The Case For Downside Risk (Or Not)

Many payers, most notably the Centers for Medicare and Medicaid Services (CMS), have developed new payment models that base reimbursement on a broader bundle of services than traditional fee-for-service payment. The accountable care organization (ACO) program exemplifies the broadest of these new payment models. One of the crucial ACO design features is the extent to which providers are required to reimburse payers if spending exceeds a target, called the benchmark. In upside-only (or one-sided) models, providers share in savings if spending is below the benchmark but do not have to reimburse payers if payment exceeds the benchmark. In two-sided risk models, providers still share in the savings but are also responsible for some of the loss if spending is above the benchmark.

In its recently released proposed “Pathways to Success” program, CMS has expressed a preference for two-sided risk ACO models. In fact, many features of current public payment policy already reward providers that choose two-sided risk models. For example, providers must accept downside risk for a payment model to be considered an Advanced alternative payment model (APM), which qualifies participating providers for a 5 percent payment bonus. Moreover, two-sided risk models themselves often have favorable parameters, including ones that allow providers to keep a higher share of savings than under one-sided risk models…

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