AT A GLANCE · The final rule contains important improvements, but ultimately each potential ACO will need to decide whether the incentives are right to engage in the MSSP. When CMS

THE MEDICARE SHARED SAVINGS PROGRAM

ACCOUNTABLE CARE ORGANIZATIONS: THE FINAL RULE

November 8, 2011

AT A GLANCE

The Issue: On October 20, the Centers for Medicare & Medicaid Services (CMS) released the much-anticipated final regulation for the Medicare Shared Savings Program (MSSP), which encourages the voluntary formation of accountable care organizations (ACOs). The final regulation is available at: http://www.ofr.gov/OFRUpload/OFRData/2011-27461_PI.pdf and was published in the November 2 Federal Register. Also on October 20, four government entities released additional information related to ACO development: the Department of Justice and the Federal Trade Commission issued (http://www.justice.gov/atr/public/health_care/276458.pdf) a “Final Statement of Antitrust Enforcement Policy;” CMS and the Department of Health and Human Services Office of the Inspector General published an interim final regulation (http://www.ofr.gov/OFRUpload/OFRData/2011-27460_PI.pdf) on fraud and abuse waivers; and the Internal Revenue Service issued a fact sheet (http://www.irs.gov/newsroom/article/0,,id=248490,00.html) regarding tax guidance. These related documents are described in a companion Legal Advisory found at: http://www.aha.org/advocacy-issues/tools-resources/advisory/2011/111108-legal-adv.pdf. The final rule contains important improvements, but ultimately each potential ACO will need to decide whether the incentives are right to engage in the MSSP. When CMS initially released its proposed regulation, the hospital field was very concerned that CMS had created a program that was not financially attractive, nor operationally viable. At the AHA’s urging, CMS has made extensive revisions in this final regulation. For example, in calculating shared savings bonus examples, the AHA showed CMS that the underlying payment model in the proposed ACO program left too little reward for ACOs. CMS recognized this skewing and modified the program. Key provisions in the CMS final rule on the shared savings program include: Patient Assignment. In the final rule, CMS states that it will assign patients on a preliminary prospective basis based on historical claims. CMS had initially proposed to assign beneficiaries to an ACO retrospectively, which would have meant that ACOs would not know, in real time, which beneficiaries they were responsible for managing. Participating ACOs will get a preliminary list of the beneficiaries to be covered by the ACO with quarterly data updates and reconciliation at year end. This change addresses our concerns, but still allows for beneficiary freedom of choice.

(cont.)

http://www.irs.gov/newsroom/article/0,,id=248490,00.html

AT A GLANCE (cont.)

Incentives. ACOs will be eligible to receive a shared savings payment if their actual spending is below the applicable benchmark. In response to our comments, CMS has improved the incentive payment structure, which may help foster participation in the program. Specifically, the agency finalized the following policies:

Allows all ACOs to share in first dollar savings. In the proposed rule, CMS proposed allowing only participants in track two to share in first-dollar savings.

Eliminates down-side risk for track 1 ACOs. ACOs that choose to participate in track 1 of the program will not be subject to down-side risk. This is a departure from CMS’s proposal, which subjected track 1 ACOs to down-side risk in the third year of the program.

Removes indirect medical education (IME) and disproportionate share hospital (DSH) payments from spending estimates. CMS modified its proposed policy and will remove IME and DSH from both the benchmark and spending estimates; however, the final rule fell short of removing adjustments for the wage index and hospital value-based purchasing bonuses.

Eliminates the withhold. Contrary to its original proposal, CMS will not annually withhold any portion of an ACO’s earned bonus. CMS originally proposed to withhold 25 percent of any earned bonus each year.

We are concerned that CMS did not address our comments in the following areas:

Does not increase sharing rates. Contrary to the AHA’s urging, CMS finalized its proposals for track 1 and 2 sharing rates to be set at a maximum of 50 and 60 percent, respectively, based on quality measurement performance.

Does not decrease savings threshold. We asked CMS to use a standard savings threshold, regardless of the size of an ACO, for both tracks. However, for track 1, CMS continues to contend that smaller ACOs with fewer patients will have increased variation and, therefore, should be subject to higher savings thresholds of up to 3.9 percent.

Does not adjust for increased patient severity from year to year. Operations. We requested changes to the ACO program for health information technology, marketing and governance. In response to our comments, CMS has made the following changes in the final rule:

Removed the meaningful use requirements. CMS initially required that a minimum of 50 percent of all primary care physicians be fully compliant for all of the objectives necessary to be deemed a meaningful user of health information technology. Given our concerns with the meaningful use program, we urged CMS to drop this as a condition of ACO participation. Consequently, CMS did not finalize any meaningful use requirements for the ACO program. However, the program includes a measure calculated from the EHR incentive program and it will be weighted higher than any other measure for quality scoring purposes.

Allows traditional marketing guideline protocol. CMS will allow the “file and use” procedure that is afforded Medicare Advantage plans for ACO marketing materials. We asked for this change in response to CMS’s proposal to approve all marketing materials in advance.

Limited flexibility in an ACO’s governance structure. CMS maintains its proposal to require 75 percent of an ACO’s board to consist of ACO participants. While CMS provides some flexibility for existing ACOs to meet these criteria, it is unclear exactly what factors will allow them to do so.

Timing. ACO applicants can begin operations on April 1 or July 1, 2012. This is a departure from the January 1 date that was originally proposed.

(cont.)

AT A GLANCE (cont.)

Quality Measures. CMS finalized 33 measures as part of the ACO rule, a substantial reduction from the 65 it proposed. The chosen measures include seven derived from the CAHPS survey, which is the health plan version of the HCAHPS survey used by hospitals; six measures that would indicate problems with care coordination; eight measures that assess provision of preventive services and screenings; and 12 measures that assess the provision of early interventions to individuals with known risks for major diseases. ACOs will have to report these measures for all years of the program. In the first year, they need only to successfully report the measures to meet the quality standard needed to qualify for a bonus. In subsequent years of the program, their performance on all of the above measures will be used to determine the percentage of savings in which they can share. Advance Payment. In order to assist participants with the high up-front costs associated with becoming an ACO, CMS is creating an Advance Payment ACO Model. The advance payment is designed to provide support to organizations participating in the MSSP whose ability to achieve success would be improved with additional access to capital. The model is open only to two types of ACOs: (1) those that do not include any inpatient facilities AND have less than $50 million in total annual revenue; and (2) those in which the only inpatient facilities are critical access hospitals and/or Medicare low-volume rural hospitals AND have less than $80 million in total annual revenue. Our Take: CMS has responded to many of AHA’s recommendations and revised several of its proposed polices to make the program, overall, more attractive. The revisions also provide significantly more flexibility in the organization, governance and management of ACOs. Hospitals and health systems will have to evaluate their unique situations relative to the final rule to decide whether to apply to the MSSP/ACO program. What You Can Do: Share this advisory with your leadership team. Review the companion advisory on clinical integration and ACOs. That advisory focuses on the legal

barriers to clinical integration and the administration’s efforts to reduce those barriers.

If your organization is interested in becoming an ACO in the MSSP, CMS will provide additional guidance on the deadlines by which applications must be received in order to be considered for 2012 participation. For information on the application process, please see CMS’s Notice of Intent, which is available on CMS’s website at: https://www.cms.gov/sharedsavingsprogram/37_Application.asp#TopOfPage.

Further Questions: Contact Lisa Grabert, senior associate director of policy, at (202) 626-2305 and [email protected].

AHA's Regulatory Advisories are produced whenever there are significant regulatory developments that affect the job you do in your community. A 37-page, in-depth examination of this issue, including appendices, follows.

©2011 American Hospital Association

American Hospital Association 1

THE MEDICARE SHARED SAVINGS PROGRAM

ACCOUNTABLE CARE ORGANIZATIONS: THE FINAL RULE

Table of Contents STRUCTURAL AND PROGRAMMATIC REQUIREMENTS OF AN ACO ...................... 3

ELIGIBILITY ..................................................................................................................... 3 GOVERNANCE ................................................................................................................. 5 EVIDENCE-BASED MEDICINE AND PATIENT-CENTEREDNESS ............................................ 8 MARKETING .................................................................................................................... 9 PROGRAM INTEGRITY .................................................................................................... 10 MONITORING AND TERMINATION .................................................................................... 11 THE THREE-YEAR AGREEMENT ..................................................................................... 13

BENEFICIARY ATTRIBUTION AND DATA ................................................................... 15

BENEFICIARY ATTRIBUTION ........................................................................................... 15 DATA ............................................................................................................................ 16

QUALITY MEASUREMENT AND REPORTING ............................................................ 18

QUALITY MEASUREMENT .............................................................................................. 18

CALCULATION OF SHARED SAVINGS ....................................................................... 23

TRACK 1 ....................................................................................................................... 23 TRACK 2 ....................................................................................................................... 28 TIMING FOR EVALUATING SHARED SAVINGS .................................................................. 31 NOTIFICATION OF SHARED SAVINGS AND LOSSES ......................................................... 32

INTERACTIONS OF OTHER MEDICARE REFORM INITIATIVES WITH THE MSSP.. 32

IMPACT OF MEDICARE SHARED SAVINGS PROGRAM ........................................... 33

IMPACT ON STATES ....................................................................................................... 33 ESTIMATED IMPACT ON TOTAL MEDICARE SPENDING ..................................................... 33

ADVANCE PAYMENT PROGRAM ................................................................................ 34

November 8, 2011


BACKGROUND The Patient Protection and Affordable Care Act of 2010 (ACA) established the Medicare Shared Savings Program (MSSP), which promotes the voluntary formation and operation of Accountable Care Organizations (ACOs) to coordinate and improve care for Medicare beneficiaries. ACOs are eligible to share in savings if their actual spending is below an ACO-specific pre-determined benchmark and they meet annual quality performance requirements. On October 20, the Centers for Medicare & Medicaid Services (CMS) released a final regulation for the new ACO program. For the purposes of this Advisory, we will refer to this program as a “Medicare ACO” or “ACO” throughout. In addition, on October 20, four government entities released additional information related to ACO development: the Department of Justice (DOJ) and the Federal Trade Commission (FTC) issued (http://www.justice.gov/atr/public/health_care/276458.pdf) a “Final Statement of Antitrust Enforcement Policy;” CMS and the Department of Health and Human Services (HHS) Office of the Inspector General (OIG) published an interim final regulation (http://www.ofr.gov/OFRUpload/OFRData/2011-27460_PI.pdf) on fraud and abuse waivers; and the Internal Revenue Service (IRS) issued a fact sheet (http://www.irs.gov/newsroom/article/0,,id=248490,00.html) regarding tax guidance. These related documents are described in a companion Legal Advisory found at: http://www.aha.org/advocacy-issues/tools-resources/advisory/2011/111108-legal-adv.pdf. The MSSP is a new voluntary program designed to encourage providers to re-design care processes in order to achieve the outcomes of better care for individuals, better health for populations, and lower growth in expenditures for Medicare fee-for-service (FFS) beneficiaries. The MSSP is one Medicare option in which an ACO may choose to engage; there are also other programs available, such as CMS’s Pioneer ACO program. This Advisory applies only to ACOs participating in the MSSP. However, some aspects of this rule will apply to participants in the Pioneer ACO model, such as the adoption of the quality measures. CMS’s final rule, available at: http://www.ofr.gov/OFRUpload/OFRData/2011-27461_PI.pdf, was published in the November 2 Federal Register. Key policy provisions of the final rule are described in this Advisory using the following categories: structural and programmatic requirements of an ACO; data and beneficiary attribution; quality measurement and reporting requirements; calculations of shared savings; interactions of other Medicare reform initiatives with the MSSP; and the impact analysis of the MSSP.


STRUCTURAL AND PROGRAMMATIC REQUIREMENTS OF AN ACO

Eligibility The final rule requires an ACO applicant to have several structural and functional elements in place. In summary, to be eligible to apply to the MSSP, the ACO must:

Be comprised of ACO participants, at least one of which is eligible to form an ACO;

Be recognized under state, federal or tribal law as a legal entity; Have a tax identification number (TIN); Have a leadership and management structure; Have an established mechanism for shared governance; Be accountable for beneficiaries with respect to both quality and cost; Sign a contract for no less than three years to with CMS; Have established mechanisms to distribute savings to ACO participants

and their providers/suppliers and to repay the Medicare program for losses under certain circumstances;

Have a sufficient number of primary care providers and beneficiaries; Report on participating ACO professionals; Have processes to promote evidence-based medicine, patient

engagement, reporting and coordination of care; Meet patient-centeredness criteria; Adhere to ACO marketing guidelines; and Establish plans to ensure compliance with Medicare program integrity

requirements.

The details of these basic ACO eligibility and governance requirements are discussed below. Eligible Entities. An “ACO” is defined as a legal entity that is recognized under state, federal or tribal law, meets all of the ACO requirements, has a TIN, and is comprised of a group of ACO participants that work together to manage and coordinate care for Medicare FFS beneficiaries within a provider-driven shared governance mechanism. An ACO does not need to be enrolled in the Medicare program as an entity itself, but it must be comprised of eligible participants that are Medicare-enrolled providers of services or suppliers. The final regulation also requires that the primary care ACO participants (see beneficiary attribution section), upon which beneficiary assignment is dependent, commit to only one ACO; those upon which beneficiary assignment is not dependent are not be required to be exclusive to one ACO. An “ACO participant” is defined as a provider or supplier under the Medicare program.


“ACO professionals” are defined as ACO providers/suppliers that are any of the following:

A doctor of medicine or osteopathy legally authorized to practice medicine and surgery by the state in which they function and within the scope of practice defined by the state; or

A practitioner that is a physician assistant, nurse practitioner or clinical nurse specialist, as defined under the Medicare program.

“ACO providers/suppliers” are defined as providers recognized by the Medicare program or suppliers that have a Medicare provider billing number assigned to the TIN of an ACO participant (for example, a physician within a group practice that is an ACO participant). It is important to note that the “participant” and “professional” terms and definitions used in the proposed rule were inconsistent, making it difficult to interpret correctly the requirements throughout the rule. The AHA asked CMS to clarify and correct these terms in the final regulation. CMS has not been able to provide much clarity and we strongly encourage all potential ACOs to work with CMS to achieve greater clarity in advance of submitting a MSSP application. For example, in the final rule the term “hospital” is defined as a hospital paid under the inpatient prospective payment system (PPS). That term is particularly important in understanding what entities are eligible to “form” an ACO. However, the final rule then shifts to the terms “ACO participant” and “ACO providers/suppliers,” which incorporate by reference the much broader definitions for the Medicare program as a whole. The broader definitions include virtually all institutional or agency providers in the term “provider” and physicians, practitioners and others as “suppliers.” Consequently, as we read the final rule, ACOs can be formed only by the short bulleted list of entities below; the broader group of providers, including all types of hospitals, critical access hospitals (CAHs), clinics and post-acute providers, can “participate” in, but not “form,” an ACO. Several configurations of physicians and hospitals (alone or in combination) are eligible to form 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; and Federally Qualified Health Centers (FQHCs) and Rural Health Clinics

(RHCs).

CAHs that bill Method II are no longer able to independently form an ACO. Under the proposed regulation, CAHs that bill under Method II (where the CAH


bills for both professional and facility services) were considered eligible entities; however, this was changed in the final rule. But, like all other Medicare providers and suppliers, they are able to partner with an eligible entity to form an ACO.

Governance Legal Structure and Governance. The final regulations require establishment of a legal entity that:

Is recognized under state, federal or tribal law and is authorized to conduct business in any state in which it functions;

Has a TIN; and Can accept shared savings payments for distribution to ACO participants,

as well as ensure the ability to repay the Medicare program for shared losses when applicable.

Types of entities mentioned are corporations, partnerships, limited liability corporations (LLCs), foundations or any other entity permitted by state law. The final regulation now recognizes ACOs licensed under federal or tribal law as a legal entity. Also, an ACO formed among multiple otherwise independent ACO participants must demonstrate in its application that it is a legal entity separate from any of its individual ACO participants. The governance body must establish the required shared governance structure with broad responsibility for the ACO’s administrative, fiduciary and clinical operations, as well as the authority to execute the functions of an ACO, including the definition of processes to deliver care, ensure patient engagement, report on ACO quality and cost measures, and coordinate care. The ACO is accountable for the organization’s performance, its participants, providers/suppliers and contractors, including compliance with all ACO requirements and program integrity rules. The AHA was concerned that the proposed governance requirements would present significant barriers to forming ACOs or incur unnecessary administrative costs. CMS heard our concerns and made several changes. For example, the final requirements for composition of ACO governing bodies now accommodate a variety of different forms as long as key elements are met:

At least 75 percent control of the governing body must be held by ACO participants ; and

At least one Medicare beneficiary served by the ACO but otherwise unconnected to the ACO (that is, no familial or other tie to an ACO participant that could present a conflict of interest) sits on the governing body.

Even so, CMS will permit ACOs to accomplish the objectives of these criteria under alternative configurations if it can:


…describe in its application how the proposed structure of its [ACO’s] 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. (76 FR 67821)

Similarly, where an ACO is formed by a single ACO-eligible entity that would find it difficult to change its current governing boards, CMS will allow

…existing entities to explain [in their applications] why they should not be required to reconfigure their board if they have other means of addressing the consumer perspective in governance. (76 FR 67821)

Finally, CMS removed two of the proposed governance requirements that the AHA found particularly troublesome:

Each ACO participant must have at least one representative on the governing body, chosen by the ACO participant organization that he or she represents; and

Each ACO participant must have proportionate control of the ACO governing body.

Leadership and Management Structure. The ACO’s operations must be managed by an executive officer, manager or general partner, whose appointment and removal are under the control of the organization’s governing body. At our urging, CMS is allowing for greater flexibility in appointing ACO leadership. CMS has modified its original proposal to eliminate the full-time medical director requirement. Instead, clinical management and oversight can be managed by a senior-level medical director who is one of the ACO’s physicians. CMS also clarified that an “on-site” physician is one who is present at any clinic, office or other location participating in the ACO. Finally, CMS eliminated the requirement for ACOs to establish a physician-directed quality assurance and process improvement committee. Accountability for Beneficiaries. The final regulation requires that, as part of its application and agreement, the ACO must certify that the providers and suppliers forming the ACO have agreed to become accountable for, and report to CMS on, the quality, cost and overall care of the Medicare FFS beneficiaries assigned to the ACO. Each ACO must make information on its accountability for quality, cost and the overall care of its assigned population available to the public in a specified format to be determined by CMS. This section of final regulation also references antitrust provisions. A detailed description of the antitrust review requirements is included in the AHA’s companion Legal Advisory, which can be found at: http://www.aha.org/advocacy-issues/tools-resources/advisory/2011/111108-legal-adv.pdf.


Agreement Requirements. When CMS notifies an ACO applicant that it has been approved to participate in the program, an executive of the ACO who has the authority to legally bind the ACO (such as the CEO or CFO) must sign and submit to CMS a three-year agreement. That agreement will require that the ACO agree to:

Comply with the MSSP regulations; Require all contracts or arrangements between or among the ACO, ACO

participants, ACO providers/suppliers, and other entities furnishing services related to ACO activities to comply with the MSSP regulations;

Provide a copy of the agreement to each individual or entity bound through the ACO to comply;

Certify the accuracy, completeness and truthfulness of the information contained in the ACO’s application, agreement and quality and other data submissions at the times when such information is provided;

Establish partnerships with community stakeholders in order to advance the three-part aim of better care for individuals, better health for populations and lower growth in expenditures; and

Comply with all program integrity regulations.

If an ACO discontinues its participation in the MSSP prior to the end of the three-year agreement, CMS would require 60-day notice of the ACO’s intention. Distribution of Savings. The final rule requires an ACO applicant to indicate as part of its application how potential shared savings will be used to promote accountability for its Medicare population and the coordination of their care, as well as how the shared savings might be invested in infrastructure and redesigned care processes for high-quality and efficient health care service delivery. It also will be expected to provide the criteria it plans to employ for distributing shared savings among ACO participants and ACO providers/ suppliers, and how any shared savings will be used to align with the goals of the MSSP. In its discussion of this section of the rule, CMS points to its lack of statutory authority to determine how savings should be distributed within the ACO, opting instead for the requirement to include the ACO’s distribution plan in the application. Sufficient Number of Primary Care Providers and Beneficiaries. Under the final rule, an ACO is determined to have a sufficient number of primary care ACO professionals to serve the number of Medicare beneficiaries assigned to it if the number of beneficiaries historically assigned over the three-year benchmarking period using the ACO participants’ TINs exceeds the 5,000 minimum-beneficiary threshold each year. If an ACO’s assigned population falls below 5,000 Medicare beneficiaries, CMS will issue a warning and place the ACO on a corrective action plan (CAP), which could, for example, include a plan to add more primary care providers to the ACO. The ACO will remain eligible for shared savings for the performance year


for which the warning was issued. If the ACO again fails to satisfy the minimum beneficiary requirement in the next performance year, CMS will terminate the ACO’s participation agreement and the ACO will not be eligible for shared savings for that year. Required Reporting on ACO Professionals. CMS will identify an ACO operationally as a set of one or more Medicare-enrolled TINs. CMS requires organizations applying to be ACOs to provide to CMS a list of National Provider Identifiers (NPIs) for all associated primary care ACO professionals. An approved ACO must maintain, update and annually report the information to CMS.

Evidence-Based Medicine and Patient-Centeredness The ACA requires an ACO to “define processes to promote evidence-based medicine and patient engagement, report on quality and cost measures, and coordinate care, such as through the use of telehealth, remote patient monitoring and other such enabling technologies.” To be eligible to participate in the MSSP, CMS requires an applicant ACO to provide documentation describing its plans to promote evidence-based medicine; promote beneficiary engagement; report internally on quality and cost measures; and coordinate care. Over time, as more is learned about successful strategies in these areas, CMS indicates it may revise and/or get more specific about the requirements. CMS requires each ACO to provide, in its application, the evidence-based guidelines it intends to identify, implement and update periodically. CMS also requires that, to fulfill the requirement for promoting patient engagement in care, each applicant will have to identify the strategies it will use to work on patient engagement, such as promoting health literacy and/or patients’ involvement in choosing the treatment that is right for them. CMS also notes that the ACA requires an ACO to have processes to report on quality and cost measures and to promote coordination of care. Each ACO applicant must describe its process for internal reporting on cost and quality measures and strategies for promoting care coordination, including methods to manage care during transitions such as the capability to use predictive modeling to anticipate patients’ care needs, use of case managers, remote monitoring or the use of telehealth. The final rule notes that the provision of any free services, such as telehealth, use of case managers or other such strategies among providers who are in a position to generate referrals, could trigger an evaluation under the fraud and abuse laws. It cautions that whatever strategies the ACO chooses to use, it should not impede a beneficiary’s free choice of providers inside or outside the ACO. Patient-Centeredness Criteria. The ACA requires each ACO to demonstrate that it meets patient-centeredness criteria specified by the Secretary. CMS states that one goal of the MSSP is for the ACO’s governing body to promote patient-centered care and integrate it into daily practice throughout the organization.


CMS requires that an ACO demonstrate patient-centeredness, as required by the statute, by meeting all eight of the following criteria:

Routinely surveys beneficiaries about their experience of care and functional status and uses the results to improve care over time (using two distinct Consumer Assessment of Healthcare Providers Systems (CAPHS) surveys);

Involves patients in the governance of the organization by having at least one Medicare beneficiary who is assigned to its ACO on its board;

Adopts a process to evaluate the health needs of its assigned population, including the diversity of its populations and creates plans to address those needs;

Identifies high-risk individuals and develops individual care plans for targeted populations, including the use of community resources;

Coordinates care across settings and is able to electronically exchange information as patients transition from setting to setting;

Communicates clinical knowledge and evidence-based medicine to patients and their families;

Possesses written standards for beneficiary access, communication and the ability to access his/her own medical record;

Measures clinical and service performance by physicians and uses the results for improvement.

Marketing At the AHA’s urging, CMS has replaced the burdensome review process it had proposed to approve marketing of ACO materials. Instead, CMS has finalized a policy of “file and use” for ACO marketing materials, comparable to the process required for Medicare Advantage plans. This procedure will allow ACOs to file marketing materials, and CMS will have five days to respond and request any changes. If CMS does not respond within five days, the ACO may distribute the marketing materials. However, CMS still has the right to revoke any marketing materials beyond the initial five-day review period. CMS will monitor and limit the use of beneficiary communications specifically related to ACO operations or functions, as well as marketing activities, to ensure Medicare beneficiaries understand that they have the right to choose among health care providers and settings. The agency is concerned that beneficiaries may be misled about what services they are allowed to receive, as well as the providers and suppliers that are allowed to deliver the services. The “file and use” procedure includes, but is not limited to, materials to educate, solicit, notify or contact beneficiaries – or providers and suppliers – regarding the ACO, such as brochures, advertisements, outreach events, letters to beneficiaries, Web pages, mailings and use of social media such as Twitter and Facebook. CMS states that this policy is consistent with marketing provisions used in the Medicare Advantage program. ACOs that fail to adhere to these requirements may be placed under a corrective action plan or terminated at CMS’s discretion.


Program Integrity Program Integrity Requirements. CMS finalized a series of requirements for an ACO intended to protect the MSSP from fraud and abuse or becoming a vehicle to increase the potential for fraud and abuse in other parts of the Medicare program. In brief, an ACO is required to have a compliance plan, a conflict of interest policy, be accountable for compliance with all ACO requirements and relevant laws, including fraud and abuse, for itself and those individuals and entities that are participants, providers/suppliers or entities under contract. In addition, CMS will screen ACO applicants for any history of exclusions from the program or sanctions, or affiliations with entities or individuals that have been excluded or sanctioned. Compliance Plans. Each ACO is required to have a compliance plan and the core elements will have to include at least the following:

A designated compliance official who is not legal counsel to the ACO and who reports directly to the governing body;

Mechanisms for identifying and addressing compliance problems; Methods for employees and contractors to report suspected problems; Compliance training for ACO employees and contractors; and A requirement to report “probable” violations of law to an appropriate law

enforcement agency, rather than “suspected” violations as proposed. This represents a change from the proposed rule, allowing for increased flexibility.

Overall, these requirements are similar to standard practice for hospital compliance programs. It is not typical, however, for a compliance officer to report directly to the board; instead, an officer has appropriate access to update the board on compliance activities and issues. CMS notes that the ACO does not have to duplicate existing compliance efforts of its providers and suppliers and its compliance plan may build on an existing compliance program. Compliance with Program Requirements. CMS imposes several obligations to reinforce that the ACO has ultimate responsibility for compliance with all of the terms and conditions of the ACO agreement. The ACO’s contracts with participants, providers/suppliers and others furnishing services must require their compliance with all of the obligations under the three-year agreement. The ACO must certify the accuracy, completeness, and truthfulness of any information submitted to CMS in the application process and during the course of the three-year program. In a departure from its proposal, CMS clarified that this certification language may include “to the best of my knowledge or belief” or similar language appearing in other Medicare certifications. When requesting payment of shared savings, CMS finalized a simpler process compared to the proposed rule, which requires ACOs to submit annual certifications to CMS by the timeframes CMS will establish through future guidance. For any information


generated by a participant, provider/supplier or contractor, that individual or entity must make similar certifications. Conflict of Interest. The ACO is required to have a conflict of interest policy that includes an obligation for members of the governing body to disclose financial interests, a process for determining whether a conflict exists, and remedial action that may be taken for noncompliance with the policy. Screening of ACO Applicants. CMS requires a screening process to review whether the ACO has a history of exclusions from the program or other sanctions, or has affiliations with individuals or entities that have a history of exclusion or sanctions. If there is such a history, the ACO application may be rejected or additional safeguards or assurances may be required. Prohibition on Certain Required Referrals and Cost-Shifting. The agency will prohibit ACOs and participants from conditioning participation in the ACO on referrals of federal health care program business that the ACO or participants know or should know is being provided to beneficiaries who are not assigned to the ACO. The final rule specifies that this 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 restrictions or limitations if the patient expresses a preference, the patient’s insurer determines the provider, or the referral is not in the patient’s best medical interests in the judgment of the referring party. In response to comments, CMS will include patterns of shifting drug costs within its ACO monitoring activities. Further, CMS acknowledges concerns about issues related to market power and intends to monitor available data to detect patterns of cost shifting by ACOs. CMS will work, as appropriate, with FTC, DOJ, and the HHS OIG if patterns of inappropriate cost-shifting are reported.

Monitoring and Termination Monitoring. CMS states that it has extensive experience monitoring Medicare Advantage and Medicare Prescription Drug Plans and intends to use similar oversight to monitor ACOs. Specifically, CMS mentions it will monitor ACOs by: review of financial and quality data, site visits, follow-up and investigation after a beneficiary complaint and auditing (Medicare claims data, medical records and beneficiary surveys). CMS recommends that all ACOs retain records for a minimum of 10 years, and HHS reserves the right to inspect, audit or evaluate the ACO at any time if there is a reasonable possibility of fraud. CMS proposes to review the submission of quality data to monitor quality standards. Termination. CMS may pursue any of the following three steps it would initiate prior to issuing a termination notice:

Warning notice;


Corrective action plan (CAP); and Special monitoring plan.

CMS notes that the ACA mentions only two circumstances that would be grounds for termination: avoidance of at-risk beneficiaries and failure to meet quality standards. CMS finalized the following definition of a “high-risk beneficiary” – high Hierarchical Condition Coding (HCC) score, dual eligibility, high utilization pattern, one or more chronic conditions, two or more inpatient stays or emergency department visits, a recent high-cost diagnosis (i.e., newly diagnosed cancer), entitled to Medicaid because of disability and has a diagnosis of mental health or substance abuse disorder. To increase risk adjustment capabilities, CMS added the last two elements—Medicaid and mental health substance abuse—in the final rule, as compared to the proposed rule. CMS defines failure to meet quality standards as either failure to report or failure to achieve a minimum threshold of performance. If an ACO fails to report on one or more quality measures, CMS will send a written notice requesting the data by a date certain, with an explanation for the delay. If the ACO fails to respond appropriately, it may be subject to termination. If CMS determines an ACO fails to meet the standard in one or more quality measure domains, the ACO will receive a warning and will be re-evaluated in the next performance year. If the ACO fails in the subsequent performance year, it may be subject to termination. Beyond the circumstances for termination included in the ACA, CMS also finalized the following violations as grounds for termination:

Making material changes to eligibility requirements; Failure to make changes explicitly agreed upon in a CAP; Failure to demonstrate sufficient resources to repay shared losses; Failure to pay back shared losses; Non-compliance with beneficiary notification procedures; Non-compliance with program integrity requirements; Failure to restrict internal sharing of beneficiary summary data to only

those parties that have a need to know; Failure to offer the option to opt-out of data sharing to beneficiaries; Improper disclosure of Medicare claims data to parties external to the

ACO; Violation of physician self-referral, civil monetary penalty, anti-kickback

and antitrust laws; Submission of false data; and Use of unapproved marketing materials.

Once an ACO is terminated, it will be allowed to reapply after the end of the original three-year period. In the reapplication process, the ACO must provide proof that the previous grounds for termination have been remedied.


CMS finalized the process for reconsideration for one of two factors: 1) denial of an ACO application; or 2) termination of an ACO agreement. Under either circumstance, the ACO must submit a written request for reconsideration within 15 days of receiving a denial or termination notice. If the original decision is not reversed, the ACO may pursue an appeal of the reconsideration.

The Three-Year Agreement Under the law, ACO participation in the MSSP is required for a minimum of three years. At AHA’s urging, and to allow ACOs time to plan and prepare their applications, CMS has delayed the start of the program until April 1, 2012. Applications will be available in early 2012. ACOs may also enter the program on July 1, 2012. Start Date of Performance Year. CMS establishes an annual application process to evaluate potential ACOs for participation in the MSSP. With the exception of the initial year, the agency will review applications prior to the end of each calendar year and the three-year agreement period will begin in the next calendar year (January 1) following approval of the application. Performance periods will also correspond to the calendar year. The agreement period options for 2012 ACO applicants are:

April 1, 2012 – first performance year is 21 months, ending on December 31, 2013. Agreement period is three performance years, ending December 31, 2015.

July 1, 2012 – first performance year is 18 months, ending on December 31, 2013. Agreement period is three performance years, ending December 31, 2015.

CMS will provide sub-regulatory guidance to ACOs on the deadlines by which applications must be received in order to be considered for each start date. For information on the application process, please see CMS’s Notice of Intent, which is available on CMS’s website at: https://www.cms.gov/sharedsavingsprogram/37_Application.asp#TopOfPage. Changes during the Three-Year Agreement Period. While changes to Medicare regulations occur on an annual, or even more frequent, basis, ACOs must commit to participate in the shared savings program for three years. Some regulatory changes could affect components of the ACO program, such as quality measures, and it is possible that certain ACOs that were eligible for the program at the start of the three-year agreement might become ineligible based upon regulatory changes. CMS acknowledges that creating an environment in which continued eligibility is uncertain could be detrimental to the success of the program. Thus, it finalizes its proposal that ACOs will be subject to future changes in regulation with the exception of the following program areas:


eligibility requirements concerning the structure and governance of ACOs; calculation of sharing rate; and beneficiary assignment.

However, the agency also creates a policy 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 MSSP. In an important change to the operation of an ACO under the MSSP, CMS finalizes a policy that gives ACOs greater flexibility to deviate from the structure approved in their application. Under the proposed rule, during the three-year agreement period, an ACO could not add ACO participants (as identified by TINs), but could remove ACO participants and add and remove ACO providers/suppliers (as identified by NPIs). Specifically, CMS finalizes a policy that ACO participants and ACO providers/suppliers may be added and subtracted over the course of the agreement period. ACOs must notify CMS of any additions/subtractions within 30 days. In addition, ACOs must notify CMS 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 MSSP. Such a change may cause the ACO to no longer meet the eligibility criteria or necessitate adjustments to the ACO’s benchmark, risk scores or preliminary prospective assignment. Future Participation of Previously Terminated Program Participants. CMS requires that an ACO must disclose to the agency whether the ACO, its participants, or its providers/suppliers have participated in the program under the same or a different name, and specify whether it was terminated or withdrew voluntarily from the program. If the ACO, its participants or its providers/suppliers were previously terminated from the program, the applicant must identify the cause of the termination and what safeguards are now in place to enable the prospective ACO to participate in the program for the full three-year agreement. ACOs may not begin another three-year agreement until the original agreement period has lapsed. CMS did not finalize its proposal that an ACO may not reapply to the program if it experienced a net loss during its first three-year agreement period. It stated that it recognizes that it may take longer than the initial agreement period to achieve savings. Rather, the agency will require ACOs that experience a net loss in their initial agreement period (and apply for 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 achieve potential savings in its next agreement period. In addition, CMS states that its policies on monitoring and termination will help ensure that ACOs that underperform on the quality standards do not continue in the program.


BENEFICIARY ATTRIBUTION AND DATA

Beneficiary Attribution

At the AHA’s urging, CMS will prospectively assign beneficiaries to an ACO based on previous utilization data and will reconcile the list of beneficiaries based on actual utilization on an annual basis. The AHA was very pleased to see this change. CMS initially proposed to assign beneficiaries to an ACO retrospectively, which would have meant that ACOs would not know, in real time, which beneficiaries they were responsible for managing. This change addresses our concerns, but still allows for beneficiary freedom of choice. The final rule includes a two-step process for attributing a beneficiary to an ACO; this is a departure from the proposed rule that required a “minimum threshold” of primary care services prior to assignment of beneficiaries. In the first step, a beneficiary will be assigned to an 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 physicians in other ACOs. In the second step, a 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 ACO professionals in other ACOs. A primary care professional must be exclusive to one ACO. Once a primary care professional has an ACO beneficiary attributed to him/her, that professional is committed for the three-year agreement period. Definition of Primary Care. CMS will attribute beneficiaries to an ACO based on their utilization of primary care services provided by primary care professionals. Primary care services are defined to include Healthcare Common Procedure Coding System (HCPCS) codes 99201 through 99215 (office or other outpatient visits), 99304 through 99340 (nursing facility, domiciliary or rest home visits and related services), and 99341 through 99350 (home visits), as well as the Welcome to Medicare visit (G0402) and the annual wellness visits (G0438 and G0439). Primary care physicians include physicians with a designation of internal medicine, geriatric medicine, family practice and general practice who are ACO providers during the performance period for which shared savings would be determined. In a reversal of policy from the proposed rule, CMS will allow primary care services received from a specialist, nurse practitioner or physician assistant for purposes of assigning a patient to an ACO. In a change from its proposal, CMS now plans to establish a cross-walk for these codes to certain revenue center codes used by FQHCs and RHCs so that their services can be included in the ACO assignment process. Beneficiary Notification. Because our efforts advocating for prospective attribution of beneficiaries were finalized, we also saw corresponding changes related to beneficiary notification. Contrary to the proposed rule, CMS will no


longer require ACOs to provide standardized written information to all Medicare FFS beneficiaries informing them of their potential participation in the MSSP. Now, ACOs will be provided an upfront list of potential beneficiaries and the ACO must communicate the possibility that CMS may share identifiable data with the ACO, for only those beneficiaries on the list. Like the proposed rule, the final rule permits beneficiaries to “opt-out” of allowing their data to be shared with the ACO. ACOs are required to inform beneficiaries during an office visit with a primary care physician, after the ACO has received the list of prospectively assigned beneficiaries. The ACO must provide each beneficiary on the list with a form that includes a phone number, fax or email address that the beneficiary could contact to request that his/her data not be shared. In a continuation of its proposed position, CMS strongly emphasizes that beneficiary assignment will not restrict the right of beneficiaries assigned to an ACO to exercise free choice in determining where to receive health care. Beneficiaries may choose to continue to receive care from their ACO-participating physician, but not agree to share their data with their physician. Even though beneficiaries are prospectively assigned, CMS finalizes its proposed position around the importance of disseminating information to beneficiaries by requiring an ACO to post signs in facilities participating in the MSSP. DATA CMS finalizes a combined approach of retrospective beneficiary assignment for purposes of determining eligibility for shared savings along with the “prospective” provision of aggregate beneficiary-level data for the assigned populations of Medicare beneficiaries during the benchmark period. Additional data regarding beneficiaries potentially assigned to the ACO during the performance period also will be made available. The current Health Insurance Portability and Accountability Act (HIPAA) privacy regulations and other legal obligations to protect the confidentiality of sensitive patient information constrain CMS’s ability to share information about beneficiaries with an ACO. However, CMS will share beneficiary and patient-level data with an ACO in the following limited ways: Aggregate Data Reports. At the start of the agreement period and for each quarter thereafter during the term of the agreement, CMS will provide certain aggregate data reports to the ACO. Although no beneficiary identifiable information is included, CMS expects to provide de-identified claims data on the services rendered for beneficiaries who historically could have been assigned to the ACO. These reports also include, when available, information about financial performance, quality performance scores, aggregated population metrics and utilization data. Data from the most recent 12-month period will be reported.


Identification of Historically Assigned Beneficiaries Used to Calculate Benchmarks. At the beginning of the agreement period and at the end of each performance period, CMS will provide certain identifying information about beneficiaries (i.e., beneficiary name, date of birth, Medicare Health Insurance Claim Number (HICN) and gender) to the ACO at the ACO’s request. To obtain such information, the ACO must certify that the data requested reflect the “minimum necessary” data for the ACO to perform certain quality assessment and improvement activities (referred to as “health care operations” in the HIPAA medical privacy rule), such as population-based activities relating to improving health or reducing health care costs, protocol development, case management and care coordination. These are activities that specifically fall within the first two paragraphs of the definition of health care operations in the HIPAA medical privacy rule. Beneficiary Identifiable Data. If the ACO makes a request for identifiable data at the time of its application to be an ACO or later submits a formal request, CMS will provide monthly claims data on beneficiaries. The ACO’s use of identifiers and associated claims data is limited to developing processes and undertaking appropriate activities (related to coordinating care and improving the quality and efficiency of care applied uniformly to all Medicare beneficiaries assigned to the ACO). Additionally, these data cannot be used to reduce, limit or restrict care for any specific beneficiary. ACO access to beneficiary identifiable data is subject to three specific conditions:

ACO certification. The ACO must certify that, as a HIPAA-covered entity and/or as a business associate of its participating HIPAA-covered entities, it is requesting the “minimum necessary” data to conduct activities that specifically fall within the first two paragraphs of the definition of health care operations in the HIPAA medical privacy rule. Under the final rule, CMS indicates that the minimum necessary data for Medicare Parts A and B “may” include: beneficiary ID; date of birth; gender; date of death; claim ID; from and through dates of service; provider or supplier ID; and claim payment type. For Medicare Part D, the minimum necessary data “may” include: beneficiary ID; prescriber ID; drug service date; drug product service ID; quantity dispensed; days supplied; gross drug cost; brand and generic names; drug strength; and an indication of whether the drug is on the CMS-designated formulary. In response to comments, CMS has also added provider identity (by addition of NPI and TIN) and place of service code to the list of minimum necessary data elements but the regulation text adds only NPI and TIN. CMS notes that an ACO may allow a vendor to receive claims information on its behalf.

Beneficiary opt-out. Prior to requesting beneficiary identifiable claims

data, the ACO must inform a Medicare beneficiary that the ACO may request such data from CMS for purposes of care coordination and quality improvement and give that individual a “meaningful opportunity” to opt-out of the data sharing program, specifically by providing information during


an office visit with a primary care physician whose services are used to assign the beneficiary to the ACO and a form that allows the patient to opt-out. In response to comments, CMS will permit ACOs to contact beneficiaries from the list of preliminarily prospectively assigned beneficiaries (in advance of the point of care) in order to notify them of the ACO’s participation in the program and their intent to request beneficiary identifiable data. After a period of 30 days from the date the ACO provides such notification, ACOs will be able to request beneficiary identifiable data from CMS, absent an opt-out request from the beneficiary. The ACO will 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.

Data use agreement. Prior to receiving any individually identifiable data,

the ACO must enter into a data use agreement with CMS. The agreement must:

o Specify that the ACO will comply with HIPAA privacy requirements as well as other applicable legal obligations to ensure confidentiality.

o Prohibit the ACO from using the particular data received under the Shared Savings Program for any prohibited use of individually identified health information.

o Specify that if the ACO misuses or discloses data in any manner that violates any applicable legal requirement or that is otherwise out of compliance with the data use agreement, it will no longer be eligible to receive data, could potentially be terminated from the MSSP, and is subject to additional sanctions and penalties under the law.

QUALITY MEASUREMENT AND REPORTING

Quality Measurement At the AHA’s urging, CMS reduced the final number of quality measures to 33, down from 65 in the proposed rule. Of the 33 measures required in year one, seven are reported through CAPHS surveys, three are calculated from claims data, one is calculated from electronic health record (EHR) incentive program data and 22 are collected through the Group Practice Reporting Option (GPRO) Web-based tool. Thirty of the measures are endorsed by the National Quality Forum (NQF). The measures are largely physician-focused. Measure specifications will be available during the fourth quarter of 2011 or first quarter of 2012.


In a major reversal of policy, and at the AHA’s urging, CMS did not finalize the requirement to have at least 50 percent of its primary care physicians become meaningful users of EHRs of by the start of the second ACO performance year. Instead, CMS finalized a measure of EHR adoption (not necessarily meaningful use) as a quality measure and weighted it higher than any other measure for quality scoring purposes. Against our recommendation, CMS finalized its proposal to include an all-cause, all-condition 30-day readmission measure. However, at the AHA’s urging, CMS did not finalize a majority of the measures proposed in the original patient safety measurement domain. The proposed regulation included the hospital-acquired conditions (HACs), a set of events that the AHA has opposed in all quality reporting programs. CMS did not finalize the HACs for the MSSP. As a result, CMS finalized four distinct quality measure domains: patient/caregiver experience; care coordination/patient safety; preventive health; and at-risk population. Previously, CMS required five domains but combined the care coordination and patient safety domain in the final rule. Rather than include the HACs in the MSSP for performance, CMS intends to internally monitor HACs using Medicare FFS claims data. In addition to eliminating the HACs, CMS chose to eliminate many of the measures it initially proposed in the at-risk population measurement domain. In many cases, CMS removed individual measures that were also included in composite (clinically relevant clusters of individual measures) measures, stating that there was duplication. CMS requires only reporting of the quality measures in year one of the ACO’s agreement. In subsequent years of reporting, quality measures will determine the ACO’s amount of shared savings as CMS transitions the ACO program into pay-for-performance. CMS will tie eight of the 33 measures in year two and 32 of the 33 measures in year three to performance. A complete list of the final measures is shown in Appendix A at the end of this Advisory. CMS notes that it may change, refine and expand the quality measures for the ACO program in future rulemaking. Patient/Caregiver Experience. As proposed, seven measures were finalized in this domain. The measures include two different patient surveys: the clinician/group consumer assessment of healthcare providers and systems (CG-CAHPS) survey and the Health Plan (HP-CAHPS) survey. ACOs are required to field both surveys for their population. In recognition of the AHA’s comments on burden, CMS intends to pay for the administration of an annual CAHPS survey in 2012 and 2013. Starting in 2014, ACOs must select a vendor (from a CMS-certified list) and pay the vendor to administer the survey and report the results. Care Coordination/Patient Safety. There are six measures included in this domain, as opposed to the 18 originally proposed. The measures include a 30-day, all-cause readmission measure that assesses the rate of hospital


readmissions among the ACO population. CMS will calculate the readmission measure using claims data. This measure is not NQF-endorsed. There are two measures that require ACOs to collect data via the GPRO tool, described in more detail below. These measures include medication reconciliation after a patient is discharged from the hospital and a screening assessment for risk of falls. Two of the measures use claims data to assess whether patients were admitted to the hospital with an “ambulatory care sensitive condition (ACSC),” that is, a hospital admission that could have been prevented if more coordinated care had been provided in the ambulatory setting. CMS finalizes ACSCs for chronic obstructive pulmonary disease and congestive heart failure. Finally, there is one EHR measure that will be calculated from data obtained through CMS’s EHR incentive program. Preventive Health. CMS requires reporting of eight measures in this domain, as opposed to the nine proposed. In the final rule CMS removed the cholesterol management measure from this domain. All of the measures assess the provision of preventive health services, such as mammography and colorectal cancer screening rates or screening for depression. All measures would be reported through the GPRO tool. At-Risk Population. There are 12 measures in this domain; CMS originally proposed 31 measures. The measures focus on patients with diabetes, heart failure, coronary artery disease, hypertension and ischemic vascular disease. The measures include both process and outcomes measures. For example, among the diabetes care measures, there is a process measure assessing whether patients are using aspirin and an outcomes measure assessing the proportion of patients with cholesterol levels that are under control. All of the measures will be reported through the GPRO tool. GPRO Reporting Tool. Twenty-two of the 33 measures will be required to be submitted through GPRO, a tool that CMS originally developed for use in the Physician Group Practice (PGP) demonstration and that is currently used in the Physician Quality Reporting System (PQRS). For the measures collected through the GPRO, CMS requires that ACOs report data on a random sample of 411 beneficiaries for each measure domain using a sampling methodology modeled after that used for the PQRS. If the ACO has fewer than 411 eligible beneficiaries, the ACO will be required to report on all eligible beneficiaries. CMS also plans to provide ACOs with access to a database that will include pre-populated information on beneficiaries’ demographic and utilization information derived from Medicare claims. ACOs will be required to fill in the remaining information needed to capture the quality measure information from patients’ medical records. CMS will audit an ACO’s GPRO data based on the process used in phase I of the PGP demonstration. CMS will abstract a random sample of 30 beneficiaries from each of the measure domains for each ACO.


CMS proposes to employ a multi-phase auditing process. In the first phase, ACOs will be required to provide medical records for eight of the 30 sampled beneficiaries. CMS will audit whether the ACO has correctly classified beneficiaries into the numerator and denominator of the applicable quality measure. If there are no mismatches identified, the ACO will pass the auditing process. If any mismatches are identified, the remaining 22 medical records will be requested and audited. If mismatches are found in more than 10 percent of the 22 medical records used in the second phase, the ACO will be given the opportunity to correct and resubmit the quality measure data. If, at the conclusion of this process, the ACO still has a mismatch rate of more than 10 percent, the ACO will not be given credit for meeting the quality target for that measure and may be subject to termination or other sanctions. Scoring Quality Measures. ACOs that do not meet quality performance standards are not eligible for shared savings, regardless of whether they reduced expenditures below their benchmarks. In the first year of the ACO program, the performance standard requires ACOs only to fully and accurately report on the listed quality measures. Therefore, CMS will not score any quality measures in year one. However, in the second and third year, performance on measures will be determined on the ACO’s score on each measure. The description of measure scoring below, applies to the second and third years only. CMS will calculate an ACO’s total performance score using a method that is similar to that for the hospital value-based purchasing program. An ACO will earn points for each measure along a sliding scale from zero to two depending on its performance level. CMS does not provide any details on when the quality measure benchmarks will be communicated to ACOs. The performance score for each of the four domains will be calculated by dividing the total number of points earned by the total number of points possible. For example, the patient/caregiver experience domain consists of seven measures. The total possible number of points that could be earned under this domain will be 14 (seven measures x two points). An ACO that scores 12 out of 14 points will earn a score of 86 percent on the patient/caregiver experience domain. After determining an ACO’s scores for each domain, the domain scores will be averaged together to get the ACO’s total score. For example, if an ACO achieves individual domain scores of 75, 80, 85 and 90 percent, its total score will be 82.5 percent, the average of the domain scores. As indicated earlier, CMS does not finalize the original meaningful use proposal. In place of this requirement, CMS will double-weight the percent of primary care professionals who successfully qualify for an EHR incentive program payment to emphasize the importance the measure. The ACO’s total score determines the proportion of shared savings that the ACO receives. For example, an ACO under the one-sided model can earn a maximum of 50 percent of shared savings if the ACO scores 100 percent on all


quality measures. An ACO in the one-sided model that scores 90 percent on all quality measures will earn 45 percent (.50 x 90 percent) of the shared savings. An ACO in the one-sided model that scores 80 percent on the quality measures will earn 40 percent (.50 x 80 percent) of the shared savings. An example of how CMS will calculate each of the four domains for year one of the ACO program is included in Table 1 below.

Table 1: Quality Domain Scoring

For the second and third years of the ACO program, some quality measures will be used for pay-for-performance. CMS will set the benchmark for performance on each measure by deciles of either the national Medicare fee-for-service or the Medicare Advantage rate, depending on data availability. Table 2 includes the number of possible points each ACO may earn as compared to the national average.

Table 2: National Benchmarks and Quality Points

The final rule requires ACOs to achieve the quality performance standard on 70 percent of the measures in each domain or it will be placed on a corrective action plan. If the ACO fails to report on one or more measures, it will be asked to


submit the data by a new deadline and offer an explanation of why submission was delayed. Public Reporting. CMS plans to publicly report information on ACOs, including the providers participating in the ACO, quality measure scores, and shared savings earned or shared losses incurred. Physician Quality Reporting System (PQRS). Eligible professionals in an ACO that starts its agreement in April or July of 2012 will also qualify for the 2012 PQRS bonus incentive, because the ACO quality measures overlap with the PQRS quality reporting requirements. CMS also adds that participation in an ACO will fulfill the reporting requirements for purposes of avoiding the PQRS payment penalty that begins in 2015 for professionals who fail to report PQRS data. CALCULATION OF SHARED SAVINGS Under the ACA, ACO participants will continue to receive payment under FFS Medicare in the same manner as would otherwise be made. However, provided that an ACO meets both savings targets and quality performance standards, it also will receive payment for shared Medicare savings. CMS creates two different paths, or tracks, ACOs can pursue. Track 1 Under Track 1, ACOs will operate under a one-sided, or bonus-only, model for all three years of the agreement. That is, ACOs will not be responsible for any losses above their benchmark (i.e., any increases in fee-for-service spending above their benchmark). As the AHA urged, CMS did not finalize its proposal that, for the third year of the agreement, ACOs would operate under a two-sided model, in which ACOs would share losses. ACOs may elect to participate in Track 1 for only one three-year agreement period; if they wish to continue participating in the MSSP for additional three-year agreement periods, they must enter Track 2. Determining the Benchmark. Under the ACA, ACOs are eligible for shared savings only if expenditures for beneficiaries in the ACO are at least a specified percentage below a certain pre-determined “benchmark.” The law requires CMS to establish this benchmark, unique to each ACO, for each agreement period using the most recently available three years of per-beneficiary expenditures for Parts A and B services for FFS beneficiaries assigned to the ACO. CMS will establish benchmarks for the first year of the agreement period using the Parts A and B FFS expenditures of beneficiaries who would have been assigned to an ACO in each of the three years prior to the agreement period. CMS will weigh the costs of the most recent year at 60 percent, the second year at 30 percent and the first year at 10 percent. The agency had proposed to


adjust the benchmark for beneficiary health status using the CMS HCC adjustments that are used in the Medicare Advantage program. CMS 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. For newly assigned beneficiaries, CMS will annually update an ACO's CMS-HCC risk scores to adjust for changes in severity and case mix in this population. We urged CMS to readjust the risk score for beneficiaries annually. In the final rule, CMS states it will recalculate the ACO's CMS-HCC risk scores for continuously assigned beneficiaries. However, if the continuously assigned population shows a decline in its CMS-HCC prospective risk scores, the agency 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. These changes will likely result in CMS’s favor and may put ACOs at a disadvantage. In essence, CMS did not respond to AHA’s request to adjust risk scores on an annual basis, but chose to make adjustments only when CMS benefits. This methodology implicitly adjusts for beneficiaries who are assigned in the prior year but not the current performance year (patients that leave the ACO), as these beneficiaries will be excluded from the continuously assigned population. Further, the agency determined that benchmark expenditures should 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 help recognize changes in the level of risk among the ACO's assigned beneficiaries. In addition, in adjusting for health status and demographic changes, CMS will make adjustments for separate categories for each of the following populations of beneficiaries:

end-stage renal disease (ESRD); disabled; aged/dual eligible Medicare and Medicaid beneficiaries; and aged/non-dual eligible Medicare and Medicaid beneficiaries.

CMS will use the audit process to address coding inaccuracies. Therefore, to assure the appropriateness of ACO coding practices and its methodology for risk


adjusting, the agency is finalizing its proposal 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 three-year benchmark accordingly. To establish benchmarks for the second and third years of the agreement period, CMS will update the prior year’s benchmark by the projected absolute dollar amount of growth in national per-capita expenditures for Parts A and B services under FFS Medicare. If an ACO enters into a second three-year agreement under Track 2, its benchmark will be recalculated using Parts A and B FFS expenditures for beneficiaries who would have been assigned to the ACO in the three years prior to the second agreement period. CMS also makes several other adjustments to the benchmark. First, it did not finalize its proposal to include indirect medical education (IME) and disproportionate share hospital (DSH) payments in the benchmark calculations. Instead, it will exclude these payments from both benchmark and performance year expenditures. Second, despite urging from the AHA, CMS finalized its proposal to include geographic payment adjustments, such as the wage index and geographic practice cost indices, as well as hospital value-based purchasing payments, in the benchmark and performance year expenditures. The agency states that it does not believe that including these payments will 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. CMS also states it is concerned about the complexity resulting from standardizing payments, given its relatively minor impact under its benchmarking methodology. Finally, CMS states that other incentives, such as the Physician Quality Reporting System, e-Prescribing (eRx), and EHR incentives for eligible professionals, hospitals and CAHs, are paid outside of Parts A and B claims services and will not be included in benchmark or performance year expenditures. This statement leads us to believe that low-cost county payments also will be excluded from the benchmark and performance year expenditure calculations, but CMS does not specifically state as much, despite our and others’ requests for clarification. Minimum Savings Rate (MSR). Under the ACA, ACOs are eligible to share savings if they meet a target savings amount that is below their established benchmark. The amount by which the target savings amount is below the benchmark is known as the “minimum savings rate.” CMS states that it has set the MSR in a way that gives it some assurance that the ACO’s performance is a result of its interventions, not normal variations, but also ensures that all earned savings are recognized.


Under Track 1, CMS finalized its proposal to create a sliding scale confidence interval MSR based on the number of assigned beneficiaries. An MSR will 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 will have an MSR based on a 90 percent interval; an ACO with 20,000 assigned beneficiaries will have an MSR based on a 95 percent interval; and an ACO with 50,000 assigned beneficiaries will have an MSR based on a 99 percent interval. In no case, however, will the MSR be below 2 percent. Table 3 shows the MSRs by ACO size. Since these MSRs are based on a sliding scale, ACOs with assigned beneficiaries that fall between two listed levels will have an MSR that falls proportionately between the same levels. For example, an ACO with 7,500 assigned beneficiaries will need to achieve a target savings amount that is 3.3 percent below its benchmark before it could be eligible to share savings.

Table 3: Track 1 MSRs by Number of Assigned Beneficiaries

Number of Assigned

Beneficiaries

MSR

5,000 3.9% 6,000 3.6% 7,000 3.4% 8,000 3.2% 9,000 3.1%

10,000 3.0% 15,000 2.7% 20,000 2.5% 50,000 2.2%

60,000+ 2.0%

Sharing Rate. If Track 1 ACOs meet or exceed the MSR, they are eligible to share a certain percentage of the savings they have achieved. CMS did not finalize its proposal that ACOs that meet or exceed their MSR would be eligible to share in savings that are in excess of 2 percent of the benchmark. Instead, it finalized a policy that ACOs that meet or exceed their MSR will be eligible to share in all savings that are in excess of the benchmark. In other words, ACOs that meet or exceed their MSR will be eligible to share in “first dollar” savings. For example, if an ACO with 10,000 beneficiaries has performance year expenditures that are 3.1 percent below its benchmark, it has met its MSR and will share in all the savings, which equals 3.1 percent in this example. CMS had proposed to exempt certain smaller physician-driven ACOs and ACOs caring for underserved populations from its proposed 2 percent threshold; instead, it proposed to allow them to share in first dollar savings, provided they


meet their MSR. However, this proposal was dropped since all Track 1 ACOs will be able to share in first dollar savings. CMS also proposed that a Track 1 ACO could receive an increase in its shared savings rate of up to 2.5 percentage points (for a maximum rate of 52.5 percent) for having a strong FQHC and/or RHC presence. However, as discussed in the eligibility section above, it instead finalized a policy to allow FQHCs and RHCs to independently form ACOs. Therefore, it is not providing any increase in shared savings for strong FQHC and/or RHC presence. Performance Payment Limit. Under the law, CMS must establish a limit on the total amount of shared savings that may be paid to an ACO. Under Track 1, CMS had proposed a payment limit of 7.5 percent of an ACO’s benchmark. However, in the final rule, it increases this limit to 10 percent of an ACO’s benchmark. Because savings are shared at a maximum of 50 percent, to hit the payment limit, an ACO will need to save at least 20 percent compared to its benchmark. Withholding Performance Payments to Offset Future Losses. In the proposed rule, CMS had set forth a policy to withhold a flat 25 percent of any annual shared savings payments and use it to offset any potential future losses. However, the agency’s final policy of making Track 1 a bonus-only model for all three years negates the need for this proposal and it was not finalized. Figure 1, below, depicts an example of how the shared savings bonus would be calculated for American ACO, with 60,000 Medicare beneficiaries, in the second year of Track 1. In this example, American ACO has saved enough to achieve the minimum savings rate of 2 percent, which CMS would expect for an ACO of its size, and its expenditures were an additional $100 per capita below the MSR.


Figure 1: How an ACO Bonus Payment is Calculated

Begin Here

How an ACO Bonus Payment is Calculated

(Track 1, Year 2)

$10,000 per capita benchmark

$9,800 per capita minimum savings rate (MSR) (2%)

$9,700 per capita actual spending

American ACO has

60,000 beneficiaries

$300 savings/beneficiary

Up to 50/50 Shared with CMS

Based on Quality Score

Quality Score = 80%

Calculate Shared Savings Quality Score (80%) x (50% Shared

Savings) = 40%

($300 per beneficiary) x 40% = $120/beneficiary

to ACO

CMS receives $300/bene x 60%) =

$180/bene

CMS Shared Savings Bonus

($180/bene) x (60,000 benes) = $10,800,000

ACO Receives ($120/bene) x (60,000 benes) = $7,200,000

Track 2 Under the Track 2 option, organizations forming ACOs will participate in a two-sided model in which they have an increased potential to share in any savings, but also would agree to share and be at risk for losses above their benchmark. Track 2 ACOs will stay in this track for all three years of the agreement. Except where noted below, Track 2 will operate exactly the same as Track 1. Minimum Savings Rate (MSR). CMS finalized its proposal to use a fixed 2 percent MSR for Track 2. The agency states that it believes a fixed MSR is appropriate for Track 2 because it provides greater predictability that is more likely to attract organizations to participate under this model, and also because protection is already afforded to the Medicare trust fund under this Track because ACOs must share in any losses. Sharing Rate. CMS finalizes its proposal that Track 2 ACOs that meet or exceed the MSR will be eligible to share in first dollar savings. These ACOs can earn a shared savings rate of up to 60 percent of eligible savings, depending on their performance on quality measures. For the same reasons as discussed under


Track 1 above, the agency did not finalize its proposal to provide any increase in shared savings for strong FQHC and/or RHC presence. Performance Payment Limit. For Track 2, CMS finalizes a payment limit of 15 percent of an ACO’s benchmark, rather than 10 percent as proposed. Because savings are shared at a maximum of 60 percent, to hit the payment limit, an ACO would need to save 25 percent compared to its benchmark. Withholding Performance Payments to Offset Future Losses. In the proposed rule, CMS had set forth a policy to withhold a flat 25 percent of any annual shared savings payments and use it to offset any potential future losses. However, as the AHA urged, the agency did not finalize this policy and will not withhold any portion of an ACO’s shared savings. CMS will require Track 2 ACOs to establish a self-executing method for repaying losses to the Medicare program 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 repayment mechanism.

CMS will require an ACO to demonstrate establishment of a repayment mechanism, using one of the above options, that is sufficient to ensure repayment of losses equal to at least 1 percent of per-capita expenditures for its assigned beneficiaries from the most recent year available. In addition, an ACO must demonstrate the adequacy of this repayment mechanism annually, prior to the start of each performance year in which it takes risk, to ensure that it is adequate to cover the anticipated number of assigned beneficiaries. Shared Losses. Track 2 ACOs are at risk for losses above their benchmark. CMS finalizes its proposed methodology for calculating shared losses, which is similar to the method it will use for calculating shared savings. Specifically, ACOs must share in losses if their expenditures exceed a target loss amount that exceeds their benchmark. The amount by which the target loss amount exceeds the benchmark is known as the “minimum loss rate.” CMS sets the minimum loss rate at 2 percent – equal to the MSR. Once an ACO meets the minimum loss rate, it will share in first dollar losses. In addition, CMS will make an ACO’s loss rate equal to its sharing rate. If the ACO’s sharing rate is 60 percent, then its loss rate is 60 percent as well. The loss rate denotes the percentage of the loss that the ACO retains. For example, an ACO with a benchmark of $8,000 per beneficiary has a minimum loss rate of 2 percent, or $160. If the actual cost per-assigned beneficiary is $8,800, then it would have a per-beneficiary loss of $800, which exceeds the minimum loss rate. Thus, the ACO must share in these losses. This ACO would retain 60 percent of


the per-beneficiary loss, or $480 per beneficiary, and would owe CMS 40 percent of the $800 loss, or $320 per beneficiary. However, CMS added a provision to this policy that in no case can the loss rate be less than 40 percent. CMS finalizes its proposal to set a shared loss cap of 5 percent of the benchmark in the first year of the Shared Savings Program, 7.5 percent in the second year, and 10 percent in the third year. This is a cap that limits the amount that an ACO could owe CMS. In the example above, the shared loss cap in the first year of the agreement would be 5 percent of $8,000, or $400 per beneficiary. Figure 2, below, depicts an example of how a loss would be calculated for American ACO, with 60,000 Medicare beneficiaries, in the second year of Track 2. In this example, American ACO exceeded its benchmark by $300 per beneficiary. Note that because American ACO’s per capita actual spending exceeded the 2 percent minimum loss rate, it would share in first dollar losses.

Figure 2: How an ACO Loss is Calculated

Up to 60/40 Shared with CMSBased on Quality

Score

$300 loss/beneficiaryBegin Here

Quality Score = 80%

Calculate Shared Loss Quality Score

(80%) x (60% Shared Losses) = 48%

($300 per beneficiary) x 48% = $144/bene

ACO keeps

($300 per beneficiary) x 52% =

$156/beneficiary ACO owes to CMS

ACO Owes CMS ($156/bene) x (60,000 benes) = $9,360,000

How an ACO Loss is Calculated (Track 2, Year 2)

$10,300 per capita actual spending

$10,200 per capita minimum loss rate (MLR) (2%)

$10,000 per capita benchmark

American ACO has

60,000 beneficiaries

CMS

ACO Keeps$144/bene x 60,000 benes = $8,640,000


The key differences between Track 1 and Track 2 are outlined in Table 4 below.

Table 4: Key Differences between Track 1 and Track 2

Timing for Evaluating Shared Savings CMS’s determination of an ACO’s shared savings amount will be based on an analysis of claims for beneficiaries assigned to the ACO. There is an inherent lag in time between when a service is performed and when the claim is processed and paid by CMS – this time is known as the “run-out” period. The longer the run-out period, the more complete and accurate a set of claims is, but

Design Element Track 1 Track 2 Minimum Savings Rate (MSR)

Varies between 2 and 3.9 percent depending on the number of assigned beneficiaries

2 percent

Shared Savings Determination

Savings shared once MSR is exceeded; share in first dollar savings

Savings shared once MSR is exceeded; share in first dollar savings

Quality Scoring Sharing rate up to 50 percent based on quality performance

Sharing rate up to 60 percent based on quality performance

FQHC/RHC Participation Incentives

None None

Maximum Sharing Rate Sharing rate up to 50 percent based on quality performance

Sharing rate up to 60 percent based on quality performance

Performance Payment Limit

10 percent of benchmark 15 percent of benchmark

Minimum Loss Rate N/A 2 percent Shared Losses N/A First dollar shared losses

once the minimum loss rate is exceeded. Cap on the amount of losses to be shared phased in over three 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 cap would not be shared. Actual amount of shared losses would be based on final sharing rate that reflects ACO quality performance.


the longer period also lengthens the amount of time before CMS can calculate and make the shared savings payment. CMS had proposed to use a six-month claims run-out period to calculate the benchmark and per-capita expenditures for the performance year, but in an improvement, finalized a three-month run-out period instead. This means that, at the earliest, an ACO could receive its shared savings payment not before second quarter of the year after the performance year, or receive the first payment no sooner than 15 months after beginning the program. However, given the number of steps CMS must take before payment could be made – process claims, assign beneficiaries, measure quality, calculate savings and process the bonus payment – it seems likely that the timeline could extend well beyond the second quarter of the year after the performance year. Notification of Shared Savings and Losses CMS will notify an ACO in writing regarding whether the ACO qualifies for a shared savings or loss payment, and if so, the amount of the payment. In the case of a loss, the ACO must make payment in full to CMS within 90 days, not 30 days as proposed, of receipt of notification. In addition, as a condition of receiving a shared savings payment, the ACO must submit a written request for the shared savings payment that certifies, after each performance period, the accuracy of all information and data that CMS will 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.

INTERACTIONS OF OTHER MEDICARE REFORM INITIATIVES WITH THE MSSP In the final rule, CMS notes that shared savings programs, including the MSSP, are only one type of value-based purchasing program. The ACA also established the Center for Medicare and Medicaid Innovation, through which CMS may test innovative payment and service delivery models. CMS discusses the overlap between the MSSP and these other shared savings initiatives in the final rule. As required by statute, providers of services or suppliers that participate in a Medicare ACO based on a Medicare-enrolled TIN would not be able to participate in other shared savings programs, including the following:

Independence at Home; Medicare Health Care Quality; Indiana Health Information Exchange; North Carolina Community Care Network;


Multipayer Advanced Primary Care Practice arrangements involving shared savings;

Care Management for High-Cost Beneficiaries; Pioneer ACO; and Physician Group Practice (PGP) transition. CMS also notes that all 10

PGP demonstration participants have agreed to participate in the PGP transition.

CMS finalizes that individual providers and suppliers participating in an ACO will not be subject to this prohibition (i.e., a provider or supplier who submits claims under multiple Medicare-enrolled TINs may participate in both the MSSP and other shared savings programs if the populations are unique to each program and none of the Medicare-enrolled TINs participate in both programs).

IMPACT OF MEDICARE SHARED SAVINGS PROGRAM Impact on States CMS states that, under the MSSP, 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 will be solely between the Medicare program and the ACO. The agency will further consider these issues in future rulemaking should it become aware of any unexpected program issues that render states responsible for bearing any costs resulting from the operation of this program.

Estimated Impact on Total Medicare Spending CMS estimates that the MSSP will net a total of $470 million in Medicare savings in calendar years 2012 through 2014. This total is derived from both shared losses that CMS will retain and estimated trust fund savings from better coordination of care. CMS estimates that 50 to 270 ACOs will participate in the program, resulting in 1.0 to 5 million Medicare beneficiaries assigned to an ACO during the first three years of the program. Assuming 50-270 ACOs participate in the program, CMS estimates that start-up and first year operating costs for ACOs will range from $92 to $499 million or on average $1.8 million per ACO. CMS derived this estimated range from an analysis produced by the Government Accountability Office for participants in the Medicare PGP Demonstration as the basis for these estimates, despite the AHA’s request that CMS reconsider this estimate based upon the findings of an AHA-sponsored independent study that found that start-up costs for the program would range from $11.6 to $26.1 million. CMS anticipates paying approximately $1.3 billion in shared savings bonuses to providers over three years.


ADVANCE PAYMENT PROGRAM In addition to releasing the parameters of the final ACO program, CMS also released parameters for a companion program allowing certain eligible ACOs access to up front capital. This program is referred to as the “advance payment model” (APM). The APM is open only to two types of organizations participating in the MSSP:

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

ACOs in which the only inpatient facilities are CAHs and/or Medicare low-volume rural hospitals AND have less than $80 million in total annual revenue.

Under the APM, participating ACOs will receive three types of payments:

An upfront, fixed payment – each ACO will receive a $250,000 payment in the first month of the MSSP;

An upfront, variable payment based on the number of its historically assigned beneficiaries – each ACO will receive a payment in the first month of the MSSP equivalent to the number of its preliminary, prospectively assigned beneficiaries times $36; and

A monthly payment based on the number of its historically assigned beneficiaries – each ACO will receive a monthly payment equal to the number of its preliminary, prospectively assigned beneficiaries times $8.

Advance payments will be recouped from the shared savings the ACO earns. Organizations applying for the APM must complete applications for both the ACO program and the APM. Both applications must be submitted by deadlines consistent with the ACO program. Additional information about the APM is available on the Center for Medicare and Medicaid Innovation website at: http://www.innovations.cms.gov/areas-of-focus/seamless-and-coordinated-care-models/advance-payment. Questions regarding the Advance Payment Model or the application process should be sent to [email protected].


Appendix A: Final Quality Measures for ACO Program

Domain Measure Title NQF Measure

#/ Measure Steward

Method of Data

Submission

Pay for Performance Phase In R = Reporting P=Performance

Performance Year 1 Year 2 Year 3

AIM: Better Care for Individuals

1. Patient/Caregiver Experience

CAHPS: Getting Timely Care, Appointments, and Information

NQF #5, AHRQ

Survey R P P


CAHPS: How Well Your Doctors Communicate NQF #5 AHRQ

Survey R P P


CAHPS: Patients' Rating of Doctor NQF #5 AHRQ

Survey R P P


CAHPS: Access to Specialists NQF #5 AHRQ

Survey R P P


CAHPS: Health Promotion and Education NQF #5 AHRQ

Survey R P P


CAHPS: Shared Decision Making NQF #5 AHRQ

Survey R P P


CAHPS: Health Status/Functional Status NQF #6 AHRQ

Survey R R R

8. Care Coordination/ Patient Safety

Risk-Standardized, All Condition Readmission* NQF #TBD CMS

Claims R R P


Ambulatory Sensitive Conditions Admissions: Chronic Obstructive Pulmonary Disease (AHRQ Prevention Quality Indicator (PQI) #5)

NQF #275 AHRQ

Claims R P P


Ambulatory Sensitive Conditions Admissions: Congestive Heart Failure (AHRQ Prevention Quality Indicator (PQI) #8 )

NQF #277 AHRQ

Claims R P P


Percent of PCPs who Successfully Qualify for an EHR Incentive Program Payment

CMS EHR Incentive Program Reporting

R P P


Medication Reconciliation: Reconciliation After Discharge from an Inpatient Facility

NQF #97 AMA- PCPI/NCQA

GPRO Web Interface

R P P


Falls: Screening for Fall Risk NQF #101 NCQA

GPRO Web Interface

R P P

AIM: Better Health for Populations 14. Preventive Health Influenza Immunization NQF #41

AMA-PCPI GPRO Web Interface

R P P



#/ Measure Steward

Method of Data

Submission



15. Preventive Health Pneumococcal Vaccination NQF #43 NCQA

GPRO Web Interface

R P P

16. Preventive Health Adult Weight Screening and Follow-up NQF #421 CMS

GPRO Web Interface

R P P

17. Preventive Health Tobacco Use Assessment and Tobacco Cessation Intervention

NQF #28 AMA-PCPI

GPRO Web Interface

R P P

18. Preventive Health Depression Screening NQF #418 CMS

GPRO Web Interface

R P P

19. Preventive Health Colorectal Cancer Screening NQF #34 NCQA

GPRO Web Interface

R R P

20. Preventive Health Mammography Screening NQF #31 NCQA

GPRO Web Interface

R R P

21. Preventive Health Proportion of Adults 18+ who had their Blood Pressure Measured within the preceding 2 years

CMS GPRO Web Interface

R R P

22. At Risk Population - Diabetes

Diabetes Composite (All or Nothing Scoring): Hemoglobin A1c Control (<8 percent)

NQF #0729 MN Community Measurement

GPRO Web Interface

R P P


Diabetes Composite (All or Nothing Scoring): Low Density Lipoprotein (<100)


GPRO Web Interface

R P P


Diabetes Composite (All or Nothing Scoring): Blood Pressure <140/90


GPRO Web Interface

R P P


Diabetes Composite (All or Nothing Scoring): Tobacco Non Use


GPRO Web Interface

R P P


Diabetes Composite (All or Nothing Scoring): Aspirin Use NQF #0729 MN Community Measurement

GPRO Web Interface

R P P


Diabetes Mellitus: Hemoglobin A1c Poor Control (>9 percent)

NQF #59 NCQA

GPRO Web Interface

R P P

28. At Risk Population - Hypertension

Hypertension (HTN): Blood Pressure Control NQF #18 NCQA

GPRO Web Interface

R P P



#/ Measure Steward

Method of Data

Submission



29. At Risk Population – Ischemic Vascular Disease

Ischemic Vascular Disease (IVD): Complete Lipid Profile and LDL Control <100 mg/dl

NQF #75 NCQA

GPRO Web Interface

R P P

30. At Risk Population – Ischemic Vascular Disease

Ischemic Vascular Disease (IVD): Use of Aspirin or Another Antithrombotic

NQF #68 NCQA

GPRO Web Interface

R P P

31. At Risk Population - Heart Failure

Heart Failure: Beta-Blocker Therapy for Left Ventricular Systolic Dysfunction (LVSD)

NQF #83 AMA-PCPI

GPRO Web Interface

R R P

32. At Risk Population – Coronary Artery Disease

Coronary Artery Disease (CAD) Composite: All or Nothing Scoring: Drug Therapy for Lowering LDL-Cholesterol

NQF #74 CMS (composite) / AMA-PCPI (individual component)

GPRO Web Interface

R R P

33. At Risk Population – Coronary Artery Disease

Coronary Artery Disease (CAD) Composite: All or Nothing Scoring: Angiotensin-Converting Enzyme (ACE) Inhibitor or Angiotensin Receptor Blocker (ARB) Therapy for Patients with CAD and Diabetes and/or Left Ventricular Systolic Dysfunction (LVSD)

NQF # 66 CMS (composite) / AMA-PCPI (individual component)

GPRO Web Interface

R R P

November 8, 2011

AT A GLANCE

On October 20, the Centers for Medicare & Medicaid Services (CMS) released a final regulation (ACO rule) governing the creation of accountable care organizations (ACOs) under the Medicare Shared Savings Program (ACO program). This rule is described in detail in a companion Regulatory Advisory. On the same day, four government entities, continuing a historic coordinated effort, released additional guidance related to ACO development: The Department of Justice in conjunction with the Federal Trade Commission issued a Final Statement of

Antitrust Enforcement Policy Regarding ACOs Participating in the Medicare Shared Savings Program (Final Statement);

CMS and the Department of Health and Human Services’ Office of the Inspector General issued an Interim Final Rule with Comment Period: Final Waivers in Connection with the Shared Savings Program (Waiver rule); and

The Internal Revenue Service (IRS) issued a Fact Sheet: Tax-Exempt Organizations Participating in the Medicare Shared Savings Program through ACOs (Fact Sheet).

This Legal Advisory addresses each of these three guidance documents. Our Take: In a major win for hospitals, the antitrust agencies abandoned their proposed mandatory antitrust review before hospitals could even apply for the ACO program, and instead offered guidance for all ACOs. The guidance provides that all ACOs’ competitive conduct will be evaluated under the more lenient “rule of reason,” which takes pro-competitive benefits into account. We also are pleased that the agencies retained two “safety zones” that allow qualifying ACOs to avoid antitrust challenge. Rural hospitals and physicians also are given more flexibility in qualifying for the safety zone. Significantly, the waivers from the fraud and abuse laws for ACOs go well beyond the very limited protections CMS and the OIG had proposed. Waivers will protect activities that are reasonably related to the purposes of the ACO program and cover all stages of an ACO, from start-up through operation and some period of winding down. In addition, a waiver will protect the use of incentives to engage Medicare beneficiaries in prevention activities or management of chronic conditions. We are disappointed that the IRS failed to provide the clear and unequivocal assurance AHA requested – that tax-exempt hospitals participating in an ACO regulated by CMS will not compromise their tax-exempt status. While the agency states that participation will not generally create a problem, the Fact Sheet largely reiterates the previously announced criteria IRS will use to assess the implications of participation on a case-by-case basis – a position that creates uncertainty and may discourage ACO participation. While three of these four federal agencies made significant strides with respect to ACOs, it is disappointing that none went further to include any clinically integrated arrangement among providers. The AHA will continue to advocate for these agencies to go farther and remove barriers so all patients have the benefit of clinically integrated care from organizations providing accountable care. Further Questions: Contact Melinda Hatton, senior vice president and general counsel, at (202) 626-2336 or [email protected] (for antitrust and IRS) or Maureen Mudron, deputy general counsel, at (202) 626-2301 or [email protected] (for fraud and abuse and IRS).

AHA's Legal Advisories are produced whenever there are significant developments that affect the job you do in your community. A 14-page, in-depth examination of this issue follows.

©2011 American Hospital Association

Legal Advisory

ACCOUNTABLE CARE ORGANIZATIONS: GUIDANCE TO ADDRESS

ANTITRUST, FRAUD & ABUSE AND TAX EXEMPTION BARRIERS

http://www.ofr.gov/OFRUpload/OFRData/2011-27461_PI.pdf

http://www.aha.org/advocacy-issues/tools-resources/advisory/2011/111108-regulatory-adv.pdf

http://www.justice.gov/atr/public/health_care/276458.pdf



http://www.aha.org/help/termsofuse.shtml


BACKGROUND

On October 20, the Centers for Medicare & Medicaid Services (CMS) released a final regulation (ACO rule) governing the creation of accountable care organizations (ACOs) under the Medicare Shared Savings Program (ACO program). This rule is described in detail in a companion Regulatory Advisory issued separately. At the same time, four government agencies, continuing a historic coordinated effort, released additional guidance related to ACO development:

The Department of Justice (DOJ) in conjunction with the Federal Trade Commission (FTC) issued a Final Statement of Antitrust Enforcement Policy Regarding ACOs Participating in the Medicare Shared Savings Program (Final Statement);

CMS and the Department of Health and Human Services’ Office of the Inspector General (OIG) issued an Interim Final Rule with Comment Period: Final Waivers in Connection with the Shared Savings Program (Waiver rule); and

The Internal Revenue Service (IRS) issued a Fact Sheet: Tax-Exempt Organizations Participating in the Medicare Shared Savings Program through ACOs (Fact Sheet).

This Legal Advisory addresses each of these three guidance documents. In a major win for hospitals, the antitrust agencies abandoned their proposed mandatory antitrust review before hospitals could even apply for the ACO program. The guidance provides that all ACOs’ competitive conduct will be evaluated under the more lenient “rule of reason,” which takes pro-competitive benefits into account. In addition, the Final Statement retains the concept of a “safety zone” that allows qualifying ACOs to avoid antitrust challenge. Rural hospitals and physicians also are given more flexibility in qualifying for the safety zone. Significantly, the waivers from the fraud and abuse laws for ACOs go well beyond the very limited protections CMS and the OIG had proposed. Waivers

November 8, 2011

ACCOUNTABLE CARE ORGANIZATIONS: GUIDANCE TO ADDRESS

ANTITRUST, FRAUD & ABUSE AND TAX EXEMPTION BARRIERS

Legal Advisory


http://www.aha.org/advocacy-issues/tools-resources/advisory/2011/111108-regulatory-adv.pdf

http://www.justice.gov/atr/public/health_care/276458.pdf



American Hospital Association Page 2

will protect activities that are reasonably related to the purposes of the ACO program and cover all stages of an ACO, from start-up through operation and some period of winding down. In addition, a waiver will protect the use of incentives to encourage Medicare beneficiaries in prevention activities or management of chronic conditions. IRS, on the other hand, failed to provide the clear and unequivocal assurance that tax-exempt hospitals participating in an ACO regulated by CMS will not compromise their tax-exempt status. While the agency repeated its previous statement that participation will not generally create a problem, the Fact Sheet largely reiterates the criteria the IRS will use to assess the implications of participation on a case-by-case basis. The AHA will continue to advocate for the removal of legal barriers so all patients have the benefit of clinically integrated care from organizations providing accountable care.

FINAL STATEMENT OF ANTITRUST ENFORCEMENT POLICY

REGARDING ACOS Background In their March Proposed Statement of Enforcement Policy regarding ACOs, the FTC and the DOJ’s Antitrust Division (the Agencies) required mandatory antitrust review of ACOs that triggered certain thresholds. In our comment letter, the AHA voiced serious concerns about the extraordinary burden that antitrust review would impose on providers interested in creating ACOs and questioned whether the Agencies had the authority to mandate review of certain ACOs that they determined had a high share. We recommended the review process be made entirely voluntary. After considering these and other comments, the Agencies, on October 20, jointly issued a revised final enforcement policy statement that, among other things, adopted the AHA’s recommendation to make the expedited antitrust review voluntary. This Final Statement while maintaining many of the concepts introduced in the Proposed Statement, represents a significant departure from the original version, replacing a rigid, compulsory regime with a more flexible, elective process. It also is hoped and expected that the guidance contained in the Final Statement will apply to how the Agencies will review any clinically integrated arrangement.

Guidance Changes in the Final Statement. The most noteworthy change from the Proposed Statement to the Final Statement is the decision by the agencies to make expedited antitrust review of ACOs a voluntary process. Under the Proposed Statement, any ACO whose participants combined to have a greater


than 50 percent share of a particular service in the ACO’s Primary Service Area (PSA) were obliged to submit to mandatory review by the Agencies. This review would have required an ACO applicant first to engage in an expensive, complex process to measure PSA shares and then to supply a burdensome collection of documents, data and information, incurring substantial costs in the process. Under the Final Statement, however, no ACO is required to undergo expedited antitrust review, though any ACO formed after March 23, 2010 (the date of passage of the Patient Protection and Affordable Care Act) may request that the agencies conduct such a review. Thus, any ACO formed after March 23, 2010 applying to the ACO program now has a choice of whether to seek advance antitrust review or instead to rely on its own analysis of potential antitrust risks. Abandoning mandatory review was particularly significant because many hospitals hoping to participate in the ACO program would have had to spend significant time, effort and money just to determine whether any of the services offered would have triggered the review threshold. Then, even if just one service triggered the review, the entire enterprise would effectively be subjected to antitrust scrutiny. Though the voluntary nature of the review is a major – and welcome – change, the Final Statement also features other notable differences from the Proposed Statement. The Agencies also broadened the application of the Final Statement. While the Proposed Statement applied only to ACOs formed after March 23, 2010, the Final Statement expands its applicability to all ACOs, including the presumption that ACOs accepted into the program will be afforded automatic Rule-of-Reason treatment under the antitrust laws if they maintain the same structure for commercial contracting. This change alleviates doubt created by the Proposed Statement as to whether ACOs formed prior to March 23, 2010 might be governed by a different standard, and thus might be susceptible to being declared per se illegal, even if they met the CMS eligibility criteria. More generally, the Final Statement strikes a more flexible tone than did the Proposed Statement. For example, in the Proposed Statement, every applicant had to go through cumbersome calculations to determine PSA share, because it was the only proxy for market power that the Agencies would accept for the purposes of their review. In the Final Statement, however, the Agencies describe PSA share only as a “useful screening device,” and express a willingness to accept alternatives that can demonstrate that the ACO does not raise competitive concerns. Moreover, on review, applicants may submit “other data that show the current competitive significance of the ACO or ACO participants, including any data that describe the geographic service area of each participant and the size of each participant relative to other providers serving patients from that area.” The Final Statement, unlike the Proposed Statement, offers the option of a post-review negotiated remedy, whereby the ACO and the reviewing agency could come to an agreement to alter the ACO in some way that resolves the agency’s concerns about potential anticompetitive effects.


Safety Zone. The Final Statement preserves the concept of a “safety zone,” whereby ACOs with a combined PSA share of under 30 percent will not be challenged absent extraordinary circumstances. The safety zone spares those ACOs that are highly unlikely to pose a competitive problem from having to assess whether they should incur the costs associated with the voluntary review. Both the Rural Exception and the Dominant Participant Limitation remain in place. The Rural Exception allows an ACO with nonexclusive contracts with physician participants in isolated rural areas to stay within the safety zone even if those participants cause it to have a greater than 30 percent PSA share in its common services. The Dominant Participant Limitation states that an exclusive agreement with a participant that has a greater than 50 percent PSA share of a service that no other participant offers makes an ACO ineligible for the safety zone. Some of the proposed provisions have been retained with revisions that respond to comments concerning lack of clarity. For example, while the Rural Exception in the Proposed Statement only applied to individual physicians, in the Final Statement, it has expanded to encompass physician groups as well. Similarly, while the non-exclusivity of contracts with hospital and ambulatory surgical center participants remains a prerequisite for an ACO to be within the safety zone, the Agencies took care to define what they consider to be non-exclusive contracting, namely “a participant must be allowed to contract with private payers through entities other than the ACO, including contracting individually or through other ACOs or analogous collaborations.” The Final Statement lists five types of conduct to avoid: sharing competitively sensitive information; restricting payers’ ability to share the ACO’s cost, quality, efficiency, and performance information with their enrollees; employing anti-steering provisions; tying; and exclusive contracting. In the Proposed Statement, the entire list applied to all ACOs outside the safety zone; under the Final Statement only the discouragement of sharing competitively sensitive information is directed to all ACOs regardless of share, while the remaining four types of conduct are taboo only for ACOs of “high share” (an undefined term). Unfortunately, the Final Statement adopts one of the least appealing aspects of the Proposed Statement, the voluminous list of documents, information and data that an ACO must submit to receive expedited review. While the burden is mitigated by the voluntary nature of the entire process, it will still adversely affect all ACOs that desire to participate in the expedited review process. In addition, the Final Statement still requires PSA calculations before an ACO can determine whether it is in the safety zone. The AHA views this as a predictable, yet disappointing development, as PSA shares have proven difficult to calculate for many providers, and they may not be a good proxy for market power.


The Process for Seeking Voluntary Review Where the Proposed Statement sketched out in broad strokes the application process for an ACO undergoing expedited antitrust review, the Final Statement delves more deeply into each step. To begin, if an ACO applicant desires to undergo voluntary review, it must, prior to entering the ACO program, submit a cover sheet, which is available on the FTC or DOJ website. The cover sheet requests basic information about the ACO, as well as information concerning its composition, structure, and planned geographic area of operation. Once the Agencies receive the cover sheet from an applicant, they will determine which of them will conduct the review. While the Final Statement does not identify what factors will determine whether the DOJ or the FTC will review a particular ACO applicant, the cover sheet provides some clues. For example, one of the questions asks whether the ACO or any of its participants is organized as a non-profit, presumably because only DOJ has jurisdiction to investigate possible anticompetitive conduct of non-profit institutions. The presence of this question on the cover sheet indicates that non-profit status may be one possible basis on which the agencies divide up the applicants. Once the Agencies have decided which of them will be conducting the review, the Final Statement promises that the reviewing agency will promptly inform the applicant of the decision. Once the reviewing agency notifies the applicant, the applicant then must submit the required documents and information including:

Its application to the Medicare ACO program;

Supporting documents it is planning to submit with its application, including participation agreements, bylaws and operating policies;

Documents discussing the ACO’s business strategies for competing in the commercial and Medicare markets;

Documents discussing to what extent the ACO participants are competitors and their respective and collective competitive significance;

Information about what common services two or more ACO participants offer;

Calculations of the PSA and PSA share or equivalent data to show the competitive significance of the ACO;

Evidence of restrictions that block ACO participants from sharing competitively sensitive information;

A list of the five largest commercial health plans or other private payers (existing or prospective) for the ACOs service; and

The identity of any other ACOs operating or with plans to operate in the same geographic area as the applicant.

After the applicant submits all this information – plus any other information it believes would be helpful, including pro-competitive justifications or evidence that the ACO will not have market power – and certifies that it undertook a good faith search and has submitted all responsive material, the clock starts. The reviewing


agency will then have 90 days to complete its review. The Agencies have indicated that they will conduct their rule-of-reason analysis pursuant to the Antitrust Guidelines for Collaborations Among Competitors, which provides a step-by-step explanation of how the Agencies will conduct a rule-of-reason review. The Agencies will examine “whether the ACO will likely harm competition by increasing the ACO’s ability or incentive profitability to raise prices above competitive levels or reduce output, quality, service, or innovation below what likely would prevail in the absence of the ACO.” The Final Statement permits an extension of the 90-day time period at the request of the applicant but is silent as to whether the reviewing agency can request an extension or whether there is any recourse available to an applicant if the reviewing agency exceeds the allotted 90 days. At the end of the review, the reviewing agency will inform the applicant either that the proposed ACO does not likely raise competitive concerns, potentially raises competitive concerns, or likely does raise competitive concerns. The applicant and the reviewing Agency can agree to a remedy to fix any concerns articulated by the reviewing Agency. Finally, it should be noted that those ACOs formed before March 23, 2010, and those formed after March 23, 2010 that do not opt for the voluntary review process are not escaping antitrust review in perpetuity – they will be subject to the normal antitrust scrutiny and could be subject to a full-blown investigation if the Agencies suspect anticompetitive conduct at some later date. In fact, in the Final Statement, the Agencies saw fit to mention in the initial summary section that they will receive all ACO applications, as well as data and information from CMS, to assist in their monitoring of the competitive effects of ACOs and “will vigilantly monitor complaints about an ACO’s formation or structure and take whatever enforcement action may be appropriate.” Accordingly, each ACO applicant will need to weigh carefully the costs and benefits of bypassing the voluntary review option. Though the Final Statement is by no means perfect, the Agencies have shown a willingness to listen to hospital concerns and have adopted a more flexible system that can provide more certainty to those who wish to undergo voluntary review without imposing a massive and costly compliance undertaking on those who are willing to take their chances.

INTERIM FINAL RULE WITH COMMENT PERIOD CREATING

WAIVERS FROM CERTAIN FRAUD AND ABUSE LAWS FOR ACOS Background On October 20, CMS and the OIG issued an interim final rule with comment period (Waiver rule) creating waivers from certain fraud and abuse laws for


ACOs participating in the Medicare Shared Saving Program. A total of five waivers were created – four covering ACO activities from start-up through operations, and one covering incentives provided by the ACO to beneficiaries. The waivers apply to the physician self-referral law (Stark law), the federal anti-kickback statute (AKS), the “gainsharing” civil monetary penalty (CMP) – the prohibition on hospital payments to physicians to reduce or limit services; and the CMP for inducements to beneficiaries. All took effect November 2. The Waiver rule provides protections for ACO activities well beyond the limited waivers initially suggested by the agencies. The expanded waivers respond to the AHA’s call for robust and comprehensive waivers covering the full range of activities necessary for ACOs to achieve Congress’ goals. Initially, only the distribution of potential shared savings received from CMS was covered by a waiver. The only other protection was contingent on compliance with the existing self-referral law; arrangements that met an exception to the self-referral law were deemed compliant with the federal AKS and gainsharing CMP. Significantly, the additional waivers in the final rule provide protection for all stages of ACO activities (start-up, ongoing operations and a period of winding-down) as well as for the use of incentives to engage Medicare beneficiaries in prevention activities or management of chronic conditions. While the waivers in the rule are comprehensive and provide protections for the full range of ACO activities, the agencies have created uncertainty about whether they intend to narrow the waivers after the initial few years of the Medicare Shared Saving Program. The rule establishes a 60-day comment period to provide input on their approach to the waivers and future changes. The AHA’s comment letter will make clear that any changes to the waivers must be prospective and may not change the terms of the waivers during the three-year ACO agreements. Waivers The following is a description of each waiver and an overview of the key requirements. They are self-implementing, meaning there is no application or pre-approval review process.

ACO Pre-participation Waiver This waiver is new to the final rule and fills a gap that the AHA had urged the agencies to address. “Start-up” arrangements that pre-date an ACO’s participation agreement will be protected if certain conditions are met. The agencies include an extensive non-exclusive list of examples of what they will consider start-up arrangements, e.g., infrastructure creation and provision, hiring new staff, and creation of incentives for performance-based payment system. The rule waives the Stark law, the federal AKS, and the gainsharing CMP, provided all of the conditions are met:


Parties. The parties to the arrangement must include, at a minimum, the ACO or at least one ACO participant of the type eligible to form an ACO. The parties may not include drug and device manufacturers, distributors, durable medical equipment (DME) suppliers or home health suppliers. Good Faith Intent and Diligence. The party or parties must be proceeding with a good faith intent to develop an ACO that will participate in the Medicare Shared Saving Program. The parties must also be taking diligent steps to meet the requirements for ACO eligibility, including the governance, leadership and management requirements in CMS’s ACO rule. Governing Body Determinations. The rule places accountability with the governing body for determining that an arrangement is reasonably related to one or more of the purposes of the ACO program described in the statute and repeated in the rule.

Documentation. The rule requires contemporaneous documentation of the arrangement, its authorization by the governing body, the diligent steps to develop the ACO, and the specific ACO purpose(s) to which the arrangement relates. The required documentation must be retained for at least 10 years and made promptly available to the Secretary upon request. The rule specifies the minimum types of information that must be included in the documentation.

Disclosure. The rule requires an ACO to make a description of the arrangement publicly available (not including the financial or economic terms of the arrangement) in a manner to be determined by the Secretary in separate guidance. In the interim the agencies expect that disclosure of the required information will be posted on a public website of the ACO or an entity forming the ACO, and be clearly labeled as an arrangement for which waiver protection is sought. Failure to File Application. If an ACO does not submit an application for a participation agreement by the last available application due date for the year it targeted for participation, it must submit a statement on or before the last available application due date describing the reasons it was unable to submit an application. The form and manner for submission is to be determined by the Secretary, ACO Participation Waiver This waiver also is new to the final rule and addresses the AHA’s call for protection of all aspects of an ACO’s operation. It covers any arrangement that is “reasonably related” to the purposes of the ACO program. The rule waives the Stark law, the federal AKS, and the gainsharing CMP with respect to any arrangement of an ACO, one or more of its ACO participants or its ACO providers/suppliers, or a combination thereof, provided all of the following conditions are met:


Participation agreement. The ACO has entered into a participation agreement and remains in good standing under the agreement.

Other requirements similar to those for the “pre-participation” waiver.

The governance, leadership, and management requirements for participation in the ACO program must be met.

The governing body is accountable for determining that the arrangement is reasonably related to the purposes of the ACO program. The ACO governing body can make this determination for a wide range of arrangements, including, without limitation, ACO operating activities, as well as performance-based compensation ("results-based" compensation) that is dependent upon achieving quality thresholds or efficiency measures of the ACO program.

Contemporaneous documentation of the arrangement and its authorization by the governing body is required. It must be retained for 10 years and made promptly available to the Secretary upon request. The rule identifies the minimum type of information that must be included.

The description of the arrangement (not including the financial or economic terms) is publicly disclosed as required in guidance to be issued by the Secretary. In the interim the agencies expect that disclosure of the required information will be posted on a public website of the ACO or an entity forming the ACO, and be clearly labeled as an arrangement for which waiver protection is sought.

Duration. The waiver period will begin on the start date of the participation agreement and will end six months following the earlier of the expiration of the participation agreement, including any renewals thereof, or the date on which the ACO has voluntarily terminated the participation agreement. However, if CMS terminates the participation agreement, the waiver period will end on the date of the termination notice. Shared Savings Distributions Waiver This was the one waiver initially offered by the agencies. It protects the distribution or use of savings the ACO earns from the Medicare Shared Saving Program. The rule waives the Stark law, federal AKS, and gainsharing CMP provided all of the following conditions are met: Good standing. The ACO has entered into a participation agreement and remains in good standing.

Use of savings. The shared savings are:

Distributed to or among the ACO's ACO participants, its ACO providers/suppliers, or individuals and entities that were its participants or providers/suppliers during the year in which the shared savings were earned by the ACO; or


Used for activities that are reasonably related to the purposes of the ACO program.

Medically necessary services. Waiver of the gainsharing CMP applies only if payments from a hospital to a physician are not made knowingly to induce the physician to reduce or limit medically necessary items or services. "Medical necessity" will be interpreted consistent with Medicare program rules and accepted standards of practice. Responding to questions about whether the waiver will protect the substitution of services, the rule is explicit that substitution of alternate and appropriate medically necessary care (such as the provision of coordinated outpatient care rather than inpatient services or the use of evidence-based protocols for medically necessary care) are protected by this waiver. Compliance with the Physician Self-Referral Law Waiver This (limited) waiver was included in the agencies’ initial proposal. It effectively treats any ACO relationship that meets an exception to the self-referral law as compliant with the federal AKS and the gainsharing CMP. The rule waives those two laws with respect to any financial relationship between or among the ACO, its ACO participants, and its ACO providers/suppliers that implicate the self-referral law, provided all of the following conditions are met:

The ACO is in good standing under its participation agreement.

The financial relationship is reasonably related to the purposes of the ACO program.

The financial relationship fully complies with an exception. Duration. The waiver period will begin on the start date of the participation agreement and end on the earlier of the expiration of the term of the participation agreement, including any renewals, or the date on which the participation agreement has been terminated. Patient Incentive Waiver This is another waiver that is new in the final rule. It also fills a gap in needed protection that the AHA called on the agencies to address. This waiver will protect medically related incentives offered by ACOs to beneficiaries to encourage preventive care and compliance with treatment regimes. The rule waives the beneficiary inducements CMP and the federal AKS with respect to items or services provided by an ACO, its ACO participants, or its ACO providers/suppliers to beneficiaries for free or below fair-market-value if all four of the following conditions are met: Good standing. The ACO has entered into a participation agreement and remains in good standing. Items or services are:

Reasonably connected to medical care of the beneficiary;


In-kind;

Preventive care items or services; or advance one or more of the following clinical goals:

o Adherence to a treatment regime; o Adherence to a drug regime; o Adherence to a follow-up care plan; or o Management of a chronic disease or condition.

Comment Period In addition to requesting comment on the waivers in the final rule, the agencies are requesting comment on the ways in which the waivers may be narrowed in the future. The agencies appear to be responding, in part, to comments received previously that objected to the creation of waivers or advocated for only the narrowest of waivers. They also make the point numerous times that creation of the waivers does not diminish their commitment to protect beneficiaries and the programs from harm. Unfortunately, their discussion of future changes suggests strongly that changes will be made without also providing any assurance that those changes will not affect relationships already in place at the time the changes are adopted. The AHA’s comment letter will make clear that any changes to the waivers must be prospective and may not change the terms of the waivers during the three-year agreements between an ACO and CMS.

FACT SHEET: TAX EXEMPTION AND ACOS Background In its April Notice the IRS outlined its position that, generally, a tax-exempt organization participating in an ACO should not jeopardize its tax status, and should not generate unrelated business income (UBI) so long as the organization is subject to CMS regulation. However, the IRS cautioned that it would review each ACO arrangement on a case-by-case basis. In its comment letter the AHA urged that instead of a case-by-case review, the IRS should issue a clear and unequivocal statement that tax-exempt organizations would not jeopardize their exemption or incur UBI by participating in an ACO under CMS oversight. The Fact Sheet issued by the IRS on October 20 largely reiterated its position outlined in the original Notice. It does provide some of the other guidance requested and clarifies certain concerns raised in response to the April Notice. However, the Fact Sheet fails to address several key concerns.


Fact Sheet

Tax-exempt organizations participating in ACOs. In lieu of issuing a clear statement that tax-exempt organizations will not jeopardize their tax-exempt status or generate UBI as a result of participating in a CMS-regulated ACO, the IRS repeated that tax-exempt ACO participants will generally not compromise their status or incur UBI, but that any instance of prohibited inurement or impermissible private benefit will be evaluated based on all the facts and circumstances. The IRS referred to the five factors listed in the Notice and stressed that no particular factor must be satisfied in all circumstances to prevent inurement or impermissible private benefit. The five factors previously identified by the IRS that it will consider when evaluating private benefit or inurement, include:

Whether the terms of the tax-exempt organization’s participation in the ACO (including its share of ACO program losses and expenses) are set forth in advance in an agreement negotiated at arm’s length;

Whether CMS has accepted and not terminated the ACO from the program;

Whether the tax-exempt organization’s share of economic benefits derived from the ACO is proportional to the benefits or contributions the organization provides to the ACO;

Whether the tax-exempt organization’s share of the ACO losses exceeds the share of ACO economic benefits to which the organization is entitled; and

Whether all contracts and transactions entered into by the tax-exempt organization with the ACO and the ACO’s participants, and by the ACO with the ACO participants and any other parties, are at fair market value.

Although the IRS will generally rely on the facts-and-circumstances analysis to evaluate an ACO arrangement, the IRS provided a helpful clarification that if an ACO is structured as a partnership and regulated by CMS, a tax-exempt organization need not control the entity to ensure that the ACO will further a charitable purpose of lessening the burdens of government. Tax status of ACOs. The IRS reiterated that an ACO can elect to be taxed as a corporation, partnership or a disregarded entity. An ACO structured as a corporation for federal tax purposes will be treated as an entity separate from its participants, while the activities of an ACO structured as a partnership or disregarded entity will generally be attributed to its participants.

The IRS clarified that an ACO engaged exclusively in the ACO program will generally further the charitable purpose of lessening government burdens and thereby will likely qualify for tax exempt status, provided the ACO is treated as a corporation for federal tax purposes and meets all the other criteria for tax-exemption under IRC § 501(c)(3). In addition, the IRS announced that an entity


conducting both ACO and non-ACO activities may also qualify for tax-exempt status, so long as the non-ACO activities further a charitable purpose and the ACO meets all the other IRC § 501(c)(3) requirements.

Non-ACO activities. Overall, the IRS adopted a facts and circumstances approach to evaluating non-ACO program activities and any UBI that may be generated as a result. The IRS will consider the following factors when evaluating whether non-ACO activities threaten the tax-exempt status of a participant:

The extent to which the activities further a charitable, IRC § 501(c)(3) purpose;

Whether the activities are attributed to the tax-exempt participant;

Whether the activities represent an insubstantial part of the participant’s total assets; and

Whether the activities result in inurement of the exempt participant’s earnings or in the participant conferring an impermissible private benefit.

The IRS clarified that even if non-ACO activities do not further a charitable purpose, tax-exempt status may not necessarily be jeopardized. The answer depends on whether the non-charitable activity is attributed to the participant and the non-charitable activity in relation to the overall activities of the tax-exempt participant. Furthermore, a tax-exempt organization can avoid UBI from the non-charitable ACO activities if the ACO is structured as a corporation and receives dividends and interest that is excluded from UBI under IRC § 512(b).

Additionally, the IRS stated that if a tax-exempt organization participates in an ACO formed as a partnership, the IRS will evaluate the non-ACO activities and any possible UBI of the partnership under its joint-venture guidance. Although the IRS seems willing to extend its joint venture guidance to ACOs formed as partnerships that conduct non-ACO activities, the Fact Sheet did not discuss whether oversight by the DOJ and FTC will assure that a non-ACO program promotes health.

Capital contributions. To encourage participation in ACOs by tax-exempt hospitals, the IRS addressed a concern about the proportionality of capital contributions to an ACO in relation to distributions from an ACO that was included as one of the five factors outlined in the Notice. The IRS clarified that ACO distributions need not be proportional to capital contributions and the IRS will consider contributions in whatever form made by all ACO participants, as well as all economic benefits received by the ACO participants, including shares of ACO program payments, if any. Unresolved concerns. The IRS has yet to provide an unequivocal statement that so long as the ACO complies with CMS regulations, participation in an eligible ACO by a tax-exempt organization will not result in impermissible inurement and private benefit and will not generate UBI.


Additionally, the IRS has failed to consider whether oversight by the DOJ and FTC outside the Medicare ACO context is sufficient to ensure that a clinically integrated organization furthers the charitable purpose of promoting health among the broad spectrum of the community. If an entity does not participate in the CMS program or fails to meet CMS-mandated ACO requirements, but still engages in the same type of accountable, coordinated care activities as ACOs, the entity is considered a clinically integrated organization. Clinically integrated organizations are subject to oversight and enforcement by the DOJ and the FTC that is similar to the framework used by CMS to evaluate eligible ACOs. The DOJ and FTC oversight ensures that a clinically integrated organization is not a sham, but actually delivers quality care and promotes health. The DOJ and FTC oversight, coupled with the IRS’s joint-venture guidance, provides an adequate framework for the IRS to determine if non-ACO activities promote a charitable purpose and result in more than an insubstantial impermissible private benefit or prohibited inurement. The IRS did not consider this possibility and, rather, adopted a facts and circumstances approach to evaluating the impact of non-ACO program activities on tax-exempt organizations. This approach further engenders uncertainty that may discourage ACO participation.

The AHA will continue to work with the IRS to resolve these open issues.