Making the most of health plan shared savings programs 

A recent article in The New York Times sheds light on a contentious aspect of the US healthcare system — the billing and negotiation processes involving Out-of-Network healthcare providers. The article highlights the sometimes-exorbitant initial charges submitted by OON providers and the steps insurers take to reduce these bills. One example given is of a physician charging $100,000 for an outpatient procedure and then ultimately accepting $5,000. But the story hinges on the correspondingly large "shared savings" fees retained by the insurer and the patients caught in the middle.

Shared savings programs are not new; we blogged about them back in 2018. What has changed is the difference in charges for in-network and OON services. Today, shared savings programs can generate a sizeable portion of an insurer’s total revenue, suggesting one reason why base administrative fees have risen so slowly in recent years. The size of OON charges may also reflect the growing presence of private equity investment in healthcare and strategies designed to maximize profit, even if it means pursuing patients for payments.

Let’s take a closer look at how these shared savings programs work.

Why OON cost management is necessary

Much of the US healthcare system runs on a fee-for-service basis. Insurers negotiate lower reimbursement rates with in-network providers, who agree not to balance-bill patients for the difference between the contracted rates and their undiscounted charges. Members pay less for in-network services, and national health plan data shows that well over 90 percent of medical charges occur at in-network providers.

When a member gets care from a provider who is not contracted with the health plan, there is no pre-determined fee schedule that the health plan has agreed to. While reimbursement rates are just one aspect of insurer/provider contracts, they are often an area of contention. OON providers are generally not willing to accept rates comparable to in-network reimbursement; in fact, it is not unusual to see out-of-network charges several times higher than in-network rates.

To address these differences, health plans use various layers of OON cost management programs for the commercial population. From a plan perspective, these processes save significant amounts of money. Depending on the method used, they may prevent providers from balance-billing members for the difference. This is an important consideration since the No Surprises Act only protects patients against surprise medical bills for emergency services, air ambulances and certain non-emergency services (e.g., OON providers delivering care in an in-network facility).

Employer actions for optimizing shared savings programs

In self-funded employer-sponsored health plans, a sizable portion of reported program savings is retained by the plan administrator, with some of it used to pay the multitude of vendors involved behind the scenes in managing the program. Often, the fee kept by the plan administrator is not flagged separately in reporting to the plan sponsor; rather it is passed through as a claim expense.

What can plan sponsors do to find the right balance in managing shared savings? We recommend the following:

• Transparency: Request comprehensive reporting on all shared savings programs, including both the financial value they deliver and their associated costs.
• Understanding: Work closely with your health plan to fully understand each shared savings program and explore any alternative options available to you including limiting exposure for plan members.
• Negotiation: Engage in negotiations with your health plan administrator to establish caps on both a per-claim basis and an overall program level, considering the broader services and fees in place.

Of course, one of the most important steps you can take is simply to improve in-network utilization. Effective plan design incentives and advocacy services that steer members to network providers and ensure they understand the cost consequences of using OON providers can make a difference. You might even consider excluding OON coverage for non-emergent services.

Even so, some OON claims are unavoidable. That’s why understanding the nuances of shared savings programs, negotiating favorable terms and prioritizing transparency is an essential aspect of managing healthcare spend.