A service of the California Health Care Foundation

Why One Pioneer ACO Quit the Program — and What It Reveals About the ACA

Allison Fleury is the CEO of Sharp HealthCare’s accountable care organization. She’s a senior vice president at the health system, but was trained as a CPA.

And the more she looked at Medicare’s Pioneer ACO program — arguably the government’s most ambitious accountable care pilot — the more she worried that the numbers weren’t adding up for her organization, one of the 32 original Pioneers.

“We had very favorable underlying performance,” Fleury told California Healthline. For instance, Sharp’s ACO reduced readmissions and hit quality benchmarks, achieving some of the Pioneer program’s major goals.

But the Pioneer program’s unfavorable financial methodology meant that Sharp’s ACO essentially broke even, Fleury said, rather than get a chance to share in millions of dollars in new savings produced by delivering better care.

Part of the problem was the way that the Pioneer program benchmarks Medicare payments, which penalized Sharp as California’s wage index went up between 2012 and 2014. And another challenge was how the Pioneer program incorporates disproportionate-share hospital payments in its benchmark, given that states have unevenly adopted the Affordable Care Act’s Medicaid expansion. “Because the model is a national model, if you’re in an expansion state like California, your ACO helps to pay for the expansion,” Fleury said.

Taken together, she said, the math was obvious. “When we projected those issues for 2014, we thought we were at risk of having a shared loss, even though our performance was favorable,” Fleury concluded.

So Sharp HealthCare ACO decided to leave the Pioneer program — the 10th organization in the past 15 months to walk away.

“We were getting harmed,” Fleury added. “And that’s basically the case for all California ACOs.”

Pioneer Program’s Promise and Peril

To understand the importance of the Pioneer program, it’s important to understand its backdrop. While most media coverage of the ACA has focused on the law’s coverage expansion provisions, the triple aim underpinning Obamacare also included two other important objectives — lowering health care costs and boosting quality.

Lawmakers weren’t entirely sure how to achieve those complicated aims, so the ACA included a flurry of payment reforms and other pilots intended to push providers to be more efficient, accountable stewards of care.

As designed, the Pioneer program is arguably the most bold test of those goals: Organizations that had some experience in coordinating care were encouraged to form ACOs and taking on more risk for their Medicare patients. Essentially, these organizations would be leading the path away from fee-for-service reimbursement and toward population health, showing other providers how it could be done.

To incent performance, the Pioneer program was built around a carrot-and-stick approach. Hit certain quality and financial targets and your organization stands to share in millions of dollars in cost savings; miss those targets and you end up writing a check to CMS.

The program’s promise was generally hailed, but there were some early signs of trouble.

While CMS received 80 applications for 32 spots back in 2011, the agency had trouble wooing some “poster boy” health systems like Cleveland Clinic and Intermountain Healthcare to participate. And in some cases, those top hospitals have remained skeptical and opted to sit out from all of Medicare’s ACO pilots.

(It’s important to distinguish the Pioneer program from the Medicare Shared Savings Program, which has attracted hundreds of participants, including a number of California-based organizations. MSSP offers less potential upside for participants, but significantly less downside risk, too.)

Within months of Pioneer’s launch, participants began pushing back against CMS, saying that the program’s metrics were turning out to be too ambitious and the penalties too aggressive. Many hospitals were unhappy that CMS didn’t promptly share the necessary data they needed to track spending. Some ACOs had problems just keeping patients within network and preventing them from “leaking” out to other health care providers.

And when a small parade of organizations began leaving the Pioneer program last summer, most of them echoed what Sharp said this summer: The financial terms are too punitive.

What Pioneers Are Teaching Us

Interestingly, many of the ACOs that left the Pioneer program ended up shifting to MSSP, Medicare’s lower-stakes pilot.

And that makes one lesson clear: With the right incentives, providers do have an appetite for taking on more risk. But under the Pioneer program, CMS may not have been feeding them the right mix.

“Medicare ACOs were never a fair deal,” health care consultant John Gorman wrote in a blog post earlier this month. “The rules tilt the playing field toward CMS, often to the detriment of the ACO. [And] most significantly, the downside risk, as required by CMS, is irrational.”

Instead of Medicare’s ACO pilots, organizations may end up opting for a more traditional opportunity: To get into the business of Medicare Advantage.

When we’ve spoken with leaders of Pioneer ACOs, we’ve heard that patient churn and the network leakage issue as something they have really struggled with,” the Advisory Board’s Hamza Hasan said in an interview last month. The Advisory Board Company produces California Healthline on behalf of the California HealthCare Foundation.

“And they have found that patient churn and network leakage tends to be a lot lower in Medicare Advantage than MSSP.”

Gorman agrees that organizations dropping out of the Medicare ACO program are well-suited to go into Medicare Advantage.

“A successful Medicare ACO has already mastered the hardest parts of eldercare: care management and an engaged network of high-performing providers,” Gorman wrote. “What’s missing [are] insurance functions, which can be built or bought.”

That’s why he thinks ACOs that had trouble succeeding in MSSP or Pioneer could see more rewards by either partnering with an existing Medicare Advantage plan or by “build[ing] your own Medicare Advantage plan and move up the food chain.”

Looking Forward

There’s another lesson to glean from the Pioneer program’s stumbles, experts say: In the grand scheme of Obamacare and its many pilots, some failure is ok. Not all of the ACA’s delivery reforms may end up working quickly or well, or even working at all.

But some of the unintended consequences — like Pioneer ACOs getting into caring for Medicare Advantage patients — could still end up being advantageous and help achieve Obamacare’s goals.

“We need to be patient on these pilots,” Ashish Jha of the Harvard School of Public Health told California Healthline earlier this year. “They were never going to be the magic bullet that so many people hyped them up to be.”

Although with some changes, perhaps the Pioneer program can be more of what people hoped it would be. CMS will overhaul how the Pioneer program approaches risk adjustment and enact other programmatic fixes, which will result in the model more closely resembling MSSP and could make it more palatable to participants. Those modifications will take effect in January 2015.

“Do I believe ACOs can work? Obviously, we pulled out,” Sharp’s Fleury says.

“But if the model is structured appropriately, it can work.”

Around the nation

One insurer guides two states’ fate: Wellmark dominates the individual insurance market in Iowa and South Dakota, but it has elected not to join the ACA’s insurance exchanges — a decision that significantly affects state residents’ purchasing decisions, Pauline Bartolone writes for Capital Public Radio/Kaiser Health News.

More insurers line up to sell on exchanges: At the Washington Post, Jason Millman breaks down HHS’ announcement on insurer participation in the exchanges. (The only state to see a decline in the number of insurers on the exchange was California; see California Healthline‘s deep look into why.)

Categories: Medicare, Road to Reform, The Health Law

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