Learn about the key details and strategic implications of the Advance Payment Model, a new Innovation Center program providing physician-centric ACOs with sizable upfront and ongoing financial support to fund ACO development.
UPDATE: New round of applications announced
On June 12, 2012, the Innovation Center announced a new round of applications for the Advance Payment Model. Although only ACOs joining the Medicare Shared Savings Program in 2012 were initially eligible to apply for the Advance Payment Model, the Innovation Center has now extended program eligibility to ACOs launching in January 2013.
To apply for the new round of the Advance Payment Model, eligible organizations must complete the two-step application process outlined below. To begin the January 2013 Medicare Shared Savings Program application process, organizations must submit their non-binding Notice of Intent (NOI) by June 29, 2013. Additionally, eligible organizations must also apply for the Advance Payment Model; the Innovation Center will begin accepting Advance Payment Model applications on August 1, 2012. For more information, please visit the Advance Payment Model application website.
As we initially reported back in June, CMS has been exploring the notion of establishing an advanced payment mechanism to help capitalize Accountable Care Organizations (ACOs) composed primarily—if not exclusively—of physicians. The theory behind an advanced payment initiative is that independent physician groups may be deterred from applying for the Medicare Shared Savings Program (SSP) because of the costs of building effective ACOs and their limited access to capital. To eliminate these financial barriers to entry, CMS would offer upfront funding to capitalize these new ACOs, offsetting investments in technology, personnel, and infrastructure.
With the announcement of the Innovation Center’s new Advance Payment Model, CMS is preparing to test the effectiveness of the advanced payment concept. The Innovation Center is committing $170 million to support up to 50 physician-centric ACOs that will join the SSP in 2012.
To assist our Physician Practice Roundtable members as they assess this opportunity, this post explores both the key details and strategic considerations of the Advance Payment Model.
Overview of the Advance Payment Model
The Advance Payment Model will support participants through three types of funding:
1) An upfront, fixed payment of $250,000 at the outset of the SSP.
2) An upfront, variable payment of $36 per beneficiary based on the ACO’s preliminary, prospectively assigned beneficiary list.
3) Ongoing monthly payments of $8 per preliminarily assigned beneficiary. The monthly payments will begin at the start of each ACO’s performance period—either April or July 2012—and run through June 2014. As a result, ACOs launching in April will receive three more months of support than ACOs launching in July.
Combining all three types of payment together, participating ACOs stand to receive sizable financial support from CMS. A participating ACO that launches in April 2012 with 10,000 assigned beneficiaries would receive $2,770,000 in total funding ($610,000 in upfront payment and $2,160,000 in monthly payments across 27 months).
The advanced payments outlined above are essentially upfront loans that must be repaid out of participating ACOs’ shared savings bonuses. To start, CMS will recoup the advanced payments from each ACO’s bonus during the initial shared savings contract and any subsequent shared savings contracts, if necessary. The first potential repayment will occur during a settlement in June 2014.
If an ACO does not generate a sufficient bonus to repay the advanced payments by the end of the shared savings contract and does not renew the shared savings contract for a second term, CMS will not pursue any advanced payments that were in excess of the bonus generated. As a result, ACOs that complete their full SSP contract are guaranteed to keep their advanced payment funds, regardless of final performance. However, CMS will pursue full repayment from any ACOs that fail to complete the full term of their SSP contract.
Finally, if a participating ACO spends the advanced payments in a manner inconsistent with the spend plan outlined in their application, CMS will terminate the ACO from the program and recoup all advanced payments.
The Advance Payment Model is designed for small and mid-size physician-centric ACOs. Eligible ACOs must be accepted for participation in the SSP in 2012 or 2013 and meet provider composition and annual revenue criteria. Ultimately, only two types of organizations are eligible to apply for the Advance Payment Model:
- Physician-only ACOs: ACOs that do not include any inpatient facilities and are composed of participating providers who collectively generate less than $50 million in annual revenue. A range of organizations could potentially meet these requirements, including primary care practices, multispecialty practices, and independent practice associations (IPAs).
- Critical access ACOs: ACOs that include critical access hospitals or low-volume rural hospitals as the only inpatient facilities and are composed of participating providers who collectively generate less than $80 million in annual revenue.
When determining an ACO’s annual revenue for eligibility purposes, any participating providers that are owned by another organization must include the parent organization’s annual revenue in the total revenue calculation. As a result, virtually all hospital- and health system-owned medical groups will be ineligible to apply for advanced payments—even if membership in the ACO is limited to the employed physicians.
Eligible organizations may apply for the Advance Payment Model through the two-step application process. First, organizations must apply for the SSP through the standard application process. Second, organizations must also complete an Advance Payment Model application. The Advance Payment Model does not require a notice of intent and application materials will be available though the Innovation Center website in early January 2012.
The Innovation Center established a rubric to evaluate providers’ applications, designed to identify applicants with the least access to capital. The scoring criteria favor ACOs with lower total revenue, ACOs with providers in rural locations, and ACOs that serve Medicaid beneficiaries. Beyond these structural considerations, the Innovation Center will also evaluate each applicant’s spend plan, a mandatory business plan outlining how the ACO would use the advanced payments and why these investments will contribute to the ACO’s operations and success.
ACOs must be accepted to both the SSP and Advance Payment Model to receive advanced payments. Given the separate evaluation processes, some applicants could potentially be accepted to the SSP but not the Advance Payment Model, leaving the physicians scheduled to join the SSP without access to needed capital.
If an applicant is accepted to the SSP but declined from the Advance Payment Model—and the providers consequently wish to withdraw from the SSP—they likely have two options. First, if the ACO’s executive has not yet signed the participation agreement, the organization could decline the contract. Second, even if the ACO’s executive has already signed the participation agreement, the ACO can always withdraw from the SSP by providing CMS with written notice at least 60 days before the desired termination date. Ultimately, physician ACOs can make their final SSP participation decisions after learning the outcomes of their Advance Payment Model applications.
- For an April 1, 2012 start date, applications will be accepted between Jan. 3 and February 1, 2012
- For a July 1, 2012 start date, applications will be accepted between March 1 and March 30, 2012
- For a January 1, 2013 start date, applications will be accepted between August 1 and September 19, 2012 (added June 2012)
Strategic considerations for medical groups
Overall, the Advance Payment Model presents small and mid-sized physician groups with an attractive path to forming ACOs, especially in conjunction with selecting the one-sided payment structure. Under this participation scenario, Advance Payment Model participants would have a low-risk opportunity to experiment with ACOs for the initial SSP contract period because physician ACOs would receive financial support from CMS, bear no risk of paying shared losses, and have no obligation to repay the advanced payments if unsuccessful at generating savings—provided the ACOs complete the full term of the SSP contract and adhere to their approved spend plans. As a result, this program will likely enjoy substantial interest from independent medical groups, especially those interested in forming ACOs but concerned about access to capital.
However, applying for the Advance Payment Model is not necessarily the right answer for all medical groups. To ensure our members make balanced assessments of this initiative, I will conclude by highlighting five caveats about participating in the Advance Payment Model:
- Eligible groups potentially disadvantaged: The Advance Payment Model is principally designed for small and mid-sized physician groups; depending on group composition, eligible groups could potentially have 80 or fewer physicians. Given the SSP’s attribution model, having fewer physicians in the ACO would also mean fewer attributed patients, introducing two practical challenges. First, these ACOs would have less ability to create economies of scale across their smaller patient populations. Second, for ACOs selecting the one-sided payment structure, having a smaller number of attributed beneficiaries would result in the ACO having a higher minimum savings threshold, increasing the challenge of qualifying for shared savings bonuses.
- Advanced payment likely to reduce year-end bonuses: The Advance Payment Model provides upfront and ongoing financial support to ACOs out of their potential shared savings bonuses; these advanced funds are not additive to year-end bonuses. As a result, year-end bonus payments would only amount to any shared savings bonus dollars above and beyond the advanced payments. ACOs would need exceptional performance to receive both advanced payments and sizable year-end bonuses, potentially disconnecting financial reward from demonstrated performance improvement.
- Groups must be ready to join SSP now: Medical groups interested in joining the Advance Payment Model need to mobilize immediately to begin the application process. Any groups still considering SSP participation will need to come to consensus soon if they want to include advanced payments as part of their ACO strategy. To begin the January 2013 Medicare Shared Savings Program application process, organizations must submit their non-binding Notice of Intent (NOI) by June 29, 2013. Additionally, eligible organizations must also apply for the Advance Payment Model; the Innovation Center will begin accepting Advance Payment Model applications on August 1, 2012.
- Low-risk ACO model has limited lifespan: As outlined above, the Advance Payment Model and one-side payment structure combine to provide physician ACOs with a low-risk path to building ACOs. This is a limited time opportunity. For ACOs accepted in the Advance Payment Model, ongoing financial support will end in June 2014, for a maximum of 27 months of payments. Further, ACOs can only enjoy the one-sided payment structure for one contract period. As a result, all participating ACOs will need to build care management models that do not indefinitely require PMPM financial support and any ACOs planning for long-term SSP participation will need to prepare for two-sided risk.
- No change in ACO success factors: Although the Advance Payment Model will help capitalize physician ACOs, the model does not change the factors that will fundamentally determine ACOs’ success. To succeed as ACOs, participating medical groups will need to effectively manage utilization, ensure exceptional quality, and prepare for heightened transparency. Fortunately, the advanced payments will help participating groups invest in the infrastructure, technology, and personnel needed to integrate the care continuum and deliver comprehensive care, especially for high-cost chronically ill patients.
Additional resources for building ACOs
Is your group planning to apply for the Advance Payment Model?
Please email me if you are considering applying for the Advance Payment Model.
We have a wealth of resources to assist members as they evaluate and apply for the Medicare SSP. Download and read our detailed analysis of the SSP in The Medicare Shared Savings Program Rulebook. Further, our Playbook for Accountable Care study provides a comprehensive roadmap for building an effective ACO.
Further, feel free to email me with any questions you have about the SSP, Advance Payment Model, or payment reform more broadly.