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“Next-Generation ACO” Model Is CMS’s Newest Effort to Encourage More ACO Risk

On March 10, 2015, the Centers for Medicare & Medicaid Services’ (“CMS’s”) Center for Medicare and Medicaid Innovation (“Innovation Center”) announced a demonstration project incorporating new risk models for reimbursement of accountable care organizations (“ACOs”) serving Medicare beneficiaries.

Fresh on the heels of CMS’s goal of tying 50 percent of Medicare fee-for-service payments to value-based payment methodologies by the end of 2018, the Next Generation ACO Model (“NGAM”) joins the Innovation Center’s Pioneer ACO Model and the Medicare Shared Savings Program (“MSSP”) as an additional option for Medicare providers to organize together to provide coordinated, high-quality care at lower cost, with the potential to earn higher compensation.

An ACO “That Looks More Like Medicare Advantage”

In announcing the program, CMS states that the NGAM will allow providers “to assume higher levels of financial risk and reward than are available under the Pioneer Model and [MSSP].” [1] ACOs currently participating in the Pioneer Model or MSSP may apply to participate in the NGAM. Recognizing that there has been very little participation to date in Medicare two-sided risk models, CMS included in NGAM a number of modifications to address what providers have found to be impediments to the assumption of a higher level of risk. CMS anticipates making 15 to 20 three-year NGAM awards incorporating these new features:

  • a prospectively set benchmark that will be established prior to the start of each performance year, unlike the end-of-the-year benchmark used under the MSSP and Pioneer Model[2]

  • two risk arrangements that will be offered to participating ACOs, each of which includes a higher sharing rate than the MSSP and Pioneer Model (one arrangement offers an 80 percent sharing rate, moving to 85 percent in the fourth and fifth years, and the second arrangement offers 100 percent full performance risk)

  • for each risk arrangement, a 15 percent cap on aggregate savings and losses, offering protection against substantial costs by outliers; to protect against the extreme financial impact of outlier patients, individual beneficiary expenditures will be capped at the 99th percentile of expenditures

  • an option for Next Generation ACOs to participate in a capitation payment mechanism in the second performance year of the program

  • a new long-term benchmarking methodology that moves payment away from a base in historical expenditures in order to ease the difficulty that ACOs have had in earning savings every year (in the optional fourth and fifth extension years under the program, CMS may use “this alternate methodology, which focus[es] on de-emphasizing historical expenditures and more heavily weighting attainment”)[3]

  • the ability to engage beneficiaries through benefit enhancement, such as greater access to post-discharge home visits, telehealth services, and skilled nursing facilities; incentive payments for receiving ACO services; and a process to voluntarily opt into an ACO

  • the option to utilize “Preferred Providers” to deliver some of the benefit enhancements described above (Preferred Providers must be Medicare-enrolled providers/suppliers but need not be ACO participating providers/suppliers)

This model also follows CMS’s December 1, 2014, MSSP proposed rule, in which CMS created a new two-sided shared savings and loss model and sought guidance from stakeholders regarding the most appropriate benchmarking methodology. After five years of implementing and overseeing Medicare ACOs, CMS recognizes the need for a new model that “sets more predictable financial targets, enables providers and beneficiaries greater opportunities to coordinate care, and aims to attain the highest quality of care.”[4] Under existing program parameters, only five of 405 MSSP ACOs have embraced the two-sided risk model. The enhanced flexibility in the Pioneer Model has proved more successful in generating savings and quality, but that program is limited to only 19 participating ACOs.

In discussing the NAGM, Dr. Patrick Conway, the CMS Deputy Administrator for Innovation and Quality, said the industry “need[s] something that looks more like Medicare Advantage for a provider organization.” [5]

Between the Next Generation ACOs and the proposed changes to the MSSP, Medicare ACOs may look very different within two years, as they must to continue to attract and retain ACO participants. CMS, no doubt, believes that the NAGM program will provide a transition from current incentive models that rely primarily on improvements to earn enhanced payments to models that reward a more stable state of high-quality/low-cost service delivery.

Deadlines and Further Information

Program information, including Letters of Intent, application standards and procedures, and FAQs may be found at CMS’s NGAM website. Organizations interested in applying for the first of two rounds of three-year awards must submit a Letter of Intent by 11:59 p.m. (ET) on May 1, 2015, and an application by 11:59 p.m. (ET) on June 1, 2015.


[1] CMS Next Generation ACO Model webpage, available at:http://innovation.cms.gov/initiatives/Next-Generation-ACO-Model/.

[2] CMS is working to develop methods to include Medicare Prescription Drug (“Part D”) spending with fee-for-service spending in the NGAM benchmarks but admits that such implementation will not be ready until 2017, at the earliest. Until that time, the Part D enrollment timelines, the service areas, and a fragmented market are too complex to integrate with ACO program standards.

[3] CMS Next Generation ACO Model FAQs, page 2 (Mar. 11, 2015), available at: http://innovation.cms.gov/Files/x/nextgenacofaq.pdf.

[4] Patrick Conway, Building on the Success of the ACO Model, The CMS Blog (Mar. 10, 2015), available at: http://blog.cms.gov/2015/03/10/building-on-the-success-of-the-aco-model/.

[5] John Wilkerson, Conway Hints At Design Of “Vanguard” ACO Demonstration, Inside Health Policy (Mar. 5, 2015), available at:http://insidehealthpolicy.com/login-redirect-no-cookie?n=82089&destination=node/82089

©2022 Epstein Becker & Green, P.C. All rights reserved.National Law Review, Volume V, Number 75

About this Author

Thomas E. Hutchinson, Strategic Advisors, EBG Advisors
Strategic Advisor

THOMAS E. HUTCHINSON is a Strategic Advisor for EBG Advisors, Inc. He has more than 25 years of experience in both the private sector and in federal service implementing programs and policies directly affecting Medicare and Medicaid beneficiaries. Mr. Hutchinson advises clients on a wide range of payment policy and operations issues relating to the Centers for Medicare and Medicaid Services (CMS).

Prior to his joining EBG Advisors in this business advisory role, Mr. Hutchinson served as the director of the Medicare Plan Payment...

Arthur J. Fried, Health Care, Life Sciences, Attorney, Epstein Becker, Law firm

ARTHUR J. FRIED is a Member of the Firm in the Health Care and Life Sciences practice, in the firm's New York office. He represents all types of health care providers, including academic medical centers, hospitals, and faculty practices.

Mr. Fried:

  • Advises hospitals, academic medical centers, and other providers in such areas as strategic health system development, physician integration, health care reform, medical staff matters, and governance

  • Provides advice on...

Philio Hall, Health Care Attorney, Epstein Becker Law Firm
Member of the Firm

PHILO D. HALL is an Associate in the Health Care and Life Sciences practice, in the firm's Washington, DC, office.

Mr. Hall advises clients on legal and regulatory compliance issues arising under Medicare, Medicaid, and other third-party reimbursement programs, counsels clients on the regulatory and reimbursement aspects of health care transactions and business arrangements, counsels clients on HIPAA compliance and assists in the identification and resolution of privacy and security issues and advises clients of legislative and regulatory trends...