Medicare Advantage And ACOs

by David Introcaso

Health Affairs Blog
In January 2015, Department of Health and Human Services Secretary Sylvia Burwell announced the Department will tie an increasing percentage of Medicare reimbursement to quality or value. While unanticipated, the announcement was not surprising, since paying for value over volume has been long overdue.

Between 2014 and 2018, the Department’s goal is to increase from 20 to 50 percent quality and value-based reimbursements made through Alternative Payment Models (APMs) such as Accountable Care Organizations (ACOs) and bundled payment arrangements. Including other initiatives such as the hospital value-based and hospital re-admissions reduction payment incentives, the Department’s goal is to tie 90 percent of payments to quality or value by 2018. The Secretary’s announcement was widely, if not universally, applauded.

The Secretary’s goals, however, apply only to traditional or fee-for-service (FFS) Medicare payments. Payments to Medicare Advantage (MA) plans are excluded. That is, these goals ignore substantial and rapidly growing MA spending. Medicare Advantage plans, expected to double their enrollment to 22 million beneficiaries between 2010 and 2020, currently account for nearly 17 million, or 31 percent, of all Medicare beneficiaries and for approximately 26 percent of all Medicare payments, or $164 billion.

The exclusion of MA raises three fundamental and inter-related questions about the Medicare program that, surprisingly, have received little attention and no debate. The first question is, of course: why are MA payments excluded from the Secretary’s goals? Next, should MA payments be included, and if so, how? Finally, should not all Medicare payments be comparable, or should beneficiaries not expect there to be one, coherent Medicare program?

Why Was MA Excluded From The Secretary’s Goals?
One explanation, largely provided by MA plan proponents, is MA’s fully capitated payments are already value based. Many stakeholders see global capitation as the ultimate value-based payment and APMs as stepping stones toward capitation. Medicare Advantage payments are therefore not relevant to the Secretary’s goals.

In addition, proponents note that MA plans, like ACOs, report on slightly more than 30 quality measures. Plans are incented to provide quality and value via capitated per-member per-month payments and, under certain circumstances, provide added quality and value by offering beneficiaries supplemental benefits.

Another explanation is the Department does not know enough to include MA payments. This reasoning was reflected in the Catalyst for Payment Reform’s (CPR) report, “Scorecard on Medicare Payment Reform,” published earlier this year. The report estimated 42 percent of Medicare FFS payments were tied to value in 2013. The Catalyst for Payment Reform chose to exclude MA from its value-oriented payment estimate because, the organization stated, “CPR could not make reasonable assumptions about how MA plans contract with participating Medicare providers.” That is, CPR could not determine how and to what extent MA plans reward participating physicians for quality and value. The Department, while not formally explaining why MA payments were excluded from the Secretary’s goals, evidently accepted CPR’s reasoning. Had they not, it would have been counterproductive to not include MA payments.

Should MA Be Included In The Secretary’s Goals?
Yes. Assuming the Department is successful, how meaningful is the achievement, absent MA’s inclusion?

The Congressional Budget Office (CBO) projects total Medicare spending will equal $1.05 trillion in 2024. By then, MA enrollment will account for well over 25 million beneficiaries. This means the Department’s quality and value payment goals will leave unaccounted for approximately 30 percent of total Medicare payments. Goal achievement becomes increasingly insignificant as the percent of payments made under FFS declines.

How Can MA Payments Be Included In The Secretary’s Goals?
The simplest approach is to accept the argument that MA payments de facto represent quality and value. This question has evidently been asked and answered. If plans provided, as CPR noted, information concerning how they contract with participating providers, the Centers for Medicare and Medicaid Services (CMS) could then evaluate MA plan physician behavior.

However, there’s little or no reason for plans to do this. If, however, Alternative Payment Models were integrated into MA, some or all of MA care delivery payments could be included in the Department’s goals. This is exactly the issue the Secretary is required to address under MACRA (The Medicare Access and CHIP Reauthorization Act of 2015), which calls for her to submit to Congress, by July 2016, a study “examining the feasibility of integrating APMs in the Medicare Advantage payment system.”

Should MA And Alternative Payment Model Regulations Be Integrated Or Comparable?
Yes. Making payments comparable by integrating Alternative Payment Models—most prominently, ACOs—into MA is desirable since it would address two problems.

First, if regulations for the two programs were made comparable, the Secretary could tie all Medicare payments to quality and value, thereby making the Department’s goals far more meaningful.

Second, making payments comparable by integrating Alternative Payment Models in MA provides the impetus to address a substantial underlying problem; regulatorily, the MA and ACO programs do not equate, not even approximately. Their dissimilarity makes integrating or simply combining the programs improbable if not impossible. Among their differences:

Medicare Advantage plans, unlike ACOs, do not suffer from unstable beneficiary assignment, since MA beneficiaries choose to enroll. ACO beneficiaries are simply assigned. In ACOs, assignment effectively means nothing to the beneficiary, which is why they churn into and out of ACOs at high annual rates.
Both the MA and ACO programs include financial incentives for the entity contracting with CMS. However, MA financial benchmarks are averaged costs for all Medicare beneficiaries in the county. An ACO competes against its own beneficiaries’ historical costs, which makes ACO participation sensible for providers in high-cost regions only.
Medicare Advantage plans can earn additional financial bonuses for high quality achievement. A perfect quality score has no additive financial impact on an ACO.
Medicare Advantage plans enjoy risk scoring advantages, are again able (under certain circumstances) to offer supplemental benefits and provide beneficiaries with out-of-pocket spending caps, typically offer Part D benefits, and enjoy substantial marketing advantages over ACOs.
With substantial regulatory differences, rhetorically, how reasonable is it to assume MA plans would want to participate in the ACO program? Conversely, ACOs becoming de facto MA plans is also improbable since physician groups, who currently make up the majority of ACO contract-holders, would somehow have to acquire all the actuarial skills (and state insurance licenses) MA plans already have. Synchronizing the two programs is, therefore, not likely to happen by chance, which is why the MACRA-mandated report presents a substantial opportunity for the Secretary to argue for these two programs to be placed on a level playing field.

One Coherent Medicare Program
As currently structured, the MA program is not designed to save money, made evident by the fact that the Congressional Budget Office does not score it for savings. Insofar as the MA and ACO programs are integrated or comparable, the MA program would likely become score-able by the CBO because, as Alternative Payment Models, MA plans would be assuming known financial risk. Without such a change, and within the context of the Secretary’s payment goal announcement, the MA program may become an anachronism; as administrative pricing, it’s designed to meet, not beat, spending targets.

In other words, with FFS on track to improve value, the budget-neutral MA program is left out of step. CMS is already moving to address this problem, although tepidly. This past September, the CMS Innovation Center announced a demonstration to improve MA care quality and reduce costs for seven conditions in seven states using value-based insurance designs.

In addition, integrating the programs could subject currently-exempt MA plan physicians (or “eligible professionals”) to MACRA. Passed by Congress in April, 2015, MACRA replaces the Medicare sustainable growth rate for physician payment increases with an incentive structure based on quality and value performance. This means MA plan physicians would be eligible to receive a 5 percent lump sum annual bonus beginning in 2019 (if a minimum percent of MA plan payments were attributed to APM-defined care). MA participation in Alternative Payment Models, moreover, offers plans the ability to leverage further their considerable capitated payment experience, provider infrastructure, and positive market spillover effects.

For ACOs, synchronized or improved program regulations would increase the likelihood of ACO success, which, so far, has been limited if not anemic. Only a quarter of ACOs have been successful to date. Savings amounts, on average, are modest and declining, and the determinative factor in achieving shared savings success is simply having a high financial benchmark.

To wit, the ACO program has only managed to incent high-cost providers to reduce unwarranted variation. Regulatory reform or program alignment would mean greater ACO provider participation, greater program savings, and more competition with MA for beneficiaries. Without regulatory reform, it is difficult to imagine ACO participation continuing to grow or ever contributing meaningfully to reducing Medicare cost growth.

Congressionally-mandated reports are often viewed as a check-the-box exercise. In this instance, that would be a mistake. Via MACRA, the Secretary is presented with an opportunity to express fully her pay-for-value goals. She can do this by re-imagining the Medicare program as a coherent whole. She only needs to see MA and ACOs in relation to one another.

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