Successful Medicare ACOs Bring In Less Money than FFS Payment System

According to a recent report on the 2016 Medicare Shared Savings Program (MSSP) results, Track 1 ACOs that earned shared savings still incurred a $31 per member per month (PMPM) loss on average, equating to $5.2 million in losses for an average organization.

 

For Track 1 ACOs earning shared savings, the average $27 PMPM savings payment was vastly offset by a $58 PMPM reduction in Medicare fee-for-service revenue. (“Even Successful Medicare ACOs Lose Money: Analysis,” HFMA Compass, August 22, 2018)

 

While Track 2 and 3 ACOs earning shared savings fared better financially, they still lost an average of $14 PMPM or $2.9M per organization. Next Gen ACOs earning shared savings lost $3 PMPM or $1.2M per organization.

 

The authors of the report by Navigant wrote “Many health systems thoughtfully built accountable care organizations (ACOs) and physician networks and moved a portion of their managed care contracting intentionally toward risk. For many, entering the Medicare Shared Savings Program (MSSP) Track 1 represented a ‘toe in the water’ step to embrace the new economic and clinical realities of population health. However, new data now 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. These leaders now face the prospect of whether or not to embrace two-sided risk starting in January of 2019. (Analysis: Is Your Health System Ready for Two-Sided Risk? Navigant, August 2018)

 

The National Association of ACOs (NAACOS) conducted a survey of 144 Medicare ACOs in 2016 and found the average operational cost of a single ACO is almost $2 million. NAACOS wants the Shared Savings Program to value needed investments in individual ACOs in calculations of ACO risk.

 

The Navigant report noted increased investments (e.g., employing physicians, community-based sites of services such as ambulatory surgery centers and clinics) in an organization’s ACO decreases fee-for-service revenue. This has a direct impact on an organization’s top and bottom lines.

 

As noted in last week’s blog/newsletter, CMS plans to move from MSSP to Pathways to Success which requires accelerated movement to downside risk. A Navigant executive said 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.” (“Even Successful Medicare ACOs Lose Money: Analysis,” HFMA Compass, August 22, 2018)

 

Despite financial losses, Medicare ACOs are the only class of ACO models that have continued to grow recently. Health Affairs recently reported that the number of Medicare ACO contracts continued to grow in 2017, while commercial ACO contracts were flat. (“Recent Progress in The Value Journey: Growth of ACOs And Value-Based Payment Models In 2018,” Health Affairs Blog, August 14, 2018)

 

 

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Possible ACO Overhaul Causes Concern

CMS has proposed an overhaul of the Accountable Care Organization (ACO) program, to take effect July 2019. The Medicare ACO program, called the Medicare Shared Savings Program (MSSP) would have a new name, Pathways to Success. It would require the 561 existing ACOs to switch to one of two tracks and would mandate that they take on downside risk within two years.

 

ACO advocates predicted the overhaul could cause massive departures from the program. (“ACO Advocates Issue Warning About Program Overhaul,” HFMA Compass, August 13, 2018)

 

CMS administrator Seema Verma noted in a press release: “Medicare cannot afford to support programs with weak incentives that do not deliver value. ACOs can be an important component of a system that increases the quality of care while decreasing costs; however, most Medicare ACOs do not currently face any financial consequences when costs go up, and this has to change.” (CMS Proposes “Pathways to Success,” an Overhaul of Medicare’s ACO Program, CMS.gov Newsroom)

 

Here are the components of the new ACO program:

 

Basic Track

  • Begins as a one-sided model for new participants
  • After two and a half years, transition to downside risk
  • Downside risk at its highest level would allow organizations to qualify for advanced alternative payment model (APM) track of MACRA
  • Existing ACOs in Track 1 of the MSSP would start downside risk within one and a half years of the July 19 start date

 

Enhanced Track

  • To be based on existing MSSP Track 3
  • ACOs from Track 3, 2 or 1+ would be barred from the upside-only phase of the Basic Track.

 

Both CMS and ACO advocates expect the revamped Medicare ACO program to result in fewer ACOs. CMS estimated that the number of Medicare ACOs could decline by a net 109 over the next 10 years. “The overall drop in expected participation is mainly due to the expectation that the program will be less likely to attract new ACO formation in future years,” CMS officials wrote in the rule. (“ACO Advocates Issue Warning About Program Overhaul,” HFMA Compass, August 13, 2018)

 

The National Association of ACOs warned that this will cause more than 70 percent of ACOs that responded to its recent poll to leave the program.

 

And hospital advocates were not optimistic that the new approach would draw in new hospital participants. For example, the American Hospital Association issued a written statement expressing its concern: “For hospitals and health systems, and other providers that want to come together to provide the highest-quality care for patients, the proposed rule would create barriers to entry in transitioning to value-based care.” The tightened time frame to downside risk would not leave enough time to form the “new and different contractual relationships” and strategies to align hospitals and other providers in risk-bearing models.”

 

Read the proposed rule here:

 

Read the CMS press release here:

 

Read AHA’s written statement here:

 

Doing More with Less—The Cost Imperative, is now in your library. This advanced Finance course features Marian Jennings, Dan Grauman and Nate Kaufman. They discuss the issue of cost versus growth, traditional and innovative cost-cutting strategies, rationalization of services and the board’s role.

 

Our upcoming advanced Mission & Strategy course, Due Diligence on Deals, features Dan and Marian who discuss the pitfalls and advantages of due diligence during mergers, consolidation and partnerships.

 

 

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Hospital Deals Slow Down in 2nd Quarter

Hospital merger & acquisition (M&A) activity in the second quarter of 2018 decreased by nearly 50 percent from the first quarter according to a M&A tracking company. Analyses by other companies that track M&A activity reported a similar decrease.

 

However, physician practice acquisition remained steady in the second quarter.

 

Irrespective of these numbers, hospital M&A activity is expected to remain high in upcoming months because many health systems are in the beginning stages of discussions. Also, regional health systems are positioning themselves for future growth, according to a tracking company, citing letters of intent to affiliate issued by several organizations.

 

A recent survey of system executives by Premier found that nearly half of the systems had completed a merger or acquisition in the past two years and 77 percent expected to do so in the next two years. (To read the survey results, click here.)

 

Some analysts have questioned whether aggressive M&A is financially benefiting hospitals and health systems. And CMS has frequently questioned whether consolidation has benefited communities.

 

HFMA reported on a not-yet-released Navigant analysis of 104 of the largest U.S. health systems. The analysis “found 22 locally dominant systems each had operating earnings declines of more than $100 million from FY15 to FY17.” (“In Q2, Hospital M&A Slows, Practice Acquisition Stays Flat,” HFMA Compass, August 2, 2018)

 

From FY15 to FY17, two-thirds of the 104 health systems had declines in operating income that totaled about $5.5 billion. More than 20 percent of the health systems Navigant studied lost money on operations in both 2016 and 2017. However, those losses were masked by their investment earnings.

 

“It is so sudden and it is so weird because it’s happening at the top of the economic cycle,” a Navigant adviser said. “Usually hospitals’ profits disappear after a recession.” (“In Q2, Hospital M&A Slows, Practice Acquisition Stays Flat,” HFMA Compass, August 2, 2018)

 

The financial challenges have been compounded by expenses that have risen three points faster than revenues, consumer-directed health plans that have cut into consumer demand (particularly for surgeries), and “mergers that didn’t make sense,” the analyst added. (“In Q2, Hospital M&A Slows, Practice Acquisition Stays Flat,” HFMA Compass, August 2, 2018)

 

 

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CMS Proposed Rule Will Cut Medicare Spending by $760 Million

CMS recently released its proposed rule for changes to the Outpatient Prospective Payment System (OPPS) for FY19. In addition to a proposed 1.25 percent increase in hospital OPPS rates for FY19, CMS wants to reduce payment for hospital outpatient clinic visits at off-campus provider-based departments to 40 percent of the OPPS rate.

 

The “site-neutral” policy change will largely offset the OPPS rate increase by cutting payments by 1.2 percent, according to a CMS fact sheet. CMS estimated it would cut $760 million in FY19 Medicare spending. The clinic visit is the most commonly billed service under the OPPS. (“Medicare Proposes $760 Million 2019 Hospital Cut,” HFMA Compass, August 1, 2018)

 

CMS stated that it is proposing the payment cut for provider-based department clinics because of hospital purchases of physician practices. It claimed that the hospitals’ objective in these purchases is to earn higher payment rates by designating the practices as off-campus provider-based departments.

 

The industry has responded quickly.

 

  • America’s Essential Hospitals: “Today’s proposed rule for Medicare outpatient payments would make bad policies worse, impose draconian new cuts that jeopardize healthcare access for millions of vulnerable Americans, and undermine the foundation of support for our nation’s healthcare safety net.”

 

  • The American Hospital Association: “We will urge the agency to revise these punitive policies so that hospitals can continue to provide the highest quality health care.”

 

(Both quotes from “Medicare Proposes $760 Million 2019 Hospital Cut,” HFMA Compass, August 1, 2018)

 

In its fact sheet, CMS explained its rationale as follows:

 

“. . . changes that would encourage site-neutral payment between sites of services and make healthcare prices more transparent for patients so that they can be more informed about out-of-pocket costs. . . [the] proposed rule would further advance the agency’s priority of creating a patient-centered healthcare system by achieving greater price transparency, interoperability, and significant burden reduction so that hospitals and ambulatory surgical centers can operate with better flexibility and patients have what they need to become active healthcare consumers.” (CMS proposes Medicare Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System changes for 2019 (CMS-1695-P), CMS.gov, July 25, 2018)

 

A summary of other proposed changes follows:

 

  • Extension of 340B Medicare payment rate to 340 B drugs furnished in non-grandfathered provider-based departments
  • New drugs and biological products to be paid at the rate of the wholesale acquisition cost plus 3 percent (a 50 percent reduction)
  • Changes to the patient experience measures specific to three metrics related to pain communication
  • Changes to the Outpatient Quality Reporting program including removal of 10 measures
  • A 2 percent increase in ASC rates for CY19.

 

Included in the proposed rule was a CMS solicitation for comments on the following:

 

  • Whether providers and suppliers should be required to inform patients about charges and payment information for healthcare services and out-of-pocket costs
  • Suggested changes to encourage interoperability of electronic health records or other ways to share data between providers
  • Whether CMS should revise the Conditions of Participation to require interoperability

 

Comments on the proposed rule are due by Sept. 24, with a final rule expected by around Nov. 1.

 

Read the CMS fact sheet here.

 

Read the 2019 Hospital Outpatient Prospective Payment System (OPPS) proposed rule here.

 

 

 

The Volume to Value Paradox advanced Quality course, featuring Nate Kaufman, Marian Jennings and Dan Grauman, is in your library. These experts discuss their perspectives of moving from volume to value, the pitfalls to avoid, how to involve physicians, the impact of consolidation and scale on value and the overall challenges of inserting value into the reimbursement formula.

 

Our upcoming course focuses exclusively on costs and both traditional and innovative approaches to cost reduction. Look for it soon in your library!

 

 

For a complete list of iProtean courses, click here.

 

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