For ACOs to remain relevant as leaders of Value-Based payment models, they must step up now to generate more cost savings for Medicare patient care. Budget cuts for Medicare are once again under discussion by conservatives as political pressure mounts to lower governmental spending. Meanwhile, CMS is expanding risk in Medicare value-based payment models, moving quickly away from Fee-for-Service reimbursement. The new ACO PC Flex model is designed to create per-patient reimbursement for small ACOs in trade for higher reimbursements and funding for infrastructure. Most newer CMS payment models are now incorporating per-patient payments designed to lower the total cost of care.
As the provider-driven vanguard in the Medicare Value-Based Care effort, ACOs’ total savings represent just slightly over 1 percent of $944.3 billion in total Medicare spending. Some ACOs have individually generated higher savings for their patient’s care, but others are at zero or in the red. ACOs collectively produced a considerable $10.5 billion in savings in the most recent reported year of 2022. However, it is not enough to forestall budget cuts in the program as the fiscal situation tightens.
Why just one percent? The answer isn’t complicated: The way ACOs try to reduce costs is, in most cases, not sophisticated enough. And they have lacked both data and tools to generate deeper savings in Medicare patient spending.
Soft Sell on Cutting Costs in Value-Based Care—Until Now
Cutting costs in health care is fraught with misperceptions, starting with the notion that cost control invariably hurts patients. Those misperceptions have emerged from experience with cost management through prior authorization and benefit cuts by payers and payer-providers. From its inception, the ACO model emphasized that lower costs would automatically result from better coordination of care and improvements in patient health.
Unfortunately, cost control is never “automatic.” It requires measurement, understanding and ferreting out cost drivers, cost variation, and other exacting elements of cost.
Rising healthcare costs involve many hidden factors—practice patterns, patient engagement in initiatives to improve health, equitable access and services, and the slow and certain progression of chronic disease and risk factors into more serious and costly illnesses. Because many of these factors involve clinical factors and patient-physician communication during care delivery, addressing these issues will help, not hurt, patients.
Some of the highest costs are incurred from specialty care diagnostics and treatment. But many ACOs have considered specialty care beyond their purview, by both the reimbursement system and their membership makeup.
ACOs’ typical route for cost savings has been through population health strategies to reduce hospital admissions and emergency room visits. That has produced some savings, but it is low-hanging fruit to reduce costs, such as skilled nursing facility stays for the maximum time frame rather than for the patient’s actual therapeutic needs. But the totals tell the story— the savings from these basic approaches are not enough and won’t be enough to ensure the future of ACOs.
Bootstrapped ACOs Have Lacked Data and Tools for Cost Control
Measurement and successful strategies that get at the heart of patient care costs require data. Until recently, most ACOs received quarterly retrospective claims data from CMS for their patient services. But not all used even this transactional data. Apart from diagnosis information and events, claims data does not contain the clinical information needed to ascertain the patient’s condition or risk level. Thus, population health cannot identify the highest-risk individuals except by counting events and comorbidities associated with claims. There is little predictive capacity in this data, nor are clinical interventions possible without knowing the patient’s status.
Since the drivers of cost are clinical, ACOs also need clinical data from their participating physician groups’ EHRs to adequately pursue cost control strategies and identify the drivers in cost variation.
In the last year, CMS rules have put greater emphasis on ACO aggregation of data, by way of two new requirements. First, the transition in ACO quality reporting from sample-based reporting to APP Reporting pushes ACOs to begin taking data aggregation seriously to perform APP reporting successfully. Second, the recent Quality Payment Program rule changes require ACOs to facilitate a transition of their participating practices to Certified EHRs, making it easier for data aggregation.
It won’t be long before ACOs are no longer data-impoverished and will have the means to pursue real cost control in conjunction with clinical excellence and outcomes for patients. But to accomplish that, they’ll need a strategic map.
How to Develop a Strategic Map for Cost Control
ACOs will need many concerted strategies designed to pursue better patient care and outcomes; many of those strategies will involve linking quality and patient treatment to cost consequences. For those new to EHR data, this is complicated territory. Your ACO needs to know how to navigate data quality, data gaps, priorities for your patients, priorities for the ACO, your physician involvement, and how to evaluate costs.
Technology will also be essential to build comparable units of cost measurement with integrated clinical and claims data, or episodes of conditions, treatments, and procedures. Episodes will provide the vehicle for targeting interventions to patients. ACOs will need to look for analytics and data aggregation vendors with specific clinical expertise.
In conclusion, ACOs must develop a comprehensive strategic map for cost control to thrive under value-based payment models. With the looming threat of Medicare budget cuts and the shift towards risk, ACOS must generate significant cost savings while maintaining high standards of patient care. This journey involves leveraging clinical data, improving patient engagement, and addressing hidden cost drivers. By embracing these strategies and prioritizing data aggregation, ACOs can achieve the necessary balance between cost control and clinical excellence, ultimately securing their place in the future of Medicare value-based care.
About Theresa Hush
As CEO and Co-founder of Roji Health Intelligence, Theresa Hush is a healthcare strategist and change expert with experience across the healthcare spectrum, including public, non-profit and private sectors.