Supply of Medical Services

ACOs: Improving quality of care or reducing competition?

Accountable Care Organizations aim to improve quality and reduce cost through an integrated care model.  The theory is that by coordianting care better across different provider specialties and care settings, patients care improves.   In order to coordinate care, however, you need data.  In order for payers to provide higher reimbursement to high quality/low cost ACOs, you also need data.  For instance, let us say I want to evaluate the quality and cost of a patient in my ACO.  I would data on cost and quality not only from my ACO but also from any other providers that the patient visited as ACOs are typicaly responsible for overall cost and quality, even if patients are seen outside their ACO network.

To address this issue, ACOs within the Medicare Shared Savings Program (MSSP) get access to a patient’s claims information even if they are treated by another ACO or non-ACO provider.  On the one hand, this information is helpful for coordinating care; on the other, these data offer providers a competitive advantage as they can view what their competitors are charging and which patients are visiting their facilities.  This issue is well known.

Broome et al. (2018) calls these more strategic firms “ACO squatters”:

CMS believe…that risk-taking ACOs are more likely to make greater investments in reducing costs. CMS is also concerned that some ACOs that do not take on risk may not be focused on reducing costs at all. These “ACO squatters,” as we have referred to them in the past, use the waivers and data available in MSSP not to provide better care at lower cost but to consolidate a healthcare market.

What is CMS doing about this?  Well, first of all they are transferring more risk to ACOs.  They reduced the maximum amount of time allowed in 1-sided risk framework (bonuses only) from 6 years to 2 years for new ACOs, before they transition to two-sided risk (both potential bonuses and penalties).  By year 3, 2% of an ACOs revenue would be at risk, increasing to 4% in year 4 and 8% in year 5 and beyond.

Second, they are building in some flexibility.  For instance ACOs will be able to identify beneficiaries prospectively (based on who they think are their patients) and retrospectively (based on who actually were their patients during the prior year).

Third, CMS is comparing ACO cost savings not only compared to national trends but relative to a blended rate of national and regional trends.  For rural areas with few ACOs or even few providers, this could be problematic since reducing cost could also reduce your benchmark if there are few other providers.  My previous research addressed this issue for the Medicare Wage Index calculation and CMS could apply a similar solution for regional benchmarking of ACO costs.

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