CMS Announces Next Generation ACO with Increased Risk and Reward

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On March 10, 2015, the Centers for Medicare & Medicaid Services announced its “Next Generation ACO Model,” which CMS hopes will provide more experienced accountable care organizations an opportunity to assume higher levels of financial risk, and earn greater rewards, than CMS’s current ACO programs, the Pioneer ACO Model and the Medicare Shared Savings Program. CMS’s stated goal for the Next Generation Model is to test whether increased financial incentives for ACOs can help improve health outcomes and lower expenditures for Medicare fee-for-services beneficiaries. CMS anticipates 15 to 20 ACOs will participate in the Next Generation Model.

Next Generation ACOs must have at least 10,000 beneficiaries (double the count required for the MSSP Model) and have a majority of their total patients (Medicare and commercial) covered under outcomes-based contracts. ACOs currently participating in the Pioneer Model and MSSP Model are eligible to apply; however, Next Generation ACOs may not simultaneously participate in the Next Generation Model and one of the current ACO models. Next Generation ACO participants may, however, participate in the Bundled Payments for Care Improvement Initiative.

Prospective Benchmarking

In a change from current ACO models, which calculate a final benchmark—the performance standard against which an ACO’s performance is measured—at the end of each performance year, CMS will establish the final benchmark for Next Generation ACOs before the start of each performance year using one year of historical expenditures. CMS will trend forward each Next Generation ACO’s benchmark using a regional projected trend, which CMS will determine using a methodology similar to that used to determine the national projected trend for Medicare Advantage. In addition, the Next Generation Model will not utilize a minimum savings rate. CMS will instead determine a discount for each Next Generation ACO based on the ACO’s relative quality and regional and national efficiency.

New Risk Arrangements

Next Generation ACOs will have two risk/reward arrangements from which to choose, each of which offers a higher shared savings rate than in the Pioneer or MSSP Models. Under “Arrangement A,” ACOs will share 80 percent of shared savings or losses in 2016–2018, and 85 percent of savings or losses in years 2019–2020. Under “Arrangement B,” ACOs will share in 100 percent of savings or losses. Under each arrangement, savings and losses will be capped at 15 percent of the annual benchmark.

New Payment Mechanisms

CMS will offer Next Generation ACOs the option to choose between four payment structures:

  1. Normal FFS: The first option offers traditional fee-for-service payment through normal payment channels—i.e., Original Medicare.

  2. Normal FFS + Monthly Infrastructure Payment: The second option offers traditional fee-for-service payment with a supplemental, per-beneficiary per-month payment that is unrelated to claims. ACOs selecting the second option will receive PBPM payments up to a maximum of $6 per beneficiary per month; however, CMS will recoup in full PBPM payments from the ACO during the year-end reconciliation regardless of the ACO’s savings or losses. CMS reasons that despite recoupment the PBPM payment will ensure consistency in cash flow, which will encourage the ACO to invest in its infrastructure.

  3. Population-Based Payment: The third option is a population-based payment in which an ACO may specify a percentage of the normal fee-for-service payments due to ACO provider/suppliers that CMS will then deduct and pay over to the ACO on a monthly basis. These payments are also subject to recoupment during the year-end financial reconciliation.

  4. Capitation: The final option, which will be available to ACOs beginning in 2017, is a capitated payment structure based on the estimated total annual expenditures for Next Generation ACO beneficiaries. Next Generation ACOs electing this option will receive a PBPM payment with some money withheld to compensate care provided by non-ACO providers/suppliers. Under this option, each ACO will be responsible for paying its ACO providers/suppliers, and CMS will continue to pay normal fee-for-service claims for care provided to beneficiaries by providers and suppliers who are not participating in the ACO’s capitation system.

Beneficiary Alignment

The Next Generation Model will use the same plurality-of-service–based assignment methodology as the Pioneer Model to prospectively assign beneficiaries to Next Generation ACOs. In addition, Next Generation ACOs may offer currently and previously aligned beneficiaries the opportunity to align voluntarily with the ACO. Voluntary beneficiary alignment elections will be effective for the year following the election and will supersede claims-based attribution. To further increase beneficiary alignment, CMS will make direct payments to each Next Generation ACO beneficiary who receives a requisite threshold of services from their Next Generation ACO. CMS anticipates these payments will be approximately $50 per year and will be made independent of cost-sharing requirements.


CMS will accept ACOs into the Next Generation ACO Model through two rounds of applications in 2015 and 2016, with participation expected to last up to five years. For consideration in the first round, interested organizations must submit a Letter of Intent by May 1, 2015, and an electronic application by June 1, 2015. Round-two Letters of Intent and applications will be made available in March 2016, with Letters of Intent due May 1, 2016 and applications due June 1, 2016.

If you have any questions regarding the Next Generation ACO Model or other topics related to accountable care organizations or clinically integrated networks, please contact Kevin Campbell, Scott Lenz, Kathryn Harvey or one of the Healthcare Practice Group members at Bradley Arant Boult Cummings LLP.