On March 31, 2011 the Centers for Medicare & Medicaid Services (CMS) released a much-anticipated proposed rule to implement the provisions of the Affordable Care Act (ACA) that establish the Medicare Shared Savings Program (MSSP), which encourages the development of Accountable Care Organizations (ACOs) in Medicare. In addition to the CMS Proposed Rule, the Department of Health and Human Services Office of Inspector General (OIG), the Department of Justice (DOJ), the Federal Trade Commission (FTC), and the Internal Revenue Service (IRS) concurrently released their own notices and statements regarding fraud and abuse issues, and antitrust and tax law implications in connection with the MSSP.

ACA expressly provides that some of the goals of ACOs under the MSSP are to promote accountability for a defined patient population; better coordinate the delivery of care under Medicare Parts A and B; encourage investment in healthcare infrastructure; and redesign care processes for high quality and efficient service delivery. For the first time, the public now has a glimpse into how CMS and the other agencies believe the MSSP should be implemented to achieve these goals. The agencies have invited interested parties to submit written comments on their respective publications anytime before June 6, 2011. This comment period offers an important opportunity to influence the agencies on the contents of the Proposed Rule and notices before the Proposed Rule is finalized and other rules are promulgated.

This Health Alert briefly focuses on the provisions of the CMS Proposed Rule and the CMS/OIG Fraud and Abuse "Waiver" Notice and identifies issues that may be of interest to healthcare providers, practitioners, manufacturers, insurers, health information technology vendors, and others. We encourage you to attend our complimentary webinar on April 20, 2011 from 12:00 – 1:00 to learn more details about this Proposed Rule and the legal and regulatory implications raised by the other pronouncements made by the OIG, DOJ, FTC, and IRS.

The CMS proposed rule

Unlike many Medicare demonstration projects created over the years, the MSSP is a three-year "program" that is scheduled to begin on January 1, 2012, with new three-year cohorts beginning each year thereafter. With regard to establishing and operating the program, CMS's Proposed Rule addresses the following five questions:

  1. What is an ACO and how can it qualify to participate in the MSSP?
  2. How will Medicare beneficiaries be assigned to an ACO and what beneficiary data will be available to an ACO?
  3. How will an ACO be paid under the MSSP?
  4. What quality of care measurements and reporting requirements must an ACO satisfy?
  5. How will the MSSP overlap with other new Medicare payment initiatives?  
  1.  What is an ACO and how can it qualify to participate in the MSSP?

Under the Proposed Rule, each ACO must be a separate legal entity with its own tax identification number. Each ACO must commit to signing a three-year agreement with CMS to participate as an ACO in the MSSP. Each ACO also is required by statute to provide primary care services to a minimum of 5,000 beneficiaries.

The following Medicare-enrolled entities will be eligible to independently form an ACO: (1) ACO professionals (i.e., licensed physicians, physician assistants, nurse practitioners, and clinical nurse specialists) in group practice arrangements; (2) networks of individual practices of ACO professionals; (3) partnerships or joint venture arrangements between hospitals and ACO professionals; (4) hospitals employing ACO professionals; and (5) certain critical access hospitals.

These entities also can form broader collaborations with other Medicare-enrolled providers and suppliers who would not be able to qualify as ACOs on their own. Where there is a broader collaboration, a new legal entity may need to be established to satisfy the proposed ACO governance requirements.  

By statute, each ACO must have a mechanism for shared governance. CMS is proposing that each ACO participant must be represented on the governing body, and the governing body must be at least 75% controlled by ACO participants. In addition, the governing body must have beneficiary representation. With the exception of primary care physicians upon whom beneficiary assignment will be dependent, as discussed below, ACO participants will not be restricted to participating in a single ACO.

  1. How will Medicare beneficiaries be assigned to an ACO and what beneficiary data will be available to an ACO?

Medicare beneficiaries will not be "enrolled" into an ACO. Instead, at the end of a relevant time period, CMS will identify the beneficiaries who received a plurality of primary care services (determined based on allowed charges for certain procedure codes) from the primary care physicians (i.e., physicians practicing in internal medicine, general practice, family practice, or geriatric medicine) within an ACO. Those beneficiaries will be "assigned" to the ACO for that time period and their Medicare expenditures will be used to measure the ACO's financial performance. CMS made it clear that an ACO cannot restrict any beneficiary's freedom to choose any provider or supplier, regardless of whether that provider or supplier is an ACO participant.

CMS is proposing to provide ACOs with certain aggregate and beneficiary-identifiable information for beneficiaries that received the plurality of their primary care services from the ACO in prior years. CMS intends these data to be combined with the data an ACO collects about its beneficiaries to help the ACO identify processes that need to be changed to meet its quality and other objectives. CMS also believes that knowing individuals who would have been assigned to it based on past utilization would help an ACO identify individuals who may benefit from improved care coordination in the future. In addition, CMS is proposing that an ACO could request beneficiary-identifiable claims data for the beneficiaries actually receiving care from the ACO on a monthly basis during the agreement period. CMS believes these data can help an ACO improve individual care, improve population care, and reduce the growth in expenditures for its assigned beneficiary population. Beneficiaries would have the opportunity to opt-out of having CMS share the more specific data with the ACO.

  1. How will an ACO be paid under the MSSP?

CMS is proposing that all ACOs participating in the MSSP (1) will continue to receive Medicare Part A and B payments in the same manner as they would otherwise be made, (2) will be eligible for shared savings, and (3) at some point will be exposed to potential downside risk as well.

ACOs will have the option of participating in the MSSP in one of two ways. ACOs can choose to participate in the MSSP under the "one-sided" risk model for the first two years of the three-year agreement period and for those years would be eligible for shared savings but would not be responsible for any losses. These ACOs would be automatically transitioned to the "two-sided" model in year three of the three-year agreement period and at that point would be eligible for shared savings and responsible for losses. More experienced ACOs that are ready to accept risk will have the option to participate in the two-sided model (i.e., eligibility for shared savings and responsibility for losses) for all three years, and in return will be eligible for a greater percentage of shared savings.

To evaluate an ACO's performance in achieving savings, expenditures for assigned beneficiaries will be compared to a CMS-established benchmark. The benchmark is an estimate of what the total Medicare Part A and B expenditures would otherwise have been in the absence of the ACO. It is based on historical data, and CMS is proposing to trend it forward based on the national growth rate in Medicare Part A and B expenditures (instead of on a flat dollar basis or a local growth rate). The benchmark would be updated for each year within the three-year agreement by the projected absolute amount of growth in national per capita expenditures, as required by statute. CMS is proposing that both the benchmark and actual expenditures be adjusted by the same health risk adjustment model used in the Medicare Advantage program, among other adjustments.

The amount by which an ACO's expenditures for assigned beneficiaries must be below the benchmark in order for the ACO to be eligible for shared savings, or the minimum savings rate (MSR), will vary. For ACOs in the one-sided model, CMS is proposing an MSR that would range between 2% and 3.9% depending on the size of the ACO. CMS is proposing that smaller ACOs have a higher MSR because CMS expects such ACOs to have greater cost variation and wants to be sure that any savings are actually a result of the ACO's efforts to coordinate care. Under the two-sided model, CMS is proposing a flat MSR of 2%. With regard to losses, CMS is proposing that an ACO in the two-sided model would become accountable for shared losses only after the expenditures for assigned beneficiaries exceed the benchmark by more than 2%.

Once an ACO surpasses its MSR, it becomes eligible for shared savings. The sharing rate for ACOs in the one-sided model may be as high as 52.5% (up to 50% based on quality performance plus up to an additional 2.5% for including Federally Qualified Health Centers (FQHCs) and/or Rural Health Centers (RHCs) in the ACO). With certain exceptions for small and rural hospitals, an ACO in the one-sided model would be eligible to share only in savings net of a 2% threshold, calculated as 2% of the ACO's benchmark. The amount an ACO would be able to receive as shared savings would be capped at 7.5% of the benchmark under the one-sided model.

The incentives are greater for ACOs in the two-sided model as such ACOs are accountable for losses as well as eligible for shared savings. First, such ACOs would be eligible for shared savings on a first dollar basis instead of only for savings net of the 2% threshold applicable under the one-sided model. Also, the sharing rate could be as high as 65%; up to 60% based on quality performance and up to 5% for including FQHCs and/or RHCs as participants in the ACO. Finally, the cap on the total amount of shared savings that the ACO could receive under the two-sided model would be higher than under the one-sided model, at 10% of the benchmark.

Once an ACO becomes accountable for losses (in year three for ACOs that initially participate in the one-sided model or at the outset for ACOs initially participating in the two-sided model), liability will begin on a first dollar basis. The sharing rate for losses would reflect an ACO's quality performance and inclusion of FQHCs and/or RHCs, and drive the rate lower. Losses also would be capped. CMS is proposing a three-year phase-in with a cap of 5% of the benchmark the first year, 7.5% the second year, and 10% the third year.

For all ACOs, CMS is proposing that a 25% withholding rate will be applied annually to any earned performance payment. This is to encourage ACOs to participate for all three years of their agreements and to ensure that ACOs have an adequate repayment mechanism in the event they incur losses. CMS believes that additional assurances are needed regarding Medicare repayment. Thus CMS is proposing also to require that an ACO establish a self-executing method for repaying losses, such as obtaining reinsurance or surety bonds. CMS is proposing that an ACO that experiences a net loss during its first three-year agreement period may not reapply to participate in the MSSP.

  1. What quality of care measurement and reporting requirements must an ACO satisfy?

An important aspect of the MSSP is measuring an ACO's performance on quality measures because such performance will be used to determine the "savings rate," i.e., the amount of any shared savings for which the ACO may be eligible. CMS has identified 65 different measures against which it proposes to evaluate ACOs, many of which are drawn from existing quality reporting and incentive programs. The 65 proposed measures fall into five categories of quality performance standards or "domains" (each weighted equally): patient/caregiver experience; care coordination; patient safety; preventive health; and at-risk population/frail elderly health. For each of the 65 proposed measures, CMS has provided a description and dictated a method of data submission. Results will be reported for each measure via claims, a new Group Practice Reporting Option data collection tool based on the data tool used for the Physician Quality Reporting System (PQRS), or survey instruments. For the first year of the three-year ACO agreement, CMS has proposed that the quality performance standard should be at the level of "full and accurate reporting." For the following two years, CMS proposes that quality be evaluated on a "measures scale" with a minimum attainment level and a performance benchmark. CMS has not yet specified the standards against which an ACO's quality performance will be measured for the second and third years but notes that it will do so in a future rulemaking. Failure to meet the minimum attainment level of a quality measure will result in a warning from CMS, and failure to improve the following year will lead to termination.

  1. How will the MSSP overlap with other new Medicare payment initiatives?

In the Proposed Rule, CMS discusses overlap between the MSSP and other shared savings initiatives. First, as required by statute, providers of services or suppliers that participate in the MSSP based on a Medicare-enrolled tax identification number (TIN) will not be able to participate in other shared savings programs, including, for example, the Independence at Home Medicare Practice Demonstration. CMS is proposing however, that individual providers and suppliers participating in an ACO will not be subject to this prohibition, i.e., a provider or supplier who submits claims under multiple Medicare-enrolled TINs may participate in both the MSSP and other shared savings programs if the patient population is unique to each program and none of the Medicare-enrolled TINs participate in both programs. In addition, CMS points out that shared savings programs, including the MSSP, are only one type of value-based purchasing program. ACA also established a Center for Medicare and Medicaid Innovation, through which CMS may test innovative payment and service delivery models. In the Proposed Rule, CMS indicates its intent to test different payment models, including capitation models, that may be incorporated into the MSSP in the future.

The OIG/CMS fraud and abuse "waiver" notice

Simultaneously, CMS and OIG collectively have published a notice (CMS/OIG Notice) seeking comment to CMS on the ways in which those agencies should exercise their authority to waive certain provisions of the fraud and abuse laws for ACOs formed in connection with the MSSP "so that the laws do not unduly impede development of beneficial ACOs, while also ensuring that ACO arrangements are not misused for fraudulent or abusive purposes that harm patients or Federal health care programs." Considerably less detailed than the CMS Proposed Rule, the CMS/OIG Notice merely sets out a framework for thinking about waivers to three federal laws that restrict payments among healthcare providers: the "Stark" anti self-referral law (Section 1877(a) of the Social Security Act (SSA)), the federal healthcare programs antikickback statute (Section 1128B(b)(1) and (2) of the SSA), and the civil money penalty provisions addressing hospital payments to physicians (Section 1128A(b)(1) and (2) of the SSA).

In brief, eligible ACOs under the MSSP would be relieved from the restrictions in these three fraud and abuse laws in the following four circumstances:

  • Stark law: With respect to distributions of shared savings received by an ACO from CMS under the MSSP: (1) to or among ACO participants, ACO providers/suppliers, and individuals and entities that were ACO participants or ACO providers/suppliers during the year in which the shared savings were earned; or (2) for activities necessary for and directly related to the ACO's participation in and operations under the MSSP.
  • Antikickback law: Same as Stark Law, and in addition (3) with respect to financial arrangements between or among the ACO, ACO participants, and ACO providers/suppliers necessary for and directly related to the ACO's participation in and operations under the MSSP that implicate the Stark law and fully comply with a Stark Law exception.
  • Hospital-physician CMP: Same protection for financial arrangements that qualify for a Stark Law exception, and in addition (4) distributions of shared savings received by an ACO from CMS under the MSSP from a hospital to a physician provided that the payments are not made knowingly to induce the physician to reduce or limit medically necessary items or services, and the hospital and physician are ACO participants or providers/suppliers or were ACO participants or ACO providers/suppliers during the year in which the shared savings were earned by the ACO.

The application of these statements of principle will have to await further explanation of key terms (e.g. "necessary for and directly related to the ACO's participation in and operations" under the MSSP).

In addition to soliciting comment on these proposals, CMS/OIG invite comment on the following areas, intended to help them balance the interests of supporting beneficial ACOs while still protecting patients and programs from fraud and abuse harms. In each case, the agencies seek comment on the exact types of expenses and financial arrangements that ought to be protected, and specific safeguards, including whether standards such as commercial reasonableness and/or fair market value should be applied:

  • Financial arrangements related to establishing the ACO, such as formation, implementing governance and administrative requirements, and building technological or administrative capacity
  • Arrangements relating to ongoing operations and achieving ACO goals that do not involve distribution of shared savings, but are nonetheless necessary for and directly related to ACO operation or necessary for and directly related to achieving the integrated care, cost savings, and quality goals of the MSSP
  • Arrangements between ACO participants and outside entities that do not involve distribution of shared savings, but are nonetheless necessary for and directly related to ACO operation or necessary for and directly related to achieving the integrated care, cost savings, and quality goals of the MSSP
  • Distribution of shared savings or similar payments received from private payers
  • Other financial arrangements for which a waiver would be necessary (including why the arrangement is necessary to the ACO's operation and is not addressed by existing exceptions or safe harbors)
  • Different waivers that might be appropriate where ACOs place their ACO participants or ACO providers/suppliers at financial risk, including especially comments addressing risks of overutilization and underutilization
  • Use of existing exception and safe harbor for electronic health records (i.e., whether waivers be provided for ACO arrangements that satisfy these provisions but are expected to occur after the sunset date (2013))
  • Beneficiary inducements
  • Duration, scope, and timing of waivers
  • Innovation Center waivers (i.e., additional waivers that might be appropriate for demonstration projects operated by the new CMS Innovation Center)

These pronouncements reveal much about how CMS and the other agencies desire to implement the MSSP, but many questions remain. CMS and the other agencies will accept comments on the Proposed Rule and other notices through June 6, 2011, and therefore we encourage you to listen to the complimentary webinar we are presenting on April 20, 2011 so that you can learn more about the Proposed Rule, the related fraud and abuse, antitrust and tax issues, as well as the key open questions that your organization may wish to have CMS or the other agencies address before final rules and regulations are issued later this year.