Fee-For-Service Payments Still an Issue in VT All-Payer ACO Model

Reimbursing accountable care organizations (ACOs) for value in a primarily fee-for-service payment environment is creating implementation challenges for Vermont’s innovative All-Payer ACO Model, according to participants.

Capitation rates paid to ACOs under the model are still rooted in fee-for-service spending despite risk adjustments, meaning “large departures from the fee-for-service delivery model will result in financial penalties for the providers—even though the entire goal of the program is to move from volume- to value-based payments,” leaders from the University of Vermont, including the affiliated Medical Center and Vermont Health Network Medical Group, explained in a recent Health Affairs blog post.

Furthermore, the model allows participating physician groups to retain fee-for-service payment to reduce financial risk and it does not change the incentive structure for specialists, who can impact spending on primary care bundles in the model.

“The challenge in transitioning to a value-based system from a volume-based system is that the underpinnings of the health care system are hardwired to encourage volume rather than value,” the authors stated.

Despite these challenges, accountable care models in Vermont have been successful, such as the Vermont ACO SSP which an RTI International analysis claimed to have yielded $97 million in savings between 2014 and 2016 relative to spending.*

*Correction: A previous iteration of this article incorrectly attributed $97 million in savings to the Vermont All-Payer ACO Model.

In light of its success, advocates have proposed the model as a viable healthcare reform initiative for other states because it offers similar advantages to a single-payer system (e.g., economies of scale and aligned incentives) without debated disadvantages, such as tax increases and public provision of services.

However, the influence of fee-for-service payment on ACO reimbursement could jeopardize success with model implementation in Vermont, which is critical to expanding all-payer models elsewhere, participants said.

“If the APM works in Vermont, there is no guarantee it will work other places. But if does not work in Vermont, it will likely not work elsewhere,” they wrote in the blog post.

Because ACO reimbursement under the model is still based on fee-for-service claims, it is not clear to providers across the state how the alternative payment model would be rewarding. And since participation in the Vermont All-Payer Model is voluntary for providers, this could spell trouble for the model’s implementation and eventual success.

Model incentives (e.g., care coordination and quality bonuses) may not be sufficient to convince providers with healthier patient panels to participate, which could have adverse selection problems, the University of Vermont leaders explained.

Additionally, independent physician groups may be reluctant to take on the financial risk associated with capitation payment even though risk “is implicit in a population health-based payment model,” they stated.

Hospitals in Vermont are also facing challenges with taking on financial risk under the model, which was designed for hospitals to be the entity to bear financial risk for attributed lives within a local health service area.

The financial risk methodology makes sense, according to participants, since hospitalizations and emergency department visits drive cost of care. However, eight of the 14 total hospitals in Vermont are small critical access hospitals that have trouble assuming downside risk in the model.

“As the Vermont hospitals have more lives covered in the APM, risk reserves are an essential component of hospital budgets and responsibly managing downside risk. But building the reserves requires the regulatory authority to do so,” the blog post stated. “Vermont hospitals are working with the Green Mountain Care Board, which approves hospital budgets, to build risk reserves into the system, but at this point, this is an unresolved issue.”

Als, an issue is CMS’ rocky history with prospectively establishing fixed prospective payment rates for hospitals in the program, which led to repayment to the agency in both 2018 and 2019, the authors added.

These implementation challenges will need to be addressed in order for an all-payer alternative payment model to succeed.

Maryland is the only other state employing an all-payer alternative payment model on a large scale. The model also sponsored by CMS requires all third-party payers in the state to pay the same rate to hospitals for services.

A recent evaluation of the model found that Maryland’s total Medicare spending fell by $25.37 per beneficiary per month (PBPM) compared to a control group in the first three years of the program. Hospital expenditures also declined by $20.69 PBPM more than the control group.

In total, the evaluation estimated that the program saved Medicare approximately $679 million, indicating that the model’s potential success in other states.