As Nick and Neil have explained in previous posts, Aver is increasingly seeing the market move toward a tiered episode pricing strategy. Using this framework, members are assigned to one of several risk tiers, based on their individual risk profile, before their episode of care begins. Typically, we see low-, medium-, and high-risk tiers, with an episode budget for each tier. This allows payers and providers to know the total budget at the start of an episode of care. Providers may be eligible for additional payments based on quality.
But why should payers consider using this tiered pricing framework, particularly when it adds further administrative complication to a process that claims adjudication systems already struggle to implement? The short answer is that tiered pricing can encourage more providers to accept a bundled payment contract and minimize risk ‘cherry picking’.
"...tiered pricing can encourage more providers to accept a bundled payment contract and minimize risk ‘cherry picking’."
Why? Traditional bundle pricing establishes one payment amount for all episodes of the same type, regardless of patient characteristics. Usually, this payment amount is derived from historical claims data. This single-price strategy requires payers and providers to assume that patients treated during the contract period will have similar risk profiles to patients treated in the past. This is yet another element of risk a provider must consider and agree to assume under a bundled payment contract. It is possible that patients treated during the contract period will actually be sicker than past patients, causing the provider to make less or even lose money on episodes of care. Of course, the reverse is also possible, and future patients could have a lower risk profile.
Regardless of how future patient risk profiles compare to historical profiles, using tiered pricing can ensure prices are more responsive to the actual risk profile of the patient in the provider’s office and can offer physicians some peace of mind about taking on a bundled payment.
"... using tiered pricing can ensure prices are more responsive to the actual risk profile of the patient in the provider’s office and can offer physicians some peace of mind about taking on a bundled payment."
To operationalize this pricing framework, providers and payers must communicate and agree on a risk tier, ideally before the episode of care begins. A future post will explore some tools that Aver is developing to facilitate this exchange of information before an episode begins. But, before plowing ahead to the future, let’s be sure we understand how this process works in the present.
Although Aver sees the market moving to tiered pricing, most existing bundled payment contracts use one price. That price may be risk-adjusted and additional payments for quality may be added, but these adjustments are typically made following completion of the episode of care plus an additional period of time for claims runout (usually 90 days). Because the market currently contracts bundled payments with one price, this means that providers don’t know their total budget for an episode of care until well after the episode is completed.
"Because the market currently contracts bundled payments with one price, this means that providers don’t know their total budget for an episode of care until well after the episode is completed."
Today, Aver supports the manual workflow a patient’s insurer uses to operationalize a bundled payment contract. Aver's software sits outside the payer’s claims adjudication system and receives batches of claims on a monthly basis. Aver runs that claims data through our software which contains the payer’s bundle algorithms. Upon receipt of a “trigger” claim, which signals the start of an episode, Aver runs standard episode logic ensuring that the member is eligible for the episode and then assigns that member to an episode. As the episode progresses, our software uses the bundle definitions to assign related claims to the episode. We update monthly reports with payers regarding how providers are performing in current episodes and any completed episodes, and we encourage payers to share these reports with bundle providers. Upon completion of the episode, and following any claims runout period, Aver reconciles episode spending with the target amount, determining whether the provider should receive a shared savings payment or, depending on the contract, should owe a shared loss payment. Payers and providers then reconcile for all episodes covered by the contract; often this process occurs annually.
The beauty of Aver’s current offering is our ability to help payers quickly incorporate value into their payment models. In their strategic plans, many payers have established a goal of moving a certain percentage of payments into value-based contracts. Using bundled payments for episodes of care is one way to meet that goal, and Aver’s tools help payers get a bundled payment program to market quickly. Using proven, standardized bundle definitions, such as those developed by PROMETHEUS or Medicare’s Bundled Payments for Care Improvement (BPCI) model, Aver helps payers identify episodes of care and providers to focus on. With a payer-provider contract signed, Aver then helps payers operationalize their bundled payment programs with a software solution that sits outside of the payer’s claims adjudication system. This is a key offering, as payer systems typically don’t have the capacity to manage or reconcile bundled payments.
"With a payer-provider contract signed, Aver then helps payers operationalize their bundled payment programs with a software solution that sits outside of the payer’s claims adjudication system."
The solutions Aver offers today are helping payers move into value-based contracts faster than ever and offering regular insight into provider performance. But, in our constant quest for improvement, we see a better way. Due to the cadence of monthly claims data feeds from payers and monthly claims analysis and performance reporting by Aver, as described above, payers and providers don’t have much insight into how providers are performing until well into the episode of care. Although this does align with the payment timeframe payers and providers are accustomed to, it doesn’t provide actionable information in a concurrent timeframe or give providers the total episode budget at the start of the episode.
In a future post, we'll describe tools Aver is developing to provide concurrent insight into provider performance while the episode is in process.