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Medicare ACO v. 3.0—More Risk, More Money?

The Centers for Medicare and Medicaid (CMS) announced on March 10, 2015 that it is adding a new Accountable Care Organization (ACO) model to its cadre of innovative models. Titled the “Next Generation ACO Model,” CMS’ new ACO model allows provider groups to assume higher levels of financial risk and reward than currently available under its Pioneer Model and Shared Savings Program model. CMS noted that the goal of the Next Generation ACO Model (Next Generation) is to “test whether strong financial incentives for ACOs can improve health outcomes and lower expenditures for Original Medicare fee-for-service (FFS) beneficiaries.”

The latest in CMS’ innovation models, Next Generation will join five other existing ACO models:

  • Medicare Shared Savings Program (MSSP);

  • Pioneer ACO Model (Pioneer);

  • Advance Payment ACO Model;

  • ACO Investment Model; and

  • Comprehensive End Stage Renal Disease (ESRD) Care Initiative.

Unlike the MSSP and Pioneer models, Next Generation allows ACOs to take on near-complete financial risk. Organizations will have a choice between two risk arrangements that determine the portion of the savings or losses that accrue to the Next Generation ACO. As illustrated in the following table, under Arrangement A (“Increased Shared Risk”), the Next Generation ACO would share up to 80-85 percent of Medicare Parts A and B expenditures for aligned beneficiaries. Under Arrangement B (“Full Performance Risk”), the Next Generation ACO would be responsible for 100 percent of Part A and B expenditures for aligned beneficiaries. Both arrangements provide for a maximum sharing/loss rate higher than those in the MSSP (up to 60 percent) or Pioneer models (up to 75 percent).

Risk Arrangements in the Next Generation Model

Risk Arrangements in the Next Generation Model

Source: CMS Next Generation ACO Model Request for Applications, page 13 (2015).

The risk taken by Next Generation ACOs is short of complete risk since they are not accountable for expenditures beyond the 99th percentile, and aggregate savings or losses will be capped at 15 percent of the benchmark.

CMS developed the Next Generation ACO Model specifically for ACOs that are experienced in coordinating care for populations of patients. Aside from the higher levels of risk and reward, organizations interested in the Next Generation model may wonder how the new model differs from the Pioneer ACO Model and MSSP.  Two additional key differences are:

  • Next Generation offers a selection of payment mechanisms to enable a graduation from FFS reimbursements to capitation; and

  • The new model adds several “benefit enhancement” tools to help ACOs improve beneficiary engagement—greater access to home visits, telehealth services, and skilled nursing facilities; opportunities to receive a reward payment for receiving care from the ACO; a process that allows beneficiaries to confirm their care relationship with ACO providers; and greater collaboration between CMS and ACOs to improve communication with beneficiaries about characteristics and potential benefits of ACOs in relation to their care.

Current MSSP or Pioneer ACOs are eligible to apply for the Next Generation model, in addition to other organizations that meet applicant eligibility requirements. Applicants with prior participation in a CMS program or demonstration will be asked in their Next Generation ACO Model application to show good performance in the previous model. All applicants will be evaluated based on five key criteria: 1) organizational structure; 2) leadership and management; 3) financial plan and experience with risk sharing; 4) patient centeredness; and 5) clinical care model. Of note, ACOs may not simultaneously participate in the Next Generation ACO Model and MSSP or Pioneer.

Organizations interested in applying to participate in the Next Generation ACO Model can choose between two different rounds of consideration. For consideration for the January 1, 2016 start date, organizations must submit a Letter of Intent (LOI) by May 1, 2015. Only those organizations that submit an LOI will be able to complete round one applications due June 1, 2015. Information about the 2017 start date and round two consideration dates will be released in spring of 2016. LOIs and online applications can be filed through the Next Generation ACO Model website.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume V, Number 71


About this Author

Florence T. Wang, Corporate Practice Attorney, Sheppard Mullin Law Firm

Florence Wang is an associate in the Corporate Practice Group in the firm's Century City office and is a member of the firm’s healthcare practice team. With a clinical background in medicine, having practiced in women’s healthcare, Florence brings the provider perspective into her assistance with representing hospitals, medical staffs, medical groups and other health care entities and providers.

Aytan Dahukey, Sheppard Mullin, Health Care Lawyer, Finance Attorney

Aytan Dahukey is a partner in the Corporate Practice Group in the firm's Century City Office and is a member of the firm's Healthcare, Emerging Growth/Venture Capital and Private Equity Industry Teams. As an active member of these industry teams, Aytan enjoys a wide-ranging practice that spans across several sectors.

Aytan’s healthcare practice focuses on public and private mergers and acquisitions and general corporate counsel representing a wide variety of healthcare-related clients in California and nationally. His clients include independent physician associations, large physician groups, hospitals and hospital-affiliated foundations and other integrated multi-specialty medical clinics, provider management services organizations, accountable care organizations (ACOs) and other healthcare entities as well as those private equity funds and strategic investors that participate in the healthcare sector.