Insurance Provider Abandons Unprofitable ACOs
By Christine Kern, contributing writer
Future of Medicare’s ACO programs questioned in light of insurance actions.
Modern Healthcare reports Universal American, a publicly traded insurance company that has invested heavily to become the largest operator of Medicare accountable care organizations, will no longer finance existing ACOs where its executives see little hope of financial return. The move provides doubts on Medicare's ability to expand the program as the agency continues to seek new participants and hold on to those already experimenting with accountable care.
Universal American contracts with local physicians across 13 states to operate 34 ACOs in the Medicare Shared Savings Program, or approximately one out of 10 ACOs launched under the program since 2012. “Where we're seeing it's not working, we're going to stop investing,” said Robert Waegelein, Universal American’s chief financial officer. “We just want to stop the bleeding.”
According to their latest financial report, through the end of 2013, Universal American invested $63 million in Medicare accountable care efforts, financing ACO management of care coordination and information technology. The company's first quarter accountable care investment of $13.1 million was a drag on its earnings, analysts said.
The decision highlights the financial risks and operational challenges for even well-capitalized ventures in accountable care, a new payment model being tested by Medicare, commercial insurers, and self-insured employers.
Healthcare consultants say that startup costs are high, with uncertain returns on investment in ACOs, since many healthcare providers find the financial incentives of accountable care too weak to offset the necessary practice changes to earn bonuses. But limiting investment to profitable ACOs could undermine efforts to organize healthcare delivery in fragmented markets.
Universal American will continue to invest in its successful ACOs and expects to expand its accountable care efforts, Waegelein said in an interview. “We're not giving up on the program,” he said. “Those folks that get it are going to get our continued support.”
Universal American announced the accountable care pullback as it released disappointing first-quarter results. “In the aggregate, our financial results are clearly not where we want them to be,” said Richard Barasch, the White Plains, NY-based insurer's chairman and CEO, during a conference call with analysts. “Our job, over the next several months, is to clean up and fix the items that detract from the overall value of our company.”
That includes its accountable care operations. “Two years into the program, our challenge now is to determine the size and scope of our ongoing investment in ACOs,” he said. “It's our intention to have a good core of profitable ACOs, stop making investment where we don't think the return is going to justify it.”
Medicare has not yet paid out the incentive payments to successful ACOs that began operations in 2012, including 15 operated by Universal American, Barasch said, but the company does not anticipate those bonuses to recoup its investments.
Barasch said the ACOs results this year would be crucial to identifying “a group of highly-engaged ACOs.”