CMS Proposal Is a Start for Making Risk More Appealing to ACOs

August 14, 2018

The first in a series of articles that identifies CMS' goals in updating the Medicare Shared Savings Program and how well the proposals make taking on more risk appealing for accountable care organizations.

Cowritten by Britainy Barnes of Aledade; Sean Cavanaugh, chief administrative officer of Aledade; and Farzad Mostashari, MD, cofounder and CEO of Aledade.

On August 9, CMS issued the first update to the Medicare Shared Savings Program (MSSP) of the current administration. This is the first of a series of posts that will explore the proposed regulation. Here, we will identify CMS’ goals in updating the MSSP and introduce the concepts that we will explore in more depth later in the series.

The theme of the proposal was no surprise: performance-based risk. CMS Administrator Seema Verma has been quite clear for some time that she believes accountable care organizations (ACOs) that take on risk perform better than those that do not. The 609 pages of the proposed regulation, named the Pathways to Success, document CMS’ thoughts on how to move more ACOs into risk faster.

Before we dive into the details of the proposed regulations, we should review why CMS is so focused on performance-based risk. First and foremost, ACOs that take risk perform better against their benchmarks than those that do not. There are several reasons for this, but the reason CMS focuses on is motivation. CMS believes, as do we, that risk-taking ACOs are more likely to make greater investments in reducing costs. CMS is also concerned that some ACOs that do not take on risk may not be focused on reducing costs at all. These “ACO squatters,” as we have referred to them in the past, use the waivers and data available in MSSP not to provide better care at lower cost but to consolidate a healthcare market.

1) Providing a glide path of increased risk taking over time that recognizes differences between ACOs in their experience, finances, and composition

2) Providing new flexibilities to ACOs

3) Refining the benchmarking methodology

Most ACOs are not squatters. Most ACOs attempt to deliver better care at lower cost. These ACOs make significant investments in administration and care delivery. CMS acknowledges this investment risk but deems it insufficient. Since no ACO is required to make these investments, guaranteed accountability comes from performance-based risk. Therefore, CMS proposes to reduce the maximum time allowed in 1-sided risk from 6 years to 2 years for new ACOs. CMS also proposes policies that it believes will make taking on risk more appealing. These policies fall into 3 buckets, which we discuss below and will explore in greater depth later in our blog series:

Creating a Glide Path to Risk

CMS proposes to replace the current Track 1, Track 2, Track 3, and Track 1+ model with 2 tracks: Basic and Enhanced. Basic is a 5-year glide path from Track 1 to Track 1+. Enhanced is essentially Track 3. Every ACO will move from current tracks to this Basic/Enhanced framework over time. The soonest is July 1, 2019, for new ACOs and any ACO that chooses to transition. The latest will be January 1, 2021, for ACOs that started their 3-year agreement period in 2018. As part of the glide path, CMS proposes to embrace revenue-based risk with the risk cap based on revenue instead of total cost of care. CMS also tailors the glide path to the characteristics of the ACOs based on experience with risk and their financial capacity, as measured through revenue.

Generally speaking, a low-revenue ACO is a physician-led ACO without a hospital and a high-revenue ACO is an ACO with a hospital. CMS points out that physician-led ACOs have generated 2.9% gross savings compared with only 0.5% gross savings for hospital-based ACOs. This significant underperformance by hospital-based ACOs is why CMS singles them out for moving to risk faster. CMS believes high-revenue ACOs can do better. If the rule is finalized, we will find out if those hospital-based ACOs share that belief: either they will double down and take risk or, as projected, leave the MSSP.

ACOs are characterized as 1 of 4 groups:

Where an ACO falls on this chart determines its slowest possible glide path. An experienced/high ACO would have to go straight into Enhanced. While an inexperienced ACO could spend 10 years in Basic, with its revenue-based risk track, before moving to Enhanced.

The table below shows the 10 years in Basic available to Inexperienced ACOs.

Creating Flexibility in the MSSP

The first flexibility CMS proposes is to allow ACOs to choose to move faster through the steps of the Basic glide path by accepting more performance-based risk through an annual election, or to skip parts of Basic and move on to Enhanced by voluntarily terminating their current agreement and renewing for the next year in Enhanced. CMS proposes various protections to prevent using this flexibility to slow down the progression toward risk, while still allowing ACOs to move to risk faster, and the agency rewards these choices with greater sharing rates.

Second, CMS would allow ACOs to choose between prospective and retrospective attribution. Currently, the attribution methodology is aligned with tracks forcing ACOs with a strong preference for one methodology over the other into certain tracks and corresponding levels of risk. By allowing ACOs to choose their preferred methodology, CMS ensures the greatest level of ACO participation.

Finally, CMS is expanding the skilled nursing facility 3-day waiver from prospective attribution to be available for both retrospective and prospective attribution.

Refining the Benchmark

We have been known to say “it is all about the benchmark,” and this is doubly true when performance-based risk is involved. No ACO should think of risk as a single thing. There are 3 types of risk an ACO must consider: medical risk, insurance risk and regulatory risk.

Medical risk is changes in costs driven by the delivery of healthcare services, such as how well diabetic patients are managed. Insurance risk is changes in costs that are not driven by the delivery of healthcare services, such as changes in the prevalence of diabetes in a population. Regulatory risk is the risk of changing the rules and/or rules that stack the deck. The benchmark methodology is crucial to determining how much medical and insurance risk an ACO is taking, and whether ACOs are appropriately rewarded for actually reducing costs. The original MSSP benchmarking methodology did 3 things that made taking performance-based risk

unappealing to ACOs.

First, in order to be welcoming to all ACOs, regardless of past performance, the original rule did not consider the value ACO participants were delivering prior to becoming an ACO. Poor performers were rewarded for making modest improvements, while high performers struggled to be rewarded at all. Second, in reaction to how risk adjustment has led to overspending on Medicare Advantage (MA), CMS transferred nearly all insurance risk to ACOs by placing a cap on risk scores. ACOs take on more insurance risk than MA plans do where risk adjustment matches the population. Finally, through its use of national inflation to establish performance benchmarks, the original ACO statute imposed regulatory risk on the ACO for any variation in its local market compared with national changes without any consideration as to the ACO’s ability to control that variation. For example, in 1 of Aledade’s ACOs, a new rehab hospital opened in our first performance year. Unsurprisingly, our rehab hospital costs went up significantly, amounting to an increase of nearly a percentage point in total cost of care in the local area. There is a large body of literature demonstrating that Medicare costs and cost growth varies tremendously by region.

Back in 2016, CMS initiated a new system in which performance benchmarks would be set using regional cost trends and would be adjusted to reflect an ACO’s efficiency compared to its own market. Using regional cost trends is a fairer measure of whether an ACO is actually generating cost savings to Medicare (the “counterfactual”) and adding an adjustment for regional efficiency creates a sustainable business case for ACOs. However, in order to smooth the transition to these new rules and mitigate arbitrage by regionally efficient providers, CMS did this for the second agreement period and not the first. Unsurprisingly, ACOs are far more likely to take risk in their second agreement.

In conjunction with moving risk into the first agreement, CMS proposes moving many of the 2016 changes into the first agreement, as well. CMS proposes to include a regional adjustment to the benchmark at the start of the first agreement. CMS will then trend forward the benchmark using a blend of regional trend and national trend. The regional adjustment will be recalculated each time the ACO enters a new agreement.

Given the flexibility discussed earlier, CMS expects that regionally efficient ACOs will move to risk faster. This is the reason given for the proposals to reduce the maximum percentage of regional benchmarking from 70% to 50% and to cap the size of the regional bonus at roughly 5% of the benchmark.

CMS is also proposing to slightly reduce the insurance risk an ACO takes on. CMS is proposing to eliminate the current risk score cap on continuously assigned beneficiaries where the risk score compared with the most recent benchmark year cannot go up with a symmetrical cap of 3%. Under the symmetrical cap, the risk score for the ACO population would be allowed to increase up to 3% or decrease up to 3% from the risk score in the most recent benchmark year. While this still leaves ACOs with significantly more insurance risk than MA, it is a marked improvement over current policy.

Finally, there is a flaw in the regional benchmarking methodology that disadvantages all ACOs, but particularly, rural ACOs. As ACOs drive down costs for their aligned beneficiaries, they are also driving down costs in their region and, thus, lowering their own regional adjustment. This effect can be large for rural ACOs that serve a high proportion of a county’s beneficiaries. CMS acknowledges the flaw but does not propose the simple solution of removing the ACO’s beneficiaries from the regional comparison. The agency’s complex proposal of blending regional and national trends based on market share is unlikely to solve the problem and could have unintended consequences, as we will detail later in the series.

Taken together, we believe these proposals do make risk more appealing to an ACO by better measuring medical risk, reducing insurance risk, and reducing regulatory risk. We look forward to working with our partner physicians, the ACO community, and CMS to make these policies simpler and more predictable to create the best ACO program possible.