Even Successful Medicare ACOs Lose Money: Analysis

Christopher Stanley in HFMA

Accountable care organizations (ACOs) that succeeded in earning bonuses from Medicare garnered less revenue than they would have under the fee-for-service (FFS) payment system, a recent analysis found.

The Guidehouse analysis of Medicare ACOs found that among Track 1 ACOs earning shared savings, the average $27 per-member per-month (PMPM) savings payment was vastly offset by a $58 PMPM reduction in Medicare FFS revenue. That equated to $5.2 million in annual losses for an average organization.

Among more-advanced Track 2 and Track 3 ACOs that earned shared savings, the average loss was $14 PMPM, or $2.9 million per organization. Next Generation ACOs earning shared savings lost $3 PMPM, or $1.2 million per organization.

The analysis “indicates many ACOs are still not generating savings and, considering their investments in IT and capabilities such as care management, losing money as an organization,” the authors wrote.

The average operational cost of a single ACO is almost $2 million ($1,943,276), according to a 2016 survey of 144 Medicare ACOs by the National Association of ACOs (NAACOS).

“As health systems employ more physicians and own more community-based sites of service, such as ambulatory surgery centers and clinics, decreased FFS revenue has a direct impact on a system’s top and bottom lines,” the Guidehouse authors wrote.

Among changes NAACOS has urged is for the Medicare Shared Savings Program (MSSP) to account for such ACO investment by including the value of the investments in calculations of ACO risk, as the association stated in a recent letter to Congress.

The finding of Track 1 losses came as the program is expected to soon push participating ACOs into risk-based models.   

Beginning in July 2019, the new MSSP, called Pathways to Success (PS), would require the 561 existing ACOs to operate in one of two new tracks — and would mandate that they take on downside risk within two years, according to the proposed rule released earlier this month.

“These leaders now face the prospect of whether or not to embrace two-sided risk starting in January of 2019,” the Guidehouse authors wrote.

Despite financial losses, Medicare ACOs are the only class of ACO models that have continued to grow recently.

A new analysis found the number of Medicare ACO contracts continued to grow in 2017, while commercial ACO contracts were flat and Medicaid contracts slightly decreased due to a lack of renewals in some state demonstration programs. By the first quarter of 2018, commercial ACO contracts accounted for a little more than half of all ACO covered lives, while Medicare contracts accounted for 37 percent and Medicaid contracts accounted for the remaining 10 percent.

The Centers for Medicare & Medicaid Services estimated the proposed ACO overhaul would leave 109 fewer Medicare ACOs over the next 10 years — mostly because the program will be less attractive to new ACOs. The early indications of the future of Medicare ACOs could come from the 114 Track 1 ACOs—one-third of MSSP ACOs — with final agreement periods ending in 2018, as tracked in a Health Affairs blog post.

Chris Stanley, MD, a director at Guidehouse and an author of the report, said in an interview that some Medicare ACOs facing a 2018 renewal decision have indicated to his organization that they will drop out but a much larger “maybe half or more” could leave in 2019.

“They don’t believe that continued downside risk participation in a CMS-based program is generally in their best interest,” Stanley said.

Some may use their Medicare ACO experience to take on new roles with Medicare Advantage insurers and commercial ACOs, he said.

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