ACOs: Changing Health Care Cost and Quality to Be Accountable

Accountable care organizations (ACOs) were an innovation for Medicare following the Affordable Care Act and became the first new model of care for Medicare beneficiaries. ACOs launched in 2012-2013 could choose various degrees of risk sharing with the Centers for Medicare & Medicaid Services (CMS). All models required meeting quality metrics to share in financial benefits. ACO performance shows generally mixed results with respect to financial performance and the ability to maintain or improve quality. CMS has made program adjustments and is now narrowing in on ACO risk sharing, shortening the time to lower Medicare spending or face financial penalties. ACOs have not welcomed these new changes. At this point, value-based contracts and other techniques to mitigate risk are highly valued. If CMS is able to successfully move the market to ACOs or its other risk-based models, the market will respond and adapt accordingly. We review both the financial and quality results of ACOs and their implications for other payers. 

The Center for Medicare and Medicaid Innovation’s (CMMI) Medicare Shared Savings Program (MSSP) was established by the Affordable Care Act of 2010 and made it clear that health care providers and systems would be held accountable for managing costs and improving quality of care.¹ The structure of CMMI allowed for projects and pilots that offer flexibility and testing not generally available through CMS. According to CMS: 

ACOs are groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high quality care to the Medicare patients they serve. Coordinated care helps ensure that patients, especially the chronically ill, get the right care at the right time, with the goal of avoiding unnecessary duplication of services and preventing medical errors. When an ACO succeeds in both delivering high-quality care and spending health care dollars more wisely, it will share in the savings it achieves for the Medicare program.² 

Under ACOs, teams of doctors, hospitals, and other health care providers and suppliers work together to coordinate and improve care for patients with original Medicare (ie, those not in Medicare Advantage private health plans).¹ To share in savings, ACOs are required to meet quality standards in 5 key areas:

• Patient/caregiver care experiences
• Care coordination
• Patient safety
• Preventive health
• At-risk population/frail elderly health

If ACOs save money by getting beneficiaries the right care at the right time—for example, by improving access to primary care so that patients can avoid a trip to the emergency room—the ACO can share in those savings with Medicare. ACOs that do not meet quality standards cannot share in program savings, and, over time, those who do not generate savings can be held accountable (with financial penalties for those in a 2-sided risk model). The ACO rules also include strong protections to ensure patients do not have their care choices limited by an ACO. Today Medicare offers several ACO programs, including²:

• Medicare Shared Savings Program (cms.gov)—For fee-for-service beneficiaries
• Pioneer ACO Model—Health care organizations and providers already experienced in coordinating care for patients across care settings
• Next Generation ACO Model—For ACOs experienced in managing care for populations of patients
• ACO Investment Model—For MSSP ACOs to test prepaid savings in rural and underserved areas
• Advance Payment ACO Model—For certain eligible providers already in or interested in the MSSP
• Comprehensive End-Stage Renal Disease Care Initiative—For beneficiaries receiving dialysis services

In this column, we review both the financial and quality results of ACOs and their implications for other payers. Much has been learned through the ACO programs; this knowledge provides a strong foundation for more accountable and high-quality health care in the United States.

ACO Programs Highlights

The MSSP ACO model has grown from 27 ACO participants in 2012 to 561 in 2018; these ACOs provide care for about 10.5 million Medicare beneficiaries and represent the largest alternative payment model within Medicare (Table 1).³ Most MSSP ACOs continue to select the upside-only track, which does not require participants to repay CMS for spending above their target.⁴

The Pioneer ACO model accepted only health care organizations and providers already experienced in coordinating care for patients across care settings. It began modestly with 32 ACOs in 2012 and concluded at the end of 2016 with 9 participating ACOs. This program is now closed with participants generally moving to the MSSP or Next Gen ACO (NGACO) models.

The majority of the 561 MSSP ACOs (82%) participate under the one-sided risk model, meaning they do not assume any negative financial risk in the event that cost targets are not met. CMS has noted that some ACOs on this track are generating losses (thus increasing Medicare spending) while having access to waivers of some federal requirements associated with program participation. Two-sided risk models, meanwhile, share in both savings and losses and “have shown significant savings to the Medicare program and are improving quality.”^4,5

The NGACO model launched in January 2016 with an initial cohort of 18 participants. The model ranks swelled to 45 NGACO participants in the 2017 performance year and 51 in the 2018 performance year. The ACOs currently participating in the NGACO model have significant experience coordinating care for patient populations through initiatives such as the MSSP and Pioneer ACO models.⁶ 

According to CMS, the NGACO model generated approximately $62 million in net savings for Medicare while maintaining quality of care for beneficiaries. Overall, that represented a net reduction of 1.1% of Medicare spending within the program.⁵ It is notable, however, that over half of the model’s cost and utilization decline was generated by 4 of the 18 NGACOs.⁷ 

What Have the ACOs Achieved in Cost Management? 

The latest ACO financial results report that 472 ACOs caring for 9 million Medicare beneficiaries produced $1.1 billion in gross savings in 2017. After accounting for $780 million in shared savings payments, ACOs in the MSSP saved $314 million, according to CMS.⁸ 

CMS performance data indicate that 60% of ACOs saved money in 2017 and 34% of ACOs earned shared savings, a gain from 56%  and 31%, respectively, in 2016.⁹ 

The 2017 ACO results demonstrate a clear trend that ACOs with longer periods of participation are more likely to earn shared savings and produce overall savings for Medicare. Of note, those MSSP ACOs that began in 2012 or 2013 when the program first began were able to generate net savings of $205 million, after factoring in bonuses paid. MSSP ACOs launched in 2014 generated $173 million in savings; ACOs starting in the MSSP in 2015 generated $5 million; and MSSP ACOs that commenced in 2016 and 2017 each lost Medicare $34 million, for a combined $68 million loss last year.⁹

Multiyear analyses of the MSSP ACOs fiscal performance have yielded mixed results, however, with one report concluding that MSSP ACOs failed to produce the $1.7 billion in net savings projected by the Congressional Budget Office for the 2013-2016 period.⁴ Nevertheless, supporters of the program assert that ACOs’ financial results show that the model can slow overall health care spending when incentives are clear and aligned to reward savings. The ACOs, while contributing to slowing the overall growth rate of Medicare fee-for-service spending, have also likely helped decelerate spending for Medicare Advantage (MA) plans as well. Clif Gaus, ScD, president and CEO of the National Association of ACOs, has noted that while spillover effects such as these are not always apparent with the performance results, they should be included in the overall evaluation of the program.¹⁰ 

Reviewing financial performance of ACOs from the start of the program to 2016 performance year (PY), it is clear that those ACOs participating in the MSSP over a longer period of time have stronger financial performance, demonstrating the value of the program and of experience with the program. Structure also matters, as 45% of physician-only MSSP ACOs earned shared savings compared with 23% of ACOs with hospitals.¹⁰ 

What Have ACOs Achieved in Quality Management?

According to CMS, in PY 2016, MSSP ACOs that earned shared savings achieved them through reductions in inpatient hospital care and utilization, home health, skilled nursing facility, and high-tech imaging.¹⁰ Quality performance among the MSSP ACOs has been strong, and while significant membership expansion temporarily lowered overall results, most ACOs were able to turn this around in a relatively short time. MSSP ACOs started with a high average overall quality score of 95%; as the program expanded with more participants and beneficiaries, overall quality scores decreased in 2014-2015 before rebounding to baseline levels in PY 2016, while serving 7.7 million beneficiaries, more than double the members since inception (Table 2).³

• According to the National Association of ACOs, “ACOs provide very high quality for beneficiaries and improve quality over time,” offering the following statistics to support its assertion¹¹:
• Average ACO MSSP performance improved 15% across 25 measures used consecutively across program years.
• The MSSP ACOs subject to pay-for-performance measures earned an average quality score of 95%, and 98 ACOs that were subject to pay-for-reporting earned a quality score of 100%.

CMMI ACOs all demonstrated very high quality, Pioneer ACOs had an average quality score of 93%, and Next Generation and Comprehensive ESRD Care Model ACOs all had 100% in their initial pay-for-reporting years.

The case can be made that, similar to their financial impact, ACOs’ performance on quality metrics positively impacts the quality performance of MA plans as well. MA Star Ratings data for the past 3 years suggest that health plans’ and drug plans’ improvement or decline from one year to the next are generally improving, based on National Average Star Ratings performance on the Health Plan Quality Improvement Measure, and the Drug Plan Quality Improvement Measure. Further, Plan All-Cause Readmission Rates have also declined during the past 3 years, as indicated by Star Rating National Numeric Averages.¹²

ACO: Trends and Directions

While it is clear that ACOs can save money and improve quality, we also have gained insights regarding which ACO structures are best able to perform financially. CMS has clearly signaled that the 1-sided risk model is on a short time frame and that, starting in 2020, most ACOs will be required to be in a 2-sided risk model. This move to 2-sided risk among ACOs will advance the overall move to value-based care. 

CMS Proposals for New ACO Models

In August 2018, CMS proposed significant changes to the MSSP ACO program to take effect mid-2019. The Pathways to Success proposal was developed based on a comprehensive analysis of the performance of ACOs to date. Despite its intent, the MSSP has shown increases in net spending for CMS and taxpayers, in part because the majority of ACOs were not taking risk for increased costs. While ACOs currently have 6 years to shift to a risk-bearing model, the proposed rule would give existing ACOs only 1 year and new ACOs 2 years to shift to the new risk-bearing model. Currently, 82% (460 of the 561) of Medicare ACOs are in the upside-only MSSP track, track 1, meaning they share in up to 50% of savings but are not obligated to share in costs should they spend above CMS benchmarks. Tracks 1+, 2, and 3 are 2-sided risk models, providing an opportunity to share in a greater portion of program savings but requiring the ACO to accept the downside risk associated with spending more than the CMS benchmarks. In Track 3, ACOs may share up to 75% of savings but are also liable for up to 75% of costs should spending exceed the benchmarks. In fact, within the upside-only ACOs, low revenue, physician-led ACOs decreased spending relative to their benchmarks in aggregate, while high-revenue, hospital-based, or integrated network-based ACOs increased spending relative to their benchmarks. This may be because ACOs that are physician groups have stronger incentives to decrease spending than hospital or integrated network ACOs. 

Additional program elements include requiring that beneficiaries receive a notification at their first primary care visit informing them they are in an ACO and explaining what that means. ACOs under performance-based risk can provide incentive payments to patients for taking steps to achieve good health. The program also requires ACO adoption of the 2015 edition of Certified EHR Technology (CEHRT). The ACO reporting measures were streamlined to ensure that all measures have a meaningful impact on patient care. Finally, regional (county-level) spending is incorporated into ACO benchmarks starting in the first agreement period along with improvements in risk adjustment methodology to reflect changes in beneficiaries’ health status.

To accommodate timing issues, CMS provides a 6-month extension for current ACOs whose agreements expire at the end of 2018, along with a special one-time July 1, 2019, start date that will have a spring 2019 application period for the new participation options.¹³

Feedback on CMS Proposals From the Delivery System

Providers have long been reluctant to take on risk in payment models, including dropping out of programs once that requirement is triggered. Many policy experts agree, however, that the potential for financial penalty is needed if there is to be real change. Although many 1-sided ACOs have stated they would withdraw if forced into 2-sided risk, it is anticipated that most ACOs will accept 2-sided risk within the next 2 to 3 years given the growth of ACOs over time, the dominance of the Medicare program, and the likely penalties for not participating.

This need for change is derived from the reality that our health care spending is growing at an unsustainable rate and our health outcomes do not support American health care as delivering value. If costs continue on our present path, by 2026 we will be spending 1 in every 5 dollars on health care. This will crowd out other public funding priorities such as public safety, infrastructure, national defense, and education. It will also strain small businesses, curtailing them from investing in growth or creating new jobs. Finally, it will lead to higher premiums, copays, and deductibles.^14,15

Nine prominent health care groups, including America’s Essential Hospitals, America’s Health Insurance Plans, and the Medical Group Management Association, responded to the CMS proposed changes to the 2019 MSSP, supporting improvements to value-based contracting (VBC) and lessening the regulatory burden. However, they strongly opposed shortening the duration ACOs can assume only one-sided risk to 2 years from 6, as well as decreasing the proposed shared savings rate from 50% to 25%. They suggested that CMS allow ACOs more time in a shared-savings (one-sided risk) model and increase the shared savings potential to least 50%.¹⁶

Impact on Other Payers

Given the size and scope of the Medicare program, it is likely that commercial payers will follow the lead of CMS, as they too are under similar financial pressures. Thus, aligning their incentives with those of Medicare may facilitate adoption by health care providers and integrated delivery networks (IDNs). Once CMS has successfully introduced these models, look for commercial payers to quickly follow suit. 

Relevance of Value-Based Arrangements 

In a risk-based world, VBC will become highly desirable, especially in the realm of high-priced therapeutics and devices. Once providers and IDNs are responsible for outcomes they will look to share the risk for improved and desired outcomes. Therapeutics and devices that do not deliver value will likely receive unprecedented feedback in terms of negative financial performance. Conversely, those delivering superior value will reap the benefits. Much work will need to be done to make VBC easy to understand and adjudicate. 

In addition, more attention to outcomes and performance on quality metrics is sure to follow. It is likely that more specialty quality metrics will also be considered and adopted. Accelerated attention in outcomes and quality and population health management will generate further interest in collaborations with stakeholders including pharmaceutical manufacturers. For example, collaborations for better medication adherence and management of side effects to avoid unnecessary hospitalizations and emergency department visits will likely become more attractive.

Conclusion

The changes to value-based care and 2-sided risk sharing have wide and deep implications for the health care ecosystem. Assuming CMS is able to successfully move the market to ACOs or its other risk-based models, the market will respond and adapt accordingly. Much has been learned through the ACO programs and this knowledge could provide a strong foundation for more accountable and high-quality health care. It will take further alignment with commercial payers of both administrative requirements and financial incentives to reduce administrative costs and yield financial incentives that are clear and compelling.  

References

1. US Department of Health and Human Services. Affordable Care Act to improve quality of care for people with Medicare [news release]. https://wayback.archive-it.org/3926/20140108162229/https:/www.hhs.gov/news/press/
2011pres/03/20110331a.html. Published March 31, 2011. Accessed November 28, 2018. 

2. Centers for Medicare & Medicaid Services. Accountable care organizations (ACOs): general information. innovation.cms.gov website. https://innovation.cms.gov/initiatives/aco. Updated August 31, 2018. Accessed November 28, 2018.

3. Centers for Medicare & Medicaid Services. Medicare Shared Savings Program fast facts. https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/SSP-2018-Fast-Facts.pdf. Published January 2018. Accessed November 28, 2018.  

4. Leventhal R. Analysis: MSSP ACOs have performed below CBO estimates. Healthcare Informatics. https://www.healthcare-informatics.com/news-item/payment/analysis-mssp-acos-have-performed-below-cbo-estimates. Published April 15, 2018. Accessed November 28, 2018. 

5. Landi H. Announcing next gen ACO results, CMS administrator Verma makes the case for moving ACOs to two-sided risk. Healthcare Informatics. https://www.healthcare-informatics.com/article/value-based-care/announcing-next-gen-aco-results-cms-administrator-verma-makes-case-moving. Published August 27, 2018. Accessed November 28, 2018. 

6. Centers for Medicare & Medicaid Services. Next generation accountable care organization (ACO) model fact sheet. https://innovation.cms.gov/Files/fact-sheet/nextgenaco-fs.pdf. Accessed November 28, 2018. 

7. Centers for Medicare & Medicaid Services. Next generation accountable care organization (ACO) model. Evaluation of performance year 1 (2016). https://innovation.cms.gov/Files/fact-sheet/nextgenaco-fs.pdf. Accessed November 28, 2018. 

8. Sweeney E. CMS data shows ACOs saved Medicare $314M in 2017. Fierce Healthcare. https://www.fiercehealthcare.com/payer/cms-data-shows-acos-saved-medicare-314m-2017. Published August 31, 2108. Accessed November 28, 2018. 

9. Leventhal R. MSSP 2017 ACO results touted by NAACOS, Mostashari. Healthcare Informatics. https://www.healthcare-informatics.com/news-item/value-based-care/mssp-2017-aco-results-touted-naacos-mostashari. Published August 30, 2018. Accessed November 28, 2018. 

10. National Association of ACOs (NAACOs). New results show improved ACO performance with savings and quality gains. naacos.memberclicks.net website. https://naacos.memberclicks.net/new-results-show-improved-aco-performance-with-savings-and-quality-gains. Published October 29, 2017. Accessed November 28, 2018. 

11. National Association of ACOs. 2016 Medicare ACO results: highlights. naacos.com website. https://www.naacos.com/2016-medicare-aco-results-highlights. Accessed November 28, 2018. 

12. Centers for Medicare & Medicaid Services. Part C and D performance data. cms.gov website. https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovGenIn/PerformanceData.html. Accessed November 28, 2018. 

13. Centers for Medicare & Medicaid Services. CMS proposes “Pathways to Success,” an overhaul of Medicare’s ACO program [press release]. cms.gov website. https://www.cms.gov/newsroom/press-releases/cms-proposes-pathways-success-overhaul-medicares-aco-program. Published August 9, 2018. Accessed November 28, 2018. 

14. Clements C, Bhupathy V, Callaghan P. CMS proposes massive changes to ACO program—pushing providers to accept downside risk. Healthcare Law Blog. https://www.sheppardhealthlaw.com/2018/08/articles/affordable-care-act-aca/changes-aco-program-glide-path/. Published August 16, 2018. Accessed November 28, 2018. 

15. Leventhal R. CMS’ MSSP proposed changes slammed by leading ACO organization. Healthcare Informatics. https://www.healthcare-informatics.com/article/value-based-care/cms-mssp-proposed-changes-slammed-leading-aco-organization. Published August 10, 2018. Accessed November 28, 2018. 

16. Masterson L. Major healthcare groups question Medicare ACO proposal. Healthcare Dive. https://www.healthcaredive.com/news/major-healthcare-groups-question-medicare-aco-proposal/532986/. Published September 24, 2018. Accessed November 28, 2018.