Many accountable care organizations (ACOs) received disappointing news on May 21, 2021, when the Centers for Medicare & Medicare Services (CMS) announced that it would not be extending the Next Generation ACO (NGACO) model for 2022.¹ After five years and a dwindling number of participating ACOs, experts were split on whether or not CMS should keep the model in place for another year.² On one hand, stakeholders have argued for the NGACO model’s extension until it can be replaced with or integrated into another program; however, others asserted that resources could not be properly invested with only one more year left in the program.³ This Health Capital Topics article will review the background of the NGACO model, its effect on value-based care, thoughts from stakeholders, and plans among these stakeholders moving forward.

Background

The NGACO model was established under the Medicare Access and Children’s Health Insurance Program (CHIP) Reauthorization Act of 2015 (MACRA), and launched by CMS in January 2016.⁴ With 18 initial participating ACOs, the NGACO model built on past ACO experience from the Pioneer Model and Medicare Shared Savings Program (MSSP) and sought to set predictable financial targets, give providers more opportunities to coordinate care to beneficiaries, and ensure high quality care.⁵ The number of participating NGACOs increased from its inception until its peak in 2018, with 51 participating ACOs, and has slowly declined over the past few years, to 35 participating ACOs in 2021.⁶ In prior years, health systems reported pulling out of the NGACO model due to unachievable savings metrics, such that health systems were unable to earn shared savings payments.⁷

CMS’s Center for Medicare & Medicaid Innovation Center (CMMI) created the NGACO model to test if financial incentives and an innovative payment system would provide sustainable utilization of resources, while enhancing quality and coordination of care.⁸ The NGACO model is an Advanced Alternative Payment Model (APM) that sought to incentivize eligible physicians to participate in a high risk/high reward system.⁹ While it is generally similar to the MSSP, some of the significant differences in the NGACO model include, first, the required risk-sharing arrangements. Under the NGACO model, the shared savings and losses are greater than the MSSP. Second, NGACOs must have at least 10,000 beneficiaries, in contrast to the MSSP’s minimum of 5,000 beneficiaries.¹⁰ Third, NGACOs are responsible for the first dollar above or below the discounted benchmark, while the MSSP has a minimum savings rate (MSR) and minimum loss rate (MLR), which provides a buffer for participants, i.e., they are not responsible for the first dollar of savings or losses.¹¹

The goal of this approach to pay providers based on quality, rather than quantity, of care attempted to improve health outcomes and lower healthcare expenditures from the original fee-for-service (FFS) Medicare reimbursement model with the following core principles in mind:

1. “Protect Medicare fee-for-service beneficiaries’ freedom to seek covered items and services from the Medicare-enrolled providers and suppliers of their choice;
2. Engaged beneficiaries in their care through benefit enhancements designed to improve the patient experience and reward seeking appropriate care from providers and suppliers participating in ACOs;
3. Create a financial model with long-term sustainability;
4. Utilize a prospectively-set benchmark that: (1) rewards quality; (2) rewards both improvement in and attainment of efficiency; and (3) ultimately transitions away from using an ACO’s recent expenditures for purposes of setting and updating the benchmark;
5. Mitigate fluctuations in aligned beneficiary populations and respect beneficiary preferences by supplementing a prospective claims-based alignment process with a voluntary alignment process; and
6. Smooth ACO cash flow and support investment in care improvement capabilities through alternative payment mechanisms.”¹²

Despite these high standards, NGACOs did not deliver as expected. The first three cohorts of ACOs contributed greatly to spending reduction, but after 2017, the model saw no appreciable declines in spending.¹³ Meanwhile, in the past five years, quality remained constant with no significant improvements or declines.¹⁴

Effects on Value-Based Care

While some industry stakeholders are critical of the NGACO model, participating providers have generally been successful operating under the model. First, the NGACO model achieved approximately five times higher savings per beneficiary than MSSP ACOs.¹⁵ Second, the NGACO model has reduced inpatient admissions, reduced total medical expenditures with care management programs, and increased beneficiaries’ likelihood to participate in annual wellness visits.¹⁶ Ultimately, NGACOs are fond of the model’s high-risk/high-rewards reimbursement structure, in which they can reduce gross beneficiary spending, maintain quality of care, and implement benefit enhancement tools.¹⁷ Specifically, ACOs are attracted to the opportunity to assume 80% to 100% risk of the difference from the calculated benchmark, with caps spanning from 5% to 15% for losses and savings.¹⁸

Conversely, a report from the National Opinion Research Center (NORC) at the University of Chicago found that the NGACO model’s $348.6 million in spending reductions in its first three years was overstated.¹⁹ The NORC report concluded that while the model did have Medicare spending reductions of 0.9%, it actually increased net spending by 0.3% after accounting for shared savings payments.²⁰ The NORC report also found that the NGACO model had minimal impact in reducing acute care hospital spending and stays, which account for the largest part of Medicare Part A and B spending.²¹ Additionally, many of the NGACO model participants were originally participants in the Pioneer Model or MSSP (i.e., had prior ACO experience).²² NORC asserts that these reported spending improvements are modest in consideration of the amount of time these providers have participated in ACO models; in other words, these more mature ACOs should be able to generate more savings and achieve higher quality metrics than they actually did in the NGACO model.²³

Thoughts from Stakeholders

Many organizations were extremely upset about the decision to end the program a year early. However, this news should not have come as a surprise. NGACOs were reportedly told in early 2020 that the model would be discontinued at the end of that year.²⁴ Not long after, the COVID-19 pandemic struck and in June 2020, CMS decided to extend the program for an additional year to reduce the burden on healthcare providers, who were responding to the public health crisis.²⁵ In April 2021, 14 industry stakeholders wrote to the Secretary of the U.S. Department of Health & Human Services (HHS) urging HHS to extend and reevaluate the NGACO model.²⁶ Notable healthcare provider associations, such as the Association of American Medical Colleges, American Hospital Association, and American Medical Group Association, as well as other industry players, claimed that the NGACO model had been successful in lowering Medicare spending and improving quality for beneficiaries over the past several years.²⁷ Further, these organizations asserted that it would be unfair to end the program suddenly, as many organizations have invested greatly in the program over the past five years, and because ACOs needed to apply to other ACO payment models a year ago to be eligible for the 2022 performance year.²⁸ Organizations have subsequently had to scramble to demonstrate that they meet qualifications for CMS’s other risk-based models, such as the Global and Professional Direct Contracting (GPDC) Model, by June 14, 2021, or be moved into the MSSP, both of which models provide less flexibility than the NGACO model to adjust downstream payments.²⁹

ACOs Moving Forward

In ending the NGACO model, CMS wants these ACOs to leverage their experience and operational capabilities in the GPDC model, which began in 2020 with an “implementation period” (where participants could begin aligning beneficiaries prior to the start of the first performance year) and commenced its first participation year on April 1, 2021.³⁰ GPDC is a risk-sharing model that focuses less on quality measures and more on outcomes and beneficiary experience.³¹ Additionally, direct contracting entities (DCEs)³² will focus their value-based plans on beneficiaries with complex chronic conditions.³³ DCEs have two voluntary risk-sharing options under the GPDC Model:

1. Professional, which offers a low risk-sharing arrangement (50% savings/losses) and provides payment through a capitated, risk-adjusted, monthly plan for primary care services provided by the DCE called Primary Care Capitation (PCC).³⁴
2. Global, which offers the high risk-sharing option (100% savings/losses) and has two payment options available: PCC, as described above, and Total Care Capitation, where payment is provided through a capitated, risk-adjusted, monthly plan for all services provided by the DCE.³⁵

The NGACO model was a program built on the lessons learned from previous attempts by CMS to transition healthcare payments away from volume-based, FFS reimbursement to payments based on high-quality, cost-effective care. While the NGACO model has had notable improvements over previous ACO model iterations, the program has its own shortcomings. CMS’s decision to end the NGACO model is simply the next step in CMS’s journey from volume-based to value-based reimbursement, wherein the agency continues to test and tweak various payment models to find a sufficient balance between high-quality and low-cost care while giving providers a sufficient number of value-based payment model choices in which to participate.