How not knowing their “hurdle rates” can impact organizations that have applied to CMS to be Medicare Shared Savings Program (MSSP) accountable care organizations (ACOs).

For an MSSP ACO to succeed, it must deliver care to its attributed Medicare fee-for-service population for less than it costs CMS. Comparing an ACO's actual cost of care to CMS' pre-determined value of what it is expected to cost them — or the ACO's “hurdle rate” — determines if an MSSP ACO will be able to participate in gain. But as of now, CMS hasn't released these hurdle rates — making it very difficult for an MSSP ACO to ascertain whether success is possible under these parameters, and therefore to decide with any confidence whether or not to proceed to contract with CMS.

Complicating this predicament is the fact that hurdle rates aren't easily calculated — they are not necessarily a straightforward extrapolation from the Medicare fee-for-service experience in an ACO's proposed service area. The recently released MSSP hurdle rate formula requires a blending of multiple years of baseline Medicare fee-for-service experience, trended to the contract year at national experiential trend rates, with adjustments for attributed members and decedents. Simply put, hurdle rates are not easy to calculate — not even with access to the appropriate historical Medicare baseline experience. Thus, absent CMS providing the hurdle rate, an MSSP ACO can't easily work up a proxy.

Modeling ACO rules now is critical to understanding the opportunities for success as well as the potential roadblocks that may lead to failure in the future. So what can a budding ACO do now to understand the most important variable ahead: what they will be measured against to decide their success?

Now more than ever, aspiring MSSP ACOs need to tap into expertise in these CMS rules with access to Medicare research databases that can actually estimate a specific MSSP ACO's hurdle rate. There is clearly an arbitrage opportunity in CMS' ACO hurdle rate calculations; based on the rules, some ACOs will have savings already built into their hurdle rates (i.e., hurdle rates greater than a traditionally determined, projected unintervened baseline) while others will have a more difficult road ahead (i.e., hurdle rates less than a traditionally determined, projected unintervened baseline) to get to a gain share position with CMS. These imbedded savings/losses have proven to be not at all immaterial.

It makes sense that an ACO would appreciate the benefit of understanding their hurdle rates now — that is, will they be starting out in a favorable or unfavorable position — as they decide whether to contract with CMS and prepare and execute their operating plan.

About the author
Joel Hoffman, ASA, MAAA, FCA, is senior vice president, OptumInsight. For more information on OptumInsight, visit

‘CMS, what’s my hurdle rate?’
By: HMT Mag
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