(This story was updated at 6 p.m. EST)
The CMS is planning major changes to the financial incentives for Medicare accountable care organizations in a revamp aimed at preventing hospitals and medical groups from dropping out of the initiative.
A proposed rule issued late Monday (PDF)would alter the structure of the Medicare Shared Savings Program, an attempt launched in 2012 under the Patient Protection and Affordable Care Act to reduce U.S. health spending with new incentives that seek to improve the quality and efficiency of healthcare.
Those incentives have been a battleground between policymakers and the healthcare industry since the program's start. Policymakers have sought more substantial incentives—penalties as well as rewards—as a means to hasten changes to the way healthcare is delivered. Hospital officials and physicians have called for less financial risk so they can build the infrastructure and expertise they need to succeed.
The rules adopted in 2011 require accountable care organizations to face penalties after the first three years unless they volunteer to assume downside financial risk earlier in exchange for bigger bonuses if they do well.
The industry appears to have scored a victory in the proposed rules, which acknowledge widespread concern among the participants and experts that some organizations may need more time before penalties take effect. The switch after three years “may be too steep” for organizations that lack experience and infrastructure to achieve quality and cost-saving targets and organizations may exit as a result. Even those that perform well but “not yet ready” to accept the risk of penalties may depart without another option, the agency said.
Medicare, under the revised structure, would no longer require organizations to face penalties after the third year, but they could forgo penalties only if they meet certain criteria. ACOs that fail to slow spending in their first two years would be excluded. All ACOs must assume the risk of penalties after six years if they want to remain in the program.
In order to make it more appealing for ACOs to jump into the riskier track, the CMS would reduce the potential bonuses after the third year in the safer track to 40% from 50%.
In another bid to make riskier contracts more attractive, the agency wants to add a new option, or a third track, that would include potential penalties and bonuses and would use new methods to identify which patients are included in the ACO. Organizations in this new track could keep up to 75% of what they save. They also would be responsible for up to 75% of their losses, but the amount could be reduced based on quality performance. The agency capped the bonuses at 20% of ACOs' benchmarks and losses at 15%.
Participants in the third track would also have a list of patients at the start of the year whose care and costs they must manage. Under the current rules, Medicare identifies beneficiaries as included in the ACO at the end of the year based on how much care they received from the providers in the network. ACOs have called on the CMS to identify the patients at the beginning of the year to allow more focused improvement efforts.
The CMS has rapidly expanded the Medicare Shared Savings Program over the past three years, and it is perhaps one of the most visible efforts under the law to tame the nation's healthcare bill. But many experts feared the widespread enthusiasm for the program would wane significantly if the CMS declined to modify the program to keep less experienced providers on board.
All but five of more than 300 ACOs in the program chose to forgo the penalty. That may have been wise, because their financial performance has been uneven. Only a quarter of ACOs launched in 2012 and 2013 have saved enough to earn bonuses.
Clif Gaus, chief executive officer of the National Association of ACOs, said he was “pleased and disappointed” by the proposed rule. He praised the proposal to give ACOs more time before they face penalties for financial performance, but he also said the decision to couple that with a smaller potential bonus was “counterproductive.”
Many ACOs need the additional time to prepare for the risk of potential penalties, he said. “Three years is not enough.”
Efforts to revamp the delivery of care will require more time as ACOs build new relationships, new infrastructure and learn and adapt early redesign efforts, he said. “It's probably a decade-long process to redesign all of the care processes that lead to both better care and more appropriate care,” based on experience of organizations such as Geisinger Health System or Intermountain Healthcare, he said. “There's a big learning curve for many ACOs,” he said. “They are almost new businesses starting from scratch.”
The association surveyed Medicare Shared Savings Program ACOs in October and found two-thirds were somewhat or highly unlikely to continue if they were required to accept penalties. About 20% of the MSSP ACOs responded. “There's too much risk for the amount of reward” under contracts with penalties and bonuses, he said.
Coastal Carolina Quality Care in New Bern, N.C., entered Medicare's accountable care program in 2012 and saw its expenditures increase a marginal 0.6% against projections during the first year.
“It's very unlikely that we would continue” without the continued option to forgo penalties, said Stephen Nuckolls, Coastal Carolina's CEO.
Dr. Farzad Mostashari, founder and chief executive of accountable care contractor Aledade, said the option to continue without penalties may benefit some smaller organizations in the program. “There are a lot of home grown ACOs,” said Mostashari, a former national coordinator for health information technology at HHS. “It takes them a long time to get going.”
Policymakers, however, likely also want to discourage organizations from abusing Medicare's shared savings program as a way to consolidate market clout with little interest in achieving the program's savings goals, he said. The proposed rule, however, may do little to discourage them from remaining in the program. The proposed criteria for ACOs to continue without penalties, Mostashari said, is “a pretty low bar."
