With uncertainty in Medicare's accountable care program, some hospital systems are scrambling for long-term options and may give insurers a run for their money.
Last year, according to the latest federal data, about 64 of the 243 Medicare accountable care organizations performed well enough to earn bonuses, saving taxpayers a collective $372 million and earning $445 million in bonuses.
Today, there are 360 Medicare ACOs serving 5.6 million American seniors, but whether they'll all be able to operate feasibly under the current regulations in the long-term is a matter of debate. Some health systems may end up faring well with Medicare ACOs, while others are clearly struggling.
For both, though, a new strategy is gaining traction: launching a Medicare Advantage plan. It might be a new competitive cause for concern among some insurers.
As one voice behind the idea, consultant John Gorman, wrote: "If you're a Medicare Advantage Plan with a Medicare ACO in your neighborhood, or worse in your network, start sleeping with one eye open. It's now time to keep your friends close and your enemies closer."
While the news of shared savings was hailed by participating health systems and federal health officials, a number of key providers have dropped out of the ACO program, amid concerns over having to take on too much financial risk and without enough control of patients' provider decisions.
In late August, San Diego-based Sharp HealthCare withdrew from Medicare's Pioneer ACO program, becoming the 10th of what was originally 32 healthcare providers to leave.
The 22 providers remaining in the Pioneer program have to accept potential losses along with potential bonuses after the first year, while the majority of ACOs, in the Shared Savings ACO program, don't start incurring losses until year three.
Most Medicare ACOs face common challenges that may be insurmountable, argues Gorman, founder of the eponymous Gorman Health Group. Launching a Medicare Advantage plan, Gorman argues in a series of blog posts, may coincide nicely with the original goals of ACOs and the financial and organizational interests of many health systems.
Between the inability to control beneficiary out-migration, the inability to generate savings in already-efficient markets, like San Diego, and the possibility that patients may opt-out, health systems in ACOs may be "scratching their heads and wondering how to monetize the millions they've invested in population health and complex case management -- the 'hard part' of Medicare managed care," Gorman wrote recently.
ACO alternatives around the food chain
As Gorman sees it, there are going to be three options for health systems after the ACO program ends in the coming years.
One is returning to traditional fee-for-service Medicare with a hole in the budget and pursuing ACO arrangements with commercial payers. A second is crafting pay-for-quality contracts with Medicare Advantage insurers (which can overlap with the first option). A third: "Build your own Medicare Advantage plan and move up the food chain," Gorman writes.
"A successful Medicare ACO has already mastered the hardest parts of elder-care: care management and an engaged network of high-performing providers. What's missing is insurance functions, which can be built or bought," he argues.
Gorman, a managed care administrator at CMS's predecessor agency in the 1990s who counts many insurers among his clients, thinks Medicare Advantage is a sound investment for health systems in these times of shrinking per capita reimbursement, integrated care and aging baby boomers, for a variety of reasons.
Starting in 2017, the Medicare Advantage benchmark is set to grow at the same rate as fee-for-service Medicare, while the Medicare ACO benchmark resets every 3 years, "confiscating most hope of shared savings," Gorman writes.
Medicare ACOs that perform especially well "watch CMS keep less of what they've already earned, while quality gets (Medicare Advantage) plans a bonus -- and new entrants automatically start with a 3.5 Star Rating and a 3.5% bonus," he continues. "ACOs share their savings with CMS; MA plans keep theirs."
And treating seniors in your own Medicare Advantage plan may actually make it easier to offer an integrated experience. Medicare ACO beneficiaries are "free range," as Gorman puts it, while Medicare Advantage benefit designs favor in-network utilization, which can solve the beneficiary out-migration problem.
Gorman concludes: "If you're a health system watching this all unfold, let me suggest this: instead of investing in a Medicare ACO, take your money to Vegas or to Medicare Advantage -- in either place you know the rules and the odds."
Not so fast taking risk
Some Medicare ACOs are prepared for the risk of operating a Medicare Advantage plans and some are not, and many ACOs are somewhere between those two places, said Gary Jacobs, managing director at PricewaterhouseCoopers' Health Advisory practice.
"Medicare Advantage is a different business than running a hospital or a physician practice," said Jacobs. "It's quite a leap; some clients have done well at this and some are struggling; Likewise with ACOs."
In Medicare Advantage, like other health insurance segments, there are risk-based capital requirements that vary by state and can be substantial, as well as significant start up costs and compliance rules.
Even so, a number of health systems have decided to take a gamble on Medicare Advantage, seeing it as a way to dip their toes into the greater health insurance pool.
The University of North Carolina Health Care, for instance, is launching a new Medicare Advantage HMO plan for seniors in Wake County, home to greater Raleigh, as part of a new population health program.
Then there's Catholic Health Initiatives, the 93-hospital system based in Denver and sponsor of five Medicare savings ACOs. CHI is using two recent acquisitions, an Arkansas HMO and a Washington State Medicare Advantage plan to grow a portfolio of commercial and Medicare plans nationally, including markets in Kentucky, Nebraska, Ohio and Tennessee.
Smaller regional providers are eying the option as well.
Baptist Health System, in San Antonio, is moving forward with a collaborative ACO network. "The game plan is for this collaboration to continue to evolve with a goal of creating and operating its own Medicare Advantage plan," said Jerry Broderick, the former executive director at Baptist Health's physician network and now executive consultant at Culbert Healthcare Solutions.
"If a system can embrace and commit to taking on 'risk' and invest in the required IT resources in order to report its data, such a venture can be successful."