Through the Eyes of One ACO: Deciding on Next Generation ACO

This post was co-written by Bob Kocher, MD (headshot), partner at Venrock, senior fellow at the Schaeffer Center for Healthcare Policy and Economics at the University of Southern California, and consulting professor at the Stanford University School of Medicine

Deciding to take on accountability for the total quality and cost for patients is a huge commitment. When physicians form an accountable care organization (ACO) they are not saying “I will do my part,” rather they are saying “I will lead.” All 8 of Aledade’s current ACOs and the physicians at the heart of them are committed to leading the shift from volume to value in healthcare.

ACOs confront physicians with an array of options on how to be compensated for value. The Learning and Action Network created an 18-page white paper just to lay out a framework for categorizing the various options for getting paid. The Medicare Access and CHIP Reauthorization Act (MACRA) includes just a few models as advanced alternative payment models with most of them requiring taking on risk. Nevertheless, MACRA has every ACO, including us, taking another look at risk. To begin, every serious ACO makes major investments in population health. But these are seldom enough. An ACO could do everything right, but if they are in the wrong model, they might receive no compensation for the value they created. When we analyzed our own data and options, we came to a solution that surprised us—that we should not launch a Next Generation ACO even though it is the most advanced ACO model offered today.

The appeal of the Next Generation ACO is that it is the only CMS model that gives the ACO the ability to use the fee-for-service system to drive improvement and negotiate partnerships to reward value. For example, an ACO could pay cardiologists more for treadmill stress tests than a positron emission tomography stress test if they felt that these were higher value. It also offers a high rate of shared savings of 100% after CMS takes a “discount” on the benchmark.

Yet Next Generation ACO is also the riskiest model. An ACO in the Next Generation program is not only responsible for first dollar losses, but will be cutting CMS a check even if it saves somewhere between 0.5% and 4.5%. The Next Generation ACO also sets its benchmark for savings on a singular year, and how that year looks compared to market trends and national efficiency. This is tricky and varies widely across ACOs.

In our case, we looked hardest at our largest ACO as a candidate for Next Generation ACO. Unfortunately, we saw large spikes in overall hospital costs (despite significant declines in admissions) in 2015. This made 2015 a weird year. We expect hospital costs to come down in 2016 (our potential benchmark year), but it is too early to know for sure. If costs revert to normal, 2015 would have been a “good” benchmark year with its uncharacteristically high costs, but 2016 will not be a good benchmark year if costs either revert to normal since those “savings” are lost in the benchmark. If costs stay high, then they could represent a fundamental shift in the local healthcare market that will be tough to overcome.

Through the lens of our ACO, we see a larger truth: using a single year as a benchmark year is bad. What happens in 2016 is less risky in other ACO models since it accounts for 60% instead of 100% of the benchmark. At a policy level, we strongly believe that using a single benchmark year creates too much variability, risk, and chance. Instead, CMS should embrace what is found in other ACO models and use multiple years to craft a baseline that results in a more accurate measure for benchmarking.

The other main consideration for us was looking at how our ACO compared against market trends and national averages. In our case, we are 5% more efficient than the local market, but almost 5% higher compared to the national average. This comes out in our favor, but only modestly with only an estimated 0.25% positive effect on our benchmark.

Now, consider the primary alternative to Next Generation: the Medicare Shared Savings Program (MSSP). MSSP does not reward regional efficiency in the first 3 years; however, regional efficiency is rewarded in the following 6 years. Market-based benchmarking is very important for long-term sustainability of the ACO program since it enables ACOs to generate savings as long as they improve relative to their market so they do not have to keep “beating themselves.” Practically, the differing approaches for creating benchmarks between Next Generation and MSSP leads an ACO that is regionally efficient and playing the long game to prefer MSSP. A regionally efficient ACO looking to be rewarded right away would prefer Next Generation. A regionally inefficient ACO would prefer Next Generation’s lesser focus on regional efficiency. For Aledade, we view population health as the core of a long game so prefer MSSP’s long-term treatment of regional efficiency.

On balance, the MSSP program comes out significantly better for the work we are doing since the MSSP program uses a multi-year benchmark and rewards regional efficiency over the long term. Even if we did overcome the anticipated headwind in hospital costs, our projected discount (ie, the money CMS get as its portion of the savings) is 2.10% and we usually project 5% savings so the 100% shared savings rate so commonly cited as the shared savings rate becomes a 58% effective shared savings rate in our projections. This is lower than both of the 2-sided risk tracks in MSSP. While it is undoubtedly true the the flexibility of partial capitation and the affiliate model in Next Generation make it more likely to achieve savings and to generate some savings revenue more quickly than in MSSP, it is equally true that higher savings will rapidly increase the effective shared savings thresholds in future years. Since our desire is to be rewarded for our regional efficiency and not be gambling on the uncertainty of a singular benchmark year, we will be sticking with MSSP for 2017.

We hope that CMS will continue to refine the Next Generation ACO model so that it rewards long-term improvement relative to regional competitors and takes into better consideration variability in setting savings benchmarks. We also hope that other payers offer ACOs similar contact options so that incentives can be more fully aligned and simplified.

Taking on risk is a huge commitment by a physician-led ACO, whether it is a full risk such as Next Generation ACO or less risk such as Track 2 of the MSSP. A temporary, 5% bump in fee-for-service payment is not the answer. We need better benchmarks and lower risk. Risk that is tied to the finances of the ACO as we have advocated for represents the best way to move ACOs to 2-sided risk.