Preparing for Payment Reform: Shared Savings Arrangements

Shared savings arrangements began as a key component of the Medicare delivery system reform initiatives included in the Affordable Care Act, the intent being threefold: to generate better care for individuals, to generate better health for the population, and to lower growth expenditures. To participate in a Medicare shared savings arrangement, eligible providers and suppliers are required to form an accountable care organization (ACO).

An ACO gives physicians, hospitals, and other healthcare providers opportunities to lower expenditures and better coordinate care across settings. A shared savings program financially rewards ACOs for meeting certain quality of care standards and lowering the overall growth of health care costs.

The Centers for Medicare and Medicaid Services (CMS) developed two types of shared savings arrangements, a one-sided model and a two-sided model. The one-sided model is designed such that an ACO shares a percentage of the savings generated by the ACO, but shares no risk for losses created by the ACO. This model is designed for organizations with less experience in risk models. The one-sided model is limited to two 3-year agreement periods at which point and ACO is then required to transition into a two-sided model. The two-sided model is designed such that the ACO shares a percentage of the savings generated by the ACO; however also shares in the potential losses of the ACO.

In the development of the shared percentages for savings and risks, CMS establishes a minimum savings rate (MSR) and a minimum loss rate (MLR). The rates are determined based on the expected total Medicare Fee-for-Service expenditures absent of an ACO, considering the ACO beneficiary characteristics, as well as patient population. Under both one-sided and two-sided models, an ACO meeting or exceeding the MSR will share in savings. Only under a two-sided model will an ACO that meets or exceeds the MLR; share in all losses, up to a sharing limit as defined by CMS.

Medicare designed 3 tracks for ACOs in a shared savings arrangement. Track 1, a one-sided model and Tracks 2 and 3, both two-sided models. The three tracks vary slightly in rates and requirements, as detailed in the table below.

There are currently 434 Medicare Shared Savings Program (MSSP) ACOs in total, of which approximately 95 percent are still in Track 1. All ACOs currently in track 2 and track 3 have been designated as approved alternative payment models (APM) under the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA); therefore, approximately 5 percent of ACOs in the MSSP are exempt from reporting to the Merit-Based Incentive Payment System (MIPS).  Most physicians find this model enticing due to a 5 percent annual bonus with a generous inflation update through 2024, while bonus increases under MIPS is solely dependent upon meeting quality reporting requirements.

However, the proposed rule specifies that any qualifying APM must meet the following criteria in order to meet a nominal financial risk requirement under MACRA:

1. Marginal risk of at least 30 percent
2. Minimal loss rate of no more than 4 percent
3. Total potential risk of at least 4 percent of expected expenditures

Acting now to recognize, evaluate, and plan for opportunities also includes partnering with financial and legal firms skilled in healthcare in general and MACRA, specifically. Contact us for more information on shared savings plans or MACRA requirements. 

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