Navigating the pros and cons of ACOs in Medicare Shared Savings Programs

Guest post by Dan Mendelson

On March 31, 2011, the Centers for Medicare and Medicaid Services (CMS) released a proposed rule on the Medicare Shared Savings Program (SSP) to promote the establishment of accountable care organizations (ACOs). While the proposed rule was highly anticipated across the healthcare industry, initial reaction has been cautious; CMS projects that only 75-150 ACOs will participate in the SSP--affecting an estimated 1.5 to 4 million Medicare fee-for-service beneficiaries.

This cautious outlook may well be attributable to the lofty requirements CMS has proposed for providers to participate in the SSP. The competencies required to be a successful ACO seem to bear closer resemblance to the core functions of a health plan, rather than to a healthcare provider.

We see three primary competencies that plans can lend to provider organizations to help them succeed in a shared savings model: 1) managing financial risk through claims analysis; 2) leveraging data analytic capabilities that allow for early identification of problematic utilization trends; and 3) deploying tools that promote care coordination and disease management to reduce utilization of clinically unnecessary high-cost services.

At the same time, health plans must carefully weigh these opportunities against the risks posed by critical design elements of the SSP when deciding whether or not to assist providers with this new delivery model.

Will retrospective assignment of beneficiaries to ACOs permit optimal care management? CMS has proposed a retrospective methodology for attributing Medicare beneficiaries to ACOs. While they have proposed providing aggregated beneficiary data on potential ACO beneficiaries to ACOs at the start of a performance year--and quarterly thereafter--it will still be difficult for providers to define a target population for outreach and management. In contrast, health plans typically deploy sophisticated predictive models to identify which members to target for outreach, and how. This could create challenges for payers contracting with ACOs as terms may be hard to define when the nature of the patient population's health issues is unknown.

Will the necessary data be available for analysis in real time? Payers have the tools and experience to manage care, but they do so with access to all the data for a given set of plan beneficiaries. While the ACO will track care obtained within its organization, beneficiaries can obtain care outside the ACO at any time. CMS has proposed to allow ACOs to request claims data on the beneficiaries that could be potentially assigned to them to determine which services are being obtained within and outside of the ACO, but this still falls short as data will not be available in real-time--and thus will likely not be actionable. Furthermore, it is not yet clear if the format of this data will be compatible with plans' existing systems and solutions.

What do the minimum savings thresholds proposed by CMS mean for contracting with ACOs? The minimum savings thresholds (MSRs) that must be met before an ACO can share in any savings is likely to give providers pause. The MSRs vary from 2 percent up to 3.9 percent--with the smallest ACOs facing the highest thresholds. Given that the bar for achieving savings is high, payers contracting with ACOs may be asked to share in the risk of producing savings, which may be more of a gamble than plans want to take on, particularly in the third year when downside risk is required.

Will payers foster competencies in their ACO partners that could minimize the role of plans over time? CMS has sent a strong signal to providers that they would like them to assume more risk for managing patients, raising concerns that providers are assuming a role traditionally held by payers. While the immediate risk of this is not significant, payers may want to target providers for partnerships where there is potential for long-lasting relationships. Potential partners could include health systems that have been acquiring the capabilities to begin to assume more risk--perhaps even outside of the SSP--in Medicare Advantage or Medicaid managed care populations.

If anything is clear in the midst of all of this uncertainty, CMS has set a high bar for participation in the SSP--and it could create a new set of market-specific opportunities for payers to shape a new model of delivering and financing healthcare.

Editor's note: Dan Mendelson is CEO and founder of Avalere Health. Avalere Health is an advisory services company whose core purpose is to create innovative solutions to complex healthcare problems.

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