The Medicare Shared Savings Program: CMS Turns to Stakeholders on Incentivizing ACO Risk

S. Lawrence Kocot,
S. Lawrence Kocot Former Brookings Expert, Principal and National Leader, Center for Healthcare Regulatory Insight - KPMG
Thomas Hutchinson, Douglas Hastings, and Philo Hall

December 19, 2014

On December 1, 2014, the Centers for Medicare & Medicaid Services (“CMS”) released its long awaited Proposed Rule to update regulation and operation of the Medicare Shared Savings Program (“MSSP”). In response to concerns raised by participating accountable care organizations, CMS proposes to revise the MSSP program in several ways to provide greater flexibility for ACOs.

However, in important areas CMS may not have gone far enough. This post describes the framework CMS has set forth and then suggests several ways in which the proposal could, in our view, be improved to achieve the CMS objective of encouraging ACOs to bear more risk. In particular, CMS should consider using its waiver authority more robustly; allowing Medicare beneficiaries to designate their primary care providers, and by extension their ACO; and revising the MSSP risk-adjustment methodology to better reflect the changing risk profiles of ACOs.

CMS is actively seeking stakeholder input, which may indicate agency recognition that further changes beyond those in the propose rule are needed. By all indications, stakeholder input will be seriously considered; more than any time in recent memory, stakeholder comments will make a difference in the shape of the Final Rule. This presents a unique opportunity for stakeholders and we urge concerned parties to share their perspectives through comments – the deadline for submitting comments is February 6, 2015.

Necessary Changes in Response to ACO Concerns
In light of statements by many Accountable Care Organizations (“ACOs”) that they are likely to leave to program, CMS has proposed several refinements to encourage more ACOs to enter the program and current participating ACOs to remain.

A tension exists between CMS’ interest in moving more FFS providers into shared savings/risk payment models (like MA) and provider calculation of how much risk to take on. The resolution is a financial calculation by providers of (1) a reasonable level of risk, and (2) what financial performance may realistically be achieved under the program’s quality requirements and other obligations. The following adjustments from the Proposed Rule will help.

Increased Flexibility in Savings Models. CMS is clearly making a concerted effort through the Proposed Rule to keep ACOs in the MSSP, as evidenced by enhanced flexibility and the addition of a new two-sided shared savings and loss model. CMS’ objective is not to sustain the levels of risk accepted under the MSSP today, but rather to “smooth the on-ramp to performance-based risk” and allow more ACOs to accept more risk over time.

CMS recognizes that the two-sided shared risk model (“Track 2”) as currently designed may not provide an adequate financial risk/reward model to attract ACOs to transition from the one-sided shared savings only performance model (“Track 1”). As such, many ACOs may be left with the choice of taking on more risk than they can manage, or they may simply drop out of the Shared Savings Program, altogether. Additionally, ACOs in Track 1 may need more time to gain the experience or level of program participation necessary to transition to Track 2

Therefore, CMS proposes that a current Track 1 ACO be allowed to renew for an additional three-year agreement period, if it has not had significant losses in at least one of its initial two years. CMS is seeking comment on whether this proposal will help keep ACOS in the program and whether additional performance requirements should be satisfied in order to be approved for a second three-year period. To keep the one-sided risk model from becoming too attractive to ACOs after the first agreement period, CMS also proposes to decrease the maximum shared savings rate by 10 points to 40 percent for the second three-year period.

CMS also proposes to modify the financial thresholds for the Track 2 performance model to reduce the level of risk faced by ACOs. CMS would allow the minimum savings rate (“MSR”) and minimum loss rate (“MLR”)—the minimum amounts of savings or loss generated before an ACO shares the savings or loss—under Track 2 to vary based on the number of assigned beneficiaries instead of using the present fixed MSR and MLR. This is intended to provide greater protection to ACOs against losses from normal variation, particularly variation associated with smaller assigned populations.

Finally, to create even more incentives for bearing risk, CMS proposes the option of an additional two-sided shared savings and losses model (“Track 3”) that requires greater performance risk in exchange for greater potential savings. CMS proposes the shared savings rate for Track 3 ACOs as up to 75 percent of savings under the updated benchmark in exchange for accepting risk for up to 75 percent of all losses, provided the ACO meets the quality performance requirements. The shared savings payment limit would be set at 20 percent of the ACO’s updated benchmark and shared losses could not exceed 15 percent of the updated benchmark.

The Proposed Rule extensively articulates historical concerns with prospective assignment — the assignment of Medicare beneficiaries to ACOs based on the primary care physicians who have provided the bulk of their primary care services. Despite this, CMS proposes to prospectively assign beneficiaries in Track 3 ACOs. CMS will be performing only a very narrow reconciliation at the end of the performance year that would remove only beneficiaries determined ineligible for assignment at the time of reconciliation.

Industry Direction Sought on Benchmarking. It is noteworthy that CMS declines at this time to propose a specific change to its methodology for establishing benchmarks — the amounts that would have been spent on Medicare beneficiaries against which ACO savings and losses are calculated. CMS clearly is interested in an updated methodology for establishing, updating, and resetting benchmarks as evidenced by the extensive discussion of the various methodologies available to it.

But rather than a specific proposal, CMS seeks comments from stakeholders regarding the most appropriate of a range  of alternative methods, including, but not limited to: (1) equally weighting the three benchmark years; (2) accounting for shared savings payments in benchmarks; (3) using regional, as opposed to national, FFS expenditures to determine trends; (4) resetting benchmarks that would hold an ACO’s historical costs constant relative to costs in its region for a period after the initial agreement period; and (5) resetting benchmarks based only on regional FFS costs as opposed to the ACO’s own costs, over multiple agreement periods.

Additional Flexibility Provided Through Waivers. CMS plans to exercise its waiver authority to further promote participation in the two-sided performance-based risk models. The proposed waivers are designed to give risk-bearing ACOs, which already have an incentive to reduce wasteful spending and over-utilization, additional flexibility with respect to certain Medicare payment and program requirements associated with  inpatient Skilled Nursing Facility (“SNF”) care, telehealth services, home health care, and hospital discharge planning for Track 3 ACOs.

Enhanced Data Sharing Policies and Procedures. CMS proposes modifications that are designed to strengthen and streamline its data sharing policies and procedures. This includes expanding the scope of information provided to ACOs in aggregate data reports and in reports containing beneficiary identifiable information on preliminarily prospectively assigned beneficiaries. These reports would be amended to include the current four data elements (name, date of birth, HICN, and sex) for each beneficiary and additional data relating to demographics, health status, utilization rates of Medicare services, and expenditure information related to utilization of services.

Under the current data sharing procedures, ACOs may obtain beneficiary identifiable claims data only after providing beneficiaries with an opportunity to decline to share their data. In light of complaints from ACOs and beneficiaries about the burdens and confusion arising from giving such notice during visits or through mailings, CMS proposes that effective notice of opt-out privileges may be conveyed through direct communications with CMS, standard CMS publications such as the Medicare & You handbook, and posted signs at facilities that include updated template language.

Finally, CMS proposes to give ACOs expedited access to beneficiary data to facilitate more timely care interventions. To this end, Tracks 1 and 2 ACOs would be able to access beneficiary identifiable claims data on preliminarily prospectively assigned beneficiaries on a monthly basis. Track 3 ACOs would be given access to similar information for prospectively assigned beneficiaries within the same time frame.

Other Flexibilities. Among many other programmatic clarifications and codifications of current practices, CMS proposes additional adjustments to provide greater flexibility to ACOs, including flexibility around the minimum beneficiary population and leadership and management structure.

Under current regulations, if, during a given performance year, the beneficiary population assigned to the ACO falls below 5,000, CMS is required to issue a warning letter and place the ACO on a corrective action plan (“CAP”). Should the ACO fail to increase the number of beneficiaries to at least 5,000 during the next performance year, the ACO will be terminated from the MSSP and may not share in savings for that performance year. By the time an ACO is notified of its deficiency it is often too late to make corrections to salvage its participation for the subsequent performance year.

Acknowledging that this structure is rigid and not well suited to timely adjustment (i.e., increase) of the assigned beneficiaries by the ACO for the next performance year, CMS proposes to allow a beneficiary-deficient ACO reasonable time to successfully complete a CAP. Further, CMS proposes to make imposition of remedial measures, such as issuance of warning letters and CAPs, discretionary rather than mandatory.

CMS Must Make Further Changes to Achieve Its Programmatic Objectives
In spite of these material changes, there is much more that CMS can and must do to achieve its objective. The fact that CMS strongly encourages broad industry comment suggests the agency may appreciate what further changes are necessary but requires verification through public comments that these changes will lead to greater and longer participation at increasing levels of risk.

Waivers. The four payment and programmatic requirement waivers discussed above are comparatively limited in scope and do not address certain critical issues that could further encourage ACOs to bear more risk—such as fee arrangements or the distribution of shared savings—or financial incentives to assigned beneficiaries to remain within an ACO, such as reduced cost sharing. Nevertheless, CMS welcomes comments on any additional waivers that may be used to encourage ACO participation in performance-based risk arrangements.

Assignment Through Beneficiary Attestation is Being Seriously Considered. As referred to above, beneficiary assignment is currently determined based on a statistical determination of where a beneficiary has received a plurality of primary care services during a performance year, with rolling data updated quarterly leading to a final determination of assignment at the end of each performance year. CMS acknowledges that such a retrospective claims-based assignment methodology “creates more year-to-year variability or ‘churn’” in assigned beneficiaries. CMS also acknowledges that commenters have suggested that beneficiaries should be able to designate their own primary care providers (and by extension, the affiliated ACO) as responsible for managing overall care.

While CMS does not propose allowing beneficiary attestation in the Proposed Rule, it does seek comments, which it will “carefully consider,” on whether it would be an appropriate process for ACOs with two-sided risk arrangements. The fact that CMS seeks stakeholder input on 12 questions regarding operationalizing beneficiary attestation indicates the agency is carefully considering the policy but has not yet received sufficient input to make a final decision.

Risk Adjustment. Apart from minor changes to the definitions of newly and continuously assigned beneficiaries to allow for risk adjustments of the Track 3 benchmark year, CMS is not proposing any other changes to its risk adjustment methodology for any of the three Tracks. This methodology differentiates between newly assigned beneficiaries (those assigned in the current performance year) and continuously assigned beneficiaries (those assigned to or who received primary care services from the ACO during the prior year).

CMS updates changes in the severity and case mix for newly assigned population using the updated CMS-HCC prospective risk scores. Under its current methodology, the level of severity and case mix for the continuously assigned population may only be reduced. Therefore, the risk scores for this population may only be increased based on demographic factors.

Many of the same issues that have been raised regarding updates to the benchmarks in future performance periods may also apply to risk adjustment. Thus it may be important for CMS to allow some method of recognizing that the case mix of an ACO could change considerably over a five-to-six-year period. Stakeholders should consider commenting on how CMS’ risk adjustment can better capture changes in health status of continuously assigned beneficiaries.

The MSSP is at a critical juncture, facing diminishment or growth as a springboard into shared risk. The ultimate direction depends largely on the comments CMS receives from stakeholders. The agency has made clear that the policies in the eventual Final Rule will be driven by stakeholder comments.