Under Medicare’s proposed regulations for ACOs, doctors and hospitals that fail to slow Medicare spending could face financial penalties, unlike the physician group demonstration.
“We have been doing this for five years,” said Vincent Capece Jr., president and CEO of Middlesex Health System, one of the demonstration participants. “We, in theory, have an advantage over others who have not been involved,” Capece said of the push toward accountable care. “I’m still reluctant to take downside risk.”
But without that financial risk, policymakers fear incentives would be too weak to motivate providers to change healthcare delivery. “The incentive is clearly to avoid doing unnecessary services,” when providers face penalties as well as bonuses, said Robert Berenson, a senior fellow at the Urban Institute.
Financial returns for the organizations in the physician group demonstration were mixed. Middlesex was one of three medical groups that did not earn a bonus payout any of the first four years. Results for the final year have not been released.
Executives in that early experiment, which ended in March 2010, said financial incentives were delayed and difficult to achieve, even as medical groups reached quality goals linked to bonus payouts.
The proposed framework for Medicare ACOs would give hospitals and doctors two incentive options. One would offer bonuses up to 60% of what Medicare saves, but also require providers to pay back Medicare should costs accelerate significantly, rather than slow. The second option would exempt providers from penalties for the first two years, but offer bonuses up to 50% of Medicare savings.
Medical groups that agree to the new two-year demonstration, which would retrospectively collect data from Jan. 1 through the end of 2012, would test some aspects of the proposal but with one notable exception: Medical groups would not be at risk for financial penalties, said Dr. Thomas Graf, associate chief medical officer for population health at Geisinger Health System.
During the original five-year demonstration, Medicare held onto all savings up to 2% as measured against a benchmark of local Medicare costs. Medicare set the threshold for savings to guard against payout of bonuses for random fluctuations in health spending. Providers that reached certain quality goals were eligible for up to 80% of savings that exceeded the 2% threshold.
The University of Michigan Faculty Group Practice, one of the participants in that earlier program, earned bonuses each of the four years that totaled $12 million, including $5.2 million in the fourth year, said David Spahlinger, the practice’s executive director. That did not include roughly $5.4 million that fell below the 2% threshold each year, which Medicare claimed.
Similar to one option under the Medicare accountable-care rules, the two-year demonstration extension would adjust the threshold based on size. Smaller groups would face higher hurdles. Larger groups—where smaller changes would be considered statistically significant—would face a lower savings threshold. “It appears that bigger is better,” Spahlinger said. Under those rules, the threshold for the university would climb to about 2.6%. Providers that agree to accept penalties under the proposed Medicare ACO rules, however, would face a set 2% threshold.
Under the two-year demonstration, providers’ potential share of savings would be reduced to 50%, but Medicare would divide all savings with providers eligible for bonuses. Medical groups that agree to expand quality goals to mirror those proposed for accountable-care groups would be eligible for up to 60% of savings.
Graf described the rules as “pretty rigorous and the hurdle is relatively high.” He said he believed the CMS deliberately set high standards. “My concern is that many have been struggling over the last couple of years to prepare for an ACO may not be as far along as they thought they were or were hoping to be given the rigorousness of the regulations,” he said. “Some will pull back, appropriately so.”
Those who do it right could do well, Graf said. But, he added, “If you’re just aggregating providers and in a new business model without reengineering the way you deliver the care, I don’t think you’re going to achieve much in the way of results.”
Jon Swope, president and CEO of St. John’s Health System in Springfield, Mo., rejected the reduced bonus potential as “a problem and a mistake.” The system’s St. John’s Clinic earned bonus payouts in two of the demonstration’s first four years. Swope argued policymakers have overlooked up-front investment required to achieve quality goals. St. John’s spent about $350,000 to $500,000 a year. Those sums, Swope said, themselves represent financial risk, which the proceeds frequently failed to cover.