The Launch of ACOs: The Next Generation

Submitted by on Friday, March 13, 2015 - 12:05

Newtown, CT – March 13, 2015

The launch of ACOs: The Next Generation is really a throwback to HMOs: The Original Series and there's actually a lot to like about it – First off, CMS is finally acknowledging that only a few handfuls of health care organizations will be able to manage the full financial risk of a large population of Medicare beneficiaries. In fact, the organizations will have to get the appropriate regulatory approvals in their respective states that govern the assumption of insurance risk by providers including, in some cases, the need to demonstrate adequate reserves to cover potential losses. For all intents and purposes, they will be vertically integrated Medicare Advantage plans. Second, the payment options reflect the logical move, for these organizations, to full capitation, and they can accept a total cap fee per beneficiary, minus a small withhold to cover potential leakage. Third, there are options for Medicare beneficiary inducement to select one of these organizations and to get all their care from them. Fourth, those that have high quality scores at baseline will have to provide a lower discount to CMS than others. All and all, these options make sense, but they also raise serious questions about the current Medicare ACO pilots.

What this means to you – When the Pioneer ACO pilot was launched, and then the Medicare Shared Savings Program, many of us looked at the incentive designs and other elements of the programs and got concerned. In launching ACO:TNG, CMS has acknowledged many of these design failures. They have increased the minimum sample size from a ridiculously low 5,000 to double that amount. And while 10,000 is not really high enough to avoid the potential for case-mix related swings in financial outcomes, it's still much better than 5,000. They have also stopped the silly practice of rebasing the baseline, which has continuously punished good market performance instead of rewarding it. In TNG the ACOs will have a fixed baseline from which they can improve and reap the commensurate rewards. CMS has also adjusted the risk corridors, creating better opportunities for gains resulting from higher efficiencies. These are all good improvements on the flawed model, and we have to wonder why, instead of launching yet a new pilot, CMS didn't simply make the adjustments on the current ones? The fact is that the Pioneers who want to continue to take on financial risk as ACOs will most certainly move to participating in TNG, and the Shared Savings Program will likely whittle away into nothingness, since it's an upside only model with scarce chance of saving CMS a whole heck of a lot. By modifying the current programs to eliminate their flaws, CMS would have reinvigorated those programs instead of dooming them. But then, instead of being able to announce a new series, it would have been stuck showing reruns. For the private sector, this should be a wake up call and reminder that much like the original series of HMOs, this new series will also be kept to a small number, and that the goal of moving 90% of payment away from basic fee-for-service won't be accomplished by ACOs, whatever the series' nickname.