Current, Ex-MedPAC Chairs Ask: Is Value-Based Care Juice Worth the Squeeze?

Oct. 1, 2020
Current ACO structure called a limited success, ‘because the playing field is too small’

In a recent joint appearance, the current and former chairs of the Medicare Payment Advisory Commission (MedPAC) applauded accountable care organizations (ACOs) for the progress they have made so far on cost savings and quality, but both also highlighted major barriers that if resolved, could make a major difference in the success of the ACO movement.

Current MedPAC Chair Michael Chernew , Ph.D., a professor in the Department of Health Care Policy at Harvard Medical School, recently succeeded Jay Crosson, M.D., founding executive director of the Permanente Federation, the national organization of the Permanente Medical Groups, the physician component of Kaiser Permanente. Both spoke at this week’s NAACOS fall meeting (and both stressed they were speaking for themselves and not for MedPAC).

 Chernew began his presentation by noting that alternative payment models do save money. “The problem is that they don’t save much money. We have to do better,” he said. “APMs maintain or improve quality. That is also true, but not by much. Unambiguously these programs are a success, just not that big of a success yet. So the question is: Is the juice worth the squeeze? Why are we going through all this for a few percentage point savings and for the same or a bit better quality? My view is that lower spending and a little better quality is always good. So we shouldn’t complain. We can treat this as a longer-term endeavor, and I think we can learn more about how to do a better job. I think we can improve the design.”

 Crosson noted that back in 2010, ACOs were the new hope, and many experts were convinced this was going to be the solution for the future. “Ten years later, he said, “those involved in the nitty-gritty, day-to day work of creating or managing an accountable care organizations have a sense that it is not as simple as it might have appeared when it was a health policy idea being developed. That is not anybody’s fault particularly. The fact is that this kind of change is very difficult to pull off. In the short and intermediate term, I know that a lot of you are dealing with details around the regulatory and incentive structures and other things with respect to trying to get your organizations to work properly, to be profitable and fulfill the dream that was set out 10 years ago in the Affordable Care Act.”

 There are still some inherent conflicts in the system holding ACOs back, Crosson said. “Physicians, whether they are leading a physician-only ACO or physician and hospital ACO, still have conflicting financial incentives with the hospitals they are associated with. This is just the nature of the fact that ACOs are paid one set of incentives and hospitals are paid with a different set of incentives,” he said. Thinking back to his time with the Permanente Group at Kaiser Permanente, when they looked as physicians at what they were able to do over time to improve the affordability of costs for members, a lot of those savings came from managing the cost of hospital care and managing prescription drug costs. “It has always been my concern that to achieve what ACOs can achieve without an ability to manage hospital costs and manage the cost of prescription drugs leaves ACOs with a relatively narrow set of options on the cost savings side. The fact that the findings that are being published showing, 1, 2, 3 or 4 percent savings from the current ACO structure is not at all surprising. It is a success but it is a limited success, because the playing field is too small.”

 Crosson then zeroed in on what he sees as four major barriers that if resolved, could make a major difference in the success of the ACO movement. None of the four is easy, he added.

The first is that Medicare beneficiaries don’t understand ACOs and they don’t have any incentive to join or cooperate with their activities. Crosson noted how much money Medicare Advantage (MA) plans throw into advertising on television explaining what MA is.  There is no such thing for ACOs. He asked if there are financial incentives that can be put in place to get Medicare beneficiaries to accept and maintain a relationship with ACOs. CMMI through its direct contracting model is looking at ways to do this, but much more needs to be done, Crosson said.

 Second, Crosson said, ACOs do not have incentives to manage Part D drug costs as prescription drug costs continue to rise. “It would be good if ACOs were seen as part of the solution, but that is not the case at the moment,” he said. Part D plans are separate business entities. What could be done? He said perhaps CMS could facilitate voluntary associations of ACOs with Part D plans, with incentive sharing.

As mentioned above, another barrier he mentioned is that most hospitals have conflicting financial interests. A few hospitals work off “global payments” but most have revenue based on “heads in beds.” In many cases the hospital revenue incentive is in conflict with the ACO cost performance incentive, even if the hospital owns the ACO. Perhaps that is why hospital-owned ACOs’ cost performance is poorer than that of physician-owned ACOs, he said.

A potential solution is to increase hospitals’ incentive to reduce unnecessary service use. Crosson noted, however, that it would have to be a pretty big incentive to counteract the value of more admissions and hospital outpatient procedures. Another idea he mentioned is to increase practicing physicians’ roles in hospital governance and management decisions. Finally, we could shift to more Maryland-like global Medicare payments to hospitals.

Another problem is that most ACOs are still wedded to fee-for-service payment from payers to providers. Crosson asked rhetorically: Should we care how ACOs are paid, or how they pay their providers, as long as they are at risk? He noted that fee-for-service payment can create incentives for the provision of services of marginal or no value. He argued for increasing the use of global payments to ACOs, which is under way, and creating incentives for ACOs to use salary or partial capitation to pay providers such as primary care and certain specialties where feasible. And perhaps CMS should do the same for Medicare Advantage plans, he said.

Chernow mentioned a few of the reasons that he thinks progress has been so slow. One issue is that there are some operational difficulties. “Risk adjustment is a problem, benchmark design is a problem, attributing people to systems is a problem,” he said. “There is a cultural problem around who gets to keep the savings. My biggest concern right now is that there are mixed and overwhelming messages from CMS. There are way too many programs. In the private sector there are still concerns that those who invest in better models may not capture all the savings.”

What works, in his opinion, is targeting low-value care and shifting to more efficient sights of care. What doesn’t work in terms of saving money is broad care coordination and disease management. “I think the general premise that you are going to save money by coordinating care and test all your patients is wrong. It is a wonderful thing to do, and I am in favor of that, but most of the evidence suggests that it doesn’t save money.”

Chernow said the future direction should be about reducing the number of models and improving model designs, and eventually aligning and harmonizing all the models with each other and with Medicare Advantage.

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