Pricing #6: Additional Contracting Considerations - Payment Timing and Member Benefits

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As our previous blog series on pricing illustrates, there’s more than a  single price to set in a bundled payment program. With Aver’s tools and assistance, payers can make thoughtful pricing decisions that ensure both the payer and participating providers experience success under the new payment arrangement.

But as all payers know, there is much more to a contract than the price. In this post, we explore the mechanics of paying providers in a bundled payment contract, and how payment delivery impacts member experience and benefits.

Bundled payments may be made to providers on a retrospective or prospective basis. Under a retrospective payment arrangement, a payer continues to pay all providers involved in an episode of care on a fee-for-service basis as claims are submitted. After conclusion of the episode, plus an additional period to allow for claims submission, the payer calculates all payments included in the episode definition and compares the total to the contracted episode price. Subject to the risk arrangement and other terms of the contract, if episode costs are lower than the contracted price, the payer pays the episode initiating provider the difference. If costs are higher than the contracted price, the provider remits the overage to the payer.

Under a prospective payment arrangement, when a payer receives an episode-triggering claim and confirms that the patient is eligible to participate in the bundle program, the payer sends the provider the full contracted amount for the episode. That provider is then responsible for transmitting payments to all other “downstream providers” involved in the episode, such as physical therapists and anesthesiologists. In a prospective payment environment, there is no need for a “true-up” following the conclusion of the episode of care unless there are “leakage claims,” which occur when a member seeks services related to the episode from a provider not participating in the bundle. The episode initiating provider retains any amount in excess of total costs or is responsible for any payments above the contracted price.

Whether to use retrospective or prospective payment is a matter of choice and should be a negotiating point as payers and providers determine the terms of their bundled payment program. As I mentioned in an Aver white paper, there is no one “right” answer to the question of using retrospective or prospective payment. Both payment arrangements have advantages and challenges, outlined in a chart included in that white paper. Many payers initiate their first bundle contracts using a retrospective payment arrangement, with fee-for-service payments plus a payment reconciliation following episode completion. Retrospective payments have the added advantage of working with payers’ existing claims adjudication systems. They also have challenges, such as limited influence on provider behavior; providers continue to be paid for the services provided, and limited financial benefits for members. A prospective payment model more closely resembles a normal consumer buying experience, as described below, and also capitalizes on humans’ innate aversion to loss, increasing provider motivation to retain upfront revenue.

Determining whether payments will be made retrospectively or prospectively not only impacts payers and providers, but can also change members’ benefits, experience of care, and out-of-pocket responsibility. In a retrospective payment environment, which is what most members experience today, members are responsible for multiple copayments, deductibles, and coinsurance payments during the course of their episode of care.

However, when using prospective payment, in which the payer delivers the entire contracted price to the provider when an episode is triggered, a member may make only one upfront flat payment at the start of their episode. This payment completes their financial responsibility for the entire episode and reduces member out-of-pocket costs.

For example, in a coronary artery bypass graft (CABG) surgery bundle, a member may be responsible for cost-sharing related to any preoperative testing, the hospital admission and surgery itself, and for cardiac rehabilitation services recommended by the surgeon before and/or after the procedure. Under a retrospective bundled payment, the member may be responsible for a separate copayment or coinsurance payment for each part of the episode, in addition to their deductible. Some health plans also limit the number of cardiac rehabilitation visits a member may have in a year, and members may reach that limit during the course of their CABG episode and continued recovery.

However, under a prospective bundled payment, members experience out-of-pocket exposure only at the beginning of an episode of care (subject to any deductible and coinsurance), and subsequent care is covered at 100%. Paying an upfront flat fee can have the effect of increasing member compliance with post-procedure therapy, such as cardiac rehabilitation following CABG surgery. Rather than paying their copayment or coinsurance at each rehabilitation visit, as they would in a retrospective payment model, the member has no payment due at the time of of their appointment - all cardiac rehabilitation member costs were included in their initial payment.

Payers and providers should have a conversation about whether retrospective or prospective payments will work best for them. Because payment timing also impacts member and patient experience and out-of-pocket costs, their perspective should also be considered in making payment timing decisions. Aver supports bundled payment programs using either type of payment, and has tools to help providers in a prospective payment environment manage payments to downstream providers.  

elaine daniels aver director of network strategy

Director of Network Strategy
Aver, Inc

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