ACO consultants getting more attractive as downside risk approaches

Dr. Craig Burrows, a rural provider for 17-bed Mammoth Hospital, has to make a decision: Should Mammoth participate in a downside-risk track in the Medicare Shared Savings Program next year and be on the hook for penalties or should Mammoth take an opportunity to continue in the program without being responsible for any losses?

Burrows says he’s confident the accountable care organization that Mammoth is part of, with 3,900 clinicians and 30 community hospitals systems, would perform well enough to avoid losses. But Mammoth officials are still considering a risk-free opportunity from Caravan Health, a healthcare consultancy.

Next year, when many ACOs are required to take on downside risk in light of new regulations from the CMS, Caravan Health, which supports 12 ACOs, has agreed to shoulder all penalties for the rural participants should they lose money in the program.

“If there are losses, then it’s on us, but there aren’t going to be losses,” said Lynn Barr, the firm’s founder. “We are taking a fear off the table.”

The unique offering is a response to concerned comments from Caravan’s rural customers that they would leave the program if forced to take on risk, Barr said.

Burrows said the option is an appealing one. He’s the chief medical officer at Mammoth Hospital, a critical-access facility in Mammoth Lakes, Calif., that has participated in the ACO program since 2016. Although the hospital is in an upside-only track of the program this performance year, leaders are considering a downside-risk contract next year.

Burrows said he’s certain the ACO, which has 112,000 attributed beneficiaries, won’t have losses should they take on risk, but Mammoth would still look at the offer to be off the hook for losses.

“We’ll consider it,” he said. Among the questions that will be asked is if it will make a difference for Mammoth Hospital one way or another considering the ACO is certain it won’t have losses, he said.

Since the announcement, Barr said Caravan is no longer hearing from rural providers that they’ll leave the program.

While Caravan, one of the consulting firms typically called ACO enablers, is taking on all the downside risk for some of its customers, other companies have long baked into their business model that they will take on some of it, sometimes half or more, depending on the ACO.

As a result, some leaders of these firms said they are seeing an uptick in independent physicians already participating in the Medicare program interested in joining them as they are forced to shoulder downside risk soon or drop out.

The CMS recently finalized changes to the Medicare Shared Savings Program that require participants to enter a downside-risk track within three years. The original timeline was six years.

“We are seeing strong interest,” said Asit Gosar, CEO of Evolent Care Partners, which has an ACO client with independent primary-care practices assigned 60,000 Medicare beneficiaries. “We are talking to over 30 organizations … They see an advantage in working with someone who gives them the capital as opposed to doing that all by themselves with thin balance sheets.”

Similar to other ACO enablers, Evolent takes a share of the bonuses as well as a percentage of the losses should they occur. In exchange, Evolent helps independent practices get set up in the program by paying for needed infrastructure support such as data capabilities and hiring nurse practitioners or other staff who can help with population health initiatives like wellness visits.

For small independent physician practices or hospitals, the support financially from ACO enablers encourages them to take the plunge to risk.

Aledade, an enabler with 38 ACOs in the Medicare program, partners exclusively with independent physician practices. Its Kansas ACO, which has 17 practices and 13,500 attributed beneficiaries, is currently in the Enhanced track, which carries the highest level of downside risk and upside reward.

Regarding the decision to take that path, Dr. Jennifer McKenney, a primary-care physician who owns a practice in Kansas, said, “We felt good about it, very confident.”

The physicians gathered together and evaluated their data, finding if they maintained their current performance they’d achieve savings and wouldn’t incur penalties.

“Plus, Aledade takes on some of the risk with us and for us … another reason we felt better” about joining a downside-risk track, she added. “They understand it’s scary for us, and they’re saying, ‘Hey, this is how we’re going to make this less scary for you.’ ”

Aledade has historically taken on the “lion’s share” of the risk for its ACOs in addition to cashing in on a percentage of bonus payments, said Dan Bowles, senior vice president of growth and network operations at the company. The arrangement is how Aledade makes 90% of its revenue.

Aledade also doesn’t want fear of losses to deter physicians who are ready to take on the risk.

“We put our money where our mouth is with downside risk,” he said. “We understand independent physician practices, especially in rural areas, don’t have massive cash reserves lying around but maybe they are ready for” risk.

Its track record also helps. Twenty-five of Aledade’s 38 ACOs are in downside-risk tracks and the firm hasn’t had to pay back losses to the CMS.

Small practices don’t have the capital reserves to take on downside risk entirely on their own, said Dennis Butts, partner at Guidehouse (formerly Navigant), a consultancy that has researched the Medicare ACO program.

“If they lose a million or two, that can cripple a smaller practice,” he said. “It has become more important for organizations to reduce the risk and you can (do that) by having some form of insurance. That can be through having an enabler to take on that risk for you or joining a larger network.”

Health systems offer similar support to doctors. For instance, Sioux Falls, S.D.-based Avera Health, which operates two ACOs with Caravan Health, financially takes on the risk for its doctors. One of its ACOs is currently in the Enhanced track.

“Caravan’s no-risk option is playing the same role for those rural participants that corporate Avera plays within its own institution, which is buffering the losses from the physicians,” said Dr. David Basel, vice president of clinical quality at Avera Medical Group.

Although physicians have the peace of mind that they aren’t on the hook for all the losses, they still feel pressure from their peers and the enabler to perform well in the ACO.

“We don’t want to let down the other clinicians,” McKenney said. “We are still motivated—maybe even more so—to make sure that everyone is successful.”

ACO enablers also have mechanisms in place to boot out bad actors. Physicians who are part of Aledade ACOs can reassess a practice’s involvement in the organization if they “aren’t committed to the initiatives necessary for success,” Bowles said. But he noted that doctors being removed from an ACO is “relatively uncommon.”

Barr said Caravan monitors practices on a quarterly basis and if they don’t hit benchmarks they can be kicked out if performance doesn’t improve. “If they haven’t hit their mark by June, we put them in remediation. And if they haven’t by September, they are out of the ACO,” she said.

In response to a request for comment about the practice of ACO enablers taking on most or even all the downside risk for providers, a CMS spokeswoman said, “Where appropriate, we support giving ACOs the flexibility they need to be successful.”

Privia Health, which has four ACOs in the Medicare Shared Savings Program with a total of 2,500 providers, doesn’t support taking on all the downside risk for its customers as Caravan has offered for some clients. Dr. Keith Fernandez, Privia’s chief clinical officer, said the consultancy “wouldn’t consider it.”

Similar to its competitors, Privia shares in the savings and downside with its customers. It’s important the doctors have “skin in the game” to encourage improvement, Fernandez said. “Them being worried about the outcome counts,” he added.

Researchers evaluating the ACO program said the relationship between ACO enablers and doctors is generally one that works. Because enablers are so reliant on their ACOs to do well in the program to stay financially viable, they are the ones keeping the doctors accountable.

Physicians “are working with somebody (ACO enablers) whose entire business model is predicated on them being successful,” said David Muhlestein, chief research officer at Leavitt Partners. “Not only do they not want to pay back losses, they are dependent on the ACOs being successful in order to stay in business.”

Another benefit of joining enablers is scale. Although Medicare requires an ACO to have at least 5,000 attributed beneficiaries, the more lives the better to remove uncertainties that could lead to losses, said John Feore, associate principal at Avalere Health, a research firm.

“The smaller you are, the fewer beneficiaries you have in your network that are assigned to you and what that can lead to is greater volatility in spending over the course of the year,” he said. “A response to that is ACO enablers, or other organizations, that are able to bring multiple ACOs together under one umbrella and what that can do is mitigate, and almost eliminate, the variation in spending that is going to occur naturally with a senior population.”

The importance of scale played out for Aledade’s Louisiana ACO in 2016. The ACO started out with just five practices attributed to about 5,000 beneficiaries. On track to achieve savings that year, an unexpected flood in the region drove up costs by 3% and the ACO didn’t get any bonuses, said Dr. Darrin Menard, a primary-care physician who owns a practice in Scott, La.

The ACO has since grown to 23 practices and 16,000 assigned beneficiaries. The larger size played a role in the decision to move to the Enhanced track of the ACO program last July.

“It makes such a big difference,” because the ACO is less susceptible to unexpected benchmark changes, Menard said.

Caravan Health spent much of last year consolidating ACOs to increase the number of beneficiaries assigned to each one. Caravan made the changes after the CMS finalized its changes requiring the accelerated transition to downside risk. Caravan went from 38 ACOs to 12.

“We are creating a security for them by putting them in these large enclaves where the numbers aren’t all over the place and taking them to risk,” Barr said.

Caravan was able to convince providers to consolidate into larger ACOs by agreeing to take on 75% of all losses should they occur in downside-risk tracks.

The future of the program will likely see larger ACOs given the required path to downside, according to researchers.

ACOs with 100,000 lives may become more common and new ACOs that join the program will likely be larger than just 5,000 lives because they know the expectation going in is to take on more risk, Muhlestein said.

The program design also inherently benefits larger ACOs. The minimum savings rate for ACOs with 5,000 beneficiaries is larger than those with at least 60,000 lives, which means smaller ACOs must generate more in savings before they can receive bonuses, Butts said.

“If you can accumulate more lives you can make it easier to achieve savings,” he added.

Another trend may also be a decline in the number of ACOs in Medicare overall but a rise in total beneficiaries, indicating ACOs are actually merging to achieve more scale, Avalere’s Feore said.

The growth in ACOs slowed from 2019 to 2020 compared with previous years after the CMS’ changes went into effect. Even so, the number of beneficiaries attributed to the program still rose to 11.2 million in 2020, which is the most beneficiaries in the program yet.

“We may see the drop in the number of ACOs like we saw over the past year and that isn’t necessarily indicative of a propensity away from downside risk,” Feore said. “If the number of covered lives is increasing, that I think is an important indicator to consider.”

Barr said she predicts the future of the program is large ACOs. “This is a program that unless we innovate and pull our lives together, we are all going to fail. I can see it in the data,” she said.

Gosar at Evolent also said scale is part of its business strategy going forward.

“In the risk-taking portion of healthcare, which has historically been health insurance companies, the smallest plans are (covering) hundreds of thousands of lives. Sixty thousand (beneficiaries) is just the beginning” he said. “We want to be able to grow to a much larger risk-sharing business.”