What ACOs need to know about CMS's 'Next Generation' model

A Law Review Q&A

CMS this year announced a new accountable care organization (ACO) demonstration model called the Next Generation ACO (NGACO), which will be implemented through CMS's Center for Medicare and Medicaid Innovation (CMMI). The program is targeted at ACOs with significant experience in population health management and risk assumption, and CMS anticipates approving approximately 15 to 20 NGACOs for the program.

Ahead of the May 1 deadline to submit a notice of intent, we spoke with Matthew Amodeo at Drinker Biddle & Reath LLP to breakdown the NGACO program and discuss what opportunities and challenges lie ahead for participants.

What are the similarities and differences between the new NGACO demonstration model and other ACO demonstration models?

The NGACO program retains and builds upon several existing Medicare Shared Savings Program (MSSP) and Pioneer design elements, but includes four significant new features.

Greater risk and reward

The first key design element is greater financial risk and reward.

The NGACO model involves significantly higher risk levels than under the current MSSP and CMMI's Pioneer ACO program. NGACOs will have the option of choosing between two risk arrangements—shared risk or full risk.

  • Under the shared risk option, during the first three participation years (PYs) the ACO's share of PY savings/losses will be 80%. During PYs 4 and 5 the ACO’s allocable share of savings/losses will increase to 85%.
  • Under the full risk option, the ACO's share of any savings/losses will be 100%. The ACO's share of savings and losses under both options is capped at 15% of the ACO's cost target (Benchmark). NGACOs will not be responsible for any Part D (drug) costs.

Flexible payments

The second significant new feature is the availability of flexible payment options. Under both risk sharing options, ACOs will have the ability to choose between four payment mechanisms:

  • Normal Fee-For-Service: Participants will continue to be paid directly by CMS at normal fee-for-service rates.
  • Fee-For-Service With ACO Support Payment: Providers in ACOs electing this option will continue to be paid by CMS at normal fee-for-service rates, but the ACO will also receive an additional per beneficiary per month (PBPM) payment of up to $6 PBPM (determined by the ACO) to provide financial support for ongoing ACO infrastructure and operations costs.  The ACO is responsible for refunding the entire amount of the support payment at the end of each PY.
  • Population Based Payments: Under this option, the ACO will specify a discount, which CMS will apply to all claims submitted by ACO contracted providers/suppliers who have agreed to accept the discount.  CMS will pay these providers at the discounted rate and will reconcile the projected amount of the discount against the actual aggregate discount at the end of each PY. The ACO is responsible for any deficit or surplus.
  • Capitation: CMS will use the NGACO's benchmark to calculate and pay the ACO a PBPM capitation payment equal to the projected cost of all services provided to ACO attributed beneficiaries by both ACO providers/suppliers, and non-ACO providers/suppliers who have agreed to be paid by the ACO on a capitated basis. The ACO is responsible for paying capitated providers out of this amount. At the end of the PY, CMS will reconcile amounts paid to non-capitated providers against a withhold retained by CMS. The ACO is responsible for any deficit/surplus.

These payment mechanisms are designed to provide interim, ongoing financial support for ACO infrastructure and operations, and to allow ACOs greater flexibility in structuring reimbursement arrangements with ACO providers. Regardless of the payment mechanism selected by the ACO, the ACO's share of savings/losses will be 80-85% or 100% (depending on which risk option the ACO chooses), subject to the 15% cap.

Beneficiary engagement

The third significant new feature reflects greater opportunities for provider and Medicare beneficiary engagement and care coordination across the health care continuum. The NGACO program allows ACOs to align with non-ACO providers in coordinating beneficiary care in ways not contemplated under the current MSSP and Pioneer programs. The NGACO program also includes incentives which encourage attributed beneficiaries to receive treatment from NGACO affiliated providers.

Better benchmarks

Lastly, the program will incorporate more accurate and stable Benchmarks.

A major criticism by many ACOs participating in the MSSP and Pioneer models is that fluctuations in the ACO's attributable population and Benchmark during the course of the year make it difficult for the ACO to accurately predict financial outcomes.

To address these concerns, the NGACO model introduces the following refinements and adjustments to the ACO Benchmark calculations and procedures currently being used under the MSSP and Pioneer models:

  • A prospectively set Benchmark and attributed population;
  • Annual benchmark risk adjustments (+/-3% corridor) using all components of CMS's Hierarchical Condition Category (HCC) risk scores to adjust the Benchmark for attributed members; and
  • An additional "discount" adjustment to the ACO’s benchmark to reflect the ACO's quality and efficiency.

NGACOs may still recognize savings to the extent they can improve year-to-year results as compared to the NGACO's historical expenses; however, the new Benchmark refinements will help level the playing field for more efficient ACOs by normalizing, based on the ACO's relative regional and national efficiency, the range of improvement required in order for the ACO to achieve savings. This should encourage more efficient ACOs and those accustomed to risk-based compensation to participate in the NGACO program.

What are the potential disadvantages of the NGACO program? What challenges might providers encounter when applying to or participating in the NGACO, and how can they overcome them?

A major hurdle confronting some ACOs will be their ability to demonstrate a record of experience in managing populations and assuming downside risk. There are relatively few ACOs nationally which will be able to meet CMS's criteria for participation in the program. Providers can demonstrate these competencies by being a current or former participant in a downside risk track under the MSSP, Pioneer program or downside commercial risk arrangements.

There will also be significant capital requirements. ACOs must establish financial security for potential losses and refunding of interim payments from CMS, especially for organizations which select the fee-for-service with ACO support payment option. ACOs will need to be well capitalized or have access to affordable letters of credit, large reserve funds, or do a withhold with the provider network.

Lastly, another potential disadvantage involves the uncertainty of the Benchmark during the final two PYs of the program. CMS reserves the right to change how the Benchmark is calculated for the final two PYs. Though CMS has enumerated some of the factors they intend to use for calculating the PY4 and PY5 Benchmarks, nothing is etched in stone. This may cause pause for some ACOs considering joining the NGACO program, or at least exercising the final two-PY renewal option.

What are some significant upcoming dates and deadlines?

Prospective participants should be aware of some important summer deadlines:

  • Notice of Intent (NOI) Deadline for Round 1 Agreement: May 1, 2015. NOIs are non-binding and do not compel the ACO to file an application. However, ACOs that do not file an NOI by May 1, 2015, cannot apply for participation in Round 1.
  • Application Deadline for Round 1: June 1, 2015.
  • Application Deadline for Round 2: June 1, 2016.
  • Agreement Term: Each Round will have an initial term of three years and a two-year renewal option.

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