On 19 October 2011, the Centers for Medicare & Medicaid Services (CMS) released a final rule implementing accountable care organizations (ACOs) under the Medicare Shared Savings Program (MSSP or the program). It will be published in the Federal Register on 2 November 2011. Also on 19 October, the Department of Justice (DOJ) and the Federal Trade Commission (FTC) jointly issued a proposed "Statement of Antitrust Policy" regarding ACOs participating in the MSSP, and CMS and the Department of Health and Human Services Office of Inspector General (OIG) issued an interim final rule with comment period regarding waivers of the fraud and abuse laws. On 20 October, the Internal Revenue Service (IRS) issued a notice regarding the tax law implications of ACOs.

The proposed rule, released in March 2011, had been highly anticipated by stakeholders, but was widely criticized as unworkable principally due to the administrative burden of participating in the program and the broadly-held view that the financial incentives were insignificant compared to the risk ACOs would be required to bear. The final rule makes significant changes to increase the appeal of ACOs, and the initial reaction from the provider community and others generally has been positive. It remains to be seen, however, how widespread participation will be, especially in 2012.

The ACO final rule

CMS received over 1,300 comments on the ACO proposed rule. CMS relied on these comments to make important changes to its proposals. These changes generally were designed "to reduce or eliminate prescriptive or burdensome requirements that could discourage participation in the [MSSP] . . . [while] protecting the rights and benefits of . . . Medicare beneficiaries under traditional Medicare to maintain the same access to care and freedom of choice that existed prior to implementation," of the program. These changes affect all aspects of the program design, including the following:

  1. Eligibility to participate
  2. Assignment of beneficiaries and data sharing
  3. Quality reporting and performance requirements
  4. How ACOS will be paid
  5. Additional program requirements and beneficiary protections

With regard to each of these categories, this Health Alert will address provisions of the final rule that have changed from the proposed rule, identifying issues that may be of interest to healthcare providers, practitioners, manufacturers, insurers, health information technology vendors, and others. A detailed description of the proposals that were included in the proposed rule is available in our prior Health Alert regarding that proposed rule.

(1) Eligibility to participate in the MSSP

CMS's proposed rule contained specific criteria for ACO eligibility and the legal structure and governance of ACOs. CMS has eased a number of these requirements to make participation in the MSSP more attractive to providers. The more notable changes in the final rule include that Federally Qualified Health Centers (FQHCs) and Rural Health Centers (RHCs) will be able to independently form ACOs. ACOs will have greater flexibility in the composition of their governing bodies and can avoid certain specific criteria by explaining how a proposed alternative meets program goals, and ACOs will be able to add participants during the period of the agreement. In addition, ACOs will not be required to obtain antitrust clearance prior to participating in the program, as discussed below. CMS also clarified that individual providers and suppliers, identified by a National Provider Identifier (NPI), will be able to participate in more than one ACO. Only the ACO "participant," identified by Taxpayer Identification Number (TIN), will be required to be exclusive to a single ACO, as assignment of beneficiaries to an ACO is based on TINs and not NPIs.

CMS also establishes in the final rule two different options for the start date of the program – April 2012 or July 2012. The first "year" of the program will run to the end of 2013 and thus will be either 21 or 18 months, depending on the start date option chosen by an ACO. The first three-year agreement period will end 31 December 2015, regardless of the chosen start date. CMS expects that the extended first performance year will provide an "on-ramp" for organizations to gain experience with measures reporting and data evaluation. The extended initial performance year will not be available to ACOs joining the MSSP after 2012.

(2) Assignment of beneficiaries to ACOs and data sharing

An ACO is accountable for the care of beneficiaries assigned to it in a performance year. CMS has changed its beneficiary assignment methodology in two important ways. First, it is moving to a more prospective assignment methodology. Second, it is enabling assignment based on primary care services provided by specialists and non-physician practitioners.

In response to comments and concerns about CMS's retrospective assignment methodology, CMS is moving to a "preliminary prospective assignment methodology with final retrospective reconciliation." Under this model, CMS will create a list of beneficiaries likely to receive care from an ACO based on primary care utilization during the most recent period during which adequate data are available and will provide a copy of this list to the ACO. The list will be updated "periodically on a rolling basis" to allow the ACO to adjust to likely changes in its assigned population. At the end of each performance year, CMS will reconcile the list to reflect beneficiaries who actually met the criteria for assignment to the ACO during the performance year; the determination for shared savings or losses for the ACO will be based on this final, reconciled population.

In addition, in the final rule, CMS adopts a "step-wise" assignment process that enables assignment based on primary care services received from specialists as well as from non-physician providers, such as nurse practitioners and physician assistants. Under step 1 of this process, CMS will identify beneficiaries who received at least one primary care service from a primary care physician who is in an ACO. These beneficiaries will be assigned to the ACO if the allowed charges for primary care services furnished by primary care physicians in the ACO are greater than the allowed charges for primary care services furnished by primary care physicians in other ACOs or unaffiliated with any ACO. Step 2 would apply only for beneficiaries who have not received any primary care services from a primary care physician either inside or outside the ACO. Under this step, a beneficiary will be assigned to an ACO if he or she has received at least one primary care service from any physician (regardless of specialty) in the ACO. The beneficiary will be assigned to an ACO if the allowed charges for primary care services furnished by ACO professionals in the ACO (including specialty physicians and non-physician providers) are greater than the allowed charges for primary care services furnished by ACO professionals in another ACO or unaffiliated with any ACO.

The data-sharing proposals are largely unchanged, except that CMS will provide limited, beneficiary-identifiable data quarterly, instead of only at the beginning of the first performance year. CMS will provide the most recent 12 months of data. The more significant change has to do with the beneficiary opt-out provision. ACOs will still be required to notify beneficiaries of their right to opt out of having their data shared with an ACO at the beneficiaries' first point-of-care encounter. However, CMS also will provide a mechanism by which ACOs can notify beneficiaries and request beneficiary-identifiable data in advance of the point-of-care visit using lists of preliminary prospectively assigned patients provided to the ACO. This will enable ACOs to obtain data on beneficiaries whose care the ACO is likely to be accountable before beneficiaries have a face-to-face encounter with the ACO if the beneficiary does not opt-out of data sharing.

(3) Quality reporting and performance requirements

The ability of an ACO to share in savings and the percentage of any savings that it will be entitled to keep depends on the degree to which an ACO meets the applicable quality standards for a given year. In the final rule, CMS has made two especially noteworthy changes related to the applicable quality standards. First, CMS has reduced the total number of quality measures that will be used to assess an ACO's performance. Second, CMS has extended the time frame for implementing "pay for performance" based on those quality measures.

CMS initially proposed to assess an ACO's performance using 65 different quality measures grouped into five categories or "domains." In the final rule, CMS has reduced the total number of quality measures to 33 measures, grouped into four domains: patient/caregiver experience; care coordination/patient safety; preventive health; and at-risk population. The 33 measures adopted for the program are a subset of the measures initially proposed for the program. Each of these 33 measures is weighted equally within each domain (except for the electronic health record (EHR) measure that is given double weight), and each domain is weighted equally in order to calculate an ACO's overall performance score. In selecting the final measure set, CMS eliminated measures perceived as redundant, operationally or administratively complex, or outdated in order to reduce the overall reporting burden for ACOs and to focus on certain "high impact" measures for improving the quality of care and reducing costs. For example, CMS has eliminated many of the proposed individual measures for diabetes and coronary artery disease (CAD) but retained the composite measures for these diseases. Similarly, CMS eliminated two measures related to warfarin therapy because it is investigating whether warfarin therapy is still the appropriate standard of care for patients with atrial fibrillation.

The final rule also provides for a longer and more gradual phase-in period for the "pay for performance" quality standard in order to allow ACOs more time to improve their care processes and outcomes. As in the proposed rule, for the first year of a three-year ACO agreement, the performance standard for ACOs to be eligible for shared savings will be "complete and accurate reporting" for each of the 33 finalized quality measures. For the second year, the performance standard for eight of the measures will continue to be based on reporting, while the remaining 25 measures will be used for "pay for performance," meaning that an ACO must meet the quality performance benchmarks set for each of those measures in order to be eligible for the maximum savings rate. For the third year, 32 measures will be used for "pay for performance." The Health Status/Functional Status measure, which is based on self-reporting by patients, will be a "pay for reporting" measure for all three years of the ACO agreement period. CMS also has relaxed the overall pay-for-performance standard to require ACOs to achieve the quality performance benchmarks on at least 70 percent of the measures in each domain, rather than on every one of the 33 quality measures, in order to earn the maximum savings rate. However, CMS cautions that if an ACO scores a zero for an entire measure domain, it would not be eligible to share any savings for that period. CMS has still not specified the performance benchmarks for the 33 final measures but intends to do so through sub-regulatory guidance at the start of the second year of the three-year ACO agreement period.

(4) How ACOs will be paid under the MSSP

CMS makes several changes to the proposed methods for determining how to pay ACOs under the MSSP in order to improve the "financial attractiveness" of the program, particularly for providers and suppliers that are likely to form smaller ACOs, and to protect against "unintended consequences" for certain groups of beneficiaries, suppliers, and providers.

CMS implements the proposed two-track approach, giving ACOs two options for risk-sharing, with some revisions to encourage broader participation. CMS proposed that Track 1 would require the ACO to share savings only (one-sided model) for two years, followed by a third year of shared savings and losses (two-sided model). The final rule removes the shared losses requirement from Track 1. ACOs that choose Track 1 would share savings, but not losses, during the entirety of their three-year agreement. As proposed, CMS finalized Track 2 as a two-sided model in which an ACO would share both savings and losses for all three years of the agreement. CMS believes that the two-track approach is important for attracting broad participation in the MSSP, but it also recognizes that some new ACOs would benefit from a longer period of sharing savings before transitioning to shared savings and losses.

An ACO would be allowed to remain on Track 1 for only one agreement period. At the end of the first agreement period, if the ACO decides to continue to participate in the MSSP, it would be required to move to the two-sided model of shared savings and losses under Track 2 for the next agreement period.

CMS also revises its policy to allow ACOs that have a net loss in their first agreement period to continue to participate in the MSSP, if they meet all other participation requirements. These ACOs will need to explain the causes for the net loss during their first agreement period and specify the safeguards in place to enable the ACO to achieve savings in the next agreement period. CMS will use its monitoring and termination policies to ensure that ACOs that do not meet the quality standards do not remain in the program.

In addition to changing the two-track approach, CMS revises some elements of the methodology for determining shared savings or losses. First, it is taking a "categorical approach to establishing the benchmark, updating the benchmark, and calculating performance year expenditures." Specifically, for each of these determinations, CMS will use separate cost categories for each of the following populations of beneficiaries: (i) End Stage Renal Disease (ESRD), (ii) disabled, (iii) aged/dual eligible Medicare and Medicaid beneficiaries, and (iv) aged/non-dual eligible Medicare and Medicaid beneficiaries.

Second, CMS is changing its risk adjustment methodology. CMS had proposed to risk adjust the benchmark expenditure using the CMS Hierarchical Condition Category (CMS-HCC) model, but not to update the benchmark annually for any changes in beneficiaries' health status. CMS is modifying its proposal to update annually an ACO's risk score to adjust for changes in severity and case mix for "newly assigned" beneficiaries and also to adjust for health status changes in an ACO's "continuously assigned" population to the extent that population shows a decline in its CMS-HCC risk scores. If the risk scores for continuously assigned beneficiaries do not decline, the benchmark will be adjusted to reflect demographic factors for this population, but not health status.

Third, CMS will exclude indirect medical education (IME) and disproportionate share hospital (DSH) payments from the benchmark and performance expenditures.

Fourth, CMS does not implement the proposal to provide an increase in the maximum sharing rate as an incentive for FQHC and RHC participation as it is now allowing these entities to independently form ACOs. Because this incentive is not implemented, the maximum sharing rate, based on the maximum quality score, will be up to 50 percent in Track 1 and up to 60 percent in Track 2.

Fifth, CMS increases the performance payment limit from 7.5 percent to 10 percent in Track 1 and from 10 percent to 15 percent in Track 2.

Sixth, CMS will share savings with all ACOs at the first dollar after the minimum savings rate is met or exceeded. All other aspects of the methodology for determining an ACO's shared savings or losses were finalized as proposed.

(5) Additional program requirements and beneficiary protections

Many commenters asked CMS to establish program requirements to ensure that beneficiaries are well-informed about their provider's participation in an ACO and the MSSP and to protect beneficiaries' access to care and choice of providers and treatments. In response, CMS revises some of the program requirements and beneficiary protections in the final rule.

One change permits, but does not require, ACOs to notify beneficiaries who appear on the preliminary prospective assignment list and quarterly assignment lists that the ACO participates in the MSSP. Similarly, an ACO also is not required to notify beneficiaries that it did not renew its agreement or was terminated, and ACO participants and ACO providers/suppliers will not be required to notify beneficiaries if they terminate their participation in an ACO.

CMS also clarifies and revises the rules regarding marketing materials used by ACOs. The final definition of "marketing materials" includes materials "used to educate, solicit, notify, or contact Medicare beneficiaries or providers and suppliers regarding the MSSP," and excludes materials that do not include information about the ACO, its ACO participants, or its ACO providers/suppliers. CMS will provide template language that ACOs will be required to use for certain marketing materials. The final regulation also specifies that all ACO marketing materials and activities must comply with the regulation on beneficiary inducements, must not be used in a discriminatory manner or for discriminatory purposes, and must not be inaccurate or misleading.

In addition, CMS will prohibit ACOs from limiting or restricting referrals of patients to ACO participants or ACO providers/suppliers within the same ACO. The prohibition will not apply to referrals made by employees or contractors who are operating within the scope of their employment or contractual arrangement to the employer or contracting entity, provided that the employees and contractors remain free to make referrals without restriction or limitation if the patient expresses a preference for a different provider, practitioner, or supplier; the patient's insurer determines the provider, practitioner, or supplier; or the referral is not in the patient's best medical interests in the judgment of the referring party.

Finally, CMS will retain the right to terminate an ACO's agreement immediately for violations it determines are particularly serious or pose a risk of harm to beneficiaries or access to care.

Other solicitations and guidance

Advanced Payment ACO Model

The same day the final rule was released, CMS also released a solicitation for the Advanced Payment ACO Model. This initiative, developed by the Center for Medicare and Medicaid Innovation (which also developed and is running the Pioneer ACO Model) is intended to increase participation in the MSSP in 2012 by providing payments to certain ACOs that lack access to capital to help them with start-up and initial operating costs. Under this model, ACOs that meet the eligibility criteria can apply for a one-time payment of US$250,000, plus an additional one-time payment, as well as monthly payments through 2014, based on the number of preliminary prospectively assigned beneficiaries. CMS will recoup these payments from shared savings generated by the ACO. The amount recouped will be limited to the amount of shared savings generated. ACOs that complete the agreement period but do not generate shared savings will not be required to repay CMS for the advanced payments received. However, ACOs that receive advanced payments but do not complete the agreement period will be required to repay CMS. A total of US$170 million is available for the model. It will be available only to ACOs that join the program in 2012.

Guidance from other agencies

CMS and the Department of Health and Human Services Office of Inspector General (OIG), the Department of Justice (DOJ), and 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 ACOs.

The OIG/CMS fraud and abuse waivers. Simultaneously, CMS and OIG collectively published an interim final rule with comment period (IFC) in which they announced five new waivers to the following health care fraud and abuse laws: the federal anti self-referral law (Section 1877(a) of the Social Security Act (SSA)) (a/k/a "Stark Law"); the federal healthcare programs antikickback statute (Section 1128B(b)(1) and (2) of the SSA) (a/k/a "Federal AK Law"); the civil money penalty provisions addressing hospital payments to physicians (Section 1128A(b)(1) and (2) of the SSA) (a/k/a "Gainsharing CMP"); and the federal healthcare programs beneficiary inducement civil monetary penalty (section 1128A(a)(5) of the SSA) (a/k/a "Beneficiary Inducement CMP").

After considering the public comments received in response to the proposed rule, the Secretary of Health and Human Services, Kathleen Sebelius determined that these five waivers were necessary to carry out the MSSP. Although all of the specific elements required under each waiver are too voluminous to list here, the five waivers generally can be described as follows:

  1. ACO pre-participation waiver. This waiver applies with respect to start-up arrangements that pre-date an ACO's participation agreement, provided the arrangement is undertaken by a party or parties acting with the good faith intent to (a) develop an ACO that will participate in the MSSP starting in a particular year (the "target year") and (b) submit a completed application to participate in the MSSP for that year, and provided that numerous other express conditions set forth in the IFC are met. (This waiver protects against potential liability under the Stark Law, the Federal AK Law, and the Gainsharing CMP.)
  2. ACO participation waiver. This waiver applies with respect to any arrangement that an ACO, one or more of its ACO participants or its ACO providers/suppliers (or a combination thereof), provided that the ACO has entered into a participation agreement under the MSSP and satisfies numerous other express conditions set forth in the IFC. (This waiver protects against potential liability under the Stark Law, the Federal AK Law, and the Gainsharing CMP.)
  3. Shared savings distribution waiver. This waiver applies with respect to distributions or use of shared savings earned by an ACO under the MSSP, provided that the shared savings are used for activities that are reasonably related to the purposes of the MSSP and that numerous other express conditions set forth in the IFC are met. (This waiver protects against potential liability under the Stark Law, the Federal AK Law, and the Gainsharing CMP.)
  4. Compliance with the Physician Self-Referral Law (Stark) waiver. This waiver applies with respect to any financial relationship between or among the ACO, its ACO participants, and its ACO providers/suppliers that implicates the Physician Self-Referral Law, provided that (a) the ACO has entered into a MSSP participation agreement and is in good standing, (b) the financial relationship is reasonably related to the purposes of the MSSP, and (c) the financial relationship fully complies with a regulatory exception to the Stark Law. (This waiver protects against potential liability under the Federal AK Law and the Gainsharing CMP.)
  5. Waiver for patient incentives. This waiver applies with respect to items or services provided by an ACO, its ACO participants, or its ACO providers/suppliers to beneficiaries for free or below fair-market-value, provided that (a) the ACO has entered into a MSSP participation agreement and is in good standing, (b) there is a reasonable connection between the items or services and the medical care of the beneficiary, (c) the items or services are in-kind, and (4) the items or services are for preventive care or advance one or more clinical goals expressly set forth in the IFC. (This waiver protects against potential liability under the Federal AK Law and the Beneficiary Inducement CMP.)

CMS and OIG clarified in the IFC that each of these waivers is self-implementing, and therefore no special action (apart from complying applicable waiver conditions) is required by parties in order to be covered by a waiver, nor are parties required to apply for an individualized waiver. Further, an arrangement need only fit within one waiver to be protected against potential liability under the specific law waived. Importantly, however, CMS and OIG also reiterated that a waiver of a specific fraud and abuse law is not needed for an ACO arrangement to the extent that it (1) does not implicate the specific fraud and abuse law, or (2) implicates a fraud and abuse law but either fits within an existing exception or safe harbor, as applicable, or does not otherwise violate such law. The failure to fit within any one of these five waivers is not, in and of itself, a violation of any law; instead, as is often the case with health care fraud and abuse laws, each such arrangement would need to be evaluated on a case-by-case basis.

CMS and OIG indicated that these five waivers emanate from their "expectation that ACOs and their constituent parts will act in compliance with program rules and in the best interests of patients and the Medicare program, including the MSSP." But the agencies are taking a "trust but verify" approach by indicating that they will monitor closely ACOs under the MSSP and will narrow the waivers in the future if they determine that the waivers have led to "undesirable effects" such as aberrant patterns of utilization. In addition, CMS and OIG are soliciting comments concerning ways they could narrow the waivers, including by limiting the amount of (1) ACO start-up costs, (2) free goods or services provided to referral sources' patients, (3) information technology, (4) medical training, and (5) care coordination covered by the waivers.

To be assured consideration, comments regarding the IFC must be received by CMS no later than 60 days after the date the IFC is published in the Federal Register (2 November 2011).

The DOJ/FTC Statement of Antitrust Policy regarding ACOs in the MSSP. In connection with publication of the ACO Proposed Rule, the DOJ and FTC (the "Antitrust Agencies" or "Agencies") jointly issued a proposed "Statement of Antitrust Policy" regarding ACOs participating in the MSSP. The final statement is substantially similar to the proposed policy with one very important change. Among other things, the proposed statement had provided that ACOs that exceeded certain minimum share thresholds for any service in which they were bringing together competing providers would have to undergo a mandatory antitrust review; prospective ACOs that failed to get a favorable assessment would not be eligible to participate in the MSSP. The final DOJ/FTC Guidance drops the mandatory review requirement, to the relief of providers who were concerned that it would be burdensome and expensive, and a potential barrier to ACO formation.

The Antitrust Agencies emphasize, however, that while ACOs may bring innovative healthcare approaches that can benefit consumers, they also may have anticompetitive effects. CMS will provide the Agencies with aggregate claims data for all ACOs accepted into the MSSP as well as all applications of newly formed ACOS. The Agencies warn they "will vigilantly monitor complaints about an ACO's formation or conduct and take whatever enforcement action may be appropriate."

Other key provisions of the antitrust statement on ACOs include the following:

  • The Agencies will afford "rule of reason" treatment to negotiations with health plans by ACOs that are participating in the MSSP. This means that these ACOs can be confident that their clinical integration passes antitrust scrutiny, although they can still be challenged on antitrust grounds if the creation of the ACO gives the providers market power.
  • ACOs that fall below certain share thresholds will qualify for an "antitrust safety zone." These thresholds are set relatively low, however, and many ACOs are not likely to qualify. ACOs that do not meet the safety zone requirements may nevertheless be lawful.
  • The Agencies identify several types of conduct that could raise antitrust concerns when engaged in by ACOs with high market shares.  These include:
    • Preventing or discouraging private payers from steering patients to certain providers, such as through "anti-steering" or "guaranteed inclusion" clauses.
    • Tying sales of the ACO's services to the private payer's purchase of other services outside the ACO, e.g. requiring that the purchaser contract with all of the hospitals in a system. Contracting on an exclusive basis with ACO providers so that the providers are not available to contract with payers outside the ACO arrangement.
    • Restricting a payer's ability to make available to its enrollees certain information about cost, quality, efficiency, or performance that could aid enrollees in selecting providers in the health plan.  

This list is instructive even for providers who are not contemplating ACOs – the listed activities are likely to be viewed by the Agencies as conduct that generally may have the potential to impede competitive healthcare markets.

  • Newly formed ACOs can seek an expedited 90-day review from the Agencies. ACOs will wish to carefully consider whether they wish to take advantage of this opportunity. It will entail some burden and expense, but could provide an ACO with greater certainty regarding how their program will be viewed by the federal antitrust enforcers.

All in all, the final statement assures ACO applicants that they will not have to undergo what many feared would be a burdensome antitrust review even before they could get started. While the Agencies are signaling they will continue to look closely at ACO formation and operation, they have furnished some more guidance on how they will approach that task and have identified particular conduct they find troublesome. They also have offered a quick review for those newly formed ACOs that wish to voluntarily subject themselves to agency scrutiny.

IRS fact sheet. On 20 October, the IRS issued a fact sheet that details tax considerations for tax-exempt organizations participating in ACOs. The fact sheet generally refers to previously issued Notice 2011-20 for guidance in evaluating a tax-exempt organization's participation in the MSSP through an ACO. Notice 2011-20, issued in connection with the CMS Notice of Proposed Rulemaking, explained that participation in MSSP through ACOs should not jeopardize an organization's tax-exempt status and should not generate unrelated business income tax (UBIT), although each ACO arrangement would be reviewed based on all facts and circumstances.

In addition, the fact sheet describes how the IRS will evaluate the non-MSSP activities of an ACO, whether tax-exempt status will be granted to an ACO, and addresses certain issues regarding Notice 2011-20.

ACO's non-MSSP activities. According to the IRS, non-MSSP activities conducted by ACOs will be evaluated based on all the facts and circumstances to determine if they jeopardize an organization's tax-exempt status or generate UBIT. The facts and circumstances to be considered include whether the non-MSSP activities:

  • further a charitable purpose described in Code § 501(c)(3);
  • are attributed to the tax-exempt participant or represent an insubstantial part of the participant's total activities; and
  • do not result in inurement of the tax-exempt participant's net earnings or in the participant conferring impermissible private benefit.

The IRS explained that even if the non-MSSP activities do not further a charitable purpose, a tax-exempt organization will not lose its status so long as the activity is either not attributed to the participant, or, if attributed, forms an insubstantial part of the tax-exempt participant's total activities.

ACO's tax status. The IRS also confirmed that it will grant tax-exempt status to an ACO if the ACO is structured as a corporation, furthers a charitable purpose and meets all the other requirements for exemption under Code § 501(c)(3). Both ACOs engaged exclusively in MSSP activities and ACOs that conduct MSSP and non-MSSP activities may qualify for exemption.

Clarification of Notice 2011-20. Finally, the IRS clarified several issues raised in response to Notice 2011-20, explaining that:

  • control by a tax-exempt organization of an MSSP-participating ACO structured as a partnership is not necessary to assure that participation will further the organization's charitable purpose.
  • an ACO need not meet all five factors outlined in Notice 2011-20 to avoid inurement or impermissible private benefit, and no particular factor must be satisfied in all circumstances to prevent inurement or private benefit.
  • shared savings need not be distributed in proportion to the ACO participants' capital contributions.