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Shared Savings

Shared savings models can be roughly divided into two categories. In the first category, if the actual total costs of all care received by the patients assigned to a physician practice is lower than budgeted costs, the practice receives a percentage of the difference between the actual and budgeted costs (i.e., a "share of the savings"). However, if actual total costs exceed the budgeted costs, the practice is not on the hook for any portion of the difference. Because the practice is only at risk for additional revenue, shared savings arrangements under the first category are sometimes said to involve only "upside" risk.

Chapter five: Shared savings proposals

Under the second category, the physician practice can receive a percentage of savings, as described above. However, if actual total costs exceed budgeted costs, the practice is responsible for a percentage of the difference. A shared savings arrangement falling under this second category is sometimes described as having both "upside" and "downside" risk.

Shared savings payment models are already being used in the private and public sectors. For example, the Medicare Shared Savings Program, created by the Patient Protection and Affordable Care Act of 2010 (ACA), allows accountable care organizations (ACOs) to share savings and risk with the Medicare Program under both categories discussed above. Commercial health insurers are implementing similar programs.

Evaluating whether or not participation in a shared savings program makes sense for you will require careful consideration of issues that apply in other risk arrangements. You will, for example, need to understand how the payer calculated the quality and cost benchmarks against which your performance will be judged, but you will also have to consider factors that are especially germane to shared savings arrangements.

Of particular importance will be how the payer intends to set your cost budget from year to year. For example, if, in the first year of the arrangement, your costs are significantly under budget, you may find it difficult to achieve any savings in the second year if the second-year budget is based on your first-year performance.

You must also understand how shared savings and risk will be apportioned between you and any other participating providers. You should start thinking about developing the ability to evaluate shared savings arrangements, since it is likely that you will be invited to participate in such arrangements in the near future.

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