Downside Risk: The Endgame for ACOs

2018-11-13T15:40:52+00:00November 1st, 2017|

Downside Risk: The Endgame for ACOs

The Centers for Medicare and Medicaid Services (CMS) has taken steps to move traditional Medicare reimbursement toward alternative payment models (APMs), such as accountable care organizations (ACOs) and bundled payments, with a goal of having 50 percent tied to APMs by the end of 2018.1 With the rollout of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), CMS will also continue to encourage more downside risk arrangements, or Advanced APMs, via the guaranteed incentives for physicians entering these arrangements.2 This strategy makes perfect sense, as it allows CMS to accomplish three important objectives:

  • Quality improvement
  • Predictable medical costs and trends
  • True provider financial accountability

The latter two goals have always been a point of contention between providers and payers – CMS, in this case – for obvious reasons. Telling a provider whose business model is predominantly built around fee-for-service economics that they now have a medical cost budget to maintain for their patients generally does not sit well with that provider. Stories about providers incentivized to ration care in these models to improve profitability are already permeating the media coverage around these initiatives.

Wisely, CMS has not forced providers thus far into assuming downside risk, and even now is using more carrot than stick for providers to enter these arrangements. By leveraging the shared savings ACO model to more gently coax organizations into better care delivery alignment and population health models, it has allowed providers to slowly invest and gather the expertise and means to be successful in managing populations and cost and quality targets.

However, the grace period granted through this approach has an expiration date on the horizon, as those providers still operating in Medicare Shared Savings Program (MSSP) Track 1 versus Advanced APMs will be left to compete in the Merit-based Incentive Payment System (MIPS). This suggests ACO programs and other value-based initiatives are not themselves the endgame for CMS, but the vehicles for its ultimate goal: the assumption of substantial quality-driven financial downside risk by providers.

The adoptions of CMS reimbursement strategies by commercial payers will likely only compound the industry’s move toward risk. In many respects, commercial payers have outpaced CMS in the expansion and proliferation of ACO agreements, but as with CMS, they have been based on shared savings reimbursement platforms. As CMS continues to drive toward downside risk, commercial payers will likely follow. In such instances, even high-performing provider organizations in the MIPS program could start being treated as secondary partners, as those organizations or ACOs willing and able to manage both quality and financial downside risk will get priority.

I’m in Downside Risk – What Now?

If your organization has proven its ability to manage population health in the CMS ACO programs, then the fundamental building blocks for success in downside risk are already present. What generally should be evaluated first is the focus and sense of urgency dedicated to the populations at risk.

Successful risk bearing organizations operate, control, monitor and continuously adjust financial levers to help deliver high-quality performance to its providers and members – in as close to real time as possible.Success is driven by various factors, including how effectively an organization can analyze cost trends and drivers, improve clinical and financial performance, reduce network inefficiencies and monitor the quality of care. The assimilation and adoption of these activities and expertise as “the manner in which we operate” is essential to sustained success. Other often underestimated factors to your organization’s success include understanding the culture of your organization and the need to evaluate, set and manage internal expectations of your stakeholders and team members.

While you have likely already undergone significant organizational change to align for accountable care delivery, the move to downside risk usually requires an unbiased, frank evaluation of operational inter-workings, communications, policies and procedures, and relationships to ensure aligned interests. Said more plainly, a significant portion of providers’ compensation is directly tied to the successful management of quality and cost in downside risk, and this makes success – and especially failure – very personal. Adjusting or creating new governance structures and organizational models designed specifically to align for downside risk is often necessary.

Healthcare, in many ways, is local. There is relevant data in evaluating your organization’s local market share, payer mix, network assets and competitors. However, limiting the scope of your analysis to only local data points may not be the best approach when creating or evaluating your organization’s strategy. Federal laws and regulations, as well as the creation of many inter-state stakeholders all influence the structuring and development of these risk arrangements – MACRA is a good example of this. As such, there may be times when expanding the scope of your analysis is helpful.

It’s clear that quality-driven, two-sided financial risk is one of the primary mechanisms CMS wants to employ to stem unsustainable healthcare trends. With this in mind, regardless of your organization’s participation or performance in programs like MSSP, now is the right time to consider all risk scenarios and determine the best approach for your organization to achieve success going forward.


  1. U.S. Department of Health and Human Services. Better, Smarter, Healthier: In historic announcement, HHS sets clear goals and timeline for shifting Medicare reimbursements from volume to value. January 2015.
  2. Centers for Medicare & Medicaid Services. Better Care, Smarter Spending, Healthier People: Improving Our Health Care Delivery System. January 2015.

About the Author

Vikas Garg

Vikas Garg

Vice President, Central Region, Value-Based Care

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As Vice President, Central Region, Garg is responsible for growing and managing Conifer Health’s Value-Based Care business in the region. Garg is a seasoned healthcare industry veteran with over 10 years of healthcare strategic and operational consulting experience, along with 10 years of system integration experience in the retail and healthcare sectors. His leadership is critical to the execution of Conifer Health’s growth strategy, while maintaining delivery excellence and pursuing the highest levels of client satisfaction.

Vikas previously worked at PwC’s health industry advisory business, where he spent his last six years supporting payer and provider clients on strategic and operational issues. During this time, his primary focus was helping clients move forward in their journey from volume to value.

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