One-sided versus two-sided ACOs

By now, I know you all understand the whole debate between the “carrot only” versus “carrot and stick” options for ACOs. The rule-makers decided that ACOs can take one of two tracks for determining which option they like best (pages 290-291):

We propose that applicants will have the option of choosing between a one-sided model and a two-sided model initially. Under Track 1, ACOs enter the program under the one-sided model and must transition to the two-sided model for the third year of their initial agreement period. Thereafter, those ACOs can only participate under the two-sided model for any subsequent agreement periods. Alternatively, under Track 2, an ACO may enter the two-sided model option immediately for a full 3-year agreement period. Those ACOs must also participate in the two-sided model thereafter in subsequent agreement periods. Thus an ACO may only participate for a maximum of two years under the one-sided model, during its first agreement period, before it must transition and participate thereafter in the Shared Savings Program under the two-sided model. We believe that this approach addresses the concerns we have identified. Incorporating both a one-sided and two-sided model into the Shared Savings Program provides a path forward for diverse organizations to gain experience with redesigning care processes and assuming accountability for the quality of care and financial outcomes of the populations they serve. Requiring those who enter the program on Track 1 to migrate to the two-sided model encourages organizations to take on greater risk with the opportunity for greater reward.

This means that it’s possible that some ACO’s will take on the two-sided model immediately. But some will start in Track 1 (“carrot only”). Even these, however, will have to transition to Track 2 (“carrot and stick”) by year three.  Otherwise, they have to leave the program.

Here’s the difference between these two models (pages 292-293);

Design ElementOne-Sided Model (performance years 1 & 2)Two-Sided Model
Maximum Sharing Rate52.5%65%
Quality ScoringSharing rate up to 50 percent based on quality performance.Sharing rate up to 60 percent based on quality performance
FQHC/RHC Participation IncentivesUp to 2.5 percentage pointsUp to 5 percentage points
Minimum Savings RateVaries by populationFlat 2% regardless of size
Minimum Loss RateNoneFlat 2% regardless of size
Maximum Sharing CapPayment capped at 7.5% of ACO’s benchmarkPayments capped at 10% of ACO’s benchmark
Shared SavingsSavings shared once MSR is exceeded; unless exempted, share in savings net of a 2% threshold; up to 52.5% of net savings up to cap.Savings shared once MSR is exceeded; up to 65% of gross savings up to cap.
Shared LossesnoneFirst dollar shared losses once the minimum loss rate is exceeded. Cap on the amount of losses to be shared phased in over three years starting at 5 percent in year 1; 7.5% in year 2; and 10% in year 3. Losses in excess of the annual cap would not be shared. Actual amount of shared losses would be based on final sharing rate that reflects ACO quality performance and any additional incentives for including FQHCs and/or RHCs using the following methodology (1 minus final sharing rate).

If you go with the two-sided model, right off the bat, your potential earnings go up significantly.  Instead of a theoretical 52.5% maximum sharing rate (based on quality performance and how many members of the ACO visit a Federally Qualified Health Clinic Rural Health Clinic each year), you can earn up to 65% of savings. The MSR is also 2% across the board instead of a prorated number that bottoms out at 2%. The maximum savings cap is also increased to 10% of the spending benchmark instead of 7.5%.

Now for the bad news: you’re on the hook for increases in spending. Once the minimum loss rate is achieved (similar to the MSR), you have to return some of your reimbursement. The MLR exists to protect ACOs from being penalized for increases due to normal variations in spending. The percentage of what you owe is based on your quality performance and FQHC/RHC participation. Basically, it’s 1-your sharing rate in savings. So if you were sharing in 60% of savings, you’d owe 40% of losses. The losses are capped like the savings, at 5% of the individual benchmark in spending in year 1, 7.5% in year 2, and 10% in year three.

This is a stick. We’ll have to see how it plays out in the final set of rules, but it’s real, and it will act as an incentive for ACOs who enter the program to actually try hard. They don’t want to be responsible for increases in spending, for which they will be held responsible.

Again – this is more promising than I thought it would be. I’ll have to update my slides on ACOs.

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