ACOs on a Two-Sided Risk Model

In continuing our series covering the issuance of the Accountable Care Organizations (ACOs) proposed rule, this post will discuss the two-sided risk model included in the proposed rule. To the surprise of many practitioners, the proposed ACO rule included a lower than expected shared savings percentage for ACOs and introduced a mandatory two-sided risk model during the third year of the three-year ACO contract. The proposed rule would give ACOs the opportunity to select from one of two tracks. Track one would involve a two year initial program where the ACO would share in any savings (one-sided model) but would not assume any risk of losses. In the third year, the ACO would be obligated to repay any amount by which its expenditures exceeded the stated cost benchmarks set by the Centers for Medicare & Medicaid Services (CMS) for the ACOs patient population. The third year, when the ACO is obligated to share in the downside risk, is referred to as the two-sided risk model. Under the second track, ACOs would be permitted to opt for the two-sided risk model from the first year on in the three-year contract and would be rewarded for taking on such risk by potentially sharing in a larger percentage of the shared savings generated by the ACO. Under the two-sided model, either from the first year or in the third year of the ACO contract, providers would have an increased percentage of shared savings of 60% compared to the shared savings percentage of 50% for physicians in the one-sided model. Thus, CMS is attempting to incentivize ACOs to accept risk of loss by offering greater upside potential savings for such ACOs willing to accept risk and accountability for cost containment from the first year of the ACO contract. —Christopher L. McLean