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Beware the ACO enablers

April 9, 2020

Topics: Quote of the Day

By Maria Castellucci
Modern Healthcare, March 21, 2020

While Caravan Health, one of the consulting firms typically called ACO enablers, is taking on all the downside risk for some of its customers, other companies have long baked into their business model that they will take on some of it, sometimes half or more, depending on the ACO.

As a result, some leaders of these firms said they are seeing an uptick in independent physicians already participating in the Medicare program interested in joining them as they are forced to shoulder downside risk soon or drop out.

Downside risk required

The CMS recently finalized changes to the Medicare Shared Savings Program that require participants to enter a downside-risk track within three years. The original timeline was six years.

“We are seeing strong interest,” said Asit Gosar, CEO of Evolent Care Partners, which has an ACO client with independent primary-care practices assigned 60,000 Medicare beneficiaries. “We are talking to over 30 organizations … They see an advantage in working with someone who gives them the capital as opposed to doing that all by themselves with thin balance sheets.”

Similar to other ACO enablers, Evolent takes a share of the bonuses as well as a percentage of the losses should they occur. In exchange, Evolent helps independent practices get set up in the program by paying for needed infrastructure support such as data capabilities and hiring nurse practitioners or other staff who can help with population health initiatives like wellness visits.

Aledade, an enabler with 38 ACOs in the Medicare program, partners exclusively with independent physician practices.

Aledade has historically taken on the “lion’s share” of the risk for its ACOs in addition to cashing in on a percentage of bonus payments, said Dan Bowles, senior vice president of growth and network operations at the company. The arrangement is how Aledade makes 90% of its revenue.

Small practices don’t have the capital reserves to take on downside risk entirely on their own, said Dennis Butts, partner at Guidehouse (formerly Navigant), a consultancy that has researched the Medicare ACO program.

“If they lose a million or two, that can cripple a smaller practice,” he said. “It has become more important for organizations to reduce the risk and you can (do that) by having some form of insurance. That can be through having an enabler to take on that risk for you or joining a larger network.”

A system approach

Although physicians have the peace of mind that they aren’t on the hook for all the losses, they still feel pressure from their peers and the enabler to perform well in the ACO.

ACO enablers also have mechanisms in place to boot out bad actors. Physicians who are part of Aledade ACOs can reassess a practice’s involvement in the organization if they “aren’t committed to the initiatives necessary for success,” Bowles said. But he noted that doctors being removed from an ACO is “relatively uncommon.”

Caravan founder Lynn Barr said Caravan monitors practices on a quarterly basis and if they don’t hit benchmarks they can be kicked out if performance doesn’t improve. “If they haven’t hit their mark by June, we put them in remediation. And if they haven’t by September, they are out of the ACO,” she said.

In response to a request for comment about the practice of ACO enablers taking on most or even all the downside risk for providers, a CMS spokeswoman said, “Where appropriate, we support giving ACOs the flexibility they need to be successful.”

Similar to its competitors, Privia Health shares in the savings and downside with its customers. It’s important the doctors have “skin in the game” to encourage improvement, chief clinical officer Keith Fernandez said. “Them being worried about the outcome counts,” he added.

Researchers evaluating the ACO program said the relationship between ACO enablers and doctors is generally one that works. Because enablers are so reliant on their ACOs to do well in the program to stay financially viable, they are the ones keeping the doctors accountable.

Physicians “are working with somebody (ACO enablers) whose entire business model is predicated on them being successful,” said David Muhlestein, chief research officer at Leavitt Partners. “Not only do they not want to pay back losses, they are dependent on the ACOs being successful in order to stay in business.”

Power in scale

Another benefit of joining enablers is scale. Although Medicare requires an ACO to have at least 5,000 attributed beneficiaries, the more lives the better to remove uncertainties that could lead to losses, said John Feore, associate principal at Avalere Health, a research firm.

“The smaller you are, the fewer beneficiaries you have in your network that are assigned to you and what that can lead to is greater volatility in spending over the course of the year,” he said. “A response to that is ACO enablers, or other organizations, that are able to bring multiple ACOs together under one umbrella and what that can do is mitigate, and almost eliminate, the variation in spending that is going to occur naturally with a senior population.”

Caravan Health spent much of last year consolidating ACOs to increase the number of beneficiaries assigned to each one. Caravan made the changes after the CMS finalized its changes requiring the accelerated transition to downside risk. Caravan went from 38 ACOs to 12.

“We are creating a security for them by putting them in these large enclaves where the numbers aren’t all over the place and taking them to risk,” Barr said.

Caravan was able to convince providers to consolidate into larger ACOs by agreeing to take on 75% of all losses should they occur in downside-risk tracks.

The future of the program will likely see larger ACOs given the required path to downside, according to researchers.

Barr said she predicts the future of the program is large ACOs. “This is a program that unless we innovate and pull our lives together, we are all going to fail. I can see it in the data,” she said.

Gosar at Evolent also said scale is part of its business strategy going forward.

“In the risk-taking portion of healthcare, which has historically been health insurance companies, the smallest plans are (covering) hundreds of thousands of lives. Sixty thousand (beneficiaries) is just the beginning” he said. “We want to be able to grow to a much larger risk-sharing business.”



By Don McCanne, M.D.

Accountable Care Organizations (ACOs) were established under the theory that by making the providers accountable for the health care provided, value could be improved. The providers would then share the profits with Medicare (sharing upside risk), but if there were losses, the providers would have to refund to Medicare some of the payments they received (sharing downside risk). It turns out that sharing downside risk is a better deal for Medicare, and thus CMS is pushing the ACOs into downside risk arrangements.

Much has been written about the questionable rationale of ACOs. They add more administrative complexity which wastes funds that should be going to patient care. It is not clear why physicians would want to enter an agreement with Medicare to share some of their profits with Medicare or to pay Medicare what are essentially penalties when they have losses. Looks like a win-win for Medicare and a loss-loss for the providers. Regardless, the business model of ACOs could not help but attract the attention of business managers and their capital.

So we have a new industry of ACO enablers. They provide yet more administrative services, wasting even more health care dollars – a unique characteristic of the U.S. health care financing system. Most of their revenues come from sharing the upside risk – profits – of the ACOs.

What are they providing that would make them attractive to the providers? Capital – to insure against downside risk losses – probably the most important reason that physicians are wary of ACOs. So how do the ACO enablers enable the ACOs to profit to ensure their own financial success? Their methods smack of managed care. They bring in “nurse practitioners or other staff who can help with population health initiatives like wellness visits.” They monitor practices and boot out physicians who don’t meet their benchmarks. Also they merge ACOs that are under their umbrella in order to dilute the financial impact of the higher risk patents. It’s about scale. As one CEO said, “We want to be able to grow to a much larger risk-sharing business.”

Capitalism. These guys bring in a few bucks, use them to displace functions of the private insurers and take over the health care delivery system, and then scoop up the profits, all in the name of enabling the ACOs. Sorry, America, we’re being screwed again.

Wouldn’t it be better to spread risk by establishing one single, universal risk pool that includes everyone? And, capital? Wouldn’t it be better to use our own funds paid through equitable taxes in amounts that each of us could afford? And the monetary return on that capital? Remove the profit line from the balance sheets since this isn’t about capitalism; it’s about social insurance, and our return is better health for all of us. And MBA managers? Boot them and their corporate model out.

You know, this sounds like we could take our Medicare program, fix it so it works better, and then expand it to cover all of us; maybe call it the single payer model of Medicare for All. Does anyone else think that’s a good idea? The ACO enablers probably won’t like it.

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About the Commentator, Don McCanne

Don McCanne is a retired family practitioner who dedicated the 2nd phase of his career to speaking and writing extensively on single payer and related issues. He served as Physicians for a National Health Program president in 2002 and 2003, then as Senior Health Policy Fellow. For two decades, Don wrote "Quote of the Day", a daily health policy update which inspired HJM.

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