Sharp HealthCare ACO is evaluating its legal options after leaving Next Generation

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ACOs have left because of a surprise risk adjustment that pushed some from receiving bonus payments to paying penalties, expert says.

Sharp HealthCare ACO, one of the seven that has dropped out of Next Generation, is evaluating its legal options after the Centers for Medicare and Medicaid Services introduced a risk adjustment factor midstream, a decision that will cause the ACO to lose rather than save money, according to the CEO of the accountable care organization.

“We are evaluating what our legal options are,” said Alison Fleury, CEO of Sharp HealthCare Accountable Care Organization and senior vice president of Business Development for Sharp HealthCare in San Diego, California. “The sections of the agreement that CMS adjusted unilaterally are not sections they are able to adjust unilaterally.”

Sharp HealthCare ACO is awaiting the results of a preliminary settlement report, expected in April, that will give a clearer financial picture, according to Fleury.

The ACO, which signed on to Next Generation for two years on January 1, 2017, is now on the hook for losses from 2017, but not for 2018.

Sharp’s ACO of two medical groups and the ACO parent organization made the decision to withdraw from Next Generation effective this past February 28. Its Sharp Health Plan is not part of the ACO.

Fleury did not say how much money the ACO is losing from its year spent in Next Generation, a CMS model intended to reward health systems for assuming higher levels of financial risk.

Had CMS not introduced the risk adjustment factor, the ACO would have come out on the plus side and would have achieved savings, she said.

Six other ACOs have also left Next Generation, with one of those, KentuckyOne Health Partners, also citing the risk adjustment factor as a reason.

Sharp HealthCare ACO, which had been in the previous Pioneer model from 2012 to 2014, joined Next Generation after the Pioneer program stopped at the end of 2016. In Pioneer, Sharp neither lost nor gained savings but did well from a utilization standpoint, Fleury said.

One reason the ACO was optimistic about Next Generation was that unlike Pioneer, that used national inflation factors in its benchmark,  CMS took regional factors into account.

Another was because CMS said Next Generation would be predictable, Fleury said, compared to Pioneer, in which benchmarks changed every quarter.

But on October 1, 2017, CMS introduced a risk adjustment factor into the model that reduced actual risk scores by 4.82 percent.

“It’s a material impact,” Fleury said. “One of the key things CMS said about this model, was that it’s predictable. I think it’s unfortunate that this has not become a predictable model.”

In October, CMS gave ACOs the option of signing on to the 4.82 percent risk adjustment and receiving certain benefits, or not signing.

Sharp decided not to sign as the ACO would have gone from financial gain to loss, but on December 7, 2017, CMS mandated the amendment to the original participation agreement on benchmark calculations, that forced the 4.82 percent risk adjustment, Fleury said.

CMS made the change because the agency predicted risk scores would go down as younger, healthier baby boomers went on  Medicare, according to Fleury. CMS actually saw risk scores go up, but believed this was due to health systems doing a better job of coding, rather than actually having a sicker population.

Sharp HealthCare’s Medicare beneficiaries are older, on average about 74-years-old, according to Fleury.

The senior population in San Diego has grown by 12.4 percent between 2013 and 2016, and the Medicare Advantage population has grown by more than 16 percent, she said.

Also putting the ACO at a disadvantage for CMS’s risk adjustment, Sharp is already cost effective, having been in capitation models for 30 years. Both primary care physicians and specialists are in the ACO, meaning that the traditionally sicker population that sees specialists would also be in the model.

“But the model is risk-adjusted so that’s OK,” Fleury said was the thinking.

In fact, expecting savings out of Next Gen, Sharp spent $1.9 million integrating its Medicare fee-for-service beneficiaries, about 9 percent of its Medicare population, to its alignment of PCPs and specialists.

Fleury said she has not coordinated Sharp’s argument with the six other ACOs that have left Next Generation. Each system would be impacted differently by the risk adjustment, but she feels that the reasons why they left would be consistent.

KentuckyOne Health Partners ACO is among those. President Don Lovasz also referred to the unpredictable nature of the model and its risk adjustment as a reason for leaving.

“Since 2013, KentuckyOne Health Partners has participated in CMS Medicare ACO programs, including the 2017 Next Generation ACO model, with excellent outcomes,” Lovasz said. “Because the Next Generation ACO Model is still maturing and is demonstrating to be unpredictable with changes to risk coding intensity adjustments and mandatory caps on risk adjustments, KentuckyOne Health Partners chose not to participate in the 2018 performance year.  Through our membership in the America’s Physician Group, and along with other accountable care organizations across the country, we are working with CMS and CMMI to improve the predictability and transparency of their programs so we may participate in future Medicare value- based programs.

David Muhlestein, chief research officer for Leavitt Partners who gave the names of the ACOs which left Next Gen through a tweet said, “In short, the ACOs I’m familiar with were concerned with changes to risk adjustment that, for some, pushed them from receiving bonus payments to paying penalties.”

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