ACOs Can Grow Value-Based Payment in Medicare, But Changes Needed

With Medicare spending growing at an unsustainable rate, the Medicare Payment Advisory Commission is advising Congress to accelerate the transition to value-based payment, using accountable care organizations (ACOs) and Medicare Advantage as vehicles. However, both models will need to be improved to realize potential savings, the Commission stated.

“While these programs may be capable of reducing spending relative to the FFS program, whether they actually produce substantial savings depends heavily on how they are structured,” the June 2020 report to Congress stated.

The fee-for-service system is no longer a viable option for Medicare. Spending on the federal healthcare program is slated to account for nearly five percent of gross domestic product within seven years, with must of the increase due to growth in payment rates versus growth in utilization, according to the Congressional Budget Office.

Value-based payment addresses the unsustainable trend by incenting Medicare providers to control overall costs while maintaining or improving quality of care. Therefore, through a multiyear effort, the Commission aims to identify changes that expand value-based payment in Medicare by “encouraging more providers to organize into entities … that are capable of receiving payments from Medicare that require accepting accountability for both the cost and the overall health of a group of beneficiaries.”

ACOs are similar to the “accountable entities” described in the report. According to CMS, ACOs are “groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high-quality care to their Medicare patients.” The participating providers achieve that by assuming responsibility for costs and quality through shared savings and, sometimes, losses.

Considering the similarities, the Commission stated that ACOs could “provide a foundation for expanding value-based payment” in Medicare.

Approximately 13 million Medicare beneficiaries, or nearly a quarter of all Part A and Part B beneficiaries, are currently assigned to ACOs, which are “have incentives to control overall spending and improve quality,” the Commission reported.

Similarly, Medicare Advantage can also be used as a foundation, as almost 24 million Medicare beneficiaries – about 42 percent of Part A and Part B beneficiaries – are enrolled in plans that receive capitated payments to provide the benefit package, the Commission stated.

But both programs would need refinement to realize potential savings, the report stressed.

ACOs, in particular, have only generated modest savings of one to two percent of total spending, and whether the groups of providers will produce large savings even in light of program changes is unclear, the Commission said. In fact, changes to the Medicare Shared Savings Program that encourage ACOs to bear more financial risk could reduce savings by dissuading providers from participating.

ACOs would be more effective in the longer term if they also have incentives to manage the use of expensive prescription drugs, including those cover under Medicare Part D, and if they have the understanding and support of beneficiaries for better engagement, the Commission suggested.

ACOs could also generate greater savings through improved patient selection methods, the Commission stated in a separate chapter of the June 2020 report.

Current patient and provider selection may enable ACOs to game the model, the report suggested. Determining cost benchmarks using the ACO’s Tax Identification Number (versus individual national provider identifiers) can result in ACOs dropping high-cost patients and providers after baseline calculations to produce greater savings.

Using the same set of national provider identifiers to calculate performance-year and baseline assignment would reduce the risk of unwarranted shared savings payments stemming from patient selection, the Commission agreed.

Implementing the ACO recommendations would help to accelerate the adoption of value-based payment in Medicare over the short term, the Commission contended in the report.

“Any changes that we might recommend in these and other areas would be intended to increase the chance that these models will be successful. As models improve, we would support Medicare increasing incentives for providers to participate in them and improve delivery of care,” the group stated.

The National Association of ACOs (NAACOS) agreed with the Commission’s stance on value-based payment in Medicare and the ACO’s critical role in that transition.

“NAACOS agrees that we need to do more to support providers in the model and improve incentives for the betterment of beneficiaries, taxpayers, and providers,” Clif Gaus, ScD, president and CEO, said in a statement emailed to RevCycleIntelligence.

“As we’ve seen from the COVID-19 pandemic, providers in value-based care models like ACOs have been better positioned to handle patients and withstand drops in revenue than those purely in fee-for-service,” Gaus continued. “We are pleased to see MedPAC acknowledge that ACOs’ savings have surpassed those achieved by a wide variety of care coordination models Medicare has tested.”

The report also suggested that Medicare could better support global or capitated payments in Medicare Advantage plans, which could also help providers during a pandemic by offering them more predictable revenue.