Max Reynolds

The risks of participating in Medicare's Shared Savings Program would likely exceed the potential benefits if the program unfolds entirely along the lines spelled out in CMS's proposed rules.


At a Glance

Hospitals and health systems should assess the risks of participation in Medicare's Shared Savings Program before deciding whether to participate:
 

  • Start-up costs will likely be prohibitive.  
  • The ACO will lack key tools needed to drive down unnecessary medical costs.  
  • Participating providers would have to accept significant downside risk for costs over which they have no control.  
  • ACOs generating significant savings in a program year would still face numerous preconditions to- and limitations on- payment.  

In April, the Centers for Medicare & Medicaid Services (CMS)-acting with other federal agencies-published proposed rules for providers that choose to develop an accountable care organization (ACO) in order to participate in the Medicare Shared Savings Program (Federal Register, April 7, 2011). Given the extensive preparatory steps necessary to meet CMS requirements, providers will need to decide soon whether they want to participate in the program when it commences in 2012. This is far from a straightforward decision, especially when one considers the fact that CMS may make modifications when finalizing the rules this fall. In any event, providers will need to consider carefully the key risks inherent in the proposed rules before deciding whether to participate in the Shared Savings Program.

Specifics Finally Emerge

After a year of anticipation, the Department of Health & Human Services (HHS) released proposed rules for the Shared Savings Program on March 31, 2011. Although the rules will likely be modified in some respects before they are finalized in the fall, they provide the guidance necessary for providers to assess whether they want to take the steps necessary to participate in the Medicare ACO Program in 2012.

Many of the major elements of the Shared Savings Program, described throughout this article, are adopted from the Physician Group Practice (PGP) Demonstration, a CMS pilot program that ran April 2005 through March 2010 and that provided impetus for the ACO concept.

ACO Eligibility to Participate in the Shared Savings Program

Under the Shared Savings Program, the following organizations may form or participate with each other in forming an ACO:

  • Physicians or certain allied health professionals in group practice
  • Networks of such practices
  • Joint ventures between such practices and hospitals
  • Hospitals employing physicians or certain allied health professionals

Certain critical access hospitals are also eligible to participate in ACO formation.

CMS mandates that the ACO be structured as a separate legal entity, except in the rare case in which the ACO is limited to a single group practice or a single hospital employing practitioners. The ACO's governing body must provide "proportionate representation" to the various ACO participants and include at least one Medicare beneficiary who is not a healthcare provider in the ACO.

To participate in the Shared Savings Program, an ACO meeting the foregoing structural requirements must first submit an application to CMS describing how it will satisfy the structural and operational obligations summarized below. ACOs with a market share exceeding certain limits would be required to undergo an expedited antitrust review process.

If CMS is satisfied with the application, it will permit the ACO to sign a standard-form agreement obligating the ACO to participate in the program for three years.

Major Operational Requirements

CMS outlines numerous performance requirements that participating ACOs must meet at all times while in the program. Major obligations include:

  • Physician-directed quality assurance and performance improvement
  • Development, implementation, monitoring, and enforcement of evidence-based clinical guidelines with which all ACO healthcare providers agree to comply, and use of adequate IT to support this undertaking
  • Primary care providers exclusive to the ACO (that is, not participating in another ACO enrolled in the Medicare Shared Savings Program)
  • At least half of the ACO's primary care physicians qualifying as "meaningful users" of certified electronic health record (EHR) technology by the end of the first year of participation in the program
  • Demonstrated financial capacity to repay any amounts owed to CMS for shared losses
  • Prior review by CMS of all materials marketing or advertising materials (broadly defined) regarding the Shared Savings Program.
  • Administration of a modified version of the Clinician & Group Consumer Assessment of Healthcare Providers and Systems (CG-CAHPS) survey
  • Employment of a full-time, board-certified medical director who is physically present at an ACO site and licensed to practice medicine in the state in which the ACO operates
  • Mandatory agreement to be bound by new regulatory requirements subsequently adopted by CMS governing the Shared Savings Program
  • Mandatory agreement to provide CMS 30-days advance written notice of "material changes" in the ACO's provider network
  • Mandatory agreement that CMS may publish quality and cost-related performance data pertaining to the ACO

Shared Risk Payments

Under the proposed rules, an ACO is eligible to receive a portion of certain per capita savings for certain patients it treats but is also obligated to repay a portion of certain per capita increases in expenditures attributable to that population. In other words, the ACO must agree to share downside risk for cost increases. Payment amounts are calculated via the following process.

CMS benchmark expenditure target. CMS proposes to set a benchmark expenditure target for ACOs based upon the risk-adjusted per capita annual Medicare Part A and Part B expenditures for select fee-for-service beneficiaries in a three-year period prior to the ACO's contract. The "select beneficiaries" are those who received a plurality of their primary care physician services from physicians in primary care specialties who are now participating in the ACO. The benchmark target is adjusted for inflation and updated each contract year based upon projected national per capita Medicare growth for the program year to establish the program year benchmark.

CMS calculation of actual expenditures. At the end of each program year during the ACO's three-year contract, CMS would calculate the risk-adjusted per capita annual Medicare Part A and Part B expenditures for those beneficiaries who received a plurality of their primary care physician services from physicians in primary care specialties participating in the ACO to arrive at the program year expenditure. As discussed below, this beneficiary population is likely to vary significantly from the beneficiary population used to calculate the initial benchmark expenditure target.

Distribution of gains. The ACO would be eligible to receive a portion of the savings generated if the risk-adjusted program year expenditure were to fall below 98 percent of the program year benchmark. The portion of the savings awarded to the ACO could range between 0 and 65 percent, based upon the ACO's performance on the program's quality metrics (as well as a bonus to the extent the ACO makes use of federally qualified health center [FQHC] and rural health center [RHC] sites to deliver primary care services). Payouts are capped at 10 percent of the program year benchmark and subject to a 25 percent withhold until the end of the three-year agreement.

Distribution of losses. The ACO is responsible for a portion of the losses generated when the risk-adjusted program year expenditure exceeds 102 percent of the program year benchmark. The portion of the losses allotted to the ACO can range between 35 and 100 percent, based inversely upon the ACO's performance on the program's quality metrics (as well as a bonus to the extent the ACO makes use of FQHC and RHC sites to deliver primary care services). Loss payouts are capped at 10 percent of the program year benchmark.

At the outset of its first (and only its first) Shared Savings Program contract, an ACO may elect to forgo liability for distribution of losses in program years 1 and 2 in return for a smaller portion of any savings during those year (i.e., a maximum 52.5 percent matching rate).

Preconditions to Receipt of Any Earned Payout

To receive any expenditure savings or minimize its share of any incurred losses during a program year, the ACO must submit accurate data on quality measures related to patient experience, care coordination, patient safety, preventive health, and treatment of at-risk populations. There will be a total of 65 measures in the first year of the program, and CMS indicates that the number will expand in subsequent years (to see a table listing the 65 quality metrics, go to www.hfma.org/HFMASummaryACO). Accurate reporting will suffice in the first year of the Shared Savings Program, although providers will be expected to achieve yet-to-be-defined performance benchmarks on the metrics in future. It is also important to note that distribution of Shared Savings proceeds from the ACO or among ACO participants would be protected under the Stark and Anti-Kickback law, and not subject to civil monetary penalties relating to gainsharing payments.

Look Before You Leap

The proposed ACO requirements create numerous risks that hospitals and health systems should assess before deciding whether to proceed.

Start-up costs will likely be prohibitive unless the ACO has developed a significant base of commercial payer contracts involving shared savings. ACOs will face significant start-up costs in order to, among other things:

  • Establish the required governance and management structure
  • Acquire the personnel and IT systems necessary to fulfill extensive quality reporting obligations
  • Ensure that the majority of participating primary care providers qualify as "meaningful users" of certified EHR technology by the end of the ACO's first program year

The financial commitment will be quite large, even for the most sophisticated ACO participants. The GAO reported in 2008 that participants in the CMS PGP Demonstration invested an average of $1.7 million to meet the requirements of that program through the first performance year, and a recent article in The New England Journal of Medicine also focused on the high cost of participation.a This figure would significantly understate the investment required from most ACOs in the Shared Savings Program given that the 10 participants in the CMS PGP Demonstration were among the largest and
most sophisticated in the country, with infrastructure already on hand to support existing pay-for-performance contracts. Furthermore, those practices did not need to obtain and maintain the more sophisticated technology necessary to ensure compliance with meaningful use requirements and discharge the significantly more expansive quality reporting obligations under Shared Savings Program.

Such an investment might not be recouped under the Shared Savings Program given the facts that:

  • Potential shared savings payments are subject to significant limitations
  • CMS proposes to disqualify ACOs from further participation in the Shared Savings Program if they fail to generate savings by the end of their initial three-year contract
  • Only half of the large, sophisticated integrated practices in the PGP Demonstration were able to generate shared savings by the end of the demonstration's third program year

Participating ACOs will lack key tools needed to drive down unnecessary medical costs. ACOs will lack two of the tools that providers-including the few currently operating ACOs-have identified as indispensible for managing costs: a preidentified patient base, and access to comprehensive data relating to each patient's care.  

Providers need to know, at the outset of a performance year, which patients they are to manage. Only armed with that knowledge will they be able to perform the intense monitoring and intervention needed to enhance quality and drive down costs. Providers in the ACO Shared Savings Program are denied this important benefit given that CMS determines the beneficiaries for which the ACO was responsible only after the end of each program year (based on which beneficiaries received the plurality of their primary care physician services through the ACO during the just-concluded year). Although providers may have some idea as to which beneficiaries will be attributed to them, they are unlikely to provide the intense case management services based upon pure conjecture.

Additionally, providers will not have access to timely data regarding care a given beneficiary receives outside the ACO. Such information will be key to ensuring coordination of care, eliminating duplicative tests, and eliminating unnecessary costs. To be sure, CMS indicates that it will be willing to provide periodic patient-specific data to participating ACOs. ACO providers, however, are likely to take little comfort in this pledge. As an initial matter, given the retrospective assignment of beneficiaries to the ACO, the providers will not necessarily know for any given patient whether the information will be required. There is also reason to be skeptical about CMS's ability to provide data in a usable format in a timely fashion to support clinical decision making. Moreover, CMS intends to permit beneficiaries the option to opt out of having such information shared with the ACO.

Providers participating in the program must accept significant downside risk for costs over which they have no control. Medicare beneficiaries are free to secure any covered services outside of the ACO-without any increase in cost-sharing obligations. Indeed, many beneficiaries will not even know when care is received inside or outside the ACO network. Moreover, providers will face termination from the Shared Savings Program if they attempt to deter patients from receiving care outside the ACO.

Nonetheless, ACOs will be at shared financial risk for such out-of-network services, even though, given the lack of timely access to data on out-of-network care described above, they will not necessarily know that the care is being furnished. Such liability is particularly concerning given that the out-of-network providers will be subject to the very financial incentives to maximize utilization of which CMS now complains.

On a related note, ACOs can be assigned shared risk for Medicare beneficiaries with whom they have minimal interaction. Specifically, under the Shared Savings Program, the ACO assumes shared financial risk for a beneficiary merely because he or she received a plurality of his or her primary care physician services from primary care practitioners in the ACO. Under this standard, the ACOs would be forced in some instances to assume shared financial risk for care furnished to beneficiaries who receive a significant portion of their primary physician care-and all of their specialty physician, hospital, and post-acute care services-outside of the ACO.

ACOs generating significant savings in a program year still face numerous preconditions to-and limitations on-payment. If an ACO is able to overcome the foregoing challenges and generate sufficient savings among its assigned population, there is still no guarantee it will receive any payment. Indeed, CMS could retain all savings otherwise owed if any of the following occur during the
pertinent performance year:

  • The number of Medicare fee-for-service beneficiaries receiving a plurality of their primary care physician services from ACO primary care physicians falls below 5,000 during the program year
  • The ACO fails to report any of the 65 or more quality indicators to Medicare within prescribed deadlines
  • The ACO fails to hit a designated minimum performance threshold on one or more categories of quality metrics
  • The ACO fails to adhere to one or more of the previously described operational requirements (e.g., submission of marketing materials for prior review, notification of "material" network changes)
  • The ACO terminates its participation agreement before the end of the third program year

Even if payment is made, the financial upside is quite limited. As an initial matter, shared payments are not generated until program year expenditures fall below 98 percent of the program year benchmark. Moreover, after the program year, the ACO's percentage of any such savings is predicated upon meeting yet-undefined performance thresholds on 65 or more quality metrics. Finally, any savings are capped at 10 percent of the program year benchmark. This limited upside would seem a minimal incentive to entice providers to assume the significant risks and administrative costs associated with the
program.

Consider the Alternatives

In light of the significant costs associated with participation in the Shared Savings Program, the obligation to assume shared risk for numerous costs over which the ACO has no control, and the limited-and highly contingent-financial rewards offered through the program, ACOs and their constituent providers might do best to delay participation. Unless the final rules manifest significant changes to the proposed rules, ACOs and their participating providers may prefer to focus on more limited shared savings and pay-for- performance initiatives on commercial contracts. One example would be the "Alternative Quality Contract" developed by Blue Cross and Blue Shield of Massachusetts.c Under that arrangement, BCBS contracts with multispecialty practices and integrated health systems to:

  • Manage care for a defined population
  • Share savings or losses relative to a pre-established global budget
  • Provide a supplement of up to 10 percent of base payment for meeting defined quality metrics

Such a base of commercial shared savings arrangements will ultimately prove indispensible to justify-and subsidize-the expensive integration mechanisms needed to secure payment under the Shared Savings Program, including an interoperable EHR, development and revision of clinical guidelines, and extensive reporting on quality metrics.


Max Reynolds, JD, is deputy general counsel, health, University of California, and a member of HFMA's Northern California Chapter (max.reynolds@ucop.edu).


 

Footnotes


a. Medicare Physician Payment: Care Coordination Programs Used in Demonstration Show Promise, But Wider Use of Payment Approach May Be Limited, GAO Report 08-65, February 2008; Haywood, T.T., and Kosel, K.C., "The ACO Model, A Three-Year Financial Loss," The New England Journal of Medicine, March 23, 2011.

b. See Lieberman, S.M., and Bertko, J.M., "Building Regulatory and Operational Flexibility into Accountable Care Organizations," Health Affairs, January 2011; and Luft, H.S., "Becoming Accountable: Opportunities and Obstacles for ACOs," The New England Journal of Medicine, Oct. 6, 2010.

c. See Chernew, M.E., Mechanic, R.E., Landon, B.E., and Gelb Safran, D., "Private Payer Innovation in Massachusetts: The Alternative Quality Contract," Health Affairs, January 2011.

 

Publication Date: Friday, July 01, 2011

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