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Strengthening accountable care: The strategic advantage of surety

Learn more on how accountable care organizations can benefit from using surety bonds as collateral for shared losses and to reallocate capital.

10/04/2024 · 4 minute read

Accountable care organizations (ACOs) can benefit from using surety bonds as collateral for shared losses to improve their cash and credit capacity and reallocate capital towards critical business objectives, such as avoiding service duplications, preventing medical errors, and delivering higher quality care to Medicare patients. Marsh’s team of surety specialists can guide you in understanding the potential advantages of surety and assist you in accessing these vehicles.

Healthcare organizations are transitioning to a value-based care model focused on improving patient outcomes and advancing health equity, all while lowering costs. The ACOs within these organizations are held accountable for delivering quality and affordable care to Medicare patients. This requires ACOs to seek strategic ways to enhance the patient experience and spend healthcare dollars more efficiently. 

As they do this, ACOs must align to the performance benchmarks or cost-saving targets set by the Center for Medicare and Medicaid Services (CMS). CMS collaborates with ACOs to set performance benchmarks and price targets for healthcare services. 

With a greater emphasis on coordinated care and health equity, the chief financial officers, treasurers, and risk managers responsible for managing ACOs must strive to beat performance goals and decrease CMS spending, while continuing to uphold a high standard of care. However, if you do not meet the pre-determined performance benchmarks and the cost of care exceeds the agreed-upon amount, you may be required to reimburse CMS with a reconciliation payment. 

A better alternative to letters of credit or cash 

Traditionally, ACOs have relied on other forms of collateral, including letters of credit (LOCs) or cash held in escrow, to make reconciliation payments to CMS. However, LOCs can reduce borrowing availability and cash may not be the most efficient use of capital. On the other hand, surety bonds typically offer a more strategic, flexible, and competitively priced instrument accepted by CMS to secure reconciliation payments.

Surety bonds allow ACOs to optimize their credit capacity and redirect funds towards other essential business priorities with ease and efficiency. Typically, the surety bond amount is determined by CMS based on the number of assigned Medicare beneficiaries within the ACO and may vary depending on the size and scope of the ACO. Additionally, a bond should only be obtained from a qualified surety company and must meet all necessary requirements outlined by CMS. 

Key benefits of surety bonds

Surety bonds offer a strong alternative to other forms of collateral, allowing ACOs to save credit resources, retain cash, and reserve assets for other pressing business objectives. Benefits include:

Flexible structuring

Surety bonds can be structured as unsecured credit, and the terms and conditions can be customized to align with an ACO's unique requirements. 

Off-balance sheet capacity

Surety bonds do not impact an ACO's existing credit facility or lending arrangements. 

Competitive pricing

The cost of obtaining a surety bond is typically lower than the fees associated with establishing and maintaining LOCs or the opportunity cost of tying up cash as collateral. 

Financial stability

By using credit resources more efficiently and retaining cash or other assets for other pressing priorities, ACOs are better positioned to maintain financial stability and flexibility.

Compliance

Marsh works with highly rated surety companies (minimum AM Best rating of “A-”) with underwriters well-versed in CMS’s Shared Savings Program and related collateral requirements to ensure all necessary conditions are met.  

Underwriting considerations

Several parties may be involved in the evaluation process to determine whether an AOC is eligible and has the right risk profile to use surety bonds as collateral for shared losses. These parties can include insurance companies, financial institutions, underwriters, and risk advisors. Aside from looking at the length of time an ACO has been enrolled with CMS, they usually evaluate the ACO’s:

  • Historical ability to meet performance benchmarks
  • Credit strength 
  • CMS star rating 

Optimized healthcare spend, improved patient outcomes

By using effective, well-structured surety bonds as collateral for shared losses, ACOs can refocus their time and capital on their most urgent business objectives, in turn contributing to better patient outcomes and lower healthcare costs. As the largest global surety broker, Marsh’s team of surety specialists has extensive experience advising ACOs on surety bonds and aiding you throughout the fulfillment process. 

Leveraging our global network of 320 experienced surety professionals, we facilitate the use of surety to help enhance your liquidity, achieve your business objectives, and enable growth. We work closely with you to implement a flexible and strategic surety solution that understands your unique business needs and accounts for market conditions and regulatory changes. 

For more information, contact your Marsh representative

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