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What is a Next Generation ACO?

A version of this article was published by The Daily Record on October 27, 2016.

The Next Generation Accountable Care Organization (Next Gen ACO Model) is a new initiative sponsored by the Centers for Medicare & Medicaid Services (CMS) Innovation Center. 

Generally, Medicare accountable care organ-izations (ACOs) are groups of doctors, hospitals, and other health care providers and suppliers who choose to come together to coordinate patient care. It is believed that coordinated care provides higher quality care at a lower cost. Because of this, CMS incentivizes participation in ACOs by allowing ACO providers that meet quality targets to share in the savings generated. 

CMS has developed several ACO models, including the Medicare Shared Savings Program and the Pioneer ACO Model. This year marks the first performance year for the initial group of a third type, namely Next Gen ACOs, whose participants, through the Next Gen ACO Model are provided with financial arrangements that offer higher levels of risk and reward than other Medicare ACO models.

The Next Gen ACO Model is designed for those ACOs with experience coordinating care, meaning, those with success in either the Pioneer ACO Model or the Medicare Shared Savings Program, or those that satisfy certain requirements set forth by CMS in the Request for Applications.

A.  Provider Payment Alternatives

Unlike traditional ACOs, Next Gen ACOs may choose among several payment arrangements for their participating providers, including:

1. Normal Fee-For-Service. This option allows Next Gen providers and suppliers to continue to be reimbursed under the applicable Medicare fee schedule.

2. Normal Fee-For-Service + Infrastructure Payments. In addition to reimbursements under the applicable Medicare fee schedule, this option includes a per-beneficiary-per-month (PBPM) infrastructure payment, allowing the ACO to invest in infrastructure to support its coordinated care activities. These payments will be at most $6 PBPM, and will be recouped by CMS during reconciliation, regardless of the ACO's savings or losses.

3. Population-Based Payments. Under this option, CMS pays the Next Gen participants reduced fee-for-service payments, and pays the projected total annual amount taken out of the base fee-for-service rates to the ACO in monthly payments.

4. All-Inclusive Population-Based Payments.  Under this option, which is available in performance year 2, CMS will make a PBPM payment to the ACO based on an estimate of the total annual expenditures for care furnished to the Next Gen ACO's aligned beneficiaries.

B.  Higher Levels of Risk and Reward

Next Gen ACOs also have higher levels of risk and reward than other ACO models. Next Gen ACOs can choose from two arrangements: (1) the "increased shared risk arrangement," whereby, the ACO shares in 80% of savings or losses for performance years 1-3 and 85% of savings or losses for performance years 4-5, or (2) the "full performance risk option," whereby the ACO shares in 100% of any savings or losses. Aggregate savings or losses are capped at 15% of the benchmark in both arrangements.

For example, if the benchmark for a Next Gen ACO is $100,000,000, the maximum shared savings or losses under the increased shared risk arrangement is $12,000,000 for performance years 1-3, which is 80% x 15% x $100,000,000. Therefore, the shared savings payment or shared losses owed would be 80% of the difference between the actual performance year expenditures and the performance year benchmark, up to a maximum of $12,000,000. 

Regardless of the chosen payment mechanism or risk arrangement, the Next Gen ACOs will have a prospectively-set benchmark, meaning CMS will establish the benchmark at the beginning of the performance year.

C.  Three Waivers

The Next Gen ACO Model will also employ tools to help ACOs improve engagement with beneficiaries, including the provision of three waivers.

First, the Next Gen ACO may participate in a waiver of the current Medicare payment policy that limits reimbursement of telehealth services to Medicare patients in rural areas.

Second, the Next Gen ACO may participate in a waiver of the three-day inpatient stay requirement prior to admission to a skilled nursing facility. 

And third, the Next Gen ACO may participate in a waiver designed to ease the supervision requirements for the billing of home health visits, which will give beneficiaries greater access to post-discharge home health visits.

D.  Conclusion

The Next Gen ACO Model requires that Next Gen ACOs manage at least 10,000 Medicare beneficiaries or 7,500 beneficiaries in a rural area. There are currently 18 ACOs participating in the Next Gen ACO Model, with that number set to increase as round two applications have recently closed.  
Overall, the Next Gen ACO Model moves CMS closer to its goal to have 50 percent of Medicare payments in alternative payment models by the end of 2018.

Barry Rosen
(410) 576-4224 • brosen@gfrlaw.com



November 14, 2016




Rosen, Barry F.


Health Care