Even Successful Medicare ACOs Lose Money: Analysis
A key reason for the losses is the requirement that Medicare retain half of every dollar of savings that an ACO generates, according to the authors of the analysis.
Aug. 22—Accountable care organizations (ACOs) that succeeded in earning bonuses from Medicare garnered less revenue than they would have under the fee-for-service (FFS) payment system, a recent analysis found.
The Navigant analysis of Medicare ACOs found that among Track 1 ACOs earning shared savings, the average $27 per-member per-month (PMPM) savings payment was vastly offset by a $58 PMPM reduction in Medicare FFS revenue. That equated to $5.2 million in annual losses for an average organization.
Among more-advanced Track 2 and Track 3 ACOs that earned shared savings, the average loss was $14 PMPM, or $2.9 million per organization. Next Generation ACOs earning shared savings lost $3 PMPM, or $1.2 million per organization.
The analysis “indicates many ACOs are still not generating savings and, considering their investments in IT and capabilities such as care management, losing money as an organization,” the authors wrote.
The average operational cost of a single ACO is almost $2 million ($1,943,276), according to a 2016 survey of 144 Medicare ACOs by the National Association of ACOs (NAACOS).
“As health systems employ more physicians and own more community-based sites of service, such as ambulatory surgery centers and clinics, decreased FFS revenue has a direct impact on a system’s top and bottom lines,” the Navigant authors wrote.
Among changes NAACOS has urged is for the Medicare Shared Savings Program (MSSP) to account for such ACO investment by including the value of the investments in calculations of ACO risk, as the association stated in a recent letter to Congress.
The finding of Track 1 losses came as the program is expected to soon push participating ACOs into risk-based models.
Beginning in July 2019, the new MSSP, called Pathways to Success (PS), would require the 561 existing ACOs to operate in one of two new tracks—and would mandate that they take on downside risk within two years, according to the proposed rule released earlier this month.
“These leaders now face the prospect of whether or not to embrace two-sided risk starting in January of 2019,” the Navigant authors wrote.
Despite financial losses, Medicare ACOs are the only class of ACO models that have continued to grow recently.
A new analysis found the number of Medicare ACO contracts continued to grow in 2017, while commercial ACO contracts were flat and Medicaid contracts slightly decreased due to a lack of renewals in some state demonstration programs. By the first quarter of 2018, commercial ACO contracts accounted for a little more than half of all ACO covered lives, while Medicare contracts accounted for 37 percent and Medicaid contracts accounted for the remaining 10 percent.
The Centers for Medicare & Medicaid Services estimated the proposed ACO overhaul would leave 109 fewer Medicare ACOs over the next 10 years—mostly because the program will be less attractive to new ACOs. The early indications of the future of Medicare ACOs could come from the 114 Track 1 ACOs—one-third of MSSP ACOs—with final agreement periods ending in 2018, as tracked in a Health Affairs blog post.
Chris Stanley, MD, a director at Navigant and an author of the report, said in an interview that some Medicare ACOs facing a 2018 renewal decision have indicated to his organization that they will drop out but a much larger “maybe half or more” could leave in 2019.
“They don’t believe that continued downside risk participation in a CMS-based program is generally in their best interest,” Stanley said.
Some may use their Medicare ACO experience to take on new roles with Medicare Advantage insurers and commercial ACOs, he said.
Why the Losses?
The financial losses—even among the most successful Medicare ACOs—primarily affected ACOs in Track 1 because more than 80 percent of Medicare ACOs are in that model.
The Navigant authors identified the Track 1 requirement that Medicare retain half of every dollar of savings that an ACO generates as a key “unsustainable component.” The requirement means Track 1 ACOs can obtain shared savings only through significant cuts in their FFS payments, which can hurt their overall finances.
“Health system-based Track 1 ACOs earning shared savings are particularly susceptible financially due to changes in avoidable utilization paid under a FFS model,” the authors wrote. “But changes in avoidable care occur in both inpatient and ambulatory settings, with hospital care accounting for just over one-third of national spending on health services and supplies.”
The recently proposed ACO changes did not revisit that core provision affecting Track 1 ACOs, Stanley said.
“The terms will get a little more favorable but, again, still the math fundamentally doesn’t work” under the proposed rules, he said.
Next Generation ACO Change
One recent change that may help ACOs will allow care management home visits by Next Generation ACO providers to qualify for Medicare payment beginning in January. Providers for beneficiaries with care treatment plans in those ACOs could be paid for up to two care management home visits per year within 90 days of a visit.
The change applies to the third year of Next Generation ACO participation, according to a notice sent to Medicare contractors.
In mid-August, CMS gave all Medicare ACOs their performance results from last year so they can review the data and notify CMS of any issues. The results were expected to be released publicly in the fall.
Among the steps the Navigant authors suggested for providers was to “[c]onsider moving away from investment in risk-based reimbursement models until” either federal ACO rules or local market conditions become more favorable.
The response from NAACOS indicated the proposed changes would not improve the situation. Specifically, NAACOS’s response to the proposed changes cited its May 2018 poll of ACO executives, which found that requiring Medicare ACOs to move to downside financial risk in 2019 would cause more than 70 percent of ACOs to leave the program.
“It’s naïve to think that ACOs that aren’t ready can be forced to take on risk, given that the program is voluntary. The more likely outcome will be that many ACOs quit the program, divest their care coordination resources and return to payment models that emphasize volume over value,” Clif Gaus, president and CEO of NAACOS, said in a release on the proposed ACO changes.
Other factors needed for successful Medicare ACO participation, according to Navigant, include care management capabilities that can generate improved performance and clear indications that the local commercial market is moving forward with value-based payment.
Alternatively, providers could aim for a “right-size strategy” while operating in both FFS and value-based environments. In such a case, “no regrets strategies” include emphasizing in-network customer “keepage” and considering Medicare Advantage and other insurer partnerships.
Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare