Case Study: ACO Financial Modeling
The New Hampshire Citizen’s Health Initiative (NHCHI), under a grant from the Robert Wood Johnson Foundation (RWJF), initiated a five-year statewide Accountable Care Organization (ACO) pilot program involving five health care delivery systems and four commercial health insurance carriers. 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 meeting quality benchmarks for the population served. Over time, the ACOs would assume some of the risks under the arrangements, with both savings and losses shared between the providers and carriers. NHCHI and RWJF saw significant value in developing a common financial and contracting framework for use by each of the five participating ACOs in negotiating contracts with each of the participating carriers.
Goals of the engagement
NHCHI selected Compass Health Analytics to develop a recommended common ACO financial framework and to model financial scenarios under that framework to be used by the pilot sites and health insurance carriers in their ACO contract negotiations.
Compass assisted with specifying the major design features of the ACO model’s financial structure that would be common to all ACO/carrier contracts in the pilot. ACOs and carriers would later negotiate specific contract terms employing those indicators. Compass staff then recommended designs for selected elements, including:
- Methodologies for assigning (attributing) populations of members 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
To carry out this work, Compass:
- Met with the client to understand progress already made
- Developed a plan which detailed the specific analyses to support the final recommendations for the financial framework
- Worked with NHCHI staff to execute the analytic plan using data from the New Hampshire Comprehensive Health Care Information System, an 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
This ongoing five-year project at present has 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.