CMS Releases Final Rule Implementing Accountable Care Organizations under the Medicare Shared Savings Program
 
November 22, 2011
 
Randolph B. "Randy" Fenninger- Washington

On November 2, 2011, the Centers for Medicare and Medicaid Services (CMS) published in the Federal Register the final rule implementing accountable care organizations (ACOs) under the Medicare Shared Savings Program (MSSP).

As part of the interagency cooperation necessary to launch ACOs, on October 19 the Department of Justice (DOJ) and the Federal Trade Commission (FTC) issued a joint “Statement of Antitrust Policy“ regarding ACOs. The Department of Health and Human Services Office of Inspector General (OIG) published an interim final rule with a comment period on waivers of the fraud and abuse laws. On October 20, the Internal Revenue Service (IRS) issued a notice regarding the tax law implications of ACOs, particularly for those participants that are not-for-profit organizations.

Background

The CMS’s proposed rule, published on April 7, 2011, had been highly anticipated by stakeholders. It was widely criticized as unworkable, however, principally due to the administrative and financial burdens of participating in the program and the view that the monetary incentives were insignificant compared to the start up costs and other financial risks ACOs would be required to bear.

Stakeholders were equally anticipating the final rule to see if CMS was willing to make significant changes to all of the major points of contention to increase the appeal of ACOs. The initial reaction from the provider community has generally been positive, although the relaxed antitrust policy has come under fire from a few groups, such as America’s Health Insurance Plans, which are concerned that ACOs would become too powerful and would push health costs higher. AdvaMed repeated concerns that ACOs might limit access to new medical technologies. The American Hospital Association, while generally supportive of the final rule, continued to call for increased shared savings for successful ACO participants.

At the same time, favorable comments about the final rule by trade organizations or professional societies do not mean that physicians, health systems and other providers will decide to participate. No association will create an ACO. That will still fall to individual medical practices, hospitals, health systems and other providers, which will have to evaluate the risks and gains, both short- and long-term, before filing their letters of intent with CMS.

Many groups may want to wait to see how the process works out before making the resource commitment. The move away from fee-for-service to risk assumption and increased responsibility for quality is a big step. Organizations that have made no movement in that direction will have a lot to consider before doing so. Some groups might want to participate in the CMS bundling initiative, which is seen by many as a first step into the integrated service world. (Information is available here.) Alternatively, health systems that are already well integrated and working in an ACO-like manner also may not view the Medicare shared savings as a real incentive. It will be interesting to see who takes the first step in 2012, when the entire program goes live.

CMS has increased its estimates of participation with the revised policy from an anticipated 100 ACOs (the proposed rule estimate) to up to 270. However, the uncertainties inherent in the concept and the program led the agency to couch the estimate as somewhere between 50 and 270. This variance reflects the potentially different impacts of the changes included in the final rule, as well as a more realistic understanding of the process involved in moving from a fee-for-service environment to one that is more integrated in terms of care and reimbursement.

As part of its effort to engage providers and move the process forward, CMS held a National Provider Call on November 15. The agency also held its final ACO Accelerated Development Learning Session in Baltimore, MD, on November 17-18.

CMS has also posted a Notice of Intent to Apply (NOI) memo on the Shared Savings Program Application page, in the Downloads section. Submitting the NOI is the first step in the application process. A copy of the Shared Savings Program application has also been posted to that website. It more clearly defines what kinds of information ACOs are expected to provide regarding governance, financial management, and participants, among other requirements. All of this additional information will help interested organizations decide whether or not they are ready to be an ACO in Medicare’s Shared Savings Program. Interested organizations must file a Notice of Intent by January 6, 2012 if they want their ACO to go live on April 1, 2012. ACOs that want to use the July 1, 2012 start date must file their Notice by February 17, 2012.

CMMI Advanced Payment Model Details

In addition to the ACO final rule, the Center for Medicare and Medicaid Innovation (CMMI) released final details on its Advanced Payment Model whereby eligible ACOs could also receive funding to help build the organization. These funds would be repaid out of future shared savings. This demonstration project is designed to respond to concerns that smaller ACO applicants might not be able to afford the initial investment that would be needed, even under the revised final rule. Information on this program is available online. CMMI intends to partner with as many as 50 ACOs in the MSSP to receive advance payments. The agency is committing up to $170 million to this demonstration project.

CMMI had also sponsored the Pioneer ACO program, intended for organizations that were deemed to be closer to full ACO status because of their historic levels of clinical and organizational integration. The announcement of selected participants is expected later in November, once potential candidates have had a chance to review the final rules and decide whether or not to work with CMS. Further information on this CMMI program is also available online.

ACO Final Rule

Since the real test of the new rule is how well it answered the criticism engendered by the proposed rule, we focus here on those concerns and the changes that CMS made to address them. Many of the key structural elements of the Affordable Care Act and the proposed rule are retained. However, CMS in the final rule sets out two different options for the start date of the program, either April 2012 or July 2012. The full calendar is now available on the same website that houses the ACO application. The ACO can select its start date, and the initial year of the agreement will run to the end of 2013. Thus, in a bit of regulatory sleight of hand, a year can be either 21 or 18 months, depending on the start date chosen. The first three-year agreement period ends on December 31, 2015. ACOs that do not sign on in 2012 will not get the benefit of the longer year.

Although there were many points raised in the more than 1,300 written comments submitted on the proposed rule, these are the key issues that the majority of stakeholders indicated were the most significant barriers to participation in the program:

• the requirement that all ACOs assume downside risk within the three-year agreement period and limits on the amount of shared savings that could be accrued
• retrospective assignment of beneficiaries
• eligibility requirements for organizations to be eligible to participate
• the number of quality measures that had to be met to even be considered for shared savings, including meaningful use of electronic health records
• higher start-up costs than those estimated by CMS (many of the changes in the final rule are aimed at reducing some of the upfront costs of participating)
• limited waivers of other federal laws deemed to be in conflict with the needs of ACOs (see guidance from other agencies, below)

Risk Assumption and Payment Policies

CMS finalized implementation of the proposed two-track approach to risk sharing, but made revisions to encourage broader participation. In the proposed rule, CMS stated that Track 1 would permit the ACO to share savings for the first two years of the three-year agreement. This would be followed by a third year of shared savings and losses. The final rule takes the risk/requirement for Year Three shared losses out of Track 1. ACOs in Track 1 will be able to share savings during the entire three year agreement, without the downside risk of shared losses. An ACO could remain in Track 1 for only one three-year agreement period. Any ACO that stays in the Medicare shared savings program beyond that first agreement will be required to be in the two-sided model of shared savings and losses.

CMS finalized Track 2 as a two-sided model in which an ACO would share both savings and losses for all three years of the agreement. This risk is balanced by the opportunity to earn more shared savings than ACOs in Track 1. CMS also increases the shared savings limits from 7.5 percent to 10 percent in Track 1 and from 10 percent to 15 percent in Track 2. The agency made technical changes in its methodology for determining savings and losses that should make it somewhat easier for participants to succeed.

In the final rule, CMS will allow ACOs that have a net loss in their first agreement period to continue to participate, if they meet all other requirements. However, they will need to explain why the losses occurred and establish safeguards that will allow them to have a positive bottom line in the next period.

Assignment of Beneficiaries to ACOs

One of the fundamental elements of the program is that ACOs are accountable for the care of beneficiaries assigned to it in a performance year, even though the patient is not obligated to obtain services from the ACO, but retains total freedom of choice of provider. In response to significant pushback by stakeholders, CMS has changed how it assigns beneficiaries in two major ways. First, it moves to a more prospective assignment methodology. Second, it is determining assignment based on primary care services provided by specialists and non-physician practitioners, in addition to the primary care physicians who are also providing care.

CMS is establishing a preliminary prospective assignment methodology with final retrospective reconciliation. Basically, CMS will create a list of beneficiaries likely to receive care from an ACO and will provide a copy to the ACO. The list will be updated on a rolling basis, thereby allowing the ACO to adjust to changes in its population. It will be reconciled at the end of each performance year, and the ACO’s performance will be measured using the reconciled patient list. Nonetheless, this change should allow ACOs better control over their risk than would have been possible under the original proposal.

CMS has also adopted a two-step assignment process that looks first at primary care provided by primary care physicians and second at primary care delivered by specialists as well as non-physician providers. CMS will use the second step only if a beneficiary has not received any primary care services from a primary care physician during the measurement period.

The data-sharing proposals are largely unchanged, except that CMS will provide limited, beneficiary-identifiable data on a quarterly basis, instead of only at the beginning of the first performance year. Beneficiaries will still be able to opt out of the data-sharing process, but the revised system to do so is seen as easier to manage for the ACOs.

Determining Who Can Participate in an ACO

CMS’s proposed rule contained specific criteria for ACO eligibility and the legal structure and governance of ACOs. CMS has eased a number of these requirements.

Notably, the final rule will permit Federally Qualified Health Centers (FQHCs) and Rural Health Centers (RHCs) to form ACOs independently. In another important change, ACOs will not be required to obtain antitrust clearance prior to participating in the program. This change also affects the guidance issued by the FTC and Department of Justice on antitrust issues.

CMS also addressed the problem that primary care physicians would be locked into a single ACO under the terms of the proposed rule. Individual providers and suppliers, identified by a National Provider Identifier (NPI), will now be able to participate in more than one ACO. Only the ACO participant, identified by Taxpayer Identification Number (TIN) instead of an NPI, will be limited to a single ACO. This change is based on the fact that assignment of beneficiaries to an ACO is based on TINs and not NPIs, so savings or losses can still be determined within a single ACO, even if the providers are working in more than one.

Quality Measures to Be Reported

The key to collecting any shared savings is meeting the applicable quality standards. In the final rule, CMS made two major changes in this requirement. First, CMS reduced the number of quality measures that will be used to assess an ACO’s performance from 65 (five domains) to 33 (four domains). Second, CMS’s final rule also provides for a longer and more gradual phase-in period to allow ACOs more time to improve care processes and outcomes so as to comply with these standards. Year One of the agreement will only require reporting of the measures. Actual compliance will then be phased in over the two remaining years. Unlike the proposed rule, ACOs will not have to achieve the quality benchmarks on all measures but can succeed by achieving 70 percent in each domain or category of measures.

Guidance from Other Agencies

As noted, the OIG, DOJ, FTC and IRS issued their own notices regarding fraud and abuse issues, antitrust and tax law implications for ACOs.

Fraud and Abuse Waivers

The OIG announced five new waivers to the Stark Law, the anti-kickback statute, the civil monetary penalties (CMP) addressing hospital payments to physicians and the beneficiary inducement CMP.

The ACO pre-participation waiver applies with respect to start-up arrangements that pre-date an ACO’s participation agreement, provided the arrangement is undertaken by parties acting in good faith to: (a) develop an ACO that will participate in the MSSP, and (b) submit a completed application to participate in the MSSP.

The ACO participation waiver applies to arrangements made by an ACO, its ACO participants and/or its ACO providers/suppliers, as long as the ACO has entered into a participation agreement.

The shared savings distribution waiver applies with respect to distributions of shared savings earned by ACOs, provided that the shared savings are used for activities that are reasonably related to the purposes of the MSSP.

The compliance with the Physician Self-Referral Law (Stark) waiver applies to any financial relationship between or among the ACO, its participants, and providers/suppliers that implicates the Stark Law, provided that: (a) the ACO has entered into a participation agreement, (b) the relationship is reasonably related to the purposes of the MSSP, and (c) it complies with a regulatory exception to the Stark Law.

The waiver for patient incentives applies to items or services provided by an ACO to beneficiaries for free or below fair-market-value, as long as: (a) the ACO has a MSSP agreement, (b) there is a reasonable connection between the items or services and the medical care provided to the beneficiary, (c) the items or services are in-kind, and (4) the items or services are for preventive care or to advance clinical goals.

Interested parties were given 60 days – until January 3, 2012 – to comment on these waivers.

DOJ/FTC Statement of Antitrust Policy

The final statement is substantially similar to the proposed “rule of reason” policy with one major change. The proposed statement had provided that certain ACOs, based on market share, would have to undergo and pass a mandatory antitrust review. The final DOJ/FTC Guidance drops that requirement.

IRS Fact Sheet

The IRS issued a fact sheet on the tax considerations for tax-exempt organizations participating in ACOs. It generally refers to Notice 2011-20 for guidance in evaluating a tax-exempt organization’s participation in the MSSP through an ACO. Notice 2011-20 was issued in connection with the ACO proposed rule. It explained that participation in MSSP through ACOs should not jeopardize an organization’s tax-exempt status and should not generate unrelated business income tax, although each ACO arrangement would be reviewed based on all facts and circumstances.

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

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