The Next Generation ACO: Why CMS is offering higher risks, higher rewards

On March 10, 2015, CMS Innovation Center unveiled the latest in accountable care organizations, this time testing to see if a high-risk, high-reward model can successfully improve health outcomes and reduce costs for Medicare fee-for-service beneficiaries. The initiative is part of a greater effort by HHS to shift 50 percent of Medicare provider payments to alternative models by 2018.

The new model, called the Next Generation ACO, is a demonstration program for providers who are prepared to take on increased risk. It also aims to better engage beneficiaries, give beneficiaries more freedom in selecting services and providers, and move to a shared savings model based more on delivering high-quality, low-cost care, rather than one based primarily on improvement. CMS expects just 15 to 20 organizations to participate in the model, with three initial performance years and two optional one-year extensions. If the pilot is successful, CMS will move the model into the Medicare Shared Savings Program.

However, according to CMS data, just five of more than 400 Medicare Shared Savings Program ACOs are participating in Track 2 of the program — the two-sided risk track —and participants in the Pioneer Program — which moves from high-risk to full risk — have dwindled to 19 from 32 participating organizations.

Based on this past performance, are healthcare organizations even ready for the Next Generation ACO?

"Most ACOs are not ready to take on more risk — most are not even taking downside risk at all — but a handful would like to take on more," said David Muhlestein, PhD, JD, senior director of research and development at Leavitt Partners, who spoke with Becker's Hospital Review to distinguish the model's new features and implications.

"If you're able to successfully manage risk, you want as much as possible," he said.

"It's a good opportunity to learn. The challenge is that it's going to be really small, even smaller than the Pioneer Program. The organizations will have self-selected and probably do not represent capabilities of most other ACOs," Dr. Muhlestein said.

As a result, Dr. Muhlestein said, it may be a model that becomes a long-term goal for most ACOs to move toward since most ACOs in the MSSP will not be able to take on full risk any time soon.

A few organizations are ready to give the new model a test drive, and as both established ACOs and provider organizations without accountable care experience are eligible to apply for the pilot, "I think [CMS] will be surprised who wants to go into the program and who doesn't," Dr. Muhlestein said.

Organizations selected to participate will use a prospectively set benchmark, with some flexibility in the event of major regulatory changes. This diverges from the MSSP and Pioneer benchmarks, which are set at the end of the year. Instead, historic expenditures and regional fee-for-service expenditures will be used to determine the baseline to help balance improvement and relative efficiency. In the final two performance years, CMS plans to offer an alternative benchmarking model that shifts emphasis from improvement to a more stable value attainment model.

Next Generation ACOs will also have the option to choose between two different risk models, one with increased risk compared to MSSP and the other with full risk. The first option increases risk and shared savings potential from 80 percent in the first three performance years to 85 percent in the last two years. This is significantly more risk than MSSP, in which ACOs are responsible for 50-60 percent risk; however, it's also an opportunity for a greater reward. In the second option, ACOs accept 100 percent performance risk. In both the increased- and full performance-risk arrangements, the ACO is shielded from truly taking on full risk: Beneficiary expenditures are capped in the 99th percentile and aggregate savings and losses will be capped at 15 percent of the benchmark, to help buffer ACOs from the possible impact of outliers.

Providers will also have the option to choose between four payment structures. The first is the same as Original Medicare, with fee-for-service payments. The second is a fee-for-service payment model with a monthly infrastructure payment, which provides a maximum of $6 per patient per month to invest in accountable care infrastructure, which CMS will later recoup. The third is a population-based mechanism in which CMS provides a monthly payment to the organization.

The final option is a capitation mechanism, offered in the second performance year. According to Dr. Muhlestein, this is not exactly traditional capitation. Under the Next Generation capitation option, the ACO is paid by CMS on a per beneficiary per month basis, with funds withheld for care provided by out of network providers and suppliers. The ACO is then responsible for paying capitation claims to its providers.

In terms of beneficiaries, the new model made a few significant changes. The program upped the minimum number of beneficiaries from 5,000 to 10,000 beneficiaries, or 7,500 for rural ACOs. These beneficiaries will be assigned using claims-based alignment, but beneficiaries will also have the ability to voluntarily join the ACO. In later years of the model, CMS expects to add an opt-out option as well.

This strategy is meant to encourage patients to stay in the ACO network, Dr. Muhlestein said, so physicians are better able to manage and coordinate all their care. In previous models, a big issue was that patients assigned to an ACO might see a provider outside of the network, but the ACO was still responsible for managing their risk and costs.

"It's hard to take risk for patients who are going to other providers," Dr. Muhlestein said.

Beneficiaries will have the option to use "Preferred Providers," who are not part of the Next Generation ACO, but are Medicare-enrolled and previously agreed upon by the ACO and CMS. These providers may offer telehealth services, post-discharge care or skilled nursing facility services without prior hospitalization, and will not be included in quality reporting. "Affiliates," similar to preferred providers, may also provide care through the capitation payment model or skilled nursing facilities.

In addition to increased freedom to choose providers and services, beneficiaries will be eligible to receive an estimated $50 per year for their participation and support of alternative care models. "It's a viable approach to see if patients are interested," said Dr. Muhlestein of the beneficiary reward payment.

Through these changes, the Next Generation model aims to give providers more control and create a broader network for patients to receive care. The pilot program could be a good transition away from some of the pitfalls of past ACO programs, if organizations are able to handle the fuller risk options.

"It will be a program that gives direction, but doesn't teach," he said.

Organizations interested in participating the first round in 2016 must submit a letter of intent by May 1 and the application by June 1, 2015. Second round applications to start the following year must be submitted by June 1, 2016.


More articles on accountable care:

World Health Care Congress: ACOs, bundled payments and physician integration
4 ways Humana is improving quality and reducing healthcare costs for seniors
12 recent accountable care agreements

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