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ACOs must choose how to cover potential losses

Accountable care organizations going for higher bonuses from the Centers for Medicare & Medicaid Services are having to consider various mechanisms to cover losses that may result.

ACOs can set aside cash reserves in escrow, establish a line of credit, have the amount deducted from future fee-for-service payments or purchase reinsurance to repay the agency if the cost of caring for a patient population grows beyond a certain point, according to the Medicare shared savings program’s final rule.

This is required of so-called Track 2 ACOs that will earn 60% of any money saved if quality metrics are met, but would be required to repay the agency if expenses go up more than 2%. The possible charge can run in the hundreds of thousands of dollars and may result if a small number of patients suddenly experience expensive illnesses or go out of the ACO for care.

Marketing has begun in earnest by those pitching various options to ACOs. The issue is an important consideration for physicians who run medical groups looking to establish an ACO.

Health care consultants say medical practices and health systems need to consider the state of their finances, the availability of credit and the cost of each option before deciding to move forward. Large health systems with a significant patient population are less likely to be thrown off course by one very sick, costly patient and may opt to keep a certain amount of money in escrow. These types of institutions may have more ready access to credit. Small ACOs that need to use their capital to fund the infrastructure required needed to improve care may find reinsurance a better option.

“The less capital that is available to sock away, that’s when reinsurance makes sense,” said Bruce A. Johnson, a health care lawyer and partner in Polsinelli Shughart in Denver.

Companies offering reinsurance are usually insurers that have long provided physician liability coverage. The cost will vary widely. Some charge per patient included in the ACO, with payments spread over 12 months. Others provide coverage in exchange for a percentage of the bonus paid if the ACO is successful. The company is then liable if the ACO owes CMS money.

People who work with medical practices say that because so few institutions have experience with managing a Medicare ACO that reinsurance policies will be written conservatively and priced on the high side.

This requirement is for Track 2 ACOs, which are most likely to be run by large entities with significant experience managing financial risk. Track 1 ACOs receive up to 50% of the money saved but are not penalized if their patient population costs the agency more and do not need a repayment mechanism. Track 1 is available only for the first two years of the program and most likely will be a fit for small organizations, consultants said.

The full and original article can be found at: http://www.ama-assn.org/amednews/2012/04/16/bisd0417.htm

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