On June 10, 2016, CMS released a final rule regarding the Medicare Shared Savings Program (“MSSP”). The rule modifies MSSP’s benchmarking methodology, including, for MSSP ACOs commencing their second or subsequent agreement period in 2017 or thereafter, the use of regional factors in resetting benchmarks. The rule also provides a new option for MSSP ACOs to advance to Track 2 or Track 3 risk sharing models and establishes a policy for reopening determinations of ACO shared savings or shared losses to correct financial reconciliation calculations. The provisions of the rule are effective on August 9, 2016. An overview of the rule is set forth below.

Establishing, Adjusting and Updating Historical Benchmarks

MSSP ACOs and Initial Agreement Periods Beginning Before 2017

  • Adjustments to Historical Benchmark. The historical benchmark for an ACO that commenced its initial agreement period in 2014, 2015 or 2016 will undergo two “adjustments” for the 2017 performance year and any subsequent performance year under the initial agreement period. According to CMS, the adjustments will tend to increase the ACO’s historical benchmark amount.
    • Truncation of Expenditures. An ACO’s historical benchmark will be adjusted to reflect what it would have been if, at the time the historical benchmark was originally computed, CMS had truncated a beneficiary’s1 total annual Part A and Part B fee-for-service (“FFS”) per capita expenditures at the 99th percentile of national Medicare FFS expenditures for “assignable beneficiaries”2 identified for the 12-month calendar year corresponding to each benchmark year used to compute the historical benchmark.3
    • Trending Expenditures. An ACO’s historical benchmark will be adjusted to reflect what it would have been if, at the time the historical benchmark was originally computed, CMS had calculated trended expenditures for the ESRD, disabled, ged/dual eligible and aged/non-dual eligible populations based on expenditures for assignable beneficiaries4 in each of these population groups.
  • Annual Update of Historical Benchmark. For performance years before 2017, with regard to the historical benchmark for an ACO that commenced its initial agreement period in 2014, 2015 or 2016, CMS will update the benchmark using the same update factors currently in effect. However, for the 2017 performance year and any subsequent performance years under such ACO’s initial agreement period, CMS’s annual update of the ACO’s historical benchmark will differ from the current update methodology in that CMS will only consider FFS expenditures attributed to assignable beneficiaries (instead of the FFS expenditures for all Medicare FFS beneficiaries), identified for the performance year, when calculating the national growth rate in national per capita Medicare FFS expenditures.

MSSP ACOs and Second Agreement Periods Beginning in 2016

The calculation of an ACO’s historical benchmark (and adjustments and updates thereto) for a second agreement period that began in 2016 follows much of the current methodology, but the calculation also includes the new adjustments and update factors described above for MSSP ACOs with initial agreement periods beginning prior to 2017. Although the new rule repeals the “resetting the benchmark” requirements of 42 C.F.R. § 425.602(c), some of those same requirements (but not all) are replicated elsewhere in the rule and are applicable to these ACOs.

MSSP ACOs and Initial Agreement Periods Beginning in 2017 or Thereafter

  • Calculation of Historical Benchmark. For an ACO with an initial agreement period beginning in 2017 or any subsequent year, CMS’s calculation of the ACO’s historical benchmark will follow CMS’s current methodology, except for the following factors (which, according to CMS, will likely operate to increase the historical benchmark amount):
    • Truncation of Expenditures. For agreement periods beginning in 2017 and subsequent years, CMS will truncate a beneficiary’s total annual Part A and Part B FFS per capita expenditures at the 99th percentile of national Medicare FFS expenditures for assignable beneficiaries (instead of all Medicare FFS beneficiaries) identified for the 12-month calendar year corresponding to each benchmark year used to compute the historical benchmark.
    • Trending Expenditures. Using national Medicare expenditure data for each of the years making up the historical benchmark, CMS will determine national growth rates in FFS expenditures for assignable beneficiaries (instead of all Medicare FFS beneficiaries) identified for the 12-month calendar year corresponding to each benchmark year and trend expenditures for the first and second benchmark years to the third benchmark year dollars.
    • Other Adjustments. The historical benchmark will be further adjusted at the time of reconciliation for a performance year to account for changes in severity and case mix for newly assigned and continuously assigned beneficiaries using prospective Hierarchical Condition Category risk scores and certain demographic factors.
  • Annual Update of Historical Benchmark. For the 2017 performance year and subsequent performance years, the methodology for calculating the annual “update” of the ACO’s historical benchmark remains basically the same, except that, when calculating the national growth rate in national per capita Medicare FFS expenditures, CMS will only consider FFS expenditures attributed to assignable beneficiaries (instead of all Medicare FFS beneficiaries).

MSSP ACOs and Subsequent Agreement Periods Beginning in 2017 and Thereafter

  • Calculation of Historical Benchmark. The historical benchmark (referred to as a “rebased historical benchmark”) for an ACO that commences its second or subsequent agreement period in 2017 (or in any subsequent year) will be calculated using several factors currently applied when calculating a historical benchmark and/or “resetting the benchmark.”5 However, the new rule also incorporates into the calculation a number of new and significant features. Some of these new features, such as performing the above-described truncating calculation using FFS expenditures for assignable beneficiaries, are identical to some of the new elements described above for calculating historical benchmarks for ACOs that will commence their initial agreement periods in 2017 or thereafter.

Most importantly, for an ACO that commences its second or subsequent agreement period in 2017 or any subsequent year, the rule incorporates regional expenditures and growth rates into the methodology for calculating, adjusting and updating the ACO’s historical benchmark. According to CMS, the use of regional factors will make an ACO’s “cost target” more “independent of its historical expenditures and more reflective of FFS spending in its region.”6 The rule’s emphasis on regional factors is evidenced, in part, by the following.The rule defines “regional service area” as “all counties where one or more beneficiaries assigned to the ACO reside.” A regional service area may include counties in multiple states.

  • When calculating an ACO’s historical benchmark, CMS will trend forward expenditures for the first and second benchmark years to the third benchmark year dollars using “regional growth rates” (instead of national growth rates) based on expenditures for the ACO’s “regional service area.”
  • After preliminarily calculating the components of an ACO’s historical benchmark (this preliminary calculation will involve many of the factors currently used to calculate and “reset” a historical benchmark, as well as factors identical to the above-described new elements for calculating historical benchmarks for ACOs commencing their initial agreement periods in 2017 or thereafter), CMS will further adjust the historical benchmark based on the amount of Medicare FFS expenditures in the ACO’s regional service area. This adjustment includes a determination by CMS of whether the average per capita amount of the ACO’s historical benchmark is less than, or greater than, the average per capita amount of certain Medicare FFS expenditures in the ACO’s regional service area7 for the 12-month period that corresponds with the third benchmark year used to calculate the ACO’s historical benchmark.

Simply stated, the amount of the historical benchmark will be adjusted higher if the per capita amount of the ACO’s historical benchmark is less than the average per capita amount of the Medicare FFS expenditures in the ACO’s regional service area. Conversely, the historical benchmark may be adjusted lower if the per capita amount of the ACO’s historical benchmark is greater than the average per capita amount of Medicare FFS expenditures in the ACO’s regional service area. Given CMS’s concern that the adjustment could produce significant negative results quickly, and in order to give ACOs time to adapt to the adjustment, the rule provides for the amount of the adjustment to be phased in over the course of three agreement periods (beginning with the ACO’s second or subsequent agreement period beginning in 2017 or in any subsequent year).

  • Annual Update of Historical Benchmark. CMS will annually update an ACO’s historical benchmark for each year of the agreement period by the growth in risk adjusted regional per beneficiary FFS spending for the ACO’s regional service area.

Calculation of Savings/Losses: Tracks 1, 2 and 3

Truncation of Expenditures. With regard to the calculation of shared savings under Track 1, and the calculation of shared savings and shared losses under Tracks 2 and 3, CMS, for the 2017 performance year and subsequent performance years, will truncate an assigned beneficiary’s total annual Parts A and B FFS per capita expenditures at the 99th percentile of national Medicare FFS expenditures as determined for the performance year for assignable beneficiaries (instead of all Medicare FFS beneficiaries) identified for the 12-month calendar year corresponding to the performance year.

Quicker Transition from Track 1 to Tracks 2 or 3

With regard to an ACO participating in Track 1, the new rule provides that the ACO, during its initial three-year agreement period, may extend the initial agreement period by one year (for a total of four years), provided that the ACO first agrees to participate in Tracks 2 or 3 upon the completion of the fourth year. Currently, a Track 1 ACO that is not prepared to transition to Tracks 2 or 3 immediately following the completion of its initial three-year agreement period must wait for the completion of its second three-year agreement period before transitioning to Tracks 2 or 3.

CMS’s Reopening of Determinations of Shared Savings or Shared Losses

If CMS determines that an error has occurred in the calculation of an ACO’s shared savings or shared losses, the new rule makes clear that CMS may reopen the matter and issue a revised initial payment determination. In the case of fraud, CMS may reopen the matter at any time. Otherwise, CMS may reopen the matter, for “good cause,” not later than four years after the date of the notification to the ACO of the initial determination of the subject shared savings amount or shared losses amount. Pursuant to the rule, “good cause” may be established when there is “new and material evidence of an error that was not available or known at the time of the payment determination . . . ” Also pursuant to the rule, “good cause” will not be established by a change of legal interpretation or policy by CMS. CMS will have sole discretion to determine whether good cause exists for reopening a payment determination. The rule does not address when, or whether, an ACO may seek to reopen a payment determination.