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February 14, 2018

Should ACOs Be Revamped?

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In an article authored by the American Enterprise Institute’s Resident Fellow and Milton Friedman Chair, James C. Capretta, he argues Medicare Accountable Care Organizations (ACOs) haven’t produced savings for the federal government. He believes ACOs would become more efficient and innovative if they were forced to compete with the other options beneficiaries have for getting their Medicare-covered benefits.

Creation of ACOs

Capretta describes the initial purpose of ACOs. They were created to address Medicare’s problematic fee-for-service program which has been found to foster waste and overuse of services. While Medicare Advantage provides a private alternative, they are typically led by insurance entities. Medicare ACOs, then, offer physicians and hospital systems the opportunity to form their own managed care arrangements separate from the MA program.

ACO Performance

Most ACOs participate in the ACA’s Medicare Shared Savings Program (MSSP). MSSP ACOs that meet quality standards and provide care at a sufficiently lower cost get to keep half of the savings they generate. According to recent performance data there were 432 ACOs participating in the shared savings option in 2016. All but 22 of the ACOs were “one-sided risk” ACOs, which means they could earn a bonus payment but were not at risk for a penalty if they exceeded their spending targets.

Only 31 percent of the ACOs produced enough savings to earn a bonus payment for 2016. 44 percent of the ACOs incurred expenses above the benchmarks that were set for them by CMS. The overall savings produced by ACOs for Medicare was $691 million in 2016. However, Capretta points out after taking into account bonus payments, the net effect of MSSP was an increase in Medicare costs of over $39 million for 2016.

Physicians and ACOs

Capretta describes a system where physicians are being pushed into joining ACOs to increase their fees, and when physicians join ACOs, their Medicare patients come with them. The hope among some ACO advocates is that Medicare fee-for-service will be transformed into a more efficient program without the Medicare beneficiaries even noticing that something had changed.

He argues this will not help the ACOs become more efficient over time. Because the beneficiaries are never asked whether they want to be assigned to an ACO, they are not obligated to stay in-network when they get their care. They can see any physician they want at no additional cost to themselves. Also, many physicians are not aware if individual patients are inside or outside of their ACO.

The current system will likely backfire over time, argues Capretta, due to the reliance on coercion of physicians. He believes physicians will join ACOs to avoid fee cuts and ultimately resent their circumstances. This will result in lobbying for regulatory changes that lessen the administrative impact of participating in an ACO. This, in turn, makes it more difficult for the ACOs the effectively operate, creating a program not unlike today’s fee-for-service option.

Revamping ACOs

In Capretta’s view, ACOs should be revamped so that they are presented to the beneficiaries as a clear and distinct enrollment option, alongside unmanaged fee-for-service and MA plans. Beneficiaries selecting ACOs should know they will be getting their care through an organized network of providers. This is similar to preferred provider organizations (PPOs) in the commercial market. He suggests beneficiaries retain the right to see any licensed provider, but would pay more in cost-sharing for services if they go outside of the ACO network.

High-performing ACOs would attract beneficiary enrollment because they would be able to share the savings they produce with the beneficiaries in the form of lower premiums and better coverage. ACOs providing premium discounts to their enrollees would be tagged with the aggregate cost of those reduced premiums when their financial performance was measured against their benchmark.

He further notes that beneficiaries currently have the option to purchase Medicare prescription drug coverage and supplemental insurance to partially cover their cost-sharing requirements. Capretta argues that CMS should build an online portal that allows beneficiaries to see clearly what the various combinations of coverage options will cost them in terms of the premiums they would pay as well as their cost-sharing requirements when they use services.

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