Accountable Care Organizations: Shared Savings Calculation – Part I – Understanding the Two Track Model

April 15, 2011

Two Track Model

In the proposed rule, CMS spent a good deal of time explaining the incentives it hopes to create and the disincentives it hopes to avoid with ACOs. To this end, CMS created the two track model. ACOs, for a period of time, may choose to participate in the shared savings program without sharing in losses (Track 1) but eventually each ACO will be funneled into and required to participate in shared savings and shared losses (Track 2). CMS has created these two tracks that potential ACO participants may choose from depending on the participant’s appetite for sharing in the risk of losses. CMS has also created incentives for potential ACO participants to share losses by increasing the potential rewards for participants.

Track 1

During the ACO application process, an ACO participant must decide whether or not it will participate in Track 1 or Track 2. Participants choosing Track 1, like all ACO participants, will have an initial three-year agreement with CMS. During the first two years of this initial three-year agreement, CMS and the ACO will reconcile savings and allow an ACO to share in those savings (as described below) without the risk of the ACO sharing in any losses (the “one-sided” model). In the third year of the agreement, the ACO will also share in defined program losses (the “two-sided” model). After the initial three-year agreement is completed, any ACO wishing to continue in the shared savings program will be required to participate in Track 2 (as further described below).

For ACOs under Track 1, the minimum savings rate (MSR) that must be obtained prior to CMS sharing in any program savings will vary based upon the number of beneficiaries an ACO covers. At the low end, the MSR will be 3.9% (for ACOs with 5,000 beneficiaries and above). At the high end, the MSR will be 2% (for ACOs with 59,999 or more beneficiaries). CMS created a sliding scale for the MSR rate which can be viewed at Table 6 of the Regulations (p.296).

Once the MSR is met, then the maximum sharing rate for Track 1 is 52.5%; (50% of which is based on quality performance and 2.5% of which is based on an ACO including federally qualified health centers (FQHC) and/or rural health clinics (RHC) in its ACO). The sharing rate is then capped at 7.5% of the ACO’s benchmark. There is no sharing in losses the first two years.

Track 2

ACOs that are ready to share in losses immediately and want an opportunity for a greater share of savings may elect Track 2, which includes the two-sided model for the duration of the three-year agreement. The MSR for all participants in the two-sided model is 2% regardless of the size of the ACO. The maximum sharing rate is significantly higher than the one-sided model at 65% (60% of which is based on quality performance and 5% of which is based on the ACO including FQHCs and/or RHCs as participants in its ACO). The maximum sharing cap for ACOs in Track 2 is also higher at 10% of the ACO’s benchmark once they have exceeded the MSR.

With respect to losses, the two-sided model has a minimum loss rate of 2% regardless of the size of the ACO. Losses are then shared at the first dollar once losses exceed that 2% minimum loss rate. Losses are capped on a sliding scale: Year 1 – 5% over the benchmark; Year 2 – 7.5% over the benchmark; and Year 3 and thereafter 10% over the benchmark. No losses in excess of the annual cap will be shared. The amount of shared losses for an individual ACO are based on the final sharing rate that reflect the ACO’s quality performance and any additional incentives for including FQHCs and RHCs as described below. The quality measures and the inclusion of FQHCs and RHCs as ACO participants will operate as decreases in the ACO shared loss rate rather than increases that they represent in determination of the shared savings rate. For example, the shared loss rate for a two-sided ACO that experiences actual expenditures in excess of its benchmark would be determined by multiplying total losses by [(1) minus the final sharing rate for that particular ACO which cannot exceed 65%], resulting in 35%; and creating a cap of 35% of the amount of losses for that ACO.

Part II and III

In Part II, we will discuss how the expenditure benchmark is established for an ACO. In Part III, we will discuss a variety of other issues associated with the shared savings calculation.