Provider Payment Arrangements, Provider Risk, and Their Relationship with the Cost of Health Care

October 2015of Actuaries, All Rights Reserved ©2015 Society

Milliman

Provider Payment Arrangements, Provider Risk, and Their Relationship with the Cost of Health Care SPONSOR

Society of Actuaries

AUTHORS

Juliet M. Spector, FSA, MAAA Brian Studebaker, MA Ethan J. Menges

Caveat and Disclaimer The opinions expressed and conclusions reached by the authors are their own and do not represent any official position or opinion of the Society of Actuaries or its members. The Society of Actuaries makes no representation or warranty to the accuracy of the information. Copyright ©2015 All rights reserved by the Society of Actuaries

©2015 Society of Actuaries, All Rights Reserved

Milliman

TABLE OF CONTENTS

GLOSSARY OF TERMS AND ABBREVIATIONS

I.

EXECUTIVE SUMMARY ....................................................................................................... 1

II.

INTRODUCTION .................................................................................................................... 3

III.

PAYMENT MODELS AND RISK ........................................................................................... 6

IV.

POPULATION PRICING IMPLICATIONS .......................................................................... 15

V.

CONCLUSIONS AND BEST PRACTICES ......................................................................... 47

VI.

LIMITATIONS AND RELIANCE .......................................................................................... 52

Appendix A—Methodology and Assumptions ..............................................................................A-1 Appendix B—The Role of the Affordable Care Act in Payment Reform ......................................B-1 Appendix C—Hospital and Physician Organizations ...................................................................C-1 Appendix D—Types of Other Provider Organizations .................................................................D-1 Appendix E—Data Tools ..............................................................................................................E-1

ENDNOTES

This report was prepared by Milliman exclusively for the use or benefit of the SOA for a specific and limited purpose. The report uses data from various sources, which Milliman has not audited. Any third party recipient of this report who desires professional guidance should not rely upon Milliman's report, but should engage qualified professionals for advice appropriate to its own specific needs.

©2015 Society of Actuaries, All Rights Reserved

Milliman

ACKNOWLEDGEMENTS The authors wish to thank the Society of Actuaries for sponsoring this paper. In particular, the authors thank the Project Oversight Group for their assistance in preparing this paper. The Project Oversight Group comprised Daniel Bailey, Christopher Coulter, Patrick Kinney, Stephen Poor, Daniel Pribe, Brandy Sneed, and Coleen Young. In addition, the authors gratefully acknowledge the assistance of Rebecca Owen, SOA Health Research Actuary, throughout the course of the writing of this paper, and Amanda Holland of Milliman for additional review of the material. Thanks also to Steven Siegel, SOA Research Actuary, and Barb Scott, SOA Research Administrator, for managing this effort and helping to bring it to completion.

©2015 Society of Actuaries, All Rights Reserved

Milliman

GLOSSARY OF TERMS AND ABBREVIATIONS Abbreviations ACA/PPACA: Patient Protection and Affordable Care Act

FFS: Fee-for-service FQHC: Federally Qualified Health Center

ACE: Acute Care Episode Demonstration