Transparency in Service Funds

Merriam-Webster’s Learner’s Dictionary explains that “Transparency” is “the quality that makes something obvious or easy to understand.” We couldn’t agree more.

A Service Fund, however, is an accounting ledger that presents a reconciliation of the profit and loss for the medical care of a population over time. As you can imagine, it is not always easy to understand. First of all, the figures add up quickly. A panel of 2,000 patients can have revenue of $1.7 million dollars and $1.4 million in expense or more in a month. Over a year, that same panel at a target Medical Loss Ratio (MLR) of 84% has a medical cost budget of around $17,136,000. Worse, since 2,000 patients is a full panel for any Primary Care Provider (PCP), it’s more likely that this is the work of a handful of providers over which the membership is somehow distributed.

Discerning which subpanel performed well and which members were left unmanaged is complicated to say the least. As a recent Wall Street Journal article points out, the magnitude alone can be difficult to understand. In addition, the complexity of the reconciliation adds to the potential confusion. Each ledger includes multiple sources of revenue, multiple types of expense, contractual items and administrative adjustments. Further complicating the picture, these assumptions of fixed revenue and a constant panel are unrealistic. Members move, revenue is retro’d, and panel size fluctuates each month. There are, in short, lots of moving parts.

Big Numbers, Big Data

In this context, Transparency in Service Funds means making an accounting of large and complex figures easy to understand. This requires a brief discussion of what the figures represent.

As we have explained in other articles, a Risk Contract serves to align the efforts of the health plan and the primary care provider. The health plan is ultimately responsible for the provision of health care services to its membership, but it’s the primary care provider whose direct involvement with the plan’s member (i.e. their patient) puts them in the strongest position to ensure that resources are directed to the most appropriate medical care at the right time and in the right setting. A Service Fund provides the accounting of a provider’s success or failure at achieving this goal.

When providers are successful, they gain the opportunity to earn incentive payments. If he or she engages with members, monitors cost of care and site of service trends, contributes to the plan’s efforts to distinguish clinically complex members from those who are healthier so that resources can be directed appropriately, then it is often the case that a surplus of revenue can be created as expenses are judiciously managed. It follows, thus, that providers need information about the population – and a lot of it – to accomplish these goals. This information is provided through Service Fund reconciliations.

What Sort of Data? Start with the Drivers of Financial Performance

Several drivers influence the Service Fund profitability equation. Providers are charged with managing multiple revenue components as well as a variety of medical cost elements.

Sharing Revenue Data

On the revenue side, the health plan must share information about which members the provider will manage and what premiums were collected. The provider must reach out to new members, and, in some circumstances, namely risk adjusted lines of business, bears the responsibility of ensuring that a patient’s medical conditions are properly documented to facilitate accurate calculation of premiums. The data to support these requirements is both detailed and changes over time.

Some of the data fields that must be exchanged include: member effective dates, health status flags, sponsor premiums, member premium, pharmacy rebates, and provider attribution. More robust relationships provide accepted diagnosis codes and care gaps that improve revenue accuracy

Sharing Cost Data

Medical expenses, on the other hand, are managed by ensuring the patient receives quality care in the best location, like the physician’s office instead of the emergency room. This not only serves to reduce the price paid for services but also creates opportunities for providers to influence, ideally to reduce, the amount of unnecessary services a patient receives. To accomplish these goals under a risk contract, the provider must evaluate comprehensive data provided by the health plan and conduct interventions.

The data to support expense management, however, takes time to collect, time to prepare, and time to understand.  Because expense data is the result of care delivery operations, namely visits of patients to hospitals, emergency rooms, urgent care, specialists, labs, nursing homes and pharmacies, there is a significant lag from the time of an event to the time that the complete picture is formed about the total cost of care for a period. In fact, it can take months for all claims associated with patient care to be presented and paid.  How long? Ask an actuary. They’ve made a science of this phenomenon.

A complete expense record – at a minimum – includes date of service, date paid, amount paid, services performed and rendering provider for all acute, sub-acute, professional, ancillary and pharmacy expenses. Actuarial estimates of Incurred But Not Reported (IBNR).

Supporting Action

For providers to engage members effectively in the face of this complexity, plans must compile information and distribute it to their risk-bearing providers while it is still actionable. This means, in short, as often as possible and as promptly as possible. Model data exchange among plans and providers occurs within fifteen days of the close of a month for all data through the end of the prior month. There is, of course, variation in this timing, but this standard is sufficient.

Big Data, Big Dialog: The Importance of Trust

When managing toward a shared goal requires collaboration, coordination is important. Risk Contracts transfer the medical cost risk to the provider organization from the health plan, but teamwork is required for both parties to be successful. Duties are divided, and each party relies on the other to fulfill its obligations so that they are successful together.

building trust

The health plan assumes the duty to contract and build a robust provider network at the most competitive rates, and it must also must provide comprehensive data to facilitate the strategic analysis necessary to proactively manage patient care within that network. The provider must, in turn, commit to reviewing the data with a consistent and disciplined approach to understand and act on the trends, drivers and outliers.

When both are done well, outcomes are achieved. When both are done openly with full visibility to the other party, trust is built. What creates this sense of openness? We argue that regular dialog is the catalyst to trust, and specifically, the trust that the other party is fulfilling its obligations.

Joint Operating Conference

Regular dialog creates the opportunity for both parties to share progress, news and challenges. Regular meetings among health plan and provider group representatives are indeed a vital part of achieving transparency in service funds.

In a typical joint meeting, health plan representatives will share information about data quality and content changes. Provider group representatives will share the results of member outreach and provider coaching efforts, for example. Both have the opportunity to introduce new team members and share administrative developments like leadership changes and network restructuring. Together they will address issues that challenge mutual success.

Having these meetings and regular dialog – supported by regular data transfer – completes the ingredients for a successful, trust and transparency-based risk contract.

Seeing It Clearly Now

Transparency in Service Funds is multifaceted. Making the accounting of often significant and complex figures easy to understand involves comprehensive, consistent and frequent data sharing. Further, when the interests of the plan and the provider are aligned, regular and recurring open dialog among the parties builds the trust necessary to support mutual success of risk contracts.