Value-based payment in a pandemic: Will systematic changes to support the accountable care organization model be enough?

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Healthcare Alert

COVID-19 Alert


The coronavirus disease 2019 (COVID-19) pandemic has been a profound disruptor to the business of healthcare, fomenting uncertainty in cash flow, causing supply chain disruption, and exacerbating risks associated with losing employees and patients. It has caused unavoidable and unpredictable fluctuations in revenue and expense. One additional consequence of the pandemic is its effect on the decade-long government-sponsored effort to shift payment for healthcare services to a value-based purchasing (VBP) system and in particular the viability of accountable care organizations (ACOs).

The financial risk from COVID-19 for VBP health providers is significant because the ACO program holds participants accountable for healthcare spending on the patients attributed to their practice. At the end of each year, actual expenditures on the patients attributed to the ACO are compared to expected baseline spending (which is based on historical information). If there are savings compared to the baseline, the ACO retains some of them; if the ACO is in a two-sided risk arrangement, then losses are shared as well. Essentially, the higher the quality of care, the greater share of the savings the ACO receives.[1]

For providers to succeed in the ACO model, they must understand baseline trends in spending and utilization, and they must have an expectation about their ongoing relationship with the patients they are accountable for; furthermore, they must understand their own operational and financial strengths and vulnerabilities. No one anticipated how extreme that vulnerability could be in a public health emergency. The COVID-19 pandemic has caused large and unavoidable health cost fluctuations both due to illness and social distancing. People are avoiding trips to the doctor which may worsen their underlying health conditions. For ACOs, this means quality targets and data reporting deadlines are likely to be missed as providers turn their clinical focus to COVID-19. ACOs may be ineligible for any shared savings due to their inability to meet quality metrics. Nonetheless, ACOs’ 2020 performance will be assessed using benchmarks established before the current emergency.

In April 2020, the National Association of ACOs (NAACOS)[2] surveyed risk-based ACO Model providers on the effects of COVID-19. Almost 60 percent of respondents reported they are likely to quit the ACO program to avoid financial losses stemming from the pandemic.[3] Further, 90 percent of ACOs reported that the COVID-19 pandemic would have a significant effect on their ACO’s ability to earn shared savings. In a letter to the Centers for Medicare & Medicaid Services (CMS), NAACOS and other practitioner organizations asked for relief. The letter asked CMS to:

  • Hold clinicians harmless from performance-related penalties for 2020, particularly those in two-sided risk alternative payment models;
  • Make appropriate adjustments to spending targets, performance scores, patient attribution, and risk adjustment;
  • Hold clinicians harmless from quality assessments and reporting obligations for 2020; and
  • Delay upcoming program deadlines such as those related to alternative payment model applications and quality reporting.[4]

The Medicare Payment Advisory Commission (MedPac) also urged CMS to take steps to mitigate the financial impact of COVID-19 on ACOs, but primarily urged CMS to treat 2020 as a “do-over.”[5] MedPac urged CMS, inter alia:

  • Do not use 2020 data to determine ACO performance for purposes of computing ACO quality, bonuses, or penalties.
  • Do not use 2020 data in calculating baseline year spending for future benchmarks.
  • Do not use 2020 claims to assign beneficiaries to ACOs, since the shift to telehealth (possibly with physicians located very far away from beneficiaries) could distort ACO assignment. ...[6] 

In response to this input, CMS has made significant changes to address ACO concerns.

In May 2020, CMS published an interim final rule with comment period in the Federal Register, making changes to the Medicare Shared Savings Program regarding financial methodologies as well as application and risk assumption deadlines for ACOs, among other changes. The rule addressed the following concerns:[7]

Shared losses calculations

CMS has stated that it intends to prorate any losses incurred by Medicare ACOs in 2020 for the duration of the public health emergency (eg, if the public health emergency lasts for six months, the annual losses an ACO incurs in 2020 would be halved).

Quality reporting

The announcement covers a variety of quality reporting requirements with the stated purpose of alleviating reporting requirements and disregarding unrepresentative data created during the emergency. CMS will amend its quality reporting requirements from the fourth quarter of 2019 through the end of the second quarter of 2020.

ACOs that do not complete quality reporting requirements will be held harmless. ACOs that do not report out quality measures will receive the mean quality performance bonus, and those that do report quality measures will receive the greater of the mean or their reported measure.


The 2020 application cycle for the 2021 performance year is being deferred. CMS is modifying Shared Savings Program policies to allow ACOs whose current agreement periods expire on December 31, 2020, to extend their agreement by another year into 2021. Those in the Basic track will be able to defer their previously required transition to an increased level of risk for one year, resuming advancement in 2022.

Financial methodology

Medicare ACOs will not have COVID-19 costs counted against them when payment cuts and bonuses are calculated. CMS has stated that it will disregard all Part A and Part B spending related to COVID-19 treatment costs when performing benchmark calculations.

Beneficiary assignment

Because of the enhanced use of telehealth services to treat patients (either because they are exhibiting COVID-19 symptoms or in order to provide ongoing care while sheltered safely in place), CMS will use telehealth services in its beneficiary assignment methodology.


With no modifications to the value-based payment models, providers operating in the most disadvantaged communities would see the biggest negative financial impact. COVID-19 related illness is higher in areas with greater socioeconomic challenges. Meanwhile, elective procedures and regular visits have been delayed by healthier, typically wealthier individuals. This dual effect means providers in a value-based model may be better off in a wealthier neighborhood and worse off in the communities most impacted by the pandemic.

It remains to be seen whether the adjustments from CMS are enough to change the minds of ACO leaders who have considered dropping out after anticipating costly inpatient care needs related to the pandemic.

If you have any questions regarding these developments, please contact your DLA Piper relationship attorney, any member of the DLA Piper Healthcare group, or any of the authors of this alert.

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This information does not, and is not intended to, constitute legal advice. All information, content, and materials are for general informational purposes only. No reader should act, or refrain from acting, with respect to any particular legal matter on the basis of this information without first seeking legal advice from counsel in the relevant jurisdiction.

[3] COVID-19: The swan song of ACOs, by Maria Castellucci, Modern Healthcare, April 13, 2020, republished in
[6] Id.   

[7] The May Interim Rule encompassed topics including expansion of telehealth, support for and expansion of COVID-19 testing, allowing certain licensed professionals to practice at the top of their licenses, among other rules.