What health plans need to know about Medicare Advantage financial reconciliation
What health plans need to know about Medicare Advantage financial reconciliation.
On December 31, 2018, the Centers for Medicare and Medicaid Services (CMS) published a final rule that will significantly change the Medicare Shared Savings Program (MSSP). This paper is the twelfth in a series of Milliman white papers on the “Pathways to Success” proposed and final rule.
The final rule includes changes to the financial benchmark methodology that measures the gross savings or losses of an accountable care organization (ACO) under the MSSP. Four key elements of the financial benchmark methodology changed: agreement period length, regional fee-for-service (FFS) adjustment, risk adjustment, and trend. In this paper, we discuss these changes and important implications for Medicare ACOs.
CMS has lengthened the agreement period from three performance years to five performance years. Consistent with the methodology in place before this rule, (i.e., the “prior approach”), the benchmark will be rebased (i.e., recalculated using updated experience data) for each agreement period and be based upon the ACO’s experience in the historical benchmark period, which is the three years prior to the agreement period. CMS will continue to vary the weighting of benchmark years (BYs) between the first agreement period (10%/30%/60% for BY1/BY2/BY3, respectively) and later agreement periods (equal weighting).
The implications of this change for MSSP ACOs include:
Ultimately, ACOs have five years to work within their benchmark before the benchmark is rebased. ACOs with a favorable benchmark may be in a good position because their favorable benchmark will be applicable for a longer time period (five years). However, ACOs with an unfavorable benchmark may need to put more resources into care management improvements, participant list changes, improved coding, and other changes as rebasing will occur further down the road.
The regional FFS adjustment will continue to be based on each ACO’s beneficiary distribution by county and enrollment type (aged non-dual, aged dual, disabled, and end-stage renal disease [ESRD]). However, CMS will limit the regional FFS adjustment to ±5% of national assignable per capita expenditures by enrollment type. CMS has also changed the regional benchmark weights, including changing the first agreement period methodology to give weight to the regional benchmark as shown in Figure 1.
Figure 1: Regional Cost Adjustment Blending Percentages by Agreement Period, for Agreement Periods Beginning July 1, 2019, and Later
Note: Under both the prior and new methodologies, the weights apply in progression from when an ACO is first subject to the regional FFS adjustment. For example, an ACO currently participating in the MSSP and not subject to a regional FFS adjustment will be subject to the Agreement Period 1 weights in its next agreement period.
The implications of these changes for MSSP ACOs include the following:
The effect of these changes ultimately depends on how an ACO’s historical benchmark compares to the regional benchmark. ACOs that have a high market share in their region will continue to see little impact from the regional FFS adjustment because their experience is not excluded from the regional benchmark.
The financial benchmark will continue to not be adjusted based on the efficiency of an ACO's region as compared to national Medicare FFS efficiency levels. This is in contrast to the Next Generation ACO model of the Center for Medicare and Medicaid Innovation (CMMI), where the financial benchmark is adjusted upward for ACOs in "efficient" regions (regions that are lower than national benchmarks) and downward for "inefficient" regions (regions that are higher than national benchmarks). As such, ACOs in lower-cost regions may have greater difficulties identifying financial opportunities in the MSSP as compared to ACOs in higher-cost regions.
Risk scores are used to adjust the MSSP benchmark in three ways:
1. Risk adjust each historical benchmark year (BY) to BY3.
2. Risk adjust the regional benchmark to the ACO’s average risk by enrollment type to calculate the regional FFS adjustment.
3. Risk adjust the ACO’s historical benchmark to each performance year.
The first two uses described above continue to apply to full risk score adjustments. For the third use, CMS will no longer cap risk score changes for continuously assigned beneficiaries using demographic scores and will eliminate the distinction between newly and continuously assigned beneficiaries. CMS will now cap overall2 risk score increases at 3%, but risk score decreases will continue to be unlimited. It is important to note that the cap applies to the cumulative risk score adjustment between BY3 and a given performance year.
The implications of these changes for MSSP ACOs include:
With agreement periods now lasting five years, there is the potential for up to seven years of risk score adjustment from the first benchmark year (BY1) to the last performance year (PY5). However, only the cumulative adjustment from BY3 to each performance year is capped at plus 3%. Therefore, significant population changes may occur over the course of the five years of the agreement period and not be fully captured in the risk score adjustment due to the 3% cap.
Like risk scores, trends are used to adjust all historical benchmark years to BY3 and then BY3 to each performance year. While trends continue to be based on the assignable population and retrospectively determined at the end of each performance year, CMS has replaced the national trend adjustments in Agreement Period 1 and the regional trend adjustments in Agreement Periods 2 and later with a blend of regional and national trends for all agreement periods. When blending the regional and national trends, the national trend is now weighted by the ACO’s average market share in its region, and the regional trend receives the remaining weight. For example, the trend for an ACO with 70% market share is weighted 70% national trend and 30% regional trend.3
These changes affect both how the ACO benchmark is constructed, i.e., how costs are trended to BY3, as well as how the benchmark is adjusted to each performance year. The effect on individual ACOs will depend on their market share and the relationship between the trends in their region and the national trends. In general, ACOs with high market share (e.g., greater than 50%) can expect to have a benchmark trend primarily based on national trends while ACOs with low market share can expect to have a benchmark trend primarily based on regional trends.
Key implications include:
Under the MSSP final rule, an ACO’s financial benchmark will continue to be largely based upon the ACO’s prior experience. However, the changes in the MSSP’s financial benchmark methodology will have significant implications for most ACOs. Given the increase in the agreement period length from three to five years, it is critical that ACOs assess how the final rule will affect their financial benchmark and related strategies.
“Pathways to Success” MSSP final rule: Financial benchmark
This paper discusses the changes to the financial benchmark methodology that measures the gross savings or losses of an accountable care organization under the Medicare Shared Savings Program.