Under the two-sided model, the Center for Medicare 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 and direct contracting entities (DCEs) find the best surety bond solutions.
Contact HCP National now to receive your ACO surety bond quote.
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.
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.
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) and Direct Contracting Entities (DCEs). 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, or direct contracting entities, 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 and DCEs.
As mentioned, repayment for ACOs and DCEs 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 DCEs and 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.
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.
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