Assessment of High-Low Revenue ACO Designations
Overview
The Centers for Medicare and Medicaid Services (CMS) first created revenue designations in the Medicare Shared Savings Program (MSSP) as part of the Pathways to Success final rule in late 2018, which was a major overhaul of the permanent ACO program. In the rule, CMS established a calculation to categorize ACOs as either “high revenue” or “low revenue” as a proxy for access to capital, which the agency believes reflects an ACO’s ability to control spending and assume financial risk. NAACOS opposed the creation of this distinction and has continued to advocate for its repeal due to the arbitrary division it creates among ACOs and the inherently flawed nature of the calculation. This resource explains the high-low revenue calculations and includes analysis using 2022 data to highlight how the designation creates an unlevel playing field for certain provider types in the program.
Calculation of ACO Revenue Designations
CMS calculates an ACO’s revenue designation based on the amount of fee-for-service (FFS) revenue paid to ACO participants as a percent of total FFS expenditures for the ACO’s attributed beneficiaries, regardless of site of care, using Medicare claims data. The definitions of high revenue and low revenue are:
- High revenue ACO means an ACO whose total Medicare Parts A and B FFS revenue of its ACO participants is at least 35 percent of the total Medicare Parts A and B FFS expenditures for the ACO’s assigned beneficiaries.
- Low revenue ACO means an ACO whose total Medicare Parts A and B FFS revenue of its ACO participants is less than 35 percent of the total Medicare Parts A and B FFS expenditures for the ACO’s assigned beneficiaries.
The numerator for this calculation includes the sum of the total Medicare Parts A and B FFS revenue for all of an ACO’s participants, identified by their Tax Identification Numbers (TINs). This dollar amount includes spending for an ACO’s assigned and unassigned traditional Medicare beneficiaries.
The denominator for this calculation includes the sum of the total Medicare Parts A and B FFS expenditures for an ACO’s assigned beneficiaries. This dollar amount includes total costs of care received from ACO providers and non-ACO providers (i.e., the ACO’s benchmark).
CMS calculates ACOs’ revenue ratios during the application cycle and prior to the start of each performance year, and it monitors changes to ACOs’ participant lists that change their revenue designations. CMS notifies ACOs of their status as high or low revenue prior to the start of the performance year and when an ACO switches from low revenue to high revenue, which gives ACOs the opportunity to drop certain providers from the participant list that led to the high revenue designation.
CMS Use of ACO Revenue Designations
The ACO revenue designations were initially used to determine the timeline for when an ACO must move to risk. Despite advocacy efforts by NAACOS and others to cease using the designation, CMS has incorporated the designations into various program policies, including eligibility to share in savings below the minimum savings rate and eligibility for advance investment payments (AIPs). More recently, CMS included the low revenue designation as part of the eligibility criteria for ACOs to participate in the forthcoming ACO Primary Care Flex (PC Flex) Model, which is an Innovation Center model being tested within MSSP.
Table 1 below shows a breakdown of provider types participating in low vs. high revenue ACOs in 2022. While there are fewer total high revenue ACOs, they tend to be larger, serve more Medicare beneficiaries, and include more and more diverse provider participants than their low revenue counterparts.
CMS’s continued and increased use of the ACO revenue designations in ACO program policies may be inhibiting the agency’s stated goals. By limiting the PC Flex Model to low revenue ACOs, CMS immediately excludes the majority of primary care providers participating in MSSP from benefitting from the model. In 2022 (the latest year for which complete data are available), 67 percent of primary care physicians, 69 percent of non-physician practitioners (NPPs), 25 percent of federally qualified health centers (FQHCs), and 87 percent of rural health centers (RHCs) in the MSSP were participating in ACOs designated as high revenue.
Table 1: Distribution of Provider Types by High-Low Revenue based on 2022 Designations
Source: CMS Public Use File (PUF) MSSP 2022 Performance Year Financial and Quality Results
| Low Revenue | High Revenue | ||
| Number of ACOs | 260 | 222 | (46%) |
| Total Assigned Beneficiaries | 4,476,454 | 5,941,843 | (57%) |
| Primary Care Physicians | 53,140 | 105,964 | (67%) |
| Specialist Physicians | 65,838 | 239,891 | (78%) |
| Non-Physician Practitioners (NPs, PAs, CNSs) | 67,953 | 153,020 | (69%) |
| Acute Hospitals | 28 | 915 | (97%) |
| Critical Access Hospitals (CAHs) | 29 | 829 | (97%) |
| Federally Qualified Health Centers (FQHCs) | 3,032 | 996 | (25%) |
| Rural Health Clinics (RHCs) | 231 | 1,512 | (87%) |
| Other Facilities | 95 | 2,038 | (96%) |
While CMS asserts that low revenue ACOs outperform high revenue ACOs, noting that historically low revenue ACOs have achieved higher financial performance than high revenue ACOs, this comparison fails to account for confounding factors beyond ACOs’ control. Prior analysis has shown that once adjusted for geographic location and beneficiary attribution, there is no significant difference in ACO performance between low revenue and high revenue ACOs.
Table 2 below details ACOs’ revenue ratio, components, and financial performance for the 2022 performance year. Performance in this table has not been adjusted for geography or attribution, yet high revenue ACOs still generated significant savings.
Because ACO assignment is primarily driven by primary care providers, adding specialists to an ACO’s participant list will increase the ACO’s total Medicare FFS revenue of participants (numerator) without increasing the total Medicare FFS expenditures of assigned beneficiaries (denominator), thus increasing the revenue ratio and making an ACO more likely to be designated as high revenue. This calculation also fails to consider other factors affecting the ACO’s ability to control costs, such as operating expenses.
By limiting eligibility for favorable policies to low revenue ACOs, CMS creates an incentive to remove specialists and acute care providers from ACOs, despite their critical role in the continuum of care and managing total costs. The CMS Innovation Center has been exploring ways to better integrate specialty care into population health models and in April 2024 published its strategy to support value-based specialty care. Ceasing use of the high-low revenue designations would be a simple way to remove disincentives for including specialists in ACOs and drive more value-based specialty care.
Table 2: High-Low Revenue Ratio, Components, and Performance based on 2022 Designations
]Source: Analysis of Medicare Claims Data conducted by the Institute for Accountable Care
| Low Revenue | High Revenue | |
| Number of ACOs | 260 | 222 |
| Mean ACO Beneficiaries | 17,217 | 26,765 |
| High/Low Revenue Ratio | ||
| Mean | 0.14 | 1.04 |
| Min | 0.04 | 0.35 |
| Max | 0.32 | 3.69 |
| Total Parts A&B Revenue, ACO Participants (numerator) | ||
| Mean | 28,691,583 | 292,901,635 |
| Min | 1,522,374 | 26,393,361 |
| Max | 307,621,066 | 2,360,815,509 |
| Total Parts A&B Expenditures, ACO Assigned Beneficiaries (denominator) | ||
| Mean | 190,699,888 | 297,939,131 |
| Min | 23,225,316 | 41,148,410 |
| Max | 990,318,606 | 2,852,951,387 |
| Gross Savings Generated | ||
| Total | $2,473,136,961 | $1,856,188,693 |
| Average | $9,512,065 | $8,361,210 |
| Percent that Earned Shared Savings | 74% | 50% |
| Mean Earned Shared Savings | 5,685,323 | 4,708,114 |