On May 17, the Centers for Medicare Medicaid Services (CMS) proposed three initiatives related to the Shared Savings Program (SSP) and Accountable Care Organizations (ACOs). The initiatives would be implemented through the Center for Medicare and Medicaid Innovation (CMMI or Innovation Center), a new center within CMS that was established under the health reform law. The Innovation Center has broad authority and $10 billion in funding to help develop new models of payment and care delivery under the Medicare and Medicaid programs, including new types of ACO models.  

The announcement of the new initiatives appears to be in response to widespread industry criticism of the proposed rule to establish ACOs and set up a SSP, released by the federal government for public comment in March 2011. The American Hospital Association’s (AHA) top concerns are:  

  • ACOs are too expensive for most providers to operationalize due to significant up front costs and exposure to downside risk;  
  • The risk adjustment limits used in calculating ACO cost benchmarks are likely to dilute any potential savings;  
  • The 65 quality measures an ACO must meet are overly burdensome and likely to deter many providers from participating in the SSP;  
  • Assigning beneficiaries to an ACO on a retrospective basis potentially limits an ACO’s ability to reduce health care costs; and  
  • The patient opt-out mechanism under the SSP is impractical.  

The Innovation Center initiatives announced by CMS appear to address at least some of these criticisms.

I. ACO Advanced Payment Proposal

CMMI is soliciting comments on a proposal that would give certain ACOs early access to the shared savings they expect to earn under the SSP in the form of a monthly payment for each aligned Medicare beneficiary to help ACOs defray initial startup and operating costs. The AHA estimates that the initial startup costs for an ACO would be in excess of $11 million—more than 10 times the CMS estimate—and that ongoing ACO operating expenses would likely exceed $6 million annually. The provider community is concerned that any potential shared savings under the SSP will not be enough to offset these costs.  

Under the advanced payment proposal, ACOs would be required to demonstrate to CMS how they would allocate the advanced payments to address care coordination and other organizational requirements for ACOs as outlined in the proposed rule. Comments on this proposal are due by June 17.  

II. Learning Sessions  

In order to help providers and physician groups determine whether they want to become an ACO and also determine strategies for ACO development, CMS will host four free “learning sessions,” which will be webcast. The first of these sessions is scheduled for June 20-22 in Milwaukee. Dates for the remaining three sessions have yet to be determined. These sessions are designed to provide curriculum on core competencies for ACO development, rather than review the ACO proposed rule’s requirements. Topics to be covered on the listening sessions include: strategies for improving care delivery systems; building capacity to assume and manage risk; and effective use of data systems and health information technology.  

III. “Pioneer” ACOs  

The most ambitious of the Innovation Center’s initiatives is the so-called “Pioneer” ACO initiative. This alternative ACO model is designed for those providers and entities who have already moved forward to coordinate care through an ACO-type approach. The government’s intention is to incentivize providers to move away from volume-driven, fee-for-service delivery models, and move toward outcomes-based, value-driven models. The model is also designed to go beyond fee-for-service Medicare participation and allow for coordination with private payers as well.  

Entities selected to participate in the Pioneer model would be rewarded with a higher shared savings than is currently being proposed under the conventional SSP program. They would also more quickly move to a population-based payment system (i.e., capitation). However, Pioneer ACOs will also be exposed to higher levels of downside risk.  

CMS is proposing to initially select and cap the number of entities approved for Pioneer ACO status at 30. Organizations wishing to participate in the Pioneer ACO program must submit a non-binding letter of intent by June 10. Instructions for submitting the nonbinding letter of intent have been posted on the Innovation Center website. The rules for participating as a Pioneer ACO are set forth in CMS’s Request for Application (http://innovations.cms.gov/wp-content/uploads/2011/05/Pioneer-ACO-RFA.pdf). Applications are due by July 18. CMS is holding an Open Door Forum on June 7 to review the instructions for completing the Request for Application.

The Innovation Center has indicated it is looking to test alternative payment models that include three key elements:

  1. Escalating levels of financial accountability through successive performance periods;  
  2. A transition from fee-for-service to population-based payment; and  
  3. Savings for Medicare.  

Many of the Pioneer ACO requirements are consistent with the SSP proposed regulations. But given the uncertainty of what will be included in the final rule, Pioneer ACO participation agreements will include a clause amending requirements of the Pioneer participation agreement to be consistent with the final SSP regulations. If a Pioneer ACO objects to the changes, it will have the option to terminate participation in the Pioneer ACO program.  

Some of the key elements of the Pioneer ACO model are as follows:  

  1. Free choice of providers for Medicare fee-for-service beneficiaries;  
  2. Diverse, experienced organizations willing to commit to transformation of their business and care delivery models;  
  3. Payment arrangements that, over time, escalate the degree of financial accountability for the Pioneer ACO;  
  4. Consistency in quality performance measures; and  
  5. The expectation that Pioneer ACOs will derive the majority of their revenues from outcomes-based payment arrangements with all payers, not just Medicare.  

While most of the Pioneer ACO program requirements generally mirror those of the SSP, there are several key distinctions:  

50 Percent Outcomes-Based Provider Contracts by End of Year Two  

Pioneer ACOs will be required to derive at least 50 percent of their total revenues from outcomes-based payer contracts by the end of the second performance year of the Pioneer program. These contracts can include Medicaid, commercial and self-funded payers. In fact, CMS is currently exploring state initiatives that would incentivize outcomes-based payment models with providers under the Medicaid program. Pioneer model applicants must include letters of verification and support from each commercial and/or state Medicaid agency with which they maintain an existing outcomes-based contract. Alternatively, they must make a commitment to enter into such contracts by the end of year two of the Pioneer program. This requirement reflects CMS’s belief that provider organizations fully committed to an outcomes-based business model will likely be more effective in achieving the three-part aims of health care reform: better health for populations, better individual health and reduced costs.  

Increased Risk Sharing (Up and Down)  

Under the Pioneer program, ACOs would have a choice between two payment alternatives – the Core Payment Arrangement or an alternative arrangement still under development by CMMI. Under the Core Payment Arrangement, in year one of the Pioneer ACO model, ACOs will be eligible for 60 percent of any achieved savings and will also be liable for 60 percent of any incurred loses. The ACO’s share of savings/losses is capped at 10 percent of the total projected ACO cost benchmark. In year two, the savings/loss share increases to 70 percent, with a 15 percent cap. As an alternative under the Core Payment Arrangement, Pioneer ACOs may opt for a 70 percent risk share in year one, and a 75 percent risk share in year two, with a 15 percent cap for both years. As is the case under the SSP, Pioneer ACO providers would continue to receive 100 percent fee-for-service reimbursement during years one and two of the Core Payment Arrangement.

In year three under the Core Payment Arrangement, a Pioneer model ACO’s share of savings/losses would remain at 70 percent. However, instead of receiving 100 percent fee-for-service reimbursement, ACO providers would receive partial capitation payments and partial fee-for-service-payments. Pioneer ACO providers would receive 50 percent of the regular Medicare fee-for-service reimbursement rate for all services they perform. They would also receive a per-member/per-month payment, which is intended to replace the remaining 50 percent fee-for-service reimbursement. In order to be eligible to transition to the partial capitation in year three, Pioneer ACOs must have generated a minimum average annual savings during years one and two of the program. The minimum average annual savings rate will range from 1 to 5 percent, depending on historical Medicare expenditure levels in the states where the Pioneer ACOs are located. In the event a Pioneer ACO does not meet the minimum savings thresholds, the Pioneer ACO would not be eligible to transition to the partial capitation methodology in year three. Instead, the reimbursement in year three would be the same as in year one, and the Pioneer ACO’s contract would end at the end of year three.  

CMS indicates that the goal of the partial capitation in year three is to allow Pioneer ACOs the revenue flexibility to provide services which are not currently covered under Medicare fee-for-service, and to invest in infrastructure and support for care management and coordination. The intention is to likewise incentivize providers to move toward population-based, or capitated, payment methodologies and away from fee-for-service reimbursement models. Pioneer ACOs that transition to the partial capitation in year three would have the option to extend their contract for up to an additional two years.  

As an alternative to the Core Payment Arrangement, CMS intends to offer a second payment option. CMS is soliciting comments from potential Pioneer ACO participants on suggested alternative reimbursement models. Pioneer ACOs would choose from the Core Payment Arrangement described above or an alternative model when it is finalized.  

Choice of Beneficiary Alignment  

Pioneer ACOs will be allowed to choose either prospective or retrospective alignment models for their members. If the Pioneer ACO chooses the prospective model, beneficiaries will be assigned to the ACO based on a weighted average of claims data from the prior three years for each beneficiary. A Medicare beneficiary who received a plurality of his or her primary care services from a particular primary care provider within that three-year period would be assigned to that primary care provider’s ACO. In the alternative, an ACO may opt for retrospective beneficiary attribution. Such an approach would generally follow the retrospective alignment model detailed in the SSP proposed rule. In this model, beneficiaries would be aligned based on having received the plurality of their primary care services from a particular primary care provider during the performance period in question.  

The prospective alignment model appears to address many providers’ concern that retrospective alignment would seriously impair the ACO’s ability to identify its patient population in advance and therefore impair its ability to implement effective care coordination and care management protocols for members of that population. On the other hand, prospective attribution may increase the ability of providers “to cherry pick” healthier patients for its ACO.

Primary Care Providers  

Under the Pioneer model, physician assistants and nurse practitioners may function as primary care providers for purposes of beneficiary alignment. In some instances, certain specialists may also function as primary care providers. In contrast, under the SSP, primary care ACO participants are limited to the specialties of internal medicine, general practice, family practice and geriatrics medicine. Also, under the SSP, specialist physicians cannot function as primary care providers for purposes of beneficiary alignment. However, under the Pioneer model, if a beneficiary received 10 percent or less of their primary care services from a primary care provider, certain specialists will be allowed to function as primary care providers for purposes of beneficiary alignment. Specialists eligible to be considered as primary care providers for purposes of beneficiary alignment include nephrologists, oncologists, rheumatologists, endocrinologists, pulmonologists, neurologists and cardiologists. In allowing specialists to function as primary care providers under the Pioneer model, it appears that CMS views the additional complexity of tracking beneficiary alignments to specialists as being outweighed by the likelihood that fewer Medicare beneficiaries will be left out of the alignment process.  

Minimum Patient Population  

The minimum number of aligned Medicare beneficiaries for whom an ACO must agree to be accountable has increased to 15,000 under the Pioneer model, compared to 5,000 under the SSP. This increase reflects the Pioneer program’s approach to attract ACOs with significant population management experience and established, large patient populations. In addition, larger patient populations are more likely to generate more meaningful levels of savings for Pioneer ACOs.  

Quality Measures  

The 65 quality measures and scoring methodology under the Pioneer model are identical to the measures outlined under the proposed SSP model. This is despite widespread criticism that the measures are overly burdensome and difficult to monitor.  

Given the many significant modifications to the proposed SSP rules under the Pioneer model, industry leaders now anticipate that the final SSP regulations will bear little resemblance to the proposed rule. Regardless of what the final ACO regulations look like, it is clear that CMS is intent on driving reforms of the fee-for-services delivery system and payment models.  

CMS’s approach is likely to have a spill-over effect into commercial payer contracting and delivery models. Providers should, therefore, be prepared to transition from fee-forservice models to outcomes-based reimbursement delivery models. In the near term, this means that many provider organizations will likely have one foot in the fee-for-service camp and the other in the value-based payment camp. Unfortunately, this also means that provider systems will likely need to invest significant resources in the care coordination and management tools necessary to succeed under value-based reimbursement, while simultaneously continuing to operate under the current fee-for-service system.