The Medicare Shared Savings Program (MSSP) is the nation’s single
largest initiative to move the US health care system from volume to value.
In only six years, the MSSP has grown to include 561 participating accountable
care organizations (ACOs) serving 10.5 million assigned beneficiaries
– nearly one-third of traditional Medicare beneficiaries with Part
A and Part B coverage.
Under the MSSP, ACOs serve a defined population of Medicare beneficiaries
with an annual spending target called a “benchmark” and a
series of quality thresholds. ACOs that spend less than the benchmark
share the savings with the federal government. ACOs have delivered superior
quality to Medicare patients and have achieved savings relative to their
spending targets and to other health care providers that do not participate
in the MSSP.
On August 9,
the administration issued a proposed rule that makes significant changes to the MSSP. It is a complex rule with
many technical policy changes, some of which would improve the stability
and predictability of the program. But the central proposed policy change
would dramatically accelerate the requirement that ACOs take on downside
We agree that ACOs should take on greater risk over time. However, we are
concerned that the speed of the proposed transition, combined with proposed
reductions in shared savings rates, could stall the ACO movement. There
is wide agreement that the proposed rules would reduce the number of ACOs
but no agreement on the scale of reductions or the impact on total savings
over 10 years, which could be significant.
One of the assumptions of the
administration’s proposal to accelerate risk is that the MSSP has not saved money for Medicare,
while other Centers for Medicare & Medicaid Services (CMS) initiatives
that require downside financial risk have generated savings. But both
the new research presented below and the
recently released 2017 MSSP results from CMS tell a different story. According to CMS, MSSP ACOs saved $1.1 billion
in 2017, with net savings of $314 million after accounting for shared
savings payments earned by ACOs (See Exhibit 1). The ACOs that joined
the program in 2012 through 2014 accounted for the majority of savings.
This illustrates that ACO performance improves over time and that ACOs
need time before clinical restructuring can generate program savings.
Also of note: One-sided MSSP Track 1 ACOs generated more 2017 savings
per beneficiary than those bearing risk under MSSP Tracks 2 and 3.
Exhibit 1: Benchmark-Based Savings/Loss To Medicare From MSSP ACOs
Source: Authors calculations based on CMS 2017 Shared Savings Program ACO PUF File
Despite the positive 2017 results, gauging MSSP performance based on calculations
using administratively derived spending targets (benchmarks) is simply
not an accurate way to measure overall program savings. In fact, the published
academic research on MSSP performance points to much higher savings than
are suggested by the benchmarks.
In this post, we discuss the challenges of using benchmarks to calculate
ACO program savings, identify peer-reviewed studies that estimate ACO
savings based on widely accepted statistical methods, and introduce a
new study commissioned by the National Association of ACOs (NAACOS) that uses research
methods similar to those peer-reviewed studies. The new study shows MSSP
savings in 2013 – 2015 of more than $1.8 billion, nearly double
the amount reported by CMS. Finally, we discuss the implications of the
proposed MSSP rule and offer suggestions that would make the rule more
attractive to current and potential future ACOs.
Calculating Medicare ACO Savings: The Benchmark Bias
New payment models that move away from traditional fee for service require
a mechanism for measuring the performance of participating health care
providers and structuring rewards or penalties based on that performance.
In the MSSP, CMS calculates an initial risk-adjusted spending benchmark
for each ACO based on its historical spending for a group of attributed
Medicare beneficiaries; it then trends this benchmark forward to the current
program year based on the national average growth in Medicare spending
per beneficiary. (In 2017 CMS began to phase in benchmarks updated with
regional trend rates).
If an ACO’s spending in the program year is less than the benchmark
and the ACO meets MSSP quality thresholds, it earns a shared savings payment
that is generally 50 percent of the calculated savings. ACOs must achieve
a savings rate of at least 2 percent – up to 3.9 percent for the
smallest ACOs – before they are eligible for bonus payments. Therefore,
not all ACOs that save money receive bonus payments.
CMS calculates total MSSP savings as the sum of total savings for ACOs
with spending below the benchmark plus the sum of spending above the benchmark
for ACOs that exceeded it. Using this method, CMS estimated MSSP savings
of $954 million between 2013 and 2015. During this period, ACOs that saved
money earned $1.3 billion in shared savings payments. CMS concluded that
on a net basis, the program increased Medicare spending by $344 million
between 2013 and 2015.
Researchers have determined, however, that using benchmarks to calculate
systematically understates true program savings. This occurs for several reasons. ACO benchmarks have been trended forward
using a national average per-beneficiary amount, but
Medicare spending growth varies substantially across geographic areas due to underlying market factors,
and ACOs tend to be located in areas of higher Medicare spending growth.
Therefore, an ACO could significantly outperform its regional peers but
still lose money based on CMS’s accounting. Exacerbating this problem
is the fact that CMS does not adjust the benchmarks to account for the
growing burden of illness as continually enrolled beneficiaries age during
each three-year contract period, even though this results in higher actual spending.
Benchmarks and other types of spending targets serve a useful role in administering
new payment models but
produce different results than research-based evaluations. This may confuse stakeholders and lead
to misinformed policy decisions. The Center for Medicare and Medicaid
Next Generation ACO,
Pioneer ACO, and
Bundled Payment for Care Improvement initiatives have all been formally evaluated by researchers. However,
CMS has never commissioned a formal evaluation of the MSSP.
Calculating Medicare Shared Savings: The Research-Based Approach
Research evaluations of actual payment reforms are
essential for guiding future policies governing alternative payment models. Several academic research teams
have analyzed MSSP savings, using standard statistical methods to evaluate
the financial performance of ACOs by estimating what spending would have
been in the absence of the ACO program.
Colla and colleagues found that MSSP ACOs reduced spending by 1.3 percent in 2013.
A 2016 study by McWilliams and colleagues estimated that the MSSP saved $867 million
during 2013 and 2014, resulting in overall savings of $213 million after
subtracting shared savings payments earned by the ACOs.
More recently, McWilliams and colleagues found total MSSP savings of $704 million in
2015, with net savings to Medicare of $145 million.
In an effort to improve the evidence available to policymakers and other
key stakeholders, NAACOS commissioned the firm of Dobson|Davanzo to conduct
a statistical analysis of MSSP savings from 2013 through 2015. The
Dobson|Davanzo study found total MSSP savings of more than $1.8 billion for this period using
statistical methods similar to McWilliams and colleagues – which
is nearly double the savings calculated by CMS for 2013 to 2015 based
on the benchmarks, as shown in Exhibit 2. The Dobson|Davanzo study used
difference-in-differences analysis and a Medicare claims database with
100 percent of ACO-attributed beneficiaries from 2011 – 2015, and
more than 80 percent of beneficiaries who were eligible but not attributed
to an ACO. Based on that analysis, net savings to Medicare after accounting
for shared savings payments earned by the ACOs was $542 million (See Exhibit 3).
Exhibit 2: Total MSSP Program Savings For 2013 – 2015: Comparison
of Dobson|Davanzo Estimates with CMS Benchmark Calculations
Source: Dobson|Davanzo study, CMS MSSP ACO 2013-15 results
Exhibit 3: Net MSSP Program Savings for 2013 – 2015 after Shared
Savings Bonuses: Comparison of Dobson|Davanzo Estimates with CMS Benchmark
Source: Dobson|Davanzo study, CMS MSSP ACO 2013-15 results
ACO Benefits Beyond Direct Savings
The MSSP’s direct savings to Medicare are relatively modest compared
to overall Medicare spending, but they are also encouraging, especially
ACO performance improved with length of time in the program. In addition to direct savings, the
MSSP generates substantial indirect savings to Medicare due to the spillover
effect of delivery system changes on fee-for-service Medicare spending.
In markets where at least 10 percent of the beneficiaries are attributed
to ACOs, Medicare spending grew more slowly than the national average.
CMS’s own estimates, Medicare savings including spillover effects in 2016 were $1.8 –
$4.2 billion, or about 0.5 – 1.2 percent of traditional Medicare spending.
As MSSP reduces spending in traditional Medicare, it also reduces spending
in Medicare Advantage, where government payments are tied to regional
Medicare fee-for-service spending. According to
one estimate, the 0.7 percent net spending reduction by the MSSP program in 2014 would
lower Medicare Advantage spending by roughly $272 million.
The MSSP program also directly benefits care for Medicare beneficiaries
by creating incentives for ACOs to coordinate care and improve quality.
According to CMS, ACOs have consistently achieved higher average performance rates compared
to medical group practices reporting similar quality measures; ACOs in
the program from 2013 through 2016 improved their quality scores by 15
percent on average. Comparable quality improvements have been
documented by independent researchers.
Potential Impact Of The Proposed MSSP Changes On Program Participation
The MSSP is a voluntary program and growth in program participation has
greatly exceeded expectations. Most ACOs opted to join MSSP Track 1, which
offers the opportunity to earn up to 50 percent of the Medicare savings
they generate. Participants in Track 1 do not incur financial penalties
if their spending exceeds the CMS benchmark. But these organizations are
solely responsible for the cost of establishing and operating their ACO
with no additional financial support from CMS. Running an ACO requires
new clinical and administrative personnel, data systems and analytics,
and investments in developing new clinical protocols and workflows; this
requires millions or even tens of millions of funding annually, depending
on the size of the ACO.
About one in five ACOs in the MSSP has voluntarily entered a track with
downside financial risk. Organizations that are developing accountable
care models, especially for the first time, face many uncertainties about
the program and their own ability to earn shared savings. They may be
hesitant to take on risk.
If enacted as written, the CMS proposal would reduce the number of ACOs
participating in the MSSP and also slow the growth of new entrants. It
is impossible to accurately predict the magnitude of the reduction. CMS
estimates that the MSSP would shrink by 109 ACOs over the next 10 years.
We are concerned that the magnitude could be much greater. NAACOS recently
surveyed MSSP Track 1 ACOs with terms ending in 2018 about their interest
in continuing the program if required to take on two-sided risk. Seventy-two
respondents reported they were likely or highly likely to leave the program.
The MSSP has grown rapidly in its first six years at a rate of nearly 100
net new ACOs annually. Even if the growth rate slowed to 50 new ACOs annually
over the next 10 years, there would be more than 1,000 ACOs covering more
than 20 million beneficiaries by 2028. CMS’s own estimate that the
MSSP program would shrink by 109 ACOs over the next 10 years suggests
both a reduction in current ACOs and a drastic slowing of new entrants,
which would leave the MSSP with only 452 ACOs in 10 years. Given compelling
evidence about direct MSSP savings, the fact that ACO performance improves
over time, and substantial savings due to spillover effects, policies
that lead to a smaller program in ten years rather than a potential doubling
of participation in accountable care would be a huge missed opportunity
for the nation.
There are three aspects of the proposal that are most likely to adversely
impact ACO participation. First is the reduction of the shared savings
opportunity from the current 50 percent to 25 percent in the initial year
of the new BASIC track. Establishing a successful ACO requires significant
investment and potential new entrants would be concerned that recouping
their investment would be impossible with such a low sharing rate.
Second is the shortening of time before new ACOs must accept risk from
six years to two. This would deter organizations that lack sufficient
capital reserves or are simply not ready to take on down-side risk from
Third is the aggregate 3 percent limit over five years on recognizing changes
in beneficiaries’ risk scores when calculating the benchmarks. CMS
proposes to extend the MSSP agreement period from three to five years,
and the burden of illness of Medicare beneficiaries can change rapidly
over a five-year time period. While we support the proposed extension
of the agreement period, we are concerned that the cap on recognizing
changes in the clinical risk of attributed beneficiaries creates yet more
financial risk for the ACOs.
A Path Forward
Addressing the three issues described above would be a major step towards
promoting both new entrants and continued ACO participation in the MSSP.
We suggest the following changes. First, continue the current 50 percent
shared savings rate for the entire length of the new BASIC track to ensure
that the model remains financially feasible for new entrants. Second,
allow all new ACOs to remain in a shared savings model without downside
risk for at least three years and allow an additional two years for ACOs
that meet specified savings and quality goals in the initial three years.
Third, allow the beneficiary risk score to vary by up to 5 percent over
the five-year enrollment period.
The study released today by NAACOS as well as earlier studies using similar
methodology by Harvard University and others demonstrate clearly that
the MSSP has generated direct savings to Medicare. Furthermore, the MSSP
has created spillover effects in both fee-for-service Medicare and Medicare
Advantage that likely result in billions in savings. This underscores
the importance of maintaining a robust Medicare ACO program that continues
to grow over time.
We agree with the administration that ACOs need to evolve and take on more
financial risk, but the administration’s own estimates suggest that
rather than growing, the Medicare ACO program would shrink by 20 percent
over the next decade under its proposed rule. That would be a tragedy.
The changes we propose would go a long way towards improving incentives
for growth of Medicare ACOs while achieving the administration’s
goal of a faster movement to risk.
Our nation urgently needs to transform its health care system to deliver
better care at lower cost. Accountable care organizations are the best
chance we’ve got to get there. Let’s invest in policies that
accelerate this movement rather than slow it down.