Under the two-sided model, the Centers for Medicare & Medicaid Services (CMS) requires Medicare Shared Savings Program (MSSP) Accountable Care Organizations (ACOs) to provide assurance of their ability to repay shared losses that they may be liable for at reconciliation. CMS surety bonds for ACOs are one of the three acceptable repayment mechanisms to participate in the SSP two-sided model.
As “the healthcare industry’s insurance expert” since 1994, HCP National helps ACOs find the best surety bond solutions.
Contact HCP National now to receive your ACO surety bond quote.
HCP National provides CMS-acceptable Surety Bonds for eligible Medicare Accountable Care Organizations (ACOs) participating in downside financial risk under the Medicare Shared Savings Program (MSSP).
We specialize in helping Medicare ACOs satisfy CMS repayment mechanism requirements while preserving operating capital through properly structured surety bonds and integrated financial risk management strategies.
Unlike many brokers, we don’t simply provide a bond. We help organizations design an overall financial risk strategy combining Provider Excess Insurance, Aggregate Provider Excess Insurance, operating reserves, and a CMS-approved repayment mechanism.
An accountable care organization (ACO) contains a group of healthcare providers, such as doctors, and facilities, such as hospitals, who are voluntarily committed to providing high-quality healthcare services to Medicare patients. ACO providers are also responsible for the cost of patient care, and they get reimbursed by Medicare providers through the fee-for-service (FFS) model.
The idea behind ACOs is to prioritize quality of healthcare over cost, and provide a value-based care model in which an ACO is rewarded when they provide quality healthcare, while spending available healthcare funds carefully. With the introduction of the Medicare Shared Savings Program (MSSP) in 2012, ACOs enjoyed six years of a one-sided risk and potential reward. They could get rewards of shared savings, but no shared losses.
However, in 2018, a new redesign known as “Pathways to Success” reduced the amount of time that an accountable care organization could remain in the MSSP without taking on any risk, known as the upside-only model. The time varied, depending on the type of ACO; two years for most ACOs, one year for legacy ACOs, and three years for low-revenue and rural ACOs. After this, they’d have to leave the program and lose investment in the ACO.
Consequently, more ACOs have adopted the downside risk model, which means that they would share in both the savings and the losses. They could even be responsible for 100% of the losses in some cases.
The downside risk model allows providers in ACOs to save more, potentially, but they also run the risk of losing their healthcare revenue if they go beyond the financial threshold they’ve agreed on with their payer. They may also have to refund the payers in some cases.
One of the most common misconceptions among Medicare ACOs is that the CMS Surety Bond exists to fund downside losses. It does not. The purpose of the bond is to guarantee repayment to CMS—not to become the source of repayment. A properly managed Medicare ACO should never expect its CMS Surety Bond to be called. Instead, downside financial obligations should be funded through a coordinated financial risk management program consisting of:
If an ACO expects the surety bond to pay expected losses, its financial strategy has failed. The bond should simply provide CMS with confidence that repayment obligations will be honored if every other financial resource becomes unavailable.
While Provider Excess Insurance protects against catastrophic individual claims, Aggregate Provider Excess Insurance protects the financial stability of the entire organization. Aggregate coverage establishes a maximum annual financial exposure for the ACO.
Rather than relying entirely on reserves during an adverse claims year, Aggregate Provider Excess Insurance reimburses losses after the selected attachment point has been reached. One of the greatest advantages of Aggregate coverage is its flexibility.
Depending upon the organization’s capital position and reserves, coverage can often be structured to begin at:
This allows each ACO to determine exactly how much downside risk it wishes to retain before insurance assumes responsibility.
Boards with stronger reserves may elect higher attachment points while organizations seeking greater financial certainty may elect lower attachment points.
According to 42 CFR 425.204(f), an ACO that plans to participate in a Medicare Shared Savings Program two-sided model must have at least one of the following repayment mechanisms by the deadline, and in the amount, specified by CMS:
ACOs can establish one of these repayment mechanisms to meet the financial requirements, or establish a combination of two or all three repayment mechanisms.
The strongest Medicare ACO financial strategy is built in layers. Each component has a different responsibility.
Clinical Risk Management prevents losses.
Provider Excess Insurance protects against catastrophic individual claims.
Aggregate Provider Excess Insurance limits the organization’s total annual downside exposure.
Operating reserves fund the portion of risk intentionally retained by the Board.
The CMS Surety Bond simply guarantees repayment to CMS if every other financial resource has failed.
Think of these components as hand and glove. Insurance and reserves should pay the downside risk. The CMS Surety Bond should stand behind them as the final financial guarantee, not as the intended source of payment.
That distinction is one of the most important principles in Medicare ACO financial risk management.
To participate in a two-sided model of the Shared Savings Program, ACOs must have the ability to repay all of the shared losses that they may be liable for.
ACOs can only be eligible to participate if they can demonstrate that they have established adequate repayment mechanisms prior to the start of their agreement periods.
The repayment mechanism amount for a Track 2 ACO must be:
The repayment mechanism amount for a BASIC track or ENHANCED track ACO must be equal to the lesser of the following:
The Center for Medicare Service requires a financial guarantee equal to a repayment mechanism from Accountable Care Organizations (ACOs). So, Accountable Care Organizations (ACOs) participating in the Medicare Shared Savings Program’s two-sided model (or the downside risk model) must establish a repayment mechanism that guarantees they can repay any losses they may incur upon reconciliation for each performance year under which they accept performance-based risk.
This repayment mechanism can take the form of funds placed in escrow, a line of credit backed by a letter of credit, or a surety bond issued by a certified company that’s on the U.S. Department of Treasury’s List of Certified (Surety Bond) Companies.
Lines of credit are offered by banks. It generally locks the ACO’s credit capacity and is known to have volatile rates. The banks can also decide to take a security interest in the ACOs assets. For these reasons, lines of credit can be costly.
In addition, not many ACOs have the required funds to hold in escrow.
As the most flexible and less costly way of providing this financial guarantee, accountable care organizations may opt for surety bond coverage from preferred providers. The surety bond provider actively reduces the ACO’s immediate financial risk.
Surety bonds for ACOs are a legal agreement between three parties where one party, referred to as the surety, contractually promises to be liable for the obligation of the second party, referred to as the principal, to the third party, the obligee.
A surety bond basically promises that one entity would be held liable if another entity doesn’t fulfill their contract with a third entity.
Finding the right surety bond can be daunting.
HCP National specializes in providing the most suitable bond solutions for ACOs.
As mentioned, repayment for ACOs can come in the form of an escrow account, line of credit, or surety bond.
So why choose a surety bond as financial guarantee for ACOs?
When it’s time to secure your surety bond, you need to ensure it meets the conditions outlined by CMS. Generally speaking, CMS will accept a surety bond if it meets the following criteria (according to this Medicare Shared Savings Program: Repayment Mechanism Arrangements Guidance):
Work with an expert insurance broker, such as HCP National, to help you find the best-priced surety bond to meet CMS’s financial guarantee requirements.
Contact HCP National now to get a quote.
Note, the above is not an exhaustive list of the criteria that CMS requires for ACO surety bond financial guarantees. This is only a brief summary. The entire page above is a general discussion about how bonds and other financial guarantees may work. Consult CMS’s official guidelines, as well as your legal team, to ensure that your bond, and other financial guarantees, meets the program’s requirements.
As the “healthcare industry’s insurance broker” since 1994, HCP National can help your ACO the best surety bond solutions to fulfill your financial guarantee requirements to CMS.
Contact HCP National now to receive your ACO surety bond quote.
Since 1994 – HCP’s top priority is finding clients the best possible coverage and terms at the lowest possible cost. HCP is a certified diverse (MBE & WBENC) insurance brokerage.
