Shared Savings in ACOs is not a fair game

In the proposed rules for ACOs, and in the rules for Pioneer ACOs, CMS has established a clear preference for ACOs to take down-side risk.  CMS wants to be repaid if an ACO records costs that are higher than expected.  This is proposed as a reasonable counter-balance to the proposed payments that CMS will make to an ACO if it succeeds in generating savings .

But the effect is to put ACOs at a disadvantage. Downside risk means that failure has a cost, in addition to the cost of providing administrative support to the ACO.  There are two scenarios under which an ACO could fail, and be subject to down-side payments back to CMS.  One is through intentional actions to increase charges, and the other is random events.  But providers don’t need to form ACOs to find ways to intentially increase their Medicare revenues, and it is hard to picture a scenario in which an ACO would be an appealing vehicle to do this.  And, of course, many collective actions among providers to increase Medicare revenues could be illegal.  So this leaves random events as the most likely cause of ACO failure. 

ACOs are being given this deal:  spend money to find ways to reduce your Medicare revenues, and we’ll share some of the savings with you.  But, if random events wipe out your savings, you have to repay us a share.  Where is the upside to this deal?

Another approach, capitation, has been shown to be an effective alternative payment model for a generation.  Under capitation, CMS could calculate the capitation so it guarantees itself savings.  Capitation converts Medicare from the open ended committment of FFS to a defined cost model.  Providers can then modify internal payment arrangements within the capitated entity, to incent and recognize performance in a way that FFS Medicare cannot. 

We’re waitng to see if the final ACO regulations will take cognizance of decades of experience with capitation in the private sector, to provide an alternative to shared savings that really is a fair game.

To read GHG’s summary on the CMS Final Rule for the Medicare Shared Savings Program, click here.