Medicare Payment Advisory Commission (MedPAC) Chairman, Glen Hackbarth, recently submitted comments in response to the Center for Medicare & Medicaid Services’ (CMS) Request for Information regarding the much-anticipated Patient Protection and Affordable Care Act (PPACA) Accountable Care Organization (ACO) regulations, to be published early next year. MedPAC’s comments were outlined in a letter dated November 22, 2010, from Mr. Hackbarth to CMS. MedPAC’s comments were focused on three primary areas that it believes will be crucial to the success of ACOs and the Shared Savings Program:

  1. A two-sided (upside and downside) risk sharing model for ACOs;
  2. Pre-notification to Medicare beneficiaries of assignment to an ACO; and
  3. Development of a meaningful set of quality measures for ACO patient outcomes.

 I. Two-Sided Risk Corridors.

MedPAC has expressed concerns over the shared-savings model under PPACA because, MedPAC contends, it places 100 percent of the risk for losses on Medicare. As currently contemplated under PPACA, if an ACO exceeds the spending target for the Medicare beneficiaries enrolled in the ACO, and/or the ACO fails to meet designated quality targets, ACO providers still receive 100 percent of the normal Medicare fee-for-service reimbursement. MedPAC refers to this as the “bonus-only” model and contends that the bonus-only model does not create sufficient incentives for cost reduction or quality improvement. In addition, the Commission argues that under the bonus-only model, some ACO providers would receive bonuses not based on quality of care or reduction of costs, but simply by virtue of random variations in the health status of beneficiaries enrolled in the ACO.

As such, MedPAC is recommending the inclusion of some type of minimum threshold of cost savings before the ACO would be eligible for any bonus distributions. The threshold would be higher for ACOs with smaller member enrollment (because of the greater variation in health status), and smaller for ACOs with higher enrollment. MedPAC points out that in CMS’ group practice demonstrations, Medicare set a savings threshold of 2 percent before members of the group were eligible to receive a shared savings bonus. MedPAC advocates a larger savings threshold for smaller ACOs and vice versa, since random health variation will be greater for smaller ACOs than for larger ones. MedPAC points out, however, that even with a cost savings threshold as a pre-condition to share in any shared savings bonus, the incentive for ACO providers under the bonus-only model to control spending remains relatively weak. This is particularly true of providers participating in the ACO, as opposed to providers outside the ACO. Providers in the ACO would always receive 100 percent of normal Medicare fee-for-service reimbursement, no matter how high spending is for ACO’s beneficiaries. Whereas high utilization and spending by providers outside the ACO will reduce any potential savings bonuses for ACO providers. As such, ACOs would only be incentivized to control costs of providers outside of the ACO.

In order to better incentivize providers in ACOs to reduce costs and improve quality, MedPAC also recommends the addition of a second risk-sharing option under the ACO regulations, though ultimately MedPAC would like the bonus-only model to be completely supplanted by the two-sided risk corridor model.

Under MedPAC’s proposed two-sided risk corridor model, the ACO would share in some portion of any savings, but would also be at risk for a proportionate share of spending that exceeds the target (losses). The risk share would be tiered such that the ACO’s share of any savings would increase as the amount of the total savings increases. The same would be true for the ACO’s share of any potential losses, where the ACO’s share of losses would increase as the amount of the loss increases. In order to protect ACOs from extreme losses, and conversely, to discourage practice patterns that could potentially result in withholding care from beneficiaries in order to generate huge bonuses, the ACO’s share of any savings/loss would begin to taper once savings/losses reached extreme levels. To incentivize ACOs to choose the two-sided risk model versus the bonus-only model, MedPAC further suggests that the percentage savings/loss could be greater for ACOs choosing the two-sided risk model versus the bonus-only model.

II. Prior Notification to Beneficiaries of ACO Assignment.

The RFI also solicited comments on whether Medicare beneficiaries should be assigned to ACOs on a prospective or retrospective basis. Under a prospective model, beneficiaries would be informed of their assignment to an ACO prior to any care being delivered. Under the retrospective assignment model, beneficiaries would not be informed of their participation in an ACO until after the care has been delivered. Prospective assignment would require use of the beneficiary’s claims data from the year prior to assignment in order to calculate cost targets. This would eliminate the need for risk-adjusted targets, since the targets would already reflect beneficiary health care expenses from prior years. Retrospective assignment would use data from the ACO’s performance year to make the assignment. In order to enroll beneficiaries in an ACO on a prospective basis, the ACO would identify its primary care providers to Medicare in advance, and Medicare would then assign beneficiaries to the ACO on the basis of the primary care providers who had treated those beneficiaries during the prior year. Under the retrospective assignment model, however, neither the ACO nor the beneficiary would know at the beginning of the year who was assigned to the ACO.

MedPAC argues that prospective assignment of beneficiaries is better than retrospective assignment for several reasons. First, if beneficiaries know that they are participating in a new incentive structure (ACO), they are more likely to be engaged in their own care management. MedPAC has long held that in order for payment reform to be successful, patients must be actively engaged in the management of their own health. Second, if beneficiaries are not assigned and notified in advance, the Shared Savings Program runs the risk of the same type of “backlash” that was experienced in the managed care era of the 1990s. That backlash resulted from patients feeling that they were being forced into managed care by their employers and that financial rewards were being reaped by their employers and health plans, at the patient’s expense, both financially and health-wise. Third, by pre-notifying the beneficiary of their assignment to an ACO, the primary care provider is better able to educate the beneficiary as to the benefits of participation— receiving higher quality care, improved care coordination, enhanced access—all of which should contribute to meaningful improvements in the beneficiary’s overall health, and build trust in the ACO program.

As a further inducement to beneficiary enrollment in ACO’s and as an additional measure to secure their trust, MedPAC advocates for a reduction in the participating beneficiary’s cost-sharing amounts, or perhaps even giving beneficiaries a share of any savings. Such a measure would also serve to engage the beneficiary in better managing their own health by offering financial incentives for better health choices.

MedPAC also feels that beneficiaries should be given an “opt-out” option from ACOs. That is, upon notification that the beneficiary has been assigned to an ACO, the member would reserve the right to elect not to participate. The beneficiary could then either switch to another primary care provider, or remain with their regular primary care physician, but elect not have to their data count toward the ACO’s performance. MedPAC argues that this would result in greater beneficiary acceptance of ACOs by eliminating worries about underlying financial incentives. On the other hand, opt-out provisions could create administrative complexity for CMS, and allow some ACOs to “cherry pick” beneficiaries by inappropriately influencing sicker beneficiaries to opt out. To address this problem, MedPAC suggests that Medicare could monitor, and perhaps eliminate, ACOs with large percentages of beneficiaries who opt out.

III. Objective Quality Measures.

MedPAC urges CMS to adopt a focused set of quality indicators that reflect the core principles of ACOs—better care, lower costs and better health. To further these goals, MedPAC recommends the adoption of the following population-based outcome measures: ER use; preventable admissions; in-hospital mortality rates and patient safety measures; and re-admission rates. In addition to these outcome measures, MedPAC also recommends that CMS consider adopting patient satisfaction surveys. This may help bolster ACO enrollment if ACO beneficiaries know that their provider’s reimbursement is dependent upon the patient’s satisfaction. MedPAC recommends that the measures should track how well the care is being provided, rather than the volume of services provided.

IV. ACO Growth Targets and Benchmarks.

MedPAC also addresses whether the targeted level of spending growth should be the same for all ACOs, or should vary from ACO to ACO. MedPAC points out that ACOs with beneficiaries who have historically low usage rates (low-use ACOs) may feel that highuse ACOs will have an unfair competitive advantage, because high-use ACOs will have a greater opportunity to reduce spending and therefore a greater bonus potential. MedPAC therefore suggests that CMS adopt an across-the-board, targeted growth amount based upon the expected growth in fee-for-service expenditures per beneficiary across the country. MedPAC argues that this would help eliminate the disparity between high-use and low-use ACOs in that it would result in a larger percentage increase in the targeted growth for low-use ACOs and a smaller percentage increase in targeted growth for high-use ACOs. Another suggested alternative is to use differential growth targets for very high and very low-use ACOs. For example, CMS could set larger growth targets for ACOs with very low usage rates and lower growth targets for ACOs with consistently very high usage. In such a model, CMS could use the savings from the small growth target for the high-use ACOs to fund the expected bonuses for low-use ACOs. For most ACOs, a common growth target based upon expected fee-for-service per beneficiary spending targets would be sufficient, and the differential method could be reserved specifically for very high and very low-use ACOs.

In light of MedPAC’s influence in the development of Medicare payment policies over the years, it is likely that many of the MedPAC recommendations will be seriously considered by CMS regulators as they draft the upcoming ACO regulations.