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Changing Stop Loss Formula Can Drive Interest in Risk-Based Models

There is a need for a new stop loss formula that ensures a level playing field and motivates accountable care organizations.
As we look ahead, the future of risk-based models in Medicare fee-for-service hangs on the phrase “more than nominal financial risk.”
The current 2-sided risk models expose primary care physicians in an accountable care organizations (ACO) to too much risk too quickly. The stop loss happens only after financial ruin for a physician-led ACO but serves as an effective financial safeguard for large hospital-led ACOs. The purpose of 2-sided risk should be motivational for all ACOs, yet not be financially ruinous for any ACO.
That’s why I propose a new stop loss in the Medicare Shared Savings Program (MSSP) that would make risk motivating for ACOs of all make ups while being financially ruinous to none. Using total cost of care stop loss does not account for the make-up of the ACO organization, which can almost give a large organization a pass on financial risk and expose a small organization to massive financial risk.
Before addressing an appropriate stop loss formula, let’s take a look at how the current 2-sided risk models affect physician-led ACOs and large hospital-led ACOs.
2-Sided Risk Models in MSSP
From the provider perspective, taking on the possibility of losses is taking a gamble. Providers will implement ACO best practices that should generate savings. Providers, rightly in my opinion, view losses as mostly beyond their control and savings as within their control. Because of this they focus on the worst case scenario. Like someone entering a casino only willing to lose $200, they want to know that the gamble won’t financially ruin them.
Yet in today’s MSSP program even the lowest stop loss of 5% losses in the first year of Track 2 could bring a physician-led ACO and its providers to financial ruin in a single year.
For example, let’s explore a 10,000 beneficiary primary care physician-led ACO with a $10,000 benchmark or $100 million in costs. The physicians in that ACO account for $4 million of those costs. It is quite possible for those physicians to get a late start and generate a risk adjusted, regional adjusted savings of only 1% in the first year, but be hit with a 7% headwind due to the lack of risk adjustment and regional inflation. This ACO is now responsible for 40% of $5 million—stop loss of 5% of $100 million—or $2 million. At the practice level an individual physician seeing 300 Medicare patients a year bringing in $120,000 from Medicare could individually owe Medicare under the ACO $60,000. This is half of all the revenue he or she received in Medicare revenue. This formula would put potentially put those practices out of business.

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