Federal Register, Volume 76 Issue 67 (Thursday, April 7, 2011)

[Federal Register Volume 76, Number 67 (Thursday, April 7, 2011)]
[Proposed Rules]
[Pages 19528-19654]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-7880]

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Vol. 76

Thursday,

No. 67

April 7, 2011

Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

Office of the Inspector General

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42 CFR Part 425

Medicare Program; Medicare Shared Savings Program: Accountable Care
Organizations and Medicare Program: Waiver Designs in Connection With
the Medicare Shared Savings Program and the Innovation Center; Proposed
Rule and Notice

Federal Register / Vol. 76, No. 67 / Thursday, April 7, 2011 /
Proposed Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 425

[CMS-1345-P]
RIN 0938-AQ22

Medicare Program; Medicare Shared Savings Program: Accountable
Care Organizations

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would implement section 3022 of the
Affordable Care Act which contains provisions relating to Medicare
payments to providers of services and suppliers participating in
Accountable Care Organizations (ACOs). Under these provisions,
providers of services and suppliers can continue to receive traditional
Medicare fee-for-service payments under Parts A and B, and be eligible
for additional payments based on meeting specified quality and savings
requirements.

DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. on June 6, 2011.

ADDRESSES: In commenting, please refer to file code CMS-1345-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four ways (please choose only one
of the ways listed):
1. Electronically. You may submit electronic comments on this
regulation to http://www.regulations.gov. Follow the ``Submit a
comment'' instructions.
2. By regular mail. You may mail written comments to the following
address ONLY: Centers for Medicare & Medicaid Services, Department of
Health and Human Services, Attention: CMS-1345-P, P.O. Box 8013,
Baltimore, MD 21244-8013.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments to
the following address only: Centers for Medicare & Medicaid Services,
Department of Health and Human Services, Attention: CMS-1345-P, Mail
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
4. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments before the close of the comment period
to either of the following addresses: a. For delivery in Washington,
DC--Centers for Medicare & Medicaid Services, Department of Health and
Human Services, Room 445-G, Hubert H. Humphrey Building, 200
Independence Avenue, SW., Washington, DC 20201.
(Because access to the interior of the Hubert H. Humphrey Building
is not readily available to persons without Federal government
identification, commenters are encouraged to leave their comments in
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing
by stamping in and retaining an extra copy of the comments being
filed.)
b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid
Services, Department of Health and Human Services, 7500 Security
Boulevard, Baltimore, MD 21244-1850.
If you intend to deliver your comments to the Baltimore address,
please call telephone number (410) 786-7195 in advance to schedule your
arrival with one of our staff members.
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
Submission of comments on paperwork requirements. You may submit
comments on this document's paperwork requirements by following the
instructions at the end of the ``Collection of Information
Requirements'' section in this document.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Dr. Terri Postma (410)786-8084.

SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following Web
site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to
view public comments.
Comments received timely will also be available for public
inspection as they are received, generally beginning approximately 3
weeks after publication of a document, at the headquarters of the
Centers for Medicare & Medicaid Services, 7500 Security Boulevard,
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30
a.m. to 4 p.m. To schedule an appointment to view public comments,
phone 1-800-743-3951.

Table of Contents

To assist readers in referencing sections contained in this
preamble, we are providing a table of contents.

I. Background
A. Introduction and Overview of Value-Based Purchasing
B. Statutory Basis for the Medicare Shared Savings Program
C. Overview and Intent of the Medicare Shared Savings Program
D. Related Affordable Care Act Provisions
1. Establishment of Center for Medicare and Medicaid Innovation
(Innovation Center)
2. Independence at Home Medical Practices
3. State Option To Provide Health Homes
4. Community Health Teams
E. Related Ongoing CMS Efforts
1. Physician Group Practice Demonstration
2. Medicare Health Care Quality Demonstration
II. Provisions of the Proposed Rule
A. Organizations of the Proposed Rule
B. Eligibility and Governance
1. Eligible Entities
2. Legal Structure and Governance
a. Legal Entity
b. Governance
c. Composition of the Governing Body
3. Leadership and Management Structure
4. Accountability for Beneficiaries
5. Agreement Requirement
6. Distribution of Savings
7. Sufficient Number of Primary Care Providers and Beneficiaries
8. Required Reporting on Participating ACO Professionals
9. Processes To Promote Evidence-Based Medicine, Patient
Engagement, Reporting, and Coordination of Care
a. Processes To Promote Evidence-Based Medicine
b. Processes To Promote Patient Engagement
c. Processes To Report on Quality and Cost Measures
d. Processes To Promote Coordination of Care
10. Patient Centeredness Criteria
a. Beneficiary Experience of Care Survey
b. Patient Involvement in Governance
c. Evaluation of Population Health Needs and Consideration of
Diversity
d. Implementation of Individualize Care Plans and Integration of
Community Resources
11. ACO Marketing Guidelines
12. Program Integrity Requirements
a. Compliance Plans
b. Compliance With Program Requirements
c. Conflicts of Interest
d. Screening of ACO Applicants
e. Prohibition on Certain Required Referrals and Cost Shifting
C. Establishing the 3-YearAgreement With the Secretary

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1. Options for Start Date of the Performance Year
2. Timing and Process for Evaluating Shared Savings
3. Data Sharing
4. Sharing Aggregate Data
5. Identification of Historically Assigned Beneficiaries
6. Sharing Beneficiary Identifiable Claims Data
a. Legal Authority To Provide Beneficiary Identifiable Data to
ACOs
(1) Sharing Data Related to Medicare Parts A and B
(2) Sharing Data Related to Medicare Part D
b. Beneficiary Opportunity To Opt Out of Claims Data Sharing
7. New Program Standards Established During 3-Year Agreement
Period
8. Managing Significant Changes to the ACO During the Agreement
Period
9. Future Participation of Previously Terminated Program
Participants
D. Assignment of Medicare Fee-For-Service Beneficiaries
1. Operational Identification of an ACO
2. Definition of Primary Care Services
3. Prospective vs. Retrospective Beneficiary Assignment to
Calculate Eligibility for Shared Savings
4. Majority vs. Plurality Rule for Beneficiary Assignment
5. Beneficiary Information and Notification
E. Quality and Other Reporting Requirements
1. Introduction
2. Proposed Measures To Assess the Quality of Care Furnished by
an ACO
a. General
b. Considerations in Selecting Measures
1. Use of Measures
2. Scoring Methodology
c. Proposed Quality Measures for Use in Establishing Quality
Performance Standards that ACOs Must Meet for Shared Savings
3. Requirements for Quality Measures Data Submission by ACOs
a. General
b. GPRO Tool
c. Certified EHR Technology
4. Quality Performance Standards
a. General
b. Option 1--Performance Scoring
(1) Measure Domains and Measures Included in the Domains
(2) Methodology for Calculating a Performance Score for Each
Measure Within a Domain
(3) Methodology for Calculating a Performance Score for Each
Domain
(4) The Quality Performance Standard Level
c. Option 2--Quality Threshold
(1) Minimum Quality Threshold
(2) Considerations in Establishing a Quality Threshold
5. Incorporation of Other Reporting Requirements Related to the
Physician Quality Reporting System and Electronic Health Records
Technology Under Section 1848 of the Act
6. Public Reporting
7. Aligning ACO Quality Measures with other Laws and Regulations
F. Shared Savings Determination
1. Background
2. Overview of Shared Savings Determination
3. Establishing an Expenditure Benchmark
a. Background
b. Option 1
c. Option 2
d. Summary
4. Adjusting the Benchmark and Average Per Capita Expenditures
for Beneficiary Characteristics
5. Technical Adjustments to the Benchmark Impact of IME and DSH
6. Technical Adjustments to the Benchmark Impact of Geographic
Payment Adjustments on the Calculation of the Benchmark
7. Technical Adjustments to the Benchmark Impact of Bonus
Payments and Penalties on the Calculation of the Benchmark and
Actual Expenditures
8. Trending Forward Prior Years' Experience To Obtain an Initial
Benchmark
a. Flat Dollar vs Growth Rate as a Benchmark Trending Factor
b. National vs Local Growth Rate as a Benchmark Trending Factor
9. Updating the Benchmark During the Agreement Period
10. Minimum Savings Rate (MSR) and Sharing Rate
11. Net Sharing Rate
12. Additional Shared Savings Payments
13. Withholding Performance Payments To Offset Future Losses
14. Performance Payment Limit
G. Two-Sided Model
1. Risk-Based Payment Models
2. Two Tracks Provide Incremental Approach to Incorporating Risk
3. Elements of the Two-Sided Model
a. Beneficiary Notification and Protections
b. Eligibility Requirements
c. Quality Performance Measurement and Scoring
d. Shared Savings Methodology
(1) Minimum Savings Rate
(2) Additional Shared Savings Payments
(3) Net Sharing Rate
(4) Calculating Sharing in Losses
(5) Maximum Shared Savings and Shared Loss Caps
e. Ensuring ACO Repayment of Shared Losses
f. Future Participation of Under-performing Organizations
g. Public Reporting
h. Impact on States
4. Verification of Savings and Losses
H. Monitoring and Termination of ACOs
1. Monitoring Avoidance of At Risk Beneficiaries
2. Monitoring Compliance with Quality Performance Standards
3. Terminating an ACO Agreement
4. Reconsideration Review Process
I. Coordination With Other Agencies
1. Waivers of CMP, Anti Kickback, and Physician Self Referral
Laws
2. IRS Guidance Relating to Tax Exempt Organization
3. Antitrust Policy Statement
4. Prohibition Against the Shared Savings Program Participation
by ACOs With Market Power
a. Coordinating the Shared Savings Program Application With the
Antitrust Agencies
b. Competition and Quality of Care
c. Competition, Price, and Access to Care
J. Overlap With Other CMS Shared Savings Initiatives
1. Duplication in Participation in Medicare Shared Savings
Programs
2. Transition of the Physician Group Practice (PGP)
Demonstration Sites Into the Shared Savings Program
3. Overlap With the Center for Medicare & Medicaid Innovation
(Innovation Center Shared Savings Models
III. Collection of Information Requirements
IV. Response to Comments
V. Regulatory Impact Analysis
A. Introduction
B. Statement of Need
C. Anticipated Effects
1. Effects on the Medicare Program
a. Assumptions and Uncertainties
b. Detailed Stochastic Modeling Results
c. Further Considerations
2. Impact on Beneficiaries
3. Impact on Providers and Suppliers
D. Alternatives Considered
E. Accounting Statement and Table
F. Conclusion

Acronyms

ACO Accountable Care Organizations
AHRQ Agency for Healthcare Research and Quality
BCBSMA Blue Cross Blue Shield of Massachusetts
BIPA Benefits Improvement and Protection Act
BQI Better Quality Information
CAD Coronary Artery Disease
CAHPS Consumer Assessment of Health Providers and Systems
CAHs Critical Access Hospitals
CAM Complementary and Alternative Services
CBIC Competitive Bidding Implementation Contractor
CCNC Community Care of North Carolina
CHCs Community Health Centers
CHIP Children's Health Insurance Program
CMMI Center for Medicare and Medicaid Innovation
CMP Civil Monetary Penalties
CMS Centers for Medicare and Medicaid Services
CNM Certified Nurse Midwife
CMS-HCC CMS Hierarchal Condition Category
COPD Chronic Obstructive Pulmonary Disease
CP Certified Psychologist
CSW Clinical Social Worker
CVE Chartered Value Exchange
CWF Common Working File
DHHS Department of Health and Human Services
DM Diabetes Mellitus
DOJ Department of Justice
DRA Deficit Reduction Act of 2005(Pub. L. 109-171)
DSH Disproportionate Share Hospital
DUA Data use Agreement
E&M Evaluation and Management
EDB Enrollment Database
EHR Electronic Health Record

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ESRD End Stage Renal Disease
eRx Electronic Prescribing Incentive Program
FFS Fee For Service
FQHCs Federally Qualified Health Centers
FTC Federal Trade Commission
GAO Government Accountability Office
GPCI Geographic Practice Cost Index
GPRO Group Practice Reporting Option
HAC Hospital Acquired Conditions
HCAHPS Health Care Providers Systems and Surveys
HCC Hierarchal Condition Category
HCO Health Care Organizations
HCPCS Health Care Procedural Coding System
HHA Home Health Agencies
HICN Health Insurance Claim Number
HIPAA Heath Insurance Portability and Accountability Act of 1996
HIE Health Information Exchange
HIT Health Information Technology
HITECH Health Information Technology for Economic and Clinical
Health
HMO Health Maintenance Organization
HRSA Health Resources Services Administration
HVBP Hospital Value Based Purchasing
IHIE Indiana Health Information Exchange
IME Indirect Medical Education
INPC Indiana Network for Patient Care
IOM Institute of Medicine
IPPS Inpatient Prospective Payment System
IQR Inpatient Quality Reporting
IRS Internal Revenue Services
LTCHs Long-Term Acute Care Hospitals
MA Medicare Advantage
MAeHC Massachusetts eHealth Collaborative
MDCs Major Diagnostic Categories
MedPAC Medicare Payment Advisory Commission
MHCQ Medicare Health Care Quality
MMA Medicare Prescription Drug, Improvement, and Modernization Act
MPFS Medicare Physician Fee Schedule
MS-DRGs Medicare Severity-Diagnosis Related Groups
MSP Minimum Savings Percentage
MSR Minimum Savings Rate
NC-CCN North Carolina Community Care Networks
NCH National Claims History
NCQA National Committee for Quality Assurance
NP Nurse Practitioner
NPI National Provider Identifier
NQF National Quality Forum
NYCLIX The New York Clinical Information Exchange
OIG Office of Inspector General
OMB Office of Management and Budget
PA Physician Assistant
PACE Program of All Inclusive Care for the Elderly
PACFs Post-Acute Care Facilities
PCMH Patient Centered Medical Home
PFS Physician Fee Schedule
PGP Physician Group Practice
PHI Protected health information
POS Point of Service
PPO Preferred provider organization
PPS Prospective Payment System
PQRI Physician Quality Reporting Initiative
PQRS Physician Quality Reporting System
PRA Paperwork Reduction Act
PSA Primary Service Areas
RFI Request for Information
RHCs Rural Health Centers
RHQDAPU Reporting Hospital Quality Data for Annual Payment Update
RIA Regulatory Impact Analysis
SNFs Skilled Nursing Facilities
SOR Privacy Act Systems of Record
SSA Social Security Administration
SSN Social Security Number
TIN Tax Identification Number

I. Background

A. Introduction and Overview of Value-Based Purchasing

On March 23, 2010, the Patient Protection and Affordable Care Act
(Pub. L. 111-148) was enacted. Following the enactment of Public Law
111-148, the Health Care and Education Reconciliation Act of 2010 (Pub.
L. 111-152) (enacted on March 30, 2010), amended certain provisions of
Public Law 111-148. These public laws are collectively known as the
Affordable Care Act. The Affordable Care Act includes a number of
provisions designed to improve the quality of Medicare services,
support innovation and the establishment of new payment models in the
program, better align Medicare payments with provider costs, strengthen
program integrity within Medicare, and put Medicare on a firmer
financial footing.
With respect to quality improvement, the Affordable Care Act
includes provisions to expand value-based purchasing, broaden quality
reporting, improve the level of performance feedback available to
suppliers, create incentives to enhance quality, improve beneficiary
outcomes, and increase the value of care.
Value-based purchasing is a concept that links payment directly to
the quality of care provided and is a strategy that can help transform
the current payment system by rewarding providers for delivering high
quality, efficient clinical care. We have significant experience in
developing, refining, and expanding health care quality performance
measures through our experience with value-based demonstration efforts,
noting some of these efforts later in the document, and various
Medicare payment systems. For example, since 2005, we have applied the
Hospital Inpatient Quality Reporting (IQR) Program under the hospital
inpatient prospective payment system. Hospital IQR provides
differential payments to hospitals that meet certain requirements,
including publicly reporting their performance on a defined set of
inpatient care performance measures. Beginning in 2007, under the
physician fee schedule, we have provided for quality measure reporting
through the Physician Quality Reporting System, which includes
incentive payments for eligible professionals who satisfactorily report
data on quality measures for covered professional services furnished to
Medicare beneficiaries. In 2009, Congress passed the Health Information
and Technology for Economic and Clinical Health (HITECH) Act. As part
of the Electronic Health Records (EHR) Incentive Program under HITECH,
we have defined measures for the meaningful use of certified electronic
health records technology and have developed incentive payment programs
for both Medicare and Medicaid providers. We have extended similar
efforts to additional payment systems, including the hospital
outpatient prospective payment system and various post-acute care
systems.
In addition to improving quality, value-based purchasing
initiatives seek to reduce growth in health care expenditures. It is
widely recognized that the trajectory for the nation's health care
spending is unsustainable. Medicare beneficiaries share in the burden
of rising costs, as they pay higher premiums, and larger cost-sharing
obligations and out-of-pocket expenses. The Affordable Care Act
includes a series of reforms expected to significantly slow growth in
the Medicare spending rate while simultaneously strengthening the care
provided to Medicare beneficiaries. These reforms build upon existing
value-based purchasing efforts currently underway within CMS to find
ways to better coordinate care and reduce unnecessary services to lower
the growth in Medicare spending while improving the quality of care
received by beneficiaries.
We view value-based purchasing as an important step to revamping
how care and services are paid for, moving increasingly toward
rewarding better value, outcomes, and innovations instead of merely
volume. In implementing these value-based purchasing initiatives, we
seek to meet certain common goals, as follows:
Improving quality.
++ Value-based payment systems and public reporting should rely on
a mix of standards, processes, outcomes, and patient experience
measures, including measures of care transitions and changes in patient
functional status. Across all programs, we seek to move as quickly as
possible to the use of outcome and patient experience measures. To the
extent practicable and appropriate, these outcome and patient
experience measures should be adjusted

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for risk or other appropriate patient, population, or provider
characteristics.
++ To the extent possible, and recognizing differences in payment
system readiness and statutory authorities, measures should be aligned
across Medicare and Medicaid's public reporting and payment systems. We
seek to evolve a focused core-set of measures appropriate to each
specific provider category that reflects the level of care and the most
important areas of service and measures for that provider.
++ The collection of information should minimize the burden on
providers to the extent possible. As part of that effort, we will
continuously seek to align our measures with the adoption of meaningful
use standards for health information technology (HIT), so the
collection of performance information is part of care delivery.
++ To the extent practicable, the measures used by the Shared
Savings Program should be nationally endorsed by a multistakeholder
organization. We should align measures with best practices among other
payers and the needs of the end users of the measures.
Lowering growth in expenditures.
++ Providers should be accountable for the cost of care, and be
rewarded for reducing unnecessary expenditures and be responsible for
excess expenditures.
++ In reducing excess expenditures, providers should continually
improve the quality of care they deliver and must honor their
commitment to do no harm to beneficiaries.
++ To the extent possible, and recognizing differences in payers'
value-based purchasing initiatives, providers should apply cost
reducing and quality improving redesigned care processes to their
entire patient population.
As noted previously, the Affordable Care Act includes provisions to
expand value-based purchasing, broaden quality reporting, improve the
level of performance feedback available to suppliers, create incentives
to enhance quality, improve beneficiary outcomes, and increase the
value of care. Among these provisions, section 3022 of the Affordable
Care Act requires the Secretary to establish the Medicare Shared
Savings Program (Shared Savings Program), intended to encourage the
development of Accountable Care Organizations (ACOs) in Medicare. The
Affordable Care Act intends the Medicare Shared Saving Program to be a
program ``that promotes accountability for a patient population and
coordinates items and services under parts A and B, and encourages
investment in infrastructure and redesigned care processes for high
quality and efficient service delivery.'' The Shared Savings Program is
a key Medicare delivery system reform initiatives that will be
implemented under the Affordable Care Act and is a new approach to the
delivery of health care aimed at: (1) Better care for individuals; (2)
better health for populations; and (3) lower growth in expenditures. We
refer to this approach throughout the document as the three-part aim.

B. Statutory Basis for the Medicare Shared Savings Program

Section 3022 of the Affordable Care Act amended Title XVIII of the
Social Security Act (the Act) (42 U.S.C. 1395 et seq.) by adding new
section 1899 to the Act to establish a Shared Savings Program that
promotes accountability for a patient population, coordinates items and
services under Parts A and B, and encourages investment in
infrastructure and redesigned care processes for high quality and
efficient service delivery. Section 1899(a)(1) of the Act requires the
Secretary to establish this program no later than January 1, 2012.
Section 1899(a)(1)(A) of the Act further provides that, ``groups of
providers of services and suppliers meeting criteria specified by the
Secretary may work together to manage and coordinate care for Medicare
fee-for-service beneficiaries through an [ACO]''. Section 1899(a)(1)(B)
of the Act also provides that ACOs that meet quality performance
standards established by the Secretary are eligible to receive payments
for ``shared savings''.
Section 1899(b)(1) of the Act establishes the types of groups of
providers of services and suppliers, with established mechanisms for
shared governance, that are eligible to participate as ACOs under the
program, subject to the succeeding provisions of section 1899 of the
Act, as determined appropriate by the Secretary. Specifically, sections
1899(b)(1)(A) through (E) of the Act provide, respectively, that the
following groups of providers of services and suppliers are eligible to
participate:
ACO professionals in group practice arrangements.
Networks of individual practices of ACO professionals.
Partnerships or joint venture arrangements between
hospitals and ACO professionals.
Hospitals employing ACO professionals.
Such other groups of providers of services and suppliers
as the Secretary determines appropriate.
Section 1899(b)(2) of the Act establishes the requirements that
such eligible groups must meet in order to participate in the program.
Specifically, sections 1899(b)(2)(A) through (H) of the Act provide,
respectively, that eligible groups of providers of services and
suppliers must meet the following requirements to participate in the
program as ACOs:
The ACO shall be willing to become accountable for the
quality, cost, and overall care of the Medicare fee-for-service (FFS)
beneficiaries assigned to it.
The ACO shall enter into an agreement with the Secretary
to participate in the program for not less than a 3-year period.
The ACO shall have a formal legal structure that would
allow the organization to receive and distribute payments for shared
savings to participating providers of services and suppliers.
The ACO shall include primary care ACO professionals that
are sufficient for the number of Medicare FFS beneficiaries assigned to
the ACO. At a minimum, the ACO shall have at least 5,000 such
beneficiaries assigned to it in order to be eligible to participate in
the Shared Savings Program.
The ACO shall provide the Secretary with such information
regarding ACO professionals participating in the ACO as the Secretary
determines necessary to support the assignment of Medicare fee-for-
service beneficiaries to an ACO, the implementation of quality and
other reporting requirements, and the determination of payments for
shared savings.
The ACO shall have in place a leadership and management
structure that includes clinical and administrative systems.
The ACO shall define processes to promote evidence-based
medicine and patient engagement, report on quality and cost measures,
and coordinate care, such as through the use of telehealth, remote
patient monitoring, and other such enabling technologies.
The ACO shall demonstrate to the Secretary that it meets
patient-centeredness criteria specified by the Secretary, such as the
use of patient and caregiver assessments or the use of individualized
care plans.
Section 1899(b)(3) of the Act establishes the quality and other
reporting requirements for the Shared Savings Program. For purposes of
quality reporting, section 1899(b)(3)(A) of the Act provides that the
Secretary shall determine appropriate measures to assess the quality of
care furnished by the ACO, such as measures of clinical processes and
outcomes, patient and,

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where practicable, caregiver experience of care, and utilization (such
as rates of hospital admissions for ambulatory care sensitive
conditions). Section 1899(b)(3)(B) of the Act requires an ACO to submit
data in a form and manner specified by the Secretary on measures the
Secretary determines necessary for the ACO to report in order to
evaluate the quality of care furnished by the ACO. This provision
further states that such data may include care transitions across
health care settings, including hospital discharge planning and post-
hospital discharge follow-up by ACO professionals, as determined to be
appropriate by the Secretary. Section 1899(b)(3)(C) of the Act requires
the Secretary to establish quality performance standards to assess the
quality of care furnished by ACOs. That section also requires that the
Secretary shall seek to improve the quality of care furnished by ACOs
over time by specifying higher standards, new measures, or both for
purposes of assessing such quality of care. Finally, section
1899(b)(3)(D) of the Act provides that the Secretary may, as the
Secretary determines appropriate, incorporate reporting requirements
and incentive payments related to the Physician Quality Reporting
System under section 1848 of the Act, including such requirements and
such payments related to electronic prescribing, electronic health
records, and other similar initiatives under section 1848 of the Act,
and may use alternative criteria than would otherwise apply under such
section for determining whether to make such payments. CMS should not
take the incentive payments described in the preceding sentence into
consideration when calculating any payments otherwise made under of
section 1899(d) the Act.
Section 1899(b)(4) of the Act prohibits duplication in
participation in other shared savings programs by participants in the
Shared Savings Program. Specifically, a provider of services or
supplier that participates in any of the following is not eligible to
participate in an ACO under the Shared Savings Program: A model tested
or expanded under section 1115A of the Act that involves shared savings
under this title, any other program or demonstration project that
involves such shared savings, or the Independence at Home Demonstration
under section 1866E of the Act.
Section 1899(c) of the Act provides the Secretary with discretion
to determine an appropriate method to assign Medicare FFS beneficiaries
to an ACO participating in the Shared Savings Program. This discretion
is limited, however, by the fact that under the Act, assignment must be
based on beneficiaries' utilization of primary care services provided
under Medicare by an ACO professional who is a physician as defined in
section 1861(r)(1) of the Act.
Section 1899(d) of the Act establishes the principles and
requirements for payments and treatment of savings under the Shared
Savings Program. Specifically, section 1899(d)(1)(A) of the Act
provides that, subject to the requirements concerning monitoring
avoidance of at-risk patients, payments shall continue to be made to
providers of services and suppliers participating in an ACO under the
original Medicare FFS program under Parts A and B in the same manner as
they would otherwise be made, except that a participating ACO is
eligible to receive payment for shared savings if the following occur:
The ACO meets quality performance standards established by
the Secretary; and
The ACO meets the requirements for realizing savings.
Section 1899(d)(1)(B) of the Act establishes the savings
requirements and the method for establishing and updating the benchmark
against which any savings would be determined. Specifically, section
1899(d)(1)(B)(i) of the Act establishes that, in each year of the
agreement period, an ACO shall be eligible to receive payment for
shared savings only 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.
The Secretary shall determine the appropriate percent of shared savings
to account for normal variation in Medicare expenditures, based upon
the number of Medicare FFS beneficiaries assigned to an ACO. Section
1899(d)(1)(B)(ii) of the Act, in turn, requires the Secretary to
estimate a benchmark for each agreement period for each ACO using the
most recent available 3 years of per beneficiary expenditures for Parts
A and B services for Medicare FFS beneficiaries assigned to the ACO.
This benchmark must be adjusted for beneficiary characteristics and
such other factors as the Secretary determines appropriate and updated
by the projected absolute amount of growth in national per capita
expenditures for Parts A and B services under the original Medicare FFS
program, as estimated by the Secretary. Furthermore, the benchmark must
be reset at the start of each new agreement period.
Section 1899(d)(2) of the Act provides for the actual payments for
shared savings under the Shared Savings Program. Specifically, if an
ACO meets the quality performance standards established by the
Secretary, and meets the savings requirements, a percent (as determined
appropriate by the Secretary) of the difference between the estimated
average per capita Medicare expenditures in the year, adjusted for
beneficiary characteristics, and the benchmark for the ACO may be paid
to the ACO as shared savings and the remainder of the difference shall
be retained by the Medicare program. The Secretary is required to
establish limits on the total amount of shared savings paid to an ACO.
Section 1899(d)(3) of the Act requires the Secretary to monitor
ACOs for avoidance of at-risk patients. Specifically, if the Secretary
determines that an ACO has taken steps to avoid patients at risk in
order to reduce the likelihood of increasing costs to the ACO, the
Secretary may impose an appropriate sanction on the ACO, including
termination from the program. Section 1899(d)(4) of the Act, in turn,
provides that the Secretary may terminate an agreement with an ACO if
it does not meet the quality performance standards established by the
Secretary. Section 1899(e) of the Act provides that chapter 35 of title
44 of the U.S. Code, which includes such provisions as the Paperwork
Reduction Act (PRA), shall not apply to the Shared Savings Program.
Section 1899(f) of the Act further provides the Secretary with the
authority to waive such requirements of sections 1128A and 1128B of the
Act and title XVIII of the Act as may be necessary to carry out the
Shared Savings Program. Section 1899(g) of the Act establishes
limitations on judicial and administrative review of the Shared Savings
Program. This section provides that there shall be no administrative or
judicial review under section 1869 of the Act, section 1878 of the Act,
or otherwise of the following:
The specification of criteria under 1899(a)(1)(B) of the
Act.
The assessment of the quality of care furnished by an ACO
and the establishment of performance standards under 1899(b)(3) of the
Act.
The assignment of Medicare FFS beneficiaries to an ACO
under 1899(c) of the Act.
The determination of whether an ACO is eligible for shared
savings under 1899(d)(2) of the Act and the amount of such shared
savings, including the determination of the estimated average per
capita Medicare expenditures under the ACO for Medicare FFS
beneficiaries

[[Page 19533]]

assigned to the ACO and the average benchmark for the ACO under
1899(d)(1)(B) of the Act.
The percent of shared savings specified by the Secretary
under 1899(d)(2) of the Act and any limit on the total amount of shared
savings established by the Secretary under such subsection.
The termination of an ACO under 1899(d)(4) of the Act for
failure to meet the quality performance standards.
Section 1899(h) of the Act defines some basic terminology that
applies to the Shared Savings Program. Specifically, section 1899(h)(1)
of the Act defines the term ``ACO professional'' as a physician (as
defined in section 1861(r)(1) of the Act) or a practitioner described
in section 1842(b)(18)(C)(i) of the Act (that is, a physician
assistant, nurse practitioner or clinical nurse specialist (as defined
in section 1861(aa)(5) of the Act)). Section 1899(h)(2) of the Act
defines the term ``hospital'' as a hospital (as defined in section
1886(d)(1)(B) of the Act.'' (A ``subsection (d) hospital'' is a
hospital located in one of the fifty States or the District of
Columbia, excluding hospitals and hospital units that are not paid
under the inpatient prospective payment system under section
1886(d)(1)(B) of the Act, such as psychiatric, rehabilitation, long
term care, children's, and cancer hospitals.) Section 1899(h)(3) of the
Act defines the term ``Medicare fee-for-service beneficiary'' as an
individual who is enrolled in the original Medicare FFS program under
Medicare Parts A and B and is not enrolled in a Medicare Advantage (MA)
plan under Medicare Part C, an eligible organization under section 1876
of the Act, or a Program of All-Inclusive Care for the Elderly (PACE)
under section 1894 of the Act.
Section 1899(i) of the Act provides that the Secretary may use
either a partial capitation model or other payment model, rather than
the payment model described in section 1899(d) of the Act, for making
payments under the Shared Savings Program. Sections 1899(i)(2)(B) and
1899(i)(3)(B) of the Act require that any such model maintain budget
neutrality. Specifically, these sections require that any such model
adopted by the Secretary, ``does not result in spending more for such
ACO for such beneficiaries than would otherwise be expended for such
ACO for such beneficiaries for such year if the model were not
implemented, as estimated by the Secretary.''
Finally, section 1899(k) of the Act provides for an extension to
the Physician Group Practice (PGP) demonstration: ``During the period
beginning on the date of the enactment of this section and ending on
the date the program is established, the Secretary may enter into an
agreement with an ACO under the demonstration under section 1866A,
subject to rebasing and other modifications deemed appropriate by the
Secretary.''

C. Overview and Intent of the Medicare Shared Savings Program

The intent of the Shared Savings Program is to promote
accountability for a population of Medicare beneficiaries, improve the
coordination of FFS items and services, encourage investment in
infrastructure and redesigned care processes for high quality and
efficient service delivery, and incent higher value care. As an
incentive to ACOs that successfully meet quality and savings
requirements, the Medicare Program can share a percentage of the
achieved savings with the ACO. In order to meet the intent of the
Shared Savings Program as established by the Affordable Care Act, we
will focus on achieving, as our highest-level goal, the three-part aim,
which consists of the following:
Better care for individuals--as described by all six
dimensions of quality in the Institute of Medicine report: Safety,
effectiveness, patient-centeredness, timeliness, efficiency, and
equity;
Better health for populations with respect to educating
beneficiaries about the upstream causes of ill health--like poor
nutrition, physical inactivity, substance abuse, economic disparities--
as well as the importance of preventive services such as annual
physicals and flu shots; and
Lower growth in expenditures by eliminating waste and
inefficiencies while not withholding any needed care that helps
beneficiaries.
Under the Shared Savings Program, ACOs will only share in savings
if they first generate shareable savings and then meet the quality
standards. In the spirit of the three-part aim and the vision of always
keeping the beneficiary in the forefront of all decisions, we believe
that an ACO should embrace the following goals:
An ACO will put the beneficiary and family at the center
of all its activities. It will honor individual preferences, values,
backgrounds, resources, and skills, and it will thoroughly engage
people in shared decision-making about diagnostic and therapeutic
options.
An ACO will ensure coordination of care for beneficiaries
regardless of its time or place. In an ACO, people will find that they
no longer carry the burden of ensuring that everyone caring for them
has the information they need. Beneficiaries will see that
organizational teamwork improves their health care.
An ACO will attend carefully to care transitions,
especially as beneficiaries journey from one part of the care system to
another.
An ACO will manage resources carefully and respectfully.
It will ensure continual waste reduction, and that every step in care
adds value to the beneficiary. An ACO will be able to make investments
where investments count, and move resources to meet beneficiaries'
needs. Because of its capabilities with respect to prevention and
anticipation, especially for chronically ill people, an ACO will be
able to continually reduce its dependence on inpatient care. Instead,
its patients will more likely be able to be home, where they often want
to be, and, during a hospital admission, they receive assurance that
their discharges will be well coordinated, and that they will not
return due to avoidable complications.
An ACO will be proactive by reaching out to patients with
reminders and advice that can help them stay healthy and let them know
when it is time for a checkup or a test.
An ACO will collect, evaluate, and use data on health care
processes and outcomes sufficiently to measure what it achieves for
beneficiaries and communities over time and use such data to improve
care delivery and patient outcomes.
An ACO will be innovative in the service of the three-part
aim of better care for individuals, better health for populations, and
lower growth in expenditures. It will draw upon the best, most advanced
models of care, using modern technologies, including telehealth and
electronic health records, and other tools to continually reinvent care
in the modern age. It will monitor and compare its performance to other
ACOs, identify and examine new processes for care improvement, and
adopt those approaches that are demonstrated to be effective.
An ACO will continually invest in the development and
pride of its own workforce, including affiliated clinicians. It will
maintain and execute plans for helping build skill, knowledge, and
teamwork.
As proposed in this notice of proposed rulemaking (NPRM), the
Shared Savings Program encourages providers of services and suppliers
to form ACOs that seek to achieve a three-part aim of better care for
individuals, better health for populations, and lower growth in
expenditures. The proposed

[[Page 19534]]

rule establishes the requirements for ACOs to take responsibility for
improving the quality of care they deliver to a group of Medicare FFS
beneficiaries, while lowering the growth in costs, in return for a
share of the resulting savings. In addition to establishing a shared
savings model for rewarding quality and financial performance, the
program also holds ACOs accountable for excess expenditures by
establishing, as an option, a two-sided risk model which requires
repayment of losses to us. This represents a new approach for the
Medicare FFS program, under which providers have traditionally had
little or no financial incentive to coordinate the care for their
patients or to be accountable for the total costs and quality of the
care provided.
Since there is little comparative experience with implementing a
Shared Savings Program and alternative payment models at the national
level, we sought input on the impact of this proposed program from a
wide range of external experts, including credentialed actuaries,
clinical managers, and academic researchers on the potential impact of
the program through, for example, the White House meeting, multiple
listening sessions, Special Open Door Forum on ACOs, Workshop Regarding
ACOs with CMS, OIG, and the Antitrust Agencies, and a Request For
Information. Incorporating their input, we estimate that up to 5
million Medicare beneficiaries will receive care from providers
participating in ACOs, many of which are located in higher cost areas,
and that the program can have a significant impact on lowering Medicare
expenditure growth. Furthermore, projections on the initial impact of
the program by the Congressional Budget Office also suggest the Shared
Savings Program could result in significant savings to the Medicare
program.
We also believe that the Shared Savings Program should provide an
entry point for all willing organizations who wish to move in a
direction of providing value-driven healthcare. Consequently, in
accordance with the authority granted to the Secretary under section
1899(i) of the Act, we are proposing for comment creating and
implementing both a shared savings model (one-sided model) and a shared
savings/losses model (two-sided model). Under this proposal, balanced
maximum sharing rates under the two options to provide greater reward
for ACOs accepting risk while maintaining an incentive to encourage
ACOs not immediately ready to accept risk to participate in the one-
sided model. This approach provides an entry point for organizations
with less experience managing care and accepting financial risk, such
as physician-driven organizations or smaller ACOs, to gain experience
with population management in the FFS setting before transitioning to
more risk.
We believe that ACOs electing to initially enter the one-sided
model automatically transition to a two-sided risk model during the
final year of their initial agreement. We also believe that a two-sided
model that builds off a one-sided model could be offered as an option
at the beginning of the program. We would immediately reward ACOs
electing to enter the two-sided model with higher sharing rates
available under that model. This approach provides an opportunity for
more experienced ACOs that are ready to accept risk to enter a sharing
arrangement that provides greater reward for greater responsibility.
For more detail on the two-sided risk model refer to section II.G. of
this proposed rule.
In addition to the opportunity to implement alternative payment
models such as partial capitation under 1899(i) of the Act, the Center
for Medicare and Medicaid Innovation (Innovation Center), created by
the Affordable Care Act also has authority to test innovative payment
models. As we gain experience with the shared savings model and
alternative payment models, we will continue to refine and improve the
program over time to make it increasingly effective in achieving our
three-part aim of better care for individuals, better health for
populations, and lower growth in expenditures. Finally, in developing
the Shared Savings Program, and in response to stakeholder suggestions,
we have worked very closely with agencies across the Federal government
to develop policies to encourage participation and to ensure a
coordinated and aligned inter- and intra-agency effort in the
implementation of the program. The result of this effort is the release
of several notices with which potential participants are strongly
encouraged to become familiar. Detailed descriptions of these notices
appear in section II.I of this proposed rule, and include: (1) A joint
CMS and DHHS OIG Medicare Program; Waiver Designs in Connection with
the Medicare Shared Savings Program and the Innovation Center; (2) an
Internal Revenue Service (IRS) notice soliciting comments regarding the
need for additional tax guidance for tax-exempt organizations,
including tax-exempt hospitals, participating in the Shared Savings
Program; and (3) a proposed Antitrust Policy Statement issued by the
FTC and DOJ (collectively, the Antitrust Agencies).

D. Related Affordable Care Act Provisions

The Affordable Care Act intends to improve quality and make health
care more affordable through the Shared Savings Program as well as
through other provisions. There are four programs authorized by the
Affordable Care Act discussed later in the document which may affect
Shared Savings Program policy or help to guide future Shared Savings
Program policy, or may intersect with the Shared Savings Program in
other ways.
1. Establishment of Center for Medicare and Medicaid Innovation
(Innovation Center)
Section 1115A of the Act, as added by section 3021 of the
Affordable Care Act, required the establishment of the new Innovation
Center not later than January 1, 2011 to test innovative payment and
service delivery models to reduce program expenditures under Medicare,
Medicaid, and the Children's Health Insurance Program (CHIP) while
preserving or enhancing the quality of care furnished to beneficiaries
under these programs. In selecting such models for testing, the statute
requires the Secretary to give preference to models that also improve
the coordination, quality, and efficiency of health care services
furnished under Medicare, Medicaid, and CHIP.
Section 1115A authorizes the Secretary to expand the duration and
scope of a model being tested through rulemaking (including
implementation on a nationwide basis) to the extent the Secretary--
Determines expected expansion to reduce spending under the
applicable title without reducing the quality of care or improve the
quality of patient care without increasing spending;
Obtains a certification from our Chief Actuary that such
expansion would reduce (or would not result in any increase in) net
program spending under applicable titles; and
Determines that such expansion would not deny or limit the
coverage or provision of benefits under Medicare, Medicaid, or CHIP.
Through the Innovation Center, we plan to explore alternative
payment models for the Shared Savings Program. As we test and refine
these models, gain operational experience, and put the necessary
infrastructure in place to support program wide implementation,
including critical monitoring and

[[Page 19535]]

patient protection infrastructure, we plan to make these options
available under the Shared Savings Program in future rulemaking. Our
intent is to move participants of the demonstration models that have a
demonstrated track record of realizing shared savings and high quality
performance into the Shared Savings Program in future agreement
periods.
2. Independence at Home Medical Practices
Section 1866E of the Act, as added by section 3024 of the
Affordable Care Act authorizes the Secretary to conduct a demonstration
program to test a payment incentive and service delivery model that
utilizes Independence at Home Medical Practices, which are comprised of
physician and nurse practitioner directed home-based primary care
teams, to provide services designed to reduce expenditures and improve
health outcomes for certain Medicare beneficiaries.
Subject to performance on quality measures established for the
demonstration, participating practices may be eligible to receive an
incentive payment in the form of shared savings. In determining whether
savings were generated, the Secretary shall establish an estimated
annual spending target, for the amount the Secretary estimates would
have been spent in absence of the demonstration, for items and services
covered under Parts A and B furnished to applicable beneficiaries for
each qualifying Independence at Home medical practice. A practice is
eligible to receive an incentive payment if actual expenditures for the
year for the applicable beneficiaries it enrolls are less than the
estimated spending target established for the year. An incentive
payment for each year shall be equal to a portion of the amount by
which actual expenditures for applicable beneficiaries under Parts A
and B for the year are estimated to be less than 5 percent less than
the estimated spending target for the year.
3. State Option To Provide Health Homes
Section 1945 of the Act, as added by section 2703 of the Affordable
Care Act authorizes a State option under Medicaid to provide a health
home for individuals with chronic conditions. The definition of the
term ``health home'' is defined as a designated provider (including a
provider that operates in coordination with a team of health care
professionals) or a health team selected by an eligible individual with
chronic conditions to provide health home services. Health home
services are defined as comprehensive and timely high-quality services,
including comprehensive care management; care coordination and health
promotion; comprehensive transitional care, including appropriate
follow-up, from inpatient to other settings; patient and family support
(including authorized representatives); referral to community and
social support services, if relevant; and use of health information
technology to link services, as feasible and appropriate.
Under section 1945 of the Act, States pay the designated provider,
team of health care professionals operating with such a provider, or
health team for the provision of health home services to each eligible
individual with chronic conditions that selects them as their health
home. A State specifies in their State plan amendment the methodology
it will use to determine payment for health home services. The
methodology may be tiered to reflect, with respect to each eligible
individual with chronic conditions, the severity or number of such
individual's chronic conditions or the specific capabilities of the
provider, team of health care professionals, or health team. A time-
limited higher Federal Medicaid matching payment is available for
health home services.
4. Community Health Teams
Section 3502 of the Affordable Care Act requires the Secretary to
establish a program to provide grants to or enter into contracts with
eligible entities to establish community based interdisciplinary,
inter-professional teams (referred to in the statute as ``health
teams'') to support primary care practices, including obstetrics and
gynecology practices, within the hospital service areas served by the
eligible entities. These grants or contracts shall be used to establish
health teams to provide support services to primary care providers and
provide capitated payments to primary care providers as determined by
the Secretary. For purposes of this section, primary care is the
provision of integrated, accessible health care services by clinicians
who are accountable for addressing a large majority of personal health
care needs, developing a sustained partnership with patients, and
practicing in the context of the family and community.
A health team established under a grant or contract must establish
contractual agreements with primary care providers to provide support
services. The team must support patient-centered medical homes, defined
as a mode of care that includes--(1) Personal physicians; (2) whole
person orientation; (3) coordinated and integrated care; (4) safe and
high-quality care through evidence-informed medicine, appropriate use
of health information technology, and continuous quality improvements;
(5) expanded access to care; and (6) payment that recognizes added
value from additional components of patient centered care.
Health teams must also collaborate with local primary care
providers and existing State and community-based resources to
coordinate--(1) disease prevention; (2) chronic disease management; (3)
transitioning between health care providers and settings; and (4) case
management for patients, including children, with priority given to
those amenable to prevention and with chronic diseases or conditions
identified by the Secretary. In collaboration with local health care
providers, a health team must develop and implement interdisciplinary,
interprofessional care plans that integrate clinical and community
preventive and health promotion services for patients, including
children, with a priority given to those amenable to prevention and
with chronic diseases or conditions identified by the Secretary.

E. Related Ongoing CMS Efforts

1. Physician Group Practice Demonstration
We have previous experience developing and implementing shared
savings models through demonstrations. First, under section 412 of the
Medicare, Medicaid, and CHIP Benefits Improvement and Protection Act of
2000 (BIPA), we implemented the Physician Group Practice (PGP)
Demonstration in April of 2005--our first attempt at establishing a
Shared Savings ACO model. The PGP Demonstration offered a unique
payment model by which PGP providers received their normal Parts A and
B FFS payments for services rendered and offered an additional
performance payment for demonstrating ``value.'' The performance
payments were tied directly to achieving targets for process and
outcome quality measures as well as cost savings. The PGP Demonstration
showed that physician-driven organizations are willing to engage in
efforts to improve the overall quality and cost efficiency of care for
the patient population they serve. Under the demonstration, the PGPs
were accountable for a patient population to whom they provided the
plurality of office-based evaluation and

[[Page 19536]]

management care. The assignment of patients to the PGP at the end of
each performance year and data has shown that assigned patients had on
average four or five visits at the PGP during the year. This provided
the opportunity for the organizations to better coordinate services and
improve the quality and efficiency of care provided to Medicare FFS
patients. Medicare patients retained their entitlement to see any
Medicare provider they chose and were not enrolled or required to only
see PGP physicians under the demonstration.
Based on their experience with the PGP demonstration, participants
identified several factors as critical to improving quality and the
opportunity to share savings:
An integrated organization with an environment that
supports expending resources on multiple programs and initiatives to
improve quality and reduce unnecessary services.
Dedicated physician leadership with a proven ability to
motivate physicians to participate in the development and
implementation of quality improvement and other clinical programs and
initiatives.
Health information technology that facilitates the
aggregation and analysis of data, allows patient-level feedback, and
provides alerts and reminders at the point of care.
Experience with non-Medicare payer initiatives,
particularly through a managed care affiliate, to improve quality and
reduce expenditure growth.
Under the demonstration, at the end of the third performance year,
all 10 of the PGPs continued to improve the quality of care for
patients with chronic illness or who required preventive care by
achieving benchmark or target performance on at least 28 out of 32
quality markers for patients with diabetes, coronary artery disease,
congestive heart failure, hypertension, and for cancer screening. Two
of the PGPs achieved benchmark quality performance on all 32 quality
measures. Over the course of the first three years, 6 of the 10 groups
shared in approximately $46 million in savings.
2. Medicare Health Care Quality Demonstration
We have begun testing models under the Medicare Health Care Quality
(MHCQ) Demonstration, created by the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173).
Section 1866C(b) of the Act, as added by section 646 of the MMA,
required the Secretary to establish a 5-year demonstration program
under which the Secretary was required to approve demonstration
projects that examine health delivery factors that encourage the
delivery of improved quality in patient care. Section 3021(c) of the
Affordable Care Act amended section 1866C of the Act to allow the
Secretary to expand, through rulemaking, the duration and scope of a
demonstration the Secretary is conducting under that section to the
extent determined appropriate by the Secretary if the demonstration
meets certain criteria. The MHCQ Demonstration Projects design examine
the extent to which major, multi-faceted changes to traditional
Medicare's health delivery and financing systems lead to improvements
in the quality of care provided to Medicare beneficiaries, without
increasing total program expenditures. We approved one such program,
the Indiana Health Information Exchange (IHIE).
Beginning July 1, 2009, we began the first MHQC project, the IHIE's
implementation of a regional, multi-payer, pay-for-performance and
quality reporting program, based (by-and-large) on a common set of
quality measures. The expectation is such that the IHIE's interventions
provide important empirical evidence on the effectiveness of pay-for-
performance, health IT, and multipayer initiatives in improving the
quality and efficiency of care provided to Medicare beneficiaries.
IHIE aggregates our claims and administrative data in the
demonstration with other data processed in conjunction with its
regional health information exchange (HIE). Data used from the various
sources generate patient-level and provider level quality reports,
alerts, and reminders for participating providers. By incorporating our
data into IHIE's HIE and producing these quality reports, IHIE can
provide participating physicians with a more complete picture of the
care that is or is not being provided to their Medicare patients and
give physicians the information they need to positively impact the
quality and cost of care being provided.
During the demonstration, we review cost and quality data for
Medicare FFS beneficiaries that have at least one office or other
outpatient evaluation and management (E&M) visit with an IHIE
participating physician. It is expected that an estimated 100,000
Medicare beneficiaries residing in the Indianapolis metropolitan area
will meet this criterion in each year of the demonstration.
Quality of care is measured at the population-level (that is,
performance measurement will focus on whether or not the site has
achieved improvements in quality when looking at the entire group of
treated patients) using a set of Medicare specific quality measures.
Improvements in the quality of care provided to Medicare beneficiaries
are determined on the extent to which IHIE participating physicians are
able to reduce the gap between the maximum attainable level for a
quality measure and the baseline performance for the quality measure.
We used approximately 14 ambulatory care quality measures in the first
year, growing to approximately 30 in the fifth year.
Quality-contingent shared savings are available with our
calculating savings in the intervention population by comparing actual
costs to expected costs for treated beneficiaries. Expected costs for
the intervention group are projected using adjusted utilization trends
from a comparison group. In general, calculated Medicare savings are
the difference between the expected costs and actual costs for
beneficiaries in the intervention group. At least 50 percent of shared
savings that are available to be paid for payment to the site are
contingent on quality of care results for the year. Only after quality
of care performance results for a year are determined can the final
amount of shared savings to be paid to the site be determined.

II. Provisions of the Proposed Rule

A. Organization of the Proposed Rule

The remainder of this document is organized as follows: In section
II.A. of this proposed rule, we propose an operational definition of an
ACO for purposes of the shared savings program. In section II.B. of
this proposed rule, we put forth proposed eligibility requirements for
an ACO to participate in this program. In section II.C. of this
proposed rule, we propose requirements for an ACO to commit to a 3-year
participation agreement under this program and present a proposal for
data sharing with ACOs. In section II.D. of this proposed rule, we
discuss our proposed methodology for assigning beneficiaries to an ACO.
In section II.E. of this proposed rule, we present our proposals
regarding quality measures and the methodology for measuring ACO
performance under this program. In section II.F. of this proposed rule,
we discuss our proposed shared savings payment methodology, including
the establishment of an expenditure benchmark, performance target,
minimum savings percentage, sharing rate, performance cap. In section
II.G. of this proposed rule, we discuss our proposal for introducing
risk into the

[[Page 19537]]

shared savings program, the two-sided model and differences from the
one-sided model. In section II.H. of this proposed rule, we discuss our
proposal for monitoring ACO performance and we propose grounds and
procedures for terminating agreements. In section II.I. of this
proposed rule, we discuss our efforts to coordinate the development of
this proposed rule with other Federal agencies to ensure a coordinated
and aligned inter- and intra-agency effort in the implementation of the
program. In section II.J. of this proposed rule, we discuss overlap in
Medicare programs and how this might affect Shared Savings Program
participants. Finally, in section V. of this proposed rule, we present
our Regulatory Impact Analysis, which sets forth an analysis of the
impact of these proposals on affected entities and beneficiaries.
For purposes of this proposed rule, we propose definitions for the
following terms:
Accountable care organization (ACO) means a legal entity
that is recognized and authorized under applicable State law, as
identified by a Taxpayer Identification Number (TIN), and comprised of
an eligible group (as discussed in section II.B. of this proposed rule)
of ACO participants that work together to manage and coordinate care
for Medicare FFS beneficiaries and have established a mechanism for
shared governance that provides all ACO participants with an
appropriate proportionate control over the ACO's decision making
process,
ACO participant means a Medicare-enrolled provider of
services and/or a supplier (as discussed in section II.B. of this
proposed rule, as identified by a TIN).
ACO provider/supplier means a provider of services and/or
a supplier (as discussed in section II.B. of this proposed rule) that
bills for items and services it furnishes to Medicare beneficiaries
under a Medicare billing number assigned to the TIN of an ACO
participant in accordance with applicable Medicare rules and
regulations.

B. Eligibility and Governance

1. Eligible Entities
Section 1899(b) of the Act establishes eligibility requirements for
ACOs participating in the Shared Savings Program. Section 1899(b)(1) of
the Act allows several designated groups of providers of services and
suppliers to participate as an ACO under this program, ``as determined
appropriate by the Secretary,'' and under the condition that they have
``established a mechanism for shared governance.'' The statute lists
the following groups of providers of services and suppliers as eligible
to participate as an ACO:
ACO professionals in group practice arrangements.
Networks of individual practices of ACO professionals.
Partnerships or joint venture arrangements between
hospitals and ACO professionals.
Hospitals employing ACO professionals.
Such other groups of providers of services and suppliers
as the Secretary determines appropriate.
Section 1899(h)(1) of the Act defines an ``ACO professional'' as a
physician (as defined in section 1861(r)(1) of the Act, which refers to
a doctor of medicine or osteopathy), or a practitioner (as defined in
section 1842(b)(18)(C)(i) of the Act, which includes physician
assistants, nurse practitioners, and clinical nurse specialists).
Section 1899(h)(2) of the Act also provides that, for purposes of the
Shared Savings Program, the term ``hospital'' means a subsection (d)
hospital as defined in section 1886(d)(1)(B) of the Act, thus limiting
the definition to include only acute care hospitals paid under the
hospital inpatient prospective payment system (IPPS). Other providers
of services and suppliers that play a critical role in the nation's
health care delivery system, such as Federally qualified health centers
(FQHCs), rural health centers (RHCs), skilled nursing facilities
(SNFs), nursing homes, long-term care hospitals (LTCHs) and critical
access hospitals (CAHs), among others, are not specifically designated
as eligible participants in the Shared Savings Program under section
1899(b)(1) of the Act. We note, however, that the statutorily defined
groups of providers and suppliers that are eligible to participate in
the Shared Savings Program as ACOs, would also have to meet the
eligibility criteria discussed in detail later in this proposed rule in
order to qualify for participation in the program. While the statute
enumerates certain kinds of provider and supplier groups that are
eligible to participate in this program, it also provides the Secretary
with discretion to tailor eligibility in a way that narrows or expands
the statutory list of eligible ACO participants. Therefore, we have
considered whether it would be advisable, at least in the initial stage
of the Shared Savings Program, to--(1) Permit participation in the
program by only those ACO participants that are specifically identified
in the statute; (2) restrict eligibility to those ACO participants that
would most effectively advance the goals of the program; or (3) employ
the discretion provided to the Secretary under section 1899(b)(1)(E) of
the Act to expand the list of eligible groups to include other types of
Medicare-enrolled providers and suppliers identified in the Act.
Some have argued that ACOs would be most effective if they include
certain entities as ACO participants. For example, the Medicare Payment
Advisory Commission (MedPAC) has noted that provider groups with
hospitals in their systems may be most effective in generating savings.
The MedPAC notes that hospitals working with physician teams can
prevent further hospitalizations after discharge and provide ongoing
services to keep the patient as healthy as possible. Also, the savings
generated by ACOs, in many cases, are expected to result from reduced
inpatient admissions. As a result, provider groups with hospitals may
have a greater incentive to coordinate care to ensure that a portion of
the revenue lost from decreased admissions is made up through shared
savings. (To view the MedPAC discussion referenced previously go to:
http://www.medpac.gov/documents/jun09_entirereport.pdf.)
Another option for limiting eligibility would be to restrict
eligibility to only those ACO professionals providing primary care
services. Primary care professionals may have the best opportunity to
reduce unnecessary costs by ensuring care coordination for
beneficiaries with multiple chronic conditions. By coordinating with
specialists to whom the beneficiary has been referred, primary care
providers can reduce unnecessary repetition of laboratory testing or
imaging. By ensuring timely access to the outpatient services, primary
care providers can also reduce the number of avoidable admissions.
Limiting eligibility for the Shared Savings Program to primary care
providers, therefore, may be desirable to emphasize the important role
played by these professionals and ensure a primary care focus for the
program. Adopting either of these approaches would require a narrower
eligibility definition than is permitted (although not required) under
the statute.
However, the benefits of limiting eligibility need to be balanced
against the prospect that such limitations could compromise potential
innovations and forfeit the opportunity to assess new models that could
potentially transform health care in ways that improve quality and
beneficiary satisfaction while better controlling costs. More
importantly, defining eligibility narrowly also has the potential to
impede development of

[[Page 19538]]

ACOs that include other provider and supplier types, especially those
that provide services in rural and other underserved areas. For
example, while section 1899(b)(1) of the Act does not mention certain
entities such as critical access hospital (CAHs), federally qualified
health centers (FQHCs), or rural health clinics (RHCs) in its listing
of entities eligible to form an ACO under the Shared Savings Program
these entities play a critical role in the nation's health care
delivery system, serving as safety net providers of primary care and
other health care and social services in rural and other underserved
areas and for low-income beneficiaries, including those dually eligible
for Medicare and Medicaid. Permitting participation by these groups of
providers and suppliers has the potential to improve coordination and
quality of care for a greater number of beneficiaries in more
communities, while better controlling costs in more varied settings and
across a broader array of providers and suppliers.
Since the statute requires that beneficiary assignment be
determined on the basis of utilization of primary care services
provided by ACO professionals that are physicians, we considered
whether expansion of eligibility would allow additional Medicare
enrolled providers and suppliers to form an ACO to participate in
addition to the four groups specified in section 1899(b)(1)(A)-(D) of
the Act. Specifically, we considered whether it would be feasible for
CAHs, FQHCs, and RHCs to form an ACO or whether it would be necessary
for these entities to join with the four groups specified in section
1899(b)(1)(A)-(D) of the Act in order to meet statutory criteria. We
have especially considered the circumstances of CAHs, FQHCs, and RHCs
because these entities play a critical role in the nation's health care
delivery system, serving as safety net providers of primary care and
other health care and social services. At the same time, the specific
payment methodologies, claims billing systems, and data reporting
requirements that apply to these entities pose some challenges in
relation to their independent participation in the Shared Savings
Program. In order for an entity to be able to form an ACO, it is
necessary that we obtain sufficient data in order to carry out the
necessary functions of the program, including assignment of
beneficiaries, establishment and updating of benchmarks, and
determination of shared savings, if any. As we discuss in section II.D
of this proposed rule, consistent with section 1899(c) of the Act,
which provides that beneficiaries shall be assigned to an ACO based on
their utilization of primary care services furnished by an ACO
professional who is a physician, our proposed methodology for
assignment of beneficiaries is to assign beneficiaries to an ACO on the
basis of receiving a plurality of their primary care services as
described in section II.D. of this proposed rule from a physician, as
defined in section 1861(r)(1) of the Act, with a specialty designation
of general practice, family practice, internal medicine and geriatric
medicine. Thus, as required by the statute, the assignment methodology
requires data that identify the precise services rendered (that is,
primary care HCPCS codes), type of practitioner providing the service
(that is, a MD/DO as opposed to NP, PA, or clinical nurse specialist),
and the physician specialty in order to be able to assign beneficiaries
to ACOs.
At this time, FQHC claims for services furnished prior to January
1, 2011 do not include HCPCS codes that identify the specific service
provided. Thus, although the claims do contain information concerning
the attending physician and the rendering health professional (for
example, physician, physician assistant, nurse practitioner), who
actually provided the service, they do not currently provide for
associating the rendering provider with the specific services furnished
to the beneficiary.
RHCs predominantly provide primary care services to their
populations. Most RHC services are provided by non-physician
practitioners such as PAs and NPs. RHCs submit claims for each
encounter with a beneficiary and receive payment based on an interim
all-inclusive rate for the RHC. As in the case of FQHCs, RHC claims
distinguish general classes of services (for example, clinic visit,
home visit by RHC practitioner, mental health services) by revenue
code, the beneficiary to whom the service was provided, and other
information relevant to determining whether the all-inclusive rate can
be paid for the service. These claims do not include HCPCS codes that
identify the specific service provided. The claims also contain limited
information concerning the individual practitioner, or even the type of
health professional (for example, physician, PA, NP), who provided the
service.
For FQHCs and RHCs, therefore, we currently lack the requisite data
elements (service code, physician, physician specialty, and specific
attribution of services to the rendering health care professionals) in
the claims and payment systems to enable us to determine (1)
beneficiary assignment during the performance year under section
1899(c) of the Act, which requires that assignment to an ACO be based
on utilization of primary care services furnished by a physician; and
(2) expenditures during the 3-year benchmark. In the case of FQHCs, we
recently finalized regulations requiring the collection of HCPCS codes
for services beginning in 2011, in preparation for the development of
the FQHC PPS. However, there is no statutory requirement for collecting
from FQHCs the other data elements, such as the direct link between
provider and service, which would be required for beneficiary
assignment under the Shared Savings Program. Moreover, there is neither
the statutory requirement for collection of HCPCS codes from RHCs nor
any plan to expand this data collection effort to RHCs. In both the
case of FQHCs and RHCs, reporting the information necessary to
participate in the Shared Savings Program would be a significant change
in operations that we are reluctant to impose through regulation
without either a statutory requirement or clear support for such a
regulatory change from the FQHC and RHC community at large that they
would be willing to have all RHC/FQHCs provide this information
uniformly, solely to enable independent formation of an ACO for
purposes of participation in the Shared Savings Program by the subset
of those FQHC/RHCs that choose to do so.
Therefore, in the absence of the data elements required for
assignment of beneficiaries, it is not possible for FQHCs and RHCs to
participate in the Shared Savings Program by forming their own ACOs. It
is, however, possible for them to join as an ACO participant in an ACO
containing one or more of the statutory organizations eligible to form
an ACO (as specified in section 1899(b)(1)(A)-(D) of the Act) and upon
which assignment can be made consistent with the statute and the
assignment methodology proposed in section II.D. of this proposed rule.
However, we note that even in this case, for the reasons stated
previously, we would not have the data necessary to consider FQHC or
RHC patients in the assignment process. Thus, assignment of
beneficiaries to ACOs in which FQHCs and RHCs are participating would
have to be based solely on data from the other eligible ACO
participants upon whom assignment can be based. As the Shared Savings
Program develops, we will continue to assess the possibilities for
collecting the requisite data from FQHCs and RHCs, and in light of any
such developments we will consider

[[Page 19539]]

whether it is possible at some future date for Medicare beneficiaries
to be assigned to an ACO on the basis of services furnished by an FQHC
or RHC, thereby allowing these entities to have their Medicare
beneficiaries included in the ACO's assigned population.
The situation is somewhat more complicated with regard to CAHs.
Section 1834(g) of the Act provides for two payment methods for
outpatient CAH services.
Under the method specified in section 1834(g)(1) of the Act
(referred to as the standard method), facility services are paid at 101
percent of reasonable costs to the CAH through the Medicare fiscal
intermediary or the Medicare Part A/B MAC, while payments for physician
and other professional services are made separately to the physician or
other practitioner under the MPFS through Medicare carriers.
Accordingly, CAHs that bill under the standard method would not submit
claims with information on individual practitioners, or the type of
health professional (for example, physician, PA, NP), that provided a
specific service.
Under the method specified in section 1834(g)(2) of the Act
(referred to as method II), a CAH submits bills for both the facility
and the professional services to its Medicare fiscal intermediary or
its Medicare Part A/B MAC. If a CAH chooses this method for outpatient
services, the physician or other practitioner must reassign his or her
right to bill the Medicare program for those services to the CAH. Under
method II, the CAH receives--(1) 101 percent of the reasonable cost
payment for its facility costs; and (2) 115 percent of the amount
otherwise paid under the MPFS for professional services under Medicare.
Thus, current Medicare payment and billing policies could generally
support the formation of an ACO by a CAH billing under method II.
In summary, in this proposed rule, we considered three options for
defining the range of potentially eligible providers and suppliers that
would be eligible to form an ACO. One option that we considered would
be to limit eligibility initially to the groups specifically identified
in the statute. Under this option, only the four groups specified in
section 1899(b)(1)(A)-(D) of the Act would be eligible to form an ACO
and participate in the program.
A second option would be to narrowly define which groups of
providers of services and suppliers are eligible to form an ACO and
participate in the Shared Savings Program. The approach noted by MedPAC
is one example of this option. This option would require the
participation of a hospital in the ACO so that only partnerships or
joint venture arrangements between hospitals and ACO professionals or
hospitals employing ACO professionals (groups specified in
1899(b)(1)(C)-(D) of the Act) would be eligible to participate in the
program. Another example of this option would be limiting participation
to only those entities comprised of primary care professionals so that
only ACO professionals in group practice arrangements or networks of
individual practices of ACO professionals (groups specified in
1899(b)(1)(A)-(B) of the Act) would be eligible to form an ACO and
participate in the program. This approach would be grounded in the
premise that ACOs should be primary care-focused and that primary care
professionals are in the best position to both reduce the fragmentation
of services and improve the overall quality of care delivered to
Medicare beneficiaries.
Under the third option, the four groups specified in section
1899(b)(1)(A)-(D) of the Act would be eligible to form an ACO and
participate in the program, but in addition, we would employ the
discretion provided to the Secretary under section 1899(b)(1)(E) of the
Act to allow other Medicare enrolled entities, such as CAHs billing
under method II to form an ACO. Additionally, employing Secretarial
discretion to expand the definition of eligible providers or suppliers
would allow other Medicare enrolled entities such as FQHCs and RHCs, to
become ACO participants, if the ACO that is formed is able to meet the
other qualifications to participate in the program.
After evaluating the three options for defining the range of
potentially eligible providers and suppliers, we have decided to
propose the third option. Under this proposal, the four groups
specifically identified in section 1899(b)(1)(A)-(D) of the Act, and
CAHs billing under method II, would have the opportunity to form ACOs
independently. In addition, the four statutorily indentified groups, as
well as CAHs billing under method II, could establish an ACO with
broader collaborations by including additional Medicare enrolled
entities such as FQHCs and RHCs and other Medicare-enrolled providers
and suppliers as defined in the Act as ACO participants. While this
proposal potentially increases the administrative complexity of
implementing the program and could also require stronger measures to
oversee the varied kinds of ACO arrangements that might evolve, we
believe this approach best serves the goals of the program by allowing
greater opportunities for broadly transforming the health care delivery
system and increasing access to high quality and lower cost care under
the Shared Savings Program for Medicare beneficiaries regardless of
where they live. Specifically, this option allows for a wide variety of
ACO configurations that incorporate a broad range of health care
providers and suppliers, including safety net providers, post-acute
care facilities, FQHCs, RHCs, and CAHs, which we believe will enable
ACOs to offer more comprehensive care and better serve the needs of
rural communities. The proposal also offers greater opportunity for
innovation by ACOs in determining the most effective organizational
structure to meet the needs of their respective populations.
In addition to requesting comment on this proposal generally, we
are soliciting comment on the following: (1) The kinds of providers and
suppliers that should or should not be included as potential ACO
participants; (2) the potential benefits or concerns regarding
including or not including certain provider or supplier types; (3) the
administrative measures that would be needed to effectively implement
and monitor particular partnerships; (4) other ways in which we could
employ the discretion provided to the Secretary to allow the
independent participation of providers and suppliers not specifically
mentioned in the statute, for example, through an ACO formed by a group
of FQHCs and RHCs; and (5) any operational issues associated with our
proposal. We will consider whether it would be appropriate to expand
the list of entities eligible to participate in the Shared Savings
Program, either in the final rule or in future rulemaking, if we
determine that it is feasible and consistent with the requirements of
the program for more entities to participate as ACOs. In the interim,
and until such time as FQHCs and RHCs would be eligible to form ACOs or
have their patients assigned to an ACO, we are also proposing to
provide an incentive for ACOs to include RHCs and FQHCs as ACO
participants, by allowing ACOs that include such entities to receive a
higher percentage of any shared savings under the program. We believe
that this proposal to encourage participation by RHCs and FQHCs in ACOs
is appropriate in light of the special role that these entities play in
the health care delivery system, especially in providing care to
otherwise underserved and vulnerable populations. We discuss how this
proposal affects the determination

[[Page 19540]]

of shared savings under the program in section II.F. of this proposed
rule.
2. Legal Structure and Governance
Section 1899(b)(2)(C) of the Act requires an ACO to ``have a formal
legal structure that would allow the organization to receive and
distribute payments for shared savings'' to ``participating providers
of services and suppliers.'' As previously noted, section 1899(b)(1) of
the Act also requires ACO participants to have a ``mechanism for shared
governance'' in order to participate in the program. Operationally, an
ACO's legal structure must provide both the basis for its shared
governance as well as the mechanism for it to receive and distribute
shared savings payments to ACO participants and providers/suppliers.
a. Legal Entity
The ACO's legal entity may be structured in a variety of ways,
including as a corporation, partnership, limited liability company,
foundation, or other entity permitted by State law. As discussed
previously in section II. B. of this proposed rule, and consistent with
section 1899(b)(1)(A)-(D) of the Act, certain specified groups of
providers of services and suppliers who have a mechanism of shared
governance may be eligible to participate as ACOs in the Shared Savings
Program. In addition to the groups specifically identified in the
statute, we are proposing to use the Secretary's discretion under
section 1899(b)(1)(E) of the Act to expand the list of eligible groups
of providers and suppliers that may participate in the Shared Savings
rogram. Specifically, we are proposing that ACOs may incorporate other
groups of Medicare enrolled providers and suppliers, many of whom would
not be able to form ACOs and participate in the program independently.
As described previously, each of the Medicare-enrolled providers and
suppliers that join together to form an ACO is identified by their
Medicare-enrolled TIN and is referred to herein as an ACO participant.
Regardless of whether an ACO participant is able to meet the
eligibility criteria for participation in the Shared Savings Program
independently or must join with others in order to meet criteria, we
propose that the ACO must demonstrate a mechanism of shared governance
that provides all ACO participants with an appropriate proportionate
control over the ACO's decision making process.
In response to the request for information (RFI) that appeared in
the November 17, 2010 Federal Register (75 FR 70165), we received
comments regarding the need for us to remain flexible when defining the
required legal structure to allow for a variety of structural options.
For example, commenters noted that we should permit existing
organizations to participate in the Shared Savings Program instead of
requiring the formation of a new legal entity in order to avoid
additional costs and duplication of organizational competencies.
Commenters also recommended that the legal structure requirements
should not disadvantage solo and small groups of physicians with fewer
resources relative to larger hospital and physician groups by requiring
the use of specific structures that may result in increased costs,
implementation delays, and cumbersome operational requirements for
these smaller entities. Moreover, our intent is to encourage
participation by not-for-profit, community-based organizations.
When considering options for the legal structure of ACOs, we sought
to balance the need for an organization to be recognized by the State
with the need for flexibility to permit the participants to select the
appropriate organizational structure for their ACO. We also considered
the importance of minimizing costs related to organizing as a specific
legal entity. In order to implement the statutory requirements that
ACOs have a shared governance mechanism and a formal legal structure
for receiving and distributing shared payments, we believe that it is
necessary for each ACO to be constituted as a legal entity
appropriately recognized and authorized to conduct its business under
applicable State law in order to best achieve the objectives of the
Shared Savings Program and that it must have a TIN. Therefore, we are
proposing to require an ACO to be an organization that is recognized
and authorized to conduct its business under applicable State law and
is capable of--(1) Receiving and distributing shared savings; (2)
repaying shared losses; (3) establishing, reporting, and ensuring ACO
participant and ACO provider/supplier compliance with program
requirements, including the quality performance standards; and (4)
performing the other ACO functions identified in the statute.
We note that by proposing that the ACO be required to have a TIN,
we are not proposing to require that the ACO itself be enrolled in the
Medicare program, in contrast to this requirement for each ACO
participant.
Also, by proposing that each ACO must be constituted as a legal
entity appropriately recognized and authorized under applicable State
law, we are not proposing to require that existing legal entities
appropriately recognized under State law must form a separate new
entity for the purpose of participating in the Shared Savings Program.
If the existing legal entity meets the eligibility requirements to be
an ACO, as described in this proposed rule, it may operate as an ACO,
as long as it is recognized under applicable State law and is capable
of receiving and distributing shared savings, repaying shared losses,
and performing the other ACO functions identified in the statute and
regulations, including the requirement for shared governance for ACO
participants.
For example, a hospital employing ACO professionals, which is one
of the entities identified in section 1899(b)(1) of the Act, may be
eligible to participate in the Shared Savings Program as an ACO with
its current legal structure, as recognized under applicable State law,
and would not be required to develop a separate new entity. We
recognize, however, that the absence of a separate legal entity to
operate the ACO may make it more difficult for us to audit and
otherwise assess ACO performance. We solicit comment on whether we
should require all ACOs participating in the Shared Savings Program to
be formed as a distinct legal entity appropriately recognized and
authorized to conduct its business under applicable State law or
whether an existing legal entity could be permitted to participate in
the Shared Savings Program as an ACO, including entities that have
similar arrangements with other payors. However, we propose that if an
existing entity, such as a hospital employing ACO professionals would
like to include as ACO participants other providers of services and
suppliers who are not already part of its existing legal structure, a
separate entity would have to be established in order to provide all
ACO participants a mechanism for shared governance and decision making.
We propose that each ACO would certify that it is recognized as a
legal entity under State law and authorized by the State to conduct its
business. In addition, an ACO with operations in multiple States would
have to certify that it is recognized as a legal entity in the State in
which it was established and that it is authorized to conduct business
in each State in which it operates. An ACO must provide in its
application evidence that it is recognized as a legal entity in the
State in which it was established and that it is authorized to conduct
business in

[[Page 19541]]

each State in which it operates. We solicit comment on our proposal for
the required legal structure and seek input on other suitable legal
structure requirements that we should consider adding in the final rule
or through subsequent rulemaking. Moreover, our intent is to encourage
not-for-profit, community-based organizations to participate in the
Shared Savings Program. We request comment on whether requirements for
the creation of a separate entity would create disincentives for the
formation of ACOs and whether there is an alternative requirement that
could be used to achieve the aims of shared governance and decision
making and the ability to receive and distribute payments for shared
savings.
b. Governance
Although section 1899(b)(1) of the Act requires that an ACO have a
``mechanism for shared governance'' and section 1899(b)(2)(F) of the
Act further requires that an ``ACO shall have in place a leadership and
management structure that includes clinical and administrative
systems,'' the statute does not specify the elements that this shared
governance mechanism or the accompanying leadership and management
structures must possess. We believe that such a governance mechanism
should allow for appropriate proportionate control for ACO
participants, giving each ACO participant a voice in the ACO's decision
making process, and be sufficient to meet the statutory requirements
regarding clinical and administrative systems. We envision a mechanism
that is transparent, accountable to the affected beneficiary community,
and also accountable and responsive to the ACO participants and the ACO
providers/suppliers they represent. Further, we would anticipate that
the leadership and management structures would provide for adequate
authority to enable the ACO to execute its core functions of enhancing
the quality, efficiency, and patient-centeredness of the health care
services furnished to assigned beneficiaries.
Commonly used mechanisms for establishing shared governance are a
board of directors, board of managers, or other similar governing
bodies that provide a mechanism for representation and control in
shared decision-making for all ACO participants. Accordingly, we are
proposing that an ACO must establish and maintain a governing body with
adequate authority to execute the statutory functions of an ACO, as
defined by the shared governance criterion described in more detail
later in this proposed rule. The governing body may be a board of
directors, board of managers, or any other governing body that provides
a mechanism for shared governance and decision-making for all ACO
participants, and that has the authority to execute the statutory
functions of an ACO, including for example, to ``define processes to
promote evidence-based medicine and patient engagement, report on
quality and cost measures, and coordinate care,'' as required under
section 1899(b)(1)(G) of the Act. As discussed in more detail later in
the document, this governing body would be comprised of the ACO
participants or their designated representatives, include Medicare
beneficiaries served by the ACO, and possess broad responsibility for
the ACO's administrative, fiduciary, and clinical operations. While the
representatives on the governing body could be serving in a similar or
complementary manner for an ACO participant within the ACO, this body
must be separate and unique to the ACO when the ACO participants are
not already represented by an existing legal entity appropriately
recognized and authorized to conduct its business under applicable
State law. In those instances where the ACO is comprised of a self-
contained financially and clinically integrated entity that has a pre-
existing board of directors or other governing body, such as a hospital
that employs ACO professionals, we are also proposing that the ACO
would not need to form a separate governing body, as long as that
governing body is able to meet all other criteria required for ACO
governing bodies. In this case, the integrated entity's governing body
would be the governing body of the ACO, and the ACO would be required
to provide in its application evidence that its pre-existing board of
directors or other governing body, meets all other criteria required
for ACO governing bodies. Although we wish to provide potential ACOs
with some flexibility on corporate governance and ACO formation, we are
concerned that allowing existing entities to be ACOs would complicate
our monitoring and auditing of the ACO. We solicit comment on this
issue.
Moreover, our intent is to encourage not-for-profit, community-
based organizations to participate in the Shared Savings Program. We
request comment on whether requirements for the creation of a governing
body as a mechanism for shared governance would create disincentives
for the formation of ACOs and whether there is an alternative
requirement that could be used to achieve the aims of shared governance
and decision making.
c. Composition of the Governing Body
For purposes of the Shared Savings Program, the ACO is, by
definition, comprised of groups of Medicare-enrolled providers and
suppliers (ACO participants) that agree to work together to manage and
coordinate care for beneficiaries, and have established a mechanism for
shared governance--as opposed to an outside entity directing their day-
to-day operations. Therefore, we believe that the ACO should be
operated and directed by Medicare-enrolled entities that directly
provide health care services to beneficiaries. Stakeholders have
indicated to us that in the private sector, entrepreneurial management
companies and health plans have expressed interest in forming or
participating in ACOs. Often, small groups of providers lack both the
capital and infrastructure necessary to form an ACO and to administer
the programmatic requirements of the Shared Savings Program and could
benefit from partnerships with non-Medicare-enrolled entities. For this
reason, we propose that in order to be eligible for participation in
the Shared Savings Program, the ACO participants must have at least 75
percent control of the ACO's governing body. In addition, each of the
ACO participants must choose an appropriate representative from within
its organization to represent them on the governing body. This proposal
ensures that ACOs remain provider-driven, but also leaves room for both
non-providers and small provider groups to participate in the program.
We are requesting comment on this proposal for whether more or less
than 75 percent control of the governing body being held by the ACO
participants is an appropriate percentage. We are also requesting
comment on whether the appropriate representative should be held by
persons employed by and representing Medicare-enrolled TINs.
As discussed in more detail later in the document, we believe a
process for integrating community resources is an essential part of
patient centeredness.
We are proposing that ACOs be required to describe how they will
partner with community stakeholders as part of their application. ACOs
that have a community stakeholder organization serving on their
governing body would be deemed to have satisfied that application
criterion.
Additionally, as discussed in more detail later in the document, we
are proposing a requirement that ACOs provide for beneficiary
involvement in

[[Page 19542]]

their governing processes. Specifically, we are proposing that ACOs
will be required to demonstrate a partnership with Medicare FFS
beneficiaries by having beneficiary representation in the ACO governing
body.
3. Leadership and Management Structure
Section 1899(b)(2)(F) of the Act requires an eligible ACO to ``have
in place a leadership and management structure that includes clinical
and administrative systems.'' We believe this structure should align
with and support the goals of the Shared Savings Program and the three-
part aim of better care for individuals, better health for populations,
and lower growth in expenditures. Based on their experience with the
PGP demonstration, participants identified several factors as critical
to improving quality and the opportunity to share savings:
An integrated organization with an environment that
supports expending resources on multiple programs and initiatives to
improve quality and reduce unnecessary services.
Dedicated physician leadership with a proven ability to
motivate physicians to participate in the development and
implementation of quality improvement and other clinical programs and
initiatives.
Health information technology that facilitates the
aggregation and analysis of data, allows patient-level feedback, and
provides alerts and reminders at the point of care.
Experience with non-Medicare payer initiatives,
particularly through a managed care affiliate, to improve quality and
reduce expenditure growth.
In addition, another important factor that must be considered is
whether the leadership and management structure of the ACO should
include appropriate safeguards to ensure the ACO's integration and
likelihood of achieving quality improvements and cost efficiencies. The
Antitrust Agencies have developed criteria to assess whether
collaborations of otherwise competing health care providers should be
condemned as per se illegal under antitrust law or subject to a more
thorough evaluation under the ``Rule of Reason,'' which would examine
likely procompetitive or anticompetitive effects.\1\ To avoid per se
condemnation as ``shams'' that facilitate price fixing or other per se
illegal activities, collaborations of competing health care providers
must show that they are integrated ventures that are likely to, or do,
enable their participants jointly to achieve cost efficiencies and
quality improvements in providing services. The efficiency-enhancing
integration ``must likely generate procompetitive benefits that enhance
the participants' ability or incentives to compete, and thus offset any
anticompetitive tendencies of the arrangement.'' \2\
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\1\ Arizona v. Maricopa County Medical Society, 457 U.S. 332
(1982).
\2\ Letter from Jeffrey Brennan, Assistant Director, Bureau of
Competition, Federal Trade Commission to John J. Miles, Ober, Kaler,
Grimes & Shriver (February 19, 2002), available at http://www.ftc.gov/bc/adops/medsouth.shtm.
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Accordingly, the antitrust perspective focuses on how
collaboration, including coordinated care, can lower costs and improve
quality, just as the intent of the Shared Savings Program under section
1899 of the Act is to promote accountability for Medicare
beneficiaries, improve the coordination of FFS items and services, and
encourage investment in infrastructure and redesigned care processes
for high quality and efficient service delivery. For antitrust
purposes, collaborations of competing health care providers may use
either financial or clinical integration, or both, as means to achieve
cost efficiencies and quality improvements.\3\ To demonstrate financial
integration, participants in collaboration must share substantial
financial risk, so they have the incentive to cooperate in controlling
costs and improving quality by managing the provision of services.\4\
To demonstrate clinical integration, participants must show a degree of
interaction and interdependence among providers in their provision of
medical services that enables them to jointly achieve cost efficiencies
and quality improvements.\5\ The Federal Antitrust Agencies have
concluded that successfully achieving clinical integration requires the
establishment and operation of active and ongoing processes and
mechanisms to facilitate, encourage, and assure the necessary
cooperative interaction.\6\
---------------------------------------------------------------------------

\3\ Department of Justice and Federal Trade Commission,
Statements of Antitrust Enforcement Policy in Health Care, Statement
8 (1996), available at http://www.ftc.gov/reports/hlth3s.pdf.
\4\ Id.
\5\ See, for example, Letter from Markus Meier to John J. Miles,
Ober, Kaler, Grimes & Shriver 7 (June 18, 2007), available at http://www.ftc.gov/bc/adops/070618mewdsouth.pdf.
\6\ Id.
---------------------------------------------------------------------------

We believe that these criteria also provide insight into the
leadership and management structures, including clinical and
administrative systems, necessary for ACOs to achieve the three-part
aim of better care for individuals, better health for populations, and
lower growth in expenditures. We also note that these criteria are very
similar to the factors identified previously by participants in the PGP
demonstration as critical to improving quality and controlling the cost
of health care. Similarly, antitrust analyses have examined whether
participants in such a collaboration are committed to the collective
development and implementation of evidence-based protocols and
benchmarks, to individual and group accountability for adherence to
those protocols and benchmarks, to the development of technology to
facilitate providers' compliance, to the measurement of compliance with
those protocols, and to improved performance with respect to
benchmarks, among other things.\7\
---------------------------------------------------------------------------

\7\ See, for example, Letter from Markus H. Meier, Assistant
Director, Bureau of Competition, Federal Trade Commission to Christi
J. Braun, Ober, Kaler, Grimes & Shriver 8 (April 13, 2009),
available at http://www.ftc.gov/os/closings/staff/090413tristateaoletter.pdf; Letter from Markus H. Meier, Assistant
Director, Bureau of Competition, Federal Trade Commission to Christi
J. Braun & John J. Miles, Ober, Kaler, Grimes & Shriver 7 (Sept. 17,
2007), available at http://www.ftc.gov/bc/adops/gripa.pdf; Letter
from Jeffrey Brennan, Assistant Director, Bureau of Competition,
Federal Trade Commission to John J. Miles, Ober, Kaler, Grimes &
Shriver (Feb. 19, 2002), available at http://www.ftc.gov/bc/adops/medsouth.shtm.
---------------------------------------------------------------------------

It is in the public interest to harmonize the eligibility criteria
for ACOs that wish to participate in the Shared Savings Program with
the similar antitrust criteria on clinical integration. As discussed in
more detail in section II. I. of this proposed rule, competition
between ACOs is expected to have significant benefits for Medicare
beneficiaries, by improving the quality of care they receive,
protecting their access to a variety of providers, and helping to
sustain the Medicare program by controlling costs. Furthermore, because
ACOs that operate in the Shared Savings Program are likely to use the
same organizational structure and clinical care practices to serve both
Medicare beneficiaries and consumers covered by commercial insurance,
the certainty created by harmonizing our eligibility criteria with
antitrust requirements will help to ensure that an ACO organization
participating in the Shared Savings Program will not subsequently face
an antitrust challenge that its conduct is per se illegal, which could
prevent the ACO from fulfilling the 3-year term of its agreement under
the Shared Savings Program.
Accordingly, we believe an ACO, the ACO participants, and ACO
providers/suppliers should demonstrate an organizational commitment to
the Shared Savings Program and the terms of the 3-year agreement, both
as a group and individually, as well as the leadership and management
capabilities

[[Page 19543]]

necessary to achieve the three-part aim by managing and coordinating
the care of assigned Medicare beneficiaries. We note that the statute
permits ACO participants that form an ACO to use a variety of
collaborative organizational structures, including collaborations short
of merger, to evidence the required organizational commitment and
leadership and management capabilities.
Thus, consistent with the requirement in section 1899(b)(2)(F) of
the Act that an ACO have a leadership and management structure that
includes clinical and administrative systems, we are proposing that
ACOs meet the following criteria:
The ACO's operations would be managed by an executive,
officer, manager, or general partner, whose appointment and removal are
under control of the organization's governing body and whose leadership
team has demonstrated the ability to influence or direct clinical
practice to improve efficiency processes and outcomes.
Clinical management and oversight would be managed by a
senior-level medical director who is a board-certified physician,
licensed in the State in which the ACO operates, and physically present
in that State.
ACO participants and ACO providers/suppliers would have a
meaningful commitment to the ACO's clinical integration program to
ensure its likely success. Meaningful commitment may include, for
example, a meaningful financial investment in the ACO, or a meaningful
human investment (for example, time and effort) in the ongoing
operations of the ACO such that the potential loss or recoupment of the
investment is likely to motivate the participant to make the clinical
integration program succeed.
The ACO would have a physician-directed quality assurance
and process improvement committee that would oversee an ongoing quality
assurance and improvement program. The quality assurance program would
establish internal performance standards for quality of care and
services, cost effectiveness, and process and outcome improvements, and
hold ACO providers/suppliers accountable for meeting the performance
standards. The program would also have processes and procedures in
place to identify and correct poor compliance with such standards and
to promote continuous quality improvement.
The ACO would develop and implement evidence-based medical
practice or clinical guidelines and processes for delivering care
consistent with the goals of better care for individuals, better health
for populations, lower growth in expenditures. The guidelines and care
delivery processes would cover diagnoses with significant potential for
the ACO to achieve quality and cost improvements, taking into account
the circumstances of the individual beneficiary, and could be
accomplished, for example, through an integrated electronic health
record with clinical decision support. ACO participants and ACO
providers/suppliers would have to agree to comply with these guidelines
and processes and to be subject to performance evaluations and
potential remedial actions.
The ACO would have an infrastructure, such as information
technology, that enables the ACO to collect and evaluate data and
provide feedback to the ACO providers/suppliers across the entire
organization, including providing information to influence care at the
point of care via, for example, shared clinical decision support,
feedback from patient experience of care surveys or other internal or
external quality and utilization assessments.
As discussed later in the document, and in section II. C. of this
proposed rule, it is our expectation that ACO participants and ACO
providers/suppliers participating in the ACO would make a commitment to
participate in the ACO for not less than 3 years. However, we recognize
it will be necessary for the ACO to include a remedial process for ACO
participants that fail to comply with the ACO's internal procedures and
performance standards, including the possibility of expulsion of
significant outliers. We caution that expulsion cannot be used as a
mechanism to avoid at-risk beneficiaries.
In order to determine an ACO's compliance with these requirements,
as part of the application process, we are proposing that an ACO would
submit all of the following:
ACO documents (for example, participation agreements,
employment contracts, and operating policies) that describe the ACO
participants' and ACO providers/suppliers' rights and obligations in
the ACO, the shared savings that will encourage ACO participants and
ACO providers/suppliers to adhere to the quality assurance and
improvement program and the evidenced-based clinical guidelines;
Documents that describe the scope and scale of the quality
assurance and clinical integration program, including documents that
describe all relevant clinical integration program systems and
processes, such as the internal performance standards and the processes
for monitoring and evaluating performance;
Supporting materials documenting the ACO's organization
and management structure, including an organizational chart, a list of
committees (including names of committee members) and their structures,
and job descriptions for senior administrative and clinical leaders;
and
Evidence that the ACO has a board-certified physician as
its medical director who is licensed in the State in which the ACO
resides and that a principal CMS liaison is identified in its
leadership structure.
Evidence that the governing body includes persons who
represent the ACO participants, and that these ACO participants hold at
least 75 percent control of the governing body.
Additionally, upon request, the ACO would also be required to
provide copies of the following documents:
Documents effectuating the ACO's formation and operation,
including charters, by-laws, articles of incorporation, and
partnership, joint venture, management, or asset purchase agreements.
Descriptions of the remedial processes that will apply
when ACO participants and ACO providers/suppliers fail to comply with
the ACO's internal procedures and performance standards, including
corrective action plans and the circumstances under which expulsion
could occur.
In an effort to allow flexibility and innovation, we are proposing
that ACOs with innovative leadership and management structures have the
opportunity to describe an alternative mechanism for how their
leadership and management structure would conduct the activities noted
previously in order to achieve the same goals so that they may be given
consideration in the application process. That is, an organization that
does not have one or more of the following: An executive, officer,
manager, or general partner; senior-level medical director; or
physician-directed quality assurance and process improvement committee,
would be required in its application to describe how the ACO will
perform these functions without such leadership. For example, if an ACO
does not have a physician-directed quality assurance and process
improvement committee, the ACO would need to describe how it plans to
oversee an ongoing quality assurance and improvement program as
described previously. Additionally, we seek comment on the requirement
for

[[Page 19544]]

submission of certain documents as noted previously and whether an
alternative method could be used to verify compliance with
requirements. We request comment on the proposed leadership and
management structure and whether the compliance burden associated with
these requirements will discourage participation, hinder innovative
organizational structures, or whether there are other or alternative
leadership and management requirements that would enable these
organizations in meeting the three-part aim.
4. Accountability for Beneficiaries
Section 1899(b)(2)(A) of the Act requires participating ACOs to
``be willing to become accountable for the quality, cost, and overall
care of the Medicare fee-for-service beneficiaries assigned to it.'' To
satisfy this requirement, we are proposing that an ACO executive who
has the authority to bind the ACO must certify to the best of his or
her knowledge, information, and belief that the ACO participants are
willing to become accountable for, and to report to us on, the quality,
cost, and overall care of the Medicare FFS beneficiaries assigned to
the ACO. The certification would be included as part of the ACO's
application and 3-year participation agreement.
5. Agreement Requirement
Section 1899(b)(2)(B) of the Act requires participating ACOs to
``enter into an agreement with the Secretary to participate in the
program for not less than a 3-year period * * *.'' For the first round
of the Shared Savings Program, we are proposing to limit participation
agreements to a 3-year period. We are seeking comments on this proposal
and whether a longer agreement period should be considered initially.
If the ACO is approved for participation, we propose that an
authorized representative--specifically, an executive who has the
ability to bind the ACO, must certify to the best of his or her
knowledge, information, and belief that the ACO participants agree to
the requirements set forth in the 3-year agreement between the ACO and
us--sign a 3-year participation agreement and submit the signed
agreement to us. This participation agreement would include an
acknowledgment that the ACO agrees to comply with all of the
requirements for participation in the Shared Savings Program and that
all contracts or arrangements between or among the ACO, ACO
participants, ACO providers/suppliers, and other entities furnishing
services related to ACO activities must require compliance with the
ACO's obligations under the 3-year agreement. The participation
agreement would be signed by an authorized representative of the ACO
after it has been approved for participation. The ACO would be
responsible for providing a copy of the agreement to its ACO
participants and ACO providers/suppliers. We are soliciting comment on
this proposal, including any additional measures or alternative means
that we should consider to fulfill this requirement.
We also recognize that, while having signed a 3-year participation
agreement with us in good faith and with the intention to participate
in the program for the full 3-year agreement period, there may be
instances where an ACO might need to discontinue its participation in
the Shared Savings Program prior to the end of the agreement period. As
described in section II. H. Monitoring and Termination of ACOs of this
proposed rule, we propose to require an ACO to give us 60 days advance
written notice of its intention to terminate its agreement to
participate in the Shared Savings Program and the effective date of its
termination. As described in more detail in section II. F of this
proposed rule, we propose the ACO will be subject to a 25 percent
withhold of shared savings in order to offset any future losses under
the two-sided model. We propose that if an ACO completes its 3-year
agreement successfully, we will refund in full any portion of shared
savings withheld during the course of the 3-year agreement period that
is not needed to offset losses. We further propose that in the event an
ACO's 3-year agreement is terminated before the completion of the 3
years, we will retain any portion of shared savings withheld.
Finally, it is our intention that all ACOs, ACO participants, and
ACO providers/suppliers with direct or indirect obligations under the
Shared Savings Program be subject to the requirements of the agreement
between the ACO and CMS and that all certifications submitted on behalf
of the ACO in connection with the Shared Savings Program application,
agreement, shared savings distribution, as discussed in section II. F.
or otherwise extend to all parties with obligations to which the
particular certification applies.
We are considering the best way to achieve this end and solicit
public comments on this issue.
6. Distribution of Savings
As discussed previously, an ACO must be a legal entity
appropriately recognized and authorized to conduct its business under
State law, and would be identified by a TIN. We propose to make any
shared savings payments directly to the ACO as identified by its TIN.
The TIN associated with the ACO's legal entity may, or may not, be
enrolled in the Medicare program, unlike the ACO participant TINs that
are Medicare-enrolled groups of providers of services and suppliers.
Therefore, because the statute contemplates payment directly to the
ACO, we are proposing to pay the ACO TIN directly. We acknowledge that
this proposal could raise program integrity concerns, because allowing
shared savings payments to be made directly to a non-Medicare-enrolled
entity would likely impede the program's ability to recoup overpayments
as there would be no regular payments that could be offset. This is
part of the rationale for the payment withhold described in more detail
in section II. F, Shared Savings Determination, as well as the other
safeguards for assuring ACO repayment of shared losses described in
section II.G.of this proposed rule. We solicit comments on our proposal
to make shared savings payments directly to the ACO, as identified by
its TIN. In addition, we are soliciting comment on our proposal to make
shared savings payments to a non-Medicare-enrolled entity.
While section 1899(b)(2)(C) of the Act requires an ACO to have a
formal legal structure that would allow the organization to receive and
distribute payments for shared savings to participating providers of
services and suppliers, the statute does not establish any requirements
for the manner in which shared savings payments are distributed. We
have considered whether it would be appropriate, under the broad
discretion granted to the Secretary in implementing the Shared Savings
Program, to propose criteria for the distribution of shared savings by
the ACO. Although we do not believe we have the authority to specify
how shared savings must be distributed (so long as the distribution is
consistent with all applicable legal requirements), we believe it would
be consistent with the purpose and intent of the statute to require the
ACO to indicate as part of its application how it plans to use
potential shared savings to meet the goals of the program. More
specifically, ACOs would have to indicate how potential shared savings
would be used to promote accountability for their Medicare population
and the coordination of their care as well as how they might be
invested in infrastructure

[[Page 19545]]

and redesigned care processes for high quality and efficient health
care service delivery. Therefore, we propose to require ACOs to provide
a description in their application of the criteria they plan to employ
for distributing shared savings among ACO participants and ACO
providers/suppliers, and how any shared savings will be used to align
with the aims of better care for individuals, better health for
populations, and lower growth in expenditures. We believe the proposed
requirement would achieve the most appropriate balance among objectives
for encouraging participation, innovation, and achievement of program
while still focusing on the aims of better care for individuals, better
health for populations, and lower growth in expenditures. Additionally,
it is the intention of this requirement for ACOs to include this
description in the application, to both guard against improper
financial incentives as well as ensure appropriate beneficiary
protections.
7. Sufficient Number of Primary Care Providers and Beneficiaries
Section 1899(b)(2)(D) of the Act requires participating ACOs to
``include primary care ACO professionals that are sufficient for the
number of Medicare fee-for-service beneficiaries assigned to the ACO *
* *'' and that at a minimum, ``the ACO shall have at least 5,000 such
beneficiaries assigned to it * * *'' Physician patient panels can vary
widely in the number of FFS Medicare beneficiaries served. In section
II. C. of this proposed rule, we discuss our proposal to assign
beneficiaries to an ACO on the basis of primary care services rendered
by physicians with primary care specializations in general practice,
internal medicine, family practice, and geriatric medicine. We are
proposing that this algorithm will also be used to assign beneficiaries
during the baseline years in order to establish a historical per capita
cost benchmark against which the ACO would be evaluated during each
year of the agreement period. We believe it is reasonable to assume
that if by using this algorithm the ACO demonstrates a sufficient
number of beneficiaries to fulfill this eligibility requirement for
purposes of establishing a benchmark, then the ACO also contains a
sufficient number of primary care professionals to provide care to
these beneficiaries. It is also reasonable to assume the ACO would
continue to approximate this number in each year of the agreement
period. Thus, we are proposing that for purposes of eligibility under
section 1899(b)(2)(D) of the Act, an ACO would be determined to have a
sufficient number of primary care ACO professionals to serve the number
of Medicare beneficiaries assigned to it if the number of beneficiaries
historically assigned over the three-year benchmarking period using the
ACO participant TINs exceeds the 5,000 threshold for each year. We are
soliciting comment on this proposal as well as any additional guidance
that could be considered for meeting these requirements.
While an ACO could meet the requirements in section 1899(b)(2)(D)
of the Act when it applies to participate in the Shared Savings
Program, the number of assigned beneficiaries could fall below the
5,000 level due to either significant events, such as when an ACO
professional or group of professionals cease to participate in the ACO,
or in those instances where the actual number of beneficiaries is close
to 5,000 as a result of normal fluctuations in patient populations. The
requirements under section 1899(b)(2)(D) of the Act are important with
respect both to the sufficiency of the ACO to provide primary care
services to its assigned beneficiary population and statistical
stability for purposes of calculating per capita expenditures and
assessing quality performance. Simply stated, and as described in
detail in section II.D. of this proposed rule, as the number of
assigned beneficiaries increases, the minimum savings rate (MSR) gets
smaller. Conversely, as the number of assigned beneficiaries decreases,
the MSR expands thus making it significantly more difficult for an ACO
to obtain shared savings. So, retaining 5,000 assigned beneficiaries is
important from both the perspective of the capacity of the ACO to
provide primary care services to its assigned beneficiary population as
well as the ability of the ACO to realize shared savings by exceeding
the MSR.
Thus, we considered what action, if any, should be taken in the
event the number of beneficiaries falls below 5,000. Specifically, we
considered whether an ACO's participation in the program should be
terminated or its eligibility for shared savings be deferred if the
number of beneficiaries dropped below 5,000. We considered terminating
the ACO for falling below 5,000 beneficiaries immediately or after
giving the ACO an opportunity to implement a corrective action plan. We
have concerns that immediately terminating an ACO or denying it an
opportunity to share in savings because its population fell slightly
may discourage participation among smaller ACOs. We believe this would
be inconsistent with the goals of allowing greater opportunities for
broadly transforming the health care delivery system and increasing
access to high quality and lower cost care under the Shared Savings
Program for Medicare beneficiaries regardless of where they live.
Another option would be to take no action if the ACO falls below 5,000
assigned beneficiaries. Taking no action in these instances would be
inconsistent with the statutory requirement that an ACO have 5,000
assigned beneficiaries in order to be eligible to participate in the
Shared Savings Program and would reduce incentives for smaller provider
organizations to affiliate with other providers and suppliers to be
successful under the Shared Savings Program. A third option might be to
adjust, or scale, the shared savings in those instances where the
number of assigned beneficiaries falls below the floor of 5,000 over
the course of a performance year. If shared savings are realized, and
all other requirements of participation are met, an ACO that falls
below the 5,000 assigned beneficiary floor could realize shared savings
but at a reduced rate of savings that would parallel the number of
beneficiaries assigned to the ACO. Thus, the amount of the incentive
payment would be scaled to the number of beneficiaries in the ACO
during the performance year. However, since the MSR adjusts with the
number of assigned beneficiaries, there is a built-in incentive for
ACOs to increase their beneficiary population.
We believe a reasonable compromise would balance the statutory
requirements, program incentives, and recognition of expected variation
in an ACO's assigned population. Thus, we are proposing that if an
ACO's assigned population falls below 5,000 during the course of the
agreement period, we would issue a warning and place the ACO on a
corrective action plan. The ACO would remain eligible for shared
savings for the performance year for which the warning was issued. We
further propose that if the ACO fails to meet the eligibility criterion
of having more than 5,000 beneficiaries by the completion of the next
performance year, the ACO's participation agreement will be terminated
and the ACO will not be eligible to share in savings for that year.
Thus, for example, if during the first performance year, an ACO's
assigned population fell below 5,000, we would issue a warning,
notifying the ACO of the variation in their assigned population. The
ACO would be placed on a corrective action plan which could include,
for example, a plan to add more

[[Page 19546]]

primary care providers to the ACO. The ACO would remain eligible to
share in savings for the first performance year. However, if the ACO's
assigned population had not returned to at least 5,000 by the end of
the second performance year, then that ACO's agreement will be
terminated and the ACO would not be eligible to share in savings for
the second performance year. We also propose to reserve the right to
review the status of the ACO while on the corrective action plan and
terminate the agreement on the basis that the ACO no longer meets
eligibility requirements. We request comment on this proposal and on
other potential options for addressing situations where the assigned
beneficiary population falls below 5,000 during the course of an
agreement period.
8. Required Reporting on Participating ACO Professionals
Section 1899(b)(2)(E) of the Act requires ACOs to ``provide the
Secretary with such information regarding ACO professionals
participating in the ACO as the Secretary determines necessary to
support the assignment of Medicare FFS beneficiaries to an ACO, the
implementation of quality and other reporting requirements * * *, and
the determination of payments for shared savings * * *.'' As discussed
in sections II.B. and II.D. of this proposed rule, we are proposing to
define an ACO operationally as a legal entity that is comprised of a
group of ACO participants which are in turn defined to mean Medicare-
enrolled providers or suppliers, as identified by their TINs. However,
TIN level data alone may not be entirely sufficient for a number of
purposes in the Shared Savings Program such as implementing our
methodology for beneficiary assignment and calculating the quality
performance score. Accordingly, to satisfy the requirements under
section 1899(b)(2)(E) of the Act, we are proposing that entities
applying to participate in the Shared Savings Program must provide not
only the TINs of the ACO and the ACO participants, but also a list of
national provider identifiers (NPIs) associated with the ACO providers/
suppliers, which separately identifies the physicians that provide
primary care.
We are also proposing to require an ACO to maintain, update, and
annually report to us the TINs of its ACO participants and the NPIs
associated with the ACO providers/suppliers. We believe that requiring
this information offers the level of transparency needed to implement
the Shared Savings Program.
9. Processes To Promote Evidence-Based Medicine, Patient Engagement,
Reporting, and Coordination of Care
Section 1899(b)(2) of the Act establishes a number of requirements
which ACOs must satisfy in order to be eligible to participate in the
Shared Savings Program. Several of these standards deal with how
patient care is provided by the ACO, with a focus on processes and
methods to: (1) Promote higher quality of care; (2) better coordinate
care; and (3) meet the needs and concerns of patients and their
families, including effectively engaging patients and their families in
medical decision-making. Specifically, section 1899(b)(2)(G) of the Act
requires an ACO to ``define processes to promote evidence-based
medicine and patient engagement, report on quality and cost measures,
and coordinate care, such as through the use of telehealth, remote
patient monitoring, and other such enabling technologies.''
With regard to each of the specific requirements under section
1899(b)(2)(G) of the Act, we have two options. One option is simply to
propose to require documentation of an ACO's plans to ``define
processes to promote evidence-based medicine and patient engagement,
report on quality and cost measures, and coordinate care, such as
through the use of telehealth, remote patient monitoring, and other
such enabling technologies.'' Under this option, we would not establish
any more specific criteria for these requirements. However, we would
expect that the required documentation present convincing evidence of
concrete and effective plans to satisfy these requirements, by
providing specific processes and criteria that the ACO intends to use
for promoting, improving, and assessing evidence-based medicine,
beneficiary engagement, reporting of quality and cost measures, and
coordination of care. Such processes would have to include provisions
for internal assessment of cost and quality of care within the ACO, and
employ these assessments in continuous improvement of the ACO's care
practices.
The other option is to identify specific criteria that we would
propose to require ACOs to meet with regard to each of these
requirements. For example, with regard to the requirement to promote
evidence-based medicine, we could provide a detailed description of
evidence-based guidelines for various conditions and diseases for which
we would hold ACOs accountable, including specific instructions for how
an ACO would demonstrate it is following these guidelines and
monitoring compliance among its ACO participants and ACO providers/
suppliers. We could also specify a number of conditions for which the
ACO would maintain an evidence-based medicine preventive health
guidelines program. Similarly, we could identify and require the use of
specific decision support tools, patient activation measures, or other
patient support tools in order for an ACO to satisfy the requirement
for beneficiary engagement.
However, we have concerns that a prescriptive approach would be
premature and potentially impede innovation and the goals of this
program. Thus, for the requirements under section 1899(b)(2)(G) of the
Act, we are proposing that in order to be eligible to participate in
the Shared Savings Program, the ACO provide documentation in its
application describing its plans to: (1) Promote evidence-based
medicine; (2) promote beneficiary engagement; (3) report internally on
quality and cost metrics; and (4) coordinate care. We are proposing
this option in order to allow ACOs the flexibility to choose the tools
for meeting these requirements that are most appropriate for their
practitioners and patient populations. Over time, as we learn more
about successful strategies in these areas, and as we have more
experience assessing specific critical elements for success, the Shared
Savings Program eligibility requirements with regard to section
1899(b)(2)(G) of the Act may be revised. We are also specifically
soliciting comment on whether more prescriptive criteria may be
appropriate for meeting some or all of these requirements under section
1899(b)(2)(G) of the Act for future rulemaking. Later in the document,
we discuss the concepts of evidence-based medicine, patient engagement,
internal quality and cost reporting, and coordination of care, and
describe how Shared Savings Program applicants can establish compliance
with the requirements of section 1899(b)(2)(G) of the Act.
a. Processes To Promote Evidence-Based Medicine
As stated previously, section 1899(b)(2)(G) of the Act requires an
ACO to ``define processes to promote evidence-based medicine * * *.''
Evidence-based medicine can be generally defined as the application of
the best available evidence gained from the scientific method to
clinical decision-making. It seeks to assess the strength of evidence
of the risks and benefits of treatments (including lack of treatment)
and diagnostic tests, and

[[Page 19547]]

applies this evidence to the processes of medical decision-making and
treatment. In practice, such an approach should involve the
establishment and implementation of evidence-based guidelines, based on
the best available evidence concerning the effectiveness of medical
treatments, at the organizational or institutional level. A genuine
evidence-based approach would also involve regularly assessing and
updating such guidelines to promote continuous improvement in the
quality of care in light of new evidence concerning the effectiveness
of medical treatments. We propose that as part of the application, the
ACO would describe the evidence-based guidelines it intends to
establish, implement, and periodically update.
b. Processes To Promote Patient Engagement
Section 1899(b)(2)(G) of the Act also requires an ACO to ``define
processes to promote * * * patient engagement.'' The term ``patient
engagement'' is the active participation of patients and their families
in the process of making medical decisions. Patient engagement in
decision-making requires consideration not only of the best scientific
evidence concerning medical treatment, but also the opportunity for
patients and families to assess prospective treatment approaches in the
light of their own values and convictions. Measures for promoting
patient engagement may include, but are not limited to, the use of
decision support tools and shared decision making methods with which
the patient can assess the merits of various treatment options in the
context of his or her values and convictions. Patient engagement also
includes methods for fostering what might be termed ``health literacy''
in patients and their families. Health literacy is the possession of
basic knowledge about maintaining good health, avoiding preventable
medical conditions, managing existing conditions, as well as knowledge
about how the care system works (for example, the roles of primary care
physicians and specialist physicians, the nature and operation of both
public and private health insurance, etc.).
We propose that as part of the application, the ACO would describe
the patient engagement processes it intends to establish, implement,
and periodically update.
c. Processes To Report on Quality and Cost Measures
Section 1899(b)(2)(G) of the Act requires an ACO to ``define
processes to * * * report on quality and cost measures.'' Processes
that may be used for reporting on quality and cost measures may
include, but are not limited to, developing a population health data
management capability, or implementing practice and physician level
data capabilities with point-of-service (POS) reminder systems to drive
improvement in quality and cost outcomes. We would expect ACOs to be
able to monitor both costs and quality internally and make appropriate
modifications based upon their collection of such information.
We propose that as part of the application, the ACO would describe
its process to report internally on quality and cost measures, and how
it intends to use that process to respond to the needs of its Medicare
population and to make modifications in its care delivery.
d. Processes To Promote Coordination of Care
Finally, section 1899(b)(2)(G) of the Act requires an ACO to
``define processes to * * * coordinate care, such as through the use of
telehealth, remote patient monitoring, and other such enabling
technologies.'' Coordination of care involves strategies to promote,
improve, and assess integration and consistency of care across primary
care physicians, specialists, and acute and post-acute providers and
suppliers, including methods to manage care throughout an episode of
care and during its transitions, such as discharge from a hospital or
transfer of care from a primary care physician to a specialist.
Compliance with this requirement may involve a range of strategies
which may include the following examples:
A capability to use predictive modeling to anticipate
likely care needs.
Utilization of case managers in primary care offices.
Having a specific transition of care program that includes
clear guidance and instructions for patients, their families, and their
caregivers.
Remote monitoring.
Telehealth.
The establishment and use of health information
technology, including electronic health records and an electronic
health information exchange to enable the provision of a beneficiary's
summary of care record during transitions of care both within and
outside of the ACO.
The provisions of any free services (telehealth, case managers,
etc.) between parties in a position to generate Federal health care
program referrals could trigger evaluation under the relevant fraud and
abuse laws. Stakeholders interested in this issue may also wish to
comment on the joint OIG/CMS notice referenced in section II.I of this
proposed rule.
The strategies employed by an ACO to optimize care coordination
should not impede the ability of a beneficiary to seek care from
providers that are not participating in the ACO, or develop policies to
place any restrictions that are not legally required on the exchange of
medical records with providers who are not part of the ACO. We are
proposing to prohibit the ACO from developing any policies that would
restrict a beneficiary's freedom to seek care from providers and
suppliers outside of the ACO.
10. Patient-Centeredness Criteria
Section 1899(b)(2)(H) of the Act requires an ACO to ``demonstrate
to the Secretary that it meets patient-centeredness criteria specified
by the Secretary, such as the use of patient and caregiver assessments
or the use of individualized care plans.'' A patient-centered, or
person-centered, orientation could be defined as care that incorporates
the values (to the extent the informed, individual patient desires it)
of transparency, individualization, recognition, respect, dignity, and
choice in all matters, without exception, related to one's person,
circumstances, and relationships in health care. Patient-centered care
should extend not only to the patient but to the family and caregivers
of the patient. Patient-centeredness is one of the Institute of
Medicine's (IOM's) aims for improvement in health care. In IOM's report
``Crossing the Quality Chasm: A New Health System for the 21st
Century,'' providing patient-centered care is defined as ``providing
care that is respectful of and responsive to individual patient
preferences, needs, and values, and ensuring that patient values guide
all clinical decisions.'' (to view IOM's report discussed previously,
visit http://iom.edu/Reports/2001/Crossing-the-Quality-Chasm-A-New-Health-System-for-the-21st-Century.aspx) The National Partnership for
Women and Families suggests the following principles for patient-
centered care: (1) Care is comprehensive, coordinated, personalized,
and planned; (2) patients' experience of care is routinely assessed and
improved; (3) patients and their caregivers are full partners in their
care; (4) transitions between settings of care are smooth, safe,
effective, and efficient; (5) patients can get care when and where they
need it; (6) care is integrated with the community resources patients
need to maintain health and wellbeing; and (7) continuous quality
improvement and elimination of disparities are top

[[Page 19548]]

priorities. (To view the Statement of Debra L. Ness, President, Nat'l
Partnership for Women & Families, Senate Finance Committee, Roundtable
on Delivery System Reform April 21, 2009 visit http://www.nationalpartnership.org/site/DocServer/090421_SenateFinanceRoundtableStatement_Ness.pdf?docID=4881)
The statutory requirement for ``patient-centeredness criteria''
clearly implies that one goal of the Shared Savings Program is for ACOs
to adopt a focus on patient-centeredness that is promoted by the
governing body and integrated into practice by leadership and
management working with the organization's health care teams. Drawing
from the perspectives discussed previously, we believe the following
list of proposed patient-centeredness principles should inform the care
provided by an ACO participating in the Shared Savings Program:
Care should be individualized based on the person's unique
needs, preferences, values, and priorities.
Beneficiaries should have access to their own medical
records and to clinical knowledge so that they may make informed
choices about their care.
Beneficiaries (and their caregivers and/or family members
where applicable) should be encouraged to be partners in care and make
choices regarding the care they receive, based on both the medical
record and clinical knowledge (that is, evidence-based medicine)
provided by their ACO and the beneficiary's individual values.
Beneficiary and caregiver and/or family experience of care
should be routinely assessed and the ACO should seek to improve it
where opportunities for improvement are identified.
Care should be integrated with the community resources
beneficiaries require to maintain well-being.
Transitions in care among providers in the ACO, as well as
other providers outside the ACO from whom the beneficiaries may also
seek care, should be supported consistent with the patient-centeredness
goals of coordinating care and having information follow patients by,
for example, developing processes for the electronic exchange of
information.
In the light of these principles, we believe the following
processes and actions listed later in the document would be necessary
to ensure the patient-centered orientation required by section 1899. We
propose that an ACO would be considered patient-centered if it has all
of the following:
A beneficiary experience of care survey in place and a
description in the ACO application how the ACO will use the results to
improve care over time. As discussed in more detail later in the
document, and as proposed in section II.E. of this proposed rule,
scoring on this survey would help the ACO meet the quality performance
standard.
Patient involvement in ACO governance. As discussed in
more detail later in the document, the ACO would be required to have a
Medicare beneficiary on the governing board.
A process for evaluating the health needs of the ACO's
assigned population, including consideration of diversity in their
patient populations, and a plan to address the needs of their
population. As discussed in more detail later in this document, the ACO
would be required to describe this process as part of the application
and describe how it would consider diversity in its patient population
and plans to address its population needs.
Systems in place to identify high-risk individuals and
processes to develop individualized care plans for targeted patient
populations, including integration of community resources to address
individual needs. This proposal and application requirements are
discussed in more detail later in this document.
A mechanism in place for the coordination of care (for
example, via use of enabling technologies or care coordinators). The
ACO would be required to describe its mechanism for coordinating care
for Medicare beneficiaries. In addition, the ACO should have a process
in place (or clear path to develop such a process) to electronically
exchange summary of care information when patients transition to
another provider or setting of care, both within and outside the ACO,
consistent with meaningful use requirements under the EHR Incentive
program. The ACO would be required to describe their process or their
plan to develop a process to electronically exchange summary of care
information during care transitions. Additionally, in section II.E. of
this proposed rule, we propose to include care transitions measures as
part of the assessment of ACO quality.
A process in place for communicating clinical knowledge/
evidence-based medicine to beneficiaries in a way that is
understandable to them. This process should allow for beneficiary
engagement and shared decision-making that takes into account the
beneficiaries' unique needs, preferences, values, and priorities. The
ACO would be required to describe its process, as discussed in section
II.E. of this proposed rule, for communicating clinical knowledge/
evidence-based medicine and describe how the ACO providers/suppliers
will engage the beneficiary in shared decision-making.
Written standards in place for beneficiary access and
communication and a process in place for beneficiaries to access their
medical record. As part of its application, the ACO would be required
to submit its written standards for beneficiary access and
communication. Additionally, the ACO would be required to describe its
process for beneficiaries to access their medical record.
Internal processes in place for measuring clinical or
service performance by physicians across the practices, and using these
results to improve care and service over time. As described previously,
the documents submitted to meet leadership and management criteria
related to quality assurance and clinical integration program would
satisfy this patient-centeredness criterion.
We believe that this list provides a comprehensive set of criteria
for realizing and demonstrating patient-centeredness in the operation
of an ACO. Accordingly, we are proposing to require that ACOs
demonstrate patient-centeredness as required by the statute by
addressing all 8 areas outlined previously. We also considered
confining the list of mandatory criteria to only those items
specifically mentioned in section 1899(b)(2)(H) of the Act that is, to
``the use of patient and caregiver assessments'' and ``the use of
individualized care plans.'' However, the statute clearly identifies
these two items only as examples of patient-centeredness, and specifies
that an ACO must be required to demonstrate that it meets patient-
centeredness criteria ``specified by the Secretary.'' Thus, we believe
the Secretary is required to define and has discretion to specify
criteria in addition to the two criteria that are specifically
mentioned in the statute.
We note there is substantial overlap and alignment between these
patient centeredness criteria as defined by the Secretary in accordance
with section 1899(b)(2)(H) of the Act and the processes ACOs are
required to define and documents they are required to submit as
discussed previously to fulfill eligibility as outlined in section
1899(b)(2)(G) of the Act and 1899(b)(2)(F) of the Act. Therefore, many
of the ways an ACO defines certain processes required by statute may
also serve to demonstrate it meets patient centeredness criteria as
defined by the Secretary, thus reducing the

[[Page 19549]]

burden for the ACO in meeting eligibility requirements.
We are soliciting comment on whether there are redundancies in the
list of the 8 criteria or other considerations that might justify
narrowing the list. We are also interested in whether the patient
centeredness criteria as defined by the Secretary are sufficient to
ensure that ACOs participating in the Shared Savings Program meet the
eligibility requirement to demonstrate patient centeredness or whether
there are additional patient centeredness criteria that should be added
to our proposed list in order to meet the goals of improving the
quality of health care delivery and improving patient satisfaction with
their care. Additionally, we seek comment on whether these criteria are
burdensome and whether they might create disincentives to participate
or make it difficult for small entities to participate in the program.
Later in the document, we discuss 4 of the 8 criteria in detail and
solicit comment regarding (a) Implementation of the beneficiary
experience of care survey; (b) beneficiary involvement in governance;
(c) identification of population health needs and consideration of
diversity; and (d) implementation of individualized care plans and
integration of community resources.
a. Beneficiary Experience of Care Survey
As discussed previously, we propose that ACOs have a beneficiary
experience of care survey in place and that the ACO's application
should describe how the ACO will use the survey results to improve care
over time. Surveys are important tools for assessing beneficiary
experience of care and outcomes. As part of the requirement to
implement a beneficiary experience of care survey, we propose to
require ACOs to collect and report on measures of beneficiaries'
experience of care and we expect ACOs to submit their plan on how they
will promote, assess, and continually improve in weak areas identified
by the survey.
Many surveys are being used in both the private and public sectors,
including the Medicare Health Outcomes Survey used by Medicare
Advantage (MA) plans, Consumer Assessment of Healthcare Providers and
Systems (CAHPS) survey tools, and Health Resources Services
Administration's (HRSA's) Health Center Patient Satisfaction Survey. We
are proposing that ACOs be required to use a specified survey that
assesses beneficiary experience of care and functional status. As
proposed in section II.E. of this proposed rule, scoring on the patient
experience of care survey would become part of the assessment of the
ACOs quality performance. Specifically, we are proposing that ACOs be
required to use the Clinician and Group CAHPS survey. We also propose
to require adoption of an appropriate functional status survey module
that may be incorporated into the CAHPS survey. The CAHPS Survey is a
nationally recognized survey, developed by the Agency for Healthcare
Research and Quality (AHRQ), which is widely used across the health
care spectrum. The survey is designed to standardized patient
questionnaires that can be used to compare results across sponsors and
over time, which identifies the issues that are salient to consumers
and influence their decisions. Since the ACO must contain primary care
ACO professionals but otherwise has flexibility to incorporate other
types of ACO participants, we believe the Clinician and Group CAHPS
Survey is an appropriate tool to assess beneficiary experience of care
and functional status in the ACO. Using this standard and well
established survey instrument, we can more easily compare outcomes and
beneficiary satisfaction across ACOs, as well as in certain modules in
common between ACOs and Medicare FFS and MA plans. It would also help
to ensure that survey measures are adequate to meet the program's
purposes and that measures employed in the instrument are valid and
reliable. However, we recognize that requiring the use of a specific
survey instrument would increase the administrative burden of the
Shared Savings Program on ACOs who are not currently using the
specified instrument. Accordingly, we are soliciting comment on whether
other existing survey tools would be more appropriate for ACO quality
assessment.
We also considered proposing to allow ACOs to continue using the
survey tools with which they are already familiar or of their own
choosing at least in the initial stages of the program. Allowing ACOs
to employ survey tools of their own choosing would provide maximum
flexibility for ACOs, and would be least disruptive to existing ACO
initiatives to survey beneficiary experience. However, allowing ACOs to
employ survey tools of their own choosing would severely impede our
ability to compare beneficiary experience across ACOs. Moreover, in
some instances, the instruments selected by ACOs may use measures that
are insufficient to meet the program's purposes, or measures which are
not valid and reliable. In other instances, it might be that ACOs using
more comprehensive survey tools would be unfairly penalized from the
perspective of the performance standards in comparison to ACOs using
less extensive surveys.
b. Patient Involvement in Governance
Another of the proposed patient-centered criteria discussed
previously is the requirement that ACOs provide for patient involvement
in their governing processes. We are proposing that, in order to
satisfy this criterion, ACOs will be required to demonstrate a
partnership with Medicare FFS beneficiaries by having representation by
a Medicare beneficiary serviced by the ACO, in the ACO governing body.
We believe the best way to demonstrate a patient-centered program is
for Medicare beneficiaries to have a voice in the decision making
process. Although, there may be concerns or differences in the ability
of some ACOs to include a beneficiary on the governing board, given
State laws, we are seeking comment on the inclusion of a Medicare
beneficiary serviced by the ACO on the governing body. In order to
safeguard against any conflicts of interest, any patient(s) included in
an ACO's governing body, or an immediate family member, must not have
any conflict of interest, and they may not be an ACO provider/supplier
within the ACO's network.
We recognize that a requirement for representation by a Medicare
beneficiary serviced by the ACO, on an ACO's governing body will not
necessarily guarantee outcomes that are in line with the goals of the
Shared Savings Program in general or patient-centered criteria in
particular. Medicare beneficiary representation on an ACO's governing
body may even be relatively ineffectual if Medicare beneficiaries hold
relatively few seats on the governing body. Furthermore, such a
requirement may pose difficulties for ACOs that already have a
governing body and bylaws that do not require or may even prohibit
Medicare beneficiary presence, and this requirement may therefore
reduce the number of ACOs that participate in the Shared Savings
Program, at least in its initial stages. However, we believe it is
important to the patient-centered orientation of the Shared Savings
Program to provide for beneficiaries to have a voice in ACO governance.
We considered proposing that, instead of requiring direct Medicare
beneficiary representation on ACO governing bodies, ACOs could
demonstrate a partnership with Medicare FFS

[[Page 19550]]

beneficiaries by having a Medicare beneficiary advisory committee or
panel. Such a proposal would also serve to indicate the importance of
beneficiary engagement in the ACO's activities to improve the quality
and efficiency of health care services. It would also provide ACOs with
the opportunity to form committees or panels that represent the voices
of all of their patient types, including Medicare FFS beneficiaries. In
addition, a unified advisory committee voice may, under some
circumstances at least, be more effective than, a single beneficiary
representative in the ACO governing body in advancing the goal of
beneficiary participation in ACO governance. Furthermore, it would
avoid requiring existing ACO governing bodies that do not currently
have or whose bylaws do not permit Medicare beneficiary representation
to revise their bylaws or to forego participation in the Shared Savings
Program. However, a pure advisory committee or panel may be an
inadequate conduit for Medicare beneficiary participation in ACO
governance compared to their presence on the actual decision-making
body of the ACO. Presence on the governing body would provide
beneficiaries with an active role in the decision-making process and
thus give beneficiaries more influence over the ACO's activities. In
contrast, as an advisory committee or panel member, the beneficiary's
voice provides guidance on the Shared Savings Program ACO's decision-
making without the benefit of more active control over ACO activities.
Therefore, we are proposing that ACOs be required to demonstrate a
partnership with Medicare FFS beneficiaries and meet patient
centeredness criteria by including a Medicare beneficiary serviced by
the ACO on the ACO governing body. We are soliciting comment on whether
the requirement for beneficiary participation should include a minimum
standard for such beneficiary participation on ACO governing bodies
(for example, a minimum number of beneficiaries, or a minimum
proportion of control over an ACO's governing body.). In addition, we
are soliciting comment on the possible role of a Medicare beneficiary
advisory panel or committee in promoting the goal of engaging patients
in ACO governance. In particular, we seek comment on whether--(1) a
Medicare beneficiary advisory panel or committee would be sufficient in
and of itself in providing for appropriate patient participation in ACO
governance; and (2) establishing Medicare beneficiary advisory panels
or committees should be required in addition to requiring patient
representation on ACO governing bodies.
We request comment on the proposal to engage in partnership with
Medicare beneficiaries. We are specifically interested in whether this
requirement will create disincentives for participation among smaller
entities.
c. Evaluation of Population Health Needs and Consideration of Diversity
A third proposed patient-centered criterion on which we are seeking
comments is the requirement that an ACO has a process for evaluating
the health needs of the population, including consideration of
diversity in its patient populations, and a plan to address the needs
of its populations. Several institutions and associations such as
National Committee for Quality Assurance (NCQA) and AHRQ have made
recommendations regarding evaluation of population health and
diversity. For example, NCQA has developed multicultural health care
standards and guidelines which include requirements for collecting of
patient information that help the organization understand the
composition of the population, providing culturally and linguistically
appropriate services, and detecting health care disparities. Other
institutions and associations have developed similar guidelines which
emphasize promoting cultural sensitivity and addressing disparities
through provider/management education and the translation of surveys
and health promoting literature distributed by the provider into
languages relevant to the provider's population. Establishing
partnerships with a State or local health department which performs
community health needs assessments and applying these findings to the
ACO's population and activities may be another viable option for
meeting this criterion.
Accordingly, we propose that, in order to satisfy this patient-
centered criterion, ACOs would be required to describe in their
application their process for evaluating the health needs of their
Medicare population, including consideration of diversity, and a plan
to address the needs of their Medicare population.
d. Implementation of Individualized Care Plans and Integration of
Community Resources
Finally, we are proposing that ACOs must have systems in place to
identify high-risk individuals and processes to develop individualized
care plans for targeted patient populations. The plan must be tailored
to--(1) The beneficiary's health and psychosocial needs; (2) account
for beneficiary preferences and values; and (3) identify community and
other resources to support the beneficiary in following the plan. This
plan would be voluntary for the beneficiary, privacy protected, and
would not be shared with Medicare or the ACO governing body; it would
solely be used by the patient and ACO providers/suppliers for care
coordination. If applicable, and the beneficiary consents, the care
plan should be shared with the caregiver, family, and others involved
in the beneficiary's care. We propose that an ACO would be required to
have a process in place for developing, updating, and, as appropriate,
sharing the beneficiary care plan with others involved in the
beneficiary's care, and providing it in a format that is actionable by
the beneficiary.
We are requesting comments on our proposal that ACOs be required to
demonstrate use of individualized care plans for targeted beneficiary
populations in order to be eligible for the Shared Savings Program. In
order to satisfy this requirement fully, we propose that the
development of such individualized care plans must grow from adherence
of a related patient-centeredness criterion, that is, their development
should be a result of shared decision-making which fully engages
beneficiaries and their families, taking into account their values and
preferences in developing a unique plan of care for each individual.
The individualized care plans should include identification of
community and other resources to support the beneficiary in following
the plan. To this end, we believe that a process for integrating
community resources into the ACO is an important part of patient
centeredness. A wide variety of organizations, although not necessarily
ACO participants, may be considered a community resource, including:
Employers, commercial health plans, local businesses, State/local
government agencies, local quality improvement organizations or
collaboratives (such as health information exchanges). Collaboration
with these types of community resources can be an important part of
enabling ACOs to take account of the entirety of Medicare beneficiary
population's needs relative to their environment. Community stakeholder
engagement in an ACO could be explicitly incorporated via community
representation on the governing body, by having a community
representative on an advisory board, or by other innovative mechanisms.

[[Page 19551]]

Individualized plans of care are not only an integral part of
providing quality health care to both high-risk patients or patients
with multiple chronic conditions, but are equally important in
proactively maintaining the health for any beneficiary. For purposes of
the application to participate in the Shared Savings Program, we
propose that an ACO would be required to submit a description of its
individualized care program, along with a sample care plan, and explain
how this program is used to promote improved outcomes for, at a
minimum, their high-risk and multiple chronic condition patients. In
addition, the ACO should describe additional target populations that
would benefit from individualized care plans. We also propose that ACOs
be required to describe how they will partner with community
stakeholders as part of their application. ACOs that have a stakeholder
organization serving on their governing body would be deemed to have
satisfied this requirement. We request comment on these proposals. We
are specifically interested in whether these requirements will create
disincentives for participation among smaller entities.
11. ACO Marketing Guidelines
We believe there is a potential for beneficiaries to be misled
about Medicare services available from an ACO or about the providers
and suppliers from whom they can receive those services. We realize
that care coordination is an important component of the Shared Savings
Program; however, the potential for shared savings may be an incentive
for ACOs, ACO participants, or ACO providers/suppliers to engage in
behavior that may confuse or mislead beneficiaries about the Shared
Savings Program or their Medicare rights. For example, although it is
expected that ACO providers/suppliers participating in an ACO will
refer patients to other ACO providers/suppliers in the ACO, we are
concerned that beneficiaries may be misled into thinking the ACO is
similar to a managed care organization, and that they may only receive
services or only certain services from the other participating ACO
providers/suppliers.
Although section 1899 of the Act is silent with regard to marketing
activities and other forms of beneficiary communications by ACOs,
section 1899(b)(2)(H) of the Act requires an ACO to demonstrate ``that
it meets patient-centeredness criteria.'' We believe that in order to
be truly patient-centered, an ACO must not only provide care
coordination that is tailored to the needs of the individual
beneficiary, but also avoid engaging in activities that may prevent its
assigned beneficiaries from taking advantage of the full range of
benefits to which they are entitled under the Medicare FFS program,
including the right to choose between healthcare providers and care
settings. As a result, issuing beneficiary communications or engaging
in marketing activities that may be confusing or misleading would not
be patient-centered because these activities restrict the ability of
beneficiaries and/or their caregivers to be informed about their health
care choices and thus limit the opportunity for beneficiaries to be
properly involved in the management of their own care.
Accordingly, we think it would be appropriate and consistent with
the purpose and intent of the statute to limit and monitor the use of
beneficiary communications specifically related to the ACO operations
or functions as well as ACO marketing activities and materials by ACOs
to ensure that such communications and marketing by ACOs are used only
for appropriate purposes, such as notification that a beneficiary's
healthcare provider is participating in the ACO, issuance of any CMS
required notices, notification of provider or ACO terminations. This
policy will protect Medicare beneficiaries by minimizing the potential
that they will be misled or confused by ACO marketing. Additionally,
the policy is consistent with marketing provisions used in other
Medicare programs such as MA.
We are proposing that all ACO marketing materials, communications,
and activities related to the ACO and its participation in the Shared
Savings Program, such as mailings, telephone calls or community events,
that are used to educate, solicit, notify, or contact Medicare
beneficiaries or providers/suppliers regarding the ACO and its
participation in the Shared Savings Program, be approved by us before
use to protect beneficiaries and to ensure that they are not confusing
or misleading. This requirement would also apply to any materials or
activities used by ACO participants or ACO providers/suppliers on
behalf of the ACO to communicate about the ACO's participation in the
Shared Savings Program in any manner to Medicare beneficiaries. In
addition, we would want to ensure that materials distributed to
beneficiaries do not misrepresent Shared Savings Program policies or
suggest that we endorse the ACO, its ACO participants, or its ACO
providers/suppliers.
We are further proposing that before any changes can be made to any
approved materials, the revised materials must be approved by us before
use. Finally, because the failure to comply with these requirements
would demonstrate that the ACO does not meet the patient-centeredness
criteria and therefore may no longer be eligible to participate in the
program, we propose that an ACO that fails to adhere to these
requirements may be placed under a corrective action plan or
terminated, at our discretion.
For purposes of the Shared Savings Program, we are proposing to
define ACO marketing materials, communications, and activities as
including, but not limited to, general audience materials such as
brochures, advertisements, outreach events, letters to beneficiaries,
web pages, mailings, or other activities, conducted by or on behalf of
the ACO, or by ACO participants, or ACO providers/suppliers
participating in the ACO, or by other individuals on behalf of the ACO
or its participating providers and suppliers. If these materials or
activities are used to educate, solicit, notify, or contact Medicare
beneficiaries or providers and suppliers regarding the ACO and its
participation in the Shared Savings Program, they must be approved by
us.
We do not believe that the following materials and activities would
be subject to our approval: Beneficiary communications that are
informational materials, that are customized or limited to a subset of
beneficiaries; and materials that do not include information about the
ACO or providers in the ACO; materials that cover beneficiary-specific
billing and claims issues or other specific individual health related
issues; and educational information on specific medical conditions,
(for example, flu shot reminders), or referrals, for example, as
discussed in section II. C. of this proposed rule, exceptions to the
definition of ``marketing'' under the HIPAA Privacy Rule.
12. Program Integrity Requirements
Section 1899(a)(1)(A) of the Act authorizes the Secretary to
specify criteria that ACO participants must meet in order to work
together to manage and coordinate care for Medicare FFS beneficiaries
through an ACO. Using this authority, we propose several program
integrity criteria to protect the Shared Savings Program from fraud and
abuse and to ensure that the Shared Savings Program does not become a
vehicle for, or increase the potential for, fraud and abuse in other
parts of the

[[Page 19552]]

Medicare program or in other Federal health care programs.
a. Compliance Plans
We are proposing that an ACO must have a compliance plan that
addresses how the ACO will comply with applicable legal requirements.
We recognize that the specific design and structure of an effective
compliance plan may vary depending on the size and business structure
of the ACO. We are proposing that the ACO demonstrate that it has a
compliance plan that includes at least the following elements, which
are common in the compliance industry: A designated compliance official
or individual who is not legal counsel to the ACO and who reports
directly to the ACO's governing body; mechanisms for identifying and
addressing compliance problems related to the ACO's operations and
performance; a method for employees or contractors of the ACO or ACO
providers/suppliers to report suspected problems related to the ACO;
compliance training of the ACO's employees and contractors; and a
requirement to report suspected violations of law to an appropriate law
enforcement agency. Nothing in this rule would prevent an ACO from
using or building on an existing compliance program, if it has one (or
if its ACO participants have programs that can be incorporated). To
achieve an effective compliance program, an ACO may also want to
consider coordinating its compliance efforts with existing compliance
efforts of its ACO providers/suppliers. It is not our intention that an
ACO would need to engage in duplicative efforts to meet the compliance
program requirement. The goal is for ACOs to have effective compliance
mechanisms.
b. Compliance With Program Requirements
We propose that, notwithstanding any relationships that the ACO may
have with other entities related to ACO activities, the ACO maintains
ultimate responsibility for compliance with all terms and conditions of
its agreement with us. We propose to require that all contracts or
arrangements between or among the ACO, its ACO participants and ACO
providers/suppliers, and other entities furnishing services related to
ACO activities require compliance with the obligations under the 3-year
agreement, including the document retention and access requirements
discussed in section II.H of this proposed rule. We solicit comments on
our proposal.
We must ensure the accuracy, completeness, and truthfulness of
information submitted to us to determine an organization's eligibility
to participate in the Shared Savings Program as an ACO, its compliance
with program requirements, its eligibility for shared savings payments,
and the amount of any payments owed to or by the ACO. To that end, we
propose that an authorized representative of the ACO--specifically, an
executive who has the ability to legally bind the ACO--must certify the
accuracy, completeness, and truthfulness of information contained in
its Shared Savings Program application, 3-year agreement, and
submissions of quality data and other information. The certification
must be made at the time the application, agreement, and information is
submitted.
We further propose that, as a condition of receiving a shared
savings payment, an authorized representative with authority to legally
bind the ACO must make a written request to us for payment of the
shared savings in a document that certifies the ACO's compliance with
program requirements as well as the accuracy, completeness, and
truthfulness of any information submitted by the ACO the ACO
participants, or the ACO providers/suppliers to us, including any
quality data or other information or data relied upon by us in
determining the ACO's eligibility for, and the amount of, a shared
savings payment or the amount owed by the ACO to us. We further propose
that, if such data are generated by ACO participants or another
individual or entity, or a contractor, or subcontractor of the ACO or
the ACO participants, such ACO participant, individual, entity,
contractor, or subcontractor must similarly certify the accuracy,
completeness, and truthfulness of the data and provide the government
with access to such data for audit, evaluation, and inspection.
c. Conflicts of Interest
We are proposing that the ACO governing body have a conflicts of
interest policy that applies to members of the governing body. The
purpose of this proposal is to ensure that members of the governing
body act in the best interests of the ACO and Medicare beneficiaries We
propose that the conflicts of interest policy must require members of
the governing body to disclose relevant financial interests. Further,
the policy must provide a procedure for the ACO to determine whether a
conflict of interest exists and set forth a process to address any
conflicts that arise. Such a policy would also address remedial action
for members of the governing body that fail to comply with the policy.
We solicit comments on this proposal, including the scope and content
of such a policy.
d. Screening of ACO Applicants
The Medicare program includes substantial screens of enrolling
providers and suppliers, including, for example, newly enrolling ACO
participants. ACOs will not be subject to those existing screens
because they are not enrolling in Medicare. Consistent with our efforts
throughout the Medicare program to strengthen provider enrollment
standards and encourage compliance with program requirements, we are
considering screening ACOs during the Shared Savings Program
application process with regard to their program integrity history,
including any history of program exclusions or other sanctions and
affiliations with individuals or entities that have a history of
program integrity issues. ACOs whose screening reveals a history of
program integrity issues and/or affiliations with individuals or
entities that have a history of program integrity issues may be subject
to rejection of their Shared Savings Program applications or the
imposition of additional safeguards or assurances against program
integrity risks. We solicit comments on the nature and extent of such
screening and the screening results that would justify rejection of an
application or increased scrutiny.
e. Prohibition on Certain Required Referrals and Cost-Shifting
In section II.D. of this proposed rule, we propose to assign
beneficiaries to an ACO after the conclusion of a performance period,
but we also indicate that we are considering assigning beneficiaries to
an ACO on a prospective basis at the beginning of a performance period.
We are concerned that ACOs or ACO participants may offer or be offered
inducements to overutilize services or to otherwise increase costs for
Medicare or other Federal health care programs with respect to the care
of individuals who are not assigned to the ACO under the Shared Savings
Program. The risk of such abuse might be heightened if the final rule
provides for prospective assignment of beneficiaries. To address the
risk of inappropriate cost-shifting within Medicare and other Federal
health care programs, we are considering prohibiting ACOs and their ACO
participants from conditioning participation in the ACO on referrals of
Federal health care program business

[[Page 19553]]

that the ACO or its ACO participants know or should know is being
provided to beneficiaries who are not assigned to the ACO.

C. Establishing the 3-Year Agreement With the Secretary

1. Options for Start Date of the Performance Year
Section 1899 (b)(2)(B) of the Act, as added by section 3022 of the
Affordable Care Act provides that an ``ACO shall enter into an
agreement with the Secretary to participate in the [Shared Savings
Program] for no less than a 3-year period * * * '' In establishing the
requirement for a minimum 3-year agreement period, the statute does not
prescribe a particular application period or specify a start date for
ACO agreements. In this section of this proposed rule, we will discuss
our proposals for establishing an application period and for setting
the start date for the 3-year agreements with ACOs.
We considered several options for establishing start dates, with
the corresponding 3-year agreement periods: Annual start dates;
semiannual start dates; rolling start dates; and delayed start dates.
In our consideration of these options, we attempted to balance the need
for maximum flexibility for program applicants with the advantages of
establishing a streamlined administrative approach. Adopting an annual
application period and start date would create cohorts of ACO
applicants, which would be simultaneously evaluated for eligibility to
participate in the program. Agreements with ACOs of the same cohort
would take effect on the same date each year. This would allow for more
streamlined processes around agreement renewal and performance
analysis, evaluation and monitoring.
However, under section 1899(a)(1) of the Act, the Secretary must
establish the Shared Savings Program by not later than January 1, 2012.
Given the short timeframe for implementation of the program and our
desire to permit as many qualified ACOs as possible to participate in
the first year, we also gave a great deal of consideration to
alternative approaches that would provide flexibility to program
applicants. For instance, we could allow ACOs to apply on a ``rolling''
basis in which applications are accepted and evaluated any time of year
and the ACO's agreement period would begin after a determination that
the eligibility requirements had been met. In this way, applicants
could apply throughout the course of the year as they become ready and
we could review and approve applications and begin performance periods
on a rolling basis.
After exploring the various alternatives, it has become clear that
the greatest barrier to any option other than an annual uniform start
date relates to appropriate beneficiary assignment, particularly for
markets where there may be multiple ACOs. First, if ACO agreements
begin more often than once a year, beneficiaries could be assigned to
two ACOs for an overlapping period. As discussed in section II.D. of
this proposed rule, we propose that beneficiaries will be assigned to
ACOs based upon where they receive the plurality of their primary care
services. Since the physician associated with the plurality of a
beneficiary's primary care services could vary from year to year,
having multiple start dates could result in a beneficiary being
assigned to multiple ACOs for an overlapping period. This scenario
would result in confusion for beneficiaries and the potential for
duplicate shared savings payments for care provided to a single
beneficiary. Problems with patient assignment may cause unintended
consequences for per capita costs, making it difficult to make
comparisons of one ACO's performance to another that has a different
start date. In addition, adopting multiple start dates within a year
would require multiple cycles for application review and approval,
calculation of baselines and targets, data sharing, quality reporting,
and financial reconciliation, which would impose a significant
administrative challenge.
After evaluating the various options for start date, we are
proposing to establish an application process with an annual
application period during which a cohort of ACOs would be evaluated for
eligibility to participate in the Shared Savings Program. We further
propose that the performance years be based on the calendar year to be
consistent with most CMS payment and quality incentive program cycles.
In other words, we propose: (1) To adopt the general requirement that
ACO applications must be submitted by a deadline established by us; (2)
we will review the applications and approve applications from eligible
organizations prior to the end of the calendar year; (3) the requisite
3-year agreement period will begin on the January 1 following approval
of an application; and (4) the ACO's performance periods under the
agreement will begin on January 1 of each respective year during the
agreement period.
However, we are concerned that, in light of the short time frame
for implementing the Shared Savings Program in the first year of the
program, a January 1 start date might not provide the flexibility
necessary to allow all interested ACOs to complete their application
packages. Accordingly, we solicit comment on any alternatives to a
January 1 start date that would allow the greatest number of qualified
organizations to apply to participate in the first year of the program.
One specific example of an alternative to a single start date of
January 1 for the first year of the Shared Savings Program might be to
add an additional start date of July 1 and to allow the agreement
period for ACOs with a July 1 start date to be increased to 3.5 years.
Under this example, the first performance year of the agreement period
would be defined as 18 months in order that all of the agreement
periods would synchronize with ACOs entering the program on January 1
of the following year. We envision that if adopted, this alternative
would only be available in the first year of the program and for all
subsequent years all applications would have to be reviewed and
accepted prior to the beginning of the applicable calendar year and all
agreements would be for 3 years.
2. Timing and Process for Evaluating Shared Savings
Section 1899(d)(1) of the Act, as added by section 3022 of the
Affordable Care Act, provides that an ACO shall be eligible to receive
shared savings payments for each year of the agreement period, if the
ACO has met the quality performance standards established under section
1899(b)(3) of the Act and has achieved the required percent of savings
below its benchmark. However, the statute is silent with respect to
when the shared savings determination should be made. Potential ACOs
have indicated that they need timely feedback on their performance in
order to develop and implement improvements in care delivery. In
developing our proposals, we have therefore been attentive to the
importance of determining shared savings payments and providing
feedback to ACOs on their performance in a timely manner while at the
same time not sacrificing the accuracy needed to calculate per capita
expenditures.
Our determination of an ACO's eligibility to receive a payment for
shared savings will be based upon an analysis of the claims submitted
by providers and suppliers for services and supplies furnished to
beneficiaries assigned to the ACO. There is an inherent lag between
when a service is performed and when a claim is submitted to us for
payment. Additionally, there is also a time lag

[[Page 19554]]

between when the claim is received by us and when the claim is paid.
For this reason, all Medicare service and expenditure data have what
can be defined as a claims run-out period. The claims run-out period is
the time between when a Medicare-covered service has been furnished to
a beneficiary and when the final payment is actually issued for the
respective service.
From the perspective of the utilization and expenditure data that
would be needed in order to determine an ACO's eligibility to receive
shared savings and to provide performance feedback reports, the longer
the claim run-out period, the more complete and accurate the
utilization and expenditure data would be for any given year. Higher
completion percentages are associated with longer run out periods and
thus would necessitate a longer delay before we could determine whether
an ACO is eligible to receive shared savings and provide performance
feedback. Conversely, a lower completion percentage would be associated
with a shorter run out period and thus a quicker turnaround for the
shared savings determination and for the provision of performance
feedback. Based upon historical trends, a 3-month run-out would result
in a completion percentage of approximately 98.5 percent for physician
services and 98 percent for Part A services. A 6-month run-out of
claims data results in a completion percentage of approximately 99.5
percent for physician services and 99 percent for Part A services.
Since neither a 3-month nor a 6-month run-out of claims data would
offer complete calendar year utilization and expenditure data, we would
have to work with our Office of the Actuary to determine if the
calculation of a completion percentage is warranted. If determined
necessary, the completion percentage would be applied to ensure that
the shared savings determination reflects the full costs of care
furnished to assigned beneficiaries during a given calendar year. Thus,
we must balance the need to ensure accurate and complete claims data
are used to determine shared savings with the need to provide timely
feedback to ACOs participating in the Shared Savings Program.
Additionally, regardless of whether we use a 3-month or 6-month claims
run-out period, we are concerned that some claims (for example, high
cost claims) may be filed after the claims run-out period which would
affect the accuracy of the amount of the shared savings payment. We are
considering, and seek comment on, ways to address this issue, including
applying an adjustment factor determined by CMS actuaries to account
for incomplete claims, termination of the ACO's agreement with us for
ACOs found to be holding claims back, or attributing claims submitted
after the run-out period to the following performance period.
We propose using a 6-month claims run-out to calculate the
benchmark and per capita expenditures for the performance year. A 6-
month claims run-out will allow us to more accurately determine the per
capita expenditures associated with each respective ACO. Although the
use of a 6-month claims run out will delay the computation of shared
savings payments and the provision of feedback to participating ACOs,
the trade-off for a more accurate calculation of per capita costs is
warranted. More accurately defining the per capita expenditures will
allow us to share the appropriate amount of savings or alternatively,
if no shared savings are realized, it will allow the ACO to focus on
potential areas for improvement. However, we seek comment on whether
there are additional considerations that might make a 3-month claims
run-out more appropriate.
3. Data Sharing
Under section 1899(b)(2)(A) of the Act, as added by section 3022 of
the Affordable Care Act, an ACO must, ``be willing to become
accountable for the quality, cost, and overall care of the Medicare
fee-for-service beneficiaries assigned to it.'' Section 1899 of the Act
does not address what data, if any, we should make available to ACOs on
their assigned beneficiary populations to support them in evaluating
the performance of ACO participants and ACO providers/suppliers,
conducting quality assessment and improvement activities, and
conducting population-based activities relating to improved health. In
agreeing to become accountable for a group of Medicare beneficiaries,
we generally expect that participating ACOs are able to, or are working
toward, independently identifying and producing the data they believe
are necessary to best evaluate the health needs of their patient
population, improve health outcomes, monitor provider/supplier quality
of care and patient experience of care, and produce efficiencies in
utilization of services. Moreover, this ability to self-manage is a
critical skill for each ACO to develop, leading to an understanding of
the unique patient population that it serves.
However, we also recognize that while an ACO typically should have,
or is moving toward having, complete information for the services it
provides to or coordinates on behalf of its FFS beneficiary population,
it may not have complete information on a FFS beneficiary who, for
example, has chosen to receive services, medications or supplies from
providers of services and suppliers outside its organization. We
believe that providing ACOs with an opportunity to request CMS claims
data, as described later in this proposed rule, on their potentially
assigned beneficiary population would allow them to understand the
totality of care provided to beneficiaries assigned to them by
identifying the services and supplies that fee-for-service
beneficiaries receive during the performance year both within and
outside of the ACO. We believe that access to this data would promote
coordinated care and a better understanding of the population served by
the ACO with resulting positive impacts on both the quality and
efficiency of ease of delivered. ACOs represent a positive step toward
transforming the current health care system and we want to ensure that
participating organizations have access to information that will assist
them in achieving both improvements in the quality of care and a better
understanding of the population served by the ACO while simultaneously
lowering the growth in health care costs.
We could provide data to ACOs in different forms with a focus on
different levels of information, for example, aggregated population
level data or beneficiary identifiable data. These data could be
combined with data collected within the ACO. For example, our data
could be combined with provider level data compiled within the ACO.
Combining aggregate and beneficiary identifiable data as well as
provider level and other internally generated data would provide ACOs
with a more complete picture about the care their assigned
beneficiaries receive both within and outside the ACO, their ACO
participants and ACO providers/suppliers' patterns of care, and could
be used to assess their performance relative to their previous years'
performance. With this information, in accordance with established
privacy and security protections, ACOs would be able to identify how
its ACO participants and ACO providers/suppliers measure up to
benchmarks and targets, how they perform in relation to peers
internally, and identify which categories of beneficiaries would
benefit most from care coordination and other patient-centered
approaches. For a more complete discussion of the requirements

[[Page 19555]]

associated with the sharing of internally generated data, please see
section II.B. of this proposed rule
4. Sharing Aggregate Data
Because we believe that ACOs have the potential to significantly
improve the quality of care provided to Medicare beneficiaries while
improving the efficiency and cost-effectiveness of that care, we
believe that, where feasible, we should provide information to help
ACOs improve the quality of care, improve the health of their
beneficiary population, and create efficiencies within their systems.
One possible approach is to provide aggregated data on beneficiary use
of health care services. An ACO should be able to use aggregated data
reports on its assigned or potentially assigned beneficiary population
to monitor, understand, and manage its utilization and expenditure
patterns as well as to develop, target, and implement quality
improvement programs and initiatives. For example, if data shows that
an ACO's beneficiary population had a high rate of hospital
readmissions, the ACO could consider the need for actions to improve
discharge coordination among its attending physicians, hospitals, and
post-acute care providers or to improve access to primary care clinics.
Similarly, an analysis of aggregated Part D data that shows
beneficiaries were not filling their prescriptions could lead to
interventions applicable to all beneficiaries designed to assess and
develop strategies to overcome difficulties in filling prescriptions.
Likewise, aggregated data could show a relatively high incidence within
the ACO's beneficiary population of certain types of procedures
relative to national benchmarks, potentially prompting an ACO to
further explore and examine the appropriateness of its ACO
participants' and ACO providers/suppliers' practice patterns by using
provider-level data.
In the PGP demonstration, we provided several types of aggregate
data to the participating group practices. We generated an annual
profile report that provided the following information:
Financial performance including number of patients seen,
number of patients assigned, per capita expenditures, risk score,
benchmark, total assigned beneficiary expenditures, minimum savings
amount, shareable savings, and annual performance payment.
Quality performance scores, including numerator,
denominator, and rate for each measure along with the target benchmark
for each measure.
Aggregated metrics on the assigned beneficiary population,
including a breakdown of the population into high risk score
beneficiaries, beneficiaries with 1 or more hospitalizations, and
chronic disease subpopulations such as patients with congestive heart
failure, coronary artery disease, hypertension, chronic obstructive
pulmonary disease, and diabetes.
The number of patients overall and in each subpopulation
with emergency department visits, hospital discharges, physician visits
and their corresponding rate for the assigned population.
The feedback received on the PGP demonstration suggested that
making these data available was helpful to the participating practices;
they noted the benefits of having aggregate data that were more easily
digestible compared to ``data dumps'' comprised of claims-based data.
In general, by making similar types of aggregate, data available to
ACOs participating in the Shared Savings Program, we believe ACOs would
have a more complete picture of the services rendered to their assigned
FFS beneficiaries, which would allow the pursuit of a variety of
strategies to streamline and consolidate care provision in a way that
enhances quality and slows the growth in Medicare expenditures for
their assigned beneficiary population. Thus, providing aggregated
Medicare data reports to ACOs in the beginning of the program may be
especially helpful to ACOs as they identify priority areas of care upon
which to focus. Accordingly, similar to the PGP demonstration, we
propose to provide aggregate data reports which would include, when
available, aggregated metrics on the assigned beneficiary population,
and beneficiary utilization data at the start of the agreement period
based on historical data used to calculate the benchmark. We further
propose to include these data in conjunction with the yearly financial
and quality performance reports. Additionally, we propose to provide
quarterly aggregate data reports to ACOs based upon the most recent 12
months of data from potentially assigned beneficiaries. We request
comments on these proposals as well as the kinds of aggregate data and
frequency of data reports that would be most helpful to the ACO's
efforts in coordinating care, improving health, and producing
efficiencies.
5. Identification of Historically Assigned Beneficiaries
Based upon feedback from the PGP demonstration, the RFI comments on
the Shared Savings Program, and Shared Savings Program Open Door
Forums, we propose to make certain limited beneficiary identifiable
data available at the beginning of the first performance year. In
addition to sharing aggregated data reports based on the ACO's
historically assigned beneficiary population, we believe the ACO would
benefit from understanding which of their fee-for-service beneficiaries
were used to generate the aggregated data reports. Accordingly, we
propose to disclose the name, date of birth (DOB), sex and Health
Insurance Claim Number (HIC) of the historically assigned beneficiary
population. We believe that knowing these identifiers would be useful
to the ACO in two ways: First, the ACO providers could use the
information to identify the beneficiaries, review their records, and
identify care processes that may need to change. For example, the ACO
might look at whether an inability to get a timely clinic appointment
resulted in an avoidable emergency room visit for a particular patient.
Second, experience with the PGP demonstration has suggested that a high
percentage of historically assigned patients will continue to receive
care from the ACO participants and ACO providers/suppliers. Knowing
individuals who have been assigned in the past would help the ACO
participants to identify individuals who may benefit from improved care
coordination strategies going forward.
Providing a list of historically assigned patients to the ACO may
also raise concerns. In section II.D. of this proposed rule, we have
proposed to assign beneficiaries to the ACO retrospectively. One reason
for this is that we believe that the ACO should be evaluated on the
quality and cost of care furnished to those beneficiaries who actually
chose to receive care from ACO participants during the course of each
performance year. Another reason for retrospective assignment is to
encourage the ACO to redesign its care processes for all Medicare FFS
beneficiaries, not just for the subset of beneficiaries upon whom the
ACO is being evaluated. We recognize that providing a list of
historically assigned beneficiaries may provide an opportunity for the
ACO to identify and avoid at-risk beneficiaries that appear on the list
so that the costs of these beneficiaries do not appear in the
calculation of the ACO's actual expenditures during a performance year.
We are addressing this concern through the proposal described in
section II.H. of this proposed rule, that takes steps to ensure ACOs do
not avoid at-risk beneficiaries.
Furthermore, we recognize that there are a number of issues and
sensitivities surrounding the disclosure of

[[Page 19556]]

individually-identifiable (patient-specific) health information, and
note that a number of laws place constraints on the sharing of
individually identifiable health information. For example, section 1106
of the Act generally bars the disclosure of information collected under
the Act without consent unless a law (statute or regulation) permits
for the disclosure. In this instance, the HIPAA Privacy Rule permits
that legal authority and provides for this proposed disclosure of
individually identifiable health information by us.
Under the HIPAA Privacy Rule, covered entities (defined as health
care plans, providers that conduct covered transactions, and health
care clearinghouses) are barred from using or disclosing individually
identifiable health information (called ``protected health
information'' or PHI) in a manner that is not explicitly permitted or
required under the HIPAA Privacy Rule. When another entity conducts a
function or activity involving the use or disclosure of individually
identifiable health information on behalf of a covered entity, that
entity is a business associate of the covered entity. (45 CFR 160.103).
Under the HIPAA Privacy Rule, a covered entity may disclose PHI to
business associates if it obtains ``satisfactory assurances that the
business associate will appropriately safeguard the information'' (45
CFR 164.502(e)). These satisfactory assurances generally take the form
of contractual obligations to protect the data as the covered entity is
required to do under the HIPAA Privacy Rule. Any use or disclosure of
PHI that a covered entity can make under the HIPAA Privacy Rule can
also be performed on its behalf by a business associate if the use or
disclosure is authorized in the contract between the covered entity and
the business associate.
The Medicare FFS program, a ``health plan'' function of the
Department, is subject to the HIPAA Privacy Rule limitations on the
disclosure of PHI. The ACO participants and ACO providers/suppliers are
also covered entities, provided they are health care providers as
defined by 45 CFR 160.103 and they or their agents electronically
engage in one or more HIPAA standard transactions, such as for claims,
eligibility or enrollment transactions. Similarly, an ACO may itself be
a HIPAA covered entity if it is a health care provider that conducts
such transactions. Alternatively, based on their work on behalf of ACO
participants and ACO providers/suppliers in conducting quality
assessment and improvement activities, the ACOs will qualify as the
business associates of their covered entity ACO participants and ACO
providers/suppliers.
In light of these relationships, the proposed disclosure of the
four identifiers would be permitted by the HIPAA Privacy Rule under the
provisions that permit disclosures of PHI for ``health care
operations'' purposes. Under those provisions, a covered entity is
permitted to disclose PHI to another covered entity for the recipient's
health care operations purposes if both covered entities have or had a
relationship with the subject of the PHI to be disclosed (which is true
here), the PHI pertains to that relationship (which is also true here)
and the recipient will use the PHI for a ``health care operations''
function that falls within the first two paragraphs of the definition
of ``health care operations'' in the HIPAA Privacy Rule. (45 CFR
164.506(c)(4)). The first paragraph of the definition of health care
operations includes ``population-based activities relating to improving
health or reducing health costs, protocol development, case management
and care coordination'' (45 CFR 164.501). We believe that this
provision is extensive enough to cover the uses we would expect an ACO
to make of the identifying data elements for the historically assigned
patients. In coming to this conclusion, we recognize that an
individual's authorization is generally required before using or
disclosing PHI for marketing purposes, 45 CFR 164.508, but we also note
that both those ACOs acting as a covered entity (as opposed to business
associates) and those ACOs acting on behalf of covered entity ACO
participants and ACO providers/suppliers as business associates will be
able to use the four data elements to communicate with individuals on
the list to describe available services and for case management and
care coordination purposes under the exceptions to the definition of
``marketing'' under the HIPAA Privacy Rule, 45 CFR 164.501.
Furthermore, when using or disclosing PHI, or when requesting this
information from another covered entity, covered entities must make
``reasonable efforts to limit'' the information that is used, disclosed
or requested the ``minimum necessary'' to accomplish the intended
purpose of the use, disclosure or request, 45 CFR 164.502(b). We
believe that the provision of the four proposed data elements would
constitute the minimum data necessary to accomplish the Shared Savings
Program goals of the ACO.
The Privacy Act of 1974 also places limits on agency data
disclosures. The Privacy Act is a Federal withholding statute. It
applies when the Federal government maintains a system of records by
which information about individuals is retrieved by use of the
individual's personal identifiers (names, Social Security numbers, or
any other codes or identifiers that are assigned to the individual).
The Privacy Act generally prohibits disclosure of information from a
system of records to any third party without the prior written consent
of the individual to whom the records apply, 5 U.S.C. 552a(b).
``Routine uses'' are an exception to this general principle. A routine
use is a disclosure outside of the agency that is compatible with the
purpose for which the data was collected. Routine uses are established
by means of a publication in the Federal Register about the applicable
system of records describing to whom the disclosure will be made and
the purpose for the disclosure. We believe that the proposed data
disclosures are consistent with the purpose for which the data
discussed in this rule was collected, and thus, should not run afoul of
the Privacy Act, provided we ensure that an appropriate Privacy Act
system of records ``routine use'' is in place prior to making any
disclosures.
Therefore, at the beginning of the agreement period, at the request
of the ACO, we are proposing to provide the ACO with a list of
beneficiary names, date of birth, sex, and HICN derived from the
assignment algorithm used to generate the 3-year benchmark. As
discussed in section II.B. of this proposed rule, these are
beneficiaries who received the plurality of primary care services from
primary care physicians who are ACO participants. We seek comment on
this proposal and on whether and how this information would be
beneficial to the goals of improved care coordination and improving
care delivery for the ACO's assigned beneficiary population.
6. Sharing Beneficiary-Identifiable Claims Data
While the availability of aggregate beneficiary information and the
identification of the beneficiaries used to determine the benchmark
should assist ACOs in the overall redesign of care processes and
coordination of care for their assigned beneficiary populations, we
believe that more complete beneficiary-identifiable information would
enable practitioners in an ACO to better coordinate and target care
strategies towards the individual beneficiaries who may

[[Page 19557]]

ultimately be assigned to them. For example, knowing which
beneficiaries have frequent emergency department visits could help the
ACO develop systems to ensure these beneficiaries have timely access to
office-based care.
The PGP demonstration provided beneficiary identifiable claims data
to the participating sites but the beneficiary identifiable claims data
that was provided was the previous year's historical data on those
beneficiaries that might be assigned to the site. The feedback we
received from the PGP demonstration was that the historical beneficiary
identifiable claims data was useful in some instances but that current
year beneficiary claims data would be preferred and result in a more
proactive approach to coordinating care. Through comments on the
November 17, 2010 RFI, open door forums, and other venues, stakeholders
have expressed the importance of timely data on their patient
population. They submit that they will need detailed data for their
patients so they can establish baseline levels of utilization and
patient morbidity, identify key beneficiaries and subpopulations for
proactive care coordination efforts, and track their progress against
defined performance measures. These data are especially important for
ACOs made up of small and individual practices that may not have fully
developed information technology systems. Additionally, stakeholders
have expressed a desire to receive updated beneficiary identifiable
claims data on either a monthly or quarterly basis.
For these reasons we believe sharing beneficiary identifiable
claims data with ACOs will assist them in improving care for
individuals, improving health of their population, and reducing the
growth in expenditures for their assigned beneficiary population.
However, there are clear legal and practical limitations on how useful
these CMS claims data may be to an ACO. For example, providers have
said that they would like to know when their patients are admitted to
the hospital in ``real time''. We are not able to provide this type of
data since we generally only become aware of a hospital admission at
the time of discharge when the hospital bills us for the service. So,
there will always be a claims lag that will make our data less useful
for ``real time'' responses. Unlike claims data, real time information
may be more readily available through development and use of an
interoperable electronic health record or participation in local/
regional health information exchanges, or through more effective
coordination with admitting and discharging personnel in hospitals that
the ACO's patients utilize, something that is consistent with the
overall purpose and intent of the Shared Savings Program (see Section
II.B. of this proposed rule). Moreover, unlike MA plans, under the
Shared Savings Program, freedom of choice for FFS beneficiaries is
retained, which means that a full analysis of the beneficiary
population cared for by the ACO during the course of the performance
year can only be performed retrospectively.
It should also be noted that 42 U.S.C. 290dd-2 and implementing
regulations at 42 CFR part 2 restrict the disclosure of patient records
by Federally conducted or assisted substance abuse programs, except as
expressly authorized. The law states that ``records of the identity,
diagnosis, prognosis, or treatment of any patient which are maintained
in connection with the performance of any program or activity relating
to substance abuse education, prevention, training, treatment,
rehabilitation, or research, which is conducted, regulated, or directly
or indirectly assisted by any department or agency of the United States
shall * * * be confidential.'' Such data may be disclosed only with the
prior written consent of the patient, or as otherwise provided in the
statute and regulations. Consistent with this requirement, claims
containing this specifically protected information would not be
included in any beneficiary identifiable claims data shared with ACOs.
As discussed later in the document in more detail, we are proposing
to give the ACO the opportunity to request certain beneficiary
identifiable claims data on a monthly basis, in compliance with
applicable laws, in the form of a standardized data set about the
beneficiaries currently being served by the ACO participants and ACO
providers/suppliers. We propose to limit the beneficiaries covered by
such data sets to those who have received a service from a primary care
physician participating in the ACO during the performance year, and who
have not opted out of having us share their claims data with the ACO.
In order to obtain beneficiary information that is subject to 42 CFR
290dd, the individual must have provided his or her prior written
consent. Furthermore, we also propose to limit the content of this data
set to the minimum data necessary for the ACO to effectively coordinate
care of its patient population.
As noted previously, there are limitations on the content and
timeliness of data that we can share with an ACO. If an ACO chooses to
request beneficiary identifiable claims data as part of the application
process, we propose that the ACO will be required to explain how it
intends to use these data to evaluate the performance of ACO
participants and ACO providers/suppliers, conduct quality assessment
and improvement activities, and conduct population-based activities to
improve the health of its assigned beneficiary population. If an ACO
does not choose to request these data at the time of its application,
it will be required to submit a formal request for data during the
agreement period that includes a description of how it intends to use
the requested data for the purposes noted previously. We solicit
comment on these proposals.
Additionally, when an ACO is accepted to participate in the Shared
Savings Program, we propose to require ACOs to enter into a Data Use
Agreement (DUA) prior to receipt of any beneficiary identifiable claims
data. Under the DUA, the ACO would be prohibited from sharing the
Medicare claims data that we provide through the Shared Savings Program
with anyone outside the ACO. In addition, we propose to require in the
DUA that the ACO agree not to use or disclose the claims data obtained
under the DUA in a manner in which a HIPAA covered entity could not,
without violating the HIPAA Privacy Rule. We propose to make compliance
with the DUA a condition of the ACO's participation in the Shared
Savings Program--non-compliance with this requirement would result in
the ACO no longer being eligible to receive data, and could lead to
termination from the Shared Savings Program or additional sanctions and
penalties available under the law. For example, under the Privacy Act,
any ``person who knowingly and willfully requests or obtains any record
concerning an individual from an agency under false pretenses shall be
guilty of a misdemeanor and fined not more than $5,000'' 5 U.S.C.
552a(i)(3). In those instances where an ACO does not choose to request
the data at the time of their application, the ACO will be required to
submit a formal request for data during the agreement period. We
propose that the ACO would be required to certify compliance with the
DUA in the same manner in which prospective ACOs did in the original
application process. We solicit comment on these proposals.
a. Legal Authority To Disclose Beneficiary-Identifiable Claims Data to
ACOs
As noted previously, section 1106 of the Act generally bars the
disclosure of information absent patient authorization

[[Page 19558]]

that is collected under the Act unless a law (statute or regulation)
provides for disclosure. Once again, we believe that the HIPAA Privacy
Rule permits disclosure for purposes of sharing Medicare Part A and B
claims data with ACOs participating in the Shared Savings Program.
Similarly, we believe the regulations governing the sharing of Part D
data would permit us to share information regarding prescription drug
claims with ACOs. We also believe that the proposed disclosures of
claims data under Parts A, B, and D are consistent with the purposes
for which the data were collected, and thus, for the reasons discussed
previously would be permitted under the Privacy Act if we ensure that
an appropriate Privacy Act System of Records ``routine use'' is in
place prior to making any disclosures.
(1) Sharing Data Related to Medicare Parts A and B
As discussed in section II.B. of this proposed rule, the ACOs are
tasked with working with ACO participants and ACO providers/suppliers
to evaluate their performance, conduct quality assessment and
improvement activities, and conduct population-based activities
relating to improved health for their assigned beneficiary population.
When done by or on behalf of a covered entity, these are covered
functions and activities that would qualify as ``health care
operations'' under the first and second paragraphs of the definition of
health care operations at 45 CFR 164.501. These activities are done by
the ACOs either on their own behalf as covered entities, or on behalf
of their covered entity ACO participants and ACO providers/suppliers,
in which case the ACOs would be the business associate of its ACO
participants and ACO providers/suppliers.
The proposed disclosure of Part A and B claims data would be
permitted by the HIPAA Privacy Rule provisions governing disclosures
for ``health care operations.'' As discussed previously in the context
of our proposed disclosure of the four data elements about the
historically assigned beneficiary population, a covered entity is
permitted to disclose PHI to another covered entity for the recipient's
health care operations if both covered entities have or had a
relationship with the subject of the records to be disclosed (which is
true here), the records pertain to that relationship (which is also
true here) and the recipient plans to use the records for a ``health
care operations'' function that falls within the first two paragraphs
of the definition of ``health care operations'' in the HIPAA Privacy
Rule. 45 CFR 164.506(c)(4). The first two paragraphs of the definition
of health care operations include a covered entity or its business
associate evaluating a provider's or supplier's performance, conducting
quality assessment and improvement activities, and conducting
population-based activities relating to improved health. 45 CFR
164.501. We believe that these provisions are extensive enough to cover
the uses we would expect an ACO to make of the Parts A and B claims
data set that we are proposing to make available to them. Thus, we
believe that there is authority for us to disclose to an ACO, as the
business associate of the covered entity, the minimum Medicare Parts A
and B data necessary to allow ACOs to conduct the health care operation
activities outlined previously.
Accordingly, barring a beneficiary requesting to opt-out of having
his or her information shared as described later in the document, and
subject to applicable confidentiality laws, we are proposing to make
Part A and Part B data about patients who have had a visit with a
primary care physicians participation in the ACO during the performance
year available upon request to participating ACOs this data would be
used for the purposes of aiding the ACO as it evaluates the performance
of ACO participants and ACO providers/suppliers, conducts quality
assessment and improvement activities, and conducting population-based
activities relating to improved health. In doing so, we will only
disclose the minimum data necessary to accomplish these purposes in
accordance with the requirements of the HIPAA Privacy Rule. We believe
that the minimum necessary Parts A and B data elements would include
data elements such as: Procedure code, diagnosis code, beneficiary ID;
date of birth; gender; and, if applicable, date of death; claim ID; the
from and thru dates of service; the provider or supplier ID; and the
claim payment type.
As discussed previously, we will not disclose any patient
information related to alcohol and substance abuse that is subject to
42 CFR 290dd without the patient's written consent.
Similar to the process by which ACOs can receive the four
beneficiary identifiable data points, under this proposal, in order to
receive data, ACOs would be required to attest in either their initial
application or in their subsequent formal request for data if they
failed to request data in the application stage, that; (1) They are a
covered entity or a business associate of covered entity ACO
participants and ACO suppliers/providers under the Shared Savings
Program; (2) their business associate agreement with these ACO
participants and ACO providers/suppliers authorizes them to seek PHI on
behalf of the ACO participants and ACO providers/suppliers for one of
the health care operations purposes laid out previously; (3) their
request reflects the minimum data necessary to do that health care
operations work; and (4) that their use of these requested data would
be limited to the Shared Savings Program activities related to one or
more of the health care operations purposes laid out previously or (1)
They are a HIPAA covered entity; (2) they are requesting the claims
data about their own patients for one of the health care operations
purposes laid out previously; (3) their request reflects the minimum
data necessary to do that health care operations work; and (4) that
their use of these requested data would be limited to the Shared
Savings Program activities related to one or more of the health care
operations purposes laid out previously.
(2) Sharing Data Related to Medicare Part D
Beneficiary identifiable Medicare prescription drug information
could also be beneficial to ACOs for improving the care coordination of
their patient population. Having a complete picture, for example, of
the beneficiary's medication regimen can assist in avoiding duplication
or adverse interactions among medications.
We issued a final rule in May of 2008 authorizing the Secretary to
recollect Part D claims data that were originally collected for Part D
payment purposes for research, analysis, reporting, and public health
functions (73 FR 30664). In that final rule, we noted our intent to use
the data for a wide variety of purposes including ``supporting care
coordination and disease management programs,'' and ``supporting
quality improvement and performance measurement activities.'' (42 CFR
423.505(f)(3)(v), (vi)). We also expressed our view that ``it is in the
interest of public health to share the information
collected[hellip]with entities outside of CMS for legitimate research,
or in cases of other governmental agencies, for purposes consistent
with their mission.'' (73 FR 30666). Accordingly, the regulations
specified when data would be shared with outside entities, such as
other government agencies, and external entities, including
researchers.
The Part D data rule did not expressly address the question of
whether Part D data could be shared with external entities, such as
ACOs, for purposes other than research. However, in the rule, we noted
that sharing Part D claims data, in addition to Parts A and B data,
could have salutary effects on

[[Page 19559]]

the evaluation and functioning of the Medicare programs as well as
improving the clinical care furnished to beneficiaries. Furthermore,
the rule explicitly contemplated the use of Part D data to support care
coordination and disease management programs, as well as quality
improvement and performance measurement activities, which are central
to the Shared Savings Program and its success.
We believe that ACOs participating in the Shared Savings Program
would use information on prescription drug use in order to improve the
quality of care furnished to their assigned beneficiaries and to
enhance care coordination for these beneficiaries. As a result,
although the Part D data rule did not expressly address the question of
whether Part D data could be shared with external entities for purposes
other than research, we believe that the release of Part D claims data
to ACOs for the purpose of supporting care coordination, quality
improvement, and performance measurement activities, would be
consistent with the purposes outlined in the Part D data rule. The Part
D data will be released in accordance with the requirements outlined in
the regulations at 42 CFR 423.505(m)(1). As a result, certain data
elements may be unavailable or available only in an aggregated format.
Accordingly, consistent with the regulations governing the release
of Part D data, we propose to provide ACOs with the minimum Part D data
necessary to permit the ACO to undertake evaluation of the performance
of ACO participants and ACO providers/suppliers, conduct quality
assessment and improvement activities with and on behalf of the ACO
participants and ACO providers/suppliers, and conduct population-based
activities relating to improved health for Medicare beneficiaries who
have a primary care visit with a primary care physician used to assign
patients to the ACO during a performance year. We propose that the
minimum data elements necessary to perform these functions could
include data elements such as: beneficiary ID, prescriber ID, drug
service date, drug product service ID, and indication if the drug is on
the formulary.
a. Beneficiary Opportunity To Opt-Out of Claims Data Sharing
Although we have the legal authority within the limits described
previously to share Medicare claims data with ACOs without the consent
of the patients, and while we believe that these data will provide a
valuable tool to assist ACOs in evaluating the performance of ACO
participants and ACO providers/suppliers, conducting quality assessment
and improvement activities, and conducting population-based activities
relating to improved health, we nevertheless believe that beneficiaries
should be notified of, and have meaningful control over who, has access
to their personal health information for purposes of the Shared Savings
Program. Thus, we are proposing to require that, as part of its broader
activities to notify patients at the point of care that their provider
or supplier is participating in an ACO, as discussed in Section II. D.,
the ACO must also inform beneficiaries of its ability to request claims
data about them if they do not object. We believe that this
notification will give the beneficiaries meaningful choice as to
whether this information may be shared. The only exceptions to this
advanced notice would be the initial four data points (the
beneficiary's name, date of birth, sex, and HICN) that we will provide
to ACOs for individuals in the 3-year data set used to determine the
ACO's benchmark.
We believe that to be meaningful, the opportunity to make a choice
as to whether their information may be shared would: (1) Allow the
individual advance notice and time to make a decision; (2) be
accompanied by adequate information about the benefits and risks of
making their data available for the proposed uses; (3) not compel
consent; and (4) not use the choice to permit their information to be
shared for discriminatory purposes.
We considered two alternative mechanisms for implementing
meaningful beneficiary choice: having beneficiaries affirmatively
choose to permit us to share their protected health information through
the signing of a consent or authorization (``opt-in''); and sharing
protected health information with the ACO unless beneficiaries indicate
that they choose not to have this information shared (``opt-out'').
A requirement of patient choice about whether to participate in a
system of information exchange, whether opt-in or opt-out should
provide an excellent opportunity for providers to engage patients in
true patient-centered care, creating a strong incentive for an ACO and
its ACO participants and ACO providers/suppliers to forge a positive
relationship with each beneficiary. Consumers have consistently
expressed strong support for the implementation and exchange of
electronic health information, believing that these technologies have
the potential to improve care coordination, reduce paperwork, and
reduce the number of unnecessary and repeated tests and procedures.\8\
Successful electronic health information exchange systems have engaged
consumers, physicians and other stakeholders at an early stage to
ensure that choice is integrated into the architecture of the
systems.\9\
---------------------------------------------------------------------------

\8\ See Schneider, S. et al. ``Consumer Engagement in Developing
Electronic Health Information System.'' Prepared for: Agency for
Healthcare Research and Quality, July 2009, at 16. Available at:
http://www.healthit.ahrq.gov/portal/server.pt/gateway/PTARGS_0_1248_888520_0_0_18/09%E2%80%900081%E2%80%90EF.pdf%00%00 at 16;
Markle Foundation. Survey Finds Americans Want Electronic Personal
Health Information to Improve Own Health Care, November 2006, at 1.
Available at: http://www.markle.org/downloadable_assets/research_doc_120706.pdf.
\9\ See Goldstein, M.M. and A.L. Rein. Consumer Consent Options
for Electronic Health Information Exchange: Policy Considerations
and Analysis,'' March, 2010. Available at: http://healthit.hhs.gov/portal/server.pt/gateway/PTARGS_0_11673_911197_0_0_18/ChoiceModelFinal032610.pdf.
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Many organizations engaging in health information exchange have
selected opt-in models for patient consent. For example, the
Massachusetts eHealth Collaborative (MAeHC) achieved an average of 90
percent participation in three pilot communities using an opt-in
system. The New York Clinical Information Exchange (NYCLIX) has also
realized high patient participation rates by using an opt-in method of
patient choice.\10\ An opt-in method has several advantages. Consumers
have consistently expressed a desire that their consent should be
sought before their health information may be shared.\11\ Obtaining
affirmative written permission would also provide documentation of the
beneficiary's choice.
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\10\ J. Shapiro, J. Bartley, G. Kuperman, Health Information
Exchange Consent Policy Influences: Emergency Department Patient
Data Accessibility. ACEP 2010. See also N. Daurio, et al.
Implementation of an Enterprise-wide Electronic Health Record: A
Nurse-Physician Partnership, in K. Saranto et al., eds, Connecting
Health and Humans (IOS Press 2009).
\11\ Schneider, at 36-37. Public Attitudes Toward Medical
Privacy. (2000). Conducted by The Gallup Organization on behalf of
the Institute for Health Freedom. Available at: http://forhealthfreedom.org/Gallupsurvey/IHF-Gallup.html.
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However, many organizations find that an opt-in approach
significantly reduces both provider and beneficiary participation for
administrative reasons, and not because patients are making an active
choice not to participate.\12\ Where

[[Page 19560]]

opt-in rates are very high, significant paperwork burdens arise as
providers must track consents for the majority of their patient
population. Reducing such burdens is one of the major reasons that
other organizations engaged in health information exchange have adopted
an opt-out approach. ^{12 13} An opt-out approach is used
successfully in most systems of electronic exchange of information \13\
because it is significantly less burdensome on consumers and providers
while still providing an opportunity for caregivers to engage with
patients to promote trust and permitting patients to exercise control
over their data. We are concerned about the effect of an opt-in
approach on beneficiary participation and the additional administrative
burdens on physician practices. Therefore, we propose affording
beneficiaries the ability to opt-out of sharing their protected health
information with the ACO. We believe this opportunity coupled with
notification of how protected health information will be shared and
used affords beneficiaries meaningful choice. An example of the opt-out
approach would be that when a beneficiary has a visit with their
primary care physician, their physician would inform them at this visit
that he or she is an ACO participant or ACO provider/supplier and that
the ACO would like to be able to request claims information from us in
order to better coordinate the beneficiary's care. If the beneficiary
objects, we propose that the beneficiary would be given a form stating
that they have been informed of their physician's participation in the
ACO and explaining how to opt-out of having their personal data shared.
The form could include a phone number and/or e-mail address for
beneficiaries to call and request that their data not be shared. As
discussed in section II. D., the Shared Savings Program lays the
foundation for a beneficiary-centered delivery system that should
create a new relationship between beneficiaries and care providers
based, in large part, on patient engagement in the new care system. The
successful creation of this relationship is not possible when
beneficiaries are not aware of the new delivery system available
through ACOs, and the possibility of being included in the population
assigned to an ACO.
---------------------------------------------------------------------------

\12\ See Micky Tripathi, David Delano, Barbara Lund and Lynda
Rudolph. ``Engaging Patients for Health Information Exchange.''
Health Affairs. Volume 28, Number 2. March/April 2009; Missouri
Office of Health Information Technology. Opt-in Versus Opt-out:
Consent Models for Health Information Exchange through Missouri's
Statewide Health Information Exchange Network. Jefferson City:
Missouri. Department of Social Services (2010). Available online at
http://www.dss.mo.gov/hie/leadership/pdf2010/optin_vs_optout_overview.pdf.
\12\ See Goldstein, M.M. and A.L. Rein. Consumer Consent Options
for Electronic Health Information Exchange: Policy Considerations
and Analysis,'' March, 2010, at 35. Available at: http://healthit.hhs.gov/portal/server.pt/gateway/PTARGS_0_11673_911197_0_0_18/ChoiceModelFinal032610.pdf.
\13\ See Goldstein, M.M. and A.L. Rein. Consumer Consent Options
for Electronic Health Information Exchange: Policy Considerations
and Analysis,'' March, 2010, at 35. Available at: http://healthit.hhs.gov/portal/server.pt/gateway/PTARGS_0_11673_911197_0_0_18/ChoiceModelFinal032610.pdf.
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We therefore propose to develop a communications plan, discussed in
more detail in section II. D of this proposed rule, that will offer
insight into both the Shared Savings Program in general and the
beneficiaries' right to opt-out of the data sharing portion of the ACO
Shared Savings Program.
As noted previously, ACOs will only be allowed to request
beneficiary identifiable claims data for beneficiaries who have (1)
visited a primary care participating provider during the performance
year, and (2) have not chosen to opt-out of claims data sharing.
A beneficiary that chooses to opt-out is only opting out of the
data sharing portion of the program. The decision to opt-out in no way
effects use of the beneficiaries' data or assignment to the ACO for
purposes of determining such calculations as ACO benchmarks, per capita
costs, quality performance, or performance year per capita
expenditures. Our data contractor will maintain a running list of all
HICNs that have chosen to opt-out of data sharing. We will monitor
whether ACOs continue to request data on beneficiaries who have opted
out of having their data shared and will take appropriate actions
against any ACO that is found to violate this requirement.
We request comments on our proposals related to the provision of
both aggregate and beneficiary identifiable data to ACOs. We are
particularly interested in comments on the kinds and frequency of data
that would be useful to ACOs, potential privacy and security issues,
and the implications for sharing protected health information with
ACOs, and the use of a beneficiary opt-out, as opposed to an opt-in, to
obtain beneficiary consent to the sharing of their information.
7. New Program Standards Established During 3-Year Agreement Period
The Shared Savings Program is a new program designed to encourage
providers to redesign care processes in order to achieve the outcomes
of better care for individuals, better health for populations, and
lower growth in expenditures for Medicare FFS beneficiaries. We
anticipate that as we continue to work with the stakeholder community
and learn what methods and measures work most effectively for the
Shared Savings Program, we will make changes and improvements to the
Shared Savings Program. For example, we expect to integrate lessons
learned from Innovation Center initiatives to shape and change the
Shared Savings Program over time. Because we expect that these changes
may occur more frequently than the length of the 3-year agreement
periods, the question arises as to whether those ACOs that have already
committed to a 3-year agreement to participate in the Shared Savings
Program should be subject to those changes. It is not unprecedented for
Medicare agreements to include a provision requiring that the agreement
is subject to changes in laws and regulations. For example, the
contracts with Medicare Advantage organizations contain such a clause.
However, these contracts are for a term of 1 year, as opposed to 3 or
more years. As a result, there are more frequent opportunities for
these organizations to reassess whether they wish to continue to
participate in the program in light of changes to the laws and
regulations governing the program.
In the Shared Savings Program, regulatory changes could affect a
variety of different components of the program, including quality
measures, reporting requirements, monitoring requirements, program
integrity, and eligibility requirements. If the agreements are subject
to all changes in the applicable regulations, it is possible that some
ACOs that were eligible for participation in the program at the start
of their respective 3-year agreement might become ineligible based upon
modifications to the regulations. Creating an environment in which the
continued eligibility of existing program participants is uncertain
could be detrimental to the success of program and could deter program
participation. Conversely, the ability to incorporate regulatory
changes into the agreements with ACOs would facilitate the
administration of the program because all ACOs would be subject to the
requirements imposed under the current regulations, rather than up to 3
different sets of requirements, based upon the year in which the ACO
entered the program. Additionally, requiring ACOs to adhere to certain
regulatory changes related to quality measures, routine program
integrity changes, processes for quality management and patient
engagement, and patient-centeredness criteria that are up to date with
current clinical practice ensures that ACO activities keep pace with
changes in clinical practices and developments in evidence-based
medicine. We do not believe that requiring ACOs to adhere to

[[Page 19561]]

regulatory modifications related to quality measures, routine program
integrity changes, processes for quality management and patient
engagement, and patient centeredness criteria is likely to affect
either the ACOs' underlying organizational structure or their continued
eligibility to participate in the Shared Savings Program--although it
may necessitate changes in how ACOs design and deliver care to meet
these program requirements, as compared to descriptions of these
processes in their initial applications.
We propose that ACOs be subject to future changes in regulation
with the exception of the following program areas:
Eligibility requirements concerning the structure and
governance of ACOs;
Calculation of sharing rate; and
Beneficiary assignment.
For example, ACOs would be subject to changes in regulation related
to the quality performance standard. The language of the ACO agreement
would be explicit to ensure that ACOs understand the dynamic nature of
this part of the program and what specific programmatic changes would
be incorporated into the agreement. We further propose that in those
instances where regulatory modifications effectuate changes in the
processes associated with an ACO pertaining to design, delivery, and
quality of care that the ACO will be required to submit to us for
review and approval, as a supplement to their original application, an
explanation of how they will address key changes in processes resulting
from these modifications. If an ACO fails to effectuate the changes
needed to adhere to the regulatory modifications, we propose that the
ACO would be placed on a corrective action plan, and if after being
given an opportunity to act upon the corrective action plan, the ACO
still fails to come into compliance, it would be terminated from the
program. For a more detailed discussion of the process for requiring
and implementing a corrective action plan, please refer to the section
II. H. of this proposed rule. We propose that ACO participants shall
continue to be subject to all requirements applicable to FFS Medicare,
such as routine CMS business operations updates and changes in FFS
coverage decisions, as they may be amended from time to time. In other
words, nothing in the Shared Savings Program shall be construed to
affect the payment, coverage, program integrity, and other requirements
that apply to providers and suppliers under FFS Medicare.
8. Managing Significant Changes to the ACO During the Agreement Period
Aside from changes that an ACO may experience as a result of
regulatory changes, the ACO itself may also experience significant
changes within the course of its 3-year agreement period due to such
events as: The following:
Deviations from approved application for reasons such as
the drop out of an ACO participant upon which assignment is based;
changes in overall governing board composition (in terms of interests
represented) or leadership; changes in ACO's eligibility to participate
in the program, including changes to the key processes pertaining to
the design, delivery and quality of care (such as processes for quality
management and patient engagement and patient centeredness criteria) as
outlined in the application criteria for acceptance into the program;
or changes in planned distribution of shared savings.
A material change, as defined in detail in section II. H.
of ACOs of this proposed rule, in the ACOs provider composition,
including the addition of ACO providers/suppliers such that the ACO
requires a mandatory antitrust review or re-review as discussed in
section II. I. Coordination with Other Agencies., and other
circumstances under which an ACO or an ACO participant is unable to
complete its 3-year commitment.
Government-required ACO reorganization, or exclusion of
ACO participants or ACO providers/suppliers, or conduct restriction due
to: OIG excluding the ACO, an ACO participant, or an ACO provider/
supplier for any reason authorized by law; CMS revoking an ACO, ACO
participant or ACO provider/supplier's Medicare billing privileges
under 42 CFR 424.535, for noncompliance with billing requirements or
other prohibited conduct; or reorganization or conduct restrictions to
resolve antitrust concerns.
Whenever an ACO reorganizes its structure, we must determine if the
ACO remains eligible to participate in the Shared Savings Program.
Since an ACO is admitted to the program based on its application,
adding ACO participants during the course of the 3-year agreement may
deviate from its approved application and jeopardize the ACO's
eligibility since the ACO would differ from its approved application
and could be subject to further antitrust review. Changes such as this
may result in termination of the 3-year agreement and forfeiture of the
25 percent withhold of shared savings earned by the original ACO
participants. We therefore propose that the ACO may not add ACO
participants during the course of the 3-year agreement. In order to
maintain flexibility, however, we propose that the ACO may remove ACO
participants (TINs) or add/subtract ACO providers/suppliers (NPIs). We
request comment on this proposal that ACOs may not add ACO participants
and how this proposal might impact small or rural ACOs. We propose that
the ACO be required to notify us in order to have its new structure
approved whenever significant changes, such as those referenced
previously, occur to its structure. We have identified five outcomes
that may result from our review:
The ACO may continue to operate under the new structure
with savings calculations for the performance year based upon the
updated list of ACO participants and ACO providers/suppliers.
The remaining ACO structure qualifies as an ACO but is so
different from the initially approved ACO structure that the ACO must
start over as a new ACO with a new 3-year agreement, including an
antitrust review, if warranted.
The remaining ACO structure qualifies as an ACO but is
materially different from the initially approved ACO structure because
of the inclusion of additional ACO providers/suppliers that the ACO
must obtain approval from a reviewing Antitrust Agency before it can
continue in the program.
The remaining ACO structure no longer meets the
eligibility criteria for the program, and the ACO would no longer be
able to participate in the program, for example, if the ACO's assigned
population falls below 5,000 during an agreement year as discussed in
section II. B. of this proposed rule.
CMS and the ACO may mutually decide to terminate the
agreement.
We propose that when an ACO reorganizes its structure by excluding
ACO participants or by adding or excluding ACO providers/suppliers,
deviates from its approved application, changes information contained
in its approved application, or experiences other changes which may
make it unable to complete its 3-year agreement, it must notify us
within 30 days of the event for reevaluation of its eligibility to
continue to participate in the Shared Savings Program. We would respond
in one of the five ways specified previously. We request comment on
this proposal.

[[Page 19562]]

9. Future Participation of Previously Terminated Program Participants
As described in section II.H. of the proposed rule, there are a
number of circumstances under which we may terminate our agreement with
an ACO, including avoidance of at-risk beneficiaries and failure to
meet the quality performance standards. In contrast, there are also
many reasons why an ACO participant TIN, used for assignment, or
individual ACO providers/suppliers may drop out of an ACO; such as
government exclusion, relocation, retirement, a voluntary decision to
terminate participation, or bankruptcy.
Permanently barring former program participants from subsequent
participation in the Shared Savings Program due to a voluntary or
forced termination from an ACO appears unduly harsh given the dynamic
nature of organizational membership. Alternatively, we do want to
ensure our policy on subsequent participation in the Shared Savings
Program does not provide a second chance for under-performing
organizations or to providers or suppliers who have been terminated for
failing to meet program integrity requirements.
We propose the ACO disclose to CMS whether the ACO, its ACO
participants, or its ACO providers/suppliers have participated in the
program under the same or a different name, and specify whether it was
terminated or withdrew voluntarily from the program. If the ACO, its
ACO participants or ACO providers/suppliers were previously terminated
from the program, the applicant must identify the cause of termination
and what safeguards are now in place to enable the prospective ACO to
participate in the program for the full period of the 3-year agreement
period. We propose that such ACOs may not begin another 3-year
agreement period until the original agreement period has lapsed.
Additionally, because we believe that subsequent participation in the
Shared Savings Program should not provide a second chance for under-
performing organizations, we propose that an ACO may not reapply to
participate in the Shared Savings Program if it previously experienced
a net loss during its first 3-year agreement period. We seek comment on
these proposals and whether requirements for denying participation to
ACOs that previously under-perform would create disincentives for the
formation of ACOs. We are specifically interested in whether this
requirement will create disincentives for participation among smaller
entities.

D. Assignment of Medicare Fee-for-Service Beneficiaries

Section 1899(c) of the Act, as added by section 3022 of the
Affordable Care Act, requires the Secretary to ``determine an
appropriate method to assign Medicare FFS beneficiaries to an ACO based
on their utilization of primary care services provided under this title
by an ACO professional described in subsection (h)(1)(A).'' Subsection
1899(h)(1)(A) of the Affordable Care Act constitutes one element of the
definition of the term ``ACO professional.'' Specifically, this
subsection establishes that ``a physician (as defined in section
1861(r)(1))'' is an ``ACO professional'' for purposes of the Shared
Savings Program. Section 1861(r)(1) of the Act in turn defines the term
physician as ``* * * a doctor of medicine or osteopathy legally
authorized to practice medicine and surgery by the State in which he
performs such function or action.'' In addition, subsection
1899(h)(1)(B) defines an ACO professional to include practitioners
described in section 1842(b)(18)(C)(i) of the Act, such as PAs and NPs.
Thus, although the statute defines the term ``ACO professional'' to
include both physicians and non-physician practitioners, such as
advance practice nurses, physician assistants, and nurse practitioners,
for purposes of beneficiary assignment to an ACO, the statute requires
that we consider only beneficiaries' utilization of primary care
services provided by ACO professionals who are physicians. The method
of assigning beneficiaries therefore must take into account the
beneficiaries' utilization of primary care services rendered by
physicians. Therefore, for purposes of the Shared Savings Program, the
inclusion of practitioners described in section 1842(b)(18)(C)(i) of
the Act, such as PAs and NPs in the statutory definition of the term
``ACO professional'' is a factor in determining the entities that are
eligible for participation in the program (for example, ``ACO
professionals in group practice arrangements'' in section 1899(b)(1)(A)
of the Act). However, assignment of beneficiaries to ACOs is to be
determined only on the basis of primary care services provided by ACO
professionals who are physicians.
Assigning Medicare beneficiaries to ACOs also requires several
other elements: (1) An operational definition of an ACO (as
distinguished from the formal definition of an ACO and the eligibility
requirements that we discuss in section II.B. of this proposed rule) so
that ACOs can be efficiently identified, distinguished, and associated
with the beneficiaries for whom they are providing services; (2) a
definition of primary care services for purposes of determining the
appropriate assignment of beneficiaries; (3) a determination concerning
whether to assign beneficiaries to ACOs prospectively, at the beginning
of a performance year on the basis of services rendered prior to the
performance year, or retrospectively, on the basis of services actually
rendered by the ACO during the performance year; and (4) a
determination concerning the proportion of primary care services that
is necessary for a beneficiary to receive from an ACO in order to be
assigned to that ACO for purposes of this program.
The term ``assignment'' in this context refers only to an
operational process by which Medicare will determine whether a
beneficiary has chosen to receive a sufficient level of the requisite
primary care services from physicians associated with a specific ACO so
that the ACO may be appropriately designated as exercising basic
responsibility for that beneficiary's care. Consistent with section
1899(b)(2)(A), the ACO will then be held accountable ``for the quality,
cost, and overall care of the Medicare FFS beneficiaries assigned to
it.'' The ACO may also qualify to receive a share of any savings that
are realized in the care of these assigned beneficiaries due to
appropriate efficiencies and quality improvements that the ACO may be
able to implement. It is important to note that the term ``assignment''
for purposes of this provision in no way implies any limits,
restrictions, or diminishment of the rights of Medicare FFS
beneficiaries to exercise complete freedom of choice in the physicians
and other health care practitioners and suppliers from whom they
receive their services.
Thus, while the statute refers to the assignment of beneficiaries
to an ACO, we would characterize the process more as an ``alignment''
of beneficiaries with an ACO as the exercise of free choice by
beneficiaries in the physicians and other health care providers and
suppliers from whom they receive their services is a presupposition of
the Shared Savings Program. Therefore, an important component of the
Shared Savings Program will be timely and effective communication with
beneficiaries concerning the Shared Savings Program, their possible
assignment to an ACO, and their retention of freedom of choice under
the Medicare FFS program. The issues of beneficiary information and
notification regarding their potential assignment to an ACO are further
discussed at the end of this section.

[[Page 19563]]

1. Operational Identification of an ACO
The first step in developing a method for assigning beneficiaries
is to establish a clear operational method of identifying an ACO that
correctly associates its health care professionals and providers with
the ACO. It is designed to be consistent with the statutory definition
of an ACO as well as the eligibility and other requirements for an
organization to participate in the Shared Savings Program as an ACO. As
discussed in section II.B. of this proposed rule, section 1899(a)(1)(A)
of the Act defines ACOs as ``groups of providers of services and
suppliers'' who work together to manage and coordinate care for
Medicare fee-for-service beneficiaries. More specifically, the Act
refers to group practice arrangements, networks of individual practices
of ACO professionals, partnerships or joint venture arrangements
between hospitals and ACO professionals, hospitals employing ACO
professionals, or other combinations that the Secretary determines
appropriate.
From a technical, operational perspective, there are two data
sources that could be used to identify the specific providers of
services and suppliers participating in these kinds of arrangements as
ACOs--specifically, their--(1) National Provider Identifier (NPI); and
(2) TIN. Under the Medicare program, individual practitioners are
defined by their NPI, but generally file and receive payment for
Medicare claims based on their TIN. The TIN may be an employer
identification number (EIN) or social security number (SSN). Some
individual physicians and other ACO professionals, for example, do not
have EINs, and enroll in the Medicare program through their SSNs.
Physicians and other ACO professionals who are members of a group
practice and bill for their services through the group may not have
individual EINs but may use a group EIN for billing Medicare rather
than their individual SSNs. While all physicians and practitioners have
TINs (either EINs or SSNs), not all physicians and practitioners have
Medicare enrolled TINs. For example, physicians and other ACO
professionals who are members of a group practice often bill for their
services through the group and may not have individual Medicare
enrolled TINs. Groups of physicians and practitioners, however,
necessarily have TINs which they employ for billing Medicare, because a
TIN must be used for billing purposes. It should be noted that, under
the Shared Savings Program, the standard restrictions on disclosure of
information apply. (For a discussion regarding the public disclosure of
information under the Shared Savings Program, see the discussion in
section II.E. of this proposed rule.)
Under the PGP demonstration, beneficiaries were assigned and group
quality performance was measured by identifying practices operationally
as a collection of Medicare enrolled TINs. Through this demonstration
we found that TINs provide the most direct link between the beneficiary
and the practice providing primary care services. Further, TINs are
more stable than NPIs and more likely to provide complete longitudinal
data required for benchmarking and beneficiary assignment, and to
promote the stability necessary for the ACO to commit to redesigning
care processes and complete the required 3-year agreement period. The
reason NPIs tend to be less stable is because individual physicians and
practitioners often change from one practice to another, potentially
rendering data continuity and beneficiary assignment problematic when
only NPIs are available. In the PGP demonstration, the individual NPIs
associated with the TIN were identified from claims data and provider
enrollment information, providing for more effective monitoring of
performance within the ACO. Finally, reporting at the TIN level
appeared to reduce the reporting burden for practices participating in
the PGP demonstration.
Therefore, we are proposing to identify an ACO operationally as a
collection of Medicare enrolled TINs. More specifically, an ACO will be
identified operationally as a set of one or more TINs currently
practicing as a ``group practice arrangement'' or in a ``network'' such
as where ``hospitals are employing ACO professionals'' or where there
are ``partnerships or joint ventures of hospitals and ACO
professionals'' as stated under section 1899(b)(1)(A) through (E) of
the Act. For example, a single group practice that participates in the
Shared Savings Program would be identified by its TIN. A network of
independent practices that forms an ACO would be identified by the set
of TINs of the practices constituting the ACO. We are proposing to
require that organizations applying to be an ACO provide their ACO
participant TINs. Each TIN can be systematically linked to an
individual physician specialty code by us. Therefore, under this
approach, beneficiaries would be assigned to an ACO through a TIN based
on the primary care services they received from physicians billing
under that TIN.
We also propose that ACO professionals within the respective TIN on
which beneficiary assignment is based, will be exclusive to one ACO
agreement in the Shared Savings Program. This exclusivity will only
apply to the primary care physicians (defined as physicians with a
designation of internal medicine, geriatric medicine, family practice,
and general practice, as discussed in this rule) by whom beneficiary
assignment is established.
ACO participant TINs upon which beneficiary assignment is not
dependent (for example, acute care hospitals, surgical and medical
specialties, RHCs, and FQHCs) would be required to agree to participate
in the ACO for the term of the 3-year agreement, but would not be
restricted to participation in a single ACO. As stated in section II.G.
of this proposed rule, competition in the marketplace promotes quality
of care for Medicare beneficiaries, protects access to a variety of
providers, and helps sustain the Medicare program by controlling cost
pressures. All of these benefits to Medicare patients would be reduced
or eliminated if we allow the creation of ACOs with significant market
power. This is especially important in certain areas of the country
that might not have many specialists. In addition, exclusivity of ACO
participant TINs upon which beneficiary assignment is not dependent
might also contribute to the prospects that ACOs could develop
excessive market power, especially in areas with shortages of
physicians. In turn, greater market power could provide opportunities
for these organizations to engage in activities that raise issues of
fraud and abuse, such as those related to self-referrals. For these
reasons, physicians upon whom assignment is dependent would be
committed for a 3-year period and be exclusive to one ACO. Conversely,
to ensure that physicians and other entities upon which assignment is
not dependent (that is, hospitals, FQHC, RHCs, specialists) can
participate in more than one ACO, and thereby facilitate the creation
of competing ACOs, these providers and suppliers would be committed to
the 3-year agreement but would not be exclusive and would have the
flexibility to join another ACO.
Based on our experience, we recognize that the TIN level data alone
will not be entirely sufficient for a number of purposes in the Shared
Savings Program. In particular, NPI data will be useful to assess the
quality of care furnished by an ACO. For example, NPI information will
be necessary to determine what percent of physicians

[[Page 19564]]

and other practitioners in the ACO are registered in the HITECH program
(discussed in section II.E. of this proposed rule). NPI data will also
be helpful in our monitoring of ACO activities (which we discuss in
section II.H. of this proposed rule). Therefore, we are also proposing
to require that organizations applying to be an ACO must provide not
only their TINs but also a list of associated NPIs for all ACO
professionals, including a list that separately identifies physicians
that provide primary care. As we discuss in more detail later in the
document, for purposes of the Shared Savings Program, we are proposing
to define primary care physicians as those physicians that practice in
the areas of internal medicine, general practice, family practice, and
geriatric medicine. We welcome comments on our proposal to require
reporting of TINs along with information about the NPIs associated with
the ACO.
In summary, we believe that our proposal to define the ACO
operationally as a group of Medicare-enrolled TINs, while also
collecting information about the NPIs associated with those TINs,
allows us to link the beneficiary, type of service provided, and the
type of physician providing the services for purposes of beneficiary
assignment to the ACO as required by statute. This approach also offers
the most complete longitudinal data required for benchmarking and
beneficiary assignment, most effectively limits administrative burden
for participating providers and suppliers, and makes it possible for us
to take advantage of infrastructure and methodologies already developed
for group-level reporting and evaluation. Moreover, this option affords
us the most flexibility and statistical stability for monitoring and
evaluating quality and outcomes for the population of patients assigned
to the ACO.
2. Definition of Primary Care Services
Section 1899(c) of the Act requires the Secretary to assign
beneficiaries to an ACO ``based on their utilization of primary care
services'' provided by a physician. However, the statute does not
specify which kinds of services should be considered ``primary care
services'' for this purpose, nor the amount of those services that
would be an appropriate basis for making assignments. We discuss issues
concerning the appropriate proportion of such services in the next
section. In this section of this proposed rule, we discuss how to
identify the appropriate primary care services on which to base the
assignment and our proposal for defining primary care services for this
purpose.
In order to ensure the statistical reliability of the required
performance measurements and benchmarks, ACOs must have a sufficient
number of assigned beneficiaries. Having too few beneficiaries assigned
to a participating ACO will impede determining whether changes in cost
and quality measures are likely a reflection of normal variation rather
than real improvement in the delivery of care. Section 1899(b)(2)(D) of
the Act specifically provides that the composition of the ACO shall
include sufficient numbers of ACO primary care professionals so that at
least 5,000 beneficiaries are assigned to the ACO.
Primary care services can generally be defined based on the type of
service provided or the type of provider specialty that provides the
service. The PGP demonstration has helped inform assignment
methodologies. Under the PGP demonstration, the assignment methodology
incorporated outpatient evaluation and management (E&M) services
provided by both primary care and specialist providers. One reason for
this is that certain specialists (for example, cardiologists,
endocrinologists, neurologists, oncologists) are often the principal
primary care provider for elderly and chronically ill patients who do
not otherwise have a primary care provider, and it is reasonable to
expect them to take responsibility for these patients' care. Another
reason is that the assignment methodology provided an opportunity for
specialists to take responsibility for ensuring that their patients'
primary care needs were being met even if the specialist provided care
initially on a referral basis.
We would note that in defining primary care services, certain
Affordable Care Act provisions also rely on a blend of the type of
service and type of provider delivering the service. For example,
section 5501 of the Affordable Care Act makes incentive payments
available to primary care practitioners for whom primary care services
account for at least 60 percent of the allowed charges under Part B.
For purposes of this provision, a ``primary care practitioner'' is
defined as a physician ``who has a primary specialty designation of
family medicine, internal medicine, geriatric medicine, or pediatric
medicine,'' or as a ``nurse practitioner, clinical nurse specialist, or
physician assistant.'' In that section, ``primary care services'' are
defined as a set of services identified by these HCPCS codes: 99201
through 99215; 99304 through 99340; and 99341 through 99350.
Additionally, we would consider the Welcome to Medicare visit (G0402)
and the annual wellness visits (G0438 and G0439) as primary care
services for purposes of the Shared Savings Program.
In developing our proposal, we have considered three options with
respect to defining ``primary care services'' for the purposes of
assigning beneficiaries under the Shared Savings Program: (1)
Assignment of beneficiaries based upon a predefined set of ``primary
care services;'' (2) assignment of beneficiaries based upon both a
predefined set of ``primary care services'' and a predefined group of
``primary care providers;'' and (3) assignment of beneficiaries in a
step-wise fashion. Under this option, beneficiary assignment would
proceed by first identifying primary care physicians (internal
medicine, family practice, general practice, geriatric medicine) who
are providing primary care services, and then identifying specialists
who are providing these same services for patients who are not seeing
any primary care professional.
The first option would assign beneficiaries by defining ``primary
care services'' on the basis of the select set of E&M services,
specifically those defined as ``primary care services'' in section 5501
of the Affordable Care Act, and including G-codes associated with the
annual wellness visit and Welcome to Medicare benefit regardless of
provider specialty. This option would increase the number of potential
beneficiaries assigned to the ACO in areas with primary care shortages
(where specialists would necessarily be providing more primary care
services as defined by the code set). It is also administratively
straightforward, and we have experience with the similar methodology
initially used in the PGP demonstration. However, assigning
beneficiaries to ACOs based only on primary care services without
distinction of caregiver specialty increases the likelihood of
assigning beneficiaries to a specialist over a primary care provider.
In addition, it would appear to be somewhat inconsistent with section
5501 of the Affordable Care Act, which, for purposes of establishing an
incentive payment for primary care services, first defines a set of
primary care practitioners, and then identifies a set of HCPCS codes as
``primary care services.'' The primary care services are recognized for
the incentive payment only when they are provided by primary care
practitioners. It is dubious whether the codes identified in section
5501 of the Affordable Care Act alone, when they are not provided by
primary care

[[Page 19565]]

doctors and other practitioners, truly constitute primary care
services. Rather, these codes alone simply represent outpatient
cognitive services (generally, consultations and office visits) that
are provided for in all sorts of health care situations, including
primary care but also specialty care, and are provided by many types of
physicians. As such, this option has the potential to diminish the
appropriate level of emphasis on a primary care core in the Shared
Savings Program, by failing to place any priority on the services of
designated primary care providers (for example, internal medicine,
general practice, family practice, and geriatric medicine) in the
assignment process.
The second option that we have considered is therefore to assign
beneficiaries to physicians designated as primary care providers
(internal medicine, general practice, family practice, and geriatric
medicine) who are providing the appropriate primary care services to
beneficiaries. As in the case of the first option, we would define
``primary care services'' on the basis of the select set of HCPCS codes
identified in section 5501 of the Affordable Care Act, including G-
codes associated with the annual wellness visit and Welcome to Medicare
visit. This option more closely aligns the definition of primary care
services with the definition in section 5501 of the Affordable Care
Act. As in the case of the first option, this option would be
relatively straightforward administratively. However, this option could
reduce the number of beneficiaries assigned to an ACO, by excluding
primary care services delivered by specialists, especially in some
areas that may have shortages of primary care physicians but a
relatively greater number of specialists. Consequently, this option
could make it difficult for ACOs to form in some geographic regions
with such primary care shortages.
The third option we have considered is to assign beneficiaries in a
step-wise fashion. Under this option, beneficiary assignment would
proceed by first identifying primary care physicians (internal
medicine, family practice, general practice, geriatric medicine) who
are providing primary care services, and then identifying specialists
who are providing these same services for patients who are not seeing
any primary care professional. This option would introduce a greater
level of operational complexity compared to the two other options we
considered. In addition, it could undermine our goal of ensuring
competition among ACOs by reducing the number of specialists that can
participate in more than one ACO, since specialists to whom
beneficiaries are assigned would be required to be exclusive to one
ACO. As noted previously, the ability of specialists to participate in
more than one ACO is especially important in certain areas of the
country that might not have many specialists. On the other hand, a
``step-wise approach'' would not affect all specialists and it would
reflect many of the advantages of the other two approaches, balancing
the need for emphasis on a primary care core with a need for increased
assignment numbers in areas with primary care shortages.
After considering these options, we are proposing the second
option, which would assign beneficiaries with physicians designated as
primary care providers (internal medicine, general practice, family
practice, and geriatric medicine) who are providing the appropriate
primary care services to beneficiaries. We believe that this option
best aligns with other Affordable Care Act provisions related to
primary care by placing an appropriate level of emphasis on a primary
care core in the Shared Savings Program. That is, this option places
priority on the services of designated primary care physicians (for
example, internal medicine, general practice, family practice, and
geriatric medicine) in the assignment process. This option also allows
ACOs to focus their efforts to coordinate and redesign care for
patients seeing primary care providers and creates incentives for ACOs
to establish primary care linkages for their patients who may not have
a primary care provider. The option is also relatively straightforward
administratively.
However, we are also concerned that this proposal may not
adequately account for primary care services delivered by specialists,
especially in certain areas with shortages of primary care physicians,
and that it may make it difficult to obtain the minimum number of
beneficiaries to form an ACO in geographic regions with such primary
care shortages. Therefore, while we are proposing to assign
beneficiaries to physicians designated as primary care providers
(internal medicine, general practice, family practice, and geriatric
medicine) who are providing the appropriate primary care services to
beneficiaries, we invite comments on this proposal and other options
that may better address the delivery of primary care services by
specialists. In the final rule, we could consider adopting another
option; therefore we are seeking comments on the definition of primary
care services approach as well as the ``step-wise'' approach as
described previously.
3. Prospective vs. Retrospective Beneficiary Assignment To Calculate
Eligibility for Shared Savings
Section 1899(d)(1) of the Act provides that an ACO may be eligible
for shared savings with the Medicare program if the ACO meets
performance standards established by the Secretary (which we discuss in
section II.E. of this proposed rule) and meets the requirements for
realizing savings for its assigned beneficiaries against the benchmark
established by the Secretary under section 1899(d)(1)(B) of the Act.
Thus, for each year of an agreement period each ACO will have an
assigned population of beneficiaries. Eligibility for shared savings
will be based on whether the requirements for receiving shared savings
payments are met for this assigned population. We refer to each year
for which such determinations must be made as a ``performance year.''
There are two basic options for assigning beneficiaries to an ACO
to calculate eligibility for shared savings for a performance year. The
first option is that beneficiary assignment could occur at the
beginning of the performance year, or prospectively, based on
utilization data demonstrating the provision of primary care services
to beneficiaries in prior periods. The second option is that
beneficiary assignment could occur at the end of the performance year,
or retrospectively, based on utilization data demonstrating the
provision of primary care services to beneficiaries by ACO physicians
during the performance year.
Many observers and prospective ACO managers have argued that it is
essential for an ACO to know who is included in its assigned population
prior to the start of the performance year. While they intend to treat
all patients the same, they assert that it is fundamental to population
management to be able to profile a population, identify individuals at
high risk, develop outreach programs, and proactively work with
patients and their families to establish care plans. These observers
also argue that, as with any well managed enterprise, it is essential
to have operational goals and targets to manage effectively. Thus, they
would like to be able to track prospective targeted expenses, in order
to gauge their results as they go through the performance year. These
observers also understand that even prospective assignment
methodologies will require a retrospective definition of the population
to adjust for a variety of changes in the population that occur during
a performance year. Some current patients of the practice will

[[Page 19566]]

become eligible for Medicare. Some will join a Medicare Advantage (MA)
plan and, although they may continue to receive care furnished by the
ACO, these beneficiaries can no longer be considered part of the
assigned population of the ACO for purposes of computing shared
savings. Individuals will move in and out of the service area during
the year. For all these reasons, any methodology will require a
retrospective redefinition of the assigned population.
Advocates for the retrospective approach start with the observation
that the actual population seen by a set of physicians changes
significantly from year to year. Medicare FFS beneficiaries' right to
see any enrolled physician typically leads to more year-to-year
variability in treating physicians compared to patients in managed care
programs. Analysis of the PGP population did show approximately a 25
percent variation in assignment from year to year. Prospective
assignment of a population seems inherently inaccurate from this
perspective. If beneficiary assignment changes by 25 percent from year
to year, a prospective assignment would not be an accurate reflection
of those beneficiaries that were actually seen by physicians in the ACO
during the performance year. Retrospective assignment of the
population, on the other hand, appropriately holds the ACO accountable
for the actual population it cared for during the performance year.
Proponents of the retrospective approach also make a second
argument. They suggest that identifying a population prospectively may
lead an ACO to focus only on providing care coordination and other ACO
services to this limited population, ignoring other beneficiaries in
their practices or hospitals. Given that the goal of the Shared Savings
Program is to change the care experience for all beneficiaries, ACOs
should not be told who among their patients are likely to be in their
assigned population. ACO participants and ACO providers/suppliers
should have incentives to treat all patients equally, using
standardized evidence-based care processes, to improve the quality and
efficiency of all of the care they provide, and in the end they should
see positive results in the retrospectively assigned population.
We believe there are merits in both approaches. It does seem
appropriate for an ACO to have information regarding the population it
will likely be responsible for in order to target its care improvements
to those patients who would benefit the most. At the same time, we do
not want to encourage ACOs to limit their care improvement activities
to a subset of their patients that they believe may be assigned to
them. Finally, we believe it is critical that the assessment of ACO
performance in any year be based on patients who received the plurality
of their primary care from the ACO in that year, rather than an earlier
period. As noted previously, even under a prospective assignment
approach, a retrospective redefinition of the assigned population to
account for changes from prior periods would be required or the ACO
would be held accountable for patients that it did not provide services
for during the performance year. Under a prospective system, the
assignment would have to be adjusted every year to account for
beneficiaries entering and leaving FFS Medicare as well as for those
patients who move in and out of the geographic area of the ACO, as well
as potentially other adjustments such as when a beneficiary remains in
the area but chooses to receive their care outside of the ACO based
upon where the plurality of their primary care services are being
performed. Considering the merits of both approaches, we believe that
the retrospective approach to beneficiary assignment for purposes of
determining eligibility for shared savings is compelling. We believe
that the assignment process should accurately reflect the population
that an ACO is actually caring for, in order to ensure that the
evaluation of quality measures is fair and that the calculation of
shared savings, if any, accurately reflects the ACO's success in
improving the quality and efficiency of the care provided to the
beneficiaries for which it was actually accountable. In contrast, as we
noted previously, a prospective approach has intrinsic inaccuracies,
and requires additional adjustments in order to achieve the requisite
level of accuracy for purposes of the Shared Savings Program.
In response to the November 17, 2010 RFI, of the few commenters
favoring retrospective alignment, a group of commenters suggested the
use of retrospective alignment for determining utilization and shared
savings, but prospective assignment for purposes of CMS sharing
beneficiary identifiable data with ACOs. We agree that, given
appropriate safeguards for maintaining the confidentiality of patient
information, providing ACOs with meaningful information about their
``expected assigned population'' with the potential to identify an
``estimated benchmark target'' will be helpful. We address our
proposals for providing information to ACOs to help them understand
their patient populations and better manage their care in section II.C.
of this proposed rule.
Therefore, we are proposing the combined approach of retrospective
beneficiary assignment for purposes of determining eligibility for
shared savings balanced by the provision of aggregate beneficiary level
data for the assigned population of Medicare beneficiaries during the
benchmark period. (As we discuss in section II.C. of this proposed
rule, we will provide ACOs with a list of beneficiary names, date of
birth, sex, and other information derived from the assignment algorithm
used to generate the 3-year benchmark.) Although the assignment
methodology for the PGP demonstration was different from the proposed
Shared Savings Program assignment methodology, when the PGP data is
modeled with the Shared Savings Program assignment methodology, the
assigned patient population would vary by approximately 25 percent from
year to year. We believe that providing data on those beneficiaries
that are assigned to an ACO in the benchmark period is a good
compromise that will allow ACOs to have information on the population
they will likely be responsible for in order to target their care
improvements to that population while still not encouraging ACOs to
limit their care improvement activities to only the subset of
beneficiaries they believe will be assigned to them in the performance
year. We believe that such a combined approach provides the best of
both approaches while minimizing the disadvantages of either. ACO
physicians will have the information they need to manage their
population and estimate a target to manage towards, while they will
still be encouraged to provide high-quality, efficient, and well-
coordinated services to all Medicare FFS beneficiaries because they
will not know for sure who will be in the assigned population. However,
the ultimate evaluation of their effectiveness will be based on the
actual population they served. We solicit comments on this combined
approach of retrospective beneficiary assignment for purposes of
determining eligibility for shared savings balanced by the provision of
beneficiary data (names, date of birth, etc.) and aggregate beneficiary
level data for the assigned population of Medicare beneficiaries during
the benchmark period. We also seek comment on alternate assignment
approaches, including the prospective method of assignment.

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4. Majority vs. Plurality Rule for Beneficiary Assignment
Section 1899(c) of the Act requires that Medicare FFS beneficiaries
be assigned to ``an ACO based on their utilization of primary care
services'' furnished by an ACO professional who is a physician, but it
does not prescribe the methodology for such assignment, nor criteria on
the level of primary care services utilization that should serve as the
basis for such assignment. Rather, the statute requires the Secretary
to ``determine an appropriate method to assign Medicare FFS
beneficiaries to an ACO'' on the basis of their primary care
utilization.
An obvious general approach is to make such an assignment on the
basis of some percentage level of the primary care services a
beneficiary receives from an ACO physician. The more specific issue
under such an approach is whether to assign beneficiaries to the ACO
when they receive a plurality of their primary care services from that
ACO, or to adopt a stricter standard under which a beneficiary will be
assigned to an ACO only when he or she receives a majority of their
primary care services from an ACO.
Under the PGP demonstration beneficiaries were assigned to a
practice based on the plurality rule. By employing a plurality standard
for primary care services, our analysis indicates that between 78 and
88 percent of the patients seen for primary care services at the PGP
during the year were subsequently assigned to that PGP group. As
measured by allowed charges (evaluation and management CPT codes), the
PGP provided on average 95 percent of all primary care services
provided to the assigned patients.
Alternatively, it could be argued that adopting a majority standard
might enhance an ACO's sense of responsibility for its assigned
patients, which is certainly consistent with the general goals of the
Shared Savings Program. However, adopting a majority standard would
likely somewhat reduce the number of beneficiaries assigned to an ACO
and more beneficiaries would be unassigned to any ACO. On balance, we
believe that a majority rule for assignment is too strict a standard to
employ in a system where many Medicare beneficiaries may regularly
receive primary care services from two or more primary care
practitioners (for example, an internal medicine physician and a
geriatric medicine physician). As such, this standard could undermine
the development and sustainability of ACOs. Therefore, we are proposing
to assign beneficiaries for purposes of the Shared Savings Program to
an ACO if they receive a plurality of their primary care services from
primary care physicians within that ACO. We believe that the plurality
rule provides a sufficient standard for assignment because it ensures
that beneficiaries will be assigned to an ACO when they receive more
primary care from that ACO than from any other provider. This will
result in a greater number of beneficiaries assigned to ACOs, which may
enhance the viability of the Shared Savings Program, especially in its
initial years of operation. We welcome comments on our proposal to
assign patients based upon a plurality rule. Additionally we would also
welcome any comments on whether there should be a minimum threshold
number of primary care services that a beneficiary should receive from
physicians in the ACO in order to be assigned to the ACO under the
plurality rule and if so, where that minimum threshold should be set.
Finally, we can determine when a beneficiary has received a
plurality of primary care services from an ACO either on the basis of a
simple service count or on the basis of the accumulated allowed charges
for the services delivered. The method of using a plurality of allowed
charges would provide a greater weight to more complex primary care
services in the assignment methodology, while a simple service method
count would weigh all primary care encounters equally in determining
assignment. We have previous experience with the method of using a
plurality of allowed charges in the PGP demonstration. One advantage of
this method is that it would not require tie-breaker rules, since it is
unlikely that allowed charges by two different entities would be equal.
On the other hand, this method does not necessarily assign the
beneficiary to the entity that saw the patient most frequently, but
rather to the entity that provided the highest complexity and intensity
of primary care services. Assignment of beneficiaries on the basis of
plurality in a simple service method count would require tie-breaker
rules for those rare occasions when two or more entities delivered an
equal number of services to a beneficiary. One possible tie-breaker for
such cases is to assign the beneficiary to the ACO if it is the entity
that most recently provided primary care services.
We propose to implement the method of using a plurality of allowed
charges for primary care services to assign beneficiaries to ACOs.
Allowed charges are a reasonable proxy for the resource use of the
underlying primary care services, so the method of using a plurality of
allowed charges assigns beneficiaries to ACOs according to the
intensity of their primary care interactions, not merely the frequency
of such services.
5. Beneficiary Information and Notification
Section 1899(c) of the Act, as added by section 3022 of the
Affordable Care Act, does not state whether beneficiaries should be
informed in any way about the Shared Savings Program. Thus, it does not
specify any information to be provided to beneficiaries about the
Shared Savings Program in general, whether they are receiving services
from an ACO participant or ACO provider/supplier, or whether they have
been assigned to an ACO for purposes of determining that ACO's
performance with respect to the quality standards and its possible
shared savings under the Shared Savings Program.
As discussed previously, the term ``assignment'' as used in the
statute for purposes of this provision in no way implies any limits,
restrictions, or diminishment of the rights of Medicare FFS
beneficiaries to exercise freedom of choice in the physicians and other
health care practitioners from whom they receive their services.
Rather, the statutory term ``assignment'' in this context refers only
to an operational process by which Medicare will determine whether a
beneficiary has chosen to receive a sufficient level of the requisite
primary care services from a specific ACO so that the ACO may be
appropriately designated as being accountable for that beneficiary's
care. For example, if a beneficiary's physician becomes part of an ACO
and the beneficiary does not wish to receive health care services under
the ACO care coordination and management efforts, the beneficiary has
the freedom of choice to go to a different physician. The continued
exercise of free choice by beneficiaries in selecting the physicians
and other health care practitioners from whom they receive their
services is thus a presupposition of the Shared Savings Program. The
exercise of free choice, however, can be undermined or even nullified
if beneficiaries do not possess adequate information to assess the
possible consequences of available choices, or to evaluate which
available options are most consistent with their values and preferences
concerning their own health care. We therefore believe that an
important component of the Shared Savings Program must be timely and
effective communication with beneficiaries concerning the Shared
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assignment to an ACO, and what that may mean for the beneficiaries'
care.
Furthermore, the Shared Savings Program lays the foundation for a
beneficiary-centered delivery system that should create a strong
relationship between beneficiaries and care providers based, in large
part, on patient engagement in the new care system. Such engagement
would be more difficult when beneficiaries are not aware of the new
delivery system available from ACOs, and the possibility of being
included in the population assigned to an ACO. In short, transparency
must be a central feature of the Shared Savings Program.
Therefore, we intend to develop a communications plan, including
educational materials and other forms of outreach, to provide
beneficiaries in a timely manner with accurate, clear, and
understandable information about the Shared Savings Program in general,
about their utilization of services furnished by a provider or supplier
participating in an ACO, about the possibility of their being assigned
to an ACO for quality and shared savings purposes, and about the
potential that their health information may be shared with the ACO, and
their ability to opt-out of that data sharing. Accordingly, we will
update the annual Medicare handbook to contain information about the
Shared Savings Program, ACOs, and what receiving care from an ACO means
for the Medicare FFS beneficiary.
One limitation on the timing of the information that we provide to
beneficiaries arises from our proposal to assign beneficiaries to an
ACO retroactively, that is, after the end of a performance year, on the
basis of a beneficiary's actual primary care service utilization during
the year. It is therefore not possible to inform beneficiaries of their
assignment to an ACO in advance of the period in which they may seek
services from the ACO. However, we believe that it is essential for
beneficiaries to receive some form of advance notification that a
physician or other provider from whom they are receiving services is
participating in an ACO. The only practical manner in which such
notification could be provided in a timely manner is to require ACOs to
provide such notification to beneficiaries when they seek services from
ACO providers/suppliers. Specifically, we propose to require ACOs to
post signs in the facilities of participating ACO providers/suppliers
indicating their participation in the Shared Savings Program and to
make available standardized written information to Medicare FFS
beneficiaries whom they serve. ACOs would provide standardized written
notice to beneficiaries of both their participation in the Shared
Savings Program and the potential for CMS to share beneficiary
identifiable data with ACOs when a beneficiary receives services from a
physician on whom assignment to ACO is based. We also plan to instruct
ACOs to supply a form allowing beneficiaries to opt-out of having their
data shared. The form would be provided to each beneficiary as part of
their office visit with a primary care physician, and must include a
phone number, fax or e-mail for beneficiaries to contact and request
that their data not be shared.
Likewise, in instances where either an ACO chooses to no longer
participate in the Shared Savings Program or we have terminated a
participation agreement with an ACO, beneficiaries should be made aware
of this change. Thus, we are proposing that ACOs be required to provide
beneficiaries notice in a timely manner if they will no longer be
participating in the Shared Savings Program. It should include the
effective date of the termination of their agreement with us. As
discussed in section II.C. of this proposed rule, we are also proposing
to require an ACO seeking to terminate its participation in the Shared
Savings Program to provide us with advanced notice.
We recognize that such a requirement could place an administrative
burden on ACOs. However, we believe that such notification is essential
to enhance patient engagement and understanding of their care. As
discussed in section II.B. of this proposed rule, section 1899(b)(2)(H)
of the Act requires that the ``ACO * * * demonstrate to the Secretary
that it meets patient-centeredness criteria specified by the Secretary
* * *.'' We believe that providing notice of participation in or
termination from the Shared Savings Program to beneficiaries is
essential to the ability of beneficiaries to exercise free choice, and
therefore would be an appropriate patient-centered criterion to be
designated by the Secretary. In addition to notifying beneficiaries
that they are seeking services from a provider or supplier
participating in an ACO under the Shared Savings Program, this proposed
notification will inform beneficiaries how assignment with an ACO is
likely to affect (and not affect) the care they receive from the
providers they have chosen. We seek comment on the appropriate form and
content of this notification. For example, we seek comment on the
utility of informing consumers about those objectives of the Shared
Savings Program that might have the most impact on the beneficiary as a
consumer of services from an ACO professional, such as the following:
Easing the burden on consumers to coordinate their own
care among different providers,
Fostering follow-up with patients as they receive care
from different providers,
Facilitating greater dialogue between and among
beneficiaries and providers about how health care is delivered, and
Providing beneficiaries with quality measures by which
they can evaluate the performance of their providers compared to
regional and national norms.
We also seek comment on the most important items to communicate to
beneficiaries about matters that will not change under the Shared
Savings Program, including the fact that their cost-sharing will
continue to be the same, and they remain free to seek care from
providers of their choosing.
We welcome comments not only on our proposal to establish these
notification requirements, but also on all matters concerning the
appropriate form and content of such notification. If we adopt a
notification requirement in the final rule, we will take comments on
the issues such as the appropriate form and content of such a
notification into account as we develop more detailed instructions for
ACOs on beneficiary notification through guidance.

E. Quality and Other Reporting Requirements

1. Introduction
As discussed in section I. of this proposed rule, the intent of the
Shared Savings Program is to: (1) Promote accountability to Medicare
beneficiaries; (2) improve the coordination of FFS items and services;
and (3) encourage investment in infrastructure and redesigned care
processes to achieve high health care quality and efficient service
delivery. In conjunction with the Shared Savings Program and other
provisions of the Affordable Care Act, we have adopted three goals for
improvement of the health care of Medicare beneficiaries and, by
extension, of all Americans. These goals include: (1) Better care for
individuals; (2) better health for populations; and (3) lower growth in
expenditures. (We define better health care for individuals as health
care that is safe, effective, patient-centered, timely, efficient, and
equitable, as described in the IOM's six aims for changing U.S. health
care delivery.) \14\ This section of this

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proposed rule pertains to the first two goals.
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\14\ Committee on Quality of Health Care in America, Institute
of Medicine. Crossing the Quality Chasm: A New Health System for the
21st Century. Washington, DC, USA: National Academies Press; 2001.
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In this portion of the proposed regulation, we propose: (1)
Measures to assess the quality of care furnished by an ACO; (2)
requirements for data submission by ACOs; (3) quality performance
standards; (4) the incorporation of reporting requirements under
section 1848 of the Act for the Physician Quality Reporting System; and
(5) requirements for public reporting by ACOs.
2. Proposed Measures To Assess the Quality of Care Furnished by an ACO
a. General
Section 1899(b)(3)(A) of the Act, requires the Secretary to
determine appropriate measures to assess the quality of care furnished
by the ACO, such as measures of clinical processes and outcomes;
patient, and, wherever practicable, caregiver experience of care; and
utilization (such as rates of hospital admission for ambulatory
sensitive conditions). Section 1899(b)(3)(B) of the Act requires ACOs
to submit data in a form and manner specified by the Secretary on
measures that the Secretary determines necessary for the ACO to report
in order to evaluate the quality of care furnished by the ACO. We
believe that the Secretary's authority to determine the form and manner
of data submission allows for establishing requirements for submission
of data on measures the Secretary determines to be appropriate for
evaluating the quality of care furnished by the ACO, without regard to
whether the Secretary has established a specific quality performance
standard with respect to those measures that must be met in order to be
eligible for shared savings.
We propose that an ACO be considered to have met the quality
performance standard if they have reported quality measures and met the
applicable performance criteria in accordance with the requirements
detailed in rulemaking for each of the three performance years. We
further propose to define the quality performance standard at the
reporting level for the first year of the Shared Savings Program and to
define it based on measure scores in subsequent program years. We have
listed the measures we propose to use to establish quality performance
standards that ACOs must meet for shared savings for the first
performance period in Table 1. Quality measures for the remaining two
years of the 3-year agreement will be proposed in future rulemaking.
b. Considerations in Selecting Measures
We view value-based purchasing as an important step to revamping
how care and services are paid for, moving increasingly toward
rewarding better value, outcomes, and innovations instead of merely
volume. The Shared Savings Program is a critical element of our
Medicare value-based purchasing initiative. In implementing these
value-based purchasing initiatives, we seek to meet certain common
goals, as follows:
1. Use of Measures
Value-based payment systems and public reporting should
rely on a mix of standards, processes, outcomes, and patient experience
measures, including measures of care transitions and changes in patient
functional status. Across all programs, we seek to move as quickly as
possible to the use of outcome and patient experience measures. To the
extent practicable and appropriate, these outcome and patient
experience measures should be adjusted for risk or other appropriate
patient population or provider characteristics.
To the extent possible, and recognizing differences in
payment system maturity and statutory authorities, measures should be
aligned across Medicare and Medicaid's public reporting and payment
systems. We seek to evolve a focused core-set of measures appropriate
to each specific provider category that reflects the level of care and
the most important areas of service and measures for that provider.
The collection of information should minimize the burden
on providers to the extent possible. As part of that effort, we have
begun and will continuously seek to align Shared Savings Program
measures with the methods and measures included in the Medicare and
Medicaid EHR Incentive Programs to enable the collection and reporting
of performance information to be a seamless part of care delivery and
the meaningful use of certified EHR technology.
To the extent practicable, measures used by us should be
nationally endorsed by a multi-stakeholder organization. Measures
should be aligned with best practices among other payers and the needs
of the end users of the measures.
2. Scoring Methodology
Providers should be scored on their overall achievement
relative to national or other appropriate benchmarks. In addition,
scoring methodologies should consider improvement as an independent
goal.
Measures or measurement domains need not be given equal
weight, but over time, scoring methodologies should be more weighted
towards outcome, patient experience and functional status measures.
Scoring methodologies should be reliable, as
straightforward as possible, and stable over time and enable consumers,
providers, and payers to make meaningful distinctions among providers'
performance.
Consistent with these value-based purchasing principles, our
principal goal in selecting quality measures for ACOs is to identify
measures of success in the delivery of high-quality health care at the
individual and population levels. We considered a broad array of
process and outcome measures and accounted for a variety of factors in
arriving at the proposed measures, prioritizing measures that meet the
following:
Address the goals we previously identified: Improving
individual health and improving the health of populations.
Address an array of quality domains, priorities, and aims,
including the IOM six quality aims previously described and the
National Quality Strategy, and other HHS priorities, such as
prevention, care of chronic illness, treatment of high prevalence
conditions such as cardiovascular disease, patient safety, patient and
caregiver engagement, and care coordination.
Support the goals for the Shared Savings Program, as
stated in section 1899(a)(1) of the Act, of promoting provider
accountability for a patient population, coordinating care furnished
under Medicare Parts A and B, and encouraging investment in
infrastructure and redesigned care processes for high quality and
efficient service delivery. Thus, measures should have high impact in
terms of accountability and cost, particularly for vulnerable
populations, when comparing beneficiary care received in ACOs to
beneficiary care received in non-ACO Medicare FFS.
Align with other Medicare incentive programs such as the
Physician Quality Reporting System (``PQRS''; formerly known as the
Physician Quality Reporting Initiative), Electronic Prescribing
Incentive Program, Electronic Health Records (EHR) Incentive Programs,
Hospital Inpatient Quality Reporting Program, and also Medicaid and
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Include the quality performance standards that ACOs must
meet in order to be eligible for shared savings, which should be well-
established, correlate with improved patient outcomes, and be accepted
by the professional and provider community, such as through National
Quality Forum (NQF) endorsement.
Are consistent across ACOs, regardless of ACO composition.
Offer key opportunities for improvement in care and
significantly impact the health status and outcomes of care for the
Medicare beneficiaries served by the ACO.
Are limited to those that have high impact, and/or are
cross-cutting to the extent possible, with parsimony serving to focus
clinical attention, and limiting the burden of data collection and
reporting.
Exhibit sensitivity to administrative burden and seek to
become less burdensome over time.
c. Proposed Quality Measures for Use in Establishing Quality
Performance Standards That ACOs Must Meet for Shared Savings
Based upon the principles described, we are proposing 65 measures
(see Table 1) for use in the calculation of the ACO Quality Performance
Standard. We propose that ACOs will submit data on these measures using
the process described later in this proposed rule and meet defined
quality performance thresholds. We propose that ACOs be required to
report quality measures and meet applicable performance criteria, as
defined in rulemaking, for all 3 years within the 3-year agreement
period to be considered as having met the quality performance standard.
Specifically, for the first year of the program, we propose for the
quality performance standard to be at the level of full and accurate
measures reporting; for subsequent years, we propose the quality
performance standard be based on a measures scale with a minimum
attainment level as described in section II.E.4 of this proposed rule.
ACOs that do not meet the quality performance thresholds for all
proposed measures would not be eligible for shared savings, regardless
of how much per capita costs were reduced. Specifically, as discussed
in section II.H. of this proposed rule, in those instances where an ACO
fails to meet the minimum attainment level for 1 or more domains, we
propose to give the ACO a warning and to re-evaluate the following
year. If the ACO continues to underperform on the quality performance
standards in the following year, the agreement will be terminated. We
also propose that if an ACO fails to report 1 or more measures, we
would send the ACO a written request to submit the required data by a
specified date and to provide a reasonable written explanation for its
delay in reporting the required information. If the ACO fails to report
by the requested deadline and does not provide a reasonable explanation
for delayed reporting, we would immediately terminate the ACO for
failing to report quality measures. ACOs that exhibit a pattern of
inaccurate or incomplete reporting or fail to make timely corrections
following notice to resubmit may be terminated from the program. We
note that since meeting the quality standard is a condition for sharing
in savings, the ACO would be disqualified from sharing in savings in
each year in which it underperforms. Termination from the Shared
Savings Program is discussed further in sections II.H and II.C. of this
proposed rule.
In addition to categorizing each of the proposed measures into the
goals of better care for individuals and better health for populations,
Table 1 includes the domain each of the proposed measures addresses,
the measure title, a brief description of the data the measure
captures, applicable Physician Quality Reporting System or EHR
Incentive Programs information, the measure steward or, if applicable,
NQF measure number, the proposed method of data submission for each
measure, and the Measure Type. Under Measure Type, we have listed
Patient Experience of Care, Process, or Outcome, consistent with the
domains proposed in the Hospital Value Based Purchasing rule (76 FR
2457), for each of the proposed Shared Savings Program quality
measures.
In an effort to provide focus to ACO quality improvement activity,
we have identified 5 key domains within the dimensions of improved care
and improved health that we propose will serve as the basis for
assessing, benchmarking, rewarding, and improving ACO quality
performance. These 5 domains are as follows:
Better Care for Individuals:
++ Patient/Caregiver Experience
++ Care Coordination
++ Patient Safety
Better Health for Populations:
++ Preventive Health
++ At-Risk Population/Frail Elderly Health
We note that while many of the proposed measures have NQF
endorsement or are currently used in other CMS quality programs, the
specifications for some of the proposed measures will need to be
refined in order to be applicable to an ACO population. However, we
propose to align the quality measures specifications for the Shared
Savings Program with the measures specifications used in our existing
quality programs to the extent possible and appropriate for purposes of
the Shared Savings Program. We plan to make the specifications for the
proposed measures available on our Web site prior to the start of the
Shared Savings Program.
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Information on Physician Quality Reporting System measures are
available at: http://www.cms.gov/pqri/. Information on EHR Incentive
Program measures are available at: https://www.cms.gov/EHRIncentivePrograms/. Information on quality measures used by the
Hospital Inpatient Quality Reporting Program are available at: http://www.cms.gov/HospitalQualityInits/08_HospitalRHQDAPU.asp.
As illustrated in the ``Method of Data Submission'' column of Table
1, we propose to calculate results for the first program year measures
via claims, the Group Practice Reporting Option (GPRO) data collection
tool, as discussed in section II.E.4. of this proposed rule, and survey
instruments. The ACO GPRO tool would be a new tool based on the data
collection tool currently used in the Physician Quality Reporting
System (formerly known as the Physician Quality Reporting Initiative)
group practice reporting option (GPRO) and Physician Group Practice
(PGP) demonstration.
In subsequent program years through additional rulemaking, we would
expect to refine and expand the ACO measures to enhance our ability to
assess the quality of care furnished by ACOs participating in the
Shared Savings Program and expand measures reporting mechanisms to
include those that are directly EHR-based. Specifically, we expect to
expand the measures through future rulemaking to include other highly
prevalent conditions and areas of interest, such as frailty, as well as
measures of caregiver experience. In addition to ambulatory measures,
we would expect to add measures of hospital-based care and quality
measures for care furnished in other settings, such as home health
services and nursing homes. To the extent consistent with the Shared
Savings Program requirements under section 1899 of the Act, we also
anticipate the ACO quality measures will evolve over time in an effort
to achieve our quality program alignment goal of developing a single
quality measure set that could be used by ACOs operating across a wide
variety of payers, including those dealing with Medicaid, the
Children's Health Insurance Program (CHIP), and Special Needs Plans.
We invite comments on the implication of including or excluding any
proposed measure or measures in the calculation of the ACO Quality
Performance Standard. Commenters may suggest variations or
substitutions that are substantially equivalent to the proposed
measures. However, without future rulemaking, we cannot consider
measures that do not substantially cover the same patient populations,
processes, or outcomes addressed by the existing measures outlined in
this proposed rule. We invite comment on whether the list of proposed
measures should be narrowed, and also invite comments on whether any of
the measures we proposed in Table 1 for calculating the ACO Quality
Performance Standard should be excluded for scoring purposes and/or
instead be considered for quality monitoring purposes only. Finally, we
also seek comment on a process for retiring or adjusting the weights of
domains, modules, or measures over time.
3. Requirements for Quality Measures Data Submission by ACOs
a. General
Under section 1899(b)(3)(B) of the Act, ACOs are required to submit
data in a form and manner specified by the Secretary on measures the
Secretary determines necessary for the ACO to report in order to
evaluate the quality of care furnished by the ACO. Most of the proposed
measures identified in Table 1 can be derived from CMS systems and
calculated for the assigned patient population the ACO serves. Most of
the measures are consistent with those reported for the Physician
Quality Reporting System, others will rely on eRx and HITECH program
data, and some may rely on Hospital Compare or the Centers for Disease
Control and Prevention National Healthcare Safety Network data.
However, we recognize that there are a number of limitations associated
with claims-based reporting, since the claims processing system was
designed for billing purposes and not for the submission of quality
data. For instance, measures dealing with laboratory results are not
conducive to claims-based reporting, since claims typically include
diagnosis and procedure codes but not specific test results. For this
reason, we propose to make available a CMS-specified data collection
tool and a survey tool for certain proposed measures (that is, those
measures in Table 1 where the proposed method of data submission is
listed as ``GPRO'').
We also propose that for some measures ACOs collect data via survey
instruments. As noted previously, we plan to continually align the ACO
reporting requirements with those required for the EHR Incentive
Program and leverage the infrastructure and measures specifications
being developed for that program. We propose that during the year
following the first performance period, each ACO would be required to
report via the GPRO tool, as applicable, the proposed quality measures
listed in Table 1 with respect to services furnished during the
performance period. We propose that we would derive the claims-based
measures from claims submitted for services furnished during the first
performance period, which therefore would not require any additional
reporting on the part of ACO professionals. Survey data would also
reflect care received during the first performance period. For future
performance periods, we intend to use rulemaking to update the quality
measure requirements and mechanisms.
We welcome comments on the proposed data submission requirements.
We also seek comment on whether alternative data submission methods
should be required or considered, such as limiting the measures to
claims-based and survey-based reporting only.
b. GPRO Tool
In 2010, 36 large group practices and integrated delivery systems
used the GPRO tool to report 26 quality measures for an assigned
patient population under the Physician Quality Reporting System. The
GPRO tool affords a key advantage in that it is a mechanism through
which beneficiary laboratory results and other measures requiring
clinical information can be reported to us. The tool would allow ACOs
to submit clinical information from EHRs, registries, and
administrative data sources required for measurement reporting. The
tool reduces the administrative burden on health care providers
participating in ACOs by allowing them to tap into their existing
Information Technology (IT) tools that support data collection and
health care provider feedback, including at the point of care. We
propose that the existing GPRO tool be built out, refined, and upgraded
to support clinical data collection and measurement reporting and
feedback to ACOs under the Shared Savings Program.
For the measures with ``GPRO'' listed as the method of data
collection in Table 1, we plan to determine a sample for each domain or
measure set within the domain using a sampling methodology modeled
after the methodology currently used in the 2011 Physician Quality
Reporting System GPRO I, as described later in the document. Assigned
beneficiaries, for purposes of the GPRO tool, would be limited to those
Medicare FFS beneficiaries assigned to the ACO, as discussed in Section
II.D.
For the measures with ``GPRO'' listed as the method of data
collection in

[[Page 19593]]

Table 1, we also plan to provide each ACO with access to a database
(that is, the GPRO data collection tool) that will include a sample of
its assigned beneficiary population and the GPRO quality measures
listed in Table 1. We plan to pre-populate the data collection tool
with the beneficiaries' demographic and utilization information based
on their Medicare claims data. The ACO would be required to populate
the remaining data fields necessary for capturing quality measure
information on each of the beneficiaries.
Identical to the sampling method used in the 2011 Physician Quality
Reporting System GPRO I, we plan to require that the random sample for
measures reported via ACO GPRO must consist of at least 411 assigned
beneficiaries per measure set/domain. If the pool of eligible, GPRO
assigned beneficiaries is less than 411 for any measure set/domain,
then we plan to require the ACO to report on 100 percent, or all, of
the assigned beneficiaries. For each measure set/domain within the GPRO
tool, the ACO would be required to report information on the assigned
beneficiaries in the order in which they appear consecutively in the
ACO's sample.
Some GPRO measures will not rely on beneficiary data but rather on
ACO attestation. GPRO measures relying on attestation include those in
the Care Coordination domain that pertain to HITECH Meaningful Use, the
Electronic Prescribing Incentive Program, and patient registry use. We
plan to validate GPRO attestations through CMS data from the EHR
Incentive Program and Electronic Prescribing Incentive Program.
For the other measures, that we propose be reported via the GPRO
tool, we propose to retain the right to validate the data entered into
the tool. In the event we were to audit the data entered into the GPRO
tool, we propose to do so via a data validation process based on the
one used in phase I of the PGP demonstration, as described later in the
document.
In the GPRO audit process, we plan to abstract a random sample of
30 beneficiaries previously abstracted for each of the quality measure
domains/measure sets. The audit process would include up to three
phases, depending on the results of the first two phases. Although each
sample would include 30 beneficiaries per domain, only the first eight
beneficiaries' medical records would be audited for mismatches during
the first phase of the audit. A mismatch represents a discrepancy
between the numerator inclusions or denominator exclusions in the data
submitted by the ACO and our determination of their appropriateness
based on supporting medical records information submitted by the ACO.
If there are no mismatches, the remaining 22 of the 30 beneficiaries'
records would not be audited. If there are mismatches, the second phase
of the audit would occur, and the other 22 beneficiaries' records would
be audited. A third phase would only be undertaken if mismatches are
found in more than 10 percent of the medical records in phase two. If a
specific error is identified and the audit process goes to Phase 3,
which involves corrective action, we propose to first provide education
to the ACO on the correct specification process and provide the
opportunity to correct and resubmit the measure(s) in question. If, at
the conclusion of the third audit process the mismatch rate is more
than 10 percent, we propose that the ACO will not be given credit for
meeting the quality target for any measures for which this mismatch
rate still exists. We note that the failure to report quality measure
data accurately, completely and timely (or to timely correct such data)
may subject the ACO to termination or other sanctions, per the
Monitoring section of this proposed rule.
We invite comment on the proposed quality data submission
requirements and on the administrative burden associated with
reporting.
c. Certified EHR Technology
In July 2010, HHS published final rules for the EHR Incentive
Programs. Included within the final regulations were certain clinical
quality measures for which eligible professionals and eligible
hospitals are responsible. We have noted in Table 1, the proposed
Shared Savings Program quality measures currently included in the EHR
Incentive Programs and will continue to further align the measures
between the two programs. Given that we have proposed in Section II.E.6
that at least 50 percent of an ACO's PCPs are ``meaningful EHR users''
as that term is defined in 42 CFR 495.4 by the start of the second
Shared Savings Program performance year in order to continue
participation in the Shared Savings Program, our intent is to develop
the capability of the GPRO web-based tool to interface with EHR
technology, such that EHR data could directly populate the ACO GPRO
tool with the required quality data. As we intend to further align both
the Shared Savings Program and EHR incentive program through subsequent
rulemaking, we anticipate that certified EHR technology (including
certified EHR modules capable of reporting clinical quality measures)
will be an additional measures reporting mechanism used by ACOs under
the Shared Savings Program for future program years.
4. Quality Performance Standards
a. General
Before an ACO can share in any savings created, it must demonstrate
that it is delivering high quality care. Thus, a calculation of the
quality performance standard will indicate whether an ACO has met the
quality performance goals that would deem it eligible for shared
savings. As discussed previously in section II.E.3 of this proposed
rule, we propose to use the 65 measures in Table 1 to establish the
quality performance standards that ACOs must meet in order to be
eligible for shared savings.
We considered two alternative options for establishing quality
standards: Rewards for better performance, and a minimum quality
threshold for shared savings. The performance score approach rewards
ACOs for better quality with larger percentages of shared savings. The
threshold approach ensures that ACOs exceed minimum standards for the
quality of care, but allows full shared savings if ACOs meet the
minimum. We propose the performance score approach and seek comment on
the threshold approach.
b. Option 1--Performance Scoring
Under the first option, we would use quality performance standards
to arrive at a total performance score for an ACO. We would organize
the measures by domain, as discussed in section II.E.5.b. of this
proposed rule. The performance on each measure will be scored, as
discussed in section II.E.5.c. of this proposed rule. The scores for
the measures will be rolled up into a score by each domain as discussed
in section II.E.5.d. of this proposed rule. ACOs will receive
performance feedback at both the individual measure and domain level.
The percentage of points earned for each domain will be aggregated
using the weighting method discussed in section II.E.5.d. of this
proposed rule to arrive at a single percentage that will be applied to
determine the quality sharing rate for which the ACO is eligible. The
aggregated domain scores will determine the ACO's eligibility for
sharing up to 50 percent of the total savings generated by the ACO
under the one-sided model or 60 percent of the total savings generated
by the ACO under the two-sided risk model discussed in Section II. G,
Two-Side

[[Page 19594]]

Model. We also discuss our proposal to set the quality performance
standard in the first year of the Shared Savings Program at the
reporting level and set the standard at a higher level in subsequent
years in section II.E.5.e. of this proposed rule.
(1) Measure Domains and Measures Included in the Domains
The 65 quality performance standard measures in Table 1 are
subdivided into 5 domains, as discussed in section II.E.3.c. of this
proposed rule. The domains include: (1) Patient/Caregiver Experience;
(2) Care Coordination; (3) Patient Safety; (4) Preventive Health; (5)
At-Risk Population/Frail Elderly Health. The At-Risk Population Care
domain would include the following chronic diseases: Diabetes mellitus
(DM); heart failure (HF); coronary artery disease (CAD); hypertension;
and chronic obstructive pulmonary disorder (COPD). The measures from
Table 1 that are included in each domain are as indicated in Table 2.
[GRAPHIC] [TIFF OMITTED] TP07AP11.021

(2) Methodology for Calculating a Performance Score for Each Measure
Within a Domain
We propose that an ACO will receive a performance score on each
measure included in Table 1. For the first year of the Shared Savings
Program, these scores would be for informational purposes, since we
propose to set the quality performance standard at the reporting level.
We propose setting benchmarks for each measure using Medicare FFS
claims data, MA quality performance rates, or, where appropriate, the
corresponding percent performance rates that an ACO will be required to
demonstrate. For each measure, we propose to set a performance
benchmark and a minimum attainment level as defined in Table 3. The
benchmarks would be established using the most currently available data
source and most recent available year of benchmark data prior to the
start of the Shared Savings Program annual agreement periods. We would
determine Medicare FFS rates by pulling a data sample and modeling the
measures. For MA rates, we would check the distribution from annual MA
quality performance data and set the benchmark accordingly.
Furthermore, since MA quality performance rates utilize both claims and
clinical data, we propose to use those rates when they are available.
Benchmark levels for each of the measures included in the quality
performance standard would be made available to ACOs, prior to the
start of the Shared Savings Program and each annual performance period
thereafter, so ACOs will be aware of the benchmarks they must achieve
to receive the maximum quality score. In future program years, we
anticipate that actual ACO performance will be used to update the
benchmarks. As discussed in section II.H of this proposed rule, if an
ACO fails to meet quality performance standard during a performance
year (that is, fails to meet, the minimum attainment level for one or
more domain(s)), we propose to give the ACO a warning, provide an
opportunity to resubmit, and reevaluate the ACO's performance the
following year. If the ACO continues to significantly under-perform,
the agreement may be terminated. We further propose that ACOs that
exhibit a pattern of inaccurate or incomplete reporting or fail to make
timely corrections following notice to resubmit may be terminated from
the program.

[[Page 19595]]

[GRAPHIC] [TIFF OMITTED] TP07AP11.022

We propose that performance below the minimum attainment level
would earn zero points for that measure under both the one-sided and
two-sided risk models. Performance equal to or greater than the minimum
attainment level but less than the performance benchmark shall receive
points on a sliding scale based on the level of performance, for those
measures in which the points scale applies. Table 3 represents the
approach that we are currently considering. We also are considering
setting the initial minimum attainment level for both the one-sided and
two-sided shared savings models at 30 percent or the 30th percentile of
Medicare FFS or the MA rate, depending on what performance data are
available.
Measures 35 and 52 in Table 1 include diabetes and coronary artery
disease composite measures in which we propose ``all or nothing''
scoring. We propose that measures designated as all or nothing measures
receive the maximum available points if all criteria are met and zero
points if at least one of the criteria are not met. We define ``all or
nothing'' scoring to mean all of the care process steps and expected
outcomes for a particular beneficiary with the target condition must be
achieved to score positively. This means all 5 submeasures within the
diabetes composite and all 5 submeasures within the CAD composite would
need to be reported in order to earn points for these 2 composite
measures. The intent of all or nothing scoring is to signal to
providers that failing to perform any element of a process is
unacceptable and will result in a ``zero'' score for quality for that
measure. We believe that incorporating all or nothing scoring concepts
into the ACO quality performance standard would provide greater insight
into the use of these methodologies, drive ACOs to aggressively improve
their population's health, and encourage future development of
composite measures.
However, we also recognize that all or nothing scoring implies that
all beneficiaries can and should receive the indicated care process,
which may not necessarily be appropriate for all beneficiaries in the
Medicare population given the difficulty in attaining targets for
individuals with multiple chronic conditions and complications that may
not be adequately addressed in denominator exclusions. Therefore, in
addition to scoring the diabetes and CAD composites, we also propose
scoring the sub measures within the diabetes and CAD composites
individually.
Measure 24 is a hospital acquired conditions (HACs)
composite, in which we propose a summation of the events included
within the measure and attributing the rate to the same scale used for
other measures described in Table 3. We do not propose all or nothing
scoring for this composite, since the HACs are rare events. Because the
HACs are rare events, we believe that grouping them into one measure
will make the measure more meaningful for ACOs, which will have smaller
populations and, therefore, should have even fewer HAC events than a
hospital would experience for its total population outside of the
Shared Savings Program. We also believe grouping the HACs into one
measure reduces the HACs' impact on the ACO's overall quality
performance score. We intend to post performance rates for the final
measures set, including the applicable benchmarks, on the CMS Web site
prior to the start of the first performance period.
(3) Methodology for Calculating a Performance Score for Each Domain
Similar to our proposal for setting a quality standard for each
individual measure at the reporting level in the first program year, we
also propose setting a quality standard for each domain at the
reporting level. For subsequent program years, we plan to calculate the
percentage of points an ACO earns for each domain after determining the
points earned for each measure. We plan to divide the points earned by
the ACO across all measures in the domain by the total points available
in that particular domain. Each domain would be worth a pre-defined
number of points based on the number of individual measures in the
domain, as shown in Table 4.

[[Page 19596]]

[GRAPHIC] [TIFF OMITTED] TP07AP11.023

As illustrated in Table 4, a maximum of 2 points per measure could
be earned under both the one-sided and two-sided model based on the
ACO's performance. However, the total potential for shared savings will
be higher under the two-sided model, since the maximum potential
shareable savings based on quality performance is 60 percent of the
savings generated, compared to 50 percent under the one-sided model.
That is, full and accurate reporting of the quality measures in the
first year of the Shared Savings Program will result in an ACO earning
60 or 50 percent of shareable savings, depending on whether the ACO is
in the two-sided or one-sided model. For future program years, the
percent of potential shareable savings will vary on the ACO's
performance on the measures as compared with the measure benchmarks.
For example, the preventive health domain has 9 measures and would
be worth a maximum of 18 points (that is, 9 measures x 2 points equals
18 quality points). We propose the sliding scale in Table 3 for
determining points earned for each measure. As mentioned previously, we
propose calculating the percentage of points an ACO earns for each
domain by dividing the points earned by the total points available,
yielding a percentage. For example, if an ACO earns 16.2 out of 18
points in the preventive health domain, the ACO earned 90 percent of
the points for the preventive health domain (16.2 divided by 18 equals
.90). Assuming the ACO is operating under the two-sided shared savings
model and earns 90 percent of the quality performance points across all
five domains and generates shared savings, it would receive 90 percent
of the ACO's share of the savings or 54 percent of the total savings
generated. That is, achieving 90 percent of the potential 60 percent of
shared savings an ACO can earn under the two-sided model, means the ACO
could earn 54 percent of the total savings generated. Under the one-
sided model, achieving 90 percent of the potential 50 percent of shared
savings, means the ACO could earn 45 percent of the shareable savings
generated.
Under both the one-sided and two-sided shared savings models, the
quality measures domain scoring methodology treats all domains equally
regardless of the number of measures within the domain. We believe the
key benefit of weighting the domains equally is that it does not create
a preference for any one domain, which we believe is important as we
expect ACOs to vary in composition, and, as a result, to place more
emphasis on different domains. We also considered weighting the domains
to emphasize priority conditions or areas in order to emphasize (or de-
emphasize) certain measures that are more difficult (or easy) to
achieve without needing to change the scoring methodology. This method
would require judgment about which domains are more important than
others, which may not be appropriate. Equal weighting contains an
implicit judgment that domains such as patient/caregiver experience of
care and patient safety are equally important to the quality of care.
Accordingly, we believe ACOs should seek to address all aspects of
patient care in order to improve the overall quality of care under the
Medicare program. Furthermore, we want to encourage a diverse set of
ACOs and believe that emphasizing certain domains over others would
encourage a certain type of ACO to participate but discourage other
types from participating.
We propose aggregating the quality domain scores into a single
overall ACO score which would be used to calculate the ACOs final
sharing rate for purposes of determining shared savings or shared
losses as described in section II.F. of this proposed rule. All domain
scores for an ACO would be averaged together equally to calculate the
overall quality score that would be used to calculate the ACO's final
sharing rate.

[[Page 19597]]

We also propose that ACOs must report completely and accurately on
all measures within all domains to be deemed eligible for shared
savings consideration. We believe this is important as it requires ACOs
to address all domains and be accountable across the continuum of care.
If the ACO demonstrates sufficient cost savings in addition to meeting
the quality performance requirements, the ACO would be deemed eligible
for shared savings. We believe that this methodology provides a
sufficient incentive for quality improvement targeted to specific
domains and allows ACOs of varying compositions, which may be stronger
in some domains than others, to receive some level of shared savings.
In addition to this proposed domain-based scoring methodology, we
considered several other options for assessing the quality performance
of ACOs. We considered scoring measures individually under a method
that would weight all measures equally. Each measure would be worth the
maximum points available as described previously for a total maximum
possible points for each ACO. This system would avoid overweighting or
underweighting measures due to the number of measures in a domain. We
also considered weighting quality measures by their clinical
importance. More important quality measures would account for a greater
proportion of shared savings. Outcome measures such as hospital-
acquired infections and readmissions would be worth more than process
measures. This would avoid overweighting or underweighting measures due
to their domain, and account for clinical importance.
However, we did not think either of these approaches would be
consistent with a larger measurement strategy of driving better health
for populations and better care for individuals overall for the ACO
beneficiary population, since we believe population health is better
assessed across domains that encompass a variety of measures that apply
to beneficiaries with different needs.
(4) The Quality Performance Standard Level
We propose to set the quality performance standard of the first
year of the Shared Savings Program at the reporting level. That is,
under the one-sided model, we propose that an ACO would receive 50
percent of shared savings (provided that the ACO realizes sufficient
cost savings under the methodology described in the Shared Savings
Determination section of this proposed rule) based on 100 percent
complete and accurate reporting on all quality measures. Similarly, we
propose that under the two-sided risk model, ACOs would receive 60
percent of shared savings (provided that the ACO realizes sufficient
cost savings under the methodology described in the section II.G. of
this proposed rule) based on 100 percent complete and accurate
reporting on all quality measures. We believe setting the quality
performance standard for the first year of the Shared Savings Program
at full and accurate reporting allows ACOs to ramp up, invest in their
infrastructure, engage ACO providers/suppliers, and redesign care
processes to capture and provide data back to their ACO providers/
suppliers to transform care at the point of care. It also would provide
CMS with the opportunity to learn about the process, establish and
refine benchmarks on ACO reported data, and establish improvement
targets using data reporting for the first performance year. Setting
the quality performance standard at the reporting level is also
consistent with other value-based purchasing programs that have started
out initially as pay for reporting programs.
Via future rulemaking, we plan to raise the quality performance
standard requirements beginning in the second program year, when actual
performance on the reported measures would be considered in determining
whether an ACO is eligible to receive any shared savings (provided,
that the ACO realizes cost savings under the methodology described in
the Shared Savings Determination section of this proposed rule). We
believe this approach is consistent with section 1899(b)(3)(C) of the
Act, which requires that the Secretary ``seek to improve the quality of
care furnished by ACOs over time by specifying higher standards, new
measures, or both for the purposes of assessing such quality of care.''
c. Option 2: Quality Threshold
Under the second option, we would establish a minimum quality
threshold for participating ACOs. If an ACO exceeded the quality
threshold, it would retain the full shared savings percentage
attributable to quality under this proposed rule (50 percent for one-
sided risk, and 60 percent for two-sided risk). If an ACO did not meet
the minimum quality standards in a performance year, it would not be
eligible for shared savings. Furthermore, as discussed in section II.H.
of this proposed rule and with respect to the performance standards
option, if an ACO that fails to meet the minimum threshold during a
performance year, we propose to give the ACO a warning, an opportunity
for correction, and follow the termination process described in the
Monitoring section if the ACO continues to underperform.
(1) Minimum Quality Threshold
Alternatively, we could establish the minimum quality threshold
using the same set of quality measures and domains outlined in Table 1.
We would also use the benchmarks for performance described in Table 3,
established using claims data from FFS Medicare or the Medicare
Advantage program. The minimum quality threshold would be performance
at or above the 50th percentile (on the performance standards described
in Table 3) for each domain: patient/caregiver experience; care
coordination; patient safety; preventive health; and at-risk
population/frail elderly. If an ACO meets these thresholds, it would be
eligible for the full 50 percent of shared savings attributable to
quality for those participating in the one-sided model, and the full 60
percent for those participating in the two-sided model. If an ACO
failed to meet this threshold, it would not be eligible for shared
savings. We expect that the quality threshold will increase over time
in future rulemaking, under the requirement to improve the quality of
care furnished by the ACO under section 1899(b)(3)(C) of the Act. We
solicit comment on this approach and the appropriate threshold level,
and on the pros and cons of the minimum threshold approach.
(2) Considerations in Establishing a Quality Threshold
The quality threshold option has advantages and disadvantages
compared with the performance standard option. Under the performance
standard option, an ACO could receive rewards for higher quality based
on outcomes in one or two domains (for example, patient/caregiver
experience and preventive care), while having very low quality in
others (for example, patient safety). This is true for individual
measures (for example, healthcare-acquired infections) as well. Setting
a minimum threshold ensures that all ACOs meet basic standards on all
quality measures, with a special emphasis on patient safety. An ACO's
quality outcomes may vary from year to year due to factors outside of
its control, meaning that performance-based standards could reward ACOs
due to random variability. A threshold established at a basic level of
quality acknowledged to be minimally necessary presents less of a risk
of being triggered due to random variation, as opposed to truly poor
performance. Finally, for ACOs meeting

[[Page 19598]]

the threshold, their shared savings percentage attributable to quality
would be fixed and certain. This would increase incentives, achieve
savings, and present more certainty on potential investment returns for
organizations considering whether or not to become ACOs.
A quality threshold also presents disadvantages. Under this model,
once an ACO is certain that it has met the minimum threshold, there is
no incentive to continue improving quality; in effect, the quality
incentives would be the same as under traditional FFS. ACOs may even
have an incentive to reduce quality to just above the minimum.
Additionally, an ACO would not be rewarded for improving quality
outcomes on specific measures once it was confident that the minimum
was exceeded.
In addition to proposing these two options, we also considered
establishing performance standards for the overarching goals (of
improving health care for individuals and populations) or a single
performance standard to measure overall ACO performance. However, we
believe that such aggregated scores may not be meaningful or useful for
the ACO, since the general goals of improving health for individuals
and populations are not as actionable as, for instance, a specific goal
of lowering patients' LDL cholesterol levels. For the patient
experience domain measures, we also considered weighting more heavily
the responses of beneficiaries who have sought care with the ACO
providers longer than the responses of those who are newer to the ACO
providers. Finally, we considered an option that would permit the ACO
to satisfy the quality performance standards based on peer to peer
benchmarking. Under this approach the quality measure benchmarks would
be set based on all ACOs' performance during the year. However, the
main reason we did not propose this option is that, for measures in
which most ACOs achieve high performance levels, minor changes in
performance could determine whether an ACO achieves the performance
benchmark. Thus, there would be little incentive to improve quality
beyond the level necessary to share in savings. Additionally, our
proposed approach enables us to reward improvement over the minimum
attainment level by allowing the ACO to share in greater savings as
they improve over time.
We also considered permitting ACOs to report a subset of the
measures in Table 1, based on their level of readiness to participate
in the Shared Savings Program. ACOs seeking to participate in the
Shared Savings Program may vary with respect to their readiness to
function in the Shared Savings Program, with respect to their
organizational and systems capacity and structure. Accordingly, some
ACOs might more quickly be able to demonstrate quality improvements and
savings than will others. However, consistent with the overall goals of
the Shared Savings Program discussed in section I. of this proposed
rule, we believe that ACOs participating in the Shared Savings Program
should seek to improve quality across a variety of measures addressing
a range of domains, not only for those areas in which they are
currently able or comfortable to report, hence our proposal to require
100 percent reporting for the measures in Table 1 to satisfactorily
meet the quality performance requirements under the Shared Savings
Program
We propose the performance scoring option and invite comment on
this option as well as the quality threshold option. Within these
options, we seek comment on the appropriateness of weighting all
domains equally in determining an ACO's quality performance or whether
certain domains and/or specific measures should be weighted more
heavily. We also invite comment on alternatives that would blend these
two approaches. For example, under the two-sided model, allowing ACOs
that generate savings to increase their share of savings with higher
quality scores (Option 1) but using a threshold approach (Option 2)
when calculating losses so that higher quality does not reduce an ACO's
share of any losses. Such an approach would have the effect of
essentially applying a minimum sharing rate for losses (for example, 50
percent) and could appropriately reflect the goal of the Shared Savings
Program to reward high quality and efficient care, by providing a
greater reward when high quality care is also efficient and less relief
for high quality care that is not efficient. Alternatively, the
threshold option could be utilized in the two-sided model so that if
the threshold score for the two-sided model resulted in 60% shared
savings, it would also result in 60 percent shared losses, creating a
symmetrical two-sided model. Another example of a blended approach
would be to use the threshold approach (Option 2) for the first 3 years
of the Shared Savings Program and then, as experience is gained and
measures are further aligned, transition to performance scoring (Option
1). We also invite comment on the proposal to set the quality
performance standard of the first program year at the reporting level
and to raise the standard to reflect performance in subsequent years.
We also invite comment on the proposed quality measures scoring
methodologies under the one-sided and two-sided risk models. In
addition, we invite comment on our proposal to have all quality
measures listed in Table 1 required of all ACOs, and the alternative
under which ACOs would be required to only report a subset of the
measures in Table 1, based on their level of readiness for the Shared
Savings Program.
5. Incorporation of Other Reporting Requirements Related to the
Physician Quality Reporting System and Electronic Health Records
Technology Under Section 1848 of the Act
Medicare provides multiple incentive payment options for providers
to report and use clinical information more proactively in their
practices. The Affordable Care Act gives the Secretary authority to
incorporate reporting requirements and incentive payments from these
programs into the Shared Savings Program, and to use alternative
criteria to determine if payments are warranted. Specifically, section
1899(b)(3)(D) of the Act affords the Secretary discretion to ``* * *
incorporate reporting requirements and incentive payments related to
the physician quality reporting initiative (PQRI), under section 1848,
including such requirements and such payments related to electronic
prescribing, electronic health records, and other similar initiatives
under section 1848 * * *'' and permits the Secretary to ``use
alternative criteria than would otherwise apply under section 1848 for
determining whether to make such payments.'' Under this authority, we
propose to incorporate certain reporting requirements and payments
related to the Physician Quality Reporting System into the Shared
Savings Program for ``eligible professionals'' within an ACO. Under
section 1848(k)(3)(B) of the Act, the term ``eligible professional''
means any of the following: (1) A physician; (2) a practitioner
described in section 1842(b)(18)(C) of the Act; (3) a physical or
occupational therapist or a qualified speech-language pathologist; or
(4) a qualified audiologist.
We propose to incorporate a Physician Quality Reporting System
group practice reporting option (GPRO) under the Shared Savings Program
and further propose that the eligible professionals that are ACO
participant providers/suppliers would constitute a group practice for
purposes of qualifying for a Physician Quality

[[Page 19599]]

Reporting System incentive under the Shared Savings Program.
Specifically, eligible professionals would be required to submit data
through the ACO on the quality measures proposed in Table 1 using the
GPRO tool and methodology described in section II.E.3. of this proposed
rule to qualify for the Physician Quality Reporting System incentive
under the Shared Savings Program. We propose that the ACO would report
and submit data on behalf of the eligible professionals in an effort to
qualify for the Physician Quality Reporting System incentive as a group
practice; that is, eligible professionals within an ACO would qualify
for the Physician Quality Reporting System incentive as a group
practice, and not as individuals. In addition, we propose a calendar
year reporting period from January 1 through December 31, for purposes
of the Physician Quality Reporting System incentive under the Shared
Savings Program.
With regard to the requirements for satisfactory reporting for
purposes of earning the Physician Quality Reporting System incentive
under the Shared Savings Program, we propose to incorporate certain
aspects of the criteria for satisfactory reporting under the 2011
Physician Quality Reporting System GPRO I option (75 FR 73506), with a
few modifications. In particular, we propose the following criteria for
satisfactory reporting for purposes of the Physician Quality Reporting
System incentive for the first performance period under the Shared
Savings Program:
ACOs, on behalf of its EPs, would need to report on all
measures included in the data collection tool;
Beneficiaries will be assigned to the ACO using the
methodology described in the Assignment section of this proposed rule.
As a result, the GPRO tool would be populated based on a sample of the
ACO-assigned beneficiary population. ACOs would need to complete the
tool for the first 411 consecutively ranked and assigned beneficiaries
in the order in which they appear in the group's sample for each
domain, measure set, or individual measure if a separate denominator is
required such as in the case of preventive care measures which may be
specific to one sex. If the pool of eligible assigned beneficiaries is
less than 411, the ACO would report on 100 percent of assigned
beneficiaries for the domain, measure set, or individual measure.
The GPRO tool will need to be completed for all domains,
measure sets, and measures described in Table 1.
Accordingly, eligible professionals within an ACO that
satisfactorily report the measures proposed in Table 1 during the
reporting period would qualify under the Shared Savings Program for a
Physician Quality Reporting System incentive equal to 0.5 percent of
the ACO's eligible professionals' total estimated Medicare Part B PFS
allowed charges for covered professional services furnished during the
first performance period. ``Covered professional services'' are
services for which payment is made under, or based on, the physician
fee schedule and which are furnished under the ACO participant's TINs.
We plan to align the incorporated Physician Quality Reporting
System requirements with the general Shared Savings Program reporting
requirements, such that no extra reporting is actually required in
order for eligible professionals or the ACO to earn the Physician
Quality Reporting System incentive under the Shared Savings Program.
Thus, for ACOs that meet the quality performance standard under the
Shared Savings Program for the first performance period, the Physician
Quality Reporting System eligible professionals within such ACOs will
be considered eligible for the Physician Quality Reporting System
incentive under the Shared Savings Program for that year. This means
ACOs will need to report on all measures proposed in Table 1 in order
to receive both the Shared Savings Program shared savings and Physician
Quality Reporting System incentive. Failure to meet the Shared Savings
Program quality performance standard would result in failure to be
considered eligible for shared savings, as well as failure for the EPs
within the ACO to receive a Physician Quality Reporting System
incentive under the Shared Savings Program for that year. ACO
participant provider/suppliers who meet the quality performance
standard but do not generate shareable savings would still be eligible
for PQRS incentive payments. We intend to discuss the policy for
incorporating the Physician Quality Reporting System incentive under
the Shared Savings Program for subsequent years in future rulemaking.
We note that ACOs will be eligible for the Physician Quality
Reporting System incentive under the Shared Savings Program to the
extent that they contain eligible professionals as defined under Sec.
414.90(b). As a result, not all ACOs will necessarily be eligible for
the Physician Quality Reporting System incentive under the Shared
Savings Program. A complete list of Physician Quality Reporting System
eligible professionals (EP) is available at: http://www.cms.gov/PQRI/Downloads/EligibleProfessionals.pdf. In addition, similar to
traditional Physician Quality Reporting System, an EP could not qualify
for the Physician Quality Reporting System incentive as both a group
that is part of an ACO and as an individual. Furthermore, EPs could not
qualify for a Physician Quality Reporting System incentive under both
the Physician Quality Reporting System under the Shared Savings Program
and the traditional Physician Quality Reporting System. For purposes of
analysis and payment, we intend to use TINs and National Provider
Identification numbers similar to what we have done in the traditional
Physician Quality Reporting System (75 FR 40169), and we will provide
such details in guidance.
At this time, we are not proposing to incorporate such payments for
the EHR Incentive Program or Electronic Prescribing Incentive Program
under the Shared Savings Program. Professionals in ACOs may still
separately participate in those other incentive programs. However, we
propose to require in the Shared Savings Program measures also included
in the EHR Incentive Program and metrics related to successful
participation in the Medicare and Medicaid EHR Incentive Programs for
eligible professionals and hospitals and the eRx Incentive Program, as
illustrated in Table 1. Metrics related to successful participation in
the EHR Incentive Program and the eRx Incentive Program includes
scoring the percentage of ``meaningful users'' of certified EHR
technology, as defined in our regulations, and the percentage of those
professionals that meet the criteria for the eRx incentive, as measures
that are part of the quality performance standard. These measures would
be subject to the same points scale and 30 percent or 30th percentile
minimum attainment level previously described in table D3. We note that
including metrics based on EHR Incentive Program and eRx Incentive
Program data does not in any way duplicate or replace specific program
measures within each of the two respective programs or allow eligible
professionals to satisfy the requirements of either of the two programs
through the Shared Savings Program. To receive incentive payments under
the EHR incentive or eRx programs (or to avoid payment adjustments),
eligible professionals will be required to meet all the requirements of
the respective EHR and eRx programs. In addition, as a Shared Savings
Program requirement separate from the quality measures reporting
discussed previously, we propose

[[Page 19600]]

requiring that at least 50 percent of an ACO's primary care physicians
are determined to be ``meaningful EHR users'' as that term is defined
in 42 CFR 495.4 as defined in the HITECH Act and subsequent Medicare
regulations by the start of the second performance year in order to
continue participation in the Shared Savings Program. The EHR Incentive
regulations, including the definition of meaningful EHR user and
certified EHR technology can be found at 42 CFR part 495, as published
on July 28, 2010 (75 FR 44314). The preamble to the July 28, 2010 final
rule also describes the stages of meaningful use. We believe these
approaches would foster incentives for improving and delivering high
quality care by engaging providers in performance based quality
incentive programs; and encourage adoption of EHRs. The requirement
that at least 50 percent of ACO primary care physicians be meaningful
users represents a first step towards achieving our objective of
incenting full participation of ACOs' providers in the EHR Incentive
Program over time. For subsequent years, we anticipate proposing
greater alignment between the Shared Savings Program and the EHR
Incentive program through future rulemaking. We considered several
other options for incorporating other program reporting requirements
into the Shared Savings Program. One option was to incorporate
Physician Quality Reporting System into the Shared Savings Program via
a scaled approach, in which how the ACO performs on the quality
measures under the Shared Savings Program would determine the amount of
Physician Quality Reporting System incentive an ACO could earn.
However, we thought this approach would be burdensome and confusing to
providers who are used to a different approach under the traditional
Physician Quality Reporting System. We also considered proposing to
limit incorporation of the Physician Quality Reporting System incentive
under the Shared Savings Program to the ACO's group practices that were
used for beneficiary assignment rather than to all group practices
associated with an ACO. However, we thought expanding the Physician
Quality Reporting System incentive under the Shared Savings Program to
all participant TINs within an ACO would be more efficient for EPs
participating in both traditional Physician Quality Reporting System
and the Physician Quality Reporting System and the Physician Quality
Reporting System incentive under the Shared Savings Program. This way
ACOs would report one way for the Physician Quality Reporting System
for all of its ACO providers/suppliers who are eligible professionals;
that is, for purposes of qualifying for the Physician Quality Reporting
System incentive, the ACO would not need to report one way for the TINs
used for beneficiary assignment and another way for the TINs not used
for assignment. Another option we considered was to incorporate the eRx
Incentive Program's incentive requirements and payments into the Shared
Savings Program. However, we are not proposing to incorporate the eRx
incentive requirements and payments under the Shared Savings Program
since the eRx incentive ends after 2013. We believe it would be
burdensome to require ACOs to incorporate the eRx incentive
requirements for only a 2-year period.
In concert with the proposal for 50 percent of primary care
physicians to be meaningful EHR users by the second performance year,
we seek comment on whether we should also specify a percentage-based
requirement for hospitals. Such a requirement would be similar to the
previous proposal for primary care physicians and would require 50
percent of eligible hospitals that are ACO providers/suppliers achieve
meaningful use of certified EHR technology by the start of the second
performance year in order for the ACO to continue participation in the
Shared Savings Program. We also request public comment related to
circumstances where the ACO may only include one eligible hospital or
no hospital and whether we would need to provide an exclusion or
exemption in such a circumstance.
We also considered limiting the metrics related to percentage of
meaningful users to be applicable to the Medicare EHR Incentive Program
only, since presumably ACO providers/suppliers may see a high
proportion of Medicare FFS patients. However, we realize that ACO
providers/suppliers eligible for the EHR incentive may seek to qualify
for the EHR incentive through any of the EHR Incentive Programs
available to Medicare and Medicaid eligible professionals and
hospitals. Finally, we considered incorporating EHR Incentive Program's
incentive requirements into the Shared Savings Program, however, per
the previous discussion, we did not believe the program was ready for
incorporation at this time. Furthermore, we are proposing that ACOs
report quality measures as a group, and the EHR Incentive program does
not include a group reporting option at this time.
We invite comment on our proposal to incorporate Physician Quality
Reporting System requirements and payments and certain metrics related
to under the Shared Savings Program, as well as the options discussed
previously that we considered.
6. Public Reporting
Increasingly, transparency of information in the health care sector
is seen as a means to facilitate more informed patient choice, offer
incentives, and feedback that help improve the quality and lower the
cost of care, and improve oversight with respect to program integrity.
Examples of existing efforts that improve transparency include Hospital
Compare, which enables patients along with their family and health care
providers to compare the quality of care provided in the hospitals that
agree to submit data on the quality of certain services they provide
for certain conditions. Hospital Compare displays the following kinds
of information:
Rates for process of care measures that show whether or
not hospitals provide some of the care that is recommended for patients
being treated for a heart attack, heart failure, pneumonia, asthma
(children only) or patients having surgery.
Information on hospital outcome of care measures,
including 30-day risk adjusted death (mortality) and readmission rates.
Data collected from the Hospital Consumer Assessment of
Healthcare Providers and Systems (HCAHPS) Survey, reflecting patients'
hospital experiences.
Medicare inpatient hospital payment information.
The number of Medicare patients treated for certain
illnesses or diagnoses (as reported by Medicare severity-diagnosis
related groups (MS-DRGs)).
(For more information, see the Hospital Compare Web site at http://www.hospitalcompare.hhs.gov/hospital-search.aspx?AspxAutoDetectCookieSupport=1.)
Similarly, Nursing Home Compare reports detailed information about
every Medicare and Medicaid-certified nursing home in the country.
Nursing Home Compare includes comparative information on health
inspection results such as: (1) An assessment of the care of residents;
(2) the process of care; (3) staff and resident interactions; and (4)
the nursing home environment; (5) nursing home staffing; and quality
measures. (For more information, see the Nursing Home Compare Web site
at http://www.medicare.gov/NHCompare/Include/DataSection/Questions/
SearchCriteriaNEW.asp?version=default&browser=

[[Page 19601]]

IE%7C6%7CWinXP&language=English&defaultstatus=0&pagelist=Home&CookiesEna
bledStatus=True.)
The Affordable Care Act included several new initiatives that will
expand transparency in the Medicare program. Among these, section 3003
of the Affordable Care Act will make aggregate information on physician
resource use publicly available; section 3004 of the Affordable Care
Act will make quality data relating to long-term care hospitals,
inpatient rehabilitation facilities, and hospices publicly available;
and section 3005 of the Affordable Care Act will make quality data for
certain cancer hospitals publicly available. Similarly, section 10331
of the Affordable Care Act requires the Secretary to develop a
Physician Compare Internet Web site by January 1, 2011 with information
on physicians enrolled in the Medicare program and other eligible
professionals who participate in the Physician Quality Reporting
Initiative. Not later than January 1, 2013, the Secretary must also
implement a plan for making information on quality and patient
experience measures publicly available. Further, in developing this
plan and as determined appropriate, the Secretary must consider the
plan to transition to a value-based purchasing program for physicians
and other practitioners developed under section 131 of the Medicare
Improvements for Patients and Providers Act of 2008 (Pub. L. 110-275).
Section 10332 of the Affordable Care Act requires the Secretary to make
certain standardized claims data under Medicare Parts A, B, and D
available to entities qualified by the Secretary to use these data to
evaluate the performance of providers of services and suppliers on
measures of quality, efficiency, effectiveness, and resource use.
While the Act did not include a specific requirement for public
reporting and transparency related to the Shared Savings Program,
improved transparency would support a number of program requirements.
In particular, increased transparency would be consistent with and
support the requirement under section 1899(b)(2)(A) of the Act for ACOs
to be willing to ``become accountable for the quality, cost, and
overall care'' of the Medicare beneficiaries assigned to it.
Public reporting of ACO cost and quality measure data would improve
a beneficiary's ability to make informed health care choices, and
facilitate an ACO's ability to improve the quality and efficiency of
its care by making available information that enables ACO professionals
to assess their performance relative to their peers, and creates
incentives for those professionals to improve their performance. For
example, the transparency of outcomes that results when consumers have
access to publicly reported performance information could be an
important catalyst for providers to continually seek to improve their
performance. Further, many other stakeholders, including health plans,
employers, and policy makers have an interest in knowing the degree to
which different health care delivery models are effective in improving
quality and reducing costs. Timely dissemination of reports on ACO
quality and cost performance will contribute to the dialogue, at the
national, regional and local level, on how to drive improvement and
innovation in health care.
Therefore, we believe it is desirable and consistent with section
1899(b)(2)(A) of the Act for several aspects of an ACO's operation and
performance to be transparent to the public--specifically, information
regarding: (1) Providers and suppliers participating in the ACO; (2)
parties sharing in the governance of the ACO; (3) quality performance
standard scores; and (4) general information on how an ACO shares
savings with its members. We are proposing that certain information
regarding the operations of the ACO would be subject to public
reporting to the extent administratively feasible and permitted by law.
Specifically, we propose that the following information regarding the
ACO be publicly reported:
Name and location.
Primary contact.
Organizational information including--
++ ACO participants;
++ Identification of ACO participants in joint ventures between ACO
professionals and hospitals;
++ Identification of the ACO participant representatives on its
governing body; and
++ Associated committees and committee leadership.
Shared savings information including--
++ Shared savings performance payment received by ACOs or shared
losses payable to us; and
++ Total proportion of shared savings invested in infrastructure,
redesigned care processes and other resources required to support the
three-part aim goals of better health for populations, better care for
individuals and lower growth in expenditures, including the proportion
distributed among ACO participants.
Quality performance standard scores.
In the interest of transparency, it is important that the ACO make
available to the public information on its accountability for the
quality, cost, and the overall care furnished to its assigned
beneficiary population. We are proposing that each ACO be responsible
for making this information available to the public in a standardized
format that we will make available through subregulatory guidance. This
requirement would be included in each ACO's 3-year agreement.
We seek comments on our proposals, including whether the proposed
list includes elements that should not be required, or excludes
elements that are important for achieving transparency or meaningful
public disclosure within the Shared Savings Program and whether we
should standardize the format or allow ACOs the flexibility to try
different and innovative approaches for providing this information to
beneficiaries. We welcome comment on these requirements and new
reporting requirement recommendations that could be considered for
future program years through future rulemaking. Also, we seek comment
on whether ACOs themselves should be required to make this information
publicly available or whether ACOs should report this information to
us, and we would then make this information publicly available.
7. Aligning ACO Quality Measures With Other Laws and Regulations
The standards for Accountable Care Organizations proposed in this
rule are among the first quality standards for doctors and health care
organizations established under the Affordable Care Act. As such, we
believe that they represent an opportunity to continue a robust
discussion between the Federal government, affected parties such as
physicians, hospitals, and patients, and all other stakeholders on
developing and aligning the best possible framework for ensuring
quality care. The Act directs the Department to promulgate quality
standards and require accountability or reporting in several sections.
It calls for a National Quality Strategy that was released on March 21,
2011. We have already proposed standards for inpatient hospitals and
the Medicaid program through rulemaking, as well as the standards for
ACOs outlined in this rule. These standards affect different
constituencies, including physicians, hospitals, other providers, and
patients and their families. As such, we have proposed distinct domains
and

[[Page 19602]]

categories of quality measures, and different frameworks for rewarding
performance, under each Affordable Care Act program as illustrated in
Table 5.
[GRAPHIC] [TIFF OMITTED] TP07AP11.024

While these quality domains and categories--and the parties that
they affect--overlap in a number of areas, each set of standards has
different domains, categories, and specific measures. We recognize that
different quality frameworks and rewards may add to confusion and
administrative burdens for affected parties, and mitigate efforts to
focus on the highest-quality care. We seek comment from affected
parties and other stakeholders on the best and most appropriate way to
align quality domains, categories, specific measures, and rewards
across these and other Federal healthcare programs, to ensure the
highest-possible quality of care. Specifically, we seek comment on
whether quality standards in different Affordable Care Act programs
should use the same definition of domains, categories, specific
measures, and rewards for performance across all programs to the
greatest extent possible, taking into account meaningful differences in
affected parties.

F. Shared Savings Determination

1. Background
Section 1899 of the Act, as added by section 3022 of the Affordable
Care Act, establishes the general requirements for payments to
participating ACOs. Specifically, section 1899(d)(1)(A) of the Act
provides that ACO participants will continue to receive payment ``under
the original Medicare fee-for-service program under Parts A and B in
the same manner as they would otherwise be made.'' However, section
1899(d)(1)(A) of the Act also provides for ACOs to receive payment for
shared Medicare savings provided that the ACO meets both the quality
performance standards established by the Secretary, as discussed in
section II.E. of proposed rule, and demonstrates that it has achieved
savings against a benchmark of expected average per capita Medicare FFS
expenditures. Additionally, section 1899(i) of the Act authorizes the
Secretary to use other payment models in the place of the one-sided
model outlined in section 1899(d) of the Act. This provision authorizes
the Secretary to select a partial capitation model or any other payment
model that the Secretary determines will improve the quality and
efficiency of items and services furnished to Medicare beneficiaries
without additional program expenditures.
In the November 17, 2010 Federal Register, we solicited public
comment on a number of issues regarding ACOs and the Shared Savings
Program, including the types of additional payment models we should
consider in addition to the model laid out in section 1899(d) of the
Act, either under the authority provided in 1899(i) of the Act or using
the Innovation Center authority under section 1115A of the Act. We

[[Page 19603]]

further asked about the relative advantages and disadvantages of any
such payment models.
We considered several options for structuring the Shared Savings
Program. One option we considered was to offer a pure one-sided shared
savings approach using the calculation and payment methodology under
1899(d) of the Act. This option would have the potential to attract a
large number of participants to the program and introduce value-based
purchasing broadly to providers and suppliers, many of whom may never
have participated in a value-based purchasing initiative. Another
reason we considered this option was that a one-sided model with no
downside risk might be more accessible and attract smaller group
participation. However, as some commenters suggest, while such a model
may provide incentive for participants to improve quality, it may not
be enough of an incentive for participants to improve the efficiency of
health care delivery and cost. Therefore, we considered whether we
should instead focus on our authority under section 1899(i) of the Act
to create a risk-based option in the Shared Savings Program. Such a
model would have the advantage of providing an opportunity for more
experienced ACOs that are ready to share in losses to enter a sharing
arrangement that provides greater reward for greater responsibility.
Another option would be to offer a hybrid approach. A hybrid
approach would combine many of the elements of the one-sided model
under section 1899(d) of the Act with a risk-based approach under
section 1899(i) of the Act. The hybrid approach would have the
advantage of providing an entry point for organizations with less
experience with risk models, such as some physician-driven
organizations or smaller ACOs, to gain experience with population
management before transitioning to a risk-based model while also
providing an opportunity for more experienced ACOs that are ready to
share in losses to enter a sharing arrangement that provides greater
reward for greater responsibility.
Based on the input of commenters on the November 17, 2010 RFI,
other stakeholders and policy experts we are proposing to implement a
hybrid approach. Specifically, we are proposing that ACOs participating
in the Shared Savings Program will have an option between two tracks:
Track 1: Under Track 1, shared savings would be reconciled annually
for the first 2 years of the 3-year agreement using a one-sided shared
savings approach, with ACOs not being responsible for any portion of
the losses above the expenditure target. However, for the third year of
the 3-year agreement, we will use our authority under section 1899(i)
of the Act to establish an alternative two-sided payment model. Under
this model, an ACO would be required to agree to share any losses that
may be generated as well as savings. The portion of shared losses that
the ACO would be at risk for in the third year of the agreement is
further described in section II.G. of this proposed rule. ACOs that
enter the Shared Savings Program under Track 1 would be automatically
transitioned to the two-sided model in the third year of their
agreement period. In that year, the ACO's payments would be reconciled
as if it was in the first year of the two-sided model. However quality
scoring would still be based on the methods for the third year (that
is, it would not revert back to the first year standard of full and
accurate reporting). Thereafter, those ACOs that wish to continue
participating in the Shared Savings Program would only have the option
of participating in Track 2, that is, under the two-sided model.
Track 2: More experienced ACOs that are ready to share in losses
with greater opportunity for reward may elect to immediately enter the
two-sided model (as discussed in section II.G. of this proposed rule).
An ACO participating in Track 2 would be under the two-sided model for
all three years of its agreement period. Under this model, the ACO
would be eligible for higher sharing rates than would be available
under the one-sided model.
Unless specifically noted, the elements discussed in the rest of
this section will apply to both the one-sided and two-sided models.
Section II.G. of this proposed rule provides additional detail
regarding aspects of the two-sided model that are not discussed in this
section.
We seek comment on our proposal and the alternatives discussed
previously.
2. Overview of Shared Savings Determination
The basic requirements for establishing and updating the benchmark,
as well as determining whether an ACO has achieved savings against the
benchmark, are outlined in section 1899(d)(1)(B) of the Act. Section
1899(d)(1)(B)(i) of the Act establishes that an ACO shall be eligible
for payment of shared savings ``only 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 * * * .'' We will take into account
payments made from the Medicare Trust Fund for Parts A and B services,
for assigned Medicare FFS beneficiaries, including payments made under
a demonstration, pilot or time limited program when computing average
per capita Medicare expenditures under the ACO. The statute further
requires the Secretary to establish the percentage that expenditures
must be below the applicable benchmark ``to account for normal
variation in expenditures under this title, based upon the number of
Medicare fee-for-service beneficiaries assigned to an ACO.'' We will
refer to this percentage as the ``minimum savings rate'' (MSR).
Section 1899(d)(1)(B)(ii) of the Act requires the Secretary to
establish and update the ``benchmark for each agreement period using
the most recent available 3 years of per-beneficiary expenditures for
parts A and B services for Medicare fee-for-service beneficiaries
assigned to the ACO.'' This section also requires the benchmark to ``be
adjusted for beneficiary characteristics and such other factors as the
Secretary determines appropriate and updated by the projected absolute
amount of growth in national per capita expenditures for Parts A and B
services under the original Medicare fee-for-service service program,
as estimated by the Secretary.'' A new benchmark is to be established
consistent with these requirements at the beginning of each new
agreement period.
Section 1899(d)(2) of the Act provides that, if the ACO meets the
quality performance standards established by the Secretary, as
discussed in section II.E. of this proposed rule ``a percent (as
determined appropriate by the Secretary) of the difference between such
estimated average per capita Medicare expenditures in a year, adjusted
for beneficiary characteristics, under the ACO and such benchmark for
the ACO may be paid to the ACO as shared savings and the remainder of
such difference shall be retained by the program under this title.'' We
will refer to this percentage as the ``sharing rate.'' This section
also requires the Secretary to ``establish limits on the total amount
of shared savings that may be paid to an ACO.'' We will refer to this
limit as the ``sharing cap''.
Thus, in order to implement the provisions of section 1899(d) of
the Act for determining and appropriately sharing savings, we must make
a number of determinations about the specific design of the shared
savings

[[Page 19604]]

methodology described by the statute. First, we must establish an
expenditure benchmark, which involves determining: (1) The patient
population (that is, assigning patients to ACOs for purposes of quality
and financial performance measurement) for whom the benchmark is
calculated; (2) appropriate adjustments for beneficiary characteristics
such as demographic factors and/or health status that should be taken
into account in the benchmark; (3) whether any other adjustments to the
3-year benchmark are warranted, such as to avoid potentially
disadvantaging various types of providers (for example, hospitals that
receive Medicare disproportionate share hospital payments (DSH
hospitals) or teaching hospitals that receive indirect graduate medical
education (IME) payments) or ACOs located in high cost, or low cost,
areas; and (4) appropriate methods for trending the 3-year benchmark
forward to the start of the agreement period, and subsequently for
updating the benchmark for each of the 3 performance years of the
agreement period with the ACO.
Second, we must compare the benchmark to the assigned beneficiary
per capita Medicare expenditures in each performance year under the
agreement period in order to determine the amount of any savings.
Third, we must establish the appropriate MSR, as required by the
statute ``to account for normal variation in expenditures * * * based
upon the number of Medicare fee-for-service beneficiaries assigned to
an ACO'' and we must determine the appropriate sharing rate for ACOs
that have realized savings against the benchmark above the MSR.
Finally, we must determine the required sharing cap on the total amount
of shared savings that may be paid to an ACO. We discuss all these
issues, and our proposals for addressing them, in this section.
3. Establishing an Expenditure Benchmark
a. Background
Section 1899(d)(1)(B)(ii) of the Act specifies several requirements
with regard to establishing an ACO's benchmark.
First, the law requires the Secretary ``to estimate a
benchmark for each agreement period for each ACO using the most recent
available 3 years of per-beneficiary expenditures for parts A and B
services for Medicare fee-for-service beneficiaries assigned to the
ACO.''
Second, the law requires that ``[s]uch benchmark shall be
adjusted for beneficiary characteristics and such other factors as the
Secretary determines appropriate.''
Third, the law requires that the benchmark be ``updated by
the projected absolute amount of growth in national per capita
expenditures for parts A and B services under the original Medicare
fee-for-service program, as estimated by the Secretary.''
Finally, the law requires that ``[s]uch benchmark shall be
reset at the start of each agreement period.''
A useful way to view the benchmark is as a surrogate measure of
what the Medicare FFS Parts A and B expenditures would otherwise have
been in the absence of the ACO. Once the savings realized by the ACO
exceed a margin for normal variation in expenditures from year-to-year
(what we call the MSR described in more detail later in this proposed
rule), the difference between actual expenditures of the ACO's assigned
beneficiaries during each year of the agreement period and its
benchmark (updated, according to statute as described in more detail
later in the document) should reflect how well the ACO is coordinating
care for these beneficiaries and improving the overall efficiency of
their care.
An accurate benchmark estimate is important in order to ensure that
an ACO that successfully coordinates care and achieves real savings is
rewarded with shared savings. Similarly, an accurate benchmark estimate
helps to ensure that shared savings are not inadvertently paid to an
ACO that does not successfully coordinate care well or that has not
achieved savings in excess of normal variation in annual expenditures.
We have considered two legally permissible approaches to meeting
the statutory language for estimating the benchmark, which we will call
Option 1 and Option 2 in this proposed rule. Both approaches involve
benchmarks that are derived from prior expenditures of assigned
beneficiaries and adjusted for certain beneficiary characteristics, and
other factors, the Secretary determines appropriate and updated by the
projected absolute amount of growth in national per capita
expenditures. Under both approaches, the benchmark would also be reset
at the start of each agreement period. However, a key difference
between these two approaches is the beneficiary population used to
determine expenditures for purposes of the benchmark. Specifically,
under Option 1, we would estimate an ACO's benchmark based on the Parts
A and B FFS expenditures of beneficiaries who would have been assigned
to the ACO in each of the 3 years prior to the start of an ACO's
agreement period using the ACO participants' TINs. In contrast, under
Option 2, the benchmark would be based on the Parts A and B FFS
expenditures of beneficiaries, who are actually assigned to the ACO
during each performance year, with the expenditures being those
incurred in the 3 years immediately preceding the ACO's agreement
period for those assigned beneficiaries. We describe these two options
later in this document. In this proposed rule, we are proposing Option
1 to establish each ACO's benchmark; however, we solicit comments on
both options.
b. Option 1
Under Option 1, we would estimate the benchmark for an ACO for an
agreement period starting with the TINs of ACO participants identified
at the start of the agreement period. The same rules that will be used
to determine assignment of beneficiaries to ACOs during the agreement
period would be applied to these data. Accordingly, consistent with the
assignment methodology proposed in section II.D. of this proposed rule,
we would use the claim records of these ACO participants to determine a
list of beneficiaries who received a plurality of their primary care
services from primary care physicians participating in the ACO in each
of the prior 3 most recent available years.
Using the per capita Parts A and B FFS expenditures for
beneficiaries that would have been assigned to the ACO in each of these
3 prior years, we will estimate a fixed benchmark that is adjusted for
overall growth and beneficiary characteristics, including health status
using prospective HCC adjustments (as discussed in section 3 later in
this document). This benchmark would then be updated annually during
the agreement period, according to statute, based on the absolute
amount of growth in national per capita expenditures for Parts A and B
services under the original Medicare FFS program.
The first step in this process is to calculate annual
Parts A and B FFS per capita expenditures for the beneficiaries who
would have been assigned for each of the benchmark years. To minimize
variation from catastrophically large claims, we would truncate an
assigned beneficiary's total annual Parts A and B FFS per capita
expenditures at the 99th percentile as determined for each benchmark
year (for example roughly $100,000 in 2008). We would also truncate an
assigned beneficiary's total annual Parts A and B FFS per capita
expenditures at the 99th percentile as

[[Page 19605]]

determined for each subsequent performance year.
Next, using our Office of the Actuary national Medicare
expenditure data for each of the years making up the benchmark, we
would determine an appropriate growth index and trend them to benchmark
year 3 (BY3) dollars. Our proposed method for trending expenditures is
discussed in section II.F.7.of this proposed rule.
Using health status measures for the beneficiary
population in each of the years making up the benchmark, we would
establish health status indices for each year and adjust so they are
restated to reflect BY3 risk. Our approach to account for health status
is discussed section II.F.3. of this proposed rule.
Next, we would compute a 3-year risk-and growth-trend
adjusted per capita expenditure amount for the patient populations in
each of the 3 benchmark years by combining the initial per capita
expenditures for each year with the respective growth and health status
indices. This yields risk adjusted per capita expenditures for
beneficiaries historically assigned to the ACO in each of the 3 years
used to establish the benchmark stated in BY3 risk and expenditure
amounts.
We propose to weight the most recent year of the
benchmark, BY3 at 60 percent, BY2 at 30 percent and BY1 at 10 percent
so that we can ensure the benchmark reflects more accurately the latest
expenditure and health status of the ACO's assigned beneficiary
population. This weighting allows us to establish lower MSRs since the
weighting results in a more accurate benchmark.
Last, as required by statute, for each performance year we
would update this fixed benchmark by the projected absolute amount of
growth in national per capita expenditures for Parts A and B services
under the original Medicare FFS program using data from our Office of
the Actuary. This approach for updating the benchmark avoids current
law issues associated with Medicare expenditure projections since it
uses the actual claims and expenditure experience for Medicare patients
to calculate the factor used to update the benchmark for purposes of
annual reconciliation. Consistent with the statutory requirement, the
benchmark and its associated computations would only be rebased at the
start of a new agreement period.
As described in section II.C. of this proposed rule, if requested
by the ACO, we are proposing to provide the ACO with aggregated data
and information on beneficiaries that would historically have been
assigned to the ACO and, as a result, have a likelihood of being
assigned during the agreement period.
It is possible that to the extent that an ACO's population or its
composition of ACO providers/suppliers change over time, the assigned
population could diverge from the benchmark population, potentially
affecting the comparability of performance measurement. Modeling the
PGP demonstration data using the proposed primary care based assignment
methodology revealed that assignment of beneficiaries varies from year-
to-year, with about 25 percent of those assigned in one year not being
assigned in the subsequent year (due to relocation, death,
participation in MA, or changes in their choice of care professionals).
This was consistent across organizations participating in the
demonstration which were also geographically diverse. We believe the
approach to establishing the benchmark described previously would
provide a relatively accurate reflection of the average population of
Medicare FFS beneficiaries that receive their care from the ACO
participants during the ACO agreement period. However, because the FFS
population served by the ACO changes from year to year, some of the
beneficiaries whose expenditures would be included in the benchmark
with this approach would not be reflected in the population assigned to
the ACO during the years of the ACO agreement period. It is also
possible that this benchmark approach could provide unwanted incentives
to seek and/or avoid specific beneficiaries during the agreement period
so that average expenditures would more likely be less than for their
historical beneficiaries included in the benchmark. Therefore we also
considered a second option that relies on developing a benchmark based
on the populations of specific beneficiaries who are actually assigned
to the ACO during the agreement period.
c. Option 2
Under this option, for each beneficiary assigned to the ACO during
the agreement period, we would calculate their per capita Parts A and B
FFS expenditures during each of the 3 years immediately preceding the
first year of the agreement period. These amounts would be trended to
the start of the agreement period as was described for Option 1, that
is, since Option 2 also requires risk adjustment, we will adjust the
benchmark for health status using the same prospective CMS-Hierarchal
Condition Category (CMS-HCC) risk adjuster and apply it to calculate
the benchmark in the same manner as described for Option 1.
To meet the statutory requirement to adjust the benchmark for
``beneficiary characteristics'' we would adjust the annual per capita
expenditures to account for changes in health status.
For beneficiaries without 3 full years of immediately-prior
Medicare eligibility (such as beneficiaries who were not 68 in their
first year assigned to the ACO), a further adjustment would be
necessary under this option.
For those beneficiaries with less than one full year of
prior Medicare experience, we would either--
++ Use a substitute for their own expenditures in the update amount
within the benchmark, that is, substitute the average per capita FFS
expenditures for all Medicare beneficiaries during the year they are
first assigned to the ACO, adjusted for health status (as described
later in the document in section 3); or
++ Exclude their experience from the shared savings computations.
For those assigned beneficiaries with more than 12 months
prior Medicare experience but less than 36 months we also have two
choices:
++ Compute a weighted-average (using number of months as the
weight) that blends.

--Their prior expenditure experience and
--The average per capita Parts A and B FFS expenditures for all
Medicare beneficiaries during the year before the first year they are
assigned to the ACO, adjusted for health status; or

++ Use only their prior expenditure experience.
We seek comments about these adjustment approaches and solicit
other approaches we might consider.
After the benchmark is adjusted for beneficiary health status, the
benchmark would also be updated by the applicable projected amount of
growth in national per capita expenditures for Parts A and B services
under the original Medicare FFS program as was described for Option 1.
For the second and third year of the agreement period, we would
make no further adjustments for assigned beneficiaries who were also
assigned in the first year of the ACO agreement period. However, in the
second and third year of the agreement, there will also be newly-
assigned beneficiaries as well as previously-assigned beneficiaries who
are no longer assigned to the ACO. The benchmark would be adjusted to
account for these changes. We would adjust the benchmark by adding the
experience of the newly-assigned beneficiaries (as discussed previously
for the first year) for the 3 years prior to the agreement period, and

[[Page 19606]]

by removing the prior experience of the no-longer assigned
beneficiaries. In the case of a beneficiary who was assigned during the
first year, not assigned during the second year, and then again
assigned during the third year of the ACO's agreement period, the prior
expenditure experience that would be used to adjust the benchmark in
the third year would be the same amount initially used for their first
year of assignment. These adjustments would yield a benchmark for each
ACO that is estimated using beneficiary expenditures for the three
years prior to the agreement period for only those beneficiaries that
were actually assigned to the ACO during that year of the agreement
period.
Additionally, Option 2 would require an adjustment for assigned
beneficiaries who die during an agreement year. We know that
approximately 5 percent of all Medicare beneficiaries die in a single
year, and that their average monthly expenditures are often higher
during this last year of life compared to the immediately preceding
years. For these beneficiaries, the benchmark might therefore not be a
fair basis for comparison with actual expenditures for purposes of
determining shared savings, which could create incentives for ACOs to
avoid assignment of beneficiaries who may be in their last year of life
or treat such beneficiaries differently. This would not be the case for
Option 1 as that benchmark approach would include the average per
capita costs of beneficiaries who died during the benchmark period. We
are therefore considering one of two methods to adjust for this
beneficiary characteristic within Option 2.
Under the first method for adjusting for decedents, we would
propose to exclude the expenditures of deceased beneficiaries from
actual expenditures during the agreement period. We believe this
approach would best avoid concerns about creating incentives for ACOs
to avoid assignment of beneficiaries in their last year of life or
treat such beneficiaries differently. In a second method for adjusting
for decedents, we would compare average expenditures for each deceased
beneficiary during the agreement year to the average expenditures for
beneficiaries included in the benchmark.
If the agreement year's expenditures were 5 percent or
less above the benchmark, we would make no adjustment;
If the agreement year's expenditures were greater than 5
percent above the benchmark, we would need to decide upon an acceptable
method to adjust the accumulated expenditures for deceased
beneficiaries.
Of these two methods for adjusting for decedents during the course
of the performance year under Option 2, our preference is for the first
method. However, we invite comments on both of these methods, and any
others that might be suggested for adjusting for decedents during the
course of the performance year under Option 2.
The second method is intended to address the implications of
changes to an ACO's population over time, but this option would require
additional data adjustments and computations that are not required
under the first method.
However, to the extent that average per capita expenditures for all
beneficiaries differs from the average for the geographic area in which
an ACO operates, the first method previously discussed would
effectively be imputing a value that is likely to be somewhat higher or
lower than would actually be expected for that ACO. Alternatively,
excluding the experience of beneficiaries with less than 1 full year of
experience from the shared savings computations as contemplated in the
second method previously discussed, would reduce the size of an ACO's
beneficiary population, increasing the MSR that would be needed before
an ACO would be eligible to share savings. This could have the effect
of discouraging participation among smaller ACOs, for example, in rural
areas. Likewise, we would expect a similar impact on an ACO's MSR if
deceased beneficiaries were excluded from the shared savings
computations as is previously proposed.
d. Summary
We believe both Option 1 and Option 2 are legally permissible
approaches to setting the expenditure benchmark, adjusting for
beneficiary characteristics, and updating by the projected absolute
amount of growth in national per capita expenditures. We also believe
that both approaches can establish viable benchmarks to measure ACO
performance over time and provide incentives for ACOs to improve their
processes and outcomes during the agreement period.
We are proposing to adopt Option 1 for establishing ACO benchmarks,
but seek comments on the merits and limitations of both options,
particularly with respect to how each approach might affect the
willingness of ACOs or particular types of ACO to participate in the
Shared Savings Program, create incentives for ACOs to seek or avoid
certain kinds of beneficiaries, and impact Medicare expenditures.
Moreover, we will continue to examine the merits and potential effects
of both options over the next several months. If, based on our findings
and the comments received in response to this proposal, we determine
that Option 2 would be a more appropriate method for establishing a
benchmark, we would expect to adopt that option in the final rule.
4. Adjusting the Benchmark and Average per Capita Expenditures for
Beneficiary Characteristics
Section 1899(d)(1)(B)(i) of the Act stipulates that an ACO is
eligible for shared savings ``only if the estimated average per capita
Medicare expenditures under the ACO for Medicare fee-for-service
beneficiaries for Parts A and B services, adjusted for beneficiary
characteristics'' is below the applicable benchmark. Likewise, section
1899(d)(1)(B)(ii) of the Act specifies that the benchmark ``shall be
adjusted for beneficiary characteristics and such other factors as the
Secretary determines appropriate * * *.'' This requirement to adjust
for ``beneficiary characteristics'' implicitly recognizes that, under a
shared savings model, the realization of savings against a benchmark
could be a function of two factors. One factor is reduced expenditure
growth as a result of greater quality and efficiency in the delivery of
health care services. The other factor could be changes in the
characteristics of the beneficiaries who are under the care of the ACO.
Thus, in the absence of risk adjustment, some organizations may realize
savings merely because of treating a patient mix with better health
status than the patient population reflected in the benchmark. On the
other hand, some organizations may share in savings on a risk adjusted
basis but would not have shared in savings if expenditures were not
risk adjusted.
Beneficiary health status can be measured using various tools,
under which beneficiaries are typically assigned ``risk scores'' that
reflect their demographic and diagnostic conditions and offer an
estimate of the relative extent to which they are likely to utilize
medical services compared to other beneficiaries. Performance payments
are a function of the ACO's success in controlling expenditure growth
and changes in the health status of the assigned population, thus they
are sensitive to changes in risk scores. However, an ACO's ability to
share in savings can be affected not only by changes in the health
status of a population but also by changes in coding intensity and
changes in the mix of specialists and other providers within

[[Page 19607]]

an ACO, which in turn could affect the characteristics of its assigned
beneficiary population, relative to the benchmark period. Our goal is
to measure improvements in care delivery of an ACO and to make
appropriate adjustments to reflect the health status of assigned
patients as well as changes in the ACOs organizational structure that
would affect the case mix of assigned patients rather than apparent
changes arising from the manner in which ACO providers/suppliers code
diagnoses. Thus, when applying a risk adjustment model, it is necessary
to guard against changes that result from more specific or
comprehensive coding as opposed to improvements in the coordination and
quality of health care.
The statute clearly calls for the characteristics of the
beneficiaries assigned to an ACO to be taken into account in estimating
both an ACO's benchmark and its expenditures during the agreement
period. This requirement helps to ensure that quality and efficiency in
the delivery of health care services are the basis for realizing and
sharing savings under the Shared Savings Program. Because we want to
create an environment where ACOs are encouraged to effectively
coordinate care for beneficiaries with complex illnesses, and not
create an environment where ACOs have incentive to avoid these types of
beneficiaries, we believe that relative health status is one such
beneficiary characteristic that should be reflected in the calculation
of average per capita expenditures for purposes of both the benchmark
and actual expenditures during the agreement period. We have considered
two basic options for risk adjusting the average per capita
expenditures in order to reflect beneficiary characteristics.
One option is to employ a method that considers only patient
demographic factors, such as age, sex, Medicaid status, and the basis
for Medicare entitlement (that is, age, disability or ESRD), without
incorporating diagnostic information. The second option is to employ a
methodology that incorporates diagnostic information, specifically the
CMS-HCC prospective risk adjustment model that has been used under the
MA program. In addition to demographic variables, the CMS-HCC
prospective risk adjustment model uses beneficiaries' prior year
diagnoses to develop risk scores that are then applied to their current
year expenditures. The model is widely accepted by payers and
providers, and risk scores are annually calculated for all Medicare
beneficiaries by us, so readily available data can be incorporated into
the Shared Savings Program. Additional information on the CMS-HCC model
can be found in the Advance Notice of Methodological Changes for
Calendar Year (CY) 2011 for Medicare Advantage (MA) Capitation Rates,
Part C and Part D Payment Policies and 2011 Call Letter, which can be
found at http://www.cms.gov/MedicareAdvtgSpecRateStats/Downloads/Advance2011.pdf and http://www.cms.gov/MedicareAdvtgSpecRateStats/Downloads/Announcement2011.pdf.
As discussed previously, a key issue when using a risk adjustment
model that incorporates diagnosis data is that risk scores can be
affected not just by changes in the health status of the population but
also by changes in coding intensity and by the mix of specialists and
providers furnishing services. The experience in MA clearly shows that
health plans can significantly increase the HCC score of their
populations by focusing on more complete coding. Similarly, our
experience with the PGP demonstration shows that participating sites
have an incentive to code more fully or intensely because of the
potential impact on performance payments, to provide more accurate
measurement and reporting of quality measures, as well as to provide
for more complete and accurate information that can be used for
population management.
If we adopt a risk adjustment methodology in the Shared Savings
Program that incorporates diagnostic data, we expect that ACOs would
have a similar incentive to code more fully for purposes of population
management, quality reporting and to optimize their risk scores for the
purpose of achieving shared savings. Because they are responsible for
the delivery of care, and can control the information included in Parts
A and B claims, the ACO providers/suppliers could potentially increase
the risk scores for their FFS patients by more completely reporting
diagnoses. The practical effect of increasing risk scores would be to
decrease the actual annual expenditures compared to the benchmark,
because the benchmark would be increased to reflect changes in the
ACO's risk score, while actual expenditures would not change. As a
result, the ACO's chances of demonstrating savings and receiving a
shared savings payment would improve. Behaviors such as these could
allow an ACO to achieve apparent savings by coding changes alone and
without improved methods of beneficiary care.
We have made adjustments to account for the upward trend in risk
scores in other programs. For example, for the MA program we make
adjustments to account for the upward trend in FFS diagnostic coding
and CMS-HCC model changes through normalization factors and coding
intensity adjustments. Another approach to addressing this upward trend
in diagnostic coding would be to incorporate an annual cap in the
amount of risk score growth we would allow for each ACO. One option for
setting the annual cap could be setting a fixed growth percentage for
all ACOs, and any increase in risk score growth above the cap would be
negated. A challenge to this approach would be determining a generally
acceptable sized cap. A second option would be to establish a risk
score for the ACO's assigned population during the agreement period
based on the calculated risk score of beneficiaries who were used to
calculate the ACO's benchmark. This would establish an annual cap, that
is based on experience specific to each individual ACO and would thus
result in an individually calculated cap for each ACO. Yet another
alternative we considered for addressing the upward trend in coding
intensity would be to use a methodology similar to the MA methodology
that would reduce the amount of growth in the risk scores for
beneficiaries assigned to the ACOs, but continue to allow increases.
However, modeling this approach showed that it would reward those
organizations with exceptionally high risk score growth while
penalizing organizations that do not engage in efforts to more
completely and accurately code since their risk score growth could go
negative if they did not code sufficiently intensively.
A model that uses beneficiary demographic factors alone would avoid
this issue, and may be simpler administratively precisely because it
employs a more restricted range of factors. We have therefore also
considered implementing the MA ``new enrollee'' demographic risk
adjustment model. This model includes adjustments for age, sex,
Medicaid enrollment status and originally disabled status. Such a
model, however, would not take into account the health status of the
assigned beneficiaries which could have a particularly adverse effect
on ACOs that include providers and suppliers that typically treat a
comparatively sick beneficiary population, including academic medical
centers and tertiary care centers. Therefore, we are proposing to
adjust Medicare expenditure amounts by employing the CMS-HCC model used
in the MA program.
The CMS-HCC model more accurately predicts health care expenditures
than the demographic-

[[Page 19608]]

only model as it accounts for variation in case complexity and
severity. In addition, incorporating diagnosis data in the risk
adjustment model will encourage ACOs to maintain complete and accurate
medical documentation which could result in better information for
population management, care coordination, and quality improvement. ACOs
will have an incentive to code more completely and accurately, as is
the case with MA plans, and behaviors such as these could allow an ACO
to achieve apparent savings by coding changes alone and without
improved methods of beneficiary care. We do not want to create an
environment that rewards ACOs for achieving apparent savings by coding
changes alone. Additionally, we expect the ACO's average population
risk scores to be stable over time, given that there is stability in
ACO participants and therefore case mix and we will have calculated the
benchmark risk adjustment score for the ACO's historically assigned
beneficiary population under conditions when the ACO providers/
suppliers would not have an incentive to increase coding. As a result,
we believe the benchmark risk adjustment score for the ACO's
historically assigned beneficiary population will be a reasonable
approximation of the actual risk score for the beneficiary population
assigned to the ACO during the agreement period, while avoiding any
distortion due to changes in coding practices. Therefore, we propose to
calculate a single benchmark risk score for each ACO. The same risk
score will then be applied throughout the agreement period to the
annual assigned patient populations per capita expenditures for
assigned beneficiaries. The benchmark risk score will be calculated by
applying the CMS-HCC model to the assigned beneficiary population
attributed in each year of the 3-year benchmark. However, changes in
the assigned beneficiary population risk score from the 3-year
benchmark period during the performance year will not be incorporated.
By not incorporating the effects of changes in coding intensity during
the performance years (versus the benchmark), we will protect the
program from costs due to greater diagnosis coding intensity in ACOs.
We welcome comments on this proposal including comments on
alternative approaches such as using the MA ``new enrollee''
demographic risk adjustment model for risk adjusting in the Shared
Savings Program or applying a coding intensity cap on annual growth in
the risk scores of an ACO's assigned beneficiary population.
We intend to monitor and evaluate the issue of more complete and
accurate coding as we gain experience with the Shared Savings Program,
and would consider making revisions and adaptations to the final risk
adjustment model through future rulemaking if they are warranted.
Further, to assure the appropriateness of ACO coding practices and our
methodology for risk adjusting, we are also proposing to retain our
option to audit ACOs especially those ACOs with high levels of risk
score growth relative to their peers and adjust the risk scores used
for purposes of establishing the 3-year benchmark accordingly. We seek
comment on this proposal.
5. Technical Adjustments to the Benchmark: Impact of IME and DSH
Section 1899(d)(1)(B)(ii) of the Act states that ``Such benchmark
shall be adjusted for beneficiary characteristics and such other
factors as the Secretary determines appropriate * * *.'' Several
factors in the Medicare FFS payment systems can affect an ACO's ability
to realize savings by adjusting payment rates and thus affecting both
expenditures during the benchmark period and each subsequent
performance year. Additionally, changes in these payment factors,
between the benchmark and performance years can also influence whether
an ACO realizes savings or incurs losses under the program.
Teaching hospitals receive additional payment to support medical
education through an indirect medical education (IME) adjustment. In
addition, hospitals that serve a disproportionate share of low-income
beneficiaries also receive additional payments, referred to as the
Medicare disproportionate share hospital (DSH) adjustment. Many
hospitals, especially academic medical centers, receive both these
adjustments, which can provide substantial increases in their Medicare
payments compared to hospitals that do not qualify for these
adjustments. The higher payments provided to these types of hospitals
could provide ACOs with a strong incentive to realize savings simply by
avoiding referrals to hospitals that receive IME and DSH payments.
We have considered whether it would be appropriate to remove IME
and DSH payments or a portion of these payments from the benchmark and
the calculation of actual expenditures for an ACO. However, section
1899(d)(1)(B)(i) of the Act only provides authority to adjust
expenditures in the performance period for beneficiary characteristics
and does not provide authority to adjust for ``other factors''.
Therefore, while we may adjust the benchmark under this provision by
removing IME and DSH payments, we could not also do so in our
calculation of performance year expenditures. If we were to remove IME
and DSH payments from the benchmark, the benchmark would be set
artificially lower relative to the performance period, thus making it
more difficult for an ACO to overcome and achieve savings under this
program. In addition, excluding these payments would result in an
artificial and incomplete representation of actual spending of Medicare
Trust Fund dollars. Further, section 1899(d)(1)(B)(ii) of the Act
requires that we update an ACO's benchmark during each year of the
agreement period based on a national standard (``the projected absolute
amount of growth in national per capita expenditures for parts A and B
under the original Medicare fee-for-service program''), which would
necessarily include the effects of these payments. Additionally, we
believe all relevant Medicare costs should be included in an ACO's
benchmark to maintain sufficient incentives for ACOs to ensure their
assigned beneficiaries receive care in the most appropriate settings.
For example, ACOs that include teaching and/or DSH hospitals in their
network might be more interested in joining the program if we do not
remove these payments from the calculations. This is because including
these payments would result in higher benchmarks against which such
ACOs would work to achieve savings, and such ACOs may be able to earn
back a portion of forgone IME/DSH payments in the form of shared
savings in cases where a referral to a less intensive setting is most
appropriate for the beneficiary.
Thus, we are not proposing to remove IME and DSH payments from the
per capita costs included in the benchmark for an ACO. However, we
invite comments on this issue, especially on how including or excluding
these payments in the benchmark could likely affect access to medically
necessary services provided at teaching/DSH hospitals. We will consider
comments on this issue carefully, and in the light of these comments,
we could adopt a policy in the final rule of adjusting the benchmark
calculation in order to prevent any adverse effects on access to
services at these hospitals.

[[Page 19609]]

6. Technical Adjustments to the Benchmark: Impact of Geographic Payment
Adjustments on the Calculation of the Benchmark
Similarly, another factor in the Medicare FFS payment systems that
could affect an ACO's ability to realize savings is the geographic
payment adjustment (for example, the IPPS wage index adjustments and
the physician fee schedule geographic practice cost index (GPCI)
adjustments) that is generally made to payments under these systems.
These adjustments increase and decrease payments under these systems to
account for the different costs of providing care in different areas of
the country. Further, there have been a number of temporary legislative
adjustments to the wage indexes for various parts of the country during
recent years. In some cases these have been extended on virtually an
annual basis while others have been updated more intermittently. The
timing of these adjustments could result in changes being made during
an ACO's agreement period and between the benchmark and the performance
years, thus influencing an ACO's ability to realize savings under the
program.
As in the case of IME and DSH adjustments, we have considered
removing these geographic payment adjustments from the calculation of
the benchmark and actual expenditures. However, as with IME and DSH
payments, we only have statutory authority under section 1899(d)(1)(B)
of the Act to remove them from the benchmark and thus we cannot remove
them from performance period expenditure calculations. Consistent with
our proposed treatment of IME and DSH payments, we are not proposing to
remove geographic payment adjustments from the calculation of benchmark
expenditures. Again, we welcome comments on this issue and will
especially consider comments on the likely impact of this proposal in
areas that are affected by temporary geographic adjustments. After
consideration of the comments, we could adopt a policy in the final
rule of adjusting the benchmark calculation to remove the effects of
these geographic payment adjustments.
7. Technical Adjustments to the Benchmark: Impact of Bonus Payments and
Penalties on the Calculation of the Benchmark and Actual Expenditures
Medicare bonus payments are available and penalties may be imposed
through value-based purchasing initiatives such as the Physician
Quality Reporting System and the Health Information Technology for
Economic and Clinical Health (HITECH) Act, which encourages hospital
and physician adoption of electronic health records (EHR), and provides
for penalties in subsequent years for those that do not demonstrate
meaningful use of EHR. Incentive payments for programs such as these
can affect actual expenditures and the benchmark, and thus an ACO's
ability to realize savings. For example, an ACO's chances to share in
savings or the level of savings that would be shared with the ACO would
be reduced when an ACO professional or hospital participating in the
ACO fails to receive an incentive payment (or is penalized with a
payment reduction) under one of these programs during a benchmark year
and subsequently receives an incentive payment from that program in an
ACO performance year. This is because, all else being equal-- (1) the
ACO's expenditures in the performance year would be higher than they
would have been in the absence of the incentive; and (2) the ACO's
expenditures during the benchmark year would be relatively lower than
they would have been had an incentive been received. Conversely, an ACO
would be more likely to share in savings if it received an incentive
payment under one of these other programs in a benchmark year and
received no incentive or was penalized during a performance year. As
such, the effect of including these incentive payments in the
calculation of the benchmark and actual expenditures could create
perverse incentives with the result that participation in the Shared
Savings Program has the potential to adversely affect the performance
of providers of services and suppliers with respect to other important
Medicare efforts, such as the value-based purchasing and HITECH
initiatives.
Section 1899(b)(3)(D) of the Act provides authority for the
Secretary to incorporate, as the Secretary determines appropriate, the
reporting requirements and incentive payments related to the Physician
Quality Reporting System, eRx, EHR, and other similar initiatives under
section 1848 of the Act. The statute provides that these incentive
payments ``shall not be taken into consideration when calculating any
payments otherwise made under subsection (d).'' Additionally, we
believe it is important to ensure that these various programs'
incentives are properly aligned so that their interactions support
rather than impede each of the programs' goals.
Thus, consistent with our statutory authority, we are proposing to
exclude Medicare expenditures or savings for incentive payments and
penalties under section 1848 of the Act for value-based purchasing
initiatives such as Physician Quality Reporting System, eRx, and the
EHR incentives for eligible professionals under the HITECH Act from the
computations of both benchmark and actual expenditures during the
agreement period. We believe that excluding these costs and savings
will reduce the chances that incentives that were intended to encourage
and reward participation in one Medicare program would discourage full
participation in another. We seek comments on this proposal.
Section 1899(b)(3)(D) of the Act does not, however, provide
authority for the Secretary to exclude Medicare expenditures or savings
for incentive payments and penalties not under section 1848 of the Act
from benchmark and actual expenditures. Therefore, payments that are
reflected in Part A and B claims for services furnished to assigned FFS
beneficiaries, such as EHR incentive payments to hospitals and the
Hospital Inpatient Value-Based Purchasing Program, which are made under
section 1886 of the Act, and EHR incentive payments to CAHs, which are
made under section 1814 of the Act, (or any incentive payments not made
under section 1848 of the Act) would be counted in both the computation
of actual expenditures and benchmark expenditures for Part A and B
costs.
8. Trending Forward Prior Years' Experience To Obtain an Initial
Benchmark
Section 1899(d)(1)(B)(ii) of the Act requires the use of ``the most
recent 3 years of per-beneficiary expenditures for parts A and B
services'' to estimate a benchmark for each ACO. As the statute
requires the use of historical expenditures, the per capita costs for
each year must be trended forward to current year dollars and then
averaged using the weights previously described to obtain the benchmark
for the first agreement period. This benchmark is subsequently updated
for each year of the agreement period based on the ``projected absolute
amount of growth in national per capita expenditures for parts A and B
services'' under the FFS program as estimated by the Secretary.
a. Flat Dollar vs Growth Rate as a Benchmark Trending Factor
The statute does not specify the trending factor to be used in
estimating the initial benchmark. Typically, prior years would be
increased using a percentage growth factor. We considered two options
for trending forward the most recent 3 years of per

[[Page 19610]]

beneficiary expenditures for Parts A and B services in order to
estimate the benchmark for each ACO. The first option is to trend these
expenditures forward using growth rates in expenditures for Parts A and
B services for FFS beneficiaries. The second option is to trend these
expenditures forward using a flat dollar amount equivalent to the
absolute amount of growth in per capita expenditures for Medicare Parts
A and B under the FFS program.
An advantage of the first option is that the use of a growth rate,
as opposed to a flat dollar amount, would more accurately reflect each
ACO's historical experience. That is, in contrast to a flat dollar
amount, this option would neither raise the bar for ACOs in
historically higher growth rate areas nor lower it for ACOs in lower
growth areas. At the same time, it could be argued that this option
perpetuates current regional differences in medical expenditures. An
advantage of the second option, using the flat dollar amount equivalent
to the absolute amount of growth in per capita expenditures for
Medicare Parts A and B under the FFS program, is that it is more
consistent with the method designated by the under section
1899(d)(1)(B)(ii) of the statute for updating the benchmark (as
described later in this proposed rule) during the agreement period.
This option also provides a stronger incentive for ACO development in
areas with historically lower expenditures and growth rates.
Conversely, potential ACOs in areas with historically higher growth
rates could be reluctant to participate in the program because the
challenge to reduce their growth rate would be greater in these areas
relative to low expenditure, low growth ones.
On balance, we believe that for purposes of establishing an initial
expenditure benchmark, expenditures should be trended forward in a
relatively neutral and comparable way across geographic areas.
Therefore, we are proposing to trend forward the most recent 3 years of
per-beneficiary expenditures using growth rates in per beneficiary
expenditures for Parts A and B services. For example, we would use
2011, 2012 and 2013 claims year data to set the benchmark for an ACO
starting its agreement period in 2014. The 2011 and 2012 data would be
trended forward using the factor described later in this proposed rule
so that all benchmark dollars would be in 2013 dollars. We welcome
comments on this proposal, and especially on whether the other option
that we considered to trend the benchmark by the flat dollar amount
would be more consistent with our proposal to update the benchmark as
specified under section 1899(d)(1)(B)(ii), as discussed in the next
section.
b. National vs Local Growth Rate as a Benchmark Trending Factor
Under the option described previously, we could trend per
beneficiary expenditures forward using national or local growth
factors. Using the national growth rate in Medicare A and B FFS
expenditures would appear to be more consistent with the methodology
that, as specified in section 1899(d)(1)(B)(ii) of the Act incorporates
the absolute amount of growth in per capita expenditures for Medicare
Parts A and B nationwide under the FFS program in updating each ACO's
benchmark. A national growth rate would allow a single growth factor to
be applied to all ACOs regardless of their size or geographic area.
However, a national rate could also disproportionately encourage the
development of ACOs in areas with historical growth rates later in this
proposed rule the national average that would benefit from having a
relatively higher base, which increases the chances for shared saving,
while relatively discouraging development of ACOs in areas with
historically higher growth rates above the national average that would
have a relatively lower base.
In contrast, trending expenditures based on State or local area
growth rates in Medicare A and B expenditures may more accurately
reflect the experience in an ACO area and mitigate differential
incentives for participation based on location. Therefore, we
considered an option to trend the benchmark by the lower of the
national projected growth rate or the State or the local growth rate.
This option would balance providing a more accurate reflection of local
experience with not rewarding historical growth higher than the
average. This method also instills strong saving incentives for ACOs in
both high-cost growth and low-cost growth areas.
After considering both of these alternatives, we are proposing to
employ the national growth rate in Medicare Parts A and B expenditures
for FFS beneficiaries for trending forward the fixed benchmark. We
believe this approach will help to ensure that ACOs in both high
spending, high growth and low spending, low growth areas will have
appropriate incentives to participate in the Shared Savings Program,
while also moving toward establishing a national standard for
calculating and measuring ACO financial performance. We seek comment on
this proposal and on the alternatives to using a national growth rate
as outlined previously.
9. Updating the Benchmark During the Agreement Period
Section 1899(d)(1)(B)(ii) states that the benchmark shall be
``updated by the projected absolute amount of growth in national per
capita expenditures''. We believe that Congress demonstrated an
interest in mitigating some of the regional differences in Medicare
spending among ACOs by requiring the use of a flat dollar amount
equivalent of the absolute amount of growth in national FFS
expenditures to update the benchmark for the agreement period. In
effect, in the second and third years of an agreement period, using a
flat dollar increase, which would be the same for all ACOs, provides a
relatively higher expenditure benchmark for low growth low spending
ACOs and a relatively lower benchmark for high growth high spending
ACOs. All else being equal, an ACO can more likely share in savings
when its actual expenditures are judged against a higher, rather than a
lower benchmark. Thus, with a flat dollar increase to the benchmark,
ACOs in high cost high growth areas must reduce their rate of growth
more to bring their costs more in line with the national average.
However, we also considered our authority under Section 1899(i) for
an alternative option. Specifically, we considered an option to update
the benchmark by the lower of the national projected absolute amount of
growth in national per capita expenditures or the local/State projected
absolute amount of growth in per capita expenditures. Incorporating
more localized growth factors reflects the expenditure and growth
patterns within the geographic area served by ACO participants and ACO
providers/suppliers, potentially providing a more accurate estimate of
the updated benchmark based on the area from which the ACO derives its
patient population. Capping the update at the projected absolute amount
of growth in national per capita expenditures prevents the update from
disproportionately allowing relatively larger dollar-amount updates for
high-spending areas that potentially have a stronger ability to improve
care coordination and efficiency from current levels. Not using the
national flat-dollar update for low-spending, low-growth areas ensures
that the Medicare Shared Savings Program instills strong saving
incentives for ACOs in low-cost areas, as well as for those in high-
cost areas. Also, as noted in section V.C.1. of this proposed rule,
using the national flat-dollar update as specified in section
1899(d)(1)(B)(ii) for all ACOs could contribute to selective

[[Page 19611]]

program participation that could result in Medicare costs due to an
increase in the amount of bonus payments for unearned savings.
In keeping with section 1899(d)(1)(B)(ii) of the Act, we are
proposing to update the benchmark by the projected absolute amount of
growth in national per capita expenditures. We believe this approach
will help to ensure that ACOs in both high spending, high growth and
low spending, low growth areas will have appropriate incentives to
participate in the Shared Savings Program. We seek comment on this
proposal and on the alternative to update by the lower of the national
projected absolute amount of growth in national per capita expenditures
or the local/State projected absolute amount of growth in per capita
expenditures under section 1899(i) of the Act.
10. Minimum Savings Rate (MSR) and Sharing Rate
Section 1899(d)(1)(B)(i) of the Act provides that ``an ACO shall be
eligible to receive payment for shared savings under paragraph (2) only
if the estimated average per capita Medicare expenditures under the ACO
for Medicare fee-for-service beneficiaries for parts A and B services,
adjusted for beneficiary characteristics, is at least the percent
specified by the Secretary below the applicable benchmark * * *.'' That
provision further states that the ``Secretary shall determine the
appropriate percent * * * to account for normal variation in
expenditures under this title, based upon the number of Medicare fee-
for-service beneficiaries assigned to an ACO.'' Section
1899(d)(1)(B)(ii) of the Act provides that, if an ACO has savings in
excess of the MSR and meets the quality standards established by the
Secretary, ``a percent (as determined appropriate by the Secretary) of
the difference between such estimated average per capita Medicare
expenditures in a year, adjusted for beneficiary characteristics, under
the ACO and such benchmark for the ACO may be paid to the ACO as shared
savings and the remainder of such difference shall be retained by the
program under this title.''
A goal of the Shared Savings Program is to use a portion of the
savings (the difference between the ACO's actual expenditures and the
benchmark) to encourage and reward participating ACOs for coordinating
the care for an assigned beneficiary population in a way that controls
the growth in Medicare expenditures for that patient population while
also meeting the established quality performance standards. However,
observed savings can also occur as a result of normal year-to-year
variations in Medicare beneficiaries' claims expenditures in addition
to the ACO's activities. Thus, even if an ACO engages in no activities
to improve the quality and efficiency of the services it delivers, in
certain cases, differences between the benchmark expenditures (updated
according to statute) and assigned patients' expenditures would be
observed during some performance periods merely because of such normal
variation. Consequently, the statute requires us to specify a MSR to
account for the normal variations in expenditures, based upon the
number of Medicare FFS beneficiaries assigned to the ACO. The MSR
should be set in a way that gives us some assurance that the ACO's
performance is a result of its interventions, not normal variation.
However, we also do not want an outcome where savings that have been
earned are not recognized.
Establishing an MSR on the basis of standard inferential statistics
that take into account the size of an ACO's beneficiary population
provides confidence that, once the savings achieved by the ACO exceed
the MSR, the change in expenditures represents actual performance
improvements by the ACO as opposed to normal variations.
Under the PGP demonstration, the MSR was initially set at a flat 2
percent of the benchmark, regardless of number of assigned
beneficiaries, and PGP practices received back 80 percent of the
savings achieved in excess of the MSR. However, in establishing a MSR,
section 1899(d)(1)(b)(i) of the Act calls on us to take into account
``the number of fee-for-service beneficiaries assigned to an ACO.'' As
such, we would need to apply statistical sampling techniques to
determine a MSR based on the number of assigned beneficiaries with some
level of statistical confidence.
The MSR in combination with the savings rate will determine the
amount of shared savings that an ACO can receive. For example, fewer
savings would be shared if the MSR were set at a higher percentage.
Conversely, shared savings would be higher if the MSR were set at a
lower percentage. There are several policy implications associated with
the methodology used to set the MSR. A higher MSR would provide greater
confidence that the shared savings amounts reflect the real quality and
efficiency gains, and offer greater protection to the Medicare Trust
Funds. However, due to the larger barrier to achieve savings, a higher
MSR could also discourage potentially successful ACOs, especially
physician organized ACOs and smaller ACOs in rural areas, from
participating in the program. In contrast, a lower MSR would encourage
more potential ACOs to participate in the program, but would also
provide less confidence that savings are a result of improvements in
quality and efficiency made by an ACO.
We believe that the most appropriate policy concerning
determination of the ``appropriate percent'' for the MSR would achieve
a balance between the advantages of making incentives and rewards
available to successful ACOs and prudent stewardship of the Medicare
Trust Funds. For the one-sided model we are proposing a sliding scale
confidence interval (CI) based on the number of assigned beneficiaries.
The MSR would be established for each ACO based on increasing nominal
confidence intervals for larger ACOs so that an ACO with the minimum
5,000 assigned beneficiaries would have an MSR based on a 90 percent
CI; an ACO with 20,000 assigned beneficiaries would have a MSR based on
a 95 percent CI and an ACO with 50,000 assigned beneficiaries would
have an MSR based on a 99 percent CI. In addition, the MSR would not be
allowed to fall below 2 percent for larger ACOs.
An ACO that exceeds its MSR would be eligible to share up to 50
percent of the savings in the one-sided model (based on quality
performance), as discussed in section II.E. of this proposed rule.
Table 6 displays the minimum savings rate an ACO would have to achieve
before savings could be shared based on the number of its assigned
beneficiaries.
In order to improve the opportunity for groups of solo and small
practices to participate in the Shared Savings Program, we are
proposing to vary confidence intervals by the size of the ACO, which is
determined based on the number of assigned beneficiaries. In response
to our November 17, 2010 RFI, many commenters recognized the prevalence
of solo and small practices and the importance of these providers for
rural areas and for the treatment of specific patient populations, for
example, individuals with mental health and substance abuse disorders
or beneficiaries residing in skill nursing facilities. Many of these
commenters urged us to consider policies and models that encourage the
participation of solo and small practices and to address barriers they
face in forming ACOs such as access to up-front capital to invest in
the infrastructure and resources required to redesign care. One option
that would help accomplish this would be to vary the confidence

[[Page 19612]]

intervals used to establish MSRs so that smaller practices would have
relatively lower MSRs. Conversely, in recognition that they are likely
to be already established, possess prior experience, and thus better
able to achieve savings, larger ACOs would have their MSRs based on a
higher confidence interval, resulting in a relatively higher MSR.
The MSRs are estimated to provide confidence that an ACO with a
given number of beneficiaries and assumed to be of average national
baseline per-capita expenditure and expenditure growth rate would be
unlikely to achieve a shared savings payment by random chance alone. A
specific MSR is a function of both the number of assigned beneficiaries
and a chosen confidence interval. Recognizing the higher uncertainty
regarding expenditures for smaller ACOs and the desire to encourage
participation by smaller ACOs, for the one-sided model, we propose to
set the confidence interval to 90 percent for ACOs of 5,000
beneficiaries, resulting in an MSR of 3.9 percent. For ACOs with 20,000
and 50,000 beneficiaries, we propose to set the confidence interval to
95 percent and 99 percent, respectively, resulting in MSRs of 2.5
percent and 2.2 percent. As ACO size increases from 5,000 to 20,000 (or
similarly from 20,000 to 50,000), we propose blending the MSRs between
the two neighboring confidence intervals, resulting in the MSRs as
shown in Table 6. We specify an MSR at both the high and low end of
each range of ACO population size. A particular ACO would be assigned a
linearly-interpolated MSR given their exact number of beneficiaries.
For example, an ACO with 7,500 beneficiaries would be assigned an MSR
of 3.3 percent because it lies at the midpoint between 7,000 and 7,999
beneficiaries, sizes at which the MSR would be 3.4 percent and 3.2
percent, respectively. For ACOs serving more than 60,000 aligned
beneficiaries, we propose that the MSR would not be allowed to fall
below 2 percent. This lower bound is designed to protect the shared
savings formula from expenditure reduction due to random chance that
can occur in group claims due to factors that persist regardless of a
group's size. This lower bound is also consistent with the flat 2
percent MSR we propose to use in the two-sided model and is the minimum
level that was used in the PGP Demonstration for groups regardless of
size which also provided a lower MSR for smaller physician groups
participating in the demonstration.
We considered using a flat 95 percent confidence interval for
organizations which is a recognized standard for measuring statistical
differences, but as previously noted, because we believe that many
smaller physician-driven and rural ACOs have the potential to improve
the quality and efficiency of care, we were concerned about the impact
on the ability of these ACOs to participate in the Shared Savings
Program. We also wanted to protect the Medicare Trust Funds against
large organizations coming together solely for purposes of aggregating
their number of assigned beneficiaries in order to have smaller MSRs to
be able to achieve the minimum required savings levels and share in
savings with little or no actual improvement in the quality and
efficiency of care provided to beneficiaries.
The proposed confidence intervals were determined assuming that the
variation in the per capita expenditure growth for a particular ACO is
equal to the variation in per capita expenditure growth nationally.
This is not the case for the majority of ACOs, however, as regional
growth rates tend to vary from the national average due to a number of
variables. Therefore, the confidence intervals generated using only the
national expenditure growth variation overstate the relative confidence
associated with an increasing group size. This is compensated for in
two ways: (1) The 2 percent floor; and (2) increasing the confidence
interval as group size increases.
[GRAPHIC] [TIFF OMITTED] TP07AP11.025

[[Page 19613]]

We welcome comments on the most appropriate means to establish the
MSR for an ACO, including the appropriate confidence intervals.
11. Net Sharing Rate
Section 1899(d)(2) calls for us to share ``a percent (as determined
appropriate by the Secretary) of the difference between such estimated
average per capita Medicare expenditures in a year, adjusted for
beneficiary characteristics under the ACO and such benchmark for the
ACO.'' Section 1899(i) of the Act permits the Secretary to consider
other payment models if she determines that they will ``improve the
quality and efficiency of items and services furnished under this
title'' and will not result in additional expenditures. Thus, in
considering the amount of savings ACOs under the one-sided model could
be eligible to receive, we considered several options in addition to
the methodology outlined in section 1899(d)(2) of the Act.
The first option we considered is the one required under section
1899(d)(2) of the Act, which would permit the ACO to share on first
dollar savings once the MSR was exceeded. This option would maximize
the reward that an ACO could realize. This amount could provide
critical financial support for ACOs that serve a smaller population
(for example, less than 10,000 assigned beneficiaries), which may be
physician only and/or predominantly care for underserved populations,
or ACOs whose beneficiaries rely upon safety net providers for care or
ACOs which serve rural areas. However, given the normal variation in
expenditures, we have concerns that sharing on first dollar could
result in sharing on unearned savings rather than on savings achieved
by the ACO for redesigned care processes.
Therefore, we considered another alternative which would be to
limit the amount of savings by requiring ACOs to exceed the MSR and
then share with the ACO only those savings in excess of the MSR. As
discussed in the previous section, one challenge to appropriate sharing
of savings under this program is that observed savings can occur as a
result of normal year-to-year variations in Medicare beneficiaries'
claims expenditures in addition to the ACO's activities. This concern
is heightened in the one-sided model, because absent initial
accountability for losses, ACOs have less motivation to eliminate
unnecessary expenses and may be more likely to be rewarded as a result
of methodological requirements. Sharing only in savings which exceed
the MSR is consistent with the design of the original PGP demonstration
and would reduce the probability that shared savings are earned as a
result of chance or lower pre-existing expenditure trends due to
existing efficiencies, and not newly enhanced care coordination and/or
redesigned delivery of care. Further, such a requirement would
encourage ACOs to strive to generate greater levels of savings.
A third option we considered would be to require all ACOs to exceed
the MSR to be eligible for savings, but only share savings in excess of
a certain threshold. ACOs meeting certain criteria could be exempted
from this provision and be allowed to share in first dollar savings.
This option would balance the need to have assurance that savings are
not a result of random variation with the need to provide critical
financial support for under-funded ACOs, particularly ACOs that serve a
smaller population, safety net providers, or physician-only
participants. Additionally, we have experience with this model through
the PGP demonstration.
We are proposing the third option, that is, we propose that once an
ACO has surpassed its MSR, the ACO would share in savings beyond a
certain threshold. We further propose that, unless exempted, ACOs that
exceed the MSR would be eligible to share in net savings above a 2-
percent threshold, calculated as 2 percent of its benchmark (updated
according to statute). The sharing rate (earned quality performance
sharing rate and additional increases for including FQHCs and/or RHCs)
would be applied to net savings above this 2 percent threshold in order
to determine the shared savings amount. We believe that this threshold
protects the program from sharing unearned savings and helps to ensure
that shared savings are due to enhanced care coordination and quality
of care on the part of the ACO.
As previously discussed, many smaller physician-driven ACOs and
ACOs caring for underserved populations have the potential to improve
the quality and efficiency of care, but may be especially challenged in
accessing capital to meet their needs. We hope to encourage successful
participation by these ACOs in the Shared Savings Program.
Additionally, we acknowledge that providers/suppliers working in these
environments face additional challenges in coordinating care and
creating the infrastructure necessary to create a successful ACO, and
therefore may not be equipped to assume the risk right away (and be
eligible for greater reward) of the two-sided model. As such, we are
proposing that ACOs that meet the following criteria would be exempt
from the 2 percent net savings threshold and would instead share on
first dollar savings under the one-sided model. We propose to exempt
ACOs with less than 10,000 assigned beneficiaries in the most recent
year for which we have complete claims data (for instance, 2012 for
2014 program participation) and that meet one of the following:
The ACO is comprised only of ACO professionals in group
practice arrangements or networks of individual practices of ACO
professionals.
75 percent or more of the ACO's assigned beneficiaries
reside in counties outside a Metropolitan Statistical Area (MSA) in the
most recent year for which we have complete claims data.
50 percent or more of the ACO's assigned beneficiaries
were assigned to the ACO on the basis of primary care services received
from a Method II CAH.
50 percent or more of the beneficiaries assigned to the
ACO had at least one encounter with an ACO participant FQHC and/or RHC
in the most recent year for which we have complete claims data, that
is, the ACO has met criteria for receiving full potential additional
payment as described later in this proposed rule.
We invite comment on these proposals and the other options
considered.
12. Additional Shared Savings Payments for Including FQHCs and/or RHCs
We are also proposing that an ACO in the one-sided model can
receive an increase in its shared savings rate of up to 2.5 percentage
points during the first 2 years of its agreement, for including a
strong FQHC and/or RHC presence within the structure of the ACO. (See
section II.G. of this proposed rule for details surrounding the two-
sided model which provides for a 5 percentage point increase for
including FQHCs or RHCs or both.)
FQHCs and RHCs have long delivered comprehensive, high-quality
primary health care to patients regardless of their ability to pay, and
increase access to health care through innovative models of community-
based, comprehensive primary health care that focus on outreach,
disease prevention, and patient education activities. FQHCs provide
high-quality care to rural and urban populations alike by focusing
attention on improving public health through preventive care in
addition to direct patient care. Not only do health centers provide
critical, high quality primary care in the Nation's neediest areas, but
reports have shown that the

[[Page 19614]]

health center model of care can reduce the use of costlier providers of
care, such as emergency departments and hospitals. Currently, more than
1,100 such health centers operate over 7,900 service delivery sites
that provide care to nearly 19 million patients in every State, the
District of Columbia, Puerto Rico, the U.S. Virgin Islands, and the
Pacific Basin.
Despite serving less healthy and more vulnerable populations,
research indicates that these health centers have achieved considerable
success in increasing access to care, improving health outcomes for
patients, reducing health disparities, and containing health care
costs. For example, regarding FQHCs, data show health center Medicaid
patients were 11 percent less likely to be inappropriately hospitalized
and 19 percent less likely to visit the emergency room inappropriately
than Medicaid beneficiaries who had another provider as their usual
source of care.\15\
---------------------------------------------------------------------------

\15\ Falik M. et al. Comparative Effectiveness of Health Centers
as Regular Source of Care. Journal of Ambulatory Care Management
2006; 29(1): 24-35.
---------------------------------------------------------------------------

RHCs improve access to primary care in underserved rural areas
through the use of interdisciplinary team[middot] based care.
Currently, more than 3,800 such RHCs provide care to more than 1.6
million Medicare beneficiaries throughout the United States. RHCs
provide critical, quality primary care to Medicare beneficiaries and
others most in need in underserved areas. Research has shown that RHCs
not only provide care at costs significantly less than other providers
of care, such as emergency departments and hospitals, but also reduce
use of those providers. Additionally, research on RHCs has shown that:
Among older adults, the presence of an RHC in the county
reduced ambulatory care sensitive (ACS) conditions admission rates,
compared to counties in which an RHC was not present.\16\
---------------------------------------------------------------------------

\16\ Probst, J.C., Laditka, J., and Laditka, S. (2009).
``Community Health Center and Rural Health Clinic Presence
Associated With Lower County-Level Hospitalization Rates for
Ambulatory Care Sensitive Conditions.'' South Carolina Rural Health
Research Center.
---------------------------------------------------------------------------

RHCs offer financially accessible care to low income
individuals; 96 percent of independent RHCs surveyed offer free care,
sliding fee scales, or both.\17\
---------------------------------------------------------------------------

\17\ Hartley, D., Gale, J. Leighton, A. and Bratesman, S.
(2010). ``Are Rural Health Clinics Part of the Rural Safety Net?''
Muskie School of Public Service; Maine Rural Health Research Center.
---------------------------------------------------------------------------

Accordingly, because FQHCs and RHCs are unable to participate
independently in this program, we believe providing incentives to ACOs
that include FQHCs and/or RHCs as ACO participants is in the interest
of the Shared Savings Program as incorporation of these types of
entities will promote care coordination and the delivery of efficient,
high-quality health care. Therefore, we are proposing, for the one-
sided model, up to a 2.5 percentage point increase in the sharing rate
for ACOs that include these entities as ACO participants. We propose
establishing a sliding-scale payment, outlined in the following table,
based on the number of Medicare FFS beneficiaries with one or more
visit at an ACO's participant FQHC or RHC during the performance year.
[GRAPHIC] [TIFF OMITTED] TP07AP11.026

We are also proposing that ACOs specifically identify their FQHC/
RHC participant TINs in their initial and annual reporting of ACO
participant TINs, and disclose other provider identifiers as requested
to assure proper identification of these organizations for the purpose
of awarding the payment preference.
The statutory definition of FQHCs at section 1861(aa)(4) of the Act
includes FQHCs receiving grant support under section 330 of the Public
Health Service Act, so-called FQHC look-a-likes, and outpatient health
programs/facilities operated by tribal organizations. Our regulations
at 42 CFR 405.2401(b) include this statutory definition of FQHCs.
Similarly, Sec. 405.2401(b) reflects the statutory definition of RHCs
in section 1861(aa)(2) of the Act. We therefore propose to define FQHCs
and RHCs, for the purpose of awarding this payment preference, as these
terms are defined in Sec. 405.2401(b) of our regulations. We seek
comments on alternate options for establishing a payment preference
with sliding scale for ACOs that include FQHCs or RHCs as ACO
participants, including suggestions for the appropriate method to
measure FQHC/RHC involvement and the appropriate level of incentives.
We are also interested in encouraging providers who serve a large
portion of dual eligible beneficiaries to participate in the Medicare
Shared Savings Program. Medicare beneficiaries who are also eligible
for Medicaid--that is, are ``dually eligible'' for these programs--are
among the most vulnerable of Medicare beneficiaries. Dual eligible
beneficiaries tend to have higher medical costs than other fee-for-
service beneficiaries, and, as a result, are expected to benefit even
more than other beneficiaries from improvements in the quality and
efficiency of their care resulting from the greater care coordination
offered by an ACO. The Affordable Care Act recognizes the unique status
of dual eligible beneficiaries and includes several provisions to
address their special

[[Page 19615]]

needs. For instance, section 2602 of the Affordable Care Act
established a Federal Coordinated Health Care Office within CMS to
bring together officers and employees of the Medicare and Medicaid
programs at CMS to: (1) more effectively integrate benefits under the
Medicare and Medicaid programs; and (2) improve the coordination
between the Federal government and States for individuals eligible for
benefits under both such programs in order to ensure that these
individuals receive full access to the items and services to which they
are entitled under titles XVIII and XIX of the Act.
Additionally section 1899(j) of the Act provides that ``[t]he
Secretary may give preference to ACOs who are participating in similar
arrangements with other payers.'' The statute prescribes neither the
kind of preference that the Secretary should provide to such ACOs nor
what other types of arrangements should be considered ``similar'' for
purposes of such a preference. We believe that the more patients an ACO
sees for which it is eligible to receive performance-based incentives,
such as shared savings, the more likely it is that the ACO will adopt
substantial behavior changes conducive to improved quality and cost
savings.
We are seeking comment on methods to provide preference to ACOs
that serve a large dual-eligible population or that enter and maintain
similar arrangements with other payers. Specifically we seek comment
regarding suggestions to encourage accountability for dual-eligible
beneficiaries and participation in similar arrangements with other
types of payers.
13. Withholding Performance Payments To Offset Future Losses
Over the course of the program, an ACO may earn performance
payments in some years and incur losses in other years. The issue is
whether the full amount of shared savings payments should be paid in
the year they are accrued, or whether some portion should be withheld
to offset potential future losses. For example, under the PGP
demonstration, a flat 25 percent withhold applied to annual earned
performance payments to guard against losses in future years as well as
to provide an incentive for PGPs to continue in the demonstration since
the withhold was only released at the end of the demonstration period
or when the PGPs were rebased. Under the two-sided model discussed in
section II.G. of this proposed rule, we propose that an ACO may use a
withhold of their earned shared savings payment as one option for
demonstrating an adequate repayment mechanism in the event they incur
shareable losses. As discussed in sections II.B. and II.I. of this
proposed rule, we believe the requirement that ACOs be willing to
commit to a 3-year agreement to participate in the Shared Savings
Program is necessary to ensure that the program achieves its long-term
goal of redesigning health care processes, and our proposal here
furthers that intent. Since we want to encourage ACOs to participate
for all 3 years of their agreements, protect the Medicare program
against losses, and ensure ACOs have an adequate repayment mechanism in
the event they incur losses under either the one-sided or two-sided
model, we are proposing a flat 25 percent withholding rate will be
applied annually to any earned performance payment. Under the two-sided
model as discussed in Section II.G. of this proposed rule, we propose
that an ACO may withhold an additional portion of its earned
performance payment as a mechanism to demonstrate an adequate repayment
mechanism in the event they incur shareable losses. Furthermore, we
propose that at the end of each agreement period, positive balances
will be returned to the ACO. However, if the ACO does not complete its
3-year agreement, the ACO would forfeit any savings withheld.
14. Performance Payment Limit
Section 1899(d)(2) of the Act requires the Secretary to ``establish
limits on the total amount of shared savings that may be paid to an ACO
* * *.'' Therefore, we must propose the maximum performance payment an
ACO may receive in any given performance year in this proposed rule. In
determining what would constitute an appropriate limit, we believe that
it should provide a significant opportunity for ACOs to receive shared
savings generated from quality improvements and better coordination and
management of Part A and B services, while avoiding creating incentives
for excessive reductions in utilization which could be harmful to
beneficiaries. Under the PGP demonstration, the limit was set at 5
percent of the organization's Part A and Part B expenditure target.
For purposes of the Shared Savings Program, we considered an option
to vary the performance payment limit by the readiness of the ACO to
take on greater responsibility and risk. ACOs seeking to participate in
the Shared Savings Program will vary with respect to their readiness to
function under a risk model with respect to their organizational and
systems capacity and structure. Accordingly, some ACOs might more
quickly be able to demonstrate quality improvements and savings than
will others. Applying differential payment limits based on an ACO's
readiness to take on risk could be another means to encourage and
reward successful ACO participation.
In light of our experience with the PGP demonstration, we
considered a limit of 5 percent. We also considered whether a higher
limit, such as 10 percent or 15 percent, would be appropriate to
provide an even stronger incentive for ACOs to develop the quality and
efficiency improvements that could result in greater shared savings.
Depending on an ACO's composition, shared savings payments under such
higher limits could represent an even larger portion of Medicare
payments to ACO participants for care furnished to assigned
beneficiaries since the cap is a percentage of the ACO's benchmark for
Medicare Part A and B expenditures for assigned beneficiaries, which
reflects all care furnished to those beneficiaries, regardless of
whether it was provided in the ACO. For example, an ACO that does not
include a hospital would have the opportunity to realize a relatively
higher proportion of shared savings as a percentage of its Medicare
revenue by reducing Part A expenditures for its assigned beneficiaries.
However, opportunities to earn greater savings could also raise
questions about whether the quality of care is improving, which is a
goal as important as achieving savings in the Shared Savings Program.
Providing an incentive for ACOs to invest to improve quality and
efficiency of care needs to be balanced against providing an overly
large incentive where an ACO may be encouraged to generate savings
resulting from inappropriate limitations on necessary care. A higher
cap on total shared savings could provide such an incentive to limit
care. While all ACOs may have this incentive to some degree, ACOs
without Part A providers could have greater incentive to do so,
depending on where the cap is established.
A lower limit, such as the 5 percent limit under the PGP
demonstration, would reward ACOs for improving quality and efficiency
and potentially generate more savings for the Medicare program without
creating incentives to limit care that is appropriate and necessary. On
the other hand, a lower limit might be an insufficient incentive for
some potential ACOs to participate in the program. In contrast, a
higher percentage limit, such as 10 or 15 percent of an ACO's Part A
and B expenditure benchmark, would provide

[[Page 19616]]

greater incentives for organizations to participate in the program and
to achieve the quality and efficiency gains that are the goals of the
Shared Savings Program. Many health care researchers believe that the
rate of unnecessary health care is more than the approximate 10 percent
which would be implied by establishing a 5 percent cap on ACO shared
savings. (Since the maximum shared savings potentially realized by an
ACO under the one-sided model is 52.5 percent, a 7.5-percent limit on
the ACO share implies an expectation that overall savings may be as
high as approximately 14 percent; a 10-percent limit implies a savings
expectation of approximately 19 percent.) On the other hand, such a
higher limit may provide some incentive for ACO providers/suppliers to
reduce utilization inappropriately, which could potentially be harmful
to beneficiaries
We believe that the considerations in favor of both a lower (for
example, 5 percent) and a higher (for example, 10 percent) limitation
on shared savings with an ACO have merit. Accordingly we are proposing
to establish the payment limit at 7.5 percent of an ACO's benchmark for
the first 2 years of the agreement under the one-sided model. Following
suggestions by MedPAC, in order to encourage ACOs to assume risk and
participate in the two-sided model, as described in section II.G. of
this proposed rule, we are proposing, for the two-sided model, to
establish the payment limit at 10 percent of an ACO's benchmark for
those ACOs that either elect the two-sided model initially for all 3
years or are transitioned from the one-sided model during the third
year of their agreement period. (Since the maximum shared savings
potentially realized by an ACO under the two-sided model is 65 percent,
a 10-percent limit on the ACO share implies an expectation that overall
savings may be as high as approximately 15 percent). We are soliciting
comments on these proposed payment limits and on whether a higher
limit--for example, 10 percent for all ACOs--would be more appropriate
in the light of the considerations discussed previously and other
considerations that commenters may wish to raise. We also seek comments
on whether differential limits should be established based on an ACO's
readiness, as discussed previously, including the criteria we would
apply and the methods by which we would assess readiness and how
differential limits should be structured. We will consider this
information and the implications for a differential cap based on ACO
readiness in future rulemaking cycles.
Regardless of what limit is adopted in the final rule, we plan to
monitor beneficiary access and utilization of services, and the
potential contribution of the performance limit to any inappropriate
reductions in services. Our proposals related to monitoring and
addressing ACO performance can be found in Section II.H. of this
proposed rule. Furthermore, as we gain more experience with the Shared
Savings Program and are able to evaluate how well the incentive
structure under the Shared Savings Program is operating to generate
greater quality and efficiency without inappropriately reducing
utilization of services, we may undertake additional rulemaking to
revise the performance payment limits we establish in the final rule.

G. Two-Sided Model

Section 1899 of the Act implements a voluntary program that
provides incentives for group of providers of services and suppliers to
work together to improve the quality and efficiency of care for a FFS
beneficiary population in exchange for a share in any savings generated
from their effort. Section 1899(i) of the Act authorizes the Secretary
to use other payment models in addition to the shared savings model
outlined in section 1899(d) of the Act under which we only share
savings with ACOs. This provision authorizes the Secretary to select a
partial capitation model or any other payment model that the Secretary
determines would improve the quality and efficiency of items and
services furnished to Medicare fee-for-service beneficiaries. In
addition, section 1115A of the Act, as amended by 3021 of the
Affordable Care Act, authorizes the Center for Medicare and Medicaid
Innovation (Innovation Center) to test innovative payment and service
delivery models, which could include alternative ACO payment models.
In the November 17, 2010 Federal Register, we solicited public
comment on a number of issues including the types of alternative
payment models we should consider in addition to the model laid out in
section 1899(d) of the Act, either in the Shared Savings Program under
the authority provided in 1899(i) of the Act or using the Innovation
Center authority under section 1115A of the Act. We further asked about
the relative advantages and disadvantages of any such payment models.
Most comments received in response to this question favored our use
of alternative payment models. A number of commenters suggested risk-
based models such as partial capitation (an up-front fixed dollar
amount for a sub-set of Medicare services rendered by a provider per
beneficiary per period of time) or global payment (an up-front fixed
dollar amount for all Medicare-covered services required per
beneficiary per period of time). Commenters proposed both one-sided
shared savings models (to ease providers of services and suppliers into
this payment model) and models that would allow ACOs to share in
savings and be held accountable for losses (two-sided models).
Taking these comments into account, we are proposing that ACOs
could elect the two-sided model for their initial agreement period, to
become accountable for losses and in order to be eligible for higher
sharing rates than would be available under the one-sided model,
beginning in their first performance year. In addition, we are also
proposing that ACOs that initially elect the one-sided model would be
reconciled annually for the first 2 years of the 3-year agreement using
the one-sided model and automatically transitioned to the two-sided
model for the third year of their agreement. This approach gives ACOs
an option of two tracks for their initial agreement period, thereby
providing an opportunity for organizations more experienced with care
coordination and risk models, that are ready to accept risk to enter a
sharing arrangement that provides greater reward for greater
responsibility in year 1, while also providing an entry point for
organizations with less experience with risk models, such as some
physician-driven organizations or smaller ACOs, to gain experience with
population management before transitioning to more risk.
1. Risk-Based Payment Models
In section II.F of this proposed rule, we describe in detail the
one-sided model, under which ACOs share in savings but are not
accountable for repaying any losses if actual expenditures exceed the
benchmark. While we believe this model holds promise for creating
substantial improvement in quality and cost, many commenters on the
November 17, 2010 RFI, and other stakeholders urged us to include risk-
based arrangements where ACOs would also be accountable for downside
risk. Policy experts have also suggested that incorporating downside
risk-based models into the Shared Savings Program would provide a
stronger lever than a one-sided model for encouraging ACOs to achieve

[[Page 19617]]

efficiencies and attain the program's transformative goals.\18\
---------------------------------------------------------------------------

\18\ See e.g., Robert A. Berenson, ``Shared Savings Program for
Accountable Care Organizations: A Bridge to Nowhere?'' The American
Journal of Managed Care, Vol 16, No. 10 (October 2010).
---------------------------------------------------------------------------

Risk-based arrangements may take many forms. Two models considered
for inclusion in the Shared Savings Program were two-sided risk
arrangements (shared savings and losses) and partial capitation. Real-
world examples of these models vary widely, according to the terms of
specific provider-payer initiatives they encompass. Partial capitation
refers to a payment system that incorporates elements of both
capitation and FFS. Section 1899(i) of the Act defines partial
capitation as a model ``* * * in which an ACO is at financial risk for
some, but not all, of the items and services covered under Parts A and
B, such as at risk for some or all physicians' services or all items
and services under Part B.'' Our intent is to design and test partial
capitation models in the Innovation Center first in order to gain more
experience, introduce them to providers of services and suppliers, and
refine them before adopting them more widely in the Shared Savings
Program.
In a two-sided model based around FFS within the Shared Savings
Program, ACOs would accept the downside risk for losses once the
minimum loss rate is exceeded (the equivalent of the minimum savings
rate that must be exceeded in order to share in savings under the
Shared Savings Program). ACOs' exposure to downside risk could also be
limited by the creation of risk corridors that establish a maximum
shared loss cap. We are proposing to make available a two-sided model
in the Shared Savings Program to foster ACOs' accountability for
greater risk with a greater opportunity for reward. ACOs may elect to
enter the one-sided model (Track 1) or elect the two-sided model (Track
2). An ACO that elects Track 1 would automatically be transitioned to
the two-sided model for the third year of its agreement. Thus, in the
third year of the ACO's agreement under Track 1, the methodology used
to reconcile ACOs under the first year of the two-sided model would
apply except ACOs must meet the quality performance standard that
applies in the third year (as opposed to the first year standard of
full and accurate reporting). A key attribute of FFS is beneficiary
freedom of choice to choose any provider they wish which will be
maintained under both the one-sided and two-sided models.
There are pros and cons of risk-based arrangements. Providers of
services and suppliers engaged in a risk-based payment arrangement,
compared to a one-sided shared savings structure, have a stronger
incentive to control spending and achieve efficiencies. This is
consistent with the antitrust perspective that participants in
financially integrated organizations have the incentive to cooperate in
controlling costs and improving quality by managing the provision of
services; such that to demonstrate financial integration, participants
in a collaboration must share substantial financial risk, as discussed
in section II.B of this proposed rule. Risk-based arrangements offer
payers a chance to control spending, either through the recoupment of
excess expenditures (losses) in two-sided risk arrangements, or through
capitated payments. However, since providers of services and suppliers
have an increased motivation to control spending and achieve
efficiencies under a risk-based model, it would be reasonable to
anticipate an increase in negative incentives such as incentives to
stint on care or undersupply services, shift costs (for instance
through changes in referral patterns), as well as increased incentives
for providers of services and suppliers to avoid at risk beneficiaries.
In the 1990's, California providers' willingness to take risk led to
the rapid expansion and failure of many under-capitalized risk-bearing
physician organizations. This experience illustrates that risk-bearing
arrangements have broad implications for provider relationships (namely
leading to the integration of providers through mergers and
acquisitions); the financial solvency of provider organizations and
therefore the stability of health care markets and patients' access to
care; as well as leverage between providers and private payers.\19\ For
these reasons, risk-based arrangements require greater assurance of
providers' financial solvency in order to repay Medicare for excess
expenditures that may be incurred, as well as greater beneficiary
protections, for example by heightened monitoring to detect
inappropriate short-cutting of care and avoidance of at-risk
beneficiaries. In addition, proper safeguards may be needed to address
the risk of conduct violating fraud and abuse laws.
---------------------------------------------------------------------------

\19\ See Robert A. Berenson, Paul B. Ginsburg and Nicole Kemper,
``Unchecked Provider Clout in California Foreshadows Challenges To
Health Reform'' Health Affairs, April 2010; James C. Robinson & Emma
L. Dolan, ``Accountable Care Organizations in California: Lessons
for the National Debate on Delivery System Reform'' Integrated
Healthcare Association, White Paper (2010).
---------------------------------------------------------------------------

Incorporation of downside risk into the Shared Savings Program,
while retaining a FFS base, has been encouraged by commenters on the
November 17, 2010 RFI (including MedPAC), other stakeholders and policy
experts as an entry point for moving ACOs to risk-based arrangements.
MedPAC suggested offering a two-sided risk model in addition to the
one-sided model, and over time, making the two-sided model the dominant
or only option available to program participants. Further, to encourage
ACOs to participate in the two-sided model, MedPAC recommended that it
could be distinguished from the one-sided model by features such as a
larger share of savings and risk corridors to protect ACOs from high
levels of losses.\20\
---------------------------------------------------------------------------

\20\ Letter from Glenn M. Hackbarth, Chairman MedPAC, to Dr.
Donald M. Berwick, Administrator, Centers for Medicare and Medicaid
Services, November 22, 2010 (File Code CMS-1345-NC).
---------------------------------------------------------------------------

A relevant example of a two-sided risk arrangement in a FFS setting
is Blue Cross Blue Shield of Massachusetts' (BCBSMA) Alternative
Quality Contract, an initiative that engages groups of providers for
HMO or PPO beneficiaries. Under this contract, providers continue to be
paid on a FFS basis. Each group's yearly expenditures are compared
against a predetermined global budget, factoring in the level of risk
the group has agreed to take on; the group is paid any surplus or
repays BCBSMA for any deficit. Groups can earn bonuses based on quality
performance targets, and achieved savings, and also earn significant
quality bonuses.\21\
---------------------------------------------------------------------------

\21\ Michael E. Chernew et al. ``Private-Payer Innovation In
Massachusetts: The `Alternative Quality Contract' '' Health Affairs
(January 2011).
---------------------------------------------------------------------------

Given these considerations, we believe payment models where ACOs
bear a degree of financial risk hold the potential to induce more
meaningful systematic change in the behavior of groups of providers of
services and suppliers compared to a one-sided model. We propose to
develop an option for an ACO to either enter into a two-sided model
within the Shared Savings Program initially or enter into the one-sided
model within the Shared Savings Program initially and be transitioned
to the two-sided model in year 3 of its initial 3-year agreement. We
believe this proposal strikes a balance between stakeholders' requests
for risk-based arrangements with the implications for beneficiary
protections and market stability posed by capitated models and the
operational complexity of creating

[[Page 19618]]

these arrangements in a FFS environment. As we develop experience with
other risk-based models, for example through the Innovation Center, we
expect to consider incorporating additional payment models into the
Shared Savings Program through future rule making.
2. Two Tracks Provide Incremental Approach to Incorporating Risk
We considered several options about how to incorporate a two-sided
model into the Shared Savings Program. The major options we considered
are as follows:
Basing the program on a two-sided model, thereby requiring
all participants to accept risk from the first program year.
Allowing applicants to choose between program tracks,
either a one-sided model or two-sided model, for the duration of the
agreement.
Allowing a choice of tracks, but requiring ACOs electing
the one-sided model to transition to the two-sided model during their
initial agreement period.
Requiring all ACOs to initially take downside risk would likely
inhibit the participation of some interested entities. Potential Shared
Savings Program applicants will likely include providers and suppliers
with different levels of experience with risk-based payment
arrangements and with different levels of financial footing, reflecting
the heterogeneity of providers and suppliers and provider arrangements
that exist in the nation's health care system. The comments on the
November 17, 2010 RFI reflect this diversity, but in sum, favored our
adoption of a flexible approach that recognizes the different levels of
ACOs' readiness to take on risk. For instance, organizations
experienced with integrated care and risk-based arrangements, with
available financial reserves, may be ready and willing to accept risk
beginning in the first program year. Others urged against program
requirements which could preclude small/solo practices and safety net
providers, from entering the Shared Savings Program. These comments
underscored the scenario in which ACOs, otherwise capable of meeting
the program's requirements, may initially lack the experience and
capital to accept significant downside risk.
However, allowing ACOs to choose from either a one-sided model or a
two-sided model also creates some concerns. Some ACOs capable of taking
risk may take advantage of the option that allows for gain by realizing
savings without any risk for incurring added costs. We believe it
important that all Shared Savings Program participants quickly move to
taking on downside risk. We believe that payment models where ACOs bear
a degree of financial risk have the potential to induce more meaningful
systematic change in providers' and suppliers' behavior. Additionally,
by introducing a risk model, we believe we will elicit applicants to
the program who are more serious about their commitment to achieving
the program's goals around accountability for the care of Medicare
beneficiaries and the three-part aim of enhancing the quality of health
care, improving patient satisfaction with their care, and better
controlling the growth in health care costs.
We propose that applicants will have the option of choosing between
a one-sided model and a two-sided model initially. Under Track 1, ACOs
enter the program under the one-sided model and must transition to the
two-sided model for the third year of their initial agreement period.
Thereafter, those ACOs can only participate under the two-sided model
for any subsequent agreement periods. Alternatively, under Track 2, an
ACO may enter the two-sided model option immediately for a full 3-year
agreement period. Those ACOs must also participate in the two-sided
model thereafter in subsequent agreement periods. Thus an ACO may only
participate for a maximum of two years under the one-sided model,
during its first agreement period, before it must transition and
participate thereafter in the Shared Savings Program under the two-
sided model. We believe that this approach addresses the concerns we
have identified. Incorporating both a one-sided and two-sided model
into the Shared Savings Program provides a path forward for diverse
organizations to gain experience with redesigning care processes and
assuming accountability for the quality of care and financial outcomes
of the populations they serve. Requiring those who enter the program on
Track 1 to migrate to the two-sided model encourages organizations to
take on greater risk with the opportunity for greater reward. We invite
comments on this proposal and other options for incorporating a two-
sided model into the Shared Savings Program, including mechanisms for
transitioning ACOs to two-sided risk arrangements.
3. Elements of the Two-Sided Model
In developing the elements of a two-sided model under the Shared
Savings Program, we propose to employ, as feasible and appropriate, the
elements of the one-sided model that we have described in detail in the
rest of this proposed rule. At the same time, it will be necessary to
develop some policies for the two-sided model that would not be
necessary under a one-sided model, for example, a methodology for
determining shared losses. In addition, we believe that it is also
appropriate to adapt some of the elements of the one-sided model to the
somewhat different circumstances and incentives under which ACOs
sharing two-sided risk would operate. Specifically, in light of the
greater potential for a two-sided model to bring about positive changes
in the operation of the FFS system by improving both the quality and
efficiency of medical practice, we believe that it is both appropriate
and essential to provide greater incentives for organizations that
participate in the two-sided model. For example, as we describe below,
we believe that it is appropriate to provide a higher shared savings
rate for organizations participating in the Shared Savings Program
under the two-sided model than for those organizations participating
under the one-sided model.
In the discussion that follows, it can be assumed that the features
of the one-sided model we have proposed in this rule would also apply
under the two-sided model, unless we specifically state otherwise. In
general, we are proposing the same eligibility requirements and
methodologies for the two-sided model as we have proposed for the one-
sided model. That is, we propose to use the same eligibility criteria,
beneficiary assignment methodology, benchmark and update methodology,
quality performance standards, data reporting requirements, data-
sharing provisions, monitoring for avoidance of at-risk beneficiaries,
and transparency requirements under the two-sided model that we have
described under the one-sided model. However, as we discuss below, we
are adding some requirements in order to provide further assurance
about the ability of an ACO which will be operating under the two-sided
model to repay the Medicare program in the case of incurred losses.
The following table provides a summary comparison of the program's
two models:
BILLING CODE 4120-01-P

[[Page 19619]]

[GRAPHIC] [TIFF OMITTED] TP07AP11.027

BILLING CODE 4120-01-C
a. Beneficiary Notification and Protections
Because we believe participants in risk models have an increased
incentive to lower costs, we also recognize there may also be an
increased incentive for ACOs to avoid at-risk beneficiaries. We believe
that the monitoring procedures that we are proposing as discussed in
section II.H. of this proposed rule, in combination with our proposed
use of a retrospective beneficiary assignment methodology and proposed
beneficiary notification requirements, are sufficient to guard against
the prospects that two-sided model ACOs might try to avoid at-risk
beneficiaries in order to minimize the possibilities of realizing
losses against their benchmarks. However, we invite comments on the
sufficiency of these proposed monitoring procedures as well as
additional areas and mechanisms for monitoring two-sided model ACOs.
b. Eligibility Requirements
We believe the eligibility requirements for ACOs we are proposing
for the one-sided model, as discussed in section II.B. of this proposed
rule, in combination with the proposed requirement that ACOs entering
the two-sided model receive our approval of their repayment

[[Page 19620]]

mechanisms, are sufficient to ensure the ability of ACOs to pay CMS in
the event they incur losses. We invite comments on whether additional
eligibility requirements are necessary for ensuring that ACOs entering
the two-sided model would be capable of repaying us if actual
expenditures exceed their benchmark.
c. Quality Performance Measurement and Scoring
We believe that the comprehensive quality performance standards
that we have proposed for the one-sided model are also appropriate for
the two-sided model. However, it is worth emphasizing in this context
that we place great importance on the quality aspects of the Shared
Savings Program, and that the quality standards take on even greater
importance for ensuring high quality of care for beneficiaries since we
are proposing to incorporate a requirement that all ACOs participating
in the Shared Savings Program accept risk either beginning in year 1 or
year 3 of their initial agreement period. Therefore, in order to
provide greater incentives for organizations to participate under the
two-sided model, we are proposing higher shared savings rates under the
two-sided model. Specifically, we are proposing a sharing rate of up to
60 percent (based on quality performance) under this model, compared to
a sharing rate of up to 50 percent under the one-sided model, as
discussed in section II.E. of this proposed rule. We propose that each
of the 5 quality measure domains in Table 2 would continue to be
equally weighted. Thus, each domain would be worth 12 percent of the
savings generated by the ACO. That is, 5 domains x 12 percent equals 60
percent of the total savings generated by the ACO. Under this model,
high performers in quality scoring would continue to earn more than
lower quality performers. As discussed in section II.E. of the proposed
rule, Table 3 illustrates our proposed sliding scale for determining
points earned for each measure; we are proposing that under the two-
sided model ACOs, like one-sided model ACOs, could earn a maximum of 2
points per measure.
As discussed in section II.E. of this proposed rule, the quality
performance standard for the first year of the Shared Savings Program
will be set at full and accurate reporting. For the purposes of
determining the shared savings rate for Track 2 ACOs, ACOs which meet
this standard will obtain the maximum savings rate for quality
performance (60 percent). As previously proposed, under Track 1, ACOs
will be reconciled using the methodology under the one-sided model for
the first and second year of the agreement. In the third year of the
ACO's agreement under Track 1, the methodology used to reconcile ACOs
under the first year of the two-sided model would apply for payment
purposes. With respect to the quality performance standard, Track 1
ACOs in the third year of their agreement must meet the quality
performance standard that applies in the third program year, as opposed
to the first year standard of full and accurate reporting.
We considered a number of alternatives to incorporating features
that mirror the quality performance standard proposed for the one-sided
model into determining the shared savings and shared losses under the
two-sided model. That is, as proposed, under the two-sided model ACOs
could increase their share of savings or decrease their amount of
losses with higher quality scores. Alternatives track to the options
considered for establishing the quality performance standard discussed
in section II.E. of this proposed rule. An alternative is to take a
threshold approach to measuring quality performance for the purpose of
determining the amount of shared savings or losses. A third option is
to use a blend of these two options, by allowing ACOs to increase their
share of savings with higher quality scores but use a threshold
approach when calculating losses, so that higher quality does not
reduce an ACO's share of any losses. We seek comment on these alternate
approaches.
d. Shared Savings Methodology
As discussed in Section II.F. of this proposed rule, we are
proposing that ACOs choosing to participate in the one-sided model
could share savings if they exceed a minimum savings rate (MSR). For
those ACOs whose savings exceed the MSR in the one-sided model, we are
proposing a savings sharing rate of up to 50 percent of total savings,
above a 2 percent savings threshold, with a payment cap of 7.5 percent
of an ACO's benchmark. We are also proposing an additional increase of
up to 2.5 percentage points for including FQHCs and/or RHCs as ACO
participants, as discussed in section II.F of this proposed rule. Thus,
under our proposal, an ACO participating in the one-sided model could
realize a maximum shared savings rate of 52.5 percent.
For purposes of the two-sided model, we are proposing to adopt the
same methodology for determining shared savings, with some changes and
incentives outlined below. In comparison to the one-sided model, the
ACOs participating in the two-sided model would: (1) Have increased
incentive payments for the same quality performance and including FQHCs
and/or RHCs as ACO participants; (2) would be subject to a fixed
minimum savings rate and minimum loss rate of 2 percent and would share
in gross savings once the MSR is exceeded; and (3) would be responsible
for a portion of the excess expenditures above the benchmark based on
their quality performance and inclusion of FQHCs and/or RHCs. ACOs with
excess expenditures within the minimum loss rate would not be
responsible for repaying Medicare. ACOs with expenditures exceeding the
minimum loss rate would be responsible for paying excess expenditures
calculated by multiplying the amount of excess above the benchmark by
one minus the final sharing rate. The final sharing rate is defined as
the quality performance sharing rate plus the percentage points for
including FQHCs and/or RHCs as ACO participants. ACOs would be
responsible for paying the percentage of excess expenditures up to the
annual loss cap which is measured as a percentage of the benchmark: 5
percent, 7.5 percent and 10 percent respectively across the first 3
years for Track 2 ACOs; an ACO in Track 1 who has entered the third
year of its initial agreement period would be liable for an amount not
to exceed the percentage of the first year of the two-sided model, that
is, it would not exceed 5 percent.
(1) Minimum Savings Rate
We believe that the MSR remains important under the two-sided model
to guard against normal variation in costs, so that ACOs share savings
or losses with the program only under those circumstances in which we
can be confident that such savings or losses are the result of the
ACO's behavior rather than normal variation. At the same time, we
believe that it is more appropriate to employ a fixed minimum savings
rate under this model. First, the greater predictability of a fixed
minimum savings rate is more likely to attract organizations to
participate under this model. Second, greater protection to the
Medicare trust fund is afforded by ACOs accepting the risk of paying
Medicare back for losses. Therefore, based on our experience with the
Physician Group Practice demonstration and consistent with the lowest
applicable MSR under the one-sided model, we are proposing to adopt a
fixed 2 percent MSR for organizations operating under this model, in
place of the variable

[[Page 19621]]

minimum savings rate for organizations operating under the one-sided
model.
(2) Additional Shared Savings Payments
In the one-sided model described previously in this proposed rule,
we propose to increase an ACO's share in savings for including FQHCs
and/or RHCs as ACO participants. To further increase the ACO's reward
for taking risk, we are proposing to double this amount, awarding a
sliding scale increase of up to 5 percentage points for including FQHCs
and/or RHCs as ACO participants in an ACO participating in the two-
sided model, compared to 2.5 percentage points available under the one-
sided model.
(3) Net Sharing Rate
As discussed in section II.F. of this proposed rule, we considered
several options for the amount of savings an ACO could receive under
the one-sided model. These options included requiring the ACO to exceed
the MSR and then sharing either on a first dollar basis or sharing with
the ACO savings in excess of a threshold amount. We proposed that for
the first 2 years of the agreement for the one-sided model that ACOs
which exceed the MSR would be eligible to share in savings net of a 2
percent threshold, calculated as 2 percent of their benchmark. We
further proposed that small ACOs under the one-sided model which meet
certain criteria (namely, physician-driven ACOs, rural ACOs, and ACOs
caring for underserved populations) which generate savings that exceed
the MSR will be eligible to share in savings on a first dollar basis.
We considered the same options on limiting the amount of savings an
ACO could receive under the two-sided model. A number of factors
favored allowing two-sided model ACOs to share on first dollar savings.
For one, ACOs participating in the two-sided model are assuming the
risk of losses due to normal year-to-year variations in Medicare
beneficiaries' claims expenditures. Second, sharing first dollar
savings with two-sided model ACOs would provide greater reward for ACOs
that choose to participate in the program's two-sided model as compared
to the one-sided model. Therefore, we propose that two-sided model ACOs
which generate savings that exceed the MSR will be eligible to share in
savings on a first dollar basis. Thus, under the two-sided model, the
final sharing rate (quality performance sharing rate and any additional
increases for including FQHCs and/or RHCs) would be applied to an ACO's
total savings that exceed its benchmark.
(4) Calculating Sharing in Losses
In addition to a methodology for determining shared savings, the
two-sided model requires a methodology for determining shared losses in
those cases where an ACO realizes a loss as opposed to a savings
against its benchmark in any performance year. As discussed previously,
we considered several options for calculating the amount of shared
losses, tracking the options considered for establishing the quality
performance standard. While a methodology for determining shared losses
is obviously not necessary under a one-sided model, we have mirrored
the structure and features of the shared savings methodology as much as
possible to the determination of loss sharing. Thus, for purposes of
the loss-sharing methodology, we propose adopting a similar structure
of minimum loss rate (the equivalent of minimum savings rate on the
savings side), shared loss cap, and adjustments to the shared loss
percentage based on the ACO's quality performance and inclusion of
FQHCs and/or RHCs.
As noted previously, we are proposing a minimum loss rate for
purposes of computing shared losses when an ACO's actual expenditures
exceed its benchmark. As in the case of shared savings, we believe that
losses must exceed some minimum percentage around the benchmark in
order to provide sufficient confidence that the losses experienced
during a given performance year are not simply the result of random
variation. Further, we are also proposing a cap on the loss sharing
rate under the two-sided model, as we discuss later in this proposed
rule.
In addition, as in the determination of shared savings, we are
proposing to adjust the loss sharing rate by considering several
factors related to performance and behavior. These factors would
include: (1) Performance on quality measures; and (2) any additional
adjustment for including FQHCs and/or RHCs as ACO participants.
However, in order to recognize these factors appropriately in the
determination of the shared loss rate, these factors must operate as
decreases in the ACO's shared loss rate, rather than as the increases
that they represent in the determination of the shared savings rate.
For example, a two-sided model ACO that realizes savings against
its benchmark may qualify for a final sharing rate of up to 65 percent
if it is eligible for the maximum adjustments. In this case, the 65
percent final sharing rate is comprised of the savings rate of up to 60
percent for quality performance, plus 5 percentage points for including
FQHCs and/or RHCs as ACO participants.
On the other hand, a two-sided model ACO that experiences actual
expenditures in excess of its benchmark may qualify for a shared loss
rate as low as 35 percent of total losses if it is eligible for the
maximum adjustments to its shared loss rate. So, for example, if the
ACO obtained maximum points for its quality performance, and also
received the maximum adjustment for including FQHCs and/or RHCs as ACO
participants, it would have a sharing rate of 65 percent for purposes
of sharing in savings. But since there are losses, the quality
performance and inclusion of FQHCs and/or RHCs should be taken into
consideration when calculating losses owed to the program. Accordingly,
under our proposed methodology we would multiply the total losses by 1
minus the 65 percent final sharing rate, or 35 percent, making the ACO
responsible for only 35 percent of the amount of losses.
As discussed in section II.E. of this proposed rule, the quality
performance standard for the first year of the Shared Savings Program
will be set at full and accurate reporting. Therefore, for the purposes
of determining the loss sharing rate, two-sided model ACOs which meet
this standard will obtain the maximum savings rate for quality
performance (60 percent), making them responsible for 40 percent of any
losses under the methodology previously described, absent any increases
in the sharing rate for FQHC/RHC participation.
(5) Maximum Shared Savings and Shared Loss Caps
We are proposing a maximum shared loss cap, so that the shared
losses that an ACO might be required to return to the Medicare program
under this model could not exceed a designated percentage of an ACO's
benchmark in any performance year. However, in order to provide a
greater incentive for organizations to participate in the Shared
Savings Program under the two-sided model, we are proposing to phase in
this shared loss cap over a 3-year period. Specifically, we are
proposing a shared loss cap of 5 percent of the benchmark in the first
year of the Shared Savings Program, 7.5 percent in the second year, and
10 percent in the third year.
ACOs electing the one-sided model that are transitioned to the two-
sided model in the third year of their agreement would be subject to
the 5 percent cap on losses since they would be considered to be in
their first year under the two-sided model.

[[Page 19622]]

Additionally, as discussed previously, we are proposing a higher
maximum shared savings cap under the two-sided model, so that shared
savings payment under this model could not exceed 10 percent of an
ACO's benchmark, compared to 7.5 percent under the one-sided model.
An example of estimating an ACO's maximum potential downside risk
and estimating the ACO's yearly losses is as follows. If the ACO's
annual average per capita benchmark for assigned beneficiaries is
$8,000 the maximum amount of losses an ACO would be responsible for the
first year is 5 percent of its benchmark, 7.5 percent the second year,
and 10 percent the third year. Therefore, the ACO's maximum per capita
liability could range from $400 to $800 per assigned beneficiary.
Actual liability depends on the ACO's actual final sharing rate which
incorporates its quality performance and any increases for inclusion of
FQHCs and/or RHCs.
Continuing this example, if an ACO with a benchmark of $8,000 per
capita has actual costs for its assigned beneficiaries of $8,800, it
would have a per capita loss of $800. The following table presents how
much of the loss the ACO would be responsible to pay back under the
program based on its final sharing rate, as determined by its quality
performance, and assuming no additional increases for FQHC/RHC
participation.
[GRAPHIC] [TIFF OMITTED] TP07AP11.028

(e) Ensuring ACO Repayment of Shared Losses
Ensuring that ACOs entering the two-sided model will be capable of
repaying us for costs that exceed their benchmark is a critical program
requirement. Financial protection requirements for other entities with
which CMS does business provide examples of potential mechanisms for
recouping payment. In order to enroll in and bill the Medicare program,
some Durable Medical Equipment, Prosthetics, Orthotics, and Supplies
(DMEPOS) suppliers are required to obtain a surety bond. Home Health
Agencies (HHA) entering into the Medicare program must have available
sufficient ``initial reserve operating funds'' at the time of
application submission--and at all times during the enrollment process
up to the expiration of the 3-month period following the conveyance of
Medicare billing privileges. CMS, through an intermediary, determines
the amount of the HHA's required initial reserve operating funds using
reported cost and visit data from submitted cost reports for the first
full year of operation from at least three HHAs that the intermediary
serves that are comparable to the HHA.
As discussed in section II.F. of this proposed rule, we propose a
flat 25 percent withholding rate will be applied annually to an ACO's
earned performance payment. We propose that this withholding serve as a
component of the repayment mechanism ACOs will need to establish to
ensure their ability to repay Medicare for incurred losses. We propose
that we would apply the withheld amount towards repayment of an ACO's
losses. However, we recognize that the 25 percent withholding of shared
savings may be inadequate to cover the total amount of shared losses,
particularly if a Track 2 ACO experiences losses in its first year. In
order to more fully ensure that the Medicare program is paid back in
the event that an ACO incurs losses, we have considered a number of
options, including the following:
Recoup funds from the ACO and require the ACO to obtain
reinsurance, place ACO funds in escrow, obtain surety bonds, or
establish a line of credit as evidenced by a letter of credit that the
Medicare program can draw upon.
Recoup funds from an ACO via the ACO's participants. We
would require the ACO to disclose on its application the percentage of
shared losses that each ACO participant would be responsible for, and
the ACO would provide copies of signed agreements with its ACO
participants, establishing their liability. We would require ACO
participants to agree to have their future Medicare payments reduced by
the amount reflected in the agreement. We note that such arrangements,
to the extent they involve remuneration between referral sources and
those seeking referrals, may raise liability issues under the physician
self-referral law and anti-kickback statute. CMS and the OIG have
solicited comments on how best to approach this issue in the Medicare
Program; Waiver Designs in Connection with the Medicare Shared Savings
Program and the Innovation Center, also released today.
Withhold an additional portion of any annual shared
savings payments (on top of the proposed flat 25 percent withhold
discussed in section II.F. of this proposed rule in order to guard
against losses in subsequent years. This could be done in combination
with other alternatives in order to guard against any losses incurred
by ACOs that have not previously received shared savings sufficient to
offset such losses.
Permit ACOs to specify how they would repay us, for
example through one or more of the previously noted recoupment options.
We further considered requiring an ACO to establish a self-
executing method of repaying losses, using one or more of the
aforementioned options, to demonstrate its ability to repay a
prescribed portion of its possible losses. Another option we considered
was to require ACOs to use only one of these repayment mechanisms. In
that regard, we considered requiring ACOs to obtain a letter of credit
in an amount not less than the maximum potential downside exposure for
the ACO in any given performance year (for example 5 percent of the
benchmark in the first performance year for an ACO entering Track 2, or
for a Track 1 ACO entering its third performance year of its initial
agreement period).
After considering these options, we propose to require that an ACO
establish a self-executing method for repaying losses to the Medicare
program by indicating that funds may be recouped from Medicare payments
to the ACO's participants, obtaining reinsurance, placing funds in
escrow, obtaining

[[Page 19623]]

surety bonds, establishing a line of credit as evidenced by a letter of
credit that the Medicare program can draw upon, or establishing another
repayment mechanism, such as those previously discussed. This proposal
assures operational simplicity without establishing eligibility
requirements that might discourage ACOs with limited risk-bearing
experience from entering Track 2.
We considered several options for determining the adequacy of an
ACO's recoupment mechanism. One option would be to require ACOs to
demonstrate an ability to repay the maximum amount of possible losses,
for example 5 percent of the benchmark in the first performance year
for an ACO entering Track 2, or for a Track 1 ACO entering its third
performance year of its initial agreement period. Such a requirement
could be prohibitively burdensome given that ACOs may need to
demonstrate their ability to repay a large amount of capital and
potentially excessive given that ACOs' loss rates would be reduced to
account for quality performance and inclusion of FQHCs and/or RHCs and
ACOs have a limited probability of incurring the maximum possible
losses. Another option, potentially equally as effective as the first
but less onerous, would be to require ACOs to demonstrate their ability
to repay losses, defined as a percentage of the benchmark but below the
annual loss cap. Either option would require the ACO to estimate
anticipated losses, and for CMS to confirm this amount against the
ACO's benchmark (once available). Given the anticipated variation in
ACO composition and regional variations in cost, there may be numerous
ways of accurately estimating an ACO's maximum potential downside risk.
We further recognize that an ACO's assigned number of beneficiaries may
vary from year to year. Given the potential for fluctuation in the size
of an ACO's assigned population, and the increase in the cap on shared
losses in the second and third years under Track 2, the sufficiency of
the ACO's repayment mechanism would need to be periodically reassessed
to ensure its adequacy.
We propose that an ACO must demonstrate having established a
repayment mechanism, using one or more of the recoupment methods
proposed previously, sufficient to ensure repayment of losses equal to
at least 1 percent of per capita expenditures for its assigned
beneficiaries from the most recent year available. We further propose
that we will determine the adequacy of an ACO's repayment mechanism
prior to its entrance into a period of participation in the Shared
Savings Program. We also propose that an ACO must demonstrate the
adequacy of this repayment mechanism annually, prior to the start of
each performance year in which it takes risk, to ensure that it is
adequate to cover the anticipated number of assigned Medicare
beneficiaries. An ACO must maintain this repayment mechanism, ensuring
adequate capitalization of funds in the case of some recoupment methods
(such as adequately funded escrow accounts or reinsurance coverage),
for the duration of the performance year and up until the time when we
would need to be reimbursed for the ACO's losses. We would ensure that
an ACO maintains an adequate repayment mechanism through monitoring
activities. We invite comments on this proposal and on the other
options we have considered, as well as alternate suggestions for
assuring risk-bearing ACOs have an appropriate amount of available
funds to repay potential losses.
We further propose that an ACO would be required, as part of its
application, to submit documentation of such a repayment mechanism for
approval by us. This documentation would include details supporting the
adequacy of the mechanism for repaying the ACO's maximum potential
downside risk exposure. An ACO applying for Track 2 would be required
to submit this documentation as part of its initial application. An ACO
applying for Track 1 would also be required to submit this
documentation as part of its Shared Savings Program application since
Track 1 ACOs will be required to transition to the two-sided model in
the third year. We believe it is important that ACOs electing Track 1
can demonstrate that they can fulfill the requirements for the full
three year agreement period and that we do not create an incentive for
ACOs to terminate their agreements prior to the start of the third year
under Track 1. As a result, it is important to ensure that prior to
entry into the Shared Savings Program, the ACO has an appropriate plan
for how it will repay any losses incurred during the third year of its
agreement when it is automatically transitioned to the two-sided model.
To the extent that an ACO's repayment mechanism does not enable us
to fully recoup the losses for a given performance year, we propose to
carry forward unpaid losses into subsequent performance years (to be
recouped either against additional financial reserves, or by offsetting
shared savings earned by the ACO). We invite comments on this proposal
and on other options that we have considered, as well as alternate
suggestions for assuring that any losses by ACOs participating in the
two-sided model can be recouped, the processes for recouping losses
from these ACOs and/or their ACO participants, and the appropriate
amount of available funds a risk-bearing ACO should be required to
have.
(f) Future Participation of Under-Performing Organizations
As discussed in section II.C. of this proposed rule, we propose
that an ACO which experiences a net loss during its first 3-year
agreement period may not reapply to participate in the Shared Savings
Program because it has been unsuccessful in lowering the growth in
Medicare expenditures and/or its activities contributed in increases in
Medicare expenditure growth. We believe this proposal is a means for
ensuring that under-performing organizations do not continue to
increase Medicare expenditure growth. We seek comment on this proposal
and whether denying continued participation in the Shared Savings
Program for ACOs that under-perform would create disincentives for the
formation of ACOs. We are specifically interested in whether this
requirement will create disincentives for participation among smaller
ACOs.
(g) Public Reporting
We believe that the public reporting requirements proposed under
the one-sided model should also apply to the two-sided model. One such
proposed requirement is for ACOs to report publicly on the shared
savings received by ACOs. Given that the purpose of this proposed
requirement is to enhance transparency of the program we further
propose that ACOs under the two-sided model publicly report on their
amount of losses, if any. We invite comments on this proposed public
reporting requirement and whether, for the purpose of ensuring
transparency, there is any additional information that would be
important for two-sided model ACOs to publicly report.
(h) Impact on States
Finally, we emphasize that, under our proposal for a two-sided
model under the Shared Savings Program, the Medicare program retains
the insurance risk and responsibility for paying claims for the
services furnished to Medicare beneficiaries, and that the agreement to
share risk against the benchmark would be solely between the Medicare
program and the ACO. We do not intend that any of our proposals
concerning the Shared Savings Program would render States

[[Page 19624]]

responsible for bearing any costs resulting from the operation of this
program. However, we note that each State has its own insurance and
risk oversight programs and that some States may regulate risk bearing
entities, such as the ACOs participating in the two-sided model under
the Shared Savings Program. Accordingly, we seek comment on whether any
of our proposals for the two-sided model in particular, or the Shared
Savings Program in general, would trigger the application of any State
insurance laws, the adequacy of those provisions that we have set
forth, and the ways that we can work with ACOs and States to minimize
the burden of any additional regulation.
4. Verification of Savings and Losses
We will notify an ACO in writing regarding whether the ACO
qualifies for a shared savings payment, and if so, the amount of the
payment due. Similarly, we will provide written notification to an ACO
of the amount of shared losses, if any, that it must pay to the
program. We propose that an ACO must make payment in full to CMS of any
shared losses within 30 days of receipt of notification. Because we
will calculate amounts due to, or owed by, the ACO on the basis of
information submitted by the ACO, we propose that the ACO must certify
the accuracy, completeness, and truthfulness of such information. We
propose that, as a condition of receiving a shared savings payment, the
ACO must submit to us a written request for the shared savings payment
amount. The written request must certify the ACO's compliance with
program requirements for the relevant performance period as well as the
accuracy, completeness, and truthfulness of any information submitted
to us by the ACO, or its ACO participants, or the ACO providers/
suppliers, or another entity, including the accuracy, completeness, and
truthfulness of TINs used to assign patients, any quality data or other
information or data relied upon by us in determining the ACO's
eligibility for, and the amount of, the shared savings payment. In the
case of an ACO participating in the two-sided model that has incurred
shared losses, we propose to require submission of a similar
certification at such time that would provide us with assurance of the
ACO's compliance with program requirements for the relevant performance
period and the accuracy, completeness, and truthfulness of any data or
other information submitted by the ACO upon which we rely in
calculating the amount of shared losses.

H. Monitoring and Termination of ACOs

Section 1899(d)(3) of the Act, as added by section 3022 of the
Affordable Care Act, authorizes the Secretary to ``impose an
appropriate sanction'' on an ACO, including ``termination from the
program,'' if the Secretary determines an ACO ``has taken steps to
avoid patients at risk in order to reduce the likelihood of increasing
costs to the ACO.'' We discuss later in the document our proposal to
monitor ACOs for avoidance of at-risk beneficiaries and to take
appropriate corrective actions when ACOs are found to have engaged in
this prohibited conduct, including termination where necessary.
Section 1899(d)(4) of the Act authorizes the Secretary to terminate
an agreement with an ACO that does not meet the established quality
performance standards. As discussed later in the document, we propose
to monitor ACO performance with respect to our proposed quality
standards. Subsequently, we discuss our proposal to terminate ACOs that
fail to meet quality performance standards which are described in
section II.E. of this proposed rule.
Section 1899 of the Act sets forth a number of requirements for
ACOs, and authorizes the Secretary to promulgate additional criteria
that ACOs must satisfy in order to be eligible to participate in the
Shared Savings Program. The statute does not prescribe procedures for
monitoring nor what factors we should consider in imposing sanctions
against an ACO, including termination of its 3-year agreement for
reasons beyond avoiding patients at risk and not meeting established
quality standards. Based on our experience with other Medicare
programs, as discussed this proposed rule, we believe it is important
for patient protection and to effectuate the Shared Savings Program
that we monitor an ACO to determine if it meets additional Shared
Savings Program requirements not set forth in section 1899 of the Act
and take actions such as termination with ACOs that are not in
compliance with additional Shared Savings Program requirements that are
not set forth in section 1899 of the Act. We discuss our proposal to
monitor ACO performance with respect to these requirements and to
terminate or otherwise sanction ACOs that are not in compliance with
the requirements of the Shared Savings Program.
In implementing other Medicare programs, including the MA and the
Medicare Prescription Drug programs, we have gained extensive
experience in monitoring organizational, provider, and supplier
behavior with respect to compliance with Medicare program and program
integrity requirements, quality measurement, and avoidance of
particular types of beneficiaries. For purposes of the Shared Savings
Program, we propose to employ many of the methods we have developed for
purposes of the MA and Medicare prescription drug programs to monitor
and assess ACOs and their participating providers and suppliers. In
general, the methods we could use to monitor ACO performance may
include, but are not limited to the following:
Analysis of specific financial and quality data as well as
aggregated annual and quarterly reports.
Site visits.
Assessment and following up investigation of beneficiary
and provider complaints.
Audits (including, for example, analysis of claims, chart
review, beneficiary surveys, coding audits).
If based upon the monitoring activities described previously we
conclude that an ACO's performance may subject the ACO to termination
from the Shared Savings Program, we are proposing that CMS in its sole
discretion, may take any or all of the following actions prior to
termination of the ACO from the Shared Savings Program:
Provide a warning notice to the ACO of the specific
performance at issue.
Request a corrective action plan (CAP) from the ACO.
Place the ACO on a special monitoring plan.

We are seeking comment on additional actions that may be appropriate
prior to termination.
A number of factors may trigger heightened oversight of ACOs by us,
including conditions specified as the bases for terminating the
agreement described in this proposed rule. Further, we anticipate close
examination of ACOs that incur large losses to the Medicare program.
In order to ensure that we have the information necessary to
conduct appropriate monitoring and oversight of ACOs, it will be
necessary for ACOs, ACO participants, and ACO providers/suppliers, and
other contracted entities performing services and functions on behalf
of the ACO to retain records of their activities under the Shared
Savings Program for a sufficient period of time to allow the government
to conduct the appropriate audits, evaluations, and inspections of
their activities. A ``contracted entity performing services or
functions on behalf of the ACO'' would include any party that enters
into

[[Page 19625]]

an arrangement with an ACO to provide services (including
administrative, management, or clinical services) to the ACO or health
care services to the beneficiaries assigned to the ACO. It also
includes any party that enters into an arrangement with an entity is in
an arrangement with the ACO down to the level of the ultimate provider
of services.
We are proposing that an ACO, ACO participant, ACO providers/
suppliers, and contracted entities performing services and functions on
behalf of the ACO, will be required to maintain and give us, the
Department of Health and Human Services (DHHS), the Comptroller
General, the Federal Government or their designees, the right to
inspect all books, contracts, records, documents, and other evidence
(including data related to Medicare utilization and costs, quality
performance measures, shared savings distributions, and other financial
arrangements related to ACO activities) sufficient to enable the audit,
evaluation, and inspection of the ACO's compliance with Shared Savings
Program requirements and the ACO's right to any shared savings payment.
We propose that such books, contracts, records, documents, and other
evidence be maintained by the ACO for a period of 10 years from the end
of the agreement period or from the date of completion of any audit,
evaluation, or inspection, whichever is later, unless we determine
there is a special need to retain a particular record or group of
records for a longer period and notify the ACO organization at least 30
days before the normal disposition date. If there has been a
termination, dispute, or allegation of fraud or similar fault by the
ACO organization or its members, we propose that the retention may be
extended to 6 years from the date of any resulting final resolution of
the termination, dispute, fraud, or similar fault. We further propose
that if we determine that there is a reasonable possibility of fraud or
similar fault, we may inspect, evaluate, and audit the ACO organization
at any time. If as a result of any inspection, evaluation, or audit, we
determine that the amount of shared savings due to the ACO or the
amount of shared losses owed by the ACO has been determined in error,
we reserve the right to reopen the initial determination and issue a
revised initial determination.
We further propose that ACOs include terms in their agreements with
ACO participants, ACO providers/suppliers, and the ACO and contracted
entities performing services and functions on behalf of the ACO
requiring them to comply with the same record retention requirements
and to make such books, contracts, records, documents, and other
evidence available to the government upon request. Notwithstanding any
arrangements between or among an ACO, ACO participants, ACO providers/
suppliers, and contracted entities performing services and functions on
behalf of the ACO, the ACO shall have ultimate responsibility for
adhering to and otherwise fully complying with all terms and conditions
of its agreement with CMS, including the record retention requirement.
1. Monitoring Avoidance of At-Risk Beneficiaries
As noted previously, section 1899(d)(3) of the Act authorizes the
Secretary to ``impose an appropriate sanction'' on an ACO, including
``termination from the program,'' if the Secretary determines an ACO
``has taken steps to avoid patients at risk in order to reduce the
likelihood of increasing costs to the ACO.'' While the statute does not
define what constitutes ``patients at-risk'', we believe such patients
are those beneficiaries who have a high risk score on the CMS-HCC risk
adjustment model, are considered high cost due to having two or more
hospitalizations or emergency room visits each year, are dually
eligible for Medicare and Medicaid, have a high utilization pattern,
have one or more chronic conditions (such as, for example, diabetes,
heart failure, coronary artery disease, chronic obstructive pulmonary
disease, depression, dementia, end stage renal disease) or
beneficiaries who have a recent diagnosis (for example, newly diagnosed
cancer) that is expected to result in an increased cost.
Such beneficiaries might be appropriately targeted by an ACO to
implement care improvement strategies to coordinate their care more
efficiently. However, high-cost beneficiaries are also potentially at-
risk for inappropriate avoidance by an ACO because the ACO may believe
that it will be more likely to realize shared savings against its
benchmark costs if it can avoid having higher-cost patients assigned to
it during a performance year. We seek comment on this definition of
``at-risk beneficiary'' and whether other beneficiary characteristics
should be considered in determining whether a beneficiary is ``at-
risk.''
To identify ACOs that could be avoiding at-risk beneficiaries, we
propose to use a combination of methods that would begin with an
analysis of claims and examination of other beneficiary-level
documentation (for example, beneficiary satisfaction surveys, medical
record audits, beneficiary and provider complaints) to identify trends
and patterns suggestive of avoidance of at-risk beneficiaries. The
results of these analyses could lead to further investigation and
follow-up with the beneficiary or the ACO (including ACO participants
and ACO providers/suppliers) in order to determine whether avoidance of
at-risk beneficiaries has occurred. If as a result of our analysis we
conclude that an ACO has been avoiding at-risk beneficiaries during a
performance year, we propose to notify the ACO of our determination and
to require the ACO to submit a corrective action plan (CAP) for our
approval. The CAP must address actions the ACO will take to ensure that
the ACO, ACO participants, and ACO providers/suppliers cease avoidance
of at-risk beneficiaries and must be implemented as approved. In
addition, we propose that the ACO will be re-evaluated both during and
at the end of the CAP. If we determine that the ACO has continued to
avoid at-risk beneficiaries, the ACO would be terminated from the
Shared Savings Program. We also propose that the ACO would not receive
shared savings payments while it is under the CAP regardless of the
period of performance in question and that the ACO would not be
eligible to earn any shared savings for the period during which it is
under the CAP for avoiding at-risk beneficiaries.
We solicit comments on whether lesser sanctions may be appropriate
when an ACO avoids at-risk beneficiaries, such as the cessation of, or
a reduction in, the assignment of new beneficiaries to the ACO, a
reduction in the amount of the shared savings payment, or a fine for
each instance of at-risk beneficiary avoidance.
2. Monitoring Compliance With Quality Performance Standards
Section 1899(d)(4) of the Act further authorizes the Secretary to
terminate an agreement with an ACO that does not meet the established
quality performance standards. To identify ACOs that are not meeting
the quality performance standards, we will review the ACO's submission
of quality measurement data. We may request additional documentation
from an ACO or its ACO participants or ACO providers/supplier, as
appropriate. In those instances where an ACO fails to meet the minimum
attainment level for one or more domains, we propose to give the ACO a
warning and to re-evaluate the following year. If the ACO continues to
underperform on the quality performance standards in the

[[Page 19626]]

following year, the agreement will be terminated. We also propose that
if an ACO fails to report one or more measures, we would send the ACO a
written request to submit the required data by a specified date and to
provide a reasonable written explanation for its delay in reporting the
required information. If the ACO fails to report by the requested
deadline and does not provide a reasonable explanation for delayed
reporting, we would immediately terminate the ACO for failing to report
quality measures. We further propose that ACOs that exhibit a pattern
of inaccurate or incomplete reporting or fail to make timely
corrections following notice to resubmit may be terminated from the
program. We note that since meeting the quality standard is a condition
for sharing in savings, the ACO would be disqualified from sharing in
savings in each year in which it underperforms.
3. Terminating an ACO Agreement
There are a number of important program requirements that ACOs must
satisfy in order to be eligible to participate in the Shared Savings
Program. As a result, in addition to the statutory provisions at
section 1899(d)(3) and (d)(4) of the Act regarding termination for
avoidance of at-risk beneficiaries and for failure to meet the quality
standards, we believe the agreement with an ACO should be contingent
upon that ACO continuing to meet the requirements for eligibility to
participate in the Shared Savings Program. Accordingly, we propose that
an ACO's failure to continue to meet the eligibility requirements for
participation in the Shared Savings Program should also result in an
ACO's termination from the Shared Savings Program. As described in
section II.F. of this proposed rule, termination of an ACO from the
Shared Savings Program by us or at the ACOs request for any reason will
result in loss of the mandatory 25 percent withhold of shared savings.
Therefore, we are proposing that based upon monitoring and
assessing ACO operations (including ACO participants and ACO providers/
suppliers), we may terminate an agreement with an ACO before the end of
the 3-year agreement period for any of the following reasons:
Avoidance of at-risk beneficiaries as described
previously.
Failure to meet the Shared Savings Program's quality
performance standard as described previously.
Any material change impacting ability to meet eligibility
requirements, including but not limited to the following:
++ Changes in ACO participants that are the basis for beneficiary
assignment.
++ Increase in ACO provider/supplier composition that results in a
reviewing Antitrust Agency to state it is likely to challenge or
recommend challenging the ACO.
++ Changes in the ACO's leadership and management structure that
result in an inability to perform the functions discussed in section
II.B. of this proposed rule.
++ Sanctions or other actions taken against the ACO, its ACO
participants, and ACO providers/suppliers, or contracted entities
performing services or functions on behalf of the ACO, by an
accrediting organization, or by a State, Federal or local government
agency.
Failure of the ACO to effectuate required regulatory
changes during the agreement period after given the opportunity for a
CAP.
Failure of an ACO to demonstrate that it has adequate
resources in place to repay losses and to maintain those resources for
the agreement period.
Noncompliance with requirements regarding beneficiary
notification of provider/supplier participation in an ACO.
Failure to completely and accurately report or failure to
make timely corrections.
Material noncompliance, or a pattern of noncompliance,
with public reporting and other CMS reporting requirements.
Limiting or restricting internally compiled beneficiary
summary of care or medical records from providers and suppliers both
within and outside of the ACO, to the extent permitted by law (for
example, not sharing beneficiary medical records with providers or
suppliers not participating in the ACO from whom the beneficiary
chooses to receive care).
Failure to offer beneficiaries the option to opt out of
sharing claims information.
Improper use or disclosure of claims information received
from us in violation of the HIPAA Privacy Rule, Medicare Part D Data
Rule, Privacy Act, the data use agreement, or other applicable laws or
regulations.
Violation of physician self-referral prohibition, civil
monetary penalty laws, anti-kickback statute, other antifraud laws,
antitrust laws, or other applicable Medicare laws, rules, or
regulations that are relevant to ACO operations.
Submission to us of false, inaccurate, or incomplete data
and or information, including but not limited to, information provided
in the Shared Savings Program application, quality data, financial
data, and information regarding the distribution of shared savings.
Failure to submit payment due to us in a timely manner.
Use of marketing materials or activities or other
beneficiary communications subject to approval that have not been
approved by us as discussed in section II.B.11.of this proposed rule.
Furthermore, we believe it is appropriate that an ACO should
provide notice if it elects to terminate its participation in the
Shared Savings Program. Accordingly, we are proposing to require an ACO
to provide us with a 60-day notice if it chooses to terminate its
agreement. The ACO would be required to notify us of its decision to
terminate its participation in the Shared Savings Program and would
also be required to notify all of its ACO participants and ACO
providers/suppliers, who would in turn be required to notify
beneficiaries in a timely manner of the ACO's decision to withdraw from
the Shared Savings Program. As described in section II.F.of this
proposed rule, the ACO would forfeit its mandatory 25 percent withhold
of shared savings.
Finally, we propose that an ACO that has been terminated from the
Shared Savings Program may apply to participate in the Shared Savings
Program again at the end of the original 3-year agreement period. To be
eligible to participate in the Shared Savings Program, the ACO must
demonstrate in its application that it has corrected the deficiencies
that caused it to be terminated from the Shared Savings Program and has
processes in place to ensure that it will remain in compliance with the
terms of the new participation agreement. We have proposed in section
II.G. of this proposed rule, that ACOs may only have one agreement
period involving the one-sided model, thus ACOs with corrected
deficiencies that wish to reenter the program only have the option to
do so under the two-sided model.
For violations that we consider minor in nature and pose no
immediate risk or harm to beneficiaries or impact on care, we propose
to allow ACOs the opportunity to submit a corrective action plan (CAP)
before termination. We further propose that the ACO must submit a CAP
for our approval by the deadline indicated on the notice of violation.
The CAP must address what actions the ACO will take to ensure that the
ACO, ACO participants, ACO providers/suppliers, and entities performing
services or functions on

[[Page 19627]]

behalf of the ACO will correct any deficiencies to remain in compliance
with Shared Savings Program requirements. The CAP must be implemented
as approved. The ACO's performance will be monitored during the CAP
process. Failure of the ACO to submit, obtain approval for, or
implement a CAP may result in termination of the agreement. Failure of
the ACO to demonstrate improved performance upon completion of the CAP
may result in termination. We seek comments on our proposal, including
any additional conditions that could merit the termination of an ACO
agreement.
4. Reconsideration Review Process
Section 1899(g) of the Act, as added by section 3022 of the
Affordable Care Act, states that there shall be no administrative or
judicial review of the following actions:
Specification of criteria for meeting quality performance
standards under section 1899(a)(1)(B) of the Act.
Assessment of quality of care furnished by an ACO and the
establishment of quality performance standards under section 1899(b)(3)
of the Act.
Assignment of Medicare FFS beneficiaries to an ACO under
section 1899(c) of the Act.
Determination of whether an ACO is eligible for shared
savings under section 1899(d)(2) of the Act), the amount of shared
savings, including the determination of the estimated average per
capita Medicare expenditures under the ACO for Medicare FFS
beneficiaries assigned to the ACO and the average benchmark for the ACO
under section 1899(d)(1)(B) of the Act.
Percent of shared savings specified by the Secretary under
section 1899(d)(2) of the Act and any limit on the total amount of
shared savings.
Termination of an ACO under section 1899(d)(4) of the Act
for failure to meet quality performance standards.
The statute is otherwise silent regarding an ACO's right to contest
decisions on such matters as eligibility to participate in the Shared
Savings Program or termination for avoidance of at-risk beneficiaries.
Accordingly, we believe it is important to establish a fair
administrative process by which ACOs may request review of decisions,
such as the denial of an ACO application or the termination of an
existing ACO agreement for reasons other than those exempted by
statute. An administrative reconsideration process provides an
opportunity to resolve disputes quickly and efficiently, and creates an
administrative record that can serve as the basis for any further
review of the agency's decision.
Based on our experiences with the Medicare durable medical
equipment prosthetics orthotics and supplies (DMEPOS) competitive
bidding program and the MA Part C and D programs, we are proposing to
implement reconsideration review procedure similar to the review
process used by those programs for initial determinations that are not
precluded from administrative or judicial review by statute. These
initial determinations would include the denial of an ACO application
or the termination of an ACO participation agreement. Under this
proposal, if we deny a Shared Savings Program application, the
applicant would be able to request reconsideration of our determination
from a CMS reconsideration official. This process would not apply to
applicants who are rejected on the grounds that their certified
application was not submitted by the required deadline, because in this
situation no valid application would have been submitted. In the case
where an ACO has entered a 3-year agreement and subsequently met
criteria for termination, we will give the ACO notification of our
initial determination to terminate the agreement. The ACO would be able
to request an independent review from a CMS reconsideration official
who will reconsider the initial determination.
We propose that if an ACO or ACO applicant wants to request a
review by a CMS reconsideration official of an adverse initial
determination, it must submit a written request by an authorized
official for receipt by CMS within 15 days of the adverse initial
determination. If the 15th day is a weekend or a Federal holiday, then
the timeframe is extended until the end of the next business day.
Failure to submit a request for a reconsideration review within 15 days
will result in denial of the request for a review.
Reconsideration reviews are scheduled at the discretion of the
review official and may be held orally (that is, in person, by
telephone or other electronic means) or on the record (review submitted
documentation). The ACO or ACO applicant will receive acknowledgement
of the reconsideration request that will outline the review procedures.
The burden of proof would be on the ACO or ACO applicant to demonstrate
to the reconsideration official with convincing evidence that the
termination or application denial is not consistent with CMS'
regulations or statutory authority. The ACO or ACO applicant may not
use the reconsideration process to submit required documentation as
evidence for the record that was not previously submitted to CMS by the
applicable deadline. Furthermore, the reconsideration official will
only consider evidence for the record that is submitted in the required
format and in the timeframes indicated in the acknowledgement
notification, unless additional information is requested by the
official. Following the review, the reconsideration official will issue
a recommended decision.
We further propose that if the ACO or ACO applicant disagrees with
the recommendation of the reconsideration official, it will have an
opportunity to request a record review of the initial determination and
recommendation of the reconsideration official by an independent CMS
official who was not involved in the initial determination or the
reconsideration review process. An ACO or ACO applicant that wishes to
request an on the record review of the reconsideration official's
recommendation must submit an explanation of why it disagrees with the
recommendation in the timeframe and in the format indicated in the
recommendation letter. The CMS official may also review the
recommendation of the reconsideration official on his or her own
motion. The on the record review process will be based only on evidence
presented for the reconsideration review. The CMS official will review
the recommendation of the reconsideration official and the supporting
materials and make a final agency determination.
If an ACO applicant requests a review of a decision to deny its
application, and our initial determination is upheld, the application
will be considered to have been denied based on the effective date of
the original notice of denial. An ACO that requests a reconsideration
review of an initial determination to terminate its participation in
the Shared Savings Program will be permitted to continue to participate
during the review process. However, if our initial determination to
terminate the agreement with the ACO is upheld, the decision to
terminate the agreement is effective as of the date indicated in the
initial notice of termination.
An ACO whose Shared Savings Program application has been denied or
whose Shared Savings Program agreement has been terminated due to a
determination made by a reviewing antitrust agency may not contest the
merits of the antitrust agency's determination through the
reconsideration review process proposed in this rule. Furthermore, the

[[Page 19628]]

reconsideration review process proposed in this rule shall not be
construed to negate, diminish, or otherwise alter the applicability of
existing laws, rules, and regulations or determinations made by other
government agencies.
We invite public comment, in general, on the structures and
procedure of an appropriate review process for ACOs terminated for
avoidance of at-risk beneficiaries or other reasons not exempted from
review by statute.

I. Coordination With Other Agencies

As mentioned previously, in developing the Shared Savings Program,
and in response to stakeholder concerns, we have worked very closely
with agencies across the Federal Government to facilitate participation
in the Shared Savings Program and to ensure a coordinated and aligned
inter- and intra-agency effort in the implementation of the program.
The result of this effort is the release of three documents with which
potential participants are strongly encouraged to become familiar.
These documents include: (1) A joint CMS and DHHS Office of Inspector
General (OIG) Medicare Program; Waiver Designs in Connection with the
Medicare Shared Savings Program and the Innovation Center addressing
proposed waivers of the civil monetary penalties (CMP) law, Federal
anti-kickback statute, and the physician self-referral law; (2) an
Internal Revenue Service (IRS) notice soliciting comments regarding the
need for additional tax guidance for tax-exempt organizations,
including tax-exempt hospitals, participating in the Shared Savings
Program; (3) a proposed Antitrust Policy Statement issued by the FTC
and DOJ (collectively, the Antitrust Agencies). In addition, we are
proposing to preserve the benefits of competition for Medicare
beneficiaries by precluding newly formed ACOs with market power from
participating in the Shared Savings Program.
1. Waivers of CMP, Anti-Kickback, and Physician Self-Referral Laws
Certain arrangements between and among ACOs, ACO participants,
other owners, ACO providers/suppliers, and third parties may implicate
the CMP law (section 1128A(b)(1) and (2) of the Act), the Federal anti-
kickback statute (section 1128B(b)(1) and (2) of the Act), and/or the
physician self-referral prohibition (section 1877 of the Act). Section
1899(f) of the Act authorizes the Secretary to waive certain fraud and
abuse laws as necessary to carry out the provisions of the Shared
Savings Program. Accordingly, pursuant to section 1899(f) of the Act,
CMS and OIG have jointly published elsewhere in this Federal Register a
Medicare Program, Waiver Designs in Connection with the Medicare Shared
Savings Program and the Innovation Center, which describes and solicits
public input regarding possible waivers of the application of certain
CMP law provisions, the Federal anti-kickback statute, and the
physician self-referral law to specified financial arrangements
involving ACOs under the Shared Savings Program. In addition, section
1115A(d)(1) of the Act, as added by section 3021 of the Affordable Care
Act, authorizes the Secretary to waive the same fraud and abuse laws,
among others, as necessary solely for the purposes of carrying out the
provisions of section 1115A of the Act with respect to the testing of
certain innovative payment and service delivery models by the
Innovation Center. The notice with comment period published elsewhere
in this Federal Register also solicits public input regarding that
separate waiver authority.
We expect that the waivers applicable to ACOs participating in the
Shared Savings Program will be issued concurrently with our publication
of the Shared Savings Program final rule. The requirements of the
Shared Savings Program final rule will bear on the scope of any waivers
granted for the Shared Savings Program. Because of the close nexus
between the final regulations governing the structure and operation of
ACOs under the Shared Savings Program and the development of waivers
necessary to carry out the provisions of the Shared Savings Program,
CMS and OIG may, when crafting waivers applicable to the Shared Savings
Program, consider comments submitted in response to this Shared Savings
Program proposed rule and the provisions of the Shared Savings Program
final rule. Conversely, we may consider comments received in response
to the joint notice with comment period when drafting the Shared
Savings Program final rule. Members of the public submitting comment on
this proposed regulation should consider commenting on the proposed
waivers, as well.
2. IRS Guidance Relating to Tax-Exempt Organizations
Nonprofit hospitals and other health care organizations recognized
by the IRS as tax-exempt organizations are likely to participate in the
development and operation of ACOs in the Shared Savings Program.
Accordingly, the IRS intends to solicit public comment on whether
existing guidance relating to the Internal Revenue Code provisions
governing tax exempt organizations is sufficient for those tax-exempt
organizations planning to participate in the Shared Savings Program
through ACOs, and if not, what additional guidance is needed. The IRS
also intends to solicit comments concerning what guidance, if any, is
necessary for tax-exempt organizations participating in ACOs that
conduct activities unrelated to the Shared Savings Program.
We plan to continue to work with the IRS to ensure a coordinated
and aligned interagency effort in the implementation of the program.
Nothing in this proposed rule should be construed to modify, impair, or
supersede the applicability of any of the Federal tax laws. For further
guidance, tax-exempt organizations and ACOs should review the IRS
notice and solicitation of public comment.
3. Antitrust Policy Statement
Concurrently with the issuance of this Shared Savings Program
proposed rule, the Antitrust Agencies have issued a proposed Statement
of Antitrust Enforcement Policy Regarding Accountable Care
Organizations Participating in the Medicare Shared Savings Program
(Antitrust Policy Statement). The Antitrust Policy Statement applies to
collaborations among otherwise independent providers and provider
groups formed after March 23, 2010 that have otherwise been approved to
participate, or seek to participate, as ACOs in the Shared Savings
Program.
The Antitrust Policy Statement sets forth an antitrust ``Safety
Zone'' for certain ACOs. Specifically, the Antitrust Policy Statement
provides that the Antitrust Agencies, absent extraordinary
circumstances, will not challenge an ACO that otherwise meets the CMS
criteria to participate in the Shared Savings Program if ACO
participants that provide the same service (common service) have a
combined share of 30 percent or less of each common service in each ACO
participant's Primary Service Area (PSA), wherever two or more ACO
participants provide that service to patients from that PSA. Also,
under the Rural Exception set forth in the Antitrust Policy Statement,
ACOs may qualify for the Safety Zone under certain circumstances even
if their combined PSA share for common services would be greater than
30 percent. The Antitrust Policy Statement further provides that an ACO
outside the Safety Zone may proceed without scrutiny by the Antitrust
Agencies if its combined PSA share for each common service, wherever
two or more ACO

[[Page 19629]]

participants provide that service to patients from that PSA, is less
than or equal to 50 percent. An ACO in this category is also highly
unlikely to present competitive concerns if it avoids certain specified
conduct. The Antitrust Policy Statement explains, however, that for
ACOs that do not meet the Rural Exception, a combined PSA share for
common services of more than 50 percent provides a valuable indication
of an ACO's potential for competitive harm.
The Antitrust Policy Statement outlines a methodology by which ACOs
can calculate their shares of common services (that is, the same
services provided by two or more ACO participants) provided to patients
from the same PSA. The common services consist of physician
specialties, major diagnostic categories (``MDCs'') for inpatient
settings, and outpatient categories for outpatient settings. We will
make public the information necessary to designate common services and
to calculate the pertinent PSA shares.
We plan to continue to work with the Antitrust Agencies to
determine the extent to which additional action may be appropriate with
regard to ACOs in the Shared Savings Program. Nothing in this proposed
rule should be construed to modify, impair, or supersede the
applicability of any of the Federal antitrust laws. For further
guidance, ACOs should review the Antitrust Policy Statement.

4. Prohibition Against Shared Savings Program Participation by ACOs
With Market Power

a. Coordinating the Shared Savings Program Application With the
Antitrust Agencies
In light of the Antitrust Agency Policy Statement, we propose to
require that, except for an ACO that qualifies for the rural exception
articulated in the Policy Statement, an ACO with a PSA share above 50
percent for any common service that two or more ACO participants
provide to patients from the same PSA must submit to us, as part of its
Shared Savings Program application, a letter from the reviewing
Antitrust Agency confirming that it has no present intent to challenge
or recommend challenging, the proposed ACO. Absent such a letter, the
proposed ACO will not be eligible to participate in the Shared Savings
Program. In addition, the Antitrust Policy Statement explains that ACOs
that are outside the Safety Zone and below the 50 percent mandatory
review threshold frequently may be procompetitive. It highlights how
ACOs in this category that do not impede the functioning of a
competitive market and that engage in procompetitive activities will
not raise competitive concerns and may proceed without Agency scrutiny.
However, to provide additional antitrust guidance, the Antitrust Policy
Statement identifies five types of conduct that an ACO can avoid to
significantly reduce the likelihood of an antitrust investigation. An
ACO in this category that desires further certainty regarding the
application of the antitrust laws to its formation and planned
operation also can seek an expedited review from the Antitrust
Agencies, similar to the mandatory review described previously. Such an
ACO will not be eligible to participate in the Shared Savings Program
if the reviewing Antitrust Agency reviews the ACO and determines that
it is likely to challenge or recommend challenging the ACO as
anticompetitive. Finally, we propose that an ACO that falls within the
Safety Zone would not be required to obtain an Antitrust Agency review
as a condition of participation. As noted in the Antitrust Policy
Statement, the Antitrust Agencies are committed to providing expedited
reviews for ACOs that exceed the 50 percent threshold and for those
ACOs that fall below the 50 percent threshold and seek greater
antitrust certainty. The procedures for obtaining such review are set
forth in the Antitrust Policy Statement.
[GRAPHIC] [TIFF OMITTED] TP07AP11.029

[[Page 19630]]

Additionally, we recognize there may be instances during the 3-year
agreement period where there is a material change (as discussed in
section II. C.) in the participant and/or provider/supplier composition
of an ACO. When this occurs, we have proposed that the ACO must notify
us of the change within 30 days and that the ACO must recalculate and
report at that time their PSA shares for common services that two or
more independent ACO participants provide to patients from the same
PSA. We propose that if any revised PSA share is calculated to be
greater than 50 percent, the ACO will be subject to mandatory review or
re-review by the Antitrust Agencies in order to maintain the benefits
of competition for Medicare beneficiaries and eligibility to
participate in the Shared Savings Program. Finally, we propose that if
the ACO fails to obtain a letter from the reviewing Antitrust Agency
confirming that it has no present intent to challenge or recommend
challenging the ACO, the ACO will be terminated from the Shared Savings
Program.
The purpose of requiring Antitrust Agency confirmation that it has
no present intent to challenge or recommend challenging the ACO as a
condition of participation is two-fold. First, the proposal ensures
that ACOs participating in the Shared Savings Program will not present
competitive problems that could subject them to antitrust challenge
that may prevent them from completing the term of their 3-year
agreement with us. Section 1899(b)(2)(B) of the Act provides that ACOs
shall enter into an agreement with the Secretary to participate in the
program for not less than a 3-year period. We believe the requirement
that ACOs be willing and able to commit to a 3-year agreement to
participate in the Shared Savings Program is necessary to ensure that
the program achieves its long-term goal of redesigning health care
processes, and our proposal here furthers that intent.
Second, the proposal maintains competition for the benefit of
Medicare beneficiaries by reducing the potential for the creation of
ACOs with market power. As discussed in more detail later in the
document, we believe that competition in the marketplace benefits
Medicare and the Shared Savings Program because it promotes quality of
care for Medicare beneficiaries and protects beneficiary access to a
variety of providers. Furthermore, competition benefits the Shared
Savings Program by allowing the opportunity for the formation of two or
more ACOs in an area, which could accelerate advancements in quality
and efficiency. All of these benefits to Medicare patients would be
reduced or eliminated if we allow ACOs to participate in the Shared
Savings Program when their participation would create market power.
b. Competition and Quality of Care
Because Medicare prices are regulated, ACOs participating in the
Shared Savings Program will not compete on the basis of price.
Nevertheless, economic theory and competition policy suggest that these
ACOs will compete to serve Medicare beneficiaries on the basis of
nonprice dimensions such as quality of care, innovations that improve
care, and choice in treatment options. Empirical studies of the
Medicare program confirm this theory and demonstrate that, where prices
are fixed, competition among health care providers produces higher
quality for consumers.\22\ The most prominent study of markets with
fixed prices examined the impact of market concentration on mortality
for Medicare heart attack patients. The study found that mortality was
significantly higher for patients in more concentrated markets.\23\ A
later study had similar findings in that high-risk Medicare patients'
heart attack mortality was higher in highly concentrated markets, while
there was no such effect for low-risk patients.\24\ Overall, the
evidence suggests that competition in the presence of regulated prices
fosters improved quality.
---------------------------------------------------------------------------

\22\ See Daniel P. Kessler & Mark B. McClellan, Is Hospital
Competition Socially Wasteful? 115 Quarterly Journal of Econ. 577
(2000); Daniel P. Kessler & Jeffrey J. Geppert, The Effects of
Competition on Variation in the Quality and Cost of Medical Care, 14
Journal of Econ. and Mgmt. Strategy 575 (2005). See also Abigail Tay
Assessing Competition in Hospital Care Markets: The Importance of
Accounting for Quality Differentiation 34 RAND Journal of Econ. 786
(2003).
\23\ Daniel P. Kessler & Mark B. McClellan, Is Hospital
Competition Socially Wasteful? 115 Quarterly Journal of Econ., 577
(2000).
\24\ Daniel P. Kessler & Jeffrey J. Geppert, The Effects of
Competition on Variation in the Quality and Cost of Medical Care 14
Journal of Econ. and Mgmt. Strategy, 575 (2005).
---------------------------------------------------------------------------

The means by which competition fosters improvements in quality,
innovation, and choice for Medicare patients can vary. For example,
competition among ACOs can:
Motivate innovation in the use of existing treatment and
care protocols and the development of new protocols. ACOs with better
quality would be expected to attract more patients, and ACOs with both
better quality and lower costs would obtain a greater percentage of
shared savings.
Accelerate the development of evidence-based best
practices. In some instances, physicians may differ on the best course
of treatment in a given case. In the early stages of developing
evidence-based best practices, there may be no way to know which
practice or care protocols among several alternatives would be most
effective. An ACO with market power may have less incentive to test
alternative practices or care protocols.
Raise the likelihood of preserving alternatives in the
market, ultimately leading to the emergency of better procedures and
treatments.
Provide better benchmarks for quality improvements. For
example, although a single ACO might claim that environmental or
demographic factors limit what it can achieve in the treatment of
certain illnesses, a comparison among multiple ACOs in the same service
area could better ensure that the best standards possible under
prevailing conditions are being met.
c. Competition, Price, and Access To Care
A concern with potential ACO market power in the commercial (as
well as the Medicare) market is warranted, because recent commentary
suggests that health care providers are more likely to create ACOs
under the Shared Savings Program if they can use the same ACOs to serve
both Medicare beneficiaries and patients covered by commercial
insurance.\25\ If we permitted the creation of ACOs with market power
to operate in the Shared Savings Program, those ACOs would likely
operate in the commercial market as well. In the commercial market,
however, prices are not regulated, so newly created ACOs with market
power could raise prices to private purchasers and payers of health
care insurance above competitive levels.
---------------------------------------------------------------------------

\25\ Federal Trade Commision & Department of Health and Human
Services, Medicare Program; Workshop Regarding Accountable Care
Organizations, and Implications Regarding Antitrust, Physician Self-
Referral, Anti-kickback, and Civil Monetary Penalty (CMP) Laws, 75
FR 57039.
---------------------------------------------------------------------------

Higher commercial prices create disparities in payment rates
between commercial purchasers and payers compared to Medicare rates. As
reported in a study by MedPAC staff, hospitals with high payments from
private payers had high levels of overall profitability.\26\ Similarly,
ACOs may wish to increase the profitable private patients they serve
and, as a result, reduce the number of

[[Page 19631]]

Medicare beneficiaries they serve. In this way, commercial price
increases resulting from newly created ACOs with market power could
limit access to care for Medicare beneficiaries. Our proposal to
require ACOs that exceed the 50 percent threshold to undergo a
mandatory antitrust review seeks to ensure that there are sufficient
providers to allow the formation of competing ACOs to serve Medicare
beneficiaries.
---------------------------------------------------------------------------

\26\ Report to Congress: Medicare Payment Policy, 111th Cong.
(2010), available at http://www.medpac.gov/documents/Mar10_EntireReport.pdf.
---------------------------------------------------------------------------

In summary, we believe that it is reasonable and appropriate to
make approval of an ACO's Shared Savings Program application and
continuation in the program contingent on the absence of a
determination by the reviewing Antitrust Agency that it is likely to
challenge or recommend challenging the ACO, or in the case of an ACO
that exceeds the 50 percent threshold, on the ACO's submission of
written confirmation from the reviewing Antitrust Agency that it has no
present intent to challenge or recommend challenging the ACO.
We plan to continue to work with the Antitrust Agencies to
determine the extent to which additional actions may be appropriate
with regard to ACOs participating in the Shared Savings Program. We
will also work closely with the Innovation Center (which is charged
with considering whether the models it tests demonstrate effective
linkage with other public and private sector payers) and will use the
results from the ACO models it tests to inform possible future
rulemaking that may be necessary in order to maintain ACO competition
for the benefit of Medicare beneficiaries. Nothing in these regulations
shall be construed to modify, impair, or supersede the applicability of
the antitrust laws.

J. Overlap With Other CMS Shared Savings Initiatives

1. Duplication in Participation in Medicare Shared Savings Programs
The statute includes a provision that precludes duplication in
participation in shared savings programs. Section 1899 of the Act
states that providers of services or suppliers that participate in
certain programs are not eligible to participate in the Shared Savings
Program. Section 1899(b)(4)(A) and (B) of the statute, as added by
section 3022 of the Affordable Care Act, states these exclusions are
``(A) a model tested or expanded under section 1115A [the Innovation
Center] that involves shared savings under this title or any other
program or demonstration project that involves such shared savings; (B)
the independence at home medical practice pilot program under section
1866E.''
Other shared savings programs that include the opportunity for
Medicare-enrolled TINs to earn payment, in the form of shared savings,
for savings to Medicare for Part A and B services rendered to Medicare
FFS beneficiaries would be considered duplicative. We have determined
that the following existing shared savings programs overlap with the
Shared Savings Program and therefore, a Medicare-enrolled TIN may not
participate in both the Shared Savings Program and one of the
following:
Independence at Home Medical Practice Demonstration
program, as established by section 3024 of the Affordable Care Act.
Medicare Health Care Quality Demonstration Programs, as
established by section 646 of the Medicare Modernization Act.
Medical home demonstrations with a shared savings element:
Currently, the only such Medicare demonstration that includes a shared
savings component is the multi-payer advanced primary care
demonstration
Physician Group Practice Transition Demonstration.
Additional programs, demonstrations, or models with a shared
savings component may be introduced in the Medicare program in the
future. Interested parties should check the CMS Web site for an updated
list to ensure that a provider or supplier participating in the Shared
Savings Program does not participate in another Medicare program or
demonstarion involving shared savings.
The prohibition against duplication in participation in shared
savings programs applies only to programs that involve shared savings
under Medicare, and the following are examples of such programs
established by the Affordable Care Act which are unlikely to generate
duplicative shared savings:
State initiatives to provide health homes for Medicaid
enrollees with chronic conditions as authorized under section 2703 of
the Affordable Care Act.
Program to establish community health teams to support
patient-centered medical homes under section 3502 of the Affordable
Care Act.
We believe a principal reason underlying the prohibition against
participation in multiple shared savings programs is to prevent a
provider or supplier from being rewarded twice for achieving savings in
the cost of care provided to the same beneficiary. As discussed in
section II.D. of this proposed rule, we propose that beneficiaries will
be assigned to an ACO based upon the TIN of the ACO participant from
which they receive the plurality of their primary care services.
Therefore, to ensure that a provider or supplier is rewarded only once
with shared savings for the care of a beneficiary, an ACO participant
may not also participate in another Medicare program or demonstration
involving shared savings. However, in order to maintain as much
flexibility as possible for ACO providers/suppliers to participate
concurrently in multiple CMS shared savings programs, we do not believe
it is appropriate to extend this prohibition to individual providers
and suppliers. We explore alternative provider incentives, payment
arrangements and care delivery mechanisms through its shared savings
programs, often specific to subsets of Medicare or Medicaid
beneficiaries. To further our understanding of the delivery of cost
effective and high quality care, and to ensure beneficiaries receive
the most appropriate care possible relative to their needs, individual
practitioners should have the opportunity to concurrently participate
in multiple shared savings programs. Accordingly, an ACO provider/
supplier who submits claims under multiple Medicare-enrolled TINs may
participate in both the Shared Savings Program and another shared
savings program if the patient population is unique to each program and
if none of the relevant Medicare-enrolled TINs participate in both
programs. For example, an ACO practitioner participating in the Shared
Savings Program under an ACO participant practice TIN could also
participate in the Independence at Home Demonstration under a different
TIN that is not an ACO participant since there would be no duplication
in beneficiary assignment; and therefore, no duplication in shared
savings.
We propose a process for ensuring that savings associated with
beneficiaries assigned to an ACO participating in the Shared Savings
Program are not duplicated by savings earned in another Medicare
program or demonstration involving shared savings. If such a program
assigns beneficiaries based upon the TINs of health care providers from
whom they receive care, we will compare the participating TINs in the
program with those in the Shared Savings Program to ensure that TINs
used for beneficiary assignment to an ACO participating in the Shared
Savings Program are unique and that beneficiaries are assigned to only
one shared savings program. If the other program or demonstration
involving shared savings does not assign beneficiaries based upon the
TINs of the health care providers from whom they

[[Page 19632]]

receive care, but uses an alternate beneficiary assignment methodology,
we propose working with the developers of the respective demonstrations
and initiatives to devise an appropriate method to ensure no
duplication in shared savings payment. Applications for participation
in the Shared Savings Program that include TINs that are already
participating in another Medicare shared savings program will be
rejected.
2. Transition of the Physician Group Practice (PGP) Demonstration Sites
Into the Shared Savings Program
The PGP demonstration, authorized under section 1866A of the Act,
was our first experience with a shared savings program in Medicare. The
PGP demonstration serves as a model for many aspects of the Shared
Savings Program. Section 1899(k) of the Act speaks directly to the
treatment of the PGP demonstration. ``During the period beginning on
the date of the enactment of this section and ending on the date the
program is established, the Secretary may enter into an agreement with
an ACO under the demonstration under section 1866A of the Act, subject
to rebasing and other modifications deemed appropriate by the
Secretary.'' As the final performance year of the initial five year PGP
demonstration concluded in March 2010, this section of the Affordable
Care Act authorizes the Secretary to extend the PGP demonstration.
It is likely that the 10 physician groups in the PGP demonstration
will be uniquely situated and qualified to be among the organizations
which are ready to become early participants in the Shared Savings
Program. As noted previously, consistent with section 1899(b)(4) of the
Act, to be eligible to participate in the Shared Savings Program, a
provider of services or supplier may not also be participating in a
demonstration project that involves shared savings, such as the PGP
demonstration. Thus, the PGP sites would be permitted to participate in
either the PGP demonstration or the Shared Savings Program under
section 1899 of the Act, but could not participate in both. Since
assignment methodologies are similar between the Shared Savings Program
and the PGP demonstration, we will provide for unique assignment of
beneficiaries by ensuring there is no overlap in participating
Medicare-enrolled TINs as mentioned previously.
We believe it is appropriate to consider what transition process
should be available for those PGP demonstration sites that wish to
participate in the Shared Savings Program. We do not believe that
automatically transferring the PGP demonstration sites into the Shared
Savings Program is appropriate because we are concerned that some of
the PGP demonstration participants may be incapable of meeting the
Shared Savings Program's requirements, thereby jeopardizing the
participant's ability to achieve the overall goals associated with the
Shared Savings Program, including the ability to achieve shared
savings. On the other hand, requiring the PGP sites to undergo the same
application process as all other entities would not account for our
familiarity with these organizations, and their experience with
redesigning care processes and improving quality in a shared savings
setting. In addition, requiring the sites to undergo the full
application process could potentially deter qualified sites that are
currently participating in the PGP demonstration from transitioning
from the PGP demonstration to the Shared Savings Program.
We propose that should a PGP site decide to apply for participation
to the Shared Savings Program, we will give the site the opportunity to
complete a condensed application form. The condensed application form
would require the applicant to provide the information that is required
for the standard Shared Savings Program application but that was not
already obtained through its application for or via its participation
in the PGP demonstration and, if necessary, to update any information
contained in its application for the PGP demonstration that is also
required on the standard Shared Savings Program application. For
instance, the condensed application would ensure that the PGP site
satisfies the eligibility requirements of the Shared Savings Program,
as follows:
Establishing a shared governance structure and leadership
and management structure according to program requirements;
Providing documentation around processes for quality
management and patient engagement, and patient-centeredness criteria as
described in section II.B of this proposed rule. However, it should be
noted that some PGP sites applying to the Shared Savings Program may
not constitute a newly created ACO and therefore would be exempt from
the antitrust review described previously in the Coordination With
Other Agencies section of this preamble.
3. Overlap With the Center for Medicare & Medicaid Innovation
(Innovation Center) Shared Savings Models
Section 1899(i) of the Act gives the Secretary the authority under
the Shared Savings Program to use other payment models determined to be
appropriate, including partial capitation and any additional payment
model that the Secretary determines will improve the quality and
efficiency of items and services furnished under Medicare. The purpose
of the Innovation Center, established in section 1115A of the Act, as
amended by section 3021 of the Affordable Care Act, is to test
innovative payment and service delivery models to reduce expenditures
under Medicare, Medicaid, and the CHIP, while preserving or enhancing
the quality of care furnished to individuals under these programs.
Preparations are currently underway to develop this capability. Within
the Innovation Center, it may be possible to test different payment
models, provide assistance to groups of providers and suppliers that
wish to develop into an ACO, or enhance our understanding of different
benchmarking methods. As the Innovation Center gains experience with
different ACO payment models, we can use proven methods to enhance and
improve the Shared Savings Program over time.
As mentioned previously, section 1899(b)(4) of the Act also
restricts providers of services and suppliers from participating in
both the Shared Savings Program and other shared savings programs and
demonstrations. We intend to coordinate our efforts to ensure that
there is no duplication of participation in shared savings programs
through provider or supplier participation in both the Shared Savings
Program and any shared savings models tested by the Innovation Center.
Similarly, we will also take steps to ensure there is a methodology to
avoid duplication of payments for beneficiaries aligned with providers
and suppliers in both the Shared Savings Program and any current or
future models tested by the Innovation Center.
Finally, the Innovation Center is seeking input on how it can best
test different payment models that provide financial and technical
assistance to groups of providers and suppliers that may wish to
develop into an ACO.

III. Collection of Information Requirements

As stated in section 3022 of the Affordable Care Act, Chapter 35 of
title 44, United States Code, shall not apply to the Shared Savings
Program.

[[Page 19633]]

Consequently, the information collection requirements contained in this
proposed rule need not be reviewed by the Office of Management and
Budget.

IV. Response to Comments

Because of the large number of public comments we normally receive
on Federal Register documents, we are not able to acknowledge or
respond to them individually. We will consider all comments we receive
by the date and time specified in the DATES section of this preamble,
and, when we proceed with a subsequent document, we will respond to the
comments in the preamble to that document.

V. Regulatory Impact Analysis

A. Introduction

We have examined the impacts of this proposed rule as required by
Executive Order 12866 on Regulatory Planning and Review (September 30,
1993), Executive Order 13563 on Improving Regulation and Regulatory
Review (January 18, 2011), the Regulatory Flexibility Act (RFA)
(September 19, 1980, Pub. L. 96-354), section 1102(b) of the Act,
section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4), Executive Order 13132 on Federalism (August 4, 1999), and the
Congressional Review Act (5 U.S.C. 804(2)).
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, of reducing costs, of harmonizing rules, and of promoting
flexibility. This rule has been designated an ``economically''
significant rule, under section 3(f)(1) of Executive Order 12866.
Accordingly, the rule has been reviewed by the Office of Management and
Budget.
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also
requires that agencies assess anticipated costs and benefits before
issuing any rule whose mandates require spending in any 1 year of $100
million in 1995 dollars, updated annually for inflation. In 2011, that
threshold is approximately $136 million. This proposed rule does not
include any mandate that would result in spending by State, local or
tribal governments, in the aggregate, or by the private sector in the
amount of $136 million in any one year. We acknowledge that there will
be costs borne by the private sector, as discussed in this regulatory
impact section, in order to participate in this program; however,
participation is voluntary and is not mandated.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a proposed rule (and subsequent
final rule) that imposes substantial direct requirement costs on State
and local governments, pre-empts State law, or otherwise has Federalism
implications. We do not believe that there is anything in this proposed
rule that either explicitly or implicitly pre-empts any State law, and
furthermore we do not believe that this proposed rule will have a
substantial direct effect on State or local governments, preempt States
law, or otherwise have a Federalism implication.

B. Statement of Need

This proposed rule is necessary to implement section 3022 of the
Affordable Care Act which amended Title XVIII of the Act (42 U.S.C.
1395 et seq.) by adding a new section 1899 of the Act to establish a
Shared Savings Program that promotes accountability for a patient
population, coordinates items and services under parts A and B, and
encourages investment in infrastructure and redesigned care processes
for high quality and efficient service delivery. Section 1889(a)(1) of
the Act requires the Secretary to establish this program not later than
January 1, 2012. Also, section 1889(a)(1)(A) of the Act states that
under this program, ``groups of providers of services and suppliers
meeting criteria specified by the Secretary may work together to manage
and coordinate care for Medicare fee-for-service beneficiaries through
an accountable care organization (referred to as an `ACO');'' and
section 1889(a)(1)(B) of the Act provides that ``ACOs that meet quality
performance standards established by the Secretary are eligible to
receive payments for shared savings * * *.''
The Shared Savings Program is a new approach to the delivery of
health care aimed at reducing fragmentation, improving population
health, and lowering overall health care costs.
The Shared Savings Program should provide an entry point for all
willing organizations who wish to move in a direction of providing
value-driven healthcare. Consequently, in accordance with the authority
granted to the Secretary under sections 1899(d) and 1899(i) of the Act,
we looked at creating both a shared savings model (one-sided) and a
shared savings/losses model (two-sided). The sharing parameters under
the two options are balanced so as to provide greater reward for
organizations accepting risk while maintaining sufficient incentive to
encourage providers to participate in the one-sided model, providing an
entry point to risk-oriented models.
As detailed in Table 10, we estimate a total aggregate median
impact of $510 million in net Federal savings for CYs 2012 through 2014
from the implementation of the Shared Savings Program. (An estimate
produced by the Office of the Actuary on April 22, 2010 showed no net
impact only because the statute by itself lacked enough detail to allow
for scoring.) The 10th and 90th percentiles of the estimate
distribution, for the same time period, show net savings of $960
million and $170 million. These estimated impacts represent the effect
on Federal transfers. The estimated aggregate cost for start-up
investment and first year operating expenditures for ACOs in the Shared
Savings Program range from $131,643,825 to $263,287,650, assuming 75 to
150 ACOs participating in the Shared Savings Program. Furthermore, the
Shared Savings Program would benefit beneficiaries since the program
requires ACOs to be accountable for Medicare beneficiaries, improve the
coordination of FFS items and services, encourage investment in
infrastructure and redesigned care processes for high quality and
efficient service delivery that demonstrate a dedication and focus
toward patient-centered care. Accordingly, we have prepared a RIA that
to the best of our ability presents the costs and benefits of this
proposed rule. We solicit comment on the assumptions and analysis
presented throughout this regulatory impact section.

[[Page 19634]]

[GRAPHIC] [TIFF OMITTED] TP07AP11.030

As discussed in the preamble of this proposed rule, the Shared
Savings Program establishes a program whereby groups of suppliers and
providers can work together through ACOs that would assume
responsibility for managing and coordinating the care of groups of
traditional FFS Medicare patients. Participating ACOs will have the
opportunity to earn shared savings payments by reducing Medicare
expenditure growth for their assigned beneficiaries below specified
target thresholds or benchmarks while simultaneously meeting quality
performance measures. An ACO could initially opt for one of two program
tracks. The first option (one-sided model) offers eligibility for
shared savings payments in years 1 and 2 without the risk of being
responsible for repaying any losses if actual expenditures exceed the
benchmark, followed by a third year offering a higher percentage of
shared savings but also risk for excess expenditures above the
benchmark. The second option (two-sided model) provides an opportunity
for receiving a higher percentage of shared savings for all 3 years,
but with potential liability in each of the 3 years for annual
expenditures that exceed the benchmark.
There is substantial uncertainty as to the number of ACOs that will
participate in the program, their characteristics, provider and
supplier response to the financial incentives offered by the program,
and the ultimate effectiveness of the changes in care delivery that may
result as ACOs work to improve the quality and efficiency of patient
care. These program design and other uncertainties complicate efforts
to assess the financial impacts of the Shared Savings Program and
result in a wide range of potential outcomes regarding the net impact
on Medicare expenditures.
To best reflect these uncertainties, we designed a stochastic model
that incorporates assumed probability distributions for each of the key
variables that will affect the overall financial impact of the Shared
Savings Program. Using a Monte Carlo simulation approach, the model
randomly draws a set of specific values for each variable, reflecting
the expected covariance among variables, and calculates the program's
financial impact based on the specific set of assumptions. We repeated
the process for a total of 5,000 random trials, tabulating the
resulting individual cost or savings estimates to produce a
distribution of potential outcomes that reflects the assumed
probability distributions of the incorporated variables, as shown in
Table 10. In this way, we can evaluate the full range of potential
outcomes based on all combinations of the many factors that will affect
the financial impact, and with an indication of the likelihood of these
outcomes. It is important to note that these indications do not
represent formal statistical probabilities in the usual sense, since
basis for the underlying assumptions for each of the factors in the
model are based on reasonable judgments, using independent expert
opinion when available.
The median result from the distribution of simulated outcomes
represents the ``best estimate'' of the financial effect of the Shared
Savings Program, recognizing the uncertainty inherent in a new program
with uncertain responses. The full distribution illustrates the
uncertainty surrounding the mean or median financial impact from the
simulation.
As detailed in Table 11, the median estimate involves a combination
of: (1) Reduced actual Medicare expenditures due to more efficient
care; (2) shared savings payments to ACOs; and (3) payments to CMS for
shared losses when actual expenditures exceed the benchmark, resulting
in a projected total of $510 million in net savings over CYs 2012
through 2014. Approximately 97 percent of the stochastic trials
resulted in a net savings to the Medicare program, while the other 3
percent produced a net cost. At the extremes, the greatest simulated
savings was approximately $1,960 million, while the greatest simulated
cost was $270 million.
A net savings (costs) occurs when the payment of earned and
unearned shared-savings bonuses (less penalties collected) resulting
from-- (1) Reductions in spending; (2) program design; and (3) random
group claim fluctuation, in total are less than (greater than) assumed
savings from reductions in expenditures.
As we finalize the Shared Savings Program provisions, and as the
actual number of participating ACOs and their characteristics become
known, the range of financial outcomes will narrow. Similarly, as data
become available on the initial differences between actual expenditures
and the target expenditures reflected in ACO benchmarks, it will be
possible to evaluate the financial effects with greater certainty. The
estimate distribution shown provides an objective and reasonable
indication of the likely range of financial outcomes, given the chosen
variables and their assumed distributions at this time in the program's
development.

C. Anticipated Effects

1. Effects on the Medicare Program
As a voluntary program involving an innovative and complex mix of
financial incentives for quality of care and efficiency gains within
FFS Medicare, the Shared Savings Program could result in a wide range
of possible outcomes. While examples exist across the

[[Page 19635]]

healthcare marketplace for risk-sharing arrangements leading to
efficiency gains, a one-sided model would presumably provide a weaker
incentive to ACOs than other possible approaches. The optional two-
sided risk model, and the requirement for all other ACOs to accept
downside risk in their third program year, both provide stronger
incentives than a shared savings only approach. For example, under the
one-sided model, a provider's worst-case outcome is the failure to earn
shared-savings. A provider would operate under the significant
possibility that there would be no impact on their Medicare
reimbursement. The two-sided risk model, however, presents liability
for excessive expenditures, significantly increasing a provider's
perceived likelihood that aggregate Medicare revenue will depend on the
level of efficiency with which they operate. In addition, the two-sided
model offers a lower minimum savings rate and a greater sharing
percentage, both of which enhance the incentive for efficiency.
However, participating ACOs may be more likely to choose the one-sided
model for the first 2 years and thereby avoid the potential for
financial loss if expenditures experience a significant upward
fluctuation or if efficiency improvements are less effective than
planned.
In the third year of their first agreement period, as noted
previously, all ACOs that participate in the one-sided model during the
first 2 years of the agreement period will be required to transition to
the two-sided risk model. We believe certain participating ACOs may
choose to terminate their agreement early after the first 2 years. For
example, ACOs in Track 1 that failed to meet the expenditure growth
targets in the first 2 years (but were protected from penalties by
being in the one-sided model), would likely reconsider their continuing
participation. Certain other ACOs, such as those in higher-cost areas
of the country, could also terminate their agreement if they anticipate
that the national growth formula, relative to their local baseline
cost, puts them in jeopardy of experiencing losses in the third year.
(Under section 2899(d) of the Act, we update ACO benchmarks by the
estimated annual increase in the absolute amount of national average
Medicare Part A and Part B expenditures, expressed as a flat dollar
amount for each year. As a result, the updates to ACO benchmarks in
percentage terms will be higher in low-cost areas of the country and
lower in high-cost areas.) This scenario could contribute to selective
program participation by ACOs favored by the national flat-dollar
growth target.
While shared FFS savings, even with optional liability for a
portion of excess expenditures, offers less incentive to reduce costs
or improve efficiency than, say, full capitation, it still represents a
new incentive for efficiency. Shared-savings (and potential
liabilities) will have varying degrees of influence on hospitals,
primary physicians, specialty physicians, and other providers. The
expectation is for different ACOs to comprise a varying mix of these
providers and suppliers. And while certain care improvements might be
achieved relatively quickly (for example, prevention of hospital
readmissions and emergency-room visits for certain populations with
chronic conditions), many potential ACOs might need more than 3 years
to achieve comprehensive efficiency gains. Challenges include
identification of assigned beneficiaries, managing care furnished by
providers and suppliers outside the ACO, lack of similar contracts with
other payers, achieving buy-in from ACO providers and suppliers, and
the extent to which possible future shared savings or losses will
affect the perceived value of immediate FFS revenue for providers and
suppliers participating in the ACO.
a. Assumptions and Uncertainties
We sought input from a wide range of external experts, including
credentialed actuaries, consultants, and academic researchers, to
identify the pertinent variables that could determine the efficacy of
the program, and to identify the reasonable ranges for each variable.
The assumptions identified and stochastically modeled include the
following:
Number of participating ACO provider groups.
Size mix of participating ACOs.
Type of ACO that would consider accepting risk under the
two-sided risk option.
Participating ACOs' current level of integration and
preparedness for improving the quality and efficiency of care delivery.
Baseline per-capita costs for prospective ACOs, relative
to national average.
Number and profile of providers and suppliers unavailable
to participate in the Shared Savings Program due to participation in
ACO models tested by the Innovation Center.
Range of savings for participating ACOs within the first
three years of the program.
Local variation in expected claims cost growth relative to
the national average.
Quality reporting scores and resulting attained sharing
(or loss) percentages.
Overall we assumed 1.5 to 4 million Medicare beneficiaries would
align with a participating ACO during the first three years of the
program. We assumed ACOs to be more likely to participate from markets
exhibiting baseline per-capita FFS expenditures above the national
average. In addition, we assumed the level of savings generated by an
ACO to positively correlate to the achieved quality performance score
and resulting sharing percentage.
Of particular relevance is the high degree of variability observed
for local per-capita cost growth rates relative to the national average
``flat dollar'' growth (used to update ACO benchmarks). The benchmark
or expenditure target effectively serves as the only measure of
efficiency for participating ACOs. Factors such as lower-than-average
baseline per-capita expenditure and variation in local growth rates
relative to the national average can trigger Shared Savings Program
shared savings payments even in the absence of any efficiency gains.
Similarly, some ACOs could find that in the determination of shared
savings by factors such as prevailing per-capita expenditure growth in
their service area that is higher than the national average overshadows
their hard-fought efficiency gains.
b. Detailed Stochastic Modeling Results
Table 11 shows the distribution of the estimated net financial
impact for the 5,000 stochastically generated trials. (The amounts
shown are in millions, with negative net impacts representing Medicare
savings). The net impact is defined as the total cost of shared savings
less--(1) any amount of savings generated by reductions in actual
expenditures; and (2) any losses collected for ACOs that accepted risk
and have actual expenditures exceeding their benchmark.
The median estimate of the Shared Savings Program financial impact
for calendar years 2012 through 2014 is a net savings of $510 million.
This amount represents the ``best estimate'' of the 3-year financial
impact of the Shared Savings Program initiative. It is important to
note, however, the relatively wide range of possible outcomes. Overall,
97 percent of the stochastic trials resulted in net program savings,
and the other 3 percent represented cost increases. The 10th and 90th
percentiles of the estimated

[[Page 19636]]

distribution show net savings of $960 million and $170 million,
respectively, suggesting a 10 percent likelihood that the actual impact
would fall outside respective percentile amounts. In the extreme
scenarios, the results were as large as $2 billion in savings or $270
million in costs.
Our Office of the Actuary (OACT) prepared the stochastic model and
resulting financial estimates. OACT believes that the median result of
$510 million in savings is a reasonable ``point estimate'' of the
impact of the Shared Savings Program provision in current law, as it
would be implemented through this proposed rule. However, OACT
emphasizes the possibility of outcomes that differ substantially from
the median estimate, as illustrated by the estimate distribution. With
the adoption of final program provisions and with additional data on
the actual number and characteristics of participating ACOs, we can
estimate the financial impact with greater precision.
The projections assume the assignment of roughly 1.5 to 4 million
beneficiaries to participating ACOs over the first 3 years. To the
extent that the Shared Savings Program will result in net savings or
costs to Part B of Medicare, revenues from Part B beneficiary premiums
would also be correspondingly lower or higher. In addition, because MA
payment rates depend on the level of spending within traditional FFS
Medicare, Shared Savings Program savings or costs would result in
corresponding adjustments to MA payment rates. Neither of these
secondary impacts has been included in the analysis shown.
[GRAPHIC] [TIFF OMITTED] TP07AP11.031

Table 12 shows the median estimated financial effects for the
Shared Savings Program initiative, and the associated 10th and 90th
percentile ranges, broken out for each of the first 3 years. For the
first year, 2012, the median projection indicates a $100 million
savings, primarily because the ACO cost-efficiency initiatives are
generally not assumed to have matured, but a number of provider groups
that benefit from favorable random claim fluctuations or from low
baseline expenditure relative to the national average would receive
shared saving payments. By the second and third years, 2013 and 2014,
of the projection, the median estimates indicate net savings of $210
million and $200 million, respectively, from increased cost-saving
effectiveness offset in part by shared savings paid due to random
variation and the (increasing) variation in the accuracy of updated
national targets compared to actual local growth as well as
participation and sharing percentage changes resulting from mandatory
transition to two-sided risk in the third year. As a result, the
projections for years 2 and 3 cover a wider range of possible outcomes,
reflecting a growing dependence on uncertain assumptions for savings
and expenditure growth variation relative to the national average.

[[Page 19637]]

[GRAPHIC] [TIFF OMITTED] TP07AP11.032

c. Further Consideration
The impact analysis shown is only for the first 3-year agreement
period. Beyond this initial period, there is additional uncertainty, in
significant part because the rules governing subsequent Shared Savings
Program agreement periods have not yet been developed. A risk exists
that by ACOs in low-cost areas could dominate the Shared Savings
Program, where participation could be a relatively risk-free
opportunity to achieve shared savings simply due to the generous
benchmark presented by national average ``flat-dollar'' growth. On the
other hand, the first 3-year agreement period ACOs could foster
significant improvements in the quality and cost-efficiency of health
care delivery, leading to broader use of these techniques nationwide
and accelerated adoption of risk-sharing arrangements (such as partial
capitation, bundled payments, etc.). These changes could result in
significant efficiency gains in FFS Medicare. The stochastic model for
the first 3 years of the program, does not incorporate either of these
longer-run scenarios, but both remain possibilities--subject to the
final program design and implementation. At this time, an impact
estimate expanded to include performance beyond the initial 3-year
period would likely entail a significantly wider range of possible
outcomes. The results of the first performance cycle, however, will
help inform estimates of the ongoing financial effects of the Shared
Savings Program.
2. Impact on Beneficiaries
We anticipate the Shared Savings Program will benefit beneficiaries
because the intent of the program is to require ACOs to be accountable
for Medicare beneficiaries, improve the coordination of FFS items and
services, encourage investment in infrastructure and redesigned care
processes for high quality and efficient service delivery that
demonstrates a dedication and focus toward patient-centered care.
Patient-centered care is a concept that focuses healthcare delivery and
communication on the patient and those who are close to the patient and
bases the care and communication delivered around the needs of the
beneficiary, thus benefitting the beneficiary community. This program
does not affect the beneficiary's freedom of choice regarding providers
or care. Also, a requirement of ACO participation in the Shared Savings
Program is reporting of, and successful performance related to, quality
measures and patient-experience surveys. These aspects of the Shared
Savings Program will encourage the provider and supplier community to
focus on and deliver improved quality care. In addition to existing
Medicare monitoring programs that are in place to protect
beneficiaries, the Shared Savings Program will include monitoring and
auditing processes to protect beneficiary choice as well as ensure that
beneficiaries are receiving the appropriate care. As is discussed in
more detail in the preamble, these processes include monitoring ACO
avoidance of at-risk beneficiaries, assessing and providing follow up
on beneficiary complaints, audits (including, for example, analysis of
claims, chart review, beneficiary surveys, coding audits) and analysis
of quality performance.
More specifically, we believe that beneficiary impacts would be
maximized as the ACO meets the mission of the Shared Savings Program,
as established by the Affordable Care Act and embraces the following
goals of better health and experience of care for individuals, better
health for populations and lower expenditure growth. The ACO's impact
will be demonstrated by how effectively it delivers care as measured
under the financial methodology outlined in

[[Page 19638]]

section II. F, Shared Savings Determination, of this proposed rule, how
well it improves and delivers high quality care outlined in the quality
measurement and reporting methodology in section II.E. of this proposed
rule, and in meeting program requirements for patient centered care
outlined in the eligibility section II.B. of this proposed rule.
Therefore, because of the accountability of ACOs for both the
quality and overall cost of care provided to their assigned beneficiary
population and must meet the quality performance standards prior to
sharing any savings; they have new incentives to improve the health and
well being of the beneficiaries they treat. ACOs will report on
conditions and areas that are high prevalence and high cost in the
Medicare population, such as chronic disease, ambulatory care sensitive
conditions, care transitions and readmissions, and patient experience.
We have observed that measuring quality and providing incentives can
result in redesigned care processes that provide clinicians with
actionable information on their patients at the point of care which can
lead to improved patient care processes and outcomes. For example, the
Medicare Physician Group Practice Demonstration Fact Sheet (CMS, August
2009) showed that over the first three years of the PGP Demonstration,
physician groups increased their quality scores an average of 10
percentage points on the 10 diabetes measures, 11 percentage points on
the ten congestive heart failure measures, 6 percentage points on the
coronary artery disease measures, 10 percentage points on the cancer
screening measures, and 1 percentage point on the hypertension
measures. Further analysis is provided in the Physician Group Practice
Demonstration Evaluation Report (Report to Congress, 2009; http://www.cms.gov/DemoProjectsEvalRpts/downloads/PGP_RTC_Sept.pdf).
In addition to the overall increases in quality scores, we can
examine the impact of the PGP Demonstration on quality can be examined
by comparing the values of the seven claimsbased quality measures for
each PGP site and its comparison group. Our analysis found that, on the
claims-based measures, PGP performance exceeded that of the comparison
groups (CGs) on all measures between the base year (BY) and performance
year 2 (PY2). It also found that the PGP sites exhibited more
improvement than their CGs on all but one measure between the BY and
PY2. Even after adjusting for pre-demonstration trends in the claims-
based quality indicators, the PGP sites improved their claims-based
quality process indicators more than their comparison groups.
3. Impact on Providers and Suppliers
In order to participate in the program, we realize that there will
be costs borne in building the organizational, financial and legal
infrastructure that is required of an ACO as well as performing the
tasks required (as discussed throughout the Preamble) of an eligible
ACO, such as: quality reporting, conducting patient surveys and
investment in infrastructure for effective care coordination. While
provider and supplier participation in the Shared Savings Program will
be voluntary, we have examined the potential costs that program
participation will create.
The proposed rule allows for flexibility regarding the specific
structure of an ACO and, as such, we expect the costs to vary greatly.
Furthermore, beyond the statutorily required assignment of at least
5,000 Medicare beneficiaries to an ACO, the size of ACOs will also vary
in relation to beneficiary participation and associated cost. Due to
the limited precedence for this program and uncertainty regarding the
structure and strategies that the provider community will pursue in
order to participate as an ACO, estimates of expected provider costs
are difficult to create. An analysis produced by the Government
Accountability Office (GAO) of first year total operating expenditures
for participants of the Medicare PGP Demonstration varied greatly, from
$436,386 to $2,922,820, with the average for a physician group at
$1,265,897 (Medicare Physician Payment: Care Coordination Programs Used
in Demonstration Show Promise, but Wider Use of Payment Approach May Be
Limited. GAO, February 2008). These costs (for groups which all had 200
or more physicians) include investments in infrastructure and
information technology enhancements, management, quality reporting, and
focused care coordination programs. The GAO also discovered that start-
up investment expenditures in the PGP Demonstration varied between
$82,573 and $917,398, with the average for a physician group at
$489,354.
It is worth noting that the 10 participating physician groups in
the demonstration were large compared with other physician practices in
terms of annual medical revenues and nonphysician staff. GAO claims
that their larger relative size gave the 10 participating physician
groups in the PGP Demonstration three size-related advantages over
smaller physician practices. First, participants typically had
institutional affiliations with an integrated delivery system, a
general hospital, or a health insurance entity. Specifically 9 of the
10 participating physician groups were part of an integrated delivery
system, 8 affiliated with a general hospital, and 5 affiliated with an
entity that marketed a health insurance product. As a result of these
affiliations, GAO claims that participating physician groups generally
had greater access to relatively large amounts of financial capital
needed to initiate or expand programs. The second advantage, GAO
claims, the 10 large participating physician groups had over smaller
physician practices is the increased probability of having or acquiring
EHR systems, which was essential in participants' ability to gather
data and track progress in meeting quality-of-care targets. For
example, 8 of the 10 participating physician groups had an EHR in place
before the demonstration began, and the 2 other participants, out of
necessity, developed alternative methods for gathering patient data
electronically. Lastly, GAO claims that the third size-related
advantage that most of the 10 participating physician groups had over
smaller physician practices was the larger groups' experience with
other pay-for-performance systems prior to participating in the PGP
Demonstration. That is, 8 of the 10 participants had previous
experience with pay-for-performance programs initiated by private or
public sector organizations. This experience, GAO concludes, may have
eased their adjustment to the PGP Demonstration and allowed them
greater initial and overall success.
We use this analysis not to predict cost investment and operating
expenditures, but to demonstrate that we expect the range of investment
to vary greatly across ACOs and to provide potential scope for aspiring
participants. We expect that due to the difference in program
requirements between the Shared Savings Program and the PGP
Demonstration Project, and the potential variation in ACO size and
structure, the PGP related costs may be a subset of the investment
required by entities seeking participation in this program. However, we
recognize that potential advantageous key drivers for participating
physician groups would include institutional affiliations that allow
greater access to financial capital, access to and experience using EHR
and other IT systems and experience with pay-for-performance programs.
As a result, we present a rough estimate of

[[Page 19639]]

$1,755,251, based on the GAO findings to reflect the total average
start-up investment and first year operating expenditures for a
participant in the Shared Savings Program. Lastly, assuming a range of
expected ACOs participating in the Shared Savings Program at 75 to 150
yields an estimated aggregate cost, for ACO start-up investment and
first year operating expenditures in the Shared Savings Program, in the
range of $131,643,825 to $263,287,650.
Participating in the Shared Savings Program will require groups of
providers and suppliers to (among other things): invest in or improve
upon information technology systems, focus on evidence-based medicine,
improve care coordination and quality and generally refine all
processes of caring for their patients and community. While, as we
discussed previously, there will be a financial cost placed on ACOs in
order to do so, there will be benefits to the respective organizations
in the form of increased operational and healthcare delivery
efficiency. Furthermore, as discussed previously, and explained in more
detail in the preamble of this proposed rule, there will be an
opportunity for financial reward for success in the program in the form
of shared savings. The estimated bonuses paid are a median of $800
million over 3 years, with $560 million and $1,130 million reflecting
the 10th and 90th percentiles. Also, participating ACO's will be
assuming a risk of a financial penalty for failing to achieve savings
(that is, if actual expenditures exceed the benchmark). The estimated
penalties paid are a median of $40 million over 3 years, with $10
million and $80 million reflecting the 10th and 90th percentiles. (It
is important to note that the given percentiles for bonuses, penalties,
and net impacts are independently tabulated and therefore are not
additive across the three parameters.) The actuality of the risk is
dependent on which of the two options an ACO selects for their first
agreement period. Due to the voluntary nature of this program, we
expect the formation of ACOs by entities that aspire to receive
benefits that outweigh their costs. We anticipate that not all ACOs
will achieve shared savings and some will incur a financial loss, due
to requirement to repay a share of actual expenditures in excess of
their benchmark.
As is previously stated, we expect the costs and benefits of
establishing and maintaining an ACO to vary and solicit comment on this
issue, including total ACO expenditures for start-up investment and
annual operating costs for the 3 years of the Shared Savings Program.

D. Alternatives Considered

The proposed rule contains a range of policies. Many tenets of the
program are statutorily mandated and thus allow for little, if any,
flexibility in the rulemaking process. Where there was flexibility, we
made our policy decisions regarding alternatives based on a balance
between creating the least possible negative impact on the stakeholders
affected by the program on and satisfactorily fitting the vision of the
program within given operational constraints.
For example, while the Affordable Care Act mandates that an ACO be
large enough to care for minimum of 5,000 assigned beneficiaries, as is
described in the preamble, we are proposing a sliding minimum
percentage and confidence interval for the savings threshold based on
the size of an ACO. This proposal is a balance of protecting the
program from paying out savings based on random variation, while
allowing attainable thresholds for smaller sized potential ACOs and
thus encouraging participation from various sized entities.
The preceding preamble provides descriptions of the various
statutory provisions that are addressed, identifies those policies when
discretion has been allowed and exercised, presents the rationales for
our proposals and, where relevant, alternatives that were considered.
An important example involves adjustments to an ACO's benchmark for
changes in FFS price adjustments (such as the geographic practice cost
index (GPCI) under the PFS and hospital wage index). Such price changes
regularly occur and often impact counties or other localities in
magnitudes that can significantly differ from the national average. If,
for example, operating cost payments are reduced for section 508
hospitals (as will occur under current law at the end of FY 2011) then
ACO-attributed claims incurred in a 508 hospital would exhibit
significant price decreases which could lead to shared savings payments
unrelated to real improvements in ACO efficiency. Absent such
adjustments, these statutory changes will impact the comparison of
actual expenditures and the benchmark. However, as we have previously
noted, the statute provides authority for adjustment to the benchmark
for ``such other factors as the Secretary determines appropriate.''
Another design element involves the method for constructing a
participating ACO's benchmark. One proposed method employs a similar
approach to that used in the CMS PGP Demonstration and is based on
risk-adjusting to take into account changes in the health status of the
population between the benchmark period and performance year. If HCC
risk adjustments are specified in the final program then it must be
applied in a manner that does not reward ACOs for more complete and
accurate coding of their assigned patient population to protect the
program from costs due to paying shared savings as a result of greater
diagnosis coding intensity in ACOs than would occur for a comparable
group of beneficiaries receiving care outside an ACO.
Finally, a key design element involves the method for establishing
quality standards. We propose aggregating the quality domain scores
into a single overall ACO score used to calculate the ACOs final
sharing rate for purposes of determining shared savings or shared
losses as described in section II.E of this proposed rule. We would
average all domain scores for an ACO together equally to calculate the
overall quality score used to calculate the ACO's final sharing rate as
previously described. We also considered a variety of scoring
methodology that would have differing incentives for improving clinical
outcomes such as: Scoring measures individually under a method that
would weight all measures equally as well as weighting quality measures
by their clinical importance. In addition to the performance score
approach that rewards ACOs for better quality with larger percentages
of shared savings as modeled in this analysis, we could use a threshold
approach that allows any ACO that meets minimum standards for the
quality to realize the full shared savings. By design this approach
could ensure higher net savings to the Medicare program, depending on
the quality threshold and sharing percentage chosen.
The provisions adopted in the final Shared Savings Program rule may
differ from the current proposals, possibly resulting in material
changes in the projected financial impact of the program. We solicit
comment on other potentially effective and reasonably feasible
alternatives especially those that reduce burdens and maintain
flexibility and freedom of choice for the public.

E. Accounting Statement and Table

As required by OMB Circular A-4 (available at http://www.whitehouse.gov/sites/default/files/omb/assets/regulatory_matters_pdf/a-4.pdf), in Table 13, we have prepared an accounting statement
showing the classification of transfers, benefits and

[[Page 19640]]

costs associated with the provisions of this proposed rule. Because of
the uncertainties identified in establishing the economic impact
estimates, we intend to update the estimates in the final rule.
[GRAPHIC] [TIFF OMITTED] TP07AP11.033

F. Conclusion

As a result of this proposed rule, the median estimate of the
financial impact from implementation of the Shared Savings Program, for
CYs 2012 through 2014, is a net savings of $510 million. Although this
is the ``best estimate'' for the 3-year financial impact of the Shared
Savings Program initiative, a relatively wide range of possible
outcomes exists. Overall, 80 percent of the stochastic trials resulted
in net program savings, and the other 30 percent represented cost
increases. The 10th and 90th percentiles of the estimate distribution
show net savings of $960 million and $170 million, respectively,
suggesting a 10-percent likelihood that the actual impact would exceed
the respective percentile amounts. In the extreme scenarios, the
results were as large as $1,960 million in savings or $270 million in
costs. Lastly, the estimated aggregate cost for ACO start-up investment
and first year operating expenditures in the Shared Savings Program
range from $131,643,825 to $263,287,650, based on an assumed 75 to 150
ACOs participating in the Shared Savings Program.
In accordance with the provisions of Executive Order 12866, this
regulation was reviewed by the Office of Management and Budget.

List of Subjects in Part 425

Administrative practice and procedure, Health facilities, Health
professions, Medicare, Reporting and recordkeeping requirements.
For the reasons set forth in the preamble, the Centers for Medicare
& Medicaid Services proposes to amend 42 CFR Chapter IV by adding part
425 to read as follows:

SUBCHAPTER B--MEDICARE PROGRAM

PART 425--MEDICARE SHARED SAVINGS PROGRAM

Sec.
Subpart A--General Provisions
425.2 Basis and scope.
425.4 Definitions.
Subpart B--Shared Savings Program Requirements
425.5 Eligibility and governance requirements.
425.6 Assignment of Medicare fee-for-service beneficiaries to ACOs.
425.7 Payment and treatment of savings.
425.8 ACO quality and continuous improvement goals.
425.9 Measures to assess the quality of care furnished by an ACO.
425.10 Calculating the ACO quality performance score and determining
shared savings eligibility.
425.11 Incorporating other reporting requirements related to the
Physician Quality Reporting System and electronic health records
technology.
425.12 Monitoring.
425.13 Actions prior to termination.
425.14 Termination, suspension, and repayment of Shared Savings.
425.15 Reconsideration review process.
425.16 Audits and record retention.
425.17 Requirements for data submission by ACOs.
425.18 The 3-year agreement with CMS.
425.19 Data sharing with ACOs.
425.20 New program standards established during the 3-year agreement
period.
425.21 Managing significant changes to the ACO during the agreement
period.
425.22 Future participation of previous Shared Savings Program
participants.
425.23 Public reporting and transparency.
425.24 Overlap with other CMS shared savings initiatives.

Subpart A--General Provisions

Sec. 425.2 Basis and scope.

(a) Basis. This part implements section 1899 of the Act by
establishing a shared savings program that promotes accountability for
a patient population, coordinates items and services under parts A and
B, and encourages investment in infrastructure and redesigned care
processes for high quality and efficient services. Under this program,
groups of providers of services and suppliers meeting criteria
specified by the Secretary may work together to manage and coordinate
care for Medicare fee-for-service beneficiaries through an accountable
care organization (ACO). ACOs that meet quality performance standards
established by the Secretary are eligible to receive payments for
shared savings. During years in which the ACO is participating in a
two-sided model, the ACO may be required to share losses.
(b) Scope. This part sets forth the following:
(1) The eligibility requirements for an ACO to participate in the
Medicare Shared Savings Program (Shared Savings Program).
(2) Program requirements, including quality and other reporting
requirements.
(3) The method for assigning Medicare fee-for-service beneficiaries
to ACOs.
(4) Payment criteria and methodologies (one-sided model and two-
sided model).

[[Page 19641]]

(5) Compliance monitoring and sanctions for noncompliance.
(6) Reconsideration of adverse determinations.

Sec. 425.4 Definitions.

As used in this part, unless otherwise indicated--
Accountable care organization (ACO) means a legal entity that is
recognized and authorized under applicable State law, as identified by
a Taxpayer Identification Number (TIN), and comprised of an eligible
group (as defined at Sec. 425.5(b)) of ACO participants that work
together to manage and coordinate care for Medicare fee-for-service
beneficiaries and have established a mechanism for shared governance
that provides all ACO participants with an appropriate proportionate
control over the ACO's decision-making process.
ACO participant means a provider (as defined in Sec. 400.202) or a
supplier (as defined at Sec. 400.202), as identified by a TIN.
ACO provider/supplier means--
(1) A provider (as defined in Sec. 400.202); or
(2) A supplier (as defined at Sec. 400.202) that bills for items
and services it furnishes to Medicare beneficiaries under a Medicare
billing number assigned to the TIN of an ACO participant in accordance
with applicable Medicare rules and regulations.
ACO professional means an ACO provider/supplier who is either of
the following:
(1) A doctor of medicine or osteopathy legally authorized to
practice medicine and surgery by the State in which he performs such
function or action, including an osteopathic practitioner within the
scope of his or her practice as defined by State law.
(2) A practitioner who is one of the following:
(i) A physician assistant (as defined at Sec. 410.74(a)(2)).
(ii) A nurse practitioner (as defined at Sec. 410.75(b)).
(iii) A clinical nurse specialist (as defined at Sec. 410.76(b)).
Antitrust Agency means the Department of Justice or Federal Trade
Commission.
Antitrust Policy Statement means the Statement of Antitrust
Enforcement Policy Regarding Accountable Care Organizations
Participating in the Medicare Shared Savings Program issued by the
antitrust agencies.
Assignment means the operational process by which CMS determines
whether a beneficiary has chosen to receive a sufficient level of the
requisite primary care services from primary care physician(s) who is
an ACO provider/supplier so that the ACO may be appropriately
designated as exercising basic responsibility for that beneficiary's
care.
At-risk beneficiary means a beneficiary who--
(1) Has a high risk score on the CMS-HCC risk adjustment model;
(2) Is considered high cost due to having two or more
hospitalizations each year;
(3) Is dually eligible for Medicare and Medicaid;
(4) Has a high utilization pattern; or
(5) Has had a recent diagnosis that is expected to result in
increased cost.
CAP means a corrective action plan.
Covered professional services has the same meaning give these terms
under section 1848(k)(3) of the Act.
Eligible professional has the meanings given this term under
section 1848(k)(3) of the Act.
Hospital means a hospital subject to the prospective payment system
specified in Sec. 412.1(a)(1) of this chapter.
Marketing materials and activities include, but are not limited to,
general audience materials such as brochures, advertisements, outreach
events, letters to beneficiaries, web pages, data sharing opt out
letters, mailings, or other activities conducted by or on behalf of the
ACO, or by ACO participants, or ACO providers/suppliers participating
in the ACO, or by other individuals on behalf of the ACO or its
participating providers and suppliers when used to educate, solicit,
notify, or contact Medicare beneficiaries or providers and suppliers
regarding the Shared Savings Program. The following beneficiary
communications are not marketing materials and activities:
Informational materials customized or limited to a subset of
beneficiaries; materials that do not include information about the ACO
or providers in the ACO; materials that cover beneficiary-specific
billing and claims issues or other specific health-related issues; or
educational information on specific medical conditions (for example,
flu shot reminders), or referrals for Medicare covered items and
services.
Medicare fee-for-service beneficiary means an individual who is--
(1) Enrolled in the original Medicare fee-for-service program under
parts A and B; and
(2) Not enrolled in any of the following:
(i) A MA plan under part C.
(ii) An eligible organization under section 1876 of the Act.
(iii) A PACE program under section 1894 of the Act.
Medicare Shared Savings Program (Shared Savings Program) means the
program, established under section 1899 of the Act and implemented in
this part.
One-sided model means a model under which the ACO may share savings
with the Medicare program, if it meets the requirements for doing so,
but is not liable for sharing any losses incurred under the provisions
of Sec. 425.7(c).
Physician Quality Reporting System means the system established
under section 1848(k) of the Act.
Primary care physician means a physician (as defined at Sec.
410.20(b)(1)) who has a primary specialty designation of internal
medicine, general practice, family practice, or geriatric medicine.
Primary care services mean the set of services identified by the
following HCPCS codes: 99201 through 99215, 99304 through 99340, and
99341 through 99350, G0402 (the code for the Welcome to Medicare
visit); and G0438 and G0439 (codes for the annual wellness visits).
Reporting period means January 1 through December 31.
TIN means Federal taxpayer identification number.
Two-sided model means a model under which the ACO may share savings
with the Medicare program, if it meets the requirements for doing so,
and is also liable for sharing any losses incurred under the provisions
of Sec. 425.7(d).

Subpart B--Shared Savings Program Requirements

Sec. 425.5 Eligibility and governance requirements.

(a) General requirements. (1) Under the Shared Savings Program, ACO
participants may work together to manage and coordinate care for
Medicare fee-for-service beneficiaries through an ACO that participates
in the Shared Savings Program and meets the criteria specified in this
part.
(2) ACOs that exceed a minimum savings rate established under Sec.
425.7(c)(2) and (d)(2), meet the minimum quality performance standards
established under Sec. 425.10, and otherwise maintain their
eligibility to participate in the Shared Savings Program under this
section are eligible to receive payments for shared savings under Sec.
425.7 of this subpart.
(3) ACOs that operate under the two-sided model established in this
section must share losses with the Medicare program under Sec. 425.7
of this subpart.
(b) Eligible providers and suppliers. The following ACO
participants, which must have established a mechanism for

[[Page 19642]]

shared governance, are eligible, separately or in combination, to form
ACOs that may participate in the Shared Savings Program:
(1) ACO professionals 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.
(5) Providers or suppliers otherwise recognized under the Act that
are not ACO professionals or hospitals, as defined in Sec. 425.4.
(6) CAHs that bill under Method II (as described in Sec.
413.70(b)(3))
(c) Reporting of TINs. (1) Each ACO must report to CMS the TINs of
the ACO participants comprising the ACO along with a list of associated
National Provider Identifiers (NPIs), at the beginning of each
performance year and at other such times as specified by CMS.
(2) For purposes of the Shared Savings Program, each ACO
participant TIN upon which beneficiary assignment is dependent is
required to commit to a 3-year agreement with CMS and will be exclusive
to one ACO.
(3) ACO participant TINs upon which beneficiary assignment is not
dependent are required to commit to a 3-year agreement to the ACO, and
the ACO participant must not be required to be exclusive to a single
ACO.
(d) Other requirements. (1) Accountability for beneficiaries. As
part of its application and 3-year agreement, the ACO must certify that
the providers and suppliers forming the ACO have agreed to become
accountable for and report to CMS on the quality, cost, and overall
care of the Medicare fee-for-service beneficiaries assigned to the ACO.
Each ACO must make information on its accountability for quality, cost,
and the overall care of its assigned population available to the public
in a standardized format, as determined by CMS.
(2) Coordination of Antitrust Agency review. (i) Except for an ACO
that qualifies for the Rural Exception articulated in the Antitrust
Policy Statement or other controlling guidance from the antitrust
agencies, an ACO with a Primary Service Area (PSA) share, as described
in the Antitrust Policy Statement, greater than 50 percent for any
common service that two or more ACO participants provide to patients
from the same PSA must do both of the following:
(A) Request an expedited antitrust review from the Antitrust
Agencies.
(B) Submit, as part of its application, a letter from the reviewing
Antitrust Agency confirming that it has no present intent to challenge
or to recommend challenging the proposed ACO.
(ii) Except for an ACO that qualifies for the Rural Exception
articulated in the Antitrust Policy Statement, or other controlling
guidance from the antitrust agencies, an ACO with a PSA share, as
described in the Antitrust Policy Statement, greater than 30 percent
and less than or equal to 50 percent may do one of the following:
(A) Request an expedited antitrust review from the Antitrust
Agencies.
(B) Submit a letter from the reviewing Antitrust Agency confirming
that it has no present intent to challenge or to recommend challenging
the proposed ACO.
(C) Begin to operate and abide by a list of conduct restrictions,
reducing significantly the likelihood of antitrust concern.
(D) Begin to operate and remain subject to antitrust investigation
if it presents competitive concerns.
(iii) An ACO must notify CMS at least 30 days before any material
change within the 3-year agreement period of its ACO participants or
ACO providers/suppliers and must submit recalculated PSA shares for
common services that two or more independent ACO participants provide
to patients from the same PSA. If any revised PSA share is calculated
to be greater than 50 percent, the ACO will be subject to review or re-
review by an Antitrust Agency in order to remain eligible to
participate in the Shared Savings Program.
(iv)(A) If an ACO receives a letter from a reviewing Antitrust
Agency stating that the Antitrust Agency will likely challenge or
recommend challenging the ACO, then the ACO will be ineligible to
participate in the Shared Savings Program.
(B) The ACO must promptly inform CMS if it receives such a letter
at any time from an Antitrust Agency.
(3) Agreement requirements. (i) Upon being notified by CMS of its
approval to participate in the Shared Savings Program, an executive of
that ACO who has the ability to legally bind the ACO must sign and
submit to CMS a 3-year agreement.
(ii) The 3-year agreement must require the ACO to comply with the
provisions in this part in order to participate in the Shared Savings
Program.
(iii) All contracts or arrangements between or among the ACO, ACO
participants, ACO providers/suppliers, and other entities furnishing
services related to ACO activities must require compliance with the
requirements and conditions of this part, including those specified in
the 3-year agreement. The ACO must provide a copy of the 3-year
agreement to these individuals and entities.
(iv)(A) The ACO must certify the accuracy, completeness, and
truthfulness of its information contained in the following:
(1) Shared Savings Program application.
(2) 3-year agreement.
(3) Submissions of quality data and other information.
(B) Certification must be made at the time the ACO submits the
following:
(1) Application to participate in the Shared Savings Program.
(2) Executes the 3-year agreement.
(3) Submits any information, including quality data, on which
shared savings payments or shared losses are calculated.
(C) Certification must be signed by an individual with the
authority to legally bind the ACO (for example the ACO's chief
executive officer (CEO) or chief financial officer (CFO)).
(v) The ACO must establish partnerships with community stakeholders
in order to advance the three-part aim of better care for individuals,
better health for populations, and lower growth in expenditures.
(vi) The ACO must agree, and must require its ACO participants, ACO
providers/suppliers, and contracted entities performing functions or
services on behalf of the ACO to agree, or to comply with applicable
provisions of the following:
(A) Federal criminal law.
(B) The False Claims Act (31 U.S.C. 3729 et seq.).
(C) The anti-kickback statute (42 U.S.C. 1320a-7b(b)).
(D) The civil monetary penalties law (42 U.S.C. 1320a-7a).
(E) The physician self-referral law (42 U.S.C. 1395nn).
(vii)(A) The ACO must agree, as a condition of receiving any shared
saving payment and participating in the program, that an individual
with the authority to legally bind the ACO must certify that any data
or information requested by or submitted to CMS is accurate, complete,
and truthful.
(B) If data or information is generated by an entity other than the
ACO, such entity must similarly certify the accuracy, completeness, and
truthfulness of the information or data.
(4) Marketing materials. (i) Any ACO marketing materials or
activities, as defined in Sec. 425.4, must be approved by CMS before
use.

[[Page 19643]]

(ii) Any changes to CMS-approved marketing materials or activities
must be approved by CMS before use.
(5) Notice of ACO participation. (i) ACO participants must notify
beneficiaries that their ACO providers/suppliers are participating in
an ACO.
(ii) Except as specified in paragraph Sec. 412.1(a)(1) of this
section, all beneficiary communications any materials or activities
used by ACO participants or ACO providers/suppliers on behalf of the
ACO to communicate about the ACO in any manner to Medicare
beneficiaries, must be approved by CMS before use.
(6) Tracks during agreement periods. (i) For its initial agreement
period, an ACO may elect to operate under one of the following tracks:
(A) Track 1. Under Track 1, the ACO operates under the one-sided
model (as described under Sec. 425.7(c) of this part) for 2 years, and
under the two-sided model (as described under Sec. 425.7(d) of this
part) for the third year. In the third year of the ACO's agreement
under Track 1, the methodology used to reconcile ACOs under the first
year of the two-sided model would apply except ACOs must meet the
quality performance standard that applies in the third year.
(B) Track 2. Under Track 2, the ACO operates under the two-sided
model (as described under Sec. 425.7(d) of this part), sharing both
savings and losses with the Medicare program for 3 years.
(ii) For subsequent agreement periods, an ACO may operate only
under the two-sided model, sharing both savings and losses with the
Medicare program (as described in Sec. 425.7(d) of this part).
(iii) In both models an ACO's share in savings will be subject to
25 percent withholding in order to help ensure repayment of any losses
to the Medicare program. The withheld amount will be applied towards
repayment of an ACO's losses.
(iv) ACOs must obtain reinsurance, place funds in escrow, obtain
surety bonds, establish a line of credit as evidenced by a letter of
credit that the Medicare program can draw upon, or establish another
appropriate repayment mechanism in order to ensure repayment of any
losses to the Medicare program in advance of entering a period of
participation in the Shared Savings Program under the two-sided model.
(v) An ACO that is applying for participation in the Shared Savings
Program must, as part of its application, submit documentation of such
a repayment mechanism for approval by CMS. This documentation must
include details supporting the adequacy of the mechanism for repaying
losses equal to at least 1 percent of the ACO's per capita expenditures
for its assigned beneficiaries from the most recent year available.
(iv) CMS will determine the adequacy of an ACO's repayment
mechanism.
(v) An ACO must demonstrate the adequacy of this repayment
mechanism annually, prior to the start of each performance year in
which it takes risk.
(vi) To the extent that such an ACO's repayment mechanism does not
enable CMS to fully recoup the losses for a given performance year, any
unpaid losses will be carried forward into subsequent performance years
and agreement periods (to be recouped either against additional
financial reserves, or offset by shared savings earned by the ACO).
(7) Legal structure. (i) An ACO must be constituted as a legal
entity for purposes of all of the following:
(A) Receiving and distributing shared savings.
(B) Repaying shared losses.
(C) Establishing, reporting, and ensuring provider compliance with
health care quality criteria, including quality performance standards.
(D) Other ACO functions identified in this part.
(ii) An ACO must certify that it is recognized as a legal entity in
the State in which it was established and that it is authorized to
conduct business in each State in which it operates.
(8) Shared governance. (i) An ACO must establish and maintain a
governing body with adequate authority to execute the functions of an
ACO as defined under this part, including but not limited to, the
definition of processes to promote evidence-based medicine and patient
engagement, report on quality and cost measures, and coordinate care.
(ii) The governing body must be comprised of the following:
(A) ACO participants or their designated representatives.
(B) Medicare beneficiary representative(s) served by the ACO who do
not have a conflict of interest with the ACO, and who have no immediate
family member with conflict of interest with the ACO.
(iii) The governing body must have and possess broad responsibility
for the ACO's administrative, fiduciary, and clinical operations.
(iv) At least 75 percent control of the ACO's governing body must
be held by ACO participants. Each ACO participant must choose an
appropriate representative from within its organization to represent
them on the governing body and each ACO participant must have
appropriate proportionate control over governing body decision making.
(v)(A) The members of the governing body may serve in a similar or
complementary manner for an existing participant in the ACO.
(B) The governing body of the ACO must be separate and unique to
the ACO in cases where the ACO comprises multiple, otherwise
independent entities (for example, several independent physician group
practices).
(C) The ACO must provide evidence within its application that the
governing body is a separate legal entity.
(vi)(A) Except as specified in paragraph (d)(8)(vi)(b) of this
section, a separate governing body must be established.
(B) If the ACO is comprised of a single entity that is financially
and clinically integrated, and if at least 75 percent control of the
entity's governing body is comprised of representatives of the entity,
the ACO governing body may be the same as the governing body of that
entity, provided it satisfies the other requirements of this section.
(9) Leadership and management structure. (i) As part of its
application process, an ACO must submit supporting materials to CMS
that demonstrate the ACO's leadership and management structure,
including clinical and administrative systems that align with and
support the goals of the Shared Savings Program and the aims of better
care for individuals, better health for populations, and lower growth
in expenditures.
(ii) The ACO's operations must be managed by an executive, officer,
manager, or general partner whose appointment and removal are under the
control of the organization's governing body and whose leadership team
has demonstrated the ability to influence or direct clinical practice
to improve efficiency processes and outcomes.
(iii) Clinical management and oversight must be managed by a full-
time senior-level medical director who is physically present on a
regular basis in an established ACO location, and who is a board-
certified physician and licensed in the State in which the ACO
operates.
(iv) ACO participants and ACO providers/suppliers must have a
meaningful commitment to the ACO's clinical integration program to
ensure its likely success. Meaningful commitment may include, for
example, a meaningful financial investment in the ACO or a meaningful
human investment (for example, time and effort) in the ongoing
operations of the ACO such that the potential loss or recoupment of the
investment is likely to motivate the

[[Page 19644]]

participant and provider/supplier to make the clinical integration
program succeed.
(v) A physician-directed quality assurance and process improvement
committee must oversee an ongoing action-oriented quality assurance and
improvement program. The quality assurance program must establish
internal performance standards for quality of care and services, cost
effectiveness, and process and outcome improvements, and hold ACO's
providers/suppliers accountable for meeting the performance standards.
The program must have processes and procedures in place to identify and
correct poor compliance with such standards and to promote continuous
quality improvements.
(vi) The ACO must implement evidence-based medical practice or
clinical guidelines and processes for delivering care consistent with
the aims of better care for individuals, better health for populations,
and lower growth in health care expenditures. The guidelines and care
delivery processes must cover diagnoses with significant potential for
the ACO to achieve quality and cost improvements, taking into account
the circumstances of individual beneficiaries.
(vii) ACO participants and providers/suppliers must agree to comply
with these guidelines and processes and to be subject to performance
evaluations and potential remedial actions, including their expulsion
from the ACO. The ACO must have policies and procedures for expulsion
of ACO participants and ACO provider/suppliers from the ACO.
(viii) The ACO must have an infrastructure, such as information
technology (which may include EHR technology certified to the standards
and implementation specifications adopted by the Secretary for the
purposes of the meaningful use EHR incentive programs), that enables
the ACO to collect and evaluate data and provide feedback to ACO
participants and ACO providers/suppliers across the entire ACO,
including providing information to influence care at the point of care.
(ix) The supporting materials that are submitted in the application
must include all of the following:
(A) ACO documents (for example, participation agreements,
employment contracts, and operating policies) that describe the ACO
participants' rights and obligations in the ACO, including distribution
of shared savings to encourage ACO participants and ACO providers/
suppliers to adhere to the quality assurance and improvement program
and the evidenced-based clinical guidelines.
(B) Documents that describe the scope and scale of the quality
assurance and clinical integration program, including documents that
describe all relevant clinical integration program systems and
processes, such as the internal performance standards and the processes
for monitoring and evaluating performance.
(C) Supporting materials documenting the ACO's organization and
management structure, including an organizational chart, a list of
committees (including names of committee members) and their structures,
and job descriptions for senior administrative and clinical leaders.
(D) Evidence that the ACO has a board-certified physician as its
medical director who is licensed in the State in which the ACO resides
and that a principal CMS liaison is identified in its leadership
structure.
(E) Evidence that the governing body is comprised of
representatives the ACO participants who form the ACO, and that these
ACO participants comprise at least 75 percent of the governing body.
(F) Upon request, the ACO must provide copies of all documents
effectuating the ACO's formation and operation, including, without
limitation the following:
(1) Charters.
(2) By-laws.
(3) Articles of incorporation.
(4) Partnership agreement.
(5) Joint venture agreement.
(6) Management or asset purchase agreements.
(7) Financial statements and records.
(8) Descriptions of the remedial processes that will apply if an
ACO participant or an ACO provider/supplier fails to comply with the
ACO's internal procedures and performance standards, including a CAP
and the circumstances under which expulsion from the ACO could occur.
(G) A copy of the ACO's compliance plan or documentation describing
the plan that will be put in place at the time the ACO's agreement with
CMS becomes effective.
(H) A description of how the ACO will partner with community
stakeholders.
(I) Written standards for beneficiary access and communication.
These standards must include the ACO's process for beneficiaries to
access their medical record.
(x) CMS retains the right to give consideration to an innovative
ACO with a management structure not meeting these requirements.
(10) Compliance plan. (i) The ACO must have a compliance plan that
includes at least the following elements:
(A) A designated compliance official or individual who is not legal
counsel and who has the ability to report directly to the ACO's
governing body.
(B) Mechanisms for identifying and addressing compliance problems
related to the ACO's operations and performance.
(C) A method for employees or contractors of the ACO, ACO
participants, and ACO providers/suppliers to report suspected problems
related to the ACO.
(D) Compliance training for the ACO, the ACO participants, and the
ACO providers/suppliers.
(E) A requirement to report suspected violations of law to an
appropriate law enforcement agency.
(ii) To achieve an effective compliance program, an ACO may
consider coordinating its compliance efforts with existing compliance
efforts of its ACO providers/suppliers.
(11) Distribution of savings. As part of its application to
participate in the Shared Savings Program, an ACO must describe how:
(i) It plans to use shared savings payments, including the criteria
it plans to employ for distributing shared savings among its
participants.
(ii) The proposed plan will achieve the specific goals of the
Shared Savings Program.
(iii) The proposed plan will achieve the general aims of better
care for individuals, better health for populations, and lower growth
in expenditures.
(12) Written request for shared savings payment. (i) After receipt
of notification from CMS of the anticipated shared savings payment or
amount of shared losses, an individual with the authority to legally
bind the ACO (such as the ACO's CEO or CFO), must make a written
request to CMS for payment of the shared savings (or acknowledge the
amount of shared losses) in a document that certifies the ACO's
compliance with program requirements as well as the accuracy,
completeness, and truthfulness of any information submitted directly or
indirectly by the ACO, its ACO participants, the ACO providers/
suppliers, or any other entity to CMS, including any quality data or
other information or data relied upon by CMS in determining the ACO's
eligibility for, and the amount of a shared savings payment or the
amount owed by the ACO to CMS.
(ii) If such data are generated or submitted by ACO participants,
ACO providers/suppliers, or another entity,

[[Page 19645]]

such ACO participant, ACO provider/supplier, must similarly certify the
accuracy, completeness, and truthfulness of the data and provide the
government with access to such data for audit, evaluation,
investigation, and inspection.
(13) Sufficient number of primary care providers and beneficiaries.
(i) CMS will deem an ACO to have a sufficient number of primary care
physicians and beneficiaries if the number of beneficiaries
historically assigned to the ACO participants using the assignment
methodology in Sec. 425.6 is 5,000 or more.
(ii) If at the end of a performance year, an ACO's assigned
population falls below 5,000, then that ACO will be issued a warning
and placed on a CAP.
(A) While under the CAP, an ACO remains eligible for shared savings
and losses during that performance year.
(B) If the ACO's assigned population has not returned to at least
5,000 by the end of the next performance year, then that ACO's
agreement will be terminated and the ACO will not be eligible to share
in savings for that year.
(14) Required reporting on participating ACO professionals. A
participating ACO must maintain, update, and annually report to CMS a
list of the following:
(i) Each ACO participant's TIN.
(ii) Each ACO providers/supplier's NPI and/or TIN.
(15) Required processes and patient-centeredness criteria. (i)
Required processes. In its application to participate in the Shared
Savings Program, an ACO must provide CMS with documentation of its
plans to do all of the following:
(A) Promote evidence-based medicine.
(B) Promote beneficiary engagement.
(C) Internally report quality and cost metrics.
(D) Coordinate care.
(ii) Patient-centeredness criteria. (A) An ACO should adopt a focus
on patient-centeredness that is promoted by the governing body and
integrated into practice by leadership and management working with the
organization's health care teams.
(B) An ACO must demonstrate patient-centeredness by addressing all
of the following areas:
(1) Have a beneficiary experience of care survey in place (using
the Clinician and Group CAHPS survey, including an appropriate
functional status survey module) and describe how the ACO will use the
results to improve care over time.
(2) Patient involvement in ACO governance.
(3) A process for evaluating the health needs of the ACO's assigned
population, including consideration of diversity in its patient
populations, and a plan to address the needs of its population.
(4) Systems in place to identify and update high-risk individuals
and processes to develop individualized care plans for targeted patient
populations including integration of community resources to address
individual needs.
(i) Such plans must promote improved outcomes for, at a minimum,
high-risk and multiple chronic condition patients, and as appropriate,
other patients with chronic conditions.
(ii) The plan must be tailored to the beneficiary's health and
psychosocial needs, account for beneficiary preferences and values, and
identify community and other resources to support the beneficiary in
following the plan.
(5) A mechanism in place for the coordination of care (for example,
via use of enabling technologies or care coordinators).
(i) The ACO is required to describe its mechanism for coordinating
care for Medicare beneficiaries.
(ii) The ACO should have a process in place (or clear path to
develop such a process) to exchange summary of care information when
patients transition to another provider or setting of care, both within
and outside the ACO.
(iii) For providers enrolled in the electronic exchange of
information, this process must be consistent with meaningful use
requirements under the Medicare EHR Incentive Program (as described in
part 495 of this chapter).
(6) A process in place for communicating clinical knowledge/
evidence-based medicine to beneficiaries in a way that is
understandable to them.
(7) A process in place for beneficiary engagement and shared
decision-making that takes into account the beneficiaries' unique
needs, preferences, values, and priorities.
(8) Written standards in place for beneficiary access and
communication, and a process in place for beneficiaries to access their
medical record.
(9) Internal processes in place for measuring clinical or service
performance by physicians across the practices, and using these results
to improve care and service over time.

Sec. 425.6 Assignment of Medicare fee-for-service beneficiaries to
ACOs.

(a) General rule. (1) Medicare fee-for-service beneficiaries are
assigned to an ACO based on their utilization of primary care services
provided under this title by a primary care physician who is an ACO
provider/supplier during the performance year for which shared savings
are to be determined.
(2) Beneficiary assignment to an ACO is for purposes of determining
the population of Medicare fee-for-service beneficiaries for whose care
the ACO is accountable, and for determining whether an ACO has achieved
savings under Sec. 425.7 of this part, and in no way diminishes or
restricts the rights of beneficiaries assigned to an ACO to exercise
free choice in determining where to receive health care services.
(b) Assignment methodology. CMS employs the following methodology
to assign Medicare beneficiaries to an ACO:
(1) For each ACO, identify all primary care physicians as defined
in Sec. 425.4 of this part who were an ACO participant during the
performance year.
(2) At the end of each performance year, determine all
beneficiaries who received services from primary care physicians in the
ACO, as determined under paragraph (b)(1) of this section.
(3) Determine the total allowed charges for the primary care
services (as identified by HCPCS code in the definition of primary care
services under Sec. 425.4 of this section) that each of the
beneficiaries identified in paragraph (b)(2) received from any provider
or supplier during the performance year.
(4) For each beneficiary, add together the allowed charges for the
primary care services provided by the primary care physicians
(identified in paragraph (b)(1) of this section) in each ACO
(identified in paragraph (b)(1) of this section).
(5) Assign a beneficiary to an ACO if the beneficiary has received
a plurality of his or her primary care services, as determined by the
sum of allowed charges for those services under paragraph (b)(4) of
this section, from primary care physicians identified under paragraph
(b)(1) of this section, who are an ACO participant.
(c) Beneficiary information and notification. ACO participants will
post signs in each of their facilities and provide written notification
for beneficiaries about their participation in the Shared Savings
Program.

Sec. 425.7 Payment and treatment of savings.

(a) Establishing a benchmark. (1) Using a 6-months claims run-out,
CMS will retrospectively estimate and update an ACO's benchmark for an
agreement period starting with ACO participants identified at the start
of the agreement period.
(2) Using the claim records of ACO participants and applying the
methodology for assigning beneficiaries

[[Page 19646]]

in Sec. 425.6 of this part, CMS will compute per capita expenditures
for beneficiaries who would have been assigned to the ACO in any of the
prior three most recent available years.
(b) Computing per capita Medicare Part A and Part B expenditures
and updating the benchmark. In computing these per capita expenditures,
CMS uses the per capita Parts A and B fee-for-service expenditures for
beneficiaries that would have been assigned to the ACO in each of these
3 prior years, we will estimate a fixed benchmark that is adjusted for
overall growth and beneficiary characteristics, including health status
using prospective HCC adjustments. This benchmark will then be updated
annually during the agreement period, according to statute, based on
the absolute amount of growth in national per capita expenditures for
Parts A and B services under the original Medicare fee-for-service
program. CMS will do all of the following:
(1) Calculate annual Parts A and B fee-for-service per capita
expenditures for the beneficiaries who would have been assigned for
each of the benchmark years. To minimize variation from
catastrophically large claims, CMS truncates an assigned beneficiary's
total--
(i) Parts A and B fee-for-service per capita expenditures at the
99th percentile as determined for each benchmark year.
(2) Using CMS Office of the Actuary national Medicare expenditure
data for each of the years making up the benchmark, CMS determines
national growth trend indices and trend them to the third benchmark
year (BY3) dollars.
(3) Using health status measures for the beneficiary population in
each of the years making up the benchmark, CMS establishes health
status indices for each year and adjust these indices so they are
restated in BY3 risk.
(4) CMS computes a 3-year risk-and growth-trend adjusted per capita
expenditure amount for the patient populations in each of the 3
benchmark years by combining the initial per capita expenditures for
each year with the respective growth and health status indices. The
result is risk adjusted per capita expenditures for beneficiaries
historically assigned to the ACO in each of the 3 years used to
establish the benchmark stated in BY3 risk and expenditure amounts, and
assigned patient populations.
(5) CMS weights the most recent year of the benchmark, BY3 at 60
percent, BY2 at 30 percent and BY1 at 10 percent to ensure that the
benchmark reflects more accurately the latest expenditure and health
status of the ACO's assigned beneficiary population.
(6) CMS updates this fixed benchmark by the projected absolute
amount of growth in national per capita expenditures for Parts A and B
services under the original Medicare fee-for-service program using data
from CMS's Office of the Actuary.
(7) In performing these steps, CMS does not take into consideration
expenditure increases or decreases under Section 1848 related to value-
based purchasing programs or the HITECH Act; specifically, any of the
following:
(i) Physician Quality Reporting Initiative as provided in Sec.
414.90.
(ii) Electronic prescribing program as provided in Sec. 414.92.
(iii) HITECH Act incentives for eligible professionals as provided
in Sec. 495.102.
(c) Determination of savings and shared savings rate for ACOs under
the one-sided model. (1) Savings determination. For each performance
year, CMS determines whether the estimated average per capita Medicare
expenditures under the ACO for Medicare fee-for-service beneficiaries
for Parts A and B services, adjusted for beneficiary characteristics,
is below the applicable benchmark determined under paragraph (b) of
this section. To minimize variation from catastrophically large claims,
CMS truncates that assigned beneficiary's total annual Parts A and B
fee-for-service per capita expenditures at the 99th percentile as
determined for each performance year. In order to qualify for a shared
savings payment, the ACO's average per capita Medicare expenditures for
the performance year must be below the applicable benchmark by more
than a minimum savings rate established for the ACO under paragraph
(c)(2) of this section.
(2) Minimum savings rate (MSR). CMS computes a minimum savings rate
for each ACO based on the number of beneficiaries assigned to the ACO
under Sec. 425.6 of this part. The minimum savings rates for ACOs
based on the numbers of assigned beneficiaries will be as follows:

------------------------------------------------------------------------
MSR (low end of MSR (high end of
Number beneficiaries assigned assigned
beneficiaries) % beneficiaries) %
------------------------------------------------------------------------
5,000-5,999....................... 3.9 3.6
6,000-6,999....................... 3.6 3.4
7,000-7,999....................... 3.4 3.2
8,000-8,999....................... 3.2 3.1
9,000-9,999....................... 3.1 3.0
10,000-14,999..................... 3.0 2.7
15,000-19,999..................... 2.7 2.5
20,000-49,999..................... 2.5 2.2
50,000-59,999..................... 2.2 2.0
-------------------------------------
60,000 +.......................... 2.0
------------------------------------------------------------------------

(3) Qualification for shared savings payment. In order to qualify
for shared savings, an ACO must exceed its minimum savings rate
determined under paragraph (c)(2) of this section, meet the minimum
quality performance standards established under Sec. 425.10 of this
part, and otherwise maintain its eligibility to participate in the
Shared Savings Program under this part.
(4) Net savings threshold. An ACO under the one-sided model that
exceeds its minimum savings rate is eligible to share savings net 2
percent of its benchmark as determined under Sec. 425.7(b). An ACO
with fewer than 10,000 assigned beneficiaries in the most recent year
for which CMS has complete claims data, and that meets any one of the
following criteria, is exempt from the 2 percent net savings threshold
adjustment under the one-sided model:

[[Page 19647]]

(i) All ACO participants are physicians or physician groups.
(ii) 75 percent or more of the ACO's assigned beneficiaries reside
in counties outside an MSA in the most recent year for which CMS has
complete claims data.
(iii) 50 percent or more of an ACO's assigned beneficiaries in the
most recent year for which CMS has complete claims data were assigned
on the basis of services received from Method II CAHs.
(iv) At least 50 percent of the assigned beneficiaries had at least
one encounter with a participating FQHC or RHC in the most recent year
for which CMS has complete claims data such that the ACO has achieved
maximum sharing for this activity.
(5) Final sharing rate. The final sharing rate for an ACO in the
one-sided model will be calculated by adding the ACO's earned quality
performance sharing rate and any additional increase described in Sec.
425.7(c)(6)) (up to the performance payment limit described in Sec.
425.7(c)(7)).
(6) Quality performance sharing rate. An ACO that meets all the
requirements for shared savings payments under the one-sided model will
receive a shared savings payment based on quality performance of up to
50 percent, as determined on the basis of its quality performance under
Sec. 425.10 of this part.
(7) Additional increase to the shared savings rate. Under the one-
sided model, an ACO's shared savings rate may be increased by up to 2.5
percentage points if the ACO includes a rural health clinic (RHC) or
Federally qualified health center (FQHC) (as defined under Sec.
405.2401(b) of this chapter) within its structure, determined on a
sliding scale based on the number of assigned Medicare beneficiaries
with one or more visit to an RHC or FQHC during the performance year.
The sliding scale will operate according to the following table:

------------------------------------------------------------------------
Percentage of ACO assigned
beneficiaries with 1 or more visits Percentage point increase in shared
to an FQHC/RHC during the savings rate (one-sided model)
performance year
------------------------------------------------------------------------
1-10 0.5
11-20 1
21-30 1.5
31-40 2
41-50 2.5
------------------------------------------------------------------------

(8) Performance payment limit. The amount of shared savings an
eligible ACO receives under the one-sided model may not exceed 7.5
percent of its benchmark.
(d) Determination of savings or losses, and shared savings or loss
rates for ACOs under the two-sided model. (1) For each performance
year, CMS determines whether the estimated average per capita Medicare
expenditures under the ACO for Medicare fee-for-service beneficiaries
for parts A and B services, adjusted for beneficiary characteristics,
is above or below the benchmark determined under paragraph (b) of this
section. In order to qualify for a shared savings payment under the
two-sided model, or to be responsible for sharing losses with CMS, an
ACO's average per capita Medicare expenditures for the performance year
must be below or above the benchmark, respectively, by more than the
minimum savings or loss rate under paragraph (d)(2) of this section.
(2) Minimum savings or loss rate. (i) To qualify for shared savings
under the two-sided model, an ACO's average per capita Medicare
expenditures for the performance year must be below its benchmark costs
for the year by at least 2 percent.
(ii) To be responsible for sharing losses with the Medicare
program, an ACO's average per capita Medicare expenditures for the
performance year must be at least 2 percent above its benchmark costs
for the year.
(3) Qualification for shared savings payment. To qualify for shared
savings, an ACO must meet the minimum savings rate requirement
established under paragraph (d)(2) of this section, meet the minimum
quality performance standards established under Sec. 425.10 of this
part, and otherwise maintain its eligibility to participate in the
Shared Savings Program under this part.
(4) Final sharing rate. The final sharing rate for an ACO in the
two-sided model will be calculated by adding the ACO's earned quality
performance sharing rate under paragraph (d)(5) and any additional
increase described in Sec. 425.7(c)(6)) up to the performance payment
limit described in Sec. 425.7(d)(7).
(5) Quality performance sharing rate. An ACO that meets all the
requirements for receiving shared savings payments under the two-sided
model will receive a payment of up to 60 percent of all the savings
under the benchmark as determined on the basis of its quality
performance under Sec. 425.10 of this part.
(6) Additional increase to the shared savings rate. Under the two-
sided model, an ACO's shared savings rate may be increased by the
following up to 5.0 percentage points if the ACO includes a RHC or FQHC
(as these terms are defined under Sec. 405.2401(b) of these
regulations) within its structure, determined on a sliding scale based
on the number of assigned Medicare beneficiaries with one or more visit
to an RHC or FQHC during the performance year. The sliding scale will
operate according to the following table:

------------------------------------------------------------------------
Percentage of ACO assigned
beneficiaries with 1 or more visits Percentage point increase in shared
to an FQHC/RHC during the savings rate (one-sided model)
performance year
------------------------------------------------------------------------
1-10 1.0
11-20 2.0
21-30 3.0
31-40 4.0
41-50 5.0
------------------------------------------------------------------------

(7) Performance payment limit. The amount of shared savings an
eligible ACO receives under the two-sided model may not exceed 10
percent of its benchmark.
(8) Shared loss rate. The shared loss rate for an ACO that is
required to share losses with the Medicare program for expenditures
over the benchmark with the Medicare program is determined based on the
inverse of its final sharing rate described in paragraphs (d)(2)
through (6) of this section (that is, 1 minus the shared savings rate
determined under paragraphs (d)(2) through (6) of this section).
(9) Loss recoupment limit. The amount of shared losses for which an
eligible ACO is liable may not exceed the following percentages of its
benchmark as determined under paragraphs (a) and (b) of this section: 5
percent in the first year of participation in a two-sided model under
the Shared Savings Program, 7.5 percent in the second year, and 10
percent in the third year. An ACO in Track 1 who has entered the third
year of its agreement period would be liable for an amount not to
exceed the percentage of the first year of the two-sided model, that
is, it would not exceed 5 percent.
(e) Notification of savings and losses. CMS notifies an ACO in
writing regarding whether the ACO qualifies for a shared savings
payment, and if so, the amount of the payment due. Similarly, CMS will
provide written notification to an ACO of the amount of shared losses,
if any, that it must pay to the program. If an ACO has shared losses,
the ACO must make payment in full to CMS within 30 days of receipt of
notification.

Sec. 425.8 ACO quality and continuous improvement goals.

(a) CMS defines quality and continuous improvement goals for ACOs.
(b) An ACO must meet the quality and continuous improvement goals
defined

[[Page 19648]]

by CMS under paragraph (a) of this section in order to qualify for
shared savings.

Sec. 425.9 Measures to assess the quality of care furnished by an
ACO.

(a) Selecting measures. CMS selects the measures designated to
determine an ACO's success in promoting the aims of better care for
individuals, better health for populations, and lower growth in
expenditures.
(b) Quality measures for quality performance standards. (1) CMS
designates the measures for use in the calculation of the quality
performance standard.
(2) ACOs must submit data on the measures determined under this
paragraph (b) according to the method of submission established by CMS.

Sec. 425.10 Calculating the ACO quality performance score and
determining shared savings eligibility.

(a) Measure domains. CMS groups individual quality performance
standard measures into five domains:
(1) Patient/care giver experience.
(2) Care coordination.
(3) Patient safety.
(4) Preventative health.
(5) At-risk population/frail elderly health.
(b) Methodology for calculating a performance score for each
measure. (1) CMS designates quality performance standards for each
measure, including a performance benchmark and minimum attainment level
and establishes a point scale for certain measures. Contingent upon
data availability, quality measure performance benchmarks are defined
by CMS based on Medicare fee-for-service, MA, or ACO performance data.
(i) For the first performance period under the Shared Savings
Program, CMS defines the quality performance standard at the level of
complete and accurate reporting.
(ii) For all subsequent years, CMS defines the quality performance
based on measure scores.
(2) Performance below the minimum attainment level will receive
zero points for that measure, for those measures in which the points
scale applies.
(3) Performance equal to or greater than the minimum attainment
level but less than the performance benchmark must receive points on a
sliding scale based on the level of performance, for those measures in
which the points scale applies.
(4) Those measures designated as all or nothing measures receive
the maximum available points if all criteria are met and zero points if
at least one of the criteria are not met.
(c) Methodology for calculating a performance score for each
domain. CMS designates quality performance standards for each domain's
contribution to an overall ACO performance score.
(d) Shared savings eligibility. If the ACO demonstrates to CMS that
it has satisfied the quality performance requirements for each domain,
the requirements of Sec. 425.7 are satisfied, and the ACO meets all
other applicable requirements, the ACO is eligible for shared savings.
To satisfy the quality performance requirements for a domain:
(1) The ACO must report all measures within a domain, via the
mechanisms determined by CMS, in order to be considered for shared
savings for that domain.
(2) CMS scores individual measures based on data received.
(3) CMS adds the individual scores for each of the measures within
the domain to determine the domain scores.
(i) Each of the 5 domains is equally weighted in determining an
ACO's overall quality performance score, regardless of whether the ACO
is in Track 1 or Track 2. All measures within a domain must have a
score above the minimum attainment level determined by CMS in order for
the domain to be eligible for shared savings.
(ii) If the ACO satisfies the quality performance standards for one
or more domains, and also satisfies the requirements for realizing
shared savings under Sec. 425.7, the ACO may receive the proportion of
those shared savings for which it qualifies.
(iii) CMS retains the right to audit and validate quality data
reported by an ACO. In an audit, the ACO would be required to provide
beneficiary medical record data as requested by CMS. The audit would
consist of three phases of medical record review. If, at the conclusion
of the third audit process there is a discrepancy greater than 10
percent between the quality data reported and the medical records
provided, the ACO will not be given credit for meeting the quality
target for any measures for which this mismatch rate exists.
(iv) Failure to report quality measure data accurately, completely,
and timely (or to timely correct such data) may subject the ACO to
termination or other sanctions, as described in Sec. 425.12.
(4) In the third year of the ACO's agreement under Track 1, the
methodology used to reconcile ACOs under the first year of the two-
sided model would apply except that ACOs must meet the quality
performance standard that applies in the third year, as opposed to the
first year standard of full and accurate reporting.

Sec. 425.11 Incorporating other reporting requirements related to the
Physician Quality Reporting System and electronic health records
technology.

(a) Physician quality reporting system. (1) ACOs, on behalf of
their eligible professionals, must submit the measures determined under
Sec. 425.10(b) according to the method of submission established by
CMS, to qualify for a Physician Quality Reporting System incentive
under the Shared Savings Program.
(2) To qualify as a group practice for a Physician Quality
Reporting System incentive under the Shared Savings Program, eligible
professionals within an ACO must report the measures determined under
Sec. 425.10(b) during the reporting period according to the method of
submission established by CMS under the Shared Savings Program.
(3) The Physician Quality Reporting System incentive under the
Medicare Shared Savings Program is equal to 0.5 percent of the ACO's
eligible professional's total estimated Medicare Part B Physician Fee
Schedule allowed charges for covered professional services furnished
during the calendar year reporting period from January 1 through
December 31.
(b) Electronic health records technology. (1) At least 50 percent
of an ACO's primary care physicians must be meaningful EHR users, using
certified EHR technology as defined in Sec. 495.4, in the HITECH Act
and subsequent Medicare regulations by the start of the second
performance year in order to continue participating in the Shared
Savings Program.
(2) CMS may terminate an ACO agreement under Sec. 425.14 of this
part if fewer than 50 percent of an ACO's primary care physicians are
not meaningfully EHR users, using certified EHR technology as defined
in Sec. 495.4, the HITECH Act and subsequent Medicare regulations by
the start of the ACO's second performance year.

Sec. 425.12 Monitoring.

(a) Monitoring of ACOs: General rule. (1) CMS monitors and assesses
the performance of ACOs and their participating providers/suppliers.
(2) CMS employs a range of methods to monitor and assess the
performance of ACOs, including but not limited to any of the following,
as appropriate:
(i) Analysis of specific financial and quality measurement data
reported by the ACO as well as aggregated annual and quarterly reports.
(ii) Site visits.
(iii) Analysis of beneficiary and provider complaints.

[[Page 19649]]

(iv) Audits (including, for example, analysis of claims, chart
review (medical record), beneficiary survey reviews, coding audits).
(b) Monitoring ACO avoidance of at-risk beneficiaries. To identify
ACOs that could be avoiding at-risk beneficiaries, CMS uses a
combination of the methods described in paragraph (a)(2) of this
section (as appropriate) to identify trends and patterns suggestive of
avoidance of at-risk beneficiaries. The results of these analyses may
subsequently require further investigation and follow-up with the
beneficiary or the ACO and its ACO providers/suppliers in order to
substantiate cases of beneficiary avoidance. CMS may take the following
actions as set forth in Sec. 425.13(a)(4) of this part, if it
determines that an ACO, its ACO participants, any ACO providers/
suppliers, or contracted entities performing functions or services on
behalf of the ACO avoids at-risk beneficiaries.
(1) The ACO is required to submit a CAP and implement the plan as
approved by CMS as set forth in Sec. 425.13(a)(2) of this part.
(i) The ACO will not receive any shared savings payments during the
probation period, regardless of the period of performance for which
savings were attributable to while under the CAP.
(ii) The ACO will not be eligible to receive shared savings for the
performance period attributable to the time the ACO was under the CAP.
(iii) The ACO will not be eligible to earn shared savings
attributable to the time the ACO is under the CAP.
(iv) The ACO will be re-evaluated during and after the CAP
implementation period to determine if the ACO has continued to avoid
at-risk beneficiaries.
(2) ACO may be terminated if CMS determines that the ACO has
continued to avoid at-risk beneficiaries during or after the CAP as set
forth in Sec. 425.14 of this part.
(c) Monitoring ACO compliance with quality performance standards.
To identify ACOs that are not meeting the quality performance
standards, CMS will review the ACO's submission of quality measurement
data under Sec. 425.9(b)(2). CMS may request additional documentation
from an ACO, ACO participants, or ACO providers/suppliers, as
appropriate. CMS may take the following actions, in addition to actions
set forth at Sec. 425.13, if an ACO does not meet quality performance
standards or fails to report on one or more quality measures.
(1) The ACO will be given a warning for the first time it fails to
meet the minimum attainment level for one or more domain.
(2) The ACO's compliance with the quality performance standards
will be re-evaluated the following year. If the ACO continues to fail
to meet quality performance standards in the following year, the
agreement may be terminated immediately or CMS may take an alternative
action as set forth in Sec. 425.13 of this part.
(3) If an ACO fails to report one or more quality measures or fails
to report completely and accurately on all measures in a domain, CMS
will request the ACO either to submit the required measure data,
correct the data, and/or provide a written explanation as to why it did
not report completely and accurately. If ACO still fails to report,
fails to report by the requested deadline and/or does not provide
reasonable explanation for not reporting, the ACO will be terminated
immediately as set forth in Sec. 425.14 of this part.
(4) An ACO that exhibits a pattern of inaccurate or incomplete
reporting, or fails to make timely corrections following notice to
resubmit, may be terminated from the program.
(d) Monitoring changes to ACO eligibility requirements. In order to
ensure that the ACO continues to meet the eligibility requirements
under Sec. 425.5 of this part, CMS uses a combination of the methods
described in paragraph (a) of this section (as appropriate).
(e) Monitoring beneficiary notification of the provider and
supplier's role in the ACO and the ability for the beneficiary to op-
out of sharing claims data. In order to ensure that the ACO is
notifying beneficiaries concerning sharing of claims data as provided
under Sec. 425.15 of these regulations, and providing the opportunity
for a beneficiary to opt-out of those data sharing arrangements, as
required by that section, CMS uses a combination of the methods
described in paragraph (a) of this section (as appropriate).
(f) Monitoring ACO marketing materials and activities. (1) CMS may
monitor compliance with the requirement for approval of ACO marketing
materials and activities set forth in Sec. 425(d)(4).
(2) An ACO that fails to adhere to this requirement may be placed
under a CAP or terminated as set forth in Sec. 425.14 of this part, at
the discretion of CMS.

Sec. 425.13 Actions prior to termination.

(a) If based upon the monitoring activities described in Sec.
425.12, CMS concludes that an ACO's performance may subject the ACO to
termination from the Shared Savings Program, CMS, in its sole
discretion, may take one or more or all of the following actions prior
to termination of the ACO from the Shared Savings Program.
(1) Provide a warning notice to the ACO of the specific performance
at issue.
(2) Request a CAP from the ACO.
(i) The ACO must submit a CAP for CMS approval by CMS deadline
indicated on the notice of violation.
(ii) The CAP must address what actions the ACO will take to ensure
that the ACO, ACO participants, and ACO providers/suppliers and/or
contracted entities performing services or functions on behalf of the
ACO will correct any deficiencies and remain in compliance with Shared
Savings Program requirements.
(iii) The ACO's performance will be monitored during the CAP
process.
(iv) Failure to submit, obtain approval for, or implement a CAP may
result in termination of the agreement.
(v) ACO failure to demonstrate improved performance upon completion
of the CAP may result in termination.
(vi) This CAP process does not apply to determinations made by the
Antitrust Agencies and must not be construed to negate, diminish, or
otherwise alter the applicability of existing laws, rules, and
regulations, or determinations made by other government agencies.
(3) Place the ACO on a special monitoring plan.
(4) These procedures do not apply to either of the following:
(i) Determinations that an ACO has violated the Sherman antitrust
act (15 U.S.C. 1), Clayton Act (15 U.S.C. 12), or the Federal Trade
Commission Act (15 U.S.C. 45).
(ii) Determinations made by other government agencies.
(5) The procedures established under this section do not negate,
diminish, or otherwise alter the applicability of existing laws, rules,
and regulations.

Sec. 425.14 Termination, suspension, and repayment of Shared Savings.

(a) Grounds for terminating an ACO agreement. CMS may terminate an
agreement with an ACO if the ACO, the ACO participants, the ACO
providers/suppliers or contracted entities performing services or
functions on behalf of the ACO:
(1) Avoid at-risk beneficiaries.
(2) Fail to meet quality performance standards.
(3) Fail to completely and accurately report information or fail to
make timely corrections to reported information.
(4) Are not in compliance with eligibility requirements or have
fallen

[[Page 19650]]

out of compliance with the requirements of the part because the ACO has
undergone material changes that affect the ACO's eligibility to
participate in the Shared Savings Program, including, but not limited
to changes in governing body composition, a significant change (as
defined in Sec. 425.21(b)), and the imposition of sanctions or other
actions taken against the ACO by an accrediting organization, State,
Federal or local government agencies.
(5) Are unable to effectuate any required regulatory changes during
the agreement period after given the opportunity for a CAP as set forth
in Sec. 425.20.
(6) Are not in compliance with requirements to notify beneficiaries
of ACO provider/supplier participation in an ACO.
(7) Engage in material noncompliance, or demonstrates a pattern of
noncompliance, with public reporting and other CMS reporting
requirements.
(8) Fail to submit an approvable CAP, fail to implement an approved
CAP, or fail to demonstrate improved performance after the
implementation of a CAP.
(9) Violate the physician self-referral prohibition, civil monetary
penalties (CMP) law, Anti-kickback statute, other antifraud and
antitrust laws (or enter into a final judgement or other final
resolution of antitrust charges by an Antitrust Agency), or any other
applicable Medicare laws, rules, or regulations that are relevant to
ACO operations.
(10) Submit to CMS false, inaccurate, or incomplete data and or
information, including but not limited to, information provided in the
Shared Savings Program application, quality data, financial data, and
information regarding the distribution of shared savings.
(11) Use marketing materials or participate in activities or other
beneficiary communications, that are subject to review and approval,
that have not been approved by CMS.
(12) Fail to maintain an assigned beneficiary population of at
least 5,000 beneficiaries.
(13) Fail to offer beneficiaries the option to opt-out of sharing
claims information.
(14) Limit or restrict internally compiled beneficiary summary of
care or medical records from other providers/suppliers both within and
outside of the Shared Savings Program to the extent permitted by law.
(15) Improperly use or disclose claims information received from
CMS in violation of the HIPAA Privacy Rule, Medicare Part D Data Rule,
Privacy Act, or the data use agreement.
(16) Fail to demonstrate that the ACO has adequate resources in
place to repay losses and to maintain those resources for the agreement
period.
(b) Reapplication after termination. An ACO that has been
terminated from the Shared Savings Program may apply to participate in
the Shared Savings Program again only after the end of the original 3-
year agreement period.
(i) To be eligible to participate in the Shared Savings Program,
the ACO must demonstrate in its application that it has corrected the
deficiencies that caused it to be terminated from the Shared Savings
Program and has processes in place to ensure that it will remain in
compliance with the terms of the new participation agreement.
(ii) ACOs with corrected deficiencies that wish to reenter the
program have the option to do so only under the two-sided model.
(c) Forfeiture of mandatory withholding after termination. If an
agreement is terminated for any reason before the 3-year agreement
period is completed, the ACO the ACO would forfeit its mandatory 25
percent withhold of shared savings.
(d) Termination of an agreement by an ACO. (1) ACO must notify CMS,
its ACO participants, and other organizations of its decision to
terminate 60 days before the date of termination.
(2) The ACO participants must notify beneficiaries of the ACO's
decision to terminate in a timely manner.
(3) All termination notification materials must meet marketing
guidelines as set forth at Sec. 425.12(f).
(e) Grounds for shared saving payment suspension. If an ACO has
been placed under a CAP because the ACO, ACO participants, ACO
providers/suppliers, or contracted entities performing services or
functions on behalf of the ACO were found to have avoided at-risk
beneficiaries--
(1) The ACO must not receive shared savings payments while it is
under the CAP, regardless of the period of performance it is
attributable to; and
(2) The ACO is not eligible to earn any shared savings for the
performance period attributable for the time the ACO was under the CAP.

Sec. 425.15 Reconsideration review process.

(a) There is no reconsideration, appeals, or other administrative
or judicial review of the following determinations under this section:
(1) The specification of quality and performance standards under
Sec. 425.9 of this part.
(2) The assessment of the quality of care furnished by an ACO under
the performance standards established in Sec. 425.10.
(3) The assignment of Medicare fee-for-service beneficiaries under
Sec. 425.6 of this part.
(4) The determination of whether an ACO is eligible for shared
savings under Sec. 425.7(c) of this part, and the amount of such
shared savings, including the determination of the estimated average
per capita Medicare expenditures under the ACO for Medicare fee-for-
service beneficiaries assigned to the ACO and the average benchmark for
the ACO under Sec. 425.7(a) and (b) of this part.
(5) The percent of shared savings specified by the Secretary and
the limit on the total amount of shared savings established under Sec.
425.7(c) of this part.
(6) The termination of an ACO for failure to meet the quality
performance standards established under Sec. 425.14 of this part.
(7) A determination made by the reviewing antitrust agency that it
is likely to challenge or recommend challenging the ACO.
(b) An ACO may appeal an initial determination that is not
prohibited from administrative or judicial review under paragraph (a)
of this section by requesting a reconsideration review by a CMS
reconsideration official.
(1) An ACO that wants to request reconsideration review by a CMS
reconsideration official must submit a written request by an authorized
official for receipt by CMS within 15 days of the notice of the initial
determination.
(i) If the 15th day is a weekend or a Federal holiday, then the
timeframe is extended until the end of the next business day.
(ii) Failure to submit a request for reconsideration within 15 days
will result in denial of the request for reconsideration.
(2) The reconsideration review may be held orally (that is, in
person, by telephone or other electronic means) or on the record
(review submitted documentation) at the discretion of the
reconsideration official.
(3) The reconsideration official will send an acknowledgement of
the reconsideration review request to the ACO and CMS that includes the
following:
(A) Review procedures.
(B) Procedures for submission of evidence including format and
timelines.
(C) Date, time and location of the review. The reconsideration
official may, on his or her own motion, or at the request of CMS or the
ACO, change the time and place for the reconsideration

[[Page 19651]]

review, but must give the parties to the reconsideration review notice
of the change.
(4) The burden of proof is on the ACO to demonstrate to the
reconsideration official with convincing evidence that the initial
determination is not consistent with CMS' regulations or statutory
authority.
(i) The reconsideration official's review will be based only on
evidence submitted by the reconsideration official's requested
deadline, unless requested by the reconsideration official.
(ii) Documentation submitted for the record as evidence cannot be
documentation that was not previously submitted to CMS by its required
applicable timelines and in the requested format.
(iii) All evidence submitted both from the applicant and CMS, in
preparation for the reconsideration review will be shared with
participating parties prior to the scheduled date of the hearing, as
indicated in the acknowledgement notice.
(iv) All parties will be notified of the reconsideration official's
recommendation.
(c) If any of the parties disagree with the recommendation of the
reconsideration official, they may request an on the record review of
the initial determination and recommendation by an independent CMS
official who was not involved in the initial determination or the
reconsideration review process.
(1) Any party that wishes to request an on the record review of the
reconsideration official's recommendation must submit an explanation of
why they disagree with the recommendation by the timeframe and in the
format indicated on the recommendation letter.
(2) The on the record review process will be based only on evidence
presented for the reconsideration review.
(3) The CMS official will consider the recommendation of the
reconsideration official and make a final agency determination.
(d) CMS's decision after review of the reconsideration official's
recommendation is final and binding.
(e) The review process under this section shall not be construed to
negate, diminish, or otherwise alter the applicability of existing
laws, rules, and regulations or determinations made by other government
agencies.
(f) If CMS' initial decision to deny an ACO's application to
participate in the Shared Savings Program is upheld, the application
will remain denied based on the effective date of the original notice
of denial.
(g) An ACO that requests a reconsideration review for termination
will remain operational throughout the review process. If CMS initial
determination to terminate the agreement with the ACO is upheld,
termination of the agreement is effective as indicated in the initial
notice of termination.
(1) If CMS' initial determination to terminate an agreement with an
ACO is upheld, the decision to terminate the agreement is effective as
of the date indicated in the initial notice of termination.
(2) If CMS' initial determination to terminate an ACO is reversed,
the ACO is reinstated into the Shared Savings Program, retroactively
back to the original date of termination.

Sec. 425.16 Audits and record retention.

(a) Right to audit. The ACO must agree, and must require its ACO
participants, ACO providers/suppliers, and contracted entities
performing services or functions on behalf of the ACO to agree, that
the DHHS the Comptroller General, the OIG or their designees have the
right to audit, inspect, and evaluate any books, contracts, records,
documents and other evidence of the ACO, ACO participants, and ACO
providers/suppliers, and other contracted entities that pertain to--
(1) The ACO's compliance with program requirements;
(2) The quality of services performed and determination of amount
due to or from CMS under the contract; and
(3) The ability of the ACO to bear the risk of potential losses and
to repay any losses to CMS.
(b) Maintenance of records. An ACO must agree, and must require its
ACO participants, ACO providers/suppliers, and contracted entities
performing functions or services on behalf of the ACO to agree to the
following:
(1) To maintain and give DHHS, OIG, the Comptroller General, or
their designees access to all books, contracts, records, documents, and
other evidence (including data related to Medicare utilization and
costs, quality performance measures, shared savings distributions, and
other financial arrangements related to ACO activities) sufficient to
enable the audit, evaluation, and inspection of the ACO's compliance
with program requirements, quality of services performed, right to any
shared savings payment, or obligation to repay losses, ability to bear
the risk of potential losses, and ability to repay any losses to CMS.
(2) To maintain such books, contracts, records, documents, and
other evidence for a period of 10 years from the final date of the
agreement period or from the date of completion of any audit,
evaluation, or inspection, whichever is later, unless--
(i) CMS determines there is a special need to retain a particular
record or group of records for a longer period and notifies the ACO at
least 30 days before the normal disposition date;
(ii) There has been a termination, dispute, or allegation of fraud
or similar fault by the ACO, its ACO participants, its ACO providers/
suppliers, or contracted entities that perform functions or services on
behalf of the ACO, in which case ACOs must retain records for an
additional 6 years from the date of any resulting final resolution of
the termination, dispute, or allegation of fraud or similar fault.
(iii) There is a reasonable possibility of fraud or similar fault
by the ACO or its participating providers/suppliers, or contracted
entities performing services or functions on behalf of the ACO, in
which case CMS may inspect, evaluate, and audit the ACO at any time.
(c) Notwithstanding any arrangements between or among an ACO, ACO
participants, ACO providers/suppliers, and contracted entities
performing functions or services on behalf of the ACO, the ACO must
have ultimate responsibility for adhering to and otherwise fully
complying with all terms and conditions of its agreement with CMS,
including the requirements set forth in this section.

Sec. 425.17 Requirements for data submission by ACOs.

(a) ACOs must submit data in a form and manner specified by CMS on
the measures designated by CMS under Sec. 425.9 of this part.
(b) ACOs that successfully must, on behalf of their eligible
professionals, submit the measures designated by CMS under Sec. 425.9
according to the method of submission established under the Shared
Savings Program for purposes of the quality data requirements will be
considered satisfactory reporters for purposes of the Physician Quality
Reporting System incentive under Sec. 425.11(a).

Sec. 425.18 The 3-year agreement with CMS

(a) General rule. In order to participate in the Shared Savings
Program, an ACO must enter into an agreement with CMS. ACO applications
must be submitted by the deadline established by CMS. CMS will
determine whether to approve or deny applications from eligible
organizations

[[Page 19652]]

prior to the end of the calendar year in which the applications are
submitted.
(b) An ACO's duration of agreement. The participation agreement
must be for a term of 3 years, starting on the January 1 following
approval of an application or such other date specified in the
agreement.
(c) Performance period. Unless otherwise specified, the ACO's
annual performance period under the agreement must be the 12-month
period beginning on January 1 of each year during the term of the
agreement.

Sec. 425.19 Data sharing with ACOs.

(a) General rules. CMS shares both aggregate and beneficiary
identifiable data with ACOs under the following general conditions:
(1) The ACO does not unnecessary limitations or restrictions on the
use or disclosure of individually identifiable health information that
it internally compiles from providers and suppliers both within and
outside of the ACO.
(2) The ACO observes all relevant statutory and regulatory
provisions regarding the appropriate use of data and the
confidentiality and privacy of individually identifiable health
information and complies with the terms of the data use agreement
described in paragraph (f) of this section.
(b) Sharing aggregate data. (1) CMS shares aggregate data (data
that omits the 18 identifiers listed at 45 CFR 164.514(b) with ACOs as
follows:
(i) Aggregate data reports at the start of the agreement period
based on the historical beneficiaries used to calculate the benchmark,
and each quarter thereafter during the agreement period.
(ii) Quarterly reports will be based upon the most recent 12 months
of data for beneficiaries that could potentially be assigned to the ACO
under the assignment methodology in Sec. 425.6. These data will not
include beneficiary identifying information, but will include de-
identified claims history of the services rendered for the ACO's
assigned FFS beneficiaries, as determined under Sec. 425.6 of this
part.
(2) These aggregate data reports will include, when available, the
following information:
(i) Financial performance.
(ii) Quality performance scores.
(iii) Aggregated metrics on the assigned beneficiary population.
(iv) Utilization data at the start of the agreement period based on
historical beneficiaries used to calculate the benchmark.
(c) Identification of historically assigned beneficiaries used to
calculate the benchmark established under Sec. 425.7.
(1) At the beginning of the agreement period, and at the end of
each performance period, CMS will, upon the ACO's request for the data
for purposes of population-based activities relating to improving
health or reducing health care costs, protocol development, case
management, and care coordination, provide the ACO the following data
about each beneficiary that was included in the records used under
Sec. 425.7(a) and (b) of this part to generate the ACO's benchmark:
(i) Beneficiary names.
(ii) Date of birth.
(iii) HICN.
(2) In its request for these data, the ACO must certify that it is
seeking the following information:
(i) As a HIPAA covered entity, and the request reflects the minimum
data necessary for the ACO to conduct its own health care operations
work that falls within the first or second paragraph of the definition
of health care operations at 45 CFR 164.501.
(ii) As the business associate of its ACO participants, who are
HIPAA covered entities, and the request reflects the minimum data
necessary for the ACO to conduct health care operations work that falls
within the first or second paragraph of the definition of health care
operations at 45 CFR 164.501 on behalf of those participants.
(d) Sharing beneficiary identifiable data. Subject to the opt-out
described in this paragraph (g) of this section, CMS will, upon the
ACO's request for the data for purposes of evaluating ACO provider/
supplier performance, conducting quality assessment and improvement
activities, and conducting population-based activities relating to
improved health, provide the ACO with monthly claims data for
potentially assigned beneficiaries.
(1) If an ACO wishes to receive beneficiary identifiable claims
data, it must either request these data as part of the application
process or later submit a formal request for data.
(2) The ACO must certify that it is requesting claims data about
either of the following:
(i) Its own patients, as a HIPAA covered entity, and the request
reflects the minimum data necessary for the ACO to conduct its own
health care operations work that falls within the first or second
paragraph of the definition of health care operations at 45 CFR
164.501.
(ii) The patients of its HIPAA covered entity ACO participants as
the business associate of these HIPAA covered entities, and the request
reflects the minimum data necessary for the ACO to conduct health care
operations work that falls within the first or second paragraph of the
definition of health care operations at 45 CFR 164.501 on behalf of
those participants.
(3) The use of identifiers and claims data will be limited to
developing processes and engaging in appropriate activities related to
coordinating care and improving the quality and efficiency of care that
are applied uniformly to all Medicare beneficiaries assigned to the
ACO, and that these data will not be used to reduce, limit or restrict
care for specific beneficiaries.
(4) To ensure that beneficiaries have a meaningful opportunity to
opt-out of having their claims data shared with the ACO, the ACO may
only request such claims data about a beneficiary if--
(i) The beneficiary has been seen in the office of a participating
primary care physician (as defined in Sec. 425.4 of this part), during
the performance year,
(ii) The beneficiary was informed about how the ACO intends to use
beneficiary identifiable claims data in order to improve the quality of
care that is furnished to the beneficiary and, where applicable,
coordinate care offered to the beneficiary; and
(iii) The beneficiary did not exercise the opportunity to opt-out
of having his/her claims data shared with the ACO as provided in
paragraph (g) of the section.
(5) CMS will continue to provide ACOs with certain beneficiary
identifiable claims data on a monthly basis, subject to beneficiary's
opportunity to opt-out of the data sharing under paragraph (g) of this
section.
(6) If an ACO requests beneficiary identifiable information,
compliance with the terms of the data use agreement described in
paragraph (f) of this section is a condition of an ACO's participation
in the Shared Savings Program.
(e) Minimum necessary data set. (1) The minimum necessary Parts A
and B data elements may include the following data elements:
(i) Beneficiary ID.
(ii) Date of birth.
(iii) Gender.
(iv) Date of death.
(v) Claim ID.
(vi) The from and through dates of service.
(vii) The provider or supplier ID.
(viii) The claim payment type.
(2) The minimum necessary Part D data elements may include the
following data elements:
(i) Beneficiary ID.
(ii) Prescriber ID.
(iii) Drug service date.
(iv) Drug product service ID.
(v) Quantity dispensed.
(vi) Days supplied.

[[Page 19653]]

(vii) Gross drug cost.
(viii) Brand name.
(ix) Generic name.
(x) Drug strength.
(xi) Indication if the drug is on the formulary, as designated by
CMS.
(f) Data Use Agreement. Prior to receiving any beneficiary
identifiable data, ACOs must enter into a DUA with CMS. The DUA must--
(1) Specify that the ACO will comply with the limitations on the
use and disclosure of individually identifiable health information that
the HIPAA Privacy Rule places on HIPAA covered entities, as well as all
other applicable privacy and confidentiality requirements;
(2) Prohibit the ACO from using the data received under the Shared
Savings Program for any prohibited use of individually identifiable
health information.
(3) Specify that if an ACO misuses or discloses data in a manner
that violates any applicable statutory or regulatory requirements or
that is otherwise non-compliant with the provisions of the DUA, it will
no longer be eligible to receive data, could potentially be terminated
from the shared savings program as well as subject to additional
sanctions and penalties available under the law.
(g) Beneficiary opportunity to opt-out of claims data sharing. (1)
Prior to requesting claims data about a particular beneficiary, the ACO
must inform the beneficiary that it may request personal health
information about the beneficiary for purposes of its care coordination
and quality improvement work, and give the beneficiary meaningful
opportunity to opt-out of having his/her claims information shared with
the ACO.
(2) The ACO must supply beneficiaries with a form allowing them to
opt-out of data sharing. The form must be provided to each beneficiary
as part of an office visit with a primary care physician as defined
under Sec. 425.4, whose services are used to assign beneficiaries to
the ACO.
(3) This requirement will not apply to the initial four data points
that CMS will provide to ACOs for individuals in the 3-year base data
set (Beneficiary Name, Beneficiary DOB, Beneficiary Sex, and
Beneficiary HICN) under paragraph (c) of this section.

Sec. 425.20 New program standards established during the 3 year
agreement period.

(a)(1) ACOs will be subject to all statutory changes.
(2) ACOs will be subject to all regulatory changes with the
exception of the following program areas:
(i) Eligibility requirements concerning the structure and
governance of ACOs.
(ii) Calculation of sharing rate.
(iii) Beneficiary assignment.
(b) In those instances where changes in law or regulations require,
or otherwise cause an ACO to change its processes in a manner that
affects the design of its care processes and delivery of care, changes
to the quality of care, or changes in planned distribution of shared
savings, the ACO will be required to submit to CMS for review and
approval a supplement to its original application detailing how it will
address key changes in processes resulting from these modifications.
(c) If an ACO cannot effectuate the changes needed to adhere to the
regulatory modifications after being given an opportunity to act upon a
CAP, the ACO would be terminated from the program.
(d) Nothing in the regulations under this part shall be construed
to affect the payment, coverage, program integrity, and other
requirements that apply to providers and suppliers under FFS Medicare.

Sec. 425.21 Managing significant changes to the ACO during the
agreement period.

(a)(1) During the 3-year agreement, an ACO may remove, but not add,
ACO participants (identified by TINs), and it may remove or add ACO
providers/suppliers (identified by NPI and/or TIN).
(2) ACOs must notify CMS at least 30 days prior to any significant
change, as defined in paragraph (b).
(3) CMS will review the ACO's notification and make one of the
following determinations:
(i) The ACO may continue to operate under the new structure with
savings calculations for the performance year based upon the updated
list of ACO participant TINs.
(ii) The ACO structure is so different from the initially approved
ACO that it must submit a new application, and, if applicable, undergo
an antitrust review.
(iii) The ACO is materially different from the initially approved
ACO because of the inclusion of additional ACO providers/suppliers such
that, in order to continue in the program, the ACO must obtain an
antitrust review and a letter from the reviewing Antitrust Agency
stating that it has no present intent to challenge, or to recommend
challenging, the ACO. An ACO's failure to timely request antitrust
review shall be deemed to constitute voluntary termination of its 3-
year agreement.
(iv) The ACO no longer meets the eligibility criteria for the
program and its 3-year agreement must be terminated.
(v) CMS and the ACO may mutually decide to terminate the agreement.
(b) A ``significant change'' occurs when an ACO is unable to
fulfill its 3-year agreement due to:
(i) Deviation from its approved application such as a
reorganization of the ACO's legal structure or other changes in
eligibility.
(ii) A material change as defined in Sec. 425.14.
(iii) Government-required reorganization as a result of fraud or
antitrust concerns.
(c) The ACO must notify CMS within 30 days of the event for
reevaluation of its eligibility to continue to participate in the
Shared Savings Program.
(d) ACO participants continue to be subject to all requirements
applicable to fee-for-service Medicare, including routine CMS business
operation updates, and changes in fee-for-service coverage decisions.

Sec. 425.22 Future participation of previous Shared Savings Program
participants.

(a) The ACO must disclose to CMS whether the ACO, its ACO
participants, or its ACO providers/suppliers have participated in the
Medicare program under the same or a different name, or is related to
or has an affiliation with another Shared Savings Program ACO. The ACO
must specify whether the related ACO was terminated or withdrew
voluntarily from the program.
(b) If the ACO was previously terminated from the program, the
applicant must identify the cause of termination and what safeguards
are now in place to enable the applicant ACO to participate in the
program for the full of the three-year agreement period. For new ACOs,
this should be disclosed on a prospective ACO's application. For ACOs
that are already participating in the Shared Savings Program, this
information should be included in the annual updates that the ACOs will
provide to CMS on their ACO participants and ACO providers/suppliers.

Sec. 425.23 Public reporting and transparency.

For purposes of the shared savings program, each ACO will publicly
report the following information regarding the ACO a standardized
format specified by CMS:
(a) Name and location.
(b) Primary contact.
(c) Organizational information including all of the following:
(1) Participating providers of services and suppliers.
(2) Identification of participants in joint ventures between ACO
professionals and hospitals.

[[Page 19654]]

(3) Identification of the representatives on its governing body.
(4) Associated committees and committee leadership.
(5) Quality performance standard scores.
(d) Shared savings or losses information, including the amount of
any shared savings performance payment received by the ACOs or shared
losses owed to CMS.
(e) Total proportion of shared savings that was distributed among
ACO participants and total proportion that was used to support quality
performance and the aims of better care for individuals, better health
for populations, and lower growth in expenditures.

Sec. 425.24 Overlap with other CMS Shared Savings initiatives.

(a) Medicare providers and suppliers may not participate in the
Shared Savings Program as ACO participants if they participate in the
independence at home medical practice pilot program under section 1866E
of the Act, a model tested or expanded under section 1115A of the Act
that involves shared savings, or any other Medicare initiative that
involves shared savings. CMS will review and reject an ACO's
application if ACO participants are participating in another Medicare
initiative that involves shared savings payments so that beneficiaries
are assigned to only one such initiative and in order to avoid
duplicate shared savings payments.
(b) PGP demonstration sites applying for participation to the
Shared Savings Program will be required to complete a condensed
application form.

(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

Dated: March 24, 2011.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.

Approved: March 29, 2011.
Kathleen Sebelius,
Secretary.
[FR Doc. 2011-7880 Filed 3-31-11; 11:15 am]
BILLING CODE 4120-01-P