Blog Post

New CMS Rules Usher in Big Changes for Medicare ACOs in 2019

New Cms Rules Usher In Big Changes For Medicare Acos Web

In the closing days of 2018, CMS released its 2019 final rule for the Medicare Shared Savings Program (MSSP), thereby finalizing several significant program changes that CMS had previously proposed in August 2018. These changes were announced unexpectedly and came as a surprise to many organizations that were anxiously awaiting CMS’s overdue release of guidance for the 2019 MSSP application cycle. With these new changes, CMS and the Trump administration are signaling their resolve in accelerating the transition to value-based reimbursement.

A More Muscular Stance from CMS

The release of the MSSP 2019 proposed rule in August was accompanied by some uncharacteristically frank commentary from government officials regarding the program’s perceived issues and their desire to fix it. As HHS secretary Alex Azar put it, “having more Accountable Care Organizations take on real risk, while offering them the flexibility they need to generate savings, is an important step forward in how Medicare pays for value” (emphasis ours). CMS administrator Seema Verma was perhaps even more direct by stating, “Medicare cannot afford to support programs with weak incentives that do not deliver value,” and “Medicare ACOs do not currently face any financial consequences when costs go up, and this has to change.”

The commentary within the final rule echoes these sentiments by pointing out that one-sided (i.e., upside-only) ACOs actually have increased Medicare spending relative to their benchmarks and that “while we understand that systems need time to adjust, Medicare cannot afford to continue with models that are not producing desired results.” Notably, CMS’s commentary also includes multiple mentions of the need to protect the Medicare trust funds, which, according to current estimates, are less than a decade away from running dry.

Given this backdrop, it is easy to understand the rationale for the changes that CMS has made to the program.

Highlights of Key Changes for ACOs

Because the final rule was released in late December, CMS will not be implementing these changes until July 1, 2019, which will be the effective date of the next round of contracts between ACOs and CMS. From that point forward, the standard ACO contract period will become five years, as opposed to the traditional three years. (For organizations starting on July 1, the first contract will be for five and a half years to get them back on the calendar year cycle.) This longer contract period is designed to facilitate a phased, mandatory transition into successively higher levels of risk. To do this, the four existing tracks (1, 1+, 2, and 3) are being collapsed into two tracks (BASIC and ENHANCED). The BASIC track allows participants to phase in additional risk through a “glide path” that involves beginning with a one-sided risk model for the first two years (or two and a half years for ACOs entering the BASIC track with an agreement period beginning on July 1). After that, ACOs on this track will transition to a two-sided risk model for the remaining three years of the five-year contract. ACOs can opt to advance more quickly through the five levels, taking on additional risk at an accelerated pace, but they cannot choose a slower progression. Further, ACOs previously participating in Track 1 are only allowed one year in a one-sided model.

Given ACOs’ historical hesitancy in moving to two-sided risk models, these developments might appear at first to be a tightening of the screws by CMS. However, CMS has finalized some additional and, in certain cases, innovative changes that should make it easier for ACOs to be successful in managing two-sided risk. For example, the cost-benchmarking methodology in an ACO’s first performance period will consider regional cost factors rather than simply the ACO providers’ historical cost experience. This should benefit ACOs that provide care more cost-effectively than others in their market. Also, beneficiary assignment rules have changed to allow more flexibility in defining patient populations with which the ACO can succeed. Finally, the new rule introduces innovations such as beneficiary incentives for qualifying services, expanded payment for telehealth services, and others.

To ACO or Not to ACO?

Organizations interested in forming and/or participating in an ACO face a complex decision involving the ever-present uncertainty regarding healthcare at the federal level, the features of the MSSP in comparison to other Medicare programs, and their own internal capabilities for management under value-based reimbursement.

Although predicting the future of health policy is notoriously difficult, we do know some things and can make informed assumptions about others:

  1. We know that the Trump administration is serious about getting healthcare costs under control and is not shy about exercising executive privilege, even in the face of political opposition.
  2. While the changes in the 2019 rule are projected to reduce costs by $2.9 billion over the next decade, this amount is minuscule in comparison to the level of reductions needed to make Medicare sustainable.
  3. The majority of this $2.9 billion savings projection is not attained through decreased utilization but through reduced “ACO net earnings,” which presumably means penalties under the two-sided model.
  4. With Democrats now firmly in control of the House of Representatives, there is virtually no chance of an ACA repeal—or, for that matter, any other significant healthcare legislation—within the next two years at least.
  5. As for the recent Texas court ruling on the individual mandate, the appeals process will play out over an extended period; even if the ruling holds, it may or may not ultimately impact existing Medicare programs.
  6. All evidence indicates that CMS is unlikely to develop and implement new programs through the Innovation Center.

As a result, healthcare providers can expect to take on ever-greater levels of risk at an accelerated pace, and CMS’s need to reduce costs will likely drive further refinements to these models. The good news is that, given political realities, we don’t anticipate new models cut from whole cloth anytime soon; the tools available to CMS for the foreseeable future are likely to be the same ones in place today. From that perspective, the next few years may be more predictable than the past few years have been. The upshot of all this is that it is now more important than ever for providers to understand the models under which they will participate in Medicare, which models make the most sense for them, and how to be successful within these models.