News | Accountable Care Organizations

3 details for healthcare providers to know before taking on risk

News | Accountable Care Organizations

3 details for healthcare providers to know before taking on risk

  • It is important for providers to nail down three details before moving into ACOs with downside risk.
  • Providers can rarely provide the specific dollar amount that is potentially at risk.
  • Providers should be wary of promises that they’ll be able to achieve savings of more than 1% annually.

Providers’ perspectives on Medicare accountable care organizations (ACOs) sharply shifted when the Centers for Medicare & Medicaid Services overhauled the program to mandate that all participants take on downside financial risk.

“Now, they really have to know what they are doing; you can no longer fake it ‘til you make it and see what happens,” Lynn Barr, CEO of Caravan Health, said Monday at an HFMA Annual Conference session titled “Becoming Risk-Ready with Accountable Care Organizations.”

To avoid committing their organizations to an effort that is going to fail, Barr said, providers need to know several details before entering the risk arrangement.

“That fear of failure is really big out there right now,” Barr said.

Details to know in advance include:

  • The dollar amount at risk
  • The provider’s ability to control the outcome
  • The provider’s statistical chances of success

The dollar amount at risk

Providers usually know the percentage that is at risk in a contract, but not the actual dollar amount.

In the lowest level of risk under the revamped Medicare ACO program, participants will take risk for 4% of their benchmark. For instance, if the benchmark is $10,000, participants face $400 at risk for each patient. However, in ACO arrangements where the 4% is only 30% of losses, then providers would have to lose 13.3% to pay 4%.

“So, it is really not as risky as it sounds,” Barr said. “If you’re a small ACO you could easily lose 13%,  but at scale you can’t.”

The ACO’s point person within an organization needs to be able to tell the organization’s board of directors what the potential worst-case scenario in dollars would be if they fail, and why it happened (in the example, because costs increased by 13.3%).

“That’s how they need to talk, and almost nobody can talk that way,” Barr said.

The ability to control outcomes

The second challenge entails understanding obstacles to controlling outcomes in ACOs, which are based in fee for service, allow patients to retain total provider choice and have average savings of 1% annually.

Savings opportunities can be found in hospital diversion, post-acute care and initiatives to control waste, fraud and abuse.

“We’re not talking huge numbers, so you should not be seeing 10% savings and you should not be seeing 10% in losses,” Barr said. 

Because a 3% bonus also is available for better management of patient documentation, a total of 4% savings is realistic for organizations that do the work.

The statistical chances of success

A final key is understanding the organization’s chance to succeed in the program. For example, a 5,000-patient ACO’s program results at a 95% confidence interval are plus or minus 10% of the actual number. As a result, such organizations that achieve 4% savings should expect program results that range from -6% to 14%. CMS risk corridors for 5,000-patient ACOs are at the 75% confidence interval.

“If you take risk and you lose benchmark bingo and you go in, and you’re suddenly down 6% and you didn’t prepare your organization for that, they’re going to blame you,” Barr said. “You need to educate your organization that, ‘This is the risk going in.’”

Understanding the program’s statistical variability is the biggest challenge for providers, Barr said.

About the Author

Rich Daly, HFMA senior writer/editor,

is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare


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