ACOs Save More Compared to Medicare Advantage, Report Finds

August 21, 2019 - The Medicare Shared Savings Program, which governs the majority of Medicare accountable care organizations (ACOs), and Medicare Advantage are gaining in popularity. But the former is saving taxpayers, while the latter is incurring costs, a new report in Health Affairs finds.

“Our examination of the literature indicates that Medicare Advantage ‘costs’ Medicare; that is, when a beneficiary joins MA, Medicare spends more, on average, than it would have if the patient had remained in traditional Medicare. We find the opposite in the MSSP: When a patient joins the Medicare ACO program, Medicare costs fall,” researchers from Aledade stated in the report.

The report shows that Medicare Advantage spent between 2.0 and 5.5 percent more compared to traditional Medicare, while the Medicare Shared Savings Program saved Medicare one to two percent in 2016.

The findings call into the question the growth of Medicare Advantage. Together, Medicare Advantage and the Medicare Shared Savings Program cover nearly half of all Medicare beneficiaries, with Medicare Advantage experiencing significant recent growth. The plans covered 19.8 million individuals in 2018, up 57 percent compared to 2012.

Medicare Advantage plans provide predictable capitated payments that enable providers and payers to invest in care delivery enhancements and offer non-traditional Medicare services. The plans also offer financial rewards for quality improvements, while other value-based reimbursement programs – like the Medicare Shared Savings Program – heavily rely on financial penalties to motivate change.

But Medicare Advantage’s carrot-only structure may be preventing the plans from saving Medicare dollars, researchers explained.

“[P]ayments to MA plans, excluding quality bonuses, are 98 percent of traditional Medicare expenditures for comparable patients. However, when those payments are adjusted for star rating bonuses, they increase by 3 percentage points,” the report stated.

The same rings true for Medicare Advantage’s risk adjustment methodology, which evidence shows “over codes” patients by 2.0 to 5.5 percent.

Correcting the risk adjustment methodology is key to helping Medicare Advantage produce savings. The federal agency should also rely more on Medicare Advantage encounter data, rather than traditional Medicare data, when determining risk adjustments, researchers advised.

Encounter data provides more detailed information on a patient’s clinical conditions and treatment plans. CMS has been phasing in the use of the information for Medicare Advantage risk adjustment, but the agency has faced pushback from providers who fear the data is not yet accurate enough for payment purposes.

Researchers also suggested that CMS strike a balance between the Medicare Shared Savings Program’s penalty structure and Medicare Advantage’s star rating rewards. One way to achieve this is to reduce the number of quality measures in both programs, they said.

“We propose limiting quality measurement to five measures that are outcome oriented: hospital and ER use, patient satisfaction, and diabetes A1c and blood pressure control. Importantly, only two of these—A1c and blood pressure—require physician reporting, which can be largely automated through electronic health records,” the report stated.

Reducing the number of quality measures falls in line with CMS’ recent push to reduce administrative burden through the Patients Over Paperwork initiative. However, critics of the Medicare Shared Savings Program feel that more structural changes are needed to improve the ACO program.

Critics point to evidence that shows the Medicare Shared Savings Program has actually increased costs to Medicare. CMS Administrator Seema Verma has also gone on record stating that the program has increased federal spending.

Researchers from Aledade argued that the evidence is flawed because analysts conflated performance against program benchmarks with true costs to Medicare. But the researchers also provided suggestions on how to improve the program to maximize savings to Medicare. Chief among the suggestions was greater alignment with Medicare Advantage, including its benchmarking methodology.

“CMS should support and align both programs to foster growth and competition that generates savings to Medicare and better care for beneficiaries,” the report concluded.