Signal to Noise Challenges in ACO Actuarial Data: Who’s ‘At Greater Risk?’

This post originally appeared at HealthHombre. | BlogThe national health expenditure data released last week showed relatively modest 2011 growth, which promptly provoked a back-and-forth about what the figures truly say and what they portend for holding spending in check going forward.  Amid considerable mental gear gnashing, the data have been assessed in light of such potential cost influencers as lingering recessionary effects, clinical v. administrative drivers, and imminent arrival of the full-bore ACA.  Occupying several nodes along the public-opinion continuum, headlines ranged from “Spending Growth at 52-Year Low” to “Americans Boost Spending” to (out on the far edge of the limb) “Future is Not Clear.”

More clear is the sharp relief into which the expenditure data cast other data, detailed in a new analysis that suggests a greater risk of Medicare Shared Savings Program underpayment of ACOs in precisely this type of environment — i.e., when no one’s altogether sure about the ups and downs of health care spending.  As a CMS summary put it:

[T]he role of random fluctuations in year-to-year healthcare spending may play a larger role in savings measurement than previously anticipated. Although CMS is fairly well protected from the chance that an Accountable Care Organization (ACO) would be rewarded inappropriately for savings that did not truly occur, ACOs are much less protected from the analogous chance that they are inappropriately denied rewards for savings that do occur.  (emphasis supplied)

And so as CMS moves forward with the latest wave of ACOs, the agency seems to have its own bets pretty well covered.  ACOs themselves, however, could face “denied rewards,” with the risk that genuine savings will go unshared particularly acute for smaller ACOs.  The analysis mused that the new data may mean ACO participation will be skewed toward groups of larger providers better able to buffer themselves against the vicissitudes of future health spending patterns.

In a risky world, ACOs, perceived by some as potentially “fragile” to begin with, seem little strengthened by this latest confluence of data.


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  1. This is an important and under recognized challenge for ACOs. Here’s another way to look at it:

    Depending on the size of the ACO, the House (CMS) is taking 2-4% off the top BEFORE any “savings” are actually shared with the ACO.

    1. Indeed Vince! Oh the tangled web we weave…. Now thrash that against a recent @HealthHombre (re-post on @ACOwatch):

      wherein CMS tacitly admits the limits of their ability to fairly allocate risk/reward and therefore the equitable accounting to minimally track 2 participating ACOs (even with their ginormous experiential database).

      So minimally, might the compensating impulse be a fall back to the ‘faith based’ assumptions that effective medical management (i.e., an indirect Medicare Advantage crossover effect for some) overlaid against an unmanaged Medicare FFS baseline, must result in net budgetary savings and thereby generate gain sharing pools to allocate and distribute to participating ACOs once the reporting period closes and is reconciled.

      Yup, we’re in for some interesting ‘transitional times.’

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