The Centers for Medicare and Medicaid Services (“CMS”) announced on March 10th a new model for Accountable Care Organizations (“ACOs”) that will evaluate the capacity of ACOs to assume “near-complete financial risk” while offering new features aimed at ensuring long-term sustainability and more predictable benchmarks.[1]
Next Generation model ACOs will be required to assume significantly more downside performance risk; however, they will be eligible for a larger percentage of shared savings as compared to the traditional ACO models. In addition, providers will have the opportunity to develop alternative payment mechanisms and obtain greater incentives for beneficiaries to align with Next Generation providers, including $50 incentive payments to beneficiaries, a qualified waiver to the three-day inpatient stay requirement period for admission to a Skilled Nursing Facility (“SNF”), expanded access to telehealth services, and post-discharge home visits to non-homebound beneficiaries. Responding to stakeholder concerns about the unpredictability of benchmarks and the challenges associated with diminishing marginal returns on ACO performance metrics, the Next Generation model will also use a prospective formula when developing performance benchmarks.
CMS anticipates that 15–20 ACOs will eventually participate in the new model, which will be open to “ACOs that are experienced in coordinating care for populations of patients.”[2] It will offer two rounds of applications in 2015 and 2016, with letters of intent for the first round due by May 1, 2015, and applications due on June 1, 2015. The Next Generation model is only available for ACOs with a minimum of 10,000 assigned beneficiaries (7,500 for rural ACOs), an increase from the 5,000 beneficiaries required under the Medicare Shared Savings Program (“MSSP”) model.
A Brief Overview of Accountable Care Organizations
The Patient Protection and Affordable Care Act (“ACA”) authorized the creation of the Center for Medicare and Medicaid Innovation (“CMMI”) to develop novel health care payment and delivery models, including the ACO model. In its most general terms, an ACO is a group of health care providers and suppliers who coordinate to provide Medicare fee-for-service beneficiaries with high-quality care at lower costs. In return, ACOs that are successful meeting cost and quality benchmarks receive a portion of the shared savings commensurate with their level of shared risk. Since its inception in 2011, the ACO program has expanded rapidly. CMS’ ACO portfolio now includes the MSSP and Pioneer models, as well as Advance Payment ACOs, and the ACO Investment model.[3] To date, CMS has approved more than 400 participating organizations representing nearly 16,000 providers.[4]
By far the largest category, MSSP ACOs are accountable for the cost, quality, and care of the Medicare fee-for-service beneficiaries who receive more than 50% of their primary care services from ACO providers. ACOs that are accepted by CMS to participate in the program must serve at least 5,000 fee-for-service Medicare beneficiaries, and must agree to participate for at least three years. MSSP ACOs can select one of two incentive models: 1) an opportunity to receive up to 50% of the savings, or 2) an opportunity to receive up to 60% of the savings if the ACO agrees to bear a portion of the risk of loss if costs for the ACO’s beneficiaries exceed certain benchmarks. Notwithstanding the model’s rapid growth, it has yet to demonstrate a uniform capacity to generate sustained cost savings. CMS recently proposed to extend the one-sided risk arrangement by granting ACOs another three-year shared savings period before they will face financial liability for failing to meet performance goals.[5]
Components of the Next Generation ACO Model
While full details about the Next Generation ACO Model have yet to be released, CMS has presented the overall framework for the program. This framework incorporates an increased risk structure for ACOs in exchange for increased shared savings possibilities, plus the opportunity to develop alternative payment arrangements and a variety of exemptions and benefits designed to improve care coordination and attract and retain beneficiaries in an ACO program.
Increased Risk Structure
The Next Generation model offers two risk-sharing arrangements, both of which incorporate significant downside risk:
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Eighty percent risk sharing rate for Part A and Part B services in program years one through three, and an 85% sharing rate for program years four and five.
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One hundred percent risk for their Part A and Part B services.
For both models, benchmarks are calculated identically, savings and losses are capped at 15%, and beneficiary expenditures are capped at the 99th percentile (to mitigate the outlier effect).
Refined Benchmarking Methods
Unlike the MSSP Model, in which benchmarks are not finalized until the end of the performance year, Next Generation benchmarks will be set prospectively. In years one through three, the prospective benchmark will be set using a four-step process that considers:
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the ACO’s historic expenditures;
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the regional projected trend;
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the CMS Hierarchical Condition Category Model (“HCC”), which considers the relative acuity of the patient population; and
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a 0.5% to 4.5% discount based on the ACO’s quality score, the ACO’s baseline expenditures vis-à-vis the regional fee-for-service expenditures, and the regional fee-for-service expenditures at baseline compared to the national fee-for-service per capita spending.
CMS has indicated the benchmarking model is designed to de-emphasize recent ACO experience and takes into account comments received to the proposed MSSP rule changes regarding benchmarking. Presumably, this means the benchmarking model should be less likely to provide disincentives to achieving savings, which under the MSSP model serves to directly impact the subsequent years' shared savings payments (or shared losses).
In the final two performance years of the model, which will require new participation agreements, CMS has stated that it may further refine the benchmarking formula. Current proposals include measures that would address concerns about ACO sustainability by de-emphasizing recent ACO costs, and by rewarding attainment of cost and quality measures rather than continued improvements on those scores. However, CMS is not projecting to implement further revisions to the benchmarking process until the end of 2017.
Preferred Provider Classification
The Preferred Provider concept is new to the Next Generation model, and is an effort to expand the universe of providers that will count toward determining beneficiary incentives, which are discussed below. Preferred Providers are not Next Generation Providers/Suppliers per se, but nonetheless facilitate ACO goals by expanding the reach of beneficiary incentives beyond the ACO-affiliated provider and supplier network. ACOs may contract with Preferred Providers to deliver any of the beneficiary enhancements available to aligned beneficiaries, such as expanded telehealth services, post-discharge home visits, and SNF admissions without the three-day inpatient stay requirement. The Preferred Provider class is associated solely with benefits enhancements, and is not considered for beneficiary alignment determinations or ACO benchmarking scores. ACOs must enter written agreements with Preferred Providers, and must provide CMS with a Preferred Provider list.
Mechanisms for Beneficiary Engagement
To help mitigate the problems associated with beneficiary leakage while preserving freedom of choice, CMS has introduced a two-pronged approach, coupling beneficiary self-alignment with a new set of benefits enhancements. First, the new model will now offer beneficiaries an annual opportunity to self-align with Next Generation ACOs. Voluntary alignment will exist alongside claims-based alignment, but in the event that a beneficiary does not receive the majority of his or her care from a Next Generation ACO in a given performance year, self-alignment will trump. ACOs that migrate to the Next Generation model from other Medicare ACO models with voluntary alignment may be able to retain the beneficiaries who voluntarily aligned with the previous entity during the transition to the Next Generation model. In addition, CMS will consider allowing ACOs to choose a preferred mode of communication for confirming beneficiary alignment (e.g., phone, online forms, or paper-based forms) to best meet the needs of their unique beneficiary population.
Second, the Next Generation model provides several “benefits enhancements” to incentivize beneficiary self-alignment under Next Generation ACOs. These incentives include:
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direct payments of up to $50 per year for beneficiaries who receive a threshold percentage of his or her Medicare Services from Next Generations providers;
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a waiver of the three-day inpatient stay requirement prior to admission to Next Generation SNF affiliates when the beneficiary is admitted by Next Generation or Preferred Providers;
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waivers to certain limitations on access to telehealth services, including the requirement that beneficiaries be located in a rural area and at a particular type of originating site in order to be eligible for telehealth services; and
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access to post-discharge home visits for non-homebound beneficiaries under the general supervision (i.e., not only the direct care) of Next Generation providers or Preferred Providers.
CMS has also stated that it will consider reducing or eliminating certain cost sharing obligations for Next Generation Beneficiaries, including Part D deductibles and/or coinsurance when receiving care from Next Generation ACO Providers or Preferred Providers.
Under the new model, beneficiary self-alignment supersedes claims-based alignment, so beneficiaries who elect to align with Next Generation providers will remain aligned with the ACO regardless of the actual percentage of services they receive thereunder. Although CMS remains committed to patient choice of providers, it hopes that this combination of incentives, together with the beneficiary self-alignment option, will provide enhanced ability to forecast the patients for which the ACO will be held accountable at the end of the performance year.
Alternative Payment Mechanisms
In addition to fee-for-service payments, the Next Generation model will also test new payment mechanisms designed to facilitate infrastructure investment and care coordination.
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Infrastructure Payments—The infrastructure payment model will add a per-beneficiary/per-month (“PBPM”) payment of up to $6 PBPM to allow ACOs to invest into the infrastructure required to support ACO activities. The PBPM infrastructure payment will be unrelated to beneficiary claims, and will be recouped by CMS during the performance-period reconciliation process regardless of whether the ACO experienced savings or losses. In other words, the payment is designed to address cash flow issues associated with ACO start up costs, but will be required to be repaid in full by the ACO.
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Population-Based Payments—The population-based payment mechanism will provide Next Generation ACOs with a partial capitation model in which a monthly PBPM payment is received in exchange for percentage reduction in the fee-for-service payment rates. The ACO can apply different fee-for-service reductions to different suppliers, which must enter written agreements permitting the payment reductions for aligned beneficiaries. This approach is intended to provide flexibility in the types of payment arrangements Next Generation ACOs enter with providers and suppliers.
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Capitated Payments—Under the full capitation model, CMS will estimate the ACOs annual expenditures for Next Generation Beneficiaries and will pay the ACO that projected amount on a PBPM basis. While Next Generation providers and suppliers covered by a capitation agreement will continue to submit claims to CMS, the claims information will then be transmitted to the ACO, which will be ultimately responsible for payment. Providers and suppliers that are not covered by a capitation agreement (which can expand beyond the ACO participants) with the ACO will continue to receive normal fee-for-service rates.
Next Generation ACOs are required to have financial guarantees in place sufficient to fund losses payments for which the ACO may be responsible. In this regard, CMS emphasizes that Next Generation ACOs must comply with state laws and regulations that govern provider-based risk-bearing entities, which means Next Generation ACOs must determine if they have taken on risk sufficient to trigger state insurance licensure laws.
Program Oversight
Given the Next Generation model’s new incentive structure and the potential waiver of certain fraud and abuse laws for ACOs, CMS has announced that it will implement an enhanced oversight plan to protect beneficiaries and program integrity. Participating ACOs will be required to develop and adhere to an internal compliance plan incorporating certain minimum standards, including: a designated compliance officer (who cannot be the ACO’s legal counsel) and an anonymous reporting mechanism for program integrity issues; internal checks to identify and remedy compliance issues; ongoing compliance training; and a quality assurance program, including a peer review process, to investigate substandard care. In addition to these internal mechanisms, CMS has stated that it will monitor Next Generation ACOs using claims analysis, targeted audits, and by examining beneficiary and provider complaints, among other methods, to provide external program oversight.
Conclusions
The Next Generation ACO model continues to test whether the right balance of incentives can generate improved health outcomes and lower costs for Medicare fee-for-service beneficiaries. However, with only an initial framework available, many questions remain regarding how this aggressive approach at risk-shifting will function in practice, and whether providers will buy-in to the program. CMS anticipates that between 15 and 20 ACOs will participate in the initial Next Generation cycle, though it may grant more than 20 awards if “a compelling reason exists to do so.” ACOs interested in applying in the first application cycle must submit a Letter of Intent by May 1, 2015, and must submit the application by June 1. The dates for the second application cycle will be May 1 and June 1, 2016, respectively.
Notes:
[1] See Centers for Medicare and Medicaid Services, Next Generation ACO Model Request for Applications (http://innovation.cms.gov/Files/x/nextgenacorfa.pdf). All references herein are to the RFA unless otherwise noted.
[2] Press Release, Centers For Medicare and Medicaid Services, Next Generation Accountable Care Organization (ACO) Model Fact Sheet, March 10, 2015.
[3] CMS, ACOs: General Information, http://innovation.cms.gov/initiatives/ACO/.
[4]CMS, Medicare Shared Savings Program Accountable Care Organizations (https://data.cms.gov/ACO/Medicare-Shared-Savings-Program-Accountable-Care-O/ay8x-m5k6, https://data.cms.gov/ACO/Medicare-Shared-Savings-Program-Accountable-Care-O/pfam-u3vp)
[5] Medicare Shared Savings Program: Accountable Care Organizations, 79 Fed. Reg. 72762 Dec. 8, 2014.
