The retrospective trend adjustment (RTA) has significantly lowered Direct Contracting Entity (DCE) and REACH ACO financial benchmarks from 2021 to 2023.

In PY 2024, symmetric RTA risk corridors will be applied to help alleviate the uncertainty and improve financial predictability for REACH ACOs. While the current estimate of the PY 2024 RTA headwind for AD beneficiaries is in a range unimpacted by the risk corridors, the corridors would have been favorable if they had been applied in PYs 2021 and 2022.

Background: What is the RTA?

In the ACO Realizing Equity, Access, and Community Health (REACH) program—and its predecessor, the Global and Professional Direct Contracting (GPDC) program—benchmarks have been set prospectively, based on the adjusted United States Per Capita Cost¹ (USPCC) trend. If the actual trend observed for the REACH national reference population differs from the prospective adjusted USPCC trend by more than +/-1%, then the Centers for Medicare and Medicaid Services (CMS) may apply an RTA to the benchmark to account for this difference. If the actual trend falls within +/-1% of the prospective trend, then the RTA defaults to a value of 1.0 and has no impact on the benchmark. More information on the RTA and the definition of the REACH national reference population can be found in a prior Milliman publication.²

Numerically, the RTA is calculated by taking the ratio of the retrospective REACH national reference population trend (from the anchor year³ to the performance year) to the prospective adjusted USPCC trend (of the same period). The RTA is applied at the program level across all participating REACH accountable care organizations (ACOs) and is calculated separately for the aged and disabled (AD) and end-stage renal disease (ESRD) populations.

Historical RTA (2021-2023)

Prior to PY 2024, the full impact of the RTA was borne by the ACO. The RTA has been a focus area for REACH ACOs and GPDC participants because it has materially decreased the prospectively calculated financial benchmarks in every performance year (PY) since PY 2021, as shown in Figure 1. Starting in PY 2023, the Center for Medicare and Medicaid Innovation (CMMI) announced that it will not incorporate RTA into the benchmark reporting until Q3, and the final RTA value would not be known until full runout is complete (i.e., March of the PY + 1). As a result, this introduces a major source of uncertainty for the ACOs.

PY 2024 RTA rule change

To improve financial predictability, CMMI will implement three symmetric RTA risk corridors starting in PY 2024. In cases of material deviation from the prospective trend, these risk corridors are meant to limit the risk exposures of the ACOs. Note that based on recent communication from CMMI, REACH ACOs have to explicitly opt-in for the corridors to apply. Otherwise, the RTA impact will be fully borne by the ACO similar to historical years.

PY 2024 RTA mechanics

Due to the de minimis requirement of the RTA (i.e., that the actual trend deviates from the prospective trend by more than +/-1%) along with the introduction of the risk corridors in 2024, the applied RTA will differ from the actual RTA, i.e., the ratio of actual trend to prospective trend. Figure 3 illustrates the two curves, applied RTA versus actual RTA, when the actual RTA ranges from 0.9 to 1.1.

The blue line depicts the actual RTA prior to the de minimis requirement and the risk corridors, and the orange line depicts the applied RTA.

RTA excess

When 0.99 < Actual RTA < 1.00 or Actual RTA < 0.96:
The orange line is above the blue line. The prospective trend adjusted by the applied RTA would result in an effective trend that is higher than the actual trend. The applied RTA is more favorable for the ACO than the actual RTA.

RTA insufficiency

When 1.00 < Actual RTA < 1.01 or Actual RTA > 1.04:
The orange line is below the blue line. The prospective trend adjusted by the applied RTA would result in an effective trend that is lower than the actual trend. The applied RTA is more unfavorable for the ACO than the actual RTA.

The RTA excess and insufficiency near 1.0 RTA is caused by the 1% de minimis requirement. The RTA excess on the left tail and insufficiency on the right tail are caused by the newly implemented risk corridors.

More specifically, the risk corridors will dampen the applied RTA if the actual RTA is between 0.92 and 0.96. The applied RTA also has a floor of 0.94, effective when the actual RTA is less than 0.92.

Symmetrically, the risk corridors will dampen the applied RTA if the actual RTA is between 1.04 and 1.08. The applied RTA has a ceiling of 1.06, effective when the actual RTA is greater than 1.08. Note that while a favorable RTA (i.e., greater than 1.0) is theoretically possible, an unfavorable PY 2024 RTA (i.e., less than 1.0) is more likely, given currently publicly available information. Another recent Milliman white paper⁴ discusses this topic in detail.

To illustrate the potential overall impact of the RTA risk corridors, Figure 4 calculates what the applied RTA would have been in PYs 2021 and 2022 for the AD population had the risk corridors been in place in those years. As shown, the risk corridors would have resulted in an RTA excess, leading to higher benchmarks for participating DCEs and ACOs. Based on the published GPDC financial results for PY 2022, the application of RTA risk corridors would have resulted in a 30% increase in gross savings compared to actual.⁵ The risk corridors have no impact to the latest estimates of the PY 2023 RTA shown in Figure 2 above.

Other considerations for PY 2024

The anchor year for PY 2024 RTA is 2022. As explained in the recent Milliman white paper,⁶ the PY 2024 RTA already faces a headwind, because the current best estimate trend from 2022 to 2024 already exceeds the prospective adjusted USPCC trend in the 2024 ACO REACH/Kidney Care Choices (KCC) Rate Book. Estimated RTA headwinds in this paper for the AD and ESRD beneficiaries are 0.975 and 0.948, respectively, where the ESRD RTA headwind of 0.948 would have resulted in an applied RTA of 0.954, demonstrating a case of RTA excess.

Conclusion

The PY 2024 RTA risk corridors are intended to increase the predictability of the ACO’s final financial benchmark calculations by reducing the ACO’s risk exposure to extremely unfavorable RTAs. REACH ACOs should continue to incorporate emerging RTA into their PY 2024 performance projections and should understand the potential impact of the new risk corridor rule.

Appendix: Acronyms

DCE: Direct Contracting Entity

ACO REACH: Accountable Care Organization Realizing Equity, Access, and Community Health

GPDC: Global and Professional Direct Contracting

CMS: Centers for Medicare and Medicaid Services

CMMI: Center for Medicare and Medicaid Innovation

KCC: Kidney Care Choices

AD: Aged and Disabled

ESRD: End-Stage Renal Disease

PY: Performance Year

¹ The adjustment includes adding hospice cost and removing the uncompensated care cost (UCC) from the USPCC.

² Kramer, E. & Byron, D. (December 5, 2022). The Retrospective Trend Adjustment in Direct Contracting and ACO REACH: A Brief Explanation. Retrieved May 15, 2024, from https://www.milliman.com/en/insight/retrospective-trend-adjustment-direct-contracting-aco-reach.

³ In this paper we use the term “anchor year” to refer to the year that CMMI uses as the reference year for RTA calculation.

⁴ Jones, S., Smith, C., & Shaikh, T. (April 15, 2024). The Retrospective Trend Adjustment: Looking Back, Looking Forward. Retrieved May 15, 2024, from https://www.milliman.com/en/insight/retrospective-trend-adjustment-looking-back-looking-forward.

⁵ For this illustrative calculation, we assume the AD RTA excess applies to the overall ACO population and calculate gross savings as final benchmark less total cost of care.

⁶ Jones, S. et al., op cit.