Next Generation ACO Model - Financial & Alignment Frequently Asked Questions


Is this a capitated ACO model?

In Performance Year 2 (2017), Next Generation ACOs will have the option to participate in the capitation payment mechanism. Capitation, now referred to as All-Inclusive Population-Based Payment (AIPBP), will be one of four available payment mechanisms from which the ACO will select. AIPBP in the Next Generation ACO Model is a payment mechanism, which is distinct from the risk arrangement that the ACO selects. All ACO benchmarks will be calculated the same way, independent of the respective payment mechanism and risk arrangement an ACO selects. Next Generation ACOs will not be required to elect AIPBP and may continue to participate in any of the other three payment mechanisms once AIPBP becomes available.

AIPBP will function by estimating total annual expenditures for aligned beneficiaries and paying that projected amount to the ACO in a per-beneficiary per-month (PBPM) payment with some money withheld to cover anticipated care by providers not participating in capitation. A Next Generation ACO participating in AIPBP will be responsible for paying claims for its Next Generation Participants and Next Generation Preferred Providers with whom the ACO has written agreements regarding capitation.


What happens if the projected trend is higher or lower than the experienced trend?

Under limited circumstances, CMS would adjust the trend in response to price changes that have a substantial impact on ACO expenditures. Trend adjustments are intended to prevent ACOs from being unfairly penalized or rewarded for major payment changes beyond their control. T The terms and conditions for trend adjustments in this Model will be in the Next Generation ACO Model participation agreement.


How does this model address concerns of current ACOs that it becomes more difficult to earn savings every year?

The Next Generation ACO Model addresses this concern in two ways: (1) by incorporating relative efficiency into benchmark calculations; and (2) through the development of a long-term benchmarking methodology for PY4 and PY5.

As in current ACO models, the Next Generation ACO Model will continue to use historical expenditures to develop the ACO’s baseline and benchmark for Performance Years 1 through 3. The baseline is risk-adjusted and trended, as described in the RFA, before regional and national efficiency adjustments are applied. Under this approach, ACOs achieve savings through year-to-year improvement over historic expenditures (improvement), but the magnitude by which they must improve will vary based on relative efficiency (attainment). This recognizes past achievements of efficient ACOs.

CMS may employ an alternative benchmarking methodology in PY4 and PY5 of the Model. The principles for this alternative methodology, which focus on de-emphasizing historical expenditures and more heavily weighting attainment, are described in the RFA.


How does this model address concerns that high turnover in beneficiary alignment may hamper the effectiveness of care interventions and thus limit the gains for these investments?

The Next Generation ACO Model seeks to mitigate fluctuations in the aligned beneficiary population and respect beneficiary preferences by supplementing claims-based alignment with voluntary alignment. Under voluntary alignment, Next Generation ACOs may offer beneficiaries the option to confirm or deny their care relationships with specific Next Generation Participants. This beneficiary input will be reflected in alignment for the subsequent year (e.g., during PY1, beneficiaries can confirm relationships that affect alignment for PY2, given such beneficiaries meet other eligibility criteria). Confirmations of care relationships through voluntary alignment supersede claims-based attributions. For example, a beneficiary who indicates that a Next Generation Participant is her main source of care may be aligned with the ACO, even if claims-based alignment would not result in alignment. This enables more alignment continuity across performance years.


What does it mean that the Model uses a cross-sectional benchmarking approach?

The Next Generation Model benchmarking approach is cross-sectional, which means a baseline is calculated using beneficiaries that would have been aligned to the ACO in the time period before participation in this Model. Alignment is once again run prior to the start of each performance year to produce the list of prospectively aligned beneficiaries. Some of the same beneficiaries may be aligned in both the baseline period and performance year, but others who were aligned in the baseline period may no longer be seeking care from the ACO or may no longer be alignment eligible. Thus the populations between the baseline period and the performance period are not exactly the same, and risk adjustment is used to adjust for health status differences between the two populations.


Will the baseline be static, or will it change during the initial three performance years (2016-2018)? If our participant list changes, does our baseline get recalculated?

The baseline year will be static for the initial three years of the model (2016-2018). However, the baseline dollar amount could change because CMS will use an ACO’s most recent Participant list to calculate the beneficiaries that would have been aligned in the baseline year and their associated expenditures. The baseline will be calculated to be used in benchmark setting for PY1 based on the PY1 participating Participants. In PY2, the same baseline year of historical data is used, but the baseline will once again be calculated, this time using the participating Participant list for PY2 to reflect any changes. The regional and national efficiency adjustments will be recalculated each year in accordance with the recalculation of the baseline.


How is risk adjustment used in calculating the Next Generation benchmarks? Which risk scores are used?

Risk scores are used to adjust the benchmark and reflect changes in beneficiary acuity between the baseline and performance years. CMS incorporates risk scores into quarterly report financial reports according to the schedule of when risk scores are computed. The final performance year risk score for 2016 (the “2016 risk score”) is not available until spring 2017 and thus will not be incorporated into quarterly financial reports until that time.

Risk scores for a given year are not available until spring of the following year. Thus 2016 risk scores are not available until spring 2017.

  • Risk scores are predictive in the sense of using diagnoses for claims incurred in the prior year (for 2016 risk scores, claims incurred in 2015). Fully complete claims for 2015 are not available until after the end of 2016 because of run-out on claims incurred in 2015.
  • Risk scores use beneficiary-level data which is not completely reported and available until after the end of the year for which risk scores are produced (e.g., after the end of 2016 for 2016 risk scores). For example, the HCC risk adjustment system uses 9 separate HCC models for different types of beneficiaries (e.g., community, institutional, new enrollee, etc.). The assignment of a beneficiary into one of these models – and thus the risk score for a given beneficiary – is partially dependent on information that is not completely determined until the final risk score computation is made.

This timeline for providing risk scores is currently a common constraint across all CMS ACO models and programs.


Is the 3% HCC risk score cap 3% per year or 3% per contract?

The 3% risk adjustment cap applies to the change in risk scores for each performance year as compared to the baseline. For example, if there was 2% growth in the first performance year as compared to the baseline, the ACO’s risk score would reflect the entire 2% growth because that is below the cap. If in the second performance year, the growth since the baseline is now 4%, which is over the cap, the ACO’s risk score would increase by 3% (the capped limit). The cap also applies to HCC score decreases. For example, if an ACO’s risk score for a given performance year has decreased by 4% as compared to the baseline, the risk score decrease will be capped at 3%.


Is Part D prescription drug spending included in the benchmark?

Part D prescription spending is not included in Next Generation ACO benchmarks at this time. ACOs are only accountable for total Parts A and B expenditures for aligned beneficiaries. CMS continues to look at options for Part D integration for future Model years.


The Next Generation financial model includes adjustments for quality and efficiency. How do these adjustments affect the benchmark calculation?

The benchmark calculated for each ACO will include a discount based on quality, regional efficiency, and national efficiency. These adjustments are applied once the baseline has been calculated and the regional projected trend and risk adjustment have been applied. For example, if the baseline, trend, and risk adjustment calculations determine that an ACO is projected to spend $10,000 per beneficiary and the ACO’s discount is determined to be 2%, the final benchmark is $9,800 per beneficiary.


With the discount replacing the MSR/MLR, how does that work on the loss side? For example, is the ACO exposed to first dollar losses based on the discounted benchmark or the undiscounted benchmark?

The discount are adjustments built into the benchmark, so all ACO benchmarks inherently include a discount—there is no undiscounted benchmark. Next Generation ACOs will receive first dollar shared savings for spending below the benchmark and are accountable for first dollar shared losses for spending above the benchmark.


Do infrastructure payments count as a medical expense in the reconciliation to determine shared savings/losses? Must all infrastructure payments be repaid to CMS?

No, infrastructure payments do not count in the total Parts A and B expenditures used to determine an ACO’s savings or losses. However, yes, all infrastructure payments must be repaid to CMS, and ACOs that elect to receive infrastructure payments will be required to have in place a larger financial guarantee to assure this repayment.


AIPBP, is available in 2017. If an ACO starts in 2017, may that ACO immediately enter into AIPBP? Do ACOs have to participate in the lower risk arrangement before entering into AIPBP?

Risk arrangement and payment mechanism are independent in the Next Generation Model. ACOs in either risk arrangement may select any of the available payment mechanisms, including AIPBP in 2017, and vice versa. Beginning in 2017, all Next Generation ACOs (regardless of start date) will have the option to elect AIPBP. ACOs are not required to elect AIPBP and could remain in any of the other three available payment mechanisms in 2017.


Will ACOs participating in AIPBP be allowed to determine payment rates for providers under capitation agreements, or is it mandated that current CMS Medicare payment rates be applied? How will the beneficiary liability be calculated?

Yes, ACOs will be allowed to determine payment rates for providers under capitation arrangements and will not be required to pay capitated providers 100 percent of FFS rates as long as payment arrangements are consistent with all applicable laws. Additional financial requirements for ACOs participating in AIPBP will be described in the Model’s participation agreement prior to the start of AIPBP. Beneficiary liabilities are not affected by AIPBP and will continue to be calculated based on what Medicare would have paid in the absence of the ACO participating in capitation.


Under Population Based Payments (PBP), will ACOs have the ability to elect FFS reduction percentages at the TIN/NPI level?

Yes, Next Generation ACOs have the ability to differentiate FFS reductions at the TIN/NPI level. The percentage reduction is elected at the TIN level, but it is not required that each individual NPI under the TIN have the FFS reduction.


Will Payment Mechanism 2, normal FFS plus infrastructure payments, also require discounted FFS payments to participating Participants?

No, infrastructure payments do not affect FFS claims processing. All providers’ FFS claims are submitted and paid as normal, but the ACO also receives a monthly infrastructure payment.


Can an ACO change their selected payment mechanism during the three year Model agreement period --e.g. start with FFS and then move to PBP? Will CMS allow an ACO to opt into multiple payment mechanisms simultaneously?

Yes, each year the ACO will have the ability to elect its payment mechanism for the upcoming performance year. ACOs are not required to move from normal FFS to any of the other payment mechanisms. No, each Next Generation ACO will elect one payment mechanism for a given performance year.


Under PBP and AIPBP, CMS will project the amount of spending that will occur from participating providers to pay the monthly amount to the ACO. How will CMS make this determination?

Each year, Next Generation ACOs will select a payment mechanism for the upcoming performance year. If an ACO selects PBP, the ACO must have in place written agreements with all its PBP-participating Participants to accept FFS fee reductions. Likewise, if an ACO selects AIPBP, the ACO will have written agreements regarding capitation with AIPBP-participating Participants and Preferred Providers. CMS will look at past spending for aligned beneficiaries by providers participating in the given payment mechanism to project the percentage of care that those providers will account for in the upcoming performance year and adjust the monthly payment. For example, if, in past years, providers who have agreed to participate in capitation accounted for 75% of aligned beneficiary spending, the monthly payment will reflect an assumption that 75% of care will be from capitated ACO providers and 25% will be from other providers and suppliers.


Are the beneficiary eligibility criteria listed in Section VI.B.2 of the RFA consistent with the Pioneer ACO Model?

Yes. The Next Generation Model will use the same methodology as the Pioneer Model to prospectively align beneficiaries with Next Generation ACOs, and the beneficiary eligibility criteria are consistent across the two models.


What codes define the evaluation and management (E&M) services that are used for alignment?

Information on claims-based alignment is described in Section VI.B.3 of the RFA. As the Next Generation Model is using the same methodology as the Pioneer Model, the RFA provides a link to the Pioneer methodology paper, which contains the alignment codes.


How does voluntary alignment supplement claims-based alignment?

Each fall, prior to the start of a performance year, CMS will run alignment using a claims-based methodology described in VI.B.3 of the RFA. For PY1, Next Generation ACOs’ beneficiaries will only be aligned through claims (with the exception of ACOs that may transition beneficiaries that voluntarily aligned under another Medicare ACO initiative). Going forward, ACOs will also have the option to allow beneficiaries to voluntarily align for the subsequent performance year. For PY2, a Next Generation ACOs’ aligned populations will consist of beneficiaries aligned through claims along with beneficiaries who, in PY1, elected to voluntarily align with the ACO for PY2. Figure 6.3 in the RFA provides a conceptual timeline for voluntary alignment.


Do Preferred Providers participate in alignment?

No, only Next Generation Participants are used for alignment. Table 5.1 in the RFA depicts the various types of Next Generation entities and their associated functions.


Do service area boundaries apply to voluntary alignment?

Yes. In Section VI.B of the RFA there are general beneficiary eligibility requirements for alignment to an ACO. Those requirements also apply to voluntary alignment.