Gainsharing formula lowers risks, maximizes rewards
Gainsharing formula lowers risks, maximizes rewards
Does risk reside somewhere other than cap rate?
"Tiered capitation" and "gainsharing" are two buzzwords that light up the numbers on the balance sheet like a marquee for physician groups participating in a new, highly structured capitation plan in St. Louis. Rather than sharing risk, the physicians share profits. In this system, physicians aren’t penalized for exceeding payment levels, but they stand to get financial rewards if they maintain quality levels and reduce costs, payer officials say.
"It’s a win-win situation," says Jane Potter, vice president at Alliance Blue Cross Blue Shield in St. Louis and co-architect of the plan. It is designed to encourage built-in annual hikes in per-member-per-month (PMPM) payments, as well as to financially reward physicians for achievements in cost reduction and clinical outcomes.
An independent physician reviewer in Washington, DC, on the other hand, assessed highlights of the plan for Physician’s Managed Care Report and offers some important warnings and questions for physicians to consider if they face this type of payment plan. "I think it’s heavily weighted against physicians," says J. Leonard Lichtenfeld, MD, secretary-treasurer and board member of the Washington, DC-based American Society of Internal Medicine. Lichtenfeld is a long-time student of physician payment structures and managed care activities.
The capitation payment plan has three main features, says Herbert Schneiderman, senior vice president of medical delivery systems at Alliance and co-developer of the payment structure:
• Performance-based capitation rate with annual potential for updates. Primary care physicians who contract with Blue Cross are paid under a five-tiered system, beginning at level V (lowest) and increasing to level I (highest). The tiered system existed before the launching of Physician Group Partners Program (PGPP). The difference is that PGPP offers higher payments on all levels, and it also adds other features described below.
Physicians asked to sign five-year contract
Before PGPP, HMO physicians started at level III and moved up or down in payment levels based on their performance. Under the new plan, newly participating providers start at level II, but that level is 12.5% higher than level III in the old plan. Thus, there is an incentive to join the new program because there is an immediate payment impact. Physicians new to the capitation program who join the HMO automatically begin at level III, which pays about a $10 PMPM cap rate.
Group practices that join are automatically paid at a higher PMPM level than solo physicians. This is because group practices provide more efficiencies to the payer, Blue Cross officials say.
Also, physicians who sign a five-year contract with the HMO automatically receive a pay raise in the form of a higher capitation rate. They start at level II, which pays about $11.25 PMPM.
This five-year commitment sends up an immediate red flag in Lichtenfeld’s mind. "No one can predict what will happen a year from now, much less five years from now," he warns. Market forces can change so rapidly that a contract that works well under present conditions may not work so well if environmental or market factors not affected by the content of a contract change. For example, at the recent annual conference of the Medical Group Management Association in Washington, DC, many opinion leaders were suggesting there is a movement away from the gatekeeper model, Lichtenfeld says. If that happens, how would this tiered-payment, gainsharing model fit with such a fundamental market shift?
• Bonuses based on patient satisfaction and Health Plan Employer Data and Information Set (HEDIS) measures. Physicians in level II also are eligible for bonuses that can amount to another 8% of their capitation rate a maximum of 4% for meeting patient satisfaction targets and 4% for meeting predetermined quality standards based on HEDIS recommendations.
• Year-end "gainsharing" based on competition within the network of participating physician groups. If physicians lower their medical costs from the previous year without dropping in their quality ratings or patient satisfaction scores, the Blues will split the savings with them, a system the payer calls "gainsharing." Here is how it works: Each primary care physician group is assigned an annual budget for its HMO members. The budget, which is adjusted according to age and sex variables, includes projected year-long medical costs for specialty services, hospitalization, and outpatient pharmacy.
Herein lies another red flag, Lichtenfeld warns, but it may be negotiable: Age and sex variables are not the most accurate indicators of severity. (See related story on ambulatory care groups in PMCR, October 1997, pp. 131-134.) "If you do a lot of AIDS work or type 1 diabetes, age and sex severity adjustments don’t do you a lot of good," he says. "I think it’s extremely risky."
At the end of the year, the budget is reconciled with the group’s expenditures. Any savings over the budgeted amount results in a gainshare. For example, if a group was budgeted $100 PMPM but actual medical costs were $90 PMPM, a $10 PMPM gainshare would result. So the group gets $10 • 10,000 beneficiaries, for example, split per doctor.
The group also stands to gain more "shares" of savings if it compares well with other physician groups in the plan in terms of costs. Here you’ll find another set of tiers. The HMO grades budget performance on a curve, comparing results of each group in the network. The tiers work this way:
If a group’s actual PMPM costs are at or above the network’s average actual medical costs, the group receives 35% of its gainshare.
If the group’s costs are between the network average and one standard deviation below the average, the group receives 50% of the gainshare.
If the group’s actual costs are greater than one standard deviation below the network average, the group earns 65% of the gainshare.
For the following year, physician groups that receive the maximum gainshare automatically ascend to Level I capitation payments.
Still, even if physician groups achieve handsome cost savings, they will not be eligible for any gain savings if they do not meet quality and patient satisfaction targets first.
Some key issues here, suggests Lichtenfeld, are who assigns the budget and on what basis. "The real risk in this plan is in this portion," he suggests. The doctor actually is held at risk for keeping within a budget. Is the budget tied to the plan’s premiums? If premiums are drastically cut, would the doctor’s budgets also be cut? Conceivably, physicians could be better off accepting real risk via their cap rate, rather than through a budget control mechanism such as this one, he suggests. "No risk, no gain," he adds.
Freedom or uncompensated responsibility?
Beyond the financial structure, the bureaucratic structure virtually disappears a feature Schneider and colleagues are proud of, touting physician autonomy as the only way to work under managed care. In the plan, physicians are left to their own leadership to figure out how they want to reduce costs, improve outcomes, delegate credentialing, supervise utilization of resources, and meet all the other demands of managed care.
This is another area to be wary of, Lichtenfeld says. "Doctors undervalue their intellectual capital," he says. "This is shifting responsibility to doctors without reimbursing them for it."
This plan offers no administrative support from the payer, Schneider says. Practices are given data, typically in the form of a quarterly report that reviews their overall practice patterns, as well as patient satisfaction reports and HEDIS reports. But Lichtenfeld would prefer to receive the reports be a lot more often than quarterly daily would be ideal to keep up with practice trends.
The Alliance reports include:
• utilization trends such as hospitalizations, lengths of stay, and tests;
• how closely the physicians and the practice met the targets for seven HEDIS performance measures (cholesterol screening, asthma for children, asthma for adults, immunization for children, mammography screening, diabetic retinal screening, and prenatal care);
• how patients rated them in these areas: how long they waited to get an appointment; the office location’s convenience; getting through to the office by phone; length of time waiting at the office; time spent with the person the patient saw; explanation of what was done for the patient; the caregiver’s technical skills (thoroughness, carefulness, competence); the caregiver’s personal manner (courtesy, respect, sensitivity, friendliness); overall visit.
Outside the issues of payment and physician autonomy, Blues officials say there are other rewards. For example, the plan was developed initially with physician input, and that input remains a part of the process. Also, physicians who sign a five-year agreement don’t have to worry about deselection. And keeping up quality at least as far as it is measured by HEDIS is required, thus reducing incentives to cut back on patient care for financial reasons.
The plan is attracting a strong interest among primary care physicians in the St. Louis area, Potter and Schneiderman say, and they expect to modify it in the future for specialists. Yet with this proposal and any others, Lichtenfeld offers this advice: "Caveat emptor."
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