Shared Savings Programs Require Closer Inspection
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It used to be much easier to analyze the components of an ASO arrangement with a health plan. It was mostly a matter of knowing the per employee per month (PEPM) fee and understanding the services and performance guarantees included. Today, however, an ASO arrangement is likely to include one or more shared savings programs – and understanding their impact on plan cost and performance is not always a straightforward matter.
Shared savings programs entitle the health plan to retain a percentage of any savings generated by their focused interventions in a given area. This creates a strong financial incentive for the health plan to drive savings for the employer. But given the increased scope and impact of these programs, it’s important that employers evaluate (1) the value being delivered, (2) the fairness of the retained amount, and (3) the transparency of fee reporting.
Many health plans have some form of shared savings for programs that negotiate savings on out-of-network claims. Other programs have been introduced more recently in the areas of:
- fraud, waste and abuse;
- subrogation;
- detailed review of hospital claims; and
- trading in-network discounts for lower ASO fees.
For some employers the shared savings remain relatively small – a couple of dollars PEPM –but we’ve seen examples where they exceed the ASO fee itself. One could argue a larger shared savings amount is better, as it indicates more savings are being generated. But the underlying methodology must be reviewed to ensure the savings are meaningful.
Two questions we hear frequently from employers are “I don’t understand why I’m being charged separately. Shouldn’t this be part of the ASO fee?” and “Why did the health plan keep so much of the savings? It isn’t in proportion to the effort required.” These are fair questions.
As health plans and employers work towards a common goal of delivering high-value health care, the subject of shared savings is sure to receive increasing attention. To ensure these programs are working as they should, employers need to take time to understand the potential benefits of the underlying program and the amount of savings being generated.