Pioneer ACOs: The experiment begins

Bob Tate
by Bob Tate, consulting actuary

On Dec. 19, 2011 the CMS Innovation Center announced that 32 organizations have been selected to participate in their Pioneer ACO Model starting in 2012. Pioneer ACOs aim to deliver more coordinated and therefore better and more efficient care to Medicare Fee-For-Service (FFS) beneficiaries. If the ACOs can keep the Medicare FFS costs for their assigned populations below targets, while meeting standards for quality improvement, they can receive bonuses of up to 70% of the Medicare savings.

It will be an interesting experiment. These organizations are effectively agreeing to reduce their revenues by X, with the opportunity to get 70% of X back. They must reduce their costs by more than the net revenue reduction (30% of X) to break even financially, and they must figure out how to pay for any investments to start the ACO. If they don’t meet their savings targets (trend lower than national Medicare FFS trend minus 1%, roughly), they get no bonus, and even have to pay back some losses to Medicare if their costs are too high.

And there is certainly no guarantee that these organizations will achieve their target savings. The Physician Group Practice (PGP) Demonstration (the closest Medicare precedent for ACOs), had great quality results, but savings results were mixed. In fact, of the three Pioneer ACOs that participated in this PGP demo, only one was achieving significant savings in the fourth year of the demonstration (though one other had achieved notable savings in years 2 and 3).

So if you have to meet challenging cost targets to avoid worse financial results than if you stick with the status quo, why would you volunteer for the Pioneer ACO program? I think it comes down to one underlying reason: regardless of how confident these organizations feel about their ability to save money immediately (and whether they have an actuarial basis for that confidence), these organizations are committing to the “pay for value” business model underlying the Pioneer program and other ACA initiatives (MSSP ACOs, bundled payments, value-based purchasing, etc.).

Many of the organizations on the Pioneer ACO list already have significant portions of their business under this model today (e.g. California HMOs, BCBSMA Alternative Quality Care contracts). But they also still have a good chunk of their patients in the “pay for volume” model, with probably the biggest chunk in Medicare FFS. It is hard to operate a business with a foot in two different camps that have opposing incentives. The Pioneer ACO program gives these organizations a great way to put both feet in the “value” camp.

Is “pay for value” the healthcare model of the future? With Medicare as the #1 item on deficit-cutters’ lists for the foreseeable future, both sides of the aisle have realized that fixing troublesome parts of the system (with the alphabet soup of IPPS, RBRVS, OPPS, SGR…) is not working. The most recent proposal to fix Medicare, Ryan-Wyden, puts an overall growth cap of GDP+1% on Medicare funding, and leaves it up to health plans and providers to figure out how to meet that goal.

Interestingly, this focus on total costs, rather than the individual services, could actually be a better approach for providers and patients. In Pioneer ACOs and other value-based models, providers decide how to arrange their work to deliver quality care within the global budget, rather than living in what must feel a little like coding and documentation straitjackets of Medicare FFS and many of today’s commercial health plans.

The game is on, so let’s keep our eye on the Pioneer ACOs. The sentinels at CMS will certainly be watching to see what direction to take their future cost saving efforts. What do you think?

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