Accountable Care Organizations (ACOs) face tough challenges today. They must optimize the cost of healthcare for the patients covered by the ACO. This entails smart decision-making in the healthcare environment of the ACO.
CMS has implemented both a one-sided model (sharing savings, but not losses, for the entire term of the first agreement) and a two-sided model (sharing both savings and losses for the entire term of the agreement), allowing the ACO to opt for one or the other model for their first agreement period.
CMS believes this approach has the advantage of providing an entry point for organizations with less experience with risk models, such as some physician-driven organizations or smaller ACOs. They can gain experience with population management before transitioning to a shared losses model, while also providing an opportunity for more experienced ACOs that are ready to share in losses to enter a sharing arrangement that provides a greater share of savings, but with the responsibility of repaying Medicare a portion of any losses.
CMS also established a Minimum Savings Rate (MSR) and a Minimum Loss Rate (MLR) to account for normal variations in health care spending.
The MSR is a percentage of the benchmark that ACO expenditure savings must meet or exceed in order for an ACO to qualify for shared savings in any given year.
Similarly, an ACO with expenditures at or above the MLR are accountable for repaying shared losses.
Under the program regulations, ACOs in the one-sided model that have smaller populations (and having more variation in expenditures) will have a larger MSR and ACOs with larger populations (and having less variation in expenditures) have a smaller MSR. Under the two-sided model, CMS applies a flat (2 percent) MSR to all ACOs.
Under both models, if an ACO meets quality standards and achieves savings and also meets or exceeds the MSR, the ACO shares in savings, based on the quality score of the ACO. ACOs share in all savings, not just the amount of savings that exceeds the MSR, up to a performance payment limit. Similarly, ACOs with expenditures meeting or exceeding the MLR share in all losses, up to a loss-sharing limit.