This is the second article in our series on the new “Pathways” rules for Accountable Care Organizations. Our first article in the series can be found here.

The Centers for Medicare and Medicaid Services (CMS) released a report on August 27, 2018, showing Next Generation accountable care organizations (ACOs) produced net savings of $62 million in 2016 while maintaining quality of care.  CMS Administrator Seema Verma pointed to the savings as evidence that ACOs taking two-sided risk succeed, according to a CMS press release. 

Next Generation ACOs take on the highest levels of risk—both upside and downside—of any CMS program ACOs.

CMS launched the Next Generation ACO Model in 2016 to encourage ACOs to step up to greater risk sharing arrangements. In the Model, ACOs take on the greatest level of risk, up to 100 percent, including downside risk. In return for their acceptance of higher levels of risk, which could result in maximum gains, the Next Generation Model ACOs receive a number of benefits, including greater flexibility for managing their patient populations.

According to the first-year performance report, 1.5 million Medicare beneficiaries are covered in the Next Generation Model ACOs.

The Next Generation ACO performance report followed the release of new rules for another Medicare ACO program, the Medicare Shared Savings Program. The new rules were written to move ACOs more quickly into two-sided risk arrangements.  CMS is calling the new ACO framework “Pathways to Success”.

As originally launched in 2012, the voluntary Shared Savings Program encouraged providers to form ACOs and earn more money for achieving improved quality and slower growth in Medicare spending. The program sought to move provider reimbursement away from volume-based payments (fee-for-service Medicare) to payments based on value and outcomes.

The original program has three tracks, each with increasing levels of provider accountability: Track 1, in which ACOs can receive a limited share of cost savings but bear no risk for financial losses—i.e., upside risk only; Track 2, in which ACOs take on both upside risk for savings and downside risk in the event of any losses; and Track 3, which also involves upside and downside risk but in greater measure than Track 2. Track 3 ACOs can earn the greatest share of savings, but they are also at risk for the greatest share of losses when expenses exceed targets.

To encourage participating ACOs to take on two-sided risk, the Shared Savings Program limits Track 1 ACOs to two three-year periods, after which the ACOs must move into two-sided risk arrangements.

In January 2018, CMS created an additional option, Track 1+, which adds the lowest level of downside risk to Track 1. Track 1+ was designed to ease more ACOs into downside risk arrangements.

As of 2018, 561 ACOs provide care to 10.5 million Medicare beneficiaries in the Shared Savings Program. To CMS’ disappointment, 82 percent of program ACOs chose Track 1, sharing only in any upside gains. According to CMS, the performance of upside-only ACOs showed increased Medicare spending, compared to their benchmarks, and may have encouraged market consolidation, which reduces competition and consumer choice. Two-sided risk ACOs, on the other hand, showed reduced Medicare spending and improved quality, according to CMS.

Evidence of Medicare ACOs’ risk aversion was revealed through a May 2018 National Association of ACOs survey. According to the survey report, 71 percent of Track 1 ACOs who were at the end of their two three-year terms were considering leaving the program instead of taking on downside risk.

With the new Pathways to Success rules, CMS is seeking to further expand two-sided risk sharing by injecting features and principles of the Next Generation Model into the Medicare Shared Savings Program. The rules, according to CMS, will speed ACO movement into performance-based risk-sharing agreements, improving the odds of reducing Medicare spending while improving the quality of care.

If adopted, the Pathways to Success model is projected to save $2.2 billion over 10 years, according to CMS. To realize the savings, CMS is replacing Track 1 and Track 2 of the Shared Savings Program with a new BASIC Track, featuring the same risk level as Track 1+. Track 3 will be retained and renamed ENHANCED Track.

To further combat ACO risk aversion, the Pathways rules limit the maximum upside-risk-only period to two years. Current ACOs in upside-risk-only arrangements are limited under the new rules to a single year with upside risk only. The length of the ACO agreements with CMS, however, are expanded from three years to five years.

As discussed in our first article in this series, the Pathways rules also revise the methodology for setting the ACO benchmarks that determine whether ACO performance warrants the sharing of gains or losses.  Further, the rules grant two-sided risk ACOs greater flexibility in choosing how Medicare beneficiaries are assigned, as well as the ability to make incentive payments attached to qualifying primary care services to certain beneficiaries.  Two-sided ACOs receive other benefits under the rule, including the ability to receive payment for a broader array of telehealth services.    

A 60-day comment period on the Pathways rules ends October 16.  CMS has proposed a July 1, 2019, start date for new ACO agreements under the Pathways rules.  Existing ACOs whose agreements will expire at the end of 2018 will receive a six-month extension.

Husch Blackwell attorneys are already advising ACOs — and prospective market entrants — regarding the Pathways to Success framework. Husch Blackwell attorneys will continue tracking the Pathways to Success developments and work with existing and future ACOs to evaluate options under the new risk-sharing rules. If we can assist in any of your ACO questions, please let us know.