On October 20, the Centers for Medicare & Medicaid Services (“CMS”) released the final rule for accountable care organizations (“ACOs”) under the Medicare Shared Savings Program (“MSSP”).  In addition, CMS issued an interim final rule on waivers for ACOs and the MSSP under the federal physician self-referral, anti-kickback, and civil monetary penalty laws.  Finally, CMS announced a new “Advance Payment ACO Model,” developed by the CMS Innovation Center (“CMMI”), under which ACOs may receive prepayment of a portion of expected future shared savings under the MSSP.

CMS issued the proposed ACO rules on March 31, 2011.  Shortly thereafter, numerous providers and professional societies- including the Cleveland Clinic, the Mayo Clinic, and the American Medical Group Association- announced that they, or their members, would not participate in the MSSP under the proposed regulatory framework.  Among other things, people objected that the proposed MSSP required participants to bear too much financial risk, left participants in the dark as to what Medicare beneficiaries are actually assigned to any given ACO, required the satisfaction of too many quality measures, and generally made it too difficult to become eligible to share in the savings achieved.

In the final ACO rule, CMS has addressed some, though likely not all, of these concerns.  Key changes from the proposed rule include the following:

Click here to view table

CMS will offer start dates of April 1, 2012 and July 1, 2012 for ACOs interested in participating in the MSSP (with corresponding agreement periods of 3 years, 9 months and 3 years, 6 months).  Applications to participate in the MSSP will be accepted beginning in late fall of 2011.  Instructions on how to apply are to be made available soon.

Waiver Rule.   Simultaneously with the final ACO rule, CMS and the Department of Health and Human Services (“HHS”) Office of Inspector General (“OIG”) jointly issued an interim final rule providing waivers from the federal physician self-referral law, anti-kickback statute, and portions of the civil monetary penalty laws for ACOs participating in the MSSP.  The waivers include final rules for two of the waivers initially proposed for distribution of shared savings and arrangements that comply with the federal physician self-referral law and three new waivers that more broadly cover arrangements among ACO participants during the start-up phase prior to participation in the MSSP, arrangements among participants during their participation in the MSSP, and patient incentive arrangements with beneficiaries.

Shared Savings Distribution Waiver.  The federal physician self-referral law, anti-kickback statute, and gainsharing portion of the civil monetary penalty laws are waived with respect to distribution or use of shared savings earned by an ACO if the ACO is a participant in good standing in the MSSP and the shared savings are earned under the MSSP, the shared savings are distributed among ACO participants and providers/suppliers or used for activities related to the purposes of the MSSP, and with respect to waiver of the gainsharing civil monetary penalty law, distributions directly or indirectly from a hospital to a physician are not made knowingly to induce the physician to reduce or limit medically necessary items or services to patients.  In its discussion of this waiver, the regulators indicate that “medically necessary” will be interpreted consistent with Medicare program rules and accepted standards of practice.  Significantly, they also indicate that arrangements to incentivize alternate and appropriate medically necessary care consistent with the purposes of the MSSP, such as through use of evidence-based protocols, are permitted but payments to use a drug or device known to be clinically less effective are prohibited.  Distribution of shared savings obtained from commercial payers are not covered by this waiver, but can be covered by the other waivers discussed below.

Waiver for Compliance with Federal Physician Self-Referral Law. The anti-kickback statute and gainsharing portion of the civil monetary penalty laws are waived for financial relationships among the ACO and its participants and providers/suppliers if the ACO is a participant in good standing in the MSSP, and the financial relationship is reasonably related to the purposes of the MSSP and fully complies with an exception under the physician self-referral law. 

Waiver for Pre-Participation Arrangements.  The federal physician self-referral law, anti-kickback statute, and gainsharing portion of the civil monetary penalty laws are waived with respect to an ACO’s start-up arrangements if all of the following requirements are met:

  • The start-up arrangements are undertaken with good faith intent to develop an ACO and submit an application to participate in the MSSP for a targeted year.
  • The parties to the arrangement include the ACO and at least one ACO participant of the type eligible to form an ACO, and cannot include drug and device manufacturers, distributors, DME suppliers or home health suppliers.
  • The parties must be taking diligent steps to develop an ACO that will meet the eligibility requirements under the MSSP rules, including requirements with respect to governance, leadership and management.
  • The ACO governing body must make a bona fide determination that the arrangement is reasonably related to the purposes of the MSSP;
  • The arrangement, the governing body’s authorization and the diligent steps to develop the ACO are documented contemporaneously, that documentation is retained for at least 10 years, and the documentation contains certain details specified in the waiver rule.
  • The description of the arrangement (not including the financial terms) is publicly disclosed in a manner to be established by HHS.
  • If the ACO does not submit an application for the targeted year, it files a statement on or before the last application due date for the targeted year explaining why it was unable to submit an application.

This waiver is for a limited period defined based on the application timeframe, and may be used by an ACO only one time.  The initial timeframe for ACOs planning to participate in 2012 begins on publication of the rule.

Waiver for Arrangements During MSSP Participation.  The federal physician self-referral law, anti-kickback statute, and gainsharing portion of the civil monetary penalty laws are waived for arrangements of an ACO, one or more of its participants and/or its providers/suppliers, or a combination of those parties, if the following requirements are met:

  • The ACO has entered into an MSSP participation agreement and is in good standing.
  • The ACO meets the requirements of the MSSP rules concerning governance, leadership and management.
  • The ACO’s governing body has made a bona fide determination that the arrangement is reasonably related to the purposes of the MSSP.
  • The arrangement and the ACO governing body’s authorization are documented contemporaneously, that documentation is retained for at least 10 years, and the documentation contains certain details specified in the waiver rule.
  • The description of the arrangement (not including the financial terms) is publicly disclosed in a manner to be established by HHS.

The waiver is effective on commencement of the participation agreement and ends six months after expiration or the ACO’s voluntary termination of the participation agreement.  If CMS terminates the participation agreement, the waiver ends on the date of the CMS termination notice.

Waiver for Patient Incentives.  This waiver provision allows ACOs to provide incentives to Medicare beneficiaries without violating the civil monetary penalty laws addressing beneficiary inducements or the anti-kickback statute.  It allows ACOs and their participants and providers/suppliers to provide items and services to Medicare beneficiaries for free or for below-market value if the following conditions are met:

  • The ACO has entered into an MSSP participation agreement and is in good standing.
  • The items or services provided and medical care of the beneficiary are reasonably connected.
  • The items or services are provided in-kind.
  • The items or services are preventive care items or services or advance one or more of the clinical goals of adherence to a treatment regime, drug regime or follow-up care plan or management of a chronic disease or condition.

Several of the waivers depend on the arrangements being reasonably related to the purposes of the MSSP.  Those purposes are defined in the waiver rule as promoting accountability for quality, cost and overall care for the Medicare patient population; managing and coordinating care for Medicare beneficiaries through the ACO; or encouraging investment and infrastructure and redesigned care processes for high quality and efficient service deliver for patients, including Medicare beneficiaries.

These waivers apply only to participants in the MSSP, and do not apply to Pioneer ACOs, which will be addressed in subsequent guidance.  The waiver rule is effective immediately on publication.

New Advance Payment ACO Model.  In the final ACO rule, CMS estimates that ACOs participating in the MSSP will require an average of $580,000 in start-up investment costs, plus $1.27 million in ongoing annual operating costs.  Recognizing that many groups interested in forming ACOs may lack the necessary capital, CMS issued notice of a test of the Advance Payment Model (“APM”) for ACOs participating in the MSSP.  Under the APM, ACOs may receive an advance of a portion of their expected shared savings under the MSSP.  Selected ACOs will receive three types of payments:

  • An upfront, fixed payment
  • An upfront, variable payment based on the number of Medicare beneficiaries historically attributed to the ACO  
  • A monthly variable payment based on the number of Medicare beneficiaries historically attributed to the ACO 

Advance payments will be recouped through the ACO’s earned shared savings.  CMS will not pursue recoupment of any remaining balance of advance payments, provided that the ACO completes the first agreement period. 

 The APM is open only to the following two types of MSSP ACOs:

  • ACOs that do not include any inpatient facilities and have less than $50 million in total annual revenue; and
  • 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.

ACOs that are co-owned with a health plan will be ineligible for the APM.

For more information about the ACO MSSP final rule, the fraud and abuse waivers interim final rule, and the Advance Payment Model, see the CMS’ MSSP website and the CMMI website.