This is the sixth post in Health Care Law Today’s series on the proposed rule modifying the Medicare Shared Savings Program (“MSSP”). The proposed rule was published in the Federal Register on December 8, 2014 and parties have 60 days to offer comments. Click here to read earlier posts about the rule. This post addresses proposed changes to the MSSP Tracks and the financial model of the MSSP.

Many critics have suggested that the November 11, 2011 final rule establishing the MSSP created a financial model that over time would not be sustainable. ACOs viewed the requirement to take risk after the initial three years as undesirable and a requirement for which many ACOs were not ready. While over 330 ACOs are participating in the MSSP under the existing rule, only five have elected to participate in Track 2, where ACOs must take downside risk, and less than one-quarter of the ACOs participating have earned shared savings.

CMS in the proposed rule recognizes that “many of the organizations currently participating in the program are risk adverse and lack the infrastructure and readiness to manage increased performance-based risk.” While CMS is of the view that it is when ACOs are at risk that more meaningful systematic change will occur, it also acknowledges that the current financial models do not offer a sufficient pathway for many ACOs to transition from Track 1, in which there is only an upside, to Track 2, in which ACOs must take downside risk.

To address these concerns, in the proposed rule CMS offers several revisions to the MSSP and its financial models.

Proposed Changes to Track 1 Participation

There are numerous proposed changes to the Track 1 model, the Track in which 98% of the ACOs currently participate.

  • Perhaps most significantly, CMS proposes to eliminate the requirement that an ACO that desires to renew its initial 3-year agreement for MSSP participation must move to Track 2 and take downside risk. The proposed rule allows ACOs to renew for one additional 3-year term in Track 1; in a second 3-year renewal the ACO would be required to take downside risk. An ACO that has participated in Track 2, however, cannot renew as a Track 1 participant.
  • Since CMS seeks to encourage ACOs who have the potential to transition to taking more risk, the proposed rule specifies that to be eligible to renew for an additional term in Track 1, an ACO must (1) show that it has satisfied the quality performance requirements that make it eligible to share in savings in at least one of the first two performance years and (2) not have generated losses in excess of the negative Minimum Savings Rate (MSR) in one of the first two performance years.
  • To encourage movement to Track 2, ACOs who renew for a second term in Track 1, will only have the ability to share up to 40% of the savings, reduced from 50%.

Proposed Changes to the Track 2 Financial Model

To reduce the financial risk under Track 2, which CMS believes is important to make participation in Track 2 more desirable, the new rule proposes to have the Minimum Savings Rate (MSR) and the Minimum Loss Rate (MLR) be based on the number of assigned beneficiaries to an ACO, as has been the case in Track 1 for the MSR. The impact of this change is to raise the amount of losses that must be incurred for ACOs who have a smaller number of assigned beneficiaries, before there is any responsibility for loss-sharing. Currently under Track 2, all ACOs, irrespective of whether an ACO has 5,000 or 75,000 assigned beneficiaries, shares in losses once the total losses exceed 2% of the benchmark. As proposed, ACOs with smaller assigned beneficiaries, and thus a greater likelihood of variability in medical costs for the ACO assigned population, will only share in losses if a higher threshold (3.9% if there are 5,000 to 5,999 assigned beneficiaries) is met. As such, there will be less risk that variability in medical costs in a smaller assigned population will lead to loss sharing. To keep it balanced, CMS also proposes that there be more initial savings realized for ACOs with fewer assigned beneficiaries against the benchmark before there will be any shared savings paid.

Proposed Development of Track 3

CMS proposes to develop a new risk-based Track 3, in order to offer a more attractive option for ACOs who are ready to accept increased performance-based risk. Track 3, as proposed, is modeled in part off the current provisions governing Track 2, including for eligibility requirements, quality performance standards, data sharing requirements, monitoring rules and transparency requirements. But, there are new features, unique to Track 3, including beneficiary assignment, sharing rate, MSR and MLR, and performance payment and loss sharing limits.

Among the more significant proposed aspects of the model for Track 3 are:

Beneficiaries will be assigned prospectively. The only adjustments to those on the prospective list will be for beneficiaries that no longer meet eligibility criteria for assignment to an ACO (for example, if they join a Medicare Advantage Plan during the year). Prospectively assigned beneficiaries would not be added at all during a year and would not be removed if they receive a majority of their primary care services from a non-ACO participant. Critics have suggested that ACOs will be better able to manage and coordinate care if they know up-front what beneficiaries are assigned to the ACO.

  • The Track 3 financial model would include:
    • A fixed two percent MLR (not one that varies with the number of assigned beneficiaries). This is consistent with the current Track 2 model, but, as explained above, the new rule proposes that this be modified for Track 2.
    • Utilization of a maximum 75% sharing rate, both for gains and losses, allowing for payment of a greater a share of savings to Track 3 ACOs. Another feature for Track 3 is that ACOs that meet high quality performance standards could reduce the maximum loss sharing rate from 75% to 40%.
    • Setting a payment cap (also referred to as a performance payment limit) of 20% of the updated cost benchmark, again to allow for payment of a greater share of savings than is currently available in Track 2. The payment cap for a loss will, however, be limited to 15% of the updated cost benchmark. These modifications will allow more money to be shared with successful ACOs.
    • Additional Track 3 features discussed in the proposed rule are the time period for prospective assignment, details on how the benchmark will be set, and risk adjusting the assigned beneficiary population.

Proposed Simplification of Repayment Mechanisms

To further encourage ACOs to take downside risk and move to Track 2 or 3, CMS proposes several changes with respect to the mechanisms that ACOs must have in place to ensure that they can repay CMS for losses. Some of the more significant proposed aspects are to:

  • Allow the repayment mechanism to cover the entire agreement period and a reasonable period after the end of the agreement as opposed to needing to annually demonstrate the adequacy of the repayment mechanism. Under this approach the ACO would be required to establish a repayment mechanism only at the beginning of a three year agreement period.
  • Remove the repayment mechanism option that permits ACOs to demonstrate their ability to pay using reinsurance or an alternative mechanism. CMS states that no ACO has obtained reinsurance for this purpose and that it would be difficult for CMS to effectively evaluate the reinsurance policies. The repayment mechanisms available to ACOs would be limited to placing funds in escrow, establishing a line of credit, or obtaining a surety bond. The selection of these options would be in the ACO’s discretion.

Comments on Resetting Benchmarks

CMS also is concerned about ACOs continued participation in the MSSP. To encourage continued participation in the MSSP program, CMS seeks comments on stakeholders continued concerns that resetting benchmarks at the start of each agreement period disadvantages ACOs, particularly those that have generated savings. CMS does not propose any changes to the benchmarking methodology at this time, however. It merely seeks comment on various alternatives it describes in the proposed rule as well as alternative approaches.