Payment Models

Policy changes needed to prevent hospital-based Medicare ACOs from being disadvantaged by high-cost patients switching from physician-led ACOs

May 15, 2019 4:13 pm

Modern Healthcare is reporting: “Hospital-led ACOs may be struggling financially as sicker beneficiaries switch their care from physician-led ACOs, according to a new analysis. As Medicare beneficiaries develop more complex diseases, they are more likely to switch from a physician to a hospital-led ACO, according to researchers with the University of Wisconsin Health. That can lead to higher costs for hospital ACOs, which are already under fire from the CMS for not producing similar savings as their physician counterparts.

The average health costs for a new hospital-led ACO beneficiary in 2016 rose by 49.3% compared to 2015, compared with a 15.1% bump for patients who were already under the ACO since 2015, according to the analysis that looked at beneficiaries in University of Wisconsin Health from 2015 to 2016. Beneficiaries who were new to Wisconsin’s ACO were almost twice as likely to have a new cancer diagnosis in 2016 compared to a beneficiary already in the hospital system’s ACO, with 6.1% versus 3.3%. 

This is the latest analysis to find switchers are responsible for higher costs, the Modern Healthcare article went on to say. The Medicare Payment Advisory Commission found that beneficiaries that switched ACOs have higher healthcare spending than the market average. The panel also found that beneficiaries who stayed in an ACO had lower spending growth than the market average.”


The issue of Medicare beneficiaries with more complex illnesses moving from physician-led to hospital ACOs has long been a pain point expressed to CMS and policymakers by ACOs that include teaching hospitals. Now that there’s mounting evidence that it’s adversely impacting these ACOs, it gives rise to the question as to how long these entities will participate in a program where the deck is stacked against them unless CMS fully addresses the issue. 

The underlying problem is two-fold. First, the attribution models for Medicare’s ACOs are driven by where the patient receives the preponderance of their evaluation and management (E&M) services (measured by dollar value) by primary care providers and select specialists. These include specialists who typically manage high cost complex conditions (e.g. oncologists) but historically have not provided primary care. So, for example, someone who is diagnosed with cancer (particularly in rural areas) is likely to receive treatment for the disease from a specialty center (oftentimes distant from the patient’s home) while still having their care “managed” by a primary care physician in the community. In these situations, given the number (and dollar value) of E&M visits with the oncologist (compared to E&M visits with the patient’s actual primary care provider), the patient is frequently attributed to the academic medical centers (AMC) ACO, which has (particularly for rural patients) limited ability to manage or coordinate the patient’s care for other conditions.  

For these types of patients, CMS needs to develop a mechanism that allows the AMC (or hospital-based ACO) to remove the patients they are seeing for complex care related to a time-limited condition from their attribution list. Second, there are issues with risk adjustment. This, in theory, is addressed with the Pathways to Success final rule. The rule allows an ACO’s Hierarchical Condition Category (HCC) to increase and/or decrease by 3% for continuously assigned beneficiaries. 

Prior to Pathways, newly assigned beneficiaries’ costs were fully adjusted by their HCC score. Continuously assigned beneficiaries’ risk scores were only adjusted based on age and sex. So, under the old rules if a beneficiary that was relatively healthy when they were assigned to the ACO developed a costly condition, the risk score was not updated to reflect the beneficiaries’ condition. As a result, the ACO looked like it was doing a poor job of managing the total cost of its beneficiaries’ care, when in reality, it was dealing with a sicker population. 


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