ACOs’ First Year Start-Up Costs Average Less than Most Estimates

Startup costs for the 2012 Medicare Shared Saving Plan (MSSP) Accountable Care Organizations (ACOs) are higher than estimated by CMS but considerably lower than many other estimates, according to a November 2013 survey conducted by the National Association of ACOs (NAACOS). “The average first 12 months start-up cost per ACO of $2,000,000 is [a] strong statement about the high level of risk ACOs are willing to take to transform care in their community” NAACOs said.

Background

CMS established the MSSP to facilitate coordination and cooperation among providers to improve the quality of care for Medicare fee-for-service (FFS) beneficiaries and reduce unnecessary costs. Eligible providers, hospitals, and suppliers may voluntarily participate in the MSSP by creating or participating in an ACO. MSSP is designed to improve beneficiary outcomes and increase value of care by promoting accountability for the care of Medicare FFS beneficiaries, requiring coordinated care for all services provided under Medicare FFS, and encouraging investment in infrastructure and redesigned care processes. ACOs that lower their growth in health care costs while meeting performance standards on quality of care and putting patients first are rewarded.

The Survey

NAACOS conducted its first short web-based survey in November 2013 covering (1) first year start-up costs, (2) financial prospects for the first year of operation, (3) operational problems launching the ACO, (4) who processes CMS claims data (CCLF), (5) total Cost of internal and external IT services, and (6) satisfaction with information technology (IT) services. The survey was designed to capture new information related to the actual first year start-up costs and IT spending experienced from the April 1, 2012, and July 1, 2012, by MSSP ACOs after they finished their first full year of operation. The survey consisted of 11 questions that required multiple choice or text answers. Spending on feasibility studies, CMS application, legal fees or other pre-contract costs were NOT included in the first year costs. Thirty-five ACOs responded and were representative of the size and geographic distribution of the ACO population. Size ranged from 5,100 to 78,000 assigned Medicare beneficiaries.

Survey Results

The survey found that the average actual start-up costs of the respondents in the first 12 months of operation were $2.0 million with a range from $300,000 to $6,700,000. “Since savings are slow to flow as result of data and complex reconciliation process, ACOs will have almost a second full year of operations until their cash flow can be replenished with shared savings from CMS (if any),” NAACOS explained. NAACOS concluded that “the average ACO will risk $3.5 million plus any feasibility and pre-application costs” and estimated that “ACOs on average will need $4 million of startup capital until there is a chance for any recoupment from savings.”

Although at the time of the survey the ACOs had not received any interim reconciliation numbers from CMS, the NAACOS asked the ACOs to estimate their financial results after the first year of operations. The survey found that the range of predicted estimated gains was as high as $9,000,000 and losses as much as $10,000,000. About one third of the ACOs estimated a break-even level for the first year. NAACO said that “including the breakeven ACOs, total estimated gains would be about equal to the estimated losses so the program as a whole would breakeven.”

An “overwhelming number” of respondents identified CMS data and learning to access it and process it as the most challenging problem in first year operation. Respondents specifically pinpointed problems dealing with finding suitable software, meeting implementation schedules, delays in getting claims data, new skill sets to analyze data, addresses of assignees, slow stand-up of IT system, data inconsistency from CMS, and translating the data into actionable information for care managers and providers, according to NAACOS.

The survey also found that about one quarter of the respondents use internal resources for the claims data processing, about one quarter use exclusively external sources and about half use a combination. In regard to IT services almost all ACOs had both internal and external costs for IT functions with an overall average of $413,000 for internal costs and $443,000 for external vendor costs. Respondents rated their satisfaction with IT services as 6.4 on a scale of 10.