PPACA focuses on expanding coverage and insurance reform, and in some cases it shifts costs from one party to another, but it does not directly affect the unit costs and utilization that are among the major underlying drivers of healthcare costs.
Certain aspects of PPACA have the potential to affect costs. The option to implement an accountable care organization (ACO)13 reprises the managed care movement of the ’80s and ’90s, but with better technology and information, and by transferring the financial risk onto the provider to create an incentive for efficiency. With many potential ACOs already establishing the tools required to succeed,14 this reinvigorated movement is already in motion. The nuts and bolts of an ACO are still the parts needed for a more efficient system.
Most of PPACA’s explicit ACO efforts center on Medicare, and while the Medicare Shared Savings Program (MSSP) and Pioneer Programs will continue, the potential for commercial ACOs15 may prove just as significant.
Accountable care is not a solution to everything that ails the entire healthcare system, but it offers some hope and, to the extent it can meaningfully control unit costs and utilization, it just may work.
Healthcare trends have been on the rise during the last few years and there are growing concerns over the financial stability of the Medicare program. There are also concerns regarding the aging of the Baby Boomers, the increase in average age of enrollees, and an insufficient tax base to cover future funding of the Medicare program. The Patient Protection and Affordable Care Act (PPACA) attempts to address some of these growing concerns by implementing laws and programs aimed at reducing healthcare costs. The Medicare Shared Savings Program (MSSP) as well as the Pioneer program are two such initiatives.
This paper compares the MSSP and Pioneer ACOs and outlines their key features in terms of six major areas: payment arrangements, beneficiary alignment, interim payment methodology, benchmark methodology, trending methodology, and calculation of shared savings/losses.
With accountable care organizations (ACOs) soon to serve more than a million Medicare patients, it is clear that this model of care delivery is receiving an unprecedented test of its viability, and, if it works as intended, may reshape how healthcare is paid for on a larger scale. Cigna alone plans to have more than a million people enrolled in ACOs by 2014, and says it believes that ACOs are going to be important regardless of the Supreme Court’s ruling on the Patient Protection and Affordable Care Act (PPACA).
With so much focus on the topic, it’s worth taking a look back at some of the research and analysis on ACOs published by Milliman on the topic over the past couple of years.
First, for a good summary of ACOs—what they are and how they work—start with this overview video featuring a number of Milliman experts.
For many observers, the key question about ACOs is whether they represent a financially viable model compared to fee-for-service. Effective financial management will be key to success. Milliman has produced a number of relevant papers:
“ACO Gain/Loss Sharing” proposes a framework for allocating savings within an ACO that emphasizes rewards for an ACO’s component entities based on their relative contributions to the organization’s total shared savings and quality performance. Such a framework is required when applying as a Medicare ACO, but the Centers for Medicare and Medicaid Services (CMS) has not provided a detailed procedure for creating one. This paper tries to help fill that gap.
With all the attention on Medicare ACOs, it’s easy to forget that they exist in the private market, as well. For more on such entities, look at “ACOs Beyond Medicare,” which describes the potential advantages for providers who partner with a private insurer rather than with CMS. A 2011 Managed Healthcare Executive roundtable featuring Milliman consultant Rob Parke also discussed ACOs in the private market.
A number of other papers have also been published discussing various aspects of ACOs such as:
Many health plans allow members to receive covered services from providers who are not part of the plan’s contracted network. However, a plan will often limit the amount it pays to a specific percentage of an amount called “usual, customary, and reasonable” (UCR). Historically, the UCR amounts have been determined by reference to commercially available schedules representing prevailing physician charges by types of service and geographic regions. Some plans have recently replaced the use of such schedules with Medicare’s resource-based relative value scale (RBRVS) schedule.
The differences in reimbursement levels between fee schedules based on Medicare’s RBRVS and benchmark data based on prevailing charges have led to some unexpected results for both members and physicians. These unexpected results still exist even if the change is designed to produce similar levels of aggregate reimbursement under both methods.
An article in USA Today/Kaiser Health News looks at how changes in out-of-network healthcare pricing are affecting patients, as many carriers look to use Medicare reimbursement to set out-of-network rates. Here is an excerpt:
Benefit consultants, insurers, patient advocates and actuaries say the shift to Medicare rates began after a national database tracking usual and customary charges — run by UnitedHealthcare subsidiary Ingenix — was shuttered in 2009 following an investigation by the New York Attorney General, who questioned whether the data were skewed in favor of insurers.
While the closure was touted as a consumer win, “Unfortunately, it’s worse now,” says Jennifer Jaff, executive director of Advocacy for Patients with Chronic Illness, a group that helps file insurance appeals for consumers. “Once New York said you can’t use those (Ingenix figures) anymore, the insurers looked at it as an opportunity to pay even less.”
After the closure, some insurers turned to basing payments on Medicare rates, says Rob Parke, an actuary at the consulting firm Milliman.
While an office visit for a primary care doctor paid at 170% of Medicare might be similar to payments made under usual and customary calculations, Parke says, specialist visits and other types of care often don’t come close.
Stepping into the data gap left by Ingenix is a new non-profit created by settlements paid by insurers involved with the investigation. Called Fair Health, the New York-based group began selling data a year ago that tracks doctors’ usual and customary charges and includes a website calculator for consumers to figure their costs. It now contracts with medical and dental plans covering more than 170 million people, says Robin Gelburd, president of Fair Health. “Employers can choose to use Medicare rates, that’s totally fine,” but it needs to be put in context, Gelburd says.
Managed Healthcare Executive (MHE) pulled together four industry leaders to discuss the prospects for accountable care organizations (ACOs) in the commercial market (as opposed to the Medicare market, where there has been more attention). The panelists included Milliman principal and healthcare actuary Rob Parke. Here is an excerpt from that interview:
MHE: Who is more likely to drive an ACO creation: a payer or a provider? Or does it depend on the market?
Parke It’s generally the payer who drives that. What will drive the payers to push it is cost pressures from their purchasers. Though you could take a look at Massachusetts as an example where Blue Cross has driven a lot of that consolidation in the market with their Alternative Quality Contract, and Medicare is driving that through their Shared Savings program. It’s really driven by cost ratios from purchasers through their agents, the health plans…
Payers will drive to further extend the creation of ACOs and ultimately payers will ensure their future success. My view of what happened in the managed care backlash was that many payers viewed these kinds of arrangements as pure financing arrangements where they globally capitated the provider community—I’m obviously oversimplifying it—and essentially walked away and told the provider community to manage the care. It needs support with tools and data and all of this to help them in their process and in the transition. If they don’t do that, I don’t think it will be sustainable.
Read the full interview here. For more on commercial ACOs, go here and here.
That downside risk is the main reason hospitals and physician groups have been unhappy with the proposed regulations. “The rules shift significant financial risk to the provider organizations, which are already worried about how to pay for improvements to their infrastructure and other challenges they’ll have to meet in implementing an ACO,” says Rob Parke, an actuary with Milliman, a global consulting firm. And while CMS estimates that an ACO could get up and running for about $1.7 million a year, a study by the American Hospital Association pegs first-year costs at as much as $26.1 million.
Then there are those 65 quality targets. Current data from Medicare claims can be used to meet just 11 of them, leaving 54 that might require pulling information from medical records or patient surveys at potentially great expense. Another challenge is that under the proposed rules, an ACO will know after the first year which Medicare beneficiaries have been officially assigned to it, to minimize the possibility that physicians try to game the system by delivering better care to them. In the meantime, the ACO won’t have any way of knowing how well it’s doing. “That aspect makes it harder for organizations to do financial modeling and assess their readiness to become an ACO,” Parke says. Moreover, though the ACO is financially accountable for the Medicare beneficiaries assigned to it, those patients are free to get care outside of the ACO, and they can opt out of sharing personal health data. “Those are risks an ACO can’t manage,” Parke says.
CMS was deluged with letters about the proposed ACO rules during the public comment period, which ended in mid-June. The American Medical Group Association, which represents nearly 400 physician groups and health systems, said that fewer than 1 in 10 of its members would sign up to be an ACO under the current rules, which the organization derided as “overly prescriptive” and “operationally burdensome,” with incentives that “are too difficult to achieve.”
In May the Center for Medicare & Medicaid Innovation unveiled an alternative “pioneer” ACO model that offers higher financial rewards to 30 organizations able to launch a program by later this year. Though participants will still have to meet the quality measures in the originally proposed rules, there are variations in the model that require the ACOs to serve a minimum of 15,000 Medicare beneficiaries—compared with just 5,000 originally—and that make them eligible for larger bonuses. The pioneer model also allows organizations to get timely, detailed data from Medicare and to propose their own models for sharing savings.
These rule changes have made the model more attractive, and despite some remaining problematic aspects, a number of providers are considering participation, Parke says.
“Providers need to understand and start preparing for the possibility that a significant amount of revenue not only for the commercial market, but also for Medicare and Medicaid, is going to come through some form of accountable payment methodology,” says Rob Parke, a principal at consulting firm Milliman. Delivering high quality on a fixed budget “requires integration and infrastructure, which means you need to come together to accumulate capital,” he says.
How will the migration toward accountable care play out in coming years? Much depends on an effective payor/provider relationship. Read more…
As hospitals and other providers begin to have second thoughts about accountable are organizations under Medicare, similar arrangements being organized by private payors are beginning to look like a better alternative, says Rob Parke, a principal and consulting actuary with the New York office of Milliman.
Mr. Parke is not convinced that CMS’ recent announcement of changes in the ACO program, such as introduction of the new Pioneer ACO model, will change the trend away from Medicare ACOs. Here he makes the following points about providers’ declining enthusiasm for Medicare ACOs and the future growth of private-payor arrangements.
Why hospitals are stepping back from Medicare ACOs
“After reading through the proposed regulations, hospitals have a number of concerns as to whether these entities will work and whether they will ultimately be beneficial,” Mr. Parke says. Moreover, he thinks hospitals’ enthusiasm for Medicare ACOs was somewhat artificial. “Many hospitals were looking at ACOs from a defensive point of view,” he says. “If a competitor started an ACO, what would they do?” But now that several prominent organizations that seemed perfect candidates for ACOs—like Mayo Clinic, Cleveland Clinic and Geisinger–have indicated they may not do so, everyone seems less interested.
Hospitals have several key concerns with Medicare ACOs, Mr. Parke says. For example, they are concerned that the Medicare ACO model would shift signiﬁcant financial risk to the provider organization. “In the third year of either payment model you choose, the organization is put in financial risk,” he says. On the other hand, some providers want to go beyond shared savings and accept greater financial risk, which is what CMS’ new Pioneer ACO model is offering, he says.