Understanding The Latest ACO “Savings”: Curb Your Enthusiasm And Sharpen Your Pencils—Part 1

“In a recent post, the administrator of the Centers for Medicare and Medicaid Services (CMS) reported that the Medicare Shared Savings Program (MSSP) generated $2.6 billion in gross savings in 2019 and $1.2 billion in net savings after accounting for shared-savings payments to participating accountable care organizations (ACOs). Achieving this level of savings would constitute remarkable progress in a short time. Relative to CMS’s own estimates, total net savings rose by $876 million over 2017 levels. Moreover, compared to savings estimated in prior evaluations based on counterfactual spending instead of benchmarks, the 2019 reported net savings is more than three times the cumulative net savings over the program’s first three full years of operation ($358 million) and more than eight times the net savings produced in 2015 ($145 million). The surge in programwide savings vastly outpaced participation, as the number of participating ACOs increased by only 21 percent from 2015 to 2019.

[..] Much of the acceleration in savings is an artifact of selective entry and exit of ACOs based on their established spending levels relative to new spending targets (benchmarks). Starting in 2017, benchmark updates began to disadvantage ACOs with high spending for their region and advantage those with relatively low spending.

Touting benchmark-based calculations as proof of program success despite countervailing evidence is not just harmless promotion. It can impede clear and productive policy discussions by promulgating misconceptions (such as downside risk as a game-changer), obfuscating persistent problems with the MSSP and diverting attention from the need for reform.

Pathways [“Pathways to Success,” the MSSP overhaul] has not been the success it claims to be. Rather, it erred in trying to push the pace of savings without sufficiently attending to the various program parameters that shape ACOs’ incentives to participate and lower spending.

[..] benchmarks do not tell us what Medicare spending for ACO patients would be in the absence of ACO participation in the MSSP. Nor should they necessarily. The purpose of setting benchmarks, along with risk-sharing provisions around those spending targets, is to establish incentives for ACOs to participate and save. Benchmarks are an element of model design, not a metric of model success. Estimation of actual savings requires a rigorous investigation using quasi-experimental designs that establish a counterfactual under reasonable assumptions. Unfortunately, for the life of the MSSP, comparisons of ACO spending with benchmarks have been widely interpreted as quantifying program savings, causing a great deal of confusion. In the first few years of the program, these calculations underestimated actual savings for a variety of reasons. More recently, they have overstated savings because of selective participation.

[..] Critics have often pointed to the modest net savings generated in the first few years as evidence that the ACO model “doesn’t work.” This reflexive assessment is misleading and counterproductive to the policy debate. For several reasons, the MSSP is more accurately characterized as a program of great potential limited by substantial, but addressable, problems.

[..] As growth in Medicare fees is slowed—with the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) instituting a nominally flat trajectory in the physician fee schedule through 2025—the MSSP becomes an increasingly attractive option to providers over time. Population-based payment models give providers greater flexibility in selecting care inputs by decoupling revenue from the provision of specific services. As fees fall in real dollars, taking advantage of this flexibility as an ACO to deliver more efficient care eventually dominates the alternative of delivering less efficient care reimbursed as a non-ACO provider. As participation increases and most or all of Medicare spending becomes covered by the MSSP, it gives Medicare a mechanism by which it can control long-term spending growth. Thus, a 2030 version of the MSSP may “work” not because spending falls substantially below benchmarks but because the MSSP can set benchmark growth at a desirable rate.

[..] The primary reason why incentives have been so weak is the mechanism by which benchmarks are periodically “rebased.” Every three years, an ACO’s benchmark is reset to its most recent level of spending, thereby linking the ACO’s benchmark growth to its own performance. Consequently, effective efforts to lower spending are penalized with lower subsequent benchmarks. This form of rebasing not only limits the time ACOs have to accrue returns on upfront investments, it also obliterates incentives to engage in strategies that must be continued to maintain lower spending.

[..] The main advantage of transitioning benchmarks to a risk-adjusted regional or national spending average is that it decouples an ACO’s benchmark growth from its savings, which greatly strengthens the incentive to lower spending. In isolation, regionalizing benchmarks is therefore an attractive program refinement. However, in the context of a voluntary program with downside risk, continued rebasing of the historical component of benchmarks, inadequate risk adjustment, and an alternative (traditional fee-for-service) that is not yet less appealing, the participation consequences of over-aggressive benchmark regionalization may be crippling. A critical question, the answer to which is unknown, is whether the participation response to regionalized benchmarks would have been as strong and selective if downside risk and rebasing of the historical benchmark component were eliminated and methods of risk adjustment improved.

[..] the incentives to provide less low-value care or substitute lower-price alternatives are weakened by the loss of fee-for-service profits that occur when providers deliver fewer or lower-margin services. When ACOs receive only 50 percent of the savings (or a lower share if their quality score is imperfect), those lost fee-for-service profits typically swamp the bonuses gained. For some tracks, Pathways lowered the savings rate even more. Together, rebasing and low shared-savings rates allow Medicare to share in the savings sooner but ultimately limit the savings that Medicare can ever share by weakening the incentives for ACOs to ever save. Pathways includes a track that allows ACOs to keep 75 percent of savings, but uptake has been limited, most likely because of the moving goalposts (that is, benchmark rebasing) and substantial downside risk requirements (up to 75 percent).

[..] providers that deliver less of the spectrum of care have stronger incentives as ACOs because they have more opportunities to lower spending on care that other providers deliver to their patients. Similarly, savings in postacute care have been prominent, consistent with the low rates of SNF ownership by most ACOs; that is, few ACOs incur substantial revenue losses when limiting postacute care in facilities.

[..] All else equal, downside risk-sharing provisions unquestionably strengthen incentives for participating providers to lower spending. However, there is no empirical evidence that downside risk has accelerated savings in the MSSP. In fact, the data suggest that the savings attributed to downside risk may be illusory as well—an artifact of selection. As previously described, ACOs entering tracks with downside risk had lower spending levels relative to their benchmarks before switching tracks; the pattern suggests that these ACOs selected tracks with downside risk to take advantage of higher shared-savings rates available in those tracks, knowing that they faced a low probability of losses. Recent MSSP performance data show that 86 percent of ACOs in tracks with downside risk in 2019 had earned shared savings prior to accepting downside risk, compared with just 46 percent of ACOs remaining in one-sided contracts. Moreover, the potential advantages of imposing downside risk cannot be attained without offsetting consequences. First and most important are the consequences for participation in a voluntary program, as described above (less and selective participation). Second, although ACO contracting appears to have had a limited impact on provider consolidation relative to other drivers, downside risk requirements may increase ACO-related consolidation, as providers with market power can amass the necessary reserves more easily. Third, the costs of obtaining reinsurance or health management services to limit the risk of losses can erode the comparative advantage of a direct contracting model such as the ACO model over Medicare Advantage: the lower administrative costs from not requiring risk-bearing intermediaries. Fourth, from a fiscal perspective, the losses recouped by Medicare through downside risk are at least partially offset by increased payments in the form of advanced alternative payment model bonuses to ACOs that accept downside risk.”

Full post, McWilliams JM and Chen A. Health Affairs Blog 2020.11.12