Negotiating Downside Risk with Your Payers

2018-11-13T15:23:54+00:00November 1st, 2017|

Negotiating Downside Risk with Your Payers

Perhaps the most monumental paradigm shift that usually accompanies downside risk is the relationship your organization has with payers. While not relevant for the Centers for Medicare and Medicaid Services (CMS) accountable care organization (ACO) programs, it becomes front and center for Medicare Advantage, managed Medicaid and even commercial payers.

As your organization assumes downside risk, you must reevaluate the respective value you and your payer partners bring to the table. Typically, 15 percent of the healthcare premium dollar is kept by payers to cover administrative services for servicing members. Payers feel they deserve this premium because they bear the financial risk if medical costs exceed premiums.

But in downside risk agreements, the payers effectively transfer that risk to the provider organizations. In turn, providers should negotiate to retain a larger share of the premium dollar. In other words, because your organization now holds the risk, you deserve a larger share of the potential reward.

Control Is Everything | You Have the Final Say

Payers obviously do not want to lose this revenue, so strong negotiation skills and expertise are required. Negotiating for premium dollar requires a change in the relationship with your payers and a firm idea of what your organization should give away and what should be kept under your control. The bottom line is if your organization now holds the risk, you should have final say on what services your organization will provide for those members (and receive associated revenue in return).

Care management is an example of work that was once considered almost exclusively managed by payers that has largely transitioned to providers in ACOs; most ACOs negotiated to receive additional reimbursement for the provision of these care management services. Likewise, providers are often pleasantly surprised at the benefits that go along with negotiating and taking control of services traditionally provided by payers, such as quality reporting, network management and development, analytical support, medical or utilization management, and even claims processing. Not only are they able to capture additional premium revenue, but most find they have greater control of all touch points directly impacting their patients and network.

Many providers may wonder, “Why would I want to take on these responsibilities?” The first reason is the true 360-degree scope of influence you gain on your patients and network. Your patients and providers call you, not multiple payers, to deliver all aspects of care and support.

The second reason is to maximize top-line revenue by capturing a larger share of the healthcare premium. By moving these services under your scope of responsibility, you get increased revenue as well as the ability to effectively manage those services to maximize profitability. The end result is to ultimately try and pay only a finder’s fee or sales commission to your payer partner for the membership it brings, and you oversee and keep the rest.

The third and often understated reason is speed to knowledge and the ability to impact or influence the delivery of these services versus having a payer provide them. Often this is the biggest surprise to providers when they are first delegated for claims processing. Providers often believe that claims data must have 90 days of run-out before it can be received and analyzed. But when new providers begin processing claims for its at-risk populations, they begin to see that when used wisely, they are able to get much closer to real-time, actionable data, and see emerging trends more quickly.

Don’t Wait for the Perfect Solution

Many ACOs and provider organizations waiting on the perfect solution that provides seamless data from disparate electronic health records and claims data integration may be surprised by the quick access to data, knowledge and revenue that taking on delegated claims processing can provide. This is just one of the services that can be delegated to your organization through payer negotiations. Ultimately, by moving these services under the provider’s umbrella, the organization is able to capture a greater percent of premium dollar and have direct impact, influence and control of all aspects of patient care and the provider network.

Most of these delegated services require significant expertise, infrastructure, compliance, oversight and back-end investment to deliver effectively – generally well beyond the scope or capabilities of a single provider entity. The good news is that provider organizations don’t have to build these functions from scratch.

Many providers consider outsourcing to Management Service Organizations (MSOs) as the preferred method for securing these functions, as it gives them much greater control without having to build and implement. Funding for these functions can also be effectively managed by accepting downside risk as a prospective payment, either through percent of premium or percent of medical loss ratio, or capitation.

While this payment methodology has gained an unfair negative connotation from the HMO days of the 1990s, this type of arrangement can be very powerful for those organizations that can effectively manage risk as it solves one of the major downfalls of the current CMS ACO programs: cash flow. All of the current CMS ACO programs are measured off of retrospective models that ultimately don’t pay out earned savings until six-to-eight months after the measurement period. In contrast, capitation pays on a monthly basis and allows for real time revenue capture and cash to pay for risk operations. Most Medicare Advantage and many managed Medicaid payers actively contract with providers via capitated arrangements, and even CMS has added it as an option for the Next Generation ACO in 2017.1

Moving Beyond the ACO

While results haven’t been great, ACO programs have offered a sturdy stepping stone for organizations to prepare for population health and financial risk management. And now that CMS has shown its true motivation – significant, quality-driven two-sided financial risk – the numbers in its ACO programs will likely continue to increase as well as existing ACO growth through additional provider affiliation.

New and unsuccessful ACOs will be quickly trying to hone their population health and financial risk management capabilities, and the pace these organizations take toward more downside risk arrangements will likely increase. Those ACOs that have proven they can manage risk are likely already in the process of trying to turn their capabilities into competitive advantages via expansion of downside agreements with Medicare Advantage, managed Medicaid and commercial payers.

As a result, the traditional relationships between providers and payers will continue to converge as providers take more downside risk. Truly advanced ACOs may begin delegating traditional payer services under their scope of responsibility to gain more influence over their patients and capture additional premium revenue.


  1. Centers for Medicare & Medicaid Services. Next Generation ACO Model – Financial & Alignment Frequently Asked Questions. January 2016.

About the Author

Vikas Garg

Vikas Garg

Vice President, Central Region, Value-Based Care

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As Vice President, Central Region, Garg is responsible for growing and managing Conifer Health’s Value-Based Care business in the region. Garg is a seasoned healthcare industry veteran with over 10 years of healthcare strategic and operational consulting experience, along with 10 years of system integration experience in the retail and healthcare sectors. His leadership is critical to the execution of Conifer Health’s growth strategy, while maintaining delivery excellence and pursuing the highest levels of client satisfaction.

Vikas previously worked at PwC’s health industry advisory business, where he spent his last six years supporting payer and provider clients on strategic and operational issues. During this time, his primary focus was helping clients move forward in their journey from volume to value.

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