Direct Contracting: Global vs. Professional and the impact of the “Performance Year Discount”

As Direct Contracting participants weigh the merits and considerations of the Professional vs. Global tracks, one key factor to consider is the “Performance Year Discount” related to the Global program. The following explores the impact of the Performance Year Discount and the related implications for participants.

CMS has outlined that it will apply a discount to the trended, regionally-blended, risk-adjusted benchmark for DCEs participating in the Global track, which will become more aggressive over time in recognition of the efficiencies ACOs generally achieve through extended participation in value-based care programs. The discount will be set at 2% of the benchmark for Performance Years 1 and 2, and increase by 1% for each subsequent Performance Year, culminating in a 5% discount for Performance Year 5. In contrast, there is no discount to the benchmark for the Professional program. By applying the discount to the benchmark used for reconciliation of realized spend, the discount increases the savings hurdle that must be realized to avoid shared losses and generate shared savings.

On a gross basis (prior to the Performance Year Discount), the Global track offers higher upside at any savings level with the DCE capturing 100% of the savings for any amounts less than or equal to 25% of the Performance Year Benchmark, while the Professional track’s risk corridors (Exhibit A) immediately impact the first dollar of savings.

Exhibit A – Risk Corridors

 

Performance Year Benchmark

However, when factoring in the Performance Year Discount, the relative “breakeven” between the Global and Professional program shifts (Exhibit B), due to the interactions between the relative first-dollar savings allocated to the DCE (50% vs 100%), the differentiated savings rates and thresholds in the respective risk corridor schemes, and the stepwise discount of the benchmark in the Global track.

Exhibit B – “Breakeven” Curves

 

Understanding of “Breakeven” Curves in Global and Professional program

For example, for Performance Years 1 and 2, the 2% discount creates a breakeven point at 4% savings. This implies that, for a DCE anticipating savings greater than 4% of the Performance Year benchmark, it is favorable to be in the Global track. Conversely, for DCEs experiencing any savings less than 4% (or losses of any amount), the Professional track is favorable. The “breakeven” levels for Global vs. Professional are 5.77%, 7.31% and 8.85% respectively for Performance Years 3 through 5 (Exhibit B).

The confluence and interactions of these mechanisms are critical to consider as participants decide which risk track to participate in. The Professional track offers higher downside protection in the event of losses and offers more beneficial economics at more modest savings levels, depending on performance year. The Global track may be preferable for those who project higher savings levels and have greater risk tolerance.

David Krezmer Headshot Head of Strategic Finance Pearl Health

David Krezmer

Head of Strategic Finance