Bad is good for baselines

Bob Kocher had a very interesting point about the problem of single year baselines. A good, low cost year is bad for provider organizations that want to take on more risk.

In our case, we looked hardest at our largest ACO as a candidate for Next Generation ACO. Unfortunately, we saw large spikes in overall hospital costs (despite significant declines in admissions) in 2015. This made 2015 a weird year. We expect hospital costs to come down in 2016 (our potential benchmark year), but it is too early to know for sure. If costs revert to normal, 2015 would have been a “good” benchmark year with its uncharacteristically high costs, but 2016 will not be a good benchmark year if costs either revert to normal since those “savings” are lost in the benchmark. If costs stay high, then they could represent a fundamental shift in the local healthcare market that will be tough to overcome.

I have spent a good chunk of my time talking and thinking about ACA 1332 state innovation waivers. One of the challenges that the waiver process has is that states that aggressively manage to keep their benchmark costs down are at a disadvantage. States that have a have a high baseline premium and a large number of plans that are priced below the Benchmark have significantly more functional flexibility to meet 1332 waiver guidelines than states that have low premiums and small spreads.

Benchmarking on a bad year is a very good thing for ACOs and states that want to use a 1332 or build a Basic Health Program. The difference is that a state can more readily engineer a “bad” year to act as a good baseline than an ACO if there is enough political will and cynical bastards in charge.