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CMS Announces Next Generation ACO Model - Accountable Care Act

CMS announced a new ACO payment initiative on March 10, 2015, the Next Generation ACO Model, designed for entities experienced in coordinating care for populations of patients. The announcement reflects CMS’ commitment to exploring different Medicare payment arrangements that encourage providers to assume higher levels of financial risk and reward while delivering quality care. The Next Generation ACO Model is an alternative to the Medicare Shared Savings Program (“MSSP”) and the Pioneer ACO Program and is another effort of CMS to expand value-based contracting.

While the Next Generation ACO Model has many elements similar to the MSSP and Pioneer ACO Program there are significant differences. Who may form a Next Generation ACO as well as the requirements for the legal entity, governance structure, governing body cooperatives, and leadership, are generally similar to the requirements for MSSP ACOs, but with some differences (such as the requirement that there be a consumer advocate on the governing body).

The more significant differences include:

1. Minimum Number of Beneficiaries. Next Generation ACOs must have at least 10,000 Medicare beneficiaries attributed, though those deemed Rural ACOs will be permitted to have only 7,500 Medicare beneficiaries.

2. Beneficiary Eligibility. Eligible Medicare beneficiaries must be enrolled in Medicare Parts A and B, not be enrolled in a Medicare Advantage Plan or any Medicare managed care plan, and must not have received more than 50% of their Evaluation and Management services (“E&M Services”) from practitioners in counties outside of the Next Generation ACO’s service area.

3. Financial Arrangements. The most significant distinctions concern the financial model and the potential payments to or for the Next Generation ACO. The modifications require the Next Generation ACO to take on greater financial risk with a potential for a greater upside reward. Other revisions allow the Next Generation ACO to have more control over care provided and encourage beneficiaries to receive care from the ACO’s providers/suppliers.  Among the more significant provisions are:

a. Benchmark. The expenditure benchmark employs a hybrid approach, which incorporates the ACO’s historic spending and a discount based on various factors. The historic cost benchmark is based on one year of data and is subject to regional trend and risk adjustments. No minimum savings rate is used, as is used in the MSSP; instead a discount to the benchmark is established reflecting the ACO’s quality score (better quality means a smaller discount), the ACO’s baseline expenditures compared to regional fee-for-service (“FFS”) expenditures (the more efficient the ACO is compared to regional providers, the lower the discount) and a comparison of regional FFS expenditures to national expenditures. The discount off the benchmark will range from 0.5% to 4.5%.

b. Risk Arrangements. Actual expenditures are compared to the discounted benchmark, with payments made either to the Next Generation ACO or by the Next Generation ACO based on such results. A Next Generation ACO may choose between two risk arrangements. One is an 80% sharing rate for performance years 1 to 3 and 85% for performance years 4 and 5, and with a 15% savings/loss cap in all years. The second is 100% risk for Part A and Part B expenditures in each year with a 15% savings/loss cap. The 80%, 85% and 100% provide much greater rewards and risk than in the MSSP or Pioneer ACO program.

c. Payment Mechanisms. The Next Generation ACO offers four possible payment arrangements in addition to the fee-for-service payments.

i. Normal FFS. The first payment arrangement provides normal FFS payments to Next Generation ACO providers/suppliers as in original Medicare.

ii. Normal FFS Plus Monthly Infrastructure Payment. In addition to FFS payments, a Next Generation ACO may receive a per-beneficiary-per-month (“PBPM”) payment of up to $6 PBPM to help pay for the ACO’s infrastructure. The PBPM payment is recouped during the reconciliation process, even if there are no savings or losses.

iii. Population-Based Payments. The Next Generation ACO determines a reduction in the FFS payments to its ACO providers/suppliers, with the reductions agreed to by the ACO providers/suppliers. The reduced FFS payments are paid to the ACO not the providers/suppliers on a monthly basis to support ongoing ACO activities.

iv. Capitation. Total annual expenditures are estimated and the projected amount is paid to the Next Generation ACO in a PBPM payment with money withheld to cover anticipated care provided by non-ACO providers/suppliers. While CMS processes payments, the Next Generation ACO pays claims to its ACO providers/suppliers. The Next Generation ACO may reach agreements with ACO providers/suppliers to pay them something other than their normal FFS rates.

4. Savings/Losses Calculations. The actual expenditures are compared to the discounted benchmark, but with individual expenditures capped at the 99th percentile. During the annual reconciliation the share of savings or losses is determined with a payment either to or by the Next Generation ACO.

5. Beneficiary Alignment. Beneficiaries are aligned prospectively in a manner that is similar to how they are attributed in the Pioneer ACO model. Beneficiaries who received a plurality of outpatient E&M services from ACO physicians in certain primary care specialties are attributed to the ACO. In addition, beneficiaries may voluntarily elect to be aligned to an ACO.

6. CMS Direct Payments to Beneficiaries. To support these alternative models and to reward beneficiary engagement, CMS proposes to make direct payments to Next Generation ACO beneficiaries who receive a certain percentage of their Medicare services from the ACO’s providers/suppliers. It is suggested the actual payment may be up to $50 per year and the actual payment depends on what percentage of services the beneficiary receives from ACO providers/suppliers.

7. Benefit Enhancements. To emphasize high-value services and encourage Next Generation ACO participation and management of care, CMS will conditionally waive certain Medicare payment requirements as part of the Next Generation ACO Model. These program waivers include:

a. 3-Day SNF Risk Waiver. CMS will waive for qualified Next Generation ACOs the requirement of a three-day inpatient hospital stay before admission to a skilled nursing facility.

b. Telehealth Expansion. CMS will waive, under certain circumstances, for qualified Next Generation ACOs the requirement that beneficiaries be located in a rural area and at a specified type of originating site to be eligible for telehealth services.

c. Post-Discharge House Visits. CMS will make available to qualified Next Generation ACO waivers to allow incident-to claims for home visits for non-homebound beneficiaries by licensed clinicians under general (not direct) supervision.

8. Outcomes-Based Contracts. By the end of the first year in the program, more than 50% of the Next Generation ACO’s patients must be covered under outcomes-based contracts with other purchasers. Outcomes-based contracts are ones that include financial accountability (shared savings and/or financial risk), patient experience evaluations, and substantial quality incentives.

9. Term. Next Generation ACOs sign up for an initial three-year term with options for two one-year renewals thereafter. Performance is measured for each year of participation.

The Next Generation ACO Model also has provisions concerning measuring quality performance, data sharing, and required policies and procedures, which are similar to those used in the MSSP. CMS has suggested but not confirmed the availability of fraud and abuse waivers for Next Generation ACOs.

CMS has set up an application process for the Next Generation ACO Model and expects 15-20 applicants to be accepted for participation in the initial two years. Letters of intent may be filed starting May 1st with applications due on June 1st. The Model requires the ACOs to assume greater risk than other ACO models, but has a number of features to encourage participation. The criteria CMS will use in evaluating and accepting applicants are summarized in the Next Generation ACO materials.

The Next Generation ACO Model reflects CMS’ commitment to ACOs as a model to achieve the Triple Aim, and shows a continued testing of models to determine which will be the most effective and acceptable.

© 2020 Foley & Lardner LLP


About this Author

Alexis Bortniker, Health Care Attorney, Foley Lardner Law Firm

Alexis Bortniker is a senior counsel and health care lawyer with Foley & Lardner LLP. Her practice focuses on transactional and regulatory matters with an emphasis on counseling health systems, hospitals, and other providers in managed care and physician contracting. Ms. Bortniker is a member of the firm’s Health Care Industry Team.

Previously, Ms. Bortniker was an associate with Choate Hall & Stewart LLP where she gained experience working directly with health care organizations on regulatory and corporate compliance issues, including...

C. Frederick Geilfuss II, Health Care Attorney, Foley Lardner Law Firm

C. Frederick Geilfuss II is a partner and health care lawyer with Foley & Lardner LLP. Mr. Geilfuss counsels health systems, hospitals, medical clinics, rehabilitation agencies, nursing homes, and other health care providers on general operational concerns, regulatory and business matters. He has many years of experience in health care acquisitions, integrated delivery service issues, managed care contracting, defense of providers against government enforcement actions, finance, real estate, administrative and medical staff issues, physician recruitment, fraud and abuse matters, and other health law issues. He is a member of the firm’s Health Care Industry Team. Mr. Geilfuss is co-chair of the Health Care Industry Team Business and Transactions Work Group.

Elizabeth Rosen, Health Care Attorney, Foley Lardner Law Firm

Elizabeth J. (Betsy) Rosen is an associate and health care lawyer with Foley & Lardner LLP. She focuses her practice in the health care field where she advises hospitals, hospital systems, physician organizations and other health care entities on regulatory, transactional and corporate matters. Ms. Rosen is a member of the firm's Health Care Industry Team. Ms. Rosen worked as a summer associate with Foley in 2012.