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Understanding the Risks and Benefits of Medicare ACO Models

The recent announcement by the Centers for Medicare and Medicaid Services (“CMS”) of the implementation of the Next Generation (“NG”) ACO model further solidifies the government’s intention to expediently transition to more value-based reimbursement methodologies. The release of the NG ACO model coupled with the clear direction from the Department of Health and Human Services (“HHS”) that it has established the goal and framework to increase payments tied to quality or value through alternative payment models to 30 percent of traditional Medicare payments by the end of 2016, and 50 percent of payments to models such as ACOs or bundled payments by the end of 2018 sends a strong message to providers that value-based payments and increasing risk-based structures are rapidly evolving. It is increasingly important that healthcare providers not only assess their readiness for the new models, but understand the different characteristics of each and determine the best fit for their organization. Whether or not an organization chooses to participate in the currently available models, the key to success is conducting a well-informed assessment of whether to participate, when to participate, and which model is best suited for the organization. Likewise, organizations that are already participating should assess their Medicare strategy on an ongoing basis.

Should You Participate?

As mentioned and as shown in Figure 1, CMS has issued fairly aggressive goals for transitioning to value-based payment methodologies, which have been further supported by the announcement of the NG ACO model. 

ACO_Figure_1Simultaneously, the overall impact of the Affordable Care Act (“ACA”) has incentivized more efficient care delivery, changed payment methodologies and generally put pressure on hospital operating margins. Hospitals and health systems that historically and largely still today rely on fee-for-service reimbursement face an ongoing quandary of protecting volume to maintain revenues versus transitioning to value-based models where the focus is the right care, at the right time and right place with increased overall value. While hospitals and other healthcare providers are impacted differently, the broad impact is a shift from inpatient to outpatient services (shown in Figure 2) and significant consolidation of the market (shown in Figure 3).

ACO_Fig2Clearly, the healthcare delivery system is changing and aligning to provide more coordinated care; and regardless of the market in which a healthcare provider operates, pressure for change is palpable.

When determining whether or not to participate in one of the Medicare ACO models; or for those that are already participating and assessing their future direction, organizations need to determine how rapidly their market is changing, the implications of the model characteristics, the size of the fee-for-service Medicare market vs Medicare Advantage, their experience with managing risk, the degree to which they are already taking steps to redesign their care ACO_figure3models, the strength of their provider network across the continuum, the size of their patient base, and the difference in financial incentives across models as well as the degree of risk aversion or acceptance for the organization. There are benefits and pitfalls to each of the Medicare ACO models, and the proposed changes to the Medicare Shared Savings Program (“MSSP”) together with the NG ACO structure show that CMS is taking provider experience and comments into consideration as revisions to existing and frameworks of new models are being developed.

When Should You Participate?

There have been mixed results in the MSSP. For example, according to CMS in Performance Year 1:

  • 58 MSSP ACOs held spending $705 million below their targets and earned performance payments of more than $315 million as their share of program savings.
  • One ACO in Track 2 overspent its target by $10 million and owed shared losses of $4 million.
  • 60 ACOs reduced health costs compared to their benchmark, but did not qualify for shared savings, as they did not meet the minimum savings threshold.

And, in the Pioneer ACO Model Performance Year 2:

  • Pioneer ACOs generated estimated total model savings of over $96 million and at the same time qualified for shared savings payments of $68 million.
  • According to the Brookings Institution, 13 Pioneer ACOs reduced costs enough to qualify for shared savings, with an average of $5.85 million returned to the ACOs, ranging from $1million to $14million. One ACO owed shared losses of $2.55 million. The remaining 18 ACOs were within the minimum savings or loss rate and did not earn shared savings or owe money to Medicare due to losses.

However, CMS is making changes to the programs to make them more attractive and to encourage a greater degree of risk taking. Specifically, the proposed rule for MSSP seeks to address the flawed methodology that is used for setting, updating, and resetting an ACO’s benchmark that currently is based on historical performance and introduces a third track with increased risk sharing, among other changes. And, the NG ACO offers increased risk and reward along with a revised benchmarking methodology. Thus, at a time when market dynamics are changing rapidly, and CMS continues to fine tune the structure of the ACO programs, timing of the participation decision is extremely important. Healthcare provider groups and organizations should explore the Medicare ACO models and the implications of each structure to their individual organization and the ramifications of the changes in programs, regardless of whether they are making the decision to participate or deciding whether to change models. Staying ahead of the changes and timing the decision so as to best support the organization’s goals and objectives is recommended.

Which Model is Best for You?

Organizations considering the choice of Medicare ACO models should assess the individual characteristics and capabilities of their organization, the market in which they operate, and the structure, risks and opportunities under the available Medicare ACO models. One of the main considerations for most organizations is the degree to which they are at risk and the extent of sharing in savings. Table 1 depicts a summary of the models available under MSSP and NG ACO.

ACO_table1While increasing focus is being placed on migration to risk as evidenced by the proposed Track 3 under MSSP and the introduction of NG ACO, many provider organizations continue to participate in the Track 1 of MSSP (no downside risk). If revisions to the MSSP program are implemented (as currently proposed), the model may become even more attractive to organizations that have previously opted not to participate but aren’t prepared to take on the level of risk required in NG ACO. On the other hand, the NG ACO model provides an alternative to those organizations that are more advanced in their population health model and ability to manage risk, whether that be organizations currently participating in the Pioneer or MSSP ACO programs, or organizations that have previously not participated. If the Track 3 option is indeed added to MSSP, there will be a range of risk sharing from 40 percent to 100 percent across the models, with a variety of structural characteristics that should also be considered.

With the rising demand from government and commercial payers, employers, and the general public to improve the value of healthcare delivery, provider organizations must continually review their readiness to transition to these new models as well as the appropriate structure to support their ongoing success. Having a detailed plan and projecting overall impact to the organization is critical as is timing of decision-making and implementation. The decision is no longer simply whether or not to participate in Medicare ACOs, but rather, as the system evolves, when should providers engage in or change models and which model will lead to the best outcomes. Making the right decision for the organization is imperative.

Next Generation ACO, ACO, Accountable Care Organization, The Camden Group

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