Health policy brief

Medicare accountable care organizations: Balancing risk and opportunity

With the US health care system’s payment models shifting in focus from volume to value, the US Centers for Medicare & Medicaid Services (CMS) are testing different ways to pay for Medicare services. Which accountable care organization's (ACO) model will best meet your goals for participating in value-based care?

Balancing risk and opportunity

The ACO programs are testing incentives for providers to coordinate patient care across settings and the care continuum, while reducing spending and improving quality. Some organizations may feel prepared for and confident about taking on higher levels of risk, while others may just be starting on their journey to VBC. CMS’s Medicare ACO programs offer many risk arrangements, and it is up to provider organizations to select which arrangement best fits their needs and priorities.

Health care organizations that wish to establish or continue a Medicare ACO should consider several key factors before moving ahead. Among these are how CMS tracks patients and aligns ACO performance to them, how ACOs are paid and what opportunities exist for participating organizations to share in savings, and how performance will be measured. This paper provides details about these program requirements.

Each ACO model offers benefits (e.g., lower risk or higher savings) and risks (e.g., higher shared losses and lower flexibility); the appropriate approach depends on a health system’s tolerance for risk along with other program requirements. While organizations with more advanced capabilities in care management and analytics may be better-equipped to handle the higher risk-sharing models, they may not always be the best choice. CMS has strict rules around patient engagement, performance feedback, provider types, and other factors which health care organizations should consider before selecting a model.

Choosing the right model

As the US health care system’s payment models shift from a focus on volume to value, the CMS is testing ways to pay for Medicare services through its flagship ACO programs, the Medicare Shared Savings Program (MSSP), and the Pioneer ACO Model, as well as its new Next Generation Model. Between the MSSP and Next Generation programs, health systems can select one of four ACO models to test value-based care (VBC) in their Medicare service offerings. A critical question for health care organizations to consider is, “Which ACO model will best balance risk and opportunity and meet our goals for participating in VBC?”

Medicare spending accounts for 14 percent of the federal budget and 20 percent of all US health care expenditures. As Medicare spending grows, the US Department of Health and Human Services (HHS) and CMS have been clear about the need to move the Medicare program toward care based on outcomes and value. ACOs are designed to reduce health care costs and improve quality by coordinating care, reducing unnecessary and duplicative services, transitioning services to lower-cost settings when appropriate, aligning clinicians to consistent care models, and engaging beneficiaries in their own care. The Affordable Care Act (ACA) created the MSSP and Pioneer ACO models, and health care organizations began signing on in 2012.

With more than 400 organizations already participating in Medicare ACO programs, there is no shortage of interest in the different ACO models from current and potential participants. When considering the pros and cons of each, a priority for an accountable care program should be to shift the cost curve downward. In addition, health care organizations should consider the following questions:

  • Which program is better for our organization–MSSP or Next Generation? The Next Generation Model requires organizations to take on the greatest amount of financial risk, and high shared loss rates for Next Generation organizations may make the model unattractive compared to the different MSSP tracks. However, organizations with more advanced care management models and analytics capabilities may find Next Generation to be an attractive program.
  • If our organization decides that the Next Generation program is too risky, which MSSP track should we choose? Factors in addition to financial savings and losses are important when selecting an ACO model.
  • If we move to greater risk sharing, does our organization have the necessary analytics, care management, and tracking capabilities to manage this risk? This is an important question for organizations considering the Medicare ACO programs, as advanced capabilities will be critical for success under these new payment models.

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