On October 20, the Centers for Medicare and Medicaid Services (CMS) released the final Medicare Shared Savings Program rule, formalizing policies for voluntary Accountable Care Organizations (ACOs) included in Section 3022 of the Affordable Care Act.

With the release of its final rule, CMS aims to make the Shared Savings program more appealing to health care providers, many whom criticized the proposed rule released on April 7, 2011, for its lack of flexibility, the large number of quality measurements, as well as the risk for loss of reimbursement associated with the program. CMS believes that the modified Shared Savings Program it has put forward will attract twice as many ACOs as originally estimated, and in the process, achieve the Agency’s “three-part aim” consisting of: (1) better care for individuals; (2) better health for populations; and (3) lower growth in expenditures. The most important changes to the final rule are outlined below:

Start Dates and Performance Period

The Shared Savings Program will begin accepting applications from prospective ACOs after January 1, 2012. ACOs interested in participating in the Shared Savings Program in 2012 may apply to enter the program on April 1 or July 1, 2012. CMS has increased the first performance year 6-9 months, depending upon entry into the program. CMS will post additional information about the application process here.

Inclusion of Federally Qualified Health Clinics and Rural Health Clinics as Potential ACOs

The statute describes an ACO as a legal organization of professionals (physician, physician assistant, nurse practitioner, or clinical nurse specialist) in a group practice; networks of individual practices of ACO professionals; partnerships or joint venture arrangements between hospitals and ACO professionals; hospitals employing ACO professionals and other groups of providers or suppliers as determined by the Secretary of Health and Human Services, working together to manage and coordinate care for Medicare fee-for service (FFS) beneficiaries under Parts A and B. The proposed rule allowed Critical Access Hospitals (CAHs) that bill both facility and professional services through a Medicare fiscal intermediary (under Method II) to lead or be part of an ACO. 

The proposed rule envisioned a role for Federally Qualified Health Centers (FQHCs) and Rural Health Clinics (RHCs) only as participants in ACOs. However, after extensive comments from stakeholders, CMS decided to allow FQHCs and RHCs to form their own ACOs – acknowledging the role that these clinics play in providing cost-efficient care to Medicare beneficiaries in rural and underserved areas.

Assumption of Risk

Under the proposed rule, CMS proposed two tracks for ACOs. Track 1 would have allowed an ACO to share the savings for the first two years and would have been required to transition in the third year to performance-based risk, sharing in both savings and losses. Track 2 would have required ACOs to assume risk for all three years of the program, with greater opportunities to share a higher percentage of the savings it generated.

The final rule maintains the two-track system but changes Track 1 to avoid downside risk.  Inclusion of a one-sided risk model allows ACOs to participate in the Shared Savings Program without the threat of financial losses. The final rule requires that after the initial three-year participation agreement, if an ACO opts to remain in the Medicare Shared Saving Program, it must participate in Track 2 full-risk model described in the proposed rule.

Fewer Quality Measures

The proposed rule suggested CMS would evaluate ACOs on five domains of quality performance measures. The final rule reduces it to four measures, including: patient/care giver experience; care coordination/patient safety; preventative health; and at-risk population. The proposed rule required ACOs to report on 65 measures, but the final rule reduces this requirement to 33 measures for the three-year performance period and will phase-in pay-for-performance requirements during the second and third years of the participation period.

Of the 33 measures required, CMS requires that seven are collected through patient surveys, three via claims submission, one from Electronic Health Record (EHR) incentive program data and 22 through the Group Practice Reporting Option (GPRO) website. The final rule also removes hospital patient safety measures, suggesting instead that CMS will use claims-based hospital measures as part of its monitoring process.

EHR Meaningful Use

The proposed rule required that 50 percent of an ACO’s primary care physicians be “meaningful EHR users” by the second year of participation in the Shared Savings Program, with a higher percentage envisioned in the future. The final rule eliminates the meaningful use requirement. In its place, ACOs will be measured by the percentage of primary care providers who successfully qualify for an EHR incentive program payment. The final rule double weights the measure for purposes of calculating the ACO quality performance score.

Assignment of Beneficiaries

CMS revised its methodology for assigning beneficiaries to an ACO and for determining the population of Medicare FFS beneficiaries for whose care the ACO is accountable. In the final rule, CMS also changed its method for determining whether an ACO has achieved savings. CMS initially proposed retrospective assignment based on utilization of primary care services with prospective identification of a benchmark population. The final rule provides a preliminary prospective assignment method which means CMS will provide an ACO at the beginning of the performance year with a list of patients that would have historically been assigned to that ACO.

An ACO will receive quarterly updates of individuals that were assigned to the ACO. This means that ACOs will have greater insight into their risk pools, but without the danger of being assigned any patient for whom care was not actually delivered. The final rule provides that CMS will conduct a retrospective reconciliation of beneficiaries prospectively assigned to each ACO after each performance year based on actual patient utilization data.

The final rule establishes a two-step approach for assigning beneficiaries to an ACO. As a first step, CMS will assign beneficiaries who received primary care services from a primary care physician, measured as a plurality of a beneficiary’s allowable charges. Beneficiaries who have not received services from a primary care physician (with a designation of internal medicine, general practice, family practice, or geriatric medicine) would be assigned to an ACO on the basis of primary care services provided by an ACO physician of any specialty.

Greater Potential for Rewards

An ACO may receive payment for shared savings if the estimated average per capita Medicare expenditures under the ACO for Medicare FFS beneficiaries (for Parts A and B services) adjusted for beneficiary characteristics is at least the percent specified by the Secretary below the applicable benchmark or Minimum Savings Rate (MSR).

CMS will utilize a sliding scale, based on the size of the ACO's assigned population, to establish the MSR for ACOs participating under the one-sided model. The final rule also includes a fixed two percent MSR for ACOs under the two-sided model.

ACOs will receive first dollar savings once savings meet or exceed the MSR and according to risk-track and quality measure performance. The final rule removes Indirect Medical Education (IME) and Disproportionate Share Hospital (DSH) payments from both benchmark and performance expenditures in order to reflect a bonus formula that responds to improvements in utilization instead of differences in price between performance and benchmark expenditures. Additionally, removal of IME and DSH payments from these calculations should allow care to be provided in the most appropriate setting.

Sharing of Beneficiary Claims Data

CMS modified the proposed rule to allow an ACO the option of contacting beneficiaries from its list of prospectively assigned beneficiaries in order to notify those beneficiaries of the ACO’s participation in the program and intent to request beneficiary identifiable data. A beneficiary has 30 days to “opt out” and let the ACO know he or she does not want to share his or her personal data. In the absence of an opt-out notification, the ACO may request the data. ACOs will be subject to HIPAA standards and will need to enter into a Data Use Agreement with CMS prior to receiving such data.

Antitrust Approval

The final rule significantly relaxes the requirements that potential ACOs secure a favorable review of antitrust concerns before beginning the Shared Savings Program. Antitrust agencies will offer voluntary expedited reviews to any newly formed ACO before it is approved for the Shared Savings Program using aggregated claims data provided by CMS. The standard for antitrust compliance did not change from the proposed rule. However, CMS indicated in the final rule that it will not condition Shared Savings Program eligibility based on whether an ACO has obtained the requisite letter from relevant antitrust agencies.

Organizational Governance

Under the final rule, CMS opens the door for some additional flexibility with respect to ACO organizational governance. Under the final rule, an ACO must have an identifiable, transparent, and meaningful governing body to provide oversight, strategic direction, and uphold the necessary fiduciary responsibilities of the ACO organization. CMS abandoned its proposal that the governing body include specific categories of providers, suppliers, or other stakeholders on the governing board. In the application, an ACO can propose innovative ways to assure meaningful participation of these groups. The final rule does continue the 75 percent threshold that requires that 75 percent of governing body be participants in the ACO, thus limiting the participation of health plans or management companies to 25 percent.

The final rule recognizes state, tribal, and federal requirements and permits CMS to consider the existing legal entity of an ACO as long as such entity meets the other requirements. An ACO that includes multiple, independent legal entities that are not under common control such as joint ventures of hospitals and group practices will need to create a new legal entity as well as obtain a separate tax ID number exclusive to the ACO.

CMS will require each ACO to have beneficiary representation on its governing body though the final rule acknowledges that there may be instances that these requirements cannot be met, in which case an ACO will need to specify it in its application and implement other mechanisms to involve consumers and participants in a meaningful way.

Clinical and Quality Assurance Oversight

The final rule requires that an ACO have a senior-level medical director, though the position may function on a part-time basis, to lessen the resource burden for ACOs in rural areas. The final rule also eliminates the requirement that an ACO establish a physician-led quality assurance and process improvement committee. As part of the application process, an ACO will be required to describe how it will establish and maintain an ongoing quality assurance and improvement program.

Marketing Materials

CMS finalized its definition of marketing materials, but in contrast to the proposed rule, ACOs will be allowed to use any marketing materials five days after submission to CMS, if the organization certifies that the marketing materials comply with program requirements. CMS intends to publish “template language” whenever possible. Marketing materials cannot induce, mislead, or discriminate against beneficiaries. They must be written in comprehensible, clear, concise, well-organized fashion. ACOs found not to be in compliance with marketing guidelines will be subject to penalties.

Upfront Payment for Physician-Only, Certain Rural ACOs

CMS has announced an initiative to allow up to 50 ACOs in the Shared Savings Program to receive advance payments that will be recouped from the shared savings they earn. These payments will receive three types of payments including an upfront, fixed payment, an upfront variable payment, and a monthly payment of varying amounts depending on the number of assigned beneficiaries to the ACO.

ACOs are eligible for this payment program if they do not include any inpatient facilities and have less than $50 million in total annual revenue. ACOs in which the only inpatient facilities are Critical Access Hospitals and/or Medicare low-volume rural hospitals and have less than $80 million in total annual revenue will also be eligible. Any ACO co-owned with a health plan is ineligible to receive payments. An ACO must enter the Shared Savings Program in April or July 2012 to qualify for advance payments.

While the final rule addresses some of the practical concerns related to creating an ACO eligible to participate in the Shared Savings Program, there remain a number of financial, legal, organizational, and operational challenges. Many providers are adopting strategies leading toward value-based purchasing and reimbursement under bundled payments under different types of ACO models and structures.