Medicare Advantage as ACO exit strategy?

Is Medicare's accountable care program so challenging and unsustainable that participating health systems need an exit strategy?

According to the latest federal data, last year about 64 of the 243 hospital- and physician-based Medicare accountable care organizations performed well enough to earn bonuses, earning $445 million in bonuses and saving taxpayers a collective $372 million.

Today, there are 360 Medicare ACOs serving 5.6 million American seniors, but whether they'll all be able to operate feasibly under the current regulations in the long term is a matter of debate. Some health systems may end up faring well with Medicare ACOs, as part of larger population health strategies, while others are clearly struggling.

For those that are struggling – and even those that aren't – a new exit strategy idea is being floated: launching a Medicare Advantage plan.

Wither the pack?

While the news of shared savings was hailed by participating health systems and federal health officials, a number of key providers have dropped out of the ACO program, amid concerns over having to take on too much financial risk and without enough control of patients' provider decisions.

In late August, San Diego-based Sharp HealthCare withdrew from Medicare's Pioneer ACO program, becoming the 10th of what was originally 32 healthcare providers to leave.

The 22 providers remaining in the Pioneer program have to accept potential losses along with potential bonuses after the first year, while the majority of ACOs in the Shared Savings ACO program don't start incurring losses until year three.

Most Medicare ACOs face common challenges that may be insurmountable, argues healthcare consultant John Gorman, founder of the eponymous Gorman Health Group.

Launching a Medicare Advantage plan, Gorman suggested in a series of blog posts, may coincide nicely with the original goals of ACOs and the financial and organizational interests of many health systems. But, between the inability to control beneficiary out-migration, the inability to generate savings in already-efficient markets, and the possibility that patients may opt-out, health systems in ACOs may be "scratching their heads and wondering how to monetize the millions they've invested in population health and complex case management – the 'hard part' of Medicare managed care," Gorman wrote recently.

ACO alternatives around the food chain

As Gorman sees it, there are going to be three options for health systems after the ACO program ends in the coming years.

One is returning to traditional fee-for-service Medicare and pursuing ACO arrangements with commercial payers. A second is crafting pay-for-quality contracts with Medicare Advantage insurers (which can overlap with the first option). A third is for health systems to "move up the food chain" by building their own Medicare Advantage plans.

Gorman, a managed care administrator at CMS' predecessor agency in the 1990s who counts many insurers among his clients, thinks Medicare Advantage is a sound investment for health systems in these times of shrinking per capita reimbursement, integrated care and aging baby boomers, for a variety of reasons.

Starting in 2017, the Medicare Advantage benchmark is set to grow at the same rate as fee-for-service Medicare, while the Medicare ACO benchmark resets every three years, "confiscating most hope of shared savings," Gorman wrote in his blog series.

Further, Medicare ACOs that perform especially well "watch CMS keep less of what they've already earned, while quality gets (Medicare Advantage) plans a bonus – and new entrants automatically start with a 3.5 Star Rating and a 3.5% bonus," he wrote. "ACOs share their savings with CMS; MA plans keep theirs."

And treating seniors in your own Medicare Advantage plan may actually make it easier to offer an integrated experience. Medicare ACO beneficiaries are "free range," as Gorman puts it, while Medicare Advantage benefit designs favor in-network utilization, which can solve the beneficiary out-migration problem.

Gorman concludes: "If you're a health system watching this all unfold, let me suggest this: instead of investing in a Medicare ACO, take your money to Vegas or to Medicare Advantage – in either place you know the rules and the odds."

Risk in taking risk

There are important caveats to this idea, though.

Some Medicare ACOs are prepared for the risk of operating a Medicare Advantage plans and some are not, and many ACOs are somewhere between those two places, said Gary Jacobs, managing director at PricewaterhouseCoopers' Health Advisory practice.

"Medicare Advantage is a different business than running a hospital or a physician practice," said Jacobs. "It's quite a leap; some clients have done well at this and some are struggling; likewise with ACOs."

In Medicare Advantage, like other health insurance segments, there are risk-based capital requirements that vary by state and can be substantial, as well as significant start-up costs and compliance rules.

Even so, a number of health systems have decided to take a gamble on Medicare Advantage, seeing it as a way to dip their toes into the greater health insurance pool.

The University of North Carolina Health Care, for instance, is launching a new Medicare Advantage HMO plan for seniors in Wake County, home to greater Raleigh, as part of a new population health program.

Then there's Catholic Health Initiatives, the 93-hospital system based in Denver, using two recent acquisitions, an Arkansas HMO and the Washington State Medicare Advantage plan to grow a portfolio of commercial and Medicare plans nationally, including markets in Kentucky, Nebraska, Ohio and Tennessee.

Smaller regional providers are eying the option as well.

Baptist Health System, in San Antonio, Texas, is moving forward with a collaborative ACO network. "The game plan is for this collaboration to continue to evolve with a goal of creating and operating its own Medicare Advantage plan," said Jerry Broderick, the former executive director at Baptist Health's physician network and now executive consultant at Culbert Healthcare Solutions.

"If a system can embrace and commit to taking on 'risk,'" Broderick said, "and invest in the required IT resources in order to report its data, such a venture can be successful."