ACO Benchmark Calculation: Successfully Understanding the two Levers of Cost and Risk

ACO Benchmark NGACO eBook Author Adam GronskyCost reduction under value-based care is emphasized in everything from policy discussion to press statements. However, cost is just one of two levers available to organizations that wish to optimize performance. The other is risk adjustment. We sought to prove this thesis by examining the recent performance of Medicare ACOs and measuring the impact of risk against other factors that influence performance.  Our analysis reveals effective risk adjustment is at least as important to ACO benchmark calculations as cost when it comes to success.

Our latest ebook, Pulling Both Levers: A Four-Year Analysis of Medicare Cost and Risk Adjustment, unpacks the critical, and often overlooked, importance of effective risk adjustment done in conjunction with medical expense reduction under value-based care. Over a four-year period, we found that in top performing organizations, risk adjustment outpaces costs, as it accurately reflects the risk an organization is bearing.

Additional contents include a concise explanation of the ACO benchmark calculation and its factors, outlining the impact to current year as well as long term performance. Our analysis covers a four year time-span from 2014-2018 using publicly available data from CMS, in which ACOs and MSSPs can identify with one of four distinct performance categories (below at right).

ACO Benchmark Calculation - Performance Categories
ACO Benchmark Calculation – Performance Categories

We also cover how reducing cost alone is a job half done, and fully captured risk widens the delta between cost and revenue mitigating the diminishing returns of ever-improved utilization management. Armed with the insights, our goal is that organizations can identify their current situation and make prudent next steps towards either staying the course or adjusting strategy to thrive under value-based care.

There is no question that cost reduction is a critical outcome for MSSPs and NGACOs under Medicare. However, as our ebook demonstrates, organizations overly focused on reducing cost are missing a crucial element of the formula baked into nearly any model under value-based care: capturing the most accurate, (and typically as a result, higher) risk score for patients and their respective populations. In the ACO equation, you can, and should, pull both levers. To that end, risk is often the easiest place to start, whether outright new to risk, or already in one or two-sided arrangements.

Pulling Both Levers: A Four-Year Analysis of Medicare Cost and Risk Adjustment