The Centers for Medicare and Medicaid (CMS) announced on March 10, 2015 that it is adding a new Accountable Care Organization (ACO) model to its cadre of innovative models.[1] Titled the “Next Generation ACO Model,” CMS’ new ACO model allows provider groups to assume higher levels of financial risk and reward than currently available under its Pioneer Model and Shared Savings Program model. CMS noted that the goal of the Next Generation ACO Model (Next Generation) is to “test whether strong financial incentives for ACOs can improve health outcomes and lower expenditures for Original Medicare fee-for-service (FFS) beneficiaries.”[2]

The latest in CMS’ innovation models, Next Generation will join five other existing ACO models:

  • Medicare Shared Savings Program (MSSP);
  • Pioneer ACO Model (Pioneer);
  • Advance Payment ACO Model;
  • ACO Investment Model; and
  • Comprehensive End Stage Renal Disease (ESRD) Care Initiative. [3]

Unlike the MSSP and Pioneer models, Next Generation allows ACOs to take on near-complete financial risk. Organizations will have a choice between two risk arrangements that determine the portion of the savings or losses that accrue to the Next Generation ACO.[4] As illustrated in the following table, under Arrangement A (“Increased Shared Risk”), the Next Generation ACO would share up to 80-85 percent of Medicare Parts A and B expenditures for aligned beneficiaries. Under Arrangement B (“Full Performance Risk”), the Next Generation ACO would be responsible for 100 percent of Part A and B expenditures for aligned beneficiaries. Both arrangements provide for a maximum sharing/loss rate higher than those in the MSSP (up to 60 percent) or Pioneer models (up to 75 percent).[5]

Risk Arrangements in the Next Generation Model
 Risk Arrangements in the Next Generation ModelSource: CMS Next Generation ACO Model Request for Applications, page 13 (2015).

The risk taken by Next Generation ACOs is short of complete risk since they are not accountable for expenditures beyond the 99th percentile, and aggregate savings or losses will be capped at 15 percent of the benchmark.

CMS developed the Next Generation ACO Model specifically for ACOs that are experienced in coordinating care for populations of patients.[6] Aside from the higher levels of risk and reward, organizations interested in the Next Generation model may wonder how the new model differs from the Pioneer ACO Model and MSSP.  Two additional key differences are:

  • Next Generation offers a selection of payment mechanisms to enable a graduation from FFS reimbursements to capitation; and
  • The new model adds several “benefit enhancement” tools to help ACOs improve beneficiary engagement—greater access to home visits, telehealth services, and skilled nursing facilities; opportunities to receive a reward payment for receiving care from the ACO; a process that allows beneficiaries to confirm their care relationship with ACO providers; and greater collaboration between CMS and ACOs to improve communication with beneficiaries about characteristics and potential benefits of ACOs in relation to their care.

Current MSSP or Pioneer ACOs are eligible to apply for the Next Generation model, in addition to other organizations that meet applicant eligibility requirements. Applicants with prior participation in a CMS program or demonstration will be asked in their Next Generation ACO Model application to show good performance in the previous model. All applicants will be evaluated based on five key criteria: 1) organizational structure; 2) leadership and management; 3) financial plan and experience with risk sharing; 4) patient centeredness; and 5) clinical care model.[7] Of note, ACOs may not simultaneously participate in the Next Generation ACO Model and MSSP or Pioneer.

Organizations interested in applying to participate in the Next Generation ACO Model can choose between two different rounds of consideration. For consideration for the January 1, 2016 start date, organizations must submit a Letter of Intent (LOI) by May 1, 2015. Only those organizations that submit an LOI will be able to complete round one applications due June 1, 2015. Information about the 2017 start date and round two consideration dates will be released in spring of 2016. LOIs and online applications can be filed through the Next Generation ACO Model website.[8]


[1] The March 10, 2015 CMS press release can be found here. Note: Medicare ACOs are comprised of groups of doctors, hospitals, and other health care providers and suppliers who voluntarily coordinate care they provide to their “Original Medicare” patients. By coordinating care, ACOs seek to eliminate fragmented or disconnected care that can result from lost or unavailable medical records between providers, duplicated medical procedures and tests, difficulty scheduling medical appointments or general lack of communication between providers for a particular patient. ACO providers and suppliers may receive a shared savings payment from CMS if the ACO meets certain quality performance standards and has generated shareable savings under the performance-based payment methodology of the applicable model.

[2] See March 10, 2015 CMS press release.

[3] Additional information on the various CMS ACO models can be found here.

[4] The risk arrangement applies to the difference between actual expenditures and the discounted benchmark. The benchmark is a surrogate measure of what the Medicare FFS Parts A and B expenditures would otherwise have been in the absence of the ACO. ACO performance is compared to the benchmark to determine shared savings/losses. For more details on the calculation of the benchmark, see the Request for Applications here.

[5] For more information on the calculation of shared savings/losses see here; Actual maximum sharing/loss rates vary with the participation year for the particular ACO model.

[6] See March 10, 2015 CMS press release.

[7] For more details on the criteria and application process, see Appendix F of the Request for Applications here.

[8] Visit