Free Up Your ACO’s Capital

In an effort to encourage wider participation in value-based risk models, the Centers for Medicare & Medicaid Services announced a new Accountable Care Organization (ACO) Track 1+ Model with a more limited downside risk design.  This newly proposed model is a hybrid of Track 1 and Track 3 of the Medicare Shared Savings Program (MSSP) and will allow for smaller practices and hospitals, especially in rural areas, to participate more readily.  ACOs will have the opportunity to join the Track 1+ Model as part of the 2018, 2019 and 2020 Shared Savings Program application cycles and the application cycle will align with that for Shared Savings Program Tracks 1, 2, and 3.

Track 2, Track 3, NextGen, and now the new Track 1+ ACO’s, have two-sided risk.  CMS requires an ACO to provide a repayment mechanism to assure that shared losses can be repaid. CMS accepts letters of credit (LOC), cash held in escrow, and surety bonds for this purpose.

While it is an acceptable form of collateral, an LOC is costly and inflexible, and ACOs often struggle to find the capital to place into escrow funds. The better, more cost effective option that has emerged using a surety bond.

Why a surety bond?  Surety bonds:

  • Are not credited against a company’s bank line so they keep the ACO’s capital intact
  • Are unsecured and therefore don’t require a UCC filing
  • Have stable rates without extra fees
  • Don’t have restrictive covenants or require extensive financial reporting
  • Are not demand instruments like a LOC

And ACOs can switch to a surety bond at any time without having to wait for the CMS ACO agreement renewal date.

We work with ACOs around the country to put in place insurance and reinsurance solutions, ensuring the sustainability of their business models. Although there is a growing awareness in the ACO community as to the importance of these solutions, we advise our clients that not all repayment vehicles are created equally. Understanding the costs and details of these repayment options is critical for ACOs to maximize savings and ultimately increase the bottom line.

For more information, please contact:

Chuck Newton
c: 804.647.8360

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