Prospective benchmarks within the Accountable Care Organization Realizing Equity, Access, and Community Health (ACO REACH) model rely on an adjusted United States Per Capita Cost (USPCC) trend.¹ How much was this trend restated in performance year (PY) 2023 and what is the headwind going into PY2024?

If the emerging expenditure trend in the ACO REACH National Reference Population deviates by more than 1% from the prospective adjusted USPCC trend in the same timeframe, the Centers for Medicare and Medicaid Services (CMS) will implement a retrospective trend adjustment (RTA) to benchmark expenditures for REACH ACOs.^2,3 The RTA had a significant impact on the financial benchmarks of Direct Contracting Entities (DCEs) throughout PY2021 and PY2022, and that will continue in PY2023. The RTA for the aged/disabled (AD) population was 0.9491 in PY2021 and 0.9472 in PY2022.

For ACOs that are forecasting financial performance in this program, it is important to answer the following questions:

• How has the RTA historically progressed?
• What is the magnitude of the PY2024 RTA headwind?

RTA historical progression

CMS makes interim forecasts of the RTA as the performance year develops, which increase in accuracy until they become final (i.e., after runout through March in the following calendar year). Figure 1 shows the progression of CMS’s interim RTA estimates for the AD population so far in PY2023, through the latest estimate of 0.974 (with claims runout through February 2024), along with the progression in PY2022. CMS’s RTA file provides a monthly estimate that uses all data incurred and paid through the report month.

During PY2022, the final RTA for AD telescoped to 0.947 by the final settlement, after drifting upward during interim settlements from as low as around 0.910 as of the August 2022 reporting period. This upward trend in restatements was caused by the latter half of the year being greater than the first half.⁴ This pattern played out in 2022 due in part to the release of pent-up demand and normalization following significant suppression of healthcare from COVID-19 that began in March 2020. Figure 2 shows the incremental seasonality patterns in the REACH reference population by calendar month going back to 2017.

Due to uncertainty around completion and annualization, there is the possibility of material movements before the final RTA. Even as of the December 2022 reporting period, the RTA had at least a half percent to move before the final settlement.

PY2024 RTA headwind

Per the Center for Medicare and Medicaid Innovation (CMMI), the PY2024 RTA (if applicable) will be based on the difference between the prospective 2022-2024 adjusted USPCC trend and the actual nationwide observed trend for the REACH reference population. Using known public sources, we can derive what the RTA headwind is for PY2024. See Figure 3 for the AD population headwind and Figure 4 for the end-stage renal disease (ESRD) headwind.

This is how the calculation works for the AD population:

• The PY2024 ACO REACH/Kidney Care Choices (KCC) Rate Book (Rate Book) shows a 2022 Adjusted USPCC of $987 and a 2024 Adjusted USPCC of $1,123 (creating the 1.138 trend in Figure 3).
• From the March-released PY2023 RTA file, the final 2022 claims per member per month (PMPM) is $1,005. The 2023 claims PMPM is not final until the runout through March is available, but based on Milliman’s estimate of the runout we assume the 2023 claims PMPM will be about $1,077 (creating the 1.071 trend in Figure 3).
• The actual 2023-2024 National Reference Population trend is not known at this point, but we estimated it based on the 2025 Medicare Advantage (MA) Rate Announcement that was recently released. We made a small adjustment to the USPCC to reflect the impact of removing uncompensated care (UCC) and including hospice care (i.e., assumed the same relative impact as in the PY2024 Rate Book).

This indicates REACH ACOs can expect about a 2.5% RTA “headwind” (1 – 1.110 / 1.138) for the AD population's financial benchmark. Similarly, the PY2024 “headwind” for the ESRD cohort is estimated to be approximately 5%. These estimates are subject to change as additional data emerges.

Per CMMI methodology,⁵ starting in PY2024 the benchmark for REACH ACOs will only be adjusted for a portion of the RTA in excess of 4% (100% of the RTA up to +/-4%, 50% of the RTA between +/-4% and +/-8%, and 0% of the RTA in excess of 8%). This could potentially dampen the impact of the RTA if the current forecast RTA “headwind” grows much larger in PY2024. Even though this new rule dampens the RTA past the specified corridor, the benchmark adjustment prior to the first corridor being reached is still very large.

Conclusion

In the last three years, CMMI's initial estimates of Direct Contracting (DC) and ACO REACH financial benchmarks have consistently been higher than actual experience, causing retrospective trend adjustments each year. Although, in the future, a favorable RTA adjustment may be possible (i.e., if CMS understated trends), based on publicly available information it seems likely that there will be another unfavorable RTA in PY2024. REACH ACOs should incorporate the RTA into their financial projections when relying on interim benchmark data made available from CMMI. Milliman has developed an independent model to estimate potential PY2024 RTA outcomes based on historical seasonality of the REACH National Reference Population, emerging PY2024 data, and our expertise with reserving and forecasting. Please contact your Milliman consultant if you would like to learn more or understand how the RTA might impact your ACO in PY2024.

¹ CMS adjusts the USPCC to exclude uncompensated care payments (UCC) and include hospice expenses. See https://innovation.cms.gov/media/document/gpdc-py2023-ratebook-dev.

² See here for more information on the history of the RTA and its methodology: https://www.milliman.com/en/insight/retrospective-trend-adjustment-direct-contracting-aco-reach.

³ CMS. ACO REACH Model: Financial Operating Guide: Overview, page 15. Retrieved April 7, 2024, from https://www.cms.gov/files/document/aco-reach-py24-financial-operating-guide.pdf.

⁴ The CMS interim RTA methodology applies a completion estimate but assumes that annualization is linear (i.e., no specific assumption is made about seasonality).

⁵ See https://www.cms.gov/priorities/innovation/innovation-models/reach-py24-model-perf.