Growth of ACOs and Alternative Payment Models in 2017
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1 Growth of ACOs and Alternative Payment Models in 2017 David Muhlestein, Rob Saunders, Mark McClellan Accountable care is an important mechanism used by public and private payers to align health care provider payments with efficient care for defined patient populations. Leavitt Partners, in partnership with the Accountable Care Learning Collaborative, tracks the growth and spread of accountable care organizations (ACOs) and other alternative payment models. Growth of ACOs As of the end of the first quarter of 2017, our inventory included 923 active public and private ACOs across the United States, covering more than 32 million lives (Figure 1). The increase of 2.2 million covered lives i in the past year means that more than 10 percent of the U.S. population is now covered by an accountable care contract. As the ACO model matures, there is now some turnover, with organizations joining and leaving the model. Since the first quarter of 2016, 138 new ACOs began operations, and 46 ACOs dropped their accountable care contracts, representing a net increase of 92 organizations becoming ACOs, or an 11 percent growth. Figure 1 Public and Private ACOs and Covered Lives,
2 Over the same period, the number of contracts has grown by 166, as many ACOs have expanded the number of accountable care contracts in which they participate (Figure 2). These ACO contracts span diverse types of health insurers (Figure 3). Commercial contracts represent a plurality of all contracts (715) and a majority of covered lives (59 percent), while Medicare contracts represent 563 contracts but only 29 percent of covered lives. Medicaid accounts for 88 contracts and 12 percent of covered lives. On average, commercial ACO contracts tend to cover more lives (about 26,700 per contract) than Medicare contracts (about 16,800 per contract). The pace of growth in contracts has been similar for all payer types. Figure 2 Public and Private ACOs and Accountable Care Contracts, Figure3 Accountable Care Contracts and Lives by Payer Type,
3 While the most populous states have the most ACOs, these organizations continue to expand around the country and exist in all fifty states; Washington, D.C.; and Puerto Rico (Figure 4). When examined at a hospital referral region (HRR) level (Figure 5), the strongest ACO growth has occurred in metropolitan areas. However, there are still 15 HRRs that are not served by an ACO. The percent of the population estimated to be covered by an ACO varies significantly by state (Figure 6). Two largely rural states (Wyoming and West Virginia) have less than 2 percent of their population covered, while two states (Rhode Island and Maine) now have over 30 percent of their populations covered. Interestingly, the most populous states (California, Texas, Florida, New York, and Pennsylvania) have a lower percent of lives covered than the national average, despite having some of the highest counts of ACOs. Figure 7 shows the estimated percent of the population covered by an ACO at the HRR-level. Growth in ACO lives has varied substantially by market, with some markets in every region of the country now having ACO penetration of over 30 percent. Neighboring HRRs in the same state can have vastly different levels of penetration. Figure 4 ACOs by State, First Quarter,
4 Figure 5 ACOs by Hospital Referral Region, First Quarter, 2017 Figure 6 Estimated Percent of Population Covered by ACOs by State, First Quarter,
5 Figure 7 Estimated Percent of Population Covered by ACOs by Hospital Referral Region, First Quarter, 2017 Growth of Other Alternative Payment Models While ACOs are an important alternative payment model (APM), other APMs with accountability for person- or episode-level outcomes and costs are also expanding. Specifically, there is growth of the APMs labeled category 3 and 4 of the Health Care Payment Learning and Action Network (LAN) framework, which, in addition to shared-savings and shared-risk ACOs, include episode-based models and partially- and fully-capitated payments for patient populations. These trends have been reinforced by passage of the Medicare Access and CHIP Reauthorization Act (MACRA), which contains new incentives for many physicians to join APMs. Figure 8 summarizes information from the Centers for Medicare and Medicaid Services (CMS) on the number of organizations participating in different types of Medicare APMs, categorizing them by model type. Although fewer providers participate in ACOs than in any other APM model, the majority of dollars paid through APMs flow through the ACO-based models that cover patients total cost of care. Together, these APMs represented over 30 percent of Medicare payments in While Medicare is the most prevalent sponsor of APMs, state Medicaid plans and commercial payers are also expanding a range of 5
6 APMs. The LAN 2016 APM Measurement Effort found that in 2016, 25 percent of health care dollars were in category 3 and 4 payment models for commercial plans, Medicare Advantage, and Medicaid. Figure 8 Medicare Alternative Payment Model Participants, First Quarter, 2017 Source: Authors analysis of CMS Announcements Looking forward A variety of factors will influence the growth of ACOs and APMs over the coming years. Policy Environment Since the start of the new Congress and the President s inauguration, there have been ongoing legislative deliberations on the future of the Affordable Care Act. The proposals have generally focused on different methods to provide health insurance coverage, but there is relative bipartisan agreement on the need to support reforms in health care payment to improve value in care delivery. The American Health Care Act, as passed by the House of Representatives, did not seek to change any of the payment and delivery reforms for Medicare and Medicaid, continuing the Centers for Medicare and Medicaid Innovation (CMMI). Consistent with concerns raised by Health and Human Services Secretary Tom Price about mandatory APMs, the Trump Administration has delayed mandatory bundled payment programs. 6
7 However, the administration has otherwise continued the drive toward payment and delivery reforms for Medicare and Medicaid, and private plans in commercial, Medicare Advantage, and Medicaid managed care markets are continuing to implement APMs. Whether payment reform accelerates or moves in new directions will be influenced by further administrative and legislative actions. To the extent MACRA is implemented on schedule, payment reform is likely to accelerate. While CMS provided physicians with administrative relief from Merit- Based Incentive Payment System (MIPS) penalties in 2017, in the absence of further delays, physicians must decide whether to report under MIPS or try to participate in an APM to avoid penalties in As Medicare Shared Savings Program(MSSP) Track 1 participants are not eligible for the MACRA advanced APM bonus, it is likely that more organizations will move toward greater risk sharing arrangements, such as the new MSSP track 1+, MSSP track 3, Next Generation model, or other advanced APMs. The expanding Comprehensive Primary Care Plus program (CPC+) also counts as an advanced APM for primary care providers, and CMS has indicated that it aims to make additional APM options available for specialized care in the coming months. A Need for More Evidence To accelerate progress with ACOs, there's a need for more evidence about which models produce the best results for organizations with different circumstances and characteristics, whether rural or urban, large or small, or physician- or hospital-led. To date, there is evidence that a wide range of ACOs can improve measured quality, but fewer ACOs have successfully combined quality improvement with significant spending trend reductions. Given the challenges of reforming care delivery to improve outcomes and lower spending, there is an increasingly urgent need for better evidence about what has worked for the variety of ACOs that have succeeded. Changes in Bundled Episode Payment Models Under bundled episode payments providers receive a predetermined amount for all the care related to a specific condition, such as a knee replacement, over a specified time period. Bundles provide a financial incentive to manage efficiently a patient s treatment throughout the entire episode of care across multiple providers, giving providers flexibility in the resources they use during the episode. While bundles encourage and support providers to deliver care for the episode more efficiently, they could also create incentives for the delivery of more bundles. There is a need for evidence to evaluate the impact of episode bundles on overall spending and quality. Episode bundled payments may help address one weakness of population-based payment models, namely that many clinicians such as surgeons or other specialists -- can have an important impact on quality and costs for specialized groups of patients, but are not well-positioned to help manage the total care of a population. Bundled payment models therefore provide a vehicle for involving more clinicians in APMs. As noted above, MACRA provides an additional incentive for clinicians to participate in episode bundled payments with downside financial risk (such as the Comprehensive Joint Replacement program) by allowing them to qualify for the advanced APM bonus. For many clinicians, though, there are no existing Medicare APMs that cover the services for which they are responsible. To address this challenge, MACRA authorized the creation of the Physician Focused Payment Model Technical Advisory Committee (PTAC), charged with recommending potential APMs to CMS for piloting and adoption. To date, many of the submissions to PTAC have focused on specialized care, reflecting the interest in such models. 7
8 Balancing Multiple Payment Models Going forward, there is potential value in expanding the range of accountable payment models, to give all providers more support and incentives to implement reforms in care. Indeed, different types of APMs may complement and reinforce each other. However, the expansion of multiple payment models has raised concerns about how they interact. As APMs spread, more health care organizations are operating under multiple APMs. One common overlap is the use of bundled episode payments for specific services within an ACO arrangement. This could be a positive combination: evidence suggests that bundles improve efficiency within a defined episode, while ACOs can help improve population health and lower overall spending. For example, a joint replacement bundle could support the orthopedic surgeon to coordinate care for the episode and provide an efficient, high-quality intervention, while the ACO program would encourage the broader organization to address the patient s disease progression through primary care and care coordination, and ensure the patient only receives the surgery when necessary. However, there are challenges with operating both models for the same patient, such as how to attribute cost savings within the organization or across an ACO and specialist group, if different provider organizations are involved in care for a given patient. To avoid over-burdening physicians, it is essential to ensure that providers have aligned, non-competing interests and to minimize the administrative burden of multiple payment models. Alignment within Medicare payment models is important, but greater alignment of payment models across payers, including Medicaid and commercial payers, should ensure that incentives from multiple APMs are reinforcing and do not create additional burdens. Supporting Providers to Succeed in Payment Reforms As APMs become widespread, it is increasingly critical to their sustainability that providers have the competencies they need to succeed. The assumption behind accountable care is that paying providers differently will provide an incentive to deliver care differently, resulting in better outcomes and lower costs. However, if providers are not confident about what to do differently, these goals will not be achieved. Further, if providers are uncertain about how to succeed, and payment reforms are not implemented efficiently, there will be increased pressure for delaying or minimizing payment reforms, compromising efforts to improve care and lower costs. For payment reform to be successful, providers must collectively experiment with new models, evaluate the effectiveness of different approaches, develop and share best practices, and commit to constant learning and improvement. Conclusion Alternative payment models that feature increasing accountability for improving patient care and lowering costs continue to expand. Their impact will likely grow as providers are subject to greater risk and develop the competencies to succeed. But, the payment model is not an end in itself. To achieve better value across the American health care system, more progress is needed to refine and align alternative payment models, and to help all types of health care providers develop the capabilities needed to succeed in them. i Numbers vary slightly from previous estimates due to revised tracking and estimation methodologies. 8
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