CMS Makes ACOs a Punishing Experience

William Donovan • Fri, January 4th, 2019

The Centers for Medicare and Medicaid Services (CMS) issued the anticipated final rule on the future pay-and-penalty structure for accountable care organizations (ACOs) managing to peeve just about everyone and raise the question of whether any health care entities will be willing participate in the future (see “CMS Puts the Squeeze on ACOs,” Orthopedics This Week, September 19, 2018).

The change: until now, there was a benefits-only tier (Track 1) to the Medicare Shared Savings Program (MSSP) under which a health care entity could receive a small financial bonus for meeting Medicare spending and outcome milestones, with no financial punishment if it did not.

A health care provider organization could sign up for this benefit for up to two consecutive three-year terms. The organization could then decide whether it wanted to enter either of two tiers under which benefits are greater for savings but failing to meet federal performance standards would result in a reimbursement penalty. 

Under the new system, to start January 1, 2019*, participants must sign contracts of at least five years’ duration for either of two new tiers, BASIC and ENHANCED. The BASIC tier replaces the old benefits-only/no-risk Track 1. The new ENHANCED track is basically the old Tier 3, with the highest level of risk and rewards. 

*Those whose multi-year contracts would expire at the end of December 2018 were given a six-month extension in the new rule, so their new contracts, if they continue, will start July 1, 2019.

Who Wants the Risk?

Of the 561 ACOs with MSSP contracts as of this past August 460 were in Track 1, which offers benefits only. Of these 460, 82 were nearing the end of their second three-year term as savings-only ACOs. Another 88 Medicare ACOs are not in the MSSP program. 

CMS said it was “encouraged” that 90% of ACOs in the MSSP program have chosen the six-month extension—as if that were an indication that they’re going to hop onto the risk bandwagon after those six months. However, given the fact that a high majority of ACOs receive the benefit of shared savings payments without the risk side under their current contracts, the question is why the other 10% did not extend for six months. 

Under the new BASIC tier, a small, newly participating ACO led by a physician can elect to spend up to three years in “one-sided” (benefits only) status. 

A new larger MSSP participant (such as a hospital) would get only two years of one-sided participation. Any organization already in MSSP would be allowed to stay just one more year in the benefits-only side of the BASIC model.

Then, all who sign BASIC contracts would be forced into “two-sided” (benefits and risk for penalties) status for the remainder of their contracts, which must be for at least five years, compared to the previous minimum of three.

Cutting Shared Savings Rate

Also, CMS is cutting the initial shared savings rate from 50% to 40% for one-sided ACO contracts. In the proposed rule issued August 2018, CMS said it planned to cut shared savings drastically, to 25%. The shared savings rate for ACOs in the later, “two-sided” years of the contract, will stay at 50% under this final rule.

This cut in savings for benefits-only contracts was made “to strengthen the on-ramp to the program while rewarding ACOs that take on greater risk with higher shared savings rates,” said CMS Administrator Seema Verna in a December 21 blog post.  

“Today’s final rule drives towards greater savings and quality for Medicare’s ACO program,” Verna said in that December 21 blog. “The rule is projected to achieve $2.9 billion in savings over ten years.

Will dropout rate rise?

Some caregiver organization representatives are projecting a high dropout rate and a slow evaporation of Medicare savings. The new rule has been criticized by the American Hospital Association (AHA), the National Association of ACOs (NAACOS), the American Medical Association (AMA), the Medical Group Management Association, and Premier, Inc., of Charlotte, North Carolina.

“If they don’t go back to 50 percent, we will see a long-term significant shrinkage in the ACO movement and a significant emanation of accountable care,” said NAACOS President and CEO Clif Gaus in a November interview with Healthcare Informatics. After the new rule came out, he said

NAACOS would monitor the impacts of reducing the early savings and forcing ACOs to take on risk.

CMS seems to be willing to have health care organizations drop out of the MSSP system rather than continue on the one-sided model. Its internal estimates say about 100 ACOs will quit. In a May 2018 speech to AHA members, citing a March 2018 study, Seema Verna said the benefits-only tier costs money rather than saves.

What? No Savings!

That study, by a company called Avalere, said that the Congressional Budget Office (CBO) originally estimated in 2010 that the MSSP program would save Medicare $1.7 billion over the first four years. Instead, reimbursements under MSSP rose $384 million.

However, Verna seems to have ignored the most important conclusions by Avalere:

“While the MSSP overall was a net cost to CMS in 2016, there is evidence that individual ACO performance may improve as they gain years of experience with the program. Avalere found that MSSP ACOs in their fourth performance year produce net savings to the federal budget, totaling $152 million ... These results suggest that CBO’s initial projections may not have taken into account the time it takes for ACOs to gain experience with the program and to start to produce consistent savings.”

Also, “MSSP ACOs have produced $1.6 billion in program savings compared to benchmark projections over the life of the program, increasing the savings each year. Avalere experts note that despite the MSSP increasing federal spending, ACOs are still reducing spending compared to projected benchmarks.”

In other words, CBO made a guess in 2010 that ACOs would massively reduce Medicare spending compared to historical spending, starting immediately. It was wrong. Now, CMS seems to be making policy based on that guess rather than either the most recent facts or a comparison of ACO performance to what expenditures would be without them.

NAACOS said in September that the methods used by CMS internally are flawed. A study the organization commissioned concluded that ACOs saved $541.7 million in the years 2013 – 2015, while CMS’ internal calculations say ACOs lost Medicare $344.2 million. NAACOS says the methods used by its study are the “gold standard” in how to measure savings.

If you’re interested in the details, the 957-page final rule can be read here.