ACOs Still Aren’t Saving Money for Medicare

1. The Medicare ACO program is not generating savings—which we already knew

Avalere’s new analysis shined a light on just how far the ACO program is from CBO-projected savings. But it’s not news that ACOs haven’t generated net returns for CMS. Annual results have shown the same thing each year of the program’s operation. When CMS released the 2016 results last October, many observers noted that CMS lost $39M on the program, when bonus payouts were subtracted from program savings. Applying Avalere’s approach, and considering the full impact on spending relative to benchmark, we believe actual losses are likely even higher, perhaps over $70M, after debiting the program for the amount spent by those ACOs who did not generate savings beyond their benchmarks.

2. Structural issues with the program, combined with provider and commercial payer reluctance, remain roadblocks to ACO success

Each fall, healthcare analysts and ACO participants eagerly await the unveiling of the previous year’s MSSP performance results and wonder if this might be the year the program generates real savings. The fact that MSSP hasn’t turned a corner yet should be no surprise. Having worked with hundreds of ACOs since the program’s inception, we continue to see a handful of key issues that hampered the program four years ago still at the root of performance today:

• The vast majority of ACOs remain in “upside-only” risk. While the proportion of ACOs taking downside risk continues to tick up (about a quarter today versus just seven percent in 2014), the vast majority of ACOs remain in “upside-only” Track 1, where providers earn a bonus if savings are generated, but owe nothing back if spending is above the benchmark. It makes perfect sense that risk-averse physicians and not-for-profit health systems are more comfortable in Track 1—it’s not really risk at all, it’s a license to pick up dollar bills off the sidewalk. It’s extremely difficult to change provider behavior and care patterns based on the promise of a bonus with no other strings attached.
• Ability to generate savings is mostly about the benchmark. Providers often tell us that they’re unable to generate savings compared to other ACOs because their benchmark is so much lower. There’s something to this. The ACO program is structured to give a bonus to high-cost providers who reduce spending, not reward cost-efficient providers who enter the program and keep costs down. An analysis of 2015 performance shows just how powerful the benchmark is: ACOs who generated savings not only had a higher benchmark, but also had higher per-capita spending than those ACOs who surpassed their benchmark. CMS is trying to address this by applying regional benchmarking, but it’s no surprise that there are legions of consultants focused on HCC coding and other mechanisms to help ACOs raise their benchmarks.

• For many ACOs lowering the cost of care for Medicare patients was not the main reason they joined the program. Every ACO is formed with the goal of improving care and reducing costs. But for many hospital-sponsored ACOs, the model provides a platform for broader physician alignment goals. The pitch is simple—join our ACO and you might see a bonus check at the end of the year. Hospital success here may be better measured by referral capture, or “keepage,” rather than savings generated. (A consultant friend once told me that of the hundred-plus pro-formas he’s crafted for ACOs, over 90 percent derived their ROI from increasing in-network referrals.) Other ACOs have told us they joined the program for access to otherwise-unavailable data, and any bonus received on top of that was a pleasant surprise.
• Commercial payers have not followed CMS’s lead toward provider risk-sharing. Providers who are genuinely motivated to move their business model to total-cost management have been stymied by the lack of receptivity in the commercial market—a critical failing as it’s nearly impossible to change the financial and care model of a hospital on the Medicare book of business alone. CMS wrongly assumed that commercial payers would move toward provider risk in lock-step with Medicare’s ACO policy. (Given that much of the Affordable Care Act was based on Massachusetts’ foray into healthcare reform in 2006, this is not surprising—the state’s Blue Cross plan followed two years later with their own shared-savings program, the “Alternative Quality Contract”.) The calculus for most commercial plans turned out to be different. Insurers largely viewed risk-bearing provider organizations as competitive threats, not population health partners.

3. ACOs must move to downside risk much faster for the program to generate savings

Despite the lack of program savings, there were some positive results in the latest ACO reporting. Quality performance has been strong, and quality is not being sacrificed for savings—those ACOs who earned bonuses had higher quality scores. Avalere’s analysis shows that ACOs who have been in the program longer generate more savings, with the “year 4” cohort generating a positive return for CMS.

Most importantly, several years of data reveal that ACOs who took downside risk have generated net savings. Of course these ACOs tended to have more experience with the program, but the motivation to change clinical practice, tighten referral patterns and invest in needed infrastructure is much greater with real “skin in the game.” As we’ve discussed previously, nearly all ACOs who feel confident in population management want to move to downside risk faster than the market allows—and are looking to Medicare Advantage, not shared savings, as an end-state model for managing Medicare risk.

MSSP was designed to provide providers with a “glide-path” to risk, an upside-only option to develop capabilities before taking on real population risk. Perhaps the kickboard is helpful or even necessary for some providers. But policymakers should not expect ACOs who linger in the shallow end of the pool—upside-only Track 1—to suddenly swim the length. Medicare will have to create stronger incentives to move providers toward downside risk if generating savings is a primary goal of the program.