Today the Centers for Medicare & Medicaid Services (CMS) released its long-awaited final rule to implement the Medicare Shared Savings Program as authorized by Section 3022 of the Affordable Care Act (ACA).  The Shared Savings Program is intended to encourage physicians, hospitals, and certain other types of providers and suppliers to form accountable care organizations (ACOs) to provide cost-effective, coordinated care to Medicare beneficiaries.  Under the final rule, an ACO that meets established quality and performance standards and surpasses a minimum savings target will be able to share a percentage of savings (in addition to traditional fee-for-service payments under Medicare Parts A and B).  While the ACA requires CMS to “establish” the Shared Savings Program no later than January 1, 2012, CMS has indicated that it will begin accepting applications for the Shared Savings Program January 1, 2012, but the start date will be later in 2012. In the final rule, CMS made a number of notable changes to the proposed rule, as highlighted after the jump. The final Medicare Shared Savings Program rule responds to comments and concerns raised by the public in response to the April 7, 2011 proposed rule on this subject. The regulation addresses numerous policy and operational issues associated with the Medicare Shared Savings Program, including, among other things: the entities that may form an ACO; beneficiary assignment to an ACO; establishment and measurement of quality standards; and calculation of incentive payments. In the final rule, CMS made a number of notable changes to the proposed rule, including the following:

• CMS had initially proposed two program “tracks” for calculating savings. In Track 1 an ACO would share in only the saving for the first two years, and would be required to assume the risk for shared losses in the third year. In Track 2 an ACO would share in savings and risk liability for losses beginning in its first performance year, in return for a higher share of the savings it generates. Under the final rule, participating ACOs still will have the choice of two “tracks” with regard to savings, but Track 1 will not have downside risk; that is, Track 1 participants will only share savings, not losses. The final rule stipulates that after the initial agreement period, if an ACO voluntarily continues to participate in the Medicare Shared Saving Program, it must participate in Track 2, which has a higher sharing rate but also has downside risk.
• CMS is also modifying the method of assigning beneficiaries to the ACO for purposes of determining the population of Medicare fee-for-service beneficiaries for whose care the ACO is accountable and for determining whether an ACO has achieved saving. CMS had proposed retrospective assignment based on utilization of primary care services with prospective identification of a benchmark population. Under the final rule, CMS will provide ACOs with a preliminary prospective assignment of beneficiaries that would historically have been assigned to an ACO. CMS will provide ACOs aggregate reports on preliminary prospective assignment quarterly, which will include the names, dates of birth, sex, and health insurance claim numbers of beneficiaries that, based on historical data, would be assigned to the ACO. CMS will conduct a final reconciliation of assigned beneficiaries after each performance year based on actual patient utilization.
• Instead of 65 measures to assess ACO quality in 5 “domains,” the final rule adopts 33 measures in 4 domains. In addition, pay for quality performance will be phased in gradually over the ACO’s first agreement period.
• Under both Track 1 and Track 2, ACOs will share savings with Medicare from the first dollar saved as long as the minimum savings rate has been reached.
• CMS expanded the entities eligible to form and participate in an ACO to include Federally Qualified Health Centers and Rural Health Clinics.
• The first ACO agreements will have start dates of either April 1, 2012 or July 1, 2012, and the first performance “year” will be 18 or 21 months. The final rule does not specify application deadlines; instead, CMS will release sub-regulatory guidance laying out the applicable deadlines. ACOs starting either April 1, 2012 or July 1, 2012 will have the option to receive an interim payment if they report CY 2012 quality measures. All ACOs participating in the Medicare Shared Savings Program with April 1, 2012 or July 1, 2012 start dates must report quality measures for CY 2013 to qualify for shared savings in the first performance “year.”
• The proposed rule would have required that 50 percent of primary care physicians be defined as meaningful electronic health record users by the start of the second performance year, but the final rule removed this requirement.
• The final rule modifies the process of assigning beneficiaries to a two-step process. If a beneficiary has received primary care services from a primary care physician, ACO assignment is made based on which primary care physician accounts for the plurality of a beneficiary’s “allowed charges.” If a beneficiary has not received any primary care services from a primary care physician, assignment is based on which ACO professional (such as a specialist) accounts for the plurality of a beneficiary’s “allowed charges.”

In addition to the final Medicare Shared Savings Program rule released by CMS, the federal government released several other documents related to ACOs today, including:

• CMS and the Office of Inspector General (OIG) jointly issued an interim final rule with comment period titled “Final Waivers in Connection With the Shared Savings Program.” The document establishes the conditions for waivers of certain provisions of the physician self-referral law, the anti-kickback statute, and certain provisions of the civil monetary penalty law in connection with specific arrangements developed pursuant to the Medicare Shared Savings Program. The interim final rule sets forth five waivers addressing: (1) start-up arrangements, (2) ACO-related arrangements during the term of the ACO’s participation agreement, (3) distribution of the shared savings, (4) compliance with exceptions under the physician self-referral law, and (5) the civil monetary penalty law’s prohibition on beneficiary inducement.
• CMS also released a notice announcing an Advance Payment Model within the Shared Savings Program framework. Only certain ACOs participating in the Medicare Shared Savings Program (namely, physician-owned organizations, critical access hospitals, and rural providers participating in the Shared Savings Program) can participate in this Model. The Model is designed to test whether pre-payment could improve the coordination of care and generate savings more quickly and to a greater extent. Further, the Model is structured to test whether and how pre-payment of future shared savings could bolster physician-owned and rural provider participation in the Medicare Shared Savings Plan. Selected ACOs will receive three types of payments: (1) an upfront, fixed payment; (2) an upfront, variable payment; and (3) a monthly payment of varying amount depending on of the number of Medicare beneficiaries historically attributed to the ACO.
• The Federal Trade Commission (FTC) and the Department of Justice (DOJ) jointly issued a final Antitrust Policy Statement titled, “Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program.” In the final Policy Statement, the agencies clarify that the policy applies to all provider collaborations that are eligible and intend, or have been approved, to participate in the Medicare Shared Savings Program, not only collaborations formed after March 23, 2010. In addition, the final Policy Statement no longer contains provisions relating to mandatory antitrust review. The Medicare Shared Savings Program final rule no longer requires a mandatory antitrust review for certain collaborations as a condition of entry into the Shared Savings Program.
• The Internal Revenue Service (IRS) issued a fact sheet titled “Tax-Exempt Organizations Participating in the Medicare Shared Savings Program through Accountable Care” (FS-2001-11) providing guidance on ACO participation by tax-exempt organizations. In the fact sheet the IRS confirms that the guidance provided in its Notice 2011-20 issued on April 18, 2011 continues to reflect the agency’s expectations for participation in the Medicare Shared Savings Program. The fact sheet also responds to a number of frequently asked questions.

Reed Smith will be preparing a comprehensive Client Alert on the final rule and other related policy guidance issued by the Administration. In the meantime, for additional background on the ACO program, see our previous reporting. Please do not hesitate to contact us if you have specific questions about the new regulations.