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Transform Care August 28, 2015

ACO Buzz: CMS Results Show Practice Makes (Almost) Perfect

Partner and CMO, Health and Life Sciences, Oliver Wyman

The Centers for Medicare & Medicaid Services (CMS) issued this week the 2014 quality and financial performance results for Medicare Accountable Care Organizations (ACOs). According to the results, the 20 ACOs in the Pioneer ACO Model and 333 Medicare Shared Savings Program (MSSP) ACOs generated more than $411 million in total savings in 2014. At the same time, 97 ACOs qualified for shared savings payments of more than $422 million by meeting quality standards and their savings threshold. Our Chief Medical Officer Bruce Hamory, with engagement manager Bryce Bach, explains that while ACOs are becoming more successful, challenges remain:

Performance year 2014 saw an improvement in total savings, total payments, and most quality measures for participants in MSSP. While major changes are required to make CMS ACOs sustainable, the program is gaining momentum and the opportunity for cost and quality improvement is seemingly validated.

Moreover, as commercial payers and state Medicaid programs move more people into population-based payment systems, the needed scale to support infrastructure investments and changes in care models applicable to all patients and members is being created. And plenty of opportunity still exists for new entrants. Current ACOs cover less than 20% of the Medicare population, leaving ample playing room for other would-be program entrants.

Yet, many ACOs are struggling to shift to new clinical models. Some 46%, of MSSP ACOs performed worse than their estimated benchmark and generated “excess expenditures” of $680M. Based on the reports available, some of the individual repayments could have exceeded $10M. Fortunately for these ACOs, all of them are Track 1 and will not need to write checks to CMS for this year. However, the time for them to adjust their care parameters and processes is passing rapidly.

Three Pioneer ACOs are not so lucky and will have to pay CMS a combined $9M for losses incurred. This highlights how difficult it is to make the transition from fee-for-service to fee-for-value, and may potentially define the lower reimbursement levels at which a results share arrangement is no longer feasible. Depending on the exact circumstances locally, a shift to Medicare Advantage and full capitation could be required to ensure economic viability.

Notably, ACOs in previously unmanaged areas, such as Boston, are having more success than in other areas. Among five Pioneer ACOs in the metropolitan Boston area, four achieved substantial share payments ($1.7M to $13.2M), while others in lower cost areas owed money. Boston has one of the highest Medicare payment rates in the US, and the single entity not receiving a payment is the newest entrant into that market. The trend of savings over the next few years in this market will be instructive to the global model.

The difference between success and failure is hinging most instructively on three variables: infrastructure, leadership, and time to mature. Practice, the data indicates, does indeed improve performance. As does commitment. Many organizations are still struggling, underinvesting, and largely still experimenting. There are organizations, however, that can provide a roadmap to successfully moving the whole model for all populations.

Cornerstone Health Care, based in High Point, North Carolina, was one of the few providers that earned a bonus. Here’s how CEO Grace Terrell describes Cornerstone’s approach:

Cornerstone believed that deeper change was essential at the clinical and operational levels. We completely redesigned central elements of patient care delivery: staffing, care team roles, physical layout of the practice, policies and procedures, and patient engagement methods – with a relentless focus on improving patient outcomes. Our approach was rooted in developing new models of care for targeted patient populations: those at high risk for poor health outcomes and high costs in the traditional fee-for-service payment system. We confronted the thorny organizational issues of incentives and culture and were challenged to keep all of our practices advancing toward a value agenda. To achieve a gain share through MSSP, we had to beat a very low benchmark (since Cornerstone was a relatively low cost medical group to begin with). Ultimately, we will need to shift to more full risk-models to reap the rewards of our progress and innovation.

Two other organizations that have shown commitment to a full pivot and are on an upward trajectory include Colorado’s Catholic Health Initiatives and Peoria, Illinois-based OSF HealthCare, where substantial redesign efforts have been applied around areas from analytics to primary care and care management, palliative care, and home health. Our team has identified many other examples of where the reality of value-based health has actually held true to its promise of sustained quality, real cost savings, effective trend management, and improved patient experience.

With the time required to get all the pieces together for successful participation in population health, provider systems should proactively evaluate their regional market conditions and begin to implement those elements that build the foundation for population health management, while also facilitating success in the fee-for-service world. In some areas, there may be a “first mover advantage.”

Additional guideposts gleaned from the CMS results report include:

  • Sizeable savings are achievable even at smaller scale. Twenty of the 92 ACOs earning savings payments had <7K lives. However, even though the shared savings were positive, the total dollars earned were small, and may not have been enough to cover the ACO’s operating costs.
  • Anecdotally, savings are achievable even in rural areas and among ACOs starting at higher levels of efficiency.  Information provided by Oliver Wyman clients suggests MSSP participants in both rural and urban areas can perform well, and some ACOs with quite low starting benchmarks have still earned sizeable payments.
  • Lack of information technology can cost money. Of the 11 ACOs that were “unable to report quality data,” seven had saved a total of $45M and forfeited any of those savings on that basis alone. The remaining four were in a loss position.
  • The economics are still difficult. The average sharing rate (the portion of generated savings/losses that the ACO gets back as a shared risk payment) of the MSSP ACOs earning payments was 44% and the average sharing rate of the Pioneer ACOs earning payments was 62%. It’s very difficult to make these programs profitable for providers at these levels, and we expect to see some of those performing well thus far moving into Track 3 or Next Generation ACO to gain access to higher share retention and prospects for better cash flow mechanisms, among other perks.
  • In view of the recent decision to implement “mandatory” joint replacement bundles is there a point at which HHS decides to try a similar approach to an MSSP? This is a major unknown and is unpredictable given the fluid political situation. However, given the rapid movement of commercial payers into this arena, the question may be moot.

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