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 Servic