NAACOS: Mandatory Bundled Payments Impede ACO Financial Success

April 24, 2017 - The National Association of ACOs (NAACOS) recently urged CMS to indefinitely suspend upcoming mandatory Medicare bundled payment models until the federal agency resolves financial conflicts between the episodic arrangements and accountable care organizations (ACOs).

“The overlap of ACOs with bundled payment initiatives such as the mandatory bundles created in the EPM [Episode Payment Models] rule creates a clear conflict with the ACO model,” Clif Gaus, ScD, NAACOS President and CEO, wrote to CMS. “While we support voluntary bundled payment models, we strongly oppose CMMI’s [Center for Medicare & Medicaid Innovation] use of mandatory bundled and episode-based payment models.”

“The scope of these programs is vast, and the current policies related to the intersection of bundles and ACOs hampers ACOs’ ability to succeed,” he added.

In March 2017, CMS pushed back implementation dates for compulsory cardiac and orthopedic bundled payment models. The federal agency also sought stakeholder feedback on whether to further delay implementation until 2018.

But NAACOS recommended that CMS suspend implementation plans for all mandatory Medicare bundled payment models because the federal agency decided against testing a new ACO and episodic payment overlap policy in the final EPM rule.

READ MORE: Bundled Payment Models Here to Stay Despite CMS Program Delays

CMS stated that it did not think that “testing a new approach to addressing overlap, which could potentially disrupt ACO investments, operations, and care redesign activities, would be appropriate at this time prior to a test with a smaller population.”

However, the ACO group contended that the financial conflicts between the population-based and episodic payment structures would worsen under compulsory bundled payment models.

For example, CMS policy currently gives bundled payment models precedence over ACOs. Therefore, any financial gains or losses during a care episode are attributed to the bundled payment model participant and eliminated from an ACO’s financial reconciliation results.

ACOs also face challenges with bundled payment model target prices. Care episode budgets are set to the bundled payment model’s benchmark despite actual ACO spending trends.

As a result, target prices greater than cost baselines increase an ACO’s cost performance and impedes the organization from earning shared savings. Although lower bundled payment model target prices may benefit ACOs.

READ MORE: Key Considerations for Bundled Payment Model Adoption, Success

“While this impact may be favorable or unfavorable for an ACO depending on its costs relative to those of the bundlers in its market, the net effect skews accountability for population-based models and in general undermines an ACOs’ opportunity for savings through care redesign since any savings would automatically go to the bundler,” Gaus wrote.

In addition, the episodic nature of the alternative payment models does not incentivize bundlers to collaborate with ACOs on post-acute care.

Bundled payment model participants tend to look at per-unit costs, rather than total costs, to earn bonuses under the financial arrangement. As a result, bundlers usually transition patients to less expensive post-acute care providers even if they are not included in their hospital’s ACO network.

The per-unit cost emphasis also does not address episode volume. While ACOs receive additional payments for keeping patients out of the hospital, bundlers may increase episode volumes to increase revenue and value-based incentive payments.

“By holding episode participants responsible only for a single episode of care, CMS leaves the Medicare Trust Fund susceptible to aggregate overspending resulting from increased volume,” Gaus claimed. “In contrast, ACOs are responsible for total cost of care and therefore have a large incentive to address unnecessary spending and utilization of procedures being performed.”

READ MORE: Understanding the Value-Based Reimbursement Model Landscape

While ACOs face financial conflicts with all Medicare bundled payment models, the mandatory component of upcoming models would exacerbate the challenges, NAACOS added.

“Until CMS and the healthcare industry at large are able to study the impacts of the interactions among the plethora of bundles and episodes entering the marketplace, it is unwise to continue introducing additional episode models on such a large scale,” Gaus stated. “The broad reach of these programs creates the potential to also have a large impact on the marketplace in general as well as other healthcare delivery redesign efforts currently underway, like the efforts of ACOs.”

To resolve financial conflicts between the alternative payment models, NAACOS advised CMS to exclude all ACO beneficiaries from Medicare bundled payment models unless the bundler and an ACO have a collaborative agreement.

CMS could use the HIPAA Eligibility Transaction System to flag ACO beneficiaries. Then, bundlers would be able to see whether patients qualify for bundled payment model inclusion.

CMS should also develop a value-based payment reform strategy that leverages existing alternative payment model efforts and resources to support new initiatives. Since ACOs spend an average of $1.6 million in annual operating costs to successfully participate in the Medicare Shared Savings Program, no other alternative payment models should jeopardize the ACO’s financial and quality care performance.

“Implementing competing programs without policies to protect those already in existence will create confusion, add administrative complexities and dilute the savings opportunities for those already on the forefront of care redesign,” Gaus added.

As part of the value-based reform strategy, NAACOS called on CMS to prioritize population-based initiates, such as ACOs.

“[B]undled payment models do nothing to incentivize clinicians to focus on preventing the condition or procedure,” Gaus explained. “ACOs help to prevent adverse health conditions and therefore can eliminate the need for a procedure or prevent a patient from developing a condition that an episode model may address.”

The value-based payment reform strategy should also avoid mandatory alternative payment models that could disrupt healthcare markets.