Experts tell PTAC Medicare rules and benchmarking make ACOs less competitive with Medicare Advantage

At a public meeting of the Physician-Focused Payment Model Technical Advisory Committee (PTAC), federal officials and academic and provider experts said structural features of Medicare payments and oversight make it difficult for accountable care organizations and other population-based total cost-of-care models to compete with Medicare Advantage plans.

Panelists pointed to two core problems: payment and benchmarking rules inside traditional Medicare that ‘‘claw back’’ shared savings and a set of subsidies and benefit rules that make Medicare Advantage financially more attractive to beneficiaries. That combination, they said, reduces providers’ incentives to pursue savings and to invest in infrastructure for value-based care.

The issue matters because PTAC’s work will inform a report to the secretary of the U.S. Department of Health and Human Services (HHS) about how to reduce barriers to participation in population-based payment models and support primary- and specialty-care transformation.

Abe Sutton, director of the Center for Medicare and Medicaid Innovation (CMMI) and deputy administrator at the Centers for Medicare and Medicaid Services (CMS), opened the meeting by stressing the Innovation Center’s mandate from Congress and saying his office is reviewing its model portfolio. “I believe deeply in our work as a center and the mandate we have from Congress to design models that will improve the quality of care and reduce the cost of care,” Sutton said. He added the Innovation Center will emphasize making models ‘‘certifiable’’ as a metric of success.

Several panelists argued that specific design features reduce the net gains providers can capture when they reduce spending. J. Michael McWilliams, Warren Alpert Foundation Professor of Healthcare Policy at Harvard Medical School, said benchmarking and ratchet effects have eroded the incentive to save. “The goal was not is not participation,” McWilliams said, adding he had ‘‘inserted the word competitiveness’’ because the end goal should be provider success in producing savings without harming care.

McWilliams and other speakers described two related effects. First, shared-savings rules and benchmark adjustments can ‘‘claw back’’ the financial benefits providers create. Second, Medicare Advantage plans receive payments that many analysts estimate exceed comparable traditional-Medicare payments, which lets MA plans offer lower out-of-pocket costs or extra benefits that draw beneficiaries into MA enrollment.

Panelists cited several numerical illustrations during the discussion. Jose Peña, chairman and chief medical director of Rio Grande Valley ACO Health Providers, said Medicare Advantage penetration in his South Texas market is ‘‘right around 65 to 70%,’’ and that the program’s per‑enrollee subsidies and plan benefits raise competition for primary-care panels. Peña also estimated the fixed cost to stand up and run a small ACO at roughly "1.5 to $2,000,000" and described a CMS “discount from the top” he said was currently about 4% on benchmarks; he said that discount and other financial guarantees pose a collateral and cash‑flow burden for smaller groups.

Tim Layton, associate professor of public policy and economics at the University of Virginia, urged separating two policymaking goals: lowering total spending and improving how a fixed amount of money is allocated. Layton said current rules too often attempt to accomplish both with a single instrument and thereby undercut ACO incentives. ‘‘Any savings that the ACOs have to share back to the government will decrease the incentive for the organization to produce pay,’’ he said.

Panelists also discussed risk adjustment and coding. McWilliams and others said ACOs remain at a disadvantage because Medicare Advantage plans benefit from higher payments tied to coding intensity and other factors. Walter Lin, a panelist who leads Generation Clinical Partners, summarized the combined effect this way: the MA payment edge plus benchmarking clawbacks can make the playing field ‘‘even worse’’ than either factor alone.

Speakers raised other operational barriers for provider organizations: data lags for claims-based feedback, uncertainty over permissible uses of shared savings, the administrative cost of compliance and the difficulty small and rural practices face in financing upfront investments. Peña said claims data arrive ‘‘two to three months later,’’ which slows predictive analytics and timely interventions. He said uncertainty about rules and auditing can also chill creative uses of funds on social supports: "we are, like, very afraid from CMS" about whether certain activities are permitted.

Stefán Shortell, professor emeritus at the University of California, Berkeley, discussed vertical integration and market structure. He reviewed evidence that hospital‑system affiliation and private‑equity ownership are associated with higher prices and suggested states or regulators might consider conditional approvals of large acquisitions tied to performance metrics. Shortell and others noted that independent physician groups sometimes show lower total cost of care than hospital‑affiliated groups because of differences in facility fees and inpatient use.

Panelists suggested a range of policy steps to improve ACO competitiveness and beneficiary choice: clarifying and expanding what ACOs may spend savings on (for example, direct beneficiary benefits similar to MA supplemental benefits), reducing the ‘‘discount from the top’’ or allowing ACOs to use a portion of the funds for targeted benefits, improving speed and access to claims and encounter data, strengthening risk adjustment methods, and pursuing policies that encourage active annual plan choice by beneficiaries so competition rewards value.

Several participants discussed consumer choice frictions. Panelists said inertia and protections in the Medigap market make it harder for beneficiaries to shift between plans and that many beneficiaries do not make an ‘‘active choice’’ yearly. Layton and others said improving active choice and choice architecture could raise insurers’ responsiveness to value.

No formal decisions or votes were taken during the panel; the session was described as a roundtable to inform PTAC recommendations. PTAC members and the invited experts said their findings and the public meeting record will feed into PTAC’s report to the HHS secretary. Sutton told the committee he and CMMI will continue their portfolio review and ‘‘you will hear from me and my team about how this vision will come into focus in the future.’'

The committee adjourned the panel and moved to a break before a listening session on beneficiary participation in accountable-care models.