The massive reforms to Medicare physician reimbursement mandated under Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) present many issues and opportunities for accountable care organizations (ACOs) participating in the Medicare Shared Savings Program (MSSP).  While moving Medicare Part B to a new merit-based system of physician and clinic payment, MACRA also encourages greater physician participation in ACOs, bundled payment arrangements, and other value-based alternatives to traditional, quantity-based fee-for-service reimbursement.

Physicians are a necessary component of every accountable care organization, with many ACOs led by and primarily governed by physicians.  The many organizational, systems, financial, accountability, clinical care, and performance-based features of the ACO model and shared savings will need to adapt to and work in concert with the MACRA policies.  MACRA presents significant challenges and opportunities for ACOs and for every physician, whether or not they practice with an ACO.  Depending on how the Centers for Medicare and Medicaid Services (CMS) makes the hundreds of regulatory decisions necessary to implement the law and how CMS revises current MSSP policies regarding financial risk, MACRA could be a boon to ACO growth or unintentionally result in many ACOs shutting down.

The new ACO Cost and MACRA Implementation Survey from the National Association of Accountable Care Organizations (NACCOS) provides interesting data on trends in ACO costs and insights from ACO leaders on the implications of MACRA.

MACRA Proposed Rule and CMS Policy Issues for Accountable Care Organizations

MACRA consolidates three existing Medicare physician quality reporting programs—plus adds a new program—into a single system through the Merit-Based Incentive Payment System (MIPS). Furthermore, physicians may enter either the MIPS or Alternative Payment Model (APM) track—as of approximately January 2019—as the two allowable reimbursement tracks.  Shared savings and therefore ACOs fall under the Alternative Payment Model, as does bundled payment.

NAACOS survey focused on three fundamental questions for ACO executives:

  1. How much are ACOs investing?
  2. How much and how quickly are ACOs able to take on two-sided risk?
  3. How do ACOs feel about Track 1 being excluded from the list of proposed Advanced APMs under MACRA?

Organizational Structures, Investment Risk, and Operating Costs of Medicare Accountable Care Organizations

Eighty percent of the survey respondents represented ACOs with organizational structures that were physician-owned or a hybrid (physician and hospital participating together, but ACO not owned by a health system or academic medical center).  Among respondents working as part of a group with centralized operations and other shared services among more than one ACO, only 30 percent represented multi-ACOs while 70 percent were associated with a single ACO.

Not surprisingly, the survey found overall that “the investment risk is substantial.” Eighty-seven percent of respondents ranked their start-up investment and ongoing operational costs as either very significant or significant, while only 6 percent ranked these as nominal or negligible.  Regards participating in the MSSP, over three-quarters of the ACO respondents considered their financial investment to be “very significant” or “significant.” Notably, a comparison of the average operating costs of single ACOs and multi-ACOs showed a tremendous difference in dollar amounts, with the average operating cost of single ACOs ($1,943,276) almost double that of multi-ACOs.

The following is a breakdown of estimated ACO costs for participating in the MSSP, derived from analyses of all survey responses and sub-categorized by ACO types:

  1. Clinical and Care Management – Single ACOs: $772,020; Multi-ACOs: $350,456.
  2. Healthcare IT, Population Analytics, and Reporting – Single ACOs: $563,403; Multi-ACOs: $351,305.
  3. ACO Management, Administration, Financial, Legal, and Compliance – Single ACOs: $479,781; Multi-ACOs: $221,773.

As Clif Gaus, ScD, CEO of NAACOS points out, “many ACOs are under enormous pressure from the significant operational investments combined with unfavorable policies.”

ACO Leader Perspectives on Shared Losses

In the shared savings model, accountable care organizations that meet or exceed specific CMS-defined performance objectives and reduce Medicare expenditures for the population served (compared to projected per capita costs), the ACO receives a substantial portion of the savings.  These shared savings – “upside risk” – go the ACO as a whole, are in addition to regular payments for services provided by the providers participating in the ACO, and may be used to cover ACO implementation and operating costs and distributed to participating physicians, hospitals, and other providers.  CMS has been interested in moving ACO players to a model that includes “downside risk” where the ACO would owe Medicaid money in the event actual per capita costs exceed projected spending.

Many ACOs see themselves as already sharing losses across their business lines, absorbing cost differentials between the expenses and reimbursement or absorbing costs of patients unable to pay.

If CMS requires downside risk, 43 percent said they would leave the MSSP but around 33 percent responded that they would either definitely or likely continue to participate. Interestingly, almost half of single ACOs replied that they would leave the MSSP program, and the report’s authors stressed that single ACOs are the most likely to disengage from the program if CMS requires downside risk for all ACOs.

MACRA Implications for Accountable Care Organizations

MACRA regulates how physicians will be paid under Medicare beginning in 2019. However, CMS proposed requirements disqualify many ACOs from receiving future Medicare payment increases.  The CMS proposed rules published in May 2016 identified the APMs that will qualify participating physicians for bonus payments and exemption from MIPS reporting as:

Meanwhile, NAACOS survey responses revealed a high degree of willingness to leave the MSSP if deemed ineligible for the 5 percent Advanced APM Bonus. Similar to the response to possible future financial losses, the respondents associated with a single ACO expressed hypothetically a far higher likelihood of leaving the program than those associated with multi-ACOs. On the other hand, over three-quarters of the ACO respondents felt that they would be ready for downside risk within the next six years, and 44 percent said they need 1-3 years to be ready for downside risk.

Why Physicians Should Care About Accountable Care Organizations

Health care market consolidation is a hot issue, with ACOs playing a growing role as the health care supply chain flattens.  A report by the California Health Care Foundation (CHCF) posits three key driving forces for consolidation at the provider level:  (1) accountable care organizations, (2) bundled payment, and (3) implementation of the patient-centered medical home (PCMH) model. CHCF points to the escalating trend of hospitals and health systems acquiring ACOs – this at the same time they are buying physician practices.  For Medicare, it is fair to say CMS is “pot committed” to shared savings and bundled payment as core reforms. The underlying concepts and lessons learned are being incorporated in payment reform demonstrations.

About 23.5 million US health care consumers are now served by an ACO—including 6 million Medicare beneficiaries. At the current rate, the number of patients served through Medicare, Medicaid, private, or multi-payor ACOs is projected to reach 105 million. From January 2011 to January 2015, the number of ACOs grew from 64 to 744. The number of ACOs has grown to 782 by December 2015.  This includes a mix of ACOs participating only in Medicare and others in Medicaid, the commercial market, or a combination of markets.  Currently, about 433 ACOs participate in Medicare shared savings. Each purchaser or health plan compensates ACOs and providers differently and set their own performance expectations, although they may mirror the CMS defined approach.

Just as physicians must adapt to the world of value-based payment and assumption of financial risk for clinical performance and efficiency, physicians must adapt to the new delivery system models such as ACOs and patient-centered medical homes and specific payment reform methodologies, including shared savings, bundled payment, and other episode or condition-based reimbursement.