- Medicare's Accountable Care Organization program allows groups of doctors/hospitals to be paid for helping Medicare patients stay healthy. Over 200 organizations are deciding whether to continue in the program. - New rules proposed by Medicare allow groups to remain in the lowest-risk program for 3 more years or join a new higher-risk/higher-reward program. - While these groups have saved Medicare money, Medicare has retained more savings than the groups themselves due to the rules of the program. Some experts argue these groups could see higher rewards by taking on more risk through other Medicare programs.

1. Participants in one of Medicare’s boldest attempts to overhaul how doctors and physicians are paid are at a
crossroads: By mid-2015, the first 220 Accountable Care Organizations (ACOs) to participate into the Medicare Shared
Savings Program (MSSP) must decide if they want to continue in the program or go another direction. For other
organizations just starting their MSSP journeys, knowing what choices eventually lay ahead is a critical advantage.
Recently, the Centers for Medicare & Medicaid Services (CMS)
proposed new rules for the MSSP. The agency proposed to
allow participants in Track 1 to remain there for another three-
year period, although at a lower shared savings rate. CMS also
suggested a Track 3: A new, two-sided risk model that would
allow ACOs to retain up to 75 percent of savings or share 75
percent of losses if they met or failed to achieve a 2 percent
minimum savings rate. Track 3 also includes prospective
attribution, giving ACOs a much better idea of which patients
they are responsible for at the beginning of the year.i
Despite these changes, we believe that MSSP ACOs that have
successfully accrued savings in year one, or that expect to
do so in future years, should consider other, more financially
rewarding choices than the MSSP. Because of their significant
investments in clinical integration, network development and
redesigned care models, savings-generating MSSP ACOs are
uniquely poised to take on risk in a Medicare Advantage (MA)
contract and to continue to increase quality of care. We believe
that these providers will be better served by adding a risk-
based MA model alongside their existing MSSP contract.
Who Really Won in the MSSP?
To understand the opportunity, let us first look at who reaped the majority of savings under the MSSP.
Of the 220 ACOs that participated in the program’s first performance year (2012), 52 earned shared savings and
got a portion of the money back. Sixty-three saved money but not enough to meet the required “minimum savings
rates” (MSR), or saved money but failed to meet quality goals. Combined, the 115 savings-generating MSSP ACOs
saved a total of $833 million. The 52 MSSP ACOs that got a portion of savings back outperformed benchmarks by
$639 million, of which $323 million went to CMS and $316 million was returned to the ACOs. The 63 MSSP ACOs
that saved money but did not participate in shared savings outperformed their benchmarks by $193 million. All
told, MSSP ACOs that didn’t lose money received $316 million in shared savings and saved CMS $516 million. Put
another way, for every $1 saved in Medicare expenditures, 38 cents went to MSSP ACOs, while the government
retained 62 cents.
What’s Next for MSSP ACOs? The Case for Moving to Medicare Risk
Picking Your Path on a Journey Towards Value-Based Care
© 2015 Valence Health. All rights reserved. www.ValenceHealth.com 1
Proposed Medicare Shared Savings Program
Rules: Tracks 1–3
Track 1 • Upside only, share in up to 50% of
savings (in first contract) and 40%
of savings (in second contract) after
surpassing the MSR* and meeting
quality standards
• Retrospective attribution
Track 2 • Up and downside risk, share in
up to 60% of savings/losses after
surpassing the MSR/MLR** and
meeting quality standards
• Retrospective attribution
Track 3 • Up and downside risk up to 75%
after surpassing the MSR
• Shared losses 40-75% after
surpassing the MLR
• Prospective attribution
*MSR = Minimum Savings Rate
**MLR = Minimum Loss Rate

2. When we compare the cost of MSSP ACOs’ infrastructure investments against current and future financial rewards,
it’s clear that CMS benefited more from providers’ resource investments than did providers themselves. CMS
recouped all savings achieved under the MSR and half of the savings when the MSR was met.
The Real Cost of Generating Savings
ACOs achieved their savings through significant investments of time and money. Successful ACOs aligned
providers to deliver high-value care, implemented best practices, set quality guidelines and educated patients.
Some implemented clinical information systems, while others manually captured data to report to CMS. In
short, these ACOs embarked on a journey to value-based care that can last as long as three years and require
continuous quality improvement.ii
Furthermore, the annual investment required to support these activities cannot
be recouped for 18 months from the start of the contract, adding a cash flow burden to the challenges of MSSP
implementation.
“The cash flow issue deters many organizations from participating in the MSSP; the investment in value-based
care doubles your (annual) expenses,” said Mark Hillard, CEO of Arizona Care Network, a statewide, physician-led
ACO with more than 3,000 physicians and 11 acute care hospitals.iii
2© 2015 Valence Health. All rights reserved. www.ValenceHealth.com
Increasing Risk
MSSP MA
Risk level increases as an organization progresses along the value-based spectrum
PAY FOR
PERFORMANCE
Savings-Generating ACOs Produced ~ $833 Million in Savings in the First Year of the MSSP
Total Savings Generated by ACOs Performing
Underneath the Benchmarks
Savings Retained
by CMS
ACOs
38% (~$316M)
ACOs CMS - Savings generated from ACOs under the MSR
CMS - Shared Savings CMS - Shared Savings generated by ACOs above
the MSR
CMS
62% (~$517M)
23%
(~$194M)
39%
(~$323M)
Source: Valence Health analysis of CMS data

3. As ACOs consider entering a second MSSP contract period, they will essentially be competing against
themselves to lower costs. Shared savings measured against one’s own past performance continuously deflates
reimbursement, itself a no-win game and is one that is especially punitive to relatively efficient organizations.
In the MSSP Proposed Rule, the shared savings opportunity declines to 40 percent from 50 percent, offering a
smaller reward than in the first three-year performance contract and further deteriorating the value proposition for
participation.iv
Three Critical Advantages of Medicare Risk Contracting
By contrast, MA risk contracting offers at least three significant advantages. First, the network is closed, itself allowing
ACOs to further improve quality and reduce costs. Second, patients are prospectively attributed as members to
physicians, allowing ACOs to understand whom they are managing and develop a patient-provider relationship that
supports a comprehensive care model. Finally, savings generated stay within the risk-bearing entity (i.e., the ACO).
1) The Advantage of Closed Networks
Despite their best efforts to keep patients in-network, MSSP ACOs report significant churn of patients moving in
and out of their networks. By contrast, an MA plan’s closed network aligns incentives among providers, payers and
patients to manage care. Closed networks give ACO administrators a lever to incentivize providers to rally around
high-quality value-based care and cost savings.
From a quality perspective, other MSSP ACOs have acknowledged that the ability to keep patients within a network
of like-minded providers is a huge differentiator. When working with a unified provider network, it is much easier
to achieve goals such as minimizing unnecessary testing and duplication of services than it is to achieve these
same goals with non-network providers.
Lastly, within a closed network, providers can much more readily access the patient population data that are essential
for successfully managing risk. With integrated population health management tools, access to patient records across
the continuum of care allows ACOs to much more effectively identify and address gaps in quality, care and efficiency.
2) The Advantage of Prospective Attribution
Attribution has also been a chief issue for MSSP ACOs. Beneficiaries are
not prospectively assigned to an MSSP ACO; rather, they are determined
retrospectively, based on where they received most of their care. “We
have struggled with attribution,” said Hillard. “Retrospective attribution
is difficult, and we don’t fully understand why we don’t have some
members attributed to us.”iv
By requiring an active selection process, the MA model gives
administrators prospective information about members so that
administrators can stratify populations and selectively engage high-risk,
high-cost patients in targeted care management programs. In addition,
a defined population makes it easier to target investments such as
wellness programs to the right members. Care management can begin
the moment a member signs up, rather than when the patient visits a
physician or an emergency room.
3) The Advantage of County Benchmarks and Risk Adjustment
The MA payment model is also relatively more generous than the
MSSP model. In MA, a plan’s base payments are pegged to county
benchmarks. Currently, due to the Affordable Care Act, three-quarters of
the counties nationwide have benchmarks that are equal to or greater
than 100 percent of traditional fee-for-service payments.
3© 2015 Valence Health. All rights reserved. www.ValenceHealth.com
Regaining Control of Care
Managing a MA risk arrangement
can mean taking on all sorts of new
responsibilities – claims payment,
customer service, insurance reporting
and other administrative operations.
But it also means that critical decisions
are yours to make, putting providers
back in control of patient care.
As an MA ACO, you decide what support
you need in order to provide population
health management, how much to spend
on care and how much to allocate for
administrative costs.
Valence Health, has vast experience
helping providers make critical build,
buy and partner decisions, can help you
successfully manage your value-based
care arrangements.

4. Factors to Consider When Entering a Risk-Based MA Contract
If your organization is considering adding an MA contract to its value-based care portfolio, an ACO’s business and
clinical leaders need to understand how the following factors will come into play:
1) Geographical County Benchmarks
These benchmarks establish a base payment rate for your location, and, as mentioned, most counties’ base
payments are already equal to or greater than fee-for-service costs. In contrast to MSSP benchmarks, which
are determined by the assigned population’s historical claims data, MA benchmarks are driven by county-level
MA payment rates. For more efficient providers, MA benchmarks represent a greater opportunity for financial
incentives than do those of the MSSP.
2) Risk Adjustment
Thoughtful, cautious risk adjustment provides the greatest opportunity under MA to increase your revenue. The
MA risk adjustment is recalculated each year in contrast to the MSSP risk adjustment, which is recalculated after
every three-year contract period. The adjustment in MA more accurately reflects the cost of caring for a given
population at a given time, compared with the MSSP risk adjustment. For the MSSP, risk adjustment is based on
traditional fee-for-service coding, which largely captures procedures. In MA, by contrast, it is determined from a
more comprehensive coding methodology. Providers are expected to code on both diagnoses and procedures,
using the Hierarchical Condition Category (HCC) coding system. MA coding encourages providers to record a more
complete account of the disease burden being managed, adjusting reimbursement accordingly. It’s important
to note, though, that ACOs looking at risk-based MA payments should consider the process of educating and
transitioning providers to focus on capturing disease burdens through proper HCC coding in order to have the
most accurate and appropriate risk adjustment possible for the population being managed.
3) Star Bonuses
Medicare uses information from paid encounters, member
satisfaction surveys and health plan reporting to give plans an
overall performance rating. These Star ratings reflect outcomes,
processes, patient experience and access, among other factors.
Plans that receive at least four out of the maximum five stars are
typically eligible for an approximate 5 percent payment bonus.
This bonus is earned by high performers in addition to savings
generated by ACO eligibility.
4) MA Penetration
Deep MA penetration may be advantageous, as provider practice
patterns and behaviors are likely already well-aligned with
MA incentives. A competitive MA market can give ACO leaders
confidence that physicians in their market are well acquainted
with coding procedures and quality reporting activities. On
the other hand, if an ACO operates in a market with little MA
penetration, leaders should determine if physician and/or
members are resistant to managed care. Leaders should also
consider planning for a longer ramp-up period to educate
providers and patients about the offering.
4© 2015 Valence Health. All rights reserved. www.ValenceHealth.com
Provider-Led Plans are 5 Star MA Winners
Nine out of the 13 Five Star MA Plans are
Provider Sponsored Health Plans (PSHP)
5-Star MA Plans with Prescription
Drug Coverage
• Kaiser Foundation HP, Inc. - PSHP
• Kaiser Foundation HP, of CO - PSHP
• CarePlus Health Plans Inc.
• Kaiser Foundation HP, Inc. - PSHP
• Kaiser FNDN HP of the Mid-Atlantic States-
PSHP
• Group Health Cooperative
• Gundersen Health Plan - PSHP
• Martin’s Point Generations, LLC
• Healthspan Integrated Care
• Kaiser Foundation HP of the NW - PSHP
• Providence Health Plan - PSHP
5-Star MA-Only Plans
• Medical Associates Health Plan - PSHP
• Dean Health Plan - PSHP

5. Are You and Your Market Ready for Medicare Risk?
Valence Health has worked with countless organizations to assess their appetite for and ability to deliver value-
based care. Therefore, answering the question posed above requires your organization to thoughtfully perform the
following analyses:
1) Conduct a market assessment
You should look at county benchmarks to understand your base payment rate, and then analyze payments that
other local MA plans and providers are receiving. You may also want to benchmark MA penetration against
national figures to analyze your market opportunity.
2) Develop comparable MSSP and MA financials for your organization
There will always be a few Medicare beneficiaries who choose the open care delivery model in fee-for-service.
For those patients, and because of your existing relationship with CMS, you should continue to participate in the
MSSP. At the same time, you should model how quickly fee-for-service beneficiaries might migrate to a MA plan so
as to enhance your budget planning, resource allocation and capability development.
3) Conduct an internal capabilities assessment
You should look at your quality programs, care models and information technology infrastructure to understand if
you have systems in place to further drive down costs and prospectively manage care. You should also understand
your network capabilities to effectively manage high-risk, high-cost patients as well as to deliver primary care.
In Conclusion: MSSP is a Stepping Stone, Not a Destination
It’s no secret that CMS is committed to fundamentally reforming how it pays providers under the Medicare
program. The agency has adopted the Institute for Healthcare Improvement’s Triple Aim, and there have been
achievements in cutting down on the volume of unneeded tests and procedures while improving quality, reducing
costs and improving the patient experience. The government’s most innovative program to date, the MSSP, has
spurred providers to create robust networks, experiment with clinical redesign and care coordination. While
laudable, the MSSP must be viewed as a stepping-stone toward risk, not a destination. The very nature of a shared
savings program results in reduced benefits as providers become more efficient. Given this context, healthcare
organizations ought to think hard about taking on greater levels of risk for the populations they are managing. As
providers, they are in the best position to drive higher quality more efficiently.
When it comes to Medicare Advantage, well-informed, well-planned risk is not as risky as it seems. There are a
wide variety of tools and approaches available to providers looking to limit the financial risk of arrangements they
enter into – MA or others. Most importantly, advances in technology and predictive modeling have evolved to the
point where providers themselves can apply proven actuarial analyses without needing the support of a full staff
of actuaries. Visibility into financial risk, and thus the ability to account for it, has never been more available to
and actionable for providers.
With a range of different health systems already positioned as MA providers, industry experts realize that just
about any provider organization can be successful in this transformation. Those providers that move first to take
clinical and financial control of their Medicare populations will also likely see a significant competitive advantage
in their markets.
5© 2015 Valence Health. All rights reserved. www.ValenceHealth.com

6. ABOUT VALENCE HEALTH
Valence Health provides value-based care solutions for hospitals, health systems and physicians to help them
achieve clinical and financial rewards for more effectively managing patient populations. Leveraging 20 years of
experience, Valence Health works with clients to design, build and manage customized value-based care models
including clinically integrated networks, bundled payments, risk-based contracts, accountable care organizations
and provider-sponsored health plans. Providers turn to Valence Health’s integrated set of advisory services,
population health technology and managed services to make the volume-to-value transition with a single partner
in a practical and flexible way. Valence Health’s more than 800 employees empower 85,000 physicians and 135
hospitals to advance the health of 20 million patients.
Contributors
Kai Tsai, MHSA, Executive Vice President, Consulting Services
William Wachs, CPA, CVA, Managing Director, Consulting Services
Janet Hughes, MBA, Senior Director of Product Marketing
Kelly Richard, MPH, Sr. Consultant
For more information, please contact us at:
E: information@valencehealth.com
T: 888.847.0250
www.ValenceHealth.com
References
i
“Fact Sheets: Proposed Changes to the Medicare Shared Savings Program Regulations,” last modified Dec. 2,
2014, http://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2014-Fact-sheets-items/2014-12-01.html
ii
Scott Hines, “MSSP Lessons From the Front Lines: Align, Educate and Plan.” Presentation at Valence Health
further 2014 conference, Chicago, Sept. 8-9, 2014
iii
Mark Hillard, telephone call with authors, Jan. 30, 2015
iv
“Proposed Changes to Medicare Shared Savings Program Regulations,” ibid
v
McWilliams J, Chernew ME, Dalton JB, Landon BE. “Outpatient Care Patterns and Organizational Accountability in
Medicare,” JAMA Intern Med. 2014;174(6):938-945. doi:10.1001/jamainternmed.2014.1073
vi
Hillard, ibid.