A Look at ACO Payment Models

Accountable Care Organizations (ACOs) are a type of healthcare organization made up of coordinated medical practitioners and hospitals that share medical and financial responsibility when caring for patients. A primary care physician acts as the main point of contact.

ACOs provide coordinated care specifically for Medicare patients. The organization looks out for the Medicare patient’s best interest by coordinating care making sure the patient gets the correct care in a timely fashion while at the same time decreasing the risk of medical errors and duplicate services that needlessly increase costs.

ACOs are voluntary all around. Healthcare providers make the choice of whether or not to join an ACO. And, beneficiaries (patients) can opt to see doctors and specialists within a particular ACO or seek medical care from an individual Medicare provider.

Medicare payments to the ACO are directly tied to cost of care and quality. The money that is saved through the ACO’s efforts is shared with the organization in the form of a bonus as long as it also provides high quality care. The goal is to keep healthcare costs low by creating a payment system based on the quality of care, not the quantity.

Clearly ACO programs have payment models that are different from the norm, yet they are now a significant segment of healthcare. According to Kaiser Health News, there were at least 744 ACOs that served approximately 6 million Medicare patients in 2015. Since then that number has grown significantly.

This article provides information on ACO payment models and explains how they work.

ACO Payment Model Definitions and Terms

What is MACRA?

MACRA stands for the Medicare Access and CHIP Reauthorization Act of 2015. The act established the Quality Payment Program that awards the bonuses to ACOs that participate in an alternative payment model (APM). MACRA also outlines the requirements that ACOs must meet to receive financial bonuses from Medicare.

In essence, MACRA has changed the way Medicare makes payments, focusing compensation on quality over quantity.

MACRA regularly undergoes updates, which means ACOs must ensure they are still compliant.

What is QPP?

QPP stands for Quality Payment Program. The program establishes payment increases to clinicians based on whether they meet quality care benchmarks. It also reduces payments if a clinician fails to meet the care standards. Within the QPP, clinicians can choose to be a part of MIPS or an advanced alternative payment model.

Participation in the QPP consists of four steps:

  • Collecting quality data
  • Report care data
  • CMS feedback on the data
  • MIPS payment adjustment or 5% incentive payment for advanced APM participants.

What is MIPS?

MIPS stands for Merit Based Incentive Payments System. The system includes a number of ACO quality programs and consolidates the Physician Quality Reporting System, Value-Based Payment Modifier, and Meaningful Use of EHRs.

It’s the default program for Medicare physicians who aren’t a part of an advanced alternative payment model.

What is MAQI?

MAQI stands for Medicare Advantage Qualifying Payment Arrangement Incentive.

What Is an Independent Practice Association (IPA)?

Group of independent doctors or an organization that contracts independent doctors to provide services for an ACO at either a fixed rate, fee-for-service or per capita rate. The goal is decrease costs like overhead.

What Is a Clinically Integrated Network (CIN)?

Group of doctors, specialist and/or doctors that join a network for the express purpose of simultaneously reducing costs and improving care. It’s considered an actual legal entity.

CIN are similar to ACOs but they serve all patients and aren’t regulated by MACRA rules. CINs will sometimes act as a physician network for an ACO or a starting point for creating an ACO.

Joining a CIN or ACO helps individual physicians and specialists to meet MACRA regulations.

Payments Models Inside ACOs

One question many Medicare patients have is, are there different types of ACOs? The answer is yes, and each one is unique. There are also different types of ACO programs for payment.

Traditionally, Medicare used a fee-for-service payment model. In this system if a service was rendered (i.e. test or procedure), a fee was paid for the service. The problem with that model is some doctors and hospitals provided unnecessary services, which drove up costs.

Medicare still uses fee-for-service payments with ACOs, but they also offer bonus programs as a way to encourage healthcare groups to focus on quality not quantity when it comes to treatment, illness prevention and managing chronic diseases. The bonus programs also aim to keep costs from rising.

With this payment system, ACOs stand to make more by keeping patients out of the hospital rather than in it.

There is some financial risk for the ACOs. It’s possible the bonuses won’t fully cover investments that are made to improve coordinated care, such as hiring managers or implementing software for sharing medical records.

In some programs, an ACO can also be penalized if it doesn’t meet quality of care and savings benchmarks. This helps avoid the potential problem of healthcare providers stinting care in an effort to reduce costs.

The Medicare Shared Savings Program

What is Shared Savings? It’s a Medicare program that was created by the Affordable Care Act (ACA).

The Medicare Shared Savings Program (MSSP) has three primary goals:

  • Better care for individuals
  • Better population health
  • Lower growth in healthcare expenditures

The MSSP is what officially establishes an ACO and provides oversight. The program itself is considered an alternative payment model for healthcare since it’s responsible for creating ACOs and establishing the requirements for pay based on quality of care.

In order to receive bonus payments, ACOs must apply to participate in the MSSP. The agreement period for participation is 5 years.

The MSSP offers ACOs two “tracks” for participation. There’s the BASIC track and an ENHANCED track. The ENHANCED track has more financial risk, but also a bigger potential reward.

Since MSSP took effect the number of ACOs in the US has dramatically increased. In 2011, there were just 64 recognized ACOs. By 2016, that number had risen to 838 ACOs.

Legislation requires that any medical professional or hospital wishing to join an ACO sign an ACO participant agreement. This is a written agreement between the participant and the ACO that states the participant will comply with all Medicare Shared Savings Program requirements.

The participant will then be added to an ACO Participant List that must be kept up-to-date.

The MSSP has tools to help healthcare providers find local ACOs that they can join.

Advanced Alternative Payment Model (APM)

An advanced alternative payment model (APM) is a program that awards bonuses to ACOs. Physicians who participate in an APM are exempt from Merit Based Incentive Payments System (MIPS) regulations.

Participation in an APM makes an ACO eligible for a 5 percent bonus annually from 2019 through 2024.

MACRA legislation establishes the qualifications and requirements of APMs. Bonus payments hinge on the ACO meeting all the requirements. It can be difficult for some ACOs to meet the qualifications because it usually involves financial investment upfront. When that’s the case, they can participate in the MIPS.

For example, ACOs may find it financially difficult to make the technology investments needed for population health management.

ACO Investment Model

As noted above, creating an ACO and meeting the requirements can prove to be difficult for some. It’s particularly difficult in underserved and rural areas.

The ACO Investment Model (AIM) is a program that encourages the creation of ACOs in these areas by issuing prepaid shared savings bonuses. This gives healthcare providers the capital they need to make investments in order to meet MSSP requirements.

AIM provides three types of payments:

  • Varying monthly payment dependent on ACO size
  • Upfront variable payment based on the number of potential beneficiaries (patients)
  • Upfront fixed payment

The ACO Investment Model is also used to get more established ACOs to progress into arrangements with greater risk.

AIM provides two types of payments for ACOs that started participating in the MSSP between 2012-1014:

  • Varying monthly payment based on the size of the ACO
  • Upfront variable payment based on the number of preliminary beneficiaries

ACOs must apply for AIM. Preference is given to ACOs that have consistently hit benchmarks, proven the quality of their care and demonstrate the most financial need. ACOs also need to submit a proposal outlining how the funds will be invested.

Pioneer ACO Model

This is a secondary program to the Medicare Shared Savings Program that was created by the Centers for Medicare & Medicaid Services (CMS). The program is designed for higher performing ACOs and similar organizations that have experience offering coordinated care.

The Pioneer ACO model tests different payment structures to see which one is best at helping ACOs provide higher quality care for a lower cost. It’s managed by the Innovation Center, which exists for the express purpose of testing new payment models.

In total, 19 healthcare organizations were selected to participate in the Pioneer ACO model program. Each organization had to meet a number of requirements and had to have 15,000 beneficiaries if located in an urban setting or 5,000 beneficiaries if located in a rural area.

In general, for the first few years the payment arrangement of the Pioneer ACO model has higher levels of shared savings and risk when compared to the Medicare Shared Savings Program. In the third year ACOs can move into a population-based payment arrangement if they’ve earned savings in the first two years.

Next Generation ACO Model

The CMS has taken what it has learned from the Shared Savings Program and Pioneer ACO model to come up with the Next Generation ACO Model. It’s meant to be the top level ACO Model with the highest healthcare quality standards and greatest opportunities.

The Next Generation Model is designed for experienced ACOs that know how to coordinate care for large patient populations. The payment model requires that the ACO take on more risk and investment, but the rewards are greater than the other models.

The goal of the Next Generation ACO model is determine if higher reward paired with complimentary tools will lead to better outcomes in Medicare patient care at an overall lower cost.

Because high quality care is a cornerstone of the Next Generation Model (NGM), a number of patient protections have been factored in. Patient experience ratings are also part of the care quality metrics. These ratings for the ACOs are published for the public on the CMS website.

ACOs must apply to be part of the Next Generation Model. The CMS notes when ACOs have been accepted. Organizations that are accepted for this model are committed for three performance years. After that, the ACO can opt to extend participation for another year for up to two years.

Unlike other programs, the Next Generation Model has what’s called benefit enhancements. These are the equivalent of waivers for some Medicare service rules. Another benefit is that the ACOs can earn up to 100 percent of the savings.

This Model is set to run through 2020.

The Next Generation ACO Final Rule

The final rule is a set of proposed changes for the Shared Savings Program that were announced in December 2018. One of the most notable parts of the final rule is that it sets the shared savings for ACOs at 40 or 50 percent.

The CMS also made modifications to risk adjustment and removed the cap on downward adjustment.

Another part of the final rule was publishing data on the Next Generation Model results. It showed that the benefits of the Next Gen Model are a fair trade-off for the savings these advanced ACOs produce. In 2017 alone, 44 ACOs in the Next Generation Model saved $337 million.