ACOs: Still Standing

Reducing ‘unnecessary care’ is key to their success

December 2021 – The Journal of Healthcare Contracting

Experts are convinced that to preserve our healthcare system, the U.S. must move away from fee-for-service to a managed care model. They argue that doing things the old way – that is, rewarding healthcare providers for performing more procedures and shielding consumers from the full financial impact through insurance – leads to a bigger national healthcare bill. And they point to statistics indicating that despite all the money spent on healthcare, Americans aren’t all that much healthier – and in many cases, are less healthy – than people in countries that spend less. 

Their solution is better care management, with an emphasis on wellness, prevention, coordination of services, and management/monitoring of people with chronic illnesses. And right now, accountable care organizations, or ACOs, are the leading model.

ACOs are part of the Medicare Shared Savings Program, which was established by the Affordable Care Act of 2010. ACOs are groups of doctors, hospitals and other healthcare providers who voluntarily join to give coordinated, high-quality care to Medicare beneficiaries and ensure that people receive the right care at the right time, while avoiding unnecessary duplication of services and preventing medical errors. 

In an ACO, physicians and hospitals assume responsibility for the total cost of care for a given patient population. When an ACO succeeds in delivering high-quality care and spending healthcare dollars more wisely, its participants can share in the savings achieved on behalf of the Medicare program. Increasingly, ACOs are required to pay back some Medicare dollars if they fail to meet certain quality goals or financial benchmarks.

Program is tweaked

The first ACO program – the Pioneer ACO – was launched by the Centers for Medicare & Medicaid Services Innovation (CMMI) Center in 2012. The ACO model has since been adopted by Medicaid and even commercial payers. In fact, McKinsey & Company reports that of the roughly 33 million lives covered by ACOs in 2018, more than 50% were commercially insured and approximately 10 percent were Medicaid lives. CMS has been tweaking the ACO program ever since the Pioneer days by resetting benchmarks, quality goals and risk arrangements.

In January 2016, CMMI launched the Next Generation Accountable Care Organization (NGACO), designed to test whether stronger financial incentives, paired with tools to support patient engagement and care management, could improve health outcomes and lower expenditures for Medicare fee-for-service beneficiaries, according to McKinsey. A key attribute of the NGACO model was a higher level of shared financial risk and reward than what was available under other Medicare ACO models.

In 2018, ACO participation dipped when the Trump Administration launched “Pathways to Success,” whose intention was to push ACO participants to take on downside risk after just two years in the program. (When the Medicare Shared Savings Program began in 2012, ACOs had six years of one-sided risk – that is, the potential to share savings without risking a loss for failure to meet certain goals.) Even three years later, at the start of 2021, only 477 ACOs participated in the Medicare Shared Savings Program, down from a high of 561 in 2018 and the lowest since 480 in 2017. 

Despite the downturn in numbers, however, over 12.1 million Medicare fee-for-service beneficiaries receive care from a healthcare provider participating in a Medicare ACO. What’s more, 41% of ACOs are taking on two-sided risk, more than double the 17% doing so in 2018. 

Up next: Direct Contracting 

CMS launched the Direct Contracting ACO model, set to replace the Next Generation ACO program, in April 2021. At the time, CMS said the program’s risk-sharing options “will appeal to a broad range of physician practices and other organizations because they are expected to reduce burden, support a focus on beneficiaries with complex, chronic conditions, and encourage participation from organizations that have not typically participated in Medicare FFS or CMS Innovation Center models.” These healthcare organizations may offer optional incentives and benefit enhancements to Medicare beneficiaries, who will retain all their benefits and who may continue to see any healthcare provider they choose.

CMS has called the Direct Contracting Model “the next evolution of risk-sharing arrangements to produce value and high-quality healthcare.” While Direct Contracting does provide a high-risk option for more advanced ACOs, David Pittman, senior policy advisor of the National Association of ACOs, says the association’s take is more nuanced.

“Our biggest concern is that the model is overly friendly to new organizations, but not so favorable to organizations that have historically participated as ACOs in the Shared Savings Program,” he says. “The previous administration was not shy in saying they wanted new players in alternative payment models, so the rules are a little more favorable to attract them.” 

NAACOS believes Direct Contracting’s full-risk option is “the opposite of what’s needed to get people into the ACO program,” adds Pittman. “Without an ‘on’ ramp, it’s highly unlikely providers will go from not participating at all, to forming a Direct Contracting Entity.” NAACOS will continue to press CMS to establish a more level playing field, he says.

Do they work?

There are many ways to define “savings” and “improvements” in the ACO program. Some studies compare the performance of participants in one ACO model to that of its CMS-defined benchmark or spending target. NAACOS believes a truer measure would compare the performance of ACO providers and beneficiaries to providers and beneficiaries in traditional fee-for-service programs.

CMS’s statistics indicate the agency believes ACOs are getting the job done. In 2020, ACOs earned performance payments (shared savings) totaling nearly $2.3 billion while saving Medicare approximately $1.9 billion, marking the fourth consecutive year of net savings for Medicare, according to CMS.

Sixty-seven percent of ACOs shared savings with CMS in Participation Year 2020. Eighty-eight percent of two-sided model (i.e., those with the potential for shared savings or losses) ACOs earned shared savings payments, and 55% of one-sided model (potential for shared savings only) ACOs earned shared savings payments.

Reduce unnecessary care

“A core lever of success [of ACOs] involves reducing use of unnecessary care,” according to McKinsey. Care management costs for an ACO range from 0.5% to 2% of total cost of care for a given ACO population, the firm points out. These care management costs include ensuring patients with chronic conditions are continuously managing those conditions and coordinating with physician teams to improve efficacy and efficiency of care. ACOs at the lower end of that spending spectrum may struggle to expand care coordination for their patients. But those that can do so will realize a return on their investment. 

The transition to value-based payment is expected to take years, and it’s critical that there be careful evaluations on the effect of ACOs and other value-based payment programs on health outcomes, quality, utilization, cost, and overall savings/losses to the Medicare program, says NAACOS in its Overview of Research on ACO Performance. However, there remain many unanswered questions, such as how to appropriately account for the significant investments ACOs make up front, and understanding the tension between short-term spending (to invest in things like quality and care coordination) and long-term savings. Further research is expected to help shed light on the impact of ACOs on Medicare, beneficiaries, and the healthcare industry. 

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