19528 Federal Register / Vol. 76, No. 67 / Thursday, April 7, 2011 / Proposed Rules 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 425 

[CMS–1345–P] 

RIN 0938–AQ22 

Medicare Program; Medicare Shared 

Savings Program: Accountable Care 

Organizations 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule would 

implement section 3022 of the 

Affordable Care Act which contains 

provisions relating to Medicare 

payments to providers of services and 

suppliers participating in Accountable 

Care Organizations (ACOs). Under these 

provisions, providers of services and 

suppliers can continue to receive 

traditional Medicare fee-for-service 

payments under Parts A and B, and be 

eligible for additional payments based 

on meeting specified quality and 

savings requirements. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on June 6, 2011. 

ADDRESSES: In commenting, please refer 

to file code CMS–1345–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (please choose only one of the 

ways listed): 

1. Electronically. You may submit 

electronic comments on this regulation 

to http://www.regulations.gov. Follow 

the ‘‘Submit a comment’’ instructions. 

2. By regular mail. You may mail 

written comments to the following 

address ONLY: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–1345–P, P.O. Box 8013, Baltimore, 

MD 21244–8013. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments to the 

following address only: Centers for 

Medicare & Medicaid Services, 

Department of Health and Human 

Services, Attention: CMS–1345–P, Mail 

Stop C4–26–05, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments before the close 

of the comment period to either of the 

following addresses: a. For delivery in 

Washington, DC—Centers for Medicare 

& Medicaid Services, Department of 

Health and Human Services, Room 445– 

G, Hubert H. Humphrey Building, 200 

Independence Avenue, SW., 

Washington, DC 20201. 

(Because access to the interior of the 

Hubert H. Humphrey Building is not 

readily available to persons without 

Federal government identification, 

commenters are encouraged to leave 

their comments in the CMS drop slots 

located in the main lobby of the 

building. A stamp-in clock is available 

for persons wishing to retain a proof of 

filing by stamping in and retaining an 

extra copy of the comments being filed.) 

b. For delivery in Baltimore, MD— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786– 

7195 in advance to schedule your 

arrival with one of our staff members. 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

Submission of comments on 

paperwork requirements. You may 

submit comments on this document’s 

paperwork requirements by following 

the instructions at the end of the 

‘‘Collection of Information 

Requirements’’ section in this document. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: Dr. 

Terri Postma (410)786–8084. 

SUPPLEMENTARY INFORMATION: 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http:// 

www.regulations.gov. Follow the search 

instructions on that Web site to view 

public comments. 

Comments received timely will also 

be available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 8:30 

a.m. to 4 p.m. To schedule an 

appointment to view public comments, 

phone 1–800–743–3951. 

Table of Contents 

To assist readers in referencing 

sections contained in this preamble, we 

are providing a table of contents. 

I. Background 

A. Introduction and Overview of ValueBased Purchasing 

B. Statutory Basis for the Medicare Shared 

Savings Program 

C. Overview and Intent of the Medicare 

Shared Savings Program 

D. Related Affordable Care Act Provisions 

1. Establishment of Center for Medicare 

and Medicaid Innovation (Innovation 

Center) 

2. Independence at Home Medical 

Practices 

3. State Option To Provide Health Homes 

4. Community Health Teams 

E. Related Ongoing CMS Efforts 

1. Physician Group Practice Demonstration 

2. Medicare Health Care Quality 

Demonstration 

II. Provisions of the Proposed Rule 

A. Organizations of the Proposed Rule 

B. Eligibility and Governance 

1. Eligible Entities 

2. Legal Structure and Governance 

a. Legal Entity 

b. Governance 

c. Composition of the Governing Body 

3. Leadership and Management Structure 

4. Accountability for Beneficiaries 

5. Agreement Requirement 

6. Distribution of Savings 

7. Sufficient Number of Primary Care 

Providers and Beneficiaries 

8. Required Reporting on Participating 

ACO Professionals 

9. Processes To Promote Evidence-Based 

Medicine, Patient Engagement, 

Reporting, and Coordination of Care 

a. Processes To Promote Evidence-Based 

Medicine 

b. Processes To Promote Patient 

Engagement 

c. Processes To Report on Quality and Cost 

Measures 

d. Processes To Promote Coordination of 

Care 

10. Patient Centeredness Criteria 

a. Beneficiary Experience of Care Survey 

b. Patient Involvement in Governance 

c. Evaluation of Population Health Needs 

and Consideration of Diversity 

d. Implementation of Individualize Care 

Plans and Integration of Community 

Resources 

11. ACO Marketing Guidelines 

12. Program Integrity Requirements 

a. Compliance Plans 

b. Compliance With Program Requirements 

c. Conflicts of Interest 

d. Screening of ACO Applicants 

e. Prohibition on Certain Required 

Referrals and Cost Shifting 

C. Establishing the 3-YearAgreement With 

the Secretary 


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1. Options for Start Date of the 

Performance Year 

2. Timing and Process for Evaluating 

Shared Savings 

3. Data Sharing 

4. Sharing Aggregate Data 

5. Identification of Historically Assigned 

Beneficiaries 

6. Sharing Beneficiary Identifiable Claims 

Data 

a. Legal Authority To Provide Beneficiary 

Identifiable Data to ACOs 

(1) Sharing Data Related to Medicare Parts 

A and B 

(2) Sharing Data Related to Medicare Part 

D 

b. Beneficiary Opportunity To Opt Out of 

Claims Data Sharing 

7. New Program Standards Established 

During 3-Year Agreement Period 

8. Managing Significant Changes to the 

ACO During the Agreement Period 

9. Future Participation of Previously 

Terminated Program Participants 

D. Assignment of Medicare Fee-For-Service 

Beneficiaries 

1. Operational Identification of an ACO 

2. Definition of Primary Care Services 

3. Prospective vs. Retrospective Beneficiary 

Assignment to Calculate Eligibility for 

Shared Savings 

4. Majority vs. Plurality Rule for 

Beneficiary Assignment 

5. Beneficiary Information and Notification 

E. Quality and Other Reporting 

Requirements 

1. Introduction 

2. Proposed Measures To Assess the 

Quality of Care Furnished by an ACO 

a. General 

b. Considerations in Selecting Measures 

1. Use of Measures 

2. Scoring Methodology 

c. Proposed Quality Measures for Use in 

Establishing Quality Performance 

Standards that ACOs Must Meet for 

Shared Savings 

3. Requirements for Quality Measures Data 

Submission by ACOs 

a. General 

b. GPRO Tool 

c. Certified EHR Technology 

4. Quality Performance Standards 

a. General 

b. Option 1—Performance Scoring 

(1) Measure Domains and Measures 

Included in the Domains 

(2) Methodology for Calculating a 

Performance Score for Each Measure 

Within a Domain 

(3) Methodology for Calculating a 

Performance Score for Each Domain 

(4) The Quality Performance Standard 

Level 

c. Option 2—Quality Threshold 

(1) Minimum Quality Threshold 

(2) Considerations in Establishing a Quality 

Threshold 

5. Incorporation of Other Reporting 

Requirements Related to the Physician 

Quality Reporting System and Electronic 

Health Records Technology Under 

Section 1848 of the Act 

6. Public Reporting 

7. Aligning ACO Quality Measures with 

other Laws and Regulations 

F. Shared Savings Determination 

1. Background 

2. Overview of Shared Savings 

Determination 

3. Establishing an Expenditure Benchmark 

a. Background 

b. Option 1 

c. Option 2 

d. Summary 

4. Adjusting the Benchmark and Average 

Per Capita Expenditures for Beneficiary 

Characteristics 

5. Technical Adjustments to the 

Benchmark Impact of IME and DSH 

6. Technical Adjustments to the 

Benchmark Impact of Geographic 

Payment Adjustments on the Calculation 

of the Benchmark 

7. Technical Adjustments to the 

Benchmark Impact of Bonus Payments 

and Penalties on the Calculation of the 

Benchmark and Actual Expenditures 

8. Trending Forward Prior Years’ 

Experience To Obtain an Initial 

Benchmark 

a. Flat Dollar vs Growth Rate as a 

Benchmark Trending Factor 

b. National vs Local Growth Rate as a 

Benchmark Trending Factor 

9. Updating the Benchmark During the 

Agreement Period 

10. Minimum Savings Rate (MSR) and 

Sharing Rate 

11. Net Sharing Rate 

12. Additional Shared Savings Payments 

13. Withholding Performance Payments To 

Offset Future Losses 

14. Performance Payment Limit 

G. Two-Sided Model 

1. Risk-Based Payment Models 

2. Two Tracks Provide Incremental 

Approach to Incorporating Risk 

3. Elements of the Two-Sided Model 

a. Beneficiary Notification and Protections 

b. Eligibility Requirements 

c. Quality Performance Measurement and 

Scoring 

d. Shared Savings Methodology 

(1) Minimum Savings Rate 

(2) Additional Shared Savings Payments 

(3) Net Sharing Rate 

(4) Calculating Sharing in Losses 

(5) Maximum Shared Savings and Shared 

Loss Caps 

e. Ensuring ACO Repayment of Shared 

Losses 

f. Future Participation of Under-performing 

Organizations 

g. Public Reporting 

h. Impact on States 

4. Verification of Savings and Losses 

H. Monitoring and Termination of ACOs 

1. Monitoring Avoidance of At Risk 

Beneficiaries 

2. Monitoring Compliance with Quality 

Performance Standards 

3. Terminating an ACO Agreement 

4. Reconsideration Review Process 

I. Coordination With Other Agencies 

1. Waivers of CMP, Anti Kickback, and 

Physician Self Referral Laws 

2. IRS Guidance Relating to Tax Exempt 

Organization 

3. Antitrust Policy Statement 

4. Prohibition Against the Shared Savings 

Program Participation by ACOs With 

Market Power 

a. Coordinating the Shared Savings 

Program Application With the Antitrust 

Agencies 

b. Competition and Quality of Care 

c. Competition, Price, and Access to Care 

J. Overlap With Other CMS Shared Savings 

Initiatives 

1. Duplication in Participation in Medicare 

Shared Savings Programs 

2. Transition of the Physician Group 

Practice (PGP) Demonstration Sites Into 

the Shared Savings Program 

3. Overlap With the Center for Medicare & 

Medicaid Innovation (Innovation Center 

Shared Savings Models 

III. Collection of Information Requirements 

IV. Response to Comments 

V. Regulatory Impact Analysis 

A. Introduction 

B. Statement of Need 

C. Anticipated Effects 

1. Effects on the Medicare Program 

a. Assumptions and Uncertainties 

b. Detailed Stochastic Modeling Results 

c. Further Considerations 

2. Impact on Beneficiaries 

3. Impact on Providers and Suppliers 

D. Alternatives Considered 

E. Accounting Statement and Table 

F. Conclusion 

Acronyms 

ACO Accountable Care Organizations 

AHRQ Agency for Healthcare Research and 

Quality 

BCBSMA Blue Cross Blue Shield of 

Massachusetts 

BIPA Benefits Improvement and Protection 

Act 

BQI Better Quality Information 

CAD Coronary Artery Disease 

CAHPS Consumer Assessment of Health 

Providers and Systems 

CAHs Critical Access Hospitals 

CAM Complementary and Alternative 

Services 

CBIC Competitive Bidding Implementation 

Contractor 

CCNC Community Care of North Carolina 

CHCs Community Health Centers 

CHIP Children’s Health Insurance Program 

CMMI Center for Medicare and Medicaid 

Innovation 

CMP Civil Monetary Penalties 

CMS Centers for Medicare and Medicaid 

Services 

CNM Certified Nurse Midwife 

CMS–HCC CMS Hierarchal Condition 

Category 

COPD Chronic Obstructive Pulmonary 

Disease 

CP Certified Psychologist 

CSW Clinical Social Worker 

CVE Chartered Value Exchange 

CWF Common Working File 

DHHS Department of Health and Human 

Services 

DM Diabetes Mellitus 

DOJ Department of Justice 

DRA Deficit Reduction Act of 2005(Pub. L. 

109–171) 

DSH Disproportionate Share Hospital 

DUA Data use Agreement 

E&M Evaluation and Management 

EDB Enrollment Database 

EHR Electronic Health Record 


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ESRD End Stage Renal Disease 

eRx Electronic Prescribing Incentive 

Program 

FFS Fee For Service 

FQHCs Federally Qualified Health Centers 

FTC Federal Trade Commission 

GAO Government Accountability Office 

GPCI Geographic Practice Cost Index 

GPRO Group Practice Reporting Option 

HAC Hospital Acquired Conditions 

HCAHPS Health Care Providers Systems 

and Surveys 

HCC Hierarchal Condition Category 

HCO Health Care Organizations 

HCPCS Health Care Procedural Coding 

System 

HHA Home Health Agencies 

HICN Health Insurance Claim Number 

HIPAA Heath Insurance Portability and 

Accountability Act of 1996 

HIE Health Information Exchange 

HIT Health Information Technology 

HITECH Health Information Technology for 

Economic and Clinical Health 

HMO Health Maintenance Organization 

HRSA Health Resources Services 

Administration 

HVBP Hospital Value Based Purchasing 

IHIE Indiana Health Information Exchange 

IME Indirect Medical Education 

INPC Indiana Network for Patient Care 

IOM Institute of Medicine 

IPPS Inpatient Prospective Payment System 

IQR Inpatient Quality Reporting 

IRS Internal Revenue Services 

LTCHs Long-Term Acute Care Hospitals 

MA Medicare Advantage 

MAeHC Massachusetts eHealth 

Collaborative 

MDCs Major Diagnostic Categories 

MedPAC Medicare Payment Advisory 

Commission 

MHCQ Medicare Health Care Quality 

MMA Medicare Prescription Drug, 

Improvement, and Modernization Act 

MPFS Medicare Physician Fee Schedule 

MS–DRGs Medicare Severity-Diagnosis 

Related Groups 

MSP Minimum Savings Percentage 

MSR Minimum Savings Rate 

NC–CCN North Carolina Community Care 

Networks 

NCH National Claims History 

NCQA National Committee for Quality 

Assurance 

NP Nurse Practitioner 

NPI National Provider Identifier 

NQF National Quality Forum 

NYCLIX The New York Clinical 

Information Exchange 

OIG Office of Inspector General 

OMB Office of Management and Budget 

PA Physician Assistant 

PACE Program of All Inclusive Care for the 

Elderly 

PACFs Post-Acute Care Facilities 

PCMH Patient Centered Medical Home 

PFS Physician Fee Schedule 

PGP Physician Group Practice 

PHI Protected health information 

POS Point of Service 

PPO Preferred provider organization 

PPS Prospective Payment System 

PQRI Physician Quality Reporting Initiative 

PQRS Physician Quality Reporting System 

PRA Paperwork Reduction Act 

PSA Primary Service Areas 

RFI Request for Information 

RHCs Rural Health Centers 

RHQDAPU Reporting Hospital Quality Data 

for Annual Payment Update 

RIA Regulatory Impact Analysis 

SNFs Skilled Nursing Facilities 

SOR Privacy Act Systems of Record 

SSA Social Security Administration 

SSN Social Security Number 

TIN Tax Identification Number 

I. Background 

A. Introduction and Overview of ValueBased Purchasing 

On March 23, 2010, the Patient 

Protection and Affordable Care Act 

(Pub. L. 111–148) was enacted. 

Following the enactment of Public Law 

111–148, the Health Care and Education 

Reconciliation Act of 2010 (Pub. L. 111– 

152) (enacted on March 30, 2010), 

amended certain provisions of Public 

Law 111–148. These public laws are 

collectively known as the Affordable 

Care Act. The Affordable Care Act 

includes a number of provisions 

designed to improve the quality of 

Medicare services, support innovation 

and the establishment of new payment 

models in the program, better align 

Medicare payments with provider costs, 

strengthen program integrity within 

Medicare, and put Medicare on a firmer 

financial footing. 

With respect to quality improvement, 

the Affordable Care Act includes 

provisions to expand value-based 

purchasing, broaden quality reporting, 

improve the level of performance 

feedback available to suppliers, create 

incentives to enhance quality, improve 

beneficiary outcomes, and increase the 

value of care. 

Value-based purchasing is a concept 

that links payment directly to the 

quality of care provided and is a strategy 

that can help transform the current 

payment system by rewarding providers 

for delivering high quality, efficient 

clinical care. We have significant 

experience in developing, refining, and 

expanding health care quality 

performance measures through our 

experience with value-based 

demonstration efforts, noting some of 

these efforts later in the document, and 

various Medicare payment systems. For 

example, since 2005, we have applied 

the Hospital Inpatient Quality Reporting 

(IQR) Program under the hospital 

inpatient prospective payment system. 

Hospital IQR provides differential 

payments to hospitals that meet certain 

requirements, including publicly 

reporting their performance on a 

defined set of inpatient care 

performance measures. Beginning in 

2007, under the physician fee schedule, 

we have provided for quality measure 

reporting through the Physician Quality 

Reporting System, which includes 

incentive payments for eligible 

professionals who satisfactorily report 

data on quality measures for covered 

professional services furnished to 

Medicare beneficiaries. In 2009, 

Congress passed the Health Information 

and Technology for Economic and 

Clinical Health (HITECH) Act. As part of 

the Electronic Health Records (EHR) 

Incentive Program under HITECH, we 

have defined measures for the 

meaningful use of certified electronic 

health records technology and have 

developed incentive payment programs 

for both Medicare and Medicaid 

providers. We have extended similar 

efforts to additional payment systems, 

including the hospital outpatient 

prospective payment system and 

various post-acute care systems. 

In addition to improving quality, 

value-based purchasing initiatives seek 

to reduce growth in health care 

expenditures. It is widely recognized 

that the trajectory for the nation’s health 

care spending is unsustainable. 

Medicare beneficiaries share in the 

burden of rising costs, as they pay 

higher premiums, and larger costsharing obligations and out-of-pocket 

expenses. The Affordable Care Act 

includes a series of reforms expected to 

significantly slow growth in the 

Medicare spending rate while 

simultaneously strengthening the care 

provided to Medicare beneficiaries. 

These reforms build upon existing 

value-based purchasing efforts currently 

underway within CMS to find ways to 

better coordinate care and reduce 

unnecessary services to lower the 

growth in Medicare spending while 

improving the quality of care received 

by beneficiaries. 

We view value-based purchasing as 

an important step to revamping how 

care and services are paid for, moving 

increasingly toward rewarding better 

value, outcomes, and innovations 

instead of merely volume. In 

implementing these value-based 

purchasing initiatives, we seek to meet 

certain common goals, as follows: 

• Improving quality. 

++ Value-based payment systems and 

public reporting should rely on a mix of 

standards, processes, outcomes, and 

patient experience measures, including 

measures of care transitions and 

changes in patient functional status. 

Across all programs, we seek to move as 

quickly as possible to the use of 

outcome and patient experience 

measures. To the extent practicable and 

appropriate, these outcome and patient 

experience measures should be adjusted 


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for risk or other appropriate patient, 

population, or provider characteristics. 

++ To the extent possible, and 

recognizing differences in payment 

system readiness and statutory 

authorities, measures should be aligned 

across Medicare and Medicaid’s public 

reporting and payment systems. We 

seek to evolve a focused core-set of 

measures appropriate to each specific 

provider category that reflects the level 

of care and the most important areas of 

service and measures for that provider. 

++ The collection of information 

should minimize the burden on 

providers to the extent possible. As part 

of that effort, we will continuously seek 

to align our measures with the adoption 

of meaningful use standards for health 

information technology (HIT), so the 

collection of performance information is 

part of care delivery. 

++ To the extent practicable, the 

measures used by the Shared Savings 

Program should be nationally endorsed 

by a multistakeholder organization. We 

should align measures with best 

practices among other payers and the 

needs of the end users of the measures. 

• Lowering growth in expenditures. 

++ Providers should be accountable 

for the cost of care, and be rewarded for 

reducing unnecessary expenditures and 

be responsible for excess expenditures. 

++ In reducing excess expenditures, 

providers should continually improve 

the quality of care they deliver and must 

honor their commitment to do no harm 

to beneficiaries. 

++ To the extent possible, and 

recognizing differences in payers’ valuebased purchasing initiatives, providers 

should apply cost reducing and quality 

improving redesigned care processes to 

their entire patient population. 

As noted previously, the Affordable 

Care Act includes provisions to expand 

value-based purchasing, broaden quality 

reporting, improve the level of 

performance feedback available to 

suppliers, create incentives to enhance 

quality, improve beneficiary outcomes, 

and increase the value of care. Among 

these provisions, section 3022 of the 

Affordable Care Act requires the 

Secretary to establish the Medicare 

Shared Savings Program (Shared 

Savings Program), intended to 

encourage the development of 

Accountable Care Organizations (ACOs) 

in Medicare. The Affordable Care Act 

intends the Medicare Shared Saving 

Program to be a program ‘‘that promotes 

accountability for a patient population 

and coordinates items and services 

under parts A and B, and encourages 

investment in infrastructure and 

redesigned care processes for high 

quality and efficient service delivery.’’ 

The Shared Savings Program is a key 

Medicare delivery system reform 

initiatives that will be implemented 

under the Affordable Care Act and is a 

new approach to the delivery of health 

care aimed at: (1) Better care for 

individuals; (2) better health for 

populations; and (3) lower growth in 

expenditures. We refer to this approach 

throughout the document as the threepart aim. 

B. Statutory Basis for the Medicare 

Shared Savings Program 

Section 3022 of the Affordable Care 

Act amended Title XVIII of the Social 

Security Act (the Act) (42 U.S.C. 1395 

et seq.) by adding new section 1899 to 

the Act to establish a Shared Savings 

Program that promotes accountability 

for a patient population, coordinates 

items and services under Parts A and B, 

and encourages investment in 

infrastructure and redesigned care 

processes for high quality and efficient 

service delivery. Section 1899(a)(1) of 

the Act requires the Secretary to 

establish this program no later than 

January 1, 2012. Section 1899(a)(1)(A) of 

the Act further provides that, ‘‘groups of 

providers of services and suppliers 

meeting criteria specified by the 

Secretary may work together to manage 

and coordinate care for Medicare feefor-service beneficiaries through an 

[ACO]’’. Section 1899(a)(1)(B) of the Act 

also provides that ACOs that meet 

quality performance standards 

established by the Secretary are eligible 

to receive payments for ‘‘shared 

savings’’. 

Section 1899(b)(1) of the Act 

establishes the types of groups of 

providers of services and suppliers, 

with established mechanisms for shared 

governance, that are eligible to 

participate as ACOs under the program, 

subject to the succeeding provisions of 

section 1899 of the Act, as determined 

appropriate by the Secretary. 

Specifically, sections 1899(b)(1)(A) 

through (E) of the Act provide, 

respectively, that the following groups 

of providers of services and suppliers 

are eligible to participate: 

• ACO professionals in group practice 

arrangements. 

• Networks of individual practices of 

ACO professionals. 

• Partnerships or joint venture 

arrangements between hospitals and 

ACO professionals. 

• Hospitals employing ACO 

professionals. 

• Such other groups of providers of 

services and suppliers as the Secretary 

determines appropriate. 

Section 1899(b)(2) of the Act 

establishes the requirements that such 

eligible groups must meet in order to 

participate in the program. Specifically, 

sections 1899(b)(2)(A) through (H) of the 

Act provide, respectively, that eligible 

groups of providers of services and 

suppliers must meet the following 

requirements to participate in the 

program as ACOs: 

• The ACO shall be willing to become 

accountable for the quality, cost, and 

overall care of the Medicare fee-forservice (FFS) beneficiaries assigned to 

it. 

• The ACO shall enter into an 

agreement with the Secretary to 

participate in the program for not less 

than a 3-year period. 

• The ACO shall have a formal legal 

structure that would allow the 

organization to receive and distribute 

payments for shared savings to 

participating providers of services and 

suppliers. 

• The ACO shall include primary care 

ACO professionals that are sufficient for 

the number of Medicare FFS 

beneficiaries assigned to the ACO. At a 

minimum, the ACO shall have at least 

5,000 such beneficiaries assigned to it in 

order to be eligible to participate in the 

Shared Savings Program. 

• The ACO shall provide the 

Secretary with such information 

regarding ACO professionals 

participating in the ACO as the 

Secretary determines necessary to 

support the assignment of Medicare feefor-service beneficiaries to an ACO, the 

implementation of quality and other 

reporting requirements, and the 

determination of payments for shared 

savings. 

• The ACO shall have in place a 

leadership and management structure 

that includes clinical and administrative 

systems. 

• The ACO shall 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. 

• The ACO shall demonstrate to the 

Secretary that it meets patientcenteredness criteria specified by the 

Secretary, such as the use of patient and 

caregiver assessments or the use of 

individualized care plans. 

Section 1899(b)(3) of the Act 

establishes the quality and other 

reporting requirements for the Shared 

Savings Program. For purposes of 

quality reporting, section 1899(b)(3)(A) 

of the Act provides that the Secretary 

shall determine appropriate measures to 

assess the quality of care furnished by 

the ACO, such as measures of clinical 

processes and outcomes, patient and, 


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where practicable, caregiver experience 

of care, and utilization (such as rates of 

hospital admissions for ambulatory care 

sensitive conditions). Section 

1899(b)(3)(B) of the Act requires an ACO 

to submit data in a form and manner 

specified by the Secretary on measures 

the Secretary determines necessary for 

the ACO to report in order to evaluate 

the quality of care furnished by the 

ACO. This provision further states that 

such data may include care transitions 

across health care settings, including 

hospital discharge planning and posthospital discharge follow-up by ACO 

professionals, as determined to be 

appropriate by the Secretary. Section 

1899(b)(3)(C) of the Act requires the 

Secretary to establish quality 

performance standards to assess the 

quality of care furnished by ACOs. That 

section also requires that the Secretary 

shall seek to improve the quality of care 

furnished by ACOs over time by 

specifying higher standards, new 

measures, or both for purposes of 

assessing such quality of care. Finally, 

section 1899(b)(3)(D) of the Act provides 

that the Secretary may, as the Secretary 

determines appropriate, incorporate 

reporting requirements and incentive 

payments related to the Physician 

Quality Reporting System under section 

1848 of the Act, including such 

requirements and such payments related 

to electronic prescribing, electronic 

health records, and other similar 

initiatives under section 1848 of the 

Act, and may use alternative criteria 

than would otherwise apply under such 

section for determining whether to make 

such payments. CMS should not take 

the incentive payments described in the 

preceding sentence into consideration 

when calculating any payments 

otherwise made under of section 

1899(d) the Act. 

Section 1899(b)(4) of the Act prohibits 

duplication in participation in other 

shared savings programs by participants 

in the Shared Savings Program. 

Specifically, a provider of services or 

supplier that participates in any of the 

following is not eligible to participate in 

an ACO under the Shared Savings 

Program: A model tested or expanded 

under section 1115A of the Act that 

involves shared savings under this title, 

any other program or demonstration 

project that involves such shared 

savings, or the Independence at Home 

Demonstration under section 1866E of 

the Act. 

Section 1899(c) of the Act provides 

the Secretary with discretion to 

determine an appropriate method to 

assign Medicare FFS beneficiaries to an 

ACO participating in the Shared Savings 

Program. This discretion is limited, 

however, by the fact that under the Act, 

assignment must be based on 

beneficiaries’ utilization of primary care 

services provided under Medicare by an 

ACO professional who is a physician as 

defined in section 1861(r)(1) of the Act. 

Section 1899(d) of the Act establishes 

the principles and requirements for 

payments and treatment of savings 

under the Shared Savings Program. 

Specifically, section 1899(d)(1)(A) of the 

Act provides that, subject to the 

requirements concerning monitoring 

avoidance of at-risk patients, payments 

shall continue to be made to providers 

of services and suppliers participating 

in an ACO under the original Medicare 

FFS program under Parts A and B in the 

same manner as they would otherwise 

be made, except that a participating 

ACO is eligible to receive payment for 

shared savings if the following occur: 

• The ACO meets quality 

performance standards established by 

the Secretary; and 

• The ACO meets the requirements 

for realizing savings. 

Section 1899(d)(1)(B) of the Act 

establishes the savings requirements 

and the method for establishing and 

updating the benchmark against which 

any savings would be determined. 

Specifically, section 1899(d)(1)(B)(i) of 

the Act establishes that, in each year of 

the agreement period, an ACO shall be 

eligible to receive payment for shared 

savings only if the estimated average per 

capita Medicare expenditures under the 

ACO for Medicare FFS beneficiaries for 

Parts A and B services, adjusted for 

beneficiary characteristics, is at least the 

percent specified by the Secretary below 

the applicable benchmark. The 

Secretary shall determine the 

appropriate percent of shared savings to 

account for normal variation in 

Medicare expenditures, based upon the 

number of Medicare FFS beneficiaries 

assigned to an ACO. Section 

1899(d)(1)(B)(ii) of the Act, in turn, 

requires the Secretary to estimate a 

benchmark for each agreement period 

for each ACO using the most recent 

available 3 years of per beneficiary 

expenditures for Parts A and B services 

for Medicare FFS beneficiaries assigned 

to the ACO. This benchmark must be 

adjusted for beneficiary characteristics 

and such other factors as the Secretary 

determines appropriate and updated by 

the projected absolute amount of growth 

in national per capita expenditures for 

Parts A and B services under the 

original Medicare FFS program, as 

estimated by the Secretary. 

Furthermore, the benchmark must be 

reset at the start of each new agreement 

period. 

Section 1899(d)(2) of the Act provides 

for the actual payments for shared 

savings under the Shared Savings 

Program. Specifically, if an ACO meets 

the quality performance standards 

established by the Secretary, and meets 

the savings requirements, a percent (as 

determined appropriate by the 

Secretary) of the difference between the 

estimated average per capita Medicare 

expenditures in the year, adjusted for 

beneficiary characteristics, and the 

benchmark for the ACO may be paid to 

the ACO as shared savings and the 

remainder of the difference shall be 

retained by the Medicare program. The 

Secretary is required to establish limits 

on the total amount of shared savings 

paid to an ACO. 

Section 1899(d)(3) of the Act requires 

the Secretary to monitor ACOs for 

avoidance of at-risk patients. 

Specifically, if the Secretary determines 

that an ACO has taken steps to avoid 

patients at risk in order to reduce the 

likelihood of increasing costs to the 

ACO, the Secretary may impose an 

appropriate sanction on the ACO, 

including termination from the program. 

Section 1899(d)(4) of the Act, in turn, 

provides that the Secretary may 

terminate an agreement with an ACO if 

it does not meet the quality performance 

standards established by the Secretary. 

Section 1899(e) of the Act provides that 

chapter 35 of title 44 of the U.S. Code, 

which includes such provisions as the 

Paperwork Reduction Act (PRA), shall 

not apply to the Shared Savings 

Program. Section 1899(f) of the Act 

further provides the Secretary with the 

authority to waive such requirements of 

sections 1128A and 1128B of the Act 

and title XVIII of the Act as may be 

necessary to carry out the Shared 

Savings Program. Section 1899(g) of the 

Act establishes limitations on judicial 

and administrative review of the Shared 

Savings Program. This section provides 

that there shall be no administrative or 

judicial review under section 1869 of 

the Act, section 1878 of the Act, or 

otherwise of the following: 

• The specification of criteria under 

1899(a)(1)(B) of the Act. 

• The assessment of the quality of 

care furnished by an ACO and the 

establishment of performance standards 

under 1899(b)(3) of the Act. 

• The assignment of Medicare FFS 

beneficiaries to an ACO under 1899(c) 

of the Act. 

• The determination of whether an 

ACO is eligible for shared savings under 

1899(d)(2) of the Act and the amount of 

such shared savings, including the 

determination of the estimated average 

per capita Medicare expenditures under 

the ACO for Medicare FFS beneficiaries 


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assigned to the ACO and the average 

benchmark for the ACO under 

1899(d)(1)(B) of the Act. 

• The percent of shared savings 

specified by the Secretary under 

1899(d)(2) of the Act and any limit on 

the total amount of shared savings 

established by the Secretary under such 

subsection. 

• The termination of an ACO under 

1899(d)(4) of the Act for failure to meet 

the quality performance standards. 

Section 1899(h) of the Act defines 

some basic terminology that applies to 

the Shared Savings Program. 

Specifically, section 1899(h)(1) of the 

Act defines the term ‘‘ACO professional’’ 

as a physician (as defined in section 

1861(r)(1) of the Act) or a practitioner 

described in section 1842(b)(18)(C)(i) of 

the Act (that is, a physician assistant, 

nurse practitioner or clinical nurse 

specialist (as defined in section 

1861(aa)(5) of the Act)). Section 

1899(h)(2) of the Act defines the term 

‘‘hospital’’ as a hospital (as defined in 

section 1886(d)(1)(B) of the Act.’’ (A 

‘‘subsection (d) hospital’’ is a hospital 

located in one of the fifty States or the 

District of Columbia, excluding 

hospitals and hospital units that are not 

paid under the inpatient prospective 

payment system under section 

1886(d)(1)(B) of the Act, such as 

psychiatric, rehabilitation, long term 

care, children’s, and cancer hospitals.) 

Section 1899(h)(3) of the Act defines the 

term ‘‘Medicare fee-for-service 

beneficiary’’ as an individual who is 

enrolled in the original Medicare FFS 

program under Medicare Parts A and B 

and is not enrolled in a Medicare 

Advantage (MA) plan under Medicare 

Part C, an eligible organization under 

section 1876 of the Act, or a Program of 

All-Inclusive Care for the Elderly 

(PACE) under section 1894 of the Act. 

Section 1899(i) of the Act provides 

that the Secretary may use either a 

partial capitation model or other 

payment model, rather than the 

payment model described in section 

1899(d) of the Act, for making payments 

under the Shared Savings Program. 

Sections 1899(i)(2)(B) and 1899(i)(3)(B) 

of the Act require that any such model 

maintain budget neutrality. Specifically, 

these sections require that any such 

model adopted by the Secretary, ‘‘does 

not result in spending more for such 

ACO for such beneficiaries than would 

otherwise be expended for such ACO for 

such beneficiaries for such year if the 

model were not implemented, as 

estimated by the Secretary.’’ 

Finally, section 1899(k) of the Act 

provides for an extension to the 

Physician Group Practice (PGP) 

demonstration: ‘‘During the period 

beginning on the date of the enactment 

of this section and ending on the date 

the program is established, the Secretary 

may enter into an agreement with an 

ACO under the demonstration under 

section 1866A, subject to rebasing and 

other modifications deemed appropriate 

by the Secretary.’’ 

C. Overview and Intent of the Medicare 

Shared Savings Program 

The intent of the Shared Savings 

Program is to promote accountability for 

a population of Medicare beneficiaries, 

improve the coordination of FFS items 

and services, encourage investment in 

infrastructure and redesigned care 

processes for high quality and efficient 

service delivery, and incent higher 

value care. As an incentive to ACOs that 

successfully meet quality and savings 

requirements, the Medicare Program can 

share a percentage of the achieved 

savings with the ACO. In order to meet 

the intent of the Shared Savings 

Program as established by the 

Affordable Care Act, we will focus on 

achieving, as our highest-level goal, the 

three-part aim, which consists of the 

following: 

• Better care for individuals—as 

described by all six dimensions of 

quality in the Institute of Medicine 

report: Safety, effectiveness, patientcenteredness, timeliness, efficiency, and 

equity; 

• Better health for populations with 

respect to educating beneficiaries about 

the upstream causes of ill health—like 

poor nutrition, physical inactivity, 

substance abuse, economic disparities— 

as well as the importance of preventive 

services such as annual physicals and 

flu shots; and 

• Lower growth in expenditures by 

eliminating waste and inefficiencies 

while not withholding any needed care 

that helps beneficiaries. 

Under the Shared Savings Program, 

ACOs will only share in savings if they 

first generate shareable savings and then 

meet the quality standards. In the spirit 

of the three-part aim and the vision of 

always keeping the beneficiary in the 

forefront of all decisions, we believe 

that an ACO should embrace the 

following goals: 

• An ACO will put the beneficiary 

and family at the center of all its 

activities. It will honor individual 

preferences, values, backgrounds, 

resources, and skills, and it will 

thoroughly engage people in shared 

decision-making about diagnostic and 

therapeutic options. 

• An ACO will ensure coordination of 

care for beneficiaries regardless of its 

time or place. In an ACO, people will 

find that they no longer carry the 

burden of ensuring that everyone caring 

for them has the information they need. 

Beneficiaries will see that organizational 

teamwork improves their health care. 

• An ACO will attend carefully to 

care transitions, especially as 

beneficiaries journey from one part of 

the care system to another. 

• An ACO will manage resources 

carefully and respectfully. It will ensure 

continual waste reduction, and that 

every step in care adds value to the 

beneficiary. An ACO will be able to 

make investments where investments 

count, and move resources to meet 

beneficiaries’ needs. Because of its 

capabilities with respect to prevention 

and anticipation, especially for 

chronically ill people, an ACO will be 

able to continually reduce its 

dependence on inpatient care. Instead, 

its patients will more likely be able to 

be home, where they often want to be, 

and, during a hospital admission, they 

receive assurance that their discharges 

will be well coordinated, and that they 

will not return due to avoidable 

complications. 

• An ACO will be proactive by 

reaching out to patients with reminders 

and advice that can help them stay 

healthy and let them know when it is 

time for a checkup or a test. 

• An ACO will collect, evaluate, and 

use data on health care processes and 

outcomes sufficiently to measure what it 

achieves for beneficiaries and 

communities over time and use such 

data to improve care delivery and 

patient outcomes. 

• An ACO will be innovative in the 

service of the three-part aim of better 

care for individuals, better health for 

populations, and lower growth in 

expenditures. It will draw upon the 

best, most advanced models of care, 

using modern technologies, including 

telehealth and electronic health records, 

and other tools to continually reinvent 

care in the modern age. It will monitor 

and compare its performance to other 

ACOs, identify and examine new 

processes for care improvement, and 

adopt those approaches that are 

demonstrated to be effective. 

• An ACO will continually invest in 

the development and pride of its own 

workforce, including affiliated 

clinicians. It will maintain and execute 

plans for helping build skill, knowledge, 

and teamwork. 

As proposed in this notice of 

proposed rulemaking (NPRM), the 

Shared Savings Program encourages 

providers of services and suppliers to 

form ACOs that seek to achieve a threepart aim of better care for individuals, 

better health for populations, and lower 

growth in expenditures. The proposed 


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rule establishes the requirements for 

ACOs to take responsibility for 

improving the quality of care they 

deliver to a group of Medicare FFS 

beneficiaries, while lowering the growth 

in costs, in return for a share of the 

resulting savings. In addition to 

establishing a shared savings model for 

rewarding quality and financial 

performance, the program also holds 

ACOs accountable for excess 

expenditures by establishing, as an 

option, a two-sided risk model which 

requires repayment of losses to us. This 

represents a new approach for the 

Medicare FFS program, under which 

providers have traditionally had little or 

no financial incentive to coordinate the 

care for their patients or to be 

accountable for the total costs and 

quality of the care provided. 

Since there is little comparative 

experience with implementing a Shared 

Savings Program and alternative 

payment models at the national level, 

we sought input on the impact of this 

proposed program from a wide range of 

external experts, including credentialed 

actuaries, clinical managers, and 

academic researchers on the potential 

impact of the program through, for 

example, the White House meeting, 

multiple listening sessions, Special 

Open Door Forum on ACOs, Workshop 

Regarding ACOs with CMS, OIG, and 

the Antitrust Agencies, and a Request 

For Information. Incorporating their 

input, we estimate that up to 5 million 

Medicare beneficiaries will receive care 

from providers participating in ACOs, 

many of which are located in higher 

cost areas, and that the program can 

have a significant impact on lowering 

Medicare expenditure growth. 

Furthermore, projections on the initial 

impact of the program by the 

Congressional Budget Office also 

suggest the Shared Savings Program 

could result in significant savings to the 

Medicare program. 

We also believe that the Shared 

Savings Program should provide an 

entry point for all willing organizations 

who wish to move in a direction of 

providing value-driven healthcare. 

Consequently, in accordance with the 

authority granted to the Secretary under 

section 1899(i) of the Act, we are 

proposing for comment creating and 

implementing both a shared savings 

model (one-sided model) and a shared 

savings/losses model (two-sided model). 

Under this proposal, balanced 

maximum sharing rates under the two 

options to provide greater reward for 

ACOs accepting risk while maintaining 

an incentive to encourage ACOs not 

immediately ready to accept risk to 

participate in the one-sided model. This 

approach provides an entry point for 

organizations with less experience 

managing care and accepting financial 

risk, such as physician-driven 

organizations or smaller ACOs, to gain 

experience with population 

management in the FFS setting before 

transitioning to more risk. 

We believe that ACOs electing to 

initially enter the one-sided model 

automatically transition to a two-sided 

risk model during the final year of their 

initial agreement. We also believe that a 

two-sided model that builds off a onesided model could be offered as an 

option at the beginning of the program. 

We would immediately reward ACOs 

electing to enter the two-sided model 

with higher sharing rates available 

under that model. This approach 

provides an opportunity for more 

experienced ACOs that are ready to 

accept risk to enter a sharing 

arrangement that provides greater 

reward for greater responsibility. For 

more detail on the two-sided risk model 

refer to section II.G. of this proposed 

rule. 

In addition to the opportunity to 

implement alternative payment models 

such as partial capitation under 1899(i) 

of the Act, the Center for Medicare and 

Medicaid Innovation (Innovation 

Center), created by the Affordable Care 

Act also has authority to test innovative 

payment models. As we gain experience 

with the shared savings model and 

alternative payment models, we will 

continue to refine and improve the 

program over time to make it 

increasingly effective in achieving our 

three-part aim of better care for 

individuals, better health for 

populations, and lower growth in 

expenditures. Finally, in developing the 

Shared Savings Program, and in 

response to stakeholder suggestions, we 

have worked very closely with agencies 

across the Federal government to 

develop policies to encourage 

participation and to ensure a 

coordinated and aligned inter- and 

intra-agency effort in the 

implementation of the program. The 

result of this effort is the release of 

several notices with which potential 

participants are strongly encouraged to 

become familiar. Detailed descriptions 

of these notices appear in section II.I of 

this proposed rule, and include: (1) A 

joint CMS and DHHS OIG Medicare 

Program; Waiver Designs in Connection 

with the Medicare Shared Savings 

Program and the Innovation Center; 

(2) an Internal Revenue Service (IRS) 

notice soliciting comments regarding 

the need for additional tax guidance for 

tax-exempt organizations, including taxexempt hospitals, participating in the 

Shared Savings Program; and (3) a 

proposed Antitrust Policy Statement 

issued by the FTC and DOJ (collectively, 

the Antitrust Agencies). 

D. Related Affordable Care Act 

Provisions 

The Affordable Care Act intends to 

improve quality and make health care 

more affordable through the Shared 

Savings Program as well as through 

other provisions. There are four 

programs authorized by the Affordable 

Care Act discussed later in the 

document which may affect Shared 

Savings Program policy or help to guide 

future Shared Savings Program policy, 

or may intersect with the Shared 

Savings Program in other ways. 

1. Establishment of Center for Medicare 

and Medicaid Innovation (Innovation 

Center) 

Section 1115A of the Act, as added by 

section 3021 of the Affordable Care Act, 

required the establishment of the new 

Innovation Center not later than January 

1, 2011 to test innovative payment and 

service delivery models to reduce 

program expenditures under Medicare, 

Medicaid, and the Children’s Health 

Insurance Program (CHIP) while 

preserving or enhancing the quality of 

care furnished to beneficiaries under 

these programs. In selecting such 

models for testing, the statute requires 

the Secretary to give preference to 

models that also improve the 

coordination, quality, and efficiency of 

health care services furnished under 

Medicare, Medicaid, and CHIP. 

Section 1115A authorizes the 

Secretary to expand the duration and 

scope of a model being tested through 

rulemaking (including implementation 

on a nationwide basis) to the extent the 

Secretary— 

• Determines expected expansion to 

reduce spending under the applicable 

title without reducing the quality of care 

or improve the quality of patient care 

without increasing spending; 

• Obtains a certification from our 

Chief Actuary that such expansion 

would reduce (or would not result in 

any increase in) net program spending 

under applicable titles; and 

• Determines that such expansion 

would not deny or limit the coverage or 

provision of benefits under Medicare, 

Medicaid, or CHIP. 

Through the Innovation Center, we 

plan to explore alternative payment 

models for the Shared Savings Program. 

As we test and refine these models, gain 

operational experience, and put the 

necessary infrastructure in place to 

support program wide implementation, 

including critical monitoring and 


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patient protection infrastructure, we 

plan to make these options available 

under the Shared Savings Program in 

future rulemaking. Our intent is to move 

participants of the demonstration 

models that have a demonstrated track 

record of realizing shared savings and 

high quality performance into the 

Shared Savings Program in future 

agreement periods. 

2. Independence at Home Medical 

Practices 

Section 1866E of the Act, as added by 

section 3024 of the Affordable Care Act 

authorizes the Secretary to conduct a 

demonstration program to test a 

payment incentive and service delivery 

model that utilizes Independence at 

Home Medical Practices, which are 

comprised of physician and nurse 

practitioner directed home-based 

primary care teams, to provide services 

designed to reduce expenditures and 

improve health outcomes for certain 

Medicare beneficiaries. 

Subject to performance on quality 

measures established for the 

demonstration, participating practices 

may be eligible to receive an incentive 

payment in the form of shared savings. 

In determining whether savings were 

generated, the Secretary shall establish 

an estimated annual spending target, for 

the amount the Secretary estimates 

would have been spent in absence of the 

demonstration, for items and services 

covered under Parts A and B furnished 

to applicable beneficiaries for each 

qualifying Independence at Home 

medical practice. A practice is eligible 

to receive an incentive payment if actual 

expenditures for the year for the 

applicable beneficiaries it enrolls are 

less than the estimated spending target 

established for the year. An incentive 

payment for each year shall be equal to 

a portion of the amount by which actual 

expenditures for applicable 

beneficiaries under Parts A and B for the 

year are estimated to be less than 5 

percent less than the estimated 

spending target for the year. 

3. State Option To Provide Health 

Homes 

Section 1945 of the Act, as added by 

section 2703 of the Affordable Care Act 

authorizes a State option under 

Medicaid to provide a health home for 

individuals with chronic conditions. 

The definition of the term ‘‘health 

home’’ is defined as a designated 

provider (including a provider that 

operates in coordination with a team of 

health care professionals) or a health 

team selected by an eligible individual 

with chronic conditions to provide 

health home services. Health home 

services are defined as comprehensive 

and timely high-quality services, 

including comprehensive care 

management; care coordination and 

health promotion; comprehensive 

transitional care, including appropriate 

follow-up, from inpatient to other 

settings; patient and family support 

(including authorized representatives); 

referral to community and social 

support services, if relevant; and use of 

health information technology to link 

services, as feasible and appropriate. 

Under section 1945 of the Act, States 

pay the designated provider, team of 

health care professionals operating with 

such a provider, or health team for the 

provision of health home services to 

each eligible individual with chronic 

conditions that selects them as their 

health home. A State specifies in their 

State plan amendment the methodology 

it will use to determine payment for 

health home services. The methodology 

may be tiered to reflect, with respect to 

each eligible individual with chronic 

conditions, the severity or number of 

such individual’s chronic conditions or 

the specific capabilities of the provider, 

team of health care professionals, or 

health team. A time-limited higher 

Federal Medicaid matching payment is 

available for health home services. 

4. Community Health Teams 

Section 3502 of the Affordable Care 

Act requires the Secretary to establish a 

program to provide grants to or enter 

into contracts with eligible entities to 

establish community based 

interdisciplinary, inter-professional 

teams (referred to in the statute as 

‘‘health teams’’) to support primary care 

practices, including obstetrics and 

gynecology practices, within the 

hospital service areas served by the 

eligible entities. These grants or 

contracts shall be used to establish 

health teams to provide support services 

to primary care providers and provide 

capitated payments to primary care 

providers as determined by the 

Secretary. For purposes of this section, 

primary care is the provision of 

integrated, accessible health care 

services by clinicians who are 

accountable for addressing a large 

majority of personal health care needs, 

developing a sustained partnership with 

patients, and practicing in the context of 

the family and community. 

A health team established under a 

grant or contract must establish 

contractual agreements with primary 

care providers to provide support 

services. The team must support 

patient-centered medical homes, 

defined as a mode of care that 

includes—(1) Personal physicians; 

(2) whole person orientation; 

(3) coordinated and integrated care; 

(4) safe and high-quality care through 

evidence-informed medicine, 

appropriate use of health information 

technology, and continuous quality 

improvements; (5) expanded access to 

care; and 

(6) payment that recognizes added value 

from additional components of patient 

centered care. 

Health teams must also collaborate 

with local primary care providers and 

existing State and community-based 

resources to coordinate—(1) disease 

prevention; (2) chronic disease 

management; (3) transitioning between 

health care providers and settings; and 

(4) case management for patients, 

including children, with priority given 

to those amenable to prevention and 

with chronic diseases or conditions 

identified by the Secretary. In 

collaboration with local health care 

providers, a health team must develop 

and implement interdisciplinary, 

interprofessional care plans that 

integrate clinical and community 

preventive and health promotion 

services for patients, including children, 

with a priority given to those amenable 

to prevention and with chronic diseases 

or conditions identified by the 

Secretary. 

E. Related Ongoing CMS Efforts 

1. Physician Group Practice 

Demonstration 

We have previous experience 

developing and implementing shared 

savings models through demonstrations. 

First, under section 412 of the Medicare, 

Medicaid, and CHIP Benefits 

Improvement and Protection Act of 

2000 (BIPA), we implemented the 

Physician Group Practice (PGP) 

Demonstration in April of 2005—our 

first attempt at establishing a Shared 

Savings ACO model. The PGP 

Demonstration offered a unique 

payment model by which PGP providers 

received their normal Parts A and B FFS 

payments for services rendered and 

offered an additional performance 

payment for demonstrating ‘‘value.’’ The 

performance payments were tied 

directly to achieving targets for process 

and outcome quality measures as well 

as cost savings. The PGP Demonstration 

showed that physician-driven 

organizations are willing to engage in 

efforts to improve the overall quality 

and cost efficiency of care for the 

patient population they serve. Under the 

demonstration, the PGPs were 

accountable for a patient population to 

whom they provided the plurality of 

office-based evaluation and 


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management care. The assignment of 

patients to the PGP at the end of each 

performance year and data has shown 

that assigned patients had on average 

four or five visits at the PGP during the 

year. This provided the opportunity for 

the organizations to better coordinate 

services and improve the quality and 

efficiency of care provided to Medicare 

FFS patients. Medicare patients retained 

their entitlement to see any Medicare 

provider they chose and were not 

enrolled or required to only see PGP 

physicians under the demonstration. 

Based on their experience with the 

PGP demonstration, participants 

identified several factors as critical to 

improving quality and the opportunity 

to share savings: 

• An integrated organization with an 

environment that supports expending 

resources on multiple programs and 

initiatives to improve quality and 

reduce unnecessary services. 

• Dedicated physician leadership 

with a proven ability to motivate 

physicians to participate in the 

development and implementation of 

quality improvement and other clinical 

programs and initiatives. 

• Health information technology that 

facilitates the aggregation and analysis 

of data, allows patient-level feedback, 

and provides alerts and reminders at the 

point of care. 

• Experience with non-Medicare 

payer initiatives, particularly through a 

managed care affiliate, to improve 

quality and reduce expenditure growth. 

Under the demonstration, at the end 

of the third performance year, all 10 of 

the PGPs continued to improve the 

quality of care for patients with chronic 

illness or who required preventive care 

by achieving benchmark or target 

performance on at least 28 out of 32 

quality markers for patients with 

diabetes, coronary artery disease, 

congestive heart failure, hypertension, 

and for cancer screening. Two of the 

PGPs achieved benchmark quality 

performance on all 32 quality measures. 

Over the course of the first three years, 

6 of the 10 groups shared in 

approximately $46 million in savings. 

2. Medicare Health Care Quality 

Demonstration 

We have begun testing models under 

the Medicare Health Care Quality 

(MHCQ) Demonstration, created by the 

Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (MMA) (Pub. L. 108–173). Section 

1866C(b) of the Act, as added by section 

646 of the MMA, required the Secretary 

to establish a 5-year demonstration 

program under which the Secretary was 

required to approve demonstration 

projects that examine health delivery 

factors that encourage the delivery of 

improved quality in patient care. 

Section 3021(c) of the Affordable Care 

Act amended section 1866C of the Act 

to allow the Secretary to expand, 

through rulemaking, the duration and 

scope of a demonstration the Secretary 

is conducting under that section to the 

extent determined appropriate by the 

Secretary if the demonstration meets 

certain criteria. The MHCQ 

Demonstration Projects design examine 

the extent to which major, multi-faceted 

changes to traditional Medicare’s health 

delivery and financing systems lead to 

improvements in the quality of care 

provided to Medicare beneficiaries, 

without increasing total program 

expenditures. We approved one such 

program, the Indiana Health Information 

Exchange (IHIE). 

Beginning July 1, 2009, we began the 

first MHQC project, the IHIE’s 

implementation of a regional, multipayer, pay-for-performance and quality 

reporting program, based (by-and-large) 

on a common set of quality measures. 

The expectation is such that the IHIE’s 

interventions provide important 

empirical evidence on the effectiveness 

of pay-for-performance, health IT, and 

multipayer initiatives in improving the 

quality and efficiency of care provided 

to Medicare beneficiaries. 

IHIE aggregates our claims and 

administrative data in the 

demonstration with other data 

processed in conjunction with its 

regional health information exchange 

(HIE). Data used from the various 

sources generate patient-level and 

provider level quality reports, alerts, 

and reminders for participating 

providers. By incorporating our data 

into IHIE’s HIE and producing these 

quality reports, IHIE can provide 

participating physicians with a more 

complete picture of the care that is or is 

not being provided to their Medicare 

patients and give physicians the 

information they need to positively 

impact the quality and cost of care being 

provided. 

During the demonstration, we review 

cost and quality data for Medicare FFS 

beneficiaries that have at least one office 

or other outpatient evaluation and 

management (E&M) visit with an IHIE 

participating physician. It is expected 

that an estimated 100,000 Medicare 

beneficiaries residing in the 

Indianapolis metropolitan area will 

meet this criterion in each year of the 

demonstration. 

Quality of care is measured at the 

population-level (that is, performance 

measurement will focus on whether or 

not the site has achieved improvements 

in quality when looking at the entire 

group of treated patients) using a set of 

Medicare specific quality measures. 

Improvements in the quality of care 

provided to Medicare beneficiaries are 

determined on the extent to which IHIE 

participating physicians are able to 

reduce the gap between the maximum 

attainable level for a quality measure 

and the baseline performance for the 

quality measure. We used 

approximately 14 ambulatory care 

quality measures in the first year, 

growing to approximately 30 in the fifth 

year. 

Quality-contingent shared savings are 

available with our calculating savings in 

the intervention population by 

comparing actual costs to expected costs 

for treated beneficiaries. Expected costs 

for the intervention group are projected 

using adjusted utilization trends from a 

comparison group. In general, 

calculated Medicare savings are the 

difference between the expected costs 

and actual costs for beneficiaries in the 

intervention group. At least 50 percent 

of shared savings that are available to be 

paid for payment to the site are 

contingent on quality of care results for 

the year. Only after quality of care 

performance results for a year are 

determined can the final amount of 

shared savings to be paid to the site be 

determined. 

II. Provisions of the Proposed Rule 

A. Organization of the Proposed Rule 

The remainder of this document is 

organized as follows: In section II.A. of 

this proposed rule, we propose an 

operational definition of an ACO for 

purposes of the shared savings program. 

In section II.B. of this proposed rule, we 

put forth proposed eligibility 

requirements for an ACO to participate 

in this program. In section II.C. of this 

proposed rule, we propose requirements 

for an ACO to commit to a 3-year 

participation agreement under this 

program and present a proposal for data 

sharing with ACOs. In section II.D. of 

this proposed rule, we discuss our 

proposed methodology for assigning 

beneficiaries to an ACO. In section II.E. 

of this proposed rule, we present our 

proposals regarding quality measures 

and the methodology for measuring 

ACO performance under this program. 

In section II.F. of this proposed rule, we 

discuss our proposed shared savings 

payment methodology, including the 

establishment of an expenditure 

benchmark, performance target, 

minimum savings percentage, sharing 

rate, performance cap. In section II.G. of 

this proposed rule, we discuss our 

proposal for introducing risk into the 


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shared savings program, the two-sided 

model and differences from the onesided model. In section II.H. of this 

proposed rule, we discuss our proposal 

for monitoring ACO performance and 

we propose grounds and procedures for 

terminating agreements. In section II.I. 

of this proposed rule, we discuss our 

efforts to coordinate the development of 

this proposed rule with other Federal 

agencies to ensure a coordinated and 

aligned inter- and intra-agency effort in 

the implementation of the program. In 

section II.J. of this proposed rule, we 

discuss overlap in Medicare programs 

and how this might affect Shared 

Savings Program participants. Finally, 

in section V. of this proposed rule, we 

present our Regulatory Impact Analysis, 

which sets forth an analysis of the 

impact of these proposals on affected 

entities and beneficiaries. 

For purposes of this proposed rule, 

we propose definitions for the following 

terms: 

• Accountable care organization 

(ACO) means a legal entity that is 

recognized and authorized under 

applicable State law, as identified by a 

Taxpayer Identification Number (TIN), 

and comprised of an eligible group (as 

discussed in section II.B. of this 

proposed rule) of ACO participants that 

work together to manage and coordinate 

care for Medicare FFS beneficiaries and 

have established a mechanism for 

shared governance that provides all 

ACO participants with an appropriate 

proportionate control over the ACO’s 

decision making process, 

• ACO participant means a Medicareenrolled provider of services and/or a 

supplier (as discussed in section II.B. of 

this proposed rule, as identified by a 

TIN). 

• ACO provider/supplier means a 

provider of services and/or a supplier 

(as discussed in section II.B. of this 

proposed rule) that bills for items and 

services it furnishes to Medicare 

beneficiaries under a Medicare billing 

number assigned to the TIN of an ACO 

participant in accordance with 

applicable Medicare rules and 

regulations. 

B. Eligibility and Governance 

1. Eligible Entities 

Section 1899(b) of the Act establishes 

eligibility requirements for ACOs 

participating in the Shared Savings 

Program. Section 1899(b)(1) of the Act 

allows several designated groups of 

providers of services and suppliers to 

participate as an ACO under this 

program, ‘‘as determined appropriate by 

the Secretary,’’ and under the condition 

that they have ‘‘established a mechanism 

for shared governance.’’ The statute lists 

the following groups of providers of 

services and suppliers as eligible to 

participate as an ACO: 

• ACO professionals in group practice 

arrangements. 

• Networks of individual practices of 

ACO professionals. 

• Partnerships or joint venture 

arrangements between hospitals and 

ACO professionals. 

• Hospitals employing ACO 

professionals. 

• Such other groups of providers of 

services and suppliers as the Secretary 

determines appropriate. 

Section 1899(h)(1) of the Act defines 

an ‘‘ACO professional’’ as a physician (as 

defined in section 1861(r)(1) of the Act, 

which refers to a doctor of medicine or 

osteopathy), or a practitioner (as defined 

in section 1842(b)(18)(C)(i) of the Act, 

which includes physician assistants, 

nurse practitioners, and clinical nurse 

specialists). Section 1899(h)(2) of the 

Act also provides that, for purposes of 

the Shared Savings Program, the term 

‘‘hospital’’ means a subsection (d) 

hospital as defined in section 

1886(d)(1)(B) of the Act, thus limiting 

the definition to include only acute care 

hospitals paid under the hospital 

inpatient prospective payment system 

(IPPS). Other providers of services and 

suppliers that play a critical role in the 

nation’s health care delivery system, 

such as Federally qualified health 

centers (FQHCs), rural health centers 

(RHCs), skilled nursing facilities (SNFs), 

nursing homes, long-term care hospitals 

(LTCHs) and critical access hospitals 

(CAHs), among others, are not 

specifically designated as eligible 

participants in the Shared Savings 

Program under section 1899(b)(1) of the 

Act. We note, however, that the 

statutorily defined groups of providers 

and suppliers that are eligible to 

participate in the Shared Savings 

Program as ACOs, would also have to 

meet the eligibility criteria discussed in 

detail later in this proposed rule in 

order to qualify for participation in the 

program. While the statute enumerates 

certain kinds of provider and supplier 

groups that are eligible to participate in 

this program, it also provides the 

Secretary with discretion to tailor 

eligibility in a way that narrows or 

expands the statutory list of eligible 

ACO participants. Therefore, we have 

considered whether it would be 

advisable, at least in the initial stage of 

the Shared Savings Program, to—(1) 

Permit participation in the program by 

only those ACO participants that are 

specifically identified in the statute; (2) 

restrict eligibility to those ACO 

participants that would most effectively 

advance the goals of the program; or (3) 

employ the discretion provided to the 

Secretary under section 1899(b)(1)(E) of 

the Act to expand the list of eligible 

groups to include other types of 

Medicare-enrolled providers and 

suppliers identified in the Act. 

Some have argued that ACOs would 

be most effective if they include certain 

entities as ACO participants. For 

example, the Medicare Payment 

Advisory Commission (MedPAC) has 

noted that provider groups with 

hospitals in their systems may be most 

effective in generating savings. The 

MedPAC notes that hospitals working 

with physician teams can prevent 

further hospitalizations after discharge 

and provide ongoing services to keep 

the patient as healthy as possible. Also, 

the savings generated by ACOs, in many 

cases, are expected to result from 

reduced inpatient admissions. As a 

result, provider groups with hospitals 

may have a greater incentive to 

coordinate care to ensure that a portion 

of the revenue lost from decreased 

admissions is made up through shared 

savings. (To view the MedPAC 

discussion referenced previously go to: 

http://www.medpac.gov/documents/ 

jun09_entirereport.pdf.) 

Another option for limiting eligibility 

would be to restrict eligibility to only 

those ACO professionals providing 

primary care services. Primary care 

professionals may have the best 

opportunity to reduce unnecessary costs 

by ensuring care coordination for 

beneficiaries with multiple chronic 

conditions. By coordinating with 

specialists to whom the beneficiary has 

been referred, primary care providers 

can reduce unnecessary repetition of 

laboratory testing or imaging. By 

ensuring timely access to the outpatient 

services, primary care providers can 

also reduce the number of avoidable 

admissions. Limiting eligibility for the 

Shared Savings Program to primary care 

providers, therefore, may be desirable to 

emphasize the important role played by 

these professionals and ensure a 

primary care focus for the program. 

Adopting either of these approaches 

would require a narrower eligibility 

definition than is permitted (although 

not required) under the statute. 

However, the benefits of limiting 

eligibility need to be balanced against 

the prospect that such limitations could 

compromise potential innovations and 

forfeit the opportunity to assess new 

models that could potentially transform 

health care in ways that improve quality 

and beneficiary satisfaction while better 

controlling costs. More importantly, 

defining eligibility narrowly also has the 

potential to impede development of 


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ACOs that include other provider and 

supplier types, especially those that 

provide services in rural and other 

underserved areas. For example, while 

section 1899(b)(1) of the Act does not 

mention certain entities such as critical 

access hospital (CAHs), federally 

qualified health centers (FQHCs), or 

rural health clinics (RHCs) in its listing 

of entities eligible to form an ACO 

under the Shared Savings Program these 

entities play a critical role in the 

nation’s health care delivery system, 

serving as safety net providers of 

primary care and other health care and 

social services in rural and other 

underserved areas and for low-income 

beneficiaries, including those dually 

eligible for Medicare and Medicaid. 

Permitting participation by these groups 

of providers and suppliers has the 

potential to improve coordination and 

quality of care for a greater number of 

beneficiaries in more communities, 

while better controlling costs in more 

varied settings and across a broader 

array of providers and suppliers. 

Since the statute requires that 

beneficiary assignment be determined 

on the basis of utilization of primary 

care services provided by ACO 

professionals that are physicians, we 

considered whether expansion of 

eligibility would allow additional 

Medicare enrolled providers and 

suppliers to form an ACO to participate 

in addition to the four groups specified 

in section 1899(b)(1)(A)–(D) of the Act. 

Specifically, we considered whether it 

would be feasible for CAHs, FQHCs, and 

RHCs to form an ACO or whether it 

would be necessary for these entities to 

join with the four groups specified in 

section 1899(b)(1)(A)–(D) of the Act in 

order to meet statutory criteria. We have 

especially considered the circumstances 

of CAHs, FQHCs, and RHCs because 

these entities play a critical role in the 

nation’s health care delivery system, 

serving as safety net providers of 

primary care and other health care and 

social services. At the same time, the 

specific payment methodologies, claims 

billing systems, and data reporting 

requirements that apply to these entities 

pose some challenges in relation to their 

independent participation in the Shared 

Savings Program. In order for an entity 

to be able to form an ACO, it is 

necessary that we obtain sufficient data 

in order to carry out the necessary 

functions of the program, including 

assignment of beneficiaries, 

establishment and updating of 

benchmarks, and determination of 

shared savings, if any. As we discuss in 

section II.D of this proposed rule, 

consistent with section 1899(c) of the 

Act, which provides that beneficiaries 

shall be assigned to an ACO based on 

their utilization of primary care services 

furnished by an ACO professional who 

is a physician, our proposed 

methodology for assignment of 

beneficiaries is to assign beneficiaries to 

an ACO on the basis of receiving a 

plurality of their primary care services 

as described in section II.D. of this 

proposed rule from a physician, as 

defined in section 1861(r)(1) of the Act, 

with a specialty designation of general 

practice, family practice, internal 

medicine and geriatric medicine. Thus, 

as required by the statute, the 

assignment methodology requires data 

that identify the precise services 

rendered (that is, primary care HCPCS 

codes), type of practitioner providing 

the service (that is, a MD/DO as opposed 

to NP, PA, or clinical nurse specialist), 

and the physician specialty in order to 

be able to assign beneficiaries to ACOs. 

At this time, FQHC claims for services 

furnished prior to January 1, 2011 do 

not include HCPCS codes that identify 

the specific service provided. Thus, 

although the claims do contain 

information concerning the attending 

physician and the rendering health 

professional (for example, physician, 

physician assistant, nurse practitioner), 

who actually provided the service, they 

do not currently provide for associating 

the rendering provider with the specific 

services furnished to the beneficiary. 

RHCs predominantly provide primary 

care services to their populations. Most 

RHC services are provided by nonphysician practitioners such as PAs and 

NPs. RHCs submit claims for each 

encounter with a beneficiary and 

receive payment based on an interim 

all-inclusive rate for the RHC. As in the 

case of FQHCs, RHC claims distinguish 

general classes of services (for example, 

clinic visit, home visit by RHC 

practitioner, mental health services) by 

revenue code, the beneficiary to whom 

the service was provided, and other 

information relevant to determining 

whether the all-inclusive rate can be 

paid for the service. These claims do not 

include HCPCS codes that identify the 

specific service provided. The claims 

also contain limited information 

concerning the individual practitioner, 

or even the type of health professional 

(for example, physician, PA, NP), who 

provided the service. 

For FQHCs and RHCs, therefore, we 

currently lack the requisite data 

elements (service code, physician, 

physician specialty, and specific 

attribution of services to the rendering 

health care professionals) in the claims 

and payment systems to enable us to 

determine (1) beneficiary assignment 

during the performance year under 

section 1899(c) of the Act, which 

requires that assignment to an ACO be 

based on utilization of primary care 

services furnished by a physician; and 

(2) expenditures during the 3-year 

benchmark. In the case of FQHCs, we 

recently finalized regulations requiring 

the collection of HCPCS codes for 

services beginning in 2011, in 

preparation for the development of the 

FQHC PPS. However, there is no 

statutory requirement for collecting 

from FQHCs the other data elements, 

such as the direct link between provider 

and service, which would be required 

for beneficiary assignment under the 

Shared Savings Program. Moreover, 

there is neither the statutory 

requirement for collection of HCPCS 

codes from RHCs nor any plan to 

expand this data collection effort to 

RHCs. In both the case of FQHCs and 

RHCs, reporting the information 

necessary to participate in the Shared 

Savings Program would be a significant 

change in operations that we are 

reluctant to impose through regulation 

without either a statutory requirement 

or clear support for such a regulatory 

change from the FQHC and RHC 

community at large that they would be 

willing to have all RHC/FQHCs provide 

this information uniformly, solely to 

enable independent formation of an 

ACO for purposes of participation in the 

Shared Savings Program by the subset of 

those FQHC/RHCs that choose to do so. 

Therefore, in the absence of the data 

elements required for assignment of 

beneficiaries, it is not possible for 

FQHCs and RHCs to participate in the 

Shared Savings Program by forming 

their own ACOs. It is, however, possible 

for them to join as an ACO participant 

in an ACO containing one or more of the 

statutory organizations eligible to form 

an ACO (as specified in section 

1899(b)(1)(A)–(D) of the Act) and upon 

which assignment can be made 

consistent with the statute and the 

assignment methodology proposed in 

section II.D. of this proposed rule. 

However, we note that even in this case, 

for the reasons stated previously, we 

would not have the data necessary to 

consider FQHC or RHC patients in the 

assignment process. Thus, assignment of 

beneficiaries to ACOs in which FQHCs 

and RHCs are participating would have 

to be based solely on data from the other 

eligible ACO participants upon whom 

assignment can be based. As the Shared 

Savings Program develops, we will 

continue to assess the possibilities for 

collecting the requisite data from 

FQHCs and RHCs, and in light of any 

such developments we will consider 


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whether it is possible at some future 

date for Medicare beneficiaries to be 

assigned to an ACO on the basis of 

services furnished by an FQHC or RHC, 

thereby allowing these entities to have 

their Medicare beneficiaries included in 

the ACO’s assigned population. 

The situation is somewhat more 

complicated with regard to CAHs. 

Section 1834(g) of the Act provides for 

two payment methods for outpatient 

CAH services. 

Under the method specified in section 

1834(g)(1) of the Act (referred to as the 

standard method), facility services are 

paid at 101 percent of reasonable costs 

to the CAH through the Medicare fiscal 

intermediary or the Medicare Part A/B 

MAC, while payments for physician and 

other professional services are made 

separately to the physician or other 

practitioner under the MPFS through 

Medicare carriers. Accordingly, CAHs 

that bill under the standard method 

would not submit claims with 

information on individual practitioners, 

or the type of health professional (for 

example, physician, PA, NP), that 

provided a specific service. 

Under the method specified in section 

1834(g)(2) of the Act (referred to as 

method II), a CAH submits bills for both 

the facility and the professional services 

to its Medicare fiscal intermediary or its 

Medicare Part A/B MAC. If a CAH 

chooses this method for outpatient 

services, the physician or other 

practitioner must reassign his or her 

right to bill the Medicare program for 

those services to the CAH. Under 

method II, the CAH receives—(1) 101 

percent of the reasonable cost payment 

for its facility costs; and (2) 115 percent 

of the amount otherwise paid under the 

MPFS for professional services under 

Medicare. 

Thus, current Medicare payment and 

billing policies could generally support 

the formation of an ACO by a CAH 

billing under method II. 

In summary, in this proposed rule, we 

considered three options for defining 

the range of potentially eligible 

providers and suppliers that would be 

eligible to form an ACO. One option that 

we considered would be to limit 

eligibility initially to the groups 

specifically identified in the statute. 

Under this option, only the four groups 

specified in section 1899(b)(1)(A)–(D) of 

the Act would be eligible to form an 

ACO and participate in the program. 

A second option would be to 

narrowly define which groups of 

providers of services and suppliers are 

eligible to form an ACO and participate 

in the Shared Savings Program. The 

approach noted by MedPAC is one 

example of this option. This option 

would require the participation of a 

hospital in the ACO so that only 

partnerships or joint venture 

arrangements between hospitals and 

ACO professionals or hospitals 

employing ACO professionals (groups 

specified in 1899(b)(1)(C)–(D) of the 

Act) would be eligible to participate in 

the program. Another example of this 

option would be limiting participation 

to only those entities comprised of 

primary care professionals so that only 

ACO professionals in group practice 

arrangements or networks of individual 

practices of ACO professionals (groups 

specified in 1899(b)(1)(A)–(B) of the 

Act) would be eligible to form an ACO 

and participate in the program. This 

approach would be grounded in the 

premise that ACOs should be primary 

care-focused and that primary care 

professionals are in the best position to 

both reduce the fragmentation of 

services and improve the overall quality 

of care delivered to Medicare 

beneficiaries. 

Under the third option, the four 

groups specified in section 

1899(b)(1)(A)–(D) of the Act would be 

eligible to form an ACO and participate 

in the program, but in addition, we 

would employ the discretion provided 

to the Secretary under section 

1899(b)(1)(E) of the Act to allow other 

Medicare enrolled entities, such as 

CAHs billing under method II to form an 

ACO. Additionally, employing 

Secretarial discretion to expand the 

definition of eligible providers or 

suppliers would allow other Medicare 

enrolled entities such as FQHCs and 

RHCs, to become ACO participants, if 

the ACO that is formed is able to meet 

the other qualifications to participate in 

the program. 

After evaluating the three options for 

defining the range of potentially eligible 

providers and suppliers, we have 

decided to propose the third option. 

Under this proposal, the four groups 

specifically identified in section 

1899(b)(1)(A)–(D) of the Act, and CAHs 

billing under method II, would have the 

opportunity to form ACOs 

independently. In addition, the four 

statutorily indentified groups, as well as 

CAHs billing under method II, could 

establish an ACO with broader 

collaborations by including additional 

Medicare enrolled entities such as 

FQHCs and RHCs and other Medicareenrolled providers and suppliers as 

defined in the Act as ACO participants. 

While this proposal potentially 

increases the administrative complexity 

of implementing the program and could 

also require stronger measures to 

oversee the varied kinds of ACO 

arrangements that might evolve, we 

believe this approach best serves the 

goals of the program by allowing greater 

opportunities for broadly transforming 

the health care delivery system and 

increasing access to high quality and 

lower cost care under the Shared 

Savings Program for Medicare 

beneficiaries regardless of where they 

live. Specifically, this option allows for 

a wide variety of ACO configurations 

that incorporate a broad range of health 

care providers and suppliers, including 

safety net providers, post-acute care 

facilities, FQHCs, RHCs, and CAHs, 

which we believe will enable ACOs to 

offer more comprehensive care and 

better serve the needs of rural 

communities. The proposal also offers 

greater opportunity for innovation by 

ACOs in determining the most effective 

organizational structure to meet the 

needs of their respective populations. 

In addition to requesting comment on 

this proposal generally, we are soliciting 

comment on the following: (1) The 

kinds of providers and suppliers that 

should or should not be included as 

potential ACO participants; (2) the 

potential benefits or concerns regarding 

including or not including certain 

provider or supplier types; (3) the 

administrative measures that would be 

needed to effectively implement and 

monitor particular partnerships; (4) 

other ways in which we could employ 

the discretion provided to the Secretary 

to allow the independent participation 

of providers and suppliers not 

specifically mentioned in the statute, for 

example, through an ACO formed by a 

group of FQHCs and RHCs; and (5) any 

operational issues associated with our 

proposal. We will consider whether it 

would be appropriate to expand the list 

of entities eligible to participate in the 

Shared Savings Program, either in the 

final rule or in future rulemaking, if we 

determine that it is feasible and 

consistent with the requirements of the 

program for more entities to participate 

as ACOs. In the interim, and until such 

time as FQHCs and RHCs would be 

eligible to form ACOs or have their 

patients assigned to an ACO, we are also 

proposing to provide an incentive for 

ACOs to include RHCs and FQHCs as 

ACO participants, by allowing ACOs 

that include such entities to receive a 

higher percentage of any shared savings 

under the program. We believe that this 

proposal to encourage participation by 

RHCs and FQHCs in ACOs is 

appropriate in light of the special role 

that these entities play in the health care 

delivery system, especially in providing 

care to otherwise underserved and 

vulnerable populations. We discuss how 

this proposal affects the determination 


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of shared savings under the program in 

section II.F. of this proposed rule. 

2. Legal Structure and Governance 

Section 1899(b)(2)(C) of the Act 

requires an ACO to ‘‘have a formal legal 

structure that would allow the 

organization to receive and distribute 

payments for shared savings’’ to 

‘‘participating providers of services and 

suppliers.’’ As previously noted, section 

1899(b)(1) of the Act also requires ACO 

participants to have a ‘‘mechanism for 

shared governance’’ in order to 

participate in the program. 

Operationally, an ACO’s legal structure 

must provide both the basis for its 

shared governance as well as the 

mechanism for it to receive and 

distribute shared savings payments to 

ACO participants and providers/ 

suppliers. 

a. Legal Entity 

The ACO’s legal entity may be 

structured in a variety of ways, 

including as a corporation, partnership, 

limited liability company, foundation, 

or other entity permitted by State law. 

As discussed previously in section II. B. 

of this proposed rule, and consistent 

with section 1899(b)(1)(A)–(D) of the 

Act, certain specified groups of 

providers of services and suppliers who 

have a mechanism of shared governance 

may be eligible to participate as ACOs 

in the Shared Savings Program. In 

addition to the groups specifically 

identified in the statute, we are 

proposing to use the Secretary’s 

discretion under section 1899(b)(1)(E) of 

the Act to expand the list of eligible 

groups of providers and suppliers that 

may participate in the Shared Savings 

rogram. Specifically, we are proposing 

that ACOs may incorporate other groups 

of Medicare enrolled providers and 

suppliers, many of whom would not be 

able to form ACOs and participate in the 

program independently. As described 

previously, each of the Medicareenrolled providers and suppliers that 

join together to form an ACO is 

identified by their Medicare-enrolled 

TIN and is referred to herein as an ACO 

participant. Regardless of whether an 

ACO participant is able to meet the 

eligibility criteria for participation in 

the Shared Savings Program 

independently or must join with others 

in order to meet criteria, we propose 

that the ACO must demonstrate a 

mechanism of shared governance that 

provides all ACO participants with an 

appropriate proportionate control over 

the ACO’s decision making process. 

In response to the request for 

information (RFI) that appeared in the 

November 17, 2010 Federal Register (75 

FR 70165), we received comments 

regarding the need for us to remain 

flexible when defining the required 

legal structure to allow for a variety of 

structural options. For example, 

commenters noted that we should 

permit existing organizations to 

participate in the Shared Savings 

Program instead of requiring the 

formation of a new legal entity in order 

to avoid additional costs and 

duplication of organizational 

competencies. Commenters also 

recommended that the legal structure 

requirements should not disadvantage 

solo and small groups of physicians 

with fewer resources relative to larger 

hospital and physician groups by 

requiring the use of specific structures 

that may result in increased costs, 

implementation delays, and 

cumbersome operational requirements 

for these smaller entities. Moreover, our 

intent is to encourage participation by 

not-for-profit, community-based 

organizations. 

When considering options for the 

legal structure of ACOs, we sought to 

balance the need for an organization to 

be recognized by the State with the need 

for flexibility to permit the participants 

to select the appropriate organizational 

structure for their ACO. We also 

considered the importance of 

minimizing costs related to organizing 

as a specific legal entity. In order to 

implement the statutory requirements 

that ACOs have a shared governance 

mechanism and a formal legal structure 

for receiving and distributing shared 

payments, we believe that it is necessary 

for each ACO to be constituted as a legal 

entity appropriately recognized and 

authorized to conduct its business 

under applicable State law in order to 

best achieve the objectives of the Shared 

Savings Program and that it must have 

a TIN. Therefore, we are proposing to 

require an ACO to be an organization 

that is recognized and authorized to 

conduct its business under applicable 

State law and is capable of—(1) 

Receiving and distributing shared 

savings; (2) repaying shared losses; (3) 

establishing, reporting, and ensuring 

ACO participant and ACO provider/ 

supplier compliance with program 

requirements, including the quality 

performance standards; and (4) 

performing the other ACO functions 

identified in the statute. 

We note that by proposing that the 

ACO be required to have a TIN, we are 

not proposing to require that the ACO 

itself be enrolled in the Medicare 

program, in contrast to this requirement 

for each ACO participant. 

Also, by proposing that each ACO 

must be constituted as a legal entity 

appropriately recognized and 

authorized under applicable State law, 

we are not proposing to require that 

existing legal entities appropriately 

recognized under State law must form a 

separate new entity for the purpose of 

participating in the Shared Savings 

Program. If the existing legal entity 

meets the eligibility requirements to be 

an ACO, as described in this proposed 

rule, it may operate as an ACO, as long 

as it is recognized under applicable 

State law and is capable of receiving 

and distributing shared savings, 

repaying shared losses, and performing 

the other ACO functions identified in 

the statute and regulations, including 

the requirement for shared governance 

for ACO participants. 

For example, a hospital employing 

ACO professionals, which is one of the 

entities identified in section 1899(b)(1) 

of the Act, may be eligible to participate 

in the Shared Savings Program as an 

ACO with its current legal structure, as 

recognized under applicable State law, 

and would not be required to develop a 

separate new entity. We recognize, 

however, that the absence of a separate 

legal entity to operate the ACO may 

make it more difficult for us to audit 

and otherwise assess ACO performance. 

We solicit comment on whether we 

should require all ACOs participating in 

the Shared Savings Program to be 

formed as a distinct legal entity 

appropriately recognized and 

authorized to conduct its business 

under applicable State law or whether 

an existing legal entity could be 

permitted to participate in the Shared 

Savings Program as an ACO, including 

entities that have similar arrangements 

with other payors. However, we propose 

that if an existing entity, such as a 

hospital employing ACO professionals 

would like to include as ACO 

participants other providers of services 

and suppliers who are not already part 

of its existing legal structure, a separate 

entity would have to be established in 

order to provide all ACO participants a 

mechanism for shared governance and 

decision making. 

We propose that each ACO would 

certify that it is recognized as a legal 

entity under State law and authorized 

by the State to conduct its business. In 

addition, an ACO with operations in 

multiple States would have to certify 

that it is recognized as a legal entity in 

the State in which it was established 

and that it is authorized to conduct 

business in each State in which it 

operates. An ACO must provide in its 

application evidence that it is 

recognized as a legal entity in the State 

in which it was established and that it 

is authorized to conduct business in 


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each State in which it operates. We 

solicit comment on our proposal for the 

required legal structure and seek input 

on other suitable legal structure 

requirements that we should consider 

adding in the final rule or through 

subsequent rulemaking. Moreover, our 

intent is to encourage not-for-profit, 

community-based organizations to 

participate in the Shared Savings 

Program. We request comment on 

whether requirements for the creation of 

a separate entity would create 

disincentives for the formation of ACOs 

and whether there is an alternative 

requirement that could be used to 

achieve the aims of shared governance 

and decision making and the ability to 

receive and distribute payments for 

shared savings. 

b. Governance 

Although section 1899(b)(1) of the Act 

requires that an ACO have a 

‘‘mechanism for shared governance’’ and 

section 1899(b)(2)(F) of the Act further 

requires that an ‘‘ACO shall have in 

place a leadership and management 

structure that includes clinical and 

administrative systems,’’ the statute does 

not specify the elements that this shared 

governance mechanism or the 

accompanying leadership and 

management structures must possess. 

We believe that such a governance 

mechanism should allow for 

appropriate proportionate control for 

ACO participants, giving each ACO 

participant a voice in the ACO’s 

decision making process, and be 

sufficient to meet the statutory 

requirements regarding clinical and 

administrative systems. We envision a 

mechanism that is transparent, 

accountable to the affected beneficiary 

community, and also accountable and 

responsive to the ACO participants and 

the ACO providers/suppliers they 

represent. Further, we would anticipate 

that the leadership and management 

structures would provide for adequate 

authority to enable the ACO to execute 

its core functions of enhancing the 

quality, efficiency, and patientcenteredness of the health care services 

furnished to assigned beneficiaries. 

Commonly used mechanisms for 

establishing shared governance are a 

board of directors, board of managers, or 

other similar governing bodies that 

provide a mechanism for representation 

and control in shared decision-making 

for all ACO participants. Accordingly, 

we are proposing that an ACO must 

establish and maintain a governing body 

with adequate authority to execute the 

statutory functions of an ACO, as 

defined by the shared governance 

criterion described in more detail later 

in this proposed rule. The governing 

body may be a board of directors, board 

of managers, or any other governing 

body that provides a mechanism for 

shared governance and decision-making 

for all ACO participants, and that has 

the authority to execute the statutory 

functions of an ACO, including for 

example, to ‘‘define processes to 

promote evidence-based medicine and 

patient engagement, report on quality 

and cost measures, and coordinate care,’’ 

as required under section 1899(b)(1)(G) 

of the Act. As discussed in more detail 

later in the document, this governing 

body would be comprised of the ACO 

participants or their designated 

representatives, include Medicare 

beneficiaries served by the ACO, and 

possess broad responsibility for the 

ACO’s administrative, fiduciary, and 

clinical operations. While the 

representatives on the governing body 

could be serving in a similar or 

complementary manner for an ACO 

participant within the ACO, this body 

must be separate and unique to the ACO 

when the ACO participants are not 

already represented by an existing legal 

entity appropriately recognized and 

authorized to conduct its business 

under applicable State law. In those 

instances where the ACO is comprised 

of a self-contained financially and 

clinically integrated entity that has a 

pre-existing board of directors or other 

governing body, such as a hospital that 

employs ACO professionals, we are also 

proposing that the ACO would not need 

to form a separate governing body, as 

long as that governing body is able to 

meet all other criteria required for ACO 

governing bodies. In this case, the 

integrated entity’s governing body 

would be the governing body of the 

ACO, and the ACO would be required 

to provide in its application evidence 

that its pre-existing board of directors or 

other governing body, meets all other 

criteria required for ACO governing 

bodies. Although we wish to provide 

potential ACOs with some flexibility on 

corporate governance and ACO 

formation, we are concerned that 

allowing existing entities to be ACOs 

would complicate our monitoring and 

auditing of the ACO. We solicit 

comment on this issue. 

Moreover, our intent is to encourage 

not-for-profit, community-based 

organizations to participate in the 

Shared Savings Program. We request 

comment on whether requirements for 

the creation of a governing body as a 

mechanism for shared governance 

would create disincentives for the 

formation of ACOs and whether there is 

an alternative requirement that could be 

used to achieve the aims of shared 

governance and decision making. 

c. Composition of the Governing Body 

For purposes of the Shared Savings 

Program, the ACO is, by definition, 

comprised of groups of Medicareenrolled providers and suppliers (ACO 

participants) that agree to work together 

to manage and coordinate care for 

beneficiaries, and have established a 

mechanism for shared governance—as 

opposed to an outside entity directing 

their day-to-day operations. Therefore, 

we believe that the ACO should be 

operated and directed by Medicareenrolled entities that directly provide 

health care services to beneficiaries. 

Stakeholders have indicated to us that 

in the private sector, entrepreneurial 

management companies and health 

plans have expressed interest in forming 

or participating in ACOs. Often, small 

groups of providers lack both the capital 

and infrastructure necessary to form an 

ACO and to administer the 

programmatic requirements of the 

Shared Savings Program and could 

benefit from partnerships with nonMedicare-enrolled entities. For this 

reason, we propose that in order to be 

eligible for participation in the Shared 

Savings Program, the ACO participants 

must have at least 75 percent control of 

the ACO’s governing body. In addition, 

each of the ACO participants must 

choose an appropriate representative 

from within its organization to represent 

them on the governing body. This 

proposal ensures that ACOs remain 

provider-driven, but also leaves room 

for both non-providers and small 

provider groups to participate in the 

program. 

We are requesting comment on this 

proposal for whether more or less than 

75 percent control of the governing body 

being held by the ACO participants is an 

appropriate percentage. We are also 

requesting comment on whether the 

appropriate representative should be 

held by persons employed by and 

representing Medicare-enrolled TINs. 

As discussed in more detail later in 

the document, we believe a process for 

integrating community resources is an 

essential part of patient centeredness. 

We are proposing that ACOs be 

required to describe how they will 

partner with community stakeholders as 

part of their application. ACOs that have 

a community stakeholder organization 

serving on their governing body would 

be deemed to have satisfied that 

application criterion. 

Additionally, as discussed in more 

detail later in the document, we are 

proposing a requirement that ACOs 

provide for beneficiary involvement in 


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1Arizona v. Maricopa County Medical Society, 

457 U.S. 332 (1982). 

2Letter from Jeffrey Brennan, Assistant Director, 

Bureau of Competition, Federal Trade Commission 

to John J. Miles, Ober, Kaler, Grimes & Shriver 

(February 19, 2002), available at http://www.ftc.gov/ 

bc/adops/medsouth.shtm. 

3 Department of Justice and Federal Trade 

Commission, Statements of Antitrust Enforcement 

Policy in Health Care, Statement 8 (1996), available 

at http://www.ftc.gov/reports/hlth3s.pdf. 

4 Id. 

5See, for example, Letter from Markus Meier to 

John J. Miles, Ober, Kaler, Grimes & Shriver 7 (June 

18, 2007), available at http://www.ftc.gov/bc/adops/ 

070618mewdsouth.pdf. 

6 Id. 

7See, for example, Letter from Markus H. Meier, 

Assistant Director, Bureau of Competition, Federal 

Trade Commission to Christi J. Braun, Ober, Kaler, 

Grimes & Shriver 8 (April 13, 2009), available at 

http://www.ftc.gov/os/closings/staff/ 

090413tristateaoletter.pdf; Letter from Markus H. 

Meier, Assistant Director, Bureau of Competition, 

Federal Trade Commission to Christi J. Braun & 

John J. Miles, Ober, Kaler, Grimes & Shriver 7 (Sept. 

17, 2007), available at http://www.ftc.gov/bc/adops/ 

gripa.pdf; Letter from Jeffrey Brennan, Assistant 

Director, Bureau of Competition, Federal Trade 

Commission to John J. Miles, Ober, Kaler, Grimes 

& Shriver (Feb. 19, 2002), available at http:// 

www.ftc.gov/bc/adops/medsouth.shtm. 

their governing processes. Specifically, 

we are proposing that ACOs will be 

required to demonstrate a partnership 

with Medicare FFS beneficiaries by 

having beneficiary representation in the 

ACO governing body. 

3. Leadership and Management 

Structure 

Section 1899(b)(2)(F) of the Act 

requires an eligible ACO to ‘‘have in 

place a leadership and management 

structure that includes clinical and 

administrative systems.’’ We believe this 

structure should align with and support 

the goals of the Shared Savings Program 

and the three-part aim of better care for 

individuals, better health for 

populations, and lower growth in 

expenditures. Based on their experience 

with the PGP demonstration, 

participants identified several factors as 

critical to improving quality and the 

opportunity to share savings: 

• An integrated organization with an 

environment that supports expending 

resources on multiple programs and 

initiatives to improve quality and 

reduce unnecessary services. 

• Dedicated physician leadership 

with a proven ability to motivate 

physicians to participate in the 

development and implementation of 

quality improvement and other clinical 

programs and initiatives. 

• Health information technology that 

facilitates the aggregation and analysis 

of data, allows patient-level feedback, 

and provides alerts and reminders at the 

point of care. 

• Experience with non-Medicare 

payer initiatives, particularly through a 

managed care affiliate, to improve 

quality and reduce expenditure growth. 

In addition, another important factor 

that must be considered is whether the 

leadership and management structure of 

the ACO should include appropriate 

safeguards to ensure the ACO’s 

integration and likelihood of achieving 

quality improvements and cost 

efficiencies. The Antitrust Agencies 

have developed criteria to assess 

whether collaborations of otherwise 

competing health care providers should 

be condemned as per se illegal under 

antitrust law or subject to a more 

thorough evaluation under the ‘‘Rule of 

Reason,’’ which would examine likely 

procompetitive or anticompetitive 

effects.1 To avoid per se condemnation 

as ‘‘shams’’ that facilitate price fixing or 

other per se illegal activities, 

collaborations of competing health care 

providers must show that they are 

integrated ventures that are likely to, or 

do, enable their participants jointly to 

achieve cost efficiencies and quality 

improvements in providing services. 

The efficiency-enhancing integration 

‘‘must likely generate procompetitive 

benefits that enhance the participants’ 

ability or incentives to compete, and 

thus offset any anticompetitive 

tendencies of the arrangement.’’ 2

Accordingly, the antitrust perspective 

focuses on how collaboration, including 

coordinated care, can lower costs and 

improve quality, just as the intent of the 

Shared Savings Program under section 

1899 of the Act is to promote 

accountability for Medicare 

beneficiaries, improve the coordination 

of FFS items and services, and 

encourage investment in infrastructure 

and redesigned care processes for high 

quality and efficient service delivery. 

For antitrust purposes, collaborations of 

competing health care providers may 

use either financial or clinical 

integration, or both, as means to achieve 

cost efficiencies and quality 

improvements.3 To demonstrate 

financial integration, participants in 

collaboration must share substantial 

financial risk, so they have the incentive 

to cooperate in controlling costs and 

improving quality by managing the 

provision of services.4 To demonstrate 

clinical integration, participants must 

show a degree of interaction and 

interdependence among providers in 

their provision of medical services that 

enables them to jointly achieve cost 

efficiencies and quality improvements.5

The Federal Antitrust Agencies have 

concluded that successfully achieving 

clinical integration requires the 

establishment and operation of active 

and ongoing processes and mechanisms 

to facilitate, encourage, and assure the 

necessary cooperative interaction.6

We believe that these criteria also 

provide insight into the leadership and 

management structures, including 

clinical and administrative systems, 

necessary for ACOs to achieve the threepart aim of better care for individuals, 

better health for populations, and lower 

growth in expenditures. We also note 

that these criteria are very similar to the 

factors identified previously by 

participants in the PGP demonstration 

as critical to improving quality and 

controlling the cost of health care. 

Similarly, antitrust analyses have 

examined whether participants in such 

a collaboration are committed to the 

collective development and 

implementation of evidence-based 

protocols and benchmarks, to individual 

and group accountability for adherence 

to those protocols and benchmarks, to 

the development of technology to 

facilitate providers’ compliance, to the 

measurement of compliance with those 

protocols, and to improved performance 

with respect to benchmarks, among 

other things.7

It is in the public interest to 

harmonize the eligibility criteria for 

ACOs that wish to participate in the 

Shared Savings Program with the 

similar antitrust criteria on clinical 

integration. As discussed in more detail 

in section II. I. of this proposed rule, 

competition between ACOs is expected 

to have significant benefits for Medicare 

beneficiaries, by improving the quality 

of care they receive, protecting their 

access to a variety of providers, and 

helping to sustain the Medicare program 

by controlling costs. Furthermore, 

because ACOs that operate in the 

Shared Savings Program are likely to 

use the same organizational structure 

and clinical care practices to serve both 

Medicare beneficiaries and consumers 

covered by commercial insurance, the 

certainty created by harmonizing our 

eligibility criteria with antitrust 

requirements will help to ensure that an 

ACO organization participating in the 

Shared Savings Program will not 

subsequently face an antitrust challenge 

that its conduct is per se illegal, which 

could prevent the ACO from fulfilling 

the 3-year term of its agreement under 

the Shared Savings Program. 

Accordingly, we believe an ACO, the 

ACO participants, and ACO providers/ 

suppliers should demonstrate an 

organizational commitment to the 

Shared Savings Program and the terms 

of the 3-year agreement, both as a group 

and individually, as well as the 

leadership and management capabilities 


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necessary to achieve the three-part aim 

by managing and coordinating the care 

of assigned Medicare beneficiaries. We 

note that the statute permits ACO 

participants that form an ACO to use a 

variety of collaborative organizational 

structures, including collaborations 

short of merger, to evidence the required 

organizational commitment and 

leadership and management 

capabilities. 

Thus, consistent with the requirement 

in section 1899(b)(2)(F) of the Act that 

an ACO have a leadership and 

management structure that includes 

clinical and administrative systems, we 

are proposing that ACOs meet the 

following criteria: 

• The ACO’s operations would be 

managed by an executive, officer, 

manager, or general partner, whose 

appointment and removal are under 

control of the organization’s governing 

body and whose leadership team has 

demonstrated the ability to influence or 

direct clinical practice to improve 

efficiency processes and outcomes. 

• Clinical management and oversight 

would be managed by a senior-level 

medical director who is a boardcertified physician, licensed in the State 

in which the ACO operates, and 

physically present in that State. 

• ACO participants and ACO 

providers/suppliers would have a 

meaningful commitment to the ACO’s 

clinical integration program to ensure 

its likely success. Meaningful 

commitment may include, for example, 

a meaningful financial investment in the 

ACO, or a meaningful human 

investment (for example, time and 

effort) in the ongoing operations of the 

ACO such that the potential loss or 

recoupment of the investment is likely 

to motivate the participant to make the 

clinical integration program succeed. 

• The ACO would have a physiciandirected quality assurance and process 

improvement committee that would 

oversee an ongoing quality assurance 

and improvement program. The quality 

assurance program would establish 

internal performance standards for 

quality of care and services, cost 

effectiveness, and process and outcome 

improvements, and hold ACO 

providers/suppliers accountable for 

meeting the performance standards. The 

program would also have processes and 

procedures in place to identify and 

correct poor compliance with such 

standards and to promote continuous 

quality improvement. 

• The ACO would develop and 

implement evidence-based medical 

practice or clinical guidelines and 

processes for delivering care consistent 

with the goals of better care for 

individuals, better health for 

populations, lower growth in 

expenditures. The guidelines and care 

delivery processes would cover 

diagnoses with significant potential for 

the ACO to achieve quality and cost 

improvements, taking into account the 

circumstances of the individual 

beneficiary, and could be accomplished, 

for example, through an integrated 

electronic health record with clinical 

decision support. ACO participants and 

ACO providers/suppliers would have to 

agree to comply with these guidelines 

and processes and to be subject to 

performance evaluations and potential 

remedial actions. 

• The ACO would have an 

infrastructure, such as information 

technology, that enables the ACO to 

collect and evaluate data and provide 

feedback to the ACO providers/ 

suppliers across the entire organization, 

including providing information to 

influence care at the point of care via, 

for example, shared clinical decision 

support, feedback from patient 

experience of care surveys or other 

internal or external quality and 

utilization assessments. 

As discussed later in the document, 

and in section II. C. of this proposed 

rule, it is our expectation that ACO 

participants and ACO providers/ 

suppliers participating in the ACO 

would make a commitment to 

participate in the ACO for not less than 

3 years. However, we recognize it will 

be necessary for the ACO to include a 

remedial process for ACO participants 

that fail to comply with the ACO’s 

internal procedures and performance 

standards, including the possibility of 

expulsion of significant outliers. We 

caution that expulsion cannot be used 

as a mechanism to avoid at-risk 

beneficiaries. 

In order to determine an ACO’s 

compliance with these requirements, as 

part of the application process, we are 

proposing that an ACO would submit all 

of the following: 

• ACO documents (for example, 

participation agreements, employment 

contracts, and operating policies) that 

describe the ACO participants’ and ACO 

providers/suppliers’ rights and 

obligations in the ACO, the shared 

savings that will encourage ACO 

participants and ACO providers/ 

suppliers to adhere to the quality 

assurance and improvement program 

and the evidenced-based clinical 

guidelines; 

• Documents that describe the scope 

and scale of the quality assurance and 

clinical integration program, including 

documents that describe all relevant 

clinical integration program systems 

and processes, such as the internal 

performance standards and the 

processes for monitoring and evaluating 

performance; 

• Supporting materials documenting 

the ACO’s organization and 

management structure, including an 

organizational chart, a list of committees 

(including names of committee 

members) and their structures, and job 

descriptions for senior administrative 

and clinical leaders; and 

• Evidence that the ACO has a boardcertified physician as its medical 

director who is licensed in the State in 

which the ACO resides and that a 

principal CMS liaison is identified in its 

leadership structure. 

• Evidence that the governing body 

includes persons who represent the 

ACO participants, and that these ACO 

participants hold at least 75 percent 

control of the governing body. 

Additionally, upon request, the ACO 

would also be required to provide 

copies of the following documents: 

• Documents effectuating the ACO’s 

formation and operation, including 

charters, by-laws, articles of 

incorporation, and partnership, joint 

venture, management, or asset purchase 

agreements. 

• Descriptions of the remedial 

processes that will apply when ACO 

participants and ACO providers/ 

suppliers fail to comply with the ACO’s 

internal procedures and performance 

standards, including corrective action 

plans and the circumstances under 

which expulsion could occur. 

In an effort to allow flexibility and 

innovation, we are proposing that ACOs 

with innovative leadership and 

management structures have the 

opportunity to describe an alternative 

mechanism for how their leadership and 

management structure would conduct 

the activities noted previously in order 

to achieve the same goals so that they 

may be given consideration in the 

application process. That is, an 

organization that does not have one or 

more of the following: An executive, 

officer, manager, or general partner; 

senior-level medical director; or 

physician-directed quality assurance 

and process improvement committee, 

would be required in its application to 

describe how the ACO will perform 

these functions without such 

leadership. For example, if an ACO does 

not have a physician-directed quality 

assurance and process improvement 

committee, the ACO would need to 

describe how it plans to oversee an 

ongoing quality assurance and 

improvement program as described 

previously. Additionally, we seek 

comment on the requirement for 


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submission of certain documents as 

noted previously and whether an 

alternative method could be used to 

verify compliance with requirements. 

We request comment on the proposed 

leadership and management structure 

and whether the compliance burden 

associated with these requirements will 

discourage participation, hinder 

innovative organizational structures, or 

whether there are other or alternative 

leadership and management 

requirements that would enable these 

organizations in meeting the three-part 

aim. 

4. Accountability for Beneficiaries 

Section 1899(b)(2)(A) of the Act 

requires participating ACOs to ‘‘be 

willing to become accountable for the 

quality, cost, and overall care of the 

Medicare fee-for-service beneficiaries 

assigned to it.’’ To satisfy this 

requirement, we are proposing that an 

ACO executive who has the authority to 

bind the ACO must certify to the best of 

his or her knowledge, information, and 

belief that the ACO participants are 

willing to become accountable for, and 

to report to us on, the quality, cost, and 

overall care of the Medicare FFS 

beneficiaries assigned to the ACO. The 

certification would be included as part 

of the ACO’s application and 3-year 

participation agreement. 

5. Agreement Requirement 

Section 1899(b)(2)(B) of the Act 

requires participating ACOs to ‘‘enter 

into an agreement with the Secretary to 

participate in the program for not less 

than a 3-year period * * *.’’ For the first 

round of the Shared Savings Program, 

we are proposing to limit participation 

agreements to a 3-year period. We are 

seeking comments on this proposal and 

whether a longer agreement period 

should be considered initially. 

If the ACO is approved for 

participation, we propose that an 

authorized representative—specifically, 

an executive who has the ability to bind 

the ACO, must certify to the best of his 

or her knowledge, information, and 

belief that the ACO participants agree to 

the requirements set forth in the 3-year 

agreement between the ACO and us— 

sign a 3-year participation agreement 

and submit the signed agreement to us. 

This participation agreement would 

include an acknowledgment that the 

ACO agrees to comply with all of the 

requirements for participation in the 

Shared Savings Program and that all 

contracts or arrangements between or 

among the ACO, ACO participants, ACO 

providers/suppliers, and other entities 

furnishing services related to ACO 

activities must require compliance with 

the ACO’s obligations under the 3-year 

agreement. The participation agreement 

would be signed by an authorized 

representative of the ACO after it has 

been approved for participation. The 

ACO would be responsible for providing 

a copy of the agreement to its ACO 

participants and ACO providers/ 

suppliers. We are soliciting comment on 

this proposal, including any additional 

measures or alternative means that we 

should consider to fulfill this 

requirement. 

We also recognize that, while having 

signed a 3-year participation agreement 

with us in good faith and with the 

intention to participate in the program 

for the full 3-year agreement period, 

there may be instances where an ACO 

might need to discontinue its 

participation in the Shared Savings 

Program prior to the end of the 

agreement period. As described in 

section II. H. Monitoring and 

Termination of ACOs of this proposed 

rule, we propose to require an ACO to 

give us 60 days advance written notice 

of its intention to terminate its 

agreement to participate in the Shared 

Savings Program and the effective date 

of its termination. As described in more 

detail in section II. F of this proposed 

rule, we propose the ACO will be 

subject to a 25 percent withhold of 

shared savings in order to offset any 

future losses under the two-sided 

model. We propose that if an ACO 

completes its 3-year agreement 

successfully, we will refund in full any 

portion of shared savings withheld 

during the course of the 3-year 

agreement period that is not needed to 

offset losses. We further propose that in 

the event an ACO’s 3-year agreement is 

terminated before the completion of the 

3 years, we will retain any portion of 

shared savings withheld. 

Finally, it is our intention that all 

ACOs, ACO participants, and ACO 

providers/suppliers with direct or 

indirect obligations under the Shared 

Savings Program be subject to the 

requirements of the agreement between 

the ACO and CMS and that all 

certifications submitted on behalf of the 

ACO in connection with the Shared 

Savings Program application, 

agreement, shared savings distribution, 

as discussed in section II. F. or 

otherwise extend to all parties with 

obligations to which the particular 

certification applies. 

We are considering the best way to 

achieve this end and solicit public 

comments on this issue. 

6. Distribution of Savings 

As discussed previously, an ACO 

must be a legal entity appropriately 

recognized and authorized to conduct 

its business under State law, and would 

be identified by a TIN. We propose to 

make any shared savings payments 

directly to the ACO as identified by its 

TIN. The TIN associated with the ACO’s 

legal entity may, or may not, be enrolled 

in the Medicare program, unlike the 

ACO participant TINs that are Medicareenrolled groups of providers of services 

and suppliers. Therefore, because the 

statute contemplates payment directly 

to the ACO, we are proposing to pay the 

ACO TIN directly. We acknowledge that 

this proposal could raise program 

integrity concerns, because allowing 

shared savings payments to be made 

directly to a non-Medicare-enrolled 

entity would likely impede the 

program’s ability to recoup 

overpayments as there would be no 

regular payments that could be offset. 

This is part of the rationale for the 

payment withhold described in more 

detail in section II. F, Shared Savings 

Determination, as well as the other 

safeguards for assuring ACO repayment 

of shared losses described in section 

II.G.of this proposed rule. We solicit 

comments on our proposal to make 

shared savings payments directly to the 

ACO, as identified by its TIN. In 

addition, we are soliciting comment on 

our proposal to make shared savings 

payments to a non-Medicare-enrolled 

entity. 

While section 1899(b)(2)(C) of the Act 

requires an ACO to have a formal legal 

structure that would allow the 

organization to receive and distribute 

payments for shared savings to 

participating providers of services and 

suppliers, the statute does not establish 

any requirements for the manner in 

which shared savings payments are 

distributed. We have considered 

whether it would be appropriate, under 

the broad discretion granted to the 

Secretary in implementing the Shared 

Savings Program, to propose criteria for 

the distribution of shared savings by the 

ACO. Although we do not believe we 

have the authority to specify how 

shared savings must be distributed (so 

long as the distribution is consistent 

with all applicable legal requirements), 

we believe it would be consistent with 

the purpose and intent of the statute to 

require the ACO to indicate as part of 

its application how it plans to use 

potential shared savings to meet the 

goals of the program. More specifically, 

ACOs would have to indicate how 

potential shared savings would be used 

to promote accountability for their 

Medicare population and the 

coordination of their care as well as how 

they might be invested in infrastructure 


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and redesigned care processes for high 

quality and efficient health care service 

delivery. Therefore, we propose to 

require ACOs to provide a description 

in their application of the criteria they 

plan to employ for distributing shared 

savings among ACO participants and 

ACO providers/suppliers, and how any 

shared savings will be used to align 

with the aims of better care for 

individuals, better health for 

populations, and lower growth in 

expenditures. We believe the proposed 

requirement would achieve the most 

appropriate balance among objectives 

for encouraging participation, 

innovation, and achievement of program 

while still focusing on the aims of better 

care for individuals, better health for 

populations, and lower growth in 

expenditures. Additionally, it is the 

intention of this requirement for ACOs 

to include this description in the 

application, to both guard against 

improper financial incentives as well as 

ensure appropriate beneficiary 

protections. 

7. Sufficient Number of Primary Care 

Providers and Beneficiaries 

Section 1899(b)(2)(D) of the Act 

requires participating ACOs to ‘‘include 

primary care ACO professionals that are 

sufficient for the number of Medicare 

fee-for-service beneficiaries assigned to 

the ACO * * *’’ and that at a minimum, 

‘‘the ACO shall have at least 5,000 such 

beneficiaries assigned to it * * *’’ 

Physician patient panels can vary 

widely in the number of FFS Medicare 

beneficiaries served. In section II. C. of 

this proposed rule, we discuss our 

proposal to assign beneficiaries to an 

ACO on the basis of primary care 

services rendered by physicians with 

primary care specializations in general 

practice, internal medicine, family 

practice, and geriatric medicine. We are 

proposing that this algorithm will also 

be used to assign beneficiaries during 

the baseline years in order to establish 

a historical per capita cost benchmark 

against which the ACO would be 

evaluated during each year of the 

agreement period. We believe it is 

reasonable to assume that if by using 

this algorithm the ACO demonstrates a 

sufficient number of beneficiaries to 

fulfill this eligibility requirement for 

purposes of establishing a benchmark, 

then the ACO also contains a sufficient 

number of primary care professionals to 

provide care to these beneficiaries. It is 

also reasonable to assume the ACO 

would continue to approximate this 

number in each year of the agreement 

period. Thus, we are proposing that for 

purposes of eligibility under section 

1899(b)(2)(D) of the Act, an ACO would 

be determined to have a sufficient 

number of primary care ACO 

professionals to serve the number of 

Medicare beneficiaries assigned to it if 

the number of beneficiaries historically 

assigned over the three-year 

benchmarking period using the ACO 

participant TINs exceeds the 5,000 

threshold for each year. We are 

soliciting comment on this proposal as 

well as any additional guidance that 

could be considered for meeting these 

requirements. 

While an ACO could meet the 

requirements in section 1899(b)(2)(D) of 

the Act when it applies to participate in 

the Shared Savings Program, the 

number of assigned beneficiaries could 

fall below the 5,000 level due to either 

significant events, such as when an 

ACO professional or group of 

professionals cease to participate in the 

ACO, or in those instances where the 

actual number of beneficiaries is close 

to 5,000 as a result of normal 

fluctuations in patient populations. The 

requirements under section 

1899(b)(2)(D) of the Act are important 

with respect both to the sufficiency of 

the ACO to provide primary care 

services to its assigned beneficiary 

population and statistical stability for 

purposes of calculating per capita 

expenditures and assessing quality 

performance. Simply stated, and as 

described in detail in section II.D. of 

this proposed rule, as the number of 

assigned beneficiaries increases, the 

minimum savings rate (MSR) gets 

smaller. Conversely, as the number of 

assigned beneficiaries decreases, the 

MSR expands thus making it 

significantly more difficult for an ACO 

to obtain shared savings. So, retaining 

5,000 assigned beneficiaries is 

important from both the perspective of 

the capacity of the ACO to provide 

primary care services to its assigned 

beneficiary population as well as the 

ability of the ACO to realize shared 

savings by exceeding the MSR. 

Thus, we considered what action, if 

any, should be taken in the event the 

number of beneficiaries falls below 

5,000. Specifically, we considered 

whether an ACO’s participation in the 

program should be terminated or its 

eligibility for shared savings be deferred 

if the number of beneficiaries dropped 

below 5,000. We considered terminating 

the ACO for falling below 5,000 

beneficiaries immediately or after giving 

the ACO an opportunity to implement a 

corrective action plan. We have 

concerns that immediately terminating 

an ACO or denying it an opportunity to 

share in savings because its population 

fell slightly may discourage 

participation among smaller ACOs. We 

believe this would be inconsistent with 

the goals of allowing greater 

opportunities for broadly transforming 

the health care delivery system and 

increasing access to high quality and 

lower cost care under the Shared 

Savings Program for Medicare 

beneficiaries regardless of where they 

live. Another option would be to take no 

action if the ACO falls below 5,000 

assigned beneficiaries. Taking no action 

in these instances would be inconsistent 

with the statutory requirement that an 

ACO have 5,000 assigned beneficiaries 

in order to be eligible to participate in 

the Shared Savings Program and would 

reduce incentives for smaller provider 

organizations to affiliate with other 

providers and suppliers to be successful 

under the Shared Savings Program. A 

third option might be to adjust, or scale, 

the shared savings in those instances 

where the number of assigned 

beneficiaries falls below the floor of 

5,000 over the course of a performance 

year. If shared savings are realized, and 

all other requirements of participation 

are met, an ACO that falls below the 

5,000 assigned beneficiary floor could 

realize shared savings but at a reduced 

rate of savings that would parallel the 

number of beneficiaries assigned to the 

ACO. Thus, the amount of the incentive 

payment would be scaled to the number 

of beneficiaries in the ACO during the 

performance year. However, since the 

MSR adjusts with the number of 

assigned beneficiaries, there is a built-in 

incentive for ACOs to increase their 

beneficiary population. 

We believe a reasonable compromise 

would balance the statutory 

requirements, program incentives, and 

recognition of expected variation in an 

ACO’s assigned population. Thus, we 

are proposing that if an ACO’s assigned 

population falls below 5,000 during the 

course of the agreement period, we 

would issue a warning and place the 

ACO on a corrective action plan. The 

ACO would remain eligible for shared 

savings for the performance year for 

which the warning was issued. We 

further propose that if the ACO fails to 

meet the eligibility criterion of having 

more than 5,000 beneficiaries by the 

completion of the next performance 

year, the ACO’s participation agreement 

will be terminated and the ACO will not 

be eligible to share in savings for that 

year. Thus, for example, if during the 

first performance year, an ACO’s 

assigned population fell below 5,000, 

we would issue a warning, notifying the 

ACO of the variation in their assigned 

population. The ACO would be placed 

on a corrective action plan which could 

include, for example, a plan to add more 


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primary care providers to the ACO. The 

ACO would remain eligible to share in 

savings for the first performance year. 

However, if the ACO’s assigned 

population had not returned to at least 

5,000 by the end of the second 

performance year, then that ACO’s 

agreement will be terminated and the 

ACO would not be eligible to share in 

savings for the second performance 

year. We also propose to reserve the 

right to review the status of the ACO 

while on the corrective action plan and 

terminate the agreement on the basis 

that the ACO no longer meets eligibility 

requirements. We request comment on 

this proposal and on other potential 

options for addressing situations where 

the assigned beneficiary population falls 

below 5,000 during the course of an 

agreement period. 

8. Required Reporting on Participating 

ACO Professionals 

Section 1899(b)(2)(E) of the Act 

requires ACOs to ‘‘provide the Secretary 

with such information regarding ACO 

professionals participating in the ACO 

as the Secretary determines necessary to 

support the assignment of Medicare FFS 

beneficiaries to an ACO, the 

implementation of quality and other 

reporting requirements * * *, and the 

determination of payments for shared 

savings * * *.’’ As discussed in sections 

II.B. and II.D. of this proposed rule, we 

are proposing to define an ACO 

operationally as a legal entity that is 

comprised of a group of ACO 

participants which are in turn defined 

to mean Medicare-enrolled providers or 

suppliers, as identified by their TINs. 

However, TIN level data alone may not 

be entirely sufficient for a number of 

purposes in the Shared Savings Program 

such as implementing our methodology 

for beneficiary assignment and 

calculating the quality performance 

score. Accordingly, to satisfy the 

requirements under section 

1899(b)(2)(E) of the Act, we are 

proposing that entities applying to 

participate in the Shared Savings 

Program must provide not only the TINs 

of the ACO and the ACO participants, 

but also a list of national provider 

identifiers (NPIs) associated with the 

ACO providers/suppliers, which 

separately identifies the physicians that 

provide primary care. 

We are also proposing to require an 

ACO to maintain, update, and annually 

report to us the TINs of its ACO 

participants and the NPIs associated 

with the ACO providers/suppliers. We 

believe that requiring this information 

offers the level of transparency needed 

to implement the Shared Savings 

Program. 

9. Processes To Promote Evidence-Based 

Medicine, Patient Engagement, 

Reporting, and Coordination of Care 

Section 1899(b)(2) of the Act 

establishes a number of requirements 

which ACOs must satisfy in order to be 

eligible to participate in the Shared 

Savings Program. Several of these 

standards deal with how patient care is 

provided by the ACO, with a focus on 

processes and methods to: (1) Promote 

higher quality of care; (2) better 

coordinate care; and (3) meet the needs 

and concerns of patients and their 

families, including effectively engaging 

patients and their families in medical 

decision-making. Specifically, section 

1899(b)(2)(G) of the Act requires an 

ACO to ‘‘define processes to promote 

evidence-based medicine and patient 

engagement, report on quality and cost 

measures, and coordinate care, such as 

through the use of telehealth, remote 

patient monitoring, and other such 

enabling technologies.’’ 

With regard to each of the specific 

requirements under section 

1899(b)(2)(G) of the Act, we have two 

options. One option is simply to 

propose to require documentation of an 

ACO’s plans 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.’’ Under this 

option, we would not establish any 

more specific criteria for these 

requirements. However, we would 

expect that the required documentation 

present convincing evidence of concrete 

and effective plans to satisfy these 

requirements, by providing specific 

processes and criteria that the ACO 

intends to use for promoting, improving, 

and assessing evidence-based medicine, 

beneficiary engagement, reporting of 

quality and cost measures, and 

coordination of care. Such processes 

would have to include provisions for 

internal assessment of cost and quality 

of care within the ACO, and employ 

these assessments in continuous 

improvement of the ACO’s care 

practices. 

The other option is to identify specific 

criteria that we would propose to 

require ACOs to meet with regard to 

each of these requirements. For 

example, with regard to the requirement 

to promote evidence-based medicine, 

we could provide a detailed description 

of evidence-based guidelines for various 

conditions and diseases for which we 

would hold ACOs accountable, 

including specific instructions for how 

an ACO would demonstrate it is 

following these guidelines and 

monitoring compliance among its ACO 

participants and ACO providers/ 

suppliers. We could also specify a 

number of conditions for which the 

ACO would maintain an evidence-based 

medicine preventive health guidelines 

program. Similarly, we could identify 

and require the use of specific decision 

support tools, patient activation 

measures, or other patient support tools 

in order for an ACO to satisfy the 

requirement for beneficiary engagement. 

However, we have concerns that a 

prescriptive approach would be 

premature and potentially impede 

innovation and the goals of this 

program. Thus, for the requirements 

under section 1899(b)(2)(G) of the Act, 

we are proposing that in order to be 

eligible to participate in the Shared 

Savings Program, the ACO provide 

documentation in its application 

describing its plans to: (1) Promote 

evidence-based medicine; (2) promote 

beneficiary engagement; (3) report 

internally on quality and cost metrics; 

and (4) coordinate care. We are 

proposing this option in order to allow 

ACOs the flexibility to choose the tools 

for meeting these requirements that are 

most appropriate for their practitioners 

and patient populations. Over time, as 

we learn more about successful 

strategies in these areas, and as we have 

more experience assessing specific 

critical elements for success, the Shared 

Savings Program eligibility 

requirements with regard to section 

1899(b)(2)(G) of the Act may be revised. 

We are also specifically soliciting 

comment on whether more prescriptive 

criteria may be appropriate for meeting 

some or all of these requirements under 

section 1899(b)(2)(G) of the Act for 

future rulemaking. Later in the 

document, we discuss the concepts of 

evidence-based medicine, patient 

engagement, internal quality and cost 

reporting, and coordination of care, and 

describe how Shared Savings Program 

applicants can establish compliance 

with the requirements of section 

1899(b)(2)(G) of the Act. 

a. Processes To Promote Evidence-Based 

Medicine 

As stated previously, section 

1899(b)(2)(G) of the Act requires an 

ACO to ‘‘define processes to promote 

evidence-based medicine * * *.’’ 

Evidence-based medicine can be 

generally defined as the application of 

the best available evidence gained from 

the scientific method to clinical 

decision-making. It seeks to assess the 

strength of evidence of the risks and 

benefits of treatments (including lack of 

treatment) and diagnostic tests, and 


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applies this evidence to the processes of 

medical decision-making and treatment. 

In practice, such an approach should 

involve the establishment and 

implementation of evidence-based 

guidelines, based on the best available 

evidence concerning the effectiveness of 

medical treatments, at the 

organizational or institutional level. A 

genuine evidence-based approach 

would also involve regularly assessing 

and updating such guidelines to 

promote continuous improvement in the 

quality of care in light of new evidence 

concerning the effectiveness of medical 

treatments. We propose that as part of 

the application, the ACO would 

describe the evidence-based guidelines 

it intends to establish, implement, and 

periodically update. 

b. Processes To Promote Patient 

Engagement 

Section 1899(b)(2)(G) of the Act also 

requires an ACO to ‘‘define processes to 

promote * * * patient engagement.’’ 

The term ‘‘patient engagement’’ is the 

active participation of patients and their 

families in the process of making 

medical decisions. Patient engagement 

in decision-making requires 

consideration not only of the best 

scientific evidence concerning medical 

treatment, but also the opportunity for 

patients and families to assess 

prospective treatment approaches in the 

light of their own values and 

convictions. Measures for promoting 

patient engagement may include, but are 

not limited to, the use of decision 

support tools and shared decision 

making methods with which the patient 

can assess the merits of various 

treatment options in the context of his 

or her values and convictions. Patient 

engagement also includes methods for 

fostering what might be termed ‘‘health 

literacy’’ in patients and their families. 

Health literacy is the possession of basic 

knowledge about maintaining good 

health, avoiding preventable medical 

conditions, managing existing 

conditions, as well as knowledge about 

how the care system works (for 

example, the roles of primary care 

physicians and specialist physicians, 

the nature and operation of both public 

and private health insurance, etc.). 

We propose that as part of the 

application, the ACO would describe 

the patient engagement processes it 

intends to establish, implement, and 

periodically update. 

c. Processes To Report on Quality and 

Cost Measures 

Section 1899(b)(2)(G) of the Act 

requires an ACO to ‘‘define processes to 

* * * report on quality and cost 

measures.’’ Processes that may be used 

for reporting on quality and cost 

measures may include, but are not 

limited to, developing a population 

health data management capability, or 

implementing practice and physician 

level data capabilities with point-ofservice (POS) reminder systems to drive 

improvement in quality and cost 

outcomes. We would expect ACOs to be 

able to monitor both costs and quality 

internally and make appropriate 

modifications based upon their 

collection of such information. 

We propose that as part of the 

application, the ACO would describe its 

process to report internally on quality 

and cost measures, and how it intends 

to use that process to respond to the 

needs of its Medicare population and to 

make modifications in its care delivery. 

d. Processes To Promote Coordination of 

Care 

Finally, section 1899(b)(2)(G) of the 

Act requires an ACO to ‘‘define 

processes to * * * coordinate care, such 

as through the use of telehealth, remote 

patient monitoring, and other such 

enabling technologies.’’ Coordination of 

care involves strategies to promote, 

improve, and assess integration and 

consistency of care across primary care 

physicians, specialists, and acute and 

post-acute providers and suppliers, 

including methods to manage care 

throughout an episode of care and 

during its transitions, such as discharge 

from a hospital or transfer of care from 

a primary care physician to a specialist. 

Compliance with this requirement may 

involve a range of strategies which may 

include the following examples: 

• A capability to use predictive 

modeling to anticipate likely care needs. 

• Utilization of case managers in 

primary care offices. 

• Having a specific transition of care 

program that includes clear guidance 

and instructions for patients, their 

families, and their caregivers. 

• Remote monitoring. 

• Telehealth. 

• The establishment and use of health 

information technology, including 

electronic health records and an 

electronic health information exchange 

to enable the provision of a beneficiary’s 

summary of care record during 

transitions of care both within and 

outside of the ACO. 

The provisions of any free services 

(telehealth, case managers, etc.) between 

parties in a position to generate Federal 

health care program referrals could 

trigger evaluation under the relevant 

fraud and abuse laws. Stakeholders 

interested in this issue may also wish to 

comment on the joint OIG/CMS notice 

referenced in section II.I of this 

proposed rule. 

The strategies employed by an ACO to 

optimize care coordination should not 

impede the ability of a beneficiary to 

seek care from providers that are not 

participating in the ACO, or develop 

policies to place any restrictions that are 

not legally required on the exchange of 

medical records with providers who are 

not part of the ACO. We are proposing 

to prohibit the ACO from developing 

any policies that would restrict a 

beneficiary’s freedom to seek care from 

providers and suppliers outside of the 

ACO. 

10. Patient-Centeredness Criteria 

Section 1899(b)(2)(H) of the Act 

requires an ACO to ‘‘demonstrate to the 

Secretary that it meets patientcenteredness criteria specified by the 

Secretary, such as the use of patient and 

caregiver assessments or the use of 

individualized care plans.’’ A patientcentered, or person-centered, 

orientation could be defined as care that 

incorporates the values (to the extent 

the informed, individual patient desires 

it) of transparency, individualization, 

recognition, respect, dignity, and choice 

in all matters, without exception, 

related to one’s person, circumstances, 

and relationships in health care. Patientcentered care should extend not only to 

the patient but to the family and 

caregivers of the patient. Patientcenteredness is one of the Institute of 

Medicine’s (IOM’s) aims for 

improvement in health care. In IOM’s 

report ‘‘Crossing the Quality Chasm: A 

New Health System for the 21st 

Century,’’ providing patient-centered 

care is defined as ‘‘providing care that is 

respectful of and responsive to 

individual patient preferences, needs, 

and values, and ensuring that patient 

values guide all clinical decisions.’’ (to 

view IOM’s report discussed previously, 

visit http://iom.edu/Reports/2001/

Crossing-the-Quality-Chasm-A-NewHealth-System-for-the-21stCentury.aspx) The National Partnership 

for Women and Families suggests the 

following principles for patient-centered 

care: (1) Care is comprehensive, 

coordinated, personalized, and planned; 

(2) patients’ experience of care is 

routinely assessed and improved; (3) 

patients and their caregivers are full 

partners in their care; (4) transitions 

between settings of care are smooth, 

safe, effective, and efficient; (5) patients 

can get care when and where they need 

it; (6) care is integrated with the 

community resources patients need to 

maintain health and wellbeing; and (7) 

continuous quality improvement and 

elimination of disparities are top 


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19548 Federal Register / Vol. 76, No. 67 / Thursday, April 7, 2011 / Proposed Rules 

priorities. (To view the Statement of 

Debra L. Ness, President, Nat’l 

Partnership for Women & Families, 

Senate Finance Committee, Roundtable 

on Delivery System Reform April 21, 

2009 visit http://www.national

partnership.org/site/DocServer/090421_

SenateFinanceRoundtableStatement

_Ness.pdf?docID=4881) 

The statutory requirement for 

‘‘patient-centeredness criteria’’ clearly 

implies that one goal of the Shared 

Savings Program is for ACOs to adopt a 

focus on patient-centeredness that is 

promoted by the governing body and 

integrated into practice by leadership 

and management working with the 

organization’s health care teams. 

Drawing from the perspectives 

discussed previously, we believe the 

following list of proposed patientcenteredness principles should inform 

the care provided by an ACO 

participating in the Shared Savings 

Program: 

• Care should be individualized 

based on the person’s unique needs, 

preferences, values, and priorities. 

• Beneficiaries should have access to 

their own medical records and to 

clinical knowledge so that they may 

make informed choices about their care. 

• Beneficiaries (and their caregivers 

and/or family members where 

applicable) should be encouraged to be 

partners in care and make choices 

regarding the care they receive, based on 

both the medical record and clinical 

knowledge (that is, evidence-based 

medicine) provided by their ACO and 

the beneficiary’s individual values. 

• Beneficiary and caregiver and/or 

family experience of care should be 

routinely assessed and the ACO should 

seek to improve it where opportunities 

for improvement are identified. 

• Care should be integrated with the 

community resources beneficiaries 

require to maintain well-being. 

• Transitions in care among providers 

in the ACO, as well as other providers 

outside the ACO from whom the 

beneficiaries may also seek care, should 

be supported consistent with the 

patient-centeredness goals of 

coordinating care and having 

information follow patients by, for 

example, developing processes for the 

electronic exchange of information. 

In the light of these principles, we 

believe the following processes and 

actions listed later in the document 

would be necessary to ensure the 

patient-centered orientation required by 

section 1899. We propose that an ACO 

would be considered patient-centered if 

it has all of the following: 

• A beneficiary experience of care 

survey in place and a description in the 

ACO application how the ACO will use 

the results to improve care over time. As 

discussed in more detail later in the 

document, and as proposed in section 

II.E. of this proposed rule, scoring on 

this survey would help the ACO meet 

the quality performance standard. 

• Patient involvement in ACO 

governance. As discussed in more detail 

later in the document, the ACO would 

be required to have a Medicare 

beneficiary on the governing board. 

• A process for evaluating the health 

needs of the ACO’s assigned population, 

including consideration of diversity in 

their patient populations, and a plan to 

address the needs of their population. 

As discussed in more detail later in this 

document, the ACO would be required 

to describe this process as part of the 

application and describe how it would 

consider diversity in its patient 

population and plans to address its 

population needs. 

• Systems in place to identify highrisk individuals and processes to 

develop individualized care plans for 

targeted patient populations, including 

integration of community resources to 

address individual needs. This proposal 

and application requirements are 

discussed in more detail later in this 

document. 

• A mechanism in place for the 

coordination of care (for example, via 

use of enabling technologies or care 

coordinators). The ACO would be 

required to describe its mechanism for 

coordinating care for Medicare 

beneficiaries. In addition, the ACO 

should have a process in place (or clear 

path to develop such a process) to 

electronically exchange summary of 

care information when patients 

transition to another provider or setting 

of care, both within and outside the 

ACO, consistent with meaningful use 

requirements under the EHR Incentive 

program. The ACO would be required to 

describe their process or their plan to 

develop a process to electronically 

exchange summary of care information 

during care transitions. Additionally, in 

section II.E. of this proposed rule, we 

propose to include care transitions 

measures as part of the assessment of 

ACO quality. 

• A process in place for 

communicating clinical knowledge/ 

evidence-based medicine to 

beneficiaries in a way that is 

understandable to them. This process 

should allow for beneficiary engagement 

and shared decision-making that takes 

into account the beneficiaries’ unique 

needs, preferences, values, and 

priorities. The ACO would be required 

to describe its process, as discussed in 

section II.E. of this proposed rule, for 

communicating clinical knowledge/ 

evidence-based medicine and describe 

how the ACO providers/suppliers will 

engage the beneficiary in shared 

decision-making. 

• Written standards in place for 

beneficiary access and communication 

and a process in place for beneficiaries 

to access their medical record. As part 

of its application, the ACO would be 

required to submit its written standards 

for beneficiary access and 

communication. Additionally, the ACO 

would be required to describe its 

process for beneficiaries to access their 

medical record. 

• Internal processes in place for 

measuring clinical or service 

performance by physicians across the 

practices, and using these results to 

improve care and service over time. As 

described previously, the documents 

submitted to meet leadership and 

management criteria related to quality 

assurance and clinical integration 

program would satisfy this patientcenteredness criterion. 

We believe that this list provides a 

comprehensive set of criteria for 

realizing and demonstrating patientcenteredness in the operation of an 

ACO. Accordingly, we are proposing to 

require that ACOs demonstrate patientcenteredness as required by the statute 

by addressing all 8 areas outlined 

previously. We also considered 

confining the list of mandatory criteria 

to only those items specifically 

mentioned in section 1899(b)(2)(H) of 

the Act that is, to ‘‘the use of patient and 

caregiver assessments’’ and ‘‘the use of 

individualized care plans.’’ However, 

the statute clearly identifies these two 

items only as examples of patientcenteredness, and specifies that an ACO 

must be required to demonstrate that it 

meets patient-centeredness criteria 

‘‘specified by the Secretary.’’ Thus, we 

believe the Secretary is required to 

define and has discretion to specify 

criteria in addition to the two criteria 

that are specifically mentioned in the 

statute. 

We note there is substantial overlap 

and alignment between these patient 

centeredness criteria as defined by the 

Secretary in accordance with section 

1899(b)(2)(H) of the Act and the 

processes ACOs are required to define 

and documents they are required to 

submit as discussed previously to fulfill 

eligibility as outlined in section 

1899(b)(2)(G) of the Act and 

1899(b)(2)(F) of the Act. Therefore, 

many of the ways an ACO defines 

certain processes required by statute 

may also serve to demonstrate it meets 

patient centeredness criteria as defined 

by the Secretary, thus reducing the 


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burden for the ACO in meeting 

eligibility requirements. 

We are soliciting comment on 

whether there are redundancies in the 

list of the 8 criteria or other 

considerations that might justify 

narrowing the list. We are also 

interested in whether the patient 

centeredness criteria as defined by the 

Secretary are sufficient to ensure that 

ACOs participating in the Shared 

Savings Program meet the eligibility 

requirement to demonstrate patient 

centeredness or whether there are 

additional patient centeredness criteria 

that should be added to our proposed 

list in order to meet the goals of 

improving the quality of health care 

delivery and improving patient 

satisfaction with their care. 

Additionally, we seek comment on 

whether these criteria are burdensome 

and whether they might create 

disincentives to participate or make it 

difficult for small entities to participate 

in the program. 

Later in the document, we discuss 4 

of the 8 criteria in detail and solicit 

comment regarding (a) Implementation 

of the beneficiary experience of care 

survey; (b) beneficiary involvement in 

governance; (c) identification of 

population health needs and 

consideration of diversity; and (d) 

implementation of individualized care 

plans and integration of community 

resources. 

a. Beneficiary Experience of Care Survey 

As discussed previously, we propose 

that ACOs have a beneficiary experience 

of care survey in place and that the 

ACO’s application should describe how 

the ACO will use the survey results to 

improve care over time. Surveys are 

important tools for assessing beneficiary 

experience of care and outcomes. As 

part of the requirement to implement a 

beneficiary experience of care survey, 

we propose to require ACOs to collect 

and report on measures of beneficiaries’ 

experience of care and we expect ACOs 

to submit their plan on how they will 

promote, assess, and continually 

improve in weak areas identified by the 

survey. 

Many surveys are being used in both 

the private and public sectors, including 

the Medicare Health Outcomes Survey 

used by Medicare Advantage (MA) 

plans, Consumer Assessment of 

Healthcare Providers and Systems 

(CAHPS) survey tools, and Health 

Resources Services Administration’s 

(HRSA’s) Health Center Patient 

Satisfaction Survey. We are proposing 

that ACOs be required to use a specified 

survey that assesses beneficiary 

experience of care and functional status. 

As proposed in section II.E. of this 

proposed rule, scoring on the patient 

experience of care survey would become 

part of the assessment of the ACOs 

quality performance. Specifically, we 

are proposing that ACOs be required to 

use the Clinician and Group CAHPS 

survey. We also propose to require 

adoption of an appropriate functional 

status survey module that may be 

incorporated into the CAHPS survey. 

The CAHPS Survey is a nationally 

recognized survey, developed by the 

Agency for Healthcare Research and 

Quality (AHRQ), which is widely used 

across the health care spectrum. The 

survey is designed to standardized 

patient questionnaires that can be used 

to compare results across sponsors and 

over time, which identifies the issues 

that are salient to consumers and 

influence their decisions. Since the 

ACO must contain primary care ACO 

professionals but otherwise has 

flexibility to incorporate other types of 

ACO participants, we believe the 

Clinician and Group CAHPS Survey is 

an appropriate tool to assess beneficiary 

experience of care and functional status 

in the ACO. Using this standard and 

well established survey instrument, we 

can more easily compare outcomes and 

beneficiary satisfaction across ACOs, as 

well as in certain modules in common 

between ACOs and Medicare FFS and 

MA plans. It would also help to ensure 

that survey measures are adequate to 

meet the program’s purposes and that 

measures employed in the instrument 

are valid and reliable. However, we 

recognize that requiring the use of a 

specific survey instrument would 

increase the administrative burden of 

the Shared Savings Program on ACOs 

who are not currently using the 

specified instrument. Accordingly, we 

are soliciting comment on whether other 

existing survey tools would be more 

appropriate for ACO quality assessment. 

We also considered proposing to 

allow ACOs to continue using the 

survey tools with which they are 

already familiar or of their own 

choosing at least in the initial stages of 

the program. Allowing ACOs to employ 

survey tools of their own choosing 

would provide maximum flexibility for 

ACOs, and would be least disruptive to 

existing ACO initiatives to survey 

beneficiary experience. However, 

allowing ACOs to employ survey tools 

of their own choosing would severely 

impede our ability to compare 

beneficiary experience across ACOs. 

Moreover, in some instances, the 

instruments selected by ACOs may use 

measures that are insufficient to meet 

the program’s purposes, or measures 

which are not valid and reliable. In 

other instances, it might be that ACOs 

using more comprehensive survey tools 

would be unfairly penalized from the 

perspective of the performance 

standards in comparison to ACOs using 

less extensive surveys. 

b. Patient Involvement in Governance 

Another of the proposed patientcentered criteria discussed previously is 

the requirement that ACOs provide for 

patient involvement in their governing 

processes. We are proposing that, in 

order to satisfy this criterion, ACOs will 

be required to demonstrate a 

partnership with Medicare FFS 

beneficiaries by having representation 

by a Medicare beneficiary serviced by 

the ACO, in the ACO governing body. 

We believe the best way to demonstrate 

a patient-centered program is for 

Medicare beneficiaries to have a voice 

in the decision making process. 

Although, there may be concerns or 

differences in the ability of some ACOs 

to include a beneficiary on the 

governing board, given State laws, we 

are seeking comment on the inclusion of 

a Medicare beneficiary serviced by the 

ACO on the governing body. In order to 

safeguard against any conflicts of 

interest, any patient(s) included in an 

ACO’s governing body, or an immediate 

family member, must not have any 

conflict of interest, and they may not be 

an ACO provider/supplier within the 

ACO’s network. 

We recognize that a requirement for 

representation by a Medicare 

beneficiary serviced by the ACO, on an 

ACO’s governing body will not 

necessarily guarantee outcomes that are 

in line with the goals of the Shared 

Savings Program in general or patientcentered criteria in particular. Medicare 

beneficiary representation on an ACO’s 

governing body may even be relatively 

ineffectual if Medicare beneficiaries 

hold relatively few seats on the 

governing body. Furthermore, such a 

requirement may pose difficulties for 

ACOs that already have a governing 

body and bylaws that do not require or 

may even prohibit Medicare beneficiary 

presence, and this requirement may 

therefore reduce the number of ACOs 

that participate in the Shared Savings 

Program, at least in its initial stages. 

However, we believe it is important to 

the patient-centered orientation of the 

Shared Savings Program to provide for 

beneficiaries to have a voice in ACO 

governance. 

We considered proposing that, instead 

of requiring direct Medicare beneficiary 

representation on ACO governing 

bodies, ACOs could demonstrate a 

partnership with Medicare FFS 


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beneficiaries by having a Medicare 

beneficiary advisory committee or 

panel. Such a proposal would also serve 

to indicate the importance of beneficiary 

engagement in the ACO’s activities to 

improve the quality and efficiency of 

health care services. It would also 

provide ACOs with the opportunity to 

form committees or panels that 

represent the voices of all of their 

patient types, including Medicare FFS 

beneficiaries. In addition, a unified 

advisory committee voice may, under 

some circumstances at least, be more 

effective than, a single beneficiary 

representative in the ACO governing 

body in advancing the goal of 

beneficiary participation in ACO 

governance. Furthermore, it would 

avoid requiring existing ACO governing 

bodies that do not currently have or 

whose bylaws do not permit Medicare 

beneficiary representation to revise their 

bylaws or to forego participation in the 

Shared Savings Program. However, a 

pure advisory committee or panel may 

be an inadequate conduit for Medicare 

beneficiary participation in ACO 

governance compared to their presence 

on the actual decision-making body of 

the ACO. Presence on the governing 

body would provide beneficiaries with 

an active role in the decision-making 

process and thus give beneficiaries more 

influence over the ACO’s activities. In 

contrast, as an advisory committee or 

panel member, the beneficiary’s voice 

provides guidance on the Shared 

Savings Program ACO’s decisionmaking without the benefit of more 

active control over ACO activities. 

Therefore, we are proposing that 

ACOs be required to demonstrate a 

partnership with Medicare FFS 

beneficiaries and meet patient 

centeredness criteria by including a 

Medicare beneficiary serviced by the 

ACO on the ACO governing body. We 

are soliciting comment on whether the 

requirement for beneficiary 

participation should include a 

minimum standard for such beneficiary 

participation on ACO governing bodies 

(for example, a minimum number of 

beneficiaries, or a minimum proportion 

of control over an ACO’s governing 

body.). In addition, we are soliciting 

comment on the possible role of a 

Medicare beneficiary advisory panel or 

committee in promoting the goal of 

engaging patients in ACO governance. 

In particular, we seek comment on 

whether—(1) a Medicare beneficiary 

advisory panel or committee would be 

sufficient in and of itself in providing 

for appropriate patient participation in 

ACO governance; and (2) establishing 

Medicare beneficiary advisory panels or 

committees should be required in 

addition to requiring patient 

representation on ACO governing 

bodies. 

We request comment on the proposal 

to engage in partnership with Medicare 

beneficiaries. We are specifically 

interested in whether this requirement 

will create disincentives for 

participation among smaller entities. 

c. Evaluation of Population Health 

Needs and Consideration of Diversity 

A third proposed patient-centered 

criterion on which we are seeking 

comments is the requirement that an 

ACO has a process for evaluating the 

health needs of the population, 

including consideration of diversity in 

its patient populations, and a plan to 

address the needs of its populations. 

Several institutions and associations 

such as National Committee for Quality 

Assurance (NCQA) and AHRQ have 

made recommendations regarding 

evaluation of population health and 

diversity. For example, NCQA has 

developed multicultural health care 

standards and guidelines which include 

requirements for collecting of patient 

information that help the organization 

understand the composition of the 

population, providing culturally and 

linguistically appropriate services, and 

detecting health care disparities. Other 

institutions and associations have 

developed similar guidelines which 

emphasize promoting cultural 

sensitivity and addressing disparities 

through provider/management 

education and the translation of surveys 

and health promoting literature 

distributed by the provider into 

languages relevant to the provider’s 

population. Establishing partnerships 

with a State or local health department 

which performs community health 

needs assessments and applying these 

findings to the ACO’s population and 

activities may be another viable option 

for meeting this criterion. 

Accordingly, we propose that, in 

order to satisfy this patient-centered 

criterion, ACOs would be required to 

describe in their application their 

process for evaluating the health needs 

of their Medicare population, including 

consideration of diversity, and a plan to 

address the needs of their Medicare 

population. 

d. Implementation of Individualized 

Care Plans and Integration of 

Community Resources 

Finally, we are proposing that ACOs 

must have systems in place to identify 

high-risk individuals and processes to 

develop individualized care plans for 

targeted patient populations. The plan 

must be tailored to—(1) The 

beneficiary’s health and psychosocial 

needs; (2) account for beneficiary 

preferences and values; and (3) identify 

community and other resources to 

support the beneficiary in following the 

plan. This plan would be voluntary for 

the beneficiary, privacy protected, and 

would not be shared with Medicare or 

the ACO governing body; it would 

solely be used by the patient and ACO 

providers/suppliers for care 

coordination. If applicable, and the 

beneficiary consents, the care plan 

should be shared with the caregiver, 

family, and others involved in the 

beneficiary’s care. We propose that an 

ACO would be required to have a 

process in place for developing, 

updating, and, as appropriate, sharing 

the beneficiary care plan with others 

involved in the beneficiary’s care, and 

providing it in a format that is 

actionable by the beneficiary. 

We are requesting comments on our 

proposal that ACOs be required to 

demonstrate use of individualized care 

plans for targeted beneficiary 

populations in order to be eligible for 

the Shared Savings Program. In order to 

satisfy this requirement fully, we 

propose that the development of such 

individualized care plans must grow 

from adherence of a related patientcenteredness criterion, that is, their 

development should be a result of 

shared decision-making which fully 

engages beneficiaries and their families, 

taking into account their values and 

preferences in developing a unique plan 

of care for each individual. 

The individualized care plans should 

include identification of community 

and other resources to support the 

beneficiary in following the plan. To 

this end, we believe that a process for 

integrating community resources into 

the ACO is an important part of patient 

centeredness. A wide variety of 

organizations, although not necessarily 

ACO participants, may be considered a 

community resource, including: 

Employers, commercial health plans, 

local businesses, State/local government 

agencies, local quality improvement 

organizations or collaboratives (such as 

health information exchanges). 

Collaboration with these types of 

community resources can be an 

important part of enabling ACOs to take 

account of the entirety of Medicare 

beneficiary population’s needs relative 

to their environment. Community 

stakeholder engagement in an ACO 

could be explicitly incorporated via 

community representation on the 

governing body, by having a community 

representative on an advisory board, or 

by other innovative mechanisms. 


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Individualized plans of care are not 

only an integral part of providing 

quality health care to both high-risk 

patients or patients with multiple 

chronic conditions, but are equally 

important in proactively maintaining 

the health for any beneficiary. For 

purposes of the application to 

participate in the Shared Savings 

Program, we propose that an ACO 

would be required to submit a 

description of its individualized care 

program, along with a sample care plan, 

and explain how this program is used to 

promote improved outcomes for, at a 

minimum, their high-risk and multiple 

chronic condition patients. In addition, 

the ACO should describe additional 

target populations that would benefit 

from individualized care plans. We also 

propose that ACOs be required to 

describe how they will partner with 

community stakeholders as part of their 

application. ACOs that have a 

stakeholder organization serving on 

their governing body would be deemed 

to have satisfied this requirement. We 

request comment on these proposals. 

We are specifically interested in 

whether these requirements will create 

disincentives for participation among 

smaller entities. 

11. ACO Marketing Guidelines 

We believe there is a potential for 

beneficiaries to be misled about 

Medicare services available from an 

ACO or about the providers and 

suppliers from whom they can receive 

those services. We realize that care 

coordination is an important component 

of the Shared Savings Program; 

however, the potential for shared 

savings may be an incentive for ACOs, 

ACO participants, or ACO providers/ 

suppliers to engage in behavior that may 

confuse or mislead beneficiaries about 

the Shared Savings Program or their 

Medicare rights. For example, although 

it is expected that ACO providers/ 

suppliers participating in an ACO will 

refer patients to other ACO providers/ 

suppliers in the ACO, we are concerned 

that beneficiaries may be misled into 

thinking the ACO is similar to a 

managed care organization, and that 

they may only receive services or only 

certain services from the other 

participating ACO providers/suppliers. 

Although section 1899 of the Act is 

silent with regard to marketing activities 

and other forms of beneficiary 

communications by ACOs, section 

1899(b)(2)(H) of the Act requires an 

ACO to demonstrate ‘‘that it meets 

patient-centeredness criteria.’’ We 

believe that in order to be truly patientcentered, an ACO must not only provide 

care coordination that is tailored to the 

needs of the individual beneficiary, but 

also avoid engaging in activities that 

may prevent its assigned beneficiaries 

from taking advantage of the full range 

of benefits to which they are entitled 

under the Medicare FFS program, 

including the right to choose between 

healthcare providers and care settings. 

As a result, issuing beneficiary 

communications or engaging in 

marketing activities that may be 

confusing or misleading would not be 

patient-centered because these activities 

restrict the ability of beneficiaries and/ 

or their caregivers to be informed about 

their health care choices and thus limit 

the opportunity for beneficiaries to be 

properly involved in the management of 

their own care. 

Accordingly, we think it would be 

appropriate and consistent with the 

purpose and intent of the statute to limit 

and monitor the use of beneficiary 

communications specifically related to 

the ACO operations or functions as well 

as ACO marketing activities and 

materials by ACOs to ensure that such 

communications and marketing by 

ACOs are used only for appropriate 

purposes, such as notification that a 

beneficiary’s healthcare provider is 

participating in the ACO, issuance of 

any CMS required notices, notification 

of provider or ACO terminations. This 

policy will protect Medicare 

beneficiaries by minimizing the 

potential that they will be misled or 

confused by ACO marketing. 

Additionally, the policy is consistent 

with marketing provisions used in other 

Medicare programs such as MA. 

We are proposing that all ACO 

marketing materials, communications, 

and activities related to the ACO and its 

participation in the Shared Savings 

Program, such as mailings, telephone 

calls or community events, that are used 

to educate, solicit, notify, or contact 

Medicare beneficiaries or providers/ 

suppliers regarding the ACO and its 

participation in the Shared Savings 

Program, be approved by us before use 

to protect beneficiaries and to ensure 

that they are not confusing or 

misleading. This requirement would 

also apply to any materials or activities 

used by ACO participants or ACO 

providers/suppliers on behalf of the 

ACO to communicate about the ACO’s 

participation in the Shared Savings 

Program in any manner to Medicare 

beneficiaries. In addition, we would 

want to ensure that materials distributed 

to beneficiaries do not misrepresent 

Shared Savings Program policies or 

suggest that we endorse the ACO, its 

ACO participants, or its ACO providers/ 

suppliers. 

We are further proposing that before 

any changes can be made to any 

approved materials, the revised 

materials must be approved by us before 

use. Finally, because the failure to 

comply with these requirements would 

demonstrate that the ACO does not meet 

the patient-centeredness criteria and 

therefore may no longer be eligible to 

participate in the program, we propose 

that an ACO that fails to adhere to these 

requirements may be placed under a 

corrective action plan or terminated, at 

our discretion. 

For purposes of the Shared Savings 

Program, we are proposing to define 

ACO marketing materials, 

communications, and activities as 

including, but not limited to, general 

audience materials such as brochures, 

advertisements, outreach events, letters 

to beneficiaries, web pages, mailings, or 

other activities, conducted by or on 

behalf of the ACO, or by ACO 

participants, or ACO providers/ 

suppliers participating in the ACO, or 

by other individuals on behalf of the 

ACO or its participating providers and 

suppliers. If these materials or activities 

are used to educate, solicit, notify, or 

contact Medicare beneficiaries or 

providers and suppliers regarding the 

ACO and its participation in the Shared 

Savings Program, they must be 

approved by us. 

We do not believe that the following 

materials and activities would be 

subject to our approval: Beneficiary 

communications that are informational 

materials, that are customized or limited 

to a subset of beneficiaries; and 

materials that do not include 

information about the ACO or providers 

in the ACO; materials that cover 

beneficiary-specific billing and claims 

issues or other specific individual 

health related issues; and educational 

information on specific medical 

conditions, (for example, flu shot 

reminders), or referrals, for example, as 

discussed in section II. C. of this 

proposed rule, exceptions to the 

definition of ‘‘marketing’’ under the 

HIPAA Privacy Rule. 

12. Program Integrity Requirements 

Section 1899(a)(1)(A) of the Act 

authorizes the Secretary to specify 

criteria that ACO participants must meet 

in order to work together to manage and 

coordinate care for Medicare FFS 

beneficiaries through an ACO. Using 

this authority, we propose several 

program integrity criteria to protect the 

Shared Savings Program from fraud and 

abuse and to ensure that the Shared 

Savings Program does not become a 

vehicle for, or increase the potential for, 

fraud and abuse in other parts of the 


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19552 Federal Register / Vol. 76, No. 67 / Thursday, April 7, 2011 / Proposed Rules 

Medicare program or in other Federal 

health care programs. 

a. Compliance Plans 

We are proposing that an ACO must 

have a compliance plan that addresses 

how the ACO will comply with 

applicable legal requirements. We 

recognize that the specific design and 

structure of an effective compliance 

plan may vary depending on the size 

and business structure of the ACO. We 

are proposing that the ACO demonstrate 

that it has a compliance plan that 

includes at least the following elements, 

which are common in the compliance 

industry: A designated compliance 

official or individual who is not legal 

counsel to the ACO and who reports 

directly to the ACO’s governing body; 

mechanisms for identifying and 

addressing compliance problems related 

to the ACO’s operations and 

performance; a method for employees or 

contractors of the ACO or ACO 

providers/suppliers to report suspected 

problems related to the ACO; 

compliance training of the ACO’s 

employees and contractors; and a 

requirement to report suspected 

violations of law to an appropriate law 

enforcement agency. Nothing in this 

rule would prevent an ACO from using 

or building on an existing compliance 

program, if it has one (or if its ACO 

participants have programs that can be 

incorporated). To achieve an effective 

compliance program, an ACO may also 

want to consider coordinating its 

compliance efforts with existing 

compliance efforts of its ACO providers/ 

suppliers. It is not our intention that an 

ACO would need to engage in 

duplicative efforts to meet the 

compliance program requirement. The 

goal is for ACOs to have effective 

compliance mechanisms. 

b. Compliance With Program 

Requirements 

We propose that, notwithstanding any 

relationships that the ACO may have 

with other entities related to ACO 

activities, the ACO maintains ultimate 

responsibility for compliance with all 

terms and conditions of its agreement 

with us. We propose to require that all 

contracts or arrangements between or 

among the ACO, its ACO participants 

and ACO providers/suppliers, and other 

entities furnishing services related to 

ACO activities require compliance with 

the obligations under the 3-year 

agreement, including the document 

retention and access requirements 

discussed in section II.H of this 

proposed rule. We solicit comments on 

our proposal. 

We must ensure the accuracy, 

completeness, and truthfulness of 

information submitted to us to 

determine an organization’s eligibility to 

participate in the Shared Savings 

Program as an ACO, its compliance with 

program requirements, its eligibility for 

shared savings payments, and the 

amount of any payments owed to or by 

the ACO. To that end, we propose that 

an authorized representative of the 

ACO—specifically, an executive who 

has the ability to legally bind the ACO— 

must certify the accuracy, completeness, 

and truthfulness of information 

contained in its Shared Savings Program 

application, 3-year agreement, and 

submissions of quality data and other 

information. The certification must be 

made at the time the application, 

agreement, and information is 

submitted. 

We further propose that, as a 

condition of receiving a shared savings 

payment, an authorized representative 

with authority to legally bind the ACO 

must make a written request to us for 

payment of the shared savings in a 

document that certifies the ACO’s 

compliance with program requirements 

as well as the accuracy, completeness, 

and truthfulness of any information 

submitted by the ACO the ACO 

participants, or the ACO providers/ 

suppliers to us, including any quality 

data or other information or data relied 

upon by us in determining the ACO’s 

eligibility for, and the amount of, a 

shared savings payment or the amount 

owed by the ACO to us. We further 

propose that, if such data are generated 

by ACO participants or another 

individual or entity, or a contractor, or 

subcontractor of the ACO or the ACO 

participants, such ACO participant, 

individual, entity, contractor, or 

subcontractor must similarly certify the 

accuracy, completeness, and 

truthfulness of the data and provide the 

government with access to such data for 

audit, evaluation, and inspection. 

c. Conflicts of Interest 

We are proposing that the ACO 

governing body have a conflicts of 

interest policy that applies to members 

of the governing body. The purpose of 

this proposal is to ensure that members 

of the governing body act in the best 

interests of the ACO and Medicare 

beneficiaries We propose that the 

conflicts of interest policy must require 

members of the governing body to 

disclose relevant financial interests. 

Further, the policy must provide a 

procedure for the ACO to determine 

whether a conflict of interest exists and 

set forth a process to address any 

conflicts that arise. Such a policy would 

also address remedial action for 

members of the governing body that fail 

to comply with the policy. We solicit 

comments on this proposal, including 

the scope and content of such a policy. 

d. Screening of ACO Applicants 

The Medicare program includes 

substantial screens of enrolling 

providers and suppliers, including, for 

example, newly enrolling ACO 

participants. ACOs will not be subject to 

those existing screens because they are 

not enrolling in Medicare. Consistent 

with our efforts throughout the 

Medicare program to strengthen 

provider enrollment standards and 

encourage compliance with program 

requirements, we are considering 

screening ACOs during the Shared 

Savings Program application process 

with regard to their program integrity 

history, including any history of 

program exclusions or other sanctions 

and affiliations with individuals or 

entities that have a history of program 

integrity issues. ACOs whose screening 

reveals a history of program integrity 

issues and/or affiliations with 

individuals or entities that have a 

history of program integrity issues may 

be subject to rejection of their Shared 

Savings Program applications or the 

imposition of additional safeguards or 

assurances against program integrity 

risks. We solicit comments on the 

nature and extent of such screening and 

the screening results that would justify 

rejection of an application or increased 

scrutiny. 

e. Prohibition on Certain Required 

Referrals and Cost-Shifting 

In section II.D. of this proposed rule, 

we propose to assign beneficiaries to an 

ACO after the conclusion of a 

performance period, but we also 

indicate that we are considering 

assigning beneficiaries to an ACO on a 

prospective basis at the beginning of a 

performance period. We are concerned 

that ACOs or ACO participants may 

offer or be offered inducements to 

overutilize services or to otherwise 

increase costs for Medicare or other 

Federal health care programs with 

respect to the care of individuals who 

are not assigned to the ACO under the 

Shared Savings Program. The risk of 

such abuse might be heightened if the 

final rule provides for prospective 

assignment of beneficiaries. To address 

the risk of inappropriate cost-shifting 

within Medicare and other Federal 

health care programs, we are 

considering prohibiting ACOs and their 

ACO participants from conditioning 

participation in the ACO on referrals of 

Federal health care program business 


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that the ACO or its ACO participants 

know or should know is being provided 

to beneficiaries who are not assigned to 

the ACO. 

C. Establishing the 3-Year Agreement 

With the Secretary 

1. Options for Start Date of the 

Performance Year 

Section 1899 (b)(2)(B) of the Act, as 

added by section 3022 of the Affordable 

Care Act provides that an ‘‘ACO shall 

enter into an agreement with the 

Secretary to participate in the [Shared 

Savings Program] for no less than a 3- 

year period * * * ’’ In establishing the 

requirement for a minimum 3-year 

agreement period, the statute does not 

prescribe a particular application period 

or specify a start date for ACO 

agreements. In this section of this 

proposed rule, we will discuss our 

proposals for establishing an application 

period and for setting the start date for 

the 3-year agreements with ACOs. 

We considered several options for 

establishing start dates, with the 

corresponding 3-year agreement 

periods: Annual start dates; semiannual 

start dates; rolling start dates; and 

delayed start dates. In our consideration 

of these options, we attempted to 

balance the need for maximum 

flexibility for program applicants with 

the advantages of establishing a 

streamlined administrative approach. 

Adopting an annual application period 

and start date would create cohorts of 

ACO applicants, which would be 

simultaneously evaluated for eligibility 

to participate in the program. 

Agreements with ACOs of the same 

cohort would take effect on the same 

date each year. This would allow for 

more streamlined processes around 

agreement renewal and performance 

analysis, evaluation and monitoring. 

However, under section 1899(a)(1) of 

the Act, the Secretary must establish the 

Shared Savings Program by not later 

than January 1, 2012. Given the short 

timeframe for implementation of the 

program and our desire to permit as 

many qualified ACOs as possible to 

participate in the first year, we also gave 

a great deal of consideration to 

alternative approaches that would 

provide flexibility to program 

applicants. For instance, we could allow 

ACOs to apply on a ‘‘rolling’’ basis in 

which applications are accepted and 

evaluated any time of year and the 

ACO’s agreement period would begin 

after a determination that the eligibility 

requirements had been met. In this way, 

applicants could apply throughout the 

course of the year as they become ready 

and we could review and approve 

applications and begin performance 

periods on a rolling basis. 

After exploring the various 

alternatives, it has become clear that the 

greatest barrier to any option other than 

an annual uniform start date relates to 

appropriate beneficiary assignment, 

particularly for markets where there 

may be multiple ACOs. First, if ACO 

agreements begin more often than once 

a year, beneficiaries could be assigned 

to two ACOs for an overlapping period. 

As discussed in section II.D. of this 

proposed rule, we propose that 

beneficiaries will be assigned to ACOs 

based upon where they receive the 

plurality of their primary care services. 

Since the physician associated with the 

plurality of a beneficiary’s primary care 

services could vary from year to year, 

having multiple start dates could result 

in a beneficiary being assigned to 

multiple ACOs for an overlapping 

period. This scenario would result in 

confusion for beneficiaries and the 

potential for duplicate shared savings 

payments for care provided to a single 

beneficiary. Problems with patient 

assignment may cause unintended 

consequences for per capita costs, 

making it difficult to make comparisons 

of one ACO’s performance to another 

that has a different start date. In 

addition, adopting multiple start dates 

within a year would require multiple 

cycles for application review and 

approval, calculation of baselines and 

targets, data sharing, quality reporting, 

and financial reconciliation, which 

would impose a significant 

administrative challenge. 

After evaluating the various options 

for start date, we are proposing to 

establish an application process with an 

annual application period during which 

a cohort of ACOs would be evaluated for 

eligibility to participate in the Shared 

Savings Program. We further propose 

that the performance years be based on 

the calendar year to be consistent with 

most CMS payment and quality 

incentive program cycles. In other 

words, we propose: (1) To adopt the 

general requirement that ACO 

applications must be submitted by a 

deadline established by us; (2) we will 

review the applications and approve 

applications from eligible organizations 

prior to the end of the calendar year; (3) 

the requisite 3-year agreement period 

will begin on the January 1 following 

approval of an application; and (4) the 

ACO’s performance periods under the 

agreement will begin on January 1 of 

each respective year during the 

agreement period. 

However, we are concerned that, in 

light of the short time frame for 

implementing the Shared Savings 

Program in the first year of the program, 

a January 1 start date might not provide 

the flexibility necessary to allow all 

interested ACOs to complete their 

application packages. Accordingly, we 

solicit comment on any alternatives to a 

January 1 start date that would allow the 

greatest number of qualified 

organizations to apply to participate in 

the first year of the program. One 

specific example of an alternative to a 

single start date of January 1 for the first 

year of the Shared Savings Program 

might be to add an additional start date 

of July 1 and to allow the agreement 

period for ACOs with a July 1 start date 

to be increased to 3.5 years. Under this 

example, the first performance year of 

the agreement period would be defined 

as 18 months in order that all of the 

agreement periods would synchronize 

with ACOs entering the program on 

January 1 of the following year. We 

envision that if adopted, this alternative 

would only be available in the first year 

of the program and for all subsequent 

years all applications would have to be 

reviewed and accepted prior to the 

beginning of the applicable calendar 

year and all agreements would be for 3 

years. 

2. Timing and Process for Evaluating 

Shared Savings 

Section 1899(d)(1) of the Act, as 

added by section 3022 of the Affordable 

Care Act, provides that an ACO shall be 

eligible to receive shared savings 

payments for each year of the agreement 

period, if the ACO has met the quality 

performance standards established 

under section 1899(b)(3) of the Act and 

has achieved the required percent of 

savings below its benchmark. However, 

the statute is silent with respect to when 

the shared savings determination should 

be made. Potential ACOs have indicated 

that they need timely feedback on their 

performance in order to develop and 

implement improvements in care 

delivery. In developing our proposals, 

we have therefore been attentive to the 

importance of determining shared 

savings payments and providing 

feedback to ACOs on their performance 

in a timely manner while at the same 

time not sacrificing the accuracy needed 

to calculate per capita expenditures. 

Our determination of an ACO’s 

eligibility to receive a payment for 

shared savings will be based upon an 

analysis of the claims submitted by 

providers and suppliers for services and 

supplies furnished to beneficiaries 

assigned to the ACO. There is an 

inherent lag between when a service is 

performed and when a claim is 

submitted to us for payment. 

Additionally, there is also a time lag 


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between when the claim is received by 

us and when the claim is paid. For this 

reason, all Medicare service and 

expenditure data have what can be 

defined as a claims run-out period. The 

claims run-out period is the time 

between when a Medicare-covered 

service has been furnished to a 

beneficiary and when the final payment 

is actually issued for the respective 

service. 

From the perspective of the utilization 

and expenditure data that would be 

needed in order to determine an ACO’s 

eligibility to receive shared savings and 

to provide performance feedback 

reports, the longer the claim run-out 

period, the more complete and accurate 

the utilization and expenditure data 

would be for any given year. Higher 

completion percentages are associated 

with longer run out periods and thus 

would necessitate a longer delay before 

we could determine whether an ACO is 

eligible to receive shared savings and 

provide performance feedback. 

Conversely, a lower completion 

percentage would be associated with a 

shorter run out period and thus a 

quicker turnaround for the shared 

savings determination and for the 

provision of performance feedback. 

Based upon historical trends, a 3-month 

run-out would result in a completion 

percentage of approximately 98.5 

percent for physician services and 98 

percent for Part A services. A 6-month 

run-out of claims data results in a 

completion percentage of approximately 

99.5 percent for physician services and 

99 percent for Part A services. Since 

neither a 3-month nor a 6-month runout of claims data would offer complete 

calendar year utilization and 

expenditure data, we would have to 

work with our Office of the Actuary to 

determine if the calculation of a 

completion percentage is warranted. If 

determined necessary, the completion 

percentage would be applied to ensure 

that the shared savings determination 

reflects the full costs of care furnished 

to assigned beneficiaries during a given 

calendar year. Thus, we must balance 

the need to ensure accurate and 

complete claims data are used to 

determine shared savings with the need 

to provide timely feedback to ACOs 

participating in the Shared Savings 

Program. Additionally, regardless of 

whether we use a 3-month or 6-month 

claims run-out period, we are concerned 

that some claims (for example, high cost 

claims) may be filed after the claims 

run-out period which would affect the 

accuracy of the amount of the shared 

savings payment. We are considering, 

and seek comment on, ways to address 

this issue, including applying an 

adjustment factor determined by CMS 

actuaries to account for incomplete 

claims, termination of the ACO’s 

agreement with us for ACOs found to be 

holding claims back, or attributing 

claims submitted after the run-out 

period to the following performance 

period. 

We propose using a 6-month claims 

run-out to calculate the benchmark and 

per capita expenditures for the 

performance year. A 6-month claims 

run-out will allow us to more accurately 

determine the per capita expenditures 

associated with each respective ACO. 

Although the use of a 6-month claims 

run out will delay the computation of 

shared savings payments and the 

provision of feedback to participating 

ACOs, the trade-off for a more accurate 

calculation of per capita costs is 

warranted. More accurately defining the 

per capita expenditures will allow us to 

share the appropriate amount of savings 

or alternatively, if no shared savings are 

realized, it will allow the ACO to focus 

on potential areas for improvement. 

However, we seek comment on whether 

there are additional considerations that 

might make a 3-month claims run-out 

more appropriate. 

3. Data Sharing 

Under section 1899(b)(2)(A) of the 

Act, as added by section 3022 of the 

Affordable Care Act, an ACO must, ‘‘be 

willing to become accountable for the 

quality, cost, and overall care of the 

Medicare fee-for-service beneficiaries 

assigned to it.’’ Section 1899 of the Act 

does not address what data, if any, we 

should make available to ACOs on their 

assigned beneficiary populations to 

support them in evaluating the 

performance of ACO participants and 

ACO providers/suppliers, conducting 

quality assessment and improvement 

activities, and conducting populationbased activities relating to improved 

health. In agreeing to become 

accountable for a group of Medicare 

beneficiaries, we generally expect that 

participating ACOs are able to, or are 

working toward, independently 

identifying and producing the data they 

believe are necessary to best evaluate 

the health needs of their patient 

population, improve health outcomes, 

monitor provider/supplier quality of 

care and patient experience of care, and 

produce efficiencies in utilization of 

services. Moreover, this ability to selfmanage is a critical skill for each ACO 

to develop, leading to an understanding 

of the unique patient population that it 

serves. 

However, we also recognize that 

while an ACO typically should have, or 

is moving toward having, complete 

information for the services it provides 

to or coordinates on behalf of its FFS 

beneficiary population, it may not have 

complete information on a FFS 

beneficiary who, for example, has 

chosen to receive services, medications 

or supplies from providers of services 

and suppliers outside its organization. 

We believe that providing ACOs with an 

opportunity to request CMS claims data, 

as described later in this proposed rule, 

on their potentially assigned beneficiary 

population would allow them to 

understand the totality of care provided 

to beneficiaries assigned to them by 

identifying the services and supplies 

that fee-for-service beneficiaries receive 

during the performance year both 

within and outside of the ACO. We 

believe that access to this data would 

promote coordinated care and a better 

understanding of the population served 

by the ACO with resulting positive 

impacts on both the quality and 

efficiency of ease of delivered. ACOs 

represent a positive step toward 

transforming the current health care 

system and we want to ensure that 

participating organizations have access 

to information that will assist them in 

achieving both improvements in the 

quality of care and a better 

understanding of the population served 

by the ACO while simultaneously 

lowering the growth in health care costs. 

We could provide data to ACOs in 

different forms with a focus on different 

levels of information, for example, 

aggregated population level data or 

beneficiary identifiable data. These data 

could be combined with data collected 

within the ACO. For example, our data 

could be combined with provider level 

data compiled within the ACO. 

Combining aggregate and beneficiary 

identifiable data as well as provider 

level and other internally generated data 

would provide ACOs with a more 

complete picture about the care their 

assigned beneficiaries receive both 

within and outside the ACO, their ACO 

participants and ACO providers/ 

suppliers’ patterns of care, and could be 

used to assess their performance relative 

to their previous years’ performance. 

With this information, in accordance 

with established privacy and security 

protections, ACOs would be able to 

identify how its ACO participants and 

ACO providers/suppliers measure up to 

benchmarks and targets, how they 

perform in relation to peers internally, 

and identify which categories of 

beneficiaries would benefit most from 

care coordination and other patientcentered approaches. For a more 

complete discussion of the requirements 


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associated with the sharing of internally 

generated data, please see section II.B. 

of this proposed rule 

4. Sharing Aggregate Data 

Because we believe that ACOs have 

the potential to significantly improve 

the quality of care provided to Medicare 

beneficiaries while improving the 

efficiency and cost-effectiveness of that 

care, we believe that, where feasible, we 

should provide information to help 

ACOs improve the quality of care, 

improve the health of their beneficiary 

population, and create efficiencies 

within their systems. One possible 

approach is to provide aggregated data 

on beneficiary use of health care 

services. An ACO should be able to use 

aggregated data reports on its assigned 

or potentially assigned beneficiary 

population to monitor, understand, and 

manage its utilization and expenditure 

patterns as well as to develop, target, 

and implement quality improvement 

programs and initiatives. For example, if 

data shows that an ACO’s beneficiary 

population had a high rate of hospital 

readmissions, the ACO could consider 

the need for actions to improve 

discharge coordination among its 

attending physicians, hospitals, and 

post-acute care providers or to improve 

access to primary care clinics. Similarly, 

an analysis of aggregated Part D data 

that shows beneficiaries were not filling 

their prescriptions could lead to 

interventions applicable to all 

beneficiaries designed to assess and 

develop strategies to overcome 

difficulties in filling prescriptions. 

Likewise, aggregated data could show a 

relatively high incidence within the 

ACO’s beneficiary population of certain 

types of procedures relative to national 

benchmarks, potentially prompting an 

ACO to further explore and examine the 

appropriateness of its ACO participants’ 

and ACO providers/suppliers’ practice 

patterns by using provider-level data. 

In the PGP demonstration, we 

provided several types of aggregate data 

to the participating group practices. We 

generated an annual profile report that 

provided the following information: 

• Financial performance including 

number of patients seen, number of 

patients assigned, per capita 

expenditures, risk score, benchmark, 

total assigned beneficiary expenditures, 

minimum savings amount, shareable 

savings, and annual performance 

payment. 

• Quality performance scores, 

including numerator, denominator, and 

rate for each measure along with the 

target benchmark for each measure. 

• Aggregated metrics on the assigned 

beneficiary population, including a 

breakdown of the population into high 

risk score beneficiaries, beneficiaries 

with 1 or more hospitalizations, and 

chronic disease subpopulations such as 

patients with congestive heart failure, 

coronary artery disease, hypertension, 

chronic obstructive pulmonary disease, 

and diabetes. 

• The number of patients overall and 

in each subpopulation with emergency 

department visits, hospital discharges, 

physician visits and their corresponding 

rate for the assigned population. 

The feedback received on the PGP 

demonstration suggested that making 

these data available was helpful to the 

participating practices; they noted the 

benefits of having aggregate data that 

were more easily digestible compared to 

‘‘data dumps’’ comprised of claimsbased data. 

In general, by making similar types of 

aggregate, data available to ACOs 

participating in the Shared Savings 

Program, we believe ACOs would have 

a more complete picture of the services 

rendered to their assigned FFS 

beneficiaries, which would allow the 

pursuit of a variety of strategies to 

streamline and consolidate care 

provision in a way that enhances quality 

and slows the growth in Medicare 

expenditures for their assigned 

beneficiary population. Thus, providing 

aggregated Medicare data reports to 

ACOs in the beginning of the program 

may be especially helpful to ACOs as 

they identify priority areas of care upon 

which to focus. Accordingly, similar to 

the PGP demonstration, we propose to 

provide aggregate data reports which 

would include, when available, 

aggregated metrics on the assigned 

beneficiary population, and beneficiary 

utilization data at the start of the 

agreement period based on historical 

data used to calculate the benchmark. 

We further propose to include these 

data in conjunction with the yearly 

financial and quality performance 

reports. Additionally, we propose to 

provide quarterly aggregate data reports 

to ACOs based upon the most recent 12 

months of data from potentially 

assigned beneficiaries. We request 

comments on these proposals as well as 

the kinds of aggregate data and 

frequency of data reports that would be 

most helpful to the ACO’s efforts in 

coordinating care, improving health, 

and producing efficiencies. 

5. Identification of Historically Assigned 

Beneficiaries 

Based upon feedback from the PGP 

demonstration, the RFI comments on 

the Shared Savings Program, and Shared 

Savings Program Open Door Forums, we 

propose to make certain limited 

beneficiary identifiable data available at 

the beginning of the first performance 

year. In addition to sharing aggregated 

data reports based on the ACO’s 

historically assigned beneficiary 

population, we believe the ACO would 

benefit from understanding which of 

their fee-for-service beneficiaries were 

used to generate the aggregated data 

reports. Accordingly, we propose to 

disclose the name, date of birth (DOB), 

sex and Health Insurance Claim Number 

(HIC) of the historically assigned 

beneficiary population. We believe that 

knowing these identifiers would be 

useful to the ACO in two ways: First, 

the ACO providers could use the 

information to identify the beneficiaries, 

review their records, and identify care 

processes that may need to change. For 

example, the ACO might look at 

whether an inability to get a timely 

clinic appointment resulted in an 

avoidable emergency room visit for a 

particular patient. Second, experience 

with the PGP demonstration has 

suggested that a high percentage of 

historically assigned patients will 

continue to receive care from the ACO 

participants and ACO providers/ 

suppliers. Knowing individuals who 

have been assigned in the past would 

help the ACO participants to identify 

individuals who may benefit from 

improved care coordination strategies 

going forward. 

Providing a list of historically 

assigned patients to the ACO may also 

raise concerns. In section II.D. of this 

proposed rule, we have proposed to 

assign beneficiaries to the ACO 

retrospectively. One reason for this is 

that we believe that the ACO should be 

evaluated on the quality and cost of care 

furnished to those beneficiaries who 

actually chose to receive care from ACO 

participants during the course of each 

performance year. Another reason for 

retrospective assignment is to encourage 

the ACO to redesign its care processes 

for all Medicare FFS beneficiaries, not 

just for the subset of beneficiaries upon 

whom the ACO is being evaluated. We 

recognize that providing a list of 

historically assigned beneficiaries may 

provide an opportunity for the ACO to 

identify and avoid at-risk beneficiaries 

that appear on the list so that the costs 

of these beneficiaries do not appear in 

the calculation of the ACO’s actual 

expenditures during a performance year. 

We are addressing this concern through 

the proposal described in section II.H. of 

this proposed rule, that takes steps to 

ensure ACOs do not avoid at-risk 

beneficiaries. 

Furthermore, we recognize that there 

are a number of issues and sensitivities 

surrounding the disclosure of 


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individually-identifiable (patientspecific) health information, and note 

that a number of laws place constraints 

on the sharing of individually 

identifiable health information. For 

example, section 1106 of the Act 

generally bars the disclosure of 

information collected under the Act 

without consent unless a law (statute or 

regulation) permits for the disclosure. In 

this instance, the HIPAA Privacy Rule 

permits that legal authority and 

provides for this proposed disclosure of 

individually identifiable health 

information by us. 

Under the HIPAA Privacy Rule, 

covered entities (defined as health care 

plans, providers that conduct covered 

transactions, and health care 

clearinghouses) are barred from using or 

disclosing individually identifiable 

health information (called ‘‘protected 

health information’’ or PHI) in a manner 

that is not explicitly permitted or 

required under the HIPAA Privacy Rule. 

When another entity conducts a 

function or activity involving the use or 

disclosure of individually identifiable 

health information on behalf of a 

covered entity, that entity is a business 

associate of the covered entity. (45 CFR 

160.103). Under the HIPAA Privacy 

Rule, a covered entity may disclose PHI 

to business associates if it obtains 

‘‘satisfactory assurances that the 

business associate will appropriately 

safeguard the information’’ (45 CFR 

164.502(e)). These satisfactory 

assurances generally take the form of 

contractual obligations to protect the 

data as the covered entity is required to 

do under the HIPAA Privacy Rule. Any 

use or disclosure of PHI that a covered 

entity can make under the HIPAA 

Privacy Rule can also be performed on 

its behalf by a business associate if the 

use or disclosure is authorized in the 

contract between the covered entity and 

the business associate. 

The Medicare FFS program, a ‘‘health 

plan’’ function of the Department, is 

subject to the HIPAA Privacy Rule 

limitations on the disclosure of PHI. The 

ACO participants and ACO providers/ 

suppliers are also covered entities, 

provided they are health care providers 

as defined by 45 CFR 160.103 and they 

or their agents electronically engage in 

one or more HIPAA standard 

transactions, such as for claims, 

eligibility or enrollment transactions. 

Similarly, an ACO may itself be a 

HIPAA covered entity if it is a health 

care provider that conducts such 

transactions. Alternatively, based on 

their work on behalf of ACO 

participants and ACO providers/ 

suppliers in conducting quality 

assessment and improvement activities, 

the ACOs will qualify as the business 

associates of their covered entity ACO 

participants and ACO providers/ 

suppliers. 

In light of these relationships, the 

proposed disclosure of the four 

identifiers would be permitted by the 

HIPAA Privacy Rule under the 

provisions that permit disclosures of 

PHI for ‘‘health care operations’’ 

purposes. Under those provisions, a 

covered entity is permitted to disclose 

PHI to another covered entity for the 

recipient’s health care operations 

purposes if both covered entities have or 

had a relationship with the subject of 

the PHI to be disclosed (which is true 

here), the PHI pertains to that 

relationship (which is also true here) 

and the recipient will use the PHI for a 

‘‘health care operations’’ function that 

falls within the first two paragraphs of 

the definition of ‘‘health care 

operations’’ in the HIPAA Privacy Rule. 

(45 CFR 164.506(c)(4)). The first 

paragraph of the definition of health 

care operations includes ‘‘populationbased activities relating to improving 

health or reducing health costs, protocol 

development, case management and 

care coordination’’ (45 CFR 164.501). We 

believe that this provision is extensive 

enough to cover the uses we would 

expect an ACO to make of the 

identifying data elements for the 

historically assigned patients. In coming 

to this conclusion, we recognize that an 

individual’s authorization is generally 

required before using or disclosing PHI 

for marketing purposes, 45 CFR 164.508, 

but we also note that both those ACOs 

acting as a covered entity (as opposed to 

business associates) and those ACOs 

acting on behalf of covered entity ACO 

participants and ACO providers/ 

suppliers as business associates will be 

able to use the four data elements to 

communicate with individuals on the 

list to describe available services and for 

case management and care coordination 

purposes under the exceptions to the 

definition of ‘‘marketing’’ under the 

HIPAA Privacy Rule, 45 CFR 164.501. 

Furthermore, when using or 

disclosing PHI, or when requesting this 

information from another covered 

entity, covered entities must make 

‘‘reasonable efforts to limit’’ the 

information that is used, disclosed or 

requested the ‘‘minimum necessary’’ to 

accomplish the intended purpose of the 

use, disclosure or request, 45 CFR 

164.502(b). We believe that the 

provision of the four proposed data 

elements would constitute the 

minimum data necessary to accomplish 

the Shared Savings Program goals of the 

ACO. 

The Privacy Act of 1974 also places 

limits on agency data disclosures. The 

Privacy Act is a Federal withholding 

statute. It applies when the Federal 

government maintains a system of 

records by which information about 

individuals is retrieved by use of the 

individual’s personal identifiers (names, 

Social Security numbers, or any other 

codes or identifiers that are assigned to 

the individual). The Privacy Act 

generally prohibits disclosure of 

information from a system of records to 

any third party without the prior written 

consent of the individual to whom the 

records apply, 5 U.S.C. 552a(b). 

‘‘Routine uses’’ are an exception to this 

general principle. A routine use is a 

disclosure outside of the agency that is 

compatible with the purpose for which 

the data was collected. Routine uses are 

established by means of a publication in 

the Federal Register about the 

applicable system of records describing 

to whom the disclosure will be made 

and the purpose for the disclosure. We 

believe that the proposed data 

disclosures are consistent with the 

purpose for which the data discussed in 

this rule was collected, and thus, should 

not run afoul of the Privacy Act, 

provided we ensure that an appropriate 

Privacy Act system of records ‘‘routine 

use’’ is in place prior to making any 

disclosures. 

Therefore, at the beginning of the 

agreement period, at the request of the 

ACO, we are proposing to provide the 

ACO with a list of beneficiary names, 

date of birth, sex, and HICN derived 

from the assignment algorithm used to 

generate the 3-year benchmark. As 

discussed in section II.B. of this 

proposed rule, these are beneficiaries 

who received the plurality of primary 

care services from primary care 

physicians who are ACO participants. 

We seek comment on this proposal and 

on whether and how this information 

would be beneficial to the goals of 

improved care coordination and 

improving care delivery for the ACO’s 

assigned beneficiary population. 

6. Sharing Beneficiary-Identifiable 

Claims Data 

While the availability of aggregate 

beneficiary information and the 

identification of the beneficiaries used 

to determine the benchmark should 

assist ACOs in the overall redesign of 

care processes and coordination of care 

for their assigned beneficiary 

populations, we believe that more 

complete beneficiary-identifiable 

information would enable practitioners 

in an ACO to better coordinate and 

target care strategies towards the 

individual beneficiaries who may 


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ultimately be assigned to them. For 

example, knowing which beneficiaries 

have frequent emergency department 

visits could help the ACO develop 

systems to ensure these beneficiaries 

have timely access to office-based care. 

The PGP demonstration provided 

beneficiary identifiable claims data to 

the participating sites but the 

beneficiary identifiable claims data that 

was provided was the previous year’s 

historical data on those beneficiaries 

that might be assigned to the site. The 

feedback we received from the PGP 

demonstration was that the historical 

beneficiary identifiable claims data was 

useful in some instances but that 

current year beneficiary claims data 

would be preferred and result in a more 

proactive approach to coordinating care. 

Through comments on the November 

17, 2010 RFI, open door forums, and 

other venues, stakeholders have 

expressed the importance of timely data 

on their patient population. They 

submit that they will need detailed data 

for their patients so they can establish 

baseline levels of utilization and patient 

morbidity, identify key beneficiaries 

and subpopulations for proactive care 

coordination efforts, and track their 

progress against defined performance 

measures. These data are especially 

important for ACOs made up of small 

and individual practices that may not 

have fully developed information 

technology systems. Additionally, 

stakeholders have expressed a desire to 

receive updated beneficiary identifiable 

claims data on either a monthly or 

quarterly basis. 

For these reasons we believe sharing 

beneficiary identifiable claims data with 

ACOs will assist them in improving care 

for individuals, improving health of 

their population, and reducing the 

growth in expenditures for their 

assigned beneficiary population. 

However, there are clear legal and 

practical limitations on how useful 

these CMS claims data may be to an 

ACO. For example, providers have said 

that they would like to know when their 

patients are admitted to the hospital in 

‘‘real time’’. We are not able to provide 

this type of data since we generally only 

become aware of a hospital admission at 

the time of discharge when the hospital 

bills us for the service. So, there will 

always be a claims lag that will make 

our data less useful for ‘‘real time’’ 

responses. Unlike claims data, real time 

information may be more readily 

available through development and use 

of an interoperable electronic health 

record or participation in local/regional 

health information exchanges, or 

through more effective coordination 

with admitting and discharging 

personnel in hospitals that the ACO’s 

patients utilize, something that is 

consistent with the overall purpose and 

intent of the Shared Savings Program 

(see Section II.B. of this proposed rule). 

Moreover, unlike MA plans, under the 

Shared Savings Program, freedom of 

choice for FFS beneficiaries is retained, 

which means that a full analysis of the 

beneficiary population cared for by the 

ACO during the course of the 

performance year can only be performed 

retrospectively. 

It should also be noted that 42 U.S.C. 

290dd–2 and implementing regulations 

at 42 CFR part 2 restrict the disclosure 

of patient records by Federally 

conducted or assisted substance abuse 

programs, except as expressly 

authorized. The law states that ‘‘records 

of the identity, diagnosis, prognosis, or 

treatment of any patient which are 

maintained in connection with the 

performance of any program or activity 

relating to substance abuse education, 

prevention, training, treatment, 

rehabilitation, or research, which is 

conducted, regulated, or directly or 

indirectly assisted by any department or 

agency of the United States shall * * * 

be confidential.’’ Such data may be 

disclosed only with the prior written 

consent of the patient, or as otherwise 

provided in the statute and regulations. 

Consistent with this requirement, claims 

containing this specifically protected 

information would not be included in 

any beneficiary identifiable claims data 

shared with ACOs. 

As discussed later in the document in 

more detail, we are proposing to give 

the ACO the opportunity to request 

certain beneficiary identifiable claims 

data on a monthly basis, in compliance 

with applicable laws, in the form of a 

standardized data set about the 

beneficiaries currently being served by 

the ACO participants and ACO 

providers/suppliers. We propose to 

limit the beneficiaries covered by such 

data sets to those who have received a 

service from a primary care physician 

participating in the ACO during the 

performance year, and who have not 

opted out of having us share their 

claims data with the ACO. In order to 

obtain beneficiary information that is 

subject to 42 CFR 290dd, the individual 

must have provided his or her prior 

written consent. Furthermore, we also 

propose to limit the content of this data 

set to the minimum data necessary for 

the ACO to effectively coordinate care of 

its patient population. 

As noted previously, there are 

limitations on the content and 

timeliness of data that we can share 

with an ACO. If an ACO chooses to 

request beneficiary identifiable claims 

data as part of the application process, 

we propose that the ACO will be 

required to explain how it intends to 

use these data to evaluate the 

performance of ACO participants and 

ACO providers/suppliers, conduct 

quality assessment and improvement 

activities, and conduct populationbased activities to improve the health of 

its assigned beneficiary population. If an 

ACO does not choose to request these 

data at the time of its application, it will 

be required to submit a formal request 

for data during the agreement period 

that includes a description of how it 

intends to use the requested data for the 

purposes noted previously. We solicit 

comment on these proposals. 

Additionally, when an ACO is 

accepted to participate in the Shared 

Savings Program, we propose to require 

ACOs to enter into a Data Use 

Agreement (DUA) prior to receipt of any 

beneficiary identifiable claims data. 

Under the DUA, the ACO would be 

prohibited from sharing the Medicare 

claims data that we provide through the 

Shared Savings Program with anyone 

outside the ACO. In addition, we 

propose to require in the DUA that the 

ACO agree not to use or disclose the 

claims data obtained under the DUA in 

a manner in which a HIPAA covered 

entity could not, without violating the 

HIPAA Privacy Rule. We propose to 

make compliance with the DUA a 

condition of the ACO’s participation in 

the Shared Savings Program—noncompliance with this requirement 

would result in the ACO no longer being 

eligible to receive data, and could lead 

to termination from the Shared Savings 

Program or additional sanctions and 

penalties available under the law. For 

example, under the Privacy Act, any 

‘‘person who knowingly and willfully 

requests or obtains any record 

concerning an individual from an 

agency under false pretenses shall be 

guilty of a misdemeanor and fined not 

more than $5,000’’ 5 U.S.C. 552a(i)(3). In 

those instances where an ACO does not 

choose to request the data at the time of 

their application, the ACO will be 

required to submit a formal request for 

data during the agreement period. We 

propose that the ACO would be required 

to certify compliance with the DUA in 

the same manner in which prospective 

ACOs did in the original application 

process. We solicit comment on these 

proposals. 

a. Legal Authority To Disclose 

Beneficiary-Identifiable Claims Data to 

ACOs 

As noted previously, section 1106 of 

the Act generally bars the disclosure of 

information absent patient authorization 


srobinson on DSKHWCL6B1PROD with PROPOSALS2
19558 Federal Register / Vol. 76, No. 67 / Thursday, April 7, 2011 / Proposed Rules 

that is collected under the Act unless a 

law (statute or regulation) provides for 

disclosure. Once again, we believe that 

the HIPAA Privacy Rule permits 

disclosure for purposes of sharing 

Medicare Part A and B claims data with 

ACOs participating in the Shared 

Savings Program. Similarly, we believe 

the regulations governing the sharing of 

Part D data would permit us to share 

information regarding prescription drug 

claims with ACOs. We also believe that 

the proposed disclosures of claims data 

under Parts A, B, and D are consistent 

with the purposes for which the data 

were collected, and thus, for the reasons 

discussed previously would be 

permitted under the Privacy Act if we 

ensure that an appropriate Privacy Act 

System of Records ‘‘routine use’’ is in 

place prior to making any disclosures. 

(1) Sharing Data Related to Medicare 

Parts A and B 

As discussed in section II.B. of this 

proposed rule, the ACOs are tasked with 

working with ACO participants and 

ACO providers/suppliers to evaluate 

their performance, conduct quality 

assessment and improvement activities, 

and conduct population-based activities 

relating to improved health for their 

assigned beneficiary population. When 

done by or on behalf of a covered entity, 

these are covered functions and 

activities that would qualify as ‘‘health 

care operations’’ under the first and 

second paragraphs of the definition of 

health care operations at 45 CFR 

164.501. These activities are done by the 

ACOs either on their own behalf as 

covered entities, or on behalf of their 

covered entity ACO participants and 

ACO providers/suppliers, in which case 

the ACOs would be the business 

associate of its ACO participants and 

ACO providers/suppliers. 

The proposed disclosure of Part A and 

B claims data would be permitted by the 

HIPAA Privacy Rule provisions 

governing disclosures for ‘‘health care 

operations.’’ As discussed previously in 

the context of our proposed disclosure 

of the four data elements about the 

historically assigned beneficiary 

population, a covered entity is 

permitted to disclose PHI to another 

covered entity for the recipient’s health 

care operations if both covered entities 

have or had a relationship with the 

subject of the records to be disclosed 

(which is true here), the records pertain 

to that relationship (which is also true 

here) and the recipient plans to use the 

records for a ‘‘health care operations’’ 

function that falls within the first two 

paragraphs of the definition of ‘‘health 

care operations’’ in the HIPAA Privacy 

Rule. 45 CFR 164.506(c)(4). The first 

two paragraphs of the definition of 

health care operations include a covered 

entity or its business associate 

evaluating a provider’s or supplier’s 

performance, conducting quality 

assessment and improvement activities, 

and conducting population-based 

activities relating to improved health. 45 

CFR 164.501. We believe that these 

provisions are extensive enough to 

cover the uses we would expect an ACO 

to make of the Parts A and B claims data 

set that we are proposing to make 

available to them. Thus, we believe that 

there is authority for us to disclose to an 

ACO, as the business associate of the 

covered entity, the minimum Medicare 

Parts A and B data necessary to allow 

ACOs to conduct the health care 

operation activities outlined previously. 

Accordingly, barring a beneficiary 

requesting to opt-out of having his or 

her information shared as described 

later in the document, and subject to 

applicable confidentiality laws, we are 

proposing to make Part A and Part B 

data about patients who have had a visit 

with a primary care physicians 

participation in the ACO during the 

performance year available upon request 

to participating ACOs this data would 

be used for the purposes of aiding the 

ACO as it evaluates the performance of 

ACO participants and ACO providers/ 

suppliers, conducts quality assessment 

and improvement activities, and 

conducting population-based activities 

relating to improved health. In doing so, 

we will only disclose the minimum data 

necessary to accomplish these purposes 

in accordance with the requirements of 

the HIPAA Privacy Rule. We believe 

that the minimum necessary Parts A and 

B data elements would include data 

elements such as: Procedure code, 

diagnosis code, beneficiary ID; date of 

birth; gender; and, if applicable, date of 

death; claim ID; the from and thru dates 

of service; the provider or supplier ID; 

and the claim payment type. 

As discussed previously, we will not 

disclose any patient information related 

to alcohol and substance abuse that is 

subject to 42 CFR 290dd without the 

patient’s written consent. 

Similar to the process by which ACOs 

can receive the four beneficiary 

identifiable data points, under this 

proposal, in order to receive data, ACOs 

would be required to attest in either 

their initial application or in their 

subsequent formal request for data if 

they failed to request data in the 

application stage, that; (1) They are a 

covered entity or a business associate of 

covered entity ACO participants and 

ACO suppliers/providers under the 

Shared Savings Program; (2) their 

business associate agreement with these 

ACO participants and ACO providers/ 

suppliers authorizes them to seek PHI 

on behalf of the ACO participants and 

ACO providers/suppliers for one of the 

health care operations purposes laid out 

previously; (3) their request reflects the 

minimum data necessary to do that 

health care operations work; and (4) that 

their use of these requested data would 

be limited to the Shared Savings 

Program activities related to one or more 

of the health care operations purposes 

laid out previously or (1) They are a 

HIPAA covered entity; (2) they are 

requesting the claims data about their 

own patients for one of the health care 

operations purposes laid out previously; 

(3) their request reflects the minimum 

data necessary to do that health care 

operations work; and (4) that their use 

of these requested data would be limited 

to the Shared Savings Program activities 

related to one or more of the health care 

operations purposes laid out previously. 

(2) Sharing Data Related to Medicare 

Part D 

Beneficiary identifiable Medicare 

prescription drug information could 

also be beneficial to ACOs for improving 

the care coordination of their patient 

population. Having a complete picture, 

for example, of the beneficiary’s 

medication regimen can assist in 

avoiding duplication or adverse 

interactions among medications. 

We issued a final rule in May of 2008 

authorizing the Secretary to recollect 

Part D claims data that were originally 

collected for Part D payment purposes 

for research, analysis, reporting, and 

public health functions (73 FR 30664). 

In that final rule, we noted our intent to 

use the data for a wide variety of 

purposes including ‘‘supporting care 

coordination and disease management 

programs,’’ and ‘‘supporting quality 

improvement and performance 

measurement activities.’’ (42 CFR 

423.505(f)(3)(v), (vi)). We also expressed 

our view that ‘‘it is in the interest of 

public health to share the information 

collected...with entities outside of CMS 

for legitimate research, or in cases of 

other governmental agencies, for 

purposes consistent with their mission.’’ 

(73 FR 30666). Accordingly, the 

regulations specified when data would 

be shared with outside entities, such as 

other government agencies, and external 

entities, including researchers. 

The Part D data rule did not expressly 

address the question of whether Part D 

data could be shared with external 

entities, such as ACOs, for purposes 

other than research. However, in the 

rule, we noted that sharing Part D 

claims data, in addition to Parts A and 

B data, could have salutary effects on 


srobinson on DSKHWCL6B1PROD with PROPOSALS2
Federal Register / Vol. 76, No. 67 / Thursday, April 7, 2011 / Proposed Rules 19559 

8See Schneider, S. et al. ‘‘Consumer Engagement 

in Developing Electronic Health Information 

System.’’ Prepared for: Agency for Healthcare 

Research and Quality, July 2009, at 16. Available 

at: http://www.healthit.ahrq.gov/portal/server.pt/ 

gateway/PTARGS_0_1248_888520_0_0_18/ 

09%E2%80%900081%E2%80%90EF.pdf%00%00 

at 16; Markle Foundation. Survey Finds Americans 

Want Electronic Personal Health Information to 

Improve Own Health Care, November 2006, at 1. 

Available at: http://www.markle.org/ 

downloadable_assets/research_doc_120706.pdf. 

9See Goldstein, M.M. and A.L. Rein. Consumer 

Consent Options for Electronic Health Information 

Exchange: Policy Considerations and Analysis,’’ 

March, 2010. Available at: http://healthit.hhs.gov/ 

portal/server.pt/gateway/ 

PTARGS_0_11673_911197_0_0_18/ 

ChoiceModelFinal032610.pdf. 

10 J. Shapiro, J. Bartley, G. Kuperman, Health 

Information Exchange Consent Policy Influences: 

Emergency Department Patient Data Accessibility. 

ACEP 2010. See also N. Daurio, et al. 

Implementation of an Enterprise-wide Electronic 

Health Record: A Nurse-Physician Partnership, in 

K. Saranto et al., eds, Connecting Health and 

Humans (IOS Press 2009). 

11Schneider, at 36–37. Public Attitudes Toward 

Medical Privacy. (2000). Conducted by The Gallup 

Organization on behalf of the Institute for Health 

Freedom. Available at: http://forhealthfreedom.org/ 

Gallupsurvey/IHF–Gallup.html. 

12See Micky Tripathi, David Delano, Barbara 

Lund and Lynda Rudolph. ‘‘Engaging Patients for 

Health Information Exchange.’’ Health Affairs. 

Volume 28, Number 2. March/April 2009; Missouri 

Office of Health Information Technology. Opt-in 

Versus Opt-out: Consent Models for Health 

Information Exchange through Missouri’s Statewide 

Health Information Exchange Network. Jefferson 

City: Missouri. Department of Social Services 

(2010). Available online at http://www.dss.mo.gov/ 

Continued 

the evaluation and functioning of the 

Medicare programs as well as improving 

the clinical care furnished to 

beneficiaries. Furthermore, the rule 

explicitly contemplated the use of Part 

D data to support care coordination and 

disease management programs, as well 

as quality improvement and 

performance measurement activities, 

which are central to the Shared Savings 

Program and its success. 

We believe that ACOs participating in 

the Shared Savings Program would use 

information on prescription drug use in 

order to improve the quality of care 

furnished to their assigned beneficiaries 

and to enhance care coordination for 

these beneficiaries. As a result, although 

the Part D data rule did not expressly 

address the question of whether Part D 

data could be shared with external 

entities for purposes other than 

research, we believe that the release of 

Part D claims data to ACOs for the 

purpose of supporting care 

coordination, quality improvement, and 

performance measurement activities, 

would be consistent with the purposes 

outlined in the Part D data rule. The 

Part D data will be released in 

accordance with the requirements 

outlined in the regulations at 42 CFR 

423.505(m)(1). As a result, certain data 

elements may be unavailable or 

available only in an aggregated format. 

Accordingly, consistent with the 

regulations governing the release of Part 

D data, we propose to provide ACOs 

with the minimum Part D data 

necessary to permit the ACO to 

undertake evaluation of the performance 

of ACO participants and ACO 

providers/suppliers, conduct quality 

assessment and improvement activities 

with and on behalf of the ACO 

participants and ACO providers/ 

suppliers, and conduct populationbased activities relating to improved 

health for Medicare beneficiaries who 

have a primary care visit with a primary 

care physician used to assign patients to 

the ACO during a performance year. We 

propose that the minimum data 

elements necessary to perform these 

functions could include data elements 

such as: beneficiary ID, prescriber ID, 

drug service date, drug product service 

ID, and indication if the drug is on the 

formulary. 

a. Beneficiary Opportunity To Opt-Out 

of Claims Data Sharing 

Although we have the legal authority 

within the limits described previously 

to share Medicare claims data with 

ACOs without the consent of the 

patients, and while we believe that 

these data will provide a valuable tool 

to assist ACOs in evaluating the 

performance of ACO participants and 

ACO providers/suppliers, conducting 

quality assessment and improvement 

activities, and conducting populationbased activities relating to improved 

health, we nevertheless believe that 

beneficiaries should be notified of, and 

have meaningful control over who, has 

access to their personal health 

information for purposes of the Shared 

Savings Program. Thus, we are 

proposing to require that, as part of its 

broader activities to notify patients at 

the point of care that their provider or 

supplier is participating in an ACO, as 

discussed in Section II. D., the ACO 

must also inform beneficiaries of its 

ability to request claims data about them 

if they do not object. We believe that 

this notification will give the 

beneficiaries meaningful choice as to 

whether this information may be shared. 

The only exceptions to this advanced 

notice would be the initial four data 

points (the beneficiary’s name, date of 

birth, sex, and HICN) that we will 

provide to ACOs for individuals in the 

3-year data set used to determine the 

ACO’s benchmark. 

We believe that to be meaningful, the 

opportunity to make a choice as to 

whether their information may be 

shared would: (1) Allow the individual 

advance notice and time to make a 

decision; (2) be accompanied by 

adequate information about the benefits 

and risks of making their data available 

for the proposed uses; (3) not compel 

consent; and (4) not use the choice to 

permit their information to be shared for 

discriminatory purposes. 

We considered two alternative 

mechanisms for implementing 

meaningful beneficiary choice: having 

beneficiaries affirmatively choose to 

permit us to share their protected health 

information through the signing of a 

consent or authorization (‘‘opt-in’’); and 

sharing protected health information 

with the ACO unless beneficiaries 

indicate that they choose not to have 

this information shared (‘‘opt-out’’). 

A requirement of patient choice about 

whether to participate in a system of 

information exchange, whether opt-in or 

opt-out should provide an excellent 

opportunity for providers to engage 

patients in true patient-centered care, 

creating a strong incentive for an ACO 

and its ACO participants and ACO 

providers/suppliers to forge a positive 

relationship with each beneficiary. 

Consumers have consistently expressed 

strong support for the implementation 

and exchange of electronic health 

information, believing that these 

technologies have the potential to 

improve care coordination, reduce 

paperwork, and reduce the number of 

unnecessary and repeated tests and 

procedures.8 Successful electronic 

health information exchange systems 

have engaged consumers, physicians 

and other stakeholders at an early stage 

to ensure that choice is integrated into 

the architecture of the systems.9

Many organizations engaging in 

health information exchange have 

selected opt-in models for patient 

consent. For example, the 

Massachusetts eHealth Collaborative 

(MAeHC) achieved an average of 90 

percent participation in three pilot 

communities using an opt-in system. 

The New York Clinical Information 

Exchange (NYCLIX) has also realized 

high patient participation rates by using 

an opt-in method of patient choice.10 An 

opt-in method has several advantages. 

Consumers have consistently expressed 

a desire that their consent should be 

sought before their health information 

may be shared.11 Obtaining affirmative 

written permission would also provide 

documentation of the beneficiary’s 

choice. 

However, many organizations find 

that an opt-in approach significantly 

reduces both provider and beneficiary 

participation for administrative reasons, 

and not because patients are making an 

active choice not to participate.12 Where 


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19560 Federal Register / Vol. 76, No. 67 / Thursday, April 7, 2011 / Proposed Rules 

hie/leadership/pdf2010/ 

optin_vs_optout_overview.pdf. 

12See Goldstein, M.M. and A.L. Rein. Consumer 

Consent Options for Electronic Health Information 

Exchange: Policy Considerations and Analysis,’’ 

March, 2010, at 35. Available at: http:// 

healthit.hhs.gov/portal/server.pt/gateway/ 

PTARGS_0_11673_911197_0_0_18/ 

ChoiceModelFinal032610.pdf. 

13See Goldstein, M.M. and A.L. Rein. Consumer 

Consent Options for Electronic Health Information 

Exchange: Policy Considerations and Analysis,’’ 

March, 2010, at 35. Available at: http:// 

healthit.hhs.gov/portal/server.pt/gateway/ 

PTARGS_0_11673_911197_0_0_18/ 

ChoiceModelFinal032610.pdf. 

opt-in rates are very high, significant 

paperwork burdens arise as providers 

must track consents for the majority of 

their patient population. Reducing such 

burdens is one of the major reasons that 

other organizations engaged in health 

information exchange have adopted an 

opt-out approach. 12 13 An opt-out 

approach is used successfully in most 

systems of electronic exchange of 

information 13 because it is significantly 

less burdensome on consumers and 

providers while still providing an 

opportunity for caregivers to engage 

with patients to promote trust and 

permitting patients to exercise control 

over their data. We are concerned about 

the effect of an opt-in approach on 

beneficiary participation and the 

additional administrative burdens on 

physician practices. Therefore, we 

propose affording beneficiaries the 

ability to opt-out of sharing their 

protected health information with the 

ACO. We believe this opportunity 

coupled with notification of how 

protected health information will be 

shared and used affords beneficiaries 

meaningful choice. An example of the 

opt-out approach would be that when a 

beneficiary has a visit with their 

primary care physician, their physician 

would inform them at this visit that he 

or she is an ACO participant or ACO 

provider/supplier and that the ACO 

would like to be able to request claims 

information from us in order to better 

coordinate the beneficiary’s care. If the 

beneficiary objects, we propose that the 

beneficiary would be given a form 

stating that they have been informed of 

their physician’s participation in the 

ACO and explaining how to opt-out of 

having their personal data shared. The 

form could include a phone number 

and/or e-mail address for beneficiaries 

to call and request that their data not be 

shared. As discussed in section II. D., 

the Shared Savings Program lays the 

foundation for a beneficiary-centered 

delivery system that should create a 

new relationship between beneficiaries 

and care providers based, in large part, 

on patient engagement in the new care 

system. The successful creation of this 

relationship is not possible when 

beneficiaries are not aware of the new 

delivery system available through 

ACOs, and the possibility of being 

included in the population assigned to 

an ACO. 

We therefore propose to develop a 

communications plan, discussed in 

more detail in section II. D of this 

proposed rule, that will offer insight 

into both the Shared Savings Program in 

general and the beneficiaries’ right to 

opt-out of the data sharing portion of the 

ACO Shared Savings Program. 

As noted previously, ACOs will only 

be allowed to request beneficiary 

identifiable claims data for beneficiaries 

who have (1) visited a primary care 

participating provider during the 

performance year, and (2) have not 

chosen to opt-out of claims data sharing. 

A beneficiary that chooses to opt-out 

is only opting out of the data sharing 

portion of the program. The decision to 

opt-out in no way effects use of the 

beneficiaries’ data or assignment to the 

ACO for purposes of determining such 

calculations as ACO benchmarks, per 

capita costs, quality performance, or 

performance year per capita 

expenditures. Our data contractor will 

maintain a running list of all HICNs that 

have chosen to opt-out of data sharing. 

We will monitor whether ACOs 

continue to request data on beneficiaries 

who have opted out of having their data 

shared and will take appropriate actions 

against any ACO that is found to violate 

this requirement. 

We request comments on our 

proposals related to the provision of 

both aggregate and beneficiary 

identifiable data to ACOs. We are 

particularly interested in comments on 

the kinds and frequency of data that 

would be useful to ACOs, potential 

privacy and security issues, and the 

implications for sharing protected 

health information with ACOs, and the 

use of a beneficiary opt-out, as opposed 

to an opt-in, to obtain beneficiary 

consent to the sharing of their 

information. 

7. New Program Standards Established 

During 3-Year Agreement Period 

The Shared Savings Program is a new 

program designed to encourage 

providers to redesign care processes in 

order to achieve the outcomes of better 

care for individuals, better health for 

populations, and lower growth in 

expenditures for Medicare FFS 

beneficiaries. We anticipate that as we 

continue to work with the stakeholder 

community and learn what methods and 

measures work most effectively for the 

Shared Savings Program, we will make 

changes and improvements to the 

Shared Savings Program. For example, 

we expect to integrate lessons learned 

from Innovation Center initiatives to 

shape and change the Shared Savings 

Program over time. Because we expect 

that these changes may occur more 

frequently than the length of the 3-year 

agreement periods, the question arises 

as to whether those ACOs that have 

already committed to a 3-year agreement 

to participate in the Shared Savings 

Program should be subject to those 

changes. It is not unprecedented for 

Medicare agreements to include a 

provision requiring that the agreement 

is subject to changes in laws and 

regulations. For example, the contracts 

with Medicare Advantage organizations 

contain such a clause. However, these 

contracts are for a term of 1 year, as 

opposed to 3 or more years. As a result, 

there are more frequent opportunities 

for these organizations to reassess 

whether they wish to continue to 

participate in the program in light of 

changes to the laws and regulations 

governing the program. 

In the Shared Savings Program, 

regulatory changes could affect a variety 

of different components of the program, 

including quality measures, reporting 

requirements, monitoring requirements, 

program integrity, and eligibility 

requirements. If the agreements are 

subject to all changes in the applicable 

regulations, it is possible that some 

ACOs that were eligible for participation 

in the program at the start of their 

respective 3-year agreement might 

become ineligible based upon 

modifications to the regulations. 

Creating an environment in which the 

continued eligibility of existing program 

participants is uncertain could be 

detrimental to the success of program 

and could deter program participation. 

Conversely, the ability to incorporate 

regulatory changes into the agreements 

with ACOs would facilitate the 

administration of the program because 

all ACOs would be subject to the 

requirements imposed under the current 

regulations, rather than up to 3 different 

sets of requirements, based upon the 

year in which the ACO entered the 

program. Additionally, requiring ACOs 

to adhere to certain regulatory changes 

related to quality measures, routine 

program integrity changes, processes for 

quality management and patient 

engagement, and patient-centeredness 

criteria that are up to date with current 

clinical practice ensures that ACO 

activities keep pace with changes in 

clinical practices and developments in 

evidence-based medicine. We do not 

believe that requiring ACOs to adhere to 


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Federal Register / Vol. 76, No. 67 / Thursday, April 7, 2011 / Proposed Rules 19561 

regulatory modifications related to 

quality measures, routine program 

integrity changes, processes for quality 

management and patient engagement, 

and patient centeredness criteria is 

likely to affect either the ACOs’ 

underlying organizational structure or 

their continued eligibility to participate 

in the Shared Savings Program— 

although it may necessitate changes in 

how ACOs design and deliver care to 

meet these program requirements, as 

compared to descriptions of these 

processes in their initial applications. 

We propose that ACOs 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. 

For example, ACOs would be subject 

to changes in regulation related to the 

quality performance standard. The 

language of the ACO agreement would 

be explicit to ensure that ACOs 

understand the dynamic nature of this 

part of the program and what specific 

programmatic changes would be 

incorporated into the agreement. We 

further propose that in those instances 

where regulatory modifications 

effectuate changes in the processes 

associated with an ACO pertaining to 

design, delivery, and quality of care that 

the ACO will be required to submit to 

us for review and approval, as a 

supplement to their original application, 

an explanation of how they will address 

key changes in processes resulting from 

these modifications. If an ACO fails to 

effectuate the changes needed to adhere 

to the regulatory modifications, we 

propose that the ACO would be placed 

on a corrective action plan, and if after 

being given an opportunity to act upon 

the corrective action plan, the ACO still 

fails to come into compliance, it would 

be terminated from the program. For a 

more detailed discussion of the process 

for requiring and implementing a 

corrective action plan, please refer to 

the section II. H. of this proposed rule. 

We propose that ACO participants shall 

continue to be subject to all 

requirements applicable to FFS 

Medicare, such as routine CMS business 

operations updates and changes in FFS 

coverage decisions, as they may be 

amended from time to time. In other 

words, nothing in the Shared Savings 

Program shall be construed to affect the 

payment, coverage, program integrity, 

and other requirements that apply to 

providers and suppliers under FFS 

Medicare. 

8. Managing Significant Changes to the 

ACO During the Agreement Period 

Aside from changes that an ACO may 

experience as a result of regulatory 

changes, the ACO itself may also 

experience significant changes within 

the course of its 3-year agreement period 

due to such events as: The following: 

• Deviations from approved 

application for reasons such as the drop 

out of an ACO participant upon which 

assignment is based; changes in overall 

governing board composition (in terms 

of interests represented) or leadership; 

changes in ACO’s eligibility to 

participate in the program, including 

changes to the key processes pertaining 

to the design, delivery and quality of 

care (such as processes for quality 

management and patient engagement 

and patient centeredness criteria) as 

outlined in the application criteria for 

acceptance into the program; or changes 

in planned distribution of shared 

savings. 

• A material change, as defined in 

detail in section II. H. of ACOs of this 

proposed rule, in the ACOs provider 

composition, including the addition of 

ACO providers/suppliers such that the 

ACO requires a mandatory antitrust 

review or re-review as discussed in 

section II. I. Coordination with Other 

Agencies., and other circumstances 

under which an ACO or an ACO 

participant is unable to complete its 

3-year commitment. 

• Government-required ACO 

reorganization, or exclusion of ACO 

participants or ACO providers/ 

suppliers, or conduct restriction due to: 

OIG excluding the ACO, an ACO 

participant, or an ACO provider/ 

supplier for any reason authorized by 

law; CMS revoking an ACO, ACO 

participant or ACO provider/supplier’s 

Medicare billing privileges under 

42 CFR 424.535, for noncompliance 

with billing requirements or other 

prohibited conduct; or reorganization or 

conduct restrictions to resolve antitrust 

concerns. 

Whenever an ACO reorganizes its 

structure, we must determine if the ACO 

remains eligible to participate in the 

Shared Savings Program. Since an ACO 

is admitted to the program based on its 

application, adding ACO participants 

during the course of the 3-year 

agreement may deviate from its 

approved application and jeopardize the 

ACO’s eligibility since the ACO would 

differ from its approved application and 

could be subject to further antitrust 

review. Changes such as this may result 

in termination of the 3-year agreement 

and forfeiture of the 25 percent 

withhold of shared savings earned by 

the original ACO participants. We 

therefore propose that the ACO may not 

add ACO participants during the course 

of the 3-year agreement. In order to 

maintain flexibility, however, we 

propose that the ACO may remove ACO 

participants (TINs) or add/subtract ACO 

providers/suppliers (NPIs). We request 

comment on this proposal that ACOs 

may not add ACO participants and how 

this proposal might impact small or 

rural ACOs. We propose that the ACO 

be required to notify us in order to have 

its new structure approved whenever 

significant changes, such as those 

referenced previously, occur to its 

structure. We have identified five 

outcomes that may result from our 

review: 

• The ACO may continue to operate 

under the new structure with savings 

calculations for the performance year 

based upon the updated list of ACO 

participants and ACO providers/ 

suppliers. 

• The remaining ACO structure 

qualifies as an ACO but is so different 

from the initially approved ACO 

structure that the ACO must start over 

as a new ACO with a new 3-year 

agreement, including an antitrust 

review, if warranted. 

• The remaining ACO structure 

qualifies as an ACO but is materially 

different from the initially approved 

ACO structure because of the inclusion 

of additional ACO providers/suppliers 

that the ACO must obtain approval from 

a reviewing Antitrust Agency before it 

can continue in the program. 

• The remaining ACO structure no 

longer meets the eligibility criteria for 

the program, and the ACO would no 

longer be able to participate in the 

program, for example, if the ACO’s 

assigned population falls below 5,000 

during an agreement year as discussed 

in section II. B. of this proposed rule. 

• CMS and the ACO may mutually 

decide to terminate the agreement. 

We propose that when an ACO 

reorganizes its structure by excluding 

ACO participants or by adding or 

excluding ACO providers/suppliers, 

deviates from its approved application, 

changes information contained in its 

approved application, or experiences 

other changes which may make it 

unable to complete its 3-year agreement, 

it must notify us within 30 days of the 

event for reevaluation of its eligibility to 

continue to participate in the Shared 

Savings Program. We would respond in 

one of the five ways specified 

previously. We request comment on this 

proposal. 


srobinson on DSKHWCL6B1PROD with PROPOSALS2
19562 Federal Register / Vol. 76, No. 67 / Thursday, April 7, 2011 / Proposed Rules 

9. Future Participation of Previously 

Terminated Program Participants 

As described in section II.H. of the 

proposed rule, there are a number of 

circumstances under which we may 

terminate our agreement with an ACO, 

including avoidance of at-risk 

beneficiaries and failure to meet the 

quality performance standards. In 

contrast, there are also many reasons 

why an ACO participant TIN, used for 

assignment, or individual ACO 

providers/suppliers may drop out of an 

ACO; such as government exclusion, 

relocation, retirement, a voluntary 

decision to terminate participation, or 

bankruptcy. 

Permanently barring former program 

participants from subsequent 

participation in the Shared Savings 

Program due to a voluntary or forced 

termination from an ACO appears 

unduly harsh given the dynamic nature 

of organizational membership. 

Alternatively, we do want to ensure our 

policy on subsequent participation in 

the Shared Savings Program does not 

provide a second chance for underperforming organizations or to providers 

or suppliers who have been terminated 

for failing to meet program integrity 

requirements. 

We propose the ACO disclose to CMS 

whether the ACO, its ACO participants, 

or its ACO 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 ACO participants or ACO 

providers/suppliers were previously 

terminated from the program, the 

applicant must identify the cause of 

termination and what safeguards are 

now in place to enable the prospective 

ACO to participate in the program for 

the full period of the 3-year agreement 

period. We propose that such ACOs may 

not begin another 3-year agreement 

period until the original agreement 

period has lapsed. Additionally, 

because we believe that subsequent 

participation in the Shared Savings 

Program should not provide a second 

chance for under-performing 

organizations, we propose that an ACO 

may not reapply to participate in the 

Shared Savings Program if it previously 

experienced a net loss during its first 

3-year agreement period. We seek 

comment on these proposals and 

whether requirements for denying 

participation to ACOs that previously 

under-perform would create 

disincentives for the formation of ACOs. 

We are specifically interested in 

whether this requirement will create 

disincentives for participation among 

smaller entities. 

D. Assignment of Medicare Fee-forService Beneficiaries 

Section 1899(c) of the Act, as added 

by section 3022 of the Affordable Care 

Act, requires the Secretary to ‘‘determine 

an appropriate method to assign 

Medicare FFS beneficiaries to an ACO 

based on their utilization of primary 

care services provided under this title 

by an ACO professional described in 

subsection (h)(1)(A).’’ Subsection 

1899(h)(1)(A) of the Affordable Care Act 

constitutes one element of the definition 

of the term ‘‘ACO professional.’’ 

Specifically, this subsection establishes 

that ‘‘a physician (as defined in section 

1861(r)(1))’’ is an ‘‘ACO professional’’ for 

purposes of the Shared Savings 

Program. Section 1861(r)(1) of the Act in 

turn defines the term physician as 

‘‘* * * a doctor of medicine or 

osteopathy legally authorized to practice 

medicine and surgery by the State in 

which he performs such function or 

action.’’ In addition, subsection 

1899(h)(1)(B) defines an ACO 

professional to include practitioners 

described in section 1842(b)(18)(C)(i) of 

the Act, such as PAs and NPs. 

Thus, although the statute defines the 

term ‘‘ACO professional’’ to include both 

physicians and non-physician 

practitioners, such as advance practice 

nurses, physician assistants, and nurse 

practitioners, for purposes of beneficiary 

assignment to an ACO, the statute 

requires that we consider only 

beneficiaries’ utilization of primary care 

services provided by ACO professionals 

who are physicians. The method of 

assigning beneficiaries therefore must 

take into account the beneficiaries’ 

utilization of primary care services 

rendered by physicians. Therefore, for 

purposes of the Shared Savings 

Program, the inclusion of practitioners 

described in section 1842(b)(18)(C)(i) of 

the Act, such as PAs and NPs in the 

statutory definition of the term ‘‘ACO 

professional’’ is a factor in determining 

the entities that are eligible for 

participation in the program (for 

example, ‘‘ACO professionals in group 

practice arrangements’’ in section 

1899(b)(1)(A) of the Act). However, 

assignment of beneficiaries to ACOs is 

to be determined only on the basis of 

primary care services provided by ACO 

professionals who are physicians. 

Assigning Medicare beneficiaries to 

ACOs also requires several other 

elements: (1) An operational definition 

of an ACO (as distinguished from the 

formal definition of an ACO and the 

eligibility requirements that we discuss 

in section II.B. of this proposed rule) so 

that ACOs can be efficiently identified, 

distinguished, and associated with the 

beneficiaries for whom they are 

providing services; (2) a definition of 

primary care services for purposes of 

determining the appropriate assignment 

of beneficiaries; (3) a determination 

concerning whether to assign 

beneficiaries to ACOs prospectively, at 

the beginning of a performance year on 

the basis of services rendered prior to 

the performance year, or retrospectively, 

on the basis of services actually 

rendered by the ACO during the 

performance year; and (4) a 

determination concerning the 

proportion of primary care services that 

is necessary for a beneficiary to receive 

from an ACO in order to be assigned to 

that ACO for purposes of this program. 

The term ‘‘assignment’’ in this context 

refers only to an operational process by 

which Medicare will determine whether 

a beneficiary has chosen to receive a 

sufficient level of the requisite primary 

care services from physicians associated 

with a specific ACO so that the ACO 

may be appropriately designated as 

exercising basic responsibility for that 

beneficiary’s care. Consistent with 

section 1899(b)(2)(A), the ACO will then 

be held accountable ‘‘for the quality, 

cost, and overall care of the Medicare 

FFS beneficiaries assigned to it.’’ The 

ACO may also qualify to receive a share 

of any savings that are realized in the 

care of these assigned beneficiaries due 

to appropriate efficiencies and quality 

improvements that the ACO may be able 

to implement. It is important to note 

that the term ‘‘assignment’’ for purposes 

of this provision in no way implies any 

limits, restrictions, or diminishment of 

the rights of Medicare FFS beneficiaries 

to exercise complete freedom of choice 

in the physicians and other health care 

practitioners and suppliers from whom 

they receive their services. 

Thus, while the statute refers to the 

assignment of beneficiaries to an ACO, 

we would characterize the process more 

as an ‘‘alignment’’ of beneficiaries with 

an ACO as the exercise of free choice by 

beneficiaries in the physicians and other 

health care providers and suppliers 

from whom they receive their services is 

a presupposition of the Shared Savings 

Program. Therefore, an important 

component of the Shared Savings 

Program will be timely and effective 

communication with beneficiaries 

concerning the Shared Savings Program, 

their possible assignment to an ACO, 

and their retention of freedom of choice 

under the Medicare FFS program. The 

issues of beneficiary information and 

notification regarding their potential 

assignment to an ACO are further 

discussed at the end of this section. 


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1. Operational Identification of an ACO 

The first step in developing a method 

for assigning beneficiaries is to establish 

a clear operational method of 

identifying an ACO that correctly 

associates its health care professionals 

and providers with the ACO. It is 

designed to be consistent with the 

statutory definition of an ACO as well 

as the eligibility and other requirements 

for an organization to participate in the 

Shared Savings Program as an ACO. As 

discussed in section II.B. of this 

proposed rule, section 1899(a)(1)(A) of 

the Act defines ACOs as ‘‘groups of 

providers of services and suppliers’’ 

who work together to manage and 

coordinate care for Medicare fee-forservice beneficiaries. More specifically, 

the Act refers to group practice 

arrangements, networks of individual 

practices of ACO professionals, 

partnerships or joint venture 

arrangements between hospitals and 

ACO professionals, hospitals employing 

ACO professionals, or other 

combinations that the Secretary 

determines appropriate. 

From a technical, operational 

perspective, there are two data sources 

that could be used to identify the 

specific providers of services and 

suppliers participating in these kinds of 

arrangements as ACOs—specifically, 

their—(1) National Provider Identifier 

(NPI); and (2) TIN. Under the Medicare 

program, individual practitioners are 

defined by their NPI, but generally file 

and receive payment for Medicare 

claims based on their TIN. The TIN may 

be an employer identification number 

(EIN) or social security number (SSN). 

Some individual physicians and other 

ACO professionals, for example, do not 

have EINs, and enroll in the Medicare 

program through their SSNs. Physicians 

and other ACO professionals who are 

members of a group practice and bill for 

their services through the group may not 

have individual EINs but may use a 

group EIN for billing Medicare rather 

than their individual SSNs. While all 

physicians and practitioners have TINs 

(either EINs or SSNs), not all physicians 

and practitioners have Medicare 

enrolled TINs. For example, physicians 

and other ACO professionals who are 

members of a group practice often bill 

for their services through the group and 

may not have individual Medicare 

enrolled TINs. Groups of physicians and 

practitioners, however, necessarily have 

TINs which they employ for billing 

Medicare, because a TIN must be used 

for billing purposes. It should be noted 

that, under the Shared Savings Program, 

the standard restrictions on disclosure 

of information apply. (For a discussion 

regarding the public disclosure of 

information under the Shared Savings 

Program, see the discussion in section 

II.E. of this proposed rule.) 

Under the PGP demonstration, 

beneficiaries were assigned and group 

quality performance was measured by 

identifying practices operationally as a 

collection of Medicare enrolled TINs. 

Through this demonstration we found 

that TINs provide the most direct link 

between the beneficiary and the practice 

providing primary care services. 

Further, TINs are more stable than NPIs 

and more likely to provide complete 

longitudinal data required for 

benchmarking and beneficiary 

assignment, and to promote the stability 

necessary for the ACO to commit to 

redesigning care processes and complete 

the required 3-year agreement period. 

The reason NPIs tend to be less stable 

is because individual physicians and 

practitioners often change from one 

practice to another, potentially 

rendering data continuity and 

beneficiary assignment problematic 

when only NPIs are available. In the 

PGP demonstration, the individual NPIs 

associated with the TIN were identified 

from claims data and provider 

enrollment information, providing for 

more effective monitoring of 

performance within the ACO. Finally, 

reporting at the TIN level appeared to 

reduce the reporting burden for 

practices participating in the PGP 

demonstration. 

Therefore, we are proposing to 

identify an ACO operationally as a 

collection of Medicare enrolled TINs. 

More specifically, an ACO will be 

identified operationally as a set of one 

or more TINs currently practicing as a 

‘‘group practice arrangement’’ or in a 

‘‘network’’ such as where ‘‘hospitals are 

employing ACO professionals’’ or where 

there are ‘‘partnerships or joint ventures 

of hospitals and ACO professionals’’ as 

stated under section 1899(b)(1)(A) 

through (E) of the Act. For example, a 

single group practice that participates in 

the Shared Savings Program would be 

identified by its TIN. A network of 

independent practices that forms an 

ACO would be identified by the set of 

TINs of the practices constituting the 

ACO. We are proposing to require that 

organizations applying to be an ACO 

provide their ACO participant TINs. 

Each TIN can be systematically linked 

to an individual physician specialty 

code by us. Therefore, under this 

approach, beneficiaries would be 

assigned to an ACO through a TIN based 

on the primary care services they 

received from physicians billing under 

that TIN. 

We also propose that ACO 

professionals within the respective TIN 

on which beneficiary assignment is 

based, will be exclusive to one ACO 

agreement in the Shared Savings 

Program. This exclusivity will only 

apply to the primary care physicians 

(defined as physicians with a 

designation of internal medicine, 

geriatric medicine, family practice, and 

general practice, as discussed in this 

rule) by whom beneficiary assignment is 

established. 

ACO participant TINs upon which 

beneficiary assignment is not dependent 

(for example, acute care hospitals, 

surgical and medical specialties, RHCs, 

and FQHCs) would be required to agree 

to participate in the ACO for the term 

of the 3-year agreement, but would not 

be restricted to participation in a single 

ACO. As stated in section II.G. of this 

proposed rule, competition in the 

marketplace promotes quality of care for 

Medicare beneficiaries, protects access 

to a variety of providers, and helps 

sustain the Medicare program by 

controlling cost pressures. All of these 

benefits to Medicare patients would be 

reduced or eliminated if we allow the 

creation of ACOs with significant 

market power. This is especially 

important in certain areas of the country 

that might not have many specialists. In 

addition, exclusivity of ACO participant 

TINs upon which beneficiary 

assignment is not dependent might also 

contribute to the prospects that ACOs 

could develop excessive market power, 

especially in areas with shortages of 

physicians. In turn, greater market 

power could provide opportunities for 

these organizations to engage in 

activities that raise issues of fraud and 

abuse, such as those related to selfreferrals. For these reasons, physicians 

upon whom assignment is dependent 

would be committed for a 3-year period 

and be exclusive to one ACO. 

Conversely, to ensure that physicians 

and other entities upon which 

assignment is not dependent (that is, 

hospitals, FQHC, RHCs, specialists) can 

participate in more than one ACO, and 

thereby facilitate the creation of 

competing ACOs, these providers and 

suppliers would be committed to the 

3-year agreement but would not be 

exclusive and would have the flexibility 

to join another ACO. 

Based on our experience, we 

recognize that the TIN level data alone 

will not be entirely sufficient for a 

number of purposes in the Shared 

Savings Program. In particular, NPI data 

will be useful to assess the quality of 

care furnished by an ACO. For example, 

NPI information will be necessary to 

determine what percent of physicians 


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and other practitioners in the ACO are 

registered in the HITECH program 

(discussed in section II.E. of this 

proposed rule). NPI data will also be 

helpful in our monitoring of ACO 

activities (which we discuss in section 

II.H. of this proposed rule). Therefore, 

we are also proposing to require that 

organizations applying to be an ACO 

must provide not only their TINs but 

also a list of associated NPIs for all ACO 

professionals, including a list that 

separately identifies physicians that 

provide primary care. As we discuss in 

more detail later in the document, for 

purposes of the Shared Savings 

Program, we are proposing to define 

primary care physicians as those 

physicians that practice in the areas of 

internal medicine, general practice, 

family practice, and geriatric medicine. 

We welcome comments on our proposal 

to require reporting of TINs along with 

information about the NPIs associated 

with the ACO. 

In summary, we believe that our 

proposal to define the ACO 

operationally as a group of Medicareenrolled TINs, while also collecting 

information about the NPIs associated 

with those TINs, allows us to link the 

beneficiary, type of service provided, 

and the type of physician providing the 

services for purposes of beneficiary 

assignment to the ACO as required by 

statute. This approach also offers the 

most complete longitudinal data 

required for benchmarking and 

beneficiary assignment, most effectively 

limits administrative burden for 

participating providers and suppliers, 

and makes it possible for us to take 

advantage of infrastructure and 

methodologies already developed for 

group-level reporting and evaluation. 

Moreover, this option affords us the 

most flexibility and statistical stability 

for monitoring and evaluating quality 

and outcomes for the population of 

patients assigned to the ACO. 

2. Definition of Primary Care Services 

Section 1899(c) of the Act requires the 

Secretary to assign beneficiaries to an 

ACO ‘‘based on their utilization of 

primary care services’’ provided by a 

physician. However, the statute does not 

specify which kinds of services should 

be considered ‘‘primary care services’’ 

for this purpose, nor the amount of 

those services that would be an 

appropriate basis for making 

assignments. We discuss issues 

concerning the appropriate proportion 

of such services in the next section. In 

this section of this proposed rule, we 

discuss how to identify the appropriate 

primary care services on which to base 

the assignment and our proposal for 

defining primary care services for this 

purpose. 

In order to ensure the statistical 

reliability of the required performance 

measurements and benchmarks, ACOs 

must have a sufficient number of 

assigned beneficiaries. Having too few 

beneficiaries assigned to a participating 

ACO will impede determining whether 

changes in cost and quality measures 

are likely a reflection of normal 

variation rather than real improvement 

in the delivery of care. Section 

1899(b)(2)(D) of the Act specifically 

provides that the composition of the 

ACO shall include sufficient numbers of 

ACO primary care professionals so that 

at least 5,000 beneficiaries are assigned 

to the ACO. 

Primary care services can generally be 

defined based on the type of service 

provided or the type of provider 

specialty that provides the service. The 

PGP demonstration has helped inform 

assignment methodologies. Under the 

PGP demonstration, the assignment 

methodology incorporated outpatient 

evaluation and management (E&M) 

services provided by both primary care 

and specialist providers. One reason for 

this is that certain specialists (for 

example, cardiologists, 

endocrinologists, neurologists, 

oncologists) are often the principal 

primary care provider for elderly and 

chronically ill patients who do not 

otherwise have a primary care provider, 

and it is reasonable to expect them to 

take responsibility for these patients’ 

care. Another reason is that the 

assignment methodology provided an 

opportunity for specialists to take 

responsibility for ensuring that their 

patients’ primary care needs were being 

met even if the specialist provided care 

initially on a referral basis. 

We would note that in defining 

primary care services, certain Affordable 

Care Act provisions also rely on a blend 

of the type of service and type of 

provider delivering the service. For 

example, section 5501 of the Affordable 

Care Act makes incentive payments 

available to primary care practitioners 

for whom primary care services account 

for at least 60 percent of the allowed 

charges under Part B. For purposes of 

this provision, a ‘‘primary care 

practitioner’’ is defined as a physician 

‘‘who has a primary specialty 

designation of family medicine, internal 

medicine, geriatric medicine, or 

pediatric medicine,’’ or as a ‘‘nurse 

practitioner, clinical nurse specialist, or 

physician assistant.’’ In that section, 

‘‘primary care services’’ are defined as a 

set of services identified by these 

HCPCS codes: 99201 through 99215; 

99304 through 99340; and 99341 

through 99350. Additionally, we would 

consider the Welcome to Medicare visit 

(G0402) and the annual wellness visits 

(G0438 and G0439) as primary care 

services for purposes of the Shared 

Savings Program. 

In developing our proposal, we have 

considered three options with respect to 

defining ‘‘primary care services’’ for the 

purposes of assigning beneficiaries 

under the Shared Savings Program: (1) 

Assignment of beneficiaries based upon 

a predefined set of ‘‘primary care 

services;’’ (2) assignment of beneficiaries 

based upon both a predefined set of 

‘‘primary care services’’ and a predefined 

group of ‘‘primary care providers;’’ and 

(3) assignment of beneficiaries in a stepwise fashion. Under this option, 

beneficiary assignment would proceed 

by first identifying primary care 

physicians (internal medicine, family 

practice, general practice, geriatric 

medicine) who are providing primary 

care services, and then identifying 

specialists who are providing these 

same services for patients who are not 

seeing any primary care professional. 

The first option would assign 

beneficiaries by defining ‘‘primary care 

services’’ on the basis of the select set of 

E&M services, specifically those defined 

as ‘‘primary care services’’ in section 

5501 of the Affordable Care Act, and 

including G-codes associated with the 

annual wellness visit and Welcome to 

Medicare benefit regardless of provider 

specialty. This option would increase 

the number of potential beneficiaries 

assigned to the ACO in areas with 

primary care shortages (where 

specialists would necessarily be 

providing more primary care services as 

defined by the code set). It is also 

administratively straightforward, and 

we have experience with the similar 

methodology initially used in the PGP 

demonstration. However, assigning 

beneficiaries to ACOs based only on 

primary care services without 

distinction of caregiver specialty 

increases the likelihood of assigning 

beneficiaries to a specialist over a 

primary care provider. In addition, it 

would appear to be somewhat 

inconsistent with section 5501 of the 

Affordable Care Act, which, for 

purposes of establishing an incentive 

payment for primary care services, first 

defines a set of primary care 

practitioners, and then identifies a set of 

HCPCS codes as ‘‘primary care services.’’ 

The primary care services are 

recognized for the incentive payment 

only when they are provided by primary 

care practitioners. It is dubious whether 

the codes identified in section 5501 of 

the Affordable Care Act alone, when 

they are not provided by primary care 


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doctors and other practitioners, truly 

constitute primary care services. Rather, 

these codes alone simply represent 

outpatient cognitive services (generally, 

consultations and office visits) that are 

provided for in all sorts of health care 

situations, including primary care but 

also specialty care, and are provided by 

many types of physicians. As such, this 

option has the potential to diminish the 

appropriate level of emphasis on a 

primary care core in the Shared Savings 

Program, by failing to place any priority 

on the services of designated primary 

care providers (for example, internal 

medicine, general practice, family 

practice, and geriatric medicine) in the 

assignment process. 

The second option that we have 

considered is therefore to assign 

beneficiaries to physicians designated as 

primary care providers (internal 

medicine, general practice, family 

practice, and geriatric medicine) who 

are providing the appropriate primary 

care services to beneficiaries. As in the 

case of the first option, we would define 

‘‘primary care services’’ on the basis of 

the select set of HCPCS codes identified 

in section 5501 of the Affordable Care 

Act, including G-codes associated with 

the annual wellness visit and Welcome 

to Medicare visit. This option more 

closely aligns the definition of primary 

care services with the definition in 

section 5501 of the Affordable Care Act. 

As in the case of the first option, this 

option would be relatively 

straightforward administratively. 

However, this option could reduce the 

number of beneficiaries assigned to an 

ACO, by excluding primary care 

services delivered by specialists, 

especially in some areas that may have 

shortages of primary care physicians but 

a relatively greater number of 

specialists. Consequently, this option 

could make it difficult for ACOs to form 

in some geographic regions with such 

primary care shortages. 

The third option we have considered 

is to assign beneficiaries in a step-wise 

fashion. Under this option, beneficiary 

assignment would proceed by first 

identifying primary care physicians 

(internal medicine, family practice, 

general practice, geriatric medicine) 

who are providing primary care 

services, and then identifying specialists 

who are providing these same services 

for patients who are not seeing any 

primary care professional. This option 

would introduce a greater level of 

operational complexity compared to the 

two other options we considered. In 

addition, it could undermine our goal of 

ensuring competition among ACOs by 

reducing the number of specialists that 

can participate in more than one ACO, 

since specialists to whom beneficiaries 

are assigned would be required to be 

exclusive to one ACO. As noted 

previously, the ability of specialists to 

participate in more than one ACO is 

especially important in certain areas of 

the country that might not have many 

specialists. On the other hand, a ‘‘stepwise approach’’ would not affect all 

specialists and it would reflect many of 

the advantages of the other two 

approaches, balancing the need for 

emphasis on a primary care core with a 

need for increased assignment numbers 

in areas with primary care shortages. 

After considering these options, we 

are proposing the second option, which 

would assign beneficiaries with 

physicians designated as primary care 

providers (internal medicine, general 

practice, family practice, and geriatric 

medicine) who are providing the 

appropriate primary care services to 

beneficiaries. We believe that this 

option best aligns with other Affordable 

Care Act provisions related to primary 

care by placing an appropriate level of 

emphasis on a primary care core in the 

Shared Savings Program. That is, this 

option places priority on the services of 

designated primary care physicians (for 

example, internal medicine, general 

practice, family practice, and geriatric 

medicine) in the assignment process. 

This option also allows ACOs to focus 

their efforts to coordinate and redesign 

care for patients seeing primary care 

providers and creates incentives for 

ACOs to establish primary care linkages 

for their patients who may not have a 

primary care provider. The option is 

also relatively straightforward 

administratively. 

However, we are also concerned that 

this proposal may not adequately 

account for primary care services 

delivered by specialists, especially in 

certain areas with shortages of primary 

care physicians, and that it may make it 

difficult to obtain the minimum number 

of beneficiaries to form an ACO in 

geographic regions with such primary 

care shortages. Therefore, while we are 

proposing to assign beneficiaries to 

physicians designated as primary care 

providers (internal medicine, general 

practice, family practice, and geriatric 

medicine) who are providing the 

appropriate primary care services to 

beneficiaries, we invite comments on 

this proposal and other options that may 

better address the delivery of primary 

care services by specialists. In the final 

rule, we could consider adopting 

another option; therefore we are seeking 

comments on the definition of primary 

care services approach as well as the 

‘‘step-wise’’ approach as described 

previously. 

3. Prospective vs. Retrospective 

Beneficiary Assignment To Calculate 

Eligibility for Shared Savings 

Section 1899(d)(1) of the Act provides 

that an ACO may be eligible for shared 

savings with the Medicare program if 

the ACO meets performance standards 

established by the Secretary (which we 

discuss in section II.E. of this proposed 

rule) and meets the requirements for 

realizing savings for its assigned 

beneficiaries against the benchmark 

established by the Secretary under 

section 1899(d)(1)(B) of the Act. Thus, 

for each year of an agreement period 

each ACO will have an assigned 

population of beneficiaries. Eligibility 

for shared savings will be based on 

whether the requirements for receiving 

shared savings payments are met for this 

assigned population. We refer to each 

year for which such determinations 

must be made as a ‘‘performance year.’’ 

There are two basic options for 

assigning beneficiaries to an ACO to 

calculate eligibility for shared savings 

for a performance year. The first option 

is that beneficiary assignment could 

occur at the beginning of the 

performance year, or prospectively, 

based on utilization data demonstrating 

the provision of primary care services to 

beneficiaries in prior periods. The 

second option is that beneficiary 

assignment could occur at the end of the 

performance year, or retrospectively, 

based on utilization data demonstrating 

the provision of primary care services to 

beneficiaries by ACO physicians during 

the performance year. 

Many observers and prospective ACO 

managers have argued that it is essential 

for an ACO to know who is included in 

its assigned population prior to the start 

of the performance year. While they 

intend to treat all patients the same, 

they assert that it is fundamental to 

population management to be able to 

profile a population, identify 

individuals at high risk, develop 

outreach programs, and proactively 

work with patients and their families to 

establish care plans. These observers 

also argue that, as with any well 

managed enterprise, it is essential to 

have operational goals and targets to 

manage effectively. Thus, they would 

like to be able to track prospective 

targeted expenses, in order to gauge 

their results as they go through the 

performance year. These observers also 

understand that even prospective 

assignment methodologies will require a 

retrospective definition of the 

population to adjust for a variety of 

changes in the population that occur 

during a performance year. Some 

current patients of the practice will 


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become eligible for Medicare. Some will 

join a Medicare Advantage (MA) plan 

and, although they may continue to 

receive care furnished by the ACO, 

these beneficiaries can no longer be 

considered part of the assigned 

population of the ACO for purposes of 

computing shared savings. Individuals 

will move in and out of the service area 

during the year. For all these reasons, 

any methodology will require a 

retrospective redefinition of the 

assigned population. 

Advocates for the retrospective 

approach start with the observation that 

the actual population seen by a set of 

physicians changes significantly from 

year to year. Medicare FFS beneficiaries’ 

right to see any enrolled physician 

typically leads to more year-to-year 

variability in treating physicians 

compared to patients in managed care 

programs. Analysis of the PGP 

population did show approximately a 

25 percent variation in assignment from 

year to year. Prospective assignment of 

a population seems inherently 

inaccurate from this perspective. If 

beneficiary assignment changes by 25 

percent from year to year, a prospective 

assignment would not be an accurate 

reflection of those beneficiaries that 

were actually seen by physicians in the 

ACO during the performance year. 

Retrospective assignment of the 

population, on the other hand, 

appropriately holds the ACO 

accountable for the actual population it 

cared for during the performance year. 

Proponents of the retrospective 

approach also make a second argument. 

They suggest that identifying a 

population prospectively may lead an 

ACO to focus only on providing care 

coordination and other ACO services to 

this limited population, ignoring other 

beneficiaries in their practices or 

hospitals. Given that the goal of the 

Shared Savings Program is to change the 

care experience for all beneficiaries, 

ACOs should not be told who among 

their patients are likely to be in their 

assigned population. ACO participants 

and ACO providers/suppliers should 

have incentives to treat all patients 

equally, using standardized evidencebased care processes, to improve the 

quality and efficiency of all of the care 

they provide, and in the end they 

should see positive results in the 

retrospectively assigned population. 

We believe there are merits in both 

approaches. It does seem appropriate for 

an ACO to have information regarding 

the population it will likely be 

responsible for in order to target its care 

improvements to those patients who 

would benefit the most. At the same 

time, we do not want to encourage 

ACOs to limit their care improvement 

activities to a subset of their patients 

that they believe may be assigned to 

them. Finally, we believe it is critical 

that the assessment of ACO performance 

in any year be based on patients who 

received the plurality of their primary 

care from the ACO in that year, rather 

than an earlier period. As noted 

previously, even under a prospective 

assignment approach, a retrospective 

redefinition of the assigned population 

to account for changes from prior 

periods would be required or the ACO 

would be held accountable for patients 

that it did not provide services for 

during the performance year. Under a 

prospective system, the assignment 

would have to be adjusted every year to 

account for beneficiaries entering and 

leaving FFS Medicare as well as for 

those patients who move in and out of 

the geographic area of the ACO, as well 

as potentially other adjustments such as 

when a beneficiary remains in the area 

but chooses to receive their care outside 

of the ACO based upon where the 

plurality of their primary care services 

are being performed. Considering the 

merits of both approaches, we believe 

that the retrospective approach to 

beneficiary assignment for purposes of 

determining eligibility for shared 

savings is compelling. We believe that 

the assignment process should 

accurately reflect the population that an 

ACO is actually caring for, in order to 

ensure that the evaluation of quality 

measures is fair and that the calculation 

of shared savings, if any, accurately 

reflects the ACO’s success in improving 

the quality and efficiency of the care 

provided to the beneficiaries for which 

it was actually accountable. In contrast, 

as we noted previously, a prospective 

approach has intrinsic inaccuracies, and 

requires additional adjustments in order 

to achieve the requisite level of accuracy 

for purposes of the Shared Savings 

Program. 

In response to the November 17, 2010 

RFI, of the few commenters favoring 

retrospective alignment, a group of 

commenters suggested the use of 

retrospective alignment for determining 

utilization and shared savings, but 

prospective assignment for purposes of 

CMS sharing beneficiary identifiable 

data with ACOs. We agree that, given 

appropriate safeguards for maintaining 

the confidentiality of patient 

information, providing ACOs with 

meaningful information about their 

‘‘expected assigned population’’ with the 

potential to identify an ‘‘estimated 

benchmark target’’ will be helpful. We 

address our proposals for providing 

information to ACOs to help them 

understand their patient populations 

and better manage their care in section 

II.C. of this proposed rule. 

Therefore, we are proposing the 

combined approach of retrospective 

beneficiary assignment for purposes of 

determining eligibility for shared 

savings balanced by the provision of 

aggregate beneficiary level data for the 

assigned population of Medicare 

beneficiaries during the benchmark 

period. (As we discuss in section II.C. of 

this proposed rule, we will provide 

ACOs with a list of beneficiary names, 

date of birth, sex, and other information 

derived from the assignment algorithm 

used to generate the 3-year benchmark.) 

Although the assignment methodology 

for the PGP demonstration was different 

from the proposed Shared Savings 

Program assignment methodology, when 

the PGP data is modeled with the 

Shared Savings Program assignment 

methodology, the assigned patient 

population would vary by 

approximately 25 percent from year to 

year. We believe that providing data on 

those beneficiaries that are assigned to 

an ACO in the benchmark period is a 

good compromise that will allow ACOs 

to have information on the population 

they will likely be responsible for in 

order to target their care improvements 

to that population while still not 

encouraging ACOs to limit their care 

improvement activities to only the 

subset of beneficiaries they believe will 

be assigned to them in the performance 

year. We believe that such a combined 

approach provides the best of both 

approaches while minimizing the 

disadvantages of either. ACO physicians 

will have the information they need to 

manage their population and estimate a 

target to manage towards, while they 

will still be encouraged to provide highquality, efficient, and well-coordinated 

services to all Medicare FFS 

beneficiaries because they will not 

know for sure who will be in the 

assigned population. However, the 

ultimate evaluation of their 

effectiveness will be based on the actual 

population they served. We solicit 

comments on this combined approach 

of retrospective beneficiary assignment 

for purposes of determining eligibility 

for shared savings balanced by the 

provision of beneficiary data (names, 

date of birth, etc.) and aggregate 

beneficiary level data for the assigned 

population of Medicare beneficiaries 

during the benchmark period. We also 

seek comment on alternate assignment 

approaches, including the prospective 

method of assignment. 


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Federal Register / Vol. 76, No. 67 / Thursday, April 7, 2011 / Proposed Rules 19567 

4. Majority vs. Plurality Rule for 

Beneficiary Assignment 

Section 1899(c) of the Act requires 

that Medicare FFS beneficiaries be 

assigned to ‘‘an ACO based on their 

utilization of primary care services’’ 

furnished by an ACO professional who 

is a physician, but it does not prescribe 

the methodology for such assignment, 

nor criteria on the level of primary care 

services utilization that should serve as 

the basis for such assignment. Rather, 

the statute requires the Secretary to 

‘‘determine an appropriate method to 

assign Medicare FFS beneficiaries to an 

ACO’’ on the basis of their primary care 

utilization. 

An obvious general approach is to 

make such an assignment on the basis 

of some percentage level of the primary 

care services a beneficiary receives from 

an ACO physician. The more specific 

issue under such an approach is 

whether to assign beneficiaries to the 

ACO when they receive a plurality of 

their primary care services from that 

ACO, or to adopt a stricter standard 

under which a beneficiary will be 

assigned to an ACO only when he or she 

receives a majority of their primary care 

services from an ACO. 

Under the PGP demonstration 

beneficiaries were assigned to a practice 

based on the plurality rule. By 

employing a plurality standard for 

primary care services, our analysis 

indicates that between 78 and 88 

percent of the patients seen for primary 

care services at the PGP during the year 

were subsequently assigned to that PGP 

group. As measured by allowed charges 

(evaluation and management CPT 

codes), the PGP provided on average 95 

percent of all primary care services 

provided to the assigned patients. 

Alternatively, it could be argued that 

adopting a majority standard might 

enhance an ACO’s sense of 

responsibility for its assigned patients, 

which is certainly consistent with the 

general goals of the Shared Savings 

Program. However, adopting a majority 

standard would likely somewhat reduce 

the number of beneficiaries assigned to 

an ACO and more beneficiaries would 

be unassigned to any ACO. On balance, 

we believe that a majority rule for 

assignment is too strict a standard to 

employ in a system where many 

Medicare beneficiaries may regularly 

receive primary care services from two 

or more primary care practitioners (for 

example, an internal medicine 

physician and a geriatric medicine 

physician). As such, this standard could 

undermine the development and 

sustainability of ACOs. Therefore, we 

are proposing to assign beneficiaries for 

purposes of the Shared Savings Program 

to an ACO if they receive a plurality of 

their primary care services from primary 

care physicians within that ACO. We 

believe that the plurality rule provides 

a sufficient standard for assignment 

because it ensures that beneficiaries will 

be assigned to an ACO when they 

receive more primary care from that 

ACO than from any other provider. This 

will result in a greater number of 

beneficiaries assigned to ACOs, which 

may enhance the viability of the Shared 

Savings Program, especially in its initial 

years of operation. We welcome 

comments on our proposal to assign 

patients based upon a plurality rule. 

Additionally we would also welcome 

any comments on whether there should 

be a minimum threshold number of 

primary care services that a beneficiary 

should receive from physicians in the 

ACO in order to be assigned to the ACO 

under the plurality rule and if so, where 

that minimum threshold should be set. 

Finally, we can determine when a 

beneficiary has received a plurality of 

primary care services from an ACO 

either on the basis of a simple service 

count or on the basis of the accumulated 

allowed charges for the services 

delivered. The method of using a 

plurality of allowed charges would 

provide a greater weight to more 

complex primary care services in the 

assignment methodology, while a 

simple service method count would 

weigh all primary care encounters 

equally in determining assignment. We 

have previous experience with the 

method of using a plurality of allowed 

charges in the PGP demonstration. One 

advantage of this method is that it 

would not require tie-breaker rules, 

since it is unlikely that allowed charges 

by two different entities would be equal. 

On the other hand, this method does not 

necessarily assign the beneficiary to the 

entity that saw the patient most 

frequently, but rather to the entity that 

provided the highest complexity and 

intensity of primary care services. 

Assignment of beneficiaries on the basis 

of plurality in a simple service method 

count would require tie-breaker rules for 

those rare occasions when two or more 

entities delivered an equal number of 

services to a beneficiary. One possible 

tie-breaker for such cases is to assign the 

beneficiary to the ACO if it is the entity 

that most recently provided primary 

care services. 

We propose to implement the method 

of using a plurality of allowed charges 

for primary care services to assign 

beneficiaries to ACOs. Allowed charges 

are a reasonable proxy for the resource 

use of the underlying primary care 

services, so the method of using a 

plurality of allowed charges assigns 

beneficiaries to ACOs according to the 

intensity of their primary care 

interactions, not merely the frequency of 

such services. 

5. Beneficiary Information and 

Notification 

Section 1899(c) of the Act, as added 

by section 3022 of the Affordable Care 

Act, does not state whether beneficiaries 

should be informed in any way about 

the Shared Savings Program. Thus, it 

does not specify any information to be 

provided to beneficiaries about the 

Shared Savings Program in general, 

whether they are receiving services from 

an ACO participant or ACO provider/ 

supplier, or whether they have been 

assigned to an ACO for purposes of 

determining that ACO’s performance 

with respect to the quality standards 

and its possible shared savings under 

the Shared Savings Program. 

As discussed previously, the term 

‘‘assignment’’ as used in the statute for 

purposes of this provision in no way 

implies any limits, restrictions, or 

diminishment of the rights of Medicare 

FFS beneficiaries to exercise freedom of 

choice in the physicians and other 

health care practitioners from whom 

they receive their services. Rather, the 

statutory term ‘‘assignment’’ in this 

context refers only to an operational 

process by which Medicare will 

determine whether a beneficiary has 

chosen to receive a sufficient level of 

the requisite primary care services from 

a specific ACO so that the ACO may be 

appropriately designated as being 

accountable for that beneficiary’s care. 

For example, if a beneficiary’s physician 

becomes part of an ACO and the 

beneficiary does not wish to receive 

health care services under the ACO care 

coordination and management efforts, 

the beneficiary has the freedom of 

choice to go to a different physician. 

The continued exercise of free choice by 

beneficiaries in selecting the physicians 

and other health care practitioners from 

whom they receive their services is thus 

a presupposition of the Shared Savings 

Program. The exercise of free choice, 

however, can be undermined or even 

nullified if beneficiaries do not possess 

adequate information to assess the 

possible consequences of available 

choices, or to evaluate which available 

options are most consistent with their 

values and preferences concerning their 

own health care. We therefore believe 

that an important component of the 

Shared Savings Program must be timely 

and effective communication with 

beneficiaries concerning the Shared 

Savings Program, their potential 


srobinson on DSKHWCL6B1PROD with PROPOSALS2
19568 Federal Register / Vol. 76, No. 67 / Thursday, April 7, 2011 / Proposed Rules 

14Committee on Quality of Health Care in 

America, Institute of Medicine. Crossing the Quality 

assignment to an ACO, and what that 

may mean for the beneficiaries’ care. 

Furthermore, the Shared Savings 

Program lays the foundation for a 

beneficiary-centered delivery system 

that should create a strong relationship 

between beneficiaries and care 

providers based, in large part, on patient 

engagement in the new care system. 

Such engagement would be more 

difficult when beneficiaries are not 

aware of the new delivery system 

available from ACOs, and the possibility 

of being included in the population 

assigned to an ACO. In short, 

transparency must be a central feature of 

the Shared Savings Program. 

Therefore, we intend to develop a 

communications plan, including 

educational materials and other forms of 

outreach, to provide beneficiaries in a 

timely manner with accurate, clear, and 

understandable information about the 

Shared Savings Program in general, 

about their utilization of services 

furnished by a provider or supplier 

participating in an ACO, about the 

possibility of their being assigned to an 

ACO for quality and shared savings 

purposes, and about the potential that 

their health information may be shared 

with the ACO, and their ability to optout of that data sharing. Accordingly, 

we will update the annual Medicare 

handbook to contain information about 

the Shared Savings Program, ACOs, and 

what receiving care from an ACO means 

for the Medicare FFS beneficiary. 

One limitation on the timing of the 

information that we provide to 

beneficiaries arises from our proposal to 

assign beneficiaries to an ACO 

retroactively, that is, after the end of a 

performance year, on the basis of a 

beneficiary’s actual primary care service 

utilization during the year. It is 

therefore not possible to inform 

beneficiaries of their assignment to an 

ACO in advance of the period in which 

they may seek services from the ACO. 

However, we believe that it is essential 

for beneficiaries to receive some form of 

advance notification that a physician or 

other provider from whom they are 

receiving services is participating in an 

ACO. The only practical manner in 

which such notification could be 

provided in a timely manner is to 

require ACOs to provide such 

notification to beneficiaries when they 

seek services from ACO providers/ 

suppliers. Specifically, we propose to 

require ACOs to post signs in the 

facilities of participating ACO 

providers/suppliers indicating their 

participation in the Shared Savings 

Program and to make available 

standardized written information to 

Medicare FFS beneficiaries whom they 

serve. ACOs would provide 

standardized written notice to 

beneficiaries of both their participation 

in the Shared Savings Program and the 

potential for CMS to share beneficiary 

identifiable data with ACOs when a 

beneficiary receives services from a 

physician on whom assignment to ACO 

is based. We also plan to instruct ACOs 

to supply a form allowing beneficiaries 

to opt-out of having their data shared. 

The form would be provided to each 

beneficiary as part of their office visit 

with a primary care physician, and must 

include a phone number, fax or e-mail 

for beneficiaries to contact and request 

that their data not be shared. 

Likewise, in instances where either an 

ACO chooses to no longer participate in 

the Shared Savings Program or we have 

terminated a participation agreement 

with an ACO, beneficiaries should be 

made aware of this change. Thus, we are 

proposing that ACOs be required to 

provide beneficiaries notice in a timely 

manner if they will no longer be 

participating in the Shared Savings 

Program. It should include the effective 

date of the termination of their 

agreement with us. As discussed in 

section II.C. of this proposed rule, we 

are also proposing to require an ACO 

seeking to terminate its participation in 

the Shared Savings Program to provide 

us with advanced notice. 

We recognize that such a requirement 

could place an administrative burden on 

ACOs. However, we believe that such 

notification is essential to enhance 

patient engagement and understanding 

of their care. As discussed in section 

II.B. of this proposed rule, section 

1899(b)(2)(H) of the Act requires that the 

‘‘ACO * * * demonstrate to the 

Secretary that it meets patientcenteredness criteria specified by the 

Secretary * * *.’’ We believe that 

providing notice of participation in or 

termination from the Shared Savings 

Program to beneficiaries is essential to 

the ability of beneficiaries to exercise 

free choice, and therefore would be an 

appropriate patient-centered criterion to 

be designated by the Secretary. In 

addition to notifying beneficiaries that 

they are seeking services from a 

provider or supplier participating in an 

ACO under the Shared Savings Program, 

this proposed notification will inform 

beneficiaries how assignment with an 

ACO is likely to affect (and not affect) 

the care they receive from the providers 

they have chosen. We seek comment on 

the appropriate form and content of this 

notification. For example, we seek 

comment on the utility of informing 

consumers about those objectives of the 

Shared Savings Program that might have 

the most impact on the beneficiary as a 

consumer of services from an ACO 

professional, such as the following: 

• Easing the burden on consumers to 

coordinate their own care among 

different providers, 

• Fostering follow-up with patients as 

they receive care from different 

providers, 

• Facilitating greater dialogue 

between and among beneficiaries and 

providers about how health care is 

delivered, and 

• Providing beneficiaries with quality 

measures by which they can evaluate 

the performance of their providers 

compared to regional and national 

norms. 

We also seek comment on the most 

important items to communicate to 

beneficiaries about matters that will not 

change under the Shared Savings 

Program, including the fact that their 

cost-sharing will continue to be the 

same, and they remain free to seek care 

from providers of their choosing. 

We welcome comments not only on 

our proposal to establish these 

notification requirements, but also on 

all matters concerning the appropriate 

form and content of such notification. If 

we adopt a notification requirement in 

the final rule, we will take comments on 

the issues such as the appropriate form 

and content of such a notification into 

account as we develop more detailed 

instructions for ACOs on beneficiary 

notification through guidance. 

E. Quality and Other Reporting 

Requirements 

1. Introduction 

As discussed in section I. of this 

proposed rule, the intent of the Shared 

Savings Program is to: (1) Promote 

accountability to Medicare beneficiaries; 

(2) improve the coordination of FFS 

items and services; and (3) encourage 

investment in infrastructure and 

redesigned care processes to achieve 

high health care quality and efficient 

service delivery. In conjunction with the 

Shared Savings Program and other 

provisions of the Affordable Care Act, 

we have adopted three goals for 

improvement of the health care of 

Medicare beneficiaries and, by 

extension, of all Americans. These goals 

include: (1) Better care for individuals; 

(2) better health for populations; and (3) 

lower growth in expenditures. (We 

define better health care for individuals 

as health care that is safe, effective, 

patient-centered, timely, efficient, and 

equitable, as described in the IOM’s six 

aims for changing U.S. health care 

delivery.) 14 This section of this 


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Federal Register / Vol. 76, No. 67 / Thursday, April 7, 2011 / Proposed Rules 19569 

Chasm: A New Health System for the 21st Century. 

Washington, DC, USA: National Academies Press; 

2001. 

proposed rule pertains to the first two 

goals. 

In this portion of the proposed 

regulation, we propose: (1) Measures to 

assess the quality of care furnished by 

an ACO; (2) requirements for data 

submission by ACOs; (3) quality 

performance standards; (4) the 

incorporation of reporting requirements 

under section 1848 of the Act for the 

Physician Quality Reporting System; 

and (5) requirements for public 

reporting by ACOs. 

2. Proposed Measures To Assess the 

Quality of Care Furnished by an ACO 

a. General 

Section 1899(b)(3)(A) of the Act, 

requires the Secretary to determine 

appropriate measures to assess the 

quality of care furnished by the ACO, 

such as measures of clinical processes 

and outcomes; patient, and, wherever 

practicable, caregiver experience of care; 

and utilization (such as rates of hospital 

admission for ambulatory sensitive 

conditions). Section 1899(b)(3)(B) of the 

Act requires ACOs to submit data in a 

form and manner specified by the 

Secretary on measures that the Secretary 

determines necessary for the ACO to 

report in order to evaluate the quality of 

care furnished by the ACO. We believe 

that the Secretary’s authority to 

determine the form and manner of data 

submission allows for establishing 

requirements for submission of data on 

measures the Secretary determines to be 

appropriate for evaluating the quality of 

care furnished by the ACO, without 

regard to whether the Secretary has 

established a specific quality 

performance standard with respect to 

those measures that must be met in 

order to be eligible for shared savings. 

We propose that an ACO be 

considered to have met the quality 

performance standard if they have 

reported quality measures and met the 

applicable performance criteria in 

accordance with the requirements 

detailed in rulemaking for each of the 

three performance years. We further 

propose to define the quality 

performance standard at the reporting 

level for the first year of the Shared 

Savings Program and to define it based 

on measure scores in subsequent 

program years. We have listed the 

measures we propose to use to establish 

quality performance standards that 

ACOs must meet for shared savings for 

the first performance period in Table 1. 

Quality measures for the remaining two 

years of the 3-year agreement will be 

proposed in future rulemaking. 

b. Considerations in Selecting Measures 

We view value-based purchasing as 

an important step to revamping how 

care and services are paid for, moving 

increasingly toward rewarding better 

value, outcomes, and innovations 

instead of merely volume. The Shared 

Savings Program is a critical element of 

our Medicare value-based purchasing 

initiative. In implementing these valuebased purchasing initiatives, we seek to 

meet certain common goals, as follows: 

1. Use of Measures 

• Value-based payment systems and 

public reporting should rely on a mix of 

standards, processes, outcomes, and 

patient experience measures, including 

measures of care transitions and 

changes in patient functional status. 

Across all programs, we seek to move as 

quickly as possible to the use of 

outcome and patient experience 

measures. To the extent practicable and 

appropriate, these outcome and patient 

experience measures should be adjusted 

for risk or other appropriate patient 

population or provider characteristics. 

• To the extent possible, and 

recognizing differences in payment 

system maturity and statutory 

authorities, measures should be aligned 

across Medicare and Medicaid’s public 

reporting and payment systems. We 

seek to evolve a focused core-set of 

measures appropriate to each specific 

provider category that reflects the level 

of care and the most important areas of 

service and measures for that provider. 

• The collection of information 

should minimize the burden on 

providers to the extent possible. As part 

of that effort, we have begun and will 

continuously seek to align Shared 

Savings Program measures with the 

methods and measures included in the 

Medicare and Medicaid EHR Incentive 

Programs to enable the collection and 

reporting of performance information to 

be a seamless part of care delivery and 

the meaningful use of certified EHR 

technology. 

• To the extent practicable, measures 

used by us should be nationally 

endorsed by a multi-stakeholder 

organization. Measures should be 

aligned with best practices among other 

payers and the needs of the end users 

of the measures. 

2. Scoring Methodology 

• Providers should be scored on their 

overall achievement relative to national 

or other appropriate benchmarks. In 

addition, scoring methodologies should 

consider improvement as an 

independent goal. 

• Measures or measurement domains 

need not be given equal weight, but over 

time, scoring methodologies should be 

more weighted towards outcome, 

patient experience and functional status 

measures. 

• Scoring methodologies should be 

reliable, as straightforward as possible, 

and stable over time and enable 

consumers, providers, and payers to 

make meaningful distinctions among 

providers’ performance. 

Consistent with these value-based 

purchasing principles, our principal 

goal in selecting quality measures for 

ACOs is to identify measures of success 

in the delivery of high-quality health 

care at the individual and population 

levels. We considered a broad array of 

process and outcome measures and 

accounted for a variety of factors in 

arriving at the proposed measures, 

prioritizing measures that meet the 

following: 

• Address the goals we previously 

identified: Improving individual health 

and improving the health of 

populations. 

• Address an array of quality 

domains, priorities, and aims, including 

the IOM six quality aims previously 

described and the National Quality 

Strategy, and other HHS priorities, such 

as prevention, care of chronic illness, 

treatment of high prevalence conditions 

such as cardiovascular disease, patient 

safety, patient and caregiver 

engagement, and care coordination. 

• Support the goals for the Shared 

Savings Program, as stated in section 

1899(a)(1) of the Act, of promoting 

provider accountability for a patient 

population, coordinating care furnished 

under Medicare Parts A and B, and 

encouraging investment in 

infrastructure and redesigned care 

processes for high quality and efficient 

service delivery. Thus, measures should 

have high impact in terms of 

accountability and cost, particularly for 

vulnerable populations, when 

comparing beneficiary care received in 

ACOs to beneficiary care received in 

non-ACO Medicare FFS. 

• Align with other Medicare 

incentive programs such as the 

Physician Quality Reporting System 

(‘‘PQRS’’; formerly known as the 

Physician Quality Reporting Initiative), 

Electronic Prescribing Incentive 

Program, Electronic Health Records 

(EHR) Incentive Programs, Hospital 

Inpatient Quality Reporting Program, 

and also Medicaid and private sector 

initiatives that align with the three-part 

aim. 


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19570 Federal Register / Vol. 76, No. 67 / Thursday, April 7, 2011 / Proposed Rules 

• Include the quality performance 

standards that ACOs must meet in order 

to be eligible for shared savings, which 

should be well-established, correlate 

with improved patient outcomes, and be 

accepted by the professional and 

provider community, such as through 

National Quality Forum (NQF) 

endorsement. 

• Are consistent across ACOs, 

regardless of ACO composition. 

• Offer key opportunities for 

improvement in care and significantly 

impact the health status and outcomes 

of care for the Medicare beneficiaries 

served by the ACO. 

• Are limited to those that have high 

impact, and/or are cross-cutting to the 

extent possible, with parsimony serving 

to focus clinical attention, and limiting 

the burden of data collection and 

reporting. 

• Exhibit sensitivity to administrative 

burden and seek to become less 

burdensome over time. 

c. Proposed Quality Measures for Use in 

Establishing Quality Performance 

Standards That ACOs Must Meet for 

Shared Savings 

Based upon the principles described, 

we are proposing 65 measures (see 

Table 1) for use in the calculation of the 

ACO Quality Performance Standard. We 

propose that ACOs will submit data on 

these measures using the process 

described later in this proposed rule and 

meet defined quality performance 

thresholds. We propose that ACOs be 

required to report quality measures and 

meet applicable performance criteria, as 

defined in rulemaking, for all 3 years 

within the 3-year agreement period to be 

considered as having met the quality 

performance standard. Specifically, for 

the first year of the program, we propose 

for the quality performance standard to 

be at the level of full and accurate 

measures reporting; for subsequent 

years, we propose the quality 

performance standard be based on a 

measures scale with a minimum 

attainment level as described in section 

II.E.4 of this proposed rule. 

ACOs that do not meet the quality 

performance thresholds for all proposed 

measures would not be eligible for 

shared savings, regardless of how much 

per capita costs were reduced. 

Specifically, as discussed in section 

II.H. of this proposed rule, in those 

instances where an ACO fails to meet 

the minimum attainment level for 1 or 

more domains, we propose to give the 

ACO a warning and to re-evaluate the 

following year. If the ACO continues to 

underperform on the quality 

performance standards in the following 

year, the agreement will be terminated. 

We also propose that if an ACO fails to 

report 1 or more measures, we would 

send the ACO a written request to 

submit the required data by a specified 

date and to provide a reasonable written 

explanation for its delay in reporting the 

required information. If the ACO fails to 

report by the requested deadline and 

does not provide a reasonable 

explanation for delayed reporting, we 

would immediately terminate the ACO 

for failing to report quality measures. 

ACOs that exhibit a pattern of 

inaccurate or incomplete reporting or 

fail to make timely corrections following 

notice to resubmit may be terminated 

from the program. We note that since 

meeting the quality standard is a 

condition for sharing in savings, the 

ACO would be disqualified from sharing 

in savings in each year in which it 

underperforms. Termination from the 

Shared Savings Program is discussed 

further in sections II.H and II.C. of this 

proposed rule. 

In addition to categorizing each of the 

proposed measures into the goals of 

better care for individuals and better 

health for populations, Table 1 includes 

the domain each of the proposed 

measures addresses, the measure title, a 

brief description of the data the measure 

captures, applicable Physician Quality 

Reporting System or EHR Incentive 

Programs information, the measure 

steward or, if applicable, NQF measure 

number, the proposed method of data 

submission for each measure, and the 

Measure Type. Under Measure Type, we 

have listed Patient Experience of Care, 

Process, or Outcome, consistent with 

the domains proposed in the Hospital 

Value Based Purchasing rule (76 FR 

2457), for each of the proposed Shared 

Savings Program quality measures. 

In an effort to provide focus to ACO 

quality improvement activity, we have 

identified 5 key domains within the 

dimensions of improved care and 

improved health that we propose will 

serve as the basis for assessing, 

benchmarking, rewarding, and 

improving ACO quality performance. 

These 5 domains are as follows: 

• Better Care for Individuals: 

++ Patient/Caregiver Experience 

++ Care Coordination 

++ Patient Safety 

• Better Health for Populations: 

++ Preventive Health 

++ At-Risk Population/Frail Elderly 

Health 

We note that while many of the 

proposed measures have NQF 

endorsement or are currently used in 

other CMS quality programs, the 

specifications for some of the proposed 

measures will need to be refined in 

order to be applicable to an ACO 

population. However, we propose to 

align the quality measures specifications 

for the Shared Savings Program with the 

measures specifications used in our 

existing quality programs to the extent 

possible and appropriate for purposes of 

the Shared Savings Program. We plan to 

make the specifications for the proposed 

measures available on our Web site 

prior to the start of the Shared Savings 

Program. 

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Information on Physician Quality 

Reporting System measures are 

available at: http://www.cms.gov/pqri/. 

Information on EHR Incentive Program 

measures are available at: https:// 

www.cms.gov/EHRIncentivePrograms/. 

Information on quality measures used 

by the Hospital Inpatient Quality 

Reporting Program are available at: 

http://www.cms.gov/ 

HospitalQualityInits/ 

08_HospitalRHQDAPU.asp. 

As illustrated in the ‘‘Method of Data 

Submission’’ column of Table 1, we 

propose to calculate results for the first 

program year measures via claims, the 

Group Practice Reporting Option 

(GPRO) data collection tool, as 

discussed in section II.E.4. of this 

proposed rule, and survey instruments. 

The ACO GPRO tool would be a new 

tool based on the data collection tool 

currently used in the Physician Quality 

Reporting System (formerly known as 

the Physician Quality Reporting 

Initiative) group practice reporting 

option (GPRO) and Physician Group 

Practice (PGP) demonstration. 

In subsequent program years through 

additional rulemaking, we would expect 

to refine and expand the ACO measures 

to enhance our ability to assess the 

quality of care furnished by ACOs 

participating in the Shared Savings 

Program and expand measures reporting 

mechanisms to include those that are 

directly EHR-based. Specifically, we 

expect to expand the measures through 

future rulemaking to include other 

highly prevalent conditions and areas of 

interest, such as frailty, as well as 

measures of caregiver experience. In 

addition to ambulatory measures, we 

would expect to add measures of 

hospital-based care and quality 

measures for care furnished in other 

settings, such as home health services 

and nursing homes. To the extent 

consistent with the Shared Savings 

Program requirements under section 

1899 of the Act, we also anticipate the 

ACO quality measures will evolve over 

time in an effort to achieve our quality 

program alignment goal of developing a 

single quality measure set that could be 

used by ACOs operating across a wide 

variety of payers, including those 

dealing with Medicaid, the Children’s 

Health Insurance Program (CHIP), and 

Special Needs Plans. 

We invite comments on the 

implication of including or excluding 

any proposed measure or measures in 

the calculation of the ACO Quality 

Performance Standard. Commenters 

may suggest variations or substitutions 

that are substantially equivalent to the 

proposed measures. However, without 

future rulemaking, we cannot consider 

measures that do not substantially cover 

the same patient populations, processes, 

or outcomes addressed by the existing 

measures outlined in this proposed rule. 

We invite comment on whether the list 

of proposed measures should be 

narrowed, and also invite comments on 

whether any of the measures we 

proposed in Table 1 for calculating the 

ACO Quality Performance Standard 

should be excluded for scoring purposes 

and/or instead be considered for quality 

monitoring purposes only. Finally, we 

also seek comment on a process for 

retiring or adjusting the weights of 

domains, modules, or measures over 

time. 

3. Requirements for Quality Measures 

Data Submission by ACOs 

a. General 

Under section 1899(b)(3)(B) of the 

Act, ACOs are required to submit data 

in a form and manner specified by the 

Secretary on measures the Secretary 

determines necessary for the ACO to 

report in order to evaluate the quality of 

care furnished by the ACO. Most of the 

proposed measures identified in Table 1 

can be derived from CMS systems and 

calculated for the assigned patient 

population the ACO serves. Most of the 

measures are consistent with those 

reported for the Physician Quality 

Reporting System, others will rely on 

eRx and HITECH program data, and 

some may rely on Hospital Compare or 

the Centers for Disease Control and 

Prevention National Healthcare Safety 

Network data. However, we recognize 

that there are a number of limitations 

associated with claims-based reporting, 

since the claims processing system was 

designed for billing purposes and not 

for the submission of quality data. For 

instance, measures dealing with 

laboratory results are not conducive to 

claims-based reporting, since claims 

typically include diagnosis and 

procedure codes but not specific test 

results. For this reason, we propose to 

make available a CMS-specified data 

collection tool and a survey tool for 

certain proposed measures (that is, 

those measures in Table 1 where the 

proposed method of data submission is 

listed as ‘‘GPRO’’). 

We also propose that for some 

measures ACOs collect data via survey 

instruments. As noted previously, we 

plan to continually align the ACO 

reporting requirements with those 

required for the EHR Incentive Program 

and leverage the infrastructure and 

measures specifications being 

developed for that program. We propose 

that during the year following the first 

performance period, each ACO would 

be required to report via the GPRO tool, 

as applicable, the proposed quality 

measures listed in Table 1 with respect 

to services furnished during the 

performance period. We propose that 

we would derive the claims-based 

measures from claims submitted for 

services furnished during the first 

performance period, which therefore 

would not require any additional 

reporting on the part of ACO 

professionals. Survey data would also 

reflect care received during the first 

performance period. For future 

performance periods, we intend to use 

rulemaking to update the quality 

measure requirements and mechanisms. 

We welcome comments on the 

proposed data submission requirements. 

We also seek comment on whether 

alternative data submission methods 

should be required or considered, such 

as limiting the measures to claims-based 

and survey-based reporting only. 

b. GPRO Tool 

In 2010, 36 large group practices and 

integrated delivery systems used the 

GPRO tool to report 26 quality measures 

for an assigned patient population 

under the Physician Quality Reporting 

System. The GPRO tool affords a key 

advantage in that it is a mechanism 

through which beneficiary laboratory 

results and other measures requiring 

clinical information can be reported to 

us. The tool would allow ACOs to 

submit clinical information from EHRs, 

registries, and administrative data 

sources required for measurement 

reporting. The tool reduces the 

administrative burden on health care 

providers participating in ACOs by 

allowing them to tap into their existing 

Information Technology (IT) tools that 

support data collection and health care 

provider feedback, including at the 

point of care. We propose that the 

existing GPRO tool be built out, refined, 

and upgraded to support clinical data 

collection and measurement reporting 

and feedback to ACOs under the Shared 

Savings Program. 

For the measures with ‘‘GPRO’’ listed 

as the method of data collection in 

Table 1, we plan to determine a sample 

for each domain or measure set within 

the domain using a sampling 

methodology modeled after the 

methodology currently used in the 2011 

Physician Quality Reporting System 

GPRO I, as described later in the 

document. Assigned beneficiaries, for 

purposes of the GPRO tool, would be 

limited to those Medicare FFS 

beneficiaries assigned to the ACO, as 

discussed in Section II.D. 

For the measures with ‘‘GPRO’’ listed 

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Table 1, we also plan to provide each 

ACO with access to a database (that is, 

the GPRO data collection tool) that will 

include a sample of its assigned 

beneficiary population and the GPRO 

quality measures listed in Table 1. We 

plan to pre-populate the data collection 

tool with the beneficiaries’ demographic 

and utilization information based on 

their Medicare claims data. The ACO 

would be required to populate the 

remaining data fields necessary for 

capturing quality measure information 

on each of the beneficiaries. 

Identical to the sampling method used 

in the 2011 Physician Quality Reporting 

System GPRO I, we plan to require that 

the random sample for measures 

reported via ACO GPRO must consist of 

at least 411 assigned beneficiaries per 

measure set/domain. If the pool of 

eligible, GPRO assigned beneficiaries is 

less than 411 for any measure set/ 

domain, then we plan to require the 

ACO to report on 100 percent, or all, of 

the assigned beneficiaries. For each 

measure set/domain within the GPRO 

tool, the ACO would be required to 

report information on the assigned 

beneficiaries in the order in which they 

appear consecutively in the ACO’s 

sample. 

Some GPRO measures will not rely on 

beneficiary data but rather on ACO 

attestation. GPRO measures relying on 

attestation include those in the Care 

Coordination domain that pertain to 

HITECH Meaningful Use, the Electronic 

Prescribing Incentive Program, and 

patient registry use. We plan to validate 

GPRO attestations through CMS data 

from the EHR Incentive Program and 

Electronic Prescribing Incentive 

Program. 

For the other measures, that we 

propose be reported via the GPRO tool, 

we propose to retain the right to validate 

the data entered into the tool. In the 

event we were to audit the data entered 

into the GPRO tool, we propose to do so 

via a data validation process based on 

the one used in phase I of the PGP 

demonstration, as described later in the 

document. 

In the GPRO audit process, we plan to 

abstract a random sample of 30 

beneficiaries previously abstracted for 

each of the quality measure domains/ 

measure sets. The audit process would 

include up to three phases, depending 

on the results of the first two phases. 

Although each sample would include 30 

beneficiaries per domain, only the first 

eight beneficiaries’ medical records 

would be audited for mismatches during 

the first phase of the audit. A mismatch 

represents a discrepancy between the 

numerator inclusions or denominator 

exclusions in the data submitted by the 

ACO and our determination of their 

appropriateness based on supporting 

medical records information submitted 

by the ACO. If there are no mismatches, 

the remaining 22 of the 30 beneficiaries’ 

records would not be audited. If there 

are mismatches, the second phase of the 

audit would occur, and the other 22 

beneficiaries’ records would be audited. 

A third phase would only be undertaken 

if mismatches are found in more than 10 

percent of the medical records in phase 

two. If a specific error is identified and 

the audit process goes to Phase 3, which 

involves corrective action, we propose 

to first provide education to the ACO on 

the correct specification process and 

provide the opportunity to correct and 

resubmit the measure(s) in question. If, 

at the conclusion of the third audit 

process the mismatch rate is more than 

10 percent, we propose that the ACO 

will not be given credit for meeting the 

quality target for any measures for 

which this mismatch rate still exists. We 

note that the failure to report quality 

measure data accurately, completely 

and timely (or to timely correct such 

data) may subject the ACO to 

termination or other sanctions, per the 

Monitoring section of this proposed 

rule. 

We invite comment on the proposed 

quality data submission requirements 

and on the administrative burden 

associated with reporting. 

c. Certified EHR Technology 

In July 2010, HHS published final 

rules for the EHR Incentive Programs. 

Included within the final regulations 

were certain clinical quality measures 

for which eligible professionals and 

eligible hospitals are responsible. We 

have noted in Table 1, the proposed 

Shared Savings Program quality 

measures currently included in the EHR 

Incentive Programs and will continue to 

further align the measures between the 

two programs. Given that we have 

proposed in Section II.E.6 that at least 

50 percent of an ACO’s PCPs are 

‘‘meaningful EHR users’’ as that term is 

defined in 42 CFR 495.4 by the start of 

the second Shared Savings Program 

performance year in order to continue 

participation in the Shared Savings 

Program, our intent is to develop the 

capability of the GPRO web-based tool 

to interface with EHR technology, such 

that EHR data could directly populate 

the ACO GPRO tool with the required 

quality data. As we intend to further 

align both the Shared Savings Program 

and EHR incentive program through 

subsequent rulemaking, we anticipate 

that certified EHR technology (including 

certified EHR modules capable of 

reporting clinical quality measures) will 

be an additional measures reporting 

mechanism used by ACOs under the 

Shared Savings Program for future 

program years. 

4. Quality Performance Standards 

a. General 

Before an ACO can share in any 

savings created, it must demonstrate 

that it is delivering high quality care. 

Thus, a calculation of the quality 

performance standard will indicate 

whether an ACO has met the quality 

performance goals that would deem it 

eligible for shared savings. As discussed 

previously in section II.E.3 of this 

proposed rule, we propose to use the 65 

measures in Table 1 to establish the 

quality performance standards that 

ACOs must meet in order to be eligible 

for shared savings. 

We considered two alternative 

options for establishing quality 

standards: Rewards for better 

performance, and a minimum quality 

threshold for shared savings. The 

performance score approach rewards 

ACOs for better quality with larger 

percentages of shared savings. The 

threshold approach ensures that ACOs 

exceed minimum standards for the 

quality of care, but allows full shared 

savings if ACOs meet the minimum. We 

propose the performance score approach 

and seek comment on the threshold 

approach. 

b. Option 1—Performance Scoring 

Under the first option, we would use 

quality performance standards to arrive 

at a total performance score for an ACO. 

We would organize the measures by 

domain, as discussed in section II.E.5.b. 

of this proposed rule. The performance 

on each measure will be scored, as 

discussed in section II.E.5.c. of this 

proposed rule. The scores for the 

measures will be rolled up into a score 

by each domain as discussed in section 

II.E.5.d. of this proposed rule. ACOs 

will receive performance feedback at 

both the individual measure and 

domain level. The percentage of points 

earned for each domain will be 

aggregated using the weighting method 

discussed in section II.E.5.d. of this 

proposed rule to arrive at a single 

percentage that will be applied to 

determine the quality sharing rate for 

which the ACO is eligible. The 

aggregated domain scores will 

determine the ACO’s eligibility for 

sharing up to 50 percent of the total 

savings generated by the ACO under the 

one-sided model or 60 percent of the 

total savings generated by the ACO 

under the two-sided risk model 

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Model. We also discuss our proposal to 

set the quality performance standard in 

the first year of the Shared Savings 

Program at the reporting level and set 

the standard at a higher level in 

subsequent years in section II.E.5.e. of 

this proposed rule. 

(1) Measure Domains and Measures 

Included in the Domains 

The 65 quality performance standard 

measures in Table 1 are subdivided into 

5 domains, as discussed in section 

II.E.3.c. of this proposed rule. The 

domains include: (1) Patient/Caregiver 

Experience; (2) Care Coordination; (3) 

Patient Safety; (4) Preventive Health; (5) 

At-Risk Population/Frail Elderly Health. 

The At-Risk Population Care domain 

would include the following chronic 

diseases: Diabetes mellitus (DM); heart 

failure (HF); coronary artery disease 

(CAD); hypertension; and chronic 

obstructive pulmonary disorder (COPD). 

The measures from Table 1 that are 

included in each domain are as 

indicated in Table 2. 

(2) Methodology for Calculating a 

Performance Score for Each Measure 

Within a Domain 

We propose that an ACO will receive 

a performance score on each measure 

included in Table 1. For the first year 

of the Shared Savings Program, these 

scores would be for informational 

purposes, since we propose to set the 

quality performance standard at the 

reporting level. We propose setting 

benchmarks for each measure using 

Medicare FFS claims data, MA quality 

performance rates, or, where 

appropriate, the corresponding percent 

performance rates that an ACO will be 

required to demonstrate. For each 

measure, we propose to set a 

performance benchmark and a 

minimum attainment level as defined in 

Table 3. The benchmarks would be 

established using the most currently 

available data source and most recent 

available year of benchmark data prior 

to the start of the Shared Savings 

Program annual agreement periods. We 

would determine Medicare FFS rates by 

pulling a data sample and modeling the 

measures. For MA rates, we would 

check the distribution from annual MA 

quality performance data and set the 

benchmark accordingly. Furthermore, 

since MA quality performance rates 

utilize both claims and clinical data, we 

propose to use those rates when they are 

available. 

Benchmark levels for each of the 

measures included in the quality 

performance standard would be made 

available to ACOs, prior to the start of 

the Shared Savings Program and each 

annual performance period thereafter, 

so ACOs will be aware of the 

benchmarks they must achieve to 

receive the maximum quality score. In 

future program years, we anticipate that 

actual ACO performance will be used to 

update the benchmarks. As discussed in 

section II.H of this proposed rule, if an 

ACO fails to meet quality performance 

standard during a performance year 

(that is, fails to meet, the minimum 

attainment level for one or more 

domain(s)), we propose to give the ACO 

a warning, provide an opportunity to 

resubmit, and reevaluate the ACO’s 

performance the following year. If the 

ACO continues to significantly underperform, the agreement may be 

terminated. We further propose that 

ACOs that exhibit a pattern of 

inaccurate or incomplete reporting or 

fail to make timely corrections following 

notice to resubmit may be terminated 

from the program. 


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We propose that performance below 

the minimum attainment level would 

earn zero points for that measure under 

both the one-sided and two-sided risk 

models. Performance equal to or greater 

than the minimum attainment level but 

less than the performance benchmark 

shall receive points on a sliding scale 

based on the level of performance, for 

those measures in which the points 

scale applies. Table 3 represents the 

approach that we are currently 

considering. We also are considering 

setting the initial minimum attainment 

level for both the one-sided and twosided shared savings models at 30 

percent or the 30th percentile of 

Medicare FFS or the MA rate, 

depending on what performance data 

are available. 

Measures 35 and 52 in Table 1 

include diabetes and coronary artery 

disease composite measures in which 

we propose ‘‘all or nothing’’ scoring. We 

propose that measures designated as all 

or nothing measures receive the 

maximum available points if all criteria 

are met and zero points if at least one 

of the criteria are not met. We define ‘‘all 

or nothing’’ scoring to mean all of the 

care process steps and expected 

outcomes for a particular beneficiary 

with the target condition must be 

achieved to score positively. This means 

all 5 submeasures within the diabetes 

composite and all 5 submeasures within 

the CAD composite would need to be 

reported in order to earn points for these 

2 composite measures. The intent of all 

or nothing scoring is to signal to 

providers that failing to perform any 

element of a process is unacceptable 

and will result in a ‘‘zero’’ score for 

quality for that measure. We believe that 

incorporating all or nothing scoring 

concepts into the ACO quality 

performance standard would provide 

greater insight into the use of these 

methodologies, drive ACOs to 

aggressively improve their population’s 

health, and encourage future 

development of composite measures. 

However, we also recognize that all or 

nothing scoring implies that all 

beneficiaries can and should receive the 

indicated care process, which may not 

necessarily be appropriate for all 

beneficiaries in the Medicare population 

given the difficulty in attaining targets 

for individuals with multiple chronic 

conditions and complications that may 

not be adequately addressed in 

denominator exclusions. Therefore, in 

addition to scoring the diabetes and 

CAD composites, we also propose 

scoring the sub measures within the 

diabetes and CAD composites 

individually. 

Measure #24 is a hospital acquired 

conditions (HACs) composite, in which 

we propose a summation of the events 

included within the measure and 

attributing the rate to the same scale 

used for other measures described in 

Table 3. We do not propose all or 

nothing scoring for this composite, since 

the HACs are rare events. Because the 

HACs are rare events, we believe that 

grouping them into one measure will 

make the measure more meaningful for 

ACOs, which will have smaller 

populations and, therefore, should have 

even fewer HAC events than a hospital 

would experience for its total 

population outside of the Shared 

Savings Program. We also believe 

grouping the HACs into one measure 

reduces the HACs’ impact on the ACO’s 

overall quality performance score. We 

intend to post performance rates for the 

final measures set, including the 

applicable benchmarks, on the CMS 

Web site prior to the start of the first 

performance period. 

(3) Methodology for Calculating a 

Performance Score for Each Domain 

Similar to our proposal for setting a 

quality standard for each individual 

measure at the reporting level in the 

first program year, we also propose 

setting a quality standard for each 

domain at the reporting level. For 

subsequent program years, we plan to 

calculate the percentage of points an 

ACO earns for each domain after 

determining the points earned for each 

measure. We plan to divide the points 

earned by the ACO across all measures 

in the domain by the total points 

available in that particular domain. 

Each domain would be worth a predefined number of points based on the 

number of individual measures in the 

domain, as shown in Table 4. 


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As illustrated in Table 4, a maximum 

of 2 points per measure could be earned 

under both the one-sided and two-sided 

model based on the ACO’s performance. 

However, the total potential for shared 

savings will be higher under the twosided model, since the maximum 

potential shareable savings based on 

quality performance is 60 percent of the 

savings generated, compared to 50 

percent under the one-sided model. 

That is, full and accurate reporting of 

the quality measures in the first year of 

the Shared Savings Program will result 

in an ACO earning 60 or 50 percent of 

shareable savings, depending on 

whether the ACO is in the two-sided or 

one-sided model. For future program 

years, the percent of potential shareable 

savings will vary on the ACO’s 

performance on the measures as 

compared with the measure 

benchmarks. 

For example, the preventive health 

domain has 9 measures and would be 

worth a maximum of 18 points (that is, 

9 measures × 2 points equals 18 quality 

points). We propose the sliding scale in 

Table 3 for determining points earned 

for each measure. As mentioned 

previously, we propose calculating the 

percentage of points an ACO earns for 

each domain by dividing the points 

earned by the total points available, 

yielding a percentage. For example, if an 

ACO earns 16.2 out of 18 points in the 

preventive health domain, the ACO 

earned 90 percent of the points for the 

preventive health domain (16.2 divided 

by 18 equals .90). Assuming the ACO is 

operating under the two-sided shared 

savings model and earns 90 percent of 

the quality performance points across 

all five domains and generates shared 

savings, it would receive 90 percent of 

the ACO’s share of the savings or 54 

percent of the total savings generated. 

That is, achieving 90 percent of the 

potential 60 percent of shared savings 

an ACO can earn under the two-sided 

model, means the ACO could earn 54 

percent of the total savings generated. 

Under the one-sided model, achieving 

90 percent of the potential 50 percent of 

shared savings, means the ACO could 

earn 45 percent of the shareable savings 

generated. 

Under both the one-sided and twosided shared savings models, the quality 

measures domain scoring methodology 

treats all domains equally regardless of 

the number of measures within the 

domain. We believe the key benefit of 

weighting the domains equally is that it 

does not create a preference for any one 

domain, which we believe is important 

as we expect ACOs to vary in 

composition, and, as a result, to place 

more emphasis on different domains. 

We also considered weighting the 

domains to emphasize priority 

conditions or areas in order to 

emphasize (or de-emphasize) certain 

measures that are more difficult (or 

easy) to achieve without needing to 

change the scoring methodology. This 

method would require judgment about 

which domains are more important than 

others, which may not be appropriate. 

Equal weighting contains an implicit 

judgment that domains such as patient/ 

caregiver experience of care and patient 

safety are equally important to the 

quality of care. Accordingly, we believe 

ACOs should seek to address all aspects 

of patient care in order to improve the 

overall quality of care under the 

Medicare program. Furthermore, we 

want to encourage a diverse set of ACOs 

and believe that emphasizing certain 

domains over others would encourage a 

certain type of ACO to participate but 

discourage other types from 

participating. 

We propose aggregating the quality 

domain scores into a single overall ACO 

score which would be used to calculate 

the ACOs final sharing rate for purposes 

of determining shared savings or shared 

losses as described in section II.F. of 

this proposed rule. All domain scores 

for an ACO would be averaged together 

equally to calculate the overall quality 

score that would be used to calculate 

the ACO’s final sharing rate. 


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We also propose that ACOs must 

report completely and accurately on all 

measures within all domains to be 

deemed eligible for shared savings 

consideration. We believe this is 

important as it requires ACOs to address 

all domains and be accountable across 

the continuum of care. If the ACO 

demonstrates sufficient cost savings in 

addition to meeting the quality 

performance requirements, the ACO 

would be deemed eligible for shared 

savings. We believe that this 

methodology provides a sufficient 

incentive for quality improvement 

targeted to specific domains and allows 

ACOs of varying compositions, which 

may be stronger in some domains than 

others, to receive some level of shared 

savings. In addition to this proposed 

domain-based scoring methodology, we 

considered several other options for 

assessing the quality performance of 

ACOs. We considered scoring measures 

individually under a method that would 

weight all measures equally. Each 

measure would be worth the maximum 

points available as described previously 

for a total maximum possible points for 

each ACO. This system would avoid 

overweighting or underweighting 

measures due to the number of 

measures in a domain. We also 

considered weighting quality measures 

by their clinical importance. More 

important quality measures would 

account for a greater proportion of 

shared savings. Outcome measures such 

as hospital-acquired infections and 

readmissions would be worth more than 

process measures. This would avoid 

overweighting or underweighting 

measures due to their domain, and 

account for clinical importance. 

However, we did not think either of 

these approaches would be consistent 

with a larger measurement strategy of 

driving better health for populations 

and better care for individuals overall 

for the ACO beneficiary population, 

since we believe population health is 

better assessed across domains that 

encompass a variety of measures that 

apply to beneficiaries with different 

needs. 

(4) The Quality Performance Standard 

Level 

We propose to set the quality 

performance standard of the first year of 

the Shared Savings Program at the 

reporting level. That is, under the onesided model, we propose that an ACO 

would receive 50 percent of shared 

savings (provided that the ACO realizes 

sufficient cost savings under the 

methodology described in the Shared 

Savings Determination section of this 

proposed rule) based on 100 percent 

complete and accurate reporting on all 

quality measures. Similarly, we propose 

that under the two-sided risk model, 

ACOs would receive 60 percent of 

shared savings (provided that the ACO 

realizes sufficient cost savings under the 

methodology described in the section 

II.G. of this proposed rule) based on 100 

percent complete and accurate reporting 

on all quality measures. We believe 

setting the quality performance standard 

for the first year of the Shared Savings 

Program at full and accurate reporting 

allows ACOs to ramp up, invest in their 

infrastructure, engage ACO providers/ 

suppliers, and redesign care processes 

to capture and provide data back to their 

ACO providers/suppliers to transform 

care at the point of care. It also would 

provide CMS with the opportunity to 

learn about the process, establish and 

refine benchmarks on ACO reported 

data, and establish improvement targets 

using data reporting for the first 

performance year. Setting the quality 

performance standard at the reporting 

level is also consistent with other valuebased purchasing programs that have 

started out initially as pay for reporting 

programs. 

Via future rulemaking, we plan to 

raise the quality performance standard 

requirements beginning in the second 

program year, when actual performance 

on the reported measures would be 

considered in determining whether an 

ACO is eligible to receive any shared 

savings (provided, that the ACO realizes 

cost savings under the methodology 

described in the Shared Savings 

Determination section of this proposed 

rule). We believe this approach is 

consistent with section 1899(b)(3)(C) of 

the Act, which requires that the 

Secretary ‘‘seek to improve the quality of 

care furnished by ACOs over time by 

specifying higher standards, new 

measures, or both for the purposes of 

assessing such quality of care.’’ 

c. Option 2: Quality Threshold 

Under the second option, we would 

establish a minimum quality threshold 

for participating ACOs. If an ACO 

exceeded the quality threshold, it would 

retain the full shared savings percentage 

attributable to quality under this 

proposed rule (50 percent for one-sided 

risk, and 60 percent for two-sided risk). 

If an ACO did not meet the minimum 

quality standards in a performance year, 

it would not be eligible for shared 

savings. Furthermore, as discussed in 

section II.H. of this proposed rule and 

with respect to the performance 

standards option, if an ACO that fails to 

meet the minimum threshold during a 

performance year, we propose to give 

the ACO a warning, an opportunity for 

correction, and follow the termination 

process described in the Monitoring 

section if the ACO continues to 

underperform. 

(1) Minimum Quality Threshold 

Alternatively, we could establish the 

minimum quality threshold using the 

same set of quality measures and 

domains outlined in Table 1. We would 

also use the benchmarks for 

performance described in Table 3, 

established using claims data from FFS 

Medicare or the Medicare Advantage 

program. The minimum quality 

threshold would be performance at or 

above the 50th percentile (on the 

performance standards described in 

Table 3) for each domain: patient/ 

caregiver experience; care coordination; 

patient safety; preventive health; and atrisk population/frail elderly. If an ACO 

meets these thresholds, it would be 

eligible for the full 50 percent of shared 

savings attributable to quality for those 

participating in the one-sided model, 

and the full 60 percent for those 

participating in the two-sided model. If 

an ACO failed to meet this threshold, it 

would not be eligible for shared savings. 

We expect that the quality threshold 

will increase over time in future 

rulemaking, under the requirement to 

improve the quality of care furnished by 

the ACO under section 1899(b)(3)(C) of 

the Act. We solicit comment on this 

approach and the appropriate threshold 

level, and on the pros and cons of the 

minimum threshold approach. 

(2) Considerations in Establishing a 

Quality Threshold 

The quality threshold option has 

advantages and disadvantages compared 

with the performance standard option. 

Under the performance standard option, 

an ACO could receive rewards for 

higher quality based on outcomes in one 

or two domains (for example, patient/ 

caregiver experience and preventive 

care), while having very low quality in 

others (for example, patient safety). This 

is true for individual measures (for 

example, healthcare-acquired 

infections) as well. Setting a minimum 

threshold ensures that all ACOs meet 

basic standards on all quality measures, 

with a special emphasis on patient 

safety. An ACO’s quality outcomes may 

vary from year to year due to factors 

outside of its control, meaning that 

performance-based standards could 

reward ACOs due to random variability. 

A threshold established at a basic level 

of quality acknowledged to be 

minimally necessary presents less of a 

risk of being triggered due to random 

variation, as opposed to truly poor 

performance. Finally, for ACOs meeting 


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the threshold, their shared savings 

percentage attributable to quality would 

be fixed and certain. This would 

increase incentives, achieve savings, 

and present more certainty on potential 

investment returns for organizations 

considering whether or not to become 

ACOs. 

A quality threshold also presents 

disadvantages. Under this model, once 

an ACO is certain that it has met the 

minimum threshold, there is no 

incentive to continue improving quality; 

in effect, the quality incentives would 

be the same as under traditional FFS. 

ACOs may even have an incentive to 

reduce quality to just above the 

minimum. Additionally, an ACO would 

not be rewarded for improving quality 

outcomes on specific measures once it 

was confident that the minimum was 

exceeded. 

In addition to proposing these two 

options, we also considered establishing 

performance standards for the 

overarching goals (of improving health 

care for individuals and populations) or 

a single performance standard to 

measure overall ACO performance. 

However, we believe that such 

aggregated scores may not be 

meaningful or useful for the ACO, since 

the general goals of improving health for 

individuals and populations are not as 

actionable as, for instance, a specific 

goal of lowering patients’ LDL 

cholesterol levels. For the patient 

experience domain measures, we also 

considered weighting more heavily the 

responses of beneficiaries who have 

sought care with the ACO providers 

longer than the responses of those who 

are newer to the ACO providers. Finally, 

we considered an option that would 

permit the ACO to satisfy the quality 

performance standards based on peer to 

peer benchmarking. Under this 

approach the quality measure 

benchmarks would be set based on all 

ACOs’ performance during the year. 

However, the main reason we did not 

propose this option is that, for measures 

in which most ACOs achieve high 

performance levels, minor changes in 

performance could determine whether 

an ACO achieves the performance 

benchmark. Thus, there would be little 

incentive to improve quality beyond the 

level necessary to share in savings. 

Additionally, our proposed approach 

enables us to reward improvement over 

the minimum attainment level by 

allowing the ACO to share in greater 

savings as they improve over time. 

We also considered permitting ACOs 

to report a subset of the measures in 

Table 1, based on their level of 

readiness to participate in the Shared 

Savings Program. ACOs seeking to 

participate in the Shared Savings 

Program may vary with respect to their 

readiness to function in the Shared 

Savings Program, with respect to their 

organizational and systems capacity and 

structure. Accordingly, some ACOs 

might more quickly be able to 

demonstrate quality improvements and 

savings than will others. However, 

consistent with the overall goals of the 

Shared Savings Program discussed in 

section I. of this proposed rule, we 

believe that ACOs participating in the 

Shared Savings Program should seek to 

improve quality across a variety of 

measures addressing a range of 

domains, not only for those areas in 

which they are currently able or 

comfortable to report, hence our 

proposal to require 100 percent 

reporting for the measures in Table 1 to 

satisfactorily meet the quality 

performance requirements under the 

Shared Savings Program 

We propose the performance scoring 

option and invite comment on this 

option as well as the quality threshold 

option. Within these options, we seek 

comment on the appropriateness of 

weighting all domains equally in 

determining an ACO’s quality 

performance or whether certain 

domains and/or specific measures 

should be weighted more heavily. We 

also invite comment on alternatives that 

would blend these two approaches. For 

example, under the two-sided model, 

allowing ACOs that generate savings to 

increase their share of savings with 

higher quality scores (Option 1) but 

using a threshold approach (Option 2) 

when calculating losses so that higher 

quality does not reduce an ACO’s share 

of any losses. Such an approach would 

have the effect of essentially applying a 

minimum sharing rate for losses (for 

example, 50 percent) and could 

appropriately reflect the goal of the 

Shared Savings Program to reward high 

quality and efficient care, by providing 

a greater reward when high quality care 

is also efficient and less relief for high 

quality care that is not efficient. 

Alternatively, the threshold option 

could be utilized in the two-sided 

model so that if the threshold score for 

the two-sided model resulted in 60% 

shared savings, it would also result in 

60 percent shared losses, creating a 

symmetrical two-sided model. Another 

example of a blended approach would 

be to use the threshold approach 

(Option 2) for the first 3 years of the 

Shared Savings Program and then, as 

experience is gained and measures are 

further aligned, transition to 

performance scoring (Option 1). We also 

invite comment on the proposal to set 

the quality performance standard of the 

first program year at the reporting level 

and to raise the standard to reflect 

performance in subsequent years. We 

also invite comment on the proposed 

quality measures scoring methodologies 

under the one-sided and two-sided risk 

models. In addition, we invite comment 

on our proposal to have all quality 

measures listed in Table 1 required of 

all ACOs, and the alternative under 

which ACOs would be required to only 

report a subset of the measures in Table 

1, based on their level of readiness for 

the Shared Savings Program. 

5. Incorporation of Other Reporting 

Requirements Related to the Physician 

Quality Reporting System and 

Electronic Health Records Technology 

Under Section 1848 of the Act 

Medicare provides multiple incentive 

payment options for providers to report 

and use clinical information more 

proactively in their practices. The 

Affordable Care Act gives the Secretary 

authority to incorporate reporting 

requirements and incentive payments 

from these programs into the Shared 

Savings Program, and to use alternative 

criteria to determine if payments are 

warranted. Specifically, section 

1899(b)(3)(D) of the Act affords the 

Secretary discretion to ‘‘* * * 

incorporate reporting requirements and 

incentive payments related to the 

physician quality reporting initiative 

(PQRI), under section 1848, including 

such requirements and such payments 

related to electronic prescribing, 

electronic health records, and other 

similar initiatives under section 1848 

***’’ and permits the Secretary to ‘‘use 

alternative criteria than would 

otherwise apply under section 1848 for 

determining whether to make such 

payments.’’ Under this authority, we 

propose to incorporate certain reporting 

requirements and payments related to 

the Physician Quality Reporting System 

into the Shared Savings Program for 

‘‘eligible professionals’’ within an ACO. 

Under section 1848(k)(3)(B) of the Act, 

the term ‘‘eligible professional’’ means 

any of the following: (1) A physician; (2) 

a practitioner described in section 

1842(b)(18)(C) of the Act; (3) a physical 

or occupational therapist or a qualified 

speech-language pathologist; or (4) a 

qualified audiologist. 

We propose to incorporate a 

Physician Quality Reporting System 

group practice reporting option (GPRO) 

under the Shared Savings Program and 

further propose that the eligible 

professionals that are ACO participant 

providers/suppliers would constitute a 

group practice for purposes of 

qualifying for a Physician Quality 


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Reporting System incentive under the 

Shared Savings Program. Specifically, 

eligible professionals would be required 

to submit data through the ACO on the 

quality measures proposed in Table 1 

using the GPRO tool and methodology 

described in section II.E.3. of this 

proposed rule to qualify for the 

Physician Quality Reporting System 

incentive under the Shared Savings 

Program. We propose that the ACO 

would report and submit data on behalf 

of the eligible professionals in an effort 

to qualify for the Physician Quality 

Reporting System incentive as a group 

practice; that is, eligible professionals 

within an ACO would qualify for the 

Physician Quality Reporting System 

incentive as a group practice, and not as 

individuals. In addition, we propose a 

calendar year reporting period from 

January 1 through December 31, for 

purposes of the Physician Quality 

Reporting System incentive under the 

Shared Savings Program. 

With regard to the requirements for 

satisfactory reporting for purposes of 

earning the Physician Quality Reporting 

System incentive under the Shared 

Savings Program, we propose to 

incorporate certain aspects of the 

criteria for satisfactory reporting under 

the 2011 Physician Quality Reporting 

System GPRO I option (75 FR 73506), 

with a few modifications. In particular, 

we propose the following criteria for 

satisfactory reporting for purposes of the 

Physician Quality Reporting System 

incentive for the first performance 

period under the Shared Savings 

Program: 

• ACOs, on behalf of its EPs, would 

need to report on all measures included 

in the data collection tool; 

• Beneficiaries will be assigned to the 

ACO using the methodology described 

in the Assignment section of this 

proposed rule. As a result, the GPRO 

tool would be populated based on a 

sample of the ACO-assigned beneficiary 

population. ACOs would need to 

complete the tool for the first 411 

consecutively ranked and assigned 

beneficiaries in the order in which they 

appear in the group’s sample for each 

domain, measure set, or individual 

measure if a separate denominator is 

required such as in the case of 

preventive care measures which may be 

specific to one sex. If the pool of eligible 

assigned beneficiaries is less than 411, 

the ACO would report on 100 percent of 

assigned beneficiaries for the domain, 

measure set, or individual measure. 

• The GPRO tool will need to be 

completed for all domains, measure 

sets, and measures described in Table 1. 

Accordingly, eligible professionals 

within an ACO that satisfactorily report 

the measures proposed in Table 1 

during the reporting period would 

qualify under the Shared Savings 

Program for a Physician Quality 

Reporting System incentive equal to 0.5 

percent of the ACO’s eligible 

professionals’ total estimated Medicare 

Part B PFS allowed charges for covered 

professional services furnished during 

the first performance period. ‘‘Covered 

professional services’’ are services for 

which payment is made under, or based 

on, the physician fee schedule and 

which are furnished under the ACO 

participant’s TINs. 

We plan to align the incorporated 

Physician Quality Reporting System 

requirements with the general Shared 

Savings Program reporting 

requirements, such that no extra 

reporting is actually required in order 

for eligible professionals or the ACO to 

earn the Physician Quality Reporting 

System incentive under the Shared 

Savings Program. Thus, for ACOs that 

meet the quality performance standard 

under the Shared Savings Program for 

the first performance period, the 

Physician Quality Reporting System 

eligible professionals within such ACOs 

will be considered eligible for the 

Physician Quality Reporting System 

incentive under the Shared Savings 

Program for that year. This means ACOs 

will need to report on all measures 

proposed in Table 1 in order to receive 

both the Shared Savings Program shared 

savings and Physician Quality Reporting 

System incentive. Failure to meet the 

Shared Savings Program quality 

performance standard would result in 

failure to be considered eligible for 

shared savings, as well as failure for the 

EPs within the ACO to receive a 

Physician Quality Reporting System 

incentive under the Shared Savings 

Program for that year. ACO participant 

provider/suppliers who meet the quality 

performance standard but do not 

generate shareable savings would still 

be eligible for PQRS incentive 

payments. We intend to discuss the 

policy for incorporating the Physician 

Quality Reporting System incentive 

under the Shared Savings Program for 

subsequent years in future rulemaking. 

We note that ACOs will be eligible for 

the Physician Quality Reporting System 

incentive under the Shared Savings 

Program to the extent that they contain 

eligible professionals as defined under 

§ 414.90(b). As a result, not all ACOs 

will necessarily be eligible for the 

Physician Quality Reporting System 

incentive under the Shared Savings 

Program. A complete list of Physician 

Quality Reporting System eligible 

professionals (EP) is available at: 

http://www.cms.gov/PQRI/Downloads/ 

EligibleProfessionals.pdf. In addition, 

similar to traditional Physician Quality 

Reporting System, an EP could not 

qualify for the Physician Quality 

Reporting System incentive as both a 

group that is part of an ACO and as an 

individual. Furthermore, EPs could not 

qualify for a Physician Quality 

Reporting System incentive under both 

the Physician Quality Reporting System 

under the Shared Savings Program and 

the traditional Physician Quality 

Reporting System. For purposes of 

analysis and payment, we intend to use 

TINs and National Provider 

Identification numbers similar to what 

we have done in the traditional 

Physician Quality Reporting System (75 

FR 40169), and we will provide such 

details in guidance. 

At this time, we are not proposing to 

incorporate such payments for the EHR 

Incentive Program or Electronic 

Prescribing Incentive Program under the 

Shared Savings Program. Professionals 

in ACOs may still separately participate 

in those other incentive programs. 

However, we propose to require in the 

Shared Savings Program measures also 

included in the EHR Incentive Program 

and metrics related to successful 

participation in the Medicare and 

Medicaid EHR Incentive Programs for 

eligible professionals and hospitals and 

the eRx Incentive Program, as illustrated 

in Table 1. Metrics related to successful 

participation in the EHR Incentive 

Program and the eRx Incentive Program 

includes scoring the percentage of 

‘‘meaningful users’’ of certified EHR 

technology, as defined in our 

regulations, and the percentage of those 

professionals that meet the criteria for 

the eRx incentive, as measures that are 

part of the quality performance 

standard. These measures would be 

subject to the same points scale and 30 

percent or 30th percentile minimum 

attainment level previously described in 

table D3. We note that including metrics 

based on EHR Incentive Program and 

eRx Incentive Program data does not in 

any way duplicate or replace specific 

program measures within each of the 

two respective programs or allow 

eligible professionals to satisfy the 

requirements of either of the two 

programs through the Shared Savings 

Program. To receive incentive payments 

under the EHR incentive or eRx 

programs (or to avoid payment 

adjustments), eligible professionals will 

be required to meet all the requirements 

of the respective EHR and eRx 

programs. In addition, as a Shared 

Savings Program requirement separate 

from the quality measures reporting 

discussed previously, we propose 


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requiring that at least 50 percent of an 

ACO’s primary care physicians are 

determined to be ‘‘meaningful EHR 

users’’ as that term is defined in 42 CFR 

495.4 as defined in the HITECH Act and 

subsequent Medicare regulations by the 

start of the second performance year in 

order to continue participation in the 

Shared Savings Program. The EHR 

Incentive regulations, including the 

definition of meaningful EHR user and 

certified EHR technology can be found 

at 42 CFR part 495, as published on July 

28, 2010 (75 FR 44314). The preamble 

to the July 28, 2010 final rule also 

describes the stages of meaningful use. 

We believe these approaches would 

foster incentives for improving and 

delivering high quality care by engaging 

providers in performance based quality 

incentive programs; and encourage 

adoption of EHRs. The requirement that 

at least 50 percent of ACO primary care 

physicians be meaningful users 

represents a first step towards achieving 

our objective of incenting full 

participation of ACOs’ providers in the 

EHR Incentive Program over time. For 

subsequent years, we anticipate 

proposing greater alignment between 

the Shared Savings Program and the 

EHR Incentive program through future 

rulemaking. We considered several 

other options for incorporating other 

program reporting requirements into the 

Shared Savings Program. One option 

was to incorporate Physician Quality 

Reporting System into the Shared 

Savings Program via a scaled approach, 

in which how the ACO performs on the 

quality measures under the Shared 

Savings Program would determine the 

amount of Physician Quality Reporting 

System incentive an ACO could earn. 

However, we thought this approach 

would be burdensome and confusing to 

providers who are used to a different 

approach under the traditional 

Physician Quality Reporting System. We 

also considered proposing to limit 

incorporation of the Physician Quality 

Reporting System incentive under the 

Shared Savings Program to the ACO’s 

group practices that were used for 

beneficiary assignment rather than to all 

group practices associated with an ACO. 

However, we thought expanding the 

Physician Quality Reporting System 

incentive under the Shared Savings 

Program to all participant TINs within 

an ACO would be more efficient for EPs 

participating in both traditional 

Physician Quality Reporting System and 

the Physician Quality Reporting System 

and the Physician Quality Reporting 

System incentive under the Shared 

Savings Program. This way ACOs would 

report one way for the Physician Quality 

Reporting System for all of its ACO 

providers/suppliers who are eligible 

professionals; that is, for purposes of 

qualifying for the Physician Quality 

Reporting System incentive, the ACO 

would not need to report one way for 

the TINs used for beneficiary 

assignment and another way for the 

TINs not used for assignment. Another 

option we considered was to 

incorporate the eRx Incentive Program’s 

incentive requirements and payments 

into the Shared Savings Program. 

However, we are not proposing to 

incorporate the eRx incentive 

requirements and payments under the 

Shared Savings Program since the eRx 

incentive ends after 2013. We believe it 

would be burdensome to require ACOs 

to incorporate the eRx incentive 

requirements for only a 2-year period. 

In concert with the proposal for 50 

percent of primary care physicians to be 

meaningful EHR users by the second 

performance year, we seek comment on 

whether we should also specify a 

percentage-based requirement for 

hospitals. Such a requirement would be 

similar to the previous proposal for 

primary care physicians and would 

require 50 percent of eligible hospitals 

that are ACO providers/suppliers 

achieve meaningful use of certified EHR 

technology by the start of the second 

performance year in order for the ACO 

to continue participation in the Shared 

Savings Program. We also request public 

comment related to circumstances 

where the ACO may only include one 

eligible hospital or no hospital and 

whether we would need to provide an 

exclusion or exemption in such a 

circumstance. 

We also considered limiting the 

metrics related to percentage of 

meaningful users to be applicable to the 

Medicare EHR Incentive Program only, 

since presumably ACO providers/ 

suppliers may see a high proportion of 

Medicare FFS patients. However, we 

realize that ACO providers/suppliers 

eligible for the EHR incentive may seek 

to qualify for the EHR incentive through 

any of the EHR Incentive Programs 

available to Medicare and Medicaid 

eligible professionals and hospitals. 

Finally, we considered incorporating 

EHR Incentive Program’s incentive 

requirements into the Shared Savings 

Program, however, per the previous 

discussion, we did not believe the 

program was ready for incorporation at 

this time. Furthermore, we are 

proposing that ACOs report quality 

measures as a group, and the EHR 

Incentive program does not include a 

group reporting option at this time. 

We invite comment on our proposal 

to incorporate Physician Quality 

Reporting System requirements and 

payments and certain metrics related to 

under the Shared Savings Program, as 

well as the options discussed previously 

that we considered. 

6. Public Reporting 

Increasingly, transparency of 

information in the health care sector is 

seen as a means to facilitate more 

informed patient choice, offer 

incentives, and feedback that help 

improve the quality and lower the cost 

of care, and improve oversight with 

respect to program integrity. Examples 

of existing efforts that improve 

transparency include Hospital Compare, 

which enables patients along with their 

family and health care providers to 

compare the quality of care provided in 

the hospitals that agree to submit data 

on the quality of certain services they 

provide for certain conditions. Hospital 

Compare displays the following kinds of 

information: 

• Rates for process of care measures 

that show whether or not hospitals 

provide some of the care that is 

recommended for patients being treated 

for a heart attack, heart failure, 

pneumonia, asthma (children only) or 

patients having surgery. 

• Information on hospital outcome of 

care measures, including 30-day risk 

adjusted death (mortality) and 

readmission rates. 

• Data collected from the Hospital 

Consumer Assessment of Healthcare 

Providers and Systems (HCAHPS) 

Survey, reflecting patients’ hospital 

experiences. 

• Medicare inpatient hospital 

payment information. 

• The number of Medicare patients 

treated for certain illnesses or diagnoses 

(as reported by Medicare severitydiagnosis related groups (MS–DRGs)). 

(For more information, see the 

Hospital Compare Web site at http:// 

www.hospitalcompare.hhs.gov/hospitalsearch.aspx?

AspxAutoDetectCookieSupport=1.) 

Similarly, Nursing Home Compare 

reports detailed information about every 

Medicare and Medicaid-certified 

nursing home in the country. Nursing 

Home Compare includes comparative 

information on health inspection results 

such as: (1) An assessment of the care 

of residents; (2) the process of care; (3) 

staff and resident interactions; and (4) 

the nursing home environment; (5) 

nursing home staffing; and quality 

measures. (For more information, see 

the Nursing Home Compare Web site at 

http://www.medicare.gov/NHCompare/ 

Include/DataSection/Questions/

SearchCriteriaNEW.asp?version=

default&browser=


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IE%7C6%7CWinXP&language=

English&defaultstatus=

0&pagelist=Home&Cookies

EnabledStatus=True.) 

The Affordable Care Act included 

several new initiatives that will expand 

transparency in the Medicare program. 

Among these, section 3003 of the 

Affordable Care Act will make aggregate 

information on physician resource use 

publicly available; section 3004 of the 

Affordable Care Act will make quality 

data relating to long-term care hospitals, 

inpatient rehabilitation facilities, and 

hospices publicly available; and section 

3005 of the Affordable Care Act will 

make quality data for certain cancer 

hospitals publicly available. Similarly, 

section 10331 of the Affordable Care Act 

requires the Secretary to develop a 

Physician Compare Internet Web site by 

January 1, 2011 with information on 

physicians enrolled in the Medicare 

program and other eligible professionals 

who participate in the Physician Quality 

Reporting Initiative. Not later than 

January 1, 2013, the Secretary must also 

implement a plan for making 

information on quality and patient 

experience measures publicly available. 

Further, in developing this plan and as 

determined appropriate, the Secretary 

must consider the plan to transition to 

a value-based purchasing program for 

physicians and other practitioners 

developed under section 131 of the 

Medicare Improvements for Patients and 

Providers Act of 2008 (Pub. L. 110–275). 

Section 10332 of the Affordable Care 

Act requires the Secretary to make 

certain standardized claims data under 

Medicare Parts A, B, and D available to 

entities qualified by the Secretary to use 

these data to evaluate the performance 

of providers of services and suppliers on 

measures of quality, efficiency, 

effectiveness, and resource use. 

While the Act did not include a 

specific requirement for public 

reporting and transparency related to 

the Shared Savings Program, improved 

transparency would support a number 

of program requirements. In particular, 

increased transparency would be 

consistent with and support the 

requirement under section 1899(b)(2)(A) 

of the Act for ACOs to be willing to 

‘‘become accountable for the quality, 

cost, and overall care’’ of the Medicare 

beneficiaries assigned to it. 

Public reporting of ACO cost and 

quality measure data would improve a 

beneficiary’s ability to make informed 

health care choices, and facilitate an 

ACO’s ability to improve the quality and 

efficiency of its care by making available 

information that enables ACO 

professionals to assess their 

performance relative to their peers, and 

creates incentives for those 

professionals to improve their 

performance. For example, the 

transparency of outcomes that results 

when consumers have access to publicly 

reported performance information could 

be an important catalyst for providers to 

continually seek to improve their 

performance. Further, many other 

stakeholders, including health plans, 

employers, and policy makers have an 

interest in knowing the degree to which 

different health care delivery models are 

effective in improving quality and 

reducing costs. Timely dissemination of 

reports on ACO quality and cost 

performance will contribute to the 

dialogue, at the national, regional and 

local level, on how to drive 

improvement and innovation in health 

care. 

Therefore, we believe it is desirable 

and consistent with section 

1899(b)(2)(A) of the Act for several 

aspects of an ACO’s operation and 

performance to be transparent to the 

public—specifically, information 

regarding: (1) Providers and suppliers 

participating in the ACO; (2) parties 

sharing in the governance of the ACO; 

(3) quality performance standard scores; 

and (4) general information on how an 

ACO shares savings with its members. 

We are proposing that certain 

information regarding the operations of 

the ACO would be subject to public 

reporting to the extent administratively 

feasible and permitted by law. 

Specifically, we propose that the 

following information regarding the 

ACO be publicly reported: 

• Name and location. 

• Primary contact. 

• Organizational information 

including— 

++ ACO participants; 

++ Identification of ACO participants 

in joint ventures between ACO 

professionals and hospitals; 

++ Identification of the ACO 

participant representatives on its 

governing body; and 

++ Associated committees and 

committee leadership. 

• Shared savings information 

including— 

++ Shared savings performance 

payment received by ACOs or shared 

losses payable to us; and 

++ Total proportion of shared savings 

invested in infrastructure, redesigned 

care processes and other resources 

required to support the three-part aim 

goals of better health for populations, 

better care for individuals and lower 

growth in expenditures, including the 

proportion distributed among ACO 

participants. 

• Quality performance standard 

scores. 

In the interest of transparency, it is 

important that the ACO make available 

to the public information on its 

accountability for the quality, cost, and 

the overall care furnished to its assigned 

beneficiary population. We are 

proposing that each ACO be responsible 

for making this information available to 

the public in a standardized format that 

we will make available through 

subregulatory guidance. This 

requirement would be included in each 

ACO’s 3-year agreement. 

We seek comments on our proposals, 

including whether the proposed list 

includes elements that should not be 

required, or excludes elements that are 

important for achieving transparency or 

meaningful public disclosure within the 

Shared Savings Program and whether 

we should standardize the format or 

allow ACOs the flexibility to try 

different and innovative approaches for 

providing this information to 

beneficiaries. We welcome comment on 

these requirements and new reporting 

requirement recommendations that 

could be considered for future program 

years through future rulemaking. Also, 

we seek comment on whether ACOs 

themselves should be required to make 

this information publicly available or 

whether ACOs should report this 

information to us, and we would then 

make this information publicly 

available. 

7. Aligning ACO Quality Measures With 

Other Laws and Regulations 

The standards for Accountable Care 

Organizations proposed in this rule are 

among the first quality standards for 

doctors and health care organizations 

established under the Affordable Care 

Act. As such, we believe that they 

represent an opportunity to continue a 

robust discussion between the Federal 

government, affected parties such as 

physicians, hospitals, and patients, and 

all other stakeholders on developing 

and aligning the best possible 

framework for ensuring quality care. 

The Act directs the Department to 

promulgate quality standards and 

require accountability or reporting in 

several sections. It calls for a National 

Quality Strategy that was released on 

March 21, 2011. We have already 

proposed standards for inpatient 

hospitals and the Medicaid program 

through rulemaking, as well as the 

standards for ACOs outlined in this 

rule. These standards affect different 

constituencies, including physicians, 

hospitals, other providers, and patients 

and their families. As such, we have 

proposed distinct domains and 


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categories of quality measures, and 

different frameworks for rewarding 

performance, under each Affordable 

Care Act program as illustrated in Table 

5. 

While these quality domains and 

categories—and the parties that they 

affect—overlap in a number of areas, 

each set of standards has different 

domains, categories, and specific 

measures. We recognize that different 

quality frameworks and rewards may 

add to confusion and administrative 

burdens for affected parties, and 

mitigate efforts to focus on the highestquality care. We seek comment from 

affected parties and other stakeholders 

on the best and most appropriate way to 

align quality domains, categories, 

specific measures, and rewards across 

these and other Federal healthcare 

programs, to ensure the highest-possible 

quality of care. Specifically, we seek 

comment on whether quality standards 

in different Affordable Care Act 

programs should use the same 

definition of domains, categories, 

specific measures, and rewards for 

performance across all programs to the 

greatest extent possible, taking into 

account meaningful differences in 

affected parties. 

F. Shared Savings Determination 

1. Background 

Section 1899 of the Act, as added by 

section 3022 of the Affordable Care Act, 

establishes the general requirements for 

payments to participating ACOs. 

Specifically, section 1899(d)(1)(A) of the 

Act provides that ACO participants will 

continue to receive payment ‘‘under the 

original Medicare fee-for-service 

program under Parts A and B in the 

same manner as they would otherwise 

be made.’’ However, section 

1899(d)(1)(A) of the Act also provides 

for ACOs to receive payment for shared 

Medicare savings provided that the ACO 

meets both the quality performance 

standards established by the Secretary, 

as discussed in section II.E. of proposed 

rule, and demonstrates that it has 

achieved savings against a benchmark of 

expected average per capita Medicare 

FFS expenditures. Additionally, section 

1899(i) of the Act authorizes the 

Secretary to use other payment models 

in the place of the one-sided model 

outlined in section 1899(d) of the Act. 

This provision authorizes the Secretary 

to select a partial capitation model or 

any other payment model that the 

Secretary determines will improve the 

quality and efficiency of items and 

services furnished to Medicare 

beneficiaries without additional 

program expenditures. 

In the November 17, 2010 Federal 

Register, we solicited public comment 

on a number of issues regarding ACOs 

and the Shared Savings Program, 

including the types of additional 

payment models we should consider in 

addition to the model laid out in section 

1899(d) of the Act, either under the 

authority provided in 1899(i) of the Act 

or using the Innovation Center authority 

under section 1115A of the Act. We 


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further asked about the relative 

advantages and disadvantages of any 

such payment models. 

We considered several options for 

structuring the Shared Savings Program. 

One option we considered was to offer 

a pure one-sided shared savings 

approach using the calculation and 

payment methodology under 1899(d) of 

the Act. This option would have the 

potential to attract a large number of 

participants to the program and 

introduce value-based purchasing 

broadly to providers and suppliers, 

many of whom may never have 

participated in a value-based purchasing 

initiative. Another reason we 

considered this option was that a onesided model with no downside risk 

might be more accessible and attract 

smaller group participation. However, 

as some commenters suggest, while 

such a model may provide incentive for 

participants to improve quality, it may 

not be enough of an incentive for 

participants to improve the efficiency of 

health care delivery and cost. Therefore, 

we considered whether we should 

instead focus on our authority under 

section 1899(i) of the Act to create a 

risk-based option in the Shared Savings 

Program. Such a model would have the 

advantage of providing an opportunity 

for more experienced ACOs that are 

ready to share in losses to enter a 

sharing arrangement that provides 

greater reward for greater responsibility. 

Another option would be to offer a 

hybrid approach. A hybrid approach 

would combine many of the elements of 

the one-sided model under section 

1899(d) of the Act with a risk-based 

approach under section 1899(i) of the 

Act. The hybrid approach would have 

the advantage of providing an entry 

point for organizations with less 

experience with risk models, such as 

some physician-driven organizations or 

smaller ACOs, to gain experience with 

population management before 

transitioning to a risk-based model 

while also providing an opportunity for 

more experienced ACOs that are ready 

to share in losses to enter a sharing 

arrangement that provides greater 

reward for greater responsibility. 

Based on the input of commenters on 

the November 17, 2010 RFI, other 

stakeholders and policy experts we are 

proposing to implement a hybrid 

approach. Specifically, we are 

proposing that ACOs participating in 

the Shared Savings Program will have 

an option between two tracks: 

Track 1: Under Track 1, shared 

savings would be reconciled annually 

for the first 2 years of the 3-year 

agreement using a one-sided shared 

savings approach, with ACOs not being 

responsible for any portion of the losses 

above the expenditure target. However, 

for the third year of the 3-year 

agreement, we will use our authority 

under section 1899(i) of the Act to 

establish an alternative two-sided 

payment model. Under this model, an 

ACO would be required to agree to share 

any losses that may be generated as well 

as savings. The portion of shared losses 

that the ACO would be at risk for in the 

third year of the agreement is further 

described in section II.G. of this 

proposed rule. ACOs that enter the 

Shared Savings Program under Track 1 

would be automatically transitioned to 

the two-sided model in the third year of 

their agreement period. In that year, the 

ACO’s payments would be reconciled as 

if it was in the first year of the two-sided 

model. However quality scoring would 

still be based on the methods for the 

third year (that is, it would not revert 

back to the first year standard of full and 

accurate reporting). Thereafter, those 

ACOs that wish to continue 

participating in the Shared Savings 

Program would only have the option of 

participating in Track 2, that is, under 

the two-sided model. 

Track 2: More experienced ACOs that 

are ready to share in losses with greater 

opportunity for reward may elect to 

immediately enter the two-sided model 

(as discussed in section II.G. of this 

proposed rule). An ACO participating in 

Track 2 would be under the two-sided 

model for all three years of its 

agreement period. Under this model, the 

ACO would be eligible for higher 

sharing rates than would be available 

under the one-sided model. 

Unless specifically noted, the 

elements discussed in the rest of this 

section will apply to both the one-sided 

and two-sided models. Section II.G. of 

this proposed rule provides additional 

detail regarding aspects of the two-sided 

model that are not discussed in this 

section. 

We seek comment on our proposal 

and the alternatives discussed 

previously. 

2. Overview of Shared Savings 

Determination 

The basic requirements for 

establishing and updating the 

benchmark, as well as determining 

whether an ACO has achieved savings 

against the benchmark, are outlined in 

section 1899(d)(1)(B) of the Act. Section 

1899(d)(1)(B)(i) of the Act establishes 

that an ACO shall be eligible for 

payment of shared savings ‘‘only if the 

estimated average per capita Medicare 

expenditures under the ACO for 

Medicare FFS beneficiaries for Parts A 

and B services, adjusted for beneficiary 

characteristics, is at least the percent 

specified by the Secretary below the 

applicable benchmark * * * .’’ We will 

take into account payments made from 

the Medicare Trust Fund for Parts A and 

B services, for assigned Medicare FFS 

beneficiaries, including payments made 

under a demonstration, pilot or time 

limited program when computing 

average per capita Medicare 

expenditures under the ACO. The 

statute further requires the Secretary to 

establish the percentage that 

expenditures must be below the 

applicable benchmark ‘‘to account for 

normal variation in expenditures under 

this title, based upon the number of 

Medicare fee-for-service beneficiaries 

assigned to an ACO.’’ We will refer to 

this percentage as the ‘‘minimum 

savings rate’’ (MSR). 

Section 1899(d)(1)(B)(ii) of the Act 

requires the Secretary to establish and 

update the ‘‘benchmark for each 

agreement period using the most recent 

available 3 years of per-beneficiary 

expenditures for parts A and B services 

for Medicare fee-for-service 

beneficiaries assigned to the ACO.’’ This 

section also requires the benchmark to 

‘‘be adjusted for beneficiary 

characteristics and such other factors as 

the Secretary determines appropriate 

and updated by the projected absolute 

amount of growth in national per capita 

expenditures for Parts A and B services 

under the original Medicare fee-forservice service program, as estimated by 

the Secretary.’’ A new benchmark is to 

be established consistent with these 

requirements at the beginning of each 

new agreement period. 

Section 1899(d)(2) of the Act provides 

that, if the ACO meets the quality 

performance standards established by 

the Secretary, as discussed in section 

II.E. of this proposed rule ‘‘a percent 

(as determined appropriate by the 

Secretary) of the difference between 

such estimated average per capita 

Medicare expenditures in a year, 

adjusted for beneficiary characteristics, 

under the ACO and such benchmark for 

the ACO may be paid to the ACO as 

shared savings and the remainder of 

such difference shall be retained by the 

program under this title.’’ We will refer 

to this percentage as the ‘‘sharing rate.’’ 

This section also requires the Secretary 

to ‘‘establish limits on the total amount 

of shared savings that may be paid to an 

ACO.’’ We will refer to this limit as the 

‘‘sharing cap’’. 

Thus, in order to implement the 

provisions of section 1899(d) of the Act 

for determining and appropriately 

sharing savings, we must make a 

number of determinations about the 

specific design of the shared savings 


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methodology described by the statute. 

First, we must establish an expenditure 

benchmark, which involves 

determining: (1) The patient population 

(that is, assigning patients to ACOs for 

purposes of quality and financial 

performance measurement) for whom 

the benchmark is calculated; (2) 

appropriate adjustments for beneficiary 

characteristics such as demographic 

factors and/or health status that should 

be taken into account in the benchmark; 

(3) whether any other adjustments to the 

3-year benchmark are warranted, such 

as to avoid potentially disadvantaging 

various types of providers (for example, 

hospitals that receive Medicare 

disproportionate share hospital 

payments (DSH hospitals) or teaching 

hospitals that receive indirect graduate 

medical education (IME) payments) or 

ACOs located in high cost, or low cost, 

areas; and (4) appropriate methods for 

trending the 3-year benchmark forward 

to the start of the agreement period, and 

subsequently for updating the 

benchmark for each of the 3 

performance years of the agreement 

period with the ACO. 

Second, we must compare the 

benchmark to the assigned beneficiary 

per capita Medicare expenditures in 

each performance year under the 

agreement period in order to determine 

the amount of any savings. 

Third, we must establish the 

appropriate MSR, as required by the 

statute ‘‘to account for normal variation 

in expenditures * * * based upon the 

number of Medicare fee-for-service 

beneficiaries assigned to an ACO’’ and 

we must determine the appropriate 

sharing rate for ACOs that have realized 

savings against the benchmark above the 

MSR. Finally, we must determine the 

required sharing cap on the total 

amount of shared savings that may be 

paid to an ACO. We discuss all these 

issues, and our proposals for addressing 

them, in this section. 

3. Establishing an Expenditure 

Benchmark 

a. Background 

Section 1899(d)(1)(B)(ii) of the Act 

specifies several requirements with 

regard to establishing an ACO’s 

benchmark. 

• First, the law requires the Secretary 

‘‘to estimate a benchmark for each 

agreement period for each ACO using 

the most recent available 3 years of perbeneficiary expenditures for parts A and 

B services for Medicare fee-for-service 

beneficiaries assigned to the ACO.’’ 

• Second, the law requires that 

‘‘[s]uch benchmark shall be adjusted for 

beneficiary characteristics and such 

other factors as the Secretary determines 

appropriate.’’ 

• Third, the law requires that the 

benchmark be ‘‘updated by the projected 

absolute amount of growth in national 

per capita expenditures for parts A and 

B services under the original Medicare 

fee-for-service program, as estimated by 

the Secretary.’’ 

• Finally, the law requires that 

‘‘[s]uch benchmark shall be reset at the 

start of each agreement period.’’ 

A useful way to view the benchmark 

is as a surrogate measure of what the 

Medicare FFS Parts A and B 

expenditures would otherwise have 

been in the absence of the ACO. Once 

the savings realized by the ACO exceed 

a margin for normal variation in 

expenditures from year-to-year (what we 

call the MSR described in more detail 

later in this proposed rule), the 

difference between actual expenditures 

of the ACO’s assigned beneficiaries 

during each year of the agreement 

period and its benchmark (updated, 

according to statute as described in 

more detail later in the document) 

should reflect how well the ACO is 

coordinating care for these beneficiaries 

and improving the overall efficiency of 

their care. 

An accurate benchmark estimate is 

important in order to ensure that an 

ACO that successfully coordinates care 

and achieves real savings is rewarded 

with shared savings. Similarly, an 

accurate benchmark estimate helps to 

ensure that shared savings are not 

inadvertently paid to an ACO that does 

not successfully coordinate care well or 

that has not achieved savings in excess 

of normal variation in annual 

expenditures. 

We have considered two legally 

permissible approaches to meeting the 

statutory language for estimating the 

benchmark, which we will call Option 

1 and Option 2 in this proposed rule. 

Both approaches involve benchmarks 

that are derived from prior expenditures 

of assigned beneficiaries and adjusted 

for certain beneficiary characteristics, 

and other factors, the Secretary 

determines appropriate and updated by 

the projected absolute amount of growth 

in national per capita expenditures. 

Under both approaches, the benchmark 

would also be reset at the start of each 

agreement period. However, a key 

difference between these two 

approaches is the beneficiary 

population used to determine 

expenditures for purposes of the 

benchmark. Specifically, under Option 

1, we would estimate an ACO’s 

benchmark based on the Parts A and B 

FFS expenditures of beneficiaries who 

would have been assigned to the ACO 

in each of the 3 years prior to the start 

of an ACO’s agreement period using the 

ACO participants’ TINs. In contrast, 

under Option 2, the benchmark would 

be based on the Parts A and B FFS 

expenditures of beneficiaries, who are 

actually assigned to the ACO during 

each performance year, with the 

expenditures being those incurred in the 

3 years immediately preceding the 

ACO’s agreement period for those 

assigned beneficiaries. We describe 

these two options later in this 

document. In this proposed rule, we are 

proposing Option 1 to establish each 

ACO’s benchmark; however, we solicit 

comments on both options. 

b. Option 1 

Under Option 1, we would estimate 

the benchmark for an ACO for an 

agreement period starting with the TINs 

of ACO participants identified at the 

start of the agreement period. The same 

rules that will be used to determine 

assignment of beneficiaries to ACOs 

during the agreement period would be 

applied to these data. Accordingly, 

consistent with the assignment 

methodology proposed in section II.D. 

of this proposed rule, we would use the 

claim records of these ACO participants 

to determine a list of beneficiaries who 

received a plurality of their primary care 

services from primary care physicians 

participating in the ACO in each of the 

prior 3 most recent available years. 

Using the per capita Parts A and B 

FFS expenditures for beneficiaries that 

would have been assigned to the ACO 

in each of these 3 prior years, we will 

estimate a fixed benchmark that is 

adjusted for overall growth and 

beneficiary characteristics, including 

health status using prospective HCC 

adjustments (as discussed in section 3 

later in this document). This benchmark 

would then be updated annually during 

the agreement period, according to 

statute, based on the absolute amount of 

growth in national per capita 

expenditures for Parts A and B services 

under the original Medicare FFS 

program. 

• The first step in this process is to 

calculate annual Parts A and B FFS per 

capita expenditures for the beneficiaries 

who would have been assigned for each 

of the benchmark years. To minimize 

variation from catastrophically large 

claims, we would truncate an assigned 

beneficiary’s total annual Parts A and B 

FFS per capita expenditures at the 99th 

percentile as determined for each 

benchmark year (for example roughly 

$100,000 in 2008). We would also 

truncate an assigned beneficiary’s total 

annual Parts A and B FFS per capita 

expenditures at the 99th percentile as 


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determined for each subsequent 

performance year. 

• Next, using our Office of the 

Actuary national Medicare expenditure 

data for each of the years making up the 

benchmark, we would determine an 

appropriate growth index and trend 

them to benchmark year 3 (BY3) dollars. 

Our proposed method for trending 

expenditures is discussed in section 

II.F.7.of this proposed rule. 

• Using health status measures for the 

beneficiary population in each of the 

years making up the benchmark, we 

would establish health status indices for 

each year and adjust so they are restated 

to reflect BY3 risk. Our approach to 

account for health status is discussed 

section II.F.3. of this proposed rule. 

• Next, we would compute a 3-year 

risk-and growth-trend adjusted per 

capita expenditure amount for the 

patient populations in each of the 3 

benchmark years by combining the 

initial per capita expenditures for each 

year with the respective growth and 

health status indices. This yields risk 

adjusted per capita expenditures for 

beneficiaries historically assigned to the 

ACO in each of the 3 years used to 

establish the benchmark stated in BY3 

risk and expenditure amounts. 

• We propose to weight the most 

recent year of the benchmark, BY3 at 60 

percent, BY2 at 30 percent and BY1 at 

10 percent so that we can ensure the 

benchmark reflects more accurately the 

latest expenditure and health status of 

the ACO’s assigned beneficiary 

population. This weighting allows us to 

establish lower MSRs since the 

weighting results in a more accurate 

benchmark. 

• Last, as required by statute, for each 

performance year we would update this 

fixed benchmark by the projected 

absolute amount of growth in national 

per capita expenditures for Parts A and 

B services under the original Medicare 

FFS program using data from our Office 

of the Actuary. This approach for 

updating the benchmark avoids current 

law issues associated with Medicare 

expenditure projections since it uses the 

actual claims and expenditure 

experience for Medicare patients to 

calculate the factor used to update the 

benchmark for purposes of annual 

reconciliation. Consistent with the 

statutory requirement, the benchmark 

and its associated computations would 

only be rebased at the start of a new 

agreement period. 

As described in section II.C. of this 

proposed rule, if requested by the ACO, 

we are proposing to provide the ACO 

with aggregated data and information on 

beneficiaries that would historically 

have been assigned to the ACO and, as 

a result, have a likelihood of being 

assigned during the agreement period. 

It is possible that to the extent that an 

ACO’s population or its composition of 

ACO providers/suppliers change over 

time, the assigned population could 

diverge from the benchmark population, 

potentially affecting the comparability 

of performance measurement. Modeling 

the PGP demonstration data using the 

proposed primary care based 

assignment methodology revealed that 

assignment of beneficiaries varies from 

year-to-year, with about 25 percent of 

those assigned in one year not being 

assigned in the subsequent year (due to 

relocation, death, participation in MA, 

or changes in their choice of care 

professionals). This was consistent 

across organizations participating in the 

demonstration which were also 

geographically diverse. We believe the 

approach to establishing the benchmark 

described previously would provide a 

relatively accurate reflection of the 

average population of Medicare FFS 

beneficiaries that receive their care from 

the ACO participants during the ACO 

agreement period. However, because the 

FFS population served by the ACO 

changes from year to year, some of the 

beneficiaries whose expenditures would 

be included in the benchmark with this 

approach would not be reflected in the 

population assigned to the ACO during 

the years of the ACO agreement period. 

It is also possible that this benchmark 

approach could provide unwanted 

incentives to seek and/or avoid specific 

beneficiaries during the agreement 

period so that average expenditures 

would more likely be less than for their 

historical beneficiaries included in the 

benchmark. Therefore we also 

considered a second option that relies 

on developing a benchmark based on 

the populations of specific beneficiaries 

who are actually assigned to the ACO 

during the agreement period. 

c. Option 2 

Under this option, for each 

beneficiary assigned to the ACO during 

the agreement period, we would 

calculate their per capita Parts A and B 

FFS expenditures during each of the 3 

years immediately preceding the first 

year of the agreement period. These 

amounts would be trended to the start 

of the agreement period as was 

described for Option 1, that is, since 

Option 2 also requires risk adjustment, 

we will adjust the benchmark for health 

status using the same prospective CMS– 

Hierarchal Condition Category (CMS– 

HCC) risk adjuster and apply it to 

calculate the benchmark in the same 

manner as described for Option 1. 

To meet the statutory requirement to 

adjust the benchmark for ‘‘beneficiary 

characteristics’’ we would adjust the 

annual per capita expenditures to 

account for changes in health status. 

For beneficiaries without 3 full years 

of immediately-prior Medicare 

eligibility (such as beneficiaries who 

were not 68 in their first year assigned 

to the ACO), a further adjustment would 

be necessary under this option. 

• For those beneficiaries with less 

than one full year of prior Medicare 

experience, we would either— 

++ Use a substitute for their own 

expenditures in the update amount 

within the benchmark, that is, substitute 

the average per capita FFS expenditures 

for all Medicare beneficiaries during the 

year they are first assigned to the ACO, 

adjusted for health status (as described 

later in the document in section 3); or 

++ Exclude their experience from the 

shared savings computations. 

• For those assigned beneficiaries 

with more than 12 months prior 

Medicare experience but less than 36 

months we also have two choices: 

++ Compute a weighted-average 

(using number of months as the weight) 

that blends. 

—Their prior expenditure experience 

and 

—The average per capita Parts A and B 

FFS expenditures for all Medicare 

beneficiaries during the year before 

the first year they are assigned to the 

ACO, adjusted for health status; or 

++ Use only their prior expenditure 

experience. 

We seek comments about these 

adjustment approaches and solicit other 

approaches we might consider. 

After the benchmark is adjusted for 

beneficiary health status, the benchmark 

would also be updated by the applicable 

projected amount of growth in national 

per capita expenditures for Parts A and 

B services under the original Medicare 

FFS program as was described for 

Option 1. 

For the second and third year of the 

agreement period, we would make no 

further adjustments for assigned 

beneficiaries who were also assigned in 

the first year of the ACO agreement 

period. However, in the second and 

third year of the agreement, there will 

also be newly-assigned beneficiaries as 

well as previously-assigned 

beneficiaries who are no longer assigned 

to the ACO. The benchmark would be 

adjusted to account for these changes. 

We would adjust the benchmark by 

adding the experience of the newlyassigned beneficiaries (as discussed 

previously for the first year) for the 3 

years prior to the agreement period, and 


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by removing the prior experience of the 

no-longer assigned beneficiaries. In the 

case of a beneficiary who was assigned 

during the first year, not assigned 

during the second year, and then again 

assigned during the third year of the 

ACO’s agreement period, the prior 

expenditure experience that would be 

used to adjust the benchmark in the 

third year would be the same amount 

initially used for their first year of 

assignment. These adjustments would 

yield a benchmark for each ACO that is 

estimated using beneficiary 

expenditures for the three years prior to 

the agreement period for only those 

beneficiaries that were actually assigned 

to the ACO during that year of the 

agreement period. 

Additionally, Option 2 would require 

an adjustment for assigned beneficiaries 

who die during an agreement year. We 

know that approximately 5 percent of 

all Medicare beneficiaries die in a single 

year, and that their average monthly 

expenditures are often higher during 

this last year of life compared to the 

immediately preceding years. For these 

beneficiaries, the benchmark might 

therefore not be a fair basis for 

comparison with actual expenditures for 

purposes of determining shared savings, 

which could create incentives for ACOs 

to avoid assignment of beneficiaries 

who may be in their last year of life or 

treat such beneficiaries differently. This 

would not be the case for Option 1 as 

that benchmark approach would 

include the average per capita costs of 

beneficiaries who died during the 

benchmark period. We are therefore 

considering one of two methods to 

adjust for this beneficiary characteristic 

within Option 2. 

Under the first method for adjusting 

for decedents, we would propose to 

exclude the expenditures of deceased 

beneficiaries from actual expenditures 

during the agreement period. We believe 

this approach would best avoid 

concerns about creating incentives for 

ACOs to avoid assignment of 

beneficiaries in their last year of life or 

treat such beneficiaries differently. In a 

second method for adjusting for 

decedents, we would compare average 

expenditures for each deceased 

beneficiary during the agreement year to 

the average expenditures for 

beneficiaries included in the 

benchmark. 

• If the agreement year’s expenditures 

were 5 percent or less above the 

benchmark, we would make no 

adjustment; 

• If the agreement year’s expenditures 

were greater than 5 percent above the 

benchmark, we would need to decide 

upon an acceptable method to adjust the 

accumulated expenditures for deceased 

beneficiaries. 

Of these two methods for adjusting for 

decedents during the course of the 

performance year under Option 2, our 

preference is for the first method. 

However, we invite comments on both 

of these methods, and any others that 

might be suggested for adjusting for 

decedents during the course of the 

performance year under Option 2. 

The second method is intended to 

address the implications of changes to 

an ACO’s population over time, but this 

option would require additional data 

adjustments and computations that are 

not required under the first method. 

However, to the extent that average 

per capita expenditures for all 

beneficiaries differs from the average for 

the geographic area in which an ACO 

operates, the first method previously 

discussed would effectively be imputing 

a value that is likely to be somewhat 

higher or lower than would actually be 

expected for that ACO. Alternatively, 

excluding the experience of 

beneficiaries with less than 1 full year 

of experience from the shared savings 

computations as contemplated in the 

second method previously discussed, 

would reduce the size of an ACO’s 

beneficiary population, increasing the 

MSR that would be needed before an 

ACO would be eligible to share savings. 

This could have the effect of 

discouraging participation among 

smaller ACOs, for example, in rural 

areas. Likewise, we would expect a 

similar impact on an ACO’s MSR if 

deceased beneficiaries were excluded 

from the shared savings computations as 

is previously proposed. 

d. Summary 

We believe both Option 1 and Option 

2 are legally permissible approaches to 

setting the expenditure benchmark, 

adjusting for beneficiary characteristics, 

and updating by the projected absolute 

amount of growth in national per capita 

expenditures. We also believe that both 

approaches can establish viable 

benchmarks to measure ACO 

performance over time and provide 

incentives for ACOs to improve their 

processes and outcomes during the 

agreement period. 

We are proposing to adopt Option 1 

for establishing ACO benchmarks, but 

seek comments on the merits and 

limitations of both options, particularly 

with respect to how each approach 

might affect the willingness of ACOs or 

particular types of ACO to participate in 

the Shared Savings Program, create 

incentives for ACOs to seek or avoid 

certain kinds of beneficiaries, and 

impact Medicare expenditures. 

Moreover, we will continue to examine 

the merits and potential effects of both 

options over the next several months. If, 

based on our findings and the comments 

received in response to this proposal, 

we determine that Option 2 would be a 

more appropriate method for 

establishing a benchmark, we would 

expect to adopt that option in the final 

rule. 

4. Adjusting the Benchmark and 

Average per Capita Expenditures for 

Beneficiary Characteristics 

Section 1899(d)(1)(B)(i) of the Act 

stipulates that an ACO is eligible for 

shared savings ‘‘only if the estimated 

average per capita Medicare 

expenditures under the ACO for 

Medicare fee-for-service beneficiaries 

for Parts A and B services, adjusted for 

beneficiary characteristics’’ is below the 

applicable benchmark. Likewise, section 

1899(d)(1)(B)(ii) of the Act specifies that 

the benchmark ‘‘shall be adjusted for 

beneficiary characteristics and such 

other factors as the Secretary determines 

appropriate * * *.’’ This requirement to 

adjust for ‘‘beneficiary characteristics’’ 

implicitly recognizes that, under a 

shared savings model, the realization of 

savings against a benchmark could be a 

function of two factors. One factor is 

reduced expenditure growth as a result 

of greater quality and efficiency in the 

delivery of health care services. The 

other factor could be changes in the 

characteristics of the beneficiaries who 

are under the care of the ACO. Thus, in 

the absence of risk adjustment, some 

organizations may realize savings 

merely because of treating a patient mix 

with better health status than the patient 

population reflected in the benchmark. 

On the other hand, some organizations 

may share in savings on a risk adjusted 

basis but would not have shared in 

savings if expenditures were not risk 

adjusted. 

Beneficiary health status can be 

measured using various tools, under 

which beneficiaries are typically 

assigned ‘‘risk scores’’ that reflect their 

demographic and diagnostic conditions 

and offer an estimate of the relative 

extent to which they are likely to utilize 

medical services compared to other 

beneficiaries. Performance payments are 

a function of the ACO’s success in 

controlling expenditure growth and 

changes in the health status of the 

assigned population, thus they are 

sensitive to changes in risk scores. 

However, an ACO’s ability to share in 

savings can be affected not only by 

changes in the health status of a 

population but also by changes in 

coding intensity and changes in the mix 

of specialists and other providers within 


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an ACO, which in turn could affect the 

characteristics of its assigned 

beneficiary population, relative to the 

benchmark period. Our goal is to 

measure improvements in care delivery 

of an ACO and to make appropriate 

adjustments to reflect the health status 

of assigned patients as well as changes 

in the ACOs organizational structure 

that would affect the case mix of 

assigned patients rather than apparent 

changes arising from the manner in 

which ACO providers/suppliers code 

diagnoses. Thus, when applying a risk 

adjustment model, it is necessary to 

guard against changes that result from 

more specific or comprehensive coding 

as opposed to improvements in the 

coordination and quality of health care. 

The statute clearly calls for the 

characteristics of the beneficiaries 

assigned to an ACO to be taken into 

account in estimating both an ACO’s 

benchmark and its expenditures during 

the agreement period. This requirement 

helps to ensure that quality and 

efficiency in the delivery of health care 

services are the basis for realizing and 

sharing savings under the Shared 

Savings Program. Because we want to 

create an environment where ACOs are 

encouraged to effectively coordinate 

care for beneficiaries with complex 

illnesses, and not create an environment 

where ACOs have incentive to avoid 

these types of beneficiaries, we believe 

that relative health status is one such 

beneficiary characteristic that should be 

reflected in the calculation of average 

per capita expenditures for purposes of 

both the benchmark and actual 

expenditures during the agreement 

period. We have considered two basic 

options for risk adjusting the average 

per capita expenditures in order to 

reflect beneficiary characteristics. 

One option is to employ a method 

that considers only patient demographic 

factors, such as age, sex, Medicaid 

status, and the basis for Medicare 

entitlement (that is, age, disability or 

ESRD), without incorporating diagnostic 

information. The second option is to 

employ a methodology that incorporates 

diagnostic information, specifically the 

CMS–HCC prospective risk adjustment 

model that has been used under the MA 

program. In addition to demographic 

variables, the CMS–HCC prospective 

risk adjustment model uses 

beneficiaries’ prior year diagnoses to 

develop risk scores that are then applied 

to their current year expenditures. The 

model is widely accepted by payers and 

providers, and risk scores are annually 

calculated for all Medicare beneficiaries 

by us, so readily available data can be 

incorporated into the Shared Savings 

Program. Additional information on the 

CMS–HCC model can be found in the 

Advance Notice of Methodological 

Changes for Calendar Year (CY) 2011 for 

Medicare Advantage (MA) Capitation 

Rates, Part C and Part D Payment 

Policies and 2011 Call Letter, which can 

be found at http://www.cms.gov/ 

MedicareAdvtgSpecRateStats/ 

Downloads/Advance2011.pdf and 

http://www.cms.gov/ 

MedicareAdvtgSpecRateStats/ 

Downloads/Announcement2011.pdf. 

As discussed previously, a key issue 

when using a risk adjustment model 

that incorporates diagnosis data is that 

risk scores can be affected not just by 

changes in the health status of the 

population but also by changes in 

coding intensity and by the mix of 

specialists and providers furnishing 

services. The experience in MA clearly 

shows that health plans can 

significantly increase the HCC score of 

their populations by focusing on more 

complete coding. Similarly, our 

experience with the PGP demonstration 

shows that participating sites have an 

incentive to code more fully or intensely 

because of the potential impact on 

performance payments, to provide more 

accurate measurement and reporting of 

quality measures, as well as to provide 

for more complete and accurate 

information that can be used for 

population management. 

If we adopt a risk adjustment 

methodology in the Shared Savings 

Program that incorporates diagnostic 

data, we expect that ACOs would have 

a similar incentive to code more fully 

for purposes of population management, 

quality reporting and to optimize their 

risk scores for the purpose of achieving 

shared savings. Because they are 

responsible for the delivery of care, and 

can control the information included in 

Parts A and B claims, the ACO 

providers/suppliers could potentially 

increase the risk scores for their FFS 

patients by more completely reporting 

diagnoses. The practical effect of 

increasing risk scores would be to 

decrease the actual annual expenditures 

compared to the benchmark, because 

the benchmark would be increased to 

reflect changes in the ACO’s risk score, 

while actual expenditures would not 

change. As a result, the ACO’s chances 

of demonstrating savings and receiving 

a shared savings payment would 

improve. Behaviors such as these could 

allow an ACO to achieve apparent 

savings by coding changes alone and 

without improved methods of 

beneficiary care. 

We have made adjustments to account 

for the upward trend in risk scores in 

other programs. For example, for the 

MA program we make adjustments to 

account for the upward trend in FFS 

diagnostic coding and CMS–HCC model 

changes through normalization factors 

and coding intensity adjustments. 

Another approach to addressing this 

upward trend in diagnostic coding 

would be to incorporate an annual cap 

in the amount of risk score growth we 

would allow for each ACO. One option 

for setting the annual cap could be 

setting a fixed growth percentage for all 

ACOs, and any increase in risk score 

growth above the cap would be negated. 

A challenge to this approach would be 

determining a generally acceptable sized 

cap. A second option would be to 

establish a risk score for the ACO’s 

assigned population during the 

agreement period based on the 

calculated risk score of beneficiaries 

who were used to calculate the ACO’s 

benchmark. This would establish an 

annual cap, that is based on experience 

specific to each individual ACO and 

would thus result in an individually 

calculated cap for each ACO. Yet 

another alternative we considered for 

addressing the upward trend in coding 

intensity would be to use a methodology 

similar to the MA methodology that 

would reduce the amount of growth in 

the risk scores for beneficiaries assigned 

to the ACOs, but continue to allow 

increases. However, modeling this 

approach showed that it would reward 

those organizations with exceptionally 

high risk score growth while penalizing 

organizations that do not engage in 

efforts to more completely and 

accurately code since their risk score 

growth could go negative if they did not 

code sufficiently intensively. 

A model that uses beneficiary 

demographic factors alone would avoid 

this issue, and may be simpler 

administratively precisely because it 

employs a more restricted range of 

factors. We have therefore also 

considered implementing the MA ‘‘new 

enrollee’’ demographic risk adjustment 

model. This model includes 

adjustments for age, sex, Medicaid 

enrollment status and originally 

disabled status. Such a model, however, 

would not take into account the health 

status of the assigned beneficiaries 

which could have a particularly adverse 

effect on ACOs that include providers 

and suppliers that typically treat a 

comparatively sick beneficiary 

population, including academic medical 

centers and tertiary care centers. 

Therefore, we are proposing to adjust 

Medicare expenditure amounts by 

employing the CMS–HCC model used in 

the MA program. 

The CMS–HCC model more 

accurately predicts health care 

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only model as it accounts for variation 

in case complexity and severity. In 

addition, incorporating diagnosis data 

in the risk adjustment model will 

encourage ACOs to maintain complete 

and accurate medical documentation 

which could result in better information 

for population management, care 

coordination, and quality improvement. 

ACOs will have an incentive to code 

more completely and accurately, as is 

the case with MA plans, and behaviors 

such as these could allow an ACO to 

achieve apparent savings by coding 

changes alone and without improved 

methods of beneficiary care. We do not 

want to create an environment that 

rewards ACOs for achieving apparent 

savings by coding changes alone. 

Additionally, we expect the ACO’s 

average population risk scores to be 

stable over time, given that there is 

stability in ACO participants and 

therefore case mix and we will have 

calculated the benchmark risk 

adjustment score for the ACO’s 

historically assigned beneficiary 

population under conditions when the 

ACO providers/suppliers would not 

have an incentive to increase coding. As 

a result, we believe the benchmark risk 

adjustment score for the ACO’s 

historically assigned beneficiary 

population will be a reasonable 

approximation of the actual risk score 

for the beneficiary population assigned 

to the ACO during the agreement 

period, while avoiding any distortion 

due to changes in coding practices. 

Therefore, we propose to calculate a 

single benchmark risk score for each 

ACO. The same risk score will then be 

applied throughout the agreement 

period to the annual assigned patient 

populations per capita expenditures for 

assigned beneficiaries. The benchmark 

risk score will be calculated by applying 

the CMS–HCC model to the assigned 

beneficiary population attributed in 

each year of the 3-year benchmark. 

However, changes in the assigned 

beneficiary population risk score from 

the 3-year benchmark period during the 

performance year will not be 

incorporated. By not incorporating the 

effects of changes in coding intensity 

during the performance years (versus 

the benchmark), we will protect the 

program from costs due to greater 

diagnosis coding intensity in ACOs. 

We welcome comments on this 

proposal including comments on 

alternative approaches such as using the 

MA ‘‘new enrollee’’ demographic risk 

adjustment model for risk adjusting in 

the Shared Savings Program or applying 

a coding intensity cap on annual growth 

in the risk scores of an ACO’s assigned 

beneficiary population. 

We intend to monitor and evaluate 

the issue of more complete and accurate 

coding as we gain experience with the 

Shared Savings Program, and would 

consider making revisions and 

adaptations to the final risk adjustment 

model through future rulemaking if they 

are warranted. Further, to assure the 

appropriateness of ACO coding 

practices and our methodology for risk 

adjusting, we are also proposing to 

retain our option to audit ACOs 

especially those ACOs with high levels 

of risk score growth relative to their 

peers and adjust the risk scores used for 

purposes of establishing the 3-year 

benchmark accordingly. We seek 

comment on this proposal. 

5. Technical Adjustments to the 

Benchmark: Impact of IME and DSH 

Section 1899(d)(1)(B)(ii) of the Act 

states that ‘‘Such benchmark shall be 

adjusted for beneficiary characteristics 

and such other factors as the Secretary 

determines appropriate * * *.’’ Several 

factors in the Medicare FFS payment 

systems can affect an ACO’s ability to 

realize savings by adjusting payment 

rates and thus affecting both 

expenditures during the benchmark 

period and each subsequent 

performance year. Additionally, changes 

in these payment factors, between the 

benchmark and performance years can 

also influence whether an ACO realizes 

savings or incurs losses under the 

program. 

Teaching hospitals receive additional 

payment to support medical education 

through an indirect medical education 

(IME) adjustment. In addition, hospitals 

that serve a disproportionate share of 

low-income beneficiaries also receive 

additional payments, referred to as the 

Medicare disproportionate share 

hospital (DSH) adjustment. Many 

hospitals, especially academic medical 

centers, receive both these adjustments, 

which can provide substantial increases 

in their Medicare payments compared to 

hospitals that do not qualify for these 

adjustments. The higher payments 

provided to these types of hospitals 

could provide ACOs with a strong 

incentive to realize savings simply by 

avoiding referrals to hospitals that 

receive IME and DSH payments. 

We have considered whether it would 

be appropriate to remove IME and DSH 

payments or a portion of these payments 

from the benchmark and the calculation 

of actual expenditures for an ACO. 

However, section 1899(d)(1)(B)(i) of the 

Act only provides authority to adjust 

expenditures in the performance period 

for beneficiary characteristics and does 

not provide authority to adjust for ‘‘other 

factors’’. Therefore, while we may adjust 

the benchmark under this provision by 

removing IME and DSH payments, we 

could not also do so in our calculation 

of performance year expenditures. If we 

were to remove IME and DSH payments 

from the benchmark, the benchmark 

would be set artificially lower relative to 

the performance period, thus making it 

more difficult for an ACO to overcome 

and achieve savings under this program. 

In addition, excluding these payments 

would result in an artificial and 

incomplete representation of actual 

spending of Medicare Trust Fund 

dollars. Further, section 1899(d)(1)(B)(ii) 

of the Act requires that we update an 

ACO’s benchmark during each year of 

the agreement period based on a 

national standard (‘‘the projected 

absolute amount of growth in national 

per capita expenditures for parts A and 

B under the original Medicare fee-forservice program’’), which would 

necessarily include the effects of these 

payments. Additionally, we believe all 

relevant Medicare costs should be 

included in an ACO’s benchmark to 

maintain sufficient incentives for ACOs 

to ensure their assigned beneficiaries 

receive care in the most appropriate 

settings. For example, ACOs that 

include teaching and/or DSH hospitals 

in their network might be more 

interested in joining the program if we 

do not remove these payments from the 

calculations. This is because including 

these payments would result in higher 

benchmarks against which such ACOs 

would work to achieve savings, and 

such ACOs may be able to earn back a 

portion of forgone IME/DSH payments 

in the form of shared savings in cases 

where a referral to a less intensive 

setting is most appropriate for the 

beneficiary. 

Thus, we are not proposing to remove 

IME and DSH payments from the per 

capita costs included in the benchmark 

for an ACO. However, we invite 

comments on this issue, especially on 

how including or excluding these 

payments in the benchmark could likely 

affect access to medically necessary 

services provided at teaching/DSH 

hospitals. We will consider comments 

on this issue carefully, and in the light 

of these comments, we could adopt a 

policy in the final rule of adjusting the 

benchmark calculation in order to 

prevent any adverse effects on access to 

services at these hospitals. 


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6. Technical Adjustments to the 

Benchmark: Impact of Geographic 

Payment Adjustments on the 

Calculation of the Benchmark 

Similarly, another factor in the 

Medicare FFS payment systems that 

could affect an ACO’s ability to realize 

savings is the geographic payment 

adjustment (for example, the IPPS wage 

index adjustments and the physician fee 

schedule geographic practice cost index 

(GPCI) adjustments) that is generally 

made to payments under these systems. 

These adjustments increase and 

decrease payments under these systems 

to account for the different costs of 

providing care in different areas of the 

country. Further, there have been a 

number of temporary legislative 

adjustments to the wage indexes for 

various parts of the country during 

recent years. In some cases these have 

been extended on virtually an annual 

basis while others have been updated 

more intermittently. The timing of these 

adjustments could result in changes 

being made during an ACO’s agreement 

period and between the benchmark and 

the performance years, thus influencing 

an ACO’s ability to realize savings 

under the program. 

As in the case of IME and DSH 

adjustments, we have considered 

removing these geographic payment 

adjustments from the calculation of the 

benchmark and actual expenditures. 

However, as with IME and DSH 

payments, we only have statutory 

authority under section 1899(d)(1)(B) of 

the Act to remove them from the 

benchmark and thus we cannot remove 

them from performance period 

expenditure calculations. Consistent 

with our proposed treatment of IME and 

DSH payments, we are not proposing to 

remove geographic payment 

adjustments from the calculation of 

benchmark expenditures. Again, we 

welcome comments on this issue and 

will especially consider comments on 

the likely impact of this proposal in 

areas that are affected by temporary 

geographic adjustments. After 

consideration of the comments, we 

could adopt a policy in the final rule of 

adjusting the benchmark calculation to 

remove the effects of these geographic 

payment adjustments. 

7. Technical Adjustments to the 

Benchmark: Impact of Bonus Payments 

and Penalties on the Calculation of the 

Benchmark and Actual Expenditures 

Medicare bonus payments are 

available and penalties may be imposed 

through value-based purchasing 

initiatives such as the Physician Quality 

Reporting System and the Health 

Information Technology for Economic 

and Clinical Health (HITECH) Act, 

which encourages hospital and 

physician adoption of electronic health 

records (EHR), and provides for 

penalties in subsequent years for those 

that do not demonstrate meaningful use 

of EHR. Incentive payments for 

programs such as these can affect actual 

expenditures and the benchmark, and 

thus an ACO’s ability to realize savings. 

For example, an ACO’s chances to share 

in savings or the level of savings that 

would be shared with the ACO would 

be reduced when an ACO professional 

or hospital participating in the ACO 

fails to receive an incentive payment (or 

is penalized with a payment reduction) 

under one of these programs during a 

benchmark year and subsequently 

receives an incentive payment from that 

program in an ACO performance year. 

This is because, all else being equal— 

(1) the ACO’s expenditures in the 

performance year would be higher than 

they would have been in the absence of 

the incentive; and (2) the ACO’s 

expenditures during the benchmark year 

would be relatively lower than they 

would have been had an incentive been 

received. Conversely, an ACO would be 

more likely to share in savings if it 

received an incentive payment under 

one of these other programs in a 

benchmark year and received no 

incentive or was penalized during a 

performance year. As such, the effect of 

including these incentive payments in 

the calculation of the benchmark and 

actual expenditures could create 

perverse incentives with the result that 

participation in the Shared Savings 

Program has the potential to adversely 

affect the performance of providers of 

services and suppliers with respect to 

other important Medicare efforts, such 

as the value-based purchasing and 

HITECH initiatives. 

Section 1899(b)(3)(D) of the Act 

provides authority for the Secretary to 

incorporate, as the Secretary determines 

appropriate, the reporting requirements 

and incentive payments related to the 

Physician Quality Reporting System, 

eRx, EHR, and other similar initiatives 

under section 1848 of the Act. The 

statute provides that these incentive 

payments ‘‘shall not be taken into 

consideration when calculating any 

payments otherwise made under 

subsection (d).’’ Additionally, we 

believe it is important to ensure that 

these various programs’ incentives are 

properly aligned so that their 

interactions support rather than impede 

each of the programs’ goals. 

Thus, consistent with our statutory 

authority, we are proposing to exclude 

Medicare expenditures or savings for 

incentive payments and penalties under 

section 1848 of the Act for value-based 

purchasing initiatives such as Physician 

Quality Reporting System, eRx, and the 

EHR incentives for eligible professionals 

under the HITECH Act from the 

computations of both benchmark and 

actual expenditures during the 

agreement period. We believe that 

excluding these costs and savings will 

reduce the chances that incentives that 

were intended to encourage and reward 

participation in one Medicare program 

would discourage full participation in 

another. We seek comments on this 

proposal. 

Section 1899(b)(3)(D) of the Act does 

not, however, provide authority for the 

Secretary to exclude Medicare 

expenditures or savings for incentive 

payments and penalties not under 

section 1848 of the Act from benchmark 

and actual expenditures. Therefore, 

payments that are reflected in Part A 

and B claims for services furnished to 

assigned FFS beneficiaries, such as EHR 

incentive payments to hospitals and the 

Hospital Inpatient Value-Based 

Purchasing Program, which are made 

under section 1886 of the Act, and EHR 

incentive payments to CAHs, which are 

made under section 1814 of the Act, (or 

any incentive payments not made under 

section 1848 of the Act) would be 

counted in both the computation of 

actual expenditures and benchmark 

expenditures for Part A and B costs. 

8. Trending Forward Prior Years’ 

Experience To Obtain an Initial 

Benchmark 

Section 1899(d)(1)(B)(ii) of the Act 

requires the use of ‘‘the most recent 3 

years of per-beneficiary expenditures for 

parts A and B services’’ to estimate a 

benchmark for each ACO. As the statute 

requires the use of historical 

expenditures, the per capita costs for 

each year must be trended forward to 

current year dollars and then averaged 

using the weights previously described 

to obtain the benchmark for the first 

agreement period. This benchmark is 

subsequently updated for each year of 

the agreement period based on the 

‘‘projected absolute amount of growth in 

national per capita expenditures for 

parts A and B services’’ under the FFS 

program as estimated by the Secretary. 

a. Flat Dollar vs Growth Rate as a 

Benchmark Trending Factor 

The statute does not specify the 

trending factor to be used in estimating 

the initial benchmark. Typically, prior 

years would be increased using a 

percentage growth factor. We 

considered two options for trending 

forward the most recent 3 years of per 


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beneficiary expenditures for Parts A and 

B services in order to estimate the 

benchmark for each ACO. The first 

option is to trend these expenditures 

forward using growth rates in 

expenditures for Parts A and B services 

for FFS beneficiaries. The second option 

is to trend these expenditures forward 

using a flat dollar amount equivalent to 

the absolute amount of growth in per 

capita expenditures for Medicare Parts 

A and B under the FFS program. 

An advantage of the first option is that 

the use of a growth rate, as opposed to 

a flat dollar amount, would more 

accurately reflect each ACO’s historical 

experience. That is, in contrast to a flat 

dollar amount, this option would 

neither raise the bar for ACOs in 

historically higher growth rate areas nor 

lower it for ACOs in lower growth areas. 

At the same time, it could be argued that 

this option perpetuates current regional 

differences in medical expenditures. An 

advantage of the second option, using 

the flat dollar amount equivalent to the 

absolute amount of growth in per capita 

expenditures for Medicare Parts A and 

B under the FFS program, is that it is 

more consistent with the method 

designated by the under section 

1899(d)(1)(B)(ii) of the statute for 

updating the benchmark (as described 

later in this proposed rule) during the 

agreement period. This option also 

provides a stronger incentive for ACO 

development in areas with historically 

lower expenditures and growth rates. 

Conversely, potential ACOs in areas 

with historically higher growth rates 

could be reluctant to participate in the 

program because the challenge to reduce 

their growth rate would be greater in 

these areas relative to low expenditure, 

low growth ones. 

On balance, we believe that for 

purposes of establishing an initial 

expenditure benchmark, expenditures 

should be trended forward in a 

relatively neutral and comparable way 

across geographic areas. Therefore, we 

are proposing to trend forward the most 

recent 3 years of per-beneficiary 

expenditures using growth rates in per 

beneficiary expenditures for Parts A and 

B services. For example, we would use 

2011, 2012 and 2013 claims year data to 

set the benchmark for an ACO starting 

its agreement period in 2014. The 2011 

and 2012 data would be trended 

forward using the factor described later 

in this proposed rule so that all 

benchmark dollars would be in 2013 

dollars. We welcome comments on this 

proposal, and especially on whether the 

other option that we considered to trend 

the benchmark by the flat dollar amount 

would be more consistent with our 

proposal to update the benchmark as 

specified under section 1899(d)(1)(B)(ii), 

as discussed in the next section. 

b. National vs Local Growth Rate as a 

Benchmark Trending Factor 

Under the option described 

previously, we could trend per 

beneficiary expenditures forward using 

national or local growth factors. Using 

the national growth rate in Medicare A 

and B FFS expenditures would appear 

to be more consistent with the 

methodology that, as specified in 

section 1899(d)(1)(B)(ii) of the Act 

incorporates the absolute amount of 

growth in per capita expenditures for 

Medicare Parts A and B nationwide 

under the FFS program in updating each 

ACO’s benchmark. A national growth 

rate would allow a single growth factor 

to be applied to all ACOs regardless of 

their size or geographic area. However, 

a national rate could also 

disproportionately encourage the 

development of ACOs in areas with 

historical growth rates later in this 

proposed rule the national average that 

would benefit from having a relatively 

higher base, which increases the 

chances for shared saving, while 

relatively discouraging development of 

ACOs in areas with historically higher 

growth rates above the national average 

that would have a relatively lower base. 

In contrast, trending expenditures 

based on State or local area growth rates 

in Medicare A and B expenditures may 

more accurately reflect the experience 

in an ACO area and mitigate differential 

incentives for participation based on 

location. Therefore, we considered an 

option to trend the benchmark by the 

lower of the national projected growth 

rate or the State or the local growth rate. 

This option would balance providing a 

more accurate reflection of local 

experience with not rewarding 

historical growth higher than the 

average. This method also instills strong 

saving incentives for ACOs in both highcost growth and low-cost growth areas. 

After considering both of these 

alternatives, we are proposing to employ 

the national growth rate in Medicare 

Parts A and B expenditures for FFS 

beneficiaries for trending forward the 

fixed benchmark. We believe this 

approach will help to ensure that ACOs 

in both high spending, high growth and 

low spending, low growth areas will 

have appropriate incentives to 

participate in the Shared Savings 

Program, while also moving toward 

establishing a national standard for 

calculating and measuring ACO 

financial performance. We seek 

comment on this proposal and on the 

alternatives to using a national growth 

rate as outlined previously. 

9. Updating the Benchmark During the 

Agreement Period 

Section 1899(d)(1)(B)(ii) states that 

the benchmark shall be ‘‘updated by the 

projected absolute amount of growth in 

national per capita expenditures’’. We 

believe that Congress demonstrated an 

interest in mitigating some of the 

regional differences in Medicare 

spending among ACOs by requiring the 

use of a flat dollar amount equivalent of 

the absolute amount of growth in 

national FFS expenditures to update the 

benchmark for the agreement period. In 

effect, in the second and third years of 

an agreement period, using a flat dollar 

increase, which would be the same for 

all ACOs, provides a relatively higher 

expenditure benchmark for low growth 

low spending ACOs and a relatively 

lower benchmark for high growth high 

spending ACOs. All else being equal, an 

ACO can more likely share in savings 

when its actual expenditures are judged 

against a higher, rather than a lower 

benchmark. Thus, with a flat dollar 

increase to the benchmark, ACOs in 

high cost high growth areas must reduce 

their rate of growth more to bring their 

costs more in line with the national 

average. 

However, we also considered our 

authority under Section 1899(i) for an 

alternative option. Specifically, we 

considered an option to update the 

benchmark by the lower of the national 

projected absolute amount of growth in 

national per capita expenditures or the 

local/State projected absolute amount of 

growth in per capita expenditures. 

Incorporating more localized growth 

factors reflects the expenditure and 

growth patterns within the geographic 

area served by ACO participants and 

ACO providers/suppliers, potentially 

providing a more accurate estimate of 

the updated benchmark based on the 

area from which the ACO derives its 

patient population. Capping the update 

at the projected absolute amount of 

growth in national per capita 

expenditures prevents the update from 

disproportionately allowing relatively 

larger dollar-amount updates for highspending areas that potentially have a 

stronger ability to improve care 

coordination and efficiency from 

current levels. Not using the national 

flat-dollar update for low-spending, 

low-growth areas ensures that the 

Medicare Shared Savings Program 

instills strong saving incentives for 

ACOs in low-cost areas, as well as for 

those in high-cost areas. Also, as noted 

in section V.C.1. of this proposed rule, 

using the national flat-dollar update as 

specified in section 1899(d)(1)(B)(ii) for 

all ACOs could contribute to selective 


srobinson on DSKHWCL6B1PROD with PROPOSALS2
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program participation that could result 

in Medicare costs due to an increase in 

the amount of bonus payments for 

unearned savings. 

In keeping with section 

1899(d)(1)(B)(ii) of the Act, we are 

proposing to update the benchmark by 

the projected absolute amount of growth 

in national per capita expenditures. We 

believe this approach will help to 

ensure that ACOs in both high 

spending, high growth and low 

spending, low growth areas will have 

appropriate incentives to participate in 

the Shared Savings Program. We seek 

comment on this proposal and on the 

alternative to update by the lower of the 

national projected absolute amount of 

growth in national per capita 

expenditures or the local/State projected 

absolute amount of growth in per capita 

expenditures under section 1899(i) of 

the Act. 

10. Minimum Savings Rate (MSR) and 

Sharing Rate 

Section 1899(d)(1)(B)(i) of the Act 

provides that ‘‘an ACO shall be eligible 

to receive payment for shared savings 

under paragraph (2) only if the 

estimated average per capita Medicare 

expenditures under the ACO for 

Medicare fee-for-service beneficiaries 

for parts A and B services, adjusted for 

beneficiary characteristics, is at least the 

percent specified by the Secretary below 

the applicable benchmark * * *.’’ That 

provision further states that the 

‘‘Secretary shall determine the 

appropriate percent * * * to account 

for normal variation in expenditures 

under this title, based upon the number 

of Medicare fee-for-service beneficiaries 

assigned to an ACO.’’ Section 

1899(d)(1)(B)(ii) of the Act provides 

that, if an ACO has savings in excess of 

the MSR and meets the quality 

standards established by the Secretary, 

‘‘a percent (as determined appropriate 

by the Secretary) of the difference 

between such estimated average per 

capita Medicare expenditures in a year, 

adjusted for beneficiary characteristics, 

under the ACO and such benchmark for 

the ACO may be paid to the ACO as 

shared savings and the remainder of 

such difference shall be retained by the 

program under this title.’’ 

A goal of the Shared Savings Program 

is to use a portion of the savings (the 

difference between the ACO’s actual 

expenditures and the benchmark) to 

encourage and reward participating 

ACOs for coordinating the care for an 

assigned beneficiary population in a 

way that controls the growth in 

Medicare expenditures for that patient 

population while also meeting the 

established quality performance 

standards. However, observed savings 

can also occur as a result of normal 

year-to-year variations in Medicare 

beneficiaries’ claims expenditures in 

addition to the ACO’s activities. Thus, 

even if an ACO engages in no activities 

to improve the quality and efficiency of 

the services it delivers, in certain cases, 

differences between the benchmark 

expenditures (updated according to 

statute) and assigned patients’ 

expenditures would be observed during 

some performance periods merely 

because of such normal variation. 

Consequently, the statute requires us to 

specify a MSR to account for the normal 

variations in expenditures, based upon 

the number of Medicare FFS 

beneficiaries assigned to the ACO. The 

MSR should be set in a way that gives 

us some assurance that the ACO’s 

performance is a result of its 

interventions, not normal variation. 

However, we also do not want an 

outcome where savings that have been 

earned are not recognized. 

Establishing an MSR on the basis of 

standard inferential statistics that take 

into account the size of an ACO’s 

beneficiary population provides 

confidence that, once the savings 

achieved by the ACO exceed the MSR, 

the change in expenditures represents 

actual performance improvements by 

the ACO as opposed to normal 

variations. 

Under the PGP demonstration, the 

MSR was initially set at a flat 2 percent 

of the benchmark, regardless of number 

of assigned beneficiaries, and PGP 

practices received back 80 percent of the 

savings achieved in excess of the MSR. 

However, in establishing a MSR, section 

1899(d)(1)(b)(i) of the Act calls on us to 

take into account ‘‘the number of fee-forservice beneficiaries assigned to an 

ACO.’’ As such, we would need to apply 

statistical sampling techniques to 

determine a MSR based on the number 

of assigned beneficiaries with some 

level of statistical confidence. 

The MSR in combination with the 

savings rate will determine the amount 

of shared savings that an ACO can 

receive. For example, fewer savings 

would be shared if the MSR were set at 

a higher percentage. Conversely, shared 

savings would be higher if the MSR 

were set at a lower percentage. There are 

several policy implications associated 

with the methodology used to set the 

MSR. A higher MSR would provide 

greater confidence that the shared 

savings amounts reflect the real quality 

and efficiency gains, and offer greater 

protection to the Medicare Trust Funds. 

However, due to the larger barrier to 

achieve savings, a higher MSR could 

also discourage potentially successful 

ACOs, especially physician organized 

ACOs and smaller ACOs in rural areas, 

from participating in the program. In 

contrast, a lower MSR would encourage 

more potential ACOs to participate in 

the program, but would also provide 

less confidence that savings are a result 

of improvements in quality and 

efficiency made by an ACO. 

We believe that the most appropriate 

policy concerning determination of the 

‘‘appropriate percent’’ for the MSR 

would achieve a balance between the 

advantages of making incentives and 

rewards available to successful ACOs 

and prudent stewardship of the 

Medicare Trust Funds. For the onesided model we are proposing a sliding 

scale confidence interval (CI) based on 

the number of assigned beneficiaries. 

The MSR would be established for each 

ACO based on increasing nominal 

confidence intervals for larger ACOs so 

that an ACO with the minimum 5,000 

assigned beneficiaries would have an 

MSR based on a 90 percent CI; an ACO 

with 20,000 assigned beneficiaries 

would have a MSR based on a 95 

percent CI and an ACO with 50,000 

assigned beneficiaries would have an 

MSR based on a 99 percent CI. In 

addition, the MSR would not be allowed 

to fall below 2 percent for larger ACOs. 

An ACO that exceeds its MSR would 

be eligible to share up to 50 percent of 

the savings in the one-sided model 

(based on quality performance), as 

discussed in section II.E. of this 

proposed rule. Table 6 displays the 

minimum savings rate an ACO would 

have to achieve before savings could be 

shared based on the number of its 

assigned beneficiaries. 

In order to improve the opportunity 

for groups of solo and small practices to 

participate in the Shared Savings 

Program, we are proposing to vary 

confidence intervals by the size of the 

ACO, which is determined based on the 

number of assigned beneficiaries. In 

response to our November 17, 2010 RFI, 

many commenters recognized the 

prevalence of solo and small practices 

and the importance of these providers 

for rural areas and for the treatment of 

specific patient populations, for 

example, individuals with mental 

health and substance abuse disorders or 

beneficiaries residing in skill nursing 

facilities. Many of these commenters 

urged us to consider policies and 

models that encourage the participation 

of solo and small practices and to 

address barriers they face in forming 

ACOs such as access to up-front capital 

to invest in the infrastructure and 

resources required to redesign care. One 

option that would help accomplish this 

would be to vary the confidence 


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intervals used to establish MSRs so that 

smaller practices would have relatively 

lower MSRs. Conversely, in recognition 

that they are likely to be already 

established, possess prior experience, 

and thus better able to achieve savings, 

larger ACOs would have their MSRs 

based on a higher confidence interval, 

resulting in a relatively higher MSR. 

The MSRs are estimated to provide 

confidence that an ACO with a given 

number of beneficiaries and assumed to 

be of average national baseline percapita expenditure and expenditure 

growth rate would be unlikely to 

achieve a shared savings payment by 

random chance alone. A specific MSR is 

a function of both the number of 

assigned beneficiaries and a chosen 

confidence interval. Recognizing the 

higher uncertainty regarding 

expenditures for smaller ACOs and the 

desire to encourage participation by 

smaller ACOs, for the one-sided model, 

we propose to set the confidence 

interval to 90 percent for ACOs of 5,000 

beneficiaries, resulting in an MSR of 3.9 

percent. For ACOs with 20,000 and 

50,000 beneficiaries, we propose to set 

the confidence interval to 95 percent 

and 99 percent, respectively, resulting 

in MSRs of 2.5 percent and 2.2 percent. 

As ACO size increases from 5,000 to 

20,000 (or similarly from 20,000 to 

50,000), we propose blending the MSRs 

between the two neighboring confidence 

intervals, resulting in the MSRs as 

shown in Table 6. We specify an MSR 

at both the high and low end of each 

range of ACO population size. A 

particular ACO would be assigned a 

linearly-interpolated MSR given their 

exact number of beneficiaries. For 

example, an ACO with 7,500 

beneficiaries would be assigned an MSR 

of 3.3 percent because it lies at the 

midpoint between 7,000 and 7,999 

beneficiaries, sizes at which the MSR 

would be 3.4 percent and 3.2 percent, 

respectively. For ACOs serving more 

than 60,000 aligned beneficiaries, we 

propose that the MSR would not be 

allowed to fall below 2 percent. This 

lower bound is designed to protect the 

shared savings formula from 

expenditure reduction due to random 

chance that can occur in group claims 

due to factors that persist regardless of 

a group’s size. This lower bound is also 

consistent with the flat 2 percent MSR 

we propose to use in the two-sided 

model and is the minimum level that 

was used in the PGP Demonstration for 

groups regardless of size which also 

provided a lower MSR for smaller 

physician groups participating in the 

demonstration. 

We considered using a flat 95 percent 

confidence interval for organizations 

which is a recognized standard for 

measuring statistical differences, but as 

previously noted, because we believe 

that many smaller physician-driven and 

rural ACOs have the potential to 

improve the quality and efficiency of 

care, we were concerned about the 

impact on the ability of these ACOs to 

participate in the Shared Savings 

Program. We also wanted to protect the 

Medicare Trust Funds against large 

organizations coming together solely for 

purposes of aggregating their number of 

assigned beneficiaries in order to have 

smaller MSRs to be able to achieve the 

minimum required savings levels and 

share in savings with little or no actual 

improvement in the quality and 

efficiency of care provided to 

beneficiaries. 

The proposed confidence intervals 

were determined assuming that the 

variation in the per capita expenditure 

growth for a particular ACO is equal to 

the variation in per capita expenditure 

growth nationally. This is not the case 

for the majority of ACOs, however, as 

regional growth rates tend to vary from 

the national average due to a number of 

variables. Therefore, the confidence 

intervals generated using only the 

national expenditure growth variation 

overstate the relative confidence 

associated with an increasing group 

size. This is compensated for in two 

ways: (1) The 2 percent floor; and (2) 

increasing the confidence interval as 

group size increases. 


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Federal Register / Vol. 76, No. 67 / Thursday, April 7, 2011 / Proposed Rules 19613 

We welcome comments on the most 

appropriate means to establish the MSR 

for an ACO, including the appropriate 

confidence intervals. 

11. Net Sharing Rate 

Section 1899(d)(2) calls for us to share 

‘‘a percent (as determined appropriate 

by the Secretary) of the difference 

between such estimated average per 

capita Medicare expenditures in a year, 

adjusted for beneficiary characteristics 

under the ACO and such benchmark for 

the ACO.’’ Section 1899(i) of the Act 

permits the Secretary to consider other 

payment models if she determines that 

they will ‘‘improve the quality and 

efficiency of items and services 

furnished under this title’’ and will not 

result in additional expenditures. Thus, 

in considering the amount of savings 

ACOs under the one-sided model could 

be eligible to receive, we considered 

several options in addition to the 

methodology outlined in section 

1899(d)(2) of the Act. 

The first option we considered is the 

one required under section 1899(d)(2) of 

the Act, which would permit the ACO 

to share on first dollar savings once the 

MSR was exceeded. This option would 

maximize the reward that an ACO could 

realize. This amount could provide 

critical financial support for ACOs that 

serve a smaller population (for example, 

less than 10,000 assigned beneficiaries), 

which may be physician only and/or 

predominantly care for underserved 

populations, or ACOs whose 

beneficiaries rely upon safety net 

providers for care or ACOs which serve 

rural areas. However, given the normal 

variation in expenditures, we have 

concerns that sharing on first dollar 

could result in sharing on unearned 

savings rather than on savings achieved 

by the ACO for redesigned care 

processes. 

Therefore, we considered another 

alternative which would be to limit the 

amount of savings by requiring ACOs to 

exceed the MSR and then share with the 

ACO only those savings in excess of the 

MSR. As discussed in the previous 

section, one challenge to appropriate 

sharing of savings under this program is 

that observed savings can occur as a 

result of normal year-to-year variations 

in Medicare beneficiaries’ claims 

expenditures in addition to the ACO’s 

activities. This concern is heightened in 

the one-sided model, because absent 

initial accountability for losses, ACOs 

have less motivation to eliminate 

unnecessary expenses and may be more 

likely to be rewarded as a result of 

methodological requirements. Sharing 

only in savings which exceed the MSR 

is consistent with the design of the 

original PGP demonstration and would 

reduce the probability that shared 

savings are earned as a result of chance 

or lower pre-existing expenditure trends 

due to existing efficiencies, and not 

newly enhanced care coordination and/ 

or redesigned delivery of care. Further, 

such a requirement would encourage 

ACOs to strive to generate greater levels 

of savings. 

A third option we considered would 

be to require all ACOs to exceed the 

MSR to be eligible for savings, but only 

share savings in excess of a certain 

threshold. ACOs meeting certain criteria 

could be exempted from this provision 

and be allowed to share in first dollar 

savings. This option would balance the 

need to have assurance that savings are 

not a result of random variation with the 

need to provide critical financial 

support for under-funded ACOs, 

particularly ACOs that serve a smaller 

population, safety net providers, or 

physician-only participants. 

Additionally, we have experience with 

this model through the PGP 

demonstration. 

We are proposing the third option, 

that is, we propose that once an ACO 

has surpassed its MSR, the ACO would 

share in savings beyond a certain 

threshold. We further propose that, 

unless exempted, ACOs that exceed the 

MSR would be eligible to share in net 

savings above a 2-percent threshold, 

calculated as 2 percent of its benchmark 

(updated according to statute). The 

sharing rate (earned quality performance 

sharing rate and additional increases for 

including FQHCs and/or RHCs) would 

be applied to net savings above this 

2 percent threshold in order to 

determine the shared savings amount. 

We believe that this threshold protects 

the program from sharing unearned 

savings and helps to ensure that shared 

savings are due to enhanced care 

coordination and quality of care on the 

part of the ACO. 

As previously discussed, many 

smaller physician-driven ACOs and 

ACOs caring for underserved 

populations have the potential to 

improve the quality and efficiency of 

care, but may be especially challenged 

in accessing capital to meet their needs. 

We hope to encourage successful 

participation by these ACOs in the 

Shared Savings Program. Additionally, 

we acknowledge that providers/ 

suppliers working in these 

environments face additional challenges 

in coordinating care and creating the 

infrastructure necessary to create a 

successful ACO, and therefore may not 

be equipped to assume the risk right 

away (and be eligible for greater reward) 

of the two-sided model. As such, we are 

proposing that ACOs that meet the 

following criteria would be exempt from 

the 2 percent net savings threshold and 

would instead share on first dollar 

savings under the one-sided model. We 

propose to exempt ACOs with less than 

10,000 assigned beneficiaries in the 

most recent year for which we have 

complete claims data (for instance, 2012 

for 2014 program participation) and that 

meet one of the following: 

• The ACO is comprised only of ACO 

professionals in group practice 

arrangements or networks of individual 

practices of ACO professionals. 

• 75 percent or more of the ACO’s 

assigned beneficiaries reside in counties 

outside a Metropolitan Statistical Area 

(MSA) in the most recent year for which 

we have complete claims data. 

• 50 percent or more of the ACO’s 

assigned beneficiaries were assigned to 

the ACO on the basis of primary care 

services received from a Method II CAH. 

• 50 percent or more of the 

beneficiaries assigned to the ACO had at 

least one encounter with an ACO 

participant FQHC and/or RHC in the 

most recent year for which we have 

complete claims data, that is, the ACO 

has met criteria for receiving full 

potential additional payment as 

described later in this proposed rule. 

We invite comment on these 

proposals and the other options 

considered. 

12. Additional Shared Savings 

Payments for Including FQHCs and/or 

RHCs 

We are also proposing that an ACO in 

the one-sided model can receive an 

increase in its shared savings rate of up 

to 2.5 percentage points during the first 

2 years of its agreement, for including a 

strong FQHC and/or RHC presence 

within the structure of the ACO. (See 

section II.G. of this proposed rule for 

details surrounding the two-sided 

model which provides for a 

5 percentage point increase for 

including FQHCs or RHCs or both.) 

FQHCs and RHCs have long delivered 

comprehensive, high-quality primary 

health care to patients regardless of their 

ability to pay, and increase access to 

health care through innovative models 

of community-based, comprehensive 

primary health care that focus on 

outreach, disease prevention, and 

patient education activities. FQHCs 

provide high-quality care to rural and 

urban populations alike by focusing 

attention on improving public health 

through preventive care in addition to 

direct patient care. Not only do health 

centers provide critical, high quality 

primary care in the Nation’s neediest 

areas, but reports have shown that the 


srobinson on DSKHWCL6B1PROD with PROPOSALS2
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15Falik M. et al. Comparative Effectiveness of 

Health Centers as Regular Source of Care. Journal 

of Ambulatory Care Management 2006; 29(1): 

24–35. 

16Probst, J.C., Laditka, J., and Laditka, S. (2009). 

‘‘Community Health Center and Rural Health Clinic 

Presence Associated With Lower County-Level 

Hospitalization Rates for Ambulatory Care Sensitive 

Conditions.’’ South Carolina Rural Health Research 

Center. 

17Hartley, D., Gale, J. Leighton, A. and 

Bratesman, S. (2010). ‘‘Are Rural Health Clinics Part 

of the Rural Safety Net?’’ Muskie School of Public 

Service; Maine Rural Health Research Center. 

health center model of care can reduce 

the use of costlier providers of care, 

such as emergency departments and 

hospitals. Currently, more than 1,100 

such health centers operate over 7,900 

service delivery sites that provide care 

to nearly 19 million patients in every 

State, the District of Columbia, Puerto 

Rico, the U.S. Virgin Islands, and the 

Pacific Basin. 

Despite serving less healthy and more 

vulnerable populations, research 

indicates that these health centers have 

achieved considerable success in 

increasing access to care, improving 

health outcomes for patients, reducing 

health disparities, and containing health 

care costs. For example, regarding 

FQHCs, data show health center 

Medicaid patients were 11 percent less 

likely to be inappropriately hospitalized 

and 19 percent less likely to visit the 

emergency room inappropriately than 

Medicaid beneficiaries who had another 

provider as their usual source of care.15

RHCs improve access to primary care 

in underserved rural areas through the 

use of interdisciplinary team· based 

care. Currently, more than 3,800 such 

RHCs provide care to more than 1.6 

million Medicare beneficiaries 

throughout the United States. RHCs 

provide critical, quality primary care to 

Medicare beneficiaries and others most 

in need in underserved areas. Research 

has shown that RHCs not only provide 

care at costs significantly less than other 

providers of care, such as emergency 

departments and hospitals, but also 

reduce use of those providers. 

Additionally, research on RHCs has 

shown that: 

• Among older adults, the presence of 

an RHC in the county reduced 

ambulatory care sensitive (ACS) 

conditions admission rates, compared to 

counties in which an RHC was not 

present.16

• RHCs offer financially accessible 

care to low income individuals; 

96 percent of independent RHCs 

surveyed offer free care, sliding fee 

scales, or both.17

Accordingly, because FQHCs and 

RHCs are unable to participate 

independently in this program, we 

believe providing incentives to ACOs 

that include FQHCs and/or RHCs as 

ACO participants is in the interest of the 

Shared Savings Program as 

incorporation of these types of entities 

will promote care coordination and the 

delivery of efficient, high-quality health 

care. Therefore, we are proposing, for 

the one-sided model, up to a 2.5 

percentage point increase in the sharing 

rate for ACOs that include these entities 

as ACO participants. We propose 

establishing a sliding-scale payment, 

outlined in the following table, based on 

the number of Medicare FFS 

beneficiaries with one or more visit at 

an ACO’s participant FQHC or RHC 

during the performance year. 

We are also proposing that ACOs 

specifically identify their FQHC/RHC 

participant TINs in their initial and 

annual reporting of ACO participant 

TINs, and disclose other provider 

identifiers as requested to assure proper 

identification of these organizations for 

the purpose of awarding the payment 

preference. 

The statutory definition of FQHCs at 

section 1861(aa)(4) of the Act includes 

FQHCs receiving grant support under 

section 330 of the Public Health Service 

Act, so-called FQHC look-a-likes, and 

outpatient health programs/facilities 

operated by tribal organizations. Our 

regulations at 42 CFR 405.2401(b) 

include this statutory definition of 

FQHCs. Similarly, § 405.2401(b) reflects 

the statutory definition of RHCs in 

section 1861(aa)(2) of the Act. We 

therefore propose to define FQHCs and 

RHCs, for the purpose of awarding this 

payment preference, as these terms are 

defined in § 405.2401(b) of our 

regulations. We seek comments on 

alternate options for establishing a 

payment preference with sliding scale 

for ACOs that include FQHCs or RHCs 

as ACO participants, including 

suggestions for the appropriate method 

to measure FQHC/RHC involvement and 

the appropriate level of incentives. 

We are also interested in encouraging 

providers who serve a large portion of 

dual eligible beneficiaries to participate 

in the Medicare Shared Savings 

Program. Medicare beneficiaries who 

are also eligible for Medicaid—that is, 

are ‘‘dually eligible’’ for these 

programs—are among the most 

vulnerable of Medicare beneficiaries. 

Dual eligible beneficiaries tend to have 

higher medical costs than other fee-forservice beneficiaries, and, as a result, 

are expected to benefit even more than 

other beneficiaries from improvements 

in the quality and efficiency of their 

care resulting from the greater care 

coordination offered by an ACO. The 

Affordable Care Act recognizes the 

unique status of dual eligible 

beneficiaries and includes several 

provisions to address their special 


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needs. For instance, section 2602 of the 

Affordable Care Act established a 

Federal Coordinated Health Care Office 

within CMS to bring together officers 

and employees of the Medicare and 

Medicaid programs at CMS to: (1) more 

effectively integrate benefits under the 

Medicare and Medicaid programs; and 

(2) improve the coordination between 

the Federal government and States for 

individuals eligible for benefits under 

both such programs in order to ensure 

that these individuals receive full access 

to the items and services to which they 

are entitled under titles XVIII and XIX 

of the Act. 

Additionally section 1899(j) of the Act 

provides that ‘‘[t]he Secretary may give 

preference to ACOs who are 

participating in similar arrangements 

with other payers.’’ The statute 

prescribes neither the kind of preference 

that the Secretary should provide to 

such ACOs nor what other types of 

arrangements should be considered 

‘‘similar’’ for purposes of such a 

preference. We believe that the more 

patients an ACO sees for which it is 

eligible to receive performance-based 

incentives, such as shared savings, the 

more likely it is that the ACO will adopt 

substantial behavior changes conducive 

to improved quality and cost savings. 

We are seeking comment on methods 

to provide preference to ACOs that serve 

a large dual-eligible population or that 

enter and maintain similar arrangements 

with other payers. Specifically we seek 

comment regarding suggestions to 

encourage accountability for dualeligible beneficiaries and participation 

in similar arrangements with other types 

of payers. 

13. Withholding Performance Payments 

To Offset Future Losses 

Over the course of the program, an 

ACO may earn performance payments 

in some years and incur losses in other 

years. The issue is whether the full 

amount of shared savings payments 

should be paid in the year they are 

accrued, or whether some portion 

should be withheld to offset potential 

future losses. For example, under the 

PGP demonstration, a flat 25 percent 

withhold applied to annual earned 

performance payments to guard against 

losses in future years as well as to 

provide an incentive for PGPs to 

continue in the demonstration since the 

withhold was only released at the end 

of the demonstration period or when the 

PGPs were rebased. Under the two-sided 

model discussed in section II.G. of this 

proposed rule, we propose that an ACO 

may use a withhold of their earned 

shared savings payment as one option 

for demonstrating an adequate 

repayment mechanism in the event they 

incur shareable losses. As discussed in 

sections II.B. and II.I. of this proposed 

rule, we believe the requirement that 

ACOs be willing to commit to a 3-year 

agreement to participate in the Shared 

Savings Program is necessary to ensure 

that the program achieves its long-term 

goal of redesigning health care 

processes, and our proposal here 

furthers that intent. Since we want to 

encourage ACOs to participate for all 3 

years of their agreements, protect the 

Medicare program against losses, and 

ensure ACOs have an adequate 

repayment mechanism in the event they 

incur losses under either the one-sided 

or two-sided model, we are proposing a 

flat 25 percent withholding rate will be 

applied annually to any earned 

performance payment. Under the twosided model as discussed in Section 

II.G. of this proposed rule, we propose 

that an ACO may withhold an 

additional portion of its earned 

performance payment as a mechanism 

to demonstrate an adequate repayment 

mechanism in the event they incur 

shareable losses. Furthermore, we 

propose that at the end of each 

agreement period, positive balances will 

be returned to the ACO. However, if the 

ACO does not complete its 3-year 

agreement, the ACO would forfeit any 

savings withheld. 

14. Performance Payment Limit 

Section 1899(d)(2) of the Act requires 

the Secretary to ‘‘establish limits on the 

total amount of shared savings that may 

be paid to an ACO * * *.’’ Therefore, 

we must propose the maximum 

performance payment an ACO may 

receive in any given performance year 

in this proposed rule. In determining 

what would constitute an appropriate 

limit, we believe that it should provide 

a significant opportunity for ACOs to 

receive shared savings generated from 

quality improvements and better 

coordination and management of Part A 

and B services, while avoiding creating 

incentives for excessive reductions in 

utilization which could be harmful to 

beneficiaries. Under the PGP 

demonstration, the limit was set at 5 

percent of the organization’s Part A and 

Part B expenditure target. 

For purposes of the Shared Savings 

Program, we considered an option to 

vary the performance payment limit by 

the readiness of the ACO to take on 

greater responsibility and risk. ACOs 

seeking to participate in the Shared 

Savings Program will vary with respect 

to their readiness to function under a 

risk model with respect to their 

organizational and systems capacity and 

structure. Accordingly, some ACOs 

might more quickly be able to 

demonstrate quality improvements and 

savings than will others. Applying 

differential payment limits based on an 

ACO’s readiness to take on risk could be 

another means to encourage and reward 

successful ACO participation. 

In light of our experience with the 

PGP demonstration, we considered a 

limit of 5 percent. We also considered 

whether a higher limit, such as 10 

percent or 15 percent, would be 

appropriate to provide an even stronger 

incentive for ACOs to develop the 

quality and efficiency improvements 

that could result in greater shared 

savings. Depending on an ACO’s 

composition, shared savings payments 

under such higher limits could 

represent an even larger portion of 

Medicare payments to ACO participants 

for care furnished to assigned 

beneficiaries since the cap is a 

percentage of the ACO’s benchmark for 

Medicare Part A and B expenditures for 

assigned beneficiaries, which reflects all 

care furnished to those beneficiaries, 

regardless of whether it was provided in 

the ACO. For example, an ACO that 

does not include a hospital would have 

the opportunity to realize a relatively 

higher proportion of shared savings as a 

percentage of its Medicare revenue by 

reducing Part A expenditures for its 

assigned beneficiaries. However, 

opportunities to earn greater savings 

could also raise questions about 

whether the quality of care is 

improving, which is a goal as important 

as achieving savings in the Shared 

Savings Program. Providing an incentive 

for ACOs to invest to improve quality 

and efficiency of care needs to be 

balanced against providing an overly 

large incentive where an ACO may be 

encouraged to generate savings resulting 

from inappropriate limitations on 

necessary care. A higher cap on total 

shared savings could provide such an 

incentive to limit care. While all ACOs 

may have this incentive to some degree, 

ACOs without Part A providers could 

have greater incentive to do so, 

depending on where the cap is 

established. 

A lower limit, such as the 5 percent 

limit under the PGP demonstration, 

would reward ACOs for improving 

quality and efficiency and potentially 

generate more savings for the Medicare 

program without creating incentives to 

limit care that is appropriate and 

necessary. On the other hand, a lower 

limit might be an insufficient incentive 

for some potential ACOs to participate 

in the program. In contrast, a higher 

percentage limit, such as 10 or 15 

percent of an ACO’s Part A and B 

expenditure benchmark, would provide 


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greater incentives for organizations to 

participate in the program and to 

achieve the quality and efficiency gains 

that are the goals of the Shared Savings 

Program. Many health care researchers 

believe that the rate of unnecessary 

health care is more than the 

approximate 10 percent which would be 

implied by establishing a 5 percent cap 

on ACO shared savings. (Since the 

maximum shared savings potentially 

realized by an ACO under the one-sided 

model is 52.5 percent, a 7.5-percent 

limit on the ACO share implies an 

expectation that overall savings may be 

as high as approximately 14 percent; a 

10-percent limit implies a savings 

expectation of approximately 19 

percent.) On the other hand, such a 

higher limit may provide some 

incentive for ACO providers/suppliers 

to reduce utilization inappropriately, 

which could potentially be harmful to 

beneficiaries 

We believe that the considerations in 

favor of both a lower (for example, 5 

percent) and a higher (for example, 10 

percent) limitation on shared savings 

with an ACO have merit. Accordingly 

we are proposing to establish the 

payment limit at 7.5 percent of an 

ACO’s benchmark for the first 2 years of 

the agreement under the one-sided 

model. Following suggestions by 

MedPAC, in order to encourage ACOs to 

assume risk and participate in the twosided model, as described in section 

II.G. of this proposed rule, we are 

proposing, for the two-sided model, to 

establish the payment limit at 10 

percent of an ACO’s benchmark for 

those ACOs that either elect the twosided model initially for all 3 years or 

are transitioned from the one-sided 

model during the third year of their 

agreement period. (Since the maximum 

shared savings potentially realized by 

an ACO under the two-sided model is 

65 percent, a 10-percent limit on the 

ACO share implies an expectation that 

overall savings may be as high as 

approximately 15 percent). We are 

soliciting comments on these proposed 

payment limits and on whether a higher 

limit—for example, 10 percent for all 

ACOs—would be more appropriate in 

the light of the considerations discussed 

previously and other considerations that 

commenters may wish to raise. We also 

seek comments on whether differential 

limits should be established based on an 

ACO’s readiness, as discussed 

previously, including the criteria we 

would apply and the methods by which 

we would assess readiness and how 

differential limits should be structured. 

We will consider this information and 

the implications for a differential cap 

based on ACO readiness in future 

rulemaking cycles. 

Regardless of what limit is adopted in 

the final rule, we plan to monitor 

beneficiary access and utilization of 

services, and the potential contribution 

of the performance limit to any 

inappropriate reductions in services. 

Our proposals related to monitoring and 

addressing ACO performance can be 

found in Section II.H. of this proposed 

rule. Furthermore, as we gain more 

experience with the Shared Savings 

Program and are able to evaluate how 

well the incentive structure under the 

Shared Savings Program is operating to 

generate greater quality and efficiency 

without inappropriately reducing 

utilization of services, we may 

undertake additional rulemaking to 

revise the performance payment limits 

we establish in the final rule. 

G. Two-Sided Model 

Section 1899 of the Act implements a 

voluntary program that provides 

incentives for group of providers of 

services and suppliers to work together 

to improve the quality and efficiency of 

care for a FFS beneficiary population in 

exchange for a share in any savings 

generated from their effort. Section 

1899(i) of the Act authorizes the 

Secretary to use other payment models 

in addition to the shared savings model 

outlined in section 1899(d) of the Act 

under which we only share savings with 

ACOs. This provision authorizes the 

Secretary to select a partial capitation 

model or any other payment model that 

the Secretary determines would 

improve the quality and efficiency of 

items and services furnished to 

Medicare fee-for-service beneficiaries. In 

addition, section 1115A of the Act, as 

amended by 3021 of the Affordable Care 

Act, authorizes the Center for Medicare 

and Medicaid Innovation (Innovation 

Center) to test innovative payment and 

service delivery models, which could 

include alternative ACO payment 

models. 

In the November 17, 2010 Federal 

Register, we solicited public comment 

on a number of issues including the 

types of alternative payment models we 

should consider in addition to the 

model laid out in section 1899(d) of the 

Act, either in the Shared Savings 

Program under the authority provided 

in 1899(i) of the Act or using the 

Innovation Center authority under 

section 1115A of the Act. We further 

asked about the relative advantages and 

disadvantages of any such payment 

models. 

Most comments received in response 

to this question favored our use of 

alternative payment models. A number 

of commenters suggested risk-based 

models such as partial capitation (an 

up-front fixed dollar amount for a subset of Medicare services rendered by a 

provider per beneficiary per period of 

time) or global payment (an up-front 

fixed dollar amount for all Medicarecovered services required per 

beneficiary per period of time). 

Commenters proposed both one-sided 

shared savings models (to ease 

providers of services and suppliers into 

this payment model) and models that 

would allow ACOs to share in savings 

and be held accountable for losses (twosided models). 

Taking these comments into account, 

we are proposing that ACOs could elect 

the two-sided model for their initial 

agreement period, to become 

accountable for losses and in order to be 

eligible for higher sharing rates than 

would be available under the one-sided 

model, beginning in their first 

performance year. In addition, we are 

also proposing that ACOs that initially 

elect the one-sided model would be 

reconciled annually for the first 2 years 

of the 3-year agreement using the onesided model and automatically 

transitioned to the two-sided model for 

the third year of their agreement. This 

approach gives ACOs an option of two 

tracks for their initial agreement period, 

thereby providing an opportunity for 

organizations more experienced with 

care coordination and risk models, that 

are ready to accept risk to enter a 

sharing arrangement that provides 

greater reward for greater responsibility 

in year 1, while also providing an entry 

point for organizations with less 

experience with risk models, such as 

some physician-driven organizations or 

smaller ACOs, to gain experience with 

population management before 

transitioning to more risk. 

1. Risk-Based Payment Models 

In section II.F of this proposed rule, 

we describe in detail the one-sided 

model, under which ACOs share in 

savings but are not accountable for 

repaying any losses if actual 

expenditures exceed the benchmark. 

While we believe this model holds 

promise for creating substantial 

improvement in quality and cost, many 

commenters on the November 17, 2010 

RFI, and other stakeholders urged us to 

include risk-based arrangements where 

ACOs would also be accountable for 

downside risk. Policy experts have also 

suggested that incorporating downside 

risk-based models into the Shared 

Savings Program would provide a 

stronger lever than a one-sided model 

for encouraging ACOs to achieve 


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Federal Register / Vol. 76, No. 67 / Thursday, April 7, 2011 / Proposed Rules 19617 

18See e.g., Robert A. Berenson, ‘‘Shared Savings 

Program for Accountable Care Organizations: A 

Bridge to Nowhere?’’ The American Journal of 

Managed Care, Vol 16, No. 10 (October 2010). 

19See Robert A. Berenson, Paul B. Ginsburg and 

Nicole Kemper, ‘‘Unchecked Provider Clout in 

California Foreshadows Challenges To Health 

Reform’’ Health Affairs, April 2010; James C. 

Robinson & Emma L. Dolan, ‘‘Accountable Care 

Organizations in California: Lessons for the 

National Debate on Delivery System Reform’’ 

Integrated Healthcare Association, White Paper 

(2010). 

20Letter from Glenn M. Hackbarth, Chairman 

MedPAC, to Dr. Donald M. Berwick, Administrator, 

Centers for Medicare and Medicaid Services, 

November 22, 2010 (File Code CMS–1345–NC). 

21Michael E. Chernew et al. ‘‘Private-Payer 

Innovation In Massachusetts: The ‘Alternative 

Quality Contract’ ’’ Health Affairs (January 2011). 

efficiencies and attain the program’s 

transformative goals.18

Risk-based arrangements may take 

many forms. Two models considered for 

inclusion in the Shared Savings 

Program were two-sided risk 

arrangements (shared savings and 

losses) and partial capitation. Realworld examples of these models vary 

widely, according to the terms of 

specific provider-payer initiatives they 

encompass. Partial capitation refers to a 

payment system that incorporates 

elements of both capitation and FFS. 

Section 1899(i) of the Act defines partial 

capitation as a model ‘‘* * * in which 

an ACO is at financial risk for some, but 

not all, of the items and services 

covered under Parts A and B, such as at 

risk for some or all physicians’ services 

or all items and services under Part B.’’ 

Our intent is to design and test partial 

capitation models in the Innovation 

Center first in order to gain more 

experience, introduce them to providers 

of services and suppliers, and refine 

them before adopting them more widely 

in the Shared Savings Program. 

In a two-sided model based around 

FFS within the Shared Savings Program, 

ACOs would accept the downside risk 

for losses once the minimum loss rate is 

exceeded (the equivalent of the 

minimum savings rate that must be 

exceeded in order to share in savings 

under the Shared Savings Program). 

ACOs’ exposure to downside risk could 

also be limited by the creation of risk 

corridors that establish a maximum 

shared loss cap. We are proposing to 

make available a two-sided model in the 

Shared Savings Program to foster ACOs’ 

accountability for greater risk with a 

greater opportunity for reward. ACOs 

may elect to enter the one-sided model 

(Track 1) or elect the two-sided model 

(Track 2). An ACO that elects Track 1 

would automatically be transitioned to 

the two-sided model for the third year 

of its agreement. Thus, in the third year 

of the ACO’s agreement under Track 1, 

the methodology used to reconcile 

ACOs under the first year of the twosided model would apply except ACOs 

must meet the quality performance 

standard that applies in the third year 

(as opposed to the first year standard of 

full and accurate reporting). A key 

attribute of FFS is beneficiary freedom 

of choice to choose any provider they 

wish which will be maintained under 

both the one-sided and two-sided 

models. 

There are pros and cons of risk-based 

arrangements. Providers of services and 

suppliers engaged in a risk-based 

payment arrangement, compared to a 

one-sided shared savings structure, have 

a stronger incentive to control spending 

and achieve efficiencies. This is 

consistent with the antitrust perspective 

that participants in financially 

integrated organizations have the 

incentive to cooperate in controlling 

costs and improving quality by 

managing the provision of services; such 

that to demonstrate financial 

integration, participants in a 

collaboration must share substantial 

financial risk, as discussed in section 

II.B of this proposed rule. Risk-based 

arrangements offer payers a chance to 

control spending, either through the 

recoupment of excess expenditures 

(losses) in two-sided risk arrangements, 

or through capitated payments. 

However, since providers of services 

and suppliers have an increased 

motivation to control spending and 

achieve efficiencies under a risk-based 

model, it would be reasonable to 

anticipate an increase in negative 

incentives such as incentives to stint on 

care or undersupply services, shift costs 

(for instance through changes in referral 

patterns), as well as increased 

incentives for providers of services and 

suppliers to avoid at risk beneficiaries. 

In the 1990’s, California providers’ 

willingness to take risk led to the rapid 

expansion and failure of many undercapitalized risk-bearing physician 

organizations. This experience 

illustrates that risk-bearing 

arrangements have broad implications 

for provider relationships (namely 

leading to the integration of providers 

through mergers and acquisitions); the 

financial solvency of provider 

organizations and therefore the stability 

of health care markets and patients’ 

access to care; as well as leverage 

between providers and private payers.19

For these reasons, risk-based 

arrangements require greater assurance 

of providers’ financial solvency in order 

to repay Medicare for excess 

expenditures that may be incurred, as 

well as greater beneficiary protections, 

for example by heightened monitoring 

to detect inappropriate short-cutting of 

care and avoidance of at-risk 

beneficiaries. In addition, proper 

safeguards may be needed to address the 

risk of conduct violating fraud and 

abuse laws. 

Incorporation of downside risk into 

the Shared Savings Program, while 

retaining a FFS base, has been 

encouraged by commenters on the 

November 17, 2010 RFI (including 

MedPAC), other stakeholders and policy 

experts as an entry point for moving 

ACOs to risk-based arrangements. 

MedPAC suggested offering a two-sided 

risk model in addition to the one-sided 

model, and over time, making the twosided model the dominant or only 

option available to program 

participants. Further, to encourage 

ACOs to participate in the two-sided 

model, MedPAC recommended that it 

could be distinguished from the onesided model by features such as a larger 

share of savings and risk corridors to 

protect ACOs from high levels of 

losses.20

A relevant example of a two-sided 

risk arrangement in a FFS setting is Blue 

Cross Blue Shield of Massachusetts’ 

(BCBSMA) Alternative Quality Contract, 

an initiative that engages groups of 

providers for HMO or PPO beneficiaries. 

Under this contract, providers continue 

to be paid on a FFS basis. Each group’s 

yearly expenditures are compared 

against a predetermined global budget, 

factoring in the level of risk the group 

has agreed to take on; the group is paid 

any surplus or repays BCBSMA for any 

deficit. Groups can earn bonuses based 

on quality performance targets, and 

achieved savings, and also earn 

significant quality bonuses.21

Given these considerations, we 

believe payment models where ACOs 

bear a degree of financial risk hold the 

potential to induce more meaningful 

systematic change in the behavior of 

groups of providers of services and 

suppliers compared to a one-sided 

model. We propose to develop an option 

for an ACO to either enter into a twosided model within the Shared Savings 

Program initially or enter into the onesided model within the Shared Savings 

Program initially and be transitioned to 

the two-sided model in year 3 of its 

initial 3-year agreement. We believe this 

proposal strikes a balance between 

stakeholders’ requests for risk-based 

arrangements with the implications for 

beneficiary protections and market 

stability posed by capitated models and 

the operational complexity of creating 


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these arrangements in a FFS 

environment. As we develop experience 

with other risk-based models, for 

example through the Innovation Center, 

we expect to consider incorporating 

additional payment models into the 

Shared Savings Program through future 

rule making. 

2. Two Tracks Provide Incremental 

Approach to Incorporating Risk 

We considered several options about 

how to incorporate a two-sided model 

into the Shared Savings Program. The 

major options we considered are as 

follows: 

• Basing the program on a two-sided 

model, thereby requiring all participants 

to accept risk from the first program 

year. 

• Allowing applicants to choose 

between program tracks, either a onesided model or two-sided model, for the 

duration of the agreement. 

• Allowing a choice of tracks, but 

requiring ACOs electing the one-sided 

model to transition to the two-sided 

model during their initial agreement 

period. 

Requiring all ACOs to initially take 

downside risk would likely inhibit the 

participation of some interested entities. 

Potential Shared Savings Program 

applicants will likely include providers 

and suppliers with different levels of 

experience with risk-based payment 

arrangements and with different levels 

of financial footing, reflecting the 

heterogeneity of providers and suppliers 

and provider arrangements that exist in 

the nation’s health care system. The 

comments on the November 17, 2010 

RFI reflect this diversity, but in sum, 

favored our adoption of a flexible 

approach that recognizes the different 

levels of ACOs’ readiness to take on 

risk. For instance, organizations 

experienced with integrated care and 

risk-based arrangements, with available 

financial reserves, may be ready and 

willing to accept risk beginning in the 

first program year. Others urged against 

program requirements which could 

preclude small/solo practices and safety 

net providers, from entering the Shared 

Savings Program. These comments 

underscored the scenario in which 

ACOs, otherwise capable of meeting the 

program’s requirements, may initially 

lack the experience and capital to accept 

significant downside risk. 

However, allowing ACOs to choose 

from either a one-sided model or a twosided model also creates some concerns. 

Some ACOs capable of taking risk may 

take advantage of the option that allows 

for gain by realizing savings without any 

risk for incurring added costs. We 

believe it important that all Shared 

Savings Program participants quickly 

move to taking on downside risk. We 

believe that payment models where 

ACOs bear a degree of financial risk 

have the potential to induce more 

meaningful systematic change in 

providers’ and suppliers’ behavior. 

Additionally, by introducing a risk 

model, we believe we will elicit 

applicants to the program who are more 

serious about their commitment to 

achieving the program’s goals around 

accountability for the care of Medicare 

beneficiaries and the three-part aim of 

enhancing the quality of health care, 

improving patient satisfaction with their 

care, and better controlling the growth 

in health care costs. 

We propose that applicants will have 

the option of choosing between a onesided model and a two-sided model 

initially. Under Track 1, ACOs enter the 

program under the one-sided model and 

must transition to the two-sided model 

for the third year of their initial 

agreement period. Thereafter, those 

ACOs can only participate under the 

two-sided model for any subsequent 

agreement periods. Alternatively, under 

Track 2, an ACO may enter the twosided model option immediately for a 

full 3-year agreement period. Those 

ACOs must also participate in the twosided model thereafter in subsequent 

agreement periods. Thus an ACO may 

only participate for a maximum of two 

years under the one-sided model, during 

its first agreement period, before it must 

transition and participate thereafter in 

the Shared Savings Program under the 

two-sided model. We believe that this 

approach addresses the concerns we 

have identified. Incorporating both a 

one-sided and two-sided model into the 

Shared Savings Program provides a path 

forward for diverse organizations to gain 

experience with redesigning care 

processes and assuming accountability 

for the quality of care and financial 

outcomes of the populations they serve. 

Requiring those who enter the program 

on Track 1 to migrate to the two-sided 

model encourages organizations to take 

on greater risk with the opportunity for 

greater reward. We invite comments on 

this proposal and other options for 

incorporating a two-sided model into 

the Shared Savings Program, including 

mechanisms for transitioning ACOs to 

two-sided risk arrangements. 

3. Elements of the Two-Sided Model 

In developing the elements of a twosided model under the Shared Savings 

Program, we propose to employ, as 

feasible and appropriate, the elements of 

the one-sided model that we have 

described in detail in the rest of this 

proposed rule. At the same time, it will 

be necessary to develop some policies 

for the two-sided model that would not 

be necessary under a one-sided model, 

for example, a methodology for 

determining shared losses. In addition, 

we believe that it is also appropriate to 

adapt some of the elements of the onesided model to the somewhat different 

circumstances and incentives under 

which ACOs sharing two-sided risk 

would operate. Specifically, in light of 

the greater potential for a two-sided 

model to bring about positive changes in 

the operation of the FFS system by 

improving both the quality and 

efficiency of medical practice, we 

believe that it is both appropriate and 

essential to provide greater incentives 

for organizations that participate in the 

two-sided model. For example, as we 

describe below, we believe that it is 

appropriate to provide a higher shared 

savings rate for organizations 

participating in the Shared Savings 

Program under the two-sided model 

than for those organizations 

participating under the one-sided 

model. 

In the discussion that follows, it can 

be assumed that the features of the onesided model we have proposed in this 

rule would also apply under the twosided model, unless we specifically 

state otherwise. In general, we are 

proposing the same eligibility 

requirements and methodologies for the 

two-sided model as we have proposed 

for the one-sided model. That is, we 

propose to use the same eligibility 

criteria, beneficiary assignment 

methodology, benchmark and update 

methodology, quality performance 

standards, data reporting requirements, 

data-sharing provisions, monitoring for 

avoidance of at-risk beneficiaries, and 

transparency requirements under the 

two-sided model that we have described 

under the one-sided model. However, as 

we discuss below, we are adding some 

requirements in order to provide further 

assurance about the ability of an ACO 

which will be operating under the twosided model to repay the Medicare 

program in the case of incurred losses. 

The following table provides a 

summary comparison of the program’s 

two models: 

BILLING CODE 4120–01–P 


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BILLING CODE 4120–01–C 

a. Beneficiary Notification and 

Protections 

Because we believe participants in 

risk models have an increased incentive 

to lower costs, we also recognize there 

may also be an increased incentive for 

ACOs to avoid at-risk beneficiaries. We 

believe that the monitoring procedures 

that we are proposing as discussed in 

section II.H. of this proposed rule, in 

combination with our proposed use of a 

retrospective beneficiary assignment 

methodology and proposed beneficiary 

notification requirements, are sufficient 

to guard against the prospects that twosided model ACOs might try to avoid atrisk beneficiaries in order to minimize 

the possibilities of realizing losses 

against their benchmarks. However, we 

invite comments on the sufficiency of 

these proposed monitoring procedures 

as well as additional areas and 

mechanisms for monitoring two-sided 

model ACOs. 

b. Eligibility Requirements 

We believe the eligibility 

requirements for ACOs we are 

proposing for the one-sided model, as 

discussed in section II.B. of this 

proposed rule, in combination with the 

proposed requirement that ACOs 

entering the two-sided model receive 

our approval of their repayment 


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19620 Federal Register / Vol. 76, No. 67 / Thursday, April 7, 2011 / Proposed Rules 

mechanisms, are sufficient to ensure the 

ability of ACOs to pay CMS in the event 

they incur losses. We invite comments 

on whether additional eligibility 

requirements are necessary for ensuring 

that ACOs entering the two-sided model 

would be capable of repaying us if 

actual expenditures exceed their 

benchmark. 

c. Quality Performance Measurement 

and Scoring 

We believe that the comprehensive 

quality performance standards that we 

have proposed for the one-sided model 

are also appropriate for the two-sided 

model. However, it is worth 

emphasizing in this context that we 

place great importance on the quality 

aspects of the Shared Savings Program, 

and that the quality standards take on 

even greater importance for ensuring 

high quality of care for beneficiaries 

since we are proposing to incorporate a 

requirement that all ACOs participating 

in the Shared Savings Program accept 

risk either beginning in year 1 or year 

3 of their initial agreement period. 

Therefore, in order to provide greater 

incentives for organizations to 

participate under the two-sided model, 

we are proposing higher shared savings 

rates under the two-sided model. 

Specifically, we are proposing a sharing 

rate of up to 60 percent (based on 

quality performance) under this model, 

compared to a sharing rate of up to 50 

percent under the one-sided model, as 

discussed in section II.E. of this 

proposed rule. We propose that each of 

the 5 quality measure domains in Table 

2 would continue to be equally 

weighted. Thus, each domain would be 

worth 12 percent of the savings 

generated by the ACO. That is, 5 

domains × 12 percent equals 60 percent 

of the total savings generated by the 

ACO. Under this model, high 

performers in quality scoring would 

continue to earn more than lower 

quality performers. As discussed in 

section II.E. of the proposed rule, Table 

3 illustrates our proposed sliding scale 

for determining points earned for each 

measure; we are proposing that under 

the two-sided model ACOs, like onesided model ACOs, could earn a 

maximum of 2 points per measure. 

As discussed in section II.E. of this 

proposed rule, the quality performance 

standard for the first year of the Shared 

Savings Program will be set at full and 

accurate reporting. For the purposes of 

determining the shared savings rate for 

Track 2 ACOs, ACOs which meet this 

standard will obtain the maximum 

savings rate for quality performance (60 

percent). As previously proposed, under 

Track 1, ACOs will be reconciled using 

the methodology under the one-sided 

model for the first and second year of 

the agreement. In the third year of the 

ACO’s agreement under Track 1, the 

methodology used to reconcile ACOs 

under the first year of the two-sided 

model would apply for payment 

purposes. With respect to the quality 

performance standard, Track 1 ACOs in 

the third year of their agreement must 

meet the quality performance standard 

that applies in the third program year, 

as opposed to the first year standard of 

full and accurate reporting. 

We considered a number of 

alternatives to incorporating features 

that mirror the quality performance 

standard proposed for the one-sided 

model into determining the shared 

savings and shared losses under the 

two-sided model. That is, as proposed, 

under the two-sided model ACOs could 

increase their share of savings or 

decrease their amount of losses with 

higher quality scores. Alternatives track 

to the options considered for 

establishing the quality performance 

standard discussed in section II.E. of 

this proposed rule. An alternative is to 

take a threshold approach to measuring 

quality performance for the purpose of 

determining the amount of shared 

savings or losses. A third option is to 

use a blend of these two options, by 

allowing ACOs to increase their share of 

savings with higher quality scores but 

use a threshold approach when 

calculating losses, so that higher quality 

does not reduce an ACO’s share of any 

losses. We seek comment on these 

alternate approaches. 

d. Shared Savings Methodology 

As discussed in Section II.F. of this 

proposed rule, we are proposing that 

ACOs choosing to participate in the onesided model could share savings if they 

exceed a minimum savings rate (MSR). 

For those ACOs whose savings exceed 

the MSR in the one-sided model, we are 

proposing a savings sharing rate of up 

to 50 percent of total savings, above a 

2 percent savings threshold, with a 

payment cap of 7.5 percent of an ACO’s 

benchmark. We are also proposing an 

additional increase of up to 2.5 

percentage points for including FQHCs 

and/or RHCs as ACO participants, as 

discussed in section II.F of this 

proposed rule. Thus, under our 

proposal, an ACO participating in the 

one-sided model could realize a 

maximum shared savings rate of 52.5 

percent. 

For purposes of the two-sided model, 

we are proposing to adopt the same 

methodology for determining shared 

savings, with some changes and 

incentives outlined below. In 

comparison to the one-sided model, the 

ACOs participating in the two-sided 

model would: (1) Have increased 

incentive payments for the same quality 

performance and including FQHCs and/ 

or RHCs as ACO participants; (2) would 

be subject to a fixed minimum savings 

rate and minimum loss rate of 2 percent 

and would share in gross savings once 

the MSR is exceeded; and (3) would be 

responsible for a portion of the excess 

expenditures above the benchmark 

based on their quality performance and 

inclusion of FQHCs and/or RHCs. ACOs 

with excess expenditures within the 

minimum loss rate would not be 

responsible for repaying Medicare. 

ACOs with expenditures exceeding the 

minimum loss rate would be 

responsible for paying excess 

expenditures calculated by multiplying 

the amount of excess above the 

benchmark by one minus the final 

sharing rate. The final sharing rate is 

defined as the quality performance 

sharing rate plus the percentage points 

for including FQHCs and/or RHCs as 

ACO participants. ACOs would be 

responsible for paying the percentage of 

excess expenditures up to the annual 

loss cap which is measured as a 

percentage of the benchmark: 5 percent, 

7.5 percent and 10 percent respectively 

across the first 3 years for Track 2 ACOs; 

an ACO in Track 1 who has entered the 

third year of its initial agreement period 

would be liable for an amount not to 

exceed the percentage of the first year of 

the two-sided model, that is, it would 

not exceed 5 percent. 

(1) Minimum Savings Rate 

We believe that the MSR remains 

important under the two-sided model to 

guard against normal variation in costs, 

so that ACOs share savings or losses 

with the program only under those 

circumstances in which we can be 

confident that such savings or losses are 

the result of the ACO’s behavior rather 

than normal variation. At the same time, 

we believe that it is more appropriate to 

employ a fixed minimum savings rate 

under this model. First, the greater 

predictability of a fixed minimum 

savings rate is more likely to attract 

organizations to participate under this 

model. Second, greater protection to the 

Medicare trust fund is afforded by ACOs 

accepting the risk of paying Medicare 

back for losses. Therefore, based on our 

experience with the Physician Group 

Practice demonstration and consistent 

with the lowest applicable MSR under 

the one-sided model, we are proposing 

to adopt a fixed 2 percent MSR for 

organizations operating under this 

model, in place of the variable 


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minimum savings rate for organizations 

operating under the one-sided model. 

(2) Additional Shared Savings Payments 

In the one-sided model described 

previously in this proposed rule, we 

propose to increase an ACO’s share in 

savings for including FQHCs and/or 

RHCs as ACO participants. To further 

increase the ACO’s reward for taking 

risk, we are proposing to double this 

amount, awarding a sliding scale 

increase of up to 5 percentage points for 

including FQHCs and/or RHCs as ACO 

participants in an ACO participating in 

the two-sided model, compared to 2.5 

percentage points available under the 

one-sided model. 

(3) Net Sharing Rate 

As discussed in section II.F. of this 

proposed rule, we considered several 

options for the amount of savings an 

ACO could receive under the one-sided 

model. These options included 

requiring the ACO to exceed the MSR 

and then sharing either on a first dollar 

basis or sharing with the ACO savings 

in excess of a threshold amount. We 

proposed that for the first 2 years of the 

agreement for the one-sided model that 

ACOs which exceed the MSR would be 

eligible to share in savings net of a 2 

percent threshold, calculated as 2 

percent of their benchmark. We further 

proposed that small ACOs under the 

one-sided model which meet certain 

criteria (namely, physician-driven 

ACOs, rural ACOs, and ACOs caring for 

underserved populations) which 

generate savings that exceed the MSR 

will be eligible to share in savings on a 

first dollar basis. 

We considered the same options on 

limiting the amount of savings an ACO 

could receive under the two-sided 

model. A number of factors favored 

allowing two-sided model ACOs to 

share on first dollar savings. For one, 

ACOs participating in the two-sided 

model are assuming the risk of losses 

due to normal year-to-year variations in 

Medicare beneficiaries’ claims 

expenditures. Second, sharing first 

dollar savings with two-sided model 

ACOs would provide greater reward for 

ACOs that choose to participate in the 

program’s two-sided model as compared 

to the one-sided model. Therefore, we 

propose that two-sided model ACOs 

which generate savings that exceed the 

MSR will be eligible to share in savings 

on a first dollar basis. Thus, under the 

two-sided model, the final sharing rate 

(quality performance sharing rate and 

any additional increases for including 

FQHCs and/or RHCs) would be applied 

to an ACO’s total savings that exceed its 

benchmark. 

(4) Calculating Sharing in Losses 

In addition to a methodology for 

determining shared savings, the twosided model requires a methodology for 

determining shared losses in those cases 

where an ACO realizes a loss as 

opposed to a savings against its 

benchmark in any performance year. As 

discussed previously, we considered 

several options for calculating the 

amount of shared losses, tracking the 

options considered for establishing the 

quality performance standard. While a 

methodology for determining shared 

losses is obviously not necessary under 

a one-sided model, we have mirrored 

the structure and features of the shared 

savings methodology as much as 

possible to the determination of loss 

sharing. Thus, for purposes of the losssharing methodology, we propose 

adopting a similar structure of 

minimum loss rate (the equivalent of 

minimum savings rate on the savings 

side), shared loss cap, and adjustments 

to the shared loss percentage based on 

the ACO’s quality performance and 

inclusion of FQHCs and/or RHCs. 

As noted previously, we are 

proposing a minimum loss rate for 

purposes of computing shared losses 

when an ACO’s actual expenditures 

exceed its benchmark. As in the case of 

shared savings, we believe that losses 

must exceed some minimum percentage 

around the benchmark in order to 

provide sufficient confidence that the 

losses experienced during a given 

performance year are not simply the 

result of random variation. Further, we 

are also proposing a cap on the loss 

sharing rate under the two-sided model, 

as we discuss later in this proposed 

rule. 

In addition, as in the determination of 

shared savings, we are proposing to 

adjust the loss sharing rate by 

considering several factors related to 

performance and behavior. These factors 

would include: (1) Performance on 

quality measures; and (2) any additional 

adjustment for including FQHCs and/or 

RHCs as ACO participants. However, in 

order to recognize these factors 

appropriately in the determination of 

the shared loss rate, these factors must 

operate as decreases in the ACO’s 

shared loss rate, rather than as the 

increases that they represent in the 

determination of the shared savings rate. 

For example, a two-sided model ACO 

that realizes savings against its 

benchmark may qualify for a final 

sharing rate of up to 65 percent if it is 

eligible for the maximum adjustments. 

In this case, the 65 percent final sharing 

rate is comprised of the savings rate of 

up to 60 percent for quality 

performance, plus 5 percentage points 

for including FQHCs and/or RHCs as 

ACO participants. 

On the other hand, a two-sided model 

ACO that experiences actual 

expenditures in excess of its benchmark 

may qualify for a shared loss rate as low 

as 35 percent of total losses if it is 

eligible for the maximum adjustments to 

its shared loss rate. So, for example, if 

the ACO obtained maximum points for 

its quality performance, and also 

received the maximum adjustment for 

including FQHCs and/or RHCs as ACO 

participants, it would have a sharing 

rate of 65 percent for purposes of 

sharing in savings. But since there are 

losses, the quality performance and 

inclusion of FQHCs and/or RHCs should 

be taken into consideration when 

calculating losses owed to the program. 

Accordingly, under our proposed 

methodology we would multiply the 

total losses by 1 minus the 65 percent 

final sharing rate, or 35 percent, making 

the ACO responsible for only 35 percent 

of the amount of losses. 

As discussed in section II.E. of this 

proposed rule, the quality performance 

standard for the first year of the Shared 

Savings Program will be set at full and 

accurate reporting. Therefore, for the 

purposes of determining the loss sharing 

rate, two-sided model ACOs which meet 

this standard will obtain the maximum 

savings rate for quality performance (60 

percent), making them responsible for 

40 percent of any losses under the 

methodology previously described, 

absent any increases in the sharing rate 

for FQHC/RHC participation. 

(5) Maximum Shared Savings and 

Shared Loss Caps 

We are proposing a maximum shared 

loss cap, so that the shared losses that 

an ACO might be required to return to 

the Medicare program under this model 

could not exceed a designated 

percentage of an ACO’s benchmark in 

any performance year. However, in 

order to provide a greater incentive for 

organizations to participate in the 

Shared Savings Program under the twosided model, we are proposing to phase 

in this shared loss cap over a 3-year 

period. Specifically, we are proposing 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. 

ACOs electing the one-sided model 

that are transitioned to the two-sided 

model in the third year of their 

agreement would be subject to the 5 

percent cap on losses since they would 

be considered to be in their first year 

under the two-sided model. 


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19622 Federal Register / Vol. 76, No. 67 / Thursday, April 7, 2011 / Proposed Rules 

Additionally, as discussed previously, 

we are proposing a higher maximum 

shared savings cap under the two-sided 

model, so that shared savings payment 

under this model could not exceed 10 

percent of an ACO’s benchmark, 

compared to 7.5 percent under the onesided model. 

An example of estimating an ACO’s 

maximum potential downside risk and 

estimating the ACO’s yearly losses is as 

follows. If the ACO’s annual average per 

capita benchmark for assigned 

beneficiaries is $8,000 the maximum 

amount of losses an ACO would be 

responsible for the first year is 5 percent 

of its benchmark, 7.5 percent the second 

year, and 10 percent the third year. 

Therefore, the ACO’s maximum per 

capita liability could range from $400 to 

$800 per assigned beneficiary. Actual 

liability depends on the ACO’s actual 

final sharing rate which incorporates its 

quality performance and any increases 

for inclusion of FQHCs and/or RHCs. 

Continuing this example, if an ACO 

with a benchmark of $8,000 per capita 

has actual costs for its assigned 

beneficiaries of $8,800, it would have a 

per capita loss of $800. The following 

table presents how much of the loss the 

ACO would be responsible to pay back 

under the program based on its final 

sharing rate, as determined by its 

quality performance, and assuming no 

additional increases for FQHC/RHC 

participation. 

(e) Ensuring ACO Repayment of Shared 

Losses 

Ensuring that ACOs entering the twosided model will be capable of repaying 

us for costs that exceed their benchmark 

is a critical program requirement. 

Financial protection requirements for 

other entities with which CMS does 

business provide examples of potential 

mechanisms for recouping payment. In 

order to enroll in and bill the Medicare 

program, some Durable Medical 

Equipment, Prosthetics, Orthotics, and 

Supplies (DMEPOS) suppliers are 

required to obtain a surety bond. Home 

Health Agencies (HHA) entering into the 

Medicare program must have available 

sufficient ‘‘initial reserve operating 

funds’’ at the time of application 

submission—and at all times during the 

enrollment process up to the expiration 

of the 3-month period following the 

conveyance of Medicare billing 

privileges. CMS, through an 

intermediary, determines the amount of 

the HHA’s required initial reserve 

operating funds using reported cost and 

visit data from submitted cost reports 

for the first full year of operation from 

at least three HHAs that the 

intermediary serves that are comparable 

to the HHA. 

As discussed in section II.F. of this 

proposed rule, we propose a flat 25 

percent withholding rate will be applied 

annually to an ACO’s earned 

performance payment. We propose that 

this withholding serve as a component 

of the repayment mechanism ACOs will 

need to establish to ensure their ability 

to repay Medicare for incurred losses. 

We propose that we would apply the 

withheld amount towards repayment of 

an ACO’s losses. However, we recognize 

that the 25 percent withholding of 

shared savings may be inadequate to 

cover the total amount of shared losses, 

particularly if a Track 2 ACO 

experiences losses in its first year. In 

order to more fully ensure that the 

Medicare program is paid back in the 

event that an ACO incurs losses, we 

have considered a number of options, 

including the following: 

• Recoup funds from the ACO and 

require the ACO to obtain reinsurance, 

place ACO funds in escrow, obtain 

surety bonds, or establish a line of credit 

as evidenced by a letter of credit that the 

Medicare program can draw upon. 

• Recoup funds from an ACO via the 

ACO’s participants. We would require 

the ACO to disclose on its application 

the percentage of shared losses that each 

ACO participant would be responsible 

for, and the ACO would provide copies 

of signed agreements with its ACO 

participants, establishing their liability. 

We would require ACO participants to 

agree to have their future Medicare 

payments reduced by the amount 

reflected in the agreement. We note that 

such arrangements, to the extent they 

involve remuneration between referral 

sources and those seeking referrals, may 

raise liability issues under the physician 

self-referral law and anti-kickback 

statute. CMS and the OIG have solicited 

comments on how best to approach this 

issue in the Medicare Program; Waiver 

Designs in Connection with the 

Medicare Shared Savings Program and 

the Innovation Center, also released 

today. 

• Withhold an additional portion of 

any annual shared savings payments (on 

top of the proposed flat 25 percent 

withhold discussed in section II.F. of 

this proposed rule in order to guard 

against losses in subsequent years. This 

could be done in combination with 

other alternatives in order to guard 

against any losses incurred by ACOs 

that have not previously received shared 

savings sufficient to offset such losses. 

• Permit ACOs to specify how they 

would repay us, for example through 

one or more of the previously noted 

recoupment options. 

We further considered requiring an 

ACO to establish a self-executing 

method of repaying losses, using one or 

more of the aforementioned options, to 

demonstrate its ability to repay a 

prescribed portion of its possible losses. 

Another option we considered was to 

require ACOs to use only one of these 

repayment mechanisms. In that regard, 

we considered requiring ACOs to obtain 

a letter of credit in an amount not less 

than the maximum potential downside 

exposure for the ACO in any given 

performance year (for example 5 percent 

of the benchmark in the first 

performance year for an ACO entering 

Track 2, or for a Track 1 ACO entering 

its third performance year of its initial 

agreement period). 

After considering these options, we 

propose to require that an ACO establish 

a self-executing method for repaying 

losses to the Medicare program by 

indicating that funds may be recouped 

from Medicare payments to the ACO’s 

participants, obtaining reinsurance, 

placing funds in escrow, obtaining 


srobinson on DSKHWCL6B1PROD with PROPOSALS2EP07AP11.028</GPH>
Federal Register / Vol. 76, No. 67 / Thursday, April 7, 2011 / Proposed Rules 19623 

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, such as those previously 

discussed. This proposal assures 

operational simplicity without 

establishing eligibility requirements that 

might discourage ACOs with limited 

risk-bearing experience from entering 

Track 2. 

We considered several options for 

determining the adequacy of an ACO’s 

recoupment mechanism. One option 

would be to require ACOs to 

demonstrate an ability to repay the 

maximum amount of possible losses, for 

example 5 percent of the benchmark in 

the first performance year for an ACO 

entering Track 2, or for a Track 1 ACO 

entering its third performance year of its 

initial agreement period. Such a 

requirement could be prohibitively 

burdensome given that ACOs may need 

to demonstrate their ability to repay a 

large amount of capital and potentially 

excessive given that ACOs’ loss rates 

would be reduced to account for quality 

performance and inclusion of FQHCs 

and/or RHCs and ACOs have a limited 

probability of incurring the maximum 

possible losses. Another option, 

potentially equally as effective as the 

first but less onerous, would be to 

require ACOs to demonstrate their 

ability to repay losses, defined as a 

percentage of the benchmark but below 

the annual loss cap. Either option would 

require the ACO to estimate anticipated 

losses, and for CMS to confirm this 

amount against the ACO’s benchmark 

(once available). Given the anticipated 

variation in ACO composition and 

regional variations in cost, there may be 

numerous ways of accurately estimating 

an ACO’s maximum potential downside 

risk. We further recognize that an ACO’s 

assigned number of beneficiaries may 

vary from year to year. Given the 

potential for fluctuation in the size of an 

ACO’s assigned population, and the 

increase in the cap on shared losses in 

the second and third years under Track 

2, the sufficiency of the ACO’s 

repayment mechanism would need to be 

periodically reassessed to ensure its 

adequacy. 

We propose that an ACO must 

demonstrate having established a 

repayment mechanism, using one or 

more of the recoupment methods 

proposed previously, 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. We further propose that we 

will determine the adequacy of an 

ACO’s repayment mechanism prior to 

its entrance into a period of 

participation in the Shared Savings 

Program. We also propose that 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 Medicare 

beneficiaries. An ACO must maintain 

this repayment mechanism, ensuring 

adequate capitalization of funds in the 

case of some recoupment methods (such 

as adequately funded escrow accounts 

or reinsurance coverage), for the 

duration of the performance year and up 

until the time when we would need to 

be reimbursed for the ACO’s losses. We 

would ensure that an ACO maintains an 

adequate repayment mechanism 

through monitoring activities. We invite 

comments on this proposal and on the 

other options we have considered, as 

well as alternate suggestions for 

assuring risk-bearing ACOs have an 

appropriate amount of available funds 

to repay potential losses. 

We further propose that an ACO 

would be required, as part of its 

application, to submit documentation of 

such a repayment mechanism for 

approval by us. This documentation 

would include details supporting the 

adequacy of the mechanism for repaying 

the ACO’s maximum potential 

downside risk exposure. An ACO 

applying for Track 2 would be required 

to submit this documentation as part of 

its initial application. An ACO applying 

for Track 1 would also be required to 

submit this documentation as part of its 

Shared Savings Program application 

since Track 1 ACOs will be required to 

transition to the two-sided model in the 

third year. We believe it is important 

that ACOs electing Track 1 can 

demonstrate that they can fulfill the 

requirements for the full three year 

agreement period and that we do not 

create an incentive for ACOs to 

terminate their agreements prior to the 

start of the third year under Track 1. As 

a result, it is important to ensure that 

prior to entry into the Shared Savings 

Program, the ACO has an appropriate 

plan for how it will repay any losses 

incurred during the third year of its 

agreement when it is automatically 

transitioned to the two-sided model. 

To the extent that an ACO’s 

repayment mechanism does not enable 

us to fully recoup the losses for a given 

performance year, we propose to carry 

forward unpaid losses into subsequent 

performance years (to be recouped 

either against additional financial 

reserves, or by offsetting shared savings 

earned by the ACO). We invite 

comments on this proposal and on other 

options that we have considered, as well 

as alternate suggestions for assuring that 

any losses by ACOs participating in the 

two-sided model can be recouped, the 

processes for recouping losses from 

these ACOs and/or their ACO 

participants, and the appropriate 

amount of available funds a risk-bearing 

ACO should be required to have. 

(f) Future Participation of UnderPerforming Organizations 

As discussed in section II.C. of this 

proposed rule, we propose that an ACO 

which experiences a net loss during its 

first 3-year agreement period may not 

reapply to participate in the Shared 

Savings Program because it has been 

unsuccessful in lowering the growth in 

Medicare expenditures and/or its 

activities contributed in increases in 

Medicare expenditure growth. We 

believe this proposal is a means for 

ensuring that under-performing 

organizations do not continue to 

increase Medicare expenditure growth. 

We seek comment on this proposal and 

whether denying continued 

participation in the Shared Savings 

Program for ACOs that under-perform 

would create disincentives for the 

formation of ACOs. We are specifically 

interested in whether this requirement 

will create disincentives for 

participation among smaller ACOs. 

(g) Public Reporting 

We believe that the public reporting 

requirements proposed under the onesided model should also apply to the 

two-sided model. One such proposed 

requirement is for ACOs to report 

publicly on the shared savings received 

by ACOs. Given that the purpose of this 

proposed requirement is to enhance 

transparency of the program we further 

propose that ACOs under the two-sided 

model publicly report on their amount 

of losses, if any. We invite comments on 

this proposed public reporting 

requirement and whether, for the 

purpose of ensuring transparency, there 

is any additional information that 

would be important for two-sided model 

ACOs to publicly report. 

(h) Impact on States 

Finally, we emphasize that, under our 

proposal for a two-sided model under 

the Shared Savings Program, the 

Medicare program retains the insurance 

risk and responsibility for paying claims 

for the services furnished to Medicare 

beneficiaries, and that the agreement to 

share risk against the benchmark would 

be solely between the Medicare program 

and the ACO. We do not intend that any 

of our proposals concerning the Shared 

Savings Program would render States 


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responsible for bearing any costs 

resulting from the operation of this 

program. However, we note that each 

State has its own insurance and risk 

oversight programs and that some States 

may regulate risk bearing entities, such 

as the ACOs participating in the twosided model under the Shared Savings 

Program. Accordingly, we seek 

comment on whether any of our 

proposals for the two-sided model in 

particular, or the Shared Savings 

Program in general, would trigger the 

application of any State insurance laws, 

the adequacy of those provisions that 

we have set forth, and the ways that we 

can work with ACOs and States to 

minimize the burden of any additional 

regulation. 

4. Verification of Savings and Losses 

We will notify an ACO in writing 

regarding whether the ACO qualifies for 

a shared savings payment, and if so, the 

amount of the payment due. Similarly, 

we will provide written notification to 

an ACO of the amount of shared losses, 

if any, that it must pay to the program. 

We propose that an ACO must make 

payment in full to CMS of any shared 

losses within 30 days of receipt of 

notification. Because we will calculate 

amounts due to, or owed by, the ACO 

on the basis of information submitted by 

the ACO, we propose that the ACO must 

certify the accuracy, completeness, and 

truthfulness of such information. We 

propose that, as a condition of receiving 

a shared savings payment, the ACO 

must submit to us a written request for 

the shared savings payment amount. 

The written request must certify the 

ACO’s compliance with program 

requirements for the relevant 

performance period as well as the 

accuracy, completeness, and 

truthfulness of any information 

submitted to us by the ACO, or its ACO 

participants, or the ACO providers/ 

suppliers, or another entity, including 

the accuracy, completeness, and 

truthfulness of TINs used to assign 

patients, any quality data or other 

information or data relied upon by us in 

determining the ACO’s eligibility for, 

and the amount of, the shared savings 

payment. In the case of an ACO 

participating in the two-sided model 

that has incurred shared losses, we 

propose to require submission of a 

similar certification at such time that 

would provide us with assurance of the 

ACO’s compliance with program 

requirements for the relevant 

performance period and the accuracy, 

completeness, and truthfulness of any 

data or other information submitted by 

the ACO upon which we rely in 

calculating the amount of shared losses. 

H. Monitoring and Termination of ACOs 

Section 1899(d)(3) of the Act, as 

added by section 3022 of the Affordable 

Care Act, authorizes the Secretary to 

‘‘impose an appropriate sanction’’ on an 

ACO, including ‘‘termination from the 

program,’’ if the Secretary determines an 

ACO ‘‘has taken steps to avoid patients 

at risk in order to reduce the likelihood 

of increasing costs to the ACO.’’ We 

discuss later in the document our 

proposal to monitor ACOs for avoidance 

of at-risk beneficiaries and to take 

appropriate corrective actions when 

ACOs are found to have engaged in this 

prohibited conduct, including 

termination where necessary. 

Section 1899(d)(4) of the Act 

authorizes the Secretary to terminate an 

agreement with an ACO that does not 

meet the established quality 

performance standards. As discussed 

later in the document, we propose to 

monitor ACO performance with respect 

to our proposed quality standards. 

Subsequently, we discuss our proposal 

to terminate ACOs that fail to meet 

quality performance standards which 

are described in section II.E. of this 

proposed rule. 

Section 1899 of the Act sets forth a 

number of requirements for ACOs, and 

authorizes the Secretary to promulgate 

additional criteria that ACOs must 

satisfy in order to be eligible to 

participate in the Shared Savings 

Program. The statute does not prescribe 

procedures for monitoring nor what 

factors we should consider in imposing 

sanctions against an ACO, including 

termination of its 3-year agreement for 

reasons beyond avoiding patients at risk 

and not meeting established quality 

standards. Based on our experience with 

other Medicare programs, as discussed 

this proposed rule, we believe it is 

important for patient protection and to 

effectuate the Shared Savings Program 

that we monitor an ACO to determine if 

it meets additional Shared Savings 

Program requirements not set forth in 

section 1899 of the Act and take actions 

such as termination with ACOs that are 

not in compliance with additional 

Shared Savings Program requirements 

that are not set forth in section 1899 of 

the Act. We discuss our proposal to 

monitor ACO performance with respect 

to these requirements and to terminate 

or otherwise sanction ACOs that are not 

in compliance with the requirements of 

the Shared Savings Program. 

In implementing other Medicare 

programs, including the MA and the 

Medicare Prescription Drug programs, 

we have gained extensive experience in 

monitoring organizational, provider, 

and supplier behavior with respect to 

compliance with Medicare program and 

program integrity requirements, quality 

measurement, and avoidance of 

particular types of beneficiaries. For 

purposes of the Shared Savings 

Program, we propose to employ many of 

the methods we have developed for 

purposes of the MA and Medicare 

prescription drug programs to monitor 

and assess ACOs and their participating 

providers and suppliers. In general, the 

methods we could use to monitor ACO 

performance may include, but are not 

limited to the following: 

• Analysis of specific financial and 

quality data as well as aggregated 

annual and quarterly reports. 

• Site visits. 

• Assessment and following up 

investigation of beneficiary and 

provider complaints. 

• Audits (including, for example, 

analysis of claims, chart review, 

beneficiary surveys, coding audits). 

If based upon the monitoring 

activities described previously we 

conclude that an ACO’s performance 

may subject the ACO to termination 

from the Shared Savings Program, we 

are proposing that CMS in its sole 

discretion, may take any or all of the 

following actions prior to termination of 

the ACO from the Shared Savings 

Program: 

• Provide a warning notice to the 

ACO of the specific performance at 

issue. 

• Request a corrective action plan 

(CAP) from the ACO. 

• Place the ACO on a special 

monitoring plan. 

We are seeking comment on additional 

actions that may be appropriate prior to 

termination. 

A number of factors may trigger 

heightened oversight of ACOs by us, 

including conditions specified as the 

bases for terminating the agreement 

described in this proposed rule. Further, 

we anticipate close examination of 

ACOs that incur large losses to the 

Medicare program. 

In order to ensure that we have the 

information necessary to conduct 

appropriate monitoring and oversight of 

ACOs, it will be necessary for ACOs, 

ACO participants, and ACO providers/ 

suppliers, and other contracted entities 

performing services and functions on 

behalf of the ACO to retain records of 

their activities under the Shared Savings 

Program for a sufficient period of time 

to allow the government to conduct the 

appropriate audits, evaluations, and 

inspections of their activities. A 

‘‘contracted entity performing services 

or functions on behalf of the ACO’’ 

would include any party that enters into 


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an arrangement with an ACO to provide 

services (including administrative, 

management, or clinical services) to the 

ACO or health care services to the 

beneficiaries assigned to the ACO. It 

also includes any party that enters into 

an arrangement with an entity is in an 

arrangement with the ACO down to the 

level of the ultimate provider of 

services. 

We are proposing that an ACO, ACO 

participant, ACO providers/suppliers, 

and contracted entities performing 

services and functions on behalf of the 

ACO, will be required to maintain and 

give us, the Department of Health and 

Human Services (DHHS), the 

Comptroller General, the Federal 

Government or their designees, the right 

to inspect all books, contracts, records, 

documents, and other evidence 

(including data related to Medicare 

utilization and costs, quality 

performance measures, shared savings 

distributions, and other financial 

arrangements related to ACO activities) 

sufficient to enable the audit, 

evaluation, and inspection of the ACO’s 

compliance with Shared Savings 

Program requirements and the ACO’s 

right to any shared savings payment. We 

propose that such books, contracts, 

records, documents, and other evidence 

be maintained by the ACO for a period 

of 10 years from the end of the 

agreement period or from the date of 

completion of any audit, evaluation, or 

inspection, whichever is later, unless 

we determine there is a special need to 

retain a particular record or group of 

records for a longer period and notify 

the ACO organization at least 30 days 

before the normal disposition date. If 

there has been a termination, dispute, or 

allegation of fraud or similar fault by the 

ACO organization or its members, we 

propose that the retention may be 

extended to 6 years from the date of any 

resulting final resolution of the 

termination, dispute, fraud, or similar 

fault. We further propose that if we 

determine that there is a reasonable 

possibility of fraud or similar fault, we 

may inspect, evaluate, and audit the 

ACO organization at any time. If as a 

result of any inspection, evaluation, or 

audit, we determine that the amount of 

shared savings due to the ACO or the 

amount of shared losses owed by the 

ACO has been determined in error, we 

reserve the right to reopen the initial 

determination and issue a revised initial 

determination. 

We further propose that ACOs include 

terms in their agreements with ACO 

participants, ACO providers/suppliers, 

and the ACO and contracted entities 

performing services and functions on 

behalf of the ACO requiring them to 

comply with the same record retention 

requirements and to make such books, 

contracts, records, documents, and other 

evidence available to the government 

upon request. Notwithstanding any 

arrangements between or among an 

ACO, ACO participants, ACO providers/ 

suppliers, and contracted entities 

performing services and functions on 

behalf of the ACO, the ACO shall have 

ultimate responsibility for adhering to 

and otherwise fully complying with all 

terms and conditions of its agreement 

with CMS, including the record 

retention requirement. 

1. Monitoring Avoidance of At-Risk 

Beneficiaries 

As noted previously, section 

1899(d)(3) of the Act authorizes the 

Secretary to ‘‘impose an appropriate 

sanction’’ on an ACO, including 

‘‘termination from the program,’’ if the 

Secretary determines an ACO ‘‘has taken 

steps to avoid patients at risk in order 

to reduce the likelihood of increasing 

costs to the ACO.’’ While the statute 

does not define what constitutes 

‘‘patients at-risk’’, we believe such 

patients are those beneficiaries who 

have a high risk score on the CMS–HCC 

risk adjustment model, are considered 

high cost due to having two or more 

hospitalizations or emergency room 

visits each year, are dually eligible for 

Medicare and Medicaid, have a high 

utilization pattern, have one or more 

chronic conditions (such as, for 

example, diabetes, heart failure, 

coronary artery disease, chronic 

obstructive pulmonary disease, 

depression, dementia, end stage renal 

disease) or beneficiaries who have a 

recent diagnosis (for example, newly 

diagnosed cancer) that is expected to 

result in an increased cost. 

Such beneficiaries might be 

appropriately targeted by an ACO to 

implement care improvement strategies 

to coordinate their care more efficiently. 

However, high-cost beneficiaries are 

also potentially at-risk for inappropriate 

avoidance by an ACO because the ACO 

may believe that it will be more likely 

to realize shared savings against its 

benchmark costs if it can avoid having 

higher-cost patients assigned to it 

during a performance year. We seek 

comment on this definition of ‘‘at-risk 

beneficiary’’ and whether other 

beneficiary characteristics should be 

considered in determining whether a 

beneficiary is ‘‘at-risk.’’ 

To identify ACOs that could be 

avoiding at-risk beneficiaries, we 

propose to use a combination of 

methods that would begin with an 

analysis of claims and examination of 

other beneficiary-level documentation 

(for example, beneficiary satisfaction 

surveys, medical record audits, 

beneficiary and provider complaints) to 

identify trends and patterns suggestive 

of avoidance of at-risk beneficiaries. The 

results of these analyses could lead to 

further investigation and follow-up with 

the beneficiary or the ACO (including 

ACO participants and ACO providers/ 

suppliers) in order to determine 

whether avoidance of at-risk 

beneficiaries has occurred. If as a result 

of our analysis we conclude that an 

ACO has been avoiding at-risk 

beneficiaries during a performance year, 

we propose to notify the ACO of our 

determination and to require the ACO to 

submit a corrective action plan (CAP) 

for our approval. The CAP must address 

actions the ACO will take to ensure that 

the ACO, ACO participants, and ACO 

providers/suppliers cease avoidance of 

at-risk beneficiaries and must be 

implemented as approved. In addition, 

we propose that the ACO will be reevaluated both during and at the end of 

the CAP. If we determine that the ACO 

has continued to avoid at-risk 

beneficiaries, the ACO would be 

terminated from the Shared Savings 

Program. We also propose that the ACO 

would not receive shared savings 

payments while it is under the CAP 

regardless of the period of performance 

in question and that the ACO would not 

be eligible to earn any shared savings for 

the period during which it is under the 

CAP for avoiding at-risk beneficiaries. 

We solicit comments on whether 

lesser sanctions may be appropriate 

when an ACO avoids at-risk 

beneficiaries, such as the cessation of, or 

a reduction in, the assignment of new 

beneficiaries to the ACO, a reduction in 

the amount of the shared savings 

payment, or a fine for each instance of 

at-risk beneficiary avoidance. 

2. Monitoring Compliance With Quality 

Performance Standards 

Section 1899(d)(4) of the Act further 

authorizes the Secretary to terminate an 

agreement with an ACO that does not 

meet the established quality 

performance standards. To identify 

ACOs that are not meeting the quality 

performance standards, we will review 

the ACO’s submission of quality 

measurement data. We may request 

additional documentation from an ACO 

or its ACO participants or ACO 

providers/supplier, as appropriate. In 

those instances where an ACO fails to 

meet the minimum attainment level for 

one or more domains, we propose to 

give the ACO a warning and to reevaluate the following year. If the ACO 

continues to underperform on the 

quality performance standards in the 


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following year, the agreement will be 

terminated. We also propose that if an 

ACO fails to report one or more 

measures, we would send the ACO a 

written request to submit the required 

data by a specified date and to provide 

a reasonable written explanation for its 

delay in reporting the required 

information. If the ACO fails to report 

by the requested deadline and does not 

provide a reasonable explanation for 

delayed reporting, we would 

immediately terminate the ACO for 

failing to report quality measures. We 

further propose that ACOs that exhibit 

a pattern of inaccurate or incomplete 

reporting or fail to make timely 

corrections following notice to resubmit 

may be terminated from the program. 

We note that since meeting the quality 

standard is a condition for sharing in 

savings, the ACO would be disqualified 

from sharing in savings in each year in 

which it underperforms. 

3. Terminating an ACO Agreement 

There are a number of important 

program requirements that ACOs must 

satisfy in order to be eligible to 

participate in the Shared Savings 

Program. As a result, in addition to the 

statutory provisions at section 

1899(d)(3) and (d)(4) of the Act 

regarding termination for avoidance of 

at-risk beneficiaries and for failure to 

meet the quality standards, we believe 

the agreement with an ACO should be 

contingent upon that ACO continuing to 

meet the requirements for eligibility to 

participate in the Shared Savings 

Program. Accordingly, we propose that 

an ACO’s failure to continue to meet the 

eligibility requirements for participation 

in the Shared Savings Program should 

also result in an ACO’s termination from 

the Shared Savings Program. As 

described in section II.F. of this 

proposed rule, termination of an ACO 

from the Shared Savings Program by us 

or at the ACOs request for any reason 

will result in loss of the mandatory 25 

percent withhold of shared savings. 

Therefore, we are proposing that 

based upon monitoring and assessing 

ACO operations (including ACO 

participants and ACO providers/ 

suppliers), we may terminate an 

agreement with an ACO before the end 

of the 3-year agreement period for any 

of the following reasons: 

• Avoidance of at-risk beneficiaries as 

described previously. 

• Failure to meet the Shared Savings 

Program’s quality performance standard 

as described previously. 

• Any material change impacting 

ability to meet eligibility requirements, 

including but not limited to the 

following: 

++ Changes in ACO participants that 

are the basis for beneficiary assignment. 

++ Increase in ACO provider/ 

supplier composition that results in a 

reviewing Antitrust Agency to state it is 

likely to challenge or recommend 

challenging the ACO. 

++ Changes in the ACO’s leadership 

and management structure that result in 

an inability to perform the functions 

discussed in section II.B. of this 

proposed rule. 

++ Sanctions or other actions taken 

against the ACO, its ACO participants, 

and ACO providers/suppliers, or 

contracted entities performing services 

or functions on behalf of the ACO, by 

an accrediting organization, or by a 

State, Federal or local government 

agency. 

• Failure of the ACO to effectuate 

required regulatory changes during the 

agreement period after given the 

opportunity for a CAP. 

• Failure of an ACO to demonstrate 

that it has adequate resources in place 

to repay losses and to maintain those 

resources for the agreement period. 

• Noncompliance with requirements 

regarding beneficiary notification of 

provider/supplier participation in an 

ACO. 

• Failure to completely and 

accurately report or failure to make 

timely corrections. 

• Material noncompliance, or a 

pattern of noncompliance, with public 

reporting and other CMS reporting 

requirements. 

• Limiting or restricting internally 

compiled beneficiary summary of care 

or medical records from providers and 

suppliers both within and outside of the 

ACO, to the extent permitted by law (for 

example, not sharing beneficiary 

medical records with providers or 

suppliers not participating in the ACO 

from whom the beneficiary chooses to 

receive care). 

• Failure to offer beneficiaries the 

option to opt out of sharing claims 

information. 

• Improper use or disclosure of 

claims information received from us in 

violation of the HIPAA Privacy Rule, 

Medicare Part D Data Rule, Privacy Act, 

the data use agreement, or other 

applicable laws or regulations. 

• Violation of physician self-referral 

prohibition, civil monetary penalty 

laws, anti-kickback statute, other 

antifraud laws, antitrust laws, or other 

applicable Medicare laws, rules, or 

regulations that are relevant to ACO 

operations. 

• Submission to us of false, 

inaccurate, or incomplete data and or 

information, including but not limited 

to, information provided in the Shared 

Savings Program application, quality 

data, financial data, and information 

regarding the distribution of shared 

savings. 

• Failure to submit payment due to us 

in a timely manner. 

• Use of marketing materials or 

activities or other beneficiary 

communications subject to approval 

that have not been approved by us as 

discussed in section II.B.11.of this 

proposed rule. 

Furthermore, we believe it is 

appropriate that an ACO should provide 

notice if it elects to terminate its 

participation in the Shared Savings 

Program. Accordingly, we are proposing 

to require an ACO to provide us with a 

60-day notice if it chooses to terminate 

its agreement. The ACO would be 

required to notify us of its decision to 

terminate its participation in the Shared 

Savings Program and would also be 

required to notify all of its ACO 

participants and ACO providers/ 

suppliers, who would in turn be 

required to notify beneficiaries in a 

timely manner of the ACO’s decision to 

withdraw from the Shared Savings 

Program. As described in section II.F.of 

this proposed rule, the ACO would 

forfeit its mandatory 25 percent 

withhold of shared savings. 

Finally, we propose that an ACO that 

has been terminated from the Shared 

Savings Program may apply to 

participate in the Shared Savings 

Program again at the end of the original 

3-year agreement period. To be eligible 

to participate in the Shared Savings 

Program, the ACO must demonstrate in 

its application that it has corrected the 

deficiencies that caused it to be 

terminated from the Shared Savings 

Program and has processes in place to 

ensure that it will remain in compliance 

with the terms of the new participation 

agreement. We have proposed in section 

II.G. of this proposed rule, that ACOs 

may only have one agreement period 

involving the one-sided model, thus 

ACOs with corrected deficiencies that 

wish to reenter the program only have 

the option to do so under the two-sided 

model. 

For violations that we consider minor 

in nature and pose no immediate risk or 

harm to beneficiaries or impact on care, 

we propose to allow ACOs the 

opportunity to submit a corrective 

action plan (CAP) before termination. 

We further propose that the ACO must 

submit a CAP for our approval by the 

deadline indicated on the notice of 

violation. The CAP must address what 

actions the ACO will take to ensure that 

the ACO, ACO participants, ACO 

providers/suppliers, and entities 

performing services or functions on 


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behalf of the ACO will correct any 

deficiencies to remain in compliance 

with Shared Savings Program 

requirements. The CAP must be 

implemented as approved. The ACO’s 

performance will be monitored during 

the CAP process. Failure of the ACO to 

submit, obtain approval for, or 

implement a CAP may result in 

termination of the agreement. Failure of 

the ACO to demonstrate improved 

performance upon completion of the 

CAP may result in termination. We seek 

comments on our proposal, including 

any additional conditions that could 

merit the termination of an ACO 

agreement. 

4. Reconsideration Review Process 

Section 1899(g) of the Act, as added 

by section 3022 of the Affordable Care 

Act, states that there shall be no 

administrative or judicial review of the 

following actions: 

• Specification of criteria for meeting 

quality performance standards under 

section 1899(a)(1)(B) of the Act. 

• Assessment of quality of care 

furnished by an ACO and the 

establishment of quality performance 

standards under section 1899(b)(3) of 

the Act. 

• Assignment of Medicare FFS 

beneficiaries to an ACO under section 

1899(c) of the Act. 

• Determination of whether an ACO 

is eligible for shared savings under 

section 1899(d)(2) of the Act), the 

amount of shared savings, including the 

determination of the estimated average 

per capita Medicare expenditures under 

the ACO for Medicare FFS beneficiaries 

assigned to the ACO and the average 

benchmark for the ACO under section 

1899(d)(1)(B) of the Act. 

• Percent of shared savings specified 

by the Secretary under section 

1899(d)(2) of the Act and any limit on 

the total amount of shared savings. 

• Termination of an ACO under 

section 1899(d)(4) of the Act for failure 

to meet quality performance standards. 

The statute is otherwise silent 

regarding an ACO’s right to contest 

decisions on such matters as eligibility 

to participate in the Shared Savings 

Program or termination for avoidance of 

at-risk beneficiaries. Accordingly, we 

believe it is important to establish a fair 

administrative process by which ACOs 

may request review of decisions, such as 

the denial of an ACO application or the 

termination of an existing ACO 

agreement for reasons other than those 

exempted by statute. An administrative 

reconsideration process provides an 

opportunity to resolve disputes quickly 

and efficiently, and creates an 

administrative record that can serve as 

the basis for any further review of the 

agency’s decision. 

Based on our experiences with the 

Medicare durable medical equipment 

prosthetics orthotics and supplies 

(DMEPOS) competitive bidding program 

and the MA Part C and D programs, we 

are proposing to implement 

reconsideration review procedure 

similar to the review process used by 

those programs for initial 

determinations that are not precluded 

from administrative or judicial review 

by statute. These initial determinations 

would include the denial of an ACO 

application or the termination of an 

ACO participation agreement. Under 

this proposal, if we deny a Shared 

Savings Program application, the 

applicant would be able to request 

reconsideration of our determination 

from a CMS reconsideration official. 

This process would not apply to 

applicants who are rejected on the 

grounds that their certified application 

was not submitted by the required 

deadline, because in this situation no 

valid application would have been 

submitted. In the case where an ACO 

has entered a 3-year agreement and 

subsequently met criteria for 

termination, we will give the ACO 

notification of our initial determination 

to terminate the agreement. The ACO 

would be able to request an 

independent review from a CMS 

reconsideration official who will 

reconsider the initial determination. 

We propose that if an ACO or ACO 

applicant wants to request a review by 

a CMS reconsideration official of an 

adverse initial determination, it must 

submit a written request by an 

authorized official for receipt by CMS 

within 15 days of the adverse initial 

determination. If the 15th day is a 

weekend or a Federal holiday, then the 

timeframe is extended until the end of 

the next business day. Failure to submit 

a request for a reconsideration review 

within 15 days will result in denial of 

the request for a review. 

Reconsideration reviews are 

scheduled at the discretion of the 

review official and may be held orally 

(that is, in person, by telephone or other 

electronic means) or on the record 

(review submitted documentation). The 

ACO or ACO applicant will receive 

acknowledgement of the reconsideration 

request that will outline the review 

procedures. The burden of proof would 

be on the ACO or ACO applicant to 

demonstrate to the reconsideration 

official with convincing evidence that 

the termination or application denial is 

not consistent with CMS’ regulations or 

statutory authority. The ACO or ACO 

applicant may not use the 

reconsideration process to submit 

required documentation as evidence for 

the record that was not previously 

submitted to CMS by the applicable 

deadline. Furthermore, the 

reconsideration official will only 

consider evidence for the record that is 

submitted in the required format and in 

the timeframes indicated in the 

acknowledgement notification, unless 

additional information is requested by 

the official. Following the review, the 

reconsideration official will issue a 

recommended decision. 

We further propose that if the ACO or 

ACO applicant disagrees with the 

recommendation of the reconsideration 

official, it will have an opportunity to 

request a record review of the initial 

determination and recommendation of 

the reconsideration official by an 

independent CMS official who was not 

involved in the initial determination or 

the reconsideration review process. An 

ACO or ACO applicant that wishes to 

request an on the record review of the 

reconsideration official’s 

recommendation must submit an 

explanation of why it disagrees with the 

recommendation in the timeframe and 

in the format indicated in the 

recommendation letter. The CMS 

official may also review the 

recommendation of the reconsideration 

official on his or her own motion. The 

on the record review process will be 

based only on evidence presented for 

the reconsideration review. The CMS 

official will review the recommendation 

of the reconsideration official and the 

supporting materials and make a final 

agency determination. 

If an ACO applicant requests a review 

of a decision to deny its application, 

and our initial determination is upheld, 

the application will be considered to 

have been denied based on the effective 

date of the original notice of denial. An 

ACO that requests a reconsideration 

review of an initial determination to 

terminate its participation in the Shared 

Savings Program will be permitted to 

continue to participate during the 

review process. However, if our initial 

determination to terminate the 

agreement with the ACO is upheld, the 

decision to terminate the agreement is 

effective as of the date indicated in the 

initial notice of termination. 

An ACO whose Shared Savings 

Program application has been denied or 

whose Shared Savings Program 

agreement has been terminated due to a 

determination made by a reviewing 

antitrust agency may not contest the 

merits of the antitrust agency’s 

determination through the 

reconsideration review process 

proposed in this rule. Furthermore, the 


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19628 Federal Register / Vol. 76, No. 67 / Thursday, April 7, 2011 / Proposed Rules 

reconsideration review process 

proposed in this rule shall not be 

construed to negate, diminish, or 

otherwise alter the applicability of 

existing laws, rules, and regulations or 

determinations made by other 

government agencies. 

We invite public comment, in general, 

on the structures and procedure of an 

appropriate review process for ACOs 

terminated for avoidance of at-risk 

beneficiaries or other reasons not 

exempted from review by statute. 

I. Coordination With Other Agencies 

As mentioned previously, in 

developing the Shared Savings Program, 

and in response to stakeholder 

concerns, we have worked very closely 

with agencies across the Federal 

Government to facilitate participation in 

the Shared Savings Program and to 

ensure a coordinated and aligned interand intra-agency effort in the 

implementation of the program. The 

result of this effort is the release of three 

documents with which potential 

participants are strongly encouraged to 

become familiar. These documents 

include: (1) A joint CMS and DHHS 

Office of Inspector General (OIG) 

Medicare Program; Waiver Designs in 

Connection with the Medicare Shared 

Savings Program and the Innovation 

Center addressing proposed waivers of 

the civil monetary penalties (CMP) law, 

Federal anti-kickback statute, and the 

physician self-referral law; (2) an 

Internal Revenue Service (IRS) notice 

soliciting comments regarding the need 

for additional tax guidance for taxexempt organizations, including taxexempt hospitals, participating in the 

Shared Savings Program; (3) a proposed 

Antitrust Policy Statement issued by the 

FTC and DOJ (collectively, the Antitrust 

Agencies). In addition, we are proposing 

to preserve the benefits of competition 

for Medicare beneficiaries by precluding 

newly formed ACOs with market power 

from participating in the Shared Savings 

Program. 

1. Waivers of CMP, Anti-Kickback, and 

Physician Self-Referral Laws 

Certain arrangements between and 

among ACOs, ACO participants, other 

owners, ACO providers/suppliers, and 

third parties may implicate the CMP law 

(section 1128A(b)(1) and (2) of the Act), 

the Federal anti-kickback statute 

(section 1128B(b)(1) and (2) of the Act), 

and/or the physician self-referral 

prohibition (section 1877 of the Act). 

Section 1899(f) of the Act authorizes the 

Secretary to waive certain fraud and 

abuse laws as necessary to carry out the 

provisions of the Shared Savings 

Program. Accordingly, pursuant to 

section 1899(f) of the Act, CMS and OIG 

have jointly published elsewhere in this 

Federal Register a Medicare Program, 

Waiver Designs in Connection with the 

Medicare Shared Savings Program and 

the Innovation Center, which describes 

and solicits public input regarding 

possible waivers of the application of 

certain CMP law provisions, the Federal 

anti-kickback statute, and the physician 

self-referral law to specified financial 

arrangements involving ACOs under the 

Shared Savings Program. In addition, 

section 1115A(d)(1) of the Act, as added 

by section 3021 of the Affordable Care 

Act, authorizes the Secretary to waive 

the same fraud and abuse laws, among 

others, as necessary solely for the 

purposes of carrying out the provisions 

of section 1115A of the Act with respect 

to the testing of certain innovative 

payment and service delivery models by 

the Innovation Center. The notice with 

comment period published elsewhere in 

this Federal Register also solicits public 

input regarding that separate waiver 

authority. 

We expect that the waivers applicable 

to ACOs participating in the Shared 

Savings Program will be issued 

concurrently with our publication of the 

Shared Savings Program final rule. The 

requirements of the Shared Savings 

Program final rule will bear on the 

scope of any waivers granted for the 

Shared Savings Program. Because of the 

close nexus between the final 

regulations governing the structure and 

operation of ACOs under the Shared 

Savings Program and the development 

of waivers necessary to carry out the 

provisions of the Shared Savings 

Program, CMS and OIG may, when 

crafting waivers applicable to the 

Shared Savings Program, consider 

comments submitted in response to this 

Shared Savings Program proposed rule 

and the provisions of the Shared 

Savings Program final rule. Conversely, 

we may consider comments received in 

response to the joint notice with 

comment period when drafting the 

Shared Savings Program final rule. 

Members of the public submitting 

comment on this proposed regulation 

should consider commenting on the 

proposed waivers, as well. 

2. IRS Guidance Relating to Tax-Exempt 

Organizations 

Nonprofit hospitals and other health 

care organizations recognized by the IRS 

as tax-exempt organizations are likely to 

participate in the development and 

operation of ACOs in the Shared 

Savings Program. Accordingly, the IRS 

intends to solicit public comment on 

whether existing guidance relating to 

the Internal Revenue Code provisions 

governing tax exempt organizations is 

sufficient for those tax-exempt 

organizations planning to participate in 

the Shared Savings Program through 

ACOs, and if not, what additional 

guidance is needed. The IRS also 

intends to solicit comments concerning 

what guidance, if any, is necessary for 

tax-exempt organizations participating 

in ACOs that conduct activities 

unrelated to the Shared Savings 

Program. 

We plan to continue to work with the 

IRS to ensure a coordinated and aligned 

interagency effort in the implementation 

of the program. Nothing in this 

proposed rule should be construed to 

modify, impair, or supersede the 

applicability of any of the Federal tax 

laws. For further guidance, tax-exempt 

organizations and ACOs should review 

the IRS notice and solicitation of public 

comment. 

3. Antitrust Policy Statement 

Concurrently with the issuance of this 

Shared Savings Program proposed rule, 

the Antitrust Agencies have issued a 

proposed Statement of Antitrust 

Enforcement Policy Regarding 

Accountable Care Organizations 

Participating in the Medicare Shared 

Savings Program (Antitrust Policy 

Statement). The Antitrust Policy 

Statement applies to collaborations 

among otherwise independent providers 

and provider groups formed after March 

23, 2010 that have otherwise been 

approved to participate, or seek to 

participate, as ACOs in the Shared 

Savings Program. 

The Antitrust Policy Statement sets 

forth an antitrust ‘‘Safety Zone’’ for 

certain ACOs. Specifically, the Antitrust 

Policy Statement provides that the 

Antitrust Agencies, absent extraordinary 

circumstances, will not challenge an 

ACO that otherwise meets the CMS 

criteria to participate in the Shared 

Savings Program if ACO participants 

that provide the same service (common 

service) have a combined share of 30 

percent or less of each common service 

in each ACO participant’s Primary 

Service Area (PSA), wherever two or 

more ACO participants provide that 

service to patients from that PSA. Also, 

under the Rural Exception set forth in 

the Antitrust Policy Statement, ACOs 

may qualify for the Safety Zone under 

certain circumstances even if their 

combined PSA share for common 

services would be greater than 30 

percent. The Antitrust Policy Statement 

further provides that an ACO outside 

the Safety Zone may proceed without 

scrutiny by the Antitrust Agencies if its 

combined PSA share for each common 

service, wherever two or more ACO 


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participants provide that service to 

patients from that PSA, is less than or 

equal to 50 percent. An ACO in this 

category is also highly unlikely to 

present competitive concerns if it avoids 

certain specified conduct. The Antitrust 

Policy Statement explains, however, 

that for ACOs that do not meet the Rural 

Exception, a combined PSA share for 

common services of more than 50 

percent provides a valuable indication 

of an ACO’s potential for competitive 

harm. 

The Antitrust Policy Statement 

outlines a methodology by which ACOs 

can calculate their shares of common 

services (that is, the same services 

provided by two or more ACO 

participants) provided to patients from 

the same PSA. The common services 

consist of physician specialties, major 

diagnostic categories (‘‘MDCs’’) for 

inpatient settings, and outpatient 

categories for outpatient settings. We 

will make public the information 

necessary to designate common services 

and to calculate the pertinent PSA 

shares. 

We plan to continue to work with the 

Antitrust Agencies to determine the 

extent to which additional action may 

be appropriate with regard to ACOs in 

the Shared Savings Program. Nothing in 

this proposed rule should be construed 

to modify, impair, or supersede the 

applicability of any of the Federal 

antitrust laws. For further guidance, 

ACOs should review the Antitrust 

Policy Statement. 

4. Prohibition Against Shared Savings 

Program Participation by ACOs With 

Market Power 

a. Coordinating the Shared Savings 

Program Application With the Antitrust 

Agencies 

In light of the Antitrust Agency Policy 

Statement, we propose to require that, 

except for an ACO that qualifies for the 

rural exception articulated in the Policy 

Statement, an ACO with a PSA share 

above 50 percent for any common 

service that two or more ACO 

participants provide to patients from the 

same PSA must submit to us, as part of 

its Shared Savings Program application, 

a letter from the reviewing Antitrust 

Agency confirming that it has no 

present intent to challenge or 

recommend challenging, the proposed 

ACO. Absent such a letter, the proposed 

ACO will not be eligible to participate 

in the Shared Savings Program. In 

addition, the Antitrust Policy Statement 

explains that ACOs that are outside the 

Safety Zone and below the 50 percent 

mandatory review threshold frequently 

may be procompetitive. It highlights 

how ACOs in this category that do not 

impede the functioning of a competitive 

market and that engage in 

procompetitive activities will not raise 

competitive concerns and may proceed 

without Agency scrutiny. However, to 

provide additional antitrust guidance, 

the Antitrust Policy Statement identifies 

five types of conduct that an ACO can 

avoid to significantly reduce the 

likelihood of an antitrust investigation. 

An ACO in this category that desires 

further certainty regarding the 

application of the antitrust laws to its 

formation and planned operation also 

can seek an expedited review from the 

Antitrust Agencies, similar to the 

mandatory review described previously. 

Such an ACO will not be eligible to 

participate in the Shared Savings 

Program if the reviewing Antitrust 

Agency reviews the ACO and 

determines that it is likely to challenge 

or recommend challenging the ACO as 

anticompetitive. Finally, we propose 

that an ACO that falls within the Safety 

Zone would not be required to obtain an 

Antitrust Agency review as a condition 

of participation. As noted in the 

Antitrust Policy Statement, the Antitrust 

Agencies are committed to providing 

expedited reviews for ACOs that exceed 

the 50 percent threshold and for those 

ACOs that fall below the 50 percent 

threshold and seek greater antitrust 

certainty. The procedures for obtaining 

such review are set forth in the Antitrust 

Policy Statement. 


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22See Daniel P. Kessler & Mark B. McClellan, Is 

Hospital Competition Socially Wasteful? 115 

Quarterly Journal of Econ. 577 (2000); Daniel P. 

Kessler & Jeffrey J. Geppert, The Effects of 

Competition on Variation in the Quality and Cost 

of Medical Care, 14 Journal of Econ. and Mgmt. 

Strategy 575 (2005). See also Abigail Tay Assessing 

Competition in Hospital Care Markets: The 

Importance of Accounting for Quality 

Differentiation 34 RAND Journal of Econ. 786 

(2003). 

23 Daniel P. Kessler & Mark B. McClellan, Is 

Hospital Competition Socially Wasteful? 115 

Quarterly Journal of Econ., 577 (2000). 

24 Daniel P. Kessler & Jeffrey J. Geppert, The 

Effects of Competition on Variation in the Quality 

and Cost of Medical Care 14 Journal of Econ. and 

Mgmt. Strategy, 575 (2005). 

25Federal Trade Commision & Department of 

Health and Human Services, Medicare Program; 

Workshop Regarding Accountable Care 

Organizations, and Implications Regarding 

Antitrust, Physician Self-Referral, Anti-kickback, 

and Civil Monetary Penalty (CMP) Laws, 75 FR 

57039. 

26Report to Congress: Medicare Payment Policy, 

111th Cong. (2010), available at http:// 

www.medpac.gov/documents/Mar10_Entire

Report.pdf. 

Additionally, we recognize there may 

be instances during the 3-year 

agreement period where there is a 

material change (as discussed in section 

II. C.) in the participant and/or 

provider/supplier composition of an 

ACO. When this occurs, we have 

proposed that the ACO must notify us 

of the change within 30 days and that 

the ACO must recalculate and report at 

that time their PSA shares for common 

services that two or more independent 

ACO participants provide to patients 

from the same PSA. We propose that if 

any revised PSA share is calculated to 

be greater than 50 percent, the ACO will 

be subject to mandatory review or rereview by the Antitrust Agencies in 

order to maintain the benefits of 

competition for Medicare beneficiaries 

and eligibility to participate in the 

Shared Savings Program. Finally, we 

propose that if the ACO fails to obtain 

a letter from the reviewing Antitrust 

Agency confirming that it has no 

present intent to challenge or 

recommend challenging the ACO, the 

ACO will be terminated from the Shared 

Savings Program. 

The purpose of requiring Antitrust 

Agency confirmation that it has no 

present intent to challenge or 

recommend challenging the ACO as a 

condition of participation is two-fold. 

First, the proposal ensures that ACOs 

participating in the Shared Savings 

Program will not present competitive 

problems that could subject them to 

antitrust challenge that may prevent 

them from completing the term of their 

3-year agreement with us. Section 

1899(b)(2)(B) of the Act provides that 

ACOs shall enter into an agreement with 

the Secretary to participate in the 

program for not less than a 3-year 

period. We believe the requirement that 

ACOs be willing and able to commit to 

a 3-year agreement to participate in the 

Shared Savings Program is necessary to 

ensure that the program achieves its 

long-term goal of redesigning health 

care processes, and our proposal here 

furthers that intent. 

Second, the proposal maintains 

competition for the benefit of Medicare 

beneficiaries by reducing the potential 

for the creation of ACOs with market 

power. As discussed in more detail later 

in the document, we believe that 

competition in the marketplace benefits 

Medicare and the Shared Savings 

Program because it promotes quality of 

care for Medicare beneficiaries and 

protects beneficiary access to a variety 

of providers. Furthermore, competition 

benefits the Shared Savings Program by 

allowing the opportunity for the 

formation of two or more ACOs in an 

area, which could accelerate 

advancements in quality and efficiency. 

All of these benefits to Medicare 

patients would be reduced or eliminated 

if we allow ACOs to participate in the 

Shared Savings Program when their 

participation would create market 

power. 

b. Competition and Quality of Care 

Because Medicare prices are 

regulated, ACOs participating in the 

Shared Savings Program will not 

compete on the basis of price. 

Nevertheless, economic theory and 

competition policy suggest that these 

ACOs will compete to serve Medicare 

beneficiaries on the basis of nonprice 

dimensions such as quality of care, 

innovations that improve care, and 

choice in treatment options. Empirical 

studies of the Medicare program 

confirm this theory and demonstrate 

that, where prices are fixed, competition 

among health care providers produces 

higher quality for consumers.22 The 

most prominent study of markets with 

fixed prices examined the impact of 

market concentration on mortality for 

Medicare heart attack patients. The 

study found that mortality was 

significantly higher for patients in more 

concentrated markets.23 A later study 

had similar findings in that high-risk 

Medicare patients’ heart attack mortality 

was higher in highly concentrated 

markets, while there was no such effect 

for low-risk patients.24 Overall, the 

evidence suggests that competition in 

the presence of regulated prices fosters 

improved quality. 

The means by which competition 

fosters improvements in quality, 

innovation, and choice for Medicare 

patients can vary. For example, 

competition among ACOs can: 

• Motivate innovation in the use of 

existing treatment and care protocols 

and the development of new protocols. 

ACOs with better quality would be 

expected to attract more patients, and 

ACOs with both better quality and lower 

costs would obtain a greater percentage 

of shared savings. 

• Accelerate the development of 

evidence-based best practices. In some 

instances, physicians may differ on the 

best course of treatment in a given case. 

In the early stages of developing 

evidence-based best practices, there may 

be no way to know which practice or 

care protocols among several 

alternatives would be most effective. An 

ACO with market power may have less 

incentive to test alternative practices or 

care protocols. 

• Raise the likelihood of preserving 

alternatives in the market, ultimately 

leading to the emergency of better 

procedures and treatments. 

• Provide better benchmarks for 

quality improvements. For example, 

although a single ACO might claim that 

environmental or demographic factors 

limit what it can achieve in the 

treatment of certain illnesses, a 

comparison among multiple ACOs in 

the same service area could better 

ensure that the best standards possible 

under prevailing conditions are being 

met. 

c. Competition, Price, and Access To 

Care 

A concern with potential ACO market 

power in the commercial (as well as the 

Medicare) market is warranted, because 

recent commentary suggests that health 

care providers are more likely to create 

ACOs under the Shared Savings 

Program if they can use the same ACOs 

to serve both Medicare beneficiaries and 

patients covered by commercial 

insurance.25 If we permitted the creation 

of ACOs with market power to operate 

in the Shared Savings Program, those 

ACOs would likely operate in the 

commercial market as well. In the 

commercial market, however, prices are 

not regulated, so newly created ACOs 

with market power could raise prices to 

private purchasers and payers of health 

care insurance above competitive levels. 

Higher commercial prices create 

disparities in payment rates between 

commercial purchasers and payers 

compared to Medicare rates. As reported 

in a study by MedPAC staff, hospitals 

with high payments from private payers 

had high levels of overall profitability.26

Similarly, ACOs may wish to increase 

the profitable private patients they serve 

and, as a result, reduce the number of 


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Medicare beneficiaries they serve. In 

this way, commercial price increases 

resulting from newly created ACOs with 

market power could limit access to care 

for Medicare beneficiaries. Our proposal 

to require ACOs that exceed the 50 

percent threshold to undergo a 

mandatory antitrust review seeks to 

ensure that there are sufficient providers 

to allow the formation of competing 

ACOs to serve Medicare beneficiaries. 

In summary, we believe that it is 

reasonable and appropriate to make 

approval of an ACO’s Shared Savings 

Program application and continuation 

in the program contingent on the 

absence of a determination by the 

reviewing Antitrust Agency that it is 

likely to challenge or recommend 

challenging the ACO, or in the case of 

an ACO that exceeds the 50 percent 

threshold, on the ACO’s submission of 

written confirmation from the reviewing 

Antitrust Agency that it has no present 

intent to challenge or recommend 

challenging the ACO. 

We plan to continue to work with the 

Antitrust Agencies to determine the 

extent to which additional actions may 

be appropriate with regard to ACOs 

participating in the Shared Savings 

Program. We will also work closely with 

the Innovation Center (which is charged 

with considering whether the models it 

tests demonstrate effective linkage with 

other public and private sector payers) 

and will use the results from the ACO 

models it tests to inform possible future 

rulemaking that may be necessary in 

order to maintain ACO competition for 

the benefit of Medicare beneficiaries. 

Nothing in these regulations shall be 

construed to modify, impair, or 

supersede the applicability of the 

antitrust laws. 

J. Overlap With Other CMS Shared 

Savings Initiatives 

1. Duplication in Participation in 

Medicare Shared Savings Programs 

The statute includes a provision that 

precludes duplication in participation 

in shared savings programs. Section 

1899 of the Act states that providers of 

services or suppliers that participate in 

certain programs are not eligible to 

participate in the Shared Savings 

Program. Section 1899(b)(4)(A) and (B) 

of the statute, as added by section 3022 

of the Affordable Care Act, states these 

exclusions are ‘‘(A) a model tested or 

expanded under section 1115A [the 

Innovation Center] that involves shared 

savings under this title or any other 

program or demonstration project that 

involves such shared savings; (B) the 

independence at home medical practice 

pilot program under section 1866E.’’ 

Other shared savings programs that 

include the opportunity for Medicareenrolled TINs to earn payment, in the 

form of shared savings, for savings to 

Medicare for Part A and B services 

rendered to Medicare FFS beneficiaries 

would be considered duplicative. We 

have determined that the following 

existing shared savings programs 

overlap with the Shared Savings 

Program and therefore, a Medicareenrolled TIN may not participate in both 

the Shared Savings Program and one of 

the following: 

• Independence at Home Medical 

Practice Demonstration program, as 

established by section 3024 of the 

Affordable Care Act. 

• Medicare Health Care Quality 

Demonstration Programs, as established 

by section 646 of the Medicare 

Modernization Act. 

• Medical home demonstrations with 

a shared savings element: Currently, the 

only such Medicare demonstration that 

includes a shared savings component is 

the multi-payer advanced primary care 

demonstration 

• Physician Group Practice Transition 

Demonstration. 

Additional programs, demonstrations, 

or models with a shared savings 

component may be introduced in the 

Medicare program in the future. 

Interested parties should check the CMS 

Web site for an updated list to ensure 

that a provider or supplier participating 

in the Shared Savings Program does not 

participate in another Medicare program 

or demonstarion involving shared 

savings. 

The prohibition against duplication in 

participation in shared savings 

programs applies only to programs that 

involve shared savings under Medicare, 

and the following are examples of such 

programs established by the Affordable 

Care Act which are unlikely to generate 

duplicative shared savings: 

• State initiatives to provide health 

homes for Medicaid enrollees with 

chronic conditions as authorized under 

section 2703 of the Affordable Care Act. 

• Program to establish community 

health teams to support patient-centered 

medical homes under section 3502 of 

the Affordable Care Act. 

We believe a principal reason 

underlying the prohibition against 

participation in multiple shared savings 

programs is to prevent a provider or 

supplier from being rewarded twice for 

achieving savings in the cost of care 

provided to the same beneficiary. As 

discussed in section II.D. of this 

proposed rule, we propose that 

beneficiaries will be assigned to an ACO 

based upon the TIN of the ACO 

participant from which they receive the 

plurality of their primary care services. 

Therefore, to ensure that a provider or 

supplier is rewarded only once with 

shared savings for the care of a 

beneficiary, an ACO participant may not 

also participate in another Medicare 

program or demonstration involving 

shared savings. However, in order to 

maintain as much flexibility as possible 

for ACO providers/suppliers to 

participate concurrently in multiple 

CMS shared savings programs, we do 

not believe it is appropriate to extend 

this prohibition to individual providers 

and suppliers. We explore alternative 

provider incentives, payment 

arrangements and care delivery 

mechanisms through its shared savings 

programs, often specific to subsets of 

Medicare or Medicaid beneficiaries. To 

further our understanding of the 

delivery of cost effective and high 

quality care, and to ensure beneficiaries 

receive the most appropriate care 

possible relative to their needs, 

individual practitioners should have the 

opportunity to concurrently participate 

in multiple shared savings programs. 

Accordingly, an ACO provider/supplier 

who submits claims under multiple 

Medicare-enrolled TINs may participate 

in both the Shared Savings Program and 

another shared savings program if the 

patient population is unique to each 

program and if none of the relevant 

Medicare-enrolled TINs participate in 

both programs. For example, an ACO 

practitioner participating in the Shared 

Savings Program under an ACO 

participant practice TIN could also 

participate in the Independence at 

Home Demonstration under a different 

TIN that is not an ACO participant since 

there would be no duplication in 

beneficiary assignment; and therefore, 

no duplication in shared savings. 

We propose a process for ensuring 

that savings associated with 

beneficiaries assigned to an ACO 

participating in the Shared Savings 

Program are not duplicated by savings 

earned in another Medicare program or 

demonstration involving shared savings. 

If such a program assigns beneficiaries 

based upon the TINs of health care 

providers from whom they receive care, 

we will compare the participating TINs 

in the program with those in the Shared 

Savings Program to ensure that TINs 

used for beneficiary assignment to an 

ACO participating in the Shared Savings 

Program are unique and that 

beneficiaries are assigned to only one 

shared savings program. If the other 

program or demonstration involving 

shared savings does not assign 

beneficiaries based upon the TINs of the 

health care providers from whom they 


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receive care, but uses an alternate 

beneficiary assignment methodology, 

we propose working with the 

developers of the respective 

demonstrations and initiatives to devise 

an appropriate method to ensure no 

duplication in shared savings payment. 

Applications for participation in the 

Shared Savings Program that include 

TINs that are already participating in 

another Medicare shared savings 

program will be rejected. 

2. Transition of the Physician Group 

Practice (PGP) Demonstration Sites Into 

the Shared Savings Program 

The PGP demonstration, authorized 

under section 1866A of the Act, was our 

first experience with a shared savings 

program in Medicare. The PGP 

demonstration serves as a model for 

many aspects of the Shared Savings 

Program. Section 1899(k) of the Act 

speaks directly to the treatment of the 

PGP demonstration. ‘‘During the period 

beginning on the date of the enactment 

of this section and ending on the date 

the program is established, the Secretary 

may enter into an agreement with an 

ACO under the demonstration under 

section 1866A of the Act, subject to 

rebasing and other modifications 

deemed appropriate by the Secretary.’’ 

As the final performance year of the 

initial five year PGP demonstration 

concluded in March 2010, this section 

of the Affordable Care Act authorizes 

the Secretary to extend the PGP 

demonstration. 

It is likely that the 10 physician 

groups in the PGP demonstration will be 

uniquely situated and qualified to be 

among the organizations which are 

ready to become early participants in 

the Shared Savings Program. As noted 

previously, consistent with section 

1899(b)(4) of the Act, to be eligible to 

participate in the Shared Savings 

Program, a provider of services or 

supplier may not also be participating in 

a demonstration project that involves 

shared savings, such as the PGP 

demonstration. Thus, the PGP sites 

would be permitted to participate in 

either the PGP demonstration or the 

Shared Savings Program under section 

1899 of the Act, but could not 

participate in both. Since assignment 

methodologies are similar between the 

Shared Savings Program and the PGP 

demonstration, we will provide for 

unique assignment of beneficiaries by 

ensuring there is no overlap in 

participating Medicare-enrolled TINs as 

mentioned previously. 

We believe it is appropriate to 

consider what transition process should 

be available for those PGP 

demonstration sites that wish to 

participate in the Shared Savings 

Program. We do not believe that 

automatically transferring the PGP 

demonstration sites into the Shared 

Savings Program is appropriate because 

we are concerned that some of the PGP 

demonstration participants may be 

incapable of meeting the Shared Savings 

Program’s requirements, thereby 

jeopardizing the participant’s ability to 

achieve the overall goals associated with 

the Shared Savings Program, including 

the ability to achieve shared savings. On 

the other hand, requiring the PGP sites 

to undergo the same application process 

as all other entities would not account 

for our familiarity with these 

organizations, and their experience with 

redesigning care processes and 

improving quality in a shared savings 

setting. In addition, requiring the sites 

to undergo the full application process 

could potentially deter qualified sites 

that are currently participating in the 

PGP demonstration from transitioning 

from the PGP demonstration to the 

Shared Savings Program. 

We propose that should a PGP site 

decide to apply for participation to the 

Shared Savings Program, we will give 

the site the opportunity to complete a 

condensed application form. The 

condensed application form would 

require the applicant to provide the 

information that is required for the 

standard Shared Savings Program 

application but that was not already 

obtained through its application for or 

via its participation in the PGP 

demonstration and, if necessary, to 

update any information contained in its 

application for the PGP demonstration 

that is also required on the standard 

Shared Savings Program application. 

For instance, the condensed application 

would ensure that the PGP site satisfies 

the eligibility requirements of the 

Shared Savings Program, as follows: 

• Establishing a shared governance 

structure and leadership and 

management structure according to 

program requirements; 

• Providing documentation around 

processes for quality management and 

patient engagement, and patientcenteredness criteria as described in 

section II.B of this proposed rule. 

However, it should be noted that some 

PGP sites applying to the Shared 

Savings Program may not constitute a 

newly created ACO and therefore would 

be exempt from the antitrust review 

described previously in the 

Coordination With Other Agencies 

section of this preamble. 

3. Overlap With the Center for Medicare 

& Medicaid Innovation (Innovation 

Center) Shared Savings Models 

Section 1899(i) of the Act gives the 

Secretary the authority under the 

Shared Savings Program to use other 

payment models determined to be 

appropriate, including partial capitation 

and any additional payment model that 

the Secretary determines will improve 

the quality and efficiency of items and 

services furnished under Medicare. The 

purpose of the Innovation Center, 

established in section 1115A of the Act, 

as amended by section 3021 of the 

Affordable Care Act, is to test innovative 

payment and service delivery models to 

reduce expenditures under Medicare, 

Medicaid, and the CHIP, while 

preserving or enhancing the quality of 

care furnished to individuals under 

these programs. Preparations are 

currently underway to develop this 

capability. Within the Innovation 

Center, it may be possible to test 

different payment models, provide 

assistance to groups of providers and 

suppliers that wish to develop into an 

ACO, or enhance our understanding of 

different benchmarking methods. As the 

Innovation Center gains experience with 

different ACO payment models, we can 

use proven methods to enhance and 

improve the Shared Savings Program 

over time. 

As mentioned previously, section 

1899(b)(4) of the Act also restricts 

providers of services and suppliers from 

participating in both the Shared Savings 

Program and other shared savings 

programs and demonstrations. We 

intend to coordinate our efforts to 

ensure that there is no duplication of 

participation in shared savings 

programs through provider or supplier 

participation in both the Shared Savings 

Program and any shared savings models 

tested by the Innovation Center. 

Similarly, we will also take steps to 

ensure there is a methodology to avoid 

duplication of payments for 

beneficiaries aligned with providers and 

suppliers in both the Shared Savings 

Program and any current or future 

models tested by the Innovation Center. 

Finally, the Innovation Center is 

seeking input on how it can best test 

different payment models that provide 

financial and technical assistance to 

groups of providers and suppliers that 

may wish to develop into an ACO. 

III. Collection of Information 

Requirements 

As stated in section 3022 of the 

Affordable Care Act, Chapter 35 of title 

44, United States Code, shall not apply 

to the Shared Savings Program. 


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Consequently, the information 

collection requirements contained in 

this proposed rule need not be reviewed 

by the Office of Management and 

Budget. 

IV. Response to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

comments we receive by the date and 

time specified in the DATES section of 

this preamble, and, when we proceed 

with a subsequent document, we will 

respond to the comments in the 

preamble to that document. 

V. Regulatory Impact Analysis 

A. Introduction 

We have examined the impacts of this 

proposed rule as required by Executive 

Order 12866 on Regulatory Planning 

and Review (September 30, 1993), 

Executive Order 13563 on Improving 

Regulation and Regulatory Review 

(January 18, 2011), the Regulatory 

Flexibility Act (RFA) (September 19, 

1980, Pub. L. 96–354), section 1102(b) of 

the Act, section 202 of the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4), Executive Order 13132 on 

Federalism (August 4, 1999), and the 

Congressional Review Act (5 U.S.C. 

804(2)). 

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing rules, 

and of promoting flexibility. This rule 

has been designated an ‘‘economically’’ 

significant rule, under section 3(f)(1) of 

Executive Order 12866. Accordingly, 

the rule has been reviewed by the Office 

of Management and Budget. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

also requires that agencies assess 

anticipated costs and benefits before 

issuing any rule whose mandates 

require spending in any 1 year of $100 

million in 1995 dollars, updated 

annually for inflation. In 2011, that 

threshold is approximately $136 

million. This proposed rule does not 

include any mandate that would result 

in spending by State, local or tribal 

governments, in the aggregate, or by the 

private sector in the amount of $136 

million in any one year. We 

acknowledge that there will be costs 

borne by the private sector, as discussed 

in this regulatory impact section, in 

order to participate in this program; 

however, participation is voluntary and 

is not mandated. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

requirement costs on State and local 

governments, pre-empts State law, or 

otherwise has Federalism implications. 

We do not believe that there is anything 

in this proposed rule that either 

explicitly or implicitly pre-empts any 

State law, and furthermore we do not 

believe that this proposed rule will have 

a substantial direct effect on State or 

local governments, preempt States law, 

or otherwise have a Federalism 

implication. 

B. Statement of Need 

This proposed rule is necessary to 

implement section 3022 of the 

Affordable Care Act which amended 

Title XVIII of the Act (42 U.S.C. 1395 et 

seq.) by adding a new section 1899 of 

the Act to establish a Shared Savings 

Program that promotes accountability 

for a patient population, coordinates 

items and services under parts A and B, 

and encourages investment in 

infrastructure and redesigned care 

processes for high quality and efficient 

service delivery. Section 1889(a)(1) of 

the Act requires the Secretary to 

establish this program not later than 

January 1, 2012. Also, section 

1889(a)(1)(A) of the Act states that 

under this program, ‘‘groups of 

providers of services and suppliers 

meeting criteria specified by the 

Secretary may work together to manage 

and coordinate care for Medicare feefor-service beneficiaries through an 

accountable care organization (referred 

to as an ‘ACO’);’’ and section 

1889(a)(1)(B) of the Act provides that 

‘‘ACOs that meet quality performance 

standards established by the Secretary 

are eligible to receive payments for 

shared savings * * *.’’ 

The Shared Savings Program is a new 

approach to the delivery of health care 

aimed at reducing fragmentation, 

improving population health, and 

lowering overall health care costs. 

The Shared Savings Program should 

provide an entry point for all willing 

organizations who wish to move in a 

direction of providing value-driven 

healthcare. Consequently, in accordance 

with the authority granted to the 

Secretary under sections 1899(d) and 

1899(i) of the Act, we looked at creating 

both a shared savings model (one-sided) 

and a shared savings/losses model (twosided). The sharing parameters under 

the two options are balanced so as to 

provide greater reward for organizations 

accepting risk while maintaining 

sufficient incentive to encourage 

providers to participate in the one-sided 

model, providing an entry point to riskoriented models. 

As detailed in Table 10, we estimate 

a total aggregate median impact of $510 

million in net Federal savings for CYs 

2012 through 2014 from the 

implementation of the Shared Savings 

Program. (An estimate produced by the 

Office of the Actuary on April 22, 2010 

showed no net impact only because the 

statute by itself lacked enough detail to 

allow for scoring.) The 10th and 90th 

percentiles of the estimate distribution, 

for the same time period, show net 

savings of $960 million and $170 

million. These estimated impacts 

represent the effect on Federal transfers. 

The estimated aggregate cost for start-up 

investment and first year operating 

expenditures for ACOs in the Shared 

Savings Program range from 

$131,643,825 to $263,287,650, assuming 

75 to 150 ACOs participating in the 

Shared Savings Program. Furthermore, 

the Shared Savings Program would 

benefit beneficiaries since the program 

requires ACOs to be accountable for 

Medicare beneficiaries, improve the 

coordination of FFS items and services, 

encourage investment in infrastructure 

and redesigned care processes for high 

quality and efficient service delivery 

that demonstrate a dedication and focus 

toward patient-centered care. 

Accordingly, we have prepared a RIA 

that to the best of our ability presents 

the costs and benefits of this proposed 

rule. We solicit comment on the 

assumptions and analysis presented 

throughout this regulatory impact 

section. 


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As discussed in the preamble of this 

proposed rule, the Shared Savings 

Program establishes a program whereby 

groups of suppliers and providers can 

work together through ACOs that would 

assume responsibility for managing and 

coordinating the care of groups of 

traditional FFS Medicare patients. 

Participating ACOs will have the 

opportunity to earn shared savings 

payments by reducing Medicare 

expenditure growth for their assigned 

beneficiaries below specified target 

thresholds or benchmarks while 

simultaneously meeting quality 

performance measures. An ACO could 

initially opt for one of two program 

tracks. The first option (one-sided 

model) offers eligibility for shared 

savings payments in years 1 and 2 

without the risk of being responsible for 

repaying any losses if actual 

expenditures exceed the benchmark, 

followed by a third year offering a 

higher percentage of shared savings but 

also risk for excess expenditures above 

the benchmark. The second option (twosided model) provides an opportunity 

for receiving a higher percentage of 

shared savings for all 3 years, but with 

potential liability in each of the 3 years 

for annual expenditures that exceed the 

benchmark. 

There is substantial uncertainty as to 

the number of ACOs that will 

participate in the program, their 

characteristics, provider and supplier 

response to the financial incentives 

offered by the program, and the ultimate 

effectiveness of the changes in care 

delivery that may result as ACOs work 

to improve the quality and efficiency of 

patient care. These program design and 

other uncertainties complicate efforts to 

assess the financial impacts of the 

Shared Savings Program and result in a 

wide range of potential outcomes 

regarding the net impact on Medicare 

expenditures. 

To best reflect these uncertainties, we 

designed a stochastic model that 

incorporates assumed probability 

distributions for each of the key 

variables that will affect the overall 

financial impact of the Shared Savings 

Program. Using a Monte Carlo 

simulation approach, the model 

randomly draws a set of specific values 

for each variable, reflecting the expected 

covariance among variables, and 

calculates the program’s financial 

impact based on the specific set of 

assumptions. We repeated the process 

for a total of 5,000 random trials, 

tabulating the resulting individual cost 

or savings estimates to produce a 

distribution of potential outcomes that 

reflects the assumed probability 

distributions of the incorporated 

variables, as shown in Table 10. In this 

way, we can evaluate the full range of 

potential outcomes based on all 

combinations of the many factors that 

will affect the financial impact, and 

with an indication of the likelihood of 

these outcomes. It is important to note 

that these indications do not represent 

formal statistical probabilities in the 

usual sense, since basis for the 

underlying assumptions for each of the 

factors in the model are based on 

reasonable judgments, using 

independent expert opinion when 

available. 

The median result from the 

distribution of simulated outcomes 

represents the ‘‘best estimate’’ of the 

financial effect of the Shared Savings 

Program, recognizing the uncertainty 

inherent in a new program with 

uncertain responses. The full 

distribution illustrates the uncertainty 

surrounding the mean or median 

financial impact from the simulation. 

As detailed in Table 11, the median 

estimate involves a combination of: (1) 

Reduced actual Medicare expenditures 

due to more efficient care; (2) shared 

savings payments to ACOs; and (3) 

payments to CMS for shared losses 

when actual expenditures exceed the 

benchmark, resulting in a projected total 

of $510 million in net savings over CYs 

2012 through 2014. Approximately 97 

percent of the stochastic trials resulted 

in a net savings to the Medicare 

program, while the other 3 percent 

produced a net cost. At the extremes, 

the greatest simulated savings was 

approximately $1,960 million, while the 

greatest simulated cost was $270 

million. 

A net savings (costs) occurs when the 

payment of earned and unearned 

shared-savings bonuses (less penalties 

collected) resulting from— (1) 

Reductions in spending; (2) program 

design; and (3) random group claim 

fluctuation, in total are less than (greater 

than) assumed savings from reductions 

in expenditures. 

As we finalize the Shared Savings 

Program provisions, and as the actual 

number of participating ACOs and their 

characteristics become known, the range 

of financial outcomes will narrow. 

Similarly, as data become available on 

the initial differences between actual 

expenditures and the target 

expenditures reflected in ACO 

benchmarks, it will be possible to 

evaluate the financial effects with 

greater certainty. The estimate 

distribution shown provides an 

objective and reasonable indication of 

the likely range of financial outcomes, 

given the chosen variables and their 

assumed distributions at this time in the 

program’s development. 

C. Anticipated Effects 

1. Effects on the Medicare Program 

As a voluntary program involving an 

innovative and complex mix of financial 

incentives for quality of care and 

efficiency gains within FFS Medicare, 

the Shared Savings Program could result 

in a wide range of possible outcomes. 

While examples exist across the 


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Federal Register / Vol. 76, No. 67 / Thursday, April 7, 2011 / Proposed Rules 19635 

healthcare marketplace for risk-sharing 

arrangements leading to efficiency 

gains, a one-sided model would 

presumably provide a weaker incentive 

to ACOs than other possible approaches. 

The optional two-sided risk model, and 

the requirement for all other ACOs to 

accept downside risk in their third 

program year, both provide stronger 

incentives than a shared savings only 

approach. For example, under the onesided model, a provider’s worst-case 

outcome is the failure to earn sharedsavings. A provider would operate 

under the significant possibility that 

there would be no impact on their 

Medicare reimbursement. The two-sided 

risk model, however, presents liability 

for excessive expenditures, significantly 

increasing a provider’s perceived 

likelihood that aggregate Medicare 

revenue will depend on the level of 

efficiency with which they operate. In 

addition, the two-sided model offers a 

lower minimum savings rate and a 

greater sharing percentage, both of 

which enhance the incentive for 

efficiency. However, participating ACOs 

may be more likely to choose the onesided model for the first 2 years and 

thereby avoid the potential for financial 

loss if expenditures experience a 

significant upward fluctuation or if 

efficiency improvements are less 

effective than planned. 

In the third year of their first 

agreement period, as noted previously, 

all ACOs that participate in the onesided model during the first 2 years of 

the agreement period will be required to 

transition to the two-sided risk model. 

We believe certain participating ACOs 

may choose to terminate their agreement 

early after the first 2 years. For example, 

ACOs in Track 1 that failed to meet the 

expenditure growth targets in the first 2 

years (but were protected from penalties 

by being in the one-sided model), would 

likely reconsider their continuing 

participation. Certain other ACOs, such 

as those in higher-cost areas of the 

country, could also terminate their 

agreement if they anticipate that the 

national growth formula, relative to 

their local baseline cost, puts them in 

jeopardy of experiencing losses in the 

third year. (Under section 2899(d) of the 

Act, we update ACO benchmarks by the 

estimated annual increase in the 

absolute amount of national average 

Medicare Part A and Part B 

expenditures, expressed as a flat dollar 

amount for each year. As a result, the 

updates to ACO benchmarks in 

percentage terms will be higher in lowcost areas of the country and lower in 

high-cost areas.) This scenario could 

contribute to selective program 

participation by ACOs favored by the 

national flat-dollar growth target. 

While shared FFS savings, even with 

optional liability for a portion of excess 

expenditures, offers less incentive to 

reduce costs or improve efficiency than, 

say, full capitation, it still represents a 

new incentive for efficiency. Sharedsavings (and potential liabilities) will 

have varying degrees of influence on 

hospitals, primary physicians, specialty 

physicians, and other providers. The 

expectation is for different ACOs to 

comprise a varying mix of these 

providers and suppliers. And while 

certain care improvements might be 

achieved relatively quickly (for 

example, prevention of hospital 

readmissions and emergency-room 

visits for certain populations with 

chronic conditions), many potential 

ACOs might need more than 3 years to 

achieve comprehensive efficiency gains. 

Challenges include identification of 

assigned beneficiaries, managing care 

furnished by providers and suppliers 

outside the ACO, lack of similar 

contracts with other payers, achieving 

buy-in from ACO providers and 

suppliers, and the extent to which 

possible future shared savings or losses 

will affect the perceived value of 

immediate FFS revenue for providers 

and suppliers participating in the ACO. 

a. Assumptions and Uncertainties 

We sought input from a wide range of 

external experts, including credentialed 

actuaries, consultants, and academic 

researchers, to identify the pertinent 

variables that could determine the 

efficacy of the program, and to identify 

the reasonable ranges for each variable. 

The assumptions identified and 

stochastically modeled include the 

following: 

• Number of participating ACO 

provider groups. 

• Size mix of participating ACOs. 

• Type of ACO that would consider 

accepting risk under the two-sided risk 

option. 

• Participating ACOs’ current level of 

integration and preparedness for 

improving the quality and efficiency of 

care delivery. 

• Baseline per-capita costs for 

prospective ACOs, relative to national 

average. 

• Number and profile of providers 

and suppliers unavailable to participate 

in the Shared Savings Program due to 

participation in ACO models tested by 

the Innovation Center. 

• Range of savings for participating 

ACOs within the first three years of the 

program. 

• Local variation in expected claims 

cost growth relative to the national 

average. 

• Quality reporting scores and 

resulting attained sharing (or loss) 

percentages. 

Overall we assumed 1.5 to 4 million 

Medicare beneficiaries would align with 

a participating ACO during the first 

three years of the program. We assumed 

ACOs to be more likely to participate 

from markets exhibiting baseline percapita FFS expenditures above the 

national average. In addition, we 

assumed the level of savings generated 

by an ACO to positively correlate to the 

achieved quality performance score and 

resulting sharing percentage. 

Of particular relevance is the high 

degree of variability observed for local 

per-capita cost growth rates relative to 

the national average ‘‘flat dollar’’ growth 

(used to update ACO benchmarks). The 

benchmark or expenditure target 

effectively serves as the only measure of 

efficiency for participating ACOs. 

Factors such as lower-than-average 

baseline per-capita expenditure and 

variation in local growth rates relative to 

the national average can trigger Shared 

Savings Program shared savings 

payments even in the absence of any 

efficiency gains. Similarly, some ACOs 

could find that in the determination of 

shared savings by factors such as 

prevailing per-capita expenditure 

growth in their service area that is 

higher than the national average 

overshadows their hard-fought 

efficiency gains. 

b. Detailed Stochastic Modeling Results 

Table 11 shows the distribution of the 

estimated net financial impact for the 

5,000 stochastically generated trials. 

(The amounts shown are in millions, 

with negative net impacts representing 

Medicare savings). The net impact is 

defined as the total cost of shared 

savings less—(1) any amount of savings 

generated by reductions in actual 

expenditures; and (2) any losses 

collected for ACOs that accepted risk 

and have actual expenditures exceeding 

their benchmark. 

The median estimate of the Shared 

Savings Program financial impact for 

calendar years 2012 through 2014 is a 

net savings of $510 million. This 

amount represents the ‘‘best estimate’’ of 

the 3-year financial impact of the 

Shared Savings Program initiative. It is 

important to note, however, the 

relatively wide range of possible 

outcomes. Overall, 97 percent of the 

stochastic trials resulted in net program 

savings, and the other 3 percent 

represented cost increases. The 10th and 

90th percentiles of the estimated 


srobinson on DSKHWCL6B1PROD with PROPOSALS2
19636 Federal Register / Vol. 76, No. 67 / Thursday, April 7, 2011 / Proposed Rules 

distribution show net savings of $960 

million and $170 million, respectively, 

suggesting a 10 percent likelihood that 

the actual impact would fall outside 

respective percentile amounts. In the 

extreme scenarios, the results were as 

large as $2 billion in savings or $270 

million in costs. 

Our Office of the Actuary (OACT) 

prepared the stochastic model and 

resulting financial estimates. OACT 

believes that the median result of $510 

million in savings is a reasonable ‘‘point 

estimate’’ of the impact of the Shared 

Savings Program provision in current 

law, as it would be implemented 

through this proposed rule. However, 

OACT emphasizes the possibility of 

outcomes that differ substantially from 

the median estimate, as illustrated by 

the estimate distribution. With the 

adoption of final program provisions 

and with additional data on the actual 

number and characteristics of 

participating ACOs, we can estimate the 

financial impact with greater precision. 

The projections assume the 

assignment of roughly 1.5 to 4 million 

beneficiaries to participating ACOs over 

the first 3 years. To the extent that the 

Shared Savings Program will result in 

net savings or costs to Part B of 

Medicare, revenues from Part B 

beneficiary premiums would also be 

correspondingly lower or higher. In 

addition, because MA payment rates 

depend on the level of spending within 

traditional FFS Medicare, Shared 

Savings Program savings or costs would 

result in corresponding adjustments to 

MA payment rates. Neither of these 

secondary impacts has been included in 

the analysis shown. 

Table 12 shows the median estimated 

financial effects for the Shared Savings 

Program initiative, and the associated 

10th and 90th percentile ranges, broken 

out for each of the first 3 years. For the 

first year, 2012, the median projection 

indicates a $100 million savings, 

primarily because the ACO costefficiency initiatives are generally not 

assumed to have matured, but a number 

of provider groups that benefit from 

favorable random claim fluctuations or 

from low baseline expenditure relative 

to the national average would receive 

shared saving payments. By the second 

and third years, 2013 and 2014, of the 

projection, the median estimates 

indicate net savings of $210 million and 

$200 million, respectively, from 

increased cost-saving effectiveness 

offset in part by shared savings paid due 

to random variation and the (increasing) 

variation in the accuracy of updated 

national targets compared to actual local 

growth as well as participation and 

sharing percentage changes resulting 

from mandatory transition to two-sided 

risk in the third year. As a result, the 

projections for years 2 and 3 cover a 

wider range of possible outcomes, 

reflecting a growing dependence on 

uncertain assumptions for savings and 

expenditure growth variation relative to 

the national average. 


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Federal Register / Vol. 76, No. 67 / Thursday, April 7, 2011 / Proposed Rules 19637 

c. Further Consideration 

The impact analysis shown is only for 

the first 3-year agreement period. 

Beyond this initial period, there is 

additional uncertainty, in significant 

part because the rules governing 

subsequent Shared Savings Program 

agreement periods have not yet been 

developed. A risk exists that by ACOs 

in low-cost areas could dominate the 

Shared Savings Program, where 

participation could be a relatively riskfree opportunity to achieve shared 

savings simply due to the generous 

benchmark presented by national 

average ‘‘flat-dollar’’ growth. On the 

other hand, the first 3-year agreement 

period ACOs could foster significant 

improvements in the quality and costefficiency of health care delivery, 

leading to broader use of these 

techniques nationwide and accelerated 

adoption of risk-sharing arrangements 

(such as partial capitation, bundled 

payments, etc.). These changes could 

result in significant efficiency gains in 

FFS Medicare. The stochastic model for 

the first 3 years of the program, does not 

incorporate either of these longer-run 

scenarios, but both remain 

possibilities—subject to the final 

program design and implementation. At 

this time, an impact estimate expanded 

to include performance beyond the 

initial 3-year period would likely entail 

a significantly wider range of possible 

outcomes. The results of the first 

performance cycle, however, will help 

inform estimates of the ongoing 

financial effects of the Shared Savings 

Program. 

2. Impact on Beneficiaries 

We anticipate the Shared Savings 

Program will benefit beneficiaries 

because the intent of the program is to 

require ACOs to be accountable for 

Medicare beneficiaries, improve the 

coordination of FFS items and services, 

encourage investment in infrastructure 

and redesigned care processes for high 

quality and efficient service delivery 

that demonstrates a dedication and 

focus toward patient-centered care. 

Patient-centered care is a concept that 

focuses healthcare delivery and 

communication on the patient and those 

who are close to the patient and bases 

the care and communication delivered 

around the needs of the beneficiary, 

thus benefitting the beneficiary 

community. This program does not 

affect the beneficiary’s freedom of 

choice regarding providers or care. Also, 

a requirement of ACO participation in 

the Shared Savings Program is reporting 

of, and successful performance related 

to, quality measures and patientexperience surveys. These aspects of the 

Shared Savings Program will encourage 

the provider and supplier community to 

focus on and deliver improved quality 

care. In addition to existing Medicare 

monitoring programs that are in place to 

protect beneficiaries, the Shared Savings 

Program will include monitoring and 

auditing processes to protect beneficiary 

choice as well as ensure that 

beneficiaries are receiving the 

appropriate care. As is discussed in 

more detail in the preamble, these 

processes include monitoring ACO 

avoidance of at-risk beneficiaries, 

assessing and providing follow up on 

beneficiary complaints, audits 

(including, for example, analysis of 

claims, chart review, beneficiary 

surveys, coding audits) and analysis of 

quality performance. 

More specifically, we believe that 

beneficiary impacts would be 

maximized as the ACO meets the 

mission of the Shared Savings Program, 

as established by the Affordable Care 

Act and embraces the following goals of 

better health and experience of care for 

individuals, better health for 

populations and lower expenditure 

growth. The ACO’s impact will be 

demonstrated by how effectively it 

delivers care as measured under the 

financial methodology outlined in 


srobinson on DSKHWCL6B1PROD with PROPOSALS2EP07AP11.032</GPH>
19638 Federal Register / Vol. 76, No. 67 / Thursday, April 7, 2011 / Proposed Rules 

section II. F, Shared Savings 

Determination, of this proposed rule, 

how well it improves and delivers high 

quality care outlined in the quality 

measurement and reporting 

methodology in section II.E. of this 

proposed rule, and in meeting program 

requirements for patient centered care 

outlined in the eligibility section II.B. of 

this proposed rule. 

Therefore, because of the 

accountability of ACOs for both the 

quality and overall cost of care provided 

to their assigned beneficiary population 

and must meet the quality performance 

standards prior to sharing any savings; 

they have new incentives to improve the 

health and well being of the 

beneficiaries they treat. ACOs will 

report on conditions and areas that are 

high prevalence and high cost in the 

Medicare population, such as chronic 

disease, ambulatory care sensitive 

conditions, care transitions and 

readmissions, and patient experience. 

We have observed that measuring 

quality and providing incentives can 

result in redesigned care processes that 

provide clinicians with actionable 

information on their patients at the 

point of care which can lead to 

improved patient care processes and 

outcomes. For example, the Medicare 

Physician Group Practice Demonstration 

Fact Sheet (CMS, August 2009) showed 

that over the first three years of the PGP 

Demonstration, physician groups 

increased their quality scores an average 

of 10 percentage points on the 10 

diabetes measures, 11 percentage points 

on the ten congestive heart failure 

measures, 6 percentage points on the 

coronary artery disease measures, 10 

percentage points on the cancer 

screening measures, and 1 percentage 

point on the hypertension measures. 

Further analysis is provided in the 

Physician Group Practice Demonstration 

Evaluation Report (Report to Congress, 

2009; http://www.cms.gov/ 

DemoProjectsEvalRpts/downloads/ 

PGP_RTC_Sept.pdf). 

In addition to the overall increases in 

quality scores, we can examine the 

impact of the PGP Demonstration on 

quality can be examined by comparing 

the values of the seven claimsbased 

quality measures for each PGP site and 

its comparison group. Our analysis 

found that, on the claims-based 

measures, PGP performance exceeded 

that of the comparison groups (CGs) on 

all measures between the base year (BY) 

and performance year 2 (PY2). It also 

found that the PGP sites exhibited more 

improvement than their CGs on all but 

one measure between the BY and PY2. 

Even after adjusting for predemonstration trends in the claimsbased quality indicators, the PGP sites 

improved their claims-based quality 

process indicators more than their 

comparison groups. 

3. Impact on Providers and Suppliers 

In order to participate in the program, 

we realize that there will be costs borne 

in building the organizational, financial 

and legal infrastructure that is required 

of an ACO as well as performing the 

tasks required (as discussed throughout 

the Preamble) of an eligible ACO, such 

as: quality reporting, conducting patient 

surveys and investment in infrastructure 

for effective care coordination. While 

provider and supplier participation in 

the Shared Savings Program will be 

voluntary, we have examined the 

potential costs that program 

participation will create. 

The proposed rule allows for 

flexibility regarding the specific 

structure of an ACO and, as such, we 

expect the costs to vary greatly. 

Furthermore, beyond the statutorily 

required assignment of at least 5,000 

Medicare beneficiaries to an ACO, the 

size of ACOs will also vary in relation 

to beneficiary participation and 

associated cost. Due to the limited 

precedence for this program and 

uncertainty regarding the structure and 

strategies that the provider community 

will pursue in order to participate as an 

ACO, estimates of expected provider 

costs are difficult to create. An analysis 

produced by the Government 

Accountability Office (GAO) of first year 

total operating expenditures for 

participants of the Medicare PGP 

Demonstration varied greatly, from 

$436,386 to $2,922,820, with the 

average for a physician group at 

$1,265,897 (Medicare Physician 

Payment: Care Coordination Programs 

Used in Demonstration Show Promise, 

but Wider Use of Payment Approach 

May Be Limited. GAO, February 2008). 

These costs (for groups which all had 

200 or more physicians) include 

investments in infrastructure and 

information technology enhancements, 

management, quality reporting, and 

focused care coordination programs. 

The GAO also discovered that start-up 

investment expenditures in the PGP 

Demonstration varied between $82,573 

and $917,398, with the average for a 

physician group at $489,354. 

It is worth noting that the 10 

participating physician groups in the 

demonstration were large compared 

with other physician practices in terms 

of annual medical revenues and 

nonphysician staff. GAO claims that 

their larger relative size gave the 10 

participating physician groups in the 

PGP Demonstration three size-related 

advantages over smaller physician 

practices. First, participants typically 

had institutional affiliations with an 

integrated delivery system, a general 

hospital, or a health insurance entity. 

Specifically 9 of the 10 participating 

physician groups were part of an 

integrated delivery system, 8 affiliated 

with a general hospital, and 5 affiliated 

with an entity that marketed a health 

insurance product. As a result of these 

affiliations, GAO claims that 

participating physician groups generally 

had greater access to relatively large 

amounts of financial capital needed to 

initiate or expand programs. The second 

advantage, GAO claims, the 10 large 

participating physician groups had over 

smaller physician practices is the 

increased probability of having or 

acquiring EHR systems, which was 

essential in participants’ ability to 

gather data and track progress in 

meeting quality-of-care targets. For 

example, 8 of the 10 participating 

physician groups had an EHR in place 

before the demonstration began, and the 

2 other participants, out of necessity, 

developed alternative methods for 

gathering patient data electronically. 

Lastly, GAO claims that the third sizerelated advantage that most of the 10 

participating physician groups had over 

smaller physician practices was the 

larger groups’ experience with other 

pay-for-performance systems prior to 

participating in the PGP Demonstration. 

That is, 8 of the 10 participants had 

previous experience with pay-forperformance programs initiated by 

private or public sector organizations. 

This experience, GAO concludes, may 

have eased their adjustment to the PGP 

Demonstration and allowed them 

greater initial and overall success. 

We use this analysis not to predict 

cost investment and operating 

expenditures, but to demonstrate that 

we expect the range of investment to 

vary greatly across ACOs and to provide 

potential scope for aspiring participants. 

We expect that due to the difference in 

program requirements between the 

Shared Savings Program and the PGP 

Demonstration Project, and the potential 

variation in ACO size and structure, the 

PGP related costs may be a subset of the 

investment required by entities seeking 

participation in this program. However, 

we recognize that potential 

advantageous key drivers for 

participating physician groups would 

include institutional affiliations that 

allow greater access to financial capital, 

access to and experience using EHR and 

other IT systems and experience with 

pay-for-performance programs. As a 

result, we present a rough estimate of 


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$1,755,251, based on the GAO findings 

to reflect the total average start-up 

investment and first year operating 

expenditures for a participant in the 

Shared Savings Program. Lastly, 

assuming a range of expected ACOs 

participating in the Shared Savings 

Program at 75 to 150 yields an estimated 

aggregate cost, for ACO start-up 

investment and first year operating 

expenditures in the Shared Savings 

Program, in the range of $131,643,825 to 

$263,287,650. 

Participating in the Shared Savings 

Program will require groups of 

providers and suppliers to (among other 

things): invest in or improve upon 

information technology systems, focus 

on evidence-based medicine, improve 

care coordination and quality and 

generally refine all processes of caring 

for their patients and community. 

While, as we discussed previously, 

there will be a financial cost placed on 

ACOs in order to do so, there will be 

benefits to the respective organizations 

in the form of increased operational and 

healthcare delivery efficiency. 

Furthermore, as discussed previously, 

and explained in more detail in the 

preamble of this proposed rule, there 

will be an opportunity for financial 

reward for success in the program in the 

form of shared savings. The estimated 

bonuses paid are a median of $800 

million over 3 years, with $560 million 

and $1,130 million reflecting the 10th 

and 90th percentiles. Also, participating 

ACO’s will be assuming a risk of a 

financial penalty for failing to achieve 

savings (that is, if actual expenditures 

exceed the benchmark). The estimated 

penalties paid are a median of $40 

million over 3 years, with $10 million 

and $80 million reflecting the 10th and 

90th percentiles. (It is important to note 

that the given percentiles for bonuses, 

penalties, and net impacts are 

independently tabulated and therefore 

are not additive across the three 

parameters.) The actuality of the risk is 

dependent on which of the two options 

an ACO selects for their first agreement 

period. Due to the voluntary nature of 

this program, we expect the formation of 

ACOs by entities that aspire to receive 

benefits that outweigh their costs. We 

anticipate that not all ACOs will achieve 

shared savings and some will incur a 

financial loss, due to requirement to 

repay a share of actual expenditures in 

excess of their benchmark. 

As is previously stated, we expect the 

costs and benefits of establishing and 

maintaining an ACO to vary and solicit 

comment on this issue, including total 

ACO expenditures for start-up 

investment and annual operating costs 

for the 3 years of the Shared Savings 

Program. 

D. Alternatives Considered 

The proposed rule contains a range of 

policies. Many tenets of the program are 

statutorily mandated and thus allow for 

little, if any, flexibility in the 

rulemaking process. Where there was 

flexibility, we made our policy 

decisions regarding alternatives based 

on a balance between creating the least 

possible negative impact on the 

stakeholders affected by the program on 

and satisfactorily fitting the vision of the 

program within given operational 

constraints. 

For example, while the Affordable 

Care Act mandates that an ACO be large 

enough to care for minimum of 5,000 

assigned beneficiaries, as is described in 

the preamble, we are proposing a sliding 

minimum percentage and confidence 

interval for the savings threshold based 

on the size of an ACO. This proposal is 

a balance of protecting the program from 

paying out savings based on random 

variation, while allowing attainable 

thresholds for smaller sized potential 

ACOs and thus encouraging 

participation from various sized entities. 

The preceding preamble provides 

descriptions of the various statutory 

provisions that are addressed, identifies 

those policies when discretion has been 

allowed and exercised, presents the 

rationales for our proposals and, where 

relevant, alternatives that were 

considered. An important example 

involves adjustments to an ACO’s 

benchmark for changes in FFS price 

adjustments (such as the geographic 

practice cost index (GPCI) under the 

PFS and hospital wage index). Such 

price changes regularly occur and often 

impact counties or other localities in 

magnitudes that can significantly differ 

from the national average. If, for 

example, operating cost payments are 

reduced for section 508 hospitals (as 

will occur under current law at the end 

of FY 2011) then ACO-attributed claims 

incurred in a 508 hospital would exhibit 

significant price decreases which could 

lead to shared savings payments 

unrelated to real improvements in ACO 

efficiency. Absent such adjustments, 

these statutory changes will impact the 

comparison of actual expenditures and 

the benchmark. However, as we have 

previously noted, the statute provides 

authority for adjustment to the 

benchmark for ‘‘such other factors as the 

Secretary determines appropriate.’’ 

Another design element involves the 

method for constructing a participating 

ACO’s benchmark. One proposed 

method employs a similar approach to 

that used in the CMS PGP 

Demonstration and is based on riskadjusting to take into account changes 

in the health status of the population 

between the benchmark period and 

performance year. If HCC risk 

adjustments are specified in the final 

program then it must be applied in a 

manner that does not reward ACOs for 

more complete and accurate coding of 

their assigned patient population to 

protect the program from costs due to 

paying shared savings as a result of 

greater diagnosis coding intensity in 

ACOs than would occur for a 

comparable group of beneficiaries 

receiving care outside an ACO. 

Finally, a key design element involves 

the method for establishing quality 

standards. We propose aggregating the 

quality domain scores into a single 

overall ACO score used to calculate the 

ACOs final sharing rate for purposes of 

determining shared savings or shared 

losses as described in section II.E of this 

proposed rule. We would average all 

domain scores for an ACO together 

equally to calculate the overall quality 

score used to calculate the ACO’s final 

sharing rate as previously described. We 

also considered a variety of scoring 

methodology that would have differing 

incentives for improving clinical 

outcomes such as: Scoring measures 

individually under a method that would 

weight all measures equally as well as 

weighting quality measures by their 

clinical importance. In addition to the 

performance score approach that 

rewards ACOs for better quality with 

larger percentages of shared savings as 

modeled in this analysis, we could use 

a threshold approach that allows any 

ACO that meets minimum standards for 

the quality to realize the full shared 

savings. By design this approach could 

ensure higher net savings to the 

Medicare program, depending on the 

quality threshold and sharing 

percentage chosen. 

The provisions adopted in the final 

Shared Savings Program rule may differ 

from the current proposals, possibly 

resulting in material changes in the 

projected financial impact of the 

program. We solicit comment on other 

potentially effective and reasonably 

feasible alternatives especially those 

that reduce burdens and maintain 

flexibility and freedom of choice for the 

public. 

E. Accounting Statement and Table 

As required by OMB Circular A–4 

(available at http:// 

www.whitehouse.gov/sites/default/files/ 

omb/assets/regulatory_matters_pdf/a4.pdf), in Table 13, we have prepared an 

accounting statement showing the 

classification of transfers, benefits and 


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costs associated with the provisions of 

this proposed rule. Because of the 

uncertainties identified in establishing 

the economic impact estimates, we 

intend to update the estimates in the 

final rule. 

F. Conclusion 

As a result of this proposed rule, the 

median estimate of the financial impact 

from implementation of the Shared 

Savings Program, for CYs 2012 through 

2014, is a net savings of $510 million. 

Although this is the ‘‘best estimate’’ for 

the 3-year financial impact of the 

Shared Savings Program initiative, a 

relatively wide range of possible 

outcomes exists. Overall, 80 percent of 

the stochastic trials resulted in net 

program savings, and the other 30 

percent represented cost increases. The 

10th and 90th percentiles of the 

estimate distribution show net savings 

of $960 million and $170 million, 

respectively, suggesting a 10-percent 

likelihood that the actual impact would 

exceed the respective percentile 

amounts. In the extreme scenarios, the 

results were as large as $1,960 million 

in savings or $270 million in costs. 

Lastly, the estimated aggregate cost for 

ACO start-up investment and first year 

operating expenditures in the Shared 

Savings Program range from 

$131,643,825 to $263,287,650, based on 

an assumed 75 to 150 ACOs 

participating in the Shared Savings 

Program. 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 

List of Subjects in Part 425 

Administrative practice and 

procedure, Health facilities, Health 

professions, Medicare, Reporting and 

recordkeeping requirements. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services proposes to amend 

42 CFR Chapter IV by adding part 425 

to read as follows: 

SUBCHAPTER B—MEDICARE PROGRAM 

PART 425—MEDICARE SHARED 

SAVINGS PROGRAM 

Sec. 

Subpart A—General Provisions 

425.2 Basis and scope. 

425.4 Definitions. 

Subpart B—Shared Savings Program 

Requirements 

425.5 Eligibility and governance 

requirements. 

425.6 Assignment of Medicare fee-forservice beneficiaries to ACOs. 

425.7 Payment and treatment of savings. 

425.8 ACO quality and continuous 

improvement goals. 

425.9 Measures to assess the quality of care 

furnished by an ACO. 

425.10 Calculating the ACO quality 

performance score and determining 

shared savings eligibility. 

425.11 Incorporating other reporting 

requirements related to the Physician 

Quality Reporting System and electronic 

health records technology. 

425.12 Monitoring. 

425.13 Actions prior to termination. 

425.14 Termination, suspension, and 

repayment of Shared Savings. 

425.15 Reconsideration review process. 

425.16 Audits and record retention. 

425.17 Requirements for data submission 

by ACOs. 

425.18 The 3-year agreement with CMS. 

425.19 Data sharing with ACOs. 

425.20 New program standards established 

during the 3-year agreement period. 

425.21 Managing significant changes to the 

ACO during the agreement period. 

425.22 Future participation of previous 

Shared Savings Program participants. 

425.23 Public reporting and transparency. 

425.24 Overlap with other CMS shared 

savings initiatives. 

Subpart A—General Provisions 

§ 425.2 Basis and scope. 

(a) Basis. This part implements 

section 1899 of the Act by establishing 

a shared savings program that promotes 

accountability for a patient population, 

coordinates items and services under 

parts A and B, and encourages 

investment in infrastructure and 

redesigned care processes for high 

quality and efficient services. Under this 

program, groups of providers of services 

and suppliers meeting criteria specified 

by the Secretary may work together to 

manage and coordinate care for 

Medicare fee-for-service beneficiaries 

through an accountable care 

organization (ACO). ACOs that meet 

quality performance standards 

established by the Secretary are eligible 

to receive payments for shared savings. 

During years in which the ACO is 

participating in a two-sided model, the 

ACO may be required to share losses. 

(b) Scope. This part sets forth the 

following: 

(1) The eligibility requirements for an 

ACO to participate in the Medicare 

Shared Savings Program (Shared 

Savings Program). 

(2) Program requirements, including 

quality and other reporting 

requirements. 

(3) The method for assigning 

Medicare fee-for-service beneficiaries to 

ACOs. 

(4) Payment criteria and 

methodologies (one-sided model and 

two-sided model). 


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(5) Compliance monitoring and 

sanctions for noncompliance. 

(6) Reconsideration of adverse 

determinations. 

§ 425.4 Definitions. 

As used in this part, unless otherwise 

indicated— 

Accountable care organization (ACO) 

means a legal entity that is recognized 

and authorized under applicable State 

law, as identified by a Taxpayer 

Identification Number (TIN), and 

comprised of an eligible group (as 

defined at § 425.5(b)) of ACO 

participants that work together to 

manage and coordinate care for 

Medicare fee-for-service beneficiaries 

and have established a mechanism for 

shared governance that provides all 

ACO participants with an appropriate 

proportionate control over the ACO’s 

decision-making process. 

ACO participant means a provider (as 

defined in § 400.202) or a supplier (as 

defined at § 400.202), as identified by a 

TIN. 

ACO provider/supplier means— 

(1) A provider (as defined in 

§ 400.202); or 

(2) A supplier (as defined at 

§ 400.202) that bills for items and 

services it furnishes to Medicare 

beneficiaries under a Medicare billing 

number assigned to the TIN of an ACO 

participant in accordance with 

applicable Medicare rules and 

regulations. 

ACO professional means an ACO 

provider/supplier who is either of the 

following: 

(1) A doctor of medicine or 

osteopathy legally authorized to practice 

medicine and surgery by the State in 

which he performs such function or 

action, including an osteopathic 

practitioner within the scope of his or 

her practice as defined by State law. 

(2) A practitioner who is one of the 

following: 

(i) A physician assistant (as defined at 

§ 410.74(a)(2)). 

(ii) A nurse practitioner (as defined at 

§ 410.75(b)). 

(iii) A clinical nurse specialist (as 

defined at § 410.76(b)). 

Antitrust Agency means the 

Department of Justice or Federal Trade 

Commission. 

Antitrust Policy Statement means the 

Statement of Antitrust Enforcement 

Policy Regarding Accountable Care 

Organizations Participating in the 

Medicare Shared Savings Program 

issued by the antitrust agencies. 

Assignment means the operational 

process by which CMS determines 

whether a beneficiary has chosen to 

receive a sufficient level of the requisite 

primary care services from primary care 

physician(s) who is an ACO provider/ 

supplier so that the ACO may be 

appropriately designated as exercising 

basic responsibility for that beneficiary’s 

care. 

At-risk beneficiary means a 

beneficiary who— 

(1) Has a high risk score on the CMS– 

HCC risk adjustment model; 

(2) Is considered high cost due to 

having two or more hospitalizations 

each year; 

(3) Is dually eligible for Medicare and 

Medicaid; 

(4) Has a high utilization pattern; or 

(5) Has had a recent diagnosis that is 

expected to result in increased cost. 

CAP means a corrective action plan. 

Covered professional services has the 

same meaning give these terms under 

section 1848(k)(3) of the Act. 

Eligible professional has the meanings 

given this term under section 1848(k)(3) 

of the Act. 

Hospital means a hospital subject to 

the prospective payment system 

specified in § 412.1(a)(1) of this chapter. 

Marketing materials and activities 

include, but are not limited to, general 

audience materials such as brochures, 

advertisements, outreach events, letters 

to beneficiaries, web pages, data sharing 

opt out letters, mailings, or other 

activities conducted by or on behalf of 

the ACO, or by ACO participants, or 

ACO providers/suppliers participating 

in the ACO, or by other individuals on 

behalf of the ACO or its participating 

providers and suppliers when used to 

educate, solicit, notify, or contact 

Medicare beneficiaries or providers and 

suppliers regarding the Shared Savings 

Program. The following beneficiary 

communications are not marketing 

materials and activities: Informational 

materials customized or limited to a 

subset of beneficiaries; materials that do 

not include information about the ACO 

or providers in the ACO; materials that 

cover beneficiary-specific billing and 

claims issues or other specific healthrelated issues; or educational 

information on specific medical 

conditions (for example, flu shot 

reminders), or referrals for Medicare 

covered items and services. 

Medicare fee-for-service beneficiary 

means an individual who is— 

(1) Enrolled in the original Medicare 

fee-for-service program under parts A 

and B; and 

(2) Not enrolled in any of the 

following: 

(i) A MA plan under part C. 

(ii) An eligible organization under 

section 1876 of the Act. 

(iii) A PACE program under section 

1894 of the Act. 

Medicare Shared Savings Program 

(Shared Savings Program) means the 

program, established under section 1899 

of the Act and implemented in this part. 

One-sided model means a model 

under which the ACO may share 

savings with the Medicare program, if it 

meets the requirements for doing so, but 

is not liable for sharing any losses 

incurred under the provisions of 

§ 425.7(c). 

Physician Quality Reporting System 

means the system established under 

section 1848(k) of the Act. 

Primary care physician means a 

physician (as defined at § 410.20(b)(1)) 

who has a primary specialty designation 

of internal medicine, general practice, 

family practice, or geriatric medicine. 

Primary care services mean the set of 

services identified by the following 

HCPCS codes: 99201 through 99215, 

99304 through 99340, and 99341 

through 99350, G0402 (the code for the 

Welcome to Medicare visit); and G0438 

and G0439 (codes for the annual 

wellness visits). 

Reporting period means January 1 

through December 31. 

TIN means Federal taxpayer 

identification number. 

Two-sided model means a model 

under which the ACO may share 

savings with the Medicare program, if it 

meets the requirements for doing so, 

and is also liable for sharing any losses 

incurred under the provisions of 

§ 425.7(d). 

Subpart B—Shared Savings Program 

Requirements 

§ 425.5 Eligibility and governance 

requirements. 

(a) General requirements. (1) Under 

the Shared Savings Program, ACO 

participants may work together to 

manage and coordinate care for 

Medicare fee-for-service beneficiaries 

through an ACO that participates in the 

Shared Savings Program and meets the 

criteria specified in this part. 

(2) ACOs that exceed a minimum 

savings rate established under 

§ 425.7(c)(2) and (d)(2), meet the 

minimum quality performance 

standards established under § 425.10, 

and otherwise maintain their eligibility 

to participate in the Shared Savings 

Program under this section are eligible 

to receive payments for shared savings 

under § 425.7 of this subpart. 

(3) ACOs that operate under the twosided model established in this section 

must share losses with the Medicare 

program under § 425.7 of this subpart. 

(b) Eligible providers and suppliers. 

The following ACO participants, which 

must have established a mechanism for 


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shared governance, are eligible, 

separately or in combination, to form 

ACOs that may participate in the Shared 

Savings Program: 

(1) ACO professionals in group 

practice arrangements. 

(2) Networks of individual practices 

of ACO professionals. 

(3) Partnerships or joint venture 

arrangements between hospitals and 

ACO professionals. 

(4) Hospitals employing ACO 

professionals. 

(5) Providers or suppliers otherwise 

recognized under the Act that are not 

ACO professionals or hospitals, as 

defined in § 425.4. 

(6) CAHs that bill under Method II (as 

described in § 413.70(b)(3)) 

(c) Reporting of TINs. (1) Each ACO 

must report to CMS the TINs of the ACO 

participants comprising the ACO along 

with a list of associated National 

Provider Identifiers (NPIs), at the 

beginning of each performance year and 

at other such times as specified by CMS. 

(2) For purposes of the Shared 

Savings Program, each ACO participant 

TIN upon which beneficiary assignment 

is dependent is required to commit to a 

3-year agreement with CMS and will be 

exclusive to one ACO. 

(3) ACO participant TINs upon which 

beneficiary assignment is not dependent 

are required to commit to a 3-year 

agreement to the ACO, and the ACO 

participant must not be required to be 

exclusive to a single ACO. 

(d) Other requirements. (1) 

Accountability for beneficiaries. As part 

of its application and 3-year 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 fee-forservice 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 

standardized format, as determined by 

CMS. 

(2) Coordination of Antitrust Agency 

review. (i) Except for an ACO that 

qualifies for the Rural Exception 

articulated in the Antitrust Policy 

Statement or other controlling guidance 

from the antitrust agencies, an ACO 

with a Primary Service Area (PSA) 

share, as described in the Antitrust 

Policy Statement, greater than 50 

percent for any common service that 

two or more ACO participants provide 

to patients from the same PSA must do 

both of the following: 

(A) Request an expedited antitrust 

review from the Antitrust Agencies. 

(B) Submit, as part of its application, 

a letter from the reviewing Antitrust 

Agency confirming that it has no 

present intent to challenge or to 

recommend challenging the proposed 

ACO. 

(ii) Except for an ACO that qualifies 

for the Rural Exception articulated in 

the Antitrust Policy Statement, or other 

controlling guidance from the antitrust 

agencies, an ACO with a PSA share, as 

described in the Antitrust Policy 

Statement, greater than 30 percent and 

less than or equal to 50 percent may do 

one of the following: 

(A) Request an expedited antitrust 

review from the Antitrust Agencies. 

(B) Submit a letter from the reviewing 

Antitrust Agency confirming that it has 

no present intent to challenge or to 

recommend challenging the proposed 

ACO. 

(C) Begin to operate and abide by a 

list of conduct restrictions, reducing 

significantly the likelihood of antitrust 

concern. 

(D) Begin to operate and remain 

subject to antitrust investigation if it 

presents competitive concerns. 

(iii) An ACO must notify CMS at least 

30 days before any material change 

within the 3-year agreement period of 

its ACO participants or ACO providers/ 

suppliers and must submit recalculated 

PSA shares for common services that 

two or more independent ACO 

participants provide to patients from the 

same PSA. If any revised PSA share is 

calculated to be greater than 50 percent, 

the ACO will be subject to review or rereview by an Antitrust Agency in order 

to remain eligible to participate in the 

Shared Savings Program. 

(iv)(A) If an ACO receives a letter 

from a reviewing Antitrust Agency 

stating that the Antitrust Agency will 

likely challenge or recommend 

challenging the ACO, then the ACO will 

be ineligible to participate in the Shared 

Savings Program. 

(B) The ACO must promptly inform 

CMS if it receives such a letter at any 

time from an Antitrust Agency. 

(3) Agreement requirements. (i) Upon 

being notified by CMS of its approval to 

participate in the Shared Savings 

Program, an executive of that ACO who 

has the ability to legally bind the ACO 

must sign and submit to CMS a 3-year 

agreement. 

(ii) The 3-year agreement must require 

the ACO to comply with the provisions 

in this part in order to participate in the 

Shared Savings Program. 

(iii) All contracts or arrangements 

between or among the ACO, ACO 

participants, ACO providers/suppliers, 

and other entities furnishing services 

related to ACO activities must require 

compliance with the requirements and 

conditions of this part, including those 

specified in the 3-year agreement. The 

ACO must provide a copy of the 3-year 

agreement to these individuals and 

entities. 

(iv)(A) The ACO must certify the 

accuracy, completeness, and 

truthfulness of its information contained 

in the following: 

(1) Shared Savings Program 

application. 

(2) 3-year agreement. 

(3) Submissions of quality data and 

other information. 

(B) Certification must be made at the 

time the ACO submits the following: 

(1) Application to participate in the 

Shared Savings Program. 

(2) Executes the 3-year agreement. 

(3) Submits any information, 

including quality data, on which shared 

savings payments or shared losses are 

calculated. 

(C) Certification must be signed by an 

individual with the authority to legally 

bind the ACO (for example the ACO’s 

chief executive officer (CEO) or chief 

financial officer (CFO)). 

(v) The ACO must 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. 

(vi) The ACO must agree, and must 

require its ACO participants, ACO 

providers/suppliers, and contracted 

entities performing functions or services 

on behalf of the ACO to agree, or to 

comply with applicable provisions of 

the following: 

(A) Federal criminal law. 

(B) The False Claims Act (31 U.S.C. 

3729 et seq.). 

(C) The anti-kickback statute (42 

U.S.C. 1320a–7b(b)). 

(D) The civil monetary penalties law 

(42 U.S.C. 1320a–7a). 

(E) The physician self-referral law (42 

U.S.C. 1395nn). 

(vii)(A) The ACO must agree, as a 

condition of receiving any shared saving 

payment and participating in the 

program, that an individual with the 

authority to legally bind the ACO must 

certify that any data or information 

requested by or submitted to CMS is 

accurate, complete, and truthful. 

(B) If data or information is generated 

by an entity other than the ACO, such 

entity must similarly certify the 

accuracy, completeness, and 

truthfulness of the information or data. 

(4) Marketing materials. (i) Any ACO 

marketing materials or activities, as 

defined in § 425.4, must be approved by 

CMS before use. 


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(ii) Any changes to CMS-approved 

marketing materials or activities must be 

approved by CMS before use. 

(5) Notice of ACO participation. 

(i) ACO participants must notify 

beneficiaries that their ACO providers/ 

suppliers are participating in an ACO. 

(ii) Except as specified in paragraph 

§ 412.1(a)(1) of this section, all 

beneficiary communications any 

materials or activities used by ACO 

participants or ACO providers/suppliers 

on behalf of the ACO to communicate 

about the ACO in any manner to 

Medicare beneficiaries, must be 

approved by CMS before use. 

(6) Tracks during agreement periods. 

(i) For its initial agreement period, an 

ACO may elect to operate under one of 

the following tracks: 

(A) Track 1. Under Track 1, the ACO 

operates under the one-sided model (as 

described under § 425.7(c) of this part) 

for 2 years, and under the two-sided 

model (as described under § 425.7(d) of 

this part) for the third year. In the third 

year of the ACO’s agreement under 

Track 1, the methodology used to 

reconcile ACOs under the first year of 

the two-sided model would apply 

except ACOs must meet the quality 

performance standard that applies in the 

third year. 

(B) Track 2. Under Track 2, the ACO 

operates under the two-sided model (as 

described under § 425.7(d) of this part), 

sharing both savings and losses with the 

Medicare program for 3 years. 

(ii) For subsequent agreement periods, 

an ACO may operate only under the 

two-sided model, sharing both savings 

and losses with the Medicare program 

(as described in § 425.7(d) of this part). 

(iii) In both models an ACO’s share in 

savings will be subject to 25 percent 

withholding in order to help ensure 

repayment of any losses to the Medicare 

program. The withheld amount will be 

applied towards repayment of an ACO’s 

losses. 

(iv) ACOs must obtain reinsurance, 

place funds in escrow, obtain surety 

bonds, establish a line of credit as 

evidenced by a letter of credit that the 

Medicare program can draw upon, or 

establish another appropriate repayment 

mechanism in order to ensure 

repayment of any losses to the Medicare 

program in advance of entering a period 

of participation in the Shared Savings 

Program under the two-sided model. 

(v) An ACO that is applying for 

participation in the Shared Savings 

Program must, as part of its application, 

submit documentation of such a 

repayment mechanism for approval by 

CMS. This documentation must include 

details supporting the adequacy of the 

mechanism for repaying losses equal to 

at least 1 percent of the ACO’s per 

capita expenditures for its assigned 

beneficiaries from the most recent year 

available. 

(iv) CMS will determine the adequacy 

of an ACO’s repayment mechanism. 

(v) An ACO must demonstrate the 

adequacy of this repayment mechanism 

annually, prior to the start of each 

performance year in which it takes risk. 

(vi) To the extent that such an ACO’s 

repayment mechanism does not enable 

CMS to fully recoup the losses for a 

given performance year, any unpaid 

losses will be carried forward into 

subsequent performance years and 

agreement periods (to be recouped 

either against additional financial 

reserves, or offset by shared savings 

earned by the ACO). 

(7) Legal structure. (i) An ACO must 

be constituted as a legal entity for 

purposes of all of the following: 

(A) Receiving and distributing shared 

savings. 

(B) Repaying shared losses. 

(C) Establishing, reporting, and 

ensuring provider compliance with 

health care quality criteria, including 

quality performance standards. 

(D) Other ACO functions identified in 

this part. 

(ii) An ACO must certify that it is 

recognized as a legal entity in the State 

in which it was established and that it 

is authorized to conduct business in 

each State in which it operates. 

(8) Shared governance. (i) An ACO 

must establish and maintain a governing 

body with adequate authority to execute 

the functions of an ACO as defined 

under this part, including but not 

limited to, the definition of processes to 

promote evidence-based medicine and 

patient engagement, report on quality 

and cost measures, and coordinate care. 

(ii) The governing body must be 

comprised of the following: 

(A) ACO participants or their 

designated representatives. 

(B) Medicare beneficiary 

representative(s) served by the ACO 

who do not have a conflict of interest 

with the ACO, and who have no 

immediate family member with conflict 

of interest with the ACO. 

(iii) The governing body must have 

and possess broad responsibility for the 

ACO’s administrative, fiduciary, and 

clinical operations. 

(iv) At least 75 percent control of the 

ACO’s governing body must be held by 

ACO participants. Each ACO participant 

must choose an appropriate 

representative from within its 

organization to represent them on the 

governing body and each ACO 

participant must have appropriate 

proportionate control over governing 

body decision making. 

(v)(A) The members of the governing 

body may serve in a similar or 

complementary manner for an existing 

participant in the ACO. 

(B) The governing body of the ACO 

must be separate and unique to the ACO 

in cases where the ACO comprises 

multiple, otherwise independent 

entities (for example, several 

independent physician group practices). 

(C) The ACO must provide evidence 

within its application that the governing 

body is a separate legal entity. 

(vi)(A) Except as specified in 

paragraph (d)(8)(vi)(b) of this section, a 

separate governing body must be 

established. 

(B) If the ACO is comprised of a single 

entity that is financially and clinically 

integrated, and if at least 75 percent 

control of the entity’s governing body is 

comprised of representatives of the 

entity, the ACO governing body may be 

the same as the governing body of that 

entity, provided it satisfies the other 

requirements of this section. 

(9) Leadership and management 

structure. (i) As part of its application 

process, an ACO must submit 

supporting materials to CMS that 

demonstrate the ACO’s leadership and 

management structure, including 

clinical and administrative systems that 

align with and support the goals of the 

Shared Savings Program and the aims of 

better care for individuals, better health 

for populations, and lower growth in 

expenditures. 

(ii) 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 and whose leadership team has 

demonstrated the ability to influence or 

direct clinical practice to improve 

efficiency processes and outcomes. 

(iii) Clinical management and 

oversight must be managed by a fulltime senior-level medical director who 

is physically present on a regular basis 

in an established ACO location, and 

who is a board-certified physician and 

licensed in the State in which the ACO 

operates. 

(iv) ACO participants and ACO 

providers/suppliers must have a 

meaningful commitment to the ACO’s 

clinical integration program to ensure 

its likely success. Meaningful 

commitment may include, for example, 

a meaningful financial investment in the 

ACO or a meaningful human investment 

(for example, time and effort) in the 

ongoing operations of the ACO such that 

the potential loss or recoupment of the 

investment is likely to motivate the 


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participant and provider/supplier to 

make the clinical integration program 

succeed. 

(v) A physician-directed quality 

assurance and process improvement 

committee must oversee an ongoing 

action-oriented quality assurance and 

improvement program. The quality 

assurance program must establish 

internal performance standards for 

quality of care and services, cost 

effectiveness, and process and outcome 

improvements, and hold ACO’s 

providers/suppliers accountable for 

meeting the performance standards. The 

program must have processes and 

procedures in place to identify and 

correct poor compliance with such 

standards and to promote continuous 

quality improvements. 

(vi) The ACO must implement 

evidence-based medical practice or 

clinical guidelines and processes for 

delivering care consistent with the aims 

of better care for individuals, better 

health for populations, and lower 

growth in health care expenditures. The 

guidelines and care delivery processes 

must cover diagnoses with significant 

potential for the ACO to achieve quality 

and cost improvements, taking into 

account the circumstances of individual 

beneficiaries. 

(vii) ACO participants and providers/ 

suppliers must agree to comply with 

these guidelines and processes and to be 

subject to performance evaluations and 

potential remedial actions, including 

their expulsion from the ACO. The ACO 

must have policies and procedures for 

expulsion of ACO participants and ACO 

provider/suppliers from the ACO. 

(viii) The ACO must have an 

infrastructure, such as information 

technology (which may include EHR 

technology certified to the standards 

and implementation specifications 

adopted by the Secretary for the 

purposes of the meaningful use EHR 

incentive programs), that enables the 

ACO to collect and evaluate data and 

provide feedback to ACO participants 

and ACO providers/suppliers across the 

entire ACO, including providing 

information to influence care at the 

point of care. 

(ix) The supporting materials that are 

submitted in the application must 

include all of the following: 

(A) ACO documents (for example, 

participation agreements, employment 

contracts, and operating policies) that 

describe the ACO participants’ rights 

and obligations in the ACO, including 

distribution of shared savings to 

encourage ACO participants and ACO 

providers/suppliers to adhere to the 

quality assurance and improvement 

program and the evidenced-based 

clinical guidelines. 

(B) Documents that describe the scope 

and scale of the quality assurance and 

clinical integration program, including 

documents that describe all relevant 

clinical integration program systems 

and processes, such as the internal 

performance standards and the 

processes for monitoring and evaluating 

performance. 

(C) Supporting materials documenting 

the ACO’s organization and 

management structure, including an 

organizational chart, a list of committees 

(including names of committee 

members) and their structures, and job 

descriptions for senior administrative 

and clinical leaders. 

(D) Evidence that the ACO has a 

board-certified physician as its medical 

director who is licensed in the State in 

which the ACO resides and that a 

principal CMS liaison is identified in its 

leadership structure. 

(E) Evidence that the governing body 

is comprised of representatives the ACO 

participants who form the ACO, and 

that these ACO participants comprise at 

least 75 percent of the governing body. 

(F) Upon request, the ACO must 

provide copies of all documents 

effectuating the ACO’s formation and 

operation, including, without limitation 

the following: 

(1) Charters. 

(2) By-laws. 

(3) Articles of incorporation. 

(4) Partnership agreement. 

(5) Joint venture agreement. 

(6) Management or asset purchase 

agreements. 

(7) Financial statements and records. 

(8) Descriptions of the remedial 

processes that will apply if an ACO 

participant or an ACO provider/supplier 

fails to comply with the ACO’s internal 

procedures and performance standards, 

including a CAP and the circumstances 

under which expulsion from the ACO 

could occur. 

(G) A copy of the ACO’s compliance 

plan or documentation describing the 

plan that will be put in place at the time 

the ACO’s agreement with CMS 

becomes effective. 

(H) A description of how the ACO 

will partner with community 

stakeholders. 

(I) Written standards for beneficiary 

access and communication. These 

standards must include the ACO’s 

process for beneficiaries to access their 

medical record. 

(x) CMS retains the right to give 

consideration to an innovative ACO 

with a management structure not 

meeting these requirements. 

(10) Compliance plan. (i) The ACO 

must have a compliance plan that 

includes at least the following elements: 

(A) A designated compliance official 

or individual who is not legal counsel 

and who has the ability to report 

directly to the ACO’s governing body. 

(B) Mechanisms for identifying and 

addressing compliance problems related 

to the ACO’s operations and 

performance. 

(C) A method for employees or 

contractors of the ACO, ACO 

participants, and ACO providers/ 

suppliers to report suspected problems 

related to the ACO. 

(D) Compliance training for the ACO, 

the ACO participants, and the ACO 

providers/suppliers. 

(E) A requirement to report suspected 

violations of law to an appropriate law 

enforcement agency. 

(ii) To achieve an effective 

compliance program, an ACO may 

consider coordinating its compliance 

efforts with existing compliance efforts 

of its ACO providers/suppliers. 

(11) Distribution of savings. As part of 

its application to participate in the 

Shared Savings Program, an ACO must 

describe how: 

(i) It plans to use shared savings 

payments, including the criteria it plans 

to employ for distributing shared 

savings among its participants. 

(ii) The proposed plan will achieve 

the specific goals of the Shared Savings 

Program. 

(iii) The proposed plan will achieve 

the general aims of better care for 

individuals, better health for 

populations, and lower growth in 

expenditures. 

(12) Written request for shared 

savings payment. (i) After receipt of 

notification from CMS of the anticipated 

shared savings payment or amount of 

shared losses, an individual with the 

authority to legally bind the ACO (such 

as the ACO’s CEO or CFO), must make 

a written request to CMS for payment of 

the shared savings (or acknowledge the 

amount of shared losses) in a document 

that certifies the ACO’s compliance with 

program requirements as well as the 

accuracy, completeness, and 

truthfulness of any information 

submitted directly or indirectly by the 

ACO, its ACO participants, the ACO 

providers/suppliers, or any other entity 

to CMS, including any quality data or 

other information or data relied upon by 

CMS in determining the ACO’s 

eligibility for, and the amount of a 

shared savings payment or the amount 

owed by the ACO to CMS. 

(ii) If such data are generated or 

submitted by ACO participants, ACO 

providers/suppliers, or another entity, 


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such ACO participant, ACO provider/ 

supplier, must similarly certify the 

accuracy, completeness, and 

truthfulness of the data and provide the 

government with access to such data for 

audit, evaluation, investigation, and 

inspection. 

(13) Sufficient number of primary care 

providers and beneficiaries. (i) CMS will 

deem an ACO to have a sufficient 

number of primary care physicians and 

beneficiaries if the number of 

beneficiaries historically assigned to the 

ACO participants using the assignment 

methodology in § 425.6 is 5,000 or more. 

(ii) If at the end of a performance year, 

an ACO’s assigned population falls 

below 5,000, then that ACO will be 

issued a warning and placed on a CAP. 

(A) While under the CAP, an ACO 

remains eligible for shared savings and 

losses during that performance year. 

(B) If the ACO’s assigned population 

has not returned to at least 5,000 by the 

end of the next performance year, then 

that ACO’s agreement will be 

terminated and the ACO will not be 

eligible to share in savings for that year. 

(14) Required reporting on 

participating ACO professionals. A 

participating ACO must maintain, 

update, and annually report to CMS a 

list of the following: 

(i) Each ACO participant’s TIN. 

(ii) Each ACO providers/supplier’s 

NPI and/or TIN. 

(15) Required processes and patientcenteredness criteria. (i) Required 

processes. In its application to 

participate in the Shared Savings 

Program, an ACO must provide CMS 

with documentation of its plans to do 

all of the following: 

(A) Promote evidence-based 

medicine. 

(B) Promote beneficiary engagement. 

(C) Internally report quality and cost 

metrics. 

(D) Coordinate care. 

(ii) Patient-centeredness criteria. (A) 

An ACO should adopt a focus on 

patient-centeredness that is promoted 

by the governing body and integrated 

into practice by leadership and 

management working with the 

organization’s health care teams. 

(B) An ACO must demonstrate 

patient-centeredness by addressing all 

of the following areas: 

(1) Have a beneficiary experience of 

care survey in place (using the Clinician 

and Group CAHPS survey, including an 

appropriate functional status survey 

module) and describe how the ACO will 

use the results to improve care over 

time. 

(2) Patient involvement in ACO 

governance. 

(3) A process for evaluating the health 

needs of the ACO’s assigned population, 

including consideration of diversity in 

its patient populations, and a plan to 

address the needs of its population. 

(4) Systems in place to identify and 

update high-risk individuals and 

processes to develop individualized 

care plans for targeted patient 

populations including integration of 

community resources to address 

individual needs. 

(i) Such plans must promote 

improved outcomes for, at a minimum, 

high-risk and multiple chronic 

condition patients, and as appropriate, 

other patients with chronic conditions. 

(ii) The plan must be tailored to the 

beneficiary’s health and psychosocial 

needs, account for beneficiary 

preferences and values, and identify 

community and other resources to 

support the beneficiary in following the 

plan. 

(5) A mechanism in place for the 

coordination of care (for example, via 

use of enabling technologies or care 

coordinators). 

(i) The ACO is required to describe its 

mechanism for coordinating care for 

Medicare beneficiaries. 

(ii) The ACO should have a process in 

place (or clear path to develop such a 

process) to exchange summary of care 

information when patients transition to 

another provider or setting of care, both 

within and outside the ACO. 

(iii) For providers enrolled in the 

electronic exchange of information, this 

process must be consistent with 

meaningful use requirements under the 

Medicare EHR Incentive Program (as 

described in part 495 of this chapter). 

(6) A process in place for 

communicating clinical knowledge/ 

evidence-based medicine to 

beneficiaries in a way that is 

understandable to them. 

(7) A process in place for beneficiary 

engagement and shared decision-making 

that takes into account the beneficiaries’ 

unique needs, preferences, values, and 

priorities. 

(8) Written standards in place for 

beneficiary access and communication, 

and a process in place for beneficiaries 

to access their medical record. 

(9) Internal processes in place for 

measuring clinical or service 

performance by physicians across the 

practices, and using these results to 

improve care and service over time. 

§ 425.6 Assignment of Medicare fee-forservice beneficiaries to ACOs. 

(a) General rule. (1) Medicare fee-forservice beneficiaries are assigned to an 

ACO based on their utilization of 

primary care services provided under 

this title by a primary care physician 

who is an ACO provider/supplier 

during the performance year for which 

shared savings are to be determined. 

(2) Beneficiary assignment to an ACO 

is for purposes of determining the 

population of Medicare fee-for-service 

beneficiaries for whose care the ACO is 

accountable, and for determining 

whether an ACO has achieved savings 

under § 425.7 of this part, and in no way 

diminishes or restricts the rights of 

beneficiaries assigned to an ACO to 

exercise free choice in determining 

where to receive health care services. 

(b) Assignment methodology. CMS 

employs the following methodology to 

assign Medicare beneficiaries to an 

ACO: 

(1) For each ACO, identify all primary 

care physicians as defined in § 425.4 of 

this part who were an ACO participant 

during the performance year. 

(2) At the end of each performance 

year, determine all beneficiaries who 

received services from primary care 

physicians in the ACO, as determined 

under paragraph (b)(1) of this section. 

(3) Determine the total allowed 

charges for the primary care services (as 

identified by HCPCS code in the 

definition of primary care services 

under § 425.4 of this section) that each 

of the beneficiaries identified in 

paragraph (b)(2) received from any 

provider or supplier during the 

performance year. 

(4) For each beneficiary, add together 

the allowed charges for the primary care 

services provided by the primary care 

physicians (identified in paragraph 

(b)(1) of this section) in each ACO 

(identified in paragraph (b)(1) of this 

section). 

(5) Assign a beneficiary to an ACO if 

the beneficiary has received a plurality 

of his or her primary care services, as 

determined by the sum of allowed 

charges for those services under 

paragraph (b)(4) of this section, from 

primary care physicians identified 

under paragraph (b)(1) of this section, 

who are an ACO participant. 

(c) Beneficiary information and 

notification. ACO participants will post 

signs in each of their facilities and 

provide written notification for 

beneficiaries about their participation in 

the Shared Savings Program. 

§ 425.7 Payment and treatment of savings. 

(a) Establishing a benchmark. (1) 

Using a 6-months claims run-out, CMS 

will retrospectively estimate and update 

an ACO’s benchmark for an agreement 

period starting with ACO participants 

identified at the start of the agreement 

period. 

(2) Using the claim records of ACO 

participants and applying the 

methodology for assigning beneficiaries 


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in § 425.6 of this part, CMS will 

compute per capita expenditures for 

beneficiaries who would have been 

assigned to the ACO in any of the prior 

three most recent available years. 

(b) Computing per capita Medicare 

Part A and Part B expenditures and 

updating the benchmark. In computing 

these per capita expenditures, CMS uses 

the per capita Parts A and B fee-forservice expenditures for beneficiaries 

that would have been assigned to the 

ACO in each of these 3 prior years, we 

will estimate a fixed benchmark that is 

adjusted for overall growth and 

beneficiary characteristics, including 

health status using prospective HCC 

adjustments. This benchmark will then 

be updated annually during the 

agreement period, according to statute, 

based on the absolute amount of growth 

in national per capita expenditures for 

Parts A and B services under the 

original Medicare fee-for-service 

program. CMS will do all of the 

following: 

(1) Calculate annual Parts A and B 

fee-for-service per capita expenditures 

for the beneficiaries who would have 

been assigned for each of the benchmark 

years. To minimize variation from 

catastrophically large claims, CMS 

truncates an assigned beneficiary’s 

total— 

(i) Parts A and B fee-for-service per 

capita expenditures at the 99th 

percentile as determined for each 

benchmark year. 

(2) Using CMS Office of the Actuary 

national Medicare expenditure data for 

each of the years making up the 

benchmark, CMS determines national 

growth trend indices and trend them to 

the third benchmark year (BY3) dollars. 

(3) Using health status measures for 

the beneficiary population in each of the 

years making up the benchmark, CMS 

establishes health status indices for each 

year and adjust these indices so they are 

restated in BY3 risk. 

(4) CMS computes a 3-year risk-and 

growth-trend adjusted per capita 

expenditure amount for the patient 

populations in each of the 3 benchmark 

years by combining the initial per capita 

expenditures for each year with the 

respective growth and health status 

indices. The result is risk adjusted per 

capita expenditures for beneficiaries 

historically assigned to the ACO in each 

of the 3 years used to establish the 

benchmark stated in BY3 risk and 

expenditure amounts, and assigned 

patient populations. 

(5) CMS weights the most recent year 

of the benchmark, BY3 at 60 percent, 

BY2 at 30 percent and BY1 at 10 percent 

to ensure that the benchmark reflects 

more accurately the latest expenditure 

and health status of the ACO’s assigned 

beneficiary population. 

(6) CMS updates this fixed benchmark 

by the projected absolute amount of 

growth in national per capita 

expenditures for Parts A and B services 

under the original Medicare fee-forservice program using data from CMS’s 

Office of the Actuary. 

(7) In performing these steps, CMS 

does not take into consideration 

expenditure increases or decreases 

under Section 1848 related to valuebased purchasing programs or the 

HITECH Act; specifically, any of the 

following: 

(i) Physician Quality Reporting 

Initiative as provided in § 414.90. 

(ii) Electronic prescribing program as 

provided in § 414.92. 

(iii) HITECH Act incentives for 

eligible professionals as provided in 

§ 495.102. 

(c) Determination of savings and 

shared savings rate for ACOs under the 

one-sided model. (1) Savings 

determination. For each performance 

year, CMS determines whether the 

estimated average per capita Medicare 

expenditures under the ACO for 

Medicare fee-for-service beneficiaries 

for Parts A and B services, adjusted for 

beneficiary characteristics, is below the 

applicable benchmark determined 

under paragraph (b) of this section. To 

minimize variation from 

catastrophically large claims, CMS 

truncates that assigned beneficiary’s 

total annual Parts A and B fee-forservice per capita expenditures at the 

99th percentile as determined for each 

performance year. In order to qualify for 

a shared savings payment, the ACO’s 

average per capita Medicare 

expenditures for the performance year 

must be below the applicable 

benchmark by more than a minimum 

savings rate established for the ACO 

under paragraph (c)(2) of this section. 

(2) Minimum savings rate (MSR). CMS 

computes a minimum savings rate for 

each ACO based on the number of 

beneficiaries assigned to the ACO under 

§ 425.6 of this part. The minimum 

savings rates for ACOs based on the 

numbers of assigned beneficiaries will 

be as follows: 

Number beneficiaries 

MSR (low end of 

assigned 

beneficiaries) 

% 

MSR (high end of 

assigned 

beneficiaries) 

% 

5,000–5,999 ................................................................................................................................................. 3.9 3.6 

6,000–6,999 ................................................................................................................................................. 3.6 3.4 

7,000–7,999 ................................................................................................................................................. 3.4 3.2 

8,000–8,999 ................................................................................................................................................. 3.2 3.1 

9,000–9,999 ................................................................................................................................................. 3.1 3.0 

10,000–14,999 ............................................................................................................................................. 3.0 2.7 

15,000–19,999 ............................................................................................................................................. 2.7 2.5 

20,000–49,999 ............................................................................................................................................. 2.5 2.2 

50,000–59,999 ............................................................................................................................................. 2.2 2.0 

60,000 + ....................................................................................................................................................... 2.0 

(3) Qualification for shared savings 

payment. In order to qualify for shared 

savings, an ACO must exceed its 

minimum savings rate determined 

under paragraph (c)(2) of this section, 

meet the minimum quality performance 

standards established under § 425.10 of 

this part, and otherwise maintain its 

eligibility to participate in the Shared 

Savings Program under this part. 

(4) Net savings threshold. An ACO 

under the one-sided model that exceeds 

its minimum savings rate is eligible to 

share savings net 2 percent of its 

benchmark as determined under 

§ 425.7(b). An ACO with fewer than 

10,000 assigned beneficiaries in the 

most recent year for which CMS has 

complete claims data, and that meets 

any one of the following criteria, is 

exempt from the 2 percent net savings 

threshold adjustment under the onesided model: 


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(i) All ACO participants are 

physicians or physician groups. 

(ii) 75 percent or more of the ACO’s 

assigned beneficiaries reside in counties 

outside an MSA in the most recent year 

for which CMS has complete claims 

data. 

(iii) 50 percent or more of an ACO’s 

assigned beneficiaries in the most recent 

year for which CMS has complete 

claims data were assigned on the basis 

of services received from Method II 

CAHs. 

(iv) At least 50 percent of the assigned 

beneficiaries had at least one encounter 

with a participating FQHC or RHC in 

the most recent year for which CMS has 

complete claims data such that the ACO 

has achieved maximum sharing for this 

activity. 

(5) Final sharing rate. The final 

sharing rate for an ACO in the one-sided 

model will be calculated by adding the 

ACO’s earned quality performance 

sharing rate and any additional increase 

described in § 425.7(c)(6)) (up to the 

performance payment limit described in 

§ 425.7(c)(7)). 

(6) Quality performance sharing rate. 

An ACO that meets all the requirements 

for shared savings payments under the 

one-sided model will receive a shared 

savings payment based on quality 

performance of up to 50 percent, as 

determined on the basis of its quality 

performance under § 425.10 of this part. 

(7) Additional increase to the shared 

savings rate. Under the one-sided 

model, an ACO’s shared savings rate 

may be increased by up to 2.5 

percentage points if the ACO includes a 

rural health clinic (RHC) or Federally 

qualified health center (FQHC) (as 

defined under § 405.2401(b) of this 

chapter) within its structure, 

determined on a sliding scale based on 

the number of assigned Medicare 

beneficiaries with one or more visit to 

an RHC or FQHC during the 

performance year. The sliding scale will 

operate according to the following table: 

Percentage of ACO 

assigned beneficiaries with 1 or 

more visits to an 

FQHC/RHC during 

the performance year 

Percentage point increase in shared savings rate (one-sided 

model) 

1–10 0 .5 

11–20 1 

21–30 1 .5 

31–40 2 

41–50 2 .5 

(8) Performance payment limit. The 

amount of shared savings an eligible 

ACO receives under the one-sided 

model may not exceed 7.5 percent of its 

benchmark. 

(d) Determination of savings or losses, 

and shared savings or loss rates for 

ACOs under the two-sided model. (1) 

For each performance year, CMS 

determines whether the estimated 

average per capita Medicare 

expenditures under the ACO for 

Medicare fee-for-service beneficiaries 

for parts A and B services, adjusted for 

beneficiary characteristics, is above or 

below the benchmark determined under 

paragraph (b) of this section. In order to 

qualify for a shared savings payment 

under the two-sided model, or to be 

responsible for sharing losses with CMS, 

an ACO’s average per capita Medicare 

expenditures for the performance year 

must be below or above the benchmark, 

respectively, by more than the 

minimum savings or loss rate under 

paragraph (d)(2) of this section. 

(2) Minimum savings or loss rate. (i) 

To qualify for shared savings under the 

two-sided model, an ACO’s average per 

capita Medicare expenditures for the 

performance year must be below its 

benchmark costs for the year by at least 

2 percent. 

(ii) To be responsible for sharing 

losses with the Medicare program, an 

ACO’s average per capita Medicare 

expenditures for the performance year 

must be at least 2 percent above its 

benchmark costs for the year. 

(3) Qualification for shared savings 

payment. To qualify for shared savings, 

an ACO must meet the minimum 

savings rate requirement established 

under paragraph (d)(2) of this section, 

meet the minimum quality performance 

standards established under § 425.10 of 

this part, and otherwise maintain its 

eligibility to participate in the Shared 

Savings Program under this part. 

(4) Final sharing rate. The final 

sharing rate for an ACO in the two-sided 

model will be calculated by adding the 

ACO’s earned quality performance 

sharing rate under paragraph (d)(5) and 

any additional increase described in 

§ 425.7(c)(6)) up to the performance 

payment limit described in 

§ 425.7(d)(7). 

(5) Quality performance sharing rate. 

An ACO that meets all the requirements 

for receiving shared savings payments 

under the two-sided model will receive 

a payment of up to 60 percent of all the 

savings under the benchmark as 

determined on the basis of its quality 

performance under § 425.10 of this part. 

(6) Additional increase to the shared 

savings rate. Under the two-sided 

model, an ACO’s shared savings rate 

may be increased by the following up to 

5.0 percentage points if the ACO 

includes a RHC or FQHC (as these terms 

are defined under § 405.2401(b) of these 

regulations) within its structure, 

determined on a sliding scale based on 

the number of assigned Medicare 

beneficiaries with one or more visit to 

an RHC or FQHC during the 

performance year. The sliding scale will 

operate according to the following table: 

Percentage of ACO 

assigned beneficiaries 

with 1 or more visits 

to an FQHC/RHC during the performance 

year 

Percentage point increase in shared savings rate (one-sided 

model) 

1–10 1.0 

11–20 2.0 

21–30 3.0 

31–40 4.0 

41–50 5.0 

(7) Performance payment limit. The 

amount of shared savings an eligible 

ACO receives under the two-sided 

model may not exceed 10 percent of its 

benchmark. 

(8) Shared loss rate. The shared loss 

rate for an ACO that is required to share 

losses with the Medicare program for 

expenditures over the benchmark with 

the Medicare program is determined 

based on the inverse of its final sharing 

rate described in paragraphs (d)(2) 

through (6) of this section (that is, 1 

minus the shared savings rate 

determined under paragraphs (d)(2) 

through (6) of this section). 

(9) Loss recoupment limit. The 

amount of shared losses for which an 

eligible ACO is liable may not exceed 

the following percentages of its 

benchmark as determined under 

paragraphs (a) and (b) of this section: 5 

percent in the first year of participation 

in a two-sided model under the Shared 

Savings Program, 7.5 percent in the 

second year, and 10 percent in the third 

year. An ACO in Track 1 who has 

entered the third year of its agreement 

period would be liable for an amount 

not to exceed the percentage of the first 

year of the two-sided model, that is, it 

would not exceed 5 percent. 

(e) Notification of savings and losses. 

CMS notifies an ACO in writing 

regarding whether the ACO qualifies for 

a shared savings payment, and if so, the 

amount of the payment due. Similarly, 

CMS will provide written notification to 

an ACO of the amount of shared losses, 

if any, that it must pay to the program. 

If an ACO has shared losses, the ACO 

must make payment in full to CMS 

within 30 days of receipt of notification. 

§ 425.8 ACO quality and continuous 

improvement goals. 

(a) CMS defines quality and 

continuous improvement goals for 

ACOs. 

(b) An ACO must meet the quality and 

continuous improvement goals defined 


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19648 Federal Register / Vol. 76, No. 67 / Thursday, April 7, 2011 / Proposed Rules 

by CMS under paragraph (a) of this 

section in order to qualify for shared 

savings. 

§ 425.9 Measures to assess the quality of 

care furnished by an ACO. 

(a) Selecting measures. CMS selects 

the measures designated to determine 

an ACO’s success in promoting the aims 

of better care for individuals, better 

health for populations, and lower 

growth in expenditures. 

(b) Quality measures for quality 

performance standards. (1) CMS 

designates the measures for use in the 

calculation of the quality performance 

standard. 

(2) ACOs must submit data on the 

measures determined under this 

paragraph (b) according to the method 

of submission established by CMS. 

§ 425.10 Calculating the ACO quality 

performance score and determining shared 

savings eligibility. 

(a) Measure domains. CMS groups 

individual quality performance standard 

measures into five domains: 

(1) Patient/care giver experience. 

(2) Care coordination. 

(3) Patient safety. 

(4) Preventative health. 

(5) At-risk population/frail elderly 

health. 

(b) Methodology for calculating a 

performance score for each measure. (1) 

CMS designates quality performance 

standards for each measure, including a 

performance benchmark and minimum 

attainment level and establishes a point 

scale for certain measures. Contingent 

upon data availability, quality measure 

performance benchmarks are defined by 

CMS based on Medicare fee-for-service, 

MA, or ACO performance data. 

(i) For the first performance period 

under the Shared Savings Program, CMS 

defines the quality performance 

standard at the level of complete and 

accurate reporting. 

(ii) For all subsequent years, CMS 

defines the quality performance based 

on measure scores. 

(2) Performance below the minimum 

attainment level will receive zero points 

for that measure, for those measures in 

which the points scale applies. 

(3) Performance equal to or greater 

than the minimum attainment level but 

less than the performance benchmark 

must receive points on a sliding scale 

based on the level of performance, for 

those measures in which the points 

scale applies. 

(4) Those measures designated as all 

or nothing measures receive the 

maximum available points if all criteria 

are met and zero points if at least one 

of the criteria are not met. 

(c) Methodology for calculating a 

performance score for each domain. 

CMS designates quality performance 

standards for each domain’s 

contribution to an overall ACO 

performance score. 

(d) Shared savings eligibility. If the 

ACO demonstrates to CMS that it has 

satisfied the quality performance 

requirements for each domain, the 

requirements of § 425.7 are satisfied, 

and the ACO meets all other applicable 

requirements, the ACO is eligible for 

shared savings. To satisfy the quality 

performance requirements for a domain: 

(1) The ACO must report all measures 

within a domain, via the mechanisms 

determined by CMS, in order to be 

considered for shared savings for that 

domain. 

(2) CMS scores individual measures 

based on data received. 

(3) CMS adds the individual scores for 

each of the measures within the domain 

to determine the domain scores. 

(i) Each of the 5 domains is equally 

weighted in determining an ACO’s 

overall quality performance score, 

regardless of whether the ACO is in 

Track 1 or Track 2. All measures within 

a domain must have a score above the 

minimum attainment level determined 

by CMS in order for the domain to be 

eligible for shared savings. 

(ii) If the ACO satisfies the quality 

performance standards for one or more 

domains, and also satisfies the 

requirements for realizing shared 

savings under § 425.7, the ACO may 

receive the proportion of those shared 

savings for which it qualifies. 

(iii) CMS retains the right to audit and 

validate quality data reported by an 

ACO. In an audit, the ACO would be 

required to provide beneficiary medical 

record data as requested by CMS. The 

audit would consist of three phases of 

medical record review. If, at the 

conclusion of the third audit process 

there is a discrepancy greater than 10 

percent between the quality data 

reported and the medical records 

provided, the ACO will not be given 

credit for meeting the quality target for 

any measures for which this mismatch 

rate exists. 

(iv) Failure to report quality measure 

data accurately, completely, and timely 

(or to timely correct such data) may 

subject the ACO to termination or other 

sanctions, as described in § 425.12. 

(4) In the third year of the ACO’s 

agreement under Track 1, the 

methodology used to reconcile ACOs 

under the first year of the two-sided 

model would apply except that ACOs 

must meet the quality performance 

standard that applies in the third year, 

as opposed to the first year standard of 

full and accurate reporting. 

§ 425.11 Incorporating other reporting 

requirements related to the Physician 

Quality Reporting System and electronic 

health records technology. 

(a) Physician quality reporting system. 

(1) ACOs, on behalf of their eligible 

professionals, must submit the measures 

determined under § 425.10(b) according 

to the method of submission established 

by CMS, to qualify for a Physician 

Quality Reporting System incentive 

under the Shared Savings Program. 

(2) To qualify as a group practice for 

a Physician Quality Reporting System 

incentive under the Shared Savings 

Program, eligible professionals within 

an ACO must report the measures 

determined under § 425.10(b) during the 

reporting period according to the 

method of submission established by 

CMS under the Shared Savings Program. 

(3) The Physician Quality Reporting 

System incentive under the Medicare 

Shared Savings Program is equal to 0.5 

percent of the ACO’s eligible 

professional’s total estimated Medicare 

Part B Physician Fee Schedule allowed 

charges for covered professional 

services furnished during the calendar 

year reporting period from January 1 

through December 31. 

(b) Electronic health records 

technology. (1) At least 50 percent of an 

ACO’s primary care physicians must be 

meaningful EHR users, using certified 

EHR technology as defined in § 495.4, in 

the HITECH Act and subsequent 

Medicare regulations by the start of the 

second performance year in order to 

continue participating in the Shared 

Savings Program. 

(2) CMS may terminate an ACO 

agreement under § 425.14 of this part if 

fewer than 50 percent of an ACO’s 

primary care physicians are not 

meaningfully EHR users, using certified 

EHR technology as defined in § 495.4, 

the HITECH Act and subsequent 

Medicare regulations by the start of the 

ACO’s second performance year. 

§ 425.12 Monitoring. 

(a) Monitoring of ACOs: General rule. 

(1) CMS monitors and assesses the 

performance of ACOs and their 

participating providers/suppliers. 

(2) CMS employs a range of methods 

to monitor and assess the performance 

of ACOs, including but not limited to 

any of the following, as appropriate: 

(i) Analysis of specific financial and 

quality measurement data reported by 

the ACO as well as aggregated annual 

and quarterly reports. 

(ii) Site visits. 

(iii) Analysis of beneficiary and 

provider complaints. 


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(iv) Audits (including, for example, 

analysis of claims, chart review 

(medical record), beneficiary survey 

reviews, coding audits). 

(b) Monitoring ACO avoidance of atrisk beneficiaries. To identify ACOs that 

could be avoiding at-risk beneficiaries, 

CMS uses a combination of the methods 

described in paragraph (a)(2) of this 

section (as appropriate) to identify 

trends and patterns suggestive of 

avoidance of at-risk beneficiaries. The 

results of these analyses may 

subsequently require further 

investigation and follow-up with the 

beneficiary or the ACO and its ACO 

providers/suppliers in order to 

substantiate cases of beneficiary 

avoidance. CMS may take the following 

actions as set forth in § 425.13(a)(4) of 

this part, if it determines that an ACO, 

its ACO participants, any ACO 

providers/suppliers, or contracted 

entities performing functions or services 

on behalf of the ACO avoids at-risk 

beneficiaries. 

(1) The ACO is required to submit a 

CAP and implement the plan as 

approved by CMS as set forth in 

§ 425.13(a)(2) of this part. 

(i) The ACO will not receive any 

shared savings payments during the 

probation period, regardless of the 

period of performance for which savings 

were attributable to while under the 

CAP. 

(ii) The ACO will not be eligible to 

receive shared savings for the 

performance period attributable to the 

time the ACO was under the CAP. 

(iii) The ACO will not be eligible to 

earn shared savings attributable to the 

time the ACO is under the CAP. 

(iv) The ACO will be re-evaluated 

during and after the CAP 

implementation period to determine if 

the ACO has continued to avoid at-risk 

beneficiaries. 

(2) ACO may be terminated if CMS 

determines that the ACO has continued 

to avoid at-risk beneficiaries during or 

after the CAP as set forth in § 425.14 of 

this part. 

(c) Monitoring ACO compliance with 

quality performance standards. To 

identify ACOs that are not meeting the 

quality performance standards, CMS 

will review the ACO’s submission of 

quality measurement data under 

§ 425.9(b)(2). CMS may request 

additional documentation from an ACO, 

ACO participants, or ACO providers/ 

suppliers, as appropriate. CMS may take 

the following actions, in addition to 

actions set forth at § 425.13, if an ACO 

does not meet quality performance 

standards or fails to report on one or 

more quality measures. 

(1) The ACO will be given a warning 

for the first time it fails to meet the 

minimum attainment level for one or 

more domain. 

(2) The ACO’s compliance with the 

quality performance standards will be 

re-evaluated the following year. If the 

ACO continues to fail to meet quality 

performance standards in the following 

year, the agreement may be terminated 

immediately or CMS may take an 

alternative action as set forth in § 425.13 

of this part. 

(3) If an ACO fails to report one or 

more quality measures or fails to report 

completely and accurately on all 

measures in a domain, CMS will request 

the ACO either to submit the required 

measure data, correct the data, and/or 

provide a written explanation as to why 

it did not report completely and 

accurately. If ACO still fails to report, 

fails to report by the requested deadline 

and/or does not provide reasonable 

explanation for not reporting, the ACO 

will be terminated immediately as set 

forth in § 425.14 of this part. 

(4) An ACO that exhibits a pattern of 

inaccurate or incomplete reporting, or 

fails to make timely corrections 

following notice to resubmit, may be 

terminated from the program. 

(d) Monitoring changes to ACO 

eligibility requirements. In order to 

ensure that the ACO continues to meet 

the eligibility requirements under 

§ 425.5 of this part, CMS uses a 

combination of the methods described 

in paragraph (a) of this section (as 

appropriate). 

(e) Monitoring beneficiary notification 

of the provider and supplier’s role in the 

ACO and the ability for the beneficiary 

to op-out of sharing claims data. In 

order to ensure that the ACO is 

notifying beneficiaries concerning 

sharing of claims data as provided 

under § 425.15 of these regulations, and 

providing the opportunity for a 

beneficiary to opt-out of those data 

sharing arrangements, as required by 

that section, CMS uses a combination of 

the methods described in paragraph (a) 

of this section (as appropriate). 

(f) Monitoring ACO marketing 

materials and activities. (1) CMS may 

monitor compliance with the 

requirement for approval of ACO 

marketing materials and activities set 

forth in § 425(d)(4). 

(2) An ACO that fails to adhere to this 

requirement may be placed under a CAP 

or terminated as set forth in § 425.14 of 

this part, at the discretion of CMS. 

§ 425.13 Actions prior to termination. 

(a) If based upon the monitoring 

activities described in § 425.12, CMS 

concludes that an ACO’s performance 

may subject the ACO to termination 

from the Shared Savings Program, CMS, 

in its sole discretion, may take one or 

more or all of the following actions prior 

to termination of the ACO from the 

Shared Savings Program. 

(1) Provide a warning notice to the 

ACO of the specific performance at 

issue. 

(2) Request a CAP from the ACO. 

(i) The ACO must submit a CAP for 

CMS approval by CMS deadline 

indicated on the notice of violation. 

(ii) The CAP must address what 

actions the ACO will take to ensure that 

the ACO, ACO participants, and ACO 

providers/suppliers and/or contracted 

entities performing services or functions 

on behalf of the ACO will correct any 

deficiencies and remain in compliance 

with Shared Savings Program 

requirements. 

(iii) The ACO’s performance will be 

monitored during the CAP process. 

(iv) Failure to submit, obtain approval 

for, or implement a CAP may result in 

termination of the agreement. 

(v) ACO failure to demonstrate 

improved performance upon completion 

of the CAP may result in termination. 

(vi) This CAP process does not apply 

to determinations made by the Antitrust 

Agencies and must not be construed to 

negate, diminish, or otherwise alter the 

applicability of existing laws, rules, and 

regulations, or determinations made by 

other government agencies. 

(3) Place the ACO on a special 

monitoring plan. 

(4) These procedures do not apply to 

either of the following: 

(i) Determinations that an ACO has 

violated the Sherman antitrust act (15 

U.S.C. 1), Clayton Act (15 U.S.C. 12), or 

the Federal Trade Commission Act (15 

U.S.C. 45). 

(ii) Determinations made by other 

government agencies. 

(5) The procedures established under 

this section do not negate, diminish, or 

otherwise alter the applicability of 

existing laws, rules, and regulations. 

§ 425.14 Termination, suspension, and 

repayment of Shared Savings. 

(a) Grounds for terminating an ACO 

agreement. CMS may terminate an 

agreement with an ACO if the ACO, the 

ACO participants, the ACO providers/ 

suppliers or contracted entities 

performing services or functions on 

behalf of the ACO: 

(1) Avoid at-risk beneficiaries. 

(2) Fail to meet quality performance 

standards. 

(3) Fail to completely and accurately 

report information or fail to make timely 

corrections to reported information. 

(4) Are not in compliance with 

eligibility requirements or have fallen 


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out of compliance with the 

requirements of the part because the 

ACO has undergone material changes 

that affect the ACO’s eligibility to 

participate in the Shared Savings 

Program, including, but not limited to 

changes in governing body composition, 

a significant change (as defined in 

§ 425.21(b)), and the imposition of 

sanctions or other actions taken against 

the ACO by an accrediting organization, 

State, Federal or local government 

agencies. 

(5) Are unable to effectuate any 

required regulatory changes during the 

agreement period after given the 

opportunity for a CAP as set forth in 

§ 425.20. 

(6) Are not in compliance with 

requirements to notify beneficiaries of 

ACO provider/supplier participation in 

an ACO. 

(7) Engage in material noncompliance, 

or demonstrates a pattern of 

noncompliance, with public reporting 

and other CMS reporting requirements. 

(8) Fail to submit an approvable CAP, 

fail to implement an approved CAP, or 

fail to demonstrate improved 

performance after the implementation of 

a CAP. 

(9) Violate the physician self-referral 

prohibition, civil monetary penalties 

(CMP) law, Anti-kickback statute, other 

antifraud and antitrust laws (or enter 

into a final judgement or other final 

resolution of antitrust charges by an 

Antitrust Agency), or any other 

applicable Medicare laws, rules, or 

regulations that are relevant to ACO 

operations. 

(10) Submit to CMS false, inaccurate, 

or incomplete data and or information, 

including but not limited to, 

information provided in the Shared 

Savings Program application, quality 

data, financial data, and information 

regarding the distribution of shared 

savings. 

(11) Use marketing materials or 

participate in activities or other 

beneficiary communications, that are 

subject to review and approval, that 

have not been approved by CMS. 

(12) Fail to maintain an assigned 

beneficiary population of at least 5,000 

beneficiaries. 

(13) Fail to offer beneficiaries the 

option to opt-out of sharing claims 

information. 

(14) Limit or restrict internally 

compiled beneficiary summary of care 

or medical records from other 

providers/suppliers both within and 

outside of the Shared Savings Program 

to the extent permitted by law. 

(15) Improperly use or disclose claims 

information received from CMS in 

violation of the HIPAA Privacy Rule, 

Medicare Part D Data Rule, Privacy Act, 

or the data use agreement. 

(16) Fail to demonstrate that the ACO 

has adequate resources in place to repay 

losses and to maintain those resources 

for the agreement period. 

(b) Reapplication after termination. 

An ACO that has been terminated from 

the Shared Savings Program may apply 

to participate in the Shared Savings 

Program again only after the end of the 

original 3-year agreement period. 

(i) To be eligible to participate in the 

Shared Savings Program, the ACO must 

demonstrate in its application that it has 

corrected the deficiencies that caused it 

to be terminated from the Shared 

Savings Program and has processes in 

place to ensure that it will remain in 

compliance with the terms of the new 

participation agreement. 

(ii) ACOs with corrected deficiencies 

that wish to reenter the program have 

the option to do so only under the twosided model. 

(c) Forfeiture of mandatory 

withholding after termination. If an 

agreement is terminated for any reason 

before the 3-year agreement period is 

completed, the ACO the ACO would 

forfeit its mandatory 25 percent 

withhold of shared savings. 

(d) Termination of an agreement by 

an ACO. (1) ACO must notify CMS, its 

ACO participants, and other 

organizations of its decision to 

terminate 60 days before the date of 

termination. 

(2) The ACO participants must notify 

beneficiaries of the ACO’s decision to 

terminate in a timely manner. 

(3) All termination notification 

materials must meet marketing 

guidelines as set forth at § 425.12(f). 

(e) Grounds for shared saving 

payment suspension. If an ACO has 

been placed under a CAP because the 

ACO, ACO participants, ACO providers/ 

suppliers, or contracted entities 

performing services or functions on 

behalf of the ACO were found to have 

avoided at-risk beneficiaries— 

(1) The ACO must not receive shared 

savings payments while it is under the 

CAP, regardless of the period of 

performance it is attributable to; and 

(2) The ACO is not eligible to earn any 

shared savings for the performance 

period attributable for the time the ACO 

was under the CAP. 

§ 425.15 Reconsideration review process. 

(a) There is no reconsideration, 

appeals, or other administrative or 

judicial review of the following 

determinations under this section: 

(1) The specification of quality and 

performance standards under § 425.9 of 

this part. 

(2) The assessment of the quality of 

care furnished by an ACO under the 

performance standards established in 

§ 425.10. 

(3) The assignment of Medicare feefor-service beneficiaries under § 425.6 of 

this part. 

(4) The determination of whether an 

ACO is eligible for shared savings under 

§ 425.7(c) of this part, and the amount 

of such shared savings, including the 

determination of the estimated average 

per capita Medicare expenditures under 

the ACO for Medicare fee-for-service 

beneficiaries assigned to the ACO and 

the average benchmark for the ACO 

under § 425.7(a) and (b) of this part. 

(5) The percent of shared savings 

specified by the Secretary and the limit 

on the total amount of shared savings 

established under § 425.7(c) of this part. 

(6) The termination of an ACO for 

failure to meet the quality performance 

standards established under § 425.14 of 

this part. 

(7) A determination made by the 

reviewing antitrust agency that it is 

likely to challenge or recommend 

challenging the ACO. 

(b) An ACO may appeal an initial 

determination that is not prohibited 

from administrative or judicial review 

under paragraph (a) of this section by 

requesting a reconsideration review by a 

CMS reconsideration official. 

(1) An ACO that wants to request 

reconsideration review by a CMS 

reconsideration official must submit a 

written request by an authorized official 

for receipt by CMS within 15 days of the 

notice of the initial determination. 

(i) If the 15th day is a weekend or a 

Federal holiday, then the timeframe is 

extended until the end of the next 

business day. 

(ii) Failure to submit a request for 

reconsideration within 15 days will 

result in denial of the request for 

reconsideration. 

(2) The reconsideration review may be 

held orally (that is, in person, by 

telephone or other electronic means) or 

on the record (review submitted 

documentation) at the discretion of the 

reconsideration official. 

(3) The reconsideration official will 

send an acknowledgement of the 

reconsideration review request to the 

ACO and CMS that includes the 

following: 

(A) Review procedures. 

(B) Procedures for submission of 

evidence including format and 

timelines. 

(C) Date, time and location of the 

review. The reconsideration official 

may, on his or her own motion, or at the 

request of CMS or the ACO, change the 

time and place for the reconsideration 


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review, but must give the parties to the 

reconsideration review notice of the 

change. 

(4) The burden of proof is on the ACO 

to demonstrate to the reconsideration 

official with convincing evidence that 

the initial determination is not 

consistent with CMS’ regulations or 

statutory authority. 

(i) The reconsideration official’s 

review will be based only on evidence 

submitted by the reconsideration 

official’s requested deadline, unless 

requested by the reconsideration 

official. 

(ii) Documentation submitted for the 

record as evidence cannot be 

documentation that was not previously 

submitted to CMS by its required 

applicable timelines and in the 

requested format. 

(iii) All evidence submitted both from 

the applicant and CMS, in preparation 

for the reconsideration review will be 

shared with participating parties prior 

to the scheduled date of the hearing, as 

indicated in the acknowledgement 

notice. 

(iv) All parties will be notified of the 

reconsideration official’s 

recommendation. 

(c) If any of the parties disagree with 

the recommendation of the 

reconsideration official, they may 

request an on the record review of the 

initial determination and 

recommendation by an independent 

CMS official who was not involved in 

the initial determination or the 

reconsideration review process. 

(1) Any party that wishes to request 

an on the record review of the 

reconsideration official’s 

recommendation must submit an 

explanation of why they disagree with 

the recommendation by the timeframe 

and in the format indicated on the 

recommendation letter. 

(2) The on the record review process 

will be based only on evidence 

presented for the reconsideration 

review. 

(3) The CMS official will consider the 

recommendation of the reconsideration 

official and make a final agency 

determination. 

(d) CMS’s decision after review of the 

reconsideration official’s 

recommendation is final and binding. 

(e) The review process under this 

section shall not be construed to negate, 

diminish, or otherwise alter the 

applicability of existing laws, rules, and 

regulations or determinations made by 

other government agencies. 

(f) If CMS’ initial decision to deny an 

ACO’s application to participate in the 

Shared Savings Program is upheld, the 

application will remain denied based on 

the effective date of the original notice 

of denial. 

(g) An ACO that requests a 

reconsideration review for termination 

will remain operational throughout the 

review process. If CMS initial 

determination to terminate the 

agreement with the ACO is upheld, 

termination of the agreement is effective 

as indicated in the initial notice of 

termination. 

(1) If CMS’ initial determination to 

terminate an agreement with an ACO is 

upheld, the decision to terminate the 

agreement is effective as of the date 

indicated in the initial notice of 

termination. 

(2) If CMS’ initial determination to 

terminate an ACO is reversed, the ACO 

is reinstated into the Shared Savings 

Program, retroactively back to the 

original date of termination. 

§ 425.16 Audits and record retention. 

(a) Right to audit. The ACO must 

agree, and must require its ACO 

participants, ACO providers/suppliers, 

and contracted entities performing 

services or functions on behalf of the 

ACO to agree, that the DHHS the 

Comptroller General, the OIG or their 

designees have the right to audit, 

inspect, and evaluate any books, 

contracts, records, documents and other 

evidence of the ACO, ACO participants, 

and ACO providers/suppliers, and other 

contracted entities that pertain to— 

(1) The ACO’s compliance with 

program requirements; 

(2) The quality of services performed 

and determination of amount due to or 

from CMS under the contract; and 

(3) The ability of the ACO to bear the 

risk of potential losses and to repay any 

losses to CMS. 

(b) Maintenance of records. An ACO 

must agree, and must require its ACO 

participants, ACO providers/suppliers, 

and contracted entities performing 

functions or services on behalf of the 

ACO to agree to the following: 

(1) To maintain and give DHHS, OIG, 

the Comptroller General, or their 

designees access to all books, contracts, 

records, documents, and other evidence 

(including data related to Medicare 

utilization and costs, quality 

performance measures, shared savings 

distributions, and other financial 

arrangements related to ACO activities) 

sufficient to enable the audit, 

evaluation, and inspection of the ACO’s 

compliance with program requirements, 

quality of services performed, right to 

any shared savings payment, or 

obligation to repay losses, ability to bear 

the risk of potential losses, and ability 

to repay any losses to CMS. 

(2) To maintain such books, contracts, 

records, documents, and other evidence 

for a period of 10 years from the final 

date of the agreement period or from the 

date of completion of any audit, 

evaluation, or inspection, whichever is 

later, unless— 

(i) CMS determines there is a special 

need to retain a particular record or 

group of records for a longer period and 

notifies the ACO at least 30 days before 

the normal disposition date; 

(ii) There has been a termination, 

dispute, or allegation of fraud or similar 

fault by the ACO, its ACO participants, 

its ACO providers/suppliers, or 

contracted entities that perform 

functions or services on behalf of the 

ACO, in which case ACOs must retain 

records for an additional 6 years from 

the date of any resulting final resolution 

of the termination, dispute, or allegation 

of fraud or similar fault. 

(iii) There is a reasonable possibility 

of fraud or similar fault by the ACO or 

its participating providers/suppliers, or 

contracted entities performing services 

or functions on behalf of the ACO, in 

which case CMS may inspect, evaluate, 

and audit the ACO at any time. 

(c) Notwithstanding any arrangements 

between or among an ACO, ACO 

participants, ACO providers/suppliers, 

and contracted entities performing 

functions or services on behalf of the 

ACO, the ACO must have ultimate 

responsibility for adhering to and 

otherwise fully complying with all 

terms and conditions of its agreement 

with CMS, including the requirements 

set forth in this section. 

§ 425.17 Requirements for data 

submission by ACOs. 

(a) ACOs must submit data in a form 

and manner specified by CMS on the 

measures designated by CMS under 

§ 425.9 of this part. 

(b) ACOs that successfully must, on 

behalf of their eligible professionals, 

submit the measures designated by CMS 

under § 425.9 according to the method 

of submission established under the 

Shared Savings Program for purposes of 

the quality data requirements will be 

considered satisfactory reporters for 

purposes of the Physician Quality 

Reporting System incentive under 

§ 425.11(a). 

§ 425.18 The 3-year agreement with CMS 

(a) General rule. In order to 

participate in the Shared Savings 

Program, an ACO must enter into an 

agreement with CMS. ACO applications 

must be submitted by the deadline 

established by CMS. CMS will 

determine whether to approve or deny 

applications from eligible organizations 


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prior to the end of the calendar year in 

which the applications are submitted. 

(b) An ACO’s duration of agreement. 

The participation agreement must be for 

a term of 3 years, starting on the January 

1 following approval of an application 

or such other date specified in the 

agreement. 

(c) Performance period. Unless 

otherwise specified, the ACO’s annual 

performance period under the 

agreement must be the 12-month period 

beginning on January 1 of each year 

during the term of the agreement. 

§ 425.19 Data sharing with ACOs. 

(a) General rules. CMS shares both 

aggregate and beneficiary identifiable 

data with ACOs under the following 

general conditions: 

(1) The ACO does not unnecessary 

limitations or restrictions on the use or 

disclosure of individually identifiable 

health information that it internally 

compiles from providers and suppliers 

both within and outside of the ACO. 

(2) The ACO observes all relevant 

statutory and regulatory provisions 

regarding the appropriate use of data 

and the confidentiality and privacy of 

individually identifiable health 

information and complies with the 

terms of the data use agreement 

described in paragraph (f) of this 

section. 

(b) Sharing aggregate data. (1) CMS 

shares aggregate data (data that omits 

the 18 identifiers listed at 45 CFR 

164.514(b) with ACOs as follows: 

(i) Aggregate data reports at the start 

of the agreement period based on the 

historical beneficiaries used to calculate 

the benchmark, and each quarter 

thereafter during the agreement period. 

(ii) Quarterly reports will be based 

upon the most recent 12 months of data 

for beneficiaries that could potentially 

be assigned to the ACO under the 

assignment methodology in § 425.6. 

These data will not include beneficiary 

identifying information, but will 

include de-identified claims history of 

the services rendered for the ACO’s 

assigned FFS beneficiaries, as 

determined under § 425.6 of this part. 

(2) These aggregate data reports will 

include, when available, the following 

information: 

(i) Financial performance. 

(ii) Quality performance scores. 

(iii) Aggregated metrics on the 

assigned beneficiary population. 

(iv) Utilization data at the start of the 

agreement period based on historical 

beneficiaries used to calculate the 

benchmark. 

(c) Identification of historically 

assigned beneficiaries used to calculate 

the benchmark established under 

§ 425.7. 

(1) At the beginning of the agreement 

period, and at the end of each 

performance period, CMS will, upon the 

ACO’s request for the data for purposes 

of population-based activities relating to 

improving health or reducing health 

care costs, protocol development, case 

management, and care coordination, 

provide the ACO the following data 

about each beneficiary that was 

included in the records used under 

§ 425.7(a) and (b) of this part to generate 

the ACO’s benchmark: 

(i) Beneficiary names. 

(ii) Date of birth. 

(iii) HICN. 

(2) In its request for these data, the 

ACO must certify that it is seeking the 

following information: 

(i) As a HIPAA covered entity, and the 

request reflects the minimum data 

necessary for the ACO to conduct its 

own health care operations work that 

falls within the first or second 

paragraph of the definition of health 

care operations at 45 CFR 164.501. 

(ii) As the business associate of its 

ACO participants, who are HIPAA 

covered entities, and the request reflects 

the minimum data necessary for the 

ACO to conduct health care operations 

work that falls within the first or second 

paragraph of the definition of health 

care operations at 45 CFR 164.501 on 

behalf of those participants. 

(d) Sharing beneficiary identifiable 

data. Subject to the opt-out described in 

this paragraph (g) of this section, CMS 

will, upon the ACO’s request for the 

data for purposes of evaluating ACO 

provider/supplier performance, 

conducting quality assessment and 

improvement activities, and conducting 

population-based activities relating to 

improved health, provide the ACO with 

monthly claims data for potentially 

assigned beneficiaries. 

(1) If an ACO wishes to receive 

beneficiary identifiable claims data, it 

must either request these data as part of 

the application process or later submit 

a formal request for data. 

(2) The ACO must certify that it is 

requesting claims data about either of 

the following: 

(i) Its own patients, as a HIPAA 

covered entity, and the request reflects 

the minimum data necessary for the 

ACO to conduct its own health care 

operations work that falls within the 

first or second paragraph of the 

definition of health care operations at 45 

CFR 164.501. 

(ii) The patients of its HIPAA covered 

entity ACO participants as the business 

associate of these HIPAA covered 

entities, and the request reflects the 

minimum data necessary for the ACO to 

conduct health care operations work 

that falls within the first or second 

paragraph of the definition of health 

care operations at 45 CFR 164.501 on 

behalf of those participants. 

(3) The use of identifiers and claims 

data will be limited to developing 

processes and engaging in appropriate 

activities related to coordinating care 

and improving the quality and 

efficiency of care that are applied 

uniformly to all Medicare beneficiaries 

assigned to the ACO, and that these data 

will not be used to reduce, limit or 

restrict care for specific beneficiaries. 

(4) To ensure that beneficiaries have 

a meaningful opportunity to opt-out of 

having their claims data shared with the 

ACO, the ACO may only request such 

claims data about a beneficiary if— 

(i) The beneficiary has been seen in 

the office of a participating primary care 

physician (as defined in § 425.4 of this 

part), during the performance year, 

(ii) The beneficiary was informed 

about how the ACO intends to use 

beneficiary identifiable claims data in 

order to improve the quality of care that 

is furnished to the beneficiary and, 

where applicable, coordinate care 

offered to the beneficiary; and 

(iii) The beneficiary did not exercise 

the opportunity to opt-out of having his/ 

her claims data shared with the ACO as 

provided in paragraph (g) of the section. 

(5) CMS will continue to provide 

ACOs with certain beneficiary 

identifiable claims data on a monthly 

basis, subject to beneficiary’s 

opportunity to opt-out of the data 

sharing under paragraph (g) of this 

section. 

(6) If an ACO requests beneficiary 

identifiable information, compliance 

with the terms of the data use agreement 

described in paragraph (f) of this section 

is a condition of an ACO’s participation 

in the Shared Savings Program. 

(e) Minimum necessary data set. (1) 

The minimum necessary Parts A and B 

data elements may include the 

following data elements: 

(i) Beneficiary ID. 

(ii) Date of birth. 

(iii) Gender. 

(iv) Date of death. 

(v) Claim ID. 

(vi) The from and through dates of 

service. 

(vii) The provider or supplier ID. 

(viii) The claim payment type. 

(2) The minimum necessary Part D 

data elements may include the 

following data elements: 

(i) Beneficiary ID. 

(ii) Prescriber ID. 

(iii) Drug service date. 

(iv) Drug product service ID. 

(v) Quantity dispensed. 

(vi) Days supplied. 


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(vii) Gross drug cost. 

(viii) Brand name. 

(ix) Generic name. 

(x) Drug strength. 

(xi) Indication if the drug is on the 

formulary, as designated by CMS. 

(f) Data Use Agreement. Prior to 

receiving any beneficiary identifiable 

data, ACOs must enter into a DUA with 

CMS. The DUA must— 

(1) Specify that the ACO will comply 

with the limitations on the use and 

disclosure of individually identifiable 

health information that the HIPAA 

Privacy Rule places on HIPAA covered 

entities, as well as all other applicable 

privacy and confidentiality 

requirements; 

(2) Prohibit the ACO from using the 

data received under the Shared Savings 

Program for any prohibited use of 

individually identifiable health 

information. 

(3) Specify that if an ACO misuses or 

discloses data in a manner that violates 

any applicable statutory or regulatory 

requirements or that is otherwise noncompliant with the provisions of the 

DUA, it will no longer be eligible to 

receive data, could potentially be 

terminated from the shared savings 

program as well as subject to additional 

sanctions and penalties available under 

the law. 

(g) Beneficiary opportunity to opt-out 

of claims data sharing. (1) Prior to 

requesting claims data about a particular 

beneficiary, the ACO must inform the 

beneficiary that it may request personal 

health information about the beneficiary 

for purposes of its care coordination and 

quality improvement work, and give the 

beneficiary meaningful opportunity to 

opt-out of having his/her claims 

information shared with the ACO. 

(2) The ACO must supply 

beneficiaries with a form allowing them 

to opt-out of data sharing. The form 

must be provided to each beneficiary as 

part of an office visit with a primary 

care physician as defined under § 425.4, 

whose services are used to assign 

beneficiaries to the ACO. 

(3) This requirement will not apply to 

the initial four data points that CMS 

will provide to ACOs for individuals in 

the 3-year base data set (Beneficiary 

Name, Beneficiary DOB, Beneficiary 

Sex, and Beneficiary HICN) under 

paragraph (c) of this section. 

§ 425.20 New program standards 

established during the 3 year agreement 

period. 

(a)(1) ACOs will be subject to all 

statutory changes. 

(2) ACOs will be subject to all 

regulatory changes with the exception of 

the following program areas: 

(i) Eligibility requirements concerning 

the structure and governance of ACOs. 

(ii) Calculation of sharing rate. 

(iii) Beneficiary assignment. 

(b) In those instances where changes 

in law or regulations require, or 

otherwise cause an ACO to change its 

processes in a manner that affects the 

design of its care processes and delivery 

of care, changes to the quality of care, 

or changes in planned distribution of 

shared savings, the ACO will be 

required to submit to CMS for review 

and approval a supplement to its 

original application detailing how it 

will address key changes in processes 

resulting from these modifications. 

(c) If an ACO cannot effectuate the 

changes needed to adhere to the 

regulatory modifications after being 

given an opportunity to act upon a CAP, 

the ACO would be terminated from the 

program. 

(d) Nothing in the regulations under 

this part shall be construed to affect the 

payment, coverage, program integrity, 

and other requirements that apply to 

providers and suppliers under FFS 

Medicare. 

§ 425.21 Managing significant changes to 

the ACO during the agreement period. 

(a)(1) During the 3-year agreement, an 

ACO may remove, but not add, ACO 

participants (identified by TINs), and it 

may remove or add ACO providers/ 

suppliers (identified by NPI and/or 

TIN). 

(2) ACOs must notify CMS at least 30 

days prior to any significant change, as 

defined in paragraph (b). 

(3) CMS will review the ACO’s 

notification and make one of the 

following determinations: 

(i) The ACO may continue to operate 

under the new structure with savings 

calculations for the performance year 

based upon the updated list of ACO 

participant TINs. 

(ii) The ACO structure is so different 

from the initially approved ACO that it 

must submit a new application, and, if 

applicable, undergo an antitrust review. 

(iii) The ACO is materially different 

from the initially approved ACO 

because of the inclusion of additional 

ACO providers/suppliers such that, in 

order to continue in the program, the 

ACO must obtain an antitrust review 

and a letter from the reviewing Antitrust 

Agency stating that it has no present 

intent to challenge, or to recommend 

challenging, the ACO. An ACO’s failure 

to timely request antitrust review shall 

be deemed to constitute voluntary 

termination of its 3-year agreement. 

(iv) The ACO no longer meets the 

eligibility criteria for the program and 

its 3-year agreement must be terminated. 

(v) CMS and the ACO may mutually 

decide to terminate the agreement. 

(b) A ‘‘significant change’’ occurs 

when an ACO is unable to fulfill its 3- 

year agreement due to: 

(i) Deviation from its approved 

application such as a reorganization of 

the ACO’s legal structure or other 

changes in eligibility. 

(ii) A material change as defined in 

§ 425.14. 

(iii) Government-required 

reorganization as a result of fraud or 

antitrust concerns. 

(c) The ACO must notify CMS within 

30 days of the event for reevaluation of 

its eligibility to continue to participate 

in the Shared Savings Program. 

(d) ACO participants continue to be 

subject to all requirements applicable to 

fee-for-service Medicare, including 

routine CMS business operation 

updates, and changes in fee-for-service 

coverage decisions. 

§ 425.22 Future participation of previous 

Shared Savings Program participants. 

(a) The ACO must disclose to CMS 

whether the ACO, its ACO participants, 

or its ACO providers/suppliers have 

participated in the Medicare program 

under the same or a different name, or 

is related to or has an affiliation with 

another Shared Savings Program ACO. 

The ACO must specify whether the 

related ACO was terminated or 

withdrew voluntarily from the program. 

(b) If the ACO was previously 

terminated from the program, the 

applicant must identify the cause of 

termination and what safeguards are 

now in place to enable the applicant 

ACO to participate in the program for 

the full of the three-year agreement 

period. For new ACOs, this should be 

disclosed on a prospective ACO’s 

application. For ACOs that are already 

participating in the Shared Savings 

Program, this information should be 

included in the annual updates that the 

ACOs will provide to CMS on their ACO 

participants and ACO providers/ 

suppliers. 

§ 425.23 Public reporting and 

transparency. 

For purposes of the shared savings 

program, each ACO will publicly report 

the following information regarding the 

ACO a standardized format specified by 

CMS: 

(a) Name and location. 

(b) Primary contact. 

(c) Organizational information 

including all of the following: 

(1) Participating providers of services 

and suppliers. 

(2) Identification of participants in 

joint ventures between ACO 

professionals and hospitals. 


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19654 Federal Register / Vol. 76, No. 67 / Thursday, April 7, 2011 / Proposed Rules 

(3) Identification of the 

representatives on its governing body. 

(4) Associated committees and 

committee leadership. 

(5) Quality performance standard 

scores. 

(d) Shared savings or losses 

information, including the amount of 

any shared savings performance 

payment received by the ACOs or 

shared losses owed to CMS. 

(e) Total proportion of shared savings 

that was distributed among ACO 

participants and total proportion that 

was used to support quality 

performance and the aims of better care 

for individuals, better health for 

populations, and lower growth in 

expenditures. 

§ 425.24 Overlap with other CMS Shared 

Savings initiatives. 

(a) Medicare providers and suppliers 

may not participate in the Shared 

Savings Program as ACO participants if 

they participate in the independence at 

home medical practice pilot program 

under section 1866E of the Act, a model 

tested or expanded under section 1115A 

of the Act that involves shared savings, 

or any other Medicare initiative that 

involves shared savings. CMS will 

review and reject an ACO’s application 

if ACO participants are participating in 

another Medicare initiative that 

involves shared savings payments so 

that beneficiaries are assigned to only 

one such initiative and in order to avoid 

duplicate shared savings payments. 

(b) PGP demonstration sites applying 

for participation to the Shared Savings 

Program will be required to complete a 

condensed application form. 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 

Dated: March 24, 2011. 

Donald M. Berwick, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: March 29, 2011. 

Kathleen Sebelius, 

Secretary. 

[FR Doc. 2011–7880 Filed 3–31–11; 11:15 am] 

BILLING CODE 4120–01–P 


srobinson on DSKHWCL6B1PROD with PROPOSALS2