CMS fixed its ACO benchmarking problem. That may not be enough

The Obama administration has solved what many viewed as a critical flaw in the bonus structure for Medicare's accountable care organizations.

Physician buy-in is critical for the long-term sustainability of the ACO program, which could play an important role within Medicare's broader reforms to physician payments under the Medicare Access and CHIP Reauthorization Act, or MACRA. On the other hand, MACRA could inspire physicians to quit the whole ACO enterprise.

Starting next year, the financial benchmark that most Medicare ACOs use to determine whether they will share in savings or losses will incorporate regional spending factors, according to a final rule the CMS posted June 6. To prod ACOs into riskier models, the CMS also agreed to allow ACOs one additional year in the least risky model before they have to move to a more difficult track.

Persuading the government to blend local and national benchmarks to determine bonuses or penalties has been a priority for ACOs—which are groups of doctors and hospitals that work together to eliminate unnecessary spending and coordinate high-quality care. But many have raised concerns that the CMS still is not doing enough to ease providers into riskier ACO models, which is paramount for Medicare's new physician payment system.

“The elephant in the room is not the benchmarking rule,” said Clif Gaus, CEO of the National Association of ACOs, a trade group run by hospitals and physician groups. “It is: What is CMS going to do to improve the business model for the one-sided ACOs and provide a lower-risk track for the two-sided programs?”

The CMS has shown a fervent desire to use ACOs as a primary method of moving to value-based care, and the latest rule almost certainly won't end the government's attempts to refine the program.

“They've basically gone all-in with the ACO as the vehicle to try and control fee-for-service, and they will continue to tinker with the regulations and the rules until they find something that works,” healthcare consultant Nathan Kaufman said.

There are 433 Medicare Shared Savings Program ACOs, along with a handful of Next Generation and Pioneer ACOs, all of which were created under the Affordable Care Act. However, only 22 of the shared-savings ACOs have chosen two-sided risk. ACOs in two-sided risk contracts either receive bonuses for high-quality care that is delivered under a spending target or pay a penalty to Medicare if they don't save money and don't demonstrate high quality.

ACOs in one-sided arrangements—track 1 in the Shared Savings Program—are eligible for smaller bonuses and aren't on the hook for any penalties if they miss their targets in the first three years, and now an optional fourth year.

Spending benchmarks are to ACOs as location is to real estate, Gaus said. “Everything is benchmarks, benchmarks, benchmarks. It is the one metric that determines whether an ACO is going to achieve savings or not.”

Initially, the government based those benchmarks solely on an ACO's historical Medicare spending and reset the marks periodically. That meant health systems with higher costs and more waste were more likely to share in savings than a more efficient provider network. It also meant savings would be more difficult to obtain in the future, or penalties were likely, since ACOs would be graded against their continually improving benchmark.

Some health systems have pulled out of the ACO programs in the past few years due to the lack of regional factors associated with bonuses.

Instead, hospital and physician executives argued, the CMS should include regional spending and wages in those benchmarks as it does for Medicare Advantage insurers.

“A system like Medicare Advantage in which this type of regional benchmarking is used has to be the long-term goal for a transparent, viable benchmarking system,” said Dr. J. Michael McWilliams, a health policy professor at Harvard Medical School.

Providers mostly got what they wanted in Medicare's final rule, which mixes the two benchmarking models. But McWilliams and others have worried this type of change could “discourage participation by ACOs with spending that's above a regional average.” The CMS attempted to solve that issue by phasing in the regional adjustments over time.

Yet experts say the benchmarking changes may not fix an underlying problem: Most providers are still wary of the program's more aggressive tracks because they would face sizable penalties if they don't contain costs and keep patients healthy.

Improving the financial baseline still doesn't change, for example, the fact that patients in Medicare ACOs can go to any doctor or hospital they want. Smaller medical groups are hesitant to spend millions of dollars on the necessary information technology, staffing and care management if they know there's a decent chance they won't recoup their investment.

“The problem is so few ACOs have been able to generate the incentives to encourage physician participation,” Kaufman said.

Another criticism is that the rule didn't do enough to help participants move more quickly into tracks that would benefit them under Medicare's new physician payment framework.

Under MACRA, only the two riskiest tracks in the Shared Savings Program qualify as “advanced alternative payment models,” meaning those hospitals and doctors are eligible to earn 5% bonuses from Medicare in 2019 and beyond.

But the rest—and for now that means most, by far—have to comply with the Merit-based Incentive Payment System, a mishmash of previously unpopular incentive programs.

Blair Childs, senior vice president at healthcare performance-improvement company Premier, said the final rule should have created a pathway for ACOs to move into other tracks before the end of their three-year agreements so early adopters won't be locked out of MACRA bonuses.

Others, including Gaus, have argued all of the shared-savings ACOs should qualify as participating in an advanced alternative payment model. Otherwise, Gaus said, “Your high-performing medical groups will leave the ACO model and just play by the MIPS rules and probably do better.”