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The Centers for Medicare & Medicaid Services (CMS) on Friday finalized its new set of rules for accountable care organizations (ACOs), removing the no-risk tracks that represented financial drains on Medicare and expanding three-day stay waivers for nursing homes.

Under the new “Pathways to Success” model, most new ACOs will only have two years to operate without assuming risk, with incremental increases in the potential for both risk and reward as the program progresses.

The overhaul, which will take effect on July 1, will save the government $2.9 billion over the next decade, CMS administrator Seema Verma wrote in a blog post announcing the final rule.

“As you can see, the Trump administration is absolutely committed to the value-based transformation of America’s health care system,” Verma wrote. “Today’s final rule for Medicare’s ACOs accelerates that transformation while promoting patient engagement and ensuring high-quality care.”

The ACO model encourages collaboration among providers by offering a single pool of funds for participating providers along the care continuum. If the operators in an ACO can maintain the same quality of care while reducing overall costs, they receive a cut of the savings. Certain ACOs also up the ante by penalizing providers that don’t save money; these models also have generally higher shared-savings potential.

Early analysis of the program’s efficacy showed that the risk-free models actually cost the government money, with Track 1 ACOs — which only provided the potential for bonus payments — resulting in $444 million in increased Medicare spending between 2013 and 2016, according to consulting firm Avalere Health. Tracks 2 and 3, which came with two-sided risk, generated $60 million in spending reductions, Avalere found, though the analysis also determined that ACOs simply require time to fine-tune their operations: Organizations that made it to their fourth year saved $152 million during that time period, implying that risk may not be the only determinant of success.

In addition, an updated dive into ACO performance in 2017 found that all three tracks saved money for the year; the Next Generation ACO model saved a total of $164 million that same year, CMS announced in conjunction with the final rule.

The overhaul also expands access to waivers for the three-day stay rule for skilled nursing coverage under traditional Medicare. All ACOs that assume risk under the new model will be eligible to apply for the waivers, which allow SNFs to receive Medicare reimbursements for residents who did not experience a qualifying three-day hospital stay before admission.

“We also amended the existing SNF three-day rule waiver to allow critical access hospitals and other small, rural hospitals operating under a swing bed agreement to be eligible to partner with eligible ACOs as SNF affiliates for purposes of the SNF three-day rule waiver,” CMS wrote in a fact sheet about the rule changes.

SNF operators tend to have mixed feelings about ACOs, which could provide built-in referral streams from hospitals — but which also could result in shorter lengths of stay as care managers strive to push residents into the lower-cost home setting as quickly as possible. A March study published in the American Journal of Accountable Care found that spending on SNF care in ACOs declined even while outlays increased for other provider types.

“We also found that although all MSSP ACOs are shifting their expenditures, the ACOs that improved their savings rate most rapidly were those that had shifted SNF and inpatient expenditures more dramatically,” the researchers wrote. “This finding indicates that the degree to which ACOs shift their expenditures matters, and that significant additional savings can be gained by shifting inpatient and SNF spending toward physician services.”

Both new and existing ACOs must submit a non-binding application notice to CMS between January 2 and January 18 to participate in the new system; ACOs that would normally see their agreements expire on December 31 of this year can optionally extend their existing arrangement through June 30 in order to ensure uninterrupted coverage between now and the July 1 implementation date.

A May survey from the National Association of ACOs (NAACOS) found that 70% would simply drop out of the program if they were forced to take on risk.

“These results paint a bleak future of what will happen if the government keeps its mandate to push ACOs into risk,” Clif Gaus, president and CEO of NAACOS, said in a press release announcing the results. “It’s naïve to think ACOs that aren’t ready will be forced into risk in what is ultimately a voluntary program. The more likely outcome will be that many ACOs quit the program, divest their care coordination resources, and return to payment models that emphasize volume over value.”

Written by Alex Spanko

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