Monday, 06 April 2015 20:23

CMS’s Next-Generation ACOs: A Template for the Future?

Written by

p nathansonFor the next few years, all eyes in the healthcare policy world will be on the Centers for Medicare & Medicaid Services (CMS) next-generation accountable care organization (ACO) model, unveiled by U.S. Department of Health and Human Services (HHS) Secretary Sylvia M. Burwell on March 10. The model is a demonstration project expected to involve only 15-20 participants. But it may offer, as former Health Information Technology (HIT) National Coordinator Farzad Mostashari, M.D. told FierceHealthcare in a recent interview, "a glimpse of what the whole program is going to look like in a few years' time. This is directionally, absolutely where the Medicare Shared Savings Program (MSSP) is headed."

Medicare ACOs, created by the Patient Protection and Affordable Care Act (PPACA) in 2010, were intended to offer one important way to allow fee-for-service providers to migrate from volume to value without having to make a huge investment in managed care infrastructure. Judging by the number of participating organizations today, ACOs are a resounding success; by latest count there are now over 700 public, private, and mixed ACOs. But in terms of actually moving the needle toward provider acceptance of greater financial risk for quality and cost outcomes, Medicare ACO performance has fallen short of expectations.

  • The MSSP has saved Medicare over $400 million to date, but only about a quarter of the ACOs participating in it have saved enough to reach the threshold amount required to share in the savings with CMS.
  • Although after their first three years, all ACOs in the MSSP were supposed to accept penalties for losses as well as rewards for gains in cost effectiveness, based on performance to date, CMS has proposed to extend the upside-only option for another three years.
  • As for the 32 ACOs originally selected to participate in the pioneer ACO program, in which they accepted downside as well as upside risk, only 19 remain. Many of the survivors have not yet earned bonuses.

According to the request for applications for the next-generation model demonstration, the model's purpose is to test "whether strong financial incentives for ACOs can improve health outcomes and reduce expenditures for Medicare fee-for-service (FFS) beneficiaries." For each next-generation ACO, there will be three performance years and two optional one-year extensions. There will also be two rounds of applications. For the Jan. 1, 2016 start date, letters of intent to participate are due by May 1, 2015, and applications by June 1, 2015. Second-year letters of intent and applications will be available in spring 2016.

The model's design builds on what CMS has learned from the pioneer program and MSSP to date, including those features that, according to critics and CMS alike, have contributed to less-than-optimal results. Its main features:

  • Benchmarking: ACOs' success in controlling cost is gauged by comparing its current spending against its historical spending using a methodology that gives them a benchmark for each year. Responding directly to complaints from current ACO participants, the benchmarks for next-generation ACOs' performance will be set prospectively before each year, rather than retrospectively at the end of each year, as in the pioneer program and MSSP. This will allow the ACOs to know in advance what they must achieve during the year. Also, in response to provider concerns, the benchmark for each of the first three years of the demonstration will not be based exclusively on improvement over time, which may penalize ACOs in high-cost areas and those that have already greatly reduced costs. Instead, the benchmark will be adjusted to reflect the ACOs' relative efficiency compared to other ACOs within the region and nationally, as well as to take into account population acuity.
  • Risk Arrangements: Unlike the MSSP, the next-generation ACO model will not be a one-sided model that rewards ACOs for savings with no penalty for losses. Along with greater risk comes greater reward. The rate of the savings or losses that next-generation ACOs "own," for the purposes of either receiving a reward or paying a penalty during the first three years, will be 80 percent (compared to 50 percent with the MSSP), and each ACO can also elect to go "all in" at 100 percent. Whatever the nominal amount of the savings or losses based on each ACO's sharing percentage, however, the actual total dollar amounts of rewards or penalties will be capped at 15 percent of the benchmark for the year.
  • Payment Mechanisms: The next generation ACO model demonstration will test the effectiveness of four payment mechanisms.
    • Mechanism 1 is simply FFS business as usual; CMS pays providers through normal channels and at standard payment levels.
    • Mechanism 2 is designed to help ACOs invest in infrastructure by providing a stable and predictable payment throughout the year, independent of claims. This leaves the FFS arrangements undisturbed, but adds an additional per-beneficiary-per-month (PBPM) infrastructure payment. The amount of the payment won't be greater than $6 PBPM, and the payments will be recouped during reconciliation.
    • Mechanism 3, called "population-based payments," or PBP, is intended to finance ACO operations out of FFS payments. First, the next-generation ACO decides on a percentage reduction to apply to the FFS payments of its various providers and suppliers. (The reduction doesn't have to be the same amount for all providers and suppliers, and the providers and suppliers have to agree to the reduction.) CMS then applies the reduction and pays the differential in monthly installments to the next-generation ACO.
    • Mechanism 4, capitation, will be available to next-generation ACOs beginning in 2017. To use this mechanism the ACO must negotiate a written agreement with any providers and suppliers they wish to capitate. CMS will pay the ACO a single PBPM amount from which to pay these "capitated entities." Capitated entities submit claims to CMS as usual, and CMS passes those claims through to the ACO to inform ACO payment and other operations.
  • Population Size and Beneficiary Alignment: To participate in the next-generation model, each ACO must maintain a population of at least 10,000 Medicare beneficiaries – except in rural areas, where the requirement is 7,500 beneficiaries. For the MSSP and pioneer model, aligning beneficiaries with the ACO has been done through analyzing what percentage of their Medicare services they receive from ACO providers. Next-generation ACOs will also use claims analysis, but in addition they will offer beneficiaries an opportunity to align themselves voluntarily with an ACO by confirming or denying their care relationships with specific providers or suppliers.
  • "Benefit Enhancements:" Through PPACA-authorized conditional waivers to payment requirements, CMS will be offering next-generation ACOs several tools designed to help them manage the ACO population more effectively, to better coordinate care, and to engage beneficiaries with the ACO. At present, these "benefit enhancements" consist of the following, but CMS's request for applications and statements from agency leaders suggest that more are in the works, to be rolled out over the next few years.
    • Beneficiary Coordinated Care Reward: If a beneficiary aligned with a next-generation ACO receives at least a certain percentage of his or her Medicare services from ACO entities, the beneficiary will be rewarded with a direct payment from CMS. The percentage of ACO care required for payments is expected to be at least 50 percent, and the reward amount is expected to be around $50 per year, payable semi-annually.
    • Three-Day SNF Rule Waiver: CMS will waive for next-generation ACOs the three-day inpatient stay requirement prior to admission to a skilled nursing facility (SNF)-level services provider facility. This will allow aligned beneficiaries to be admitted either directly or with an inpatient stay of fewer than three days.
    • Telehealth Expansion: CMS will waive for next-generation ACOs the requirement that telehealth services be covered only for Medicare beneficiaries located in a rural area and at a specified type of originating site. This means that aligned beneficiaries can receive certain telehealth services at home or in specified facilities wherever they are located.
    • Post-Discharge Home Visits: Subject to various limitations and restrictions, CMS will make waivers available to next-generation ACOs to allow "incident to" claims for home visits to non-homebound aligned beneficiaries made by licensed clinicians under general supervision – as opposed to direct supervision – of next-generation providers or suppliers.

What do all these changes add up to? In a press release announcing the next-generation ACO model demonstration, Deputy CMS Administrator Patrick Conway summed them up in a single sentence: "This ACO model responds to stakeholder requests for the next stage of the ACO model that enables greater engagement of beneficiaries, a more predictable, prospective financial model, and the flexibility to utilize additional tools to coordinate care for beneficiaries." If the demonstration participants are in fact are able to do all of that, Medicare's next-generation model may indeed become the template for the future of ACOs – and Medicare ACOs may become the effective path to value-based care that the PPACA intended them to be.

About the Author

Philip Nathanson is the President of Nathanson Consulting LLC. Phil has held quality leadership positions at CMS, Aetna, and NCQA. His consulting clients include hospital systems, HIM firms and biotech companies. His articles on quality and healthcare management have appeared in Becker's Hospital Review, H&HN Online, Topics in Healthcare Financing and other journals.

Contact the Author

This email address is being protected from spambots. You need JavaScript enabled to view it.

Last modified on Monday, 06 April 2015 20:41

Philip Nathanson is the President of Nathanson Consulting LLC.  Phil has held quality leadership positions at CMS, Aetna, and NCQA. His consulting clients include hospital systems, HIM firms and biotech companies. His articles on quality and healthcare management have appeared in Becker’s Hospital Review, H&HN Online, Topics in Healthcare Financing and other journals.