The Medicare ACO Demos Are a Mess. Here’s What it Means for Health Plans.

This week, another Medicare Pioneer Accountable Care Organization Demonstration site, longtime GHG client Sharp Healthcare in San Diego announced it was dropping out.  It was the tenth Pioneer to quit the trail, and not for lack of trying.  Many of the Pioneers did great on improving quality and reducing costs — the issue is not the performance of Pioneers.  It’s CMS’ methodology, with its requirement for Pioneers to bear risk in the third year, and benchmarks calculated to make any gainsharing impossible.

The deck was stacked against them from the beginning, including inability to control beneficiary out-migration, inability to generate meaningful savings if the network was already highly efficient, and the beneficiary at-will opt-out. It’s left dozens of Medicare ACOs in both Pioneer and the more than 330 in the Medicare Shared Savings Program (MSSP) 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.

I think many will conclude it’s time to move up the food chain and become Medicare Advantage plans, and we’ll start seeing them next year, with a mini-surge to follow in 2016 and 2017.  Look at it this way: Even if only 10% of all Medicare ACOs decide to jump into the elder insurance game, we could be talking as many as 40 new Medicare Advantage plans entering the program over the next three years.  All of them local and/or regional powerhouses with loyal followings to command those thousands of “assigned” beneficiaries.  At a minimum, a Medicare Advantage contract of their own would command big leverage in negotiations with competing plans they may already be in business with.

To participate in Pioneer or MSSP, health systems needed to develop sophisticated reporting structures to meet CMS demands, as well as the significant investments needed to better manage their elderly frequent flyers.  They assembled more integrated, coordinated providers and held them to tough quality standards, and for the most part, they delivered.  But for all the hard work of evolving their delivery systems, most — we estimate as many as three-quarters — won’t see a penny from either demonstration.

Many of these ACOs will look at the health plans they contract with in Medicare Advantage, flip the model on its head, engage the plan or a vendor like TMG Health to operate “back office” insurance functions like enrollment, and enter the market in 2016 or 2017 as private-label senior plans.

They’ll have a great story to tell, loyal followings, brand recognition, and — hugely — will enter Medicare Advantage with the newbie default 3.5 Star Rating, including the 3.5% bonus.  And let’s not forget 2016 and 2017 are when the worst is over in the Medicare Advantage rate cuts from the Affordable Care Act, with MA benchmarks being pegged at the traditional Medicare growth rate.  These two factors, not to mention a health system’s inherent advantage in collecting risk adjustment diagnostic codes, should provide a substantial tailwind to these new entrants.  Disappointed Medicare ACOs will reinvent themselves as MA plans making an entrance in 2016-2017 like Beyoncé at the Video Music Awards.

This mini-surge of provider-sponsored MA plans should be considered by many sectors of our industry, from provider relations execs and health plan strategists, to pharmacy benefit managers and other vendors hunting new prospects. Disruptive events like the Affordable Care Act have ripple effects, and one will be the evolution of ACOs into full-risk insurers seeking to control their own destiny.  And we need to look no further than members of the Health Plan Alliance, systems like Geisinger Health Plan, or UPMC, or Security Health Plan to see the impact they can make.

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.


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