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April 2015
Practice Group:
Health Care
CMS Announces the Next Generation of
Accountable Care Organizations Aimed at Increased
Risk Sharing and Program Sustainability
By Richard P. Church, Steven G. Pine, and Trevor P. Presler
The Centers for Medicare and Medicaid Services (“CMS”) announced on March 10th a new
model for Accountable Care Organizations (“ACOs”) that will evaluate the capacity of ACOs
to assume “near-complete financial risk” while offering new features aimed at ensuring longterm sustainability and more predictable benchmarks. 1
Next Generation model ACOs will be required to assume significantly more downside
performance risk; however, they will be eligible for a larger percentage of shared savings as
compared to the traditional ACO models. In addition, providers will have the opportunity to
develop alternative payment mechanisms and obtain greater incentives for beneficiaries to
align with Next Generation providers, including $50 incentive payments to beneficiaries, a
qualified waiver to the three-day inpatient stay requirement period for admission to a Skilled
Nursing Facility (“SNF”), expanded access to telehealth services, and post-discharge home
visits to non-homebound beneficiaries. Responding to stakeholder concerns about the
unpredictability of benchmarks and the challenges associated with diminishing marginal
returns on ACO performance metrics, the Next Generation model will also use a prospective
formula when developing performance benchmarks.
CMS anticipates that 15–20 ACOs will eventually participate in the new model, which will be
open to “ACOs that are experienced in coordinating care for populations of patients.” 2 It will
offer two rounds of applications in 2015 and 2016, with letters of intent for the first round due
by May 1, 2015, and applications due on June 1, 2015. The Next Generation model is only
available for ACOs with a minimum of 10,000 assigned beneficiaries (7,500 for rural ACOs),
an increase from the 5,000 beneficiaries required under the Medicare Shared Savings
Program (“MSSP”) model.
A Brief Overview of Accountable Care Organizations
The Patient Protection and Affordable Care Act (“ACA”) authorized the creation of the Center
for Medicare and Medicaid Innovation (“CMMI”) to develop novel health care payment and
delivery models, including the ACO model. In its most general terms, an ACO is a group of
health care providers and suppliers who coordinate to provide Medicare fee-for-service
beneficiaries with high-quality care at lower costs. In return, ACOs that are successful
meeting cost and quality benchmarks receive a portion of the shared savings commensurate
with their level of shared risk. Since its inception in 2011, the ACO program has expanded
rapidly. CMS’ ACO portfolio now includes the MSSP and Pioneer models, as well as
1
See Centers for Medicare and Medicaid Services, Next Generation ACO Model Request for Applications
(http://innovation.cms.gov/Files/x/nextgenacorfa.pdf). All references herein are to the RFA unless otherwise noted.
2
Press Release, Centers For Medicare and Medicaid Services, Next Generation Accountable Care Organization (ACO) Model Fact
Sheet, March 10, 2015.
CMS Announces the Next Generation of Accountable Care Organizations
Aimed at Increased Risk Sharing and Program Sustainability
Advance Payment ACOs, and the ACO Investment model. 3 To date, CMS has approved
more than 400 participating organizations representing nearly 16,000 providers. 4
By far the largest category, MSSP ACOs are accountable for the cost, quality, and care of
the Medicare fee-for-service beneficiaries who receive more than 50% of their primary care
services from ACO providers. ACOs that are accepted by CMS to participate in the program
must serve at least 5,000 fee-for-service Medicare beneficiaries, and must agree to
participate for at least three years. MSSP ACOs can select one of two incentive models: 1)
an opportunity to receive up to 50% of the savings, or 2) an opportunity to receive up to 60%
of the savings if the ACO agrees to bear a portion of the risk of loss if costs for the ACO’s
beneficiaries exceed certain benchmarks. Notwithstanding the model’s rapid growth, it has
yet to demonstrate a uniform capacity to generate sustained cost savings. CMS recently
proposed to extend the one-sided risk arrangement by granting ACOs another three-year
shared savings period before they will face financial liability for failing to meet performance
goals. 5
Components of the Next Generation ACO Model
While full details about the Next Generation ACO Model have yet to be released, CMS has
presented the overall framework for the program. This framework incorporates an increased
risk structure for ACOs in exchange for increased shared savings possibilities, plus the
opportunity to develop alternative payment arrangements and a variety of exemptions and
benefits designed to improve care coordination and attract and retain beneficiaries in an
ACO program.
Increased Risk Structure
The Next Generation model offers two risk-sharing arrangements, both of which incorporate
significant downside risk:
•
Eighty percent risk sharing rate for Part A and Part B services in program years one
through three, and an 85% sharing rate for program years four and five.
•
One hundred percent risk for their Part A and Part B services.
For both models, benchmarks are calculated identically, savings and losses are capped at
15%, and beneficiary expenditures are capped at the 99th percentile (to mitigate the outlier
effect).
Refined Benchmarking Methods
Unlike the MSSP Model, in which benchmarks are not finalized until the end of the
performance year, Next Generation benchmarks will be set prospectively. In years one
through three, the prospective benchmark will be set using a four-step process that
considers:
3
CMS, ACOs: General Information, http://innovation.cms.gov/initiatives/ACO/.
CMS, Medicare Shared Savings Program Accountable Care Organizations (https://data.cms.gov/ACO/Medicare-Shared-SavingsProgram-Accountable-Care-O/ay8x-m5k6, https://data.cms.gov/ACO/Medicare-Shared-Savings-Program-Accountable-Care-O/pfamu3vp)
5
Medicare Shared Savings Program: Accountable Care Organizations, 79 Fed. Reg. 72762 Dec. 8, 2014.
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CMS Announces the Next Generation of Accountable Care Organizations
Aimed at Increased Risk Sharing and Program Sustainability
1)
the ACO’s historic expenditures;
2)
the regional projected trend;
3)
the CMS Hierarchical Condition Category Model (“HCC”), which considers the
relative acuity of the patient population; and
4)
a 0.5% to 4.5% discount based on the ACO’s quality score, the ACO’s baseline
expenditures vis-à-vis the regional fee-for-service expenditures, and the regional
fee-for-service expenditures at baseline compared to the national fee-for-service
per capita spending.
CMS has indicated the benchmarking model is designed to de-emphasize recent ACO
experience and takes into account comments received to the proposed MSSP rule changes
regarding benchmarking. Presumably, this means the benchmarking model should be less
likely to provide disincentives to achieving savings, which under the MSSP model serves to
directly impact the subsequent years' shared savings payments (or shared losses).
In the final two performance years of the model, which will require new participation
agreements, CMS has stated that it may further refine the benchmarking formula. Current
proposals include measures that would address concerns about ACO sustainability by deemphasizing recent ACO costs, and by rewarding attainment of cost and quality measures
rather than continued improvements on those scores. However, CMS is not projecting to
implement further revisions to the benchmarking process until the end of 2017.
Preferred Provider Classification
The Preferred Provider concept is new to the Next Generation model, and is an effort to
expand the universe of providers that will count toward determining beneficiary incentives,
which are discussed below. Preferred Providers are not Next Generation Providers/Suppliers
per se, but nonetheless facilitate ACO goals by expanding the reach of beneficiary incentives
beyond the ACO-affiliated provider and supplier network. ACOs may contract with Preferred
Providers to deliver any of the beneficiary enhancements available to aligned beneficiaries,
such as expanded telehealth services, post-discharge home visits, and SNF admissions
without the three-day inpatient stay requirement. The Preferred Provider class is associated
solely with benefits enhancements, and is not considered for beneficiary alignment
determinations or ACO benchmarking scores. ACOs must enter written agreements with
Preferred Providers, and must provide CMS with a Preferred Provider list.
Mechanisms for Beneficiary Engagement
To help mitigate the problems associated with beneficiary leakage while preserving freedom
of choice, CMS has introduced a two-pronged approach, coupling beneficiary self-alignment
with a new set of benefits enhancements. First, the new model will now offer beneficiaries
an annual opportunity to self-align with Next Generation ACOs. Voluntary alignment will exist
alongside claims-based alignment, but in the event that a beneficiary does not receive the
majority of his or her care from a Next Generation ACO in a given performance year, selfalignment will trump. ACOs that migrate to the Next Generation model from other Medicare
ACO models with voluntary alignment may be able to retain the beneficiaries who voluntarily
aligned with the previous entity during the transition to the Next Generation model. In
addition, CMS will consider allowing ACOs to choose a preferred mode of communication
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CMS Announces the Next Generation of Accountable Care Organizations
Aimed at Increased Risk Sharing and Program Sustainability
for confirming beneficiary alignment (e.g., phone, online forms, or paper-based forms) to best
meet the needs of their unique beneficiary population.
Second, the Next Generation model provides several “benefits enhancements” to incentivize
beneficiary self-alignment under Next Generation ACOs. These incentives include:
•
direct payments of up to $50 per year for beneficiaries who receive a threshold
percentage of his or her Medicare Services from Next Generations providers;
•
a waiver of the three-day inpatient stay requirement prior to admission to Next
Generation SNF affiliates when the beneficiary is admitted by Next Generation or
Preferred Providers;
•
waivers to certain limitations on access to telehealth services, including the
requirement that beneficiaries be located in a rural area and at a particular type of
originating site in order to be eligible for telehealth services; and
•
access to post-discharge home visits for non-homebound beneficiaries under the
general supervision (i.e., not only the direct care) of Next Generation providers or
Preferred Providers.
CMS has also stated that it will consider reducing or eliminating certain cost sharing
obligations for Next Generation Beneficiaries, including Part D deductibles and/or
coinsurance when receiving care from Next Generation ACO Providers or Preferred
Providers.
Under the new model, beneficiary self-alignment supersedes claims-based alignment, so
beneficiaries who elect to align with Next Generation providers will remain aligned with the
ACO regardless of the actual percentage of services they receive thereunder. Although CMS
remains committed to patient choice of providers, it hopes that this combination of incentives,
together with the beneficiary self-alignment option, will provide enhanced ability to forecast
the patients for which the ACO will be held accountable at the end of the performance year.
Alternative Payment Mechanisms
In addition to fee-for-service payments, the Next Generation model will also test new
payment mechanisms designed to facilitate infrastructure investment and care coordination.
•
Infrastructure Payments—The infrastructure payment model will add a perbeneficiary/per-month (“PBPM”) payment of up to $6 PBPM to allow ACOs to invest
into the infrastructure required to support ACO activities. The PBPM infrastructure
payment will be unrelated to beneficiary claims, and will be recouped by CMS during
the performance-period reconciliation process regardless of whether the ACO
experienced savings or losses. In other words, the payment is designed to address
cash flow issues associated with ACO start up costs, but will be required to be repaid
in full by the ACO.
•
Population-Based Payments—The population-based payment mechanism will
provide Next Generation ACOs with a partial capitation model in which a monthly
PBPM payment is received in exchange for percentage reduction in the fee-forservice payment rates. The ACO can apply different fee-for-service reductions to
different suppliers, which must enter written agreements permitting the payment
reductions for aligned beneficiaries. This approach is intended to provide flexibility in
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CMS Announces the Next Generation of Accountable Care Organizations
Aimed at Increased Risk Sharing and Program Sustainability
the types of payment arrangements Next Generation ACOs enter with providers and
suppliers.
•
Capitated Payments—Under the full capitation model, CMS will estimate the ACOs
annual expenditures for Next Generation Beneficiaries and will pay the ACO that
projected amount on a PBPM basis. While Next Generation providers and suppliers
covered by a capitation agreement will continue to submit claims to CMS, the claims
information will then be transmitted to the ACO, which will be ultimately responsible
for payment. Providers and suppliers that are not covered by a capitation agreement
(which can expand beyond the ACO participants) with the ACO will continue to
receive normal fee-for-service rates.
Next Generation ACOs are required to have financial guarantees in place sufficient to fund
losses payments for which the ACO may be responsible. In this regard, CMS emphasizes
that Next Generation ACOs must comply with state laws and regulations that govern
provider-based risk-bearing entities, which means Next Generation ACOs must determine if
they have taken on risk sufficient to trigger state insurance licensure laws.
Program Oversight
Given the Next Generation model’s new incentive structure and the potential waiver of
certain fraud and abuse laws for ACOs, CMS has announced that it will implement an
enhanced oversight plan to protect beneficiaries and program integrity. Participating ACOs
will be required to develop and adhere to an internal compliance plan incorporating certain
minimum standards, including: a designated compliance officer (who cannot be the ACO’s
legal counsel) and an anonymous reporting mechanism for program integrity issues; internal
checks to identify and remedy compliance issues; ongoing compliance training; and a quality
assurance program, including a peer review process, to investigate substandard care. In
addition to these internal mechanisms, CMS has stated that it will monitor Next Generation
ACOs using claims analysis, targeted audits, and by examining beneficiary and provider
complaints, among other methods, to provide external program oversight.
Conclusions
The Next Generation ACO model continues to test whether the right balance of incentives
can generate improved health outcomes and lower costs for Medicare fee-for-service
beneficiaries. However, with only an initial framework available, many questions remain
regarding how this aggressive approach at risk-shifting will function in practice, and whether
providers will buy-in to the program. CMS anticipates that between 15 and 20 ACOs will
participate in the initial Next Generation cycle, though it may grant more than 20 awards if “a
compelling reason exists to do so.” ACOs interested in applying in the first application cycle
must submit a Letter of Intent by May 1, 2015, and must submit the application by June 1.
The dates for the second application cycle will be May 1 and June 1, 2016, respectively.
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CMS Announces the Next Generation of Accountable Care Organizations
Aimed at Increased Risk Sharing and Program Sustainability
Authors:
Richard P. Church
Steven G. Pine
Trevor P. Presler
[email protected]
+1.919.466.1187
[email protected]
+1.919.466.1188
[email protected]
+1.919.466.1250
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© 2015 K&L Gates LLP. All Rights Reserved.
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