On March 31, 2011, the Centers for Medicare & Medicaid Services (CMS) proposed highly anticipated regulations setting forth the details of the implementation of new “accountable care organizations” under Section 3022 of the Affordable Care Act (ACA). Specifically, the proposed rule would establish a “Shared Savings Program” intended to encourage physicians, hospitals, and other providers and suppliers to ACOs to create ACOs to provide cost-effective, coordinated patient care. Under the proposed rule, an ACO that meets established quality and performance standards and surpasses a minimum savings target will be able to share a percentage of savings (in additional to traditional fee-for-service payments under Medicare Parts A and B).

The proposed rule addresses numerous policy and operational issues associated with the entities that may form an ACO, beneficiary assignment to an ACO, establishment of quality standards, and calculation of incentive payments, among many others. With regard to calculation of payments, CMS intends to develop a benchmark for expected expenditures for ACO beneficiaries in the absence of the ACO. Each ACO’s performance will be measured against the benchmark to determine whether the ACO qualifies for savings or is accountable for losses (although CMS intends to establish a minimum savings rate that must be exceeded in order for an ACO to qualify for shared savings). If an ACO meets quality standards and achieves savings exceeding the minimum saving rate, the ACO would share in savings, based on the quality score of the ACO. Notably, CMS is proposing that ACOs would be able to choose between one of two program “tracks” for calculating savings: (1) an ACO could operate on a shared saving only track for the first two years, and would be required to assume the risk for shared losses in the third year; (2) an ACO could share in savings and risk liability for losses beginning in its first performance year, in return for a higher share of savings it generates. The quality score used to determine eligibility for incentive payments would be based on quality measures in five key areas designed to align with current CMS incentive programs: patient experience, care coordination, patient safety, preventive health, and at-risk population/frail elderly health.

The proposed rule will be published in the April 7, 2011 issue of the Federal Register. CMS will accept comments on the proposed rule until June 6, 2011, and will respond to comments and issue a final rule later this year. CMS anticipates that the Shared Savings Program will begin operating on January 1, 2012, as mandated by the ACA. In addition to the CMS proposed rule, the federal government released several other documents related to ACOs yesterday, including: