Author: Hunter Outcalt, MTX, CPA and Jarrod Barraza, MSF

On August 9, 2018, the Centers for Medicare & Medicaid Services (“CMS”) issued a proposed rule, referred to as “Pathways to Success,” with several proposed changes to the Medicare Shared Savings Program (“MSSP”). Currently, the majority of Accountable Care Organizations (“ACOs”) are in one-sided risk models that allow for participation in shared savings without the obligation to share in losses. The proposed changes include a redesign of the MSSP participation options that will accelerate the transition of ACOs to a two-sided risk model that couples participation in shared savings with repayment of shared losses.

The MSSP currently includes three Tracks (Track 1, Track 2, Track 3) with up to two agreement terms of three years, allowing ACOs to participate in one-sided risk tracks for up to six years; however, the proposed MSSP participation options would include only two tracks (BASIC and ENHANCED) with agreement terms of no less than 5 years.

  • The BASIC track will allow eligible ACOs to begin MSSP participation under a one-sided risk model for up to two years, after which the participation agreement automatically phases into higher levels of risk and reward, culminating in an Advanced Alternative Payment Model. ACOs currently or previously participating in MSSP Track 2, Track 3, or Track 1+ are restricted to participating in the highest level of risk/reward under the BASIC track or in the ENHANCED track.
  • The ENHANCED track, based on the MSSP’s existing Track 3, will be a two-sided risk model with higher downside risk and potential reward but also additional tools and flexibility.

Other proposed changes include updates to repayment mechanism requirements for two-sided models, using regional cost benchmarks for all agreement periods, and development of additional quality measures to combat opioid addiction among Medicare beneficiaries.

The “Pathways to Success” proposal will be subject to a 60-day public comment period ending on October 16, 2018.

FMV Pitfall: If the proposed rule is finalized unchanged, it will have varying impacts on the valuation of ACOs. When determining the enterprise value of an ACO, it will be important to consider how the accelerated transition of ACOs to two-sided models will potentially impact (1) an ACO’s ability to achieve shared savings; and (2) an ACO’s exposure to the downside financial risk related to the required repayment of shared losses.