A large national payer recently announced the opportunity for Accountable Care Organizations (ACOs) to share in 100 percent of the savings they create for the payer’s largest book of business. Providers will have complete autonomy in how they manage the health of their population, and the payer will ensure the timely flow of datasets needed to support care improvement activities. The payer will pre-define the ACO’s population and its spending benchmark, which will be adjusted for the risk of the ACO population. Consumers aligned to the ACO will be offered supplemental benefits and financial incentives to seek care from the ACO’s network.

Market-watching ACOs can be forgiven for wondering how they missed the slew of journal articles, blogs, and op-eds lauding the “best practice” design features of this new model — because they never materialized. The deal in question is, of course, the Next Generation ACO model currently being offered by the CMS Innovation Center (CMMI). But perhaps because of the hit-and-miss track record of the Centers for Medicare and Medicaid Services’ (CMS) ACO portfolio over the past five years, the reaction of the health policy intelligentsia has been curiously tepid. Savvy provider organizations, however, are increasingly gravitating toward Next Gen’s market-leading deal terms. Those ACO operators that don’t consider the Next Gen model this spring risk being locked out for the foreseeable future.

Early Models

Early ACO models from CMS suffered from a number of flaws that hindered their effectiveness; this is particularly true for “Track 1” of the Medicare Shared Savings Program (MSSP), which accounted for 330 of the 353 total Medicare ACOs in 2014. Three main flaws were most commonly cited by frustrated health system executives:

  • ACOs only share in a maximum of 50 percent of savings they generate — an amount that simply isn’t sufficient to fund the population health infrastructure and physician incentives necessary to fundamentally change practice behavior;
  • Physicians don’t know which patients they are financially responsible for until after the year is over, which prevents them from targeting care management interventions and ultimately improving patient care; and,
  • Patients have little incentive to receive care within the ACO’s network, which reduces the ability of physicians to coordinate care.

And yet, even with these flaws, a majority of early ACOs did save money relative to their target — indicating that the basic model, if modified, could work well for both health systems and CMS.

Incorporating Feedback

Fortunately, CMS heard the complaints about early MSSP models and addressed the majority of them through the progressive structure of the Next Gen model. In fact, the core difference between MSSP Track 1 and the current Next Gen model is that the latter is based upon extensive feedback from health systems regarding their concerns about MSSP Track 1.

Next Gen is therefore a program that health systems have directly asked for. The model still has room for further improvement — for example, Next Gen ACOs should have access to the full toolkit of benefit- and network-design strategies found in Medicare Advantage and other provider-led offerings. But the CMMI leadership has pledged to pursue additional features that could take effect in the later years of the Next Gen model, and will continue the virtuous cycle of improvements. The most significant improvements that the Next Gen model embodies are highlighted below.

Dawest_MSSPvNextGen

Would-be Next Gen ACO participants must grapple with two primary hurdles: risk exposure and a closing decision window. Next Gen ACOs are at full risk for spending in excess of their target, subject to a 15 percent stop-loss cap. This financial exposure is certainly not trivial, but ACOs can mitigate it through two interrelated financial and operational strategies.

First, Next Gen ACOs should focus on a core set of population health capabilities — namely an analytics-driven approach to care management for the small segment of complex patients who are predicted to have high but impactable costs, and a disciplined approach to optimizing the risk adjustment and quality bonus portions of the ACO’s financial benchmark. And second, ACOs should protect themselves by sharing operational risk with an experienced partner and/or through the purchase of market-based financial protections such as reinsurance.

CMS is only offering new admission to Next Gen this spring for a January 1, 2017 start date. ACOs that want a shot at participating need to submit a non-binding Letter of Intent by May 2, 2016, with the full application due by May 25. After that window closes, a similar model is unlikely to be available again any earlier than 2020, when CMS could decide to expand it nationally.

The Next Generation ACO Model may come to be seen as the cornerstone of CMS’s efforts to shift the majority of its payments towards value-based care. For health systems it represents an opportunity to secure provider-friendly deal terms and help define their own destiny in a rapidly-evolving Medicare payment landscape.

Author’s Note

As a former health policy advisor at the White House, Chris Dawe was involved in the early conceptual stages of developing the Next Gen ACO model. Dawe along with authors Nico Lewine and Mike Miesen are affiliated with Evolent Health, which also provides services to Next Gen ACOs.