Top 10 Misconceptions About ACOs

Even though misunderstandings abound, now is still a good time to take the plunge and become an ACO. New CMS rules have increased the chances of financial success.

Lynn Barr
Caravan Health

Lynn Barr

Caravan Health has worked with hundreds of hospitals and providers over the years to form ACOs. In addition to the excitement this opportunity brings, we have heard many misconceptions about ACOs and what they can do for hospitals, physicians, and Medicare beneficiaries. Most recently, the Shared Savings Program final rule has brought even more confusion as to whether it’s the right time to be in the program under the new policy landscape, which introduced a faster path to two-sided risk. Whether an organization is in an ACO or considering joining one, we would like to shed some light on ACO participation. We compiled a list of the 10 most common misconceptions.

Misconception #1

Joining an ACO will reduce inpatient billing and drive my hospital out of business.

Reality: According to the Medicare experts at MedPAC, it’s simply not true that ACOs reduce income from inpatient hospitalizations. Many hospital executives remember the ’90s, when aggressive HMOs reduced hospitalizations 35% to 40% per capita compared with fee for service. Since those days, inpatient discharges have come down about 25%, leaving little room for more reductions. In fact, MedPAC states in its June 2018 report to Congress that, “most ACO savings to date stem from reductions in the use of post-acute care and not from reductions in inpatient care.”

Misconception #2

An ACO would require that we pay back higher-than-expected health costs, and we can’t afford to take on that risk.

Reality: Providers that want to remain viable and competitive simply must take on risk. Providers that don’t take risk will face declining incomes from Medicare in the next few years. Joining an ACO with enough lives to get true results is the best way to responsibly get into risk. In addition to the benefit of combining lives for scale, an ACO can help with strengthening primary care, creating better connections between providers, and improving communication with patients.

Misconception #3

Our hospital doesn’t employ our doctors; they are all independent operators in the community. Because we don’t employ them, an ACO can’t help us.

Reality: The independent clinicians in your community need your help to keep up with payment as CMS continues to shift to value-based payment in the coming years. Those physicians are facing a serious challenge as they have to enter into risk- and value-based payment to maintain their incomes. Your hospital has a choice: You can help those independent doctors by participating in an ACO and offering them a responsible way to take risk—or watch as they leave to join another health system that will help with this transition.

Misconception #4

There is too much uncertainty in the ACO program. We are better off doing things like we have for years.

Reality: Unfortunately, soon providers will not have a choice about making fundamental changes to how they are paid by Medicare. In the next few years CMS is essentially requiring a shift from fee for service to fee for value even if your practice is doing a great job. Providers will face sharply declining incomes if they are not willing to take on risk in an alternative payment model. Joining an ACO means that your practice will get credit for participating in a risk-based APM and won’t be left behind. In fact, the Pathways to Success Program’s new rules in the redesigned Medicare Shared Savings Program can ensure that your practice receives higher reimbursement for treating more complex conditions.

Misconception #5

The new rules for the Shared Savings Program make it too difficult to succeed in the program.

Reality: The new Pathways to Success Program rules, finalized in late 2018, actually create more stability for ACOs compared with the previous program rules. There is now a very clear direction for the Medicare Shared Savings Program. While ACOs will move to downside risk more rapidly—within two to three years after starting operation—there are also benefits to the new program structure. Most importantly, providers will get a larger payment adjustment for treating patients with more serious conditions. ACOs also will be able to factor in regional adjustments to their benchmark in the first agreement period—a change that ACO advocates have been seeking for a long time.

Misconception #6

Joining an ACO hasn’t saved us money. We are trying as hard as we can to control costs, but we aren’t seeing results.

Reality: The most important factor for ACO success is size. Most ACOs are not seeing consistent results because they are too small. Like health insurers, ACOs need to spread risk out across more covered lives to manage the swings in health care costs that can be expected. A larger ACO can get your organization connected with others to reach enough lives—at least 100,000—to see true results. The benefits from covering enough lives in an ACO to reach scale will always help health systems.

Misconception #7

Most other providers are choosing Medicare Advantage rather than joining an ACO.

Reality: While Medicare Advantage is certainly projected to grow, the number of fee-for-service Medicare patients is going to double in the next 10 years. Providers need to increase value-based payment options across all payers. ACOs offer some distinct advantages over Medicare Advantage, including the opportunity to earn back a portion of the savings that accrue to Medicare. With an ACO, providers gain experience with alternative Medicare payment without changing the entire reimbursement framework.

Misconception #8

My Medicare spending per patient is already low. There is no way to cut costs and still make money.

Reality: Even providers with low benchmarks can succeed in an ACO. All ACO benchmarking considers both historical spending as well as a regional factor. The newly finalized rules for Pathways to Success take regional benchmarking into account earlier in the process, and still in a very evenhanded way. ACOs with low costs compared with their regional averages are recognized and compensated in the formula.

Misconception #9

Other health systems are leaving ACOs. This isn’t the right time to get into the program.

Reality: The fact is that there is more interest than ever in the ACO program. Only 13% of ACOs chose not to renew this year. Many of those are not leaving the fold, but consolidating into larger ACOs instead. The advantages of the new Pathways to Success program offer compelling reasons to join an ACO in the coming year. It’s worth closely examining the new and old program rules to make the best choice for your organization. While the Track 1 program under the old rules may have seemed better due to its 50% shared savings rate, that’s not the whole story. ACOs may come out ahead under the new Basic Track in the Pathways to Success program because of the new risk-adjustment calculation.

Misconception #10

An ACO can’t help our practice—we are in a rural, cost-based system that is not subject to MACRA.

Reality: The reality is that rural providers in the ACO Investment Model (AIM) earned twice as much as other ACO participants, according to CMS. Joining an ACO is great for patients and great for providers. In addition to the strong rural results, CMS appears committed to facilitating participation from smaller and rural providers in ACOs. The new Pathways to Success rules allow smaller and rural ACOs to be considered low revenue and spend an additional year in an upside-only arrangement, as well as a full second agreement period in the lower-risk Basic Track rather than moving to the higher-risk Enhanced Track.

Lynn Barr is the CEO and founder of Caravan Health, a health care company that develops ACO and population health programs for community health systems.

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