Bill aims to fix glitch that penalizes rural ACOs even if they generate savings

New bipartisan legislation aims to fix a glitch that can penalize rural accountable care organizations that reduce costs.

The legislation, introduced Tuesday, would fix a flaw that requires all ACOs to measure their performance against themselves, which lawmakers say can disproportionately impact rural providers. The bill comes as ACO advocates have been worried about a slide in participation recently.

“Rural providers should have the same opportunities as their urban counterparts to participate in value-based payment models, and I believe this legislation will empower providers, reduce healthcare costs and keep rural America healthy and strong,” said Rep. Jodey Arrington, R-Texas, a lead sponsor of the Accountable Care in Rural America Act.

ACOs agree to take on financial risk to meet quality and spending targets. They get a share of any savings they generate but also must repay Medicare for missing any targets.

To measure an ACO’s performance, the Centers for Medicare & Medicaid Services (CMS) calculates a benchmark that reflects the total cost of care for a patient had they not been in an ACO. The agency considers the historical costs to treat patients and the costs of treating patients in the ACO’s region.

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However, the benchmark for calculating the regional adjustment can penalize rural ACOs.

“By including the costs of all patients in the regional adjustment—those both in the ACO and out—CMS penalizes an ACO for reducing costs relative to its regional competitors,” according to a fact sheet from the National Association of ACOs (NAACOS). “That is, as an ACO reduces the costs of its own beneficiaries, it also reduces the average regional costs.”

This causes a dramatic effect for rural ACOs that can care for a larger portion of the beneficiary population than an urban organization can, NAACOS said.

NAACOS gave the example of an ACO with 5,000 Medicare beneficiaries that reduces costs by 5% and is located in the Washington, D.C., suburb of Montgomery County, Maryland. The ACO will get a shared savings rate from 47.5% to 50%. But an ACO of the same size in Garland County, Arkansas, could see its shared savings drop to 37.5% even though it achieved the same results.

Arrington’s bill would exclude Medicare beneficiaries from regional benchmark calculations. It also requires the Medicare Shared Savings Program (MSSP) to ensure no ACO “is in a less favorable financial position” due to differences in geographic location.

CMS can adopt its own rule to exclude the beneficiaries, but it has not done so, NAACOS said. The agency tried to address the rural glitch in a 2019 MSSP rule by implementing a blend of national and regional inflation into benchmark adjustments.

NAACOS charged the change “simply introduces random variation; its impact on an ACO merely depends on whether regional inflation happens to be higher or lower than national inflation,” the fact sheet said. “This ‘correction’ does not necessarily benefit ACOs that are actually generating savings.”

The legislation comes as participation among ACOs has declined recently. NAACOS previously reported that at the start of 2021 there were 477 ACOs compared to a record high of 561 in 2018.