Testimony to the Senate Committee on Veterans Affairs and Health S. B February 27, What is an Accountable Care Organization or ACO?

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1 Testimony to the Senate Committee on Veterans Affairs and Health S. B. 739 Professor Sidney D. Watson Center for Health Law Studies Saint Louis University School of Law February 27, 2014 My name is Sidney Watson and I am Professor of Law at Saint Louis University Center for Health Law Studies. My research and teaching focus is on Medicaid, health reform and access to care, and I have authored more than 50 scholarly articles on Medicaid and related issues. I have been following the policy discussion about and development of ACOs in Medicaid, Medicare and private sector. What is an Accountable Care Organization or ACO? ACOs are networks of doctors, hospitals and other providers that share responsibility for providing coordinated care to patients in hopes of improving quality and outcomes, and reducing unnecessary spending. In the traditional fee for service payment system, providers generally are paid for each test and procedure, which tends to drive up costs. ACOs do not necessarily do away with fee for service payment, but they create savings incentives by offering a share of any savings (a bonus) to groups of providers who work together to meet specific quality goals that improve health outcomes while keeping costs down. For patients, ACOs are typically different from HMOs because patients are still free to see the doctors and other providers of their choice outside the ACO network. How are ACOs different from HMOs? ACOS are different from HMOs in at least three ways: First, they are provider- led rather than insurer- led. HMOs use managed care techniques like utilization review and insurer- run case management to decide what care a patient may receive. In ACOs the providers decide what care is provided. Those caring for patients work together across a spectrum of delivery settings to figure out the sorts of care- coordination systems work for their patients. Second, ACOs are paid based upon value- based purchasing. ACOs must first meet quality standards in order to receive a share of any cost savings (bonus). While managed care financial incentives have tended to focus merely or primarily on cost savings, ACO financial incentives put quality at the forefront. These phrase value- based purchasing signals this evolution from a focus merely on cost cutting to a 1

2 concern about high value health care that reward good quality and cost consciousness. Third, ACO patients are typically not required to stay in- network (although this can vary in the Medicaid setting). They may use any provider who accepts their insurance payment. The ACO financial structure is meant to incentivize the provider to offer high quality coordinated care, not limit the patient s choice of providers. Where did ACOs come from? The ACO concept first appeared in 2007 as part of a discussion about how to target Medicare pay- for- performance incentives not to individual providers but to groups of providers to encourage them to work together to accept accountability across for delivering coordinated care across delivery settings and over time. Medicare ACOs were formally recognized in 2010 the Affordable Care Act and the Medicare Shared Savings Program (MSSP). The Medicare statute and implementing regulations authorize a specific form of Medicare ACO in which provider- based entities with at least 5,000 Medicare patients (as a general rule) agree to manage the care of those patients, submit quality data, and share savings (bonuses) if quality improves and saving targets are met. Providers may also opt to be eligible for higher shared savings (bonuses) in return for taking on a share of the risk if costs exceed the spending targets. In the Medicare MSSP model patients remain free to see any provider and ACOs are paid based upon the patients who get the plurality of their primary care from a provider belonging to the ACO. 1 The ACA authorizes three Medicare ACO demonstration projects: Pioneer ACO Model, Medicare Shared Savings Program for ACOs (MSSP), and the Advance Payment ACO Model. The Advance Payment ACO was developed in response to concerns that smaller providers would be unable to participate in the MSSP because they lacked the resources to invest in infrastructure and staff needed for care coordination. This model provides upfront payments to help offset investments to establish ACOS that do not include large hospitals or that serve rural areas. Participants in these Medicare ACO demonstrations are required to report 33 quality measures. Participants who meet quality and cost benchmarks are eligible for shared savings bonuses. Some are also at shared risk. Early results of the Medicare ACO demonstrations are promising. By and large participants have met their quality targets, providing better care to their patients. Initial savings are relatively modest, but encouraging. Early results in the Pioneer ACO demonstration average about $20 less per person per month. While some of the Pioneer ACOS did not save much compared to traditional fee- for- service Medicare providers, eight had savings estimated at about $155.4 million in year 2

3 one. 2 Similarly, early results from the MSSP show that 29 of the ACOS that joined in 2012 generated savings and only two lost money. 3 The initial results of the Medicare ACO demonstrations have proved promising enough that the Medicare ACO demonstration is growing and the ACO model is being adopted by in both the private insurance market and Medicaid. As of 2013, there are over 400 ACOs across the country. 4 Missouri now has nine ACOs in the Medicare Shared Savings Program: BJC Healthcare and Heartland Regional Medical Center joined in July KCMPA ACO (also in Advance Payment ACO) and Mercy ACO joined in January Central Missouri Medical Network, Health Choice Care, Kansas Primary Care Alliance, Physician Collaborative of Kansas City, and SSM ACO joined in December Are there Medicaid ACOs? Eleven states are in the process of implementing Medicaid ACOs: Colorado, Utah, Oregon, New Mexico (?) and Minnesota are operational. Iowa, Illinois, New Jersey, Vermont, Massachusetts and Maine plan to begin implementation in ACOs offer an opportunity to develop specialized coordinated systems of care to serve vulnerable populations who rely on Medicaid coverage. Most state developing Medicaid ACOs are looking carefully at how to provide care to vulnerable populations, as well as integrate services like behavior and dental care that are often carved out of managed care. 6 Minnesota is using an ACO model to integrate financing and delivery of both medical and social services. Colorado and Utah are specifically excluding those in nursing facilities. Dual eligible, those who are eligible for both Medicaid and Medicare pose a particular challenge. States may not, absent a waiver, mandate that dual eligible participate in a Medicaid ACOs. It is also difficult to allocate savings between Medicaid and Medicare. As a result, states are coming up with a variety of approaches: For example, New Jersey is excluding dual eligible while Oregon is developing a separate plan for dual eligible. What ACO models have emerged in Medicaid? ACOs are new to Medicaid. As of May 2012 only Colorado s was operational. 7 But even at this early stage, the Center for Health Care Strategies has identified three types of ACO models emerging in Medicaid: (1) Provider Led Model (Minnesota, Massachusetts, New Jersey) (2) MCO Led Model (Utah, Oregon) (3) Partnership Model (Colorado, Maine New Jersey) 3

4 All three models have been implemented within a mix of Medicaid fee- for- service, managed care, and primary care case management (PCCM) environments. In deciding which model to use, states tends to select the model that best graphs on to their existing delivery system model and strengths. 8 (1) The Provider Led Model aligns closely with the Medicare ASO model. The state Medicaid agency contracts directly with provider- led ACOs. Providers establish collaborative networks and oversee patient care management. Typically, in the initial stages the ACO is eligible for shared savings, although some states hope to move to a shared risk model over time. States using this Medicaid approach tend to be ones that already have a several provider- driven Medicare and private- payer ACOs offering an opportunity to align payment across multiple payers. Examples include Minnesota, Massachusetts, and New Jersey. (2) In the Health Plan/MCO Driven Model an insurer (called a managed care organization in Medicaid) is actively engaged with providers in forming an ACO, delivering data and building the capacity of providers who assume greater accountability for coordinating patient care. The MCO remains at financial risk, as with traditional Medicaid managed care, but new payment models between the MCO and providers are designed to reward providers for meeting quality targets and reducing spending. In Utah, the state Medicaid agency is building upon its existing managed care framework, continuing to contract with four MCOs but replacing existing managed care contracts with what it calls Accountable Care Organization contracts. The state pays the MCO/ACO a capitated per- member- per- month fee and the MCO/ACO is at full risk. The MCO/ACOs decide how to reimburse their providers and the contract with the state allows them to share savings with providers as well as penalize them financially if goals are not met. The MCO/ACOS cover four urban counties with 70% of the state s Medicaid population and Medicaid beneficiaries have a choice of at least two plans. The state is not implementing MCO/ACOs elsewhere because the state believes it is too difficult to implement managed care in rural areas. The MCO/ACO program is presently limited to Medicaid adults and children. CHIP children are covered in a different program. 9 In Oregon, the health plan/mcos are called Co- ordinated Care Organizations (CCOs). They are risk- bearing entities paid under a global budget that grows at a fixed rate. Current Medicaid Managed Care Organizations are eligible to apply to become CCOs but must transition to a governing board that includes more provider and community involvement. (3) In a Partnership Model an organization serves as a community- based or regional ACO developing the network of providers, ensuring care- coordination, and 4

5 being accountable for performance, quality and cost. Providers partner with the regional/community organization as part of the care team. The state Medicaid agency or an MCO pays the regional/community organization based upon a shared savings model that allows the regional/community Organization and participating providers to share in any savings if quality benchmarks and spending targets are met. The state or MCOs retain the financial risk. Colorado moved to a Medicaid ACO model from a fee for service model. Instead of relying on existing Medicaid MCOs or providers to serve as the ACO, the state contracted through a competitive bid process with one organization in each of seven regions to serve as the Regional Care Collaborative Organization (RCCO). In at least four regions, the RCCO is a not- for- profit health insurer. 10 The Regional Care Collaborative Organization (RCCO) creates a network of primary care providers and provides them with support for care management and administration, helps them coordinate care for Medicaid enrollees and works to better integrate primary care with hospitals, specialists and social services. The state contracts with a Statewide Data and Analytics Contractor to create a data repository for collecting performance- related information from PCMPs and providing data and analytic reports to the RCCOs. The state Medicaid agency supports the extra work required to coordinate care and run this system by paying a $20 per- member- per- month payment split $13 to the RCCO, $4 to the PCMP, and $3 to the data service. The agency withholds $1 from the RCCO and the PCMP each month to create an incentive pool to pay for meeting specific quality improvement goals. Providers continue to be paid on a fee for service basis with the incentive of bonuses for meeting quality and cost saving targets. Over time, the state intends to increase the portion of the monthly fee that is at risk as well as pilot alternatives to fee for service payment. Colorado s ACO is the only one in operation long enough to publish data. In , 47% of all Medicaid beneficiaries were enrolled in the ACO, 352,000 Medicaid patients, including 222,862 children. On the quality side, Colorado initially focused on three quality indicators aiming to reduce hospital readmissions, high cost imaging and emergency room visits. For , hospital readmissions declined 15%, high cost imaging 25% and there was no meaningful change in ER room visits. Colorado s cost savings for fiscal year were $44 million, with the state retaining $6 million in savings. The net savings to the state are after paying shared savings bonuses of 3.34% of total medical spending to the Regional Care Collaborative Organizations and.73% to the Primary Care Medical Providers, and $3 million to the Statewide Data and Analytics Contractor for services. In , the first year of the program when fewer people were enrolled, the state reported $9 million in savings. 11 5

6 1 Kaiser Commission on Medicaid and the Uninsured, Emerging Medicaid Accountable Care Organizations: The Role of Managed Care (May 2012), at 2 2 A Brief Overview of Accountable Care Organizations, Missouri Foundation for Health (forthcoming Feb. 2014). 3 Id. 4 Id. 5 Tricia McGinnis, State- Level Perspectives: Medicaid ACOs, Center for Health Care Strategies, Slide 6 (Jan. 2014). 6 For charts providing details for 7 states, see Medicaid Accountable Care Organizations: Program Characteristics in Leading- Edge States, Center for Studying Health Systems Change (Feb. 2014). 7 Kaiser Family Foundation, Emerging Medicaid Accountable Care Organizations: The Role of Managed Care (May 2012). 8 Tricia McGinnis, Rob Houston, Deborah Brown, The Balancing Act: Integrating Medicaid Accountable Care Organizations into a Managed Care Environment, Center for Health Care Strategies, 1-2 (Nov. 2012). 9 Jane Anderson, Utah Implements ACO Model in Most Populous Medicaid Counties, AISHealth (Feb. 2013). Utah carves out of its MCO/ACO mental health, substance abuse treatment, nursing facilities and transportation. National Academy for State Health Policy, State Accountable Care Activity Map, 10 Diana Rodin, Sharon Silow- Carroll, Medicaid Payment and Delivery Reform in Colorado: ACOs at the Regional Level (March 2013) 11 Accountable Care Collaborative Annual Report FY , (Nov. 1, 2013), 6