APM Issue Brief: Accountable Care Organizations (ACO) Overview

Accountable Care Organizations (ACOs) in Medicare include physicians, hospitals and other health care providers who are collectively accountable for providing coordinated, high-quality care at lower costs to Medicare fee-for-service beneficiaries. Payments to ACOs incorporate financial incentives in the form of shared savings or losses (also referred to as bonuses or penalties) for performance on identified spending and quality metrics. The Centers for Medicare and Medicaid Services (CMS) offer several initiatives designed to support newly forming and existing ACOs. The ACO initiatives most relevant for ACC members are the Medicare Shared Savings Program (MSSP), the ACO Investment Model and the Next Generation ACO Model. Each of these programs vary by level of financial risk and the level of experience organizations forming ACOs have in managing population health, the size of population covered, ACO composition, payment mechanism and capital investment from CMS.

For CY 2018, MSSP Tracks 1+, 2, 3 and the Next Generation ACO models are considered Advanced Alternative Payment Models under the Quality Payment Program.

Program Purpose: Designed to reduce fragmented care and encourage health care providers to become accountable for an entire patient population.

Intended ACO Participants

  • MSSP: Designed for organizations in the early stages of managing population health or with less experience managing financial risk that are responsible for managing the health of fee-for-service beneficiaries.
  • ACO Investment Model: Designed to encourage MSSP ACO formation in rural and underserved areas and encourage current MSSP ACOs to take on higher levels of risk.
  • Next Generation ACO Model: Designed for ACOs ready to take on higher levels of financial risk; includes elements similar to Pioneer ACOs.

Duration and Number of Participant ACOs
As of December 2017

All performance periods are three years with one exception, Next Generation ACOs that start their performance period in 2017 have a performance period of two years.

  • MSSP: 480 participating ACOs; 438 participants are in Track 1; 6 participants are in Track 2; and 36 participants are in Track 3. The first cohort began in April 2012.
  • ACO Investment Model: 45 participating ACOs. The first cohort began in April 2015.
  • Next Generation: 44 participating ACOs. The first cohort began Jan. 2016.

Core Delivery Elements

ACOs manage the continuum of care by functioning similarly to an integrated delivery system. They are of sufficient size to support comprehensive performance measurement and must distribute shared savings among participants. All ACOs either share upside and/or downside risk with CMS based on the amount of risk agreed upon and their performance against pre-established quality and financial targets that consider both regional and national variation. Sharing upside risk means that participants own share savings with CMS. Sharing upside and downside risk means that participants share savings and losses with CMS. Participants accepting downside risk may need to pay penalties to CMS if performance is worse than expected against financial and quality targets.

Generally, forming an ACO does not preclude participation in other reform efforts. For example, ACOs can be formed in conjunction with other reform efforts such as bundled payments.

Participant Eligibility (ACO Composition)

MSSP, Pioneer and Next Generation ACOs must consist of physician practices, independent physician associations, health systems and/or hospital-physician partnerships and any of these in partnership with other health care facilities. They differ in size requirements.

  • MSSP: ACO covers at least 5000 beneficiaries
  • ACO Investment Model: ACO covers 10,000 or fewer beneficiaries. The ACO must participate in MSSP and cannot include inpatient facilities that are Critical Access Hospitals (CAH) or non-CAH inpatient facilities that have 100 or more beds.
  • Next Generation: ACO covers 10,000 or fewer beneficiaries.

Payment Methodology

All models are claims based. Payment for participant ACOs in the Next Generation model is based on prospective beneficiary assignment. Payment in MSSP and the ACO Investment Model is based on preliminary prospective assignment with retrospective reconciliation. This occurs when CMS creates a list of beneficiaries likely to receive care from an ACO based on recent primary care utilization, periodically updates the list, and at the end of the performance year, compares this list with the actual list of beneficiaries receiving care from the ACO.

MSSP: ACO Models in MSSP vary according to the type and amount of risk that participants must accept.

  • Track 1 ACOs accept only upside risk and do not assume downside risk (shared losses) if they do not lower growth in Medicare expenditures.
  • Track 1+ ACOs accept upside risk and limited downside risk (less than Track 2 or Track 3).
  • Track 2 ACOs may share in savings or repay Medicare losses depending on performance. Track 2 ACOs may share in a greater portion of savings than Track 1 ACOs.
  • Track 3 ACOs may share in savings or repay Medicare losses depending on performance. Track 3 ACOs take on the greatest amount of risk, but may share in the greatest portion of savings if successful.

ACO Investment Model: CMS provides upfront capital investment. For MSSP participant ACOs starting after 2015, CMS will provide an upfront fixed payment, upfront variable payment and a monthly payment of varying amount depending on ACO size.

Next Generation: Offers the option of two risk arrangements: the first offers shared savings and losses of up to 80 percent, the second offers shared savings and losses of up to 100 percent.

Beneficiary Notification

ACOs must provide either verbal or written notification to beneficiaries.

Quality and Metrics Reporting

CMS has established a required set of 33 quality measures, each belonging to one of four categories: patient and caregiver experience; care coordination and patient safety; preventive health; at-risk population/frail elderly health. CMS is already using measures from a core set of ACO/Patient-Centered Medical Home measures released by the Core Measure Quality Collaborative in Feb. 2016. Through the public comment rule-making process, CMS intends to implement new core measures across applicable Medicare quality programs as appropriate, while eliminating redundant measures that are not part of the core set.

Last updated Jan. 29, 2018.