May 31, 2018

Lessons from a Decade of Commercial ACO Contracting

by Lisa Bielamowicz

THE GIST

Navigating the details of risk-based commercial contracting has proven to be a difficult challenge for providers looking to build a business model around total cost management

THE FACTS

  • In 2008, on the heels of the passage of statewide healthcare reform in Massachusetts, Blue Cross Blue Shield of Massachusetts (BCBS-MA), the state’s largest commercial insurer, introduced a new contract for providers, the Alternative Quality Contract (AQC)
  • The AQC created a payment system that rewarded efficiency (two-sided risk on total cost of care) along with a separate payment for quality performance
  • Nationwide, providers are expanding the number of risk-based commercial contracts they hold. According to a 2017 survey, over 700 commercial accountable care (ACO) contracts are in place, accounting for 59 percent of lives covered in ACOs nationwide

OUR ANALYSIS

1. The Alternative Quality Contract (AQC) set expectations for commercial risk that did not come to fruition in most markets

Much of structure the Affordable Care Act (ACA) was modeled on the Massachusetts healthcare reform bill passed into law in April 2006. Since that reform was led by Republican governor Mitt Romney, the architects of the ACA assumed that basing Federal legislation on the successful Massachusetts efforts would enable bipartisan support. As we now know, they were wrong.

Shortly after the passage of state reform, BCBS-MA, the state’s largest commercial insurer, began development of a commercial ACO model, the Alternative Quality Contract (AQC). Contracting for the AQC began in 2008, with performance measurement starting the following year. This quick embrace of the ACO model in lock-step with state healthcare reform clearly set Federal policymakers’ expectations that other commercial payers would follow suit in the wake of the ACA’s passage. Instead many commercial payers saw risk-bearing providers as a threat to their business model: if health systems could create viable networks and manage clinical and financial risk, what value was a payer creating for consumers and employers? And would payers be putting themselves out of business if they enabled providers to build risk-bearing networks that they could sell directly to employers? In most markets, commercial payers (particularly large dominant Blues plans) have been a roadblock for providers seeking to align risk-driven incentives across their full book of business.

We have worked with several health systems who’ve participated in the AQC since its inception. For risk-motivated systems, the AQC provided a manageable “on ramp” to develop population management capabilities. According to BCBS-MA, over 90 percent of the state’s physicians participate today. Most providers regard the program as successful and financially sustainable. Several elements have been important to the AQC’s success, particularly in its early years:

  • Only HMO enrollees were initially included. Massachusetts has one of the highest penetration rates of managed care in the country, and HMO enrollees account for about half of BCBS-MA’s commercial book of business. The AQC initially covered only patients enrolled in HMO plans. Prospective attribution and network restrictions made management much easier for providers new to managing risk. The program was expanded to PPO patients in 2015. As of 2016, just 39% of PCPs and 54% of specialists participating in the HMO model also participated in the PPO model.
  • Generous quality bonuses mitigated the path to downside risk.The AQC has included downside risk since its inception and has decreased healthcare spending growth in each of year of operation. However, early returns for providers came from quality bonuses rather than the “efficiency” portion of the contract. A NEJM analysis of the first four performance years showed that payments to providers for quality outcomes outweighed shared savings for the first three years. These bonuses, reported by one provider to have initially been in the range of $10 PMPM, were critical in funding infrastructure. While these bonuses have been dialed back over the years, all providers we spoke with were in agreement that they would not have participated in the program if only the “efficiency” bonuses from shared savings were available.
  • Estimated bonuses are distributed monthly, then reconciled annually: Incremental distribution of bonuses allowed for more predictable cash flow.

While payers in other markets may claim the AQC as inspiration for risk contracts currently under development, providers are unlikely to find models as generous on offer today.

Many commercial payers saw risk-bearing providers as a threat to their business model: if health systems could create viable networks and manage risk, what value was a payer creating for consumers and employers?

2. Nine lessons learned from the AQC and elsewhere for commercial risk contracting

We interviewed a group of health system and physician network leaders, from Massachusetts and across the country, about their experiences in commercial risk contracting. All stressed the differences in managing commercial risk compared to their experiences as Medicare ACOs. And while many factors varied based on local market dynamics and capabilities of payers and providers, several common lessons emerged from systems who had been successfully operating under commercial ACO contracts:

  1. Understand what your payer is trying to gain—and stands to lose. Is your payer partner an underdog who’s trying to increase share? If so, they are likely to be more flexible in building a creative offering that will differentiate against traditional products. Are they looking to partner across multiple segments? Expanding the risk relationship to Medicare Advantage, Medicaid or the individual market could allow for more generous terms.Or are they an incumbent plan who is primarily worried about losing share? In that case, expect a laser-like focus on cost.
  2. Cost targets in the commercial population are different from Medicare, and more variable. It’s tempting to think that the infrastructure and processes built for care management in your Medicare ACO can be used for commercial patients. However, systems report that there is less overlap than they expected in the disease states driving costs between the two populations. Patients with multiple chronic diseases account for a large portion of Medicare spend, whereas high-cost episodes and procedures are greater drivers of commercial spending, necessitating a greater focus on network management over care management. Pharmacy spend is also a potential lever for savings, although systems differ about whether they want to be on the hook for drug costs, given the volatility of the specialty pharma market.
  3. Attribution algorithms are critical—and may vary across payer “products”. Given that commercial patients are less likely to have a regular primary care provider, attribution in the commercial market can be widely variable. Having insight into which patients are likely to be attributed, and how that affects savings potential, is critical. As in the case of the AQC, PPO and self-funded ASO (administrative services only) enrollees can be harder to attribute and manage against.
  4. Consider co-creating a plan product, rather than merely an attribution-driven ACO. Several systems expressed a strong preference for creating a product that could be taken to employers and consumers over a shared savings program that is opaque to the market. This allows for health system branding, creative benefit design, and proactive network management. And given that beneficiaries directly enroll in the product, you’ll have a clear picture of your target population from the outset.
  5. Explicit and frequent data-sharing is critical. Given variable attribution and cost targets, regular insight into patient population and performance is necessary, with data ideally shared monthly. Systems recommended detailed data-sharing agreements, with the payer agreeing to penalties if they can’t deliver. Many also felt they overestimated their payer’s abilities to provide meaningful data. With dozens of ACOs across the country, UnitedHealthcare and Aetna have made progress in providing actionable information, but many Blues plans are new to provider risk contracting and have less infrastructure to draw on.
  6. Consider a longer contract term. The most common contract term reported was three years. However, some systems expressed a preference for cutting a four- or five-year contract, given that there may be a longer-than-expected ramp-up to understanding the patient population, attribution methods, and cost targets. Front-loading rate increases or quality incentives may also buffer a potential lag in achieving savings while program mechanics are established.
  7. Seek incentives beyond shared savings. While the generous quality incentives of the first few years of the AQC may not be on the table today, separate incentive payments for quality performance or care management infrastructure are often critical in balancing needed investment in the early years of a contract.
  8. Turn off utilization management and other “fee-for-service regulators”. Nothing perturbs physicians more than having to jump through hoops of preauthorization for specialist visits, imaging and other procedures. This angst only increases when providers are at risk for total cost of care. Negotiating to turn off the processes that are low-yield can be a big win for your doctors. Note that this might not as simple as you’d expect for payers, who may be locked into contracts with third-party utilization management vendors.
  9. Push to eliminate duplicative payer and provider services. Nearly every payer now has care management and disease management programs, and more are directly offering telemedicine. Disconnected from the rest of a patient’s care, these are often minimally effective.

3. Even the most successful commercial payer-provider partnerships are likely time-limited  

Payer-provider negotiations over who will deliver patient-facing services like telemedicine visits or care management reveal a deeper conflict that may arise over the course of the relationship: who actually owns the patient? Health plans like to call their beneficiaries “members”, and many health systems are also seeking to build long-term, member-like relationships with their patients. Both payers and providers want to own the services that are likely to deepen those relationships, like telemedicine, access, and navigation.  Arguably these services are more effective when delivered by providers, who can coordinate them with the patient’s full course of care and medical record. However, payers are seeking to have these value-added services associated with their brand, particularly as individuals begin to make more choices about care and coverage. These conflicts will only deepen over time and may force the question of whether a long-term payer-provider partnership is sustainable.