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ACOs Direct Contracting Becomes REACH, Challenges Remain-The HSB Blog 2/28/22

Our Take:

On Thursday, February 24th, CMS announced it was ending the GPDC ACO program and replacing it with the Accountable Care Organization (ACO) Realizing Equity, Access, and Community Health (REACH) Model effective 1/1/2023. While the new program attempts to increase the role of ACOs in helping to achieve health equity and the amount of provider ownership in ACOs a number of fundamental challenges remain the same. In addition, given the program was only extended until the end of the previous GPDC many analysts have speculated that this will not be the last in a likely series of changes to value-based care programs in Medicare’s ACO programs.

Key Takeaways:

  • Approximately 41% of Medicare ACOs are still on one-sided risk models down from approximately 80% in 2018

  • Under REACH providers must develop a “Health Equity Plan” “that must include identification of health disparities and specific actions intended to mitigate” them as well as a method to collect “demographic and social needs data.”

  • The number of Medicare beneficiaries appears to have plateaued at approximately 11M in 2022 which is down slightly from a peak of 11.2M in 2020

  • Healthcare spending remains out of control in the U.S. and consumed almost 20% of GDP in 2020, an increase of over 7% of GDP in the past 20 years

The Problem:

While Accountable Care Organizations (ACOs) were originally envisioned by Dr. Elliot Fisher at the Dartmouth Institute as a way to improve quality and costs by sharing accountability for a patient’s care among all providers along the health care continuum, in practice actual implementation has been more difficult. As noted, Fisher believed accountability was the key to implementing what today we call value-based healthcare whereby providers, including hospitals and physicians, are paid based on patient health outcomes, instead of volume with a goal of reducing the dramatic growth costs while improving quality.

Originally put into practice by the Pioneer ACO Model in Medicare as part of the Affordable Care Act (ACA), ACOs have gone through a number of iterations including the Medicare Shared Savings Program (MSSP) and the Next Generation ACO Model as administrations and public policy officials have tried to improve performance and address challenges that have arisen as the models have been implemented.

In April 2019 the Trump Administration introduced the Direct Contracting (DC) program. According to the HHS in its announcement, the program was an attempt to get providers who had dropped out of other ACO pilots to reengage with the program as well as to get them to take on so-called two-sided risk. (Please see “The Backdrop”). In addition, the Trump administration’s goal was to incorporate elements of Medicare Advantage (MA) and other private sector initiatives into the DC model. Implementation of DC was set to begin on April 1, 2021.

On April 15, 2021, CMS announced that it would stop accepting applications for January 1, 2022. Among other things many were concerned that DC would effectively force beneficiaries to enroll “Medicare beneficiaries into a managed-care like a plan”, it would give create incentives for profit-making entities (ex: MA insurers and private equity groups) to skimp on patient care, and would not adequately address the needs of the underserved.

The Backdrop:

As described in “Origins and Future of Accountable Care Organizations” which details the evolution of ACOs, “by moving away from strict FFS payment arrangements toward more accountable, value-based reimbursements, providers can be incentivized to more efficiently improve the cost and quality of care.” In early Medicare models such as Medicare’s MSSP, policy officials believed that providers would move through three stages of a payment continuum, taking on more financial risk (and reward) as they took on responsibility for a higher degree of care.

Initially, it was believed that providers would need to gain experience by sharing risk in so-called one-sided contracts which had limited downside to learn how to manage patient populations while being shielded from the risk of loss. Eventually, it was believed as providers gained experience managing risk, they would want to capture more reward and move towards what is termed two-sided risk where they would share in any savings compared to a benchmark as well as in any loss. Finally, the theory went, as providers perfected their expertise they would want to move towards a partial or full-capitation model, where they would effectively be paid a flat fee per member per month for all of their care (at a rate that theoretically would provide savings to plans and payers like Medicare).

However, while the number of Medicare beneficiaries in ACOs has increased fairly significantly from just under 5 million in 2014 to 11 million in 2022, this number is down slightly from its peak of 11.2 million in 2020. In addition, and perhaps more importantly from a cost-savings standpoint, the overall savings achieved by ACOs in Medicare and the number of providers choosing to take on the additional risk and move into two-sided risk arrangements are still relatively modest. While this is a major point of contention, studies tend to indicate that to date overall savings from Medicare ACOs have not been large (see Implications). In addition, until recently the percentage of providers that have chosen to take on downside risk was relatively low. For example, according to CMS as of 2018, only 17% were taking downside risk and while this number recently increased to 59%, as recently as 2021 it stood at only 37%.

As a result of all of the concerns surrounding care being compromised by for-profit entities as well as the somewhat lackluster performance of ACOs last week, the Biden administration announced a halt to DC and a rebranding to the ACO Realizing Equity, Access, and Community Health Model (REACH). Among other things, CMS noted ACOs must have a greater focus on addressing healthcare inequalities by requiring participants to develop a “Health Equity Plan” “that must include identification of health disparities and specific actions intended to mitigate the health disparities identified” as well as “collect beneficiary-reported demographic and social needs data.” Also, CMS will allow nurse practitioners to order additional services to improve access including cardiac rehab, home infusion care, and hospice care. In order to address concerns about beneficiary care being compromised or beneficiaries being forced into plans, “participating providers generally must hold at least 75% of the governing board voting rights” and the new application process will consider whether providers have a “demonstrated strong track record of direct patient care and a record of serving historically underserved communities with…quality outcomes.” In addition, the REACH model is going to change the risk adjustment process to “mitigate potential inappropriate risk score gains” and also reduce the discount rate for global ACOs in 2024-2026 (with the lower discount rate effectively reducing costs to providers).


Healthcare spending has long been out of control in the U.S. and consumed almost 20% of GDP in 2020, an increase of over 7% of GDP in the past 20 years. While value-based care and ACOs have intuitively and logically seemed to make sense, they have never really lived up to that promise in practice. For example, according to Brad Smith, former Director of the Center for Medicare and Medicaid Innovation at CMS, while CMS has launched 54 value-based payment models, only 5 of which have yielded significant savings. As a result, according to Axios, ACOs have saved Medicare only 0.5% of fee-for-service Medicare spending.

The REACH rebrand is yet another attempt to tweak some of the issues that have hindered ACOs but it is unlikely to spur long-term success. First, the REACH program does not address a fundamental challenge that many ACOs had faced in prior models, lengthening the transition period from upside-only to downside risk. Many studies have shown that providers drop out of programs like Medicare’s MSSP model when required to take on downside risk. Moreover, most studies indicate better performance when beneficiaries are assigned to the same ACOs for longer time periods. In addition, an overwhelming number of studies have shown that ACOs who serve high-need and underserved populations tend to be underresourced themselves and thus tend to underperform, failing to achieve savings. This model does not do anything to provide additional resources to poorly resourced providers thereby helping them better serve patients and achieve savings.

Similarly, while the REACH plan does make some changes to risk adjustment, it only modestly addresses some of the issues around risk adjustment. First, many studies of Medicare ACOs have shown that Medicare’s risk adjustment mechanisms for ACOs fail to properly adjust for the very intensive and specialized care that many in this group demand, leading to inappropriate reimbursement. In addition, while CMS did adjust the risk adjustment mechanisms from what existed in the DC model, many critics contend that the risk adjustment mechanisms need to be more finely tuned to avoid inadvertent profits. This has long been an issue in MA and something that likely will require more study and more transparency.

Lastly as noted in “All-Payer Spread Of ACOs And Value-Based Payment Models In 2021: The Crossroads And Future Of Value-Based Care”, “CMS needs to take specific actions to demonstrate its continued support for value-based payment”, and although this rebrand is a step in the right direction the fact that the program will only run until 2026 will give some providers pause about CMS’ commitment and likely lead them to question whether or not to participate. Since Medicare only accounts for a portion of most payers and providers' revenues and patients will have many types of insurance over their lifetimes, “CMS needs to identify opportunities for multipayer ACO models.” More importantly, given the growth and relative size of MA compared to Medicare ACOs (MA is more than twice the size) providers need to work with payers to find ways they can incorporate value-based payment mechanisms into innovative MA plans.

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