[Federal Register Volume 76, Number 212 (Wednesday, November 2, 2011)]
[Rules and Regulations]
[Pages 67802-67990]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-27461]



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Vol. 76

Wednesday,

No. 212

November 2, 2011

Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Part 425





Medicare Program; Medicare Shared Savings Program: Accountable Care 
Organizations; Final Rule

  Federal Register / Vol. 76 , No. 212 / Wednesday, November 2, 2011 / 
Rules and Regulations  

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 425

[CMS-1345-F]
RIN 0938-AQ22


Medicare Program; Medicare Shared Savings Program: Accountable 
Care Organizations

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

ACTION: Final rule.

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SUMMARY: This final rule implements 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 the Medicare Shared Savings Program. Under 
these provisions, providers of services and suppliers can continue to 
receive traditional Medicare fee-for-service (FFS) payments under Parts 
A and B, and be eligible for additional payments if they meet specified 
quality and savings requirements.

DATES: These regulations are effective on January 3, 2012.

FOR FURTHER INFORMATION CONTACT: Rebecca Weiss, (410) 786-8084, 
Facsimile: (410) 786-8005, Email address: [email protected].

SUPPLEMENTARY INFORMATION:

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 of the Medicare Shared Savings Program
    D. Public Comments Received on the Proposed Rule
    E. Reorganization of the Regulations Text
II. Provisions of the Proposed Rule, Summary of and Responses to 
Public Comments, and Provisions of the Final Rule
    A. Definitions
    B. Eligibility and Governance
    1. General Requirements
    a. Accountability for Beneficiaries
    b. Agreement Requirement
    c. Sufficient Number of Primary Care Providers and Beneficiaries
    d. Identification and Required Reporting on Participating ACO 
Professionals
    2. Eligible Participants
    3. Legal Structure and Governance
    a. Legal Entity
    b. Distribution of Shared Savings
    c. Governance
    d. Composition of the Governing Body
    4. Leadership and Management Structure
    5. Processes To Promote Evidence-Based Medicine, Patient 
Engagement, Reporting, Coordination of Care, and Demonstrating 
Patient-Centeredness
    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
    6. Overlap With Other CMS Shared Savings Initiatives
    a. Duplication in Participation in Medicare Shared Savings 
Programs
    b. Transition of the Physician Group Practice (PGP) 
Demonstration Sites Into the Shared Savings Program
    c. Overlap With the Center for Medicare & Medicaid Innovation 
(Innovation Center) Shared Savings Models
    C. Establishing the Agreement With the Secretary
    1. Options for Start Date of the Performance Year
    2. Timing and Process for Evaluating Shared Savings
    3. New Program Standards Established During the Agreement Period
    4. Managing Significant Changes to the ACO During the Agreement 
Period
    5. Coordination With Other Agencies
    a. Waivers of CMP, Anti-Kickback, and Physician Self-Referral 
Laws
    b. IRS Guidance Relating to Tax-Exempt Organization 
Participating in ACOs
    c. Antitrust Policy Statement
    d. Coordinating the Shared Savings Program Application With the 
Antitrust Agencies
    D. Provision of Aggregate and Beneficiary Identifiable Data
    1. Data Sharing
    2. Sharing Aggregate Data
    3. Identification of Historically Assigned Beneficiaries
    4. Sharing Beneficiary Identifiable Claims Data
    5. Giving Beneficiaries the Opportunity To Decline Data Sharing
    E. Assignment of Medicare Fee-for-Service Beneficiaries
    1. Definition of Primary Care Services
    a. Consideration of Physician Specialties in the Assignment 
Process
    b. Consideration of Services Furnished by Non-Physician 
Practitioners in the Assignment Process
    c. Assignment of Beneficiaries to ACOs That Include FQHCs and/or 
RHCs
    (1) Identification of Primary Care Services Rendered in FQHCs 
and RHCs
    (2) Identification of the Type of Practitioner Providing the 
Service in an FQHC/RHC
    (3) Identification of the Physician Specialty for Services in 
FQHCs and RHCs
    2. Prospective vs. Retrospective Beneficiary Assignment To 
Calculate Eligibility for Shared Savings
    3. Majority vs. Plurality Rule for Beneficiary Assignment
    F. Quality and Other Reporting Requirements
    1. Introduction
    2. Measures To Assess the Quality of Care Furnished by an ACO
    a. General
    b. Considerations in Selecting Measures
    c. 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 Web Interface
    c. Certified EHR Technology
    4. Quality Performance Standards
    a. General
    b. 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
    5. Incorporation of Other Reporting Requirements Related to the 
PQRS and Electronic Health Records Technology Under Section 1848 of 
the Act
    6. Aligning ACO Quality Measures With Other Laws and Regulations
    G. Shared Savings and Losses
    1. Authority for and Selection of Shared Savings/Losses Model
    2. Shared Savings and Losses Determination
    a. Overview of Shared Savings and Losses Determination
    b. Establishing the Benchmark
    c. Adjusting the Benchmark and Actual Expenditures
    (1) Adjusting Benchmark and Performance Year Average Per Capita 
Expenditures for Beneficiary Characteristics
    (2) Technical Adjustments to the Benchmark and Performance Year 
Expenditures
    (a) Impact of IME and DSH
    (b) Geographic and Other Payment Adjustments
    (3) Trending Forward Prior Year's Experience To Obtain an 
Initial Benchmark
    (a) Growth Rate as a Benchmark Trending Factor
    (b) National Growth Rate as a Benchmark Trending Factor
    d. Updating the Benchmark During the Agreement Period
    e. Determining Shared Savings
    (1) Minimum Savings Rate
    (a) One-Sided Model
    (b) Two-Sided Model
    (2) Quality Performance Sharing Rate
    (3) Additional Shared Savings Payments
    (4) Net Sharing Rate
    (5) Performance Payment Limits
    f. Calculating Sharing in Losses
    (1) Minimum Loss Rate
    (2) Shared Loss Rate
    g. Limits on Shared Losses
    h. Ensuring ACO Repayment of Shared Losses
    i. Timing of Repayment

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    j. Withholding Performance Payments
    k. Determining First Year Performance for ACOs Beginning April 1 
or July 1, 2012
    (1) Interim Payment Calculation
    (2) First Year Reconciliation
    (3) Repayment Mechanism for ACOs Electing Interim Payment 
Calculations
    3. Impact on States
    H. Additional Program Requirements and Beneficiary Protections
    1. Background
    2. Beneficiary Protections
    a. Beneficiary Notification
    b. ACO Marketing Guidelines
    3. Program Monitoring
    a. General Methods Used to Monitor ACOs
    b. Monitoring Avoidance of At-Risk Beneficiaries
    (1) Definition of At-Risk Beneficiaries
    (2) Penalty for Avoidance of At-Risk Beneficiaries
    c. Compliance With Quality Performance Standards
    4. 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
    f. Record Retention
    g. Beneficiary Inducements
    5. Terminating an ACO Agreement
    a. Reasons for Termination of an ACO's Agreement
    b. Corrective Action Plans
    6. Reconsideration Review Process
III. Collection of Information Requirements
IV. Regulatory Impact Analysis
    A. Introduction
    B. Statement of Need
    C. Overall Impact
    D. 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
    4. Impact on Small Entities
    E. Alternatives Considered
    F. Accounting Statement and Table
    G. Conclusion

Regulations Text

Acronyms

ACO Accountable Care Organization
AHRQ Agency for Healthcare Research and Quality
BAA Business Associate Agreements
BCBSMA Blue Cross Blue Shield of Massachusetts
BIPA Benefits Improvement and Protection Act
CAD Coronary Artery Disease
CAHPS Consumer Assessment of Health Providers and Systems
CAHs Critical Access Hospitals
CBIC Competitive Bidding Implementation Contractor
CBSA Core Based Statistical Area
CHCs Community Health Centers
CHIP Children's Health Insurance Program
CMP Civil Monetary Penalties
CMS Centers for Medicare & Medicaid Services
CNM Certified Nurse Midwife
CMS-HCC CMS Hierarchal Condition Category
COPD Chronic Obstructive Pulmonary Disease
CP Certified Psychologist
CSW Clinical Social Worker
CWF Common Working File
DHHS Department of Health and Human Services
DOB Date of Birth
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
EHR Electronic Health Record
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 Hospital Consumer Assessment of Health care Provider and 
Systems
HCC Hierarchal Condition Category
HCPCS Healthcare Common Procedure Coding System
HHAs 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 and Services Administration
HVBP Hospital Value Based Purchasing
IME Indirect Medical Education
IOM Institute of Medicine
IPPS Inpatient Prospective Payment System
IQR Inpatient Quality Reporting
IRS Internal Revenue Service
LTCHs Long-Term Acute Care Hospitals
MA Medicare Advantage
MAPCP Multipayer Advanced Primary Care Practice
MedPAC Medicare Payment Advisory Commission
MHCQ Medicare Health Care Quality
MMA Medicare Prescription Drug, Improvement, and Modernization Act
MS-DRGs Medicare Severity-Adjusted Diagnosis Related Groups
MSP Minimum Savings Percentage
MSR Minimum Savings Rate
NCQA National Committee for Quality Assurance
NCCCN North Carolina Community Care Network
NP Nurse Practitioner
NPI National Provider Identifier
NQF National Quality Forum
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 Clinics
RIA Regulatory Impact Analysis
SNFs Skilled Nursing Facilities
SSA Social Security Administration
SSN Social Security Number
TIN Taxpayer 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, followed by enactment of the Health Care 
and Education Reconciliation Act of 2010 (Pub. L. 111-152) on March 30, 
2010, which amended certain provisions of Public Law 111-148. 
Collectively known as the Affordable Care Act, these public laws 
include a number of provisions designed to improve the quality of 
Medicare services, support innovation and the establishment of new 
payment models, better align Medicare payments with provider costs, 
strengthen program integrity within Medicare, and put Medicare on a 
firmer financial footing.
    Many provisions within the Affordable Care Act implement value-
based purchasing programs; section 3022 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 Shared Savings Program is a key component of 
the Medicare delivery system reform initiatives included in 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 Medicare Parts A and B 
expenditures. We refer to this approach throughout this final rule as 
the three-part aim.
    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. In the April 7, 2011 Federal Register 
(76 FR 19528), we published the Shared Savings Program proposed rule. 
In the proposed rule, we

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discussed our experience implementing value based purchasing concepts. 
In addition to improving quality, value-based purchasing initiatives 
seek to reduce growth in health care expenditures.
    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 
increased volume. For a complete discussion, including our goals in 
implementing value-based purchasing initiatives, please refer to 
section I.A. of the proposed rule (76 FR 19530).

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. A detailed summary of the provisions within 
section 3022 of the Affordable Care Act is in section I.B. of the 
proposed rule (see 76 FR 19531).

C. Overview 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. Under the Shared Savings Program, ACOs 
will only share in savings if they meet both the quality performance 
standards and generate shareable savings. In order to fulfill the 
intent of the Shared Savings Program as established by the Affordable 
Care Act, we stated in the proposed rule that we will focus on 
achieving the three-part aim consisting of: (1) Better care for 
individuals; (2) better health for populations; and (3) lower growth in 
expenditures.
    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 ensure a coordinated and aligned inter- and intra-
agency program implementation. The result of this effort is the release 
of several documents that potential participants are strongly 
encouraged to review. These documents are described in more detail in 
section II.C.5. of this final rule, and include: (1) A joint CMS and 
DHHS OIG interim final rule with comment period published elsewhere in 
this issue of the Federal Register entitled Medicare Program; Final 
Waivers in Connection With the Shared Savings Program; (2) IRS Notice 
2011-20 and other applicable IRS guidance viewable on www.irs.gov; and 
(3) a Statement of Antitrust Enforcement Policy Regarding Accountable 
Care Organizations Participating in the Shared Savings Program issued 
by the FTC and DOJ (collectively, the Antitrust Agencies).
    In this final rule we have made significant modifications to reduce 
burden and cost for participating ACOs. These modifications include: 
(1) Greater flexibility in eligibility to participate in the Shared 
Savings Program; (2) multiple start dates in 2012; (3) establishment of 
a longer agreement period for those starting in 2012; (4) greater 
flexibility in the governance and legal structure of an ACO; (5) 
simpler and more streamlined quality performance standards; (6) 
adjustments to the financial model to increase financial incentives to 
participate; (7) increased sharing caps; (8) no down-side risk and 
first-dollar sharing in Track 1; (9) removal of the 25 percent withhold 
of shared savings; (10) greater flexibility in timing for the 
evaluation of sharing savings (claims run-out reduced to 3 months); 
(11) greater flexibility in antitrust review; and (12) greater 
flexibility in timing for repayment of losses; and (13) additional 
options for participation of FQHCs and RHCs.

D. Public Comments Received on the Proposed Rule

    We received approximately 1,320 public comments on the April 7, 
2011 proposed rule (76 FR 19528). These public comments addressed 
issues on multiple topics and here, rather than throughout the 
regulation, we extend our great appreciation for the input. We received 
some comments that were outside the scope of the proposed rule and 
therefore not addressed in this final rule (for example, suggested 
changes to the physician fee schedule, or suggestions on other 
Affordable Care Act provisions). Summaries of the public comments that 
are within the scope of the proposals and our responses to those 
comments are set forth in the various sections of this final rule under 
the appropriate headings. In this final rule, we have organized the 
document by presenting our proposals, summarizing and responding to the 
public comment for the proposal(s), and describing our final policy.
    Comment: We received comments expressing support for the proposed 
design of the Shared Savings Program, as well as comments disagreeing 
with it. Those in disagreement generally found the proposed 
requirements to be too prescriptive and burdensome. Other commenters 
expressed their disagreement with a program they perceive as limiting 
access to necessary care.
    Response: We appreciate all the feedback we received. We have been 
encouraged by the level of engagement by stakeholders in this 
rulemaking process. We thank all of the commenters for helping us 
develop the Shared Savings Program. Where possible we have tried to 
reduce or eliminate prescriptive or burdensome requirements that could 
discourage participation in the Shared Savings Program. We have also 
been vigilant in protecting the rights and benefits of FFS 
beneficiaries under traditional Medicare to maintain the same access to 
care and freedom of choice that existed prior to the implementation of 
this program. These provisions can be found throughout this final rule.
    Comment: Two commenters encouraged CMS to make the PGP 
demonstration a national program. In contrast, a few commenters stated 
concern about insufficient testing of the Shared Savings Program as a 
demonstration program prior to this final rule. The commenters 
acknowledged the PGP demonstration as the precursor, but stated that 
our proposals deviated too far from the PGP demonstration. One 
commenter noted the PGP demonstration consisted of large health 
organizations that had access to $1.75 million in capital and while 
half of the participants shared in savings, none had a complete return 
on their investment. They suggested that CMS continue to create 
demonstration projects for shared savings initiatives and delay the 
implementation of the Shared Savings Program. One commenter suggested 
phasing in the program. Specifically, the commenter suggested that we 
start small and periodically assess the program's requirements to 
determine which policies promote success and which create barriers.
    Response: The Shared Savings Program adopts many of the program 
aspects of the PGP demonstration, but some adjustments were necessary 
in

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order to create a national program. We removed a few of the proposed 
deviations from the PGP demonstration from this final rule. For 
example, under the policies we are implementing in this final rule, 
Shared Savings Program participants may choose to enter a ``shared 
savings'' only track that will not require repayment of losses. The 
statute does not authorize us to delay the establishment of the Shared 
Savings Program. But, it is important to note that the Shared Savings 
Program is a voluntary program. Organizations that are not ready to 
participate can begin the transition towards a more coordinated 
delivery system, incorporating policies that promote success for the 
early participants and join the program at such time as they are ready. 
Additionally, the Innovation Center will continue to test program 
models that may influence policies adopted for future agreement periods 
for the Shared Savings Program. We intend to assess the policies for 
the Innovation Center's models and the Shared Savings Program to 
determine how well they are working and if there are any modifications 
that would enhance them.
    Comment: One commenter expressed concern that we appeared to be 
limiting participation in the Shared Savings Program to 5 million 
beneficiaries and 100 to 200 ACOs.
    Response: We assume this commenter was referring to the Regulatory 
Impact Analysis section of our proposed rule where our Office of the 
Actuary estimated that up to 5 million beneficiaries would receive care 
from providers participating in ACOs. That figure was an estimate based 
on the proposed program requirements and the anticipated level of 
interest and participation of providers based on the requirements. 
After making programmatic changes based on commenter feedback, we 
believe the policies implemented in this final rule will be more 
attractive to participants and have a positive impact on those 
estimates. Please note that as a voluntary national program, any and 
all groups of providers and suppliers that meet the eligibility 
criteria outlined in this final rule are invited to participate.
    Comment: Many commenters requested CMS issue an interim final rule, 
rather than a final rule, in order to have flexibility to modify the 
proposals in the proposed rule. One commenter suggested the 60-day 
comment period did not provide enough time to analyze and comment on 
the proposed rule given the volume and complexity of the specific 
proposals as related to tribal health organizations and other public 
health providers.
    Response: In the proposed rule, we not only outlined our proposals 
for implementing the Shared Savings Program, but also provided detailed 
information on other alternatives we had considered and we sought 
comment on both our proposed policies and the other alternatives. The 
public comments submitted in response to the proposed rule have 
provided us with additional information and background regarding not 
only our proposed policies, but also the alternatives we considered. In 
response to the public comments, we have made significant changes to a 
number of our proposed policies. Nevertheless, we believe the policies 
in this final rule remain consistent with the overall framework for the 
program initially laid out in the proposed rule. As a result, we do not 
believe that there is any benefit to publishing this rule as an interim 
final rule rather than a final rule. We also believe 60 days 
represented a sufficient amount of time for interested parties to 
submit their comments on the proposed rule. We received many detailed 
comments in response to the proposed rule within the 60-day comment 
period. We also note that a 60-day comment period is consistent with 
the requirements of section 1871(b)(1) of the Act and is the standard 
timeframe used for many of our proposed rules.
    Comment: Many commenters were concerned that the Shared Savings 
Program has similar characteristics to some forms of managed care where 
it is possible to achieve savings through inappropriate reductions in 
patient care. Some commenters, for example, asserted that the Shared 
Savings Program is a capitated model that is not in the best interest 
of patients. Other commenters, such as beneficiaries and beneficiary 
advocates, indicated that beneficiaries should retain their right to 
see any doctor of their choosing. We also received comments expressing 
concern that, as with some managed care approaches, the Shared Savings 
program essentially transfers the locus of responsibility for health 
care away from the patient, which is not as effective as more consumer-
driven approaches. Another commenter expressed concern that assignment 
of beneficiaries to an ACO participating in the Shared Savings Program 
indicates that the program is a new version of managed care. One 
commenter suggested using the current Medicare Advantage (MA) structure 
to serve as the foundation of the Shared Savings Program. The commenter 
argued that MA plans are better suited to take on risk and provide care 
that meets many of the goals of the Shared Savings Program, and 
allowing these entities to participate will enable the program to reach 
a larger population. Additionally, a commenter requested information on 
why CMS is creating new policies for compliance, marketing and 
ownership instead of using policies already in place by MA plans. A few 
commenters claimed other countries tried this model and failed.
    Response: It is important to note that the Shared Savings Program 
is not a managed care program. Medicare FFS beneficiaries retain all 
rights and benefits under traditional Medicare. Medicare FFS 
beneficiaries retain the right to see any physician of their choosing, 
and they do not enroll in the Shared Savings Program. Unlike managed 
care settings, the Shared Savings Program ``assignment'' methodology in 
no way implies a lock in or enrollment process. To the contrary, it is 
a process based exclusively on an assessment of where and from whom FFS 
beneficiaries have chosen to receive care during the course of each 
performance period. The program is also not a capitated model; 
providers and suppliers continue to bill and receive FFS payments 
rather than receiving lump sum payments based upon the number of 
assigned beneficiaries. The design of the Shared Savings Program places 
the patient at the center. It encourages physicians, through the 
eligibility requirements, to include their patients in decision making 
about their health care. While we frequently relied on our experience 
in other Medicare programs, including MA, to help develop program 
requirements for the Shared Savings Program, there are often times when 
the requirements deviate precisely because the intent of this program 
is not to recreate MA. Unlike MA, this program's design retains FFS 
flexibility and freedom of choice available under Medicare Parts A and 
B which necessitates different program requirements. Lastly, in order 
for an ACO to share in savings the ACO must meet quality standards and 
program requirements that we will be monitoring. We will monitor the 
ACO's compliance with these requirements, as described in section II.H. 
of this final rule, with a special focus on ACOs that attempt to avoid 
at-risk patients. The purpose of the Shared Savings Program is to 
achieve savings through improvements in the coordination and quality of 
care, and not through avoiding certain beneficiaries or placing limits 
on beneficiary access to needed care.

[[Page 67806]]

    Comment: One commenter suggested CMS provide funding to Regional 
Health Improvement Collaboratives to assist in educating Medicare 
beneficiaries about the program and to help enable the collection and 
reporting of data on patient experience. In addition, one commenter 
recommended the creation of a national surveillance database during 
ACOs implementation to guide osteoporosis prevention, intervention and 
treatment efforts. The commenter suggested that a national database 
would help reduce mortality and costs associated with preventable hip 
fractures due to osteoporosis.
    Response: Both are excellent suggestions. Unfortunately, we are not 
in a position to implement these recommendations for this program at 
this time. The comment suggesting funding for Regional Health 
Improvement Collaboratives is beyond the scope of the proposed rule. We 
note, however, that the Innovation Center is currently accepting 
innovative solutions aimed at improving care delivery at their Web 
site, Innovations.cms.gov.
    Comment: One commenter suggested CMS address the comments received 
from the November 17, 2010 RFI.
    Response: In the proposed rule, we summarized many of the comments 
we received in response to the RFI, and these comments informed many of 
the policy choices made in the proposed rule. In addition, the RFI 
comments are publicly available at regulations.gov. Accordingly, we 
will not be addressing the entirety of those comments in this final 
rule; however any RFI comments we determined pertinent to this final 
rule may appear.
    Comment: One commenter expressed concern over CMS' example of 
reducing unnecessary hospital visits as one way that ACOs could improve 
care. The commenter explained that the excess revenue created by 
additional ER visits helps to sustain other services provided by a 
hospital that may not bring in as much revenue. The commenter concluded 
the reduction in visits would eventually lead to the closure of many 
small rural hospitals. A similar comment stated that encouraging 
coordination and reducing fragmented care will reduce hospital 
reimbursements.
    Response: The focus of the Shared Savings Program is to provide 
coordinated care to Medicare FFS beneficiaries. The program aims to 
provide higher quality care across the continuum of care; this may 
include additional office visits, as opposed to ER visits, for patients 
who do not require emergency services. Cost shifting is of great 
concern to us both within the Shared Savings Program and outside of the 
program. We believe it is in the patient's best interest to receive 
care in the proper setting and to receive emergency services only in 
times of emergency. Incurring costs for unnecessary care, or care 
provided in an inappropriate care setting, can be harmful to 
beneficiaries and payers alike. For more information about cost 
shifting related to the Shared Savings Program refer to section II.H.4. 
of this final rule.

E. Reorganization of the Regulations Text

    We have revised the proposed regulations text to reflect the final 
policies adopted in this final rule. We have also made significant 
revisions to the structure and organization of the regulations text in 
order to correspond more closely with the organization of the preamble 
to this final rule and to make it easier to locate specific provisions 
within the regulations text.

II. Provisions of the Proposed Rule, Summary of and Responses to Public 
Comments, and the Provisions of the Final Rule

A. Definitions

    For purposes of the proposed rule, we defined three terms used 
throughout the discussion: Accountable care organization (ACO), ACO 
participant, and ACO provider/supplier. We encourage the reader to 
review these definitions in Sec.  425.20. We incorporated comments on 
these definitions into the discussion that follows.

B. Eligibility and Governance

1. General Requirements
a. 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 proposed 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. We further proposed that this certification would be included 
as part of the ACO's application and participation agreement.
    Comment: A commenter suggested that providers should not be held 
liable for unmanageable patients and/or those patients that refuse 
treatment altogether. Other commenters recommended that we not hold an 
ACO accountable for those patients who choose to decline to have CMS 
share their claims data with the ACO. Another commenter suggested that 
CMS require ACOs to state specifically in their applications the 
processes used to assure that Medicare patients have access to 
relatively costly but medically necessary procedures, such as 
transplantation.
    Response: In order to retain beneficiary freedom of choice under 
traditional FFS Medicare, the basis for beneficiary assignment to ACOs 
is where, and from whom, they choose to receive a plurality of their 
primary care services during the performance year. ACOs must be willing 
to become accountable for total quality, cost, and overall care of 
these Medicare FFS beneficiaries. An ACO will not receive an assignment 
of those beneficiaries that choose not to receive care from ACO 
providers. Beneficiaries who choose to receive care from ACO providers, 
regardless of whether they are ``unmanageable'' or noncompliant with 
treatment recommendations may become part of the ACO's assigned 
population. Since patient-centeredness is an integral part of this 
program, we believe such beneficiaries represent an excellent 
opportunity for ACOs to create, implement, and improve upon patient-
centered processes that improve patient engagement. We note that 
avoidance of such beneficiaries, as described in more detail in section 
II.H.3. of this final rule, will result in termination of an ACO's 
participation agreement. Similarly, in the interest of beneficiary 
engagement and transparency, we believe it is important to provide 
beneficiaries with an opportunity to decline data sharing. As discussed 
in greater detail in section II.B.4. of this final rule, a process for 
beneficiaries to decline data sharing provides an opportunity for ACOs 
to explain to patients how access to their personal health information 
will help the ACO improve the quality of its care. We believe that 
requiring an ACO executive who has the authority to bind the ACO to 
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 provides sufficient assurance 
that the ACO will be accountable for its assigned beneficiaries. By 
allowing ACOs to determine how they will satisfy this requirement, we 
will afford ACOs the flexibility needed to demonstrate their

[[Page 67807]]

commitment to beneficiary accountability in a manner which is most 
suited to their own ACO model.
    Final Decision: We are finalizing our policy regarding 
certification of accountability for beneficiaries described in (76 FR 
19544) as proposed without change (Sec.  425.100 and 425.204).
b. 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 proposed to limit participation 
agreements to a 3-year period. We sought comments on this proposal 
regarding the initial consideration of a longer agreement period.
    If the ACO is approved for participation, we proposed that an 
authorized executive--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 its ACO participants and its ACO 
providers/suppliers agree to the requirements set forth in the 
agreement between the ACO and us, and sign a participation agreement 
and submit the signed agreement to us. We proposed that the 
participation agreement would also include an acknowledgment that all 
contracts or arrangements between or among the ACO, ACO participants, 
ACO providers/suppliers, and other entities furnishing services related 
to ACO activities would require compliance with the ACO's obligations 
under the agreement. Additionally, we expressed our intention that all 
ACOs, ACO participants, and ACO providers/suppliers Shared Savings 
Program would 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 or otherwise extend to all 
parties with obligations to which the particular certification applies.
    An authorized executive of the ACO would sign the participation 
agreement after its approval for participation. Finally, we proposed 
that the ACO would be responsible for providing a copy of the agreement 
to its ACO participants and ACO providers/suppliers. We solicited 
comment on this proposal, including any additional measures or 
alternative means that we should consider to fulfill this requirement.
    Comment: Commenters requested that CMS define the term authorized 
executive when stating that an authorized executive of the ACO must 
sign the participation agreement.
    Response: As we stated in the proposed rule, an authorized 
executive is an executive of the ACO who has the ability to bind the 
ACO to comply with all of the requirements for participation in the 
Shared Savings Program.
    Final Decision: We are finalizing this proposal regarding 
agreements as described previously under Sec.  425.208 and Sec.  
425.210.
    Further, as described in Sec.  425.200, the ACO's agreement period 
will be for not less than 3 years, consistent with statute, although 
some agreement periods may be longer than 3 years.
c. 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 FFS 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.E. of this final rule, we discuss our assignment methodology and how 
its use in the assignment of beneficiaries during the baseline years in 
order to establish a historical per capita cost benchmark against which 
the ACO's evaluation during each year of the agreement period would 
take place. In the proposed rule, we stated we believed it would be 
reasonable to assume that if by using this assignment algorithm the ACO 
demonstrates a sufficient number of beneficiaries to fulfill this 
eligibility requirement for purposes of establishing a benchmark, then 
the ACO would also demonstrate that it contains a sufficient number of 
primary care professionals to provide care to these beneficiaries. We 
stated we believed it was also reasonable to assume the ACO would 
continue to approximate this number of beneficiaries in each year of 
the agreement period. Thus, we proposed 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 3-year 
benchmarking period using the ACO participant TINs exceeds the 5,000 
threshold for each year. We solicited comment on this proposal as well 
as any additional guidance to consider for meeting these requirements.
    We recognize that while an ACO could meet the requirements in 
section 1899(b)(2) of the Act when it applies to participate in the 
Shared Savings Program, circumstances may change during the course of 
the agreement period. We discussed the importance of maintaining at 
least 5,000 assigned beneficiaries with respect to both eligibility of 
the ACO to participate in the program and the statistical stability for 
purposes of calculating per capita expenditures and assessing quality 
performance. Therefore, we considered what action, if any, should be 
taken in the event the number of beneficiaries assigned to the ACO 
falls below 5,000 in a given performance year. 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 drops below 5,000. We considered several 
options including immediate termination, termination following a CAP, 
scaling shared savings payments to reflect the population change, or 
taking no action against the ACO. After weighting all these options, we 
concluded that a reasonable compromise would balance the statutory 
requirements and program incentives, while still recognizing expected 
variations in an ACO's assigned population. Thus, if an ACO's assigned 
population falls below 5,000 during the course of the agreement period, 
we proposed to issue a warning and place the ACO on a corrective action 
plan (CAP). For the performance year for which we issued the warning to 
the ACO, we proposed that the ACO would remain eligible for shared 
savings. We further proposed termination of the ACO's participation 
agreement if the ACO failed to meet the eligibility criterion of having 
more than 5,000 beneficiaries by the completion of the next performance 
year. The ACO would not be eligible to share in savings for that year. 
We also reserved 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 requested 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.
    Comment: Commenters generally agreed that an ACO must have a strong 
primary care foundation with a sufficient number of providers to meet 
the needs of the population it serves. Additionally, commenters 
suggested

[[Page 67808]]

that there must be strong collaboration among multidisciplinary team 
members to ensure care coordination and patient centered care.
    Some commenters recommended that ACOs should be required to 
demonstrate sufficiency in the number, type, and location of providers 
available to provide care to the beneficiaries. Other commenters noted 
that the proposed rule did not mention any requirement that the ACO 
demonstrate sufficiency in the number, type and location of all 
providers available to provide multi-disciplinary care to the 
beneficiaries.
    Some commenters recommended that the minimum threshold of 
beneficiaries be increased to as high as 20,000 beneficiaries to reduce 
uncertainties in achieving program goals while other commenters 
believed that the 5,000 beneficiary threshold will preclude smaller and 
rural entities from participating in the Shared Savings Program as 
forfeiture of any shared savings and termination in the year following 
the corrective action plan would be too financially risky when the 
initial start up costs are taken into account.
    One commenter suggested that rather than maintain a strict 5,000 
beneficiary threshold requirement, we should provide leeway to ACOs to 
allow for a 10 percent variation from the beneficiary minimum 
threshold.
    Response: Congress established the 5,000 beneficiary requirement 
under section 1899(b)(2)(D) of the Act. A minimum threshold is 
important with respect to both the eligibility of the ACO to 
participate in the program and to the statistical stability for 
purposes of calculating per capita expenditures and assessing quality 
performance as described in section II.D. of this final rule. However, 
the expanded assignment methodology discussed in section II.E. of this 
final rule should allow more beneficiaries to be assigned to those ACOs 
that might have initially been ``too close'' to the threshold, 
increasing the ability for smaller ACOs to participate. We do not 
believe this warrants an increase in the threshold number of assigned 
beneficiaries as that could prohibit the formation of ACOs in both 
smaller and rural health care markets, and possibly considered contrary 
to statutory intent. Additionally, the expanded assignment methodology 
discussed in section II.E. of this final rule should allow the 
assignment of more beneficiaries which should make the additional 
flexibility offered by allowing for a 10 percent variation in the 
assigned population unnecessary.
    We do not believe that we should be prescriptive in setting any 
requirements for the number, type, and location of the providers/
suppliers that are included as ACO participants. Unlike managed care 
models that lock in beneficiaries to a network of providers, 
beneficiaries assigned to an ACO may receive care from providers and 
suppliers both inside and outside the ACO. ACOs represent a new model 
for the care of FFS beneficiaries and for practitioners to focus on 
coordination of care efforts. During the initial implementation of the 
Shared Savings Program, we believe that potential ACOs should have the 
flexibility to create an organization and design their models in a 
manner they believe will achieve the three-part aim without instituting 
specific requirements.
    Final Decision: We are finalizing our proposals without change 
(Sec.  425.110).
d. Identification and 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 fee-for-service beneficiaries to an 
ACO, the implementation of quality and other reporting requirements * * 
*, and the determination of payments for shared savings * * *.'' As 
discussed in this section of the final rule, we are defining an ACO 
operationally as a legal entity that is comprised of a group of ACO 
participants as defined in Sec.  425.20.
    Based on our experience, we recognized that the TIN level data 
alone would not be entirely sufficient for a number of purposes in the 
Shared Savings Program. In particular, National Provider Identifier 
(NPI) data would be useful to assess the quality of care furnished by 
an ACO. For example, NPI information would be necessary to determine 
the percentage of registered HITECH physicians and other practitioners 
in the ACO (discussed in section II.F. of this final rule). NPI data 
would also be helpful in our monitoring of ACO activities (which we 
discuss in section II.H. of this final rule). Therefore, we proposed 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.
    We proposed that the ACO 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. We welcomed comments on our proposal to require reporting of 
TINs along with information about the NPIs associated with the ACO.
    Additionally, as we discussed in the proposed rule, the first step 
in developing a method for identifying an ACO, ACO participants, and 
ACO providers/suppliers is to establish a clear operational method of 
identifying an ACO that correctly associates its health care 
professionals and providers with the ACO. The operational 
identification is critical for implementation of the program and for 
determining, for example, benchmarking, assignment of beneficiaries, 
and other functions. 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 FFS 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.
    We proposed to identify an ACO operationally as a collection of 
Medicare enrolled TINs, defined as ACO participants. More specifically, 
we proposed an ACO would be identified operationally as a set of one or 
more ACO participants 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, Shared 
Savings Programs TIN would identify a single group practice that 
participates in the Shared Savings Program. The set of TINs of the 
practices would identify a network of independent practices that forms 
an ACO. We proposed to require that organizations applying to be an ACO 
provide their ACO participant Medicare enrolled TINs and NPIs. We can 
systematically link each TIN or NPI to an individual physician 
specialty code.
    We also proposed that ACO participants on whom beneficiary 
assignment is based, would be exclusive to one ACO agreement in the 
Shared Savings Program. Under our proposal, this exclusivity would only 
apply to ACO participants who bill Medicare for the services rendered 
by primary care

[[Page 67809]]

physicians (defined as physicians with a designation of internal 
medicine, geriatric medicine, family practice and general practice, as 
discussed later in this final rule).
    However, we acknowledged the importance of competition in the 
marketplace to improving quality of care, protecting access to care for 
Medicare beneficiaries, and preventing fraud and abuse. Therefore, 
under our proposal, ACO participants upon which beneficiary assignment 
was not dependent (for example, acute care hospitals, surgical and 
medical specialties, RHCs, and FQHCs) would be required to agree to 
participate in the Medicare ACO for the term of the agreement, but 
would not be restricted to participation in a single ACO.
    Comment: Several commenters recommended that CMS maintain the list 
of TINs and NPIs. Additionally, some commenters recommended that CMS 
allow ACOs to verify any data reported in association with the ACO 
prior to these data being made public.
    Response: 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 fee-for-service 
beneficiaries to an ACO, the implementation of quality and other 
reporting requirements * * *, and the determination of payments for 
shared savings * * *.'' As discussed previously, we will need both the 
TINs of all ACO participants and the NPIs associated with ACO 
providers/suppliers in order to assign beneficiaries to ACOs 
appropriately and accurately. Because section 1899(b)(2)(E) of the Act 
requires ACOs to provide us with the information we determine is 
necessary to support assignment, we believe it is consistent with this 
statutory requirement to require that ACOs maintain, update, and 
annually report to us those TINs and NPIs that are participants of 
their respective ACO. Since ACOs will be maintaining, updating, and 
annually reporting these TINs and NPIs to us, they will have ultimate 
review capabilities and it will not be necessary for us to provide them 
an additional opportunity to verify the names of ACO participants and 
ACO providers/suppliers before making this information available to the 
public. We note that, in order to ensure the accurate identification of 
any ACO, its participants, and its providers/suppliers, we may request 
additional information (for example, CMS Certification Numbers, mailing 
addresses, etc.) in the application process. We will identify any such 
additional information in the application materials.
    Comment: One commenter stated that our assessment of billing 
practices was incorrect because ``beginning on May 23, 2008, all health 
care providers, including those enrolled in the Medicare and Medicaid 
program, are required by the NPI Final Rule published on January 23, 
2004, to submit claims using their NPI'' but also notes that physicians 
participating in the Medicare program must enroll using their NPI and 
if they are billing through a group practice reassign their benefits to 
the group practice.
    Response: It is true that individuals and group practices must 
enroll in the Medicare program under unique NPIs. It is also true that 
NPIs (whether for an individual practitioner or a group practice for 
reassigned benefits) must be included on bills to the Medicare program. 
However, bills to the Medicare program must also include the TIN of the 
billing practitioner or group practice. As we stated in the proposed 
rule, not all physicians and practitioners have Medicare enrolled TINs. 
In the case of individual practitioners, however, their SSN may be 
their TIN. While providers are required to have an NPI for 
identification and to include the NPI in billing, billing is always 
through a TIN, whether that is an EIN or a SSN. We successfully 
employed TINs in the PGP demonstration for purposes of identifying the 
participating organizations, and the rules cited by the commenters did 
not pose any obstacle to doing so. We believe that we can operationally 
proceed on the same basis under the Shared Savings Program.
    Comment: Some commenters supported the proposal to use TINs as an 
organizing concept for ACOs. These commenters observed, for example, 
that this policy was consistent with the beginning of the PGP 
demonstration, under which the assignment of Medicare beneficiaries 
would start with the TIN of the organization providing the plurality of 
the visits with further assignment to a primary care provider. However, 
a number of other commenters requested that we reevaluate the proposal 
to employ TINs for identification of ACOs and assignment purposes. Some 
of these commenters suggested that the use of NPIs would recognize the 
realities of diverse systems, provide greater flexibility, and allow 
systems to designate those portions of the system which can most 
appropriately constitute an ACO. Other commenters similarly endorsed 
the use of NPIs as providing greater flexibility and more precision in 
identifying ACOs and assigning beneficiaries. One observed that using 
NPIs would also allow CMS and ACOs to track saving and quality 
improvements achieved by individual practitioners, as well as afford 
greater flexibility for systems to expand an ACO gradually to 
incorporate practitioners and components of the system.
    Response: We are finalizing our proposal to define the ACO 
operationally by its Medicare enrolled ACO participants' TINs. Using 
TINs provides a direct link between the beneficiary and the 
practitioner(s) providing the services for purposes of beneficiary 
assignment. Using TINs also makes it possible for us to take advantage 
of infrastructure and methodologies already developed for group-level 
reporting and evaluation. We believe this option affords us the most 
flexibility and statistical stability for monitoring and evaluating 
quality and outcomes for the population of beneficiaries assigned to 
the ACO. In contrast, adopting NPIs would create much greater 
operational complexity because individual NPIs move much more 
frequently between different organizations and practices. TINs are much 
more stable, and thus provide much greater precision in identifying 
ACOs. Furthermore, identifying through TINs avoids the necessity of 
making the NPIs upon which assignment is based exclusive to one ACO, 
thus allowing these NPIs (although not TINs) to participate in more 
than one ACO.
    Comment: Several commenters requested clarification about the use 
of TINs in identifying ACOs and assigning beneficiaries. Some inquired 
about the establishment of parameters of an ACO across a large health 
system with diverse and sometimes geographically remote components. 
Some of these commenters noted that large systems often employ a single 
TIN, so that the use of TINs for identification purposes would require 
inclusion of all the members of the system in a single ACO, even if 
these members are geographically remote from each other and otherwise 
diverse. One observed: ``Such remote entities may have a limited 
opportunity to participate in care coordination, and may in fact be 
better suited to participate in another more local ACO.'' A large 
clinic similarly observed that ``the use of TINs could pose a problem 
for large health systems.'' The owner of outpatient rehabilitation 
clinics in several States inquired how it would choose a single ACO in 
which to participate in order to serve the needs of patients in 
multiple States. Another asked whether it is permissible for some 
members of a

[[Page 67810]]

group practice to participate in the Shared Savings Program while 
others do not, adding their ``strong belief'' that participation in an 
ACO of some but not all providers in a group ``must be allowed.'' 
Another asked ``how CMS will account for the alignment of the 
beneficiary, signed up/enrolled with the PCP if the NP or PA saw the 
patient and billed using their individual NPI (which is linked to the 
``PCP' physician's Tax ID), but the credit is not being assigned to the 
PCP physician because s/he isn't billing for the services. This could 
create a big gap and problem in the allocation process.'' Another 
commenter asked how the program would handle the situation in which a 
healthcare system has multiple TINs.
    Response: We proposed to define an ACO operationally as a 
collection of Medicare enrolled TINs (that is, ACO participants). 
Therefore, in cases in which a healthcare system has multiple TINs, the 
collection of the system's TINs precisely identifies the ACO which 
consists of that health system. We understand the commenters' interest 
in the greater flexibility of, for example, including only parts of a 
large system with one TIN in an ACO. However, some level of exclusivity 
is necessary in order for the assignment process to function correctly, 
and especially to ensure the accurate assignment of beneficiaries to 
one and only one ACO. Use of TINs rather than NPIs provides the 
greatest degree of flexibility consistent with this requirement. 
Therefore, we are unable to allow, for example, a large health system 
with one TIN to include only parts of the system in an ACO. Systems 
that extend over several States can similarly choose more than one ACO 
for parts of their system only if they have multiple TINs. In order for 
a beneficiary to be assigned to an ACO in which his or her primary care 
physician is participating, the physician would have to bill for 
primary care services furnished to the beneficiary under a TIN included 
in that ACO.
    Comment: Many commenters objected to the exclusivity of primary 
care physicians on the grounds that that such exclusivity could be 
disruptive of their current practice patterns, which may involve the 
assignment of patients to a number of ACOs. Some objected that the 
proposed lock in was unfair.
    Another commenter complained that we did not sufficiently address 
the reasons for the lock in. Some commenters suggested methods to avoid 
the potential confusions that could occur in assigning beneficiary 
without our proposed lock in. For example, one commenter observed 
potential avoidance of this problem by creating incentives (for 
example, no deductibles and reduced co-insurance for primary care 
physician services) for patients to prospectively identify a primary 
care physician in an ACO. The commenter maintained that patients need 
to be accountable as well as the participating physicians and 
providers. Furthermore, the commenter contended that identification of 
a primary care physician does not have to limit patient choice in any 
way, but simply provides an alternative method for identifying the 
population of patients for which the ACO is responsible while getting 
more engaged patients to think about having a usual source of care. 
Alternatively, the commenter recommended that CMS should prospectively 
allow patients to choose their own Medicare ACO. This would relieve CMS 
from the proposed and flawed beneficiary attribution method that 
currently limits primary care physicians to participate in only one 
Medicare ACO.
    Several other commenters opposed the lock in but suggested that, if 
we retain it, the final rule should--
     Permit primary care physicians to elect consideration as 
specialists without taking into account their evaluation and management 
services for the purpose of aligning beneficiaries with an ACO;
     Permit specialists to elect to be treated as primary care 
physicians whose evaluation and management services will be considered 
for beneficiary alignment; and
     Permit primary care physicians to participate in ACOs on 
an individual basis, rather than through their group practice entities 
or employers.
    In either case, the final rule should encourage providers to work 
collaboratively to achieve savings and enhance care by allowing ACOs to 
arrange for medical services using contracted providers.
    Another commenter requested that we revisit this requirement and 
provide additional flexibility so that primary care providers could 
join more than one ACO or switch ACOs on an annual basis. Commenters 
suggested alternative assignment strategies that would allow 
participation in more than one ACO such as default assignment to 
practitioners who are only in one ACO or having practitioners assign 
patients to a particular ACO based on patient needs. Some commenters 
also argued for adopting a policy of voluntary beneficiary enrollment 
in an ACO, arguing in part that this policy would allow us to abandon 
the proposal restricting primary care physicians to participation in 
one ACO, which we proposed to prevent uncertainty in the assignment 
process. Other commenters specifically requested that rural physicians 
and ambulance providers be able to participate in multiple ACOs.
    Response: We regret that some of the language in the preamble about 
the exclusivity of ACO participants (defined by the Medicare-enrolled 
billing TIN) created unnecessary confusion about the proposal. The 
point of our proposal was that, for us to appropriately evaluate ACO 
performance, we must evaluate performance based on a patient population 
unique to the ACO. Therefore, some ACO participants, specifically those 
that bill for the primary care services on which we proposed to base 
assignment, would have to be exclusive to an ACO, for the purpose of 
Medicare beneficiary assignment, for the duration of an agreement 
period. In the absence of such exclusivity and in a situation where an 
ACO participant is associated with two or more ACOs, it would be 
unclear which ACO would receive an incentive payment for the 
participant's efforts on behalf of its assigned patient population. 
Exclusivity of the assignment-based ACO participant TIN ensures unique 
beneficiary assignment to a single ACO. However, exclusivity of an ACO 
participant TIN to one ACO is not necessarily the same as exclusivity 
of individual practitioners (ACO providers/suppliers) to one ACO. We 
did state somewhat imprecisely in the preamble to the proposed rule 
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.'' This statement appears to be the basis of the 
concerns expressed by many commenters, and we understand the reasons 
for those concerns. However, we stated the policy (76 FR 19563) we 
intended to propose more precisely elsewhere in the preamble, when we 
stated that ``[t]his exclusivity will only apply to primary care 
physicians (defined as physicians with a designation of internal 
medicine, geriatric medicine, family practice and general practice, as 
discussed later in this final rule) by whom beneficiary assignment is 
established when billing under ACO participant TINs. (Emphasis added). 
Similarly, in the proposed regulations text at Sec.  425.5(c), we 
stated that ``each ACO must report to CMS the TINs of the ACO 
participants comprising the ACO along with a list of associated NPIs, 
at the beginning of each performance year and at other such times as 
specified by CMS. For purposes

[[Page 67811]]

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. ACO participant 
TINs upon which beneficiary assignment is not dependent are required to 
commit to a 3 year agreement to the ACO, and cannot require the ACO 
participant to be exclusive to a single ACO.''
    Thus, the exclusivity necessary for the assignment process to work 
accurately requires a commitment of each assignment-based ACO 
participant to a single ACO for purposes of serving Medicare 
beneficiaries. It does not necessarily require exclusivity of each 
primary care physician (ACO provider/supplier) whose services are the 
basis for such assignment. For example, exclusivity of an ACO 
participant leaves individual NPIs free to participate in multiple ACOs 
if they bill under several different TINs. Similarly, an individual NPI 
can move from one ACO to another during the agreement period, provided 
that he or she has not been billing under an individual TIN. A member 
of a group practice that is an ACO participant, where billing is 
conducted on the basis of the group's TIN, may move during the 
performance year from one group practice into another, or into solo 
practice, even if doing so involves moving from one ACO to another. 
This degree of flexibility is, in fact, one reason for our preference 
to use TINs to identify ACO participants over NPIs: adopting NPIs in 
place of TINs would result in the much stricter exclusivity rules for 
individual practitioners to which so many commenters objected, than the 
use of TINs to identify ACOs. This flexibility is limited, once again, 
only in cases where the ACO participant billing TIN and individual TIN 
are identical, as in the case of solo practitioners. Even in those 
cases, moreover, it was not our intent (and it is no part of the policy 
that we are adopting in this final rule) that an individual 
practitioner may not move from one practice to another. But while solo 
practitioners who have joined an ACO as an ACO participant and upon 
whom assignment is based may move during the agreement period, they may 
not participate in another ACO for purposes of the Shared Savings 
Program unless they will be billing under a different TIN in that ACO.
    We are therefore finalizing our proposal that each ACO participant 
TIN is required to commit to an agreement with us. In addition, each 
ACO participant TIN upon which beneficiary assignment is dependent must 
be exclusive to one ACO for purposes of the Shared Savings Program. ACO 
participant TINs upon which beneficiary assignment is not dependent are 
not required to be exclusive to a single ACO for purposes for the 
Shared Savings Program. As we discuss in section E found later in this 
final rule we are also providing for consideration of the primary care 
services provided by specialist physicians, PAs, and NPs in the 
assignment process subsequent to the identification of the 
``triggering'' physician primary care services. We are therefore also 
extending our exclusivity policy to these ACO participants. That is, 
the TINs under which the services of specialists, PAs, and NPs are 
included in the assignment process would have to be exclusive to one 
ACO for purposes of the Shared Savings Program. (We emphasize that we 
are establishing this policy for purposes of Shared Savings Program 
ACOs only: Commercial ACOs may or may not wish to adopt a similar 
policy for their purposes.)
    Comment: One commenter supported our use of primary care physicians 
for alignment and urged us to retain the policy of non-exclusivity for 
specialists in the final rule: ``CMS's use of primary care physicians 
to align beneficiaries with an ACO is an important design element and 
we urge the agency to retain this provision in the final rule. As 
constructed, an ACO participant upon which beneficiary assignment is 
not dependent must not be required to be exclusive to an ACO (Sec.  
425.5(c)(3)). In the newly proposed Pioneer ACO regulation however, 
beneficiary assignment could be made on the basis of several categories 
of specialist physicians. Extending this Pioneer attribution scheme to 
the proposed Medicare Shared Savings/ACO program could result in 
decreased availability of specialist physicians and/or a reluctance of 
non-ACO providers to refer to those specialists who are concerned that 
patients will be diverted to other ACO providers. We urge CMS to 
maintain the current rules aligning beneficiaries solely on the basis 
of their use of primary care physicians.''
    Response: We appreciate the comment. However, in the light of our 
decision to employ a step-wise assignment process (as discussed in 
section II.E. of this final rule), this final exclusivity policy will 
also apply to ACO participants upon which assignment is based in either 
the first or second steps of the assignment process. As a result, this 
exclusivity will apply to ACO participants under which both primary 
care physicians and specialists bill for primary care services 
considered in the assignment process. However, we emphasize again that 
individual provider NPIs are not exclusive to one ACO, only the ACO 
participant TINs under which providers bill for services that are 
included in the assignment of beneficiaries. When providers whose 
services are the basis of assignment bill under two or more TINs, each 
TIN would be exclusive to only one ACO, assuming they have both joined 
as participants, but the provider (primary care physician or 
specialist) would not be exclusive to one ACO.
    Comment: Many commenters objected to our proposal that FQHCs and 
RHCs could not form independent ACOs, but only participate in ACOs that 
included other eligible entities (for example, hospitals, and physician 
group practices). However, one commenter welcomed the opportunity for 
FQHCs to participate in multiple ACOs.
    Response: As we discuss in section II.E. of this final rule, we are 
revising our proposed policy to allow FQHCs and RHCs to form 
independent ACOs. We have also revised our proposed assignment 
methodology in order to permit claims for primary care services 
submitted by FQHCs and RHCs to be considered in the assignment process 
for any ACO that includes an FQHC or RHC (whether as an independent ACO 
or in conjunction with other eligible entities). As a consequence of 
this revised policy, the exclusivity of the ACO participants upon which 
beneficiary assignment is dependent also extends to the TINs of FQHCs 
and RHCs upon which beneficiary assignment will be dependent under the 
new policies discussed in section II.E. of this final rule.
    Final Decision: We are finalizing our proposals regarding 
operational definition of an ACO as a collection of Medicare-enrolled 
TINs, the obligation of the ACO to identify their ACO participant TINs 
and NPIs on the application, the obligation of the ACO to update the 
list, and the required exclusivity of ACO participants upon whom 
assignment is based without change under sections 425.20, 425.204(5), 
425.302(d), 425.306, respectively. We clarify that ACO participants 
upon which beneficiary assignment is not dependent are not required to 
be exclusive to a single Medicare Shared Savings Program ACO. This 
final exclusivity policy extends to the ACO participant TINs of FQHCs, 
RHCs and ACO participants that include NP, PAs, and specialists upon 
which beneficiary assignment will be dependent under the revised 
assignment methodology discussed in section II.E. of this final rule.

[[Page 67812]]

2. Eligible Participants
    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), critical 
access hospitals (CAHs), nurse midwives, chiropractors, and 
pharmacists, among others, are not specifically designated as eligible 
participants in the Shared Savings Program under section 1899(b)(1) of 
the Act. Furthermore, 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 explored several options: (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. After evaluating the three 
alternatives, we decided to propose the third option.
    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 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 one of 
the four groups specified in section 1899(b)(1)(A)-(D) of the Act in 
order to meet statutory criteria. We 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, we noted that the specific payment 
methodologies, claims billing systems, and data reporting requirements 
that apply to these entities posed 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.E. of this final rule, section 1899(c) of the 
Act requires the assignment of beneficiaries to an ACO based on their 
utilization of primary care services furnished by a physician. 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.
    We proposed that because of the absence of certain data elements 
required for assignment of beneficiaries, it would not be possible for 
FQHCs and RHCs to participate in the Shared Savings Program by forming 
their own ACOs. We stated that as the Shared Savings Program developed, 
we would continue to assess the possibilities for collecting the 
requisite data from FQHCs and RHCs, and in light of any such 
developments, we would consider whether it would be 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.
    In the proposed rule, we further considered whether CAHs could 
participate in the Shared Savings Program by forming an independent 
ACO. We noted the situation is somewhat more complicated with regard to 
CAHs because section 1834(g) of the Act provides for two payment 
methods for outpatient CAH services. We described the payment methods 
in detail and determined that current Medicare payment and billing 
policies could generally support the formation of an ACO by a CAH 
billing under section 1834(g)(2) (referred to as method II).
    In summary, we proposed that the four groups specifically 
identified in section 1899(b)(1)(A)-(D) of the Act (various 
combinations of physicians, nurse practitioners, physician assistants, 
clinical nurse specialists, and acute care hospitals), and CAHs billing 
under method II, would have the opportunity, after meeting the other 
eligibility requirements, to form ACOs independently. In addition, the 
four statutorily identified groups, as well as CAHs billing under 
method II, could establish an ACO with broader collaborations by 
including additional ACO participants that are Medicare enrolled 
entities such as FQHCs and RHCs and other Medicare-enrolled providers 
and suppliers not originally included in the statutory definition of 
eligible entities.
    We indicated in the proposed rule that we would 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 determined that it was feasible and 
consistent with the requirements of the program for more entities to 
participate as ACOs independently. 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 proposed 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 discuss our final policies regarding the 
determination of shared savings under the program in section II.G. of 
this final rule.

[[Page 67813]]

    Comment: A large number of commenters requested an expansion of 
those entities eligible to participate in the Shared Savings Program. 
The commenters requested that entities such as, but not limited to, 
integrated delivery systems, emergency medical technicians (EMTs), 
paramedics, health plans, Medicare Advantage (MA) plans, Medicaid 
Managed Care Organizations, AEMTs, community based hospitals, DME 
Suppliers, home health agencies (HHAs), long-term care (LTC) 
facilities, in-patient rehabilitation facilities, hospice facilities, 
patient-centered medical homes, RHCs, FQHCs, and Method I CAHs be 
included as eligible entities. We received one comment inquiring 
whether non-PECOS (Provider Enrollment, Chain, and Ownership System) 
enrolled providers can participate as ACO providers/suppliers. PECOs is 
a directory containing the names, addresses, phone numbers, and 
specialties of physicians enrolled in Medicare. Other comments 
suggested that we establish ESRD and cancer care specific ACOs. We 
received a few comments in support of limiting those entities eligible 
to participate in the program. These comments suggested that 
implementation of the Shared Savings Program will demand significant 
changes to health care delivery, data sharing, and data integration 
among providers and disparate groups. Providing clear guidance on who 
can participate reduces confusion and uncertainty within the provider 
and hospital community.
    Response: We agree that limiting eligibility could potentially 
reduce confusion but also agree that the inclusion of some additional 
entities as eligible to independently participate in the program could 
significantly increase the opportunity for success. Although the 
entities referenced in the comment, with the exception of CAHs billing 
under method II, RHCs and FQHCs, are not able to independently form 
ACOs, these entities are not prohibited from participating in the 
Shared Savings Program so long as they join as an ACO participant in an 
ACO containing one or more of the organizations that are eligible to 
form an ACO independently and upon which assignment could be made 
consistent with the statute and the assignment methodology discussed in 
section II.E. of this final rule. Thus, although we do not see the need 
to design distinct ESRD or cancer specific ACOs, neither of these 
providers types are in any manner excluded from participation in an 
ACO. This allows for the four groups specifically identified in section 
1899(b)(1)(A) through (D) of the Act, and CAHs billing under method II, 
RHCs, and FQHCs to form ACOs independently. In addition, the four 
statutorily identified groups, as well as CAHs billing under method II, 
RHCs, and FQHCs could establish an ACO with broader collaborations by 
including additional Medicare-enrolled entities defined in the Act as 
ACO participants. This will afford ACOs the flexibility to include all 
types of providers and suppliers as ACO participants, as long as the 
ACO can satisfy the required eligibility standards. Finally, enrollment 
in the PECOs system, at this time, is not a condition of eligibility to 
participate in the Shared Savings Program.
    Comment: Many commenters, including MedPAC and commenters 
representing rural health advocates and a wide range of beneficiary and 
provider groups, raised concerns about the proposal which would 
preclude FQHCs and RHCs from forming independent ACOs. The commenters 
raised this issue in reference to eligibility, beneficiary assignment, 
and benchmarking issues. There were also several comments that agreed 
with the additional sharing rates for ACOs that include FQHCs and RHCs.
    Commenters generally supported eligibility approaches that would 
allow FQHCs/RHCs to join ACOs formed by other entities. Some commenters 
also generally supported our proposal that FQHCs/RHCs would not be 
required to be exclusive to a single ACO. Although commenters were 
generally appreciative of the proposal to provide a higher sharing rate 
for ACOs that include FQHCs and RHCs, some commenters believed this 
approach was flawed, too weak to be effective, and could undercut the 
objectives of the Shared Savings Program. Most commenters expressed 
general concerns that the CMS interpretation of the statute was 
incorrect and that the statute allows the agency to promulgate policies 
that will allow for full participation of FQHCs in the Shared Savings 
Program. Some commenters focused their detailed comments on FQHCs, but 
the concerns/issues they raised were generally similar to those 
commenters that also addressed RHCs.
    Several commenters stated that CMS' conclusions are flawed and that 
the law allows the agency to promulgate policies that will allow for 
full FQHC participation in the Shared Savings Program. They believe 
that ``a system that does not allow for meaningful FQHC involvement 
undercuts the Congressional intent in establishing the ACO/Shared 
Savings Program and the broader goal of assuring quality cost efficient 
health care services to Medicare beneficiaries.'' They expressed fear 
that other payers such as Medicaid, CHIP and private health insurers 
will follow Medicare's approach and policies in developing their own 
ACO rules, leading to disparities in care. Another commenter suggested 
our proposal would prevent or limit dually eligible patients from 
receiving integrated care at FQHCs in light of State Medicaid efforts 
to create ACOs and our definition of ``at risk'' beneficiaries.
    Other commenters argued that RHCs represent a particularly 
compelling case for ACO formation inclusion. They believe that the 
promise of better integrated outpatient care for rural Medicare 
beneficiaries must begin with RHCs. These commenters believe that the 
exclusion of RHCs from those eligible to form an ACO independently 
would only serve to exclude rural providers and the populations they 
serve from forming efficiency enhancing ACOs that might serve to 
counterbalance the inpatient service-favoring skew that they believe 
has developed out of many rural preferential payment provisions.
    Response: In this final rule we are addressing the specific 
comments regarding beneficiary assignment and the establishment of 
benchmarks for ACOs that include FQHCs and/or RHCs in sections II.E. 
and II.G. (Assignment and Benchmark) of this final rule while general 
comments regarding the eligibility of FQHCs and RHCs to form ACOs 
independently are addressed here. In the proposed rule, we proposed to 
use discretion afforded by the statute under section 1899(b)(1)(E) to 
allow participation of any Medicare-enrolled provider/supplier as an 
ACO participant. Thus, entities such as FQHCs and RHCs were eligible to 
participate in the program under our original proposal. However, we 
agree that it is highly desirable to allow for FQHCs and RHCs to 
participate independently and to determine a way to include their 
beneficiaries in assignment. In order for this to be possible, in this 
final rule we are making modifications to the proposed assignment 
process to recognize the different payment methodologies and claims 
data that are used by FQHCs and RHCs as compared to the payment 
methodologies and claims data that are available for physician offices/
clinics that are paid under the physician fee schedule. The discussion 
about assignment and benchmarking process is in sections II.E. 
(Assignment) and II.G. (Benchmarking) of this final rule. As a result, 
under the policies

[[Page 67814]]

established in this final rule, FQHCs and RHCs will be eligible to form 
ACOs and may also be ACO participants in ACOs formed by other entities. 
Additionally, Medicare enrolled entities may join independent FQHCs, 
RHCs, and method II billing CAH ACOs.
    Comment: Some commenters supported our proposal to allow CAHs 
billing under method II to form ACOs. A few commenters also recommended 
allowing CAHs billing under method I to form independent ACOs by 
supplementing their normal billing information with any additional 
information needed to assign beneficiaries. For example, a commenter 
indicated that because most rural facilities act as de facto sole 
providers for their communities, CAHs and SCH's should be able to claim 
all beneficiaries in their primary catchment area. The commenter 
suggested doing so by having the rural providers submit the 75th 
percentile zip codes from their patient demographic data. These zip 
codes could then be compared to the Medicare beneficiary claims data, 
and if the claims data also show that the beneficiaries in those zip 
codes receive >50 percent of their primary care services within the zip 
codes of the rural ACO, then all of the beneficiaries in those zip 
codes could be assigned to the rural ACO.
    Response: We do not agree with allowing CAHs billing under method I 
to independently form ACOs by simply claiming all beneficiaries in 
their primary catchment area. We do not believe that this would be 
consistent with the statutory requirement for assignment based on 
beneficiary utilization of primary care services furnished by a 
physician. Although we do not believe it would be appropriate for a CAH 
billing under method I to independently form an ACO, we would emphasize 
that we would encourage CAHs billing under method I to participate in 
the Shared Savings Program by establishing partnerships or joint 
venture arrangements with ACO professionals, just like other hospitals.
    Comment: Some commenters suggested using CMS's demonstration 
authority to include FQHCs and RHCs in the Shared Savings Program or 
another Shared Savings Program. Others recommended that CMS should 
continue to work with providers and patients practicing and living in 
rural underserved areas to develop ACO models specifically designed to 
meet the unique healthcare delivery challenges facing rural underserved 
areas.
    Response: We appreciate the comments suggesting the development of 
ACO models to address the special needs of rural areas and have 
forwarded them to our colleagues in the Innovation Center. We will 
consider any additional demonstrations focused on ACOs as part of the 
regular process for establishing CMS demonstrations. We note, however, 
that as discussed previously, under the policies adopted in this final 
rule, FQHCs and RHCs will be eligible to form an ACO independently or 
to participate in an ACO formed by other eligible entities.
    Comment: A few commenters suggested that CMS should refine its 
strategies to facilitate development of practitioner-driven, rather 
than hospital-driven ACO's. Comments further suggested that at the very 
least, waiver authority should be established to enable the agency to 
waive hospital-oriented requirements for ACOs that consist solely of 
group practices.
    Response: There is no requirement that an ACO include a hospital. 
Similarly, we have not established any ``hospital-oriented'' 
requirements. We have intentionally provided ACOs the flexibility to 
establish their organizations in such a manner that will most 
effectively define their preferred ACO model.
    Final Decision: We are finalizing our proposals for identifying 
groups of providers of services and suppliers that may join to form an 
ACO under Sec.  425.102. Specifically, the entities identified in 
section 1899(b)(1)(A) through (D) of the Act will be able to form ACOs, 
provided they meet all other eligibility requirements. Additionally, 
CAHs billing under method II, FQHCs, and RHCs may also form independent 
ACOs if they meet the eligibility requirements specified in this final 
rule. In addition, any Medicare enrolled entities not specified in the 
statutory definition of eligible entities in section 1899(b)(1)(A)-(D) 
of the Act can participate in the Shared Savings Program as ACO 
participants by joining an ACO containing one or more of the 
organizations eligible to form an ACO. Additionally, in response to 
comments and after further consideration of the available information, 
we have established a process by which primary care services furnished 
by FQHCs and RHCs will be included in the assignment process, as 
discussed in section II.E. of this final rule. As a result, FQHCs and 
RHCs will also be able to form ACOs independently, provided they meet 
all other eligibility requirements.
3. 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 be eligible 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
    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 proposed that an ACO 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, if applicable; 
(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 explained 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 and that it must have a TIN. However, we did not propose to 
require ACO enrollment in the Medicare program.
    We did not propose that existing legal entities form a separate new 
entity for the purpose of participating in the Shared Savings Program. 
We stated that if the existing legal entity met the eligibility 
requirements to be an ACO, it may operate as an ACO in the Shared 
Savings Program. However, we proposed that if an entity, such as a 
hospital employing ACO professionals would like to include as ACO 
participants other providers/suppliers who are not already part of its 
existing legal structure, an ACO would have to establish a separate 
legal entity in order to provide all ACO participants a mechanism for 
shared governance.
    We also proposed that each ACO 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

[[Page 67815]]

and that it is authorized to conduct business in each State in which it 
operates.
    We solicited comment on our proposals regarding the required legal 
structure and other suitable requirements that we should consider 
adding in the final rule or through subsequent rulemaking. We also 
requested comment on whether requirements for the creation of a 
separate entity would create disincentives for the formation of ACOs 
and whether there were alternative approaches that could be used to 
achieve the aims of shared governance and decision making and provide 
the ability to receive and distribute payments for shared savings.
    Comment: Many commenters opposed requiring ACOs formed among 
multiple ACO participants to form a separate legal entity, because it 
was costly, inefficient, and wasteful to do so (especially for small 
and medium-sized physician practices). These commenters also contend 
that forming a separate entity places such ACOs at a competitive 
disadvantage relative to integrated delivery systems (for example 
single-entity ACOs), it will likely have a chilling effect on the 
willingness of such providers and suppliers to participate in the 
program, and it disadvantages hospitals in States with a prohibition on 
the corporate practice of medicine.
    Several commenters supported allowing multiple participant ACOs to 
form an entity by contract and not require a separate new entity. These 
commenters recommended that we permit ACOs comprised of multiple ACO 
participants to designate one of those ACO participants to function as 
the ``ACO'' for purposes of participation in the program, provided that 
such entity meets the criteria required of an ACO under the final rule. 
Another commenter suggested letting a division of an existing 
corporation serve as the legal entity for an ACO. Specifically, this 
comment noted that license-exempt, medical foundation clinics in 
California are often formed as either a division of a nonprofit 
corporation that owns and operates a hospital or have as their sole 
corporate member a nonprofit hospital, such as a nonprofit, license-
exempt, medical foundation clinic. One commenter suggested that ACOs 
that have outcome-based contracts with private payers should have 
flexibility in forming their legal entities.
    Many commenters supported the proposal not to require creation of a 
new distinct legal entity if one is already in place that meets the 
proposed criteria. Commenters stated that such a requirement is 
unnecessary to meet the objectives of the Shared Savings Program. Some 
commenters suggested existing organizations should not be forced to 
create whole new bureaucracies just to add a few participants to form 
an ACO.
    Response: We continue to support our proposal that each ACO certify 
that it is recognized as a legal entity under State law. An ACO formed 
among two or more otherwise independent ACO participants (such as 
between a hospital and two physician group practices) will be required 
to establish a separate legal entity and to obtain a TIN. Although some 
comments opposed this requirement as burdensome, we continue to believe 
it is essential to protect against fraud and abuse and ensure that the 
ACO is accountable for its responsibilities under the Shared Savings 
Program by enabling us to audit and assess ACO performance. In 
addition, to the extent an ACO becomes liable for shared losses, we 
believe it is essential to be able to collect such monies from the ACO 
and its ACO participants.
    For existing legal entities that otherwise meet the eligibility 
requirements, we agree with commenters that requiring the creation of a 
new separate legal entity would be inefficient. Existing legal entities 
which are eligible to be ACOs are permitted to continue to use their 
existing legal structure as long as they meet other eligibility and 
governance requirements explained in this final rule. However, as we 
proposed, if an existing legal entity adds ACO participants that will 
remain independent legal entities (such as through a joint venture 
among hospitals or group practices), it would have to create a new 
legal entity to do so. As discussed later in this section, we believe 
that creation of a new legal entity would be important to allow the 
newly added ACO participants to have a meaningful voice on the ACO's 
governing body. A separate legal entity, with such a governing body, is 
therefore essential to accomplish this policy objective.
    Although we recognize that it may be possible for ACOs to establish 
outcome-based contracts that reinforce some of the policy objectives 
discussed in the proposed rule, we believe that the proposed legal 
structure requirement is necessary to protect against fraud and abuse 
and ensure the goals of the Shared Savings Program, and does not impose 
too large a burden, especially in light of the flexible governance 
structure discussed later in this section.
    Comment: Several commenters suggested we address the interplay 
between Federal and State law governing ACO formation and operation. 
For example, commenters suggested we clarify whether the proposed legal 
entity requirements include requiring an ACO to obtain a certificate of 
authority if so required under State law. One commenter suggested that 
we clarify whether we are requiring that an ACO be recognized as an ACO 
under State law or whether we are requiring that the ACO be recognized 
to conduct business as a partnership, corporation, etc. under State 
law.
    Other commenters suggested that we preempt State law or regulation 
of ACOs that limit the number of ACOs in a State. By contrast, another 
comment suggested that the Affordable Care Act did not preempt or 
otherwise supersede State laws prohibiting the corporate practice of 
medicine or otherwise alter the choice of legal entities available to 
ACOs for formation in particular States. In addition, some commenters 
recommended that we require that if an ACO assumes insurance risk, it 
should meet all the consumer protection, market conduct, accreditation, 
solvency, and other requirements consistent with State laws.
    One commenter suggested that we require ACOs that operate in more 
than one State to attest that they operate under each State's rules 
rather than a blend of multiple States' rules for all business and 
other operational functions (including health information management, 
release of information, privacy/confidentiality, data quality, etc.). 
Some commenters suggested that the proposed definition of ``ACO'' would 
exclude entities organized pursuant to Federal and tribal law, and 
recommended that we also allow ACOs to be organized under Federal or 
tribal law as well.
    Response: We continue to believe that an ACO should be recognized 
as a legal entity under State law and authorized by the State to 
conduct its business. We intended this requirement to ensure the ACO 
would be licensed to do business in the State consistent with all 
applicable State law requirements. Consequently, we are finalizing our 
proposal that an ACO that participates in the Shared Savings Program 
meet State law requirements to operate in that State. We are not 
requiring an ACO be licensed as an ACO under State law unless, however, 
State law requires such licensure.
    We disagree with the commenters that participating in the Shared 
Savings Program ultimately involves insurance risk. ACO participants 
will continue to receive FFS payments for all services

[[Page 67816]]

furnished to assigned beneficiaries. It is only shared savings payments 
(and shared losses in the two-sided model) that will be contingent upon 
ACO performance. As a result, we believe that we will continue to bear 
the insurance risk associated with the care furnished to Medicare 
beneficiaries, but ACOs desiring to participate in Track 2 should 
consult their State laws.
    To clarify, we are not preempting any State laws or State law 
requirements in this final rule. To the extent that State law affects 
an ACO's operations, we expect the ACO to comply with those 
requirements as an entity authorized to conduct business in the State. 
We do not believe it is necessary to make ACOs attest to do what they 
otherwise would be required to do under State law.
    We agree with commenters that we do not want to exclude ACOs that 
are licensed under Federal or tribal law. Accordingly, we are modifying 
our original proposal to clarify that entities organized pursuant to 
Federal and tribal law will also be allowed to participate in the 
Shared Savings Program, as long as the entity is able to meet the 
participation requirements as outlined in this final rule.
    Final Decision: We are finalizing our proposal that an ACO must be 
a legal entity for purposes of all program functions identified in this 
final rule. We are also finalizing commenters' suggestion that ACOs 
licensed under Federal or tribal law are eligible to participate in the 
Shared Savings Program. In addition, an ACO formed among multiple ACO 
participants must provide evidence in its application that it is a 
legal entity separate from any of its ACO participants. (Sec.  425.104)
b. Distribution of Shared Savings
    As discussed previously, an ACO must be a legal entity 
appropriately recognized and authorized to conduct its business under 
State, Federal, or tribal law, and must be identified by a TIN. In the 
proposed rule we proposed to make any shared savings payments directly 
to the ACO as identified by its TIN, we noted that unlike the ACO 
participants and the ACO providers/suppliers that form the ACO, the 
legal entity that is the ACO may or may not be enrolled in the Medicare 
program. We acknowledged the potential for this proposal to 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 requiring safeguards for assuring ACO repayment of shared losses 
described in section II.G. of this final rule. We solicited comment on 
our proposal to make shared savings payments directly to the ACO, as 
identified by its TIN. In addition, we solicited comment on our 
proposal to make shared savings payments to a non-Medicare-enrolled 
entity.
    We proposed 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, how any 
shared savings will be used to align with the three-part aim. As we 
stated in the proposed rule, we believe this requirement would achieve 
the most appropriate balance among objectives for encouraging 
participation, innovation, and achievement of an incentive payment 
while still focusing on the three-part aim.
    Comment: Several commenters recommended that CMS explicitly state 
that the ACO is required to demonstrate that ACO participants will be 
able to share in savings and that CMS outline exactly how the savings 
will be distributed while other commenters suggested that CMS work with 
the provider community to develop principles that ACOs should follow to 
ensure fair and equitable distribution of shared savings. Other 
commenters suggested that a requirement be established that some pre-
determined portion of any shared savings be directed to improving 
patient care unless there is little room for improvement for ACOs in 
the final quality measures. A few commenters requested that standards 
be established regarding the length of time (ranging from 15 days to 90 
days) an ACO has to actually share any savings generated with its 
respective providers. Finally, a commenter expressed concern that when 
partnering with a hospital-based system, primary care providers would 
not be rewarded for the significantly increased work that will be 
required on their part in order for an ACO to be successful. Instead 
this money would be used by the hospital system to replace lost revenue 
on the hospital side.
    Response: We will make any shared savings payments directly to the 
ACO as identified by its TIN. As explained in the proposed rule, the 
statute does not specify how shared savings must be distributed, only 
that the ACO be a legal entity so that the ACO can accept and 
distribute shared savings. We do not believe we have the legal 
authority to dictate how shared savings are distributed, however, 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. Consistent with the discussion found later in this final rule 
regarding the shared governance of an ACO, we anticipate that ACO 
participants would negotiate and determine among themselves how to 
equitably distribute shared savings or use the shared savings to meet 
the goals of the program.
    Final Decision: We will finalize our proposals under Sec.  
425.204(d) without change.
c. Governance
    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 requires that an ``ACO shall have in place a leadership and 
management structure that includes clinical and administrative 
systems.'' However, the statute does not specify the elements that this 
shared governance mechanism or the accompanying leadership and 
management structures must possess. We proposed 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 proposed that an ACO also must establish and maintain a 
governing body with adequate authority to execute the statutory 
functions of an ACO. 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 evidenced-based medicine and patient engagement, report on 
quality and cost measures, and coordinate care.'' We proposed that 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 an existing legal entity 
that has a pre-existing board of directors or other governing body, we 
proposed that the ACO would not need to form a separate governing body. 
In this case, the existing entity's governing body would be the 
governing body of the ACO, and the ACO would be required to provide in 
its application

[[Page 67817]]

evidence that its pre-existing board of directors or other governing 
body, meets all other criteria required for ACO governing bodies. We 
also proposed that the ACO have a conflicts of interest policy that 
applies to members of the governing body. 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 also 
must address remedial action for members of the governing body that 
fail to comply with the policy.
    We requested comment on whether these 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 were 
alternative requirements that could be used to achieve the aims of 
shared governance and decision making. We also acknowledged that 
allowing existing entities to be ACOs would complicate our monitoring 
and auditing of these ACOs, and sought comment on this issue.
    Comment: Although most comments supported the principle of ACO 
shared governance, many commenters opposed the separate governing body 
requirement. Some commenters stated that we exceeded our authority by 
imposing a separate governing body requirement. Other commenters 
suggested that the separate governing body requirement would discourage 
organizations from participating in the Shared Savings Program and 
increase their costs to do so. Commenters explained that existing 
entities already have relationships with commercial payers and it would 
not make sense for them to maintain multiple boards, because it is 
costly and organizationally complex to do so.
    Many commenters urged us to provide flexibility so that ACOs could 
use their current governance process, as long as they can demonstrate 
how they will achieve shared governance on care delivery policies. Some 
commenters explained that hospitals and other large physician groups 
have governing bodies designed specifically for quality and outcome 
reviews and oversight for clinical integration and performance 
appraisal, training and discipline. Commenters suggested that ACOs can 
be effectively governed by an operating committee within their existing 
governance and management structure, as is a hospital medical staff 
governed semi-autonomously within a hospital's governance structure. 
Commenters also suggested that ACOs should be permitted to access 
existing assets and systems, such as advisory boards, so long as the 
ACO management committee exercises sufficient control over these 
processes with respect to ACO activities to generate ACO desired 
outcomes. Other commenters had specific concerns about how the separate 
entity requirement would apply to their current or planned 
organizational structure. One commenter, an integrated, State-wide 
health system, suggested that we permit it to operate as a State wide/
multi-State ACO with various regional/local ACOs as its ACO 
participants. In this structure, the corporate organization would 
handle the claims processing, reporting, and distribution of savings 
and the financial backing for potential loss for the regional ACO 
healthcare operational units. The regional ACOs would have their own 
board and each regional ACO would be represented on the State-wide/
multi-State board. This commenter claimed that this type of structure 
would take advantage of the cost savings that result from economies of 
scale for administrative and other functions, but would keep health 
care delivery local. Another commenter suggested allowing an ACO 
governing body's authority to be delegated from an existing governing 
body that possesses broad reserved powers.
    One commenter suggested we clarify the responsibilities of the 
board as distinct from those of management. In this commenter's view, 
governing board's role should be one of oversight and strategic 
direction, holding management accountable to meeting goals of ACO. 
Another commenter suggested that the governance structure be organized 
more like a scientific advisory board that will analyze the results of 
the particular ACO's methodology for treating its patients.
    Response: Our proposal to require an ACO to have a separate 
governing body unless it is an existing legal entity that has a pre-
existing governing body is consistent with the proposed and final 
requirements regarding legal entity requirements discussed previously. 
Thus, we disagree with the commenters that suggested that such a 
requirement would discourage participation in the Shared Savings 
Program or disrupt existing relationships with commercial payers.
    Moreover, for ACOs formed among otherwise independent ACO 
participants, we will finalize our proposal that these ACOs create an 
identifiable governing body. This requirement is consistent with our 
final rule that requires such ACOs to create a separate legal entity. 
Notwithstanding this requirement, we agree with commenters that ACOs 
formed among multiple otherwise independent ACO participants, should 
have flexibility to establish a mechanism for shared governance as 
required by statute. As discussed later in this section of this final 
rule, we are revising our specific proposals to provide ACO greater 
flexibility in the composition of their governing bodies.
    We also agree with commenters who suggested that we should clarify 
the governing body's responsibilities. An ACO's governing body shall 
provide oversight and strategic direction, holding management 
accountable for meeting the goals of the ACO, which include the three-
part aim. This responsibility is broader than ``care delivery 
processes'' as suggested by numerous commenters and, in fact, 
encompasses not only care delivery, but also processes to promote 
evidence-based medicine, patient engagement, reporting on quality and 
cost, care coordination, distribution of shared savings, establishing 
clinical and administrative systems, among other functions. We believe 
that because of these broad responsibilities, the governing body is 
ultimately responsible for the success or failure of the ACO.
    We believe that an identifiable governing body is a reasonable 
prerequisite for eligibility to participate in the Shared Savings 
Program. As discussed previously, an existing legal entity is permitted 
to use its current governing body. An ACO formed among otherwise 
independent ACO participants must establish an identifiable governing 
body. A governing body that is identifiable can help insulate against 
conflicts of interest that could potentially put the interest of an ACO 
participant (in an ACO formed among otherwise independent ACO 
participants) before the interest of the ACO. In fact, we believe an 
identifiable governing body will facilitate accomplishing the ACO's 
mission.
    Comment: Numerous commenters expressed support for the requirement 
that the governing body include all ACO participants. For example, one 
commenter supported the proposal, because such a requirement would also 
aid CMS, FTC, and DOJ in their efforts to thwart anti-competitive 
behavior among ACOs.
    By contrast, many commenters suggested it would be unwieldy to have 
representatives from each participant on the governing body, because 
the governing body would be difficult to operate effectively. Other 
commenters

[[Page 67818]]

stated that an ACO should not, for example, have to include each solo-
practitioner physician participant on the board. Some commenters 
suggested that a requirement for each ACO participant to be on the 
governing body would permit competitors to be on each other's boards 
and, thus, could be anticompetitive. Many commenters indicated that we 
should be concerned with the outcome of the program, not with who is on 
an ACO's board. One commenter suggested that ACO participants be 
shareholders, members, or other owners of the ACO, and the ACO 
participants would select the governing body members. Another commenter 
suggested that we require an ACO to demonstrate how ACO participants 
have a super-majority on a medical standards committee that has 
responsibility to define processes to promote evidenced-based medicine 
and patient engagement, report on quality and cost measures, and 
coordinate care. However, one commenter suggested that limiting a 
governance voice to physicians and hospitals reduces the chances that 
the aim CMS expresses of reduced dependence on inpatient care will be 
realized. Several commenters suggested that the requirement that all 
participants be on the governing body may conflict with State law 
requirements.
    Response: Although we believe that each ACO participant should have 
a voice in the ACO's governance, we are convinced by the comments that 
there are many ways to achieve this objective without requiring that 
each ACO participant be a member of the ACO's governing body. Thus, we 
will not finalize our proposal that each Medicare-enrolled ACO 
participant TIN, or its representative, be on the ACO's governing body. 
We agree with commenters that the governing bodies could become 
unwieldy and lose their effectiveness if we were to finalize this 
proposal. Such a requirement, as the commenters explained, could 
conflict with State law requirements regarding governing body 
requirements. Instead we will require an ACO to provide meaningful 
participation in the composition and control of the ACO's governing 
body for ACO participants or their designated representatives. We 
disagree, however, with the comment that ACO participants who may be 
competitors outside of the ACO's activities necessarily raise 
competitive concerns when they jointly participate on the ACO's 
governing body. The ACO requires an integration of economic activity by 
ACO participants, and participants' participation in the governing body 
is in furtherance of that integration. Nonetheless, as explained in the 
final Antitrust Policy Statement, ACOs should refrain from, and 
implement appropriate firewalls or other safeguards against, conduct 
that may facilitate collusion among ACO participants in the sale of 
competing services outside the ACO.
    Comment: Commenters were divided in their support for the 
proportionate control requirement. Many commenters suggested that the 
proportionate share requirement is too rigid and inflexible. Several 
commenters stated that the concept of constituent or representative 
governance is antithetical to the most basic tenants of State 
corporation law, including the requirement of undivided loyalty 
applicable to members of a corporation's board of directors and the 
right of the shareholders of the for-profit corporation and members of 
nonprofit corporations to elect the governing body that is otherwise 
responsible for overseeing and directing the management of the 
corporation. Other commenters explained that the requirements are 
unnecessary because fiduciary decisions should be made in the best 
interests of the ACO as an entire organization and should not represent 
the individual interests of the ACO participants or any specific 
agendas. Other comments suggested that they would have to reconstitute 
their boards if we applied such a requirement. By contrast, many 
commenters supported this requirement if it were applied on a per 
participant basis, while others supported it if it were based on 
capital contributions.
    Several commenters sought clarification as to how proportionate 
share should be assessed and suggested that we provide guidance to 
avoid tangled power struggles. Commenters suggested various methods, 
including: distribution of Medicare costs among the various 
participants in the ACO, capital contributions, per participant, equity 
dollars, dollars received, savings generated from operations, RVUs 
delivered, number of Medicare lives attributed, physicians within a 
TIN, or on any reasonable basis. One commenter suggested that 
proportionate control means representation of all specialists that 
provide care to an ACO's beneficiaries.
    Response: In light of our decision to allow ACOs flexibility in how 
they establish their governing bodies, we will not finalize our 
proposal that each ACO participant have proportionate control of the 
ACO governing body.
    Comment: Several commenters suggested that we require specialty 
practitioner representatives on the governing body, including 
specialists who have experience and expertise in hospice and palliative 
care, hematology, cataract surgery, endocrinology, surgery, mental 
health. Other commenters suggested that we require governing body 
representation of home health care and long-term care providers, the 
allied professions, and community stakeholders. One commenter sought a 
specific role for nurses on the governing body.
    Another commenter suggested encouraging representation from local 
high-level public health officials on ACO governing bodies to help 
inform population health and cost-containment goals. One commenter 
suggested that at least one stakeholder on the board be a 
representative of a local hospital, regardless of whether any hospital 
is a participant in the ACO, because all care settings should be 
considered. One commenter suggested that we require ACO governing 
bodies to include local employers and multi-State large employer plan 
sponsors with experience in quality improvement and reporting and 
providing timely information to consumers on ACOs' governance boards to 
successfully improve quality, reduce unnecessary costs and drive 
through transformational change. Other commenters urged us to state 
that every professional service involved with the ACO be represented on 
the governing body.
    Response: In light of our decision to allow ACOs flexibility in how 
they establish their governing bodies, we will not require 
representation of particular categories of providers and suppliers or 
other stakeholders.
    Comment: Several commenters suggested we provide broad guidance on 
desired ACO outcomes and processes without specifying how an ACO's 
governing body achieves these outcomes. Other commenters suggested that 
we articulate the attributes of governance that we believe are 
important to ACOs (for example, importance of ACO participant input, 
the role of non-ACO participants in governance, or that ACOs that are 
tax-exempt entities would be expected to comply with exemption 
requirements) and then require the ACO to include a description in its 
application on how governance of ACO would align with these attributes. 
Other commenters suggested similar approaches, such as requiring the 
ACO applicant to describe its governing body and general rationale for 
its composition, how ACO participants and providers will achieve shared 
governance and decision-making such that they have significant input 
and control over decisions about how

[[Page 67819]]

care will be delivered and beneficiaries' voices heard. Commenters 
suggested that this flexibility would permit the ACO to determine the 
appropriate balance of incorporating direct participant involvement in 
the governance of the ACO, including board involvement, and also using 
operating committees where a more limited group of ACO participants 
would have significant input, direction and involvement in specific 
activities the ACO. Another commenter urged us to deem the governance 
structure of entities that are qualified for tax exemption under 
section 501(c)(3) of the Internal Revenue Code to meet the proposed 
governance requirements.
    One commenter recommended that we require all ACOs: (1) To enact 
policies and procedures to ensure that physicians who participate in 
the ACO are free to exercise independent medical judgment; and (2) to 
adopt a conflict-of-interest disclosure policy to ensure that the 
governing body appropriately represents the interests of the ACO. One 
commenter suggested the ACO be governed by a Board of Directors that is 
elected by physicians in the ACO. Another commenter suggested in those 
cases where a hospital is part of an ACO, the governing board should be 
separate and independent of the hospital governing body. Several 
commenters urged us to require a majority of the ACO's governing body 
to be approved by ACO participants.
    Response: We agree with commenters that we should articulate our 
views related to governance. We will finalize the requirement that the 
governing body provides oversight and strategic direction for the ACO, 
holding management accountable for meeting the goals of the ACO, which 
include the three-part aim. Members of the governing body shall have a 
fiduciary duty to put the ACO's interests before the interests of any 
one ACO participant or ACO provider/supplier. The governing body also 
must have a transparent governing process to ensure that we are able to 
monitor and audit the ACO as appropriate.
    Final Decision: In sum, we are finalizing the requirement that an 
ACO must maintain an identifiable governing body with authority to 
execute the functions of the ACO as defined in this final rule, 
including but not limited to, the definition of processes to promote 
evidence-based medicine and patient engagement, report on quality and 
cost measures, and coordinating care. The governing body must have 
responsibility for oversight and strategic direction of the ACO, 
holding ACO management accountable for the ACO's activities. The 
governing body must have a transparent governing process. The governing 
body members shall have a fiduciary duty to the ACO and must act 
consistent with that fiduciary duty. The ACO must have a conflicts of 
interest policy for the governing body. The ACO must provide for 
meaningful participation in the composition and control of the ACO's 
governing body for ACO participants or their designated 
representatives. (Sec.  425.106).
d. Composition of the Governing Body
    As we explained in the proposed rule, we believe that the ACO 
should be operated and directed by Medicare-enrolled entities that 
directly provide health care services to beneficiaries. We 
acknowledged, however, that small groups of providers often 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 proposed that 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. We explained that these requirements would ensure that 
ACOs remain provider-driven, but also leave room for both non-providers 
and small provider groups to participate in the program.
    Additionally, we proposed that ACOs provide for patient involvement 
in their governing process. We proposed that in order to satisfy this 
requirement, ACOs must include a Medicare FFS beneficiary serviced by 
the ACO on the ACO governing body. In order to safeguard against any 
conflicts of interest, we proposed that any patients included on an 
ACO's governing body, or an immediate family member, must not have a 
conflict of interest, and they must not be an ACO provider/supplier. We 
believed a conflict of interest standard was necessary to help 
effectuate our intent to ensure beneficiaries have a genuine voice in 
ACO governance. We sought comment on whether the requirement for 
beneficiary participation on the governing body should include a 
minimum standard for such participation. We also sought comment on the 
possible role of a Medicare beneficiary advisory panel to promote 
patient engagement in ACO governance.
    Comment: Numerous commenters supported the proposed 75 percent 
threshold requirement for ACO participants and suppliers because they 
believe ACOs should be provider driven. Other commenters supported the 
75 percent threshold because they believed that more than 25 percent 
non-participant investment could lead to disparities among Shared 
Savings Program stakeholders, create a conflict of interest, and impede 
the goal of efficient care delivery. One commenter urged us to clarify 
that up to 25 percent of the board can be represented by health plans 
and management companies. Several commenters sought clarification about 
how to assess the 75 percent requirement in the situation of hospital 
employment of providers, and whether it is the employer or the employee 
that must be represented.
    By contrast, several commenters urged us to eliminate the 75 
percent threshold because it is overly prescriptive, will prevent many 
existing integrated systems from applying, fails to acknowledge that 
governing bodies will balance representation across all the populations 
it covers for multiple payers that may, for instance, encourage 
participation of local businesses on the governing body, and will be 
unnecessarily disruptive to many organizations, especially those with 
consumer-governed boards. Several commenters suggested that we should 
recognize that each governing body will need to be structured 
differently depending on its historical makeup, the interest in 
participation, and other market dynamics. One commenter suggested that 
requiring the exact same governance structure for all ACOs risks 
creating inefficient bureaucracy that does not improve quality or 
reduce costs.
    Several commenters also suggested that this restriction is likely 
to restrict ACO access to, and effective use of, multiple streams of 
capital for investing in high-value care. Other commenters argued that 
the restriction is likely to hinder formation of primary care 
physician-led organizations because they will not be able to implement 
effective care management and advanced information technology 
implementation, and lack the ability to negotiate and administer 
provider contracts without the participation of outside entities. 
Another commenter suggested the 75 percent requirement could have a 
chilling effect on the willingness of private payers to invest in and 
partner with ACOs.
    Some commenters stated that the 75 percent requirement may conflict 
with IRS policy that requires governing bodies of tax-exempt entities 
to be comprised of a broad spectrum of

[[Page 67820]]

community members. Another commenter suggested that 501(c)(3) hospitals 
or health systems would find it difficult to form an ACO as a joint 
venture because the IRS requires those nonprofits to demonstrate that 
the joint venture is in the charity's interest and that charitable 
assets are not used for private inurement. Other commenters noted that 
the 75 percent requirement could conflict with State law requirements 
such as ones requiring governing boards of public hospitals to be 
elected, or that in order for nonprofit health care entities to 
maintain an exemption from certain State's business and occupation tax, 
paid employees cannot serve on the governing board. Other commenters 
suggested that we extend the same flexibility we proposed to provide to 
ACOs with regard to leadership and management structures to our 
governance requirements.
    Response: We continue to believe that the 75-percent control 
requirement is necessary to ensure that ACOs are provider driven, as 
requested by the comments. The implication of this requirement is that 
non-Medicare enrolled entities, such as management companies and health 
plans may have less than 25 percent voting control of the ACO governing 
body. For example, if a hospital, two physician groups, and a health 
plan formed an ACO, the hospital and two physician groups must control 
at least 75 percent of the ACO governing body. We decline, as 
previously discussed, to require how the voting control of the hospital 
and two physicians groups is apportioned among them. Although we 
recognize commenters' concern that this threshold could reduce the 
amount of investment capital available to ACOs, we believe it strikes 
an appropriate balance to incent and empower ACO participants to be 
accountable for the success of the ACO's operations.
    We also clarify that existing entity ACOs, such as a hospital 
employing ACO professionals, by definition, would have 100 percent 
control of the governing body, because the existing entity is the only 
member of the governing body.
    Notwithstanding this requirement, we also agree with commenters 
that we should provide ACOs with flexibility regarding the composition 
of the ACO's governing body. This flexibility is discussed later in 
this section of this final rule and provides a means for an ACO to 
compose its governing body to involve ACO participants in innovative 
ways in ACO governance. We believe this flexibility obviates the 
commenters' concerns that the 75 percent threshold would conflict with 
laws governing the composition of tax-exempt or State-licensed 
entities.
    Comment: In response to our request for comments on whether our 
requirement that 75 percent control of the governing body be held by 
ACO participants was an appropriate percentage, commenters suggested a 
variety of different percentage requirements on the governing body for 
certain types of ACO physicians and other health care providers. 
Commenters suggested that physicians occupy at least one-third, one-
half, or greater than one-half of governing body seats. Other 
commenters suggested that primary care physicians comprise at least 50 
percent of the ACO governing body and independent practices have 
representation proportionate to their percentage of ACO physicians, 
while another commenter suggested that the governing body include an 
equal number of primary care and specialty physicians to guarantee that 
ACOs' leadership structures focus on primary care, prevention, care 
coordination and disease management. Another commenter suggested that 
50 percent of the governing body consist of physicians who have their 
own practice and not physicians who are employed directly or indirectly 
by a hospital system.
    By contrast, some commenters suggested that we require a more 
balanced composition, with 50 percent ACO participant representation, a 
majority of which should be primary care providers, and 50 percent key 
community stakeholders who do not derive livelihood from the ACO or one 
of its products. Some commenters suggested that the inclusion of 
employer and/or labor representatives in the community stakeholder 
portion would also serve as a way to help prevent cost-shifting to the 
private sector. Another commenter suggested a bare minimum of provider 
representation, because anything more may bring in members to the board 
who do not have the requisite skill and experience to function in a 
leadership role.
    Response: For the reasons previously discussed, we will finalize 
our proposal to require 75 percent control by ACO participants that are 
Medicare-enrolled TINs. We decline, as previously discussed, to require 
how the voting control will be apportioned among ACO participants.
    Comment: Some commenters supported the requirement that each ACO 
participant choose an appropriate representative from within its 
organization to represent them on the governing body. Several 
commenters sought clarification about the requirement. For example, one 
commenter sought clarification that an employee of an IPA (which is a 
member of an ACO) can be the representative on the board. Other 
commenters sought clarification about the word ``organization'' in the 
phrase ``from within its organization,'' specifically whether 
organization meant each and every ACO participant's organization or the 
ACO as an organization.
    Response: Under our proposal, we intended that a representative 
from each ACO participant would be included on the ACO's governing 
body. But, as previously discussed, we believe that ACOs should have 
flexibility to construct their governing bodies in a way that allows 
them to achieve the three-part aim in the way they see fit. 
Accordingly, we will eliminate the requirement that each ACO 
participant choose an appropriate representative from within its 
organization to represent it on the governing body.
    Comment: Several commenters were unclear whether we were requiring 
that all entities with which an ACO contracts would be considered an 
ACO participant and therefore have a seat on the governing body. In 
particular, some commenters sought clarification about the interaction 
between an ACO and a third party that would develop the technology, 
systems, processes and administrative functions for the ACO. Other 
comments sought clarification of whether we will consider a provider 
system one ACO or multiple ACO participants, because the individuals 
within the system each have separate TINs that are eligible as ACOs in 
their own right.
    Response: We expect that ACOs, in some instances, will contract 
with third parties to provide technology, systems, processes, and 
administrative functions for the ACO. These entities are not ACO 
participants as that term is defined in Sec.  425.20 of these 
regulations. Accordingly, we are not requiring these third parties to 
be represented on the governing body. A provider system made up of 
multiple Medicare-enrolled TINs will have flexibility to use its 
existing governing body (assuming it is an existing legal entity with a 
pre-existing governing body) or to structure a new governing body in a 
way that meets the requirements for meaningful representation of its 
ACO participants while also enabling it to accomplish the three-part 
aim.
    Comment: Many commenters strongly supported our proposal to require 
ACOs to include a beneficiary on the governing body so that the person 
would advocate for the local community, patient safety issues,

[[Page 67821]]

provide a strong, independent voice, and be part of ACO decision 
making. Other commenters suggested requiring even more consumer or 
community-based organization representation such as a plurality of the 
board or proportional representation based on the number of Medicare 
beneficiaries, such as two Medicare beneficiary representatives for 
every 5,000 patients assigned to the ACO, but no less than 15 percent 
beneficiary representation, or three beneficiaries and three local 
community organization representatives.
    Several commenters suggested that one beneficiary on the board is 
insufficient. Other commenters argued that together beneficiaries and 
consumer advocates must possess a sufficient number of seats on the 
governing body to enable them to substantively influence an ACO and its 
operations, because beneficiary representatives and consumer advocates 
bring distinct perspectives to the table. Other commenters suggested 
that the ACO describe in its application how it would have diverse, 
balanced, and effective consumer representation in the ACO's 
governance.
    Other commenters objected to our proposal to deem ACOs as having 
met the requirement to partner with community stakeholders simply by 
including a community stakeholder on the governing board. These 
comments argue that ACOs will serve a diverse population with a range 
of needs, preferences, and values and, thus, one representative will 
not be able to speak for the entire community on all issues. These 
commenters urged us to require that ACOs develop partnerships with 
community-based organizations that--(1) operate within a single local 
or regional community; (2) are representative of a community or 
significant segments of a community; and (3) provide health, 
educational, personal growth, and improvement, social welfare, self-
help for the disadvantaged or related services to individuals in the 
community.
    Several commenters expressed concern about how the beneficiary 
representative would be chosen. For example, one commenter sought 
clarification on how we would know that the chosen beneficiary is truly 
representative of the beneficiary population served by the ACO. Another 
commenter expressed concern about the potential influence of this board 
on the consumer representative. Some commenters stated it would make 
more sense for the beneficiary representative to have healthcare 
knowledge or business experience. One commenter suggested that non-
medical oriented individuals will likely promote their special projects 
that they perceive as beneficial to their own goals and aims.
    One commenter sought clarification about whether beneficiary and/or 
community organization is counted toward the 75 percent threshold or if 
it is in the 25 percent non-participant group.
    By contrast, many comments stated our proposed requirement was too 
prescriptive. Commenters indicated that such a requirement could: (1) 
Mean that a clinically integrated physician network would have to 
restructure its bylaws and thus re-contract with its entire physician 
network; (2) place the beneficiary in an inappropriate position to be 
voting on decisions of the organization's non-ACO lines of business; 
(3) conflict with State law which requires only licensed medical 
professionals to govern the professional corporation; (4) conflict with 
State and local laws that dictate composition of public hospital/health 
system boards and/or restrict the authority those boards may be able to 
delegate (given their authority over taxpayer funds); or (5) result in 
a potential HIPAA violation.
    These commenters suggested that there are more effective ways to 
obtain beneficiary representation such as through creation of a 
committee of participants and/or beneficiaries which could accomplish 
the same purpose without the necessity of a board role. They 
recommended creating non-voting and ongoing advisory groups of 
beneficiaries rather than requiring an ACO to include a single 
beneficiary on the governing body. One commenter suggested that we 
define lack of a ``conflict of interest.''
    Response: We continue to believe that a focus on the beneficiary in 
all facets of ACO governance will be critical for ACOs to achieve the 
three-part aim. Therefore, we finalize our proposal to require 
beneficiary representation on the governing body, with an option 
(discussed later in this final rule) to allow for flexibility for those 
ACOs that seek innovative ways to involve beneficiaries in ACO 
governance.
    We decline the suggestions to increase the beneficiary 
representation requirement, because we believe the proposal achieves 
our objective but still permits ACOs flexibility to structure their 
governing bodies appropriately. We encourage all ACOs to consider 
seriously how to provide other opportunities for beneficiaries to be 
involved further in ACO governance in addition to the seat on the 
governing body. We also clarify that, as we proposed, the beneficiary 
representative (like all members on the governing body as discussed 
previously) must not have a conflict of interest, such that he or she 
places his or her own interest, or an interest of an immediate family 
member, above the ACO's mission. In addition, the beneficiary 
representative cannot be an ACO provider/supplier within the ACO's 
network.
    We recognize commenters' concerns that requiring a beneficiary on 
the governing body could conflict with State corporate practice of 
medicine laws or other local laws regarding, for instance, governing 
body requirements for public health or higher education institutions. 
In addition, there could be other reasons that beneficiary 
representation on an ACO's governing body may not be feasible. For 
these reasons, we agree with commenters that it is appropriate to 
provide flexibility regarding the composition of ACO governing bodies. 
Accordingly, an ACO that seeks to compose its governing body in such a 
way that it does not meet either the requirement regarding 75 percent 
ACO participant control or the requirement regarding beneficiary 
representation on the governing body would be able to describe in its 
application how the proposed structure of its governing body would 
involve ACO participants in innovative ways in ACO governance and 
provide a meaningful opportunity for beneficiaries to participate in 
the governance of the ACO. For example, this flexibility would allow 
ACOs that operate in States with Corporate Practice of Medicine 
restrictions to structure beneficiary representation accordingly and it 
also would allow for consumer-driven boards that have more than 25 
percent consumer representation. This option could also be used by 
existing entities to explain why they should not be required to 
reconfigure their board if they have other means of addressing the 
consumer perspective in governance.
    Final Decision: In summary, we will finalize our proposals that at 
least 75 percent control of the ACO's governing body must be held by 
the ACO's participants. The governing body of the ACO must be separate 
and unique to the ACO in the cases where the ACO comprises multiple, 
otherwise independent entities that are not under common control (for 
example, several independent physician group practices). However, the 
members of the governing body may serve in a similar or complementary 
manner for a participant in the ACO. Each ACO should provide for 
beneficiary representation on its governing body. In cases in which the 
composition of an ACO's governing

[[Page 67822]]

body does not meet the 75 percent ACO participant control threshold or 
include the required beneficiary governing body representation, the ACO 
must describe why it seeks to differ from the established requirements 
and how the ACO will involve ACO participants in innovative ways in ACO 
governance and/or provide for meaningful participation in ACO 
governance by Medicare beneficiaries. (Sec.  425.106).
4. 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.'' In the proposed rule, we stated that we 
believed an ACO's leadership and management 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.
    We drew from two sources to develop our proposals for ACO 
leadership and management structures. We first highlighted those 
factors that participants in the PGP demonstration identified as 
critical to improving quality of care and the opportunity to share 
savings. Second, we discussed the criteria developed by the Antitrust 
Agencies to assess whether collaborations of otherwise competing health 
care providers are likely to, or do, enable their collaborators jointly 
to achieve cost efficiencies and quality improvements. We explained 
that the intent of the Shared Savings Program and the focus of 
antitrust enforcement are both aimed at ensuring that collaborations 
between health care providers result in improved coordination of care, 
lower costs, and higher quality, including through investment in 
infrastructure and redesigned care processes for high quality and 
efficient service delivery. We stated in the proposed rule that the 
Antitrust Agencies' criteria 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 stated that 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, because competition between ACOs is expected to have 
significant benefits for Medicare beneficiaries. Further, 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 criteria will help to reduce the likelihood that an ACO 
organization participating in the Shared Savings Program will be 
challenged as per se illegal under the antitrust laws, which could 
prevent the ACO from fulfilling the term of its agreement under the 
Shared Savings Program.
    Thus, in order to meet the requirements 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 proposed that an ACO 
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 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.
     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 
on a regular basis in an established location of the ACO.
     ACO participants and ACO providers/suppliers would have a 
meaningful commitment to the ACO's clinical integration program to 
ensure its likely success.
     The ACO would have a physician-directed quality assurance 
and process improvement committee that would oversee an ongoing quality 
assurance and improvement program.
     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, and lower growth in expenditures.
     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 service.
    In order to determine an ACO's compliance with these requirements, 
as part of the application process, we proposed 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, how the opportunity to receive shared savings 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.
     Supporting materials documenting the ACO's organization 
and management structure, including an organizational chart, a list of 
committees (including the names of committee members) and their 
structures, and job descriptions for senior administrative and clinical 
leaders.
     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.
    We also proposed to allow ACOs with innovative leadership and 
management structures 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 could 
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

[[Page 67823]]

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. Additionally, we 
sought comment on the requirement for submission of certain documents 
as noted previously and whether an alternative method could be used to 
verify compliance with requirements. We also requested comment on the 
leadership and management structure and whether the compliance burden 
associated with these requirements would discourage participation, 
hinder innovative organizational structures, or whether there are other 
or alternative leadership and management requirements that would enable 
these organizations to meet the three-part aim.
    Comment: Some commenters suggested that we require that a physician 
or a surgeon licensed in the State in which the ACO is organized serve 
as either the CEO or president of the ACO and that a physician or a 
surgeon licensed in the State in which the ACO is organized serve as 
the Chair of the Board of Directors of the ACO. Other commenters 
recommended that CMS require that primary care physicians be in 
executive leadership positions of the ACO. Other commenters suggested 
that we require personnel with health information management experience 
to be part of the ACO's leadership.
    Response: In light of our decision to allow ACOs flexibility in how 
they establish their governing bodies, we also believe that ACOs should 
have flexibility to determine their leadership and management 
structure. We understand commenters' concerns, but we decline to 
specify additional requirements as suggested by the commenters for ACO 
leadership and management.
    Comment: Many commenters strongly supported the proposed 
requirement of senior-level medical director with responsibility for 
clinical management and oversight. Several commenters suggested 
removing the full-time requirement, because the ACO may not have the 
volume to support a full-time position, it is costly and inconsistent 
with the diverse needs of each ACO, and there is little evidence to 
suggest that a small to mid-size ACO is likely to need a full time 
senior-level medical director who is physically present on a regular 
basis at an established ACO location.
    Many commenters supported a part-time requirement, flexible time 
requirement, or no time requirement. One commenter suggested that the 
duties of a ``full time medical director'' include the provision of 
direct clinical care to patients. One commenter suggested eliminating 
the full time requirement, as long as the medical director devotes 
sufficient time to fulfilling their ACO related responsibilities. 
Another commenter suggested that the focus should be on whether the 
required coordination of care processes are in place and functional at 
a core level, rather than who is directing them.
    Several comments suggested removing the requirement that the 
medical director be a physician because the Act does not require 
physician leadership, nor is there evidence suggesting physician 
leadership is necessary. Several commenters suggested the medical 
director could be any qualified health care professional.
    A few comments suggested strengthening the requirements for 
clinical oversight and requiring that the director demonstrate an 
understanding of the core concepts of medical management or have 
managerial experience, advanced management degree, or certification in 
medical management and system leadership. One commenter suggested that 
physician leadership show that it has geriatric competencies, to ensure 
that patients with dementia and Alzheimer's disease do not receive 
poorer care.
    A few comments suggested that we: (1) Not require the medical 
director to be licensed in the State because if a medical director has 
been effective in excelling in services in one State and seeks to 
expand those services into another State, CMS would be ill-advised to 
prevent this from occurring; and (2) not require board certification 
but instead allow a physician who has acquired certification in medical 
management or quality improvement to be the medical director.
    Some commenters sought clarification as to whether the medical 
director must be licensed in every State in which a multi-State ACO 
operates and whether the medical director must be on-site at each 
location at which the ACO provides services (if a multi-site ACO).
    Response: We believe physician leadership of clinical management 
and oversight is important to an ACO's ability to achieve the three-
part aim and we will finalize the proposed requirement that an ACO have 
a senior-level medical director who is a board-certified physician. 
However, we understand that this requirement may pose an additional 
financial burden, particularly in small or rural ACOs. Therefore, we 
are modifying our original proposal to eliminate the full time 
requirement. Instead, we will require that clinical management and 
oversight be managed by a senior-level medical director who is one of 
the ACO's physicians. We decline to require additional qualifications 
for the medical director, because such qualification may be burdensome 
for small and rural ACOs. However, we are maintaining the requirement 
that the medical director be board-certified and licensed in one of the 
States in which the ACO operates. We believe such certification and 
licensure are necessary to establish credibility among physicians in 
the ACO. Further, we clarify that an ``on site'' physician is one who 
is present at any clinic, office, or other location participating in 
the ACO.
    Comment: Some commenters supported the requirement for a physician-
directed quality assurance and process improvement committee. Several 
comments stated that physician-led quality and clinical process 
improvement activities are crucial to building trust and credibility 
with physicians and beneficiaries, as well as necessary ingredients to 
achieving the quality and beneficiary satisfaction targets set by the 
program.
    By contrast, other commenters believed that such a physician-led 
committee would be onerous in rural areas and that safety net providers 
should have some flexibility in meeting these requirements. Several 
commenters suggested removing the requirement for physician leadership 
and instead requiring leadership by any qualified healthcare 
professional. Some comments suggested requiring the director to 
demonstrate special training or certification in quality improvement.
    Response: We acknowledge commenters' concerns that a committee 
could be burdensome for certain ACOs and that quality improvement 
activities can be directed by non-physician leadership. In particular, 
we are persuaded by commenters who suggested that many existing and 
successful quality improvement efforts are not physician-led. 
Accordingly, we will eliminate the requirement for ACOs to establish 
such a committee. Instead, as part of its application, an ACO will be 
required to describe how it will establish and maintain an ongoing 
quality assurance and improvement program, led by an appropriately 
qualified health care professional. We believe these modifications will 
provide ACOs with greater flexibility to meet this requirement.
    Comment: Some commenters supported our proposal to learn from the 
Antitrust Agencies' clinical integration requirements to help specify

[[Page 67824]]

the necessary ``clinical and administrative systems'' that are required 
to be part of the ACO's leadership and management structure. These 
commenters recognized that ``success will be determined by the 
engagement and commitment of practicing physicians.'' Indeed, one 
commenter explained that unregulated clinical integration was likely to 
lead to the greater vertical consolidation of provider markets, which 
in turn will fuel cost growth, making health care less affordable for 
private payers.
    By contrast, several commenters contended that the proposed rule's 
decision to rely, in part, on the Antitrust Agencies' clinical 
integration requirements for ``clinical and administrative'' systems 
was in error. These and other commenters opposed the proposed clinical 
integration requirements as overly prescriptive, unnecessary, likely to 
limit innovation in design and implementation of ACOs and unrelated to 
the three-part aim. However, many of these commenters acknowledge that 
it is a step forward that the proposed Antitrust Policy Statement 
states that an ACO that meets CMS criteria will be found to be 
sufficiently ``integrated'' to meet part of the test for avoiding 
antitrust enforcement actions. Several commenters also suggested that 
even if there are changes to the ACO program to make it more attractive 
financially, these barriers to clinical integration will impede a 
robust response to the ACO program.
    One commenter explained that real clinical integration is evidenced 
by patient coordination of care across health care settings, providers, 
and suppliers and is best shown when there is a structure in place that 
is patient-focused and where clinicians collaborate on best practices 
in an effort to furnish higher quality care that they likely would not 
achieve if working independently. This commenter and others suggested 
that we focus on the statutorily required processes regarding reporting 
quality measures, promoting evidence-based patient processes, and 
coordinating care, thus making separate clinical integration 
requirements moot.
    Several commenters suggested that we eliminate the requirements 
regarding clinical integration and instead describe, at a very high 
level, examples of possible ways an ACO could meet the three-part aim. 
Some commenters suggested that the Antitrust Agencies specify which 
criteria are related to antitrust issues and which are applicable to 
all clinically integrated health care organizations. One commenter 
suggested that CMS, as a purchaser of health care services, should 
negotiate targets for performance at a higher level and not place 
requirements on how ACOs achieve these targets. Several commenters 
suggested we work with the Antitrust Agencies to create more 
flexibility for physicians to join together to provide services. A 
commenter argued that participation in the Shared Savings Program, in 
itself, is an undertaking of meaningful financial integration, thus 
rendering the need for compliance with clinical integration unnecessary 
to avoid per se condemnation.
    Response: We disagree with the commenters' suggestion that relying, 
in part, on the Antitrust Agencies' clinical integration requirements 
for ``clinical and administrative'' systems is overly prescriptive, 
unnecessary, or likely to limit innovation in ACO design. As we 
explained in the proposed rule, the purposes of the Shared Savings 
Program and the Antitrust Agencies' clinical integration requirements 
are complementary and, indeed, mutually reinforcing. The purposes of 
the Shared Savings Program are to promote accountability for a patient 
population, coordinate items and services furnished to beneficiaries 
under Medicare Parts A and B, and encourage investment in 
infrastructure and redesigned care processes for high quality and 
efficient service delivery. The Antitrust Agencies' clinical 
integration criteria require participants to 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. We do not see how ACO participants and ACO 
providers/suppliers could achieve the statutory goals of the Shared 
Savings Program without showing a degree of interaction and 
interdependence in their joint provision of medical services such that 
they provide high quality and efficient service delivery. Many 
commenters agreed with this conclusion and we disagree with the 
commenters that suggested otherwise.
    We also agree with commenters that the four statutorily required 
processes (section 1899(b)(2)(G) of the Act) to promote evidence-based 
medicine, report cost and quality metrics, promote patient engagement, 
and coordinate care overlap and are consistent with our proposed 
clinical integration criteria. Accordingly, we are aligning our final 
requirements regarding sufficient ``clinical and administrative 
systems'' with our final requirements regarding these four required 
processes. These required processes are discussed later in this section 
of the final rule.
    We disagree with the commenter that participation in the Shared 
Savings Program is an undertaking of meaningful financial integration. 
Because ACO participants and ACO providers/suppliers will continue to 
receive FFS payments and are required only to have a mechanism to 
receive and distribute shared savings, they will not necessarily be 
sharing substantial financial risk, which is the hallmark of financial 
integration.
    Comment: Some commenters suggested that we provide concrete 
standards as to what a meaningful commitment is (especially a 
meaningful human investment). Another commenter suggested that those 
ACO providers/suppliers providing a meaningful financial commitment 
should receive increased shared savings.
    A commenter questioned whether it is sufficient to demonstrate a 
meaningful commitment if a provider agrees to participate contractually 
in an ACO and to comply with the ACO's clinical, performance, and 
administrative standards.
    A commenter suggested we revise our interpretation of ``meaningful 
commitment to the ACO's clinical integration,'' because financial and 
human capital are insufficient to show clinical integration; rather, 
real clinical integration is evidenced in patient coordination of care 
across health care settings, providers, and suppliers.
    Some commenters queried how a specialist or other health care 
professional can show ``meaningful commitment'' if they are in more 
than one ACO. Other commenters suggested that the level of observable 
commitment is neither a precursor to clinical activity nor the outcome.
    Response: We continue to believe that each ACO participant and ACO 
provider/supplier must demonstrate a meaningful commitment (for 
example, time, effort, or financial) to the ACO's mission to ensure its 
likely success so that the ACO participant and/or ACO provider/supplier 
will have a stake in ensuring the ACO achieves its mission. Meaningful 
commitment may include, for example, a sufficient financial or 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 ACO participant or ACO provider/supplier to take 
the actions necessary to help the ACO achieve its mission. A meaningful 
commitment may be evidenced by, for example--
     Financial investment such as capital contributions for ACO 
infrastructure information systems, office hardware, computer software,

[[Page 67825]]

ACO staff, training program, or any other aspect of the ACO's 
operations where that investment provides the ACO participant or 
provider/supplier with a sufficient stake in the successful operation 
of the ACO such that the potential loss or recoupment of the investment 
is likely to motivate the participant or provider/supplier to achieve 
the mission of the ACO; and
     Human investment such as serving on the ACO's governing 
body; serving on committees relating to the establishment, 
implementation, monitoring or enforcement of the ACO's evidence-based 
medical practice or clinical guidelines; or otherwise participating in 
other aspects of the ACO's operations, such as definition of processes 
to promote patient engagement, care coordination, or internally 
reporting on cost and quality metrics, to a degree that evidences a 
personal investment in ensuring that the ACO achieves its goals.
    We also believe that a commitment can be meaningful when ACO 
participants and ACO providers/suppliers agree to comply with and 
implement the ACO's required processes and are accountable for meeting 
the ACO's performance standards. By doing so, we believe that they will 
be motivated to achieve the ACO's internal performance standards and to 
comply with the processes required by section 1899(b)(2)(G) of the Act 
(as discussed later in this section). Indeed, we fail to see how the 
required processes discussed later in this final rule could be 
effectuated unless ACO providers/suppliers meaningfully commit to 
implement, adhere to, and be accountable for the ACO's evidenced-based 
medical guidelines, care coordination procedures, patient engagement 
processes, and reporting of cost and quality that are essential to 
meeting the three-part aim.
    We also clarify that an ACO provider/supplier can contractually 
agree to work with one or more ACOs by agreeing to implement, adhere 
to, and be accountable for that ACO's statutorily required processes. 
We disagree with the commenter's suggestion that the level of 
observable commitment is neither a precursor to clinical activity nor 
to outcome. We do not see how an ACO could achieve its mission if its 
providers and suppliers do not agree to comply with and implement the 
ACO's required processes. Such a commitment is necessary, although 
insufficient in and of itself, to ensure that an ACO achieves the 
three-part aim.
    Comment: Several commenters suggested that the requirement that 
ACOs include descriptions in their applications of how they will 
satisfy certain criteria and make documents available is too burdensome 
and creates a barrier to participation, especially for safety net 
providers and many smaller and non-hospital-based applicants. Some 
commenters asked what we will do with the information (for example, 
employment contracts).
    But several comments suggested we strengthen the application 
requirement. For example, these commenters stated that an ACO should be 
required to detail how it plans to partner with community-based 
organizations, and to detail the kinds of processes it will use to 
coordinate the care of Medicare beneficiaries with post-acute care 
providers.
    Another commenter suggested self-attestation for the many requested 
documents to show the leadership and management structures. Other 
commenters urged us to use NCQA's ACO certification standards to deem 
an ACO as acceptable and to work with NCQA to eliminate duplicating 
requirements and aligning accreditations.
    Response: We acknowledge commenters' concerns that the proposed 
documentation requests may be burdensome for certain ACOs. Accordingly, 
we have aligned our proposed documentation requests regarding clinical 
and administrative systems with the statutory processes that are 
described in this section. We believe that this streamlining of 
document requests addresses the commenters' suggestions for additional 
detail regarding certain clinical and administrative processes. It also 
obviates the need to rely NCQA's ACO certification standards. 
Notwithstanding this alignment, we continue to believe that ACOs should 
submit certain documentation regarding their clinical and 
administrative systems to ensure that the ACO meets the eligibility 
requirements, has the requisite clinical leadership, and has a 
reasonable chance of achieving the three-part aim. In addition, we will 
use the documents to assess whether ACO participants and ACO provider/
supplier(s) have the requisite meaningful commitment to the mission of 
the ACO.
    Comment: Several commenters applauded our proposal to consider an 
innovative ACO with a management structure not meeting the proposed 
leadership and management requirements. As noted previously, many 
commenters suggested that the leadership and management requirements 
were overly prescriptive. Thus, many commenters supported the 
innovative option proposal.
    Response: We will finalize our proposal to allow ACO applicants to 
describe innovative leadership and management structures that do not 
meet the final rule's leadership and management structures in order to 
encourage innovation in ACO leadership and management structures.
    Final Decision: We will finalize the requirement that the ACO's 
operations 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. In addition, clinical 
management and oversight must be managed by a senior-level medical 
director who is one of the ACO's physicians, who is physically present 
on a regular basis in an established ACO location, and who is a board-
certified physician and licensed in one of the States in which the ACO 
operates.
    As part of its application, an ACO will be required to describe how 
it will establish and maintain an ongoing quality assurance and 
improvement program, led by an appropriately qualified health care 
professional. ACO participants and ACO providers/suppliers must 
demonstrate a meaningful commitment to the mission of the ACO. A 
meaningful commitment can be shown when ACO participants and ACO 
providers/suppliers agree to comply with and implement the ACO's 
processes required by section 1899(b)(2)(G) of the Act and are held 
accountable for meeting the ACO's performance standards for each 
required process as defined later in this section.
    As part of their applications, ACOs must submit certain 
documentation regarding their leadership and management structures, 
including clinical and administrative systems, to ensure that the ACO 
meets the eligibility requirements. We are finalizing the following 
document requests to effectuate our leadership and management structure 
requirements:
     ACO documents (for example, participation agreements, 
employment contracts, and operating policies) sufficient to describe 
the ACO participants' and ACO providers/suppliers' rights and 
obligations in the ACO.
     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

[[Page 67826]]

descriptions for senior administrative and clinical leaders.
    Additionally, upon request, the ACO may also be required to provide 
copies of documents effectuating the ACO's formation and operation, 
including charters, by-laws, articles of incorporation, and 
partnership, joint venture, management, or asset purchase agreements.
    We also will finalize our proposal to allow ACO applicants to 
describe innovative leadership and management structures that do not 
meet the final rule's leadership and management requirements. (Sec.  
425.108, Sec.  425.112, and Sec.  425.204).
5. Processes To Promote Evidence-Based Medicine, Patient Engagement, 
Reporting, Coordination of Care, and Demonstrating Patient-Centeredness
    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. 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 enabling technologies.
    We proposed that to meet the requirements under section 
1899(b)(2)(G) of the Act, the ACO must document in its application 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 proposed to allow ACOs the flexibility to choose 
the tools for meeting these requirements that are most appropriate for 
their practitioners and patient populations. In addition, we proposed 
that the required documentation present convincing evidence of concrete 
and effective plans to satisfy these requirements and that the 
documentation provide the specific processes and criteria that the ACO 
intends to use. This documentation was necessary because we wanted to 
ensure such processes would include provisions for internal assessment 
of cost and quality of care within the ACO, and that the ACO would 
employ these assessments in continuous improvement of the ACO's care 
practices. We explained in the proposed rule that 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 also specifically solicited 
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.
    In addition, 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.'' We 
explained that a patient-centered, or person-centered, orientation 
could be defined as care that incorporates the values of transparency, 
individualization, recognition, respect, dignity, and choice in all 
matters, without exception, related to one's person, circumstances, and 
relationships in health care. We drew from the work of the Institute of 
Medicine and the principles articulated by the National Partnership for 
Women and Families to develop our proposals. We explained that the 
statutory requirement for ``patient-centeredness criteria'' means that 
patient-centered care must be promoted by the ACO's governing body and 
integrated into practice by leadership and management working with the 
organization's health care teams.
    We proposed 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 of how the survey results will be 
used to improve care over time.
     Patient involvement in ACO governance. 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 its 
patient populations, and a plan to address the needs of its population. 
A description of this process must be included in the application, 
along with a description of how the ACO would consider diversity in its 
patient population and how it 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.
     A mechanism in place for the coordination of care (for 
example, via use of enabling technologies or care coordinators). 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 Electronic Health Records (EHR) Incentive 
program.
     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.
     Written standards in place for beneficiary access and 
communication and a process in place for beneficiaries to access their 
medical records.
     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.
    We explained that this list provides a comprehensive set of 
criteria for realizing and demonstrating patient-centeredness in the 
operation of an ACO. We solicited comment on these criteria.
    We also noted that there is substantial overlap and alignment 
between the processes ACOs are required to define under section 
1899(b)(2)(G) of the Act and both the proposed patient-centeredness 
criteria (as defined by the Secretary in accordance with section 
1899(b)(2)(H) of the Act) and the clinical and administrative systems 
that are to be in place in the ACO's leadership and management 
structure as required by section 1899(b)(2)(F) of the Act. Accordingly 
the following comment and responses discussion includes a discussion of 
not only the required process, but also the patient-centeredness 
criteria and the necessary clinical and administrative systems.
    Comment: Commenters suggested that we require a sufficient level of 
detail on processes that ACOs are required to define. Several 
commenters suggested that we require ACOs to evaluate their own 
practices and make adjustments as necessary and hold ACOs accountable 
for adhering to their stated plans. Other commenters expressed concerns 
that ACOs will need clear and certain guidance, including technical 
support, on the processes to promote: Evidence-based medicine, patient 
engagement, reports on quality and cost measures, and the coordination 
of care. Other commenters explained that patient coordination of care 
across health care

[[Page 67827]]

settings, providers, and suppliers is best shown when there is a 
structure in place that is patient-focused and where clinicians 
collaborate on best practices in an effort to furnish higher quality 
care that they likely would not achieve if working independently. These 
commenters suggested that our requirements regarding the four 
statutorily required processes can help ensure that there is a 
structure in place to ensure the likelihood that an ACO can achieve the 
three-part aim.
    Response: Although we understand the request by some commenters 
that we develop a more prescriptive approach to define each of the four 
processes, we are concerned that such an approach would be premature 
and potentially impede innovation and the goals of this program. ACOs 
should retain the flexibility to establish processes that are best 
suited to their practice and patient population.
    Final Decision: We will finalize our proposal requiring that in 
order to be eligible to participate in the Shared Savings Program, the 
ACO must 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. As part of these processes, an ACO shall 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. These plans must include how the ACO 
intends to require ACO participants and ACO providers/suppliers to 
comply with and implement each process (and sub element thereof), 
including the remedial processes and penalties (including the potential 
for expulsion) applicable to ACO participants and ACO providers/
suppliers for failure to comply. In addition, these plans must describe 
how such processes will include provisions for internal assessment of 
cost and quality of care within the ACO and how the ACO would employ 
these assessments in continuous improvement of the ACO's care 
practices. (Sec.  425.112).
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 * * *.'' 
We explained in the proposed rule that evidence-based medicine can be 
generally defined as the application of the best available evidence 
gained from the scientific method to clinical decision-making. We 
proposed that as part of the application, the ACO would describe the 
evidence-based guidelines it intends to establish, implement, and 
periodically update.
    Comment: Nearly all comments received supported processes to 
promote evidence-based medicine. Some commenters also suggested that 
the ACO's evidence-based guidelines apply to a broad range of 
conditions that are found in the beneficiary population served by the 
ACO. In addition, some commenters suggested that we provide additional 
guidance on the development and implementation these guidelines and 
processes by: (1) Requiring sufficient level of detail on processes and 
tools that will be utilized; (2) requiring ACOs to evaluate the 
practices and make adjustments as necessary; (3) including measures 
that assess the intended outcomes of these practices in the quality 
reporting requirement; and holding ACOs accountable for adhering to 
their stated plans.
    Additionally, several commenters recommended that these processes 
be more prescriptive and include: Measures for improvement to 
functional status, suggested tools for monitoring decision support, and 
specifications for baseline evidence-based guidelines. Other commenters 
suggested that we establish guidelines for how ACOs should establish 
their evidence-based medicine. For example, one commenter explained why 
the organized medical staff of a hospital in which an ACO participates 
should review and approve all medical protocols and all other quality 
programs concerning inpatient care at that hospital. Other commenters 
suggested that we require specialist involvement in the development of 
these clinical guidelines and processes so that the guidelines reflect 
appropriate standards of care for their patients and so that new 
treatments are not discouraged or disadvantaged. Another commenter 
suggested we require that clinical practice guidelines used by ACOs 
located in the same geographical area be consistent so that specialists 
may be able to participate in more than one ACO. One comment suggested 
that we adopt a similar set of criteria to evaluate the evidence-based 
approaches of ACOs similar to the one the Institute of Medicine (IOM) 
recently released in its consensus report, ``Clinical Practice 
Guidelines We Can Trust,'' that details criteria that all evidence-
based guidelines should meet.
    One commenter suggested broadening the definition of the term 
``evidence-based medicine'' to include best practices regarding 
evidence-based psychosocial interventions not generally included as 
medicine. One commenter suggested that we require that the application 
specify how the leadership structure will assure linkage and 
involvement with local and State health agencies.
    One comment recommended that ACOs that have met requirements for 
NCQA Medical Home recognition be eligible to use the same ``short 
form'' of documentation of these capabilities that will be available to 
the PGP demonstration practices.
    Response: As discussed previously, we believe it is important that 
ACOs retain the flexibility to define processes that are best suited to 
their own practices and patient populations. Thus, for the requirements 
under section 1899(b)(2)(G) of the Act, ACOs must provide documentation 
in their respective applications describing how they plan to define, 
establish, implement, and periodically update processes to promote 
evidence-based medicine applicable to ACO participants and ACO 
providers/suppliers as opposed to the establishment of more 
prescriptive guidelines regarding the processes of evidence-based 
medicine. We agree with commenters that for these guidelines to have an 
impact they must cover diagnoses found in the beneficiary population 
assigned to the ACO. We believe that the guidelines should address 
diagnoses with significant potential for the ACO to achieve quality 
improvements, while also accounting for the circumstances of individual 
beneficiaries. For the reasons stated previously, we decline, however, 
to establish the processes by which ACOs should develop these evidence-
based medicine guidelines. We would consider an ACO that has met the 
requirements for NCQA Medical Home recognition well on its way to 
demonstrating that it has processes in place that support evidence-
based guidelines, but we will still need to evaluate them in the 
context of the Shared Savings Program eligibility requirements.
    Final Decision: As previously discussed, to be eligible to 
participate in the Shared Savings Program, the ACO must define, 
establish, implement, and periodically update its processes to promote 
evidence-based medicine. These guidelines must cover diagnoses with 
significant potential for the ACO to achieve quality improvements, 
taking into account the circumstances of individual beneficiaries. 
(Sec.  425.112).

[[Page 67828]]

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.'' We described in the 
proposed rule that the term ``patient engagement'' is the active 
participation of patients and their families in the process of making 
medical decisions. We explained that 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 ``health literacy'' in patients and their 
families. We proposed that as part of its application, the ACO would 
describe the patient engagement processes it intends to establish, 
implement, and periodically update.
    Related to the process to promote patient engagement, we also 
proposed 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. We explained in the 
proposed rule that 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 proposed to 
require ACOs to collect and report on measures of beneficiaries' 
experience of care and to submit their plan on how they will promote, 
assess, and continually improve in weak areas identified by the survey.
    Specifically we proposed that ACOs will be required to use the 
CAHPS survey. We also proposed to require the adoption of an 
appropriate functional status survey module that may be incorporated 
into the CAHPS survey. As further discussed in section II.F. of this 
final rule, scoring on the patient experience of care survey would 
become part of the assessment of the ACO's quality performance.
    Promoting patient engagement would also include a requirement that 
ACOs provide for patient involvement in their governing processes. We 
proposed that ACOs would 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. In order to 
safeguard against any conflicts of interest, we proposed that 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. Section II.B.3. of this 
final rule discusses these issues in full.
    In addition to these two proposals relating to processes for 
patient engagement, we proposed four other requirements relating to 
patient-centeredness that overlap substantially with our proposals 
regarding patient engagement. These processes include: (1) 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; (2) communicating clinical 
knowledge/evidence-based medicine to beneficiaries in a way that is 
understandable to them; (3) engaging beneficiaries in shared decision-
making that takes into account the beneficiaries' unique needs, 
preferences, values, and priorities; and (4) having written standards 
in place for beneficiary communications and allowing beneficiary access 
to their medical record.
    As part of the application, we proposed that the ACO would describe 
the patient engagement processes it intends to establish, implement, 
and periodically update.
    Comment: Commenters supported our proposal requiring that an ACO 
describe, in its application, its 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 Medicare 
population. Several comments suggest that certain populations, such as 
tribal populations, have a disproportionate share of diversity and 
recommended including specific measures to account for the diversity in 
their Medicare population.
    Response: We agree with the comments received that certain 
beneficiary populations will be more diverse than others, which is why 
we proposed to provide ACOs with the flexibility to describe the 
processes that will be most effective in evaluating their patient 
population as opposed to prescriptively identifying specific measures 
for all ACOs.
    Comment: Several commenters explained that ACOs must recognize that 
the needs of a diverse population are based on many factors, such as 
race, gender, gender identity or expression, sexual orientation, 
disability, income status, English proficiency, and others. These 
commenters, and others, suggested that we develop an objective set of 
criteria for the evaluation of population health needs and 
consideration of diversity.
    Response: We agree with commenters that true patient engagement 
requires sensitivity to the many diverse factors that can affect a 
specific patient population and the appropriate care to address the 
health needs of that population. We explained in the proposed rule that 
several institutions and associations such as the National Committee 
for Quality Assurance (NCQA) and AHRQ have made recommendations 
regarding evaluation of population health and diversity. 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. Given this broad range of available resources, 
we decline to develop a set of evaluation criteria to assess the health 
needs of an ACO's patient population.
    Comment: Commenters supported requiring ACOs to demonstrate 
processes to promote patient engagement relating to communicating 
clinical knowledge, shared decision making, and beneficiary access to 
medical records. Some commenters expressed concern that we were 
allowing too much latitude in defining these processes. These 
commenters recommended more guidance in areas where there is evidence 
of best practices. Comments also recommended that in order for the 
benefits of adherence to processes to promote patient engagement to be 
realized, patients and families need to be incentivized to actively 
participate in their own health care.
    Response: We believe it is important that ACOs retain the 
flexibility to establish processes that are best suited to their own 
practices and patient populations. Additionally, the very act of 
educating and engaging patients in the decision making processes 
associated with their own health care needs should sufficiently 
incentivize patients to actively engage in prospective treatment 
approaches in the light of their own values and convictions. Therefore, 
we decline to impose additional requirements in this area.
    Final Decision: To be eligible to participate in the Shared Savings 
Program, the ACO must define, establish, implement, and periodically 
update processes to promote patient engagement. In its application an 
ACO must describe how it intends to address all of the following areas: 
(a) Evaluating the health needs of the ACO's assigned population; (b) 
communicating clinical knowledge/evidence-based medicine to

[[Page 67829]]

beneficiaries; (c) beneficiary engagement and shared decision-making; 
and (d) written standards for beneficiary access and communication, and 
a process in place for beneficiaries to access their medical record. 
(Sec.  425.112).
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.'' We explained 
in the proposed rule that 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 stated that we expect ACOs to be able to monitor both 
costs and quality internally and to make appropriate modifications 
based upon their collection of such information.
    In our discussion of required clinical and administrative systems, 
we proposed that an ACO would have an infrastructure 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.
    We proposed 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.
    Comment: Several commenters suggested that we outline quality 
reporting requirements for the Shared Savings Program. Other commenters 
suggested that an ACO detail its plans to manage information technology 
(IT) use and to identify personnel responsible for IT.
    Response: As discussed previously, we believe it is important that 
ACOs retain the flexibility to establish processes that are best suited 
to their own practices and patient populations. Thus, consistent with 
the requirements under section 1899(b)(2)(G) of the Act, Shared Savings 
Program, we will require that ACOs provide documentation in their 
applications describing their processes to internally report on quality 
and cost measures in order to be eligible to participate in the Shared 
Savings Program.
    Comment: Some comments expressed concerns that, in rural settings, 
hospitals will not be able to address, achieve, and implement quality 
measures for patients with specific chronic conditions and that use of 
these hospitals will interrupt the relationship between patients and 
their respective specialty provider that are participating in the 
Shared Savings Program.
    Response: We believe that the Shared Savings Program provides new 
incentives for providers in rural areas to develop the means to report 
on cost and quality of their patients with chronic conditions in ways 
that benefit their patient population.
    Final Decision: We will finalize our proposal that to be eligible 
to participate in the Shared Savings Program, the ACO must define, 
establish, implement and periodically update its processes and 
infrastructure for its ACO participants and ACO providers/suppliers to 
internally report on quality and cost metrics to enable the ACO to 
monitor, provide feedback, and evaluate ACO participant and ACO 
provider/supplier performance and to use these results to improve care 
and service over time. (Sec.  425.112).
d. Processes To Promote Coordination of Care
    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.'' We explained in the proposed rule that 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.
    We also noted that 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 
place any restrictions that are not legally required on the exchange of 
medical records with providers who are not part of the ACO. We proposed 
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.
    In addition, the process to promote coordination of care includes 
the ACOs having systems in place to identify high-risk individuals and 
processes to develop individualized care plans for targeted patient 
populations. We proposed that an individualized care plan 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 with beneficiary consent, the care 
plan could be shared with the caregiver, family, and others involved in 
the beneficiary's care. An ACO would 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 requested comments on our proposal that ACOs be required to 
demonstrate the processes they have in place to use individualized care 
plans for targeted beneficiary populations in order to be eligible for 
the Shared Savings Program. We proposed that the individualized care 
plans should include identification of community and other resources to 
support the beneficiary in following the plan. We also stated that we 
believe that a process for integrating community resources into the ACO 
is an important part of patient-centeredness.
    For purposes of the application to participate in the Shared 
Savings Program, we proposed 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 proposed that ACOs 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 requested comment on 
these recommendations.
    Comment: Comments received acknowledged that requiring ACOs to 
define processes to promote coordination of care is vital to the 
success of the Shared Savings Program. Commenters stressed the 
importance of health information exchanges in coordination of care 
activities and recommended that CMS allow ACOs the flexibility to use 
any standards-based electronic care coordination tools that

[[Page 67830]]

meet their needs while other comments suggested that the proposed rule 
anticipated a level of functional health information exchange and 
technology adoption that may be too aggressive for deployment in 
January 2012.
    Response: We agree that ACOs should coordinate care between all 
types of providers and across all services. We also agree that health 
information exchanges are of the utmost importance for both effective 
coordination of care activities and the success of the Shared Savings 
Program. We understand that there will be variable ability among ACOs 
to adopt the appropriate health information exchange technologies, but 
underscore the importance of robust health information exchange tools 
in effective care coordination. Additionally, as discussed in the 
Agreement section of this regulation, we will allow for two start dates 
in the first year of the agreement period. These additional start dates 
will provide an ``on ramp'' for all ACOs to get the appropriate health 
information exchanges in place before they enter the program.
    Comment: Commenters supported our proposal to require an ACO 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. Several comments recommended that CMS make 
a stronger case for the need to integrate community resources into the 
individualized care plans by requiring that ACOs have a contractual 
agreement in place with community-based organizations.
    Response: Although we agree with comments that the integration of 
community resources into the individualized care plans is important to 
the concept of patient-centeredness, we also believe it is important to 
afford ACOs the flexibility to accomplish this requirement in a manner 
that is most suited to their patient population.
    Final Decision: We will finalize our proposal requiring ACOs to 
define their care coordination processes across and among primary care 
physicians, specialists, and acute and post acute providers. The ACO 
must also define its methods to manage care throughout an episode of 
care and during its transitions. The ACO must submit a description of 
its individualized care program as part of its application 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. The ACO should also describe additional 
target populations that would benefit from individualized care plans. 
In addition, we will finalize our proposal that ACOs describe how they 
will partner with community stakeholders as part of their application. 
ACOs that have stakeholder organizations serving on their governing 
body will be deemed to have satisfied this requirement. (Sec.  
425.112).
6. Overlap With Other CMS Shared Savings Initiatives
a. Duplication in Participation in Medicare Shared Savings Programs
    The statute includes a provision that precludes duplication in 
participation in initiatives involving shared savings. 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) of the 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.''
    In the proposed rule, we identified several programs or 
demonstrations that we believed included a shared savings component and 
would be considered duplicative. Specifically, we identified the 
Independence at Home Medical Practice Demonstration program, Medicare 
Health Care Quality (MHCQ) Demonstration Programs, Multipayer Advanced 
Primary Care Practice (MAPCP) demonstration, and the PGP Transition 
Demonstration. We also recognized that additional programs, 
demonstrations, or models with a shared savings component may be 
introduced in the Medicare program in the future. We recommended that 
interested parties check our Web site for an updated list.
    We further noted that the prohibition against duplication in 
participation in initiatives involving shared savings applies only to 
programs that involve shared savings under Medicare. Providers and 
suppliers wishing to participate in the Shared Savings Program would 
not be prohibited from participating if they are also participating in 
demonstrations and initiatives established by the Affordable Care Act 
that do not involve Medicare patients or do not involve shared savings, 
such as State initiatives to provide health homes for Medicaid 
enrollees with chronic conditions as authorized under section 2703 of 
the Affordable Care Act.
    As we explained in the proposed rule, we believe a principal reason 
underlying the prohibition against participation in multiple 
initiatives involving shared savings is to prevent a provider or 
supplier from being rewarded twice for achieving savings in the cost of 
care provided to the same beneficiary. 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 
initiatives involving shared savings, we do not believe it is 
appropriate to extend this prohibition to individual providers and 
suppliers. Accordingly, an ACO provider/supplier who submits claims 
under multiple Medicare-enrolled TINs may participate in both the 
Shared Savings Program under one ACO participant TIN and another shared 
savings program under a different non-ACO participant TIN if the 
patient population is unique to each program.
    Finally, we proposed 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 proposed to compare the 
participating TINs in the program or demonstration with those 
participating 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 receive care, but uses 
an alternate beneficiary assignment methodology, we proposed working 
with the developers of the respective demonstrations and initiatives to 
devise an appropriate method to ensure no duplication in shared savings 
payment. We proposed that applications to the Shared Savings Program 
that include TINs that are already participating in another program or 
demonstration involving shared savings would be rejected.

[[Page 67831]]

    Comment: Commenters generally requested clarification on what 
programs and demonstrations would be considered overlapping and 
disqualifying for participating in the Shared Savings Program. Some 
commenters asked CMS to confirm that initiatives such as the New Jersey 
gain sharing demonstration are not considered to overlap with the 
Shared Savings Program. Another commenter asked CMS for an official 
opinion whether the MHCQ demonstrations, specifically, the Indiana 
Health Information Exchange (IHIE) demonstration and the North Carolina 
Community Care Network, and an ACO could coexist and, if so, how CMS 
would calculate the shared savings.
    Several commenters requested that CMS remove the MAPCP 
demonstration from the initiatives in which ACOs may not participate 
pointing out that the demonstration is not for shared savings, but 
rather one that is restricted to explicit payment for care coordination 
services to medical/health care homes. One commenter stated that it is 
possible to account for costs and payments in MAPCP and in an ACO so 
that CMS does not reward the same savings more than once.
    Some commenters asked CMS to provide guidance on whether 
participation in other value-based purchasing initiatives or 
demonstrations that do not involve shared savings, such as the 
Community-Based Care Transitions Programs, Hospital Value-Based 
Purchasing Programs, bundled payment programs, Maryland's all-payer 
waiver, or other Innovation Center initiatives, would overlap with the 
Shared Savings Program. Other commenters wondered whether organizations 
participating in State shared savings initiatives involving Medicaid or 
dually eligible beneficiaries would be ineligible to participate in the 
Shared Savings Program. One commenter requested a comprehensive list of 
initiatives involving shared savings for which there would be overlap.
    Response: We have determined there are several ongoing 
demonstrations involving shared savings that would be considered 
overlapping. We have determined that currently two of the MHCQ 
demonstration programs, the IHIE and North Carolina Community Care 
Network (NCCCN), involve shared savings payments for a Medicare 
population, therefore, providers and suppliers who participate in the 
IHIE and NCCCN will not be permitted to also participate in the 
Medicare Shared Savings Program. However, once a Medicare enrolled TIN 
completes its participation in the IHIE or NCCCN, it may apply for the 
Shared Savings Program and would no longer be prohibited from 
participation because of duplication.
    At the time of publication of the proposed rule, the MAPCP 
demonstration offered several different payment arrangements to 
participating providers. Since then, we selected the States of Maine, 
Vermont, New York, Rhode Island, Pennsylvania, North Carolina, 
Michigan, and Minnesota for the MAPCP Demonstration. To the extent that 
any of the participating providers have chosen a shared savings 
arrangement, participation in both MAPCP and the Shared Savings Program 
will be prohibited. MAPCP participants who do not have shared savings 
arrangements under the demonstration would not be prohibited from 
participating in the Shared Savings Program.
    Subsequent to publication of the proposed rule, we have determined 
that the Care Management for High-Cost Beneficiaries Demonstrations 
authorized by 42 U.S.C. 1395b-1 is also a shared savings program, as 
well as the Pioneer ACO Model.
    After due consideration, we have determined that providers would be 
able to participate in both the Medicare Shared Savings Program and 
programs that focus on the integration of the Medicare and Medicaid 
programs for dually eligible individuals, specifically, State 
initiatives to integrate care for dually eligible individuals announced 
recently by the Medicare-Medicaid Coordination Office in partnership 
with the Innovation Center. Due to the unique design of these 
demonstrations as well as the relationship of States with providers in 
the Medicaid program, it is not necessary or reasonable to prohibit 
involvement in both programs. However, we will work closely with 
providers and States to prevent duplication of payment. Furthermore, we 
have also determined that demonstrations that do not involve shared 
savings, such as the New Jersey gain sharing demonstration and others 
would not be considered overlapping for purposes of participation in 
the Shared Savings Program.
    Comment: We received several comments regarding transitions from 
demonstrations to the Shared Savings Program. A member organization of 
the IHIE thanked CMS for acknowledging the demonstration as a 
worthwhile project. The commenter wrote that it would be 
counterproductive to halt the MHCQ demonstration after substantial 
investment in that program to make it a success, especially since the 
goals of the program and ACOs are consistent.
    One commenter indicated that the potential transition from the IHIE 
demonstration to the Shared Savings Program may be difficult because of 
the asynchronous performance years under the two programs. Several 
other commenters wrote in support of transitioning North Carolina's 646 
demonstration program into an ACO and reported that Community Care of 
North Carolina is already taking steps to establish a North Carolina 
Accountable Care Collaborative. A commenter suggested that CMS clarify 
at what point a Medicare-enrolled TIN previously involved in another 
shared savings would be eligible for participation in an ACO under the 
Shared Savings Program.
    Response: We recognize that our initiatives may have different 
lengths of agreement periods or different start and end dates. In the 
Shared Savings Program, we sought to align with many programs that 
function on a calendar year basis, such as the Physician Quality 
Reporting System (PQRS). We do not believe this proposal should disrupt 
ongoing participation in other shared savings initiatives, and we 
encourage participants in ongoing demonstrations to complete the term 
of their agreement before entering the Shared Savings Program. We 
recognize that not all programs and demonstrations operate on a 
calendar year basis and that, as a result, there may be some providers 
and suppliers who will have gaps in time from the end of one program or 
demonstration to the beginning of participation in another. An entity 
must have terminated its involvement with another shared savings 
program prior to participation in the ACO Shared Savings Program. After 
an organization with a Medicare-enrolled TIN concludes an overlapping 
shared savings demonstration, its application to the Shared Savings 
Program would not be denied on the basis of duplication.
    Comment: Several commenters suggested that the restriction against 
participation in multiple initiatives involving shared savings would 
potentially stifle creation of other leading-edge initiatives that are 
well-aligned with best practices for patient quality of care. One 
commenter stated that CMS should not deter ACOs from investing in other 
delivery system innovations such as patient-centered medical homes and 
healthcare innovation zones that share objectives. One commenter asked 
if an ACO might not receive all of the potential savings if the 
organization or the same patients are also participating in another 
shared savings program. If so, the commenter

[[Page 67832]]

believed that this would be a significant deterrent to participation 
because an organization would have to decide between Shared Savings 
Program and other Innovation Center initiatives. Another commenter 
encouraged CMS, if it finds that the statute is creating too many 
barriers to entry for interested providers and suppliers, to approach 
Congress to request that the restriction be eased. One commenter 
suggested that the Secretary should consider a mechanism to provide 
waivers to organizations that are especially well-suited to innovation 
in care delivery and that could provide substantial benefit to CMS to 
permit participation in multiple projects or trials. A commenter 
questioned if there are multiple TINs in a system, whether one TIN can 
participate in the Shared Savings Program and another in an Innovation 
Center program for example, the independence at home project, the State 
option to provide health homes and the use of community health teams. 
Several commenters recommended that for groups with multiple companies 
or subsidiaries, the separate divisions should be permitted to 
simultaneously seek ACO contracts.
    One commenter suggested that to ensure broad participation by 
Medicare providers and suppliers, CMS should read section 1899(b)(4) of 
the Act more narrowly than CMS has proposed. At a minimum, CMS should 
only restrict ACO participants from also participating in a program or 
demonstration project that is primarily intended to share savings. CMS 
should not read section 1899(b)(4) of the Act to preclude a provider or 
supplier's participation in an ACO by virtue of the fact that the 
provider or supplier is also participating in another program that 
incidentally makes payments based on cost reductions.
    Another commenter stated that if a particular ACO provider/supplier 
only bills Medicare under one TIN, as is the case for some physician 
groups and other suppliers, and the TIN is an ACO participant, that 
individual ACO provider/supplier would be unable to participate in any 
other initiatives involving shared savings. This commenter suggested 
the prohibition would prevent such a group from successfully 
coordinating the care of Medicare beneficiaries who are not assigned to 
the ACO under the Shared Savings Program but are assigned to an 
organization under another shared savings model.
    Response: We believe there is opportunity for providers and 
suppliers to participate in multiple complementary initiatives. 
However, the statute clearly states that a provider that participates 
in any other program or demonstration project that involves shared 
savings under Medicare is ineligible to participate in an ACO under the 
Shared Savings Program. We believe our operational definition of an ACO 
as a collection of Medicare enrolled TINs, combined with our assignment 
methodology, discussed in section II.E of this final rule, helps ensure 
a unique patient population to an ACO on the basis of services billed 
by the ACO participant TINs. We recognize that health systems may be 
comprised of multiple TINs that bill Medicare. It may be appropriate 
for some of those TINs to apply to participate in the Shared Savings 
Program while others do not. We believe organizations should have 
flexibility to determine what TINs join together to form an ACO.
    To ensure that a provider or supplier is rewarded only once with 
shared savings for the care of a beneficiary, we proposed that an ACO 
participant TIN 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 initiatives involving shared 
savings, we do not believe it is appropriate to extend this prohibition 
to individual providers and suppliers. 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 non-ACO 
participant TIN since there would be no duplication in beneficiary 
assignment; and therefore, no duplication in shared savings.
    We believe our proposal identifying ongoing CMS initiatives that 
involve shared savings meets both the letter and spirit of the 
statutory prohibition against duplication of participation in 
initiatives involving shared savings. Furthermore, we do not believe 
the fact that the stated goal of a particular program is something 
other than to achieve shared savings lessens the potential for 
duplication in payment for the same beneficiaries or changes the 
applicability of the statutory prohibition against duplicative 
participation when the incentive for participation in the other program 
is the provision of shared savings. As noted previously, in developing 
our proposed policy, we carefully considered currently implemented 
programs and sought to provide as much flexibility as possible to 
potential Shared Savings Program participants while also ensuring there 
is no duplication in payments for savings achieved for the same 
Medicare beneficiaries.
    Further, we disagree with the conclusion that the prohibition 
against participating in duplicative initiatives involving shared 
savings would prevent a practice or an individual practitioner that 
bills under a single TIN from successfully coordinating the care of 
Medicare beneficiaries who are not assigned to the ACO under the Shared 
Savings Program but are assigned to an organization under another 
shared savings model. We believe that the Shared Savings Program 
assignment methodology, described in detail in section II.E of this 
final rule, provides an incentive for participating providers and 
suppliers to redesign care delivery to all their Medicare FFS 
beneficiaries.
    Finally, we note, as explained in section II.E of this final rule, 
that certain Shared Savings Program ACO participants have the 
opportunity to participate in more than one Medicare Shared Savings 
Program ACO, as long as assignment of beneficiaries is not dependent on 
the ACO participant TIN. We believe that participation in more than one 
ACO within the Shared Savings Program is separate and distinct from 
participating in multiple Medicare shared savings initiatives, and 
therefore would not be subject to the statutory prohibition.
    Comment: Many commenters suggested that CMS allow participation in 
multiple initiatives involving shared savings provided that such 
participation does not result in double counting achieved savings and 
providing that the same patients are not assigned to both 
demonstrations, for example, some large health systems suggested they 
should be able to participate in multiple programs so long as CMS 
ensures they are not being paid twice for the same care to the same 
patient. A commenter encouraged CMS to consider ways to prevent 
duplicative payments based on the beneficiary identification so that a 
provider or supplier to whom a particular beneficiary is assigned is 
only rewarded once for that beneficiary.
    Response: We believe our proposed methodology ensures no 
duplication in payment while adequately allowing provider flexibility. 
Further, the law states that a provider may not

[[Page 67833]]

participate in this program if they are already participating in 
another shared savings program, so for purposes of determining 
eligibility to participate in the Shared Savings Program, we will 
review the ACO participant TINs submitted on the application of a 
prospective ACO and determine whether or not those TINs are already 
participating in another shared savings program. Applications that have 
such an overlap will be rejected. Furthermore, despite this precaution, 
because assignment methodologies may differ from program to program, as 
noted previously in the case of the Pioneer ACO Model, we will work 
with other initiatives involving shared savings and demonstrations to 
prevent duplicative payments based on beneficiary identification where 
necessary. We would note that while participation in some 
demonstrations, for example, the Bundled Payment for Care Improvement 
Initiative, would not exclude ACO participants from participating in 
the Shared Savings Program, it is our intention to ensure duplicative 
payments are not being made within the design of the demonstration.
    Comment: A few commenters requested clarification that this 
prohibition does not apply to providers and suppliers upon whom 
assignment cannot be based or to non-Medicare enrolled participants.
    Response: We disagree that ACO participants upon whom assignment is 
not based may participate in multiple initiatives involving shared 
savings. We read section 1899(b)(4) of the Act to direct us to ensure 
that ACO participants are not also participating in another initiative 
involving shared savings. Furthermore, such an interpretation would be 
inconsistent with the intent of the law, which is to avoid duplicate 
incentive payments across initiatives. However, within the Shared 
Savings Program itself, we are able to prevent duplicate payments by 
ensuring unique assignment to each ACO. As described in section II.E of 
this final rule, ACO participants upon whom assignment is not based 
would have the opportunity to participate in more than one Medicare 
Shared Savings Program ACO, that is, they would not be required to be 
exclusive to a single Medicare Shared Savings Program ACO. In response 
to specific requests for clarification, we note that these final rules 
apply only to Medicare enrolled ACO participants and ACO providers/
suppliers. They do not apply to providers and suppliers that are not 
enrolled in Medicare.
    Comment: A commenter questioned whether a provider or supplier, for 
example, a pharmacy, could fill prescriptions and provide health 
screenings for more than one ACO.
    Response: We appreciate this question; however, we are unclear 
exactly what the commenter is asking. That is, it is unclear whether 
the commenter is wondering whether they can participate in more than 
one Medicare ACO or whether they are asking if, once in an ACO, the 
services they render would be limited to ACO assigned beneficiaries. We 
stress that the Medicare Shared Savings Program is not a managed care 
program and as such does not require lock in of beneficiaries nor does 
it require a participating provider or supplier to reassign their 
billing to the ACO or render services only on behalf of the ACO or only 
to beneficiaries assigned to the ACO. Medicare enrolled providers and 
suppliers that are participating in an ACO or whose beneficiaries are 
assigned to an ACO would continue to care for their beneficiaries and 
bill Medicare for services rendered under FFS as usual.
    However, for purposes of participation in the program, as described 
in more detail in section II.E of this final rule, ACO participants 
upon whom assignment is based must be exclusive to a single ACO. So 
providers and suppliers who do not bill for primary care services and 
upon whom assignment is not based, including pharmacies, would have the 
opportunity to participate in multiple ACOs in the Shared Savings 
Program.
    Final Decision: We have identified several current initiatives in 
which ACO participants receive shared savings such that they would be 
prohibited from participation in the Shared Savings Program: 
Independence at Home, the MHCQ IHIE and NCCCN demonstrations, MAPCP 
arrangements involving shared savings, PGP Transition demonstration, 
the Care Management for High-Cost Beneficiaries Demonstrations, and the 
Pioneer ACO Model through the Innovation Center. We recognize, however, 
that there may be other demonstrations or programs that will be 
implemented or expanded as a result of the Affordable Care Act, some in 
the near future. We will update our list of duplicative shared savings 
efforts periodically to inform prospective Shared Savings Program 
participants and as part of the application.
    Additionally, we are finalizing our proposal to implement 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. Specifically, applications for participation in the 
Shared Savings Program will be reviewed carefully to assess for 
overlapping TINs. TINs that are already participating in another 
Medicare program or demonstration involving shared savings will be 
prohibited from participating in the Medicare Shared Savings Program. 
An ACO application that contains TINs that are already participating in 
another Medicare program or demonstration involving shared savings will 
be rejected.
    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 receive care, but uses an alternate 
beneficiary assignment methodology, we will work with the developers of 
the respective demonstrations and initiatives to devise an appropriate 
method to ensure no duplication in shared savings payment. For example, 
billing TINs who are participating in the Pioneer ACO Model would be 
prohibited from also participating in the Shared Savings Program. 
Additionally, since the Pioneer ACO Model may begin before the Shared 
Savings Program and assigns beneficiaries prospectively, we will work 
with the Innovation Center to ensure no beneficiaries used to determine 
shared savings are assigned to both (Sec.  425.114).
b. Transition of the Physician Group Practice (PGP) Demonstration Sites 
Into the Shared Savings Program
    The PGP demonstration, authorized under section 1866A of the Act, 
serves as a model for many aspects of the Shared Savings Program. The 
Affordable Care Act provided authority for the Secretary to extend the 
PGP demonstration. On August 8, 2011 we announced the PGP Transition 
Demonstration which will follow many of the same parameters from the 
original PGP Demonstration, with some modifications. The modifications 
include: shifting spending benchmarks to the national rather than 
regional level, aligning beneficiaries first with primary care 
physicians (PCPs) and then specialists, and implementing a patient 
experience of care survey. All 10 PGP demonstration participants have 
agreed to participate in the PGP Transition Demonstration.
    As discussed 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

[[Page 67834]]

demonstration. Thus, the PGP sites will not be permitted to participate 
concurrently in the Shared Savings Program. 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.
    In the proposed rule, we discussed an appropriate transition in the 
event that a PGP site decides to apply for participation to the Shared 
Savings Program. We proposed to 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.
    Comment: One commenter noted they thought that several innovative 
health care systems such as PGP demo sites have indicated that they 
will forego applying to the Shared Savings Program but would instead 
``apply for funding'' through the Innovation Center.
    Response: We recognize there are many opportunities for 
organizations to participate in our programs involving shared savings 
as well as other Affordable Care Act demonstrations. We are pleased 
that all 10 of the original PGP demonstration sites have contracted to 
participate in the PGP Transition Demonstration which implements many 
of the same policies as the Shared Savings Program.
    Final Decision: We are finalizing our proposals without change 
(Sec.  425.202).
c. 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, 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.
    The Innovation Center has recently implemented or is exploring 
several ACO-related initiatives:
     Pioneer ACO Model--announced in a May 17, 2011 Request for 
Application.
     Accelerated development learning sessions (ADLS)--to 
provide the executive leadership teams from existing or emerging ACO 
entities the opportunity to learn about essential ACO functions and 
ways to build capacity needed to achieve better care, better health, 
and lower costs through improvement.
     Advance Payment Model--Subsequent to the publication of 
the proposed rule, the Innovation Center sought comment on providing an 
advance on the shared savings ACOs are expected to earn as a monthly 
payment for each preliminarily prospectively assigned Medicare 
beneficiary.
    As discussed previously, section 1899(b)(4) of the Act restricts 
providers of services and suppliers from participating in both the 
Shared Savings Program and other Medicare 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 Medicare shared savings models tested by the Innovation 
Center. Similarly, we will also take steps to ensure there is a 
methodology to avoid duplication of shared savings 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.
    Further, we are looking forward to applying lessons learned in the 
Pioneer ACO Model that can help inform changes to the Shared Savings 
Program over time.
    Comment: Many commenters were supportive of the purpose of the 
Innovation Center, the concept of the Advance Payment Model, and the 
Pioneer Model ACO demonstration. Commenters applauded the use of 
lessons learned in the Pioneer program to inform the Shared Savings 
Program and noted that the Pioneer model may effectively test 
innovative models that may be more effective for certain types of 
providers. Some commenters made specific suggestions for improvement of 
the Pioneer model.
    Response: We appreciate the feedback, and have passed specific 
suggestions for improvements to the Pioneer ACO Model on to the 
Innovation Center.
    Comment: A number of commenters expressed concerns about the 
upfront costs to participate and urged CMS to address the need for 
startup funding in the final rule.
    Many commenters were generally supportive of providing advanced 
payments to ACOs through the Innovation Center. These commenters 
suggested that advance payments would make program participation more 
attractive to many ACOs, particularly those comprised of networks of 
smaller practices, providers that operate on small margins, or 
hospitals in specific regions of the country. Several commenters 
suggested that financial support from a program such as the Advance 
Payment Models alone may be insufficient to allay the very high startup 
costs for ACOs. Some suggested direct capital support was necessary and 
suggested alternatives to the Advance Payment Model. Some commenters 
asked for clarification or offered suggestions on specific aspects of 
the initiative, such as the structure of the incentive or eligibility 
criteria.
    Many urged CMS to provide upfront capital support to ACOs to defray 
start-up and operational expenses and to encourage participation, and 
some suggested that based on PGP data, ACOs may require more than three 
years to recoup their start up investment. Several commenters concurred 
with the need for robust health information technology (HIT) in ACOs 
but stated that acquisition costs create a substantial barrier to 
physician ACOs. Numerous commenters urged CMS to create additional ways 
to help finance physicians' acquisition of HIT. Several explained that 
shared savings alone will not assist practices with upfront costs nor 
provide assurance that they will recover their initial investments and 
that, as a result, transitional models are needed. A few commenters 
noted that providers should not have to divert resources to two similar 
initiatives (for example, electronic health records incentives and 
shared savings) with only technical differences. Groups identified by 
commenters that may be

[[Page 67835]]

especially challenged by the upfront costs of ACO formation and 
operations include: Private primary care practitioners, small to medium 
sized physician practices, small ACOs, MAPCP demonstration programs, 
minority physicians and physicians who see minority patients, safety 
net providers (that is, RHCs, CAHs, FQHCs, community-funded safety net 
clinics (CSNCs)), rural providers (that is, Method II CAHs, rural PPS 
hospitals designated as rural referral centers, sole community 
hospitals or Medicare dependent hospitals), and rural primary care 
providers. A few commenters suggested that CMS offer special funding or 
access to capital through grants or no-interest loans for ACOs formed 
by rural and safety-net providers, or other providers, such as home 
health or hospice providers, to enhance participation of these groups 
in the Shared Savings Program. A commenter suggested that CMS offer a 
rural primary care provider incentive, such as an enhanced FFS payment 
or other payment methods (for example, partial capitation), for joining 
a Medicare ACO to help fund the infrastructure requirements of a 
Medicare ACO, buffer risk, and stimulate further participation.
    Some commenters made specific suggestions for offsetting costs to 
the ACO, for example, a number of comments recommended that the final 
rule provide an additional financial incentive for the collection and 
reporting of patient satisfaction data or other quality data.
    On the other hand, some commenters noted that many high quality 
organizations are likely to have already made the capital investments 
to achieve high quality and efficient care delivery, and are therefore 
poised to become ACOs.
    Response: We recognize that a real commitment to improving care 
processes for Medicare beneficiaries will require financial investment 
on the part of the ACO, ACO participants, and ACO providers/suppliers. 
The Shared Savings Program is designed to provide an incentive for ACOs 
demonstrating high quality and improved efficiencies. We have passed 
along comments related to Advance Payment to our colleagues in the 
Innovation Center.
    In this final rule, we have made significant changes to reduce 
burden on participants and improve the opportunity to share in savings. 
In section II.F. of this final rule, we note our intent to provide 
funding for the patient experience of care survey for 2012 and 2013, 
providing early adopters with additional upfront assistance. In section 
II.G (shared savings/losses) of this final rule, we describe changes to 
the financial model that benefit Shared Savings Program participants 
such as removal of the 25 percent withhold, removal of the net 2 
percent requirement so that ACOs may share from first dollar savings 
once the MSR is overcome, and an increase to the shared savings cap. 
Additionally, in response to comments, we are reducing the claims run 
out period from 6 to 3 months, allowing for earlier payment of shared 
savings. Finally, in section II.C. (Agreement) of this final rule, we 
discuss lengthening the agreement period for early adopters. Moreover, 
as noted, the Innovation Center is considering an Advance Payment model 
for certain ACOs, which would test whether pre-paying a portion of 
future shared savings could increase participation in the Shared 
Savings Program.
    Finally, we note there are also other public and private options to 
offset start up costs such as financing arrangements, grants from non-
profit and existing government sources, as well as savings from non-
Medicare patient populations. Other CMS initiatives, such as the EHR 
Incentive Program, provide incentives for HIT adoption. Potential 
participants will want to consider all options available.
    Comment: Several commenters suggested that CMS provide technical 
assistance to certain ACOs such as those comprised of safety net 
providers, or physician-only ACOs, or to ACOs in general.
    Response: In addition to ongoing technical assistance provided for 
specific program activities, such as quality measures reporting, we 
will consider ways in which additional assistance can be provided to 
Shared Savings Program ACOs. We note that the Innovation Center has 
held several well-received ADLS sessions designed to provide the 
executive leadership teams from existing or emerging ACO entities the 
opportunity to learn about essential ACO functions and ways to build 
capacity needed to achieve better care, better health, and lower costs 
through improvement. We will also explore other opportunities to assist 
Shared Savings Program ACOs.
    Final Decision: We are finalizing our proposal to exclude Pioneer 
ACO Model participants from participation in the Shared Savings 
Program. Additionally, since the Pioneer ACO Model may begin before the 
Shared Savings Program and will and assign beneficiaries prospectively, 
we will work with the Innovation Center to ensure no beneficiaries used 
to determine shared savings are assigned to both (Sec.  425.114).

C. Establishing the Agreement With the Secretary

1. Options for Start Date of the Performance Year
    Section 1899(a)(1) of the Act requires the Shared Savings Program 
to be established ``not later than January 1, 2012''. This final rule 
establishes the Shared Savings Program. We will start accepting 
applications from prospective ACOs shortly after January 1, 2012. For 
information on the application process, please see our Notice of Intent 
which will appear shortly after publication of this final rule at 
https://www.cms.gov/sharedsavingsprogram/.
    Section 1899(b)(2)(B) of the 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 * * *'' Section 
1899(d)(1) of the 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 applicable quality performance standards and achieved 
the requisite savings. 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 agreement periods.
    In the proposed rule we considered several options for establishing 
the start date of the agreement period: annual start dates; semiannual 
start dates; rolling start dates; and delayed start dates. Adopting an 
annual application period and start date would create cohorts of ACO 
applicants, which would allow for more streamlined processes related to 
evaluation of applications, agreement renewals, and performance 
analysis, evaluation, and monitoring. However, 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 
considered allowing applicants to apply throughout the course of the 
year as they become ready and we could review and approve applications 
and begin agreement periods on a rolling basis. We noted however that, 
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.E.3. of this final rule, we proposed that beneficiaries

[[Page 67836]]

would 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. Additionally, 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.
    After evaluating various options for start dates, we proposed 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 proposed that the 
performance years would be based on the calendar year to be consistent 
with most CMS payment and quality incentive program cycles. 
Specifically, we proposed that: (1) ACO applications must be submitted 
by a deadline established by us; (2) we would review the applications 
and approve those from eligible organizations prior to the end of the 
calendar year; (3) the term of the participation agreement (``agreement 
period'') would begin on the January 1 following approval of an 
application; and (4) the ACO's performance years under the agreement 
would begin on January 1 of each year during the agreement period. 
Given our concern regarding the short time frame for implementing the 
Shared Savings Program in the first year of the program, we solicited 
comment on any alternatives to a January 1 start date for the first 
year of the Shared Savings Program, such as an additional start date of 
July 1, and allowing the term of the agreement for ACOs with a July 1, 
2012 start date to be increased to 3.5 years. Under this example, the 
first performance ``year'' of the agreement would be defined as 18 
months in order that all of the agreement periods would synchronize 
with ACOs entering the program on January 1, 2013. We proposed that if 
adopted, this alternative would only be available in the first year of 
the program and for all subsequent years applications would be reviewed 
and accepted prior to the beginning of the applicable calendar year and 
the term of all subsequent agreements would be for 3 years.
    Comment: We received several comments that expressed concerns about 
the feasibility of a January 1, 2012 start date. Commenters were 
concerned about the ability of potential ACOs to organize, complete, 
and submit an application in time to be accepted into the first cohort 
as well as our ability to effectively review applications by January 1, 
2012. Comments suggested that only well organized and larger integrated 
health care systems would be able to meet the January 1, 2012 start 
date. Alternatively, comments suggested that the January 1 start date 
would preclude most small and rural health care systems from being able 
to participate in the Shared Savings Program. The majority of comments 
requested a delayed start date or offered support for a July 1 start 
date for the first year of the program. There were also some comments 
that requested a 1 or 2 year delay in the start date of the program to 
allow prospective ACOs the opportunity to build their infrastructure. 
There were a few comments that requested that we accept applications on 
a ``rolling'' basis, allowing greater flexibility for the first year.
    Response: We agree with the comments requesting additional 
flexibility in the start date of the Shared Savings Program. Therefore, 
based upon public comment, we will provide for two application periods 
for the first year of the Shared Savings Program whereby we will accept 
applications for an April 1, 2012 or July 1, 2012 start date. All ACOs 
that start in 2012 will have agreement periods that terminate at the 
end of 2015. We will provide sub-regulatory guidance to ACOs on the 
deadlines by which applications must be received in order to be 
considered for each respective start date.
    We summarize the application of our final policy as follows:
    ACO starts April 1, 2012: First performance year is 21 months, 
ending on December 31, 2013. Agreement period is 3 performance years, 
ending on December 31, 2015.
    ACO starts July 1, 2012: First performance year is 18 months, 
ending on December 31, 2013. Agreement period is 3 performance years, 
ending on December 31, 2015.
    Under this final rule, ACOs will begin receiving data immediately 
upon entry to the program (historical and quarterly aggregate reports 
along with rolling information on their preliminary prospective 
assigned beneficiary population as described in section II.D. of this 
final rule). After completing its first performance year, the ACO will 
be evaluated on its performance on the ACO quality metrics and a shared 
savings payment will be calculated. All ACOs will be eligible to 
receive the PQRS incentive payments for each calendar year in which 
they fully and completely report the Group Practice Reporting Option 
(GPRO) measures, regardless of their start date. This will provide ACOs 
that join the program in April or July 2012 with some working capital 
in advance of the completion of the first ACO performance year, 
regardless of their ability to generate shared savings.
    We believe this approach fulfills several desirable goals for the 
program including: (1) Establishment of the program by January 1, 2012; 
(2) flexibility for newly formed ACOs to apply when ready; (3) a 
partial year on-ramp for ACOs to gain experience with understanding the 
assigned population through receipt of data reports and to gain 
experience in reporting measures using the PQRS GPRO tool before 
entering into a period of performance assessment; and (4) assurance 
that no beneficiary will be double-counted for purposes of establishing 
ACO performance when there is more than one ACO in a geographic region.
    Comment: We received several comments requesting that we expand the 
agreement period. The majority of the comments surrounding the 
agreement period specifically requested that the agreement period be 
expanded to 5 years. The general consensus among comments was that a 3-
year agreement period is too short and highlights the fact that the 
significant capital costs and the need to marshal necessary resources 
(for example, information technology infrastructure and appropriate 
management and leadership personnel) make success, in terms of savings, 
difficult in the early years, if not the entire proposed 3 year term. 
Comments suggested a 3-year agreement period, combined with our 
proposal to prohibit future participation of underperforming ACOs or 
participants after the original term of the agreement has lapsed, works 
against the small and rural markets that do not have the necessary 
basics in place to the same extent as larger more integrated health 
care systems. Commenters stated that the proposed 3-year agreement 
period increases the risk of loss before any chance of reward is 
available.
    Even those few comments that offered support for a 3-year agreement 
period recommended that ACOs should be able to withdraw from that 
agreement without penalty due to the challenges associated with 
realizing savings in a 3-year agreement.
    Response: As discussed previously, and based upon the review of 
public

[[Page 67837]]

comments, we will extend the agreement period to include an extended 
agreement for those ACOs beginning on April 1, 2012 and July 1, 2012. 
We believe that extending the agreement period allows for those ACOs 
that are ready to begin their agreement on April 1, 2012 and July 1, 
2012 will provide an on-ramp for organizations to gain experience with 
measures reporting and data evaluation in the early part of the 
program. As discussed in Section II.G. of this final rule, we are not 
finalizing our proposal to require a 25 percent withhold of any shared 
savings realized to offset any future losses or to be forfeited if an 
ACO fails to complete the terms of its agreement.
    Final Decision: As specified in Sec.  425.200, for the first year 
of the Shared Savings Program (CY 2012), ACOs will be afforded the 
flexibility to submit to begin participation in the program on April 1 
(resulting in an agreement period of 3 performance years with the first 
performance year of the agreement consisting of 21 months) or July 1 
(resulting in an agreement period of 3 years with the first performance 
year of the agreement consisting of 18 months). During all calendar 
years of the agreement period, including the partial year associated 
with both the April 1, 2012 and July 1, 2012 start dates, the eligible 
providers participating in an ACO that meets the quality performance 
standard but does not generate shareable savings will qualify for a 
PQRS incentive payment (as described in sections II.F. of this final 
rule and Sec.  425.504).
2. Timing and Process for Evaluating Shared Savings
    Section 1899(d)(1) of the 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 were 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 between when the claim 
is received by us and when the claim is paid.
    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 claims 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 
proposed to work with our Office of the Actuary to determine if the 
calculation of a completion percentage would be warranted. We proposed 
that 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 use the most accurate 
and complete claims data as possible 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 considered and sought 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 in cases where the ACO has been found to be holding claims 
back, or attributing claims submitted after the run-out period to the 
following performance year.
    We proposed using a 6-month claims run-out period to calculate the 
benchmark and per capita expenditures for the performance year. A 6-
month claims run-out would allow for a slightly more accurate 
determination of the per capita expenditures associated with each 
respective ACO; however, it would also delay the computation of shared 
savings payments and the provision of feedback to participating ACOs. 
We also sought comment on whether there are additional considerations 
that might make a 3-month claims run-out more appropriate.
    Comment: Most of the comments received on this proposal supported a 
3-month claims run-out period. Several other comments focused on the 
fact that ACOs will require significant start up investments to provide 
adequate infrastructure. These comments suggest that the shorter the 
turnaround period for feedback on both quality metrics and shared 
savings reconciliation, the more likely that cash flow distortions 
would not be created and the better the opportunity that ACOs will be 
able to continue to operate. We received no comments that supported a 
6-month claims run-out.
    Response: As discussed previously, our initial analysis of this 
policy focused on balancing the need for timely feedback and the 
benefits of utilizing the most complete data in calculating both the 
quality metrics and the shared savings reconciliation. Based upon our 
review of the proposal and the input of public comments, we feel that 
the minimal increased accuracy associated with 6 months of claims run-
out does not justify the additional delay in the provision of quality 
metrics feedback and shared savings reconciliation. We agree that ACOs 
should receive quality metric feedback as soon as possible so they can 
focus their activities on potential problem areas. Additionally, public 
comments have made it clear that a 3-month run-out of claims data, 
especially in the first year of the agreement, would aid in ensuring 
success for ACOs by allowing ACOs to offset the initial start up costs 
which would in turn allow the ACOs to remain financially viable. We 
agree with the comments that the decrease in the accuracy of the actual 
data between 6-

[[Page 67838]]

months of claims run-out and 3-months of claims run-out can be 
mitigated by the application of a completion percentage and should not 
delay the delivery of either the feedback on quality metrics or the 
reconciliation of any shared savings realized.
    Final Decision: Based upon our review of the public comments 
received on the proposed policy, we are finalizing a policy, under 
Sec.  425.602, Sec.  425.604, and Sec.  425.606 of using 3-months of 
claims run-out data, with the application of an appropriate completion 
percentage, to calculate the benchmark and per capita expenditures for 
the performance year. We will monitor ACO providers and suppliers for 
any deliberate delay in submission of claims that would result in an 
unusual increase in the claims incurred during the performance year, 
but submitted after, the 3 month run-out period immediately following 
each performance year, and as discussed in section II.H. of this final 
rule, will consider such deliberate behavior grounds for termination.
3. New Program Standards Established During the Agreement Period
    In the proposed rule, we stated 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 would likely make 
changes and improvements to the Shared Savings Program over time. For 
example, we expect to integrate lessons learned from Innovation Center 
initiatives to shape and change the Shared Savings Program. Because we 
expect that these changes may occur on an ongoing basis, the question 
arises as to whether an ACO that has already committed to an agreement 
to participate in the Shared Savings Program should be subject to 
regulatory changes that become effective after the start of its 
agreement period.
    In the proposed rule, we weighed the pros and cons of requiring an 
ACO to comply with changes in regulations that become effective before 
the expiration of its agreement period. We recognized that creating an 
environment in which the continued eligibility of existing program 
participants is uncertain could be detrimental to the success of the 
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 different sets of requirements, depending upon what 
regulations were in effect in the year in which the ACO entered the 
program. Additionally, requiring ACOs to adhere to certain regulatory 
changes related to quality measures, program integrity issues, 
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 noted that 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.
    We proposed that ACOs would be subject to future changes in 
regulation with the exception of all of the following:
     Eligibility requirements concerning the structure and 
governance of ACOs.
     Calculation of sharing rate.
     Beneficiary assignment.
    Thus, 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 proposed 
that in those instances where regulatory modifications effectuate 
changes in the processes associated with an ACO pertaining to design, 
delivery, quality of care, or planned shared savings distribution the 
ACO would be required to submit to us for review and approval, as a 
supplement to their original application, an explanation of how it will 
address key changes in processes resulting from these modifications. If 
an ACO failed to effectuate the changes needed to adhere to the 
regulatory modifications, we proposed 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 failed 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.5 of this 
final rule. We proposed that ACO participants would continue to be 
subject to all requirements applicable to FFS Medicare, such as routine 
CMS business operations updates and changes in FFS coverage criteria, 
as they may be amended from time to time.
    Comment: The commenters did not support establishing new standards 
during the agreement period. Many comments suggested that in order to 
create the certainty required prior to ACOs making investments in 
population health management infrastructure, CMS should withdraw any 
proposals that will afford the agency the ability to alter the terms or 
requirements to participate in the program during an agreement period. 
Commenters requested that if standards are established during the 
agreement period, ACOs should be allowed to either voluntarily 
terminate their agreements without penalty or should be afforded 
protections against any changes that negatively affect the ACOs' 
ability to achieve their obligations under the agreement or that 
substantially alter the financial terms of their agreement. Other 
commenters specified that in those instances where standards are 
established during an agreement period, ACOs be afforded the 
opportunity to develop a real-time understanding of the new standards 
via a standard comment and response period. Finally, one commenter 
recommended that any program changes be introduced only at the start of 
a new agreement period.
    Response: To ensure that ACO activities keep pace with the ever 
evolving developments in clinical practices and evidence-based 
medicine, it is important to retain the ability to make changes to the 
Shared Savings Program on an on-going basis. However, based upon our 
review of the public comments received on this policy, we agree with 
allowing an ACO the choice of whether to terminate its agreement 
without penalty when there are regulatory changes to the Shared Savings 
Program that impact the ability of the ACO to continue to participate. 
We believe this policy allows the program flexibility to improve over 
time while also providing a mechanism for ACOs to evaluate how 
regulatory changes impact their ability to continue participation in 
the program and to terminate their agreement without penalty if 
regulatory changes occur that will negatively impact the ACO.
    Final Decision: Under Sec.  425.212 we will finalize our proposal 
that ACOs be held responsible for all regulatory changes in policy, 
with the exception of: eligibility requirements concerning the 
structure and governance of ACOs, calculation of sharing rate, and

[[Page 67839]]

beneficiary assignment. However, we will modify our proposal to allow 
ACOs the flexibility to voluntarily terminate their agreement in those 
instances where regulatory standards are established during the 
agreement period which the ACO believes will impact the ability of the 
ACO to continue to participate in the Shared Savings Program.
4. Managing Significant Changes to the ACO During the Agreement Period
    Aside from changes that may result from regulatory changes, the ACO 
itself may also experience significant changes within the course of its 
agreement period due to a variety of events, including the following:
     Deviations from the structure approved in the ACO's 
application, such as, if an ACO participant upon which assignment is 
based drops out of the program; changes in overall governing body 
composition 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) as outlined 
in the ACO's application for acceptance into the program; or changes in 
planned distribution of shared savings.
     A material change, as defined in the proposed rule [76 FR 
19527], in the ACO's provider/supplier composition, including the 
addition of ACO providers/suppliers.
     Government- or court-ordered ACO reorganization, OIG 
exclusion of 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 
Sec.  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. 
Under our proposal, we noted that since an ACO is admitted to the 
program based on the information contained in its application, adding 
ACO participants during the course of the agreement period may result 
in the ACO deviating from its approved application and could jeopardize 
its eligibility to participate in the program. We therefore proposed 
that the ACO may not add ACO participants during the course of the 
agreement. In order to maintain flexibility, however, we proposed that 
the ACO may remove ACO participants (TINs) or add or remove ACO 
providers/suppliers (NPIs). We requested comment on this proposal and 
how it might impact small or rural ACOs.
    In addition, we proposed that ACOs must notify us at least 30 days 
prior to any ``significant change,'' which we defined as an event that 
causes the ACO to be unable to comply with the terms of the 
participation agreement due to (1) deviation from its approved 
application, such as a reorganization of the ACO's legal structure or 
other changes in eligibility; (2) a material change, which was defined 
in proposed Sec.  425.14 to include ``significant changes'' as well as 
other changes that may affect ACO eligibility to participate in the 
program, including changes in governing body composition and the 
imposition of sanctions or other actions taken against the ACO by an 
accrediting organization or government organization, or (3) government 
or court-ordered reorganization as a result of fraud or antitrust 
concerns. We proposed that, in response to such a notification, we 
would make one of the following determinations:
     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 agreement.
     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 performance year as discussed in 
section II.B. of this final rule.
     CMS and the ACO may mutually decide to terminate the 
agreement.
    Comment: The proposals surrounding the management of significant 
changes to the ACO during the agreement period were the most commented 
upon proposals in section II.C. of the proposed rule. All comments 
received suggested that not being able to add ACO participants during 
the agreement period runs counter to the idea of encouraging more 
integrated models and thus greater coordination of care.
    Commenters offered a variety of alternatives to this proposal 
including the following:
     Removal of this proposal altogether.
     Allowing ACOs to add TINs on an monthly, quarterly, or 
annual basis as long as they notify CMS of the modifications to their 
structure.
     One commenter recommended a ``slot'' approach in rural 
areas whereby if a TIN leaves the system the ``slot'' may be filled 
with another TIN.
     Allowing changes in ACO participants of up to 10 percent 
annually with additional changes in excess of 10 percent to be 
negotiated as an amendment to the ACO participation agreement.
    Response: Although it is imperative that we ensure that ACOs do not 
make changes to their approved structure that would affect their 
eligibility to participate in the program, we agree with those comments 
suggesting that there must be some mechanism to add ACO participants 
during an agreement period. Accordingly, we will finalize a policy that 
affords ACOs greater flexibility to deviate from the structure approved 
in their application. Specifically, we will modify this proposal such 
that ACO participants and ACO providers/suppliers may be added and 
subtracted over the course of the agreement period. ACOs must notify us 
of any additions/subtractions within 30 days. Additionally, ACOs must 
notify us within 30 days of any significant changes, defined as an 
event that occurs resulting in an ACO being unable to meet the 
eligibility or program requirements of the Shared Savings Program. Such 
a change may cause the ACO to no longer meet the eligibility criteria, 
for example, losing a large primary care practice could cause the ACOs 
assigned patient population to fall below 5,000. Furthermore, such 
changes may necessitate adjustments to the ACO's benchmark, or cause 
changes to risk scores and preliminary prospective assignment as 
described in sections II.G and II.E. of this final rule respectively, 
of this final rule.
    Comment: Some commenters also stated that our definitions of 
significant change and material change were circular.
    Response: In this final rule, we have removed the reference to 
``material change'' and its accompanying definition. In response to 
general comments regarding the need to strengthen program requirements, 
we are finalizing our proposal to require ACOs to notify us within 30 
days of any

[[Page 67840]]

``significant change,'' which is defined as an event that could cause 
an ACO to be unable to meet the eligibility or program requirements of 
the Shared Savings Program. For example, a significant change that 
affects compliance with eligibility requirements would include losing a 
large primary care practice that causes the ACO's assigned patient 
population to fall below 5,000.
    Final Decision: Under Sec.  425.214, we are modifying our proposal 
so that ACO participants and ACO providers/suppliers may be added and 
subtracted over the course of the agreement period. ACOs must notify us 
of the change within 30 days of these additions/subtractions of ACO 
participants or providers/suppliers. Additionally, in the event of 
``significant changes'', which is defined as an event that occurs 
resulting in an ACO being unable to meet the eligibility or program 
requirements of the Shared Savings Program, the ACO must also notify us 
within 30 days. Such changes may necessitate, for example, adjustments 
to the ACO's benchmark, but allow the ACO to continue participating in 
the Shared Savings Program. Such changes may also cause the ACO to no 
longer meet eligibility, for example, losing a large primary care 
practice could cause the ACO assignment to fall below 5,000, and result 
in termination of the agreement.
5. Coordination With Other Agencies
    As mentioned previously, in developing our proposals for the Shared 
Savings Program, and in response to stakeholder concerns, we worked 
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 connection with the 
program. The result of this effort was the release of three documents, 
concurrently with the Notice of Proposed Rulemaking, including: (1) A 
joint CMS and DHHS Office of Inspector General (OIG) Notice with 
Comment Period on 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 Statement of Antitrust Enforcement Policy Regarding 
Organizations Participating in the Medicare Shared Savings Program 
issued by the FTC and DOJ (collectively, the Antitrust Agencies). The 
comment periods for all of these documents have now closed. Some 
comments received on this proposed rule were in response to these 
concurrently released documents, and thus outside the scope of this 
final rule. We have shared relevant comments with the appropriate 
agencies.
    We have continued working with these agencies while drafting this 
final rule. As a result a joint CMS and OIG interim final rule with 
comment period will also be published in the Federal Register 
concurrently with this final rule. The Antitrust Agencies also will 
publish in the Federal Register a final Statement of Antitrust 
Enforcement Policy Regarding Accountable Care Organizations 
Participating in the Medicare Shared Savings Program.
a. 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 are jointly publishing an interim final rule with comment 
period describing waivers applicable to ACOs, ACO participants, and ACO 
providers/suppliers in the Shared Savings Program. The interim final 
rule with comment period can be found elsewhere in this issue of the 
Federal Register. The waivers described in the interim final rule with 
comment period will also apply to the Innovation Center's Advance 
Payment Model demonstration because ACOs participating in that model 
will also be participating in the Shared Savings Program.
    Comments received in response to the April 2011 proposed rule 
directed toward the joint CMS and DHHS OIG solicitation will be 
responded to in the interim final rule with comment period. We 
encourage reader review of the interim final rule.
b. IRS Guidance Relating to Tax-Exempt Organizations Participating in 
ACOs
    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 issued Notice 2011-20 soliciting 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. 
For additional information, tax-exempt organizations and ACOs should 
refer to Notice 2011-20 and other applicable IRS guidance available on 
www.irs.gov.
    We also received comments relating to the tax treatment of ACOs. 
Tax issues are within the jurisdiction of IRS, not CMS. Accordingly, 
those issues are not addressed in this Final Rule but we have shared 
the relevant comments with IRS.
c. Antitrust Policy Statement
    Concurrently with the issuance of the Shared Savings Program 
proposed rule, the Antitrust Agencies issued a proposed Statement of 
Antitrust Enforcement Policy Regarding Accountable Care Organizations 
Participating in the Medicare Shared Savings Program (proposed 
Antitrust Policy Statement). The proposed Antitrust Policy Statement 
had several features relevant to the Shared Savings Program, 
including--
     An antitrust ``safety zone.'' The Antitrust Agencies, 
absent extraordinary circumstances, would not challenge as 
anticompetitive ACOs that were within the safety zone. The safety zone 
also included a rural exception for ACOs operating in rural areas.
     For ACOs outside the safety zone, guidance on the types of 
conduct to avoid that could present competitive concerns.
     A mandatory Antitrust Agency review procedure for ACOs 
that met certain thresholds. The mandatory review would be triggered if 
two or more ACO participants that provide a common service (as defined 
in the proposed Antitrust Policy Statement) to patients from the same 
Primary Service Area (``PSA'') have a combined share of greater than 50 
percent for that service in each ACO participant's PSA.
    The proposed Antitrust Policy Statement described the methodology 
that ACO participants could use to determine whether the ACO was 
required to obtain an Antitrust Agency review. Some of the data to be 
used in this methodology are available at http://www.cms.gov/ 
sharesavingsprogram/

[[Page 67841]]

35--Calculations.asp. The proposed Antitrust Policy Statement applied 
to collaborations among otherwise independent providers and provider 
groups, formed after March 23, 2010 (the date on which the Affordable 
Care Act was enacted) and that have otherwise been approved to 
participate, or seek to participate, as ACOs in the Shared Savings 
Program.
    The Antitrust Agencies solicited and received comments on the 
proposed Antitrust Policy Statement. The Antitrust Agencies are 
releasing concurrently with this final rule a final Antitrust Policy 
Statement in response to the comments. Nothing in this final rule shall 
be construed to modify, impair, or supersede the applicability of any 
of the Federal antitrust laws. For further guidance on antitrust 
enforcement policy with respect to ACOs, ACOs should review the final 
Antitrust Policy Statement.
    Comment: Numerous commenters appreciated our work with the 
Antitrust Agencies to facilitate participation in the Shared Savings 
Program. However, several commenters suggested we provide additional 
flexibility to potential ACO applicants and modify the scope of the 
mandatory antitrust review.
    Response: The next section of this final rule discusses our 
proposals, and addresses all comments, relating to the proposed 
mandatory antitrust review.
d. Coordinating the Shared Savings Program Application With the 
Antitrust Agencies
    We proposed to require that certain ACOs be subject to mandatory 
review by the Antitrust Agencies before we would approve their 
participation in the Shared Savings Program. Specifically, we proposed 
this mandatory review requirement would apply to any newly formed 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, and that 
did not qualify for the rural exception articulated in the proposed 
Antitrust Policy Statement. Those ACOs would be required to submit to 
us, as part of their Shared Savings Program applications, a letter from 
the reviewing Antitrust Agency confirming that it had no present intent 
to challenge or recommend challenging the proposed ACO. Absent such a 
letter, the proposed ACO would not be eligible to participate in the 
Shared Savings Program.
    In addition, the proposed Antitrust Policy Statement explained that 
ACOs that are outside the safety zone and below the 50 percent 
mandatory review threshold frequently may be pro-competitive. The 
proposed Antitrust Policy Statement identified five types of conduct 
that an ACO could avoid to reduce significantly the likelihood of an 
antitrust investigation. An ACO in this category that desired further 
certainty regarding the application of the antitrust laws to its 
formation and planned operation also could seek an expedited review 
from the Antitrust Agencies, similar to the mandatory review described 
previously, and similarly would 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 proposed that an 
ACO that falls within the safety zone would not be required to obtain 
an Antitrust Agency review as a condition of participation.
    Additionally, we recognized in the proposed rule there may be 
instances during the agreement period where there is a material change 
(as discussed in section II.C.4. of this final rule) in the composition 
of an ACO. We proposed that when a material change occurred, the ACO 
must notify us of the change within 30 days and that the ACO must 
recalculate and report at that time its PSA shares for common services 
that two or more independent ACO participants provide to patients from 
the same PSA. We proposed that if any revised PSA share is calculated 
to be greater than 50 percent, the ACO would be subject to mandatory 
review or re-review by the Antitrust Agencies. If the ACO failed to 
obtain a letter from the reviewing Antitrust Agency confirming that it 
has no present intent to challenge or recommend challenging the ACO, we 
proposed that the ACO would be terminated from the Shared Savings 
Program.
    We explained in the proposed rule that the purpose of requiring 
Antitrust Agency confirmation that it had no present intent to 
challenge or recommend challenging the ACO as a condition of 
participation is two-fold. First, it would ensure that ACOs 
participating in the Shared Savings Program would not present 
competitive problems that could subject them to antitrust challenge 
that may prevent them from completing the term of their agreement with 
us. Second, it would maintain competition for the benefit of Medicare 
beneficiaries by reducing the potential for the creation of ACOs with 
market power. In this context market power refers to the ability of an 
ACO to reduce the quality of care furnished to Medicare beneficiaries 
and/or to raise prices or reduce the quality for commercial health 
plans and enrollees, thereby potentially increasing providers' 
incentives to provide care for private enrollees of higher-paying 
health plans rather than for Medicare beneficiaries. We stated 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 care. Furthermore, competition 
benefits the Shared Savings Program by allowing the opportunity for the 
formation of two or more ACOs in an area. Competition among ACOs can 
accelerate advancements in quality and efficiency. All of these 
benefits to Medicare patients would be reduced or eliminated if we were 
to allow ACOs to participate in the Shared Savings Program when their 
formation and participation would create market power.
    Comment: A significant number of commenters opposed mandatory 
review of ACOs, because an ACO is a new business model designed to 
encourage collaboration and coordination of care while still providing 
beneficiaries the freedom of choice of providers under FFS Medicare. 
The commenters made the following points:
     The Social Security Act, as amended by the Affordable Care 
Act, does not authorize us either to issue regulations governing the 
application of the antitrust laws or to delegate to the Antitrust 
Agencies the authority to block participation in the Shared Savings 
Program by certain ACOs. These commenters cited a recent article 
suggesting that the proposed mandatory review confers unreviewable 
authority on the Antitrust Agencies to disqualify entities from 
participating in the Shared Savings Program and therefore violates the 
subdelegation doctrine.\1\
---------------------------------------------------------------------------

    \1\ Richard D. Raskin, Ben J. Keith, & Brenna E. Jenny, 
``Delegation Dilemma: Can HHS Required Medicare ACOs to Undergo Pre-
Clearance by the Antitrust Agencies?,'' 20 Health L. Rep. 961 
(2011).
---------------------------------------------------------------------------

     It is bad public policy to change the nature of antitrust 
enforcement from law enforcement to a regulatory regime by requiring a 
mandatory review for ACO applicants with PSA shares greater than 50 
percent for common services.
     The mandatory review should be modified such that an ACO's 
actions, not its size, should be monitored, because if an ACO produces 
savings while maintaining quality and patient centeredness, market 
share is not an appropriate measure of anticompetitive behavior.
     Require mandatory notice of the PSA shares, but do not 
require those ACOs with greater than a 50 percent PSA share to obtain a 
mandatory review.

[[Page 67842]]

     The mandatory review imposes substantial costs on every 
ACO applicant by requiring them to build their PSA calculations, with a 
larger burden falling on smaller physician or other physician groups 
that may not have the tools to do so, thus discouraging their 
participation. Commenters suggested that we calculate each ACO's PSA 
shares.
     The proposed antitrust review and CMS application review 
should occur simultaneously given the tight timeframes to get the 
program up and running.
     The proposed rule and the proposed Antitrust Policy 
Statement are inconsistent because the proposed rule does not carve out 
entities formed before March 23, 2010 from the mandatory review 
(meaning all entities need a review), whereas the proposed Antitrust 
Policy Statement does not apply to entities formed before that date.
    By contrast, numerous commenters supported the mandatory review to 
ensure the Shared Savings Program does not become a vehicle for ACOs to 
obtain market power. Several commenters explained that the 
consolidation of ACO providers/suppliers into ACOs could have a 
significant impact on the commercial market. One commenter noted it was 
important for us to consider ``the impact of competition (or the lack 
thereof) on quality of care and access to care.'' Several commenters 
suggested that we lower the threshold for mandatory antitrust review to 
40 percent to ensure that there are sufficient providers to allow the 
formation of competing ACOs to serve Medicare beneficiaries. Another 
commenter suggested that we carefully consider favoring ACO 
applications from provider groups without market power while we 
calibrate and refine the Shared Savings Program.
    Response: Based on the comments received, we have reconsidered our 
approach to coordinating with the Antitrust Agencies. We believe that 
we can achieve the same two objectives identified in the proposed rule 
using a less burdensome approach that is consistent with antitrust law 
enforcement norms and does not raise subdelegation concerns.
    Accordingly, in this final rule we are adopting an approach that 
relies on three prongs to maintain competition among ACOs. First, the 
Antitrust Agencies will offer a voluntary expedited antitrust review to 
any newly formed ACO (as defined in the final Antitrust Policy 
Statement) before it is approved to participate in the Shared Savings 
Program. We strongly encourage newly formed ACOs that may present 
competitive issues or are uncertain about their legality under the 
antitrust laws to take advantage of this opportunity to obtain 
expedited antitrust review before participating in the Shared Savings 
Program. This voluntary review will enable ACOs to assess whether they 
are likely to present competitive concerns that could subject them to 
an antitrust challenge and prevent them from completing the term of 
their agreement with us. As noted in the final rule, CMS may terminate 
an ACO's participation in the Shared Savings Program for, among other 
reasons, violation of the antitrust laws.
    Second, we will provide the Antitrust Agencies with aggregate 
claims data regarding allowable charges and fee-for-service payments, 
which will assist the Antitrust Agencies in calculating PSA shares for 
ACOs participating in the Shared Savings Program. We will share these 
data with the Antitrust Agencies as soon as the data become available. 
In addition, we will require ACOs formed after March 23, 2010, to 
agree, as part of their application to participate in the Shared 
Savings Program, to permit us to share a copy of their application with 
the Antitrust Agencies. Both the aggregate data and the information 
contained in these applications will help the Antitrust Agencies to 
assess and monitor ACOs' effects on competition and take enforcement 
action, if appropriate. Third, the Antitrust Agencies will rely on 
their existing enforcement processes for evaluating concerns raised 
about an ACO's formation or conduct and filing antitrust complaints 
when appropriate.
    Thus, we are not finalizing our proposal to require mandatory 
antitrust review and the submission of a letter from a reviewing 
Antitrust Agency confirming that it has no present intent to challenge, 
or recommend challenging, an ACO formed after March 23, 2010, that does 
not qualify for the rural exception articulated in the final Antitrust 
Policy Statement, and that has a PSA share above 50 percent for any 
common service that two or more ACO participants provide to patients 
from the same PSA. In other words, we will not condition Shared Savings 
Program eligibility on whether an ACO has obtained the requisite letter 
from the Antitrust Agencies. Rather, we will accept such an ACO into 
the Shared Savings Program regardless of whether it voluntarily obtains 
a letter from the Antitrust Agencies and regardless of the contents of 
any letter it may have voluntarily obtained from the Antitrust 
Agencies, assuming that the ACO meets the other eligibility 
requirements set forth in this final rule. We emphasize that the 
acceptance of an ACO into the Shared Savings Program represents no 
judgment by CMS about the ACO's compliance with the antitrust laws or 
the ACO's competitive impact in a commercial market. Moreover, we do 
not believe that allowing anticompetitive ACOs to operate in commercial 
markets is necessary for the Shared Savings Program to function 
effectively.
    Again, as noted previously, we encourage newly formed ACOs that 
desire greater antitrust guidance to seek a voluntary expedited review 
from the Antitrust Agencies before applying to the Shared Savings 
Program. All participants in the Shared Savings Program will remain 
subject to the antitrust laws. In addition, as discussed previously, we 
released in June 2011 some of the information necessary for ACO 
applicants to identify common services and to help calculate the 
relevant PSA shares. The final Antirust Policy Statement describes the 
procedures for obtaining the voluntary expedited antitrust review.
    Although we are eliminating the proposed mandatory review 
requirement, we still intend to coordinate closely with the Antitrust 
Agencies throughout the application process and the operation of the 
Shared Savings Program to ensure that the implementation of the program 
does not have a detrimental impact upon competition. As discussed in 
the proposed rule, competition among ACOs participating in the Shared 
Savings Program will foster improvements in quality, innovation, and 
choice for Medicare FFS beneficiaries. Section 1899(a)(1)(A) of the 
Act, which states that ``groups of providers and suppliers meeting 
criteria specified by the Secretary may work together * * * through an 
accountable care organization,'' authorizes us to specify eligibility 
criteria for the ACOs that participate in the Shared Savings Program. 
As discussed previously, we are using that authority to specify that to 
be eligible to participate in the Shared Savings Program, an ACO newly 
formed after March 23, 2010 (as defined in the final Antitrust Policy 
Statement), must agree to permit us to share its Shared Savings Program 
application with the Antitrust Agencies. We believe this action is 
necessary to ensure appropriate monitoring of the competitive effects 
of ACOs that participate in the Shared Savings Program.
    Comment: Several comments recommended we monitor an ACO's per 
capita health care cost, for both Medicare beneficiaries and commercial

[[Page 67843]]

patients. For example, several comments explained that the 
consolidation of providers to form ACOs could have a significant impact 
on the commercial market. These commenters explained that through the 
aggregation of market power, ACOs could have an enhanced incentive and 
ability to obtain shared savings payments by reducing Medicare 
expenditures to achieve ``savings'' under the Shared Savings Program, 
while compensating for the reduced Medicare payments by charging higher 
rates and possibly reducing quality of care in the private market. This 
cost shifting could have the effect of raising premiums for enrollees 
of private and employer-based health plans.
    Many of these comments strongly urged us to collaborate with the 
Antitrust Agencies on data collection and analysis to detect any 
patterns of anti-competitive practices, including consolidation, that 
could harm Medicare beneficiaries and enrollees in private markets and 
threaten the viability of the Shared Savings Program. Other commenters 
urged us to implement requirements for ACOs to report publicly on the 
cost and price of care.
    Some comments urged us to add requirements to the Shared Savings 
Program to build a more robust monitoring system for costs. In 
particular, these comments suggested that we could do the following:
     Require that all participating ACOs have a mechanism for 
assessing performance on private sector per capita costs by the second 
year of the program.
     Gather data regarding current market shares, market 
entries and exits, and pricing trends for the ACOs during the agreement 
period.
     Set expectations for resource stewardship and waste 
reduction, including public reporting of quality and cost metrics.
     Specify a standardized set of measures for costs, with 
input from consumers, purchasers, and other stakeholders.
     Hold ACOs in the Shared Savings Program to a maximum 
threshold of price increase with their commercial market clients.
     Move to requiring ACOs to take part in all-payer claims 
databases (APCD) for added transparency.
    Response: We agree with commenters that suggested we provide the 
Antitrust Agencies the data and information to help identify 
potentially anticompetitive conduct, including consolidation, which 
could be related to implementation of the Shared Savings Program. 
Accordingly, we will provide the Antitrust Agencies aggregate claims 
data regarding allowable charges and fee-for-service payments for ACOs 
participating in the Shared Savings Program. In addition, we will share 
copies of applications submitted by ACOs formed after March 23, 2010, 
with the Antitrust Agencies.
    In addition, we have requested that the Antitrust Agencies conduct 
a study examining how ACOs participating in the Shared Savings Program 
have affected the quality and price of health care in private markets. 
We anticipate using the results of this study to evaluate whether we 
should, in the future, expand our eligibility criteria so that we 
consider competition concerns more explicitly in the Shared Savings 
Program application review process.
    Comment: Commenters stated that the proposed Antitrust Policy 
Statement does not mention a process for re-review of the ACO by the 
Antitrust Agencies for material changes in the ACO's composition. 
Commenters also stated that the proposed rule's language is circular 
about the conditions that trigger a ``material'' or ``significant'' 
change in composition, thus requiring a re-review by the Antitrust 
Agencies.
    Response: As discussed previously, we will no longer require an 
Antitrust Agency review, such that the commenters' concerns about re-
review based on antitrust issues are moot.
    Comment: Several commenters suggested that the Shared Savings 
Program will lead to increased hospital employment of physicians or it 
will lead to hospital purchases of physician practices, because start-
up costs are so great only large entities will be able to afford to 
participate. As a result, there will be no competition and prices will 
increase in the commercial sector. Other commenters suggested that 
hospitals will employ specialist physicians so that they can have 
patient referrals to related facilities, regardless of price and 
quality.
    Other commenters indicated that hospital employment of physicians 
will exacerbate the inefficiency problem of physicians being paid a 
higher rate for performing the same procedures in certain settings. As 
a result, hospitals will use any market power they have to form 
hospital-based provider departments and obtain higher rates, through 
their continued fee-for-service payments, for the same services that 
could be provided in a less-expensive setting. These comments suggested 
we adopt policies to safeguard against these practices.
    Response: As we discussed in the proposed rule, we do not believe 
that mergers and acquisitions by ACO providers and suppliers are the 
only way for an entity to become an ACO. The statute permits ACO 
participants that form an ACO to use a variety of collaborative 
organizational structures, including collaborations short of merger. 
Indeed, we are also finalizing our proposal that entities that on their 
own are not eligible to form an ACO can participate in the Shared 
Savings Program by forming joint ventures with eligible entities. We 
reject the proposition that an entity under single control, that is an 
entity formed through a merger, would be more likely to achieve the 
three-part aim. Moreover, the increased flexibility regarding governing 
body composition and the leadership and management of an ACO that we 
are adopting in this final rule demonstrates our belief that different 
types of entities can be successful in this program.
    Comment: Multiple comments discussed the competitive aspects of ACO 
membership. For example, one commenter suggested that if an urban ACO 
wants to partner with providers in rural communities, it should be 
required to allow all providers in the rural community to participate 
in the ACO if they so choose. Other commenters suggested that an ACO 
should not be able to use its market power to require smaller providers 
or suppliers to participate in the ACO (or to prohibit them from 
participating in the Shared Savings Program as part of a competing ACO) 
and that we should coordinate with the FTC and DOJ to thwart anti-
competitive behavior in the formation of ACOs.
    Some commenters requested that we monitor whether ACOs are using 
information technology requirements to prevent various allied health 
professionals from participating in an ACO.
    Response: We acknowledge the commenters' concerns and remind them 
that the antitrust laws will continue to apply to the operations and 
conduct of all ACOs participating in the Shared Savings Program. In 
other words, if an entity believes that an ACO is engaging in 
anticompetitive conduct, it can pursue an appropriate private action or 
bring the conduct to the attention of the Antitrust Agencies.
    Final Decision: In sum, we are modifying our proposal. We believe 
that the voluntary expedited review approach discussed previously, 
coupled with the Antitrust Agencies' traditional law enforcement 
authority and our collaborative efforts to share data and information 
with the Antitrust Agencies, will allow ACOs a reasonable opportunity 
to obtain guidance

[[Page 67844]]

regarding their antitrust risk in an expedited fashion, while also 
providing appropriate safeguards so that potential or actual 
anticompetitive harm can be identified and remedied. We are finalizing 
these policies at Sec.  425.202. However, we will continue to review 
these policies and adjust them accordingly as we gain more experience 
with the Shared Savings Program.

D. Provision of Aggregate and Beneficiary Identifiable Data

1. Data Sharing
    Under section 1899(b)(2)(A) of the 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.'' Further, in 
order to be eligible to participate in the Shared Savings Program, 
section 1899(b)(2)(G) of the Act states an ``ACO shall define processes 
to * * * report on quality and cost measures, and coordinate care * * 
*.'' 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, and as a condition of participation in the 
Shared Savings Program, we expect that ACOs will have, or are working 
towards having, processes in place to independently identify and 
produce 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, as we discussed in the proposed rule, although an ACO 
typically should have, or is moving towards having complete information 
for the services it provides to its assigned beneficiaries, we also 
recognize that the ACO may not have access to complete information 
about all of the services that are provided to its assigned 
beneficiaries by providers outside the ACO--information that would be 
key to its coordinating care for its beneficiary population. Therefore, 
we proposed to generate aggregate data reports, to provide limited 
identifying information about beneficiaries whose information serves as 
the basis for the aggregate reports (and who are preliminarily 
prospectively assigned), and to share beneficiary identifiable claims 
data with the ACO unless the beneficiary chooses to decline to share 
their data. As we stated in the proposed rule, we believe that access 
to this information would provide ACOs with a more complete picture 
about the care their assigned beneficiaries receive both within and 
outside the ACO. It would also enable the ACOs to ascertain their ACO 
participants and ACO providers'/suppliers' patterns of care, and could 
be used to assess their performance relative to their prior years' 
performance.
    As noted in the proposed rule, the disclosure of this information 
in accordance with applicable privacy and security requirements would 
enable an ACO to be better 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 to identify and 
develop a plan for addressing the specific health needs of its assigned 
beneficiary population.
2. Sharing Aggregate Data
    In the proposed rule, we discussed supplementing the information 
ACOs will be gathering as part of their internal processes for 
monitoring and improving care furnished to its assigned beneficiary 
population with aggregated (de-identified) data on beneficiary use of 
health care services.
    We proposed to provide aggregate data reports at the start of the 
agreement period that would be based on data for those beneficiaries 
historically assigned (hereafter referred to as preliminary 
prospectively assigned beneficiaries), and included in the calculation 
of the ACO's benchmark. These reports would include, when available, 
aggregated metrics on the beneficiary population and beneficiary 
utilization data at the start of the agreement period, based on the 
historical data used to calculate the benchmark. We further proposed to 
include these data in conjunction with the yearly financial and quality 
performance reports. Additionally, we proposed to provide quarterly 
aggregate data reports to ACOs based upon the most recent 12 months of 
data from potentially assigned beneficiaries. We requested comments on 
these proposals. For a comprehensive review of our proposals and 
rationale, see section II.C.4. of the proposed rule (76 FR 19555).
    Comment: The comments received were supportive of the proposal to 
provide aggregate data to ACOs but suggested that this data would not 
be useful unless it was delivered in a timely manner. Recommendations 
included providing the aggregate data set prior to the submission of an 
application, quarterly, immediately following the reporting period, or 
in real time. A few commenters expressed concerns that aggregate 
reports based upon a historical population may not provide the ACO with 
sufficient information to make appropriate changes for its future fee-
for-service population.
    Response: Although we intend to provide these aggregate data 
reports in a timely manner, it will not be possible to provide these 
reports to ACOs in ``real time.'' The aggregate reports would be 
derived from provider and supplier claims data. Claims data are only 
available after they have been submitted and processed. As such, there 
is an inherent delay between when a service is performed and when a 
claim is processed. This process delay is in addition to the time it 
takes to prepare this claims level data to an aggregate level data set. 
Both of these factors make it impossible to provide aggregate data 
reports to ACOs in ``real time.''
    It is also not possible to provide aggregate data reports prior to 
the submission and approval of an ACO application and the ACO signing 
its participation agreement. The aggregate data report is based upon 
the ACO application itself and the TINs and NPIs that enter into an 
agreement with the ACO. Until we have received and reviewed the 
applications, determined the eligibility of the ACO participants and 
ACO providers/suppliers to participate, and received a signed DUA from 
the ACO, we cannot begin to construct the aggregate data reports. 
Finally, in response to those who expressed concern about the utility 
of historic data, we note that we proposed to supply the aggregate data 
report historically for the benchmark, quarterly and in conjunction 
with the yearly financial and quality performance reports, the 
provision of this data in subsequent years of the agreement period is 
already a component of our proposed policy.
    Additionally, our experience with the PGP demonstration and 
modeling of our proposed methodology for identifying beneficiaries 
associated with the ACO suggests that a high percentage of patients who 
chose ACO participants and ACO providers/suppliers in the benchmark 
period will continue to receive care from these ACO participants and 
ACO providers/suppliers. We believe knowing

[[Page 67845]]

individuals who would have been assigned in the past will help the ACO 
participants identify the kinds of interventions that are likely to 
improve care for their fee-for-service population going forward.
    Comment: Several commenters were concerned about the delivery, 
format, and content of the aggregate data report. Several commenters 
questioned the ability of CMS to deliver accurate, relevant, and 
comprehensive data to ACOs and suggested that CMS outline a detailed 
plan to improve its data delivery system. Commenters felt that the data 
should be standardized by CMS as aggregate data would be too complex 
for many organizations to analyze. Commenters also suggested that the 
aggregate data reports must include: Links to the beneficiary 
identifiable data and health quality indicators, comparative regional 
and national claims data, and separate aggregate data on patients that 
have chosen to ``opt-out of the shared savings program.'' A few 
comments suggested that we provide customized reports to each ACO. 
Finally, one commenter suggested that CMS should also supply aggregate 
savings/losses reports to ACOs quarterly.
    Response: We proposed to deliver aggregate data reports to ACOs at 
the start of the agreement period, quarterly, and in conjunction with 
the annual quality and financial reports. These data extractions would 
be standardized reports for all ACOs. It would not be administratively 
feasible to offer customized reports for each ACO. We expect that ACOs 
would be able to incorporate the aggregated data reports into their own 
data processing systems for use in developing population health 
management capabilities. By its nature, aggregate data cannot be linked 
to individual beneficiary identifiable data as the purpose of the 
aggregate data is to offer a broad view of the overall population of 
assigned beneficiaries and potential areas for improvement. 
Additionally, the aggregate data will not be linked to specific quality 
indicators as this is not the purpose of providing the standardized 
aggregate data reports. The ability to receive lists of beneficiaries 
whose data were used to compile the aggregate data reports and monthly 
beneficiary identifiable claims data, as discussed later in this final 
rule, in conjunction with the aggregate data reports, will afford ACOs 
the opportunity to use the lessons learned from the aggregate data 
reports to implement delivery system reforms appropriate for their own 
beneficiary populations. While we did not propose to offer regional or 
national aggregate data reports or include a report on beneficiaries 
that have declined to share their protected health information (PHI), 
we think these suggestions merit consideration and we will keep them in 
mind during future rulemaking cycles. For now, aggregate data reports 
will be provided on the assigned beneficiary population, including 
beneficiaries who may have declined to share their PHI data.
    Finally, due to the inherent delay in receiving and processing 
claims level data, it would not be feasible or accurate to supply 
shared savings/loss reports to ACOs quarterly. However, the quarterly 
reports will include information on per capita expenditures for 
assigned beneficiaries that ACOs can use to monitor and improve their 
performance.
    Final Decision: We will finalize without change our proposals 
related to sharing of aggregate data (see part 425 subpart H in 
regulatory text of this final rule).
3. Identification of Historically Assigned Beneficiaries
    Based on feedback from the PGP demonstration, the RFI comments on 
the Shared Savings Program, and the Shared Savings Program Open Door 
Forums, we proposed to make certain limited beneficiary identifiable 
information available to ACOs at the beginning of the first performance 
year. We believed ACOs would benefit from understanding which of their 
FFS beneficiaries were used to generate the aggregated data reports. 
Accordingly, we proposed to disclose the name, date of birth (DOB), sex 
and Health Insurance Claim Number (HICN) of the preliminary prospective 
assigned beneficiary population. We believed that knowing these data 
elements would be useful to the ACO in two ways: First, the ACO 
participants and ACO providers/suppliers could use the information to 
identify the preliminary prospective assigned beneficiaries, review 
their records, and identify care processes that may need to change. 
Second, experience with the PGP demonstration has suggested that a high 
percentage of preliminary prospective assigned beneficiaries will 
continue to receive care from the ACO participants and ACO providers/
suppliers.
    We recognized that there are a number of issues and sensitivities 
surrounding the disclosure of individually-identifiable (patient-
specific) health information, and noted that a number of laws place 
constraints on the sharing of individually identifiable health 
information. We analyzed these issues and legal constraints and 
concluded that the proposed disclosure of the four identifiers would be 
permitted under the applicable laws and address the issues raised, 
subject to the conditions described in detail in the proposed rule (76 
FR 19555), and we sought comment on this proposal.
    Comment: Although the majority of comments supported our proposal 
to supply ACOs with the name, DOB, sex and HICN of the preliminary 
prospective assigned beneficiary population, we did receive a few 
comments that objected to this proposal. Of those comments that 
disagreed with our proposal, the concerns were related to the confusion 
that could result for ACO participants and ACO providers/suppliers 
related to the provision of data on the preliminary prospective 
assigned beneficiaries who may not choose to see ACO participants or 
ACO providers/suppliers going forward, the potential for ACOs to use 
the proposed data elements to avoid at-risk and/or high cost 
beneficiaries, and the legality of disclosing this type of data. Others 
suggested the four data points be expanded to include other beneficiary 
identifiable information.
    Response: We proposed providing limited beneficiary identifiable 
information to ACOs at the start of the agreement period in order to 
assist the ACO in conducting population-based activities related to 
improving health or reducing costs, protocol development, case 
management and care coordination. We believed that the ACO could use 
the information to identify the preliminary prospective assigned 
beneficiaries, review their records, and identify care processes within 
its organization that may need to change. Since a high percentage of 
beneficiaries who choose ACO participants and ACO providers/suppliers 
in the benchmark period will continue to receive care from these ACO 
participants and ACO providers/suppliers, we do not believe this data 
set will generate any confusion for ACOs. As we outlined in the 
proposed rule, we believe the agency has legal authority to provide 
this data to ACOs. As also discussed in the proposed rule, we believe 
these particular data elements will be useful to the ACO for two 
reasons: (1) The ACO participants and ACO providers/suppliers could use 
the information to identify the preliminary prospectively assigned 
beneficiaries, review their records, and identify care processes that 
may need to change, and (2) experience with the PGP demonstration has 
suggested that a high percentage of preliminary prospective assigned 
beneficiaries will continue to receive care from the ACO participants 
and ACO providers/suppliers. We

[[Page 67846]]

believe that the proposed four data points will be sufficient to aid 
ACOs in focusing their initial care redesign efforts going forward. We 
also believe these four data points are the minimum data necessary for 
providers to begin the process of developing care plans in an effort to 
provide better care for individuals and better health for populations. 
As described in section II.D.4 of this final rule, the ACO would have 
the additional opportunity to request claims data for these individuals 
after having given these beneficiaries the opportunity to decline such 
data sharing. Finally, we agree with the comment that while providing 
such information may be a benefit to both the beneficiary and the ACO, 
concerns remain that ACOs could use it to avoid at-risk beneficiaries 
or to stint on care. For this reason we have included in section II.H. 
of this final rule a detailed discussion of the safeguards and 
sanctions that have been incorporated into the program to guard against 
avoidance of at-risk beneficiaries.
    Comment: Several comments suggested that we provide the limited 
beneficiary identifiable data set in advance of ACOs signing 
agreements.
    Response: The limited beneficiary identifiable data set is 
constructed based upon the content of the ACO's application, including 
the associated TINs that have been verified as part of the application 
process. The data would be comprised of information regarding the 
beneficiaries who would have met the criteria for assignment to the ACO 
during the benchmark period. Without a verified list of eligible TINs 
that will be associated with the ACO, we cannot construct this data 
set. Additionally, as discussed later in this final rule, we will 
require ACOs to enter into a Data Use Agreement (DUA) prior to receipt 
of any beneficiary identifiable claims data, and this agreement can 
only be executed after an applicant has been approved to participate in 
the Shared Savings Program as an ACO.
    Under HIPAA and the required business associate agreements, the ACO 
and its participants will not be able to use or disclose any 
individually identifiable health information it receives from us in a 
manner in which a HIPAA covered entity would be barred from doing. 
Furthermore, 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 that has not co-signed the DUA as a 
contractor to the ACO. In addition, ACOs must comply with the 
limitations on use and disclosure that are imposed by HIPAA, the 
applicable DUA, and the ACO program's statutory and regulatory 
requirements. Compliance with the DUA will be 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 these reasons, we cannot disclose beneficiary identifiable 
information to an ACO until such time as any necessary Business 
Associate Agreements (BAAs) between an ACO and its ACO participants and 
ACO providers/suppliers are established in accordance with HIPAA and 
there is a signed DUA in place with us.
    Comment: Several comments requested that at the start of the 
agreement period, we provide more detailed and robust beneficiary 
identifiable data than the four data points identified and that we 
update and provide to ACOs the list of the potentially assigned 
beneficiary population monthly or quarterly.
    Response: Although we understand that ACOs would prefer to have 
more detailed beneficiary identifiable data at the start of the 
agreement period, in the proposed rule (76 FR 19555) we described the 
minimum necessary data elements we believed were essential to 
accomplish the health care operations described in the NPRM. As 
discussed in response to a previous comment, we believe that the 
proposed four data points will be sufficient to aid ACOs in focusing 
their care redesign efforts initially. As noted in section II.D.4. of 
this final rule, however, the ACO will have the opportunity to request 
additional claims data for these beneficiaries once the ACO has given 
them the opportunity to decline data sharing.
    As described in section II.E. of this final rule, we are modifying 
our proposed assignment methodology to provide ACOs preliminary 
prospective assignment of beneficiaries with retrospective 
reconciliation based on actual beneficiary utilization. We agree with 
commenters that providing quarterly aggregate reports on the 
preliminarily prospective assigned population would assist ACOs in 
conducting population-based activities relating to improving health or 
reducing costs, protocol development, case management and care 
coordination. Therefore, we will be providing ACOs with quarterly 
listings of preliminarily prospective assigned beneficiary names, DOB, 
sex, and HCINs that were to generate each quarterly aggregate data 
report. We believe that the provision of the quarterly aggregate 
reports and the limited identifiable information on beneficiaries used 
to generate the reports, combined with the opportunity to request 
monthly beneficiary identifiable claims data as discussed later in this 
final rule, and our modification to allow ACOs to request claims data 
of beneficiaries that appear on these reports, will provide sufficient 
information for treatment and health care operations activities with 
the Medicare FFS population for which it is accountable.
    Final Decision: We are finalizing our proposal to provide the ACO 
with a list of beneficiary names, dates of birth, sex, and HICN derived 
from the beneficiaries whose data was used to generate the preliminary 
prospective aggregate reports (Subsection H). We are modifying our 
proposal to provide similar information in conjunction with each 
quarterly aggregated data report, based upon the most recent 12 months 
of data, consistent with the time frame listed in the proposed rule.
4. Sharing Beneficiary Identifiable Claims Data
    While the availability of aggregate beneficiary information and the 
identification of the beneficiaries used to determine the benchmark 
will 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 ultimately be 
assigned to them. There are recognized limits to our data, however, and 
to our ability to disclose it.
    After consideration of the legal limitations and policy 
considerations that would be applicable to disclosure of these data, 
which are discussed in detail in the proposed rule (76 FR 19557 through 
19559), we proposed to give the ACO the opportunity to request certain 
beneficiary identifiable claims data on a monthly basis, in compliance 
with applicable laws. We proposed to limit the available claims to 
those of beneficiaries who received a primary care service from a 
primary care physician participating in the ACO during the performance 
year, and who have been given the opportunity to decline to have their 
claims data shared with the ACO but have declined to do so. 
Furthermore, we proposed that beneficiary information that is subject 
to the regulations governing the confidentiality of alcohol and drug

[[Page 67847]]

abuse patient records (42 CFR Part 2) would only be made available if 
the beneficiary provided his or her prior written consent. Finally, we 
proposed to limit the content of the claims data to the minimum data 
necessary for the ACO to effectively coordinate care of its patient 
population.
    As a condition of receiving the data, the ACO would be required to 
submit a formal data request, either at the time of application or 
later in the agreement period, and 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.
    Additionally, we proposed to require ACOs to enter into a 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 proposed 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 proposed 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 its termination from 
the Shared Savings Program or additional sanctions and penalties 
available under the law. ACOs would be required to certify to their 
willingness to comply with the terms of the DUA in their application to 
participate in the program or at the time they request the claims data, 
we solicited comments on our analysis and proposals described 
previously. For a complete discussion of our analysis of our legal 
authority to disclose beneficiary-identifiable parts A, B, and D claims 
data to ACOs (see 76 FR 19556 through 19559).
    Comment: The majority of comments supported the provision regarding 
beneficiary-identifiable data. However, some expressed concern about 
the ability of CMS to provide timely data to ACOs. The majority of 
comments supported the provision of this data on a monthly basis but 
some comments requested a more streamlined approach that would enable 
the provision of this data ``real time'' or weekly.
    One commenter believed that claim-based data simply cannot be 
timely, stating that by the time a claim for a service is submitted, 
processed and adjudicated, and compiled and extracted, significant time 
will have elapsed. Additionally, the commenter also contended that by 
the time the monthly transfer is received and properly ``loaded'' on an 
ACO's system, and analyzed by the ACO's or their consultant's staff, 
several more months will have elapsed, rendering the data less than 
useful. Another commenter suggested these data would be useful on a 
quarterly basis.
    Response: Although we understand that ACOs would like to obtain 
data on a real time, or nearly real time basis, as we explained in the 
proposed rule, there is an inherent lag between when a service is 
performed and when the service is submitted for payment, for this 
reason it is not feasible to provide data in real time. As noted 
previously, however, we expect that ACOs will have, or will be working 
towards having, processes in place to independently identify and 
produce 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. A robust health 
information exchange infrastructure and improving communication among 
ACO participants and the ACO's neighboring health care providers could 
assist in accessing data that is closer to ``real time''.
    In keeping with the ``minimum necessary'' provisions of the HIPAA 
Privacy Rule, ACOs are expected only to request data from us that will 
be useful to them for conducting the kinds of activities that are 
described in the proposed rule. ACOs may request data as frequently as 
each month but are not required to submit a request monthly. ACOs may 
submit requests less frequently if monthly reports are not necessary to 
suit their needs.
    Comment: Several comments were concerned about the ability of ACOs 
to convert a large volume of claims data into actionable information. 
Some requested that CMS standardize the monthly information in a way 
that is actionable for the ACO.
    Response: We agree that not all ACOs may have the capability, 
desire, or need to handle large volumes of claims data in a way that 
will complement the ACO's activities to improve care processes. For 
that reason, we are not requiring all ACOs to submit DUAs or request 
monthly beneficiary identifiable claims data, as noted previously. 
Accordingly, as described previously, before receiving any data, 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.
    Comment: A few comments requested that the data elements contained 
in the monthly beneficiary identifiable data be expanded. Commenters 
additionally suggested that the data elements should include detailed 
information on all services received by beneficiaries who have been 
treated by an ACO participant. One comment specifically requested that 
the claims data include both the NPI and TIN so they can drill their 
quality and cost containment efforts down to the individual provider 
level while another comment specifically requested that for suppliers, 
such as laboratories, the minimum necessary data set must include the 
Place of Service (POS) code as the supplier ID serves no real purpose 
for laboratories.
    Response: In the proposed rule, we stated that we believed 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 form 
and thru dates of service, the provider or supplier type, and the claim 
payment type. (76 FR 19558). Similarly, we stated that the minimum 
necessary Part D data elements 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. (76 FR 19559). We 
would like to clarify that these lists of data elements were provided 
in order to offer examples of the types of data elements that might be 
the minimum data necessary to permit an 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 did not, however, intend that these data elements would be the only 
data elements that an ACO could request. Rather, we intended that an 
ACO could request additional data elements provided it could 
demonstrate how the additional requested information would

[[Page 67848]]

be necessary to performing the functions and activities of the ACO, 
such that they would be the minimum necessary data for these purposes. 
Accordingly, in this final rule, we are clarifying that the minimum 
necessary data elements may include, but are not limited to, the list 
of Parts A and B data elements and the list of Part D data elements 
that were specifically included in the proposed rule.
    Furthermore, we agree with the request to include the provider's 
identity, such as through the NPI or TIN. One of the important 
functions of the ACO is to coordinate care, and without the provider's 
identity, the ACO would not able to make full use of the claims data to 
determine which other providers it will need to work with in order to 
better coordinate the beneficiary's care. For the same reasons, the POS 
code will be useful. We do agree that in order to effectively 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 the minimum necessary data set should be 
expanded to include TIN, NPI, and POS codes.
    Comment: Several commenters requested that beneficiary identifiable 
data be supplied to ACOs 6 months prior to their initial agreement 
start date while other comments did not specify a specific timeframe 
but generally requested that beneficiary identifiable data be provided 
to ACOs in advance of signing their agreements.
    Response: Similar to the response provided previously related to 
the provision of the four beneficiary identifiable data points 
associated with the aggregate data reports, the legal bases for the 
disclosure of beneficiary-identifiable information would not be 
applicable prior to the start of the ACO's participation in the Shared 
Savings Program.
    Comment: Several comments requested that we make Medicare claims 
data available to Regional Health Improvement Collaboratives as soon as 
possible so that they can help providers in their community identify 
successful strategies for forming ACOs and also develop other 
innovative payment and delivery reforms that the Innovation Center can 
support.
    Response: This comment is outside the scope of this rule. In the 
proposed rule, we proposed to share beneficiary-identifiable claims 
data with the ACOs under the terms specified. We did not propose to 
make these data available to other entities. However, we note that 
under section 10332 of the Affordable Care Act certain qualified 
entities, which may include existing community collaboratives, that 
meet certain requirements for performance measurement and reporting can 
access beneficiary identifiable claims data for the purposes of 
evaluating the performance of providers and suppliers on measures of 
quality, efficiency, effectiveness and resource use.
    Comment: One comment recommended that ACOs should be required to 
assure that health data is bi-directional with State health agency 
registries. This bi-directional sharing of data is an important 
resource to draw on the expertise of governmental public health in 
using data to identify high risk populations. State health agencies can 
provide improvements in individual and population care, resulting in 
better health and reduced expenditures.
    Response: We recognize the importance of encouraging health 
information exchange with State health agency registries. Two of the 
objectives of our Medicare EHR Incentive Program for eligible 
professionals are related to sharing information with State health 
agencies, such as immunization data and syndromic surveillance data. 
More information about the Medicare EHR Incentive Program is available 
at https://www.cms.gov/ehrincentiveprograms/30_Meaningful_Use.asp. As 
discussed in section II.F. of this final rule, we have adopted a 
quality measure requiring ACOs to report the percentage of primary care 
providers who successfully qualify for an EHR Incentive Program 
payment.
    We anticipate that ACOs will participate in active health 
information exchange with their State health agencies as appropriate; 
however, we decline to require ACOs to send information to their State 
health agencies as a condition of participation in the Shared Savings 
Program. We are finalizing our proposal to share beneficiary 
identifiable data with ACOs that are qualified to participate in the 
program.
    Comment: Several commenters were concerned that the integrated 
design of ACOs could result in DUA and privacy law violations without 
appropriate monitoring and safeguards in place, and would request that 
CMS be more prescriptive in those policies addressing its sharing of 
data, the ACOs sharing of data internally, and the ACO's suppression of 
inappropriate data flowing to sources (that is adolescent/minor data to 
a parent/guardian, beneficiary data to an ex-spouse, etc.).
    Response: As discussed previously, we believe we have the legal 
authority to share beneficiary identifiable claims data under the 
conditions specified. While not required to do so under the applicable 
laws, we have also elected to bar redisclosure of any CMS claims data 
that are received by an ACO through the Shared Savings Program. 
Furthermore, the recipients of CMS claims data under this program are 
either HIPAA covered entities or business associates of HIPAA covered 
entities. The HIPAA Privacy and Security rules will provide added 
protections (and enforcement mechanisms) outside of the ACO program 
requirements. Additionally, we have proposed, and are finalizing robust 
monitoring protocols (described in section II.H. of this final rule) 
that will protect beneficiary privacy interests and penalize ACOs that 
misuse data.
    Comment: A comment stated that CMS must assure that all ACO 
participants have equal access to beneficiary identifiable data. 
Another commenter recommended that pharmacists specifically be allowed 
to be active partners in data sharing.
    Response: We believe it is in the best interest of all ACO 
participants to have a voice in the decision making and function of the 
ACO. As such, we have proposed that ACO participants (defined as any 
Medicare enrolled provider or supplier, including pharmacists) have a 
mechanism of shared governance. Shared governance ensures all ACO 
participants have the ability to jointly make decisions on how best to 
use and disseminate information derived from beneficiary identifiable 
claims in accordance with all applicable laws for purposes of the 
health care operations of the ACO participants, and/or effectively 
treating the assigned patient population of the ACO.
    Comment: Several comments expressed concerns regarding how the data 
for those patients that are ultimately not assigned to the ACO will be 
handled. One comment specifically requests that no beneficiary 
identifiable data be shared with any program until after the Medicare 
Advantage open season has concluded as this would ensure that a 
Medicare beneficiary has the option of electing a different health care 
delivery method without having their personal information shared with 
an organization through which they are not receiving health services.
    Response: We recognize that some beneficiaries will not continue to 
see the ACO participants because they may move or change providers. 
Some beneficiaries may change providers because they have enrolled in a 
Medicare Advantage plan that does not

[[Page 67849]]

include their existing provider. When beneficiaries stop receiving care 
from ACO participants, for whatever reason, the ACO no longer needs to 
receive claims data for these beneficiaries because the ACO would no 
longer be responsible for coordinating their care. Accordingly, 
consistent with Sec.  425.704(b), ACOs should not continue to request 
claims data from us for beneficiaries that the ACO knows are no longer 
being treated by ACO participants.
    We are finalizing our proposal to share these data with the ACO 
once the beneficiary has been notified and has not declined to have 
their data shared. We will also monitor the ACO's compliance with the 
terms of the DUA.
    Comment: Several commenters recommended that we specify in the 
regulation that an ACO may transmit data to a vendor or designate a 
vendor to receive data from CMS on their behalf, and that this vendor 
may use this data in a manner that complies with HIPAA and their 
business associate agreements.
    Response: In the proposed rule, we discussed the ability under 
HIPAA for covered entities to share beneficiary identifiable data with 
business associates. We believe based on its work on behalf of covered 
entity ACO participants and ACO providers/suppliers in conducting 
quality assessment and improvement activities, a vendor could qualify 
as a business associate or subcontractor of a business associate. 
Therefore, we believe an ACO may allow a vendor to receive claims 
information on its behalf, but it must assume responsibility for that 
vendor's use and disclosures of the data.
    Comment: One comment suggested that the provision of beneficiary 
identifiable data on a monthly basis could undermine the movement to 
EHRs if ACOs instead invest in free-standing programs to analyze claims 
data. Other comments state that the ability to facilitate health 
information exchange among affiliated and unaffiliated providers 
through the use of both EHR and HIT interoperability standards is an 
important ingredient to the success of ACOs.
    Response: We disagree that the movement toward adopting EHRs will 
be somehow undermined by our provision of beneficiary identifiable 
claims data to the ACOs. As we have explained, the beneficiary 
identifiable claims data that will be furnished by us, although useful, 
is not ``real time'' and is not expected to supplant the expectation 
that ACOs are growing in their capability for internal analysis of data 
to improve quality as well as improving coordination of care by better 
communication between ACO participants and non-participant providers. 
Additionally, because the ACO will be held accountable for an assigned 
population of FFS Medicare beneficiaries, we expect that beneficiary 
identifiable claims data will be useful in identifying services and 
goods obtained from non-ACO providers and suppliers and in developing 
processes to improve communication with those practitioners to improve 
overall care delivery. The development of interoperable EHR and HIT 
among both affiliated and unaffiliated providers would be one way to 
facilitate communication with practitioners.
5. Giving Beneficiaries the Opportunity To Decline Data Sharing
    Although we have the legal authority, within the limits described 
previously, to share Medicare claims data with ACOs without the consent 
of beneficiaries, we nevertheless believe that beneficiaries should be 
notified of, and have control over, who has access to their personal 
health information for purposes of the Shared Savings Program. Thus, we 
proposed to require that, as part of its broader activities to notify 
patients that its ACO provider/supplier is participating in an ACO, the 
ACO must also inform beneficiaries of its ability to request claims 
data about them if they do not object.
    Specifically, we proposed 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 an 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 to sharing their data, he or she would be given a 
form stating that they have been informed of their physician's 
participation in the ACO and explaining how to decline having their 
personal data shared. The form could include a phone number and/or 
email address for beneficiaries to call and request that their data not 
be shared. Thus, we proposed that ACOs would 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 decline claims data sharing. We noted 
that it is possible that a beneficiary would choose not to have their 
data shared with the ACO but would want to continue to receive care 
from ACO participants or providers/suppliers. We further noted that in 
such a case, the ACO would still be responsible for that beneficiary's 
care, and as such, the beneficiary's data would continue to be used to 
assess the performance of the ACO. To ensure a beneficiary's preference 
is honored, we proposed to maintain a running list of all beneficiaries 
who have declined to share their data. We proposed to monitor whether 
ACOs request data on beneficiaries who have declined data sharing, and 
proposed to take appropriate actions against any ACO that has been to 
make such a request. For a complete discussion of our policy rationale 
for these proposals (see (76 FR 19559 and 19560)).
    Comment: Some comments suggested that this proposal to permit 
beneficiaries to decline data sharing runs counter to the goal of 
coordinated care and will make it nearly impossible for ACOs to 
succeed. These comments offered various alternatives ranging from: 
Eliminating the opportunity for beneficiaries to decline data sharing, 
removing those beneficiaries who elect to decline to have their data 
shared from ACO performance assessment, requiring beneficiaries who 
choose to decline to participate in data sharing from continuing to 
seek care from an ACO participant, allowing ACOs to refuse care to 
beneficiaries who choose to decline data sharing, and making the 
beneficiary's choice to receive care from an ACO provider/supplier an 
automatic opt-in for data sharing.
    Response: Although we have the legal authority, within the limits 
described previously, to share Medicare claims data with ACOs without 
the consent of the Medicare beneficiaries, we believe that 
beneficiaries should be notified of their provider's participation in 
an ACO and have some control over who has access to their personal 
health information for purposes of the shared savings program. 
Furthermore, we believe that a beneficiary should not be subject to any 
penalties, such as being required to change their healthcare provider, 
if they decide that they do not want their information shared. The 
requirement that an ACO provider/supplier engage patients in a 
discussion about the inherent benefits, as well as the potential risks, 
of data sharing provides an opportunity for true patient-centered care 
and will create incentives for ACOs, ACO participants, and ACO 
providers/suppliers to develop positive relationships with each 
beneficiary under their care. Additionally, this proposal will provide 
ACO participants and ACO providers/suppliers the opportunity to engage 
with beneficiaries by explaining the shared savings program and its 
potential benefits to both the beneficiaries and the health

[[Page 67850]]

care system as a whole. FFS beneficiaries will retain their right to 
seek care from any provider, including those participating in an ACO, 
even if they decline to share their data. Additionally, requiring that 
ACOs be accountable to all assigned beneficiaries will allow us to 
compare the quality metrics and costs between those beneficiaries who 
have declined to share their data and those beneficiaries who have 
allowed their data to be shared in order to evaluate the effectiveness 
of the data sharing provisions. We will monitor for any actions taken 
on the part of the ACO to steer patients away that have declined data 
sharing.
    Comment: A few comments recommend that for the elderly, less 
literate or tribal populations, that an opt-in approach would be more 
conducive to offering beneficiaries meaningful control over their 
personal health information. Commenters believe the advantage of an 
opt-in approach is that consent must be sought before which time any 
sharing of health information can occur. Obtaining affirmative written 
permission would also provide documentation of the beneficiary's 
choice. A few other comments supported our policy to afford meaningful 
choice over their personal health information to beneficiaries but 
recommended that we make this less burdensome on the beneficiary.
    Response: We disagree that an opt-in approach would offer 
beneficiaries more control over their personal health information then 
an opt-out approach. We believe either approach, done well, offers 
equivalent control. As discussed previously, our opt-out approach 
coupled with notification of how protected health information will be 
shared and used affords beneficiaries choice and will offer ACOs, ACO 
participants, and ACO providers/suppliers the opportunity to develop 
positive relationships with each beneficiary under their care. 
Additionally, our notification and opt out approach will provide ACOs, 
ACO participants, and ACO providers/suppliers the opportunity to 
explain the shared savings program and its inherent benefits to both 
the beneficiaries and the health care system as a whole. We recognize 
that obtaining affirmative written permission would provide 
documentation of the beneficiary's choice in an opt-in model. However, 
we believe that under this approach significant paperwork burdens arise 
as providers must track consents for the majority of their patient 
population.
    Comment: One comment stated that requiring beneficiaries to change 
their health care delivery in order to avoid having their personal 
health information shared among ACO providers is contrary to the 
message delivered during the health care debate that if a beneficiary 
was happy with their health care, nothing would change. Another comment 
was concerned that patients may be skeptical of or not understand the 
opt-out proposal and for this reason seek care outside the ACO, even if 
the beneficiary has an established relationship with the ACO 
participant.
    Response: We disagree with this comment and contend that the 
transparency provided by this proposal ensures the beneficiary may 
decline data sharing while also allowing the beneficiary to continue to 
receive care from an ACO provider if they are happy with the care he/
she is providing. In this way, beneficiaries retain freedom under 
traditional FFS Medicare to choose their own health care providers 
while also affording them the option of whether or not to share their 
data.
    Comment: Several comments approved of our proposal to offer all 
beneficiaries the opportunity to decline to share their health data and 
especially liked that it would afford providers the opportunity to 
engage with patients to promote trust. Many of these comments also 
suggested that this policy would allow CMS to evaluate whether or not 
the sharing of beneficiary identifiable claims data is an important 
factor in improving health care delivery by comparing outcomes for 
beneficiaries who decline data sharing against those who do not.
    Response: We agree that evaluating the outcomes of beneficiaries 
who have declined data sharing versus those who have not could provide 
valuable information, and will investigate the possibility of 
conducting such a study. We believe comparative evaluations like this 
are important for identifying potential improvements to improving the 
Medicare program. We intend to study the effects of the Shared Savings 
Program over time, and expect to improve the program through lessons 
learned by participants and evaluations of similar initiatives, such as 
those undertaken through the Innovation Center.
    Comment: A few commenters recommended that CMS maintain the list of 
beneficiaries who have declined to share their data, and that CMS 
report to the ACOs the percentage of attributed beneficiaries who 
decline data sharing to the ACO since this will directly impact data 
integrity, risk assessment, validation, and potentially performance.
    Response: We agree that knowing the percentage of beneficiaries 
that have declined data sharing could be useful to ACOs. However, 
because the ACO will be compiling and submitting the list of 
beneficiaries who have not declined data sharing on a monthly basis, 
the ACO will already have sufficient data to assess the percentage of 
beneficiaries who decline data sharing.
    Comment: A few comments suggest that CMS explore alternative 
assignment methodologies that will facilitate a greater willingness by 
beneficiaries to share data. Additionally, one commenter recommended 
that the data sharing process proposed in the Pioneer ACO Model should 
be adopted for the general Shared Savings Program.
    Response: We appreciate these comments and are looking forward to 
lessons learned from testing different approaches in the Pioneer ACO 
Model.
    Comment: Several commenters were concerned that allowing ACOs 
access to beneficiary identifiable data only after: (1) The beneficiary 
has visited a primary care participating provider during the 
performance year; and (2) does not elect to decline to participate in 
data sharing, will result in a delay in the provision of claims data to 
ACOs, and may generate unnecessary office visits for the beneficiary 
population as providers might attempt to pull beneficiaries into the 
office for needless visits just in order to explain the Shared Savings 
Program to the beneficiaries.
    Response: We have considered these comments in light of our goal to 
promote better physician-patient relationships, program transparency 
and reduce administrative burden. We are modifying our proposed 
approach to providing beneficiary identifiable data to ACOs. We will 
continue to require ACOs to notify patients at the point of care that 
they are participating in an ACO, that they will be requesting PHI 
data, and that the beneficiary has the right to decline to share this 
data with the ACO. In addition, we will also provide a mechanism by 
which ACOs can notify beneficiaries and request beneficiary 
identifiable data in advance of the point of care visit using the lists 
of preliminary prospectively assigned patients provided to the ACO at 
the start of the agreement period and quarterly during the performance 
year.
    As discussed previously, upon signing participation agreements and 
a DUA, ACOs will be provided with a list of preliminary prospectively 
assigned set of beneficiaries that would have historically been 
assigned and who are likely to be assigned to the ACO in future 
performance years. ACOs may utilize this initial preliminary

[[Page 67851]]

prospectively assigned list along with the quarterly lists to provide 
beneficiaries with advance notification prior to a primary care service 
visit of their participation in the shared savings program and their 
intention to request their beneficiary identifiable data. Beneficiaries 
will be given the opportunity to decline this data sharing as part of 
this notification. After a period of 30 days from the date the ACO 
provides such notification, ACOs will be able to request beneficiary 
identifiable data from us absent an opt-out request from the 
beneficiary. Although we would expect providers/suppliers to still 
actively engage beneficiaries in conversation about the Shared Savings 
Program and their ability to decline to share their own health data at 
the beneficiaries' first primary care visit.
    We believe this modification will continue to afford beneficiaries 
with a meaningful choice about the sharing of their claims data, while 
also allowing practitioners to have more timely access to 
beneficiaries' claims data in order to begin coordinating care for 
those beneficiaries as soon as possible. This additional flexibility 
may be particularly important in the case of beneficiaries who do not 
schedule an appointment with a primary care practitioner until later in 
the year or not at all in a given year. As noted previously, under 
Sec.  425.704(b) ACOs should not continue to request claims data for 
beneficiaries that the ACO knows are no longer being treated by ACO 
participants or who have not been assigned to the ACO during the 
retrospective reconciliation.
    Final Decision: We will finalize our proposal in Sec.  425.704, to 
allow ACOs to request beneficiary identifiable data on a monthly basis.
    Additionally, we are modifying this proposal in Sec.  425.708 to 
allow the ACO the option of contacting beneficiaries from the list of 
preliminarily prospectively assigned beneficiaries in order to notify 
them of the ACO's participation in the program and their intent to 
request beneficiary identifiable data. If, after a period of 30 days 
from the date the ACO provides such notification, neither the ACO nor 
CMS has received notification from the beneficiary to decline data 
sharing, the ACOs would be able to request beneficiary identifiable 
data. The ACO would be responsible for repeating the notification and 
opportunity to decline sharing information during the next face-to-face 
encounter with the beneficiary in order to ensure transparency, 
beneficiary engagement, and meaningful choice.
    We note that if a beneficiary declines to have their claims data 
shared with the ACO, this does not preclude physicians from sharing 
medical record information as allowed under HIPAA amongst themselves, 
for example, a referring primary care physician providing medical 
record information to a specialist.

E. Assignment of Medicare Fee-for-Service Beneficiaries

    Section 1899(c) of the 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) 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, section 1899(h)(1)(B) of the Act defines an ACO 
professional to include practitioners described in section 
1842(b)(18)(C)(i) of the Act, such as PAs and NPs.
    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 final 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) of the Act, the ACO will then be held accountable ``for 
the quality, cost, and overall care of the Medicare fee-for-service 
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, that is, 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 
communications are further discussed in section II.H.2.a. of this final 
rule.
    Comment: A commenter noted that CMS experiences savings on Medicare 
Cost Contract products when admissions are avoided, but the value this 
generates is not currently shared by providers. The commenter noted 
that, in a Medicare Cost Contract, health plans assume risk for Part B 
services while CMS retains the risk for Part A services. In the PGP 
demonstration, the commenter's organization created savings for both 
Medicare FFS and Cost Contract patients, and CMS received the benefit 
of reduced hospital admissions. These savings were not calculated into 
the gain sharing arrangement within the PGP demonstration program nor 
could they be recognized in cost plan contracts since the value accrued 
solely to CMS. The commenter believed that this disconnect makes it 
cost prohibitive to invest in technologies to improve care across our 
senior patient population. CMS should include these patients in

[[Page 67852]]

the performance calculations for ACOs with a significant Cost Contract 
population''
    Response: We assume that the commenter is referring to cost 
contracts which exist under section 1876 of the Act. Section 1899(h)(3) 
of the Act defines a ``Medicare fee-for-service beneficiary'' for 
purposes of the Shared Savings Program as ``an individual who is 
enrolled in the original Medicare fee-for-service program under parts A 
and B and is not enrolled in an MA plan under part C, an eligible 
organization under section 1876, or a PACE program under section 
1894.'' Therefore, the statute precludes assignment of cost contract 
beneficiaries to ACOs under the Shared Savings Program.
    Comment: Another commenter cited the definition of ``Medicare fee-
for-service beneficiary'' under section 1899(h)(3) of the Act, but then 
requested that Medicare beneficiaries that can participate in the ACO 
should include Seniorcare enrollees. The commenter describes 
``Seniorcare'' as a product for Medicare beneficiaries which falls 
under section 1876 of the Act, and contends that their participation in 
an ACO should be permitted because they represent a small population 
that is ``important in rural areas.'' Finally, the commenter contends 
that dual eligibles should be included in the program, observing that 
their participation in the Shared Savings Program would require 
coordination with the States, and suggesting that we gather data on the 
dual eligibles who participate during the first years of the MSSP in 
order to determine whether any issues arise with their participation.
    Response: As we have discussed previously, section 1899(h)(3) of 
the Act specifically excludes individuals ``enrolled in an eligible 
organization under section 1876'' from the definition of ``Medicare 
fee-for-service beneficiary'' for purposes of the Shared Savings 
Program. The commenter stated that Seniorcare is a Medicare product 
offered under section 1876 of the Act. Seniorcare enrollees therefore 
may not be assigned to an ACO. Nothing in section 1899 of the Act, 
however, precludes assignment of dual eligibles enrolled in the 
original Medicare FFS program to ACOs participating in the Shared 
Savings Program. CMS' goal is to promote complete integration of care 
provided and align incentives for all individuals whether under 
Medicare, Medicaid, or both. We agree with the commenter's suggestion 
that we carefully monitor ACO care coordination, quality of care, and 
costs for dual eligibles including the impact on Medicaid and will 
implement this within our monitoring plans. In addition, we intend to 
study the effect of assignment of dually eligible individuals to ACOs 
in the MSSP on Medicaid expenditures, and may use this information in 
the development of future models for testing by the Innovation Center.
    Final Decision: We are finalizing our proposed policies concerning 
the eligibility of Medicare FFS beneficiaries for assignment to an ACO 
under the Shared Savings Program. Specifically, as required by the 
statute, and consistent with the definition of Medicare fee-for-service 
beneficiary in Sec.  425.20, under Sec.  425.400(a) only individuals 
enrolled in the original Medicare fee-for-service program under parts A 
and B, and not enrolled in an MA plan under Part C, an eligible 
organization under section 1876 of the Act, or a PACE program under 
section 1894 of the Act, can be assigned to an ACO.
1. 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 later in the 
final rule. In this section of this final rule, we discuss how to 
identify the appropriate primary care services on which to base the 
assignment and our final policy for defining primary care services for 
this purpose.
    In the proposed rule, we proposed to define ``primary care 
services'' as a set of services identified by these HCPCS codes: 99201 
through 99215; 99304 through 99340; and 99341 through 99350. 
Additionally, we proposed to 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.
    Comment: One commenter expressed concern that an assignment 
methodology based on primary care services could lead to an unintended 
negative consequence: ``An attribution model based on primary care 
utilization could result in a disproportionate number of high-risk 
beneficiaries, as compared to low-risk beneficiaries, being assigned to 
the ACO. Low-risk beneficiaries may be less likely to have visited a 
PCP or other physician, resulting in that patient not being assigned to 
an ACO. Therefore, the commenter encourages CMS to consider ways in 
which these beneficiaries can be encouraged to seek preventive care and 
become involved in an ACO.
    Response: We disagree that an attribution model based on primary 
care utilization could result in a disproportionate number of high-risk 
beneficiaries being assigned to the ACO. Many low risk beneficiaries 
still visit a PCP or other physician once or twice a year for routine 
check-ups and assessments. Furthermore, we are bound by the statutory 
requirement that assignment be based upon the utilization of primary 
care services rendered by a physician. Nevertheless, we will keep this 
concern in mind as we implement the Shared Savings Program and gain 
experience in its operation during its first few years.
    Comment: One commenter requested that the code sets used to 
determine assignment include inpatient evaluation and management (E&M) 
code: ``Observation--99218-99220/Initial, 99224-99226/Subsequent; 
Hospital Inpatient--99221- 99223/Initial, 99231-99233/Subsequent; and 
Hospital Inpatient Consultation--99251-99255.'' Another recommended 
excluding hospital emergency visits and urgent care visits. Another 
commenter noted that the proposed rule narrowly defines ``primary care 
services,'' and expressed uncertainty about how we envision the 
organization of care such as occupational therapy within the proposed 
ACO framework. Specifically, the commenter asked whether only E&M codes 
will be used to determine the plurality of care, or whether the 
provision of other services will also be considered. Or will these 
other services only be considered in terms of savings?
    A national association recommended that certain CPT codes for 
remote monitoring and care coordination be used in the assignment 
process without being tied to a physician office visit. Another 
association expressed concern that the method for assigning 
beneficiaries should account for the patients receiving care in post-
acute settings, where the providers may not fall within the proposed 
definition of primary care physician. One commenter argued that the 
inclusion of skilled nursing facility (SNF) and home visit CPT codes 
would be problematic for some systems because an ACO could potentially 
provide the plurality of outpatient care in an office setting to a 
beneficiary and yet the beneficiary still might not be assigned to that 
ACO. The commenter noted that this would happen in the case where a 
beneficiary is hospitalized and then discharged to a

[[Page 67853]]

nursing home not affiliated with the ACO physicians. In the view of the 
commenter, this method would not result in the alignment of the 
beneficiary with the correct provider. Another commenter noted that 
groups that have providers practicing in skilled nursing facilities are 
often assigned patients who have many visits over a short period of 
time in those facilities, but who are not their primary care patients.
    Response: We proposed the list of codes that would constitute 
primary services for two reasons. First, we believed the proposed list 
represented a reasonable approximation of the kinds of services that 
are described by the statutory language (which refers to assignment of 
``Medicare fee-for-service beneficiaries to an ACO based on their 
utilization of primary care services''). In addition, we selected this 
list to be largely consistent with the definition of ``primary care 
services'' in section 5501 of the Affordable Care Act. That section 
establishes an incentive program to expand access to primary care 
services, and thus its definition of ``primary care services'' provides 
a compelling precedent for adopting a similar list of codes for 
purposes of the Shared Savings Program. We have slightly expanded the 
list in section 5501 of the Affordable Care Act to include the Welcome 
to Medicare visit (HCPCS code G0402) and the annual wellness visits 
(HCPCS codes G0438 and G0439) as primary care services for purposes of 
the Shared Savings Program. These codes clearly represent primary care 
services frequently received by Medicare beneficiaries, and in the 
absence of the special G codes they would be described by one or more 
of the regular office visit codes that we have adopted from section 
5501 of the Affordable Care Act. Finally, the statute requires that 
assignment be based upon the utilization of primary care services by 
physicians. For this reason, only primary care services can be 
considered in the assignment process. Other services can, as one 
commenter noted, only be considered in terms of determining shared 
savings, if any.
    With regard to the comments about the inclusion or exclusion of 
certain codes, we would observe first that the codes for hospital 
emergency visits (99281 through 99288) and urgent care visits (we 
assume the commenter refers to 99291 and 99292, which represent 
critical care services) were not included in our proposed list of codes 
representing primary care services. We believe that the inclusion of 
the codes for SNF visits is appropriate because beneficiaries often 
stay for long periods of time in SNFs, and it is reasonable to conclude 
that these codes represent basic evaluation and management services 
that would ordinarily be provided in physician offices if the 
beneficiaries were not residing in nursing homes. Inpatient hospital 
visit codes (99221 through 99223), in contrast, are intrinsically 
related to the acute care treatment of the specific condition or 
conditions that required the inpatient hospital stay, and we therefore 
do not believe that these codes represent the kind of general 
evaluation and management of a patient that would constitute primary 
care. Finally, we would observe in general that it would be impossible 
to establish a list of primary care codes by considering all of the 
ways in which the inclusion, or exclusion, of certain codes or sets of 
codes would advantage or disadvantage different types of potential 
ACOs. The code set that we are adopting in this final rule represents 
the best approximation of primary care services based upon relevant 
precedents and the information we currently have available. However, we 
intend to monitor this issue and will consider making changes to add 
(or delete) codes, if there is sufficient evidence that revisions are 
warranted.
    Final Decision: We are finalizing our proposal to define ``primary 
care services'' in Sec.  425.20 as the set of services identified by 
the following HCPCS codes: 99201 through 99215, 99304 through 99340, 
99341 through 99350, 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 addition, as we will discuss 
later in this final rule, in this final rule we will establish a cross-
walk for these codes to certain revenue center codes used by FQHCs 
(prior to January 1, 2011) and RHCs so that their services can be 
included in the ACO assignment process.
a. Consideration of Physician Specialties in the Assignment Process
    Primary care services can generally be defined based on the type of 
service provided, the type of provider specialty that provides the 
service, or both.
    In developing our proposal, we 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 the third 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 physician.
    We proposed 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 discussed previously, we 
proposed to define ``primary care services'' on the basis of the select 
set of HCPCS codes identified in the section 5501 of the Affordable 
Care Act, including G-codes associated with the annual wellness visit 
and Welcome to Medicare visit. We made this proposal in the belief that 
this option best aligned 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, we believed 
that the proposed option placed priority on the services of designated 
primary care physicians (for example, internal medicine, general 
practice, family practice, and geriatric medicine) in the assignment 
process. The option is also relatively straightforward 
administratively.
    However, we expressed our concern that this proposal might 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 proposed 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 
invited comment on this proposal and other options that might better 
address the delivery of primary care services by specialists, including 
a ``step-wise approach'' under which beneficiaries could be assigned to 
an ACO based upon primary care services furnished by a specialist if 
they do not have any visits with a primary care physician.
    Comment: We received some very strong comments supporting our 
exclusion of services provided by

[[Page 67854]]

specialists in the assignment process, especially from organizations 
representing primary care physicians and from individual primary care 
physicians. Some endorsed our proposal because it ``supports the intent 
of the ACA for primary care practitioners to reduce the fragmentation 
of care and improve overall quality. Many specialists are not providing 
the primary, preventive services that are the building blocks for ACOs. 
Rather, specialists may tend to be quicker to refer patients to other 
specialists for problems outside the scope of their practice.'' Several 
other comments even urged CMS to tighten the definition of primary care 
services by specifying ``general internal medicine'' rather than 
``internal medicine'' to ensure that Medicare ACOs are truly based on 
primary care physicians. One commenter also noted the absence of 
``measures of physician competence or capability'' in a rule with an 
abundance of requirements in many areas. Another commenter urged that 
we include preventive medicine physicians under the definition of 
primary care or the definition of general practice. Another recommended 
that, rather than list ``primary care services,'' CMS go further to 
state that the primary care professionals be limited to those eligible 
for Primary Care Incentive Payments under section 5501 of the 
Affordable Care Act as a matter of consistency and specificity across 
CMS policy. This commenter maintained that specialists are not 
providing continuing and comprehensive primary healthcare to their 
patients, and the commenter thus opposed any further expansion of the 
definition of ``primary care professional'' for purposes of assigning 
patients to ACOs.
    However, many commenters, including specialty societies, major 
medical centers, and others, strongly advocated inclusion of primary 
care codes from specialist physicians in the assignment process. Among 
other points, these commenters cited the shortages of primary care 
physicians in some areas. Others cited the fact that patients with 
certain chronic conditions (for example, diabetes, cardiac conditions, 
persons with disabilities, etc.) do receive most of their primary care 
from the specialist treating their conditions. One commenter raised the 
concern that the proposed definition of primary care services may not 
adequately represent services provided in post-acute care settings such 
as long-term care hospitals (LTCHs). The commenter noted that many LTCH 
patients are seen by teams of specialists who provide the bulk of the 
actual primary care services to these patients who often do not have a 
primary care physician. Other commenters also advocated including 
specialists in order to allow the formation of condition-specific ACOs, 
such as ``renal-focused ACOs.'' One physician society advocated 
expanding the definition of primary care, but retaining some 
limitations related to the specialty of the physicians providing 
services designated by the HCPCS basic office visit codes, on the 
grounds that subspecialty physicians often fulfill the primary care 
needs of their patients. This commenter and others cited subspecialty 
areas such as nephrology, oncology, rheumatology, endocrinology, 
pulmonology, and cardiology that might frequently be providing primary 
care to their patients.
    Another commenter recommended that the specialties designated as 
providing primary care services be expanded to include certain 
specialties, but only if the ACO demonstrates, based on its own data of 
the assigned beneficiaries, that those specified specialist physicians 
are indeed providing primary care services on a regular and coordinated 
basis and the ACO is primary care focused and comprised of at least 30 
percent primary care physicians and a maximum of 70 percent 
specialists. The commenter also argued that specialist-only group 
practices should not be eligible to become an ACO.
    One commenter argued that the exclusion of specialists from the 
assignment process is contrary to the intent of the statute by noting 
that subsection 1899(h)(1)(A) of the Act defines an ``ACO 
professional'' for purposes of assignment as a physician as that term 
is defined in 1861(r)(1) of the Act--in other words, as an M.D. or a 
D.O. The commenter maintains that it is not an oversight that neither 
section 1861(r)(1) or 1899(c) of the Act mention physician specialty. 
The commenter also cites the Ways & Means report on section 1301 of 
H.R. 3200, the House predecessor to section 3022 of the Affordable Care 
Act, which codified the Shared Saving Program at section 1899 of the 
Act, which states: ``The Committee believes that physicians, regardless 
of specialty, who play a central role in managing the care of their 
patient populations, and who are willing and able to be held 
accountable for the overall quality and costs of care for their 
patients across all care settings, should be allowed to form ACOs.''
    In order to account for the provision of many primary care services 
by specialists to chronically ill and other patients, one commenter 
suggested that the more appropriate method would be for the ACO to 
notify CMS who their ``Primary Care Providers'' are for an intended 
population within the ACO. In this way CMS can understand how to assign 
a beneficiary and a patient can know who their primary care' physician 
is within the ACO. Another commenter recommended allowing assignment to 
certain specialists (nephrology, rheumatology, endocrinology, 
pulmonology, neurology, and cardiology) provided the Medicare 
beneficiary has other primary care services for E&M Codes of less than 
10 percent. One specialty society offered this alternative definition 
of primary care in support of considering pediatricians as primary care 
physicians for purposes of assignment: ``Primary health care is 
described as accessible and affordable, first contact, continuous and 
comprehensive, and coordinated to meet the health needs of the 
individual and the family being served.''
    But one commenter maintained that the definition of primary care 
services should be less focused on the specialty of the provider, 
recommending that we should define primary care services by the 
services themselves, and then define primary care practitioners as 
those practitioners who primarily bill those services.
    Of the commenters advocating inclusion of specialists in the 
assignment methodology, most recommend the option which assigns 
beneficiaries based on the plurality of primary care services 
regardless of specialty, although some would accept a variation that 
excludes those specialties that rarely provide primary care. One 
comment said that, while they do not believe it is ideal, they could 
also accept the hybrid model, in which the beneficiary is assigned to a 
specialist if not otherwise assigned to a primary care physician. The 
commenter emphasized that, if this option is selected, it would be 
important to ensure the primary care physician is in fact serving as 
the beneficiary's principal care provider. A number of other 
commenters, including MedPAC, recommended that, in the final rule, we 
adopt the step-wise approach that we discussed as an option in the 
proposed rule. Another commenter agreed that beneficiaries with at 
least one visit with a primary care physician (general practice, 
internists, family medicine or geriatrician as defined by CMS) should 
be assigned to an ACO based on their utilization of primary care 
services.
    Response: We agree with the commenters who supported our proposal 
that the Shared Savings

[[Page 67855]]

Program should place a strong emphasis on primary care, which is 
consistent with the statutory requirement that assignment be based on 
the utilization of primary care services furnished by a physician. 
However, we cannot agree with those commenters who recommended that we 
tighten the definition of primary care services for purposes of the 
Shared Savings Program. For example, we do not agree with the 
recommendation of a few commenters that we include only ``general 
internal medicine'' rather than ``internal medicine'' under the 
proposed definition of primary care physician because the Medicare 
enrollment and billing systems contain a specialty code (specialty code 
11) only for ``internal medicine,'' and we thus have no way to 
differentiate ``internal medicine'' from ``general internal medicine.'' 
On the merits, we also doubt that the specialty designations of 
``internal medicine'' and ``general internal medicine'' selected by 
physicians reflect an adequate distinction between internal medicine 
specialists who primarily deliver primary care services and those who 
do not. (In addition, as we discuss later in this final rule, we have 
decided to include the primary care services provided by specialist 
physicians in the assignment process as part of the step-wise approach 
that we described in the proposed rule. As a result, to some degree, at 
least, the distinction between ``general internal medicine'' and 
``internal medicine'' has become less significant, since both would be 
included in our new assignment methodology in any case.) We do not 
agree with the suggestion to add the designation of ``preventive care 
specialist'' to our list of primary care physicians, because as much as 
possible we are following the designations of primary care physicians 
established under section 5501 of the Affordable Care Act, which does 
not include this specialty. We also believe that it would be 
operationally complex, and perhaps overly onerous and restrictive to 
potential participants in the Shared Savings Program, to incorporate 
special competency standards into the definition of primary care 
physician.
    We do not agree with commenters who argued that our proposed 
restriction of primary care services to those provided by primary care 
physicians was contrary to the statute. Section 1899 of the Act does 
not specifically define the term ``primary care services.'' 
Furthermore, section 1899(c) of the Act gives the Secretary discretion 
to determine ``an appropriate method'' to assign beneficiaries based on 
their utilization of primary care services furnished by a physician 
affiliated with the ACO, and thus allows the Secretary broad discretion 
in defining the term ``primary care.'' We would also note that our 
proposed definition largely followed the precedent established by 
section 5501(a) of the Affordable Care Act, the provision governing 
primary care incentive payments, and is thus clearly consistent with 
the overall intent of that Act, which also establishes the Shared 
Savings Program.
    However, in the proposed rule we also expressed some concerns about 
the possible effects of the proposed policy in eliminating certain 
genuine primary care services from consideration in the assignment 
process. In particular, we noted our concern about possibly excluding 
primary care services delivered by specialists, especially in some 
areas with shortages of primary care physicians, where specialists 
necessarily deliver the bulk of primary care services. We also noted 
that, especially for beneficiaries with certain conditions (for 
example, heart conditions and diabetes), specialist physicians often 
take the role of primary care physicians in the overall treatment of 
the beneficiaries. The commenters have confirmed these concerns, and 
persuaded us that, in the end, the Shared Savings Program should not 
restrict assignment purely to a defined set of primary care services 
provided only by the specialties that can be appropriately considered 
primary care physicians. We agree that our proposed assignment 
methodology would be unduly restrictive in areas with shortages of 
primary care physicians. We also agree that specialists do necessarily 
and appropriately provide primary care services for many beneficiaries 
with serious and/or chronic conditions.
    Therefore, in this final rule we are adopting a more balanced 
assignment process that simultaneously maintains the primary care-
centric approach of our proposed approach to beneficiary assignment, 
while recognizing the necessary and appropriate role of specialists in 
providing primary care services. As we previously noted, in the 
proposed rule we discussed a step-wise approach to beneficiary 
assignment. Under this approach, after identifying all patients who had 
a primary care service with a physician at the ACO, 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 physician. We hesitated to propose this 
option because we were concerned that it would introduce a greater 
level of operational complexity compared to the two other options we 
considered. In addition, we were concerned that 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 the TINs 
of specialists to whom beneficiaries are assigned would be required to 
be exclusive to one ACO. (As noted in section II.B.1.d of this final 
rule, the TINs upon which assignment is based must be exclusive to one 
ACO for purposes of participation in the Medicare Shared Savings 
Program. However, exclusivity of an ACO participant to one ACO is not 
necessarily the same as exclusivity of individual practitioners to one 
ACO. For example, exclusivity of ACO participants leaves individual 
NPIs free to participate in multiple ACOs if they bill under several 
different TINs. The ability of individual 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, we 
acknowledged that a ``step-wise approach'' would reflect many of the 
advantages of the other two approaches we discussed in the proposed 
rule (including the option we proposed), balancing the need for 
emphasis on a primary care core with a need for increased assignment 
numbers in areas with primary care shortages. Despite our initial 
misgivings regarding this approach, we have come to agree with MedPAC 
and the other commenters who endorsed such an approach that it provides 
the best available balance of maintaining a strong emphasis on primary 
care while ultimately allowing for assignment of beneficiaries on the 
basis of how they actually receive their primary care services.
    Final Decision: Under Sec.  425.402, after identifying all patients 
that had a primary care service with a physician who is an ACO 
provider/supplier in an ACO, we will employ a step-wise approach as the 
basic assignment methodology. Under this approach, beneficiaries are 
first assigned to ACOs on the basis of utilization of primary care 
services provided by primary care physicians. Those beneficiaries who 
are not seeing any primary care physician may be assigned to an ACO on 
the basis of primary care services provided by other physicians. This 
final policy thus

[[Page 67856]]

allows consideration of all physician specialties in the assignment 
process. We describe this step-wise approach in greater detail later in 
this final rule, after further addressing other related issues, 
including consideration of primary care services furnished by non-
physician practitioners, such as NPs and PAs. As also discussed later 
in this final rule, we will also consider only the specific procedure 
and revenue codes designated in this final rule in the assignment 
process.
b. Consideration of Services Furnished By Non-Physician Practitioners 
in the Assignment Process
    In the proposed rule we observed that, although the statute defines 
the term ``ACO professional'' to include both physicians and non-
physician practitioners, such as physician assistants (PAs), and nurse 
practitioners (NPs), for purposes of beneficiary assignment to an ACO, 
the statute also requires that we base assignment on beneficiaries' 
utilization of primary care services provided by ACO professionals who 
are physicians. As we discussed previously, section 1899(c) of the 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).'' Section 1899(h)(1)(A) of the 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''. 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'' under section 
1899(b)(1)(A) of the Act). However, we proposed that the assignment of 
beneficiaries to ACOs would be determined only on the basis of primary 
care services provided by ACO professionals who are physicians.
    Comment: We received numerous comments, especially from individual 
practitioners and organizations representing nurses, PAs, and others, 
objecting to the exclusion of primary care services provided by NPs, 
certified nurse midwives, other nursing practitioners, PAs and other 
non-physician practitioners from the assignment process. Many NPs and 
nurse associations commented that the ``limitation will significantly 
impair the ability of patients to access primary care services. It will 
negatively affect not only access, but the cost and quality of the care 
provided by the ACOs.'' The commenters emphasized that NPs have a long 
history of providing high quality, cost effective care and that their 
skills in the area of care coordination, chronic disease management, 
health promotion, and disease prevention could contribute significantly 
to the quality and cost savings of any shared saving program. Some 
commenters urged that CMS should take any opportunity it has to 
encourage the use of non-physician providers in the care of Medicare 
beneficiaries.
    Commenters advocated several approaches to dealing with the 
statutory language under which assignment turns on primary care 
services provided by ``an ACO professional described in subsection 
(h)(1)(A),'' which specifies ``* * * a doctor of medicine or osteopathy 
legally authorized to practice medicine and surgery by the State in 
which he performs such function or action.'' Some commenters argued 
that the reference to ``subsection (h)(1)(A)'' represents a drafting 
error, and that that we should proceed on the assumption that the 
reference should have been to ``subsection (h)(1),'' which includes not 
only physicians, but also CNSs, NPs, and PAs. Other commenters argued 
that it is not necessary to interpret the requirement that 
beneficiaries be assigned based on primary care services ``provided'' 
by a physician to mean that Medicare beneficiaries are to be assigned 
to ACOs solely based on services ``directly provided'' by a physician. 
These commenters maintained that the statute does not require that 
services be ``directly provided'' by a physician, but only that 
physicians provided care, which can be done directly or indirectly.
    A national nurses' association and several other commenters 
acknowledged that the correct statutory reference concerning assignment 
is to ``subsection (h)(1)(A),'' which allows assignment only on the 
basis of physician services, but also argued that ``CMS can abide by 
the statutory requirement by basing assignment on utilization of 
primary care services provided by an ACO physician without requiring a 
plurality. Any primary care service provided by an ACO primary care 
physician should be enough to trigger assignment, as long as some other 
ACO participant has provided the plurality of primary care services to 
that beneficiary.''
    PAs, their representative organizations, and some other commenters 
disagreed with the exclusion of PAs from the assignment process. One 
commenter was ``extremely disappointed'' that PAs are not included in 
the definition of primary care professional. Some commenters suggest 
that the discretionary authority provided to the Secretary of Health 
and Human Services under section 1899(i) of the Act allowing for the 
utilization of other payment models under the Shared Savings Program 
could provide the means to include non-physician practitioners such as 
PAs and NPs. Another commenter recommended that the care provided by a 
PA, pursuant to the criteria outlined in the proposed rule, be used to 
determine assignment to an ACO. Since PAs practice in a collaborative 
nature with physicians, the commenter believed it appropriate that 
beneficiaries who receive a plurality of primary care services from a 
PA be assigned based upon these services. However, they would also 
restrict recognition of care provided by non-physician providers only 
to those who have a collaborative or supervisory agreement with 
physicians, excluding some NPs who practice independently.
    Response: We cannot agree with those commenters who maintained that 
the wording of section 1899(c) of the Act with respect to considering 
primary care services provided by physicians should be treated as a 
``drafting error.'' We are unaware of any direct or indirect evidence 
that the reference to ``an ACO professional described in subsection 
(h)(1)(A)'' rather than to ``an ACO professional described in 
subsection (h)(1)'' was made in error. Even if there were convincing 
evidence to that effect, given the clarity of the plain language of the 
statute, it would not fall within our authority to correct that error. 
Therefore, in implementing the Shared Savings Program, the assignment 
methodology will be based on utilization of primary care services 
provided by physicians. At the same time, we agree with the many 
commenters who emphasized that NPs, PAs, and clinical nurse specialists 
(CNSs) have a well-established record of providing high quality and 
cost-effective care. We also agree that these practitioners can be 
significant assets to the ACO in the areas of quality and cost saving, 
and indeed that the appropriate use of NPs, PAs, and CNSs could be an 
important element in the success of an

[[Page 67857]]

ACO participating in the Shared Savings Program. As many commenters 
noted, the skills of these practitioners, especially in care 
coordination, chronic disease management, health promotion, and disease 
prevention certainly can contribute significantly to the quality and 
cost savings of any shared saving program. (We would note in this 
context that nothing in the statute precludes an ACO from sharing 
savings with NPs and other practitioners, whether or not their services 
are included in the assignment process.)
    We also cannot agree with the commenters who suggested that the 
statutory language may be read to allow assignment to be based on 
services provided ``indirectly'' by a physician. Although the statute 
does not include the word ``directly,'' it does require that assignment 
be based on services ``provided'' by physicians. The statutory 
requirement that assignment be based on physician services, not 
services furnished by ACO professionals more generally, would be 
rendered meaningless if we were to adopt a reading of the statute that 
permits physician services to be furnished ``indirectly.'' For example, 
under this reading, a beneficiary could be assigned to an ACO without 
ever having seen a physician in the ACO. We believe that such an 
interpretation is directly contrary to the intent of section 1899(c) of 
the Act, and in particular, contrary to the express statutory 
requirement that assignment be based on physician services rather than 
ACO professional services, more generally.
    However, we took special note of one comment cited previously, 
specifically the comment that: ``Any primary care service provided by 
an ACO primary care physician should be enough to trigger assignment, 
as long as some other ACO participant has provided the plurality of 
primary care services to that beneficiary.'' This commenter suggested 
that it may be possible to employ the discretion that is afforded to 
the Secretary under the statute to determine ``an appropriate method'' 
for assigning beneficiaries to an ACO based on the utilization of 
primary care services furnished by a physician by considering the 
receipt of physician primary care services as a triggering factor in 
the assignment process, prior to considering where the beneficiary has 
received a plurality of primary care services provided by the full 
range of ACO professionals, so that the beneficiary is appropriately 
assigned to the ACO which bears the primary responsibility for his or 
her primary care. Specifically, we could implement the statutory 
requirement that assignment be based on physician services, by 
assigning a beneficiary to an ACO if, and only if, the beneficiary has 
received at least one primary care service from a physician who is an 
ACO provider/supplier in the ACO. Therefore, as required by the 
statute, we would be assigning beneficiaries to an ACO based upon the 
receipt of primary care from a physician in the ACO. However, we would 
apply this policy in the step-wise fashion that we have discussed 
previously, that is, basing assignment in a first step on the primary 
care services provided by primary care physicians (measured in terms of 
allowed charges) alone. Then, in a second step, we would assign 
patients who are not seeing any primary care physician either inside or 
outside the ACO if they have received at least one primary care service 
from an ACO physician (of any specialty) in the ACO, and taking into 
account the allowed charges for primary care services provided by all 
ACO professionals in the ACO. The beneficiary will be assigned to the 
ACO if the allowed charges for primary care services furnished to the 
beneficiary by all ACO professionals who are ACO providers/suppliers in 
the ACO are greater than the allowed charges for primary care services 
furnished by ACO professionals who are ACO providers/suppliers in any 
other ACO and allowed charges for primary care services furnished by 
physicians, NPs, PAs, and CNSs, who are not affiliated with an ACO. 
This method would avoid, for example, assignment of beneficiaries on 
the basis of receiving a few primary care services from specialist 
physicians, even though the beneficiary may be receiving the plurality 
of primary care services from specialist physicians, NPs or PAs who are 
ACO providers/suppliers in a different ACO.
    In adopting this policy, we are also extending the policy regarding 
exclusivity of TINs on which assignment is based to one ACO: that is, 
the TINs under which the services of specialists, PAs, and NPs are 
included in the assignment process subsequent to the identification of 
the ``triggering'' physician primary care services would have to be 
exclusive to one ACO for purposes of the Shared Savings Program. (We 
emphasize that we are establishing this policy for purposes of Shared 
Savings Program ACOs only: commercial ACOs may or may not wish to adopt 
a similar policy.)
    Comment: We received many comments from chiropractors and 
chiropractor associations recommending that the definition of ACO 
professional for purposes of the Shared Savings Program should be 
expanded to include chiropractors. These commenters cited the quality 
and cost efficiency of chiropractic services, and many also cited other 
statutory definitions of ``physician'' as precedents for including 
chiropractors within the definition of ``physician'' under the Shared 
Savings Program.
    Response: We recognize that some other Federal and State laws 
include chiropractors within the definition of physician for various 
purposes. However, we are unable to consider services furnished by 
chiropractors in the assignment process under the Shared Savings 
Program. As previously explained, section 1899(c) of the Act requires 
that assignment be based upon ``utilization of primary care services 
provided * * * by an ACO professional described in subsection 
(h)(1)(A).'' Section 1899(h)(1)(A) of the Act defines an ``ACO 
professional'' as a physician (as defined in section 1861(r)(1) of the 
Act), which includes ``* * * a doctor of medicine or osteopathy legally 
authorized to practice medicine and surgery by the State in which he 
performs such function or action,'' but does not include chiropractors. 
Therefore, because chiropractors are not ACO professionals under 
section 1899(h)(1)(A) of the Act, we are unable to consider their 
services in the assignment process under the Shared Savings Program. 
However, it is important to note that this restriction certainly does 
not preclude Medicare-enrolled chiropractors from participating in 
ACOs, or from sharing in the savings that an ACO may realize in part 
because of the quality and cost-effective services they may be able to 
provide.
    Final Decision: Therefore, under Sec.  425.402 of this final 
regulation we are adopting the following step-wise process for 
beneficiary assignment. Our final step-wise assignment process takes 
into account the two decisions that we have just described: (1) Our 
decision to base assignment on the primary care services of specialist 
physicians in the second step of the assignment process; and (2) our 
decision also to take into account the plurality of all primary care 
services provided by ACO professionals in determining which ACO is 
truly responsible for a beneficiary's primary care in second step of 
the assignment process. Our final step-wise assignment process will 
thus occur in the following two steps, after identifying all patients 
that received a primary care service from a physician who is a 
provider/supplier in the ACO (and who are thus eligible for assignment 
to the ACO under the statutory requirement to base

[[Page 67858]]

assignment on ``utilization of primary care services''):
    Step 1: We will identify beneficiaries who had received at least 
one physician primary care service from a primary care physician who is 
a provider/supplier in an ACO. In this step, a beneficiary can be 
assigned to an ACO only if he or she has received at least one primary 
care service from a primary care physician who is an ACO provider/
supplier in the ACO during the most recent year (for purposes of 
preliminary prospective assignment, as discussed later in this final 
rule), or the performance year (for purposes of final retrospective 
assignment). If this condition is met, the beneficiary will be assigned 
to the ACO if the allowed charges for primary care services furnished 
by primary care physicians who are providers/suppliers of that ACO are 
greater than the allowed charges for primary care services furnished by 
primary care physicians who are providers/suppliers of other ACOs, and 
greater than the allowed charges for primary care services provided by 
primary care physicians who are unaffiliated with any ACO (identified 
by Medicare-enrolled TINs or other unique identifiers, as appropriate).
    Step 2: This step would consider only beneficiaries who have not 
received any primary care services from a primary care physician either 
inside or outside the ACO. Under this step a beneficiary will be 
assigned to an ACO only if he or she has received at least one primary 
care service from any physician (regardless of specialty) in the ACO 
during the most recent year (for purposes of preliminary prospective 
assignment), or the performance year (for purposes of final 
retrospective assignment). If this condition is met, the beneficiary 
will be assigned to an ACO if the allowed charges for primary care 
services furnished by ACO professionals who are ACO providers/suppliers 
of that ACO (including specialist physicians, NPs, PAs, and CNSs), are 
greater than the allowed charges for primary care services furnished by 
ACO professionals who are ACO providers/suppliers of each other ACO, 
and greater than the allowed charges for primary care services 
furnished by any other physician, NP, PA, or CNS, (identified by 
Medicare-enrolled TINs or other unique identifiers, as appropriate) who 
is unaffiliated with any ACO.
c. Assignment of Beneficiaries to ACOs That Include FQHCs and/or RHCs
    In the proposed rule, we also considered the special circumstances 
of FQHCs and RHCs in relation to their possible participation in the 
Shared Savings Program. (For purposes of this discussion, all 
references to FQHCs include both section 330 grantees and so-called 
``look-alikes,'' as defined under Sec.  405.2401 of the regulations.) 
Our proposed methodology was to assign beneficiaries to an ACO if they 
receive a plurality of their primary care services (which we proposed 
to identify by a select set of E&M services defined as ``primary care 
services'' for other purposes in section 5501 of the Affordable Care 
Act, and including the G-codes associated with the annual wellness 
visit and Welcome to Medicare visit) from a primary care physician 
(defined as a physician with a primary specialty designation of general 
practice, family practice, internal medicine, or geriatric medicine) 
affiliated with the ACO. Thus, under the proposal, we would need data 
that identify the precise services rendered (that is, primary care 
HCPCS codes), type of practitioner providing the service (that is, a 
physician as opposed to NP or PA), and the physician specialty in order 
to be able to assign beneficiaries to the entities that wish to 
participate in the Shared Savings Program.
    In general, FQHCs and RHCs submit claims for each encounter with a 
beneficiary and receive payment based on an interim all-inclusive rate. 
These claims distinguish general classes of services (for example, 
clinic visit, home visit, 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. The claims contain very limited information concerning the 
individual practitioner, or even the type of health professional (for 
example, physician, PA, or NP) who provided the service. (Starting in 
2011, FQHC claims are required to include HCPCS codes that identify the 
specific service provided, in order for us to develop a statutorily 
required prospective payment system for FQHCs.) In the proposed rule, 
we indicated that we did not believe we had sufficient data in order to 
assign patients to ACOs on the basis of services furnished by FQHCs or 
RHCs. Instead, recognizing the important primary care role played by 
these entities, we proposed to provide an opportunity for an ACO to 
share in a greater percentage of any savings if FQHCs/RHCs are included 
as ACO participants.
    Comment: Many commenters disagreed with our interpretation of the 
statute's assignment provision (section 1899(c) of the Act) to require 
a patient to be assigned to an ACO based solely on that beneficiary's 
use of services furnished by specific categories of primary care 
physicians. These commenters encouraged CMS to explore other approaches 
that would allow FQHCs and/or RHCs to independently form ACOs and to 
take on a more active role in the ACO by allowing assignment of 
beneficiaries and establishment of benchmarks to be based upon services 
furnished by these entities.
    MedPAC commented that it would be more straightforward to allow 
assignment of patients to RHCs and FQHCs and encourage their use 
directly rather than to introduce special provisions for the savings 
share and thresholds as the proposed rule does. They indicated that 
``these are primary care provider teams often associated with a 
physician and usually providing primary care services. Logically they 
should be allowed to participate in ACOs and patients should be 
assigned to them. In many rural areas, RHCs function as primary care 
physicians' offices and, although they are paid differently under 
Medicare, they are still fulfilling the same function''. MedPAC 
suggested that ``CMS posit that all claims in RHCs and FQHCs are for 
primary care services and use them for assignment as it would any other 
primary care claim.''
    Similarly, other commenters requested that CMS simply deem all FQHC 
services as primary care services. Other commenters believed it is more 
than reasonable to--and detrimental to the program's goals not to--
interpret 1899(c) of the Act to find that the ``provided under'' 
language means not only services provided by the physician personally 
but also services provided by additional members of the health care 
team of an FQHC, with whom physicians supervise and collaborate. In 
short, they believed that the Secretary has the discretion to determine 
for purposes of patient assignment that patients who receive care from 
FQHCs can be treated as patients whose care is furnished by physicians 
since physician services are an integral part of the FQHC service 
definition, FQHC practice, and FQHC reimbursement.
    Other commenters suggested that CMS could assign FQHC beneficiaries 
to ACOs in other ways. Specifically, a commenter indicated that the UB-
04 billing form that FQHCs use to submit their claims contains 
sufficient information (for example, patient information, revenue 
codes, and ``attending physician'' information) to establish a 
reasonable process for assigning FQHC beneficiaries to ACOs. This 
commenter also noted that these health centers have a limited set of 
services that are considered ``FQHC

[[Page 67859]]

services'' and that virtually all such services would be considered 
primary care services.
    Another commenter indicated that all FQHCs and RHCs should have the 
capability to provide additional information about their services 
beyond the information available on their claims. The commenter stated 
that to be covered for a malpractice claim, a health care center must 
be able to demonstrate (through appropriate documentation) that the 
services at issue were within the center's scope of services, provided 
at a location that was in the scope of services, were delivered to an 
established patient of the health center, were documented in a 
permanent medical record and were properly billed. This commenter 
categorically stated that the necessary information is available, that 
it is electronic, and that it can be correlated with contemporaneous 
claims data.
    Other commenters suggested that CMS consider other assignment 
approaches, such as the methodology it is using to attribute Medicare 
patients to FQHCs in the Adirondack Regional Medical Home Pilot, an 
all-payer medical home demonstration project in upstate New York.
    Yet other commenters suggested that assignment could be made by an 
FQHC providing a list of patients for whom it considers itself 
accountable. CMS could then analyze the claims history for the 
identified patients and exclude those with a plurality of primary care 
services associated with a provider other than the FQHC.
    Regarding RHCs, a number of commenters agreed that when a clinic 
submits the claim form, it is not required to identify the specific 
provider who rendered the service. They conceded that the RHC service 
could have been provided by a physician, a PA or an NP (and in some 
circumstances, a nurse midwife). These commenters suggested various 
ways to address this: (1) Require RHCs that are part of an ACO to 
identify the rendering provider on their claim form using the NPI of 
the rendering provider, and provide any other information needed 
through various means (similar to how quality data are submitted; and/
or (2) use a patient attestation method for attributing/assigning RHC 
patients to the ACO.
    Response: We agree with the many comments that FQHCs and RHCs 
should be allowed to participate in ACOs and have their patients 
assigned to such ACOs, provided that patients can be assigned in a 
manner that is consistent with the statute.
    We indicated in the proposed rule that we would continue to assess 
the possibilities for collecting the requisite data from FQHCs and 
RHCs, and consider whether it would be possible 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.
    As indicated previously, MedPAC and some other commenters suggested 
that CMS posit or deem that all claims in RHCs and FQHCs are for 
primary care services and use them for assignment as it would any other 
primary care claim. We have not accepted these comments because they do 
not address the specific requirement in section 1899(c) of the Act 
which requires assignment of beneficiaries to an ACO based ``on their 
utilization of primary care services * * * by an ACO professional 
described in subsection (h)(1)(A).'' As discussed previously, section 
1899(h)(1)(A) of the Act establishes that for the purposes of 
beneficiary assignment, an ``ACO professional'' is defined as a 
physician as defined in section 1861(r)(1) of the Act.
    Likewise, we have not accepted other commenter suggestions that 
assignment could be made by an FQHC providing a list of patients for 
whom it considers itself accountable. Such an approach would also not 
be consistent with the statutory requirement that we develop an 
assignment process that is based on utilization of primary care 
services by an ACO professional, defined by the statute as a physician. 
We have also not adopted commenter suggestions that CMS should adopt 
the assignment processes that are being used in certain demonstration 
programs because these demonstration programs are not subject to the 
same statutory requirements that apply to this Shared Savings Program.
    However, as explained later in this final rule, we are accepting 
suggestions from other commenters that, in combination, will enable us 
to adopt a policy in this final rule that will allow us to assign 
beneficiaries to ACOs on the basis of services furnished by FQHCs and/
or RHCs. (As we have explained earlier in section II.B. (Eligible 
Entities) of this final rule, this will also allow FQHCs and RHCs to 
form an ACO independently, without the participation of other types of 
eligible entities. It will also allow the beneficiaries who receive 
primary care services from FQHCs and RHCs to count in the assignment 
process for any ACO that includes an FQHC and/or RHC as a provider/
supplier.) As discussed previously, the assignment methodology we are 
adopting in this final rule is to assign beneficiaries to an ACO using 
a step-wise approach for assignment. Under this step-wise method, 
beneficiaries are first assigned to an ACO if they have received a 
primary care service from a primary care physician (defined as a 
physician with a primary specialty designation of general practice, 
family practice, internal medicine, or geriatric medicine) who is a 
provider/supplier in the ACO, and also receive a plurality of their 
primary care services (which we identify by a select set of E&M 
services defined as ``primary care services'' in section 5501 of the 
Affordable Care Act, and the G-codes associated with the annual 
wellness visit and the Welcome to Medicare visit) from primary care 
physicians who are providers/suppliers in the same ACO. Those 
beneficiaries who have not received any primary care services from a 
primary care physician can be assigned to an ACO in the second step if 
they have received a primary care service from a specialist physician 
(that is, a physician that does not meet the definition of a primary 
care physician) who is a provider/supplier in the ACO, and also receive 
a plurality of their primary care services from physicians and other 
ACO professionals who are ACO providers/suppliers in the ACO. Thus, 
under the final rule, in order to be able to align beneficiaries with 
the entities that wish to participate in the Shared Savings Program, in 
general we require data that identify all of the following:
     Services rendered (that is, primary care HCPCS codes).
     Type of practitioner providing the service (that is, a 
physician, NP, PA, or CNS).
     Physician specialty.

For services billed under the physician fee schedule, these data items 
are available on the claims submitted for payment. In contrast, as 
discussed in the proposed rule, FQHCs and RHCs submit claims for each 
encounter with a beneficiary and receive payment based on an interim 
all-inclusive rate. These FQHC/RHC claims distinguish general classes 
of services (for example, clinic visit, home visit, 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. The claims contain very 
limited information concerning the individual practitioner, or even the 
type of health professional (for example, physician, PA, NP), who 
provided the service.

[[Page 67860]]

(1) Identification of Primary Care Services Rendered in FQHCs and RHCs
    Starting in 2011, FQHC claims are required to include HCPCS codes 
that identify the specific service provided, in order for us to develop 
a statutorily required prospective payment system for FQHCs. In 
addition, FQHCs were required to submit a HCPCS code to receive payment 
for the Welcome to Medicare visit (G0402) beginning in 2009. Therefore, 
we can identify primary care services for FQHCs that are participating 
in an ACO by using their HCPCS codes for services furnished on or after 
January 1, 2011, and by using HCPCS code G0402 furnished on or after 
January 1, 2009. RHCs are generally not required to report HCPCS codes, 
except that: (1) For services furnished on or after January 1, 2009, 
RHCs may submit HCPCS code G0402 to receive payment for the Welcome to 
Medicare visit, and (2) for services furnished on or after January 1, 
2011, RHCs may submit HCPCS codes to receive payment for the annual 
wellness visits (G0438 and G0439). However, for purposes of assigning 
patients and calculating the benchmark, we will also need to identify 
other primary care services that were furnished by FQHCs and RHCs. In 
order to identify primary care services rendered in FQHCs and RHCs that 
are primary care services, and that are not required to be reported by 
HCPCS codes, we are adopting the commenters' suggestions to use the 
revenue center codes. We have reviewed these revenue center codes and 
agree that for purposes of the Shared Savings Program, the revenue 
center codes can be used as a substitute for the primary care HCPCS 
codes which RHCs do not report, and which FQHCs were not required to 
report prior to January 1, 2011. Specifically, we believe that it is 
possible to employ these revenue codes to identify primary care 
services by constructing an appropriate cross-walk between the revenue 
center codes and the HCPCS primary care codes based on their 
definitions.
    In order to establish such a cross-walk, we compared the HCPCS 
codes that are considered as being primary care services for purposes 
of the Shared Savings Program with the revenue center codes that are 
reported on FQHC/RHC claims. As discussed previously, the primary care 
HCPCs codes used for assignment are as follows:
     99201 through 99215; (office/outpatient visits).
     99304 through 99340; (nursing facility visits/domiciliary 
home visits).
     99341 through 99350; (home visits).
     Welcome to Medicare visit (G0402).
     Annual wellness visits (G0438 and G0439).

FQHCs and RHCs report services on their claims using the following 
revenue center codes:

0521--Clinic visit by member to RHC/FQHC
0522--Home visit by RHC/FQHC practitioner
0524--Visit by RHC/FQHC practitioner to a member, in a covered Part A 
stay at the SNF
0525--Visit by RHC/FQHC practitioner to a member in an SNF (not in a 
covered Part A stay) or NF or ICF MR or other residential facility

We are able to cross walk the ``primary care'' HCPCS codes to 
comparable revenue center codes based on their code definitions. For 
example, HCPCS codes 99201 through 99215 (office/outpatient visits) 
will be cross-walked to revenue center code 0521. Because the focus of 
FQHCs and RHCs is on primary care, we believe these revenue center 
codes, when reported by FQHCs/RHCs, would represent primary care 
services and not more specialized care. This cross-walk will allow us 
to use the available revenue center codes as part of the beneficiary 
assignment process for FQHC/RHC services in place of the unavailable 
HCPCS codes which will be used more generally. We will establish and 
update this crosswalk through contractor instructions. For FQHCs, we 
will use the HCPCS codes which are included on their claims starting on 
January 1, 2011.
(2) Identification of the Type of Practitioner Providing the Service in 
an FQHC/RHC
    Secondly, in order to be able to align beneficiaries with the 
entities that wish to participate in the Shared Savings Program, we 
also generally require data that identify the type of practitioner 
providing the service (that is, a physician, NP, PA, or CNS). This is 
because, as discussed previously, section 1899(c) of the Act requires 
that assignment must be based upon services furnished by physicians. As 
previously noted, FQHC/RHC claims contain limited information as to the 
type of practitioner providing a service because this information is 
not necessary to determine payment rates for services in FQHCs and 
RHCs.
    Based upon our review of the many helpful comments we received on 
these issues, we now agree that we can develop a process that will 
allow FQHCs and RHCs to fully participate in the Shared Savings 
Program. We can do this by using the limited provider NPI information 
on the FQHC/RHC claims in combination with a supplementary attestation 
requirement. This would be consistent with comments we received 
encouraging us to identify the provider that furnished services in 
FQHCs/RHCs by using the NPI of the attending provider, supplemented by 
additional information that the FQHCs/RHCs could separately submit.
    More specifically, from the FQHC/RHC claims, we will use the 
Attending Provider NPI field data which is defined as being: ``the 
individual who has overall responsibility for the patient's medical 
care and treatment reported in this claim/encounter.'' Although the 
attending provider NPI is used to report the provider who is 
responsible for overall care, it does not identify whether this 
provider furnished the patient care for the beneficiary. Therefore, to 
meet the requirement of section 1899(c) of the Act which requires that 
assignment must be based upon services furnished by physicians, we will 
supplement these limited claims data with an attestation that would be 
part of the application process for ACOs that include FQHCs/RHCs. We 
will require ACOs that include FQHCs/RHCs to provide to us, through an 
attestation, a list of their physician NPIs that provide direct patient 
primary care services, that is, the physicians that actually furnish 
primary care services in the FQHC or RHC. Other physician NPIs for 
FQHCs/RHCs will be excluded from the assignment process, such as those 
for physicians whose focus is on a management or administrative role. 
The attestation must be submitted as part of the application for ACOs 
that include FQHCs/RHCs. Such ACOs will also be required to notify us 
of any additions or deletions to the list as part of the update process 
discussed in section II.C.4. of this final rule. The attestation by the 
ACO will better enable us to determine which beneficiaries actually 
received primary care services from an FQHC/RHC physician.
    We will then use the combination of the ACO's TINs (or other unique 
identifiers, where appropriate) and these NPIs provided to us through 
the attestation process to identify and assign beneficiaries to ACOs 
that include FQHCs/RHCs using the step-wise assignment methodology as 
previously explained.
    In this way, we would then be able to assign beneficiaries to ACOs 
on the basis of services furnished in FQHCs and RHCs in a manner 
consistent with how we will more generally assign primary care services 
performed by physicians as previously described. We believe this 
approach meets the statutory requirement in section 1899(c)

[[Page 67861]]

of the Act that assignment be based on the utilization of primary care 
services ``provided'' by an ACO professional described as a physician 
in section 1899(h)(1)(A) of the Act.
(3) Identification of the Physician Specialty for Services in FQHCs and 
RHCs
    As previously explained, the third type of information we generally 
need under the step-wise assignment process discussed previously to 
assign beneficiaries with the entities that wish to participate in the 
Shared Savings Program is data that identify physician specialty. 
However, we agree with commenters who pointed out that the Medicare 
FQHC health benefit was established in 1991 to enhance the provision of 
primary care services in underserved urban and rural communities. 
Commenters pointed out that virtually all services provided under the 
Medicare FQHC benefit are primary care services. We also agree with 
commenters that RHCs predominantly provide primary care services to 
their populations. Therefore, when a physician provides a service in an 
FQHC or an RHC, we believe the physician is functioning as a primary 
care physician comparable to those physicians that define themselves 
with a primary specialty designation of general practice, family 
practice, internal medicine, or geriatric medicine. As a result, we do 
not believe it is necessary to obtain more detailed specialty 
information (either through the claims NPI reporting or as part of the 
attestation process) for the physicians that furnish services in FQHCs 
and RHCs. Longer term, we will consider establishing definitions for 
data fields on the claims submitted by FQHCs and RHCs, such as for 
attending NPI or other NPI fields, which could be used to identify the 
type of practitioner providing the service. This may enable us to 
eliminate the attestation which will part of the application process 
for ACOs that include FQHCs/RHCs.
    Final Decision: In Sec.  425.404, we are modifying the policy that 
we proposed in response to comments to establish a beneficiary 
assignment process that will allow primary care services furnished in 
FQHCs and RHCs to be considered in the assignment process for any ACO 
that includes an FQHC and/or RHC. (These changes to the assignment 
process will also allow FQHCs and RHCs to form ACOs independently, 
without the participation of other types of eligible entities.) 
Operationally we will assign beneficiaries to ACOs that include FQHCs/
RHCs in a manner consistent with how we will assign beneficiaries to 
other ACOs based on primary care services performed by physicians as 
previously described.
    We will require that an ACO that include FQHCs and/or RHCs to 
provide us, through an attestation, with a list of the physician NPIs 
that provide direct patient primary care services in an FQHC or RHC. 
This attestation will be part of the application process for all ACOs 
that include FQHCs and/or RHCs as ACO participants. We will then use 
the combination of the ACO's TINs (or other unique identifiers, where 
appropriate) and these NPIs provided to us through the attestation 
process to identify beneficiaries who receive a primary care service in 
an FQHC or RHC from a physician, and to assign those beneficiaries to 
the ACO if they received the plurality of their primary care services, 
as determined based on allowed charges for the HCPCS codes and revenue 
center codes listed in the definition of primary care services, from 
ACO providers/suppliers.
2. 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 
to share savings with the Medicare program if the ACO meets quality 
performance standards established by the Secretary (which we discuss in 
section II.F. of this final 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 performance year during the term of the ACO's 
participation agreement, the ACO must 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. In the proposed rule, we discussed two basic 
options for assigning beneficiaries to an ACO for purposes of 
calculating eligibility for shared savings during 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. However, as we discuss later in this final 
rule, these two basic approaches could be combined in any number of 
ways in an attempt to realize the most positive aspects of each 
approach and/or avoid the major disadvantages of each. For example, 
prospective assignment of beneficiaries could be combined with a 
retrospective reconciliation process that adjusts for certain 
prospectively assigned beneficiaries who have moved or changed health 
care providers during a performance year.
    We proposed to adopt a retrospective approach for a number of 
reasons. First, the actual population served by a set of physicians 
changes significantly from year to year. Because Medicare FFS 
beneficiaries have the right to see any enrolled physician, there is 
typically more year-to-year variability in treating physicians for this 
population when 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. If population seen by an ACO changes by 
25 percent during the year, a prospectively assigned beneficiary 
population would reflect some beneficiaries who did not actually 
receive the plurality of their care from physicians in the ACO during 
the performance year. Final retrospective assignment of the population, 
on the other hand, would include in the actual performance year 
expenditures for an ACO only for those beneficiaries who received a 
plurality of their care from the ACO during the performance year.
    Second, identifying an assigned beneficiary 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, 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.
    In the proposed rule, we acknowledged that 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 expressed our concern that we did not want 
to encourage ACOs to limit their care improvement activities to the 
subset of their patients that they believe may be

[[Page 67862]]

assigned to them. Finally, we considered that it was important that the 
assessment of ACO performance be based on patients who received the 
plurality of their primary care from the ACO in that performance year. 
Even under a more prospective assignment approach, there is reason to 
believe that a final retrospective redefinition of the assigned 
population to account for changes from prior periods would be required 
to ensure that the ACO is not held accountable for patients for whom it 
was not possible to provide care during the performance year. Under a 
more prospective system, the assignment would have to be adjusted every 
performance year to account for beneficiaries entering and leaving FFS 
Medicare and for those patients who move in and out of the geographic 
area of the ACO, as well as potentially other adjustments.
    Considering the merits of both approaches, we took the position in 
the proposed rule that a retrospective approach to beneficiary 
assignment for purposes of determining eligibility for shared savings 
was preferable. We stated 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. However, we 
also acknowledged the potential advantages of a more prospective 
approach, especially in providing ACOs with information about the 
patient population that is necessary for purposes of more effectively 
planning and coordinating care.
    In the proposed rule, we also noted that in response to the 
November 17, 2010 RFI, of the few commenters favoring retrospective 
assignment, a group of commenters suggested the use of retrospective 
assignment for determining utilization and shared savings, but 
prospective assignment for purposes of determining which beneficiary 
identifiable data we would share with ACOs. We agreed 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'' would be helpful. We discuss our 
policies regarding providing information to ACOs to help them 
understand their patient populations and better manage their care in 
section II.D. of this final rule.
    Therefore, we proposed 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 historically assigned population of Medicare beneficiaries 
during the benchmark period. As we discussed in section II.D. of the 
proposed rule, we also proposed to provide ACOs with a list of 
beneficiary names, dates of birth, sex, and HCIN derived from the 
assignment algorithm used to generate the historical benchmark. We 
concluded that providing data on those beneficiaries that were assigned 
to an ACO in the benchmark period would be a good compromise that would 
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 holding ACOs accountable only for the 
beneficiaries for whom they actually provided services during the 
performance year. We believed that such a combined approach would 
provide the best of both approaches while minimizing the disadvantages 
of either. We solicited comment on this approach.
    Comment: The commenters were overwhelmingly in favor of prospective 
assignment. Many commenters, including MedPAC, argued that prospective 
assignment was important so that beneficiaries would have full 
knowledge of their inclusion in an ACO in advance and indeed that 
prospective assignment is necessary to engage beneficiaries effectively 
in the ACO process of more efficient and higher quality care. One 
commenter argued that retrospective assignment actually denies a 
beneficiary real choice, noting our observation in the proposed rule 
that under retrospective assignment it is not possible to inform 
beneficiaries of their assignment with an ACO in advance of the period 
in which they may seek services from the ACO. Most of these commenters 
also argued that prospective assignment is necessary to allow ACOs to 
plan care appropriately for the patients assigned to them. One 
commenter observed that a retrospective assignment method raises 
concerns about the ability of ACOs to manage population health in a way 
that generates savings. The commenter contended that providers need to 
know which patients for whom they are responsible in order to 
effectively coordinate care and implement care management program, and 
as a result, retrospective assignment could discourage participation in 
the Shared Savings Program.
    Many commenters in favor of prospective assignment either denied 
that prospective assignment would lead to higher quality care for ACO 
patients than for others, or contended that the Shared Savings Program 
quality measures and monitoring activities would prevent and/or correct 
such behavior. One commenter argued that professional ethics and 
standards require that physicians not provide a lower level of care to 
one group of patients compared to another; the profession's commitment 
to its own ethics therefore will mitigate against ACO's providing a 
lower level of care to patients not prospectively attributed to it. 
Another commenter, however, acknowledged that an ACO would have a 
built-in incentive to discourage particularly high cost patients from 
joining their ACO since it would put the potential savings they might 
recoup at the end of the performance year in jeopardy, unless there is 
adequate risk adjustment.
    A health care policy institute noted that 30 percent of 
beneficiaries attributed to an ACO in the current performance year were 
not attributed in the prior year. This suggests that basing attribution 
on data prior to the current performance year will lead to incorrect 
attribution of a substantial proportion of patients; using older years 
of data for attribution will lead to an even worse fit. Furthermore, 
87.6 percent of patients seen by the ACO primary care physicians in a 
given performance year will be attributed to the ACO, so that the vast 
majority of patients utilizing services at an ACO will be attributed to 
the ACO. This commenter therefore recommended that we introduce a 
modified prospective methodology of attribution with current 
performance year data by adopting a near concurrent attribution model 
in which the ACO is held responsible only for the patients that 
received the plurality of their care from the ACO professionals within 
the ACO during a time period close enough to the performance year that 
it approximates the population seen during the year, and does not 
provide opportunities for gaming. Two commenters suggested alignment 
based on the prior 2 years weighted 50/50.
    One commenter asserted that retrospective assignment undermines 
quality and cost objectives, and is unnecessary to avoid adverse 
selection. Noting that our stated goal is to prevent avoidance behavior 
around high-risk beneficiaries, this commenter recommended that an ACO 
applicant submit a panel of participating providers, including 
specialists, to CMS. We would use this list to look back at

[[Page 67863]]

the previous year's claims for primary care services provided by the 
primary care and/or specialty physician for the ACO beneficiaries. 
Patient assignment by CMS could be based on the plurality of primary 
care service visits provided. The ACO would then ensure that the 
individuals assigned by CMS were still the patients of the listed 
providers. One commenter argued that, by seeking to evaluate ACOs only 
on care actually rendered, we may be incentivizing ACOs to act directly 
contrary to the goal of having ACOs redesign care processes to improve 
care for all beneficiaries. Under the proposed rule, according to the 
commenter, ACOs will have every incentive not to redesign care 
processes so that high-risk, high-cost individuals are motivated to 
receive their care outside of the ACO.
    Another commenter specifically questioned whether retrospective 
assignment would be appropriate for high risk populations and 
beneficiaries with special needs. Specifically, the commenter 
acknowledged that the methodology we proposed might be effective for 
the general Medicare population, but questioned how effective it would 
be for a high-risk population with complex medical problems and other 
special needs, stating that special needs beneficiaries would be better 
served by a more targeted approach that identifies a specific 
population, develops a model of care around the target risk group and 
predefines shared savings criteria in advance.
    One commenter argued strongly for prospective assignment, but then 
stated: ``If CMS elects to use a retrospective patient assignment, then 
the Agency should consider providing the ACO with a list of `potential' 
ACO patients prior to the beginning of the performance period.'' In a 
follow-up comment, however, this same commenter came down firmly in 
favor prospective assignment: ``We believe the final rule should 
include an option for an ACO to identify its population prospectively. 
With prospective assignment, ACOs can create systems to actively manage 
and engage patients * * * Restricting the beneficiary assignment to a 
retrospective methodology hampers ACOs' abilities to manage their 
patients proactively and effectively.''
    A few commenters expressed conditional support for retrospective 
assignment. For example, one commenter stated that they understand the 
benefits and costs of both prospective and retrospective attribution. 
While recognizing the concerns that surround prospective attribution, 
including potential ``cherry-picking'' of patients, the commenter 
stated that patients have a legitimate interest in understanding which 
providers are in charge of their care and the incentives those 
providers have to provide quality care and reduce health care costs. 
Some of the commenters who argued for prospective assignment 
acknowledged that retrospective adjustments would be necessary to 
correct for changes such as beneficiaries that had moved out of the 
area, beneficiaries who had chosen to receive their services elsewhere, 
and for other similar matters. One commenter stated that the basic 
problem with ``pure'' prospective assignment (no reconciliation after 
the end of each performance year) in the Shared Savings Program is that 
it would: (1) Not give ACOs accountability for additional beneficiaries 
they take responsibility for during the performance year; and (2) give 
them accountability for beneficiaries they were no longer responsible 
for. A commenter also accepted retrospective assignment as manageable 
if the beneficiaries are assigned on a plurality of services provided, 
and if beneficiary data are shared prospectively during the benchmark 
period. Another commenter supported our hybrid approach to provide 
preliminary assignment information to ACOs combined with retrospective 
reconciliation, which will ensure ACOs are only assigned patients they 
provide care for during the performance year. Another commenter urged 
us ``at a minimum * * * to move further down the continuum toward some 
hybrid approach between prospective assignment and retrospective 
attribution.''
    A few commenters recommended a hybrid approach combined with 
incentives for beneficiaries to enroll in an ACO, specifically, by 
modifying the patient assignment component of the rule to allow 
beneficiaries that prospectively enroll in an ACO to enjoy a portion of 
the savings that the ACO realizes, perhaps through a lower Part B 
premium.
    A much smaller number of commenters agreed with our proposal for 
retrospective assignment. One commenter stated that retrospective 
assignment, though imperfect, is the only way to assign savings based 
on actual performance, and will encourage unbiased treatment. However, 
this same commenter requested an exception for primary care physicians 
who see high-risk patients for a single encounter. The commenter 
believed that omitting such patients from retrospective assignment for 
purposes of the shared savings payment calculations would avoid 
discouraging primary care physicians from taking on new, high-risk 
beneficiaries.
    Another commenter was persuaded by the argument that retrospective 
assignment of beneficiaries to the ACO would create an environment 
where ACOs would be encouraged to provide effective care coordination 
for all beneficiaries with complex illnesses, but was nonetheless 
concerned that patient engagement would be more difficult when 
beneficiaries are not aware of the new delivery system. Another 
commenter strongly supported retrospective assignment as a more 
seamless approach, because prospective assignment would employ less 
reliable data, for example, data for patients who have moved or chosen 
a different provider. Another stated that early attribution may 
encourage providers to focus only on attributed beneficiaries and slow 
the implementation of wider scale changes.
    A physician society believed the combined approach of retrospective 
beneficiary assignment for purposes of determining eligibility for 
shared savings balanced by the provision of beneficiary data and 
aggregate beneficiary level data for the assigned population of 
Medicare beneficiaries during the benchmark period is optimal, because 
it would provide ACO physicians with the information needed to manage 
their patient population, yet encourages high quality services to all 
beneficiaries. Another commenter was satisfied that the benefits of 
retrospective beneficiary assignment will likely outweigh any the 
concerns about choice that might remain because of the beneficiary 
notification, education and claims data-sharing opt-out provided for 
under the proposed rule. ``Retrospective assignment will likely 
encourage ACOs to provide the same level and type of services under 
consistent care delivery models to their entire beneficiary 
population.''
    A patients' advocacy organization supported the agency's decision 
to assign beneficiaries retrospectively, out of fear that that 
prospective assignment might carry some risk that providers would 
``cherry pick'' and seek to avoid certain high-risk individuals.
    A physician society also supported our proposal: ``Because of [our] 
concerns with risk avoidance and other means to reduce costs and 
therefore create greater shared savings, we agree with the CMS decision 
to provide retrospective assignment. The proposal to provide 
prospective patient data to the ACO should provide the entity with the 
general patient population and other

[[Page 67864]]

demographic data that could help the ACO to make necessary decisions.''
    A member of Congress also strongly supported our proposal for 
retrospective assignment: ``I support CMS' decision to assign Medicare 
beneficiaries retrospectively. I understand that many in the provider 
community would prefer prospective assignment, but fear it could create 
a two-tier system where assigned beneficiaries receive a heightened 
level of care and attention while the remainder of the patient 
population receives a lower level of care. Our intent in creating ACOs 
was to once again use Medicare to drive systematic, positive change in 
the delivery system. Retrospective assignment helps accomplish this 
goal by ensuring the best care for all.''
    Another commenter believed that the method of assignment is less 
important than ensuring that ACOs receive information sufficient to 
understand and target their patient populations. Therefore, the 
commenter commended us for proposing to combine retrospective 
assignment with extensive data sharing about beneficiaries historically 
assigned and likely to be assigned to the ACO.
    A few commenters suggested allowing ACOs a choice of prospective or 
retrospective assignment. One commenter would allow ACOs to elect 
either prospective or retrospective attribution of patients, adding 
that, if limited to one approach, prospective attribution is the only 
method compatible with population health management and its 
requirements.
    Response: We appreciate the commenters' arguments about the 
advantages of a more prospective assignment methodology for purposes of 
patient care planning and other objectives. The intention of our 
proposal for retrospective assignment with prospective provision of 
beneficiary data was to strike an appropriate balance between the two 
approaches of prospective and retrospective assignment. In this final 
rule we similarly seek to strike an appropriate balance by 
accommodating the advantages of the prospective approach to a greater 
degree, moving, as one commenter suggested further down the continuum 
toward a more prospective approach, without abandoning our proposal to 
determine final assignment retrospectively.
    We continue to believe that we should avoid as much as possible 
outcomes in which ACOs could be held accountable for costs related to 
beneficiaries who received care from ACO physicians in a prior year, 
but later moved away and received no services from the ACO during the 
performance year. We believe that ACOs should not be held accountable 
for the costs of patients for whom they are no longer to provide 
primary care due, for example, to a patient moving out of area during a 
performance year. Similarly, we believe that ACOs should have the 
opportunity to share in any savings realized through the application of 
the ACO's health planning, care coordination, and quality programs to 
patients who begin receiving primary care services from the ACO during 
a performance year. We took special note of the commenters who 
recommended prospective assignment with at least some retroactive 
adjustments to account for situations where prospective assignment 
would lead to negative or even unfair consequences for the ACO. We 
believe that the recommendations of these commenters amount to hybrid 
approaches that are not entirely dissimilar from our proposal, but that 
place a greater emphasis on the prospective elements of the hybrid than 
our proposal did. In light of the concerns raised by commenters, we 
agree that our proposal for a hybrid approach identifying a preliminary 
prospective population and then determining the final assignments at 
the end of the performance year should be modified in ways that further 
enhance its prospective aspects.
    Therefore, in this final rule, we are modifying the policy that we 
proposed in response to comments to adopt a preliminary prospective 
assignment methodology with final retrospective reconciliation. Under 
this model, we will create a list of beneficiaries likely to receive 
care from the ACO based on primary care utilization during the most 
recent periods for which adequate data are available, and provide a 
copy of this list to the ACO. During the performance year, we will 
update this list periodically on a rolling basis to allow the ACO to 
adjust to likely changes in its assigned population. (We describe the 
nature and timing of this updating in the discussion of data sharing in 
section II.D. of this final rule.) At the end of each performance year, 
we will reconcile the list to reflect beneficiaries who actually meet 
the criteria for assignment to the ACO during the performance year. 
Determinations of shared savings or losses for the ACO will be based on 
this final, reconciled population. We believe this preliminary 
prospective assignment model with retrospective reconciliation will 
provide the ACO adequate information to redesign care processes while 
also encouraging ACOs to standardize care for all Medicare FFS 
beneficiaries instead of a subset. At the same time, we also believe 
that a preliminary prospective model with retrospective reconciliation 
will provide adequate incentives for each ACO to provide quality care 
to its entire beneficiary population.
    It is important to note that the CMS Center for Medicare and 
Medicaid Innovation has announced a Pioneer ACO Model which will test 
alternative savings and alignment (the equivalent of assignment under 
the Shared Savings Program) () models as we proceed with implementing 
the Shared Savings Program. Under the Pioneer ACO Model, an ACO may 
select either prospective or retrospective alignment of beneficiaries. 
Under the prospective approach CMS will identify the population of 
Medicare beneficiaries for whom an ACO is accountable through analysis 
of the prior 3 years of fee-for-service claims data (weighted 60 
percent for the most recent year, then 30 percent for the previous 
year, and 10 percent for the earliest year). The actual historical data 
for these beneficiaries will make up the benchmark spending. Pioneer 
ACOs that select prospective alignment will be accountable for the cost 
and quality outcomes of all their prospectively aligned beneficiaries 
at each end-of-period reconciliation, with certain exceptions. We will 
consider beneficiaries as no longer being in the ACO's designated 
patient population for purposes of performance measurement and 
expenditure calculations if they: (1) Have any months of Medicare 
Advantage enrollment or enrollment in only Part A or only Part B at any 
point during the performance period; (2) transfer their Medicare 
address to a Core Based Statistical Area (CBSA) or rural county that is 
not adjacent to that of the ACO's location (where the majority of its 
clinicians are located); or (3) receive more than 50 percent of their 
evaluation and management allowed charges in non-adjacent CBSAs or 
rural counties during the performance period. The adoption of this 
approach under the Pioneer ACO Model will provide us with an 
opportunity to gain experience and evaluate a more prospective hybrid 
model than the approach that we are adopting in this final rule. We 
will study the results of the Pioneer ACO Model very carefully, and 
will consider in our next rulemaking whether it is appropriate to 
revise our approach to assignment in the Shared Savings Program in the 
light of those interim results.
    Comment: Many commenters, including MedPAC, argued that 
beneficiaries should be allowed to opt

[[Page 67865]]

out of assignment to an ACO (not just, as we proposed, of data 
sharing), even if they want to continue receiving services from ACO 
participants. A number of commenters went further to argue that 
beneficiary choice should be the sole basis for assignment to an ACO, 
that is, that beneficiary assignment to ACOs should actually be more 
like a process of beneficiary enrollment in an ACO. For example, one 
insurance organization recommended a ``physician-of-choice solution.'' 
A physician society recommended that CMS should prospectively allow 
patients to choose their own Medicare ACO. Other commenters referred to 
assignment based on the beneficiary's identification of their ``primary 
care provider or medical home.'' A national organization of physicians 
recommended that, instead of retrospective attribution, CMS should 
adopt a prospective approach that allows patients to volunteer to be 
part of the ACO and permits the ACOs to know up-front those 
beneficiaries for whom the ACO will be responsible.
    Another commenter recommended that beneficiaries should opt in to 
the ACO (as the MA program is currently administered) rather than 
retrospective assignment. The commenter noted our statement in the 
proposed rule that 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.''
    Yet another commenter argued that, since Medicare beneficiaries 
must elect to participate in a MA organization, we should explain why 
we are not giving Medicare eneficiaries the option or the opportunity 
to elect to participate in the Shared Savings Program. The commenter 
believes that, by forcing Medicare beneficiaries into a shared savings 
program, the savings projected in the regulatory impact statement are 
unrealistic unless ACOs reduce care for their assigned Medicare 
beneficiaries.
    These arguments were cast primarily in terms of giving 
beneficiaries the maximum opportunity for free choice about their 
participation in the Shared Savings Program. (Some of these commenters 
also contended that adopting this policy would allow us to abandon the 
proposal restricting primary care physicians to participation in one 
ACO, which we adopted to prevent uncertainty in the assignment 
process.)
    Response: In the proposed rule, we emphasized that the term 
``assignment'' for purposes of the Shared Savings Program 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. We also emphasized that the continued exercise 
of free choice by beneficiaries in selecting the physicians and other 
health care practitioners from whom they receive their services is a 
presupposition of the Shared Savings Program, in the sense that 
assignment would be based on each beneficiary's exercise of free choice 
in seeking primary care services.
    We appreciate that those commenters advocating freedom for 
beneficiaries to opt out of assignment to an ACO, as well as those 
advocating that assignment actually be based on voluntary choice or 
enrollment by beneficiaries, are advancing these recommendations as 
means of extending the principles of beneficiary free choice that we 
enunciated in the proposed rule. However, we do not believe that ACO 
enrollment is an ``appropriate method to assign Medicare fee-for-
service beneficiaries to an ACO'' as required by the statute because 
enrollment is a process that fits better in the context of MA, and the 
Shared Savings Program is certainly not intended to be a managed care 
program in a new guise. One important distinction between an ACO and 
many MA organizations is that beneficiaries are not locked into 
receiving services from the ACO to which they are assigned, and may 
continue to seek care from any provider they choose. Furthermore, the 
statute specifies that ``the methodology for assigning Medicare FFS 
beneficiaries to an ACO'' must be ``based on their utilization of 
primary care services provided under this title'' by physicians who are 
providers/suppliers in the ACO. A prospective approach that allows 
patients to volunteer to be part of the ACO would completely sever the 
connection between assignment and actual utilization of primary care 
services. A patient could volunteer to be part of an ACO from which he 
or she had received very few services or no services at all. An attempt 
could be made to mitigate this concern under a voluntary enrollment 
process for assignment by requiring that a beneficiary receive a 
minimum number or proportion of services from the ACO for the 
enrollment to be effective. But such measures would begin to transform 
a ``voluntary'' selection process into something more like the kind of 
statistical attribution model that we proposed and that most commenters 
endorsed (whether they preferred prospective or retrospective 
statistical attribution). Similarly, we do not believe it is necessary 
to provide an opportunity for a beneficiary to opt out of an ACO in 
order to preserve adequate beneficiary free choice. Beneficiaries 
remain free to seek services wherever they wish, and assignment results 
only from a beneficiary's exercise of that free choice by seeking and 
receiving services from ACO providers/suppliers. We understand the 
concerns of the commenters that beneficiaries may prefer leaving 
existing relationships with their provider in order to avoid being 
subject to the ACO's interventions. However, for the reasons we just 
stated, we do not believe that an enrollment mechanism or voluntary 
beneficiary ``opt-in'' would be appropriate.
    Comment: Some other commenters argued for certain restrictions on 
beneficiary free choice. Some of these commenters argued that 
beneficiaries who opt out of data sharing should also be excluded from 
the ACO, on the grounds that it would not be fair to hold ACOs 
accountable for the care of patients unwilling to share the data 
necessary for planning efficient and high quality care. Another 
asserted that we had proposed ``the worst of both worlds for both the 
beneficiary and the providers,'' because beneficiaries can opt-out of 
data-sharing but not the program, which would prevent providers from 
having sufficient information to properly care for and manage the 
beneficiaries. The commenter argued that the best approach would be to 
allow beneficiaries the opportunity to fully withdraw from the program 
without having to seek care from another provider; structuring an opt-
out option that prevents both data-sharing and attribution of that 
beneficiary to an ACO while allowing them to continue seeking care from 
their usual providers.
    A commenter supported the patient's freedom to choose a provider 
and hoped that patients always have such a right. However, the 
commenter also argued that holding an ACO accountable for financial 
results of a patient who expressly chooses not to participate in 
critical elements of quality and care coordination is in conflict with 
the very purpose of an ACO. The commenter

[[Page 67866]]

therefore recommended that the experience and data for a beneficiary 
should be deleted for the entire year when the beneficiary chooses to 
``opt out'' of the critical and core process of information sharing for 
quality improvement and care coordination, and would not be brought 
back in until the beneficiary has exercised an ``opt-in'' process or 
meets the criteria for assignment to a different ACO.
    Other commenters argued that some restrictions on assigned 
beneficiaries seeking services outside the ACO may be necessary and 
appropriate in order for the ACO's measures to provide more cost-
efficient care to be effective. One commenter suggested that 
unrestricted beneficiary choice poses a tremendous impediment to 
successful ACO operation, and that, while significant restrictions on 
beneficiary behavior may be undesirable, providing ACOs with the 
ability to more carefully direct and manage the care of high-cost 
patients would be a significant improvement to the Shared Savings 
Program.
    Another commenter objected that ACOs may not discourage patients 
from seeking care outside an ACO, yet are financially liable for 
unmanageable patient behavior. The commenter recommended that ACOs 
should not be held responsible for unmanageable patient behavior unless 
the patients are restricted to using ACO-providers/suppliers, and that 
there should be some acceptable incentives to keep beneficiaries in the 
ACO, such as preferred provider rates.
    Another commenter recommended adopting such restrictions along with 
establishing a ``gatekeeper'' model for ACOs, under which primary care 
physicians who are ACO providers/suppliers in an ACO would be in a 
position to identify the Medicare beneficiaries in the ACO and 
effectively coordinate care with efficient healthcare providers that 
are as equally focused (and incentivized) on both quality and cost. 
Without this control, the commenter believes that it would be difficult 
to hold the PCP accountable for the quality and cost of services 
received by the beneficiary.
    Yet another commenter contended that ACOs need the ability to 
require or incentivize a patient to use ACO providers otherwise it will 
be nearly impossible to be held accountable for cost and quality of a 
population's health care. And another commenter argued that an ``any 
willing provider'' approach would prevent ACOs from developing 
specialty care focused networks and limiting network participation to 
providers that meet specific quality standards and other criteria that 
ACOs may wish to establish, thus compromising their' ability to meet 
cost and quality standards that qualify providers for shared savings.
    On the other hand, some commenters urged us to confirm and/or 
emphasize certain basic beneficiary rights, such as the right ``to 
receive care outside the Medicare ACO at no penalty to the patient.'' A 
nursing organization recommended clear and explicit language to 
reassure beneficiaries about the process [of opting out] and its pros 
and cons, and that there is no limit, penalty, or modification to their 
services by choosing to opt out. Another commenter urged that we seek a 
mechanism to measure whether patients in an ACO are restricted by 
physician influence not to seek care outside the ACO and that patients 
are receiving necessary care in a timely manner, expressing the concern 
that primary care providers may try to manage a patient's condition and 
not appropriately refer the patient to a specialist because the 
potential higher cost of specialty care will potentially decrease the 
ACO's chances of meeting CMS benchmarks and achieving shared savings.
    Another commenter strongly supported our decision to allow 
beneficiaries to seek care outside of the ACO if they desire. The 
commenter noted that this policy provides important reassurance to 
Medicare beneficiaries who can be wary of change and who may react 
negatively if they believe they are being ``locked in'' to a new system 
without their consent. Another commenter agreed that a beneficiary's 
freedom to choose providers is especially critical to Medicare 
beneficiaries who have multiple chronic conditions or other complex 
medical conditions. Furthermore, the commenter recommended that we 
should confirm that beneficiaries will also have the freedom to seek 
care for particularly complex medical conditions or treatments from 
experienced providers at recognized centers of excellence.
    Response: We strongly believe that it would be inappropriate for 
the Shared Savings Program to incorporate features such as a 
beneficiary ``lock-in'' to providers within the ACO, automatic 
exclusion of certain types of beneficiaries, or similar measures 
advocated by some commenters. An essential element of what 
distinguishes the Shared Savings Program from a managed care program is 
precisely the absence of any ``lock-in'' restrictions and financial or 
other penalties for beneficiaries that seek services from the 
specialist physicians and other practitioners of their choice. 
Beneficiaries who are assigned to ACOs under the Shared Savings Program 
remain Medicare fee-for-service beneficiaries, retaining their full 
freedom of choice regarding where to receive services. We therefore 
take this opportunity, as requested by a number of commenters, to 
confirm and emphasize that basic beneficiary rights are maintained 
under the Shared Savings Program, most especially (but not exclusively) 
the right to receive care from physicians and other medical 
practitioners of their choice outside the ACO at no penalty to the 
patient.
    Comment: A commenter recommended that ACOs should have the option 
of excluding from assignment certain patients, such as those patients 
expected, based on the most recent historical claims data, to get a 
very high percentage of their care from non-primary care physicians 
(the ``specialty-managed patient'' factor), and those permanently 
relocating away from the ACO's service area early in the contract 
period, for example before the six-month mark each year (the ``former 
patient'' factor).
    Another commenter recommended a number of exclusions from 
assignment to ACOs, including Medicare beneficiaries older than age 75, 
Medicare beneficiaries living in a skilled nursing home or a nursing 
home, Medicare beneficiaries that receive Medicare based on end-stage 
renal disease, and Medicare beneficiaries who are diagnosed with AIDS, 
Alzheimer's, cancer, heart disease, or a similar diagnosis.
    A commenter recommended that dialysis patients should be excluded 
from assignment to an ACO, on the grounds that there is a strong 
likelihood that ACOs will not want to assume the responsibility for 
patients on dialysis or at a high risk for initiating dialysis or 
receiving a kidney transplant. The commenter believes that this may 
have a negative effect on kidney patients' access to the most 
appropriate care, especially in regions with just one ACO, an ACO with 
the minimal number of beneficiaries, or with nominal provider 
diversity. The commenter thus urged that, to ensure patient access to, 
and the quality of, dialysis care and transplantation options are not 
compromised as a result of the ACO program, dialysis and transplant 
patients should not be included as ACO beneficiaries.
    Response: We believe that adopting restrictions or exclusions on 
beneficiaries with certain conditions or utilization patterns from 
assignment to ACOs under the Shared Savings

[[Page 67867]]

Program would be inappropriate. The purpose of the Shared Savings 
Program is to promote accountability for a patient population and 
coordination of items and services under Parts A and B and to encourage 
investment in infrastructure and redesigned care processes for high 
quality and efficient service delivery. Because beneficiaries with 
serious conditions may receive the greatest benefits from greater 
accountability, enhanced coordination, and redesigned care processes, 
the goals of the program would be undercut if these beneficiaries were 
excluded from the program. The statute itself requires that we monitor 
ACOs to prevent avoidance of ``at risk'' beneficiaries. Specifically, 
section 1899(d)(3) of the Act provides that: ``[i]f 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.'' The statute thus clearly assumes that 
beneficiaries with severe and chronic conditions that may increase 
costs will and should be included in beneficiary population assigned to 
an ACO. Otherwise, there would be no need to monitor whether ACOs have 
taken steps to avoid assignment of such beneficiaries to the ACO.
    Comment: One commenter objected that Medicare beneficiaries do not 
get to pick their primary care physicians, but are assigned to them a 
year after they begin participating in the ACO based on who they used 
in the past. The commenter therefore asked: ``How is Medicare going to 
determine how to assign the beneficiaries without overloading one 
doctor more than others?''
    Response: Beneficiaries are assigned to ACOs on the basis of 
services they actually receive from physicians in an ACO during a 
performance year. Assignment thus presupposes beneficiary choice of the 
specific physician or physicians from whom they receive services. 
Beneficiaries are assigned to ACOs for the purposes of holding the ACO 
accountable for the quality and cost of care provided to the 
beneficiary. However, beneficiaries are not assigned to a particular 
physician, and remain free to seek care from any physicians they 
choose. Similarly, physicians are not required to accept patients 
beyond the limits on patient loads that they establish for their 
practices. Therefore, the operation of the Shared Savings Program in no 
way threatens to overload some doctors more than others.
    Comment: One commenter recommended against exclusive attribution of 
beneficiaries to only one ACO, on the grounds that it is likely that 
more than one ACO will provide services to a beneficiary during a 
performance year. The commenter recommended shared attribution with 
savings shared in proportion to the total billed services of each ACO.
    Response: Section 1899(c) of the statute refers to the assignment 
of ``Medicare fee-for-service beneficiaries to an ACO.'' (Emphasis 
supplied.) Therefore it is not clear the statute would permit shared 
assignment and shared attribution of savings to more than one ACO. We 
also note that adopting this policy would create a degree of 
operational complexity for both the Medicare program and for 
participating ACOs that we do not believe to be acceptable, especially 
in the early stages of the program.
    Final Decision: Under Sec.  425.400 of this final regulation, we 
are revising our proposed policy to provide for prospective assignment 
of beneficiaries to ACOs in a preliminary manner at the beginning of a 
performance year based on most recent data available. Assignment will 
be updated quarterly based on the most recent 12 months of data. Final 
assignment is determined after the end of each performance year based 
on data from that year. We are also finalizing our proposal that 
beneficiary assignment to an ACO is for purposes of determining the 
population of Medicare FFS beneficiaries for whose care the ACO is 
accountable, and for determining whether an ACO has achieved savings, 
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. Beneficiaries assigned to ACOs under the 
Shared Savings Program retain their full rights as Medicare fee-for-
service beneficiaries to seek and receive services from the physicians 
and other medical practitioners of their choice. No exclusions or 
restrictions based on health conditions or similar factors will be 
applied in the assignment of Medicare FFS beneficiaries. We are also 
finalizing our proposal to determine assignment to an ACO under the 
Shared Savings Program based on a statistical determination of a 
beneficiary's utilization of primary care services, rather than on a 
process of enrollment or ``voluntary selection'' by beneficiaries. The 
specific methodology (the ``step-wise'' approach) is described in Sec.  
425.402. In that methodology, we are also finalizing our proposal to 
assign beneficiaries to no more than one ACO.
3. 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 would be to make such an assignment on 
the basis of some percentage level of the primary care services a 
beneficiary receives from an ACO physician. In the proposed rule, we 
considered the more specific issue of whether to assign beneficiaries 
to an 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.
    We proposed 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 believed 
that the plurality rule would provide a sufficient standard for 
assignment because it would ensure that beneficiaries will be assigned 
to an ACO when they receive more primary care from that ACO than from 
any other provider. This would result in a greater number of 
beneficiaries assigned to ACOs, which could enhance the viability of 
the Shared Savings Program, especially in its initial years of 
operation.
    Comment: Some commenters addressed the specific issue of employing 
a plurality versus majority standard as the basis for beneficiary 
assignment. One individual maintained

[[Page 67868]]

(without elaboration) that deciding upon assignment of patients to ACOs 
on the basis of plurality rather than majority provider provision of 
services enhances the likelihood of financial penalties upon ACOs. A 
number of commenters recommended majority assignment in place of a 
plurality standard. One of these commenters contended that a plurality 
could lead to the undesirable consequence of accountability without 
responsibility whenever the percentage is less than the majority. The 
commenter noted that, by definition, a plurality is simply more than 
any other, and the proposed rule did not recommend any minimum 
percentage. Another commenter criticized our attribution proposal on 
the grounds that it would produce many patients who have very loose, if 
any, true connection to [an] ACO and its providers. The commenter 
recommended a majority standard as one of several measures to provide a 
stricter attribution standard that would only assign patients with 
relatively strong relationships to an ACO. Yet another commenter would 
revise and simplify the basis for assignment to be beneficiaries' 
receipt of a majority of their primary care visits, stating that the 
experience in local markets is that buy-in is greatest when providers 
are assured their population reflects the patients for whom they 
provide the most care and thus have maximum ability to affect through 
quality/efficiency improvements. This, according to the commenter, also 
helps to ensure the payment model will accurately reward (or penalize) 
their success (or deficiencies) in caring for their assigned 
population.
    Some commenters expressed support for the plurality standard. One 
noted that using a plurality standard takes into account the 
variability in utilizing primary care physicians. Other commenters 
stated that a plurality standard was at least ``workable'' or 
``acceptable.'' However, some of the commenters who expressed support 
for a plurality standard also endorsed adopting a minimum threshold for 
assignment
    Response: We are finalizing our proposal to adopt a plurality rule 
as the basis for assignment. Adoption of a majority standard for 
assignment would necessarily result in the assignment of fewer 
beneficiaries to each ACO. Adopting a stricter majority standard would 
not be conducive to assignment of enough beneficiaries to ACOs for the 
Shared Savings Program to be viable or to make a contribution to 
improving quality and promoting more cost-effective care for Medicare 
beneficiaries. We also believe it is in the best interest of the 
participating ACOs to have more beneficiaries assigned to promote 
statistical stability. Moreover, we believe that use of a plurality 
standard creates a greater incentive for ACOs to redesign care 
processes for all FFS beneficiaries that receive care from the ACO and 
promotes accountability for patients that might otherwise fall through 
the cracks because they would not meet a majority standard. Finally, it 
is reasonable for an entity that provides more of a beneficiary's 
primary care than any other provider, to coordinate care for that 
beneficiary.
    Comment: Several commenters were concerned about assignment of 
beneficiaries that received care outside of a reasonable geographic 
distance from the ACO. For example, a number of commenters expressed 
concern about the impact of ``snowbirds,'' beneficiaries who spend 
parts of each year in different locations, under the plurality standard 
for assignment. One noted that assigning patients to an ACO based on 
the plurality of primary care services provided will result in ACOs 
being responsible for patients who spend a significant portion of the 
year residing outside of the ACO service area, and that there is 
already great difficulty in trying to coordinate care for patients who 
split their residence between two locations. A number of these 
commenters cited the exclusion of ``snowbirds'' from MA plans as a 
precedent.
    Another commenter also advocated a list of exclusions from 
assignment, including a geographic exclusion, noting that, by limiting 
the distance that the beneficiary may reside from the ACO participants, 
ACOs are more likely to be assigned beneficiaries who are able to seek 
other types of care from the ACO.
    Similarly, a health care provider recommended that we should 
exclude beneficiaries who receive more than 50 percent of their 
evaluation and management allowed charges in non-adjacent communities 
during the performance year.
    Response: With regard to the issues concerning ``snowbirds,'' 
beneficiaries who travel frequently, and similar situations, we believe 
that such situations pose a much smaller problem in the Shared Savings 
Program than they do in other programs, such as the MA program. This is 
because the assignment methodology under the Shared Savings Program is 
essentially self-correcting for the effects of seasonal migrations and 
extensive travel, since it directly reflects where a beneficiary 
receives the plurality of his or her primary care services. A 
beneficiary who travels or resides in more than one location will not 
be assigned to an ACO unless he or she receives the plurality of 
primary care from that ACO.
    Furthermore, one reason for the exclusion of ``snowbirds'' from MA 
plans is that beneficiaries who make seasonal migrations cannot adhere 
to the network arrangements that are an intrinsic feature of managed 
care. The ACO model does not include the use of networks or any 
restrictions on where beneficiaries can receive care. It is true that 
``snowbirds'' may be assigned to an ACO on the basis of receiving a 
plurality of primary care in one location, and that ACO will still be 
responsible for costs related to care in the alternate location. 
However, any beneficiary assigned to an ACO remains free to receive 
substantial amounts of care outside the ACO, even if they remain year-
round within the geographical area of the ACO, and for reasons we have 
already discussed, we do not believe that it is appropriate to adopt 
restrictions and exclusions that hinder beneficiary freedom to choose 
where to receive care. We believe that this principle applies equally 
to the issue of seasonal migration (``snowbirds'') and other issues of 
geography (for example, distance from an ACO) that commenters raised. 
Therefore, we do not believe that it is appropriate to adopt 
restrictions or exclusions on assignment to account for seasonal 
migration or any other geographical factor in the Shared Savings 
Program
    Comment: A CAH requested a very different assignment methodology, 
specifically, that all the beneficiaries in their service area be 
assigned to their rural ACO. The commenter explained that, if we were 
not to allow this model, rural patients would be unable to be properly 
assigned to an ACO, and the CAH would have to join other rural 
providers to meet the 5,000 beneficiary requirement.
    Response: We believe that this suggestion is incompatible with the 
statute, which requires that assignment be based on the utilization of 
primary care services from a physician who is a provider/supplier in an 
ACO, not the location of beneficiaries within the area served by an 
ACO.
    Comment: A number of commenters recommended establishing a minimum 
threshold of primary care services for assignment to prevent providers 
from being evaluated on beneficiaries for whom they provide limited 
services and thus have limited opportunities to influence care or 
coordination. Other commenters supported a two-visit threshold as the 
minimum for

[[Page 67869]]

beneficiary assignment. Several major medical institutions recommended 
that we establish a threshold of at least three visits which would 
provide more assurance of continuity with the ACO and more patients who 
have continuing needs. A medical association urged that there must be a 
floor to the plurality of primary care charges used for that 
assignment, recommending a floor of 20 percent--meaning that unless the 
ACO is responsible for at least 20 percent of a patient's primary care 
charges, that patient would not be assigned to any ACO. Another 
commenter recommended 25 percent. Yet another commenter advocated a 
minimum percentage between thirty and forty. And still another 
recommended 50 percent of primary care visits.
    MedPAC discussed the possibility of establishing a 10 percent 
threshold (citing the Pioneer ACO demonstration threshold of 10 percent 
or less of E&M charges) in the course of endorsing the step-wise method 
of assigning beneficiaries: ``we would prefer the step-wise option 
which assigns beneficiaries first to primary care physicians if 
possible and then to certain specialty physicians if the share of 
evaluation and management visits (or charges) to primary care 
physicians falls below a threshold value. (The Pioneer ACO 
demonstration sets the threshold as 10 percent or less of E&M 
charges.)''
    Response: In this final rule, we have decided not to adopt a 
threshold for assignment for reasons similar to those which motivated 
our decision to maintain a plurality standard for assignment. Adoption 
of a threshold, like adoption of a majority standard for assignment, 
would necessarily result in the assignment of fewer beneficiaries to 
ACOs generally and to each ACO in particular. We believe it is in the 
general interest of the Shared Savings Program, and in the best 
interest of each ACO, to have more beneficiaries assigned to promote 
statistical stability. Moreover, we believe that use of a plurality 
standard without a threshold creates a greater incentive for ACOs to 
redesign care processes for all FFS beneficiaries that receive care 
from the ACO, and thus promotes accountability for patients that may 
fall through the cracks because they fail to meet a minimum threshold.
    Finally, in the proposed rule we considered the issue of how to 
determine when a beneficiary has received a plurality of primary care 
services from an ACO. We noted the plurality could be determined 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 for primary care services would 
provide a greater weight to more complex primary care services in the 
assignment methodology, while a simple service count method 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 have less need for 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.
    We proposed 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.
    Comment: One commenter expressed concern that the method for 
determining from which primary care provider a patient received the 
``plurality of care'' is problematic because it is measured by the 
``sum of allowed charges.'' The commenter argued that this will tend to 
reward providers who may be paid more for the same service and 
providers who tend to provide higher priced procedures, and that while 
this does give the provider who generated the most costs the 
responsibility for containing costs, it may skew things if, for 
example, a patient gets one high cost procedure from one provider and 
the majority of their primary care somewhere else. The single procedure 
provider would generally be less able to improve care coordination and 
manage costs with respect to that patient than the ``regular'' 
provider.
    Another commenter suggested that we modify the methodology for 
beneficiary assignment from plurality of allowed charges to number of 
encounters by a provider. ``If one of the goals of the Shared Savings 
Program is to achieve a healthier population, the greater the number of 
encounters, regardless of the allowed charges or the physician's 
specialty, provides increased opportunities to educate and impact the 
patient and influence his/her behavior.'' Another commenter also 
advocated using a visit-based standard to assessing majority, instead 
of the proposed allowed-charges approach. This commenter emphasized 
that the charges standard would skew patient attribution based on the 
illness severity of the patients. Another commenter cited the frequency 
of upcoding as a basis for using visit counts rather than charges.
    Another commenter objected that we seem to believe that charges are 
reasonable proxy for the resource use of the underlying primary care 
service. The commenter argued that the potential downside of using 
charges is that it may entrench the overutilization or up-coding that 
we otherwise wish to avoid. The commenter thus suggested that ``a more 
balanced approach'' could be the use of the plurality of visits 
combined with an adjustment factor to reflect intensity.
    A nursing association recommended, in conjunction with its proposal 
to count the services of NPs in the assignment process, an alternative 
to employing allowed charges as the basis for assignment. The commenter 
noted that, if non physicians such as NPs and PAs were to be included 
in the assignment process, they would be at a disadvantage if allowed 
charges are the basis for assignment. They explained: ``The problem 
here lies in the mandatory discount applied to approved charges from 
NPs and CNSs. Their approved charges for primary care services are set 
at 85 percent of the Medicare Physician Fee Schedule amount. This 
discounting of APRN primary care services can tip the balance as to 
whether the beneficiary is assigned to an ACO where he or she may have 
received primary care services from the ACO's primary care physicians 
but in lesser amounts than provided by the advanced practice registered 
nurse. Our preferred remedy in this case would be to follow the 
recommendations of the Chair of the IOM Study on the Future of Nursing 
and pay according to the value of the service rather than the specialty 
of the provider. Failing that, ACO assignment should be based on the 
plurality of the work RVUs associated with primary care services.''
    Response: We considered most of the alternatives to the use of 
allowed charges in developing our proposal. We agree that 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. However, we do not believe that a 
method of using allowed charges is

[[Page 67870]]

inappropriate. Although this method does not necessarily assign the 
beneficiary to the entity that saw the patient most frequently, the 
beneficiary will be assigned to the entity that provided the highest 
complexity and intensity of primary care services. This method also 
results in the assignment of the responsibility for containing costs to 
the provider who generates the most costs. Our previous experience with 
the PGP demonstration demonstrated an advantage of this method is that 
it does not require tie-breaker rules, since it is unlikely that 
allowed charges by two different entities would be equal. 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.
    We considered the nursing association's recommendation that we use 
RVUs rather than charges. Use of RVUs in place of allowed charges would 
retain many of the benefits of employing charges (for example, reduced 
need for a tie-breaker) while correcting for the effects of some 
factors in allowed charges that arguably should not affect assignment 
(for example, the application of GPCI values to the physician fee 
schedule payments). However, it is unclear whether it would be possible 
and how to include FQHC/RHC services in the assignment process if we 
were to base assignment on RVUs for specific HCPCS codes rather than 
allowed charges since, as discussed previously, we have not required 
that RHCs include HCPCS codes on their claims, and FQHCs have been 
required to report HCPCS codes only since January 1, 2012. Moreover, 
the use of allowed charges has resulted in satisfactory assignment 
results under the PGP demonstration. Therefore, we will retain this 
proven method of using allowed charges. We note that for purposes of 
the Shared Savings Program, allowed charges for FQHC/RHC services will 
be based on the interim payments, since any subsequent adjustments 
following settlement of their cost reports would not be available in 
time for assignment purposes. We will continue to consider the 
alternative of using RVUs as we gain experience under the Shared 
Savings Program.
    Comment: Several commenters expressed concern about potential 
unintended consequences of the plurality rule, specifically 
consequences related to care coordination and manipulation of Medicare 
beneficiary attribution, particularly for beneficiaries who require SNF 
or NF care during the attribution time period. These commenters noted 
that similar concerns were raised in the Medicare Advanced Primary Care 
Practice Demonstration. As a result, they recommend that CMS monitor 
the plurality rule to ensure that it does not adversely impact patient 
care coordination or encourage ACO gaming of Medicare beneficiary 
attribution in the SNF or NF setting.
    Response: We appreciate the commenters' recommendation, and we will 
certainly monitor the impact of the plurality rule to ensure that it 
does not adversely impact patient care coordination or encourage ACO 
gaming in any way. We discuss our monitoring plans in detail in section 
II.H. of this final rule.
    Comment: One commenter had a technical comment about the plurality 
formula in the regulations text: ``Section 425.6(b) of the regulations 
provides the technical details of the assignment methodology in five 
steps. We have the following comments on the technical description: 
Step (3) calculates a single number--the total allowed charge for 
primary care services--for each beneficiary. The rule should clarify 
whether the intention for the plurality test is to calculate total 
allowed charges for each non-ACO provider or in aggregate for all non-
ACO providers. Step (5) includes a plurality test but only references 
Step (4), which does not include non-ACO providers. Based on the rule, 
it appears that non-ACO providers are intended to be considered in the 
plurality test. Step (5), therefore, also should reference the total 
allowed charges for non-ACO providers in the plurality test.''
    Another commenter noted that we proposed to assign beneficiaries to 
an ACO if they receive a plurality of their primary care services from 
primary care physicians within an ACO. In this formula, primary care 
services provided by specialists would be included in the total primary 
care services for the beneficiary, but would not be included in the 
count of the primary care services the beneficiary receives from an 
ACO. The commenter recommended that we should compare the primary care 
services beneficiaries receive from an ACO's primary care physicians 
only to the total primary care services beneficiaries receive from 
primary care providers, thereby excluding primary care services 
provided by specialists from the denominator in the plurality 
calculation.
    Response: We agree with the first commenter that the regulations 
text needs to be revised to reflect the intention for the plurality 
test to calculate total allowed charges for each non-ACO provider for 
purposes of determining where the beneficiary received the plurality of 
his or her primary care services. In addition, we believe that our 
decision to include specialists in the assignment methodology by way of 
a step-wise process addresses the commenters' questions regarding 
whether primary care services furnished by specialists should be 
included in the computation of the plurality of allowed charges for 
primary care services.
    Final Decision: In Sec.  425.402, we are finalizing our proposal to 
adopt a plurality of primary care services, defined in terms of allowed 
charges, as the basis for assignment. However, we are modifying the way 
in which we will calculate that plurality in order to apply it in the 
two-step assignment process, as described previously.

F. Quality and Other Reporting Requirements

1. Introduction
    In this section of the final rule, we discuss: Measures to assess 
the quality of care furnished by an ACO; requirements for data 
submission by ACOs; quality performance standards; the incorporation of 
reporting requirements under section 1848 of the Act for the Physician 
Quality Reporting System; and aligning ACO quality measures with other 
laws and regulations.
2. 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. In the 
proposed rule, we indicated that 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

[[Page 67871]]

those measures that must be met in order to be eligible for shared 
savings.
    We proposed that an ACO be considered to have met the quality 
performance standard if it has reported quality measures and met the 
applicable performance criteria in accordance with the requirements 
detailed in rulemaking for each of the 3 performance years. We further 
proposed 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 proposed the 
use of 65 measures to establish quality performance standards that ACOs 
must meet in order to be eligible for shared savings for the first 
performance period (76 FR 19571). We stated that quality measures for 
the remaining 2 years of the 3-year agreement would be proposed in 
future rulemaking.
    Comment: While some commenters supported the 65 measures proposed 
without modification, the majority recommended that we adopt fewer, 
validated measures aligned with the three-part aim and currently in use 
in order to encourage participation, reduce reporting burden, and 
achieve more focused and meaningful improvements, particularly in the 
first agreement period. Commenters suggested paring down the number of 
quality measures in a number of ways, such as by using a more 
simplified framework and limiting measures to: A specific number; those 
that can be reported via a specific methodology such as claims; those 
currently reported through another program; only some of the proposed 
domains; outcomes measures; those related to the most prevalent and 
costly health conditions; or eliminating the measures that involve 
beneficiary compliance. Another commenter recommended having a 
``performance set'' of measures that includes outcome-oriented, claims-
based measures focused on utilization to determine eligibility for 
payment, and a ``reporting set of measures'' used for monitoring 
purposes only. A few commenters supported the number of measures 
proposed but were concerned about reporting burden. Another commenter 
noted that the proposed measure set may not be feasible initially but 
should be in the future, as it is in other sectors.
    Response: We considered the commenters' recommendations carefully 
when determining the 33 final, required quality measures, which will be 
scored as 23 measures as discussed in section II.F.4. of this final 
rule. We are sensitive to the concerns raised by commenters regarding 
the administrative burden of the proposed measures, and we have 
modified our proposal by reducing the number of required measures by 
removing measures perceived as redundant, operationally complex, or 
burdensome and retaining those that would still demand a high standard 
of ACO quality, focus on priority areas and are areas of high 
prevalence and high cost in the Medicare population. We have also 
sought to finalize proposed measures or variations of proposed measures 
that align with the measures used in other quality programs and 
initiatives. We have also made certain adjustments to our proposed 
measures to align with updates in the measures, such as the retirement 
of certain measures. Further detail on the reasoning behind finalizing 
or removing specific measures is discussed in section II.F.2.c of this 
final rule.
    Comment: Several commenters expressed concern about unintended 
negative consequences related to the quality measures and patients' 
role in improving quality of care outcomes. A number of commenters were 
concerned that ACOs might skimp or delay in providing specialty care, 
particularly high cost services or those not available within the ACO. 
Several commenters suggested a wider choice of measures for major 
illnesses in order to avoid underutilization. Another commenter was 
concerned that providers would treat patients based on the measures 
rather than on patients' needs. Several commenters were concerned that 
measures would track how many services are provided rather than how 
well care is provided.
    One commenter suggested CMS consider patients' responsibility, and 
another commenter noted the proposed measures make providers 
accountable for patient decisions. One commenter suggested CMS add 
measures or program requirements that encourage ACOs to promote patient 
accountability for health and wellness. A few commenters suggested the 
proposed measures were not those that would have the greatest impact on 
quality or address the urgent need to evaluate the efficient use of 
healthcare resources. One commenter recommended that measures focus on 
misuse and overuse as much as underuse and suggested targeting the 
areas for misuse identified by the National Priorities Partnership.
    Response: In addition to measuring quality for performance 
purposes, we also intend to monitor the quality of care furnished by 
ACOs in an effort to identify patterns of avoiding at-risk 
beneficiaries and misuse, underuse, and overuse of services over time. 
We will use data that we can calculate internally without requiring 
additional ACO reporting, such as claims and administrative data, to 
conduct this monitoring. Further information about program monitoring 
is addressed in section II.H of this final rule.
b. Considerations in Selecting Measures
    We view value-based purchasing as an important step towards 
revamping how care and services are paid for, moving increasingly 
toward rewarding better value, outcomes, and innovations instead of 
volume. The Shared Savings Program is a critical element of our 
Medicare value-based purchasing initiative, in which we have sought to 
meet certain common goals, as described in the proposed rule (76 FR 
19569).
    Comment: Numerous commenters endorsed focusing measures around the 
three-part aim of better care, better health, and lower costs; some 
suggested that the proposed measures could go further in this regard. 
One commenter stated that the quality measures sufficiently address the 
care and improving health aims but do not address the reducing costs 
aim. Another commenter stated the proposed measures will add cost to 
providers and will not produce savings. Commenters also supported using 
tested, evidence-based and endorsed measures, and a number of 
commenters suggested that measures should: Be meaningful, improve 
patient outcomes, rely on clinically enriched administrative measures 
already in use and be consistent with measures used in other public 
programs, such as the PQRS, Electronic Health Record (EHR) Incentive 
Program, Medicare Advantage (MA), Hospital Value-Based Purchasing 
(HVBP), the Inpatient Prospective Payment System (IPPS), and others. 
Commenters also suggested a number of different measurement sets. One 
commenter was concerned that quality of care for individuals and 
populations are not genuine top priorities of the Shared Savings 
Program, since the proposed rule included only quality measures that 
cover the same patient populations, processes, and outcomes that are 
already addressed by existing measures used in other programs. A few 
commenters proposed only using PQRS measures initially. Many commenters 
suggested using only NQF-endorsed measures, while others asked that CMS 
not limit itself to NQF-measures.
    Response: We agree that the quality measures should be tested, 
evidence-based, target conditions of high cost and high prevalence in 
the Medicare population, reflect priorities of the National Quality 
Strategy, address the

[[Page 67872]]

continuum of care to reflect the accountability that ACOs accept for 
their patient populations, and align with existing quality programs and 
value-based purchasing initiatives. At this time, we have concluded 
that it is most appropriate to focus on quality measures that directly 
assess the overall quality of care furnished to beneficiaries. We are 
adopting a measurement set that includes patient experience, outcomes, 
and evidence-based care processes. That said, we do not agree that 
specific measures addressing high cost services or utilization are 
necessary to incentivize ACOs to address these issues. We believe that 
the goal of lower cost growth will be achieved through improved 
coordination and quality and that the potential for shared savings will 
offer a sufficient incentive for ACOs to address utilization issues in 
a way that is most appropriate to their organization, patient 
population, and local healthcare environment. However, we may consider 
such measures in the future. Accordingly, the measures we are 
finalizing include a subset of the proposed measures that address the 
populations, processes, and outcomes that were the focus in the 
proposed rule.
    In the proposed rule, we stated that our principal goal in 
selecting quality measures for ACOs was 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, prioritizing certain 
measures according to principles described in the proposed rule. (76 FR 
19569) We believe endorsed measures have been tested, validated, and 
clinically accepted and have therefore selected the final measures with 
a preference for NQF-endorsed measures. However, the Act does not limit 
the Shared Savings Program to endorsed measures. As a result we have 
also exercised our discretion to include certain measures that we 
believe to be high impact but that are not currently endorsed.
c. Quality Measures for Use in Establishing Quality Performance 
Standards That ACOs Must Meet for Shared Savings
    Based upon the principles described previously, we proposed 65 
measures (76 FR 19571) for use in the calculation of the ACO Quality 
Performance Standard. We proposed that ACOs would submit data on these 
measures using the process described in the proposed rule and meet 
defined quality performance thresholds. We proposed that ACOs would be 
required to report quality measures and meet applicable performance 
criteria, as defined in rulemaking, for all years within the agreement 
period to be considered as having met the quality performance standard. 
Specifically, for the first year of the program, we proposed for the 
quality performance standard to be at the level of full and accurate 
measures reporting; for subsequent years, we proposed the quality 
performance standard would be based on a measures scale with a minimum 
attainment level. We proposed that ACOs that do not meet the quality 
performance thresholds for all measures would not be eligible for 
shared savings, regardless of how much per capita costs were reduced, 
which is discussed further in section II.F.4.b.2. of this final rule.
    Comment: One commenter requested clarification on whether care 
provided outside the ACO would count toward the ACO's quality metrics. 
One commenter recommended we require measures reporting for all 
patients seen by the ACO, not just those assigned in order to simplify 
the reporting process and spur improvement across the ACO's entire 
patient population.
    Response: Since ACOs will be accountable for all care received by 
their assigned beneficiary population, quality measures will reflect 
the care assigned beneficiaries receive from ACO providers and non-ACO 
providers. We will utilize claims data submitted by the ACO providers/
suppliers as well as from providers outside the ACO in determining 
measure numerators and denominators.
    Comment: A few commenters asked CMS to clarify whether the 
reporting performance standard would be applicable to ACOs only during 
the first year of the Medicare Shared Savings Program (that is, 2012) 
or for the first year of the ACO's agreement period and how this would 
affect a mid-year start date, if CMS decides to incorporate one. One of 
these commenters supported defining the quality performance standard at 
the reporting level for the first year of an ACO agreement period, 
regardless of whether this timeframe coincides with the calendar year.
    Response: In this final rule, we have finalized first year start 
dates for ACO participants in April and July of 2012, but not for 
January 2012, as discussed in section II.C.1. of this final rule. We 
have also outlined a performance standard for each 12-month, calendar 
year quality measure reporting period. We indicated that ACOs 
requesting an interim payment calculation as described in section 
II.G.2.k of this final rule must completely and accurately report the 
ACO GPRO measures for 2012. We indicated that the final performance 
year 1 reconciliation for the first agreement period would be based on 
completely and accurately reporting all ACO quality measures--ACO GPRO, 
CAHPS and claims- and administrative-based measures--for CY 2013. 
Recognizing that ACOs' first performance year will be 18 to 21 months 
and carry from 2012 into 2013 if they start in the Shared Savings 
Program in April or July 2012, ACOs will need to comply with annual 
measures specifications updates detailed in subregulatory guidance. 
While we anticipate a relatively static set of quality measures for the 
first agreement period, ACOs will also be required to comply with any 
measures updates made in future rulemaking as clinical guidelines 
change and as other programs update their measure requirements. For 
instance, the EHR Incentive Program will release clinical quality 
measure requirements for Stage 2 Meaningful Use, and we believe it is 
advantageous and more efficient for the provider community if we can 
align measures across programs. It may also be necessary to add or 
remove measures from the Shared Savings Program as CMS gains experience 
with ACOs and develops a better understanding of the types of measures 
that are most important to assess the quality of care furnished by this 
new type of entity. Quality measures requirements for each performance 
year are discussed in Tables 1 and 2 as well as in section II.F.4 of 
this final rule.
    ACOs that enter into an agreement period beginning in 2013 or 
subsequent years will be subject to the same rules unless they are 
revised in future rulemaking cycles. That is, absent some change to our 
policies, the quality performance standard for an ACO's first 
performance year will be set at the level of complete and accurate 
measures reporting. We expect that the measures we are finalizing will 
be maintained in the early years of the program as both ACOs and CMS 
develop infrastructure and gain experience with the program. We believe 
having one quality performance standard and set of measures for all 
ACOs will make for better longitudinal comparisons and be operationally 
more feasible and less burdensome.
    In the proposed quality measures table (76 FR 19571), we 
categorized each of the measures into the goals of better care for 
individuals and better health for populations and included: The domain 
each of the proposed measures addresses, the measure title, a brief 
description of the data the measure

[[Page 67873]]

captures, applicable PQRS or EHR Incentive Program information, the 
measure steward or, if applicable, NQF measure number, the proposed 
method of data submission for each measure, and information on whether 
the quality performance standard for each measure is defined at the 
reporting or performance level for each year of the agreement period. 
We noted 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 would need to be refined in order to 
be applicable to an ACO population. However, we proposed 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 also stated that we planned to make the specifications for 
the proposed measures available on our Web site prior to the start of 
the Shared Savings Program. We also acknowledged that we would expect 
to refine and expand the ACO quality measures in the future and expand 
measures reporting mechanisms to include those that are directly EHR-
based. Specifically, we expect to expand the measures to include other 
highly prevalent conditions and areas of interest, such as frailty, 
mental health, substance abuse, including alcohol screening, as well as 
measures of caregiver experience. Finally, we also sought comment on a 
process for retiring or adjusting the weights of domains, modules, or 
measures over time.
    We received the following comments about the proposed measures in 
general.
    Comment: Many commenters expressed concern that few proposed 
measures were focused on outcomes as opposed to processes. One 
commenter who supported outcome measures wrote that a 3-year agreement 
period was too short to allow accurate outcomes assessment across 
diagnoses and expressed concern that the expectation that outcomes 
could be altered in this time frame might encourage gamesmanship and 
manipulation of data by ACOs.
    Response: In selecting the final set of measures, we have sought to 
include both process and outcome measures, including patient experience 
of care. Process measures are typically easier to calculate based on 
administrative data, such as claims, and would require less reporting 
effort by ACOs, while outcomes measures would provide a more complete 
picture of quality of care improvement but would require more ACO 
reporting effort, such as GPRO measures that tend to rely on a 
combination of both claims and clinical quality data. Since ACOs are 
charged with improving and coordinating care and delivering high 
quality care but also need time to form and ramp up, we believe it is 
important to start with a combination of both process and outcomes 
measures, but may move to more outcomes-based measures and fewer 
process measures over time. We have modified our proposed domain 
structure in this final rule by combining the care coordination and 
patient safety domains to better align with other CMS value-based 
purchasing initiatives and the National Quality Strategy and to 
emphasize the importance of ambulatory patient safety and care 
coordination. In addition, we are moving certain proposed claims-based 
measures, such as inpatient safety measures and ambulatory care 
sensitive condition (ACSC) admissions measures, to our monitoring 
program to prevent ACOs from engaging in gamesmanship and manipulation 
of at-risk patients.
    Comment: Many commenters suggested adopting a risk-adjustment 
strategy for measures that would account for beneficiary 
characteristics such as: geographic location, body mass index, 
socioeconomic status, education, severity or type of illness, race, 
ethnicity, gender, preferred language, disability status, or health 
literacy. One commenter recommended risk-adjusting outcomes measures in 
addition to process and patient experience measures. One of the 
commenters also noted that our proposed measure set provided no 
incentive for more accurate coding and failed to recognize that an 
aging population's health status is expected to deteriorate over time, 
not remain stable. One commenter was concerned about factors outside of 
an ACO may affect an ACO's quality measure performance, such as the 
patient's right to decide whether he or she will follow recommendations 
of health care professionals. One commenter requested clarification on 
how CMS will apply risk-adjustments when calculating ACO performance on 
specific quality measures.
    Response: Risk adjustment is included for a number of the proposed 
measures, such as the ACSC measures, but is generally limited to age 
and gender. In addition, some measures include specific exclusions for 
patients, such as those in hospice, who may not benefit from an action 
targeted by the measure. Risk adjustment would also be used in the 
Risk-Standardized, All Condition Readmission measure, the details of 
which would be forthcoming in subregulatory guidance. We believe that 
our linkage of payment to accurate reporting requirements provides a 
strong incentive for complete and accurate reporting, since the quality 
performance standard must be met in order for an ACO to be considered 
eligible for shared savings. As discussed in section II.H.2. of this 
final rule, we may audit the quality measures data ACOs enter into the 
GPRO web interface by requiring the ACO to share beneficiary medical 
record information with CMS. As discussed in II.B. of this final rule, 
ACOs will also have to agree, as a condition of receiving any shared 
savings and participating in the program, that the quality data they 
submit to CMS is accurate, complete, and truthful. We believe that 
including a process to audit quality measures data and a certification 
requirement provides ACOs with an incentive to more accurately report 
quality measure data. In addition, we agree that the personal 
preferences of beneficiaries play an important role in their health 
behaviors. However, the lack of patient adherence may also represent a 
legitimate dimension of care, as it could be indicative of poor 
communication between ACO providers/suppliers and their patients. 
Beneficiary incentives are discussed further in section II.B. of this 
final rule.
    We also received a number of comments on the specific measures 
proposed. We received the following comments on proposed measures 1-7: 
Patient/Caregiver Experience.
    Comment: A number of commenters supported a prominent role for 
patient experience and health status in the measure set. One commenter 
applauded the inclusion of a measure on shared decision making while 
another advocated for additional shared decision making measures. One 
commenter was supportive of including measures of caregiver as well as 
patient experience. One commenter noted the importance of patient 
experience of care but cautioned that such measures are subjective, and 
do not always accurately measure the quality of care furnished and that 
ACO marketing materials could influence beneficiary responses.
    Response: While we recognize the concern about patient subjectivity 
to surveys, we believe patients' perception of their care experience 
reflects important aspects of the quality of the care they receive, 
such as communication and patient engagement in decision-making, that 
are not adequately captured by other measures. As such, patient surveys 
are important complements to the other process of care and outcomes 
measures. For the

[[Page 67874]]

same reason, we intend to expand the quality measures over time to 
include more caregiver experience measures. In addition, we intend to 
retain some level of ACO marketing oversight, as discussed in section 
II.H.2 of this final rule, and will refine our processes over time as 
appropriate.
    Comment: Many commenters supported using Consumer Assessment of 
Healthcare Providers and Systems (CG-CAHPS) surveys to measure patient 
experience but varied in their recommendation of which version to use. 
One commenter stated that CG-CAHPS and Hospital CAHPS (HCAHPS) do not 
include the desired shared decision making modules that are included in 
the draft Patient Centered Medical Home CAHPS (PCMH-CAHPS) and the 
Surgical CAHPS. Others supported the use of CAHPS but recommended 
adding additional measures to the domain. A few commenters suggested 
adding more care coordination and specialty care constructs to the 
patient/caregiver experience domain. One commenter suggested adding the 
new CAHPS cultural competence modules. One commenter stated that CAHPS 
did not adequately capture the team care experience of an ACO and 
suggested adding specific supplemental questions to CG-CAHPS.
    Some commenters suggested other modifications to the proposed 
approach. One commenter suggested allowing ACOs to incorporate CAHPS 
constructs into existing surveys. Another commenter wrote that CMS 
should not allow ACOs to use existing experience tools because this 
approach would not produce comparable data and suggested that CMS 
require all ACOs to use the same, standardized tool, with the same 
sampling methodologies. Another commenter suggested a hybrid approach 
with some standardized measures but also with some flexibility for ACOs 
to replace survey items of no or limited relevance to their practice 
with other questions. One commenter recognized the importance of 
measures related to patient experience of care but recommended that 
they not be incorporated into the performance standard for the first 
agreement period. One commenter did not believe patient satisfaction 
should be used to assess ACO performance.
    A few commenters cautioned CMS that there is limited experience 
with the CG-CAHPS tool, making it unfeasible for setting benchmarks 
initially and raising possible issues of its reliability and validity 
for ACOs. A couple of commenters suggested that survey information not 
be used to assess ACO performance until validated. One commenter 
recommended that until more proven measures become available, survey 
measures should include a ``control group'' of non-ACO FFS 
beneficiaries in the ACO's service area and be used for program 
monitoring and public information only. One commenter expressed doubt 
about whether the timeframe for implementing the survey and using the 
results to improve care would be feasible. One commenter stated that 
CG-CAHPS was not particularly actionable as many items included would 
not be under the control of ACOs and suggested visit-specific questions 
be used, such as those in the AMA Patient Experience Survey. A few 
commenters stated that CAHPS does not address communication, 
environmental factors, resource utilization, patient role in care, care 
coordination, or transition quality and suggested additional questions 
related to those areas. A few commenters found CAHPS both 
administratively burdensome and costly. One recommended CMS adopt a 
sampling approach to mitigate these factors, while another commenter 
recommended the survey be collected at CMS' expense. One commenter was 
concerned about duplicative CAHPS reporting through this program, PQRS 
and HCAHPS. Several commenters suggested methods other than CAHPS, or 
patient surveys in general, for collecting patient experience data. One 
commenter recommended CMS permit the use of other validated 
instruments, such as the American Board of Internal Medicine's 
condition specific patient surveys. Another commenter expressed concern 
that allowing ACOs to choose a survey instrument other than CG-CAHPS 
would limit the validity and utility of such data. One commenter 
recommended that the survey be tailored to the setting where care was 
received such as an inpatient rehabilitation unit or mental health.
    Response: We believe the CG-CAHPS is the most appropriate version 
of CAHPS for ACOs, given the Shared Savings Program's primary care 
focus and the ambulatory care focus of the CG-CAHPS. We note, however, 
that our decision to require use of this survey instrument as part of 
the quality performance measures does not preclude an ACO from 
continuing to use other tools it may already have in place. We do not 
think HCAHPS is appropriate as a Shared Savings Program tool at this 
time, since not all ACOs will include a hospital. We recognize the 
PCMH-CAHPS currently in development may offer modules applicable to 
ACOs, so we may consider these modules, when available, in future 
rulemaking. While the CG-CAHPS is among the more recently developed 
CAHPS surveys, the modules have undergone field testing by a number of 
public and private organizations and are endorsed. There are already a 
number of users contributing experience with the CG-CAHPS, including 
regional collaboratives, member boards of the American Board of Medical 
Specialties, and a growing number of individual health plans and 
medical groups. In addition, national benchmark data are now available 
for the CAHPS Clinician & Group Survey through the National CAHPS 
Benchmarking Database. We also believe there is sufficient time to test 
the CG-CAHPS for ACO use.
    In response to comments recommending that we add a care 
coordination and specialty care construct, we intend to add an Access 
to Specialists module as we think it is responsive to comments, will 
emphasize the importance of specialty care for patients served by the 
ACO, and complements our program focus on care coordination and our 
monitoring activities to ensure ACOs are not engaged in practices to 
avoid at risk patients. It also will align with the two-step 
methodology for assigning beneficiaries to ACOs, discussed in section 
II.E, of this final rule, which considers primary care services 
furnished by providers other than primary care physicians and will 
ensure that the CAHPS survey meaningfully assesses patient experience 
with ACO providers other than primary care physicians. This would 
mitigate the risk of issuing a survey to beneficiaries that does not 
necessarily reflect their care experience, which could be perceived as 
confusing and/or unduly burdensome.
    Thus, we are finalizing the CAHPS modules listed in Table 1 for 
quality performance purposes as we believe they offer the best 
alternative for ACO patient experience of care measurement at this 
point in time. We are not finalizing the Helpful, Courteous, Respectful 
Office Staff module proposed for quality performance measurement and 
reporting or scoring purposes but note that this module is still a core 
part of the CAHPS survey to be collected and we will collect the data 
and feedback to ACOs for informational purposes only. We also believe 
there is evidence that CAHPS assesses important aspects of provider-
patient interaction that can be influenced by an ACO's level of 
organizational support, training and incentive structure. These items 
may be combined with existing data in devising appropriate quality 
improvement

[[Page 67875]]

interventions as demonstrated by case studies and a guide available on 
the CAHPS Web site. We recognize that not all relevant areas of the 
patient experience are covered and will consider additional items in 
future rulemaking. We are sensitive to the data collection issues 
related to the patient experience survey and we have taken the 
commenters' implementation strategy suggestions under consideration. We 
will also consider the comments regarding adding additional CAHPS 
questions in the future. As described in section II.F.3. of this final 
rule CMS will fund and administer the survey for the first two calendar 
years of the Shared Savings Program, 2012 and 2013.
    Comment: A number of commenters asked for clarification or made 
other specific comments regarding use of the CAHPS surveys for ACOs. 
One of these commenters recommended CMS: Use the six-point response 
scale, clarify if only the primary care CG-CAHPS should be used, and 
clarify how ACOs might add additional measures not included in the 
final measure set. One commenter expressed concern that various CAHPS 
tools do not recognize care provided by registered nurses and certified 
registered nurse anesthetists. One commenter stated that CAHPS data 
could include visits outside the ACO reporting period.
    Response: We will consider comments regarding which CAHPS response 
scale is most appropriate for the Shared Savings Program and concerns 
that CAHPS data could include visits outside the reporting period and 
will release detailed instructions subregulatorily, outside of 
rulemaking. In response to the request that we clarify whether only the 
primary care version of the CG-CAHPS should be used for those modules 
from the CG-CAHPS, we note that the core CAHPS items proposed are 
identical for the CG-CAHPS primary care and specialty versions. The 
shared decision-making module, a supplemental module for both adult 
primary care and adult specialty care versions, is also identical in 
both versions. However, the health promotion and education module is a 
supplemental module from the adult primary care version only. With 
respect to the comment recommending that the included CAHPS modules 
reflect care furnished by registered nurses and certified registered 
nurse anesthetists, we recommend the commenter contact the measure 
steward directly with this suggestion.
    Comment: Several commenters had varying recommendations about how 
the CAHPS data would be collected, including use of a web-based survey 
or cloud application and use of both mail and telephone as opposed to 
one or the other. A few commenters were concerned that mail and phone 
surveys would be unlikely to reach a large number of low-income 
beneficiaries with low English proficiency or with disabilities and 
urged us to allow on-site patient surveys. One commenter suggested 
providing detailed survey guidelines regarding the fielding of the 
patient/caregiver experience survey. One commenter noted that survey 
results are affected by survey mode and methodology; this commenter 
suggested CMS require ACOs to follow clear guidelines for survey 
administration in order to make data more comparable. A few commenters 
urged CMS to encourage patient surveys to be done by or under the 
supervision of the Regional Health Information Collaboratives. One 
commenter suggested oversampling to allow ACOs to internally report 
individual provider level feedback and to ensure that patients with 
chronic conditions, who would have the most ACO contact, are 
sufficiently represented. The commenter also suggested not restricting 
surveys to Medicare beneficiaries only, similar to HCAHPS. Finally, one 
commenter suggested a phased approach to implementing the survey.
    Response: Because of these and other comments described in this 
final rule, we have decided to pay for the first two years of the 
survey in 2012 and 2013. We agree that survey mode and methodology can 
affect survey results and believe that, at this juncture, standardized 
administration and comparable results will be best achieved through the 
use of trained and certified vendors as is done with other CAHPS 
surveys administered to the Medicare population. We, too, are concerned 
about reaching low-income beneficiaries, as well as beneficiaries with 
limited English proficiency, chronic disease, or disabilities and will 
take these populations (and other relevant considerations) into account 
as we develop the sampling methodology for the CAHPS surveys. We will 
review carefully the results of the ACO patient experience of care 
survey in 2012 and 2013 to adjust and refine the sampling and/or survey 
methodology as we move forward.
    We received the following comments regarding proposed measure 7: 
Health Status/Functional Status.
    Comment: One commenter noted that this measure was appropriate for 
a survey item and recommended it be added to the CAHPS instrument. A 
few commenters thought patient survey tools should account for primary 
care services furnished by providers other than primary care 
physicians. A few commenters stated NQF 6, MA-CAHPS, was noted 
in the table, but NQF 6 is from the HP-CAHPS. Either way, the 
commenters expressed concern that while health status and functional 
status have been used for risk adjustment, these constructs are not 
currently used for accountability purposes in any pay for performance 
initiatives and may have limited value in determining high and low-
performing physician group practices, particularly in small geographic 
areas, where patients have more limited choice in selecting providers. 
Many commenters advocated for stronger measures of functional status, 
including measures outside of CAHPS surveys, to help ensure providers 
with a higher proportion of patients for whom a cure is not available 
are not punished. A few commenters advocated adding functional status 
as a sixth domain. One commenter strongly supported measures of changes 
in functional status from admission and discharge but stated that the 
proposed measure is not measured from the patient or caregiver 
perspective and did not believe it is sufficiently objective. One 
commenter recommended development of ways to measure pre- and post-care 
health status of patients treated by ACOs.
    Response: To clarify our original proposal, we intended to propose 
NQF 6. Health Status is intended to be self-reported in order 
to adequately represent the patient or caregiver perspective. Patient-
reported outcomes, although subjective, provide valuable information 
not captured by other means, and many are well established and widely 
used with demonstrated reliability and validity. That said, we will 
consider suggestions for alternatives in the future.
    We are also finalizing the health status survey as pay for 
reporting for all 3 years of the agreement period. While we agree with 
commenters that the information is important for improving the overall 
health and functioning of a patient population, we also recognize that 
it is not currently used for accountability purposes in any pay for 
performance. Therefore we will keep the measure as pay for reporting 
for the entire agreement period in order for ACOs to gain experience 
with the measure and to provide important information to them on 
improving the outcomes of the population they serve.
    We received the following comments on proposed measures 8. to 23. 
Care Coordination.

[[Page 67876]]

    Comment: Several commenters wrote in general support of the Care 
Coordination measures. One commenter supported the emphasis on care 
coordination but did not want this focus to be at the expense of 
specialty care. One commenter thought these measures were unclear and 
would be difficult to measure. One commenter suggested evaluating the 
incidence of ACSC admissions in each ACO. If the frequency of ACSC 
admissions in many ACOs is likely to be insufficient for statistical 
stability of admission rates, such instability should be considered 
before tying performance results to shared savings. One commenter 
believed CMS should reduce the number of measures until new and better 
care measures for this domain are developed and require reporting only 
(not performance) on all measures for the first 3-year agreement. 
However, another commenter recommended CMS add new quality measures to 
this category that define the responsibilities of both the sending and 
receiving provider and measure accountability and performance of these 
providers during patient care transitions. One commenter believed the 
proposed care coordination measures were inadequate to ensure that 
patient care is truly coordinated among providers and settings.
    Regarding proposed measures 8-10. Risk-Standardized, All Condition 
Readmission; 30 Day Post-Discharge Physician Visit; and Medication 
Reconciliation, one commenter believed these measures were all based 
primarily on hospital performance and should be dropped. One commenter 
appeared to support electronic capture of the 30 Day Post-Discharge 
Physician Visit and Medication Reconciliation, but cautioned that only 
would be possible for readmissions and discharge visits that occurred 
among entities connected to that particular electronic medical record.
    Response: We agree that care coordination is an important part of 
patient care and that sample size is an important consideration in 
measure selection. We also believe that accountability for patients, 
including knowledge of services rendered outside of an ACO, is 
important for achieving the three-part aim goals previously described. 
As a result, we note that all Shared Savings Program quality measures 
are intended to measure performance in relation to a defined set of 
assigned beneficiaries and not the performance of an individual entity, 
such as a hospital. Given the population focus of ACOs and refinements 
to the list of ACSC conditions, coupled with the phase in of these 
measures for performance, we believe that ACO assigned populations 
should be sufficient to reliably measure performance. We may consider 
including the additional measures suggested by commenters in the 
future.
    Comment: Proposed Measure 8. Risk-Standardized, All Condition 
Readmission. A few commenters supported inclusion of measure 8 as 
proposed, but a few were not supportive. Some noted that this measure 
was not NQF-endorsed and that CMS had not provided specifications for 
this measure, making it impossible to evaluate the risk adjustment 
methodology or the measure exclusions, such as planned readmissions and 
transfers. A few commenters noted that there is already a readmission 
payment policy, and as a result, hospitals would potentially be 
penalized multiple times for the same readmission. Many commenters 
expressed support for a readmission measure but several of these 
commenters urged CMS to specify the measure to include only unplanned 
readmissions for heart attack, heart failure, and pneumonia. However, 
one commenter stated that CMS should not adopt the three CMS disease-
specific all-cause readmission measures for heart attack, heart 
failure, and pneumonia currently reported to CMS because they leave out 
85-90 percent of readmissions. One commenter stated that the proposed 
readmission measure lacked clinical credibility and could undermine 
quality improvement efforts. This commenter stated that the Affordable 
Care Act requires that readmission measures ``have exclusions for 
readmissions that are unrelated to the prior discharge'' and argued 
that the proposed measure failed to do this. This commenter also argued 
that certain readmissions related to the prior discharge are planned 
and unavoidable, such as planned chemotherapy. One commenter questioned 
how this measure would be used in an ACO context. Another commenter 
believed that review of patient medications within 24 hours of 
discharge/transition or communication with the patient within 72 hours 
of discharge/transition were better measures of care coordination. One 
commenter suggested the measure be changed to include readmission or 
admission to observation status within 30 days of discharge from an 
acute care hospital.
    Response: Readmissions is an area in which we believe an ACO's 
coordination of care and accountability can have a significant impact 
in improving patient care and are finalizing this measure as proposed. 
While we recognize concerns that the measure has not been endorsed, 
this is one area in which we wish to exercise our discretion to include 
appropriate quality measures even if they have not been endorsed. We do 
not believe including this measure would be duplicative of any current 
readmission payment policy, since ACOs are a new concept and the Shared 
Savings Program is a new care model, and since this measure is not 
currently utilized in any other CMS quality reporting program. During 
the development of the proposed measures, we considered including the 
three disease-specific readmissions measures suggested by several 
commenters, but did not propose these measures for the reason another 
commenter noted: These types of readmissions represent only a small 
percentage of all readmissions. We recognize that certain readmissions 
are planned, unavoidable, and even advantageous to the patient, and 
will consider this prior to releasing specifications for this measure. 
That said, we also note that this measure has been under development 
and that finalization of this measure is contingent upon the 
availability of measures specifications before the establishment of the 
Shared Savings Program on January 1, 2012. We are also finalizing the 
measure as a pay for reporting measure for the first two years of the 
program to allow more time for ACOs to gain experience with the measure 
and to redesign care processes to improve outcomes and reduce avoidable 
readmissions.
    Comment: Proposed measure 9. 30-Day Post Discharge Provider Visit. 
One commenter suggested this measure could be captured through claims 
data, rather than through the GPRO web interface. A few commenters 
believed this measure should not only pertain to ACO providers. One 
commenter believed the 30-day period was too long and that a 5-7 day 
follow-up was necessary to avoid readmissions.
    Response: We have decided not to include the measure at this time 
in response to comments regarding duplicity and reporting burden, as 
the medication reconciliation measure we are finalizing includes both 
the act of post-discharge medication reconciliation and a post-
discharge provider visit. However, we would like to clarify the 
original proposal to collect this measure through the GPRO web 
interface rather than via claims data. In our proposed measures set 
development process, we concluded that although claims data would 
capture many post discharge visits, the GPRO web interface

[[Page 67877]]

would allow visits not discernable from claims, such as those that may 
be included in a bundled hospital payment, to be included in this 
measure. Although we are not finalizing the measure at this time, we 
will consider the comments received and revisit the appropriateness of 
adding this measure at a future time during future rulemaking.
    Comment: Proposed measure 10. Medication Reconciliation. Several 
commenters commended including medication reconciliation in the measure 
set. One commenter stated that the 60-day time frame post-
hospitalization appears to be a typographical error as NQF Measure 
554 calls for a 30 day timeframe. One commenter recommended 
variations of the proposed measure, because the proposed measure is a 
self-reported, unidirectional measure. Another commenter proposed a 
self-reported adherence assessment measure should be included as well 
as measures that identify other barriers to medication adherence. This 
commenter also believed medication behavior assessment should not be 
limited to post-discharge but would also be indicated for all patients 
on chronic maintenance therapy, particularly those with diabetes, 
hypertension, coronary artery disease, or heart failure. A few 
commenters recommended that discharges from inpatient rehabilitation 
hospitals and units, long term care hospitals, skilled nursing 
facilities, and any of the multiple post-acute care outpatient settings 
be included in the final rule. One commenter stated this measure should 
include verification that medication reconciliation was conducted and 
documented prior to hospital discharge. A few commenters recommended a 
more limited time frame to avoid complications and readmissions; one 
mentioned a 3-7 day range. A number of commenters recommended deferring 
the introduction of this measure until EHRs are fully implemented and 
this measure can be captured electronically. One commenter recommended 
clarification that the medication reconciliation should be documented 
in a medical record rather than be a medication claim.
    Response: The commenter that pointed out the error in the proposed 
rule is correct. NQF 554 is a 30 day post discharge medication 
reconciliation measure rather than a 60 day measure as we indicated in 
the measure description (76 FR 19572). The correct NQF number for the 
60 day measure that we proposed is NQF 97. Accordingly, in 
this final rule, we are adopting NQF 97, the 60 day measure, 
in an effort to align with PQRS. Since this measure would be collected 
through the GPRO web interface, which will have ability to both accept 
manual data uploads and interface with an EHR as described in section 
II.F.4.b. of this final rule, we do not think this measure needs to be 
deferred until there is greater EHR implementation in the provider 
community. We recommend commenters direct comments regarding 
alternative time frames, care settings and other deviations from the 
endorsed specification to the measure steward. We will consider the 
other suggested medication-related measures and propose them through 
future rule making if appropriate.
    Comment: Proposed measure 11. Care Transitions. One commenter 
generally endorsed measures related to transition plans of care, while 
others specifically endorsed this measure. One commenter recommended 
that this measure be eliminated as it is already captured via CAHPS, 
while another cautioned against adoption of any measure that requires 
chart abstraction. Another commenter expressed concern that this is not 
an objective measure and lacks evidence it improves outcomes. A few 
commenters requested that CMS clarify whether this is a survey measure 
or reported through GPRO. One commenter suggested CMS consider other 
care coordination measures that assess whether: the patient received a 
reconciled medication list upon discharge, the patient received a 
transition record with specified information, and the transition record 
was transmitted to the receiving provider in a timely manner.
    Response: We are not finalizing this measure at this time in an 
effort to be responsive to comments about reporting burden. We 
recognize this measure is typically collected within 48 hours to six 
weeks after discharge via phone or mailed survey. In exploring options 
for operationalizing this measure in an ACO context, we recognize that 
it would be difficult to require this measure for an ACO that does not 
have a hospital, as it could require substantive infrastructure, 
education, and development to have an ACO disseminate the survey 
questions to patients timely post-discharge and report the results to 
CMS. Nevertheless, we continue to believe that assessing care 
coordination, and in particular care transitions, is an important 
aspect of evaluating the overall quality of the care furnished by ACOs. 
One way we will do this is by including an access to specialists module 
in the CAHPS survey as previously described. We also intend to continue 
exploring ways to best capture ACO care coordination metrics as 
suggested, including the proposed measure, and will consider adding new 
care coordination measures for future years.
    Comment: Proposed measures 12-18. Ambulatory Care Sensitive 
Conditions Admissions. Several commenters expressed concern about the 
use of various AHRQ Prevention Quality Indicators (PQIs) for the 
Ambulatory Care Sensitive Conditions (ACSC) Admissions measures as 
these are designed as screening tools rather than quality measures and 
are not adequately risk-adjusted. A few of these commenters thought the 
PQIs might be useful for monitoring but not for inclusion in 
performance scores, since they could inadvertently drive 
underutilization. One commenter suggested evaluating the incidence of 
ACSC admissions in each ACO and if the size of many ACOs' enrollment is 
insufficient to assure that these measures are statistically stable, 
such instability should be considered before tying performance results 
to shared savings. One commenter suggested developing a methodology to 
address how measures for ACOs with small eligible populations (for 
example N<30) can be reliably and fairly scored. Two commenters 
recommended we consider consolidating measures with small sample sizes 
into one measure at least for scoring purposes. One commenter believed 
beneficiary compliance to be outside the provider's control and 
recommended that CMS monitor these measures rather than include them in 
the performance score.
    One commenter supported the intent of ACSC: Congestive Heart 
Failure (proposed measure 15) but stated there are technical issues 
with the measure in that it may not accurately capture patients with 
CHF. This commenter urged CMS to remove monitor implementation of this 
measure to ensure its reliability. We did not receive any comments on 
ACSC: Dehydration (proposed measure 16). One commenter wrote in support 
of ACSC: Bacterial Pneumonia (proposed measure 17). Another commenter 
stated that ACSC: Bacterial Pneumonia assumes that administrative 
claims can identify preventable cases of pneumonia, fails to recognize 
that the pneumonia vaccine has limited effectiveness, and does not 
adjust for regional differences in patient and environmental 
characteristics associated with risk for pneumonia. One commenter wrote 
in support of ACSC: Urinary Infections (proposed measure 18).

[[Page 67878]]

    Response: We note that the AHRQ PQIs for Ambulatory Care Sensitive 
Condition admissions are well-established as indirect measures of 
access to and performance of timely and effective primary care 
services. That is, timely and effective care for managing patients' 
chronic conditions should result in fewer hospital admissions for these 
admissions. These were among the measures recommended by major provider 
groups in Listening Sessions conducted by CMS to inform the rule-making 
proposals. We recognize the commenters' risk adjustment concerns and 
believe that the adjustment for age and sex included in these measures 
establishes a fair baseline for comparing ACO performance to national 
benchmarks, so that both very high and very low rates can be 
investigated. The ACSC admissions represent common conditions among 
Medicare FFS beneficiaries, but we recognize the concern of small 
numbers of admission events. We have accounted for this concern in our 
selection of final ACO quality measures to include those PQIs that we 
believe are most important as indicators of ACO care coordination and 
remove those that we believe are still important but may have sample 
size issues or are less central to ACO goals. We are not finalizing the 
following ACSC measures for quality performance purposes but may still 
consider calculating them from claims for monitoring and informational 
purposes: diabetes, short-term complications (proposed measure 12); 
uncontrolled diabetes (proposed measure 13); dehydration (proposed 
measure 16); bacterial pneumonia (proposed measure 17); and urinary 
infections (proposed measure 18). We are finalizing the ACSC measures 
for COPD (proposed measure 14) and heart failure (proposed measure 15). 
Once we have actual ACO performance data on the measures, we will 
review again to determine if sample size is truly an issue in the ACO 
context and will address in the future if needed. We suggest that 
commenters contact the measures steward directly regarding any 
technical issues identified with these measures. Finally, we do not 
believe it would be appropriate to combine measures with small sample 
sizes into one measure, as one commenter suggested. Such combination 
would require further testing and coordination with the measures 
steward. Additionally, we are unclear how an ACO could take action 
based on a consolidated ACSC measure score that does not distinguish 
between types of ACSC events.
    Comment: Proposed measures 19-23. Care Coordination/Information 
Systems. One commenter wrote in support of all 5 of these measures. 
Another recommended CMS require ACOs to implement the use of electronic 
medical records as soon as practicable. Many commenters wrote in 
support of a single measure of EHR program participation, such as 
proposed measure 19. Percent of all Physicians Meeting Stage 1 
Meaningful Use Requirements or proposed measure 20. Percent of PCPs 
Meeting Stage 1 Meaningful Use Requirements. A number of commenters 
recommended removing these measures for a variety of reasons. A few 
commenters recommended CMS remove these measures or collect them only 
for monitoring purposes because they are structural measures and not 
necessarily accurate indicators of quality performance. Another 
commenter echoed this recommendation and added that the incentive 
should not be based upon the tools or processes used by an ACO but 
rather the outcomes achieved by the ACO. A few commenters stated that 
adoption of health information technology is already the subject of 
penalties and incentives under the EHR Incentive Program and including 
these measures for the Shared Savings Program is redundant. A few 
commenters believed it unfair to penalize ACO providers for not meeting 
meaningful use in advance of the penalty phase of the EHR Incentive 
Program. One of these commenters noted that these measures are not core 
measures for the EHR Incentive Program and meeting the proposed 
requirements would be feasible only for ACOs that already have 
experience with a robust EHR. One commenter believed certain EHR 
Incentive Program measures were susceptible to inaccurate reporting, 
such as whether medication reconciliation is performed.
    A few commenters recommended proposed measures 19 (Percent of All 
Physicians Meeting Stage 1 Meaningful Use Requirements) and 20 (Percent 
of PCPs Meeting Stage 1 Meaningful Use Requirements) be dropped or that 
CMS should exempt specialists. One commenter thought Stage 1 Meaningful 
Use measures made it difficult for specialists to achieve meaningful 
use, while another objected to requiring specialists to report on 
primary care-based measures. One commenter asked CMS to consider how 
specialists, who are permitted to contract with multiple ACOS, would be 
able to communicate electronically across various ACOs, who may be 
using different EHRs that are not interoperable. One commenter 
requested that the ACOs' EHR-related measures not be limited to the 
categories of providers designated as EPs under Stage 1 of Meaningful 
Use.
    A few commenters requested clarification of the definition of 
clinical decision-support in proposed measure 21 (Percent of PCPs Using 
Clinical Decision Support), and one commenter urged CMS to include 
cardiovascular imaging decision support tools in the measure. Proposed 
measure 22 (Percent of PCPs who are Successful Electronic Prescribers 
Under the eRx Incentive Program) and proposed measure 23 (Patient 
Registry Use) each received one comment of support.
    Response: We considered these comments in finalizing our measures 
set and have decided to finalize only proposed measure 20 and expand it 
to include any PCP who successfully qualifies for an EHR Incentive 
Program incentive rather than only including those deemed meaningful 
users. One reason for retaining this measure is that we believe it is 
important to encourage EHR adoption as a means for ACOs to better 
achieve the goals of the three-part aim, recognizing that some 
organizations may currently be achieving better quality outcomes using 
EHRs, even if they are not yet considered ``meaningful users,'' than 
organizations that have not yet adopted such technology. To this end, 
we recognize that first-year Medicaid EHR Incentive Program 
participants can earn an EHR incentive for adopting, implementing, or 
upgrading an EHR, and do not need to be ``meaningful users'' in order 
to earn an incentive, and would like to include such EHR participants 
in this measure. A second reason for retaining this measure but not 
proposed measure 19, percent of all physicians meeting Stage 1 HITECH 
Meaningful Use Requirements, is that we recognize some ACOs may be 
comprised of PCPs only. An ACO's score on proposed measures 19 and 20 
would be the same if the ACO is only comprised of PCPs. As a result, 
the use of both measures could be considered redundant. The third 
reason for finalizing proposed measure 20 with modification is that it 
is a structural measure of EHR program participation that is not 
measured in any other program, and therefore is not duplicative of any 
existing measures. In addition, CMS can calculate the measure based on 
data already reported to the EHR Incentive Program, such that no 
additional reporting would be required by ACOs other than what EPs have 
already reported. Overall, we believe relaxing this measure definition 
is more inclusive and promotes

[[Page 67879]]

participation, while still signaling the importance of healthcare 
information technology (HIT) for ACOs.
    Regarding the decision not to finalize the other proposed Care 
Coordination/Information Systems measures (that is proposed measures 
21-23), we have removed these measures based on commenters' 
recommendations and in an effort to pare down the proposed measures set 
to those measures that will have the most impact and are most aligned 
with ACO goals. Our intent is to align the Shared Savings Program 
measures with the EHR Incentive Program measures, however since we are 
not incorporating the EHR Incentive Program or eRx Incentive Program 
incentives under the Shared Savings Program, as discussed in section 
II.F.5. of this final rule, we have decided not to finalize EHR and eRx 
structural measures that may be considered redundant. For instance, we 
recognize that some ACOs may be comprised predominantly of primary care 
physicians, which would make proposed measure 19 largely redundant of 
proposed measure 20.
    In response to the comment on proposed measure 21. Percent of PCPs 
Using Clinical Decision Support, to clarify, the measure proposed was 
an EHR Incentive Program core measure for clinical decision support. We 
have removed this measure from the final set, since it is included in 
the meaningful use requirements and could be considered redundant. Some 
of the EPs who successfully qualify for an EHR incentive payment are 
meaningful users of HITECH, and clinical decision support is one of the 
requirements to be considered a meaningful user. Similarly, we did not 
finalize proposed measure 22 (Percent of PCPs who are Successful 
Electronic Prescribers Under the eRx Incentive Program), since EPs 
cannot earn both an eRx Incentive Program incentive and a Medicare EHR 
Incentive Program incentive. As a result, any measures that reflect 
successful incentive qualification for the eRx and Medicare EHR 
incentives would conflict with one another. In addition, we believe 
there is some redundancy between proposed measures 21 and 22 with 
proposed measure 20. Percent of PCPs Meeting Stage 1 Meaningful Use 
Requirements, since clinical decision support and electronic 
prescribing are part of the meaningful use criteria included in 
proposed measure 20., which we are finalizing with minor modifications 
as previously described.
    We are not finalizing the Patient Registry Use measure (proposed 
measure 23), since it is not a required, ``core'' measure in the EHR 
Incentive Program's meaningful use criteria. We have concerns that, by 
requiring this measure, we will inadvertently provide an incentive for 
ACOs to make an optional, EHR Incentive Program ``menu set'' measure a 
``core'' measure for their ACO providers/suppliers who are EPs. We also 
recognize that patient registry use is fundamental to measuring, 
improving and reporting quality measures so we expect that most, if not 
all, ACOs will have some form of patient registry use already in place 
to support quality measurement and improvement activities. As a result, 
we believe this measure is unlikely to provide an incentive for more 
widespread adoption of EHRs or registries or improved ACO performance.
    Comment: Proposed measures 24. Health Care Acquired Conditions 
Composite and 25. CLABSI Bundle. One commenter endorsed measures 
related to hospital-acquired conditions and patient safety, but many 
commenters stated that hospital-based measures should be removed or 
were not applicable to ACOs that do not include hospitals as ACO 
participants. One commenter stated that the information exchange 
required would generally not be in place for ACOs without hospitals, 
and another thought these measures were duplicative of IPPS reporting. 
Others stated that hospitals were already being held accountable 
through the hospital value-based purchasing program and that, in many 
markets, an ACO simply wouldn't have the ability to impact the various 
hospitals where an ACO's members might receive treatment. Commenters 
proposed various alternatives: That ACOs without hospitals be exempted 
from reporting on these measures; that hospital measures be made 
voluntary; that these be dropped completely; or that we use process 
measures that are already widely used in the hospital value-based 
purchasing program until true population-based outcomes measures are 
available. Several commenters expressed concern about including the HAC 
composite but supported inclusion of the CLABSI bundle until better ACO 
patient safety measures are developed. One commenter thought it 
duplicative to have two different measures of central line infections 
and preferred the CLABSI bundle as a more reliable and valid measure. 
Regarding the proposed method of data submission, one commenter noted 
the difficulties of using claims data to accurately detect healthcare 
acquired conditions and supported the CDC National Healthcare Safety 
Network (NHSN) surveillance data as a more reliable source. One 
commenter recommended CMS apply the recently released regulations 
specifying that state Medicaid programs may use more comprehensive 
approaches to payment adjustment to ACOs. One commenter stated some 
hospital acquired conditions can be reduced but not eliminated and 
programs that expect elimination may cause providers to avoid caring 
for high-risk patients and recommended identification of evidence-based 
exceptions, development of alternative systems to encourage providers 
to adopt processes to reduce HACs, and systems to measure process steps 
taken.
    Proposed measure 24. Health Care Acquired Conditions Composite. A 
few of commenters wrote in support of this measure; one recommended CMS 
only score the measure on an ``all or nothing'' basis to eliminate 
rewards for preventable medical errors. One commenter argued that 
measurement alone would motivate improvement as long as scores are 
transparent and visible. Another commenter recommended this composite 
only be used for monitoring and not for performance scores.
    Many commenters expressed concerns about including the HAC 
composite, most commonly on the grounds that it is untested or because 
it is a hospital-based measure. A few commenters stated that the 
proposed composite HAC measures lack clarity and do not provide useful 
or timely information to improve performance. These commenters were 
concerned about the measure being a compilation of nine CMS HACs 
combined with an AHRQ Patient Safety Indicator which is itself a 
composite of eight measures, some of which are only slightly different 
from other proposed components (for example pressure ulcers and 
decubitus ulcers are both included). These commenters were concerned 
about how risk adjustment would be handled in this composite, since 
sicker patients are at higher risk for HACs. These commenters were also 
concerned that the data could be submitted from either administrative/
claims data or NHSN and that the resultant measure including both 
sources has not been validated. These commenters recommended that CMS 
use the HAC measures individually as separate measures and not a 
composite as currently defined in the Hospital Inpatient Quality 
Reporting Program; use CLABSI from NHSN with data submitted as a 
separate patient safety measure; and delete AHRQ PSI 90 since 
it overlaps with several HAC measures and imposes redundant, 
duplicative effort. Another commenter

[[Page 67880]]

with similar concerns recommended inclusion of the first five HAC 
measures along with additional NQF measures such as, patient death or 
serious injury associated with medication errors, or failure to follow 
up on or communicate clinical information as soon as practicable.
    Commenters were also concerned that: the complexity and lack of 
validation for the composite would discourage organizations or groups 
from participation; risk adjustment is needed since sicker patients 
have a greater chance for these events; and many of the HACs are low-
incidence complications that have not been tested for rate-based 
comparisons. One commenter opposed the inclusion of accidental puncture 
or laceration and iatrogenic pneumothorax, arguing that including 
measures for rare complications is ineffective and may result in 
unintended consequences. This commenter stated that it is difficult to 
identify statistically significant differences rather than random 
variation in the data and raised concern that measuring such rare 
events could drive increased use of less safe procedures such as 
femoral catheterization. A few commenters recommended this measure be 
used for monitoring and not be used as part of the performance score. 
One commenter stated that there are ambiguous coding guidelines 
regarding inadvertent laceration or puncture not considered to be 
accidental (for example serosal tears) and recommended CMS field test 
patient safety measures prior to adopting them for the Shared Savings 
Program. Another commenter noted that the proposed ACO HAC Composite 
includes CLABSIs rather than vascular catheter-associated infections, 
consistent with reporting requirements in the Hospital Inpatient 
Quality Reporting program. However, this commenter urged CMS to further 
align measurement requirements and use CLABSIs across programs in order 
to reduce duplicative reporting burden and to support the use of what 
the commenter believed to be superior quality data.
    A few commenters noted that proposed measure 25. Health Care 
Acquired Conditions: CLABSI Bundle is the CDC National Healthcare 
Safety Network (NHSN) process measure of central line insertion 
practices and questioned how it would be possible to measure this based 
on claims data. The commenters stated that the measure is very labor 
intensive, and is not in widespread use even in NHSN, which means there 
are minimal baseline data. The commenters recommended that this measure 
not be included given the lack of baseline data, the labor intensity of 
the required chart abstraction, and the number of proposed ACO quality 
measures. Another commenter preferred this measure over the proposed 
HAC Composite.
    Response: Medical errors are a major source of morbidity and 
mortality in the United States, and patient safety initiatives that 
reduce the number of these events are a critical focus for CMS and the 
Department. However, we recognize that not all ACOs will have 
participating hospitals, but, for those ACOs that do have hospitals, we 
do not believe this approach is duplicative of hospital value-based 
purchasing program efforts, which calculate such measures at a hospital 
patient population level and not at an ACO assigned beneficiary 
population level. We also recognize that some HACs may be reduced but 
not eliminated, as one commenter noted. Reporting remains an important 
issue for effectively tracking health care acquired conditions. 
Measuring ACO performance on HACs would potentially serve as an 
incentive to improve reporting. We agree many of the hospital acquired 
conditions are rare events and proposed the composite in an effort to 
produce a larger, more meaningful sample size, since ACOs will have 
smaller populations and even fewer events than would a hospital. 
However, we recognize there are challenges with combining claims and 
surveillance-based measures that have different calculation 
methodologies into one measure. There are also challenges with using 
hospital-reported measures based on aggregate, all payer data, as is 
the case with measures reported to the NHSN, particularly for ACOs that 
do not include hospitals. Upon further consideration of our proposal, 
we agree with the suggestion that, if these measures were to be 
finalized, we should break out the components and score the measures 
individually. We recognize there are operational complexities combining 
endorsed measures that reflect different population bases and have 
different timeframes, data sources and risk adjustment methodologies. 
In addition, we realize that combining these measures may result in a 
larger number of incidents in the measure numerator, due to the larger 
sample size, but may not result in more meaningful information for an 
ACO. That is, in combining the HACs into one measure, the ACO cannot 
discern which HACs are of concern and which are not, whereas measuring 
the HACs individually would provide such information.
    That said, we have decided not to finalize these measures at this 
time. However, we may consider claims-based HAC measures that can be 
calculated at an ACO assigned beneficiary population level for quality 
monitoring purposes, regardless of whether an ACO includes a hospital. 
That is, we would determine from claims whether any ACO-assigned 
beneficiaries who had been hospitalized (regardless of whether the 
hospital is an ACO provider/supplier) experienced a HAC. We believe the 
approach of considering claims-based HAC measures that can be 
calculated at a patient level emphasizes the importance of monitoring 
HACs among an ACO's assigned beneficiary population but eliminates 
reporting burden and operational complexity, particularly for those 
ACOs that do not include a hospital. We would not calculate the CLABSI 
Bundle, even for monitoring purposes, at this time as this measure can 
only be calculated from NHSN surveillance data, as one commenter 
clarified. Since NHSN data are hospital-reported, all-payer data, we 
are unclear at this time how to translate such data to a Medicare FFS 
ACO population, particularly when ACOs do not include a hospital. 
However, we will continue exploring how to leverage NHSN data in the 
Shared Savings Program.
    Comment: Proposed measures 26-34. Preventive Health. A few 
commenters wrote in general support of preventive care measures while 
one commenter recommended that all preventive health measures should be 
dropped until they can be studied further. One commenter suggested CMS 
work with CDC to add additional prevention measures as the program 
matures.
    Response: We believe preventive health is critical to reducing 
chronic, costly conditions, and that primary care is critical to the 
ACO model of care. As a result, we believe it is important to retain 
preventive health quality measures in the Shared Savings Program. 
However, we will monitor these measures and work with the measures 
community in an effort to ensure we are using the most appropriate, 
high impact measures.
    Comment: Proposed measures 26 and 27. Influenza Immunization and 
Pneumococcal Vaccination. Several commenters wrote in support of one or 
both of these measures particularly given the burden of death, disease 
and high cost care resulting from pneumococcal disease and influenza 
among the elderly. One commenter stated that these measures are not 
geared towards population health and should be removed. One commenter 
recommended that providers not be penalized for vaccine shortages. 
Another commenter recommended

[[Page 67881]]

deferring introduction of these measures until EHRs are in widespread 
use because vaccine administration would be difficult to document if 
the vaccine was received outside of the ACO. Another commenter noted 
the burden of using EHR data to populate GPRO and suggested CMS instead 
consider the survey-based measure from NCQA HEDIS, which could be added 
to the CG-CAHPS. One commenter suggested updating the pneumococcal 
vaccination measure to include the new ACIP recommendations for 
pneumococcal vaccine for patients age 5-64 that have a high-risk 
condition.
    Response: We believe vaccinations are important to population 
health, particularly in the Medicare population, and are finalizing the 
proposed measures with minor modification as discussed later in this 
final rule. The Advisory Committee on Immunization Practices of the 
Centers for Disease Control and Prevention states effectiveness 
estimates for vaccines range from 50 percent to 80 percent for 
prevention of pneumonia among immunocompetent older adults and adults 
with various underlying illnesses.\2\ The CDC has also shown that 
elderly citizens vaccinated against influenza have reductions in the 
rates of hospitalization and death from influenza, as compared with the 
rates in unvaccinated elderly persons. These measures were not intended 
to penalize providers in cases of vaccine shortages. Commenters should 
contact the measures stewards regarding such concerns.
---------------------------------------------------------------------------

    \2\ Centers for Disease Control and Prevention. Influenza and 
Pneumococcal Vaccination Levels Among Adults Aged greater than or 
equal to 65 Years--United States. MMWR 1998 Oct 2; 47(38); 797-802.
---------------------------------------------------------------------------

    The CAHPS questions relevant to health care services are intended 
to assess the patient's experience with care furnished in the ACO 
rather than whether the ACO providers are actively tracking 
immunization status. Since ACOs are charged with better coordinating 
and improving care, we believe these immunization measures should be 
ACO-reported not patient-reported. Our ACO GRPO reporting process uses 
patients' claims data to the extent that they are available when 
calculating the measure, thus reducing the burden on providers for 
reporting on their population while allowing the ACO to update the 
numerator with information from its clinical or administrative systems, 
such as patient-reported information.
    Additionally, in response to other comments requesting that we 
align measures with those used in PQRS and the EHR Incentive Program, 
as discussed in section II.F.5. of this final rule, we have finalized 
the pneumococcal vaccination measure to reflect NQF 43 instead 
of 44. Both measures have the same denominator population--
patients over the age of 65--and reflect the same outcome, whether 
pneumococcal vaccination was obtained in the previous 10 years; 
however, we believe NQF 43 offers an advantage to ACOs over 
NQF 44 in that a provider collects NQF 43 through 
discussion with the patient, whereas NQF 44 requires medical 
chart abstraction. Because of the level of effort required to obtain a 
10 year chart abstraction (for purposes of NQF 44), the 
decision was made to use NQF 43, which can be collected at the 
point of care during a current patient visit and reported 
electronically through the GPRO web interface. We believe the use of 
this measure would help address the general comments regarding 
reporting burden and would align with quality measures used in other 
programs, such as PQRS.
    Comment: Proposed measure 28. Mammography Screening. Several 
commenters noted that this measure was not aligned with professional 
guidelines that do not support routine mammograms for women 40-49 and 
recommended shared decision making between woman and provider. Some of 
these commenters also noted that guidelines recommend screening for 
women until age 74, not 69 as proposed. One commenter favored inclusion 
of women 40-49 but stated that the upper age limit should be at 5 years 
of life expectancy. One commenter stated that this measure should be 
eliminated because it has potential for the unintended consequence of 
interfering with a woman's right to refuse mammography until age 50, by 
measuring the quality of an ACO's care based on whether she received 
biennial exams starting at 40. One commenter thought the measure should 
begin at age 40, since this age is included in health plan coverage and 
as a measure of provider counseling given to the woman. Another 
commenter recommended that this measure be excluded because the 
denominator population (women, 40-69 years of age) is comprised 
primarily of patients who are not Medicare beneficiaries.
    Response: We are finalizing the measure as proposed. The proposed 
measure follows guidelines established by NCQA and endorsed by NQF. We 
recognize that the age 40-49 category applies to a small percentage of 
Medicare beneficiaries, however early detection allows women to obtain 
timely treatment and potentially lead a longer, healthier, life. We 
believe early preventive health is important for deterring many of the 
chronic conditions and illnesses more prevalent later in life that are 
more specific to the Medicare population. Additionally, this age range 
aligns with preventive health measures with similar age ranges used in 
other CMS quality programs. We also appreciate the recommendation to 
extend the age range to 74, however the current measure specification 
is for years 40-69. We expect that the specifications for the endorsed 
measures may be updated to reflect the change in clinical guidelines, 
at which time we would also adopt such specifications.
    Comment: Proposed measure 29. Colorectal Cancer Screening. We did 
not receive any comments on this proposed measure.
    Response: We will finalize this measure as we believe colorectal 
cancer screening is an important component of preventive health in the 
Medicare FFS population.
    Comment: Proposed measure 30. Cholesterol management for Patients 
with Cardiovascular Conditions. One commenter wrote in support of this 
measure.
    Response: We note that the correct title of the measure 
corresponding with the NQF number proposed (NQF 75) is: 
Ischemic Vascular Disease: Complete Lipid Profile and LDL Control <100. 
We have finalized this measure to reflect the correct title and also 
added an Ischemic Vascular Disease subcategory in the At Risk 
Population domain. This measure also aligns with other cardiovascular 
disease prevention initiatives that are priorities for CMS, CDC, and 
HHS, such as the Million Hearts initiative.
    Comment: Proposed measure 31. Adult Weight Screening and Follow-up. 
One commenter expressed concern that this was a process measure that 
does not measure actual weight management.
    Response: We believe the processes of weight and BMI screening and 
follow-up are important steps for preventing and reducing obesity and 
complications related to other chronic conditions in which weight plays 
a factor. BMI measurement can also be considered an intermediate 
outcome, since BMI can be used to monitor patients' progress with 
respect to weight reduction as well as weight gain that can exacerbate 
chronic conditions. Therefore, we are finalizing this measure.
    Comment: Proposed measure 32. Blood Pressure Measurement. One 
commenter stated that a measure of the percentage of patients with 
uncontrolled blood pressure did not represent a best practice of care. 
A few commenters

[[Page 67882]]

questioned the meaningfulness of this measure; one urged CMS to go 
beyond structure and process measures to measures that solidly address 
clinical appropriateness and overuse. One commenter suggested deleting 
this blood pressure process measure, because we also proposed a blood 
measure level measure.
    Response: Blood pressure measurement for patients with diagnosed 
hypertension is a best practice according to clinical guidelines; 
however the measure community recognizes the high rate of compliance 
and the need for even greater quality improvement. We agree with the 
suggestion to remove this measure, since the AMA-PCPI is retiring this 
measure (NQF 13), and because it is similar to proposed 
measure 58. Hypertension: Blood Pressure Control (NQF 18).
    However, we believe blood pressure measurement is an important 
preventive health measure and therefore have included ``Proportion of 
adults 18 years and older who have had their BP measured within the 
preceding 2 years,'' in the final measures set, consistent with the 
measure that has been proposed for the PQRS for 2012. The measure we 
are finalizing also aligns with the Million Hearts Initiative and blood 
pressure measurement standards of care recommended by the USPSTF and 
the Joint National Committee on Prevention, Detection, Evaluation, and 
Treatment of High Blood Pressure. We believe this measure is more 
appropriate for the Preventive Health domain of the Shared Savings 
Program than the measure proposed as it is a quality measure intended 
for patients without diagnosed hypertension whereas the proposed 
measure was intended for BP management for patients with diagnosed 
hypertension. Similar to the proposed measure, the measure we are 
finalizing targets a Medicare FFS population age 18 and older, requires 
two face-to-face provider encounters for assigned patients, and would 
be reported via the GPRO web interface.
    Comment: Proposed measure 33. Tobacco Use Assessment and Tobacco 
Cessation Intervention. Several commenters wrote in support of the 
tobacco use measure. One commenter proposed use of NQF Measure 
27 as a stronger measure of cessation efforts. One commenter 
questioned the fairness of holding ACOs responsible for patients who 
might choose to continue using tobacco. One commenter expressed concern 
that this measure could be gamed and suggested excluding or modifying 
the measure. One commenter recommended replacing this measure with PQRS 
measure 226.
    Response: Tobacco use is harmful to patient health, but among 
diabetics, it is particularly dangerous as it increases the risk of 
complications, and we are therefore including this measure in the final 
set. To substantially lower the risk for cardiovascular and stroke 
events, it is critical that the specified tobacco use assessment and 
cessation goals are achieved. This quality measure aims to encourage 
even greater engagement by physicians and their patients in achieving 
tobacco free status. We recognize the potential for gaming and will 
monitor this measure closely, for instance, through the GPRO audit and 
validation process described in section II.F.4.b. of this final rule. 
We will consider suggestions for other measures in the future. We also 
note that at the time of our proposed rule the PQRS measure number was 
``TBD'' and has since been numbered 226; thus, the measure we proposed 
and are including in the final measure set for the Shared Savings 
Program is the same measure used by PQRS.
    Comment: Proposed measure 34. Depression Screening. A few 
commenters wrote in support of the depression screening measure. One 
commenter stated that this measure would require significant changes in 
primary care workflow, even though it has not been linked with improved 
chronic disease outcomes in clinical trials. One commenter recommended 
modifying the measure to incorporate elements of NQF 17 that 
specify screening, monitoring, and reassessment with the Patient Health 
Questionnaire. One commenter recommended CMS replace this measure with 
other measures or expand it to include other mental health assessment 
tools. Another commenter stated that while several useful tools are 
available in the public domain, many lack standardization of scoring 
and data collection modalities, or lack sufficient normative data and 
condition-specific benchmarks useful for interpreting health scores and 
reducing interpretation bias. In addition, the commenter stated, many 
publically available health measures lack culturally validated 
translations for non-English speaking patients.
    Response: We disagree with the comment that depression screening 
has not been linked to improved chronic disease outcomes in clinical 
trials. In a systematic review of the evidence, the USPSTF concluded 
that depression screening significantly improves patient outcomes. 
(http://www.ncbi.nlm.nih.gov/books/NBK36406/) Another study found that 
the presence of depression is associated with reduced compliance with 
treatment.\3\ Because patients in whom depression goes unrecognized 
cannot be appropriately treated, systematic screening has been 
advocated as a means of improving detection, treatment, and outcomes of 
depression. As a result, we are finalizing this measure in order to 
encourage ACOs to adopt system changes that ensure timely 
identification and adequate treatment and follow-up if needed. Since 
the NQF 17 measure suggested is Hypertension Plan of Care we 
believe the commenter was actually referring to NQF 712, 
Depression Utilization of the PHQ-9 Tool.
---------------------------------------------------------------------------

    \3\ DiMatteo MR, Lepper HS, Croghan TW. Depression is a risk 
factor for noncompliance with medical treatment: meta-analysis of 
the effects of anxiety and depression on patient adherence. Arch 
Intern Med. 2000 Jul 24;160(14):2101-7.
---------------------------------------------------------------------------

    Comment: Proposed measure 35. Diabetes Composite (all or nothing 
scoring) and 52. Coronary Artery Disease (CAD) Composite (all or 
nothing scoring). A few commenters wrote in support of these measures. 
A few commenters stated opposition to scoring these measures in an 
``all-or-nothing'' manner. Other commenters cautioned against use of 
both the composite measures and counting the components of the 
composite as individual measures because of resultant ``double 
counting.'' A few commenters recommended using only the individual 
measures to allow ACOs to target processes for improvement but others 
recommended retaining only the composite.
    A few commenters recommended CMS replace the diabetes composite 
measure proposed with NQF measure 0729 and use the 
specifications for measure 0729 for proposed measures 36-39 
and 41. One commenter recommended CMS include microalbumin screening in 
the diabetes composite measure as well as an individual measure. One 
commenter questioned the fairness of holding ACOs responsible for 
patients who might choose to continue using tobacco, under the diabetes 
composite. One commenter recommended replacing either the diabetes or 
CAD composites with the Optimal Vascular Care Composite (NQF 
0076).
    Response: To clarify, the diabetes composite measure proposed is 
the Optimal Diabetes Care composite, NQF 0729, as one 
commenter suggested. At the time of the proposed rule, this measure was 
pending NQF endorsement. As a result, we proposed similar NQF numbers 
for the components of this composite to provide the public the 
opportunity to review and comment on similar and/or

[[Page 67883]]

related component measures. Since the time of proposed rulemaking, the 
measure has been endorsed and numbered 0729. We also note this 
composite is currently NQF-endorsed with 5 components, of which 
microalbumin screening is not included, so we advise the commenter that 
supported inclusion of this measure to contact the measure steward 
directly about the addition of other components. Although we appreciate 
that there are concerns about all-or-none scoring, there are also 
advantages. For instance, AMA-PCPI states that the ``all-or-none method 
is the most patient-centric approach and provides the most 
opportunities for improvement, especially if the individual components 
are reported out separately.'' (http://www.ama-assn.org/resources/doc/cqi/composite-measures-framework.pdf)
    We also understand concerns about the redundancy of scoring both 
the composites and individual measures and are finalizing the proposed 
diabetes and CAD composites, with modification to the CAD composite as 
described later in this final rule, and are not finalizing the 
individual proposed measures that were also within the proposed 
composites, consistent with the AMA-PCPI statement cited previously. 
However, we will report back to ACOs their results on individual 
measures within the composites in addition to their overall composite 
measure score. We believe the diabetes and CAD composites raise the bar 
for diabetes and CAD care, consistent with Shared Savings Program goal 
of improving quality of care, by providing an incentive for ACOs to 
ensure that a number of important care processes are performed for 
diabetic and CAD patients, and that appropriate outcomes are achieved. 
In contrast, the individual measures would award points if only some of 
the processes are performed and some outcomes are achieved. We 
recognize the concern about holding ACOs accountable for patient 
choices such as continued tobacco use. However, since tobacco use 
causes greater complications among diabetics, we believe the tobacco 
use component of this composite measure will incentivize greater 
provider involvement in smoking cessation counseling.
    Comment: Proposed measures 35 and 39. Diabetes Mellitus: Aspirin 
Use. One commenter wrote in support of this measure. One commenter 
stated that these measures are not evidence based as aspirin should be 
given to patients with diabetes only after consideration of their 10-
year risk of a significant coronary event in accordance with current 
USPSTF and American Diabetes Association guidelines. One commenter 
considered this measure of limited value and noted that it only applies 
to those with diabetes and ischemic vascular disease but is not 
included as a measure for those with just coronary artery disease.
    Response: To clarify, we proposed the Minnesota Community 
Measurement ``Optimal Diabetes Care'' composite for its up-to-date 
research, extensive testing, and relevance to the Medicare FFS 
beneficiary population, as discussed previously. The composite measure 
received NQF endorsement in March 2011, too late for this information 
to be included in the Shared Savings Program proposed rule. Regarding 
the aspirin use component of proposed composite measure 35, which we 
also proposed as individual measure 39, the recommendation for aspirin 
use for diabetics with known cardiovascular disease is based on 
American Diabetes Association guidelines for daily aspirin use.\4\ 
Evidence no longer supports daily aspirin for all diabetics age 40 and 
older, and, as a result, the aspirin component of the composite measure 
only includes diabetic patients with known cardiovascular disease.
---------------------------------------------------------------------------

    \4\ American Diabetes Association. Standards of Medical Care in 
Diabetes--2011. Available at http://care.diabetesjournals.org/content/34/Supplement_1/S11.full.
---------------------------------------------------------------------------

    We are finalizing diabetes aspirin use as part of the diabetes 
composite (proposed measure 35) but are not finalizing it as an 
individual measure at this time. Instead of the individual aspirin use 
measure, we are finalizing Ischemic Vascular Disease: Use of Aspirin or 
Another Antithrombotic (NQF 68), which we believe is a broader 
measure that is more aligned with Departmental efforts to improve 
cardiovascular care and with other agency programs, such as PQRS. Both 
proposed measure 39 and NQF 68 measure aspirin or 
antithrombotic use in beneficiaries diagnosed with ischemic vascular 
disease (IVD), use a common set of ICD-9 codes to define the condition, 
and are calculated for Medicare FFS beneficiaries age 18 and older. 
However, we believe the IVD measure is more appropriate as an 
individual measure, since it is intended for the entire IVD population, 
rather than only those with IVD and diabetes, which the diabetes 
composite measure already captures.
    The IVD measure also includes use of other antiplatelet 
medications, which we believe reduces the need for a separate CAD: Oral 
Antiplatelet Therapy Prescribed for Patients with CAD measure, as 
discussed in more detail later in this final rule in connection with 
proposed measure 53. Thus, we believe the IVD measure reduces the 
burden of quality measure reporting for ACOs, since it is one GPRO 
measure that captures the data that would otherwise have been required 
be reported via 2 separate measures. It also aligns with PQRS efforts 
for 2012, the Million Hearts initiative, and the other IVD measures we 
are finalizing in this rule.
    Comment: Proposed measures 36 and 40. Diabetes Mellitus: Hemoglobin 
A1c Control and Hemoglobin A1c Poor Control. A few commenters 
recommended that, in order to pare down measures, CMS retain only one 
of these measures as there is some overlap. One commenter recommended 
CMS use age limits for these measures.
    Response: We note that these measures do address somewhat different 
aspects of diabetes control. HbA1c Control targets good control in 
patients, with an aim of monitoring to keep levels in range, while 
HbA1c Poor Control targets patients whose diabetes is poorly-controlled 
and may require additional intervention. Accordingly, we believe it is 
appropriate to retain both measures. Although we are not finalizing 
proposed measure 36 in this final rule, HbA1c Control is part of the 
all or nothing diabetes composite measure under proposed measure 35. We 
suggest that the commenter concerned about age limits contact the 
measure steward directly.
    Comment: Proposed measure 38. Diabetes Mellitus: Tobacco Non Use. A 
few commenters believed this measure was unnecessary as it was 
duplicative of proposed measure 33. Tobacco Use Assessment and Tobacco 
Cessation Intervention or suggested that the measure be broadened to 
all tobacco users, regardless of diagnoses. One commenter expressed 
concern that this measure could be gamed and suggested excluding or 
modifying the measure.
    Response: Tobacco use is harmful to patient health, but among 
diabetics, it is particularly dangerous as it increases the risk of 
complications. To substantially lower the risk for cardiovascular and 
stroke events among patients with diabetes, it is critical that the 
specified outcome goals are achieved. This quality measure aims to 
encourage even greater engagement by physicians and their diabetic 
patients in achieving tobacco free status. Although we are not 
finalizing this individual measure, it is part of the diabetes 
composite under proposed measure 35 that we are finalizing in this 
rule. At the time the proposed rule was published,

[[Page 67884]]

some aspects of the measure had not yet received NQF endorsement. Since 
the measure has now been endorsed as part of the Optimal Diabetes Care 
composite (NQF 0729), we can clarify that this has now been 
changed to a different NQF measure, ``Tobacco Non-Use.'' This measure 
is specifically endorsed for use in diabetics, whereas the measure 
proposed (NQF 28) is a general preventive health measure we 
would have calculated for a diabetic population. We recognize concerns 
for gaming and intend to use the GPRO audit and validation process 
described in section II.F.4.b. of this final rule, to monitor such 
activities.
    Comment: Proposed measure 40. Diabetes Mellitus: Hemoglobin A1c 
Poor Control. One commenter questioned inclusion of this measure 
stating it was not evidence-based, citing research suggesting that 
interventions to maintain glycemic control in the frail elderly may 
adversely affect outcomes. One commenter recommended CMS remove this 
measure as it is not aligned with patient goals.
    Response: We are finalizing this measure as we believe glycemic 
control is an important quality issue. The American Geriatrics Society 
guidelines currently state that avoiding poor glycemic control is 
important even for frail older adults; therefore, we believe this 
measure is consistent with the standard of care and aligned with 
patient goals.\5\
---------------------------------------------------------------------------

    \5\ Guidelines for Improving the Care of the Older Person with 
Diabetes Mellitus. California Healthcare Foundation/American 
Geriatrics Society Panel on Improving Care for Elders with Diabetes. 
American Geriatrics Society. May 2003--Vol. 51, No. 5 Supplement, 
JAGS.
---------------------------------------------------------------------------

    Comment: Proposed measure 41. Diabetes Mellitus: High Blood 
Pressure Control in Diabetes Mellitus. One commenter stated that this 
measure is not geared towards population health and should be removed.
    Response: We included this measure as a population health measure 
because diabetes is prevalent in the Medicare population and has high 
rates of morbidity and mortality. Most people with diabetes have other 
risk factors, such as high blood pressure, that increase the risk for 
heart disease and stroke. However, we are not finalizing this as an 
individual measure, because it is part of the diabetes composite, 
proposed measure 35. that we are finalizing.
    Comment: Proposed measures 42.-44. At Risk Population--Diabetes. 
One commenter supported including proposed measure 42. Diabetes 
Mellitus: Urine Screening for Microalbumin or Medical Attention for 
Nephropathy in Diabetic Patients. Another commenter believed this 
measure could be removed as it only measured process. One commenter 
stated that, regarding proposed measure 43. Diabetes Mellitus: Dilated 
Eye Exam in Diabetic Patients, there are alternatives to dilated eye 
exams and recommended providers not be penalized for using those 
alternatives. We did not receive any comments on proposed measure 44. 
Diabetes Mellitus: Foot Exam.
    Response: We are not finalizing these measures at this time. While 
we agree that nephropathy screening, eye exams, and foot exams are 
important for diabetics, in order to reduce the burden of the quality 
reporting at the start of the Shared Savings Program, we have sought to 
include only the most high impact diabetes intermediate outcome 
measures and are not finalizing these measures at this time. If the 
commenter that recommended eye exam alternatives is referring to fundus 
photographs as the alternative, the 2011 American Diabetes Association 
(ADA) Standards of Medical Care in Diabetes still recommend dilated eye 
exams and state that while retinal photography may serve as a screening 
tool for retinopathy, it is not a substitute for a comprehensive eye 
exam.
    Comment: Proposed measures 45-51. At Risk Population--Heart 
Failure. One commenter supported proposed measures 45. Heart Failure: 
Left Ventricular Function (LVF) Assessment and 46. Heart Failure: Left 
Ventricular Function (LVF) Testing. A few of commenters stated that LVF 
assessment reflects a minimal standard of care and urged CMS to go 
beyond structure and process measures to measures that solidly address 
clinical appropriateness and overuse. Another commenter questioned how 
meaningful these measures are as they may already have high performance 
levels and, therefore, have little room for additional quality 
improvement. Another commenter wrote in support of proposed measure 49. 
Heart Failure: Beta-Blocker Therapy for Left Ventricular Systolic 
Dysfunction (LVSD).
    One commenter was concerned that proposed measure 47. Heart 
Failure: Weight Measurement was duplicative to proposed measure 31 
(Adult Weight Screening and Follow-up). One commenter stated that the 
measure developer had retired this measure. Another commenter stated 
the measure was of limited value because it fails to differentiate 
between providers.
    One commenter stated proposed measure 48. Heart Failure: Patient 
Education was of limited value because it fails to differentiate 
between providers. Another commenter wrote in support of proposed 
measure 50. Heart Failure: Angiotensin-Converting Enzyme (ACE) 
Inhibitor or Angiotensin Receptor Blocker (ARB) Therapy for Left 
Ventricular Systolic Dysfunction, while another commenter questioned 
the value of this measure as it already has high performance levels in 
some regions.
    One commenter wrote in support of proposed measure 51. Heart 
Failure: Warfarin Therapy for Patients with Atrial Fibrillation. 
Another commenter noted that this measure is outdated and should be 
modified to include thrombin inhibitor therapy, and one commenter 
recommended removing this measure entirely.
    Response: While we agree that LVF testing has improved, 2011 AMA-
PCPI guidelines cite LVF assessment, Patient Education, and ACEI/ARB 
Therapy for LVSD as opportunities for improvement. (http://www.ama-assn.org/ama1/pub/upload/mm/pcpi/hfset-12-5.pdf) However, in response 
to comments about reducing the number of quality measures and in an 
effort to finalize higher impact measures, we are not finalizing LVF 
assessment (proposed measure 45), LVF testing (proposed measure 46), 
Patient Education (proposed measure 48), or ACEI/ARB Therapy for LVSD 
(proposed measure 50). We are also not finalizing the Heart Failure: 
Weight Measurement measure (proposed measure 47), as it is retired, as 
one commenter noted. We are also not finalizing the Warfarin Therapy 
measure (proposed measure 51) but intend to further research the 
implications of such a measure of warfarin therapy as opposed to one of 
thrombin inhibitor therapy and revisit this in the future.
    Of the measures proposed for heart failure, we believe there is 
greatest opportunity for quality improvement in the Beta-Blocker 
Therapy for LVSD (proposed measure 49) and ACSC: Congestive Heart 
Failure (proposed measure 15), aimed at reducing avoidable admissions, 
and are finalizing both measures.
    Comment: Proposed measure 52. Coronary Artery Disease (CAD) 
Composite: All or Nothing Scoring. Comments discussed previously with 
proposed measure 35.
    Response: We have finalized this measure with modification to 
include only the following components: Drug Therapy for Lowering LDL-
Cholesterol and Angiotensin-Converting Enzyme (ACE) Inhibitor or 
Angiotensin Receptor Blocker (ARB) Therapy for Patients with CAD and 
Diabetes and/or Left Ventricular Systolic Dysfunction

[[Page 67885]]

(LVSD). Since CAD is a common chronic condition and is an underlying 
condition for individuals with other chronic conditions, we are 
narrowing our composite measure to focus on CAD measures that better 
align with final measures in other chronic disease areas. In addition, 
while we will score this measure as a composite measure, we will 
provide feedback on the individual components so ACOs can identify 
areas of lower performance and design strategies to improve 
performance.
    Comment: Proposed measure 53. Coronary Artery Disease (CAD): Oral 
Antiplatelet Therapy Prescribed for Patients with CAD. One commenter 
wrote in support of this measure.
    Response: We are not finalizing this measure at this time, as we 
believe the aspirin use component of the diabetes composite (proposed 
measure 35) and the IVD: Use of Aspirin or Another Antithrombotic 
measure (discussed under proposed measure 39) align and complement the 
CAD measures given the overlap in the chronic disease population. 
Therefore, we are finalizing the diabetes composite and the IVD: Use of 
Aspirin or Another Antithrombotic measures in lieu of proposed measures 
39 and 53.
    Comment: Proposed measure 54. Coronary Artery Disease (CAD): Drug 
Therapy for Lowering LDL-Cholesterol. One commenter wrote in support of 
this measure. One commenter suggested dropping this measure and 
retaining proposed measure 56 (Coronary Artery Disease: LDL Level <100 
mg/dl) in order to pare down measures and retain those with the most 
impact on health outcomes. Another commenter questioned whether there 
is demonstrated variability on this measure and whether it was of 
value.
    Response: We note that AMA-PCPI identified this measure as an 
opportunity for improvement and as a result have retained the measure 
in the final measure set under the CAD composite (proposed measure 52) 
but not as an individual measure, since we believe CAD is an area in 
which we can raise the bar for quality improvement through all or 
nothing scoring.
    Comment: Proposed measure 55. Coronary Artery Disease (CAD): Beta-
Blocker Therapy for CAD Patients with Prior Myocardial Infarction (MI). 
One commenter wrote in support of this measure. Another commenter 
cautioned CMS to use the most recent version of this measure, which was 
updated to include patients with left ventricular systolic dysfunction. 
One commenter expressed concern about the sample size for most ACOs, 
whether there is demonstrated variability in the measure, and 
exclusions for patients who have contraindications to beta blockers.
    Response: We have taken the measure update into consideration and 
decided not to finalize the measure at this time as we believe the IVD 
measure we are finalizing (discussed under proposed measure 39) is a 
broader measure that encompasses this aspect of CAD care and allows us 
to reduce reporting burden to ACOs by requiring fewer measures to be 
reported.
    Comment: Proposed measure 57. Coronary Artery Disease (CAD): 
Angiotensin-Converting Enzyme (ACE) Inhibitor or Angiotensin Receptor 
Blocker (ARB) Therapy for Patients with CAD and Diabetes and/or Left 
Ventricular Dysfunction (LVSD). One commenter questioned whether there 
is demonstrated variability in this measure and whether allowances 
would be made for patients with contraindications to ACEs/ARBs.
    Response: We believe this measure has room for improvement and have 
decided to finalize this measure under proposed measure 52, the CAD 
composite measure, rather than as an individual measure, as we believe 
CAD is an area in which we can raise the bar for quality improvement 
through all or nothing scoring. We will take contraindications into 
account prior to releasing measures specifications.
    Comment: Proposed measure 58. Hypertension: Blood Pressure Control. 
One commenter stated that this measure is dependent on medical record 
data making it particularly difficult for ACOs to collect and report 
and recommended it not be included, at least initially. One commenter 
stated that this measure is not geared towards population health and 
should be removed. One commenter believed beneficiary compliance to be 
outside the provider's control and recommended that CMS monitor this 
measure rather than include it in the performance score.
    Response: Many of these measures are based on medical record data 
and will be collected through the GPRO web interface, which will allow 
data collection from electronic medical records, patient registries and 
other administrative systems, as well as from paper records. 
Hypertension is one of the most common chronic illnesses in the 
Medicare population and a major cause of morbidity and mortality and a 
contributing risk factor for other highly prevalent conditions such as 
diabetes and heart disease. Although some factors influencing outcome 
measures are outside the provider's control, many others, such as 
tailoring blood pressure medications and nutrition education, can be 
influenced by services received through the ACO. Therefore, we are 
finalizing this measure in the final set.
    Comment: Proposed measure 59. Hypertension: Plan of Care. Several 
commenters recommended removing this measure. Their reasons included: 
Concerns that the measure is not geared towards population health; it 
is inefficient; labor intensive; and not scalable. Another commenter 
believed this measure could be removed as long as Hypertension: Blood 
Pressure Control was retained.
    Response: We believe this measure is important, but may have some 
overlap with the Adult Weight Screening and Follow-up measure (proposed 
measure 31), which also includes a plan of care component. Thus, we are 
not finalizing this measure in an effort to be sensitive to general 
measures comments about the number of required measures and redundancy. 
We are, however, retaining the Hypertension: Blood Pressure Control 
measure, consistent with one commenter's suggestion.
    Comment: Proposed measure 60. Chronic Obstructive Pulmonary Disease 
(COPD): Spirometry Evaluation. One commenter wrote in support of 
retaining this measure. One commenter recommended CMS use age limits 
for this measure.
    Response: We are not finalizing the measure at this time, in an 
effort to respond to general comments about the number of required 
measures and reporting burden. If the commenter that recommended the 
use of age limits for this measure is suggesting changes to the 
endorsed specification, we recommend communicating with the measure 
steward directly. We note, however, that we are finalizing the ACSC: 
COPD measure (proposed measure 14) as previously discussed.
    Comment: Proposed measure 61. Chronic Obstructive Pulmonary Disease 
(COPD): Smoking Cessation Counseling Received. One commenter wrote in 
support of retaining this measure. One commenter expressed concern that 
this measure could be gamed and suggested excluding or modifying the 
measure.
    Response: Tobacco use is harmful to patient health, but among 
patients with COPD, it is particularly harmful as it can cause 
progression of the illness. We acknowledge the potential for gaming, 
which is why we proposed a GPRO audit and validation process. However, 
we have decided not to finalize this measure at this time, as we 
believe smoking cessation counseling is important for all patients. 
Accordingly, we are instead finalizing the Tobacco Use Assessment and 
Tobacco Cessation Intervention measure (proposed measure 33), which 
includes

[[Page 67886]]

individuals with COPD. We believe this decision is also responsive to 
general comments about the number of required measures, redundancy in 
the measures, and reporting burden.
    Comment: Proposed measure 62. Chronic Obstructive Pulmonary Disease 
(COPD): Bronchodilator Therapy based on FEV1. Two commenters wrote in 
support of this measure.
    Response: We are not finalizing this measure at this time, but we 
are finalizing the ACSC: COPD measure (proposed measure 14), which aims 
to reduce avoidable admissions and is outcome focused.
    Comment: Proposed measure 63. Falls: Screening for Fall Risk. 
Several commenters supported this measure. One commenter stated that 
this is a survey-based measure and should not be submitted via GPRO but 
could be added to CG CAHPS. This commenter also noted that the proposed 
measure does not match the current measure description in the 2011 NCQA 
HEDIS Specifications Volume II.
    Response: We believe it is important for an ACO to conduct a fall 
risk screening or have one noted in a patient's medical record and to 
report this measure. The CG CAHPS is a patient-reported survey, which 
we do not think is appropriate for this measure, given the required 
involvement of a provider educated about requirements for a meaningful 
assessment. We are finalizing this measure and have adjusted the 
measure description in Table 1 to reflect the NQF description. We agree 
that the proposed measure does not match the 2011 HEDIS measure 
description, but HEDIS includes a different measure (NQF 35) 
than the one proposed for ACO (NQF 101). We are also moving 
this measure to the Care Coordination/Patient Safety domain as we 
believe it is more accurately characterized as a patient safety 
measure.
    Comment: Proposed measure 64. Osteoporosis Management in Women who 
had a Fracture. Two commenters wrote in support of this measure. One 
commenter commended CMS for inclusion of this measure but recommended 
that it be expanded to include men who have had a fracture based on 
recent literature. One commenter believed that CMS should align ACO and 
PQRS measures by replacing this measure with the four NQF-endorsed 
osteoporosis measures in PQRS.
    Response: At this time, we have decided not to finalize this 
measure in order to allow ACOs to focus their efforts to redesign their 
care processes to incorporate fall risk assessments and to use those 
results in meaningful conversations with their patients about fall 
risks and ways to reduce them. As ACOs gain more experience in 
integrating the fall risk screening measure more broadly into their 
day-to-day practices, we will revisit the frail elderly measures in 
future rulemaking to build upon these achievements and to address 
additional issues for the frail elderly.
    Comment: Proposed measure 65. Monthly INR for Beneficiaries on 
Warfarin. One commenter wrote in support of this measure. One commenter 
suggested CMS use ACOVE guidelines for INR. One commenter suggested CMS 
modify its proposal to measure the quality of warfarin therapy by 
measuring patients on stabilized warfarin therapy within the critical 
INR range. Several commenters recommended removing of this measure and 
believed it was out of date.
    Response: We have decided not to finalize the measure at this time. 
We intend to investigate the appropriateness of warfarin therapy 
further, including developments regarding of alternative therapies and 
gaps in monthly INR monitoring, and will consider this measure and/or 
other related measures that may be appropriate in future rulemaking 
cycles.
    Comment: While a majority of commenters suggested paring down the 
measure set, we received a number of suggestions for additional 
measures and measure categories that were not included in our proposed 
measures set, such as measures of: emergency room visits, comprehensive 
medication management, patient safety, additional potentially 
preventable complications, care transitions, more robust mental health 
measures, substance use, underuse of health care services, 
perioperative care, cancer survivorship care, hematology care, kidney 
disease, COPD, asthma and other allergic diseases, patient engagement, 
recovery and wellness. Several commenters recommended including risk-
adjusted mortality measures for the entire ACO population, not limited 
to those who have been hospitalized. A few commenters advocated for 
more emphasis on continued quality improvement rather than quality 
assurance.
    Response: Given that many ACOs will be newly forming organizations, 
we concluded that ACO quality measures should focus on discrete 
processes and short-term measurable outcomes derived from 
administrative claims and limited medical record review facilitated by 
a CMS-provided web interface to lessen the burden of reporting. For 
both the proposed rule and this final rule, we selected a set of 
quality measures based on the criteria discussed in section II.F.2.b. 
of this final rule. Because of the focus on Medicare FFS beneficiaries, 
our measure selection emphasized prevention and management of chronic 
diseases that have high impact on these beneficiaries such as heart 
disease, diabetes mellitus and chronic obstructive pulmonary disease.
    Comment: A number of commenters were concerned that the program 
measure quality across the spectrum of care settings including not just 
outpatient clinics and short-term acute hospital care but also 
federally qualified health centers, rural environments, convenient care 
clinics, home health, telehealth, remote patient monitoring, SNFs or 
long-term care, behavioral health, rehabilitation care, anesthesia 
care, hospice and palliative care, and case management. A number of 
these commenters suggested adding specific measures. One commenter 
advocated for a separate domain of palliative care.
    Response: We selected final measures with a predominantly 
ambulatory care focus, consistent with the primary care focus of, and 
beneficiary assignment methodology used for, the Shared Savings 
Program. It is important to note, however, that ACOs may use 
information from additional care settings types of providers in 
reporting quality information via the GPRO web interface and that 
patients' total Medicare Part A and B claims history will be used in 
determining GPRO measure denominators and calculating claims-based 
measures. We encourage ACOs to work with providers across the care 
spectrum to better coordinate care and improve the quality of care for 
their mutual patient population.
    Comment: A number of commenters suggested that new measures are 
needed for ACOs and that CMS should partner with others, such as 
Regional Health Improvement Collaboratives and AHRQ, to identify gaps 
and develop new measures. One commenter supported development of new 
patient-centered functional outcome measures that are site-neutral, 
focused on the coordination of services, and based on individual needs 
and preferences for care. Another stated that new measures specific to 
the ACO patient experience should be developed in the future but not 
prior to the launch of the ACO program. One commenter recommended 
development of measures of appropriate use of new technologies. One 
commenter expressed concern that current measures reflect limitations 
of the current payment system, while ACO metrics should

[[Page 67887]]

include population-based outcomes measures such as emergency room use, 
potentially preventable admission rates, in-hospital mortality rates, 
and possibly patient safety measures. One commenter supported measures 
of how ACO professionals use their performance on quality measures to 
improve care as well as the quality measures themselves. One commenter 
proposed that emergency medicine measures should be developed, while 
another urged CMS to work with NQF to develop more robust measures of 
medication management.
    Response: We appreciate the commenters' interest in measures that 
address additional areas of specialty care, inpatient and post acute 
care while working to move our measurement strategy to more outcome-
oriented measures and will consider these in the future.
    Comment: A number of commenters recommended CMS include measures 
that are more inclusive of specialty care, pediatric care, and non-
physician professionals, such as nurse practitioners and registered 
nurses. Many of these commenters noted that the proposed measures were 
heavily focused on primary care. One commenter believed the emphasis on 
primary care measures would result in much less data on which to judge 
ACO quality for specialty care, which could either inappropriately 
reward or punish specialist providers. Other commenters expressed 
concern that specialty care and care for those with disabilities might 
be negatively affected by the lack of specialty measures or incentives 
to skimp on necessary care. One commenter added that most proposed 
measures have no direct relationship to cost management that could be 
achieved during the ACO agreement period, particularly since specialty 
care is a driver of cost differences. Without specific quality measures 
related to specialty care, the commenter argues, specialists in ACOs 
will face pressure to reduce the costs of specialty care, which may 
translate into inferior care for beneficiaries by limiting access to 
specialty care and ignoring quality. Several commenters recommended 
measures that reflect the interprofessional nature of an ACO and the 
mix of clinicians providing primary care.
    Response: We believe that the final set of measures is 
appropriately focused and measures care furnished by a variety of 
providers including specialists, nurses, and nurse practitioners. We 
also believe the issue of including specialty providers who furnish 
primary care services is addressed in the two-step beneficiary 
assignment methodology discussed in section II.E of this final rule. We 
also agree that monitoring is necessary to ensure providers do not 
skimp on care or avoid at-risk beneficiaries. Our final policies 
regarding monitoring of ACOs are discussed in section II.H. of this 
final rule. Finally, we do not think including pediatric measures is 
appropriate at this time, since the Shared Savings Program is designed 
for the Medicare FFS population, which includes very few children and 
would not allow for reliable and valid pediatric measures.
    We also received suggestions for a process to retire and add 
measures over time.
    Comment: A few commenters recommended CMS take steps to assure that 
the most recent version of a specification, per the measure developer, 
is being used and that measures keep pace with current evidence. One 
commenter suggested that we conduct an annual review of the quality 
measures as well as new scientific evidence published in peer-reviewed 
medical literature and comparative effectiveness research of the 
Patient-Centered Outcomes Research Institute (PCORI) and remove any 
measures that are no longer supported by the evidence. Another 
commenter suggested that CMS should plan to update evaluation tools and 
methods as advances allow. One commenter requested that CMS assure that 
quality measures keep pace with new technologies and advances in 
medical care. Another commenter recommended CMS specify its criteria 
for selecting future measures and suggested beginning with: correlation 
with outcomes; NQF endorsement; measure impact (that is, high-volume, 
high-cost); sufficient sample size; existence of complete and clear 
specifications; compound or composite measures; and degree of 
opportunity for improvement, as indicated by high variability across 
organizations. One commenter stated that measures should be meaningful 
to consumers.
    A few commenters suggested that measures not be modified or added 
during the first agreement period or, at minimum, that we institute a 
system similar to the final value-based purchasing system where 
measures must be reported for a year without specification changes 
before they are eligible to be added to the performance standard. These 
commenters stated that keeping measures constant would allow ACOs to 
compare results from year to year. One of these commenters thought, at 
a minimum, any new measures added during an agreement period should be 
reasonable in number and limited to those that have been publicly 
reported for one year, in line with the HVBP model. One commenter 
requested CMS clarify how ACOs will be notified of changes to quality 
reporting in subsequent years and how new quality measures would be 
vetted. Another commenter recommended measures be added through an 
approval process open to all interdisciplinary health providers through 
their professional organizations while another commenter recommended 
that CMS use a formal notice and comment process to retire or add 
measures so that all stakeholders have the opportunity for input. One 
commenter suggested CMS add new measures during the agreement period 
for reporting only and not include those in the shared savings 
calculation. This commenter also recommended that more than 90 days 
lead time should be given before new measures are added. A few 
commenters recommended publishing final measure specifications at least 
90 days in advance for 2012 and at least 180 days notice be given for 
subsequent years, while another commenter recommended that CMS publish 
sample approach, sample size and data collection rules for any survey 
tools at least 12 months in advance. Another commenter recommended 
measures be published at least 18 months in advance. One commenter 
suggested that measures which are substantially modified be reported 
for a year prior to being incorporated into the performance standard. 
One commenter suggested measures be added only if they meet an ACO's 
patient population needs and removed if they are found to be 
unreliable, unactionable, or do not meet the needs of the population 
served.
    Response: As discussed previously, detailed measure specifications, 
including the measure title, for the Shared Savings Program quality 
measures may have been updated or modified during the NQF endorsement 
process or for other reasons prior to 2012. Specifications for all 
Shared Savings Program quality measures must be obtained from the 
specifications document for Shared Savings Program quality measures. As 
measures stewards frequently make their measures updates for a given 
year during the 4th quarter of the preceding year or the 1st quarter of 
the applicable year, we expect to release specifications during the 4th 
quarter of 2011 or the 1st quarter of 2012 for most of the measures. We 
expect to release specifications for the CAHPS survey later in 2012. We 
will also add and retire measures as

[[Page 67888]]

appropriate through the rulemaking process. We are working with the 
measures community to ensure that our specifications are the most up-
to-date for the 2012 Shared Savings Program performance period. We have 
to balance timing the release of specifications so they are as up-to-
date as possible, while also giving ACOs sufficient time to review 
specifications.
    Comment: One commenter requested that CMS clarify exclusion options 
for situations when following an evidence-based guideline would be 
inappropriate for a given ACO patient. A few commenters noted many of 
the proposed measures are inappropriate for terminally ill patients and 
recommended excluding such patients from quality measure calculations 
without consequence to the ACO.
    Response: Measure owners identify appropriate exclusion criteria as 
part of their measure specifications. Additionally, measures collected 
via the GPRO web interface allow providers to exclude patients per the 
measure specifications and for other defined reasons related to the 
reporting methodology as appropriate. The ACO measures specifications 
and reporting methodology will be provided in subregulatory guidance. 
However, in the proposed rule, we included information, such as the NQF 
number, for each measure so that the public could view measures 
specifications information on the NQF Web site and as currently used in 
other CMS programs, such as PQRS and the EHR Incentive Programs. Our 
audit and validation process and monitoring activities will also look 
at exclusions to determine if ACOs are excluding large numbers of 
patients from quality reporting as a way to avoid reporting or to game 
the methodology.
    Comment: Many commenters suggested that CMS outline quality 
reporting requirements over the entire ACO agreement period since 
Medicare ACOs are required to commit to participating for at least 3 
years. One commenter was disappointed that we only aligned with PQRS 
measures for the first year of the agreement period. One commenter 
recommended a 2 year reporting-only period for any future new measures 
that are not currently being collected. One commenter suggested that if 
measures for the agreement period are not specified up front, an ACO 
should be able to withdraw from its agreement if the second and third 
year measure reporting requirements are too burdensome and resource 
intensive. One commenter urged CMS to specify the reporting period, due 
date of submission, and the population that is being measured for each 
of the quality measures in the final rule. One commenter recommended 
that ACOs not be required to develop clinical guidelines and instead we 
should encourage them to use those developed by medical specialty 
societies. There was widespread support among commenters for a ramp-up 
approach to measurement and linking the degree of measure reporting--or 
in later years, measure performance--to the degree of shared savings. 
Many commenters believed phasing in measures or having a tiered 
approach, rather than requiring ACOs meet all thresholds would 
encourage wider participation, allow ACOs time to develop the necessary 
infrastructure and capacity, and reduce startup costs. Several 
commenters proposed a tiered approach to the performance standard. A 
few commenters stated that this approach would not only encourage 
participation but would help avoid some of the learning curve issues 
that occur in new programs. Several commenters pointed to the approach 
taken by the PGP Demonstration, in which an initial set of measures was 
phased in over time, and suggested the Shared Savings Program take a 
similar approach.
    While a number of commenters endorsed the first year quality 
performance standard at the reporting level, a number of commenters 
recommended extending it for 2 years, and a few endorsed a pay-for-
reporting standard for the entire first agreement period. Another 
commenter requested that, if measures which are not in current use are 
included in the final rule, these be kept at the reporting standard for 
the entire agreement period. One commenter thought the proposed 
Ambulatory Care Sensitive Conditions and Risk Standardized All 
Condition Readmission measures proposed should be pay for reporting 
measures only during the entire agreement period, due to the associated 
cost and risk, similar to the way in which new measures have been 
treated under the PGP demonstration. One commenter urged CMS not to use 
the reporting standard and to establish at least a minimum performance 
threshold from the outset of the program.
    Response: We have outlined in Tables 1 and 2 the quality measure 
requirements for the ACO agreement period. We do not intend to develop 
specific clinical guidelines for ACOs. Rather, we intend to adopt 
existing clinical guidelines as appropriate for ACOs in our measure 
specifications. Withdrawal from the Shared Savings Program is discussed 
in section II.H.5. of this final rule. A subset of these measures will 
be phased in for performance scoring starting in performance year 2 of 
the agreement period, as illustrated in Table 1 and summarized in Table 
2. We believe this approach emphasizes all domains and measures as 
important, provides a longer phase in of measures to pay for 
performance than in our original proposal, and aligns closely with the 
phase in used in the PGP Transition Demonstration.
    We expect to require ACOs to report all measures listed in Table 11 
during each ``reporting period,'' as defined in Sec.  425.20, of its 
agreement. This means that while an ACO's first ``performance year,'' 
as defined in Sec.  425.20, for shared savings purposes would be 18 or 
21 months, quality data will be collected on a calendar year reporting 
period basis, beginning with the reporting period starting January 1, 
2012 through December 31, 2012 for ACOs electing an interim payment. 
Thus, the first performance year of the ACO agreement period begins 
April 1, 2012 or July 1, 2012 and ends December 31, 2013, while quality 
performance for this first performance year will be based on complete 
and accurate reporting of measures January 1, 2013 through December 31, 
2013. Quality data submitted via the GPRO web interface for the 2012 
reporting period would also be used for purposes of the PQRS incentive 
under the Shared Savings Program, as discussed in II.F.5. of this final 
rule and for the interim payment calculation, as discussed in II.G.2.k. 
of this final rule. Furthermore, for all ACOs starting in 2012, we will 
conduct a CAHPS survey with assigned ACO beneficiaries and will measure 
claims- and administrative-based quality measures. Complete and 
accurate reporting on all quality measures in Table 1 for both the 
calendar year 2013 will be used to determine shared savings eligibility 
for an ACO's first performance year. The pay for performance phase-in 
of measures and second performance year for shared savings purposes 
would begin January 1, 2014. Table 2 summarizes the number pay for 
reporting and pay for performance measures for each performance year.

[[Page 67889]]



                     Table 1--Measures for Use in Establishing Quality Performance Standards That ACOs Must Meet for Shared Savings
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                    Pay for performance phase in  R =
                                                                NQF measure /      Method of data              Reporting P = Performance
                        Domain               Measure title          measure steward           submission       -----------------------------------------
                                                                                                                   Year 1        Year 2        Year 3
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            AIM: Better Care for Individuals
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.              Patient/Caregiver       CAHPS: Getting Timely   NQF 5, AHRQ..  Survey................            R             P             P
                 Experience.             Care, Appointments,
                                         and Information.
2.              Patient/Caregiver       CAHPS: How Well Your    NQF 5 AHRQ...  Survey................            R             P             P
                 Experience.             Doctors Communicate.
3.              Patient/Caregiver       CAHPS: Patients'        NQF 5 AHRQ...  Survey................            R             P             P
                 Experience.             Rating of Doctor.
4.              Patient/Caregiver       CAHPS: Access to        NQF 5 AHRQ...  Survey................            R             P             P
                 Experience.             Specialists.
5.              Patient/Caregiver       CAHPS: Health           NQF 5 AHRQ...  Survey................            R             P             P
                 Experience.             Promotion and
                                         Education.
6.              Patient/Caregiver       CAHPS: Shared Decision  NQF 5 AHRQ...  Survey................            R             P             P
                 Experience.             Making.
7.              Patient/Caregiver       CAHPS: Health Status/   NQF 6 AHRQ...  Survey................            R             R             R
                 Experience.             Functional Status.
8.              Care Coordination/      Risk-Standardized, All  NQF TBD CMS..  Claims................            R             R             P
                 Patient Safety.         Condition
                                         Readmission*.
9.              Care Coordination/      Ambulatory Sensitive    NQF 275 AHRQ.  Claims................            R             P             P
                 Patient Safety.         Conditions
                                         Admissions: Chronic
                                         Obstructive Pulmonary
                                         Disease (AHRQ
                                         Prevention Quality
                                         Indicator (PQI)
                                         5).
10.             Care Coordination/      Ambulatory Sensitive    NQF 277 AHRQ.  Claims................            R             P             P
                 Patient Safety.         Conditions
                                         Admissions:
                                         Congestive Heart
                                         Failure (AHRQ
                                         Prevention Quality
                                         Indicator (PQI)
                                         8).
11.             Care Coordination/      Percent of PCPs who     CMS...................  EHR Incentive Program             R             P             P
                 Patient Safety.         Successfully Qualify                            Reporting.
                                         for an EHR Incentive
                                         Program Payment.
12.             Care Coordination/      Medication              NQF 97 AMA-    GPRO Web Interface....            R             P             P
                 Patient Safety.         Reconciliation:         PCPI/NCQA.
                                         Reconciliation After
                                         Discharge from an
                                         Inpatient Facility.
13.             Care Coordination/      Falls: Screening for    NQF 101 NCQA.  GPRO Web Interface....            R             P             P
                 Patient Safety.         Fall Risk.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           AIM: Better Health for Populations
--------------------------------------------------------------------------------------------------------------------------------------------------------
14.             Preventive Health.....  Influenza Immunization  NQF 41 AMA-    GPRO Web Interface....            R             P             P
                                                                 PCPI.
15.             Preventive Health.....  Pneumococcal            NQF 43 NCQA..  GPRO Web Interface....            R             P             P
                                         Vaccination.
16.             Preventive Health.....  Adult Weight Screening  NQF 421 CMS..  GPRO Web Interface....            R             P             P
                                         and Follow-up.
17.             Preventive Health.....  Tobacco Use Assessment  NQF 28 AMA-    GPRO Web Interface....            R             P             P
                                         and Tobacco Cessation   PCPI.
                                         Intervention.
18.             Preventive Health.....  Depression Screening..  NQF 418 CMS..  GPRO Web Interface....            R             P             P
19.             Preventive Health.....  Colorectal Cancer       NQF 34 NCQA..  GPRO Web Interface....            R             R             P
                                         Screening.
20.             Preventive Health.....  Mammography Screening.  NQF 31 NCQA..  GPRO Web Interface....            R             R             P
21.             Preventive Health.....  Proportion of Adults    CMS...................  GPRO Web Interface....            R             R             P
                                         18+ who had their
                                         Blood Pressure
                                         Measured within the
                                         preceding 2 years.
22.             At Risk Population--    Diabetes Composite      NQF 0729 MN    GPRO Web Interface....            R             P             P
                 Diabetes.               (All or Nothing         Community Measurement.
                                         Scoring): Hemoglobin
                                         A1c Control (< 8
                                         percent).

[[Page 67890]]

 
23.             At Risk Population--    Diabetes Composite      NQF 0729 MN    GPRO Web Interface....            R             P             P
                 Diabetes.               (All or Nothing         Community Measurement.
                                         Scoring): Low Density
                                         Lipoprotein (< 100).
24.             At Risk Population--    Diabetes Composite      NQF 0729 MN    GPRO Web Interface....            R             P             P
                 Diabetes.               (All or Nothing         Community Measurement.
                                         Scoring): Blood
                                         Pressure < 140/90.
25.             At Risk Population--    Diabetes Composite      NQF 0729 MN    GPRO Web Interface....            R             P             P
                 Diabetes.               (All or Nothing         Community Measurement.
                                         Scoring): Tobacco Non
                                         Use.
26.             At Risk Population--    Diabetes Composite      NQF 0729 MN    GPRO Web Interface....            R             P             P
                 Diabetes.               (All or Nothing         Community Measurement.
                                         Scoring): Aspirin Use.
27.             At Risk Population--    Diabetes Mellitus:      NQF 59 NCQA..  GPRO Web Interface....            R             P             P
                 Diabetes.               Hemoglobin A1c Poor
                                         Control (> 9 percent).
28.             At Risk Population--    Hypertension (HTN):     NQF 18 NCQA..  GPRO Web Interface....            R             P             P
                 Hypertension.           Blood Pressure
                                         Control.
29.             At Risk Population--    Ischemic Vascular       NQF 75 NCQA..  GPRO Web Interface....            R             P             P
                 Ischemic Vascular       Disease (IVD):
                 Disease.                Complete Lipid
                                         Profile and LDL
                                         Control < 100 mg/dl.
30.             At Risk Population--    Ischemic Vascular       NQF 68 NCQA..  GPRO Web Interface....            R             P             P
                 Ischemic Vascular       Disease (IVD): Use of
                 Disease.                Aspirin or Another
                                         Antithrombotic.
31.             At Risk Population--    Heart Failure: Beta-    NQF 83 AMA-    GPRO Web Interface....            R             R             P
                 Heart Failure.          Blocker Therapy for     PCPI.
                                         Left Ventricular
                                         Systolic Dysfunction
                                         (LVSD).
32.             At Risk Population--    Coronary Artery         NQF 74 CMS     GPRO Web Interface....            R             R             P
                 Coronary Artery         Disease (CAD)           (composite)/AMA-PCPI
                 Disease.                Composite: All or       (individual
                                         Nothing Scoring: Drug   component).
                                         Therapy for Lowering
                                         LDL-Cholesterol.
33.             At Risk Population--    Coronary Artery         NQF 66 CMS     GPRO Web Interface....            R             R             P
                 Coronary Artery         Disease (CAD)           (composite)/AMA-PCPI
                 Disease.                Composite: All or       (individual
                                         Nothing Scoring:        component).
                                         Angiotensin-
                                         Converting Enzyme
                                         (ACE) Inhibitor or
                                         Angiotensin Receptor
                                         Blocker (ARB) Therapy
                                         for Patients with CAD
                                         and Diabetes and/or
                                         Left Ventricular
                                         Systolic Dysfunction
                                         (LVSD).
--------------------------------------------------------------------------------------------------------------------------------------------------------
* We note that this measure has been under development and that finalization of this measure is contingent upon the availability of measures
  specifications before the establishment of the Shared Savings Program on January 1, 2012.


                       Table 2--ACO Agreement Period Pay for Performance Phase-In Summary
----------------------------------------------------------------------------------------------------------------
                                                                    Performance     Performance     Performance
                                                                      year 1          year 2          year 3
----------------------------------------------------------------------------------------------------------------
Pay for Performance.............................................               0              25              32
Pay for Reporting...............................................              33               8               1
                                                                 -----------------------------------------------
    Total.......................................................              33              33              33
----------------------------------------------------------------------------------------------------------------


[[Page 67891]]

    Final Decision: In summary, in response to comments, we have 
modified this final rule by reducing the measure set to 33 measures 
total, or 23 scored measures when accounting for the patient experience 
survey modules scored as 1 measure and the all or nothing diabetes and 
CAD measures scored as 1 measure each. We believe judiciously removing 
certain redundant, operationally complex, or burdensome measures would 
still provide a high standard of quality for participating ACOs while 
providing greater alignment with other CMS and HHS quality improvement 
initiatives. This measure set will be the starting point for ACO 
measurement, as we plan to modify measures in future reporting cycles 
to reflect changes in practice and quality of care improvement and 
continue aligning with other quality programs.
    For the patient/caregiver experience measures, we believe requiring 
a standardized, patient experience of care survey that is based on 
CAHPS will better allow comparisons of ACOs over time and benchmarking 
for future years of the program. Additionally, it will help ensure the 
patient survey is measuring patient experience for the ACO as a whole 
rather than for one specific practice, since there is currently no 
survey instrument in existence, that we are aware of, that measures 
patient experience of care in an ACO specifically. We will also fund 
the administration of an annual CAHPS patient experience of care survey 
for ACOs participating in the Shared Savings Program in 2012 and 2013. 
Starting in 2014, ACOs participating in the Shared Savings Program must 
select a survey vendor (from a list of CMS-certified vendors) and will 
pay that vendor to administer the survey and report results using 
standardized procedures developed by CMS. We will develop and refine 
these standardized procedures over the next 18 to 24 months.
    We will consider the individual CAHPS modules together as one 
measure for scoring purposes, consistent with Hospital Value-Based 
Purchasing and the PGP Transition Demonstration, except for Health 
Status/Functional Status. We have also added an access to specialists 
module to align with our final step-wise assignment methodology that 
incorporates specialists. This module will also promote care 
coordination and allow monitoring for avoidance of at-risk patients and 
underutilization of care by adding a patient perspective on access to 
specialty care. We will score the two finalized coronary artery disease 
measures as one composite and the recently endorsed Optimal Diabetes 
Care Composite, which has 5 components, will also be scored as one 
composite.
    ACOs will be required to completely and accurately report on all 33 
measures for all reporting periods in each performance year of their 
agreement period, and we will phase in pay for performance in 
performance years 2 and 3, as previously described above. Of the 33 
measures we are finalizing, 7 are collected via patient survey, 3 are 
calculated via claims, 1 is calculated from EHR Incentive Program data, 
and 22 are collected via the GPRO web interface.
    While we are removing the hospital patient safety measures from the 
final measures set, we plan to use the claims-based hospital measures 
as part of our ACO monitoring efforts. We also intend to consider any 
other claims-based measures proposed but not finalized in our program 
monitoring efforts. Please note that detailed measure specifications, 
including the measure title, for the 2012 Shared Savings Program 
quality measures may have been updated or modified during the NQF 
endorsement process or for other reasons prior to 2012. Specifications 
for all 2012 Shared Savings Program quality measures must be obtained 
from the specifications document for 2012 Shared Savings Program 
quality measures, which we expect to make available on the CMS Web 
during the 4th quarter of 2011 or 1st quarter of 2012, with the 
exception of the CAHPS measures, for which separate documentation will 
be available during 2012. We also note that the risk standardized, all 
condition readmission measure (final measure 2) has been under 
development and that finalization of this measure is contingent upon 
the availability of measures specifications before the establishment of 
the Shared Savings Program on January 1, 2012.
    Finally, we have modified this final rule to define the quality 
performance standard at the reporting level in the first year and based 
on performance in subsequent years. Rather than transition all measures 
from pay for reporting to pay for performance in the second performance 
year of the ACO agreement period as proposed, we will transition only a 
portion of the measures to pay for performance in the second 
performance year, and then all but one of the measures to pay for 
performance in the third performance year, as outlined in Table 2.
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. In the proposed 
rule, we stated that most of the proposed measures were consistent with 
those reported for PQRS, others would rely on survey instruments, eRx, 
and HITECH program data, and some might rely on Hospital Compare or the 
Centers for Disease Control and Prevention National Healthcare Safety 
Network data (76 FR 19592). We recognized 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 this reason, we stated we would make 
available a CMS-specified data collection tool for certain measures, 
which is now referred to as a ``web interface.'' We proposed that 
during the year following the first performance period, each ACO would 
be required to report via the GPRO web interface the applicable 
proposed quality measures with respect to services furnished during the 
performance period. We proposed 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. We also proposed that for 
survey-based measures data would also reflect care received during the 
first performance period. We also noted that we would use rulemaking to 
update the quality measure requirements and mechanisms for future 
performance periods.
    We welcomed comments on the proposed data submission requirements. 
We also sought 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.
    We received the following comments about data submission 
requirements in general.
    Comment: Several commenters requested more complete specifications 
about data submission requirements in the final rule. A few commenters 
stated that multiple formats of reporting are expensive and confusing 
and suggested a single reporting format. One commenter supported the 
multiple

[[Page 67892]]

approaches to capture quality data. A few commenters recommended that 
CMS require ACOs to measure quality for all patients, not just Medicare 
beneficiaries. One commenter recommended CMS require ACOs to give ACO 
providers/suppliers access to claims data arguing that such 
transparency is needed to ensure that all ACO providers/suppliers 
understand how their performance rates are being calculated. A few 
commenters expressed concern about whether CMS has the resources to 
handle the incoming data. One commenter did not believe ACOs should be 
held accountable for CMS problems with implementation.
    Response: We were as specific as practicable in the proposed rule 
regarding the data submission requirements. More detailed instructions 
regarding data submission will be provided through subregulatory 
guidance. We agree with the commenters' concern about a standard format 
for reporting purposes to ensure consistent reporting over years and by 
multiple ACOs. We believe the GPRO web interface provides this 
mechanism for ACOs to report data at the individual beneficiary level. 
It was developed with provider input and is currently used in multiple 
physician pay for performance demonstrations and in the PQRS group 
practice reporting option. The tool is pre-populated with Medicare 
claims data for a sample of assigned beneficiaries for each ACO to 
minimize reporting burden and to ensure complete and accurate 
reporting. While CMS encourages ACOs to measure quality for all their 
patients, it is beyond the scope of this regulation to require that 
they do so for patients other than Medicare beneficiaries. We also 
embrace the concept of data transparency and availability. While we 
cannot foresee all possible future implementation issues, we will 
strive to mitigate any unforeseen issues swiftly and fairly.
    We received the following comments about survey-based quality data.
    Comment: A few commenters stated that the survey data 
specifications were not sufficiently detailed. One commenter requested 
clarification on CAHPS timeframe of the last 12 months and asked 
whether visits outside of the reporting period may be included. A few 
commenters requested CMS clarify who would administer the survey, 
required timing, and sample size, while another questioned whether 
implementation of this measure was feasible for the first year given 
that this would be a new activity for most ACOs.
    Response: As discussed in section II.F.2. of this final rule, we 
agree with the concerns that have been raised regarding the initial 
burden of survey administration and have decided to pay for the 
administration of the CAHPS survey for 2012 and 2013. We are developing 
the necessary specifications and infrastructure to prepare vendors to 
administer the survey. Starting in 2014, ACOs will be required to 
select and pay for a CMS-approved vendor to administer the survey.
    Comment: One commenter requested that the final rule clearly 
articulate the reporting period, due date of submission, and the 
population that is being measured for each of the quality measures. One 
commenter wrote in support of the 12-month performance period as it 
allows for more valid and reliable measurement than would be possible 
under a shorter time period. A few commenters stated that 100 percent 
reporting may not be achievable in year one.
    Response: To clarify, all quality measures will have a 12-month, 
calendar year reporting period, regardless of ACO start date. Quality 
measures specifications and processes related to all quality measures 
will be made available in subregulatory guidance along with the 
specific dates for reporting and submission. Because of the measures 
and the methodology we are finalizing in this rule, our experience with 
GPRO measures and reporting methods to date, along with our plans to 
administer the CAHPS survey for the first 2 years of the program, we 
believe ACOs can achieve complete and accurate reporting in all years 
of the agreement period as we phase in pay for performance. CMS survey 
vendors will have responsibility for measuring the patient experience 
measures, and CMS will be able to calculate the claims-based measures 
and EHR Incentive Program measure without requiring any additional ACO 
reporting. ACOs will be directly responsible for reporting measures 
collected through the GPRO web interface. Starting in 2014, ACOs will 
also be responsible for selecting and paying for a CMS-certified vendor 
to administer the CAHPS survey.
    Comment: Numerous commenters suggested a core and menu set approach 
to quality measurement, which would require all ACOs to report on a 
core measure set but allow flexibility to choose among measures in a 
menu set, similar to that used for the EHR incentive program. Different 
suggestions as to how to select core measures were received. One 
commenter suggested a performance score during the first year for a 
limited set of 11 core measures available through claims data in order 
to immediately focus on quality performance. Another commenter 
suggested separating the measures as core, interim clinical process, 
and advanced sets, with ``core'' referring to administrative claims and 
patient survey measures and ``advanced'' referring to more advanced, 
outcomes measures. Advanced measures would be those requiring clinical 
data such as the proposed preventive health screening measures. One 
commenter suggested requiring a core set of measures but offering 
higher shared savings for successful implementation of additional 
voluntary measures. One commenter suggested reducing the number of 
measures in each domain to three; another advocated reducing the number 
within patient/caregiver experience, care coordination, patient safety 
and preventive health domains to an initial core similar to EHR 
Incentive Program and emphasized that measures for specific clinical 
areas should eventually include measures in several domains in as well 
as for at-risk populations and the frail elderly. This commenter also 
suggested CMS begin to identify measures for each clinical area within 
those domains.
    Response: We agree with the basic suggestions of a more limited 
measure set with some type of phased in approach. Table 2 illustrates 
the desire to have a phased in approach and a smaller, core set of 
measures that aligns with quality improvement priorities and value-
based purchasing, in response to comments received. We do not agree 
that arbitrarily requiring all domains to have the same number of 
measures would be beneficial. Rather, we have reduced the number of 
initial measures, independent of domain, based on feasibility, impact, 
program goals, and specific comments. At this time, we believe it is 
important all ACOs report on the same measures in order to emphasize 
quality improvement across a variety of important areas. We believe 
that a menu approach would provide incentives for ACOs to select areas 
in which they are already performing well, rather than those areas in 
which there is room for improvement.
    We received the following comments about claims-based quality 
measure data.
    Comment: Several commenters stated measures should be derived from 
claims data when possible for ease of reporting and to give ACOs real-
time feedback of results. One commenter stated that using existing data 
for most measures would also be advantageous in that ACOs could be more 
focused on quality improvement from the outset rather than having to 
spend resources simply

[[Page 67893]]

to track and report quality measures. One of these commenters 
recommended that measures with HEDIS claims specifications should be 
collected in that manner. Several commenters recommended beginning with 
a measure set based on claims data and expanding to registry or EHR-
based measures over time. Another commenter indicated that Medicare 
claims data would yield a limited set of measures and that CMS should 
instead focus on requiring ACOs to demonstrate core capabilities 
critical to improving quality and reducing costs. This commenter 
suggested different levels of scoring similar to NCQA's proposed 
criteria. One commenter suggested CMS consider, in the future, ABIM's 
Comprehensive Care Practice Improvement Module, which is designed to 
assess generalist practice.
    Response: We have included measures collected from a variety of 
sources, including claims, in the final measures set. We recognize that 
using claims offers a benefit in easing reporting burden but claims do 
not necessarily reflect the improvement outcomes that ACOs will seek to 
affect. We also recognize that the availability of measures from 
electronic health records may change significantly in the future, which 
we will consider accordingly. We are unable to add new measures in this 
final rule that were not proposed or that are not closely related to 
proposed measures. Accordingly, we are finalizing a combination of both 
claims-based measures and other measures collected from clinical 
quality data, patient experience surveys, and EHR Incentive Program 
data.
b. GPRO Web Interface
    In 2010, 36 large group practices and integrated delivery systems 
used GPRO to report 26 quality measures for an assigned patient 
population under the PQRS. As we indicated in the proposed rule, the 
GPRO web interface 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 web interface 
would allow ACOs to submit clinical information from EHRs, registries, 
and administrative data sources required for measurement reporting. We 
believe the web interface would reduce 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. Accordingly, we proposed that the existing GPRO web interface 
would be built out, refined, and upgraded to support clinical data 
collection and measurement reporting and feedback to ACOs participating 
in the Shared Savings Program.
    For quality measures collected via the GPRO web interface, we 
proposed 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 PQRS GPRO I, as described in section 
II.F.3.b of the proposed rule. Assigned beneficiaries, for purposes of 
the GPRO web interface, would be limited to those Medicare FFS 
beneficiaries assigned to the ACO.
    We indicated in the proposed rule that we would provide each ACO 
with access to the GPRO web interface that would include a sample of 
its assigned beneficiary population and the GPRO quality measures 
listed in Table 1 of the proposed rule (76 FR 19592). We stated we 
would pre-populate the web interface 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 as applicable.
    Using the same sampling method used in the 2011 PQRS GPRO I, we 
would 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 proposed to require the 
ACO to report on 100 percent, or all, of the assigned beneficiaries. 
For each measure set/domain within the GPRO web interface, the ACO 
would report information on the assigned beneficiaries in the order in 
which they appear consecutively in the ACO's sample.
    We stated that some GPRO measures would not rely on beneficiary 
data but rather on ACO attestation. We proposed to validate GPRO 
attestation for such measures through CMS data from the EHR Incentive 
Program and Electronic Prescribing (eRx) Incentive Program. For the 
other measures reported via the GPRO web interface, we proposed to 
retain the right to validate the data entered by ACOs via a data 
validation process based on the one used in phase I of the PGP 
demonstration. In the GPRO audit process, we would 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 
proposed 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 proposed 
that the ACO would not be given credit for meeting the quality target 
for any measures for which this mismatch rate still exists. We noted 
that the failure to report quality measure data accurately, completely 
and timely (or to timely correct such data) might subject the ACO to 
termination or other sanctions.
    We invited comment on the proposed GPRO quality data submission 
requirements and on the administrative burden associated with 
reporting.
    Comment: A few commenters supported the use of GPRO although one of 
the commenters stated that this type of reporting requires considerable 
time, effort and knowledge to do well and suggested automating measures 
as much as possible. One commenter encouraged CMS to rapidly develop 
the GPRO interface for ACOs and requested guidance for data submission 
in the meantime. One commenter suggested that CMS work with EHR 
vendors, DIRECT HISPs and HIEs to support efficient interfaces between 
EHRs, HIE, and the web interface and that the Quality Data Model 
developed by NQF should be supported to standardize data collection. 
This commenter also suggested that GPRO should be evaluated for 
expanded use. However, a few commenters expressed concern about whether 
GPRO is capable of being expanded for ACO use or its applicability for 
ACO populations as it has been used primarily for large group practices 
to date. A few commenters recommended further testing before

[[Page 67894]]

using it as proposed. Several commenters did not believe enough 
information was available about GPRO and baseline metrics from GPRO. 
One commenter stated that GPRO reported measure specifications are not 
available for review and interpretation. One commenter requested 
provider assistance if GPRO reporting is required. Another commenter 
requested clarification about whether the intent was for GPRO to cover 
all measures, and whether practices within an ACO would continue to 
report separately under GPRO for purposes of a PQRS incentive payment. 
Another commenter recommended that GPRO be populated soon with the 
prior two years of likely ACO assigned members, including an analysis 
of claims only results.
    Response: We have attempted to weigh the burdens of various 
reporting mechanisms against the benefits. The original GPRO tool 
evolved from the PAT tool used for the PGP Demonstration, which was 
developed with significant physician involvement. Over 600 physicians 
in a range of practice sizes used it as part of the Medicare Care 
Management Performance Demonstration, the PQRS had 35 groups using the 
GPRO tool in 2010 and 61 have signed up for 2011. Additionally, the 
tool has migrated to a web interface, which will offer the additional 
capability of data upload from an EHR. As a result, we believe this 
reporting mechanism is capable and well-tested and represents the best 
current option for quality reporting. We do not think it would be 
appropriate or effective to populate the web interface with the prior 2 
years of beneficiaries likely to be assigned to an ACO, as one 
commenter suggested, since this is not the population for which the 
ACOs will be responsible for being accountable for quality or financial 
performance. Rather, the ACO will be required to report on the 
beneficiaries actually assigned to the ACO in 2012. As a result, the 
web interface will be populated based on a sample of the 2012 assigned 
beneficiaries. Additionally, the calendar year reporting period for the 
ACO GPRO quality measures aligns with the PQRS GPRO reporting period 
for purposes of qualifying ACO TINs for a 2012 PQRS incentive payment, 
which is discussed in section II.F.5. of this final rule.
    We are finalizing our proposal to build upon GPRO experience for 
ACO use. We have specified in Table 1 which final measures must be 
reported through the GPRO web interface.
    Comment: Several commenters discouraged CMS from using the GPRO web 
interface because it does not provide a long-term solution to data 
collection and may hinder development of robust EHR solutions. One 
commenter encouraged CMS to establish its intent to collect electronic 
measures in subsequent years of the Shared Savings Program. A number of 
commenters noted GPRO is a labor intensive reporting method requiring 
chart abstraction, prone to error, and not derived from the normal 
workflow of providing patient care and encouraged the use of measures 
that could be captured by EHRs. One commenter expressed concern about 
the limited amount of time proposed for data entry in GPRO. Several 
commenters suggested alternate approaches to reporting. One commenter 
suggested a parallel reporting pathway via EHR for practices that have 
invested in health IT. One commenter suggested another standardized 
option to the GPRO web interface. One commenter recognized that medical 
record data would result in increased accuracy and recommended CMS 
prioritize measures for electronic exchange of clinical data between 
ACOs and CMS in the future rather than introduce the burden associated 
with the use of the GPRO web interface. Another commenter suggested 
content analysis of unstructured data available from encounters to more 
objectively measure some dimensions of quality without increasing 
reporting burden. This commenter also suggested that content analysis 
methodology be tested prior to building out the GPRO web interface.
    Response: We agree that it is important to foster innovation and 
support the development and uptake of electronic medical records. For 
this reason, we are including a measure related to EHR Incentive 
Program participation in our final measure set. However, we must rely 
on other means of collecting quality data for the Shared Savings 
Program until there is much more widespread use of electronic medical 
records and available means for group reporting based on ACO 
beneficiary level data. We note that the original GPRO tool evolved 
from the PAT tool used for the PGP Demonstration, which was developed 
with significant physician involvement, and over 600 physicians in a 
range of practice sizes used it as part of the Medicare Care Management 
Performance Demonstration. PQRS had 35 groups using the GPRO tool in 
2010 and currently have 61 signed up for 2011. As a result, we believe 
this reporting mechanism is sound and well-tested, and we intend to 
build upon this experience for ACO use. Additionally, the tool has 
migrated to a web interface, which will offer the additional capability 
of data upload from an EHR. We do not believe content analysis of 
unstructured data, as one commenter suggested, would be an efficient or 
operationally feasible way of collecting and analyzing ACO quality data 
as it would be difficult and time-consuming to make quality performance 
standard determinations from non-uniform data. Additionally, the GPRO 
web interface represents a first step in EHR-based reporting, which we 
believe is more efficient and cost-effective, since it will allow ACOs 
to upload data directly from their EHR systems. Meanwhile, those ACOs 
that would prefer to manually submit data through the GPRO web 
interface could do so, in a uniform way.
    Comment: A few commenters expressed concern about the proposed GPRO 
data validation process and discussed the difficulty of obtaining 
medical records across an entire ACO and reconciling those records with 
quality performance data reported by the ACO. One of these commenters 
further stated that the data validation process should be tested prior 
to implementation.
    Response: We agree that data validation may be a challenge but do 
not believe that use of the GPRO web interface significantly adds 
complexity. Rather, we believe the data validation process implicitly 
incentivizes ACOs to keep organized and up-to-date medical records and 
is necessary to protect against the gaming concerns other commenters 
have noted.
c. Certified EHR Technology
    In July 2010, HHS published final rules for the EHR Incentive 
Programs. The final regulations included certain clinical quality 
measures on which EPs and eligible hospitals must report as part of 
demonstrating they are meaningful EHR users. In the proposed rule, we 
included information on which of the proposed quality measures for the 
Shared Savings Program are currently included in the EHR Incentive 
Programs and stated our intent to continue to further align the 
measures between the two programs. As we intend to further align both 
the Shared Savings Program and EHR incentive program through subsequent 
rulemaking, we stated that we anticipated that certified EHR technology 
(including EHR modules certified to calculate and submit clinical 
quality measures) would be an additional measure reporting mechanism 
used by ACOs under the Shared Savings Program in future program years.
    Comment: Several commenters supported the use of EHR-derived

[[Page 67895]]

measures whenever possible, particularly as the use of EHRs becomes 
more widespread. One commenter was concerned that EHRs do not currently 
generate all the data necessary for the proposed performance measures. 
Others supported the move toward EHR-based measures over time. One 
commenter was concerned that the proposed measures require providers to 
have already adopted an EHR. Several commenters suggested special 
consideration for EHR adoption be given to smaller practices. Several 
commenters supported movement toward using Health Information Exchange 
(HIE) as a means of measures reporting. Another commenter expressed 
concern that the proposed regulations require a level of functional 
health information exchange that is not yet available, such as a 
patient online portal to meet the patient-centeredness objective and 
the need to electronically exchange information with entities outside 
of the ACO. This commenter suggested that allowing ACOs to determine 
their own technology needs would result in greater participation and 
more widespread adoption of best practices. One commenter stated that 
differences in technology access among providers would inhibit 
information sharing and care coordination and stated that, if 
beneficiaries see non-ACO providers, care coordination may be 
diminished. This commenter requested a separate policy to address care 
coordination and exchange of information.
    Many commenters also recommended that CMS allow data submission 
through clinical registries and encourage their use as a proven tool to 
improve quality and control costs and as a way of having real-time 
actionable data. One commenter also recommended that CMS allow data to 
be submitted via registry or additional means that have been 
established by regional collaborative.
    Response: While we hope to have more robust capabilities for EHR-
derived measures and reporting in the future, at this point we are 
finalizing one quality measure that rewards and encourages greater EHR 
use, which is the percent of primary care providers who successfully 
qualify for an EHR Incentive Program payment. We are also double 
weighting this measure for scoring purposes as well as for determining 
poor performing to reflect the importance of HIT for ACOs to redesign 
care, provide practitioners actionable information at the point of 
care, and to align incentives and encourage broader EHR adoption. As 
providers gain more experience with EHR technology, we will reconsider 
using certified EHR technology as an additional reporting mechanism 
used by ACOs under the Shared Savings Program.
    Final Decision: After considering the comments and for the reasons 
discussed previously, we are finalizing our proposal to use survey 
based measures, claims and administrative data based measures, and the 
GPRO web interface as a means of ACO quality data reporting for certain 
measures, as listed in Table 1. For the ACO GPRO measures, we are 
finalizing our proposal to use the same sampling method used in the 
2011 PQRS GPRO I, as described previously. We are also finalizing our 
proposal to retain the right to validate the data ACOs enter into the 
GPRO web interface via a data validation process based on the one used 
in phase I of the PGP demonstration, as described previously.
4. Quality Performance Standards
a. General
    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.F.2. 
of this final rule, we are finalizing the 33 measures in Table 1 to 
establish the quality performance standards that ACOs must meet in 
order to be eligible for shared savings.
    In the proposed rule, we considered two alternative options for 
establishing quality performance standards for the measures: Rewards 
for better performance, and a minimum quality threshold for shared 
savings. We proposed the performance score approach and sought comment 
on the threshold approach. The performance score approach would reward 
ACOs for better quality with larger percentages of shared savings. The 
threshold approach would ensure that ACOs exceed minimum standards for 
the quality of care, but allows full shared savings if ACOs meet the 
minimum level of performance.
b. Performance Scoring
    Under the proposed rule, quality performance standards would be 
used to arrive at a total performance score for an ACO. We proposed to 
organize the measures by domain, and to score the performance on each 
measure. We proposed to roll up the scores for the measures in each 
domain into domain scores and to provide ACOs with performance feedback 
at both the individual measure and domain level. We proposed that the 
percentage of points earned for each domain would be aggregated using a 
weighting method to arrive at a single percentage that would be applied 
to determine the final sharing rate used to determine any shared 
savings or losses. We proposed that the aggregated domain scores would 
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. We also discussed our proposal to set the quality 
performance standard in the first year of the Shared Savings Program at 
the complete and accurate reporting level and set the standard at a 
performance level in subsequent years.
(1) Measure Domains and Measures Included in the Domains
    The proposed quality performance standard measures in Table 1 were 
subdivided into 5 domains, including: (1) Patient/Caregiver Experience; 
(2) Care Coordination; (3) Patient Safety; (4) Preventive Health; and 
(5) At-Risk Population/Frail Elderly. We proposed that the At-Risk 
Population/Frail Elderly domain would include a frail elderly category 
as well as the following chronic diseases: Diabetes mellitus; heart 
failure; coronary artery disease; hypertension and chronic obstructive 
pulmonary disorder.
(2) Methodology for Calculating a Performance Score for Each Measure 
Within a Domain
    We proposed that an ACO would receive a performance score on each 
proposed measure. For the first year of the Shared Savings Program, 
these scores would be for informational purposes, since we proposed to 
set the quality performance standard at the reporting level. For 
subsequent years of the program, we proposed setting benchmarks for 
each measure using national Medicare FFS claims data, MA quality 
performance rates, or, where appropriate, the corresponding national 
percent performance rates that an ACO will be required to demonstrate. 
For each measure, we proposed to set a performance benchmark and a 
minimum attainment level as defined in Table 3 of the proposed rule (76 
FR 19595). We proposed that 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

[[Page 67896]]

MA rates, we would check the distribution from the most recent 
available annual MA quality performance data for all MA plans and set 
the benchmark accordingly. Furthermore, since MA quality performance 
rates utilize both claims and clinical data, we proposed to use those 
rates when they are available.
    We proposed that 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 would be aware of the benchmarks 
they must achieve to receive the maximum quality score. In the proposed 
rule, we stated that in future program years, we anticipate 
incorporating actual ACO performance to update the national benchmarks.
    We also proposed that 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 would 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 proposed 
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 noted 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.
    We proposed that performance below the minimum attainment level 
would earn zero points for that measure under both the one-sided and 
two-sided risk models. We also proposed that performance equal to or 
greater than the minimum attainment level but less than the performance 
benchmark would receive points on a sliding scale based on the level of 
performance, for those measures in which the points scale applies. We 
also proposed setting the initial minimum attainment level for both the 
one-sided and two-sided shared savings models at a 30 percent or the 
30th percentile of national Medicare FFS or the MA rate, depending on 
what performance data are available.
    We proposed ``all or nothing'' scoring for the diabetes and CAD 
composite measures. We proposed that measures designated as all or 
nothing measures would receive the maximum available points if all 
criteria are met and zero points if at least one of the criteria are 
not met. We defined ``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 sub measures within the diabetes and CAD composites would need to 
be reported in order to earn any credit for these measures. We stated 
we recognized 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. As a result, 
we also proposed scoring the diabetes and CAD sub measures 
individually. We also proposed a HAC composite measure for which we did 
not propose all or nothing scoring, since the HACs are rare events.
    We also stated our intent 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 proposed setting a quality standard for each domain at the 
reporting level. For subsequent program years, we proposed to calculate 
the percentage of points an ACO earns for each domain after determining 
the points earned for each measure. We planned 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 
predefined number of points based on the number of individual measures 
in the domain.
    We proposed that under both the one-sided and two-sided shared 
savings models, the quality measures domain scoring methodology would 
treat all domains equally regardless of the number of measures within 
the domain. We stated in the proposed rule that we believed the key 
benefit of weighting the domains equally is that it would not create a 
preference for any one domain, which we consider important as we expect 
ACOs to vary in composition, and, as a result, to place more emphasis 
on different domains. 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 proposed to aggregate 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. 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 used to determine the amount of shared 
savings or losses an ACO would receive or owe. We also proposed that 
ACOs must report completely and accurately on all quality measures 
within all domains to be deemed eligible for shared savings 
consideration. Finally, we stated we also considered scoring measures 
individually under a method that weights measures equally as well as an 
approach that would weight quality measures by their clinical 
importance.
(4) The Quality Performance Standard Level
    We proposed to set the quality performance standard for the first 
year of the Shared Savings Program at the reporting level. That is, 
under the one-sided model, we proposed that an ACO would receive 50 
percent of shared savings (provided that the ACO realizes sufficient 
cost savings under) based on 100 percent complete and accurate 
reporting on all quality measures. Similarly, we proposed that under 
the two-sided risk model, ACOs would receive 60 percent of shared 
savings (provided that the ACO realizes sufficient cost savings) based 
on 100 percent complete and accurate reporting on all quality measures. 
We stated that setting the quality performance standard for the first 
year of the Shared Savings Program at full and accurate reporting would 
allow 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. We also noted that setting the quality performance 
standard at the reporting level would be consistent with other value-
based purchasing programs that started as pay for reporting programs.
    We indicated that we planned to raise the quality performance 
standard requirements in future years through future rulemaking, when 
actual performance on the reported measures would be considered in 
establishing the quality benchmarks (in addition to the national flat 
percent or FFS/MA percentile). We stated in the proposed rule that we 
believe this approach would be 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,

[[Page 67897]]

new measures, or both for the purposes of assessing such quality of 
care.''
    While we proposed the performance scoring methodology, we also 
considered adopting a minimum quality threshold to assess the 
performance of participating ACOs, as described in the proposed rule 
(76 FR 19597-98).
    Comment: A few commenters suggested weighting each domain equally 
or balancing the number of measures in each domain to prevent any 
single measure from having a greater impact on the overall score. 
Another commenter stated that proposed measures are unfairly weighted 
and measured. One commenter believed process measurements should be 
scored higher since they are under provider control, whereas another 
commenter suggested that outcome measures be weighted heavier than 
structure and process measures. One commenter thought the measures 
should be more evenly distributed across the 5 equally weighted 
domains, so that domains with fewer measures do not have a greater 
impact on overall score. A few commenters did not agree with measures 
having equal weighting. One commenter recommended that the Patient/
Caregiver Experience and Care Coordination domains be more heavily 
weighted as they are the foundation for improving process and outcomes, 
while another commenter stated the domains of care coordination and 
patient caregiver experience are untested.
    One commenter suggested scoring clinical process measures 
individually rather than by domain. A number of commenters thought the 
proposed approach would exclude a large number of ACOs from sharing in 
savings even though they were providing high quality care. Many 
commenters took issue with the notion that failing to attain the 
standard for one single measure would eliminate the possibility for 
sharing in any savings and recommended that the threshold be set at the 
domain level rather than the individual measure level. One commenter 
suggested CMS provide each ACO with their historical 50th percentile 
for each quality metric which the ACO would have to exceed in each 
domain to fully share in savings. For each domain that exceeded 
benchmark, this commenter recommended the ACO's share of savings would 
increase by 20 percent but the ACO would still be responsible for 
shared losses under the two-sided model.
    Response: We believe that all 4 domains we are adopting in this 
final rule are of considerable importance and, therefore, agree with 
the comments that supported weighting each domain equally and will 
finalize our proposal to do so. This means the 4 measure domains 
(patient/caregiver experience, care coordination/patient safety, 
preventive health, and at-risk population) will be weighted at 25 
percent each in calculating an ACO's overall quality performance score 
for purposes of determining its final sharing rate. Additionally, we 
are finalizing the following disease categories within the At-Risk 
population domain: Diabetes, hypertension, ischemic vascular disease, 
heart failure, and coronary artery disease.
    Equally weighting the measure domains, and individual measures 
within the domains, is consistent with our view that all of these 
domains are important to achieving the Medicare Shared Savings Program 
goals and should be a focus of ACOs, with the exception of the measure, 
Percent of PCPs who Successfully Qualify for an EHR Incentive Payment. 
We are double-weighting this measure, as discussed in section II.F. of 
this final rule, in an effort to signal the importance of EHR adoption 
to ACOs for achieving success in the Shared Savings Program. We note 
that, since the Shared Savings Program has not yet begun and ACOs have 
not yet formed, we are unsure how we could provide any ACO historical 
data on its quality performance since it would require participating 
organizations to submit a historical baseline for quality which we 
believe would add unnecessary burden to newly forming ACOs.
    Comment: Many commenters suggested CMS reward a higher level of 
quality and not just a threshold. Several commenters expressed concern 
that the quality points scale failed to reward ACOs who are already 
providing high quality, efficient care in the first year and fails to 
reward high performance, as opposed to minimum threshold, in subsequent 
years.
    Response: We believe the proposed approach offers a greater 
incentive for continuous quality improvements, since it has a sliding 
scale in which higher levels of quality performance translate to higher 
sharing rates. High performing ACOs should do well under this approach 
since it recognizes and provides incentives for ACOs to maintain high 
quality performance in order to maximize their sharing of savings and 
minimize their sharing of losses.
    Comment: Many commenters took issue with the proposed 30 percent/
30th percentile threshold. Several commenters stated that if CMS 
establishes benchmarks solely on the participating ACOs, it would be 
unfair to assume the bottom 30 percent should receive no credit toward 
retaining savings when they may very well be performing well above the 
rest of the nation. Several commenters suggested CMS should, instead, 
establish specific thresholds for each measure such as a certain 
percentage with blood pressure under control or a certain percentage 
improvement, particularly for measures which have not been validated or 
are not in widespread use among Medicare beneficiaries. However, 
another commenter suggested a minimum attainment level higher than the 
30th percentile in order to best promote quality improvement. One 
commenter suggested maintaining the proposed approach to score 
individual measures on a continuum between a threshold (lower bound) 
and benchmark (upper bound). One commenter suggested rewarding 
performance in the middle range of quality improvement more than the 
upper target and lower threshold by taking an average of high and low 
performers' scores. A couple of commenters noted that without known 
targets it will be difficult for ACOs to know whether they will be able 
to achieve the quality performance standards. These commenters 
requested that we publish specific thresholds in the final rule so that 
ACOs will know before applying for the program whether they have a 
reasonable likelihood of success. One commenter suggested establishing 
performance thresholds and rewarding those ACOs that achieve or make 
improvements toward those thresholds while another recommended 
establishing specific numerical targets for all laboratory-based 
measures. One commenter advocated for gradual increases in the minimum 
attainment level so that health care organizations are encouraged to 
continually improve, with clear delineation and rewards for the high 
performers.
    Response: We are finalizing our proposal to establish the minimum 
attainment level for a measure at a national flat 30 percent or where 
applicable the national 30th percentile level of performance of FFS or 
MA quality rates, because we believe this level is reasonable and 
achievable given current levels of performance on measures in other 
programs and based on measure community research. As previously 
discussed, the first year of the agreement period will be pay for 
reporting only, so ACOs would earn their maximum sharing rate for 
completely and accurately reporting 100 percent of the required data. 
We plan to release performance benchmarks in sub regulatory guidance at 
the start of the

[[Page 67898]]

second year of the performance period as we phase in measures to pay 
for performance so that ACOs are aware of the actual performance rates 
they will need to achieve to earn the maximum quality points under each 
domain. We agree with the comment suggesting we gradually raise the 
minimum attainment level in order to continue to incentivize quality 
improvement over time and would do so through future rulemaking after 
providing sufficient advance notice with a comment period to first gain 
industry input. We note that performance will be rewarded on a scale 
such that levels of quality improvement between an upper and lower 
threshold are rewarded. This scale also rewards higher improvement over 
time, since higher performance translates to higher shared savings. For 
example, an ACO that performs at 80 percent/80th percentile one year 
and then at 90 percent/90th percentile the next year, would receive a 
higher level of shared savings in their second year than in their first 
year, based on their improved quality performance.
    Comment: One commenter suggested using the first 2 years of ACO 
performance data to establish performance benchmarks, rather than the 
first year only, since the first year will require ACOs to develop 
infrastructure and reporting systems. A couple of commenters suggested 
calculating regional benchmarks so ACOs have a similar chance of 
achieving success regardless of geographic location. One of these 
commenters recommended benchmarking at the geographic unit level MedPAC 
has recommended for MA payments and thought benchmarks should not be 
based on ACO providers/suppliers alone. One commenter recommended that 
the benchmark should be based on comparable, local, non-assigned, FFS 
beneficiaries. However, another commenter thought benchmarks should be 
based on a comparison of ACOs to other ACOs or Medicare FFS but not MA. 
The commenter thought it would be inequitable to compare ACOs to the MA 
program, since patients are locked-in to providers under MA and cannot 
change providers, unlike an ACO model under which patients are free to 
seek care outside of the ACO. One commenter suggested an evidence-based 
approach to any benchmark changes. One commenter recommended CMS 
specify in the final rule whether FFS or MA data would serve as the 
basis for benchmarks. This commenter advocated for use of FFS data 
since these data are more directly relevant to the target population 
from which the ACO population is derived. One commenter stated that 
relying on existing data sources for measures would have the advantage 
of allowing benchmarks to be determined from program onset. This 
commenter also believed that having a fixed set of performance targets 
around which the ACO can plan its work is essential to the program's 
success and that targets should not vary from year to year although the 
commenter did suggest a range (for example, good to great) be 
established and incentives set accordingly. One commenter asked for 
clarification about how benchmarks would be developed for proposed 
measures that do not have historical data. One commenter requested 
alignment of the scoring methodology with value-based purchasing.
    Response: We are finalizing our proposal to establish national 
benchmarks for quality measures using a national sample of Medicare FFS 
claims data, M A quality data, or a flat percentage if FFS claims/MA 
quality data are not available. We believe national benchmarks are more 
appropriate than regional benchmarks, since Medicare FFS is a national 
program and we would like to measure quality improvement and make 
comparisons over time between FFS and ACO populations on a national 
basis. Regarding the comment asking how we would develop benchmarks for 
measures in which claims or MA quality data are not available, we would 
use a flat national percent establishing the minimum at 30 percent and 
the maximum at 90 percent as indicated in Table 3. We plan to release 
benchmarking data in subregulatory guidance and expect to align with 
other pay for performance program benchmarking methodologies over time. 
At this time, we are not proposing to compare an ACO's quality 
performance to the performance of other ACOs for purposes of 
determining an ACO's overall quality score and final sharing rate. We 
agree that we should seek to incorporate actual ACO performance on 
quality scores into the quality benchmark, however, we would do so in 
future rulemaking and then only after seeking industry input. In 
addition, we do expect to update the benchmarks over time, consistent 
with section 1899(d)(3)(C) of the Act, which requires CMS to seek to 
improve the quality of care over time.
    Comment: Several commenters recommended a sliding scale in lieu of 
complete and accurate reporting. One commenter recommended the standard 
for complete and accurate reporting should be 95 to 100 percent and the 
threshold should be between the 70th and 100th percentile. A few 
commenters suggested CMS consider the PQRS experience with reporting; 
one mentioned that CMS lowered the PQRS reporting threshold from 80 to 
50 percent for its claims based reporting option and kept the registry 
reporting threshold at 80 percent. A couple of commenters requested 
clarification on what would constitute a ``reasonable explanation'' for 
an ACO not to report quality data. A number of commenters thought the 
proposed approach would exclude a large number of ACOs from sharing in 
savings even if they provided high quality care. Many commenters took 
issue with the notion that failing to attain the standard for one 
single measure should eliminate the possibility of sharing in any 
savings. One commenter recommended CMS give ACOs credit for measures on 
which the ACO scored well, even if it does not meet the threshold for 
other measures within the domain, perhaps by setting the threshold at 
the domain level rather than the measure level. This commenter stated 
this was particularly important early in the program, when ACOs may not 
have experience with the measures, the specifications may have been 
modified, and the thresholds setting methodology is new and untested.
    Response: While it is our intent that ACOs raise the bar in terms 
of quality of care improvement and performance, and although we believe 
100 percent complete and accurate reporting can be achieved for the 
measures we are finalizing, we are sensitive to comments suggesting we 
have modified this final rule to allow ACOs more time to ramp up. As a 
result, we have modified this final rule to provide a longer phase in 
to pay for performance. All 33 measures used for scoring purposes will 
be pay for reporting in year 1 of the agreement. In year 2, 8 measures 
will continue to be pay for reporting, while 25 measures will be used 
for pay for performance. In year 3 (and 4 if applicable), 32 measures 
will be pay for performance and 1 measure, the health status/functional 
status module will be pay for reporting.
    Final Decision: We recognize that achieving the quality performance 
standard on 33 out of 33 measures may be difficult especially in the 
early years. Accordingly, we have modified this final rule to require 
that ACOs achieve the quality performance standard on 70 percent of the 
measures in each domain. If an ACO fails to achieve the quality 
performance standard on at least 70 percent of the measures in each 
domain we will place the ACO on a corrective action plan and re-
evaluate the following year. If the ACO continues to

[[Page 67899]]

underperform in the following year, the agreement would be terminated. 
We believe requiring ACOs to achieve the quality performance standard 
on 70 percent of the measures in each of the 4 domains establishes a 
feasible standard, while signaling to providers that they need to 
devote significant focus to performance in each domain.
    This approach also means that an ACO could fail one or more 
individual measures in each domain measure and still earn shared 
savings. ACOs must achieve the minimum attainment level on at least 70 
percent of the measures in each domain in order to continue in the 
program. As described in section II.H. of this final rule, if an ACO 
fails to achieve the minimum attainment level on at least 70 percent of 
the measures in each domain, we will give the ACO a warning, an 
opportunity to resubmit and re-evaluate the following year. If the ACO 
continues to underperform in the following year, the agreement would be 
terminated. However, in any year that an ACO scores a zero for an 
entire measure domain, it would not be eligible to share in any savings 
generated. It should also be noted that if an ACO fails to completely 
and accurately report the EHR measure, the ACO would miss the 70 
percent cut-off for the Care Coordination domain, since this measure is 
double-weighted for both scoring purposes and for purposes of 
determining poor performance.
    We are also finalizing our proposal that if an ACO fails to report 
one or more measures, we will send the ACO a written request to submit 
the required data by a specified date and to provide reasonable 
explanation for its delay in reporting the required information. If the 
ACO fails to report by the requested deadline or 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. An ACO that has been terminated from the program is 
disqualified from sharing in savings.

                                 Table 3--Sliding Scale Measure Scoring Approach
----------------------------------------------------------------------------------------------------------------
                                           Quality points (all measures except
         ACO performance level                            EHR)                      EHR measure quality points
----------------------------------------------------------------------------------------------------------------
90+ percentile FFS/MA Rate or 90+        2 points..............................  4 points.
 percent.
80+ percentile FFS/MA Rate or 80+        1.85 points...........................  3.7 points.
 percent.
70+ percentile FFS/MA Rate or 70+        1.7 points............................  3.4 points.
 percent.
60+ percentile FFS/MA Rate or 60+        1.55 points...........................  3.1 points.
 percent.
50+ percentile FFS/MA Rate or 50+        1.4 points............................  2.8 points.
 percent.
40+ percentile FFS/MA Rate or 40+        1.25 points...........................  2.5 points.
 percent.
30+ percentile FFS/MA Rate or 30+        1.10 point............................  2.2 points.
 percent.
< 30 percentile FFS/MA Rate or < 30      No points.............................  No points.
 percent.
----------------------------------------------------------------------------------------------------------------


                  Table 4--Total Points for Each Domain Within the Quality Performance Standard
----------------------------------------------------------------------------------------------------------------
                                             Total                                     Total
                                          individual       Total measures for        potential     Domain weight
                Domain                     measures         scoring purposes        points per       (percent)
                                          (Table F1)                                  domain
----------------------------------------------------------------------------------------------------------------
Patient/Caregiver Experience..........               7  1 measure with 6 survey                4              25
                                                         module measures
                                                         combined, plus 1
                                                         individual measure.
Care Coordination/Patient Safety......               6  6 measures, plus the EHR              14              25
                                                         measure double-weighted
                                                         (4 points).
Preventative Health...................               8  8 measures..............              16              25
At Risk Population....................              12  7 measures, including 5               14              25
                                                         component diabetes
                                                         composite measure and 2
                                                         component CAD composite
                                                         measure.
                                       -------------------------------------------------------------------------
    Total.............................              33  23......................              48             100
----------------------------------------------------------------------------------------------------------------

    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, except on the EHR measure, which is weighted double 
any other measure and would be worth 4 points. We believe EHR adoption 
is important for ACOs to be successful in the Shared Savings Program 
and are double weighting this measure as a way to signal this and 
provide incentive for greater levels of EHR adoption.
    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, as 
discussed in section II.G. of this final rule. That is, 100 percent 
reporting of the quality measures in the first year of the Shared 
Savings Program will result in an ACO earning 50 or 60 percent of 
shareable savings, depending on whether the ACO is in the one-sided or 
two-sided model. For future performance periods, the percent of 
potential shareable savings will vary based on the ACO's performance on 
the measures as compared with the measure benchmarks as we phase in the 
pay for performance measures, as shown in Table 2.
    We are establishing the minimum attainment level for each measure 
at a national flat 30 percent or the national Medicare FFS or MA 30th 
percentile level of performance, as proposed. We believe this level is 
reasonable and achievable given current levels of performance on 
measures in other programs and based on measure community research. 
ACOs will have to score at or above the minimum attainment level in 
order to receive any credit for reporting the quality measure. We will 
release corresponding national benchmarks, based on Medicare FFS claims 
data, Medicare Advantage quality data, or a flat percentage if claims/
quality data are not available in

[[Page 67900]]

subregulatory guidance at the start of the second performance period 
and, when certain measures move to pay for performance.
    We are also finalizing our proposal for scoring individual measures 
in each domain in pay for performance years. Based on their level of 
performance on each measure an ACO would earn the corresponding number 
of points as outlined in Table 3. The total points earned for measures 
in each domain would be summed up and divided by the total points 
available for that domain to produce an overall domain score of the 
percentage of points earned versus points available.
    We are finalizing our proposal to weight each of the 4 measure 
domains (patient/caregiver experience, care coordination/patient 
safety, preventive health, and at-risk population) equally at 25 
percent for purposes of determining an ACO's overall quality 
performance score. We believe giving equal weight to the domains will 
signal the equal importance of each of these areas and to encourage 
ACOs to focus on all domains in order to maximize their sharing rate. 
Accordingly, the percentage score for each domain, calculated using the 
methodology described previously, will be summed and divided by 4 to 
reflect the equal weighting of the domains. The resulting percentage 
will then be applied to the maximum sharing rate under either the one-
sided or two-sided model to determine the ACOs final sharing rate for 
purposes of determining its shared savings payment or share of losses.
5. Incorporation of Other Reporting Requirements Related to the PQRS 
and Electronic Health Records Technology Under Section 1848 of the Act
    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 
of the Act, 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 of the Act] for determining whether to make such payments.'' Under 
this authority, we proposed to incorporate certain reporting 
requirements and payments related to the PQRS into the Shared Savings 
Program for ``eligible professionals'' within an ACO (76 FR 19598). 
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 pathologist; 
or (4) a qualified audiologist.
    We proposed to incorporate a PQRS GPRO under the Shared Savings 
Program and further proposed that EPs that are ACO participant 
providers/suppliers would constitute a group practice for purposes of 
qualifying for a PQRS incentive under the Shared Savings Program (76 FR 
19599). Specifically, we proposed that EPs would be required to submit 
data through the ACO on the quality measures we proposed (76 FR 19571) 
to qualify for the PQRS incentive under the Shared Savings Program. We 
proposed that the ACO would report and submit data on behalf of the EPs 
in an effort to qualify for the PQRS incentive as a group practice; 
that is, EPs within an ACO would qualify for the PQRS incentive as a 
group practice, and not as individuals. In addition, we proposed a 
calendar year reporting period from January 1 through December 31, for 
purposes of the PQRS incentive under the Shared Savings Program. With 
regard to the incorporation of criteria for satisfactory reporting for 
purposes of the PQRS incentive for the first performance period under 
the Shared Savings Program, we proposed that:
     An ACO, on behalf of its EPs, would need to report on all 
measures included in the data collection tool;
     Beneficiaries would be assigned to the ACO using the 
methodology described in the Assignment section of the 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, measures 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 would need to be completed for all domains, 
measure sets, and measures described in Table 1 of the proposed rule.
    Accordingly, we proposed that EPs within an ACO that satisfactorily 
report the proposed measures during the reporting period would qualify 
under the Shared Savings Program for a PQRS incentive equal to 0.5 
percent of the Secretary's estimate of total Medicare Part B PFS 
allowed charges for covered professional services furnished by the 
ACO's EPs 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 by an eligible 
professional under the ACO participant's TINs.
    We proposed to align the incorporated PQRS requirements with the 
general Shared Savings Program reporting requirements, such that no 
extra reporting would actually be required in order for EPs or the ACO 
to earn the PQRS 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, we proposed that the 
PQRS EPs within such ACOs will be considered eligible for the PQRS 
incentive under the Shared Savings Program for that year. In the 
proposed rule, we stated that this means ACOs would need to report on 
all measures proposed (76 FR 19571) in order to receive both the Shared 
Savings Program shared savings and PQRS incentive (76 FR 19599). We 
also stated that 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 PQRS 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 also indicated that we 
intended to discuss the policy for incorporating the PQRS incentive 
under the Shared Savings Program for subsequent years in future 
rulemaking (76 FR 19599).
    We noted in the proposed rule that ACOs would be eligible for the 
PQRS incentive under the Shared Savings Program to the extent that they 
contain EPs as defined under Sec.  414.90(b). As a result, not all ACOs 
would necessarily be eligible for the PQRS incentive under the Shared 
Savings Program. A complete list of PQRS EPs (EP) is available at: 
http://www.cms.gov/PQRI/Downloads/EligibleProfessionals.pdf. In 
addition, similar to traditional PQRS, we indicated that an EP could 
not

[[Page 67901]]

qualify for the PQRS incentive as both a group that is part of an ACO 
and as an individual. Furthermore, EPs could not qualify for a PQRS 
incentive under both the PQRS under the Shared Savings Program and the 
traditional PQRS under the same TIN. For purposes of PQRS incentive 
analysis and payment, we stated that we intended to use TINs and NPI 
numbers similar to what we have done in the traditional PQRS (75 FR 
40169), and we would provide such details in guidance (76 FR 19599). We 
invited comment on our proposal to incorporate PQRS requirements and 
payments under the Shared Savings Program.
    We did not propose to incorporate payments for the EHR Incentive 
Program or eRx Incentive Program under the Shared Savings Program. 
Professionals in ACOs may still separately participate in the EHR 
Incentive Program or Electronic Prescribing Incentive Program. However, 
we proposed to require for 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 
EPs and hospitals and the eRx Incentive Program.
    In addition, as a Shared Savings Program requirement separate from 
the quality measures reporting, we proposed requiring that at least 50 
percent of an ACO's primary care physicians be determined to be 
``meaningful EHR users'' as that term is defined in 42 CFR 495.4 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 also sought 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 
requested public comment related to circumstances where the ACO may 
include only one eligible hospital or no hospital and whether we would 
need to provide an exclusion or exemption in such a circumstance.
    Comment: A few commenters specifically commended CMS's alignment of 
the ACO quality reporting requirements with PQRS reporting 
requirements. A few commenters recommended a single reporting process 
for the measures common to PQRS, ACO, and the EHR Incentive programs to 
reduce burden and duplication of effort. However, one commenter 
recommended separate reporting for the Shared Savings Program quality 
performance standard and the PQRS satisfactory reporting requirement 
initially until experience with the measures ACOs report for shared 
savings eligibility purposes demonstrates reliability for both ACO and 
PQRS needs. One commenter suggested individual PQRS reporting for 
providers who may be in more than one ACO. One commenter supported 
alignment with traditional PQRS GPRO reporting and suggested a 
financial disincentive for non-compliance. One commenter believed that 
individual EPs should be allowed to submit quality measures data to the 
traditional PQRS without participating in ACOs. Another commenter 
expressed concern that professionals could be confused by reporting ACO 
PQRS measures via GPRO for their ACO patients if they are also 
reporting PQRS measures via claims or a registry for patients not in 
the ACO under the traditional PQRS program.
    Response: We agree with the recommendations to streamline reporting 
as much as possible and are finalizing a set of measures aligned with 
other programs, such as the PQRS, EHR Incentive Program, and PGP 
Transition Demonstration. In order to reduce reporting burden and 
decrease operational complexity for purposes of earning the PQRS 
incentive under the Shared Savings Program, we are modifying our 
proposal. Although we are requiring that EPs in ACOs meet the criteria 
for satisfactory reporting by reporting data on all of the final ACO 
GPRO measures, we are not finalizing our proposal to condition the PQRS 
incentive payment on the reporting of all of the other ACO quality 
measures (that is from claims, CAHPS, and CMS administrative data) 
under the Shared Savings. That is, if an ACO, on behalf of its EPs, 
satisfactorily reports ACO GPRO measures, the EP's ACO participant TIN 
will receive the PQRS incentive even if the ACO does not meet the 
quality performance standards and lower growth in costs requirements to 
share in savings under the Shared Savings Program. EPs in an ACO that 
starts its agreement in April or July 2012 will also qualify for the 
2012 PQRS incentive under the Shared Savings Program by satisfactorily 
reporting the ACO GPRO measures for the full 2012 PQRS calendar year 
reporting period.
    We believe only requiring EPs in ACOs to meet the criteria for 
satisfactory reporting by reporting data on all of the final ACO GPRO 
measures reduces reporting burden, since we are simplifying the 
requirements EPs in ACOs must meet to earn a PQRS incentive under the 
Shared Savings Program. It also increases the probability that an EP 
would receive some level of incentive under the Shared Savings Program. 
We believe requiring ACOs to report the final GPRO measures, as opposed 
to all of the final ACO quality measures, to earn a PQRS incentive 
under the Shared Savings Program also reduces operational complexity 
because CMS can calculate the incentive payment under the Shared 
Savings Program based on the GPRO quality data after the ACO completes 
the GPRO quality data submission. That is, the calculation and 
distribution of the PQRS incentive will not be contingent on our 
analysis of other ACO quality data from claims, CAHPS and CMS 
administrative data under the Shared Savings Program. Requiring ACOs to 
report a full 12 months of GPRO quality data also aligns the reporting 
period for earning a PQRS incentive under the Shared Savings Program 
with the traditional PQRS. In addition, we believe groups that are 
currently participating under the traditional PQRS GPRO, but are 
considering participating in the Shared Savings Program, would have 
greater assurance they could earn a PQRS incentive under the Shared 
Savings Program, given that we are not finalizing our proposal that 
ACOs comprised of such group practices must also meet other Shared 
Savings Program requirements for a shared savings payment for purposes 
of earning a PQRS incentive.
    We also wish to clarify that ACO participant TINs that wish to 
qualify for PQRS would need to participate as group practices in the 
PQRS under the Shared Savings Program and may not separately 
participate in or earn a PQRS incentive under the traditional PQRS, 
outside of the Shared Savings Program. In addition, individual ACO 
providers/suppliers who are EPs in an ACO participant TIN may not seek 
to qualify for an individual PQRS incentive under the traditional PQRS. 
We do not agree with the suggestion that ACO providers/suppliers, who 
are EPs in one or more ACOs, be allowed to do individual PQRS 
reporting--in either the traditional PQRS or the PQRS under the

[[Page 67902]]

Shared Savings Program--for two main reasons. First, the Shared Savings 
Program is concerned with measuring the quality of care furnished by 
the ACO as a whole, and not that of individual ACO providers/suppliers. 
Second, allowing provider/suppliers to earn more than one PQRS 
incentive goes against the rules of traditional PQRS. We do not agree 
with the comment that disincentives for non-participation are necessary 
at this point. Rather, we believe positive rewards for successful 
Shared Savings Program and PQRS participation will be more instrumental 
in achieving the desired outcomes.
    Comment: A few commenters recommended CMS assure that attestation 
through the EHR Incentive Programs will serve as reporting for the ACO 
program or that participation in ACO electronic quality measurement 
reporting as one avenue of fulfilling meaningful use criteria under the 
EHR Incentive Program. One of these commenters also suggested that CMS 
should facilitate one-time data extraction to fulfill multiple 
programs' reporting requirements.
    Response: At this time, the EHR Incentive Program does not have a 
mechanism for group reporting, so we are unable to translate quality 
data that ACOs will report as a group under the Shared Savings Program 
to individual EHR incentives for EPs. The PQRS does allow for group 
reporting, which is why we are able to incorporate and align such 
reporting and incentive payments under the Shared Savings Program.
    Comment: While one commenter supported the proposal that 50 percent 
of an ACO's primary care providers be meaningful EHR users by the start 
of the second performance year, many commenters stated that the initial 
50 percent bar is too high given the lack of experience with the EHR 
Incentive Programs, especially for smaller, less integrated practices 
and those in rural areas. One commenter did not believe that the Shared 
Savings Program should serve to increase the rigor of other CMS 
programs or that lack of participation in the EHR incentive programs 
should preclude participation in the Shared Savings Program. Some 
commenters noted that CMS already is providing incentives for 
meaningful use of certified EHR technology, making inclusion of such a 
requirement under the Shared Savings Program redundant and unnecessary. 
Several commenters suggested phasing in this requirement, potentially 
over a 5-year period, or through certain annual percentages starting in 
year two. Other commenters suggested delaying or lowering the 
threshold, creating exceptions (such as hardship exceptions) or 
opportunities for corrective action, excluding from the requirement 
professionals who are ineligible for the EHR Incentives, expanding the 
scope more broadly than primary care physicians, including hospitals in 
the final rule, or generally allowing ACOs to establish their own goals 
for meaningful use. Commenters expressed concern about the stages of 
meaningful use and which stage would have to be met by the second year 
of a given ACO's agreement with CMS, particularly if the second year 
began on January 1, 2014.
    Response: We have modified our proposal such that EHR participation 
is no longer a condition of participation but remains one of our 
quality measures. In addition, we have clarified that the measure will 
include any PCP who successfully qualifies for an EHR Incentive Program 
incentive. We believe this change is consistent with industry comments, 
recognizes ACOs providers' current levels of EHR Incentive Program 
participation, rewards higher adoption with higher sharing rates, and 
signals the importance of EHR adoption to ACOs. To further signal the 
importance of EHRs we will score the EHR quality measure with higher 
weight than the other quality measures. Although we are not finalizing 
the requirement that 50 percent of PCPs in ACOs be meaningful users in 
order for the ACO to be eligible to continue to participate for a 
second year in the Shared Savings Program, we recognize that ACOs with 
more IT infrastructure integrated into clinical practice will likely 
find it easier to be successful under the Shared Savings Program. As 
providers gain more experience with EHR technology, we will reconsider 
using certified EHR technology as an additional reporting mechanism 
used by ACOs under the Shared Savings Program, which we would address 
in rulemaking for future program years.
    In the proposed rule, we also indicated that ACOs would need to 
participate separately in the eRx Incentive Program (76 FR 19599). We 
strongly recommend that potential ACOs review the CY 2012 Physician Fee 
Schedule eRx Incentive Program proposed and final rules carefully, for 
details about participation requirements, self-nomination timeframes, 
incentive payments and penalties. The CY 2012 Physician Fee Schedule 
eRx Incentive Program proposed rule is available at: http://www.gpo.gov/fdsys/pkg/FR-2011-07-19/pdf/2011-16972.pdf.
    Final Decision: After considering the issues raised in the public 
comments and for the reasons we previously discussed, we are finalizing 
our proposal to incorporate PQRS reporting requirements and incentive 
payment under the Shared Savings Program. Specifically, in this final 
rule we are finalizing the use of the GPRO web interface, as proposed, 
as well as our proposal that EPs that are ACO providers/suppliers 
constitute a group practice under their ACO participant TIN for 
purposes of qualifying for a PQRS incentive under the Shared Savings 
Program. Therefore, an ACO, on behalf of its EPs, is required to 
satisfactorily submit quality data on the GPRO quality measures we are 
finalizing in Table 1 of this final rule. Such EPs within an ACO may 
qualify for a PQRS incentive under the Shared Savings Program only as a 
group practice and not individuals. ACO participants and ACO providers/
suppliers also may not seek to qualify for the PQRS incentive under 
traditional PQRS, outside of the Shared Savings Program. We are also 
finalizing the calendar year reporting period of January 1 through 
December 31 for purposes of the PQRS incentive under the Shared Savings 
Program.
    Furthermore, we intend that reporting on the GPRO quality measures 
under the Shared Savings Program will also fulfill the reporting 
requirements for purposes of avoiding the payment adjustment under 
section 1848(a) of the Act that begins in 2015. We plan to address this 
issue in more detail in future rulemaking.
    With regard to the GPRO quality measures applicable for the PQRS 
incentive under the Shared Savings Program, we are finalizing the PQRS 
GPRO criteria for satisfactory reporting as described previously.
    Accordingly, EPs within an ACO participant TIN that satisfactorily 
report the ACO GPRO measures during the reporting period will qualify 
under the Shared Savings Program for a PQRS incentive equal to 0.5 
percent of the Secretary's estimate of total Medicare Part B PFS 
allowed charges for covered professional services furnished by the 
ACO's EPs during the first reporting period. ``Covered professional 
services'' are services for which payment is made under, or based on, 
the physician fee schedule and which are furnished by EPs (under the 
ACO participant's TINs).
    By satisfactorily reporting the ACO GPRO measures on behalf of the 
EPs in the group practice, we note that the ACO participant TIN will 
meet the requirements for the PQRS incentive payment and also fulfill a 
portion of the quality performance standard requirements for purposes 
of Shared Savings Program shared savings

[[Page 67903]]

eligibility. However, ACOs must also completely and accurately report 
all of the measures in Table 1, as well as meet the lower growth in 
costs criteria, described in section II.G. of this final rule, to be 
considered eligible for shared savings.
    As we indicated previously, we are not finalizing our proposal 
regarding an ACO's failure to report all required ACO quality measures. 
That is, if an ACO fails to meet the Shared Savings Program quality 
performance standard and is not eligible for shared savings, EPs in a 
group practice that is an ACO participant TIN may nevertheless earn the 
PQRS incentive under the Shared Savings Program, as long as the ACO 
satisfactorily reports, on behalf of its EPs, the ACO GPRO quality 
measures for the reporting period. Thus, ACO participant TINs in ACOs 
that meet the satisfactory reporting requirements will still be 
eligible for a PQRS incentive payment under the Shared Savings Program, 
even if the ACO does not generate shareable savings for the Shared 
Savings Program.
    As we indicated, ACOs are eligible to qualify for the PQRS 
incentive under the Shared Savings Program to the extent that they 
contain EPs as defined under Sec.  414.90(b). As a result, not all ACO 
participants will necessarily be eligible for the PQRS incentive under 
the Shared Savings Program. A complete list of PQRS EPs is available 
at: http://www.cms.gov/PQRI/Downloads/EligibleProfessionals.pdf. In 
addition, similar to traditional PQRS, an EP cannot qualify for the 
PQRS incentive as both a group and as an individual under the same TIN. 
For purposes of PQRS incentive analysis and payment, we will use TINs 
and NPI numbers similar to what we have done in the traditional PQRS 
(75 FR 40169), and we will provide such details in guidance (76 FR 
19599).
    As we noted previously, we did not propose to incorporate the EHR 
Incentive Program or eRx Incentive Program reporting requirements or 
incentives under the Shared Savings Program. EPs in ACOs may still 
separately participate in the EHR Incentive Program or eRx Incentive 
Program, and we encourage potential ACOs to follow the applicable 
requirements for those programs.
    We are also modifying our proposal regarding the EHR Incentive 
Program participation criteria as a condition of continued Shared 
Savings Program. We are not finalizing the proposal to require that at 
least 50 percent of an ACO's primary care physicians be determined to 
be ``meaningful EHR users'' as that term is defined in 42 CFR 495.4 by 
the start of the second performance year in order to continue 
participation in the Shared Savings Program. Instead we will double 
weight the quality measure ``Percent of PCPs who Successfully Qualify 
for an EHR Incentive Program Payment,'' as described previously in 
section II.F, to stress the importance of EHR adoption among ACOs.
6. Aligning ACO Quality Measures With Other Laws and Regulations
    As we stated in the proposed rule, 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. 
Therefore, we sought 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 sought 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.
    Comment: A number of commenters supported aligning ACO quality 
measures with other CMS programs such as PQRS, eRx, Hospital Compare, 
Medicare Advantage, the upcoming physician fee schedule value modifier, 
and the EHR Incentive Programs to avoid burden, confusion duplicative 
reporting. One commenter suggested the EHR Incentive Program 
requirements are not aligned with ACO requirements, missing the 
opportunity to incentivize adoption and interoperability to lower costs 
and improve care. This commenter suggested that ACO standards be 
supported in the EHR Incentive Program. One commenter noted `alignment' 
does not necessarily mean using exactly the same set of measures across 
programs, since ACOs may have data collection capabilities and needs 
that are broader than those applicable to the EHR incentive program, 
and the pools of provider participants in the two programs will be 
different. A few commenters recommended CMS make public its overall 
quality measurement strategy including the synergy between measures for 
ACOs, hospital IQR, and other initiatives. One commenter supported 
alignment with other programs but raised concerns about the fairness of 
resultant double jeopardy or double incentives. A few commenters 
expressed concern that the lack of complete alignment with MA 5 Star 
measures would result in increased burden of reporting and decreased 
performance, greater start-up costs, and hinder consumers' ability to 
make informed coverage choices. While one commenter believed measures 
reported through other programs should be excluded from this program, a 
number of commenters recommended that only those measures currently 
being reported in other CMS programs should be used initially although 
there were varying recommendations about with which program to align. 
One commenter recommended using the Hospital Quality Incentive 
Demonstration model as had succeeded in improving quality and 
decreasing cost. One commenter specifically recommended the ACO program 
begin exclusively with measures used in the PGP demonstration.
    A few commenters believed it would be desirable to have a single 
set of quality measures across payers, including Medicaid, Medicare, 
and commercial payers; one noted this would benefit vendors, providers, 
and patients. A few commenters suggested alignment with non-federal 
programs. One commenter suggested ACO quality reports should explain 
differences in measures reported by CMS and those reported by Regional 
Health Improvement Collaboratives (RHICs). One commenter recommended 
CMS align measures with the goals and domains of the National Quality 
Strategy.
    Response: We agree, in principle, with alignment across programs. 
To that end, we have chosen a final measure set that is closely aligned 
with PQRS as discussed previously. At this point in time and for this 
particular program, the ambulatory PQRS set was the natural choice 
compared with other proposed measurement sets focused on the inpatient 
setting or MA plans. However, we will revisit this issue and continue 
to work toward alignment with those and other programs in future 
rulemaking. We also do intend to further align the Shared Savings 
Program with the EHR Incentive Programs as we develop experience with 
both programs and EHRs become more widespread. We do not share the one 
commenter's concern about ``double jeopardy'' or ``double incentives'' 
by including measures under more than one program. Rather, we believe 
including a measure in more than one program and aligning the measures 
specifications signals CMS' desire for better performance in that area 
and serves to increase the motivation for such improved performance. 
While we

[[Page 67904]]

agree with the principle of alignment across a variety of programs, it 
is beyond the purview of this program to align fully with external 
programs or to explain differences between our measurement set and the 
numerous other measurement sets in existence. However, our final 
measurement set is aligned with the National Quality Strategy. In 
response to the commenters that recommended we make public our overall 
quality measurement strategy, we agree that it is important that we 
make our quality strategy publicly available and have done so through 
our Web site and a large number of public events.
    Final Decision: We will finalize our proposal to align the Shared 
Savings Program quality measures reporting requirements with those in 
other programs, to the extent possible, as previously discussed.

G. Shared Savings and Losses

1. Authority For and Selection of Shared Savings/Losses Model
    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 an ACO 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.F. of this final 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 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 section 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 alternative payment models.
    In the proposed rule, we described and sought comment on 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 section 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 
performance risk might be more accessible and attract smaller group 
participation. However, as some RFI commenters suggested, 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 and cost of health care delivery. Therefore, we considered a 
second option to use our authority under section 1899(i) of the Act to 
create a performance 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 approach we considered 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 performance risk-based 
approach under section 1899(i) of the Act.
    Based on the input of commenters on the November 17, 2010 RFI, 
other stakeholders and policy experts we proposed to implement a hybrid 
approach. Specifically, we proposed that ACOs participating in the 
Shared Savings Program would 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 proposed to 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 losses 
generated as well as savings. 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. As proposed, we envisioned that this 
track would provide 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.
    Track 2: More experienced ACOs that are ready to share in losses 
with greater opportunity for reward could elect to immediately enter 
the two-sided model). An ACO participating in Track 2 would be under 
the two-sided model for all 3 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. We proposed that this track would 
provide an opportunity for organizations more experienced with care 
coordination and risk models that are ready to accept performance-based 
risk, to enter a sharing arrangement that provides greater reward for 
greater responsibility.
    In general, we proposed the same eligibility requirements and 
methodologies for the two tracks. That is, we proposed 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 for ACOs under the 
one-sided and two-sided models. We also explained our belief that the 
proposed monitoring procedures in combination with our proposed use of 
a retrospective beneficiary assignment methodology and proposed 
beneficiary notification requirements were 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

[[Page 67905]]

their benchmarks. However, we invited comments on the sufficiency of 
the proposed monitoring procedures as well as additional areas and 
mechanisms for monitoring two-sided model ACOs.
    We proposed adding some requirements to the program in order to 
provide further assurance about the ability of an ACO operating under 
the two-sided model to repay the Medicare program in the event of 
incurred losses. We proposed requiring all ACOs to demonstrate, as part 
of their application and in advance of entering the two-sided model, 
the establishment of a repayment mechanism to ensure repayment of 
losses to the Medicare program. We stated our belief that the proposed 
eligibility requirements for ACOs in addition to the requirement that 
ACOs demonstrate an adequate repayment mechanism were sufficient to 
ensure the ability of ACOs to repay CMS in the event they incur losses. 
We sought comment on whether additional eligibility requirements were 
necessary for ensuring that ACOs entering the two-sided model would be 
capable of repaying CMS if actual expenditures exceeded their 
benchmark.
    Further, we proposed to provide greater financial incentives to 
ACOs that participate under the program's two-sided model to encourage 
ACOs to enter the two-sided model, which we believe has a greater 
potential than the one-sided model to induce meaningful and systematic 
change in providers' and suppliers' behavior.
    In the proposed rule, we described our intention to design and test 
partial capitation models in the Innovation Center first in order to 
gain more experience with such models, introduce them to providers of 
services and suppliers, and refine them, before applying them more 
widely in the Shared Savings Program.
    Comment: Many comments indicated general support for our proposal 
to base the Shared Savings Program on a framework of existing FFS 
payments. However, some commenters urged CMS not to confine its payment 
method to the current, traditional Medicare fee-for-service payments to 
ACO participants but instead to employ a variety of alternative payment 
approaches. In some cases, commenters recommended these alternatives to 
facilitate participation by specific provider types or the inclusion of 
specific types of services. One commenter suggested this is necessary 
to ensure the success of the program. Another commenter, generally, 
supported testing of various payment and care delivery models through 
the Innovation Center.
    Of those who recommended alternative payment models, commenters 
most commonly recommended inclusion of the following payment models in 
the Shared Savings Program: blended fee-for-service payments; 
prospective payments; episode/case rate payments; bundled payments; 
patient-centered medical homes and surgical homes payment models; 
payments based on global budgets; full capitation; partial capitation 
such as condition-specific capitation; and enhanced FFS payments for 
care management, such as care coordination fees. Several others 
suggested CMS allow ACOs to use incentives to ensure beneficiaries 
adhere to treatment regimens or seek care within the ACO.
    In the case of enhanced FFS payments, commenters offered a variety 
of suggestions on the form for such payments. Most commonly, commenters 
suggested CMS pay for physicians' consultative or coordination services 
provided via e-mail or telephone, such as self-management support for 
patients with chronic diseases, or through a per-member per-month 
(PMPM) care management fee (for example, in the range of $10-$50 PMPM). 
One commenter offered a specific proposal for incorporating enhanced 
FFS payments. Specifically, CMS should use its authority under section 
1899(i) of the Act to authorize payment for CPT codes for telephone 
calls and other non-face-to-face services used by ACOs that accept 
downside risk to improve care management and hold ACOs accountable for 
repaying a portion of these payments should they bill for these codes 
but fail to achieve savings. CMS should then collect data on the impact 
of paying for these services to determine if this payment policy should 
be expanded to FFS Medicare. Another suggested example would be for CMS 
to authorize payment for telemedicine codes reported by ACOs. Another 
commenter suggested using a budget neutral way to provide these 
payments by reallocating dollars from inpatient and specialty 
reimbursement.
    Some commenters recommended CMS offer other targeted payment models 
to facilitate participation by certain types of ACOs, such as small 
physician-only ACOs, and ACO participants, namely small- and medium-
sized physician practices, especially those in rural areas; or to 
support care for particular types of patients, such as dual eligible 
beneficiaries.
    Several comments related to the overall design of the proposed 
program. One commenter suggested the Shared Savings Program is an 
overly complex approach to cost management and urged CMS to find a 
simpler solution. The commenter suggested setting expenditure 
benchmarks relative to geographic areas, allowing ACOs that meet 
quality thresholds to keep FFS payments received, and penalizing ACOs 
that do not reduce expenditures. Another commenter suggested allowing 
ACOs to share in first dollar savings for all Medicare beneficiaries 
seen by the ACO, not just those assigned to the ACO. A third commenter 
urged CMS to ensure a consistent approach and level playing field as 
between the Shared Savings Program and Medicare Advantage.
    Response: We appreciate commenters' interest in and support for 
adopting other payment models in the Shared Savings Program, but 
disagree with suggestions that CMS use its authority under section 
1899(i) of the Act to include additional alternative payment models in 
the program at this time. We believe many of the suggested payment 
models remain untested. We are concerned that immediately adopting 
models on a national scale with which we have no experience could lead 
to unintended consequences. However, as discussed in section II.B.6. of 
this final rule, it is the Innovation Center's task to test novel 
payment models under its demonstration authority. We anticipate that as 
we gain experience through the Innovation Center with novel payment 
models what we learn could be more widely adopted in the Shared Savings 
Program. We would note that a number of commenters expressed support 
for testing alternative models through the Innovation Center.
    Comment: Several comments reflected confusion about the proposed 
payment model under the Shared Savings Program. For instance, some 
commenters asserted that the program will, in fact, make partial 
capitation payments, or questioned if providers electing not to 
participate in the program will continue to receive payment as usual.
    Response: We would like to clarify that consistent with section 
1899(d)(1)(A) of the Act, fee-for-service providers will continue to 
receive payments ``under the original Medicare fee-for-service program 
under Parts A and B in the same manner as they would otherwise be 
made'' regardless of whether they participate in the Shared Savings 
Program. Also, as indicated previously, we do not plan to adopt partial 
capitation (or other such payment methodologies) at this time, but may 
do so in the future through

[[Page 67906]]

appropriate rule-making, depending on lessons learned through 
demonstrations.
    Comment: A few commenters noted concerns that uncertainty about the 
Sustainable Growth Rate (SGR) for FY 2012 could undermine the program, 
as doctors could be subject to lower reimbursement rates and also be 
potentially subject to shared losses under the Shared Savings Program. 
One commenter suggested that CMS delay publication of the final rule 
for the Shared Savings Program until clarification of the FY 2012 SGR. 
Further, one commenter suggested that physician reimbursement rates are 
already too low to cover costs, and the ``flawed'' SGR formula needs to 
be addressed to allow physicians to adapt new care delivery models. 
Another commenter suggested that the SGR and the Shared Savings Program 
are redundant mechanisms to control utilization and focus on 
prevention, quality and efficiency, and as such CMS should develop a 
process for waiving SGR requirements for physicians participating in 
ACOs.
    Response: We decline to use our authority under section 1899(f) of 
the Act to waive the requirements of the SGR methodology for ACO 
participants as it is not necessary to waive these requirements in 
order to carry out the provisions of section 1899 and implement the 
Shared Savings Program. Rather, the statute at section 1899(d)(1)(A) 
expressly provides that we continue to make payments to the providers 
and suppliers participating in an ACO ``* * * in the same manner as 
they would otherwise be made * * *.'' Accordingly, addressing concerns 
about the SGR methodology is beyond the scope of this rule for the 
Shared Savings Program. We note, however, the publication of the 
proposed rule for the 2012 Medicare Physician Fee Schedule on July 1, 
2011, and the publication of the final rule, to include the Secretary's 
initial estimate of the SGR for 2012, later this year.
    Comment: The comments reflected a variety of opinions on the 
proposed two track approach. Several commenters supported retaining the 
proposed two track approach in the final rule. As one commenter 
explained, a shared savings only track may be appropriate for newly 
formed organizations to gain experience with accountable care models, 
but a model that includes shared performance-based risk is necessary to 
drive meaningful change. A few commenters strongly favored the proposal 
to transition ACOs under the one-sided model to a shared savings and 
risk model in the third year while offering more mature ACOs the option 
to enter into a shared savings and risk model in the first year; 
indicating the importance of shared performance-based risk in the 
delivery transformation necessary to achieve the three-part aim and for 
``good stewardship'' of Medicare Trust Fund dollars.
    However, most commenters expressed concerns with requiring ACOs to 
quickly accept performance risk for the costs of their patients, or 
even to accept risk at all, and suggested this proposal could diminish 
participation. Several comments noted that for organizations 
(particularly small- and medium-sized practices) that do not have any 
experience with care management or managing performance-based risk, a 
shared savings only option would better enable them to feel comfortable 
making the significant investments necessary to transition to the 
accountable care model. Along these lines, commenters suggested that 
including a shared savings only model would encourage participation by 
certain groups, such as: small- and medium-sized physician practices, 
loosely formed physician networks, safety net providers, small ACOs, 
and rural ACOs.
    Some commenters expressed reservations about the proposed inclusion 
of the two-sided model. Some commenters were concerned that a downside 
risk payment model could jeopardize the financial health of ACOs and 
may ultimately result in market dynamics similar to those precipitating 
the managed care backlash in the 1990s; although, several commenters 
noted the additional proposed program protections would safeguard 
against these problems. One commenter cautioned that absent sufficient 
care coordination systems, blame for losses might lie with certain 
groups of physicians (such as emergency medicine physicians). Another 
commenter explained that risk emphasizes financial outcomes over 
patient-centered care. Further, several commenters questioned the 
authority for including shared losses in the program. For example, 
commenters suggested that Congress intended only a shared savings 
program, or expressed concern that a requirement for ACOs to repay 
shared losses would constitute an unlicensed quota share reinsurance 
arrangement.
    Commenters offered the following specific reasons for why ACOs 
entering Track 1 should not automatically transition to the two-sided 
model in their third performance year:
     Insufficient time exists for ACOs to gain necessary 
experience with population management to generate savings prior to 
being required to accept risk.
     The risk for substantial loss already exists for new ACOs 
because of the unknowns about the potential for ACOs to generate 
savings given the significant upfront investments needed to build ACO 
infrastructure and the anticipated high operational costs.
     Potential ACOs may lack access to Medicare claims data 
that would enable them to evaluate the nature or magnitude of the 
downside risks they would be accepting.
     When beneficiaries retain freedom to see any provider and 
when assignment is retrospective, Medicare ACOs may lack the ability to 
have certainty over identification of their assigned population and 
even when identified, there is a possibility for significant turnover 
or lack of cooperation with an ACO's efforts to control expenditures.
     The proposed cap on risk adjustment may increase ACO risk 
for losses or reduced savings.
     The potential for increased costs that are beyond the 
ACO's control exists.
     Risk may incent ACOs to cherry pick patients, for example, 
by excluding from the ACO physicians which treat high cost patients.

Hence, commenters suggested a variety of alternatives to our proposal, 
for example, that we--

     Establish a one-sided, shared savings only track--the most 
commonly made recommendation.
     Remove the two-sided model as an option for ACOs.
     Remove the one-sided model as an option for ACOs.
     Extend the length of time available in a one-sided shared 
savings model by extending an agreement period or allowing ACOs to 
participate in a one-sided model for additional performance years or 
agreement periods.
     Exempt some ACOs from downside risk, such as small, rural 
and physician-only ACOs. For instance, extend an exemption from the 
two-sided model to those ACOs exempted from the 2 percent net sharing 
requirement, or develop additional tracks tailored for smaller medical 
practices or rural providers and suppliers. Other commenters suggested 
exempting ACOs in low cost States and those in areas where high 
hospital readmission rates result from a lack of access to community-
based services beyond the ACO's control.
     Make the ACO's population the determinant of the 
applicable model, for instance, beneficiaries with high cost

[[Page 67907]]

conditions would be under the one-sided model and the remainder of the 
beneficiary population would be under two-sided model.
     Develop a 4-tiered approach to hold organizations at 
different stages of development to different standards.
    However, some patient advocate groups generally cautioned against 
amending policies to make the program more attractive to providers at 
the expense of clinical or financial benefits which could accrue from 
ACOs.
    Response: We believe that maintaining a two track approach is 
important for attracting broad participation, including providers and 
suppliers new to value-based purchasing and more experienced ACOs that 
are ready to share in losses. Commenters supported our belief that 
models where ACOs bear a degree of financial risk hold the potential to 
induce more meaningful systematic change, which underscores the 
importance of transitioning ACOs from the one-sided model to risk-based 
arrangements. However, the commenters also persuaded us that ACOs new 
to the accountable care model--and particularly small, rural, safety 
net, and physician-only ACOs--would benefit from additional time under 
the one-sided model before being required to accept risk. Commenters 
persuaded us further that revising Track 1 to be a shared savings only 
option, while retaining Track 2 as a shared savings/losses model, would 
be the most appropriate means to achieve this objective. Accordingly, 
we will finalize our proposal to offer the two-sided model under Track 
2 to ACOs willing and able to take on performance-based risk in 
exchange for higher reward, but will offer Track 1 as a shared savings 
only track for the duration of the first agreement period for ACOs 
needing more experience before taking on risk. We believe this 
modification will increase interest in the Shared Savings Program by 
providing a gentler ``on ramp'' while maintaining the flexibility for 
more advanced ACOs to take on greater performance-based risk for 
greater reward immediately. However, we continue to believe that models 
that hold a degree of financial risk have the potential to induce more 
meaningful changes. As such, an ACO will be eligible for no more than 
one agreement period under the shared savings only model.
    We were also encouraged by commenters' interest in including 
alternative payment models in the Shared Savings Program. As indicated 
in the proposed rule, it is our intent to gain experience with several 
alternative payment models through the Innovation Center before 
potentially adopting them more widely in the Shared Savings Program.
    Comment: We received a few comments on the alignment of the one- 
and two-sided models on 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. Several commenters suggested that retrospective 
assignment could be particularly problematic for ACOs under the two-
sided model, expressing concern that ACOs would be accountable for 
losses from assigned beneficiaries whom they could not identify and 
whose care they could not influence.
    Response: Unless stated otherwise elsewhere in this final rule, we 
decline to further differentiate the program's two models on the basis 
of 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 for ACOs because we 
believe the policies being adopted in this final rule are appropriate 
for all ACOs, regardless of whether they are participating in a one-
sided or two-sided model. In addition, we believe that the preliminary 
prospective assignment methodology that we are adopting in this final 
rule will sufficiently address commenters' concerns about the ability 
of an ACO to identify its potential assigned beneficiaries in order to 
allow for effective care management.
    Accordingly, we are finalizing our proposal to offer ACOs a choice 
of two tracks, but modify our proposal for Track 1. Track 1 will be a 
shared savings only model (under the one-sided model) for the duration 
of the ACO's first agreement period. We will make final our proposal 
that ACOs electing Track 2 will be under the two-sided model for the 
duration of their first agreement period.
    In the proposed rule we discussed several options about how to 
incorporate a two-sided model into the Shared Savings Program. The 
major options we considered were--
     Base the program on a two-sided model, thereby requiring 
all participants to accept risk from the first program year.
     Allow applicants to choose between program tracks, either 
a one-sided model or two-sided model, for the duration of the 
agreement.
     Allow a choice of tracks, but require ACOs electing the 
one-sided model to transition to the two-sided model during their 
initial agreement period.
    We explained that requiring all ACOs to initially take downside 
risk would likely inhibit the participation of some interested 
entities, particularly organizations which lack the experience and 
capital to accept significant downside risk. We further explained that 
allowing ACOs to choose from either a one-sided model or a two-sided 
model created concerns, in particular that ACOs capable of taking risk 
could take advantage of the option that allows for gain by realizing 
savings without any risk for incurring added costs. In the proposed 
rule, we stated that we believed it is important that all Shared 
Savings Program participants quickly move to taking on downside risk 
because payment models where ACOs bear a degree of financial risk have 
the potential to induce more meaningful systematic change in providers' 
and suppliers' behavior. We further explained our belief that, by 
introducing a risk model, we could 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 proposed that applicants would 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. Alternatively, under Track 2, an ACO may enter the two-sided 
model option immediately for a full 3-year agreement period. We further 
proposed that all ACOs, whether participating under Track 1 or Track 2, 
must participate in the two-sided model in subsequent agreement 
periods. Thus, under our proposal, an ACO could only participate for a 
maximum of 2 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 stated our 
belief that this approach would allow ACOs to gain experience with the 
accountable care model under the one-sided model, while also 
encouraging organizations to take on greater risk with the opportunity 
for greater reward by migrating them to the two-sided model. We invited

[[Page 67908]]

comment 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.
    Comment: Some commenters urged CMS to allow ACOs to accept risk on 
a voluntary basis, ``at their own pace.'' MedPAC, among others, favored 
extending the time an ACO could participate under the one-sided model, 
but to ultimately require ACOs to accept downside risk. Those favoring 
transition to the two-sided model suggested it provides greater 
incentives for ACOs to eliminate unnecessary expenditures and improve 
integration and care coordination. The most common suggestion was to 
allow ACOs to participate under the one-sided model for an initial 3 
year agreement period and thereafter require ACOs to accept risk. 
Others suggested extending the availability of the one-sided model to 
ACOs beyond the first agreement period, with suggestions ranging from 
4, 5, or 6 years. Some commenters suggested allowing certain types of 
ACOs additional time under the one-sided model, such as small, rural 
and physician-only ACOs; for instance expanding the proposed exemption 
of these organizations from a 2 percent net sharing rate to the 
requirement to transition to the two-sided model. One commenter 
suggested making the one-sided model available only to early adopters. 
A hybrid approach would be to allow ACOs two agreement periods under 
the one-sided model with the option to voluntarily switch to the two-
sided model at the beginning of any calendar year.
    Other commenters recommended alternatives for transitioning Track 1 
ACOs to risk in their third year, but exempting them from repaying some 
or all of their losses. For instance, one commenter suggested holding 
Track 1 ACOs harmless for the first 2 percent of losses in year 3 if 
they generated savings in their first two performance years, based on 
the idea that our compensation through the proposed 2 percent net 
sharing requirement for the one-sided model. Alternatively, this 
commenter suggested, more generally, using savings generated in a prior 
performance year to off-set the amount of losses owed.
    Several commenters were concerned that an automatic transition to 
risk would result in ACOs under the two-sided model that lacked the 
capacity to bear risk. One commenter recommended a more measured 
approach, whereby CMS would evaluate an ACO's readiness to assume risk 
before transitioning it to the two-sided model. Commenters suggested 
various options for ACOs unable to accept risk at the point of required 
transition to the two-sided model: Termination by CMS, voluntarily 
withdrawal, and completion of the agreement period under the one-sided 
model with no opportunity to continue in the program.
    Response: Earlier in this section, we specify that in this final 
rule we are adopting a final policy under which ACOs will have a choice 
of two tracks for their first agreement period: a shared savings only 
model (Track 1) or the two-sided model (Track 2). However, we are 
finalizing our proposal to require an ACO to participate under the two-
sided model after its initial agreement period. We continue to believe 
that accountability for losses is an important motivator for providers 
to change their behavior and to maximize reductions in unnecessary 
expenditures, and that the prospect of accountability for losses will 
ensure that the program attracts participants that take seriously their 
commitment to achieving the program's goals.
    We appreciate commenters' concerns about a mandatory transition to 
risk and their recommendations to allow ACOs to voluntarily assume 
risk. Because ACOs will be required to enter the two-sided model only 
in subsequent agreement periods, ACOs will have the option to decide 
whether to continue to participate. As a result, those ACOs that decide 
to continue participating in the program at the end of their first 
agreement period will be voluntarily entering the two-sided model. In 
selecting the length of time an ACO could remain under the one-sided 
model, we found support in comments for limiting the period to the 
first agreement period. Further, as discussed later in this final rule, 
we are revising our proposed policy in order to allow ACOs that have a 
net loss during their first agreement period to continue to participate 
in the program, provided they meet all other participation 
requirements. We believe that this policy provides further support for 
limiting participation under the one-sided model to an ACO's initial 
agreement period. Underperforming ACOs would be allowed to continue in 
the Shared Savings Program, but all ACOs that elect to do so would be 
required to be accountable for their losses. Lastly, we disagree with 
commenters' suggestions that we exempt some ACOs entirely from the two-
sided model, or otherwise allow ACOs to participate in the one-sided 
model for an extended or indefinite period of time. Absent a limit on 
participation under the one-sided model we anticipate that ACOs capable 
of taking on risk would take advantage of the option that allows for 
gain by realizing savings without any risk for incurring losses by 
remaining in the one-sided model.
    We appreciate commenters' concerns about the transition of ACOs to 
the two-sided model when they lack the financial reserves necessary to 
safely assume risk. We believe the repayment mechanism in this final 
rule, is sufficient to safeguard against ACOs entering the two-sided 
model when they lack the capacity to bear risk.
    Additionally, we proposed that an ACO may not reapply to 
participate in the Shared Savings Program if it previously experienced 
a net loss during its first agreement period. We explained that this 
proposed policy would ensure that under-performing organizations would 
not get a second chance. We sought comment on this proposal and whether 
denying participation to ACOs that previously underperformed would 
create disincentives for the formation of ACOs, particularly among 
smaller entities.
    Comment: Commenters expressed concern about the proposal to 
disallow continued participation by financially under-performing ACOs. 
Commenters suggested this policy could serve as a disincentive to 
participation, particularly by small ACOs. They believed organizations 
may be reluctant to make the necessary investments to form ACOs given 
the uncertainty over their ability to produce shared savings during the 
initial agreement period and their ability to continue in the program 
beyond 3 years. Some commenters suggested it may take several years for 
an ACO to demonstrate shared savings, indicating that some well-
intentioned ACOs may not be able to do so by the end of their initial 
agreement period. Several commenters suggested eliminating the proposed 
policy. Others suggested adopting a more flexible approach to avoid 
penalizing well-meaning ACOs, such as:
     Allowing continued participation for ACOs that, despite 
experiencing a net loss, demonstrate a consistent decrease in the net 
loss over the initial 3 years of the agreement.
     Judging ACOs' readiness to continue in the program based 
on quality, not cost, performance. For instance, allow continued 
participation for ACOs which meet the program's quality performance 
requirements.
    Response: We are modifying our proposal to allow continued 
participation by ACOs electing to do so who experience a net loss 
during their first agreement period. We recognize that it may take 
longer than the term of

[[Page 67909]]

an ACO's initial agreement period for an ACO to achieve shared savings, 
particularly ACOs new to the accountable care model. Commenters have 
persuaded us that barring ACOs that demonstrate a net loss from 
continuing in the program could serve as a disincentive for ACO 
formation given the anticipated high startup and operational costs of 
ACOs. Our policies on monitoring and termination will help to ensure 
that ACOs that underperform on the quality standards do not continue in 
the program. Further, continued participation by previously 
underperforming ACOs could benefit the Trust Funds- as compared to FFS 
providers not engaged in the Shared Savings Program--as these ACOs will 
participate under the two-sided model and therefore will have an even 
greater incentive to improve the quality and efficiency of the care 
they provide in order to avoid being accountable for shared losses. 
While there appear to be a number of benefits to allowing financially 
underperforming ACOs to continue to participate in the program, we 
believe this policy could be cause for concern, as it may allow ongoing 
participation by organizations that are not dedicated to the 
accomplishment of the program's goals but that reap the benefits from 
participation, such as legal protections under the waivers. Therefore 
we are further requiring ACOs which experience a net loss in their 
initial agreement period, applying to participate in a subsequent 
agreement period, to identify in their application the cause(s) for the 
net loss and to specify what safeguards are in place to enable the ACO 
to potentially achieve savings in its next agreement period. Further, 
we will monitor closely this aspect of the program, and may revise our 
policy in future rulemaking.
    We are modifying our proposal to allow an ACO which experiences a 
net loss during its first agreement period to reapply to participate in 
the Shared Savings Program.
    Final Decision: As provided in Sec.  425.600, we will establish the 
Shared Savings Program on existing FFS payments, using both shared 
savings only (Track 1) and shared savings and losses models (Track 2). 
While making final our proposal to offer ACOs a choice of two tracks, 
we are modifying our proposal for Track 1 so that it will be a shared 
savings only model for the duration of the ACO's first agreement 
period. We will make final our proposal that ACOs electing Track 2 will 
be under the two-sided model for the duration of their first agreement 
period. We are also finalizing our proposal to require all ACOs to 
participate in the two-sided model in agreement periods subsequent to 
the initial agreement period. We are modifying our proposal to allow 
continued participation by ACOs electing to do so who experience a net 
loss during their first agreement period. Specifically, we are 
requiring ACOs, which experience a net loss in their initial agreement 
period and apply to participate in a subsequent agreement period, to 
identify in their application the cause(s) for the net loss and to 
specify what safeguards are in place to enable the ACO to potentially 
achieve savings in its next agreement period. Further, we will monitor 
closely this aspect of the program, and may revise our policy future 
rulemaking.
2. Shared Savings and Losses Determination
a. Overview of Shared Savings and Losses Determination
    We proposed that the shared savings model (one-sided model) and a 
shared savings/losses model (two-sided model) would share many program 
elements in common, including a similar methodology for determining 
whether an ACO has achieved savings against the benchmark. Unless 
specifically noted, the elements discussed in the rest of this section 
will apply to both the one-sided and two-sided models. However, we also 
explained the necessity to develop some policies for the two-sided 
model that would not be necessary under a one-sided model, including, 
for example, a methodology for determining shared losses. The following 
table provides an overview of our final decisions on elements of the 
program's financial models.

                                    Table 5--Shared Savings Program Overview
----------------------------------------------------------------------------------------------------------------
                                            One-sided model                          Two-sided model
----------------------------------------------------------------------------------------------------------------
             Issue                  Proposed              Final              Proposed              Final
----------------------------------------------------------------------------------------------------------------
Transition to Two-Sided Model.  Transition in     First agreement        Not Applicable..  Not Applicable.
                                 third year of     period under one-
                                 first agreement   sided model.
                                 period.           Subsequent agreement
                                                   periods under two-
                                                   sided model.
Benchmark.....................  Option 1 reset    Finalizing proposal..  Option 1 reset    Finalizing proposal.
                                 at the start of                          at the start of
                                 each agreement                           each agreement
                                 period.                                  period.
Adjustments for health status   Benchmark         Historical benchmark   Benchmark         Historical benchmark
 and demographic changes.        expenditures      expenditures           expenditures      expenditures
                                 adjusted based    adjusted based on      adjusted based    adjusted based on
                                 on CMS-HCC        CMS-HCC model.         on CMS-HCC        CMS-HCC model.
                                 model.            Performance year:      model.            Performance year:
                                                   Newly assigned                           Newly assigned
                                                   beneficiaries                            beneficiaries
                                                   adjusted using CMS-                      adjusted using CMS-
                                                   HCC model;                               HCC model;
                                                   continuously                             continuously
                                                   assigned                                 assigned
                                                   beneficiaries (using                     beneficiaries (using
                                                   demographic factors                      demographic factors
                                                   alone unless CMS-HCC                     alone unless CMS-HCC
                                                   risk scores result                       risk scores result
                                                   in a lower risk                          in a lower risk
                                                   score). Updated                          score). Updated
                                                   benchmark adjusted                       benchmark adjusted
                                                   relative to the risk                     relative to the risk
                                                   profile of the                           profile of the
                                                   performance year.                        performance year.
Adjustments for IME and DSH...  Include IME and   IME and DSH excluded   Include IME and   IME and DSH excluded
                                 DSH payments.     from benchmark and     DSH payments.     from benchmark and
                                                   performance                              performance
                                                   expenditures.                            expenditures.

[[Page 67910]]

 
Payments outside Part A and B   Exclude GME,      Finalize proposal....  Exclude GME,      Finalize proposal.
 claims excluded from            PQRS, eRx, and                           PQRS, eRx, and
 benchmark and performance       EHR incentive                            EHR incentive
 year expenditures;              payments for                             payments for
                                 eligible                                 eligible
                                 professionals,                           professionals,
                                 and EHR                                  and EHR
                                 incentive                                incentive
                                 payments for                             payments for
                                 hospitals.                               hospitals.
Other adjustments.............  Include other     Finalize proposal....  Include other     Finalize proposal.
                                 adjustment                               adjustment
                                 based in Part A                          based in Part A
                                 and B claims                             and B claims
                                 such as                                  such as
                                 geographic                               geographic
                                 payment                                  payment
                                 adjustments and                          adjustments and
                                 HVBP payments.                           HVBP payments.
Maximum Sharing Rate..........  Up to 52.5        Up to 50 percent       Up to 65 percent  Up to 60 percent
                                 percent based     based on the maximum   based on the      based on the maximum
                                 on the maximum    quality score.         maximum quality   quality score.
                                 quality score                            score plus
                                 plus incentives                          incentives for
                                 for FQHC/RHC                             FQHC/RHC
                                 participation.                           participation.
Quality Sharing Rate..........  Up to 50 percent  Finalizing proposal..  Up to 60 percent  Finalizing proposal.
                                 based on                                 based on
                                 quality                                  quality
                                 performance.                             performance.
Participation Incentives......  Up to 2.5         No additional          Up to 5           No additional
                                 percentage        incentives.            percentage        incentives.
                                 points for                               points for
                                 inclusion of                             inclusion of
                                 FQHCs and RHCs.                          FQHCs and RHCs.
Minimum Savings Rate..........  2.0 percent to    Finalizing proposal    Flat 2 percent..  Finalizing proposal:
                                 3.9 percent       based on number of                       Flat 2 percent.
                                 depending on      assigned
                                 number of         beneficiaries.
                                 assigned
                                 beneficiaries.
Minimum Loss Rate.............  2.0 percent.....  Shared losses removed  2.0 percent.....  Finalizing proposal.
                                                   from Track 1.
Performance Payment Limit.....  7.5 percent.....  10 percent...........  10 percent......  15 percent.
Performance payment withhold..  25 percent......  No withhold..........  25 percent......  No withhold.
Shared Savings................  Sharing above 2   First dollar sharing   First dollar      First dollar sharing
                                 percent           once MSR is met or     sharing once      once MSR is met or
                                 threshold once    exceeded.              MSR is exceeded.  exceeded.
                                 MSR is exceeded.
Shared Loss Rate..............  One minus final   Shared losses removed  One minus final   One minus final
                                 sharing rate.     from Track 1.          sharing rate.     sharing rate applied
                                                                                            to first dollar
                                                                                            losses once minimum
                                                                                            loss rate is met or
                                                                                            exceeded; shared
                                                                                            loss rate not to
                                                                                            exceed 60 percent.
Loss Sharing Limit............  5 percent in      Shared losses removed  Limit on the      Finalizing proposal.
                                 first risk        from Track 1.          amount of
                                 bearing year                             losses to be
                                 (year 3).                                shared phased
                                                                          in over 3 years
                                                                          starting at 5
                                                                          percent in year
                                                                          1; 7.5 percent
                                                                          in year 2; and
                                                                          10 percent in
                                                                          year 3. Losses
                                                                          in excess of
                                                                          the annual
                                                                          limit would not
                                                                          be shared.
----------------------------------------------------------------------------------------------------------------

    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 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 * * *.'' Consistent with the statute, we 
proposed to 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

[[Page 67911]]

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 
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.'' 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.F. of this final 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 methodology described by the statute.
    First, we must establish an expenditure benchmark, which involves 
determining: (1) The patient population 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, so as to provide a level playing field 
for all participants; 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 performance year 
during the term of the agreement with the ACO.
    Second, we must compare the benchmark to the assigned beneficiary 
per capita Medicare expenditures in each performance year during the 
term of the agreement 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[hellip] 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 and meeting or 
exceeding 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 final policies for addressing them, in this 
section.
    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 appropriate to provide greater incentives for organizations that 
participate in the two-sided model. For example, as we described in the 
proposed rule, we believe that it is appropriate to provide a higher 
sharing 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 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. We proposed to mirror 
the structure and features of the shared savings methodology as much as 
possible in the determination of loss sharing. As discussed later in 
this final rule, for purposes of the loss-sharing methodology, we 
proposed adopting a similar structure of minimum loss rate (the 
equivalent of minimum savings rate on the savings side), shared loss 
limit, and loss sharing rate.
    We address the methodological steps for determining shared savings 
and losses, related comments, responses, and our final policy 
decisions, in the sections discussed later in this final rule.
    Comment: We received a wide range of comments requesting or 
suggesting adjustments to specific policies so that an ACO could share 
in a higher level of savings or lower amount of losses than what was 
proposed. Generally, commenters expressed the view that the reward to 
risk ratio for participating in the program as proposed is unattractive 
to providers, and commenters favored policies that would attract broad 
participation by providers. Commenters explained that financial rewards 
must be sufficient to offset provider risks and startup-costs. 
According to one commenter ``the program as envisioned under the 
proposed rule places inordinate investment pressure on medical 
providers for an insufficient return that carries a significant amount 
of risk, regardless of the type of ACO.'' Comments reflected concern 
that this pressure is increased for small ACOs, such as those comprised 
largely of small and medium sized physician practices; small hospitals 
and safety net providers, particularly those serving rural areas; and 
providers serving high risk patients (for example, dual eligibles and 
oncology patients). Commenters suggested that participation in the 
proposed program will be effectively limited to those few large 
entities already organized under an ACO-like structure; entities that 
already have ready access to capital, substantial infrastructure 
development, and experience operating under an integrated service/
payment model (for example, MA). Even entities which might meet these 
criteria questioned the ``business case'' for adoption of the ACO model 
as outlined in the proposed rule. Further, some commenters expressed 
concern that the cost of ACO formation may foster the development of 
large health system-based or hospital-based ACOs thereby financially 
undermining small, independent physician practices.
    Several commenters questioned the adequacy of the program's 
incentives for primary care physicians, on which the program focuses. 
These commenters highlighted primary care physicians' critical role in 
coordinating care across care settings from the home to the hospital 
and ensuring that beneficiaries see the appropriate specialists. They 
indicated that primary care physicians will have to incur additional 
costs for case management and coordination of patient care to achieve 
the program's goals with what will be a potentially insufficient and 
uncertain incentive--the chance that there will be a cost savings 
disbursed to them. Further, commenters suggested that to the extent 
these physicians experience financial failure as a result of assuming 
risk, the program could exacerbate the primary care physician shortage, 
for example by discouraging physicians from specializing in primary 
care practice.
    Typically, recommendations we received for improving the value

[[Page 67912]]

proposition of program participation included the following:
     Revise the methodology for establishing the benchmark to 
encourage participation by organizations that are already efficient or 
in low cost areas.
     Risk adjust expenditures with the CMS-HCC model during 
both the benchmark and performance periods to account for changes in 
acuity and movement in the assigned beneficiary population.
     Standardize the benchmark and performance year 
expenditures by excluding payments made in pursuit of policy goals, 
such as IME and DSH payments.
     Make it easier for ACOs that perform well on quality to 
receive savings, by increasing the sharing rate based on quality 
performance and reducing or eliminating the MSR and the 2 percent net 
sharing requirement.
     Allow ACOs to receive a larger share of savings achieved 
by lowering or eliminating the 25 percent payment withhold and 
performance payment limit.
     Include a non-risk option, so that ACOs may participate 
under a shared savings-only model while they gain experience with the 
accountable care model.
    Commenters' specific concerns about particular aspects of the 
shared savings and losses methodology are further detailed in this 
section of this final rule.
    Response: Commenters' arguments persuaded us of the need to improve 
the financial attractiveness of the program to encourage broad 
participation by providers and suppliers, particularly those likely to 
comprise smaller ACOs, such as small and medium sized physician 
practices, rural and safety net providers. One particularly compelling 
argument suggested that allowing ACOs to receive a greater share of 
savings would support ongoing investment in and achievement of the 
program's goals. Further, we agree with commenters' suggestions on the 
need to adjust policies related to determining shared savings/losses to 
avoid unintended consequences for certain groups of beneficiaries and 
providers or suppliers. For instance, updating ACOs' risk scores to 
better reflect changes in their assigned populations could remove 
incentives for ACOs to avoid beneficiaries with high cost or complex 
conditions. Excluding IME and DSH payments may allay concerns that 
inclusion of these payments could incent ACOs to avoid certain types of 
providers, such as Academic Medical Centers. Accordingly, as described 
in the later sections of this final rule, we are revising several of 
our proposed policies to make the program, overall, more financially 
rewarding to ACOs, to better adjust for changes in assigned 
beneficiaries' health status, and to ensure ACOs include providers and 
suppliers that can provide the high quality care for Medicare 
beneficiaries. Underlying our decisions regarding the policies we are 
adopting in this final rule is the need to address the (sometimes 
competing) interests of ACOs, beneficiaries, the Medicare Trust Funds, 
and the goal of achieving the intended transformative effects. We 
believe the financial models presented in the final rule offer an 
appropriate balance of payment incentives, while still furthering the 
purpose and intent of the program.
b. Establishing the Benchmark
    Section 1899(d)(1)(B)(ii) of the Act specifies several requirements 
with regard to establishing an ACO's benchmark. These requirements are 
as follows:
     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.''
    In the proposed rule, we considered two legally permissible 
approaches to implementing the statutory language for estimating the 
benchmark, which we called Option 1 and Option 2. Both approaches 
involved benchmarks 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, we proposed to reset the benchmark 
at the start of each agreement period. However, a key difference 
between these two approaches was the beneficiary population used to 
determine expenditures for purposes of the benchmark. Specifically, 
under Option 1, we proposed estimating 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. As such, this 
methodology would generate benchmark expenditures based on the average 
population cared for by the ACO participants during the preceding 3 
years. In contrast, under Option 2, we proposed basing the benchmark on 
the Parts A and B FFS expenditures of individual beneficiaries assigned 
to the ACO during each performance year, with the benchmark 
expenditures being those incurred in the 3 years immediately preceding 
the ACO's agreement period for each of those assigned beneficiaries. 
Under both Option 1 and Option 2, the benchmark would be reset (or 
rebased) the start of each agreement period. In the proposed rule, we 
proposed to adopt Option 1 to establish each ACO's benchmark; however, 
we solicited comments on both options. For a detailed description of 
Options 1 and 2, please see our April 7, 2011 proposed rule (76 FR 
19604 through 19606).
    Comment: We received numerous comments related to our proposal to 
base the benchmark on an ACO's own past cost experience. One commenter 
commended us for establishing the benchmark based on an ACO's 
historical per capita expenditures. This commenter noted that a similar 
approach has proven successful in a private sector value based 
purchasing initiative, and that this methodology offers important 
confidence to groups that the starting budgets represent a fair and 
appropriate allocation of resources.
    The majority of comments, however, expressed concern with our 
proposal to establish the benchmark based on ACOs' historical per 
capita expenditures, regardless of whether Option 1 or Option 2 was 
implemented. In most cases, commenters expressed concern that the 
proposed benchmarking methodology would disadvantage efficient 
providers or those in low-spending areas and reward poor performers in 
high cost areas. Thus, commenters suggested that efficient 
organizations may be less willing to participate in the program because 
they have already invested in the systems and infrastructure to produce 
high-quality, low cost care, and will have difficulty achieving 
additional efficiencies, and hence savings, given the proposed 
benchmark methodology. In particular, some commenters suggested the 
proposed policy would

[[Page 67913]]

deter participation by rural providers, asserting they already operate 
at or near the lowest cost possible. Another commenter suggested that 
providers operating in the Indian Health System may have difficulty 
reaching savings requirements and other benchmarks because of the 
current funding and delivery system structure. One commenter suggested 
that further cost control in already efficient areas may lead to 
undesirable results, including, for example, limited ACO interest in 
participation or reduced beneficiary access to needed care. However, 
one commenter suggested effort will be needed by providers in both 
higher cost and lower cost areas to reduce costs, and it may not 
necessarily be 'easier' for providers in higher cost markets to achieve 
this transformation.
    Relative to their concerns, as an alternative, some commenters 
suggested that CMS exercise its authority under section 1899(i) of the 
Act to develop and implement an alternative benchmarking methodology. 
Commenters suggested alternatives such as using local, regional or 
national experience to establish the ACOs' benchmarks; however, 
opinions varied as to which approach among these would be most 
appropriate. Some commenters suggested a blended approach based on 
local and national spending, for instance use of a combination of local 
and national averages or a phased approach to transition from initial 
use of local averages to a national average over time.
    Other suggestions for establishing the initial benchmark included 
applying alternatives including the following:
     A prospective benchmark based on burden of illness with 
bonus payments that reflect quality care through better clinical and 
patient-reported outcomes.
     A peer-to-peer benchmarking methodology. For instance, one 
commenter suggested that existing high cost ACOs should be required to 
achieve a higher percentage of improvement in order to share in savings 
while ACOs with historically lower costs should be rewarded for smaller 
improvements over the threshold.
     A matched cohort of Medicare fee-for-service beneficiaries 
as a basis for comparison for those beneficiaries being treated under 
an ACO.
     A fixed percentage of total operating funds for all ACO 
providers, such as 85 percent of geographic-adjusted expenditure per 
capita. The difference between this benchmark and the medical loss 
ratio incurred by any ACO would be shared savings.
     Methodologies specifically for ACOs in low-cost regions, 
such that these ACOs would have the opportunity to earn greater 
rewards.
     A menu of benchmarking methodologies from which the 
organization can choose, similar to the methodology used in the 
Hospital Value-Based Purchasing program.
     A rolling 3 year look-back.
     A benchmark established by determining which beneficiaries 
would have been assigned to the ACO, determining their actual 
utilization during the relevant 3-year period, and re-pricing the cost 
of those services using the ACO's fee schedule for the relevant 
performance year being compared.
    Response: We understand concerns raised by commenters on basing 
benchmarks on ACO's historical per capita expenditures. Section 
1899(d)(1)(B)(ii) of the Act is clear, however, that ``The Secretary 
shall 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.'' Thus, consistent with statute, we plan to make 
final our proposal to establish ACO benchmarks 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.
    Comment: As mentioned previously, very few comments addressed the 
specific methodology that we should use for establishing ACO 
benchmarks--that is, Option 1 or Option 2--although a few commenters, 
including MedPAC, suggested CMS adopt a benchmarking methodology 
similar or identical to that proposed for the Innovation Center's 
Pioneer Model ACOs, which tends to align with Option 2. For instance, 
MedPAC, among others, recommended calculating ACOs' benchmarks based on 
expenditures of individual beneficiaries assigned to the ACO. A number 
of commenters raised concerns about the accuracy of the benchmark and 
performance year expenditures in circumstances when we have only 
partial data for an assigned beneficiary--issues that would more 
typically occur under Option 2 than Option 1. For instance, several 
commenters suggested that using Option 2 would require an additional 
adjustment to account for beneficiaries who cross over to or from 
another payer, such as Medicaid or Medicare Advantage, and to account 
for decedents and beneficiaries treated in an institutional setting 
where their costs may not be attributable to an ACO under the proposed 
assignment methodology. Moreover, when adjusting expenditures for 
decedents, commenters tended to oppose the methods we discussed under 
Option 2 for adjusting for decedents, specifically the method of 
excluding the expenditures of deceased beneficiaries from actual 
expenditures during the agreement period. Several commenters suggested 
that while excluding these expenditure data would protect ACOs from 
catastrophic costs incurred in the patient's last year of life, it 
would have unintended consequences such as discouraging better end of 
life care management, and one commenter suggested CMS consider a method 
to risk adjust for expected costs in a beneficiary's final year of 
life. Another commenter favored the second method we discussed under 
Option 2: Comparing average expenditures for each deceased beneficiary 
during the agreement year to the average expenditures for beneficiaries 
included in the benchmark. Under this option, we would make no 
adjustment if the agreement year expenditures were 5 percent or less 
above the benchmark, but would make adjustments if expenditures were 
greater than 5 percent above the benchmark.
    Response: On balance, we believe Option 1 is the most appropriate 
approach for establishing ACO benchmarks for at least initial use in 
the program, and plan to make final this proposal. We believe Option 1 
establishes a statistically stable benchmarking methodology based on 
the ACO's average population by which we can assess improvements the 
ACO makes in the quality and efficiency of care delivery for its 
average population. We also acknowledge there are drawbacks to this 
benchmark methodology, including that it provides incentives for ACOs 
to seek and/or avoid specific beneficiaries during the agreement period 
so that their average expenditures would likely be less than for their 
historical beneficiaries included in the benchmark. For this reason we 
favor a benchmarking methodology based on an ACO's actual assigned 
population, such as Option 2, MedPAC's suggested approach, or as 
proposed for Pioneer Model ACOs. However, we lack experience with this 
model of benchmarking and the related need to adjust for decedents, 
sudden increases in individual costs, and incomplete expenditure data 
on some assigned beneficiaries. We support the Innovation Center's 
testing of this benchmarking approach through the Pioneer Model ACO 
initiative, and look forward to applying lessons learned from the 
Pioneer experience towards

[[Page 67914]]

developing a robust benchmarking methodology for possible use within 
the Shared Savings Program. We intend to revisit use of a benchmarking 
methodology based on the ACO's assigned population in future rule 
making, as soon as practicable, once we gain more experience with this 
benchmarking approach through the Pioneer Model.
    Comment: Some commenters expressed concerns that the proposed 
assignment methodology would exclude some of Medicare FFS 
beneficiaries' costs from the ACOs' benchmark and thereby disadvantage 
certain providers and the populations they serve. One commenter 
expressed concern that assignment of beneficiaries based on primary 
care services rendered by physicians with primary care specializations 
could exclude beneficiaries with disabilities and those needing medical 
rehabilitation services which rely on care by specialists. This 
commenter favored a step-wise approach to assignment in which 
beneficiaries are assigned first on the basis of care by primary care 
physicians followed by a second ``sweep'' of assignment based on 
specialists would help ensure that these beneficiaries' costs would be 
counted.
    Many commenters expressed concern that Medicare FFS beneficiaries 
treated by FQHCs and RHCs would not be assigned to an ACO or have their 
costs reflected in an ACO's benchmark under the proposed assignment and 
benchmarking methodologies. A commenter stated: ``The statute does not 
appear to require the specific methodology that has been proposed by 
CMS to determine the benchmark, and certainly does not require a single 
uniform methodology for all primary care providers. Under the wording 
of this provision, CMS appears to have the flexibility to apply a 
methodology to `estimate a benchmark' specifically for FQHCs.'' This 
commenter and some others suggested various ways to compute the 
benchmark for FQHCs absent 3 years of benchmark data: (1) CMS could use 
the data and claims it will have from FQHCs for 2011 and assume similar 
and comparable data and claims for the two years prior with some 
adjustments as appropriate relating to inflation, etc.; (2) CMS could 
assign beneficiaries utilizing the 2011 data and recover billing data 
from the prior 2 years with use of health center office visit revenue 
codes to determine the 3 year benchmark; (3) CMS could further 
investigate the methods that are being used to create benchmarks for 
demonstrations, such as the methods that were considered for the 
Pioneer ACO Model Request for Applications; (4) a number of FQHCs have 
been recording HCPCS codes for all of their patients and have this 
information stored in their practice management systems, dating back 
prior to the requirement to report to CMS starting on January 1, 2011. 
Those centers that are able to provide CMS with the data it requires to 
establish the 3-year benchmark should be allowed to do so; and (5) CMS 
could allow each health center to voluntarily choose whether it would 
provide any specific requested information. Further, commenters 
suggested that section 1899(i), if not section 1899(d) of the Act, 
provides CMS flexibility to estimate a benchmark specifically for 
FQHCs.
    One commenter advocated allowing those RHCs and FQHCs who wish to 
participate in ACOs the opportunity to provide the requisite data so 
that they may fully participate in the program. However, another 
commenter appreciated the Department's reluctance to impose reporting 
requirements in this rule for both FQHCs and RHCs and other entities 
without either a statutory requirement or clear support for such a 
regulatory change from the community at large.
    Response: In the section II.E. of this final rule, we establish a 
step-wise approach to beneficiary assignment that simultaneously 
maintains the primary care-centric approach to assignment and 
recognizes the necessary and appropriate role of specialists in 
providing primary care services. Through this assignment methodology we 
will be able to attribute to ACOs expenditures for beneficiaries who 
predominantly rely on care from specialists.
    Based on the assignment process that we are adopting in this final 
rule (see section II.E. of this final rule), we are able to compute a 
benchmark for ACOs that include FQHCs and RHCs, in the same manner as 
we would for any other ACO. For ACOs that consist of FQHCs and/or RHCs 
(either independently or in partnership with other eligible entities), 
we will establish such ACO's initial benchmark based on the Parts A and 
B FFS expenditures of beneficiaries who would have been assigned to the 
ACO in any of the 3 years prior to the start of an ACO's agreement 
period.
    Comment: As described in section II.G. of this final rule, several 
commenters recommended that we trend and update the benchmark and risk 
adjust by categories of beneficiaries, including aged, disabled and 
ESRD beneficiaries, among others.
    Response: We agree with commenters' suggestions for taking a 
categorical approach to establishing the benchmark and are adopting 
this approach for calculating expenditures for the historical 
benchmark. In this final rule, we are adopting a policy whereby the 
historical benchmark expenditures will be calculated for cost 
categories for each of the following populations of beneficiaries: 
ESRD, disabled, aged/dual eligible Medicare and Medicaid beneficiaries 
and aged/non-dual eligible Medicare and Medicaid beneficiaries. We will 
sort beneficiaries according to these categories in the order in which 
they are stated. We will make a distinction between the aged/dual 
eligible and aged/non-dual eligible populations since modeling has 
suggested the expected expenditures for these populations is 
significantly different. The ESRD and disabled categories include both 
dual eligible and non-dual eligible beneficiaries, however, since 
modeling has indicated expenditures are less divergent for these 
populations. As described in section II.G. of this final rule, we are 
adopting this categorical approach to establishing the benchmark, 
updating the benchmark and calculating performance year expenditures.
    Comment: We received a number of comments on our proposal to 
minimize variation from catastrophically large claims by truncating an 
assigned beneficiary's total annual Parts A and B FFS per capita 
expenditures at the 99th percentile of national Medicare FFS 
expenditures as determined for each benchmark year and performance 
year. Mostly commenters were supportive of the proposal to adjust for 
outliers. Some commenters suggested that the proposed limitations may 
provide ACOs inadequate protections from high-cost beneficiaries, and 
suggested a variety of additional or alternate limitations including 
the following:
     Remove outliers altogether from the assigned populations 
used to establish the benchmark and performance year expenditures. For 
instance, one commenter suggested excluding all costs incurred by 
patients with rare and extreme diagnoses or for care received in the 
tertiary care setting, while another recommended CMS use in the Shared 
Savings Program an approach similar to what was proposed for the 
Pioneer Model ACOs, in which ACOs have the option to exclude from 
benchmark and performance year expenditures claims above the 99th 
percentile for national per capita expenditures.
     Reduce the outlier threshold from the 99th percentile to 
the 75th or 95th percentile, for instance, to help ensure

[[Page 67915]]

that ACOs are not penalized for using innovative technologies.
     Use a flat dollar amount, such as $100,000 per year, 
instead of a percentile as a basis for truncating claims.
     Use ``alternate windsoring techniques'' for adjusting a 
distribution for outliers; for example, calculating separate savings 
among different cost categories of beneficiaries, such as the top 5 
percent of beneficiaries by cost versus the remaining 95 percent of 
beneficiaries.
     Exclude claims for high cost treatments demanded by the 
patient that have a negative result, in part as a means of addressing 
higher medical costs in States with high rates of medical malpractice 
litigation.
    One commenter expressed concern that under the proposed policy, 
ACOs would have little incentive to effectively coordinate care for 
high cost beneficiaries. This commenter explained that the proposed 
policy may negatively impact dialysis patients because these patients' 
costs may be close to the 99th percentile threshold. If an ACO knows 
its risk exposure is limited for what may be a small portion of its 
assigned population, such as ESRD beneficiaries, the ACO may have 
little incentive to spend time and money needed to provide high quality 
care to these beneficiaries.
    Several commenters asked for clarification about the proposed 
truncation methodology, including whether the same 99th percentile will 
be applied to the benchmark or performance year expenditures or if it 
will be determined within each performance year. Several commenters 
asked for clarification as to whether the expenditure amount includes 
hospital outlier payments, or otherwise how outlier payments to 
inpatient facilities will be handled. One commenter asked generally how 
CMS will ensure providers with high cost patients are able to receive 
savings.
    Response: We are finalizing our proposal to truncate an assigned 
beneficiary's total annual Parts A and B FFS per capita expenditures at 
the 99th percentile of national Medicare fee-for-service expenditures 
as determined for each benchmark year and performance year. We disagree 
with those commenters that suggested placing greater limitations on 
ACOs' accountability for the cost of outliers, such as by completely 
removing outliers from ACO benchmark and performance year expenditures 
or lowering the threshold (such as the 95th percentile). Doing so would 
give ACOs less incentive to coordinate care and services for high-cost 
beneficiaries, for whom improved care coordination could be especially 
valuable, to improve outcomes and control unnecessary costs.
    The 99th percentile represents a dollar amount (roughly $100,000) 
that matches in dollar terms an attachment point that is fairly common 
in the reinsurance market. The important reason for its inclusion is 
that it reduces variation in expenditure growth, thereby lowering the 
risk of paying ACOs savings or requiring ACOs to pay losses that result 
from random variation. A lower percentile might have been chosen, but 
the incremental benefit in terms of lowered variation would be offset 
by further reduction in the incentive for ACOs to increase efficiency 
for high-cost patients. Therefore, we believe that truncating claims at 
the 99th percentile achieves an appropriate balance between limiting 
catastrophic costs and continuing to hold ACOs accountable for those 
costs that are likely to be within their control.
    We appreciate commenters' concerns that by limiting ACO's 
accountability for catastrophic costs, ACOs may have an incentive to 
avoid managing the care for the select few very high-cost 
beneficiaries. However, we believe that truncating claims at the 99th 
percentile in conjunction with the opportunity to receive shared 
savings, as well as monitoring protections, help assure ACOs will not 
avoid treating at-risk beneficiaries. We also note, in response to the 
commenter who expressed concern that an ACO could not achieve savings 
for high cost beneficiaries, that one of the purposes of risk 
adjustment is to make it possible for ACOs that improve the quality and 
efficiency of the care they provide to achieve savings in the cost of 
care for both high and low cost beneficiaries.
    Accordingly, as specified in the proposed rule, we will truncate 
all Parts A and B FFS per capita expenditures at the 99th percentile 
for each beneficiary in each benchmark year and for each assigned 
beneficiary in each performance year. Further, we will truncate for 
outliers in the ACO's assigned population as opposed to accounting for 
outlier payments made to hospitals (potential ACO participants) which 
will be included in the calculation of actual expenditures during the 
performance year.
    Comment: Several comments generally suggested that the proposed 
policy for weighting benchmark expenditures at 60 percent for BY3, 30 
percent for BY2 and 10 percent for BY1 was appropriate. Several others 
recommended alternative approaches to weighting benchmark expenditures. 
For instance, one commenter recommended that CMS weight the most 
expensive benchmark year the highest, followed by the second highest 
and finally the least expensive. Another commenter suggested, relative 
to Option 2 for establishing the benchmark, to weight BY3 at 60 percent 
and BY2 at 40 percent.
    Response: We thank the commenters for their support of our proposed 
policy. We continue to believe that our proposed approach to weighting 
base year expenditures, compared to the alternatives suggested by 
commenters, will result in a more accurate benchmark. This approach 
recognizes that the ACO's financial performance in the most recent base 
year is the most current of the three base years and therefore reflects 
more accurately the latest expenditures and health status of the ACO's 
assigned beneficiary population. Further, weighting BY1 at zero, as 
suggested by one commenter, would not meet the statutory requirement 
under section 1899(d)(1)(B)(ii) of the Act to establish the benchmark 
using the most recent available three years of per-beneficiary 
expenditures for Parts A and B services for Medicare fee-for-service 
beneficiaries assigned to the ACO. Accordingly, we are finalizing our 
proposal to weight the most recent year of the benchmark, BY3, at 60 
percent, BY2 at 30 percent and BY1 at 10 percent.
    Comment: Many commenters urged CMS not to reset the benchmark for 
ACOs that continue in the program after the first agreement period, or 
to limit how far the baseline could be moved from one agreement period 
to the next. They indicated that rebasing the benchmark each agreement 
period will make savings more difficult to attain and eventually make 
savings unattainable. They further suggested this could discourage 
initial participation in the program, as organizations will have little 
incentive to make the needed investment in ACO formation. Commenters 
recommended a number of alternatives to mitigate these anticipated 
effects which included the following:
     Never rebasing.
     Delayed rebasing, for example apply the original baseline 
for longer than 3 years, such as 6 or 9 years (covering a second and 
third agreement period).
     Apply partial, as opposed to full, rebasing.
     Rewarding ACOs for maintaining, rather than further 
decreasing, their expenditures.

[[Page 67916]]

     Using rebasing as a mechanism to facilitate ACOs' 
transition from FFS to capitated payments.

On the other hand, several commenters favored resetting the benchmark 
more frequently than we proposed, stating their preference for a 
rolling 3 year look back to reset the ACO's benchmark annually.
    Further, some commenters provided technical suggestions on how to 
reset the benchmark. One commenter suggested that we take inflation 
into consideration when resetting the benchmark as to not penalize ACOs 
for market increases beyond their control. Another commenter suggested 
that reset benchmarks must include payments for care management and 
coordination services and urged CMS to establish rates that ACOs could 
bill for such services. This commenter further suggested that such 
rates should vary based on the beneficiary's number of chronic 
conditions and the acuity of these conditions (such as severe mental 
illness and/or chemical dependence), as well as socio-economic or 
environmental risk factors that would require additional social 
services.
    Response: We are finalizing our proposal to reset the benchmark at 
the start of each agreement period, as required under section 
1899(d)(1)(B)(ii) of the Act. Moreover, we believe that resetting the 
benchmark at the beginning of each agreement period will most 
accurately account for changes in an ACO's beneficiary population over 
time. As we indicated in the proposed rule, turnover in assigned 
beneficiaries could be approximately 25 percent year to year. By the 
end of the agreement period, an ACO's assigned population may be 
significantly different from the historically assigned beneficiary 
population used to calculate the ACO's initial benchmark. Resetting the 
benchmark at the beginning of subsequent agreement periods will allow 
the benchmark to more accurately reflect the composition of an ACO's 
population, and therefore will protect both the Trust Funds and ACOs. 
We appreciate commenters' concerns that resetting the benchmark after 3 
years could ultimately make it more challenging for ACOs to achieve 
savings, particularly for low-cost ACOs; however, we believe that one 
of the fundamental purposes of the Shared Savings Program is to provide 
incentives for ACOs to strive continually to make further advances in 
the quality and efficiency of the care they provide. We also appreciate 
commenters' technical suggestions on resetting the benchmark in 
relation to beneficiary health status, and socio-economic and 
environmental factors. While at this time we decline to use authority 
under section 1899(i) of the Act to adopt an alternate approach to 
resetting the benchmark, we may reconsider the issue in future 
rulemaking.
    Final Decision: We are making final our proposed methodology under 
Sec.  425.602 for establishing an ACO's initial benchmark based on the 
Parts A and B FFS expenditures of beneficiaries who would have been 
assigned to the ACO in any of the 3 years prior to the start of an 
ACO's agreement period using the ACO participants' TINs identified at 
the start of the agreement period. We will calculate benchmark 
expenditures by categorizing beneficiaries in the following cost 
categories, in the order in which they appear: ESRD, disabled, aged/
dual eligible Medicare and Medicaid beneficiaries, and aged/non-dual 
eligible Medicare and Medicaid beneficiaries. This benchmarking 
methodology will apply to all ACOs, including those consisting of FQHCs 
and/or RHCs (either independently or in partnership with other eligible 
entities). We are also making final our proposals to truncate an 
assigned beneficiary's total annual Parts A and B FFS per capita 
expenditures at the 99th percentile of national Medicare fee-for-
service expenditures as determined for each benchmark and performance 
year; weight the most recent year of the benchmark, BY3, at 60 percent, 
BY2 at 30 percent and BY1 at 10 percent; and reset the benchmark at the 
start of each agreement period. Further, as specified in section II.C. 
of this final rule, we will use a 3-month run-out of claims data and a 
completion factor to calculate benchmark expenditures.
c. Adjusting the Benchmark and Actual Expenditures
(1) Adjusting Benchmark and Performance Year 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 they are treating a patient mix with better 
health status than the patient population reflected in their benchmark. 
On the other hand, some organizations may share in savings on a risk 
adjusted basis that would not have shared in savings if expenditures 
were not risk adjusted.
    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. An ACO's ability to share in savings can be affected not only by 
changes in the health status of the ACO's assigned population but also 
by changes in coding intensity and changes in the mix of specialists 
and other providers within an ACO, which in turn could affect the 
characteristics of its assigned beneficiary population, relative to the 
benchmark period. As we stated in the proposed rule, 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 ACO's organizational structure that could affect the 
case mix of assigned patients rather than apparent changes arising from 
the manner in which ACO providers/suppliers code diagnoses.
    To address these concerns, in the proposed rule, we considered 3 
options for risk adjusting the initial benchmark. One option was to 
employ a method that considered 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 was to employ a methodology that 
incorporates diagnostic information, in addition to demographic 
variables, specifically the CMS-HCC prospective risk adjustment model 
that has been used under the Medicare Advantage (MA) program. The third 
option was to implement the MA ``new enrollee'' demographic risk 
adjustment model: a model that includes adjustments for age, sex, 
Medicaid enrollment status, and

[[Page 67917]]

originally disabled status, but would not take into account the health 
status of the assigned beneficiaries.
    We proposed to adjust Medicare expenditure amounts using the CMS-
HCC model because it more accurately predicts health care expenditures 
than the demographic-only model as it accounts for variation in case 
complexity and severity. We also noted that incorporating diagnosis 
data in the risk adjustment model would encourage ACOs to code more 
fully or intensely for purposes of population management and quality 
reporting, and to optimize their risk scores to achieve shared savings. 
We elected not to propose the MA new enrollee model because it could 
have an 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.
    We also considered, and sought comment on, several approaches to 
account for the upward trend in risk scores which may result from 
coding changes alone, without improved methods of beneficiary care, 
such as the following:
     Use of normalization factors and coding intensity 
adjustments, as is done for the MA program.
     Use of an annual cap in the amount of risk score growth we 
would allow for each ACO. For instance, we considered setting a fixed 
growth percentage for all ACOs and negating any risk score growth over 
the cap. Alternatively, we could 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.
     Use of a methodology similar to the MA methodology that 
would reduce the amount of growth in the risk scores for beneficiaries 
assigned to ACOs, but continue to allow increases.
    We further explained our expectation that the ACO's average 
population risk scores would remain stable over time, given that there 
is expected to be 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 had the same incentive 
to increase coding. We stated that we considered the benchmark risk 
adjustment score for the ACO's historically assigned beneficiary 
population to 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 proposed a cap of zero percent growth on risk 
adjustment by calculating a single benchmark risk score for each ACO 
and applying this same risk score throughout the agreement period to 
the annual assigned patient population's per capita expenditures for 
assigned beneficiaries.
    We specified our intent to monitor and evaluate the issue of more 
complete and accurate coding as we gained experience with the Shared 
Savings Program, and that we would consider making revisions and 
adaptations to the final risk adjustment model through future 
rulemaking if warranted. Further, to assure the appropriateness of ACO 
coding practices and our methodology for risk adjusting, we proposed to 
retain the option to audit ACOs, especially those ACOs with high levels 
of risk score growth relative to their peers, and to adjust the risk 
scores used for purposes of establishing the 3-year benchmark 
accordingly. We sought comment on these proposals.
    Comment: Commenters typically expressed support for adjusting 
benchmark expenditures based on the CMS-HCC model; although, some 
commenters raised technical concerns about the accuracy of HCC risk 
adjustment. For example, one commenter suggested that CMS needs to 
improve the accuracy of the HCC risk adjustment model. Other commenters 
expressed concern that the proposed risk adjuster lacks the capacity to 
account for socioeconomic status. Another commenter suggested the need 
for physician input into risk adjustment factors, for example, to be 
able to identify patients with multiple chronic conditions. Commenters 
also made a number of recommendations about the proposed risk 
adjustment methodology, including the need to define other 
``beneficiary characteristics'' that might be used to risk adjust, 
modify the HCC model to exclude zero spend beneficiaries (while these 
beneficiaries are included in the HCC model as used in MA, it could 
disadvantage ACOs whose assigned populations would by definition 
exclude zero spend beneficiaries), and risk adjust for including safety 
net providers, such as RHCs, FQHCs and Method I CAHs.
    While commenters supported use of the CMS-HCC model for adjusting 
benchmark expenditures, they also expressed concern that benchmark and 
performance expenditures would not also be annually updated for risk 
using this same mechanism. Numerous commenters expressed concern that a 
cap on risk adjustment in cases where care furnished to a patient is 
documented and appropriate would diminish the level of shared savings, 
and serve as a disincentive to manage patients with complex health care 
needs who can most benefit from better care coordination. MedPAC, among 
other commenters, expressed concern that this approach would create 
incentives for ACO providers to encourage existing patients who are 
costly to seek care elsewhere and to avoid taking on new patients that 
could be costly. Another commenter suggested that accurate risk 
adjustment is especially important for providers, such as academic 
medical centers, that disproportionately treat the sickest and most 
complex patients.
    Some commenters were concerned that the proposed cap on risk 
adjustment would not adequately capture changing severity of disease in 
the ACO's assigned population. For example, one commenter encouraged 
CMS to allow for timely and appropriate risk adjustment for cancer 
patients, particularly to address the circumstance under which a 
patient has not been diagnosed with cancer when the benchmark is set, 
but is later diagnosed with and treated for cancer. Another commenter 
noted that individuals with multiple health conditions will still need 
more services than other beneficiaries with lower acuity. Another 
commenter expressed concern that the proposed risk adjustment 
methodology would not account for changes in beneficiaries' health 
status which result from aging.
    Others were concerned that the proposed cap on risk adjustment 
would not address changes in the ACO's population as beneficiaries move 
to different providers during the agreement period. For instance, some 
commenters pointed to our experience with the PGP demonstration, which 
showed approximately a 25 percent variation in assignment from year to 
year. One commenter suggested, based on its own experience in the 
demonstration, that the turnover rate may be higher.
    Accordingly, several commenters encouraged CMS to adopt policies 
that would encourage ACOs to care for high-risk and high-cost 
beneficiaries. The alternative most often recommended by commenters is 
for CMS to annually update performance expenditures for risk. In their 
view, these annual updates would help keep pace with a changing patient 
population, for example in terms of beneficiary age, acuity or severity 
of health status and movement of beneficiaries into and out of the 
ACO's assigned patient population. As one

[[Page 67918]]

commenter recommended, the ACO's risk adjustment score should be 
determined by the population the ACO is actually treating, and should 
therefore be recalculated for each year of the agreement period. This 
commenter further suggested that the potential for, and presumably 
consequences of, increased coding intensity are far outweighed by 
concerns about creating incentives to avoid complex patients or 
penalizing institutions that treat patients in their performance period 
who are more complex compared to their benchmark population. One 
commenter noted the importance of adjusting the ACO's benchmark for 
changes in risk scores during the agreement period, indicating that 
doing so could limit incentives for ACOs to avoid high-cost and high-
risk beneficiaries.
    Among the alternatives offered by comments, some commenters 
recommended a narrower approach, suggesting that CMS annually update 
ACOs' risk scores for select populations of beneficiaries, such as the 
aged, disabled and ESRD populations, and beneficiaries with chronic 
disease codes, or create exceptions for safety net providers. One 
commenter suggested CMS apply a cap of 10 percent on any annual 
increase in risk scores, based on coding severity, unless an ACO can 
provide a satisfactory sampling of assigned beneficiaries audited to 
support the use of proper coding and therefore higher risk adjustments. 
Another commenter recommended that risk adjustment be made 
retrospectively, on an annual basis, based on the ACO's assigned 
patients.
    A number of commenters specifically addressed the relationship 
between coding accuracy and coding intensity. One commenter viewed the 
concept of coding intensity as synonymous with coding accuracy. Several 
commenters suggested that improvements in coding will likely occur over 
time as a result of ACO formation, for example, as more providers adopt 
EHR and can code more completely. One commenter pointed out that this 
improvement in coding should be viewed positively, and suggested that 
the issue of disproportionate relative risk growth for a subpopulation 
due only to improved coding accuracy will self-correct. One commenter 
encouraged CMS to educate physicians and other providers in preparation 
for the implementation of ICD-10 in 2013, which could result in a 
significant change in coding. Another commenter noted their agreement 
with the proposal to address coding accuracy by the proposed audit 
process.
    Commenters suggested a number of alternatives to mitigate the 
effects of increased coding intensity which included the following:
     Adjust for increased coding intensity as is done for the 
MA program.
     Do not subject new enrollees or those transitioning from 
MA to the risk score change limitations.
     Allow ACOs to request a one-time benchmark recalculation 
during the agreement period.
    One commenter suggested CMS investigate, on an ongoing basis, risk 
adjustment methods that could capture the unexplained variation in 
spending or risk of a population.
    Response: We continue to believe that risk adjusting benchmark 
expenditures based on the CMS-HCC model accounts for variation in case 
complexity and severity and therefore more accurately predicts health 
care expenditures compared to a demographic-only model or other 
alternatives suggested by commenters. We did not intend for our 
proposed risk adjustment methodology to discourage ACOs from accepting 
responsibility for beneficiaries that might present higher than average 
risk, but commenters have persuaded us of the need to better account 
for risk associated with changes in the ACO's beneficiary population, 
for instance in terms of acuity and beneficiary movement, during the 
agreement period. However, we remain concerned that liberally adjusting 
for changes in risk scores for beneficiaries assigned to the ACO for 
the entire agreement period could create an incentive for ACOs to use 
coding practices intended to optimize their risk scores to achieve 
shared savings. Thus, we are modifying our initial proposal so that ACO 
benchmarks will better reflect the risk associated with their assigned 
beneficiaries. We will adjust expenditures to account for changes in 
severity and case mix for beneficiaries newly assigned in the current 
performance year (``newly assigned''), and those who are continuously 
assigned to the ACO year-to-year (``continuously assigned''). A newly 
assigned beneficiary is a beneficiary assigned in the current 
performance year who was neither assigned nor received a primary care 
service from any of the ACO's participants during the most recent prior 
calendar year. A continuously assigned beneficiary is a beneficiary 
assigned to the ACO in the current performance year who was either 
assigned to or received a primary care service from any of the ACO's 
participant during the most recent prior calendar year.
    First, for newly assigned beneficiaries we will annually update an 
ACO's CMS-HCC prospective risk scores to adjust for changes in severity 
and case mix in this population. Second, each year, we will recalculate 
the ACO's CMS-HCC prospective risk scores for continuously assigned 
beneficiaries. If the continuously assigned population shows a decline 
in its CMS-HCC prospective risk scores, we will adjust for health 
status changes for this population using this lower risk score. If the 
continuously assigned population shows no decline, this population will 
be adjusted using demographic factors only. We believe that this 
approach to risk adjustment strikes a fair balance between accounting 
for changes in the health status of an ACO's population while not 
incenting changes in coding practices for care provided to 
beneficiaries who remain continuously assigned to the ACO, nor 
encouraging ACOs to avoid high risk beneficiaries. This methodology 
implicitly adjusts for beneficiaries who are assigned in the prior year 
but not the current performance year (patients which leave the ACO), as 
these beneficiaries will be excluded from the continuously assigned 
population. We will monitor HCC scores for beneficiaries which are 
assigned in the prior year who are not assigned in the current 
performance year, to determine if there is trend in changes in health 
status for this population. Based on our findings, in future rule 
making, we may make a more explicit adjustment for beneficiaries 
assigned to the ACO in the prior year who are not assigned in the 
current performance year. Further, we agree with the commenter's 
suggestion on the need for benchmark expenditures to be adjusted 
relative to the risk profile of the performance year assigned 
beneficiaries. Therefore the ACO's updated benchmark will be restated 
in the appropriate performance year risk to ensure fairness recognizing 
changes in the level of risk among the ACO's assigned beneficiaries.
    Additionally, we agree with commenters' suggestions about the need 
to take account of variations in risk scores across categories of 
beneficiaries to reflect differences in disease severity across 
subpopulations. Therefore, in adjusting for health status and 
demographic changes, we will make adjustments for separate categories 
for each of the following populations of beneficiaries: ESRD, disabled, 
aged/dual eligible Medicare and Medicaid beneficiaries, and aged/non-
dual eligible Medicare and Medicaid

[[Page 67919]]

beneficiaries as described in section II.G.2.b. of this final rule.
    Also, we agree with the comment recommending that we use the audit 
process to address coding inaccuracies. Therefore, to assure the 
appropriateness of ACO coding practices and our methodology for risk 
adjusting, we are finalizing our proposal to retain the option to audit 
ACOs, especially those ACOs with high levels or risk score growth 
relative to their peers, and to adjust the risk scores used for 
purposes of establishing the 3-year benchmark accordingly. In addition, 
as we stated in the proposed rule, we intend to monitor and evaluate 
the issue of more complete and accurate coding and, as we gain 
experience with the program, we may consider making further revisions 
through future rulemaking.
    Final Decision: We are making final our proposal under Sec.  
425.602 to risk adjust an ACO's historical benchmark expenditures using 
the CMS-HCC model. We are modifying our proposal under Sec.  425.604 
and Sec.  425.606 to make additional risk adjustments to performance 
year assigned beneficiaries instead of capping growth in risk 
adjustments during the term of the agreement at zero percent. For newly 
assigned beneficiaries, we will annually update an ACO's CMS-HCC 
prospective risk scores, to take into account changes in severity and 
case mix for this population. We will use demographic factors to adjust 
for severity and case mix for the continuously assigned population 
relative to the historical benchmark. However, if the continuously 
assigned population shows a decline in its CMS-HCC prospective risk 
scores, we will lower the risk score for this population. An ACO's 
updated benchmark will be restated in the appropriate performance year 
risk relative to the risk profile of the performance year assigned 
beneficiaries. Further, we will make adjustments for each of the 
following categories of beneficiaries: ESRD, disabled, aged/dual 
eligible Medicare and Medicaid beneficiaries, and aged/non-dual 
eligible Medicare and Medicaid beneficiaries. We are also making final 
our proposal to monitor and evaluate the issue of more complete and 
accurate coding for future rule making and to use an audit process to 
assure the appropriateness of ACO coding practices and to adjust ACO 
risk scores. We will also monitor HCC scores for beneficiaries assigned 
in the prior year that are not assigned in the current performance 
year, and may make a more explicit adjustment for this population in 
future rule making.
(2) Technical Adjustments to the Benchmark and Performance Year 
Expenditures
    Consistent with the statute, we proposed to 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 for an ACO during both the benchmark 
period and performance years.
    In the proposed rule, we stated our belief that 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. We noted that payment 
adjustments achieve policy goals such as supporting teaching hospitals 
and hospitals that serve a disproportionate share of low income 
beneficiaries, adjusting for local wage differences, or accounting for 
providers' performance on quality initiatives. We further explained 
that adjustments to payment rates can affect both expenditures during 
the benchmark period and also during each subsequent performance year. 
Additionally, changes in these payment factors, between the benchmark 
and performance years could also influence whether an ACO realizes 
savings or incurs losses under the program.
    In the proposed rule, we addressed the issue of whether to exclude 
some adjustments to Parts A and B payments when determining ACOs' 
benchmark and performance year expenditures. We considered a number of 
specific claims-based payment adjustments in the proposed rule, 
including: IME and DSH payments, geographic payment adjustments, and 
some bonus payments and penalties. We also discussed some payment 
adjustments which are outside the payments for Parts A and B services 
and therefore would not be included in our calculation of ACOs' 
expenditures.
    We explained that section 1899(d) of the Act provides a way of 
adjusting for such payments in the benchmark. Section 1899(d)(1)(B)(ii) 
of the Act states, among other things, that the benchmark must be 
adjusted for ``* * * beneficiary characteristics and such other factors 
as the Secretary determines appropriate * * *.'' However, when it comes 
to performance year expenditures, section 1899(d)(1)(B)(i) of the Act 
provides authority to adjust expenditures in the performance period for 
beneficiary characteristics, but does not provide authority to adjust 
for ``other factors.'' Therefore, we noted that while we could make 
some adjustments to the benchmark, to exclude certain payments, we 
could not make similar adjustments in our calculation of performance 
year expenditures. We did not discuss the possible use of our authority 
under section 1899(i) of the Act, which authorizes use of other payment 
models, to adjust performance year expenditures for ``other factors.''
    Comment: We received a number of comments on adjusting for payments 
and policies not mentioned in the proposed rule. Commenters requested 
clarification, or made recommendations, on the treatment of a number of 
payments or costs. Among these, commenters recommended that we exclude 
the following:
     Costs of preventive services from an ACO's benchmark and 
spending calculations to avoid incentives to withhold preventive care.
     Costs of urgent care center visits from ACO's benchmark 
and performance year expenditures to avoid creating incentives for ACOs 
to refer their non-emergent patients to their own emergency departments 
instead of to urgent care centers in the community.
     Costs of beneficiaries who seek care outside the ACO.
     New technology payments under the Inpatient Prospective 
Payment System and transitional pass through payment expenditures under 
the Outpatient Prospective Payment System for drugs, biological and 
devices. Commenters believed exclusion of these payments would avoid 
incentives for ACOs to underuse new technologies and therapies. One 
commenter, for example, suggested that CMS' exclusions keep pace with 
the latest recommended treatments.
     Rural health payment adjustments under which CMS 
reimburses some providers under alternative, specialized methodologies 
due to their designation as rural or critical access facilities.
     Low cost county payments.
     Primary care incentive payments under the primary care 
incentive program established by the Affordable Care Act.
     Federal hospital insurance trust fund payments.
     TEFRA relief payments, the inclusion of which could 
provide incentives for ACOs to avoid forming joint ventures with and 
including cancer centers.
    Commenters offered differing opinions on the treatment of Part D 
costs. One commenter urged us to include Part D costs, suggesting this 
could maximize ACO's opportunity for success because of the 
opportunities for

[[Page 67920]]

cost savings and improved quality associated with drug benefits. 
Several commenters expressed concern that in some clinical areas (such 
as cancer care and cardiac ablation for atrial fibrillation) ACOs may 
have an incentive to move patients from appropriate treatments or 
procedures reimbursed through Parts A or B to Part D therapies which 
are excluded from the shared savings calculation. Commenters suggested 
safeguards may be needed for certain clinical areas. One commenter 
outlined a process for CMS to exclude the costs of certain Part A and B 
drugs/biologics or medical procedures from the shared savings 
calculation, but to account for use of Part D drugs as an alternative 
to procedures paid under Parts A and B. One commenter identified a 
seemingly countervailing effect resulting from the proposed additional 
incentive for ACOs to include FQHCs and RHCs, which may be entities 
eligible for the 340B Drug Pricing Program. The commenter explained 
that the incentive for including FQHCs and RHCs may prompt ACOs to 
shift treatment protocols and patients from an inpatient setting to an 
outpatient setting in order to have access to 340B pricing discounts.
    Several commenters expressed the need for CMS to take into 
consideration payment policies and causes for payment changes which 
could affect ACO financial performance. One commenter noted that some 
payment rules can run counter to the goals of the Shared Savings 
Program, for instance post-acute care transfer policies that reduce 
payments if the beneficiary is moved to certain other types of 
providers prior to reaching the geometric mean average length of stay 
for that diagnosis-related group. ACOs will be mindful these types of 
payment adjustments, which could result in higher Medicare spending. 
This commenter suggested the need to align payment policies to be 
consistent with the goals of the Shared Savings Program, and 
recommended that CMS not apply payment policies that penalize providers 
for directing the setting of care. Several other commenters suggested 
that we consider adjustments to the benchmark and performance year 
expenditures to account for changes in the structure of ACO providers 
and suppliers which may have a significant impact on annual payment 
rates, such as a hospital receiving the status of ``sole community 
provider,'' or a hospital incorporating a provider-based billing clinic 
that was previously freestanding. Another commenter suggested CMS 
develop a method to account for the defensive practice of medicine 
which results in higher medical costs, particularly in States with 
higher rates of medical malpractice litigation.
    One commenter recommended that CMS offer a process where individual 
ACOs could petition for specific benchmark adjustments that might be 
relevant to their providers or beneficiaries, but would not be relevant 
to all ACOs.
    As described section II.G. of this final rule, several commenters 
recommended that we trend and update the benchmark and risk adjust by 
categories of beneficiaries, including aged, disabled, and ESRD 
beneficiaries, among others.
    Response: We disagree with commenters' suggestions that we adjust 
ACO benchmark and performance year expenditures to account for various 
differences in cost and payment among providers and suppliers. We 
believe that making such extensive adjustments, or allowing for 
benchmark adjustments on a case-by-case basis, would create an 
inaccurate and inconsistent picture of ACO spending and may limit 
innovations in ACOs' redesign of care processes or cost reduction 
strategies. Similarly, we do not believe it is appropriate to consider 
Part D spending in our calculation of benchmark and performance year 
expenditures. The statute is clear in requiring that we take into 
account only payments made from the Medicare Trust Fund for Parts A and 
B services, for assigned Medicare FFS beneficiaries, when computing 
average per capita Medicare expenditures under the ACO. Although 
commenters pointed out important concerns about the potential for 
inappropriate cost shifting to Part D therapies and unintended shifts 
in the site of care for beneficiaries with high cost therapies, we 
believe that the program's quality measurement and program monitoring 
activities will help us to prevent and detect any avoidance of 
appropriately treating at-risk beneficiaries. Furthermore to the extent 
that these lower cost therapies are not the most appropriate and lead 
to subsequent visits or hospitalizations under Parts A and B, then any 
costs associated with not choosing the most appropriate treatment for 
the patient would be reflected in the ACO's per capita expenditures.
    As we indicated in the discussion of establishing and updating the 
benchmark and risk adjusting ACO expenditures, we agree with 
commenters' suggestions for taking a categorical approach to 
calculating ACO expenditures. Consistent with our policies stated 
elsewhere in section II.G. of this final rule, we are adopting a policy 
whereby performance year expenditures will be calculated for cost 
categories for each of the following populations of beneficiaries: 
ESRD, disabled, aged/dual eligible Medicare and Medicaid beneficiaries 
and aged/non-dual eligible Medicare and Medicaid beneficiaries, as 
described in section II.G.2.b. of this final rule.
    Final Decision: We are finalizing our proposal under Sec.  425.602, 
Sec.  425.604, and Sec.  425.606 to take into account payments made 
from the Medicare Trust Fund for Parts A and B services, for assigned 
Medicare FFS beneficiaries, including individual beneficiary 
identifiable payments made under a demonstration, pilot, or time 
limited program, when computing average per capita Medicare 
expenditures under the ACO. Further, we will calculate ACO expenditures 
for each of the following categories of beneficiaries: ESRD, disabled, 
aged/dual eligible Medicare and Medicaid beneficiaries, and aged/non-
dual eligible Medicare and Medicaid beneficiaries. Lastly, as specified 
in section II.C. of this final rule, we will use a 3-month run-out of 
claims data and a completion factor to calculate performance year 
expenditures.
(a) Impact of IME and DSH
    In the proposed rule, we explained that teaching hospitals receive 
additional payment to support medical education through an IME 
adjustment. In addition, hospitals that serve a disproportionate share 
of low-income beneficiaries also receive additional payments, referred 
to as the Medicare DSH adjustment. Many hospitals, especially academic 
medical centers, receive both adjustments, which can provide 
substantial increases in their Medicare payments compared to hospitals 
that do not qualify for these adjustments. We stated our belief that 
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.
    In developing the proposed rule, we 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, we explained that because of our limited statutory 
authority under section 1899(d) of the Act, we could adjust the 
benchmark under this provision by removing IME and DSH payments, but we 
could not also do so in our calculation of performance year

[[Page 67921]]

expenditures. We further noted reasons for including these payments in 
the calculation of both the benchmark and performance year 
expenditures. First, if we were to remove IME and DSH payments from the 
benchmark, the benchmark would be set artificially low relative to the 
performance period, thus making it more difficult for an ACO to achieve 
savings under this program. Second, excluding these payments could 
result in an artificial and incomplete representation of actual 
spending of Medicare Trust Fund dollars. Third, 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 ``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. Lastly, 
including all relevant Medicare costs in an ACO's benchmark would 
maintain sufficient incentives for ACOs to ensure their assigned 
beneficiaries receive care in the most appropriate settings. We 
indicated, for example, that this could advantage ACOs which include 
teaching hospitals or DSH hospitals because their benchmarks would be 
set higher, and they could potentially earn shared savings when they 
refer patients to a more appropriate, less intensive care setting. We 
proposed not to remove IME and DSH payments from the per capita costs 
included in an ACO's benchmark. We invited comment on this proposal.
    Comment: While a few comments supported our proposal not to remove 
IME and DSH payments from the benchmark, most comments urged us to use 
our authority under section 1899(i) of the Act to remove IME and DSH 
from both the benchmark and performance year expenditures. Others 
suggested that section 1899(d) of the Act provides implicit authority 
to adjust the performance year expenditures for ``other factors,'' such 
as IME and DSH payments. Many commenters favoring exclusion of IME and 
DSH payments also recommended that CMS exclude direct graduate medical 
education (DGME) payments.
    Commenters explained that our proposed policy would incentivize 
ACOs to avoid referring beneficiaries to higher-cost academic medical 
centers, thus limiting beneficiary access to high quality, medically 
necessary care. One commenter pointed out that the inclusion of IME and 
DSH payments to teaching hospitals in establishing the benchmark may be 
attractive to ACOs because it would generate a higher benchmark against 
which an ACO could work to achieve savings. However, on the performance 
side, ACOs may see the cost structure of teaching hospitals as too 
prohibitive to achieve the desired savings during the performance 
years. Or, as another commenter suggested, ACOs may be motivated to 
shift their referrals away from academic centers so as to achieve 
apparent savings due to avoiding education-related payments, and not 
due to achieving actual efficiencies. Commenters expressed concern that 
the proposed policy could ultimately decrease support for the societal 
benefits provided by teaching hospitals, including the training of 
health professionals, discovery of advanced treatments, and ensuring 
the presence of the highest level of clinical care in a community. 
Several commenters also suggested that the proposed policy 
disadvantages hospitals serving low income populations, including those 
which serve a large number of Medicare and Medicaid patients.
    Other comments supported inclusion of teaching hospitals in ACOs 
participating in the Shared Savings Program because of their potential 
to achieve the program's goals. One commenter noted that teaching 
hospitals tend to offer a wider variety of technologically 
sophisticated services, such as transplant services, compared to what 
is available at other hospitals, and, as a result, attract sicker 
patients, requiring more complex and costly treatments. This commenter 
further suggested that teaching hospitals are well positioned to 
generate savings and improve quality through better care coordination 
under the Shared Savings Program.
    One commenter noted that certain State policies may lead to a 
discrepancy between Federal DSH payments to hospitals and the amount 
actually received by DSH hospitals. The commenter described a policy in 
the Texas under which a portion of a hospital's Federal DSH payment 
accrues to the State general revenue fund instead of the institution.
    Several commenters suggested alternatives to excluding IME and DSH 
payments. One commenter recommended that CMS exclude teaching and DSH 
payments from the benchmark and savings calculations except for ACOs 
that include at least one major teaching hospital and one hospital that 
receives high DSH payments, or a single hospital that satisfies both 
criteria. This commenter further recommended that we account for other 
reforms under the Affordable Care Act that relate to hospitals that 
receive high DSH payments. Other commenters suggested that, in the 
longer term, CMS use risk adjustment methodologies or additional 
metrics to assess savings and quality improvements specific to 
hospitals receiving IME and DSH payments. In the event that CMS decides 
to favor including IME and DSH costs in the calculation of the 
benchmark and performance year expenditures, one commenter suggested 
that ACOs that include hospitals receiving IME and DSH adjustments 
should have an opportunity to receive additional shared savings 
payments, as we proposed for ACOs including FQHCs and RHCs as 
participants.
    Response: We are modifying our proposal in order to adopt an 
alternate payment methodology that excludes IME and DSH payments from 
ACO benchmark and performance year expenditures, as authorized by 
section 1899(i) of the Act. We believe that care should be provided in 
the most appropriate setting whether it be a physician office, 
outpatient clinic, community hospital or teaching hospital. We further 
recognize the role of teaching hospitals in providing high quality, 
medically necessary care to Medicare beneficiaries. Commenters have 
persuaded us that including IME and DSH payments in determining ACO 
cost performance could create incentives for ACOs to avoid appropriate 
referrals to teaching hospitals in an effort to demonstrate savings. We 
remain committed to the societal benefits supported through IME and DSH 
payments, such as educating the nation's medical workforce, advancing 
the state of medical science, and ensuring access to care by vulnerable 
populations.
    To exercise our authority under section 1899(i) of the Act, we must 
demonstrate that this policy (1) ``* * * does not result in spending 
more for such ACO for such beneficiaries than would otherwise be 
expended * * * if the model were not implemented * * *.'' and (2) ``* * 
* will improve the quality and efficiency of items and services 
furnished under this title.'' First, we believe that the intent of the 
program is to reward the prevention of unnecessary services and 
redundancies in care. By removing IME and DSH payments from benchmark 
and performance year expenditures we can reward more accurately actual 
decreases in unnecessary utilization of health care services. Second, 
excluding IME and DSH payments from determinations of ACO financial 
performance could help ensure participation of hospitals receiving IME 
and DSH payments in

[[Page 67922]]

ACOs, and their engagement in the accountable care model. We believe 
that removing the disincentive for ACOs to refer patients to teaching 
hospitals will help ensure beneficiaries continue to be referred to the 
most appropriate place of service for their care. In combination, these 
factors could result in Medicare beneficiaries receiving higher 
quality, better coordinated and more cost-efficient care in these 
settings. For these reasons, we do not expect that excluding IME and 
DSH payments from the determinations of ACO financial performance will 
result in greater payments to ACOs than would otherwise have been made 
if these payments were included. However, we intend to monitor this 
issue and will revisit it if we determine that excluding these payments 
has resulted in additional program expenditures.
    Compared to other alternatives suggested by commenters, we believe 
that excluding IME and DSH payments from the determination of an ACO's 
eligibility for shared savings is presently the most effective approach 
to ensure participation by hospitals that receive IME and DSH payments. 
We plan to monitor this issue to help us determine whether these 
adjustments should be maintained and may revisit it in future 
rulemaking as we gain more experience with the Shared Savings Program.
    DGME payments are made outside of the payments of Parts A and B 
claims. By virtue of this fact, under the methodology in either our 
proposed or final rules, DGME payments would not be included in an 
ACO's benchmark and performance year expenditures. Therefore, we do not 
need to make adjustments to individual claims for these payments.
    Final Decision: We are modifying our proposal under Sec.  425.602, 
Sec.  425.604, and Sec.  425.606 so as to exclude IME and DSH payments 
from ACO benchmark and performance year expenditures.
(b) Geographic and Other Payment Adjustments
    In addition to IME and DSH payments, in the proposed rule we also 
considered whether to include or exclude a number of other payments 
from ACO benchmark and performance year expenditures.
    In the proposed rule we explained that another factor in the 
Medicare FFS payment systems that could affect an ACO's ability to 
realize savings is the geographic payment adjustment applied under 
Medicare payment systems (for example, the IPPS wage index adjustments 
and the physician fee schedule geographic practice cost index (GPCI) 
adjustments). These adjustments increase and decrease payments under 
these systems to account for the different costs of providing care in 
different areas of the country. We further noted that 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.
    We explained that, as in the case of IME and DSH adjustments, under 
section 1899(d)(1)(B)(i) and (ii) of the Act, we could adjust the 
benchmark by removing geographic payment adjustments, but we could not 
make a similar adjustment to performance year expenditures. Consistent 
with our proposed treatment of IME and DSH payments, we proposed not to 
remove geographic payment adjustments from the calculation of benchmark 
expenditures. We welcomed comment on this issue, and in particular the 
likely impact of this proposal in areas that are affected by temporary 
geographic adjustments.
    Further, we addressed bonus payments and penalties for eligible 
professionals and hospitals. We proposed to exclude from ACO benchmark 
and performance year expenditures incentive payments for eligible 
professionals under section 1848 of the Act for the Physician Quality 
Reporting System, eRx, and EHR. We explained that section 1899(b)(3)(D) 
of the Act provides authority for the Secretary to incorporate these 
incentive payments into the Shared Savings Program, as the Secretary 
determines appropriate. The statute further provides that these 
incentive payments ``shall not be taken into consideration when 
calculating any payments otherwise made under subsection (d).'' We 
reasoned that 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 under other provisions of 
the Act from benchmark and actual expenditures. Therefore, we proposed 
to include in both the computation of actual expenditures and benchmark 
expenditures for Part A and B services any incentive payments not made 
under section 1848 of the Act that are reflected in Part A and B claims 
for services furnished to assigned FFS beneficiaries, such as EHR 
incentive payments to hospitals and payments under 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.
    We explained that 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. We 
stated our belief that 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. We further stated that excluding 
these costs and savings would reduce the chances that incentives that 
were intended to encourage and reward participation in one Medicare 
program would discourage full participation in another.
    Comment: MedPAC, among other commenters, suggested standardizing 
costs for ACOs, so that ACOs would be judged based on their success in 
controlling the growth in service use by their patients isolated from 
payments unrelated to resource use or changes in prices (such as input 
prices in their markets) that may be outside of ACOs' control. These 
commenters were among those that urged CMS to use its implicit 
authority under section 1899(d) of the Act or its authority under 
section 1899(i) of the Act to make additional adjustments to exclude 
certain claims-

[[Page 67923]]

based payments including: IME and DSH payments, geographic adjusters 
(such as payments based on the area wage index), GPCI, HVBP bonuses, 
hospital EHR incentive payments, transitional pass-through payments for 
new technologies, primary care incentive payments, and low cost county 
payments. Absent existing statutory authority to make these 
adjustments, some commenters suggested that CMS request that Congress 
amend the statute to allow for this possibility. The focus of other 
comments was on ensuring that any adjustments, or the lack thereof, to 
the benchmark be applied consistently to the calculation of performance 
year expenditures. One commenter cautioned that the data used for some 
cost-based incentive payments may be flawed.
    Of the comments received, most favored excluding geographic 
payments from benchmark and performance year expenditures. In 
particular, commenters specified the exclusion of payments based on the 
following: area wage index, low cost county payment adjustments, GPCI, 
and the frontier States policy adjustment. Several commenters expressed 
concerns about including geographic payment adjustments in the 
benchmark calculations. One commenter, capturing the concerns indicated 
by several others, explained their view that variations in cost growth 
across geographic areas as well as inaccuracies in current CMS methods 
for accounting for differences in local input and practice costs 
(recently reviewed by the Institute of Medicine) may create incentives 
that reward ACO formation in some markets compared to others. For 
instance, some commenters were especially concerned that the GPCI, 
which differentially advantages providers based on location, is based 
on outdated payment location definitions. Another commenter suggested 
that inclusion of these geographic payment adjustments could have 
unintended consequences for referral patterns by ACOs, such as driving 
referrals based on geographic wage adjustments rather than performance. 
Others were generally concerned about including geographic payment 
adjustments that would disadvantage some ACOs more than others. Several 
commenters urged CMS to consider the findings from the Institute of 
Medicine's study on the impact of geographic adjustment factors on 
Medicare payment policy before addressing geographic payment 
adjustments in the Shared Savings Program.
    Commenters agreed with the proposed exclusion of bonus payments for 
eligible professionals, in particular PQRS, eRx, and EHR incentives 
from benchmark and performance year expenditure calculations. Many 
commenters urged exclusion of all incentive bonus payments and 
penalties from calculations of the benchmark or the performance year 
expenditures.
    Many commenters expressed concern that inclusion of Hospital EHR 
incentives and HVBP payments in ACO cost calculations could send mixed 
messages to hospitals, and could result in misaligned incentives. For 
example, several commenters suggested that by including VBP incentive 
payments in the cost of patient care, the proposed methodology for 
determining average per beneficiary costs would penalize ACOs with high 
quality hospitals. Similarly, as another commenter noted, ACOs could be 
penalized for including hospitals that earn EHR incentives during their 
agreement periods. Commenters described the consequences of including 
hospital EHR incentives and HVBP payments in calculating ACO financial 
performance, namely the proposed policy could force hospitals to choose 
between participating in the Shared Savings Program and other Medicare 
initiatives, which could result in discouraging hospital participation 
in ACOs. One commenter noted the importance of ensuring that incentives 
of the various programs are properly aligned so that their interactions 
support rather than impede each of the programs' goals. To this end, 
most commenters favored excluding EHR incentive payments to hospitals 
and CAHs as well as payments under the HVBP program from ACO benchmark 
and performance year expenditures. Further, one commenter suggested 
excluding EHR incentive payments for hospitals because the EHR bonus 
payments are not calculated on a per beneficiary basis and therefore 
will be difficult to apportion among assigned beneficiaries, and also 
because reductions in expenditures when the EHR incentives expire in 
future years will not be due to any change in the quality of patient 
care furnished by the hospitals.
    Response: Some incentive payments and penalties discussed in the 
proposed rule are included in payments for Parts A and B services, for 
example, payments to hospitals through the Hospital Inpatient Value-
Based Purchasing Program, which will be made under section 1886 of the 
Act. Other incentives we discussed, such as PQRS, eRx, and EHR 
incentives to eligible professionals, hospitals and CAHs are paid 
outside of payments for Parts A and B services. We wish to clarify that 
some bonus payments and penalties paid outside of Part A and B claims 
would be effectively excluded from the benchmark and performance year 
expenditures because of our proposal to take into account payments made 
from the Medicare Trust Fund for Parts A and B services furnished to 
assigned Medicare FFS beneficiaries when determining ACO's historical 
and actual costs. This is because bonus payments made outside of Parts 
A and B claims would not be captured in either the benchmark and 
performance year expenditures.
    We are encouraged by the comments supporting our proposed 
methodology which would exclude payments that fall outside of Part A 
and B claims in calculating the benchmark and performance year 
expenditures; for example, DGME payments, PQRS, eRx, and EHR incentive 
payments for eligible professionals, and EHR incentive payments for 
hospitals.
    We believe it is appropriate to finalize our proposal to include 
all Part A and B expenditures with the exception of the IME and DSH 
adjustments, as previously discussed, in the calculation of the 
benchmark and shared savings payments (that is, we would not 
standardize payments for example, by making adjustments for geographic 
or HVBP payments). We have experience with the PGP demonstration which 
calculated all Part A and B expenditures without such adjustments. 
Unlike the IME/DSH adjustments, we do not believe these other payments 
that are included in Part A and B expenditures (such as geographic 
payment adjustments, and HVBP payments) would result in a significant 
incentive to steer patients away from particular hospitals or providers 
since ACOs will be compared to their own historical expenditure 
benchmark as updated. Additionally, we are concerned about the 
complexity resulting from standardizing payments, given its relatively 
minor impact under our benchmarking methodology. However, we intend to 
evaluate this issue and may address it in future rule-making.
    Final Decision: We are making final our proposal under Sec.  
425.602, Sec.  425.604, and Sec.  425.606 to include all Parts A and B 
expenditures, with the exception of IME and DSH adjustments, in the 
calculation of the benchmark and performance year expenditures. 
However, we intend to evaluate this issue and may address it in future 
rulemaking.

[[Page 67924]]

(3) Trending Forward Prior Year's Experience To Obtain an Initial 
Benchmark
    Section 1899(d)(1)(B)(ii) of the Act requires the use of ``* * * 
the most recent available 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. The statute 
further requires that we update the benchmark 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) Growth Rate as a Benchmark Trending Factor
    The statute does not specify the trending factor to be used in 
estimating the initial benchmark. In the proposed rule we considered 
two options for trending forward the most recent 3 years of per 
beneficiary expenditures for Parts A and B services in order to 
estimate the benchmark for each ACO. We considered trending these 
expenditures forward using growth rates in expenditures for Parts A and 
B services for FFS beneficiaries. We also considered trending 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.
    We explained that a growth rate would more accurately reflect each 
ACO's historical experience. That is, in contrast to a flat dollar 
amount, a growth rate would neither raise the bar for ACOs in 
historically higher growth rate areas nor lower it for ACOs in lower 
growth areas. We also noted that use of a growth rate could perpetuate 
current regional differences in medical expenditures. We explained our 
belief that use of a flat dollar amount for a trending factor was more 
consistent with the method designated by the under section 
1899(d)(1)(B)(ii) of the Act for updating the benchmark during the 
agreement period. Further, we indicated that use of a flat dollar 
trending factor could provide 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.
    We explained that, on balance, we believed 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 proposed 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. We provided an 
example of how an ACO's historical experience would be trended forward. 
We would use 2009, 2010, and 2011 claims year data to set the benchmark 
for an ACO starting its agreement period January 1, 2012. The 2009 and 
2010 data would be trended forward using the factor described later in 
this final rule so that all benchmark dollars would be in 2011 dollars. 
We welcomed comment on this proposal, and especially on whether use of 
a flat dollar amount to trend the benchmark would be more consistent 
with our proposal to update the benchmark as specified under section 
1899(d)(1)(B)(ii) of the Act.
    Comment: Commenters generally agreed with the proposed use of a 
growth rate, as opposed to a flat dollar amount, to trend forward the 
most recent 3 years of per beneficiary expenditures for Parts A and B 
services in order to estimate the benchmark for each ACO. One commenter 
expressed concerns that a flat dollar trending factor would not account 
for either high cost geographic areas or annual growth in payments to 
hospitals (such as IME and DSH payments) outside the ACO's control, and 
that the flat dollar amount would be based on growth rates across all 
Medicare beneficiaries (those assigned to and not assigned to ACOs). 
Based on CMS' experience with the PGP demonstration and the 
benchmarking methodology for the PGP Transition demonstration, one 
commenter generally recommended that we use separate benchmarks for 
specific groups of beneficiaries--specifically the aged, disabled and 
ESRD populations--to account for significant variations in the costs of 
these beneficiaries. Another commenter suggested that we weight the 
concentration of Medicaid spending by categorizing patients into tiers 
based on their level of Medicaid spending.
    Response: We are finalizing our proposal to use a growth rate as a 
trending factor. Further, we were persuaded by comments pointing to the 
need to account for variation in costs between different populations of 
Medicare beneficiaries. We believe that trending forward the benchmark 
expenditures, and updating the benchmark (as explained later in this 
final rule), for several categories of beneficiaries would provide a 
more accurate benchmark compared to the methodology we proposed. 
Expanding upon the commenter's suggestions, we are finalizing our 
proposal and clarifying that we will add to our methodology for 
trending the benchmark the calculation of separate cost categories for 
each of the following populations of beneficiaries: ESRD, disabled, 
aged/dual eligible Medicare and Medicaid beneficiaries, and aged/non-
dual eligible Medicare and Medicaid beneficiaries, as specified in 
section II.G.2.b. of this final rule. We believe that trending 
historical expenditures for these four categories provides a more 
complete and accurate benchmark for an ACO since it captures more 
accurately the proportion of ACO assigned patients that make up these 
categories, their expenditure growth patterns, and changes in the 
health status of these patients over time. It will also enable us to 
provide a more accurate risk adjustment as described in section 
II.G.2.c.1. of this final rule for an ACO's patient population, by 
capturing changes in the composition of the patient population over 
time, while reducing the impact of changes in the health status of an 
ACO's population due to more complete and accurate coding.
    Final Decision: In establishing an ACO's benchmark, we are 
finalizing our proposal under Sec.  425.602 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. That is, we 
will trend BY1 and BY2 forward, based on a growth rate, to BY3 dollars. 
Further, to trend forward the benchmark, we will make calculations for 
separate cost categories for each of the following populations of 
beneficiaries: ESRD, disabled, aged/dual eligible Medicare and Medicaid 
beneficiaries and aged/non-dual eligible Medicare and Medicaid 
beneficiaries.
(b) National Growth Rate as a Benchmark Trending Factor
    In the proposed rule, we considered use of national, State or local 
growth factors for trending the benchmark. We explained that using the 
national growth rate in Medicare A and B FFS expenditures appeared to 
be more consistent with the methodology that was specified in statute 
for updating each ACO's benchmark. Further, a national growth rate 
would allow a single growth factor to be applied to all

[[Page 67925]]

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 below the national average that 
would benefit from having a relatively higher base, which increases the 
chances for shared saving, while discouraging the development of ACOs 
in areas with historically higher growth rates above the national 
average that would have a relatively lower base.
    In contrast, we explained that 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's 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 balanced providing a more accurate reflection of local 
experience with not rewarding historical growth higher than the 
national average. We believed this method would instill strong saving 
incentives for ACOs in both high-cost growth and low-cost growth areas.
    We proposed to employ the national growth rate in Medicare Parts A 
and B expenditures for FFS beneficiaries for trending forward the most 
recent 3 years of per beneficiary expenditures for Parts A and B 
services in order to estimate the benchmark for each ACO. We believed 
this approach would help to ensure that ACOs in both high spending, 
high growth and low spending, low growth areas would have appropriate 
incentives to participate in the Shared Savings Program. We further 
indicated that this approach would allow us to move toward establishing 
a national standard to calculate and measure ACO financial performance. 
We sought comment on this proposal and on the alternatives to using a 
national growth rate.
    Comment: Some commenters supported the proposal to employ a 
national growth rate, however many more favored use of either local, 
regional, or State growth rates. Commenters expressed concerns that the 
use of a national growth rate would discourage participation of ACOs in 
higher cost areas, including areas where many academic medical centers 
are located, where there is a high prevalence of chronic illness, or in 
States (such as Vermont) that have increased health care spending due 
to initiatives to expand health insurance coverage. These commenters 
suggested that benchmarking using more localized growth rates could 
reflect the experience of ACOs in different geographic settings, as 
well as local economies and local populations, and thereby encourage 
ACOs to participate nationwide, instead of only in certain pockets of 
the country. Others urged CMS to adopt policies which would not 
disadvantage already efficient providers or those operating in lower 
cost areas of the country.
    Several commenters recognized the importance of using national 
growth rates, for rationalizing overall spending across regions 
nationwide, but thought it premature to introduce this approach to 
benchmarking at the outset of the program: suggesting instead that we 
begin with a local or regional growth rate and migrate to a national 
growth rate over time. One commenter favored the alternate option we 
considered, to trend the benchmark by the lower of the national 
projected growth rate or the State or the local growth rate, whereas 
several others suggested using the lower of either the national or 
local growth rates. In addition, commenters offered a number of 
alternative approaches for trending benchmark expenditures, including 
the following:
     Use a blend of national average growth and absolute dollar 
growth, such as that planned for the Pioneer Model ACOs.
     Use the ACO's own percentage growth rate to trend forward 
the historical benchmark data.
     Account for local variation after analyzing national and 
local growth rates.
     Account for adjustments for new technology costs.
    Response: We believe that implementing a historical benchmark 
trending factor using the national growth rate for Parts A and B FFS 
expenditures appropriately balances commenters' concerns that benchmark 
trending should encourage participation among providers that are 
already efficient or operating in low cost regions without unduly 
rewarding ACOs in high-cost areas. The net effect of using the same 
trending factor for all ACOs will be to provide a relatively higher 
expenditure benchmark for low-growth/low spending ACOs and a relatively 
lower benchmark for high growth/high spending ACOs. ACOs in high cost 
high growth areas have an incentive to reduce their rate of growth more 
to bring their costs more in line with the national average; while ACOs 
in low cost low growth areas have an incentive to continue to maintain 
or improve their overall lower spending levels. Therefore we are 
finalizing our proposal to use a national growth rate in Medicare Parts 
A and B expenditures for FFS beneficiaries for trending forward the 
most recent 3 years of per beneficiary expenditures for Parts A and B 
services in order to estimate the benchmark for each ACO.
    As we proposed, using CMS Office of the Actuary national Medicare 
expenditure data for each of the years making up the historical 
benchmark, we will determine the national growth rates for the first 
and second benchmark years and trend expenditures for these benchmark 
years forward to the third benchmark year (BY3) dollars. Further, to 
trend forward the benchmark, we will make calculations for separate 
cost categories for each of the following populations of beneficiaries: 
ESRD, disabled, aged/dual eligible and aged/non-dual eligible.
    Final Decision: We are finalizing our proposal under Sec.  425.602 
to use a national growth rate in Medicare Parts A and B expenditures 
for FFS beneficiaries for trending forward the most recent 3 years of 
per beneficiary expenditures for Parts A and B services in order to 
estimate the benchmark for each ACO. In doing so, we will make 
calculations for separate cost categories for each of the following 
populations of beneficiaries: ESRD, disabled, aged/dual eligible and 
aged/non-dual eligible.
d. Updating the Benchmark During the Agreement Period
    Section 1899(d)(1)(B)(ii) of the Act states that the benchmark 
shall 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.'' We considered two options for updating the benchmark 
during the agreement period, but proposed to use a flat dollar amount 
equivalent of the absolute amount of growth in the national FFS 
expenditures. We explained our view that in enacting section 
1899(d)(1)(B)(ii) of the Act, Congress demonstrated interest in 
mitigating some of the regional differences in Medicare spending among 
ACOs and that this approach would help to ensure that ACOs in both high 
spending/high growth and low spending/low growth areas would have 
appropriate incentives to participate in the Shared Savings Program. We 
described the effect this update methodology might have 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

[[Page 67926]]

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. We acknowledged that this approach to updating the benchmark 
could contribute to selective program participation by participants in 
low growth areas that could result in Medicare costs due to an increase 
in the amount of bonus payments for unearned savings.
    We also considered and sought comment on a second option which 
would be to use our authority under section 1899(i) of the Act 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. This 
option could instill strong saving incentives for ACOs in low-cost 
areas, as well as for those in high-cost areas. Incorporating more 
localized growth factors reflects the expenditure and growth patterns 
within the geographic area served by ACO participants, 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, however, can advantage ACOs in low cost/low growth 
areas that have already achieved greater efficiencies, while still 
offering a strong incentive for those in high cost/high growth areas to 
reduce their spending.
    Comment: Commenters were mixed in their preference for either the 
proposed policy of updating benchmark by absolute growth in national 
FFS expenditures, or use of the lower of the national projected 
absolute amount or the local/State projected absolute amount. For 
example, one commenter disagreed with the option to use the lower of 
the national projected absolute amount or the local/State projected 
absolute amount, suggesting it negatively prejudges all high growth 
sectors without regard to the underlying clinical or quality issues. 
However, another commenter favored this approach because this 
adjustment would afford ACOs the greatest potential for achieving 
shared savings and minimize the threat of an ACO being disadvantaged by 
virtue of pricing within its geographic location. Along these lines, 
one commenter felt the proposed approach offered insufficient 
incentives for efficient providers to form an ACO. More generally, many 
commenters urged CMS to adopt policies to encourage participation by 
organizations that are already efficient or in low cost areas.
    Several commenters urged use of regional or market-specific expense 
data for calculating the benchmark update. One commenter questioned 
whether the update would occur in the first performance year, as we 
specifically mentioned the potential effect resulting from the update 
in the second and third performance years.
    Response: We considered commenters' suggested alternatives, but on 
the whole we believe our proposed method for updating the benchmark 
could best address the program's goals and commenters' overall concerns 
about the participation of efficient/low cost ACOs. The net effect of 
using the same update for all ACOs is to provide a relatively higher 
expenditure benchmark for low growth/low spending ACOs and a relatively 
lower benchmark for high growth/high spending ACOs. Further, with a 
flat dollar increase to the benchmark equivalent of the absolute amount 
of growth in the national FFS expenditures, ACOs in high cost, high 
growth areas must reduce their rate of growth more (compared to ACOs in 
low cost, low growth areas) to bring their costs in line with the 
national average.
    In light of the alternatives we considered, we disagree with the 
commenter who indicated that the proposed updating methodology offers 
insufficient incentives for efficient providers to form ACOs. 
Benchmarks for efficient/low cost providers updated to account for 
growth in regional or local expenditures would be comparatively lower, 
and therefore less advantageous, than benchmarks updated based on 
national experience. Thus, under the proposed update methodology, low 
cost ACOs could achieve a greater amount of savings, based on the same 
performance, than a comparable ACO in a higher cost area. Moreover, we 
believe that a benchmark methodology which encourages providers in 
higher cost areas to bring their spending more in line with the 
national average is a desirable outcome in furtherance of the program's 
goal of lowering Medicare expenditures. Lastly, updating the benchmark 
during the agreement period using a national growth factor aligns with 
our approach of using a national growth rate to trend forward base year 
expenditures to obtain the initial benchmark. This could facilitate 
analysis of trends in ACO financial performance relative to national 
trends in Medicare expenditures. For these reasons, we are finalizing 
our proposal to use the flat dollar amount equivalent of the projected 
absolute amount of growth in the national FFS expenditures to update 
the benchmark. Also, to clarify, the proposed update to the benchmark 
will occur in each year of the agreement period.
    Comment: Based on CMS' experience with the PGP demonstration and 
the benchmarking methodology for the PGP Transition demonstration, one 
commenter generally recommended that we use separate benchmarks for 
specific groups of beneficiaries--specifically the aged, disabled and 
ESRD populations--to account for significant variations in the costs of 
these beneficiaries. Another commenter suggested that we weight the 
concentration of Medicaid spending by categorizing patients into tiers 
based on their level of Medicaid spending. Another commenter asked 
whether the projected absolute amount of growth in national per capita 
expenditures for Parts A and B would be scaled to reflect risk 
differences between the ACO and the Medicare average.
    Response: To clarify, we will not risk adjust (that is, based on 
the CMS-HCC model) the flat dollar amount used to update the benchmark. 
However, as discussed in section II.G.2.c.(1). of this final rule, the 
updated benchmark will be adjusted relative to the risk profile of the 
performance year assigned beneficiaries. We agree with commenter's 
concerns about the need to account for variation in costs between 
different populations of Medicare beneficiaries. To align with our 
modified methodology for trending the benchmark, we will also make 
category-specific adjustments when updating the benchmark. We believe 
that updating the benchmark for several categories of beneficiaries 
would provide a more accurate benchmark compared to what we proposed, 
as applying national growth dollars to each of the benchmark strata 
separately reflects the different expected growth rates for these types 
of beneficiaries. Consistent with our policies stated elsewhere in 
section II.G. of this final rule, we are modifying our proposal to 
incorporate into the methodology for updating the benchmark the 
calculation of separate cost categories for each of the following 
populations of beneficiaries: ESRD, disabled, aged/dual eligible and 
aged/non-dual eligible.
    Final Decision: We are finalizing our proposal under Sec.  425.602 
to update the benchmark by the projected absolute amount of growth in 
national per capita expenditures for Parts A and B services

[[Page 67927]]

under the original Medicare fee-for-service program using data from 
CMS' Office of the Actuary. Further, in updating the benchmark, we will 
make calculations for separate cost categories for each of the 
following populations of beneficiaries: ESRD, disabled, aged/dual 
eligible and aged/non-dual eligible.
e. Determining Shared Savings
(1) Minimum Savings Rate
    Section 1899(d)(1)(B)(i) of the Act states that ``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 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 * * *.'' We 
call this percent the minimum savings rate (MSR). Section 
1899(d)(1)(B)(i) of the Act further specifies 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)(2) 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.'' We call the percent paid to the ACO the 
shared savings rate.
    As we discussed in the proposed rule, 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, under the one-sided model, 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 Medicare 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 real quality and 
efficiency gains, and offer greater protection to the Medicare Trust 
Funds. However, due to the larger barrier to achieving 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. In the proposed rule, we 
stated that we believed 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.
(a) One-Sided Model
    For the one-sided model we proposed 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. 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. We 
proposed that 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.F. of this final rule.
    In order to improve the opportunity for groups of solo and small 
practices to participate in the Shared Savings Program, we proposed 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 RFI 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 
RFI 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 
intervals used to establish MSRs so that smaller practices would have 
relatively lower MSRs. Conversely, in recognition that they are

[[Page 67928]]

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.
    We proposed that the MSRs would be 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 proposed to set the confidence interval at 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 proposed to set the 
confidence interval at 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 proposed 
blending the MSRs between the two neighboring confidence intervals, 
resulting in the MSRs as shown later in the document in Table 6. We 
specified 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 its 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 assigned beneficiaries, 
we proposed that the MSR would not be allowed to fall below 2 percent. 
This lower bound was 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 proposed 
to use in the two-sided model and is the minimum level that was used in 
the PGP Demonstration.
    The proposed confidence intervals were determined assuming that the 
variation in the per capita expenditure growth for a particular ACO 
would be equal to the variation in per capita expenditure growth 
nationally. We acknowledged that this would not be 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 would overstate the relative confidence associated 
with an increasing group size. This would be compensated for in two 
ways: (1) the 2 percent floor; and (2) increasing the confidence 
interval as group size increases.

      Table 6--Proposed Minimum Savings Rate By Number of Assigned
                              Beneficiaries
                            [One-sided model]
------------------------------------------------------------------------
                                           MSR (low end    MSR (high end
                                           of  assigned    of  assigned
         Number of beneficiaries          beneficiaries)  beneficiaries)
                                             (percent)       (percent)
------------------------------------------------------------------------
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
------------------------------------------------------------------------

    In the proposed rule, we stated that we would welcome comment on 
the most appropriate means to establish the MSR for an ACO, including 
the appropriate confidence intervals.
    Comment: Several comments supported the proposed MSRs under the 
one-sided model. In particular, MedPAC specified that CMS should keep 
the proposed MSRs if it allows for a shared savings only track in the 
first agreement period. Most comments on this topic, however, expressed 
concern that the proposed methodology for establishing the MSR on a 
sliding scale based on population size would disadvantage smaller ACOs 
and discourage participation, particularly by setting a bar that is too 
high to encourage participation by smaller ACOs, including ACOs likely 
to form in rural areas and those largely comprised of small- and 
medium-sized physician practices. Some commenters considered the 
potential long term consequences of this dynamic, indicating it could 
ultimately result in diminished provider competition in some markets or 
stifle the development of innovative care coordination strategies.
    Some commenters suggested it would be unfair to hold smaller ACOs 
to what they perceived to be a relatively higher MSR than what exists 
for larger ACOs. One commenter indicated that the MSR is financially 
beneficial to CMS at the expense of ACOs. Further, as other commenters 
indicated, smaller ACOs are likely to be in greatest need of additional 
capital to support start-up and operational expenses. One commenter 
suggested our proposal could make it harder for ACOs to continue to 
achieve savings in excess of the MSR as they become increasingly 
efficient over time. Some commenters suggested the MSRs may make it 
impossible for smaller ACOs to ever share in savings, particularly 
given the program's rigorous quality standards.
    Thus, commenters recommended a variety of alternatives to the 
proposed MSRs. Most commonly, commenters suggested that we either-- (1) 
apply a common threshold rather than a sliding scale, such as a flat 1 
or 2 percent MSR, for all ACOs; or (2) reduce the MSR that

[[Page 67929]]

smaller ACOs must achieve. Several comments suggested that CMS 
generally adjust the sliding scale to be based on lower thresholds (for 
example, a range of 2 to 3 percent), eliminate the MSR, or eliminate it 
for certain ACOs. In lieu of an MSR, commenters offered alternate 
suggestions to protect against random variation such as making the 
percent of shared savings for which a provider is eligible inversely 
proportional to their percentile in expenditures per Medicare 
beneficiary. A number of commenters offered that other aspects of the 
proposed program, for example, the rigorous quality performance 
standards or the requirement that all ACOs ultimately accept downside 
performance risk, are sufficient to ensure savings are a result of 
actions by ACOs and obviate the need for an MSR. One commenter 
suggested a blended approach such that if an ACO exceeds the 2 percent 
MSR, it would be eligible for a lower sharing rate, but would not 
receive the full sharing rate unless it exceeded its statistically 
adjusted MSR. Another commenter suggested a rolling confidence interval 
option for small ACOs that would allow them to cumulate cost experience 
(and savings) over time. Under this approach, CMS would base the ACO's 
MSR on the sum of its assigned beneficiaries across all 3 years of 
participation (for example, a 5,000 member ACO would have the CI of a 
15,000 member ACO over 3 years). Further, the commenter recommended 
allowing ACOs to include their entire patient base, including privately 
insured patients for purposes of computing their MSR. Another commenter 
asked whether CMS would consider rewarding those ACOs who can maintain 
lower costs than their initial MSR for 3 years. Finally, one commenter 
asked that we defend our assumption that variation within an ACO is 
comparable to national variation.
    Response: We agree with comments by MedPAC and others supporting 
the proposed sliding scale, based on the size of the ACO's assigned 
population, to establish the MSR for ACOs under the one-sided model. In 
particular, given our decision to allow for a shared savings only 
model, we are following MedPAC's advice to retain the proposed MSR 
methodology. Alternatives suggested by commenters that allow for lower 
MSRs for smaller ACOs under the one-sided model (such as a flat 1 or 2 
percent MSR for all ACOs) provide insufficient protection to the 
Medicare Trust Funds against shared savings resulting from random 
variation, absent some additional protection such as accountability for 
shared losses. We believe the relatively lower MSR under the two-sided 
model is appropriate since there is a balancing of the risk of random 
variation because the ACO is accountable for losses. Thus, while there 
is some minimal risk that an ACO will achieve savings due to random 
variation, there is also some risk that the ACO will incur losses due 
to random variation. Therefore, we find it appropriate to finalize the 
proposal to establish MSRs for ACOs under the one-sided model to 
protect the Trust Fund from paying out incentives for random variations 
in costs rather than for real improvements made by ACOs. With respect 
to the comments that expressed concern that our proposed MSR 
methodology did not provide appropriate incentives for smaller ACOs, we 
believe the change to our proposed methodology to provide for a shared 
savings-only track, in addition to other changes to increase the 
financial attractiveness of the program, will be sufficient to 
encourage participation.
    The proposed MSRs were defined to recognize variation due to the 
number of beneficiaries assigned to the ACO, as required by the 
statute. Therefore in developing the proposed MSRs, we examined 
variation in expenditure growth rates for groups sampled on a national 
basis in order to isolate variation based on group size rather than 
regional factors that can cause added variation relative to the 
national average growth rate.
    Final Decision: We are finalizing our proposal under Sec.  425.604 
to use a sliding scale, based on the size of the ACO's assigned 
population, to establish the MSR for ACOs participating under the one-
sided model.
(b) Two-Sided Model
    In the proposed rule, we stated 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 noted that we believed it was more appropriate to 
employ a fixed minimum savings rate under this model than under the 
one-sided model. First, given the potential for shared loss, the 
greater predictability of a fixed MSR 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 PGP demonstration and consistent with the lowest 
applicable MSR under the one-sided model, we proposed to adopt a fixed 
2 percent MSR for organizations operating under the two-sided model, in 
place of the variable minimum savings rate for organizations operating 
under the one-sided model.
    Comment: Commenters' suggestions for revising the proposed policy 
for the MSR for ACOs under the two-sided model largely tracked those 
described previously for the one-sided model. For instance, several 
commenters recommended removing the MSR from the two-sided model given 
ACOs' accountability for shared savings and losses under this model.
    Response: We are finalizing our proposal to adopt a fixed 2 percent 
MSR for ACOs under the two-sided model. We find support for the 
application of a flat 2 percent MSR to ACOs participating in the two-
sided model in commenters' suggestions that we apply a common threshold 
of 1 or 2 percent to all ACOs. We disagree with suggestions that we 
reduce, or eliminate altogether, the MSR in the two-sided model. 
Although greater protection to the Medicare Trust Fund is afforded by 
ACOs accepting the risk of paying Medicare back for losses, there 
remains a need to protect the Trust Fund from paying out incentives for 
random variations in costs rather than for real improvements made by 
ACOs. We continue to believe that a flat 2 percent MSR is appropriate 
for the two-sided model. As explained previously, unlike the one-sided 
model, under the two-sided model there is a balancing of risk of random 
variation because the ACO is accountable for losses. Thus, while there 
is some minimal risk that an ACO will achieve savings due to random 
variation, there is also some risk that the ACO will incur losses due 
to random variation. Further, as indicated in the proposed rule, a 2 
percent MSR reflects the lowest MSR under the one-sided model and is 
also the MSR that was used in the PGP demonstration.
    Final Decision: We are finalizing our proposal under Sec.  425.606 
to apply a flat 2 percent MSR to all ACOs participating under the two-
sided model.
(2) Quality Performance Sharing Rate
    As discussed in section II.F. of the proposed rule (76 FR 19620 and 
19621), we proposed that ACOs choosing to participate in the one-sided 
model could share in savings if they exceed a MSR. For those ACOs whose 
savings exceed the MSR in the one-sided model, we proposed 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

[[Page 67930]]

benchmark. We also proposed 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 the 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. Under the two-sided model, 
we proposed that an ACO that realized savings against its benchmark 
could qualify for a final sharing rate of up to 65 percent if it was 
eligible for the maximum adjustments. The 65 percent final sharing rate 
was comprised of a savings rate of up to 60 percent for quality 
performance, plus 5 percentage points for including FQHCs and/or RHCs 
as ACO participants.
    Comment: Commenters favored allowing higher sharing rates based on 
ACO quality performance for both the one-sided and two-sided models, 
and offered a variety of rationales for increasing the sharing rate. 
Typically, commenters suggested that higher sharing rates would better 
incent participation, particularly considering the costs of ACO 
formation. Others indicated that the proposed shared savings 
percentages were too low when compared with other Medicare shared 
savings initiatives, such as the 80 percent shared savings rate under 
the Physician Group Practice Demonstration, and the higher sharing 
rates proposed by the Innovation Center for Pioneer Model ACOs.
    Commenters suggested sharing rates ranging from 50 to 95 percent 
(most commonly 75 percent) under the one-sided model and 66 to 95 
percent (most commonly 80 percent) under the two-sided model. MedPAC 
recommended increasing the sharing rates for both models, suggesting, 
for example, offering a savings rate of up to 75 percent for the one-
sided model and 95 percent for the two-sided model for the first 
agreement period. Several commenters suggested we initially establish 
higher sharing rates than what was proposed, while incrementally 
decreasing the maximum sharing rate over time; for instance, setting 
the sharing rate at 75 percent or 95 percent for the initial 
performance year and then gradually tapering it off in subsequent 
years. Several commenters suggested approaches whereby ACOs meeting a 
quality standard would obtain a guaranteed minimum amount of shared 
savings, and thereafter receive an additional percentage of shared 
savings on a sliding scale based on higher quality performance. For 
instance, creating a minimum sharing rate of 50 percent for Track 1 and 
60 percent for Track 2, and using an ACO's quality score to award 
additional shared savings up to a maximum sharing rate of 80 percent 
for Track 1 and 90 percent for Track 2.
    One commenter suggested the sharing rates should be the same for 
both models. More commonly, however, commenters supported a policy of 
establishing different sharing rates for the two models, to provide a 
greater reward to ACOs taking risk. Some commenters recommended that 
CMS increase the difference in sharing rates between the models. 
Several commenters suggested maintaining or lowering the proposed 
sharing rate for the one-sided model, while increasing the sharing rate 
for the two-sided model. One commenter suggested downwardly adjusting 
the sharing rate for the one-sided model over time to encourage ACOs to 
move to the two-sided model. Others suggested higher sharing rates for 
certain types of ACOs, such as early adopters of the ACO model, or ACOs 
in low cost areas. Overall, commenters' suggestions for the amount of 
difference in the sharing rates between the two models ranged from zero 
to 40 percent, however most commenters tended to recommend differential 
of between 5 and 25 percent.
    Response: We carefully considered commenters' requests for a higher 
sharing rate based on quality performance for both the one-sided and 
two-sided model as a means of encouraging participation in the program.
    In the proposed rule we explained that the sharing rate based on 
quality performance was a function of equally weighting the five 
proposed domains for quality measurement. As such, under the one-sided 
model, each domain would account for 10 percent, for a total sharing 
rate of 50 percent. We further specified the need to differentiate 
between the program's models--to incent ACOs to take risk by offering 
the possibility of a greater financial reward--and proposed the two-
sided model would have a maximum sharing rate based on quality 
performance of 60 percent, equally apportioned among the five 
measurement domains.
    As specified in section II.F. of this final rule, in the final rule 
we have reduced the number of quality measures, and consequently are 
finalizing a quality performance standard which includes 4 domains that 
will be equally weighted for purposes of quality scoring. As discussed 
elsewhere in this section of this final rule, we are modifying our 
proposals to provide greater opportunity for ACOs to achieve shared 
savings, for instance, by allowing first dollar sharing under the one-
sided model and raising the payment performance limits for both models.
    We considered how to address the opposing views presented in the 
comments on the sharing rate for the one-sided model, including 
recommendations that providing a higher sharing rate would encourage 
participation in the program, and recommendations that we maintain or 
lower the sharing rate to ensure a sufficient incentive for ACOs to 
participate in the two-sided model. Given our modifications to the 
quality performance standard and financial models which will make it 
easier for ACOs to share in a savings, we believe that maintaining the 
proposed sharing rate for the one-sided model offers a fair balance 
between commenters' suggestions that we provide greater opportunities 
for ACOs to share in savings while also remaining protective of the 
Trust Funds.
    We appreciate commenters' support of the need to differentiate 
financially between the two models by offering a higher sharing rate to 
ACOs under the two-sided model. We continue to believe that risk-based 
arrangements are more effective in driving behavior changes by 
providers, and therefore we should ensure there are appropriate 
incentives for ACOs to enter the program's two-sided model. We agree 
with commenters' recommendations that support our proposal to offer 
ACOs under the two-sided model a higher sharing rate than those under 
the one-sided model, as a means of encouraging ACOs to accept downside 
risk. Further, our proposal to differentiate the sharing rates for the 
models by 10 percent aligns with commenters' preference for a 
difference in sharing rates in the range of 5 to 25 percent. When 
compared to the 50 percent sharing rate based on quality for the one-
sided model, we believe that a 60 percent sharing rate for the two-
sided model offers an appropriate additional incentive for ACOs to 
accept downside risk.
    Final Decision: We are finalizing our proposal under Sec.  425.604 
and Sec.  425.606 that ACOs under the one-sided model can earn up to 50 
percent of total savings based on quality performance and ACOs under 
the two-sided model can earn up to 60 percent of total savings based on 
quality performance.
(3) Additional Shared Savings Payments
    In the proposed rule, we recognized the important role that FQHCs 
and RHCs play as safety net providers and in improving access to 
primary care for Medicare and Medicaid beneficiaries. Under the 
proposed rule, FQHCs and RHCs were unable to participate

[[Page 67931]]

independently in this program by forming their own ACOs. As a result, 
we believed that providing incentives to ACOs that include FQHCs and/or 
RHCs as ACO participants was in the interest of the Shared Savings 
Program as including these types of entities could promote care 
coordination and the delivery of efficient, high-quality health care. 
We proposed that ACOs could be eligible to receive higher sharing 
rates, based on a sliding scale, for including FQHCs and RHCs as ACO 
participants. Under the one-sided model we proposed up to a 2.5 
percentage point increase in the sharing rate for ACOs that include 
these entities as ACO participants. Under the two-sided model we 
proposed up to a 5.0 percentage point increase in the sharing rate for 
ACOs that include these entities as ACO participants. We proposed 
establishing a sliding scale payment, outlined in the Table 7, based on 
the number of Medicare FFS beneficiaries with one or more visit at an 
ACO participant FQHC or RHC during the performance year.

 Table 7--Sliding Scale Payment Based on Number of Beneficiary Visits at
                     an ACO Participant FQHC or RHC
------------------------------------------------------------------------
                                            Percentage      Percentage
       Percentage of ACO assigned         point increase  point increase
 beneficiaries with 1 or more visits to     in shared        in shared
 an ACO participant FQHC/RHC during the    savings rate    savings rate
            performance year                (one-sided      (two-sided
                                              model)          model)
------------------------------------------------------------------------
1-10 percent...........................              0.5             1.0
11-20 percent..........................              1               2.0
21-30 percent..........................              1.5             3.0
31-40 percent..........................              2               4.0
41-50 percent..........................              2.5             5.0
------------------------------------------------------------------------

    We also proposed 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. Further, we proposed to define 
FQHCs and RHCs, for the purpose of awarding this payment preference, as 
these terms are defined in 42 CFR 405.2401(b) of our regulations. We 
sought comment on alternate options for establishing a payment 
preference with a 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.
    Comment: While many commenters supported the concept of the 
proposed incentive, others found the incentive inadequate to encourage 
meaningful FQHC and RHC participation in ACOs. One commenter envisioned 
that FQHCs and RHCs would be ``latched on'' to the ACO in an attempt to 
achieve a greater share of savings. Commenters were also critical of 
the incentive's focus on care provided to ACO beneficiaries at FQHCs 
and RHCs when we proposed to assign beneficiaries to ACOs based on 
their use of other primary care providers. As one commenter explained, 
the incentive assumes an unlikely scenario where non-FQHC providers 
will refer a patient to an FQHC for care. Others considered the 
incentive, based on a one visit rule, ripe for gaming: ACOs might 
schedule their beneficiaries to have one visit at an FQHC or RHC to 
obtain the incentive, which could result in ``primary care 
discontinuities.'' One commenter questioned whether the incentive was 
in line with the letter and spirit of the Affordable Care Act.
    Commenters provided various suggestions for how to revise the 
structure of the incentive, such as the following:
     Increasing the amount of the incentive, for instance to a 
10 percent bonus under both models.
     Including Method I CAHs in the incentive payment 
structure.
     Providing additional payments for including multiple 
FQHCs.

Commenters also offered alternatives. For instance, one commenter 
recommended that CMS create incentives for FQHCs and RHCs to 
participate in ACOs, rather than to reward ACOs for including these 
organizations.
    Response: In this final rule, we are eliminating our proposal to 
provide an incentive for ACOs to include FQHCs and/or RHCs as 
participants. We proposed this incentive to address our inability to 
determine a statutorily satisfactory way of assigning beneficiaries to 
an ACO on the basis of services furnished by these entities. However, 
given that we have determined an appropriate methodology for assigning 
beneficiaries to ACOs on the basis of services furnished by FQHCs and 
RHCs, therefore allowing FQHCs and RHCs to more fully participate in 
the program, we believe the incentive is unnecessary and has the 
potential to cause unintended consequences as articulated by 
commenters.
    Final Decision: The final rule will not contain a sliding scale-
based increase in the shared savings rate, up to 2.5 additional 
percentage points under the one-sided model and up to 5 additional 
percentage points under the two-sided model, for ACOs that include an 
FQHC or RHC as an ACO participant.
    In the proposed rule we also discussed our interest in encouraging 
providers who serve a large portion of dual eligible beneficiaries to 
participate in the Medicare Shared Savings Program. We explained that 
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 FFS 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.
    We also stated in the proposed rule that 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 stated our 
belief 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

[[Page 67932]]

substantial behavior changes conducive to improved quality and cost 
savings.
    We sought comment on methods to provide preference to ACOs that 
serve a large dual-eligible population or that enter into and maintain 
similar arrangements with other payers. Specifically, we sought 
suggestions to encourage accountability for dual-eligible beneficiaries 
and participation in similar arrangements with other types of payers.
    Comment: Comments described the health needs of dual eligible 
beneficiaries and the potential challenges of managing this population. 
Some commenters saw the need for CMS to ensure participation by 
providers that care for dual eligible beneficiaries as part of the 
larger issue of the need for CMS to support safety net providers and 
ACOs more generally. Many commenters favored policies that financially 
reward ACOs whose assigned populations include a larger proportion of 
dual eligible beneficiaries. Commenters offered a variety of 
suggestions on how to structure this payment preference, including the 
following:
     Higher shared savings rates for ACOs that serve a high 
percentage of dual eligible beneficiaries, similar to the increased 
sharing rate proposed for ACOs which included FQHCs and RHCs. 
Commenters' suggestions for higher sharing rates typically ranged from 
2.5 percentage points to 20 percent under the one-sided model and 5 
percentage points to 25 percent under the two-sided model.
     Additional incentives coupled with alternative payment 
models for an ACO whose patient mix is comprised mostly of Medicaid 
patients, and which care for large percentages for dual eligible 
beneficiaries.
     Exempt ACOs that treat a larger proportion of dual 
eligible beneficiaries from the 2 percent net sharing rate.
     Revised benchmarking methodology (for example, a 
``separate savings target'') for ACOs that serve a large population of 
dual eligible beneficiaries.

Several commenters raised concerns about creating incentives for ACOs 
to care for dual eligible beneficiaries. One commenter noted that the 
proposed assignment methodology, under which FQHCs would not be the 
basis for assignment, would exclude many dual eligible beneficiaries 
from ACOs. By virtue of this policy, the commenter perceived proposed 
monitoring for avoidance of at-risk beneficiaries and the proposed 
rule's emphasis on providing incentives for ACOs to include dual 
eligible beneficiaries to be flawed. Another commenter, pointing to the 
unique health care needs of dual eligible beneficiaries, cautioned that 
ACOs should have the capacity and ability to serve these individuals; 
suggesting that CMS condition any dual eligible incentive payment on an 
ACO not only serving a large proportion of dual eligible beneficiaries, 
but also having the appropriate infrastructure to coordinate care and 
benefits for this population. One commenter opposed the use of 
financial incentives to encourage ACOs to serve dual eligible 
beneficiaries or to encourage providers serving duals to become ACOs, 
based on the belief that such financial incentives in the early days of 
the program may distort provider behavior in ways that are detrimental 
to beneficiaries and costly to the program. To effectively serve this 
population, this commenter indicated, for example, that we should 
ensure that ACO providers are Medicaid participating providers, and 
that an ACO serving many dual eligible beneficiaries has a relationship 
with the State Medicaid agency in the State in which it operates. This 
commenter further pointed out an effort by the Innovation Center in 
Connecticut to develop an Integrated Care Organization to serve dual 
eligibles in the State.
    We received few comments on our statutory authority to give 
preference to ACOs who are participating in similar arrangements with 
other payers. One commenter recommended that CMS give preference to 
ACOs that have contracts with private payers that include financial 
accountability and quality performance incentives, and avoid 
requirements that could have a chilling effect on the willingness of 
private payers to invest in and partner with ACOs. This commenter 
further recommended that the definition of ``similar arrangement'' be 
consistent across the Shared Savings Program and the Pioneer ACO Model. 
On a related issue, many commenters expressed their support, generally, 
for the Innovation Center's Pioneer ACO Model. As a condition of 
participation in the Pioneer Model, ACOs must commit to entering 
outcomes-based contracts with other purchasers (private health plans, 
State Medicaid agencies, and/or self-insured employers) such that the 
majority of the ACO's total revenues (including from Medicare) will be 
derived from such arrangements, by the end of the second performance 
period in December 2013. One commenter requested clarification on the 
extent to which private payers could participate in ACOs.
    In addition to the payment incentives and preferences discussed in 
the proposed rule, commenters recommended that CMS include a variety of 
other incentives based on an ACO's other quality improvement 
activities, and the composition of the ACO's participants or the 
particular populations they serve. For example, commenters suggested we 
include the following:
     Incentives for early adopters of the accountable care 
model.
     Incentives for caring for particular populations, such as 
rewarding ACOs that serve the uninsured, care for beneficiaries in 
rural areas, or that have diverse patient populations.
     Incentives for including the following providers and 
suppliers:
    ++ Patient centered medical homes.
    ++ Teaching hospitals.
    ++ Ambulatory Surgery Centers.
    ++ Community health organizations including Community Mental Health 
Centers.
    ++ Home health and hospice agencies.
    ++ Physicians practicing in rural areas.
     Incentives for including health programs operated by the 
Indian Health Service, tribes or tribal organizations, and urban Indian 
organizations.
     Incentives to encourage participation by small, rural, and 
physician-led ACOs.
     Incentives to ensure some primary care services are 
delivered by NPs and PAs.
     Incentives to move patients from the acute care setting to 
appropriate post-acute or outpatient providers.
     Incentives to reward participation in other quality 
improvement initiatives, such as physician-led quality improvement 
programs.
     Incentives to use telehealth and remote patient monitoring 
technologies in innovative modalities extending beyond what is 
currently reimbursed under FFS Medicare.
     Incentives for the development of primary care training in 
new models of care.
     Incentives for ACOs participating in clinical trials, to 
encourage innovation in health care.
    Response: We are finalizing our proposal, which does not give 
preference to ACOs engaged in similar arrangements with other payers, 
or provide additional incentives for ACOs which care for dual eligible 
beneficiaries. Similarly, we do not intend to recognize other factors, 
such as the ACO's other quality improvement activities, the composition 
of the ACO's participants or the particular populations they serve. 
CMS' goal is to promote complete integration of care

[[Page 67933]]

and align incentives whether care is provided under Medicare, Medicaid, 
or both. ACOs are one valuable new option to assure greater 
coordination of care for Medicare Parts A and B services for dual 
eligible beneficiaries. Additionally, there are existing demonstrations 
and emerging care models underway in the Innovation Center in 
partnership with the Medicare-Medicaid Coordination Office which will 
provide further opportunities for the integration of care and financing 
across both Medicare and Medicaid, including long term services and 
supports. For dually eligible individuals CMS intends to study the 
effect of assignment of these individuals to ACOs in the Shared Savings 
Program on Medicaid expenditures, and may use this information in the 
development of future models for testing by the Innovation Center. We 
believe that these demonstrations and models targeting the dual 
eligible population will further address and create incentives for 
providers to focus on serving their special needs.
    Through the flexibility allowed in the governance requirements, 
discussed in the Section II.B. of this final rule, we have left room 
for ACOs to engage with private payers. In addition, we may revisit our 
authority to award a preference to ACOs that participate in similar 
arrangements with other payers as we gain more experience with such 
arrangements through the Pioneer ACO Model.
    We decline to incorporate incentives into this national program to 
account for the variety of approaches that ACOs may choose for their 
quality improvement activities outside the Shared Savings Program, as 
well as their provider and supplier composition and patient mix. We 
believe that the flexibility allowed in the distribution of shared 
savings provides the opportunity for ACOs to reward ACO participants' 
for engaging in other quality improvement initiatives.
    We may revisit the issue of incentives related to ACO activities, 
composition, and patient mix as we gain experience with the ACO model 
through the Shared Savings Program and the Pioneer ACO Model.
    Final Decision: The final rule will not contain additional 
financial incentives, beyond those established for quality performance, 
for the care of dual eligible beneficiaries or other factors related to 
the composition of the ACO or its activities, nor will the final rule 
include a preference for ACOs participating in similar arrangements 
with other payers.
(4) Net Sharing Rate
    Section 1899(d)(2) of the Act 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 and 
two-sided model would 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 it achieves savings in excess of the MSR. 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 had concerns that sharing on first dollar 
savings with ACOs under the one-sided model could result in sharing on 
unearned savings rather than on savings achieved by the ACO for 
redesigned care processes. We also explained that this concern was 
mitigated under the two-sided model, where ACOs are assuming the risk 
of losses due to normal year-to-year- variations in Medicare 
beneficiaries' claims expenditures.
    We considered another alternative which would 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 previously, 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 to share savings in excess 
of a certain threshold. ACOs meeting certain criteria could be exempted 
from this provision and 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 ACOs. Additionally, 
we have experience with this model through the PGP demonstration.
    For the one-sided model, we proposed the third option, that once an 
ACO has surpassed its MSR, the ACO would share in savings beyond a 
certain threshold. We further proposed 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 would be applied to net savings 
above this 2 percent threshold in order to determine the shared savings 
amount. We believed that this threshold would protect the program from 
sharing unearned savings by helping 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 of the two-sided model 
right away (and be

[[Page 67934]]

eligible for greater reward). Accordingly, we proposed that ACOs that 
met certain criteria outlined in the proposed rule (76 FR 19613) would 
be exempt from the 2 percent net savings threshold and would instead 
share on first dollar savings under the one-sided model.
    For the two-sided model, we proposed that ACOs which generate 
savings that exceed the MSR would be eligible to share in savings on a 
first dollar basis. We indicated that a number of factors favored 
allowing two-sided model ACOs to share on first dollar savings. First, 
savings generated by ACOs assuming risk of losses are less likely to 
result from random variation compared to savings generated by ACOs 
under the one-sided model because these ACOs have a greater incentive 
to make the types of changes that are necessary to achieve shared 
savings and avoid shared losses. 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, under the two-sided model, the final 
sharing rate would be applied to an ACO's total savings against its 
updated benchmark.
    Comment: Overall, comments expressed concern over the proposal for 
ACOs under the one-sided model, other than those exempted, to share 
savings net a 2 percent threshold once they exceed the MSR. Many 
commenters requested removal of the net 2 percent sharing rate. Most 
recommended sharing on a first dollar basis for all ACOs. Commenters 
provided a variety of rationales to support eliminating this 
requirement, for example, that it unduly increases uncertainty that an 
ACO will share in savings or could impede an ACO's ability to make the 
kinds of up front and ongoing investments needed to better manage care. 
Some suggested that adequate controls are already proposed to ensure 
that shared savings are due to improved care coordination and quality 
of care. Several commenters recommended first dollar sharing indicating 
random variation in data can work in both directions: Setting higher 
thresholds may protect CMS from random variation, but does not protect 
against or recognize random variation that might affect providers 
negatively.
    Others suggested that first dollar sharing for all ACOs would 
encourage increased participation in the program, for instance helping 
ensure ACOs receive a return on investments. One commenter pointed out 
a 2 percent net sharing requirement was not included in the PGP 
demonstration. Another commenter questioned whether the 2 percent 
savings threshold is authorized by the law.
    Commenters suggested several alternatives to the proposed 2 percent 
net savings threshold; most commonly, to allow first dollar sharing for 
the entire agreement period, or as one commenter suggested, for a 
portion of the agreement period. Another commenter suggested allowing 
ACOs, not CMS, to share 100 percent of the first 2 percent of savings 
earned, thereafter CMS and the ACO should receive their percentage 
shares.
    Response: We are persuaded by comments suggesting the elimination 
of the 2 percent net sharing rate. Commenters made it clear that the 
option we proposed would unlikely achieve the balance we sought between 
a threshold low enough to ensure participation while protecting the 
Trust Funds from paying ACOs for results based on random variation. 
Commenters persuaded us that the 2 percent net sharing threshold could 
deter participation. We believe sharing on a first dollar basis with 
all ACOs will be important for encouraging participation and ensuring 
ACOs receive capital to invest in achieving the program's goals and 
achieve a return on investment. First dollar sharing, compared to 
alternatives that would share on a lower threshold amount, appears the 
most effective way to ensure ACOs receive needed capital. At this time, 
we consider other program protections--in particular the minimum 
savings rate--should be adequate to ensure shared savings result from 
ACO performance rather than random variation. We will monitor this 
issue, however, and could consider adjustments through future 
rulemaking should they be found necessary.
    We are revising our proposal to allow for sharing on first dollar 
savings for ACOs under the one-sided model once savings meet or exceed 
the MSR. We are finalizing our proposal to similarly allowing sharing 
on a first dollar savings for ACOs under the two-sided model once 
savings meet or exceed the MSR.
    Comment: Commenters were generally supportive of the proposed 
exemption from the 2 percent net sharing threshold for small ACOs, 
particularly those in underserved and rural areas. A number of 
commenters suggested expanding the exemption to other types of ACOs. 
One, for example, recommended that the exemption include ACOs that 
treat a large proportion of dual eligible beneficiaries.
    However, several commenters expressed concerns about the proposed 
exemption. One commenter explained that based on the proposed 
assignment methodology, ACOs that include FQHCs and RHCs would have 
difficulty meeting the threshold level to qualify for the exemption. 
Another commenter suggested the exemption may not be sufficient to 
encourage participation by ACOs in rural areas.
    Response: Our elimination of the 2 percent net sharing rate negates 
the need for an exemption from this requirement. Accordingly, we are 
eliminating the proposed exemption from the 2 percent net sharing rate 
as all ACOs that achieve savings in excess of their MSR will share in 
savings on a first dollar basis.
    Final Decision: We are revising our proposal under Sec.  425.604 to 
allow for sharing on first dollar savings for ACOs under the one-sided 
model once savings meet or exceed the MSR. We are finalizing our 
proposal under Sec.  425.606 similarly allowing sharing on a first 
dollar savings for ACOs under the two-sided model once savings meet or 
exceed the MSR.
(5) Performance Payment Limits
    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, in the proposed rule we addressed the issue of the 
maximum performance payment an ACO may receive in any given performance 
year. In determining what would constitute an appropriate limit, we 
stated 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 performance-based risk. ACOs seeking 
to participate in the Shared Savings Program will vary with respect to 
their readiness to function under a risk model due 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 performance-based risk could be another 
means to encourage and reward successful ACO participation.

[[Page 67935]]

    In light of our experience with the PGP demonstration, we 
considered a limit of 5 percent of benchmark expenditures. 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 limit 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 as important a goal as achieving savings in the 
Shared Savings Program. In the proposed rule, we recognized that 
providing an incentive for ACOs to invest to improve quality and 
efficiency of care needs to be balanced against providing an overly 
large incentive such that an ACO may be encouraged to generate savings 
resulting from inappropriate limitations on necessary care. A higher 
limit 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 limit 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 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 limit on ACO shared savings. (Since 
the maximum shared savings potentially realized by an ACO under the 
proposed one-sided model was 52.5 percent, we noted that a 7.5 percent 
limit on the ACO share would imply an expectation that overall savings 
may be as high as approximately 14 percent; a 10 percent limit would 
imply a savings expectation of approximately 19 percent.) On the other 
hand, a higher limit might provide some incentive for ACO providers/
suppliers to reduce utilization inappropriately, which could 
potentially be harmful to beneficiaries.
    In the proposed rule, we acknowledged 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 had 
merit. Accordingly we proposed 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, and in 
order to encourage ACOs to assume performance-based risk and 
participate in the two-sided model, we proposed, 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 proposed two-
sided model was 65 percent, a 10 percent limit on the ACO share would 
imply an expectation that overall savings may be as high as 
approximately 15 percent). We solicited comment on these proposed 
payment limits and on whether a higher limit--for example, 10 percent 
for all ACOs--would be more appropriate in light of the considerations 
discussed in the proposed rule and other considerations that commenters 
might wish to raise. We also sought 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 stated that we would consider this information and the 
implications for a differential limit based on ACO readiness in future 
rulemaking cycles.
    We stated that, regardless of what limit was adopted in the final 
rule, we planned to monitor beneficiary access to and utilization of 
services, and the potential contribution of the performance limit to 
any inappropriate reductions in services. Our final policies related to 
monitoring and addressing ACO performance are discussed in section 
II.H. of this final rule. Furthermore, we indicated that 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 this final rule.
    Comment: One commenter suggested that limiting savings is 
reasonable if losses are also limited, in line with our proposal. Many 
commenters, however, opposed the proposed limits on shared savings for 
both the one-sided and two-sided models stating that these policies 
could limit the ACO's return on investment and therefore the 
attractiveness of the program, particularly given the large startup and 
operating costs ACOs are expected to face. One commenter cited a recent 
New England Journal of Medicine editorial which suggested the ACO must 
see a 20 percent gain in order to see a return on investment and noted 
that the proposal limits gains to 7.5 percent. Others suggested the 
limits could serve as a disincentive for ACOs to invest in 
transformational improvements, questioning the use of limits if the 
opportunity for shared savings is indeed a motivator for cost 
management behavior. One commenter explained that CMS' rationale for 
the limits, to prevent providers and suppliers from inappropriately 
reducing utilization, is unfounded; suggesting that the proposed 
quality performance standards and other proposed protections will 
effectively prevent ACOs from attempting to improperly reduce 
utilization of services. Another commenter suggested removal of the 
limits would signal CMS' commitment to the success of the program. 
Commenters indicated confusion about whether the limit applies only to 
the savings paid to the ACO or to the total savings subject to sharing.
    Commenters typically recommended eliminating the limits, to allow 
ACOs to share in all savings they could achieve, suggesting this change 
could result in increased interest and participation in the program, 
particularly by smaller medical practices and oncologists. Other

[[Page 67936]]

commenters suggested raising the limits, for instance--
     Raise the limit to 10 for the one-sided model;
     Raise the limit by 5 percent for both the one-sided and 
two-sided models;
     Raise the limit to 15 or 25 percent; or
     For the two-sided model, incrementally increase the limit 
across the agreement period from 7.5 percent in year 1, to 10 percent 
in year 2 and 15 percent in year 3 to incentivize formation of ACOs 
willing to pursue this option.
    Response: To clarify, the sharing limit applies to the savings paid 
to the ACO, not to the total savings subject to sharing. We are, 
however, persuaded by comments suggesting the importance of raising the 
performance payment limits to encourage participation and to ensure 
ACOs receive capital to invest in achieving the program's goals and 
achieve a return on their investment. We believe retaining the 
performance payment limits is necessary to comply with the statute and 
important for ensuring against providing an overly large incentive that 
may encourage an ACO to generate savings through inappropriate 
limitations on necessary care. We believe that a modest increase in the 
performance payment limits balances our concerns while increasing the 
attractiveness of the program. Further, we believe it is important to 
maintain a higher limit for ACOs accepting risk for losses, to incent 
participation in the program's two-sided model. Accordingly, we are 
modifying our proposal in order to provide a 10 percent payment limit 
for ACOs under the one-sided model and a 15 percent payment limit to 
ACOs under the two-sided model.
    Final Decision: We are revising our proposal under Sec.  425.604 
and Sec.  425.606 to raise the payment limit from 7.5 percent to 10 
percent of an ACO's updated benchmark for ACOs under the one-sided 
model and to raise the payment limit from 10 percent to 15 percent of 
an ACO's updated benchmark for ACOs that elect the two-sided model.
f. Calculating Sharing in Losses
    The proposed rule outlined the methodology for determining shared 
losses. We proposed a shared losses methodology that mirrored the 
shared savings methodology, comprised of: a formula for calculating 
shared losses based on the final sharing rate (1 minus the final 
sharing rate), use of a minimum loss rate (MLR) to protect against 
losses resulting from random variation and a loss sharing limit to 
provide a ceiling on the amount of losses an ACO would be required to 
repay. We noted that under this approach, an ACO's share of losses 
would vary depending on its quality score. Therefore, an ACO with a 
higher quality score would owe a lower amount of losses compared to an 
ACO with an equivalent amount of losses but a lower quality score. We 
considered other approaches to calculating the amount of shared losses, 
tracking the options considered for establishing the quality standard. 
For instance, we considered using a threshold approach to measuring 
quality performance for purposes of determining the amount of shared 
savings and losses. Alternately we considered using a blend of these 
two methods, whereby we would allow ACOs to increase their share of 
savings with higher quality scores, but use a threshold approach when 
calculating losses. We sought comment on these options.
    Comment: We received few comments on our methodology for 
calculating shared losses. One commenter explained that the elements of 
the shared savings and losses models need not be symmetrical.
    Response: We are finalizing our proposed methodology for 
determining shared losses, mirroring the methodology for calculating 
shared savings. Our final policy on each specific issue is described in 
detail later in this final rule.
    Final Decision: As proposed, the shared losses methodology under 
Sec.  425.606 will mirror the shared savings methodology, comprised of: 
a formula for calculating shared losses based on the final sharing 
rate, use of a MLR to protect against losses resulting from random 
variation and a loss sharing limit to provide a ceiling on the amount 
of losses an ACO would be required to repay.
(1) Minimum Loss Rate
    We proposed a minimum loss rate (MLR) for purposes of computing 
shared losses when an ACO's actual expenditures exceed its benchmark. 
We explained that, as with savings, 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. We proposed the MLR 
would be the equivalent of the MSR under the two-sided model: A flat 2 
percent regardless of the size of the ACO's assigned population. ACOs 
with excess expenditures below the MLR would not be responsible for 
repaying Medicare. ACOs with expenditures exceeding the MLR would be 
responsible for paying a share of excess expenditures calculated by 
multiplying the amount of excess above the updated benchmark by one 
minus the final sharing rate. Further we proposed that once the MLR was 
exceeded, ACOs would be responsible for paying the percentage of excess 
expenditures, on a first dollar basis, up to the proposed annual limit 
on shared losses.
    Comment: Several commenters urged CMS to apply an adjustment for 
normal variation for losses, instead of requiring first dollar loss 
sharing. Some commenters favored policies that would exempt some ACOs 
from repaying losses, such as high quality performers. One commenter 
favored increasing the MLR and implementing a sliding scale so that the 
rate would correspond with the ACO's population size. Others favored 
lowering the MLR (for example, to 1 percent, as proposed for the 
Pioneer Model ACOs) or eliminating it altogether. One commenter 
explained that reducing or eliminating the MSR and the MLR recognizes 
that random variation works in both directions and over the course of 
the agreement period would likely have a net neutral effect on ACO 
revenues; further, this would be consistent with other inducements 
being offered to ACOs willing to bear risk immediately. One commenter 
appears to have confused the 2 percent MLR under the two-sided model 
with the 2 percent net sharing requirement under the one-sided model.
    Response: We are finalizing our proposal to use a MLR in computing 
an ACO's shared losses. We believe that comments reflect confusion 
about the function of the MLR, which serves as a protection for ACOs. 
An ACO is not accountable for losses if its expenditures are lower than 
the MLR. This protects ACOs against being held accountable for losses 
that result from random variation, as opposed to their performance. If 
an ACO's actual expenditures are 2 percent or more above its updated 
benchmark, the ACO would be responsible for paying excess expenditures 
calculated by multiplying the amount of the excess above the updated 
benchmark by one minus the final sharing rate, up to the limit on 
shared losses. Once losses meet or exceed the MLR an ACO would be 
required to repay losses on a first dollar basis. To clarify, the MLR 
is distinct from, and unrelated to, the 2 percent net sharing threshold 
proposed for the one-sided model, which would have precluded ACOs from 
sharing savings on a first dollar basis.
    The proposed 2 percent MLR appears to be an appropriate compromise 
between commenters' suggestions.

[[Page 67937]]

Exempting ACOs from accountability for losses under the two-sided model 
would negate the purpose of a risk-based payment arrangement. 
Eliminating or reducing the MLR may deter participation by some ACOs in 
the two-sided model, particularly those new to risk-bearing, in 
addition to potentially holding ACOs accountable to losses resulting 
from random variation.
    Final Decision: We are finalizing our proposal under Sec.  425.606 
to apply a MLR for the two-sided model. To be responsible for sharing 
losses with the Medicare program, an ACO's average per capita Medicare 
expenditures for the performance year must exceed its updated benchmark 
costs for the year by at least 2 percent. Once losses meet or exceed 
the MLR, an ACO would be responsible for paying the percentage of 
excess expenditures, on a first dollar basis, up to the proposed annual 
limit on shared losses.
(2) Shared Loss Rate
    We proposed that ACOs with expenditures exceeding the MLR would be 
responsible for paying excess expenditures calculated by multiplying 
the amount of excess above the benchmark by one minus the final sharing 
rate. In the proposed rule we defined the final sharing rate as the 
quality performance sharing rate plus any percentage points for 
including FQHCs and/or RHCs as ACO participants.
    Comment: We received a few comments on the proposed shared loss 
rate. One commenter suggested we allow ACOs the choice of a percentage 
shared loss rate (as proposed) or a fixed dollar amount of risk. 
Several commenters pointed out that under the proposed methodology for 
calculating shared savings and losses, an ACO could be accountable for 
a 100 percent share of losses (for example, if the ACO's quality 
sharing rate is zero) which is asymmetrical with the shared savings 
methodology. One commenter suggested that CMS ensure that the ACO's 
financial risk equals its potential gains in shared savings.
    Response: We are maintaining our proposal to calculate the shared 
loss rate as one minus the final sharing rate. Given our elimination of 
the incentive for an ACO to include FQHCs or RHCs as ACO participants, 
the final sharing rate is based solely on quality performance. 
Therefore, under the two-sided model an ACO could achieve a maximum 
sharing rate of 60 percent based on quality performance. We believe 
that commenters identified an important concern about the shared loss 
rate, that an ACO could achieve a 100 percent shared loss rate, while 
the maximum shared savings rate is set at 60 percent. We are concerned 
that the prospect of a shared loss rate bounded at 100 percent could 
significantly deter participation by ACOs in the two-sided model, 
particularly ACOs that are new to the accountable care model and to 
risk-bearing. On the other hand, we do not want to limit the shared 
loss rate so much as to dampen the benefit of the program for Medicare 
or to remove the incentive for ACOs to strive for high quality scores. 
To balance these issues, we are modifying our proposal to cap the 
shared loss rate at 60 percent, to align with the maximum shared 
savings rate based on quality performance under the two-sided model.
    Final Decision: As proposed, under Sec.  425.606, the shared loss 
rate for an ACO that is required to share losses with the Medicare 
program for expenditures over the updated benchmark will be determined 
based on the inverse of its final sharing rate based on quality 
performance (that is, 1 minus the shared savings rate). However, we are 
modifying our original proposal to provide that an ACO's shared loss 
rate will be subject to a cap of 60 percent consistent with the maximum 
rate for sharing savings.
g. Limits on Shared Losses
    We proposed an annual maximum shared loss limit measured as a 
percentage of the benchmark to provide a greater incentive for 
organizations to participate in the Shared Savings Program under the 
two-sided model. We proposed to phase in the limit on shared losses 
over a 3 year period, with limits of: 5 percent, 7.5 percent, and 10 
percent, respectively across the first 3 years for Track 2 ACOs. We 
further proposed that an ACO in Track 1 that has entered the third year 
of its initial agreement period would be liable for an amount not to 
exceed the percentage for the first year of the two-sided model, that 
is, shared losses would not exceed 5 percent of its updated benchmark.
    Comment: Several commenters agreed with the proposed limits on 
shared losses, which one commenter indicated would provide an incentive 
for ACOs to participate in the two-sided model. One commenter explained 
that the limits on shared losses need not be symmetrical with the 
shared savings limit. Several commenters suggested alternatives, such 
as use of risk corridors and capped losses similar to the MA program, 
or limiting shared losses to 5 percent of the benchmark in all 3 years. 
Another commenter suggested using a per-beneficiary cap on losses. One 
commenter requested that CMS provide actuarial data to justify the 
proposed limits on shared losses.
    Response: We are maintaining our proposal to phase in limits on 
shared losses, measured as a percentage of the ACO's updated benchmark, 
over the agreement period as follows: 5 percent, 7.5 percent, and 10 
percent, respectively across the first 3 performance years for Track 2 
ACOs. We believe the proposed limits achieve an appropriate balance 
between providing ACOs with security about the limit of their 
accountability for losses while encouraging ACOs to take increasing 
responsibility for their costs and protecting the Medicare Trust Funds.
    Otherwise, we believe commenters' concerns are addressed by 
policies discussed in other parts of this finale rule. For instance, 
because we will 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, we are adopting a de facto limit on the amount 
of shared losses an ACO can incur for care furnished to a single 
beneficiary.
    Final Decision: We are finalizing our proposal under Sec.  425.606 
that the amount of shared losses for which an eligible ACO is liable 
may not exceed the following percentages of its updated benchmark: 5 
percent in the first performance year of participation in a two-sided 
model under the Shared Savings Program, 7.5 percent in the second 
performance year, and 10 percent in the third performance year. 
Further, because we have eliminated the requirement for ACOs under the 
one-sided model to accept risk in their third performance year, we are 
not finalizing the proposed provision regarding the limits on shared 
losses for ACOs transitioning from the one-sided to two-sided model.
h. Ensuring ACO Repayment of Shared Losses
    As we discussed in the proposed rule, 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. We described 
examples of financial protection requirements for other entities with 
which CMS does business.
    We proposed a flat 25 percent withholding rate that would be 
applied annually to any shared savings payment earned by the ACO. We 
proposed that this withholding would serve as a component of the 
repayment mechanism that ACOs would need to establish to ensure their 
ability to repay Medicare for incurred losses. We

[[Page 67938]]

proposed that we would apply the withheld amount towards repayment of 
an ACO's losses. However, we recognized that the 25 percent withholding 
of shared savings may be inadequate to cover the total amount of shared 
losses, particularly if an ACO participating in the two-sided model 
experienced losses in its first year.
    In order to more fully ensure that the Medicare program would be 
repaid in the event that an ACO incurred losses, we proposed that an 
ACO must demonstrate that it has established a self-executing method 
for repaying losses to the Medicare program. A detailed discussion of 
these methods is found in our April 7, 2011 proposed rule (76 FR 
19622).
    The intent of the proposal was to assure operational simplicity 
without establishing eligibility requirements that might discourage 
ACOs with limited risk-bearing experience from entering Track 2. 
Further, this option offered greater flexibility to ACOs in 
establishing their repayment mechanism compared to another option we 
considered, requiring 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).
    In the proposed rule, after considering several options for 
determining the adequacy of an ACO's recoupment mechanism, we proposed 
that the repayment mechanism must be sufficient to ensure repayment of 
potential losses equal to at least 1 percent of per capita expenditures 
for assigned beneficiaries from the most recent year available. We 
believed that requiring ACOs to demonstrate their ability to repay 
losses at a level below the annual loss sharing limit was potentially 
equally effective as requiring ACOs to demonstrate their ability to 
repay the maximum amount of possible losses, but less onerous and also 
accounted for the limited probability that an ACO would incur the 
maximum possible losses.
    Given the anticipated variation in ACO composition and regional 
variations in cost, we indicated that we believed the sufficiency of 
the ACO's repayment mechanism would need to be periodically reassessed 
to ensure its adequacy.
    We further proposed that we would 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 proposed that an 
ACO must demonstrate the adequacy of this repayment mechanism annually, 
prior to the start of each performance year in which it accepts risk, 
to ensure that it is adequate to cover the anticipated number of 
assigned Medicare beneficiaries. Under the proposal, an ACO would have 
been required to 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 any losses by the ACO. We proposed that we 
would ensure that an ACO maintains an adequate repayment mechanism 
through monitoring activities.
    We further proposed 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 the two-sided model would 
be required to submit this documentation as part of its initial 
application. An ACO applying for the one-sided model would also be 
required to submit this documentation as part of its initial Shared 
Savings Program application because under the proposal these ACOs would 
have been required to transition to the two-sided model in their third 
performance year.
    To the extent that an ACO's repayment mechanism does not enable us 
to fully recoup the losses for a given performance year, we proposed 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 invited comment on these proposals and on the other options that 
we had considered.
    Comment: A number of commenters expressed concern about the 
proposed requirement that ACOs establish a self-executing repayment 
mechanism to cover potential losses. While some of these commenters 
acknowledged CMS' desire for assurances regarding an ACO's ability to 
repay losses, they believed that the proposals were too burdensome and 
would place the ACOs in a difficult financial position. One commenter 
opposed requiring ACOs to establish a self-executing method for 
repaying losses, particularly as it may be imposed on individual 
providers that may lack a choice as to whether to join an ACO based on 
their relationship with a hospital or health system. This commenter did 
not believe such physicians should be required to pay for losses. 
Another commenter suggested that ACO providers and suppliers should 
bear financial risk proportional to the efficiency of their practice 
(for example, psychiatrists would bear a lower level of risk). Another 
commenter mentioned the burden a letter of credit would create for 
providers and expressed distaste for the mandatory withhold. Several 
commenters generally expressed doubt that the proposed requirement 
would ensure that ACOs would be able to repay potential losses.
    Others provided comments about the financial burden of the proposed 
repayment mechanisms, particularly for smaller ACOs that may be unable 
to meet the solvency requirements. They indicated that it would be very 
difficult, if not impossible, for ACOs, which would typically include 
low margin businesses, to be at risk for both the administrative costs 
associated with forming and operating an ACO and also be subject to 
underwriting losses. These commenters viewed the proposed 1 percent 
repayment mechanism as an additional drain on ACOs participating in the 
Shared Savings Program and therefore recommended that the requirement 
be removed.
    A number of commenters expressed concern about reinsurance as a 
repayment option. One commenter suggested that reinsurance would be 
costly and would reduce or eliminate any net payment available to 
reward the ACO providers/suppliers. This commenter believed that a 
significant increase in the sharing percentage and the limit on shared 
savings would be required to make reinsurance a viable repayment 
approach. Other commenters asked that CMS clarify in the final rule the 
mechanisms for ACOs to obtain reinsurance. A couple of commenters 
encouraged CMS to specify a clear mechanism in the final rule for ACOs 
to obtain reinsurance, such as CMS sponsorship of reinsurance pools for 
ACO providers or including additional funds in the shared savings 
payments to ACOs. One commenter suggested that we require ACOs to 
obtain insurance only from highly rated, State regulated insurance 
carriers.
    Several commenters suggested eliminating the proposed requirement 
for a repayment mechanism, given the proposed 25 percent withhold, 
believing it was unnecessary to have both

[[Page 67939]]

requirements. On the other hand, as described later in this final rule, 
a number of other commenters requesting elimination of the proposed 25 
percent withhold cited the proposed repayment mechanism as providing 
sufficient coverage to protect CMS against losses. For example, a 
commenter indicated that CMS should monitor capital adequacy on an 
annual basis and rely on the provisions in the proposed rule regarding 
the requirement to adopt a self-executing repayment method, rather than 
a withhold, to ensure that ACOs will be able to repay losses to the 
program.
    Some commenters suggested additional alternative approaches that 
CMS could consider to address concerns about an ACO's ability to pay 
for losses, for example:
     Allow flexibility for an ACO to determine the magnitude of 
financial risk it will experience and to determine the most appropriate 
manner of repayment.
     Allow ACOs to use existing financing mechanisms, used to 
participate in two-sided models outside of Medicare, to ensure 
repayment of shared losses under the Shared Savings Program.
     Adjust the repayment method based on the ACO's prior year 
performance in the Shared Savings Program, or its performance and 
experience with other payers. One commenter suggested that CMS consider 
waiving or reducing the repayment mechanism requirements for applicants 
to the two-sided model, particularly those who have demonstrated 
experience in managing risk through participation in a Medicaid, State, 
or private ACO or other payment reforms. In this commenter's view, a 
track record of managing risk under other programs should reduce CMS' 
uncertainty regarding the financial viability of the ACO.
     Adopt certain other approaches used by some managed care 
companies.
     An agreement to recoup losses from future Medicare revenue 
payments should be required for on-going enterprises (those in 
existence for 5 or more years of continuous operations). The commenter 
suggesting this alternative further explained that the repayment term 
for any losses should be set on a sliding scale of time in proportion 
to the amount of debt as a percentage of assigned beneficiary per 
capita expenditures for the most current year results available.
    Several comments raised concerns about how ACOs would share losses 
with their participants. One commenter indicated that liability for 
losses creates significant operational issues for ACOs and raised 
questions about how losses would be shared as follows:
     If losses are incurred, how would the liability for 
sharing those losses be shared?
     Will physicians and other professionals have incentives to 
participate if they know they may have out-of-pocket liability or would 
be required to accept Medicare payments at less than traditional 
Medicare payment rates?
     May the financial obligation for losses be disparately 
shouldered by ACO participants or ACO providers/suppliers and would 
this implicate the fraud and abuse laws?
    One commenter indicated that recoupment efforts should be directed 
against the ACO and not its individual primary care physicians.
    In addition, a few comments asked us to clarify specific points in 
the proposal. For example, one commenter simply asked that CMS further 
clarify the minimum capitalization requirement. Another asked whether 
there was a minimum reserve requirement, and if so what the amount 
would be. Another asked how we will evaluate if the proposed 
methodology and minimum amount are sufficient. Another asked how an ACO 
should calculate beneficiary assignment when preparing its initial 
application in order to ensure that the amount of reserves is accurate.
    In response to the proposal to carry forward losses into future 
years, one commenter suggested that this provision should depend on the 
success of the overall program. As an example, the commenter suggested 
that if 50 percent or more of the ACOs entering the program under the 
one-sided model in 2012 see savings in years 1 and 2, then CMS should 
carry forward losses because there would be a likelihood of achieving 
savings in a future year. In contrast, if 75 percent or more of ACOs 
experience losses, then CMS should undertake a review of the entire 
program to evaluate if there is a fatal design flaw. Further, the 
commenter suggested that if an actuarial review finds that there are 
significant deviations from initial assumptions, then CMS should 
consider forgiving ACOs for any net losses that occurred during the 
initial 3 year period. Another commenter requested that CMS use its 
discretion to waive repayments in full or in part and to make other 
arrangements to address unpaid losses (aside from carrying them forward 
to the next year).
    A few commenters expressed support for the proposed repayment 
mechanism. Several commenters urged more stringent protections; for 
instance, one commenter noted that the requirements that ensure an ACO 
could meet its risk obligation appeared weak in comparison to those for 
Medicare Advantage plans. Another commenter expressed concern that the 
financial failure of ACOs could undermine the solvency of physician 
practices, thereby limiting patient access to care in the ACO's 
locality and urged additional protections to ensure both ACO solvency 
and to safeguard beneficiaries, as opposed to just ensuring adequate 
funds for CMS to recoup losses.
    Several commenters expressed support for proposed policies to 
ensure ACOs maintain an adequate repayment mechanism over time. For 
example, one commenter recommended that CMS maintain the rule's strong 
repayment proposals and further suggested that CMS should periodically 
reevaluate the adequacy of the various repayment mechanisms during the 
agreement period, believing that it is imperative for CMS to maintain 
strong solvency protections to protect the Medicare program and 
beneficiaries, and to counter efforts to shift cost risks to private 
payers. Another commenter expressed support for a process whereby CMS 
would, on an annual basis, verify that processes specified in the ACO's 
application had been implemented and that other program requirements 
had been satisfied.
    Response: We continue to believe that it is a critical program 
requirement to ensure that ACOs entering a two-sided model are capable 
of repaying us for costs that exceed their benchmark. We agree with the 
commenters' concern that it is desirable to protect consumers from 
disruption of their care due to a financial failure of an ACO. We have 
experience implementing protections to guard against the financial 
failure of providers in other parts of the Medicare program. Our 
proposals took into account our experiences with these other programs 
and requirements. We further recognize that the Shared Savings Program 
is a unique, new Medicare program and we want to address commenters' 
concerns about the burdens of participating in this program to the 
extent possible. However, in light of a number of other significant 
changes to the original proposals for the program that we are making in 
this final rule in order to reduce the burdens for participating ACOs, 
we continue to believe our proposals to ensure that ACOs are able to 
pay for any shared losses are reasonable.
    In particular, a number of commenters objected to the repayment 
proposals on the grounds that they were excessive in light of the 
additional requirement of a

[[Page 67940]]

25 percent withhold from shared savings. As discussed in section 
II.G.2. of this final rule we are not finalizing our proposal to 
require a withhold of shared savings as a method for helping assure 
that ACOs could repay any future shared losses.
    Another significant change from the proposed rule which we have 
included in this final rule (discussed in section II.G.1. of this final 
rule) is that Track 1 of the program is now a one-sided only model 
(that is, shared savings only) for the entire initial agreement period. 
During the term of the initial agreement, only those ACOs that 
voluntarily choose to participate in the Shared Savings Program in the 
two-sided model under Track 2 will be subject to the repayment rules. 
We would expect that during the initial stages of the program, these 
Track 2 ACOs would more likely be larger and/or more experienced ACOs, 
and thus have the experience, expertise, and/or resources to meet the 
repayment requirements.
    After review of the comments, we are finalizing our proposal to 
allow ACOs flexibility to specify their preferred method for repaying 
potential losses, and how it would apply to the ACO participants and 
ACO providers/suppliers. We continue to believe our proposal provides 
significant flexibility for ACOs to identify the repayment method that 
is most appropriate for their organizations. As a result, our policy as 
proposed, already affords ACOs, particularly smaller ACOs, the choice 
of the alternative that would be least burdensome for them. For 
example, larger ACOs that include hospital systems may be able to repay 
losses from their reserves, whereas, smaller ACOs may prefer to pay for 
shared losses through reductions to their future FFS payments. Under 
the approach we are finalizing, during the application process and 
annually, each ACO participating in Track 2 will be required to 
demonstrate that it has established a repayment mechanism. As part of 
this, individual ACOs must specify how the liability for sharing losses 
would be shared among ACO participants and/or ACO providers/suppliers. 
We will determine the adequacy of an ACO's repayment mechanism prior to 
the start of each performance year under the two-sided model.
    In this final rule, we are also finalizing our proposal that the 
minimum amount of the reserves required for an ACO is sufficient to 
ensure repayment of potential losses equal to at least 1 percent of per 
capita Medicare FFS Parts A and B expenditures for its assigned 
beneficiaries. Further, we are clarifying that this amount should be 
based either on expenditures for the most recent available performance 
year or benchmark year. We continue to believe this is a reasonable 
amount that reflects our desire to balance possible financial burden on 
ACOs with our need for a reasonable assurance that any shared losses 
could be paid. For example, Track 2 ACOs could be responsible for 
losses up to a maximum of 5 percent of its benchmark in performance 
year 1, 7.5 percent in performance year 2, and 10 percent in 
performance year 3. We believe requiring a reserve of 1 percent is 
reasonable relative to this level of liability.
    We decline to finalize the proposed policy to carry forward losses 
into future program years (as suggested by one commenter). We believe 
the final rule includes sufficient protection against ACOs which fail 
to repay their losses, including the requirement for an ACO to 
establish a repayment mechanism, and program protections which would 
allow CMS to terminate an ACO for not fully repaying its losses with 
the opportunity for the ACO to enter into a corrective action plan to 
address this failure to meet program requirements.
    In addition, as requested by a commenter, we will continue to 
monitor the program as it is implemented to determine whether program 
adjustments are needed.
    Further, because we will allow ACOs to participate in a shared 
savings only model for their first agreement period, we are revising 
our proposal to require only ACOs entering the program's two-sided 
model (Track 2) or requesting an interim payment under the one-sided 
model (Track 1) to demonstrate an adequate repayment mechanism.
    We are not adopting the comments that suggested a government 
sponsored reinsurance option, such as CMS-sponsored reinsurance pools 
for ACOs. ACOs that might want to pursue reinsurance as a repayment 
mechanism should contact insurers in their individual States to further 
explore this option.
    We are also not adopting other comments that encouraged us to adopt 
approaches employed by other payers, or to adjust the repayment method 
based on prior year performance in the Shared Savings Program or 
performance and experience with private payers. At this time we do not 
believe such approaches would be feasible since, for example, we would 
not have readily available information or evaluation criteria about 
such performance. As explained previously, we believe the 1 percent 
reserve requirement provides a reasonable balance between minimizing 
the financial burdens on ACOs, while providing an assurance to the 
Medicare program that any shared losses will be repaid.
    We will further clarify operational questions about the repayment 
requirement through the application process and other program 
instructions. Finally, we note that the commenters' concerns that the 
division of liability for losses among ACO participants and ACO 
providers/suppliers may implicate certain fraud and abuse laws, except 
to the extent that those laws are waived.
    Final Decision: In this final rule we are retaining our proposed 
policies under Sec.  425.204 concerning the repayment mechanism to 
ensure ACO repayment of shared losses. We are finalizing our proposal 
to allow ACOs flexibility to specify their preferred method for 
repaying potential losses, and how that would apply to ACO participants 
and ACO providers/suppliers. During the application process and 
annually, each ACO under the two-sided model will be required to 
demonstrate that it has established a repayment mechanism. One-sided 
model ACOs requesting interim payment must make a similar demonstration 
at the time of application. We will determine the adequacy of an ACO's 
repayment mechanism prior to the start of each year under the two-sided 
model. We are also finalizing our proposal that the repayment mechanism 
must be sufficient to ensure repayment of potential losses equal to at 
least 1 percent of total per capita Medicare Parts A and B fee-for-
service expenditures for assigned beneficiaries based either on 
expenditures for the most recent performance year or expenditures used 
to establish the benchmark. To the extent that an ACO's repayment 
mechanism does not enable CMS to fully recoup the losses for a given 
performance year, CMS will not carry forward unpaid losses into 
subsequent performance years and agreement periods.
i. Timing of Repayment
    We proposed that an ACO must make payment in full to CMS of any 
shared losses within 30 days of receipt of notification of the shared 
losses.
    Comment: Commenters requested that we consider extending this 
deadline, for example to 60 or 90 or 120 days, stating this would be a 
more reasonable timeframe given capital restraints on some ACOs. 
Several commenters suggested offering ACOs the option of paying losses 
in installments.

[[Page 67941]]

    Response: In developing the proposed rule, we considered repayment 
within 30 days to be a timeframe which would benefit ACOs because 
shared losses would be considered overpayments and under sections 
1815(d) and 1833(j) of the Act would begin to accrue interest if not 
paid within 30 days of the ACO's notification of losses. We appreciate 
commenters' concerns about the burden that a 30 day requirement could 
pose to ACOs. We agree that ACOs, composed of many independent 
participants, may need additional time to gather the amount owed. 
Accordingly, to address these concerns, we will use our authority under 
section 1899(f) to waive the requirement under sections 1815(d) and 
1833(j) that repayment be made within 30 days, and to extend the 
deadline for repayment and the date on which interest on shared losses 
owed by an ACO will start to accrue until 91 days after the ACO 
receives notification of shared losses. Thus, in order to avoid 
interest ACOs must make payment in full to CMS within 90 days of 
receipt of notification of shared losses. Given that commenters' 
suggestions for extending the repayment deadline ranged from 60 to 120 
days, we consider 90 days an appropriate timeframe for ACOs to make the 
arrangements necessary to repay shared losses.
    Final Decision: We are revising our proposed policies under Sec.  
425.606(h) concerning timing of repayment of losses. If an ACO incurs 
shared losses, the ACO must make payment in full to CMS within 90 days 
of receipt of notification.
j. Withholding Performance Payments
    Over the course of its participation in the Shared Savings Program, 
an ACO may earn shared savings in some years and incur losses in other 
years. In the proposed rule, we considered the issue of whether the 
full amount of shared savings payments should be paid in the year in 
which they accrue, 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, we proposed that an ACO 
could use a withhold of its earned shared savings payment as one option 
for demonstrating an adequate repayment mechanism in the event it 
incurs shareable losses. We explained that the requirement that ACOs be 
willing to commit to completing a multiyear 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 to withhold performance payment was designed to reinforce 
that requirement. Since we wanted to encourage ACOs to participate for 
the entire term of their agreements, protect the Medicare program 
against losses, and ensure ACOs have an adequate repayment mechanism in 
the event they incur losses, we proposed that a flat 25 percent 
withholding rate would be applied annually to any earned performance 
payment. Under the two-sided model, we proposed that an ACO may 
withhold an additional portion of its earned performance payment as a 
way to demonstrate an adequate repayment mechanism in the event it 
should incur shareable losses. Furthermore, we proposed that at the end 
of each agreement period, positive balances would be returned to the 
ACO. However, if the ACO does not complete its agreement period, the 
ACO would forfeit any savings withheld.
    Comment: Nearly all commenters opposed the proposed 25 percent 
withhold, suggesting that given the anticipated slow return on 
investment and potentially high startup and operating costs, it would 
adversely affect participation or pose financial hardship on ACOs by 
restricting necessary capital. As one commenter explained, the withhold 
may hinder ACO investment and reinvestment in infrastructure and 
program activities that may lead to further improvements in care and 
care delivery processes. Some commenters suggested the proposed 
withhold poses a barrier to participation by smaller, rural, safety 
net, and physician-only ACOs. One commenter considered the need for 
capital support to be potentially crucial to participation by safety 
net providers given the proposed withhold. Other commenters suggested 
that the withhold appears to penalize only the best-performing ACOs 
while having no impact on poor performing ACOs.
    Other commenters questioned the ability of the proposed policy to 
achieve its aim of protecting CMS against losses and indicated that 
other proposed protections, such as a self executing repayment 
mechanism sufficient to cover 1 percent of total per capita 
expenditures, are more than adequate. Several commenters suggested the 
withhold is inappropriate for organizations accustomed to managing 
risk. Others questioned the need for the withhold under the one-sided 
model, and noted in particular, that the proposed 2 percent net sharing 
rate may be sufficient to cover CMS' risk of not recovering losses when 
ACOs transition to the two-sided model. One commenter suggested CMS 
consider requiring ACOs to have reserves similar to under an insurance 
model to participate, rather than holding back earned savings.
    Several commenters addressed the use of the withhold as a means to 
encourage full-term participation. One commenter noted this proposal 
creates a sense that CMS does not trust its provider partners. One 
commenter stated forfeiture of the withhold for failure to complete the 
3 year agreement unfairly punishes ACOs that must withdraw from the 
program, for example ACOs whose population falls below the required 
5,000 beneficiaries.
    Commenters typically suggested eliminating the withhold entirely, 
suggesting it is redundant or unnecessary in light of other proposed 
requirements (such that ACOs demonstrate an adequate repayment 
mechanism at the time of application). Several commenters suggested 
that, at a minimum, the amount of the withhold be reduced, recommending 
that it not exceed 10 percent of shared savings. In some cases, 
commenters recommended a temporary reduction in the amount withheld. 
Several recommended allowing ACOs a choice between a withhold and 
demonstrating adequate financial reserves to repay losses. Several 
commenters suggested CMS pay interest on the withheld amount, or 
clarify in the final rule its intent to pay interest on this amount. 
Another commenter urged CMS to ensure alignment between the withhold of 
payment under the Shared Savings Program and the mechanism for 
repayment under the Innovation Center's potential Advance Payment 
initiative.
    Several commenters suggested alternative policies for linking the 
withhold to ACO performance. For example, one commenter favored an 
alternative to the proposed method for calculating shared savings 
whereby CMS would also use a multi-year metric of savings. This 
commenter suggested CMS would withhold a portion of annual savings 
(similar to the proposed 25 percent withhold) and award a net 
performance payment at the end of the agreement period based on the 
multi-year metric. This approach could address concerns expressed by 
several commenters that ACOs may have a financial disincentive to 
perform high cost procedures or order laboratory tests involving 
substantial upfront costs, which over time result in improved

[[Page 67942]]

health outcomes or savings (such as bariatric surgery or lab tests that 
lead to better treatment decisions).
    Response: We are persuaded by comments recommending elimination of 
the 25 percent withhold. While we continue to believe that strong 
mechanisms for repayment of potential losses are necessary, we have 
concluded that the withhold may be an ineffective mechanism for 
ensuring repayment of potential losses. As commenters point out, an 
entity that generates savings in the first or second year is also 
likely to generate savings in the third year. Therefore, the withhold 
could serve as a penalty for successful ACOs while doing little to 
protect the Trust Fund against underperforming ACOs. Further, we agree 
with the commenters that suggested that other aspects of the program 
may be sufficient to ensure ACOs repay losses. In particular, we are 
finalizing the requirement for ACOs to establish a self-executing 
repayment mechanism, under which ACOs could elect an annual withhold on 
savings as part of their repayment mechanism. Commenters also noted the 
potential unintended consequences of using the withhold to encourage 
ACOs to complete their agreement periods. We are especially concerned 
that the forfeiture requirement could punish ACOs terminated from the 
program for circumstances beyond their control. Lastly, we are 
concerned that the withhold could pose a financial hardship for ACOs by 
forestalling payment of funds that could support operational costs, and 
thus, the policy could be a potential barrier to the formation of ACOs.
    A smaller withhold, as suggested by some commenters, would not 
effectively address the aforementioned concerns. Even a smaller 
withhold could penalize high-performing ACOs or those terminated from 
the program for legitimate reasons beyond their control and pose a 
barrier to participation. Further, while we appreciate commenters' 
concerns about the need for a multi-year measure of savings, to be 
implemented through a withhold of savings, we decline to implement this 
approach. We believe that other program requirements offer ACOs 
sufficient incentive to provide high quality, cost-effective and 
patient-centered care, while the program's monitoring provisions will 
enable us to detect ACOs' avoidance of necessary services.
    Final Decision: We are revising our proposal to eliminate the 25 
percent withhold and the related proposed provision concerning 
forfeiture of the 25 percent withhold in the event of early termination 
from the program.
k. Determining First Year Performance for ACOs Beginning April 1 or 
July 1, 2012
    As discussed in Section II.C. of this final rule, we will offer 
start dates on April 1, 2012 (agreement period of 3 years and 9 
months), and July 1, 2012 (agreement period of 3 years and 6 months) 
for those ACOs that apply and are approved to participate in the Shared 
Savings Program during 2012. This section describes the methodology for 
determining shared savings and losses for the first performance year 
for April 1 and July 1 starters defined as 21 and 18 months 
respectively. This methodology will consist of an optional interim 
payment calculation based on the ACO's first 12 months of participation 
and a final reconciliation occurring at the end of the ACO's first 
performance year. Such first year reconciliation, taking into account 
the 12 months covered by the interim payment period as well as the 
remaining 6 or 9 months of 2013, will allow us to determine the overall 
savings or losses for the ACO's first performance year.
    As we have previously discussed, commenters expressed support for 
policies allowing for a shorter turnaround period for feedback on 
quality metrics and shared savings reconciliation. In particular, 
commenters stressed the importance of shared savings for establishing 
return on investment, and supporting ongoing operations and likewise 
achievement of program goals. We agree with commenters about the 
importance of timely availability of funds.
    In this final rule, we are adopting a policy that will enable ACOs 
with start dates of April 1 and July 1, 2012 to opt for an interim 
payment calculation as part of their application to participate in the 
Shared Savings Program. However, ACOs opting for interim payment under 
either the Track 1 one-sided or Track 2 two-sided model will need to 
assure CMS of their ability to repay monies determined to be owed upon 
final first year reconciliation. For ACOs under the two-sided model, 
their demonstration of an adequate repayment mechanism as part of their 
entrance into a shared loss arrangement will be sufficient also to 
assure return of an overpayment of shared savings under the interim 
payment calculation. ACOs under the one-sided model would, likewise, 
need to demonstrate an adequate repayment mechanism. We will, 
therefore, require ACOs entering Track 1 with start dates of April 1 or 
July 1, 2012, that opt to receive interim payment calculation to 
demonstrate an adequate repayment mechanism as under Track 2 to repay 
any overpayment of shared savings. This requirement will not apply to 
Track 1 ACOs with start dates of April 1 or July 1, 2012, that do not 
elect interim payment calculation.
(1) Interim Payment Calculation
    In the interim payment calculation, we will determine shared 
savings and losses based on the ACO's first 12 months of program 
participation. Quality performance will be assessed as described in 
section II.F of this final rule. Quality performance for the interim 
payment calculation will be based on GPRO quality data reported for 
calendar year 2012. (Claims-based and CAHPS measures will be calculated 
for informational purposes for 2012.) We believe that quality data 
based on CY 2012 is an appropriate measure of ACO's quality performance 
for determining interim payment because ACOs beginning April 1 and July 
1 will have submitted GPRO data for CY 2012 as part of demonstrating 
their eligibility for the 2012 PQRS incentive.
    The same methodology for determining shared savings and losses, as 
specified in section II.G. of the final rule will apply to this interim 
payment period. More specifically, we will apply the methodology as 
stated elsewhere in section II.E. of this final rule for assigning 
beneficiaries and in section II.G. of this final rule for determining 
shared savings and losses (including calculating and risk adjusting 
expenditures, establishing the MSR and MLR, and determining shared 
savings or losses) based on the ACO's first 12 months of performance 
with the exception of calculating the update to the benchmark. For 
purposes of interim payment calculation, the historical benchmark will 
be updated (and adjusted for changes in beneficiary risk as described 
below) for the period which includes the ACO's first 12 months of 
participation.
    Depending on the results of the interim payment calculation, the 
ACO may receive a shared savings payment or, in the case of ACOs under 
the two-sided model, be liable for shared losses. ACOs will be notified 
of shared savings or losses. Unless stated otherwise, program 
requirements which apply in the course of a performance year apply to 
the interim payment period.
(2) First Year Reconciliation
    For ACOs beginning April 1 or July 1, 2012, the reconciliation for 
the first performance year will occur after the completion of the ACO's 
first performance year, defined as 21 months

[[Page 67943]]

for April 1 starters and 18 months for July 1 starters; that is at the 
conclusion of CY 2013. First year reconciliation will account for the 
entire 18 or 21 month period. Our assignment methodology and 
calculations of the updated benchmark and performance year expenditures 
will take into account the overlap between the ACO's first 12 months of 
performance and CY 2013. To simplify the summation of performance year 
expenditures and the updated benchmark for the two overlapping 
timeframes, we will state figures for first year reconciliation in the 
aggregate, rather than on a per capita basis. Quality performance for 
first year reconciliation will be based on complete and accurate 
reporting, for all required quality measures, for CY 2013.
    The following steps outline the methodology for adjusting the ACO's 
interim payment determination to account only for the 6 or 9 months 
included in CY 2012 and summing it with the ACO's CY 2013 performance:
     Assignment: First performance year expenditures will be 
summed over beneficiaries assigned in two overlapping 12 month 
assignment windows. The first window will be the beneficiaries assigned 
for the first 12 months used for interim payment calculation. The 
second window will be beneficiaries assigned for CY 2013.
     Aggregate expenditures for the first performance year: We 
will sum aggregate interim payment expenditure dollars to account for 
the ACO's first 6 or 9 months during CY 2012 for beneficiaries assigned 
for the interim payment calculation with aggregate dollars calculated 
for CY 2013 for beneficiaries assigned for CY 2013.
     Risk adjustment: Risk adjustment for beneficiaries 
assigned in CY2013 will be performed as it would be for a normal 
calendar performance year, based on a comparison of risk scores for 
continuously assigned and newly assigned beneficiaries to BY3 risk 
scores. We will identify beneficiaries from the CY 2013 assignment 
window as either continuously assigned or newly assigned relative to 
the previous calendar year. We will base risk adjustment for the 6 or 9 
months of performance year one (PY1) that lie within CY 2012 on the 
same adjustment factor identified for purposes of the interim payment 
calculation. Respective risk adjustment factors will be used to adjust 
updated benchmark dollars to the performance year risk level.
     Updating the benchmark: We will establish an updated 
benchmark for the first performance year stated in aggregate dollars. 
Based on the assigned beneficiary population for the ACO's first 12 
months of performance we will calculate the ACO's interim updated 
benchmark for the average fraction of expenditures incurred in the 
latter 6 or 9 months of CY 2012, and restate it in terms of aggregate 
expenditures. We will add to that an updated aggregate benchmark 
representing CY 2013.
     Determining shared savings/losses: We will determine the 
savings percentage for the entire 18 or 21 month performance year by 
comparing summed expenditures to summed updated benchmark dollars. We 
will compare this percentage to the ACO's MSR or MLR as stated in terms 
of a percentage. For ACOs under the one-sided model, we will compare 
the PY1 savings percentage to an MSR obtained from Table 6 by counting 
all beneficiaries who have been assigned in at least one of the two 
assignment windows for PY1. For ACOs under the two-sided model, we will 
compare the PY1 savings percentage to a flat 2 percent MSR or MLR.
    The reconciled amount of the shared savings or losses owed to or by 
the ACO for the performance year will be net of any interim payments of 
shared savings or losses. CMS may determine that it owes the ACO 
additional shared savings payments or received an overpayment of shared 
losses from the ACO. Conversely, following the first year 
reconciliation, CMS may determine the ACO has been overpaid for shared 
savings or owes additional shared losses. In either of these cases, the 
ACO would owe CMS the difference. ACOs will be notified of shared 
savings or losses, or other monies determined to be owed upon first 
year reconciliation. Unless stated otherwise, program requirements 
which apply in the course of a performance year apply to the ACO's 
first year reconciliation.
(3) Repayment Mechanism for ACOs Electing Interim Payment Calculation
    An interim payment system therefore raises a concern about the 
ability of an ACO to repay CMS in the event that first year 
reconciliation results in a payment due to CMS. As described 
previously, ACOs under the program's two-sided model must demonstrate 
that they have a self-executing mechanism for repaying losses equal to 
at least 1 percent of the ACO's Medicare fee-for-service Parts A and B 
total per capita expenditures for its assigned beneficiaries based 
either on expenditures for the most recent performance year or 
expenditures used to establish the benchmark. However, as discussed in 
this section, the repayment mechanism would generally apply only to 
ACOs under the two-sided model.
    We believe this same repayment mechanism is also sufficient to 
ensure that ACOs in the one- and two-sided models that opt for interim 
payments can repay CMS in the event that the ACO owes CMS money after 
first year reconciliation. ACOs must indicate in their application 
whether they are requesting an interim payment calculation. Therefore, 
similar to the requirements for two-sided model ACOs in this final 
rule, we will require those ACOs that choose to request an interim 
payment during their first performance year, regardless of Track, to 
demonstrate as part of their application that they have an adequate 
repayment mechanism in place.
    Another issue raised by interim payments is the deadline for paying 
shared losses, as well as the deadline for refunding other monies 
determined to be owed by the ACO after first year reconciliation. As 
described previously in this final rule, ACOs under the program's two-
sided model will be required to repay losses within 90 days of receipt 
of notification of losses. Therefore, to align the interim payment 
policy with our policy regarding payment of shared losses, we will 
require that any monies determined to be owed by the ACO after first 
year reconciliation must be repaid by the ACO, in full, within 90 days 
of receipt of notification.
    Final Decision: We are adopting a policy under Sec.  425.608 that 
will enable ACOs with start dates of April 1 and July 1, 2012 to opt 
for an interim payment calculation, to determine shared savings and 
losses, at the end of their first 12 months of program participation. 
Unless stated otherwise, the same methodology for determining shared 
savings and losses that applies under Sec. Sec.  425.604 and 425.606 
will apply to this interim payment calculation. For ACOs with start 
dates of April 1 or July 1, 2012, reconciliation for the first 
performance year will occur after the completion of the ACO's first 
performance year, defined as 21 months for April 1 starters and 18 
months for July 1 starters. ACOs must indicate in their application 
whether they are requesting an interim payment calculation. ACOs that 
opt for interim payment during their first performance year must 
demonstrate as part of their application that they have an adequate 
repayment mechanism in place, consistent with the requirements for two-
sided model ACOs in this final rule. ACOs that generate shared losses 
under the interim payment calculation must repay such losses within 90 
days of notification of losses. Further, any monies determined to be 
owed by an

[[Page 67944]]

ACO after first year reconciliation, whether as a result of additional 
shared losses or an overpayment of shared savings, must be repaid to 
CMS, in full, within 90 days of receipt of notification.
3. Impact on States
    In the proposed rule, we emphasized that, under our proposal for a 
two-sided model under the Shared Savings Program, the Medicare program 
would retain 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 did not intend that any of our 
proposals concerning the Shared Savings Program would render States 
responsible for bearing any costs resulting from the operation of this 
program. However, we noted 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 sought 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.
    Comment: A few commenters expressed concern that the two-sided 
model could trigger some State insurance laws, or that States could 
decide to subject ACOs under the program's two-sided model to State 
licensure requirements (for example, requiring the ACO to obtain an HMO 
license). In particular, a few commenters expressed concern about 
potential overlap between State insurance requirements and the proposed 
requirements to demonstrate an adequate repayment mechanism (including 
establishing lines of credit, recoupment of losses from future FFS 
payments, and obtaining reinsurance sufficient to account for 1 percent 
of per capita expenditures for the assigned beneficiaries).
    A few other commenters were concerned that State laws may serve as 
a barrier to ACO formation due to the added expense of compliance with 
State regulation of ACOs. Several commenters requested clarification on 
or recommended Federal protection from these State laws, for instance 
by Federal preemption of State insurance laws, a safe harbor or 
otherwise discouraging assertion of authority by State insurance 
agencies over ACOs that participate in the Shared Savings Program. One 
commenter suggested CMS promote a uniform national privacy requirement 
to preempt potentially conflicting State laws, particularly surrounding 
quality, data use, information sharing, and privacy protections.
    One commenter wanted CMS to ensure that States will ``not require 
ACOs to obtain an HMO license * * * to meet financial and repayment 
requirements''. On the other hand, several commenters explained that 
State licensed organizations that accept insurance risk must comply 
with strict financial solvency criteria, and were supportive of State 
regulation of ACOs. Another commenter suggested that ACOs that assume 
risk for losses and/or perform other health plan functions that are 
regulated at the State level (for example, subject to State financial 
and consumer protection standards) should have to meet the same 
standards required of health plans. These standards include financial 
requirements (for example, capital, reserve and solvency requirements); 
network requirements (for example, ensuring access to adequate numbers 
and types of providers); filing, reporting and disclosure requirements; 
and quality improvement requirements, including accreditation standards 
and other consumer protection standards. The commenter expressed a 
concern that if ACOs are not subject to the same standards as heath 
plans, then consumers receiving care from an ACO may have less access 
to care, receive care of lesser quality, be faced with increased costs, 
and/or be more vulnerable to discontinuation of coverage if unforeseen 
events occur, such as a flu pandemic or similar disaster impacting the 
health care system. One commenter suggested that the proposed 25 
percent withhold and repayment mechanism may not be necessary for ACOs 
complying with State financial solvency requirements, but should be 
required for ACOs that are not licensed to assume both professional and 
institutional risk by the State in which they operate.
    Several commenters asked that CMS address whether Federal laws 
would preempt State laws that might conflict with the intent of the 
regulation. One commenter stated that without such preemption there 
could be barriers to clinical integration. One commenter suggested that 
CMS provide a list of States that either currently recognize or 
authorize ACOs under their State laws, or have pending legislation to 
recognize ACOs.
    One commenter expressed concern that this regulation would override 
State and local protocols concerning ambulance transportation. The 
commenter was concerned that ambulances would be required to deliver 
patients to ACO participants instead of the closest or most appropriate 
facility.
    Another commenter recommended that ACOs be exempt from State 
malpractice laws so that the burden of malpractice insurance and 
litigation costs are not added to the already significant cost of 
forming and maintaining an ACO. This commenter did not believe such 
protections for ACOs would preclude patients from pursuing claims for 
malpractice against ACO participants or from seeking discovery directly 
from such participants under existing State laws.
    Another commenter urged medical liability protections for 
physicians complying with ACO guidelines, such as criteria for 
utilizing diagnostic imaging. The commenter recommended the following 
approaches:
     Deem an ACO and/or ACO-participating physician to be an 
employee of the Public Health Service for purposes of any civil action 
that may arise from ACO-related services. The commenter stated that 
this approach would require patients alleging malpractice to pursue 
their claim under the Federal Tort Claims Act.
     Allow physicians to introduce the relevant ACO guidelines 
into evidence as an affirmative defense to any medical liability claim.
     Establish a standard of proof of clear and convincing 
evidence for any medical liability lawsuit in which a physician 
utilized ACO guidelines.
    Another commenter suggested that CMS structure the program to be 
flexible enough to facilitate State and local initiatives.
    Finally, a commenter, reported that its State department of 
insurance indicated that the proposed rule does not implicate any State 
insurance laws.
    Response: In the proposed rule we did not make a proposal regarding 
these State-level issues but instead, we sought 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.
    We do not believe it would be appropriate to subject ACOs to the 
same standards as health plans as a way to

[[Page 67945]]

ensure that beneficiaries receiving care from an ACO do not have less 
access to care or receive care of lesser quality. ACOs that will be 
participating in the Shared Savings Program are very different from 
health plans. Further, these regulations, which are based on Federal 
law, would not preempt State insurance laws that govern providers 
within individual States, nor would they override State and local 
protocols concerning ambulance transportation. In addition, we are not 
adopting the comments related to the application of the malpractice 
laws, including the recommendation that ACOs be exempt from State 
malpractice laws.
    At this time, we are not able to provide a list of States that 
currently recognize or authorize ACOs under their State laws, or have 
pending legislation to recognize ACOs. We believe it would be best for 
those interested in the Shared Savings Program to obtain such 
information directly from their individual State insurance agency.
    Final Decision: We would emphasize that 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 potential losses against 
the benchmark would be solely between the Medicare program and the ACO. 
We will further consider these issues in future rulemaking should we 
become aware of any unexpected program issues that render States 
responsible for bearing any costs resulting from the operation of this 
program.

H. Additional Program Requirements and Beneficiary Protections

1. Background
    Section 1899 of the Act (b)(2)(H) of the Act requires ACOs to 
demonstrate that they meet patient-centeredness criteria specified by 
the Secretary. We believe that one important aspect of patient 
centeredness is patient engagement and transparency. Therefore, we 
discuss in this section certain requirements for ACOs that we believe 
will protect beneficiaries by ensuring patient engagement and 
transparency, including requirements related to beneficiary 
notification and outreach, marketing, and public reporting.
    Section 1899 of the Act sets forth a number of requirements for 
ACOs. In addition, section 1899(a)(1)(A) of the Act authorizes the 
Secretary to specify additional criteria that ACOs must satisfy in 
order to be eligible to participate in the Shared Savings Program. In 
this section, we discuss how ACOs will be monitored with respect to 
program requirements and what actions will be taken against ACOs that 
are not in compliance with the requirements of the Shared Savings 
Program.
    Programs that include incentives to reduce costs for care may 
result in unintended consequences such as avoidance of at-risk 
patients, ``stinting'' on care, fraud and abuse, overutilization, 
deliberate delay in claims submission, and other such activities. We 
must ensure that beneficiaries continue to receive high quality and 
appropriate care, and that providers do not put beneficiaries or the 
Trust Fund at risk. In this section we also discuss our program 
integrity requirements, which we believe will help to deter 
inappropriate conduct by ACOs, while protecting the Trust Fund and the 
integrity of the Shared Savings Program and the Medicare program as a 
whole.
2. Beneficiary Protections
a. Beneficiary Notification
    As we discussed in the proposed rule, the statute does not mandate 
that ACOs should provide information to beneficiaries about the Shared 
Savings Program. Such information could include whether the 
beneficiaries are receiving services from an ACO participant or ACO 
provider/supplier, or whether the beneficiaries' expenditure and 
quality data may be used to determine the ACO's eligibility to receive 
a shared savings payment. However, we believe 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 if beneficiaries are 
not aware of the new delivery system available through ACOs, or the 
possibility of their being data used to assess the ACO's performance. 
In short, we believe transparency must be a central feature of the 
Shared Savings Program.
    In the proposed rule, we stated that we intended to develop 
educational materials and other forms of outreach, to provide 
beneficiaries with timely, accurate, clear, and understandable 
information about the Shared Savings Program. Additionally, we 
indicated that we would update the annual Medicare & You Handbook to 
contain information about the Shared Savings Program and ACOs.
    In the proposed rule, we proposed specifically to require ACO 
participants to post signs in their facilities indicating their ACO 
provider's/supplier's participation in the Shared Savings Program and 
to make available standardized written information developed by CMS to 
the Medicare FFS beneficiaries whom they serve. ACO participants would 
be required to provide standardized written notices of both their ACO 
provider's/supplier's participation in the Shared Savings Program and 
the potential for CMS to share beneficiary identifiable data with the 
ACO.
    Likewise, we discussed whether beneficiaries should be made aware 
when an ACO participant does not renew its agreement at the end of the 
agreement period, or an ACO's participation agreement has been 
terminated. Thus, we proposed that ACOs be required to provide 
beneficiaries notice in a timely manner if the ACO participant or ACO 
provider/supplier will no longer be participating in the Shared Savings 
Program. We proposed the notice should include the effective date of 
the termination of the ACO agreement.
    For a complete discussion of these notification proposals and 
rationale, please refer to the proposed rule published April 7, 2011 
(76 FR 19567).
    Comment: Many commenters supported our proposal to require ACO 
participants to notify FFS patients at the point of care that their ACO 
provider/supplier is participating in this Shared Savings Program. Some 
suggested CMS collaborate with stakeholders to educate beneficiaries 
about ACOs and the program and to seek stakeholder input on the 
materials CMS intends to provide, given the complexities of the 
program. Some suggested ensuring that language is culturally and 
linguistically appropriate and addresses low health literacy levels. 
Others suggested notices should include a detailed explanation of the 
expectations for patient engagement under the Medicare Shared Savings 
Program, and the ability of patients to receive care outside the ACO if 
they wish. Others suggested that ACOs be required to obtain the 
signature of the beneficiary in order to provide a mechanism for 
monitoring compliance with this requirement.
    Commenters varied in their opinion of whether notification of the 
program should come from the ACO or CMS. One commenter suggested first 
contact should be from practitioners as trusted partners in the 
beneficiary's care, rather than from CMS. Other commenters suggested 
that CMS should ``bear the financial responsibility for such a

[[Page 67946]]

program'' and that ``since the Medicare program has created a strong 
relationship with its beneficiaries, it is more appropriate that the 
Medicare program take all responsibility for notifying beneficiaries of 
the benefits and opportunities of receiving care through an ACO.'' Some 
suggested that CMS send a letter to a participating PCP's active 
Medicare patients on an annual basis notifying them of the potential 
use of their data to assess ACO performance, and that all 
communications to beneficiaries should be written in ``plain English''.
    Conversely, some commenters strongly objected to the proposed 
notification requirements for ACOs, suggesting that signs, even if 
developed by CMS, would not be able to convey the complexities of the 
program and would be ``confusing and annoying'' to beneficiaries as 
well as ``onerous and burdensome'' to ACOs. A health care public policy 
center criticized the sign proposal as ``costly, of unproven value, and 
duplicative given the requirement to provide written information, and 
therefore contributing to the problem of unnecessary administrative and 
financial burdens on ACOs.''
    Response: We agree with those commenters who advocated that we 
retain a notification policy in this final rule. We believe that our 
proposal to inform beneficiaries at the point of care was tested and 
successfully employed in the PGP demonstration, and did not prove to be 
``annoying'' or ``confusing'' to beneficiaries. Although we appreciate 
one commenter's concerns that the sign proposal might be costly, of 
unproven value, and duplicative, we believe that posting signs will 
serve the purpose of calling the attention of beneficiaries to the 
existence of the ACO and the choice of the ACO participant and its ACO 
providers/suppliers to participate in it, ultimately resulting in 
increased transparency and the opportunity for improving beneficiary 
engagement in this care delivery model. We believe that it is useful 
and important for every fee-for-service beneficiary to know they are 
receiving services from participants in such a program, even those 
beneficiaries whose data will not ultimately be used to assess the 
ACO's performance. This is because ACOs are intended to develop special 
methods for coordinating care and improving quality that should affect 
the care of every beneficiary and improve the engagement of the 
beneficiary as a consumer of health care, whether that beneficiary is 
ultimately ``assigned'' to the ACO or not. The presence of signs and 
written materials will provide a useful initial notification for every 
beneficiary and that could encourage beneficiaries to raise questions 
and engage in discussions with the physicians and other providers about 
the ACO and its potential effects on their care and to become a more 
active consumer and partner in the care delivered. Nor should posting 
signs be inappropriately burdensome, since CMS will develop appropriate 
language and there will be a limited number of locations in each ACO in 
which the signs will need to be posted. Finally, we believe that the 
notice should appropriately come from the ACO participant and its 
associated ACO providers/suppliers because this is the first and most 
immediate point of contact with the beneficiary. Therefore, we believe 
that it is appropriate to finalize the requirement that the ACO agree 
to post signs in the facilities of ACO participants indicating the ACO 
provider's/supplier's participation in the Shared Savings Program and 
make available standardized written notices to Medicare FFS 
beneficiaries whom they serve.
    We agree with the recommendation from commenters suggesting we 
ensure the use of ``plain writing'', and we would note that President 
Obama signed the Plain Writing Act of 2010 on October 13, 2010, which 
is intended to promote clear Government communication that the public 
can understand and use.'' We will incorporate the requirements of the 
Plain Writing Act in all CMS communications and standardized language 
regarding the Shared Savings Program. We will also clarify that 
beneficiary communications, such as notifications of provider 
participation in an ACO in the Shared Savings Program, must meet the 
applicable marketing guidelines described later in this section.
    Final Decision: We are finalizing our proposal to require ACO 
participants to post signs in their facilities indicating their 
associated ACO provider's/supplier's participation in the Shared 
Savings Program and to make available standardized written notices 
developed by CMS to Medicare FFS beneficiaries whom they serve. All 
standardized written information provided by CMS will be in compliance 
with the Plain Writing Act of 2010. We are clarifying that the 
standardized written notices must be furnished in settings in which 
fee-for-service beneficiaries are receiving primary care services.
    Additionally, as we noted in the proposed rule, under a 
retrospective assignment methodology it would not have been possible 
for ACOs to notify beneficiaries of the ACO's participation in advance 
of the period in which the beneficiary may seek services from an ACO 
participant or ACO provider/supplier. We believe the revised policy of 
preliminary prospective assignment with retrospective reconciliation 
that we are establishing in section II.E. of this final rule gives ACOs 
the information necessary to provide advance notice, if the ACO so 
chooses, to some beneficiaries who have previously received services 
from ACO providers/suppliers and who are likely to continue to do so. 
Specifically, we are revising our policy such that ACOs may choose to 
provide notification of their participation to the beneficiaries who 
appear on the preliminary prospective assignment list and quarterly 
assignment lists (described in section II.D. of this final rule).
    Finally, to minimize beneficiary confusion and reduce burden on 
ACOs and its ACO providers/suppliers, we are modifying our rule such 
that in instances where either an ACO does not renew its agreement at 
the end of the agreement period, or an ACO's participation agreement is 
terminated, ACOs will not be required to provide beneficiaries notice 
that the ACO, its ACO participants and its ACO providers/suppliers will 
no longer be participating in the Shared Savings Program. Similarly, 
ACO participants and ACO providers/suppliers that terminate their 
participation in an ACO will not be required to provide such notice to 
beneficiaries. All beneficiary notification and signage are included in 
the definition of ``marketing materials and activities'' and must 
comply with applicable marketing requirements described later in this 
section.
b. ACO Marketing Guidelines
    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, its ACO providers/
suppliers, or other individuals or entities performing functions or 
services related to ACO's activities to engage in marketing behavior 
that may confuse or mislead beneficiaries about the Shared Savings 
Program or their Medicare rights.
    As an aspect of patient centeredness, we stated in the proposed 
rule we believe it is 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 to ensure that such 
communications and marketing by ACOs are used only for appropriate 
purposes, such as notification that a beneficiary's health care 
provider is

[[Page 67947]]

participating in the ACO, issuance of any CMS required notices, or 
notification of provider or ACO terminations. We therefore proposed a 
definition of ACO marketing materials and activities and proposed that 
CMS approve materials or activities, or any revisions to previously 
approved materials in advance of their use. We proposed that failure to 
comply with marketing requirements could result in a CAP or 
termination, at our discretion. For a complete discussion of these 
notification proposals and rationale, please refer to (76 FR 19642).
    Comment: Several beneficiary advocacy organizations submitted 
comments strongly supporting our proposed marketing guidelines. They 
shared our concern that beneficiaries could be misled into thinking 
that an ACO is similar to a managed care organization and that they 
must receive services some or all services from the ACO participants 
and associated ACO providers/suppliers. These commenters also raised 
concerns that beneficiaries could be targeted by aggressive marketers 
seeking to take unfair advantage of them. Additionally, some commenters 
offered specific suggestions for strengthening our guidelines such as--
     Making approval of an ACO's application to the program 
dependent on approval of their marketing materials;
     Expanding the definition of marketing materials and 
activities to include marketing via social media.
     Providing beneficiary notification in ``plain'' English.
    In contrast, providers and provider advocates questioned the 
necessity and feasibility of our proposed marketing guidelines. These 
commenters disagreed that there is any significant potential for 
beneficiaries to be misled and noted that to require approval of 
marketing materials in advance imposes a financial and operational 
burden on the ACO. Some commenters posited that ACOs should be allowed 
to communicate with beneficiaries as necessary without any prior 
approval because physicians have long-standing relationships with their 
patients, families and the communities they serve, and their honesty 
with their patients is critical to maintaining open, positive 
relationships. These commenters recommended reducing the burden imposed 
by our proposal by, for example:
     Placing a limitation on review and approval of materials 
to those used specifically to notify beneficiaries of a provider's 
participation in an ACO and to describe the Shared Savings Program in 
addition to the notification informing beneficiaries of their 
opportunity to decline data sharing.
     Providing templates or model language for ACOs to use.
     Implementing a ``file and use'' method similar to the one 
used in the MA program and requiring the ACO to certify compliance with 
marketing requirements;
     Permitting ACOs to use outreach materials if they have 
been approved by a Regional Health Improvement Collaborative (RHIC) or 
if they have been developed and issued jointly with an RHIC.
    Response: The wide range of comments demonstrates the importance of 
this topic to stakeholders, and the importance of balancing beneficiary 
protection with the burden marketing requirements imposed on potential 
ACOs. We agree with commenters that our definition of marketing 
materials should be refined in order to offer additional beneficiary 
protections. We agree with commenters that social media can be used as 
a marketing tool and therefore will modify our definition of 
``marketing materials and activities'' to include social media, such as 
Twitter or Facebook.
    We are also sensitive to the operational burden imposed by our 
proposal that the ACO seek prior approval before the use of any 
marketing materials. We decline the commenter's suggestion to make an 
ACO's application approval dependent on approval of marketing materials 
because it would not address the use of new or revised marketing 
materials and activities after the approval of an ACO's application to 
participate in the Shared Savings Program. In light of the comments, 
this final rule provides that marketing materials and activities may be 
used or conducted 5 business days following their submission to CMS, 
provided that the ACO certifies compliance with applicable marketing 
requirements and CMS does not disapprove the marketing materials and 
activities. This final rule further provides that marketing materials 
and activities are deemed approved after expiration of the initial five 
day review period, but permits CMS to disapprove marketing materials 
and activities at any time, including after the expiration of the 
initial 5 day review period. The ACO, ACO participant, or ACO provider/
supplier, as applicable, must discontinue use of any marketing 
materials or activities disapproved by CMS and may be sanctioned for 
using disapproved marketing materials and activities.
    We disagree with the commenter who suggested that there is little 
potential for marketing materials and activities to mislead 
beneficiaries. To ensure the accuracy of marketing materials, this 
final rule imposes a requirement that marketing materials and 
activities must not be inaccurate or misleading. In addition, we will 
make template language available for certain marketing materials and 
require that such template language be used when available. We agree 
with commenters that it is desirable for marketing and notification 
materials to be provided in ``plain writing'' according to the 
definition of the term ''plain writing'' which means writing that is 
clear, concise, well-organized, and follows other best practices 
appropriate to the subject or field and intended audience. We note that 
the Plain Writing Act of 2010, signed by President Obama on October 13, 
2010, applies only to Government communications. To the extent that CMS 
supplies templates or model language for ACOs to use in marketing 
materials, we will ensure it complies with the Plain Writing Act of 
2010.
    In response to commenters recommending limiting review of only 
certain marketing materials and activities, we clarify that our 
proposed definition of marketing materials and activities includes 
materials ``used to educate, solicit, notify, or contact Medicare 
beneficiaries or providers and suppliers regarding the Shared Savings 
Program.'' Additionally, our definition of marketing materials and 
activities excludes materials that do not include information about the 
ACO, its ACO participants or its ACO providers/suppliers.
    Comment: Commenters recommended that CMS prohibit certain behaviors 
such as discriminatory marketing directed at certain types of 
beneficiaries or beneficiaries with certain health profiles, marketing 
that misleads or confuses beneficiaries about benefits and services, 
making claims that the ACO is recommended or endorsed by Medicare. 
Commenters recommended modifying the definition of ``marketing 
materials and activities'' to remove the exception for ``informational 
materials customized or limited to a subset of beneficiaries,'' stating 
it creates a significant loophole for ACOs to engage in discriminatory 
behaviors.
    Response: We understand the commenters' concerns and agree that 
targeting certain types of beneficiaries including beneficiaries with 
certain health profiles or beneficiaries with certain racial or ethnic 
profiles or with language barriers could be used in some circumstances 
to mislead beneficiaries and should be prohibited as discriminatory 
marketing. However, we

[[Page 67948]]

also believe that some targeted materials are necessary for care 
coordination. For example, an ACO may send materials targeted to heart 
patients because they have a specialized heart facility that can 
coordinate the care of such individuals. Requiring such materials to be 
sent to all beneficiaries would be less effective and imposes an 
additional financial burden on the ACO. Thus, where targeted materials 
promote beneficiary access and care coordination, they likely do not 
constitute discriminatory marketing. Because we do not believe that all 
targeted materials are necessarily discriminatory, we are not revising 
the definition of ``marketing materials and activities'' as suggested 
by the commenters. We are instead modifying the marketing requirements 
to provide that marketing materials and activities must not be used in 
a discriminatory manner or for discriminatory purposes.
    Final Decision: We are finalizing the definition of marketing 
materials and activities without substantive change at Sec.  425.20 of 
this final rule. We note that the definition is revised to include 
language proposed in the preamble that was inadvertently omitted from 
the proposed regulation text. Accordingly, Sec.  425.20 excludes from 
the definition of marketing materials or activities those materials and 
activities that do not constitute ``marketing'' under 45 CFR 164.501 
and 164.508(a)(3)(i).
    Further, this final rule allows ACOs to use marketing materials 5 
days after filing them with CMS if the organization certifies that the 
marketing materials comply with all applicable marketing requirements. 
We have revised the regulation to specify that all marketing materials 
and activities must use template language when available, must comply 
with the prohibition set forth at Sec.  425.304(a) regarding certain 
beneficiary inducements, must not be used in a discriminatory manner or 
for discriminatory purposes, and must not be inaccurate or misleading. 
Materials will be provided in ``plain'' language that is easily 
comprehensible, clear, concise, well organized, and complies with 
requirements of the Plain Writing Act of 2010.
    Finally, if ACOs are found not in compliance with marketing 
guidelines, they will be subject to penalties as discussed later in 
this section of the final rule.
c. Public Reporting and Transparency
    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. 
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 an 
ACO to be willing to ``become accountable for the quality, cost, and 
overall care'' of the Medicare beneficiaries assigned to it.
    Therefore, as stated in the proposed rule, 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. We proposed that certain information regarding the 
operations of the ACO would be subject to public reporting to the 
extent administratively feasible and permitted by law. We proposed that 
each ACO must be responsible for making this information available to 
the public in a standardized format that we will make available through 
guidance. This requirement would be included in each ACO's agreement. 
For a more complete discussion of these proposals and rationale, please 
refer to (76 FR 19653).
    Comments: Numerous commenters wrote in support of public reporting 
and transparency but varied in their recommendations about how the 
reporting should occur. A few commenters suggested expanding public 
reporting beyond what was proposed. Some commenters supported ACOs 
reporting the data rather than CMS. However, other commenters believed 
that the cost and administrative burden of asking ACOs to report 
measures seemed unnecessary and possibly less effective than making CMS 
responsible for public reporting. One commenter suggested CMS work with 
states to develop public reporting sites. One commenter stated that 
both CMS and the ACO should report the data. A few recommended that 
ACOs be allowed some flexibility in how the reporting occurs in order 
to best meet the needs of their patients. A few commenters suggested 
public reporting not occur until the second or third year to allow ACOs 
to develop the necessary infrastructure and expertise. We received few 
comments regarding whether additional information should be required to 
be publicly reported by ACOs with a two-sided model. A few commenters 
suggested that ACOs be allowed to review and verify CMS data before the 
information is released.
    Response: We believe it is 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. Public reporting also supports the mandate 
for ACOs to be willing to ``become accountable for the quality, cost, 
and overall care'' of the Medicare beneficiaries assigned to it. 
Reports on ACO quality and cost performance will hold ACOs accountable 
and contribute to the dialogue on how to drive improvement and 
innovation in health care. 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. We believe publicly reporting 
certain ACO quality data on the Physician Compare Web site is a good 
first step toward Shared Savings Program transparency, consistent with 
comments and other quality program efforts. The mechanism for public 
reporting of other quality measures, such as measures of patient 
experience and claims- and administrative-based measures, will be 
addressed in guidance.
    Final Decision: We are finalizing our proposal for public reporting 
as outlined in Sec.  425.308. Consistent with the proposed regulation 
text, the final public reporting provision requires ACOs to publicly 
report the identity of each member of the governing body, not just the 
ACO participants.
    We expect that the reporting of quality performance standards will 
align with the proposed new public reporting requirements under the 
Physician Quality Reporting System (76 FR 42841). Specifically, because 
an ACO will be considered to be a group practice under the Physician 
Quality Reporting System GPRO under the Shared Savings Program, we 
intend to report ACO quality performance GPRO measures on Physician 
Compare along with the performance of all other PQRS group practices. 
However, we note that this modification is contingent upon the final 
policies regarding public reporting under the PQRS, which will be 
announced in the CY 2012 Physician Fee Schedule final rule that will be 
issued later this year. We will issue guidance to provide ACOs with 
guidelines regarding public reporting of the quality performance 
scores.
3. Program Monitoring
a. General Methods Used To Monitor ACOs
    In implementing other Medicare programs, including MA and the 
Medicare Prescription Drug programs,

[[Page 67949]]

we have gained extensive experience in monitoring organizational, 
provider, and supplier behavior with respect to compliance with the 
Medicare program and program integrity requirements, quality 
measurement, avoidance of particular types of beneficiaries, 
overutilization, and claims submissions. General monitoring methods can 
be used, for example, to assess whether the ACO provider/suppliers have 
been stinting on care provided to beneficiaries assigned to the ACO in 
an effort to artificially create savings to obtain a shared savings 
payment, or over utilizing items and services furnished to 
beneficiaries who are not assigned to the ACO in order to make up 
revenues it may no longer be receiving due to other efficiencies or to 
assess if an ACO is steering beneficiaries through selective billing 
for the purpose of affecting shared savings and losses. A number of 
factors may trigger our heightened oversight of ACOs by us, including 
conduct that may form the basis for terminating the ACO agreement 
described in this section II.H.5 of this final rule. Given the goals of 
the Shared Savings Program, we anticipate particularly close 
examination of ACOs that incur large losses.
    In the proposed rule, we proposed to employ many of the methods we 
have developed for purposes of the MA and Medicare prescription drug 
programs to monitor and assess ACOs, ACO participants, and ACO 
providers/suppliers for noncompliance with statutory and regulatory 
eligibility and other program requirements. We proposed that 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.
     Collection, assessment and follow up investigation of 
beneficiary and provider complaints.
     Audits (including, for example, analysis of claims, chart 
review, beneficiary surveys, coding audits).
    If based upon the results of our monitoring activities we conclude 
that the ACO may be subject to termination, we proposed to use our 
discretion to 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 describing the issue 
of concern.
     Request a CAP from the ACO.
     Place the ACO on a special monitoring plan.
    We sought comment on additional actions or sanctions that may be 
appropriate prior to termination.
    Comment: Some commenters agreed that a number of beneficiary 
protection policies within the ACO program, including rules around 
contacting the beneficiaries directly, monitoring avoidance of at-risk 
beneficiaries, monitoring beneficiary and provider complaints, record 
retention, termination, payment structure within the ACO, and 
monitoring quality metrics were needed to help avert any unintended 
consequences to beneficiaries.
    Some commenters suggested additional protections were necessary, 
stating that our proposed monitoring methods lacked appropriate 
safeguards and operational details necessary to create a comprehensive 
program that is quality driven. Specifically, commenters suggested that 
the ACO should have a provider network that is inclusive of all 
medically necessary services, that ACOs should be held to the same 
standards required for MA plans, or that ACOs be required to implement 
a comprehensive independent monitoring program for monitoring ACO 
performance that includes collecting data on race and ethnicity, 
validating beneficiary satisfaction surveys, and providing oversight 
for financial solvency in order to ensure consumer protections and 
market stability.
    Other commenters suggested that CMS implement an evaluation or 
monitoring program to allow lessons learned from this program to be 
integrated in the larger Medicare program and to determine the 
following: Whether an ACO is achieving desired goals, such as less 
fragmented care and improvement of quality of care beyond the set of 
identified performance measures; whether or not elements of the ACO 
structure are contributing to any identified improvements or whether 
they are having a negative effect; whether there are positive 
characteristics of certain ACOs that can be transferred to other ACOs; 
and whether ACOs work better in certain environments (rural vs. urban) 
or with certain populations. Finally, some commenters suggested that 
CMS should have just cause to audit an ACO or its participants because 
audits are costly and burdensome to Medicare providers. They suggested 
that CMS narrow the types of organizations to which it applies this 
open-ended audit policy or reduce monitoring requirements after an ACO 
has successfully delivered a minimum of 5 percent savings for 3 years 
in a row.
    Response: We believe that the beneficiary and program monitoring 
and protections we are finalizing contain appropriate safeguards and 
are necessary to ensure that unintended consequences are minimized. We 
reiterate that the Shared Savings Program is built on the FFS system, 
and beneficiaries retain all rights and benefits under traditional FFS 
Medicare. Therefore, we do not believe it is necessary to impose the 
same protections or network adequacy requirements as are present in the 
MA program because the Shared Savings Program does not lock-in 
beneficiaries or restrict beneficiary access to services or their 
choice of providers. However, we have and will use our experience with 
monitoring MA plans to inform our monitoring of ACOs.
    In our monitoring, we intend to rely primarily on claims-based 
measures and other information provided by beneficiaries and providers. 
We will conduct a sufficient number of audits necessary to assess ACOs 
performance. We disagree with the comments suggesting that we should 
narrow the number or type of organizations that are subject to audits 
or that audits should be conducted only if there is a suspicion of 
wrong doing of some other ``good cause'' to audit. To protect the 
program, we need the flexibility to audit and monitor compliance under 
a variety of circumstances. This is particularly critical for the 
Shared Savings Program, not only because it is a new program, but also 
because it includes the waiver of certain fraud and abuse authorities. 
However, as a practical matter, we may choose to target our resources 
to audit or monitor certain organizations or compliance with certain 
program requirements.
    We agree with commenters that evaluation of the Shared Savings 
Program and ACOs can help us determine the impact and effectiveness of 
the program. We intend to improve the Shared Savings Program over time 
by integrating lessons learned by modifying program requirements as 
necessary to reflect lessons that demonstrated positive and effective 
characteristics of ACOs, or to mitigate any negative results. We may 
also use lessons learned to improve upon existing Medicare programs.
    Final Decision: We appreciate both the support for our monitoring 
proposals by providers and the beneficiary advocate community, as well 
as the concerns expressed regarding the need for increased monitoring 
and concerns regarding burden on providers and ACOs. We believe our 
proposals balance these

[[Page 67950]]

concerns. Therefore, we will finalize without substantive change the 
proposal to use the many methods at our disposal to monitor ACO 
performance and ensure program integrity, including but not limited to, 
undertaking an audit if we determine it is necessary.
b. Monitoring Avoidance of At-Risk Beneficiaries
(1) Definition of At-Risk Beneficiaries
    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 proposed a definition which is detailed in the 
proposed rule at (76 FR 19625). We sought comment on this definition of 
``at-risk beneficiary'' and whether other beneficiary characteristics 
should be considered in determining whether a beneficiary is ``at-
risk.''
    Comment: Several commenters expressed concern that our definition 
of at-risk beneficiaries did not include certain high-risk diseases and 
conditions for which patients may need specialized care or follow-up 
during recovery. They made many suggestions for additional conditions 
or diagnoses that would cause a beneficiary to be considered at-risk 
such as--
     Persons with disabilities;
     Beneficiaries with limited proficiency in English or low 
economic status;
     Non-compliant patients;
     Patients who choose to have elective surgeries;
     Patients with recent diagnoses or conditions that are 
expected to result in increased cost, such as amputation, major 
multiple trauma, fracture of femur, various neurological disorders 
(such as stroke, spinal cord injury, brain injury, multiple sclerosis, 
motor neuron diseases, polyneuropathy, muscular dystrophy, and 
Parkinson's disease), burns, bilateral knee and hip joint replacements, 
specific types of rheumatoid and osteoarthritis, transplant patients 
and beneficiaries with end-stage renal disease, persons diagnosed with 
diabetes or pre-diabetes, cancer patients and survivors;
     Patients with mental health or substance use disorders 
(MH/SUD); or
     Patients seen in an emergency room 3 times within 12 
months.
    Response: We believe that our proposed definition is general enough 
to include most of the specific suggestions made by commenters. For 
example, the suggestion was made to include beneficiaries who have 
brain injuries or other chronic conditions. We believe beneficiaries 
who have brain injury or other chronic conditions suggested by 
commenters are included in our proposed definition which we proposed in 
preamble would include beneficiaries who have one or more chronic 
conditions. We also believe that many beneficiaries with low 
socioeconomic status are included in our definition which includes 
dually eligible beneficiaries. We disagree that beneficiaries with 
limited proficiency in English should be included in the definition of 
at-risk beneficiaries. We do not believe that limited English 
proficiency puts patients at risk for significant increases in health 
care costs. However, we note, that this final rule prohibits ACOs, ACO 
participants, ACO providers/suppliers, and other individuals or 
entities performing functions or services related to ACO activities 
from engaging in discriminatory marketing directed at certain types of 
beneficiaries, includes those with language barriers. We believe that 
patients seen in an emergency room to three times in a 12 month period 
are included in the proposed definition of at-risk which specifically 
mentions emergency room use. However, we agree with commenters that our 
proposed definition should be expanded to include patients who are 
entitled to Medicare because of disability and those who are diagnosed 
with mental health or substance use disorders. Such conditions could 
also be very high-cost conditions and thus make these beneficiaries 
targets for avoidance. We also agree that as we learn more about the 
ACOs and the Shared Savings Program, other types of beneficiaries may 
be considered at-risk for avoidance
    Final Decision: Given our reasoning described previously, we are 
finalizing the definition of at-risk beneficiary as proposed in Sec.  
425.20, with the addition of patients who are entitled to Medicaid 
because of disability and who are diagnosed with a mental health or 
substance abuse disorder.
(2) Penalty for Avoidance of At-Risk Beneficiaries
    To identify ACOs that could be avoiding at-risk beneficiaries, we 
proposed to use a variety of methods that would begin with an analysis 
of claims and examination of other beneficiary-level documentation 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 beneficiaries or the ACO (including 
ACO participants, ACO providers/suppliers, and other individuals or 
entities performing functions or services related to ACO's activities) 
in order to determine whether avoidance of at-risk beneficiaries has 
occurred. For example, as a part of our monitoring for avoidance of at 
risk beneficiaries, we would be interested in assessing the changes in 
risk adjustment of the assigned population over time. Changes in risk 
adjustment of the beneficiaries assigned in the prior year who are not 
assigned in the current performance year could help determine whether 
there is a pattern of avoidance. In cases where it appears the ACO has 
developed a pattern of avoidance, we stated we may determine an audit 
is necessary. If as a result of our analysis we conclude that an ACO 
has been avoiding at-risk beneficiaries during a performance year, we 
proposed to notify the ACO of our determination and to require the ACO 
to submit a CAP for our approval as discussed in later in this section 
II.H.5 of this final rule. We proposed that the CAP must address 
actions the ACO would take to ensure that the ACO, ACO participants, 
ACO providers/suppliers, and other individuals or entities performing 
functions or services related to ACO activities cease avoidance of at-
risk beneficiaries and that the CAP must be implemented as approved. In 
addition, we proposed that the ACO would 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 proposed that an ACO operating under a 
CAP because it has avoided at-risk beneficiaries would not receive 
shared savings payments while under a CAP regardless of the performance 
period in question, and would not be eligible to earn any shared 
savings for the period during which it is under this CAP.
    We solicited comments on whether lesser sanctions would be 
appropriate when an ACO avoids at-risk beneficiaries.
    Comment: Commenters shared CMS' concern that ACOs may seek to avoid 
at-risk beneficiaries. While the commenters did not directly address 
our proposed methods for monitoring, they did suggest that CMS 
implement a robust monitoring strategy to ensure beneficiary 
protections such as: Requiring ACOs to have an effective grievance 
process in place to ensure beneficiaries have recourse against unfair 
practices; requiring ACOs to provide access to specialists trained in

[[Page 67951]]

the care of complex, high-need patient populations (for example 
oncology patients or patients needing palliative or hospice care) 
across diagnostic categories and that the penetration of palliative 
care and hospice care among high-need high-cost beneficiaries be 
assessed; requiring ACOs to monitor primary care physician's referral 
patterns to ensure that medically necessary services are not denied to 
Medicare patients with cancer; use of individualized care plans for 
patients at-risk and other potentially critical conditions, and strict 
enforcement of penalties for avoiding beneficiaries.
    A few commenters expressed concerns that CMS' proposal was not 
robust enough. These commenters stated they believe that CMS would only 
enforce penalties for avoiding patients at-risk in extreme 
circumstances and urged CMS to strictly enforce penalties. A few 
commenters suggested lesser sanctions, including the cessation of or 
reduction in the assignment of new beneficiaries, a reduction in the 
amount of shared savings payments, or a fine for each instance of 
avoiding an at-risk beneficiary.
    Response: We believe that the proposed policy is necessary for 
beneficiary and program protections and is in accordance with section 
1899(d)(3) of the Act. We do not agree that we should use the lesser 
sanctions suggested by the commenters for avoidance of at-risk 
beneficiaries because of the serious implications that avoidance of 
high risk patients has on Medicare beneficiaries. Also, this is a new 
program and we do not have any experience to determine the true 
severity of this issue. However, we may consider lesser sanctions as we 
gain experience. It is our intention to create policies that ensure 
beneficiary and program protections while minimizing the burden on 
ACOs. Since Medicare FFS beneficiaries have many mechanisms at their 
disposal to lodge their grievances against practitioners involved in 
their care (including 1-800 Medicare, the Medicare ombudsman's office, 
quality improvement organizations and others), we do not believe an 
additional grievance mechanism needs to be developed that is specific 
to ACOs. Instead, we will monitor complaints by beneficiaries assigned 
to ACOs that come in through these established mechanisms. We believe 
the CAP process described previously provides ACOs the opportunity to 
explain and correct any deficiencies to potentially avoid termination 
or other penalties. Therefore, we are finalizing our proposal to place 
ACOs under a CAP to correct the deficiency before termination of its 
participation agreement and to require the ACO to forfeit any shared 
savings it was eligible for while under the CAP. However, in response 
to comments, we will modify our proposal to retain the discretion to 
impose immediate termination in appropriate cases.
    Final Decision: We are finalizing our proposal to use various 
methods at our disposal, as discussed previously in this section to 
monitor ACOs for avoidance of at-risk beneficiaries, and the actions we 
will take if we conclude an ACO has been avoiding at-risk beneficiaries 
(under Sec.  425.316). In response to commenter concerns, we are 
retaining in this final rule the right to terminate immediately in 
appropriate cases.
c. Compliance With Quality Performance Standards
    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. In the proposed rule, we made proposals related 
to termination of an ACO for failure to meet the established quality 
performance standards. For a complete discussion and description of our 
proposals, please refer to (76 FR 19625).
    Comments: A few commenters believed that our proposal for 
monitoring compliance with quality performance standards were limited 
and insufficient. Commenters suggested that the language be revised to 
remove the warning for the first incident and to add language that the 
ACO will be evaluated during the subsequent 3 to 6 months depending on 
the number of affected beneficiaries and the seriousness of the 
problem, and if the ACO is still out of compliance, CMS may terminate 
the ACO or take other actions such as a reduction in shared savings 
payments. Additionally, commenters stated that CMS should differentiate 
between the failure to meet quality performance standards because of 
lack of data infrastructure rather than the failure to satisfy quality 
performance standards due to provisions of poor quality care. It was 
suggested that ACOs that furnish poor quality care should be subject to 
closer monitoring than ACOs that fail because of faulty data processes.
    Response: We have considered the comments and agree that we should 
have flexible methods for enforcing compliance with the quality 
performance standards. We proposed in Sec.  425.216 that the issuance 
of a warning letter followed by re-evaluation in 1 year applied in 
addition to the actions prior to termination set forth at proposed 
Sec.  425.218. Thus, depending on the nature and severity of the 
noncompliance, we may forgo the issuance of a warning letter and 
instead place the ACO on a special monitoring plan or immediately 
impose a CAP and additional monitoring. At this time, we do not believe 
it necessary to create penalties or procedures in addition to those we 
proposed, although we have modified the regulation to permit immediate 
termination when warranted. We will consider appropriate additional 
penalties in the future as necessary.
    Comment: A commenter suggested that when an ACO makes a written 
request for payment of shared savings (or acknowledges shared losses), 
it should describe how it was able to ensure that quality was not 
negatively impacted as a result of the changes it made to generate 
savings.
    Response: Because an ACO cannot share in savings without satisfying 
the quality standards, we do not believe it is necessary to require an 
ACO to describe how it ensured that quality did not suffer as a result 
of its activities. With respect to ACOs that incur losses, we will be 
monitoring their quality performance and will take appropriate action 
in response to such monitoring. In light of the eligibility and program 
requirements, monitoring procedures, and sanctions provisions, we do 
not believe it is necessary to require ACOs, including those that incur 
losses, to submit a written description of how they ensured that 
quality was not negatively affected by the ACO's activities. The policy 
regarding a written request for shared savings has been modified as 
described later in this section.
    Final Decision: We are finalizing our rule as proposed regarding 
termination for poor quality performance under Sec.  425.316(c), except 
that this final rule permits for immediate termination or a CAP in 
addition to a warning letter for ACOs who are underperforming on 
quality performance standards.
4. Program Integrity Requirements
    Section 1899(a)(1)(A) of the Act authorizes the Secretary to 
specify criteria that groups of providers of services and suppliers 
must meet in order to work together to manage and coordinate care for 
Medicare FFS beneficiaries through an ACO. Using this authority, we 
proposed 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 67952]]

Medicare program or in other Federal health care programs.
    Comment: Commenters generally agreed with the need for the proposed 
program integrity requirements. A few commenters expressed concern that 
although the ACO participants and ACO providers/suppliers undergo 
stringent screening to participate in Medicare, the ACO entity itself 
is not required to enroll in Medicare, which may make this program 
vulnerable to fraud, waste, and abuse. Several commenters suggested 
that our proposed program integrity requirements impose operational and 
administrative burdens on ACOs which would increase costs and distract 
organizations from focusing on improving care coordination and quality 
of care. Other commenters suggested strengthening our proposed 
requirements.
    Response: The goal of our program integrity proposals are to 
protect the rights of beneficiaries and minimize the risk of fraud and 
abuse in the Shared Savings Program. We are seeking to strike the right 
balance between helping providers provide high quality coordinated and 
efficient care to Medicare beneficiaries, while also protecting the 
Medicare Trust Funds. Striking this balance requires us to ensure that 
the ACO implements certain compliance requirements. As described later 
in this final rule, we are adopting our program integrity proposals 
with clarification in this final rule.
    Comment: A commenter expressed concern that because of financial 
pressures to reduce utilization and costs, practitioners will be 
exposed to an increased likelihood of malpractice suits. The commenter 
suggested that CMS create a specialty health court to handle suits 
against ACOs and their providers by ACO patients.
    Response: We do not have the statutory authority to create such a 
system. We expect ACO providers/suppliers to provide high quality, 
coordinated care, and are adopting a number of monitoring strategies to 
ensure that they are meeting these requirements. As a result, it is not 
clear that malpractice litigation will increase, and indeed may 
decrease if beneficiary outcomes improve as a result of the activities 
of the ACO.
a. Compliance Plans
    We proposed that an ACO have a compliance plan. 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. However, 
we proposed requiring that the ACO demonstrate that it has a compliance 
plan that includes at least the following elements: 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, the ACO participants, or the ACO providers/suppliers to report 
suspected problems related to the ACO; compliance training for the ACO, 
the ACO participants, the ACO providers/suppliers; and a requirement 
for the ACO, its ACO participants, and other individuals or entities 
performing functions or services related to ACO activities to report 
suspected violations of law to an appropriate law enforcement agency. 
We also noted that an ACO may want to coordinate its compliance efforts 
with the compliance functions of its ACO providers/suppliers.
    Comment: Commenters generally agreed with the proposed compliance 
plan requirement. However, a few commenters pointed out that they 
believe a compliance plan does not stop fraud, waste, and abuse. These 
commenters believe that the program requirements should be 
strengthened. Some commenters recommended that CMS establish compliance 
plan requirements and intermediate sanctions for the Shared Saving 
Program, similar to those used for Medicare Advantage programs or that 
CMS explain why it does not believe that an ACO should adhere to the 
same or similar requirements that MA organization must meet.
    Response: We agree that compliance plans on their own do not stop 
fraud and abuse; however, compliance programs increase the likelihood 
of identifying and preventing unlawful and unethical conduct; provide a 
centralized source for distributing information on health care 
statutes, regulations, and other program directives related to fraud 
and abuse; and create an environment that encourages employees and 
others to anonymously report potential problems, among other benefits. 
We believe the compliance plan helps guide the organization in the 
right direction and is necessary to ensure the ACO is taking action 
regarding suspected fraud and abuse. Therefore, we are finalizing our 
proposal on compliance plans to require a method for employees or 
contractors of the ACO, the ACO participants, or the ACO providers/
suppliers to anonymously report suspected problems related to the ACO 
and to require that ACOs report suspected fraud and abuse to an 
appropriate law enforcement agency. In addition to finalizing the 
compliance plan requirements, this final rule strengthens other program 
requirements and remedies (for example, we may impose immediate 
termination in appropriate circumstances) to minimize the potential for 
fraud and abuse.
    Comment: One commenter suggested that CMS consider limiting the 
compliance training to the compliance officer to reduce some of the 
burden on ACOs.
    Response: We believe that requiring compliance training for the ACO 
and all of its ACO participants and ACO providers/suppliers help to 
ensure that every ACO participant, ACO providers/suppliers, and 
contractor understands their legal obligations with respect to the 
ACO's operations and performance, as well as the requirements of the 
compliance program and the manner in which their ACO is implementing 
such requirements. Without compliance training, ACO participants, ACO 
providers/suppliers, and contractors may not be aware of potential 
compliance risks and how to report compliance concerns. We do not 
believe that only training the compliance officer is sufficient to 
ensure that the entire ACO is aware of compliance risks.
    Comment: A few commenters disagreed with our proposal that the 
compliance officer is not permitted to also be legal counsel to the 
organization. These commenters suggested if CMS will not allow an 
attorney to be both legal counsel and compliance officer, it would be 
important to have a clear statement from CMS that an attorney may not 
serve as the compliance officer.
    Response: We believe it is important that the authorized, 
designated compliance officer not also be the legal counsel to the 
organization. However, many compliance officers are trained as 
attorneys, and we did not mean to suggest that an attorney would not be 
able to serve as a compliance officer. We clarify that the legal 
counsel to the ACO and the compliance officer must be different 
individuals, in order to ensure independent and objective legal reviews 
and financial analyses of the organization's compliance efforts and 
activities by the compliance officer. We are also clarifying that for 
existing organizations, ACOs can use their current compliance officer, 
who must report directly to the ACO's governing body, provided that the 
compliance officer is not legal counsel to the existing organization. 
We believe this decision allows the ACO to take full advantage of the 
compliance

[[Page 67953]]

requirements already in existence and reduces the burden on ACOs.
    Comment: One commenter believed that attempting to meet legal 
requirements of two or more different entities in cases such as when 
providers may be participating in an ACO for some patients, but 
continue to function as an independent provider for others can create 
considerable complexity and confusion.
    Response: In order to provide ACOs with the flexibility they need 
to define a compliance plan that meets the needs of the ACO, its ACO 
participants, its ACO providers/suppliers, and contractors, we decline 
to specify how various organizations should work together to develop 
their plan. We look forward to innovation from the industry in this 
area. We will monitor reports of any difficulty in this area and may 
address this issue further in future rulemaking.
    Comment: A few commenters recommended that the requirement to 
report suspected violations of law to an appropriate law enforcement 
agency be removed because it deviates from accepted compliance 
practices. The commenters pointed out that the phrases ``suspected 
violations'' and ``suspected fraud, waste, and abuse'' are unclear and 
too general. Additionally, commenters are concerned that this reporting 
requirement suggests that there is no chance for the ACO to resolve the 
problem first, before reporting it.
    Response: Health care providers have had compliance obligations for 
many years and have developed successful approaches to combating fraud 
and abuse in their organizations. The Office of the Inspector General 
has outlined industry best practices for compliance programs as well as 
a description of the risks of fraud and abuse that various providers 
may face. We suggest that providers without experience developing 
compliance programs review the various resources that are available 
from the OIG'S web site to help determine the risk of fraud and abuse 
in the ACO and when an activity may rise to the level of a violation 
that may need to be reported. The Office of the Inspector General has 
consolidated its compliance guidance at: http://oig.hhs.gov/compliance/compliance-guidance/index.asp. Resources are also available for ACOs 
and ACO participants to self disclose potential violations. For 
example, the Medicare self-referral disclosure protocol for potential 
violations of the physician self-referral statute is available at: 
https://www.cms.gov/physicianselfreferral/65_self_referral_disclosure_protocol.asp and the OIG's provider self-disclosure 
protocol is available at: http://oig.hhs.gov/authorities/docs/selfdisclosure.pdf.
    We believe ACOs should have a compliance program that allows for 
the prompt and thorough investigation of possible misconduct by ACO 
participants, ACO providers/suppliers, other individuals or entities 
performing functions or services related to ACO activities, corporate 
officers, managers, employees, and independent contractors, as well as, 
early detection and reporting of violations, thus minimizing the loss 
to the Federal government from false or improper claims and thereby 
reducing the ACO and ACO participants' and its ACO providers/suppliers' 
to applicable civil damages and penalties, criminal sanctions, or 
administrative remedies, such as program exclusion, as applicable. As 
such, ACOs should consider implementing a system for identifying and 
addressing possible violations when designing their compliance plan. We 
are modifying the final rule to provide that ``probable'' violations 
should be reported to law enforcement.
    Final Decision: We are finalizing our proposed compliance plan 
requirements with minor modifications, as outlined in Sec.  425.300. 
Like the proposal, the final rule allows an ACO to coordinate and 
streamline compliance efforts with those of its ACO participants and 
ACO providers/suppliers. We have added a provision requiring compliance 
plans to be updated periodically to reflect changes in law, including 
new regulations regarding mandatory compliance plan requirements of the 
Affordable Care Act. In addition, we provide that ``probable'' 
violations of law should be reported to law enforcement. Finally, we 
clarify that although both legal counsel to the ACO and the compliance 
officer may have a legal education, legal counsel to the ACO and the 
compliance officer must be different individuals. ACOs may use their 
current compliance officer, who must report directly to the ACO's 
governing body, provided that the compliance officer is not legal 
counsel to the existing organization and meets the requirements of 
Sec.  425.300.
b. Compliance With Program Requirements
    We proposed that, notwithstanding any relationships that the ACO 
may have with other entities regarding ACO related activities, the ACO 
maintains ultimate responsibility for compliance with all terms and 
conditions of its participation agreement with CMS. We proposed 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 must require compliance 
with the ACO's obligations under its agreement with CMS, including the 
document retention and access requirements discussed in this section 
II.H.4.f of this final rule. Further, we proposed that an individual 
with the authority to legally bind the ACO (for example, the ACO's 
chief executive officer (CEO), chief financial officer (CFO)) must 
certify the accuracy, completeness, and truthfulness of information 
contained in its Shared Savings Program application, agreement with 
CMS, and submissions of quality data and other information. The 
certification must be made at the time the application, agreement, and 
information is submitted.
    We proposed that, as a condition of receiving a shared savings 
payment, an individual with the authority to legally bind the ACO (for 
example the ACO's chief executive officer (CEO) or chief financial 
officer (CFO)), must make a written request to CMS for payment of the 
shared savings in a document that recertifies the ACO's compliance with 
program requirements as well as the accuracy, completeness, and 
truthfulness of any information submitted to CMS by the ACO, its ACO 
participants, or its ACO providers/suppliers, or other individuals or 
entities performing functions or services related to ACO activities 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. To ensure the accuracy of information 
relied upon in calculating shared losses, we proposed to require 
submission of a similar recertification by an ACO that incurs losses 
under the two-sided model. We further proposed that, if any data or 
information on which we rely to determine shared savings or losses are 
generated by ACO participants or another entity, or a contractor, or 
subcontractor of the ACO, the ACO participants or the ACO provider/
suppliers, 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.
    Comment: A few commenters were concerned about the requirement that 
a single, authorized representative of the ACO must ``certify the 
accuracy, completeness and truthfulness of information contained in the 
Shared

[[Page 67954]]

Savings Program application.'' as well as quality data and other data, 
because the penalty for an individual's false certification, is not 
clear. The commenters were concerned that, given the amount of data 
being provided and the variety of individuals and entities other than 
the ACO that may generate the data (for example, ACO participants, ACO 
providers/suppliers, and contractors to such entities), it is possible 
that the ACO may unintentionally submit some incorrect information. The 
commenters recommended a ``to the best of my knowledge'' attestation or 
some other resolution that would apportion the responsibility to submit 
accurate information among the ACO, ACO participants, ACO providers/
suppliers and their contractors.
    Response: An individual or entity may be prosecuted under Federal 
law for the submission of false information, including a false 
certification, only if he or she knowingly submits false information 
(that is, with actual knowledge of its falsity or in reckless disregard 
or deliberate ignorance of the truth or falsity of the information). If 
the individual or entity later realizes that incorrect information has 
been submitted unintentionally, the individual or entity must timely 
submit corrected information. We expect that the submission and 
certification of forms, data, and other information will be completed 
by an appropriately authorized individual who knows or should know that 
the information submitted is true, accurate, and complete. Although we 
did expressly state in the preamble that the certification must be 
provided to the best of the certifying official's knowledge, 
information, and belief (76 FR 19544), we acknowledge that this 
language was not included in the text of the proposed regulation. As 
such, we wish to clarify that the certification language may include 
``to the best of my knowledge or belief'' or similar language appearing 
in other Medicare certifications. We will provide the forms that 
require certification in guidance. We note that if it is discovered 
that the authorized designee knew or should have known that the 
information submitted was inaccurate, then he and/or the ACO, and/or 
the participants/providers/suppliers could be subject to liability for 
making false statements, termination, or other sanctions.
    Comment: Some commenters thought that we proposed a cumbersome or 
burdensome process for requesting payment of shared savings and 
recertifying the accuracy of the information relied upon for 
calculating shared savings and losses.
    Response: We agree a simpler process is warranted, although it is 
critical that ACOs certify the accuracy of information we rely upon in 
calculating shared savings and losses. We will require ACOs to certify 
after each performance period the accuracy of all information and data 
that we rely upon in determining eligibility for shared savings, the 
amount of any shared savings payments, and the amount of shared losses, 
if applicable. If the ACO or one of its ACO participants or ACO 
providers/suppliers has become aware that incorrect information was 
submitted during the performance year, corrected information must be 
submitted before the recertification.
    Final Decision: We are finalizing, at Sec.  425.302, our proposals 
with the clarification described previously and the modification that 
ACOs will be required to submit annual certifications by the timeframe 
CMS will establish through guidance.
c. Conflicts of Interest
    We proposed that the ACO governing body have a conflicts of 
interest policy that applies to members of the governing body. For a 
full discussion of this proposal and the rationale for it, please refer 
to the proposed rule (76 FR 19643).
    Comment: A commenter asked CMS to provide examples of conflicts of 
interest members of the governing body should disclose.
    Response: The existence of a conflict of interest may vary 
depending on the composition and activities of an ACO, as well as other 
factors. In general, we believe that an ACO should adopt an appropriate 
conflict of interest policy consistent with relevant best practices in 
the industry and general principles of good corporate governance. An 
ACO should consider the variety of potential conflicts of interest that 
may exist among of members of the governing body, the term of 
applicable State and Federal laws, and other relevant concerns when 
adopting a policy that fits the scope of the ACO's operations.
    As a starting point for organizations unfamiliar with conflict of 
interest policies, a sample conflict of interest policy for 
organizations exempt from Federal income tax is available from the 
Internal Revenue Service in the Instructions for Form 1023 Appendix A 
at http://www.irs.gov/instructions/i1023/ar03.html. ACOs should 
consider sample conflict of interest policies as a starting point only 
and should customize the policy for their operations.
    Final Decision: We finalizing without change our proposal to 
require the ACO governing body have a conflict of interest proposal 
that applies to members of the governing body under Sec.  425.106(d).
d. Screening of ACO Applicants
    Although the Medicare program includes substantial screening 
procedures for enrolling providers and suppliers, ACOs may not be 
subject to those procedures if they are not providers that are eligible 
to enroll in Medicare. We proposed to screen 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. We proposed that 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 sought comment on the 
nature and extent of such screening and the screening results that 
would justify rejection of an application or increased scrutiny.
    Comment: Several commenters supported the proposed screening 
process.
    Response: We appreciate the commenters' support of the proposal. We 
believe it is important to set a level of screening that is appropriate 
to address the risk of fraud and abuse in the Shared Savings Program.
    Comment: One commenter found our proposal confusing because it 
appeared to contain conflicting language about whether ACOs would be 
subject to screening. Other commenters were concerned that because an 
ACO does not go through the Medicare enrollment process, the potential 
for fraud and abuse would be increased. Commenters recommended that 
ACOs enroll in the Medicare program using the Provider Enrollment, 
Chain and Ownership System (PECOS). One commenter asked CMS to discuss 
the screening procedures for the Shared Saving Program and explain how 
the screening procedures will be any different for physician offices 
and hospitals than what were in place before the publication of the 
final rule with comment period entitled ``Medicare, Medicaid, and CHIP; 
Additional Screening Requirements, Applications Fees, Temporary 
Enrollment Moratoria,

[[Page 67955]]

Payment Suspensions, and Compliance Plans for Providers and Suppliers'' 
that appeared in the Federal Register on February 2, 2011 (76 FR 5862) 
(the ``provider screening rule'').
    Response: Providers of services and suppliers that desire to 
participate in the Medicare program are subject to the screening 
procedures set forth in a provider screening rule. For example, an ACO 
that is a provider of services, such as a hospital employing ACO 
professionals, would be eligible to enroll in Medicare and would 
undergo the usual screens at enrollment. However, if the ACO entity is 
not a provider of services or a supplier that is eligible to enroll in 
Medicare, the ACO would not undergo the same screening procedures 
applicable to providers of services or suppliers, or be required to 
submit enrollment information through PECOS. For example, if some 
providers or suppliers that are not already integrated join together to 
form an ACO, they must create a new legal entity as described in 
section II.B.3 of this final rule. Such an ACO is not eligible to 
enroll in Medicare and would not undergo the usual screens.
    Therefore, in addition to considering the program integrity history 
of ACOs and ACO participants that can enroll in Medicare, we proposed a 
separate screening process for ACOs that are not eligible to enroll in 
Medicare in order to ensure that the ACO undergoes appropriate 
screening prior to participating in the Shared Savings Program. Due to 
statutory limitations, we are unable to apply the provisions of the 
provider screening rule to ACOs that are not eligible to enroll in 
Medicare.
    Comment: Commenters believed that the proposed screening 
requirements are too broad and should be narrowed based on the nature 
of the relationship between an ACO applicant and an entity with a 
history of program integrity issues. It was suggested that CMS consider 
parameters so that potential rejection or exclusion by CMS is not so 
broad as to prevent reasonable and appropriate participation by 
organizations that have only passing contact with potentially 
problematic providers.
    Some commenters believed that a provider operating under a 
corporate integrity agreement is committed to correcting any error it 
may have made in the past and putting in place new procedures to 
prevent any future concerns and that these providers should not be 
excluded from participation in the Medicare Shared Savings Program.
    A few commenters were concerned that increased attention to program 
integrity may also lead to increased reports of unfounded and 
inaccurate allegations being made by CMS and its contractors against 
Medicare providers; therefore, program integrity allegations should not 
be held against aspiring or approved ACOs until the claims have been 
fully adjudicated.
    Response: We believe that the results of the screening will need to 
be considered in light of the relevant facts and circumstances. 
Therefore, we decline to draw a bright line regarding when an entity's 
history of program integrity issues justify denial of a Shared Savings 
Program participation agreement. We would likely consider the nature of 
the applicant's program integrity issues (including the program 
integrity history of affiliated individual and entities), the available 
evidence, the entity's diligence in identifying and correcting the 
problem, and other factors. We intend to ensure that ACOs, ACO 
participants, and ACO providers/suppliers would not pose a risk of 
fraud or abuse within the Shared Savings Program while recognizing that 
some program integrity allegations may not have been fully adjudicated.
    Comment: Some commenters had concerns that the proposed rule is a 
violation of the Administrative Procedures Act and the commitment to 
government transparency by the current Administration. These commenters 
recommended that CMS solicit public comments through the proposed 
rulemaking process prior to establishing a screening process for ACOs.
    Response: We included a proposal to screen ACOs that are not 
eligible to enroll in Medicare and solicited comments on our proposal 
in the proposed rule. We have considered public comments on the 
proposal to make our final decision, in accordance with the notice and 
comment rulemaking provisions of the Administrative Procedures Act.
    Final Decision: We finalize our proposed screening requirements 
without change. ACOs and ACO participants that are providers of 
services or suppliers who are eligible to enroll in Medicare will be 
subject to screening in accordance with applicable regulations, and 
their program integrity experience will be considered when reviewing 
the ACO's application to participate in the Shared Savings Program. For 
ACOs that are not eligible to enroll in Medicare, we will consider the 
ACO's 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, as a part of 
our application process. We clarify that our screening process will be 
based upon the information submitted with the ACO's application as 
further described in section II.B. of this final rule. An ACO whose 
screening reveals a history of program integrity issues and/or 
affiliations with individuals or entities (including ACO participants 
and ACO providers/suppliers) 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.
e. Prohibition on Certain Required Referrals and Cost Shifting
    In the proposed rule, we stated that we are concerned that ACOs, 
their ACO participants, or their ACO providers/suppliers may offer or 
be offered inducements to over utilize 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. We 
noted that this risk might be heightened if the final rule provides for 
prospective assignment of beneficiaries. In other words, we are 
concerned that ACOs, ACO participants, or ACO providers/suppliers might 
shift Medicare or Federal health care program costs for other 
beneficiaries not assigned to the ACO.
    To address the risk of this inappropriate cost shifting, we stated 
that we were considering prohibiting ACOs, and ACO participants from 
conditioning participation in the ACO on referrals of Federal health 
care program business that the ACO, its ACO participants, and its ACO 
providers/suppliers know or should know is being provided to 
beneficiaries who are not assigned to the ACO.
    Comment: One commenter stated that there is no perceived risk of 
abuse or inappropriate cost shifting with prospective assignment and 
that the Medicare program already causes cost shifting so the concern 
about new cost shifting is misplaced. A commenter expressed concerns 
that the rule did not address potential drug cost shifting from Part B 
to Part D and suggested that CMS develop mechanisms in the event that 
an ACO shifts drug utilization by not allowing patients to receive 
their appropriate medication and puts patients at-risk. Another 
commenter was concerned that ACOs, ACO participants, and ACO providers/
suppliers who also participate in the 340B program (a program that 
allows physicians to purchase outpatient drugs at a discount rate and 
administer those drugs to their

[[Page 67956]]

patients) may purchase and administer drugs for patients of other ACO 
participants and providers/suppliers. This commenter suggested that CMS 
work with HRSA to gain a better understanding of the 340B program and 
establish protections against fraud, waste, and abuse.
    Response: This final rule adopts a preliminary prospective 
assignment methodology with final retrospective reconciliation, as 
fully described in section II.E. of this final rule. We disagree with 
the commenter that there is no potential for inappropriate cost 
shifting in a prospective assignment model. We remain concerned that 
some ACOs, ACO participants, and ACO providers/suppliers, while working 
together to decrease costs for beneficiaries preliminarily assigned to 
the ACO, might inappropriately offer or be offered inducements to over 
utilize services or otherwise increase Federal health care program 
expenditures for beneficiaries not assigned to the ACO. To this end, 
our final regulations prohibit an ACO from conditioning participation 
in the ACO on referrals of non-ACO business.
    We recognize the importance of appropriate beneficiary drug 
utilization and the concerns of the commenter regarding potential cost 
shifting of drug costs from Part B to Part D. As part of our ACO 
monitoring activities, described previously in this section, we intend 
to monitor the available claims data to detect patterns of cost 
shifting in the Federal health care programs by ACOs, including 
patterns of shifting drug costs. The ACO is not itself a 340B eligible 
entity. Health care providers in an ACO that participates in the 340B 
program must continue to meet all the requirements of the 340B statute, 
including ensuring they are not diverting drugs to non-patients or 
receiving duplicate discounts. A 340B provider is prohibited from 
purchasing or transferring drugs to non-340B entities and patients of 
non-340B providers, including those which are a part of an ACO. We will 
consult with HRSA regarding the risk of fraud and abuse in the 340B 
program to determine if there are additional monitoring needs for ACOs 
participating in the 340B program.
    We intend to review specific circumstances of inappropriate cost 
shifting to determine if corrective action or other sanctions, is 
necessary
    Comment: A commenter expressed the need for clarification as to how 
our proposal will successfully mitigate cost shifting in the Medicare 
program to patients outside of ACOs. Commenters also expressed concerns 
that ACOs will shift costs to other health plan types in the private 
sector by stinting on care. One commenter noted that the private market 
could also face cost shifting as an attempt to recover losses incurred 
by ACO participants and ACO providers/suppliers under the proposed two-
sided model.
    Another commenter recommended that CMS: (1) Require all 
participating ACOs to have a mechanism for assessing performance on 
private sector per capita costs by the second year of the program; 
gather data regarding current market shares, market entries and exits, 
and pricing trends for the ACOs; (2) set expectations for resource 
stewardship and waste reduction, including public reporting of quality 
and cost metrics (for example, cost to charge ratios, professional fee 
billing rates, prices for episodes for public and private payers, total 
costs for beneficiaries assigned to the ACO for public and private 
payers, etc.); (3) specify a standardized set of measures for costs, 
with input from consumers, purchasers, and other stakeholders; (4) hold 
ACOs in the Shared Savings Program to a maximum threshold of price 
increase with their commercial market clients; and (5) require ACOs 
take part in all-payer claims databases. Finally, one commenter 
suggested that we coordinate with the FTC and DOJ to thwart anti-
competitive behavior.
    Response: We expect ACOs to manage resources of all payers 
carefully and respectfully and ensure continual waste reduction so that 
every step in care adds value to the beneficiary. However, we share the 
commenters' concern that there is potential for ACOs to shift costs to 
other health plan types in the private sector and to engage in anti-
competitive behavior.
    In section II.C. of this final rule we discuss our concerns about 
issues related to market power and the interaction of the Shared 
Savings Program with the antitrust laws. As part of our ACO monitoring 
activities, described previously in this section, we intend to monitor 
the available data to detect patterns of cost shifting by ACOs. 
However, we recognize that we do not hold the private sector claims 
data that would be necessary for a complete analysis. We will work in 
consultation with the Federal Trade Commission (FTC), the Department of 
Justice (DOJ) Antitrust Division, and the HHS OIG, as appropriate, if 
patterns of inappropriate cost shifting in the Shared Savings Program 
are reported to identify any needed responses on our part or the part 
of other Federal agencies.
    We are unable to implement the five suggestions raised in the last 
paragraph of the comment summary because they are outside the scope of 
the statutory authority of the Shared Savings Program, were not 
included in the proposed rule for public comment, or require analysis 
of data that is not currently available to CMS.
    However, please see section II.F. of this final rule for a full 
discussion of our quality measurement requirements, which have 
undergone notice and comment rulemaking to obtain public input and 
which may be refined in the future to include additional measures 
regarding cost and efficiency. This section also describes the 
information we plan to report publicly regarding shared savings or 
losses data for each ACO.
    Comment: Commenters stated that CMS should establish a strict 
prohibition against any behavior that seeks to limit the ability of an 
ACO provider/supplier to referral beneficiaries to professionals who 
are not participating in the ACO. One commenter expressed concern with 
his experience that network providers use coercive methods to keep 
patients ``within network,'' or to ensure that the patients receive 
care from a particular provider or supplier, which may be owned by the 
physician or his or her employer. The commenter asserted that such 
methods may include a physician's refusal to order services or to 
continue to serve as the patient's treating physician. The commenter 
asked CMS to make sure such methods will not be permitted and to 
describe how patient freedom of choice will be enforced. Another 
commenter asked whether an ACO would be deemed to be diminishing or 
restricting the rights of beneficiaries assigned to it if it--(1) 
required its ACO providers, consistent with its care coordination and 
management efforts under the Shared Savings Program, to refer the ACO's 
assigned beneficiaries to ACO participants and ACO providers/suppliers 
to the extent services are available from those parties, unless the 
beneficiary specifically requests referral to another provider or 
supplier; and (2) provided written notice of the foregoing to its 
assigned beneficiaries, to include notice that the beneficiary retains 
freedom of choice to select a provider of services or supplier, and 
that such freedom of choice, as communicated to the ACO provider making 
any such referral, will be respected.
    Response: The Shared Savings Program maintains the beneficiary's 
freedom under Medicare FFS program to choose any participating Medicare 
provider for care. We anticipate that beneficiaries will prefer 
receiving care

[[Page 67957]]

from the ACO, the ACO participants, and the ACO providers/suppliers 
because the care will be patient-centered and coordinated among 
providers. We expect that the ACO, its ACO participants, and its ACO 
providers/suppliers will discuss the need for services with the 
beneficiary using shared decision-making. However, such discussions 
should not serve as roadblocks to beneficiaries who seek to obtain high 
quality care from the providers or suppliers of their choice. We 
understand commenters' concerns regarding behavior that seeks to limit 
or restrict referrals to professionals who are participating in the 
same ACO, but we also are concerned that a strict prohibition as 
advocated by some commenters would disrupt arrangements that are 
permitted under the physician self-referral law (see Sec.  
411.354(d)(4)), thereby requiring the restructuring of many legitimate 
arrangements. Therefore, we are modifying our final rule to prohibit 
limiting or restricting referrals of beneficiaries to ACO participants 
or ACO providers/suppliers within the same ACO, or to any other 
provider or supplier except that the prohibition does not apply to 
referrals made by employees or contractors who are operating within the 
scope of their employment or contractual arrangement to the employer or 
contracting entity, provided that the employees and contractors remain 
free to make referrals without restriction or limitation if the patient 
expresses a preference for a different provider, practitioner, or 
supplier; the patient's insurer determines the provider, practitioner, 
or supplier; or the referral is not in the patient's best medical 
interests in the judgment of the referring party. For example, an 
employer or contracting entity, such as a hospital, may require its 
employees and contractors to refer to the employer or contracting 
entity (for example, to the hospital's laboratory or imaging center), 
provided that the referring party is free to honor patient choice, 
insurer requirements, and medical best interests of the patients. As 
part of our ACO monitoring activities, described in this section, we 
intend to monitor the actions of ACOs, including the results of 
beneficiary experience of care surveys, to determine whether an ACO, 
its ACO participants, or its ACO providers/suppliers are interfering 
with the beneficiary's freedom of choice by improperly limiting or 
restricting referrals and care to ACO participants or ACO providers/
suppliers in the same ACO.
    Comment: One commenter advocated that we interpret the fraud and 
abuse laws liberally for purposes of the Shared Savings Program because 
Congress has recognized that such laws were written and interpreted for 
a health care delivery system designed for different payment incentives 
and not with ACOs in mind. However, other commenters stated that that 
the remedies do not provide enough protection from the compliance risks 
associated with the physician self-referral law, anti-kickback statute, 
antitrust laws, and other regulations. One commenter was troubled by 
the proposal to waive the physician self-referral law, anti-kickback 
statute, and civil monetary penalties law because ACOs create 
incentives similar to those that have historically concerned CMS and 
these laws are paramount to protecting Medicare beneficiaries. The 
commenter further expressed concern that Shared Savings Program 
necessarily involved incentives to stint on care. Therefore, the 
commenter asserted, it is critical that CMS incorporate into the final 
rule robust and explicit protections similar to those that Medicare has 
traditionally found necessary to ensure that no Medicare beneficiaries 
are harmed by the program.
    Response: We disagree with the commenter's assertion that the 
Shared Savings Program ``necessarily involves incentives to stint on 
care.'' This final rule incorporates a variety of program protections, 
and we intend to monitor the program closely for fraud and abuse. 
Elsewhere in this issue of the Federal Register, HHS OIG and CMS have 
jointly issued an interim final rule with comment period regarding 
issues related to the physician self-referral law, anti-kickback 
statute, and certain civil monetary penalty law provisions. See that 
interim final rule with comment period for a consideration of comments 
related to the physician self-referral law, anti-kickback statute, and 
certain civil monetary penalty law provisions. We believe the waivers 
will balance effectively the need for innovation and flexibility in the 
Shared Savings Program with protections for beneficiaries and the 
Medicare program.
    Final Decision: We are finalizing the requirement to prohibit ACOs, 
their ACO participants, their ACO providers/suppliers, from 
conditioning participation in the ACO on referrals of Federal health 
care program business to the ACO, its ACO participants, or its ACO 
providers/suppliers for services they know or should know are being 
provided to beneficiaries who are not assigned to the ACO. For the 
reasons discussed above, we are modifying our final rule to prohibit 
limiting or restricting referrals of patients to ACO participants or 
ACO providers/suppliers within the same ACO, except that the 
prohibition does not apply to referrals made by employees or 
contractors who are operating within the scope of their employment or 
contractual arrangement to the employer or contracting entity, provided 
that the employees and contractors remain free to make referrals 
without restriction or limitation if the patient expresses a preference 
for a different provider, practitioner, or supplier; the patient's 
insurer determines the provider, practitioner, or supplier; or the 
referral is not in the patient's best medical interests in the judgment 
of the referring party.
f. Record Retention
    In order to ensure that we have the information necessary to 
conduct appropriate monitoring and oversight of ACOs, we proposed that 
ACOs, ACO participants, and ACO providers/suppliers, and other 
individuals or entities performing functions or services related to ACO 
activities must 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, investigations and 
inspections of their activities. For a complete discussion of these 
proposals, please refer to the proposed rule published April 7, 2011 
(76 FR 19651).
    Comment: Commenters agreed with the record retention and audit 
proposals but recommended that the six year record retention 
requirement be limited to disputes involving only the ACO, not its ACO 
participants, its ACO providers/suppliers, or other contracted 
entities. In addition, commenters expressed concern that the record 
retention requirements would continue to apply even after the ACO has 
dissolved. The commenter asked CMS to address the question of which 
party is liable for any issues that surface after the ACO no longer 
exists. Commenters suggested that the responsibility should be divided 
among the ACO, its ACO participants, its ACO providers/suppliers and 
other individuals or entities performing functions or services related 
to ACO activities.
    Response: We see no reason to limit the 6-year record retention 
provision as suggested by the commenter. We note that the proposed 
record retention and audit requirements are consistent with other 
Medicare programs, such as MA. In order to provide ACOs with 
flexibility, we decline to specify how ACOs, ACO participants, ACO 
providers/suppliers, or other

[[Page 67958]]

individuals or entities performing functions or services related to ACO 
activities will develop a records retention plan or apportion 
responsibility for record retention in the event the ACO dissolves 
prior to conclusion of the audit and record retention period. We 
anticipate that the ACO and the entities participating in the ACO will 
develop policies related to audit and record retention that address the 
needs of the ACO's operations while retaining records and permitting 
access to records for audit for the required time period.
    Final Decision: We finalize our proposed audit and record retention 
requirements (Sec.  425.314) with the clarification that, as a result 
of any inspection, evaluation, or audit, it is determined that the 
amount of shared savings due to the ACO or the amount of shared losses 
owed by the ACO has been calculated in error, CMS reserves the right to 
reopen the initial determination and issue a revised initial 
determination. We further clarify that, consistent with our authority, 
the record retention requirements in this rule do not limit or restrict 
OIG's authority to audit, evaluate, investigate, or inspect the records 
of the ACO, its ACO participants, its ACO providers/suppliers and other 
individuals or entities performing functions or services related to ACO 
activities.
g. Beneficiary Inducements
    As noted in section II.B of this final rule, section 1899(b)(2)(G) 
of the Act requires an ACO to ``define processes to promote * * * 
patient engagement.'' We described in the proposed rule that the term 
``patient engagement'' is the active participation of patients and 
their families in the process of making medical decisions. Patient 
engagement is an important part of motivating and encouraging more 
active participation by beneficiaries in their care delivery.
    Comment: Some commenters noted that beneficiary engagement and 
coordination of care could be enhanced by providing additional 
incentives to beneficiaries to motivate and encourage them to be 
actively involved in their care. Some commenters suggested that one way 
to promote patient engagement would be to offer beneficiaries 
incentives to encourage health awareness. One commenter gave the 
example of supplying scales to beneficiaries with CHF to help them 
better manage this chronic disease.
    On the other hand, one commenter recommended that CMS and the OIG 
closely monitor ACOs to ensure that exceptions to the physician self-
referral laws are not abused; and prohibit ACOs from waiving co-pays, 
giving deep discounts, or offering other incentives to ACO patients in 
order to induce them to receive services within the ACO. One commenter 
expressed concern with his experience that network providers use 
coercive methods to keep patients ``within network,'' or to ensure that 
the patients receive care from a particular provider or supplier, which 
may be owned by the physician or his or her employer. The commenter 
asserted that such methods may include a physician refusal to order 
services, or to continue to serve as the patient's treating physician. 
The commenter asked CMS to make sure such methods will not be permitted 
and to describe how patient freedom of choice will be enforced.
    Others recommended that CMS prohibit the ACO from providing gifts, 
cash, or other remuneration as inducements for receiving services or 
remaining assigned to an ACO or with a particular ACO participant or 
ACO provider/supplier. Commenters stated that CMS should prohibit ACOs 
from waiving co-pays, giving deep discounts, or offering other 
incentives to ACO beneficiaries in order to incentivize them to receive 
services within the ACO.
    Response: We agree with commenters that providing gifts, cash, or 
other remuneration to beneficiaries as inducements for receiving 
services or remaining in an ACO or with a particular provider within 
the ACO should be prohibited.
    This final rule therefore provides at Sec.  425.304 that an ACO, 
its ACO participants, its ACO providers/suppliers, and other 
individuals and entities performing functions or services related to 
ACO activities are prohibited from providing gifts, cash, or other 
remuneration as inducements for receiving services or remaining in an 
ACO or with a particular provider within the ACO.
    However, we also believe that there are certain instances when an 
ACO, its ACO participants, and its ACO providers/suppliers may offer 
items or services to beneficiaries for free or below market value to 
encourage care coordination and encourage beneficiary health awareness. 
For this reason, and consistent with the joint CMS and OIG interim 
final rule with comment period published elsewhere in this issue of the 
Federal Register describing waivers of certain fraud and abuse 
authorities in connection with the Shared Savings Program, we are 
adding a provision at Sec.  425.304 to provide that an ACO, its ACO 
participants, or its ACO providers/suppliers may provide to 
beneficiaries items or services for free or below fair-market-value if 
all the following conditions are met:
     The ACO remains in good standing under its participation 
agreement.
     There is a reasonable connection between the items or 
services and the medical care of the beneficiary.
     The items or services are in-kind and either are 
preventive care items or services or advance one or more of the 
following clinical goals: adherence to a treatment regime; adherence to 
a drug regime; adherence to a follow-up care plan; or management of a 
chronic disease or condition.
    For example, an ACO provider may give blood pressure monitors to 
patients with hypertension in order to encourage regular blood pressure 
monitoring and thus educate and engage beneficiaries to be more 
proactive in their disease management. In this instance, such a gift 
would not be considered an improper inducement to encourage the 
beneficiary to remain with an ACO, ACO participant, or ACO provider/
supplier. However, this final rule would prohibit an ACO, ACO 
participant, or ACO provider/supplier, or another individual or entity 
performing functions or services related to ACO activities from 
offering monetary or other gifts (for example: Baseball tickets, 
jewelry, household items, gift certificates for non-health care related 
retail items) that can be used for purposes other than direct health 
and care related purposes. We intend to interpret Sec.  425.304 
consistent with the joint OIG/CMS interim final rule referenced above, 
which contains additional discussion and information on the subject.
5. Terminating an ACO Agreement
a. Reasons for Termination of an ACO's Agreement
    There are a number of important statutory requirements that ACOs 
must satisfy in order to be eligible to participate in the Shared 
Savings Program. In addition, using our authority under section 
1899(a)(1)(A) of the Act, we proposed additional regulatory criteria 
that ACOs must satisfy to enter and remain in the Shared Savings 
Program. Although sections 1899(d)(3) and (d)(4) of the Act authorize 
termination for avoidance of at-risk beneficiaries and for failure to 
meet the quality standards, we do not believe that Congress intended 
the remainder of the regulatory scheme to be unenforceable. We believe 
that the Shared Savings Program participation agreement with an ACO 
should be contingent upon that ACO continuing to meet the requirements 
for eligibility and

[[Page 67959]]

other program requirements. Accordingly, we proposed that the 
participation agreement would require the ACO to comply with the 
requirements of the Shared Savings Program in order to participate in 
the program. In addition, we proposed that we would monitor compliance 
with eligibility requirements and that we could discretion terminate an 
agreement with an ACO before the end of the term of its agreement for a 
number of reasons which can be reviewed in detail at (76 FR 19649).
    Furthermore, we proposed that an ACO may voluntarily terminate its 
agreement. 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 proposed to require an ACO to provide 
us with a 60-day notice if it chooses to terminate its agreement. We 
also proposed that 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. We also proposed that, as described in 
section II.F.13. of the proposed rule (76 FR 19615), the ACO would 
forfeit its mandatory proposed 25 percent withhold of shared savings.
    Comment: Commenters stated that 60-day notices for an ACO to 
exercise its right to terminate its agreement is not appropriate in the 
commercial market and allowing an ACO to terminate the agreement with 
such limited notice, especially in the first and second year of a one-
sided only risk agreement, will add costs to the system rather than 
reduce them. These commenters are concerned that allowing such short 
notice may permit increased potential for ``gaming'' in that ACOs 
easily terminate when they are experiencing losses.
    Response: We appreciate all the commenters concerns, however, we 
believe there is a distinction between the MA and the Shared Savings 
Programs which does not require the same restrictions. Unlike managed 
care plans, ACOs do not need to transition beneficiaries to another 
plan. Moreover, as discussed previously in this section, and in 
response to comments, we are eliminating the requirement for the ACO to 
notify beneficiaries that the ACO, ACO participants or ACO providers/
suppliers are no longer participating in the program. Thus, ACOs are 
only required to notify CMS and their ACO participants and ACO 
providers/suppliers that they are terminating their agreement.
    Comment: Some commenters stated that the myriad reasons proposed 
for termination pose too much risk for providers to participate. 
Specifically, commenters disagreed with termination of an ACO's 
agreement for use of improper or unapproved marketing materials, 
underperforming on quality performance standard or failure to submit 
quality data, failure to submit payment of losses in a timely manner 
and changes in the ACO's leadership and management structure. A few 
commenters suggested that CMS does not have the authority to terminate 
an agreement for reasons other than avoidance of at-risk beneficiaries 
and failure to meet quality standards.
    In contrast, several commenters believe CMS should expand the 
reasons for termination so that they are consistent with the MA 
program. Commenters suggested ACO should be terminated if the number of 
assigned beneficiaries to the ACO fall below 5,000 in any given month; 
felony, conviction or indictment of any owner of the parent of the ACO; 
OIG exclusion, or lack of meaningful beneficiary participation in the 
ACO.
    Response: We believe it is necessary to be able to terminate ACOs 
for failure to comply with the regulations because that is an important 
protection for beneficiaries and against abuse. As discussed in this 
section, we intend to use a variety of sanctions such as warning 
letters and CAPs to address noncompliance, at CMS' sole discretion, in 
addition to termination. Termination is only one option and CAPs may be 
sufficient to certain correct types of noncompliance; situations where 
noncompliance is more serious may require immediate termination.
    It is our intent to ensure beneficiary and program protections 
(especially in light of the fraud waivers) while minimizing burden for 
ACOs interested in participating in the program. Concurrently with our 
proposed rule, CMS and the Office of Inspector General published a 
Joint Notice on Waiver Designs in Connection with the Medicare Shared 
Savings Program that proposed certain waivers of the physician self-
referral law, anti-kickback statute, and civil monetary penalties law. 
Elsewhere in this issue of the Federal Register, CMS and OIG have 
published final interim waivers of those laws. We are modifying this 
proposal to address how any continuing violations of those laws will 
affect the termination provisions. Specifically, we have clarified that 
ACOs may be terminated for violations of these three laws only to the 
extent that the laws are not waived. We have also clarified that ACOs 
may be terminated if their participants submit false certifications to 
CMS; we remind them that such false certifications may also trigger 
liability under the False Claims Act.
    We decline to adopt commenters' suggestion that we expand the 
reasons for termination so they are consistent with the MA program. We 
believe there are important distinctions between the MA and the Shared 
Savings Program, as discussed throughout this final rule. It is our 
goal to create policies that ensure beneficiary and program protections 
while balancing burden imposed on ACOs.
    We believe that meeting the 5,000 beneficiary threshold is an 
important eligibility requirement as discussed in section II.B. of this 
final rule and that ACO would no longer meet those requirements if it 
fall below 5,000 beneficiaries. An ACO assignment that falls below 
5,000 would fail to meet the eligibility as outlined in this final 
rule, and therefore would be terminated under our proposal to terminate 
ACOs that fail to meet eligibility requirements. We would use various 
monitoring methods discussed in this section such as quarterly 
aggregated reports to determine if ACOs no longer meet the 5,000 
beneficiary threshold. This comment and others raise a good point that 
despite the list proposed in the proposed rule, there are a number of 
reasons why it may be desirable to terminate an ACO for non-compliance 
with program requirements and for failure to meet eligibility. 
Therefore, we will generalize the reasons why an ACO may be terminated 
to include non-compliance with program requirements and for failure to 
meet requirements necessary for eligibility.
    Comment: Some commenters suggested we give ACOs an opportunity to 
explain why they are not in compliance with program rules before 
terminating an ACO agreement.
    Response: Where appropriate, we will work with the ACO to 
understand why the noncompliance occurred so that we can develop an 
effective CAP and monitoring technique. However, in instances where we 
believe the circumstances are more serious or pose risk of harm to 
beneficiaries or access to care, we reserve the right to terminate a 
participation agreement immediately without providing an ACO the 
opportunity for a CAP or warning notice.
    Final Decision: We are therefore finalizing our proposal under 
Sec.  425.218 for terminating an ACO and for taking

[[Page 67960]]

certain actions before termination under Sec.  425.216. Specifically, 
CMS may terminate an ACO's agreement for non-compliance with the 
requirements of the Shared Savings Program, which includes maintaining 
eligibility. Examples include termination for avoidance of at-risk 
beneficiaries, failure to meet quality performance standards as 
previously described previously. We have modified this final rule to 
retain the right to terminate an ACO's agreement immediately for 
violations we determine are more serious.
    Additionally, as discussed in this section, we are finalizing our 
proposal to use a variety of sanctions such as warning letters and CAPs 
to address non-compliance, as CMS' sole discretion, in addition to 
termination. We are clarifying that we will work with ACOs where 
appropriate to understand why the noncompliance occurred and work to 
develop an effective CAP. Also, we wish to clarify that certain 
personnel changes in leadership and management would not necessarily 
result in termination, for example, one qualified medical director 
replacing the initial qualified medical director, provided the ACO 
continued to meet the eligibility criteria and remained able to perform 
all of the required functions of an ACO participating in the Shared 
Savings Program. However, as proposed, changes in leadership and 
management structures such that the ACO no longer meets eligibility to 
participate in the program, for example, no longer having a formal 
legal structure, would be grounds for termination. Finally, we have 
modified our proposal to clarify that CMS will provide the ACO with 
notice of termination.
    Further, we would like to clarify that consistent with our proposal 
to terminate an ACO in the event sanctions or other actions are taken 
against an ACO, its ACO participants, its ACO providers/suppliers, or 
other individuals or entities performing functions or services related 
to ACO activities, by an accrediting organization, or by a State, 
Federal, or local government agency, an ACO agreement may be terminated 
if its providers are excluded by the OIG or have their privileges to 
participate in Medicare revoked. We are also clarifying that 
demonstrating meaningful beneficiary participation is a requirement for 
eligibility and as such, failure to adequately notify beneficiaries of 
participation in the program would constitute grounds for terminating 
the ACO.
    We are also clarifying that if an ACO has violated the antitrust 
laws or the fraud and abuse authorities (except to the extent these 
laws are waived by the Secretary under section 1899(f) of the Act), the 
ACO's eligibility to participate in the Shared Savings Program will 
have to be reassessed by CMS. For example, if an antitrust agency 
disbands the ACO for violation of antitrust laws, the ACO no longer 
exists as the applicant that was approved for a participation agreement 
and may therefore be terminated.
    After taking all comments into consideration, we are finalizing our 
rule that ACOs may voluntarily terminate and will be required to 
provide CMS and all of its ACO participants, ACO providers/suppliers, 
and other individuals or entities performing functions or services 
related to ACO activities with a 60-day notice of its decision to 
terminate its participation in the Shared Savings Program. We are 
clarifying that ACOs that terminate their participation agreement early 
will not share in any savings for the performance year during which it 
notifies CMS of its decision to terminate the participation agreement 
because it failed to complete the entire performance year by which we 
calculate shared savings payments (Sec.  425.316(c)(5)). After taking 
into consideration commenters' concerns and to reduce burden on ACOs, 
this final rule provides that an ACO would not be required to notify 
beneficiaries of the ACO's decision to withdraw from the Shared Savings 
Program. We have also not finalized our proposal to require the ACO to 
forfeit its mandatory proposed 25 percent withholding of shared savings 
if its agreement is terminated before the term is completed.
b. Corrective Action Plans
    In the proposed rule, we proposed that, at our sole discretion, CMS 
could require the ACO to produce a corrective action plan (CAP) prior 
to termination for minor violations that we do not believe pose no 
immediate risk of harm to beneficiaries or impact care. Additionally, 
we proposed that an ACO must submit a CAP for our approval by the 
deadline indicated on the notice of violation. Under our proposal, the 
CAP would address what actions the ACO will take to ensure that the 
ACO, ACO participants, and other individuals or entities performing 
functions or services related to ACO activities would correct any 
deficiencies to remain in compliance with Shared Savings Program 
requirements. We proposed that the CAP would be implemented as 
approved, and that the ACO's performance would be monitored during the 
CAP process. We further proposed that failure of the ACO to submit a 
CAP by the requested deadline, obtain approval for, or implement a CAP 
may result in termination of the agreement. Similarly, failure of the 
ACO to demonstrate improved performance upon completion of the CAP may 
result in termination. We also proposed that the ACO would not receive 
shared savings payments while it is under a CAP regardless of the 
performance period in question and that the ACO would not be eligible 
to earn any shared savings for the period during which it is under a 
CAP.
    Comment: We received very few comments regarding the CAP process. 
There were no comments received that opposed the CAP process.
    Final Decision: We are finalizing our proposal under which we may 
require an ACO to produce a corrective action plan (CAP) for violations 
that we consider minor in nature and pose no immediate risk of harm to 
beneficiaries or impact on care.
c. Future Participation of Previously Terminated Program Participants
    In our proposed rule, we discussed how ACOs would be handled that 
terminate their agreement to participate in the Shared Savings Program, 
are terminated from the Program, or underperform and do not achieve 
savings during the first agreement period (section II.H.3. of the 
proposed (76 FR 19653)) but wish to participate in the Program for an 
additional performance period.
    We proposed that potential ACOs disclose to CMS as part of its 
application whether the ACO, its ACO participants, or its ACO 
providers/suppliers, or other individuals or entities performing 
functions or services related to ACO activities have participated in 
the program under the same or a different name, and specify whether the 
entity or person was terminated or withdrew voluntarily from the 
program. If the entity or person was 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 and complete the term of the new agreement. 
We proposed that terminated ACOs may not begin another agreement period 
until the original agreement period had lapsed. (See (76 FR 19653), for 
discussion of our proposal to prohibit ACO's which demonstrate a net 
loss in their first agreement period from reapplying to participate in 
the Shared Savings Program.) In addition, consistent with our proposal 
that ACOs may only have one agreement under the one-sided model, we 
proposed that previously

[[Page 67961]]

terminated ACOs that wish to reenter the program must do so under the 
two-sided model.
    Comment: Some commenters indicated ACOs may have difficulty 
achieving net gains during their first agreement period. Others 
projected that it will take several years for an ACO to become fully 
operational. Commenters suggested that the prospect of being 
disqualified from the program before recovering the start-up costs 
required to form an ACO will deter providers from participating. 
Several commenters were supportive of allowing well-intentioned ACOs, 
terminated from the program, to reapply. In particular, one commenter 
recommended a more flexible approach in the final rule that does not 
penalize well-meaning, otherwise acceptable ACO who might have had 
understandable difficulties.
    Response: We must ensure our policy on subsequent participation in 
the Shared Savings Program does not provide a second chance for under-
performing organizations or for providers or suppliers who have been 
terminated for failing to meet program integrity or other requirements. 
We believe that this is an important protection for beneficiaries and 
the program. We do believe the commenter's standard of allowing ``well 
intentioned'' ACOs to reapply is easily enforced.
    We have considered public comments received on this policy, 
however, we believe that in order to ensure protection for 
beneficiaries and the program, ACOs should not be allowed to re-enter 
the Shared Savings Program before the conclusion of their initial 
agreement period. We are therefore finalizing our rule such that ACOs 
who were previously terminated through enforcement action or 
voluntarily that wish to re-enter the Shared Savings Program may do so 
at the end of their initial agreement period. We note that excluded 
individuals or entities would not be permitted to participate in the 
Shared Savings Program unless and until their reinstatement. An ACO 
that was previously terminated may reenter the program only under the 
two-sided model unless it was terminated less than half way through its 
agreement under the one-sided model in which case it will be allowed to 
re-enter the one-sided model. An ACO that was terminated more than half 
way through its agreement will only have the option of entering in 
Track 2. Such an ACO must describe the reason for termination of its 
initial agreement and what safeguards are now in place to enable the 
prospective ACO to participate in the program for the full term of 
their participation agreement. We believe it is important beneficiary 
and program protections to limit participation in the program to 
providers and suppliers who are dedicated to the goals of the program.
    Final Decision: We will finalize our proposal that the ACO disclose 
to us whether the ACO, its ACO participants, or its ACO providers/
suppliers, or other individuals or entities performing functions or 
services related to ACO activities, 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, or other individuals or 
entities performing functions or services related to ACO activities 
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 initial term of agreement. We will consider this 
information in determining whether an ACO should be approved to 
participate in the program.
    ACOs that are terminated from the program will be afforded the 
opportunity to re-apply to participate in the shared savings again only 
after the date on which the term of the original participation 
agreement would have expired if the ACO had not been terminated. An ACO 
that was terminated less than half way through its agreement under the 
one-sided model will be allowed to re-enter the one-sided model at the 
conclusion of the term of their original agreement. ACOs that were 
terminated more than half way through its agreement will only have the 
option of entering under Track 2 at the conclusion of the term of their 
original agreement.
6. Reconsideration Review Process
    In the proposed rule, we outlined certain actions specified in 
section 1899(g) of the Act for which there shall be no administrative 
or judicial review. However, we stated that it is important to 
establish a fair administrative process by which ACOs may request 
review of other decisions, such as the denial of an application to 
participate in the program or the termination of an existing 
participation agreement for reasons other than those exempted by 
statute. For a full discussion of our proposals and rationale, see the 
proposed rule published April 7, 2011 (76 FR 19627).
    Comment: Commenters expressed concern that the statutory exceptions 
to administrative review should be construed narrowly so that 
additional reasons for administrative review are allowed and that the 
proposed timeframe to request a review (15 days) is too short. 
Commenters also expressed concern with the fairness of the 
reconsideration review process since CMS is not an independent party. 
Commenters specifically recommended that CMS--
     Establish an appeals and grievance system for patients and 
providers when care is compromised;
     Review all cases in which an ACO requests reconsideration; 
and
     Establish a review process through an independent party.
    Response: The decisions excluded from the reconsideration review 
process are consistent with section 1899(g) of the Act. Our 
reconsideration review process was built on our experience with 
established, effective, and well accepted procedures used in other 
Medicare programs. The reconsideration review allows for significant 
procedural due process for all parties, a clear and easily understood 
linear process, and reviews by independent CMS officials. The timeframe 
allowed to request review under the reconsideration review process is 
consistent with the MA (Sec.  422.622) and Part D (Sec.  423.651) 
programs which both provide 15 calendar days after receipt of the 
notice of determination to request review. We agree that the 
reconsideration review should be conducted by an independent reviewer. 
The process as proposed allows the ACO the opportunity to have a 
reconsideration review conducted by an independent reviewer who was not 
involved with any previous determination including both the initial and 
review stage of the reconsideration. We also believe that we have 
proposed several monitoring tools that will ensure beneficiary 
protections and as a result, we do not believe it is necessary to 
establish a separate grievance process for ACOs.
    Final Decision: After consideration of the comments received and 
for the reasons discussed previously, we are finalizing the 
reconsideration review process as proposed, with the exception of our 
decision to eliminate the specific provision related to review of 
determinations made by a reviewing antitrust agency as no longer 
applicable in light of the revisions to our procedures for Antitrust 
review, which are discussed in section II.C. of this final rule. We are 
clarifying that when we stated ``if any of the parties disagree with 
the recommendation of the reconsideration, they may request an on the 
record review,'' we were referring to both CMS and the ACO.

[[Page 67962]]

III. Collection of Information Requirements

    As stated in section 3022 of the ACA, Chapter 35 of title 44, 
United States Code, shall not apply to the MSSP. Consequently, the 
information collection requirements contained in this proposed rule 
need not be reviewed by the Office of Management and Budget.

IV. Regulatory Impact Analysis

A. Introduction

    We have examined the impacts of this final 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 final rule has been designated an ``economically'' 
significant rule, under section 3(f)(1) of Executive Order 12866 and a 
major rule under the Congressional Review Act. 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 final 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 final rule that imposes 
substantial direct requirement costs on State and local governments, 
preempts State law, or otherwise has Federalism implications. We do not 
believe that there is anything in this final rule that either 
explicitly or implicitly pre-empts any State law, and furthermore we do 
not believe that this final rule will have a substantial direct effect 
on State or local governments, preempt State law, or otherwise have 
Federalism implications.

B. Statement of Need

    This final 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 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 growth in 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 that accept risk while maintaining sufficient incentive 
to encourage providers to participate in the one-sided model, which 
provides an entry point to risk-oriented models.

C. Overall Impact

    As detailed in Table 8, we estimate a total aggregate median impact 
of $470 million in net Federal savings for calendar years (CY) 2012 
through 2015 from the implementation of the Shared Savings Program. The 
10th and 90th percentiles of the estimate distribution, for the same 
time period, yields a net savings of $940 million and $0 million, 
respectively. These estimated impacts represent the effect on Federal 
transfers. Median estimated Federal savings are somewhat less than the 
estimate published for the proposed rule (estimated $510 million net 
savings through 2014) due in part to increased program generosity, led 
by first-dollar (below benchmark) sharing. This, combined with the 
easing of a number of program requirements and burdens, expands our 
expected range of participation, resulting in a somewhat greater median 
net savings amidst a wider stochastic projection range.
    Furthermore, we estimate a total aggregate median impact of $1.31 
billion in bonus payments to participating ACOs in the Shared Savings 
Program for CYs 2012 through 2015. The 10th and 90th percentiles of the 
estimate distribution, for the same time period, yield a bonus payment 
to ACOs of $890 million and $1.9 billion, respectively.
    We estimate the aggregate cost associated with the start-up 
investment of ACOs participating in the Shared Savings Program will 
range from $29 million to $157 million. The program's first agreement 
period has been expanded by up to 6 to 9 months, rewarding ACOs who 
enter the program early in 2012 with a longer agreement period under 
their initial benchmark, while also accommodating ACOs that might 
require an additional year (or partial year) of preparation. 
Furthermore, aggregate ongoing annual operating costs for the 
participating ACOs are estimated to range from $63 million to $342 
million. Both start-up investment and ongoing annual operating cost 
ranges utilize an anticipated participation rate of 50 to 270 ACOs in 
the Shared Savings Program. Lastly, when utilizing the anticipated mean 
participation rate of ACOs in the Shared Savings Program, this yields 
an estimated aggregate average start-up investment and ongoing annual 
operating costs of $451 million for CYs 2012 through 2015. Therefore, 
as illustrated in Table 8, for CYs 2012 through 2015 the total median 
ACO bonus payments of $1.31 billion

[[Page 67963]]

coupled with the aggregate average start-up investment and ongoing 
annual operating cost of $451 million, incurred at the mean 
participation rate of ACOs in the Shared Savings Program, result in an 
estimated benefit-cost ratio of 2.9.
    In addition to rewarding ACOs who enter the program early in 2012 
with a longer effective agreement, while also accommodating ACOs that 
might require an additional year (or partial year) of preparation, the 
Shared Savings Program will also benefit beneficiaries since the 
program requires ACOs to be accountable for Medicare beneficiaries, 
improve the coordination of FFS items and services, and invest 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 
regulatory impact analysis (RIA) that to the best of our ability 
presents the costs and benefits of this final rule.

                                    Table 8--Estimated Net Federal Savings, Costs and Benefits, CYs 2012 Through 2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                             CY 2012                 CY 2013                CY 2014                CY 2015            CYs (2012-2015)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Net Federal Savings:
    10th Percentile................  -$30 Million..........  -$20 Million..........  $10 Million..........  $0 Million...........  $0 Million.
    Median.........................  $20 Million...........  $90 Million...........  $160 Million.........  $190 Million.........  $470 Million.
    90th Percentile................  $70 Million...........  $210 Million..........  $320 Million.........  $370 Million.........  $940 Million.
ACO Bonus Payments:
    10th Percentile................  $60 Million...........  $180 Million..........  $280 Million.........  $360 Million.........  $890 Million.
    Median.........................  $100 Million..........  $280 Million..........  $410 Million.........  $520 Million.........  $1,310 Million.
    90th Percentile................  $170 Million..........  $420 Million..........  $600 Million.........  $740 Million.........  $1,900 Million.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Costs..............................   The estimated start-up investment costs for participating ACOs range from $29 million to $157 million, with annual
                                      ongoing costs ranging from $63 million to $342 million, for the anticipated range of 50 to 270 participating ACOs.
                                       With the mean participation of ACOs, the estimated aggregate average start-up investment and four year operating
                                                                                    costs is $451 million.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits...........................  Improved healthcare delivery and quality of care and better communication to beneficiaries through patient centered-
                                                                                             care.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Note that the percentiles for each individual year do not necessarily sum to equal the percentiles estimated for the total four year impact, in the
  column labeled CYs 2012-2015, due to the annual and overall distributions being constructed independently.

    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 all 
years without the risk of being responsible for repaying any losses if 
actual expenditures exceed the benchmark. Combined with rolling 
enrollments into the program in 2012, ACOs will have options to ease 
their transition toward responsibility for quality of care improvement 
and the total cost of care for the beneficiaries they serve. The second 
option (two-sided model) provides an opportunity for receiving a higher 
percentage of shared savings for all years of the agreement period, but 
with potential liability in each of the agreement years for annual 
expenditures that exceed the benchmark, thereby increasing associated 
risk.
    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 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 8. 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 
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 9, 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 $470 million in net savings over CYs 2012 
through 2015. Greater participation is estimated due to the option for 
a longer 42 or 45 month agreement period, gentler transition period, 
and greater generosity provided. The extra year also amplifies our 
estimated savings and cost totals.
    A net savings (costs) occurs when the payment of earned and 
unearned

[[Page 67964]]

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 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 in Table 9 
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 implementation.

D. 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 healthcare 
marketplace for risk-sharing arrangements leading to efficiency gains, 
a one-sided model would presumably provide a weaker incentive to ACOs 
than other approaches. Track 2 introduces downside risk while offering 
a lower minimum savings rate and a greater sharing percentage, all of 
which enhance the incentive for efficiency while protecting the Trust 
Funds against losses for fluctuation or other exogenous factors. It is 
possible that participation in Track 1 might enable such ACOs to gain 
the experience necessary to take on risk in a subsequent two-sided 
arrangement, possibly enhancing the opportunity for greater program 
savings in years beyond the first agreement period. Conversely, if in 
that first agreement period ACOs come to reliably predict a bias that 
ensures an outcome--whether favorable or unfavorable--the program would 
be at risk for increasingly selective participation from favored ACOs 
and any real program savings could be overwhelmed by outsized shared-
savings payments.
    Even ACOs that opt for Track 2 could eventually terminate their 
agreement if they anticipate that efforts to improve efficiency are 
overshadowed by their particular market circumstances. (Under section 
1899(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, or favored by 
other unforeseen biases affecting performance.
    While shared FFS savings, even with optional liability for a 
portion of excess expenditures, offers less incentive to reduce costs 
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, coordinating care furnished 
by providers and suppliers outside the ACO, lack of similar contracts 
with other payers, achieving buy-in from ACO providers/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 an ACO.
    While there remains great uncertainty for the aggregate financial 
impact of the program, the impact on quality, as will be measured and 
reported, is likely to show gains for most participating ACOs over the 
course of their agreement.
    Comment: One commenter recommended that we include further detail 
regarding the beneficiary population expected to be assigned to ACOs 
participating in the Shared Savings Program, including characteristics 
of ethnicity and gender, and further requested that we provide baseline 
per capita FFS expenditures. Another commenter requested that we 
analyze the average expenditures for beneficiaries in States with low, 
median, and high average expenditures, were they assigned to an ACO 
participating in the Shared Savings Program achieving maximum shared-
savings, were they enrolled in a Medicare Advantage organization of 
various quality star ratings, or were they simply in traditional 
Medicare.
    Response: Due to the great uncertainty regarding the quantity and 
composition of ACOs that will participate in the Shared Savings 
Program, such estimates of the demographic characteristics or per 
capita expenditures of affected beneficiaries are not currently 
feasible. Even were we confident of specific markets that were likely 
to generate ACOs, we would require the mix of TINs that would be 
aggregated to form the basis of assignment to such potential ACOs in 
order to estimate any potential differences in the demographic 
characteristics for all ACO-assigned patients relative to the greater 
FFS Medicare population, or to analyze differences in average 
expenditures relative to MA or traditional Medicare. Such expenditures 
could vary significantly based not only on geography but also an ACO's 
provider composition, which can mean ACOs in the same market may have 
widely varying baseline per capita expenditures for their assigned 
beneficiaries. Indeed, a stochastic model was chosen to illustrate such 
great uncertainty presented by voluntary participation in a new and 
complex program. However, we agree that such analysis would be 
beneficial within future evaluations based on actual program 
experience.
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. 
Also, subsequent to publication of the proposed rule, we studied rule 
comments, expert reactions, and letters of intent for the Innovation 
Center Pioneer ACO Model. The assumptions ultimately identified and 
stochastically modeled include the following:
     Number of participating ACO provider groups, including the 
sensitivity to burdens of participation and the generosity of the 
sharing arrangement.
     Size mix of participating ACOs.
     Type of ACO that would consider accepting risk under Track 
2.
     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 the national average.
     Number and profile of providers and suppliers available to 
participate in the Shared Savings Program as a result

[[Page 67965]]

of Innovation Center ACO model initiatives.
     Range of gross savings achieved by ACOs, and the time 
required for full phase-in.
     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 to 5 million Medicare beneficiaries would 
align with between 50 and 270 ACOs during the first four years of the 
program. We assumed ACOs to be equally likely to participate from 
markets exhibiting baseline per-capita FFS expenditures above, at, or 
below the national average, as opposed to our assumption for the 
proposed rule that ACOs would be more likely to form in high-cost 
markets. 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.
    We anticipate a minority of ACOs--a more capable subset of the 
total program participation--will opt for Track 2 in the first 
agreement period, enabled by experience accepting risk for other 
populations and motivated by a lower minimum savings rate and greater 
sharing percentage. However, most participating ACOs are expected to 
choose Track 1 in order to simultaneously--(1) avoid the potential for 
financial loss if expenditures experience a significant upward 
fluctuation or efficiency improvements are less effective than planned; 
and (2) build organizational experience to achieve a per-capita cost 
target as presented by the program's unique benchmark methodology.
    A particularly important cause for uncertainty in our estimate 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 payments even in the 
absence of any efficiency gains. Similarly, some ACOs could find that 
factors, such as prevailing per-capita expenditure growth in their 
service area that is higher than the national average, limit efficiency 
gains and reduce or prevent shared savings.
b. Detailed Stochastic Modeling Results
    Table 9 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 2015 is a net Federal savings of $470 
million. This amount represents the ``best estimate'' of the financial 
impact of the Shared Savings Program initiative during the agreement 
period. It is important to note, however, the relatively wide range of 
possible outcomes. Overall, 90 percent of the stochastic trials 
resulted in net program savings, and the remaining 10 percent 
represented cost increases. The 10th and 90th percentiles of the 
estimated distribution show net savings of $940 million and a net cost 
of $ zero 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 $2.0 
billion in savings or $1.1 billion in costs. Relative to the proposed 
rule, the final rule projections reflect greater generosity (and cost 
to Medicare) offset by greater participation over an extended agreement 
period, leading to a higher median net savings but also a wider 
stochastic range than we would now estimate for the proposed rule over 
the same period. (Market response to the proposed rule causes us to 
decrease the participation levels we would assume for the originally 
proposed program design.)
    The stochastic model and resulting financial estimates were 
prepared by the CMS Office of the Actuary (OACT). The median result of 
$470 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 final rule. However, we emphasize the 
possibility of outcomes differing substantially from the median 
estimate, as illustrated by the estimate distribution. 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 to 5 million 
beneficiaries to participating ACOs during the first program agreement 
period. 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.

[[Page 67966]]

[GRAPHIC] [TIFF OMITTED] TR02NO11.000

    Table 10 shows the median estimated financial effects for the 
Shared Savings Program initiative, and the associated 10th and 90th 
percentile ranges, broken out during the first agreement period. Net 
savings (characterized by a negative net impact on Federal outlays) are 
expected to be marginal in 2012 ($20 million) due to gradual enrollment 
assumed over that first year as well as the assumption that cost-saving 
initiatives will require time for maturation. In calendar years 2013 
through 2015 net savings are expected to grow as maturing cost-saving 
effectiveness is partially offset by increasing cost from growing 
variation in the accuracy of updated national targets compared to 
actual local growth. As a result, the projections for CYs 2013 through 
2015 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. We note that the 
percentiles are tabulated for each year separately, and therefore the 
overall net impact distribution (Table 9) will not necessarily exactly 
match the sum of distributions for each distinct year.

[[Page 67967]]

[GRAPHIC] [TIFF OMITTED] TR02NO11.001

c. Further Consideration
    The impact analysis shown is only for the first 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. In addition, 
uncertainties exist in the short and long term regarding providers' 
responses to the program. For example, a voluntary program may 
eventually draw selective participation by ACOs that develop an ability 
to predict a favorable bias in the savings formula. However, ACOs that 
participate in the program during the first agreement period may 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 agreement period of the program does not incorporate either 
of these longer-run scenarios, but both remain possibilities. At this 
time, an impact estimate expanded to include performance beyond the 
initial agreement 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. This 
program does not affect the beneficiary's freedom of choice regarding 
providers or care since beneficiaries assigned to an ACO continue to be 
in the traditional Medicare program. 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 advantages for beneficiaries 
would be maximized as the ACO meets the mission of the Shared Savings 
Program, as established by the Affordable Care Act and embraces the 
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 section II.G. of this final 
rule, how well it improves and delivers high quality care outlined in 
the quality measurement and reporting methodology in section II.F. of 
this final rule, and in meeting program requirements for patient-
centered care

[[Page 67968]]

outlined in the discussion of eligibility in section II.B. of this 
final rule.
    Because ACOs are accountable 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, July 2011) showed that over the 
first 4 years of the PGP Demonstration, physician groups increased 
their quality scores an average of 10 percentage points on the ten 
diabetes measures, 13 percentage points on the ten congestive heart 
failure measures, 6 percentage points on the seven coronary artery 
disease measures, 9 percentage points on the two cancer screening 
measures, and 3 percentage points on the three 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 by comparing the 
values of the seven claims-based 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 of program 
participation.
    In this final rule, we have revised many of the policies in the 
proposed rule, so as to allow for greater flexibility regarding the 
specific structure and requirements of an ACO, and we believe these 
changes will substantially reduce the burden associated with the 
infrastructure start-up and ongoing annual operating costs for 
participating ACOs in the Shared Savings Program. Significant 
modifications to reduce burden and cost for participating ACOs include 
offering flexibility in the: (1) Eligibility to participate in the 
Shared Savings Program; (2) program start date; (3) establishment of 
the agreement period; (4) governance and legal structure of an ACO; (5) 
quality performance standards and reporting on quality and cost 
measures; (6) adjustment to the benchmark and performance year 
expenditures; (7) shared savings determination and availability of 
first dollar savings; (8) transition to risk; (9) withholding 25 
percent of shared savings; (10) timing for the evaluation of sharing 
savings (claims run-out); (11) antitrust review; and (12) timing for 
repayment of losses. Specific analyses regarding these significant 
final policy modifications are discussed in detail in section II. of 
this final rule.
    Furthermore, beyond the statutory requirement that ACOs have at 
least 5,000 assigned Medicare beneficiaries, the size of ACOs will also 
vary in relation to beneficiary participation and associated costs. 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, precise 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 non-physician 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. Therefore, we recognize that 
start-up and ongoing annual operating costs will vary greatly between 
ACOs for various reasons, including those related to the

[[Page 67969]]

experience, size and funding available to the participating ACO.
    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 
also 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 continue to believe that the 
structure, maturity, and thus associated costs represented by those 
participants in the Medicare PGP Demonstration are most likely to 
represent the majority of anticipated ACOs participating in the Shared 
Savings Program. Lastly, we recognize that participating ACOs may 
involve Medicare and the commercial side within their business scope, 
thereby stratifying start-up investment and ongoing annual operating 
costs across various business segments, and not solely attributable to 
the Medicare Shared Savings Program.
    We contacted several experienced provider organizations, private 
health plan network executives and investors involved with integrated 
delivery systems to assess the infrastructure costs associated in 
establishing a new ACO. As a result, we have revised our cost estimates 
relative to the proposed rule to reflect new information we learned 
regarding the start-up investment cost for an ACO. The ongoing annual 
operating costs presented in the proposed rule were validated and thus 
remain within the same range in the final rule. Therefore, our cost 
estimates for purposes of this final rule reflect an average estimate 
of $0.58 million for the start-up investment costs and $1.27 million in 
ongoing annual operating costs for an ACO participant in the Shared 
Savings Program. Lastly, assuming an expected range of ACOs 
participating in the Shared Savings Program of 50 to 270 ACOs yields an 
estimated start-up investment cost ranging from $29 million to $157 
million, with ongoing annual operating costs ranging from $63 million 
to $342 million for CYs 2012 through 2015. When utilizing the 
anticipated mean participation rate of ACOs in the Shared Savings 
Program coupled with the average start-up investment and ongoing annual 
operating costs, this yields an estimated aggregate average start-up 
investment and ongoing annual operating costs of $451 million for the 
CYs 2012 through 2015.
    While there will be a financial cost placed on ACOs in order to 
participate, 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 final rule, there will be an opportunity for 
financial reward for success in the program in the form of shared 
savings. As shown in Table 11, the estimated bonuses paid are a median 
of $1.31 billion during CYs 2012 through 2015, with $890 million and 
$1.90 billion reflecting the 10th and 90th percentiles. (Similar to the 
previously presented stochastic distributions, the distribution 
represents uncertainty given the range of expert opinion, rather than a 
true statistical probability distribution.) Therefore, the total median 
ACO bonus payments of $1.31 billion during CYs 2012 through 2015 
coupled with the aggregate average start-up investment and ongoing 
annual operating cost of $451 million, incurred by the mean 
participation rate of ACOs in the Shared Savings Program during the 
same time period, yields a benefit-cost ratio of 2.9.
    We expected an increased amount of total bonuses relative to the 
proposed rule due to a more favorable sharing CYs 2012 through 2015 
arrangement and simplified requirements of participation, highlighted 
by first-dollar sharing and removal of year-3 risk in Track 1. The 
increase in bonuses is also in part due to the added participation 
expected as a result of these changes. Participating Track 2 ACOs will 
be assuming a risk of a financial penalty for failing to achieve 
savings (that is, if actual expenditures exceed the benchmark). At the 
median, we do not anticipate the collection of penalties during the 
first agreement period, with our 90th percentile projecting only $20 
million in collected penalties. Penalties decrease relative to the 
proposed rule despite the increased participation assumptions. This is 
primarily due to the enhanced attractiveness of Track 1 relative to 
Track 2, as well as the removal of required risk from year three of 
Track 1. 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. ACOs that opt for Track 2 are expected to achieve 
significant savings in a shorter time period. We anticipate that not 
all ACOs will achieve shared savings and some may incur a financial 
loss, due to the requirement to repay a share of actual expenditures in 
excess of their benchmark.

[[Page 67970]]

[GRAPHIC] [TIFF OMITTED] TR02NO11.002

    We invited comment on the provider and supplier cost impact 
assessment, including the start-up investment and ongoing annual 
operating costs considered.
    Comment: Commenters expressed concern that the ACO infrastructure 
costs, including start-up and first year operating costs, presented in 
the proposed rule were low. Furthermore, the commenters referenced a 
study by the American Hospital Association (AHA) estimating start-up 
investment and ongoing annual operating costs as more accurately 
reflecting the associated costs of participating in the Medicare Shared 
Savings Program.
    Response: The AHA study presented estimates much higher than those 
utilized in this RIA and the independent GAO study. Their estimates 
focused on two prototypes. The first prototype included a 200 bed, 1 
hospital system, with 80 primary care providers and 150 specialists. 
The second prototype included a 1,200 bed, 5 hospital system, with 250 
primary care providers and 500 specialists.
    The overall estimates in the AHA study reflect an all inclusive 
cost structure well beyond the minimum requirements of the Medicare 
Shared Savings Program and the anticipated average participating ACO. 
As a result, the AHA study identifies three notes of caution relative 
to its findings. First, depending on the organization and circumstances 
of the ACO, some of the costs identified in the study may have already 
been incurred or attributable to purposes other than ACO-related 
development. Second, AHA acknowledges that the four case studies 
presented are not a large sample size from which to estimate costs. 
Third, their research work was conducted before the Medicare Shared 
Savings Program proposed rule was published and does not reflect the 
policies for the program put forth in either the proposed rule or this 
final rule. Furthermore, the study acknowledges that at the time of 
their research, the nature of ACOs and the process of developing them 
had not been standardized. In addition, the reporting requirements for 
ACOs had not yet been disclosed. Lastly, the study concludes that these 
estimates should be used as ``early indicators,'' and ``certainly not 
as definitive measures for ACOs in the Medicare Shared Savings 
Program.'' We agree with the limitations of the study and as a result, 
we continue to believe that the independent GAO analysis provided on 
the Medicare PGP Demonstration and the analysis to support the advanced 
payment model offer a more closely aligned benchmark for assessing the 
start-up investment and ongoing annual operating costs associated with 
participation in the Medicare Shared Savings Program under the policies 
established in this final rule.
4. Impact on Small Entities
    The RFA requires agencies to analyze options for regulatory relief 
of small entities, if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, small entities 
include small businesses, nonprofit organizations, and small 
governmental jurisdictions. Most physician practices, hospitals and 
other providers are small entities, either by nonprofit status or by 
qualifying as small businesses under the Small Business 
Administration's size standards (revenues of less than $7.0 to $34.5 
million in any 1 year; NAIC Sector-62 series). States and individuals 
are not included in the definition of a small entity. For details, see 
the Small Business Administration's Web site at http://www.sba.gov/sites/default/files/Size_Standards_Table.pdf.
    For purposes of the RFA, approximately 95 percent of physicians

[[Page 67971]]

are considered to be small entities. There are over 1 million 
physicians, other practitioners, and medical suppliers that receive 
Medicare payment under the Physician Fee Schedule (PFS).
    Although the Shared Savings Program is a voluntary program and 
payments for individual items and services will continue to be made on 
a FFS basis, we acknowledge that the program can affect many small 
entities and have drafted the rules and regulations accordingly in 
order to minimize costs and burden on such entities as well as maximize 
their opportunity to participate. The Shared Savings Program is 
designed to encourage individual physicians and small physician 
practices to integrate with other such practices as well as larger 
entities to create ACOs. Small entities will both be allowed and 
encouraged to participate in the Shared Savings Program, provided they 
have a minimum of 5,000 assigned beneficiaries, thereby realizing 
economic benefits through the utilization of enhanced and efficient 
systems of care and care coordination. Examples of increased economic 
benefits as a result of participating in this program include shared 
savings from this program, as well as qualifying for financial 
incentives from other CMS programs, such as PQRS, EHR, and e-Rx 
incentive payments. Therefore, a solo, small physician practice or 
other small entity may realize these economic benefits as a function of 
participating in this program and the utilization of enhanced clinical 
systems integration, which otherwise may not have been possible.
    Again, we note that the Shared Savings Program is a voluntary 
program and payments for individual items and services would continue 
to be made on a FFS basis. This final rule will have a significant 
impact on a substantial number of small entities and we present more 
detailed analysis on these impacts, including costs and benefits to 
small entities and alternative policy considerations throughout this 
RIA. However, as detailed in this RIA, the total median bonus payments 
will exceed the average costs borne by participating in the Shared 
Savings Program. As a result, this regulatory impact section, together 
with the remainder of the preamble, constitutes the Final Regulatory 
Flexibility Analysis.
    In addition, section 1102(b) of the Social Security Act requires us 
to prepare a regulatory impact analysis, if a rule may have a 
significant impact on the operations of a substantial number of small 
rural hospitals. This analysis must conform to the provisions of 
section 604 of the RFA. For purposes of section 1102(b) of the Act, we 
define a small rural hospital as a hospital that is located outside of 
a metropolitan statistical area and has fewer than 100 beds. Although 
the Shared Savings Program is a voluntary program, this final rule will 
have a significant impact on the operations of a substantial number of 
small rural hospitals. We have created the regulations such that rural 
hospitals will have the opportunity to participate and, where possible, 
be provided incentives to encourage participation, such as shared 
savings and the opportunity to qualify for financial incentives from 
other CMS programs, such as the EHR Incentive Program. As detailed in 
this RIA, the estimated aggregate median impact of bonus payments to 
participating ACOs more than exceeds the estimated average costs borne 
by voluntarily participating in the Shared Savings Program.

E. Alternatives Considered

    This final 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 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 a minimum of 5,000 assigned beneficiaries, as 
is described in the preamble, we are adopting a sliding minimum 
percentage and confidence interval for the savings threshold based on 
the size of an ACO. This policy is a balance of protecting the program 
from paying out savings based on random variation, while allowing 
attainable thresholds for smaller ACOs and thus encouraging 
participation from various sized entities.
    The preceding preamble provides descriptions of the various 
statutory provisions that are addressed in this final rule, identifies 
those policies when discretion has been allowed and exercised, presents 
the rationales for our final policies and, where relevant, alternatives 
that were considered. An important alternative involves making 
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 of the MMA 
hospitals (as will occur under current law at the end of FY 2011) then 
ACO-attributed claims incurred in a section 508 of the MMA 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. As we have 
previously noted, the statute provides authority for adjustment to the 
benchmark for ``such other factors as the Secretary determines 
appropriate,'' and while there is no similar authority under section 
1899(d) of the Act to adjust actual expenditures during a performance 
year for ``such other factors'' we considered using our authority under 
section 1899(i) of the Act to make such adjustments to the 
determination of actual expenditures. Although this potentially 
beneficial but operationally complex policy is not included in this 
final rule, we note that such adjustment may be explored by pilots 
designed within the Innovation Center and could potentially inform 
future rulemaking for this program. However, we do note, that we are 
using our authority under sections 1899(d) and (i) of the Act to make 
adjustments to remove IME and DSH payments from both benchmark and 
performance expenditures, constituting a partial step toward a bonus 
formula that responds to improvements in utilization rather than 
differences in price between performance and benchmark expenditures.
    The proposed rule received numerous comments calling for a method 
for risk adjustment to take into account changes in the health status 
of the population between the benchmark period and performance year. 
Options were considered for the final rule that could reflect such 
changes in beneficiary characteristics without rewarding ACOs for more 
complete and accurate HCC coding of their assigned patient population 
than would occur for a comparable group of beneficiaries receiving care 
outside an ACO. Therefore a method was chosen for stratifying the 
benchmark by four distinct beneficiary eligibility categories that each 
share a unique expenditure profile: ESRD, disabled, aged dual-eligible 
beneficiaries and aged non-dual-eligible beneficiaries. The benchmark 
will be normalized to the mix of

[[Page 67972]]

beneficiaries aligned across the four strata in a given performance 
year, improving the fidelity of the updated benchmark to the 
beneficiary characteristics in such performance year. In addition, 
adjustments will be made to account for changes in severity and case 
mix for newly assigned beneficiaries utilizing CMS-HCC prospective 
scores. Demographic factors alone would be used to adjust for changes 
for continuously assigned beneficiaries in order to avoid rewarding 
ACOs for more complete and accurate diagnosis coding, unless this 
populations HCC risk score declines in which case it will be reset at 
the lower rate. Such combined method for accounting for shifts in the 
characteristics of the assigned population is expected to reduce 
variation in expenditure growth relative to the benchmark and also to 
mitigate the incentive for ACOs to reduce services to high-risk 
patients in order to compare favorably against a static benchmark.
    Comments also frequently discussed the limited reward presented by 
the proposed rule relative to the costs that providers estimated they 
would incur for infrastructure and operation as an ACO under the 
program. Many elements of the final rule respond directly to this 
concern, including the removal of required risk in the third year under 
Track 1, the addition of first-dollar sharing in Track 1, the increased 
sharing caps for both tracks, the removal of the 25 percent withhold on 
shared-savings dollars, and the reduction in operational burdens such 
as the number of quality measures to be reported. All described changes 
likely improve the business-case for ACOs to join the program, whether 
in terms of reduced burden or enhanced benefit of participation. 
However, our modeling of these changes' impact on the Medicare program 
indicated that the removal of the 2 percent threshold is the most 
significant change that directly affects the more favorable program 
sharing arrangement. Raising the sharing caps is not likely to affect 
shared savings payments for even the highest-performing ACOs. The 
withholds were also expected to have minimal direct financial impact 
since an ACO incurring a withhold--and therefore generating measured 
savings in year 1 or 2--would be unlikely to incur a penalty in a 
following year of the agreement period (and would be even less likely 
to fail to repay the penalty in such rare case). Requiring risk in the 
third year was not anticipated to generate significant additional 
penalty dollars, since it would most likely cause ACOs experiencing 
difficulty meeting their benchmarks to terminate their agreements prior 
to that third year rather than face likely penalties. As a result, 
removing this requirement is expected to enhance program participation 
without negatively impacting the estimated net Federal savings.
    Finally, a key design element with potential to significantly 
affect the impact of the program involves the method for establishing 
quality standards. We propose aggregating the quality domain scores 
into a single overall ACO score used to calculate the ACO's final 
sharing rate for purposes of determining shared savings or shared 
losses as described in section II.F. of this final 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 
methodologies that would have differing incentives for improving 
clinical outcomes such as: Scoring measures individually under a method 
that would weigh all measures equally as well as weighing 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 measures to realize the full shared savings. However, 
our final policy encourages continuous quality improvement since ACOs 
that score higher on quality get to keep a higher percentage of the 
savings they generate compared to ACOs that perform lower on quality.

F. 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 12, we have prepared an accounting statement 
showing the classification of transfers, benefits and costs associated 
with the provisions of this final rule.

                     Table 12--Accounting Statement: Estimated Transfers, Benefits and Costs
                                                 [CYs 2012-2015]
----------------------------------------------------------------------------------------------------------------
            Category                                                 Transfers
----------------------------------------------------------------------------------------------------------------
                                      Year dollar               Units discount rate
 Annualized monetized transfers  ------------------------------------------------------------        Notes
                                         2011                 7%                  3%
----------------------------------------------------------------------------------------------------------------
                                  Primary Estimate..  -$110.08 million..  -$112.85 million..  These estimates
                                                                                               represent the
                                                                                               range of
                                                                                               annualized
                                                                                               impacts on the
                                                                                               Medicare Program
                                                                                               (net bonus
                                                                                               payments) for CYs
                                                                                               2012-2015.
                                  90th Percentile     $11.02 million....  $10.45 million....
                                   Estimate.
                                  10th Percentile     -$233.92 million..  -$238.76 million..
                                   Estimate.
----------------------------------------------------------------------------------------------------------------
From/To.........................                        Federal Government to ACO Providers
----------------------------------------------------------------------------------------------------------------
Category........................                                       COSTS
----------------------------------------------------------------------------------------------------------------
Year Dollar:
2011:
Primary Estimate................  Primary Estimate..  $112.2 million....  $112.5 million....  Estimated
                                                                                               aggregate average
                                                                                               start-up
                                                                                               investment and
                                                                                               ongoing annual
                                                                                               operating costs
                                                                                               based on the mean
                                                                                               ACO participation
                                                                                               rate for CYs 2012
                                                                                               through 2015.
----------------------------------------------------------------------------------------------------------------

[[Page 67973]]

 
Category........................                                     BENEFITS
----------------------------------------------------------------------------------------------------------------
Qualitative Benefits............      Improved healthcare delivery and communication to beneficiaries through
                                                               patient centered-care.
----------------------------------------------------------------------------------------------------------------

G. Conclusion

    As a result of this final rule, the median estimate of the 
financial impact from implementation of the Shared Savings Program, for 
CYs 2012 through 2015, is a net savings (after bonus payments) of $470 
million. Although this is the ``best estimate'' for the financial 
impact of the Shared Savings Program during CYs 2012 through 2015, a 
relatively wide range of possible outcomes exists. Overall, 90 percent 
of the stochastic trials resulted in net program savings, and the 
remaining 10 percent represented cost increases. The 90th and 10th 
percentiles of the estimate distribution show net savings of $940 
million and $0 million, respectively, suggesting a 10 percent 
likelihood that the actual impact would exceed $940 million and a 10 
percent likelihood that the actual impact would result in a negative 
net Federal savings (that is, a net Federal cost). In the extreme 
scenarios, the results were as large as $2.0 billion in savings or $1.1 
billion in costs. In addition, at the anticipated mean participation 
rate of ACOs in the Shared Savings Program, participating ACOs may 
experience an estimated aggregate average start-up investment and 
ongoing annual operating cost of $451 million for CYs 2012 through 
2015. Lastly, we estimate an aggregate median impact of $1.31 billion 
in bonus payments to participating ACOs in the Shared Savings Program 
for CYs 2012 through 2015. The 10th and 90th percentiles of the 
estimate distribution, for the same time period, yield bonus payments 
to ACOs of $890 million and $1.9 billion, respectively. Therefore, the 
total median ACO bonus payments of $1.31 billion during CYs 2012 
through 2015 coupled with the aggregate average start-up investment and 
ongoing annual operating cost of $451 million, incurred by the mean 
participation rate of ACOs in the Shared Savings Program during the 
same time period, yields a benefit-cost ratio of 2.9.
    Overall, we assumed greater participation by ACOs under the 
policies contained in this final rule due to the greater generosity and 
the longer agreement period, as well as the full agreement period with 
a one-sided option. The longer agreement period also amplified our 
saving and cost estimates from what they would have been in a 3-year 
program. This resulted in total bonuses increasing dramatically, while 
penalties decreased due to these changes.

List of Subjects in 42 CFR 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 amends 42 CFR Chapter IV by adding part 425 to read 
as follows:

PART 425--MEDICARE SHARED SAVINGS PROGRAM

Sec.
Subpart A--General Provisions
425.10 Basis and scope.
425.20 Definitions.
Subpart B--Shared Savings Program Eligibility Requirements
425.100 General.
425.102 Eligible providers and suppliers.
425.104 Legal entity.
425.106 Shared governance.
425.108 Leadership and management.
425.110 Number of ACO professionals and beneficiaries.
425.112 Required processes and patient-centeredness criteria.
425.114 Participation in other shared savings initiatives.
Subpart C--Application Procedures and Participation Agreement
425.200 Agreement with CMS.
425.202 Application procedures.
425.204 Content of the application.
425.206 Evaluation procedures for applications.
425.208 Provisions of participation agreement.
425.210 Application of agreement to ACO participants, ACO providers/
suppliers, and others.
425.212 Changes to program requirements during the agreement term.
425.214 Managing changes to the ACO during the agreement.
425.216 Actions prior to termination.
425.218 Termination of the agreement by CMS.
425.220 Termination of an agreement by the ACO.
425.222 Reapplication after termination.
Subpart D--Program Requirements and Beneficiary Protections
425.300 Compliance plan.
425.302 Program requirements for data submission and certifications.
425.304 Other program requirements.
425.306 Participation agreement and exclusivity of ACO participant 
TINs.
425.308 Public reporting and transparency.
425.310 Marketing requirements.
425.312 Notification to beneficiaries of participation in shared 
savings program.
425.314 Audits and record retention.
425.316 Monitoring of ACOs.
Subpart E--Assignment of Beneficiaries
425.400 General.
425.402 Basic assignment methodology.
425.404 Special assignment conditions for ACOs including for FQHCs 
and RHCs.
Subpart F--Quality Performance Standards and Reporting
425.500 Measures to assess the quality of care furnished by an ACO.
425.502 Calculating ACO quality performance score.
425.504 Incorporating reporting requirements related to the 
Physician Quality Reporting System.
425.506 Electronic health records technology.
Subpart G--Shared Savings and Losses
425.600 Selection of risk model.
425.602 Establishing the benchmark.
425.604 Calculation of savings under the one-sided model.
425.606 Calculation of shared savings and losses under the two-sided 
model.
425.608 Determining first year performance for ACOs beginning April 
1 or July 1, 2012.
Subpart H--Data Sharing With ACOs
425.700 General rules.
425.702 Aggregate reports.
425.704 Beneficiary-identifiable data.
425.706 Minimum necessary data.
425.708 Beneficiary may decline data sharing.
425.710 Data use agreement.

[[Page 67974]]

Subpart I--Reconsideration Review Process
425.800 Preclusion of administrative and judicial review.
425.802 Request for review.
425.804 Reconsideration review process.
425.806 On-the-record review of reconsideration official's 
recommendation by independent CMS Official.
425.808 Effect of independent CMS official's decision.
425.810 Effective date of decision.

    Authority: Secs. 1102, 1106, 1871, and 1899 of the Social 
Security Act (42 U.S.C. 1302 and 1395hh).

Subpart A--General Provisions


Sec.  425.10  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 Medicare 
parts A and B, and encourages investment in infrastructure and 
redesigned care processes for high quality and efficient services. The 
regulations under this part must not be construed to affect the 
payment, coverage, program integrity, and other requirements that apply 
to providers and suppliers under FFS Medicare.
    (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) Application procedures and provisions of the participation 
agreement.
    (3) Program requirements and beneficiary protections.
    (4) The method for assigning Medicare fee-for-service beneficiaries 
to ACOs.
    (5) Quality performance standards, reporting requirements, and data 
sharing.
    (6) Payment criteria and methodologies (one-sided model and two-
sided model).
    (7) Compliance monitoring and sanctions for noncompliance.
    (8) Reconsideration review process.


Sec.  425.20  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, Federal, or Tribal 
law, is identified by a Taxpayer Identification Number (TIN), and is 
formed by one or more ACO participants(s) that is(are) defined at Sec.  
425.102(a) and may also include any other ACO participants described at 
Sec.  425.102(b).
    ACO participant means an individual or group of ACO provider(s)/
supplier(s), that is identified by a Medicare-enrolled TIN, that alone 
or together with one or more other ACO participants comprise(s) an ACO, 
and that is included on the list of ACO participants that is required 
under Sec.  425.204(c)(5).
    ACO professional means an ACO provider/supplier who is either of 
the following:
    (1) A physician legally authorized to practice medicine and surgery 
by the State in which he performs such function or action.
    (2) A practitioner who is one of the following:
    (i) A physician assistant (as defined at Sec.  410.74(a)(2) of this 
chapter).
    (ii) A nurse practitioner (as defined at Sec.  410.75(b) of this 
chapter).
    (iii) A clinical nurse specialist (as defined at Sec.  410.76(b) of 
this chapter).
    ACO provider/supplier means an individual or entity that--
    (1) Is a provider (as defined at Sec.  400.202 of this chapter) or 
a supplier (as defined at Sec.  400.202 of this chapter);
    (2) Is enrolled in Medicare;
    (3) Bills for items and services it furnishes to Medicare fee-for-
service beneficiaries under a Medicare billing number assigned to the 
TIN of an ACO participant in accordance with applicable Medicare 
regulations; and
    (4) Is included on the list of ACO providers/suppliers that is 
required under Sec.  425.204(c)(5).
    Agreement period means the term of the participation agreement 
which begins at the start of the first performance year and concludes 
at the end of the final performance year.
    Antitrust Agency means the Department of Justice or Federal Trade 
Commission.
    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 a physician 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, but is not limited to, 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 or emergency room visits each year;
    (3) Is dually eligible for Medicare and Medicaid;
    (4) Has a high utilization pattern;
    (5) Has one or more chronic conditions.
    (6) Has had a recent diagnosis that is expected to result in 
increased cost.
    (7) Is entitled to Medicaid because of disability; or
    (8) Is diagnosed with a mental health or substance abuse disorder.
    Continuously assigned beneficiary means a beneficiary assigned to 
the ACO in the current performance year who was either assigned to or 
received a primary care service from any of the ACO's participant 
during the most recent prior calendar year.
    Covered professional services has the same meaning given these 
terms under section 1848(k)(3)(A) of the Act.
    Critical access hospital (CAH) has the same meaning given this term 
under Sec.  400.202 of this chapter.
    Eligible professional has the meanings given this term under 
section 1848(k)(3)(B) of the Act.
    Federally qualified health center (FQHC) has the same meaning given 
to this term under Sec.  405.2401(b) of this chapter.
    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, social media, or other activities conducted by or on 
behalf of the ACO, or by ACO participants, or ACO providers/suppliers 
participating in the ACO, 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: Certain informational materials 
customized or limited to a subset of beneficiaries; materials that do 
not include information about the ACO, its ACO participants, or its ACO 
providers/suppliers; materials that cover beneficiary-specific billing 
and claims issues or other specific individual health related issues; 
educational information on specific medical conditions (for example, 
flu shot reminders), written referrals for health care items and 
services, and materials or activities that do not constitute 
``marketing'' under 45 CFR 164.501 and 164.508(a)(3)(i).
    Medicare fee-for-service beneficiary means an individual who is--
    (1) Enrolled in the original Medicare fee-for-service program under 
both 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.

[[Page 67975]]

    (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.
    Newly assigned beneficiary means a beneficiary that is assigned in 
the current performance year who was neither assigned to nor receives a 
primary care service from any of the ACO's participants during the most 
recent prior calendar year.
    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 subpart G of 
this part.
    Performance year means the 12-month period beginning on January 1 
of each year during the agreement period, unless otherwise noted in the 
ACO's agreement. For an ACO with a start date of April 1, 2012 or July 
1, 2012, the ACO's first performance year is defined as 21 months and 
18 months, respectively.
    Physician means a doctor of medicine or osteopathy (as defined in 
section 1861(r)(1) of the Act).
    Physician Quality Reporting System (PQRS) means the quality 
reporting system established under section 1848(k) of the Act.
    Primary care physician means a physician who has a primary 
specialty designation of internal medicine, general practice, family 
practice, or geriatric medicine, or, for services furnished in an FQHC 
or RHC, a physician included in an attestation by the ACO as provided 
under Sec.  425.404.
    Primary care services mean the set of services identified by the 
following HCPCS codes:
    (1) 99201 through 99215.
    (2) 99304 through 99340, and 99341 through 99350, G0402 (the code 
for the Welcome to Medicare visit), G0438 and G0439 (codes for the 
annual wellness visits);
    (3) Revenue center codes 0521, 0522, 0524, 0525 submitted by FQHCs 
(for services furnished prior to January 1, 2011), or by RHCs.
    Quality measures means the measures defined by the Secretary, under 
section 1899 of the Act, to assess the quality of care furnished by an 
ACO, such as measures of clinical processes and outcomes, patient and, 
where practicable, caregiver experience of care and utilization.
    Reporting period, for purposes of subpart F of this part, means the 
calendar year from January 1 to December 31.
    Rural health center (RHC) has the same meaning given to this term 
under Sec.  405.2401(b).
    Shared losses means a portion of the ACO's performance year 
Medicare fee-for-service Parts A and B expenditures, above the 
applicable benchmark, it must repay to CMS. An ACO's eligibility for 
shared losses will be determined for each performance year. For an ACO 
requesting interim payment, shared losses may result from the interim 
payment calculation.
    Shared savings means a portion of the ACO's performance year 
Medicare fee-for-service Parts A and B expenditures, below the 
applicable benchmark, it is eligible to receive payment for from CMS. 
An ACO's eligibility for shared savings will be determined for each 
performance year. For an ACO requesting interim payment, shared savings 
may result from the interim payment system calculation.
    Taxpayer Identification Number (TIN) means a Federal taxpayer 
identification number or employer identification number as defined by 
the IRS in 26 CFR 301.6109-1.
    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 subpart G of 
this part.

Subpart B--Shared Savings Program Eligibility Requirements


Sec.  425.100  General.

    (a) 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 meets the criteria specified in this 
part. The ACO must become accountable for the quality, cost, and 
overall care of the Medicare fee-for-service beneficiaries assigned to 
the ACO.
    (b) ACOs that meet or exceed a minimum savings rate established 
under Sec.  425.604 or Sec.  425.606, meet the minimum quality 
performance standards established under Sec.  425.500, and otherwise 
maintain their eligibility to participate in the Shared Savings Program 
under this part are eligible to receive payments for shared savings 
under subpart G.
    (c) ACOs that operate under the two-sided model and meet or exceed 
a minimum loss rate established under Sec.  425.606 must share losses 
with the Medicare program under subpart G of the part.


Sec.  425.102  Eligible providers and suppliers.

    (a) The following ACO participants or combinations of ACO 
participants are eligible to form an ACO that may apply to 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) CAHs that bill under Method II (as described in Sec.  
413.70(b)(3) of this chapter).
    (6) RHCs.
    (7) FQHCs.
    (b) Other ACO participants that are not identified in paragraph (a) 
of this section are eligible participate through an ACO formed by one 
or more of the ACO participants identified in paragraph (a) of this 
section.


Sec.  425.104  Legal entity.

    (a) An ACO must be a legal entity, formed under applicable State, 
Federal, or Tribal law, and authorized to conduct business in each 
State in which it operates for purposes of the following:
    (1) Receiving and distributing shared savings.
    (2) Repaying shared losses or other monies determined to be owed to 
CMS.
    (3) Establishing, reporting, and ensuring provider compliance with 
health care quality criteria, including quality performance standards.
    (4) Fulfilling other ACO functions identified in this part.
    (b) An ACO formed by two or more otherwise independent ACO 
participants must be a legal entity separate from any of its ACO 
participants.


Sec.  425.106  Shared governance.

    (a) General rule. An ACO must maintain an identifiable governing 
body with authority to execute the functions of an ACO as defined under 
this part, including but not limited to, the processes defined under 
Sec.  425.112 to promote evidence-based medicine and patient 
engagement, report on quality and cost measures, and coordinate care.
    (b) Responsibilities of the governing body and its members. (1) The 
governing body must have responsibility for oversight and strategic 
direction of the ACO, holding ACO management accountable for the ACO's 
activities as described in this part.
    (2) The governing body must have a transparent governing process.
    (3) The governing body members must have a fiduciary duty to the 
ACO and must act consistent with that fiduciary duty.

[[Page 67976]]

    (4) The governing body of the ACO must be separate and unique to 
the ACO in cases where the ACO comprises multiple, otherwise 
independent ACO participants.
    (5) If the ACO is an existing entity, the ACO governing body may be 
the same as the governing body of that existing entity, provided it 
satisfies the other requirements of this section.
    (c) Composition and control of the governing body. (1) The ACO must 
provide for meaningful participation in the composition and control of 
the ACO's governing body for ACO participants or their designated 
representatives.
    (2) The ACO governing body must include a Medicare beneficiary 
representative(s) served by the ACO who does not have a conflict of 
interest with the ACO, and who has no immediate family member with 
conflict of interest with the ACO.
    (3) At least 75 percent control of the ACO's governing body must be 
held by ACO participants.
    (4) The governing body members may serve in a similar or 
complementary manner for an ACO participant.
    (5) In cases in which the composition of the ACO's governing body 
does not meet the requirements of paragraphs (c)(2) and (c)(3) of this 
section, the ACO must describe why it seeks to differ from these 
requirements and how the ACO will involve ACO participants in 
innovative ways in ACO governance or provide meaningful representation 
in ACO governance by Medicare beneficiaries.
    (d) Conflict of interest. The ACO governing body must have a 
conflict of interest policy that applies to members of the governing 
body. The conflict of interest policy must--
    (1) Require each member of the governing body to disclose relevant 
financial interests; and
    (2) Provide a procedure to determine whether a conflict of interest 
exists and set forth a process to address any conflicts that arise.
    (3) The conflict of interest policy must address remedial action 
for members of the governing body that fail to comply with the policy.


Sec.  425.108  Leadership and management.

    (a) An ACO must have a leadership and management structure that 
includes 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.
    (b) The ACO's operations must be managed by an executive, officer, 
manager, general partner, or similar party whose appointment and 
removal are under the control of the ACO's governing body and whose 
leadership team has demonstrated the ability to influence or direct 
clinical practice to improve efficiency processes and outcomes.
    (c) Clinical management and oversight must be managed by a senior-
level medical director who is a physician and one of its ACO providers/
suppliers, who is physically present on a regular basis at any clinic, 
office, or other location participating in the ACO, and who is a board-
certified physician and licensed in a State in which the ACO operates.
    (d) Each ACO participant and each ACO provider/supplier must 
demonstrate a meaningful commitment to the mission of the ACO to ensure 
the ACO's likely success.
    (1) Meaningful commitment may include, for example, a sufficient 
financial or 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 ACO participant 
and ACO provider/supplier to achieve the ACO's mission under the Shared 
Savings Program.
    (2) A meaningful commitment can be shown when an ACO participant or 
ACO provider/supplier agrees to comply with and implement the ACO's 
processes required by Sec.  425.112 and is held accountable for meeting 
the ACO's performance standards for each required process.
    (e) CMS retains the right to give consideration to an innovative 
ACO with a management structure not meeting paragraphs (b) through (c) 
of this section.


Sec.  425.110  Number of ACO professionals and beneficiaries.

    (a)(1) The ACO must include primary care ACO professionals that are 
sufficient for the number of Medicare fee-for-service beneficiaries 
assigned to the ACO under subpart E of this part. The ACO must have at 
least 5,000 assigned beneficiaries.
    (2) CMS deems an ACO to have initially satisfied the requirement to 
have at least 5,000 assigned beneficiaries specified in paragraph 
(a)(1) of this section if the number of beneficiaries historically 
assigned to the ACO participants in each of the three years before the 
start of the agreement period, using the assignment methodology in 
subpart E of this part, is 5,000 or more.
    (b) If at any time during the performance year, an ACO's assigned 
population falls below 5,000, the ACO will be issued a warning and 
placed on a CAP.
    (1) While under the CAP, the ACO remains eligible for shared 
savings and losses during that performance year and its MSR will be set 
at a level consistent with the number of assigned beneficiaries.
    (2) If the ACO's assigned population is not returned to at least 
5,000 or more by the end of next performance year, the ACO's agreement 
will be terminated and the ACO will not be eligible to share in savings 
for that performance year.


Sec.  425.112  Required processes and patient-centeredness criteria.

    (a) General. (1) An ACO must--
    (i) Promote evidence-based medicine and beneficiary engagement, 
internally report on quality and cost metrics, and coordinate care;
    (ii) 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; and
    (iii) Have defined processes to fulfill these requirements.
    (2) An ACO must have a qualified healthcare professional 
responsible for the ACO's quality assurance and improvement program, 
which must include the defined processes included in paragraphs (b)(1) 
through (4) of this section.
    (3) For each process specified in paragraphs (b)(1) through (4) of 
this section, the ACO must--
    (i) Explain how it will require ACO participants and ACO providers/
suppliers to comply with and implement each process (and subelement 
thereof), including the remedial processes and penalties (including the 
potential for expulsion) applicable to ACO participants and ACO 
providers/suppliers for failure to comply with and implement the 
required process; and
    (ii) Explain how it will employ its internal assessments of cost 
and quality of care to improve continuously the ACO's care practices.
    (b) Required processes. The ACO must define, establish, implement, 
evaluate, and periodically update processes to accomplish the 
following:
    (1) Promote evidence-based medicine. These processes must cover 
diagnoses with significant potential for the ACO to achieve quality 
improvements taking into account the circumstances of individual 
beneficiaries.
    (2) Promote patient engagement. These processes must address the 
following areas:

[[Page 67977]]

    (i) Compliance with patient experience of care survey requirements 
in Sec.  425.500.
    (ii) Compliance with beneficiary representative requirements in 
Sec.  425.106.
    (iii) A process for evaluating the health needs of the ACO's 
population, including consideration of diversity in its patient 
populations, and a plan to address the needs of its population.
    (A) In its plan to address the needs of its population, the ACO 
must describe how it intends to partner with community stakeholders to 
improve the health of its population.
    (B) An ACO that has a stakeholder organization serving on its 
governing body will be deemed to have satisfied the requirement to 
partner with community stakeholders.
    (iv) Communication of clinical knowledge/evidence-based medicine to 
beneficiaries in a way that is understandable to them.
    (v) Beneficiary engagement and shared decision-making that takes 
into account the beneficiaries' unique needs, preferences, values, and 
priorities;
    (vi) Written standards in place for beneficiary access and 
communication, and a process in place for beneficiaries to access their 
medical record.
    (3) Develop an infrastructure for its ACO participants and ACO 
providers/suppliers to internally report on quality and cost metrics 
that enables the ACO to monitor, provide feedback, and evaluate its ACO 
participants and ACO provider(s)/supplier(s) performance and to use 
these results to improve care over time.
    (4) Coordinate care across and among primary care physicians, 
specialists, and acute and post-acute providers and suppliers. The ACO 
must--
    (i) Define its methods and processes established to coordinate 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 (both inside and outside the ACO); and
    (ii) As part of its application, the ACO must:
    (A) Submit a description of its individualized care program, along 
with a sample individual care plan, and explain how this program is 
used to promote improved outcomes for, at a minimum, its high-risk and 
multiple chronic condition patients.
    (B) Describe additional target populations that would benefit from 
individualized care plans. Individual care plans must take into account 
the community resources available to the individual.


Sec.  425.114  Participation in other shared savings initiatives.

    (a) ACOs may not participate in the Shared Savings Program if they 
include an ACO participant that participates 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.
    (b) CMS will review and deny an ACO's application if any ACO 
participants are participating in another Medicare initiative that 
involves shared savings payments.
    (c) CMS will determine an appropriate method to ensure no 
duplication in payments for beneficiaries assigned to other shared 
savings programs or initiatives, including initiatives involving dually 
eligible beneficiaries, when such other shared savings programs have an 
assignment methodology that is different from the Shared Savings 
Program.

Subpart C--Application Procedures and Participation Agreement


Sec.  425.200  Agreement with CMS.

    (a) General. In order to participate in the Shared Savings Program, 
an ACO must enter into a participation agreement with CMS for a period 
of not less than three years.
    (b) Term of agreement. (1) For 2012. For applications that are 
approved to participate in the Shared Savings Program for 2012, the 
start date for the agreement will be one of the following:
    (i) April 1, 2012 (term of the agreement is 3 years and 9 months).
    (ii) July 1, 2012 (term of the agreement is 3 years and 6 months).
    (2) For 2013 and all subsequent years--
    (i) The start date is January 1 of that year; and
    (ii) The term of the agreement is 3 years.
    (c) Performance year. (1) Except as specified in paragraphs 
(b)(1)(i) and (ii) of this section, the ACO's performance year under 
the agreement is the 12 month period beginning on January 1 of each 
year during the term of the agreement unless otherwise noted in its 
agreement.
    (2) For an ACO with a start date of April 1, 2012 or July 1, 2012, 
the ACO's first performance year is defined as 21 months or 18 months, 
respectively.
    (d) During each calendar year of the agreement period, including 
the partial year associated with start dates specified in paragraph 
(b)(1)(i) and (ii) of this section, ACOs must submit measures in the 
form and manner required by CMS.


Sec.  425.202  Application procedures.

    (a) General rules. (1) In order to obtain a determination regarding 
whether it meets the requirements to participate in the Shared Savings 
Program, a prospective ACO must submit a complete application in the 
form and manner required by CMS by the deadline established by CMS.
    (2) An ACO executive who has the authority to legally bind the ACO 
must certify to the best of his or her knowledge, information, and 
belief that the information contained in the application is accurate, 
complete, and truthful.
    (3) An ACO that seeks to participate in the Shared Savings Program 
and was newly formed after March 23, 2010, as defined in the Antitrust 
Policy Statement, must agree that CMS can share a copy of their 
application with the Antitrust Agencies.
    (b) Condensed application form. PGP demonstration sites applying to 
participate in the Shared Savings Program will have an opportunity to 
complete a condensed application form.
    (c) Application review. (1) CMS determines whether an applicant 
satisfies the requirements of this part and is qualified to participate 
in the Shared Savings Program.
    (2) CMS approves or denies applications accordingly.


Sec.  425.204  Content of the application.

    (a) Accountability for beneficiaries. As part of its application 
and participation agreement, the ACO must certify that the ACO, its ACO 
participants, and its ACO providers/suppliers have agreed to become 
accountable for the quality, cost, and overall care of the Medicare 
fee-for-service beneficiaries assigned to the ACO.
    (b) Disclosure of prior participation. (1) The ACO must disclose to 
CMS whether the ACO, its ACO participants, or its ACO providers/
suppliers have participated in the Medicare Shared Savings Program 
under the same or a different name, or is related to or has an 
affiliation with another Shared Savings Program ACO.
    (2) The ACO must specify whether the related ACO agreement is 
currently active or has been terminated. If it has been terminated, the 
ACO must specify whether the termination was voluntary or involuntary.
    (3) If the ACO, ACO participant, or ACO provider/supplier was 
previously terminated from the Shared Savings Program, the ACO must 
identify the

[[Page 67978]]

cause of termination and what safeguards are now in place to enable the 
ACO, ACO participant, or ACO provider/supplier to participate in the 
program for the full term of the agreement.
    (c) Eligibility. (1) As part of its application, an ACO must submit 
to CMS the following supporting materials to demonstrate that the ACO 
satisfies the eligibility requirements set forth in subpart B of this 
part:
    (i) Documents (for example, participation agreements, employment 
contracts, and operating policies) sufficient to describe the ACO 
participants' and ACO providers'/suppliers' rights and obligations in 
and representation by the ACO, including how the opportunity to receive 
shared savings or other financial arrangements will encourage ACO 
participants and ACO providers/suppliers to adhere to the quality 
assurance and improvement program and evidenced-based clinical 
guidelines.
    (ii) A description, or documents sufficient to describe, how the 
ACO will implement the required processes and patient-centeredness 
criteria under Sec.  425.112, including descriptions of the remedial 
processes and penalties (including the potential for expulsion) that 
will apply if an ACO participant or an ACO provider/supplier fails to 
comply with and implement these processes.
    (iii) 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 including 
administrative and clinical leaders specifically noted in Sec.  
425.108.
    (iv) Evidence that the governing body is an identifiable body, that 
the governing body is comprised of representatives of the ACO's 
participants, and that the ACO participants have at least 75 percent 
control of the ACO's governing body.
    (v) Evidence that the governing body includes a Medicare 
beneficiary representative(s) served by the ACO who does not have a 
conflict of interest with the ACO, and who has no immediate family 
member with conflict of interest with the ACO.
    (vi) 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.
    (2) Upon request, the ACO must provide copies of all documents 
effectuating the ACO's formation and operation, including, without 
limitation the following:
    (i) Charters.
    (ii) By-laws.
    (iii) Articles of incorporation.
    (iv) Partnership agreement.
    (v) Joint venture agreement.
    (vi) Management or asset purchase agreements.
    (vii) Financial statements and records.
    (viii) Resumes and other documentation required for leaders of the 
ACO.
    (3) If an ACO requests an exception to the--
    (i) Governing body requirements in Sec.  425.106, the ACO must 
describe why it seeks to differ from these requirements and how the ACO 
will involve ACO participants in innovative ways in ACO governance or 
provide meaningful representation in ACO governance by Medicare 
beneficiaries or both; or
    (ii) Leadership and management requirements in Sec.  425.108, the 
ACO must describe how its alternative leadership and management 
structure will be capable of accomplishing the ACO's mission.
    (4)(i) An ACO must certify that it is recognized as a legal entity 
in the State, Federal or Tribal area in which it was established and 
that it is authorized to conduct business in each State or Tribal area 
in which it operates.
    (ii) An ACO formed among multiple, independent ACO participants 
must provide evidence in its application that it is a legal entity 
separate from any of the ACO participants.
    (5) The ACO must provide CMS with such information regarding its 
ACO participants and its ACO providers/suppliers participating in the 
program as is necessary to implement the program.
    (i) The ACO must submit a list of all ACO participants and their 
Medicare-enrolled TINs.
    (A) For each ACO participant, the ACO must submit a list of the ACO 
providers/suppliers and their provider identifier (for example, NPI) 
and indicate whether the ACO provider/supplier is a primary care 
physician as defined in Sec.  425.20.
    (B) The list specified in paragraph (c)(5)(i)(A) of this section 
must be updated in accordance with Sec.  425.302(d).
    (ii) ACOs must also submit any other specific identifying 
information as required by CMS in the application process.
    (iii) If the ACO includes an FQHC or RHC as an ACO participant, it 
must also do the following:
    (A) Indicate the TINs, organizational NPIs, and other identifying 
information for its participant FQHCs or RHCs or both, as well as NPIs 
and other identifying information for the physicians that directly 
provide primary care services in the participant FQHCs or RHCs or both.
    (B) Submit any other specific identifying information for its 
participant FQHCs or RHCs or both as required by CMS in the application 
process.
    (iv) The ACO must certify the accuracy of this information.
    (d) Distribution of savings. As part of its application to 
participate in the Shared Savings Program, an ACO must describe the 
following:
    (1) How it plans to use shared savings payments, including the 
criteria it plans to employ for distributing shared savings among its 
ACO participants and ACO providers/suppliers.
    (2) How the proposed plan will achieve the specific goals of the 
Shared Savings Program.
    (3) How the proposed plan will achieve the general aims of better 
care for individuals, better health for populations, and lower growth 
in expenditures.
    (e) Selection of track and option for interim payment calculation.
    (1) As part of its application, an ACO must specify whether it is 
applying to participate in Track 1 or Track 2 (as described in Sec.  
425.600).
    (2)(i) An ACO applying to participate in the program with a start 
date of April 1, 2012 or July 1, 2012, has the option of requesting an 
interim payment calculation based on the financial performance for its 
first 12 months of program participation and quality performance for CY 
2012.
    (ii) An ACO must request interim payment calculation as part of its 
application to participate in the Shared Savings Program.
    (f) Assurance of ability to repay. (1) An ACO must have the ability 
to repay losses for which it may be liable, and any other monies 
determined to be owed upon first performance year reconciliation.
    (i) As part of its application, an ACO that is applying to 
participate under the two-sided model of the Shared Savings Program or 
requesting an interim payment calculation under the one-sided model 
must submit for CMS approval documentation that it is capable of 
repaying losses or other monies determined to be owed upon first year 
reconciliation.
    (ii) The documentation specified in paragraph (f)(1)(i) of this 
section must include details supporting the adequacy of the mechanism 
for repaying losses, or other monies determined to be owed

[[Page 67979]]

upon first year reconciliation, equal to at least 1 percent of the 
ACO's total per capita Medicare Parts A and B fee-for-service 
expenditures for its assigned beneficiaries based either on 
expenditures for the most recent performance year or expenditures used 
to establish the benchmark.
    (2) An ACO may demonstrate its ability to repay losses, or other 
monies determined to be owed upon first year reconciliation, by 
obtaining reinsurance, placing funds in escrow, obtaining surety bonds, 
establishing a line of credit (as evidenced by a letter of credit that 
the Medicare program can draw upon), or establishing another 
appropriate repayment mechanism that will ensure its ability to repay 
the Medicare program.
    (3) An ACO participating under the two-sided model must demonstrate 
the adequacy of this repayment mechanism annually, prior to the start 
of each performance year in which it takes risk.


Sec.  425.206  Evaluation procedures for applications.

    (a) Basis for evaluation and determination. (1) CMS evaluates an 
ACO's application on the basis of the information contained in and 
submitted with the application.
    (2) CMS notifies applicant ACOs when the application is incomplete 
and provide an opportunity to submit information to complete the 
application. Applications remaining incomplete by the application due 
date will be denied.
    (b) Notice of determination. (1) CMS notifies in writing each 
applicant ACO of its determination to approve or deny the ACO's 
application to participate in the Shared Savings Program.
    (2) If CMS denies the application, the notice will indicate that 
the ACO is not qualified to participate in the Shared Savings Program, 
specify the reasons why the ACO is not so qualified, and inform the ACO 
of its right to request reconsideration review in accordance with the 
procedures specified in subpart I of this part.


Sec.  425.208  Provisions of participation agreement.

    (a) General rules. (1) 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 participation agreement.
    (2) Under the participation agreement the ACO must agree to comply 
with the provisions of this part in order to participate in the Shared 
Savings Program.
    (b) Compliance with laws. The ACO must agree, and must require its 
ACO participants, ACO providers/suppliers, and other individuals or 
entities performing functions or services related to the ACO's 
activities to agree, or to comply with all applicable laws including, 
but not limited to, the following:
    (1) Federal criminal law.
    (2) The False Claims Act (31 U.S.C. 3729 et seq.).
    (3) The anti-kickback statute (42 U.S.C. 1320a-7b(b)).
    (4) The civil monetary penalties law (42 U.S.C. 1320a-7a).
    (5) The physician self-referral law (42 U.S.C. 1395nn).
    (c) Certifications. (1) The ACO must agree, as a condition of 
participating in the program and receiving any shared savings payment, 
that an individual with the authority to legally bind the ACO will 
certify the accuracy, completeness, and truthfulness of any data or 
information requested by or submitted to CMS, including, but not 
limited to, the application form, participation agreement, and any 
quality data or other information on which CMS bases its calculation of 
shared savings payments and shared losses.
    (2) Certifications must meet the requirements at Sec.  425.302.


Sec.  425.210  Application of agreement to ACO participants, ACO 
providers/suppliers, and others.

    (a) The ACO must provide a copy of its participation agreement with 
CMS to all ACO participants, ACO providers/suppliers, and other 
individuals and entities involved in ACO governance.
    (b) All contracts or arrangements between or among the ACO, ACO 
participants, ACO providers/suppliers, and other individuals or 
entities performing functions or services related to ACO activities 
must require compliance with the requirements and conditions of this 
part, including, but not limited to, those specified in the 
participation agreement with CMS.


Sec.  425.212  Changes to program requirements during the agreement 
term.

    (a)(1) ACOs are subject to all statutory changes that become 
effective during the term of their participation agreement.
    (2) ACOs are 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 there are changes in law or 
regulations, the ACO will be required to submit to CMS for review and 
approval, as a supplement to its original application, an explanation 
detailing how it will modify its processes to address these changes in 
law or regulations.
    (c) If an ACO does not modify its processes to address a change in 
law or regulations, it will be placed on a CAP. If the ACO fails to 
effectuate the necessary modifications while under the CAP, the ACO 
will be terminated from the Shared Savings Program using the procedures 
in Sec.  425.218.
    (d) An ACO will be permitted to terminate its agreement, in those 
instances where Shared Savings Program statutory and regulatory 
standards are established during the agreement period which the ACO 
believes will impact its ability to continue to participate in the 
Shared Savings Program.


Sec.  425.214  Managing changes to the ACO during the agreement.

    (a)(1) During the term of the participation agreement, an ACO may 
add or remove ACO participants or ACO providers/suppliers (identified 
by TINs and NPIs).
    (2) An ACO must notify CMS within 30 days of such an addition or 
removal.
    (3) The ACO's benchmark, risk scores, and preliminary prospective 
assignment may be adjusted for this change at CMS' discretion.
    (b) ACOs must notify CMS within 30 days of any significant change. 
A ``significant change'' occurs when an ACO is no longer able to meet 
the eligibility or program requirements of this Part.
    (c) Upon receiving an ACO's notice of a significant change 
described in paragraph (b) of this section, CMS reevaluates the ACO's 
eligibility to continue to participate in the Shared Savings Program 
and may request additional documentation. CMS may make a determination 
that includes one of the following:
    (1) The ACO may continue to operate under the new structure.
    (2) The ACO structure is so different from the initially approved 
ACO that it must terminate its agreement and submit a new application 
for participation.
    (3) The ACO no longer meets the eligibility criteria for the 
program and its participation agreement must be terminated.
    (4) CMS and the ACO may mutually decide to terminate the agreement.


Sec.  425.216  Actions prior to termination.

    (a) Pre-termination actions. (1) If CMS concludes that termination 
of an ACO from the Shared Savings Program is warranted, CMS may take 
one or more

[[Page 67980]]

of the following actions prior to termination of the ACO from the 
Shared Savings Program.
    (i) Provide a warning notice to the ACO regarding noncompliance 
with one or more program requirements.
    (ii) Request a CAP from the ACO.
    (iii) Place the ACO on a special monitoring plan.
    (2) Nothing in this part, including the actions set forth in 
paragraph (a)(1) of this section, negates, diminishes, or otherwise 
alters the applicability of other laws, rules, or regulations, 
including, but not limited to, the Sherman Act (15 U.S.C. 1 et seq.), 
the Clayton Act (15 U.S.C. 12), and the Federal Trade Commission Act 
(15 U.S.C. 45 et seq.).
    (b) Corrective action plans. (1) The ACO must submit a CAP for CMS 
approval by the deadline indicated on the notice of violation.
    (i) The CAP must address what actions the ACO will take to ensure 
that the ACO, ACO participants, ACO providers/suppliers or other 
individuals or entities performing functions or services related to the 
ACO's activities or both correct any deficiencies and comply with all 
applicable Shared Savings Program requirements.
    (ii) The ACO's performance will be monitored and evaluated during 
and after the CAP process.
    (2) CMS may terminate the ACO's agreement if the ACO fails to 
submit, obtain approval for, or implement a CAP, or fails to 
demonstrate improved performance upon completion of the CAP.


Sec.  425.218  Termination of the agreement by CMS.

    (a) General. CMS may terminate the participation agreement with an 
ACO when an ACO, the ACO participants, ACO providers/suppliers or other 
individuals or entities performing functions or services related to ACO 
activities fail to comply with any of the requirements of the Shared 
Savings Program under this part.
    (b) Grounds for termination by CMS. CMS may terminate the 
participation agreement for reasons including, but not limited to the 
following:
    (1) Non-compliance with eligibility and other requirements 
described in this part.
    (2) The imposition of sanctions or other actions taken against the 
ACO by an accrediting organization, State, Federal or local government 
agency leading to inability of the ACO to comply with the requirements 
under this part.
    (3) Violations of the physician self-referral prohibition, civil 
monetary penalties (CMP) law, Federal anti-kickback statute, antitrust 
laws, or any other applicable Medicare laws, rules, or regulations that 
are relevant to ACO operations.
    (c) CMS may immediately terminate a participation agreement without 
taking any of the pre-termination actions set forth in Sec.  425.216.
    (d) Notice of termination by CMS. CMS notifies an ACO in writing of 
its decision to terminate the participation agreement.


Sec.  425.220  Termination of an agreement by the ACO.

    (a) Notice of termination. An ACO must provide at least 60 days 
advance written notice to CMS and its ACO participants of its decision 
to terminate the participation agreement and the effective date of its 
termination.
    (b) Payment consequences of early termination. The ACO will not 
share in any savings for the performance year during which it notifies 
CMS of its decision to terminate the participation agreement.


Sec.  425.222  Re-application after termination.

    (a) An ACO that has been terminated from the Shared Savings Program 
under Sec.  425.218 orSec.  425.220 may participate in the Shared 
Savings Program again only after the date on which the term of the 
original participation agreement would have expired if the ACO had not 
been terminated.
    (b) To be eligible to participate in the Shared Savings Program 
after a previous termination, 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.
    (c) An ACO under the one-sided model whose agreement was previously 
terminated may reenter the program only under the two-sided model 
unless it was terminated less than half way through its agreement under 
the one-sided model in which case it will be allowed to re-enter the 
one-sided model. An ACO under the two-sided model whose agreement was 
terminated may only re-apply for participation in the two-sided model.

Subpart D--Program Requirements and Beneficiary Protections


Sec.  425.300  Compliance plan.

    (a) The ACO must have a compliance plan that includes at least the 
following elements:
    (1) A designated compliance official or individual who is not legal 
counsel to the ACO and reports directly to the ACO's governing body.
    (2) Mechanisms for identifying and addressing compliance problems 
related to the ACO's operations and performance.
    (3) A method for employees or contractors of the ACO, ACO 
participants, ACO providers/suppliers, and other individuals or 
entities performing functions or services related to ACO activities to 
anonymously report suspected problems related to the ACO to the 
compliance officer.
    (4) Compliance training for the ACO, the ACO participants, and the 
ACO providers/suppliers.
    (5) A requirement for the ACO to report probable violations of law 
to an appropriate law enforcement agency.
    (b)(1) ACOs that are existing entities may use the current 
compliance officer if the compliance officer meets the requirements set 
forth in paragraph (a)(1) of this section.
    (2) An ACO's compliance plan must be in compliance with and be 
updated periodically to reflect changes in law and regulations.


Sec.  425.302  Program requirements for data submission and 
certifications.

    (a) Requirements for data submission and certification.
    (1) The ACO, its ACO participants, its ACO providers/suppliers or 
individuals or other entities performing functions or services related 
to ACO activities must submit all data and information, including data 
on measures designated by CMS under Sec.  425.500, in a form and manner 
specified by CMS.
    (2) Certification of data upon submission. With respect to data and 
information that are generated or submitted by the ACO, ACO 
participants, ACO providers/suppliers, or other individuals or entities 
performing functions or services related to ACO activities, an 
individual with the authority to legally bind the individual or entity 
submitting such data or information must certify the accuracy, 
completeness, and truthfulness of the data and information to the best 
of his or her knowledge information and belief.
    (3) Annual certification. At the end of each performance year, an 
individual with the legal authority to bind the ACO must certify to the 
best of his or her knowledge, information, and belief--
    (i) That the ACO, its ACO participants, its ACO providers/
suppliers, and other individuals or entities performing functions or 
services related to ACO activities are in compliance with program 
requirements; and

[[Page 67981]]

    (ii) The accuracy, completeness, and truthfulness of all data and 
information that are generated or submitted by the ACO, ACO 
participants, ACO providers/suppliers, or other individuals or entities 
performing functions or services related to ACO activities, 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 of shared losses or other monies owed to 
CMS.
    (b) [Reserved]


Sec.  425.304  Other program requirements.

    (a) Beneficiary inducements. (1) ACOs, ACO participants, ACO 
providers/suppliers, and other individuals or entities performing 
functions or services related to ACO activities are prohibited from 
providing gifts or other remuneration to beneficiaries as inducements 
for receiving items or services from or remaining in, an ACO or with 
ACO providers/suppliers in a particular ACO or receiving items or 
services from ACO participants or ACO providers/suppliers.
    (2) Consistent with the provisions of paragraph (a)(1) of this 
section and subject to compliance with all other applicable laws and 
regulations, ACO, ACO participants and ACO providers/suppliers, and 
other individuals or entities performing functions or services related 
to ACO activities may provide in-kind items or services to 
beneficiaries if there is a reasonable connection between the items and 
services and the medical care of the beneficiary and the items or 
services are preventive care items or services or advance a clinical 
goal for the beneficiary, including adherence to a treatment regime, 
adherence to a drug regime, adherence to a follow-up care plan, or 
management of a chronic disease or condition.
    (b) Screening of ACO applicants. (1) ACOs, ACO participants, and 
ACO providers/suppliers will be reviewed during the Shared Savings 
Program application process and periodically thereafter with regard to 
their program integrity history, including any history of Medicare 
program exclusions or other sanctions and affiliations with individuals 
or entities that have a history of program integrity issues.
    (2) ACOs, ACO participants, or ACO providers/suppliers whose 
screening reveals a history of program integrity issues or affiliations 
with individuals or entities that have a history of program integrity 
issues may be subject to denial of their Shared Savings Program 
applications or the imposition of additional safeguards or assurances 
against program integrity risks.
    (c) Prohibition on certain required referrals and cost shifting. 
ACOs, ACO participants, and ACO providers/suppliers are prohibited 
from:
    (1) Conditioning the participation of ACO participants, ACO 
providers/suppliers, other individuals or entities performing functions 
or services related to ACO activities in the ACO on referrals of 
Federal health care program business that the ACO, its ACO 
participants, or ACO providers/suppliers or other individuals or 
entities performing functions or services related to ACO activities 
know or should know is being (or would be) provided to beneficiaries 
who are not assigned to the ACO.
    (2) Requiring that beneficiaries be referred only to ACO 
participants or ACO providers/suppliers within the ACO or to any other 
provider or supplier, except that the prohibition does not apply to 
referrals made by employees or contractors who are operating within the 
scope of their employment or contractual arrangement to the employer or 
contracting entity, provided that the employees and contractors remain 
free to make referrals without restriction or limitation if the 
beneficiary expresses a preference for a different provider, 
practitioner, or supplier; the beneficiary's insurer determines the 
provider, practitioner, or supplier; or the referral is not in the 
beneficiary's best medical interests in the judgment of the referring 
party.
    (d) Required reporting of NPIs and TINs. (1) The ACO must maintain, 
update, and annually furnish to CMS at the beginning of each 
performance year and at other such times as specified by CMS the list 
of each ACO participant's TIN and ACO providers/supplier's NPI that is 
required to be submitted under Sec.  425.204(c)(5)(i).
    (2) The ACO must notify CMS within 30 days of any changes to the 
list of NPIs and TINs.


Sec.  425.306  Participation agreement and exclusivity of ACO 
participant TINs.

    (a) For purposes of the Shared Savings Program, each ACO 
participant TIN is required to commit to a participation agreement with 
CMS.
    (b) Each ACO participant TIN upon which beneficiary assignment is 
dependent must be exclusive to one Medicare Shared Savings Program ACO 
for purposes of Medicare beneficiary assignment. ACO participant TINs 
upon which beneficiary assignment is not dependent are not required to 
be exclusive to one Medicare Shared Savings Program ACO.


Sec.  425.308  Public reporting and transparency.

    For purposes of the Shared Savings Program, each ACO must publicly 
report the following information regarding the ACO in a standardized 
format as specified by CMS:
    (a) Name and location.
    (b) Primary contact.
    (c) Organizational information including all of the following:
    (1) Identification of ACO participants.
    (2) Identification of participants in joint ventures between ACO 
professionals and hospitals.
    (3) Identification of the members of its governing body.
    (4) Identification of associated committees and committee 
leadership.
    (d) Shared savings and losses information, including:
    (1) Amount of any shared savings performance payment received by 
the ACO or shared losses owed to CMS.
    (2) 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.
    (e) Results of patient experience of care survey and claims based 
measures. Quality measures reported using the GPRO web interface will 
be reported on Physician Compare in the same way as for the group 
practices that report under the Physician Quality Reporting System.


Sec.  425.310  Marketing requirements.

    (a) File and use. Marketing materials and activities, as defined in 
Sec.  425.20, may be used or conducted five business days following 
their submission to CMS if--
    (1) The ACO certifies compliance with all the marketing 
requirements under this section; and
    (2) CMS does not disapprove the marketing materials or activities.
    (b) Deemed approval. (1) Marketing materials and activities are 
deemed approved after expiration of the initial 5 day review period 
specified in paragraph (a) of this section.
    (2)(i) CMS may issue written notice of disapproval of marketing 
materials and activities at any time, including after the expiration of 
the initial 5 day review period.
    (ii) The ACO, ACO participant, ACO provider/supplier, or another 
individual or entity performing functions or services related to ACO 
activities as applicable, must discontinue use of any marketing 
materials or activities disapproved by CMS.

[[Page 67982]]

    (c) Marketing requirements. Marketing materials and activities must 
meet all of the following:
    (1) Use template language developed by CMS, if available.
    (2) Not be used in a discriminatory manner or for discriminatory 
purposes.
    (3) Comply with Sec.  425.304(a) regarding beneficiary inducements.
    (4) Not be materially inaccurate or misleading.
    (d) Sanctions. Failure to comply with this section will subject the 
ACO to the penalties set forth in Sec.  425.216, termination under 
Sec.  425.218, or both.


Sec.  425.312  Notification to beneficiaries of participation in shared 
savings program.

    (a) ACO participants must do all of the following:
    (1) Notify beneficiaries at the point of care that their ACO 
providers/suppliers are participating in the Shared Savings Program.
    (2) Post signs in their facilities to notify beneficiaries that 
their ACO providers/suppliers are participating in the Shared Savings 
Program.
    (3) Make available standardized written notices regarding 
participation in an ACO and, if applicable, data opt-out. Such written 
notices must be provided by the ACO participants in settings in which 
beneficiaries receive primary care services.
    (b)(1) ACOs have the option of notifying beneficiaries on the 
preliminary prospective assignment list and quarterly assignment list 
provided to the ACO under Sec.  425.704(d).
    (2) ACOs choosing this option must use the standardized written 
notice developed by CMS.
    (c) The beneficiary notifications under this section meet the 
definition of marketing materials and activities under Sec.  425.20 and 
therefore must meet all applicable marketing requirements described in 
Sec.  425.310.


Sec.  425.314  Audits and record retention.

    (a) Right to audit. The ACO must agree, and must require its ACO 
participants, ACO providers/suppliers, and other individuals or 
entities performing functions or services related to ACO activities to 
agree, that the CMS, DHHS, the Comptroller General, the Federal 
Government or their designees have the right to audit, inspect, 
investigate, and evaluate any books, contracts, records, documents and 
other evidence of the ACO, ACO participants, and ACO providers/
suppliers, and other individuals or entities performing functions or 
services related to ACO activities that pertain to all of the 
following:
    (1) The ACO's compliance with Shared Savings Program.
    (2) The quality of services performed and determination of amount 
due to or from CMS under the participation agreement.
    (3) The ability of the ACO to bear the risk of potential losses and 
to repay any losses to CMS.
    (4) If as a result of any inspection, evaluation, or audit, it is 
determined that the amount of shared savings due to the ACO or the 
amount of shared losses owed by the ACO has been calculated in error, 
CMS reserves the right to reopen the initial determination and issue a 
revised initial determination.
    (b) Maintenance of records. An ACO must agree, and must require its 
ACO participants, ACO providers/suppliers, and other individuals or 
entities performing functions or services related to ACO activities to 
agree to the following:
    (1) To maintain and give CMS, DHHS, the Comptroller General, the 
Federal Government 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, investigation, 
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; or
    (ii) There has been a termination, dispute, or allegation of fraud 
or similar fault against the ACO, its ACO participants, its ACO 
providers/suppliers, or other individuals or entities performing 
functions or services related to ACO activities, 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.
    (c) Responsibility of the ACO. Notwithstanding any arrangements 
between or among an ACO, ACO participants, ACO providers/suppliers, and 
other individuals or entities performing functions or services related 
to ACO activities, 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.
    (d) OIG authority. None of the provisions of this part limit or 
restrict OIG's authority to audit, evaluate, investigate, or inspect 
the ACO, its ACO participants, its ACO providers/suppliers and other 
individuals or entities performing functions or services related to ACO 
activities.


Sec.  425.316  Monitoring of ACOs.

    (a) General rule. (1) In order to ensure that the ACO continues to 
satisfy the eligibility and program requirements under this part, CMS 
monitors and assesses the performance of ACOs, their ACO participants, 
and ACO providers/suppliers.
    (2) CMS employs a range of methods to monitor and assess the 
performance of ACOs, ACO participants, and ACO providers/suppliers, 
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 aggregate annual and quarterly reports.
    (ii) Analysis of beneficiary and provider complaints.
    (iii) Audits (including, for example, analysis of claims, chart 
review (medical record), beneficiary survey reviews, coding audits, on-
site compliance reviews).
    (b) Monitoring ACO avoidance of at-risk beneficiaries. (1) CMS may 
use one or more of the methods described in paragraph (a)(2) of this 
section (as appropriate) to identify trends and patterns suggesting 
that an ACO has avoided at-risk beneficiaries. The results of these 
analyses may subsequently require further investigation and follow-up 
with beneficiaries or the ACO and its ACO participants, ACO providers/
suppliers, or other individuals or entities performing functions or 
services related to the ACO's activities, in order to substantiate 
cases of beneficiary avoidance.
    (2)(i) CMS, at its sole discretion, may take any of the pre-
termination actions set forth in Sec.  425.216(a)(1) or immediately 
terminate, if it determines that an ACO, its ACO participants, any ACO 
providers/suppliers, or other individuals or entities performing 
functions or services related to the ACO's activities avoids at-risk 
beneficiaries.

[[Page 67983]]

    (ii) If CMS requires the ACO to submit a CAP, the ACO will--
    (A) Submit a CAP that addresses actions the ACO will take to ensure 
that the ACO, ACO participants, ACO providers/suppliers, or other 
individuals or entities performing functions or services related to the 
ACO's activities cease avoidance of at-risk beneficiaries.
    (B) Not receive any shared savings payments during the time it is 
under the CAP.
    (C) Not be eligible to receive shared savings for the performance 
year attributable to the time that necessitated the CAP (the time 
period during which the ACO avoided at risk beneficiaries).
    (iii) CMS will re-evaluate the ACO during and after the CAP 
implementation period to determine if the ACO has continued to avoid 
at-risk beneficiaries. The ACO will be terminated if CMS determines 
that the ACO has continued to avoid at-risk beneficiaries during or 
after the CAP implementation period.
    (c) Monitoring ACO compliance with quality performance standards. 
To identify ACOs that are not meeting the quality performance 
standards, CMS will review an ACO's submission of quality measurement 
data under Sec.  425.500. CMS may request additional documentation from 
an ACO, ACO participants, or ACO providers/suppliers, as appropriate. 
If an ACO does not meet quality performance standards or fails to 
report on one or more quality measures, in addition to actions set 
forth at Sec.  425.216 and Sec.  425.218, CMS will take the following 
actions:
    (1) The ACO may be given a warning for the first time it fails to 
meet the minimum attainment level in one or more domains as determined 
under Sec.  425.502 and may be subject to a CAP. CMS, may forgo the 
issuance of the warning letter depending on the nature and severity of 
the noncompliance and instead subject the ACO to actions set forth at 
Sec.  425.216 or immediately terminate the ACO's participation 
agreement under Sec.  425.218.
    (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 will be terminated.
    (3)(i) 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 that the ACO submit--
    (A) The required measure data;
    (B) Correct the data;
    (C) Provide a written explanation for why it did not report the 
data completely and accurately; or
    (D) A combination of the submission requirements in paragraphs 
(c)(3)(i)(A) through (c)(3)(i)(C) of this section.
    (ii) If ACO still fails to report, fails to report by the requested 
deadline, or does not provide a reasonable explanation for not 
reporting, the ACO will be terminated immediately.
    (4) An ACO that exhibits a pattern of inaccurate or incomplete 
reporting of the quality performance measures, or fails to make timely 
corrections following notice to resubmit, may be terminated.
    (5) An ACO will not qualify to share in savings in any year it 
fails to report fully and completely on the quality performance 
measures.

Subpart E--Assignment of Beneficiaries


Sec.  425.400  General.

    (a)(1)(i) A Medicare fee-for-service beneficiary is assigned to an 
ACO when the beneficiary's utilization of primary care services meets 
the criteria established under the assignment methodology described in 
Sec.  425.402.
    (ii) CMS applies a step-wise process based on the beneficiary's 
utilization of primary care services provided under Title XVIII by a 
physician who is an ACO provider/supplier during the performance year 
for which shared savings are to be determined.
    (2)(i) Medicare assigns beneficiaries in a preliminary manner at 
the beginning of a performance year based on most recent data 
available.
    (ii) Assignment will be updated quarterly based on the most recent 
12 months of data.
    (iii) Final assignment is determined after the end of each 
performance year, based on data from the performance year.
    (b) 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 under subpart F of this part, and for 
determining whether an ACO has achieved savings under subpart G 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.
    (c) Primary care services for purposes of assigning beneficiaries 
are identified by selected HCPCS codes, G codes, or revenue center 
codes as indicated in the definition of primary care services under 
Sec.  425.20.


Sec.  425.402  Basic assignment methodology.

    (a) CMS employs the following step-wise methodology to assign 
Medicare beneficiaries to an ACO after identifying all patients that 
had at least one primary care service with a physician who is an ACO 
provider/supplier of that ACO:
    (1)(i) Identify all primary care services rendered by primary care 
physicians during one of the following:
    (A) The most recent 12 months (for purposes of preliminary 
prospective assignment and quarterly updates to the preliminary 
prospective assignment).
    (B) The performance year (for purposes of final assignment).
    (ii) The beneficiary is assigned to an ACO if the allowed charges 
for primary care services furnished to the beneficiary by all the 
primary care physicians who are ACO providers/suppliers in the ACO are 
greater than the allowed charges for primary care services furnished by 
primary care physicians who are--
    (A) ACO providers/suppliers in any other ACO; and
    (B) Not affiliated with any ACO and identified by a Medicare-
enrolled TIN.
    (2) The second step considers the remainder of the beneficiaries 
who have received at least one primary care service from an ACO 
physician, but who have not had a primary care service rendered by any 
primary care physician, either inside or outside the ACO. The 
beneficiary will be assigned to an ACO if the allowed charges for 
primary care services furnished to the beneficiary by all ACO 
professionals who are ACO providers/suppliers in the ACO are greater 
than the allowed charges for primary care services furnished by--
    (i) All ACO professionals who are ACO providers/suppliers in any 
other ACO; and
    (ii) Other physicians, nurse practitioners, physician assistants, 
clinical nurse specialists who are unaffiliated with an ACO and are 
identified by a Medicare-enrolled TIN.
    (b) [Reserved]


Sec.  425.404  Special assignment conditions for ACOs including FQHCs 
and RHCs.

    CMS assigns beneficiaries to ACOs based on services furnished in 
FQHCs or RHCs or both consistent with the general assignment 
methodology in Sec.  425.402, with two special conditions:
    (a) Such ACOs are required to identify, through an attestation, 
physicians who directly provide primary care services in each FQHC or 
RHC that is an ACO participant and/or ACO provider/supplier in the ACO.
    (b) Under the assignment methodology in Sec.  425.402, CMS treats a 
service reported on an FQHC/RHC claim as a primary care service if 
the--

[[Page 67984]]

    (1) NPI of a physician included in the attestation is reported on 
the claim as the attending provider; and
    (2) Claim includes a HCPCS or revenue center code that meets the 
definition of primary care services under Sec.  425.20.

Subpart F--Quality Performance Standards and Reporting


Sec.  425.500  Measures to assess the quality of care furnished by an 
ACO.

    (a) General. CMS establishes quality performance measures to assess 
the quality of care furnished by the ACO. If the ACO demonstrates to 
CMS that it has satisfied the quality performance requirements in this 
subpart, and the ACO meets all other applicable requirements, the ACO 
is eligible for shared savings.
    (b) Selecting measures. (1) 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.
    (2) CMS designates the measures for use in the calculation of the 
quality performance standard.
    (3) CMS seeks to improve the quality of care furnished by ACOs over 
time by specifying higher standards, new measures, or both.
    (c) ACOs must submit data on the measures determined under 
paragraph (b) of this section according to the method of submission 
established by CMS.
    (d) Patient experience of care survey. For performance years 
beginning in 2014 and for subsequent performance years, ACOs must 
select a CMS-certified vendor to administer the survey and report the 
results accordingly.
    (e) Audit and validation of data. CMS retains the right to audit 
and validate quality data reported by an ACO.
    (1) In an audit, the ACO will provide beneficiary medical records 
data if requested by CMS.
    (2) The audit will consist of three phases of medical record 
review.
    (3) 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.
    (f) 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.  425.216 and Sec.  
425.218.


Sec.  425.502  Calculating the ACO quality performance score.

    (a) Establishing a quality performance standard. CMS designates the 
quality performance standard in each performance year.
    (1) For the first performance year of an ACO's agreement, CMS 
defines the quality performance standard at the level of complete and 
accurate reporting for all quality measures.
    (2) During subsequent performance years, the quality performance 
standard will be phased in such that the ACO must continue to report 
all measures but the ACO will be assessed on performance based on the 
minimum attainment level of certain measures.
    (b) Establishing a performance benchmark and minimum attainment 
level for measures. (1) CMS designates a performance benchmark and 
minimum attainment level for each measure, and establishes a point 
scale for the measures.
    (2) Contingent upon data availability, performance benchmarks are 
defined by CMS based on national Medicare fee-for-service rates, 
national MA quality measure rates, or a national flat percentage.
    (3) The minimum attainment level is set at 30 percent or the 30th 
percentile of the performance benchmark.
    (c) Methodology for calculating a performance score for each 
measure. (1) Performance below the minimum attainment level for a 
measure will receive zero points for that measure.
    (2) Performance equal to or greater than the minimum attainment 
level for a measure will receive points on a sliding scale based on the 
level of performance.
    (3) Those measures designated as all or nothing measures will 
receive the maximum available points if all criteria are met and zero 
points if one or more of the criteria are not met.
    (4) Performance at or above 90 percent or the 90th percentile of 
the performance benchmark earns the maximum points available for the 
measure.
    (d) Establishing quality performance requirements for domains. (1) 
CMS groups individual quality performance standard measures into four 
domains:
    (i) Patient/care giver experience.
    (ii) Care coordination/Patient safety.
    (iii) Preventative health.
    (iv) At-risk population.
    (2) To satisfy quality performance requirements for a domain:
    (i) The ACO must report all measures within a domain.
    (ii) ACOs must score above the minimum attainment level determined 
by CMS on 70 percent of the measures in each domain. If an ACO fails to 
achieve the minimum attainment level on at least 70 percent of the 
measures in a domain, CMS will take the actions describe in Sec.  
425.216(c).
    (iii)(A) If the ACO achieves the minimum attainment level for at 
least one measure in each of the four domains, and also satisfies the 
requirements for realizing shared savings under subpart G of this part, 
the ACO may receive the proportion of those shared savings for which it 
qualifies.
    (B) If an ACO fails to achieve the minimum attainment level on all 
measures in a domain, it will not be eligible to share in any savings 
generated.
    (e) Methodology for calculating the ACO's overall performance 
score. (1) CMS scores individual measures and determines the 
corresponding number of points that may be earned based on the ACO's 
performance.
    (2) CMS adds the points earned for the individual measures within 
the domain and divides by the total points available for the domain to 
determine the domain score.
    (3) Domains are weighted equally and scores averaged to determine 
the ACO's overall performance score and sharing rate.


Sec.  425.504  Incorporating reporting requirements related to the 
Physician Quality Reporting System.

    (a) Physician quality reporting system. (1) ACOs, on behalf of 
their ACO provider/suppliers who are eligible professionals, must 
submit the measures determined under Sec.  425.500 using the GPRO web 
interface established by CMS, to qualify on behalf of their eligible 
professionals for the Physician Quality Reporting System incentive 
under the Shared Savings Program.
    (2)(i) ACO providers/suppliers that are eligible professionals 
within an ACO may only participate under their ACO participant TIN as a 
group practice under the Physician Quality Reporting System Group 
Practice Reporting Option of the Shared Savings Program for purposes of 
receiving an incentive payment under the Physician Quality Reporting 
System.
    (ii) Under the Shared Savings Program, an ACO, on behalf of its ACO 
providers/suppliers who are eligible professionals, must satisfactorily 
report the measures determined under Subpart F of this part during the 
reporting period according to the method of submission established by 
CMS under the Shared Savings Program in order to receive a Physician 
Quality Reporting

[[Page 67985]]

System incentive under the Shared Savings Program.
    (3) If ACO providers/suppliers who are eligible professionals 
within an ACO qualify for a Physician Quality Reporting System 
incentive payment, each ACO participant TIN, on behalf of its ACO 
supplier/provider participants who are eligible professionals, will 
receive an incentive, for those years an incentive is available, based 
on the allowed charges under the Physician Fee Schedule for that TIN.
    (4) ACO participant TINs and individual ACO providers/suppliers who 
are eligible professionals cannot earn a Physician Quality Reporting 
System incentive outside of the Medicare Shared Savings Program.
    (5) The Physician Quality Reporting System incentive under the 
Medicare Shared Savings Program is equal to 0.5 percent of the 
Secretary's estimate of the ACO's eligible professionals' total 
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, for years 2012 through 2014.
    (b) [Reserved]


Sec.  425.506  Electronic health records technology.

    (a) ACOs, ACO participants, and ACO providers/suppliers are 
encouraged to develop a robust EHR infrastructure.
    (b) As part of the quality performance score, the quality measure 
regarding EHR adoption will be measured based on a sliding scale.
    (c) Performance on this measure will be weighted twice that of any 
other measure for scoring purposes and for determining compliance with 
quality performance requirements for domains.

Subpart G--Shared Savings and Losses


Sec.  425.600  Selection of risk model.

    (a) For its initial agreement period, an ACO may elect to operate 
under one of the following tracks:
    (1) Track 1. Under Track 1, the ACO operates under the one-sided 
model (as described under Sec.  425.604 of this part) for the agreement 
period.
    (2) Track 2. Under Track 2, the ACO operates under the two-sided 
model (as described under Sec.  425.606), sharing both savings and 
losses with the Medicare program for the agreement period.
    (b) For subsequent agreement periods, an ACO may not operate under 
the one-sided model.
    (c) An ACO experiencing a net loss during the initial agreement 
period may reapply to participate under the conditions in Sec.  
425.202(a), except the ACO must also identify in its application the 
cause(s) for the net loss and specify what safeguards are in place to 
enable the ACO to potentially achieve savings in its next agreement 
period.


Sec.  425.602  Establishing the benchmark.

    (a) Computing per capita Medicare Part A and Part B benchmark 
expenditures. In computing an ACO's fixed historical benchmark that is 
adjusted for historical growth and beneficiary characteristics, 
including health status, CMS determines the per capita Parts A and B 
fee-for-service expenditures for beneficiaries that would have been 
assigned to the ACO in any of the 3 most recent years prior to the 
agreement period using the ACO participants' TINs identified at the 
start of the agreement period. CMS does all of the following:
    (1) Calculates the payment amounts included in Parts A and B fee-
for-service claims using a 3-month claims run out with a completion 
factor.
    (i) This calculation excludes indirect medical education (IME) and 
disproportionate share hospital (DSH) payments.
    (ii) This calculation considers individually beneficiary 
identifiable payments made under a demonstration, pilot or time limited 
program.
    (2) Makes separate expenditure calculations for each of the 
following populations of beneficiaries: ESRD, disabled, aged/dual 
eligible Medicare and Medicaid beneficiaries and aged/non-dual eligible 
Medicare and Medicaid beneficiaries.
    (3) Adjusts expenditures for changes in severity and case mix using 
prospective HCC risk scores.
    (4) Truncates an assigned beneficiary's total annual Parts A and B 
fee-for-service per capita expenditures at the 99th percentile of 
national Medicare fee-for-service expenditures as determined for each 
benchmark year in order to minimize variation from catastrophically 
large claims.
    (5)(i) Using CMS Office of the Actuary national Medicare 
expenditure data for each of the years making up the historical 
benchmark, determines national growth rates and trends expenditures for 
each benchmark year (BY1 and BY2) to the third benchmark year (BY3) 
dollars.
    (ii) To trend forward the benchmark, CMS makes separate 
calculations for expenditure categories for each of the following 
populations of beneficiaries: ESRD, disabled, aged/dual eligible 
Medicare and Medicaid beneficiaries and aged/non-dual eligible Medicare 
and Medicaid beneficiaries.
    (6) Restates BY1 and BY2 trended and risk adjusted expenditures in 
BY3 proportions of ESRD, disabled, aged/dual eligible Medicare and 
Medicaid beneficiaries and aged/non-dual eligible Medicare and Medicaid 
beneficiaries.
    (7) Weights each year of the benchmark using the following 
percentages:
    (i) BY3 at 60 percent.
    (ii) BY2 at 30 percent.
    (iii) BY1 at 10 percent.
    (8) The ACO's benchmark may be adjusted for the addition and 
removal of ACO participants or ACO providers/suppliers during the term 
of the agreement period.
    (b) Updating the benchmark. CMS updates the historical benchmark 
annually for each year of the agreement period based on the flat dollar 
equivalent of 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.
    (1) 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' Office of the Actuary.
    (2) To update the benchmark, CMS makes expenditure calculations for 
separate categories for each of the following populations of 
beneficiaries:
    (i) ESRD.
    (ii) Disabled.
    (iii) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (iv) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (c) Resetting the benchmark. An ACO's benchmark will be reset at 
the start of each agreement period.


Sec.  425.604  Calculation of savings under the one-sided model.

    (a) 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 are below the applicable updated benchmark 
determined under Sec.  425.602.
    (1) Newly assigned beneficiaries. CMS uses an ACO's HCC prospective 
risk score to adjust for changes in severity and case mix in this 
population.
    (2) Continuously assigned beneficiaries. (i) CMS uses demographic 
factors to adjust for changes in the continuously assigned population.
    (ii) If the prospective HCC risk score is lower in the performance 
year for this population, CMS will adjust for changes in severity and 
case mix in this

[[Page 67986]]

population using this lower prospective HCC risk score.
    (3) Assigned beneficiary changes in demographics and health status 
are used to adjust benchmark expenditures as described in Sec.  
425.602(a). In adjusting for health status and demographic changes CMS 
makes adjustments for separate categories for each of the following 
populations of beneficiaries:
    (i) ESRD.
    (ii) Disabled.
    (iii) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (iv) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (4) To minimize variation from catastrophically large claims, CMS 
truncates an assigned beneficiary's total annual Parts A and B fee-for-
service per capita expenditures at the 99th percentile of national 
Medicare fee-for-service expenditures as determined for each 
performance year.
    (5) CMS uses a 3 month claims run out with a completion factor to 
calculate an ACO's per capita expenditures for each performance year.
    (6) Calculations of the ACO's expenditures will include the payment 
amounts included in Part A and B fee-for-service claims.
    (i) These calculations will exclude indirect medical education 
(IME) and disproportionate share hospital (DSH) payments.
    (ii) These calculations will take into consideration individually 
beneficiary identifiable payments made under a demonstration, pilot or 
time limited program.
    (7) 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 updated benchmark by at least the minimum 
savings rate established for the ACO under paragraph (b) of this 
section.
    (b) Minimum savings rate (MSR). CMS uses a sliding scale, based on 
the number of beneficiaries assigned to the ACO under subpart E of this 
part, to establish the MSR for an ACO participating under the one-sided 
model. The MSR under the one-sided model for an ACO based on the number 
of assigned beneficiaries is as follows:

------------------------------------------------------------------------
                                           MSR (low end   MSR  (high end
                                            of assigned     of assigned
         Number of beneficiaries          beneficiaries)  beneficiaries)
                                             (percent)       (percent)
------------------------------------------------------------------------
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
------------------------------------------------------------------------

     (c) Qualification for shared savings payment. In order to qualify 
for shared savings, an ACO must meet or exceed its minimum savings rate 
determined under paragraph (b) of this section, meet the minimum 
quality performance standards established under Sec.  425.502, and 
otherwise maintain its eligibility to participate in the Shared Savings 
Program under this part.
    (d) Final sharing rate. An ACO that meets all the requirements for 
receiving shared savings payments under the one-sided model will 
receive a shared savings payment of up to 50 percent of all savings 
under the updated benchmark, as determined on the basis of its quality 
performance under Sec.  425.502 of this part (up to the performance 
payment limit described in paragraph (e)(2) of this section).
    (e) Performance payment. (1) If an ACO qualifies for savings by 
meeting or exceeding the MSR, the final sharing rate will apply to an 
ACO's savings on a first dollar basis.
    (2) The amount of shared savings an eligible ACO receives under the 
one-sided model may not exceed 10 percent of its updated benchmark.
    (f) Notification of savings. 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.


Sec.  425.606  Calculation of shared savings and losses under the two-
sided model.

    (a) General rule. 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 
are above or below the updated benchmark determined under Sec.  
425.602. 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 under the ACO for 
Medicare fee-for-service beneficiaries for Parts A and B services for 
the performance year must be below or above the updated benchmark, 
respectively, by at least the minimum savings or loss rate under 
paragraph (b) of this section.
    (1) Newly assigned beneficiaries. CMS uses an ACO's HCC prospective 
risk score to adjust for changes in severity and case mix in this 
population.
    (2) Continuously assigned beneficiaries. (i) CMS uses demographic 
factors to adjust for changes in the continuously assigned beneficiary 
population.
    (ii) If the prospective HCC risk score is lower in the performance 
year for this population, CMS will adjust for changes in severity and 
case mix for this population using this lower prospective HCC risk 
score.
    (3) Assigned beneficiary changes in demographics and health status 
are used to adjust benchmark expenditures as described in Sec.  
425.602(a). In adjusting for health status and demographic changes CMS 
makes separate adjustments for each of the following populations of 
beneficiaries:
    (i) ESRD.
    (ii) Disabled.
    (iii) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (iv) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (4) To minimize variation from catastrophically large claims, CMS 
truncates an assigned beneficiary's total annual Parts A and B fee-for-
service per

[[Page 67987]]

capita expenditures at the 99th percentile of national Medicare fee-
for-service expenditures as determined for each performance year.
    (5) CMS uses a 3 month claims run out with a completion factor to 
calculate an ACO's per capita expenditures for each performance year.
    (6) Calculations of the ACO's expenditures will include the payment 
amounts included in Part A and B fee-for-service claims.
    (i) These calculations will exclude indirect medical education 
(IME) and disproportionate share hospital (DSH) payments.
    (ii) These calculations will take into consideration individually 
beneficiary identifiable payments made under a demonstration, pilot or 
time limited program.
    (7) 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 updated benchmark by at least the minimum 
savings rate established for the ACO under paragraph (b) of this 
section.
    (b) Minimum savings or loss rate. (1) 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 updated 
benchmark costs for the year by at least 2 percent.
    (2) 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 updated benchmark costs for 
the year.
    (c) Qualification for shared savings payment. To qualify for shared 
savings, an ACO must meet the minimum savings rate requirement 
established under paragraph (b) of this section, meet the minimum 
quality performance standards established under Sec.  425.502 of this 
part, and otherwise maintain its eligibility to participate in the 
Shared Savings Program under this part.
    (d) Final sharing rate. An ACO that meets all the requirements for 
receiving shared savings payments under the two-sided model will 
receive a shared savings payment of up to 60 percent of all the savings 
under the updated benchmark, as determined on the basis of its quality 
performance under Sec.  425.502 of this part (up to the performance 
payment limit described in paragraph (e)(2) of this section).
    (e) Performance payment. (1) If an ACO qualifies for savings by 
meeting or exceeding the MSR, the final sharing rate will apply to an 
ACO's savings on a first dollar basis.
    (2) The amount of shared savings an eligible ACO receives under the 
two-sided model may not exceed 15 percent of its updated benchmark.
    (f) Shared loss rate. The shared loss rate--
    (1) For an ACO that is required to share losses with the Medicare 
program for expenditures over the updated benchmark, the amount of 
shared losses is determined based on the inverse of its final sharing 
rate described in Sec.  425.606(d) (that is, 1 minus the final shared 
savings rate determined under Sec.  425.606(d) of this part); and
    (2) May not exceed 60 percent.
    (g) Loss recoupment limit. The amount of shared losses for which an 
eligible ACO is liable may not exceed the following percentages of its 
updated benchmark as determined under Sec.  425.602:
    (1) 5 percent in the first performance year of participation in a 
two-sided model under the Shared Savings Program.
    (2) 7.5 percent in the second performance year.
    (3) 10 percent in the third and any subsequent performance year.
    (h) Notification of savings and losses. (1) 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.
    (2) CMS provides written notification to an ACO of the amount of 
shared losses, if any, that it must repay to the program.
    (3) If an ACO has shared losses, the ACO must make payment in full 
to CMS within 90 days of receipt of notification.


Sec.  425.608  Determining first year performance for ACOs beginning 
April 1 or July 1, 2012.

    (a) For April 1 and July 1, 2012 starters, first year (defined as 
21 and 18 months respectively) performance will be based on an optional 
interim payment calculation (based on the ACO's first 12 months of 
participation) and a final reconciliation at the end of the ACO's first 
performance year. Unless stated otherwise, for purposes of the interim 
payment calculation and first year reconciliation, the methodology 
under subpart E of this part for assigning beneficiaries and the 
methodology described in Sec.  425.602 through Sec.  425.606 for 
calculating shared savings and losses will apply, and quality 
performance will be assessed as described in subpart F of this part.
    (b) In the interim payment calculation, based on the ACO's first 12 
months of performance--
    (1) CMS compares the first 12 months of per capita beneficiary 
expenditures to a historical benchmark updated for the period which 
includes the ACO's first 12 months of participation, taking into 
account changes in health status and demographics; and
    (2) Quality performance is based on GPRO quality data reported for 
CY 2012.
    (c)(1) The interim payment calculation is reconciled with the ACO's 
performance for its complete first performance year, defined as 21 
months for April 1, 2012 starters and 18 months for July 1, 2012 
starters.
    (2) The first year reconciliation takes into account expenditures 
spanning the entire 21 or 18 months of the first performance year.
    (3) First performance year expenditures are summed over 
beneficiaries assigned in two overlapping 12 month assignment windows.
    (i) The first window will be the first 12 months used for interim 
payment calculation.
    (ii) The second window will be CY2013.
    (4) Expenditures for the first performance year are the sum of 
aggregate expenditure dollars accounting for the ACO's first 6 or 9 
months of performance within CY 2012 for beneficiaries assigned for the 
interim payment calculation and aggregate dollars calculated for CY2013 
for beneficiaries assigned for CY 2013.
    (5) Adjustments for health status and demographic changes are 
performed as described in Sec.  425.604 through Sec.  425.606 with the 
following exceptions:
    (i) Beneficiaries from the CY2013 assignment window are identified 
as continuously assigned or newly assigned relative to the previous 
calendar year.
    (ii) The adjustment factor identified for purposes of the interim 
payment calculation is applied to the 6 months or 9 months of the ACO's 
first performance year that lie within CY2012.
    (6) The updated benchmark, stated in aggregate dollars, is the sum 
of the interim updated benchmark for the average fraction of 
expenditures incurred in the latter 6 or 9 months of CY 2012 and an 
updated aggregate benchmark representing CY 2013.
    (7) A savings percentage (based on a comparison of summed 
expenditures to summed updated benchmark dollars) for the ACO's 18 or 
21 month performance year is compared to the ACO's MSR or MLR. The 
reconciled amount of the shared savings or losses owed to or by the ACO 
for the performance year is net of any interim payments of shared 
savings or losses.

[[Page 67988]]

    (8) Quality performance for the first year reconciliation is based 
on complete and accurate reporting, of all required quality measures, 
for CYs 2012 and 2013.
    (d) An ACO with a start date of April 1, 2012 or July 1, 2012 has 
the option to request an interim payment calculation based on quality 
and financial performance for its first 12 months of program 
participation. As required under Sec.  425.204(f), the ACO requesting 
an interim payment calculation must have a mechanism in place to pay 
back the interim payment if final reconciliation determines an 
overpayment.
    (e) Unless otherwise stated, program requirements which apply in 
the course of a performance year apply to the interim payment 
calculation and first year reconciliation.

Subpart H--Data Sharing With ACOs


Sec.  425.700  General rules.

    (a) CMS shares aggregate reports with the ACO.
    (b) CMS shares beneficiary identifiable data with ACOs on the 
condition that the ACO, its ACO participants, ACO providers/suppliers, 
and other individuals or entities performing functions or services 
related to the ACO's activities observe all relevant statutory and 
regulatory provisions regarding the appropriate use of data and the 
confidentiality and privacy of individually identifiable health 
information and comply with the terms of the data use agreement 
described in this subpart.
    (c) The ACO must not limit or restrict appropriate sharing of 
medical record data with providers and suppliers both within and 
outside the ACO in accordance with applicable law.


Sec.  425.702  Aggregate reports.

    CMS shares aggregate reports with ACOs as follows:
    (a) Aggregate reports are shared at the start of the agreement 
period based on beneficiary claims data used to calculate the 
benchmark, and each quarter thereafter during the agreement period.
    (b) These aggregate reports include, when available, the following 
information, deidentified in accordance with 45 CFR 164.514(b):
    (1) Aggregated metrics on the assigned beneficiary population.
    (2) Utilization and expenditure data at the start of the agreement 
period based on historical beneficiaries used to calculate the 
benchmark.
    (c)(1) At the beginning of the agreement period, during each 
quarter (and in conjunction with the annual reconciliation), and at the 
beginning of each performance year, CMS, upon the ACO's request for the 
data for purposes of population-based activities relating to improving 
health or reducing growth in health care costs, process development, 
case management, and care coordination, will provide the ACO with 
information regarding preliminarily prospectively assigned 
beneficiaries whose data was used to generate the aggregate data 
reports under paragraphs (a) and (b) of this section. The information 
includes the following:
    (i) Beneficiary name.
    (ii) Date of birth.
    (iii) HICN.
    (iv) Sex.
    (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 and ACO 
providers/suppliers, 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.


Sec.  425.704  Beneficiary-identifiable data.

    Subject to providing the beneficiary with the opportunity to 
decline data sharing as described in this Sec.  425.708, and subject to 
having a valid DUA in place, CMS, upon the ACO's request for the data 
for purposes of evaluating the performance of its ACO participants or 
its ACO providers/suppliers, conducting quality assessment and 
improvement activities, and conducting population-based activities 
relating to improved health, will provide the ACO with beneficiary 
identifiable claims data for preliminary prospective assigned 
beneficiaries and other beneficiaries who receive primary care services 
from an ACO participant upon whom assignment is based during the 
agreement period.
    (a) If an ACO wishes to receive beneficiary identifiable claims 
data, it must sign a DUA and it must submit a formal request for data. 
ACOs may request data as often as once per month.
    (b) The ACO must certify that it is requesting claims data about 
either of the following:
    (1) 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.
    (2) The patients of its HIPAA-covered entity ACO participants or 
its ACO providers/suppliers 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.
    (c) 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 with primary care 
services at the ACO, and that these data will not be used to reduce, 
limit or restrict care for specific beneficiaries.
    (d) To ensure that beneficiaries have a meaningful opportunity to 
decline having their claims data shared with the ACO, the ACO may only 
request claims data about a beneficiary if--
    (1) The beneficiary name appears on the preliminary prospective 
assignment list found on the initial or quarterly aggregate report, or 
has received primary care services from an ACO participant upon whom 
assignment is based (under Subpart E of this part), during the 
agreement period.
    (2) The beneficiary has been notified in writing 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
    (3) The beneficiary did not exercise the opportunity to decline 
having his/her claims data shared with the ACO as provided in Sec.  
425.708.
    (e) At the ACO's request, CMS continues to provide ACOs with 
updates to the requested beneficiary identifiable claims data, subject 
to beneficiary's opportunity to decline data sharing under Sec.  
425.708.
    (f) If an ACO requests beneficiary identifiable information, 
compliance with the terms of the data use agreement described in Sec.  
425.710 is a condition of an ACO's participation in the Shared Savings 
Program.

[[Page 67989]]

Sec.  425.706  Minimum necessary data.

    (a) ACOs must limit their identifiable data requests to the minimum 
necessary to accomplish a permitted use of the data. The minimum 
necessary Parts A and B data elements may include but are not limited 
to the following data elements:
    (1) Beneficiary ID.
    (2) Procedure code.
    (3) Gender.
    (4) Diagnosis code.
    (5) Claim ID.
    (6) The from and through dates of service.
    (7) The provider or supplier ID.
    (8) The claim payment type.
    (9) Date of birth and death, if applicable.
    (10) TIN.
    (11) NPI.
    (b) The minimum necessary Part D data elements may include but are 
not limited to the following data elements:
    (1) Beneficiary ID.
    (2) Prescriber ID.
    (3) Drug service date.
    (4) Drug product service ID.
    (5) Quantity dispensed.
    (6) Days supplied.
    (7) Brand name.
    (8) Generic name.
    (9) Drug strength.
    (10) TIN.
    (11) NPI.
    (12) Indication if on formulary.
    (13) Gross drug cost.


Sec.  425.708  Beneficiaries may decline data sharing.

    (a) Before 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 decline having his/her claims information shared with 
the ACO.
    (b) ACOs may contact preliminarily prospective assigned 
beneficiaries. in writing to request data sharing.
    (1) If these beneficiaries do not decline within 30 days after the 
letter is sent, the ACO may request identifiable claims data from CMS.
    (2) These beneficiaries must also be provided a form explaining the 
beneficiary's opportunity to decline data sharing as part of their 
first primary care service visit with an ACO participant upon whom 
assignment is based (under Subpart E of this part) during the agreement 
period.
    (c) For beneficiaries that have a primary care service office visit 
with an ACO participant who provides primary care services, the ACO 
must supply the beneficiaries with a written notification explaining 
their opportunity to decline data sharing. The form must be provided to 
each beneficiary as part of their first primary care service visit with 
an ACO participant upon whom assignment is based (under Subpart E of 
this part) during the agreement period.
    (d) The requirements specified in paragraphs (a) through (c) of 
this section do not apply to the initial identifiable data points that 
CMS provides to ACOs under Sec.  425.702(d).
    (e) CMS does not share beneficiary identifiable claims data 
relating to treatment for alcohol and substance abuse in accordance 
with 42 CFR 290dd-2 and the implementing regulations at 42 CFR part 2.
    (f) The provisions of this section relate only to the sharing of 
Medicare claims data between the Medicare program and the ACO under the 
Shared Savings Program and are in no way intended to impede existing or 
future data sharing under other authorities.


Sec.  425.710  Data use agreement.

    (a)(1) Before receiving any beneficiary identifiable data, ACOs 
must enter into a DUA with CMS. Under the DUA, the ACO must comply with 
the limitations on use and disclosure that are imposed by HIPAA, the 
applicable DUA, and the statutory and regulatory requirements of the 
Shared Savings Program.
    (2) If the 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 under subpart H of this part, may be 
terminated from the Shared Savings Program under Sec.  425.218, and may 
be subject to additional sanctions and penalties available under the 
law.
    (b) [Reserved]

Subpart I--Reconsideration Review Process


Sec.  425.800  Preclusion of administrative and judicial review.

    (a) There is no reconsideration, appeal, or other administrative or 
judicial review of the following determinations under this part:
    (1) The specification of quality and performance standards under 
Sec.  425.500 and Sec.  425.502.
    (2) The assessment of the quality of care furnished by an ACO under 
the performance standards established in Sec.  425.502.
    (3) The assignment of Medicare fee-for-service beneficiaries under 
Subpart E of this part.
    (4) The determination of whether an ACO is eligible for shared 
savings, 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.  425.602, 
Sec.  425.604, and Sec.  425.606.
    (5) The percent of shared savings specified by the Secretary and 
the limit on the total amount of shared savings established under Sec.  
425.604 and 425.606.
    (6) The termination of an ACO for failure to meet the quality 
performance standards established under Sec.  425.502.
    (b) [Reserved]


Sec.  425.802  Request for review.

    (a) An ACO may appeal an initial determination that is not 
prohibited from administrative or judicial review under Sec.  425.800 
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 of submitted documentation) at the discretion of the 
reconsideration official.
    (b) An ACO that requests a reconsideration review for termination 
will remain operational throughout the review process.


Sec.  425.804  Reconsideration review process.

    (a) Acknowledgement of reconsideration review request. The 
reconsideration official sends an acknowledgement of the 
reconsideration review request to the ACO and CMS that includes the 
following:
    (1) Review procedures.
    (2) Procedures for submission of evidence including format and 
timelines.
    (3) Date, time, and location of the review.
    (b) Burden of proof, standard of proof, and standards of review. 
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 the

[[Page 67990]]

requirements of this part or applicable statutory authority.
    (c) Reconsideration official. The reconsideration official is an 
independent CMS official who did not participate in the initial 
determination that is being reviewed.
    (d) Time and place of hearing. 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 review, but must give CMS and 
the ACO notice of the change.
    (e) Evidence. (1) The reconsideration official's review will be 
based only on evidence submitted by the reconsideration official's 
requested deadline, unless otherwise requested by the reconsideration 
official.
    (2) Documentation submitted for the record as evidence cannot be 
documentation that was not previously submitted to CMS by the 
applicable deadline and in the requested format.
    (3) All evidence submitted by the ACO and CMS, in preparation for 
the reconsideration review will be shared with the other party to the 
hearing.
    (f) The reconsideration official will notify CMS and the ACO of his 
or her recommendation.


Sec.  425.806  On-the-record review of reconsideration official's 
recommendation by independent CMS official.

    (a)(1) If CMS or the ACO disagrees with the recommendation of the 
reconsideration official, it 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.
    (2) In order to request an on-the-record review, CMS or the ACO 
must submit an explanation of why it disagrees with the recommendation 
by the timeframe and in the format indicated in the reconsideration 
official's recommendation letter.
    (b) The on-the-record review process is based only on evidence 
presented during the reconsideration review.
    (c) The independent CMS official considers the recommendation of 
the reconsideration official and makes a final agency determination.


Sec.  425.808  Effect of independent CMS official's decision.

    (a) The decision of the independent CMS official is final and 
binding.
    (b) The reconsideration review process under this subpart 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.


Sec.  425.810  Effective date of decision.

    (a) If the initial determination denying 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.
    (b) If the 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.
    (c) If the 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.

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

    Dated: October 6, 2011.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: October 19, 2011.
Kathleen Sebelius,
Secretary.
[FR Doc. 2011-27461 Filed 10-20-11; 11:15 am]
BILLING CODE 4120-01-P