Final Rule Changes to Medicare Shared Savings Program Impact ACOs

On June 6, 2016, the Centers for Medicare and Medicaid Services (CMS) issued a final rule that impacts Accountable Care Organizations (ACOs) under the Medicare Shared Savings Program (MSSP). This rule follows the final rule published in November 2011 and the subsequent final rule published in June 2015 and includes changes to the benchmarking methodology in a second or subsequent agreement period, a new participation option to encourage ACOs to elect performance-based risk arrangements earlier in their participation in the MSSP and policies for reopening payment determinations to make corrections. In conjunction with the new draft Medicare payment rules for physicians, located at http://federalregister.gov/a/2016-10032 (the "MACRA Rules"), that financially penalize physicians unwilling to accept risk in their practices and to provide expanded record-keeping and quality factors, this final rule is important for all physician employers and physicians in private practice.

ACOs, created pursuant to the Patient Protection and Affordable Care Act, were designed to have groups of providers work together voluntarily to give coordinated, high-quality care to patients qualifying for Medicare Part A and Part B benefits. An ACO that meets certain performance benchmarks and a minimum savings rate is eligible to share in the savings it generates based on its quality score. The goals of the ACO model are accountability for the care of patient populations, avoidance of unnecessary duplication of services and medical error by coordinating items and services under Parts A and B, and attainment of high quality and efficiency by encouraging redesign of the are process and investment in infrastructure. In other words, the goal of the MSSP is to provide higher quality care at a lower cost and to incentivize health care providers to achieve that result by giving financial incentives to ACOs.

The change in benchmarking methodology will, according to CMS, "incorporate regional expenditures, thereby making the ACO's cost target more independent of its historical expenditures and more reflexive of fee-for-service spending in its region." Prior to this change, national Medicare cost data has been used to determine the benchmark. This change will be included in second or subsequent agreements entered into beginning in 2017 and will be phased in, with the weight of regional adjustment ultimately reaching 70 percent. The regional service area for an ACO will include any county where at least one of its assigned beneficiaries resides and county-level FFS expenditures will be weighted by the proportion of assigned beneficiaries in the county and by Medicare enrollment type. ACOs that entered their second agreement period in 2016 will not be eligible for the new benchmarking methodology until their third agreement period beginning in 2019.

Several risk models are available to ACOs. Given the MACRA Rules, risk assumption will be essential if physicians seek to maintain or actually increase reimbursement by 2019. Under Track 1, the so-called one-sided model that is available to an ACO for a maximum of two agreement periods, the ACO is only eligible to share in savings. Approximately 90 percent of ACO's participate in the MSSP under Track 1. An ACO shares in both savings and losses under the other tracks, known as the two-sided models. Thus far, a relatively small number of ACOs have been willing to take on the potential risk of loss that comes with the two-sided tracks, notwithstanding the potential for greater reward by sharing in a higher percentage of the savings. Again given the MACRA Rules, we anticipate that these participation rates will change if not flip flop.

To encourage ACOs to elect to transition sooner from the one-sided shared savings model of Track 1 to a two-sided shared savings and shared losses model, the new rule provides that a Track 1 participant that has applied, and been approved, for a two-sided model can request that its initial agreement under Track 1 be extended for an additional year. The extra year would give an ACO more time to prepare for participation under a two-sided model.

The June 2016 final rule also puts in place timeframes and other requirements for reopening a determination of shared savings and shared losses of an ACO to correct financial reconciliation calculations. Such a determination can be reopened not later than four years after the initial determination of shared savings or shared losses for good cause. Good cause can be shown if there is "new and material evidence that was not available or known at the time of time of the payment determination and may result in a different conclusion" or if the evidence presented shows on its face that there was an obvious error in the initial determination. CMS can reopen a determination at any time for fraud or similar fault.

CMS reports that the MSSP has over 430 ACOs in 49 states and the District of Columbia, including 147 ACOs that entered into a new 3-year agreement on January 1, 2016 and 100 ACOs that entered the program on January 1, 2016. These ACOs serve over 7.7 million Medicare beneficiaries. According to CMS, in 2014 ACOs had net program savings of $411 million with quality improvements and increased patient and caregiver satisfaction. The June 2016 final rule is one more component of the evolution of physician reimbursement in America that will transform again under the MACRA rules when finalized.