What s Next for MSSP ACOs? The Case for Moving to Medicare Risk

What s Next for MSSP ACOs? The Case for Moving to Medicare Risk Picking Your Path on a Journey Towards Value-Based Care Participants in one of Medicare s boldest attempts to overhaul how doctors and physicians are paid are at a crossroads: By mid-2015, the first 220 Accountable Care Organizations (ACOs) to participate into the Medicare Shared Savings Program (MSSP) must decide if they want to continue in the program or go another direction. For other organizations just starting their MSSP journeys, knowing what choices eventually lay ahead is a critical advantage. Recently, the Centers for Medicare & Medicaid Services (CMS) proposed new rules for the MSSP. The agency proposed to allow participants in Track 1 to remain there for another threeyear period, although at a lower shared savings rate. CMS also suggested a Track 3: A new, two-sided risk model that would allow ACOs to retain up to 75 percent of savings or share 75 percent of losses if they met or failed to achieve a 2 percent minimum savings rate. Track 3 also includes prospective attribution, giving ACOs a much better idea of which patients they are responsible for at the beginning of the year. i Despite these changes, we believe that MSSP ACOs that have successfully accrued savings in year one, or that expect to do so in future years, should consider other, more financially rewarding choices than the MSSP. Because of their significant investments in clinical integration, network development and redesigned care models, savings-generating MSSP ACOs are uniquely poised to take on risk in a Medicare Advantage (MA) contract and to continue to increase quality of care. We believe that these providers will be better served by adding a riskbased MA model alongside their existing MSSP contract. Who Really Won in the MSSP? Proposed Medicare Shared Savings Program Rules: Tracks 1 3 Track 1 Track 2 Upside only, share in up to 50% of savings (in first contract) and 40% of savings (in second contract) after surpassing the MSR* and meeting quality standards Retrospective attribution Up and downside risk, share in up to 60% of savings/losses after surpassing the MSR/MLR** and meeting quality standards Retrospective attribution Track 3 Up and downside risk up to 75% after surpassing the MSR Shared losses 40-75% after surpassing the MLR Prospective attribution *MSR = Minimum Savings Rate **MLR = Minimum Loss Rate To understand the opportunity, let us first look at who reaped the majority of savings under the MSSP. Of the 220 ACOs that participated in the program s first performance year (2012), 52 earned shared savings and got a portion of the money back. Sixty-three saved money but not enough to meet the required minimum savings rates (MSR), or saved money but failed to meet quality goals. Combined, the 115 savings-generating MSSP ACOs saved a total of $833 million. The 52 MSSP ACOs that got a portion of savings back outperformed benchmarks by $639 million, of which $323 million went to CMS and $316 million was returned to the ACOs. The 63 MSSP ACOs that saved money but did not participate in shared savings outperformed their benchmarks by $193 million. All told, MSSP ACOs that didn t lose money received $316 million in shared savings and saved CMS $516 million. Put another way, for every $1 saved in Medicare expenditures, 38 cents went to MSSP ACOs, while the government retained 62 cents. 1

Risk level increases as an organization progresses along the value-based spectrum Increasing Risk PAY FOR PERFORMANCE MSSP When we compare the cost of MSSP ACOs infrastructure investments against current and future financial rewards, it s clear that CMS benefited more from providers resource investments than did providers themselves. CMS recouped all savings achieved under the MSR and half of the savings when the MSR was met. MA Savings-Generating ACOs Produced ~ $833 Million in Savings in the First Year of the MSSP Total Savings Generated by ACOs Performing Underneath the Benchmarks ACOs 38% (~$316M) CMS 62% (~$517M) 23% (~$194M) 39% (~$323M) Savings Retained by CMS ACOs CMS - Shared Savings CMS - Savings generated from ACOs under the MSR CMS - Shared Savings generated by ACOs above the MSR Source: Valence Health analysis of CMS data The Real Cost of Generating Savings ACOs achieved their savings through significant investments of time and money. Successful ACOs aligned providers to deliver high-value care, implemented best practices, set quality guidelines and educated patients. Some implemented clinical information systems, while others manually captured data to report to CMS. In short, these ACOs embarked on a journey to value-based care that can last as long as three years and require continuous quality improvement. ii Furthermore, the annual investment required to support these activities cannot be recouped for 18 months from the start of the contract, adding a cash flow burden to the challenges of MSSP implementation. The cash flow issue deters many organizations from participating in the MSSP; the investment in value-based care doubles your (annual) expenses, said Mark Hillard, CEO of Arizona Care Network, a statewide, physician-led ACO with more than 3,000 physicians and 11 acute care hospitals. iii 2

As ACOs consider entering a second MSSP contract period, they will essentially be competing against themselves to lower costs. Shared savings measured against one s own past performance continuously deflates reimbursement, itself a no-win game and is one that is especially punitive to relatively efficient organizations. In the MSSP Proposed Rule, the shared savings opportunity declines to 40 percent from 50 percent, offering a smaller reward than in the first three-year performance contract and further deteriorating the value proposition for participation. iv Three Critical Advantages of Medicare Risk Contracting By contrast, MA risk contracting offers at least three significant advantages. First, the network is closed, itself allowing ACOs to further improve quality and reduce costs. Second, patients are prospectively attributed as members to physicians, allowing ACOs to understand whom they are managing and develop a patient-provider relationship that supports a comprehensive care model. Finally, savings generated stay within the risk-bearing entity (i.e., the ACO). 1) The Advantage of Closed Networks Despite their best efforts to keep patients in-network, MSSP ACOs report significant churn of patients moving in and out of their networks. By contrast, an MA plan s closed network aligns incentives among providers, payers and patients to manage care. Closed networks give ACO administrators a lever to incentivize providers to rally around high-quality value-based care and cost savings. From a quality perspective, other MSSP ACOs have acknowledged that the ability to keep patients within a network of like-minded providers is a huge differentiator. When working with a unified provider network, it is much easier to achieve goals such as minimizing unnecessary testing and duplication of services than it is to achieve these same goals with non-network providers. Lastly, within a closed network, providers can much more readily access the patient population data that are essential for successfully managing risk. With integrated population health management tools, access to patient records across the continuum of care allows ACOs to much more effectively identify and address gaps in quality, care and efficiency. 2) The Advantage of Prospective Attribution Attribution has also been a chief issue for MSSP ACOs. Beneficiaries are not prospectively assigned to an MSSP ACO; rather, they are determined retrospectively, based on where they received most of their care. We have struggled with attribution, said Hillard. Retrospective attribution is difficult, and we don t fully understand why we don t have some members attributed to us. iv By requiring an active selection process, the MA model gives administrators prospective information about members so that administrators can stratify populations and selectively engage high-risk, high-cost patients in targeted care management programs. In addition, a defined population makes it easier to target investments such as wellness programs to the right members. Care management can begin the moment a member signs up, rather than when the patient visits a physician or an emergency room. 3) The Advantage of County Benchmarks and Risk Adjustment The MA payment model is also relatively more generous than the MSSP model. In MA, a plan s base payments are pegged to county benchmarks. Currently, due to the Affordable Care Act, three-quarters of the counties nationwide have benchmarks that are equal to or greater than 100 percent of traditional fee-for-service payments. Regaining Control of Care Managing a MA risk arrangement can mean taking on all sorts of new responsibilities claims payment, customer service, insurance reporting and other administrative operations. But it also means that critical decisions are yours to make, putting providers back in control of patient care. As an MA ACO, you decide what support you need in order to provide population health management, how much to spend on care and how much to allocate for administrative costs. Valence Health, has vast experience helping providers make critical build, buy and partner decisions, can help you successfully manage your value-based care arrangements. 3

Factors to Consider When Entering a Risk-Based MA Contract If your organization is considering adding an MA contract to its value-based care portfolio, an ACO s business and clinical leaders need to understand how the following factors will come into play: 1) Geographical County Benchmarks These benchmarks establish a base payment rate for your location, and, as mentioned, most counties base payments are already equal to or greater than fee-for-service costs. In contrast to MSSP benchmarks, which are determined by the assigned population s historical claims data, MA benchmarks are driven by county-level MA payment rates. For more efficient providers, MA benchmarks represent a greater opportunity for financial incentives than do those of the MSSP. 2) Risk Adjustment Thoughtful, cautious risk adjustment provides the greatest opportunity under MA to increase your revenue. The MA risk adjustment is recalculated each year in contrast to the MSSP risk adjustment, which is recalculated after every three-year contract period. The adjustment in MA more accurately reflects the cost of caring for a given population at a given time, compared with the MSSP risk adjustment. For the MSSP, risk adjustment is based on traditional fee-for-service coding, which largely captures procedures. In MA, by contrast, it is determined from a more comprehensive coding methodology. Providers are expected to code on both diagnoses and procedures, using the Hierarchical Condition Category (HCC) coding system. MA coding encourages providers to record a more complete account of the disease burden being managed, adjusting reimbursement accordingly. It s important to note, though, that ACOs looking at risk-based MA payments should consider the process of educating and transitioning providers to focus on capturing disease burdens through proper HCC coding in order to have the most accurate and appropriate risk adjustment possible for the population being managed. 3) Star Bonuses Medicare uses information from paid encounters, member satisfaction surveys and health plan reporting to give plans an overall performance rating. These Star ratings reflect outcomes, processes, patient experience and access, among other factors. Plans that receive at least four out of the maximum five stars are typically eligible for an approximate 5 percent payment bonus. This bonus is earned by high performers in addition to savings generated by ACO eligibility. 4) MA Penetration Deep MA penetration may be advantageous, as provider practice patterns and behaviors are likely already well-aligned with MA incentives. A competitive MA market can give ACO leaders confidence that physicians in their market are well acquainted with coding procedures and quality reporting activities. On the other hand, if an ACO operates in a market with little MA penetration, leaders should determine if physician and/or members are resistant to managed care. Leaders should also consider planning for a longer ramp-up period to educate providers and patients about the offering. Provider-Led Plans are 5 Star MA Winners Nine out of the 13 Five Star MA Plans are Provider Sponsored Health Plans (PSHP) 5-Star MA Plans with Prescription Drug Coverage Kaiser Foundation HP, Inc. - PSHP Kaiser Foundation HP, of CO - PSHP CarePlus Health Plans Inc. Kaiser Foundation HP, Inc. - PSHP Kaiser FNDN HP of the Mid-Atlantic States- PSHP Group Health Cooperative Gundersen Health Plan - PSHP Martin s Point Generations, LLC Healthspan Integrated Care Kaiser Foundation HP of the NW - PSHP Providence Health Plan - PSHP 5-Star MA-Only Plans Medical Associates Health Plan - PSHP Dean Health Plan - PSHP 4

Are You and Your Market Ready for Medicare Risk? Valence Health has worked with countless organizations to assess their appetite for and ability to deliver valuebased care. Therefore, answering the question posed above requires your organization to thoughtfully perform the following analyses: 1) Conduct a market assessment You should look at county benchmarks to understand your base payment rate, and then analyze payments that other local MA plans and providers are receiving. You may also want to benchmark MA penetration against national figures to analyze your market opportunity. 2) Develop comparable MSSP and MA financials for your organization There will always be a few Medicare beneficiaries who choose the open care delivery model in fee-for-service. For those patients, and because of your existing relationship with CMS, you should continue to participate in the MSSP. At the same time, you should model how quickly fee-for-service beneficiaries might migrate to a MA plan so as to enhance your budget planning, resource allocation and capability development. 3) Conduct an internal capabilities assessment You should look at your quality programs, care models and information technology infrastructure to understand if you have systems in place to further drive down costs and prospectively manage care. You should also understand your network capabilities to effectively manage high-risk, high-cost patients as well as to deliver primary care. In Conclusion: MSSP is a Stepping Stone, Not a Destination It s no secret that CMS is committed to fundamentally reforming how it pays providers under the Medicare program. The agency has adopted the Institute for Healthcare Improvement s Triple Aim, and there have been achievements in cutting down on the volume of unneeded tests and procedures while improving quality, reducing costs and improving the patient experience. The government s most innovative program to date, the MSSP, has spurred providers to create robust networks, experiment with clinical redesign and care coordination. While laudable, the MSSP must be viewed as a stepping-stone toward risk, not a destination. The very nature of a shared savings program results in reduced benefits as providers become more efficient. Given this context, healthcare organizations ought to think hard about taking on greater levels of risk for the populations they are managing. As providers, they are in the best position to drive higher quality more efficiently. When it comes to Medicare Advantage, well-informed, well-planned risk is not as risky as it seems. There are a wide variety of tools and approaches available to providers looking to limit the financial risk of arrangements they enter into MA or others. Most importantly, advances in technology and predictive modeling have evolved to the point where providers themselves can apply proven actuarial analyses without needing the support of a full staff of actuaries. Visibility into financial risk, and thus the ability to account for it, has never been more available to and actionable for providers. With a range of different health systems already positioned as MA providers, industry experts realize that just about any provider organization can be successful in this transformation. Those providers that move first to take clinical and financial control of their Medicare populations will also likely see a significant competitive advantage in their markets. 5

ABOUT VALENCE HEALTH Valence Health provides value-based care solutions for hospitals, health systems and physicians to help them achieve clinical and financial rewards for more effectively managing patient populations. Leveraging 20 years of experience, Valence Health works with clients to design, build and manage value-based care models customized for each client, including clinically integrated networks, bundled payments, risk-based contracts, accountable care organizations and provider-sponsored health plans. Providers turn to Valence Health s integrated set of advisory services, population health technology solutions and managed care services to make the volume-tovalue transition with a single partner in a practical and flexible way. Valence Health s 600 employees empower 39,000 physicians and 130 hospitals to advance the health of 20 million patients. Contributors Kai Tsai, MHSA, Executive Vice President, Consulting Services William Wachs, CPA, CVA, Managing Director, Consulting Services Janet Hughes, MBA, Senior Director of Product Marketing Kelly Richard, MPH, Sr. Consultant For more information, please contact us at: E: information@valencehealth.com T: 888.847.0250 www.valencehealth.com References i Fact Sheets: Proposed Changes to the Medicare Shared Savings Program Regulations, last modified Dec. 2, 2014, http://www.cms.gov/newsroom/mediareleasedatabase/fact-sheets/2014-fact-sheets-items/2014-12-01.html ii Scott Hines, MSSP Lessons From the Front Lines: Align, Educate and Plan. Presentation at Valence Health further 2014 conference, Chicago, Sept. 8-9, 2014 iii Mark Hillard, telephone call with authors, Jan. 30, 2015 iv Proposed Changes to Medicare Shared Savings Program Regulations, ibid v McWilliams J, Chernew ME, Dalton JB, Landon BE. Outpatient Care Patterns and Organizational Accountability in Medicare, JAMA Intern Med. 2014;174(6):938-945. doi:10.1001/jamainternmed.2014.1073 vi Hillard, ibid.