In a ruling called “Pathways to Success,” the Centers for Medicare & Medicaid Services (CMS) has overhauled the Medicare Shared Savings Program (MSSP), accelerating the path to financial risk for MSSP ACOs. Additionally, the final rule memorializing Pathways to Success included evidence that low-revenue ACOs, which are typically physician led, generate more savings than high-revenue ACOs, which often include hospitals.
Both developments—the accelerated path to risk and the comparatively poor results for hospital-backed ACOs—may give pause to hospitals and health systems that had been considering the development of an MSSP ACO. After all, ACOs are expensive to develop, and they now will have to take on more risk in the MSSP. At the same time, in 2016 and 2017, only about a quarter of high-revenue ACOs earned shared savings. Considering these facts, does sponsoring an MSSP ACO make sense for a hospital or health system? Here are five circumstances in which the answer may still be yes.
When a Hospital or Health System Can Backfill Reduced Medicare Volume with Higher-Paying Customers
At a high level, ACOs earn shared savings by reducing inpatient admissions and shifting care to lower-acuity and lower-cost settings, all of which will generally reduce a hospital or health system’s Medicare fee-for-service revenues. The hospital or health system can only hope to recoup a fraction of this lost Medicare fee-for-service revenue with shared savings. If, however, a hospital is at capacity and can replace the lost Medicare volume with commercially insured patients, then the hospital can increase its overall fee-for-service revenues and potentially earn shared savings through the ACO.
When a Competitor Threatens to Disrupt Physician Alignment
If a rival ACO is recruiting the independent physicians on a hospital or health system’s medical staff, that hospital or health system can sponsor its own ACO as a defensive strategy. Sponsoring an ACO could help the hospital or health system enhance physician alignment by creating common goals and incentives with the independent physicians (e.g., improving quality of care, integrating technologically, earning shared savings). The benefits of creating this physician alignment likely outweigh any volume reductions to the hospital or health system the ACO may generate—especially when the alternative is the independent physicians joining the rival ACO and aligning with the facilities in its network.
When a Hospital or Health System Wants to Keep Local Healthcare Costs Sustainable
Sole community providers are often positioned to thrive under fee-for-service reimbursement. However, if healthcare costs become too high in the area served by a single hospital or health system, then that area becomes less attractive to employers. This can depress the local economy and/or lead to population declines, which are ultimately bad for the hospital or health system. Participation in the MSSP can fit into a hospital or health system’s larger strategy to develop the skills necessary to manage quality and costs for its patient population. Such a strategy should help to keep local healthcare costs sustainable, not only for Medicare beneficiaries in the MSSP, but also for the commercially insured. While becoming an ACO could lead to some revenue reductions, it may also play a role in keeping the hospital or health system viable in the long run.
When a Hospital or Health System Can Earn the Advanced Alternative Payment Model Bonus under MACRA
Health systems that include not only hospitals but also large physician groups can use the MSSP as a vehicle to get their physicians into the Advanced Alternative Payment Model (AAPM) track under MACRA and earn a 5% bonus on their Medicare Part B payments. While the 5% bonus ends after performance year 2022, health systems with ACOs that begin participation in the BASIC Track’s Level E or the ENHANCED Track by 2020 could still earn the bonus for three years. The bonuses could add up to several million dollars, enough to offset ACO start-up expenses for the health system and potentially cover shared losses. Health systems pursuing this strategy can also set their ACOs’ minimum savings and loss rates (MSRs/MLRs) as high as possible to reduce the likelihood of owing a shared loss back to CMS. A high MSR/MLR would also make it more difficult to earn shared savings, but the purpose of this strategy is to earn the AAPM bonus, not necessarily to generate shared savings. After the AAPM bonus expires in performance year 2023, successful ACOs could remain in the program and try to earn shared savings, while unsuccessful or risk-averse ACOs could withdraw.
When a Hospital or Health System Wants to Gain Experience Managing Risk
Despite the accelerated path to downside risk, the MSSP—particularly the BASIC Track—remains a relatively low-risk way to gain experience with population health management. A five-year foray into the MSSP can allow a hospital or health system to develop its population health management capabilities. If successful in the BASIC Track, the ACO can move on to higher-risk and more resource-intensive initiatives such as the ENHANCED Track, Medicare Advantage risk arrangements, or even partial or full ownership of a Medicare Advantage plan. If unsuccessful, the ACO can decline a second MSSP performance period (or even withdraw from the MSSP during its first performance period with 60 days’ notice) while still having gained experience with population health management. If nothing else, this experience could be helpful in the event CMS more aggressively ties hospital reimbursement to quality and value.
Participation in the MSSP does not make sense for all hospitals or health systems, which may have legitimate concerns about ACO start-up expenses, volume reductions, and their ability to earn shared savings while avoiding shared losses. Organizations with these concerns could explore alternative Medicare strategies such as MIPS optimization or value-based Medicare Advantage arrangements. However, under circumstances such as those outlined above, the MSSP can still play an important role in a hospital or health system’s Medicare strategy, even after the Pathways to Success overhaul.