Healthcare Business News

Universal American's zeal for ACOs is fading

By Melanie Evans
Posted: July 29, 2014 - 2:15 pm ET

Insurer Universal American, the largest operator of Medicare accountable care organizations, has exited three ACOs and may drop more as the company sheds poorly performing or fringe businesses, said executives with the publicly traded insurer.

Robert Waegelein, Universal American's president and chief financial officer, also said the company will not expand its ACO efforts into new markets in January, when the CMS will add the latest round of ACOs to its Shared Savings Program. The program, created under a provision of the Affordable Care Act, creates incentives for participating providers to beat cost and quality targets.

The company is ending its presence “where we don't see the engagement at the level we need to have,” Waegelein said in an interview after the company announced its second-quarter results.

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Universal American’s core business is in Medicare Advantage. Its ACO pullback, announced in May, comes after the insurer made an early and aggressive push into Medicare’s fledgling accountable care initiative, which has mushroomed to more than 300 ACOs since 2012 despite limited results, a rocky start and ongoing operating challenges. CMS officials have described growth of the program as a priority, which includes continued participation by the first ACOs. Accountable care is one of a few Affordable Care Act policies to experiment with healthcare financing reform.

Universal American operates 30 Medicare ACOs after its recent exits and the merger of two ACOs, Waegelein said. Executives are waiting on the expected September release of final first-year results of ACOs that began in 2012 for more information to make decisions, he said.

Waegelein and Universal American CEO Richard Barasch stressed that the company won’t completely abandon the model.

“We remain firmly committed to our ACO business,” Barasch told analysts during a conference call to announce Universal American’s financial performance in the second quarter. Early ACO results suggest some success among the company’s ACOs at reducing hospital visits, readmissions and emergency room use, he said. The company is expected to earn revenue from its ACOs and will benefit from skills developed under the program, he said.

“Even though the results are emerging slower than we had hoped, we believe we are building a distinctive and important business for Universal American.” Barasch said. “The skills that we and our physician partners are learning will no doubt prove to be valuable as payment reform continues.”

Barasch added that Universal American is using case management and data analytics to bolster the performance of its ACOs, but he also reiterated that the company will withdraw from the ones that still struggle. “We are continuing to reduce the size and scope of our investments to focus on those ACOs where the (shared-savings) program can work and we can truly impact the cost and quality of medical care.”

Operating costs for the company’s ACOs for the second quarter dropped to $10 million from $13.1 million in the first quarter as startup costs ebbed for its more established networks. Through last December, the company’s ACO expenses totaled $63 million.

The company reported a net loss of $9.8 million on revenue of $519 million during the second quarter.

Executives are also waiting on proposed rules for future Medicare accountable care contracts, which typically last three years. ACOs have cited policies under existing contracts, such as how patients are included in an ACO, as obstacles to achieving financial incentives under the program. “We expect them to improve on some areas where we had challenges,” said Waegelein, though he declined to be more specific ahead of the proposed rules.

Follow Melanie Evans on Twitter: @MHmevans

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