Ken PerezEnglish naturalist Charles Darwin described the Galápagos Islands, an archipelago of volcanic islands distributed on both sides of the Equator in the Pacific Ocean, as a “living laboratory” of evolutionary change.

On Jan. 26, the U.S. Department of Health and Human Services (HHS) made a landmark announcement, expressing its intent to channel a significantly larger share of Medicare payments through alternative payment models such as accountable care organizations (ACOs).

Six weeks later, on March 10, HHS launched the Next Generation ACO Model, which could serve as a living lab for the refinement of Medicare’s accountable care programs.

The purpose of the model, an initiative of the Center for Medicare & Medicaid Innovation (the Innovation Center), is to test whether strong financial incentives coupled with tools to help facilitate better patient engagement and care management can improve health outcomes and reduce expenditures for Medicare fee-for-service (FFS) beneficiaries.

The announcement of the Next Generation ACO Model follows the Innovation Center’s December 2013 issuance of a request for information seeking input on the Pioneer ACO Model and ideas for structuring new ACO models, as well three high-profile departures from the Pioneer ACO Model in August and September 2014. As indicated by the considerable length of the Next Generation ACO Model’s request for applications (55 pages) and the program’s formidable complexity, the new model seems like a superset of suggestions received by the Innovation Center.

In brief, the new model is a higher-risk, higher-reward proposition relative to the Medicare Shared Savings Program (MSSP) and Pioneer ACO Model. For example, under one arrangement option of the new model, the ACO could be entitled to as much as 80 percent of the shared savings during the first three performance years and 85 percent during the last two performance years, with a higher savings/losses cap of 15 percent.

Furthermore, under the Next Generation ACO Model, the Centers for Medicare & Medicaid Services (CMS) will establish the ACO’s expenditure benchmark prior to the start of each performance year, factoring in expenditure, quality, and risk score data, as well as regional and national efficiency adjustments, for which many Medicare ACOs had lobbied.

Whether different types of payment mechanisms facilitate investment in infrastructure and care coordination is an area of evaluation for the Next Generation ACO Model. In 2015, the new model will employ normal FFS payments, and in 2016, ACOs under the model will have two additional payment mechanism options—normal FFS plus a monthly infrastructure payment and population-based payments. Then in 2017, capitation—in which CMS makes an up-front per-beneficiary-per-month payment to the ACO and then bills the ACO for claims that it receives for the ACO’s beneficiary population—will be an option.

Each Next Generation ACO must have at least 10,000 beneficiaries—midway between the MSSP’s requirement of 5,000 and the Pioneer ACO Model’s 15,000-beneficiary minimum. Interestingly, the new Model requires that 7,500 of the beneficiaries be from rural areas, where Medicare ACOs have generally been less successful.

Conveying the experimental and challenging “Delta Force” nature of the new Model, CMS has said that it expects only 15 to 20 ACOs to participate in the program. The most likely candidates would be some of the more successful Pioneer and MSSP ACOs.

Just as Darwin used the laboratory of the Galápagos Islands to advance science through the development of evolutionary theory, CMS hopes to use the laboratory of the Next Generation ACO Model to advance healthcare delivery by testing and refining innovations that ultimately benefit population health.


Ken Perez is vice president of healthcare policy, Omnicell, Inc., Mountain View, Calif., and a member of HFMA’s Northern California Chapter.

Publication Date: Monday, March 23, 2015