Shared Savings Model Risk in the MSSP Program

The Centers for Medicare and Medicaid Services (CMS) introduced the Medicare Shared Savings Program (MSSP) for accountable care organizations (ACOs) as part of the Affordable Care Act. Participating ACOs accept risk for the financial outcomes of their assigned populations and share in gains (and, depending on the ACO model, losses) when these are generated. Gains and losses are calculated by comparing actual costs of the ACO population against a benchmark cost based on the historical performance of members in the ACO. Participating ACOs are at risk of model error. Because of stochastic variance in cost distributions and the imperfect operation of the risk-adjustment process, there is a nontrivial probability that an ACO may experience a false positive (gains are calculated where no gains were actually generated) or false negative (a loss is calculated by the model when no losses were actually generated). Using a sample of Medicare fee-for-service data, we model outcomes for typical ACOs and for ACOs consisting of chronic patients. For a typical ACO, the probability of model error resulting in a false positive or false negative outcome is between 5% and 8%. Chronic populations with higher variance have higher probabilities of model error, between 26% and 28% for a diabetes population, and about 23% for a cancer population. In the case of an ACO that generates gains through increased efficiency, model error can result in the ACO failing to realize gains, or even (in a minority of cases) require a reimbursement to the payer. From the perspective of the payer with a number of ACOs, the average overpayment or recovery will be minor. The percentage overpayment (recovery) increases as the prevalence of chronic patients increases. For a population of cancer patients a payer can expect to pay (or recover) between 1.0% and 2.0% of claims, while for a diabetes population the range is 1.5–2.5%. For an individual ACO the loss or gain is more significant because the ACO gains or loses the full amount, with a relatively high probability. While this study has focused on the Medicare Shared Savings Program, the MSSP is just an example of a class of gainsharing models that is increasingly prevalent in value-based contracts. Payers and providers who negotiate value-based contracts need to be aware of and account for model risk in their contracts, particularly as the sizes of populations under management become smaller.