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CMS’ Pioneer ACO Program Not Conducive to Small Hospitals

By Sara Heath

Despite claims that accountable care organizations (ACOs) have tremendous benefits to the delivery of care, several participants in the Centers for Medicare & Medicaid Services’ (CMS’s) Pioneer ACO Program have chosen to leave the program. In September of 2015, the Dartmouth-Hitchcock Health System (DH) was among those practices.

CMS Pioneer Accountable Care Organization Program not conducive to small hospitals

According to an article written by DH’s William Weeks, MD, MBA, Robert Greene, MD, MHCDS, FACP, Lynn Guilllette, FHFMA, CPA, and DH’s CEO James Weinstein DO, MS, the health system decided to leave CMS’s program due to the difficult provisions it made on a hospital of its size.

DH had adjusted its workflow to implement ACO standards since 1983, and had been participants in Medicare’s Physician Group Practice (PGP) demonstration project since 2005. The authors of the article stated that due to DH’s leadership within the ACO community, it decided to take part in CMS’s Pioneer ACO Program to continue its work as an ACO.

However, although DH received approximately $1 million in its first year with the Pioneer Program, the following two years resulted in millions of dollars worth of shared losses. The authors state that due to three main issues with the model, DH was unable to continue with the Pioneer Program.

First, the authors stated that the risk-adjustment methodology was skewed. During its time with the program, Medicare compared a national patient sample with the patients at DH, which caused a discrepancy. DH is located in a “low-utilization” area, and therefore did not generate as many diagnosis codes as a hospital in a high-utilization area would. However, given the complexity of illnesses DH typically sees as well as the socioeconomic status of the patients DH sees, it still has many needs.

The authors recognize that Medicare is adjusting this methodology for this next fourth year of the program. However, they also maintain that risk-adjustment measures for intensity of patient visit and the financial needs of patients at a given hospital be taken into account.

Second, the authors explain the way in which CMS determined the financial performance benchmarks:

After defining the reference population, a target benchmark was calculated by first adding to baseline actual expenditure 50 percent of the absolute dollar difference between ACO-specific baseline expenditures on the reference population and the ACO-specific actual performance year expenditures. To that was added 50 percent of the product of the ACO-specific baseline expenditure and the percentage change between the ACO-specific baseline reference expenditure and the ACO-specific performance year expenditure.

There were several burdens with regard to this performance benchmark. For example, the final benchmark was not determined until the end of the reporting period, and therefore DH and other participants were not able to determine how they stood until the year was over. Additionally, using a national baseline for care utilization did not work out well for ACOs who saw an influx of utilization during a national downturn of utilization. The authors state that benchmarks should perhaps be developed by the ACOs themselves and compare yearly performances to past performances.

Third, the authors explained that incentive payments were the same regardless of an ACO’s baseline performance. In other words, regardless of the typical cost of beneficiary, an ACO received the same reimbursement from CMS. DH’s average cost per beneficiary was $9,297 compared to the average $11,138. It was difficult for DH to benefit from incentives because their utilization and costs were already so low. To account for this issue, the authors suggest using a combination of local and national benchmarks.

“CMS should use local benchmarks to evaluate improvement, but national cost benchmarks to determine shared savings distribution levels: ACOs with higher baseline costs might retain less of their cost savings, while those with lower baseline costs might keep more or at least not be penalized,” the authors wrote.

The authors maintain that in order to make for a more successful ACO program, CMS must adjust its policies to be fairer to ACOs of low utilization and low cost.

“CMS must rectify the flaws in the Pioneer model so that high-cost ACOs are rewarded for meaningful improvement, and low-cost ACOs—that have already benefited CMS and Medicare beneficiaries by applying ACO principals over the long term and whose ability to generate cost savings is likely to be modest—are rewarded and not punished while demonstrating improvement,” the authors wrote.

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