Health care providers that start accountable care organization (ACO) plans can no longer use reinsurance to show the government they are ready to handle health care risk.
See also: The ACO: A reinsurance opportunity?
Officials at the Centers for Medicare & Medicaid Services (CMS) have taken reinsurance off from the mechanisms a Medicare ACO sponsor can use to show that the ACO has the ability to share financial risk with Medicare.
An ACO sponsor can still demonstrate its ability to handle financial risk by putting money in escrow, getting a line of credit, or getting a surety bond.
CMS officials have announced the change in a set of Medicare Shared Savings Program ACO final regulations that's set to appear in the Federal Register Tuesday.
Medicare managers have been working with health care providers to set up ACOs for years.
Back in the late 1980s and 1990s, some large group physician practices tried to simplify the process of administering health care by agreeing to manage all care for patients in exchange for a flat fee, or capitation fee, for each patient served. The group practices were unable to track and manage the fluctuations in risk, and many went out of business.
See also: Aetna Health Plans Sued Over Capitation
In recent years, organizations have tried to develop better cost tracking systems, and mechanisms for helping Medicare and other large payers share enough risk with providers to give the providers flexibility, and an incentive to hold the cost of care down, without exposing the providers to unmanageable levels of risk.
One of the results of that effort is the ACO concept. If the health care providers participating in an ACO combine to maintain the quality of patient care and save money, they can keep some or all of the savings. If they fail to meet the cost and quality targets, they're supposed to handle the losses themselves.
Medicare has developed two separate ACO test programs.
More than 400 sponsors have set up ACOs using shared savings ACO program rules, which were released in November 2011. The shared savings ACO program lets ACO sponsors assume some of the risk, and, potentially, collect some of the rewards, involved with managing Medicare enrollees' care.
Originally, ACO sponsors could use reinsurance to prove their ability to cover program losses. The sponsors could also use escrow accounts, lines of credit and surety bonds.
CMS proposed deleting reinsurance from the list of options in draft regulations released in December 2014.
So far, no ACO in the shared savings ACO program has used reinsurance to demonstrate its ability to repay shared losses, CMS officials write in the preamble to the final rule.
ACOs that looked for reinsurance "told us that it is difficult to obtain reinsurance, in part, because of insurers' lack of experience with the shared savings program and the ACO model, and because shared savings program ACOs take on performance-based risk rather than insurance risk," officials say.
CMS believes that escrow account agreements, letters of credit, and surety bonds are also more standardized than reinsurance arrangements and easier for CMS to analyze, officials say.
Some parties that commented on the draft regulations asked CMS to let shared savings ACOs continue to use reinsurance as a proof-of-capacity option. They argued that the shared savings ACO program is still very new, and that CMS should consider helping the ACO sponsors set up captive reinsurers that specialize in managing ACO enterprise risk.
CMS officials declined to take that advice, but they said they might change their mind later, if it seems as if ACOs can really get reinsurance.
If reinsurance becomes a viable option in the future, "we intend to revisit this issue," officials say.