Next Generation Accountable Care Organizations Save $164M

December 27, 2018 - Accountable care organizations (ACOs) assuming the highest levels of financial risk in Medicare saved $164 million during their second performance year, CMS recently reported.

Medicare ACOs bring together groups of physicians, hospitals, and other healthcare providers and suppliers to voluntarily deliver higher-quality care at lower costs to Medicare fee-for-service patients. The Next Generation program is unique because it builds on previous and existing ACO programs by offering higher levels of financial risk and reward for participating organizations.

Starting in 2016, Next Generation ACOs chose either shared savings and losses of up to 80 percent in years 1 through 3, then up to 85 percent in years 4 and 5, or shared savings and losses up to 100 percent.

In contrast, the highest level of financial risk in Medicare’s largest ACO initiative, the Shared Savings Program, is up to 75 percent.

By the second performance in 2017, the Medicare ACOs taking on the highest levels of financial risk through the Next Generation model realized significant savings and improved care quality, CMS announced.

“Next Generation model requires participants to assume the highest level of risk out of all CMS ACO programs, and in exchange for this level of risk, Next Generation ACOs receive greater regulatory flexibility,” the announcement stated. “The Next Generation ACO Model actuarial results show that net savings to the Medicare Trust Funds from the model in 2017 were more than $164 million across 44 ACOs. The Model is also showing strong performance on quality metrics.”

The ACOs saved more compared to their first performance year in 2016 when the organizations generated net savings of $62 million.

CMS attributes the success of the Next Generation ACO program to the higher levels of financial risk.

“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,” the federal agency stated in the announcement. “Data on ACO performance shows that over time ACOs taking accountability for costs perform better than those that do not.”

CMS is specifically concerned that the Medicare Shared Savings Program is not producing the savings results the agency expects because of the program’s lower financial risk levels. For example, data on the program’s 2017 performance year showed that over 470 participating ACOs generated $314 million in net Medicare savings.

During the same year, 44 Next Generation ACOs produced about half the amount of net savings to the largest public healthcare payer.

To ramp up savings in the Shared Savings Program, CMS recently finalized an overhaul of the large Medicare ACO initiative. Starting in July 2019, the program will be known as the Pathways to Success initiative and the new iteration will reduce the amount of time ACOs can take in an upside-only financial risk track.

Pathways to Success will decrease the time in an upside-only financial risk track from six years to three years, at most, for certain ACOs. Organizations not considered low-revenue or physician-led will only have two years to assume downside financial risk, and those already participating in an upside-only track in the Medicare Shared Savings Program will have one year.

“After six years of experience, the time has come to put real ‘accountability’ in Accountable Care Organizations. Medicare cannot afford to support programs with weak incentives that do not deliver value,” stated CMS Administrator Seema Verma when announcing the Pathways to Success proposal.

 “ACOs can be an important component of a system that increases the quality of care while decreasing costs; however, most Medicare ACOs do not currently face any financial consequences when costs go up, and this has to change.”

CMS anticipates the new iteration of the Medicare Shared Savings Program to save nearly $3 billion over ten years.