On March 10, 2015, the Centers for Medicare and Medicaid Services (CMS) introduced its latest accountable care initiative, the Next Generation ACO Model.  Building upon experience from the Pioneer ACO Model and the Medicare Shared Savings Program (MSSP), the Model offers accountable care organizations (ACOs) that are experienced in coordinating care for populations of patients the opportunity to assume higher levels of financial risk and reward than are available under previous models.

The stated goal of the Model is to test whether strong financial incentives for ACOs, coupled with tools to support better patient engagement and care management, can improve health outcomes and lower expenditures for Medicare fee-for-service beneficiaries.  To be eligible to participate, Next Generation ACOs must have at least 10,000 aligned beneficiaries (or 7,500 if located in a rural area); have a majority of their total patients (Medicare and commercial) covered under outcomes-based contracts; and demonstrate compliance with applicable state laws, including those regulating risk-bearing entities.  Next Generation ACOs may not simultaneously participate in the Pioneer ACO Model or the MSSP, but may participate in the Bundled Payments for Care Improvement (BCPI) initiative.

Key Features

New Risk/Reward Sharing Levels

Next Generation ACOs will have two levels of shared risk and reward from which to choose.  Under the first option, an ACO will share 80 percent of the savings or losses (when comparing total Part A and Part B spending for aligned beneficiaries to the performance year benchmark) in years 2016–2018, and 85 percent of the savings or losses in years 2019 and 2020.  Under the second option, an ACO will share 100 percent of the savings and losses in all years.  In both cases, however, an ACO’s savings and losses will be capped at 15 percent of the performance year benchmark.  Under each approach, individual beneficiary expenditures will be capped at the 99th percentile of expenditures to mitigate outlier effects.

Smoother Cash Flow

The Next Generation ACO Model will offer four payment mechanisms intended to offer stable and predictable cash flow and facilitate investment in infrastructure and care coordination.  These mechanisms do not affect beneficiary out-of-pocket expenses or net CMS expenditures.

The first option is normal fee-for-service payments, or the status quo.  Under the second option, normal fee-for-service payments are supplemented by a per-beneficiary, per-month (PBPM) amount, unrelated to claims, of up to $6 PBPM, which is recouped during the year-end financial reconciliation.  The third mechanism, referred to as “population-based payments,” allows an ACO to specify a percentage of the normal fee-for-service payments due to ACO provider/suppliers that will be deducted and paid over to the ACO on a monthly basis, subject again to recoupment during the year-end financial reconciliation.  The ACO provider/suppliers must agree in writing to the percentage reduction.  The ACO can specify different percentage reductions to different subsets of ACO provider/suppliers.

Finally, beginning in 2017, ACOs will have the option to receive capitation payments based on the estimated total annual expenditures for Next Generation ACO beneficiaries.  Under this model, an ACO will be responsible for paying claims for provider/suppliers with which it has a capitation agreement, while CMS will continue to pay normal fee-for-service payments to non-contracted provider/suppliers.  CMS will withhold funds from the capitation amount to cover such fee-for-service payments.  Under the capitated approach, the ACO will not be required to pay full Medicare fee-for-service rates to its contracted provider/suppliers.

Prospectively Set Benchmark

In a change from prior ACO models, the benchmark against which a Next Generation ACO’s performance will be measured during the initial performance years will be prospectively set prior to each performance year.  The ACO’s baseline will be determined using one year of historical expenditures.  The baseline will then be trended forward using a regional projected trend, derived from applying regional prices to a national projected trend similar to that used in Medicare Advantage.  CMS will adjust the trend under limited circumstances due to payment changes that will substantially affect ACO expenditures.  The baseline and performance year populations will be risk adjusted using the full CMS Hierarchical Condition Category risk score (both demographic and diagnostic components) and allowed to increase or decrease up to a maximum of 3 percent between the baseline and performance years.

Unlike the Pioneer Model and MSSP, the Next Generation ACO Model will not utilize a minimum savings rate.  The performance year benchmark will instead be calculated by applying a discount (ranging between 0.5 percent and 4.5 percent) to the trended and risk-adjusted baseline that is derived from the application of quality, regional efficiency and national efficiency adjustments.  The incorporation of relative efficiency into the discount calculation is intended to address concerns expressed by ACO participants in current CMS models that it becomes more difficult to earn additional savings each year (in other words, ACOs that have already achieved a high rate of efficiency relative to their region will have a more favorable discount).  Under this approach, ACOs achieve savings through year-over-year improvement over historical expenditures (improvement), but the magnitude by which they must improve to achieve shared savings will vary based on relative efficiency (attainment).   In addition, CMS has indicated that during the optional extension years (calendar years 2019 and 2020), it will consider changes to the benchmark setting process that will either eliminate or further de-emphasize the role of recent ACO cost experience when updating the baseline, thus emphasizing attainment to a much greater degree.

Improved Beneficiary Alignment

In addition to “traditional” alignment based on outpatient evaluation and management services received by beneficiaries from primary care providers and certain specialists, the Next Generation ACO Model will incorporate voluntary beneficiary alignment during each performance year.  Beneficiaries who elected to align with an ACO under another model during 2015 will be retained if the ACO transitions to the Next Generation ACO Model.

New Beneficiary Enhancements

Next Generation ACOs will have the option to implement a variety of benefit enhancements designed to encourage aligned beneficiaries to seek treatment from the ACO.  These include expansion of telehealth and post-discharge home visit benefits and waiver of the rule requiring a three-day inpatient stay prior to skilled nursing facility admission.  In addition, CMS will pay a “coordinated care reward” directly to Next Generation beneficiaries who receive at least 50 percent of their patient encounters from ACO provider/suppliers and certain other designated provider/suppliers.  The amount paid will be $25 for each six-month period.  The Next Generation ACO Model will include greater collaboration between CMS and ACOs to communicate with aligned beneficiaries regarding the availability of these benefit enhancements and the general advantages of receiving coordinate care from an ACO.

Program Outlook

CMS expects approximately 15 to 20 ACOs to participate in the Next Generation ACO Model, with representation from a variety of provider organization types and geographic regions.  The Model will consist of either three or two initial performance years (depending on whether participation commences in 2016 or 2017) and two optional one-year extensions.  Specific eligibility criteria are outlined in the Request for Applications.  CMS will evaluate the Model’s success based on its “ability to deliver better care for individuals, better health for populations, and lower growth in expenditures.”  In addition, CMS will publicly report the performance of participating ACOs on quality metrics, including patient experience ratings, on its website.

How to Apply

CMS is accepting ACOs into the Next Generation ACO Model through two rounds of applications in 2015 and 2016.  For round one consideration, interested organizations must submit a Letter of Intent by May 1, 2015, and an application by June 1, 2015.  Round two Letters of Intent will be made available in March 2016 and must be submitted by May 1, 2016, with the application to follow by June 1, 2016.  To file a Letter of Intent and complete the online application, interested organizations may access CMS’s electronic submission portal.

Links to Additional Information from CMS