MedPAC: Medicare Advantage and ACOs Can’t Cut Costs And We’ll Never Know Why

What would you do if you were a member of the Medicare Payment Advisory Commission (MedPAC) and you were told Medicare Advantage and Medicare’s ACO programs are losing money and there’s no way to determine why they’re losing money? That is what happened over the course of two MedPAC meetings, one in October and another in November. At the morning session of the October 6, 2016 meeting, MedPAC staff reported data on the Pioneer and MSSP ACO programs indicating that the two programs together raised Medicare’s costs slightly in 2015. And at the morning session of the November 3, 2016 meeting, staff reported that Medicare Advantage (MA) raised Medicare costs by 5 percent in 2016 (which is down from 14 percent in 2009) and, moreover, that it’s extremely unlikely anyone will ever know why MA plans and ACOs are raising costs.

If you were a commission member, wouldn’t you at least inquire why the staff thinks it’s impossible to determine the causes of the MA and ACO programs’ failure to cut costs? And if you confirmed that it really is impossible to know why they’re failing, wouldn’t you say it’s high time to terminate those programs? Not one of the 16 commission members present at those meetings did that. Many of the commissioners expressed frustration with the poor performance of the ACO programs (for some reason they spared the MA program from similar criticism). But not one demanded to know why the commission knows so little about what goes on inside HMOs, PPOs and ACOs, nor why the staff thinks the information vacuum will go on forever. Surprisingly, two commissioners (Buto and Gradison) did suggest it was time to terminate the MSSP ACO program. But they received no support from any other commissioners or staff.

So what is MedPAC going to do? Just sit on the sidelines and watch Medicare go on losing money to zombie managed care programs that don’t work but can’t be terminated? That’s what I think is going to happen. But MedPAC won’t come right and say that’s what they’re doing. They’ll figure out a way to camouflage their passivity.

In this post I will review MedPAC’s discussion at the October and November meetings about the failure of the MA and ACO programs. In my next post I will examine the plan MedPAC is developing that will allow the commission to escape having to state the obvious: Managed care is not working.

MedPAC concedes Medicare Advantage and ACOs are raising costs

MedPAC staff member David Glass reported the latest bad news about CMS’s Pioneer and MSSP ACO programs at the commission’s October 6 meeting 

The figures Glass reported indicated the two programs together lost $212 million for Medicare in 2015, or .3 percent of the $78.5 billion spent by the ACOs on Medicare recipients. [1] MedPAC staffer Jeff Stensland reported the latest bad news about the MA program at MedPAC’s November 3 meeting. “In 2016, Medicare paid MA plans on average about 5 percent more on a risk-adjusted basis than fee-for-service,”  he stated. (p. 11) [2]

These reports about the ACO and MA programs provoked an unusually candid discussion among commission members and staff about why these programs are raising rather than lowering costs. Most commissioners either made statements expressing their disappointment or posed questions indicating they wanted to know why the programs were performing so poorly.

In the next section I review the discussion at the October 6 meeting that followed the bad news about ACOs. In the section after that I discuss the issues raised about both the MA and ACO programs at the November 3 meeting. We will see that the staff could not answer the commissioners’ questions and criticisms. Please note I am not blaming staff for the information vacuum MedPAC and the rest of us are operating in. The staff are in the impossible position of trying to explain why the MA and ACO programs – two evidence-free and poorly defined managed-care nostrums earlier commissions endorsed – are not working.

October 6: MedPAC concedes they don’t know why ACOs are failing

The excerpt below from the transcript of the October 6 meeting contains a typical question raised by commissioners about ACOs. In this excerpt, commissioner Jack Hoadley is trying to figure out what ACOs actually do. He asks whether the staff can point to any research demonstrating that ACOs that dropped out of CMS’s Pioneer and MSSP programs were doing something different from the ACOs that stayed in the programs. I quote his question at length because it illustrates how badly the commission is floundering in the great ACO information vacuum (I have described this vacuum elsewhere).

DR. HOADLEY: …. And then [my] second [question]…is [about] the dropouts, and not just the dropouts from Pioneer, but I think you talked about a fair number of dropouts out of MSSP…. [A]t some point in the past you looked at some of the early dropouts…. I don’t know if there’s been any literature looking at this or anything you’ve looked at, but it seems to me they could be responding to a variety of factors, including … designed benchmark kinds of things …, organizational failure, they just couldn’t figure out how to do it, how to change practice patterns in a way to get a response. Or they could be pure financial decisions. “We did not make money” …, whatever. And I don’t know if there’s been any literature yet, or if it is, again, too early … to do that.

[ STAFF MEMBER] DR. [JEFF] STENSLAND: I think the last one is the dominant. If you look who drops out, it’s they didn’t make money. If you made money, even if you don’t know why, you stay in. (pp. 40-41 of the morning session, October 6 transcript; quote marks added)

Here is a second example (from the same meeting) of a commissioner seeking information on what ACOs do:

MS. [KATHY] BUTO: …. I wonder if you could remind us if there are good comparisons of how well ACOs are doing … managing chronic disease or complex patients…. Do we have good measures … of what the ACOs are supposed to be doing? (p. 22)

DR. STENSLAND: …. I don’t think we had the data right now that are lined up well enough to determine that…. [W]e don’t have any really clear evidence that says, oh, you know, this is now our example where care management is really working great. (p. 24)

Here is a third example:

DR. [RITA] REDBERG:…. I wanted to get at, I guess, operating cost…. Like what you had to do to start the ACO…. I’m interested if we have any data on how much those costs were and how much they varied…. And were they related to … savings? (pp. 43-44)

DR. STENSLAND:…. We don’t have data on all the individual ACOs’ internal costs of operation, and sometimes when we talk to them, they’re not exactly sure either what their internal costs of operation are, because, you know, “oh, we have some people, they work part-time on the ACO, they work part-time on something else.” (p. 44; quotation marks added)

Now I ask you, are these not sad questions and answers?  Ten years after MedPAC and Elliot Fisher invented the ACO concept at a MedPAC meeting, and nearly five years after CMS began the Pioneer ACO program, MedPAC commissioners have to ask these questions, and all the poor staff can say is, “We don’t know.” [3]

November 3: MedPAC can’t explain why managed care fails to cut costs

Jeff Stensland opened the morning session of MedPAC’s November 3 meeting by telling the commissioners managed care does not cut costs and, to make matters worse, no one knows why. Here is how he presented the bad news: “We now look to see how integration of insurance risk and provision of care in MA plans and ACOs has affected outcomes and costs…. HMOs can reduce use of services, but it is not clear that reduction in the number of services will offset the plans’ higher administrative costs on average.” He went on to say MA plans raised Medicare costs by 5 percent in 2016 above what those costs would have been had MA enrollees remained in the fee-for-service program, and that ACOs are not cutting Medicare’s costs. (pp. 10-11 of the morning session, November 3 transcript) A minute later he added:  “[I]t is not always clear that the legal and financial integration will lead to true clinical integration or to efficiencies. The research indicates that it’s hard, but not impossible, to generate efficiencies from these integrated models.” (p. 13)

As was the case with the bad news about ACOs at the October 6 meeting, this dismal news about not just ACOs but HMOs, the granddaddy of managed care fads, triggered requests for more information from commission members about what it is HMOs and ACOs actually do. As was the case at the October 6 meeting, staff stated the information wasn’t available or didn’t react, and in no instance did they promise to find the requested information.

The most significant portion of the discussion occurred shortly after Stensland reported that financial integration doesn’t lead to “true clinical integration” (whatever that means). Dr. William Hall suggested the staff bring them more information about that issue. “[T]his is an area we might want to take a look at,” he said. “[W]e’re constantly talking about improving population health in Medicare, and I don’t think we know the answers to these questions right now.” (p.32)

Commission member Warner Thomas then posed the identical question. “Did you look at or can we look at actual integration and clinical integration of services?” he asked Stensland. (p. 37)

At that point, Stensland decided to stop mincing words. He said it’s impossible to know when “integration” is doing something good and when it isn’t. I quote his entire reply:

It’s very difficult to distinguish from a truly integrated entity, where people are really talking to each other and cooperating and improving care, and an entity that just looks, on the surface, like they taught to the test to make it look like they’re doing this, but they really aren’t doing it

underneath. And I think that is – that difficulty of distinguishing between truly good integrated entities that are coordinating care and reducing costs and improving quality and integrated entities that say they’re doing that but really aren’t… — almost impossible to distinguish between those two.(p.38)

The obvious follow-up question to Stensland’s comment is, Why is it so difficult to distinguish clinical from financial integration? But no one on the commission asked that question. The answer is: Because the term “clinical integration” is impossibly flabby and vacuous, just as “health maintenance organization” and “accountable care organization” are impossibly vacuous. Because these terms have no definition (the “definition” offered for them is always a list of aspirations), it is not possible to distinguish a “true” HMO, ACO, or “clinically integrated” whatnot from an entity that merely pretends to be an HMO, ACO or “clinically integrated” whatnot.

Several commission members made it clear they were unwilling to accept the news that it’s impossible to peer under the corporate roof of “integrated” entities to determine what, if anything, the doctors and hospitals are doing differently from “un-integrated” providers. Those commissioners continued to insist that staff help them do that – to divine when “integration” is good (or “clinical”) and when it is bad (or merely “financial”). Vice Chairman Jon Christianson asked whether “anybody in their evaluations of ACOs” has asked whether ACOs lower spending merely by reducing provider fees as opposed to reducing volume of services (p. 40). Kathy Buto said she would like to see MedPAC comment on what distinguishes “bad consolidation” from “good consolidation,” and to do that, she said, the commission would have to ask, “What is it we think is desirable?” (p. 59) Commissioner Brian DeBusk said, “What I’d also like to do is hope that we can separate the concept of financial integration and clinical integration.” (p. 63) Similarly, Dr. Craig Sammitt insisted, “[W]e need to go deeper to understand what good consolidation or healthy consolidation looks like….” (p. 65)

Hear no evil, see no evil

I repeat the question I posed at the outset. If you were a member of MedPAC and your staff told you ACOs and HMOs are raising Medicare’s costs and that it’s not possible to determine why, would you let this dismal statement pass? Wouldn’t you demand to know whether it really is impossible to open the ACO and HMO black boxes and determine what goes on inside? And if you satisfied yourself that the black boxes can’t be opened, wouldn’t you then say it’s time to remove ACOs and HMOs from Medicare?

No commissioner demanded to know whether it really is impossible to shine some light into the ACO and HMO black boxes and determine whether “good integration” or “bad integration” is going on. Not one demanded to remove ACOs and managed care plans from Medicare.

I predict the unusually candid discussion among commissioners and staff at the October 6 and November 3 meetings will be for naught. I predict all the commissioners’ requests for more information on what the “integrated” entities in the MA and ACO programs are actually doing will be ignored by the staff and the commission’s chairman, Dr. Francis Crosson. And I predict commission members will allow them to get away with it.

In my next post I’ll present the evidence supporting my belief that the commission will find a way to avoid telling Congress managed care doesn’t work.

[1] The .3 percent loss figure for CMS’s two ACO programs together is my calculation based on the figures Glass reported to MedPAC at its October 6 meeting. Glass said CMS’s Pioneer ACO program saved Medicare $5 million in 2015 while the much larger MSPP ACO program cost Medicare $216 million. Here are excerpts from Glass’s statement:

[T]he 12 Pioneer ACOs had aggregate Medicare spending of about $5.5 billion [in 2015]. The actual spending for their attributed beneficiaries was slightly less, so there was an aggregate savings of $37 million. Medicare paid the ACOs that had savings $34 million in shared savings, and because this is a two-sided risk model, ACOs that had losses returned $2 million to the program. This all yields a net savings to the program of about $5 million, which is 0.1 percent of spending, about breakeven.

In the MSSP column, many more ACOs, thus a much larger aggregate benchmark and spending almost $73 billion. Savings were $429 million, which is similar as a percentage to the Pioneer at about 0.6 percent. The big difference is that MSSP was almost exclusively a one-sided model in 2015, so although the aggregate savings were $429 million, the program paid ACOs that had savings $646 million and collected nothing from the ACOs that had losses. So, in net, MSSP cost the program $216 million or negative 0.3 percent. (pp. 7-8 of the morning session, October 6 transcript).

[2] Medicare’s 5-percent overpayment to MA plans in 2016 is an improvement over previous years. According to MedPAC’s March 2009 report to congress  , the overpayment was 14 percent in 2009 and 13 percent in 2008 (p. 252). These overpayment figures fail to take into account the administrative costs MA plans force clinics and hospitals to incur. Similarly, the data on ACOs reported by staff to the commission consisted only of Medicare medical spending data. It did not take into account start-up and operating costs incurred by ACOs, nor the cost to CMS of administering the ACO programs.

[3] Here are other questions posed and comments made by commissioners at the October 6 meeting indicating commissioners want to know what ACOs do.

MR. GRADISON: Does the length of time that an ACO has been in business [matter]…? (p. 18)

DR. NERENZ: …. I agree to … moving to two-sided [risk] models [for MSSP ACOs]…. But given everything we’ve heard this morning, I have no idea how that’s ever going to happen. ACOs – the majority of ACOs, by everything we’ve seen – are losing money now in one-sided models…. How in the world they would be attracted to two-sided models escapes me. (pp. 63-64)

DR. HALL:… So what’s in it for the provider? …. I think we need to look at that …. I think we could learn a lot [by]really looking again at the super ACOs, the ones that seem to work really well, particularly the physician-based ones, and see exactly why they are successful…. (pp. 75-76)

DR. SAMITT: …. I must say, though, that I found the results incredibly unsatisfying…. (p. 76) We need to be going deeper to understand what are the real attributes that are determining the winners and the losers [among ACOs]. (p. 78)

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12 replies »

  1. At least in the pastI think both Switzerland and France didn’t count the birth as a mortality even if it were living and breathing outside the mother’s womb if length or weight were below a certain size.

    Hispanics that have a high rate of being uninsured have longer longevity than non hispanics in the US.

    There are so many variables in lifespan that it is relatively useless to use as a metric for how well a healthcare system is functioning.

    I believe WHO has several components that determine how good a healthcare system is. One of the components is egalitarianism. For that category a country could shoot all the ill in the head killing them and as long as that was done to everyone they would rate that country high quality.

  2. “Good, Allan. How can they want evidence-based clinical science and non-evidence-based management science?”

    Simple. They are leftist politicians.

    Cruise boats? Naw, they rock too much. How about the old no longer used oil rigs in the gulf just outside that imagninary line and relatively close to a good Texas university hospital.

    Let’s see what Trump will do. Unfortunately the ACA has left us in a deeper hole that will be harder to climb out of.

  3. They want no-evidence-based management because the management is calling the shots. If physicians were in better control, we would insist on evidence based administrative management changes. Agree with you completely, we must separate ourselves from the gibberish.

  4. We must figure out a way to refuse as a collective group to do it for free. We must also keep fighting about more ACO implementation especially when it costs more than FFS, something most of us think worked well.

  5. You have to be sure that live births are defined in the same way. We define a live birth as any living 20 week gestation newborn. That is the cohort we follow. You can see that changing this could alter the statistics profoundly. Only 3% of 20 week fetuses go on to live according to the NEJM (about 20 years ago.) Mothers that give birth to 20 week fetuses usually have a reason…for example pre-eclampsia or premature separation of the placenta, often owing to hypertension or diabetes. These women would have a higher mortality rate than a group of women who gave birth to 38 week fetuses, where the cohorts could begin in studies in other countries. I.e. This is where a country could decide to count live births. Find a country that you think is doing better than us in maternal mortality and I’ll try to see if all the variables are held constant in the comparison. But I have to start with a specific example. I don’t have the time to wander.

  6. Good, Allan. How can they want evidence-based clinical science and non-evidence-based management science?

    Docs should practice medicine in 20 mile off-shore cruise boats and separate themselves from this endless gibberish.

  7. CMS plus wants a lot of things, but they don’t want to pay for them so they shove those services onto the physician. Examples: They want health data that might be needed. Instead of paying someone to compile it they force the physician to do that for free. They want to impress patients on exchanges with their generosity so they provide a 90 day grace period to pay their premiums. The result of that decision is the doctors pay because they will not be reimbursed for 60 of those days.

    If government had to pay for these services and others these things would not exist.

  8. “It’s very difficult to distinguish from a truly integrated entity, where people are really talking to each other and cooperating and improving care, and an entity that just looks, on the surface, like they taught to the test to make it look like they’re doing this, but they really aren’t doing it.”

    That’s the heart of the matter. CMS has become so obsessed with documentation, clicks and data, that they cannot distinguish documentation from reality. Otherwise they would understand that the levels of distraction they are creating have destroyed communication and directly harmed patients. CMS wants more data, despite this, even though they have to turn to the free press to help them understand their own claims data. Despite this level of ignorance, CMS wants to increase complexity for these systems that they do not understand. As a side note, this also explains why MOC is total garbage. Passing tests has nothing to do with good medical care. Nothing.

  9. “This means that @400 women died in 2013 only because they lived in the wrong nation.”

    Do you not believe that many of those deaths could have been caused by the woman’s use of drugs and not the country she lived in?

  10. Over-all the level of cognitive dissonance is profound. Unless the level of transparency and trust can be improved for the physician leaders, its unlikely that the cost of our nation’s health care will really change in a manner to improve it effectiveness. Please don’t forget that our nation’s maternal mortality ratio ranks about 37th worst among the 46 developed nation’s of the world. We would need to reduce that by 75% to rank in the top 10.
    First described by CP Snow in 1957, the discord between the two major realms of knowledge continues unabated, the sciences and the humanities. We have solved the scientific mandate for Complex Healthcare Needs to the exclusion of the humanitarian mandate for Basic Healthcare Needs. We continue to be wrapped up in the actuarial basis of the Trust Funds. Our focus on community by community needs for healthcare will probably require a realization that the trust funds don’t exist (spent by President Lyndon Johnson) and that the actuarial basis of healthcare funding for our nation is a MYTH. Then, we can begin a nationally engaged collaboration with the healthcare industry that will re-focus the professional assets of healthcare based on Altruism, Collaboration, Excellence, Transparency and Trust.
    Our nation must find a strategy to decrease the cost of health care by 25% as defined by its portion of our Nation’s economy. With the prospect of improved economic growth, it may not be a “draconian” process. With an increase in the annual total cost limited to 1-2% less than the growth of the national economy (instead of 1-2% more than the economic growth rate), there are ample opportunities for manageable change. The Design Principles for managing a common pool resource (our national economy), already exist.
    In 2013, there were 3.9 million live births. Our nation’s maternal mortality ratio was @ 17 deaths per 100,000 live births that year, representing about 650 maternal deaths. The ten nations of the world with the lowest maternal mortality ratio averaged about 5. This means that @400 women died in 2013 only because they lived in the wrong nation. The details of this has been described most thoroughly by an Amnesty International Study published about 15 years ago. Basically, if we don’t solve the social mandate for Basic Healthcare Needs, we won’t be able to solve the economic mandate for complex healthcare needs. The concept of cognitive dissonance applies as the root cause of root causes.
    The basis for change has existed for more than 20 years. Elinor Ostrom wrote a book about this published in 1990: “Governing the Commons: The Evolution of Institutions for Collective Action.” We only lack the will to make it happen. The institutional model already exists and has for 100 years!

  11. Excellent look into the world of our elite expert medical central planners working….and Dennis Byron’s post furthers the look. I didn’t sleep better knowing that these folks are on the way to controlling (well, at least dramatically influencing) almost 20% of our economy.

  12. Can’t speak to the ACO issue but relative to the public Part C health plan program, the cost to the Trust Funds (the capitation fee sent to the sponsor to be spent on providers on the beneficiary’s behalf) is totally a factor of the math of the framework/bid/rebate rules. It has nothing to do with whether the healthcare delivery is good, bad or indifferent. Change those framework/bid/rebate rules as been proposed for at least 5 years to average bid or second lowest bid or whatever and the costs go down rapidly.

    Of course the benefits to the beneficiary might also go down because it is the rebate part of the equation that allows the sponsor to lower co-pays and deductibles from what fee for service (FFS) Medicare covers, cover annual physical exams that FFS Medicare does not cover, add vision and hearing spiffs that FFS Medicare does not cover, and so forth

    As an aside, the so-called extra 14% in 2009/5% in 2016 “cost” of the public Part C health plan program mentioned in the first paragraph of this article are apples to oranges to elephants to cement-block comparisons.
    — apples to oranges: The 14% does not include risk adjustment but the 5% does.
    — oranges to elephants: Both numbers are based on what Medpac calls a “like set of beneficiaries” as explained on the bottom of the first column on page 337 of the most recent MedPAC report (and in analogous spots in previous year MedPAC reports). But MedPAC never explains how a “like set” is defined. Based on the December 2016 MedPAC meeting, it appears that the FFS set includes those only on Part A as well as those on A and B whereas the A/B/C set by definition includes those on all three Parts. This is a totally bogus comparison. If you compared a true “like set” (e.g., also take out those on the special Part C deal for unions), the two would most likely be in parity or as close as ever possible given the framework/bid/rebate rules
    — elephants to cement blocks: If you actually look at the real numbers from the Medicare Trustees rather than all this politically motivated hocus pocus flimflam by MedPAC – see Table II.B.1 of current annual Trustees report (and in analogous spots in previous year Trustee reports)– you find that the actual annual cost per person of the public Part C Medicare health plan program vs. FFS Medicare has ranged from 5% lower in 1999 to 6% higher in 2006 to 5% less in 2015; in the years A/B/C was higher the reason seems to be an idea that was always destined to cost too much, a capitated-fee-financed Fee for Service insurance plan (called Part C PFFS), which has since been wound down. In addition if you look at the costs in aggregate over the years, A/B/C beneficiaries have cost the Trust Funds much less in aggregate because there have been many more of them in the years when they were costing less than FFS Medicare per person than in the years when they were costing the Trust Funds slightly more per person