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Is Direct Contracting Next for Next Generation ACOs?

Last month, the Centers for Medicare & Medicaid Services (CMS) announced that Next Generation Accountable Care Organizations (NGACOs) reduced Medicare spending by more than $242 million (when comparing actual performance to benchmarks) in performance year 2018, resulting in net shared savings of nearly $221 million.

This model has been a key Medicare model in the movement toward value-based care delivery and payment. NGACOs are the most advanced of the Medicare ACO models, with participants assuming 80 to 100 percent of upside and downside risk. The model has been emulated by payers in the private market, something that CMS should be encouraging to create greater payer alignment.

While there is a major push to incent and enable Medicare Advantage plans, we still have 66 percent of Medicare beneficiaries in traditional Medicare fee-for-service. It is an imperative that CMS continue with programs that are delivering results for beneficiaries and the government.

When done right, these models are saving money for the government and participants.

All six NGACO participants in the Premier® Population Health Management Collaborative generated savings in 2018, as compared to 76 percent of NGACOs nationwide. In fact, Premier Collaborative NGACOs reduced total spending by more than $70 million, rewarding these providers with shared savings in excess of $63 million.

Despite these successes, the NGACO model is set to sunset at the end of 2020 and CMS has indicated it does not plan to extend or expand it.

There are problems with the way NGACOs are evaluated.

In its most recent evaluation of the NGACO model, CMS concluded that NGACOs did not achieve net savings in the first two years (2016-2017), once shared savings payments were factored in. However, unlike the actuarial performance results noted above, that evaluation compares NGACO spending against a matched comparison group.

This evaluation method has spurred several concerns that CMS should consider before deciding to conclude the model.

  • CMS should not draw conclusions until it evaluates additional years. As seen with other models and the Medicare Shared Savings Program (MSSP), it can take time for participants to achieve savings as they work to change care practices and align systems.

Additionally, CMS made changes to the benchmark for Performance Year 4 to increase the potential for Medicare savings. As a result, findings may differ once CMS evaluates Performance Years 3 and 4.

  • The evaluation needs a true counterfactual. The evaluation design may make it challenging to isolate the true effect of the NGACO model as compared to traditional fee-for-service. For example, CMS notes that the control group included MSSP beneficiaries.

Additionally, nearly two-thirds of NGACOs had previous experience with other ACOs, such as MSSP or the Pioneer ACO model. As a result, the effects of these programs would have been included in the NGACO’s baseline data. CMS concludes that evaluation results should be interpreted as the incremental effect as compared to prior Medicare ACO programs.

Premier encourages CMS to extend the NGACO model or change the Direct Contracting Model.

Failure to extend NGACO would be a missed opportunity to build on the successes of the model. At a minimum, CMS should consider extending the model until it is able to properly evaluate it, including recent changes to the benchmark.

While CMS has highlighted the new Direct Contracting Model as an opportunity for NGACO participants, the model is a significant departure from the NGACO model design and has left many participants contemplating next steps.

If CMS is unwilling to extend NGACO model until a full evaluation can be completed, the Direct Contracting Model should be modified in four key ways to provide a better progression between models for NGACOs.

  1. Increase the Potential for Shared Savings. The shared savings rate under the Direct Contracting Professional Track is set at 50 percent, which is below the current options under NGACO (80-100 percent). The shared savings rates should be, at a minimum, comparable to MSSP Enhanced (75 percent). This would create an opportunity for ACOs that are experienced in risk to maintain comparable shared savings while testing primary care capitation within the model.
  2. Set more reasonable discounts. Discounts to the benchmark under the Direct Contracting Global Track (2-5 percent) are significantly higher than discounts under the NGACO model (0.5-1.25 percent). When combined with other withholds for quality and early termination the benchmark is reduced significantly(up to 9 percent in year 1 and up to 10 percent in year 5), significantly reducing the budget to provide care, which will make participation challenging, particularly for providers with historically low spending.
  3. Create a level playing field between new entrants and entities experienced in downside risk arrangements. Under the model, CMS will use two benchmarking methodologies depending on a participant’s experience with Medicare. For example, the benchmark for experienced entities will primarily be established based on the participant’s historical performance. This approach disadvantages entities currently participating in two-sided risk models, since their historical performance will already reflect efficiencies achieved under past models, furthering perpetuating the “race to the bottom” inherent in models. CMS should instead establish benchmarks for all participants using the Adjusted Medicare Advantage Rate book.
  4. Provide full model details. Certain aspects of the Direct Contracting model are still unknown, such as the benchmark risk-adjustment approach. CMS should make full model details available immediately in addition to providing technical resources (e.g. capitation implementation methodology). This information is critical for potential participants to determine their ability to operate in the model.


At Premier, we have found that these models are working, when the right strategy is followed. It would be a shame to cut off the progress that so many have made in improving care for their patients and lowering healthcare costs overall.

Learn more about Premier’s Advocacy efforts

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