The hope that accountable care would rapidly diffuse across the healthcare landscape to help reduce costs suffered another setback when federal officials last week admitted few Medicare ACOs are ready to assume financial risk.
To keep existing ACOs from dropping out, the CMS proposed an expanded menu of incentives to keep hospitals and doctors involved while postponing when providers would actually face potential losses for three more years.
The move left some ACO advocates fearful that providers may simply wind up taking advantage of the program, even as they applauded the government's efforts to keep hospitals and physicians involved.
“It makes sense to allow them more than three years to develop the capabilities and the confidence to control spending,” said Dr. J. Michael McWilliams, an associate professor of health policy at Harvard University. “It is a good idea to allow ACOs to evolve and develop infrastructure.”
It's hardly what the Obama administration expected when it launched the Patient Protection and Affordable Care Act's Medicare ACO program and set a goal for all ACOs to accept risk of losses after the first three years.
A number of hospitals and medical groups entered ACOs with the experience and infrastructure identified by many as necessary to reduce costs, such as information technology, data analytics and care-coordination programs.
Yet ACOs have a long way to go to deliver on the promise they can slow health spending. The Congressional Budget Office had projected savings from Medicare ACOs would total $4.9 billion by 2019. Through the end of last year, Medicare has saved $383 million from the first 220 ACOs.
The ACO program's incentives for the first three years relied entirely on performance bonuses, although hospitals and medical groups were given the option of accepting the risk of potential penalties in exchange for larger possible bonuses.
But almost none took up the challenge. Instead, the CMS came under pressure to postpone the penalties. In fact, many ACOs threatened to leave the program if the penalties became mandatory, as they were slated to do in 2015.
And those threats forced the government's hand. Many ACOs told CMS “they didn't think they could do it,” said Sean Cavanaugh, director of the CMS' Center for Medicare.
“We've got a lot of people coming together who are fairly new at this. Rather than saying they're not ready, we want to create a pathway for them,” he said.
But that could open up the program to abuse by more sophisticated hospitals and medical groups, some policy experts and consultants warned.
ACOs share in what they save Medicare when spending falls below projections. Without penalties, though, hospitals and doctors actually benefit when spending accelerates beyond projections, even though they are still benefiting from the antitrust exemptions offered ACOs under the law. “It sends a mixed signal when they can still benefit” financially without achieving savings, Cavanaugh acknowledged.
The government's main concern is getting more provider organizations to adopt the model, which they hope will become widespread and enable the agency to gradually move away from fee-for-service medicine. The Medicare Payment Advisory Committee earlier this year urged the CMS to adopt penalties in its ACO program in the long term because they would be “essential to provide strong incentives for cost control.”
MedPAC also pushed the CMS on the incentive front, encouraging the agency set more equitable targets and to give ACOs more freedom to communicate with patients and offer them breaks on deductibles or other medical bills to encourage use of ACO hospitals and doctors.
“We need to find ways through additional incentives to make two-sided risk more attractive,” said Michael Chernew, a healthcare economist and professor at Harvard University.
The incentives are “much weaker” without penalties, he said.
The proposal did seek to entice more ACOs into riskier contracts with a new option that includes penalties and bonuses and would use new methods to identify which patients are included in the ACO. ACOs keep up to 75% of what they save under this proposed option.
They also would be responsible for up to 75% of their losses, but the amount could be reduced based on quality performance, and bonuses and losses are capped at 20% and 15% of benchmarks, respectively.
Still, financial analysts suggest ACOs and other risk-based contracting schemes remain rare among providers, especially when it comes to government-funded healthcare. Moody's Investors Service's latest analysis of nearly 400 of the nation's largest hospital and health systems said contracts that include financial risk tied to performance accounted for only 2.4% of the median hospital's revenue, up just slightly from 2.1% the year before.
For healthcare organizations that have not yet formed Medicare ACOs, the investment may simply be too great for too little reward. “The upside is not very big,” said George Whetsell, a managing partner with the hospital consulting firm Prism Healthcare Partners.