Physician payment models increasingly require practitioners to assume greater financial risk for managing their patients’ care.
In some cases, this can leave physicians economically vulnerable since they may not be fully reimbursed if contract utilization projections fall short of the actual time and cost of treating chronically ill patients. One solution is to carve out certain conditions or services from the payer agreement to avoid the financial risk that may be involved because of a covered patient’s catastrophic illness or accident.
Another option is to insure against the risk by purchasing provider excess-loss coverage. Also known as stop-loss insurance, this coverage is designed to mitigate any potential loss and protect the financial stability of a practice.
How it works
Provider excess-loss insurance protects the capitated physician from unlimited losses when charges for treating an individual covered patient exceed a specific dollar amount. The amount paid on a claim is subject to a fee schedule, deductible and coinsurance.
The maximum allowed for services is fixed in the policy’s fee schedule, which may be based on the Medicare Fee Schedule or some other formula. The deductible is subtracted from the total allowed charges, and the patient’s financial responsibility is deducted from the remainder. The physician typically is reimbursed at 80 percent of the amount left.
With health reform ending annual and lifetime limits on patient healthcare benefits, insurance companies have begun offering unlimited excess-of-loss coverage.
Not all services provided by a physician under a capitation agreement may be included when calculating the threshold. Exclusions and limitations may apply. Only services listed on the policy’s Schedule of Insurance are covered.
Traditionally, this specialty coverage was provided per person per year. Aggregate policies, those covering all the patients served in a large practice, generally are scarce because of the difficulty in evaluating the risk.
However, these policies are available on the market. Provider excess/stop-loss insurance can be obtained through the risk-based health plan or through an insurance broker.
Purchasing the insurance on the open market usually is cheaper than getting it through the plan, according to Tom Handley, author of the “Stop Loss” chapter in the American Medical Association’s resource guide, Evaluating and Negotiating Emerging Payment Options. Handley is vice president and principal at actuarial firm Lewis & Ellis, Inc.
If purchasing a policy through a broker, it is important to use one who knows the ins and outs of this coverage.
Some insurance companies offer value-added benefits that may provide savings. These can include discounts on costs at certain organ transplant hospitals, case management for catastrophic conditions and out-of-network facilities, among others.
Policies are not universal. They specify which plan or plans, in the case of multiple agreements, the insurance carrier covers. Physicians contracting with additional plans after a policy purchased on the open market becomes effective must be sure to contact the insurance carrier to add the new contract(s) to the policy to ensure coverage.
Evaluating the need
Whether a carve-out or provider excess-loss insurance is more economically feasible will depend on the specifics of any particular risk-based arrangement. Factors to consider include the number of patients covered, their health status and the kinds of services to be provided under the contract, among others. Specialists who treat sicker populations and offer surgical services may have a greater need for the coverage than a primary care physician with low per-unit costs, for example.
As in other types of insurance, the higher the deductible, the lower the premium. Handley offers as a rule of thumb setting the deductible at between 2 percent and 5 percent of annual capitation revenue.
In analyzing the premium, he suggests the net stop-loss cost (premium less expected claim recoveries) should be approximately 25 percent of the stop-loss premium.
“In actual fact,” he adds, “there are years when claims are greater than the premium, so the physician will get money back. In other years, claims might only be 50 percent of the premium. But taken over five years, the net cost is about 25 percent.”
Given the complexity of determining financial risk when negotiating a risk-based payment option, physicians should consider retaining an actuary to review such proposals. An actuary can estimate potential risk exposure under the contract, determine which option – carve-out or insurance – best suits a physician’s particular risk and recommend the amount of coverage to purchase should provider excess-loss insurance make the most sense.
For more information, go to www.ama-assn.org. Under Resources, click Practice Management Center, then Payment Options.