Medicare accountable care organizations (ACOs) have yielded valuable lessons about value-based care and positioned some hospitals to be competitive in the future, with the most recent results showing participants improving quality and reaping financial rewards. One of the most promising has been cut off to new applicants, but could become available again in the future.

Most of the participants in the Next Generation and Pioneer ACO models earned payments in the most recent reporting period — 11 out of 18 health systems participating in Next Generation in 2016, and six out of eight in the Pioneer model.

Seven Next Generation ACOs lost money and three dropped out in 2016 due to financial targets, saying they could not reach the value-based targets that would earn payments. (The latest CMS data on ACOs is available online at:

Next Generation ACO Grew

For Next Generation ACOs, the financial rewards ranged from a low of $272,140 for Steward Health Care Network in Massachusetts, to a high of $12 million for Baroma Health Partners in California.

The largest losses in the Next Generation ACOs were reported by LifePrint ACO in Delaware, a subsidiary of UnitedHealth Group, which owed $6.1 million, followed by OSF HealthCare in Illinois and MemorialCare Regional ACO in California, which both lost $5 million.

Twenty-eight new ACOs joined the Next Generation program, making a total of 44 health systems taking part in the largest advanced ACO program in Medicare’s history. Next Generation builds on the Medicare Pioneer ACO model, which was in its final program year in 2016.

Eight health systems took part in Pioneer in 2016, with six reporting financial savings. Banner Health Network in Arizona led the pack with the highest reward at $10.9 million, meeting its benchmark of $504 million for 42,040 beneficiaries with an actual expenditure of $489 million.

None of the Pioneer ACOs owed money, but Monarch HealthCare in California and Partners HealthCare in Massachusetts just broke even. However, they reported quality scores of 90.25% and 94.51%, higher than some of the other health systems that earned money.

The Michigan Pioneer ACO had a lower quality score of 88.93% and still earned $7.4 million. Michigan performed better than its benchmark expenditure of $232 million for its 14,319 beneficiaries, with actual expenditures of $220 million.

Rewards for Quality and Value

The ACO models are Medicare Shared Savings Programs (MSSPs) that encourage coordinated care and higher quality. Doctors, hospitals, and other healthcare providers and suppliers coordinate to provide high-quality care at lower costs, thereby saving money for Medicare. ACOs are patient-centered, explains Chris Dawe, vice president for payer partnerships at Evolent Health in Arlington, VA, which provides technical and management support to ACO participants.

ACOs provide a way for healthcare organizations to gather better information about their patients’ medical histories and improve relationships with patients’ other providers, he explains. Provider participation in ACOs is voluntary, and participating patients experience no change in their Medicare benefits.

An ACO that delivers high-quality care and reduces Medicare costs will share in the savings it achieves for the Medicare program. (More information on the Next Generation ACO model is available online at:

Next Gen Model Successful

The latest results demonstrate the value of an ACO model and particularly the Next Generation approach, Dawe says. Hospitals cannot sign up for the Next Generation ACO now but might be able to join in the future, he says.

“The lesson would be the superiority of the model and that it is a truly viable platform for hospitals to start moving in this direction and transform care. It is a competitive threat for any hospital that is sitting there with a physician network and trying to grow that network, but doesn’t have a way to bring physicians the type of upside benefit that comes with the Next Gen model. If you are one of those hospitals, unfortunately CMS doesn’t have a solution for you because Track 3 can work in some instances, but just doesn’t have the firepower of Next Gen.”

Dawe cites the example of Deaconess Health System, which has six facilities in Evansville, IN, and participated in MSSP Track 1 starting in 2012. It joined the Next Generation ACO in 2016 with the intention of deploying physician-led, evidence-based clinical programs and new technology to improve the quality and care experience for Medicare beneficiaries.

They also needed to build a risk adjustment program to identify beneficiaries with undocumented conditions and support providers to improve documentation and coding accuracy, Dawe says.

Deaconess established financial incentives linked to performance, leadership training for physicians who typically spend 100% of their time practicing medicine, and a physician engagement strategy that included a governing board composed of practicing providers, Dawe says.

The health system also used new technology to extract data from disparate systems, such as claims data from payers, clinical data out of the electronic medical record, and patient-completed data. The data were combined into a data warehouse. Predictive analytics were employed retrospectively and prospectively to risk-stratify the population to help determine the appropriate care path for high-risk patients.

Data were shared with participating practices and providers on the care continuum, and Deaconess implemented a population health program to identify patients susceptible to future, avoidable conditions. The sickest patients receive dedicated care advisors to manage them for six months.

Deaconess used natural language processing technology to identify documentation gaps, ensure medical record accuracy, and drive care-gap closure. Physician practices received lists of suspect conditions for upcoming office visits and coder decision support tools to improve billing accuracy.

Deaconess anticipates a savings of more than $7 million over 2016, which represents 80% of total shared savings, Dawe says.

Demand is increasing as providers look at avenues to get physicians out of the Merit-based Incentive Payment System (MIPS) and into Medicare Access and CHIP Reauthorization Act (MACRA) bonuses, Dawe says. It is unfortunate that an ACO option is closing off at the same time MACRA is gaining appeal with healthcare providers, he says. Interest in the Next Generation model should not come as a surprise, he says, because in addition to qualifying as an Advanced Alternative Payment Model (APM) under MACRA, the program also offers deal terms that surpass most other ACO contracts.

Dawe says these components of the Next Generation model make it superior to MSSP Track 1, Track 1+, and Track 3:

• Financial terms: Participants keep up to 100% of the upside savings.

• Risk adjustment: The benchmark can be adjusted up to +3% to accurately depict risk profile.

• Prospective attribution: Early identification helps manage the attributed population.

• Benchmark timing: Benchmarks are received prior to the start of the plan year.

• Network and beneficiary incentives: There are CMS waivers, supplemental benefits, and financial incentives for beneficiaries.

• MACRA: The Next Generation ACO satisfies MACRA requirements for an Advanced APM and provides a safe harbor for punitive pay-for-performance programs. Participants receive the 5% Advanced APM bonus in addition to access to shared savings for successful ACOs, which creates a compelling platform for network expansion.

The good results coming just after the closing of applications for the Next Generation ACO will leave some hospitals frustrated, and ideally CMS should have at least one option each year for providers who want to voluntarily accept full downside risk, Dawe says.

“The Next Gen model will yield a tremendous amount of data over the next two or three years and we are confident that it will show a continuous improvement in quality and the ability to save Medicare money,” Dawe says. “We’re hoping they will be able to move it into a permanent option like how Pioneer became Track 3. Even though they’re not accepting new applications now, we’re hoping the new data will result in them opening it up permanently.”