Health Reform WK-EDGE Will new benchmarks draw new ACOs? CMS hopes so
Tuesday, March 15, 2016

Will new benchmarks draw new ACOs? CMS hopes so

By Sarah E. Baumann, J.D.

CMS continues to sing the praises of the Medicare Shared Savings Program (MSSP), but accountable care organization (ACO) enrollment and assumption of risk have not reached the levels the agency hoped they would when it launched the program in 2012. As of April 2015, only 1 percent of ACOs participating in the program were willing to accept any type of risk and share in losses, although the number increased to 5 percent in 2016. CMS has not given up hope, however. On February 3, 2016, it published a Proposed rule that would adjust benchmarking methodology for ACOs renewing participation in the program after an initial three-year agreement period and subsequent periods and would allow ACOs that have not yet assumed risk additional time to transition to risk-based models. This Strategic Perspective will provide an overview of the existing program, the proposed changes, and the potential impact on ACO participants.

The Existing MSSP

Section 3022 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) established the MSSP in furtherance of one of the Act’s overall goals of improving quality by promoting value-driven care. ACOs, groups of providers and suppliers who accept joint responsibility for the quality and cost of coordinated care they provide to patients, participate in the program for three-year agreement periods and can enter the MSSP through one of three tracks. Track 1 is a one-sided risk model that allows participants to share in up to 50 percent of savings, but not losses. Track 2 is a two-sided model that allows participants to share in up to 60 percent of saving, but requires them to share in losses, as well. Given providers’ unwillingness to participate in Track 2, CMS issued a Final rule on June 9, 2015, that allowed Track 1 ACOs to renew participation in Track 1 for one three-year period; previously, they were required to transition to Track 2 at the expiration of their initial agreement period (Final rule, 80 FR 32692; see MSSP changes encourage ACOs to take on greater performance-based risk, June 10, 2015). The rule also created Track 3, a riskier model that allows for savings up to 75 percent.

In addition to meeting minimum savings rates and yearly quality standards, ACOs can only share in savings when their per capita costs do not exceed specified benchmarks. The benchmarks are estimates of what total Medicare Part A and Part B expenditures would have been for a particular ACO’s beneficiaries had the ACO not existed, even if some ACO beneficiaries received services outside the ACO. The shared savings an ACO receives is a percent of the difference between the estimated average per capita Medicare expenditures in a year, adjusted for beneficiary characteristics, and the benchmark for the particular ACO. Track 1 payments, for example, are capped at 7.5 percent of an ACO’s benchmark, while Track 2 payments are capped at 10 percent of the benchmark. In the 2015 Final rule, CMS acknowledged comments that it received from stakeholders and noted that it planned to encourage providers to take on performance-based risk in the future by modifying benchmark-resetting methodology to incorporate regional trends and costs.

The March 2016 Proposed Rule

CMS followed through on its plan by issuing a Proposed rule on February 3, 2016 (81 FR 5824; see Accountable care proposal would rework benchmarks, make regional adjustments, February 3, 2016). Currently, CMS sets an average per capita historical benchmark based on Medicare Part A and Part B expenditures for beneficiaries who would have been assigned to the ACO in each of the three years prior to the start of the ACO’s agreement period. It adjusts the ACO’s historical benchmark on an annual basis for changes during the performance period in the health status and demographic factors of the ACO’s assigned beneficiaries, and updates the benchmark based on the projected absolute amount of growth in national per capita expenditures for Part A and Part B fee-for-service services.

Switch to regional trend factors. The Proposed rule, however, would make changes to benchmark-rebasing methodology for ACOs in their second or subsequent agreement periods. CMS would base the historical benchmark on regional trend factors, rather than national trend factors, beginning on January 1, 2017, updating the benchmark annually to account for regional spending, rather than purely basing updates on projected growth. CMS also would remove the adjustment to account for savings generated under the prior agreement period. Instead, an adjustment would reflect a percentage of the difference between regional Part A and Part B expenditures and the ACO’s historical expenditures.

CMS believes that adjusting benchmarks based on regional spending rather than prior performance would allow ACOs that previously enjoyed shared savings to enjoy a similar or slightly greater share of savings and would lower benchmarks for ACOs that previously suffered losses. The Proposed rule would use county-level data rather than national data to reset benchmarks because CMS believes that counties are more stable than other geographic units and better capture regional variation in Medicare expenditures. Sidney Welch, Shareholder and Chair of Health Care Innovation at Polsinelli, believes that the use of regional trend factors may encourage, “or at least preserve” long-term ACO participation in the MSSP. “This change would address the challenge experienced by ACOs in areas of high costs, which go unrewarded for lower costs because their financial and quality performance improvements are not reflected accurately.”

Changes in participant composition. Currently, CMS recalculates an ACO’s per capita historical benchmark if the ACO changes its participant composition during the prior performance year. “Benchmarks are based on the ACO’s per-beneficiary expenditures for the preceding three-year period,” says Welch. Under the Proposed rule, CMS would adjust an ACO’s historical benchmark at the beginning of a performance year based on changes in participant composition finalized before the performance year begins. Welch believes ACOs will respond favorably to this proposal because “many ACOs, particularly those successful in lowering costs, have expressed dissatisfaction with this benchmarking system.” To assist stakeholders in modeling the rebasing methodology, CMS made relevant information available on its website. The information includes three historical years’ data for average per capita county-level fee-for-service spending and risk scores and ACO-specific data on the total number of assigned beneficiaries residing in each county where at least 1 percent of the ACO’s assigned beneficiaries reside.

Encouraging risk. As explained earlier, CMS originally intended to permit ACOs to participate in the Track 1 one-sided risk model for a single three-year period, but later allowed them to renew Track 1 participation one time for an additional three years.. The current Proposed rule encourages Track 1 participants to enter two-sided tracks more quickly by allowing ACOs in their first ACO agreement who are accepted into Tracks 2 or 3 to remain in Track 1 for a fourth year, deferring benchmark rebasing for one year. Welch stated that the “change is anticipated to be particularly helpful to smaller and less experienced ACOs that are often physician-led and have simply felt that the current structure doesn’t give them enough time to master the one-sided track goals before being catapulted into a two-sided risk program, arguably being set up for failure.”

Cap on reopening determinations. In addition to making changes to benchmark rebasing methodology, the Proposed rule addresses MSSP participants’ concerns about the finality of savings and loss determinations. Under the proposal, CMS would define timeframes and other criteria under which it may reopen a determination of ACO shared savings or losses to correct financial reconciliation calculations. It would limit re-opening determinations of shared savings or losses to no more than four years after the date of the notification to the ACO of the initial determination of shared savings or shared losses for the performance year for good cause. It would, however, reserve the right to reopen payment determinations at any time in the case of fraud or similar fault.

Welch noted that the proposal shows that the agency recognizes ACOs’ need to “reinvest promptly any shared savings benefits in infrastructure and related performance improvement costs.” The agency believes that this limitation on reopening determinations will allow ACOs to feel more comfortable reinvesting savings earned back into the programs for basic functions such as training and allow them to innovate to improve the programs. “Clearly, ACOs may have a vested interest in shorting this period, and CMS has invited comments to the same,” Welch said. CMS stated that the limitation could make it easier for an ACO to “get a clean opinion from its financial auditors,” which will be necessary for it to enter a risk-based track, because CMS requires the ACO to “demonstrate its ability to repay shared losses to the Medicare program” when applying to Tracks 2 and 3. Welch believes that the “limitation is a step in the right direction,” noting that it, “does require a showing of good cause, albeit established at CMS’ discretion.”

The Future of the MSSP

As of January 2016, the MSSP included 434 ACOs. CMS proudly announced in the 2016 Proposed rule that the number included 147 ACOs that were renewing their three-year agreement periods and 100 ACOs just entering the program. However, the MSSP seems to be a work in progress, as evidenced by the string of rules CMS issued since the program’s inception tweaking various aspects. Only 22 of the 434 ACO participants are enrolled in Tracks 2 and 3, meaning that only 5 percent of ACOs are accepting risk and sharing in losses. The agency invited comments through March 28, 2016, and hopes to issue a Final rule in 2016 so that benchmarking rebasing can take effect in 2017. Time will tell whether the proposal has the desired effect of encouraging both participation and risk. Welch indicated that the rule was “well-received by the ACO community,” tackling issues that previously led to “discontinued participation and/or dissatisfaction.” CMS hopes this optimism will translate into increased participation, intensified risk, and higher value care.

Attorneys: Sidney Welch (Polsinelli PC)

MainStory: StrategicPerspectives NewsFeed AccountableCareNews AgencyNews MedicarePartANews MedicarePartBNews QualityNews

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