The Centers for Medicare and Medicaid Services (CMS) has proposed a shared savings arrangement with hospitals, physicians, and other healthcare providers that integrates and coordinates their services through accountable care organizations (ACOs) and achieves cost savings to Medicare as a result. In return, CMS offers, through the Medicare Shared Savings Program (MSSP), to return a portion of the amounts saved to the ACOs.
MSSP applications are due early in 2012 for ACO starting dates of April 1 or July 1, 2012. An application must include a plan for distributing shared savings or losses to providers within the proposed ACO, but CMS has not spelled out procedures for developing such a plan. Drawing up a savings-distribution plan requires careful, detailed decisions potentially affecting every provider entity within the new system.
The framework for allocating savings within an ACO is described in a new paper; the framework emphasizes rewards for an ACO’s component entities based on their relative contributions to the organization’s total shared savings and quality performance.
The paper focuses on CMS-contracted MSSP ACOs, as contained in the Patient Protection and Affordable Care Act (PPACA) of 2010, because they are facing the task as an immediate issue. However, the approach could also be applied to risk-sharing arrangements within any integrated delivery system.
We’ve talked about cost control before (here and here in particular). A new healthcare reform briefing paper continues the discussion, focusing on the topic of provider risk sharing.
In the past, provider risk sharing has attracted substantial attention as a means of controlling healthcare costs. But efforts to implement provider risk-sharing strategies have often not lived up to their promise.
With healthcare costs reaching unprecedented level—and with certain reform provisions encouraging providers to shoulder more risk—the concept is again attracting attention. Given the far more precise tools now available to both payors and providers—not to mention the possibility for better coordination among all stakeholders—the healthcare system may now be primed for a successful move toward provider risk-sharing strategies.
Formulary design is a widely used private-sector tool for controlling health plans’ drug costs. Medicare limited the freedom of Part D plans to control their formularies through rules such as the safe harbor guidelines established by the U.S. Pharmacopeia17 and MMA’s requirement that Part D plans cover at least two drugs per class.18
The CMS went beyond the statute, requiring at least one drug in each subclass as well. In addition, the CMS has given special protections to six classes of drugs, requiring that “all or substantially all drugs” in the classes be included in the formularies.18 This rule effectively eliminates Part D drug price negotiations over anticonvulsants, antidepressants, antineoplastics, antipsychotics, antiretrovirals, and immunosuppressants. In other classes, Part D plans routinely exclude some drugs as part of the normal commercial formulary process.19 The 110th Congress solidified and expanded the protected classes. The July 2008 physician payment update legislation gave the CMS clear statutory authority to expand the protected drug classes and created a cumbersome process that delays competition within the classes.20
These rules limit the negotiating power of Part D plans and make drugs in those classes more expensive. A Milliman study found that these six protected classes accounted for 16.8-33.2 percent of Part D drug costs by Part D plan administrators. Reversing this one rule would decrease prices in these classes by 9-11 percent, for a projected Part D savings of $511 million per year.21 To ease the negative effect such restrictions can have on price negotiations, Congress could modify the Medicare Part D rules to give private drug plans more freedom to control their formularies. More-flexible formularies would permit more-aggressive negotiations by Part D plans, because the plans would have more maneuvering room to negotiate for deeper discounts, as they do with some of their non-Medicare plans.22