February 26, 2018

Want to Be a Successful ACO? Look to Medicare Advantage

by Lisa Bielamowicz


Accountable care organizations are a transitional model at best, and providers looking to generate sustainable savings for Medicare are already looking toward a longer-term strategy—getting into the Medicare Advantage business



1. The ACO model was a challenging proposition to begin with.

The greatest healthcare cost problem our nation faces is Medicare spending growth. With 80 million Baby Boomers coming onto the rolls of Medicare across the coming years (and this year, “peak” Baby Boomer turns 61 years old), we are in for years and years of this generational wave swelling the ranks of Medicare. America faces an “upside-down pyramid problem.” We will simply have way more elderly citizens consuming health benefits than we have younger citizens to pay for them. We won’t be able to put this gigantic generation through our existing high-cost delivery system without making significant changes to the cost of care delivery.

The Obama-era approach to addressing the Medicare spending problem was to bet on provider accountability. The ACO program, in its various flavors and incarnations, was intended to deal hospitals and doctors in—encouraging them to take “risk” for reducing cost growth, and thus enabling them to build an economic return around remaking their own businesses. In essence, this approach was intended to blur the lines between insurer and provider, creating an “on-ramp” for providers to move into the world of population health.

Two issues made this a dubious proposition. First, it was a bet that traditional providers would get excited about (or be any good at) disrupting their own businesses and reducing demand for their own services. A difficult ask, for sure. Some had motivations other than the movement to risk. More than a few providers who launched no-risk, “Track 1” ACOs have told us that their primary reason for joining was for physician alignment and referral capture. Generating savings would be a nice by-product at best.

Second, the “provider accountability” approach assumed that traditional insurance companies would play along as providers made the transition to risk. No dice. Insurers were never going to be excited to have providers in the risk business—what would stop these new risk-bearing competitors from doing an end-run around the payers and contracting directly with employers in the commercial market?

Hitting this wall when trying to move their commercial book of business to risk, even the most capable providers have been stymied in trying to change their business model. Physicians, rightly skeptical of changing care models for just a portion of their patients, have been slow to prioritize care management and other efforts to attack the total cost of care.

2. ACOs haven’t produced Medicare savings fast enough—and may not have netted any savings at all.

Even assuming incumbent providers and payers could learn to play a new game, it was always going to take a long, long time for the provider-risk approach to pay off in the form of lower Medicare spending for the government. Experience matters: ACOs who have been in the program longer are more likely to generate savings. But it’s unlikely that the Federal government will be able to wait years for the majority of providers to catch up with the vanguard—we’re already running a deficit of almost $1T. Moreover, it’s not clear that the ACO program has really saved the government a dime thus far, six years into its implementation.

Let’s look at the most recent results released by CMS. In 2016 half of ACOs reduced spending below their benchmark. But it turns out that CMS paid out more in bonuses than it saved in spending reductions, leaving Medicare with almost a $40 million net loss for 2016. Debit CMS for the elevated spending of the providers who blew past their benchmark, and the program is over $70M in the hole for the year—and that’s before counting the costs of infrastructure or management on the side of CMS or providers.

No provider…wants to be an ACO when they grow up

3. Increasingly, Medicare Advantage seems to be the preferred approach for providers looking to take on risk.

We have worked with a large number of ACOs, and almost all of them tell us that the ACO program is a transition model at best. No provider, particularly those that are adept at managing risk, wants to be an ACO when they grow up. The end game for risk-bearing providers is to transition fully into the insurance business, turning themselves into a Kaiser-like entity combining delivery and insurance in one business. In the world of Medicare, there’s a model for that business: private Medicare coverage, or Medicare Advantage.

Enter the Trump administration, and a new era of Republican government. While keeping the provider-risk experiments in place (for now…but each week brings new signs that we’re stepping back from that strategy), the Trump team is likely to be in a much bigger hurry to “reduce entitlement spending” and move to market-based solutions.

And Paul Ryan’s premium support scheme—essentially a massive transition of Medicare into the private, Medicare Advantage model—is looming in the wings. The writing is on the wall: with a third of enrollees already in Medicare Advantage plans today, we could easily be headed to a Medicare program dominated by private insurance carriers. (In fact, some have even taken up the banner of Medicare Advantage as a new version of the “single payer” dream.)

Add this up, and we see a clear convergence around Medicare Advantage as a long-term solution to manage Medicare cost growth. And it’s growing ever faster, as Baby Boomers, already acclimated to managed care, join the program. MA plans now cover a third of Medicare beneficiaries, with penetration increasing over 10% annually.

4. Providers should use their ACO programs as learning labs for success in risk-bearing MA networks.

There are two paths for health systems in an MA-driven market. The first is what happens today in a majority of MA plans: insurers own the risk and set a fee schedule for clinical care. Under that scenario, rates will likely continue to get pushed further down. A better option for health systems is to own the risk, whether through delegated risk or direct plan ownership.

How should ACOs prepare to do this? Learn from providers, largely physician groups, who have been successful managing MA patients for years. Care management is important, but even more critical is the ability to construct and curate a high-performing network of physician, hospital, diagnostic and post-acute providers. While most ACOs who earned a bonus can’t tell you exactly what they did that generated savings, the few who can point to this kind of network management, particularly in postacute care, as the one direct source of the savings they have been able to capture.