For many years we have heard health care policymakers from both political parties opine about the need to move to a health care system that pays for the value of care delivered to patients, rather than the mere volume of services. While disagreements may arise on how we get to value, the need for this transformation is not in dispute.
This need is born from the reality that our health care spending is growing at an unsustainable rate. If we continue on our present path, by 2026 we will be spending one in every five dollars on health care. This will crowd out other public funding priorities like public safety, infrastructure, national defense, and education. It will also strain small businesses, preventing them from investing in growth or creating new jobs. And finally it will lead to higher premiums, copays, and deductibles that will hit every American’s household budget.
From the moment I became Administrator of the Centers for Medicare & Medicaid Services (CMS), I have been committed to using every tool at my disposal to move our health care system towards value-based care. This is not only a priority for CMS, but under the leadership of Secretary Azar and President Trump, the entire administration is aligned towards achieving this goal.
To this end, over the past year CMS has been evaluating all existing value-based payment models in order to assess performance and identify opportunities for improvement.
One set of value-based payment models that CMS has been closely reviewing are initiatives involving Accountable Care Organizations (ACOs). ACOs can provide a path away from fee-for-service medicine and represent one of the first and most widespread efforts to make value-based care a reality. Many providers view participating in an ACO as an opportunity to deliver better care in a coordinated fashion, while focusing on patient outcomes instead of processes.
ACOs are made up of groups of health care providers that are accountable for the quality of care and total health care spending for their assigned patients. This is typically understood to mean that an ACO shares in savings if it keeps total health care spending for its patients below its given target, but the ACO has to repay CMS if spending for its patients exceeds its target.
Despite their laudable aspirations, however, the reality is that most Medicare ACOs do not actually operate this way. In this post I will unpack key features of Medicare’s ACO initiatives and provide an overview of CMS’s new proposal for the Medicare Shared Savings Program, called “Pathways to Success.”
History Of Medicare ACOs
The majority of Medicare’s ACOs (561 of all 649 Medicare ACOs in 2018) are in the Medicare Shared Savings Program (Shared Savings Program or “MSSP”), which was launched in 2012. 10.5 million beneficiaries in Fee-for-Service Medicare (of the 38 million total Fee-for-Service beneficiaries) are in a Shared Savings Program ACO. The Shared Savings Program and requirements around it were established by law in the Affordable Care Act. Multiple tracks currently exist in the program, with ACOs taking on varying amounts of risk based on their track.
In addition to the Shared Savings Program, the Center for Medicare and Medicaid Innovation (Innovation Center) has developed other ACO initiatives, including the Next Generation ACO Model and the Comprehensive ESRD Care Model, in which the remaining 88 of the 649 Medicare ACOs are participating in 2018. ACOs in the Innovation Center’s models generally take on greater levels of risk than ACOs in the Shared Savings Program.
Within both the Shared Savings Program and the Innovation Center’s ACO models, ACOs can be composed of hospitals, physician practices, and/or other types of health care providers. Medicare beneficiaries are generally assigned to an ACO based on whether they obtain primary care services from the ACO’s health care providers. Beneficiaries are assigned if they get the plurality of their primary care services from health care providers that are in the ACO, or beneficiaries can voluntarily align with an ACO by designating a physician or other practitioner in the ACO as their primary clinician. Beneficiaries may not always know whether they are assigned to an ACO, or how participating in an ACO may change their health care providers’ incentives.
Assignment to an ACO does not limit a fee-for-service beneficiary’s choice of health care providers – beneficiaries can still obtain care from any health care provider they choose. Thus, an ACO’s health care providers typically do not provide all health care services for their assigned beneficiaries, but they are responsible for these beneficiaries’ total Medicare Part A (inpatient) and Part B (outpatient) spending and for quality outcomes.
In addition to Medicare ACOs, ACO arrangements also exist among private payers.
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Upside-Only Versus Two-Sided ACOs
At the end of each year, the total Medicare Part A and Part B spending for an ACO’s assigned beneficiaries is summed and compared to the benchmark level of spending that was calculated for the ACO. The ACO’s benchmark is an estimate of what the total Medicare Part A and Part B spending is expected to be for the ACO’s assigned beneficiaries.
A growth rate is applied to an ACO’s benchmark to calculate its target for the next performance year. In some cases, the benchmark growth rate is based on the rate of spending growth in the ACO’s local market. Therefore, if the ACO reduces the rate of spending growth for its market, the ACO can be penalized as the growth rate for its benchmark would also decrease. That is, the ACO would be held to a lower target in the next year than it would have been held to if it had not decreased spending in its local market.
If spending for the ACO’s beneficiaries is below the benchmark by at least the applicable minimum savings rate, and if the ACO also meets certain quality thresholds, then the ACO receives a portion of the difference between actual spending and the benchmark as a shared savings payment. Although ACOs have a financial incentive to keep spending down while meeting quality thresholds, a beneficiary who is assigned to an ACO does not share in those savings.
If spending for the ACO’s beneficiaries is above the benchmark, then what happens next differs between the two different categories of ACO tracks. ACOs in “two-sided” tracks with spending that exceeds the applicable minimum loss rate have to pay CMS back some or all of the difference, but ACOs in “upside-only” tracks are not accountable for paying CMS back any of the difference.
The majority of Medicare’s ACOs – 460 of the 561 or 82% of Shared Savings Program ACOs in 2018 – are in the upside-only “Track 1” of the Shared Savings Program, meaning that they share in savings but do not share in losses. Currently, ACOs are allowed to remain in the one-sided track for up to six years.
All ACOs, including those in upside-only tracks, have access to waivers of certain federal requirements. These include waivers of specific fraud and abuse laws, including the physician self-referral law and the Federal Anti-Kickback Statute. The Next Generation ACO Model provides physicians and practitioners in participating ACOs with waivers from current statutory requirements to allow them to bill for certain telehealth services, as an opportunity to provide high-quality services at a low cost. However, flexibility to bill for telehealth is limited in the Shared Savings Program.
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