Health insurers are pulling back from an accountable care organization pilot program intended to reduce costs for fee-for-service Medicare enrollees amid a surprise spike in medical costs and unfavorable regulatory changes.
Alignment Health, Centene and NeueHealth scaled back their participation in ACO REACH this year, while companies such as Cityblock Health and Clover Health withdrew from the model altogether. For the first time in the program’s four-year history, CMS reported a year-over-year decline in the total number of accountable care organizations in ACO REACH this year.
Related: How ACO REACH seeks to transform healthcare
Health insurers backing off from the model cite broad trends in medical cost inflation and the program's provider-focused design. Centene, Humana and a handful of small, startup insurance companies have stuck with ACO REACH, an abbreviation for Accountable Care Organization Realizing Equity, Access and Community Health.
“We know that folks struggling to succeed in the model tend to depart,” said Aisha Pittman, senior vice president of government affairs at the National Association of ACOs.
While the number of ACOs dropped by 10 to 122 this year, that's still more than double the number from 2021, when the initiative debuted. And the number of providers and traditional Medicare enrollees in ACO REACH grew by 30% this year, despite there being fewer ACOs. Major companies such as CVS Health, Cigna and UnitedHealth Group are involved in the program through their provider divisions, rather than their insurance operations. Humana participates in ACO REACH as an insurer and a provider.
The Centers for Medicare and Medicaid Services said it believes ACO REACH is well-positioned to succeed.
"For such a large model, less than 8% year-over-year attrition in model participants is better than expected, particularly as [plan year] 2024 was the first year in which CMS did not solicit new ACOs to participate in the model," a CMS spokesperson wrote in an email Monday. "We understand some ACOs made the choice to leave the model due to market and organizational dynamics that suggested that ACO REACH (as opposed to other initiatives, such as the Shared Savings Program) was not their best fit."
The downward trend in the number of accountable care organizations in ACO REACH and the dwindling number of insurance companies participating comes as the CMS mulls the future of its largest ACO pilot, which expires at the end of 2026.
CMS has an ambitious plan to get all fee-for-service Medicare enrollees under an ACO by 2030, and the agency is banking on potential cost savings to boost the Medicare trust fund, which is projected to run dry by 2031. The agency relaxed some ACO REACH requirements in August to make it easier for the ACOs to grow.
"We do not believe that the change in participation in ACO REACH will impact the goal of having 100% of traditional Medicare beneficiaries in accountable care relationships by 2030," the CMS spokesperson wrote.
Centene, Alignment rethink ACO REACH
Centene's Collaborative Health Systems ACO exited six states in 2024. The insurer did not respond to an interview request.
Alignment Health will no longer accept downside risk in ACO REACH after reporting $2 million in unexpected medical costs from the program during the fourth quarter, Chief Financial Officer Thomas Freeman said during an earnings call on Feb. 27.
“You’ve heard us say all along that we would do this so long as it supports our strategic objectives with our provider network, but not in a way that causes us to lose money,” Freeman said.
The insurer reported a 102.2% medical loss ratio for its 8,900 ACO REACH members in 2023. Alignment Health does not anticipate ACO REACH will have a material effect on its finances this year and will shift focus to Medicare Advantage, where it kept costs in line with projections, Freeman said. The company declined to comment.
Alignment Health is following the money. Health insurers generally report Medicare Advantage profit margins that average in the high single digits, and even higher if they own provider operations to which they can refer patients. ACO REACH insurers, meanwhile, averaged a 5.1% savings rate through October, with savings projected to decline in the final months of the year because of seasonal utilization spikes, according to CMS.
NeueHealth, formerly Bright Health Group, likewise reevaluated its ACO REACH participation after losses under the program increased more than tenfold to $42.5 million in 2023, CEO Mike Mikan said during the company’s fourth-quarter earnings call on March 8.
The company attributed its poor performance to Babylon Health’s bankruptcy, rising medical costs and a recently implemented cap on how much risk scores for ACO REACH enrollees may rise annually. NeueHealth reported a $22.4 million bad debt charge because of Babylon Health, a virtual care provider and NeueHealth partner in ACO REACH, Mikan said. The company did not respond to an interview request.
Cityblock Health, a New York-based primary care chain that contracts with insurers to manage care for Medicaid enrollees, and Medicare Advantage carrier Clover Health declined to comment on why they pulled out of ACO REACH. Both companies lost money in the program in 2022, according to CMS. The agency will release 2023 data on ACO REACH financial performance this fall.
Unlike in Medicare Advantage, health insurance companies in ACO REACH can’t use prior authorization, construct narrow provider networks or target specific patient populations to reduce costs, said Jack Slevin, a health services equity research analyst at the investment bank Jeffries.
An unexpected rise in utilization coupled with population health differences between traditional Medicare and Medicare Advantage enrollees may have exacerbated insurers' existing struggles last year, Slevin said.
While the number of ACOs has decreased, rising providers participation indicates the model is working, Slevin said. "The things that primary care-led groups do to lower costs are still viable in this population in the same way they are in Medicare Advantage,” he said.
CMS replaced the Global and Professional Direct Contracting Model with ACO REACH in 2023 and retooled the program to prioritize provider-led groups.
Agilon, Ilumed, Asaar bet on ACO REACH
Some provider-focused technology and management services companies reported ACO REACH successes in 2023.
Agilon Health, for example, saw medical expenses rise for its 89,300 ACO REACH members but kept costs down compared with other participants, said Eric Becker, the company's vice president of ACO REACH and Medicare innovation model strategies.
That will translate into a higher savings rate, Becker said. ACO REACH utilization rose 6.8% overall, while Agilon Health members' medical costs grew 2.7%, he said.
“In a high-cost environment, we were able to differentiate ourselves and keep costs relatively in check,” Becker said. “We feel like we really built upon our success that we had in 2022 and did even better in 2023.”
Ilumed boosted ACO REACH enrollment by more than one-third to 74,000 members across 14 states this year. The management services organization saw a spike in claims for COVID-19, influenza and respiratory syncytial virus vaccines in the fourth quarter, which pushed up average per-member pharmaceutical costs more than 10% to $445, CEO Debra Finnel said.
Despite the unexpected rise, the privately held company performed materially better in 2023 than the year before, Finnel said. She declined to provide specific financial data.
“You can’t just focus on risk scores. To the contrary, there are coding limitations in this program,” Finnel said. “Many people who migrated from [Medicare Advantage] tried to bring that as the core tenet here. You really have to focus on the cost of care and improving outcomes.”
Asaar Medical doubled its ACO REACH enrollment to 15,000 this year after reporting higher revenue in 2023, said Dr. Anjan Patel, CEO and senior medical director of the privately held company. The management services organization experienced an unanticipated increase in outpatient medical claims last year, he said.
But the company was still able to constrain costs, said Patel, who attributed that to Asaar Medical's approach to recruiting providers for ACO REACH. “A lot of research has to be done on the provider group before you enroll them,” he said. “On the insurance-based groups, they usually enroll all the providers under their network that they already currently have and some of these providers might just not perform well.”
