CMS puts faith in Medicare ACO programs, but savings yet to be realized, experts say

While the Centers for Medicare and Medicaid Services is touting the success  -- 11 months ahead of schedule -- of tying 30 percent of fee-for-service Medicare payments to alternative payment models such as accountable care organizations and bundled payments, questions still remain over how much money value-based programs will save.

In 2014, CMS said the 20 ACOs in its Pioneer program, and the 333 in the Medicare Shared Savings Program, saved a total of $411 million.

However, after paying bonuses to the strong performers, the ACO program reported a net loss of $2.6 million, according to Kaiser Health News.

And the fact that only nine health systems remain in Pioneer ACO program is telling, as many jumped ship over penalties tied to benchmarks deemed too high.

[Also: Dartmouth-Hitchcock defers joining Next Generation ACO program over financial targets]

In fact, three, Dartmouth-Hitchcock Medical Center in New Hampshire, Beacon Health in Maine, and Franciscan Alliance in Indiana, owed money.

When it came time to sign up for Pioneer's evolution into the Next Generation ACO program, which began on January 1, the two New England systems that each lost about $3 million in Pioneer came to very different decisions.

Beacon Health made the leap to Next Generation, joining 21 other providers in the latest ACO model, while Dartmouth-Hitchcock decided to take a break from both programs.

Beacon Health CFO Jeff Sanford said the move made sense, as the increased risk of Next Generation also meant a greater share in the potential savings. If Beacon is going to make the switch to population health management, Sanford indicated he'd rather go all in.

"The big takeaway for us, the entire population over the long run has a better chance of doing well," Sanford said. "I've spoken to lots of CFOs who initially found it not appealing, but if I'm going to go to population health, I'd rather take on more risk. If (providers) succeed they will gain a lot more."

[Also: Next Generation launches with 21 accountable care organizations; Pioneer ACO down to 9 members]

The less risky Medicare Shared Savings program gives little reward, Sanford said. If providers reduce utilization by 10 percent, they only get half of that, he said. Under Next Generation, the return is 80 percent, Sanford said.

"If I have the infrastructure and know the financial upside, it's worth it," he said.

Pioneer had other drawbacks, he said.

One, the model used a national trend to calculate the baseline, rather than regional benchmarks that would have showed that in the northeast, medical costs trend higher; two, the methodology didn't seem to work for low-cost providers, which was the case with Beacon; and three, Beacon was growing its population through acquisitions in 2015, which put it at a disadvantage.

Next Generation accounted for regional differences in health cost trends, and by 2016, Beacon had a more stable population.

"The other thing CMS did was change the equation on how population risk is determined and factored in," Sanford said. "They started making this change in Pioneer. It really becomes more important in Next Generation. We tended to have a high mix of dual eligibles."

Next Generation has a more comprehensive risk-scoring methodology, he said.

It also includes a prospectively, rather than retrospectively, set benchmark and tests beneficiary incentives such as increased availability of telehealth and care coordination services. The new model allows for enhanced home health visits after hospitalization.

"One of the things we learned in Pioneer, once you get behind, it's almost impossible to catch up," Sanford said. "We saw from the first-quarter results it wasn't going to work for us in 2015. It was either go to Next Generation, or do what Dartmouth did and pause for a year."

Dartmouth-Hitchcock Medical Center was among three hospitals that chose to drop out of both Pioneer and Next Generation. The other two were Brown & Toland Medical Group in California and  and Mount Auburn Cambridge Independent Practice Association in Massachusetts. Dartmouth-Hitchcock said it would defer joining Next Generation  until 2017, a decision that was surprising as earlier it had indicated it would enter into the next phase of the risk-sharing model.

[Also: Private accountable care organizations take off; What to know about these value-based models]

The esteemed trauma center said it hoped for more attainable financial targets in 2017, after losing money in Pioneer for two years, according to Dr. Robert Greene, executive vice president and chief population health management office.

"When we looked at the proposed benchmark target," Greene said of the 2016 model year, "we'd be at risk for a significant loss again."

The frustrating piece for Dartmouth-Hitchcock was that it was doing all it could to meet CMS benchmarks, according to Greene.

Overall, the launch of the Next Generation is encouraging for providers willing to take on the Medicare shared-risk model, according to Christopher Kerns, executive director, Research and Insights at the research and consulting firm.

The hesitation in the market is coming from private payers, he said.

"CMS is moving aggressively," Kerns said. "Providers are willing to take risk-based payment from Medicare and accept the fact that CMS wants to move the provider industry towards more risk."

Kerns agrees Next Generation offers providers a better incentive through the larger, 80 percent sharing rate.

"It gives providers greater ability to reap the benefits of the savings they're generating," Kerns said. "It gets providers ever closer to full risk-based payment. For those providers aggressively moving towards population health, this is a greater financial incentive to do so."

The downside to Next Generation is that providers unable to reduce utilization have to pay back  Medicare.

The riskier ACO models are designed for the most experienced, and some would say, larger health systems, that can afford to invest in infrastructure, new data systems and care management and coordination improvements.

The majority of providers in ACOs are in less-risky models. In 2016, there are about 477 ACOs across the Medicare Shared Savings Program, Pioneer, Next Generation and a Comprehensive End-Stage Renal Disease  Care Model, according to CMS.

"I believe these programs can save a lot of money," said Richard Barasch, chairman and CEO of Universal American Corp., whose subsidiary, Collaborative Health Systems, operates 25 Medicare ACOs.

He told Kaiser Health News that nine of their ACOs earned $27 million in shared savings. The most important difference, he said, is that it gives providers better tools to engage beneficiaries. For instance, currently under fee for service, a patient must be in the hospital for three days before being eligible for a skilled nursing facility.

Under beneficiary engagement, a waiver is available to send those patients directly to a skilled nursing facility, he said.

Providers and doctors know pay for performance is coming and want to score well whether they get paid for that or not, Barasch said.

Jeff Goldsmith, a health industry analyst and professor at the University of Virginia, has a different perspective.

ACOs have limited leverage to control the costs incurred by highly paid specialists such as surgeons and cardiologists, he said in the Kaiser report. Patients in ACOS can still go to any doctor who accepts Medicare's fee-for-service method of paying.

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The ACO program has such a bad enough reputation in the provider community the program can't grow sufficiently enough to replace regular Medicare, Goldsmith said.

However, Attorney Deborah Dorman-Rodriguez, a partner at Freeborn & Peters in Chicago, said ACOs are not the new HMO, the health maintenance organizations that became the popular method to contain costs in the 1970s and '80s.

"There is the true intent and hope that by providing comprehensive care and sharing a risk, the quality is improved," Dorman-Rodriguez said of ACOs. "It's not just monetary; that can be very exciting to providers."

Even in an election year and with the control of the House and Senate at stake, Kaufman said most believe some of the reforms will stay in place.

"I think in the long term these types of models are where the federal government is going to be," he said. "It's going to be tough not to be participating in it."

Twitter: @SusanJMorse