What does it mean to be “at risk?”

The concept of being “at risk” has to do with the level of financial risk the entity has in funding the care its patients receive.   As profit-oriented enterprises, insurance companies generally assess the insured’s risk and base the premium on the anticipated cost of care with the ultimate goal of minimizing that risk.  MedicareAdvantage plans are insurance companies, in a sense, that are paid a capitation by the Centers for Medicare and Medicaid Services (CMS) for each enrolled member.  In exchange for that capitation payment, the Plan is financially liable for all the care given to the patient (e.g., all medications, surgical procedures, office visits, etc.) by any provider.

Depending on the plan’s business model, it may contract with physicians operating as Independent Practice Associations (IPAs) or with groups that own or manage multiple physician offices under a Management Services Organization (MSO).  In many cases, the plan’s risk is passed onto the IPA or MSO.

With an IPA or MSO, the MedicareAdvantage plan has deducted a percentage of the capitation for its administrative costs and pays the provider the balance of the capitation fee.  In exchange, the provider (IPA or MSO) assumes the financial risk for the patient’s care with usually few contractual exceptions (e.g., AIDS, hospice, other high risk diagnoses, etc.).

In the past (before MRA), the capitation payment paid by CMS to a MedicareAdvantage plan was primarily based on factors beyond anyone’s control:  the patient’s age, gender, and geographic location.  If a plan had two patients with a similar demographic profile, the Plan received the same capitation payment.  If, for example, one of the patients was extremely healthy (had low medical claims expense) and the other had metastatic cancer (very high claims expense), the Plan’s profitability was significantly impacted because the capitation payment received was not adjusted for the health risk of those specific patients.  Since managed care’s comprehensive coverage and low out-of-pocket patient costs typically draw patients with multiple chronic conditions, many plans had incentives to offer little care or were forced to leave geographic markets because their opportunity for profitability was limited.

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