What alternative payment models mean to rural communities


CMS Administrator Seema Verma recently announced that CMS will roll out a new payment model focused on improving rural healthcare disparities this year. The new model — intended to avoid a "one-size-fits-all" approach in favor of a customized system responsive to the needs of the community — would include seed funding to develop an appropriate system of care. This new initiative will be the latest to encourage rural providers to jump into value-based payment.

Verma emphasized that "Transformation will also require transitioning rural providers to take on meaningful risk for cost and outcomes through alternative payment models." The proposed new model will encourage rural communities to leverage ACOs and primary care models, while focusing on local health needs such as maternal health or substance use disorders.

Impact of Risk on Rural Providers

Operating in a rural market remains a delicate endeavor as nearly 50 percent of rural hospitals lose money annually on operations. In such an environment, it's unreasonable to expect rural providers to enter into a program that could require them to pay back federal healthcare dollars if they underperform. 

Consider the governance of rural health organizations. The vast majority of community hospital boards of directors are comprised of lay community members with limited experience in hospital operations — and won’t approve moving into risk arrangements under any uncertainties. 

Rural Success in Medicare ACOs to Date

The Center for Medicare and Medicaid Innovation introduced the ACO Investment Model in 2016, providing interest-free loans to safety net providers, which were either repaid from shared savings or forgiven if no savings were achieved. In its first performance year, the 41 new ACOs together saved CMS an average of $272.40 per beneficiary, with $83 million net savings to CMS, not considering the loans. This savings rate was more than five times the national average for the Medicare Shared Savings Program in 2016, according to CMS. The New England Journal of Medicine also studied the early effects of ACOs for underserved areas and found that participation in ACO shared savings by providers serving rural and underserved areas was associated with lower Medicare spending than that among non-ACO providers. 

However, according to a CMMI audit, the average ACO spent $139 of federal funding and an additional $248 of their own investment, per patient, exceeding the total amount saved in the first year. Although this reflects start-up and operating costs, this is substantial skin in the game.

What's Next for Rural Delivery System Reform?

For most providers, a steady progression from no-risk to moderate downside risk over a five-year period is appropriate. However, a new construct of the AIM program should allow rural ACOs to stay in upside-only arrangements for 3 years before they transition into risk, giving them enough time to accumulate savings. 

If AIM 2.0 is on the horizon, removing the ACO size limit used in its first iteration would allow also ACOs to receive the full loan amount regardless of the number of beneficiaries. 

Moreover, if CMS were to cap the total losses of the ACO at the same amount it receives in loans, rural boards could reasonably accept the risk. 

The Bottom Line

By 2026, CMS will require all provider organizations to take on some form of meaningful risk for their patients — or face lower Medicare reimbursement.

The MSSP is the largest and most effective quality advancement programs today, serving more than 1 million rural Medicare beneficiaries in 2017. Our results show that Caravan's rural ACO participants experience an average 15-point increase in quality scores in their first year — improving care while adding new revenue streams. 

Yet, more than 100 rural hospitals have closed their doors since 2010 and nearly 40 percent of rural hospitals are already in the red. CMS must approach downside risk thoughtfully to ensure that rural patients and providers benefit from these programs and succeed in the future.

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