Medicare Advantage took the next dance from ACO's

Accountable Care Organizations (ACO's) were one of the more eagerly anticipated part of health reform. Well, they were eagerly anticipated by policy wonks and larger provider groups but the general community probably the ACO was a ligament in your knee.

ACO's were going to reward provider groups based on outcomes not volume of care. Provider groups would organize into ACO's, be assigned patients by the Center for Medicare (CMS), and receive additional payment if they managed costs well or penalities if they manged costs poorly. Providers responded since new revenue opportunities in a post-reform world are about as rare as moderate Republicans. They organized different provider structures, explored risk management software, and different techniques for population health management.

When the ACO rules were released by CMS, someone switched the dance music to the polka. Nothing's wrong with a good polka especially with my new lederhosen but it was the wrong dance beat. Providers were disappointed at the requirements and low likelihood of receiving additional revenue. What followed was like a hangover as providers were irritable and nauseous.

However, providers had already organized into structures that could manage population health and a global budget. They were also becoming successful at managing costs as Medicare increases were cut in half in 2010. Now they were looking for a payer partner to be compensated for their success. Although Molly Ivins says that you've got to dance with them that brung you, providers had a new dance partner. The much maligned, overpaid Medicare Advantage (MA) plans filled out that dance card.

Medicare Advantage plans typically pay providers more than Medicare or if they pay the same or less, they offer captive volume through networks that don't cover health care from providers that don't contract with them. MA plans are also accustomed to offering the same type of reimbursement methodology as ACO's without the additional requirements. As a result, large provider groups are starting to look for MA partners who can offer this type of reimbursement and starting to close their offices to patients with original Medicare and the ACO. Providers can negotiate with Medicare Advantage plans but not with CMS.

These relationship also reflect what is happening in the merger and acquisition world. MA plans are purchasing provider groups to build this arrangement. I guess that's an example of dance partners getting married. I hope the babies are cute. For provider groups who have a higher criteria for dance partners, may only want to dance with MA plans that receive a 4 or 5 star rating from CMS. Those plans get a 5% to 10% higher reimbursement from CMS and that bonus comes out of the pockets of 2 or 3 star MA plans. That's more revenue to share with providers. Since the star ratings are mainly driven by the better health outcomes for a plan's membership, this alignment makes a lot of sense.

This was the intended result of the ACO. Provider groups would be rewarded for moving from being paid on volume to being paid based on better outcomes. The surprise was that it's Medicare Advantage plans that are achieving this result while ACO's are still looking for dance partners.