Understanding the Next Generation ACO Model

Accountable care organizations (ACOs) were designed to shift the healthcare industry from the fee-for-service payment model to value-based care, but haven’t always achieved their intended objectives. Based on the successes and limitations of the Medicare Shared Savings Program (MSSP) and the Pioneer ACO Model, CMS launched the Next Generation ACO (NGACO) Model in 2016 to improve the delivery of accountable care. The NGACO Model is intended for ACOs with experience in coordinating care for large patient populations. There are no minimum loss or savings requirements for provider groups in this model, as they take on downside risk and assume nearly all of the risk sharing.

Although NGACOs assume a higher level of financial risk than in other models, there is also the potential for more reward. Next Gen ACOs are assigned a target expenditure level called a “benchmark” based on their aligned beneficiary population. If their actual Medicare spending is below that benchmark, CMS passes on a portion of those savings with the ACO. However, if the ACO spends more than the benchmark, they must reimburse CMS for part of that loss.

With the downside risk model shifting more financial risk to providers, ACOs must maximize revenue through the improvement of healthcare spending rates. Managing such risk-based ACO contracts requires providers to focus on patient-centered care and population health programs that boost preventative care and ensure better patient outcomes. To help facilitate these improvements, NGACOs are granted greater flexibility when it comes to the provision of telehealth as well as offering incentives to beneficiaries for achieving and maintaining good health.

How Next Generation ACOs Reduced Spending While Improving Care

In August 2018, CMS released a report prepared by NORC at the University of Chicago, an independent research organization, which showed that the NGACO Model demonstrated positive outcomes in terms of costs and quality when providers were responsible for managing budgets. The first set of NGACOs consisted of 18 participants and are scheduled to run for five years, from January 2016 to December 31, 2020.

NORC’s report indicated that the first cohort of ACOs on the Next Generation Model reduced Medicare spending by $62 million in 2016, equal to a 1.1% net savings per beneficiary per month. In addition, the NGACOs managed to improve both quality of care and utilization. Most of these savings were attributed to reduced post-acute care spending, particularly at skilled nursing facilities (SNFs), as the NGACO program waived previous Medicare requirements around admissions. The NGACOs reduced the number of non-hospital evaluation and management (E&M) visits by 85,619 and inpatient hospital days by 9,566. The report also showed a 12% increase in the number of beneficiaries that received annual wellness visits.

The Future of ACOs

The Department of Health and Human Services has been advocating the Better, Smarter, Healthier approach to delivery system reform. The intention is to improve national healthcare by moving the Medicare program and the entire healthcare system to a point where providers are paid based on the quality of care rather than the quantity of care provided to patients.

The NGACO Model aims to achieve this objective through the highest quality standards of care while giving providers and beneficiaries a greater opportunity to coordinate care and set predictable financial targets. This model will help determine if stronger financial incentives for ACO providers combined with tools that support better care management and patient engagement can lower expenditures for Medicare FFS beneficiaries while improving health outcomes. NGACOs could very well pave the path to value-based care by proving out the upside/downside risk-sharing model when paired with greater flexibility that empowers providers to deliver the best possible care.

Pathways to Success

On August 8, 2018, CMS proposed regulations that, if enacted, will mean major changes to the existing MSSP ACO program. The proposed regulation titled “Pathways to Success” accelerates the path for ACOs to enter into shared risk contracts while softening provisions that prevented lower revenue ACOs from participating in reduced total financial risk.

Pathways to Success redesigns the program’s participation options by replacing the three tracks of the MSSP model with two new tracks – the BASIC and ENHANCED tracks for contract periods beginning on or after July 1, 2019. Eligible ACOs would have to enter these tracks for at least five years.

  • The BASIC tracks limit ACOs to upside-only risk models for two years. ACOs that subscribe to the MSSP Track 1 upside-only model can take in only 25% of the savings they made, compared to the current maximum of 50%.
  • The ENHANCED track is meant for ACOs that are required or willing to take on increased financial risk. This track will offer the same financial parameters as the current Track 3 and provides greater rewards than the BASIC track.

By shortening the duration of one-sided risk model contracts, CMS hopes that ACOs will take on two-sided risk models. It’s just a matter of finding the right balance of risk and reward for healthcare providers.