ACO Payment Arrangements

While ACOs might engage in a variety of payment arrangements with private payors, ACOs are intended under current CMS regulations to enter into payment arrangements in which the ACO’s performance is measured along clinical and quality metrics and the ACO is incentivized to perform well because it receives a portion of the savings that the government realizes from better clinical integration and care. ACOs differ from IPAs, PHOs and PPOs because ACOs (a) must be clinically integrated, (b) in their current form, generally do not contract on a capitated or other risk-basis, and (c) beneficiaries have freedom to pick their providers and are “assigned” to ACOs based solely on the decisions the beneficiaries make and solely for purposes of attributing the savings to one ACO versus another.

CMS currently has two active ACO programs: (1) the Medicare Shared Savings Program (MSSP) and (2) the Advance Payment ACO Model. CMS’ Pioneer ACO program has been closed to new applicants because that program was intended to encourage early adopters of the ACO model.

Under the MSSP, there are two types of agreements which CMS refers to as “tracks.” Under Track 1, which is also called the “one-sided model,” the ACO has the potential to earn shared savings if the ACO achieves savings and meets set quality metrics, but the ACO is not subject to the risk of losses. Under Track 2, which is also called the “two-sided model,” the ACO shares in both savings and losses. Each track requires a three-year agreement, but the ACO participant can terminate the agreement on 60 days’ notice.

The key business terms among participants and providers in the ACO will be the method of sharing in shared savings and, if applicable, shared losses. The MSSP regulations do not prescribe or restrict how this allocation is made within the ACO, but the methodology is reviewed as part of the application process.

The Advanced Payment ACO program is available only for physician-based and rural provider ACOs that were accepted into the Shared Savings Program in April 2012 or July 2012. Participants receive upfront payments to fund the start-up, which are repaid through their share of future savings. To date, there are only 35 ACOs in this program, and only one North Carolina ACO (Coastal Carolina Quality Care, Inc.) has been accepted into the Advanced Payment ACO program.