
How Do You Select the Right Carrier?
Before you can choose a carrier, it’s important to select the right broker – one who is familiar with the market, available products, risk management techniques, networks and medical management services, as they all come into play in the coverage decision. The broker should be closely attuned to who is doing the best job on a year-over-year basis and not in it for the short-term.
Be aware of AM Best ratings and scale because the size of the carrier actually does matter in terms of the ability to make good on promises. Also, be sure to scrutinize claim payment resources – the fair and reasonable interpretation of contracts and claims should be the mantra of the payer as opposed to a micromanagement approach. In the managed care business, consistency is a must. Everyone involved in the process should be seeking a long-term, mutually advantageous relationship – working well together for the best outcomes.
Information included in this article is based on HM Insurance Group internal reporting and experiences, as well as general industry knowledge.
In a market that continues to see significant growth in catastrophic claim costs, provider organizations, health maintenance organizations (HMOs) and other health plans that want to protect their bottom line from the potential financial loss associated with these often multimillion-dollar challenges should consider excess risk coverage.
What’s Creating the Coverage Need?
The most visible cost-driving issue facing the reinsurance industry today is the continued advancement of cell and gene pharmaceutical therapies, which are being rapidly created and released with the intention of potentially helping to cure cancer, blood disorders and many rare diseases. Their costs can range from $500,000 to more than $2 million per treatment, which creates financial risk.
And the pharmacy pipeline is incredible, so this cost risk is only going to increase as new treatment options hit the market. Other medical care associated with extremely high-cost claims includes neonatal intensive care unit (NICU) stays, burn treatment and transplants. Each reinsurer handles these claims in a different fashion, so care should be taken when selecting a reinsurer.
How Is Medical Reinsurance Accessed/Distributed?
For medical reinsurance, there is a small network of highly specialized brokers and consultants who act as intermediaries to bring coverage to the markets. There also are a limited number of highly specialized carriers who participate in the assumption of risk. This coverage requires highly technical underwriting and is influenced heavily by in-depth experience analysis and manual ratings that have been constructed by a few actuarial health care giants. Submissions often involve large volumes of data.
How Is Coverage Determined?
The type of coverage correlates with the purchaser and can be for any combination of commercial, Medicare or Medicaid populations.
When determining the coverage need, experienced underwriters assess the potential for catastrophic claims and their impact on the client’s balance sheet, staying out of the “working layers,” as well as helping to evaluate any requirements that certain entities may have regarding coverage. There also are start-up health care organizations that may need protection, given the assumption of risk back to providers that should be considered as well.
Structures range from global coverage with straight deductibles to very specific coverage forms and limits. Carriers can be highly creative in the use of pricing tools, such as aggregating specifics, inner aggregates and other corridor-styled risk management pricing tools.
How Do You Select the Right Carrier?
Before you can choose a carrier, it’s important to select the right broker – one who is familiar with the market, available products, risk management techniques, networks and medical management services, as they all come into play in the coverage decision. The broker should be closely attuned to who is doing the best job on a year-over-year basis and not in it for the short-term.
Be aware of AM Best ratings and scale because the size of the carrier actually does matter in terms of the ability to make good on promises. Also, be sure to scrutinize claim payment resources – the fair and reasonable interpretation of contracts and claims should be the mantra of the payer as opposed to a micromanagement approach. In the managed care business, consistency is a must. Everyone involved in the process should be seeking a long-term, mutually advantageous relationship – working well together for the best outcomes.
Information included in this article is based on HM Insurance Group internal reporting and experiences, as well as general industry knowledge.
