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CMS would like Next Gen ACOs to entice providers to move toward more risk in return for higher potential payments.

Navigating health reform

Health Care Providers Weigh Risks and Rewards of Next Gen ACOs

  • 5/20/2016

In traveling to Las Vegas several times, I have learned that while I don’t mind gambling a little, for the most part I am fairly risk averse. It might be tempting to take on a little more risk if the odds were tilted in my favor, but Las Vegas has never made it worth my while to do so.

In this respect, I have a lot in common with many health care providers today, who have been slow to voluntarily take on more risk in this world of accountable care. But now Centers for Medicare and Medicaid Services (CMS) are willing to sweeten the pot a little, in order to entice providers to take that step toward more risk.

Accountable Care Organizations (ACOs) are a key piece of the health care reforms included in the Affordable Care Act. The government is banking on ACOs to help shift Medicare payments toward supporting population health and quality care, instead of the traditional fee-for-service system. We have now seen several iterations of Medicare’s accountable care experiment — from the original Pioneer ACOs to the Medicare Shared Savings Program (MSSP), and everything in between. These models have offered different ways for providers to work together and take on more risk in return for higher potential payments.

For example, in the MSSP model, two of the three program tracks offer a two-sided model which allows providers to qualify for savings and assume risk for any losses incurred. However, in 2015 only a handful of ACOs elected to take on that risk, with many instead choosing Track 1, which allows ACOs to share in savings but not be responsible for losses. Providers like the chance to share in savings, but they haven’t yet been lured into taking on more risk than necessary.

Summary of risk-based tracks under the MSSP Model

  Track 1
(One-sided Model)
Track 2
(Two-sided Model)
Track 3
(Two-sided/Higher Risk/Reward)
Maximum sharing rate Years 1-3: 50%
Years 4-6: 50%
60% 75%
Minimum savings rate (MSR) 2 – 3.9% (i) No MSR
(ii) Symmetrical MSR
(iii) 2 – 3.9%
(i) No MSR
(ii) Symmetrical MSR
(iii) 2 – 3.9%
Shared savings cap 10% 15% 20%
Shared loss threshold Not applicable (i) No MSR
(ii) Symmetrical MSR
(iii) 2 – 3.9%
(i) No MSR
(ii) Symmetrical MSR
(iii) 2 – 3.9%
Loss sharing limit Not applicable Year 1: 5%
Year 2: 7.5%
Year 3+: 10%
Beneficiary assignment Preliminary prospective for reports; retrospective for financial reconciliation Prospective for both

CMS pushes to improve ACOs

The highly-anticipated Next Generation ACO program recently went live on January 1, 2016. On January 11, 2016, the Centers for Medicare and Medicaid Services (CMS) announced the 21 organizations selected to participate in the “Next Gen” model, which offers providers further incentive to take on more risk.

The Next Gen model offers two risk arrangements which offer more risk and reward than the Pioneer or MSSP models:

  • Under a shared risk option, ACOs may share in 80 percent of both savings and losses. This is an increase from the 60 percent or 75 percent options offered in the MSSP tracks.
  • Under the full risk option, ACOs can share in 100 percent of the savings and losses.

In both arrangements, total savings and losses will be capped at 15 percent of the cost benchmark, the measure used to determine shared savings and losses under the program.

Multiple payment options

As part of the Next Gen model, ACOs have the ability to choose between multiple payment options. These options include:

  • Traditional fee-for-service — providers will be paid at typical fee-for-service rates.
  • Fee-for-service with an ACO support payment — providers will be paid similar to the traditional fee-for-service payment, however, they will also receive a payment of up to $6 per month for each of its assigned beneficiaries. These payments are intended to support the significant infrastructure and operating costs of the organization as an ACO, but are to be re-paid to CMS at the end of the year.
  • Population-based payments — CMS will pay a discounted rate for all claims. They will then reconcile the projected amount agreed to by the ACO against actual results at the end of the year. The ACO is ultimately responsible for any difference.
  • Full capitation — Under this option (which is only available beginning in 2017), CMS will pay a per beneficiary/per month capitation payment to the ACO. The ACO is responsible for paying its partners, and for any surplus or deficit — some have said that the full capitation model is clearing the path for providers to become insurers.

Regardless of the payment option selected, the ACO will share in the savings and losses based on the risk option selected (80 percent or 100 percent).

Making risk more enticing

CMS continues to try to make the risk more palatable to providers. Key changes with the Next Gen model include:

  • Beneficiary assignment — Providers can engage with covered individuals in their care to get them more involved in their care decisions. By creating a better patient experience, they may entice patients to return to the ACO in the future.
  • Improved benchmarking — A prospectively determined benchmark that rewards quality, rewards improvement, and attainment of efficiency, and moves away from recent expenditures when setting and updating the benchmark. In previous models, many providers took issue with the fact that as they made improvements, the benchmarks became harder to achieve.
  • Benefit enhancements — New waivers for the rule requiring a three-day hospital stay before Medicare will pay for skilled nursing care. It also expands the use of telehealth and post-discharge home visits.

Increased collaboration among providers

As you can see, ACOs are presented with both opportunities and risks. But in addition to the upside and downside risks, the essence of an ACO cannot be lost. They are meant to provide increased collaboration amongst health care providers willing to take on more risk, with the end goal of reducing costs and improving health.

Including the Next Gen ACOs, there are now 477 ACOs which are responsible for approximately 8.9 million Medicare patients. It is clear that more providers are getting on board with the concept of working together and taking on more risk. It is also apparent that the government intends for these models and their underlying principles to serve as roadmaps for the future of health care.

How we can help

CLA assists clients interested in becoming an ACO by using our Intuition modeling software to explore various options. By modeling the flow of funds and assessing opportunities for care delivery changes or improvements, clients get a clear understanding of how these changes impact their bottom line.

For providers seeking to become preferred providers with the ACOs, we can help you review contracts, as well as understand and articulate your value proposition by compiling and evaluating CMS data in a Peer Comparison Report. The report will demonstrate key measures such as average Medicare beneficiary cost, and average length of stay.

In addition, CLA can review all domains of the CMS Five-Star Quality Rating System to identify the areas of improvement necessary to reach or maintain a minimum of three-star or higher rating. Increasingly, ACOs expect SNFs to maintain a three-star rating to be a preferred provider. CMS also requires this status for SNFs to be eligible to receive patients under a three-day stay waiver (given to some ACOs and bundled payment providers).

CLA's health care professionals have extensive experience in an environment where the rules seem to keep changing. We can help you assess whether your organization should take on a little more risk in return for greater rewards.