Leading ACO Group: CMS is Calculating ACO Savings the Wrong Way

Sept. 11, 2018
The Medicare Shared Savings Program generated gross savings of $1.84 billion for Medicare from 2013 to 2015, nearly double the $954 million estimated by CMS, according to a new analysis.

Medicare’s largest ACO (accountable care organization) initiative—the Medicare Shared Savings Program (MSSP)—generated gross savings of $1.84 billion for Medicare from 2013 to 2015, nearly double the $954 million estimated by the Centers for Medicare and Medicaid Services (CMS), according to a new analysis from the National Association of ACOs (NAACOS) and Dobson Davanzo & Associates.

It appears to be especially noteworthy that the study, which NAACOS officials attest is the largest ever of ACO performance based on Medicare claims, greatly contrasts with CMS’ analysis that ACOs increased Medicare spending by $344 million over the three-year time span. The government’s claims are based on administrative formulas used by the MSSP to measure performance and calculate shared savings payments. Indeed, there has been much debate as to just how much money one-sided risk ACOs are saving Medicare, and this latest research will likely only add spark to that discussion.

For the research, which was also accompanied by a blog published in Health Affairs, NAACOS commissioned Dobson DaVanzo & Associates, a healthcare economics consulting firm, to conduct an independent evaluation of ACO performance to analyze Medicare claims data from approximately 25 million beneficiaries per year.

The study, which used similar scientific methods as a 2018 peer-reviewed paper by Harvard researchers published in the New England Journal of Medicine, found that MSSP ACOs reduced Medicare spending by $541.7 million during the 2013 to 2015 timeframe, after accounting for shared-savings payments earned by ACOs.

The MSSP is the largest value-based payment model in the U.S., growing to 561 ACOs with more than 350,000 providers caring for 10.5 million Medicare beneficiaries in 2018. Under current MSSP rules, new ACOs are eligible to share savings with Medicare for up to six years if they meet quality and spending goals but are not at financial risk for any losses. As such, CMS has been reiterating in recent months that these “upside risk-only” ACOs are costing the government money.

To this point, in a recent proposed rule that has so far been met with varying degrees of scrutiny, CMS is proposing to shorten that glide path for new ACOs to assume financial risk, reducing time in a one-sided risk model from the current six years to two years. This proposal, coupled with CMS’ recommendations to cut potential shared savings in half—from 50 percent to 25 percent for one-sided risk ACOs—will certainly deter new entrants to the MSSP ACO program. Importantly, CMS has essentially said they don’t mind if upside-only ACOs that are costing the government money leave the program if they aren’t willing to take on more financial risk. CMS Administration Seema Verma said in a press call following the proposed rule’s release that “[Upside-only] ACOs have no incentive, at all, to reduce healthcare costs while improving outcomes, as they were intended.”

Nonetheless, MSSP ACO participants seemingly performed quite well in 2017, despite CMS’ claims that they have been largely ineffective. In sum, the 472 ACOs that were in this model last year achieved $314 million in net savings to Medicare in 2017 after accounting for bonuses paid from the government, and $1.1 billion overall.

Two Ways to Calculate Savings

According to NAACOS officials, the big takeaway in its analysis, versus the government’s, is how the ACO savings are calculated. As the researchers in the Health Affairs blog pointed out, “Despite the positive 2017 results, gauging MSSP performance based on calculations using administratively derived spending targets (benchmarks) is simply not an accurate way to measure overall program savings. In fact, the published academic research on MSSP performance points to much higher savings than are suggested by the benchmarks.”

Explained further by the researchers, for its analysis of Medicare ACOs, “CMS calculates an initial risk-adjusted spending benchmark for each ACO based on its historical spending for a group of attributed Medicare beneficiaries; it then trends this benchmark forward to the current program year based on the national average growth in Medicare spending per beneficiary.” They further point out that if an ACO’s spending is less than the benchmark, and has a savings rate of at least 2 percent—and the ACO meets MSSP quality thresholds—it earns a shared savings payment that is typically 50 percent of the calculated savings.

CMS then calculates total MSSP savings as the sum of total savings for ACOs with spending below the benchmark, plus the sum of spending above the benchmark for ACOs that exceeded it. Using this method, CMS estimated MSSP savings of $954 million between 2013 and 2015. During this period, ACOs that saved money earned $1.3 billion in shared savings payments. CMS concluded that on a net basis, the program increased Medicare spending by $344 million between 2013 and 2015, according to the NAACOS analysis and Health Affairs commentary.

While some prior research and analysis has backed CMS’ claims that MSSP ACOs have not saved the government money, other examinations agree with NAACOS that the methodology CMS uses is flawed and understates true program savings. According to the Health Affairs blog, “This occurs for several reasons. ACO benchmarks have been trended forward using a national average per-beneficiary amount, but Medicare spending growth varies substantially across geographic areas due to underlying market factors, and ACOs tend to be located in areas of higher Medicare spending growth. Therefore, an ACO could significantly outperform its regional peers but still lose money based on CMS’s accounting. Exacerbating this problem is the fact that CMS does not adjust the benchmarks to account for the growing burden of illness as continually enrolled beneficiaries age during each three-year contract period, even though this results in higher actual spending.”

Conversely, NAACOS, and some others, believe that a better approach to understanding ACO savings would be to estimate what spending would have been in the absence of the ACO program. When this tactic—referred to as “difference-in-difference” analysis—has been used, research has shown that MSSP ACOs have saved Medicare significant money. One 2016 study that used this method estimated that the MSSP saved $867 million during 2013 and 2014, resulting in overall savings of $213 million after subtracting shared savings payments earned by the ACOs. More recently, another study using this approach found total MSSP savings of $704 million in 2015, with net savings to Medicare of $145 million.

A CMS spokesperson told Healthcare Informatics that the federal agency was not part of the NAACOS analysis and cannot speak to it.  However, the spokesperson pointed to a Health Affairs blog post from August, written by Verma, that explains in 2016 and in all prior years, one-sided ACOs in aggregate did in fact increase Medicare spending relative to their benchmarks. The agency also said it will take in all evidence, comments and analyses that are formally submitted in response to its proposed rule on MSSP changes.

In the end, the NAACOS/ Dobson DaVanzo & Associates study found total MSSP savings of more than $1.8 billion for this period using this “difference-in-difference” method—a figure that doubles the savings calculated by CMS for 2013 to 2015 based on the benchmarks. This is why NAACOS believes that the ultimate goal of CMS’ final rule on MSSP ACOs “should be to strike a reasonable balance of risk and reward that will encourage new ACOs to form and begin the transition to value-based payment,” said Clif Gaus, president and CEO of NAACOS, adding, “If successful, millions more Medicare beneficiaries will benefit from better care and lower costs while maintaining the choice to see any Medicare provider they want.”

In a statement on the release of this study, the Charlotte-based Premier Inc. showed support for the “difference-in-difference” approach. “We agree that measuring program savings against a benchmark of potential spending is a flawed way to assess true impact,” said Joe Damore, premier vice president of population health. “The measure should not be whether spending was reduced relative to a national target that does not take into account regional costs and patient acuity over the contract period, but rather whether ACOs generated any savings for Medicare over and above historic FFS [fee-for-service] spending for the ACO’s beneficiaries.”

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