BREAKING: CMS Finalizes Overhaul of Medicare ACO Program, Accelerating the Move to Two-Sided Risk

The Centers for Medicare & Medicaid Services (CMS) on Friday morning published a final rule that makes sweeping changes to the Medicare Shared Savings (MSSP) Accountable Care Organization (ACO) program, with the goal to push Medicare ACOs more quickly into two-sided risk models.

Referred to as “Pathways to Success,” the Trump Administration’s overhaul of Medicare’s ACO program will redesign the program’s participation options by removing the traditional three tracks in the MSSP model and replacing them with two tracks that eligible ACOs would enter into for an agreement period of no less than five years: the BASIC track, which would allow eligible ACOs to begin under a one-sided model and incrementally phase in higher levels of risk; and the ENHANCED track, which is based on the program’s existing Track 3, providing additional tools and flexibility for ACOs that take on the highest level of risk and potential rewards. At the highest level, BASIC ACOs would qualify as an Advanced Alternative Payment Model (APM) under the Quality Payment Program. The 957-page final rule can be read here.

Currently, the MSSP model includes three tracks and is structured to allow ACOs to gain experience with the program before transitioning to performance-based risk. The vast majority of Shared Savings Program ACOs have chosen to enter and maximize the allowed time under Track 1, which is an “upside-only” risk model. MSSP Tracks 2 and 3 involve downside risk, but participation in these tracks has been limited thus far.

When ACOs are in a one-sided risk model, they do not share losses with the government when they overspend past their benchmarks, but they do share in the gains. As such, in these one-sided risk models, CMS is on the hook for any losses all on its own.

“Most Medicare ACOs currently do not face financial consequences when costs increase, but” Pathways to Success” will change this,” CMS stated in a fact sheet about the final rule. “Having more Accountable Care Organizations take on real risk, while offering them the incentives and flexibility they need to coordinate care and innovate, is an important step forward in how Medicare pays for value. Data on ACO performance shows that over time ACOs taking accountability for costs perform better than those that do not. As a result of today’s changes, the projected savings to Medicare total $2.9 billion over ten years.”

According to CMS, to ensure the ACO program delivers the most value, “Pathways to Success” is designed to advance five goals: Accountability, Competition, Engagement, Integrity, and Quality. 

A key element of CMS’s redesign of the Medicare ACO program is a reduction in the amount of time that an ACO can remain in a one-sided risk model. Under this final rule, CMS is decreasing the allowed period of time that an ACO can remain in a one-sided risk model from six years to, at most, three years for new “low-revenue” or physician-led ACOs, two years for all other new ACOs, and one year for existing one-sided ACOs.

This final rule includes two big changes as compared to what CMS initially recommended in the proposed rule, which was published back in August: While most ACOs will only be permitted to participate in a one-sided risk model for two years, CMS is providing some flexibility by allowing new, “low revenue” ACOs that are not identified by CMS as re-entering ACOs up to three years under a one-sided model; CMS also finalized a higher initial shared savings rate of 40 percent for one-sided risk ACOs, after initially proposing to cut potential shared savings in half—from 50 percent to 25 percent for one-sided risk ACOs. The maximum shared savings rate for two-sided risk ACOs will remain at 50 percent under this final rule.

Overall, there are 561 MSSP ACOs out of 649 total Medicare ACOs, with 82 percent of those 561 MSSP ACOs taking on upside risk only.

Key Changes for Upside-Only ACOs

The MSSP program launched in 2012 and currently over 10.4 million beneficiaries in fee-for-service Medicare, of the 38 million total fee-for-service beneficiaries, receive care from providers participating in a Medicare ACO, according to CMS.

In a blog post published Friday, CMS Administrator Seema Verma wrote that the redesign of the MSSP ACO program is part of the Trump Administration’s focus on accelerating a “value-based transformation” of the U.S. healthcare system. The American healthcare system is on an “unsustainable trajectory,” Verma wrote, with one in five dollars spent in the U.S. economy projected to be spent on healthcare by 2026. “Therefore, it is incumbent on our agency to not just pay for healthcare services as they are billed but rather to ensure that patients are getting value for the care that is provided. To this end, we are developing and testing new payment models to transform our payment system, and today’s changes to Medicare’s ACO program are a critical component of that transformation,” Verma wrote.

Verma noted that in the six years that the Medicare ACO program has been in operation, CMS has gleaned key insights about what works and what doesn’t within the program.

“Most Medicare ACOs do not currently face financial consequences when costs increase, but a review of the data on ACO performance shows that overtime those ACOs that take accountability for costs perform better than those that do not,” Verma wrote. “The final policy is responsive to feedback about the need for incentives to bring healthcare providers into the ACO program, while ensuring the transition to value protects taxpayers and includes patients.”

Verma previously has criticized upside-only ACOs, remarking that they have not generated enough results to date. On a press call back in August when CMS released the proposed ACO rule, Verma said, “[Upside-only] ACOs have no incentive, at all, to reduce healthcare costs while improving outcomes, as they were intended. Thus, the program has not lived up to the accountability part of their name.”

However, in the final rule CMS is providing an option for new, low revenue ACOs not identified as re-entering ACOs, and therefore inexperienced with performance-based risk Medicare ACO initiatives, to participate for up to 3 years (or 3.5 years in the case of ACOs entering an agreement period beginning on July 1, 2019) under a one-sided model of the BASIC track’s glide path before transitioning to Level E (the highest level of risk and potential reward under the BASIC track), according to a CMS fact sheet.

“Under this participation option, the ACO would enter the glide path at Level A and automatically advance to Level B. Prior to the automatic advancement of the ACO to Level C, an eligible ACO may elect to remain in Level B for another performance year, and then be automatically advanced to Level E for the remaining two years of its agreement period,” CMS stated. CMS said this new option was developed based on commenters’ suggestions.

In her blog post, Verma wrote, “Smaller, physician-led or ‘low revenue’ ACOs – many of which are in rural areas – have shown greater success in controlling costs than hospital-led ACOs, which is an example of why CMS is focused on promoting competition in healthcare marketplaces and ensuring that patients have choices of where to obtain care. We have heard that establishing a physician-led ACO can provide practices with a means of remaining independent from consolidated hospital systems. Today’s rule bolsters the option for physicians to form ACOs while ensuring that all ACOs are generating savings for patients and taxpayers,” Verma wrote.

The change was welcome news to some industry stakeholders.

On Friday morning, in response to the final rule, Travis Broome, vice president of policy at Aledade, a Bethesda, Md.-based company focused on physician-led ACO development, tweeted, “One more change to Basic. Low-revenue ACOs will be able to stay in 1-sided risk for 3 years. Difference [between] 2 & 3 years is big. The decision to take risk is made summer before the year starts. So 2 years of 1-sided risk meant making the risk decision before year 1 results even came in.”

However, in a statement responding to the final rule, Clif Gaus, president and CEO of the National Association of ACOs (NAACOS), an association comprised of more than 360 ACOs, expressed concern that CMS retained the two-year limit for other ACOs. “Becoming a well-functioning ACO takes time and requires building of IT infrastructure, hiring care coordinators, changing the culture of providers, among other tasks. Under CMS’s proposed rule, many ACOs would have just a single year of performance data available to them before evaluating the required move to risk in their third year of the program,” Gaus stated.

Broome also praised CMS for finalizing a “much-needed” higher initial shared savings rate of 40 percent, up from the proposed 25 percent. “This was the most critical thing for new ACO growth,” he wrote.

He also tweeted, “The increase from 25 to 40 was critical from an ROI perspective and increasing to 50 for taking risk provides the required return on risk.”

Farzad Mostashari, M.D., co-founder and CEO of Aledade, responded with the following statement: “While we are still digging into the details of the final rule, we are happy that the uncertainty facing Medicare Accountable Care Organizations (ACOs) has been resolved, and we can now move ahead confidently. As the new ACO program year begins, we look forward to helping independent physicians across the country successfully deliver high-quality, value-based care to their patients.”

CMS’ proposal to cut potential shared savings in half, from 50 percent to 25 percent for one-sided risk ACOs, drew a lot of criticism from industry groups and stakeholders. Back in September, several industry groups, including NAACOS, the American Medical Association (AMA), Medical Group Management Association (MGMA) and Premier, sent a letter to CMS urging the agency to apply a shared savings rate of at least the current 50 percent to ensure a viable business model. Many stakeholders also asserted that the proposal to cut potential shared savings in half will certainly deter new entrants to the MSSP ACO program.

A survey of NAACOS members after the proposed rule was released found reduced shared-savings rates for no- and low-risk ACOs was the most troubling aspect of CMS’s proposed changes. A 2016 NAACOS survey found that ACOs invested an average of $1.6 million into operational costs, according to Gaus’ statement.

It appears CMS responded to industry feedback and modified the policies regarding shared savings rates. “In response to commenters’ suggestions, the policies we are finalizing include modifications to our proposal in order to allow all ACOs participating in the BASIC track’s glide path the opportunity for greater potential reward through relatively higher shared savings rates based on quality performance: up to 40 percent for one-sided models and up to 50 percent for all two-sided models,” CMS said in its fact sheet about the final rule.

According to Verma, in her blog post, these modifications “strengthen the on-ramp to the program while rewarding ACOs that take on greater risk with higher shared savings rates.”

“We strongly support CMS’s decision not to reduce shared savings rates to as low as 25 percent. CMS’ final rule sets the savings rates at either 40 or 50 percent, and we look forward to working with CMS to monitor any impact that this decreased rate may have for new ACOs wanting to join the program,” Gaus said.

The reduction in potential shared savings, as currently proposed, is a “total deal breaker,” Gaus said in that interview, while also indicating that there is no wiggle room for a number between 25 and 50 percent. “If they don’t go back to 50 percent, we will see a long-term significant shrinkage in the ACO movement and a significant emanation of accountable care,” Gaus said in that earlier interview.

In CMS’ proposed rule, the agency internally estimated that more than 100 ACOs would drop out of the program over the next 10 years. The federal agency has taken a firm stance that upside risk-only ACOs have not been effective. A such, CMS seems to be fine with these ACOs leaving the MSSP— by far the largest federal ACO model, with 561 participants—if they are unwilling to take on more risk.

Other Specifics of the Final Rule

While ACO contracts normally renew at the start of the year in January, CMS is giving ACOs whose contracts expire this December a one-time-only six-month extension, until July 2019, so they can apply for a new agreement beginning on July 1, 2019, if they so choose. Moving forward, CMS would resume the usual annual application cycle for the performance year starting on January 1, 2020 and subsequent years.

CMS also finalized revisions to the program’s benchmarking methodology, which incorporates differing amounts of ACO historical experience and regional performance depending on the ACO’s agreement period. The redesign of the program will provide for more accurate benchmarks for ACOs, CMS stated.

Under the final rule, ACOs are required to provide beneficiaries in an ACO with a written notice in person or electronically through email or a patient portal that they are participating in an ACO and what participating in an ACO means for their care.

The final rule also increases flexibility for certain performance-based risk ACOs to encourage innovation and expand access to high-quality services that are convenient for patients, including telehealth services provided at a patient’s place of residence. CMS also is allowing risk-based ACOs to offer new incentive payments to beneficiaries for taking steps to achieve good health such as obtaining primary care services and necessary follow-up care.