Medicare’s new ACO model preps providers to become insurers
The latest iteration of Medicare’s accountable care experiment paves the way for more doctors and hospitals to evolve toward starting their own Medicare Advantage plans, stoking a trend that’s already well underway.
That’s not to say all health systems interested in managing population health will start applying for insurance licenses. Some progressive systems such as Dartmouth-Hitchcock in Lebanon, N.H., are content to pursue value-based payment models with the help of private insurers. However, the launch of the Next Generation ACO model makes it clear the federal government wants providers to take more financial risk in Medicare now that they have some experience.
“It’s full risk and full capitation, and I think that’s really where CMS wants to go,” said Dr. Bill Bithoney, a healthcare managing director at consulting firm BDO and a former hospital executive.
ACOs are a staple of the delivery reforms embedded in the Affordable Care Act. Primary-care offices, specialists, acute-care hospitals, nursing homes and other post-acute facilities are expected to work together to manage care for a set group of patients. If groups can lower costs and achieve high quality scores, they’re rewarded with a share of Medicare’s savings.
Providers have embraced the opportunity for shared savings based on good performance, known as upside risk. But they have been less eager to accept downside risk, or paying penalties if certain performance thresholds aren’t met. Only 1% of Shared Savings ACOs were in two-sided risk models last year. The percentage is higher for 2016, but still only about 5%.
The CMS built the Next Generation program in response to providers’ dissatisfaction with the more stringent Pioneer ACO model, but it also wanted to make accepting full risk as palatable as the easier incentives of the Shared Savings program, which now has 434 participants. The new model prospectively assigns Medicare beneficiaries to ACOs and allows waivers for things such as limits on telehealth services and the rule requiring a three-day inpatient hospital stay before Medicare pays for skilled nursing.
One of the biggest differences is that Next Generation participants, starting in 2017, can choose capitated payment, meaning Medicare would pay the ACOs a per-member, per-month lump sum, and providers would then be responsible for any care that patients need.
ACOs that burn through those payments are on the hook for the additional costs. In essence, they would act like Medicare Advantage insurers— except that their Medicare beneficiaries still have traditional Medicare coverage. That means those patients can seek care from hospitals and doctors outside the ACO. The process for filling the Next Generation slots was competitive since it gives hospitals and doctors more tools to coordinate care for their beneficiaries. But the CMS wanted to keep the trial group small.
“This was like getting into Harvard,” said Richard Barasch, CEO of Universal American, an insurer that’s invested heavily in Medicare’s ACO models. Universal’s Accountable Care Coalition of Southeast Texas is one of the 21 Next Generation ACOs. The company “absolutely” will look at the capitation model in the second year since it already runs Medicare Advantage plans, he said.
Rob Lazerow, a practice manager at the Advisory Board Co., a consulting firm that works with hospitals and doctors, said some Next Generation ACOs may form their own Medicare Advantage plan as they gain more experience. These will be provider organizations that have stronger finances, are willing to devote large capital reserves to insurance payouts and have the drive to run health plans.
Gaining experience with capitation as an ACO “absolutely” could push some providers to explore becoming insurers, said Josh Seidman, a senior vice president at consulting firm Avalere Health and a former health technology official in the Obama administration. “The question is, to what extent are ACOs destinations or stepping stones to something else?”
Provider organizations that don’t have an insurance infrastructure or want to avoid the increased regulatory oversight associated with insurance may prefer to stick with accountable care contracts.
What’s clear, though, is that ACOs that decide to start their own Medicare plans, or at least choose the capitated approach, can reap a bigger financial reward. When BDO’s Bithoney was a hospital CEO in the Sisters of Providence Health System in Springfield, Mass., his team worked with Tufts Health Plan on its Medicare Advantage product and achieved savings of 12.8%. That would’ve been 4% in today’s reimbursement environment, but that’s still a windfall, he said. “It was much more profitable than a (Shared Savings) ACO could be.”
“The question is, to what extent are ACOs destinations or stepping stones to something else?”
Josh Seidman Avalere Health