Organizations’ net savings in the first year of a Medicare accountable care model varied widely, spotlighting the difficulties of delivering value-based care, where just a few sick patients or a substandard operational model can significantly skew results, experts say.
Direct contracting entities in the Global and Professional Direct Contracting Model had a roughly 2% net savings rate on average, with a few major outliers, according to a Healthcare Dive analysis of recently released data from the CMS.
The goal of the model is to coordinate primary and specialty care, while giving access to enhanced benefits in traditional Medicare, like telehealth visits and help with co-pays. GPDC, in which physicians can accept either full or partial capitation as payment, offers higher levels of risk and reward compared to other ACO models, while providing additional flexibilities.
The best net savings rate of 29.2% was notched by United Physicians Association, a small DCE in California, while the worst rate of -29.4% was reported by CareMore, a DCE owned by health insurer Elevance, which has since dropped out of the program.
Overall, the 53 DCEs generated $70 million in net savings for Medicare in 2021, according to the financial and quality results.
Physician groups cheered the savings. But overall, the results were “relatively modest,” illustrating the limits of programs built on a fee-for-service chassis, according to David Muhlestein, the chief research and innovation officer of Health Management Associates.
“That’s certainly good. But it’s not going to be how we solve Medicare’s cost challenges,” Muhlestein said.
CMS released the results in late November just months before a planned overhaul of the controversial program, including a rename to ACO REACH. For organizations that did well, the independently validated government data is valuable proof of their efficacy, analysts say.
Value-based primary care company Oak Street Health’s DCE had the second-highest net savings rate of the cohort at 15.5%, but captured the most net savings overall, at $14.6 million.
Considering the recent launch of the model, and that providers with similar patient volumes didn’t deliver commensurate results, Oak Street demonstrated its ability to deliver high-quality care, which should translate to profitability, according to Jefferies analyst Brian Tanquilut.
“This is proof of concept in a way that your programs, your clinic strategy, actually works,” Tanquilut said. The results “give investors and anyone looking at these companies more confidence that this thesis is actually valid.”
The majority of DCEs reported modest savings or losses, with some notable exceptions
On the flip side, insurtech Clover’s net savings rate of -4.5% resulted in a loss of more than $30.4 million — the worst performance of any entity from a dollars perspective.
Clover’s more than 64,000 beneficiaries illustrates the difficulties of managed care at scale, but also hints at inherent weaknesses in Clover’s business model, experts said.
“When you’ve got 220 patients, you only need to have a couple of people that have major issues that can really throw a bunch of numbers off. If you have 60,000 patients, and you’re seeing negative results, that’s probably indicative of some systemic reason more than any outlier,” Muhlestein said. “Ten years from now, I don’t think [Clover is] going to be around.”
Clover has historically touted direct contracting as a key growth area. When Clover went public in January of 2021, the company attributed 70% of its valuation to the DCE program, according to Health Affairs.
But Clover is now scaling back its participation with the advent of ACO REACH, partially due to unpredictability in the model. President and CTO Andrew Toy told investors on its third-quarter earnings call in November that Clover plans to “significantly decrease the total number of participating physicians,” which should reduce its attributed lives and managed revenue by as much as two-thirds.
Clover declined an interview request for this article, saying it could not comment on DCE performance per participation guidelines.
Net savings ranged from $14.6 million to a loss of $30.4 million, though most DCEs were in the black
In a positive sign for value-based care buy-in, GPDC grew to 99 participants with an estimated 1.8 million beneficiaries in the 2022 performance year. Many of those organizations are expected to stay on when the model transitions to ACO REACH in 2023.
ACO REACH has more stringent requirements around the screening, design and practices of ACOs, including a much stronger emphasis on provider-led organizations and addressing health disparities.
Based on the 2021 results, the players best positioned to perform well in ACO REACH will provide meaningfully different healthcare with a focus on advanced primary care, according to Muhlestein and Tanquilut. Those includes Oak Street Health, VillageMD, Iora and Castell, a DCE owned by Intermountain Healthcare.
In 2021, VillageMD operated six DCEs covering 8 states, with net savings rates ranging from -0.82% to 7.45%. The value-based primary care provider, which is majority owned by Walgreens, agreed last month to acquire medical practice Summit Health for almost $9 billion, and plans to move Summit into risk-based arrangements.
Meanwhile, Iora’s DCE, which managed patient care in 10 states, reported a net savings rate of 4.93%. Iora is a subsidiary of One Medical, which is pending a $3.9 billion acquisition by Amazon. If the deal closes, the ecommerce giant could leverage its data expertise and scale to help Iora with risk management, though that’s unlikely a day-one priority for Amazon, Tanquilut said.
The CMS has seen some attrition in the model, though it’s minimal. Three DCEs that participated in 2021 elected not to continue into 2022.
A wide variety of factors can weigh into a DCE’s results, but it’s key to control things that drive costs up, like re-hospitalizations or duplicative testing, through measures like patient monitoring and predictive analytics, experts said.
For any organization in value-based care, “it’s about how do you get the providers that are caring for the patients to do things differently,” Muhlestein said. “And it turns out that’s really hard to do.”
Correction: A previous version of this article misidentified Andrew Toy's title at Clover. Toy is president and CTO.