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Proposed Overhaul to the Medicare Shared Savings Program Would Mean More Risk for ACOs

On August 9, 2018, CMS introduced a proposed rule that would substantially overhaul the Medicare Shared Savings Program (MSSP), requiring Accountable Care Organizations (ACOs) that participate in the MSSP to accept some downside risk and tightening other requirements to increase program integrity. At the same time, the proposed rule would allow ACOs increased flexibility in other areas, in keeping with changes established by the Bipartisan Budget Act of 2018.

ACOs have been viewed as a critical tool in moving from payment systems based on volume towards a payment system that rewards value and improved outcomes of care.  While ACOs have been used in a variety of governmental and commercial programs, the MSSP has been the most popular alternative payment program that CMS has offered and in which ACOs have participated, with 561 ACOs reportedly participating in the MSSP. CMS has expressed concerns, however, about the current status of the MSSP, noting that the vast majority of ACOs participating in the program are doing so through Track 1, the one-sided “upside-only” model (in which only savings are shared by ACOs), while substantially more reduced costs to the Medicare program are coming through the relatively few ACOs participating in the two-sided models (Tracks 2 and 3), which require ACOs to share potential losses in addition to savings.

A Proposed CMS Rule to Accelerate the Assumption of Downside Risk

Under the proposed rule, titled “Pathways to Success,” CMS would accelerate the move of ACOs to the two-sided model, redesigning the program from the current three-track system to require ACOs to enter in one of two tracks: BASIC or ENHANCED.

  • The BASIC track would create a “glide path” to move the ACO from a one-sided model by phasing in increasing levels of risk over a five-year term of participation.
  • The ENHANCED track (based on the current Track 3) would represent the highest level of risk for ACOs and accordingly offer additional tools and flexibility to ACOs that select it.

ACOs that select the BASIC track will automatically advance to the next risk/reward level at the start of each performance year, although they can also elect to move more quickly to a higher level of risk. Critically, under the proposed redesign to the MSSP, ACOs would be forced to assume risk after the first two years in the program (Levels A and B). Beginning with Level C, the first risk/reward year, ACOs would face loss-sharing rates of 30 percent. No longer would an ACO be able to participate in the MSSP without taking on down-side risk at some point in the contracted term.

By eliminating the three-track system, and instead replacing it with a two-track model, CMS is effectively pushing ACOs more quickly from an upside-only model to a true risk-based model in which the ACOs assume some liability for inefficient performance. CMS has explained that the need for this accelerated system is rooted in the agency’s concerns about the extent to which a number of ACOs on the current Track 1 are generating losses and therefore increasing Medicare spending, while still benefitting from access to fraud and abuse waivers. Further, CMS has emphasized that overall, the ACOs in the two-sided models under the current MSSP have shown “significant savings” in Medicare program dollars—approximately $32 million in net savings in 2016.  It estimates a savings of $2.24 billion over the next 10 years associated with decreases in claims costs and shared savings to ACOs.         

Will the ACOs Stay if Taking on Downside Risk is Required?

One of the principal considerations in evaluating the impact of these proposed changes is assessing how the ACOs that currently participate in the savings-only track (Track 1) will respond to being propelled forward into a riskier program.  Track 1 currently houses the vast majority of ACOs, and over 70 percent of them have indicated that having to assume risk is likely to make them leave the MSSP, according to a survey by the National Association of ACOs (NAACOS).

CMS’ own internal estimates indicate that over 100 ACOs would leave the program over the next 10 years, attributing this overall drop in participation to the reduced attractiveness of forming an ACO in the coming years as the number of risk-free years available to ACOs is diminished, along with a lower maximum sharing rate in the savings-only levels.  However, CMS has emphasized that because numerous ACOs in the current Track 1 are costing the government more money, having these organizations drop out is not detrimental to the overall health of the MSSP.  The agency has further indicated that the other changes to the structure of the program, including reducing the savings rate in the two savings-only years from 50 to 25 percent, will help to mitigate losses.

For its part, NAACOS has stated that it “encourages ACOs to prepare to move to risk and strongly supports ACOs that are ready to do so,” but is not in favor of forcing ACOs to assume risk prematurely.  It has expressed concern over the potential that ACOs will stop their participation because they are forced to assume downside risk, emphasizing that this outcome would be detrimental to the substantial progress being made by ACOs.

How Will the Transition Work?

CMS proposes to roll out the changes by introducing a special one-time July 1, 2019 agreement period start date (in lieu of a January 1, 2019 start date, which will no longer be an option) to give ACOs time to prepare to transition to the new BASIC track or the ENHANCED track.  ACOs with participation agreements ending at the end of 2018 could elect to extend their current agreement period by six months, to June 30, 2019, and the first automatic advancement would occur at the beginning of performance year 2021.  Thus, the first entrants to the BASIC program would have a maximum of two and a half years in the savings-only model, with ACOs identified as having previously participated in Track 1 of the program restricted to one and a half years.

The proposed changes are not surprising, after prior comments made by CMS Administrator Seema Verma, who had criticized MSSP ACOs in the past, asserting that upside only ACOs did not sufficiently incentivize providers to reduce costs or improve outcomes. To date, the majority of providers have been unwilling to move to downside risk, and it remains to be seen whether this redesign will be the push necessary for providers to take on more risk.

© 2020 Foley & Lardner LLP


About this Author

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...

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 the development of internal policies and procedures and the review of contracts and employment relationships.

Anna S. Ross, Foley Lardner, Public Policy Lawyer, Government Matters

Anna S. Ross is an associate and business lawyer with Foley and Lardner LLP. She is a member of the Government & Public Policy Practice. Ms. Ross was a summer associate with Foley in 2013. She completed a judicial internship for the Honorable Todd E. Edelman, Superior Court of the District of Columbia. She also served as a research assistant at Georgetown University’s O’Neill Institute for National and Global Health Law, providing research and editorial support for the Institute’s publications.