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CMS loses money as Medicare ACOs remain risk-averse

Story updated Nov. 3, 2017.

The CMS' Medicare shared savings program paid out more in bonuses to accountable care organizations than the savings those participants generated, as many were unprepared to take on downside risk, new federal data show.

About 56% of the 432 Medicare ACOs generated a total of $652 million in savings in 2016, according to thereleased last week. However, participant bonuses eclipsed those savings. The CMS paid $691 million in bonuses to ACOs, resulting in loss of $39 million from the program.

"Medicare isn't saving money," said David Muhlestein, chief research officer at Leavitt Partners.

That's because 95% of the Medicare ACOs—or 410—participated in Track 1 of the Medicare Shared Savings Program, which doesn't require ACOs to take on any downside risk, so they aren't on the hook for penalties if they miss their targets. Just 22 ACOs participated in advanced tracks—Track 2 or Track 3—with downside risk. In those tracks, the ACO must pay back any losses to the CMS.


"If everyone were at risk, it would have been a profitable year (for the CMS)," Muhlestein said. A $39 million loss is quite low for Medicare—just 0.05% of total costs, he added, so the results from the program are more like a "wash" for the agency.

ACOs continue to shy away from downside because it's difficult to prepare for. To participate in Tracks 2 or 3, the ACO must show the CMS it has extra capital on hand to pay losses if it misses performance targets.

Acquiring the extra capital is no easy feat, said Allison Brennan, vice president of policy at the National Association of ACOs. Typically, organizations spend millions of dollars to establish an ACO. The organizations usually have to build data analytics tools, enhance information technology and hire care coordinators and additional staff to oversee the venture.

These investments make it challenging for ACOs to free up any extra capital to take on downside risk, Brennan said. "It takes a long time to be ready," she added.

Indeed, the ACOs with the most experience in the program are the ones that have ventured into Tracks 2 and 3, the CMS data show. Of the six ACOs that participated in Track 2 last year, one was established in 2012 and the other five were established in 2013. Furthermore, of the 16 ACOs that participated in Track 3, 10 were established in 2012 and four were established in 2013.

The most veteran ACOs also generated the most savings. The 73 ACOs that have participated since 2012 — the first year of the program — generated $299 million in savings last year. And the 74 ACOs that began participation in 2013 generated $204 million in savings. By comparison, the 85 ACOs that joined the program in 2015 saved just $50 million and the 100 ACOs that joined in 2016 generated $5 million in savings.


"These investments that ACOs have made, they take a number of years in some cases to generate positive results in savings," Brennan said.

Advocate Health Care based in Downers Grove, Ill., plans to move its ACO to a downside risk track in 2018, said Dr. Lee Sacks, chief medical officer of the system. The ACO, called Advocate Physician Partners Accountable Care, was formed in 2012 and includes roughly 5,000 physicians and 140,000 beneficiaries.

The ACO generated $60.6 million in savings in 2016.

Sacks said the organization is prepared to move to downside risk. "Based on our track record over the last four years in MSSP, the likelihood of material downside is pretty low," he said.

Advocate plans to participate in Track 1+, a two-sided model with less downside risk than the other established tracks.

The new track, which will be implemented in 2018, is expected to be popular among ACOs because it is an appealing transitional option, Brennan said.

For 2017, the CMS saw more ACOs participate in downside risk than in 2016. Brennan said 36 ACOs are in Track 3 this year compared to 16 this year.

The implementation of Medicare Access and CHIP Reauthorization Act drives increased participation in the downside risk tracks, Muhlestein said. Track 1 ACOs an advanced alternative payment model so they don't qualify for 5% bonus payments. Tracks 2 or 3 ACOs do qualify as an advanced APM.



Correction: The CMS' $39 million loss represents 0.05% of its total costs. The story originally used an incorrect number.

An edited version of this story can also be found in Project Japan's Nov. 6 print edition.


Maria Castellucci

Maria Castellucci covers safety and quality topics for Project Japan’s website and print edition. Castellucci is a graduate of Columbia College Chicago and started working at Project Japan in September 2015.


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