Which option best describes two-sided risk?

• A. Provider benefits if costs are less and PENALIZED if costs are more
• B. Provider benefits if costs are more and PENALIZED if costs are less
• C. Provider receives a fixed payment regardless of costs
• D. Costs do not affect payments

Answer: (A)

Two-sided risk means the provider shares in both gains and losses tied to actual costs versus a target. If costs come in under the target, the provider benefits through shared savings; if costs exceed the target, the provider faces penalties or reduced payments. This dual potential for upside and downside is what defines two-sided risk. The option that describes this best is the one where the provider benefits when costs are low and is penalized when costs are high. The other options describe scenarios with only upside gain, a fixed payment regardless of costs, or payments that aren’t affected by costs, none of which capture the idea of risk on both sides.