Despite mixed results in 2014, this announcement reflects a large increase in ACO participation in two-sided risk models in which providers are at risk for losses as well as having the opportunity to share in savings. Interest likely derives from important model design elements that CMS made available in Next Gen and Track 3. In particular, the Next Gen and MSSP Track 3 ACOs were created to respond to criticism regarding benchmark calculations, retrospective attribution, beneficiary engagement, and other structural challenges. Prior to these changes, in 2015 only 21 Medicare ACOs were at risk to repay losses, including three MSSP ACOs in Track 2 and 16 Pioneers. Although CMS has not released the names of the Track 2 and 3 ACOs, a majority of the 22 MSSP ACOs now accepting downside risk are likely part of Track 3 because of additional benefits like higher risk/reward, prospective attribution, and waiver for the skilled nursing facility (SNF) three-day stay rule.

Interest in the Next Gen model, which has a benchmark that incorporates regional spending, suggests that downside risk tracks in MSSP may become more attractive to participants after CMS receives comments and revises the recently released proposed rule on MSSP benchmark methodology.

CMS’ proposed rule would modify the benchmarking methodology for MSSP to incorporate regional spending. Specifically, the rule would use regional fee-for-service (FFS) spending to establish, adjust, and update an ACO’s benchmark for the participant’s second three-year agreement period.

This long-awaited rule proposes changes to the benchmark that many ACOs will welcome. In particular, CMS noted that the greatest number of commenters on the MSSP proposed rule issued in December 2014 had argued for gradually transitioning the ACO benchmark from one based entirely on the ACO’s historical spending to one based on regional spending. ACOs have clamored for incorporating regional spending into the benchmark methodology for two reasons: (1) historically efficient, high-quality ACOs have greater difficulty reaching unrealistic benchmark targets and (2) the model is unsustainable over the long term (i.e., benchmarks decline until achieving savings is impractical).

The proposed changes would likely help to address the concerns of ACOs with low benchmarks relative to FFS spending in their region and may encourage efficient ACOs to participate in risk-bearing tracks (i.e., Track 2 or 3). The path for ACOs to participate in a fourth year of Track 1 before transitioning to a risk-bearing track may also increase the number of MSSP ACOs bearing risk. CMS has expressed the belief that moving more ACOs into risk-bearing is an essential step to achieving the long-term shift from volume to value. Over time, CMS will likely create opportunities for MSSP ACOs to move more fully away from FFS through population-based payments and capitation. CMS is testing these alternative payment models with Next Gen ACOs and other initiatives.

By proposing these significant changes, CMS noted that ACOs are in the middle of a spectrum that ranges from traditional FFS to Medicare Advantage (MA). In this proposed rule, CMS specifically made efforts to apply existing MA methodologies to MSSP. CMS appears interested in aligning MA and MSSP and maintaining some degree of methodological consistency to offer providers multiple avenues for transiting to value-based payment models. For some ACOs, MSSP may become a first step to launching a MA plan, with an Avalere analysis finding that providers represent 58 percent of new MA parent organizations in 2016.

For more information on how opportunities through payment and delivery reform can help shape provider strategies for participating in risk-bearing ACOs, please contact Josh Seidman at JSeidman@avalere.com.