[Federal Register Volume 83, Number 249 (Monday, December 31, 2018)]
[Rules and Regulations]
[Pages 67816-68082]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27981]



[[Page 67815]]

Vol. 83

Monday,

No. 249

December 31, 2018

Part II





Department of Health and Human Services





-----------------------------------------------------------------------





Centers for Medicare & Medicaid Services





-----------------------------------------------------------------------





42 CFR Part 425





Medicare Program; Medicare Shared Savings Program; Accountable Care 
Organizations--Pathways to Success and Extreme and Uncontrollable 
Circumstances Policies for Performance Year 2017; Final Rule

Federal Register / Vol. 83 , No. 249 / Monday, December 31, 2018 / 
Rules and Regulations

[[Page 67816]]


-----------------------------------------------------------------------

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 425

[CMS-1701-F2 and CMS-1702-F]
RINs 0938-AT45 and 0938-AT51


Medicare Program; Medicare Shared Savings Program; Accountable 
Care Organizations--Pathways to Success and Extreme and Uncontrollable 
Circumstances Policies for Performance Year 2017

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rules.

-----------------------------------------------------------------------

SUMMARY: Under the Medicare Shared Savings Program (Shared Savings 
Program), providers of services and suppliers that participate in an 
Accountable Care Organization (ACO) continue to receive traditional 
Medicare fee-for-service (FFS) payments under Parts A and B, but the 
ACO may be eligible to receive a shared savings payment if it meets 
specified quality and savings requirements. The policies included in 
this final rule provide a new direction for the Shared Savings Program 
by establishing pathways to success through redesigning the 
participation options available under the program to encourage ACOs to 
transition to two-sided models (in which they may share in savings and 
are accountable for repaying shared losses). These policies are 
designed to increase savings for the Trust Funds and mitigate losses, 
reduce gaming opportunities, and promote regulatory flexibility and 
free-market principles. This final rule also provides new tools to 
support coordination of care across settings and strengthen beneficiary 
engagement; and ensure rigorous benchmarking.
    In this final rule, we also respond to public comments we received 
on the extreme and uncontrollable circumstances policies for the Shared 
Savings Program that were used to assess the quality and financial 
performance of ACOs that were subject to extreme and uncontrollable 
events, such as Hurricanes Harvey, Irma, and Maria, and the California 
wildfires, in performance year 2017, including the applicable quality 
data reporting period for performance year 2017.

DATES: Effective Date: This rule is effective February 14, 2019.
    Applicability Dates: In the Supplementary Information section of 
this final rule, we provide a table (Table 1) which lists key changes 
in this final rule that have an applicability date other than the 
effective date of this final rule.

FOR FURTHER INFORMATION CONTACT: Elizabeth November, (410) 786-8084 or 
via email at <a href="/cdn-cgi/l/email-protection#bcdddfd3fcdfd1cf92d4d4cf92dbd3ca"><span class="__cf_email__" data-cfemail="91f0f2fed1f2fce2bff9f9e2bff6fee7">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: Table 1 lists key changes that have an 
applicability date other than 60 days after the date of publication of 
this final rule. By indicating that a provision is applicable to a 
performance year (PY) or agreement period, activities related to 
implementation of the policy may precede the start of the performance 
year or agreement period.
BILLING CODE 4120-01-P

[[Page 67817]]

[GRAPHIC] [TIFF OMITTED] TR31DE18.000


[[Page 67818]]


[GRAPHIC] [TIFF OMITTED] TR31DE18.001

BILLING CODE 4120-01-C

Table of Contents

I. Executive Summary and Background
    A. Executive Summary
    1. Purpose
    2. Summary of the Major Provisions
    3. Summary of Costs and Benefits
    B. Statutory and Regulatory Background
II. Provisions of the August 2018 Proposed Rule and Analysis of and 
Responses to Public Comments
    A. Redesigning Participation Options To Facilitate Transition to 
Performance-Based Risk
    1. Background on Shared Savings Program Participation Options
    2. Modified Participation Options Under 5-Year Agreement Periods
    3. Creating a BASIC Track With Glide Path to Performance-Based 
Risk
    4. Permitting Annual Participation Elections
    5. Determining Participation Options Based on Medicare FFS 
Revenue and Prior Participation
    6. Requirements for ACO Participation in Two-Sided Models
    7. Participation Options for Agreement Periods Beginning in 2019
    B. Fee-for-Service Benefit Enhancements
    1. Background
    2. Proposed Revisions
    C. Providing Tools To Strengthen Beneficiary Engagement
    1. Background on Beneficiary Engagement
    2. Beneficiary Incentives
    3. Empowering Beneficiary Choice
    D. Benchmarking Methodology Refinements
    1. Background
    2. Risk Adjustment Methodology for Adjusting Historical 
Benchmark Each Performance Year
    3. Use of Regional Factors When Establishing and Resetting ACOs' 
Benchmarks
    4. Technical Changes To Incorporate References to Benchmark 
Rebasing Policies
    E. Updating Program Policies
    1. Overview
    2. Coordination of Pharmacy Care for ACO Beneficiaries
    F. Applicability of Final Policies to Track 1+ Model ACOs
    1. Background
    2. Unavailability of Application Cycles for Entry Into the Track 
1+ Model in 2019 and 2020
    3. Applicability of Final Policies to Track 1+ Model ACOs 
Through Revised Program Regulations or Revisions to Track 1+ Model 
Participation Agreements
III. Provisions of the December 2017 Interim Final Rule With Comment 
Period and Analysis of and Response to Public Comments
    A. Background

[[Page 67819]]

    B. Shared Savings Program Extreme and Uncontrollable 
Circumstances Policies for Performance Year 2017
    1. Determination of Quality Performance Scores for ACOs in 
Affected Areas
    2. Mitigating Shared Losses for ACOs Participating in a 
Performance-Based Risk Track
IV. Collection of Information Requirements
V. Regulatory Impact Analysis
    A. Statement of Need
    B. Overall Impact
    1. Medicare Program; Medicare Shared Savings Program; 
Accountable Care Organizations--Pathways to Success (CMS-1701-F2)
    2. Medicare Program; Medicare Shared Savings Program; 
Accountable Care Organizations--Extreme and Uncontrollable 
Circumstances Policies (CMS-1701-F)
    C. Anticipated Effects
    1. Effects on the Medicare Program
    2. Effects on Beneficiaries
    3. Effects on Providers and Suppliers
    4. Effect on Small Entities
    5. Effect on Small Rural Hospitals
    6. Unfunded Mandates
    7. Regulatory Review Cost Estimation
    8. Other Impacts on Regulatory Burden
    D. Alternatives Considered
    E. Compliance With Requirements of Section 1899(i)(3)(B) of the 
Act
    F. Accounting Statement and Table
    G. Regulatory Reform Analysis Under Executive Order 13771
    H. Conclusion
VI. Effective Date Exception
Regulation Text

I. Executive Summary and Background

A. Executive Summary

1. Purpose
    In August 2018 we issued a proposed rule, titled ``Medicare 
Program; Medicare Shared Savings Program; Accountable Care 
Organizations--Pathways to Success'' (hereinafter referred to as the 
``August 2018 proposed rule''), which appeared in the Federal Register 
on August 17, 2018 (83 FR 41786). On November 1, 2018, we issued a 
final rule, titled ``Medicare Program; Revisions to Payment Policies 
Under the Physician Fee Schedule and Other Revisions to Part B for CY 
2019; Medicare Shared Savings Program Requirements; Quality Payment 
Program; Medicaid Promoting Interoperability Program; Quality Payment 
Program--Extreme and Uncontrollable Circumstance Policy for the 2019 
MIPS Payment Year; Provisions From the Medicare Shared Savings 
Program--Accountable Care Organizations--Pathways to Success; and 
Expanding the Use of Telehealth Services for the Treatment of Opioid 
Use Disorder Under the Substance Use-Disorder Prevention That Promotes 
Opioid Recovery and Treatment (SUPPORT) for Patients and Communities 
Act'' (hereinafter referred to as the ``November 2018 final rule''), 
that appeared in the Federal Register on November 23, 2018 (83 FR 
59452). In the November 2018 final rule, we finalized certain policies 
from the August 2018 proposed rule in order to ensure continuity of 
participation, and finalize time-sensitive program policy changes for 
currently participating ACOs. We also finalized provisions to 
streamline the ACO core quality measure set to reduce burden and 
encourage better outcomes, which we proposed in the proposed rule for 
the CY 2019 PFS, entitled Medicare Program; Revisions to Payment 
Policies Under the Physician Fee Schedule and Other Revisions to Part B 
for CY 2019; Medicare Shared Savings Program Requirements; Quality 
Payment Program; and Medicaid Promoting Interoperability Program; 
Proposed Rule (83 FR 35704). This final rule addresses the remaining 
policies from the August 2018 proposed rule that were not addressed in 
the November 2018 final rule.
    Since the Medicare Shared Savings Program (Shared Savings Program) 
was established in 2012, CMS has continued to monitor and evaluate 
program results to look for additional ways to streamline program 
operations, reduce burden, and facilitate transition to risk that 
promote a competitive and accountable marketplace, while improving the 
quality of care for Medicare beneficiaries. This final rule makes 
changes to the regulations for the Shared Savings Program that were 
promulgated through rulemaking between 2011 and 2017, and are codified 
in 42 CFR part 425. The changes in this final rule are based on the 
additional program experience we have gained and on lessons learned 
from testing of Medicare ACO initiatives by the Center for Medicare and 
Medicaid Innovation (Innovation Center). As we implement these changes, 
we will continue to monitor the program's ability to reduce healthcare 
spending and improve care quality, including whether the program 
provides beneficiaries with the value and choice demonstrated by other 
Medicare options such as Medicare Advantage (MA), and will use the 
results of this monitoring to inform future development of the program. 
This rule also finalizes changes to address new requirements of the 
Bipartisan Budget Act of 2018 (Pub. L. 115-123) (herein referred to as 
the Bipartisan Budget Act).
    In December 2017, we issued an interim final rule with comment 
period, titled ``Medicare Shared Savings Program: Extreme and 
Uncontrollable Circumstances Policies for Performance Year 2017'' 
(hereinafter referred to as the ``December 2017 interim final rule with 
comment period''), which appeared in the Federal Register on December 
26, 2017 (82 FR 60912). The December 2017 interim final rule with 
comment period established policies for assessing the financial and 
quality performance of Shared Savings Program ACOs that were affected 
by extreme and uncontrollable circumstances during performance year 
2017, including the applicable quality reporting period for performance 
year 2017. This final rule includes an analysis of and responses to 
comments received on the December 2017 interim final rule with comment 
period.
    Section 1899 of the Social Security Act (the Act) established the 
Medicare Shared Savings Program, which promotes accountability for a 
patient population, fosters coordination of items and services under 
Medicare Parts A and B, encourages investment in infrastructure and 
redesigned care processes for high quality and efficient health care 
service delivery, and promotes higher value care. The Shared Savings 
Program is a voluntary program that encourages groups of doctors, 
hospitals, and other health care providers to come together as an ACO 
to lower growth in expenditures and improve quality. An ACO agrees to 
be held accountable for the quality, cost, and experience of care of an 
assigned Medicare FFS beneficiary population. ACOs that successfully 
meet quality and savings requirements share a percentage of the 
achieved savings with Medicare.
    Shared Savings Program ACOs are an important innovation for moving 
CMS' payment systems away from paying for volume and towards paying for 
value and outcomes because ACOs are held accountable for spending in 
relation to a historical benchmark and for quality performance, 
including performance on outcome and patient experience measures. The 
program began in 2012, and as of January 2018, 561 ACOs were 
participating in the program and serving over 10.5 million Medicare FFS 
beneficiaries. (See the Medicare Shared Savings Program website at 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/ for information about the program, the program's 
statutory authority, regulations and guidance, the program's 
application process, participating ACOs, and program performance data.)
    The Shared Savings Program currently includes three financial 
models that allow ACOs to select an

[[Page 67820]]

arrangement that makes the most sense for their organization. The vast 
majority of Shared Savings Program ACOs, 82 percent in 2018,\1\ have 
chosen to enter and maximize the allowed time under a one-sided, shared 
savings-only model (Track 1), under which eligible ACOs receive a share 
of any savings under their benchmark, but are not required to pay back 
a share of spending over the benchmark. In comparison, there is 
relatively low participation in the program's two-sided, shared savings 
and shared losses models, under which eligible ACOs share in a larger 
portion of any savings under their benchmark, but are required to share 
losses if spending exceeds the benchmark. Participation in Track 2 
(introduced at the start of the program in 2012) has slowly declined in 
recent years, particularly following the availability of Track 3 
(beginning in 2016), although participation in Track 3, the program's 
highest-risk track, remains modest.
---------------------------------------------------------------------------

    \1\ See, for example, Medicare Shared Savings Program Fast Facts 
(January 2018), available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/SSP-2018-Fast-Facts.pdf.
---------------------------------------------------------------------------

    Recently, the Innovation Center designed an additional option 
available to eligible Track 1 ACOs, referred to as the Track 1+ Model, 
to facilitate ACOs' transition to performance-based risk. The Track 1+ 
Model is a time-limited model that began on January 1, 2018, and is 
based on Shared Savings Program Track 1, but tests a payment design 
that incorporates more limited downside risk, as compared to Track 2 
and Track 3. Our early experience with the design of the Track 1+ Model 
demonstrates that the availability of a lower-risk, two-sided model is 
an effective way to encourage Track 1 ACOs (including ACOs within a 
current agreement period, initial program entrants, and renewing ACOs) 
to progress more rapidly to performance-based risk. Fifty-five ACOs 
entered into Track 1+ Model agreements effective on January 1, 2018, 
the first time the model was offered. These ACOs represent our largest 
cohort of performance-based risk ACOs to date.
    ACOs in two-sided models have shown significant savings to the 
Medicare program while advancing the quality of care furnished to FFS 
beneficiaries; but, the majority of ACOs have yet to assume any 
performance-based risk although they have the ability to benefit from 
waivers of certain federal requirements in connection with their 
participation in the Shared Savings Program. Even more concerning is 
the finding that for performance years beginning in 2012 through 2016, 
one-sided model ACOs, which are not accountable for sharing in losses, 
actually increased Medicare spending relative to their benchmarks under 
the program's financial methodology. Further, the presence of an 
``upside-only'' track may be encouraging consolidation in the 
marketplace, reducing competition and choice for Medicare FFS 
beneficiaries. While we understand that systems need time to adjust, 
Medicare cannot afford to continue with models that are not producing 
desired results.
    Our results to date have shown that ACOs in two-sided models 
perform better over time than one-sided model ACOs, low revenue ACOs, 
which are typically physician-led, perform better than high revenue 
ACOs, which often include hospitals, and the longer ACOs are in the 
program the better they do at achieving the program goals of lowering 
growth in expenditures and improving quality. For example, in 
performance year 2016, about 68 percent of Shared Savings Program ACOs 
in two-sided models (15 of 22 ACOs) shared savings compared to 29 
percent of Track 1 ACOs; 41 percent of low revenue ACOs shared savings 
compared to 23 percent of high revenue ACOs; and 42 percent of April 
and July 2012 starters shared savings, compared to 36 percent of 2013 
and 2014 starters, 26 percent of 2015 starters, and 18 percent of 2016 
starters. Shortly after the August 2018 proposed rule was announced, 
CMS made publicly available performance year 2017 results that showed 
similarities to 2016. In performance year 2017, 51 percent of Shared 
Savings Program ACOs in two-sided models (20 of 39 ACOs) shared savings 
compared to 33 percent of Track 1 ACOs; 44 percent of low revenue ACOs 
shared savings compared to 28 percent of high revenue ACOs; and 51 
percent of April and July 2012 starters shared savings, compared to 43 
percent of 2013 and 2014 starters, 28 percent of 2015 and 2016 
starters, and 21 percent of 2017 starters.
    In the August 2018 proposed rule, we explained our belief that 
additional policy changes to the Shared Savings Program and its 
financial models are required to support the move to value, achieve 
savings for the Medicare program, and promote a competitive and 
accountable healthcare marketplace. Accordingly, we proposed to 
redesign the Shared Savings Program to provide pathways to success in 
the future through a combination of policy changes, informed by the 
following guiding principles:

    <bullet> Accountability--Increase savings for the Medicare Trust 
Funds, mitigate losses by accelerating the move to two-sided risk by 
ACOs, and ensure rigorous benchmarking.
    <bullet> Competition--Promote free-market principles by 
encouraging the development of physician-only and rural ACOs in 
order to provide a pathway for physicians to stay independent, 
thereby preserving beneficiary choice.
    <bullet> Engagement--Promote regulatory flexibility to allow 
ACOs to innovate and be successful in coordinating care, improving 
quality, and engaging with and incentivizing beneficiaries to 
achieve and maintain good health.
    <bullet> Integrity--Reduce opportunities for gaming.
    <bullet> Quality--Improve quality of care for patients with an 
emphasis on promoting interoperability and the sharing of healthcare 
data between providers, focusing on meaningful quality measures, and 
combatting opioid addiction.

    In the August 2018 proposed rule, we explained that the need for a 
new approach or pathway to transition Track 1 ACOs to performance-based 
risk is particularly relevant at this time, given the current stage of 
participation for the initial entrants to the Shared Savings Program 
under the program's current design. The program's initial entrants are 
nearing the end of the time allowed under Track 1 (a maximum of two, 3-
year agreement periods). Among the program's initial entrants (ACOs 
that first entered the program in 2012 and 2013), there are 82 ACOs 
that would be required to renew their participation agreements to enter 
a third agreement period beginning in 2019, and they face transitioning 
from a one-sided model to a two-sided model with significant levels of 
risk that some are not prepared to accept. Another 114 ACOs that have 
renewed for a second agreement period under a one-sided model, 
including 59 ACOs that started in 2014 and 55 ACOs that started in 
2015, will face a similar transition to a two-sided model with 
significant levels of risk in 2020 and 2021, respectively. The 
transition to performance-based risk remains a pressing concern for 
ACOs, as evidenced by a recent survey of the 82 ACOs that would be 
required to move to a two-sided payment model in their third agreement 
period beginning in 2019. The survey results, based on a 43 percent 
response rate, indicate that these Track 1 ACOs are reluctant to move 
to two-sided risk under the current design of the program. See National 
Association of ACOs, Press Release (May 2018), available at https://www.naacos.com/press-release-may-2-2018.
    In the August 2018 proposed rule, we explained our belief that the 
long term success and sustainability of the Shared Savings Program is 
affected by a combination of key program factors: The savings and 
losses potential of the

[[Page 67821]]

program established through the design of the program's tracks; the 
methodology for setting and resetting the benchmark, which is the basis 
for determining shared savings and shared losses; the length of the 
agreement period, which determines the amount of time an ACO remains 
under a financial model; and the frequency of benchmark rebasing. In 
the proposed rule, we carefully considered each of these factors and 
proposed a framework that we believed, on balance, would create 
sufficient incentives for participation in a voluntary program, while 
also achieving program goals to increase quality of care for Medicare 
beneficiaries and reduce expenditure growth to protect the Trust Funds.
    In order to achieve these program goals and preserve the long term 
success and sustainability of the program, we explained the need to 
create a pathway for ACOs to more rapidly transition to performance-
based risk. ACOs and other program stakeholders have urged CMS to 
smooth the transition to risk by providing more time to gain experience 
with risk and more incremental levels of risk. Through the proposed 
program redesign, we aimed to create a pathway for success that 
facilitates ACOs' transition to performance-based risk more quickly and 
makes this transition smooth by phasing-in risk more gradually. Through 
the creation of a new BASIC track, we proposed to allow ACOs to gain 
experience with more modest levels of performance-based risk on their 
way to accepting greater levels of performance-based risk over time (as 
the proposed BASIC track's maximum level of risk is similar to that of 
the Track 1+ Model, and substantially less than the proposed ENHANCED 
track). As stakeholders have suggested, we proposed to provide 
flexibility to allow ACOs that are ready to accelerate their move to 
higher risk within agreement periods, and enable such ACOs to 
participate in Advanced APMs for purposes of the Quality Payment 
Program. We proposed to streamline the program and simplify the 
participation options by retiring Track 1 and Track 2. We proposed to 
retain Track 3, which we would rename as the ENHANCED track, to 
encourage ACOs that are able to accept higher levels of potential risk 
and reward to drive the most significant systematic change in 
providers' and suppliers' behavior. We proposed to further strengthen 
the program by establishing policies to deter gaming by limiting more 
experienced ACOs to higher-risk participation options; more rigorously 
screening for good standing among ACOs seeking to renew their 
participation in the program or re-enter the program after termination 
or expiration of their previous agreement; identifying ACOs re-forming 
under new legal entities as re-entering ACOs if greater than 50 percent 
of their ACO participants have recent prior participation in the same 
ACO in order to hold these ACOs accountable for their ACO participants' 
experience with the program; and holding ACOs in two-sided models 
accountable for partial-year losses if either the ACO or CMS terminates 
the agreement before the end of the performance year.
    Under the proposed redesign of the program, our policies would 
recognize the relationship between the ACO's degree of control over 
total Medicare Parts A and B FFS expenditures for its assigned 
beneficiaries and its readiness to accept higher or lower degrees of 
performance-based risk. Comparisons of ACO participants' total Medicare 
Parts A and B FFS revenue to a factor based on total Medicare Parts A 
and B FFS expenditures for the ACO's assigned beneficiaries would be 
used in determining the maximum amount of losses (loss sharing limit) 
under the BASIC track, the estimated amount of repayment mechanism 
arrangements for BASIC track ACOs (required for ACOs entering or 
continuing their participation in a two-sided model to assure CMS of 
the ACO's ability to repay shared losses), and in determining 
participation options for ACOs. Using revenue-based loss sharing limits 
and repayment mechanism amounts for eligible BASIC track ACOs would 
help to ensure that low revenue ACOs have a meaningful pathway to 
participate in a two-sided model that may be more consistent with their 
capacity to assume risk. By basing participation options on the ACO's 
degree of control over total Medicare Parts A and B FFS expenditures 
for the ACO's assigned beneficiaries, low revenue ACOs, which tend to 
be smaller and have less capital, would be able to continue in the 
program longer under lower levels of risk; whereas high revenue ACOs, 
which tend to include institutional providers and are typically larger 
and better capitalized, would be required to move more quickly to 
higher levels of performance-based risk in the ENHANCED track, because 
they should be able to exert more influence, direction, and 
coordination over the full continuum of care. By requiring high revenue 
ACOs to enter higher levels of performance-based risk under the 
ENHANCED track after no more than one agreement period under the BASIC 
track, we aimed to drive more meaningful systematic change in these 
ACOs, which have greater potential to control their assigned 
beneficiaries' Medicare Parts A and B FFS expenditures by coordinating 
care across care settings, and thus to achieve significant change in 
spending. Further, allowing low revenue ACOs a longer period of 
participation under the lower level of performance-based risk in the 
BASIC track, while challenging high revenue ACOs to more quickly move 
to higher levels of performance-based risk, could give rise to more 
innovative arrangements for lowering growth in expenditures and 
improving quality, particularly among low revenue ACOs that tend to be 
composed of independent physician practices.
    The program's benchmarking methodology, a complex calculation that 
incorporates the ACO's risk-adjusted historical expenditures and 
reflects either national or regional spending trends, is a central 
feature of the program's financial models. We proposed to continue to 
refine the benchmarking approach based on our experience using factors 
based on regional FFS expenditures in resetting the benchmark in an 
ACO's second or subsequent agreement period, and to address ACOs' 
persistent concerns over the risk adjustment methodology. Through the 
proposed redesign of the program, we would provide for more accurate 
benchmarks for ACOs that are protective of the Trust Funds by ensuring 
that ACOs do not unduly benefit from any one aspect of the benchmark 
calculations, while also helping to ensure the program continues to 
remain attractive to ACOs, especially those caring for the most complex 
and highest risk patients who could benefit from high-quality, 
coordinated care from an ACO.
    We proposed to accelerate the use of factors based on regional FFS 
expenditures in establishing the benchmark by applying this methodology 
in setting an ACO's benchmark beginning with its first agreement 
period. This would allow the benchmark to be a more accurate 
representation of the ACO's costs in relation to its localized market 
(or regional service area), and could strengthen the incentives of the 
program to drive meaningful change by ACOs. Further, allowing agreement 
periods of at least 5 years, as opposed to the current 3-year agreement 
periods, would provide greater predictability for benchmarks by 
reducing the frequency of benchmark rebasing, and therefore provide 
greater opportunity for ACOs to achieve savings against these 
benchmarks. In combination, these

[[Page 67822]]

policies would protect the Trust Funds, provide more accurate and 
predictable benchmarks, and reduce selection costs, while creating 
incentives for ACOs to transition to performance-based risk.
    The existing regional adjustment under Sec.  425.603(c) can provide 
overly inflated benchmarks for ACOs that are relatively low spending 
compared to their region, while ACOs with higher spending compared to 
their region may find little value in remaining in the program when 
faced with a significantly reduced benchmark. To address this dynamic, 
we proposed to reduce the maximum weight used in calculating the 
regional adjustment, and cap the adjustment amount for all agreement 
periods, so as not to excessively reward or punish an ACO based on 
where the ACO is located. This would make the benchmark more achievable 
for ACOs that care for medically complex patients and are high spending 
compared to their region, thereby encouraging their continued 
participation, while at the same time preventing windfall shared 
savings payments for ACOs that have relatively low spending levels 
relative to their region.
    We also sought to provide more sustainable trend factors for ACOs 
with high penetration in markets with lower spending growth compared to 
the nation, and less favorable trend factors for ACOs with high 
penetration in markets with higher spending growth compared to the 
nation. This approach would have little impact on ACOs with relatively 
low to medium penetration in counties in their regional service area.
    ACOs and other program stakeholders have continued to express 
concerns that the program's methodology for risk adjusting the 
benchmark for each performance year does not adequately account for 
changes in acuity and health status of patients over time. We proposed 
to modify the current approach to risk adjustment to allow changes in 
health status to be more fully recognized during the agreement period, 
providing further incentives for continued participation by ACOs faced 
with higher spending due to the changing health status of their 
population.
    ACOs and other program stakeholders have urged CMS to allow 
additional flexibility of program and payment policies to enable ACOs 
to engage beneficiaries and provide the care for beneficiaries in the 
most appropriate care setting. It is also critical that patients have 
the tools to be more engaged with their doctors in order to play a more 
active role in their care coordination and the quality of care they 
receive, and that ACOs empower and incentivize beneficiaries to achieve 
good health. The Bipartisan Budget Act allows for certain new 
flexibilities for Shared Savings Program ACOs to support these aims, 
including new beneficiary incentive programs, telehealth services 
furnished in accordance with section 1899(l) of the Act, and a choice 
of beneficiary assignment methodology. We proposed to establish 
policies in accordance with the new law in these areas. For example, in 
accordance with section 1899(m)(1)(A) of the Act (as added by section 
50341 of the Bipartisan Budget Act), we would allow certain ACOs under 
two-sided risk to establish CMS-approved beneficiary incentive 
programs, through which an ACO would provide incentive payments to 
assigned beneficiaries who receive qualifying primary care services. We 
proposed to establish policies to govern telehealth services furnished 
in accordance with 1899(l) of the Act by physicians and practitioners 
in eligible two-sided model ACOs. We also proposed to allow broader 
access to the program's existing SNF 3-day rule waiver for ACOs under 
performance-based risk.
    Lastly, we sought comment on how Medicare ACOs and the sponsors of 
stand-alone Part D prescription drug plans (PDPs) could be encouraged 
to collaborate in order to improve the coordination of pharmacy care 
for Medicare FFS beneficiaries.
2. Summary of the Major Provisions
    This final rule restructures the participation options for ACOs 
applying to participate in the program in 2019 by discontinuing Track 1 
(one-sided shared savings-only model), and Track 2 (two-sided shared 
savings and shared losses model) while maintaining Track 3 (renamed the 
ENHANCED track) and offering a new BASIC track. Under the approach we 
are adopting in this final rule, the program's two tracks are: (1) A 
BASIC track, offering a glide path from a one-sided model for eligible 
ACOs to progressively higher increments of risk and potential reward 
within a single agreement period; and (2) an ENHANCED track based on 
the existing Track 3 (two-sided model), for ACOs that take on the 
highest level of risk and potential reward. As part of this approach we 
are replacing the current 3-year agreement period structure with an 
agreement period of at least 5 years, allowing eligible BASIC track 
ACOs greater flexibility to select their level of risk within an 
agreement period in the glide path, and allowing all BASIC track and 
ENHANCED track ACOs the flexibility to change their selection of 
beneficiary assignment methodology prior to the start of each 
performance year, consistent with the requirement under the Bipartisan 
Budget Act to provide ACOs with a choice of prospective assignment. We 
are finalizing Level A and B of the BASIC track as one-sided models 
with a maximum shared savings rate of 40 percent, not to exceed 10 
percent of updated benchmark; Level C of the BASIC track with a maximum 
shared savings rate of 50 percent not to exceed 10 percent of updated 
benchmark, and loss sharing rate of 30 percent, not to exceed 2 percent 
of ACO participant revenue capped at 1 percent of updated benchmark; 
Level D of the BASIC track with a maximum shared savings rate of 50 
percent, not to exceed 10 percent of updated benchmark, and loss 
sharing rate of 30 percent, not to exceed 4 percent of ACO participant 
revenue capped at 2 percent of updated benchmark; Level E of the BASIC 
track with a maximum shared savings rate of 50 percent, not to exceed 
10 percent of updated benchmark, and loss sharing rate of 30 percent, 
not to exceed the percentage of revenue specified in the revenue-based 
nominal amount standard under the Quality Payment Program (for example, 
8 percent in 2019-2020), capped at the amount that is 1 percentage 
point higher than the percentage of the updated benchmark specified in 
the expenditure-based nominal amount standard under the Quality Payment 
Program (for example, 4 percent in 2019-2020); and the ENHANCED track 
with a maximum shared savings rate of 75 percent, not to exceed 20 
percent of updated benchmark, and loss sharing rate determined based on 
the inverse of the final sharing rate, but not less than 40 percent 
(that is, between 40-75 percent), not to exceed 15 percent of updated 
benchmark. Additionally, new, low revenue ACOs will have the option to 
participate under one-sided risk for 3 years and in exchange will be 
required to move to Level E of the BASIC track for the final 2 years of 
their 5-year agreement period.
    To provide ACOs time to consider the new participation options and 
prepare for program changes, make investments and other business 
decisions about participation, obtain buy-in from their governing 
bodies and executives, and to complete and submit a Shared Savings 
Program application for a performance year beginning in 2019, we will 
offer a July 1, 2019 start date for the first agreement period under 
the new participation options. This midyear start in 2019 will also 
allow both new

[[Page 67823]]

applicants and ACOs currently participating in the program an 
opportunity to make any changes to the structure and composition of 
their ACO as may be necessary to comply with the new program 
requirements for the ACO's preferred participation option. ACOs 
entering a new agreement period on July 1, 2019, will have the 
opportunity to participate in the program under an agreement period 
spanning 5 years and 6 months, with a 6-month first performance year.
    We are finalizing modifications to the repayment mechanism 
arrangement requirements, which help ensure that an ACO can repay 
losses for which it may be liable. Our modifications include: (1) 
Adding a provision to align repayment mechanism requirements across all 
ACOs in two-sided models under the BASIC track and ENHANCED track to 
allow a repayment mechanism equal to 2 percent of the ACO participants' 
total Medicare Parts A and B FFS revenue up to 1 percent of total per 
capita Medicare Parts A and B FFS expenditures for the ACO's assigned 
beneficiaries; (2) adding a provision to permit recalculation of the 
estimated amount of the repayment mechanism each performance year to 
account for changes in ACO participant composition; (3) specifying the 
required duration of repayment mechanism arrangements and the options 
available to ACOs for fulfilling this requirement; (4) adding a 
provision to allow a renewing ACO the flexibility to maintain a single, 
existing repayment mechanism arrangement to support its ability to 
repay shared losses in the new agreement period so long as the term of 
the arrangement is extended and the repayment mechanism amount is 
modified to cover any increase to the repayment mechanism amount during 
the new agreement period; and (5) establishing requirements regarding 
the issuing institutions for a repayment mechanism arrangement.
    This final rule establishes regulations in accordance with the 
Bipartisan Budget Act on coverage for telehealth services furnished on 
or after January 1, 2020, by physicians and other practitioners 
participating in an ACO under performance-based risk that has selected 
prospective assignment. This policy allows for payment for telehealth 
services furnished to prospectively assigned beneficiaries receiving 
telehealth services in non-rural areas, and allow beneficiaries to 
receive certain telehealth services at their home, to support care 
coordination across settings. The final rule also provides for limited 
waivers of the originating site and geographic requirements to allow 
for payment for otherwise covered telehealth services provided to 
beneficiaries who are no longer prospectively assigned to an applicable 
ACO (and therefore no longer eligible for payment for these services 
under section 1899(l) of the Act) during a 90-day grace period. In 
addition, ACO participants are prohibited, under certain circumstances, 
from charging beneficiaries for telehealth services, where CMS does not 
pay for those telehealth services under section 1899(l) of the Act 
solely because the beneficiary was never prospectively assigned to the 
applicable ACO or was prospectively assigned, but the 90-day grace 
period has lapsed.
    We are finalizing the policy to allow eligible ACOs under 
performance-based risk under either prospective assignment or 
preliminary prospective assignment with retrospective reconciliation to 
use the program's existing SNF 3-day rule waiver. We also are amending 
the existing SNF 3-day rule waiver to allow critical access hospitals 
(CAHs) and other small, rural hospitals operating under a swing bed 
agreement to be eligible to partner with eligible ACOs as SNF 
affiliates for purposes of the SNF 3-day rule waiver.
    We are finalizing policies to expand the role of choice and 
incentives in engaging beneficiaries in their health care. First, we 
are establishing regulations in accordance with section 1899(m)(1)(A) 
of the Act, as added by section 50341 of the Bipartisan Budget Act, to 
permit ACOs under certain two-sided models to operate CMS-approved 
beneficiary incentive programs. The beneficiary incentive programs will 
encourage beneficiaries assigned to certain ACOs to obtain medically 
necessary primary care services while requiring such ACOs to comply 
with program integrity and other requirements, as the Secretary 
determines necessary. Any ACO that operates a CMS-approved beneficiary 
incentive program will be required to ensure that certain information 
about its beneficiary incentive program is made available to CMS and 
the public on its public reporting web page. Second, to empower 
beneficiary choice and further program transparency, we are revising 
policies related to beneficiary notifications. For example, we are 
requiring that ACOs notify Medicare FFS beneficiaries about voluntary 
alignment in the written notifications they must provide to 
beneficiaries. An ACO or its ACO participants will be required to 
provide each beneficiary with such notification prior to or at the 
beneficiary's first primary care visit of each performance year. In 
addition, such information must be posted in an ACO participant's 
facility and available upon request (as currently required). 
Additionally, any ACO that operates a beneficiary incentive program 
must also notify its beneficiaries of the availability of the program.
    We are finalizing new policies for determining the participation 
options for ACOs based on the degree to which ACOs control total 
Medicare Parts A and B FFS expenditures for their assigned 
beneficiaries (low revenue ACO versus high revenue ACO), and the 
experience of the ACO's legal entity and ACO participants with the 
Shared Savings Program and performance-based risk Medicare ACO 
initiatives.
    We also are revising the criteria for evaluating the eligibility of 
ACOs seeking to renew their participation in the program for a 
subsequent agreement period and ACOs applying to re-enter the program 
after termination or expiration of the ACO's previous agreement, based 
on the ACO's prior participation in the Shared Savings Program. We also 
will identify new ACOs as re-entering ACOs if greater than 50 percent 
of their ACO participants have recent prior participation in the same 
ACO in order to hold these ACO accountable for their ACO participants' 
experience with the program. We will use the same criteria to review 
applications from renewing and re-entering ACOs to more consistently 
consider ACOs' prior experience in the Shared Savings Program. We will 
also modify existing review criteria, such as the ACO's history of 
meeting the quality performance standard and the ACO's timely repayment 
of shared losses to ensure applicability to ACOs with an agreement 
period that is not less than 5 years. We will also strengthen the 
program's requirements for monitoring ACOs within an agreement period 
for poor financial performance to ensure that ACOs with poor financial 
performance are not allowed to continue their participation in the 
program, or to re-enter the program without addressing the deficiencies 
that resulted in termination.
    We are updating program policies related to termination of ACOs' 
participation in the program. We are reducing the amount of notice an 
ACO must provide CMS of its decision to voluntarily terminate. We also 
address the timing of an ACO's re-entry into the program after 
termination. Specifically, we are modifying current requirements that 
prevent an ACO from terminating its participation agreement and quickly 
re-entering the program to allow the flexibility for an ACO in a 
current 3-year agreement period to terminate its

[[Page 67824]]

participation agreement and immediately enter a new agreement period of 
not less than 5 years under one of the redesigned participation 
options. We are also finalizing policies that will prevent ACOs from 
taking advantage of this flexibility to avoid transitioning to risk by 
repeatedly participating in the BASIC track's glide path for a short 
time, terminating, and then entering a one-sided model in a future 
agreement period under the BASIC track. Specifically, we will restrict 
eligibility for the BASIC track's glide path to ACOs inexperienced with 
performance-based risk Medicare ACO initiatives, and we define 
performance-based risk Medicare ACO initiative to include all levels of 
the BASIC track's glide path. We also will differentiate between 
initial entrants (ACOs entering the program for the first time), ``re-
entering ACOs'' (ACOs re-entering after a break in participation 
following termination or expiration of a prior participation agreement, 
and new ACOs identified as re-entering ACOs because greater than 50 
percent of their ACO participants have recent prior participation in 
the same ACO), and ``renewing ACOs'' (ACOs that participate 
continuously in the program, without interruption, including ACOs that 
choose to renew early by terminating their current agreement and 
immediately entering a new agreement period). This differentiation is 
relevant for determining the agreement period the ACO is entering for 
purposes of applying policies that phase-in over time (benchmarking 
methodology and quality performance standards) and for determining 
whether an ACO can extend the use of its existing repayment mechanism 
when it enters a new agreement period.
    Further, we will impose payment consequences for early termination 
by holding ACOs in two-sided models liable for pro-rated shared losses. 
This approach will apply to ACOs that voluntarily terminate their 
participation more than midway through a 12-month performance year and 
all ACOs that are involuntarily terminated by CMS. ACOs will continue 
to be ineligible to share in savings for a performance year if the 
effective date of their termination from the program is prior to the 
last calendar day of the performance year; however, we will allow an 
exception for ACOs that are participating in the program as of January 
1, 2019, that terminate their agreement with an effective date of June 
30, 2019, and enter a new agreement period under the BASIC track or 
ENHANCED track beginning July 1, 2019. Under this exception, an ACO 
would be eligible for pro-rated shared savings or liable for pro-rated 
shared losses. In these cases, we will perform separate reconciliations 
to determine shared savings and shared losses for the ACO's first 6 
months of participation in 2019 and for the ACO's 6-month performance 
year from July 1, 2019, to December 31, 2019, under the subsequent 
participation agreement.
    To strengthen ACO financial incentives for continued program 
participation and improve the sustainability of the program, we are 
finalizing changes to the methodology for establishing, adjusting, 
updating and resetting benchmarks for agreement periods beginning on 
July 1, 2019, and in subsequent years, to include the following:

    <bullet> Application of factors based on regional FFS 
expenditures to establish, adjust, and update the ACO's benchmark 
beginning in an ACO's first agreement period, to move benchmarks 
away from being based solely on the ACO's historical costs and allow 
them to better reflect costs in the ACO's region.
    <bullet> Mitigating the risk that an excessive positive or 
negative regional adjustment will be used to establish and reset the 
benchmark by--
    ++ Reducing the maximum weight used in calculating the regional 
adjustment from 70 percent to 50 percent;
    ++ Modifying the phase in schedule for applying increased 
weights in calculating the regional adjustment for ACOs with 
spending above their region; and
    ++ Capping the amount of the adjustment based on a percentage of 
national FFS expenditures.
    <bullet> Calculating growth rates used in trending expenditures 
to establish the benchmark and in updating the benchmark each 
performance year as a blend of regional and national expenditure 
growth rates with increasing weight placed on the national component 
of the blend as the ACO's penetration in its region increases.
    <bullet> Better accounting for certain health status changes by 
using full CMS-Hierarchical Condition Category (HCC) risk scores to 
adjust the benchmark each performance year, although restricting the 
upward effects of these adjustments to positive 3 percent over the 
agreement period.

    We also discuss comments received in response to our request for 
comment on approaches for encouraging Medicare ACOs to collaborate with 
the sponsors of stand-alone Part D PDPs (Part D sponsors) to improve 
the coordination of pharmacy care for Medicare FFS beneficiaries to 
reduce the risk of adverse events and improve medication adherence. In 
particular, we sought comment to understand how Medicare ACOs, and 
specifically Shared Savings Program ACOs, and Part D sponsors could 
work together and be encouraged to improve the coordination of pharmacy 
care for Medicare FFS beneficiaries to achieve better health outcomes, 
what clinical and pharmacy data may be necessary to support improved 
coordination of pharmacy care for Medicare FFS beneficiaries, and 
approaches to structuring financial arrangements to reward ACOs and 
Part D sponsors for improved health outcomes and lower growth in 
expenditures for Medicare FFS beneficiaries.
    Lastly, in the December 2017 interim final rule with comment period 
we established policies for assessing the financial and quality 
performance of Shared Savings Program ACOs that were affected by 
extreme and uncontrollable circumstances during performance year 2017, 
including the applicable quality reporting period for performance year 
2017. These policies were used to assess quality and financial 
performance during performance year 2017 for ACOs subject to extreme 
and uncontrollable events, such as Hurricanes Harvey, Irma, and Maria, 
and the California wildfires, during performance year 2017, including 
the applicable quality data reporting period for the performance year. 
In this final rule, we provide an analysis of and responses to the 
public comments we received in response to the December 2017 interim 
final rule with comment period.
3. Summary of Costs and Benefits
    As detailed in section V. of this final rule, the faster transition 
from one-sided model agreements to performance-based risk arrangements, 
tempered by the option for eligible ACOs of a gentler exposure to 
downside risk calculated as a percentage of ACO participants' total 
Medicare Parts A and B FFS revenue and capped at a percentage of the 
ACO's benchmark, can affect broader participation in performance-based 
risk in the Shared Savings Program and reduce overall claims costs. A 
second key driver of estimated net savings is the reduction in shared 
savings payments from the limitation on the amount of the regional 
adjustment to the ACO's historical benchmark. Such reduction in overall 
shared savings payments is projected to result despite the benefit of 
higher net adjustments expected for a larger number of ACOs from the 
use of a simpler HCC risk adjustment methodology, the blending of 
national and regional expenditure growth rates for certain benchmark 
calculations, and longer (at least 5 years, instead of 3-year) 
agreement periods that allow ACOs a longer horizon from which to 
benefit from efficiency gains before benchmark rebasing. Overall, the 
decreases in claims costs and shared

[[Page 67825]]

saving payments to ACOs are projected to result in $2.9 billion in 
federal savings over 10 years.

B. Statutory and Regulatory Background

    On March 23, 2010, the Patient Protection and Affordable Care Act 
(Pub. L. 111-148) was enacted, followed by enactment of the Health Care 
and Education Reconciliation Act of 2010 (Pub. L. 111-152) on March 30, 
2010, which amended certain provisions of Public Law 111-148.
    Section 3022 of the Affordable Care Act amended Title XVIII of the 
Act (42 U.S.C. 1395 et seq.) by adding section 1899 to the Act to 
establish the Shared Savings Program to facilitate coordination and 
cooperation among health care providers to improve the quality of care 
for Medicare FFS beneficiaries and reduce the rate of growth in 
expenditures under Medicare Parts A and B. See 42 U.S.C. 1395jjj.
    The final rule establishing the Shared Savings Program appeared in 
the November 2, 2011 Federal Register (Medicare Program; Medicare 
Shared Savings Program: Accountable Care Organizations; Final Rule (76 
FR 67802) (hereinafter referred to as the ``November 2011 final 
rule'')). We viewed this final rule as a starting point for the 
program, and because of the scope and scale of the program and our 
limited experience with shared savings initiatives under FFS Medicare, 
we built a great deal of flexibility into the program rules.
    Through subsequent rulemaking, we have revisited and amended Shared 
Savings Program policies in light of the additional experience we 
gained during the initial years of program implementation as well as 
from testing through the Pioneer ACO Model, the Next Generation ACO 
Model, and other initiatives conducted by the Center for Medicare and 
Medicaid Innovation (Innovation Center) under section 1115A of the Act. 
A major update to the program rules appeared in the June 9, 2015 
Federal Register (Medicare Program; Medicare Shared Savings Program: 
Accountable Care Organizations; Final Rule (80 FR 32692) (hereinafter 
referred to as the ``June 2015 final rule'')). A final rule addressing 
changes related to the program's financial benchmark methodology 
appeared in the June 10, 2016 Federal Register (Medicare Program; 
Medicare Shared Savings Program; Accountable Care Organizations--
Revised Benchmark Rebasing Methodology, Facilitating Transition to 
Performance-Based Risk, and Administrative Finality of Financial 
Calculations (81 FR 37950) (hereinafter referred to as the ``June 2016 
final rule'')). We have also made use of the annual CY Physician Fee 
Schedule (PFS) rules to address updates to the Shared Savings Program 
quality measures, scoring, and quality performance standard, the 
program's beneficiary assignment methodology and certain other 
issues.\2\
---------------------------------------------------------------------------

    \2\ See for example, Medicare Program; Revisions to Payment 
Policies under the Physician Fee Schedule, Clinical Laboratory Fee 
Schedule & Other Revisions to Part B for CY 2014; Final Rule (78 FR 
74230, Dec. 10, 2013). Medicare Program; Revisions to Payment 
Policies under the Physician Fee Schedule, Clinical Laboratory Fee 
Schedule & Other Revisions to Part B for CY 2015; Final Rule (79 FR 
67548, Nov. 13, 2014). Medicare Program; Revisions to Payment 
Policies under the Physician Fee Schedule, Clinical Laboratory Fee 
Schedule & Other Revisions to Part B for CY 2016; Final Rule (80 FR 
70886, Nov. 16, 2015). Medicare Program; Revisions to Payment 
Policies under the Physician Fee Schedule, Clinical Laboratory Fee 
Schedule & Other Revisions to Part B for CY 2017; Final Rule (81 FR 
80170, Nov. 15, 2016). Medicare Program; Revisions to Payment 
Policies under the Physician Fee Schedule, Clinical Laboratory Fee 
Schedule & Other Revisions to Part B for CY 2018; Final Rule (82 FR 
52976, Nov. 15, 2017). Medicare Program; Revisions to Payment 
Policies Under the Physician Fee Schedule and Other Revisions to 
Part B for CY 2019; Medicare Shared Savings Program Requirements; 
Quality Payment Program; Medicaid Promoting Interoperability 
Program; Quality Payment Program--Extreme and Uncontrollable 
Circumstance Policy for the 2019 MIPS Payment Year; Provisions From 
the Medicare Shared Savings Program--Accountable Care 
Organizations--Pathways to Success; and Expanding the Use of 
Telehealth Services for the Treatment of Opioid Use Disorder Under 
the Substance Use-Disorder Prevention That Promotes Opioid Recovery 
and Treatment (SUPPORT) for Patients and Communities Act'' (83 FR 
59452, Nov. 23, 2018).
---------------------------------------------------------------------------

    Policies applicable to Shared Savings Program ACOs have continued 
to evolve based on changes in the law. The Medicare Access and CHIP 
Reauthorization Act of 2015 (MACRA) established the Quality Payment 
Program (Pub. L. 114-10). In the CY 2017 Quality Payment Program final 
rule with comment period (81 FR 77008), CMS established regulations for 
the Merit-Based Incentive Payment System (MIPS) and Advanced 
Alternative Payment Models (APMs) and related policies applicable to 
eligible clinicians who participate in the Shared Savings Program.
    The requirements for assignment of Medicare FFS beneficiaries to 
ACOs participating under the program were amended by the 21st Century 
Cures Act (Pub. L. 114-255). Accordingly, we revised the program's 
regulations in the CY 2018 PFS final rule to reflect these new 
requirements.
    On February 9, 2018, the Bipartisan Budget Act of 2018 was enacted 
(Pub. L. 115-123), amending section 1899 of the Act to provide for the 
following: Expanded use of telehealth services by physicians or 
practitioners participating in an applicable ACO to a prospectively 
assigned beneficiary, greater flexibility in the assignment of Medicare 
FFS beneficiaries to ACOs by allowing ACOs in tracks under 
retrospective beneficiary assignment a choice of prospective assignment 
for the agreement period, permitting Medicare FFS beneficiaries to 
voluntarily identify an ACO professional as their primary care provider 
and requiring that such beneficiaries be notified of the ability to 
make and change such identification, and mandating that any such 
voluntary identification will supersede claims-based assignment, and 
allowing ACOs under certain two-sided models to establish CMS-approved 
beneficiary incentive programs.
    In the November 2018 final rule, we finalized a subset of the 
provisions proposed in the August 2018 proposed rule and the CY 2019 
PFS proposed rule as follows:

    <bullet> Offering existing ACOs whose participation agreements 
expire on December 31, 2018, the opportunity to elect a voluntary 6-
month extension of their current agreement period, and the 
methodology for determining financial and quality performance for 
the 6-month performance year from January 1, 2019, through June 30, 
2019.
    <bullet> Allowing beneficiaries greater flexibility in selecting 
their primary care provider and in the use of that selection for 
purposes of assigning the beneficiary to an ACO, if the clinician 
they align with is participating in an ACO, as provided for in the 
Bipartisan Budget Act.
    <bullet> Revising the definition of primary care services used 
in beneficiary assignment.
    <bullet> Providing relief for ACOs and their clinicians impacted 
by extreme and uncontrollable circumstances in performance year 2018 
and subsequent years.
    <bullet> Reducing the Shared Savings Program core quality 
measure set by eight measures; and promoting interoperability among 
ACO providers/suppliers by adding a new CEHRT threshold criterion to 
determine ACOs' eligibility for program participation and retiring 
the current Shared Savings Program quality measure on the percentage 
of eligible clinicians using CEHRT.

II. Provisions of the August 2018 Proposed Rule and Analysis of and 
Responses to Public Comments

    In the August 17, 2018 Federal Register (83 FR 41786), we published 
a proposed rule titled ``Medicare Program; Medicare Shared Savings 
Program; Accountable Care Organizations--Pathways to Success''. The 
proposed rule would provide a new direction for the Shared Savings 
Program by establishing pathways to success through redesigning the 
participation options available under the program to encourage ACOs to 
transition to two-sided models (in which they may share

[[Page 67826]]

in savings and are accountable for repaying shared losses). These 
policies are designed to increase savings for the Trust Funds and 
mitigate losses, reduce gaming opportunities, and promote regulatory 
flexibility and free-market principles. The rule would also provide new 
tools to support coordination of care across settings and strengthen 
beneficiary engagement; ensure rigorous benchmarking; promote 
interoperable electronic health record technology among ACO providers/
suppliers; and improve information sharing on opioid use to combat 
opioid addiction.
    We received 469 timely pieces of correspondence in response to the 
proposed rule. Stakeholders offered comments that addressed both high 
level issues related to the Shared Savings Program as well as our 
specific proposals and requests for comments. We extend our deep 
appreciation to the public for their interest in the program and the 
many comments that were made in response to our proposed policies. In 
some instances, the public comments offered were outside the scope of 
the proposed rule and will not be addressed in this final rule.
    As summarized in section I.B of this final rule, in the November 
2018 final rule, we addressed a subset of changes to the Shared Savings 
Program proposed in the August 2018 proposed rule. In the following 
sections of this final rule, we summarize and respond to public 
comments on the following proposed policies and discuss our final 
policies after taking into consideration the public comments we 
received on the August 2018 proposed rule.

A. Redesigning Participation Options To Facilitate Transition to 
Performance-Based Risk

    In this section, we discuss a series of interrelated proposals 
around transition to risk, including: (1) Length of time an ACO may 
remain under a one-sided model; (2) the levels of risk and reward under 
the program's participation options; (3) the duration of the ACO's 
agreement period; and (4) the degree of flexibility ACOs have to choose 
their beneficiary assignment methodology and also to select their level 
of risk within an agreement period.
1. Background on Shared Savings Program Participation Options
    In this section, we review the statutory and regulatory background 
for the program's participation options by track and the length of the 
ACO's agreement period for participation in the program, and also 
provide an overview of current ACO participation in the program for 
performance year 2018.
a. Background on Development of Track 1, Track 2 and Track 3
    Section 1899(d) of the Act establishes the general requirements for 
shared savings payments to participating ACOs. Specifically, section 
1899(d)(1)(A) of the Act specifies that providers of services and 
suppliers participating in an ACO will continue to receive payments 
under the original Medicare FFS program under Parts A and B in the same 
manner as would otherwise be made, and that an ACO is eligible to 
receive payment for a portion of savings generated for Medicare 
provided that the ACO meets both the quality performance standards 
established by the Secretary and achieves savings against its 
historical benchmark based on average per capita Medicare FFS 
expenditures during the 3 years preceding the start of the agreement 
period. Additionally, section 1899(i) of the Act authorizes the 
Secretary to use other payment models rather than the one-sided model 
described in section 1899(d) of the Act, as long as the Secretary 
determines that the other payment model will improve the quality and 
efficiency of items and services furnished to Medicare beneficiaries 
without additional program expenditures.
    In the November 2011 final rule establishing the Shared Savings 
Program (76 FR 67909), we created two tracks from which ACOs could 
choose to participate: The one-sided model (Track 1) that is based on 
the statutory payment methodology under section 1899(d) of the Act, and 
a two-sided model (Track 2) that is also based on the payment 
methodology under section 1899(d) of the Act, but incorporates 
performance-based risk using the authority under section 1899(i)(3) of 
the Act to use other payment models. Under the one-sided model, ACOs 
can qualify to share in savings but are not responsible for losses. 
Under a two-sided model, ACOs can qualify to share in savings with an 
increased sharing rate, but must also take on risk for sharing in 
losses. ACOs entering the program or renewing their agreement may elect 
to enter a two-sided model. Once an ACO has elected to participate 
under a two-sided model, the ACO cannot go into Track 1 for subsequent 
agreement periods (see Sec.  425.600).
    In the initial rulemaking for the program, we considered several 
approaches to designing the program's participation options, 
principally: (1) Base the program on a two-sided model, thereby 
requiring all participants to accept risk from the first program year; 
(2) allow applicants to choose between program tracks, either a one-
sided model or two-sided model, for the duration of the agreement; or 
(3) allow a choice of tracks, but require ACOs electing the one-sided 
model to transition to the two-sided model during their initial 
agreement period (see, for example, 76 FR 19618). We proposed a design 
for Track 1 whereby ACOs would enter a 3-year agreement period under 
the one-sided model and would automatically transition to the two-sided 
model (under Track 2) in the third year of their initial agreement 
period. Thereafter, those ACOs that wished to continue participating in 
the Shared Savings Program would only have the option of participating 
under performance-based risk (see 76 FR 19618). We explained that this 
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 the 
potential for greater reward in exchange for assuming greater potential 
responsibility. A few commenters favored this proposed approach, 
indicating the importance of performance-based risk in the health care 
delivery system transformation necessary to achieve the program's aims 
and for ``good stewardship'' of Medicare Trust Fund dollars. However, 
most commenters expressed concerns about requiring ACOs to quickly 
accept performance-based risk. Therefore, we finalized a policy where 
an ACO could remain under the one-sided model for the duration of its 
first agreement period (see 76 FR 67904 through 67909).
    In earlier rulemaking, we explained that offering multiple tracks 
with differing degrees of risk across the Shared Savings Program tracks 
would create an ``on-ramp'' for the program to attract both providers 
and suppliers that are new to value-based purchasing, as well as more 
experienced entities that are ready to share performance-based risk. We 
stated that a one-sided model 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 before (see, 
for example, 76 FR 67904 through 67909).
    Another reason we included the option for a one-sided track with no

[[Page 67827]]

downside risk was that this model would be accessible to and attract 
small, rural, safety net, and/or physician-only ACOs (see 80 FR 32759). 
Commenters identified groups that may be especially challenged by the 
upfront costs of ACO formation and operations, including: Private 
primary care practitioners, small to medium sized physician practices, 
small ACOs, safety net providers (that is, Rural Health Clinics (RHCs), 
CAHs, Federally Qualified Health Centers (FQHCs), community-funded 
safety net clinics), and other rural providers (that is, Method II 
CAHs, rural prospective payment system hospitals designated as rural 
referral centers, sole community hospitals, Medicare dependent 
hospitals, or rural primary care providers) (see 76 FR 67834 through 
67835). Further, commenters also indicated that ACOs that are composed 
of small- and medium-sized physician practices, loosely formed 
physician networks, safety net providers, and small and/or rural ACOs 
would be encouraged to participate in the program based on the 
availability of a one-sided model (see, for example, 76 FR 67906). 
Commenters also expressed concerns about requiring ACOs that may lack 
experience with care management or managing performance-based risk to 
quickly transition to performance-based risk. Some commenters suggested 
that small, rural and physician-only ACOs be exempt from downside risk 
(see, for example, 76 FR 67906).
    In establishing the program's initial two track approach, we 
acknowledged that ACOs new to the accountable care model--and 
particularly small, rural, safety net, and physician-only ACOs--would 
benefit from additional time under the one-sided model before being 
required to accept risk (76 FR 67907). However, we also noted that 
although a one-sided model could provide incentives for participants to 
improve quality, it might not be sufficient incentive for participants 
to improve the efficiency and cost of health care delivery (76 FR 67904 
and 80 FR 32759). We explained 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 (see, for 
example, 76 FR 67907). We also explained that performance-based risk 
options could have the advantage of providing more experienced ACOs an 
opportunity to enter a sharing arrangement with the potential for 
greater reward in exchange for assuming greater potential 
responsibility (see, for example, 76 FR 67907).
    We note that in earlier rulemaking we have used several terms to 
refer to participation options in the Shared Savings Program under 
which an ACO is potentially liable to share in losses with Medicare. In 
the initial rulemaking for the program, we defined ``two-sided model'' 
to mean 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 (Sec.  425.20). We have also used the 
term ``performance-based risk'' to refer to the type of risk an ACO 
participating in a two-sided model undertakes. As we explained in the 
November 2011 final rule (76 FR 67945), in 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. It is only shared savings payments (and shared 
losses in a two-sided model) that will be contingent upon ACO 
performance. The agreement to share risk against the benchmark would be 
solely between the Medicare program and the ACO. As a result, we have 
tended to use the terms ``two-sided model'' and ``performance-based 
risk'' interchangeably, considering them to be synonymous when 
describing payment models offered under the Shared Savings Program and 
Medicare ACO initiatives more broadly.
    In the June 2015 final rule, we modified the existing policies to 
allow eligible Track 1 ACOs to renew for a second agreement period 
under the one-sided model, and to require that they enter a 
performance-based risk track in order to remain in the program for a 
third or subsequent agreement period. We explained the rationale for 
these policies in the prior rulemaking and we refer readers to the 
December 2014 proposed rule and June 2015 final rule for more detailed 
discussion. (See, for example, 79 FR 72804, and 80 FR 32760 through 
32761.) In developing these policies, we considered, but did not 
finalize, approaches to make Track 1 less attractive for continued 
participation, in order to support progression to risk, including 
offering a reduced sharing rate to ACOs remaining under the one-sided 
model for a second agreement period.\3\ We also modified the two-sided 
performance-based risk track (Track 2) and began to offer an 
alternative two-sided performance-based risk track (Track 3) for 
agreement periods beginning on or after January 1, 2016 (80 FR 32771 
through 32781). Compared to Track 2, which uses the same preliminary 
prospective beneficiary assignment methodology with retrospective 
reconciliation as Track 1, Track 3 includes prospective beneficiary 
assignment and a higher sharing rate for shared savings as well as the 
potential for greater liability for shared losses. Further, we 
established a SNF 3-day rule waiver (discussed further in section 
II.B.2.a. of this final rule), for use by eligible Track 3 ACOs.
---------------------------------------------------------------------------

    \3\ See 79 FR 72805 (discussing proposal to reduce the sharing 
rate by 10 percentage points for ACOs in a second agreement period 
under Track 1 to make staying in the one-sided model less attractive 
than moving forward along the risk continuum); 80 FR 32766 (In 
response to our proposal in the December 2014 proposed rule to offer 
a 40 percent sharing rate to ACOs that remained in Track 1 for a 
second agreement period, several commenters recommended dropping the 
sharing rate under the one-sided model even further to encourage 
ACOs to more quickly accept performance-based risk, for example to 
20 percent, 25 percent or 30 percent under the second agreement 
period, or making a 5 percentage point reduction for each year under 
the second agreement period).
---------------------------------------------------------------------------

    The Innovation Center has tested progressively higher levels of 
risk for more experienced ACOs through the Pioneer ACO Model (concluded 
December 31, 2016) and the Next Generation ACO Model (ongoing).\4\ 
Lessons learned from the Pioneer ACO Model were important 
considerations in the development of Track 3, which incorporates 
several features of the Pioneer ACO Model, including prospective 
beneficiary assignment, higher levels of risk and reward (compared to 
Track 2), and the availability of a SNF-3-day rule waiver. Since Track 
3 was introduced as a participation option under the Shared Savings 
Program, we have seen a growing interest, with 16 Track 3 ACOs 
completing PY 2016 and 38 Track 3 ACOs participating in PY 2018. The 
continued increase in the number of ACOs participating in Track 3, a 
higher proportion of which have achieved shared savings compared to 
Track 1 ACOs, suggests that the track offers a pathway to improve care 
for beneficiaries at a level of risk and reward sufficient to induce 
ACOs to improve their financial performance.

[[Page 67828]]

For example, for performance year 2016, about 56 percent of Track 3 
ACOs (9 of 16 ACOs) achieved shared savings compared to 29 percent of 
Track 1 ACOs (119 of 410 ACOs). See 2016 Shared Savings Program 
Accountable Care Organization Public Use File, available at https://www.cms.gov/Research-Statistics-Data-and-Systems/Downloadable-Public-Use-Files/SSPACO/index.html.
---------------------------------------------------------------------------

    \4\ See Pioneer ACO Model website, https://innovation.cms.gov/initiatives/Pioneer-aco-model/ (the Pioneer ACO Model ``was designed 
for health care organizations and providers that were already 
experienced in coordinating care for patients across care 
settings''); see also CMS Press Release, New Participants Join 
Several CMS Alternative Payment Models (January 18, 2017), available 
at https://www.cms.gov/Newsroom/MediaReleaseDatabase/Press-releases/2017-Press-releases-items/2017-01-18.html (the ``Next Generation ACO 
Model was designed to test whether strong financial incentives for 
ACOs can improve health outcomes and reduce expenditures for 
Medicare fee-for-service beneficiaries. Provider groups in this 
model assume higher levels of financial risk and reward than are 
available under the Shared Savings Program.'').
---------------------------------------------------------------------------

    Further, the Innovation Center has tested two models for providing 
up-front funding to eligible small, rural, or physician-only Shared 
Savings Program ACOs. Initially, CMS offered the Advance Payment ACO 
Model, beginning in 2012 and concluding December 31, 2015. See https://innovation.cms.gov/initiatives/Advance-Payment-ACO-Model/. The ACO 
Investment Model (AIM), which began in 2015, builds on the experience 
with the Advance Payment ACO Model. The AIM is ongoing, with 45 
participating ACOs. See https://innovation.cms.gov/initiatives/ACO-Investment-Model/.
    In the June 2016 final rule, to further encourage ACOs to 
transition to performance-based risk, we finalized a participation 
option for eligible Track 1 ACOs to defer by one year their entrance 
into a second agreement period under a two-sided model (Track 2 or 
Track 3) by extending their first agreement period under Track 1 for a 
fourth performance year (Sec.  425.200(e); 81 FR 37994 through 37997). 
Under this deferred renewal option, we defer resetting the benchmark as 
specified at Sec.  425.603 until the beginning of the ACO's second 
agreement period. This participation option became available to ACOs 
seeking to enter their second agreement period beginning in 2017 and in 
subsequent years. However, only a small number of ACOs have made use of 
this option.
    In prior rulemaking for the Shared Savings Program, we have 
indicated that we would continue to evaluate the appropriateness and 
effectiveness of our incentives to encourage ACOs to transition to a 
performance-based risk track and, as necessary, might revisit 
alternative participation options through future notice and comment 
rulemaking (81 FR 37995 through 37996). We stated that it is timely to 
reconsider the participation options available under the program in 
light of the financial and quality results for the first four 
performance years under the program, participation trends by ACOs, and 
feedback from ACOs and other program stakeholders' about factors that 
encourage transition to risk. Therefore, we issued the August 2018 
proposed rule.
b. Background on Factors Affecting Transition to Performance-Based Risk
    Based on comments submitted by ACOs and other program stakeholders 
in response to earlier rulemaking and our experience with implementing 
the Shared Savings Program, a combination of factors affect ACOs' 
transition to performance-based risk.\5\ These factors include the 
following:
---------------------------------------------------------------------------

    \5\ See, for example, 80 FR 32761 (summarizing comments 
suggesting a combination of factors could make the program more 
attractive and encourage ACOs to transition to risk, such as: The 
level of risk and reward offered under the program's financial 
models, tools to enable ACOs to more effectively control and manage 
their patient populations, opportunity for ACOs to gain experience 
with the program under the one-sided model under the same rules that 
would be applied under a two-sided model, including the assignment 
methodology, allowing ACOs to move to two-sided risk within an 
agreement period, and allowing for longer agreement periods).
---------------------------------------------------------------------------

    (1) Length of time allowed under a one-sided model and availability 
of options to transition from a one-sided model to a two-sided model 
within an ACO's agreement period. (Discussed in detail within this 
section. See also discussion of related background in section II.A.1.a. 
of this final rule.)
    (2) An ACO's level of experience with the accountable care model 
and the Shared Savings Program.\6\
---------------------------------------------------------------------------

    \6\ See discussion in section II.A.1.a of this final rule. See 
also 81 FR 37996 (summarizing comments suggesting that if a Track 1 
ACO is uncertain about its ability to successfully manage financial 
risk, the ACO would more likely simply choose to continue under 
Track 1 for a second agreement period.)
---------------------------------------------------------------------------

    (3) Choice of methodology used to assign beneficiaries to ACOs, 
which determines the beneficiary population for which the ACO is 
accountable for both the quality and cost of care. (Background on 
choice of assignment methodology is discussed within this section; see 
also section II.A.4. of this final rule.) Specifically, the assignment 
methodology is used to determine the populations that are the basis for 
determining the ACO's historical benchmark and the population assigned 
to the ACO each performance year, which is the basis for determining 
whether the ACO will share in savings or losses for that performance 
year.
    (4) Availability of program and payment flexibilities to ACOs 
participating under performance-based risk to support beneficiary 
engagement and the ACO's care coordination activities (see discussion 
in sections II.B. and II.C. of this final rule).
    (5) Financial burden on ACOs in meeting program requirements to 
enter into two-sided models, specifically the requirement to establish 
an adequate repayment mechanism (see discussion in section II.A.6.c. of 
this final rule).
    (6) Value proposition of the program's financial model under one-
sided and two-sided models.
    The value proposition of the program's financial models raises a 
number of key considerations that pertain to an ACO's transition to 
risk. One consideration is the level of potential reward under the one-
sided model in relation to the levels of potential risk and reward 
under a two-sided model. A second consideration is the availability of 
asymmetrical levels of risk and reward, such as in the Medicare ACO 
Track 1+ Model (Track 1+ Model), where, for certain eligible ACOs, the 
level of risk is determined based on a percentage of ACO participants' 
total Medicare Parts A and B FFS revenue, not to exceed a percentage of 
the ACO's benchmark (determined based on historical expenditures for 
its assigned population). A third consideration is the interactions 
between the ACO's participation in a two-sided model of the Shared 
Savings Program and incentives available under other CMS value-based 
payment initiatives; in particular, eligible clinicians participating 
in an ACO under a two-sided model of the Shared Savings Program may 
qualify to receive an APM incentive payment under the Quality Payment 
Program for sufficient participation in an Advanced APM. Lastly, the 
value proposition of the program is informed by the methodology for 
setting and resetting the benchmark, which is the basis for determining 
shared savings and shared losses, and the length of agreement period, 
which determines the amount of time an ACO remains under a financial 
model and the frequency of benchmark rebasing. See discussion in 
sections II.D. (benchmarking) and II.A.1.c. (length of agreement 
period) of this final rule.
    Currently, the design of the program locks in the ACO's choice of 
financial model, which also determines the applicable beneficiary 
assignment methodology, for the duration of the ACO's 3-year agreement 
period. For an ACO's initial or subsequent agreement period in the 
Shared Savings Program, an ACO applies to participate in a particular 
financial model (or ``track'') of the program as specified under Sec.  
425.600(a). If the ACO's application is accepted, the ACO must remain 
under that financial model for the duration of its 3-year agreement 
period. Beneficiary assignment and the level of performance-based risk 
(if applicable) are determined consistently for all ACOs participating 
in a particular track. Under Track 1 and Track 2, we assign

[[Page 67829]]

beneficiaries using preliminary prospective assignment with 
retrospective reconciliation (Sec.  425.400(a)(2)). Under Track 3, we 
prospectively assign beneficiaries (Sec.  425.400(a)(3)).
    As described in earlier rulemaking, commenters have urged that we 
offer greater flexibility for ACOs in their choice of assignment 
methodology.\7\ In the June 2015 final rule, we acknowledged there is 
additional complexity and administrative burden to implementing an 
approach under which ACOs in any track may choose either prospective 
assignment or preliminary prospective assignment with retrospective 
reconciliation, with an opportunity to switch their selection on an 
annual basis. At that time, we declined to implement prospective 
assignment in Track 1 and Track 2, and we also declined to give ACOs in 
Track 3 a choice of either prospective assignment or preliminary 
prospective assignment with retrospective reconciliation. Further, we 
explained that implementing prospective assignment only in a two-sided 
model track may encourage Track 1 ACOs that prefer this assignment 
methodology, and the other features of Track 3, to more quickly 
transition to performance-based risk (80 FR 32773).
---------------------------------------------------------------------------

    \7\ See, for example, 76 FR 67864 (summarizing comments 
suggesting allowing ACOs a choice of prospective or retrospective 
assignment); 80 FR 32772 through 32774 (In response to our proposal 
to use a prospective assignment methodology in Track 3, many 
commenters generally encouraged CMS to extend the option for 
prospective assignment beyond Track 3 to Track 1 and Track 2. Other 
commenters saw the value in retaining both assignment methodologies, 
and encouraged CMS to allow all ACOs, regardless of track, a choice 
of prospective or retrospective assignment. Several commenters 
suggested CMS allow ACOs a choice of retrospective or prospective 
assignment annually, within the ACO's 3-year agreement period).
---------------------------------------------------------------------------

    We also have considered alternative approaches to allow ACOs 
greater flexibility in the timing of their transition to performance-
based risk, including within an ACO's agreement period. For example, as 
described in earlier rulemaking, commenters suggested approaches that 
would allow less than two 3-year agreement periods under Track 1.\8\ 
Some commenters recommended that CMS allow ACOs to ``move up'' the risk 
tracks (that is, move from Track 1 to Track 2 or Track 3, or move from 
Track 2 to Track 3) between performance years without being required to 
wait for the start of a new agreement period, to provide more 
flexibility for ACOs prepared to accept performance-based risk, or a 
higher level of performance-based risk. These commenters suggested that 
allowing an ACO to accept varying degrees of risk within an agreement 
period would position the ACO to best balance its exposure to and 
tolerance for financial risk and would create a true glide path for 
participating healthcare providers (81 FR 37995 through 37996).
---------------------------------------------------------------------------

    \8\ See, for example, 76 FR 67907 through 67909 (discussing 
comments suggesting ACOs be allowed 3, 4, 5, or 6 years under Track 
1 prior to transitioning to a performance-based risk track).
---------------------------------------------------------------------------

    Transition to performance-based risk has taken on greater 
significance with the introduction of the Quality Payment Program. 
Under the CY 2017 Quality Payment Program final rule with comment 
period,\9\ ACO initiatives that require ACOs to bear risk for monetary 
losses of more than a nominal amount, and that meet additional 
criteria, can qualify as Advanced APMs beginning in performance year 
2017. Eligible clinicians who sufficiently participate in Advanced APMs 
such that they are Qualifying APM Participants (QPs) for a performance 
year receive APM Incentive Payments in the corresponding payment year 
between 2019 through 2024, and then higher fee schedule updates 
starting in 2026. Track 2 and Track 3 of the Shared Savings Program, 
and the Track 1+ Model, are currently Advanced APMs under the Quality 
Payment Program.
---------------------------------------------------------------------------

    \9\ See Merit-Based Incentive Payment System (MIPS) and 
Alternative Payment Model (APM) Incentive under the Physician Fee 
Schedule, and Criteria for Physician-Focused Payment Models final 
rule with comment period, 81 FR 77008 (Nov. 4, 2016), herein 
referred to as the CY 2017 Quality Payment Program final rule with 
comment period.
---------------------------------------------------------------------------

    ACOs and other program stakeholders continue to express a variety 
of concerns about the transition to risk under Track 2 and Track 3. For 
example, as described in the CY 2017 Quality Payment Program final rule 
with comment period (see, for example, 81 FR 77421 through 77422), 
commenters suggested a new Shared Savings Program track as a meaningful 
middle path between Track 1 and Track 2 (``Track 1.5''), that meets the 
Advanced APM generally applicable nominal amount standard, to create an 
option for ACOs with relatively low revenue or small numbers of 
participating eligible clinicians to participate in an Advanced APM 
without accepting the higher degrees of risk involved in Track 2 and 
Track 3. Commenters suggested this track would be a viable on-ramp for 
ACOs to assume greater amounts of risk in the future. Commenters' 
suggestions for Track 1.5 included prospective beneficiary assignment, 
asymmetric levels of risk and reward, and payment rule waivers, such as 
the SNF 3-day rule waiver available to ACOs participating in Shared 
Savings Program Track 3.\10\ Another key component of commenters' 
suggestions was to allow Track 1 ACOs to transition to Track 1.5 within 
their current agreement periods.\11\ These commenters' suggestions were 
considered in developing the Track 1+ Model, which began on January 1, 
2018. This Model, which is being tested by the Innovation Center, 
includes a two-sided payment model that incorporates the upside of 
Track 1 with more limited downside risk than is currently present in 
Track 2 or Track 3 of the Shared Savings Program. The Track 1+ Model is 
currently an Advanced APM under the Quality Payment Program.
---------------------------------------------------------------------------

    \10\ See CY 2017 Quality Payment Program final rule with comment 
period for summary of comments and responses. Individual comments 
are available at https://www.regulations.gov, search on file code 
CMS-5517-P, docket ID CMS-2016-0060 (https://www.regulations.gov/docketBrowser?rpp=25&so=DESC&sb=commentDueDate&po=0&dct=PS&D=CMS-2016-0060). See for example, Letter from Clif Gaus, NAACOS to Andrew 
Slavitt, Acting Administrator, Centers for Medicare & Medicaid 
Services, regarding CMS-5517-P (June 27, 2016); Letter from Tonya K. 
Wells, Trinity Health to Slavitt regarding CMS-5517-P (June 27, 
2016); Letter from Joseph Bisordi, M.D., Ochsner Health System to 
Slavitt regarding CMS-5517-P (June 27, 2016); Letter from Kevin 
Bogari, Lancaster General Health Community Care Collaborative to 
Slavitt regarding CMS-5517-P (June 27, 2016).
    \11\ See 81 FR 77421 (describing comments suggesting CMS adopt a 
Track 1.5 and also suggesting that Track 1 ACOs should be permitted 
to move into this suggested Track 1.5 before the end of their 
current agreement period).
---------------------------------------------------------------------------

    The Track 1+ Model is designed to encourage ACOs, especially those 
made up of small physician practices, to advance to performance-based 
risk. ACOs that include hospitals, including small rural hospitals, are 
also allowed to participate. See CMS Fact Sheet, New Accountable Care 
Organization Model Opportunity: Medicare ACO Track 1+ Model, Updated 
July 2017 (herein Track 1+ Model Fact Sheet), available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/New-Accountable-Care-Organization-Model-Opportunity-Fact-Sheet.pdf. In performance year 2018, 55 ACOs began in 
the Track 1+ Model, demonstrating strong interest in this financial 
model design. The availability of the Track 1+ Model increased the 
number of ACOs participating under a two-sided risk model in connection 
with their participation in the Shared Savings Program to approximately 
18 percent, with approximately 22.7 percent of assigned beneficiaries 
receiving care through an ACO in a two-sided model. Of the 55 Track 1+ 
Model ACOs, based on the ACOs' self-reported composition: 58.2 percent 
attested to the presence of

[[Page 67830]]

an ownership or operational interest by an inpatient prospective 
payment system (IPPS) hospital, cancer center or rural hospital with 
more than 100 beds among their ACO participants, and therefore these 
ACOs were under a benchmark-based loss sharing limit; and 41.8 percent 
attested to the absence of such ownership or operational interests by 
these institutional providers among their ACO participants (likely ACOs 
composed of independent physician practices and/or ACOs that include 
small rural hospitals), which qualified these ACOs for generally lower 
levels of risk under the Track 1+ Model's revenue-based loss sharing 
limit.
c. Background on Length of Agreement Period
    Section 1899(b)(2)(B) of the Act requires participating ACOs to 
enter into an agreement with CMS to participate in the program for not 
less than a 3-year period referred to as the agreement period. Further, 
section 1899(d)(1)(B)(ii) of the Act requires us to reset the benchmark 
at the start of each agreement period. In initial rulemaking for the 
program, we limited participation agreements to 3-year periods (see 76 
FR 19544, and 76 FR 67807). We have considered the length of the ACO's 
agreement period in the context of the amount of time an ACO may remain 
in a one-sided model and also the frequency with which we reset (or 
rebase) the ACO's historical benchmark. For example, in the June 2015 
final rule, we discussed commenters' suggestions that we extend the 
agreement period from the current 3 years to a 5-year agreement period, 
for all tracks, including not only the initial agreement period, but 
all subsequent agreement periods.\12\ These commenters explained that 
extending the length of the agreement period would make the program 
more attractive by increasing program stability and providing ACOs with 
the necessary time to achieve the desired quality and financial 
outcomes. We declined to adopt these suggestions, believing at that 
time it was more appropriate to maintain a 3-year agreement period to 
provide continuity with the initial design of the program. At that time 
we did not find it necessary to extend agreement periods past 3 years 
to address the renewal of initial program entrants, particularly in 
light of the policies we finalized in the June 2015 final rule allowing 
Track 1 ACOs to apply to continue under the one-sided model for a 
second 3-year agreement period and modifying the benchmark rebasing 
methodology. However, we explained that longer agreement periods could 
increase the likelihood that ACOs would build on the success or 
continue the failure of their current agreement period. For this reason 
we noted that rebasing every 3 years, at the start of each 3-year 
agreement period, is important to protect both the Trust Funds and 
ACOs. See 80 FR 32763. See also 81 FR 37957 (noting commenters' 
suggestions that we eliminate rebasing or reducing the frequency of 
rebasing).
---------------------------------------------------------------------------

    \12\ See 80 FR 32763. See also 80 FR 32761 (discussing several 
commenters' recommendation to move to 5 or 6 year agreements for 
ACOs and the suggestion that ACOs have the opportunity to move to a 
performance-based risk model during their first agreement period, 
for example, after their first 3 years under the one-sided model. A 
commenter suggested encouraging ACOs to transition to two-sided risk 
by offering lower loss sharing rates for ACOs that move from Track 1 
to the two-sided model during the course of an agreement period, and 
phasing-in loss sharing rates for these ACOs (for example, 15 
percent in year 1, 30 percent in year 2, 60 percent in year 3). 
Another commenter suggested that CMS allow all ACOs (regardless of 
track) the option to increase their level of risk annually during 
the agreement period.)
---------------------------------------------------------------------------

d. Background on Shared Savings Program Participation
    There remains a high degree of interest in participation in the 
Shared Savings Program. Although most ACOs continue to participate in 
the program's one-sided model (Track 1), ACOs have demonstrated 
significant interest in the Track 1+ Model. Table 2 summarizes the 
total number of ACOs that are participating in the Shared Savings 
Program, including those also participating in the Track 1+ Model, for 
performance year 2018 with the total number of assigned beneficiaries 
by track.\13\ Of the 561 ACOs participating in the program as of 
January 1, 2018, 55 were in the Track 1+ Model, 8 were in Track 2, 38 
were in Track 3, and 460 were in Track 1. As of performance year 2018, 
there are over 20,000 ACO participant Taxpayer Identification Numbers 
(TINs) that include 377,515 clinicians (physicians, physician 
assistants, nurse practitioners and clinical nurse specialists) some of 
whom are in small and solo practices. About half of ACOs are provider 
networks, and 66 ACOs include rural providers. See Medicare Shared 
Savings Program Fast Facts (January 2018) available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/SSP-2018-Fast-Facts.pdf.
---------------------------------------------------------------------------

    \13\ See Performance Year 2018 Medicare Shared Savings Program 
Accountable Care Organizations available at Data.CMS.gov, https://data.cms.gov/Special-Programs-Initiatives-Medicare-Shared-Saving/Performance-Year-2018-Medicare-Shared-Savings-Prog/28n4-k8qs/data.
---------------------------------------------------------------------------

    Based on the program's existing requirements, ACOs can participate 
in Track 1 for a maximum of two agreement periods. There are a growing 
number of ACOs that have entered into their second agreement period, 
and, starting in 2019, many that will begin a third agreement period 
and will be required to enter a risk-based track.
    The progression by some ACOs to performance-based risk within the 
Shared Savings Program remains relatively slow, with approximately 82 
percent of ACOs participating in Track 1 in 2018, 43 percent (196 of 
460) of which are within a second agreement period in Track 1.
[GRAPHIC] [TIFF OMITTED] TR31DE18.002


[[Page 67831]]


    However, the recent addition of the Track 1+ Model provided a 
significant boost in Shared Savings Program ACOs taking on performance-
based risk, with over half of the 101 ACOs participating in the Shared 
Savings Program and taking on performance-based risk opting for the 
Track 1+ Model in 2018. The lower level of risk offered under the Track 
1+ Model has been positively received by the industry and provided a 
pathway to risk for many ACOs.
2. Modified Participation Options Under 5-Year Agreement Periods
    As described in the August 2018 proposed rule (83 FR 41797 through 
41801), in developing the proposed policies described in this section, 
we considered a number of factors related to the program's current 
participation options in light of the program's financial results and 
stakeholders' feedback on program design, including the following.
    First, we considered the program's existing policy allowing ACOs up 
to 6 years of participation in a one-sided model. We have found that 
the policy has shown limited success in encouraging ACOs to advance to 
performance-based risk. By the fifth year of implementing the program, 
only about 18 percent of the program's participating ACOs are under a 
two-sided model, over half of which are participating in the Track 1+ 
Model (see Table 2).
    As discussed in detail in the August 2018 proposed rule (see 83 FR 
41916 through 41918), our experience with the program indicates that 
ACOs in two-sided models generally perform better than ACOs that 
participate under a one-sided model. For example, for performance year 
2016, about 68 percent of Shared Savings Program ACOs in two-sided 
models (15 of 22 ACOs) shared savings compared to 29 percent of Track 1 
ACOs. For performance year 2015, prior to the first year of Track 3, 
one of the three remaining Track 2 ACOs shared savings, while about 30 
percent of Track 1 ACOs (118 of 389 ACOs) shared savings. For 
performance year 2014, two of the three remaining Track 2 ACOs shared 
savings while about 25 percent of Track 1 ACOs (84 of 330 ACOs) shared 
savings. In the program's first year, concluding December 31, 2013, 40 
percent of Track 2 ACOs (2 of 5 ACOs) compared to 23 percent of Track 1 
ACOs (50 of 215 ACOs) shared savings. See Shared Savings Program 
Accountable Care Organization Public Use Files, available at https://www.cms.gov/Research-Statistics-Data-and-Systems/Downloadable-Public-Use-Files/SSPACO/index.html. These observations, in combination with 
participation trends that show most ACOs prefer to remain in Track 1 
for a second 3-year agreement period, suggests that a requirement for 
ACOs to more rapidly transition to performance-based risk could be 
effective in creating incentives for ACOs to more quickly meet the 
program's goals.
    The program's current design lacks a sufficiently incremental 
progression to performance-based risk, the need for which is evidenced 
by robust participation in the new Track 1+ Model. A significant issue 
that contributes to some ACOs' reluctance to participate in Track 2 or 
Track 3 is that the magnitude of potential losses is very high compared 
to the ACO's degree of control over the total Medicare Parts A and B 
FFS expenditures for the ACO's assigned beneficiaries, particularly 
when its ACO participants have relatively low total Medicare Parts A 
and B FFS revenue. We are encouraged by the interest in the Track 1+ 
Model as indicated by the 55 Shared Savings Program ACOs participating 
in the Model for the performance year beginning on January 1, 2018; the 
largest group of Shared Savings Program ACOs to enter into performance-
based risk for a given performance year to date. Based on the number of 
ACOs participating in the Track 1+ Model for performance year 2018, a 
lower risk option appears to be important for Track 1 ACOs with 
experience in the program seeking to transition to performance-based 
risk, as well as ACOs seeking to enter an initial agreement period in 
the program under a lower risk model.
    Interest in the Track 1+ Model suggests that the opportunity to 
participate in an Advanced APM while accepting more moderate levels of 
risk (compared to Track 2 and Track 3) is an important financial model 
design for ACOs. Allowing more manageable levels of risk within the 
Shared Savings Program is an important pathway for helping 
organizations to gain experience with managing risk as well as 
participating in Advanced APMs under the Quality Payment Program. The 
high uptake we have observed with the Track 1+ Model also suggests that 
the current design of Track 1 may be unnecessarily generous since the 
Track 1+ Model has the same level of upside as Track 1 but under which 
ACOs must also assume performance-based risk.
    Second, under the program's current design, CMS lacks adequate 
tools to properly address ACOs with patterns of negative financial 
performance. Track 1 ACOs are not liable for repaying any portion of 
their losses to CMS, and therefore may have potentially weaker 
incentives to improve quality and reduce growth in FFS expenditures 
within the accountable care model. These ACOs may take advantage of the 
potential benefits of continued program participation (including the 
receipt of program data and the opportunity to enter into certain 
contracting arrangements with ACO participants and ACO providers/
suppliers in connection with their participation in the Shared Savings 
Program), without providing a meaningful benefit to the Medicare 
program. ACOs under two-sided models may similarly benefit from program 
participation and seek to continue their participation despite owing 
shared losses.
    Third, differences in performance of ACOs indicate a pattern where 
low revenue ACOs outperformed high revenue ACOs. As discussed in the 
August 2018 proposed rule (see 83 FR 41916 through 41918), we have 
observed a pattern of performance, across tracks and performance years, 
where low revenue ACOs show better average results compared to high 
revenue ACOs. We explained that high revenue ACOs, which typically 
include hospitals, have a greater opportunity to control assigned 
beneficiaries' total Medicare Parts A and B FFS expenditures, as they 
coordinate a larger portion of the assigned beneficiaries' care across 
care settings, and have the potential to perform better than what has 
been demonstrated in performance trends from 2012 through 2016. We 
concluded that the trends in performance by high revenue ACOs in 
relation to their expected capacity to control growth in expenditures 
are indications that these ACOs' performance would improve through 
greater incentives, principally a requirement to take on higher levels 
of performance-based risk, and thus drive change in FFS utilization for 
their Medicare FFS populations. This conclusion is further supported by 
our initial experience with the Track 1+ Model, for which our 
preliminary findings support the conclusion that the degree of control 
an ACO has over expenditures for its assigned beneficiaries is an 
indication of the level of performance-based risk an ACO is prepared to 
accept and manage, where control is determined by the relationship 
between ACO participants' total Medicare Parts A and B FFS revenue and 
the total Medicare Parts A and B FFS expenditures for the ACO's 
assigned beneficiaries. Our experience with the Track 1+ Model has also 
shown that ACO participants' total Medicare

[[Page 67832]]

Parts A and B FFS revenue as a percentage of the total Medicare Parts A 
and B FFS expenditures of the assigned beneficiaries can serve as a 
proxy for ACO composition (that is, whether the ACO includes one or 
more institutional providers as an ACO participant, and therefore is 
likely to control a greater share of Medicare Parts A and B FFS 
expenditures and to have greater ability to coordinate care across 
settings for its assigned beneficiaries).
    Fourth, permitting choice of level of risk and assignment 
methodology within an ACO's agreement period would create redundancy in 
some participation options, and eliminating this redundancy would allow 
CMS to streamline the number of tracks offered while allowing ACOs 
greater flexibility to design their participation to meet the needs of 
their organizations. ACOs and stakeholders have indicated a strong 
preference for maintaining an option to select preliminary prospective 
assignment with retrospective reconciliation as an alternative to 
prospective assignment for ACOs under performance-based risk within the 
Shared Savings Program. We considered what would occur if we retained 
Track 2 in addition to the ENHANCED track and offered a choice of 
prospective assignment and preliminary prospective assignment (see 
section II.A.4.c. of this final rule) for both tracks. We stated that 
ACOs prepared to accept higher levels of benchmark-based risk would be 
more likely to enter the ENHANCED track (which allows the greatest risk 
and potential reward). This is suggested by participation statistics, 
where 8 ACOs are participating in Track 2 compared to the 38 ACOs 
participating in Track 3 as of January 1, 2018. We noted that for 
agreement periods beginning in 2018, only 2 ACOs entered Track 2, both 
of which had deferred renewal in 2017, while 4 ACOs entered Track 3 
(for their first or second agreement period). ACOs may be continuing to 
pick Track 2 because of the preliminary prospective assignment 
methodology, and we would expect participation in Track 2 to decline 
further if we finalize the proposal to allow a choice of assignment 
methodology in the ENHANCED track, since we would expect ACOs ready for 
higher risk (that is, a level of risk that is higher than the highest 
level of risk and potential reward under the proposed BASIC track) to 
prefer the ENHANCED track over Track 2.
    Fifth, longer agreement periods could improve program incentives 
and support ACOs' transition into performance-based risk when coupled 
with changes to improve the accuracy of the program's benchmarking 
methodology. Extending agreement periods for more than 3 years could 
provide more certainty over benchmarks and in turn give ACOs a greater 
chance to succeed in the program by allowing them more time to 
understand their performance, gain experience and implement redesigned 
care processes before rebasing of the ACO's historical benchmark. 
Shared Savings Program results show that ACOs tend to perform better 
the longer they remain in the program. Further, under longer agreement 
periods, historical benchmarks would become more predictable, since the 
benchmark would continue to be based on the expenditures for 
beneficiaries who would have been assigned to the ACO in the 3 most 
recent years prior to the start of the ACO's agreement period (see 
Sec. Sec.  425.602(a) and 425.603(c)) and the benchmark would be risk 
adjusted and updated each performance year relative to benchmark year 
3. However, a number of factors can affect the amount of the benchmark, 
and therefore its predictability, during the agreement period 
regardless of whether the agreement period spans 3 or 5 years, 
including: Adjustments to the benchmark during the ACO's agreement 
period resulting from changes in the ACO's certified ACO participant 
list and regulatory changes to the assignment methodology; as well as 
variation in the benchmark value that occurs each performance year as a 
result of annual risk adjustment to the ACO's benchmark (Sec. Sec.  
425.602(a)(9) and 425.603(c)(10)) and annual benchmark updates 
(Sec. Sec.  425.602(b) and 425.603(d)). We explained that the proposed 
approach to incorporating factors based on regional FFS expenditures in 
establishing, adjusting and updating the benchmark beginning with the 
ACO's first agreement period (discussed in section II.D. of this final 
rule) would result in more accurate benchmarks. This improved accuracy 
of benchmarks would mitigate the impact of the more generous updated 
benchmarks that could result in the later years of longer agreement 
periods.
    In summary, taking these factors into consideration, we proposed to 
redesign the program's participation options by discontinuing Track 1, 
Track 2 and the deferred renewal option, and instead offering two 
tracks that eligible ACOs would enter into for an agreement period of 
at least 5 years: (1) BASIC track, which would include an option for 
eligible ACOs to begin participation under a one-sided model and 
incrementally phase-in risk (calculated based on ACO participant 
revenue and capped at a percentage of the ACO's updated benchmark) and 
potential reward over the course of a single agreement period, an 
approach referred to as a glide path; and (2) ENHANCED track, based on 
the program's existing Track 3, for ACOs that take on the highest level 
of risk and potential reward.
    We proposed to require ACOs to enter one of two tracks for 
agreement periods beginning on July 1, 2019, and in subsequent years 
(as described in section II.A.7. of this final rule): Either the 
ENHANCED track, which would be based on Track 3 as currently designed 
and implemented under Sec.  425.610, or the new BASIC track, which 
would offer eligible ACOs a glide path from a one-sided model to 
incrementally higher performance-based risk. (We referred to this 
participation option for eligible ACOs entering the BASIC track as the 
BASIC track's glide path, or simply the glide path.)
    We proposed to add a new provision to the Shared Savings Program 
regulations at Sec.  425.605 to establish the requirements for this 
BASIC track. The BASIC track would offer lower levels of risk compared 
to the levels of risk currently offered in Track 2 and Track 3, and the 
same maximum level of risk as offered under the Track 1+ Model. 
Compared to the design of Track 1, this glide path approach, which 
requires assumption of gently increasing levels of risk and potential 
reward beginning no later than an ACO's fourth performance year under 
the BASIC track for agreement periods starting on July 1, 2019 or third 
performance year under the BASIC track for agreement periods starting 
in 2020 and all subsequent years, could provide stronger incentives for 
ACOs to improve their performance.
    For agreement periods beginning on July 1, 2019, and in subsequent 
years, we proposed to modify the regulations at Sec. Sec.  425.600 and 
425.610 to designate Track 3 as the ENHANCED track. We proposed that 
all references to the ENHANCED track in the program's regulations would 
be deemed to include Track 3. We explained that we intend references to 
the ENHANCED track to apply to Track 3 ACOs, unless otherwise noted.
    We explained that as part of the redesign of the program's 
participation options, it is timely to provide the program's tracks 
with more descriptive and meaningful names. ``Enhanced'' is indicative 
of the increased levels of risk and potential reward available to ACOs 
under the current design of Track 3, the new tools and flexibilities 
available to performance-based risk ACOs, and the relative incentives 
for ACOs under this

[[Page 67833]]

financial model designed to improve the quality of care for their 
assigned beneficiaries (for example, through the availability of the 
highest sharing rates based on quality performance under the program) 
and their potential to drive towards reduced costs for Medicare FFS 
beneficiaries and therefore increased savings for the Medicare Trust 
Funds. In contrast, ``basic'' suggests a foundational level, which is 
reflected in the opportunity under the BASIC track to provide a 
starting point for ACOs on a pathway to success from a one-sided shared 
savings model to two-sided risk.
    We proposed that for agreement periods beginning on July 1, 2019, 
the length of the agreement would be 5 years and 6 months. For 
agreement periods beginning on January 1, 2020, and in subsequent 
years, the length of the agreement would be 5 years.
    In the November 2018 final rule (83 FR 59946) we finalized a 
revision to the definition of ``agreement period'' to broadly mean the 
term of the participation agreement. For consistency, we also revised 
the heading in Sec.  425.200(b) from ``term of the participation 
agreement'' to ``agreement period,'' based on the modification to the 
definition of ``agreement period'' in Sec.  425.20.
    In the August 2018 proposed rule (83 FR 41799), we proposed to 
specify the term of participation agreements beginning on July 1, 2019 
and in subsequent years in revisions to Sec.  425.200, which currently 
specifies the term of the participation agreement for each agreement 
start date since the beginning of the program.
    In the August 2018 proposed rule (83 FR 41800), we also proposed to 
revise Sec.  425.502(e)(4)(v), specifying calculation of the quality 
improvement reward as part of determining the ACO's quality score, 
which includes language based on 3-year agreement periods. Through 
these revisions, we would specify that the comparison for performance 
in the first year of the new agreement period would be the last year in 
the previous agreement period, rather than the third year of the 
previous agreement period.
    The regulation on renewal of participation agreements (Sec.  
425.224(b)) includes criteria regarding an ACO's quality performance 
and repayment of shared losses that focus on specific years in the 
ACO's prior 3-year agreement period. We discussed proposals to revise 
these evaluation criteria to be more relevant to assessing prior 
participation of ACOs under an agreement period of at least 5 years, 
among other factors (83 FR 41823 through 41825).
    For ACOs entering agreement periods beginning on July 1, 2019, and 
in subsequent years, we proposed to allow ACOs annually to elect the 
beneficiary assignment methodology (preliminary prospective assignment 
with retrospective reconciliation, or prospective assignment) to apply 
for each remaining performance year within their agreement period. See 
discussion in section II.A.4.c. of this final rule.
    For ACOs entering agreement periods beginning on July 1, 2019, and 
in subsequent years, we proposed to allow eligible ACOs in the BASIC 
track's glide path the option to elect entry into a higher level of 
risk and potential reward under the BASIC track for each performance 
year within their agreement period. See the discussion in section 
II.A.4.b. of this final rule.
    We proposed to discontinue Track 1 as a participation option for 
the reasons described elsewhere in this section. We proposed to amend 
Sec.  425.600 to limit availability of Track 1 to agreement periods 
beginning before July 1, 2019.
    We proposed to discontinue Track 2 as a participation option. We 
proposed to amend Sec.  425.600 to limit availability of Track 2 to 
agreement periods beginning before July 1, 2019. We based these 
proposals on the following considerations.
    For one, the proposal to allow ACOs to select their assignment 
methodology (section II.A.4.c. of this final rule) and the availability 
of the proposed BASIC track with relatively low levels of risk compared 
to the ENHANCED track would ensure the continued availability of a 
participation option with moderate levels of risk and potential reward 
in combination with the optional availability of the preliminary 
prospective beneficiary assignment in the absence of Track 2. We 
explained that maintaining Track 2 as a participation option between 
the lower risk of the proposed BASIC track and the higher risk of the 
ENHANCED track would create redundancy in participation options, while 
removing Track 2 would offer an opportunity to streamline the tracks 
offered.
    Although Track 2 was the initial two-sided model of the Shared 
Savings Program, the statistics on Shared Savings Program participation 
by track (and in the Track 1+ Model) summarized in Table 2 show few 
ACOs entering and completing their risk bearing agreement period under 
Track 2 in recent years, and suggest that ACOs prefer either a lower 
level of risk and potential reward under the Track 1+ Model or a higher 
level of risk and potential reward under Track 3 than the Track 2 level 
of risk and potential reward.
    Further, under the proposed modifications to the regulations (see 
section II.A.5.c. of this final rule), Track 2 ACOs prepared to take on 
higher risk would have the option to elect to enter the ENHANCED track 
by completing their agreement period in Track 2 and applying to renew 
for a subsequent agreement period under the ENHANCED track or by 
voluntarily terminating their current 3-year agreement and entering a 
new agreement period under the ENHANCED track, without waiting until 
the expiration of their current 3-year agreement period. Certain Track 
2 ACOs that may not be prepared for the higher level of risk under the 
ENHANCED track could instead elect to enter the proposed BASIC track at 
the highest level of risk and potential reward, under the same 
circumstances.
    We proposed to discontinue the policy that allows Track 1 ACOs in 
their first agreement period to defer renewal for a second agreement 
period in a two-sided model by 1 year, to remain in their current 
agreement period for a fourth performance year, and to also defer 
benchmark rebasing. We proposed to amend Sec.  425.200(e) to 
discontinue the deferred renewal option, so that it would be available 
to only those Track 1 ACOs that began a first agreement period in 2014 
or 2015 and have already renewed their participation agreement under 
the deferred renewal option, and therefore this option would not be 
available to Track 1 ACOs seeking to renew for a second agreement 
period beginning on July 1, 2019, or in subsequent years. We proposed 
to amend Sec.  425.200(b)(3) to specify that the extension of a first 
agreement period in Track 1 under the deferred renewal option is 
available only for ACOs that began a first agreement period in 2014 or 
2015 and therefore deferred renewal in 2017 or 2018 (respectively). We 
considered the following issues in developing this proposal.
    For one, continued availability of this option is inconsistent with 
our proposed redesign of the program, which encourages rapid transition 
to performance-based risk and requires ACOs on the BASIC track's glide 
path to enter performance-based risk within their first agreement 
period under the BASIC track.
    Deferral of benchmark rebasing was likely a factor in some ACOs' 
decisions to defer renewal, particularly for ACOs concerned about the 
effects of the rebasing methodology on their benchmark. Under the 
proposal to extend the length of agreement periods

[[Page 67834]]

from 3 years to not less than 5 years, benchmark rebasing would be 
delayed by 2 years (relative to a 3-year agreement), rather than 1 
year, as provided under the current deferred renewal policy.
    Eliminating the deferred renewal option would streamline the 
program's participation options and operations. Very few ACOs have 
elected the deferred renewal participation option, with only 8 ACOs 
that began participating in the program in either 2014 or 2015 renewing 
their Shared Savings Program agreement under this option to defer entry 
into a second agreement period under performance-based risk until 2018 
or 2019, respectively. We stated that the very low uptake of this 
option demonstrates that it is not effective at facilitating ACOs' 
transition to performance-based risk. The proposed timing of 
applicability would prevent ACOs from electing to defer renewal in 2019 
for a second agreement period beginning in 2020.
    Further, as discussed in section II.A.5.c. of this final rule, we 
proposed to discontinue the ``sit-out'' period under Sec.  425.222(a), 
which is cross-referenced in the regulation at Sec.  425.200(e) 
establishing the deferred renewal option. Under the proposed 
modifications to Sec.  425.222(a), ACOs that have already been approved 
to defer renewal until 2019 under this participation option (ACOs with 
2015 start dates in the Shared Savings Program that deferred entering a 
second agreement period under two-sided risk until January 1, 2019), 
would have the option of terminating their participation agreement for 
their second agreement period under Track 2 or Track 3 and applying to 
enter the BASIC track at the highest level of risk and potential reward 
(Level E), or the ENHANCED track, for a new agreement period.
    We proposed to modify the Shared Savings Program participation 
options to offer a new performance-based risk track using the 
Secretary's authority under section 1899(i)(3) of the Act. In the 
August 2018 proposed rule, we explained use of our authority under 
section 1899(i)(3) of the Act (83 FR 41801). In order to add the BASIC 
track, we must determine that it will improve the quality and 
efficiency of items and services furnished to Medicare beneficiaries, 
without additional program expenditures. Consistent with our earlier 
discussions of the use of this authority to establish the current two-
sided models in the Shared Savings Program (see 76 FR 67904 and 80 FR 
32771), we explained that the BASIC track would provide an additional 
opportunity for organizations to enter a risk-sharing arrangement and 
accept greater responsibility for beneficiary care. We explained that 
the proposed restructuring of participation options, more generally, 
would help ACOs transition to performance-based risk more quickly than 
under the program's current design. Under the proposed program redesign 
we would eliminate Track 1 (under which a one-sided model currently is 
available for up to 6 years), offering instead a glide path with up to 
2 performance years under a one-sided model (three, for ACOs that enter 
the glide path on July 1, 2019), followed by the incremental phase-in 
of risk and increasing potential for reward over the remaining 3 
performance years of the agreement period. We proposed that ACOs that 
previously participated in Track 1, or new ACOs identified as re-
entering ACOs because more than 50 percent of their ACO participants 
have recent prior experience in a Track 1 ACO, entering the BASIC 
track's glide path would be eligible for a single performance year 
under a one-sided model (two, for ACOs that enter the glide path on 
July 1, 2019). We proposed a one-time exception to be specified in 
revisions to Sec.  425.600, under which the automatic advancement 
policy would not apply to the second performance year for an ACO 
entering the BASIC track's glide path for an agreement period beginning 
on July 1, 2019. For performance year 2020, the ACO may remain in the 
same level of the BASIC track's glide path that it entered for the 
performance year beginning on July 1, 2019 (6-month period). The ACO 
would be automatically advanced to the next level of the BASIC track's 
glide path at the start of performance year 2021 and all subsequent 
performance years of the agreement period, unless the ACO elects to 
advance to a higher level of risk and potential reward under the glide 
path more quickly, as proposed in section II.A.4.b. of this final rule. 
The glide path concludes with the ACO entering a level of potential 
reward that is the same as is currently available under Track 1, with a 
level of risk that is similar to the lesser of either the revenue-based 
or benchmark-based loss sharing limit under the Track 1+ Model.
    Further, we realized that a significant incentive for ACOs to 
transition more quickly to the highest level of risk and reward under 
the BASIC track would be the opportunity to participate in an Advanced 
APM for purposes of the Quality Payment Program. Under the BASIC 
track's Level E, an ACO's eligible clinicians would have the 
opportunity to receive APM Incentive Payments and ultimately higher fee 
schedule updates starting in 2026, in the payment year corresponding to 
each performance year in which they attain QP status.
    We explained in the Regulatory Impact Analysis section of the 
proposed rule (83 FR 41927) that the proposed BASIC track is expected 
to increase participation in performance-based risk by ACOs that may 
not otherwise take on the higher exposure to risk required in the 
ENHANCED track (or in the current Track 2). Such added participation in 
performance-based risk is expected to include a significant number of 
low revenue ACOs, including physician-led ACOs. These ACOs have shown 
stronger performance in the first years of the program despite mainly 
opting to participate in Track 1. Furthermore, the option for BASIC 
track ACOs to progress gradually toward risk within a single agreement 
period or accelerate more quickly to the BASIC track's Level E is 
expected to further expand eventual participation in performance-based 
risk by ACOs that would otherwise hesitate to immediately transition to 
this level of risk because of uncertainty related to benchmark 
rebasing.
    Therefore, adding the BASIC track as a participation option under 
the Shared Savings Program would not likely result in an increase in 
spending beyond the expenditures that would otherwise occur under the 
statutory payment methodology in section 1899(d). Further, we expected 
that adding the BASIC track would continue to lead to improvement in 
the quality of care furnished to Medicare FFS beneficiaries because 
participating ACOs would have an incentive to perform well on the 
quality measures in order to maximize the shared savings they may 
receive and minimize any shared losses they must pay.
    The proposed rule included other policy proposals that require that 
we reassess the policies adopted under the authority of section 
1899(i)(3) of the Act to ensure that they comply with the requirements 
under section 1899(i)(3)(B) of the Act. As described in the August 2018 
proposed rule (83 FR 41927), the elimination of Track 2 as an on-going 
participation option, the addition of the BASIC track, the benchmarking 
changes (see section II.D. of this final rule), and the proposal to 
determine shared savings and shared losses for the 6-month performance 
years starting on January 1, 2019, and July 1, 2019, using expenditures 
for the entire CY 2019 and then pro-rating these amounts to reflect the 
shorter performance year (see section II.A.7. of this final rule, as 
well as the November 2018 final rule), require the use of our authority 
under

[[Page 67835]]

section 1899(i) of the Act. These proposed changes to our payment 
methodology would not be expected to result in a situation in which all 
policies adopted under the authority of section 1899(i) of the Act, 
when taken together, result in more spending under the program than 
would have resulted under the statutory payment methodology in section 
1899(d) of the Act. We noted that we would continue to reexamine this 
projection in the future to ensure that the requirement under section 
1899(i)(3)(B) of the Act that an alternative payment model not result 
in additional program expenditures continues to be satisfied. In the 
event that we later determine that the payment model established under 
section 1899(i)(3) of the Act no longer meets this requirement, we 
would undertake additional notice and comment rulemaking to make 
adjustments to the payment model to assure continued compliance with 
the statutory requirements.
    As discussed in the Regulatory Impact Analysis section of this 
final rule (see section V), we believe the BASIC track meets the 
requirements for use of our authority under section 1899(i)(3) of the 
Act. The considerations we previously described, as included in the 
August 2018 proposed rule and the November 2018 final rule (83 FR 
59949), were relevant in making this determination. Specifically, we do 
not believe that the BASIC track, as finalized in this section of this 
final rule, will result in an increase in spending beyond the 
expenditures that would otherwise occur under the statutory payment 
methodology in section 1899(d), and adding the BASIC track would 
continue to lead to improvement in the quality of care furnished to 
Medicare FFS beneficiaries.
    Comment: We received feedback from several commenters that favored 
the proposed Shared Savings Program two track redesign and the 
incremental transition to two-sided risk, including effectively 
consolidating Track 1 and the Track 1+ Model into the single BASIC 
track and the preservation of Track 3 in the ENHANCED track. Generally, 
commenters supported the overall framework and supported CMS' proposal 
to pursue a tiered approach to introducing downside financial risk for 
ACOs. One commenter in support of the proposal noted that the renamed 
tracks are ``more descriptive'' than the current ones and applauded the 
permanent inclusion of the Track 1+ Model (described as Level E of the 
BASIC track). One commenter stated that the approach would strike an 
appropriate balance between encouraging the transition to performance-
based risk while not creating an undue burden on clinicians and ACOs as 
they make this transition. Another commenter believed that the new 
transition from one-sided to two-sided risk within the BASIC track 
would reward participants for providing beneficiaries with good care 
while holding ACOs accountable for potential losses. Another commenter 
believed that the proposed rule would provide an opportunity to make 
changes to the Medicare program that advance high-quality, affordable, 
and value-based care to improve patient outcomes and reduce costs.
    One commenter strongly supported and shared CMS' goal of 
strengthening the Shared Savings Program to make it successful for 
patients, providers, and Medicare over the long-term so that Medicare 
beneficiaries can benefit from the advantage of high-quality, cost-
efficient, and highly coordinated care. Another commenter urged CMS to 
continue providing a variety of ways to participate in the Shared 
Savings Program, including different tracks and levels of risk. The 
commenter stated that each organization is unique and will follow its 
own path to gain experience in redesigning care processes, learning 
where to appropriately direct resources so that its patients can 
receive patient-centered, team-based, and integrated healthcare, while 
at the same time, providing system savings to programs, patients and 
healthcare professionals.
    However, many commenters disagreed with the more aggressive 
transition of ACOs to performance-based risk under the proposed program 
redesign. Some commenters cautioned that although the requirement that 
all ACOs undertake two-sided risk at some point during their 
participation agreement may improve the performance of the ACOs that 
continue to participate in the Shared Savings Program, it may also 
reduce ACO participation in the program. Several commenters expressed 
concern that the change in program requirements may cause ACOs to end 
their participation with the Shared Savings Program and create a 
barrier to entry for ACOs to join the program.
    One commenter recommended that CMS carefully monitor Shared Savings 
Program participation and change course if participation falls 
precipitously. Several commenters expressed concern that the rapid 
assumption of significant levels of risk by ACOs would discourage new 
participants and impede current ACOs' ability to make patient-centered 
infrastructure investments that are necessary for successful 
participation. Another commenter believed that reducing the amount of 
time permitted in upside only programs is ill advised and jeopardizes 
ACOs' continued participation.
    Response: We appreciate the support of some commenters favoring the 
Shared Savings Program redesign and the more rapid transition from one-
sided to two-sided risk. We continue to believe that the proposed 
policies for the new BASIC track and the ENHANCED track generally 
strike an appropriate balance between risk and reward, appropriately 
distinguish available participation options by ACO and ACO participant 
characteristics, and will be effective in creating incentives for 
better coordinating care and assisting ACOs with the transition to 
risk. We continue to believe that models under which ACOs bear a degree 
of financial risk hold greater potential than one-sided models to 
induce more meaningful systematic change, promote accountability for a 
patient population and coordination of patient medical care, and 
encourage investment in redesigned care processes.
    In response to commenters' concerns about the potential impact of 
the proposed redesign on program participation, we note the discussion 
in the Regulatory Impact Analysis (section V of this final rule), where 
we describe that potentially fewer new ACOs may enter the program, 
although ACOs within current agreement periods may be more likely to 
continue their participation. However, in general, we believe that the 
benefits associated with making the BASIC track's glide path available 
to eligible ACOs, including the incremental increase in risk and 
reward, outweigh the risk of reduced ACO participation. With respect to 
the concerns about reduced ACO participation in the program, the 
potential effects of the proposed policies regarding the required 
transition to a two-sided model on participation decisions must be 
viewed together with other proposed program design elements that factor 
into participation decisions, including the methodology used to set and 
reset the ACO's historical benchmark; the approach used to calculate 
the ACO's shared savings and/or shared losses; the level of 
performance-based risk for ACOs; availability of the SNF 3-Day Rule 
Waiver, expanded coverage of telehealth services under section 1899(l) 
of the Act and Beneficiary Incentive Program; and the choice of 
methodologies for assigning beneficiaries to the ACO.
    Further, we believe that offering a glide path to transition ACOs 
to a two-

[[Page 67836]]

sided model through progressive levels of increasing risk and potential 
reward is responsive to commenters' requests for additional program 
options for ACOs, including those less experienced with performance-
based risk in an accountable care model. We believe that the addition 
of the new BASIC track, including a glide path with multiple levels of 
risk and potential reward, will help ACOs inexperienced with 
performance-based risk Medicare ACO initiatives to match their 
infrastructure and organizational readiness to an available 
participation option to support their achievement of the program's 
goals of better care for individuals, better health for populations, 
and lower growth in Medicare Parts A and B expenditures.
    Further, as described elsewhere in this final rule, in response to 
commenters' suggestions, we are finalizing several modifications to our 
proposals to further smooth ACOs' transitions to performance-based 
risk. For example, as described in section II.A.5.c. of this final 
rule, we are finalizing a policy modification to allow additional 
flexibility for new ACO legal entities that qualify as low revenue ACOs 
and inexperienced with performance-based risk Medicare ACO initiatives, 
to participate for up to 3 performance years under a one-sided model (4 
performance years in the case of ACOs entering an agreement period 
beginning on July 1, 2019) of the BASIC track's glide path before 
transitioning to Level E (the highest level of risk and potential 
reward under the BASIC track). We believe that this option may address 
some commenters' concerns. For instance, this option could be an 
attractive alternative to new ACOs that are inexperienced with the 
Shared Savings Program, by providing an additional year for the ACO to 
earn shared savings payments and make patient-centered infrastructure 
investments that would support their successful participation under a 
two-sided model. Additionally, as described in section II.A.6.c. of 
this final rule, we are finalizing modifications to the approach for 
determining repayment mechanism arrangement amounts to potentially 
reduce the burden of these arrangements for both lower-revenue and 
higher-revenue ACOs participating in the ENHANCED track.
    We will continue to monitor program participation and consider 
further refinements to the program's participation options as we gain 
experience with implementing the redesigned program.
    Comment: As we summarize and respond to elsewhere in this section 
of this final rule, some commenters expressed concerns about the high 
level of risk under the ENHANCED track, and suggested that CMS allow 
for additional participation options that would smooth the transition 
from level of risk and potential reward within Level E of the BASIC 
track to the ENHANCED track. Some of these comments included 
suggestions for alternative designs of the ENHANCED track. Several 
commenters offered suggestions for how to modify the design of the 
financial model of, or participation options under, the ENHANCED track. 
A few commenters suggested that CMS should increase the shared savings 
rate to 80 percent for each performance year under the ENHANCED track 
(the same as the Next Generation ACO Model) and increase the 
performance payment limits over the agreement period.
    Response: We continue to believe it is important to maintain a 
participation option with the level of risk and potential reward as 
currently available under Track 3, proposed to be the ENHANCED track 
under the redesign of the program's participation options. We believe 
that the opportunity for greater shared savings as compared to Level E 
of the BASIC track will encourage ACOs to undertake greater 
performance-based risk under the ENHANCED track, as well as provide a 
suitable participation option for ACOs more experienced with the 
accountable care model.
    Further, the design of the ENHANCED track offers symmetrical levels 
of risk and reward. To maintain this overall design, to increase the 
level of reward for the ENHANCED track (as suggested by one commenter), 
we would likewise need to consider increasing the level of risk as 
well. In light of commenters' concerns about the level of risk in the 
design of this track, we are concerned about changing the design of the 
ENHANCED track to include even higher levels of risk and potential 
reward.
    Comment: Several commenters recommended that the ENHANCED track 
should include a revenue-based loss sharing limit. One commenter 
recommended that CMS should incorporate a revenue-based loss sharing 
limit into the ENHANCED track, similar to the BASIC track design. A few 
commenters suggested that CMS apply a loss sharing limit that is the 
lesser of 20 percent of the ACO participant's revenue or 10 percent of 
updated benchmark for the ENHANCED track.
    Response: We decline at this time to adopt the commenters' 
suggestion to include an opportunity for ENHANCED track ACOs to qualify 
for a revenue-based loss sharing limit. The loss sharing limit under 
the ENHANCED track will remain 15 percent of the ACO's updated 
benchmark. We continue to believe that ACOs participating under higher 
levels of risk and reward can drive more meaningful systematic change 
in the behavior of providers and suppliers towards meeting the 
program's goals. As we describe elsewhere in this final rule, we 
continue to believe that all ACOs should transition to the level of 
risk and reward under the ENHANCED track. Therefore, we do not believe 
it is necessary to decrease the overall downside risk in the ENHANCED 
track or develop a financial model within the ENHANCED track, similar 
to the design of the two-sided models of the BASIC track. Thus, we 
decline to apply the revenue-based loss sharing limit to the ENHANCED 
track, which would potentially provide a relatively lower level of risk 
and weaken the incentives of the track's financial model. We note that, 
as discussed in section II.A.6.c. of this final rule, we are modifying 
the methodology for calculating repayment mechanism amounts for 
ENHANCED track ACOs, so that lower-revenue ACOs may be eligible for 
potentially lower repayment mechanism amounts under a revenue-based 
calculation. We believe this approach may assist ACOs by potentially 
reducing the financial burden of setting aside capital to establish a 
repayment mechanism before transitioning to greater risk under the 
ENHANCED track.
    Comment: Some commenters supported the consideration of allowing a 
participation option that would provide a gentler transition from the 
level of risk and potential reward under the BASIC track's Level E and 
the level of risk and potential reward under the ENHANCED track, which 
we described and sought comment on in section II.A.5.b. of the August 
2018 proposed rule (83 FR 41818). Several commenters expressed concern 
about the steep increase in risk between the BASIC track's Level E and 
the ENHANCED track. Several commenters called attention to the 
difference between the maximum amount of loss liability under the BASIC 
track's Level E (4 percent of the ACO's updated historical benchmark) 
and the ENHANCED track (15 percent of the ACO's updated historical 
benchmark). Several commenters indicated the likelihood of decreasing 
participation from low revenue ACOs if they are required to take on the 
level of two-sided risk in the ENHANCED track. One commenter stated 
that this significant increase in risk may present a barrier to 
successful

[[Page 67837]]

participation by smaller and less experienced ACOs. One commenter, 
concerned about the increase in risk between Level E of the BASIC track 
and the ENHANCED track, indicated that differences in exposure to loss 
liability and the repayment mechanism requirements between these tracks 
are unbalanced. One commenter, comparing the ENHANCED track to the 
Pioneer ACO model, cautioned CMS that we should expect attrition from 
the ENHANCED track based on the Pioneer ACO model experience.
    Several commenters suggested alternatives to ease the transition 
into risk from BASIC Level E to the ENHANCED track. Commenters 
suggested alternative participation options to create a series of 
gradual increases in both risk and reward, rather than a few inflection 
points to significantly different levels of risk. For example, creating 
a glide path to the highest risk level within the ENHANCED track or 
offer an additional track to help bridge the gap between the BASIC 
track and ENHANCED track that offers more options for gradual risk 
increases between Level E of the BASIC track and the ENHANCED track. 
Commenters' specific suggestions included the following:

    <bullet> Establishing a glide path from Level E of the BASIC 
track to the ENHANCED track based on the design of Track 2. One 
commenter suggested that CMS create a ``BASIC Level E+'' alternative 
that mimics the maximum shared savings and loss rates of the current 
Track 2. It would have an up to 60 percent maximum shared savings 
rate and a loss sharing rate that is not less than 40 percent but 
would not exceed 60 percent and would qualify as an Advanced APM.
    <bullet> Installing Track 2 as a three year glide path for all 
ACO entities within the ENHANCED track.
    <bullet> Creating a voluntary intermediate track with a loss 
sharing limit of 8 percent of the ACO's updated benchmark and shared 
savings rate of 65 percent.
    <bullet> Phasing-in the loss sharing limits within the ENHANCED 
track incrementally. One commenter suggested that the loss sharing 
limits be phased-in at 7 percent of benchmark in year 1, 10 percent 
in year 2, and then 15 percent in years 3, 4, and 5. Another 
commenter suggested a slower phase-in of the loss sharing limit, 
with a more incremental increase in the percentage each performance 
year.

    One commenter encouraged CMS to continue to assess the ability of 
low revenue ACOs to assume higher levels of downside risk. According to 
the commenter, CMS should also evaluate the success rates of low 
revenue ACOs that move to the ENHANCED track and monitor the number of 
ACOs that return to the BASIC track, particularly due to inability to 
assume higher levels of risk.
    Response: We continue to believe that the transition to risk from 
Level E of the BASIC track to the ENHANCED track best supports 
achieving our goal of driving more meaningful systematic change in 
providers' and suppliers' behavior towards achieving the program's 
goals. Allowing more manageable levels of risk within the BASIC track's 
glide path within the Shared Savings Program is an important pathway 
for helping organizations gain experience with managing risk as well as 
participating in Advanced APMs under the Quality Payment Program. We 
also recognize that it may be more difficult for low revenue ACOs to 
transition to higher levels of risk and potential reward and are 
therefore allowing eligible low revenue ACOs the opportunity to 
participate in the BASIC track for up to two agreement periods before 
advancing to the ENHANCED track (as discussed in section II.A.5.b.(2) 
of this final rule). As discussed in section II.A.6.c of this final 
rule, we are modifying our approach to determining the amount of the 
repayment mechanism for ENHANCED track ACOs, to allow for potentially 
lower estimated amounts for lower-revenue ACOs, to support their 
transition to the ENHANCED track. Although the financial model of the 
ENHANCED track will remain the same as the design of Track 3, the 
modified repayment mechanism arrangement estimation approach may reduce 
the financial burden on ACOs of establishing these arrangements, for 
example in setting aside capital, when transitioning to greater risk.
    One purpose of the proposed redesign is to streamline participation 
options under the Shared Savings Program. At this time, and considering 
the factors we described in this response as well as previous comment 
responses in this section, we decline to establish additional 
participation options that would include a bridge or intermediate track 
between Level E of the BASIC track and the ENHANCED track. 
Specifically, we decline the suggestion to modify the design of the 
ENHANCED track at this time to more closely resemble the design of 
Track 2, with a phase-in of the loss sharing limits over a single 
agreement period (as suggested by one commenter). As explained 
elsewhere in this final rule we are finalizing our proposal to 
discontinue Track 2, in part reflective of the reduced rates of 
participation in this track, and the availability of the BASIC track 
with relatively lower levels of risk and reward that, for ACOs eligible 
for the glide path, gradually increase over the term of the agreement 
period.
    As suggested by the commenter, we agree with the need to continue 
to monitor the redesigned participation options, including with respect 
to low revenue ACOs that move to the ENHANCED track as well as 
performance by high revenue ACOs under the ENHANCED track. We note that 
as described in section II.A.5.c of this final rule, we are finalizing 
a policy to monitor ACOs for composition changes during their agreement 
period that would affect their participation options.
    Comment: Many commenters opposed the proposal to discontinue Track 
1 or an equivalent option that would allow for ACOs to participate for 
an entire agreement period, or up to 6 performance years (to match the 
two 3-year agreement periods that are currently allowed), under a one-
sided model. Many of these commenters believed that the current Track 1 
is the only viable opportunity for rural ACOs to participate in a 
Medicare value-based payment model. The comments stated that although 
there are other options for health care providers to work together to 
address the cost and quality of care, collaborating in a Shared Savings 
Program ACO remains the most viable option for ACO participants, 
specifically independent rural healthcare organizations. One commenter 
stated that as a non-profit, low revenue ACO, they may be forced out of 
the Shared Savings Program because they lack the capital required for 
the repayment mechanism. Another commenter strongly opposed the 
elimination of Track 1 and urged its retention for physician-led 
organizations. The commenter proposed that if CMS chose to retain Track 
1, it would recommend modifications to increase net savings for 
Medicare, such as terminating ACOs that have not achieved savings over 
several years, reducing shared savings payments for ACOs that fail to 
meet quality performance standards, or allowing ACOs to be accountable 
only for the spending they control versus the total cost of care.
    A few commenters asserted that CMS does not have authority under 
section 1899(i) of the Act to discontinue Track 1 and replace it with 
the BASIC track. These commenters noted that section 1899(i)(2)(B) of 
the Act says that ``payments to an ACO for items and services . . . for 
beneficiaries for a year . . . shall be established in a manner that 
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

[[Page 67838]]

if the model were not implemented.'' As a result, the commenters 
contend that the statute is not referring to a measure of overall 
program spending, but to the change in spending for each individual 
ACO.
    Further, these commenters noted that the current Track 1 model 
meets the statutory requirements for determining shared savings 
payments under section 1899(d) of the Act. Section 1899(i) of the Act 
permits CMS to use partial capitation or other payment models instead 
of the shared savings approach under section 1899(d). However, one of 
the requirements for both of these other payment models is that 
spending cannot be more for such an ACO than would otherwise be 
expended for such ACO if the model were not implemented. In the 
proposed BASIC track and ENHANCED track, if Medicare spending exceeds 
an ACO's benchmark, the ACO would be required to repay a portion of the 
difference but not the full amount. Because the ACO would not be 
required to repay the full increase, these commenters assert that 
Medicare would spend more for that ACO than it would otherwise have 
spent and, as a result, the two-sided payment model under the proposed 
BASIC track and ENHANCED track does not satisfy the statutory 
requirement in section 1899(i) of the Act.
    Response: After evaluating commenters' concerns related to 
discontinuing Track 1, and as further detailed in section II.A.5 of 
this final rule, we are modifying our proposals and are finalizing an 
approach that would allow new legal entities that are low revenue ACOs 
and inexperienced with performance-based risk Medicare ACO initiatives 
the option to elect an additional year in a one-sided model of the 
BASIC track's glide path, for a total of 3 performance years in a one-
sided model (or 4 performance years in the case of ACOs entering an 
agreement period beginning on July 1, 2019). The ACO would enter the 
glide path at Level A, and automatically advance to Level B. Prior to 
the automatic advancement of the ACO to Level C, an eligible ACO may 
elect to remain in Level B for another performance year, and then be 
automatically advanced to Level E for the remaining two years. As we 
discuss in section II.A.3 of this final rule, we are also modifying our 
proposals regarding the design of the BASIC track's glide path in order 
to increase the final shared savings rate to 40 percent for one-sided 
levels (Levels A and B) and allow for a 50 percent shared savings rate 
for two-sided levels (Levels C, D, and E) to further incentivize ACOs 
to move to risk while also providing the opportunity for ACOs to share 
in a greater percentage of savings to support their ongoing operating 
costs.
    We believe this approach will allow for a smoother progression to 
two-sided risk within the BASIC track's glide path, particularly for 
new legal entities that are low revenue ACOs and inexperienced with the 
Shared Savings Program and other Medicare ACO initiatives. We also note 
that, under the policies we are adopting in this final rule, eligible 
ACOs will have the opportunity to participate for up to 3 performance 
years (or 4 performance years in the case of ACOs entering an agreement 
period beginning on July 1, 2019) under a one-sided model of 
approximately the same design as is currently offered in Track 1. This 
approach allows an ACO to benefit from the stability and predictability 
of their benchmark when moving to two-sided risk within the same 
agreement period.
    However, we disagree with commenters on the need to allow ACOs to 
continue under a one-sided model for longer periods of time. For 
example, allowing ACOs to continue under a one-sided model for up to 6 
performance years (as with the program's current design). We believe 
that such an approach would, at best, maintain the status quo of the 
program, and therefore continue a pattern where ACOs are allowed to 
remain under the one-sided model without strong incentives to become 
accountable for the cost and quality of care for their assigned 
populations.
    Finally, we disagree with the commenters' assertions that CMS does 
not have authority to discontinue Track 1 and replace it with the BASIC 
track, which includes a glide path beginning with a one-sided model 
that offers the opportunity to earn shared savings determined under 
section 1899(d) of the Act. Section 1899(i)(3) of the Act authorizes 
the Secretary to use other payment models rather than the one-sided 
model described in section 1899(d) of the Act, as long as the Secretary 
determines that the other payment model will improve the quality and 
efficiency of items and services furnished to Medicare beneficiaries 
without additional program expenditures. As we described in the August 
2018 proposed rule and restate in this final rule, we believe that the 
requirements for use of our authority under section 1899(i)(3) are met 
with respect to establishing the new BASIC track, as well as the other 
policies we proposed and are finalizing that require use of this 
authority. In particular, we note that the Regulatory Impact Analysis 
in Section V of this final rule includes a description of the 
comparison that was conducted between the projected impact of the 
payment methodology that incorporates all program elements implemented 
using our authority under section 1899(i)(3) of the Act, versus a 
hypothetical baseline payment methodology that excludes the elements 
that require section 1899(i)(3) authority. As detailed in that section, 
the analysis estimates approximately $4 billion greater average net 
program savings under the alternative payment model that includes all 
policies that require the authority of section 1899(i)(3) of the Act 
than would be expected under the hypothetical baseline in total over 
the 2019 to 2028 projection period. The alternative payment model, as 
finalized in this rule, is projected to result in greater savings via a 
combination of reduced Medicare Parts A and B FFS expenditures and 
reduced net payments to ACOs.
    Comment: Some commenters agreed with discontinuing the deferred 
renewal option for Track 1 ACOs that is available under the current 
regulations. However, most commenters disagreed with CMS' decision to 
discontinue the current policy to allow Track 1 ACOs in their first 
agreement period to defer renewal for a second agreement period prior 
to taking on risk in a two-sided model.
    Response: As we previously explained, very few ACOs have elected 
the deferred renewal participation option, and we have concluded that 
the deferred renewal policy has shown limited success in encouraging 
ACOs to advance to performance-based risk. As we explained in the 
proposed rule, and reiterated in this section of this final rule, we 
continue to believe that the deferred renewal option would be 
inconsistent with our proposed redesign of the program that would 
transition ACOs from a one-sided model to two-sided models within one 
agreement period under the BASIC track's glide path. Further, extending 
the length of the agreement period from 3 years to 5 years, as we are 
finalizing in this final rule, creates another redundancy with the 
deferred renewal option which allows ACOs to defer benchmark rebasing 
by 1 year. We are finalizing as proposed our policy to discontinue the 
availability of the deferred renewal option for Track 1 ACOs applying 
to enter a second agreement period in the Shared Savings Program under 
a two-sided model.
    Comment: Generally, most commenters favored the proposal to move 
from three to five year agreement periods. Most commenters believed 
that

[[Page 67839]]

the five year agreement periods would be beneficial due to the amount 
of time it takes for ACOs to operationalize changes to support improved 
performance in the program. Other commenters stated that the change 
would advance greater predictability for providers and health systems 
that are making investments and other system changes to support 
participation. One commenter noted that a three year agreement period 
has been insufficient in terms of enabling participants to implement 
reforms to care delivery and workflow. Many other commenters agreed and 
believed that the five year agreement periods would help with program 
predictability and increase stability. A few commenters stated that 
historical benchmarks would become more predictable, since the 
benchmark would continue to be based on the expenditures for 
beneficiaries who would have been assigned to the ACO in the three most 
recent years prior to the start of the ACO's agreement period. Other 
commenters believed that the longer agreement periods would provide a 
meaningful length of time to measure ACO successes and challenges. 
Further, one of the commenters contended that as the Shared Savings 
Program matures, it will be important to evaluate and measure ACO 
performance and the 5-year agreement period will allow for a more 
robust evaluation of financial performance.
    However, some commenters disagreed with the change in the length of 
the agreement period. Several commenters asserted that the greatest 
factor undermining stability within the Shared Savings Program is CMS' 
changes to policy repeatedly within and between agreement periods, and 
these commenters expressed that moving to a 5-year agreement period 
would expose participants to extra potential change within a single 
agreement period. One of these commenters stated that this kind of 
instability can only be mitigated via shorter agreement periods. 
Another commenter stated that it would support the change from three- 
to five-years if CMS minimized year-over-year policy changes. One 
commenter stated that ACOs who began participating in the Shared 
Savings Program in 2012/2013 were either sheltered from consequences or 
put at a significant disadvantage. The commenter stated that early 
adopters were put at a competitive disadvantage when the regional 
benchmarking formulas were introduced for later entrants, and cited the 
uncertainty inherent in the potential for future changes in the 
regulatory landscape. The commenter further contended that these ACOs 
also had the ability to remain under one-sided risk for an extended 
period of time, which the commenter believed sheltered these ACOs from 
consequences of two-sided risk. The commenter proposed that CMS either 
shorten the agreement period or provide for annual updates and 
renewals, similar to the Medicare Advantage regulations. Another 
commenter stated that, although they accept CMS' decision to extend the 
agreement period from three to five years to promote stability, the 
commenter was also critical of the fact that CMS regularly changes, 
rewrites, or clarifies the Shared Savings Program rules, creating 
instability in the program.
    Other commenters urged CMS to reconsider the change to a 5-year 
agreement period due to their concern that the length of the agreement 
period in relation to CMS' proposed risk ratio cap is too long to 
properly reflect changes in the attributes of the assigned beneficiary 
population. Another commenter was concerned about procuring a repayment 
mechanism for the 5-year agreement period plus the additional 24 month 
tail period. Specifically, the commenter contended that the extended 
duration of the participation agreement might limit the availability of 
the surety bond as a repayment mechanism option.
    Finally, several commenters recommended that CMS extend the 
agreement period to 7 years. Once commenter was concerned that the 
proposed rule, with its new and shorter transition to shared losses, 
could lead to even greater pressure on providers to respond to the 
program's financial incentives to reduce spending on services. The 
commenter further contended that these pressures, in turn, may lead to 
greater risk that patient access to greater innovations and 
technologies will be compromised, especially when these are more 
expensive than the standard of care embedded in benchmarks.
    Response: We appreciate the general support for moving from three 
to five year agreement periods. During previous rulemaking in 2011, we 
received a large number of comments surrounding the length of the 
agreement period that specifically requested that it be extended to 
five years. As part of reevaluating the program requirements, we 
believe that it may benefit ACOs to extend the 3-year agreement period 
to five years so they will have more predictable benchmarks and 
therefore a greater opportunity for return on investment through 
achieving shared savings with the longer agreement period. We also 
believe that extending the agreement period to five years allows ACOs 
to gradually transition to risk and establish an operational structure 
to support quality reporting and other Shared Savings Program 
requirements, and provides adequate time for data evaluation during the 
early part of the agreement period. Further, we recognize that the 
longer the agreement period, the greater an ACO's chance to build on 
the success or continue the failure of its current agreement. CMS' PY 
2016 results show that ACOs produce a higher level of net savings and 
more optimal financial performance results the longer they have been in 
the Shared Savings Program and with additional participation experience 
(83 FR 41917). We also understand commenters' concern that CMS policy 
may evolve during the five year agreement period. However, we will 
continue to evaluate the effectiveness of Shared Savings Program 
policies and make adjustments, as necessary, to further promote 
accountability for a patient population, foster the coordination of 
Medicare Parts A and B items and services, and encourage high quality 
and efficient service delivery.
    We reviewed quality and financial results to date in developing 
these policy proposals to refine the program. We continue to review ACO 
quality and financial results to ensure that the program is providing 
as much value as possible, is responsive to stakeholders' feedback, and 
is meeting its objectives of improving care coordination for 
beneficiaries and lowering growth in Medicare expenditures. We also 
make available, to researchers and other external parties, public use 
files and research identifiable files with program data, to promote 
program transparency and to allow researchers and others to evaluate 
and comment on program results.
    We appreciate the comments related to the proposed symmetrical 3 
percent cap on CMS-HCC risk scores in relation to the proposal for 5-
year agreement periods. In developing our proposed policies, we 
considered alternate levels for the cap or allowing full CMS-HCC risk 
adjustment with no cap at all. However, we were concerned that a lower 
cap would not offer ACOs enough protection against greater health 
status changes relative to our current approach. At the same time, we 
were concerned that adopting a higher cap, or allowing for full, 
uncapped risk adjustment would not provide sufficient protection 
against potential coding initiatives. Our choice of 3 percent as the 
preferred level for the cap was

[[Page 67840]]

influenced by program experience as described in more detail in section 
II.D.2.b of the August 2018 proposed rule.
    We appreciate the concerns raised regarding the availability of 
repayment mechanism arrangements and, in particular, the availability 
of surety bonds. As we explain in section II.A.6 of this final rule, 
based on our experience, we believe ACOs will be able to work with 
financial institutions to establish the required arrangement to cover 
the full 5-year agreement period and tail period plus the 12-month tail 
period we are finalizing. However, as described in section II.A.6 of 
this final rule, we are also permitting ACOs to satisfy the repayment 
mechanism duration requirement by establishing a repayment mechanism 
that has a term that covers at least the first two performance years 
that an ACO is participating under a two-sided model and provides for 
automatic, annual 12 month extensions of the repayment mechanism such 
that the repayment mechanism will eventually remain in effect for the 
duration of the agreement period plus 12 months following the 
conclusion of the agreement period. We believe that these changes will 
reduce the burden of establishing a repayment mechanism that satisfies 
the duration requirement. We will monitor the use of repayment 
mechanisms and may revisit the issue in future rulemaking if we 
determine that the ability of an ACO to establish an adequate repayment 
mechanism that meets the duration requirement is constrained by the 
availability or cost of repayment mechanism options. Furthermore, we 
note that nothing in our program rules prohibits an ACO from 
establishing multiple repayment mechanisms, as long as the total of the 
repayment mechanisms meets the repayment mechanism amount provided by 
CMS.
    Finally, we appreciate the suggestion for a 7-year agreement period 
but due to potential financial and administrative burdens on ACOs, 
including procuring a repayment mechanism for a longer period of time, 
we are declining to extend the agreement period to that span at this 
time.
    Comment: One commenter suggested that current ACOs participating in 
Track 3 should be provided reward options for undertaking risk such as 
the ability to participate in the BASIC track, extension of their 
current agreement period, and reduction of the new agreement period to 
three years for the first renewal period under the new participation 
options for current Track 3 ACOs.
    Response: We decline the commenter's suggestions to allow current 
Track 3 ACOs the option to choose alternative participation options, 
including participation under an initial 3-year agreement period rather 
than a 5-year agreement period under the ENHANCED track. As described 
elsewhere in this section of this final rule, we are finalizing an 
approach to require all ACOs entering agreement periods beginning July 
1, 2019 and subsequent years to participate under agreement periods of 
at least 5 years. We note that, in the November 2018 final rule, we 
finalized a policy which allows all ACOs whose agreement periods expire 
on December 31, 2018 to elect a voluntary 6-month extension of their 
current agreement period, which includes current Track 3 ACOs with 
participation agreements expiring on that date. In addition, we note 
that eligible low revenue ACOs that are determined to be experienced 
with performance-based risk Medicare ACO initiatives may participate 
for an agreement period under Level E of the BASIC track, including 
such qualifying ACOs that currently are participating under Track 3. As 
described in section II.A.5. of this final rule, low revenue ACOs may 
participate in the BASIC track for up to two agreement periods, which 
are not required to be sequential. For example, this would allow low 
revenue ACOs that transition to the ENHANCED track after a single 
agreement period under the BASIC track the opportunity to return to the 
BASIC track if the ENHANCED track initially proves to involve too high 
a level of performance-based risk.
    Comment: One commenter sought clarification as to the interaction 
between the Bundled Payments for Care Improvement Advanced (BPCI 
Advanced) model and the proposed redesigned Shared Savings Program 
participation options. Specifically, the commenter stated that given 
its financial and operational investment that they recently made to 
participate in the BPCI Advanced model, providers need to understand 
explicitly how CMS intends to handle the interaction of the two 
programs as the commenter makes its business decision regarding 
participation in the Shared Savings Program for the next agreement 
period.
    Response: Entities may concurrently participate in BPCI Advanced 
and the Shared Savings Program. The interactions between the Shared 
Savings Program assigned beneficiaries and episodes that are initiated 
under the BPCI Advanced model are governed by the model participation 
agreement. The current BPCI Advanced participation agreement addresses 
financial reconciliation and indicates that clinical episodes may not 
be initiated for beneficiaries assigned to a Shared Savings Program ACO 
in Track 3, but can be initiated for beneficiaries assigned to a Shared 
Savings Program ACO in Track 1, the Track 1+ Model or Track 2. We will 
continue to work with our colleagues in the Innovation Center to 
address interactions between models and Shared Savings Program ACOs, 
including the interaction between BPCI Advanced and the BASIC track and 
ENHANCED track, and provide such information in future guidance. We 
work to align and create synergies between the Shared Savings Program 
and the payment and service delivery models tested by the Innovation 
Center. We have policies in place to take into account overlap between 
the Shared Savings Program and Innovation Center models, which are 
designed to test new payment and service delivery models to reduce 
expenditures and preserve or enhance quality of care, whenever 
possible. We continue to monitor these policies and make refinements as 
we gain experience and lessons learned from these interactions. When 
new models are announced, we encourage ACOs and their leaders to engage 
in dialogue with the Innovation Center and Shared Savings Program staff 
to inform their decision-making regarding the participation options.
    Comment: Several commenters suggested CMS consider how to align the 
design parameters across Medicare ACO initiatives in redesigning the 
Shared Savings Program. One commenter explained that inconsistency 
across different Medicare ACO initiatives presents challenges for 
organizations that want to progress from one initiative to the next, as 
well for organizations that have participants in different Medicare ACO 
models at the same time. Another commenter specifically suggested that 
CMS continue to identify areas such as with beneficiary attribution and 
payment methodologies to create consistency across different Medicare 
ACO initiatives and even more broadly across CMS' delivery system 
reform portfolio. One commenter specifically suggested that CMS 
incorporate several elements of the Next Generation ACO Model into the 
Shared Savings Program such as the choice of allowing participation by 
TINs or NPIs (as opposed to Shared Savings Program's current 
requirement for participation by all NPIs enrolled in an ACO 
participant TIN), infrastructure payments, prepayment of shared savings 
and primary capitation, which were

[[Page 67841]]

suggestions echoed by other commenters.
    Response: We appreciate commenters' support for and interest in 
CMS' Medicare ACO initiatives, more generally. We note that the 
Innovation Center's time-limited Medicare ACO models, including the 
Next Generation ACO Model, are designed to test alternative payment and 
service delivery models. Lessons learned from these initiatives may be 
used to inform the development of future policies under the Shared 
Savings Program, which is a permanent program established under the 
authority of section 1899 of the Act. We also believe the alternative 
designs of these ACO models provide important pathways for ACOs to 
select to participate under a Medicare ACO model that may be more in 
line with their organizational preferences and experience with the 
accountable care model or the needs of the populations they serve. CMS 
provides education and outreach to explain the designs of ACO models, 
and requirements for participation in these initiatives, to support 
ACOs' compliance with initiative requirements and their success in 
achieving the goals of these initiatives. Some changes suggested by 
commenters were not contemplated in the August 2018 proposed rule. We 
decline to undertake these additional policy modifications at this 
time. Specifically, we decline to redefine ACO participants to allow 
participation by some but not all NPIs that have reassigned their 
billing rights to a TIN, allow for infrastructure payments or 
prepayment of shared savings as part of the national program, or to 
create a capitated payment model.
    Comment: Several commenters encouraged CMS to take steps towards 
aligning the Shared Savings Program with Medicare Advantage as part of 
the redesign of the Shared Savings Program. One commenter stated that 
Medicare Advantage plans are rewarded with higher benchmarks for higher 
quality, which puts Shared Savings Program ACOs at a financial 
disadvantage. Other commenters suggested that CMS incorporate into the 
Shared Savings Program aspects of Medicare Advantage such as 
utilization management and more extensive beneficiary incentive 
payments (such as under the Innovation Center's Medicare Advantage 
Value-Based Insurance Design model). One commenter suggested that 
Shared Savings Program ACOs need to be more clearly defined as an 
alternative to both traditional FFS Medicare and Medicare Advantage. 
Another commenter suggested that there may not be a need for the Shared 
Savings Program in light of the availability of Medicare Advantage and 
other value-based payment initiatives such as the Innovation Center's 
Comprehensive Primary Care Plus (CPC+) Model.
    Response: Elsewhere in this final rule, we discuss commenters' 
specific suggestions for bringing greater alignment between the design 
of the Shared Savings Program and Medicare Advantage, such as the 
modifications to the Shared Savings Program's methodology to annually 
risk adjust the historical benchmark (see section II.D of this final 
rule). In section II.C.2. of this final rule, we also address 
commenters' suggestions that CMS align its proposed beneficiary 
incentive program policies with MA.
    Although we frequently relied on our experience in other Medicare 
programs, including MA, to help develop the original framework for the 
Shared Savings Program and will continue to explore opportunities to 
align the requirements of the Shared Savings Program and Medicare 
Advantage, we believe that the Shared Savings Program offers an 
alternative to both volume-based payments under traditional Medicare 
FFS and Medicare Advantage. Under the Shared Savings Program, the 
providers and suppliers that form an ACO agree to become accountable 
for the quality, cost, and overall care of the Medicare FFS 
beneficiaries assigned to the ACO. Shared Savings Program ACOs only 
share in savings if they meet both the quality performance standards 
and generate shareable savings. Medicare FFS beneficiaries assigned to 
Shared Savings Program ACOs retain all rights and benefits under 
traditional Medicare, including the right to see any physician of their 
choosing, and they do not enroll in the Shared Savings Program.
    Further, we will continue to offer the Shared Savings Program, as 
required by law, and decline the commenters' suggestion that CMS 
discontinue the program.
    Final Action: We are finalizing our proposed policies to redesign 
the program's participation options by discontinuing Track 1, Track 2, 
and the deferred renewal option under Sec. Sec.  425.200(b)(3), and 
425.200(e). We are also finalizing our policy to offer two tracks that 
eligible ACOs would enter into for an agreement period of at least 5 
years:

    <bullet> BASIC track, added as a new provision at Sec.  425.605, 
which includes an option for eligible ACOs to begin participation 
under a one-sided model and incrementally phase-in risk (calculated 
based on ACO participant revenue and capped at a percentage of the 
ACO's updated benchmark) and potential reward over the course of a 
single agreement period, an approach referred to as a glide path (as 
described in section II.A.3. of this final rule). We are finalizing 
our proposal in Sec.  425.600(a)(4) for eligible ACOs to elect to 
operate under the BASIC track.
    Under the BASIC track's glide path, the level of risk and 
potential reward phases in over the course of the agreement period 
in the following order:
    ++ Level A. The ACO operates under a one-sided model as 
described under Sec.  425.605(d)(1)(i).
    ++ Level B. The ACO operates under a one-sided model as 
described under Sec.  425.605(d)(1)(ii).
    ++ Level C. The ACO operates under a two-sided model as 
described under Sec.  425.605(d)(1)(iii).
    ++ Level D. The ACO operates under a two-sided model as 
described under Sec.  425.605(d)(1)(iv).
    ++ Level E. The ACO operates under a two-sided model as 
described under Sec.  425.605(d)(1)(v).
    <bullet> ENHANCED track as currently designed and implemented 
under Sec. Sec.  425.600(a)(3), 425.610, based on the program's 
existing Track 3.

    Additionally, we are finalizing changes to Sec.  425.200 to specify 
that ACOs will agree to participate for a period of not less than 5 
years for agreement periods beginning on July 1, 2019 and in subsequent 
years. Lastly, we are finalizing revisions to Sec.  425.502(e)(4)(v), 
specifying calculation of the quality improvement reward as part of 
determining the ACO's quality score, which previously included language 
based on 3-year agreements.
3. Creating a BASIC Track With Glide Path to Performance-Based Risk
a. Overview
    We proposed that the BASIC track would be available as a 
participation option for agreement periods beginning on July 1, 2019 
and in subsequent years. Special considerations and proposals with 
respect to the midyear start of the first BASIC track performance year 
and the limitation of this first performance year to a 6-month period 
are discussed in section II.A.7. of this final rule and, as needed, 
throughout this preamble.
    In general, we proposed to model the BASIC track on the current 
provisions governing Shared Savings Program ACOs under 42 CFR part 425, 
including the general eligibility requirements (subpart B), application 
procedures (subpart C), program requirements and beneficiary 
protections (subpart D), beneficiary assignment methodology (subpart 
E), quality performance standards (subpart F), data sharing 
opportunities and requirements (subpart H), and benchmarking 
methodology (which as discussed in section II.D. of this final rule, we 
proposed to specify in a new section of the regulations at

[[Page 67842]]

Sec.  425.601). Further, we proposed that the policies on reopening 
determinations of shared savings and shared losses to correct financial 
reconciliation calculations (Sec.  425.315), the preclusion of 
administrative and judicial review (Sec.  425.800), and the 
reconsideration process (subpart I) would apply to ACOs participating 
in the BASIC track in the same manner as for all other Shared Savings 
Program ACOs. Therefore, we proposed to amend certain existing 
regulations to incorporate references to the BASIC track and the 
proposed new regulation at Sec.  425.605. This includes amendments to 
Sec. Sec.  425.100, 425.315, 425.600, and 425.800. As part of the 
revisions to Sec.  425.800, we proposed to clarify that the preclusion 
of administrative and judicial review with respect to certain financial 
calculations applies only to the extent that a specific calculation is 
performed in accordance with section 1899(d) of the Act.
    As discussed in section II.A.4.c. of this final rule, we proposed 
that ACOs in the BASIC track would have an opportunity to annually 
elect their choice of beneficiary assignment methodology. As discussed 
in section II.B. of this final rule, we proposed to make the SNF 3-day 
rule waiver available to ACOs in the BASIC track under two-sided risk. 
If these ACOs select prospective beneficiary assignment, their 
physicians and practitioners billing under ACO participant TINs would 
also have the opportunity to provide telehealth services under section 
1899(l) of the Act, starting in 2020. As described in section II.C. of 
this final rule, BASIC track ACOs under two-sided risk (Levels C, D, or 
E) would be allowed to apply for and, if approved, establish a CMS-
approved beneficiary incentive program to provide incentive payments to 
eligible beneficiaries for qualifying services.
    We proposed that, unless otherwise indicated, all current policies 
that apply to ACOs under a two-sided model would apply also to ACOs 
participating under risk within the BASIC track. This includes the 
selection of a Minimum Savings Rate (MSR)/Minimum Loss Rate (MLR) 
consistent with the options available under the ENHANCED track, as 
specified in Sec.  425.610(b)(1) (with related proposals discussed in 
section II.A.6.b. of this final rule), and the requirement to establish 
and maintain an adequate repayment mechanism under Sec.  425.204(f) 
(with related proposals discussed in section II.A.6.c. of this final 
rule). ACOs participating under the one-sided models of the BASIC 
track's glide path (Level A and Level B), would be required to select a 
MSR/MLR and establish an adequate repayment mechanism prior to their 
first performance year in performance-based risk. Additionally, the 
same policies regarding notification of savings and losses and the 
timing of repayment of any shared losses that apply to ACOs in the 
ENHANCED track (see Sec.  425.610(h)) would apply to ACOs in two-sided 
risk models under the BASIC track, including the requirement that an 
ACO must make payment in full to CMS within 90 days of receipt of 
notification of shared losses.
    As described in section II.E.4. of the August 2018 proposed rule, 
we proposed to extend the policies for addressing the impact of extreme 
and uncontrollable circumstances on ACO quality and financial 
performance, as established for performance year 2017 to performance 
year 2018 and subsequent years. We finalized this proposal in the 
November 2018 final rule (83 FR 59968 through 59979) to ensure that 
relief is available for ACOs affected by the recent hurricanes in North 
Carolina and Florida and other disasters during 2018. In the August 
2018 proposed rule, we proposed that these policies would also apply to 
BASIC track ACOs. Section 425.502(f) specifies the approach to 
calculating an ACO's quality performance score for all affected ACOs. 
Further, we proposed that the policies regarding the calculation of 
shared losses for ACOs under a two-sided risk model that are affected 
by extreme and uncontrollable circumstances (see Sec.  425.610(i)) 
would also apply to BASIC track ACOs under performance-based risk.
    Final Action: There were no comments directed specifically at our 
proposal to model the BASIC track on the current provisions governing 
Shared Savings Program ACOs under 42 CFR part 425, including the 
general eligibility requirements (subpart B), application procedures 
(subpart C), program requirements and beneficiary protections (subpart 
D), beneficiary assignment methodology (subpart E), quality performance 
standards (subpart F), data sharing opportunities and requirements 
(subpart H), and benchmarking methodology (subpart G). We are 
finalizing our proposals to model the BASIC track on the existing 
provisions governing other tracks of the Shared Savings Program. 
Elsewhere in this final rule we describe in detail our final policies 
for the other proposed revisions to the program's regulations to 
establish the BASIC track.
    We did not receive any comments specifically addressing our 
proposal to extend the policies on extreme and uncontrollable 
circumstances to ACOs participating in the BASIC track. We are 
finalizing without modification our proposal to specify the policies 
regarding extreme and uncontrollable circumstances for the BASIC track 
in a new provision at Sec.  425.605(f). We are also finalizing without 
modification our proposal to apply Sec.  425.502(f) in calculating the 
quality performance score of BASIC track ACOs affected by extreme and 
uncontrollable circumstances.
    Additionally, we received no comments on our proposal to apply 
policies on reopening determinations of shared savings or shared losses 
to correct financial reconciliation calculations (Sec.  425.315) to 
ACOs in the BASIC track. Further, no comments addressed our proposal to 
apply the policies on the preclusion of administrative and judicial 
review (Sec.  425.800), and the reconsideration process (subpart I) to 
ACOs in the BASIC track. We are finalizing these policies as proposed 
and accordingly we are amending Sec. Sec.  425.315, and 425.800 to 
incorporate references to the new provision for the BASIC track at 
Sec.  425.605. We also received no comments addressing our proposal to 
revise Sec.  425.100, which includes a general description of ACOs that 
are eligible to receive payments for shared savings or that must share 
losses under the program, to incorporate references to the new 
provision for the BASIC track at Sec.  425.605, and we are finalizing 
the revisions as proposed.
b. Phase-In of Performance-Based Risk in the BASIC Track
(1) Background on Levels of Risk and Reward
    To qualify for shared savings, an ACO must have savings equal to or 
above its MSR, meet the minimum quality performance standards 
established under Sec.  425.502, and otherwise maintain its eligibility 
to participate in the Shared Savings Program (Sec. Sec.  425.604(a)(7), 
(b) and (c), 425.606(a)(7), (b) and (c), 425.610(a)(7), (b) and (c)). 
If an ACO qualifies for savings by meeting or exceeding its MSR, then 
the final sharing rate (based on quality performance) is applied to the 
ACO's savings on a first dollar basis, to determine the amount of 
shared savings up to the performance payment limit (Sec. Sec.  
425.604(d) and (e), 425.606(d) and (e), 425.610(d) and (e)).
    Under the current program regulations, an ACO that meets all of the 
requirements for receiving shared savings under the one-sided model can 
qualify to receive a shared savings

[[Page 67843]]

payment of up to 50 percent of all savings under its updated benchmark, 
as determined on the basis of its quality performance, not to exceed 10 
percent of its updated benchmark. A Track 2 ACO can potentially receive 
a shared savings payment of up to 60 percent of all savings under its 
updated benchmark, not to exceed 15 percent of its updated benchmark. A 
Track 3 ACO can potentially receive a shared savings payment of up to 
75 percent of all savings under its updated benchmark, not to exceed 20 
percent of its updated benchmark. The higher sharing rates and 
performance payment limits under Track 2 and Track 3 were established 
as incentives for ACOs to accept greater financial risk for their 
assigned beneficiaries in exchange for potentially higher financial 
rewards. (See 76 FR 67929 through 67930, 67934 through 67936; 80 FR 
32778 through 32779.)
    Under the current two-sided models of the Shared Savings Program, 
an ACO is responsible for sharing losses with the Medicare program when 
the ACO's average per capita Medicare expenditures for the performance 
year are above its updated benchmark costs for the year by at least the 
MLR established for the ACO (Sec. Sec.  425.606(b)(3), 425.610(b)(3)). 
For an ACO that is required to share losses with the Medicare program 
for expenditures over its updated benchmark, the shared loss rate (also 
referred to as the loss sharing rate) is determined based on the 
inverse of its final sharing rate, but may not be less than 40 percent. 
The loss sharing rate is applied to an ACO's losses on a first dollar 
basis, to determine the amount of shared losses up to the loss 
recoupment limit (also referred to as the loss sharing limit) 
(Sec. Sec.  425.606(f) and (g), 425.610(f) and (g)).
    In earlier rulemaking, we discussed considerations related to 
establishing the loss sharing rate and loss sharing limit for Track 2 
and Track 3. See 76 FR 67937 (discussing shared loss rate and loss 
sharing limit for Track 2) and 80 FR 32778 through 32779 (including 
discussion of shared loss rate and loss sharing limit for Track 3). 
Under Track 2 and Track 3, the loss sharing rate is determined as 1 
minus the ACO's final sharing rate based on quality performance, up to 
a maximum of 60 percent or 75 percent, respectively (except that the 
loss sharing rate may not be less than 40 percent for Track 3). This 
creates symmetry between the sharing rates for savings and losses. The 
40 percent floor on the loss sharing rate under both Track 2 and Track 
3 ensures comparability in the minimum level of performance-based risk 
that ACOs accept under these tracks. The higher ceiling on the loss 
sharing rate under Track 3 reflects the greater risk Track 3 ACOs 
accept in exchange for the possibility of greater reward compared to 
Track 2.
    Under Track 2, the limit on the amount of shared losses phases in 
over 3 years starting at 5 percent of the ACO's updated historical 
benchmark in the first performance year of participation in Track 2, 
7.5 percent in year 2, and 10 percent in year 3 and any subsequent 
year. Under Track 3, the loss sharing limit is 15 percent of the ACO's 
updated historical benchmark, with no phase-in. Losses in excess of the 
annual limit would not be shared.
    The level of risk under both Track 2 and Track 3 exceeds the 
Advanced APM generally applicable nominal amount standard under Sec.  
414.1415(c)(3)(i)(B) (set at 3 percent of the expected expenditures for 
which an APM Entity is responsible under the APM). CMS has determined 
that Track 2 and Track 3 meet the Advanced APM criteria under the 
Quality Payment Program, and are therefore Advanced APMs. Eligible 
clinicians that sufficiently participate in Advanced APMs such that 
they are QPs for a performance year receive APM Incentive Payments in 
the corresponding payment year between 2019 through 2024, and then 
higher fee schedule updates starting in 2026.
    The Track 1+ Model is testing whether combining the upside sharing 
parameters of the popular Track 1 with limited downside risk sufficient 
for the model to qualify as an Advanced APM will encourage more ACOs to 
advance to performance-based risk. The Track 1+ Model has reduced risk 
in two main ways relative to Track 2 and Track 3. First, losses under 
the Track 1+ Model are shared at a flat 30 percent loss sharing rate, 
which is 10 percentage points lower than the minimum quality-adjusted 
loss sharing rate used in both Track 2 and Track 3. Second, a 
bifurcated approach is used to set the loss sharing limit for a Track 
1+ Model ACO, depending on the ownership and operational interests of 
its ACO participants, as identified by TINs and CMS Certification 
Numbers (CCNs).
    The applicable loss sharing limit under the Track 1+ Model is 
determined based on whether the ACO includes an ACO participant (TIN/
CCN) that is an IPPS hospital, cancer center or a rural hospital with 
more than 100 beds, or that is owned or operated, in whole or in part, 
by such a hospital or by an organization that owns or operates such a 
hospital. If at least one of these criteria is met, then a potentially 
higher level of performance-based risk applies, and the loss sharing 
limit is set at 4 percent of the ACO's updated historical benchmark 
(described herein as the benchmark-based loss sharing limit). For the 
Track 1+ Model, this is a lower level of risk than is required under 
either Track 2 or Track 3, and greater than the Advanced APM generally 
applicable nominal amount standard under Sec.  414.1415(c)(3)(i)(B) for 
2018, 2019 and 2020. If none of these criteria is met, as may be the 
case with some ACOs composed of independent physician practices and/or 
ACOs that include small rural hospitals, then a potentially lower level 
of performance-based risk applies, and the loss sharing limit is 
determined as a percentage of the total Medicare Parts A and B FFS 
revenue of the ACO participants (described herein as the revenue-based 
loss sharing limit). For Track 1+ Model ACOs under a revenue-based loss 
sharing limit, in performance years 2018, 2019 and 2020, total 
liability for shared losses is limited to 8 percent of total Medicare 
Parts A and B FFS revenue of the ACO participants. If the loss sharing 
limit, as a percentage of the ACO participants' total Medicare Parts A 
and B FFS revenue, exceeds the amount that is 4 percent of the ACO's 
updated historical benchmark, then the loss sharing limit is capped and 
set at 4 percent of the updated historical benchmark. For performance 
years 2018 through 2020, this level of performance-based risk qualifies 
the Track 1+ Model as an Advanced APM under Sec.  414.1415(c)(3)(i)(A). 
In subsequent years of the Track 1+ Model, if the relevant percentage 
specified in the Quality Payment Program regulations changes, the Track 
1+ Model ACO would be required to take on a level of risk consistent 
with the percentage required in Sec.  414.1415(c)(3)(i)(A) for an APM 
to qualify as an Advanced APM.
    The loss sharing limit under this bifurcated structure is 
determined by CMS near the start of an ACO's agreement period under the 
Track 1+ Model (based on the ACO's application to the Track 1+ Model), 
and re-determined annually based on an annual certification process 
prior to the start of each performance year under the Track 1+ Model. 
The Track 1+ Model ACO's loss sharing limit could be adjusted up or 
down on this basis. See Track 1+ Model Fact Sheet at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/New-Accountable-Care-Organization-Model-Opportunity-Fact-Sheet.pdf for more detail.
    Since the start of the Shared Savings Program, we have heard a 
variety of concerns and suggestions from ACOs

[[Page 67844]]

and other program stakeholders about the transition from a one-sided 
model to performance-based risk (see discussion in section II.A.1. of 
this final rule). Through rulemaking, we developed a one-sided shared 
savings only model and extended the allowable time in this track to 
support ACOs' readiness to take on performance-based risk. As a result, 
the vast majority of Shared Savings Program ACOs have chosen to enter 
and remain in the one-sided model. Our early experience with the design 
of the Track 1+ Model demonstrates that the availability of a lower-
risk, two-sided model is effective to encourage a large cohort of ACOs 
to rapidly progress to performance-based risk.
(2) Levels of Risk and Reward in the BASIC Track's Glide Path
    In general, we proposed the following participation options within 
the BASIC track.
    First, we proposed the BASIC track's glide path as an incremental 
approach to higher levels of risk and potential reward. The glide path 
includes 5 levels: A one-sided model available only for the first 2 
consecutive performance years of a 5-year agreement period (Level A and 
B), each year of which is identified as a separate level; and three 
levels of progressively higher risk and potential reward in performance 
years 3 through 5 of the agreement period (Level C, D, and E). ACOs 
would be automatically advanced at the start of each participation year 
along the progression of risk/reward levels, over the course of a 5-
year agreement period, until they reach the track's maximum level of 
risk/reward (designed to be the same as the level of risk and potential 
reward as under the Track 1+ Model). The automatic advancement policy 
would not apply to the second performance year for an ACO entering the 
BASIC track's glide path for an agreement period beginning July 1, 
2019. Such an ACO would enter the BASIC track for its first performance 
year of July 1, 2019 through December 31, 2019, at its chosen level of 
the glide path. For performance year 2020, the ACO may remain in the 
same level of the BASIC track's glide path that it entered for the 
performance year (or 6-month performance period) beginning July 1, 
2019. The ACO would be automatically advanced to the next level of the 
BASIC track's glide path at the start of performance year 2021 and all 
subsequent performance years of the agreement period (see section 
II.A.7. of this final rule).
    We proposed that the participation options in the BASIC track's 
glide path would depend on an ACO's experience with the Shared Savings 
Program, as described in section II.A.5.c. of this final rule. ACOs 
eligible for the BASIC track's glide path that are new to the program 
would have the flexibility to enter the glide path at any one of the 
five levels. However, ACOs that previously participated in Track 1, or 
a new ACO identified as a re-entering ACO because more than 50 percent 
of its ACO participants have recent prior experience in a Track 1 ACO, 
would be ineligible to enter the glide path at Level A, thereby 
limiting their opportunity to participate in a one-sided model of the 
glide path. We also proposed ACOs would be automatically transitioned 
to progressively higher levels of risk and potential reward (if higher 
levels are available) within the remaining years of the agreement 
period. We proposed to allow ACOs in the BASIC track's glide path to 
more rapidly transition to higher levels of risk and potential reward 
within the glide path during the agreement period. As described in 
section II.A.4.b. of this final rule, ACOs in the BASIC track may 
annually elect to take on higher risk and potential reward within their 
current agreement period, to more rapidly progress along the glide 
path.
    Second, we proposed the BASIC track's highest level of risk and 
potential reward (Level E) may be elected for any performance year by 
ACOs that enter the BASIC track's glide path, but it will be required 
no later than the ACO's fifth performance year of the glide path (sixth 
performance year for eligible ACOs starting participation in Level A of 
the BASIC track on July 1, 2019). ACOs in the BASIC track's glide path 
that previously participated in Track 1, or new ACOs identified as re-
entering ACOs because more than 50 percent of their ACO participants 
have recent prior experience in a Track 1 ACO, would be eligible to 
begin in Level B, and therefore would be required to participate in 
Level E no later than the ACO's fourth performance year of the glide 
path (fifth performance year for ACOs starting participation in the 
BASIC track on July 1, 2019). The level of risk/reward under Level E of 
the BASIC track is also required for low revenue ACOs eligible to enter 
an agreement period under the BASIC track that are determined to be 
experienced with performance-based risk Medicare ACO initiatives 
(discussed in section II.A.5. of this final rule).
    We explained that designing a glide path to performance-based risk 
that concludes with the level of risk and potential reward offered 
under the Track 1+ Model balances ACOs' interest in remaining under 
lower-risk options with our goal of more rapidly transitioning ACOs to 
performance-based risk. The BASIC track's glide path offers a pathway 
through which ACOs inexperienced with performance-based risk Medicare 
ACO initiatives can participate under a one-sided model before entering 
relatively low levels of risk and asymmetrical potential reward for 
several years, concluding with the lowest level of risk and potential 
reward available under a current Medicare ACO initiative. As we stated 
in the August 2018 proposed rule (83 FR 41804), we believe the 
opportunity for eligible ACOs to participate in a one-sided model for 
up to 2 years (3 performance years, in the case of an ACO entering at 
Level A of the BASIC track's glide path on July 1, 2019) could offer 
new ACOs a chance to become experienced with the accountable care model 
and program requirements before taking on risk. The proposed approach 
also recognizes that ACOs that gained experience with the program's 
requirements during prior participation under Track 1, would need less 
additional time under a one-sided model before making the transition to 
performance-based risk. However, we also stated that the glide path 
should provide strong incentives for ACOs to quickly move along the 
progression towards higher performance-based risk, and therefore 
preferred an approach that significantly limits the amount of potential 
shared savings in the one-sided model years of the BASIC track's glide 
path, while offering incrementally higher potential reward in relation 
to each level of higher risk. Under this approach ACOs would have 
reduced incentive to enter or remain in the one-sided model of the 
BASIC track's glide path if they are prepared to take on risk, and we 
would anticipate that these ACOs would seek to accept greater 
performance-based risk in exchange for the chance to earn greater 
reward.
    As described in detail in this section, we proposed a similar 
asymmetrical two-sided risk design for the BASIC track as is available 
under the Track 1+ Model, with key distinguishing features based on 
early lessons learned from the Track 1+ Model. Unless indicated 
otherwise, we proposed that savings would be calculated based on the 
same methodology used to determine shared savings under the program's 
existing tracks (see Sec.  425.604). The maximum amount of potential 
reward under the BASIC track would be the same as the upside of Track 1 
and the Track 1+ Model. The methodology for determining shared losses 
would be a bifurcated approach similar to the approach used under the 
Track 1+

[[Page 67845]]

Model, as discussed in more detail elsewhere in this section. In all 
years under performance-based risk, we proposed to apply asymmetrical 
levels of risk and reward, where the maximum potential reward would be 
greater than the maximum level of performance-based risk.
    For the BASIC track's glide path, we proposed the phase-in schedule 
of levels of risk/reward by year would be as follows. This progression 
assumes an ACO enters the BASIC track's glide path under a one-sided 
model for 2 years and follows the automatic progression of the glide 
path through each of the 5 years of its agreement period.
    <bullet> Level A and Level B: Eligible ACOs entering the BASIC 
track would have the option of being under a one-sided model for up to 
2 consecutive performance years (3 consecutive performance years for 
ACOs that enter the BASIC track's glide path on July 1, 2019). As 
described elsewhere in this final rule, ACOs that previously 
participated in Track 1, or new ACOs identified as re-entering ACOs 
because more than 50 percent of their ACO participants have recent 
prior experience in a Track 1 ACO, would be ineligible to enter the 
glide path under Level A, although they could enter under Level B. 
Under this proposed one-sided model, a final sharing rate not to exceed 
25 percent based on quality performance would apply to first dollar 
shared savings for ACOs that meet or exceed their MSR. This sharing 
rate is one-half of the maximum sharing rate of 50 percent currently 
available under Track 1. Savings would be shared at this rate not to 
exceed 10 percent of the ACO's updated benchmark, consistent with the 
current policy for Track 1. For subsequent years, ACOs that wished to 
continue participating in the Shared Savings Program would be required 
to participate under performance-based risk.
    <bullet> Level C risk/reward:
    ++ Shared Savings: A final sharing rate not to exceed 30 percent 
based on quality performance would apply to first dollar shared savings 
for ACOs that meet or exceed their MSR, not to exceed 10 percent of the 
ACO's updated historical benchmark.
    ++ Shared Losses: A loss sharing rate of 30 percent regardless of 
the quality performance of the ACO would apply to first dollar shared 
losses for ACOs with losses meeting or exceeding their MLR, not to 
exceed 2 percent of total Medicare Parts A and B FFS revenue for ACO 
participants. If the loss sharing limit as a percentage of total 
Medicare Parts A and B FFS revenue for ACO participants exceeds the 
amount that is 1 percent of the ACO's updated historical benchmark, 
then the loss sharing limit would be capped and set at 1 percent of the 
ACO's updated historical benchmark for the applicable performance year. 
This level of risk is not sufficient to meet the generally applicable 
nominal amount standard for Advanced APMs under the Quality Payment 
Program specified in Sec.  414.1415(c)(3)(i).
    <bullet> Level D risk/reward:
    ++ Shared Savings: A final sharing rate not to exceed 40 percent 
based on quality performance would apply to first dollar shared savings 
for ACOs that meet or exceed their MSR, not to exceed 10 percent of the 
ACO's updated historical benchmark.
    ++ Shared Losses: A loss sharing rate of 30 percent regardless of 
the quality performance of the ACO would apply to first dollar shared 
losses for ACOs with losses meeting or exceeding their MLR, not to 
exceed 4 percent of total Medicare Parts A and B FFS revenue for ACO 
participants. If the loss sharing limit as a percentage of total 
Medicare Parts A and B FFS revenue for ACO participants exceeds the 
amount that is 2 percent of the ACO's updated historical benchmark, 
then the loss sharing limit would be capped and set at 2 percent of the 
ACO's updated historical benchmark for the applicable performance year. 
This level of risk is not sufficient to meet the generally applicable 
nominal amount standard for Advanced APMs under the Quality Payment 
Program specified in Sec.  414.1415(c)(3)(i).
    <bullet> Level E risk/reward: The ACO would be under the highest 
level of risk and potential reward for this track, which is the same 
level of risk and potential reward being tested in the Track 1+ Model. 
Further, ACOs that are eligible to enter the BASIC track, but that are 
ineligible to enter the glide path (as discussed in section II.A.5. of 
this final rule) would enter and remain under Level E risk/reward for 
the duration of their BASIC track agreement period.
    ++ Shared Savings: A final sharing rate not to exceed 50 percent 
based on quality performance would apply to first dollar shared savings 
for ACOs that meet or exceed their MSR, not to exceed 10 percent of the 
ACO's updated historical benchmark. This is the same level of potential 
reward currently available under Track 1 and the Track 1+ Model.
    ++ Shared Losses: A loss sharing rate of 30 percent regardless of 
the quality performance of the ACO would apply to first dollar shared 
losses for ACOs with losses meeting or exceeding their MLR. The 
percentage of ACO participants' total Medicare Parts A and B FFS 
revenue used to determine the revenue-based loss sharing limit would be 
set for each performance year consistent with the generally applicable 
nominal amount standard for an Advanced APM under Sec.  
414.1415(c)(3)(i)(A) to allow eligible clinicians participating in a 
BASIC track ACO subject to this level of risk the opportunity to earn 
the APM incentive payment and ultimately higher fee schedule updates 
starting in 2026, in the payment year corresponding to each performance 
year in which they attain QP status. For example, for performance years 
2019 and 2020, this would be 8 percent. However, if the loss sharing 
limit, as a percentage of the ACO participants' total Medicare Parts A 
and B FFS revenue exceeds the expenditure-based nominal amount 
standard, as a percentage of the ACO's updated historical benchmark, 
then the loss sharing limit would be capped at 1 percentage point 
higher than the expenditure-based nominal amount standard specified 
under Sec.  414.1415(c)(3)(i)(B), which is calculated as a percentage 
of the ACO's updated historical benchmark. For example, for performance 
years 2019 and 2020, the expenditure-based nominal amount standard is 3 
percent; therefore, the loss sharing limit for Level E of the BASIC 
track in these same years would be 4 percent of the ACO's updated 
historical benchmark. The proposed BASIC track at Level E risk/reward 
would meet all of the Advanced APM criteria and would be an Advanced 
APM. (See Table 3 and related notes for additional information and an 
overview of the Advanced APM criteria.)
    This approach initially maintains consistency between the level of 
risk and potential reward offered under Level E of the BASIC track and 
the popular Track 1+ Model. This proposed approach to determining the 
maximum amount of shared losses under Level E of the BASIC track 
strikes a balance between (1) placing ACOs under a higher level of risk 
to recognize the greater potential reward under this financial model 
and the additional tools and flexibilities available to BASIC track 
ACOs under performance-based risk and (2) establishing an approach to 
help ensure the maximum level of risk under the BASIC track remains 
moderate. Specifically, this proposed approach differentiates the level 
of risk and potential reward under Level E compared to Levels C and D 
of the BASIC track, by requiring greater risk in

[[Page 67846]]

exchange for the greatest potential reward under the BASIC track, while 
still offering more manageable levels of benchmark-based risk than 
currently offered under Track 2 (in which the loss sharing limit phase-
in begins at 5 percent of the ACO's updated benchmark) and Track 3 (15 
percent of the ACO's updated benchmark). Further, this approach 
recognizes that eligible ACOs in Level E have the opportunity to earn 
the greatest share of savings under the BASIC track, and should 
therefore be accountable for a higher level of losses, particularly in 
light of their access to tools for care coordination and beneficiary 
engagement, including the ability of participating physicians and 
practitioners to furnish telehealth services in accordance with 1899(l) 
of the Act, the SNF 3-day rule waiver (as discussed in section II.B. of 
this final rule), and the opportunity to implement a CMS-approved 
beneficiary incentive program (as discussed in section II.C. of this 
final rule).
    We proposed that ACOs entering the BASIC track's glide path would 
be automatically advanced along the progression of risk/reward levels, 
at the start of each performance year over the course of the agreement 
period (except at the start of performance year 2020 for ACOs that 
start in the BASIC track on July 1, 2019), until they reach the track's 
maximum level of risk and potential reward. As discussed in section 
II.A.4.b. of this final rule, BASIC track ACOs in the glide path would 
also be permitted to elect to advance more quickly to higher levels of 
risk and potential reward within their agreement period. The longest 
possible glide path would be 5 performance years for eligible new ACOs 
entering the BASIC track (6 performance years for ACOs beginning their 
participation in the BASIC track on July 1, 2019). The maximum allowed 
time in Levels A, B, C and D of the glide path would be one performance 
year (with the exception that ACOs beginning their participation in the 
BASIC track on July 1, 2019, would have the option to remain at their 
chosen level of risk and potential reward for their first 2 performance 
years in the BASIC track). Once the highest level of risk and potential 
reward is reached on the glide path (Level E), ACOs would be required 
to remain under the maximum level of risk/reward for all subsequent 
years of participation in the BASIC track, which includes all years of 
a subsequent agreement period under the BASIC track for eligible ACOs. 
Further, an ACO within the BASIC track's glide path could not elect to 
return to lower levels of risk and potential reward, or to the one-
sided model, within an agreement period under the glide path.
    To participate under performance-based risk in the BASIC track, an 
ACO would be required to establish a repayment mechanism and select a 
MSR/MLR to be applicable for the years of the agreement period under a 
two-sided model (as discussed in section II.A.6. of this final rule). 
We proposed that an ACO that is unable to meet the program requirements 
for accepting performance-based risk would not be eligible to enter 
into a two-sided model under the BASIC track. If an ACO enters the 
BASIC track's glide path in a one-sided model and is unable to meet the 
requirements to participate under performance-based risk prior to being 
automatically transitioned to a performance year under risk, CMS would 
terminate the ACO's agreement under Sec.  425.218. For example, if an 
ACO is participating in the glide path in Level B and is unable to 
establish an adequate repayment mechanism before the start of its 
performance year under Level C, the ACO would not be permitted to 
continue its participation in the program.
    In section II.A.5.c. of this final rule, we describe our proposed 
requirements for determining an ACO's eligibility for participation 
options in the BASIC track and ENHANCED track based on a combination of 
factors: ACO participants' Medicare FFS revenue (low revenue ACOs 
versus high revenue ACOs) and the experience of the ACO legal entity 
and its ACO participants with performance-based risk Medicare ACO 
initiatives. Tables 7 and 8 summarize the participation options 
available to ACOs under the BASIC track and ENHANCED track. As with 
current program policy, an ACO would apply to enter an agreement period 
under a specific track. If the ACO's application is accepted, the ACO 
would remain under that track for the duration of its agreement period.
    We proposed to codify these policies in a new section of the Shared 
Savings Program regulations governing the BASIC track, at Sec.  
425.605. We sought comment on these proposals.
    Further, in section II.A.5.b.(3) of the August 2018 proposed rule 
(83 FR 41819 through 41820), we described and sought comment on several 
approaches to allowing for potentially greater access to shared savings 
for low revenue ACOs compared to high revenue ACOs. We explained that 
low revenue ACOs (identified as proposed using a threshold of 25 
percent of Medicare Parts A and B FFS expenditures for assigned 
beneficiaries), which may tend to be small, physician-only and rural 
ACOs, are likely less capitalized organizations and may be relatively 
risk-averse. These ACOs may be encouraged to participate and remain in 
the program under performance-based risk based on the availability of 
additional incentives, such as the opportunity to earn a greater share 
of savings. Therefore, we considered allowing for a relatively higher 
final sharing rate under the first four levels of the BASIC track's 
glide path for low revenue ACOs. For example, rather than the proposed 
approach under which the final sharing rate would phase in from a 
maximum of 25 percent in Level A to a maximum of 50 percent in Level E, 
we could allow a maximum 50 percent sharing rate based on quality 
performance to be available at all levels within the BASIC track's 
glide path for low revenue ACOs.
    Comment: Generally, many commenters understood and agreed with the 
need to introduce the BASIC track's five level glide path (with the two 
year limit in a one-sided model and automatic advancement to 
incremental risk each of the remaining 3 years) as an incremental 
approach to higher levels of risk and reward. A few commenters 
appreciated CMS' effort to simplify the participation options and 
establish a clear streamlined glide path to risk-bearing models. They 
agreed that 2017 Shared Savings Program results confirm that ACO 
performance improves with longer participation in the program, and 
encouraged CMS to provide accurate and timely reporting and carefully 
monitor these efforts to support their continued growth and 
improvement. Another noted that the proposed approach provided a clear 
and consistent pathway for participants and prospective enrollees to 
understand their journey to risk. One commenter noted that CMS' 
redesign of the program and addition of the new BASIC track is an 
approach that factors in ACOs' revenue and experience and will provide 
greater stability and predictability and help more health care 
providers benefit from qualifying as participating in Advanced APMs 
under the Quality Payment Program. One commenter was encouraged to see 
that through this rule, CMS is advancing opportunities in two-sided 
risk ACOs because it has seen firsthand the type of care transformation 
that is possible when organizations participate in performance-based 
risk to improve population health. The commenter was also pleased with 
CMS' commitment to waiving and modifying certain burdensome program 
rules for

[[Page 67847]]

organizations that are engaged in increasing levels of financial risk. 
Another commenter generally agreed with CMS' redesign proposal, noting 
that, although it may reduce the number of ACOs in the program, those 
that remain would be more likely to control expenditures for the 
Medicare program and make real efforts to improve care. The commenter 
added that the goal of the Shared Savings Program should be to create 
the conditions that will reward efficient ACOs that can create real 
value for the Medicare program, its beneficiaries, and the taxpayers, 
not to maximize the number of ACOs. Another commenter noted CMS likely 
moderated any concerns of ACOs leaving the program by incorporating 
other policy changes and flexibilities in the proposed rule, such as 
refining the benchmarking methodology, allowing for risk adjustment 
each performance year, adjusting patient attribution methodology, and 
establishing flexibility for low revenue ACOs.
    However, a majority of commenters were opposed to limiting the 
amount of time an ACO can participate under a one-sided model from six 
to two years (because, for example, it dramatically decreases the time 
in which an ACO can build capital reserves for a repayment mechanism) 
and provided suggestions for CMS to adopt a more gradual approach to 
risk. Many commenters did not want us to discontinue Track 1 (as 
detailed in section II.A.2 of this final rule) and would prefer that we 
provide for an upside-only track. Some commenters expressed that it 
makes sense to push hospital-led ACOs into risk, but stated that there 
is no compelling case that risk is necessary for physician-led ACOs. 
One commenter, a physician-led ACO, added that requiring it to 
automatically advance to performance-based risk would cause it to face 
the prospect of bankrupting its organization. We received numerous 
comments from rural ACOs to extend the allotted time period in which a 
rural ACO can participate in an upside-only arrangement in the BASIC 
track. Some of those commenters noted that certain ACO participants, 
such as FQHCs, RHCs, and CAHs, provide care to some of the most 
underserved communities and require additional time and investments to 
prepare for two-sided risk arrangements.
    Most commenters provided recommendations for CMS to extend the time 
any ACO can participate in a one-sided model to three years, as opposed 
to two, stating that it takes longer than two participation years to 
implement meaningful changes in a healthcare delivery model and among 
healthcare provider and patient populations. Other commenters believe 
that the progression to two-sided risk is far too aggressive and will 
deter participation. These commenters usually suggested allowing for 4 
or 5 performance years (or a full agreement period) under a one-sided 
model. Some commenters suggested that rural ACOs should be allowed at 
least two, 5-year agreement periods under a one-sided model.
    Response: We appreciate the comments, but we continue to believe 
that the proposed transition to two-sided risk under the design of the 
BASIC track's glide path will promote a competitive and accountable 
marketplace, while improving the quality of care for Medicare 
beneficiaries.
    We disagree with commenters' suggestions to allow all ACOs or 
select ACOs (for example, based on their geographic location, 
historical cost or provider composition) to remain under the one-sided 
model for an extended time or even indefinitely. We believe such a 
policy design would, at best, maintain the status quo of the program, 
and therefore continue a pattern where ACOs are allowed to remain under 
the one-sided model for a significant number of years without strong 
incentives to become accountable for the cost and quality of care for 
their assigned populations. As described in the Regulatory Impact 
Analysis (see section V of this final rule), our results have shown 
that ACOs in two-sided models perform better over time than one-sided 
model ACOs. At the same time, while some ACOs have taken on significant 
downside risk and shown significant savings to the Medicare program 
while advancing quality, a majority of ACOs--while having the ability 
to benefit from waivers of certain federal rules and requirements--have 
yet to move to any downside risk. Generally, these ACOs are increasing 
Medicare spending compared to their benchmarks, and the presence of an 
``upside-only'' track may be encouraging consolidation in the 
marketplace, reducing competition and beneficiary choice. The 
combination of six years of upside-only risk and the ability to benefit 
from significant waivers available in the program may also be leading 
to the formation of one-sided ACOs that are not making serious efforts 
to improve quality and reduce spending, potentially crowding out 
formation of more effective ACOs. Thus, we continue to believe that 
Medicare FFS beneficiaries and the Trust Funds would be better 
protected by the progression of eligible ACOs from a one-sided model to 
two-sided models within the span of a five-year agreement period under 
the BASIC track's glide path.
    However, we understand that this requirement may pose an additional 
financial burden, particularly for rural or physician-led ACOs, many of 
which would be considered low revenue ACOs under the proposed rule. We 
also continue to believe that the move to two-sided risk will encourage 
low revenue ACOs, typically small, rural and physician-only ACOs, to 
more aggressively pursue the program's goals of improving quality of 
care, and lowering growth in expenditures, for Medicare FFS 
beneficiaries. Therefore, as discussed in greater detail in section 
II.A.5.c of this final rule, we are finalizing an approach that will 
permit ACO legal entities without prior experience in the Shared 
Savings Program that are identified as low revenue ACOs and 
inexperienced with performance-based risk Medicare ACO initiatives to 
stay in a one-sided model of the BASIC track's glide path for an 
additional performance year. Under this approach eligible ACOs will 
have the opportunity to participate for up to 3 performance years (or 4 
performance years in the case of ACOs entering an agreement period 
beginning on July 1, 2019) under a one-sided model of the BASIC track's 
glide path before automatically advancing to Level E of the BASIC track 
for the remaining performance years of their agreement period. We 
believe that this option, in part, addresses commenters' concerns and 
suggestions for a relatively gentler glide path to two-sided risk for 
small, rural and physician-only ACOs that are likely to qualify as low 
revenue ACOs, and supports continued participation of these ACOs in the 
Shared Savings Program. For instance, we believe that this option 
provides an opportunity for new, low revenue ACOs to become more 
experienced with the Shared Savings Program's requirements and the 
accountable care model, and to potentially realize savings, to support 
their participation in performance-based risk. In light of this 
additional flexibility that we are making available for new legal 
entities that qualify as low revenue ACOs inexperienced with 
performance-based risk Medicare ACO initiatives, we decline to adopt 
any other alternatives suggested by commenters that would allow for 
lower risk participation options for rural or physician-led ACOs.
    Comment: We received numerous comments concerning our proposal to 
set the final sharing rate for the one-sided model not to exceed 25 
percent based on quality performance that applies to first dollar 
shared savings for

[[Page 67848]]

ACOs that meet or exceed their MSR. One commenter stated that although 
a 25 percent sharing rate under Levels A and B of the BASIC track is 
not worth the ACO's continued participation in the program, the 
commenter contended that it is the right thing to do in order to 
continue to innovate primary care in the medical community.
    Most commenters had concerns about reducing the shared savings rate 
from 50 percent (as currently available under Track 1) to 25 percent 
for ACOs in Levels A and B of the BASIC track, asserting that doing so 
would deter new entrants from applying to the Shared Savings Program 
and undermine the business case to join the Shared Savings Program. 
Some contended that, due to the sizeable investment that ACOs make (for 
example, one ACO reportedly spent almost $2 million a year, on average, 
including investments made in health information technology, population 
health management and ACO administration), it is imperative that the 
opportunity for return on investment is realistic enough for the 
business model to be attractive, retain current ACO participants, and 
bring in new ACOs. One commenter stated that the reduction in sharing 
rates would result in challenges with provider/supplier buy-in, which 
has been crucial to the success of the commenter's ACOs. The commenter 
further contended that many physicians value the Shared Savings 
Program's emphasis on quality of care as a result of collaborative 
efforts across practices. Another commenter stated that the impact of 
increased financial pressure will cause ACOs to inappropriately focus 
on reducing costs over achieving high-quality outcomes, and 
consequently put beneficiaries' access to medical care at risk. One 
commenter contended there is a low likelihood that a newly formed ACO 
will achieve shared savings in the early years of its operations.
    Some commenters noted that clinicians and physician-led practices 
seeking to start or join an ACO must make significant practice changes 
and investments to position themselves for success in the program. One 
commenter noted that for independent physicians, the potential reward 
for making these changes must be high enough to justify initial 
infrastructure costs, as well as ongoing investments in staff and other 
resources needed for population health management and that the proposed 
25 percent savings rate would deter these participants and ACOs from 
joining the Shared Savings Program. Some commenters explained a 
reduction in potential savings will greatly impact low revenue, 
physician-led ACOs, and could end up forcing these ACOs from the 
program.
    Most commenters proposed an increased maximum shared savings rate 
under Levels A and B of the BASIC track ranging from 40 to 80 percent, 
with a majority requesting a 50 percent shared savings rate. One of 
these commenters also suggested an incremental upwards adjustment of 
the shared savings rate up to 10 percentage points (from 50 percent) 
based on quality to emphasize and reward above average quality 
performance or improvement. Some commenters recommended that CMS offer 
a higher sharing rate to support ACOs, especially physician-led and low 
revenue ACOs with more limited capital reserves. Some commenters 
suggested that CMS provide higher sharing rates for all levels of the 
BASIC track's glide path, for instance beginning at 50 percent (Level A 
and B), progressing to 55 percent for Levels C and D, and reaching 60 
percent in Level E.
    We also received numerous comments from rural ACOs stating that 
rural ACOs lack the resources to take on risk (including capital 
reserves necessary for required repayment mechanisms) and that the 
proposed 25 percent final sharing rate under Levels A and B of the 
BASIC track is not worth the risk of joining the program and will drive 
most of these ACOs from the program. Many noted that they operate on 
tight budgets and with limited human and capital resources while 
providing care for a sicker and older Medicare population than urban 
providers. Thus, they assert that CMS should create a glide path 
specifically for rural ACOs. One commenter noted that rural ACOs 
predominantly made up of Critical Access Hospitals (CAHs) are not in a 
position to take on downside risk given the inherent volatility in 
cost-based reimbursement, and the proposal would force these rural ACOs 
to exit the Shared Savings Program, resulting in these ACOs no longer 
having access to useful information such as beneficiary-level claims 
data and reducing the value of significant investments these ACOs have 
made (to date) to redesign rural healthcare delivery. Thus, the 
commenter asserted that CMS' proposal failed to provide a viable 
alternative for APM participation for rural ACOs.
    Instead, these commenters proposed several alternatives for CMS to 
provide an exception specifically for rural ACOs to receive an 
increased final sharing rate under the BASIC track. One commenter was 
generally supportive of the proposed BASIC track, but proposed that CMS 
provide a no-downside risk option for rural providers due to their cost 
of operations. Additionally, many commenters requested that CMS develop 
a third Track for rural ACOs. Similarly, another commenter believed 
that CMS should develop a more gradual pathway to increased levels of 
financial risk for low revenue ACOs, specifically those composed of 
FQHCs. Several commenters suggested that CMS should consider all rural 
ACOs to be low revenue ACOs and maintain the 50 percent shared savings 
rate for them each year under the BASIC track. Another commenter 
proposed that ACOs comprised solely of safety net providers should be 
allowed to participate in Level A of the BASIC track with 50 percent 
shared savings indefinitely as long as they improve quality and do not 
increase costs.
    One commenter, representing the perspective of a hospital-based 
ACO, explained it had grave concerns about allowing higher shared 
savings rates (such as 50 percent) for only low revenue ACOs for all 
years in the BASIC track (an approach we sought comment on in the 
August 2018 proposed rule), viewing this approach as giving low revenue 
ACOs a competitive advantage over high revenue ACOs. This commenter 
indicated that this approach would discourage high revenue ACOs, which 
the commenter argued are best situated to achieve savings for Medicare.
    Response: We appreciate the wide range of comments requesting or 
suggesting adjustments to specific policies so that an ACO could share 
in a higher level of savings than what was proposed for the BASIC 
track's glide path: 25 percent sharing rate for Levels A and B, 30 
percent sharing rate for Level C, 40 percent sharing rate for Level D, 
and 50 percent sharing rate for Level E. Initially, we decided to 
propose a 25 percent sharing rate under Levels A and B of the BASIC 
track because the 25 percent sharing rate is one-half of the maximum 
sharing rate of 50 percent currently available under Track 1. As an ACO 
transitioned to performance-based risk, and then continued to undertake 
greater risk by advancing through the glide path, the sharing rate 
would incrementally increase to 50 percent under Level E. However, 
generally, we are persuaded by the expressed views that the reward-to-
risk ratio for participating in the program as proposed is generally 
unattractive to ACOs, and agree with commenters that an alternative 
policy featuring more generous sharing rates would attract and sustain 
broader participation in the Shared Savings Program. We believe that 
increasing the maximum sharing rates will strike a better balance 
between robust participation and incentivizing

[[Page 67849]]

the move to two-sided risk. We decided to increase the maximum sharing 
rate to 50 percent for Levels C through E of the BASIC track to 
correspond with the gradual increase in risk as the ACO advances on the 
glide path. We understand the commenters' concerns that the reduction 
in the maximum sharing rate could pose a financial hardship for ACOs by 
reducing shared savings payments that could support operational costs, 
and thus, the policy could be a potential barrier to the formation of 
and continued success of ACOs. We agree that financial rewards must be 
sufficient to offset provider risks and startup-costs, particularly for 
low revenue ACOs (which tend to be small, rural and physician-only 
ACOs). We also agree with commenters that the same shared savings rates 
should apply consistently across ACOs participating in a particular 
level of the BASIC track's glide path, rather than differentiating the 
shared savings rates based on the distinction between low revenue ACOs 
and high revenue ACOs. Therefore, we also decline to apply different 
shared savings rates to ACOs within the same Level of the BASIC track's 
glide path, based on other factors, such as composition, as suggested 
by some commenters.
    Thus, we are modifying our proposal and finalizing higher maximum 
sharing rates for ACOs participating in the BASIC track as a means of 
encouraging participation in the program and potentially providing 
greater resources to ACOs to support their transition to performance-
based risk. We are finalizing an approach to allow for a maximum shared 
savings rate of 40 percent for Levels A and B and 50 percent for Levels 
C, D, and E.
    Comment: We received a few comments opposing our proposal to 
automatically transition ACOs to progressively higher levels of risk 
and potential reward (if higher levels are available) within the 
remaining years of the agreement period under the BASIC track's glide 
path. One commenter urged CMS to consider allowing high performing ACOs 
more than a year in limited risk tracks, such as Levels C and D of the 
BASIC track, and that CMS could outline parameters for successful ACOs 
to continue in a particular level prior to automatic advancing to 
another level, such as achieving shared savings or meeting quality 
goals.
    Response: As stated in the November 2011 final rule (76 FR 19534), 
we continue to believe that the Shared Savings Program should provide 
an entry point for all willing organizations that wish to move in a 
direction of providing value-driven healthcare. We also continue to 
believe in the importance of encouraging ACOs to progress to greater 
performance-based risk to drive quality improvement and efficiency in 
care delivery. Doing otherwise could encourage ACOs to remain under a 
one-sided model, or under comparatively low levels of performance-based 
risk, without strong incentives to become accountable for the cost and 
quality of care for their assigned populations. We also note that some 
commenters (as summarized elsewhere in this final rule) agreed with 
CMS' emphasis on the importance of two-sided risk as a driver of more 
meaningful change. For this reason, we decline the commenters' 
suggestion to forgo the automatic advancement policy to progress 
eligible ACOs through the levels of risk and potential reward of the 
BASIC track's glide path, or to create a policy where we evaluate and 
determine whether each individual ACO will be required to enter higher 
levels of performance-based risk. We are finalizing our proposed 
approach to require automatic advancement along the BASIC track's glide 
path, although we note we are finalizing a modification to allow new 
legal entities that are low revenue ACOs and inexperienced with 
performance-based risk Medicare ACO initiatives the option to forgo 
automatic advancement to Level C to remain in Level B for an additional 
performance year, and then be automatically advanced to Level E.
    Comment: Generally, most commenters supported the design of Levels 
C and D of the BASIC track, stating that they would create new 
opportunities for ACOs to experiment with downside risk. One commenter 
believed that the creation of Levels C and D of the BASIC track would 
empower healthcare providers to move to risk and create a ladder for 
ACOs to becoming an Advanced APM. However, as previously summarized in 
this section of the final rule, several commenters expressed concern 
about the proposed 30 percent shared savings rate in Level C of the 
BASIC track and 40 percent shared savings rate in Level D of the BASIC 
track and offered a variety of alternative maximum shared savings rates 
that they believed would incentivize ACOs to remain in the program and 
take on risk. Other commenters suggested additional changes to the 
design of Levels C and D. For example, one commenter recommended that 
Levels C and D of the BASIC track should include a shared savings rate 
of 80 percent balanced by an increase in shared risk levels to meet 
Advanced APM criteria. Another commenter suggested that advancement on 
the glide path should be optional, Levels C and D of the BASIC track 
could include a 50 percent shared savings rate, and if providers do not 
transition to greater risk within a set time period, the shared savings 
rate would decrease to 25 percent savings rate or lower.
    Response: As we previously discussed in this section of this final 
rule, after considering the commenters' suggestions for adjusting the 
shared savings rates for ACOs participating in Levels A through D of 
the BASIC track, we are modifying our proposal to allow for first 
dollar savings at a rate of up to 50 percent based on quality 
performance, not to exceed 10 percent of updated benchmark, for all 
ACOs participating in Level C and Level D of the BASIC track. 
Therefore, we decline to adopt the commenters' alternative suggestions. 
Namely, we decline to establish additional levels within the BASIC 
track's glide path (other than Level E) that qualify as an Advanced 
APM. We believe that ACOs that are ready for higher levels of risk and 
reward should transition more rapidly to Level E of the BASIC track, or 
to the ENHANCED track, which qualify as Advanced APMs. Further, we 
decline to establish a policy that would allow ACOs to forgo the 
transition to higher levels of risk and potential reward in exchange 
for incrementally decreasing shared savings rates. We believe this 
could create a circumstance where poorly performing ACOs seek to 
continue their participation under relatively lower risk while taking 
advantage of other aspects of program participation. We believe that a 
policy to forgo the transition to higher levels of risk would 
effectively maintain the status quo of the program and would eliminate 
any incentive for many ACOs to transition to meaningful levels of 
performance-based risk.
    Comment: Many commenters supported the permanent inclusion of the 
Track 1+ Model equivalent, Level E of the BASIC track, in the Shared 
Savings Program. A commenter stated that it is an important option for 
ACOs assuming downside financial risk and allows loss sharing limits 
similar to those for Advanced APMs in the Quality Payment Program. A 
few commenters were concerned about the level of risk and shared 
savings rates associated with Level E of the BASIC track. Commenters 
recommended a variety of shared savings rates for Level E, ranging from 
55 to 100 percent. For example, several commenters proposed that CMS 
change the final shared savings rate to 60 percent with a goal of 75 
percent shared savings based on quality performance

[[Page 67850]]

and other program criteria. Another commenter recommended that CMS set 
the maximum shared savings rate at 100 percent, particularly as the 
Next Generation ACO Model sunsets.
    Response: We thank commenters for their support of the proposal to 
offer the level of risk and potential reward under the proposed Level E 
of the BASIC track, which is the same as level of risk and potential 
reward under the popular Track 1+ Model and would meet all of the 
Advanced APM criteria to be an Advanced APM under the Quality Payment 
Program. We believe there is sufficient reward in Level E as proposed, 
since in addition to the shared savings potential of this financial 
model, an ACO's eligible clinicians may be eligible for incentive 
payments under the Quality Payment Program because of the ACO's 
participation in an Advanced APM. Therefore, we decline to increase the 
50 percent shared savings rate under Level E of the BASIC track based 
on commenters' suggestions. We believe that allowing more manageable 
levels of risk and moderate levels of potential reward under Level E 
within the Shared Savings Program will be an important pathway for 
helping organizations gain experience with performance-based risk while 
participating in Advanced APMs for purposes of the Quality Payment 
Program.
    Comment: Several commenters suggested that the level of risk 
associated with Level E of the BASIC track should be the nominal risk 
standard under MACRA and consistent with Quality Payment Program 
standards. The commenters suggested that CMS decrease the benchmark-
based level of risk under Level E to be the expenditure-based nominal 
amount standard rather than the proposal to set the level of maximum 
losses as 1 percentage point higher than the expenditure-based nominal 
amount standard. For example, to reduce the percentage from 4 percent 
of updated benchmark (proposed approach) to 3 percent. One commenter 
stated that setting the benchmark-based level of risk at 4 percent 
rather than 3 percent would disproportionately affect ACOs with 
hospital participants and subject them to additional risk. A few other 
commenters noted that CMS did not provide a rationale for setting the 
benchmark-based loss limit at the nominal standard plus one percentage 
point. One commenter suggested that aligning the loss sharing limit 
with the MACRA standard would create alignment between the Quality 
Payment Program and Shared Savings Program. Finally, one commenter 
noted that, to enable participation and set ACOs up for success, CMS 
should rely on a revenue-based risk structure and that any expenditure-
based nominal risk amount should be kept low to avoid placing 
physician-led and low revenue ACOs at a disadvantage.
    Response: After reviewing the commenter's concerns, we decline to 
align the benchmark-based loss sharing limit for Level E with the 
expenditure-based nominal amount standard for APM models established 
under the Quality Payment Program. As we explained in the August 2018 
proposed rule, our proposal maintains consistency between the level of 
risk and potential reward offered under Level E and the Track 1+ Model 
(83 FR 41805). We believe the level of risk and potential reward 
proposed in Level E, which would provide more limited downside risk 
than is currently present in Tracks 2 and 3, offers ACOs the 
opportunity to participate and gain experience with more limited 
performance-based risk. Our experience, with 55 ACOs choosing to 
participate the first year the Track 1+ Model was available, suggests 
that this approach will encourage ACOs, especially small, rural and 
physician-only ACOs, to advance to performance-based risk and provide a 
viable on-ramp for ACOs to assume greater amounts of risk in the 
future.
    Comment: A majority of commenters supported CMS' proposal to use a 
revenue-based approach to calculate ACO loss sharing limits and the 
proposal to cap and set the loss sharing limits at a percentage of an 
ACO's updated historical benchmark. One commenter commended CMS for 
recognizing that ACOs differ significantly in their ability to accept 
financial risk and for including limits on downside risk based on a 
percentage of the ACO participants' revenue, not just as a percentage 
of Medicare spending.
    Response: We thank commenters for their support of the proposal to 
offer a relatively lower level of performance-based risk under the 
BASIC track, calculated as a percentage of ACO participants' total 
Medicare Parts A and B FFS revenue not to exceed an amount that is a 
percentage of the ACO's updated historical benchmark.
    Comment: Some commenters encouraged CMS to retain use of quality 
scores in the shared loss methodology calculation as a part of the 
BASIC track. These commenters believe that improved quality for 
Medicare beneficiaries has always been a cornerstone of the program and 
should continue to be a vital part of both shared savings and shared 
losses calculations. Another commenter was concerned that CMS' decision 
not to apply quality measure performance to the loss rate under the 
BASIC track sends the wrong message to providers about the importance 
of quality measurement and performance. The commenter believes that CMS 
should apply a sliding scale quality measure adjustment to the loss 
rate to minimize the repayment by ACOs that are able to achieve high-
quality outcomes.
    Response: We are declining to include quality scoring in the loss 
calculation methodology for the two-sided models under the BASIC track. 
Under the Track 1+ Model, we established a fixed 30 percent loss 
sharing rate, which is lower than the loss sharing rate, based on 
quality performance, under Track 2 and the ENHANCED track, which is at 
least 40 percent. We designed the BASIC track's glide path to gradually 
introduce ACOs to greater risk and reward and all ACOs are eventually 
expected to move to the ENHANCED track where the loss sharing rate will 
include adjustments for quality performance. Quality performance is 
important to the program and the design of the financial model is not 
meant in any way to compromise the goal of improving quality, which is 
integrally related to the potential upside in all levels of the BASIC 
track. We believe that the lower, fixed loss sharing rate provides a 
more manageable level of risk for ACOs transitioning to risk in the 
BASIC track.
    Final Action: After considering the comments we received, we are 
finalizing with modifications our proposal to codify policies in a new 
section of the Shared Savings Program regulations governing the BASIC 
track, at Sec.  425.605. Specifically, we are finalizing the BASIC 
track's glide path with five levels. For each PY starting after January 
1, 2020, ACOs in the glide path will be automatically progressed to the 
next level of the glide path. ACOs eligible for the glide path that 
have not participated in the Shared Savings Program previously, and 
that are not regarded as re-entering ACOs related to the prior 
participation of their ACO participants, can enter the glide path at 
any Level. ACOs that previously participated in Track 1, or a new ACO 
identified as a re-entering ACO because more than 50 percent of its ACO 
participants have recent prior experience in a Track 1 ACO, would be 
ineligible to enter the glide path at Level A but would be eligible to 
begin in Level B.
    We are modifying our proposed maximum shared savings rates and are 
finalizing shared savings rates of 40 percent for Levels A and B and 50

[[Page 67851]]

percent for Levels C, D, and E of the BASIC track. We are finalizing as 
proposed the methodology for determining shared losses for Levels C, D, 
and E, as follows:

    <bullet> Level C: A loss sharing rate of 30 percent regardless 
of the quality performance of the ACO would apply to first dollar 
shared losses for ACOs with losses meeting or exceeding their MLR, 
not to exceed 2 percent of total Medicare Parts A and B FFS revenue 
for ACO participants. If the loss sharing limit as a percentage of 
total Medicare Parts A and B FFS revenue for ACO participants 
exceeds the amount that is 1 percent of the ACO's updated historical 
benchmark, then the loss sharing limit would be capped and set at 1 
percent of the ACO's updated historical benchmark for the applicable 
performance year. This level of risk is not sufficient to meet the 
generally applicable nominal amount standard for Advanced APMs under 
the Quality Payment Program specified in Sec.  414.1415(c)(3)(i).
    <bullet> Level D: A loss sharing rate of 30 percent regardless 
of the quality performance of the ACO would apply to first dollar 
shared losses for ACOs with losses meeting or exceeding their MLR, 
not to exceed 4 percent of total Medicare Parts A and B FFS revenue 
for ACO participants. If the loss sharing limit as a percentage of 
total Medicare Parts A and B FFS revenue for ACO participants 
exceeds the amount that is 2 percent of the ACO's updated historical 
benchmark, then the loss sharing limit would be capped and set at 2 
percent of the ACO's updated historical benchmark for the applicable 
performance year. This level of risk is not sufficient to meet the 
generally applicable nominal amount standard for Advanced APMs under 
the Quality Payment Program specified in Sec.  414.1415(c)(3)(i).
    <bullet> Level E: A loss sharing rate of 30 percent regardless 
of the quality performance of the ACO would apply to first dollar 
shared losses for ACOs with losses meeting or exceeding their MLR. 
The percentage of ACO participants' total Medicare Parts A and B FFS 
revenue used to determine the revenue-based loss sharing limit would 
be set for each performance year consistent with the generally 
applicable nominal amount standard for an Advanced APM under Sec.  
414.1415(c)(3)(i)(A). The ACO's revenue-based loss sharing limit 
would not exceed its benchmark-based loss sharing limit, but would 
be capped at that amount.

    Finally, if an ACO enters the BASIC track's glide path in a one-
sided model and is unable to meet the requirements to participate under 
performance-based risk prior to being automatically transitioned to a 
performance year under risk, CMS would terminate the ACO's agreement 
under Sec.  425.218.
    The financial model of the BASIC track is summarized in Table 3, 
which also includes a summary of the design of the ENHANCED track (for 
comparison).
BILLING CODE 4120-01-P

[[Page 67852]]

[GRAPHIC] [TIFF OMITTED] TR31DE18.003


[[Page 67853]]


[GRAPHIC] [TIFF OMITTED] TR31DE18.004

BILLING CODE 4120-01-C
(3) Calculation of Loss Sharing Limit
    As described in the August 2018 proposed rule, under the Track 1+ 
Model, either a revenue-based or a benchmark-based loss sharing limit 
is applied based on the Track 1+ Model ACO's self-reported composition 
of ACO participants as identified by TINs and CCNs, and the ownership 
of and operational interests in those ACO participants. We noted our 
concerns about use of self-reported information for purposes of 
determining the loss sharing limit in the context of the permanent, 
national program. The purpose of capturing information on the types of 
entities that are Track 1+ Model ACO participants and the ownership and 
operational interests of those ACO participants, as reported by ACOs 
applying to or participating in the Track 1+ Model, is to differentiate 
between those ACOs that are eligible for the lower level of risk 
potentially available under the revenue-based loss sharing limit and 
those that are subject to the benchmark-based loss sharing limit. For 
purposes of our proposal to establish the BASIC track in the permanent 
program, we reconsidered this method of identifying which ACOs are 
eligible for the revenue-based or benchmark-based loss sharing limits. 
One concern regarding the Track 1+ Model approach is the burden imposed 
on ACOs and CMS resulting from reliance on self-reported information. 
Under the Track 1+ Model, ACOs must collect information about their ACO 
participant composition and about ownership and operational interests 
from ACO participants, and potentially others in the TINs' and CCNs' 
ownership and operational chains, and assess this information to 
accurately answer questions as required by CMS.\14\ These questions are 
complex and ACOs' ability to respond accurately could vary. Self-
reported information is also more complex for CMS to audit. As a 
result, the use of ACOs' self-reported information in the permanent 
program could become burdensome for CMS to validate and monitor to 
ensure program integrity.
---------------------------------------------------------------------------

    \14\ See Medicare Shared Savings Program, Medicare ACO Track 1+ 
Model, and SNF 3-Day Rule Waiver, 2018 Application Reference Manual, 
version #3, July 2017 (herein 2018 Application Reference Manual), 
available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/MSSP-Reference-Table.pdf (see 
``Appendix F. Application Reference Table--For Medicare ACO Track 1+ 
Model Applicants'', including definitions for institutional 
providers and ownership and operational interests for the purpose of 
the Track 1+ Model).
---------------------------------------------------------------------------

    We proposed that a simpler approach that achieves similar results 
to the use of self-reported information would be to consider the total 
Medicare Parts A and B FFS revenue of ACO participants (TINs and CCNs) 
based on claims data, without directly considering their ownership and 
operational interests (or those of related entities), based on our

[[Page 67854]]

experience with the initial application cycle for the Track 1+ Model. 
As part of the application cycle for the 2018 performance year under 
the Track 1+ Model, CMS gained experience with calculating estimates of 
ACO participant revenue to compare with estimates of ACO benchmark 
expenditures, for purposes of determining the repayment mechanism 
amounts for the Track 1+ Model (as described in section II.A.6.c. of 
this final rule). The methodology for determining repayment mechanism 
amounts follows a similar bifurcated approach to the one used to 
determine the applicable loss sharing limit under the Track 1+ Model. 
Specifically, for ACOs eligible for a revenue-based loss sharing limit, 
when the specified percentage of estimated total Medicare Parts A and B 
FFS revenue for ACO participants exceeds a specified percentage of 
estimated historical benchmark expenditures, the benchmark-based 
methodology is applied to determine the ACO's loss sharing limit, which 
serves to cap the revenue-based amount (see Track 1+ Model Fact Sheet 
for a brief description of the repayment mechanism estimation 
methodology). Based on our calculations of repayment mechanism amounts 
for Track 1+ Model ACOs, we observed a high correlation between the 
loss sharing limits determined using an ACO's self-reported 
composition, and its ACO participants' total Medicare Parts A and B FFS 
revenue. For ACOs that reported including an ACO participant that was 
an IPPS hospital, cancer center or rural hospital with more than 100 
beds, or that was owned or operated by, in whole or in part, such a 
hospital or by an organization that owns or operates such a hospital, 
the estimated total Medicare Parts A and B FFS revenue for the ACO 
participants tended to exceed an estimate of the ACO's historical 
benchmark expenditures for assigned beneficiaries. For ACOs that 
reported that they did not include an ACO participant that met these 
ownership and operational criteria, the estimated total Medicare Parts 
A and B FFS revenue for the ACO participants tended to be less than an 
estimate of the ACO's historical benchmark expenditures.
    We recognized that this analysis was informed by the definitions 
for ownership and operational interests, and the definitions for IPPS 
hospital, cancer center and rural hospital with 100 or more beds, used 
in the Track 1+ Model. However, we stated that these observations from 
the Track 1+ Model supported a more generalizable principle about the 
extent to which ACOs can control total Medicare Parts A and B FFS 
expenditures for their assigned beneficiaries, and therefore their 
readiness to take on lower or higher levels of performance-based risk.
    In the proposed rule and in this final rule, we use the phrases 
``ACO participants' total Medicare Parts A and B FFS revenue'' and 
``total Medicare Parts A and B FFS expenditures for the ACO's assigned 
beneficiaries'' in the discussion of certain proposed policies. For 
brevity, we sometimes use shorter phrases instead. For instance, we may 
refer to ACO participant Medicare FFS revenue, or expenditures for the 
ACO's assigned beneficiaries.
    Based on our experience with the Track 1+ Model, we proposed an 
approach under which the loss sharing limit for BASIC track ACOs would 
be determined as a percentage of ACO participants' total Medicare Parts 
A and B FFS revenue that is capped at a percentage of the ACO's updated 
historical benchmark expenditures when the amount that is a certain 
percentage of ACO participant FFS revenue (depending on the BASIC track 
risk/reward level) exceeds the specified percentage of the ACO's 
updated historical benchmark expenditures for the relevant BASIC track 
risk/reward level. Under our proposed approach, we would not directly 
consider the types of entities included as ACO participants or 
ownership and operational interests in ACO participants in determining 
the loss sharing limit that would apply to ACOs under Levels C, D, and 
E of the BASIC track. We stated our belief that ACOs whose ACO 
participants have greater total Medicare Parts A and B FFS revenue 
relative to the ACO's benchmark are better financially prepared to move 
to greater levels of risk. Accordingly, this comparison of revenue to 
benchmark would provide a more accurate method for determining an ACO's 
preparedness to take on additional risk than an ACO's self-reported 
information regarding the composition of its ACO participants and any 
ownership and operational interests in those ACO participants.
    We explained that ACOs that include a hospital billing through an 
ACO participant TIN are generally more capable of accepting higher risk 
given their control over a generally larger amount of their assigned 
beneficiaries' total Medicare Parts A and B FFS expenditures relative 
to their ACO participants' total Medicare Parts A and B FFS revenue. As 
a result, our proposed approach would tend to place ACOs that include 
hospitals under a benchmark-based loss sharing limit because their ACO 
participants typically have higher total Medicare Parts A and B FFS 
revenue compared to the ACO's benchmark. Less often, the ACO 
participants in an ACO that includes a hospital billing through an ACO 
participant TIN have low total Medicare Part A and B FFS revenue 
compared to the ACO's benchmark. Under a claims-based approach to 
determining the ACO's loss sharing limit, ACOs with hospitals billing 
through ACO participant TINs and relatively low ACO participant FFS 
revenue would be under a revenue-based loss sharing limit.
    To illustrate, Table 4 compares two approaches to determining loss 
liability: A claims-based approach (proposed approach) and self-
reported composition (approach used for the Track 1+ Model). The table 
summarizes information regarding ACO participant composition reported 
by the Track 1+ Model applicants for performance year 2018 and 
identifies the percentages of applicants whose self-reported 
composition would have placed the ACO under a revenue-based loss 
sharing limit or a benchmark-based loss sharing limit. The table then 
indicates the outcomes of a claims-based analysis applied to this same 
cohort of applicants. This analysis indicates the proposed claims-based 
method produces a comparable result to the self-reported composition 
method. Further, this analysis suggests that under a claims-based 
method, ACOs that include institutional providers with relatively low 
Medicare Parts A and B FFS revenue would be placed under a revenue-
based loss sharing limit, which may be more consistent with their 
capacity to assume risk than an approach that considers only the 
inclusion of certain institutional providers among the ACO participants 
and their providers/suppliers (TINs and CCNs).

[[Page 67855]]

[GRAPHIC] [TIFF OMITTED] TR31DE18.005

    Using ACO participant Medicare FFS revenue to determine the ACO's 
loss sharing limit balances several concerns. For one, it allows CMS to 
make a claims-based determination about the ACO's loss limit instead of 
depending on self-reported information from ACOs. This approach would 
also alleviate the burden on ACOs of gathering information from ACO 
participants about their ownership and operational interests and 
reporting that information to CMS, and would address CMS' concerns 
about the complexity of auditing the information reported by ACOs.
    We proposed to establish the revenue-based loss sharing limit as 
the default for ACOs in the BASIC track and to phase-in the percentage 
of ACO participants' total Medicare Parts A and B FFS revenue. However, 
if the amount that is the applicable percentage of ACO participants' 
total Medicare Parts A and B FFS revenue exceeds the amount that is the 
applicable percentage of the ACO's updated benchmark based on the 
previously described phase-in schedule, then the ACO's loss sharing 
limit would be capped and set at this percentage of the ACO's updated 
historical benchmark. We sought comment on this proposal.
    We considered issues related to the generally applicable nominal 
amount standard for Advanced APMs in our development of the revenue-
based loss sharing limit under Level E of the proposed BASIC track. 
Under Sec.  414.1415(c)(3)(i)(A), the revenue-based nominal amount 
standard is set at 8 percent of the average estimated total Medicare 
Parts A and B revenue of all providers and suppliers in a participating 
APM Entity for QP Performance Periods 2017, 2018, 2019, and 2020. We 
proposed that, for the BASIC track, the percentage of ACO participants' 
FFS revenue used to determine the revenue-based loss sharing limit for 
the highest level of risk (Level E) would be set for each performance 
year consistent with the generally applicable nominal amount standard 
for an Advanced APM under Sec.  414.1415(c)(3)(i)(A), to allow eligible 
clinicians participating in a BASIC track ACO subject to the revenue-
based loss sharing limit the opportunity to earn the Advanced APM 
incentive payment when the ACO is participating under Level E. For 
example, for performance years 2019 and 2020, this would be 8 percent 
of ACO participants' total Medicare Parts A and B FFS revenue that 
would be capped and set at 4 percent of the updated benchmark. As a 
result, the proposed BASIC track at Level E risk/reward would meet all 
of the criteria and be an Advanced APM.
    Further, in the CY 2018 Quality Payment Program final rule with 
comment period, we revised Sec.  414.1415(c)(3)(i)(A) to more clearly 
indicate that the revenue-based nominal amount standard is determined 
as a percentage of the revenue of all providers and suppliers in the 
participating APM Entity (see 82 FR 53836 through 53838). Under the 
Shared Savings Program, ACOs are composed of one or more ACO 
participant TINs, which include all providers and suppliers that bill 
Medicare for items and services that are participating in the ACO. See 
definitions at Sec.  425.20. In accordance with Sec.  425.116(a)(3), 
ACO participants must agree to ensure that each provider/supplier that 
bills through the TIN of the ACO participant agrees to participate in 
the Shared Savings Program and comply with all applicable requirements. 
Because all providers/suppliers billing through an ACO participant TIN 
must agree to participate in the program, for purposes of calculating 
ACO revenue under the nominal amount standard for Shared Savings 
Program ACOs, the FFS revenue of the ACO participant TINs is equivalent 
to the FFS revenue for all providers/suppliers participating in the 
ACO. Therefore, we intend to perform these revenue calculations at the 
ACO participant level.
    We proposed to calculate the loss sharing limit for BASIC track 
ACOs in generally the same manner that is used under the Track 1+ 
Model. However, as discussed elsewhere in this section, we would not 
rely on an ACO's self-reported composition as used in the Track 1+ 
Model to determine if the ACO is subject to a revenue-based or 
benchmark-based loss sharing limit. Instead, we would calculate a 
revenue-based loss sharing limit for all BASIC track ACOs, and cap this 
amount as a percentage of the ACO's updated historical benchmark. 
Generally, calculation of the loss sharing limit would include the 
following steps:

    <bullet> Determine ACO participants' total Medicare FFS revenue, 
which includes total Parts A and B FFS revenue for all providers and 
suppliers that bill for items and services through the TIN, or a CCN 
enrolled in Medicare under the TIN, of each ACO participant in the 
ACO for the applicable performance year.
    <bullet> Apply the applicable percentage under the proposed 
phase-in schedule (described in section II.A.3.b.(2). of this final 
rule) to this total Medicare Parts A and B FFS revenue for ACO 
participants to derive the revenue-based loss sharing limit.
    <bullet> Use the applicable percentage of the ACO's updated 
benchmark, instead of the revenue-based loss sharing limit, if the 
loss sharing limit as a percentage of total Medicare Parts A and B 
FFS revenue for ACO participants exceeds the amount that is the 
specified percentage of the ACO's updated historical benchmark, 
based on the phase-in schedule. In that case, the loss sharing limit 
is capped and set at the applicable percentage of the ACO's updated 
historical benchmark for the applicable performance year.

    To illustrate, Table 5 provides a hypothetical example of the 
calculation of the loss sharing limit for an ACO participating under 
Level E of the BASIC track. This example would be relevant, under the 
proposed policies,

[[Page 67856]]

for an ACO participating in Level E of the BASIC track for the 
performance years beginning on July 1, 2019, and January 1, 2020, based 
on the percentages of revenue and ACO benchmark expenditures specified 
in generally applicable nominal amount standards in the Quality Payment 
Program regulations. In this scenario, the ACO's loss sharing limit 
would be set at $1,090,479 (8 percent of ACO participant revenue) 
because this amount is less than 4 percent of the ACO's updated 
historical benchmark expenditures. If in this scenario the ACO's 
revenue would have been greater, and the revenue-based loss sharing 
limit exceeded the benchmark-based loss sharing limit amount, the loss 
sharing limit would be capped and set at the benchmark-based loss 
sharing limit amount (in this example $3,736,453).
[GRAPHIC] [TIFF OMITTED] TR31DE18.006

    More specifically, ACO participants' total Medicare Parts A and B 
FFS revenue would be calculated as the sum of Medicare paid amounts on 
all non-denied claims associated with TINs on the ACO's certified ACO 
participant list, or the CCNs enrolled under an ACO participant TIN as 
identified in the Provider Enrollment, Chain, and Ownership System 
(PECOS), for all claim types used in program expenditure calculations 
that have dates of service during the performance year, using 3 months 
of claims run out. ACO participant Medicare FFS revenue would not be 
limited to claims associated with the ACO's assigned beneficiaries, and 
would instead be based on the claims for all Medicare FFS beneficiaries 
furnished services by the ACO participant. Further, in calculating ACO 
participant Medicare FFS revenue, we would not truncate a beneficiary's 
total annual FFS expenditures or adjust to remove indirect medical 
education (IME), disproportionate share hospital (DSH), or 
uncompensated care payments or to add back in reductions made for 
sequestration. ACO participant Medicare FFS revenue would include any 
payment adjustments reflected in the claim payment amounts (for 
example, under MIPS or Hospital Value Based Purchasing Program) and 
would also include individually identifiable final payments made under 
a demonstration, pilot, or time-limited program, and would be 
determined using the same completion factor used for annual expenditure 
calculations.
    This approach to calculating ACO participant Medicare FFS revenue 
is different from our approach to calculating benchmark and performance 
year expenditures for assigned beneficiaries, which we truncate at the 
99th percentile of national Medicare FFS expenditures for assignable 
beneficiaries, and from which we exclude IME, DSH and uncompensated 
care payments (see subpart G of the program's regulations). We truncate 
expenditures to minimize variation from catastrophically large claims. 
We note that truncation occurs based on an assigned beneficiary's total 
annual Parts A and B FFS expenditures, and is not apportioned based on 
services furnished by ACO participant TINs. See Medicare Shared Savings 
Program, Shared Savings and Losses and Assignment Methodology 
Specifications (May 2018, version 6) available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/program-guidance-and-specifications.html (herein Shared Savings and Losses and 
Assignment Methodology Specifications, version 6). As discussed in 
earlier rulemaking, we exclude IME, DSH and uncompensated care payments 
from ACOs' assigned beneficiary expenditure calculations because we do 
not wish to incentivize ACOs to avoid the types of providers that 
receive these payments, and for other reasons described in earlier 
rulemaking (see 76 FR 67919 through 67922, and 80 FR 32796 through 
32799). But to accurately determine ACO participants' revenue for 
purposes of determining a revenue-based loss sharing limit, we would 
include total revenue uncapped by truncation and to include IME, DSH 
and uncompensated care payments. These payments represent resources 
available to ACO participants to support their operations and offset 
their costs and potential shared losses, thereby increasing the ACO's 
capacity to bear performance-based risk, which should be reflected in 
the ACO's loss sharing limit. Excluding such payments could undercount 
revenue and also could be challenging to implement, particularly 
truncation, since it likely would require apportioning responsibility 
for large claims among the ACO participants and non-ACO participants 
from which the beneficiary may have received the services resulting in 
the large claims.
    Currently, for Track 2 and Track 3 ACOs, the loss sharing limit (as 
a percentage of the ACO's updated benchmark) is determined each 
performance year, at the time of financial reconciliation. Consistent 
with this approach, we would determine the loss sharing limit for BASIC 
track ACOs annually, at the time of financial reconciliation for each 
performance year. Further, under the existing policies for the Shared 
Savings Program, we adjust the historical benchmark annually for 
changes in the ACO's certified ACO participant list. See Sec. Sec.  
425.602(a)(8) and 425.603(b), (c)(8). See also the Shared Savings and 
Losses and Assignment Methodology Specifications, version 6. Similarly, 
the annual determination of a BASIC track ACO's loss sharing limit 
would reflect changes in ACO composition based on changes to the ACO's 
certified ACO participant list.
    We proposed to codify these policies in a new section of the Shared 
Savings Program regulations governing the BASIC track, at Sec.  
425.605. We sought comment on these proposals.
    Comment: A few commenters had suggestions as to whether certain 
payments or expenditures should be included in an ACO's benchmark. One 
commenter recommended that CMS exclude payments from the CPC+ Model

[[Page 67857]]

in their entirety from the benchmark and expenditures on both a 
retrospective and prospective basis. The commenter further recommended 
that CMS update the historical benchmark to remove CPC+ Model payments 
from the calculation of ACOs' expenditures as non-claims based 
payments. Another commenter recommended that CMS exclude MIPS bonuses 
from the determination of ACO expenditures because MIPS bonuses are 
projected to rise in future program years, which may penalize ACOs in 
comparison to their historical benchmark, and result in lower shared 
savings or higher shared losses. The commenter questioned CMS' 
treatment of these payments, stating that CMS currently excludes 
Advanced APM incentive payments from ACO expenditures and recommended 
that CMS do the same for MIPS expenditures.
    Response: First, section 1833(z)(1)(C) of the Act provides that 
incentive payments made to a Qualifying APM Participant (QP) should not 
be taken into account for purposes of determining actual expenditures 
under an alternative payment model and for purposes of determining or 
rebasing any benchmarks used under the alternative payment model. Thus, 
we will not include the Advanced APM incentive payments in calculation 
of the ACOs expenditures. Second, the total per capita expenditures for 
an ACO's assigned beneficiary population reflect services that are 
furnished by ACO providers/suppliers and also by providers and 
suppliers outside the ACO. As a result, the ACO only supplies a 
fraction of the services represented in the total per capita 
expenditures for the ACO's assigned beneficiaries. Therefore, the net 
effect of MIPS adjustments on ACO expenditures for the ACO's assigned 
beneficiary population, would be variable and often small and would 
depend on the mix of adjustments affecting the amount of payment for 
services supplied to ACO assigned beneficiaries by all MIP eligible 
clinicians, not just services that were supplied by ACO providers/
suppliers. Third, the Shared Savings Program regulations provide that 
individually beneficiary identifiable final payments made under a 
demonstration, pilot or time limited program will be included in the 
calculation of Medicare Part A and Part B expenditures for the ACO's 
assigned beneficiary population for purposes of establishing the 
historical benchmark and determining performance year expenditures. 
CPC+ Model payments are individually beneficiary identifiable final 
payments made under such a model, and therefore are included in the 
ACO's expenditures for purposes of establishing the financial benchmark 
and calculating performance year expenditures. The CPC+ Model payments 
and other non-claims based payments typically represent a small amount 
of expenditures for a small number of ACO assigned beneficiaries, so 
the impact of final non-claims based payments on an ACO's historical 
benchmark or performance year expenditures is likely to be minimal.
    Comment: Several commenters expressed concern about the approach to 
calculating revenue used in determining the loss sharing limits under 
the BASIC track. These commenters explained that CMS proposed to 
include hospital add-on payments such as Indirect Medical Education 
(IME), Disproportionate Share Hospital (DSH), and uncompensated care 
payments when calculating an ACO's ACO participant revenue for purposes 
of determining the loss sharing limit. These commenters pointed out 
that CMS will exclude these payments when calculating assigned 
beneficiary expenditures for determining benchmark and performance year 
expenditures. These commenters urged CMS to exclude add-on payments in 
determining an ACO's ACO participant revenue as well, suggesting that 
the proposed approach could penalize ACOs with ACO participants that 
treat vulnerable populations, including teaching hospitals and those 
that treat the uninsured population.
    Response: We discuss related considerations in our discussion of 
the determination of whether an ACO qualifies as a low revenue ACO or a 
high revenue ACO in section II.A.5.b. of this final rule. To accurately 
determine ACO participants' revenue for purposes of determining a 
revenue-based loss sharing limit, we explain that it is important to 
include total revenue uncapped by truncation and to include IME, DSH 
and uncompensated care payments. As noted earlier in this section and 
discussed in greater detail in section II.A.5.b, this approach to 
calculating ACO participant Medicare FFS revenue is different from our 
approach to calculating benchmark and performance year expenditures for 
assigned beneficiaries, which we truncate at the 99th percentile of 
national Medicare FFS expenditures for assignable beneficiaries, and 
from which we exclude IME, DSH and uncompensated care payments (see 
subpart G of the program's regulations). IME, DSH, uncompensated care 
payments represent resources available to ACO participants to support 
their operations and offset their costs and potential shared losses, 
thereby increasing the ACO's capacity to bear performance-based risk, 
which we believe should be reflected in the ACO's loss sharing limit. 
Excluding such payments could undercount revenue and also could be 
challenging to implement, particularly truncation, since it likely 
would require apportioning responsibility for large claims among the 
ACO participants and non-ACO participants from which the beneficiary 
may have received the services resulting in the large claims. We 
therefore decline to modify our approach to determining ACO 
participant's total Medicare Parts A and B FFS revenue to include IME, 
DSH and uncompensated care payments, or to cap claim payment amounts 
through truncation.
    For similar reasons, we also decline at this time to make other 
technical adjustments to calculations of revenue to exclude any other 
payment adjustments reflected in the claim payment amounts, such as 
payments under MIPS or the Hospital Value Based Purchasing Program.
    Final Action: We are finalizing the approach to calculating ACO 
participants' Medicare FFS revenue used in the determination of the 
loss sharing limits under the BASIC track as proposed.
4. Permitting Annual Participation Elections
a. Overview
    Background on our consideration of and stakeholders' interest in 
allowing ACOs the flexibility to elect different participation options 
within their current agreement period is described in section II.A.1. 
of this final rule. In the August 2018 proposed rule (83 FR 41810 
through 41813), we proposed policies to allow ACOs in the BASIC track's 
glide path to annually elect to take on higher risk and to allow ACOs 
in the BASIC track and ENHANCED track to annually elect their choice of 
beneficiary assignment methodology (either preliminary prospective 
assignment with retrospective reconciliation or prospective 
assignment).
b. Permitting Election of Differing Levels of Risk Within the BASIC 
Track's Glide Path
    In the August 2018 proposed rule (83 FR 41810 through 41813), we 
proposed to incorporate additional flexibility in participation options 
by allowing ACOs

[[Page 67858]]

that enter an agreement period under the BASIC track's glide path an 
annual opportunity to elect to enter higher levels of performance-based 
risk within the BASIC track within their agreement period. This 
flexibility would be important for ACOs entering the glide path under 
either the one-sided model (Level A or Level B) or the lowest level of 
risk (Level C) that may seek to transition more quickly to higher 
levels of risk and potential reward. (We note that an ACO entering the 
glide path at Level D would be automatically transitioned to Level E in 
the following year, and an ACO that enters the glide path at Level E 
must remain at this level for the duration of its agreement period and 
any subsequent agreement period under the BASIC track, if eligible.)
    In developing the proposed policy, we considered that an ACO under 
performance-based risk has the potential to induce more meaningful 
systematic change in providers' and suppliers' behavior. We also 
considered that an ACO's readiness for greater performance-based risk 
may vary depending on a variety of factors, including the ACO's 
experience with the program (for example, in relation to its elected 
beneficiary assignment methodology, composition of ACO participants, 
and benchmark value) and its ability to coordinate care and carry out 
other interventions to improve quality and financial performance. 
Lastly, we considered that an ACO may seek to more quickly take 
advantage of the features of higher levels of risk and potential reward 
within the BASIC track's glide path, including: Potential for greater 
shared savings; increased ability for participating physicians and 
practitioners to furnish telehealth services as provided under section 
1899(l) of the Act, use of a SNF 3-day rule waiver, and the opportunity 
to establish a CMS-approved beneficiary incentive program (described in 
sections II.B and II.C. of this final rule); and the opportunity to 
participate in an Advanced APM under the Quality Payment Program after 
progressing to Level E of the BASIC track's glide path.
    We explained that restricting ACOs from moving from the BASIC track 
to the ENHANCED track within their current agreement period would 
protect the Trust Funds. This would guard against selective 
participation in a financial model with the highest potential level of 
reward while the ACO remains subject to a benchmark against which it is 
very confident of its ability to generate shared savings. However, 
under the proposal to eliminate the sit-out period for re-entry into 
the program after termination (see discussion in section II.A.5.c. of 
this final rule), an ACO (such as a BASIC track ACO) may terminate its 
participation agreement and quickly enter a new agreement period under 
a different track, if eligible (such as the ENHANCED track).
    We proposed to add a new section of the Shared Savings Program 
regulations at Sec.  425.226 to govern annual participation elections. 
Specifically, we proposed to allow an ACO in the BASIC track's glide 
path to annually elect to accept higher levels of performance-based 
risk, available within the glide path, within its current agreement 
period. We proposed that the annual election for a change in the ACO's 
level of risk and potential reward must be made in the form and manner, 
and according to the timeframe, established by CMS. We also proposed 
that an ACO executive who has the authority to legally bind the ACO 
must certify the election to enter a higher level of risk and potential 
reward within the agreement period. We proposed that the ACO must meet 
all applicable requirements for the newly selected level of risk, which 
in the case of ACOs transitioning from a one-sided model to a two-sided 
model include establishing an adequate repayment mechanism and electing 
the MSR/MLR that will apply for the remainder of their agreement period 
under performance-based risk. (See section II.A.6. of this final rule 
for a detailed discussion of these requirements.) We proposed that the 
ACO must elect to change its participation option before the start of 
the performance year in which the ACO wishes to begin participating 
under a higher level of risk and potential reward. We envisioned that 
the timing of an ACO's election would generally follow the timing of 
the Shared Savings Program's application cycle.
    The ACO's participation in the newly selected level of risk and 
potential reward, if approved, would be effective at the start of the 
next performance year. In subsequent years, the ACO may again choose to 
elect a still higher level of risk and potential reward (if a higher 
risk/reward option is available within the glide path). Otherwise, the 
automatic transition to higher levels of risk and potential reward in 
subsequent years would continue to apply to the remaining years of the 
ACO's agreement period in the glide path. We also proposed related 
changes to Sec.  425.600 to reflect the opportunity for ACOs in the 
BASIC track's glide path to transition to higher risk and potential 
reward during an agreement period.
    For example, if an eligible ACO enters the glide path in year 1 at 
Level A (one-sided model) and elects to enter Level D (two-sided model) 
for year 2, the ACO would automatically transition to Level E (highest 
level of risk/reward under the BASIC track) for year 3, and would 
remain in Level E for year 4 and year 5 of the agreement period. We 
note that ACOs starting in the BASIC track's glide path for an 
agreement period beginning on July 1, 2019, could elect to enter a 
higher level of risk/reward within the BASIC track in advance of the 
performance year beginning on January 1, 2020.
    In general, we wish to clarify that the proposal to allow ACOs to 
elect to transition to higher levels risk and potential reward within 
an agreement period in the BASIC track's glide path would not alter the 
timing of benchmark rebasing under the proposed new section of the 
regulations at Sec.  425.601. For example, if an ACO participating in 
the BASIC track's glide path transitions to a higher level of risk and 
potential reward during its agreement period, the ACO's historical 
benchmark would not be rebased as a result of this change. We would 
continue to assess the ACO's financial performance using the historical 
benchmark established at the start of the ACO's current agreement 
period, as adjusted and updated consistent with the benchmarking 
methodology under the proposed new provision at Sec.  425.601.
    Comment: Overall, commenters supported CMS' proposal to permit an 
annual opportunity to elect to enter higher levels of performance-based 
risk, if available, within the BASIC track within an ACO's agreement 
period. One commenter suggested this is a good policy for CMS because 
it allows CMS to achieve its goal of shifting more ACOs into higher 
levels of risk. The commenter also suggested it is a good policy for 
ACOs because it gives them greater flexibility. Some commenters 
proposed allowing an ACO that elected to advance to a higher level 
early to remain at the higher level until it reaches the PY when it 
would have automatically advanced to the next successive level, absent 
the ACO's election to advance more quickly than the glide path 
required. A few commenters supported the proposal to allow annual 
election of risk and skipping to higher levels, but encouraged CMS to 
allow ACOs to glide backward and select a lower level of risk if they 
jumped ahead and their losses exceeded their MLR for the level they 
skipped or if the ACO found that it was not ready to bear risk. 
Commenters suggested this added flexibility would encourage ACOs to 
experiment with risk as commenters suggested that CMS intended.

[[Page 67859]]

    Response: We appreciate the commenters' suggestions related to 
options for ACOs to elect varying levels of risk along the glide path. 
As we have discussed in this final rule, we believe there are 
incentives for increased efficiency when ACOs are in a two-sided risk 
track. Our goal continues to be to advance ACOs to taking on higher 
levels of risk. Our experience with the Track 1+ Model has shown that 
ACOs are willing to accept the amount of risk in Level E of the BASIC 
track. ACOs should evaluate whether they are able to undertake greater 
risk before electing to move to a higher level of risk and ensure that 
the ACO has the operational capabilities in place to assume higher 
risk. Therefore, we decline to adopt these suggestions and are 
finalizing the glide path that transitions ACOs to higher levels of 
risk throughout the agreement period.
    Comment: Several commenters suggested that ACOs be allowed to move 
from the BASIC track to the ENHANCED track within their agreement 
period. One commenter proposed that CMS allow ACOs to jump BASIC levels 
to the ENHANCED track without an application process, asserting that 
this policy would create unnecessary administrative burden. Another 
commenter recommended removal of restrictions preventing ACOs that 
begin at the BASIC track's Level E from moving up to the ENHANCED track 
without an interruption to their existing participation agreement or 
the redetermination of benchmarks. The commenter explained its 
preference that all levels of gainsharing and risk assumption be on a 
single platform to facilitate the continuous movement to higher levels 
of risk and potential reward. One commenter seemed to suggest an 
alternative approach to allow low revenue ACOs and high revenue ACOs to 
transition from the BASIC track to the ENHANCED track within a single 
agreement period, and then potentially return to the BASIC track if 
they discovered that they were unprepared to take on the higher level 
of risk.
    Response: As noted in the preamble, we continue to believe it is 
protective of the Trust funds to restrict ACOs from moving from the 
BASIC track to the ENHANCED track within the ACO's current agreement 
period. This would guard against selective participation in a financial 
model with the highest potential level of reward while the ACO remains 
subject to a benchmark against which it is very confident of its 
ability to generate savings. We decline at this time to accept 
commenters' suggestions to allow the flexibility for ACOs to move 
between the levels of risk and reward under the ENHANCED track and the 
BASIC track within a single agreement period. ACOs seeking to make this 
transition could elect to terminate their participation agreement under 
the BASIC track and ``renew early'' to enter the ENHANCED (see 
discussion in section II.A.5.c of this final rule), for example, which 
would result in rebasing of the ACO's historical benchmark.
    We did not receive any comments on our proposals requiring: (1) 
Annual election of the change in the ACO's level of risk and potential 
reward in the form and manner, and according to the timeframe, 
established by CMS; (2) certification by an ACO executive who has the 
authority to legally bind the ACO of any election to enter a higher 
level of risk and potential reward within the agreement period; (3) the 
ACO to meet all applicable requirements for the newly selected level of 
risk, which in the case of ACOs transitioning from a one-sided model to 
a two-sided model include establishing an adequate repayment mechanism 
and electing the MSR/MLR that will apply for the remainder of the ACO's 
agreement period under performance-based risk; or (4) the ACO to elect 
to change its participation option before the start of the performance 
year in which the ACO wishes to begin participating under a higher 
level of risk and potential reward, if available (generally following 
the timing of the Shared Savings Program's application cycle).
    Final Action: After considering the comments concerning the annual 
election of differing levels of risk along the BASIC track's glide 
path, we are finalizing the policies as proposed. Specifically, we are 
finalizing policies to allow an ACO in the BASIC track's glide path to 
annually elect to accept higher levels of performance-based risk, 
available within the glide path, within its current agreement period. 
If an ACO decides to elect a higher level of performance-based risk 
during their agreement period, it will make the election in the form 
and manner specified by CMS. Additionally, we are finalizing the 
requirement that ACOs must meet all applicable requirements for the 
newly selected level of risk, which in the case of ACOs transitioning 
from a one-sided model to a two-sided model include establishing an 
adequate repayment mechanism and electing the MSR/MLR that will apply 
for the remainder of their agreement period under performance-based 
risk. Accordingly, we are finalizing as proposed the new Sec.  425.226 
and related changes at Sec.  425.600.
c. Permitting Annual Election of Beneficiary Assignment Methodology
    Section 1899(c)(1) of the Act, as amended by section 50331 of the 
Bipartisan Budget Act, provides that the Secretary shall determine an 
appropriate method to assign Medicare FFS beneficiaries to an ACO based 
on utilization of primary care services furnished by physicians in the 
ACO and, in the case of performance years beginning on or after January 
1, 2019, services provided by a FQHC or RHC. The provisions of section 
1899(c) of the Act govern beneficiary assignment under all tracks of 
the Shared Savings Program. Although, to date, we have designated which 
beneficiary assignment methodology will apply for each track of the 
Shared Savings Program, section 1899(c) of the Act (including as 
amended by the Bipartisan Budget Act) does not expressly require that 
the beneficiary assignment methodology be determined by track.
    Under the Shared Savings Program regulations, we have established 
two claims-based beneficiary assignment methods (prospective assignment 
and preliminary prospective assignment with retrospective 
reconciliation) that currently apply to different program tracks, as 
well as a non-claims based process for voluntary alignment (discussed 
in section II.E.2. of the August 2018 proposed rule) that applies to 
all program tracks and is used to supplement claims-based assignment. 
The regulations governing the assignment methodology under the Shared 
Savings Program are in 42 CFR part 425, subpart E. In the November 2011 
final rule, we adopted a claims-based hybrid approach (called 
preliminary prospective assignment with retrospective reconciliation) 
for assigning beneficiaries to an ACO (76 FR 67851 through 67870), 
which is currently applicable to ACOs participating under Track 1 or 
Track 2 of the Shared Savings Program (except for Track 1 ACOs that are 
also participating in the Track 1+ Model for which we use a prospective 
assignment methodology in accordance with our authority under section 
1115A of the Act). Under this approach, beneficiaries are preliminarily 
assigned to an ACO, based on a two-step assignment methodology, at the 
beginning of a performance year and quarterly thereafter during the 
performance year, but final beneficiary assignment is determined after 
the performance year based on where beneficiaries chose to receive the 
plurality of their primary care services during the performance year. 
Subsequently, in the June 2015

[[Page 67860]]

final rule, we implemented an option for ACOs to participate in a new 
performance-based risk track, Track 3 (80 FR 32771 through 32781). 
Under Track 3, beneficiaries are prospectively assigned to an ACO at 
the beginning of the performance year using the same two-step 
methodology used in the preliminary prospective assignment approach, 
based on where the beneficiaries have chosen to receive the plurality 
of their primary care services during a 12-month assignment window 
offset from the calendar year that reflects the most recent 12 months 
for which data are available prior to the start of the performance 
year. The ACO is held accountable for beneficiaries who are 
prospectively assigned to it for the performance year. Under limited 
circumstances, a beneficiary may be excluded from the prospective 
assignment list, such as if the beneficiary enrolls in MA during the 
performance year or no longer lives in the United States or U.S. 
territories and possessions (as determined based on the most recent 
available data in our beneficiary records regarding residency at the 
end of the performance year).
    Finally, in the CY 2017 PFS final rule (81 FR 80501 through 80510), 
we augmented the claims-based beneficiary assignment methodology by 
finalizing a policy under which beneficiaries, beginning in 2017 for 
assignment for performance year 2018, may voluntarily align with an ACO 
by designating a ``primary clinician'' (referred to as a ``main 
doctor'' in the prior rulemaking) they believe is responsible for 
coordinating their overall care using MyMedicare.gov, a secure, online, 
patient portal. Notwithstanding the assignment methodology in Sec.  
425.402(b), beneficiaries who designate an ACO professional whose 
services are used in assignment as responsible for their overall care 
will be prospectively assigned to the ACO in which that ACO 
professional participates, provided the beneficiary meets the 
eligibility criteria established at Sec.  425.401(a) and is not 
excluded from assignment by the criteria in Sec.  425.401(b), and has 
had at least one primary care service during the assignment window with 
an ACO professional in the ACO who is a primary care physician or a 
physician with one of the primary specialty designations included in 
Sec.  425.402(c). Such beneficiaries will be added prospectively to the 
ACO's list of assigned beneficiaries for the subsequent performance 
year. See section V.B.2.b. of the November 2018 final rule for a 
discussion of the new provisions regarding voluntary alignment added to 
section 1899(c) of the Act by section 50331 of the Bipartisan Budget 
Act, and our related proposed regulatory changes.
    Section 50331 of the Bipartisan Budget Act specifies that, for 
agreement periods entered into or renewed on or after January 1, 2020, 
ACOs in a track that provides for retrospective beneficiary assignment 
will have the opportunity to choose a prospective assignment 
methodology, rather than the retrospective assignment methodology, for 
the applicable agreement period. The Bipartisan Budget Act incorporates 
this requirement as a new provision at section 1899(c)(2)(A) of the 
Act.
    In the August 2018 proposed rule (83 FR 41811 through 41813), we 
proposed to implement this provision of the Bipartisan Budget Act to 
provide all ACOs with a choice of prospective assignment for agreement 
periods beginning on July 1, 2019, and in subsequent years. We also 
proposed to incorporate additional flexibility into the beneficiary 
assignment methodology consistent with the Secretary's authority under 
section 1899(c)(1) of the Act to determine an appropriate beneficiary 
assignment methodology. We do not believe that section 1899(c) of the 
Act, as amended by the Bipartisan Budget Act, requires that we must 
continue to specify the applicable beneficiary assignment methodology 
for each track of the Shared Savings Program. Although section 
1899(c)(2)(A) of the Act now provides that ACOs must be permitted to 
choose prospective assignment for each agreement period, we do not 
believe this requirement limits our discretion to allow ACOs the 
additional flexibility to change beneficiary assignment methodologies 
more frequently during an agreement period. As summarized in section 
II.A.1. of this final rule and as described in detail in earlier 
rulemaking, commenters have urged us to allow greater flexibility for 
ACOs to select their assignment methodology. Accordingly, we proposed 
an approach that separates the choice of beneficiary assignment 
methodology from the choice of participation track (financial model), 
and that allows ACOs to make an annual election of assignment 
methodology. Such an approach would afford greater flexibility for ACOs 
to choose between assignment methodologies for each year of the 
agreement period, without regard to their participation track. 
Consistent with the requirements of the Bipartisan Budget Act, we will 
offer all Shared Savings Program ACOs the opportunity to select their 
assignment methodology annually, starting with agreement periods 
beginning on July 1, 2019.
    As an approach to meeting the requirements of the Bipartisan Budget 
Act while building on them to offer greater flexibility, we proposed to 
offer ACOs entering agreement periods in the BASIC track or ENHANCED 
track, beginning on July 1, 2019 and in subsequent years, the option to 
choose either prospective assignment or preliminary prospective 
assignment with retrospective reconciliation, prior to the start of 
their agreement period (at the time of application). We also proposed 
to provide an opportunity for ACOs to switch their selection of 
beneficiary assignment methodology on an annual basis. As we explained 
in the August 2018 proposed rule, under this approach, in addition to 
the requirement under the Bipartisan Budget Act that ACOs be permitted 
to change from retrospective assignment to prospective assignment, an 
ACO would have the added flexibility to change from prospective 
assignment to preliminary prospective assignment with retrospective 
reconciliation. As an additional flexibility that further builds on the 
Bipartisan Budget Act, ACOs would be allowed to retain the same 
beneficiary assignment methodology for an entire agreement period or to 
change the methodology annually. An individual ACO's preferred choice 
of beneficiary assignment methodology may vary depending on the ACO's 
experience with the two assignment methodologies used under the Shared 
Savings Program. Therefore, this proposed approach implements the 
requirements of the Bipartisan Budget Act and will also be responsive 
to stakeholders' suggestions that we allow additional flexibility 
around choice of beneficiary assignment methodology to facilitate ACOs' 
transition to performance-based risk (as discussed earlier in this 
section). Further, allowing this additional flexibility for choice of 
beneficiary assignment methodology within the proposed BASIC track and 
ENHANCED track would enable ACOs to select a combination of 
participation options that would overlap with certain features of Track 
2, and thus lessen the need to maintain Track 2 as a separate 
participation option. Accordingly, as discussed in section II.A.2. of 
this final rule, we proposed to discontinue Track 2. Finally, we 
believed it would be appropriate and reasonable to start offering the 
choice of beneficiary assignment to ACOs in the BASIC track or ENHANCED 
track for agreement periods beginning on July 1, 2019, and

[[Page 67861]]

in subsequent years, in order to align with the availability of these 
two tracks under the proposed redesign of the Shared Savings Program.
    In the August 2018 proposed rule, we proposed that, in addition to 
choosing the track to which it is applying, an ACO would choose the 
beneficiary assignment methodology at the time of application to enter 
or re-enter the Shared Savings Program or to renew its participation 
for another agreement period. If the ACO's application is accepted, the 
ACO would remain under that beneficiary assignment methodology for the 
duration of its agreement period, unless the ACO chooses to change the 
beneficiary assignment methodology through the annual election process. 
We also proposed that the ACO must indicate its desire to change 
assignment methodology before the start of the performance year in 
which it wishes to begin participating under the alternative assignment 
methodology. The ACO's selection of a different assignment methodology 
would be effective at the start of the next performance year, and for 
the remaining years of the agreement period, unless the ACO again 
chooses to change the beneficiary assignment methodology. For example, 
if an ACO selects preliminary prospective assignment with retrospective 
reconciliation at the time of its application to the program for an 
agreement period beginning on July 1, 2019, this methodology would 
apply in the ACO's first performance year (6-month performance year 
from July 1, 2019, through December 31, 2019) and all subsequent 
performance years of its agreement period, unless the ACO selects 
prospective assignment in advance of the start of performance year 
2020, 2021, 2022, 2023, or 2024. To continue this example, during its 
first performance year, the ACO would have the option to select 
prospective assignment to be applicable beginning with performance year 
2020. If selected, this assignment methodology would continue to apply 
unless the ACO again selects a different methodology.
    We proposed to incorporate the requirements governing the ACO's 
initial selection of beneficiary assignment methodology and the annual 
opportunity for an ACO to notify CMS that it wishes to change its 
beneficiary assignment methodology within its current agreement period, 
in a new section of the Shared Savings Program regulations at Sec.  
425.226 along with the other annual elections described elsewhere in 
this final rule. We proposed that the initial selection of, and any 
annual selection for a change in, beneficiary assignment methodology 
must be made in the form and manner, and according to the timeframe, 
established by CMS. We also proposed that an ACO executive who has the 
authority to legally bind the ACO must certify the selection of 
beneficiary assignment methodology for the ACO. We envision that the 
timing of this opportunity for an ACO to change assignment methodology 
would generally follow the Shared Savings Program's application cycle. 
For consistency, we also proposed to make conforming changes to 
regulations that currently identify assignment methodologies according 
to program track. Specifically, we proposed to revise Sec. Sec.  
425.400 and 425.401 (assignment of beneficiaries), Sec.  425.702 
(aggregate reports) and Sec.  425.704 (beneficiary-identifiable claims 
data) to reference either preliminary prospective assignment with 
retrospective reconciliation or prospective assignment instead of 
referencing the track to which a particular assignment methodology 
applies (currently Track 1 and Track 2, or Track 3, respectively).
    We clarified that this proposal would have no effect on the 
voluntary alignment process under Sec.  425.402(e). Because 
beneficiaries may voluntarily align with an ACO through their 
designation of a ``primary clinician,'' and eligible beneficiaries will 
be prospectively assigned to that ACO regardless of the ACO's track or 
claims-based beneficiary assignment methodology, an ACO's choice of 
claims-based assignment methodology under this proposal would not alter 
the voluntary alignment process.
    As part of the proposed approach to allow ACOs to elect to change 
their assignment methodology within their agreement period, we also 
proposed to adjust the ACO's historical benchmark to reflect the ACO's 
election of a different assignment methodology. Section 
1899(d)(1)(B)(ii) of the Act addresses how ACO benchmarks are to be 
established. This provision specifies that the Secretary shall 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. Such 
benchmark shall be adjusted for beneficiary characteristics and such 
other factors as the Secretary determines appropriate.
    As we explained in earlier rulemaking, we currently use differing 
assignment windows to determine beneficiary assignment for the 
benchmark years and performance years, according to the ACO's track and 
the beneficiary assignment methodology used under that track. The 
assignment window for ACOs under prospective assignment is a 12-month 
period off-set from the calendar year, while for ACOs under preliminary 
prospective assignment with retrospective reconciliation, the 
assignment window is the 12-month period based on the calendar year 
(see 80 FR 32699, and 80 FR 32775 through 32776). However, for all 
ACOs, the claims used to determine the per capita expenditures for a 
benchmark or performance year are the claims for services furnished to 
assigned beneficiaries from January 1 through December 31 of the 
calendar year that corresponds to the applicable benchmark or 
performance year (see for example, 79 FR 72812 through 72813, see also 
80 FR 32776 through 32777). We explained that this approach removes 
actuarial bias between the benchmarking and performance years for 
assignment and financial calculations, since the same method would be 
used to determine assignment and the financial calculations for each 
benchmark and performance year. Further, basing the financial 
calculations on the calendar year would be necessary to align with 
actuarial analyses with respect to risk score calculations and other 
data inputs based on national FFS expenditures used in program 
financial calculations, which are determined on a calendar year basis 
(79 FR 72813). To maintain symmetry between the benchmark and 
performance year calculations it would be necessary to adjust the 
benchmark for ACOs that change beneficiary assignment methodology 
within their current agreement period to reflect changes in beneficiary 
characteristics due to the change in beneficiary assignment 
methodology, as provided in section 1899(d)(1)(B)(ii) of the Act. For 
example, if an ACO were to elect to change its applicable beneficiary 
assignment methodology during its initial agreement period from 
preliminary prospective assignment with retrospective reconciliation to 
prospective assignment, we would adjust the ACO's historical benchmark 
for the current agreement period to reflect the expenditures of 
beneficiaries that would have been assigned to the ACO during the 
benchmark period using the prospective assignment methodology, instead 
of the expenditures of the beneficiaries assigned under the preliminary 
prospective assignment methodology that were used to establish the 
benchmark at the start of the agreement period. Therefore, we proposed 
to

[[Page 67862]]

specify in the proposed new section of the regulations at Sec.  425.601 
that would govern establishing, adjusting, and updating the benchmark 
for all agreement periods beginning on July 1, 2019, and in subsequent 
years, that we will adjust an ACO's historical benchmark to reflect a 
change in the ACO's beneficiary assignment methodology within an 
agreement period. However, any adjustment to the benchmark to account 
for a change in the ACO's beneficiary assignment methodology would not 
alter the timing of benchmark rebasing under Sec.  425.601; the 
historical benchmark would not be rebased as a result of a change in 
the ACO's beneficiary assignment methodology.
    We sought comment on these proposals.
    Comment: Generally, commenters were supportive of the proposal 
implementing section 1899(c)(2)(A) of the Act, as added by the 
Bipartisan Budget Act, to allow all ACOs a choice of prospective 
assignment for agreement periods beginning on July 1, 2019, and in 
subsequent performance years. They also supported CMS' proposal to 
exercise its discretion to separate the choice of assignment 
methodology from the choice of participation track (financial model) 
and provide ACOs with additional flexibility to change beneficiary 
assignment methodologies annually. Commenters praised these proposals 
and provided various rationale for their support, stating that the 
annual choice of assignment methodology for all ACOs:

    <bullet> Removes challenges caused by uncertainty of preliminary 
prospective beneficiary assignment with retrospective 
reconciliation, for ACOs that would be newly free to select 
prospective assignment.
    <bullet> Offers some much-needed stability and allows for the 
appropriate allocation of ACOs' finite resources, for ACOs that 
would be newly free to select prospective assignment.
    <bullet> Assists ACOs in planning and designing care management 
strategies.
    <bullet> Assists ACOs that, for care-driven reasons, may find it 
difficult to adopt one methodology versus another.
    <bullet> Provides ACOs with more flexibility to manage their 
patient populations based on their unique circumstances, care model, 
and ability to taken on risk for the total cost of care.
    <bullet> Equals the playing field between different types of 
ACOs.
    <bullet> Serves to increase ACO entity interest and 
participation in the program. One commenter that generally supported 
the proposal additionally suggested that CMS should provide accurate 
and timely reporting (for example, year-to-year performance 
comparisons based on the selected assignment methodology) so ACOs 
can analyze trends and results in a timely manner and be in a 
position to make an annual determination.

    A few commenters offered alternatives to CMS' proposal. One 
commenter encouraged CMS to develop an approach that offers only 
preliminary prospective assignment with retrospective reconciliation so 
providers can target high-risk patients for care management throughout 
the program period. The commenter asserted that this would improve 
accuracy at the end of the year because ACOs would likely be held 
accountable for the patients they coordinated care for during the 
performance year. One ACO commenter supported the annual option of 
prospective or preliminary prospective assignment and requested that 
the option chosen have no effect on the shared savings rate for 
ENHANCED track ACOs (a maximum of 75 percent). One commenter 
recommended that the choice of assignment only be exercised once during 
the term of the participation agreement to prevent ongoing gaming of 
the system by switching attribution models based upon financial 
arbitrage rather than focusing on care redesign. Finally, a commenter 
was concerned about the effect of late reporting on the selection of 
assignment methodology.
    Response: CMS appreciates the enthusiasm of the commenters and the 
overwhelming support received. In this final rule, and consistent with 
Section 1899(c)(2)(a) of the Act, we are providing ACOs flexibility in 
their choice of beneficiary assignment methodology. We agree that 
timely reporting and data collection are crucial for ACOs to make an 
informed assignment selection; and under Sec.  425.702, we provide ACOs 
with aggregate quarterly reports that identify prospective and 
preliminary prospective assigned beneficiaries as well as utilization 
and expenditure data. Under Sec.  425.704, we provide ACOs with monthly 
claim and claim line feed files. We provide the aggregate reports and 
monthly claim and claim line feed files to provide ACOs with data to 
aid them in making informed decisions regarding their participation in 
the program. We believe this information will may help them determine 
the assignment methodology that best suits their ACO and ACO 
participants. We confirm that an ACO's annual beneficiary assignment 
election has no effect on the maximum 75 percent shared savings rate 
for ENHANCED track ACOs. We disagree with one of the commenter's 
assertion that the election should only occur once during the contract 
term to prevent gaming by switching attribution models based on 
financial arbitrage. We believe the flexibility will allow ACOs to 
determine the best assignment methodology for their unique 
organizational structure. We do not believe that allowing ACOs to 
change their assignment methodology on an annual basis provides a 
gaming opportunity; we will continue to determine assignment based upon 
where beneficiaries receive the plurality of their primary care 
services and whether beneficiaries have designated an ACO professional 
as their primary clinician, responsible for their overall care, and 
hold ACOs accountable for the resulting assigned beneficiary 
population. Although we recognize that, for some ACOs, there may be 
some financial impact, since the choice of assignment may change the 
ACO's historical benchmark and subsequently impact expenditure 
calculations, we believe that the program-wide impact will be minimal. 
Thus, we are finalizing as proposed the opportunity for ACOs to select 
the applicable assignment methodology annually.
    Comment: Several commenters sought clarification on CMS' proposal 
and recommended that CMS clarify the following:

    <bullet> What the process will be for assignment and what 
communications would be involved;
    <bullet> When would the ACOs election of beneficiary assignment 
methodology occur and the process for the election to be made (would 
this occur during the annual certification process or as a separate 
process);
    <bullet> Is the ACO required to make an election every year or 
would they continue in the same methodology unless they make a 
proactive selection each year;
    <bullet> How the preliminary prospective with retrospective 
reconciliation versus prospective methodology would impact shared 
savings and shared losses calculations;
    <bullet> Whether there will be full disclosure to beneficiaries 
upon assignment to an ACO and expectations as to the network of 
providers;
    <bullet> Whether assigned beneficiaries can receive care outside 
of an ACO at any given time; and
    <bullet> Process for beneficiaries to opt-out of assignment.

    Response: CMS plans to align the annual selection of an assignment 
methodology (preliminary prospective with retrospective reconciliation 
or prospective assignment) with the application cycle. During this 
period, an ACO may either retain or change its current assignment 
selection that would become effective at the beginning of the next 
performance year. We are planning on automating the assignment 
methodology selection and will provide

[[Page 67863]]

further clarification in sub-regulatory guidance on the assignment 
selection process. As proposed, ACOs may select the assignment 
methodology that CMS employs for assignment of beneficiaries, ACOs are 
not required to make an election each year. CMS is establishing a 
system and process so that we can quickly and accurately execute ACOs' 
assignment methodology changes. We want to emphasize that the term 
``assignment'' for purposes of the Shared Savings Program 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 
covered services, nor will the policy allowing ACOs to annually choose 
an assignment methodology have any effect on the voluntary alignment 
process under Sec.  425.402(e).
    Concerning the impact of an ACO changing their assignment 
methodology during an agreement period, we note the program's 
calculations for establishing historical benchmarks and performance 
year reconciliation are performed consistently across all ACOs 
participating in the Shared Savings Program. We do not modify our 
benchmark year or performance year calculations based upon the 
assignment methodology.
    In addition, as explained in section II.C.3.a, we are modifying our 
proposed revisions to the current beneficiary notice requirements at 
Sec.  425.312 to require each ACO or its ACO participants to provide 
each beneficiary with a standardized written notice that explains that 
the ACO's providers/suppliers are participating in the Shared Savings 
Program. The ACO or its ACO participant would be required to provide 
this notice prior to or at the beneficiary's first primary care visit 
of each performance year in the form and manner that we specify in 
subregulatory guidance. We anticipate that the template notice will 
explain what an ACO provider or supplier's participation in an ACO 
means for the beneficiary's care and that the beneficiary has the right 
to receive care from any provider or supplier that accepts Medicare. 
ACOs and ACO participants may also provide additional information that 
they have determined to be useful when notifying beneficiaries about 
their participation in an ACO, consistent with the marketing 
requirements at Sec.  425.310.
    The Shared Savings Program voluntary alignment methodology (Sec.  
425.402(e)) allows beneficiaries to designate their primary clinician 
on MyMedicare.gov. Under the revisions to the voluntary alignment 
methodology that were finalized in the November 2018 final rule (83 FR 
59960), if a beneficiary selects an ACO professional as their primary 
clinician, the beneficiary will be prospectively assigned to the ACO, 
unless the beneficiary has been aligned to an entity participating in a 
model tested or expanded under section 1115A of the Act under which 
claims-based assignment is based solely on claims for services other 
than primary care services and for which there has been a determination 
by the Secretary that waiver of the requirement in section 
1899(c)(2)(B) of the Act is necessary solely for purposes of testing 
the model. If a beneficiary determines that he/she does not want to be 
assigned to an ACO, the beneficiary may log into MyMedicare.gov and 
designate a clinician that is not participating in an ACO as their 
primary clinician. Beneficiaries assigned to an ACO remain free to seek 
services wherever they choose, and assignment results only from a 
beneficiary's exercise of that free choice by seeking and receiving 
services from ACO participants or by selecting a primary clinician who 
is participating in the ACO on MyMedicare.gov.
    Comment: One commenter agreed with CMS' proposal for all agreement 
periods beginning on July 1, 2019, and in subsequent performance years, 
to adjust the ACO's historical benchmark to reflect a change in the 
ACO's beneficiary assignment methodology within the agreement period. 
However, the commenter sought further clarification on how an ACO would 
determine what impacts an assignment methodology change would have on 
its performance.
    Response: We note that under our proposed approach of allowing 
choice of beneficiary assignment methodology, the populations used to 
determine benchmark and performance year assignment would vary based on 
the ACO's assignment methodology selection, however the benchmark 
calculations and calculations for determining savings and losses would 
be the same. Additionally, we provide ACOs with aggregate reports (see 
Sec.  425.702) to help them trend their performance year over year. 
When looking at a similar length of time (for example, 12 months) ACOs 
can compare their performance from one year to the next. We believe 
there are other changes ACOs voluntarily make from year to year that 
may pose greater difficulty in terms of comparing ACO performance 
between performance years, such as annual changes to the ACO 
participant list.
    Final Action: After considering the comments concerning our 
proposals to allow ACOs to annually elect their beneficiary assignment 
methodology, we are finalizing the proposal as proposed. Specifically, 
we will offer ACOs entering agreement periods in the BASIC track or 
ENHANCED track, beginning July 1, 2019 and in subsequent years, the 
option to choose either prospective assignment or preliminary 
prospective assignment with retrospective reconciliation, prior to the 
start of their agreement period (at the time of application). We will 
also provide an opportunity for ACOs to switch their selection of 
beneficiary assignment methodology on an annual basis. We are 
finalizing as proposed the new section at Sec.  425.226. Additionally, 
we are finalizing as proposed the conforming changes at Sec. Sec.  
425.400 and 425.401 (assignment of beneficiaries), Sec.  425.702 
(aggregate reports) and Sec.  425.704 (beneficiary-identifiable claims 
data) to reference either preliminary prospective assignment with 
retrospective reconciliation or prospective assignment instead of 
referencing the track to which a particular assignment methodology 
applies.
5. Determining Participation Options Based on Medicare FFS Revenue and 
Prior Participation
a. Overview
    In the August 2018 proposed rule (83 FR 41813 through 41836), we 
described considerations related to, and proposed policies for, 
distinguishing among ACOs based on their degree of control over total 
Medicare Parts A and B FFS expenditures for their assigned 
beneficiaries by identifying low revenue ACOs versus high revenue ACOs, 
experience of the ACO's legal entity and ACO participants with the 
Shared Savings Program and performance-based risk Medicare ACO 
initiatives, and prior performance in the Shared Savings Program. Based 
on operational experience and considerations related to our proposal to 
extend the length of an agreement period under the program from 3 to 
not less than 5 years for agreement periods beginning on July 1, 2019 
and in subsequent years, we identified the following programmatic areas 
for further policy development.
    First, differentiating between ACOs based on their degree of 
control over total Medicare Parts A and B FFS expenditures for their 
assigned beneficiaries would allow us to transition high revenue ACOs 
more

[[Page 67864]]

quickly to higher levels of performance-based risk under the ENHANCED 
track, rather than remaining in a lower level of risk under the BASIC 
track. We stated our aim to drive more meaningful systematic change in 
high revenue ACOs which have greater potential to control total 
Medicare Parts A and B FFS expenditures for their assigned 
beneficiaries and in turn the potential to drive significant change in 
spending and coordination of care for assigned beneficiaries across 
care settings. We also aimed to encourage continued participation by 
low revenue ACOs, which control a smaller proportion of total Medicare 
Parts A and B FFS expenditures for their assigned beneficiaries, and 
thus may be encouraged to continue participation in the program by 
having additional time under the BASIC track's revenue-based loss 
sharing limits (capped at a percentage of benchmark) before 
transitioning to the ENHANCED track.
    Second, differentiating between ACOs that are experienced and 
inexperienced with performance-based risk Medicare ACO initiatives to 
determine their eligibility for participation options would allow us to 
prevent experienced ACOs from taking advantage of options designed for 
inexperienced ACOs, namely lower levels of performance-based risk.
    Third, it would be timely to clarify the differences between ACOs 
applying to renew their participation agreements and ACOs applying to 
re-enter the program after a break in participation, and to identify 
new ACOs as re-entering ACOs if greater than 50 percent of their ACO 
participants have recent prior participation in the same ACO in order 
to hold these ACOs accountable for their ACO participants' experience 
with the program. We stated our aim to provide a more consistent 
evaluation of these ACOs' prior performance in the Shared Savings 
Program at the time of reapplication. We also aimed to update policies 
to identify the agreement period an ACO is entering into for purposes 
of benchmark calculations and quality performance requirements that 
phase-in as the ACO gains experience in the program, as appropriate for 
renewing ACOs, re-entering ACOs, and new program entrants.
    Fourth, and lastly, we believed it would be appropriate to modify 
the evaluation criteria for prior quality performance to be relevant to 
ACOs' participation in longer agreement periods and introduce a 
monitoring approach for and evaluation criterion related to financial 
performance to prevent underperforming ACOs from remaining in the 
program.
b. Differentiating Between Low Revenue ACOs and High Revenue ACOs
    In section II.A.5.b of the August 2018 proposed rule (83 FR 41814 
through 41820), we proposed to differentiate between the participation 
options available to low revenue ACOs and high revenue ACOs, through 
the following: (1) Proposals for defining ``low revenue ACO'' and 
``high revenue ACO'' relative to a threshold of ACO participants' total 
Medicare Parts A and B FFS revenue compared to total Medicare Parts A 
and B FFS expenditures for the ACO's assigned beneficiaries for the 
same 12 month period; and (2) proposals for establishing distinct 
participation options for low revenue ACOs and high revenue ACOs, with 
the availability of multiple agreement periods under the BASIC track as 
the primary distinction. We also considered approaches to allow greater 
potential for reward for low revenue ACOs, such as by reducing the MSR 
ACOs must meet to share in savings during one-sided model years of the 
BASIC track's glide path, or allowing higher sharing rates based on 
quality performance during the first 4 years in the glide path.
    In this section of this final rule we summarize and respond to 
comments on the proposed approach to differentiating between low 
revenue ACOs and high revenue ACOs. We summarize and respond to 
comments on the proposed MSR for ACOs in one-sided model years of the 
BASIC track's glide path in section II.A.6.b of this final rule, 
including comments on our consideration of applying a different MSR to 
low revenue ACOs. We summarize and respond to comments on the sharing 
rate based on quality performance in the BASIC track's glide path in 
section II.A.3. of this final rule, including comments on our 
consideration of applying a different sharing rate to low revenue ACOs.
(1) Identifying Low Revenue ACOs and High Revenue ACOs
    As discussed in the August 2018 proposed rule (83 FR 41814 through 
41817), to define low revenue ACOs and high revenue ACOs for purposes 
of determining ACO participation options, we considered the 
relationship between an ACO's degree of control over the Medicare Parts 
A and B FFS expenditures for its assigned beneficiaries and its 
readiness to accept higher or lower degrees of performance-based risk. 
We explained that an ACO's ability to control the expenditures of its 
assigned beneficiary population can be gauged by comparing the total 
Medicare Parts A and B FFS revenue of its ACO participants to total 
Medicare Parts A and B FFS expenditures of its assigned beneficiary 
population. Thus, high revenue ACOs, which typically include a hospital 
billing through an ACO participant TIN, are generally more capable of 
accepting higher risk, given their control over a generally larger 
amount of their assigned beneficiaries' total Medicare Parts A and B 
FFS expenditures. In contrast, lower risk options could be more 
suitable for low revenue ACOs, which have control over a smaller amount 
of their assigned beneficiaries' total Medicare Parts A and B FFS 
expenditures.
    In the Regulatory Impact Analysis of the August 2018 proposed rule 
(see 83 FR 41917), we described an approach for differentiating low 
revenue ACOs versus high revenue ACOs that reflects the amount of 
control ACOs have over total Medicare Parts A and B FFS expenditures 
for their assigned beneficiaries. Under this analysis, an ACO was 
identified as low revenue if its ACO participants' total Medicare Parts 
A and B FFS revenue for assigned beneficiaries was less than 10 percent 
of the ACO's assigned beneficiary population's total Medicare Parts A 
and B FFS expenditures. In contrast, an ACO was identified as high 
revenue if its ACO participants' total Medicare Parts A and B FFS 
revenue for assigned beneficiaries was at least 10 percent of the ACO's 
assigned beneficiary population's total Medicare Parts A and B FFS 
expenditures. As further explained in the Regulatory Impact Analysis of 
the August 2018 proposed rule (83 FR 41917), nationally, evaluation and 
management spending accounts for about 10 percent of total Parts A and 
B per capita spending. Because beneficiary assignment principally is 
based on allowed charges for primary care services, which are highly 
correlated with evaluation and management spending, we concluded that 
identifying low revenue ACOs by applying a 10 percent limit on the ACO 
participants' Medicare FFS revenue for assigned beneficiaries in 
relation to total Medicare Parts A and B expenditures for these 
beneficiaries would be likely to capture all ACOs that were solely 
comprised of ACO providers/suppliers billing for Medicare PFS services, 
and generally exclude ACOs with ACO providers/suppliers that bill for 
inpatient or other institutional services for their assigned 
beneficiaries. We considered this approach as an option for 
distinguishing between low revenue ACOs and high revenue ACOs.
    However, we explained our concern that this approach does not 
sufficiently account for ACO participants' total

[[Page 67865]]

Medicare Parts A and B FFS revenue (as opposed to their revenue for 
assigned beneficiaries), and therefore could misrepresent the ACO's 
overall risk bearing potential, which would diverge from other aspects 
of the proposed design of the BASIC track. We believed it would be 
important to consider ACO participants' total Medicare Parts A and B 
FFS revenue for all FFS beneficiaries, not just assigned beneficiaries, 
as a factor in assessing an ACO's readiness to accept performance-based 
risk. The total Medicare Parts A and B FFS revenue of the ACO 
participants could be indicative of whether the ACO participants, and 
therefore potentially the ACO, are more or less capitalized. For 
example, ACO participants with high levels of total Medicare Parts A 
and B FFS revenue are presumed to be better capitalized, and may be 
better positioned to contribute to repayment of any shared losses owed 
by the ACO. Further, the proposed methodologies for determining the 
loss sharing limit under the BASIC track (see section II.A.3. of the 
August 2018 proposed rule (83 FR 41801 through 41810)) and the 
estimated repayment mechanism values for BASIC track ACOs (see section 
II.A.6.c. of the August 2018 proposed rule (83 FR 41840 through 
41842)), included a comparison of a specified percentage of ACO 
participants' total Medicare Parts A and B FFS revenue for all Medicare 
FFS beneficiaries to a percentage of the ACO's updated historical 
benchmark expenditures for its assigned beneficiary population.
    Accordingly, we proposed that if ACO participants' total Medicare 
Parts A and B FFS revenue exceeds a specified threshold of total 
Medicare Parts A and B FFS expenditures for the ACO's assigned 
beneficiaries, the ACO would be considered a high revenue ACO, while 
ACOs with a percentage less than the threshold amount would be 
considered a low revenue ACO. In determining the appropriate threshold, 
we considered our claims-based analysis comparing estimated revenue and 
benchmark values for Track 1+ Model applicants (see 83 FR 41807 through 
41808). We believed setting the threshold at 25 percent would tend to 
categorize ACOs that include institutional providers as ACO 
participants or as ACO providers/suppliers billing through the TIN of 
an ACO participant, as high revenue because their ACO participants' 
total Medicare Parts A and B FFS revenue would likely significantly 
exceed 25 percent of total Medicare Parts A and B FFS expenditures for 
the ACO's assigned beneficiaries. Among Track 1+ Model ACOs that self-
reported as eligible for the Model's benchmark-based loss sharing limit 
because of the presence of an ownership or operational interest by an 
IPPS hospital, cancer center or rural hospital with more than 100 beds 
among their ACO participants, we compared estimated total Medicare 
Parts A and B FFS revenue for ACO participants to estimated total 
Medicare Parts A and B FFS expenditures for the ACO's assigned 
beneficiaries. We found that self-reported composition and high revenue 
determinations made using the 25 percent threshold were in agreement 
for 96 percent of ACOs. For two ACOs, the proposed approach would have 
categorized the ACOs as low revenue ACOs and therefore allowed for a 
potentially lower loss sharing limit than the self-reported method.
    We believed small, physician-only and rural ACOs would tend to be 
categorized as low revenue ACOs because their ACO participants' total 
Medicare Parts A and B FFS revenue would likely be significantly less 
than total Medicare Parts A and B FFS expenditures for the ACO's 
assigned beneficiaries. Among Track 1+ Model ACOs that self-reported to 
be eligible for the Model's revenue-based loss sharing limit because of 
the absence of an ownership or operational interest by the previously 
described institutional providers among their ACO participants, we 
compared estimated total Medicare Parts A and B FFS revenue for ACO 
participants to estimated total Medicare Parts A and B FFS expenditures 
for the ACO's assigned beneficiaries. We found the self-reported 
composition and low revenue determinations made using the 25 percent 
threshold were in agreement for 88 percent of ACOs. The proposed 
approach would move ACOs with higher revenue to a higher loss sharing 
limit, while continuing to categorize low revenue ACOs, which are often 
composed of small physician practices, rural providers, and those 
serving underserved areas, as eligible for potentially lower loss 
sharing limits. Further, based on initial modeling with performance 
year 2016 program data, ACOs for which the total Medicare Parts A and B 
FFS revenue of their ACO participants was less than 25 percent of the 
total Medicare Parts A and B FFS expenditures for the ACO's assigned 
beneficiaries tended to have either no or almost no inpatient revenue 
and generally showed stronger than average financial results compared 
to higher revenue ACOs.
    We believed these observations were generalizable and suggested our 
proposal to use ACO participants' total Medicare Parts A and B FFS 
revenue to classify ACOs would serve as a proxy for ACO participant 
composition. The proposed approach generally would categorize ACOs that 
include hospitals, health systems or other providers and suppliers that 
furnish Part A services as ACO participants or ACO providers/suppliers 
as high revenue ACOs, while categorizing ACOs with ACO participants and 
ACO providers/suppliers that mostly furnish Part B services as low 
revenue ACOs. Accordingly, we proposed to use a 25 percent threshold to 
determine low revenue ACOs versus high revenue ACOs by comparing total 
Medicare Parts A and B FFS revenue of ACO participants to the total 
Medicare Parts A and B FFS expenditures for the ACO's assigned 
beneficiaries. Consistent with this proposal, we also proposed to add 
new definitions at Sec.  425.20 for ``low revenue ACO,'' and ``high 
revenue ACO.''
    We proposed to define ``high revenue ACO'' to mean an ACO whose 
total Medicare Parts A and B FFS revenue of its ACO participants based 
on revenue for the most recent calendar year for which 12 months of 
data are available, is at least 25 percent of the total Medicare Parts 
A and B FFS expenditures for the ACO's assigned beneficiaries based on 
expenditures for the most recent calendar year for which 12 months of 
data are available.
    We proposed to define ``low revenue ACO'' to mean an ACO whose 
total Medicare Parts A and B FFS revenue of its ACO participants based 
on revenue for the most recent calendar year for which 12 months of 
data are available, is less than 25 percent of the total Medicare Parts 
A and B FFS expenditures for the ACO's assigned beneficiaries based on 
expenditures for the most recent calendar year for which 12 months of 
data are available.
    We also considered using a lower or higher percentage as the 
threshold for determining low revenue ACOs and high revenue ACOs. 
Specifically, we considered instead setting the threshold for ACO 
participant revenue lower, for example at 15 percent or 20 percent of 
total Medicare Parts A and B FFS expenditures for the ACO's assigned 
beneficiaries. However, we were concerned a lower threshold could 
categorize ACOs with more moderate revenue as high revenue ACOs, for 
example because of the presence of multi-specialty physician practices 
or certain rural or safety net providers (such as CAHs, FQHCs and 
RHCs). Categorizing these moderate revenue ACOs as high revenue ACOs, 
could require ACOs that have a smaller degree

[[Page 67866]]

of control over the expenditures of their assigned beneficiaries, and 
ACOs that are not as adequately capitalized, to participate in a level 
of performance-based risk that the ACO would not be prepared to manage. 
We also considered setting the threshold higher, for example at 30 
percent. We noted our concern that a higher threshold could 
inappropriately categorize ACOs as low revenue when their ACO 
participants have substantial total Medicare Parts A and B FFS revenue 
and therefore an increased ability to influence expenditures for their 
assigned beneficiaries and also greater access to capital to support 
participation under higher levels of performance-based risk. We sought 
comment on these alternative thresholds for defining ``low revenue 
ACO'' and ``high revenue ACO.''
    The proposed 12-month comparison period for determining whether an 
ACO is a low revenue ACO or high revenue ACO was consistent with the 
proposed 12 month period for determining repayment mechanism amounts 
(as described in section II.A.6.c. of the August 2018 proposed rule (83 
FR 41840 through 41842)). We explained that this approach could allow 
us to use the same sources of revenue and expenditure data during the 
program's annual application cycle to estimate the ACO's repayment 
mechanism amount and to determine the ACO's participation options 
according to whether the ACO is categorized as a low revenue ACO or 
high revenue ACO. Additionally, for ACOs with a participant agreement 
start date of July 1, 2019, we also proposed to determine whether the 
ACO is a low revenue ACO or high revenue ACO using expenditure data 
from the most recent calendar year for which 12 months of data are 
available.
    We noted that under this proposed approach to using claims data to 
determine participation options, it would be difficult for ACOs to 
determine at the time of application submission whether they would be 
identified as a low revenue ACO or high revenue ACO. We explained that 
after an ACO's application is submitted and before the ACO would be 
required to execute a participation agreement, we would determine how 
the ACO participants' total Medicare Parts A and B FFS revenue for the 
applicable calendar year compare to total Medicare Parts A and B FFS 
expenditures for the ACO's assigned Medicare beneficiaries in the same 
calendar year, provide feedback and then notify the applicant of our 
determination of its status as a low revenue ACO or high revenue ACO.
    We also considered using a longer look back period, for example, 
using multiple years of revenue and expenditure data to identify low 
revenue ACOs and high revenue ACOs. For example, instead of using a 
single year of data, we considered instead using 2 years of data (such 
as the 2 most recent calendar years for which 12 months of data are 
available). In evaluating ACOs applying to enter a new agreement period 
in the Shared Savings Program, the 2 most recent calendar years for 
which 12 months of data are available would align with the ACOs' first 
and second benchmark years. While this approach could allow us to take 
into account changes in the ACO's composition over multiple years, it 
could also make the policy more complex because it could require 
determinations for each of the 2 calendar years and procedures to 
decide how to categorize ACOs if there were different determinations 
for each year, for example, as a result of changes in ACO participants. 
We sought comment on the alternative of using multiple years of data in 
determining whether an ACO is a low revenue ACO or a high revenue ACO.
    ACO participant list changes during the agreement period could 
affect the categorization of ACOs, particularly for ACOs close to the 
threshold percentage. We considered that an ACO may change its 
composition of ACO participants each performance year, as well as 
experience changes in the providers/suppliers billing through ACO 
participants, during the course of its agreement period. Any approach 
under which we would apply different policies to ACOs based on a 
determination of ACO participant revenue would need to recognize the 
potential for an ACO to add or remove ACO participants, and for the 
providers/suppliers billing through ACO participants to change, which 
could affect whether an ACO meets the definition of a low revenue ACO 
or high revenue ACO. We explained our concern about the possibility 
that an ACO may be eligible to continue for a second agreement period 
in the BASIC track because of a determination that it is a low revenue 
ACO at the time of application, and then quickly thereafter seek to add 
higher-revenue ACO participants, thereby avoiding the requirement under 
our proposed participation options to participate under the ENHANCED 
track.
    To protect against these circumstances, we proposed to monitor low 
revenue ACOs experienced with performance-based risk Medicare ACO 
initiatives participating in the BASIC track, to determine if they 
continue to meet the definition of low revenue ACO. This is because 
high revenue ACOs experienced with performance-based risk Medicare ACO 
initiatives are restricted to participation in the ENHANCED track only. 
We proposed to monitor these low revenue ACOs for changes in the 
revenue of ACO participants and assigned beneficiary expenditures that 
would cause an ACO to be considered a high revenue ACO and ineligible 
for participation in the BASIC track. We are less concerned about the 
circumstance where an ACO inexperienced with performance-based risk 
Medicare ACO initiatives enters an agreement period under the BASIC 
track and becomes a high revenue ACO during the course of its agreement 
because inexperienced, high revenue ACOs are also eligible for a single 
agreement period of participation in the BASIC track.
    We proposed the following approach to ensuring continued compliance 
of ACOs with the proposed eligibility requirements for participation in 
the BASIC track, for an ACO that was accepted into the BASIC track's 
Level E because the ACO was experienced with performance-based risk 
Medicare ACO initiatives and determined to be low revenue at the time 
of application. If, during the agreement period, the ACO meets the 
definition of a high revenue ACO, we proposed that the ACO would be 
permitted to complete the remainder of its current performance year 
under the BASIC track, but would be ineligible to continue 
participation in the BASIC track after the end of that performance year 
unless it takes corrective action, for example by changing its ACO 
participant list. We proposed to take compliance action, up to and 
including termination of the participation agreement, as specified in 
Sec. Sec.  425.216 and 425.218, to ensure the ACO does not continue in 
the BASIC track for subsequent performance years of the agreement 
period. For example, we may take pre-termination actions as specified 
in Sec.  425.216, such as issuing a warning notice or requesting a 
corrective action plan. To remain in the BASIC track, the ACO would be 
required to remedy the issue. For example, if the ACO participants' 
total Medicare Parts A and B FFS revenue has increased in relation to 
total Medicare Parts A and B FFS expenditures for the ACO's assigned 
beneficiaries, the ACO could remove an ACO participant from its ACO 
participant list, so that the ACO can meet the definition of low 
revenue ACO. If corrective action is not taken, CMS would terminate the 
ACO's

[[Page 67867]]

participation under Sec.  425.218. We proposed to revise Sec.  425.600 
to include these requirements to account for changes in ACO participant 
revenue during an agreement period.
    We also considered two alternatives to the proposed claims-based 
approach to differentiating low revenue ACOs versus high revenue ACOs, 
which, as discussed, can also serve as a proxy for ACO participant 
composition. One alternative would be to differentiate ACOs based 
directly on ACO participant composition using Medicare provider 
enrollment data and certain other data. Under this option we could 
define ``physician-led ACO'' and ``hospital-based ACO'' based on an 
ACO's composition of ACO participant TINs, including any CCNs 
identified as billing through an ACO participant TIN, as determined 
using Medicare enrollment data and cost report data for rural 
hospitals. A second alternative to the claims-based approach to 
distinguishing between ACOs based on their revenue would be to 
differentiate between ACOs based on the size of their assigned 
population (that is, small versus large ACOs). First, we considered 
differentiating between physician-led and hospital-based ACOs by ACO 
composition, determined based on the presence or absence of certain 
institutional providers as ACO participants. We considered an approach 
that deviates from the Track 1+ Model design to determining ACO 
composition for the purposes of identifying whether the ACO is eligible 
to participate under a benchmark-based or a revenue-based loss sharing 
limit by using Medicare enrollment data and certain other data to 
determine ACO composition rather than relying on ACOs' self-reported 
information, and by using a different approach to identifying 
institutional providers than applies under the Track 1+ Model.
    Under this alternative approach, we could define a hospital-based 
ACO as an ACO that includes a hospital or cancer center, but excluding 
an ACO whose only hospital ACO participants are rural hospitals. As 
used in this definition, a hospital could be defined according to Sec.  
425.20. As defined under Sec.  425.20, ``hospital'' means a hospital as 
defined in section 1886(d)(1)(B) of the Act. A cancer center could be 
defined as a prospective payment system-exempt cancer hospital as 
defined under section 1886(d)(1)(B)(v) of the Act (see CMS website on 
PPS-exempt cancer hospitals, available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/PPS_Exc_Cancer_Hospasp.html). Rural hospital could be a hospital 
defined according to Sec.  425.20 that meets both of the following 
requirements: (1) The hospital is classified as being in a rural area 
for purposes of the CMS area wage index (as determined in accordance 
with section 1886(d)(2)(d) or section 1886(d)(8)(E) of the Act); and 
(2) The hospital reports total revenue of less than $30 million a year. 
We could determine total revenue based on the most recently available 
hospital 2552-10 cost report form or any successor form. In contrast, 
we could define physician-led ACO as an ACO that does not include a 
hospital or cancer center, except for a hospital that is a rural 
hospital (as we previously described). Physician-led ACOs therefore 
could also include certain hospitals that are not cancer centers, such 
as CAHs.
    Under this alternative approach to differentiating between ACOs we 
would identify hospitals and cancer centers in our Medicare provider 
enrollment files based on their Medicare enrolled TINs and/or CCNs. We 
would include any CCNs identified as billing through an ACO participant 
TIN, as determined using PECOS enrollment data and claims data. We 
believe this alternative approach would provide increased transparency 
to ACOs because ACOs could work with their ACO participants to identify 
all facilities enrolled under their TINs to tentatively determine the 
composition of their ACO, and thus, the available participation options 
under the Shared Savings Program. However, this alternative approach to 
categorizing ACOs deviates from the proposed claims-based approaches to 
determining loss sharing limits and the repayment mechanism estimate 
amounts for ACOs in the BASIC track using ACO participant Medicare FFS 
revenue and expenditures for the ACO's assigned beneficiaries.
    Second, we also considered differentiating between ACOs based on 
the size of their assigned beneficiary population, as small versus 
large ACOs. Under this approach, we could determine an ACO's 
participation options based on the size of its assigned population. We 
recognize that an approach that distinguishes between ACOs based on 
population size would require that we set a threshold for determining 
small versus large ACOs as well as to determine the assignment data to 
use in making this determination (such as the assignment data used in 
determining an ACO's eligibility to participate in the program under 
the requirement that the ACO have at least 5,000 assigned beneficiaries 
under Sec.  425.110). For instance, we considered whether an ACO with 
fewer than 10,000 assigned beneficiaries could be defined as a small 
ACO whereas an ACO with 10,000 or more assigned beneficiaries could be 
defined as a large ACO. However, we currently have low revenue ACOs 
participating in the program that have well over 10,000 assigned 
beneficiaries, as well as high revenue ACOs that have fewer than 10,000 
assigned beneficiaries. We believed a revenue-based approach would be a 
more accurate means to measure the degree of control that ACOs have 
over total Medicare Parts A and B FFS expenditures for their assigned 
beneficiaries compared to an approach that only considers the size of 
the ACO's assigned population.
    We sought comment on the proposed definitions of ``low revenue 
ACO'' and ``high revenue ACO''. We also sought comment on the 
alternatives considered. Specifically, we sought comment on the 
alternative of defining hospital-based ACO and physician-led ACO based 
on an ACO's composition of ACO participant TINs, including any CCNs 
identified as billing through an ACO participant TIN, as determined 
using Medicare enrollment data and cost report data for rural 
hospitals. In addition, we sought comment on the second alternative of 
differentiating between ACOs based on the size of their assigned 
population (that is, small versus large ACOs).
    Comment: A few commenters generally supported the proposed use of a 
distinction between low revenue ACOs and high revenue ACOs for 
determining ACO participation options. One commenter explained its 
belief that small ACOs in rural areas face challenges that large health 
systems do not. A few commenters supported the distinction between low 
and high revenue ACOs for determining ACO participation options but 
suggested alternative approaches to implementing this policy as further 
described in this section of this final rule. One commenter explained 
that there is intuitive logic in the idea that risk tolerance should be 
commensurate with organization size or financial wherewithal.
    Response: We appreciate the support of the commenters who generally 
favored the proposed approach and our related considerations.
    Comment: Many commenters expressed concerns about the proposed 
approach to identifying low revenue ACOs versus high revenue ACOs. A 
few commenters requested that CMS not finalize the distinction to avoid 
creating new blunt tools to define and categorize ACOs. Another 
commenter explained that the proposed rule states that the

[[Page 67868]]

low revenue ACO versus high revenue ACO distinction is intended to 
measure differences in the ability of the ACO to control total 
spending, but the commenter believed the discussion suggested that the 
real goal is to identify which ACO participants have more financial 
resources and are less likely to be bankrupted by repaying losses to 
CMS.
    Response: We thank commenters for their careful consideration of 
the proposed approach to identifying ACOs as low revenue ACOs versus 
high revenue ACOs, and the related considerations discussed in section 
II.A.5.b.(2) of this final rule for distinguishing participation 
options of ACOs (in part) based on this determination.
    We continue to believe that the total Medicare Parts A and B FFS 
revenue of the ACO participants could be indicative of whether the ACO 
participants, and therefore potentially the ACO, are more or less 
capitalized and thus able to accept higher levels of performance based 
risk. We also believe that these higher levels of performance-based 
risk for these organizations can act as a stronger catalyst for them to 
redesign care, in conjunction with the new tools and flexibilities for 
risk based ACOs and achieve program goals more quickly. For example, 
ACO participants with high levels of total Medicare Parts A and B FFS 
revenue are presumed to be better capitalized, and may be better 
positioned to contribute to repayment of any shared losses owed by the 
ACO. To this extent we agree with the commenter that indicated that one 
goal of the proposed approach is to place better capitalized ACOs under 
participation options that are commensurate with their ability to take 
on greater risk because they have the capacity to repay losses (if 
owed).
    We disagree with commenters' suggestions that we remain neutral to 
whether an ACO has low revenue or high revenue in determining program 
participation options. We continue to believe that all ACOs should 
eventually participate under the program's highest level of risk and 
potential reward, in the ENHANCED track, which could drive ACOs to more 
aggressively pursue the program's goals of improving quality of care 
and lowering growth in FFS expenditures for their assigned beneficiary 
populations. For the reasons we have previously described in the August 
2018 proposed rule and as restated in this final rule, we also continue 
to believe that low revenue ACOs should be allowed additional time to 
prepare to take on the higher levels of performance-based risk required 
under the ENHANCED track. Therefore we continue to believe it is 
necessary to distinguish participation options based on ACO 
participants' Medicare FFS revenue (among other factors as described 
elsewhere in this final rule).
    Comment: Some commenters, including MedPAC, viewed favoring low 
revenue ACOs over high revenue ACOs (or physician-only ACOs over ACOs 
that include hospitals) as unnecessary. MedPAC pointed out that the 
maximum risk under two-sided models of the proposed BASIC track already 
accounts for the ACO participants' revenue, with low revenue or small 
ACOs having relatively limited maximum risk in some cases compared to 
high revenue ACOs. MedPAC explained that the automatic transition to 
two-sided risk in the glide path will ensure that high revenue ACOs 
transition to performance-based risk to prevent them from further 
increasing spending and that low revenue ACOs that expect to achieve 
savings should be willing to move into Level E in the glide path, which 
has minimal risk and potentially greater reward.
    Response: We agree with MedPAC that under the BASIC track's two-
sided models, where we determine the maximum loss liability based on 
the higher of a percentage of ACO participants' Medicare FFS revenue or 
a percentage of the ACO's updated benchmark, high revenue ACOs will be 
at proportionally greater risk than low revenue ACOs. We disagree, 
however, with commenters' suggestions that the same participation 
options and therefore the same progression to higher levels of 
performance-based risk should be made available to all ACOs. We 
continue to believe that low revenue ACOs should be allowed additional 
time to prepare to take on the higher levels of performance-based risk 
required under the ENHANCED track and that high revenue ACOs should be 
given stronger incentives over time to continue to transform care. 
Therefore, we continue to believe it is necessary to distinguish 
participation options based on ACO participants' Medicare FFS revenue 
(among other factors, as described elsewhere in this final rule), and 
disagree with commenters who argued that identifying ACOs as low 
revenue ACOs versus high revenue ACOs is unnecessary.
    Comment: Some commenters viewed the distinction between low revenue 
ACOs and high revenue ACOs as arbitrary or unfounded. Some commenters 
did not accept CMS' position that a greater level of control over 
assigned beneficiaries' total Part A and Part B spending (``low revenue 
ACOs'' versus ``high revenue ACOs'') necessarily should lead to better 
performance or readiness to accept performance-based risk. Several 
commenters described the concept that high revenue ACOs have a higher 
degree of control over Part A and B expenditures and that they have 
more control over the full continuum as a ``fallacy'' and 
``fundamentally flawed''.
    MedPAC explained that physician-only ACOs have, in effect, a larger 
incentive to reduce hospital-provided services than ACOs in which 
hospitals are also participating, because reduced expenditures for 
costly hospital services represent forgone revenue for the hospital. 
Similarly, another commenter explained that physician-led or physician-
dominated ACOs, particularly those led or dominated by primary care 
physicians, can succeed in an ACO by providing more services 
themselves, and thereby enhancing their own FFS revenue along the way, 
and then cutting back on referrals, admissions, testing, and other 
services that result in expenditures and correspondingly involve 
revenues to some entity that is not part of the ACO. On the other hand, 
an ACO led by a hospital or created as part of an integrated system 
must cut its own FFS revenues at multiple levels to succeed. According 
to this commenter, in principle, the latter type of ACO has more 
``control'' over total spending, but ``control'' means intentionally 
cutting back on Medicare volumes and revenues within its own network of 
providers and suppliers. One commenter explained that the larger the 
organization, the more time and effort it takes to gain collaboration 
and navigate various systems, to achieve consensus and implement 
changes. One commenter pointed to the discussion in the proposed rule 
to suggest the opposite point, that the ACOs that have been relatively 
more successful so far have been the smaller, physician-led ACOs that 
have demonstrated strong financial performance despite having 
relatively less ``control'' over total Part A and Part B spending (83 
FR 41819).
    Another commenter disagreed with CMS that hospitals can innately 
influence Medicare FFS costs, and instead expressed that only 
experienced ACO entities can exert this level of control because they 
will have already developed preferred post-acute care networks, 
educated them on cost and readmissions reduction, and included them as 
ACO participants in order to exert meaningful control over total 
beneficiary cost of care.
    Response: We do not believe the proposed approach to distinguishing

[[Page 67869]]

low revenue ACOs versus high revenue ACOs is arbitrary or unfounded, 
and it is informed by our early experience with the Track 1+ Model as a 
means to differentiate the ability of ACOs to bear higher degrees of 
performance-based risk. More specifically as we explained in the August 
2018 proposed rule and reiterate in this final rule, our experience 
with the Track 1+ Model demonstrates that ACO participants' Medicare 
FFS revenue can serve as a proxy for self-reported composition. In 
particular, higher Medicare FFS revenue among ACO participants in 
relation to the ACO's benchmark expenditures tends to be indicative of 
the presence of institutional providers in the ACO. We continue to 
believe in the validity of the proposed approach as a means to identify 
ACOs that are likely prepared to participate in greater levels of risk 
after gaining experience with more modest levels of risk and to 
mitigate the burden on ACOs (as compared to the Track 1+ Model) by not 
requiring ACOs to self-report data about the ownership and operational 
interests of their ACO participants, which, in addition, is difficult 
for CMS to independently validate.
    We disagree with commenters who suggest that ACO providers/
suppliers that bill for and receive payment for a proportionally 
greater amount of the ACO's assigned beneficiaries' Part A and B 
Medicare FFS expenditures and that have agreed to become accountable 
for the total cost and quality of care they provide these 
beneficiaries, are unable to effectively manage these costs in 
proportion to their control over a relatively larger or smaller 
proportion of assigned beneficiaries' expenditures.
    Commenters provided examples of approaches ACOs may use to lower 
FFS expenditures for their assigned beneficiaries, such as coordinating 
post-acute care to avoid unnecessary readmissions, or focusing on the 
provision of primary care services to avoid the need for more costly 
specialty and facility-based services. We note that primary care 
providers have a central role in the Shared Savings Program, for 
instance as evidenced by the use of primary care services provided by 
ACO participants as the basis for beneficiary assignment. In focusing 
on primary care, ACOs may seek to reduce avoidable services by and 
consequently payments to acute-care facilities (for example) under FFS 
Medicare.
    We also acknowledge that ACOs are composed differently and take a 
variety of organizational forms, as is permitted under section 
1899(b)(1) of the Act and through the program's regulations, at Sec.  
425.102, describing the ACO participants or combinations of ACO 
participants eligible to form an ACO. Based on our observations, 
successful ACOs typically achieve lower growth in expenditures across 
all claim types. We also acknowledge that the ability of an ACO to 
succeed may be specific to its composition, governance and leadership, 
factors specific to its market circumstances and the populations it 
serves, as well as the ACO's individualized approach to meeting the 
program's goals.
    Further, we note the following in response to the commenter's 
suggestion that there is an inconsistency between our belief that low 
revenue ACOs have less control over assigned beneficiaries 
expenditures, and therefore may be less capable of taking on higher 
levels of two-sided-risk, and our findings based on program performance 
results that low revenue ACOs have been relatively more successful so 
far compared to high revenue ACOs. The levels of risk and reward for 
each track of the Shared Savings Program ultimately are set based on 
the ACO's benchmark. However, a comparison of the ACO's benchmark-based 
risk and reward in relation to the total Medicare Parts A and B FFS 
revenue of the ACO participants highlights that ACOs with lower ACO 
participant total Medicare Parts A and B FFS revenue have the potential 
to incur both losses and savings that are a greater percentage of such 
revenue than ACOs that are higher revenue. For example, consider a low 
revenue ACO that has ACO participant total Medicare Parts A and B FFS 
revenue of $2,000,000 and benchmark expenditures of $100,000,000, so 
the total Medicare Parts A and B FFS revenue of the ACO participants 
would be 2 percent of the ACO's benchmark expenditures. If this low-
revenue ACO then achieved savings of 3 percent of its benchmark 
($3,000,000), and shared at a rate of 50 percent, the ACO would earn 
$1,500,000 in shared savings. This shared savings amount would 
represent 75 percent of the total Medicare Parts A and B FFS revenues 
of the ACO participants, providing a large incentive for this ACO to 
continue to improve the quality of care and control costs for 
beneficiaries. Next, consider a high revenue ACO that has ACO 
participant total Medicare Parts A and B FFS revenue of $200,000,000 
but has the same benchmark as the low revenue ACO of $100,000,000. The 
total Medicare Parts A and B FFS revenue of the ACO participants in the 
ACO would be 200 percent of the ACO's benchmark expenditures. If this 
high revenue ACO then achieved the same savings of 3 percent of its 
benchmark ($3,000,000), and shared at a rate of 50 percent, the ACO 
would earn the same $1,500,000 in shared savings. This shared savings 
amount would only represent 0.75 percent of the total Medicare Parts A 
and B FFS revenues of the ACO participants, providing a much smaller 
incentive for this ACO to improve care and control costs for 
beneficiaries. We therefore believe that identifying ACOs as high 
revenue ACOs and low revenue ACOs is an appropriate method to identify 
which ACOs are more likely to demonstrate improved performance under 
greater levels of risk and reward. Our historical results show that 
these relatively greater incentives (for lower revenue ACOs, as shown 
in the first example) may have influenced and supported the better 
performance of low revenue ACOs compared to high revenue ACOs.
    Comment: A few commenters offered an alternative suggestion for 
making adjustments in financial rewards and penalties that would 
directly measure the degree of control that ACOs have over total 
Medicare Parts A and B FFS expenditures for their assigned 
beneficiaries, instead of using proxies that the commenters viewed as 
problematic, such as the proportion of ACO participant revenues to 
expenditures for assigned beneficiaries. These commenters suggested 
this could be done by dividing services or spending into several 
categories reflecting the relative levels of control that ACO 
participants would be expected to have over services, and then 
assigning different levels of reward potential (and risk) to each. 
These categories could include spending for: Services delivered by ACO 
participants; services ordered by ACO participants; services resulting 
from potentially avoidable complications of services delivered or 
ordered by ACO participants; and all other services.
    One commenter suggested that CMS also distinguish between health 
systems that are for-profit and not-for-profit, because not-for-profit 
entities on average provide more uncompensated care than for-profit 
entities.
    Response: We prefer our proposed approach to distinguishing ACOs 
based on a comparison of estimated total Medicare Parts A and B FFS 
revenue for ACO participants to estimated total Medicare Parts A and B 
FFS expenditures for the ACO's assigned beneficiaries because it is 
simpler, allows for greater transparency, and is easier to validate. We 
decline to adopt the alternative methodologies suggested by commenters. 
For instance, we decline to increase the complexity of the

[[Page 67870]]

approach to distinguishing the degree of control ACO participants have 
over expenditures of the ACO's assigned beneficiaries by dividing 
services or spending into several categories (such as services 
delivered by ACO participants, services ordered by ACO participants, 
services resulting from potentially avoidable complications of services 
delivered or ordered by ACO participants, and all other services), and 
then assigning different levels of reward potential (and risk) to each 
because the Shared Savings Program is a population-based model and ACOs 
are accountable for the total cost of care rather than more segmented 
expenditure components as currently exist under other parts of the 
Medicare FFS program. We also decline to adopt an approach that only 
considers the ACO's tax status, or corporate structure, such as based 
on whether the ACO is for-profit, or not-for-profit, since ACOs must be 
governed by their ACO participants (according to Sec.  425.106(c)(3)) 
and the ACO legal entity may have a different tax or corporate 
structure than its ACO participants, and tax status or corporate 
structure is not indicative of an organization's ability to take on 
risk.
    Comment: One commenter suggested that the proposed approach may not 
take into account recent, major changes to the program's benchmarking 
methodology that could drastically alter the current discrepancy in 
performance between low revenue ACOs and high revenue ACOs. This 
commenter suggested that CMS should not rush with multiple major 
changes to the program simultaneously and should instead wait to see if 
adjustments to benchmarking, risk adjustment, and other design elements 
help to address other discrepancies, including the pattern of high 
revenue ACOs not performing as well as low revenue ACOs.
    Response: We disagree with the commenter's suggestion that we delay 
implementing the proposed changes to the program's design to allow for 
additional experience with the program. We believe the proposed 
changes, which were based on program results and our experience in 
implementing program policies and the Track 1+ Model, are necessary to 
drive Medicare FFS providers and suppliers towards a system of value-
based payment instead of volume-based payment and that these policies 
work in combination to help transition health care providers more 
quickly, but still incrementally, to value-based care. As we explained 
in the August 2018 proposed rule (83 FR 41787), and have reiterated in 
this final rule, while we understand that systems need time to adjust, 
Medicare cannot afford to continue with models that are not producing 
desired results. We also note that many ACOs currently participating in 
Track 1 are near the end of their second agreement period and thus have 
had 5 or 6 years of experience in the program entirely under the one-
sided model, and should be capable and ready to transition to 
performance-based risk. Further, we do not have reason to believe that 
the benchmarking changes that we are adopting in this final rule 
(discussed in section II.D. of this final rule) would necessarily lead 
to improved performance for high revenue ACOs versus low revenue ACOs, 
and therefore we do not anticipate that these changes alone would 
eliminate or reduce the differential performance patterns we have seen 
in the past.
    Comment: A few commenters suggested that CMS should create a level 
competitive playing field and let those that perform best succeed most, 
and find approaches that are not based on an ACO's composition to 
eliminate poor performers. One commenter suggested that CMS ensure that 
its methodology rewards ACOs that do a better job of controlling 
spending instead of emphasizing revenue. Several commenters suggested 
(as an alternative to distinguishing low revenue ACOs and high revenue 
ACOs) that CMS improve the program's methodology to accurately reward 
performance for improving quality and reducing costs, and offer 
resources and assistance to all ACOs. One commenter stated that the 
program should be about raising the bar for everyone and not 
disadvantaging one provider group over another with respect to their 
ACO participation.
    One commenter recommended that CMS should focus on addressing a 
smaller group of ACOs with poor performance rather than implementing 
the broader proposed changes to differentiate participation options for 
all ACOs. The commenter stated that in the performance year 2017 
program data, eight ACOs with costs exceeding benchmarks by more than 
$20 million were responsible for $251 million of the losses under the 
Shared Savings Program. According to the commenter, 5 percent of Shared 
Savings Program ACOs were responsible for 42 percent of the negative 
impact on the program.
    Response: We believe that the program's design already includes 
significant financial incentives for ACOs, ACO participants, and ACO 
providers/suppliers, to enter the program and continue their 
participation in the program, as well as to meet the program's goals of 
lowering growth in Medicare FFS expenditures and improving quality of 
care for their assigned Medicare FFS beneficiaries so that ACOs may 
share in savings with Medicare. We believe that the level of 
participation and interest in the program are evidence of the value 
healthcare providers see in forming ACOs and participating in the 
Shared Savings Program.
    Further, we disagree with commenters suggesting that participation 
option requirements should be focused on select, poorly performing 
ACOs, such as ACOs with proportionally large shared losses. We believe 
such an option would be too narrow to adequately incentivize the 
majority of ACOs, and we continue to believe that a broader redesign of 
program participation options is warranted, and greater gains in 
improving quality and reducing costs would be seen from our proposed 
participation options, as opposed to maintaining the status quo or 
creating policies targeted at only a few ACOs in the program. We also 
believe these revised program policies should be applied program-wide, 
to further drive improved performance for all participating ACOs. As 
discussed in section II.A.5.d of this final rule, we are finalizing our 
proposal to monitor ACO financial performance and to potentially 
terminate ACOs demonstrating significant losses (negative outside 
corridor) for two performance years. We believe that this policy will 
identify ACOs that are repeatedly large outliers in terms of financial 
losses, which may be unable to meet program goals and objectives.
    Comment: Several commenters expressed that the proposed approach 
overlooks the original intention of the Shared Savings Program to 
foster collaboration between providers (specifically between physicians 
and hospitals) and would prove detrimental to program goals. A few 
commenters stated that healthcare transformation can only successfully 
occur when there is coordination across the continuum of care.
    Some commenters argued that the proposed approach would set up a 
system that disadvantages hospital-based ACOs and could therefore limit 
the types of innovations needed to build a high performing healthcare 
system for the range of communities across the nation. These commenters 
tended to suggest that the best way to drive high quality care for 
patients is to create incentives that drive all the providers in a 
system to collaborate, to innovate and deliver high quality, cost 
effective healthcare.

[[Page 67871]]

    One commenter, discussing the proposal to make the Shared Savings 
Program more accessible to low revenue and inexperienced ACOs, 
suggested that CMS consider policies that generate more accessible 
opportunities for practices and organizations to begin moving along the 
path to outcome-based payment. The commenter cautioned that a narrow 
program that accelerates progress for some, but leaves many behind, 
will not meet our national ambitions to transform to a high-value, 
outcome-based healthcare delivery system.
    One commenter explained that new incentives to work harder through 
greater financial risk in two-sided risk models are also incentives to 
leave the program and revert back to FFS payment, a consideration 
echoed in other comments.
    Response: We believe that the proposed approach to redesigning the 
program's participation options, and the approach as finalized in this 
final rule, will further the fulfillment of the program's goals of 
improving quality of care and lowering growth in Medicare FFS 
expenditures for beneficiaries. We believe that rapid transition to the 
new participation options will drive more meaningful systematic change 
in ACOs, which have the potential to control their assigned 
beneficiaries' Medicare Parts A and B FFS expenditures by coordinating 
care across care settings, and thus to achieve significant change in 
spending. We also believe that these policies will promote free-market 
principles which may lead to further innovation within markets and 
potentially greater success in achieving the program's goals. The new 
tools and flexibilities afforded to ACOs participating under 
performance-based risk, such as the expanded ability of their 
clinicians to furnish covered telehealth services under section 1899(l) 
of the Act and to strengthen beneficiary engagement through new 
beneficiary incentive programs, in conjunction with revised 
benchmarking and risk adjustment policies, will enable these ACOs to be 
successful.
    We also note that based on our observations, successful ACOs 
typically achieve lower growth in expenditures across all claim types, 
and we believe this is a reflection of the collaborative relationships 
that exist within ACOs (between ACO providers/suppliers), and 
collaborations between ACOs and non-ACO providers and suppliers and 
other entities. We believe that hospitals will remain essential ACO 
participants in many cases, and non-ACO participant partners in others, 
as they are key collaborators in meeting the program's goals of 
lowering growth in Medicare Parts A and B FFS expenditures, and 
improving the quality of care, for the ACO's assigned beneficiary 
population.
    The Shared Savings Program was established as, and remains, a 
voluntary program for providers and suppliers to become accountable for 
the quality and cost of care for an assigned population of Medicare FFS 
beneficiaries. We have aligned incentives between the Shared Savings 
Program and other CMS initiatives to provide beneficiaries value-based 
care. For example, program participation has taken on greater 
significance since the establishment of the Quality Payment Program. 
Our continued alignment with the Quality Payment Program provides a low 
burden way for clinicians to participate in both programs, including 
allowing eligible clinicians in ACOs that are participating in a track 
of the Shared Savings Program that is an Advanced Alternative Payment 
Model (APM) to qualify for APM incentive payments. We acknowledge that 
Medicare is only one payer, but effective collaborations between 
providers and suppliers are necessary to provide high-quality, value-
based care across the healthcare system, and the APM track of the 
Quality Payment Program will account for participation in both Advanced 
APMs and in Other Payer Advanced APMs with payers other than Medicare 
through the All-Payer Combination Option beginning in performance year 
2019.
    Comment: One commenter explained that the disproportionate emphasis 
on ACOs reducing costs overshadows the equally important goal of 
quality improvement, which benefits patients and the Medicare program 
generally.
    Response: In response to the concern that the proposed redesign of 
the program is disproportionately focused on lowering growth in 
expenditures, and not sufficiently focused on quality of care, we note 
that improved quality of care for patients was one of the five 
principles guiding our proposed redesign of the Shared Savings Program, 
and we disagree with the commenters' assertion that this goal has been 
overshadowed by a focus on lowering growth in expenditures. We also 
note that we recently finalized policies in the November 2018 final 
rule to make the quality measure set more outcome oriented, while also 
reducing reporting burden on ACOs and their participating ACO 
providers/suppliers.
    Comment: One commenter pointed out the added complexity proposed 
for determining participation options for ACOs under the program 
redesign, with CMS evaluating whether ACOs are new, renewing or re-
entering, experienced or inexperienced with performance-based risk, and 
high revenue or low revenue. The commenter suggested that eliminating 
the high revenue ACO versus low revenue ACO distinction would help 
minimize some of the complexity and would remove a significant amount 
of work required by CMS and ACOs to model, predict, and determine if 
the ACO would be a high revenue ACO or a low revenue ACO. Some 
commenters opposed to the concept of distinguishing between ACOs 
according to the proposed low revenue ACO and high revenue ACO 
definitions viewed the distinction as confusing.
    Response: We believe that ACOs should be able to surmise if they 
are likely to be determined low revenue ACOs or high revenue ACOs, 
based on their composition. ACOs with a large hospital or other 
institutional provider will likely be determined to be high revenue 
ACOs. We plan to provide feedback to ACOs during the application 
process, and as part of program monitoring of low revenue ACOs 
experienced with performance-based risk Medicare ACO initiatives that 
are in an agreement period under Level E of the BASIC track (discussed 
elsewhere in this section of this final rule) regarding their status as 
a low revenue ACO or high revenue ACO. More generally, we anticipate 
providing information annually to ACOs within their agreement period, 
particularly as part of the ACO participant list change request review 
cycles, about their ACO participants' Medicare FFS revenue so they will 
have information about the composition of their ACO and the Medicare 
FFS revenue of their ACO participants to support their ongoing 
participation in the program. As discussed in greater detail elsewhere 
in this preamble, we believe that considering whether an ACO is a low 
revenue ACO or high revenue ACO is an important and necessary policy 
for determining ACO participation options within the program redesign.
    Comment: A few commenters supported CMS' proposed definitions for 
low revenue ACO and high revenue ACO. A few commenters indicated their 
preference for the proposed use of Medicare claims data to make the low 
revenue ACO versus high revenue ACO determination, rather than the 
alternative sources of data discussed in the proposed rule. For 
instance, one commenter explained that a claims-based approach would 
provide a more accurate method for determining an ACO's preparedness to 
take on additional risk rather than an ACO's self-reported information 
regarding the

[[Page 67872]]

composition of its ACO participants and any ownership and operational 
interests in those ACO participants. Another commenter shared CMS' 
belief that a revenue-based approach would be a more accurate means to 
measure the degree of control that ACOs have over total Medicare Parts 
A and B FFS expenditures for their assigned beneficiaries compared to 
approaches that consider the size of the ACO's assigned population or 
the inclusion of a hospital or cancer center in the ACO.
    However, other commenters suggested a variety of alternatives. Some 
commenters suggested alternative approaches to identifying low revenue 
ACOs and high revenue ACOs using alternative sources of data instead of 
or in addition to ACO participant Medicare Parts A and B FFS revenue.
    More generally, some commenters believe the proposed approach could 
result in ACOs gaming the revenue determinations by manipulating their 
ACO participant lists. For instance, a high revenue ACO could be 
encouraged to selectively redefine its component TINs to meet the 
definition of a low revenue ACO, such as by restructuring to exclude 
acute care facilities. Other commenters suggested low revenue, or 
physician-led ACOs may avoid including these facilities as ACO 
participants. Several commenters indicated that use of FFS revenue as a 
proxy for composition could lead to ACOs appearing to be low revenue 
when in fact they have hospitals or health systems in their ownership 
and operational chain, and suggested CMS use other data to make these 
determinations. One commenter explained that the proposed approach 
could lead an ACO to split its network of physicians, which it 
considers a suboptimal outcome and counter to the organization's long-
standing collaborative approach. This commenter also noted that there 
are non-trivial costs to setting up a new physician network and ACO 
entity.
    A few commenters suggested that CMS apply the Track 1+ Model policy 
requiring ACO attestation regarding the ownership interests of and in 
its ACO participants in determining participation options under the 
Shared Savings Program. One commenter preferred the Track 1+ Model 
approach to the proposed distinction between low revenue ACOs and high 
revenue ACOs. Another commenter suggested we apply the Track 1+ Model 
approach in addition to the proposed approach to determining low 
revenue ACOs and high revenue ACOs. However, several commenters 
preferred CMS forgo self-reporting requirements as exist, for example, 
under the Track 1+ Model.
    One commenter suggested that CMS use additional data on full 
organizational structure (such as such as IRS filings and PECOS data) 
to determine organization-wide revenue for physician groups responsible 
for the bulk of the ACO's assigned population. Under this alternative, 
the commenter suggested that CMS consider ACOs with physician groups 
that are part of a large health system, or large physician groups with 
market power (such as those that are very specialty-heavy or have 
substantial market share) to be high revenue ACOs. This commenter also 
expressed concern that the proposed approach to determining low revenue 
ACOs and high revenue ACOs could discourage partnerships between 
physician groups and hospitals through means other than mergers and 
acquisitions. To address this circumstance, the commenter suggested 
that ACOs should be regarded as low revenue if their ACO participant 
lists include independent physician groups and hospitals, to avoid 
disrupting these partnerships. This commenter argued that under this 
alternative approach, consolidation in provider markets would be 
discouraged because it would lead to more downside risk in available 
Shared Savings Program participation options, while partnerships or 
preferred networks that can support competition and do not cause 
commercial mark-ups would not be discouraged.
    However, somewhat contrary to this suggestion, a few commenters 
explained their belief that it is valuable for physician-led ACOs to be 
able to recruit and include specialty physicians to further redesign 
health care delivery. According to these commenters, simply because a 
physician-led ACO contracts with specialty practices does not ensure 
the ACO is more capable of taking on ENHANCED track level of risk.
    One commenter seemed to suggest we go further than the Track 1+ 
Model approach, which requires ACOs to report to CMS certain ownership 
and operational interests in ACO participants, by counting revenue 
received by entities that have ownership and operational interests in 
ACO participants and not just revenue received by providers and 
suppliers that bill through the TINs included on the ACO's participant 
list. This commenter explained that failing to count revenue earned by 
entities with an ownership or operational relationship to ACO 
participants would allow many ACOs that are affiliated with a hospital 
to access participation options that are intended for physician-only 
ACOs through manipulation of their ACO participant list. However, 
seemingly contrary to this suggestion, another commenter explained that 
some ACOs have shareholders that are large hospital systems but own 
only a small portion of the ACO and do not provide a substantial amount 
of funding to the ACO. This commenter (an ACO), explained that it would 
have to close its doors if all income for the other entities with 
ownership interests in ACO participants (such as a large hospital 
system) was considered when setting the ACO's amount of loss liability.
    Several commenters suggested that we consider ACO participant 
composition in making the low revenue ACO versus high revenue ACO 
determination. One commenter suggested that CMS identify ACOs that 
include hospitals as ACO participants, and designate those ACOs as 
``high revenue''. Some commenters suggested that rural ACOs be 
considered low revenue ACOs. In particular, some commenters suggested 
rural ACOs that meet ACO Investment Model (AIM) eligibility criteria 
should be considered low revenue ACOs.
    One commenter recommended that CMS consider more than two revenue 
definitions or categories, suggesting that the proposed distinction may 
be too stark. The commenter suggested that CMS use multiple criteria, 
such as using self-reported composition, ACO composition as determined 
by CMS according to the alternative approach considered for 
distinguishing hospital-based and physician-led ACOs, and size of an 
ACO's assigned beneficiary population, in differentiating low revenue 
ACOs and high revenue ACOs.
    A few commenters stated that CMS is unable to truly identify 
whether an ACO is well capitalized and should not create distinctions 
based on assumptions about capital, indicating that CMS is unable to 
identify if an ACO is well capitalized through sources outside of 
Medicare revenue (such as insurer- or investor-backed ACOs). A few 
commenters explained, for example, the proposed approach would not 
capture private investments in ACOs, noting that insurers and venture 
capital funds have invested heavily in some ACOs, often physician-led 
ACOs.
    One commenter encouraged CMS to leverage public use data to 
calculate an ACO's revenue in an effort to make the ACO's revenue 
determination transparent, citing as an example the ``Medicare Provider 
Utilization and Payment'' data available through https://data.cms.gov.
    Response: We appreciate the support of some commenters for CMS' 
proposed definitions for low revenue ACO and

[[Page 67873]]

high revenue ACO, and commenters' careful consideration of the options 
we considered, as well as their alternative suggestions.
    We note that commenters offered opposing positions on some of the 
suggested alternative approaches. For instance, comments reflect 
differing views on the approach used under the Track 1+ Model to 
determine whether ACOs are under a revenue-based or benchmark-based 
loss sharing limit, with some supporting and others opposing the Track 
1+ Model approach. One commenter seemed to mistakenly believe that 
under the Track 1+ Model, we consider the revenue earned by health care 
providers with an ownership or operational interest in an ACO 
participant. However, to clarify, under the design of the Track 1+ 
Model, ACOs are required to collect, assess, and report to CMS 
information on the ownership and operational interests of their ACO 
participants, which in turn is used to determine the ACO's 
participation options under the Track 1+ Model. As we described in the 
August 2018 proposed rule, we believe this approach adds complexity for 
ACOs and is also more complex for CMS to validate and audit. As a 
result, we explained that the use of ACOs' self-reported information in 
the permanent program could become burdensome for CMS to validate and 
monitor to ensure program integrity (83 FR 41807). Therefore, we agree 
with commenters that we should forgo use of similar self-reporting 
requirements in determining low revenue ACOs and high revenue ACOs 
under the Shared Savings Program.
    We continue to believe, based on our experience with the Track 1+ 
Model, that ACO participants' Medicare Part A and B FFS revenue serves 
as an effective and accurate proxy for self-reported composition. Based 
on our experience with the initial application cycle for the Track 1+ 
Model, we believe a simpler approach that achieves similar results to 
the use of self-reported information would be to consider the total 
Medicare Parts A and B FFS revenue of ACO participants (TINs and CCNs) 
based on claims data, without directly considering their ownership and 
operational interests (or those of related entities). We believe that 
the use of Medicare Parts A and B FFS claims data for ACO participants 
provides an accurate estimate of their Medicare revenue and potential 
ability to cover losses that are proportional to their Medicare 
revenue. It also avoids additional burden for ACOs to collect and 
submit revenue data to CMS and for CMS to establish additional 
collection and validation processes.
    Further, we continue to believe that ACOs whose ACO participants 
have greater total Medicare Parts A and B FFS revenue relative to the 
ACO's benchmark are better financially prepared to move to greater 
levels of risk (83 FR 41807). Accordingly, this comparison of revenue 
to benchmark would provide a more accurate method for determining an 
ACO's preparedness to take on additional risk than an ACO's self-
reported information regarding the composition of its ACO participants 
and any ownership and operational interests in those ACO participants.
    Commenters also offered differing perspectives on use of ACO 
participant composition to determine ACO participation options. 
However, as we explained in the August 2018 proposed rule, we continue 
to believe that a claims-based approach to determining low revenue ACOs 
and high revenue ACOs would better align with the claims-based 
approaches to determining loss sharing limits (discussed in section 
II.A.3 of this final rule) and the repayment mechanism estimate amounts 
for ACOs (as discussed in section II.A.6 of this final rule) providing 
more consistent feedback and program transparency and reducing 
complexity from multiple but slightly different calculations.
    We also decline to adopt commenters' alternative suggestions to use 
multiple sources of data to determine participation options, which 
could add further complexity to our approach. Some comments indicated 
concerns that under the proposed approach CMS would not be able to 
effectively identify well capitalized ACOs. However, we believe that 
ACO participant revenue coupled with establishing a repayment mechanism 
to cover potential losses provide sufficient assurances and proxies for 
demonstrating capitalization and ability to invest in care coordination 
and cover potential losses. We believe it would place additional burden 
on ACOs and add complexity to the approach to consider how well 
capitalized ACOs are through their composition or private investments, 
for example. We have not routinely required that ACOs disclose 
statements about their financial status, or the financial status of 
their ACO participants or ACO providers/suppliers, in determining their 
eligibility to enter or continue their participation in the program, or 
a particular participation option in the program.
    Further, with respect to the comment suggesting that we base 
participation options on ACO organizational formations or provider/
supplier relationships that the commenter considered beneficial to 
health care markets, we believe our approach to defining low revenue 
ACOs and high revenue ACOs, and to determining participation options 
based on the distinction between these two categories of ACOs, promotes 
innovative arrangements between physicians and hospitals while 
providing an alternative for physicians to stay independent and work 
collaboratively with other providers and suppliers.
    We also decline to use the publicly available sources of revenue 
data described by one commenter. We believe use of existing sources of 
program data for the revenue calculations will allow for greater 
consistency across the program's calculations, and timely feedback to 
ACOs, including through information shared during the application cycle 
and through program reports.
    Lastly, we appreciate commenters' concerns about the possibility 
that existing ACOs may bifurcate their ACO participant lists to form 
new ACOs that may satisfy the definition of a low revenue ACO and 
therefore be eligible to participate under potentially lower levels of 
performance-based risk. We note that ACOs are accountable for total 
Medicare Parts A and B FFS expenditures for their assigned 
beneficiaries. To the extent that ACOs modify their ACO participant 
lists to remove higher-revenue providers and suppliers, such as 
institutional providers, the ACO remains accountable for the total cost 
of care received by its assigned beneficiaries, including services 
received from non-ACO providers and suppliers. The requirement that 
ACOs agree to be accountable for the quality and cost of all care 
furnished to their assigned beneficiaries, including services furnished 
by providers and suppliers that are not participating in the ACO, 
reduces our concern about ACOs manipulating their ACO participant lists 
to take advantage of potentially lower-risk participation options.
    As one commenter points out, there could be costs associated with 
setting up a new legal entity and new Medicare-enrolled TINs, and this 
could be a deterrent to engaging in these practices to avoid the 
intended applicability of program requirements. We also believe several 
other policies we are finalizing in this final rule will help protect 
against ACOs gaming determinations for program participation options 
through modifications to their ACO participant

[[Page 67874]]

lists, specifically: (1) The approach we are finalizing to monitor for 
changes in revenue that cause ACOs identified as low revenue, and 
experienced with performance-based risk Medicare ACO initiatives to 
become considered high revenue and therefore no longer be eligible for 
participation in the BASIC track, as described elsewhere in this 
section of this final rule; and (2) the approach we are finalizing to 
identify re-entering ACOs, based on the prior participation of their 
ACO participants, as described in section II.A.5.c. of this final rule, 
will help ensure that ACOs are held accountable for their ACO 
participants' prior program experience.
    Comment: One commenter suggested that CMS should provide ACOs with 
the ability to select only the highest performing providers and 
suppliers by allowing ACOs to select their participants by NPI rather 
than solely at the TIN level. The commenter explained that this 
approach could help enable ACOs to have greater control over managing 
costs for their assigned beneficiaries. According to this commenter, 
under this approach to allowing participation by individual NPIs, 
rather than the all NPIs that reassigned their billings rights to the 
ACO participant TIN (as currently required), ACOs would have the 
flexibility to build a high performing network of providers who will 
deliver the most efficient and highest quality care. In turn, the 
commenter stated that these high performing networks would incentivize 
providers that want to join or remain in an ACO to focus more on 
reducing unnecessary costs and maintaining high quality, and 
incentivize ACOs to more closely evaluate providers in their network 
based on sophisticated data analytics.
    Response: In the August 2018 proposed rule, we did not contemplate 
changes to the current definition of ``ACO participant'' under Sec.  
425.20 which means an entity identified by a Medicare-enrolled billing 
TIN through which one or more ACO providers/suppliers bill Medicare, 
that alone or together with one or more other ACO participants compose 
an ACO, and that is included on the list of ACO participants that is 
required under Sec.  425.118. We also did not contemplate changes to 
the underlying methodology used to assign beneficiaries to ACOs based 
on ACO participant TINs.
    We continue to believe that ACOs have the potential to transform 
the quality and cost of care more broadly for the Medicare FFS 
beneficiaries who receive care from ACO participants. We believe that 
defining ACO participants to include all NPIs that have reassigned 
their billing rights to the TIN is a means to allowing the ACO's 
redesigned care processes to more broadly reach all Medicare FFS 
beneficiaries that may receive care from ACO participants, including 
those that may not meet the program's assignment criteria, and provides 
incentives for lower performing providers within an ACO participant TIN 
to improve. We also have concerns about ACOs selecting only the highest 
performing providers within a practice to be part of the ACO while less 
efficient and effective providers are not part of the ACO, because this 
structure could have negative implications for patients seen by the ACO 
participant and for the Medicare Trust Funds. Moreover, an approach 
allowing for participation by individual NPIs, rather than all NPIs 
that reassigned their billings rights to ACO participant TINs, could 
further opportunities for ACOs to game participation determinations by 
including only the most efficient and effective clinicians in the ACO, 
while less efficient and effective clinicians are excluded from the 
ACO. Therefore, we believe that maintaining the definition of ACO 
participant at the TIN level continues to be an effective approach in 
achieving the program's goals of improved care, and reduced 
expenditures, for Medicare FFS beneficiaries more broadly.
    Comment: Some commenters addressed the threshold percentage to 
differentiate low revenue ACO and high revenue ACO, proposed at 25 
percent. Commenters offered a variety of alternative suggestions for 
the threshold percentage.
    A few commenters argued that the proposed 25 percent threshold, and 
the alternative consideration for a 30 percent threshold, would 
incorrectly deem moderate revenue ACOs, especially rural ACOs or urban 
ACOs that serve surrounding rural areas, to be high revenue ACOs. These 
commenters suggested that CMS either exempt rural ACOs from the revenue 
designation or raise the threshold for determining low revenue ACOs 
such as to 60 percent.
    One commenter explained their belief that rural and small providers 
do not fit squarely within the low revenue ACO category. The commenter 
asserted that a revenue[hyphen]based distinction could ultimately lead 
to rural providers, small providers, and many ACOs with mixed FFS and 
cost[hyphen]based revenue (including both urban and rural provider/
suppliers) being categorized as high revenue ACOs contrary to the 
intended purpose of the policy.
    Another commenter questioned how a rural ACO with 25 small rural 
hospitals would be classified under this approach, but did not offer 
details that would inform how this composition might affect ACO 
participants' Medicare FFS Parts A and B revenue, or total Medicare 
Parts A and B FFS expenditures for the ACO's assigned beneficiaries.
    One commenter recommended that CMS begin with a 30 percent 
threshold to account for ACOs with physician groups with a 
comparatively larger number of specialists as ACO participants, in 
addition to considering other metrics in distinguishing low revenue 
ACOs and high revenue ACOs, and/or develop more granular methods than 
the two proposed revenue-based categories to ascertain ACO risk 
tolerance. Another commenter generally urged CMS to establish pathways 
for specialists to meaningfully engage in the Shared Savings Program.
    One commenter recommended that CMS increase the threshold of ACO 
participant revenue as a percentage of benchmark from 25 percent to 40 
percent or greater for this and any future standards in which CMS seeks 
to distinguish small and large health systems.
    One commenter disagreed that the proposed 25 percent threshold 
corresponds to the ACO's ability to control costs, since it does not 
account for a number of factors beyond the control of ACOs that could 
artificially inflate this number. This concern was reflected in other 
comments. For example, a few commenters expressed concern generally 
over the ability of ACOs to control costs and provide value in the 
Medicare FFS environment, pointing to factors including beneficiaries' 
freedom of choice of providers under FFS Medicare, and the absence of 
protection from the cost of Part B drugs and/or new technologies, and 
CAH costs as examples.
    One commenter suggested CMS use a lower threshold, as a means to 
deter gaming, such as 15 percent. This commenter pointed to the use of 
a 10 percent threshold approach as described in the Regulatory Impact 
Analysis of the August 2018 proposed rule (83 FR 41917).
    Response: We agree with commenters' concerns that ACOs that include 
small, rural hospitals may not be identified as low revenue ACOs under 
the proposed 25 percent threshold, and we agree with commenters 
suggesting that the threshold be raised to allow additional ACOs with 
small hospitals and clinics, including small rural hospitals, as ACO 
participants to qualify as low revenue ACOs. Therefore, to help ensure 
more ACOs under these circumstances may

[[Page 67875]]

be considered low revenue ACOs, we believe it would be appropriate to 
increase the threshold used in determining low revenue ACOs and high 
revenue ACOs to 35 percent. ACOs with small hospitals as ACO 
participants, including small rural hospitals, may not control a large 
enough portion of assigned beneficiary expenditures or be financially 
prepared to take on greater risk. Increasing the threshold used to 
determine low revenue ACOs versus high revenue ACOs would provide these 
ACOs with the opportunity to remain under the BASIC track at lower 
levels of performance-based risk, for a longer period of time. This 
would allow such ACOs to gain experience in a lower level of risk in 
the program before being required to move to the ENHANCED track.
    Based on modeling using the most recently available expenditure and 
revenue data and ACO assignment data, we are increasing the threshold 
from 25 percent to 35 percent. Modeling shows increasing the threshold 
would allow more ACOs with small hospitals as ACO participants, 
including small rural hospitals, to be considered low revenue ACOs, 
while continuing to ensure that ACOs with large institutional providers 
are considered high revenue ACOs. The increased threshold would 
increase the number of low revenue ACOs by 31 ACOs, a 13 percent 
increase from the number of ACOs that would be included in the 25 
percent threshold, based on our modeling with data used for performance 
year 2018. A 35 percent threshold balances concerns by recognizing 
additional ACOs with small institutional providers or clinics as low 
revenue ACOs, while helping to ensure ACOs with higher revenue continue 
to have the strongest incentives to improve quality of care for 
Medicare FFS beneficiaries and reduce expenditure growth to protect the 
Trust Funds.
    We decline the commenter's suggestion to use a much lower threshold 
in identifying low revenue ACOs, such as 15 percent. The commenter 
pointed to the use of a 10 percent threshold in distinguishing low 
revenue ACOs from high revenue ACOs in the August 2018 proposed rule's 
Regulatory Impact Analysis. As we explained in the August 2018 proposed 
rule (83 FR 41814) and reiterated in this section of this final rule, 
under this analysis, an ACO was identified as low revenue if its ACO 
participants' total Medicare Parts A and B FFS revenue for assigned 
beneficiaries was less than 10 percent of the ACO's assigned 
beneficiary population's total Medicare Parts A and B FFS expenditures. 
We continue to have concerns that this approach does not sufficiently 
account for ACO participants' total Medicare Parts A and B FFS revenue 
(as opposed to their revenue for assigned beneficiaries), and therefore 
could misrepresent the ACO's overall risk bearing potential, which 
would diverge from other aspects of the design of the BASIC track as 
finalized (see section II.A.3 of this final rule).
    Comment: Several commenters expressed concern about the approach to 
calculating revenue used in the definitions of low revenue ACOs and 
high revenue ACOs. These commenters explain that CMS proposes to 
include hospital add-on payments such as Indirect Medical Education 
(IME), Disproportionate Share Hospital (DSH), and uncompensated care 
payments when calculating an ACO's revenue. These commenters point out 
that CMS will exclude these payments when calculating assigned 
beneficiary expenditures for determining benchmark and performance year 
expenditures. These commenters urged CMS to exclude add-on payments in 
determining an ACO's revenue, suggesting that this approach could 
penalize ACOs that treat vulnerable populations, including teaching 
hospitals or those that treat the uninsured population.
    One commenter requested that CMS modify the proposed approach to 
identifying high revenue ACOs to ensure ACOs that are appropriately 
engaging, and incentivizing hospital engagement, in value-based care 
delivery are not penalized for their success.
    Response: We discuss related considerations in our discussion of 
the calculation of ACO participants' total Medicare Parts A and B FFS 
revenue for determining the loss sharing limits under the BASIC track 
in the August 2018 proposed rule (83 FR 41809 through 41810) and in 
section II.A.3 of this final rule. To accurately determine ACO 
participants' revenue for purposes of determining a revenue-based loss 
sharing limit, we explain our belief that it is important to include 
total revenue uncapped by truncation and to include IME, DSH and 
uncompensated care payments. We noted that this approach to calculating 
ACO participant Medicare FFS revenue is different from our approach to 
calculating benchmark and performance year expenditures for assigned 
beneficiaries, which we truncate at the 99th percentile of national 
Medicare FFS expenditures for assignable beneficiaries, and from which 
we exclude IME, DSH and uncompensated care payments (see subpart G of 
the program's regulations). We explained that IME, DSH, uncompensated 
care payments represent resources available to ACO participants to 
support their operations and offset their costs and potential shared 
losses, thereby increasing the ACO's capacity to bear performance-based 
risk, which we believe should be reflected in the ACO's loss sharing 
limit. Excluding such payments could undercount revenue and also could 
be challenging to implement, particularly truncation, since it likely 
would require apportioning responsibility for large claims among the 
ACO participants and non-ACO participants from which the beneficiary 
may have received the services resulting in the large claims. We 
therefore decline to modify our approach to determining ACO 
participant's total Medicare Parts A and B FFS revenue to include IME, 
DSH and uncompensated care payments, or to cap claim payment amounts 
through truncation.
    For similar reasons, we also decline at this time to make other 
technical adjustments to calculations of revenue to exclude any other 
payment adjustments reflected in the claim payment amounts, such as 
payments under MIPS or the Hospital Value Based Purchasing Program.
    Comment: Several commenters suggested that CMS should take into 
consideration the impact of extreme and uncontrollable circumstances 
when determining participation options based on Medicare FFS revenue.
    Response: At this time, we decline to modify our approach to 
determining ACO participants' total Medicare Parts A and B FFS revenue, 
and will not exclude Medicare Parts A and B FFS revenue earned during a 
disaster period, nor will we make other adjustments to the calculation 
of ACO participants' Medicare Parts A and B FFS revenue to address 
extreme and uncontrollable circumstances because we do not have a 
reliable means for estimating what the ACO participants' Medicare Parts 
A and B FFS revenues would have been in the absence of the event.
    We will continue to monitor the impact of extreme and 
uncontrollable circumstances on ACOs, particularly as we gain 
experience with the disaster-relief policies we have finalized for 
performance year 2017 and subsequent performance years. As part of this 
monitoring, we will consider whether any changes to our policy for 
determining low revenue ACOs and high revenue ACOs may be necessary to 
account for the effects of extreme and uncontrollable circumstances. 
Any such

[[Page 67876]]

changes would be made through notice and comment rulemaking.
    Comment: A few commenters explained that rural hospitals and 
physician practices have demonstrably smaller net operating profit 
margins than urban hospitals, and commenters suggested that the 
proposed approach to differentiating participation options based on ACO 
participants' Medicare FFS revenue should consider ACO participants' 
fixed costs and operating margins.
    Response: We currently do not consider operating costs in program 
calculations for benchmark and performance year expenditures since we 
determine benchmark and performance year expenditures based on Medicare 
Parts A and B FFS expenditures, according to the statutory requirements 
for the Shared Savings Program under section 1899(d)(1)(B) of the Act. 
We decline to consider operating costs in determining whether an ACO 
qualifies as a low revenue ACO or high revenue ACO. We believe that 
doing so would add a degree of variability and also unpredictably to 
the revenue calculations. We also believe it would be burdensome for 
ACOs to track operating costs of individual ACO participants, report 
this information to CMS, and for CMS to validate the data for use in 
calculations.
    Comment: One commenter requested that CMS provide clarification 
around the data that will be used for the ACO participant revenue 
calculations. The commenter noted that the proposed rule states that 
the most recently available 12 months of data will be used, but it is 
unclear what time period that would be. This commenter also responded 
to the discussion in the proposed rule on CMS' consideration of an 
alternative approach where we would use multiple years of data to make 
the determination of whether an ACO is a low revenue ACO or high 
revenue ACO. This commenter preferred the proposed approach, to have 
the calculations based on one year of data, and did not consider use of 
multiple years of data in the revenue determination to be beneficial.
    Response: We appreciate the commenter's support for the proposed 
look back period in the definition of low revenue ACO and high revenue 
ACO. To clarify, we proposed that we would make the determination based 
on ACO participant Medicare Parts A and B FFS revenue and total 
Medicare Parts A and B FFS expenditures for the most recent calendar 
year for which 12 months of data are available. As an example, the 
annual application cycle for a January 1st agreement period start date 
typically spans the Summer-Fall of the prior calendar year. For 
example, for ACOs applying for the agreement start date of January 1, 
2020, we would anticipate the application cycle to occur during CY 
2019. Therefore, we would make the low revenue ACO versus high revenue 
ACO determination for ACOs applying for a new agreement period 
beginning January 1, 2020 based on the 12 months of data from January 
1, 2018, through December 31, 2018.
    We also proposed that for ACOs applying for an agreement start date 
of July 1, 2019, we would determine whether the ACO is a low revenue 
ACO or high revenue ACO using data from the most recent calendar year 
for which 12 months of data are available. We anticipate the 
application cycle for the July 1, 2019 agreement start date to occur in 
Winter-Spring of 2019. Therefore, for ACOs applying for the agreement 
start date of July 1, 2019, we would make the low revenue ACO and high 
revenue ACO determination based on the 12 months of data from January 
1, 2018, through December 31, 2018.
    Comment: Several commenters addressed CMS' proposal to monitor low 
revenue ACOs experienced with performance-based risk Medicare ACO 
initiatives participating in the BASIC track to determine if they 
continue to meet the definition of low revenue ACO, and to take 
compliance action if the ACO meets the definition of a high revenue ACO 
during the agreement period. Under the proposed approach, high revenue 
ACOs experienced with performance-based risk Medicare ACO initiatives 
would be restricted to participation under the ENHANCED track.
    One commenter expressed significant reservations about the proposal 
to annually monitor low revenue ACOs to determine if, during the course 
of the performance year, the ACO became a high revenue ACO, and in turn 
requiring an ACO that becomes high revenue to move to the ENHANCED 
track. The commenter encouraged CMS not to finalize this approach as 
proposed. This commenter stated that many low revenue ACOs may be 
looking to partner with high revenue entities, such as IPPS hospitals, 
in order to have greater control over total Medicare Parts A and B FFS 
expenditures for their assigned beneficiaries. The commenter disagreed 
that this partnership automatically makes the low revenue ACO's 
experience commensurate to that of a high revenue ACO, experienced with 
performance-based risk Medicare ACO initiatives. The commenter 
explained that entities with significant Medicare FFS revenues that are 
inexperienced with Medicare performance-based risk ACO initiatives may 
seek out experienced, low revenue ACOs to join as an ACO participant, 
to capitalize upon the ACO entity's experience with success in 
performance-based risk. The commenter argued that an experienced, low 
revenue ACO with a newly added, inexperienced ACO participant, is not 
equivalent to a high revenue ACO that is experienced with performance-
based risk Medicare ACO initiatives, even if the addition of the ACO 
participant causes the ACO to meet the proposed definition of a high 
revenue ACO, and therefore should not be aggressively accelerated to 
program's maximum downside risk under the ENHANCED track. Instead, the 
commenter encouraged CMS to allow these ACOs to continue their BASIC 
track participation until the end of their participation agreement.
    One commenter described that CMS would have to consistently monitor 
to ensure ACO participant changes did not alter an ACO's status as a 
low revenue ACO or high revenue ACO and for those that did, CMS would 
have to issue correction notices and require corrective action plans. 
The commenter described this as operationally difficult and creating 
more unnecessary complication and burden on both ACOs and CMS.
    A few commenters explained that an ACO's qualification as a low 
revenue ACO or high revenue ACO would also change over time as ACO 
participant composition changes, adding more complexity and making 
long-term planning very difficult. These commenters were concerned that 
uncertainty would be further compounded by the timing of our 
determination of whether ACOs qualify as a low revenue ACO or high 
revenue ACO.
    Response: We considered commenters' suggestions that we not require 
ACOs that transition from low revenue ACO to high revenue ACO status 
during the course of an ACO's agreement period in Level E of the BASIC 
track to transition to the ENHANCED track. We also considered 
commenters' concerns (described elsewhere in this section of this final 
rule) that the proposed approach to distinguishing participation 
options for low revenue ACOs and high revenue ACOs could result in ACOs 
gaming the revenue determinations by manipulating their ACO participant 
lists. We remain concerned about the possibility that an ACO identified 
as experienced with performance-based risk Medicare ACO initiatives, 
and participating in an agreement period

[[Page 67877]]

under Level E of the BASIC track because it is also determined to be a 
low revenue ACO at the start of its agreement period, could become a 
high revenue ACO during the course of its agreement period. We believe 
that absent a structured approach to monitoring and addressing changes 
in composition, ACOs entering the BASIC track initially appearing to be 
low revenue ACOs could dramatically change their composition to take 
advantage of this lower-risk participation option in a manner that the 
program redesign does not contemplate.
    At this time, we believe it would be appropriate to finalize the 
proposal to monitor for revenue changes in ACOs that entered an 
agreement period under Level E of the BASIC track because they are low 
revenue and experienced with performance-based risk Medicare ACO 
initiatives, for example as a result of changes in ACO participant 
composition. Further, under this approach, such an ACO that becomes 
high revenue during its agreement period under Level E of the BASIC 
track would be required to take corrective action to remedy the issue, 
such as removing an ACO participant from its ACO participant list, so 
that the ACO could meet the definition of low revenue ACO. If 
corrective action is not taken, CMS would terminate the ACO's 
participation agreement under Sec.  425.218.
    If an ACO is required to terminate its participation, it may apply 
to enter a new agreement period under the ENHANCED track. As a 
consequence of entering a new agreement period, the ACO's benchmark 
will be calculated based on the 3 most recent years prior to the ACO's 
agreement start date, using the ACO participant list the ACO finalizes 
as being applicable for the new agreement period.
    We note that ACOs participating in the program may submit change 
requests in accordance with program procedures to indicate additions, 
updates, and deletions to their existing ACO participant lists. As part 
of the ACO participant change request process, we anticipate providing 
ACOs with information so that they are informed about the potential 
impact of ACO participant list changes on their compliance with program 
requirements, including how these changes may affect whether the ACO is 
considered a low revenue ACO or high revenue ACO, under the criteria 
for determining ACO participation options we are establishing with this 
final rule.
    Although we are finalizing the proposal, we do find the commenters' 
concerns about the possible effects of applying this policy to be 
compelling. In particular, after further consideration, we believe that 
the low revenue ACO/high revenue ACO determination could be affected by 
changes in the ACO participant list for the ACO, or changes in ACO 
providers/suppliers, that are made in the course of program 
participation, where the changes are not motivated by the ACO's desire 
to avoid program requirements regarding participation options. For 
example, any addition or removal of an ACO participant, or change in 
ACO providers/suppliers, could affect the basis for the low revenue 
ACO/high revenue ACO determination: ACO participants' total Medicare 
Parts A and B FFS revenue, and total Medicare Parts A and B FFS 
expenditures for the ACO's assigned beneficiaries for the relevant 
period. In particular, ACOs close to the threshold percentage that are 
initially identified as low revenue ACOs could, during the course of 
their agreement period, become high revenue ACOs due to only a slight 
increase in ACO participant revenue. We note that under our proposed 
approach, which we are finalizing, we may be required to terminate ACOs 
from an agreement period in the BASIC track because of changes in ACO 
participants' total Medicare Parts A and B FFS revenue, and/or total 
Medicare Parts A and B FFS expenditures for the ACO's assigned 
beneficiaries, that result in small percentage changes that put the ACO 
over the threshold for the definition of high revenue ACO, and which 
could not be easily remedied by the ACO.
    Therefore, we plan to closely monitor the effects of this policy. 
In particular we plan to monitor the magnitude by which ACOs exceed the 
35 percent threshold to become a high revenue ACO during an agreement 
period, and the ease or difficulty with which ACOs can remedy these 
circumstances to return to being low revenue ACOs (if desired by the 
ACO). If this policy results in ACOs being required to transition to 
the ENHANCED track, we will monitor to determine if these ACOs elect to 
renew early (to avoid a break in program participation), or terminate 
their participation, and if so whether they apply to re-enter the 
program later. We may revisit this policy in future rulemaking based on 
our lessons learned.
    Comment: A few commenters indicated that ACOs may be challenged to 
anticipate CMS' determination of whether they are low revenue ACOs or 
high revenue ACOs, and will depend on these determinations to make 
business decisions on program participation. One commenter explained 
that ACOs may not have the data necessary to determine whether they are 
low revenue ACOs or high revenue ACOs without receiving additional data 
from CMS. A few commenters pointed to the need for CMS to provide 
revenue determinations early in the application process, so that ACOs 
know in advance what category they fall into. Several commenters 
suggested that CMS provide ample time for ACOs to make participation 
decisions based on its determination of whether an ACO is a low revenue 
ACO or high revenue ACO, including to allow ACOs to make any changes 
and execute a coordinated transition into their desired participation 
option (if a choice is available).
    A few commenters suggested that CMS provide more detailed processes 
and timelines governing its assessment of and determination of ACOs as 
low revenue ACOs or high revenue ACOs (including how it will monitor 
ACOs) which it believes will help to protect against the potential for 
ACO gaming whereby ACOs use creative business organization strategies 
to ensure that they are able to remain in the low revenue ACO 
designation. A few commenters urged that CMS keep the process simple, 
straightforward, and transparent. One commenter suggested that CMS 
announce to ACOs a date by which it will complete its assessment of all 
ACOs regarding their categorization as a low revenue ACO or high 
revenue ACO. One commenter suggested the following approach for a 
typical application cycle, in advance of a January 1 start date: CMS 
should provide an option for an ACO to file a request by May for a 
determination of low revenue ACO/high revenue ACO status with receipt 
of the determination no later than June. Thus, when the ACO files its 
application in July, the ACO will be fully aware of its status and to 
be ready to meet the necessary requirements.
    Response: We appreciate the commenters' concern and we anticipate 
providing timely feedback to ACOs throughout program application 
cycles, on whether the ACO is likely to be determined to be a low 
revenue ACO or high revenue ACO (among other factors), in order to 
ensure ACOs have the information they need to make decisions about 
program participation and to take action to align with program 
requirements. We announce application cycle dates in advance, through 
the Shared Savings Program website, and through various other methods 
available, including webinars, FAQs and a weekly newsletter. The 
program's application cycle typically includes

[[Page 67878]]

multiple opportunities for CMS to review the ACO's application, and 
provide the applicant feedback and the opportunity to correct 
deficiencies. We encourage ACOs and the public to monitor the Shared 
Savings Program website for related announcements.
    We decline commenter's suggestions to make final determination of 
whether an ACO is a low revenue ACO or high revenue ACO in advance of 
the application submission date. ACOs submit their ACO participant list 
as part of the application submission process, and have opportunities 
to make changes or corrections to their ACO participant list during the 
application review period. As a result, the determination of whether an 
ACO is a low revenue ACO or high revenue ACO could change.
    Final Action: After consideration of the public comments received, 
we are finalizing, with modifications, the proposed approach to 
identifying low revenue ACOs and high revenues ACOs for the purposes of 
determining ACO participation options in the Shared Savings Program. We 
are finalizing the addition of new definitions at Sec.  425.20 for 
``low revenue ACO,'' and ``high revenue ACO.''
    We define ``high revenue ACO'' to mean an ACO whose total Medicare 
Parts A and B FFS revenue of its ACO participants based on revenue for 
the most recent calendar year for which 12 months of data are 
available, is at least 35 percent of the total Medicare Parts A and B 
FFS expenditures for the ACO's assigned beneficiaries based on 
expenditures for the most recent calendar year for which 12 months of 
data are available.
    We define ``low revenue ACO'' to mean an ACO whose total Medicare 
Parts A and B FFS revenue of its ACO participants based on revenue for 
the most recent calendar year for which 12 months of data are 
available, is less than 35 percent of the total Medicare Parts A and B 
FFS expenditures for the ACO's assigned beneficiaries based on 
expenditures for the most recent calendar year for which 12 months of 
data are available.
    In Sec.  425.600(e) we are finalizing our approach to ensuring 
continued compliance of ACOs with the eligibility requirements for 
participation in the BASIC track, for an ACO that is accepted into the 
BASIC track's Level E because the ACO was experienced with performance-
based risk Medicare ACO initiatives and determined to be low revenue at 
the time of application. If, during the agreement period, the ACO meets 
the definition of a high revenue ACO, the ACO will be permitted to 
complete the remainder of its current performance year under the BASIC 
track, but will be ineligible to continue participation in the BASIC 
track after the end of that performance year unless it takes corrective 
action, for example by changing its ACO participant list. We will take 
compliance action, up to and including termination of the participation 
agreement, as specified in Sec. Sec.  425.216 and 425.218, to ensure 
the ACO does not continue in the BASIC track for subsequent performance 
years of the agreement period. For example, we may take pre-termination 
actions as specified in Sec.  425.216, such as issuing a warning notice 
or requesting a corrective action plan. To remain in the BASIC track, 
the ACO will be required to remedy the issue. For example, if the ACO 
participants' total Medicare Parts A and B FFS revenue has increased in 
relation to total Medicare Parts A and B FFS expenditures for the ACO's 
assigned beneficiaries, the ACO could remove an ACO participant from 
its ACO participant list, so that the ACO can meet the definition of 
low revenue ACO. If corrective action is not taken, CMS will terminate 
the ACO's participation under Sec.  425.218.
(2) Restricting ACOs' Participation in the BASIC Track Prior To 
Transitioning to Participation in the ENHANCED Track
    As discussed in section II.A.5.c. of the August 2018 proposed rule 
(83 FR 41820 through 41836), we proposed to use factors based on ACOs' 
experience with performance-based risk to determine their eligibility 
for the BASIC track's glide path, or to limit their participation 
options to either the highest level of risk and potential reward under 
the BASIC track (Level E) or the ENHANCED track. As discussed in 
section II.A.5.b.(2) of the August 2018 proposed rule (83 FR 41817 
through 41819), we also proposed to differentiate between low revenue 
ACOs and high revenue ACOs with respect to the continued availability 
of the BASIC track as a participation option. This approach would allow 
low revenue ACOs, new to performance-based risk arrangements, 
additional time under the BASIC track's revenue-based loss sharing 
limits, while requiring high revenue ACOs to more rapidly transition to 
the ENHANCED track under which they would assume relatively higher, 
benchmark-based risk. We explained our belief that all ACOs should 
ultimately transition to the ENHANCED track, the highest level of risk 
and potential reward under the program, which could drive ACOs to more 
aggressively pursue the program's goals of improving quality of care 
and lowering growth in FFS expenditures for their assigned beneficiary 
populations.
    We considered that some low revenue ACOs may need additional time 
to prepare to take on the higher levels of performance-based risk 
required under the ENHANCED track. Low revenue ACOs, which could 
include small, physician-only and rural ACOs, may be encouraged to 
enter and remain in the program based on the availability of lower-risk 
options. For example, small, physician-only and rural ACOs may have 
limited experience submitting quality measures or managing patient care 
under two-sided risk arrangements, which could deter their 
participation in higher-risk options. ACOs and other program 
stakeholders have suggested that the relatively lower levels of risk 
available under the Track 1+ Model (an equivalent level of risk and 
potential reward to the payment model available under Level E of the 
BASIC track) encourages transition to risk by providing a more 
manageable level of two-sided risk for small, physician-only, and rural 
ACOs, compared to the levels of risk and potential reward currently 
available under Track 2 and Track 3, and that would be offered under 
the proposed ENHANCED track.
    We also considered that, without limiting high revenue ACOs to a 
single agreement period under the BASIC track, they could seek to 
remain under a relatively low level of performance-based risk for a 
longer period of time, and thereby curtail their incentive to drive 
more meaningful and systematic changes to improve quality of care and 
lower growth in FFS expenditures for their assigned beneficiary 
populations. Further, high revenue ACOs, whose composition likely 
includes institutional providers, particularly hospitals and health 
systems, are expected generally to have greater opportunity to 
coordinate care for assigned beneficiaries across care settings among 
their ACO participants than low revenue ACOs. One approach to ensure 
high revenue ACOs accept a level of risk commensurate with their degree 
of control over total Medicare Parts A and B FFS expenditures for their 
assigned beneficiaries, and to further encourage these ACOs to more 
aggressively pursue the program's goals, is to require these ACOs to 
transition to higher levels of risk and potential reward.
    We proposed to limit high revenue ACOs to, at most, a single 
agreement period under the BASIC track prior to transitioning to 
participation under the ENHANCED track. We explained our belief that an 
approach that allows high

[[Page 67879]]

revenue ACOs that are inexperienced with the accountable care model the 
opportunity to become experienced with program participation within the 
BASIC track's glide path prior to undertaking the higher levels of risk 
and potential reward in the ENHANCED track offers an appropriate 
balance between allowing ACOs time to become experienced with 
performance-based risk and protecting the Medicare Trust Funds. This 
approach recognizes that high revenue ACOs control a relatively large 
share of assigned beneficiaries' total Medicare Parts A and B FFS 
expenditures and generally are positioned to coordinate care for 
beneficiaries across care settings, and is protective of the Medicare 
Trust Funds by requiring high revenue ACOs to more quickly transition 
to higher levels of performance-based risk.
    In contrast, we proposed to limit low revenue ACOs to, at most, two 
agreement periods under the BASIC track. These agreement periods would 
not be required to be sequential, which would allow low revenue ACOs 
that transition to the ENHANCED track after a single agreement period 
under the BASIC track the opportunity to return to the BASIC track if 
the ENHANCED track initially proves too high of risk. An experienced 
ACO may also seek to participate in a lower level of risk if, for 
example, it makes changes to its composition to include ACO providers/
suppliers that are less experienced with the accountable care model and 
the program's requirements. Once an ACO has participated under the 
BASIC track's glide path (if eligible), a subsequent agreement period 
under the BASIC track would be required to be at the highest level of 
risk and potential reward (Level E), according to the proposed approach 
to identifying ACOs experienced with performance-based Medicare ACO 
initiatives (see section II.A.5.c. of this final rule).
    Therefore, we proposed that in order for an ACO to be eligible to 
participate in the BASIC track for a second agreement period, the ACO 
must meet the requirements for participation in the BASIC track as 
described in this final rule (as determined based on whether an ACO is 
a low revenue ACO versus high revenue ACO and inexperienced with 
performance-based risk Medicare ACO initiatives versus experienced with 
performance-based risk Medicare ACO initiatives) and either of the 
following: (1) The ACO is the same legal entity as a current or 
previous ACO that previously entered into a participation agreement for 
participation in the BASIC track only one time; or (2) for a new ACO 
identified as a re-entering ACO because at least 50 percent of its ACO 
participants have recent prior participation in the same ACO, the ACO 
in which the majority of the new ACO's participants were participating 
previously entered into a participation agreement for participation in 
the BASIC track only one time.
    Several examples illustrate this proposed approach. First, for an 
ACO legal entity with previous participation in the program, we would 
consider the ACO's current and prior participation in the program. For 
example, if a low revenue ACO enters the program in the BASIC track's 
glide path, and remains an eligible, low revenue ACO, it would be 
permitted to renew in Level E of the BASIC track for a second agreement 
period. Continuing this example, for the ACO to continue its 
participation in the program for a third or subsequent agreement 
period, it would need to renew its participation agreement under the 
ENHANCED track. As another example, a low revenue ACO that enters the 
program in the BASIC track's glide path could participate for a second 
agreement under the ENHANCED track, and enter a third agreement period 
under Level E of the BASIC track before being required to participate 
in the ENHANCED track for its fourth and any subsequent agreement 
period.
    Second, for ACOs identified as re-entering ACOs because greater 
than 50 percent of their ACO participants have recent prior 
participation in the same ACO, we would determine the eligibility of 
the ACO to participate in the BASIC track based on the prior 
participation of this other entity. For example, if ACO A is identified 
as a re-entering ACO because more than 50 percent of its ACO 
participants previously participated in ACO B during the relevant look 
back period, we would consider ACO B's prior participation in the BASIC 
track in determining the eligibility of ACO A to enter a new 
participation agreement in the program under the BASIC track. For 
example, if ACO B had previously participated in two different 
agreement periods under the BASIC track, regardless of whether ACO B 
completed these agreement periods, ACO A would be ineligible to enter 
the program for a new agreement period under the BASIC track and would 
be limited to participating in the ENHANCED track. Changing the 
circumstances of this example, if ACO B had previously participated 
under the BASIC track during a single agreement period, ACO A may be 
eligible to participate in the BASIC track under Level E, the track's 
highest level of risk and potential reward, but would be ineligible to 
enter the BASIC track's glide path because ACO A would have been 
identified as experienced with performance-based risk Medicare ACO 
initiatives (as proposed).
    We recognized that the difference in the level of risk and 
potential reward under the BASIC track, Level E compared to the payment 
model under the ENHANCED track could be substantial for low revenue 
ACOs. Therefore, we also considered and sought comment on an approach 
that would allow low revenue ACOs to gradually transition from the 
BASIC track's Level E up to the level of risk and potential reward 
under the ENHANCED track. For example, we sought comment on whether it 
would be helpful to devise a glide path that would be available to low 
revenue ACOs entering the ENHANCED track. We also considered, and 
sought comment on, whether such a glide path under the ENHANCED track 
should be available to all ACOs. As another alternative, we considered 
allowing low revenue ACOs to continue to participate in the BASIC track 
under Level E for longer periods of time, such as a third or subsequent 
agreement period. However, we indicated our concern that without a time 
limitation on participation in the BASIC track, ACOs may not prepare to 
take on the highest level of risk that could drive the most meaningful 
change in providers' and suppliers' behavior toward achieving the 
program's goals.
    As an alternative to the proposed approach for allowing low revenue 
ACOs to participate in the BASIC track in any two agreement periods 
(non-sequentially), we sought comment on an approach that would require 
participation in the BASIC track to occur over two consecutive 
agreement periods before the ACO enters the ENHANCED track. This 
approach would prevent low revenue ACOs that entered the ENHANCED track 
from participating in a subsequent agreement period under the BASIC 
track. That is, it would prevent an ACO from moving from a higher level 
of risk to a lower level of risk. However, given changes in ACO 
composition, among other potential factors, we indicated our belief 
that it is important to offer low revenue ACOs some flexibility in 
their choice of level of risk from one agreement period to the next.
    We proposed to specify these proposed requirements for low revenue 
ACOs and high revenue ACOs in revisions to Sec.  425.600, along with 
other proposed requirements for determining participation options based 
on the experience of the ACO and its ACO participants, as discussed in 
section

[[Page 67880]]

II.A.5.c. of this final rule. We proposed to use our determination of 
whether an ACO is a low revenue ACO or high revenue ACO in combination 
with our determination of whether the ACO is experienced or 
inexperienced with performance-based risk (which we proposed to 
determine based on the experience of both the ACO legal entity and the 
ACO participant TINs with performance-based risk), in determining the 
participation options available to the ACO. We sought comment on these 
proposals.
    More generally, we noted that the proposed approach to redesigning 
the program's participation options maintains flexibility for ACOs to 
elect to enter higher levels of risk and potential reward more quickly 
than is required under the proposed participation options. Any ACO may 
choose to apply to enter the program under or renew its participation 
in the ENHANCED track. Further, ACOs eligible to enter the BASIC 
track's glide path may choose to enter at the highest level of risk and 
potential reward under the BASIC track (Level E), or advance to that 
level more quickly than is provided for under the automatic advancement 
along the glide path.
    Comment: A few commenters agreed with the proposed approach to 
allow low revenue (typically physician-led) ACOs up to two agreement 
periods under the BASIC, while requiring high revenue ACOs (the 
typically better-resourced, hospital-based entities) to move more 
quickly to the ENHANCED track. Another commenter explained that the 
required move to downside risk is appropriate for urban health care 
systems that have the scale and resources to absorb a bad year. Several 
commenters favored the proposed approach for requiring more rapid 
transition to higher risk by high revenue ACOs. A few commenters urged 
CMS to encourage more low revenue ACO participation, and to increase 
financial alignment with value for high revenue ACOs. More generally, a 
few commenters supported the overall framework for the proposed 
redesign of the Shared Savings Program, including the proposed 
transition from one-sided to two-sided models.
    Many commenters expressed concerns about the proposed approach to 
restricting the amount of time ACOs may participate in the BASIC track 
prior to participation in the ENHANCED track. Some commenters suggested 
that all ACOs should be allowed to remain in the BASIC track in Level 
E, or a track that meets the nominal risk requirements under the 
Quality Payment Program, finding the level of risk offered under the 
ENHANCED track to be unbearable.
    One commenter, MedPAC, suggested CMS consider allowing all ACOs to 
operate in the BASIC track for two agreement periods, suggesting that 
it has enough downside risk to encourage ACOs to control costs, and the 
modest level of risk in the model may be more palatable to a wider 
range of ACOs. However, we note that MedPAC also suggested that because 
the ENHANCED track has stronger incentives for cost control, an 
argument can be made that all ACOs should move to the ENHANCED track 
after one 5-year agreement period in the BASIC track.
    Some commenters specifically opposed limiting high revenue ACOs to 
one agreement period in the BASIC track. Given that high revenue ACOs 
are responsible for a greater share of healthcare spending than low 
revenue ACOs, one commenter agreed that it is reasonable to ask high 
revenue ACOs to assume greater levels of risk and/or at a faster pace 
than low revenue ACOs. But this commenter also suggested that CMS 
should also take into account that larger systems must invest in change 
across a much broader delivery ``footprint'' and so may require 
additional investments over multiple years to make transformative 
system changes, and also need a longer time to recoup investments (such 
as in the form of shared savings). This commenter suggested that high 
revenue ACOs be allowed to remain in Level E of the BASIC track for a 
second agreement period.
    Some commenters suggested alternatives for distinguishing ACOs:

    <bullet> One commenter suggested that instead of distinguishing 
low revenue ACOs and high revenue ACOs for purposes of determining 
the ACO's participation option by track, that the distinction be 
used to determine the sharing rate or MSR applied to the ACO within 
the BASIC track's glide path. This commenter supported the 
alternative consideration to provide low revenue ACOs (particularly 
small, rural and physician-led ACOs) either a lower MSR or higher 
shared savings rate.
    <bullet> One commenter suggested that CMS consider a combination 
of other program policies to drive ACO performance, rather than the 
proposed approach to transition ACOs to performance-based risk, 
which could include: (1) Dropping ACOs from the program if they have 
not achieved savings after several years; (2) Reducing shared 
savings payments to ACOs that incur large losses before generating 
savings; and (3) Allowing ACOs to take accountability for the 
specific types of spending they are capable of controlling, rather 
than total Medicare spending.
    <bullet> One commenter suggests that the potential to share in 
savings is a sufficient motivation for ACOs, as opposed to 
performance-based risk.
    <bullet> Several commenters believe that both CMS and other 
researchers have significantly overstated the degree to which the 
performance of hospital-based ACOs differs from that of physician-
led ACOs. These commenters urged CMS not move forward with the 
proposed approach, and to instead seek ways to support these ACOs, 
rather than make it harder for them to achieve savings.

    Response: We appreciate commenters' support for the proposed 
approach to limiting ACOs' participation in the BASIC track, and 
requiring all ACOs to eventually transition to the ENHANCED track. 
Specifically, we appreciate commenters' support for the proposed 
approach to limiting high revenue ACOs to a single agreement period in 
the BASIC track (if eligible based on a determination that they are 
inexperienced with performance-based risk Medicare ACO initiatives), 
while limiting low revenue ACOs to a maximum of two agreement periods 
in the BASIC track (with ACOs inexperienced with performance-based risk 
Medicare ACO initiatives being eligible to participate under a single 
agreement period in the BASIC track's glide path and a single agreement 
period in Level E of the BASIC track).
    We recognize that many commenters expressed concern about this 
approach, although at this time we decline to adopt commenters' 
suggestions that we allow some or all ACOs additional agreement periods 
under the BASIC track compared to the proposed approach, or to not 
require that ACOs ultimately transition to the ENHANCED track. As 
supported by some commenters, we continue to believe that requiring 
ACOs to transition to the ENHANCED track, with the highest level of 
risk and potential reward under the program, could drive ACOs to more 
aggressively pursue the program's goals of improving quality of care 
and lowering growth in FFS expenditures for their assigned beneficiary 
populations.
    We also note that under the longer, 5-year agreement periods we are 
finalizing in this final rule (see section II.A.2), the timeline for 
entering higher levels of benchmark-based risk remains relatively 
consistent with the program's current requirements. Under the program's 
current requirements, ACOs must transition to a two-sided model by the 
start of their third 3-year agreement period, allowing for not more 
than 6 performance years under a one-sided model before being required 
to enter either Track 2 or Track 3. A gentler pathway between the 
existing Track 1 and the levels of risk and reward under

[[Page 67881]]

the program's current two-sided models has been a long standing request 
from ACOs and other program stakeholders, as described in section 
II.A.1 of this final rule and as reflected in some comments on the 
proposed program redesign. The proposed approach allows a gentler 
progression to two-sided risk, including a progression over a 5-year 
agreement period for all ACOs inexperienced with performance-based risk 
Medicare ACO initiatives, and a progression over two, 5-year agreement 
periods for low revenue ACOs. We note that this timeline is further 
extended for ACOs entering an agreement period beginning on July 1, 
2019, since this mid-year start includes an additional 6-month 
performance year, resulting in an agreement period of 5.5 years.
    We also note also that early entrants into the Shared Savings 
Program have been able to participate under a one-sided model for up to 
6 performance years, and we anticipate that eligible ACOs will continue 
their participation in the BASIC track's glide path to extend their 
transition to benchmark-based risk under the ENHANCED track for at 
least another 5 years.
    We also believe the proposed approach offers the right combination 
of a slower transition to the ENHANCED track for low revenue ACOs, and 
more rapid progression for high revenue ACOs. We therefore decline the 
commenter's suggestion that we require all ACOs to transition to the 
ENHANCED track after one 5-year agreement period in the BASIC track.
    We also decline to accept the commenters' alternative suggestions. 
We are not adopting an approach to distinguish the sharing rates or the 
MSR applied to ACOs within the BASIC track's glide path, as described 
in sections II.A.3 and II.A.6. of this final rule, since ACOs may elect 
their MSR and MLR under performance-based risk. Therefore we decline to 
use the low revenue ACO and high revenue ACO distinctions to determine 
the financial model features applied to ACOs within the BASIC track's 
glide path. This approach would also not achieve our goal of requiring 
ACOs to progress to the ENHANCED track over time.
    Some suggested alternative approaches, to distinguish ACOs based on 
their financial performance, were beyond the scope of the proposed 
rule, such as reducing ACOs' shared savings payments if they incurred 
large losses in prior years, or allowing ACOs to become accountable for 
specific types of spending instead of total Medicare spending. We 
believe the latter approach, to segment accountability for 
beneficiaries' healthcare costs, would not achieve a key aim of the 
program, which is for ACOs to become accountable for total Medicare 
Parts A and B FFS expenditures for their assigned beneficiaries, and 
could reinforce existing incentives that lead to fragmented care. 
Further, we appreciated the suggestion that we remove ACOs with poor 
financial performance, which seems similar to our proposed approach to 
monitoring and termination for poor financial performance as discussed 
in section II.A.5.d of this final rule.
    We also disagree with the commenter's suggestion that shared 
savings potential alone is a sufficient motivator for ACOs to drive the 
most meaningful systematic change in the healthcare system. We believe 
that greater risk with the possibility of greater reward under two-
sided models is a pathway for ACOs to transform their care delivery by 
lowering growth in expenditures while ensuring they provide 
coordinated, high quality care for their Medicare FFS populations. For 
this reason we also decline commenters' suggestions that we forgo the 
proposed approach and instead seek other ways to support high revenue 
ACOs' achievement of the program's goals.
    Comment: A few commenters explained that the challenge of being 
forced into risk is of great importance to ACOs of all sizes, 
composition, and ownership. Some commenters warned that requiring ACOs 
to take on high levels of risk before they are ready will result in 
program attrition. One commenter explained that regardless of 
structure, significant investments are needed in population health 
platforms and care process changes for ACOs to bear risk. Several 
commenters point to a variety of factors, other than ACO composition, 
related to an ACO's readiness to take on performance-based risk. One 
commenter explained that the financial position and backing of a 
particular ACO as well as the ability to assume risk depends on a 
variety of factors, such as local market dynamics, culture, leadership, 
financial status, previous program success, and the resources required 
to address social determinants of health that influence care and 
outcomes for patients. Another commenter described an organization's 
ability to bear risk as having many inputs, including payer mix. 
Another commenter explained that each ACO is unique and faces different 
circumstances that determine its ability to take on higher levels of 
risk.
    Response: As we have previously described in responding to comments 
in this section of this final rule, the current structure of the Shared 
Savings Program requires ACO's eventual transition to performance-based 
risk while also affording ACOs and their provider/suppliers the 
flexibility to redesign care to address the unique needs of their 
population and community. While we appreciate that the circumstance of 
each ACO may be unique, as commenters point out, we also believe that 
the program's requirements are clear about the expectation that ACOs 
enter performance-based risk over the course of their participation in 
the program, should they choose to continue their participation over of 
multiple agreement periods. We believe the proposed approach, including 
a glide path within the BASIC track from a one-sided model through 
progressively higher levels of performance-based risk offers a gentler 
and more manageable approach for ACOs to become experienced with two-
sided models before undertaking more significant levels of risk and 
potential reward.
    Comment: Commenters described a variety of reasons why high revenue 
ACOs would benefit from additional time under lower-risk participation 
options. As echoed in other comments, one commenter explained that the 
proposed rule would force hospital-centric ACOs to take on additional 
risk too quickly, when these ACOs need additional time to adjust their 
cost structures and change operating models.
    Another commenter described its concerns that, in the current 
environment, if CMS pushes to drive losses more quickly to hospitals, 
it will be increasingly difficult for hospital systems to invest 
dollars back into population health management activities, which is 
necessary for long term success of ACO to meet the aims of the Shared 
Savings Program.
    A few commenters explained that hospital-based, high revenue ACOs, 
face greater challenges in taking on performance-based risk because 
they tend to be less cohesive groups, which have invested heavily in 
developing the infrastructure in both technology platforms and care 
management to help their ACOs eventually succeed.
    However, another commenter explained that hospitals and health 
systems are best equipped to lead other providers in moving toward 
downside risk because they have provided--and continue to provide--
significant infrastructure support related to health information 
technology, regulatory compliance and other administrative functions 
that are key to successful APM implementation.
    A few commenters explained that larger systems often already 
operate at greater efficiency before entering the

[[Page 67882]]

program, and as a result may often have less spending to trim, which is 
a commonly cited concern regarding historical benchmarks. Requiring 
transition to higher levels of performance-based risk may limit 
participation by these providers in the program.
    Response: We appreciate the commenters' explanations of the 
challenges some high revenue ACOs may face in taking on performance-
based risk under the proposed redesign of the Shared Savings Program. 
We are not persuaded, however, by the suggested reasons to permit high 
revenue ACOs additional time under the BASIC track, when we believe 
they have the capacity to drive more meaningful, systematic change in 
achieving the program's goals by participating under higher levels of 
performance-based risk.
    As we have described elsewhere in this final rule, we have observed 
that low revenue ACOs, which include small, physician-only and rural 
ACOs, show better average results compared to high revenue ACOs, which 
typically include hospitals (see section V of this final rule). Given 
the potential for high revenue ACOs to lower growth in Medicare Parts A 
and B FFS expenditures, we believe it is critical to ensure they remain 
accountable for the quality of care, and expenditures, for their 
assigned beneficiaries. We believe that an outcome of this approach to 
program redesign may be new, innovative and more aggressive approaches 
to reaching the program's goals of improving quality of care and 
lowering growth in Medicare FFS expenditures for beneficiaries.
    Regarding the commenter's concern about the participation of 
already efficient high revenue ACOs, we note that (as described in 
section II.D. of this final rule) we are finalizing additional 
modifications to the program's methodology for establishing, updating 
and adjusting the ACO's historical benchmark to improve incentives and 
to increase the accuracy of the benchmark by incorporating regional 
factors in an ACO's first agreement period and better capturing changes 
in beneficiary health status. The BASIC track's glide path, coupled 
with longer agreement periods and benchmark improvements, including 
regional adjustments for efficiency starting in the first agreement 
period, as well as new risk adjustment coding intensity adjustments, 
should help ACOs transition to performance-based risk.
    Comment: Some commenters stated that requiring hospital-based ACOs 
to take on more risk sooner will cause these ACOs to cease 
participation, or discourage ACO formation.
    A few commenters expressed concern that the proposed approach would 
make participation more challenging for ACOs that would be high volume, 
such as those with hospital participants, and would thereby marginalize 
these participants and result in reduced participation by hospital-
based ACOs. These commenters explained that this could lead to their 
departure and would squander the significant investments they have made 
in care coordination and data-sharing before they were able to pay off 
for the Medicare program and its beneficiaries.
    Several commenters explained that keeping hospitals in the Shared 
Savings Program is critical to reducing total cost of care. One 
commenter suggested the high revenue ACO distinction would discourage 
participation by the ACOs that can best coordinate acute and ambulatory 
care and are more likely to generate substantial savings to the 
Medicare program over the long-term.
    A few commenters stated that the proposed approach would 
disadvantage ACOs that treat complex patients that have higher 
expenditures, while other commenters indicated that the proposed 
approach would penalize high revenue ACOs for the size of their patient 
populations and their volume of services.
    Response: We believe a combination of the policy changes being 
established with this final rule can help ACOs transform care and 
mitigate to some extent commenters' concerns around the populations 
served by high revenue ACOs and other challenges faced by these 
organizations. For example, as discussed in section II.D. of this final 
rule, the potentially smaller regional adjustments for ACOs caring for 
complex patients (where the ACOs' expenditures may be higher than 
expenditures in the ACO's regional service area) will provide more time 
for these ACOs to bring their costs in line with their region. In 
addition, these ACOs will benefit from the modified approach to risk 
adjustment using full CMS-HCC scores with a 3 percent cap on growth for 
the agreement period, which may more accurately capture the conditions 
of their patients and account for the health status changes in an ACO's 
performance year assigned beneficiary population. Further, eligible 
ACOs will have new tools to support care coordination, such as through 
expanded coverage of telehealth services and a SNF 3-day rule waiver 
(see section II.B. of this final rule), and beneficiary engagement such 
as through the opportunity for eligible ACOs to implement Beneficiary 
Incentive Programs (see section II.C. of this final rule). Eligible 
clinicians in high revenue ACOs may also be eligible to receive QP 
status and benefit from incentive payments under the Quality Payment 
Program for participation in an Advanced APM under the ENHANCED track 
or Level E of the BASIC track (if eligible). High revenue ACOs (and 
ACOs more generally) could find their participation in a financial 
model that is an Advanced APM to be a factor to their advantage in 
attracting and retaining participation of ACO participants and ACO 
providers/suppliers. The longer agreement periods will provide more 
time for ACOs to become successful and transform care and benefit from 
their success, which we believe will be especially important to high 
revenue ACOs (including most hospital-based ACOs), which we expect 
generally will have more potential savings to achieve. We also note 
that while only a small number of ACOs have owed shared losses, we have 
observed that one high revenue ACO that incurred shared losses, which 
was a hospital-based ACO, continues to participate and work toward 
transforming care. This suggests that even ACOs that have incurred 
shared losses still can provide a catalyst for making health systems 
and provider networks more efficient and effective.
    Comment: One commenter disagreed with the need to push high revenue 
ACOs to accept greater amounts of risk, pointing to the relative 
newness of the Shared Savings Program and the other Medicare payment 
reforms that have occurred in recent years. According to this 
commenter, these initiatives are straining already limited resources in 
hospitals and making it more challenging to keep up with the extremely 
rapid pace of payment reforms being pursued by CMS.
    Response: As we explained in the August 2018 proposed rule, our 
proposed redesign of the Shared Savings Program was informed by our 
initial years of experience with the program, including performance 
results. However, we do not agree with the commenter's suggestion that 
we potentially delay changes to further the achievement of the 
program's goals in light of other payment reforms implemented by the 
agency. Hospitals have been at the forefront of value-based purchasing 
and we believe the principles and lessons learned from quality 
improvement and efficiency measures can help inform their success under 
larger population-based, value-based programs.
    Comment: Some commenters urged CMS to allow even greater 
flexibility to

[[Page 67883]]

small, rural, or physician-only ACOs, low revenue ACOs, and ACOs that 
include safety net providers, to prepare for the transition to 
performance-based risk. Commenters explained that these ACOs face 
challenges in that they lack the financial reserves or the financial 
backing to move into performance-based risk. One commenter explained: 
Small and rural ACOs have achieved excellent clinical quality scores 
above national averages even as they beat their spending benchmarks, 
however, the natural year-to-year variation in performance and risk of 
paying back shared losses even in a single year is too much uncertainty 
for providers that live on the margins. Several commenters described 
the level of risk in the ENHANCED track as being too high for low 
revenue ACOs. One commenter described the distance in risk and downside 
loss between the BASIC track's Level E and the ENHANCED track as 
``abysmal,'' and undertaking this level of performance-based risk may 
be ``financially suicidal'' for a low revenue ACO.
    Response: We appreciate commenters' concerns about the obstacles 
low revenue ACOs face in transitioning to performance-based risk given 
their potentially more limited financial reserves, particularly the 
challenges faced by small, rural and physician-only ACOs, and 
especially ACOs new to the Shared Savings Program and the accountable 
care model. We believe these concerns further support our proposed 
approach to providing low revenue ACOs additional time to prepare to 
take on the higher levels of performance-based risk required under the 
ENHANCED track, by allowing eligible low revenue ACOs up to two, 5-year 
agreement periods for a total of 10 years under the BASIC track (or 
10.5 years in the case of an ACO with an agreement period beginning on 
July 1, 2019).
    We also believe that a combination of policy modifications 
reflected in our final policies within this final rule address 
commenters' concerns and suggestions for a relatively gentler glide 
path to two-sided risk for small, rural and physician-only ACOs, and 
support continued participation of these ACOs in the Shared Savings 
Program. For one, as discussed in section II.A.5.b.(1) of this final 
rule, we are finalizing our proposed definitions of low revenue ACOs 
and high revenue ACOs with a modification to increase the threshold 
percentage used in making these determinations (from 25 percent to 35 
percent) so that more ACOs would be considered low revenue ACOs. 
Second, we are finalizing higher sharing rates under BASIC track (as 
described in section II.A.3 of this final rule) which we believe will 
allow ACOs eligible for shared savings access to additional financial 
resources to support their operational costs and their participation in 
performance-based risk (such as supporting these ACOs in establishing 
their repayment mechanism arrangements). Third, as described in section 
II.A.5.c of this final rule, we are finalizing a policy modification to 
allow additional flexibility for new legal entities, that are low 
revenue ACOs and inexperienced with performance-based risk Medicare ACO 
initiatives, to participate for up to 3 performance years (or 4 
performance years in the case of ACOs entering an agreement period 
beginning on July 1, 2019) under a one-sided model of the BASIC track's 
glide path before transitioning to Level E (the highest level of risk 
and potential reward under the BASIC track). Fourth, and lastly, as 
described in section II.A.6.c of this final rule, we are modifying our 
proposed approach for determining repayment mechanism arrangement 
amounts to reduce the burden of these arrangements on all ACOs 
participating in the ENHANCED track. Under the modified approach, the 
repayment mechanism amount for such ACOs must be equal to the lesser of 
the following: 1 percent of the total per capita Medicare Parts A and B 
FFS expenditures for the ACO's assigned beneficiaries, based on 
expenditures for the most recent calendar year for which 12 months of 
data are available; or 2 percent of the total Medicare Parts A and B 
FFS revenue of its ACO participants, based on revenue for the most 
recent calendar year for which 12 months of data are available.
    We decline commenters' suggestions that certain ACOs be exempt from 
transitioning to performance-based risk (generally) or higher levels of 
risk and potential reward. As we explain elsewhere in this section of 
this final rule, we believe the progression to performance-based risk 
is critical to driving the most meaningful change in providers' and 
suppliers' behavior toward achieving the program's goals, and that 
participation in two-sided models, and ultimately the ENHANCED track, 
should be the goal for all Shared Savings Program ACOs. Therefore, at 
this time, we also decline to establish a separate track with 
alternative participation options targeted specifically at particular 
subsets of ACOs, including those that typically may be low revenue 
ACOs.
    Comment: A few commenters supported the ability of low revenue ACOs 
to transition from the BASIC track to the ENHANCED track after a single 
agreement period under the BASIC track, while retaining the opportunity 
to return to the BASIC track. One commenter explained its belief that 
this approach creates a ``safety net'' that will encourage ACOs that 
believe they are ready to bear a significant amount of risk to test 
their capabilities in the ENHANCED track as opposed to taking advantage 
of both agreement periods in the BASIC track (sequentially).
    Response: We appreciate commenters' support for our proposal to 
allow low revenue ACOs to participate in the BASIC track in any two 
agreement periods (including non-sequentially).
    Final Action: After considering the comments we received, we are 
finalizing our proposed policies for restricting ACOs' participation in 
the BASIC track prior to transitioning to participation in the ENHANCED 
track. High revenue ACOs will be limited to, at most, a single 
agreement period under the BASIC track prior to transitioning to 
participation under the ENHANCED track. Low revenue ACOs will be 
limited to, at most, two agreement periods for a total of 10 years 
under the BASIC track (or 10.5 years in the case of an ACO that 
participates in an agreement period that begins on July 1, 2019, which 
spans a total of 5.5 years). These agreement periods do not need to be 
sequential. We are specifying these requirements for low revenue ACOs 
and high revenue ACOs in revisions to Sec.  425.600, along with other 
requirements we are finalizing for determining participation options 
based on the experience of the ACO and its ACO participants with 
performance-based risk Medicare ACO initiatives, as discussed in 
section II.A.5.c. of this final rule.
c. Determining Participation Options Based on Prior Participation of 
ACO Legal Entity and ACO Participants
(1) Overview
    In this section of the final rule we describe policies for 
determining ACO participation options based on prior participation of 
the ACO legal entity and ACO participants. In section II.A.5.c of the 
August 2018 proposed rule (83 FR 41820 through 41834), we proposed 
modifications to the regulations to address the following:

    <bullet> Allowing flexibility for ACOs currently within a 3-year 
agreement period under the Shared Savings Program to transition 
quickly to a new agreement period that is not less than 5 years 
under the BASIC track or ENHANCED track.
    <bullet> Establishing definitions to more clearly differentiate 
ACOs applying to renew for a second or subsequent agreement period 
and

[[Page 67884]]

ACOs applying to re-enter the program after their previous Shared 
Savings Program participation agreement expired or was terminated 
resulting in a break in participation, and to identify new ACOs as 
re-entering ACOs if greater than 50 percent of their ACO 
participants have recent prior participation in the same ACO in 
order to hold these ACO accountable for their ACO participants' 
experience with the program.
    <bullet> Revising the criteria for evaluating an ACO's prior 
participation in the Shared Savings Program to determine the 
eligibility of ACOs seeking to renew its participation in the 
program for a subsequent agreement period, ACOs applying to re-enter 
the program after termination or expiration, and ACOs that are 
identified as re-entering ACOs based on their ACO participants' 
recent experience with the program.
    <bullet> Establishing criteria for determining the participation 
options available to an ACO based on its experience with 
performance-based risk Medicare ACO initiatives (and that of its ACO 
participants) and on whether the ACO is a low revenue ACO or high 
revenue ACO.
    <bullet> Establishing policies that more clearly differentiate 
the participation options, and the applicability of program 
requirements that phase-in over time based on the ACO's and ACO 
participants' prior experience in the Shared Savings Program or with 
other Medicare ACO initiatives.

    We summarized the regulatory background for the proposed policies, 
which included multiple sections of the program's regulations, as 
developed over several rulemaking cycles.
(2) Background on Re-Entry Into the Program After Termination
    In the initial rulemaking for the program, we specified criteria 
for terminated ACOs seeking to re-enter the program in Sec.  425.222 
(see 76 FR 67960 through 67961). In the June 2015 final rule, we 
revised this section to address eligibility for continued participation 
in Track 1 by previously terminated ACOs (80 FR 32767 through 32769). 
Currently, this section prohibits ACOs re-entering the program after 
termination from participating in the one-sided model beyond a second 
agreement period and from moving back to the one-sided model after 
participating in a two-sided model. This section also specifies that 
terminated ACOs may not re-enter the program until after the date on 
which their original agreement period would have ended if the ACO had 
not been terminated (the ``sit-out'' period). This policy was designed 
to restrict re-entry into the program by ACOs that voluntarily 
terminate their participation agreement, or have been terminated for 
failing to meet program integrity or other requirements (see 76 FR 
67960 and 67961). Under the current regulations, we only consider 
whether an ACO applying to the program is the same legal entity as a 
previously terminated ACO, as identified by TIN (see definition of ACO 
under Sec.  425.20), for purposes of determining whether the 
appropriate ``sit-out'' period of Sec.  425.222(a) has been observed 
and the ACO's eligibility to participate under the one-sided model. 
Section 425.222 also provides criteria to determine the applicable 
agreement period when a previously terminated ACO re-enters the 
program. We explained the rationale for these policies in prior 
rulemaking and refer readers to the November 2011 and June 2015 final 
rules for more detailed discussions.
    Additionally, under Sec.  425.204(b), the ACO must disclose to CMS 
whether the ACO or any of its ACO participants or ACO providers/
suppliers have participated in the Shared Savings Program under the 
same or a different name, or are related to or have an affiliation with 
another Shared Savings Program ACO. The ACO must specify whether the 
related participation agreement is currently active or has been 
terminated. If it has been terminated, the ACO must specify whether the 
termination was voluntary or involuntary. If the ACO, ACO participant, 
or ACO provider/supplier was previously terminated from the Shared 
Savings Program, the ACO must identify the cause of termination and 
what safeguards are now in place to enable the ACO, ACO participant, or 
ACO provider/supplier to participate in the program for the full term 
of the participation agreement (Sec.  425.204(b)(3)).
    The agreement period in which an ACO is placed upon re-entry into 
the program has ramifications not only for its risk track participation 
options, but also for the benchmarking methodology that is applied and 
the quality performance standard against which the ACO will be 
assessed. ACOs in a second or subsequent agreement period receive a 
rebased benchmark as currently specified under Sec.  425.603. For ACOs 
that renew for a second or subsequent agreement period beginning in 
2017 and subsequent years, the rebased benchmark incorporates regional 
expenditure factors, including a regional adjustment. The weight 
applied in calculating the regional adjustment depends in part on the 
agreement period for which the benchmark is being determined (see Sec.  
425.603(c)), with relatively higher weights applied over time. Further, 
for an ACO's first agreement period, the benchmark expenditures are 
weighted 10 percent in benchmark year 1, 30 percent in benchmark year 
2, and 60 percent in benchmark year 3 (see Sec.  425.602(a)(7)). In 
contrast, for an ACO's second or subsequent agreement period we equally 
weight each year of the benchmark (Sec.  425.603). With respect to 
quality performance, the quality performance standard for ACOs in the 
first performance year of their first agreement period is set at the 
level of complete and accurate reporting of all quality measures. Pay-
for-performance is phased in over the remaining years of the first 
agreement period, and continues to apply in all subsequent performance 
years (see Sec.  425.502(a)).
    We explained our belief that the regulations as currently written 
create flexibilities that allow more experienced ACOs to take advantage 
of the opportunity to re-form and re-enter the program under Track 1 or 
to re-enter the program sooner or in a different agreement period than 
otherwise permissible. In particular, terminated ACOs may re-form as a 
different legal entity and apply to enter the program as a new 
organization to extend their time in Track 1 or enter Track 1 after 
participating in a two-sided model. These ACOs would effectively 
circumvent the requisite ``sit-out'' period (the remainder of the term 
of an ACO's previous agreement period), benchmark rebasing, including 
the application of equal weights to the benchmark years and the higher 
weighted regional adjustment that applies in later agreement periods, 
or the pay-for-performance quality performance standard that is phased 
in over an ACO's first agreement period in the program.
(3) Background on Renewal for Uninterrupted Program Participation
    In the June 2015 final rule, we established criteria in Sec.  
425.224 applicable to ACOs seeking to renew their agreements, including 
requirements for renewal application procedures and factors CMS uses to 
determine whether to renew a participation agreement (see 80 FR 32729 
through 32730). Under our current policies, we consider a renewing ACO 
to be an organization that continues its participation in the program 
for a consecutive agreement period, without interruption resulting from 
termination of the participation agreement by CMS or by the ACO (see 
Sec. Sec.  425.218 and 425.220). Therefore, to be considered for timely 
renewal, an ACO within its third performance year of an agreement 
period is required to meet the application requirements, including 
submission of a renewal application, by the deadline specified by CMS, 
during the program's typical annual application process. If the ACO's

[[Page 67885]]

renewal application is approved by CMS, the ACO would have the 
opportunity to enter into a new participation agreement with CMS for 
the agreement period beginning on the first day of the next performance 
year (typically January 1 of the following year), and thereby to 
continue its participation in the program without interruption.
    In evaluating the application of a renewing ACO, CMS considers the 
ACO's history of compliance with program requirements generally, 
whether the ACO has established that it is in compliance with the 
eligibility and other requirements of the Shared Savings Program, 
including the ability to repay shared losses, if applicable, and 
whether it has a history of meeting the quality performance standard in 
its previous agreement period, as well as whether the ACO satisfies the 
criteria for operating under the selected risk track, including whether 
the ACO has repaid shared losses generated during the prior agreement 
period.
    Under Sec.  425.600(c), an ACO experiencing a net loss during a 
previous agreement period may reapply to participate under the 
conditions in Sec.  425.202(a), except the ACO must also identify in 
its application the cause(s) for the net loss and specify what 
safeguards are in place to enable the ACO to potentially achieve 
savings in its next agreement period. In the initial rulemaking 
establishing the Shared Savings Program, we proposed, but did not 
finalize, a requirement that would prevent an ACO from reapplying to 
participate in the Shared Savings Program if it previously experienced 
a net loss during its first agreement period. We explained that this 
proposed policy would ensure that under-performing organizations would 
not get a second chance (see 76 FR 19562, 19623). However, we were 
persuaded by commenters' suggestions that barring ACOs that demonstrate 
a net loss from continuing in the program could serve as a disincentive 
for ACO formation, given the anticipated high startup and operational 
costs of ACOs (see 76 FR 67908 and 67909). We finalized the provision 
at Sec.  425.600(c) that would allow for continued participation by 
ACOs despite their experience of a net loss.
(4) Streamlining Regulations
    As described in the August 2018 proposed rule (83 FR 41821 through 
41825), we proposed to modify the requirements for ACOs applying to 
renew their participation in the program (Sec.  425.224) and re-enter 
the program after termination (Sec.  425.222) or expiration of their 
participation agreement by both eliminating regulations that would 
restrict our ability to ensure that ACOs quickly migrate to the 
redesigned tracks of the program and strengthening our policies for 
determining the eligibility of ACOs to renew their participation in the 
program (to promote consecutive and uninterrupted participation in the 
program) or to re-enter the program after a break in participation. We 
also sought to establish criteria to identify as re-entering ACOs new 
ACOs for which greater than 50 percent of ACO participants have recent 
prior participation in the same ACO, and to hold these ACO accountable 
for their ACO participants' experience in the program.
(a) Defining Renewing and Re-Entering ACOs
    We proposed to define a renewing ACO and an ACO re-entering after 
termination or expiration of its participation agreement (83 FR 41821 
through 41823). Under the program's regulations, there is currently no 
definition of a renewing ACO, and based on our operational experience, 
this has caused some confusion among applicants. For example, there is 
confusion as to whether an ACO that has terminated from the program 
would be considered a first time applicant into the program or a 
renewing ACO. The definition of these terms is also important for 
identifying the agreement period that an ACO is applying to enter, 
which is relevant to determining the applicability of certain factors 
used in calculating the ACO's benchmark that phase-in over the span of 
multiple agreement periods as well as the phase-in of pay-for-
performance under the program's quality performance standards. We 
explained that having definitions that clearly distinguish renewing 
ACOs from ACOs that are applying to re-enter the program after a 
termination, or other break in participation will help us more easily 
differentiate between these organizations in our regulations and other 
programmatic material. We proposed to define renewing ACO and re-
entering ACO in new definitions in Sec.  425.20.
    We proposed to define renewing ACO to mean an ACO that continues 
its participation in the program for a consecutive agreement period, 
without a break in participation, because it is either: (1) An ACO 
whose participation agreement expired and that immediately enters a new 
agreement period to continue its participation in the program; or (2) 
an ACO that terminated its current participation agreement under Sec.  
425.220 and immediately enters a new agreement period to continue its 
participation in the program. This proposed definition is consistent 
with current program policies for ACOs applying to timely renew their 
agreement under Sec.  425.224 to continue participation following the 
expiration of their participation agreement. This proposed definition 
would include a new policy that would consider an ACO to be renewing in 
the circumstance where the ACO voluntarily terminates its current 
participation agreement and enters a new agreement period under the 
BASIC track or ENHANCED track, beginning immediately after the 
termination date of its previous agreement period thereby avoiding an 
interruption in participation. We would consider these ACOs to have 
effectively renewed their participation early. This part of the 
definition is consistent with the proposal to discontinue use of the 
``sit-out'' period after termination under Sec.  425.222(a).
    We considered two possible scenarios in which an ACO might seek to 
re-enter the program. In one case, a re-entering ACO would be a 
previously participating ACO, identified by a TIN (see definition of 
ACO under Sec.  425.20), that applies to re-enter the program after its 
prior participation agreement expired without having been renewed, or 
after the ACO was terminated under Sec.  425.218 or Sec.  425.220 and 
did not immediately enter a new agreement period (that is, an ACO with 
prior participation in the program that does not meet the proposed 
definition of renewing ACO). In this case, it is clear that the ACO is 
a previous participant in the program. In the other scenario, an entity 
applies under a TIN that is not previously associated with a Shared 
Savings Program ACO, but the entity is composed of ACO participants 
that previously participated together in the same Shared Savings 
Program ACO in a previous performance year. Under the current 
regulations, there is no mechanism in place to prevent a terminated ACO 
from re-forming under a different TIN and applying to re-enter the 
program, or for a new legal entity to be formed from ACO participants 
in a currently participating ACO. Doing so could allow an ACO to avoid 
accountability for the experience and prior participation of its ACO 
participants, and to avoid the application of policies that phase-in 
over time (the application of equal weights to the benchmark years and 
the higher weighted regional adjustment that applies in later agreement 
periods,

[[Page 67886]]

or the pay-for-performance quality performance standard that is phased 
in over an ACO's first agreement period in the program). We explained 
our concern that, under the current regulations, Track 1 ACOs would be 
able to re-form to take advantage of the BASIC track's glide path, 
which, as proposed, would allow for 2 years under a one-sided model for 
new ACOs only (2.5 performance years in the case of an agreement period 
starting July 1, 2019). We therefore described our interest in adopting 
an approach to better identify prior participation and to specify 
participation options and program requirements applicable to re-
entering ACOs.
    We proposed to define ``re-entering ACO'' to mean an ACO that does 
not meet the definition of a ``renewing ACO'' and meets either of the 
following conditions:
    (1) Is the same legal entity as an ACO, identified by TIN according 
to the definition of ACO in Sec.  425.20, that previously participated 
in the program and is applying to participate in the program after a 
break in participation, because it is either: (a) An ACO whose 
participation agreement expired without having been renewed; or (b) an 
ACO whose participation agreement was terminated under Sec.  425.218 or 
Sec.  425.220.
    (2) Is a new legal entity that has never participated in the Shared 
Savings Program and is applying to participate in the program and more 
than 50 percent of its ACO participants were included on the ACO 
participant list under Sec.  425.118, of the same ACO in any of the 5 
most recent performance years prior to the agreement start date.
    We noted that a number of proposed policies depend on the prior 
participation of an ACO or the experience of its ACO participants, 
including: (1) Using the ACO's and its ACO participants' experience or 
inexperience with performance-based risk Medicare ACO initiatives to 
determine the participation options available to the ACO (proposed in 
Sec.  425.600(d)); (2) identifying ACOs experienced with Track 1 to 
determine the amount of time an ACO may participate under a one-sided 
model of the BASIC track's glide path (proposed in Sec.  425.600(d)); 
(3) determining how many agreement periods an ACO has participated 
under the BASIC track as eligible ACOs are allowed a maximum of two 
agreement periods under the BASIC track (proposed in Sec.  425.600(d)); 
(4) assessing the eligibility of the ACO to participate in the program 
(proposed revisions to Sec.  425.224); and (5) determining the 
applicability of program requirements that phase-in over multiple 
agreement periods (proposed in Sec.  425.600(f)). The proposed 
revisions to the regulations to establish these requirements would 
apply directly to an ACO that is the same legal entity as a previously 
participating ACO. We also discuss throughout the preamble how these 
requirements would apply to new ACOs that are identified as re-entering 
ACOs because greater than 50 percent of their ACO participants have 
recent prior participation in the same ACO.
    Several examples illustrate the application of the proposed 
definition of re-entering ACO. For example, if ACO A is applying to the 
program for an agreement period beginning on July 1, 2019, and ACO A is 
the same legal entity as an ACO whose previous participation agreement 
expired without having been renewed (that is, ACO A has the same TIN as 
the previously participating ACO) we would treat ACO A as the 
previously participating ACO, regardless of what share of ACO A's ACO 
participants previously participated in the ACO. As another example, if 
ACO A, applying for a July 1, 2019 start date, were a different legal 
entity (identified by a different TIN) from any ACO that previously 
participated in the Shared Savings Program, we would also treat ACO A 
as if it were an ACO that previously participated in the program (ACO 
B) if more than 50 percent of ACO A's ACO participants participated in 
ACO B in any of the 5 most recent performance years (that is, 
performance year 2015, 2016, 2017, 2018, or the 6-month performance 
year from January 1, 2019 through June 30, 2019), even though ACO A and 
ACO B are not the same legal entity.
    We explained that looking at the experience of the ACO 
participants, in addition to the ACO legal entity, would be a more 
robust check on prior participation. It would also help to ensure that 
ACOs re-entering the program are treated comparably regardless of 
whether they are returning as the same legal entity or have re-formed 
as a new entity. With ACOs allowed to make changes to their certified 
ACO participant list for each performance year, we have observed that 
many ACOs make changes to their ACO participants over time. For 
example, among ACOs that participated in the Shared Savings Program as 
the same legal entity in both PY 2014 and PY 2017, only around 60 
percent of PY 2017 ACO participants had also participated in the same 
ACO in PY 2014, on average. For this reason, the ACO legal entity alone 
does not always capture the ACO's experience in the program and 
therefore it is also important to look at the experience of ACO 
participants.
    We chose to propose a 5 performance year look back period for 
determining prior participation by ACO participants as it would align 
with the look back period for determining whether an ACO is experienced 
or inexperienced with performance-based risk Medicare ACO initiatives 
as discussed elsewhere in this section of this final rule. We clarified 
that the threshold for prior participation by ACO participants is not 
cumulative when determining whether an ACO is a re-entering ACO. For 
example, assume 22 percent of applicant ACO A's ACO participants 
participated in ACO C in the prior 5 performance years, 30 percent 
participated in ACO D, and the remaining 48 percent did not participate 
in any ACO during this period. ACO A would not be considered a re-
entering ACO (assuming that ACO A is a new legal entity), because more 
than 50 percent of its ACO participants did not participate in the same 
ACO during the 5-year look back period. Although unlikely, we 
recognized the possibility that an ACO could quickly re-form multiple 
times and therefore more than 50 percent of its ACO participants may 
have been included on the ACO participant list of more than one ACO in 
the 5 performance year look back period. In these cases, the most 
recent experience of the ACO participants in the new ACO would be most 
relevant to determining the applicability of policies to the re-
entering ACO. We therefore proposed that the ACO in which more than 50 
percent of the ACO participants most recently participated would be 
used in identifying the participation options available to the new ACO.
    We opted to propose a threshold of greater than 50 percent because 
it would identify ACOs with significant participant overlap and would 
allow us to more clearly identify a single, Shared Savings Program ACO 
in which at least the majority of ACO participants recently 
participated. We also considered whether to use a higher or lower 
percentage threshold. A lower threshold, such as 20, 30 or 40 percent, 
would further complicate the analysis for identifying the ACO or ACOs 
in which the ACO participants previously participated, and the ACO 
whose prior performance should be evaluated in determining the 
eligibility of the applicant ACO. On the other hand, using a higher 
percentage for the threshold would identify fewer ACOs that 
significantly resemble ACOs with

[[Page 67887]]

experience participating in the Shared Savings Program.
    We considered alternate approaches to identifying prior 
participation other than the overall percentage of ACO participants 
that previously participated in the same ACO, including using the 
percentage of ACO participants weighted by the paid claim amounts, the 
percentage of individual practitioners (NPIs) that had reassigned their 
billing rights to ACO participants, or the percentage of assigned 
beneficiaries the new legal entity has in common with the assigned 
beneficiaries of a previously participating ACO. While these 
alternative approaches have merit, we concluded that they would be less 
transparent to ACOs than using a straight percentage of TINs, as well 
as more operationally complex to compute.
    We sought comment on these proposed definitions and on the 
alternatives considered.
    Comment: Some commenters expressed concern that the distinctions 
for determining participation options, including evaluating whether 
ACOs are new, renewing, or re-entering, add complexity to the program. 
A few commenters opposed the approach to identifying re-entering ACOs, 
and suggested CMS forgo the policy.
    Response: We acknowledge that the approach to identifying re-
entering ACOs and renewing ACOs will add some complexity to program 
policies and certain operational processes, such that it requires (for 
example) that we establish procedures to identify new legal entities 
that are re-entering ACOs because more than 50 percent of their ACO 
participants were included on the ACO participant list of the same ACO 
in any of the 5 most recent performance years prior to the agreement 
start date, as well as to process requests for ACOs seeking to renew 
early. However, we believe these definitions for ``renewing ACO'' and 
``re-entering ACO'' are timely with the redesign of the program's 
participation options and provide needed clarification to the program's 
regulations, as well as an opportunity to more consistently evaluate 
eligibility for program participation by ACOs whose legal entity, or a 
significant portion of the ACO participants, has previous experience in 
the Shared Savings Program.
    We believe that the proposed definitions for renewing ACOs and re-
entering ACOs, and related changes to the program's regulations for 
identifying participation options for these organizations, bolster 
program integrity. As we discussed in the August 2018 proposed rule 
(see for example, 83 FR 41822) and as we reiterated in this section of 
this final rule, we believe that the program's regulations as currently 
written create flexibilities that allow more experienced ACOs to 
potentially re-form and re-enter the program under participation 
options they find advantageous, such as avoiding the transition to 
performance-based risk, or avoiding the application of policies that 
phase-in over time (the application of equal weights to the benchmark 
years and the higher weighted regional adjustment that applies in later 
agreement periods, or the pay-for-performance quality performance 
standard that is phased in over an ACO's first agreement period in the 
program). We also explained that establishing definitions for 
``renewing ACO'' and ``re-entering ACO'' will help us more easily 
differentiate between these organizations in our regulations and other 
programmatic material (83 FR 41821). Further, the removal of the sit-
out period after termination and the allowance for an early renewal 
option under the definition of ``renewing ACO'' allows an important 
flexibility for ACOs to more readily move to new participation options 
under the program redesign without a break in their program 
participation.
    Comment: We received few comments on the proposed definition of 
``renewing ACO.'' Several commenters specifically supported the 
proposed definition of renewing ACO. Several commenters expressed 
support for the early renewal policy. However, a few comments indicated 
some confusion over the early renewal policies.
    Response: We thank the commenters for their support of the proposed 
definition of ``renewing ACO''. We are finalizing this definition as 
proposed. We respond further in this section and in section II.A.7 of 
this final rule to those commenters who expressed confusion regarding 
the early renewal policy.
    Comment: One commenter stated that it is unclear that the 
opportunity to terminate early and begin a new 5-year agreement is open 
to all ACOs, and pointed out that reference is made to Track 2 ACOs 
having this opportunity (83 FR 41800). This commenter requested that 
CMS clarify in the final rule that all ACOs regardless of their 
agreement period start year are offered the opportunity to transition 
to the BASIC track or ENHANCED track.
    Response: To clarify, the proposed definition of renewing ACO, in 
combination with our proposal to discontinue use of the ``sit-out'' 
period after termination under Sec.  425.222(a), would create the 
flexibility for any ACO within an agreement period to voluntarily 
terminate its current participation agreement and (if eligible) enter a 
new agreement period under the BASIC track or ENHANCED track, beginning 
at the start of the next performance year after the termination date of 
its previous agreement period, as early as July 1, 2019, thereby 
avoiding an interruption in participation. We would consider these ACOs 
to have effectively renewed their participation early. We note that we 
would assess the eligibility of the ACO to renew early under the 
revised evaluation criteria we are finalizing under amendments to Sec.  
425.224 as described in section II.A.5.c.(5). of this final rule.
    Comment: One commenter, an existing ACO, expressed support for the 
early renewal option, and requested the opportunity to early renew as 
quickly as possible and with as little disruption as possible. This 
commenter seemed to favor benchmark rebasing at the start of the ACO's 
new agreement period. The commenter specifically suggested that CMS 
account for non-claims based payments consistently across benchmark and 
performance year expenditures. This commenter recommended that CMS 
provide an exception to enable Track 2 and Track 3 ACOs with physicians 
participating in the CPC+ Model to enter a new agreement period under 
the ENHANCED track as soon as is practicable to enable rebasing of the 
benchmark, ideally on July 1, 2019.
    Response: We are finalizing policies in this final rule to allow 
for a July 1, 2019 agreement start date as the next available start 
date in the Shared Savings Program. We are also finalizing our proposed 
approach to remove the ``sit-out'' period after termination and the 
proposed definition of ``renewing ACO'' to include the early renewal 
option. As we previously explained in responding to comments in this 
section of this final rule, early renewal would be an option for all 
ACOs within a current agreement period within the Shared Savings 
Program. Therefore, the first opportunity for ACOs to renew early will 
be available for ACOs that start a 12-month performance year on January 
1, 2019. These ACOs may terminate their participation agreements with 
an effective date of termination of June 30, 2019, and enter a new 
agreement period beginning on July 1, 2019.
    We also explained in the August 2018 proposed rule (83 FR 41831) 
that early renewal results in rebasing of the ACO's historical 
benchmark. In section II.D. of this final rule we finalize the 
methodology for establishing, adjusting and updating the ACO's 
historical

[[Page 67888]]

benchmark for agreement periods beginning on July 1, 2019 and in 
subsequent years, and specify these policies in a new section of the 
regulations at Sec.  425.601. We note that under this methodology, in 
calculating benchmark year expenditures we include individually 
beneficiary identifiable final payments made under a demonstration, 
pilot or time limited program. Similarly, under the methodology for 
calculating performance year expenditures, we also take into 
consideration individually beneficiary identifiable final payments made 
under a demonstration, pilot or time limited program. (See Sec.  
425.605(a)(5)(ii) on the calculation of shared savings and losses under 
the BASIC track, Sec.  425.610(a)(6)(ii)(B) on calculation of shared 
savings and losses under the ENHANCED track.) We note that these 
expenditures are included in the calculations for the relevant year 
they are made.
    The CPC+ Model began in 2017. Final CPC+ Model payments were 
included in expenditures for ACOs' assigned beneficiaries for 
performance year and benchmark year 2017, and similarly will be 
included in expenditures for subsequent years the model is available. 
If an ACO seeks to early renew for a new agreement period beginning on 
July 1, 2019, the historical benchmark years for the ACO's new 
agreement period will be 2016, 2017 and 2018. Therefore, if applicable, 
final CPC+ Model payments would be included in benchmark year 
expenditures for 2017 and 2018, and would be included in expenditures 
for each of the performance years in which they are made during the 
agreement period.
    Comment: A few commenters supported the proposed approach to 
identifying re-entering ACOs including the proposal to identify new 
legal entities as re-entering ACOs if more than 50 percent of its ACO 
participants were included on the ACO participant list of the same ACO 
in any of the 5 most recent performance years prior to the agreement 
start date. One commenter supporting the proposed approach, recognized 
the opportunity for ACOs to reorganize or otherwise terminate and re-
enter to secure participation in the Shared Savings Program under 
better terms as program rules or market conditions change. Some 
commenters generally supported a policy for determining whether an ACO 
is a re-entering ACO, but suggested alternative approaches. One 
commenter explained that the policy for identifying re-entering ACOs 
would be especially important if CMS finalized the proposed program 
redesign, as the commenter expected that the redesigned program would 
experience considerable churn or turnover in ACO participation, and the 
commenter suggested that CMS ensure that ACOs not be precluded from re-
entering the program with ACO participants that previously had 
participated in a different ACO.
    Several commenters suggested alternative approaches to identifying 
re-entering ACOs. One commenter suggested that CMS weight ACO 
participant TINs by their number of years in the program, to ensure 
that ACO participants with limited experience in the Shared Savings 
Program do not tip the scales for a new legal entity to be identified 
as a re-entering ACO.
    One commenter expressed concern that the approach could ultimately 
limit participation by ACOs that are high revenue and new legal 
entities but composed of previous ACO participants in a Track 1 ACO. 
The commenter explained the proposed approach could expose newly formed 
ACO entities to a more aggressive glide path and drive very 
inexperienced ACOs, particularly high revenue ACOs, to accept higher 
levels of risk more quickly than they are actually prepared to handle. 
The commenter alternatively seemed to recommend that CMS identify re-
entering ACOs based on whether both criteria (instead of either 
criterion) included in the proposed definition are met: (1) The ACO is 
the same legal entity as an ACO that previously participated in the 
program, and (2) more than 50 percent of its ACO participants were 
included on the ACO participant list of the same ACO in any of the 5 
most recent performance years prior to the agreement start date.
    Some commenters suggested that CMS should monitor the impact of the 
policies for identifying re-entering ACOs and ACOs that are experienced 
with performance-based risk Medicare ACO initiatives, as well as to 
create an appeals process for these determinations. They recommended 
using a threshold of 50 percent for both of these determinations 
(rather than using the proposed 40 percent threshold for determining 
ACOs experienced with performance-based risk Medicare ACO initiatives) 
and also setting an additional criterion that would allow an ACO 
determined to be a re-entering ACO or experienced performance-based 
risk Medicare ACO initiatives to appeal the determination if less than 
30 percent of the ACO participants in the ACO were previously part of 
the same legal entity.
    Response: We appreciate commenters' support of the proposed 
definition of re-entering ACO. In response to the commenter's 
suggestion that ACOs not be precluded from re-entering the program with 
ACO participants that previously had participated in a different ACO, 
we note that the proposed definition of a re-entering ACO would allow 
us to hold ACOs accountable for the experience of their legal entity 
and ACO participants, and ensure they are participating in the program 
under participation options and program policies that are reflective of 
this experience.
    We decline to adopt the commenter's alternative suggestion to 
weight ACO participants by their number of years in the program, when 
identifying new legal entities as re-entering ACOs based on the prior 
participation in the Shared Savings Program by their ACO participants. 
We believe this approach may make it more challenging for applicants to 
anticipate whether their composition could result in a determination by 
CMS that they are a re-entering ACO. We are also concerned that such a 
weighting approach, which would allow ACOs to avoid being considered 
re-entering ACOs based on the duration of prior participation by ACO 
participants, could further encourage ACOs that are re-forming and re-
entering the Shared Savings Program to manipulate their ACO participant 
lists to avoid accountability for their experience with the program.
    Under the proposed definition of a re-entering ACO and under our 
proposals for determining participation options, which we are 
finalizing as discussed in section II.A.5.c.(5) of this final rule, new 
legal entities identified as re-entering ACOs that are high revenue 
ACOs, and inexperienced with performance-based risk Medicare ACO 
initiatives, would be eligible for participation under the BASIC 
track's glide path. However, as noted by the commenter, if the re-
entering ACO is identified as having previously participated in Track 
1, the ACO would be restricted to entering the glide path at Level B, 
therefore having relatively less time under a one-sided model compared 
to new legal entities that are eligible to enter the glide path at 
Level A. We believe that holding ACOs accountable for the previous 
experience of the ACO legal entity and its ACO participants in the 
Shared Savings Program, and Medicare ACO initiatives more broadly, and 
protecting the Trust Funds from ACOs that terminate from the program 
and re-enter the program in an effort to take advantage of program 
policies designed for ACOs inexperienced with accountable care models 
in FFS Medicare, outweigh the commenter's

[[Page 67889]]

concern that this approach could expose a new legal entity to higher 
levels of risk and potential reward than the ACO can manage. We would 
identify the ACO's participation options at the time of its application 
to the program, and the applicant would have the opportunity to 
determine whether to enter an agreement period in the Shared Savings 
Program under a participation option for which it is eligible.
    We decline to adopt an approach that would only recognize ACOs as 
re-entering if they are identified as both the same legal entity as a 
former program participant, and if a majority of ACO participants 
previously participated in the same legal entity. We believe this 
approach would be too narrow and not identify some re-entering ACOs 
that are the same legal entity as an ACO whose participation agreement 
was terminated or whose participation agreement expired without having 
been renewed. These ACO legal entities would have previous experience 
with the Shared Savings Program and should not be allowed to take 
advantage of policies aimed at organizations new to the program's 
requirements or the accountable care model more generally.
    We believe that some commenters recommending modifications to the 
process for determining re-entering ACOs and ACOs that are experienced 
with performance-based risk may have had confusion around our proposed 
policies. (We respond to the commenters' suggestions about the 
alternative approach to identifying ACOs experienced with performance-
based risk Medicare ACO initiatives elsewhere in this section of this 
final rule.) We would like to clarify that the policy that we proposed, 
and are finalizing in this final rule, for determining new legal 
entities to be re-entering ACOs requires that more than 50 percent of 
an applicant's ACO participants have participated together as part of 
the same legal entity in any of the 5 most recent performance years 
prior to the agreement start date. Thus, all ACOs determined to be a 
re-entering ACO under this policy would automatically exceed the 
commenters' recommended secondary threshold of 30 percent to trigger 
eligibility for an appeal process. By contrast, the approach that we 
have proposed and are finalizing for determining ACOs experienced with 
performance-based risk Medicare ACO initiatives requires that, 
cumulatively, at least 40 percent of an applicant's ACO participants 
have participated in a performance-based risk Medicare ACO initiative 
in any of the 5 most recent performance years prior to the agreement 
start date, and does not require the ACO participants to have to 
participated together in the same legal entity. That being said, we 
decline to adopt an approach for determining re-entering ACOs such as 
recommended by the commenters that would require a multi-step process. 
That is, an initial determination for whether an ACO is a re-entering 
ACO, a secondary test to identify whether the ACO is eligible to 
request an appeal, and finally an appeal process for the final 
determination. We believe such an approach would add complexity as well 
as uncertainty as ACOs would need to request an appeal and await a 
final determination. Additionally, we currently have an established 
process for ACOs to request reconsiderations, as specified in subpart I 
of the program's regulations.
    We also decline to adopt a lower percentage threshold as part of 
identifying new legal entities as re-entering ACOs, for the reasons we 
previously described in the August 2018 proposed rule and reiterated in 
this final rule. In particular, using a lower threshold for determining 
re-entering ACOs would further complicate the analysis for identifying 
the ACO or ACOs in which the ACO participants previously participated, 
and the ACO whose prior performance should be evaluated in determining 
the eligibility of the applicant ACO and for determining the 
applicability of program policies that phase-in over time.
    More generally, we agree with commenters suggesting that we 
evaluate and monitor the policy once implemented.
    Comment: One commenter supported a 5-year look back period in the 
definition of re-entering ACO, particularly in light of the proposal to 
allow for agreement periods of at least 5 years.
    The commenter also supported the clarification that the 50 percent 
threshold would not be cumulative based on experience in any ACO over 
the past five years, but rather, based on 50 percent or more 
participants most recently participating in the same ACO. The commenter 
agreed this would serve CMS' goal of identifying ACOs with significant 
participant overlap (as described in the August 2018 proposed rule) 
while minimizing complexity that could easily arise from using other 
methods and therefore improve transparency.
    Response: We thank the commenters for their support of the proposed 
5-year look back period in the definition of ``re-entering ACO'', and 
support for an approach under which the threshold for prior 
participation by ACO participants is not cumulative.
    Comment: One commenter disagreed with the idea that ACOs would 
invest substantial upfront start-up costs and undergo a major 
organizational shift or undergo the burdensome process of dissolving 
and re-forming under a different legal entity, much less voluntarily 
subject itself to shared losses, simply to ``game'' the system. The 
commenter asserted that the number of ACOs that drop out of the program 
after sustaining losses proves that waivers for certain service billing 
requirements or fraud and abuse restrictions are not enough to warrant 
continued participation in the program without the prospect of earning 
shared savings.
    Response: We disagree with the commenter and continue to believe 
that there is clear value in program participation for ACOs that are 
not earning shared savings, as evidenced by the continued participation 
of ACOs that have not shared in the savings (such as ACOs that generate 
savings below their MSR), or ACOs that remain in the program despite 
generating the equivalent of losses, or even after sharing in losses. 
ACOs can be the catalyst for changing a health care system or provider 
network, and can provide a vehicle for transforming care in a 
community. However, we have concerns about the motivation of ACOs that 
continue their participation in the program despite poor performance. 
Under the program's current requirements, ACOs may continue their 
participation in the program despite poor financial performance, and we 
believe that the choice of many to do so indicates they may be able to 
take advantage of other program features, such as the ability to 
benefit from waivers of certain federal requirements in connection with 
their participation in the Shared Savings Program, and lack a genuine 
motivation to achieve the program's goals. With the more rapid 
transition to performance-based risk under the redesign of the 
program's participation options we are finalizing in this final rule, 
we believe that it is increasingly important for program integrity 
purposes that we protect against ACOs seeking to game program 
participation options including by re-forming and re-entering the 
program in an effort to take advantage of the BASIC track's glide path.
    Final Action: After consideration of public comments, we are 
finalizing as proposed to define renewing ACO and re-entering ACO in 
new definitions in Sec.  425.20.

[[Page 67890]]

    We are finalizing our proposal to define renewing ACO to mean an 
ACO that continues its participation in the program for a consecutive 
agreement period, without a break in participation, because it is 
either: (1) An ACO whose participation agreement expired and that 
immediately enters a new agreement period to continue its participation 
in the program; or (2) an ACO that terminated its current participation 
agreement under Sec.  425.220 and immediately enters a new agreement 
period to continue its participation in the program.
    We are finalizing our proposal to define ``re-entering ACO'' to 
mean an ACO that does not meet the definition of a ``renewing ACO'' and 
meets either of the following conditions:
    (1) Is the same legal entity as an ACO, identified by TIN according 
to the definition of ACO in Sec.  425.20, that previously participated 
in the program and is applying to participate in the program after a 
break in participation, because it is either: (a) An ACO whose 
participation agreement expired without having been renewed; or (b) an 
ACO whose participation agreement was terminated under Sec.  425.218 or 
Sec.  425.220.
    (2) Is a new legal entity that has never participated in the Shared 
Savings Program and is applying to participate in the program and more 
than 50 percent of its ACO participants were included on the ACO 
participant list under Sec.  425.118, of the same ACO in any of the 5 
most recent performance years prior to the agreement start date.
(b) Eligibility Requirements and Application Procedures for Renewing 
and Re-Entering ACOs
    In the August 2018 proposed rule (83 FR 41823), we proposed to 
revise our regulations to clearly set forth the eligibility 
requirements and application procedures for renewing ACOs and re-
entering ACOs. Therefore, we proposed to revise Sec.  425.222 to 
address limitations on the ability of re-entering ACOs to participate 
in the Shared Savings Program for agreement periods beginning before 
July 1, 2019. In addition, we proposed to revise Sec.  425.224 to 
address general application requirements and procedures for all re-
entering ACOs and all renewing ACOs.
    In revising Sec.  425.222 (which consists of paragraphs (a) through 
(c)), we considered that removing the required ``sit-out'' period for 
terminated ACOs under Sec.  425.222(a) would facilitate transition of 
ACOs within current 3-year agreement periods to new agreements under 
the participation options in the proposed rule. As discussed elsewhere 
in this section, we proposed to retain policies similar to those under 
Sec.  425.222(b) for evaluating the eligibility of ACOs to participate 
in the program after termination. Further, instead of the approach used 
for determining participation options for ACOs that re-enter the 
program after termination described in Sec.  425.222(c), our proposed 
approach to making these determinations is described in detail in 
section II.A.5.c.(5). of this final rule.
    The ``sit-out'' period policy restricts the ability of ACOs in 
current agreement periods to transition to the proposed participation 
options under new agreements. For example, if left unchanged, the 
``sit-out'' period would prevent existing, eligible Track 1 ACOs from 
quickly entering an agreement period under the proposed BASIC track and 
existing Track 2 ACOs from quickly entering a new agreement period 
under either the BASIC track at the highest level of risk (Level E), if 
available to the ACO, or the ENHANCED track. Participating under Levels 
C, D, or E of the BASIC track or under the ENHANCED track could allow 
eligible physicians and practitioners billing under ACO participant 
TINs in these ACOs to provide telehealth services under section 1899(l) 
of the Act (discussed in section II.B.2.b. of this final rule), the ACO 
could apply for a SNF 3-day rule waiver (as proposed in section 
II.B.2.a. of this final rule), and the ACO could elect to offer 
incentive payments to beneficiaries under a CMS-approved beneficiary 
incentive program (as proposed in section II.C.2. of this final rule).
    The ``sit-out'' period also applies to ACOs that deferred renewal 
in a second agreement period under performance-based risk as specified 
in Sec.  425.200(e)(2)(ii), a participation option we proposed to 
discontinue (as described in section II.A.2. of this final rule). 
Therefore, by eliminating the ``sit-out'' period, ACOs that deferred 
renewal may more quickly transition to the BASIC track (Level E), if 
available to the ACO, or the ENHANCED track. An ACO that deferred 
renewal and is currently participating in Track 2 or Track 3 may 
terminate its current agreement to enter a new agreement period under 
the BASIC track (Level E), if eligible, or the ENHANCED track. 
Similarly, an ACO that deferred renewal and is currently participating 
in Track 1 for a fourth performance year may terminate its current 
agreement and the participation agreement for its second agreement 
period under Track 2 or Track 3 that it deferred for 1 year. In either 
case, the ACO may immediately apply to re-enter the BASIC track (Level 
E), if eligible, or the ENHANCED track without having to wait until the 
date on which the term of its second agreement would have expired if 
the ACO had not terminated.
    We noted that, to avoid interruption in program participation, an 
ACO that seeks to terminate its current agreement and enter a new 
agreement in the BASIC track or ENHANCED track beginning the next 
performance year should ensure that there is no gap in time between 
when it concludes its current agreement period and when it begins the 
new agreement period so that all related program requirements and 
policies would continue to apply. For an ACO that is completing a 12 
month performance year and is applying to enter a new agreement period 
beginning January 1 of the following year, the effective termination 
date of its current agreement should be the last calendar day of its 
current performance year, to avoid an interruption in the ACO's program 
participation. For instance, for a 2018 starter ACO applying to enter a 
new agreement beginning on January 1, 2020, the effective termination 
date of its current agreement should be December 31, 2019. For an ACO 
that starts a 12-month performance year on January 1, 2019, that is 
applying to enter a new agreement period beginning on July 1, 2019 (as 
discussed in section II.A.7. of this final rule), the effective 
termination date of its current agreement should be June 30, 2019.
    We proposed to amend Sec.  425.224 to make certain policies 
applicable to both renewing ACOs and re-entering ACOs and to 
incorporate certain other technical changes, as follows:
    (1) Revisions to refer to the ACO's ``application'' more generally, 
instead of specifically referring to a ``renewal request,'' so that the 
requirements would apply to both renewing ACOs and re-entering ACOs.
    (2) Addition of a requirement, consistent with the current 
provision at Sec.  425.222(c)(3), for ACOs previously in a two-sided 
model to reapply to participate in a two-sided model. We further 
proposed that a renewing or re-entering ACO that was previously under a 
one-sided model of the BASIC track's glide path may only reapply for 
participation in a two-sided model for consistency with our proposal to 
include the BASIC track within the definition of a performance-based 
risk Medicare ACO initiative. As proposed, this included a new ACO 
identified as a re-entering ACO because greater than 50 percent of its 
ACO participants have recent prior participation in the same ACO that 
was previously under a two-sided model or a one-sided model of the

[[Page 67891]]

BASIC track's glide path (Level A or Level B).
    (3) Revision to Sec.  425.224(b)(1)(iv) (as redesignated from Sec.  
425.224(b)(1)(iii)) to cross reference the requirement that an ACO 
establish an adequate repayment mechanism under Sec.  425.204(f), to 
clarify our intended meaning with respect to the current requirement 
that an ACO demonstrate its ability to repay losses.
    (4) Modifications to the evaluation criteria specified in Sec.  
425.224(b) for determining whether an ACO is eligible for continued 
participation in the program in order to permit them to be used in 
evaluating both renewing ACOs and re-entering ACOs, to adapt some of 
these requirements to longer agreement periods (under the proposed 
approach allowing for agreement periods of at least 5 years rather than 
3-year agreements), and to prevent ACOs with a history of poor 
performance from participating in the program. As described in detail, 
as follows, we addressed: (1) Whether the ACO has a history of 
compliance with the program's quality performance standard; (2) whether 
an ACO under a two-sided model repaid shared losses owed to the 
program; (3) the ACO's history of financial performance; and (4) 
whether the ACO has demonstrated in its application that it has 
corrected the deficiencies that caused it to perform poorly or to be 
terminated.
    First, we proposed modifications to the criterion governing our 
evaluation of whether the ACO has a history of compliance with the 
program's quality performance standard. We proposed to revise the 
existing provision at Sec.  425.224(b)(1)(iv), which specifies that we 
evaluate whether the ACO met the quality performance standard during at 
least 1 of the first 2 years of the previous agreement period, to 
clarify that this criterion is used in evaluating ACOs that entered 
into a participation agreement for a 3-year period. We proposed to add 
criteria for evaluating ACOs that entered into a participation 
agreement for a period longer than 3 years by considering whether the 
ACO was terminated under Sec.  425.316(c)(2) for failing to meet the 
quality performance standard or whether the ACO failed to meet the 
quality performance standard for 2 or more performance years of the 
previous agreement period, regardless of whether the years were 
consecutive.
    In proposing this approach, we considered that the current policy 
is specified for ACOs with 3-year agreements. With the proposal to 
shift to agreement periods of not less than 5 years, additional years 
of performance data would be available at the time of an ACO's 
application to renew its agreement, and may also be available for 
evaluating ACOs re-entering after termination (depending on the timing 
of their termination) or the expiration of their prior agreement, as 
well as being available to evaluate new ACOs identified as re-entering 
ACOs because greater than 50 percent of their ACO participants have 
recent prior participation in the same ACO.
    Further, under the program's monitoring requirements at Sec.  
425.316(c), ACOs with 2 consecutive years of failure to meet the 
program's quality performance standard will be terminated. However, we 
noted our concern about a circumstance where an ACO that fails to meet 
the quality performance standard for multiple, non-consecutive years 
may remain in the program by seeking to renew its participation for a 
subsequent agreement period, seeking to re-enter the program after 
termination or expiration of its prior agreement, or by re-forming to 
enter under a new legal entity (identified as a re-entering ACO based 
on the experience of its ACO participants).
    Second, we proposed to revise the criterion governing the 
evaluation of whether an ACO under a two-sided model repaid shared 
losses owed to the program that were generated during the first 2 years 
of the previous agreement period (Sec.  425.224(b)(1)(v)), to instead 
consider whether the ACO failed to repay shared losses in full within 
90 days in accordance with subpart G of the regulations for any 
performance year of the ACO's previous agreement period. As described 
in section II.A.7. of this final rule, CY 2019 will include two, 6-
month performance years. In the November 2018 final rule (83 FR 59942 
through 59946) we finalized the option for ACOs that started a first or 
second agreement period on January 1, 2016, to elect an extension of 
their agreement period by 6 months from January 1, 2019 through June 
30, 2019. In this final rule we are finalizing an agreement period 
start date of July 1, 2019, which includes a 6-month first performance 
year from July 1, 2019, through December 31, 2019. We will reconcile 
these ACOs, and ACOs that start a 12-month performance year on January 
1, 2019, and terminate their participation agreement with an effective 
date of termination of June 30, 2019, and enter a new agreement period 
beginning on July 1, 2019, separately for the 6-month periods from 
January 1, 2019, through June 30, 2019, and from July 1, 2019, through 
December 31, 2019, as described in section II.A.7. of this final rule. 
In evaluating this proposed criterion on repayment of losses, we would 
consider whether the ACO timely repaid any shared losses for these 6-
month performance years, or the 6-month performance period for ACOs 
that elect to voluntarily terminate their existing participation 
agreement, effective June 30, 2019, and enter a new agreement period 
starting on July 1, 2019, which we will determine according to the 
methodology specified under a new section of the regulations at Sec.  
425.609.
    The current policy regarding repayment of shared losses is 
specified for ACOs with 3-year agreements. With the proposal to shift 
to agreement periods of at least 5 years, we considered it would be 
appropriate to broaden our evaluation of the ACO's timely repayment of 
shared losses beyond the first 2 years of the ACO's prior agreement 
period. For instance, without modification, this criterion could have 
little relevance when evaluating the eligibility of ACOs in the 
proposed BASIC track's glide path that elect to participate under a 
one-sided model for their first 2 performance years (or 3 performance 
years for ACOs that start an agreement period in the proposed BASIC 
track's glide path on July 1, 2019).
    We noted that timely repayment of shared losses is required under 
subpart G of the regulations (Sec. Sec.  425.606(h)(3) and 
425.610(h)(3)), and non-compliance with this requirement may be the 
basis for pre-termination actions or termination under Sec. Sec.  
425.216 and 425.218. We explained that a provision that permits us to 
consider more broadly whether an ACO failed to timely repay shared 
losses for any performance year in the previous agreement period would 
be relevant to all renewing and re-entering ACOs that may have unpaid 
shared losses, as well as all re-entering ACOs that may have been 
terminated for non-compliance with the repayment requirement. This 
includes ACOs that have participated under Track 2, Track 3, and ACOs 
that would participate under the BASIC track or ENHANCED track for a 
new agreement period. For ACOs that have participated in two-sided 
models authorized under section 1115A of the Act, including the Track 
1+ Model, we also proposed to consider whether an ACO failed to repay 
shared losses for any performance year under the terms of the ACO's 
participation agreement for such model.
    Third, we proposed to add a financial performance review criterion 
to Sec.  425.224(b) to allow us to evaluate whether the ACO generated 
losses that were negative outside corridor for 2 performance years of 
the ACO's previous agreement period. We

[[Page 67892]]

proposed to use this criterion to evaluate the eligibility of ACOs to 
enter agreement periods beginning on July 1, 2019 and in subsequent 
years. For purposes of this proposal, an ACO is negative outside 
corridor when its benchmark minus performance year expenditures are 
less than or equal to the negative MSR for ACOs in a one-sided model, 
or the MLR for ACOs in a two-sided model. This proposed approach 
relates to our proposal to monitor for financial performance as 
described in section II.A.5.d. of this final rule.
    Lastly, we proposed to add a review criterion to Sec.  425.224(b), 
which would allow us to consider whether the ACO has demonstrated in 
its application that it has corrected the deficiencies that caused it 
to fail to meet the quality performance standard for 2 or more years, 
fail to timely repay shared losses, or to generate losses outside its 
negative corridor for 2 years, or any other factors that may have 
caused the ACO to be terminated from the Shared Savings Program. We 
proposed to require that the ACO also demonstrate it has processes in 
place to ensure that it will remain in compliance with the terms of the 
new participation agreement.
    We proposed to discontinue use of the requirement at Sec.  
425.600(c), under which an ACO with net losses during a previous 
agreement period must identify in its application the causes for the 
net loss and specify what safeguards are in place to enable it to 
potentially achieve savings in its next agreement period. We believe 
the proposed financial performance review criterion would be more 
effective in identifying ACOs with a pattern of poor financial 
performance. An approach that accounts for financial performance year 
after year allows ACOs to understand if their performance is triggering 
a compliance concern and take action to remedy their performance during 
the remainder of their agreement period. Further, an approach that only 
considers net losses across performance years may not identify as 
problematic an ACO that generates losses in multiple years which in 
aggregate are canceled out by a single year with large savings. 
Although uncommon, such a pattern of performance, where an ACO's 
results change rapidly and dramatically, is concerning and warrants 
consideration in evaluating the ACO's suitability to continue its 
participation in the program.
    This proposed requirement is similar to the current provision at 
Sec.  425.222(b), which specifies that a previously terminated ACO must 
demonstrate that it has corrected deficiencies that caused it to be 
terminated from the program and has processes in place to ensure that 
it will remain in compliance with the terms of its new participation 
agreement. We proposed to discontinue use of Sec.  425.222. We 
explained that adding a similar requirement to Sec.  425.224 would 
allow us to more consistently apply policies to renewing and re-
entering ACOs. Further, applying this requirement to both re-entering 
and renewing ACOs would safeguard the program against organizations 
that have not met the program's goals or complied with program 
requirements and that may not be qualified to participate in the 
program, and therefore this approach would be protective of the 
program, the Trust Funds, and Medicare FFS beneficiaries.
    For ACOs identified as re-entering ACOs because greater than 50 
percent of their ACO participants have recent prior participation in 
the same ACO, we would determine the eligibility of the ACO to 
participate in the program based on the past performance of this other 
entity. For example, if ACO A is identified as a re-entering ACO 
because more than 50 percent of its ACO participants previously 
participated in ACO B during the relevant look back period, we would 
consider ACO B's financial performance, quality performance, and 
compliance with other program requirements in determining the 
eligibility of ACO A to enter a new participation agreement in the 
program.
    Comment: We received few comments directly addressing the proposal 
to remove the ``sit-out'' period after termination. Generally, the 
comments we received were supportive of the proposal to modify current 
restrictions that prevent an ACO from terminating its participation 
agreement and re-entering the program before the existing agreement 
period would have ended. Commenters explained that this ``sit-out'' 
period is unnecessary and shuts healthcare providers out of 
participating in an essential CMS value-based program. Commenters also 
supported eliminating this restriction to allow the flexibility for an 
ACO in a current 3-year agreement period to terminate its participation 
agreement and then enter a new 5-year agreement period under one of the 
proposed redesigned participation options. One commenter explained that 
maintaining the sit-out period after termination could diminish 
participation in the program and restrict the ability of ACOs in 
current agreement periods to transition to the proposed participation 
options under new agreements.
    Response: We appreciate commenters' support of the proposal to 
remove the required ``sit-out'' period for terminated ACOs under Sec.  
425.222(a). In particular, we appreciate commenters' support of this 
approach which will facilitate transition of ACOs to new agreements 
under the participation options established in this final rule, 
including the transition of ACOs currently in 3-year agreement periods 
to new agreement periods of at least 5-years through the early renewal 
process described in section II.A.5.c.(4).(a). of this final rule.
    Comment: One commenter recommended that CMS take into account the 
impact of extreme and uncontrollable circumstances on ACOs when 
applying the prior participation criteria.
    Response: We appreciate the commenter's suggestion that we take 
into account the impact of extreme and uncontrollable circumstances 
when evaluating the eligibility of ACOs to renew their participation in 
or re-enter the Shared Savings Program. We note that, under our 
proposed evaluation criteria, we would also consider whether the ACO 
has demonstrated in its application that it has corrected the 
deficiencies that caused it to perform poorly or to be terminated. We 
believe that this provides a means for ACOs to explain the particular 
circumstances that affected their results during their prior 
participation, including the impact of extreme and uncontrollable 
circumstances, and for CMS to consider this information in evaluating 
the eligibility of ACOs to renew their participation in or re-enter the 
Shared Savings Program. We will also continue to monitor the impact of 
extreme and uncontrollable circumstances on ACOs, particularly as we 
gain experience with the disaster-relief policies we have finalized for 
performance year 2017 and subsequent performance years, including 
adjusting quality performance scores for affected ACOs, and mitigating 
shared losses for ACOs under two-sided models, and will consider 
whether any changes to our eligibility criteria may be necessary to 
account for the effects of extreme and uncontrollable circumstances. 
Any such changes would be made through notice and comment rulemaking.
    Comment: Another commenter suggested we streamline the renewal 
process for ACOs that have demonstrated positive performance results, 
such as requiring that they complete a brief form with minimal 
information required.
    Response: In the CY 2018 PFS final rule (82 FR 53217 through 
53222), we

[[Page 67893]]

modified the program's application to reduce burden on all applicants. 
These changes included revisions to Sec.  425.204 to remove the 
requirements for ACOs to submit certain documents and narratives as 
part of its Shared Savings Program application. We believe these 
requirements have streamlined the application process. As described in 
section II.A.5.c.(5).(d) of this final rule, we are discontinuing use 
of condensed Shared Savings Program applications by former Physician 
Group Practice (PGP) demonstration sites and former Pioneer ACOs. We 
explain our belief that it is no longer necessary to permit these 
entities to use condensed application forms. For similar reasons, we 
therefore also decline to allow alternative applications for other 
categories of ACOs.
    Comment: One commenter suggested that CMS revisit the evaluation 
criterion for prior quality performance relevant to ACOs' participation 
in longer agreement periods in future rulemaking as it becomes 
implemented and applicable to ACOs over time.
    Response: We appreciate the commenter's suggestion to consider our 
experience with the evaluation criterion for poor quality performance 
in light of longer agreement periods (not less than 5-years) finalized 
in this final rule. As with other program policies, we may revisit this 
approach based on lessons learned, in future rulemaking.
    Final Action: After consideration of public comments, we are 
finalizing as proposed to revise Sec.  425.222 to remove the required 
``sit-out'' period for terminated ACOs under Sec.  425.222(a) to 
facilitate transition of ACOs to new agreements under the participation 
options established in this final rule. We are retaining policies 
similar to those under Sec.  425.222(b) for evaluating the eligibility 
of ACOs to participate in the program after termination in 
modifications to Sec.  425.224. Instead of the approach used for 
determining participation options for ACOs that re-enter the program 
after termination described in Sec.  425.222(c), we will make these 
determinations consistent with our final policies described in section 
II.A.5.c.(5) of this final rule.
    We received no comments directly addressing the proposals to revise 
Sec.  425.224 to make certain policies applicable to both renewing ACOs 
and re-entering ACOs and to incorporate certain other technical 
changes, as described in this section of this final rule. We are 
finalizing as proposed amendments to Sec.  425.224 to include the 
following changes:

    <bullet> Revisions to refer to the ACO's ``application'' more 
generally, instead of specifically referring to a ``renewal 
request,'' so that the requirements would apply to both renewing 
ACOs and re-entering ACOs.
    <bullet> Addition of a requirement, consistent with the current 
provision at Sec.  425.222(c)(3), for ACOs previously in a two-sided 
model to reapply to participate in a two-sided model. We are 
finalizing an approach for determining participation options under 
which a renewing or re-entering ACO that was previously under a one-
sided model of the BASIC track's glide path may only reapply for 
participation in a two-sided model for consistency with our final 
policy to include the BASIC track within the definition of a 
performance-based risk Medicare ACO initiative (described in section 
II.A.5.c.(5) of this final rule). This includes a new ACO identified 
as a re-entering ACO because greater than 50 percent of its ACO 
participants have recent prior participation in the same ACO that 
was previously under a two-sided model or a one-sided model of the 
BASIC track's glide path (Level A or Level B).
    <bullet> Revision to Sec.  425.224(b)(1)(iv) (as redesignated 
from Sec.  425.224(b)(1)(iii)) to cross reference the requirement 
that an ACO establish an adequate repayment mechanism under Sec.  
425.204(f), to clarify our intended meaning with respect to the 
current requirement that an ACO demonstrate its ability to repay 
losses.
    <bullet> Modifications to the evaluation criteria specified in 
Sec.  425.224(b) for determining whether an ACO is eligible for 
continued participation in the program in order to permit them to be 
used in evaluating both renewing ACOs and re-entering ACOs, to adapt 
some of these requirements to longer agreement periods (under the 
proposed approach allowing for agreement periods of at least 5 years 
rather than 3-year agreements), and to prevent ACOs with a history 
of poor performance from participating in the program. The criteria 
include: (1) Whether the ACO has a history of compliance with the 
program's quality performance standard; (2) the ACO's history of 
financial performance; (3) whether an ACO under a two-sided model 
repaid shared losses owed to the program; and (4) whether the ACO 
has demonstrated in its application that it has corrected the 
deficiencies that caused it to perform poorly or to be terminated.

    In light of these other final policies, we are also finalizing our 
proposal to discontinue use of the requirement at Sec.  425.600(c), 
under which an ACO with net losses during a previous agreement period 
must identify in its application the causes for the net loss and 
specify what safeguards are in place to enable it to potentially 
achieve savings in its next agreement period.
(5) Proposed Evaluation Criteria for Determining Participation Options
(a) Background
    As we explained in section II.A.5.c.(5) of the August 2018 proposed 
rule (83 FR 41825 through 41834), we have a number of concerns about 
the vulnerability of certain program policies to gaming by ACOs seeking 
to continue in the program under the BASIC track's glide path, as well 
as the need to ensure that an ACO's participation options are 
commensurate with the experience of the organization and its ACO 
participants with the Shared Savings Program and other performance-
based risk Medicare ACO initiatives.
    First, as the program matures and ACOs become more prevalent 
throughout the country, and as an increasing number of ACO participants 
become experienced in different Medicare ACO initiatives with differing 
levels of risk, the regulations as currently written create 
flexibilities that would allow more experienced ACOs to take advantage 
of the opportunity to participate under the proposed BASIC track's 
glide path.
    There are many Medicare ACO initiatives in which organizations may 
gain experience, specifically: Shared Savings Program Track 1, Track 2 
and Track 3, as well as the proposed BASIC track and ENHANCED track, 
and the Track 1+ Model, Pioneer ACO Model, Next Generation ACO Model, 
and the Comprehensive End-Stage Renal Disease (ESRD) Care (CEC) Model. 
All but Shared Savings Program Track 1 ACOs and non-Large Dialysis 
Organization (LDO) End-Stage Renal Disease Care Organizations (ESCOs) 
participating in the one-sided model track of the CEC Model participate 
in a degree of performance-based risk within an ACO's agreement period 
in the applicable program or model.
    We proposed to discontinue application of the policies in Sec.  
425.222(a). As a result of this change, we would allow ACOs currently 
participating in Track 1, Track 2, Track 3, or the Track 1+ Model, to 
choose whether to finish their current agreement or to terminate and 
apply to immediately enter a new agreement period through an early 
renewal. We explained our concern that removing the existing safeguard 
under Sec.  425.222(a) without putting in place other policies that 
assess an ACO's experience with performance-based risk would enable 
ACOs to participate in the BASIC track's glide path in Level A and 
Level B, under a one-sided model, terminate, and enter a one-sided 
model of the glide path again.
    We also stated our concern that existing and former Track 1 ACOs 
would have the opportunity to gain additional time under a one-sided 
model of the BASIC track's glide path before accepting performance-
based risk. Under the current regulations, Track 1 ACOs are limited to 
two

[[Page 67894]]

agreement periods under a one-sided model before transitioning to a 
two-sided model beginning with their third agreement period (see Sec.  
425.600(b)). Without some restriction, Track 1 ACOs that would 
otherwise be required to assume performance-based risk at the start of 
their third agreement period in the program could end up continuing to 
participate under a one-sided model (BASIC track's Levels A and B) for 
2 additional performance years, or 3 additional performance years in 
the case of ACOs that enter the BASIC track's glide path for an 
agreement period of 5 years and 6 months beginning July 1, 2019, under 
the participation options as proposed. We explained our belief that the 
performance-based risk models within the BASIC track's glide path would 
offer former Track 1 ACOs an opportunity to continue participation 
within the program under relatively low levels of two-sided risk and 
that these ACOs have sufficient experience with the program to begin 
the gradual transition to performance-based risk. Therefore some 
restriction would be needed to prevent all current and previously 
participating Track 1 ACOs from taking advantage of additional time 
under a one-sided model in the BASIC track's glide path and instead to 
encourage their more rapid progression to performance-based risk. For 
similar reasons we also believed it would be important to prevent new 
ACOs identified as re-entering ACOs because greater than 50 percent of 
their ACO participants have recent prior participation in a Track 1 ACO 
from also taking advantage of additional time under a one-sided model 
in the BASIC track's glide path. This restriction would help to ensure 
that ACOs do not re-form as new legal entities to maximize the time 
allowed under a one-sided model.
    We also considered that currently Sec.  425.202(b) of the program's 
regulations addresses application requirements for organizations that 
were previous participants in the PGP demonstration, which concluded in 
December 2012 with the completion of the PGP Transition Demonstration, 
and the Pioneer ACO Model, which concluded in December 2016, as 
described elsewhere in this section. We proposed to eliminate these 
provisions, while at the same time proposing criteria for identifying 
ACOs and ACO participants with previous experience in Medicare ACO 
initiatives as part of a broader approach to determining available 
participation options for applicants.
    Second, using prior participation by ACO participant TINs in 
Medicare ACO initiatives along with the prior participation of the ACO 
legal entity would allow us to gauge the ACO's experience, given the 
observed churn in ACO participants over time and our experience with 
determining eligibility to participate in the Track 1+ Model. ACOs are 
allowed to make changes to their certified ACO participant list for 
each performance year, and we have observed that, each year, about 80 
percent of ACOs make ACO participant list changes. We also considered 
CMS' recent experience with determining the eligibility of ACOs to 
participate in the Track 1+ Model. The Track 1+ Model is designed to 
encourage more group practices, especially small practices, to advance 
to performance-based risk. As such, it does not allow participation by 
current or former Shared Savings Program Track 2 or Track 3 ACOs, 
Pioneer ACOs, or Next Generation ACOs. As outlined in the Track 1+ 
Model Fact Sheet, the same legal entity that participated in any of 
these performance-based risk ACO initiatives cannot participate in the 
Track 1+ Model. Furthermore, an ACO would not be eligible to 
participate in the Track 1+ Model if 40 percent or more of its ACO 
participants had participation agreements with an ACO that was 
participating in one of these performance-based risk ACO initiatives in 
the most recent prior performance year.
    Third, any approach to determining participation options relative 
to the experience of ACOs and ACO participants must also factor in the 
differentiation between low revenue ACOs and high revenue ACOs, as 
previously discussed in this section.
    Fourth, and lastly, we explained that the experience of ACOs and 
their ACO participants in Medicare ACO initiatives should be considered 
in determining which track (BASIC track or ENHANCED track) the ACO is 
eligible to enter as well as the applicability of policies that phase-
in over time, namely the equal weighting of benchmark year 
expenditures, the policy of adjusting the benchmark based on regional 
FFS expenditures (which, for example, applies different weights in 
calculating the regional adjustment depending upon the ACO's agreement 
period in the program) and the phase-in of pay-for-performance under 
the program's quality performance standards.
    Although Sec.  425.222(c) specifies whether a former one-sided 
model ACO can be considered to be entering its first or second 
agreement period under Track 1 if it is re-entering the program after 
termination, the current regulations do not otherwise address how we 
should determine the applicable agreement period for a previously 
participating ACO after termination or expiration of its previous 
participation agreement.
(b) Approach to Determining ACOs' Participation Options
    In the August 2018 proposed rule we stated our preference for an 
approach that would help to ensure that ACOs, whether they are initial 
applicants to the program, renewing ACOs or re-entering ACOs, would be 
treated comparably (83 FR 41826). Any approach should also ensure 
eligibility for participation options reflects the ACO's and ACO 
participants' experience with the program and other Medicare ACO 
initiatives and be transparent. Therefore, we proposed to identify the 
available participation options for an ACO (regardless of whether it is 
applying to enter, re-enter, or renew its participation in the program) 
by considering all of the following factors: (1) Whether the ACO is a 
low revenue ACO or a high revenue ACO; and (2) the level of risk with 
which the ACO or its ACO participants has experience based on 
participation in Medicare ACO initiatives in recent years.
    As a factor in determining an ACO's participation options, we 
proposed to establish requirements for evaluating whether an ACO is 
inexperienced with performance-based risk Medicare ACO initiatives such 
that the ACO would be eligible to enter into an agreement period under 
the BASIC track's glide path or whether the ACO is experienced with 
performance-based risk Medicare ACO initiatives and therefore limited 
to participating under the higher-risk tracks of the Shared Savings 
Program (either an agreement period under the maximum level of risk and 
potential reward for the BASIC track (Level E), or the ENHANCED track).
    To determine whether an ACO is inexperienced with performance-based 
risk Medicare ACO initiatives, we proposed that both of the following 
requirements would need to be met: (1) The ACO legal entity has not 
participated in any performance-based risk Medicare ACO initiative (for 
example, the ACO is a new legal entity identified as an initial 
applicant or the same legal entity as a current or previously 
participating Track 1 ACO); and (2) CMS determines that less than 40 
percent of the ACO's ACO participants participated in a performance-
based risk Medicare ACO initiative in each of the 5 most recent 
performance years prior to the agreement start date.
    We proposed that CMS would determine that an ACO is experienced

[[Page 67895]]

with performance-based risk Medicare ACO initiatives if either of the 
following criteria are met: (1) The ACO is the same legal entity as a 
current or previous participant in a performance-based risk Medicare 
ACO initiative; or (2) CMS determines that 40 percent or more of the 
ACO's ACO participants participated in a performance-based risk 
Medicare ACO initiative in any of the 5 most recent performance years 
prior to the agreement start date.
    We proposed to specify these requirements in a new provision at 
Sec.  425.600(d). This provision would be used to evaluate eligibility 
for specific participation options for any ACO that is applying to 
enter the Shared Savings Program for the first time or to re-enter 
after termination or expiration of its previous participation 
agreement, or any ACO that is renewing its participation. As specified 
in the proposed definition of re-entering ACO, we also proposed to 
apply the provisions at Sec.  425.600(d) to new ACOs identified as re-
entering ACOs because greater than 50 percent of their ACO participants 
have recent prior participation in the same ACO. Thus, the proposed 
provision at Sec.  425.600(d) would also apply in determining 
eligibility for these ACOs to enter the BASIC track's glide path for 
agreement periods beginning on July 1, 2019, and in subsequent years. 
Because the 40 percent threshold that we proposed to use to identify 
ACOs as experienced or inexperienced with performance-based risk on the 
basis of their ACO participants' prior participation in certain 
Medicare ACO initiatives is lower than the 50 percent threshold that 
would be used to identify new legal entities as re-entering ACOs based 
on the prior participation of their ACO participants in the same ACO, 
this proposed policy would automatically capture new legal entities 
identified as re-entering ACOs that have experience with performance-
based risk based on the experience of their ACO participants.
    We also proposed to add new definitions at Sec.  425.20 for 
``Experienced with performance-based risk Medicare ACO initiatives'', 
``Inexperienced with performance-based risk Medicare ACO initiatives'' 
and ``Performance-based risk Medicare ACO initiative''.
    We proposed to define ``performance-based risk Medicare ACO 
initiative'' to mean an initiative implemented by CMS that requires an 
ACO to participate under a two-sided model during its agreement period. 
We proposed this would include Track 2, Track 3 or the ENHANCED track, 
and the proposed BASIC track (including Level A through Level E) of the 
Shared Savings Program. We also proposed this would include the 
following Innovation Center ACO Models involving two-sided risk: The 
Pioneer ACO Model, Next Generation ACO Model, the performance-based 
risk tracks of the CEC Model (including the two-sided risk tracks for 
LDO ESCOs and non-LDO ESCOs), and the Track 1+ Model. The proposed 
definition also included such other Medicare ACO initiatives involving 
two-sided risk as may be specified by CMS.
    We proposed to define ``experienced with performance-based risk 
Medicare ACO initiatives'' to mean an ACO that CMS determines meets 
either of the following criteria:

    <bullet> The ACO is the same legal entity as a current or 
previous ACO that is participating in, or has participated in, a 
performance-based risk Medicare ACO initiative as defined under 
Sec.  425.20, or that deferred its entry into a second Shared 
Savings Program agreement period under Track 2 or Track 3 in 
accordance with Sec.  425.200(e).
    <bullet> 40 percent or more of the ACO's ACO participants 
participated in a performance-based risk Medicare ACO initiative as 
defined under Sec.  425.20, or in an ACO that deferred its entry 
into a second Shared Savings Program agreement period under Track 2 
or Track 3 in accordance with Sec.  425.200(e), in any of the 5 most 
recent performance years prior to the agreement start date.

    As we previously discussed, we proposed to discontinue use of the 
``sit-out'' period under Sec.  425.222(a) as well as the related ``sit-
out'' period for ACOs that deferred renewal under Sec.  425.200(e). 
Thus, we proposed to identify all Track 1 ACOs that deferred renewal as 
being experienced with performance-based risk Medicare ACO initiatives. 
This would include ACOs that are within a fourth and final year of 
their first agreement period under Track 1 because they were approved 
to defer entry into a second agreement period under Track 2 or Track 3, 
and ACOs that have already entered their second agreement period under 
a two-sided model after a one year deferral. Under Sec.  425.200(e)(2), 
in the event that a Track 1 ACO that has deferred its renewal 
terminates its participation agreement before the start of the first 
performance year of its second agreement period under a two-sided 
model, the ACO is considered to have terminated its participation 
agreement for its second agreement period under Sec.  425.220. In this 
case, when the ACO seeks to re-enter the program after termination, it 
would need to apply for a two-sided model. Our proposal to consider 
ACOs that deferred renewal to be experienced with performance-based 
risk Medicare ACO initiatives and therefore eligible for either the 
BASIC track's Level E (if a low revenue ACO and certain other 
requirements are met) or the ENHANCED track, would ensure that ACOs 
that deferred renewal continue to be required to participate under a 
two-sided model in all future agreement periods under the program 
consistent with our current policy under Sec.  425.200(e)(2).
    We proposed to define ``inexperienced with performance-based risk 
Medicare ACO initiatives'' to mean an ACO that CMS determines meets all 
of the following requirements:

    <bullet> The ACO is a legal entity that has not participated in 
any performance-based risk Medicare ACO initiative as defined under 
Sec.  425.20, and has not deferred its entry into a second Shared 
Savings Program agreement period under Track 2 or Track 3 in 
accordance with Sec.  425.200(e); and
    <bullet> Less than 40 percent of the ACO's ACO participants 
participated in a performance-based risk Medicare ACO initiative as 
defined under Sec.  425.20, or in an ACO that deferred its entry 
into a second Shared Savings Program agreement period under Track 2 
or Track 3 in accordance with Sec.  425.200(e), in each of the 5 
most recent performance years prior to the agreement start date.

    Under our proposed approach, for an ACO to be eligible to enter an 
agreement period under the BASIC track's glide path, less than 40 
percent of its ACO participants can have participated in a performance-
based risk Medicare ACO initiative in each of the five prior 
performance years. This proposed requirement was modeled after the 
threshold currently used in the Track 1+ Model (see Track 1+ Model Fact 
Sheet), although with a longer look back period. Based on experience 
with the Track 1+ Model during the 2018 application cycle, we did not 
believe that the proposed parameters would be excessively restrictive. 
We considered the following issues in developing our proposed approach: 
(1) Whether to consider participation of ACO participants in a 
particular ACO, or cumulatively across multiple ACOs, during the 5-year 
look back period; (2) whether to use a shorter or longer look back 
period; and (3) whether to use a threshold amount lower than 40 
percent.
    We proposed that in applying this threshold, we would not limit our 
consideration to ACO participants that participated in the same ACO or 
the same performance-based risk Medicare ACO initiative during the look 
back period. Rather, we would determine, cumulatively, what percentage 
of ACO participants were in any performance-based risk Medicare ACO 
initiative in each of the 5 most recent performance years prior to the 
agreement start date.

[[Page 67896]]

We provided the following illustrations help to clarify the use of the 
proposed threshold for determining ACO participants' experience with 
performance-based risk Medicare ACO initiatives.
    For applicants applying to enter the BASIC track for an agreement 
period beginning on July 1, 2019, for example, we proposed that we 
would consider what percentage of the ACO participants participated in 
any of the following during 2019 (January-June), 2018, 2017, 2016, and 
2015: Track 2 or Track 3 of the Shared Savings Program, the Track 1+ 
Model, the Pioneer ACO Model, the Next Generation ACO Model, or the 
performance-based risk tracks of the CEC Model. In future years (in 
determining eligibility for participation options for agreement periods 
starting in 2020 and subsequent years), we would also consider prior 
participation in the BASIC track and ENHANCED track (which we proposed 
would become available for agreement periods beginning on July 1, 2019 
and in subsequent years).
    An ACO would be ineligible for the BASIC track's glide path if, for 
example, in the performance year prior to the start of the agreement 
period, 20 percent of its ACO participants participated in a Track 3 
ACO and 20 percent of its ACO participants participated in a Next 
Generation ACO, even if the ACO did not meet or exceed the 40 percent 
threshold in any of the remaining 4 performance years of the 5-year 
look back period.
    We considered a number of alternatives for the length of the look 
back period for determining an ACO's experience or inexperience with 
performance-based risk Medicare ACO initiatives. For example, we 
considered using a single performance year look back period, as used 
under the Track 1+ Model. We also considered using a longer look back 
period, for example of greater than 5 performance years, or a shorter 
look back period that would be greater than 1 performance year, but 
less than 5 performance years, such as a 3 performance year look back 
period.
    A number of considerations informed our proposal to use a 5 
performance year look back period. For one, a longer look back period 
would help to guard against a circumstance where an ACO enters the 
BASIC track's glide path, terminates its agreement after one or 2 
performance years under a one-sided model and seeks to enter the 
program under the one-sided model of the glide path. Whether or not the 
ACO applies to enter the program as the same legal entity or a new 
legal entity, the proposed eligibility criteria would identify this ACO 
as experienced with performance-based risk Medicare ACO initiatives if 
its ACO participant list remains relatively unchanged. Second, a longer 
look back period may reduce the incentive for organizations to wait out 
the period in an effort to re-form as a new legal entity with the same 
or very similar composition of ACO participants for purposes of gaming 
program policies. Third, a longer look back period also recognizes that 
new ACOs composed of ACO participants that were in performance-based 
risk Medicare ACO initiatives many years ago (for instance more than 5 
performance years prior to the ACO's agreement start date) may benefit 
from gaining experience with the program's current requirements under 
the glide path, prior to transitioning to higher levels of risk and 
reward. Fourth, and lastly, in using the 5 most recent performance 
years prior to the start date of an ACO's agreement period, for ACOs 
applying to enter an agreement period beginning on July 1, 2019, we 
proposed to consider the participation of ACO participants during the 
first 6 months of 2019. This would allow us to capture the ACO 
participants' most recent prior participation in considering an ACO's 
eligibility for participation options for an agreement period beginning 
July 1, 2019. An alternative approach that bases the look back period 
on prior calendar years would overlook this partial year of 
participation in 2019.
    We also considered using a threshold amount lower than 40 percent. 
Based on checks performed during the 2018 application cycle, for the 
average Track 1+ Model applicant, less than 2 percent of ACO 
participants had participated under performance-based risk in the prior 
year. The maximum percentage observed was 30 percent. In light of these 
findings, we considered whether to propose a lower threshold for 
eligibility to participate in the BASIC track's glide path. However, 
our goal was not to be overly restrictive, but rather to ensure that 
ACOs with significant experience with performance-based risk are 
appropriately placed. While we indicated our preference for 40 percent 
for its consistency with the Track 1+ Model requirement, we also sought 
comment on other numeric thresholds.
    As previously discussed in this section, some restriction would be 
needed to prevent all current and previously participating Track 1 
ACOs, and new ACOs identified as re-entering ACOs because of their ACO 
participants' prior participation in a Track 1 ACO, from taking 
advantage of additional time under a one-sided model in the BASIC 
track's glide path. We explained that an approach that restricts the 
amount of time a former Track 1 ACO or a new ACO, identified as a re-
entering ACO because of its ACO participants' prior participation in a 
Track 1 ACO, may participate in the one-sided models of the BASIC 
track's glide path (Level A and Level B) would balance several 
concerns. Allowing Track 1 ACOs and eligible re-entering ACOs some 
opportunity to continue participation in a one-sided model within the 
BASIC track's glide path could smooth their transition to performance-
based risk. For example, it would provide these ACOs a limited time 
under a one-sided model in a new agreement period under the BASIC 
track, during which they could gain experience with their rebased 
historical benchmark, and prepare for the requirements of participation 
in a two-sided model (such as establishing a repayment mechanism 
arrangement). Limiting time in the one-sided models of the BASIC 
track's glide path for former Track 1 ACOs and new ACOs that are 
identified as re-entering ACOs because of their ACO participants' 
recent prior participation in the same Track 1 ACO would also allow 
these ACOs to progress more rapidly to performance-based risk, and 
therefore further encourage accomplishment of the program's goals.
    After weighing these considerations, we proposed that ACOs that 
previously participated in Track 1 of the Shared Savings Program or new 
ACOs, for which the majority of their ACO participants previously 
participated in the same Track 1 ACO, that are eligible to enter the 
BASIC track's glide path, may enter a new agreement period under either 
Level B, C, D or E. Former Track 1 ACOs and new ACOs identified as re-
entering ACOs because of their ACO participants' prior participation in 
a Track 1 ACO would not be eligible to participate under Level A of the 
glide path. Therefore, if an ACO enters the glide path at Level B and 
is automatically transitioned through the levels of the glide path, the 
ACO would participate in Level E for the final 2 performance years of 
its agreement period. For a former Track 1 ACO or a new ACO identified 
as a re-entering ACO because of its ACO participants' prior 
participation in a Track 1 ACO that enters an agreement period in the 
BASIC track's glide path beginning on July 1, 2019, the ACO could 
participate under Level B for a 6-month performance year from July 1, 
2019 through December 31, 2019 and the 12 month performance year 2020 
(as

[[Page 67897]]

discussed in section II.A.7.c. of this final rule). A former Track 1 
ACO or a new ACO identified as a re-entering ACO because of its ACO 
participants' prior participation in a Track 1 ACO that begins an 
agreement period in the BASIC track's glide path in any subsequent year 
(2020 and onward) could participate in Level B for 1 performance year 
before advancing to a two-sided model within the glide path.
    We also considered a more aggressive approach to transitioning ACOs 
with experience in Track 1 to performance-based risk. Specifically, we 
considered whether the one-sided models of the BASIC track's glide path 
should be unavailable to current or previously participating Track 1 
ACOs and new ACOs identified as re-entering ACOs because of their ACO 
participants' prior participation in a Track 1 ACO. Under this 
alternative, ACOs that are experienced with Track 1, would be required 
to enter the BASIC track's glide path under performance-based risk at 
Level C, D or E. This alternative would more aggressively transition 
ACOs along the glide path. This approach would recognize that some of 
these ACOs may have already had the opportunity to participate under a 
one-sided model for 6 performance years (or 7 performance years for 
ACOs that elect to extend their agreement period for the 6-month 
performance year from January 1, 2019 through June 30, 2019), and 
should already have been taking steps to prepare to enter performance-
based risk to continue their participation in the program under the 
current requirements, and therefore should not be allowed to take 
advantage of additional time under a one-sided model. For ACOs that 
have participated in a single agreement period in Track 1, an approach 
that requires transition to performance-based risk at the start of 
their next agreement period would be more consistent with the proposed 
redesign of participation options, under which ACOs would be allowed 
only 2 years, or 2 years and 6 months in the case of July 1, 2019 
starters, under the one-sided models of the BASIC track's glide path. 
We sought comment on this alternative approach.
    We proposed to specify these requirements in revisions to the 
regulations under Sec.  425.600, which would be applicable for 
determining participation options for agreement periods beginning on 
July 1, 2019, and in subsequent years. We sought comment on these 
proposals for determining an ACO's participation options by evaluating 
the ACO legal entity's and ACO participants' experience or inexperience 
with performance-based risk Medicare ACO initiatives. In particular, we 
welcomed commenters' input on our proposal to assess ACO participants' 
experience with performance-based risk Medicare ACO initiatives using a 
40 percent threshold, and the alternative of employing a threshold 
other than 40 percent, for example, 30 percent. We welcomed comments on 
the proposed 5 performance year look back period for determining 
whether an ACO is experienced or inexperienced with performance-based 
risk Medicare ACO initiatives, and our consideration of a shorter look 
back period, such as 3 performance years. We also welcomed comments on 
our proposal to limit former Track 1 ACOs and new ACOs identified as 
re-entering ACOs because more than 50 percent of their ACO participants 
have recent prior experience in a Track 1 ACO to a single performance 
year under the one-sided models of the BASIC track's glide path (two 
performance years, in the case of an ACO starting its agreement period 
under the BASIC track on July 1, 2019), and the alternative approach 
that would preclude such ACOs from participating in one-sided models of 
the BASIC track's glide path.
    Comment: Some commenters supported the proposed approach to 
differentiating participation options based on the experience or 
inexperience of the ACO legal entity or its ACO participants.
    Some commenters expressed concern that the proposed approach to 
identifying ACOs experienced with performance-based risk Medicare ACO 
initiatives was too broad. One commenter explained that the approach 
assumes transferability of experience across population and geography. 
Another commenter asserts that the determination of experience based on 
ACO participants rather than the ACO legal entity puts new ACOs at a 
substantial disadvantage, particularly in markets where most providers 
have been in an ACO. This commenter believes that experience of the ACO 
participants does not necessarily equate to the ACO being experienced. 
Several commenters expressed concern that a 40 percent threshold leaves 
a majority of participants who would have no prior experience with the 
accountable care model, and which need more time to familiarize 
themselves with program requirements and the type of system reforms 
inherent to participating in a population-based APM.
    Some commenters expressed concern that the distinctions for 
determining participation options, including between ACOs experienced 
with performance-based risk Medicare ACO initiatives or inexperienced 
with performance-based risk Medicare ACO initiatives add complexity to 
the program. Several commenters expressed concern that ACOs would have 
difficulty anticipating these determinations. One commenter explained 
that the proposed complexities for determining ACO participation 
options could make it hard for some groups to understand which track/
level to participate in and how long to remain in such track/level. 
Furthermore, these complexities could disincentivize healthcare 
providers from participating in the Shared Savings Program. Several 
commenters recommended that CMS provide additional guidance on the 
different participation parameters and options so that healthcare 
providers have more information for their planning process. For example 
this commenter suggested that CMS provide ACOs with detailed 
descriptions of each definition used in determining participation 
options (low revenue ACO/high revenue ACO, and experienced with 
performance-based risk Medicare ACO initiatives/inexperienced with 
performance-based risk Medicare ACO initiatives) well in advance of any 
decision deadline. One commenter recommended using a policy that allows 
ACOs to easily understand their options for participation ahead of 
time. One commenter recommended CMS clarify the timelines and detailed 
processes for how it will monitor, review and communicate to ACOs each 
ACO's status with respect to their categorization.
    One commenter suggested that the distinction between experienced 
versus inexperienced with performance-based risk Medicare ACO 
initiatives should only be applied to determining whether and for how 
long an ACO entity may participate in a one-sided model. This commenter 
did not support ACO entities being required to participate in the 
ENHANCED track due to experience with performance-based risk Medicare 
ACO initiatives, preferring instead that all ACO entities be allowed to 
participate in Level E of the BASIC track.
    Commenters suggested a variety of alternative approaches including 
the following:

    <bullet> One commenter suggested that CMS consider the 
experience of both the ACO participant TINs and NPIs in making the 
determination whether the ACO is experienced with performance-based 
risk Medicare ACO initiatives. This commenter explained that a 
straight percentage of TINs is more straightforward, however, the

[[Page 67898]]

commenter expressed that it could be unnecessarily limiting to ACOs 
comprised of large, single TIN entities. This commenter suggested 
that CMS should consider allowing ACOs to use a calculation based on 
TINs or NPIs as appropriate for their composition.
    <bullet> One commenter suggested that CMS consider whether the 
ACO previously managed a majority of the same beneficiary 
population.
    <bullet> One commenter suggested that we allow greater 
flexibility in choice of participation options to ``high 
performing'' ACOs, and requiring ``low performers'' to either 
quickly demonstrate success or be terminated.
    <bullet> A few commenters suggested CMS consider an ACO to be 
experienced with performance-based risk Medicare ACO initiatives if 
the ACO completes an entire agreement period under a performance-
based risk Medicare ACO initiative, explaining their concern about 
cases where an ACO could be considered experienced with performance-
based risk models after only one year of participation in a 
performance-based risk initiative.
    <bullet> One commenter suggested that CMS restrict the 
definition of an experienced ACO to those with prior experience in 
the Shared Savings Program. The commenter explained that the rules 
of every individual APM are complex and can vary significantly from 
model to model, so the definition of an ``experienced'' ACO in this 
model should be limited to experience in the Shared Savings Program.

    Response: We appreciate commenters' support for the proposal to 
determine participation options for ACOs, including consideration of 
whether an ACO is experienced or inexperienced with performance-based 
risk Medicare ACO initiatives in combination with determining whether 
the ACO is a low revenue ACO or high revenue ACO (as discussed in 
section II.A.5.b. of this final rule).
    We acknowledge that the approach to identifying participation 
options for ACOs based on a combination of factors, including whether 
an ACO is experienced or inexperienced with performance-based risk 
Medicare ACO initiatives, and whether an ACO is low revenue ACO versus 
high revenue ACO, will add some complexity to program policies and 
certain operational processes. However, we believe these policies 
provide necessary safeguards to ensure that the amount of time an ACO 
is allowed under one-sided models and lower levels of risk in the BASIC 
track's glide path are not susceptible to gaming and to ensure ACOs 
participate in financial models that are commensurate with their level 
of experience in the Shared Savings Program and other Medicare ACO 
initiatives. We believe it is important to hold ACOs and ACO 
participants accountable for their prior experience in which they 
become familiar with the accountable care models generally, as well as 
with the Shared Savings Program requirements.
    On the point raised by the commenter that the proposed approach 
assumes transferability of experience across populations and geography, 
we note there are commonalities and synergies between the Shared 
Savings Program and other Medicare ACO initiatives, which include their 
overall aims to improve quality of care and lower growth in 
expenditures for a population of assigned Medicare FFS beneficiaries. 
Given the similarity in the fundamental goals of Medicare ACO 
initiatives, and including the Shared Savings Program and other value-
based initiatives, we believe there is a degree of transferability of 
experience by ACO participants across these initiatives and to ACOs 
from providers and suppliers experienced with other value-based payment 
arrangements.
    We disagree with the commenter's suggestion that new legal entities 
are disadvantaged by the experience of their ACO participants, which 
under the proposed approach is used to determine ACO participation 
options. We believe ACOs make strategic decisions about which ACO 
participants to recruit to maximize their potential gain from program 
participation. We also note that under the program's shared governance 
requirements at Sec.  425.106(c)(3), at least 75 percent control of the 
ACO's governing body must be held by ACO participants. We believe that 
new legal entities that meet the 40 percent threshold for experienced 
with performance-based risk Medicare ACO initiatives (based on the 
recent prior experience of their ACO participants) will be 
significantly informed by their ACO participants' experience. 
Considering these factors, we continue to believe that ACOs that 
include a significant number of ACO participants with recent prior 
experience with Shared Savings Program requirements, or similar 
requirements of other performance-based risk Medicare ACO initiatives, 
should be placed in participation options that are reflective of the 
sophistication of their organization.
    The approach to distinguishing ACOs based on their experience or 
inexperience with performance-based risk Medicare ACO initiatives is 
intended to achieve the commenter's suggestion to differentiate which 
ACOs may be able to participate under a one-sided model or lower levels 
of performance-based risk within the BASIC track's glide path. However, 
as we explained in response to comments in section II.A.5.b of this 
final rule, we decline to allow ACOs to remain in Level E of the BASIC 
track indefinitely, and we are finalizing an approach (more generally) 
that would limit the amount of time ACOs may remain in the BASIC track 
prior to participating in the ENHANCED track.
    We decline to adopt the commenters' suggestions for alternative 
approaches to distinguishing participation options based on the ACO's 
and ACO participants' level of experience with performance-based risk 
Medicare ACO initiatives. We believe that considering the prior 
participation of ACO providers/suppliers would add a level of 
complexity to the determination, and would also be inconsistent with 
our use of ACO participant TINs in program operations. Also, as we 
previously explained, ACOs' assigned populations vary year to year. We 
therefore decline the commenter's suggestion to determine an ACO's 
experience with the program based on whether the ACO managed the same 
beneficiary population in the past. We decline to determine an ACO's 
track of participation based on their prior financial or quality 
performance in the program, as we believe that ACOs that project 
performing well in the program are more likely to self-select to more 
aggressively pursue participation under higher levels of risk and 
potential reward. We also decline to exclude ACOs that did not complete 
an entire agreement period during which the ACO was under a 
performance-based risk Medicare ACO initiative, including certain 
terminated ACOs and ACO participants with a single year of 
participation, from the definition of experienced with performance-
based risk Medicare ACO initiatives. We believe this approach would 
leave the program vulnerable to gaming through short-term 
participation, termination and re-entry, which we believe could be 
potentially destabilizing and disruptive to ACOs and healthcare markets 
and the care delivered to Medicare FFS beneficiaries. In particular, 
this would create a circumstance we are trying to protect against where 
ACOs could participate under the BASIC track's glide path, terminate 
prior to the conclusion of their 5-year agreement period and enter a 
new agreement period under the glide path. We also decline to narrow 
the proposed definitions for inexperienced and experienced with 
performance-based risk Medicare ACO initiatives to focus only on 
participation in the Shared Savings Program, as we believe ACOs' and 
ACO participants' experience in other Medicare ACO initiatives 
(including models with similar

[[Page 67899]]

requirements for accountability for the quality and cost of care for 
Medicare FFS beneficiaries, and in some cases higher levels of risk and 
potential reward) should be considered.
    Further, we believe we have set forth clear rules on the approach 
we will use to determine participation options under the redesign of 
the Shared Savings Program based on a combination of factors. We 
proposed and are finalizing (in this final rule) definitions of the 
term ``low revenue ACO'' and ``high revenue ACO,'' ``inexperienced with 
performance-based risk Medicare ACO initiatives'' and ``experienced 
with performance-based risk Medicare ACO initiatives,'' and 
``performance-based risk Medicare ACO initiative''. We will consider 
the commenters' suggestion to include detailed descriptions of these 
terms, and how these concepts will be used in determining participation 
options, in material we provide to ACOs informing them of our 
determination of the ACO's status with respect to each of these 
criteria.
    As we indicated in our response to comments requesting timely 
feedback on CMS' determination of low revenue ACO versus high revenue 
ACO status, in section II.A.5.b of this final rule, we note that we 
anticipate providing timely feedback to ACOs throughout program 
application cycles on whether the ACO is likely to be determined to be 
inexperienced with performance-based risk Medicare ACO initiatives or 
experienced with performance-based risk Medicare ACO initiatives, and a 
low revenue ACO or high revenue ACO (among other factors), in order to 
ensure ACOs have the information they need to make decisions about 
program participation and to take action to align with program 
requirements.
    Comment: One commenter suggested that CMS should consider some 
flexibility for ACOs identified as experienced with performance-based 
risk Medicare ACO initiatives with small assigned populations (less 
than 5,000) to permit their initial participation to include Levels C 
or D of the BASIC track at the option of the ACO, rather than limiting 
their participation options to either Level E of the BASIC track or the 
ENHANCED track.
    Response: Section 1899(b)(2)(D) of the Act requires ACOs to have a 
minimum of 5,000 assigned beneficiaries in order to be eligible to 
participate in Shared Savings Program. Consistent with this 
requirement, the program's regulations provide that ACOs with fewer 
than 5,000 assigned beneficiaries are ineligible for program 
participation (Sec.  425.110(a)). As we discuss in section 
II.A.6.b.(3). of this final rule, we are modifying our policies on 
determining the MSR/MLR for ACOs participating in two-sided models that 
have elected a fixed MSR/MLR whose populations fall below 5,000 
assigned beneficiaries for performance years beginning on July 1, 2019 
and in subsequent years. Under these final policies, we will apply a 
variable MSR/MLR based on the size of the ACO's assigned population, 
instead of the fixed MSR/MLR elected by the ACO prior to entering 
performance-based risk. This will result in a relatively higher MSR/MLR 
(greater than 3.9 percent), and therefore a higher threshold for the 
ACO to exceed to be eligible for shared savings, and relatively higher 
threshold to protect the ACO from liability for shared losses, which 
could result from random variation.
    We also decline to create a lower risk participation option for 
ACOs with small populations, as suggested by the commenter. As 
discussed in section II.A.5.b of this final rule, we are finalizing an 
approach to distinguish participation options for ACOs (in part) using 
a claims-based approach to identifying low revenue ACOs versus high 
revenue ACOs as opposed to the alternatives we considered including 
distinguishing ACOs based on the size of their assigned populations.
    Comment: A few commenters suggested using a higher threshold for 
determining whether an ACO is experienced with performance-based risk 
Medicare ACO initiatives based on the experience of its ACO 
participants, so that more ACOs would meet the definition of 
inexperienced with performance-based risk Medicare ACO initiatives; 
such as a threshold of 50 percent or 60 percent instead of 40 percent 
as proposed.
    Some commenters suggested increasing the threshold from 40 percent 
to 50 percent to align with the threshold proposed in the definition of 
re-entering ACO, for identifying new ACOs composed of ACO participants 
with previous experience in the same Shared Savings Program ACO in 
recent years. One commenter explained that it is confusing to use 
different percentages for determining ACO participants' experience with 
performance-based risk Medicare ACO initiatives (40 percent) and ACO 
participants with prior experience in the same Shared Savings Program 
ACO under the proposed definition of re-entering ACO (50 percent).
    One commenter recommended CMS define an ``experienced'' ACO as one 
in which at least the majority of ACO participants participated in a 
the same performance-based risk Medicare ACO initiative, or in an ACO 
that deferred its entry into a second Shared Savings Program agreement 
period under a two-sided model, in any of the five most recent 
performance years prior to the agreement start date. The commenter 
stated that experience and performance of an ACO in one location has 
little bearing on how the ACO might perform in another location, 
explaining that market factors contribute significantly to ACO 
performance. ACOs performing identically could achieve savings in one 
market but not another.
    As previously described in section II.A.5.c.4.(a) of this final 
rule, some commenters suggested that CMS should monitor the impact of 
the policies for identifying re-entering ACOs and ACOs that are 
experienced with performance-based risk Medicare ACO initiatives, as 
well as to create an appeals process for these determinations. They 
recommended using a threshold of 50 percent for both of these 
determinations (rather than using the proposed 40 percent threshold for 
determining ACOs experienced with performance-based risk Medicare ACO 
initiatives) and also setting an additional criterion that would allow 
an ACO determined to be a re-entering ACO or experienced performance-
based risk Medicare ACO initiatives to appeal the determination if less 
than 30 percent of its ACO participants were previously part of the 
same legal entity.
    Response: We continue to believe a threshold of 40 percent, for 
assessing ACO participants' experience with performance-based risk 
Medicare ACO initiatives is the appropriate percentage. For one, it is 
consistent with the percentage threshold used in determining whether an 
ACO was sufficiently inexperienced with performance-based risk to 
participate under the Track 1+ Model. Further, we believe that a 
threshold of 40 percent will capture ACOs significantly composed of ACO 
participants experienced with performance-based risk Medicare ACO 
initiatives. We believe increasing the threshold would allow 
experienced ACOs to participate under relatively lower-risk options 
when in fact their composition suggests their readiness for higher 
levels for risk and potential reward. Further, we believe it is 
necessary to apply a higher percentage in the definition of re-entering 
ACOs, since we are identifying the majority (greater than 50 percent) 
of ACO participants that participated in the same Shared Savings 
Program ACO within the look back period (see section II.A.5.c.(4).(a). 
of this final rule). The

[[Page 67900]]

purpose of the higher percentage threshold in the definition of re-
entering ACO is to identify a single ACO in which the majority of a new 
legal entity's ACO participants previously participated in the Shared 
Savings Program, for the purposes of identifying the agreement period 
the re-entering ACO should be considered participating under for 
program policies that phase-in over time. In contrast, the definition 
of experienced with performance-based risk Medicare ACO initiatives 
identifies ACOs that include a significant proportion of ACO 
participants that have recent prior experience in two-sided risk 
accountable care models, as part of an approach for identifying whether 
the ACO is prepared to participate under relatively higher levels of 
performance-based risk. Therefore we decline the commenters' 
suggestions to use a higher threshold in the definitions of 
inexperienced with performance-based risk Medicare ACO initiatives and 
experienced with performance-based risk Medicare ACO initiatives.
    We continue to prefer our proposed approach to consider 
participation of ACO participants cumulatively across multiple ACOs, 
rather than in a particular ACO, during the 5-year lookback period, 
because it would allow us to potentially identify more ACOs that may be 
experienced with risk compared to the narrower options suggested by the 
commenters. We therefore decline the commenters' suggestion that we 
identify experienced ACOs as those in which at least the majority of 
ACO participants participated in the same Medicare ACO (which would 
include Innovation Center models). We also decline the commenters' 
suggestion that we limit the determination of experienced ACOs based on 
participation of ACO participants in the same Shared Savings Program 
ACO (such as for consistency with the definition of re-entering ACO). 
We believe these approaches would allow some ACOs with a significant 
proportion of ACO participants experienced with performance-based risk 
in different Medicare ACO initiatives to participate under options that 
are designed for ACOs inexperienced with Medicare's accountable care 
models.
    We decline to adopt the commenters' recommendations to modify the 
process for initially determining ACOs that are experienced with 
performance-based risk Medicare ACO initiatives (as well as the 
determination of re-entering ACOs as previously responded to in section 
II.A.5.c.4.(a) of this final rule), to include an initial determination 
for whether an ACO is experienced with performance-based risk Medicare 
ACO initiatives, a secondary test to identify whether the ACO is 
eligible to request an appeal, and finally an appeal process for the 
final determination. We previously explained that we believe such an 
approach would add complexity as well as uncertainty as ACOs would need 
to request an appeal and await a final determination. Additionally, we 
currently have an established process for ACOs to request 
reconsiderations, as specified in subpart I of the program's 
regulations.
    More generally, we agree with commenters suggesting that we 
evaluate and monitor the policy once implemented. Although we did not 
specifically address this issue in the discussion in the August 2018 
proposed rule regarding monitoring for changes during the agreement 
period, we are concerned about the possibility that ACOs will enter the 
BASIC track's glide path because they are determined to be 
inexperienced with performance-based risk Medicare ACO initiatives, and 
over the course of their agreement period, dramatically change their 
composition to take advantage of this lower-risk option when their new 
composition suggests that they are prepared to take on more significant 
performance-based risk. We intend to closely monitor ACO participant 
list change requests for this issue.
    Comment: One commenter suggested that the look back period for 
determining threshold should be shortened from 5 years, but did not 
indicate an alternative for how long of a look back period should be 
used by CMS.
    Response: We continue to believe a look back period of 5 
performance years is an appropriate length to ensure we identify ACOs 
with recent prior experience with performance-based risk Medicare ACO 
initiatives. We described a number of considerations that led to our 
proposal of a 5 performance year look back period in the definitions of 
inexperienced with performance-based risk Medicare ACO initiatives and 
experienced with performance-based risk Medicare ACO initiatives in the 
August 2018 proposed rule (83 FR 41828), as restated in this section of 
this final rule, including that a 5 performance year look back period 
could reduce the incentive for organizations to wait out the period in 
an effort to re-form as a new legal entity with the same or very 
similar composition of ACO participants for purposes of gaming program 
policies.
    Comment: Some commenters expressed concerns about requiring ACOs 
experienced with performance-based risk to take on higher levels of 
two-sided risk under the proposed redesigned participation options. As 
summarized in section II.A.5.b of this final rule, many commenters 
suggested additional flexibility to allow high revenue ACOs experienced 
with performance-based risk Medicare ACO initiatives to continue 
participation under lower levels of risk rather than be limited to 
participation under the ENHANCED track. For example, commenters 
suggested that ACOs should be permitted to remain in the BASIC track's 
Level E (or an equivalent level of risk as the Track 1+ Model) 
indefinitely without being forced to progress to the ENHANCED track.
    One commenter suggested that former Track 3 ACOs should be given 
the option to participate in the BASIC track as all other ACOs, among 
other flexibilities in their participation options, since these ACOs 
voluntarily entered the highest level of risk and reward in the Shared 
Savings Program.
    As an alternative, one commenter suggested that ACOs experienced 
with performance-based risk Medicare ACO initiatives should be allowed 
the option of entering an agreement period under either Level D or 
Level E of the BASIC track. This is contrary to the proposed approach 
that would limit ACOs experienced with performance-based risk Medicare 
ACO initiatives to either an agreement period under Level E of the 
BASIC track (if a low revenue ACO), or the ENHANCED track.
    Response: We continue to believe in the importance of progressing 
ACOs to the highest level of risk and potential reward in the program 
to drive the most meaningful change in providers' and suppliers' 
behavior toward achieving the program's goals. Further, we continue to 
believe that it is necessary to establish policies to safeguard against 
experienced ACOs taking advantage of participation options under the 
BASIC track's glide path intended for ACOs inexperienced with the 
accountable care model in Medicare. Therefore we continue to believe in 
the necessity of the proposed approach to require ACOs identified as 
experienced with performance-based risk Medicare ACO initiatives to 
participate under the higher levels of risk and potential reward that 
we are finalizing with this final rule, specifically Level E of the 
BASIC track (if eligible) or the ENHANCED track.
    Further we note that under the policies we are finalizing with this 
final rule, an ACO that is identified as a low revenue ACO and 
experienced with performance-based risk Medicare ACO

[[Page 67901]]

initiatives will be eligible to participate for up to two agreement 
periods in Level E of the BASIC track. In response to the commenter's 
concerns, we note that this policy applies to low revenue ACOs 
identified as experienced with performance-based because of their prior 
participation in Track 3 of the Shared Savings Program, as it would 
also similarly apply to ACOs identified as experienced with 
performance-based risk Medicare ACO initiatives because of their 
participation in the other two-sided models specified in the definition 
of performance-based risk Medicare ACO initiatives.
    Comment: Some commenters point to concerns related to the inclusion 
of the Track 1+ Model in the definition of performance-based risk 
Medicare ACO initiative. Some commenters expressed concern that under 
the proposed approach, high revenue ACOs that transitioned to the Track 
1+ Model within their current agreement period would be required to 
renew under the ENHANCED track, whereas their counterparts that 
remained under Track 1 would be eligible to enter a one-sided model of 
the BASIC track's glide path. Some commenters view this approach as 
disadvantageous or unreasonable to ACOs that voluntarily elected to 
accelerate their transition to risk and switched to the Track 1+ Model. 
Commenters explained that these Track 1+ Model ACOs would be required 
to make a significant jump from the Track 1+ Model level of risk and 
reward to the ENHANCED track level of risk and reward with only minimal 
experience with in performance-based risk.
    Some commenters pointed out that ACOs entering the Track 1+ Model 
for their third performance year, performance year 2018, will not know 
the final results of this year until after their new agreement period 
begins under the proposed approach for a July 1, 2019 start date. This 
is a significant concern since performance year 2018 is the first year 
of two-sided risk for these ACOs, which are required to continue 
participation in two-sided risk for their next agreement period.
    Commenters addressing this issue typically recommended that all 
current Track 1+ Model ACOs, independent of whether they are identified 
by CMS as high revenue ACOs or low revenue ACOs, should be permitted to 
continue their participation in the Shared Savings Program under Level 
E of the BASIC track for an agreement period of at least 5 years, to 
gain experience with performance-based risk.
    One commenter, indicating confusion over the applicability of the 
proposed policies in determining participation options, asked if ACOs 
currently in the Track 1+ Model would be eligible to participate in the 
BASIC track's glide path including being allowed one year of 
participation under a one-sided model.
    Response: We are persuaded by commenters' concerns that the 
proposed policies could disrupt the progressive transition to risk by 
Track 1 ACOs that took an initial and important step by entering the 
Track 1+ Model within their current agreement period, with an 
expectation that they might be able to continue in a similar level of 
risk and reward for a second 3-year agreement period. Therefore, we are 
finalizing a limited exception to allow ACOs that transitioned to the 
Track 1+ Model within their current agreement period (therefore ACOs 
with a first or second agreement period start date in 2016 or 2017 that 
entered the Track 1+ Model in 2018), which are considered high revenue 
ACOs, a one-time option to renew for a consecutive agreement period of 
at least 5 years under Level E of the BASIC track. We are specifying 
this participation option in a provision of the regulations text at 
Sec.  425.600(d)(1)(ii)(B). We note that low revenue ACOs identified as 
experienced with performance-based risk Medicare ACO initiatives would 
have an opportunity to participate for up to two agreement periods 
under Level E of the BASIC track. To clarify in response to the 
commenter's confusion, we note that former Track 1+ Model ACOs are 
ineligible for the BASIC track's glide path because they would be 
identified as experienced with performance-based risk Medicare ACO 
initiatives.
    We do not believe it is necessary to extend this same exception to 
ACOs that entered or renewed for a 3-year agreement period under the 
Track 1+ Model with an agreement start date of January 1, 2018. Under 
the original design of the Track 1+ Model, we would have allowed entry 
into the model for an agreement period start date of 2018, 2019 and 
2020 (as discussed in section II.F of this final rule). ACOs would not 
have been able to renew their participation under the Model for a 
second 3-year agreement period beginning January 1, 2021. Instead, 
under the terms of the Track 1+ Model Participation Agreement and the 
current Shared Savings Program regulations, these ACOs would have had 
the option to continue their participation in the Shared Savings 
Program in an agreement period under either Track 2 or Track 3. With 
the changes to the program's participation options we are finalizing 
with this final rule, ACOs that entered the Track 1+ Model for first or 
second agreement period beginning on January 1, 2018 will have the 
following options: Low revenue ACOs would be eligible to participate in 
Level E of the BASIC track for up to two agreement periods; high 
revenue ACO would be limited to participating in the ENHANCED track.
    Comment: We received a few comments specifically addressing the 
proposal to limit an ACO eligible for the BASIC track's glide path to 
enter under Level B if the ACO has previous participation in Track 1. 
Several commenters supported CMS' proposal to allow ACOs that 
previously participated in Track 1 of the Shared Savings Program or new 
ACOs, for which the majority of their ACO participants previously 
participated in the same Track 1 ACO, that are eligible to enter the 
BASIC track's glide path, to enter a new agreement period under either 
Level B, C, D or E. Several commenters indicated the importance of 
allowing these ACOs an opportunity to participate for at least one 
performance year under a one-sided model before transitioning to 
performance-based risk. One commenter explained that this approach 
would give ACOs with experience in the program but without experience 
in performance-based risk a reasonable amount of time in the redesigned 
program structure before being required to move to performance-based 
risk. The commenter preferred the proposed approach to the potentially 
more aggressive approach CMS considered in which ACOs with experience 
in Track 1 would be required to start at Level C of the BASIC track or 
higher.
    Several commenters suggested that all ACOs should be allowed to 
start at Level A of the BASIC track. One commenter stated that early 
adopters should not be penalized by forcing them into performance-based 
risk while other new ACO entrants are allowed to remain in one-sided 
models for several more years. One commenter seemed to suggest that the 
proposed approach may differentiate whether ACOs may enter Level A or 
Level B of the BASIC track's glide path depending on the length of time 
they previously participated in Track 1.
    Response: We are finalizing as proposed the approach for glide path 
entry for former Track 1 ACOs and new ACOs that are identified as re-
entering ACOs because of their ACO participants' recent prior 
participation in the same Track 1 ACO. These ACOs, if eligible to enter 
the BASIC track's glide path, will be restricted to a single year of 
participation under a one-sided model (Level B) before being

[[Page 67902]]

automatically transitioned to risk and reward under the glide path 
(except for ACOs with an agreement period starting July 1, 2019, which 
would be permitted to continue in Level B for a second performance year 
starting January 1, 2020). We appreciate commenters' support for this 
proposed approach which recognizes that ACOs with prior experience in 
Track 1 may need additional time under a one-sided model to prepare for 
performance-based risk, but are likely better prepared to more rapidly 
progress to performance-based risk because of their experience in the 
Shared Savings Program. Therefore, we decline the commenter's 
suggestion that these ACOs be allowed to enter the BASIC track's glide 
path at Level A.
    Further, we believe the comments reflect the need to clarify that 
this policy restricting entry into the BASIC track's glide path to 
Level B applies consistently to any former Track 1 ACO and new ACO that 
is identified as a re-entering ACO because of its ACO participants' 
recent prior participation in the same Track 1 ACO, regardless of how 
many performance years or agreement periods the ACO participated under 
Track 1.
    Comment: As described and addressed elsewhere in our summary of 
comments in section II.A. of this final rule, many commenters expressed 
concerns about the pace of transitioning ACOs to performance-based risk 
under the proposed designed participation options. Some commenters 
specifically expressed concern about the design of the BASIC track that 
allows new, inexperienced ACOs only two performance years under a one-
sided model before requiring ACOs to enter performance-based risk. One 
commenter explained that new ACOs need time to adjust to the program 
requirements. One commenter encouraged CMS to prioritize the entrance 
of new participants, and especially low revenue ACOs and ACOs 
inexperienced with performance-based risk Medicare ACO initiatives, 
into the Shared Savings Program as it implements the redesign of the 
participation options.
    Some commenters expressed concern that the proposed approach may 
require too quick of a progression to higher levels of performance-
based risk by small, rural and physician-only ACOs. One commenter 
expressed concern that ACOs that have actually achieved savings but do 
not have the financial resources to go to risk would be forced out of 
the program.
    More generally, some commenters stated a critical component of 
performance improvement lies in the ACO's ability to analyze the 
performance data being provided to the ACO and make targeted 
improvements based on this information. Under CMS' current proposal, 
ACOs would have only one year of performance data before being required 
to move to a performance-based risk model. One commenter explained that 
the timing of benchmark notification, data receipt and shared savings 
determinations under the program render such a short period of time 
effectively useless to determine if the ACO's care coordination and 
other redesigns are having the intended effect. The commenter explained 
further that ACOs do not receive a preliminary benchmark or historical 
data until after the performance year has begun. They also do not 
receive a final shared savings determination until seven or eight 
months after the conclusion of the performance year. As a result, the 
commenter stated, ACOs are functionally blind to their financial 
performance for the entire length of a performance year and into the 
following year, which makes it difficult for ACOs to determine how to 
invest any returns or how to alter their care delivery to achieve 
savings and improve quality. The commenter believes the proposed 
progression to performance-based risk within the BASIC track's glide 
path forces ACOs to take on performance-based risk without much-needed 
information, setting many ACOs up for failure.
    To address these concerns, several commenters recommended that CMS 
allow new, inexperienced ACOs three performance years in a one-sided 
model, rather than two performance years, before requiring them to take 
on performance-based risk.
    Several commenters recommended that CMS allow new ACOs at least 
four performance years in a one-sided model to provide the ACOs with 
two to three years of performance data, to identify trends and 
opportunities for transformation and improvement before they are moved 
to a two-sided model. This commenter suggested, for example, CMS could 
implement a policy allowing all new ACOs to remain in Level A of the 
BASIC track for two performance years and Level B of the BASIC track 
for an additional two performance years before requiring the ACO to 
move to Level C in the fifth and final performance year of their 5-year 
agreement. Alternatively, commenters suggest that CMS could allow new 
ACOs to remain in a one-sided model for the duration of their first 5-
year agreement period, and then permit the ACO to begin their second 5-
year agreement period at Level C or Level D of the BASIC track where 
they would participate for three performance years and progress to 
Level E for the remaining two performance years.
    Several commenters suggesting these alternative approaches to 
allowing inexperienced ACOs additional time under a one-sided model of 
the BASIC track's glide path recommended that CMS maintain the 
opportunity for ACOs to elect to more rapidly enter higher levels of 
risk and reward, as proposed (see section II.A.4.b. of this final 
rule).
    Response: We are persuaded by commenters that ACOs new to the 
Shared Savings Program that are inexperienced with performance-based 
risk Medicare ACO initiatives may need additional time under a one-
sided model to gain experience with program participation and to 
prepare for the transition to performance-based risk. We believe the 
need for this additional time in a one-sided model is particularly 
acute among low revenue ACOs. As described in comments summarized 
elsewhere in this final rule, for example, small, rural and physician-
only ACOs, which are more likely to be low revenue ACOs, may lack the 
financial reserves needed to support establishment of a repayment 
mechanism arrangement. These ACOs may be able to better accrue the 
needed financial resources through earned shared savings in their 
initial years of program participation (if they are eligible to share 
in these savings).
    Therefore we are finalizing a modification to our proposals to 
allow an additional participation option in the BASIC track's glide 
path for ACO legal entities without prior experience in the Shared 
Savings Program (that is, new legal entities that are not identified as 
a re-entering ACOs) that are identified as low revenue ACOs. To be 
eligible for the BASIC track's glide path, these ACOs would have been 
determined to be inexperienced with performance-based risk Medicare ACO 
initiatives based on an evaluation of their ACO legal entity and also 
ACO participants (according to the 40 percent threshold). We will allow 
these ACOs to participate under a one-sided model for up to three 
performance years (or four performance years for ACOs entering an 
agreement period beginning July 1, 2019). However, in exchange for this 
additional year under a one-sided model, these ACOs would forfeit their 
progression along the glide path to Level C and Level D and therefore 
automatically advance to Level E for the remaining performance years of 
their agreement period.
    We note that this alternative participation option will not be 
available to new ACOs that are identified as re-entering ACOs because

[[Page 67903]]

of their ACO participants' recent prior participation in the same Track 
1 ACO.
    With this alternative, we are allowing for an additional 
participation option that more closely resembles the current 
opportunity for ACOs to participate for a 3-year agreement period in a 
one-sided model, and then transition to Level E of the BASIC track, 
with the level of risk and potential reward currently available under 
the popular Track 1+ Model. Therefore, we believe this policy (under 
which ACOs forgo participation in Level C and Level D of the BASIC 
track's glide path) is responsive to some commenters' suggestions for 
such alternatives, and also supported by our early experience with the 
Track 1+ Model. Among ACOs renewing for a second agreement period 
beginning January 1, 2018, we observed that 5 Track 1 ACOs renewed 
under the Track 1+ Model. However, as discussed elsewhere in this 
section of this final rule, we strongly believe that ACOs need to make 
the transition to two-sided risk within their 5-year agreement period 
of the BASIC track's glide path, an approach which some commenters also 
supported. Nevertheless, we are sensitive to commenters' concern about 
the need for ACOs to have more performance information before 
transitioning to higher levels of performance-based risk. Considering 
these factors, in combination, we believe it would be an attractive 
alternative that meets the objectives of our program's redesign to 
offer the option for certain ACOs to elect to remain under a one-sided 
model of the BASIC track's glide path for an additional performance 
year prior to transitioning to Level E of the BASIC track for the 
remaining years of their agreement period. As discussed in the 
Regulatory Impact Analysis (section V of this final rule), we believe 
this alternative would be protective of the Trust Funds because it 
could encourage program entry by the types of organizations that have 
tended to be higher-performing (small, physician-only and rural ACOs), 
and also encourage these ACOs to more aggressively pursue the program's 
goals by moving to higher risk (under Level E) faster. We note also 
that we are finalizing the option for eligible ACOs without previous 
experience in the Shared Savings Program to participate under the BASIC 
track's glide path, where they enter at Level A and are automatically 
advanced through the remaining four levels of the glide path, 
concluding at Level E. Therefore, this will remain a participation 
option for organizations that prefer a more incremental progression to 
increasing levels of two-sided risk.
    In the new provision of the regulations at Sec.  425.600(a)(4) we 
are specifying an exception to the policy that ACOs participating in 
the BASIC track's glide path are automatically advanced to the next 
level of the glide path at the start of each subsequent performance 
year of the agreement period. This exception, applicable to an ACO 
legal entity without prior experience in the Shared Savings Program 
(that is, a new legal entity that is not identified as a re-entering 
ACO) that is identified as a low revenue ACO (participating in the 
BASIC track's glide path and therefore inexperienced with performance-
based risk Medicare ACO initiatives), allows for the following: (1) The 
ACO elects to enter the BASIC track's glide path at Level A, and is 
automatically advanced to Level B for performance year 2 (or 
performance year 3 in the case of ACOs entering an agreement period 
beginning on July 1, 2019); (2) prior to the automatic advancement of 
the ACO to Level C, the ACO may elect to remain in Level B for 
performance year 3 (performance year 4 in the case of ACOs entering an 
agreement period beginning on July 1, 2019); (3) in the case of an ACO 
that elects to remain in Level B for an additional performance year, 
the ACO forgoes participation in Level C and Level D of the glide path 
and is automatically advanced to Level E at the start of performance 
year 4 (or performance year 5 in the case of ACOs entering an agreement 
period beginning on July 1, 2019). We are making certain modifications 
to Sec.  425.600 (such as to incorporate section headers) for clarity. 
We are also specifying a provision related to this participation option 
in the regulations text at Sec.  425.605(b)(2)(ii), on the timing of 
the ACO's selection of its MSR/MLR before entering a two-sided model of 
the BASIC track's glide path.
    To determine if an ACO is eligible to make this election to remain 
in Level B for another performance year, we would re-evaluate the ACO 
to determine if it continues to meet the definition of a low revenue 
ACO and the definition of an ACO that is inexperienced with 
performance-based risk Medicare ACO initiatives.
    Further, we believe this policy, to allow additional flexibility 
for new legal entities, that are low revenue ACOs, and inexperienced 
with performance-based risk Medicare ACO initiatives, to participate 
for up to 3 performance years under a one-sided model of the BASIC 
track's glide path before transitioning to Level E of the BASIC track, 
in combination with other final policies within this final rule address 
commenters' concerns and suggestions for a relatively gentler glide 
path to two-sided risk for small, rural and physician-only ACOs (or 
generally low revenue ACOs), and support continued participation of 
these ACOs in the Shared Savings Program. We summarized these other 
factors in section II.A.5.b.(2) of this final rule, and in brief these 
include the following: (1) Increasing the threshold of ACO participant 
revenue as a percentage of benchmark used in identifying low revenue 
ACOs; (2) allowing for higher sharing rates in the BASIC track's glide 
path; and (3) modifications to the approach for determining repayment 
mechanism arrangement amounts to potentially reduce the burden of these 
arrangements on lower-revenue ACOs participating in the ENHANCED track.
    Under our final policies we will determine low revenue ACOs based 
on a higher threshold percentage, 35 percent instead of 25 percent as 
proposed (see section II.A.5.b of this final rule). Therefore, a 
potentially greater number of ACOs may be eligible for this alternative 
participation option.
    We decline commenters' suggestions that certain ACOs be exempt from 
transitioning to performance-based risk or higher levels of risk and 
potential reward. As we explain elsewhere in this section of this final 
rule, we believe the progression to performance-based risk is critical 
to driving the most meaningful change in providers' and suppliers' 
behavior toward achieving the program's goals, and that participation 
in two-sided models, and ultimately the ENHANCED track, should be the 
goal for all Shared Savings Program ACOs. More generally we believe the 
previously described policy modifications will help ensure program 
entry and continued participation by relatively risk-averse ACOs.
    Comment: One commenter stated that the definition of deferred 
renewal as described in the August 2018 proposed rule is not 
sufficiently clear. The commenter suggested that CMS clarify the 
definition of a ``deferred ACO'' so that it could be easily determined 
by an ACO to avoid confusion.
    Response: As described in section II.A.2 of this final rule we are 
discontinuing the deferred renewal participation option, which was made 
available to ACOs that participated under Track 1 for a first agreement 
period beginning on either January 1, 2014 or January 1, 2015. Under 
this policy, specified in Sec.  425.200(e), at the time of renewal for 
a second agreement period, the ACO elected to extended its

[[Page 67904]]

initial agreement period under Track 1 for an additional year for a 
total of 4 performance years, and thereby deferred entering in a second 
agreement period under either Track 2 or Track 3. As we previously 
described in section II.A.2 of this final rule, few ACO selected the 
deferred renewal option.
    Comment: Some commenters addressed generally the concern about 
gaming participation options. One commenter stated support for CMS to 
closely monitor ``gaming'' behavior and to take action when specific 
gaming behavior is identified.
    One commenter explained that shortening the time an ACO may remain 
in a one-sided model and extending the agreement period to five years 
(which affects how often benchmarks are rebased), increases the 
incentives to participate in ``gaming''. The commenter suggested that 
certain, well-defined precautionary measures may be warranted.
    One commenter in general encouraged CMS to explore the ways bad 
actors may use current or new structures to take advantage of 
programmatic rules or beneficiaries.
    Response: We appreciate commenters' concerns about the possibility 
that ACOs may attempt to game program requirements to yield more 
favorable participation options for their organization. We continue to 
believe that the combination of policies we are establishing with this 
final rule to ensure program integrity are protective of the Trust 
Funds, as well as protective of beneficiaries by ensuring ACOs are held 
accountable for their financial and quality performance. This includes: 
Limiting more experienced ACOs to higher-risk participation options; 
more rigorously screening for good standing among ACOs seeking to renew 
their participation in the program or re-enter the program after 
termination or expiration of their previous agreement; identifying ACOs 
re-forming under new legal entities as re-entering ACOs if greater than 
50 percent of their ACO participants have recent prior participation in 
the same ACO in order to hold these ACO accountable for their ACO 
participants' experience with the program; and holding ACOs in two-
sided models accountable for partial-year losses if either the ACO or 
CMS terminates the agreement before the end of the performance year 
(discussed in section II.A.6.d.(3) of this final rule).
    Final Action: After consideration of public comments, we are 
finalizing our proposal to specify requirements for evaluating an ACO's 
eligibility for specific participation options for agreement periods 
beginning on July 1, 2019, and in subsequent years, in a new provision 
at Sec.  425.600(d), with the following modifications as discussed in 
this section of this final rule: (1) Allow the option for an ACO legal 
entity without prior experience in the Shared Savings Program (a new 
legal entity that is not identified as a re-entering ACO) that is 
identified as a low revenue ACO participating in the BASIC track's 
glide path to elect an additional year of participation under a one-
sided model in exchange for transitioning more rapidly to Level E for 
the remaining years of their agreement period; and (2) ensuring ACOs 
that entered the Track 1+ Model within their current agreement period 
have the opportunity to renew for a subsequent agreement period under 
Level E of the BASIC track.
    We are finalizing our proposal to add new definitions at Sec.  
425.20 for ``Experienced with performance-based risk Medicare ACO 
initiatives'', ``Inexperienced with performance-based risk Medicare ACO 
initiatives'' and ``Performance-based risk Medicare ACO initiative'' 
without modification.
    We define ``performance-based risk Medicare ACO initiative'' to 
mean an initiative implemented by CMS that requires an ACO to 
participate under a two-sided model during its agreement period. This 
includes Track 2, Track 3 or the ENHANCED track, and the proposed BASIC 
track (including Level A through Level E) of the Shared Savings 
Program. This also included the following Innovation Center ACO Models 
involving two-sided risk: The Pioneer ACO Model, Next Generation ACO 
Model, the performance-based risk tracks of the CEC Model (including 
the two-sided risk tracks for LDO ESCOs and non-LDO ESCOs), and the 
Track 1+ Model. This definition also includes such other Medicare ACO 
initiatives involving two-sided risk as may be specified by CMS.
    We define ``experienced with performance-based risk Medicare ACO 
initiatives'' to mean an ACO that CMS determines meets either of the 
following criteria:
    (1) The ACO is the same legal entity as a current or previous ACO 
that is participating in, or has participated in, a performance-based 
risk Medicare ACO initiative as defined under 425.20, or that deferred 
its entry into a second Shared Savings Program agreement period under 
Track 2 or Track 3 in accordance with Sec.  425.200(e).
    (2) 40 percent or more of the ACO's ACO participants participated 
in a performance-based risk Medicare ACO initiative as defined under 
Sec.  425.20, or in an ACO that deferred its entry into a second Shared 
Savings Program agreement period under Track 2 or Track 3 in accordance 
with Sec.  425.200(e), in any of the 5 most recent performance years 
prior to the agreement start date.
    We define ``inexperienced with performance-based risk Medicare ACO 
initiatives'' to mean an ACO that CMS determines meets all of the 
following requirements:
    (1) The ACO is a legal entity that has not participated in any 
performance-based risk Medicare ACO initiative as defined under Sec.  
425.20, and has not deferred its entry into a second Shared Savings 
Program agreement period under Track 2 or Track 3 in accordance with 
Sec.  425.200(e); and
    (2) Less than 40 percent of the ACO's ACO participants participated 
in a performance-based risk Medicare ACO initiative as defined under 
Sec.  425.20, or in an ACO that deferred its entry into a second Shared 
Savings Program agreement period under Track 2 or Track 3 in accordance 
with Sec.  425.200(e), in each of the 5 most recent performance years 
prior to the agreement start date.
    In summary, in combination with determining an whether ACOs are low 
revenue ACOs versus high revenue ACOs as described in section II.A.5.b 
of this final rule, we are finalizing the addition of a new paragraph 
(d) under Sec.  425.600, to provide that CMS will identify ACOs as 
inexperienced or experienced with performance-based risk Medicare ACO 
initiatives for purposes of determining an ACO's eligibility for 
certain participation options, as follows (with certain exceptions, as 
noted):

    <bullet> If an ACO is identified as a high revenue ACO, the 
following options would apply:
    ++ If we determine the ACO is inexperienced with performance-
based risk Medicare ACO initiatives, the ACO may enter the BASIC 
track's glide path, or the ENHANCED track. With the exception of 
ACOs that previously participated in Track 1 and new ACOs identified 
as re-entering ACOs because of their ACO participants' prior 
participation in a Track 1 ACO, an ACO may enter the BASIC track's 
glide path at any level (Level A through Level E). Therefore, 
eligible ACOs that are new to the program, identified as initial 
applicants and not as re-entering ACOs, would have the flexibility 
to enter the glide path at any one of the five levels. An ACO that 
previously participated in Track 1 or a new ACO identified as a re-
entering ACO because more than 50 percent of its ACO participants 
have recent prior experience in the same Track 1 ACO may enter the 
glide path under either Level B, C, D or E.
    ++ If we determine the ACO is experienced with performance-based 
risk Medicare ACO initiatives, the ACO may only enter the ENHANCED 
track. However, an

[[Page 67905]]

ACO in a first or second agreement period beginning in 2016 or 2017 
identified as experienced with performance-based risk Medicare ACO 
initiatives based on participation in the Track 1+ Model may renew 
for a consecutive agreement period beginning on July 1, 2019, or 
January 1, 2020 (respectively), either under Level E of the BASIC 
track, or the ENHANCED track.
    <bullet> If an ACO is identified as a low revenue ACO, the 
following options would apply:
    ++ If we determine the ACO is inexperienced with performance-
based risk Medicare ACO initiatives, the ACO may enter the BASIC 
track's glide path, or the ENHANCED track. An ACO may enter the 
BASIC track's glide path at any level (Level A through Level E). The 
following exceptions apply:
    --An ACO that previously participated in Track 1 or a new ACO 
identified as a re-entering ACO because more than 50 percent of its 
ACO participants have recent prior experience in the same Track 1 
ACO may enter the glide path under either Level B, C, D or E.
    --An eligible new legal entity (not identified as a re-entering 
ACO), identified as a low revenue ACO and inexperienced with 
performance-based risk Medicare ACO initiatives elects to enter the 
BASIC track's glide path at Level A, and is automatically advanced 
to Level B for performance year 2 (or performance year 3 in the case 
of ACOs entering an agreement period beginning on July 1, 2019). 
Prior to the automatic advancement of the ACO to Level C, the ACO 
may elect to remain in Level B for performance year 3 (performance 
year 4 in the case of ACOs entering an agreement period beginning on 
July 1, 2019). In the case of an ACO that elects to remain in Level 
B for an additional performance year, the ACO is automatically 
advanced to Level E at the start of performance year 4 (or 
performance year 5 in the case of ACOs entering an agreement period 
beginning on July 1, 2019).
    ++ If we determine the ACO is experienced with performance-based 
risk Medicare ACO initiatives, the ACO may enter Level E of the 
BASIC track (highest level of risk and potential reward) or the 
ENHANCED track. As discussed in section II.A.5.b. of this final 
rule, low revenue ACOs are limited to two agreement periods of 
participation under the BASIC track.
(c) Applicability of Policies That Phase-In
    In the August 2018 proposed rule (83 FR 41829 through 41832), we 
explained that we would consider an ACO's experience with the program 
or other performance-based risk Medicare ACO initiatives in determining 
which agreement period an ACO should be considered to be entering for 
purposes of applying policies that phase-in over the course of the 
ACO's first agreement period and subsequent agreement periods: (1) The 
weights applied to benchmark year expenditures (equal weighting in 
second or subsequent agreement periods instead of weighting the 3 
benchmark years (BYs) at 10 percent (BY1), 30 percent (BY2), and 60 
percent (BY3)); (2) the weights used in calculating the regional 
adjustment to an ACO's historical benchmark, which phase in over 
multiple agreement periods; and (3) the quality performance standard, 
which phases in from complete and accurate reporting of all quality 
measures in the first performance year of an ACO's first agreement 
period to pay-for-performance over the remaining years of the ACO's 
first agreement period, and ACOs continue to be assessed on performance 
in all subsequent performance years under the program (including 
subsequent agreement periods). We noted that for purposes of this 
discussion, we considered agreement periods to be sequential and 
consecutive. For instance, after an ACO participates in its first 
agreement period, the ACO would enter a second agreement period, 
followed by a third agreement period, and so on.
    We proposed to specify under Sec.  425.600(f)(1) that an ACO 
entering the program for the first time (an initial entrant) would be 
considered to be entering a first agreement period in the Shared 
Savings Program for purposes of applying program requirements that 
phase-in over time, regardless of its experience with performance-based 
risk Medicare ACO initiatives. Under this approach, in determining the 
ACO's historical benchmark, we would weight the benchmark year 
expenditures as follows: 10 Percent (BY1), 30 percent (BY2), and 60 
percent (BY3). We explained that under the proposed approach to 
applying factors based on regional FFS expenditures beginning with an 
ACO's first agreement period, we would apply a weight of either 25 
percent or 35 percent in determining the regional adjustment amount 
depending on whether the ACO is higher or lower spending compared to 
its regional service area. (As described in section II.D. of this final 
rule, we are modifying our proposed phase-in of the weights used in 
calculating the regional adjustment. Under the policies we are adopting 
in this final rule, we would apply a weight of either 15 percent or 35 
percent in determining the regional adjustment amount for an ACO in its 
first agreement period.) Further, under Sec.  425.502, an initial 
entrant would be required to completely and accurately report all 
quality measures to meet the quality performance standard (referred to 
as pay-for-reporting) in the first performance year of its first 
agreement period, and for subsequent years of the ACO's first agreement 
period the pay-for-performance quality performance standard would 
phase-in.
    We proposed to divide re-entering ACOs into three categories in 
order to determine which agreement period an ACO will be considered to 
be entering for purposes of applying program requirements that phase-in 
over time, and to specify this policy at Sec.  425.600(f)(2). For an 
ACO whose participation agreement expired without having been renewed, 
we proposed the ACO would re-enter the program under the next 
consecutive agreement period. For example, if an ACO completed its 
first agreement period and did not renew, upon re-entering the program, 
the ACO would participate in its second agreement period.
    For an ACO whose participation agreement was terminated under Sec.  
425.218 or Sec.  425.220, we proposed the ACO re-entering the program 
would be treated as if it is starting over in the same agreement period 
in which it was participating at the time of termination, beginning 
with the first performance year of the new agreement period. For 
instance, if an ACO terminated at any time during its second agreement 
period, the ACO would be considered participating in a second agreement 
period upon re-entering the program, beginning with the first 
performance year of their new agreement period. Alternatively, we 
considered determining which performance year a terminated ACO should 
re-enter within the new agreement period, in relation to the amount of 
time the ACO participated during its most recent prior agreement 
period. For example, under this approach, an ACO that terminated its 
participation in the program in the third performance year of an 
agreement period would be treated as re-entering the program in 
performance year three of the new agreement period. However, we noted 
that this alternative approach could be complicated given the proposed 
transition from 3-year agreements to agreement periods of at least 5 
years.
    For a new ACO identified as a re-entering ACO because greater than 
50 percent of its ACO participants have recent prior participation in 
the same ACO, we would consider the prior participation of the ACO in 
which the majority of the ACO participants in the new ACO were 
participating in order to determine the agreement period in which the 
new ACO would be considered to be entering the program. That is, we 
would determine the applicability of program policies to the new ACO 
based on the number of agreement periods the other entity participated 
in the program. If the

[[Page 67906]]

participation agreement of the other ACO was terminated or expired, the 
previously described rules for re-entering ACOs would also apply. For 
example, if ACO A is identified as a re-entering ACO because more than 
50 percent of its ACO participants previously participated in ACO B 
during the relevant look back period, we would consider ACO B's prior 
participation in the program. For instance, if ACO B terminated during 
its second agreement period in the program, we would consider ACO A to 
be entering a second agreement period in the program, beginning with 
the first performance year of that agreement period. However, if the 
other ACO is currently participating in the program, the new ACO would 
be considered to be entering into the same agreement period in which 
this other ACO is currently participating, beginning with the first 
performance year of that agreement period. For example, if ACO A is 
identified as a re-entering ACO because more than 50 percent of its ACO 
participants previously participated in ACO C during the relevant look 
back period, and ACO C is actively participating in its third agreement 
period in the program, ACO A would be considered to be participating in 
a third agreement period, beginning with the first performance year of 
that agreement period.
    We proposed to specify at Sec.  425.600(f)(3) that renewing ACOs 
would be considered to be entering the next consecutive agreement 
period for purposes of applying program requirements that phase-in over 
time. This proposed approach would be consistent with current program 
policies for ACOs whose participation agreements expire and that 
immediately enter a new agreement period to continue their 
participation in the program. For example, an ACO that entered its 
first participation agreement on January 1, 2017, and concludes this 
participation agreement on December 31, 2019, would renew to enter its 
second agreement period beginning on January 1, 2020. Further, under 
the proposed definition of ``Renewing ACO'', an ACO that terminates its 
current participation agreement under Sec.  425.220 and immediately 
enters a new agreement period to continue its participation in the 
program would also be considered to be entering the next consecutive 
agreement period. For example, an ACO that entered its first 
participation agreement on January 1, 2018, and terminates its 
agreement effective June 30, 2019, to enter a new participation 
agreement beginning on July 1, 2019, would be considered to be a 
renewing ACO that is renewing early to enter its second agreement 
period beginning on July 1, 2019. This approach would ensure that an 
ACO that terminates from a first agreement period and immediately 
enters a new agreement period in the program could not take advantage 
of program flexibilities aimed at ACOs that are completely new to the 
Shared Savings Program, such as the pay-for-reporting quality 
performance standard available to ACOs in their first performance year 
of their first agreement period under the program. We would therefore 
apply a consistent approach among renewing ACOs by placing these ACOs 
in the next agreement period in sequential order.
    This proposed approach would replace the current approach to 
determining which agreement period an ACO would be considered to be 
entering into, for a subset of ACOs, as specified in the provision at 
Sec.  425.222(c), which we proposed to discontinue using. This proposed 
approach would ensure that ACOs that are experienced with the program 
or with performance-based risk Medicare ACO initiatives are not 
participating under policies designed for ACOs inexperienced with the 
program's requirements or similar requirements under other Medicare ACO 
initiatives, and also would help to preserve the intended phase-in of 
requirements over time by taking into account ACOs' prior participation 
in the program.
    The proposed approach would help to ensure that ACOs that are new 
to the program are distinguished from renewing ACOs and ACOs that are 
re-entering the program, and would also ensure that program 
requirements are applied in a manner that reflects ACOs' prior 
participation in the program, which would limit the opportunity for 
more experienced ACOs to seek to take advantage of program policies. 
These policies protect against ACOs terminating or discontinuing their 
participation, and potentially re-forming as a new legal entity, simply 
to be able to apply to re-enter the program in a way that could allow 
for the applicability of lower weights used in calculating the regional 
adjustment to the benchmark or to avoid moving to performance-based 
risk more quickly on the BASIC track's glide path or under the ENHANCED 
track.
    The proposed approach to determining ACO participation options and 
the proposal to limit access the BASIC track's glide path to ACOs that 
are inexperienced with performance-based risk, in combination with the 
rebasing of ACO benchmarks at the start of each new agreement period, 
mitigated our concerns regarding ACO gaming. We explained our belief 
that the requirement that ACOs' benchmarks are rebased at the start of 
each new agreement period, in combination with the proposed new 
requirements governing ACO participation options, would be sufficiently 
protective of the Trust Funds to guard against undesirable ACO gaming 
behavior. Under our proposed policies for identifying ACOs that are 
experienced with performance-based risk Medicare ACO initiatives, ACOs 
that terminate from the BASIC track's glide path (for example) and seek 
to re-enter the program, and renewing ACOs (including ACOs renewing 
early for a new agreement period beginning July 1, 2019) that are 
identified as experienced with performance-based risk Medicare ACO 
initiatives could only renew under Level E of the BASIC track (if an 
otherwise eligible low revenue ACO) or the ENHANCED track. This 
mitigated our concerns about ACOs re-forming and re-entering the 
program, or serially terminating and immediately participating again as 
a renewing ACO, since there would be consequences for the ACO's ability 
to continue participation under lower-risk options that may help to 
deter these practices.
    We acknowledge that under our proposals regarding early renewals 
(that is, our proposal that ACOs that terminate their current agreement 
period and immediately enter a new agreement period without 
interruption qualify as renewing ACOs), it would be possible for ACOs 
to serially enter a participation agreement, terminate from it and 
enter a new agreement period, to be considered entering the next 
consecutive agreement period in order to more quickly take advantage of 
the higher weights used in calculating the regional adjustment to the 
benchmark. However, we noted that these ACOs' benchmarks would be 
rebased, which would help to mitigate this concern. We sought comment 
on possible approaches that would prevent ACOs from taking advantage of 
participation options to delay or hasten the phase-in of higher weights 
used in calculating the regional adjustment to the historical 
benchmark, while still maintaining the flexibility for existing ACOs to 
quickly move from a current 3-year agreement period to a new agreement 
period under either the BASIC track or ENHANCED track.
    Final Action: We received no comments on this proposal and 
therefore are finalizing as proposed to specify the following policies 
in Sec.  425.600(f). For agreement periods beginning on July 1, 2019, 
and in

[[Page 67907]]

subsequent years, CMS determines the agreement period an ACO is 
entering for purposes of applying the following program requirements 
that phase-in over multiple agreement periods: (i) The quality 
performance standard as described in Sec.  425.502(a); (ii) the weight 
used in calculating the regional adjustment to the ACO's historical 
benchmark as described in Sec.  425.601(f); and (iii) the use of equal 
weights to weight each benchmark year as specified in Sec.  425.601(e).
    An ACO entering an initial agreement period is considered to be 
entering a first agreement period in the Shared Savings Program. A 
renewing ACO is considered to be entering the next consecutive 
agreement period in the Shared Savings Program.
    A re-entering ACO is considered to be entering a new agreement 
period in the Shared Savings Program as follows: (i) An ACO whose 
participation agreement expired without having been renewed re-enters 
the program under the next consecutive agreement period in the Shared 
Savings Program; (ii) an ACO whose participation agreement was 
terminated under Sec.  425.218 or Sec.  425.220 re-enters the program 
at the start of the same agreement period in which it was participating 
at the time of termination from the Shared Savings Program, beginning 
with the first performance year of that agreement period; or (iii) a 
new ACO identified as a re-entering ACO enters the program in an 
agreement period that is determined based on the prior participation of 
the ACO in which the majority of the new ACO's participants were 
participating. Regarding this third category of ACOs, if the 
participation agreement of the other ACO was terminated or expired, the 
previously described rules for re-entering ACOs would also apply. 
However, if the other ACO is currently participating in the program, 
the new ACO would be considered to be entering into the same agreement 
period in which this other ACO is currently participating, beginning 
with the first performance year of that agreement period.
    As discussed in section II.D. of this final rule, we are 
maintaining a phase-in for the regional adjustment weights for ACOs 
with start dates in the program before July 1, 2019, according to the 
structure similar to that established in the June 2016 final rule (for 
example, we will continue to use regional factors for the first time in 
resetting benchmarks for the third agreement period for 2012 and 2013 
starters); however, we are making modifications to the weights used in 
these calculations and the length of time over which the maximum weight 
is phased in. Table 6 includes examples of the phase-in of the modified 
regional adjustment weights based on agreement start date and applicant 
type (initial entrant, renewing ACO, or re-entering ACO). This table 
illustrates the weights that would be used in determining the regional 
adjustment to the ACO's historical benchmark under this final rule to 
differentiate initial entrants, renewing ACOs (including ACOs that 
renew early), and re-entering ACOs for purposes of policies that phase-
in over time.
BILLING CODE 4120-01-P

[[Page 67908]]

[GRAPHIC] [TIFF OMITTED] TR31DE18.007


[[Page 67909]]


[GRAPHIC] [TIFF OMITTED] TR31DE18.008

BILLING CODE 4120-01-C
(d) Condensed Shared Savings Program Application
    In developing the proposals to redesign the Shared Savings 
Program's participation options, we also revisited our current policy 
that allows certain organizations with experience in Medicare ACO 
initiatives to use a condensed application form to apply to the Shared 
Savings Program (83 FR 41832 through 41833). Under Sec.  425.202(b), we 
allow for use of a condensed Shared Savings Program application form by 
organizations that participated in the PGP demonstration. Former 
Pioneer Model ACOs may also use a condensed application form if 
specified criteria are met (including that the applicant is the same 
legal entity as the Pioneer ACO and the ACO is not applying to 
participate in the one-sided model). For the background on this policy, 
we refer readers to discussions in earlier rulemaking. (See 76 FR 67833 
through 67834, and 80 FR 32725 through 32728.)
    The PGP demonstration ran for 5 years from April 2005 through March 
2010, and the PGP transition demonstration began in January 2011 and 
concluded in December 2012.\15\ The Pioneer ACO Model began in 2012 and 
concluded in December 2016.\16\ Many former PGP demonstration sites and 
Pioneer ACOs have already transitioned to other Medicare ACO 
initiatives including the Shared Savings Program and the Next 
Generation ACO Model. Accordingly, we believed would no longer be 
necessary to maintain the provision permitting these entities to use 
condensed application forms. First, since establishing this policy, we 
have modified the program's application to reduce burden on all 
applicants. See 82 FR 53217 through 53222. Second, our proposed 
approach for identifying ACOs experienced with performance-based risk 
Medicare ACO initiatives for purposes of determining an ACO's 
participation options would require former Pioneer Model ACOs to 
participate under the higher levels of risk: Either the highest level 
of risk and potential reward in the BASIC track (Level E), or the 
ENHANCED track. This includes, for example, a former Pioneer ACO that 
applies to the Shared Savings Program using the same legal entity, or 
if 40 percent or more of the ACO participants in the ACO are determined 
to be experienced with the Pioneer ACO Model or other two-sided model 
Medicare ACO initiatives within the 5 performance year look back period 
prior to the start date of the ACO's agreement period in the Shared 
Savings Program.
---------------------------------------------------------------------------

    \15\ See Fact Sheet on Physician Group Practice Transition 
Demonstration (August 2012), available at https://innovation.cms.gov/Files/Migrated-Medicare-Demonstration-x/PGP_TD_Fact_Sheet.pdf.
    \16\ See Pioneer ACO Model web page, available at https://innovation.cms.gov/initiatives/Pioneer-aco-model/.
---------------------------------------------------------------------------

    Under the proposed approach to determining participation options, 
we

[[Page 67910]]

would identify these experienced, former Pioneer Model ACOs entering 
the program for the first time as participating in a first agreement 
period for purposes of the applicability of the program policies that 
phase-in over time. On the other hand, if an ACO terminated its 
participation in the Shared Savings Program, entered the Next 
Generation ACO Model, and then re-enters the Shared Savings Program, 
under the proposed approach we would consider the ACO to be entering 
either: (1) Its next consecutive agreement period in the Shared Savings 
Program, if the ACO had completed an agreement period in the program 
before terminating its prior participation; or (2) the same agreement 
period in which it was participating at the time of program 
termination. We noted that commenters in earlier rulemaking suggested 
we apply the benchmark rebasing methodology that incorporates factors 
based on regional FFS expenditures to former Pioneer ACOs and Next 
Generation ACOs entering their first agreement period under the Shared 
Savings Program (see 81 FR 37990). We believed that our proposal to 
apply factors based on regional FFS expenditures to ACOs' benchmarks in 
their first agreement periods (see discussion in section II.D. of this 
final rule) would address these stakeholder concerns.
    However, we also considered an alternative approach that would 
allow ACOs formerly participating in these Medicare ACO models to be 
considered to be entering a second agreement period for the purpose of 
applying policies that phase-in over time. We declined to propose this 
approach at this time, because ACOs entering the Shared Savings Program 
after participation in another Medicare ACO initiative may need time to 
gain experience with program's policies. Therefore, we preferred the 
proposed approach that would allow ACOs new to the Shared Savings 
Program to gain experience with the program's requirements, by entering 
the program in a first agreement period.
    Therefore, we proposed to amend Sec.  425.202(b) to discontinue the 
option for certain applicants to use a condensed application when 
applying to participate in the Shared Savings Program for agreement 
periods beginning on July 1, 2019 and in subsequent years.
    We sought comment on the proposals described in this section and 
the alternatives considered.
    Final Action: We received no comments on this proposal and 
therefore are finalizing as proposed to amend Sec.  425.202(b) to 
discontinue the option for certain applicants to use a condensed 
application when applying to participate in the Shared Savings Program 
for agreement periods beginning on July 1, 2019 and in subsequent 
years.
    More generally, the participation options available to ACOs based 
on the policies finalized in this section are summarized in Table 7 
(low revenue ACOs) and Table 8 (high revenue ACOs).
BILLING CODE 4120-01-P

[[Page 67911]]

[GRAPHIC] [TIFF OMITTED] TR31DE18.009


[[Page 67912]]


[GRAPHIC] [TIFF OMITTED] TR31DE18.010


[[Page 67913]]


[GRAPHIC] [TIFF OMITTED] TR31DE18.011


[[Page 67914]]


[GRAPHIC] [TIFF OMITTED] TR31DE18.012

BILLING CODE 4120-01-C
d. Monitoring for Financial Performance
(1) Background
    We provided background on our proposals for monitoring financial 
performance in section II.A.5.d.(1) of the August 2018 proposed rule 
(83 FR 41834 through 41835). We explained that the program regulations 
at Sec.  425.316 enable us to monitor the performance of ACOs. In 
particular, Sec.  425.316 authorizes monitoring for performance related 
to two statutory provisions regarding ACO performance: Avoidance of at-
risk beneficiaries (section 1899(d)(3) of the Act) and failure to meet 
the quality performance standard (section 1899(d)(4) of the Act). If we 
discover that an ACO has engaged in the avoidance of at-risk 
beneficiaries or has failed to meet the quality performance standard, 
we can impose remedial action or terminate the ACO (see Sec.  
425.316(b) and (c)).
    In monitoring the performance of ACOs, we can analyze certain 
financial data (see Sec.  425.316(a)(2)(i)), but the regulations do not 
specifically authorize termination or remedial action for poor 
financial performance. Similarly, there are no provisions that 
specifically authorize non-renewal of a participation agreement for 
poor financial performance, although we had proposed issuing such 
provisions in prior rules.
    In the December 2014 proposed rule (79 FR 72802 through 72806), we 
proposed to allow Track 1 ACOs to renew their participation in the 
program for a second agreement period in Track 1 if in at least one of 
the first 2 performance years of the previous agreement period they did 
not generate losses in excess of their negative MSR, among other 
criteria. We refer readers to the June 2015 final rule for a detailed 
discussion of the proposal and related comments (80 FR 32764 through 
32767). Ultimately, we did not adopt a financial performance criterion 
to determine the eligibility of ACOs to continue in Track 1 in the June 
2015 final rule. Although some commenters supported an approach for 
evaluating an ACO's financial performance for determining its 
eligibility to remain in a one-sided model, many commenters expressed 
opposition, citing concerns that this approach could be premature and 
could disadvantage ACOs that need more time to implement their care 
management strategies, and could discourage participation. At the time 
of the June 2015 final rule, we were persuaded by commenters' concerns 
that application of the additional proposed financial performance 
criterion for continued participation in Track 1 was premature for ACOs 
that initially struggled to demonstrate cost savings in their first 
years in the program. Instead, we explained our belief that our 
authority to monitor ACOs (Sec.  425.316) allows us to take action to 
address ACOs that are outliers on financial performance by placing 
poorly performing ACOs on a special monitoring plan. Furthermore, if 
our monitoring reveals that an ACO is out of compliance with any of the 
requirements of the Shared Savings Program, we may request a corrective 
action plan and, if the required corrective action plan is not 
submitted or is not satisfactorily implemented, we may terminate the 
ACO's participation in the program (80 FR 32765).

[[Page 67915]]

    In the August 2018 proposed rule, we explained that based on our 
additional experience with monitoring ACO financial performance, the 
current regulations are insufficient to address recurrent poor 
financial performance, particularly for ACOs that may be otherwise in 
compliance with program requirements. Consequently, some ACOs may not 
have sufficient incentive to remain accountable for the expenditures of 
their assigned beneficiaries. This may leave the program, the Trust 
Funds, and Medicare FFS beneficiaries vulnerable to organizations that 
may be participating in the program for reasons other than meeting the 
program's goals.
    As we stated in the August 2018 proposed rule, we believe that a 
financial performance requirement is necessary to ensure that the 
program promotes accountability for the cost of the care furnished to 
an ACO's assigned patient population, as contemplated by section 
1899(b)(2)(A) of the Act. We explained that there is an inherent 
financial performance requirement that is embedded within the third 
component of the program's three-part aim: (1) Better care for 
individuals; (2) better health for populations; and (3) lower growth in 
Medicare Parts A and B expenditures. Therefore, just as poor quality 
performance can subject an ACO to remedial action or termination, an 
ACO's failure to lower growth in Medicare FFS expenditures should be 
the basis for CMS to take pre-termination actions under Sec.  425.216, 
including a request for corrective action by the ACO, or termination of 
the ACO's participation agreement under Sec.  425.218.
(2) Proposed Revisions
    We proposed to modify Sec.  425.316 to add a provision for 
monitoring ACO financial performance. Specifically, we proposed to 
monitor for whether the expenditures for the ACO's assigned beneficiary 
population are ``negative outside corridor,'' meaning that the 
expenditures for assigned beneficiaries exceed the ACO's updated 
benchmark by an amount equal to or exceeding either the ACO's negative 
MSR under a one-sided model, or the ACO's MLR under a two-sided 
model.\17\ If the ACO is negative outside corridor for a performance 
year, we proposed that we may take any of the pre-termination actions 
set forth in Sec.  425.216. If the ACO is negative outside corridor for 
another performance year of the ACO's agreement period, we proposed 
that we may immediately or with advance notice terminate the ACO's 
participation agreement under Sec.  425.218.
---------------------------------------------------------------------------

    \17\ For purposes of the August 2018 proposed rule and this 
final rule, an ACO is considered to have generated shared savings 
when its benchmark minus performance year expenditures are greater 
than or equal to the MSR. An ACO is ``positive within corridor'' 
when its benchmark minus performance year expenditures are greater 
than zero, but less than the MSR. An ACO is ``negative within 
corridor'' when its benchmark minus performance year expenditures 
are less than zero, but greater than the negative MSR for ACOs in a 
one-sided model or the MLR for ACOs in a two-sided model. An ACO is 
``negative outside corridor'' when its benchmark minus performance 
year expenditures are less than or equal to the negative MSR for 
ACOs in a one-sided model or the MLR for ACOs in a two-sided model.
---------------------------------------------------------------------------

    We proposed that financial performance monitoring would be 
applicable for performance years beginning in 2019 and subsequent 
years. Specifically, we would apply this proposed approach for 
monitoring financial performance results for performance years 
beginning on January 1, 2019, and July 1, 2019, and for subsequent 
performance years. We explained that financial and quality performance 
results are typically made available to ACOs in the summer following 
the conclusion of the calendar year performance year. For example, we 
stated that the financial performance results for performance years 
beginning on January 1, 2019 and July 1, 2019, would likely be 
available for CMS review in the summer of 2020 and would be made 
available to ACOs when that review is complete. The one-sided model 
monitoring (relative to the ACO's negative MSR) would apply to ACOs in 
Track 1 or the first 2 years of the BASIC track's glide path, and the 
two-sided model monitoring (relative to the ACO's MLR) would apply to 
ACOs under performance-based risk in the BASIC track (including the 
glide path) and the ENHANCED track, as well as Track 2.
    Generally, based on our experience, ACOs in two-sided models tend 
to terminate their participation after sharing in losses for a single 
year in Track 2 or Track 3. We have observed that a small, but not 
insignificant, number of Track 1 ACOs are negative outside corridor in 
their first 2 performance years in the program. Among 194 Track 1 ACOs 
that renewed for a second agreement period under Track 1, 19 were 
negative outside corridor in their first 2 performance years in their 
first agreement period. This includes 14 of 127 Track 1 ACOs that 
started their first agreement period in either 2012 or 2013 and renewed 
for a second agreement period in Track 1 beginning January 1, 2016, as 
well as 5 of 67 Track 1 ACOs that started their first agreement period 
in 2014 and renewed for a second agreement period in Track 1 beginning 
January 1, 2017. Moreover, the majority of these organizations have 
thus far failed to achieve shared savings in subsequent performance 
years. For example, of the 14 2012/2013 starters in Track 1 that were 
negative outside corridor for the first 2 consecutive performance years 
in their first agreement period, only 2 ACOs achieved shared savings in 
their third performance year, while 10 were still negative outside 
corridor and 2 were negative within corridor. All 14 ACOs entered a 
second agreement period in Track 1 starting on January 1, 2016: In 
performance year 2016, 5 generated shared savings, 4 were positive 
within corridor, 4 were negative within corridor, and 1 was negative 
outside corridor. While some of these ACOs appeared to show 
improvement, this could be due to the rebasing of the ACOs' historical 
benchmarks that occurred in 2016. Because the benchmark years for the 
second agreement period correspond to the performance years of the 
first agreement period, ACOs that had losses in their initial years are 
likely to receive a higher rebased benchmark than those that shared 
savings. We observed similar trends following the first 2 performance 
years for ACOs that started their first agreement period in 2014 and 
2015. Therefore, we explained that our experience does not suggest that 
a large share of ACOs would be affected.
    Alternatively, we considered an approach under which we would 
monitor ACOs for generating any losses, beginning with first dollar 
losses, including monitoring for ACOs that are negative inside corridor 
and negative outside corridor. However, we preferred the proposed 
approach because the corridor (MLR threshold above the benchmark) 
protects ACOs against sharing losses that result from random variation.
    In the August 2018 proposed rule, and as reiterated in this final 
rule, we explained that ACOs that continue in the program despite poor 
financial performance may provide little benefit to the Medicare 
program while taking advantage of the potential benefits of program 
participation, such as receipt of program data and the opportunity to 
enter into certain contracting arrangements with ACO participants and 
ACO providers/suppliers. The redesign of the program includes a number 
of features that may encourage continued participation by poor 
performing ACOs under performance-based risk: The relatively lower 
levels of risk under the BASIC track, the additional features available 
to eligible ACOs under performance-based risk

[[Page 67916]]

(the opportunity for physicians and other practitioners participating 
in eligible two-sided model ACOs to furnish telehealth services under 
section 1899(l) of the Act, availability of a SNF 3-day rule waiver, 
and the ability to offer incentive payments to beneficiaries under a 
CMS-approved beneficiary incentive program), and the opportunity to 
participate in an Advanced APM for purposes of the Quality Payment 
Program. Further we explained our concern that ACOs may seek to obtain 
reinsurance to help offset their liability for shared losses as a way 
of enabling their continued program participation while undermining the 
program's goals. Although we considered prohibiting ACOs from obtaining 
reinsurance to mitigate their performance-based risk, we believed that 
such a requirement could be overly restrictive and that the proposed 
financial monitoring approach would be effective in removing from the 
program ACOs with a history of poor financial performance. We sought 
comment on this issue, and on ACOs' use of reinsurance, including their 
ability to obtain viable reinsurance products covering a Medicare FFS 
population.
    We sought comment on these proposals and related considerations.
    Comment: Generally, a few commenters supported the concept of 
removing from the program ACOs with poor performance results. Many 
commenters expressed concerns about and opposed the proposal to monitor 
ACOs for poor financial performance and potentially terminate ACOs with 
2 performance years of significant losses (negative outside corridor).
    Response: We appreciate commenters' support for the need to monitor 
ACOs for patterns of poor financial performance and to permit CMS to 
impose remedial action and possibly terminate an ACO for poor financial 
performance. We summarize and address below the specific concerns of 
commenters who opposed our proposal.
    Comment: Some commenters explained that these provisions, if 
implemented, would provide CMS with too much discretion to terminate 
ACO participation in the program, and could further discourage ACOs 
participating in the Shared Savings Program as this would create 
additional uncertainty for participants and would also make it 
difficult to establish agreements with other organizations. Several 
commenters stated that the resulting loss of participation by ACOs 
could be disruptive to beneficiaries and providers. One commenter 
suggested that these disruptions would be harmful because termination 
of ACOs from the Shared Savings Program would limit the reach of ACO 
improvements in savings and quality and potentially slow progress in 
transitioning to value-based care.
    Response: In response to commenters' concerns about our potential 
use of this new policy in an overly broad way, we note that we would 
carefully consider the need to terminate an ACO for poor financial 
performance given the potential consequences of this action for the 
Shared Savings Program, the ACO, its ACO participants, ACO providers/
suppliers and beneficiaries, among others. Elsewhere in this section we 
describe additional factors we may take into consideration in making 
this determination, which we believe is responsive to the specific 
concerns that commenters raised, which we describe elsewhere in this 
section. Nonetheless, we believe the approach we proposed, and are 
finalizing, offers CMS a means to address ACOs that may continue in the 
program despite poor financial performance and as a result may provide 
little or no benefit to the Medicare program while taking advantage of 
the potential benefits of program participation, such as the ability to 
benefit from waivers of certain federal rules and requirements, receipt 
of program data and the opportunity to enter into certain contracting 
arrangements with ACO participants and ACO providers/suppliers, as well 
as the opportunity for eligible clinicians in the ACO to qualify for 
incentive payments under the Quality Payment Program as QPs. This 
behavior is not protective of the Trust Funds and also suggests that an 
ACO's approach may be ineffective at meeting the program's goals.
    We agree that termination of an ACO's participation from the Shared 
Savings Program can be potentially disruptive to ACO participants and 
ACO providers/suppliers, and Medicare FFS beneficiaries. Under the 
program's regulations, we require terminated ACOs to complete certain 
close-out procedures, as specified in Sec.  425.221(a), which include 
requirements that may mitigate the effects of termination on ACO 
participants, ACO providers/suppliers, and Medicare beneficiaries. 
Under the program's regulations, we require terminating ACOs to 
implement close-out procedures in the form and manner and by a deadline 
specified by CMS related to the following: (i) Notifying ACO 
participants of termination; (ii) complying with the program's record 
retention requirements; (iii) retention or destruction of CMS data 
according to federal requirements; (iv) meeting Shared Savings Program 
quality reporting requirements for a completed performance year which 
has implications for ensuring that eligible clinicians meet the MIPS 
requirements under the Quality Payment Program; and (v) directing 
beneficiaries to contact their primary care providers if, for example, 
termination of the ACO will result in discontinuation of certain care 
processes.
    We also note that Medicare FFS beneficiaries always retain their 
freedom to choose the providers and suppliers from which they seek 
care. The termination of an ACO would not prevent a beneficiary from 
choosing to continue receiving care from a provider or supplier that 
had been an ACO provider/supplier before the ACO's termination.
    Comment: Some commenters believe CMS does not need to terminate 
ACOs if all are forced to move to two-sided risk, viewing the proposed 
approach as unnecessary. One commenter explained that CMS' proposal to 
automatically advance ACOs to performance-based risk in the BASIC 
track's glide path would protect against ACOs that generate losses 
remaining in the Shared Savings Program just to take advantage of 
waivers and other provisions. As those ACOs are required to take on 
increasingly more risk, they would incur too many losses to remain in 
the program indefinitely. Some commenters suggested that the 
requirement for ACOs to participate under two-sided models will provide 
ACOs with incentives to leave the program if they were not able to 
generate savings. More generally, one commenter indicated that ACOs 
performing poorly drop out of the program voluntarily so poor financial 
performance is self-correcting.
    Response: We agree that the requirement for ACOs to participate 
under two-sided models within the redesign of the program established 
in this final rule should drive ACOs to improved program performance. 
We also agree that ACOs with poor financial performance, including ACOs 
that owe shared losses, will tend to voluntarily terminate from the 
program based on our experience to date with risk tracks. However, as 
we described in the August 2018 proposed rule (83 FR 41835 through 
41836), we remain concerned that some ACOs with poor financial 
performance will choose to remain in the program even after they have 
incurred shared losses. ACOs under two-sided models may find the 
advantages of continued participation outweigh the amount of shared 
losses owed. ACOs share in a portion of the losses, and lower levels of 
two-sided

[[Page 67917]]

risk may potentially be available to ACOs under the BASIC track. Poor 
performing ACOs may be encouraged to continue their participation 
because of the additional features available to eligible ACOs under 
performance-based risk, such as the opportunity for physicians and 
other practitioners participating in eligible two-sided model ACOs to 
furnish telehealth services under section 1899(l) of the Act, the 
availability of a SNF 3-day rule waiver, and the ability to offer 
incentive payments to beneficiaries under a CMS-approved beneficiary 
incentive program. ACOs with shared losses may also seek to continue 
their participation in Level E of the BASIC track or in the ENHANCED 
track to participate in an Advanced APM for purposes of the Quality 
Payment Program.
    Comment: As an alternative, some commenters suggested focusing the 
policy on ACOs with both poor financial performance and other program 
integrity concerns, but did not specifically identify the types of 
program integrity concerns that CMS should take into consideration.
    Response: We appreciate commenters' suggestion that we consider 
poor financial performance in combination with other program integrity 
concerns regarding the ACO. We do not believe we should limit our 
policy only to ACOs that have both financial performance and program 
integrity issues. We believe that poor performance is directly 
reflective of the ACO's ability to achieve the program's goals and that 
an ACO with no program integrity issues should be removed from the 
program if it is unable or unlikely to achieve the cost and quality 
goals of the program. We note that the existence of program integrity 
issues may already constitute separate grounds for termination.
    Comment: As another alternative approach, one commenter suggested 
that CMS should consider using a blended evaluation process, based on 
both spend outside the corridor and high cost utilization. The 
commenter explained that low revenue ACOs can demonstrate consistent 
reductions in utilization of high spend services, such as in inpatient, 
emergency room and SNF utilization, yet see the costs associated with 
that utilization increase.
    Response: We note that ACOs that are negative outside corridor tend 
to have corresponding high utilization. ACOs provide a holistic 
approach to lowering growth in Medicare FFS expenditures, and we have 
observed that successful ACOs address spending and utilization across 
the care continuum or in a majority of claim types. We therefore 
decline to adjust our approach to monitor and terminate for poor 
financial performance in certain utilization categories.
    The commenter noted that its concern was specific to low revenue 
ACOs' inability to control costs for inpatient, emergency room and SNF 
services. Elsewhere in this final rule we have explained our 
observation that low revenue ACOs tend to be more successful than high 
revenue ACOs in achieving savings, which suggests that the 
circumstances the commenter describes may not be a barrier to low 
revenue ACOs' success in the program. We also note that during the 
performance year we provide ACOs with program reports with expenditure 
and utilization data which support ACOs' monitoring of their financial 
performance trends, including by claims types, and may help ACOs 
respond to developing trends.
    Comment: One commenter suggested that CMS implement the financial 
monitoring proposal for performance years beginning before January 1, 
2019. Specifically, the commenter noted that CMS could use existing 
performance data for ACOs that are currently participating in the 
program.
    Response: We decline to further modify our approach to adopt the 
commenter's suggestion that we consider the performance of ACOs in 
current agreement periods during performance years prior to the 
applicability date of the policy we are finalizing.
    Comment: Some commenters suggested that CMS modify the proposed 
approach to allow ACOs additional years of poor performance before 
termination. The commenters suggested that CMS revise the policy to 
impose action after 3 or more performance years of poor financial 
performance. Commenters offered a variety of explanations for why the 
proposal does not give ACOs sufficient time to correct poor financial 
performance and show positive financial results, including the 
following.

    <bullet> Several commenters explained that ACOs will not have 
sufficient time to make and implement adjustments over 2 performance 
years due to the timing of financial reconciliation. Performance 
data for the prior year is not available until the summer of the 
current performance year. One commenter explained that this timing 
poses challenges for ACOs to affect performance for the year 
underway. One commenter suggested that CMS could assist ACOs in 
achieving shared savings or in lowering costs by making program data 
and results more transparent and timely so that ACOs can actively 
monitor their performance in real time.
    <bullet> Several commenters suggested that new ACOs, and ACOs 
that modify their ACO participant lists during the agreement period, 
face challenges as a result of learning curves and a lack of 
experience. According to these commenters, ACOs should be allowed 
sufficient time to implement necessary population health, care 
management, provider engagement, and data strategies to enhance 
beneficiary care and contain costs. One commenter suggested that 
ACOs need at least three years to develop the competencies for 
success. One commenter explained its belief that no ACOs would want 
to invest the millions of dollars required to set up and operate an 
ACO if they could be terminated from the program just 24 months 
later. This commenter suggested there would be sufficient risk to 
participants under the proposed redesigned program, and that the 
risk of being terminated this quickly could be too much for many 
ACOs to bear.
    <bullet> Other commenters more generally indicated that ACOs 
need additional time to show positive performance results, 
explaining that the program's results show ACOs perform better over 
time. One commenter, MedPAC, explained that if an ACO is improving 
the efficiency of care delivery, eventually its shared savings will 
outweigh its shared losses. Accordingly, one or two years of shared 
losses cannot be seen as a definitive indicator of performance given 
the small number of beneficiaries in most ACOs. Several commenters 
expressed concern that the proposed approach to potentially 
terminate ACOs after two years of poor financial performance, could 
result in termination of ACOs that may otherwise go on to achieve 
savings and make quality improvements for their patients if they are 
allowed to remain in the program.

    Response: We disagree with commenters' suggestions that we modify 
our approach to consider three or more years of poor financial 
performance prior to potential termination of an ACO from the program. 
We believe that such an approach would effectively constrain the policy 
to addressing ACOs with 3 consecutive years of poor financial 
performance, since results for performance year 3 would not be 
available until mid-way through performance year 4. If the 3 years of 
poor financial performance were not consecutive, the policy would only 
allow for limited scenarios in which we could remove poor performing 
ACOs. For example, under a policy that provides that ACOs would be 
terminated after 3 performance years of poor performance, if an ACO was 
negative outside corridor for performance year 1 and performance year 2 
and performance year 4, we would not pursue termination until mid-way 
through performance year 5 (when the results for the performance year 4 
become available). We believe such an approach could allow ACOs

[[Page 67918]]

with a pattern of poor performance to remain in the program similar to 
how poorer performing ACOs persist in the program currently.
    We disagree with the commenters' assertions that our proposal does 
not give ACOs sufficient time to identify and correct poor financial 
performance. ACOs have access to a variety of resources to assess their 
expenditure and utilization trends on an ongoing basis and to make 
adjustments over the course of the performance year. We provide ACOs 
with quarterly and annual expenditure and utilization reports, among 
other program reports (including historical benchmark reports, and 
aggregate reports with demographic data on the ACO's assigned 
beneficiary population) as well as tools that ACOs can use to track and 
estimate their performance. We believe ACOs receive data in a timely 
manner from CMS, including monthly beneficiary-identifiable claim and 
claim line feed files with Parts A, B, and D data, and have the ability 
to detect and respond to trends in a more timely fashion than 
commenters suggested, including before CMS has made a determination of 
poor financial performance.
    We disagree with the commenter that suggested that two performance 
years of shared losses is not a definitive indicator of poor 
performance. We have observed that ACOs with shared losses have greater 
difficulty in achieving shared savings within the same agreement 
period. As we described in the proposed rule and have restated in this 
final rule, our previous experience over a 5 performance year span 
suggests that the majority of ACOs whose first 2 performance years are 
negative outside corridor fail to achieve savings in subsequent years. 
Therefore, we believe 2 consecutive years of poor financial performance 
is a definitive indicator of the ACO's performance trends and 
sufficient to warrant compliance actions that could include 
termination. We acknowledge that our experience is based on 3-year 
agreements (or in the case of the program's initial entrants, agreement 
periods of 3 years and 9 months, or 3 years and 6 months, and four year 
agreements in the case of the few ACOs approved to use the deferred 
renewal option which we are discontinuing with this final rule) and 
that we are finalizing an approach that implements 5-year agreements. 
Therefore, we anticipate examining the effects of our financial 
performance monitoring policy in the context of performance trends over 
longer agreement periods. Further, as we state elsewhere in this 
section of this final rule, we will also consider improvement in 
performance in deciding whether to terminate an ACO for 2 years of poor 
financial performance. This is especially relevant to ACOs that are 
negative outside corridor in non-sequential performance years. If an 
ACO shows a pattern of improving financial performance, or fluctuating 
financial performance, it may be indicative of the ACO's ability to 
demonstrate consistent positive performance results in future 
performance years.
    Based on our experience with implementing the program, we disagree 
with the commenter's assertion that the proposed policy if finalized 
will discourage ACOs from investing in program participation, out of 
concern that the potential for return on investment to cover start-up 
and operating costs is outweighed by the risk of being terminated for 
non-compliance with program requirements. We acknowledge there is risk 
to establishing and operating an ACO and believe that this financial 
performance monitoring policy can provide an additional incentive for 
ACOs to quickly improve their performance. Since the start of the 
Shared Savings Program hundreds of ACOs have agreed to participate in 
the program under the program's current policies under which CMS 
monitors and takes compliance action, including termination, prior to 
the conclusion of 3-year agreement periods for ACOs that fail to meet 
program requirements. We note that we have terminated only a small 
number of ACOs for failure to meet program requirements. Notably, as we 
previously described in the background for this section, we terminate 
ACOs for failure to meet the quality performance standard over 2 
consecutive performance years according to Sec.  425.316(c). Therefore 
we do not believe that ACOs will be discouraged from forming or 
entering the program because of a financial performance monitoring 
policy that also requires accountability for meeting the program's goal 
of lowering growth in expenditures, and under which ACOs may be 
terminated for poor performance after 2 performance years.
    Comment: A few commenters suggested that the proposed policy should 
be implemented only as a criterion for determining an ACO's eligibility 
to renew its participation in or to re-enter the program. Several 
commenters suggested that ACOs should be protected from possible 
termination for poor financial performance for one full agreement 
period. These commenters suggested that ACOs that generate losses 
beyond their MLR by the end of their third performance year could be 
required to submit and implement a corrective action plan for their 
fourth performance year (of a 5-year agreement period). Then, as a 
condition of being approved for a second or subsequent agreement 
period, ACOs could be expected to meet quality standards and operate 
within the risk corridor (not generate savings below the MLR).
    Response: We decline to adopt the commenter's suggestions because, 
given 5-year agreement periods, we believe it would be more protective 
of the Trust Funds and Medicare FFS beneficiaries to allow CMS the 
flexibility to more quickly remove from the Shared Savings Program ACOs 
showing losses outside their corridor for two performance years. We 
note that we are finalizing in section II.A.5.c.(5) of this final rule, 
our proposal to consider an ACO's past financial performance in 
determining whether to approve a renewing ACO's or re-entering ACO's 
Shared Savings Program application.
    Comment: Several commenters suggest that if an ACO performs poorly 
in performance year 1, but performs well in performance year 2 (results 
for which would be available in performance year 3), then the ACO 
should be allowed to participate in performance year 4.
    Response: The commenters may have misunderstood the proposal. Under 
the proposed approach, we would not terminate such an ACO for a single 
year of poor performance. We note that performance results are 
typically made available to ACOs in the summer following the conclusion 
of the calendar year performance year. In the commenters' example, the 
soonest we could terminate the ACO would be after PY 3 results are 
available, which would occur more than halfway through PY 4. Under our 
proposal and this final rule, CMS retains discretion not to terminate 
an ACO after the second year of poor financial performance. In the 
commenters' example, depending on the circumstances, CMS could either 
impose additional remedial action in PY 4 or terminate the ACO in PY 4 
if the ACO was again negative outside corridor in PY 3. Under this 
approach, the ACO may be allowed to complete PY 4, and if further 
corrective action is taken the ACO may be allowed to continue its 
participation in PY 5.
    Comment: A few commenters suggested that CMS should not terminate 
an ACO for poor financial performance without considering factors that 
might affect an ACO's performance over its agreement period. One 
commenter suggested that for ACOs that have achieved significant 
success in the

[[Page 67919]]

past yet are struggling in the current performance year, CMS should not 
impose termination without considering whether the ACO's poor 
performance is due to factors such as changes in the assignment 
methodology and risk adjustment of the patient population. Other 
commenters suggested we consider the impact of changes to the ACO's 
participant list and changes in program policies during the agreement 
period.
    Several commenters suggested that CMS consider evidence of 
performance improvement over time before making a determination to 
terminate an ACO, but did not provide specific suggestions on how CMS 
should measure improvement.
    Response: We note that according to Sec.  425.212 an ACO is subject 
to all regulatory changes that become effective during the agreement 
period, with the exception of the following program areas, unless 
otherwise required by statute: (1) Eligibility requirements concerning 
the structure and governance of ACOs; and (2) calculation of sharing 
rate. We decline to create additional exceptions by not terminating 
ACOs for poor financial performance based on policy changes that become 
applicable within the ACO's agreement period. During an ACO's agreement 
period, we adjust the ACO's historical benchmark to address changes in 
assignment, such as a result of regulatory changes to the program's 
assignment methodology, and changes to the ACO's ACO participant list. 
These adjustments ensure that the ACO's historical benchmark 
expenditures remain comparable to performance year expenditures. 
Further, we note that our use of blended regional and national 
expenditure growth rates in updating the ACO's historical benchmark, as 
we are finalizing in section II.D. of this final rule, will help to 
ensure that the ACO's updated benchmark reflects the broader effect of 
changes to Medicare FFS payment policies that may be reflected in 
performance year expenditures. Additionally, we believe the 
applicability of the CMS-HCC risk adjustment methodology is not a 
factor that needs to be considered because our risk adjustment 
methodology annually renormalizes risk scores which helps to account 
for year to year changes in the risk adjustment model.
    Commenters did not provide specific suggestions on how we should 
measure performance improvement, but we agree that performance 
improvement could justify allowing an ACO to remain in the program 
after two years of poor financial performance. If the performance years 
in which the ACO is negative outside corridor are non-sequential, we 
anticipate considering whether the ACO generated savings or losses in 
the other performance years. For instance, we would be especially 
concerned by a pattern where an ACO generated losses outside corridor 
for non-sequential performance years and generated losses within 
corridor during the alternate year(s) especially if they missed the MLR 
by a small margin. This suggests a pattern of poor financial 
performance and the absence of corrective action to significantly 
improve performance to meet the program's goals. If the years in which 
the ACO is negative outside corridor are non-sequential, and the ACO 
showed a pattern of performance improvement, such as losses or savings 
within their MSR/MLR corridor, or sharing savings (positive outside 
corridor), during the alternate year(s), then we would consider this 
impact and the ACO's ability to continue a pattern of improved 
financial performance over time.
    Comment: Some commenters expressed concerns about the lack of 
predictability of the ACO's historical benchmark, noting that the 
values can increase or decrease each performance year. One commenter 
stated concern about the proposed approach to terminate ACOs if they 
exceed their benchmarks because the commenter believes that the 
program's benchmark methodology has been significantly flawed to date. 
This commenter explained that the construct of the benchmark is complex 
and many ACOs do not have the skill set or actuarial support to 
analyze, review and assess the complexities of benchmarking. One 
commenter stated that it cannot be determined that ACOs that fall 
outside of their negative corridor, are, in fact, losing the Medicare 
program money as benchmarks are not valid counterfactuals. One 
commenter suggested that CMS consider a standard that looks at the 
ACO's cost growth relative to national expenditure growth trends to 
demonstrate that the ACO is an outlier requiring corrective action. For 
example, the commenter suggested that CMS could monitor ACOs based on 
whether the ACO's expenditure trend is substantially higher than the 
national expenditure growth trend, such as 5 percentage points higher, 
and take pre-termination action in those cases.
    Response: ACO's historical benchmarks can fluctuate in value during 
an agreement period because of adjustments for ACO participant list 
changes, and because of annual risk adjustment and the benchmark 
update. These policies ensure the continued comparability of the 
historical benchmark to the ACO's performance year expenditures, for 
accuracy in determining shared savings and shared losses. We provide 
program reports, including preliminary and final historical benchmark 
reports, as well as annual and quarterly aggregate program reports on 
expenditure and utilization trends and demographic data on the ACO's 
assigned population, to support ACOs' participation in the program. We 
also educate ACOs on the use of quarterly program data to predict their 
financial performance.
    We disagree with the commenters who suggested that the program's 
historical benchmark methodology has significant flaws. We continue to 
believe that the ACO's historical benchmark is the most accurate 
measure for determining ACO financial performance. We also believe that 
the annual adjustment and update to the ACO's historical benchmark 
improves the accuracy of the benchmark calculations. The annual risk 
adjustment methodology adjusts the benchmark so that it is reflective 
of the health status of the ACO's assigned population. The annual 
update, as modified based on this final rule ensures that the benchmark 
reflects trends in both regional and national Medicare FFS expenditure 
growth with more weight on national trends for ACOs serving a larger 
percentage of beneficiaries in their region. Therefore, we decline the 
commenter's suggestion that we use an alternative approach to 
determining financial performance (and identifying poor performers) 
such as comparing the ACO's cost growth relative to national 
expenditure growth trends.
    Comment: Several commenters explained that an ACO with spending 
that is slightly higher than its benchmark should not be subject to 
remedial action or termination. The commenters described a number of 
reasons why spending for a performance year could be a few percentage 
points higher than a benchmark. For example, the beneficiary population 
could experience a worse than usual flu season, the hospital wage index 
in an ACO's area could increase relative to their benchmark years, the 
ACO's participant TINs could have joined an Innovation Center 
initiative that increases spending, or the ACO's eligible clinicians 
could have earned a MIPS bonus, which CMS includes as ACO expenditures.
    Response: We decline the commenters' suggestions to make exceptions 
to our approach for monitoring and terminating ACOs for poor financial 
performance by taking

[[Page 67920]]

into account various differences in expenditures and payment rates 
among providers and suppliers. Along similar lines, in earlier 
rulemaking, we have discussed our consideration of technical 
adjustments to benchmark and performance year expenditures (see, for 
example 80 FR 32796 through 32799). As explained in earlier rulemaking, 
we continue to believe that making extensive adjustments to remove the 
effect of all policy adjustments from benchmark and performance year 
expenditures, or allowing for expenditure adjustments on a case-by-case 
basis, would create an inaccurate and inconsistent picture of ACO 
patient population spending and may limit innovations in ACOs' redesign 
of care processes or cost reduction strategies.
    Further, we believe that the modifications we are finalizing in 
section II.D of this final rule, to apply factors based on regional FFS 
expenditures in establishing, adjusting and updating the ACO's 
historical benchmark beginning with an ACO's first agreement period 
(for agreement periods beginning on July 1, 2019, and in subsequent 
years) mitigate some of the commenters' concerns. In earlier 
rulemaking, we explained that by replacing the national average FFS 
expenditure trend and flat dollar update with trends observed for 
county level FFS assignable beneficiaries in each ACO's unique 
assignment-weighted regional service area, benchmark calculations will 
be better structured to account for exogenous trend factors particular 
to each ACO's region and the pool of potentially assignable 
beneficiaries therein (for example, higher trend due to a particularly 
acute flu season or an unusually large area wage index adjustment or 
change) (81 FR 38004). We believe that the revised approach to updating 
the benchmark, by blending regional and national expenditure growth 
rates, which we are finalizing in section II.D. of this final rule, 
will continue to protect against these concerns. The weight on the 
national component of the blended update factor is based on an ACO's 
penetration in its regional service area and the weight on the regional 
component is equal to one minus the national weight. Because most ACOs 
are not highly penetrated in their regional service areas, we believe 
that the blended update factor will still strongly reflect regional 
trends for the majority of ACOs.
    Comment: A few commenters suggested that CMS should take into 
consideration the impact of extreme and uncontrollable circumstances 
when monitoring ACOs for losses negative outside corridor and in taking 
related pre-termination actions. For example, one commenter suggested 
that ACOs that experienced an extreme and uncontrollable event during 
their agreement period should be allowed a waiver and/or extension of 
program requirements and/or deadlines when applicable. This commenter 
explained that by not providing such an option, some ACOs may be 
unfairly and prematurely terminated.
    Response: We appreciate the commenter's suggestion that we take 
into account the impact of extreme and uncontrollable circumstances 
when monitoring and terminating ACOs for poor financial performance. We 
decline at this time to adopt the commenter's suggestion to provide 
ACOs affected by extreme and uncontrollable circumstances with a waiver 
of or exceptions to program requirements we are finalizing to establish 
policies to monitor and terminate ACOs for poor financial performance.
    In the November 2018 final rule (83 FR 59968 through 59979), we 
finalized the extension of policies that we previously adopted for 
addressing the impact of extreme and uncontrollable circumstances on 
ACO financial and quality performance results for performance year 2017 
to performance year 2018 and subsequent years. Specifically, these 
policies address quality performance scoring for ACOs affected by 
extreme and uncontrollable circumstances and also provide for a 
reduction in the amount of shared losses owed by ACOs participating 
under a two-sided model for performance years affected by extreme and 
uncontrollable circumstances. We also explained our belief that under 
the approach of using regional factors in establishing and updating the 
benchmark, as described in section II.D of this final rule, it would 
not be necessary to make an additional adjustment to ACOs' historical 
benchmarks to account for expenditure variations related to extreme and 
uncontrollable circumstances (83 FR 59979).
    If we take pre-termination action against an ACO for poor financial 
performance, the ACO would have the opportunity to explain whether and 
how its financial performance was affected by extreme and 
uncontrollable circumstances and how those circumstances may also have 
affected its ability to take corrective action to improve its 
performance. We note that the pre-termination actions we could take in 
the case of poor financial performance are set forth in Sec.  425.216, 
which include issuance of a warning letter or a request for a 
corrective action plan. As described in Sec.  425.216(b), a corrective 
action plan must address what actions the ACO will take to ensure that 
the ACO, ACO participants, ACO providers/suppliers or other individuals 
or entities performing functions or services related to the ACO's 
activities or both correct any deficiencies and comply with all 
applicable Shared Savings Program requirements. ACOs that are required 
to submit a corrective action plan would have the opportunity to 
explain to CMS the particular circumstances that impacted their prior 
performance, and how they will improve their financial performance. For 
instance, an ACO that was affected by extreme and uncontrollable 
circumstances would have the opportunity to explain how these 
circumstances may have impacted the ACO's assigned beneficiary 
expenditures. This additional information may assist CMS in better 
understanding the circumstances that led to the ACO's poor financial 
performance and allow CMS to better determine appropriate pre-
termination options and evaluate the ACO's corrective actions. Nothing 
in our regulations would prohibit an ACO from offering the same 
information in response to a warning letter.
    We will continue to monitor the impact of extreme and 
uncontrollable circumstances on ACOs, particularly as we gain 
experience with the disaster-relief policies we have finalized for 
performance year 2017 and subsequent performance years. We will 
consider whether any changes to our policy for monitoring and 
terminating ACOs for poor financial performance may be necessary to 
account for the effects of extreme and uncontrollable circumstances. 
Any such changes would be made through notice and comment rulemaking.
    Comment: Some commenters point out there are interactions between 
the proposed approach for monitoring and terminating ACOs for poor 
financial performance, and the policy for allowing ACOs in a two-sided 
model to select their MSR/MLR threshold prior to entering performance-
based risk for the agreement period. These commenters expressed concern 
that the proposed approach to monitoring and terminating ACOs for poor 
financial performance could disproportionately affect ACOs that take on 
greater risk by electing a lower MSR/MLR. According to some commenters, 
CMS' proposed definition of negative outside corridor sets a very low 
bar, especially for ACOs in downside financial risk models where the 
ACO can select a MLR as low as 0 percent. Some commenters explained

[[Page 67921]]

that many ACOs view selection of the MSR/MLR in a two-sided model as a 
significant incentive to move into a performance-based risk track, but 
this proposal would create a double-edged sword whereby an ACO that 
wants to take on greater accountability through a lower MLR would be 
faced with the potential of being terminated from the program as a 
result of spending that exceeds its MLR. One commenter suggested that 
for ACOs in a two-sided model, CMS should use a variable MLR based on 
the number of the ACO's assigned beneficiaries (as used to determine 
the MSR under a one-sided model) for purposes of determining poor 
financial performance.
    Response: We acknowledge the commenters' concerns about the 
interactions between the existing policy of permitting ACOs under two-
sided models to elect a symmetrical MSR/MLR and our proposals with 
respect to monitoring and termination for poor financial performance. 
As discussed in section II.A.6.b. of this final rule, ACOs under a one-
sided model are subject to a variable MSR based on their number of 
assigned beneficiaries. ACOs in two-sided models may select a 
symmetrical MSR/MLR from the following options: Zero percent MSR/MLR; 
symmetrical MSR/MLR in a 0.5 percent increment between 0.5-2.0 percent; 
symmetrical MSR/MLR that varies based on the ACO's number of assigned 
beneficiaries (the same as the MSR that would apply in a one-sided 
model, and the MLR is equal to the negative MSR). We established the 
variable MSRs to provide a greater degree of protection from normal 
variation in expenditures for smaller ACOs. For ACOs that enter an 
agreement period under a two-sided model, this MSR/MLR selection is 
made at the time of application. For ACOs participating in the BASIC 
track's glide path, this election will be made during the application 
cycle preceding their first performance year in a two-sided model, 
generally during the calendar year before entry into risk. We believe 
that ACOs electing their MSR/MLR recognize the implications of their 
selection, including the potential that a low MSR/MLR will increase the 
risk of owing shared losses, as they are agreeing to be held 
accountable for the financial consequences of participation under this 
level of risk and reward. As a result, we believe they would also 
consider the potential impact that their selection may have upon their 
eligibility to continue in the program in the future. Accordingly, we 
decline the commenter's suggestion to apply a variable MSR/MLR based on 
the size of the ACO's assigned population instead of the fixed MSR/MLR 
selected by ACOs, in our approach to identifying ACOs with poor 
financial performance.
    We believe it is appropriate to use ACOs' actual financial 
performance results in determining whether ACOs are negative outside 
corridor and in monitoring and terminating ACOs for poor financial 
performance. In calculating an ACO's financial performance results, we 
use the MSR/MLR that is applicable to the ACO. For ACOs under a one-
sided model we apply a variable MSR based on the number of 
beneficiaries assigned to the ACO. For ACOs under a two-sided model we 
apply the ACO's selected MSR/MLR, which is either a symmetrical fixed 
MSR/MLR between zero percent and 2 percent (in increments of 0.5 
percent) or a symmetrical MSR/MLR that varies based on the number of 
beneficiaries assigned to the ACO. In section II.A.6.b.(3) of this 
final rule, we are finalizing an approach to modifying the MSR/MLR to 
address small population sizes for ACOs participating in two-sided 
models. Under this final policy, we will use a variable MSR/MLR when 
performing shared savings and shared losses calculations if an ACO's 
assigned beneficiary population falls below 5,000 for the performance 
year, regardless of whether the ACO selected a fixed or variable MSR/
MLR. This approach will provide further protection from shared losses 
for ACOs with small populations. However, we note that the ACOs to 
which we would apply this policy would be considered out of compliance 
with the program requirement to maintain a minimum of 5,000 assigned 
beneficiaries.
    Comment: Several commenters suggested that expanding CMS' authority 
to terminate ACOs from the program based on financial performance 
undermines the collaborative nature of this program and the positive 
results that ACOs generate.
    Response: We do not believe that establishing this regulatory 
flexibility to help ensure the integrity of the program undermines our 
commitment to maintaining a program that encourages and fosters the 
success of ACOs that are committed to achieving the program's goals.
    Comment: One commenter expressed concern that the proposed approach 
to monitoring and termination for poor financial performance could 
disadvantage rural providers.
    Response: We decline to make an exception for rural ACOs to the 
policy we are finalizing to monitor and terminate ACOs for poor 
financial performance. As we described in section II.A.5.b of this 
final rule, we believe that rural ACOs would tend to be among low 
revenue ACOs, which have demonstrated better financial performance in 
the Shared Savings Program compared to ACOs that includes hospitals 
(for example). Based on our experience with program performance results 
we do not believe that rural ACOs, such as those whose beneficiaries 
predominantly reside in non-metropolitan areas, would be 
disproportionately affected by a policy that monitors and terminates 
ACOs for poor financial performance, compared to ACOs whose 
beneficiaries predominantly reside in metropolitan areas.
    Comment: Several commenters suggested that CMS should create a 
direct channel for ACOs to report suspected fraud and abuse. These 
commenters stated that ACOs continuously monitor their expenditures. 
The commenters explained that ACOs are also monitoring services 
rendered by clinicians outside the ACO and keep an eye on 
reimbursements completely removed from their own financial interests 
other than to achieve shared savings. ACOs have a frontline ability and 
financial incentive to identify and report suspicious activity, yet 
ACOs have no direct access to CMS program integrity functions.
    Response: The program has several program and regulatory safeguards 
in place to encourage ACOs, ACO participants, and providers and 
suppliers to monitor and report allegations relating to fraud, waste, 
abuse, and overall program integrity. The Shared Savings Program makes 
referrals to CMS' Center for Program integrity (CPI) and/or the Office 
of the Inspector General (OIG) whenever an ACO, ACO participant, or 
provider/supplier raises an allegation of fraud, waste, or abuse.
    Anyone suspecting healthcare fraud, waste or abuse is encouraged to 
report it to CMS or the OIG. The OIG Hotline accepts tips and 
complaints from all sources about potential fraud, waste, abuse, and 
mismanagement in Department of Health and Human Services' programs (see 
https://oig.hhs.gov/FRAUD/REPORT-FRAUD/INDEX.ASP for instructions). 
Reporting methods are also specified by CMS' Center for Program 
Integrity (see https://www.cms.gov/About-CMS/Components/CPI/CPIReportingFraud.html for instructions). Additionally, concerns may be 
sent to the Shared Savings Program mailboxes, <a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="cf8e8c808faca2bce1a7a7bce1a8a0b9">[email protected]</a> for 
inquiries from external parties

[[Page 67922]]

including non-ACO entities, and <a href="/cdn-cgi/l/email-protection#54073c352631300735223d3a332704263b33263539143739277a3c3c277a333b22"><span class="__cf_email__" data-cfemail="22714a435047467143544b4c455172504d4550434f62414f510c4a4a510c454d54">[email protected]</span></a> for 
inquiries from current Shared Savings Program ACOs, and we will refer 
them to CPI and the OIG.
    Comment: Several commenters suggested that CMS develop a process 
that would allow an ACO to contest its termination for poor financial 
performance on the grounds that it was due to extenuating 
circumstances, or based on an error in CMS' calculations.
    Response: The reconsideration review process is specified in 
subpart I of the program regulations. We do not believe it is necessary 
to establish a separate appeals process (as suggested by commenters) 
for ACOs to contest termination based on poor financial performance. We 
note that the imposition of pre-termination actions is not appealable.
    Comment: One commenter suggested that CMS revisit the policy for 
monitoring and evaluation related to financial performance in future 
rulemaking as it becomes implemented and applicable to ACOs over time.
    Response: We appreciate the commenter's suggestion. As with other 
program policies, we may revisit this approach in future rulemaking 
based on lessons learned.
    Comment: Some commenters responded to CMS' concern that ACOs may 
seek to obtain reinsurance to help offset their liability for shared 
losses as a way of enabling their continued program participation while 
potentially undermining the program's goals.
    Several commenters urged that CMS should allow ACOs taking on 
performance-based risk to obtain and maintain reinsurance. They 
explained that ACOs need additional methods to repay losses. According 
to these commenters, reinsurance is an acceptable option for paying 
back losses associated with taking on risk, and is not an issue of 
``gaming'' the system. They explained that it is a prudent practice to 
have stop loss coverage or reinsurance to address unexpected risk, and 
this would support ACO participation in the ENHANCED track given the 
higher level of potential downward risk in this track.
    One commenter explained the importance of tools like reinsurance 
for helping ACOs manage financial risk. The commenter explained that 
shared losses is only one form of risk associated with beginning an 
ACO, another being the business risk associated with the financial 
investments in starting an ACO (including those that begin under a one-
sided model). Further, the commenter explained that providers must 
consider their full book of business, not just Medicare FFS, when 
determining the best way to protect against losses. The commenter 
suggested that CMS not limit providers' ability to insure against the 
closure of their practices.
    Several commenters agreed with the discussion in the preamble where 
we explained our belief that prohibiting ACOs from obtaining 
reinsurance would be overly restrictive. One commenter found it 
difficult to believe that prohibiting ACOs under two-sided models from 
purchasing reinsurance would ultimately benefit participating ACOs and 
the Medicare program. A few commenters believe that as more ACOs 
participate under two-sided risk, more ACOs will seek reinsurance or 
partnerships with health management firms to mitigate risk. Several 
commenters indicated that the involvement of reinsurance and management 
firms will also add to the administrative costs of the program, eroding 
a key cost advantage of the ACO model over Medicare Advantage, and also 
weakening upside incentives for ACOs because such firms take a cut of 
savings.
    Response: We appreciate commenters' consideration of our concerns 
about ACOs' use of reinsurance to offset their liability for shared 
losses as a way of enabling their continued program participation while 
undermining the program's goals. At this time we are not establishing 
new requirements to prohibit ACOs from obtaining reinsurance. As we 
note in section II.A.6.c. of this final rule we have also declined 
commenters' suggestions to reinstate reinsurance as a permissible form 
of repayment mechanism arrangement. We may revisit these issues in 
future rulemaking as we gain additional experience with program 
policies, and particularly as more ACOs participate under two-sided 
models, which we anticipate will be the result of this final rule.
    Final Action: Based on our consideration of the comments we 
received, we are finalizing our proposal with a modification to its 
applicability date. We proposed to apply this approach to monitor 
financial performance for performance years beginning in 2019, and in 
subsequent years. We did not receive comments addressing the timing of 
applicability of the proposed policy. Due to the timing of this final 
rule, we believe it is appropriate to modify our proposal to finalize 
the applicability of this approach to performance years beginning on 
July 1, 2019, and in subsequent performance years.
    We are modifying Sec.  425.316 to add paragraph (d) for monitoring 
ACO financial performance as follows: For performance years beginning 
on July 1, 2019 and subsequent performance years, CMS determines 
whether the Medicare Parts A and B FFS expenditures for the ACO's 
assigned beneficiaries for the performance year exceed the ACO's 
updated benchmark by an amount equal to or exceeding either the ACO's 
negative MSR under a one-sided model, or the ACO's MLR under a two-
sided model. If the Medicare Parts A and B FFS expenditures for the 
ACO's assigned beneficiaries for the performance year exceed the ACO's 
updated benchmark by an amount equal to or exceeding its negative MSR 
or MLR, CMS may take any of the pre-termination actions set forth in 
Sec.  425.216. If the Medicare Parts A and B FFS expenditures for the 
ACO's assigned beneficiaries for the performance year exceed the ACO's 
updated benchmark by an amount equal to or exceeding its negative MSR 
or MLR for another performance year of the agreement period, CMS may 
immediately or with advance notice terminate the ACO's participation 
agreement under Sec.  425.218. As we described in our responses to 
comments in this section of this final rule, we anticipate taking into 
account certain relevant factors, such as an ACO's improvement over 
time, before imposing remedial action or termination for poor financial 
performance.
6. Requirements for ACO Participation in Two-Sided Models
a. Overview
    In this section, we address requirements related to an ACO's 
participation in performance-based risk. In the August 2018 proposed 
rule, we proposed technical changes to the program's policies on 
election of the MSR/MLR for ACOs in the BASIC track's glide path, and 
to address the circumstance of ACOs in two-sided models that elected a 
fixed MSR/MLR that have fewer than 5,000 assigned beneficiaries for a 
performance year. We proposed changes to the repayment mechanism 
requirements to update these policies to address the new participation 
options included in this final rule, including the BASIC track's glide 
path under which participating ACOs must transition from a one-sided 
model to performance-based risk within a single agreement period. We 
proposed to add a provision that could lower the required repayment 
mechanism amount for BASIC track ACOs in Levels C, D, or E. In 
addition, we proposed to add

[[Page 67923]]

provisions to permit recalculation of the estimated amount of the 
repayment mechanism each performance year to account for changes in ACO 
participant composition, to specify requirements on the duration of 
repayment mechanism arrangements, to grant a renewing ACO (as defined 
in proposed Sec.  425.20) the flexibility to maintain a single, 
existing repayment mechanism arrangement to support its ability to 
repay shared losses in the new agreement period so long as it is 
sufficient to cover an increased repayment mechanism amount during the 
new agreement period (if applicable), and to establish requirements 
regarding the issuing institutions for a repayment mechanism 
arrangement. We also proposed new policies to hold ACOs participating 
in two-sided models accountable for sharing in losses when they 
terminate, or CMS terminates, their agreement before the end of a 
performance year, while also reducing the amount of advance notice 
required for early termination.
b. Election of MSR/MLR by ACOs
(1) Background
    As discussed in earlier rulemaking, the MSR and MLR protect against 
an ACO earning shared savings or being liable for shared losses when 
the change in expenditures represents normal, or random, variation 
rather than an actual change in performance (see 76 FR 67927 through 
67929; and 76 FR 67936 through 67937). The MSR and MLR are calculated 
as a percentage of the ACO's updated historical benchmark (see 
Sec. Sec.  425.604(b) and (c), 425.606(b), 425.610(b)).
    In the June 2015 final rule, we finalized an approach to offer 
Track 2 and Track 3 ACOs the opportunity to select the MSR/MLR that 
will apply for the duration of the ACO's 3-year agreement period from 
several symmetrical MSR/MLR options (see 80 FR 32769 through 32771, and 
80 FR 32779 through 32780; Sec. Sec.  425.606(b)(1)(ii) and 
425.610(b)(1)). We explained our belief that offering ACOs a choice of 
MSR/MLR will encourage ACOs to move to two-sided risk, and that ACOs 
are best positioned to determine the level of risk they are prepared to 
accept. For instance, ACOs that are more hesitant to enter a 
performance-based risk arrangement may choose a higher MSR/MLR, to have 
the protection of a higher threshold before the ACO would become liable 
to repay shared losses, thus mitigating downside risk, although the ACO 
would in turn have a higher threshold to meet before being eligible to 
receive shared savings. ACOs that are comfortable with a lower 
threshold of protection from risk of shared losses may select a lower 
MSR/MLR to benefit from a corresponding lower threshold for eligibility 
for shared savings. We also explained our belief that applying the same 
MSR/MLR methodology in both of the risk-based tracks reduces complexity 
for CMS' operations and establishes more equal footing between the risk 
models. ACOs applying to the Track 1+ Model were also allowed the same 
choice of MSR/MLR to be applied for the duration of the ACO's agreement 
period under the Model.
    ACOs applying to a two-sided model (currently, Track 2, Track 3 or 
the Track 1+ Model) may select from the following options:

    <bullet> Zero percent MSR/MLR.
    <bullet> Symmetrical MSR/MLR in a 0.5 percent increment between 
0.5-2.0 percent.
    <bullet> Symmetrical MSR/MLR that varies based on the ACO's 
number of assigned beneficiaries according to the methodology 
established under the one-sided model under Sec.  425.604(b). The 
MSR is the same as the MSR that would apply in the one-sided model, 
and the MLR is equal to the negative MSR.
(2) Timing and Selection of MSR/MLR
    In developing the policies for the August 2018 proposed rule, we 
considered what MSR/MLR options should be available for the BASIC 
track's glide path, as well as the timing of selection of the MSR/MLR 
for ACOs entering the glide path under a one-sided model and 
transitioning to a two-sided model during their agreement period under 
the BASIC track.
    We proposed that ACOs under the BASIC track would have the same 
MSR/MLR options as are currently available to ACOs under one-sided and 
two-sided models of the Shared Savings Program, as applicable to the 
model under which the ACO is participating along the BASIC track's 
glide path. We explained that we believe these thresholds remain 
important to protect against savings and losses resulting from random 
variation, although we described in section II.A.5.b.(3) of the 
proposed rule our consideration of an alternate approach that would 
lower the MSR for low revenue ACOs (83 FR 41819 through 41820). 
Further, we noted that providing the same MSR/MLR options for BASIC 
track ACOs under two-sided risk as ENHANCED track ACOs would be 
consistent with our current policy for Track 2 and Track 3 that allows 
ACOs to determine the level of risk they will accept while reducing 
complexity for CMS' operations and establishing more equal footing 
between the risk models.
    Specifically, we proposed that ACOs in a one-sided model of the 
BASIC track's glide path would have a variable MSR based on the ACO's 
number of assigned beneficiaries. We proposed to apply the same 
variable MSR methodology as is used under Sec.  425.604(b) for Track 1. 
We proposed to specify this variable MSR methodology in a proposed new 
section of the regulations at Sec.  425.605(b). We also proposed to 
specify in Sec.  425.605(b) the MSR/MLR options for ACOs under two-
sided models of the BASIC track, consistent with the previously 
described symmetrical MSR/MLR options currently available to ACOs in 
two-sided models of the Shared Savings Program and the Track 1+ Model 
(for example, as specified in Sec.  425.610(b)).
    Because we proposed to discontinue Track 1, we believed it would be 
necessary to update the provision governing the symmetrical MSR/MLR 
options for the ENHANCED track at Sec.  425.610(b), which currently 
references the variable MSR methodology under Track 1. We proposed to 
revise Sec.  425.610(b)(1)(iii) to reference the requirements at Sec.  
425.605(b)(1) for a variable MSR under the BASIC track's glide path 
rather than the variable MSR under Track 1. Because we also proposed to 
discontinue Track 2, concurrently with our proposal to discontinue 
Track 1, we did not believe it would be necessary to change the 
existing cross-reference in Sec.  425.606(b)(1)(ii)(C) to the variable 
MSR methodology under Track 1.
    As we explained in the August 2018 proposed rule (83 FR 41837), we 
continue to believe that an ACO should select its MSR/MLR before 
assuming performance-based risk, and this selection should apply for 
the duration of its agreement period under risk. We believe that a 
policy that allows more frequent selection of the MSR/MLR within an 
agreement period under two-sided risk (such as prior to the start of 
each performance year) could leave the program vulnerable to gaming. 
For example, ACOs could revise their MSR/MLR selections once they have 
experience under performance-based risk in their current agreement 
period to maximize shared savings or to avoid shared losses.
    However, in light of our proposal to require ACOs to move between a 
one-sided model (Level A or Level B) and a two-sided model (Level C, D, 
or E) during an agreement period in the BASIC track's glide path, we 
stated our belief that it would be appropriate to allow ACOs to make 
their MSR/MLR selection during the application cycle preceding their 
first performance year in

[[Page 67924]]

a two-sided model, generally during the calendar year before entry into 
risk. ACOs that enter the BASIC track's glide path under a one-sided 
model would still be inexperienced with performance-based risk, but 
they will have the opportunity to gain experience with the program, 
prior to making this selection. We noted that this approach would be 
another means for BASIC ACOs in the glide path to control their level 
of risk exposure.
    Therefore, we proposed to include a policy in the proposed new 
section of the regulations at Sec.  425.605(b)(2) to allow ACOs under 
the BASIC track's glide path in Level A or Level B to choose the MSR/
MLR to be applied before the start of their first performance year in a 
two-sided model. This selection would occur before the ACO enters Level 
C, D or E of the BASIC track's glide path, depending on whether the ACO 
is automatically transitioned to a two-sided model (Level C) or elects 
to more quickly transition to a two-sided model within the glide path 
(Level C, D, or E).
    In section II.A.5.b.(3) of the proposed rule we also described and 
sought comment on several approaches to allowing for potentially 
greater access to shared savings for low revenue ACOs compared to high 
revenue ACOs. We noted that such approaches would recognize the 
performance trends of low revenue ACOs based on performance results and 
the potential that low revenue ACOs would need additional capital, as a 
means of encouraging their continued participation in the program. One 
approach we considered would be to allow for a lower MSR during the 
one-sided model years (Level A and B) for low revenue ACOs in the BASIC 
track with at least 5,000 assigned beneficiaries for the performance 
year. For example, we considered a policy under which we would apply a 
MSR that is a fixed 1 percent. We also considered setting the MSR at a 
fixed 2 percent, or effectively removing the threshold by setting the 
MSR at zero percent. However, we would apply a variable MSR based on 
the ACO's number of assigned beneficiaries in the event the ACO's 
population falls below 5,000 assigned beneficiaries for the performance 
year, consistent with our proposal in section II.A.6.b of the proposed 
rule and as described below in section II.A.6.b.(3) of this final rule.
    We noted that a lower MSR (such as a fixed 1 percent) would reduce 
the threshold level of savings the ACO must generate to be eligible to 
share in savings. This would give low revenue ACOs greater confidence 
that they would be eligible to share in savings, once generated. We 
noted that this may be especially important for small ACOs which 
otherwise would have MSRs towards the higher end of the range (closer 
to 3.9 percent, for an ACO with at least 5,000 beneficiaries) for years 
in which the ACO participates under a one-sided model. However, we did 
not believe that a lower MSR would be needed to encourage participation 
by high revenue ACOs. For one, high revenue ACOs are likely to have 
larger numbers of assigned beneficiaries and therefore more likely to 
have lower MSRs (ranging from 3 percent to 2 percent, for ACOs with 
10,000 or more assigned beneficiaries). Further, we believed that their 
control over a significant percentage of total Medicare Parts A and B 
FFS expenditures for their assigned beneficiaries may provide a 
sufficient incentive for participation as they would have an 
opportunity to generate significant savings.
    In addition to allowing for a lower MSR for ACOs participating in a 
one-sided model under the BASIC track, we also considered another 
approach under which we would allow for a relatively higher final 
sharing rate under the first four levels of the BASIC track's glide 
path for low revenue ACOs. This approach is described further in 
section II.A.3.b of this final rule.
    Comment: Most commenters discussing the proposals related to timing 
and selection of the MSR/MLR agreed with allowing ACOs in a two-sided 
model to select their MLR/MSR, with close to half also explicitly 
expressing support for the proposed timing of the selection. Commenters 
frequently noted that they appreciated the flexibility these policies 
would provide. A few commenters stated this flexibility was important 
to ACOs that may want to set the MSR/MLR higher or lower depending on 
how conservative or aggressive their goals are with respect to avoiding 
shared losses or earning shared savings, respectively. One commenter 
supported allowing ACOs to choose from a range of MSR values, noting 
the importance of allowing organizations to assume levels of risk based 
on their own business decisions. Another commenter noted that 
continuing to allow ACOs in risk-bearing tracks to select their MSR/MLR 
provides ACOs with flexibility and autonomy that is critical to 
building confidence in accepting higher levels of risk. This commenter 
noted that the symmetrical nature of these rates will also help to 
protect the Medicare Trust Funds.
    One commenter commended CMS for what they described as providing 
the same options to ACOs in both one- and two-sided models. Another 
commenter noted that as the program develops it may become more 
apparent whether a fixed or variable MSR makes the most sense for CMS, 
ACOs, and beneficiaries, but recommended that CMS extend the choice of 
fixed and variable MSR/MLR options to all levels of the BASIC track, 
stating their belief that offering ACOs choices from the start of their 
participation in the program provides the best pathway for success. 
Several commenters advocated for using a fixed MSR of 2 or 2.5 percent 
for ACOs in one-sided models with at least 5,000 assigned 
beneficiaries, with some noting that this approach could provide a 
greater incentive for participation among low revenue ACOs and rural 
ACOs. A few of these commenters also supported using a variable MSR for 
ACOs in one-sided models that are below the 5,000 beneficiary 
threshold.
    One commenter asked that CMS reconsider its proposals related to 
the MSR and MLR in order to ``lessen restrictions and remove barriers 
to participation in risk sharing arrangements,'' but did not specify 
which aspects of the MSR/MLR proposals they believed to be restrictive 
or to create barriers.
    Several commenters noted that they disagree with CMS' current 
policy of requiring that an ACO's MSR/MLR selection apply for the 
duration of its agreement period under risk, which would also apply to 
ACOs in two-sided levels of the BASIC track under our proposal. Most of 
these commenters recommended allowing ACOs to change their selection at 
the start of each performance year. One commenter requested that ACOs 
be permitted to re-select their MSR/MLR level in the event that CMS 
modifies the financial conditions of a track during the agreement 
period.
    A few commenters noted that they disagreed with CMS' stated belief 
that allowing for annual selections could leave the program vulnerable 
to gaming. They believe instead that modifying this policy to permit 
annual selections would allow ACOs to continue to advance in operating 
under performance-based risk, grow competencies, and build 
understanding of the benchmarking methodology, which they view as 
essential to informing an ACO's MSR/MLR selection. They also noted that 
the assigned beneficiary populations of ACOs, and their associated risk 
profiles, can change significantly over time, affecting an ACO's 
previous MSR/MLR selection. These commenters also mentioned that other 
alternative payment models such as the Bundled

[[Page 67925]]

Payments for Care Improvement (BPCI) initiative allow their 
participants to change their risk thresholds more frequently.
    Response: We appreciate commenters' feedback on our proposals 
around the timing for selection of the MSR/MLR for ACOs participating 
in the proposed BASIC track. We agree with the commenters who noted 
that our proposal to allow ACOs to select their MSR/MLR prior to moving 
to a two-sided model within the glide path will provide flexibility for 
ACOs that will be moving into two-sided risk arrangements in the BASIC 
track, and we are finalizing this policy as proposed. We continue to 
believe that offering a choice of MSR/MLR for ACOs participating in 
two-sided models will encourage ACO participation in these models, and 
that ACOs are best positioned to determine the level of risk they are 
prepared to accept. We would like to clarify that our proposal did not 
extend the choice of an MSR/MLR to ACOs that are participating in the 
one-sided levels of the BASIC track; however, as we discuss elsewhere 
in this section, we did consider certain other options for allowing for 
a lower MSR for low revenue ACOs under a one-sided model. With regard 
to ACOs participating under a one-sided model within the BASIC track, 
we believe that the advantages afforded by a variable MSR that protects 
the Medicare Trust Funds from shared savings payments that are due to 
normal variation in expenditures, outweigh any suggested advantages of 
providing the option for these ACOs to select a fixed rate MSR. Under 
the policy that we are finalizing, ACOs participating in Levels A or B 
of the BASIC track will have an MSR based on their number of assigned 
beneficiaries and will have the opportunity to select their MSR/MLR 
during the application cycle preceding their first performance year in 
a two-sided model.
    We did not propose to change the requirement that the MSR/MLR 
selection apply for the duration of the agreement period under 
performance-based risk for ACOs participating in Track 2 or the 
ENHANCED track. For consistency, and because we still have concerns 
that allowing for an annual selection could lead to gaming, we believe 
that it is appropriate that this requirement extend to ACOs entering a 
two-sided level in the BASIC track. We would also like to clarify that, 
absent unusual circumstances, we would not seek to modify the financial 
terms of an ACO's track during an agreement period. Any such change 
could only be adopted through rulemaking and, per Sec.  425.212, any 
regulatory changes to the sharing rate, unless required by statute, do 
not apply to ACOs during an agreement period. We note, for example, 
that ACOs currently participating in Tracks 1 and 2 will be allowed to 
complete their existing agreement period under the financial conditions 
of their current track, even though these tracks will no longer be 
available as participation options for ACOs entering a new agreement 
period on or after July 1, 2019, pursuant to this final rule.
    Comment: A number of commenters supported a combination of a lower 
MSR and higher sharing rates for low revenue ACOs participating in the 
BASIC track and offered several different alternatives. Commenters 
explained that combining a lower MSR and higher final sharing rate was 
necessary to ensure there are sufficient and attainable incentives to 
support ACOs' efforts to improve quality and lower cost, to provide 
early returns on investments as well as predictability of savings and 
the financial support ACOs need to ensure successful participation, and 
to incentivize low revenue and physician[hyphen]led ACOs to participate 
in the redesigned participation options.
    Response: We appreciate the feedback provided by commenters on the 
approaches we considered to increase incentives for low revenue ACOs 
participating in the BASIC track. As discussed in section II.A.3.b. of 
this final rule, we are finalizing a 40 percent sharing rate for all 
one-sided model levels of the BASIC track's glide path and a 50 percent 
sharing rate for two-sided model levels in the BASIC track's glide 
path. Additionally, in section II.A.5.c of this final rule, we are 
finalizing an exception that will permit new legal entities determined 
to be low revenue ACOs that are inexperienced with performance-based 
risk Medicare ACO initiatives to participate for 3 performance years 
under a one-sided model within the BASIC track's glide path (or 4 
performance years in the case of ACOs entering an agreement period 
beginning on July 1, 2019) prior to being automatically advanced to 
Level E of the BASIC track for the remaining years of their agreement 
period. As we believe these policies, which represent modifications of 
our original proposals, will improve the incentives for participation 
by low revenue ACOs, we decline to adopt a lower MSR for low revenue 
ACOs participating in the one-sided model levels of the BASIC track at 
this time. Furthermore, as we noted earlier in this section and have 
discussed in prior rulemaking (see for example, 80 FR 32761), we 
continue to believe that the use of a variable MSR for ACOs in one-
sided models is appropriate in order to protect the Trust Funds from 
paying shared savings for savings that may result from random variation 
rather than from care coordination and quality improvement by the ACO.
    Final Action: After considering the comments received, we are 
finalizing the policies governing the MSR/MLR for ACOs in the BASIC 
track at Sec.  425.605(b), with a modification to include a new 
paragraph at Sec.  425.605(b)(2)(ii)(D) to provide that ACOs that elect 
the option to participate in a third year under a one-sided model based 
on the policy we are finalizing in section II.A.5.c of this final rule 
will select their MSR/MLR prior to transitioning to Level E. Under the 
final policies, ACOs in a one-sided model of the BASIC track's glide 
path will have a variable MSR based on the number of beneficiaries 
assigned to the ACO. The variable MSR will be determined using the same 
methodology that is currently used for Track 1. ACOs in a two-sided 
model of the BASIC track will be able to choose among the MSR/MLR 
options that are available to ACOs participating in Track 2 or the 
ENHANCED track. ACOs participating under Level A or B of the BASIC 
track's glide path will choose the MSR/MLR to be applied before the 
start of their first performance year in a two-sided model. This 
selection will occur before the ACO enters Level C, D or E of the BASIC 
track's glide path, depending on whether the ACO is automatically 
transitioned to a two-sided model (Level C or E) or elects to more 
quickly transition to a two-sided model within the glide path (Level C, 
D, or E), and will be in effect for the duration of the agreement 
period that the ACO is under two-sided risk. We are also finalizing as 
proposed the changes to Sec.  425.610(b)(1)(iii) to add a cross 
reference the new provision at Sec.  425.605(b)(2).
(3) Modifying the MSR/MLR To Address Small Population Sizes
    As discussed in the introduction to this section, the MSR and MLR 
protect against an ACO earning shared savings or being liable for 
shared losses when the change in expenditures represents normal, or 
random, variation rather than an actual change in performance. ACOs in 
two-sided risk models that have opted for a fixed MSR/MLR can choose a 
MSR/MLR of zero percent or a symmetrical MSR/MLR equal to 0.5 percent, 
1.0 percent, 1.5 percent, or 2.0 percent. As discussed elsewhere in 
this final rule, we proposed that ACOs in a two-sided model of the new 
BASIC

[[Page 67926]]

track would have the same options in selecting their MSR/MLR, including 
the option of a variable MSR/MLR based on the number of beneficiaries 
assigned to the ACO.
    Under the current regulations, for all ACOs in Track 1 and any ACO 
in a two-sided risk model that has elected a variable MSR/MLR, we 
determine the MSR and MLR (if applicable) for the performance year 
based on the number of beneficiaries assigned to the ACO for the 
performance year. For ACOs with at least 5,000 assigned beneficiaries 
in the performance year, the variable MSR can range from a high of 3.9 
percent (for ACOs with at least 5,000 assigned beneficiaries) to a low 
of 2.0 percent (for ACOs with approximately 60,000 or more assigned 
beneficiaries). See Sec.  425.604(b). For two-sided model ACOs under a 
variable MSR/MLR, the MLR is equal to the negative of the MSR.
    Under section 1899(b)(2)(D) of the Act, in order to be eligible to 
participate in the Shared Savings Program an ACO must have at least 
5,000 assigned beneficiaries. In earlier rulemaking, we established the 
requirements under Sec.  425.110 to address situations in which an ACO 
met the 5,000 assigned beneficiary requirement at the start of its 
agreement period, but later falls below 5,000 assigned beneficiaries 
during a performance year. We refer readers to the November 2011 and 
June 2015 final rules and the CY 2017 PFS final rule for a discussion 
of the relevant background and related considerations (see 76 FR 67807 
and 67808, 67959; 80 FR 32705 through 32707; 81 FR 80515 and 80516). 
CMS deems an ACO to have initially satisfied the requirement to have at 
least 5,000 assigned beneficiaries if 5,000 or more beneficiaries are 
historically assigned to the ACO participants in each of the 3 
benchmark years, as calculated using the program's assignment 
methodology (Sec.  425.110(a)). CMS initially makes this assessment at 
the time of an ACO's application to the program. As specified in Sec.  
425.110(b), if at any time during the performance year, an ACO's 
assigned population falls below 5,000, the ACO may be subject to the 
pre-termination actions described in Sec.  425.216 and termination of 
the participation agreement by CMS under Sec.  425.218. As a pre-
termination action, CMS may require the ACO to submit a corrective 
action plan (CAP) to CMS for approval (Sec.  425.216). While under a 
CAP for having an assigned population below 5,000 assigned 
beneficiaries, an ACO remains eligible for shared savings and liable 
for shared losses (Sec.  425.110(b)(1)). If the ACO's assigned 
population is not at least 5,000 by the end of the performance year 
specified by CMS in its request for a CAP, CMS terminates the ACO's 
participation agreement and the ACO is not eligible to share in savings 
for that performance year (Sec.  425.110(b)(2)).
    As specified in Sec.  425.1110(b)(1), if an ACO's performance year 
assigned beneficiary population falls below 5,000, the ACO remains 
eligible for shared savings/shared losses, but the following policies 
apply with respect to the ACO's MSR/MLR: (1) For ACOs subject to a 
variable MSR and MLR (if applicable), the MSR and MLR (if applicable) 
will be set at a level consistent with the number of assigned 
beneficiaries; (2) For ACOs with a fixed MSR/MLR, the MSR/MLR will 
remain fixed at the level consistent with the choice of MSR and MLR 
that the ACO made at the start of the agreement period.
    To implement the requirement for the variable MSR and MLR (if 
applicable) to be set at a level consistent with the number of assigned 
beneficiaries, the CMS Office of the Actuary (OACT) calculates the MSR 
ranges for populations smaller than 5,000 assigned beneficiaries. The 
following examples are based on our operational experience: If an ACO's 
assigned beneficiary population drops to 3,000, the MSR would be set at 
5 percent; if the population falls to 1,000 or 500, the MSR would 
correspondingly rise to 8.7 percent or 12.2 percent, respectively. 
These sharp increases in the MSR reflect the greater random variation 
that can occur when expenditures are calculated across a small number 
of assigned beneficiaries.
    In the August 2018 proposed rule (83 FR 41838), we noted that to 
date, the number of ACOs that have fallen below the 5,000-beneficiary 
threshold for a performance year has been relatively small. Among 432 
ACOs that were reconciled in PY 2016, there were 12 ACOs with fewer 
than 5,000 assigned beneficiaries. In PY 2015 there were 15 (out of 392 
ACOs) below the threshold and in PY 2014 there were 14 (out of 333 
ACOs). While the majority of these ACOs had between 4,000 and 5,000 
beneficiaries, we observed the performance year population fall as low 
as 513 for one ACO. Among the 472 ACOs that were subject to financial 
reconciliation for performance year 2017, over 20 ACOs (4.2 percent) 
fell below 5,000 assigned beneficiaries for the performance year, with 
three ACOs with under 1,000 assigned beneficiaries.
    Consistent with overall program participation trends, most ACOs 
that fell below the 5,000-beneficiary threshold in performance year 
2017 and in prior performance years were participating in Track 1. 
These ACOs have thus automatically been subject to a variable MSR. With 
increased participation in performance-based risk models, however, we 
anticipate an increased likelihood of observing ACOs that have a fixed 
MSR/MLR of plus or minus 2 percent or less falling below the 5,000-
beneficiary threshold.
    Indeed, program data have demonstrated the popularity of the fixed 
MSR/MLR among ACOs in two-sided models. In PY 2016, the first year that 
ACOs in two-sided models were allowed to choose their MSR/MLR, 21 of 22 
eligible ACOs selected one of the fixed options. Among the 42 Track 2 
and Track 3 ACOs participating in PY 2017, 38 selected a MSR/MLR that 
does not vary with the ACO's number of assigned beneficiaries, 
including 11 that are subject to a MSR or MLR of zero percent. Among 
101 ACOs participating in two-sided models in PY 2018, 80 are subject 
to one of the fixed options, including 18 with a MSR and MLR of zero 
percent.
    In the August 2018 proposed rule, we indicated that while we 
continue to believe that ACOs operating under performance-based risk 
models should have flexibility in determining their exposure to risk 
through the MSR/MLR selection, we are concerned about the potential for 
rewarding ACOs with a fixed MSR/MLR that are unable to maintain a 
minimum population of 5,000 beneficiaries through the payment of shared 
savings for expenditure variation that is likely the result of normal 
expenditure fluctuations, rather than the performance of the ACO. If 
the ACO's minimum population falls below 5,000, the ACO is no longer in 
compliance with program requirements. The reduction in the size of the 
ACO's assigned beneficiary population would also raise concerns that 
any shared savings payments made to the ACO would not reward true cost 
savings, but instead would pay for normal expenditure fluctuations. We 
noted, however, that an ACO under performance-based risk potentially 
would be at greater risk of being liable for shared losses, also 
stemming from such normal expenditure variation. If an ACO's assigned 
population falls below the minimum requirement of 5,000 beneficiaries, 
a solution to improve the confidence that shared savings and shared 
losses do not represent normal variation, but meaningful changes in 
expenditures, would be to apply a symmetrical MSR/MLR that varies based 
on the number of beneficiaries assigned to the ACO.
    The values for the variable MSR are shown in Table 9. As previously

[[Page 67927]]

described, the MLR is equal to the negative MSR. In this table, the MSR 
ranges for population sizes varying between from 5,000 to over 60,000 
assigned beneficiaries are consistent with the current approach to 
determining a variable MSR based on the size of the ACO's population 
(see Sec.  425.604(b)), and the corresponding variable MLR. We have 
also added new values, calculated by the CMS OACT, for population sizes 
varying from one to 4,999, as shown in Table 9. For ACOs with 
populations between 500-4,999 beneficiaries, the MSR would range 
between 12.2 percent (for ACOs with 500 assigned beneficiaries) and 3.9 
percent (for ACOs with 4,999 assigned beneficiaries). For ACOs with 
populations of 499 assigned beneficiaries or fewer, we would calculate 
the MSR to be equal to or greater than 12.2 percent, with the MSR value 
increasing as the ACO's assigned population decreases.
[GRAPHIC] [TIFF OMITTED] TR31DE18.013

    Therefore, we proposed to modify Sec.  425.110(b) to provide that 
we will use a variable MSR/MLR when performing shared savings and 
shared losses calculations if an ACO's assigned beneficiary population 
falls below 5,000 for the performance year, regardless of whether the 
ACO selected a fixed or variable MSR/MLR. We proposed to use this 
approach beginning with performance years starting in 2019. The 
variable MSR/MLR would be determined using the same approach based on 
number of assigned beneficiaries that is currently used for two-sided 
model ACOs that have selected the variable option. If the ACO's 
assigned beneficiary population increases to 5,000 or more for 
subsequent performance years in the agreement period, the MSR/MLR would 
revert to the fixed level selected by the ACO at the start of the 
agreement period (or before moving to risk for ACOs on the BASIC 
track's glide path), if applicable. While we believed this proposal 
would have a fairly limited reach in terms of number of ACOs impacted, 
we stated our belief that it is nonetheless important for protecting 
the integrity of the Trust Funds and better ensuring that the program 
is rewarding or penalizing ACOs for actual performance. We also noted 
that the policy, if finalized, would make it more difficult for an ACO 
under performance-based risk that falls below the 5,000-beneficiary 
threshold to earn shared savings, but would also provide greater 
protection against owing shared losses.
    We also proposed to revise the regulations at Sec.  425.110 to 
reorganize the provisions in paragraph (b), so that all current and 
proposed policies for determining the MSR and MLR would apply to all 
ACOs whose population falls below the 5,000-beneficiary threshold and 
that are reconciled for shared savings or shared losses, as opposed to 
being limited to ACOs under a CAP, as provided in the existing 
provision at Sec.  425.110(b)(1). Specifically, we proposed to move the 
current provisions on the determination of the MSR/MLR at paragraphs 
(b)(1)(i) and (ii) to a new provision at paragraph (b)(3) where we 
would also distinguish between the policies applicable to determining 
the MSR/MLR for performance years starting before January 1, 2019, and 
those that we proposed to apply for performance years starting in 2019 
and subsequent years.
    We proposed to specify the additional ranges for the MSR (when the 
ACO's population falls below 5,000 assigned beneficiaries) through 
revisions to the table at Sec.  425.604(b), for use in determining an 
ACO's eligibility for shared savings for a performance year starting on 
January 1, 2019, and any remaining years of the current agreement 
period for ACOs under Track 1. We noted that the proposed ranges are 
consistent with the program's

[[Page 67928]]

current policy for setting the MSR and MLR (in the event a two-sided 
model ACO elected the variable MSR/MLR) when the population falls below 
5,000 assigned beneficiaries, and therefore similar ranges would be 
applied in determining the variable MSR/MLR for performance year 2017 
and 2018. These ranges in Sec.  425.604(b) are cross-referenced in the 
regulations for Track 2 at Sec.  425.606(b)(1)(ii)(C) and therefore 
would also apply to Track 2 ACOs if their population falls below 5,000 
assigned beneficiaries. Further, as discussed in section II.A.6.b.(2). 
of this final rule, we proposed to specify under a new section of the 
regulations at Sec.  425.605(b)(1) the range of MSR values that would 
apply under a one-sided model of the BASIC track's glide path, which 
would also be used in determining the variable MSR/MLR for ACOs 
participating in two-sided models under the BASIC track and ENHANCED 
track. We sought comment on these proposals and specifically on the 
proposed MSR ranges for ACOs with fewer than 5,000 assigned 
beneficiaries, including the application of a MSR/MLR in excess of 12 
percent, in the case of ACOs that have failed to meet the requirement 
to maintain a population of at least 5,000 assigned beneficiaries and 
have very small population sizes. In particular, we sought commenters' 
feedback on whether the proposed approach described in this section 
could improve accountability of ACOs.
    We also noted that the requirement of section 1899(b)(2)(D) of the 
Act, for an ACO to have at least 5,000 assigned beneficiaries, would 
continue to apply. The additional consequences for ACOs with fewer than 
5,000 assigned beneficiaries, as specified in Sec.  425.110(b)(1) and 
(2) would also continue to apply. Under Sec.  425.110(b)(2), ACOs are 
not eligible to share savings for a performance year in which they are 
terminated for noncompliance with the requirement to maintain a 
population of at least 5,000 assigned beneficiaries. As discussed in 
section II.A.6.d. of this final rule, in the August 2018 proposed rule, 
we also proposed to revise our regulations governing the payment 
consequences of early termination to include policies applicable to 
involuntarily terminated ACOs. Under this proposed approach, two-sided 
model ACOs would be liable for a pro-rated share of any shared losses 
determined for the performance year during which a termination under 
Sec.  425.110(b)(2) becomes effective.
    Comment: One commenter noted that CMS established the original MSR/
MLR rates at a desired confidence level of 90 percent but, based on 
their own analysis, they believe that CMS miscalculated and created 
thresholds that were closer to 75 percent, meaning many ACOs receive 
shared savings payments or repay losses based on random chance. The 
commenter recommended that CMS consider widening the MSR and MLR 
thresholds, such as by using a confidence level of 99 percent, to 
protect ACOs from paying random losses and CMS from sharing random 
savings.
    In contrast, a few other commenters suggested that the current 
range for variable MSRs is too high. One commenter suggested that with 
a floor of 2 percent for ACOs with 60,000 or more assigned 
beneficiaries and higher values for smaller ACOs, the current range of 
MSR values disincentivizes small ACOs from participating in the 
program. Another commenter asked CMS to consider reducing the variable 
MSR to a range of 1 percent to 2.9 percent. They noted that when the 
MSR is too high it is challenging for ACOs to be eligible for shared 
savings and there is a strong disincentive for ACOs to continue in the 
program. They believed that the proposed changes to the benchmarking 
methodology would reduce volatility and improve accuracy of benchmarks 
and that the range of the MSR should be reduced to reflect this.
    Response: We appreciate commenters' feedback on the range of values 
used to determine the variable MSR. We believe that there are tradeoffs 
in setting the MSR range. We are concerned that widening the range 
based on a 99 percent confidence level, while protecting the Trust 
Funds from paying for savings and protecting risk-bearing ACOs from 
repaying losses due to normal variation, would prevent the payment of 
savings (or collection of losses) in too many cases where savings or 
losses were not a result of normal variation. We also believe that 
imposing more stringent thresholds before ACOs are eligible to earn 
shared savings would be a deterrent to participation. At the same time, 
we are also unwilling to lower the range of values used to determine 
the variable MSR for ACOs in a one-sided risk model. While this would, 
as commenters suggest, likely incentivize participation, we are 
concerned that lowering the range would not provide adequate protection 
to the Medicare Trust Funds.
    Final Action: We did not receive any comments on our proposal to 
use a variable MSR/MLR when performing shared savings and shared losses 
calculations if the assigned beneficiary population for an ACO 
participating under a two-sided model falls below 5,000 for the 
performance year regardless of whether the ACO selected a fixed or 
variable MSR/MLR. We are finalizing this policy as proposed through 
revisions to Sec.  425.110(b), but are revising the applicability date, 
such that the new policy will apply to performance years beginning on 
or after July 1, 2019, rather than January 1, 2019, in order to ensure 
that this change applies only prospectively. We are also making minor 
revisions to paragraph (b)(1) for improved clarity and consistency.
    We are also finalizing our proposals to specify the additional 
ranges for the MSR (when the ACO's population falls below 5,000 
assigned beneficiaries) through revisions to the table at Sec.  
425.604(b) and the addition of a new section of the regulations at 
Sec.  425.605(b)(1) that includes the range of MSR values that will 
apply under the one-sided model of the BASIC track's glide path and 
will also be used in determining the variable MSR/MLR for ACOs 
participating in two-sided models under the BASIC track and ENHANCED 
track.
c. ACO Repayment Mechanisms
(1) Background
    We discussed in earlier rulemaking the requirement for ACOs 
applying to enter a two-sided model to demonstrate they have 
established an adequate repayment mechanism to provide CMS assurance of 
their ability to repay shared losses for which they may be liable upon 
reconciliation for each performance year.\18\ The requirements for an 
ACO to establish and maintain an adequate repayment mechanism are 
described in Sec.  425.204(f), and we have provided additional program 
guidance on repayment mechanism arrangements.\19\ Section 425.204(f) 
addresses various requirements for repayment mechanism arrangements: 
The nature of the repayment mechanism; when documentation of the 
repayment mechanism must be submitted to CMS; the amount of the 
repayment mechanism; replenishment of the repayment mechanism funds 
after

[[Page 67929]]

their use; and the duration of the repayment mechanism arrangement.
---------------------------------------------------------------------------

    \18\ See 76 FR 67937 through 67940 (establishing the requirement 
for Track 2 ACOs). See also 80 FR 32781 through 32785 (adopting the 
same general requirements for Track 3 ACOs with respect to the 
repayment mechanism and discussing modifications to reduce burden of 
the repayment requirements on ACOs).
    \19\ Medicare Shared Savings Program & Medicare ACO Track 1+ 
Model, Repayment Mechanism Arrangements, Guidance Document (July 
2017, version #6), available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/Repayment-Mechanism-Guidance.pdf (herein Repayment Mechanism 
Arrangements Guidance).
---------------------------------------------------------------------------

    Consistent with the requirements set forth in Sec.  425.204(f)(2), 
in establishing a repayment mechanism for participation in a two-sided 
model of the Shared Savings Program, ACOs must select from one or more 
of the following three types of repayment arrangements: Funds placed in 
escrow; a line of credit as evidenced by a letter of credit that the 
Medicare program could draw upon; or a surety bond. Currently, our 
regulations do not specify any requirements regarding the institutions 
that may administer an escrow account or issue a line of credit or 
surety bond. Our regulations require an ACO to submit documentation of 
its repayment mechanism arrangement during the application or 
participation agreement renewal process and upon request thereafter.
    Under our existing regulations, a repayment mechanism arrangement 
must be adequate to repay at least the minimum dollar amount specified 
by CMS, which is determined based on an estimation methodology that 
uses historical Medicare Parts A and B FFS expenditures for the ACO's 
assigned population. For Track 2 and Track 3 ACOs, the repayment 
mechanism must be equal to at least 1 percent of the total per capita 
Medicare Parts A and B FFS expenditures for the ACO's assigned 
beneficiaries, as determined based on expenditures used to establish 
the ACO's benchmark for the applicable agreement period, as estimated 
by CMS at the time of application or participation agreement renewal 
(see Sec.  425.204(f)(1)(ii), see also Repayment Mechanism Arrangements 
Guidance). In the Repayment Mechanism Arrangements Guidance, we 
describe in detail our approach to estimating the repayment mechanism 
amount for Track 2 and Track 3 ACOs and our experience with the 
magnitude of the dollar amounts.
    Program stakeholders have continued to identify the repayment 
mechanism requirement as a potential barrier for some ACOs to enter 
into performance-based risk tracks, particularly small, physician-only 
and rural ACOs that may lack access to the capital that is needed to 
establish a repayment mechanism with a large dollar amount. We revised 
the Track 1+ Model design in July 2017 (See Track 1+ Model Fact Sheet 
(Updated July 2017)), to allow for potentially lower repayment 
mechanism amounts for participating ACOs under a revenue-based loss 
sharing limit (that is, ACOs that do not include an ACO participant 
that is either (i) an IPPS hospital, cancer center, or rural hospital 
with more than 100 beds; or (ii) an ACO participant that is owned or 
operated by such a hospital or by an organization that owns or operates 
such a hospital). This policy provides greater consistency between the 
repayment mechanism amount and the level of risk assumed by revenue-
based or benchmark-based ACOs and helps alleviate the burden of 
securing a higher repayment mechanism amount based on the ACO's 
benchmark expenditures, as required for Track 2 and Track 3 ACOs. We 
believed this approach would be appropriate for this subset of Track 1+ 
Model ACOs because they are generally at risk for repaying a lower 
amount of shared losses than other ACOs that are subject to a 
benchmark-based loss sharing limit (that is, ACOs that include the 
types of ACO participants previously identified in this final rule). 
Therefore, under the Track 1+ Model, a bifurcated approach is used to 
determine the estimated amount of an ACO's repayment mechanism for 
consistency with the bifurcated approach to determining the loss 
sharing limit under the Track 1+ Model. For Track 1+ Model ACOs, CMS 
estimates the amount of the ACO's repayment mechanism as follows:

    <bullet> ACOs subject to the benchmark-based loss sharing limit: 
The repayment mechanism amount is 1 percent of the total per capita 
Medicare Parts A and B FFS expenditures for the ACO's assigned 
beneficiaries, as determined based on expenditures used to establish 
the ACO's benchmark for the applicable agreement period.
    <bullet> ACOs subject to the revenue-based loss sharing limit: 
The repayment mechanism amount is the lesser of (1) 2 percent of the 
ACO participants' total Medicare Parts A and B FFS revenue, or (2) 1 
percent of the total per capita Medicare Parts A and B FFS 
expenditures for the ACO's assigned beneficiaries, as determined 
based on expenditures used to establish the ACO's benchmark.

    Under Sec.  425.204(f)(3), an ACO must replenish the amount of 
funds available through the repayment mechanism within 90 days after 
the repayment mechanism has been used to repay any portion of shared 
losses owed to CMS. In addition, our regulations require a repayment 
mechanism arrangement to remain in effect for a sufficient period of 
time after the conclusion of the agreement period to permit CMS to 
calculate and to collect the amount of shared losses owed by the ACO. 
Under our current Repayment Mechanism Arrangements Guidance, this 
standard would be satisfied by an arrangement that terminates 24 months 
following the end of the agreement period.
(2) Repayment Mechanism Amounts
    As previously noted, an ACO that is seeking to participate in a 
two-sided model must submit for CMS approval documentation supporting 
the adequacy of a mechanism for repaying shared losses, including 
demonstrating that the value of the arrangement is at least the minimum 
amount specified by CMS. In the August 2018 proposed rule, we proposed 
to modify Sec.  425.204(f) to address concerns regarding the amount of 
the repayment mechanism, to specify the data used by CMS to determine 
the repayment mechanism amount, and to permit CMS to specify a new 
repayment mechanism amount annually based on changes in ACO 
participants.
    In general, we believe that, like other ACOs participating in two-
sided risk tracks, ACOs applying to participate in the BASIC track 
under performance-based risk should be required to provide CMS 
assurance of their ability to repay shared losses by establishing an 
adequate repayment mechanism. Consistent with the approach used under 
the Track 1+ Model, we believed the amount of the repayment mechanism 
should be potentially lower for BASIC track ACOs compared to the 
repayment mechanism amounts required for ACOs in Track 2 or the 
ENHANCED track. We proposed to calculate a revenue-based repayment 
mechanism amount and a benchmark-based repayment mechanism amount for 
each BASIC track ACO and require the ACO to obtain a repayment 
mechanism for the lesser of the two amounts described previously. We 
believed this aligned with our proposed approach for determining the 
loss sharing limit for ACOs participating in the BASIC track, described 
in section II.A.3.b. of this final rule. In addition, we believed this 
approach would balance concerns about the ability of ACOs to take on 
performance-based risk and repay any shared losses for which they may 
be liable with concerns about the burden imposed on ACOs seeking to 
enter and continue their participation in the BASIC track.
    Previously, we have used historical data to calculate repayment 
mechanism amounts, typically using the same reference year to calculate 
the estimates consistently for all applicants to a two-sided model. As 
a basis for the estimate, we have typically used assignment and 
expenditure data from the most recent prior year for which 12 months of 
data are available, which tends to be benchmark year 2 for ACOs 
applying to enter the program or renew their participation agreement 
(for example, calendar year 2016 data for ACOs

[[Page 67930]]

applying to enter participation agreements beginning January 1, 2018). 
The Repayment Mechanism Arrangements Guidance includes a detailed 
description of how we have previously estimated 1 percent of the total 
per capita Medicare Parts A and B FFS expenditures for an ACO's 
assigned beneficiaries based on the expenditures used to establish the 
ACO's benchmark. To continue calculating the estimates with 
expenditures used to calculate the benchmark, we would need to use 
different sets of historical data for ACOs applying to enter or renew 
an agreement and those transitioning to a performance-based risk track. 
That is because ACOs applying to start a new agreement period under the 
program and ACOs transitioning to risk within different years of their 
current agreement period will have different benchmark years. To avoid 
undue operational burden, we proposed in the August 2018 proposed rule 
to use the most recent calendar year, for which 12 months of data is 
available to calculate repayment mechanism estimates for all ACOs 
applying to enter, or transitioning to, performance-based risk for a 
particular performance year. We believe this approach to using more 
recent historical data to estimate the repayment mechanism amount would 
more accurately approximate the level of losses for which the ACO could 
be liable regardless of whether the ACO is subject to a benchmark-based 
or revenue-based loss sharing limit.
    Therefore, we proposed to amend Sec.  425.204(f)(4) to specify the 
methodologies and data used in calculating the repayment mechanism 
amounts for BASIC track, Track 2, and ENHANCED track ACOs. For an ACO 
in Track 2 or the ENHANCED track, we proposed that the repayment 
mechanism amount must be equal to at least 1 percent of the total per 
capita Medicare Parts A and B FFS expenditures for the ACO's assigned 
beneficiaries, based on expenditures for the most recent calendar year 
for which 12 months of data are available. For a BASIC track ACO, we 
proposed that the repayment mechanism amount must be equal to the 
lesser of (i) 1 percent of the total per capita Medicare Parts A and B 
FFS expenditures for its assigned beneficiaries, based on expenditures 
for the most recent calendar year for which 12 months of data are 
available; or (ii) 2 percent of the total Medicare Parts A and B FFS 
revenue of its ACO participants, based on revenue for the most recent 
calendar year for which 12 months of data are available. For ACOs with 
a participant agreement start date of July 1, 2019, we also proposed to 
calculate the repayment mechanism amount using expenditure data from 
the most recent calendar year for which 12 months of data are 
available.
    Currently, we generally do not revise the estimated repayment 
mechanism amount for an ACO during its agreement period. For example, 
we typically do not revise the repayment mechanism amount during an 
ACO's agreement period to reflect annual changes in the ACO's certified 
ACO participant list. However, in the Track 1+ Model, CMS may require 
the ACO to adjust the repayment mechanism amount if changes in an ACO's 
participant composition occur within the ACO's agreement period that 
result in the application of relatively higher or lower loss sharing 
limits. As explained in the Track 1+ Model Fact Sheet, if the estimated 
repayment mechanism amount increases as a result of the ACO's change in 
composition, CMS would require the Track 1+ ACO to demonstrate its 
repayment mechanism is equal to this higher amount. If the estimated 
amount decreases as a result of its change in composition, CMS may 
permit the ACO to decrease the amount of its repayment mechanism (for 
example, if CMS also determines the ACO does not owe shared losses from 
the prior performance year under the Track 1+ Model).
    As we indicated in the August 2018 proposed rule, we believe a 
similar approach may be appropriate to address changes in the ACO's 
composition over the course of an agreement period and to ensure the 
adequacy of an ACO's repayment mechanism as it enters higher levels of 
risk within the ENHANCED track or the BASIC track's glide path. During 
an agreement period, an ACO's composition of ACO participant TINs and 
the individuals who bill through the participant TINs may change. The 
repayment mechanism estimation methodology we previously described in 
this section uses data based on the ACO participant list, including 
estimated expenditures for the ACO's assigned population, and in the 
case of the proposed BASIC track, estimated revenue for ACO participant 
TINs. See for example, Repayment Mechanism Arrangements Guidance 
(describing the calculation of the repayment mechanism amount 
estimate). As a result, over time the initial repayment mechanism 
amount calculated by CMS may no longer represent the expenditure trends 
for the ACO's assigned population or ACO participant revenue and 
therefore may not be sufficient to ensure the ACO's ability to repay 
losses. For this reason and we explained in the August 2018 proposed 
rule, we believe it would be appropriate to periodically recalculate 
the amount of the repayment mechanism arrangement.
    For agreement periods beginning on or after July 1, 2019, we 
proposed to recalculate the estimated amount of the ACO's repayment 
mechanism arrangement before the second and each subsequent performance 
year in which the ACO is under a two-sided model in the BASIC track or 
ENHANCED track. If we determine the estimated amount of the ACO's 
repayment mechanism has increased, we may require the ACO to 
demonstrate the repayment mechanism arrangement covers at least an 
amount equal to this higher amount.
    We proposed to make this determination as part of the ACO's annual 
certification process, in which it finalizes changes to its ACO 
participant list prior to the start of each performance year. We would 
recalculate the estimate for the ACO's repayment mechanism based on the 
certified ACO participant list each year after the ACO begins 
participation in a two-sided model in the BASIC track or ENHANCED 
track. If the amount has increased substantially (for example, by at 
least 10 percent or $100,000, whichever is the lesser value), we would 
notify the ACO in writing and require the ACO to submit documentation 
for CMS approval to demonstrate that the funding for its repayment 
mechanism has been increased to reflect the recalculated repayment 
mechanism amount. We would require the ACO to make this demonstration 
within 90 days of being notified by CMS of the required increase.
    We recognize that in some cases, the estimated amount may change 
insignificantly. Requiring an amendment to the ACO's arrangement (such 
as the case would be with a letter of credit or surety bond) would be 
overly burdensome and not necessary for reassuring CMS of the adequacy 
of the arrangement. Therefore, we proposed to evaluate the amount of 
change in the ACO's repayment mechanism, comparing the newly estimated 
amount and the amount estimated for the most recent prior performance 
year. We proposed that, if this amount increases by equal to or greater 
than either 10 percent or $100,000, whichever is the lesser value, we 
would require the ACO to demonstrate that it has increased the dollar 
amount of its arrangement to the recalculated amount. We solicited 
comments on whether a higher or lower change in the repayment mechanism 
estimate should trigger the ACO's

[[Page 67931]]

obligation to increase its repayment mechanism amount.
    However, unlike the Track 1+ Model, we proposed that if the 
estimated amount decreases as a result of the ACO's change in 
composition, we would not permit the ACO to decrease the amount of its 
repayment mechanism. The ACO repayment mechanism estimate does not 
account for an ACO's maximum liability amount and it is possible for an 
ACO to owe more in shared losses than is supported by the repayment 
mechanism arrangement. Because of this, we believe it is more 
protective of the Trust Funds to not permit decreases in the repayment 
mechanism amount, during an ACO's agreement period under a two-sided 
model, based on composition changes.
    We believe the requirements for repayment mechanism amounts should 
account for the special circumstances of renewing ACOs, which would 
otherwise have to maintain two separate repayment mechanisms for 
overlapping periods of time. As discussed in section II.A.5.c.(4). of 
this final rule, we proposed to define ``renewing ACO'' to mean an ACO 
that continues its participation in the program for a consecutive 
agreement period, without a break in participation, because it is 
either: (1) An ACO whose participation agreement expired and that 
immediately enters a new agreement period to continue its participation 
in the program; or (2) an ACO that terminated its current participation 
agreement under Sec.  425.220 and immediately enters a new agreement 
period to continue its participation in the program. We proposed at 
Sec.  425.204(f)(3)(iv) that a renewing ACO can use its existing 
repayment mechanism to demonstrate that it has the ability to repay 
losses that may be incurred for performance years in the next agreement 
period, as long as the ACO submits documentation that the term of the 
repayment mechanism has been extended and the amount of the repayment 
mechanism has been updated, if necessary. However, depending on the 
circumstances, a renewing ACO may have greater potential liability for 
shared losses under its existing agreement period compared to its 
potential liability for shared losses under a new agreement period. 
Therefore, we proposed that if an ACO wishes to use its existing 
repayment mechanism to demonstrate its ability to repay losses in the 
next agreement period, the amount of the existing repayment mechanism 
must be equal to the greater of the following: (1) The amount 
calculated by CMS in accordance with the benchmark-based methodology or 
revenue-based methodology, as applicable by track (see proposed Sec.  
425.204(f)(4)(iv)); or (2) the repayment mechanism amount that the ACO 
was required to maintain during the last performance year of its 
current agreement. We believed that this proposal would protect the 
financial integrity of the program by ensuring that a renewing ACO will 
remain capable of repaying losses incurred under its old agreement 
period.
    Finally, we proposed to consolidate at Sec.  425.204(f)(4) all of 
our proposed policies, procedures, and requirements related to the 
amount of an ACO's repayment mechanism, including provisions regarding 
the calculation and recalculation of repayment mechanism amounts. We 
also proposed to revise the regulations at Sec.  425.204 to streamline 
and reorganize the provisions in paragraph (f), which we believe is 
necessary to incorporate these and other proposed requirements 
discussed in this final rule.
    Comment: One commenter supported the flexibility that would be 
afforded to BASIC track ACOs to establish a repayment mechanism amount 
based on the lesser of 1 percent of the total per capita Medicare Parts 
A and B FFS expenditures for its assigned beneficiaries or 2 percent of 
the total Medicare Parts A and B FFS revenue of its ACO participants. 
The commenter noted that this proposal would encourage participation in 
two sided-models by ACOs that would otherwise have been unable to 
secure funds necessary to participate in a two-sided model.
    Response: We appreciate this feedback supporting our repayment 
mechanism proposal for BASIC track ACOs. We agree with the commenter 
that this policy should encourage participation by ACOs in two-sided 
models by reducing the burden associated with establishing a repayment 
mechanism.
    In addition, to address concerns raised by commenters elsewhere in 
this final rule regarding the burden on ACOs transitioning from the 
BASIC track to the ENHANCED track (see section II.A.2), we are 
extending this policy to ACOs participating in the ENHANCED track. We 
believe that this will reduce the burden associated with establishing a 
repayment mechanism on lower-revenue ACOs that would qualify for the 
new revenue-based repayment mechanism. Accordingly, for an ACO 
participating in a two-sided model under either the BASIC or ENHANCED 
track, the repayment mechanism amount must be equal to the lesser of 
(1) 1 percent of the total per capita Medicare Parts A and B FFS 
expenditures for its assigned beneficiaries, based on expenditures for 
the most recent calendar year for which 12 months of data are 
available; or (ii) 2 percent of the total Medicare Parts A and B FFS 
revenue of its ACO participants, based on the revenue for the most 
recent calendar year for which 12 months of data are available.
    Comment: A few commenters supported our proposal to establish the 
repayment mechanism amount based on expenditures for the most recent 
calendar year for which 12 months of data are available, noting this 
will likely allow for more accurate estimates of the level of losses 
for which an ACO could be liable.
    Response: We appreciate this feedback supporting our proposal to 
use expenditure data from the most recent calendar year for which 12 
months of data are available in determining an ACO's repayment 
mechanism amount. We agree that this approach should lead to more 
accurate estimates of the approximate level of losses for which an ACO 
could be liable. We are finalizing this policy with respect to ACOs 
participating in the BASIC and ENHANCED tracks. While we originally 
proposed changes to the regulations to also apply this policy to Track 
2 ACOs, we now believe that this policy would be irrelevant to Track 2 
ACOs because we are retiring Track 2 as a participation option (see 
section A.2 of this final rule) and no new Track 2 ACOs will be 
entering the program on or after July 1, 2019. Furthermore, because we 
proposed to apply our new policy of recalculating the repayment 
mechanism amount on an annual basis only for agreement periods 
beginning on or after July 1, 2019, we will not be required to 
recalculate repayment mechanism amounts for existing Track 2 ACOs. For 
these reasons, we are finalizing revisions to Sec.  425.204(f) so that 
the repayment mechanism amount for Track 2 ACOs will be based on 
expenditures used to calculate the benchmark, as is our current policy.
    Comment: Several commenters disagreed with our proposal to require 
an ACO to increase the dollar amount of its repayment mechanism 
arrangement in instances where the estimated repayment mechanism amount 
has increased by equal to or greater than either 10 percent or 
$100,000, whichever is the lesser value. These commenters stated that a 
threshold of the lesser of a 10 percent or $100,000 increase in the 
estimated repayment mechanism value is too low. The commenters noted 
that nearly all ACOs with a total cost of care of $200 million

[[Page 67932]]

or more would be required to increase their repayment mechanism amount 
each year under a threshold of $100,000, which would increase the 
burden on both CMS and ACOs. One commenter recommended that CMS use 
only a threshold of 10 percent, rather than employing a ``lesser of'' 
approach.
    Another commenter believed that our proposed threshold seemed 
reasonable but requested that CMS provide information about the number 
of ACOs that such threshold would potentially impact before finalizing 
this policy. This commenter also advocated that ACOs required to 
increase their repayment mechanism amount under such a policy should be 
provided with adequate time to do so.
    Response: We are persuaded by commenters' suggestions to increase 
the thresholds that would trigger the requirement for an ACO to 
increase the dollar amount of its repayment mechanism arrangement. We 
are therefore finalizing a provision that will require an ACO to 
increase its repayment mechanism amount if the estimated value of the 
repayment mechanism amount increases by equal to or greater than 50 
percent or $1,000,000, whichever is the lesser value. This would 
replace our originally proposed threshold of 10 percent or $100,000. 
These revised amounts are based on an analysis we conducted of the most 
recently available ACO repayment mechanism data. The analysis showed 
that a higher threshold of 50 percent or $1,000,000 would likely 
require only ACOs that had the largest changes in their estimated 
repayment mechanism value (the top 5 to 10 percent of ACOs) to increase 
their repayment mechanism amounts. We believe that this less 
restrictive requirement will minimize an ACO's administrative burden 
and financial institution fees while adjusting for meaningful changes 
in repayment mechanism amounts that will help protect the Medicare 
Trust Funds.
    Comment: A few commenters expressed the belief that it would be 
unfair to require repayment mechanism amounts to increase from year to 
year without also allowing them to decrease. These commenters requested 
that CMS amend its proposal to allow for decreases in a repayment 
mechanism amount. The commenters also requested that CMS provide 
flexibility to release funds available through the repayment mechanism 
for a limited period of time (for example, for a 60 day period) for 
ACOs that need to change their repayment mechanism during an agreement 
period. We presume that the commenter suggested this to allow an ACO to 
switch to a new repayment mechanism without having to put up new 
monies, but the commenter does not directly state or suggest this.
    Response: We decline at this time to allow ACOs to reduce their 
repayment mechanism amount if their estimated repayment mechanism value 
decreases. As we noted in the background to this section, the repayment 
mechanism estimate does not account for an ACO's maximum liability 
amount, and it is possible for an ACO to owe more in shared losses than 
is supported by a repayment mechanism arrangement. For this reason, we 
believe it would be more protective of the Trust Funds to not permit 
decreases in the repayment mechanism amount during an ACO's agreement 
period under a two-sided model. Similarly, the suggestion to allow 
release of funds for a limited period of time is outside the scope of 
our proposal and we therefore decline to adopt such suggestion at this 
time. We will monitor the number of ACOs that are affected by our 
finalized policy and the extent of the administrative burden on ACOs 
and on CMS and will use this information to refine our policies through 
future notice and comment rulemaking, if warranted.
    Comment: Several commenters suggested the proposed repayment 
mechanism amounts were too high. A few commenters recommended that the 
repayment mechanism amount for BASIC track ACOs be lowered to 0.5 
percent of the ACO's total per capita Medicare Parts A and B FFS 
expenditures or 1 percent of the total Medicare Parts A and B FFS 
revenue of its ACO participants. The commenters believed these lower 
amounts would be sufficient to prompt third-party due diligence and 
establish credit worthiness within the probable range of shared losses.
    Several other commenters expressed concern that rural ACOs would 
not be able to fund the required repayment mechanism amounts. Some 
noted that small rural hospitals, rural health clinics, and FQHCs lack 
the necessary resources to bear the additional expense. Another noted 
that small ACOs in rural areas may not have the cash flow to support 
ACO activities that produce savings and establish a repayment mechanism 
arrangement at the same time. Another commenter requested that when 
calculating a repayment mechanism amount CMS take into consideration 
whether the ACO has experienced an extreme and uncontrollable event. 
The commenter requested that CMS address the issue when developing its 
policy for extreme and uncontrollable circumstances.
    Several other commenters generally warned about the cost burden 
associated with the repayment mechanism requirement. One commenter 
noted that as non-profit, low revenue organization, it would 
potentially be forced out of the program because of its inability to 
fund a repayment mechanism due to lack of capital. Another commenter 
described the cost of having a repayment mechanism as contributing to 
the ``high hurdle'' of transitioning to accountable care.
    Response: We appreciate the feedback on the proposed repayment 
mechanism amounts and the perspectives offered on rural ACOs, ACOs 
affected by extreme and uncontrollable circumstances, and other ACOs 
with limited access to capital. While we recognize that repayment 
mechanisms impose costs on ACOs, we believe they are necessary to 
protect the financial integrity of the program and of the Medicare 
Trust Funds. We believe that providing a ``lesser of'' approach to the 
repayment mechanism amount for all ACOs in two-sided models will help 
to mitigate this issue for rural ACOs or ACOs that otherwise face 
funding constraints. We therefore decline to make changes to the 
proposed repayment mechanism amounts at this time.
    Final Action: After considering the comments received, we are 
finalizing with modification our proposed provisions at Sec.  
425.204(f)(4) regarding the repayment mechanism amount as follows.
    We are finalizing Sec.  425.204(f)(4)(i) to state that, for a Track 
2 ACO, the repayment mechanism amount must be equal to at least 1 
percent of the total per capita Medicare Parts A and B fee-for-service 
expenditures used to calculate the benchmark for the applicable 
agreement period, as estimated by CMS at the time of application.
    We are finalizing Sec.  425.204(f)(4)(ii) to state that, for a 
BASIC track or ENHANCED track ACO, the repayment mechanism amount must 
be equal to the lesser of the following: (A) One percent of the total 
per capita Medicare Parts A and B fee-for-service expenditures for the 
ACO's assigned beneficiaries, based on expenditures for the most recent 
calendar year for which 12 months of data are available; or (B) two 
percent of the total Medicare Parts A and B fee-for-service revenue of 
its ACO participants, based on revenue for the most recent calendar 
year for which 12 months of data are available.
    We are finalizing Sec.  425.204(f)(4)(iii) to state that, for 
agreement periods beginning on or after July 1, 2019, CMS recalculates 
the ACO's repayment

[[Page 67933]]

mechanism amount before the second and each subsequent performance year 
in the agreement period based on the certified ACO participant list for 
the relevant performance year. If the recalculated repayment mechanism 
amount exceeds the existing repayment mechanism amount by at least 50 
percent or $1,000,000, whichever is the lesser value, CMS notifies the 
ACO in writing that the amount of its repayment mechanism must be 
increased to the recalculated repayment mechanism amount. Within 90 
days after receipt of such written notice from CMS, the ACO must submit 
for CMS approval documentation that the amount of its repayment 
mechanism has been increased to the amount specified by CMS.
    We are finalizing Sec.  425.204(f)(4)(iv) to state that, in the 
case of an ACO that has submitted a request to renew its participation 
agreement and wishes to use its existing repayment mechanism to 
establish its ability to repay any shared losses incurred for 
performance years in the new agreement period, the amount of the 
repayment mechanism must be equal to the greater of the following: (A) 
The amount calculated by CMS in accordance with Sec.  425.204(f)(4)(ii) 
of this section; or (B) the repayment mechanism amount that the ACO was 
required to maintain during the last performance year of the 
participation agreement it seeks to renew.
(3) Submission of Repayment Mechanism Documentation
    Currently, ACOs applying to enter a performance-based risk track 
under the Shared Savings Program must meet the eligibility 
requirements, including demonstrating they have established an adequate 
repayment mechanism under Sec.  425.204(f). We noted in the August 2018 
proposed rule that we believed that modifications to the existing 
repayment mechanism requirements would be necessary to address 
circumstances that could arise if our proposed approach to allowing 
ACOs to enter or change risk tracks during the current agreement period 
is finalized. Specifically, we believed modifications would be 
necessary to reflect the possibility that an ACO that initially entered 
into an agreement period under the one-sided model years of the BASIC 
track's glide path will transition to performance-based risk within 
their agreement period, and thereby would become subject to the 
requirement to establish a repayment mechanism.
    The current regulations specify that an ACO participating under a 
two-sided model must demonstrate the adequacy of its repayment 
mechanism prior to the start of each agreement period in which it takes 
risk and upon request thereafter (Sec.  425.204(f)(3)). We are 
revisiting this policy in light of our proposal to automatically 
transition ACOs in the BASIC track's glide path from a one-sided model 
to a two-sided model beginning in their third performance year, and 
also under our proposal that would allow BASIC ACOs to elect to 
transition to performance-based risk beginning in their second 
performance year of the glide path.
    We believe ACOs participating in the BASIC track's glide path 
should be required to demonstrate they have established an adequate 
repayment mechanism consistent with the requirement for ACOs applying 
to enter an agreement period under performance-based risk. Therefore, 
we proposed to amend the regulations to provide that an ACO entering an 
agreement period in Levels C, D, or E of the BASIC track's glide path 
must demonstrate the adequacy of its repayment mechanism prior to the 
start of its agreement period and at such other times as requested by 
CMS. In addition, we proposed that an ACO entering an agreement period 
in Level A or Level B of the BASIC track's glide path must demonstrate 
the adequacy of its repayment mechanism prior to the start of any 
performance year in which it either elects to participate in, or is 
automatically transitioned to a two-sided model (Level C, Level D, or 
Level E) of the BASIC track's glide path, and at such other times as 
requested by CMS. We sought comment on these proposals.
    Final Action: We received no comments on these proposals. We are 
therefore finalizing our proposed revisions to Sec.  425.204(f)(3) 
without modification.
(4) Repayment Mechanism Duration
    We acknowledged in the August 2018 proposed rule that the proposed 
change to an agreement period of at least 5 years would affect the term 
for the repayment mechanism. Under the program's current requirements, 
the repayment mechanism must be in effect for a sufficient period of 
time after the conclusion of the agreement period to permit CMS to 
calculate the amount of shared losses owed and to collect this amount 
from the ACO (Sec.  425.204(f)(4)).
    We pointed readers to the June 2015 final rule for a discussion of 
the requirement for ACOs to demonstrate that they would be able to 
repay shared losses incurred at any time within the agreement period, 
and for a reasonable period of time after the end of each agreement 
period (the ``tail period''). We explained that this tail period must 
be sufficient to permit CMS to calculate the amount of any shared 
losses that may be owed by the ACO and to collect this amount from the 
ACO (see 80 FR 32783). This is necessary, in part, because financial 
reconciliation results are not available until the summer following the 
conclusion of the performance year. We have interpreted this 
requirement to be satisfied if the repayment mechanism arrangement 
remains in effect for 24 months after the end of the agreement period 
(see Repayment Mechanism Arrangements Guidance). Once ACOs are notified 
of shared losses, based on financial reconciliation, they have 90 days 
to make payment in full (see Sec. Sec.  425.606(h) and 425.610(h)).
    We proposed to specify at Sec.  425.204(f)(6) the general rule that 
a repayment mechanism must be in effect for the duration of the ACO's 
participation in a two-sided model plus 24 months after the conclusion 
of the agreement period. Based on our experience with repayment 
mechanisms, we believed ACOs would be able to work with financial 
institutions to establish repayment mechanism arrangements that would 
cover a 5-year agreement period plus a 24-month tail period. This 
proposed approach would have been consistent with the program's current 
guidance.
    We proposed some exceptions to this general rule. First, we 
proposed that CMS may require an ACO to extend the duration of its 
repayment mechanism beyond the 24-month tail period if necessary to 
ensure that the ACO will repay CMS any shared losses for each of the 
performance years of the agreement period. We indicated that this may 
be necessary in rare circumstances to protect the financial integrity 
of the program.
    Second, we proposed that the duration requirement account for the 
special circumstances of renewing ACOs, which would otherwise have to 
maintain two separate repayment mechanisms for overlapping periods of 
time. As previously noted, we proposed at Sec.  425.204(f)(3)(iv) that 
a renewing ACO can choose to use its existing repayment mechanism to 
demonstrate that it has the ability to repay losses that may be 
incurred for performance years in the next agreement period, as long as 
the ACO submits documentation that the term of the repayment mechanism 
has been extended and the amount of the repayment mechanism has been 
increased, if necessary. We proposed at Sec.  425.204(f)(6) that the 
term of the existing repayment mechanism must be

[[Page 67934]]

extended in these cases and that it must periodically be extended 
thereafter upon notice from CMS.
    We considered the amount of time by which we would require the 
existing repayment mechanism to be extended. As discussed in section 
II.A.5. of this final rule, renewing ACOs (as we proposed to define 
that term at Sec.  425.20) may have differing numbers of years 
remaining under their current repayment mechanism arrangements 
depending on whether the ACO is renewing at the conclusion of its 
existing agreement period or if the ACO is an early renewal 
(terminating its current agreement to enter a new agreement period 
without interruption in participation). We recognized that it may be 
difficult for ACOs that are completing the term of their current 
agreement period to extend an existing repayment mechanism by 7 years 
(that is, for the full 5-year agreement term plus 24 months). 
Therefore, we considered whether the program would be adequately 
protected if we permitted the existing repayment mechanism to be 
extended long enough to cover the first 2 or 3 performance years of the 
new agreement period (that is, an extension of 4 or 5 years, 
respectively, including the 24-month tail period). We solicited comment 
on whether we should require a longer or shorter extension.
    We explained that, if we permit an ACO to extend its existing 
repayment mechanism for less than 7 years, we would require the ACO to 
extend the arrangement periodically upon notice from CMS. Under this 
approach, the ACO would eventually have a repayment mechanism 
arrangement that would not expire until at least 24 months after the 
end of the new agreement period. We sought comment on whether this 
approach should also apply to an ACO entering two-sided risk for the 
first time (that is, an ACO that is not renewing its participation 
agreement). We would continue to permit a renewing ACO to maintain two 
separate repayment mechanisms (one for the current agreement period and 
one for the new agreement period).
    Under our proposal, if CMS notifies a renewing ACO that its 
repayment mechanism amount will be higher for the new agreement period, 
the ACO may either (i) establish a second repayment mechanism 
arrangement in the higher amount for 7 years (or for a lesser duration 
that we have specified in this final rule), or (ii) increase the amount 
of its existing repayment mechanism to the amount specified by CMS and 
extend the term of the repayment mechanism arrangement for an amount of 
time specified by CMS (7 years or for a lesser duration that we have 
specified in this final rule). We proposed that, on the other hand, if 
CMS notifies a renewing ACO that the repayment mechanism amount for its 
new agreement period is equal to or lower than its existing repayment 
mechanism amount, then the ACO could similarly choose to extend the 
duration of its existing repayment mechanism instead of obtaining a 
second repayment mechanism for the new agreement period. However, in 
that case, the ACO would be required to maintain the repayment 
mechanism at the existing higher amount.
    Third, we believed that the term of a repayment mechanism may 
terminate earlier than 24 months after the agreement period if it is no 
longer needed. Under certain conditions, we permit early termination of 
a repayment mechanism and release of the arrangement's remaining funds 
to the ACO. These conditions are specified in the Repayment Mechanism 
Arrangements Guidance, and we proposed to include similar requirements 
at Sec.  425.204(f)(6). Specifically, we proposed that the repayment 
mechanism may be terminated at the earliest of the following 
conditions:

    <bullet> The ACO has fully repaid CMS any shared losses owed for 
each of the performance years of the agreement period under a two-
sided model;
    <bullet> CMS has exhausted the amount reserved by the ACO's 
repayment mechanism and the arrangement does not need to be 
maintained to support the ACO's participation under the Shared 
Savings Program; or
    <bullet> CMS determines that the ACO does not owe any shared 
losses under the Shared Savings Program for any of the performance 
years of the agreement period. For example, if a renewing ACO opts 
to establish a second repayment mechanism for its new agreement 
period, it may request to cancel the first repayment mechanism after 
reconciliation for the final performance year of its previous 
agreement period if it owes no shared losses for the final 
performance year and it has repaid all shared losses, if any, 
incurred during the previous agreement period.

    We solicited comments on whether the provisions proposed at Sec.  
425.204(f)(6) are adequate to protect the financial integrity of the 
Shared Savings Program, to provide greater certainty to ACOs and 
financial institutions, and to facilitate the establishment of 
repayment mechanism arrangements.
    Comment: We did not receive any comments in support of our proposal 
to require, as a general rule, that an ACO's repayment mechanism be in 
effect for the duration of the ACO's participation in a two-sided model 
plus 24 months after the conclusion of the agreement period, or up to a 
seven-year period for ACOs entering a five-year agreement period under 
two-sided risk. A few commenters requested that CMS remove the 24-month 
tail period, expressing concerns that a 24-month tail period would 
increase financial requirements for ACOs. These commenters believe that 
if CMS decides to finalize the 24-month tail period policy, then the 
agency should be liable to pay for additional shared savings discovered 
during the 24-months following the end of an agreement period.
    Several other commenters recommended that we shorten the repayment 
mechanism tail period to 12 months, noting that this would meet the 
run-out time for financial reconciliation and allow sufficient time for 
an ACO to repay any associated shared losses. Another commenter stated 
that a 24-month tail period would place undue burden on small and low-
revenue ACOs and recommended that CMS use a 12- to 18-month tail period 
instead, which the commenter believes is a sufficient period for CMS to 
determine if an ACO has incurred shared losses and for an ACO to repay 
those losses.
    Response: We are persuaded by commenters' concerns regarding the 
potential burden associated with our proposed requirement that ACOs 
have in effect a repayment mechanism for the duration of the ACO's 
participation in a two-sided model plus 24 months after the conclusion 
of the agreement period (which, as proposed, would require such ACOs to 
procure a repayment mechanism for a five-year agreement period plus an 
additional 24-month tail period). We agree that financial 
reconciliation and the repayment of any losses will normally occur 
within 12 months following the conclusion of a performance year except 
in very limited circumstances. Because we believe that such exceptions 
would be rare based on or our experience in collecting shared losses 
from ACOs, we believe the added risk to the Trust Funds of reducing the 
tail period to 12 months would be limited and is outweighed by the 
desire to reduce burden on ACOs. We are therefore finalizing a policy 
to reduce the length of the required tail period to 12 months following 
the end of the agreement period.
    Comment: Several commenters raised concerns about the ability of an 
ACO to obtain a repayment mechanism that would cover a 5-year agreement 
period plus our proposed 24-month tail period. One commenter 
specifically raised concerns about the ability of rural ACOs to obtain 
a repayment mechanism that would satisfy our proposed duration 
requirement due to the insufficient

[[Page 67935]]

collateral available to independent, rural physicians and a likely 
unwillingness of lenders to extend credit when there may be changes to 
regulations under the Shared Savings Program after the repayment 
mechanism is issued. The commenter noted that if an ACO does not have 
funding to pay for a repayment mechanism and is therefore forced to 
terminate its participation in the program, then the ACO will lose its 
investment and anticipated shared savings.
    Other commenters expressed concern that the lengthened duration 
would adversely affect ACOs that use surety bonds as a repayment 
mechanism, noting that that surety bonds are rarely issued beyond five 
years. One commenter noted that a seven-year surety bond would likely 
require an ACO to bear significant carrying costs. Another commenter 
stated that the requirement to maintain a seven-year term would 
severely limit the availability of surety bonds available to ACOs and 
would most likely require 100 percent collateral, thereby imposing a 
significant liquidity and capital burden on ACOs. The commenter 
indicated that this would be especially problematic for physician-led 
and small, rural ACOs that lack access to low-cost capital. Another 
commenter advised that extending repayment mechanisms to five-year 
agreement period with a 24-month tail might limit the availability of 
surety bonds to ACOs because the higher risk associated with the longer 
duration of the bonded obligation could cause issuers to tighten their 
underwriting standards.
    Some commenters recommended a repayment mechanism duration of no 
more than 3 years, with annual renewal of the repayment mechanism 
through the end of the tail period. One commenter suggested that this 
alternative, coupled with a reduction of the threshold for requiring an 
ACO to update its repayment mechanism amount, would protect the 
financial integrity of the program, streamline to one consistent 
repayment mechanism, and preserve the viability of surety bonds and 
letters of credit for physician-led and small, rural ACOs.
    Response: We appreciate the concerns raised by stakeholders 
regarding the potential impact of our proposed repayment mechanism 
duration requirements on the availability of repayment mechanism 
arrangements, including the availability of surety bonds. We first 
reiterate that we are reducing the total required duration of a 
repayment mechanism arrangement by reducing the length of the required 
tail period from 24 months to 12 months following the end of an 
agreement period. Based on this modification to our proposed repayment 
mechanism duration policy and our experience with repayment mechanisms, 
we continue to believe that ACOs, including ACOs that obtain surety 
bonds, will be able to work with financial institutions to establish 
repayment mechanism arrangements that will cover a 5-year agreement 
period plus the 12-month tail period. For example, we note that five of 
eight ACOs that exercised the deferred renewal option finalized in the 
June 2016 final rule, secured an approved surety bond for a 6-year 
term.
    In addition, we are modifying our policy to permit ACOs to satisfy 
the duration requirement by establishing a repayment mechanism that 
covers a term of at least the first two performance years in which the 
ACO is participating under a two-sided model and that provides for 
automatic, annual 12-month extensions of the repayment mechanism such 
that the repayment mechanism will eventually remain in effect for the 
duration of the agreement period plus 12 months following the 
conclusion of the agreement period. For example, an ACO seeking to 
enter into a participation agreement with CMS under the ENHANCED track 
on January 1, 2020 could choose to establish a repayment mechanism with 
a term of six years to cover the five-year agreement period plus a 12-
month tail period. Alternatively, the ACO could establish a repayment 
mechanism covering the first two performance years (ending December 31, 
2021) and providing for automatic annual 12 month extensions starting 
at the end of the first performance year. After the repayment mechanism 
has been in effect for one performance year (that is, at the end of 
2020, the first performance year of the agreement period), the term 
would automatically be extended by an additional 12 months (through 
December 31, 2022). Additional automatic 12-month extensions would 
occur on a rolling basis at the end of the second, third, and fourth 
performance years of the agreement period, with the last of these 
extending the arrangement until 12 months after the end of the 
agreement period (through December 31, 2025).
    For an ACO entering into a participation agreement with CMS under 
two-sided risk on July 1, 2019 that chooses this option (that is, a 
repayment mechanism that has a term of at least two performance years 
and that provides for automatic, annual 12-month extensions), the 
initial term of the repayment mechanism arrangement would be 18 months 
because the repayment mechanism would cover the 6-month performance 
beginning July 1, 2019 and the 12-month performance year beginning 
January 1, 2020. At the end of 2019 (after the repayment mechanism has 
been in effect for one performance year), the term of the repayment 
mechanism would automatically be extended by 12 months through the end 
of the third performance year of the agreement period (through December 
31, 2021). Because the agreement period would include six performance 
years in total, additional automatic 12-month extensions would occur on 
a rolling basis at the end of the second, third, fourth, and fifth 
performance years, ultimately extending the arrangement until 12 months 
after the end of the agreement period (through December 31, 2025).
    The initial term of the repayment mechanism cannot expire before 
the end of the second performance year because the amount of any shared 
losses incurred for the first performance year will not be known until 
the second half of the second performance year. We note that the annual 
12-month extensions would be occurring one year before the repayment 
mechanism would otherwise expire. However, the rolling 12-month 
extensions ensure that a new performance year will not start without 
ensuring that the repayment mechanism will remain in effect when the 
ACO is obligated to repay shared losses, if any, for that new 
performance year. As discussed below, we are finalizing a similar 
policy for any renewing ACO that wishes to use its existing repayment 
mechanism to guarantee its ability to repay shared losses.
    We believe that allowing ACOs to obtain a repayment mechanism with 
a shorter initial term will provide additional flexibility to and 
lessen the potential burden on ACOs, including physician-led, small and 
rural ACOs. Furthermore, we believe that requiring automatic, annual 
12-month extensions of the repayment mechanism will also reduce the 
burden on an ACO to take action to extend or renew the term of its 
repayment mechanism, while sufficiently protecting the Medicare Trust 
Funds. We also believe that this policy, along with the ``lesser of'' 
repayment mechanism amounts policy that we are finalizing (as described 
in section II.A.6.c.(2) of this final rule), addresses concerns that 
certain ACOs have limited access to funds to obtain a repayment 
mechanism.
    While we believe that the modifications to the repayment mechanism 
policies that we are finalizing in this rule will, in total,

[[Page 67936]]

reduce burden on ACOs relative to the proposed policies, we recognize 
that some ACOs may still be unable to meet the repayment mechanism 
requirements and would need to terminate their participation in the 
program. We note that in these cases, the policies for payment 
consequences of early termination that we are finalizing in section 
II.A.6.d.(3) of this final rule would apply.
    Comment: One commenter affiliated with surety bond issuers 
recommended that the regulation should clearly state that extending the 
duration or increasing the amount of a surety bond requires the 
surety's consent, and that refusal by the surety to extend or increase 
the bond should not trigger a default under the existing bond.
    Response: We realize that the surety would need to consent to 
extending the duration or increasing the amount of a surety bond, but 
we do not believe that our regulations need to be revised to state 
this. If the surety refuses to extend the term of the bond or to 
increase the amount of the bond, the ACO would be required to enter 
into a different or additional repayment mechanism arrangement that 
satisfies the terms of our regulations. We therefore decline to adopt 
the commenter's recommendation.
    Comment: One commenter supported a policy we considered in the 
proposed rule that would allow a renewing ACO to extend its existing 
repayment mechanism long enough to cover the first 2 or 3 performance 
years of its new agreement period, provided that the ACO periodically 
extends its repayment mechanism until the end of the tail period. The 
commenter believes that this option would balance the need to protect 
the integrity of the program while not necessarily creating a burden 
that would inhibit continued ACO participation, which could occur if 
ACOs are required to obtain a seven-year extension on top of an 
existing repayment term. The commenter noted that a seven-year 
extension could be prohibitively difficult for an ACO to secure.
    Response: We appreciate this commenter's feedback on the 
alternative approach for extension of a renewing ACO's existing 
repayment mechanism, which we considered in the proposed rule. We agree 
with the commenter's concerns and are therefore finalizing a policy 
that would allow a renewing ACO two options for extending its existing 
repayment mechanism to meet the duration requirement.
    Under the first option, a renewing ACO's existing repayment 
mechanism would be extended to cover the new agreement period plus 12 
months following the end of the new agreement period. For example, an 
ACO that started participating under Track 2 of the Shared Savings 
Program in 2017 would have established a five year repayment mechanism 
expiring on December 31, 2021 (covering its current three-year 
agreement period plus a 24-month tail period). If the ACO renews its 
participation in the program under the ENHANCED Track on January 1, 
2020, then the ACO would have two years of its existing repayment 
mechanism remaining at time of renewal and could therefore satisfy the 
duration requirement by extending its existing repayment mechanism 
arrangement by four years (until December 31, 2025) when entering its 
new five-year agreement period. The remaining term of the existing 
repayment mechanism (two years) plus the extension (four years) would 
together cover the full duration of the new five-year agreement period 
plus the 12-month tail period.
    Under the second option, a renewing ACO's existing repayment 
mechanism would be extended, if necessary, to cover a term of at least 
the first two performance years of the new agreement period and would 
provide for automatic, annual 12-month extensions of the repayment 
mechanism such that the repayment mechanism will eventually remain in 
effect until 12 months following the completion of the new agreement 
period. For example, consider an ACO that has one year remaining on its 
existing repayment mechanism at the time it renews its participation on 
January 1, 2020. In this case, the existing arrangement would need to 
be extended by one year (until December 31, 2021) such that the new 
term of the existing repayment arrangement does not expire before the 
end of the second performance year of the new agreement period. The 
arrangement would also need to be amended to include a clause that 
provides for automatic, annual 12-month extensions of the arrangement 
starting at the end of the first performance year of the new agreement 
period. Thus, at the end of the first performance year in December 
2020, the repayment mechanism (which would otherwise expire on December 
31, 2021) would be extended an additional 12 months and thereby expire 
on December 31, 2022. At the end of the second performance year in 
December 2021, the repayment mechanism would again be extended another 
12 months and thereby expire on December 31, 2023. Eventually, the 
rolling annual 12-month extensions would cause the repayment mechanism 
to expire 12 months after the end of the agreement period (on December 
31, 2025), and no further extensions would be required.
    We believe that these options for the extension of an existing 
repayment mechanism arrangement will help ensure payment of shared 
losses and alleviate the concerns raised by the commenter about lengthy 
extensions potentially inhibiting continued ACO participation in the 
program. We also wish to note that these options would also be 
available to an ACO that voluntarily terminates its existing agreement 
period and then immediately enters a new agreement period without a 
break in participation (described as an early renewal in section 
II.A.5.c.(4) of this final rule) and would be applied in the same 
manner. Finally we wish to clarify that renewing ACOs (including early 
renewals) can also choose to establish a new repayment mechanism 
arrangement that either covers the full duration of the new agreement 
period plus the 12-month tail period or covers a term of at least two 
years and provides for automatic annual 12-month extensions as 
described above.
    Comment: One commenter supported our proposal to permit early 
termination of a repayment mechanism under certain conditions, such as 
when we determine that the ACO does not owe shared losses under the 
Shared Savings Program for any of the performance years of the ACO's 
agreement period.
    Response: We thank the commenter for their support of this 
proposal. We are finalizing our policy regarding early termination of a 
repayment mechanism as proposed.
    Final Action: After considering the comments received, we are 
finalizing with modification our proposed provisions regarding the 
duration of the repayment mechanism at Sec.  425.204(f)(6) as follows.
    We are finalizing Sec.  425.204(f)(6) to state that with limited 
exceptions, a repayment mechanism must be in effect for the duration of 
an ACO's participation under a two-sided model plus 12 months after the 
conclusion of the agreement period.
    We are finalizing Sec.  425.204(f)(6)(i) to state that for an ACO 
that is establishing a new repayment mechanism to meet this 
requirement, the repayment mechanism must satisfy one of the following 
criteria: (A) The repayment mechanism covers the entire duration of the 
ACO's participation under a two-sided model plus 12 months following 
the conclusion of the agreement period; or (B) the repayment mechanism 
covers an term of at least the first two

[[Page 67937]]

performance years in which the ACO is participating under a two sided 
model and provides for automatic, annual 12-month extensions of the 
repayment mechanism such that the repayment mechanism will eventually 
remain in effect through the duration of the agreement period plus 12 
months following the conclusion of the agreement period.
    We are finalizing Sec.  425.204(f)(6)(ii) to state that for a 
renewing ACO that wishes to use its existing repayment mechanism to 
establish its ability to repay any shared losses incurred for 
performance years in the new agreement period, the existing repayment 
mechanism must be amended to meet one of the following criteria (A) the 
duration of the existing repayment mechanism is extended by an amount 
of time that covers the duration of the new agreement period plus 12 
months following the conclusion of the new agreement period; or (B) the 
duration of the existing repayment mechanism is extended, if necessary, 
to cover a term of at least the first two performance years of the new 
agreement period and provides for automatic, annual 12-month extensions 
of the repayment mechanism such that the repayment mechanism will 
eventually remain in effect through the duration of the new agreement 
period plus 12 months following the conclusion of the new agreement 
period.
    We are finalizing Sec.  425.204(f)(6)(iii) to state that, CMS may 
require an ACO to extend the duration of its repayment mechanism beyond 
the 12-month tail period if necessary to ensure that the ACO fully 
repays CMS any shared losses for each of the performance years of the 
agreement period.
    We are finalizing Sec.  425.204(f)(6)(iv) to state that a repayment 
mechanism may be terminated at the earliest of the following 
conditions: (A) The ACO has fully repaid CMS any shared losses owed for 
each of the performance years of the agreement period under a two-sided 
model; (B) CMS has exhausted the amount reserved by the ACO's repayment 
mechanism and the arrangement does not need to be maintained to support 
the ACO's participation under the Shared Savings Program; or (C) CMS 
determines that the ACO does not owe any shared losses under the Shared 
Savings Program for any of the performance years of the agreement 
period.
    We note that, as modified, paragraphs Sec.  425.204(f)(6)(i) and 
(ii), set forth the ways in which an ACO may meet the general 
requirement for the repayment mechanism described in Sec.  
425.204(f)(6).
    Based on these finalized provisions, if CMS notifies a renewing ACO 
that its repayment mechanism amount will be higher for the new 
agreement period, the ACO may either (i) establish a second repayment 
mechanism arrangement in the higher amount under one of the options set 
forth in Sec.  425.204(f)(6)(i); or (ii) increase the amount of its 
existing repayment mechanism to the higher amount and amend the 
existing repayment mechanism arrangement under one of the options set 
forth in Sec.  425.204(f)(6)(ii). On the other hand, if CMS notifies a 
renewing ACO that the repayment mechanism amount for its new agreement 
period is equal to or lower than its existing repayment mechanism 
amount, the ACO may choose to amend its existing repayment mechanism 
under one of the options set forth in instead of obtaining a second 
repayment mechanism for the new agreement period. However, in that 
case, the ACO would be required to maintain the repayment mechanism at 
the existing higher amount.
(5) Institutions Issuing Repayment Mechanism Arrangements
    We also proposed additional requirements related to the financial 
institutions through which ACOs establish their repayment mechanism 
arrangements that would be applicable to all ACOs participating in a 
performance-based risk track. With the proposed changes to offer only 
the BASIC track and ENHANCED track for agreement periods beginning on 
July 1, 2019 and in subsequent years, we anticipate an increase in the 
number of repayment mechanism arrangements CMS will review with each 
annual application cycle. We believe the proposed new requirements 
regarding the financial institutions with which ACOs establish their 
repayment mechanisms would provide CMS greater certainty about the 
adequacy of repayment mechanism arrangements and ultimately ease the 
process for reviewing and approving the ACO's repayment mechanism 
arrangement documentation.
    Currently, as described in the program's Repayment Mechanism 
Arrangements Guidance, CMS will accept an escrow account arrangement 
established with a bank that is insured by the Federal Deposit 
Insurance Corporation (FDIC), a letter of credit established at a FDIC-
insured institution, and a surety bond issued by a company included on 
the U.S. Department of Treasury's list of certified (surety bond) 
companies (available at https://www.fiscal.treasury.gov/fsreports/ref/suretyBnd/c570_a-z.htm). We have found that arrangements issued by 
these institutions tend to be more conventional arrangements that 
conform to the program's requirements. However, we recognize that some 
ACOs may work with other types of financial institutions that may offer 
similarly acceptable products, but which may not conform to the 
standards described in our existing Repayment Mechanism Arrangements 
Guidance. For example, some ACOs may prefer to use a credit union to 
establish an escrow account or a letter of credit for purposes of 
meeting the repayment mechanism arrangements requirement, but credit 
unions are insured under the National Credit Union Share Insurance Fund 
program, rather than by the FDIC. Although the insuring entity is 
different, credit unions typically are insured up to the same insurance 
limit as FDIC-insured banks and are otherwise capable of offering 
escrow accounts and letters of credit that meet program requirements. 
We also believe that incorporating more complete standards for 
repayment mechanisms into the regulations would provide additional 
clarity for ACOs regarding acceptable repayment mechanisms and will 
help to avoid situations where an ACO may obtain a repayment mechanism 
arrangement from an entity that ultimately is unable to pay CMS the 
value of the repayment mechanism in the event CMS seeks to use the 
arrangement to recoup shared losses for which the ACO is liable.
    Since the June 2015 final rule, several ACO applicants have 
requested use of arrangements from entities other than those described 
in our Repayment Mechanism Arrangements Guidance, such as a letter of 
credit issued by the parent corporation of an ACO, and funds held in 
escrow by an attorney's office. In reviewing these requests, we found a 
similar level of complexity resulting from the suggested arrangements 
as we did with our earlier experiences reviewing alternative repayment 
arrangements, which were permitted during the initial years of the 
Shared Savings Program until the regulations were revised in the June 
2015 final rule to remove the option to establish an appropriate 
alternative repayment mechanism. In proposing to eliminate this option, 
we explained that a request to use an alternative repayment mechanism 
increases administrative complexity for both ACOs and CMS during the 
application process and is more likely to be declined by CMS (see 79 FR 
72832). Although our program guidance (as specified in Repayment 
Mechanism

[[Page 67938]]

Arrangements Guidance, version 6, July 2017) encourages ACOs to obtain 
a repayment mechanism from a financial institution, these recent 
requests for approval of more novel repayment arrangements have alerted 
CMS to the potential risk that ACOs may seek approval of repayment 
mechanism arrangements from organizations other than those that CMS has 
determined are likely to be most financially sound and able to offer 
products that CMS can readily verify as appropriate repayment 
mechanisms that ensure the ACO's ability to repay any shared losses.
    Therefore, we proposed to revise Sec.  425.204(f)(2) to specify the 
following requirements about the institution issuing the repayment 
mechanism arrangement: An ACO may demonstrate its ability to repay 
shared losses by placing funds in escrow with an insured institution, 
obtaining a surety bond from a company included on the U.S. Department 
of Treasury's List of Certified Companies, or establishing a line of 
credit (as evidenced by a letter of credit that the Medicare program 
can draw upon) at an insured institution. We anticipated updating the 
Repayment Mechanism Arrangements Guidance to specify the types of 
institutions that would meet these new requirements. For example, in 
the case of funds placed in escrow and letters of credit, the repayment 
mechanism could be issued by an institution insured by either the 
Federal Deposit Insurance Corporation or the National Credit Union 
Share Insurance Fund. The proposed revisions would bring clarity to the 
program's requirements, which will assist ACOs in selecting, and reduce 
burden on CMS in reviewing and approving, repayment mechanism 
arrangements. We welcomed commenters' suggestions on these proposed 
requirements for ACOs regarding the issuing institution for repayment 
mechanism arrangements.
    Comment: Several commenters expressed support for our proposal to 
expand the list of institutions with which an ACO may establish a 
repayment mechanism to include any insured institution. Some commenters 
noted that credit unions may provide ACOs with more economical 
repayment mechanism arrangements and could increase market competition, 
which could potentially lower the overall cost of accessing repayment 
mechanisms. Another commenter expressed appreciation for our proposed 
policies on the basis that they would alleviate burden and reduce 
barriers to participation for small and rural ACOs.
    Several other commenters expressed the belief that ACOs need 
repayment mechanism alternatives other than the arrangements that we 
addressed in our Repayment Mechanism Arrangements Guidance or proposed 
in the August 2018 proposed rule. Some commenters specifically 
requested that CMS allow insurance or reinsurance coverage as a 
repayment mechanism. A few commenters noted that reinsurance is an 
established health care industry standard, and that accepting 
reinsurance as a repayment mechanism would encourage more ACOs to 
participate in the ENHANCED track. Other commenters noted that some 
ACOs already obtain reinsurance in addition to meeting their repayment 
mechanism obligations and that CMS should therefore consider 
reinsurance to be an acceptable repayment mechanism, as we did in our 
November 2011 final rule (76 FR 67979).
    Other commenters requested that we to permit ACOs to establish 
alternative repayment mechanisms as we did in our November 2011 final 
rule (76 FR 67979). These commenters expressed the belief that having 
alternative options would facilitate ACO participation in the program. 
While the commenters recognized the additional administrative 
complexity of permitting ACO to establish alternative arrangements, 
they believe that the number of ACOs seeking these such arrangements 
would be small, thus limiting the burden on ACOs and CMS during the 
repayment mechanism application process.
    A few commenters recommended that CMS consider allowing ACOs to 
repay losses through reduced payment rates for ACO eligible clinicians, 
similar to the MACRA financial risk standards. The commenters believe 
that some ACOs would prefer such a method over repaying losses in a 
lump sum. These commenters also recommended that CMS remove the 
repayment mechanism requirement when an ACO can prove that it has an 
investor or financial backer with a demonstrated high credit rating. 
Such financial backers could include outside investors, insurers, or 
hospitals or health systems that are involved with the ACO and 
providing financial support. The commenters believe that the current 
repayment mechanism process is time consuming and costly and that this 
suggested alternative could reduce those burdens while still protecting 
the Medicare Trust Funds.
    Response: We appreciate the support offered for our proposal to 
expand the list of institutions with which an ACO may establish a 
repayment mechanism, as well as the feedback from other stakeholders 
recommending that CMS offer ACOs additional options for establishing a 
repayment mechanism arrangement. As indicated by some of the 
commenters, we originally allowed ACOs to obtain reinsurance coverage 
or to establish another appropriate repayment mechanism in the early 
years of the program. However, we elected to eliminate those 
alternatives in the June 2015 final rule (see 80 FR 32783-32784). We 
noted in that rule that no ACO had ultimately established reinsurance 
as its repayment mechanism. ACOs that explored that option told us that 
it was difficult to obtain reinsurance in part because of insurers' 
lack of experience with the Shared Savings Program and the ACO model, 
and because Shared Savings Program ACOs take on performance-based risk 
rather than insurance risk. Additionally, we indicated that the terms 
of reinsurance policies could vary greatly and prove difficult for CMS 
to effectively evaluate. We also noted that, based on our experience, 
alternative repayment mechanisms increased administrative complexity 
for ACOs and CMS during the application process, and were more likely 
to be rejected by CMS than one of the specified repayment mechanisms.
    While we indicated in the June 2015 rule that we would potentially 
consider reinstating reinsurance as a repayment mechanism option at 
some point in the future, we did not propose to reinstate either 
reinsurance or alternative repayment mechanisms in the August 2018 
rule, and we therefore consider these comments to fall outside the 
scope of this final rule. We similarly believe that suggestions to 
allow ACOs to repay loses through reductions to payment rates or to 
waive the repayment mechanism in the presence of a creditworthy 
financial backer fall outside the scope of this final rule. We would 
need to further evaluate these suggestions before considering whether 
to propose them in future rulemaking.
    Final Action: After considering comments received, we are 
finalizing Sec.  425.204(f)(2) as proposed to specify that an ACO that 
will participate in a two-sided model must establish one or more of the 
following repayment mechanisms in an amount and by a deadline specified 
by CMS in accordance with Sec.  425.204: An escrow account with an 
insured institution; a surety bond from a company included on the U.S. 
Department of Treasury's List of Certified Companies; or a line of 
credit at an insured institution (as evidenced by a letter of credit 
that the Medicare program can draw upon).

[[Page 67939]]

d. Advance Notice for and Payment Consequences of Termination
(1) Background
    Sections 425.218 and 425.220 of the regulations describe the Shared 
Savings Program's termination policies. Section 425.221, added by the 
June 2015 final rule, specifies the close-out procedures and payment 
consequences of early termination. Under Sec.  425.218, CMS can 
terminate the participation agreement with an ACO when the ACO fails to 
comply with any of the requirements of the Shared Savings Program. As 
described in Sec.  425.220, an ACO may also voluntarily terminate its 
participation agreement. The ACO must provide at least 60 days advance 
written notice to CMS and its ACO participants of its decision to 
terminate the participation agreement and the effective date of its 
termination.
    The November 2011 final rule establishing the Shared Savings 
Program indicated at Sec.  425.220(b) (although this provision was 
subsequently revised) that ACOs that voluntarily terminated during a 
performance year would not be eligible to share in savings for that 
year (76 FR 67980). The June 2015 final rule revised this policy to 
specify in Sec.  425.221(b)(1) that if an ACO voluntarily terminates 
with an effective termination date of December 31st of the performance 
year, the ACO may share in savings only if it has completed all 
required close-out procedures by the deadline specified by CMS and has 
satisfied the criteria for sharing savings for the performance year. 
ACOs that voluntarily terminate with an effective date of termination 
prior to December 31st of a performance year and ACOs that are 
involuntarily terminated under Sec.  425.218 are not eligible to share 
in savings for the performance year. In the November 2018 final rule 
(83 FR 59958 and 59959) we finalized revisions to Sec.  425.221(b) to 
allow our policies on the payment consequences of early termination to 
apply to ACOs participating in a 6-month performance year from January 
1, 2019, through June 30, 2019.
    The current regulations also do not impose any liability for shared 
losses on two-sided model ACOs that terminate from the program prior to 
the last calendar day of a given performance year. As explained in the 
June 2015 final rule, the program currently has no methodology for 
partial year reconciliation (80 FR 32817). As a result, ACOs that 
voluntarily terminate before the end of the performance year are 
neither eligible to share in savings nor accountable for any shared 
losses.
    In the August 2018 proposed rule (83 FR 41843 and 41844), we 
indicated that the existing policies on termination and the payment 
consequences of early termination raise concerns for both stakeholders 
and CMS. First, stakeholders have raised concerns that the current 
requirement for 60 days advance notice of a voluntary termination is 
too long because it does not allow ACOs to make timely, informed 
decisions about their continued participation in the program. Further, 
we noted that we were concerned that under the current policy, ACOs in 
two-sided models that are projecting losses have an incentive to leave 
the program prior to the end of a performance year, whereas ACOs that 
are projecting savings are likely to stay. Absent a change in our 
current policies on early termination, we believed these incentives 
could have a detrimental effect on the Medicare Trust Funds.
(2) Advance Notice of Voluntary Termination
    In the August 2018 proposed rule, we stated that we were 
sympathetic to stakeholder concerns that the existing requirement for a 
60-day notification period may hamper ACOs' ability to make timely and 
informed decisions about their continued participation in the program. 
A key factor in the timing of ACOs' participation decisions is the 
availability of program reports. Financial reconciliation reports 
(showing CMS' determination of the ACO's eligibility for shared savings 
or losses) are typically made available in the summer following the 
conclusion of the calendar year performance year (late July-August of 
the subsequent calendar year). Due to the timing of the production of 
quarterly reports (with information on the ACO's assigned beneficiary 
population, and expenditure and utilization trends), an ACO 
contemplating a year-end termination typically only has two quarters of 
feedback for the current performance year to consider in its decision-
making process. This is because quarterly reports are typically made 
available approximately 6 weeks after the end of the applicable 
calendar year quarter. For example, quarter 3 reports would be made 
available to ACOs in approximately mid-November of each performance 
year. These dates for delivery of program reports also interact with 
the application cycle timeline (with ACOs typically required to notify 
CMS of their intent to apply in May, typically before quarter 1 reports 
are available, and submit applications during the month of July, prior 
to receiving quarter 2 reports), as applicants seek to use financial 
reconciliation data for the prior performance year and quarterly report 
data for the current performance year to make participation decisions 
about their continued participation, particularly ACOs applying to 
renew their participation for a subsequent agreement period.
    In the proposed rule, we stated that our belief that adopting a 
shorter notice requirement would provide ACOs with more flexibility to 
consider their options with respect to their continued participation in 
the program. We therefore proposed to revise Sec.  425.220 to reduce 
the minimum notification period from 60 to 30 days. Reducing the notice 
requirement to 30 days would typically allow ACOs considering a year-
end termination to base their decision on three quarters of feedback 
reports instead of two, given current report production schedules.
    Comment: We received several comments supporting our proposal to 
reduce the notice requirement for voluntary termination to 30 days, 
with some commenters noting that this change would allow an ACO to have 
more data on which to base its participation decision for the upcoming 
performance year. A few other commenters noted that they would support 
reducing the minimum notification period if an ACO that complied with 
the notice requirement could voluntarily terminate from the program 
without financial reconciliation for that year.
    Response: We appreciate the commenters' support for this policy and 
agree that reducing the length of the notice requirement would allow an 
ACO to consider additional information, such as the information 
provided in their third quarter feedback reports, when making its 
participation decisions for the upcoming performance year and are 
finalizing this policy as proposed. As described in the next section of 
this final rule, we are also finalizing our proposal, with 
modification, to conduct financial reconciliation for voluntarily 
terminating ACOs with an effective date of termination after June 30 
and, if applicable, to pro-rate any shared losses. This policy for 
voluntarily terminating ACOs will be applicable for 12-month 
performance years beginning on or after January 1, 2020, delayed from 
the original proposed date of January 1, 2019. Under this policy, ACOs 
giving at least 30 days advance notice for an effective termination 
date on or before June 30 of the performance year will not be subject 
to financial reconciliation and will not be accountable for shared

[[Page 67940]]

losses for the performance year in which their termination becomes 
effective.
    Final Action: After considering the comments received on this 
issue, we are finalizing the proposed revisions to Sec.  425.220 to 
reduce the minimum notification period for voluntary termination from 
60 to 30 days without modification.
(3) Payment Consequences of Termination
    In section II.6.d.3 of the August 2018 proposed rule, we discussed 
the payment consequences of early termination of an ACO's participation 
agreement. We reconsidered the program's current policies on payment 
consequences of termination under Sec.  425.221 in light of our 
proposal to reduce the amount of advance notice from ACOs of their 
voluntarily termination of participation under Sec.  425.220. While we 
believed that the proposal to shorten the notice period for voluntary 
termination under Sec.  425.220 from 60 to 30 days would be beneficial 
to ACOs, we recognized that it might increase gaming among risk-bearing 
ACOs facing losses, as ACOs would have more time and information to 
predict their financial performance with greater accuracy.
    To deter gaming while still providing flexibility for ACOs in two-
sided models to make decisions about their continued participation in 
the program, we considered several policy alternatives to hold these 
ACOs accountable for some portion of the shared losses generated during 
the performance year in which they terminate their participation in the 
program.
    We first considered a policy similar to that used in the Next 
Generation ACO (NGACO) Model whereby ACOs may terminate without penalty 
if they provide notice of termination to CMS on or before February 28, 
with an effective date 30 days after the date of the notice (March 30). 
ACOs that terminate after that date are subject to financial 
reconciliation. These ACOs are liable for any shared losses 
determined.\20\ The NGACO Model adopted March 30 as the deadline for 
the effective termination date in order to align with timelines for the 
Quality Payment Program. Specifically, this date ensures that 
clinicians affiliated with a terminating NGACO will not be included in 
the March 31 snapshot date for QP determinations. However, while we 
acknowledged the merit of reducing provider uncertainty around Quality 
Payment Program eligibility, we also recognized that in the early part 
of the performance year ACOs have a limited amount of information on 
which to base termination decisions. We noted that we are especially 
concerned that holding ACOs accountable for full shared losses may lead 
many organizations to leave the program early in the performance year, 
including those that would have ultimately been eligible for shared 
savings had they continued their participation. Post-termination, 
Shared Savings Program ACOs no longer have access to the same program 
resources that can help facilitate care management, such as 
beneficiary-identifiable claims data or payment rule waivers, including 
the SNF 3-day rule waiver. This could make it more challenging for 
these entities to reduce costs, possibly offsetting any benefits to the 
Medicare Trust Funds from reduced gaming.
---------------------------------------------------------------------------

    \20\ In the August 2018 proposed rule (83 FR 41845), we 
inadvertently stated that the ACOs that terminate from the NGACO 
Model with an effective date of termination after March 30 are also 
eligible to share in savings. We wish to clarify that ACOs that 
terminate from the NGACO Model at any point after the start of the 
performance year are not eligible to earn shared savings for that 
performance year.
---------------------------------------------------------------------------

    Given the drawbacks of setting an early deadline for ACOs to 
withdraw without financial risk, we also considered a policy under 
which risk-bearing ACOs that voluntarily terminate with an effective 
date after June 30 of a performance year would be liable for a portion 
of any shared losses determined for the performance year. We explained 
that we believe June 30 is a reasonable deadline for the effective date 
of termination as it allows ACOs time to accumulate more information 
and make decisions regarding their continued participation in the 
program. As is the case under current policy, for eligible clinicians 
in an ACO that terminates its participation in a Shared Savings Program 
track that is an Advanced APM effective between March 31 and June 30, 
we would make QP determinations as specified in our regulation at Sec.  
414.1425(b) based on one or more QP determination snapshot periods 
(January 1-March 31, and possibly also January 1-June 30). But, in 
accordance with our regulations at Sec.  414.1425(c)(5) and (d)(3), an 
eligible clinician who would otherwise have received QP status based on 
one of those QP determinations would not be a QP or Partial QP for the 
year. Instead, those eligible clinicians would be subject to MIPS and 
scored using the APM scoring standard (unless they are excluded from 
MIPS on some other ground).
    We proposed to conduct financial reconciliation for all ACOs in 
two-sided models that voluntarily terminate after June 30. We proposed 
to use the full 12 months of performance year expenditure data in 
performing reconciliation for terminated ACOs with partial year 
participation. For those ACOs that generate shared losses, we would 
pro-rate the shared loss amount by the number of months during the year 
in which the ACO was in the program. To calculate the pro-rated share 
of losses, CMS would multiply the amount of shared losses calculated 
for the performance year by the quotient equal to the number of months 
of participation in the program during the performance year, including 
the month in which the termination was effective, divided by 12. We 
would count any month in which the ACO had at least 1 day of 
participation. Therefore, an ACO with an effective date of termination 
any time in July would be liable for 7/12 of any shared losses 
determined, while an ACO with an effective date of termination any time 
in August would be liable for 8/12, and so forth. An ACO with an 
effective date of termination in December would be liable for the 
entirety of shared losses. Terminated ACOs would continue to receive 
aggregate data reports following termination, but, as under current 
policy, would lose access to beneficiary-level claims data and any 
payment rule waivers.
    In the August 2018 proposed rule (83 FR 41846), we explained that 
we believe this approach provides an incentive for ACOs to continue to 
control growth in expenditures and report quality for the relevant 
performance year even after they leave the program, as both can reduce 
the amount of shared losses owed. Increasing the proportion of shared 
losses owed with the number of months in the year that the ACO remains 
in the program also helps to counteract the potential for gaming, as 
ACOs that wait to base their termination decision on additional 
information would be liable for a higher portion of any shared losses 
that are incurred. This approach also reflects the fact that ACOs that 
terminate later in the performance year would have had access to 
program flexibilities (for example, the SNF 3-day rule waiver) for a 
longer period of time.
    We also considered the payment consequences of early termination 
for ACOs that are involuntarily terminated by CMS under Sec.  425.218. 
Although these ACOs are not choosing to leave the program of their own 
accord and thus are not using termination as a means of avoiding their 
responsibility for shared losses, we believe they should not be excused 
from responsibility for some portion of shared losses simply because 
they failed to comply with program requirements.

[[Page 67941]]

Further, as we explained in the August 2018 proposed rule, we believe 
it is more appropriate to hold involuntarily terminated ACOs 
accountable for a portion of shared losses during any portion of the 
performance year. Since involuntary terminations can occur throughout 
the performance year, establishing a cut-off date for determining the 
payment consequences for these ACOs could allow some ACOs to avoid 
accountability for their losses. Therefore, we proposed to pro-rate 
shared losses for ACOs in two-sided models that are involuntarily 
terminated by CMS under Sec.  425.218 for any portion of the 
performance year during which the termination becomes effective. We 
proposed that the same methodology as previously described for pro-
rating shared losses for voluntarily terminated ACOs would also apply 
to determine shared losses for involuntarily terminated ACOs.
    We considered whether to allow ACOs voluntarily terminating after 
June 30 but before December 31 an opportunity to share in a portion of 
any shared saving earned. However, we decided to limit the proposed 
changes to shared losses. While we recognized that this approach might 
appear to favor CMS, we noted our belief that ACOs expecting to 
generate savings are less likely to terminate early in the first place. 
We explained that under the program's current regulations at Sec.  
425.221(b)(1), ACOs that voluntarily terminate effective December 31 
and that meet the current criteria in Sec.  425.221 may still share in 
savings. We note that this provision was subsequently revised in 
November 2018 final rule (83 FR 59958 and 59959) to refer to an 
effective date of termination of the last calendar day of the 
performance year, in order to allow the policies governing the payment 
consequences of early termination to apply to ACOs participating in a 
6-month performance year from January 1, 2019, through June 30, 2019.
    In the August 2018 proposed rule, we proposed to amend Sec.  
425.221 to provide that ACOs in two-sided models that are terminated by 
CMS under Sec.  425.218 or certain ACOs that voluntarily terminate 
under Sec.  425.220 will be liable for a pro-rated amount of any shared 
losses determined for the performance year in which the termination 
becomes effective, with the pro-rated amount reflecting the number of 
months during the performance year that the ACO was in the program. We 
proposed to apply this policy to ACOs in two-sided models for 
performance years beginning in 2019 and subsequent performance years.
    We also proposed to specify in the regulations at Sec.  425.221 the 
payment consequences of termination during CY 2019 for ACOs preparing 
to enter or participating under agreements beginning July 1, 2019. 
First, as discussed in detail in section II.A.7. of the proposed rule, 
we would reconcile ACOs based on the respective 6-month performance 
year methodology for their participation during a 6-month period in 
2019 in which they are either in a current agreement period beginning 
on or before January 1, 2019, or under a new agreement period beginning 
on July 1, 2019. We proposed that an ACO would be eligible to receive 
shared savings for a 6-month performance year during 2019, if they 
complete the term of this performance year, regardless of whether they 
choose to continue their participation in the program after the end of 
the performance year. That is, we would reconcile: ACOs that started a 
first or second agreement period on January 1, 2016, that extend their 
agreement period for a fourth performance year, and complete this 
performance year (concluding June 30, 2019); and ACOs that enter an 
agreement period on July 1, 2019, and terminate December 31, 2019, the 
final calendar day of their first performance year (defined as a 6-
month period).
    For an ACO that participates for a portion of a 6-month performance 
year during 2019 (January 1, 2019, through June 30, 2019, or July 1, 
2019, through December 31, 2019) we proposed the following: (1) If the 
ACO terminates its participation agreement effective before the end of 
the performance year, we would not reconcile the ACO for shared savings 
or shared losses (if a two-sided model ACO); (2) if CMS terminates a 
two-sided model ACO's participation agreement effective before the end 
of the performance year, the ACO would not be eligible for shared 
savings and we would reconcile the ACO for shared losses and pro-rate 
the amount reflecting the number of months during the performance year 
that the ACO was in the program.
    To determine pro-rated shared losses for a portion of the 6-month 
performance year, we would determine shared losses incurred during CY 
2019 and multiply this amount by the quotient equal to the number of 
months of participation in the program during the performance year, 
including the month in which the termination was effective, divided by 
12. We would count any month in which the ACO had at least one day of 
participation. Therefore, if an ACO that started a first or second 
agreement period on January 1, 2016, extended its agreement period for 
a 6-month performance year from January 1, 2019, through June 30, 2019, 
and was terminated by CMS with an effective date of termination of May 
1, 2019, the ACO would be liable for 5/12 of any shared losses 
determined. If a July 1, 2019 starter was terminated by CMS with an 
effective date of termination of November 1, 2019, the ACO would also 
be liable for 5/12 of any shared losses determined. An ACO with an 
effective date of termination in December would be liable for the 
entirety of shared losses for the 6-month performance year.
    Second, ACOs that are starting a 12-month performance year in 2019 
would have the option to participate for the first 6 months of the year 
prior to terminating their current agreement and entering a new 
agreement period beginning on July 1, 2019. This includes ACOs that 
would be starting their 2nd or 3rd performance year of an agreement 
period in 2019, as well as ACOs that deferred renewal under Sec.  
425.200(e) and are starting a new agreement period in Track 2 or Track 
3 on January 1, 2019. We proposed that ACOs with an effective date of 
termination of June 30, 2019, that enter a new agreement period 
beginning on July 1, 2019, would be eligible for pro-rated shared 
savings or shared losses for the 6-month period from January 1, 2019, 
through June 30, 2019, determined according to Sec.  425.609.
    In the August 2018 proposed rule (83 FR 41846), we noted that we 
believe some ACOs may act quickly to enter one of the new participation 
options made available under the proposed redesign of the program. We 
explained our view that ACOs that complete the 6-month period of 
participation in 2019 should have the opportunity to share in the 
savings or be accountable for the losses for this period. However, we 
acknowledged that certain ACOs may ultimately realize they are not yet 
prepared to participate under a new agreement beginning on July 1, 2019 
and seek to terminate quickly. We stated that although we would 
encourage ACOs to consider making the transition to one of the newly 
available participation options in 2019 in order to more quickly enter 
a participation agreement based on the proposed polices, we also did 
not want to unduly bind ACOs that aggressively pursue these new 
options. We believed the proposed approach would provide a means for 
ACOs to terminate their current participation agreement effective on 
June 30, 2019, prior to renewing their participation for an agreement 
period beginning July 1, 2019, or to quickly terminate from a

[[Page 67942]]

new agreement period beginning on July 1, 2019, without the concern of 
liability for shared losses for a portion of the year.
    In addition to the proposed changes to Sec.  425.221(b) to 
accommodate the proposed new requirements governing the payment 
consequences of early termination, we also proposed further revisions 
to streamline and reorganize the provisions in Sec.  425.221(b), which 
we believed were necessary to incorporate the proposed requirements. We 
sought comment on these proposals and the alternative policies 
discussed in section II.6.d.3 of the proposed rule.
    In section II.E.4 of the August 2018 proposed rule (83 FR 41899), 
we proposed policies to mitigate the impacts of extreme and 
uncontrollable circumstances on ACO quality and financial performance. 
As part of these proposals, we discussed an approach for mitigating 
shared losses for ACOs participating in a performance-based risk track 
(83 FR 41903 and 41904). In this discussion, we acknowledged that it is 
possible that ACOs that either voluntarily terminate after June 30th of 
a 12-month performance year or are involuntarily terminated and will be 
reconciled to determine a pro-rated share of any shared losses could 
also be affected by extreme and uncontrollable circumstances. In this 
case, we proposed that the amount of shared losses calculated for the 
calendar year would be adjusted to reflect the number of months and the 
percentage of the assigned beneficiary population affected by extreme 
and uncontrollable circumstances, before we calculate the pro-rated 
amount of shared losses for the portion of the year the ACO 
participated in the Shared Savings Program. For example, assume that: A 
disaster was declared for October 2019 through December 2019; an 
affected ACO had been involuntarily terminated on March 31, 2019 and 
will be reconciled for its participation during the portion of the 
performance year from January 1, 2019 through March 31, 2019. The ACO 
is determined to have shared losses of $100,000 for calendar year 2019; 
and 25 percent of the ACO's assigned beneficiaries reside in the 
disaster area. In this scenario, we would adjust the ACO's losses in 
the following manner: $100,000-($100,000 x 0.25 x 0.25) = $100,000-
$6,250 = $93,750, then we would multiply these losses by the portion of 
the year the ACO participated = $93,750 x 0.25 = $23,437.50.
    We proposed to specify in revisions to Sec. Sec.  425.606(i) and 
425.610(i), and in the proposed new provision for the BASIC track at 
Sec.  425.605(f), that the policies regarding extreme and 
uncontrollable circumstances proposed in section II.E.4 of the August 
2018 proposed rule would also apply to ACOs that are reconciled for a 
partial year of performance under Sec.  425.221(b)(2) as a result of 
voluntary or involuntary early termination. The proposed revisions to 
Sec. Sec.  425.606(i) and 425.610(i) also addressed the applicability 
of these policies to a Track 2 or Track 3 ACO that starts a 12-month 
performance year on January 1, 2019, and then elects to voluntarily 
terminate its participation agreement with an effective termination 
date of June 30, 2019, and enters a new agreement period starting on 
July 1, 2019; these ACOs would be reconciled for the performance period 
from January 1, 2019, through June 30, 2019, consistent with the 
proposed new provision at Sec.  425.221(b).
    Comment: One commenter expressed support for our proposal to pro-
rate shared losses for any ACO in a two-sided model that voluntarily 
terminates after June 30 or that is involuntarily terminated by CMS 
under Sec.  425.218. The commenter also supported our proposed 
methodology for calculating pro-rated shared losses.
    Several commenters agreed that an ACO that voluntarily terminates 
from the program should be held responsible for repayment of pro-rated 
shared losses based on the date of termination; however, they expressed 
their belief that an ACO that is involuntarily terminated by CMS should 
not be held responsible for any shared losses. They believe that an ACO 
that is involuntarily terminated by CMS is willing to continue to 
participate in the program and comply with program requirements, and, 
therefore, if CMS chooses to terminate any such ACO's participation 
agreement, CMS should be the one to absorb any losses.
    Response: We appreciate the support for our proposals to pro-rate 
shared losses and for our proposed methodology for calculating pro-
rated shared losses. We are finalizing these policies as proposed with 
the exception of the date of applicability which, as described below, 
is being delayed to performance years starting on or after July 1, 
2019.
    We disagree with the commenters who believe that an ACO that is 
subject to involuntary termination by CMS under Sec.  425.218 should be 
unaccountable for any shared losses. Under Sec.  425.218, CMS may 
terminate an ACO's participation agreement when the ACO, or its ACO 
participants, ACO provider/suppliers or other individuals or entities 
performing functions or services related to ACO activities, failed to 
comply with one or more program requirements. Accordingly, we believe 
that it would be unfair to treat any such ACO more favorably with 
respect to the payment consequences of early termination than an ACO 
that voluntarily decided to terminate its participation agreement.
    Comment: Several commenters requested that we reconsider allowing 
ACOs that voluntarily terminate after June 30 (but before December 31) 
an opportunity to share in a portion of any savings earned. A few of 
these commenters noted that there may be scenarios in which an ACO is 
forced to terminate early, and the ACO should not be penalized when 
such scenarios occur. Another commenter suggested that we allow an ACO 
that terminates early to continue to be eligible to share in savings so 
long as the ACO meets the criteria set forth in Sec.  425.221. It was 
unclear whether this commenter was expressing support for our existing 
policy set forth in Sec.  425.221, regarding an ACO's eligibility to 
receive shared savings when the ACO terminates its participation prior 
to the end of its agreement period with an effective date of December 
31 of a performance year, or whether the commenter believes that an ACO 
should be eligible to receive shared savings when it terminates its 
participation agreement before December 31 of a performance year so 
long as the ACO completes the requisite close-out procedures described 
in the current provision at Sec.  425.221(a).
    Response: We continue to believe that it is important to maintain 
incentives for continued program participation and therefore, we 
decline to make any changes to our existing policies regarding the 
eligibility of an ACO to share in savings when the ACO voluntarily 
terminates its participation agreement. Under the program's current 
regulations at Sec.  425.221(b)(1), an ACO that voluntarily terminates 
its participation agreement effective on the last calendar day of the 
performance year and that meets the criteria in Sec.  425.221 may still 
share in savings.
    Comment: One commenter opposed our proposal to conduct financial 
reconciliation for ACOs in two-sided models that voluntarily terminate 
after June 30, stating that it would compel an ACO to assume greater 
risk for losses during the year in which it voluntarily terminates. The 
commenter also noted that there are significant adjustments to 
benchmarks that occur as part of the annual financial reconciliation 
that are unknowable to ACOs early in the year, providing limited time 
for planning and decision-making regarding program participation. The 
commenter further

[[Page 67943]]

stated that most ACOs have invested significant resources to 
participate in the program and usually terminate only as a last resort.
    Response: We recognize that, in contrast to our current 
regulations, our proposed policies regarding the payment consequences 
of early termination would place ACOs at risk for shared losses in a 
year in which they voluntarily terminate prior to the end of the 
performance year. We also recognize that ACOs deciding whether to 
terminate early will be required to do so with incomplete information. 
While we do not intend to harm ACOs that decide to terminate as a last 
resort, we believe that our proposed policies are necessary to 
safeguard the Medicare Trust Funds against ACOs potentially gaming 
their participation decisions.
    Comment: Several commenters, while not expressing general 
opposition to requiring a voluntarily terminating ACO to repay a pro-
rated share of shared losses, did disagree with our proposal to use 
June 30 as the cut-off date for determining whether an ACO would be 
liable, noting that ACOs would not have sufficient information on which 
to base a termination decision that early in the year. One commenter 
expressed the belief that the proposed date was problematic given 60- 
to 90-day lags associated with being able to perform claims-based 
analytics and therefore recommended that CMS simply continue the 
current practice of not pro-rating shared losses for early termination. 
Another commenter noted that an ACO would only have one quarter of 
performance year data by that point and would not have yet received its 
financial reconciliation report for the prior performance year. This 
commenter noted that a June 30 deadline would also conflict with the 
performance period for QPs under the Quality Payment Program, which 
ends on August 31, thus potentially affecting their ability to qualify 
as participating in an Advanced APM. The commenter recommended that CMS 
should therefore hold an ACO accountable for shared losses only if the 
ACO voluntarily terminates with an effective termination date on or 
after August 31.
    Commenters also suggested several other different alternatives to 
the proposed June 30 cut-off date. Several commenters expressed the 
belief that ACOs should have three quarters of data available to them 
to make an informed decision about continued participation. A few other 
commenters suggested using an effective date of termination for this 
policy that is 30 days after the receipt of second quarter data. 
Another commenter requested using September 30 as the cut-off date, 
noting this deadline would allow ACOs time to fully analyze two 
quarters of financial data before making the decision to voluntarily 
terminate. Another commenter supported using a September 30 date for 
ACOs in their first year under any risk track model and, in particular, 
for ACOs in Level C of the BASIC track.
    Response: We believe there are trade-offs between allowing ACOs 
more time and information to make participation decisions without 
penalty and requiring an earlier cut-off date to reduce the risk of 
gaming. We continue to believe that the proposed cut-off date of June 
30 strikes a balance between these trade-offs. We also acknowledge one 
commenter's point that under this policy there may be cases in which an 
ACO voluntarily terminates with an effective date after June 30 but 
before August 31 would mean that QPs participating in the ACO would no 
longer qualify as participating in an Advanced APM even though the ACO 
would still be accountable for a portion of any shared losses. However, 
we believe that the potential benefits to the Trust Funds outweighs 
this concern. For these reasons, we decline to adopt the commenters' 
suggested alternatives and are finalizing our proposal to hold ACOs in 
two-sided models that voluntarily terminate with an effective date 
after June 30 liable for a pro-rated share of shared losses.
    Comment: One commenter recommended that CMS take into consideration 
whether an ACO had experienced an extreme and uncontrollable 
circumstance when applying the proposed policies around payment 
consequences of early termination. The commenter requested that the 
proposed methodology exclude losses that occur as a direct result of an 
extreme and uncontrollable event.
    Response: In the November 2018 final rule we finalized our 
proposals to extend the extreme and uncontrollable circumstances 
policies used for performance year 2017 to performance year 2018 and 
subsequent years (see 83 FR 59968 through 59979). In this final rule we 
are finalizing additional changes to address how these policies will be 
implemented for ACOs that are responsible for pro-rated shared losses 
under our new policies governing the payment consequences of early 
termination and that experience an extreme and uncontrollable event 
during the calendar year in which their termination becomes effective. 
Specifically, we will calculate the ACO's shared loss amount based on 
the 12 month calendar year, adjusting the shared losses amount to 
reflect the number of months and the percentage of the assigned 
beneficiary population affected by extreme and uncontrollable 
circumstances, before we calculate the pro-rated amount of shared 
losses for the portion of the year the ACO participated in the Shared 
Savings Program before termination. Accordingly, the policies we are 
finalizing regarding the payment consequences of early termination do 
in fact consider whether an ACO experienced an extreme and 
uncontrollable circumstance during the performance year and the losses 
that may have occurred as a result of any such circumstance.
    Final Action: After considering the comments received, we are 
finalizing the proposals described in this section with modifications 
to reflect a new date of applicability. We are amending Sec.  
425.221(b) of the regulations to provide that for performance years 
beginning on or after July 1, 2019, ACOs in two-sided models with an 
effective termination date before the last calendar day of the 
performance year that voluntarily terminate under Sec.  425.220 with an 
effective date of termination after June 30 or that are terminated by 
CMS at any time during the performance year will be liable for a pro-
rated amount of any shared losses determined, with the pro-rated amount 
reflecting the number of months during the performance year that the 
ACO was in the program.
    We originally proposed that the modifications to our policies on 
the payment consequences of early termination would be effective for 
performance years beginning in 2019. As a result of the delayed date of 
applicability, we are not finalizing our proposal to require ACOs under 
a two-sided risk model that begin a 6-month performance year on January 
1, 2019, and that are involuntarily terminated by CMS to repay a pro-
rated amount of any shared losses determined. However, we are 
finalizing our proposal that ACOs under a two-sided model that begin a 
6-month performance year on July 1, 2019, and that are involuntarily 
terminated by CMS would be required to repay a pro-rated amount of any 
shared losses determined. We are finalizing this provision at Sec.  
425.221(b)(2)(ii). As reflected in Sec.  425.221(b)(3)(i), we are also 
finalizing our proposal that ACOs that start a 12-month performance 
year on January 1, 2019, that subsequently terminate their 
participation agreement with an effective date of termination of June 
30, 2019, and enter a new agreement period beginning on July 1, 2019, 
would be

[[Page 67944]]

eligible for pro-rated shared savings or accountable for pro-rated 
shared losses for the 6-month period from January 1, 2019, through June 
30, 2019, as determined in accordance with Sec.  425.609.
    We are also finalizing our proposal that the amount of shared 
losses determined for ACOs that are liable for pro-rated shared losses 
due to early termination will be adjusted to account for extreme and 
uncontrollable circumstances through revisions to Sec. Sec.  425.606(i) 
and 425.610(i) and in the new provision for the BASIC track at Sec.  
425.605(f).
7. Participation Options for Agreement Periods Beginning in 2019
a. July 1, 2019 Agreement Start Date and Early Renewal Option
(1) Background From the August 2018 Proposed Rule on Proposals for 6-
Month Performance Years During CY 2019
    In the August 2018 proposed rule (83 FR 41847 through 41849), we 
proposed a July 1, 2019 start date for ACOs to enter agreement periods 
under the proposed new participation options within the BASIC track and 
the ENHANCED track, and a voluntary 6-month extension for ACOs whose 
first or second agreement periods expire December 31, 2018 to ensure 
these ACOs could continue their participation in the program without 
interruption. In conjunction with these proposals, we would also need a 
methodology to determine performance for ACOs under two, 6-month 
performance years during CY 2019, from January 1, 2019, through June 
30, 2019, and from July 1, 2019, through December 31, 2019.
    We explained that in the November 2011 final rule establishing the 
Shared Savings Program, we implemented an approach for accepting and 
reviewing applications from ACOs for participation in the program on an 
annual basis, with agreement periods beginning January 1 of each 
calendar year. We also finalized an approach to offer two application 
periods for the first year of the program, allowing for an April 1, 
2012 start date and a July 1, 2012 start date. In establishing these 
alternative start dates for the program's first year, we explained that 
the statute does not prescribe a particular application period or 
specify a start date for ACO agreement periods (see 76 FR 67835 through 
67837). We considered concerns raised by commenters about a January 1, 
2012 start date, which would have closely followed the November 2011 
publication of the final rule. Specifically, commenters were concerned 
about the ability of potential ACOs to organize, complete, and submit 
an application in time to be accepted into the first cohort as well as 
our ability to effectively review applications by January 1, 2012. 
Comments also suggested that larger integrated health care systems 
would be able to meet the application requirements on short notice 
while small and rural entities might find this timeline more difficult 
and could be unable to meet the newly-established application 
requirements for a January 1 start date (76 FR 67836).
    In the August 2018 proposed rule, we explained that the 
considerations that informed our decision to establish alternative 
start dates at the inception of the Shared Savings Program were also 
relevant in determining the timing for making the proposed new 
participation options available. We explained that postponing the start 
date for agreement periods under these new participation options until 
later in 2019 would allow ACOs time to consider the new participation 
options and prepare for program changes; make investments and other 
business decisions about participation; obtain buy-in from their 
governing bodies and executives; complete and submit an application 
that conforms to the new participation options, if finalized; and 
resolve any deficiencies and provider network issues that may be 
identified, including as a result of program integrity and law 
enforcement screening. Postponing the start date for new agreement 
periods would also allow both new applicants and ACOs currently 
participating in the program an opportunity to make any changes to the 
structure and composition of their ACO as may be necessary to comply 
with the new program requirements for the ACO's preferred participation 
option, if changes to the participation options are finalized as 
proposed.
    Therefore, we proposed to offer a July 1, 2019 start date as the 
initial opportunity for ACOs to enter an agreement period under the 
BASIC track or the ENHANCED track. As described in the August 2018 
proposed rule, we anticipated the application cycle for the July 1, 
2019 start date would begin in early 2019. We also elected to forgo the 
application cycle that otherwise would take place during CY 2018 for a 
January 1, 2019 start date for new Shared Savings Program participation 
agreements, initial use of the SNF 3-day rule waiver (as further 
discussed in section II.A.7.c.(1). of this final rule), and entry into 
the Track 1+ Model (as further discussed in section II.F. of this final 
rule). We explained that although several ACOs that entered initial 
agreements beginning in 2015 had deferred renewal into a second 
agreement period by 1 year in accordance with Sec.  425.200(e) and will 
begin participating in a new 3-year agreement period beginning on 
January 1, 2019 under a performance-based risk track, applications 
would not be accepted from other ACOs for a new agreement period 
beginning on January 1, 2019. We proposed that the July 1, 2019 start 
date would be a one-time opportunity, and thereafter we would resume 
our typical process of offering an annual application cycle that allows 
for review and approval of applications in advance of a January 1 
agreement start date. Therefore, we anticipated also offering an 
application cycle in 2019 for a January 1, 2020 start date for new, 5-
year participation agreements, and continuing to offer an annual start 
date of January 1 thereafter. We acknowledged that a delayed 
application due date for an agreement period beginning in 2019 could 
affect parties planning to participate in the Shared Savings Program 
for performance year 2019 and that are relying on the pre-participation 
waiver. Guidance for affected parties was posted on the CMS website. 
See Medicare Shared Savings Program Waivers: Special ACO Pre-
Participation Waiver Guidance for the 2019 Application Cycle (Issued: 
August 9, 2018), available at https://www.cms.gov/Medicare/Fraud-and-Abuse/PhysicianSelfReferral/Downloads/2019-Pre-Participation-Waiver-Guidance.pdf.
    We also explained that under the current Shared Savings Program 
regulations, the policies for determining financial and quality 
performance are based on an expectation that a performance year will 
have 12 months that correspond to the calendar year. Beneficiary 
assignment also depends on use of a 12-month assignment window, with 
retrospective assignment based on the 12-month calendar year 
performance year, and prospective assignment based on an offset 
assignment window before the start of the performance year. Given the 
calendar year basis for performance years under the current 
regulations, we considered how to address--(1) the possible 6-month 
lapse in participation that could result for ACOs that entered a first 
or second 3-year agreement period beginning on January 1, 2016, due to 
the lack of availability of an application cycle for a January 1, 2019 
start date; and (2) the July 1 start date for agreement periods 
starting in 2019.
    To address the implications of a midyear start date on program 
participation and applicable program requirements, we considered our 
previous experience with the program's

[[Page 67945]]

initial entrants, April 1, 2012 starters and July 1, 2012 starters. In 
particular, we considered our approach for determining these ACOs' 
first performance year results (see Sec.  425.608). The first 
performance year for April 1 and July 1 starters was defined as 21 and 
18 months respectively (see Sec.  425.200(c)(2)). The methodology we 
used to determine shared savings and losses for these ACOs' first 
performance year consisted of an optional interim payment calculation 
based on the ACO's first 12 months of participation and a final 
reconciliation occurring at the end of the ACO's first performance 
year. This final reconciliation took into account the 12 months covered 
by the interim payment period as well as the remaining 6 or 9 months of 
the performance year, thereby allowing us to determine the overall 
savings or losses for the ACO's first performance year. All ACOs opting 
for an interim payment reconciliation, including ACOs participating 
under Track 1, were required to assure CMS of their ability to repay 
monies determined to be owed upon final first year reconciliation. For 
Track 2 ACOs, the adequate repayment mechanism required for entry into 
a performance-based risk arrangement was considered to be sufficient to 
also assure return of any overpayment of shared savings under the 
interim payment calculation. Track 1 ACOs electing interim payment were 
similarly required to demonstrate an adequate repayment mechanism for 
this purpose. (See 76 FR 67942 through 67944).
    This interim payment calculation approach used in the program's 
first year resulted in relatively few ACOs being eligible for payment 
based on their first 12 months of program participation. Few Track 1 
ACOs established the required repayment mechanism in order to be able 
to receive an interim payment of shared savings, if earned. Not all 
Track 2 ACOs, which were required to establish repayment mechanisms as 
part of their participation in a two-sided model, elected to receive 
payment for shared savings or to be held accountable for shared losses 
based on an interim payment calculation. Of the 114 ACOs reconciled for 
a performance year beginning on April 1 or July 1, 2012, only 16 
requested an interim payment calculation in combination with having 
established the required repayment mechanism. Of these 16 ACOs, 9 were 
eligible for an interim payment of shared savings, of which one Track 1 
ACO was required to return the payment based on final results for the 
performance year. One Track 2 ACO repaid interim shared losses, which 
were ultimately returned to the ACO based on its final results for the 
performance year.
    This approach to interim and final reconciliation was developed for 
the first two cohorts of ACOs, beginning in the same year and to which 
the same program requirements applied. The program has since evolved to 
include different benchmarking methodologies (depending on whether an 
ACO is in its first agreement period, or second agreement period 
beginning in 2016 or in 2017 and subsequent years) and different 
assignment methodologies (prospective assignment and preliminary 
prospective assignment with retrospective reconciliation), among other 
changes. In the August 2018 proposed rule, we expressed concern about 
introducing further complexity into program calculations by proposing 
to follow a similar approach of offering an extended performance year 
with the option for an interim payment calculation with final 
reconciliation for ACOs affected by the delayed application cycle for 
agreement periods starting in 2019.
    To address the implications of a midyear start date on program 
participation and applicable program requirements, we proposed to use 
an approach that would maintain financial reconciliation and quality 
performance determinations based on a 12-month calendar-year period, 
but would pro-rate shared savings/shared losses for each potential 6-
month period of participation during 2019. Accordingly, we proposed an 
approach for implementing the proposed July 1, 2019 start date that 
included the following opportunities for ACOs, based on their agreement 
period start date:
    ACOs entering an agreement period beginning on July 1, 2019, would 
be in a participation agreement for a term of 5 years and 6 months, of 
which the first performance year would be defined as 6 months (July 1, 
2019, through December 31, 2019), and the 5 remaining performance years 
of the agreement period would each consist of a 12-month calendar year.
    ACOs that entered a first or second agreement period with a start 
date of January 1, 2016, would have the opportunity to elect to extend 
their agreement period for an optional fourth performance year, defined 
as the 6-month period from January 1, 2019 through June 30, 2019. This 
election to extend the agreement period would be voluntary and an ACO 
could choose not to make this election and therefore conclude its 
participation in the program with the expiration of its current 
agreement period on December 31, 2018. As discussed in section 
II.A.7.a.(2) of this final rule, we finalized the 6-month extension and 
the related policies for the 6-month performance year from January 1, 
2019, through June 30, 2019, in the November 2018 final rule.
    An existing ACO that wants to quickly move to a new participation 
agreement under the BASIC track or the ENHANCED track could voluntarily 
terminate its participation agreement with an effective date of 
termination of June 30, 2019, and apply to enter a new agreement period 
with a July 1, 2019 start date to continue its participation in the 
program. This includes 2017 starters, 2018 starters, and 2015 starters 
that deferred renewal by 1 year, and entered into a second agreement 
period under Track 2 or Track 3 beginning on January 1, 2019. If the 
ACO's application is approved by CMS, the ACO could enter a new 
agreement period beginning on July 1, 2019. (We would consider these 
ACOs to be early renewals.) ACOs currently in an agreement period that 
includes a 12-month performance year 2019 that choose to terminate 
their current participation agreement effective June 30, 2019, and 
enter a new agreement period beginning on July 1, 2019, would be 
reconciled for their performance during the first 6 months of 2019. As 
described in section II.A.5.c.(5).(b). of this final rule, an ACO's 
participation options for the July 1, 2019 start date would depend on 
whether the ACO is a low revenue ACO or a high revenue ACO and the 
ACO's experience with performance-based risk Medicare ACO initiatives. 
As described in the August 2018 proposed rule, and section 
II.A.5.c.(5).(c) of this final rule, an early renewal ACO would be 
considered to be entering its next consecutive agreement period for 
purposes of the applicability of policies that phase-in over time (the 
weight used in the regional benchmark adjustment, equal weighting of 
the benchmark years, and the quality performance standard).
    In the August 2018 proposed rule, we considered several 
alternatives to the proposal to offer an agreement period of 5 years 
and 6 months beginning on July 1, 2019 (made up of 6 performance years, 
the first of which is 6 months in duration). We considered whether to 
offer instead an agreement period of five performance years (including 
a first performance year of 6 months). Under this alternative the 
agreement period would be 4 years and 6 months in duration. As 
previously described, in section II.A.2. of this final rule in 
connection with the discussion of our

[[Page 67946]]

proposal to extend the agreement period from 3 years to 5 years, 
program results have shown that ACOs tend to perform better the longer 
they are in the program and longer agreement periods provide additional 
time for ACOs to perform against a benchmark based on historical data 
from the 3 years prior to their start date. Further, the proposed 
changes to the benchmarking methodology (see section II.D. of this 
final rule) would result in more accurate benchmarks and mitigate the 
effects of reliance on increasingly older historical data as the 
agreement period progresses. We believed these considerations were also 
relevant to the proposed one-time exception to allow for a longer 
agreement period of 5 years and 6 months for ACOs that enter a new 
agreement period on July 1, 2019.
    We also considered forgoing an application cycle for a 2019 start 
date altogether and allowing ACOs to enter agreement periods for the 
BASIC track and ENHANCED track for the first time beginning in January 
1, 2020. We noted that this approach would allow ACOs additional time 
to consider the redesign of the program, make organizational and 
operational plans, and implement business and investment decisions, and 
would avoid the complexity of needing to determine performance based on 
6-month performance years during CY 2019. However, our proposed 
approach of offering an application cycle during 2019 for an agreement 
period start date of July 1, 2019, would allow for a more rapid 
progression of ACOs to the redesigned participation options, starting 
in mid-2019. Further, we noted that under this alternative, we would 
also want to offer ACOs that started a first or second agreement period 
on January 1, 2016, a means to continue their participation between the 
conclusion of their current 3-year agreement (December 31, 2018) and 
the start of their next agreement period (January 1, 2020), should the 
ACO wish to continue in the program. Under an alternative that would 
postpone the start date for the new participation options to January 1, 
2020, we would need to allow ACOs that started a first or second 
agreement period on January 1, 2016, to elect a 12-month extension of 
their current agreement period to cover the duration of CY 2019.
    We also proposed a number of modifications to the regulations text 
in order to effectuate the decision to delay the start date to July 1, 
2019, and to allow for agreement periods of at least five years as 
opposed to 3-year agreement periods. We proposed modifications to the 
definitions of ``agreement period'' and ``performance year'' in Sec.  
425.20. We proposed modifications to the provision at Sec.  
425.200(b)(2) to reflect that the term of the participation agreement 
is 3 years and 6 months for an ACO that entered an agreement period 
starting on January 1, 2016, that elects to extend its agreement period 
until June 30, 2019. We proposed to add a heading to Sec.  
425.200(b)(3) to specify that the provision applies to agreement 
periods beginning in 2017 and 2018. In addition, we proposed to add a 
new provision at Sec.  425.200(b)(4) to specify that, for agreement 
periods beginning in 2019 the start date is--(1) January 1, 2019, and 
the term of the participation agreement is 3 years for ACOs whose first 
agreement period began in 2015 and who deferred renewal of their 
participation agreement under Sec.  425.200(e); or (2) July 1, 2019, 
and the term of the participation agreement is 5 years and 6 months. We 
also proposed to add a new provision at Sec.  425.200(b)(5) to specify 
that, for agreement periods beginning in 2020 and subsequent years, the 
start date is January 1 of that year and the term of the participation 
agreement is 5 years.
    In light of the proposed modifications to Sec.  425.200(c) to 
establish two 6-month performance years during CY 2019, we also 
proposed to revise the regulation at Sec.  425.200(d), which reiterates 
an ACO's obligation to submit quality measures in the form and manner 
required by CMS for each performance year of the agreement period, to 
address the quality reporting requirements for ACOs participating in a 
6-month performance year during CY 2019.
    We sought comment on these proposals and the related 
considerations, as well as the alternatives considered.
(2) Background on the November 2018 Final Rule Establishing a Voluntary 
6-Month Performance Year From January 1, 2019, Through June 30, 2019 
for Eligible ACOs
    In the November 2018 final rule (83 FR 59941 through 59959), we 
finalized a voluntary 6-month extension for ACOs that entered a first 
or second agreement period beginning on January 1, 2016, whose 
agreement periods would otherwise expire December 31, 2018. We also 
adopted a methodology for determining financial and quality performance 
for the 6-month performance year from January 1, 2019, through June 30, 
2019, in a new section of the regulations at Sec.  425.609. Under this 
methodology, we will perform reconciliation for ACOs that extend their 
agreement period for the 6-month performance year from January 1, 2019, 
through June 30, 2019, based on the ACO's performance during the entire 
12-month calendar year, and then pro-rate the calendar year shared 
savings or shared losses to reflect the ACO's participation in that 6-
month period.
    We also finalized certain changes to the program's regulations to 
establish the 6-month extension and to make certain technical and 
conforming changes. We finalized as proposed the modifications to the 
definition of ``agreement period'' in Sec.  425.20 to broaden the 
definition to generally refer to the term of the participation 
agreement and the revisions to Sec.  425.200(a) to allow for agreement 
periods greater than 3 years. We also finalized our proposal to add a 
provision at Sec.  425.200(b)(2) specifying that the term of the 
participation agreement is 3 years and 6 months for an ACO that entered 
an agreement period starting on January 1, 2016, that elects to extend 
its agreement period until June 30, 2019.
    We also finalized as proposed the revision to the definition of 
``performance year'' in Sec.  425.20 to mean the 12-month period 
beginning on January 1 of each year during the agreement period, unless 
otherwise specified in Sec.  425.200(c) or noted in the participation 
agreement. Therefore, we also finalized the proposed revisions to Sec.  
425.200(c) to make necessary formatting changes and specify an 
additional exception to the definition of performance year as a 12-
month period. Specifically, we finalized our proposal to add a 
provision specifying that for an ACO that entered a first or second 
agreement period with a start date of January 1, 2016, and that elects 
to extend its agreement period by a 6-month period, the ACO's fourth 
performance year is the 6-month period between January 1, 2019, and 
June 30, 2019.
    In light of the modifications we finalized to Sec.  425.200(c) to 
establish a 6-month performance year during CY 2019, we also finalized 
the proposed revisions to the regulation at Sec.  425.200(d), which 
reiterates an ACO's obligation to submit quality measures in the form 
and manner required by CMS for each performance year of the agreement 
period, to address the quality reporting requirements for ACOs 
participating in the 6-month performance year from January 1, 2019, 
through June 30, 2019. We noted that ACOs electing the voluntary 6-
month extension will be required to report quality measures for the 
2019 reporting period, based on CY 2019, consistent with the existing 
quality reporting process and methodology.

[[Page 67947]]

(3) Establishing a July 1, 2019 Start Date and Early Renewal Option
    In the following discussion, we address the comments we received on 
our proposal to allow for a July 1, 2019 agreement start date, as well 
as the alternatives we considered to this proposed approach. We also 
address comments we received on the proposed early renewal option that 
would allow ACOs currently in an agreement period that includes a 12-
month performance year 2019 that choose to terminate their current 
participation agreement effective June 30, 2019, and enter a new 
agreement period beginning on July 1, 2019, to be reconciled for their 
performance during the first 6 months of 2019. We described these 
proposals in section II.A.7.a.(1) of this final rule.
    Comment: Some commenters supported the proposed approach of 
offering a July 1, 2019 agreement start date, indicating the importance 
of providing ACOs the opportunity to begin or continue their 
participation in the program. Some commenters expressed their 
disappointment that the delay in rulemaking prevented a new cohort of 
ACOs from starting on January 1, 2019, and indicated that many ACOs 
have been eagerly awaiting application details and are prepared to 
participate in 2019. These commenters explained that while the timing 
will present challenges, such as a compressed timeline to analyze 
program changes, review application materials, make decisions regarding 
participation and gather all of the required information to submit 
applications, it is critical that CMS continue to offer a participation 
option for 2019. One commenter explained that given the interconnected 
relationship between the Shared Savings Program and the Quality Payment 
Program, it is crucial that CMS policy development not inadvertently 
deter ACOs from transitioning to risk in 2019.
    Of the commenters addressing the timing for implementation of the 
redesigned participation options, many commenters urged CMS to 
implement the redesigned participation options under the BASIC track 
and the ENHANCED track for agreement periods beginning on January 1, 
2020 and in subsequent years. Many of these commenters suggested 
allowing ACOs whose agreement periods expire on December 31, 2018, a 
12-month extension instead of a 6-month extension.
    Commenters expressed the following concerns with the proposed July 
1, 2019 start date:

    <bullet> Commenters raised concerns regarding the approach for 
determining performance for the two, 6-month performance years, as 
summarized elsewhere in section II.A.7 of this final rule. Some 
commenters expressed concerns about the complexity caused by ACOs 
being reconciled under two different methodologies for each 6-month 
performance year during CY 2019, with some ACOs operating under 
current program rules and others operating under new program rules. 
One commenter stated that the proposed July 1, 2019 start date, if 
implemented, would add confusion and make the program less 
predictable for participating providers whose prior experience with 
the program has been based on full calendar year performance 
periods.
    <bullet> Some commenters expressed concerns about rapid 
implementation of the proposed redesigned participation options. One 
commenter explained that in past experience when CMS has rushed the 
application period and start date it has resulted in implementation 
issues. One commenter pointed to the significant changes proposed to 
the program, and the lateness of the proposed rule as reasons to 
move the start date from July 1, 2019, to January 1, 2020. Several 
commenters suggested that CMS should ensure there is enough time for 
CMS and participants to consider the participation options, and 
prepare for an application cycle after the final rule is finalized. 
A few commenters requested that CMS delay the implementation of the 
redesigned participation options under the BASIC track and the 
ENHANCED track until January 1, 2020, if CMS is not ready to 
implement the new participation options for a July 1, 2019 start 
date.
    Another commenter suggested allowing at least a 6-month 
preparation period for the application cycle after publication of 
the final rule so that ACOs and ACO participants can adequately 
prepare and successfully implement any changes adopted in the final 
rule.
    <bullet> Several commenters expressed concerns about the timing 
of a mid-year start date, because ACOs would have limited data about 
their performance during performance year 2018, and the first 6-
months of 2019 (if applicable).
    <bullet> One commenter stated that a July 1, 2019 start date 
would result in only six months to improve performance.
    Commenters explained that the advantages of a January 1, 2020 
start date included the following:
    <bullet> Allowing additional time for ACOs and program 
stakeholders to assess the policy changes and for ACOs, ACO 
participants and ACO providers/suppliers to make participation 
decisions to maximize their financial and quality outcomes. One 
commenter explained that CMS and program stakeholders will need time 
to disseminate information to physicians.
    <bullet> Giving new ACOs adequate time to form and to review 
participation criteria.
    <bullet> Allowing CMS additional time to ensure smooth and 
effective implementation of the significant changes that were 
proposed in the August 2018 proposed rule.
    <bullet> Avoiding the complexity of the July 1, 2019 start date 
and the methodology for determining performance for the two, 6-month 
performance years during CY 2019. One commenter explained a January 
2020 start date was preferable because it would give ACOs the 
opportunity to succeed under the new participation options for a 
full 12-month performance year, as opposed to requiring these ACOs 
to participate in two partial years under 2 different methodologies.
    <bullet> Allowing ACOs entering performance-based risk models 
additional time to prepare their repayment mechanism arrangements, 
including to raise capital for their repayment mechanism.

    Other commenters more generally urged CMS to slow the pace of 
regulatory change for the Shared Savings Program. One commenter 
explained that early adopters of the Shared Savings Program have 
expressed dissatisfaction with CMS' repeated changes to the program 
requirements and structure, which the commenter describes as burdensome 
particularly for rural and small health systems. One commenter 
expressed their appreciation for the changes to date implemented by CMS 
throughout the Medicare program to meaningfully reduce provider burden 
and allow providers to spend more time with patients. However, the 
commenter expressed their belief that implementing new Shared Savings 
Program participation agreements under such an accelerated timeframe 
does not align with these other welcomed reductions in provider burden 
or with CMS' goals of strengthening and stabilizing the Shared Savings 
Program.
    Response: We appreciate commenters' support for the proposed one-
time, July 1, 2019 agreement period start date. This mid-year start 
date would allow for continuity in participation by ACOs whose 
agreement periods expire December 31, 2018, that elect to voluntarily 
extend their current agreement period for the 6-month performance year 
from January 1, 2019, through June 30, 2019, under the policies adopted 
in the November 2018 final rule (83 FR 59942 through 59946), without 
requiring additional rulemaking to establish an option for a longer 
extension. Recently, 90 percent of eligible ACOs with a first or second 
agreement period start date of January 1, 2016, whose agreements would 
otherwise expire on December 31, 2018, elected to voluntarily extend 
their agreements for the 6-month performance year from January 1, 2019, 
through June 30, 2019. We believe this demonstrates a high level of 
interest by ACOs in continuing their participation in the program by 
preserving their option to renew their participation uninterrupted for 
a new agreement period starting on July 1, 2019.

[[Page 67948]]

    Further, as discussed in the August 2018 proposed rule, we continue 
to believe it is important to create a pathway for ACOs to more rapidly 
transition to performance-based risk. Allowing for a July 1, 2019 
agreement start date would allow for a more rapid progression to the 
redesigned participation options under the BASIC track and the ENHANCED 
track, compared to alternatives that would postpone implementation of 
the redesigned participation options until 2020 or later. We also 
recognize the possibility that there are prospective ACOs that may have 
been unable to apply to enter the program given our decision to forgo 
an application cycle in CY 2018 for a January 1, 2019 agreement start 
date, and a July 1, 2019 start date will allow them to enter the 
program sooner.
    We refer readers to the November 2018 final rule (83 FR 59942 
through 59946) for our responses to comments on the length of the 
extension available to ACOs whose agreement periods expire December 31, 
2018. We believe many of the same considerations discussed in those 
responses are relevant in responding to the comments suggesting that we 
forgo an application cycle in CY 2019 and offer an initial agreement 
start date under the redesigned participation options of January 1, 
2020 (necessitating a 12 month extension for ACOs whose agreement 
periods expire December 31, 2018). For instance, we believe ACOs whose 
agreement periods expire on December 31, 2018, have been weighing their 
participation options in advance of applying to renew for a subsequent 
agreement period, and will have additional time to make these 
determinations during the 6-month extension (if elected). In 
particular, ACOs reaching the end of their second agreement period 
under Track 1, would already have been weighing their participation 
options under two-sided models, given the current requirement that ACOs 
transition to a two-sided model by the start of their third agreement 
period in the program. In fact, our decision to finalize the 6-month 
extension allows ACOs completing their second agreement period in Track 
1 to continue participation under their current agreement period and 
thereby have additional time under a one-sided model that otherwise 
would not have been available to them.
    In response to commenters' concerns about the timing of a mid-year 
agreement period start date in relation to the availability of 
performance results for prior performance years, including performance 
year 2018 and the 6-month performance year from January 1, 2019, 
through June 30, 2019, we note that we provide ACOs with quarterly and 
annual aggregate program reports as well as other tools that they can 
use to track and estimate their performance. We educate ACOs on the use 
of quarterly program data to predict their financial performance. 
Therefore, we believe that ACOs have access to a variety of resources 
to assess their performance trends in order to help inform their 
participation decisions.
    With respect to the commenter's concern that ACOs entering the 
program with an agreement period start date of July 1, 2019 would have 
only six months to improve performance, we note that such ACOs may take 
steps to ensure their readiness to meet the program's objectives in 
advance of program entry. Specifically, we believe that ACOs preparing 
to enter an initial agreement period starting on July 1, 2019, may wish 
to take steps to ensure their operational readiness by implementing 
redesigned care processes in preparation to meet the program's goals 
beginning July 1, 2019. These steps will assist these ACOs in 
succeeding under the approach for determining performance for the 6-
month performance year from July 1, 2019, through December 31, 2019, 
which we are finalizing in this final rule, under which they will be 
accountable for pro-rated performance during the entire CY 2019. 
Further we believe ACOs new to the Shared Savings Program that are 
considering participation under the BASIC track's glide path may find 
the longer agreement period available with the July 1, 2019 start date 
advantageous. With an agreement period spanning 5 years and 6 months, 
ACOs that start in the program on July 1, 2019, would gain additional 
time in the program under the same historical benchmark prior to 
benchmark rebasing. As we previously described in section II.A.2. of 
this final rule, ACOs may find the greater predictability of benchmarks 
under longer agreement periods to be an advantage. Under our policies 
described in section II.A.7.c.(7). of this final rule, ACOs entering 
the BASIC track's glide path under a one-sided model, for an agreement 
period beginning on July 1, 2019, gain an additional 6-months of 
participation under a one-sided model, prior to being automatically 
advanced through the glide path. Therefore, eligible ACOs entering an 
agreement period beginning on July 1, 2019, may participate for a total 
of 2.5 years (3 performance years) under a one-sided model if they 
begin in Level A and transition through each level of the glide path, 
or 3.5 years (4 performance years) if the ACO is a new legal entity, 
low revenue ACO that enters in Level A, transitions to Level B, and 
opts to remain in Level B for an extra performance year before 
transitioning to Level E for the remaining years of its agreement 
period.
    We appreciate commenters' concerns about the possible need for 
additional time for CMS to prepare to implement the redesigned 
participation options. However, the timeframe for implementing the 
initial offering of the redesigned participation options for a July 1, 
2019 start date is operationally feasible. We have recently redesigned 
our ACO management system, which supports application management 
functions among other functions. This management system facilitates our 
implementation of the redesigned participation options finalized in 
this final rule. The system changes include providing new user friendly 
interfaces for ACOs to manage their ACO participant list and list of 
ACO providers/suppliers. We have received positive feedback from ACOs 
on the functionality of this new system, which includes opportunities 
for real-time feedback on the Medicare enrollment status of ACO 
participants and streamlined processes. We also note that compared to 
the first year of the program where we had 3 application cycles, in 
advance of the April 1, 2012, July 1, 2012, and January 1, 2013 start 
dates, we will have only two application cycles in CY 2019, in advance 
of the July 1, 2019 start date and January 1, 2020 start date. 
Furthermore, unlike the first year of the program, we now have 
experience with 8 application cycles, and have applied lessons learned 
to streamline the process to make it more user friendly and efficient 
after each cycle. As a result, we will be able to provide an efficient 
and transparent process for ACOs to apply for a new agreement period 
beginning on July 1, 2019, so that they may begin participation under 
the redesigned program options as soon as possible.
    On balance, we believe it is important not to delay the 
implementation of the redesigned participation options under the Shared 
Savings Program, and to offer an opportunity for ACOs to enter the 
program or renew their participation for an agreement period under the 
new BASIC track or the ENHANCED track beginning on July 1, 2019. While 
we recognize that ACOs, ACO participants, and ACO providers/suppliers 
will need to adapt to the redesigned program requirements, we decline 
commenters'

[[Page 67949]]

suggestions that we delay the implementation of these changes, and 
thereby maintain the status quo, in an effort to avoid the burden 
associated with what we believe are necessary program changes to drive 
ACOs to more aggressively pursue the program's goals of lowering growth 
in Medicare FFS expenditures and improving quality of care for Medicare 
beneficiaries.
    We appreciate commenters' concerns about the potential complexity 
of the approach for determining performance for 6-month performance 
years during CY 2019, as opposed to an alternative approach that would 
allow for implementation of the redesigned participation options for 
agreement periods beginning on January 1, 2020, and subsequent years, 
which would maintain 12-month performance years. To assist ACOs in 
understanding the operational details of participation in a 6-month 
performance year from July 1, 2019, through December 31, 2019, we 
anticipate providing education and offering outreach to ACOs through 
the various methods available, including guidance documents, webinars, 
FAQs and a weekly newsletter.
    In sections II.A.7.b. and II.A.7.c. of this final rule we respond 
to comments on the specific aspects of the methodology for determining 
financial and quality performance for the 6-month performance year from 
July 1, 2019, through December 31, 2019, and other aspects of program 
participation affected by a 6-month performance year, including 
concerns about ACOs participating in two 6-month performance years 
during CY 2019.
    Comment: One commenter urged CMS to stagger the implementation of 
the proposed program redesign, so that it would apply on July 1, 2019, 
as proposed only to those ACOs that have been in the Shared Savings 
Program the longest, and would go into effect on January 1, 2020, for 
organizations that joined the program more recently, and January 1, 
2021 for organizations that began in the program in 2018.
    Response: We decline the commenter's suggested approach for 
staggering the program redesign policies based upon an ACO's experience 
within the Shared Savings Program. As discussed previously, we continue 
to believe it is important to create a pathway for ACOs to more rapidly 
transition to performance-based risk. We note, as explained in section 
II.A.2 of this final rule, ACOs within a current agreement period may 
complete their current agreement under their existing track (Track 1, 
Track 2, Track 3, or the Track 1+ Model). Under the policies we 
proposed and are finalizing, these ACOs would be required to renew in 
either the BASIC track or the ENHANCED track to continue their 
participation in the Shared Savings Program for a subsequent agreement 
period. For example, ACOs that entered a first or second agreement 
period beginning on January 1, 2016, and that elect the voluntary 6-
month extension for the performance year from January 1, 2019, through 
June 30, 2019, would need to renew under the redesigned program 
participation options for a new agreement period beginning on July 1, 
2019. ACOs with a first or second agreement period start date of 
January 1, 2017, or January 1, 2018, would be required to renew in 
either the BASIC track or the ENHANCED track to continue their 
participation in the Shared Savings Program for a subsequent agreement 
period beginning on January 1, 2020, or January 1, 2021 (respectively).
    Comment: Several commenters expressed confusion over whether ACOs 
may complete their current 3-year agreement period, or if early renewal 
for an agreement beginning on July 1, 2019, is mandatory. One commenter 
questioned whether the early renewal option includes the 6-month 
extension from January 1, 2019, through June 30, 2019.
    Response: We wish to clarify that early renewal is voluntary. Early 
renewal does not include a 6-month extension from January 1, 2019, 
through June 30, 2019, which was finalized in the November 2018 final 
rule and is limited to ACOs that entered a first or second agreement 
period beginning on January 1, 2016, whose agreement periods would 
otherwise expire on December 31, 2018. However, we note that early 
renewal will be available for ACOs that begin a 12-month performance 
year on January 1, 2019, and voluntarily elect to terminate their 
participation agreement with an effective date of termination of June 
30, 2019, in order to enter a new agreement period starting on July 1, 
2019. As discussed in section II.A.7.b. of this final rule, these early 
renewal ACOs would be reconciled for the 6-month performance period 
from January 1, 2019, through June 30, 2019, and for the 6-month 
performance year from July 1, 2019, through December 31, 2019.
    Comment: A few commenters expressed their support for the 
availability of the ACO Pre-Participation Waiver to protect ACO-related 
start-up arrangements in anticipation of new participants in the Shared 
Savings Program and the proposed redesigned program tracks.
    Response: We thank the commenters for their feedback. Comments on 
the waivers of fraud and abuse laws are beyond the scope of this 
rulemaking. However, we note that on August 9, 2018, OIG and CMS 
jointly issued special guidance on the start date and end dates of the 
ACO Pre-Participation Waiver for the 2019 application cycle. See 
Medicare Shared Savings Program Waivers: Special ACO Pre-Participation 
Waiver Guidance for the 2019 Application Cycle (Issued: August 9, 
2018), available at https://www.cms.gov/Medicare/Fraud-and-Abuse/PhysicianSelfReferral/Downloads/2019-Pre-Participation-Waiver-Guidance.pdf. Complete information on fraud and abuse waivers issued in 
connection with the Shared Savings Program is available at: https://www.cms.gov/Medicare/Fraud-and-Abuse/PhysicianSelfReferral/Fraud-and-Abuse-Waivers.html. No waivers of any fraud and abuse authorities are 
being issued in this final rule.
    Final Action: After consideration of the public comments received, 
we are finalizing our proposal for a one-time July 1, 2019 agreement 
period start date as the initial opportunity for ACOs to enter an 
agreement period under the redesigned participation options of the 
BASIC track or the ENHANCED track as described in sections II.A.2. and 
II.A.3. of this final rule. Further, as described in section II.A.5.c. 
of this final rule, we are finalizing our proposals with respect to the 
removal of the ``sit-out'' period after termination, and the definition 
of ``renewing ACO'' and are revising our regulations to allow an ACO to 
terminate its current participation agreement and renew early by 
entering a new agreement period without a break in participation. Under 
these final policies, ACOs that begin a 12-month performance year on 
January 1, 2019, may voluntarily elect to terminate their participation 
agreement with an effective date of termination of June 30, 2019, in 
order to enter a new agreement period under the new participation 
options starting on July 1, 2019.
    We are finalizing the proposed modifications to Sec.  425.200(b)(3) 
to add a heading to specify that the provision applies to agreement 
periods beginning in 2017 and 2018. We are also finalizing the addition 
of a new provision at Sec.  425.200(b)(4) to specify that, for 
agreement periods beginning in 2019 the start date is--(1) January 1, 
2019, and the term of the participation agreement is 3 years for ACOs 
whose first agreement period began in 2015 and who deferred renewal of 
their participation agreement under Sec.  425.200(e); or (2) July 1, 
2019, and the

[[Page 67950]]

term of the participation agreement is 5 years and 6 months. We are 
also finalizing the addition of a new provision at Sec.  425.200(b)(5) 
specifying that, for agreement periods beginning in 2020 and subsequent 
years, the start date is January 1 of the applicable year, and the term 
of the participation agreement is 5 years.
    We are also finalizing the proposed revisions to Sec.  425.200(c) 
to incorporate an additional exception to the definition of performance 
year as a 12-month period. We are adding paragraph (c)(3) specifying 
that for an ACO that entered an agreement period with a start date of 
July 1, 2019, the ACO's first performance year of the agreement period 
is defined as the 6-month period between July 1, 2019, and December 31, 
2019.
    The provision at Sec.  425.200(d), as revised in the November 2018 
final rule, reiterates an ACO's obligation to submit quality measures 
in the form and manner required by CMS for each performance year of the 
agreement period, including as applicable according to Sec.  425.609. 
Because the existing language of Sec.  425.200(d), as revised by the 
November 2018 final rule, is broad enough to cover the quality 
reporting requirements for both 6-month performance years as specified 
under Sec.  425.609, no further revision to this provision is required 
at this time to reflect our decision to finalize the July 1, 2019 
agreement start and the provisions in Sec.  425.609(c) governing the 6-
month performance year from July 1, 2019, through December 31, 2019 
(see section II.A.7.c.(4) of this final rule for a discussion of the 
related quality reporting requirements).
b. Methodology for Determining Financial and Quality Performance for 
the 6-Month Performance Year During 2019
(1) Overview
    In this section we discuss our final policies for determining 
financial and quality performance for the 6-month performance year from 
July 1, 2019, through December 31, 2019. We also finalize an approach 
for determining performance during the period from January 1, 2019, 
through June 30, 2019, for ACOs that begin a 12-month performance year 
on January 1, 2019, and terminate their participation agreement with an 
effective date of termination of June 30, 2019, in order to enter a new 
agreement period starting on July 1, 2019. Consistent with our proposal 
in the August 2018 proposed rule (83 FR 41851 through 41853), the 
methodology that we are adopting for making this determination aligns 
with the methodology for determining financial and quality performance 
for ACOs whose agreement periods would otherwise expire on December 31, 
2018, that voluntarily elect to extend their agreement for the 6-month 
performance year from January 1, 2019, through June 30, 2019, as 
finalized in the November 2018 final rule (83 FR 59946 through 59951) 
and as specified at Sec.  425.609(b). As we noted in the August 2018 
proposed rule, this approach to reconciling ACO performance for a 6-
month performance year (or performance period) during 2019 will not 
alter the methodology that will be applied to determine financial 
performance for ACOs that complete a 12 month performance year 
corresponding to CY 2019 (83 FR 41850). In this section of this final 
rule, we also explain that the policies we are adopting require use of 
our authority under section 1899(i)(3) of the Act.
    Consistent with the approach taken in the August 2018 proposed 
rule, we use two terms, ``6-month performance year'' and ``performance 
period'' in discussing the 6-month periods during 2019. We use the term 
``6-month performance year'' to refer to the following: (1) The fourth 
performance year from January 1, 2019, through June 30, 2019, for ACOs 
that started a first or second agreement period on January 1, 2016, and 
extend their current agreement period for this 6-month period; and (2) 
the first performance year from July 1, 2019, through December 31, 
2019, for ACOs that enter an agreement period beginning on July 1, 
2019. For an ACO starting a 12-month performance year on January 1, 
2019, that terminates its participation agreement with an effective 
date of termination of June 30, 2019, and enters a new agreement period 
beginning on July 1, 2019, we refer to the 6-month period from January 
1, 2019, through June 30, 2019, as a ``performance period''.
    In section II.A.7.b. of the August 2018 proposed rule, we proposed 
to use the same overall approach to determining ACO financial and 
quality performance for the two 6-month performance years during CY 
2019 (the 6-month performance year from January 1, 2019, through June 
30, 2019, and the 6-month performance year from July 1, 2019, through 
December 31, 2019). We noted that the specific policies used to 
calculate factors used in making these determinations would differ 
based on the ACO's track, its agreement period start date, and the 
agreement period in which the ACO participates (for factors that phase-
in over multiple agreement periods). In the August 2018 proposed rule, 
we proposed to specify the methodologies for reconciling these 6-month 
performance years during 2019 in a new section of the regulations at 
Sec.  425.609.
    Under our proposed approach to determining performance for ACOs 
participating in the 6-month performance years (or the 6-month 
performance period) during 2019, CMS would reconcile the financial and 
quality performance of these ACOs after the conclusion of CY 2019. For 
ACOs that extended their agreement period for the 6-month performance 
year from January 1, 2019, through June 30, 2019, or ACOs that 
terminated their agreement period early on June 30, 2019, and entered a 
new agreement period beginning on July 1, 2019, CMS would first 
reconcile the ACO based on its performance during the entire 12-month 
calendar year, and then pro-rate the calendar year shared savings or 
shared losses to reflect the ACO's participation in that 6-month 
period. In a separate calculation, CMS would reconcile an ACO that 
participated for a 6-month performance year from July 1, 2019, through 
December 31, 2019, for the 12-month calendar year in a similar manner, 
and pro-rate the shared savings or shared losses to reflect the ACO's 
participation during that 6-month performance year.
    In the August 2018 proposed rule (83 FR 41850 and 41851), we 
explained this approach would avoid a more burdensome interim payment 
process that could accompany an alternative approach of implementing, 
for example, an 18-month performance year from July 1, 2019 to December 
31, 2020. Consistent with the policies that applied to the 18- and 21-
month performance years offered for the first cohorts of Shared Savings 
Program ACOs, such a policy could require ACOs to establish a repayment 
mechanism that otherwise might not be needed, create uncertainty over 
whether the ACO may ultimately need to repay CMS based on final results 
for the extended performance year, and delay ACOs seeing a return on 
their investment in program participation, if eligible for shared 
savings.
    We explained our belief that the proposed approach of determining 
performance during a 6-month performance year (or performance period) 
based on data for the full 12-month calendar year would allow 
continuity in program operations (including operations that occur on a 
calendar year basis) for ACOs that have either one or two 6-month 
performance years (or performance period) within CY 2019. Specifically, 
the proposed

[[Page 67951]]

approach would allow for payment reconciliation to remain on a calendar 
year basis, which would be most consistent with the calendar year-based 
methodology for calculating benchmark expenditures, trend and update 
factors, risk adjustment, county expenditures and regional adjustments. 
We also explained that deviating from a 12-month reconciliation 
calculation by using fewer than 12 months of expenditures could 
interject actuarial biases relative to the benchmark expenditures, 
which are based on 12-month benchmark years. As a result, we believed 
this approach to reconciling ACOs based on a 12-month period would 
protect the actuarial soundness of the financial reconciliation 
methodology. We also explained our belief that the alignment of the 
proposed approach with the standard methodology used to perform the 
same calculations for 12-month performance years that correspond to a 
calendar year would make it easier for ACOs and other program 
stakeholders to understand the proposed methodology.
    As is the case with typical calendar year reconciliations in the 
Shared Savings Program, we anticipated results with respect to 
participation during CY 2019 would be made available to ACOs in summer 
2020. We explained that this would allow those ACOs that are eligible 
to share in savings as a result of their participation in the program 
during CY 2019 to receive payment of shared savings following the 
conclusion of the calendar year consistent with the standard process 
and timing for annual payment reconciliation under the program. We 
proposed to provide separate reconciliation reports for each 6-month 
performance year (or performance period) and to pay shared savings or 
recoup shared losses separately for each 6-month performance year (or 
performance period) during 2019 based on these results.
    In section II.A.7.b.(2). of the August 2018 proposed rule (83 FR 
41851 through 41853), we described in detail our proposed approach to 
determining an ACO's performance for the 6-month performance year from 
January 1, 2019, through June 30, 2019. These policies were adopted in 
the November 2018 final rule (83 FR 59946 through 59951) and are 
specified in paragraph (b) of a new section of the regulations at Sec.  
425.609.
(2) Determining Performance for the 6-Month Performance Year From July 
1, 2019, Through December 31, 2019
    In section II.A.7.b.(3). of the August 2018 proposed rule (83 FR 
41853 through 41854), we described in detail our proposed approach to 
determining an ACO's performance for the 6-month performance year from 
July 1, 2019, through December 31, 2019. Our proposed policies 
addressed the following: (1) The ACO participant list that will be used 
to determine beneficiary assignment; (2) the approach to assigning 
beneficiaries for the 6-month performance year; (3) the quality 
reporting period for the 6-month performance year; (4) the benchmark 
year assignment methodology and the methodology for calculating, 
adjusting and updating the ACO's historical benchmark; and (5) the 
methodology for determining shared savings and shared losses for the 
ACO for the performance year. We proposed to specify the methodology 
for reconciling the 6-month performance year from July 1, 2019, through 
December 31, 2019, in paragraph (c) of a new section of the regulations 
at Sec.  425.609.
    We noted that in determining performance for the 6-month 
performance year from July 1, 2019, through December 31, 2019, we would 
follow the same general methodological steps for calculating pro-rated 
shared savings and shared losses as would apply for the 6-month 
performance year from January 1, 2019 through June 30, 2019. However, 
we noted that, for example, the applicable benchmarking methodology, 
which is based on the ACO's agreement period in the program, and 
financial model, which is based on the track in which the ACO is 
participating, would be different.
    We proposed to use the ACO participant list for the performance 
year beginning July 1, 2019, to determine beneficiary assignment, 
consistent with the assignment methodology the ACO selected at the 
start of its agreement period under proposed Sec.  425.400(a)(4)(ii). 
As discussed in section II.A.7.c. of the August 2018 proposed rule (83 
FR 41855 through 41856), this would be the ACO participant list that 
was certified as part of the ACO's application to enter an agreement 
period beginning on July 1, 2019.
    To determine beneficiary assignment, we proposed to consider the 
allowed charges for primary care services furnished to the beneficiary 
during a 12 month assignment window, allowing for a 3 month claims run 
out. For the 6-month performance year from July 1, 2019, through 
December 31, 2019, we proposed to determine the assigned beneficiary 
population using the following assignment windows:

    <bullet> For ACOs under preliminary prospective assignment with 
retrospective reconciliation, the assignment window would be CY 
2019.
    <bullet> For ACOs under prospective assignment, Medicare FFS 
beneficiaries would be prospectively assigned to the ACO based on 
the beneficiary's use of primary care services in the most recent 12 
months for which data are available. We would use an assignment 
window before the start of the agreement period on July 1, 2019. As 
an example, we noted that we could use an assignment window from 
April 30, 2018, through March 31, 2019 (note that the example in the 
proposed rule inadvertently included only 11 months and should have 
been April 1, 2018, through March 31, 2019). Under this approach, 
the 3-month gap between the end of the assignment window and the 
start of the performance year would be consistent with the typical 
gap for calendar year performance years that begin on January 1. 
Beneficiaries would remain prospectively assigned to the ACO at the 
end of CY 2019 unless they meet any of the exclusion criteria under 
Sec.  425.401(b) during the calendar year.

    As discussed in section II.A.7.c.(4). of the August 2018 proposed 
rule (83 FR 41856), to determine ACO performance during either 6-month 
performance year in 2019, we proposed to use the ACO's quality 
performance for the 2019 reporting period, and to calculate the ACO's 
quality performance score as provided in Sec.  425.502.
    Consistent with current program policy, we would determine 
assignment for the benchmark years based on the ACO's certified ACO 
participant list for the agreement period beginning on July 1, 2019.
    For the 6-month performance year from July 1, 2019, through 
December 31, 2019, we would calculate the benchmark and assigned 
beneficiary expenditures as though the performance year were the entire 
calendar year. The ACO's historical benchmark would be determined 
according to the methodology applicable to the ACO based on its 
agreement period in the program. We proposed to apply the methodology 
for establishing, updating and adjusting the ACO's historical benchmark 
as specified in proposed Sec.  425.601, except that data from CY 2019 
would be used in place of data for the 6-month performance year in 
certain calculations, as follows:

    <bullet> The benchmark would be adjusted for changes in severity 
and case mix between benchmark year 3 and CY 2019 based on growth in 
prospective HCC risk scores, subject to a symmetrical cap of 
positive or negative 3 percent that would apply for the agreement 
period such that the adjustment between BY3 and any performance year 
in the agreement period would never be more than 3 percent in either 
direction. (See the discussion in section II.D.2. of the August 2018 
proposed rule.)

[[Page 67952]]

    <bullet> The benchmark would be updated to CY 2019 according to 
the methodology described under proposed Sec.  425.601(b) using a 
blend of national and regional growth rates. (See the discussion in 
section II.D.3.(d). of the August 2018 proposed rule.)

    For determining performance during the 6-month performance year 
from July 1, 2019, through December 31, 2019, we would apply the 
methodology for determining shared savings and shared losses according 
to the approach specified for the ACO's track under its agreement 
period beginning on July 1, 2019: The proposed BASIC track (Sec.  
425.605) or ENHANCED track (Sec.  425.610). However, we acknowledged 
that some exceptions to the otherwise applicable methodology would be 
needed because we were proposing to calculate the expenditures for 
assigned beneficiaries over the full CY 2019 for purposes of 
determining shared savings and shared losses for the 6-month 
performance year from July 1, 2019 through December 31, 2019. We 
proposed to use the following steps to calculate shared savings and 
shared losses:

    <bullet> Average per capita Medicare expenditures for Parts A 
and B services for CY 2019 would be calculated for the ACO's 
performance year assigned beneficiary population. Additionally, when 
calculating CY 2019 expenditures to be used in determining 
performance for the July 1, 2019 through December 31, 2019 
performance year, we would include expenditures for all assigned 
beneficiaries that are alive as of January 1, 2019, including those 
with a date of death prior to July 1, 2019, except prospectively 
assigned beneficiaries that are excluded under Sec.  425.401(b). We 
explained that the inclusion of beneficiaries with a date of death 
before July 1, 2019, is necessary to maintain consistency with 
benchmark year and regional expenditure adjustments and associated 
trend and update factor calculations.
    <bullet> We would compare these expenditures to the ACO's 
updated benchmark determined for the calendar year as previously 
described.
    <bullet> We would apply the MSR and MLR (if applicable).
    ++ The ACO's assigned beneficiary population for the performance 
year starting on July 1, 2019, would be used to determine the MSR 
for one-sided model ACOs (under Level A or Level B of the BASIC 
track) and the variable MSR/MLR for ACOs in a two-sided model that 
selected this option at the start of their agreement period. In the 
event a two-sided model ACO selected a fixed MSR/MLR at the start of 
its agreement period, and the ACO's performance year assigned 
population falls below 5,000 beneficiaries, the MSR/MLR would be 
determined based on the number of assigned beneficiaries as proposed 
in section II.A.6.b. of the August 2018 proposed rule (83 FR 41837 
through 41839).
    ++ To qualify for shared savings, the ACO's average per capita 
Medicare expenditures for its performance year assigned 
beneficiaries during CY 2019 must be below its updated benchmark for 
the year by at least the MSR established for the ACO.
    ++ To be responsible for sharing losses with the Medicare 
program, the ACO's average per capita Medicare expenditures for its 
performance year assigned beneficiaries during CY 2019 must be above 
its updated benchmark for the year by at least the MLR established 
for the ACO.
    <bullet> We would determine the shared savings amount if we 
determine the ACO met or exceeded the MSR, and if the ACO met the 
minimum quality performance standards established under Sec.  
425.502, and as described in section II.A.7.c.(4) of the August 2018 
proposed rule (83 FR 41856 through 41858), and otherwise maintained 
its eligibility to participate in the Shared Savings Program. We 
would determine the shared losses amount if we determine the ACO met 
or exceeded the MLR. To determine these amounts, we would do the 
following:
    ++ We would apply the final sharing rate or loss sharing rate to 
first dollar savings or losses.
    ++ For ACOs that generated savings that met or exceeded the MSR, 
we would multiply the difference between the updated benchmark 
expenditures and performance year assigned beneficiary expenditures 
by the applicable final sharing rate based on the ACO's track and 
its quality performance under Sec.  425.502.
    ++ For ACOs that generated losses that met or exceeded the MLR, 
we would multiply the difference between the updated benchmark 
expenditures and performance year assigned beneficiary expenditures 
by the applicable shared loss rate based on the ACO's track and its 
quality performance under Sec.  425.502 (for ACOs in the ENHANCED 
track where the loss sharing rate is determined based on the ACO's 
quality performance).
    <bullet> We would adjust the shared savings amount for 
sequestration by reducing by 2 percent and compare the 
sequestration-adjusted shared savings amount to the applicable 
performance payment limit based on the ACO's track.
    <bullet> We would compare the shared losses amount to the 
applicable loss sharing limit based on the ACO's track.
    <bullet> We would pro-rate any shared savings amount, as 
adjusted for sequestration and the performance payment limit, or any 
shared losses amount, as adjusted for the loss sharing limit, by 
multiplying by one half, which represents the fraction of the 
calendar year covered by the 6-month performance year. This pro-
rated amount would be the final amount of shared savings that would 
be paid to the ACO for the 6-month performance year or the final 
amount of shared losses that would be owed by the ACO for the 6-
month performance year.

    We sought comment on these proposals.
    Comment: Several commenters expressed concerns that under the 
proposed approach, ACOs participating in the performance year from July 
1, 2019, through December 31, 2019, would also be accountable for their 
financial performance during the first six months of CY 2019. Several 
commenters indicated that ACOs would not have program reports or 
sufficient patient data to affect care for their assigned population 
during the first six months of CY 2019, during the period prior to the 
start of their agreement period. These commenters noted this concern 
with respect to ACOs that are entering an initial agreement period 
beginning on July 1, 2019, as well as ACOs that are currently 
participating in the program that make ACO participant list changes 
effective for a new agreement period beginning on July 1, 2019. To 
address this issue, one commenter suggested that one approach could be 
to create a 6-month benchmark comparison that adjusts for the ACO's 
participation in a portion of the year, taking into account differences 
in expenditures based on seasonality.
    Response: We appreciate the commenters' concern that ACOs entering 
agreement periods beginning on July 1, 2019, may have relatively little 
data in order to be able to understand and affect change for their 
assigned Medicare FFS population for the 6-month performance year, but 
would be accountable for the cost and quality of care for this 
beneficiary population for the entire 12 month CY 2019. We note, 
beneficiaries who are prospectively assigned or preliminary 
prospectively assigned to the ACO would have received the plurality of 
their primary care services from physicians and other practitioners in 
the ACO during the 12 month assignment window. As a result, ACO 
participants will have data based on the services they furnished to 
these Medicare FFS beneficiaries. Additionally, to assist in addressing 
this concern, we will provide aggregate and beneficiary-level data, 
consistent with Sec. Sec.  425.702 and 425.704 (respectively), shortly 
after ACOs begin the agreement period. We will provide each ACO with an 
Assignment List Report identifying the ACO participant and ACO 
provider/supplier who provided the most primary care services to an 
assigned beneficiary during the assignment window. Further, we will 
provide monthly beneficiary-identifiable claim and claim line feed data 
files. The first time a beneficiary is included in an eligible ACO's 
claim and claim line feed data files we provide 36 months of historical 
Part A, B and D data to the ACO.
    Additionally, quarterly and annual aggregate reports include 
expenditure and utilization trends, and demographic data on the ACO's 
assigned population

[[Page 67953]]

will be provided during the performance year. This information should 
help ACOs identify the practitioners with data necessary to coordinate 
care for their beneficiaries, observe trends in the care for the ACO's 
assigned population, and support the ACO's care coordination activities 
for its assigned population during the 6-month performance year from 
July 1, 2019, through December 31, 2019.
    We continue to believe the proposed approach is the most 
appropriate methodology for determining an ACO's financial and quality 
performance for the 6-month performance year from July 1, 2019, through 
December 31, 2019, based on its performance during the entire 12-month 
calendar year. This approach maintains alignment with the program's 
existing methodology for using 12 months of expenditure data in 
determining the ACO's financial performance, and also allows for the 
use of a 12-month period for quality measure assessment. Further, this 
approach maintains alignment with the methodology we finalized for the 
6-month performance year from January 1, 2019, through June 30, 2019, 
in the November 2018 final rule. We therefore decline to adopt the 
commenter's suggestion to use an alternative approach of calculating 
the benchmark based on a period of other than 12 months, such as 6 
months.
    Comment: A few commenters suggested that ACOs beginning an 
agreement period on July 1, 2019, should participate in an 18-month 
first performance year under the new agreement. Another commenter 
suggested that CMS allow for 18-month performance years in subsequent 
years, as well as for agreement periods beginning on July 1, 2019.
    Response: We decline to adopt the commenters' suggestions that we 
allow for an 18-month performance year for ACOs entering agreement 
periods beginning on July 1, 2019, and in subsequent years. In the 
August 2018 proposed rule (83 FR 41850 through 41851), we explained our 
concerns about using a performance year that is determined based on a 
period other than 12 months, and described the challenges with our 
experience with the program's initial 21-month and 18-month performance 
years for ACOs entering the Shared Savings Program with start dates in 
2012. We expressed our concerns that using such an approach might 
introduce further complexity into program calculations, and could 
require ACOs to establish a repayment mechanism that otherwise might 
not be required, adding additional burden and expense. In addition, we 
noted that this approach would create uncertainty over whether the ACO 
may ultimately need to repay CMS based on final results for the 
extended performance year and delay ACOs seeing a return on their 
investment in program participation if eligible for shared savings.
    Comment: Many commenters expressed concerns about the potential 
burden on ACOs of managing and implementing the necessary modifications 
to operational processes to account for two separate beneficiary 
populations (derived from two separate ACO participant lists, and 
potentially two different assignment windows and assignment 
methodologies) in one calendar year, while also meeting program 
expectations. Several commenters indicated that the burdens associated 
with this approach could result in shared losses and/or possible exit 
from the program by ACOs under a two-sided model.
    A few commenters expressed this concern, in particular, for ACOs 
under the prospective assignment methodology. They explained that while 
some beneficiaries will be attributed to the ACO for both performance 
periods, there will be a portion of an ACO's beneficiary population 
that is assigned for only one performance period. For beneficiaries 
assigned for only the first performance period, the ACO would have to 
continue to deploy resources to manage this population even after they 
are no longer assigned to the ACO. For beneficiaries assigned only in 
the second performance period, the ACO would be responsible for costs 
incurred in the first half of the year when the ACO had no ability to 
manage these beneficiaries' care. As a result, ACOs will have to scale 
up resources and infrastructure in order to mitigate the impact on 
quality and cost. Moreover, with little influence over beneficiaries' 
expenditures outside of the performance period, ACOs could potentially 
be at risk for exceeding their benchmark.
    To address these concerns, some commenters suggested that CMS use a 
single assignment window and beneficiary assignment methodology to 
determine an ACO's assigned beneficiary population for the entire CY 
2019, including for ACOs that participate in multiple performance years 
during 2019, regardless of whether the ACO is in the fourth performance 
year of an extended agreement period, the first half of a 12-month 
performance year starting on January 1, 2019, or an initial performance 
year under the proposed BASIC track or ENHANCED track starting on July 
1, 2019. Specifically, some commenters suggested that we use the 
assignment window from October 1, 2017, through September 30, 2018, for 
determining prospective assignment for both 6-month performance years. 
These commenters believe this approach to determining prospective 
assignment would remove the challenges associated with population churn 
and the mismatch between at-risk expenditures and potential savings. 
Several commenters made this suggestion as part of describing an 
alternative approach under which we would use the ACO participant list 
certified by the ACO for the performance year beginning on January 1, 
2019, in determining a prospectively assigned population for both 6-
month performance years. However, other commenters urged CMS to allow 
ACOs participating in a performance year beginning on January 1, 2019, 
to make changes to their ACO participant lists before entering a new 
agreement period beginning on July 1, 2019. See discussion in section 
II.A.7.c.(2). of this final rule.
    Response: We agree with commenters' suggestions that for purposes 
of determining prospective assignment for the 6-month performance year 
from July 1, 2019, through December 31, 2019, it is preferable to use 
an offset assignment window from October 1, 2017, through September 30, 
2018, rather than a later assignment window, as we originally proposed. 
We believe that maintaining the same prospective assignment window for 
both 6-month performance years during CY 2019 has a number of 
advantages, including avoiding inconsistencies between the performance 
year and benchmark year assignment windows, and reducing the potential 
differences in the populations assigned to the ACO for each performance 
year during CY 2019. We note, however, that ACO participant list 
differences between each 6-month performance year could still result in 
significantly different assigned beneficiary populations, even when the 
assignment window remains the same. Given our desire to offer currently 
participating ACOs entering a new agreement period starting on July 1, 
2019, an opportunity to make changes to their ACO participant lists 
applicable for the 6-month performance year starting on July 1, 2019, 
we decline the commenters' suggestion that we use the same ACO 
participant list finalized for the performance year starting on January 
1, 2019, in determining beneficiary assignment for the performance year 
from July 1, 2019, through December 31, 2019.
    Accordingly, for the performance year from July 1, 2019, through 
December 31, 2019, for ACOs under the preliminary

[[Page 67954]]

prospective assignment methodology, the assigned beneficiary population 
would be determined after the end of the performance year, consistent 
with how it is currently determined for ACOs under the preliminary 
prospective assignment methodology, based on the 12-month calendar year 
that corresponds to the performance year. For ACOs under the 
prospective assignment methodology the assignment window for the 6-
month performance year from July 1, 2019, through December 31, 2019, 
would be the same as the assignment window for the 6-month performance 
year from January 1, 2019, through June 30, 2019. Therefore, for ACOs 
that participate in both 6-month performance years during CY 2019, if 
the ACO maintains the same ACO participant list for all of CY 2019 and 
the same beneficiary assignment methodology, then the assigned 
beneficiary population for the July 1, 2019, through December 31, 2019 
performance year would be expected to closely resemble the assigned 
beneficiary population for the performance year or performance period 
from January 1, 2019, through June 30, 2019.
    However, we also recognize that under the redesign of program 
participation options, ACOs entering an agreement period beginning on 
July 1, 2019, would have the opportunity to select the beneficiary 
assignment methodology that would apply for the 6-month performance 
year from July 1, 2019, through December 31, 2019, and this could 
result in the ACO being under a different assignment methodology than 
it was under for the first 6 months of CY 2019. In this case, there may 
be greater differences in the assigned beneficiary populations for each 
6-month performance year for ACOs that participate in both 6-month 
performance years, even if their ACO participant list remains similar 
or unchanged.
    Final Action: After consideration of the public comments received, 
we are finalizing, with modifications, the proposed approach for 
determining financial and quality performance for ACOs participating in 
a 6-month performance year from July 1, 2019, through December 31, 
2019. Our final policies are specified in paragraph (c) of Sec.  
425.609.
    For ACOs that select a prospective beneficiary assignment 
methodology for the 6-month performance year from July 1, 2019, through 
December 31, 2019, we plan to use an assignment window from October 1, 
2017, through September 30, 2018, to align with the assignment window 
used to determine prospective assignment for performance years 
beginning on January 1, 2019. This is a modification to our proposal to 
use an assignment window reflecting the most recent 12 months of data 
available as described in the August 2018 proposed rule. Accordingly, 
we are revising the provision at Sec.  425.609(c)(1)(ii)(A) to state 
that for ACOs under prospective assignment, the assignment window is 
the same as the assignment window that applies under Sec.  
425.609(b)(1)(ii)(A) for ACOs under prospective assignment for the 6-
month performance year from January 1, 2019, through June 30, 2019.
    As explained in section II.D of this final rule, we are finalizing 
our proposed changes to the risk adjustment methodology with 
modification. Consistent with our original proposal, growth in 
prospective HCC risk scores will be subject to a cap of positive 3 
percent, but we are not finalizing our proposal to cap downward 
adjustments in these risk scores. Therefore we are making necessary 
conforming changes to the provision at Sec.  425.609(c)(3)(i)(A) to 
reflect this change.
    In addition, in the November 2018 final rule we made certain 
clarifying revisions to the introductory text in Sec.  425.609(b). 
Accordingly, we are also modifying the introductory text at Sec.  
425.609(c) to incorporate similar clarifying revisions.
    In summary, we will do the following to determine the ACO's 
financial and quality performance during the 6-month performance year 
from July 1, 2019, through December 31, 2019. (Where applicable, we 
have identified references to policies we are finalizing elsewhere in 
this final rule.)
    We will use the ACO participant list for the performance year 
beginning July 1, 2019, to determine beneficiary assignment, consistent 
with the assignment methodology the ACO selected at the start of its 
agreement period according to the provision we are finalizing at Sec.  
425.400(a)(4)(ii) (as discussed in section II.A.4.c of this final 
rule).
    We will use the ACO's quality performance for the 2019 reporting 
period to determine the ACO's quality performance score as specified in 
Sec.  425.502, and as described in section II.A.7.c.(4) of this final 
rule.
    We will establish, adjust and update the ACO's historical benchmark 
according to the benchmarking policies we are finalizing for agreement 
periods beginning on July 1, 2019, and in subsequent years, except that 
the benchmark will be adjusted for changes in severity and case mix 
based on growth in prospective HCC risk scores between BY3 and CY 2019, 
subject to a cap of positive 3 percent, and the benchmark will be 
updated to CY 2019. (See section II.D. of this final rule and the new 
section of the regulations at Sec.  425.601.) We will compare the ACO's 
updated historical benchmark to the expenditures during CY 2019 for the 
ACO's performance year assigned beneficiaries.
    We will apply the MSR and MLR (if applicable). The ACO's assigned 
beneficiary population for the performance year starting on July 1, 
2019, will be used to determine the MSR for one-sided model ACOs (under 
Level A or Level B of the BASIC track) and the variable MSR/MLR for 
ACOs in a two-sided model that selected this option at the start of 
their agreement period. The provisions on the MSR/MLR are specified in 
a new section of the regulations at Sec.  425.605(b) for the BASIC 
track, and Sec.  425.610(b) for the ENHANCED track. In the event a two-
sided model ACO selected a fixed MSR/MLR at the start of its agreement 
period, and the ACO's performance year assigned population falls below 
5,000 beneficiaries, the MSR/MLR will be determined based on the number 
of assigned beneficiaries, according to the approach we are finalizing 
at Sec.  425.110(b)(3), as discussed in section II.A.6.b.(3). of this 
final rule.
    If the difference between the ACO's updated benchmark and assigned 
beneficiary expenditures is positive and is greater than or equal to 
the MSR and the ACO has met the quality performance standard, the ACO 
will be eligible for shared savings. If the ACO is in a two-sided model 
and the difference between the ACO's updated benchmark and assigned 
beneficiary expenditures is negative and is greater than or equal to 
the MLR (in absolute value terms), the ACO will be liable for shared 
losses. ACOs will share in first dollar savings and losses. The amount 
of any shared savings will be determined using the applicable final 
sharing rate, which is determined based on the ACO's track for the 
agreement period (and the payment model within that track, if 
applicable) and taking into account the ACO's quality performance for 
2019. We will adjust the amount of shared savings for sequestration, 
and then cap the amount of shared savings at the applicable performance 
payment limit for the ACO's track. Similarly, the amount of any shared 
losses will be determined using the loss sharing rate for the ACO's 
track and, as applicable, for ACOs in tracks with a loss sharing rate 
that depends upon quality performance, the ACO's quality performance 
for 2019. We will then cap the amount of shared losses at the

[[Page 67955]]

applicable loss sharing limit for the ACO's track (and the payment 
model within that track, if applicable). We will then pro-rate the 
amount of shared savings or shared losses by multiplying by one-half, 
which represents the fraction of the calendar year covered by the 6-
month performance year. This pro-rated amount is the final amount of 
shared savings earned or shared losses owed by the ACO for the 6-month 
performance year from July 1, 2019, through December 31, 2019.
(3) Determining Performance for the 6-Month Performance Period From 
January 1, 2019, Through June 30, 2019, for Early Renewals
    Under the policies we are finalizing in this final rule to remove 
the ``sit-out'' period after termination (see section II.A.5.c. of this 
final rule) and to allow for a July 1, 2019 agreement start date (see 
section II.A.7.a. of this final rule), ACOs that begin a 12-month 
performance year on January 1, 2019, may voluntarily elect to terminate 
their participation agreement with an effective date of termination of 
June 30, 2019, in order to enter a new agreement period starting on 
July 1, 2019 (referred to as early renewal). Under the changes that we 
are finalizing to our policies governing the payment consequences of 
early termination at Sec.  425.221, ACOs with an effective date of 
termination of June 30, 2019, that enter a new agreement period 
beginning on July 1, 2019, will be eligible for pro-rated shared 
savings or liable for pro-rated shared losses for the 6-month period 
from January 1, 2019, through June 30, 2019, determined according to 
Sec.  425.609.
    In the August 2018 proposed rule (83 FR 41849 and 41850), we 
proposed to determine performance for the 6-month performance period 
from January 1, 2019, through June 30, 2019, for ACOs renewing early 
for a July 1, 2019 agreement start date, using the same methodology as 
would be used to determine an ACO's performance for the 6-month 
performance year from January 1, 2019, through June 30, 2019. In the 
November 2018 final rule (83 FR 59946 through 59951), we finalized the 
methodology for determining an ACO's performance for this 6-month 
performance year in a new provision of the regulations at Sec.  
425.609(b). In the August 2018 proposed rule, we described the 
applicability of certain aspects of this methodology to early renewal 
ACOs for the 6-month performance period from January 1, 2019, through 
June 30, 2019. We noted that the approach for determining beneficiary 
assignment, and for adjusting and updating the historical benchmark for 
the 6-month performance year from January 1, 2019, through June 30, 
2019, would be consistent with the assignment and benchmarking 
methodologies in the program's regulations applicable for performance 
years beginning on January 1, 2019. Therefore, these policies would 
similarly apply to determining performance for the period from January 
1, 2019, through June 30, 2019, for early renewals. Accordingly, in the 
August 2018 proposed rule, we proposed to include a cross reference to 
the provision under Sec.  425.221 in the introductory text to Sec.  
425.609(b) in order to allow reconciliation of early renewals for the 
performance period from January 1, 2019, through June 30, 2019, to be 
based on their financial performance during the entire 12-month 
calendar year 2019 according to the methodology in the provision at 
Sec.  425.609.
    In section II.A.7.c. of this final rule we discuss other 
modifications that we are making to Sec.  425.609 to address the 
applicability of certain policies to ACOs participating in a 6-month 
performance year or performance period in 2019. The affected policies 
include the following: the quality measure sampling methodology 
(section II.A.7.c.(4)); the extreme and uncontrollable circumstances 
policies (section II.A.7.c.(5)); payment and recoupment (section 
II.A.7.c.(6)); and sharing of CY 2019 aggregate data (section 
II.A.7.c.(9)).
    Final Action: We did not receive any comments specifically 
addressing the methodology for determining financial and quality 
performance for the 6-month performance period from January 1, 2019, 
through June 30, 2019, for ACOs that terminate their agreement 
effective June 30, 2019, and enter a new agreement period starting on 
July 1, 2019. Therefore, we are finalizing without modification our 
proposal to determine performance for the 6-month performance period 
from January 1, 2019, through June 30, 2019, for ACOs renewing early 
for the July 1, 2019 agreement start date, by applying the same 
methodology as is used to determine an ACO's performance for the 6-
month performance year from January 1, 2019, through June 30, 2019 
(finalized at Sec.  425.609(b) in the November 2018 final rule). We are 
also finalizing revisions to the introductory text at Sec.  425.609(b) 
to incorporate a reference to the provision at Sec.  425.221(b)(3)(i), 
which specifies that an ACO starting a 12-month performance year on 
January 1, 2019, that terminates its participation agreement with an 
effective date of termination of June 30, 2019, and that enters a new 
agreement period beginning on July 1, 2019, is eligible for pro-rated 
shared savings or liable for pro-rated shared losses for the 6-month 
period from January 1, 2019, through June 30, 2019, as determined in 
accordance with Sec.  425.609.
(4) Use of Authority Under Section 1899(i)(3) of the Act
    In the August 2018 proposed rule (83 FR 41851), we explained our 
belief that the proposals to determine shared savings and shared losses 
for the 6-month performance years starting on January 1, 2019, and July 
1, 2019 (or the 6-month performance period from January 1, 2019, 
through June 30, 2019, for ACOs that elect to voluntarily terminate 
their existing participation agreement, effective June 30, 2019, and 
enter a new agreement period starting on July 1, 2019), using 
expenditures for the entire CY 2019 and then pro-rating these amounts 
to reflect the shorter performance year, require the use of our 
authority under section 1899(i)(3) of the Act to use other payment 
models. Section 1899(d)(1)(B)(i) of the Act specifies that, in each 
year of the agreement period, an ACO is 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 
under section 1899(d)(1)(B)(ii) of the Act. We explained our belief 
that the proposed approach to calculating the expenditures for assigned 
beneficiaries over the full calendar year, comparing this amount to the 
updated benchmark for 2019, and then pro-rating any shared savings (or 
shared losses, which already are implemented using our authority under 
section 1899(i)(3) of the Act) for the 6-month performance year (or 
performance period) involves an adjustment to the estimated average per 
capita Medicare Part A and Part B FFS expenditures determined under 
section 1899(d)(1)(B)(i) of the Act that is not based on beneficiary 
characteristics. Such an adjustment is not contemplated under the plain 
language of section 1899(d)(1)(B)(i) of the Act. As a result, we stated 
it would be necessary to use our authority under section 1899(i)(3) of 
the Act to calculate performance year expenditures and determine the 
final amount of any shared savings (or shared losses) for a 6-month 
performance year (or performance period) during 2019, in the proposed 
manner.
    In order to use our authority under section 1899(i)(3) of the Act 
to adopt an

[[Page 67956]]

alternative payment methodology to calculate shared savings and shared 
losses for a 6-month performance year (or performance period) during 
2019, we must determine that the alternative payment methodology will 
improve the quality and efficiency of items and services furnished to 
Medicare beneficiaries, without additional program expenditures. In the 
August 2018 proposed rule, we explained our belief that the proposed 
approach of allowing ACOs that started a first or second agreement 
period on January 1, 2016, to extend their agreement period for a 6-
month performance year from January 1, 2019, through June 30, 2019, and 
of allowing entry into the program's redesigned participation options 
beginning on July 1, 2019, if finalized, would support continued 
participation by current ACOs that must renew their agreements to 
continue participating in the program, while also resulting in more 
rapid progression to two-sided risk by ACOs within current agreement 
periods and ACOs entering the program for an initial agreement period. 
As discussed in the Regulatory Impact Analysis of the August 2018 
proposed rule (83 FR 41915 through 41928), it was our belief that this 
approach would continue to allow for lower growth in Medicare FFS 
expenditures based on projected participation trends. Therefore, we did 
not believe that the proposed methodology for determining shared 
savings or shared losses for ACOs in a 6-month performance year (or 
performance period) during 2019 would result in an increase in spending 
beyond the expenditures that would otherwise occur under the statutory 
payment methodology in section 1899(d) of the Act. Further, we noted 
that the proposed approach to measuring ACO quality performance for a 
6-month performance year (or performance period) based on quality data 
reported for CY 2019 would maintain accountability for the quality of 
care ACOs provide to their assigned beneficiaries. Participating ACOs 
would also have an incentive to perform well on the quality measures in 
order to maximize the shared savings they may receive and minimize any 
shared losses they must pay in tracks where the loss sharing rate is 
determined based on the ACO's quality performance. Therefore, we noted 
our expectation that the proposed approach to reconciling ACOs for a 6-
month performance year (or performance period) during 2019 would 
continue to lead to improvement in the quality of care furnished to 
Medicare FFS beneficiaries.
    In the November 2018 final rule, we finalized the proposed approach 
to determining financial and quality performance for the 6-month 
performance year from January 1, 2019, through June 30, 2019. In that 
final rule (83 FR 59949 through 59950), we explained our belief that 
the approach to determining shared savings and shared losses for this 
6-month performance year meets the requirements for use of our 
authority under section 1899(i)(3) of the Act because it will not 
result in an increase in spending beyond the expenditures that would 
otherwise occur under the statutory payment methodology in section 
1899(d) of the Act and will lead to continued improvement in the 
quality of care furnished to Medicare FFS beneficiaries.
    Similarly, as discussed in the Regulatory Impact Analysis section 
of this final rule (see section V), we believe the approach to 
determining shared savings and shared losses for the 6-month 
performance year from July 1, 2019, through December 31, 2019, for ACOs 
that enter an agreement period beginning on July 1, 2019, and for the 
6-month performance period from January 1, 2019, through June 30, 2019, 
for ACOs that elect to voluntarily terminate their existing 
participation agreement, effective June 30, 2019, and enter a new 
agreement period starting on July 1, 2019, meets the requirements for 
use of our authority under section 1899(i)(3) of the Act. The 
considerations we described in the August 2018 proposed rule in 
relation to the proposed methodology and in the November 2018 final 
rule in conjunction with finalizing the methodology for determining 
shared savings and shared losses for the 6-month performance year from 
January 1, 2019, through June 30, 2019, were relevant in making this 
determination.
    Specifically, we do not believe that the methodology for 
determining shared savings or shared losses for ACOs in a 6-month 
performance year (or performance period), as finalized in this section 
of this final rule, will result in an increase in spending beyond the 
expenditures that would otherwise occur under the statutory payment 
methodology in section 1899(d) of the Act. We believe the following 
factors would allow for lower growth in Medicare FFS expenditures based 
on projected participation trends: (1) In combination with the 
voluntary 6-month extension we finalized in the November 2018 final 
rule for ACOs whose agreement periods expire on December 31, 2018, the 
July 1, 2019 agreement start date will support continued participation 
by these ACOs; (2) the early renewal option for the July 1, 2019 
agreement start date could also result in more rapid progression to 
two-sided risk by ACOs within current agreement periods; and (3) the 
July 1, 2019 start date encourages participation by new ACOs in initial 
agreement periods under redesigned participation options in which ACOs 
will more rapidly progress to performance-based risk.
    Further, we believe the approach we are finalizing for reconciling 
early renewal ACOs for the 6-month performance period from January 1, 
2019 through June 30, 2019, and for reconciling the 6-month performance 
year from July 1, 2019, through December 31, 2019, for ACOs that begin 
a new agreement period on July 1, 2019, will continue to lead to 
improvement in the quality of care furnished to Medicare FFS 
beneficiaries. As described elsewhere in this section of this final 
rule, the approach to measuring ACO quality performance for the 6-month 
performance year from July 1, 2019, through December 31, 2019, or for 
the 6-month performance period from January 1, 2019, through June 30, 
2019, based on quality data reported for CY 2019, will maintain 
accountability for the quality of care ACOs provide to their assigned 
beneficiaries. Participating ACOs will have an incentive to perform 
well on the quality measures in order to maximize the shared savings 
they may receive and minimize any shared losses they must pay in tracks 
where the loss sharing rate is determined based on the ACO's quality 
performance.
c. Applicability of Program Policies to ACOs Participating in a 6-Month 
Performance Year or Performance Period in 2019
    In the August 2018 proposed rule (83 FR 41854), we proposed that 
program requirements under 42 CFR part 425 that are applicable to the 
ACO under the ACO's chosen participation track and based on the ACO's 
agreement start date would be applicable to an ACO participating in a 
6-month performance year, unless otherwise stated. We finalized this 
approach with respect to ACOs participating in the 6-month performance 
year from January 1, 2019, through June 30, 2019, in the November 2018 
final rule (83 FR 59951). In that final rule, we explained that we 
received no comments on this general proposal, which would allow 
routine program operations to continue to apply for ACOs participating 
under a shorter performance year, and ensure consistency in the 
applicability and

[[Page 67957]]

implementation of our requirements across all program participants, 
including ACOs participating in a 6-month performance year. For these 
same reasons, we are also finalizing this approach with respect to ACOs 
participating in the 6-month performance year from July 1, 2019, 
through December 31, 2019, and the 6-month performance period from 
January 1, 2019, through June 30, 2019. This approach will ensure 
program policies are applied consistently for all ACOs participating in 
a 6-month performance year from January 1, 2019, through June 30, 2019 
and/or from July 1, 2019, through December 31, 2019, and to ACOs that 
terminate their agreement effective June 30, 2019, and enter a new 
agreement period starting on July 1, 2019.
    In this section, we describe the program participation options that 
are affected by our decision to forgo an application cycle in CY 2018 
for a January 1, 2019 start date, and offer instead an application 
cycle in CY 2019 for a July 1, 2019 start date. We also discuss 
modifications to program policies to allow for the 6-month performance 
period from January 1, 2019, through June 30, 2019 for early renewal 
ACOs, and the 6-month performance year from July 1, 2019, through 
December 30, 2019. These modifications include updates to the existing 
provisions in Sec.  425.609, which were initially established for the 
6-month performance year from January 1, 2019, through June 30, 2019, 
to extend them to the 6-month performance period from January 1, 2019, 
through June 30, 2019, and the 6-month performance year from July 1, 
2019, through December 30, 2019.
(1) Application Cycle for Use of a SNF 3-Day Rule Waiver Beginning July 
1, 2019
    Eligible ACOs may apply for use of a SNF 3-day rule waiver at the 
time of application for an initial agreement or to renew their 
participation. Further, as described in sections II.B.2.a. and II.F. of 
this final rule, ACOs within a current agreement period under Track 3, 
or the Track 1+ Model may apply for a SNF 3-day rule waiver, which if 
approved would begin at the start of the next performance year. As 
discussed in section II.B.2.a. of this final rule, we are finalizing 
our proposal to make the SNF 3-day rule waiver under the Shared Savings 
Program more broadly available to BASIC track ACOs (under a two-sided 
model) and ENHANCED track ACOs, regardless of their choice of 
beneficiary assignment methodology.
    As described in the November 2018 final rule (83 FR 59951), in 
light of our decision to forgo an application cycle in CY 2018 for a 
January 1, 2019 agreement start date, we are not offering an 
opportunity for ACOs to apply for a start date of January 1, 2019, for 
initial use of a SNF 3-day rule waiver. The application cycle for the 
July 1, 2019 start date will be the next opportunity for eligible ACOs 
to begin use of a SNF 3-day rule waiver, if they apply for and are 
approved to use the waiver as part of the application cycle for the 
July 1, 2019 start date. This includes ACOs within an existing 
agreement period in Track 3 that would not otherwise have the 
opportunity to apply to begin use of the waiver until January 1, 2020. 
We note that the existing regulation at Sec.  425.612(b), which 
requires applications for waivers to be submitted to CMS in the form 
and manner and by a deadline specified by CMS, provides the flexibility 
to accommodate a July 1, 2019 SNF 3-day rule waiver start date for 
eligible ACOs in a performance year beginning on January 1, 2019. As a 
result, we do not need to make any corresponding revisions to this 
provision to accommodate the July 1, 2019 start date.
    Final Action: We received generally supportive comments for our SNF 
3-day rule waiver proposals, and we point readers to the related 
discussion in section II.B.2.a. of this final rule. We are finalizing 
without modification our proposal to offer ACOs within existing 
agreement periods in Track 3 and the Track 1+ Model the opportunity to 
apply to begin use of a SNF 3-day rule waiver as part of the 
application cycle for the July 1, 2019 start date.
(2) Annual Certifications and ACO Participant List Modifications
    At the end of each performance year, ACOs complete an annual 
certification process. At the same time as this annual certification 
process, CMS also requires ACOs to review, certify and electronically 
sign official program documents to support the ACO's participation in 
the upcoming performance year. As we stated in the August 2018 proposed 
rule (83 FR 41855), and reiterated in the November 2018 final rule (83 
FR 59951 and 59952), requirements for this annual certification, and 
other certifications that occur on an annual basis, continue to apply 
to all currently participating ACOs in advance of the performance year 
beginning on January 1, 2019.
    As we explained in the August 2018 proposed rule (83 FR 41855), in 
the case of ACOs that participate for a portion of CY 2019 under one 
agreement and enter a new agreement period starting on July 1, 2019, 
the certifications made in advance of the performance year starting on 
January 1, 2019, would have relevance only for the 6-month period from 
January 1, 2019, through June 30, 2019. These ACOs would need to 
complete another certification as part of completing the requirements 
to enter a new agreement period beginning on July 1, 2019, which would 
be applicable for the duration of their first performance year under 
the new agreement period, from July 1, 2019, through December 31, 2019.
    Each ACO is required to certify its list of ACO participant TINs 
before the start of its agreement period, before every performance year 
thereafter, and at such other times as specified by CMS in accordance 
with Sec.  425.118(a). A request to add ACO participants must be 
submitted prior to the start of the performance year in which these 
additions would become effective. In order to remove an ACO 
participant, an ACO must notify CMS no later than 30 days after 
termination of an ACO participant agreement, and the entity is deleted 
from the ACO participant list effective as of the termination date of 
the ACO participant agreement. However, absent unusual circumstances, 
the ACO participant list that was certified prior to the start of the 
performance year is used for the duration of the performance year. An 
ACO's certified ACO participant list for a performance year is used to 
determine beneficiary assignment for the performance year and therefore 
also the ACO's quality reporting samples and financial performance. See 
Sec.  425.118(b)(3) and see also Medicare Shared Savings Program ACO 
Participant List and Participant Agreement Guidance (July 2018, version 
5), available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/ACO-Participant-List-Agreement.pdf. As we explained in the August 2018 proposed rule, these 
policies would apply for ACOs participating in a 6-month performance 
year consistent with the terms of the existing regulations.
    As we explained in the August 2018 proposed rule (83 FR 41855) and 
reiterated in the November 2018 final rule (83 FR 59952), ACOs that 
started a first or second agreement period on January 1, 2016, that 
extend their agreement period for a 6-month performance year beginning 
on January 1, 2019, will have the opportunity during 2018 to make 
changes to their ACO participant list to be effective for the 6-month 
performance year from

[[Page 67958]]

January 1, 2019, through June 30, 2019. If these ACOs elect to continue 
their participation in the program for a new agreement period starting 
on July 1, 2019, they would have an opportunity to submit a new ACO 
participant list as part of their renewal application for the July 1, 
2019 start date.
    An ACO that enters a new agreement period beginning on July 1, 
2019, will submit and certify its ACO participant list for the 
agreement period beginning on July 1, 2019, according to the 
requirements in Sec.  425.118(a). The ACO's approved ACO participant 
list will remain in effect for the full performance year from July 1, 
2019, through December 31, 2019. These ACOs will have the opportunity 
to add or delete ACO participants prior to the start of the next 
performance year, following the established schedule. Any additions to 
the ACO participant list that are approved by CMS will become effective 
at the start of performance year 2020.
    The program's current regulations prevent duplication of shared 
savings payments; thus, under Sec.  425.114, ACOs may not participate 
in the Shared Savings Program if they include an ACO participant that 
participates in another Medicare initiative that involves shared 
savings. In addition, under Sec.  425.306(b)(2), each ACO participant 
that submits claims for services used to determine the ACO's assigned 
beneficiary population must be exclusive to one Shared Savings Program 
ACO. If, during a benchmark or performance year (including the 3-month 
claims run out for such benchmark or performance year), an ACO 
participant that participates in more than one ACO submits claims for 
services used in assignment, CMS will not consider any services billed 
through the TIN of the ACO participant when performing assignment for 
the benchmark or performance year, and the ACO may be subject to the 
pre-termination actions set forth in Sec.  425.216, termination under 
Sec.  425.218, or both.
    In the August 2018 proposed rule (83 FR 41855 and 41856), we noted 
the following examples regarding ACO participants that submit claims 
for services that are used in assignment, and that are participating in 
a Shared Savings Program ACO for a 12-month performance year during 
2019 (such as a 2017 starter, 2018 starter, or 2015 starter that 
deferred renewal until 2019).
    If the ACO remains in the program under its current agreement past 
June 30, 2019, these ACO participants would not be eligible to be 
included on the ACO participant list of another ACO applying to enter a 
new agreement period under the program beginning on July 1, 2019. An 
ACO participant in these circumstances could be added to the ACO 
participant list of a July 1, 2019 starter effective for the 
performance year beginning on January 1, 2020, only if it is no longer 
participating in the other Shared Savings Program ACO and is not 
participating in another initiative identified in Sec.  425.114(a).
    If an ACO starting a 12-month performance year on January 1, 2019, 
terminates its participation agreement with an effective date of 
termination of June 30, 2019, the effective end date of the ACO 
participants' participation would also be June 30, 2019. Such ACOs that 
elect to enter a new agreement period beginning on July 1, 2019, can 
make ACO participant list changes that would be applicable for their 
new agreement period. This means that the ACO participants of the 
terminating ACO could choose to be added to the ACO participant list of 
another July 1, 2019 starter, effective for the performance year 
beginning on July 1, 2019.
    Comment: Some commenters urged CMS to provide ACOs with 
opportunities to add and delete ACO participants throughout the 
performance years (or performance period) during 2019 and to clarify 
when such opportunities would be available. One commenter encouraged 
CMS to allow ACO participants to switch ACOs effective for the July 1, 
2019 agreement start date, even if the ACO participant is in an ACO 
with an existing participation agreement that expires after July 1, 
2019.
    Response: As we described in the August 2018 proposed rule, an ACO 
that enters a new agreement period beginning on July 1, 2019, would 
submit and certify its ACO participant list before July 1, 2019, 
according to the existing requirements in Sec.  425.118(a). We do not 
believe it is operationally feasible to allow, as the commenters 
suggest, ACOs within a 12-month performance year beginning on January 
1, 2019, to make ACO participant list changes effective for the second 
half of the year, unless the ACO is an early renewal ACO that elects to 
voluntarily terminate its existing participation agreement, effective 
June 30, 2019, and enter a new agreement period starting on July 1, 
2019. For ACOs participating in a 12-month performance year during 
2019, such mid-year changes to their ACO participant lists would alter 
the 2019 prospective assignment lists (if applicable), and may have 
other significant operational impacts (such as on benchmark 
calculations). Therefore, we will allow ACOs to submit ACO participant 
change requests in accordance with usual program procedures in order to 
indicate additions, updates, and deletions to their existing ACO 
participant lists and, if applicable, SNF affiliate lists at the 
following times: During 2018, in advance of a 12-month or 6-month 
performance year beginning on January 1, 2019; and as part of the 
application cycle for a July 1, 2019 agreement start date for ACOs 
applying to enter, renew or re-enter an agreement period in the Shared 
Savings Program.
    Comment: More generally, a few commenters suggest that there is a 
lost opportunity for ACO participants to collaborate if some join an 
ACO for the 6-month performance year beginning on July 1, 2019, and 
other ACO participants are added to the same ACO for the performance 
year beginning on January 1, 2020.
    Response: Although it is possible that ACOs with a July 1, 2019 
agreement start date may be precluded from adding certain providers and 
suppliers to their ACO participant list for the 6-month performance 
year from July 1, 2019, through December 31, 2019, because they are 
already participating in another ACO, there will be only a short amount 
of time before the ACO may modify its ACO participant list for the 
performance year beginning January 1, 2020, to include these entities. 
In addition, this initial 6-month performance year will give the 
original ACO participants time to gain experience with the ACO and its 
selected payment track before additional ACO participants are added at 
the start of performance year 2020. We also note that ACO participant 
list additions are optional. We encourage ACOs to carefully consider 
the impact of modifying their ACO participant lists, given the 
potential impact of these changes on a variety of program operations, 
including assignment, the ACO's historical benchmark, performance-year 
financial calculations, and the quality reporting sample.
(3) Repayment Mechanism Requirements
    ACOs must demonstrate that they have in place an adequate repayment 
mechanism prior to entering a two-sided model. Consistent with the 
final policy described in section II.A.6.c of this final rule, and the 
new provision at Sec.  425.204(f)(6), the repayment mechanism must be 
in effect for the duration of an ACO's participation in a two-sided 
model plus 12 months following the conclusion of the agreement period. 
An ACO may fulfill this requirement by establishing a repayment 
mechanism that covers the

[[Page 67959]]

entire agreement period plus an additional 12 months or by obtaining a 
repayment mechanism with a term of at least the first two performance 
years in which the ACO is participating under a two-sided model and 
that provides for automatic, annual 12-month extensions of the 
repayment mechanism through the remaining duration of the agreement 
period such that the repayment mechanism will eventually remain in 
effect until 12 months following the conclusion of the agreement 
period.
    Consistent with the final policy described in section II.A.6.c. of 
this final rule and in Sec.  425.204(f)(4)(iv), a renewing ACO that is 
currently participating under a two-sided model and enters a new 
agreement period beginning on July 1, 2019, will also be permitted to 
use its existing repayment mechanism to establish its ability to repay 
shared losses incurred for performance years in its new agreement 
period. An ACO choosing this option would be required to either extend 
the term of the existing repayment mechanism such that it is in effect 
until 12 months following the end of the new agreement period or extend 
the term of the existing repayment mechanism, if necessary, such that 
it covers the first two performance years of the new agreement period 
and provides for automatic, annual 12-month extensions of the repayment 
mechanism, which will result in the repayment mechanism eventually 
remaining in effect for 12 months after the end of the new agreement 
period. The ACO would also be required to increase the amount of its 
repayment mechanism to reflect the new repayment mechanism amount 
determined for its new agreement period, unless CMS notifies the 
renewing ACO that the repayment mechanism amount for its new agreement 
period is equal to or lower than its existing repayment mechanism 
amount. If the repayment mechanism amount calculated for the new 
agreement period is lower than the existing repayment mechanism amount, 
the ACO would be required to maintain the repayment mechanism at the 
existing higher amount.
    We are also finalizing a policy that, for agreement periods 
beginning on or after July 1, 2019, we will recalculate the estimated 
amount of the ACO's repayment mechanism arrangement before the second 
and each subsequent performance year in which the ACO is under a two-
sided model in the BASIC track or ENHANCED track. For example, for an 
ACO with a July 1, 2019 agreement start date, we will recalculate the 
amount of the ACO's repayment mechanism, in accordance with our final 
regulation at Sec.  425.204(f)(4), before the start of performance year 
2020. If the recalculated repayment mechanism amount exceeds the 
existing repayment mechanism amount by at least 50 percent or 
$1,000,000, whichever is the lesser value, we would require the ACO to 
increase its repayment mechanism amount, consistent with the approach 
described in section II.A.6.c. of this final rule and Sec.  
425.204(f)(4)(iii).
    We refer readers to section II.A.6.c. of this final rule for a 
discussion of comments received on the proposed changes to the 
repayment mechanism requirements.
(4) Quality Reporting and Quality Measure Sampling
    As described in the August 2018 proposed rule (83 FR 41856 through 
41858), to determine an ACO's quality performance during either 6-month 
performance year during 2019, we proposed to use the ACO's quality 
performance for the 2019 reporting period as determined under Sec.  
425.502. For ACOs that participate in only one of the 6-month 
performance years (such as ACOs that started a first or second 
agreement period on January 1, 2016, that extend their agreement period 
by 6 months and do not continue in the program past June 30, 2019, or 
ACOs that enter an initial agreement period beginning on July 1, 2019), 
we would also account for the ACO's quality performance using quality 
measure data reported for the 12-month CY 2019. ACOs that terminate 
their agreement effective June 30, 2019, and enter a new agreement 
period starting on July 1, 2019, would also be required to complete 
quality reporting for the 2019 reporting period, and we would determine 
quality performance for the performance period from January 1, 2019, 
through June 30, 2019, in the same manner as for ACOs with a 6-month 
performance year from January 1, 2019, through June 30, 2019, that 
enter a new agreement period beginning on July 1, 2019.
    As we explained in the August 2018 proposed rule, the following 
considerations support this proposed approach. For one, use of a 12-
month period for quality measure assessment maintains alignment with 
the program's existing quality measurement approach, and aligns with 
the proposed use of 12 months of expenditure data (for CY 2019) in 
determining the ACO's financial performance. Also, this approach would 
continue to align the program's quality reporting period with policies 
under the Quality Payment Program. ACO professionals that are MIPS 
eligible clinicians (not QPs based on their participation in an 
Advanced APM or otherwise excluded from MIPS) would continue to be 
scored under MIPS using the APM scoring standard that covers all of 
2019. (For further discussion of the interactions with the Quality 
Payment Program see section II.A.7.c.(8). of this final rule.) Second, 
the measure specifications for the quality measures used under the 
program require 12 months of data. See for example, the Shared Savings 
Program ACO 2018 Quality Measures Narrative Specification Document 
(January 20, 2018), available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/2018-reporting-year-narrative-specifications.pdf. Third, in light of our proposal to 
use 12 months of expenditures (based on CY 2019) in determining shared 
savings and shared losses for a 6-month performance year, it would also 
be appropriate to hold ACOs accountable for the quality of the care 
furnished to their assigned beneficiaries during this same timeframe. 
Fourth, and lastly, using an annual quality reporting cycle for the 6-
month performance year would avoid the need to introduce new reporting 
requirements, and therefore potential additional burden on ACOs, that 
would arise from a requirement that ACOs report quality separately for 
each 6-month performance year during CY 2019.
    The ACO participant list is used to determine beneficiary 
assignment for purposes of generating the quality reporting samples. 
Beneficiary assignment is performed using the applicable assignment 
methodology under Sec.  425.400, either preliminary prospective 
assignment or prospective assignment, with excluded beneficiaries 
removed under Sec.  425.401(b), as applicable. The samples for claims-
based measures are typically determined based on the assignment list 
for calendar year quarter 4. The sample for quality measures reported 
through the CMS Web Interface is typically determined based on the 
beneficiary assignment list for calendar year quarter 3. The CAHPS for 
ACOs survey sample is typically determined based on the beneficiary 
assignment list for calendar year quarter 2.
    As discussed in section II.A.7.c.(2). of this final rule, ACOs that 
participate in both 6-month performance years during 2019 may use a 
different ACO participant list for each performance year (for example, 
in the case of an ACO that started a first or second agreement period 
on January 1, 2016, that extends its current agreement period by 6 
months, and then makes changes to its

[[Page 67960]]

ACO participant list as part of its renewal application for a July 1, 
2019 start date). Further, as explained in section II.A.7.c.(4). of the 
August 2018 proposed rule, under our proposed approach, it was possible 
that different assignment methodologies and assignment windows would be 
used to assign beneficiaries to ACOs for the two 6-month performance 
years during 2019. Therefore, we considered which certified ACO 
participant list and assignment methodology to use to identify the 
samples of beneficiaries for quality reporting for the entire 2019 
reporting period for ACOs participating in one or both of the 6-month 
performance years during 2019 (or the 6-month performance period for 
ACOs that elect to voluntarily terminate their existing participation 
agreement, effective June 30, 2019, and enter a new agreement period 
starting on July 1, 2019).
    For purposes of determining the quality reporting samples for the 
2019 reporting period, we proposed to use the ACO's most recent 
certified ACO participant list available at the time the quality 
reporting samples are generated, and the assignment methodology most 
recently applicable to the ACO for a 2019 performance year. We 
explained our belief that this approach would result in the most 
relevant beneficiary samples for 2019 quality reporting. For instance, 
for purposes of measures reported by ACOs through the CMS Web 
Interface, ACOs must work together with their ACO participants and ACO 
providers/suppliers to abstract data from medical records for 
reporting. In the case of an ACO that started a new agreement period on 
July 1, 2019, basing assignment for the CMS Web Interface quality 
reporting sample on the most recent ACO participant list would allow 
this coordination to occur between the ACO and its current ACO 
participant TINs, rather than requiring the ACO to coordinate with ACO 
participants from a prior performance year that may no longer be 
included on the ACO participant list for the agreement period beginning 
on July 1, 2019. Further, basing the sample for the CAHPS for ACOs 
survey on the most recent ACO participant list could ensure the ACO 
receives feedback from the ACO's assigned beneficiaries on their 
experience of care with ACO participants and ACO providers/suppliers 
based on the ACO's current ACO participant list, rather than based on 
its prior ACO participant list. This could allow for more meaningful 
care coordination improvements by the ACO in response to the feedback 
from the survey. Additionally, we believed this proposed approach to 
determining the ACO's quality reporting samples was also appropriate 
for an ACO that participates in only one 6-month performance year 
during 2019 because the most recent certified ACO participant list 
applicable for the performance year would also be the certified ACO 
participant list that is used to determine financial performance.
    For ACOs that enter an agreement period beginning on July 1, 2019, 
including new ACOs, ACOs that extended their prior participation 
agreement for the 6-month performance year from January 1, 2019, 
through June 30, 2019, and ACOs that start a 12-month performance year 
on January 1, 2019, and terminate their participation agreement with an 
effective date of termination of June 30, 2019, and enter a new 
agreement period beginning on July 1, 2019, we proposed to use the 
certified ACO participant list for the performance year starting on 
July 1, 2019, to determine the quality reporting samples for the 2019 
reporting period. This most recent certified ACO participant list would 
therefore be used to determine the quality reporting samples for the 
2019 reporting year, which would be used to determine performance for 
the 6-month performance year from January 1, 2019, through June 30, 
2019 (or performance period for ACOs that elect to voluntarily 
terminate their existing participation agreement, effective June 30, 
2019, and enter a new agreement period starting on July 1, 2019) and 
the 6-month performance year from July 1, 2019, through December 31, 
2019.
    Beneficiary assignment for purposes of generating the quality 
reporting samples would be based on the assignment methodology 
applicable to the ACO during its 6-month performance year from July 1, 
2019, through December 31, 2019, under Sec.  425.400, either 
preliminary prospective assignment or prospective assignment, with 
excluded beneficiaries removed under Sec.  425.401(b), as applicable. 
We anticipated the assignment windows for the quality reporting samples 
would be as follows based on our operational experience: (1) Samples 
for claims-based measures would be determined based on the assignment 
list for calendar year quarter 4; (2) the sample for CMS Web Interface 
measures would be determined based on the assignment list for calendar 
year quarter 3, which equates to the ACO's first quarter of its 6-month 
performance year beginning on July 1, 2019; and (3) the sample for the 
CAHPS for ACOs survey would be determined based on the initial 
prospective or preliminary prospective assignment list for the 6-month 
performance year beginning on July 1, 2019.
    We believed it would be necessary to use the initial assignment 
list for the CAHPS for ACOs survey sample, to make use of the most 
recent available prospective assignment list data and quarterly 
preliminary prospective assignment data for ACOs for the 6-month 
performance year beginning on July 1, 2019. Further, for CMS Web 
Interface measures and claims-based measures, the proposed approach 
would be consistent with the current methodology for determining the 
samples.
    We proposed to specify the ACO participant list that would be used 
in determining the quality reporting samples for measuring quality 
performance for the 6-month performance years in a new section of the 
regulations at Sec.  425.609(b) and (c).
    In the November 2018 final rule (83 FR 59953 through 59955), we 
finalized an approach under which we will use the ACO's latest 
certified ACO participant list (the ACO participant list effective on 
January 1, 2019) to determine the quality reporting samples for the 
2019 reporting period for ACOs that extend their participation 
agreement for the 6-month performance year from January 1, 2019, 
through June 30, 2019. This policy is specified at Sec.  425.609(b).
    Comment: One commenter supported CMS' proposal to require ACOs that 
participate in both the 6-month performance year (or performance 
period) from January 1, 2019, through June 30, 2019, and the 6-month 
performance year from July 1, 2019, through December 31, 2019, to 
report the CMS Web Interface measures only once for the 2019 reporting 
period, and to use the most recent ACO participant list as of July 1, 
2019, to determine the quality reporting samples. The commenter noted 
that this proposed approach would reduce administrative burden for 
participating providers.
    However, several comments indicated commenters mistakenly believed 
that ACOs participating in both the 6-month performance year (or 
performance period) from January 1, 2019, through June 30, 2019, and 
the 6-month performance year from July 1, 2019, through December 31, 
2019, would be required to report quality data twice for CY 2019. One 
commenter stated that reporting twice would be expensive and time 
consuming.
    Response: As we explained in the November 2018 final rule (83 FR 
59954),

[[Page 67961]]

because we proposed to use quality performance during all of CY 2019 to 
assess quality performance in both of the 6-month performance years (or 
performance period) in CY 2019, we proposed that ACOs would only be 
required to report quality once for CY 2019, regardless of whether they 
complete their participation in the program following the conclusion of 
the 6-month performance year from January 1, 2019, through June 30, 
2019, or if they renew for a new agreement period beginning on July 1, 
2019. Therefore, ACOs participating in the 6-month performance year 
from January 1, 2019, through June 30, 2019, and the 6-month 
performance year from July 1, 2019, through December 31, 2019, will 
only report quality once for CY 2019. We will apply the program's 
sampling methodology, as we have described in this section of this 
final rule, to determine the beneficiaries eligible for the samples for 
claims-based measures (as calculated by CMS), CMS Web Interface 
reporting, and the CAHPS for ACOs survey. We will follow the same 
approach to determine quality performance for the 6-month performance 
period from January 1, 2019, through June 30, 2019, and the 6-month 
performance year from July 1, 2019, through December 31, 2019, for ACOs 
that elect to voluntarily terminate their existing participation 
agreement, effective June 30, 2019, and enter a new agreement period 
starting on July 1, 2019.
    We also note that for the 2019 reporting period, ACOs would be 
required to report quality data through the CMS Web Interface, 
according to the method and timing of submission established by CMS. 
The period for reporting quality data through the CMS Web Interface 
typically occurs for a 12-week period between January and March, 
following the conclusion of the calendar year. Thus, ACOs that 
participate in a 6-month performance year from July 1, 2019, through 
December 31, 2019, along with all other Shared Savings Program ACOs 
that participate in the program in 2019 would be required to report for 
the 2019 reporting period, and would report quality data through the 
CMS Web Interface during the designated reporting period in early 2020. 
Similarly, ACOs participating in the 6-month performance year from July 
1, 2019, through December 31, 2019, would be required to contract with 
a CMS-approved vendor to administer the CAHPS for ACOs survey for the 
2019 reporting period, consistent with program-wide policies applicable 
to all other ACOs.
    Final Action: After considering the comments received, we are 
finalizing our proposal to determine an ACO's quality performance 
during the 6-month performance year from July 1, 2019, through December 
31, 2019, using the ACO's quality performance for the 12-month CY 2019 
(2019 reporting period) as determined under Sec.  425.502. The approach 
we finalized in the November 2018 final rule, for determining an ACO's 
quality performance for the 6-month performance year from January 1, 
2019, through June 30, 2019, using the ACO's quality performance for 
the 12-month CY 2019 (2019 reporting period) as determined under Sec.  
425.502, will apply to determine quality performance for the 
performance period from January 1, 2019, through June 30, 2019, for 
ACOs that elect to voluntarily terminate their existing participation 
agreement, effective June 30, 2019, and enter a new agreement period 
starting on July 1, 2019.
    We are also finalizing our proposal that the ACO participant list 
finalized for the first performance year of the ACO's agreement period 
beginning on July 1, 2019, is used to determine the quality reporting 
samples for the 2019 reporting year for the following ACOs that also 
participate in a performance year or performance period from January 1, 
2019, through June 30, 2019: (1) An ACO that extends its participation 
agreement for a 6-month performance year from January 1, 2019, through 
June 30, 2019, and enters a new agreement period beginning on July 1, 
2019; and (2) an ACO that participates in the program for the first 6 
months of a 12-month performance year during 2019, but elects to 
voluntarily terminate its existing participation agreement effective 
June 30, 2019, and enters a new agreement period starting on July 1, 
2019. This policy will be specified in revisions to Sec.  
425.609(b)(2).
    We are also finalizing our proposal to include a provision at Sec.  
425.609(c)(2), to specify that for purposes of the 6-month performance 
year from July 1, 2019, through December 31, 2019, the ACO participant 
list finalized for the first performance year of the ACO's agreement 
period beginning on July 1, 2019, is used to determine the quality 
reporting samples for the 2019 reporting year for all ACOs.
(5) Applicability of Extreme and Uncontrollable Circumstances Policies
    In section II.E.4. of the August 2018 proposed rule (83 FR 41899 
through 41906), we proposed that the policies for addressing extreme 
and uncontrollable circumstances would apply to ACOs participating in 
each of the 6-month performance years during 2019 (or the 6-month 
performance period for ACOs that elect to voluntarily terminate their 
existing participation agreement, effective June 30, 2019, and enter a 
new agreement period starting on July 1, 2019). Because we had proposed 
to use 12 months of data, based on the calendar year, to determine 
quality and financial performance for the two 6-month performance years 
(or performance period) during 2019, we explained our belief that it 
would be necessary to account for disasters occurring in any month(s) 
of CY 2019 for ACOs participating in a 6-month performance year (or 
performance period) during 2019 regardless of whether the ACO is 
actively participating in the Shared Savings Program at the time of the 
disaster. Therefore, for ACOs affected by a disaster in any month of 
2019, we would use the alternative scoring methodology specified in 
Sec.  425.502(f) to determine the quality performance score for the 
2019 quality reporting period, if the reporting period is not extended. 
In order to determine financial performance for ACOs with a 6-month 
performance year (or performance period) in CY 2019 that are affected 
by an extreme or uncontrollable circumstance during CY 2019, we 
proposed to first determine shared losses for the ACO over the full 
calendar year, adjust the ACO's losses for extreme and uncontrollable 
circumstances, and then determine the portion of shared losses for the 
6-month performance year (or performance period) according to the 
methodology proposed under Sec.  425.609. We proposed to specify the 
applicability of these disaster relief policies to determining an ACO's 
financial and quality performance for a 6-month performance year (or 
performance period) in a new section of the regulations at Sec.  
425.609(d).
    We also proposed to apply our policies regarding extreme and 
uncontrollable circumstances to ACOs that are liable for a pro-rated 
share of losses, determined based on their financial performance during 
the entire performance year, as a consequence of voluntary termination 
of a 12-month performance year after June 30, or involuntary 
termination by CMS. We proposed that the amount of shared losses 
calculated for the calendar year would be adjusted to reflect the 
number of months and the percentage of the assigned beneficiary 
population affected by extreme and uncontrollable

[[Page 67962]]

circumstances, before we calculate the pro-rated amount of shared 
losses for the portion of the year the ACO participated in the Shared 
Savings Program. For ACOs that are involuntarily terminated during the 
6-month performance year from July 1, 2019, through December 31, 2019, 
pro-rated shared losses for the 6-month performance year would be 
determined based on assigned beneficiary expenditures for the full 
calendar year 2019 and then would be pro-rated to account for the 
partial year of participation prior to the involuntary termination and 
the impact of extreme and uncontrollable circumstances on the ACO. We 
proposed to specify these policies in modifications to Sec.  
425.221(b), and through new provisions at Sec.  425.605(f)(2)(i) (a new 
section of the regulations establishing the BASIC track), Sec.  
425.606(i)(2)(i) (Track 2), and Sec.  425.610(i)(2)(i) (ENHANCED 
track).
    In the November 2018 final rule (83 FR 59968 through 59979), we 
extended the policies for addressing the impact of extreme and unusual 
circumstances on financial and quality performance that we had 
previously adopted for performance year 2017 to performance year 2018 
and subsequent years. The policies governing the calculation of shared 
losses in the event of extreme and unusual circumstances are at Sec.  
425.606(i) for Track 2. For Track 3, as renamed in this final rule the 
ENHANCED track, the policies are at Sec.  425.610(i). The policies for 
determining the ACO's quality performance score are at Sec.  
425.502(f). In a new section of the regulations at Sec.  425.609(d), we 
specified that these policies would also apply to the determination of 
an ACO's financial and quality performance for the 6-month performance 
year from January 1, 2019, through June 30, 2019.
    Final Action: There were no comments directed specifically at our 
proposals with respect to the application of our policies for 
addressing the impact of extreme and uncontrollable circumstances to 
ACOs participating in a 6-month performance year from July 1, 2019, 
through December 31, 2019. We are finalizing as proposed the policies 
for determining the financial and quality performance for the 6-month 
performance year from July 1, 2019, through December 31, 2019, for ACOs 
affected by extreme and uncontrollable circumstances during CY 2019. We 
are finalizing revisions to Sec.  425.609(d)(1) to add to a reference 
to the provision at Sec.  425.609(c), which governs the determination 
of shared losses for ACOs participating in a 6-month performance year 
from July 1, 2019, through December 31, 2019. Therefore, for ACOs with 
a 6-month performance year from July 1, 2019, through December 31, 
2019, that are affected by an extreme or uncontrollable circumstance 
during CY 2019, we will first determine shared losses for the ACO over 
the full calendar year, adjust the ACO's losses for extreme and 
uncontrollable circumstances, and then determine the portion of shared 
losses for the 6-month performance year (or performance period) 
according to the methodology under Sec.  425.609(c). As discussed in 
section II.A.7.c.(4) of this final rule and as specified in the 
regulations at Sec.  425.609(c)(2), for ACOs participating in the 6-
month performance year from July 1, 2019, through December 31, 2019 we 
will use the ACO's quality performance for the 2019 reporting period to 
determine the ACO's quality performance score as specified in Sec.  
425.502. As finalized in the November 2018 final rule, the provision at 
Sec.  425.502(f) specifies the policies for determining an ACO's 
quality performance score when the ACO is affected by extreme and 
uncontrollable circumstances. Therefore, these policies will also apply 
to the determination of an ACO's quality performance during the 6-month 
performance year from July 1, 2019, through December 31, 2019, in the 
event the ACO is affected by an extreme and uncontrollable circumstance 
during CY 2019.
    There were no comments directed specifically at our proposals with 
respect to the application of our policies for addressing the impact of 
extreme and uncontrollable circumstances to ACOs participating in a 
performance period from January 1, 2019, through June 30, 2019, because 
they elect to voluntarily terminate their existing participation 
agreement, effective June 30, 2019, and enter a new agreement period 
starting on July 1, 2019. We are finalizing our proposal to adjust 
shared losses for the 6-month performance period from January 1, 2019, 
through June 30, 2019, to address the impact of extreme and 
uncontrollable circumstances on ACOs that elect to voluntarily 
terminate their existing participation agreement, effective June 30, 
2019, and enter a new agreement period starting on July 1, 2019. As we 
previously described in section II.A.7.b.(3). of this final rule, early 
renewal ACOs will be reconciled for the 6-month performance period from 
January 1, 2019, through June 30, 2019, according to Sec.  425.609(b). 
Further, we are finalizing as proposed the revisions to Sec.  
425.606(i)(2)(i) (Track 2) and Sec.  425.610(i)(2)(i) (ENHANCED track) 
in order to apply the disaster relief policies in determining shared 
losses for the 6-month performance period from January 1, 2019, through 
June 30, 2019, for early renewing ACOs.
    More generally, there were no comments directed at our proposals to 
revise Sec.  425.606(i)(2)(i) (Track 2) and Sec.  425.610(i)(2)(i) 
(ENHANCED track), and to add a new provision at Sec.  425.605(f) (BASIC 
track), to apply the disaster relief policies to ACOs accountable for 
pro-rated shared losses as a payment consequence of early termination 
under the revisions to Sec.  425.221(b) that we are making in this 
final rule. We are finalizing these policies as proposed. These 
policies will also apply to determining pro-rated shared losses for 
ACOs that are involuntarily terminated from a 6-month performance year 
from July 1, 2019, through December 31, 2019.
    Lastly, as discussed in II.A.2. of this final rule, we are 
finalizing our proposed addition of the new BASIC track. Therefore, we 
are also revising Sec.  425.609(d)(1) to add a cross reference to Sec.  
425.605(f) so that the policies for adjusting shared losses for extreme 
and uncontrollable circumstances will apply to ACOs participating in 
two-sided models of the BASIC track during the 6-month performance year 
from July 1, 2019, through December 31, 2019.
(6) Payment and Recoupment for 6-Month Performance Years
    In the August 2018 proposed rule (83 FR 41858), we proposed 
policies regarding CMS' notification to ACOs of shared savings and 
shared losses, and the timing for an ACO's repayment of shared losses, 
for both the 6-month performance year (or performance period) from 
January 1, 2019, through June 30, 2019, and the 6-month performance 
year from July 1, 2019, through December 31, 2019. We proposed to 
provide separate reconciliation reports for each 6-month performance 
year, and to pay shared savings or recoup shared losses separately for 
each 6-month performance year. Since we proposed to perform financial 
reconciliation for both 6-month performance years during 2019 after the 
end of CY 2019, we anticipated that financial performance reports for 
both of these 6-month performance years would be available in Summer 
2020, similar to the expected timeframe for issuing financial 
performance reports for the 12-month 2019 performance year (and for 12-
month performance years generally).

[[Page 67963]]

    We proposed to apply the same policies regarding notification of 
shared savings and shared losses, and the timing of repayment of shared 
losses, to ACOs in 6-month performance years that apply under our 
current regulations to ACOs in 12-month performance years. We proposed 
to specify in a new regulation at Sec.  425.609 that CMS would notify 
the ACO of shared savings or shared losses for each reconciliation, 
consistent with the notification requirements specified in Sec.  
425.604(f), proposed Sec.  425.605(e), Sec.  425.606(h), and Sec.  
425.610(h). Specifically, we proposed that: (1) 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; (2) CMS provides 
written notification to an ACO of the amount of shared losses, if any, 
that it must repay to the program; and (3) if an ACO has shared losses, 
the ACO must make payment in full to CMS within 90 days of receipt of 
notification.
    Because we anticipated results for both 6-month performance years 
would be available at approximately the same time, we acknowledged that 
there is a possibility that an ACO could be eligible for shared savings 
for one 6-month performance year and liable for shared losses for the 
other 6-month performance year. Although the same 12-month period would 
be used to determine performance, the outcome for each partial calendar 
year performance year could be different because of differences in the 
ACO's assigned population (for example, resulting from potentially 
different ACO participant lists and the use of different assignment 
methodologies), different benchmark amounts resulting from the 
different benchmarking methodologies applicable to each agreement 
period, and/or differences in the ACO's track of participation.
    In earlier rulemaking, we considered the circumstance where, over 
the course of its participation in the Shared Savings Program, an ACO 
may earn shared savings in some years and incur losses in other years. 
We considered whether the full amount of shared savings payments should 
be paid in the year in which they accrue, or whether some portion 
should be withheld to offset potential future losses. However, we did 
not finalize a withholding from shared savings. See 76 FR 67941 and 
67942. Instead, an ACO's repayment mechanism provides a possible source 
of recoupment for CMS should the ACO fail to timely pay shared losses 
within the 90-day repayment window.
    We revisited these considerations about withholding shared savings 
payments in light of our proposed approach to determining ACO 
performance for the two 6-month performance years at approximately the 
same time following the conclusion of CY 2019. We proposed to conduct 
reconciliation for each 6-month performance year at the same time. 
After reconciliation for both 6-month performance years is complete, we 
would furnish notice of shared savings or shared losses due for each 
performance year at the same time, either in a single notice or two 
separate notices. For ACOs that have mixed results for the two 6-month 
performance years of 2019, being eligible for a shared savings payment 
for one performance year and owing shared losses for the other 
performance year, we proposed to reduce the shared savings payment for 
one 6-month performance year by the amount of any shared losses owed 
for the other 6-month performance year. This approach would guard 
against CMS making a payment to an organization that has an unpaid debt 
to the Medicare program, and therefore would be protective of the Trust 
Funds. We believed this approach would also be less burdensome for 
ACOs, for example, in the event that the ACO's shared losses are 
completely offset by the ACO's shared savings. We noted that this 
approach to offsetting shared losses against any shared savings could 
result in a balance of either unpaid shared losses that must be repaid, 
or a remainder of shared savings that the ACO would be eligible to 
receive.
    We proposed to specify these policies on payment and recoupment for 
ACOs in 6-month performance years within CY 2019 in a new section of 
the regulations at Sec.  425.609(e). In the November 2018 final rule 
(83 FR 59955 and 59956), we finalized at Sec.  425.609(e) requirements 
for CMS to notify ACOs of shared savings and shared losses, and the 
timing for an ACO's repayment of shared losses, for the 6-month 
performance year from January 1, 2019, through June 30, 2019.
    Comment: Some commenters explained that receiving separate 
reconciliation reports for the two performance periods only adds to the 
complexity of the program, including deciphering appropriate financial 
distributions, if applicable.
    Response: Given that we are determining financial performance for 
two separate 6-month performance years, based on separate historical 
benchmark calculations, financial models, and assigned beneficiary 
populations, we believe it necessary to provide separate reconciliation 
report packages to ACOs for each 6-month performance year. We believe 
ACOs are interested in the specific details of the performance 
calculations, and would also to seek to understand how their 
performance compares between the two 6-month performance years (if 
applicable).
    Final Action: Although we received comments on our proposed 
approach to notifying ACOs of their results for each 6-month 
performance year separately, we did not receive comments addressing our 
proposal regarding the timing for ACOs' repayment of shared losses for 
6-month performance year from July 1, 2019, through December 31, 2019, 
or on our proposal to reduce the shared savings payment for one 6-month 
performance year by the amount of any shared losses owed for the other 
6-month performance year for ACOs that have mixed results for the two 
6-month performance years of 2019.
    After considering the comments received, we are finalizing the 
proposed policies on payment and recoupment for the 6-month performance 
year from July 1, 2019, through December 31, 2019, and the performance 
period from January 1, 2019, through June 30, 2019, for ACOs that 
terminate their agreement effective June 30, 2019, and enter a new 
agreement period starting on July 1, 2019. These policies will be 
specified in modifications to Sec.  425.609(e). These policies are 
consistent with the program's existing policies for notification to 
ACOs about payment and recoupment for 12-month performance years, and 
for the 6-month performance year from January 1, 2019, through June 30, 
2019, as finalized in the November 2018 final rule. These policies also 
take into account that some ACOs may participate in both 6-month 
performance years (or performance period) and will be reconciled for 
their financial and quality performance for both periods.
    We note that we are finalizing our proposed policies with a change 
in the enumeration scheme. Specifically, we are placing the general 
provisions regarding notification to ACOs of shared savings and losses 
at Sec.  425.609(e)(1), and we are placing the policies addressing ACOs 
with mixed results for the two 6-month performance periods at Sec.  
425.609(e)(2). In the introductory text of Sec.  425.609(e)(1), we are 
including references to the performance period from January 1, 2019, 
through June 30, 2019, and the 6-month performance year from July 1, 
2019, through December 31, 2019. We are also adding a cross-reference 
to Sec.  425.605(e) regarding the notification requirements for the new 
BASIC track, and we are maintaining the existing cross-reference to the 
notification requirements under

[[Page 67964]]

Sec.  425.610(h), which now applies to ACOs participating in the 
ENHANCED track.
    Under the revised Sec.  425.609(e)(1), CMS notifies the ACO of 
shared savings or shared losses separately for the January 1, 2019, 
through June 30, 2019 performance year (or performance period) and the 
July 1, 2019, through December 31, 2019 performance year, consistent 
with the notification requirements specified in Sec. Sec.  425.604(f), 
425.605(e), 425.606(h), and 425.610(h), as applicable. Specifically, 
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. CMS 
provides written notification to an ACO of the amount of shared losses, 
if any, that it must repay to the program. If an ACO has shared losses, 
the ACO must make payment in full to CMS within 90 days of receipt of 
notification.
    We are finalizing as proposed the policies for addressing ACOs that 
have mixed results for the two 6-month performance years (or 
performance period) of 2019, earning shared savings for one performance 
year (or performance period) and owing shared losses for the other 
performance year (or performance period). We are revising the 
regulations to add a new provision at Sec.  425.609(e)(2) to specify 
that if an ACO is reconciled for both the January 1, 2019, through June 
30, 2019 performance year (or performance period) and the July 1, 2019, 
through December 31, 2019 performance year, CMS issues a separate 
notice of shared savings or shared losses for each performance year (or 
performance period), and if the ACO has shared savings for one 
performance year (or performance period) and shared losses for the 
other performance year (or performance period), CMS reduces the amount 
of shared savings by the amount of shared losses. If any amount of 
shared savings remains after completely repaying the amount of shared 
losses owed, the ACO is eligible to receive payment for the remainder 
of the shared savings. If the amount of shared losses owed exceeds the 
amount of shared savings earned, the ACO is accountable for payment of 
the remaining balance of shared losses in full.
(7) Automatic Transition of ACOs Under the BASIC Track's Glide Path
    Under our proposed design of the BASIC track's glide path, ACOs 
that enter the glide path at Levels A through D would be automatically 
advanced to the next level of the glide path at the start of each 
subsequent performance year of the agreement period. The five levels of 
the glide path would phase-in over the duration of an ACO's agreement 
period. The design of the BASIC track's glide path is therefore tied to 
the duration of the agreement period.
    With our proposal to offer agreement periods of 5 years and 6 
months to ACOs with July 2019 start dates, we believed it was necessary 
to address how we would apply the policy for moving ACOs along the 
glide path in an agreement period with a duration of more than 5 years. 
As discussed in section II.A.7.c.(7) of the August 2018 proposed rule 
(83 FR 41858 through 41859), we proposed a one-time exception to be 
specified in Sec.  425.600, whereby the automatic advancement policy 
would not apply to the second performance year for an ACO entering the 
BASIC track's glide path for an agreement period beginning on July 1, 
2019. For performance year 2020, the ACO would remain in the same level 
of the BASIC track's glide path that it entered for the 6-month 
performance year beginning on July 1, 2019, unless the ACO uses the 
proposed flexibility to advance to a higher level of risk and potential 
reward more quickly. The ACO would automatically advance to the next 
level of the BASIC track's glide path at the start of performance year 
2021 and all subsequent performance years of the agreement period, 
unless the ACO chooses to advance more quickly. This proposed approach 
would allow a modest increase in the amount of time initial entrants in 
the BASIC track's glide path could remain under a particular level, 
including a one-sided model.
    Generally, commenters favored an approach that would allow ACOs to 
remain under a one-sided model of the BASIC track's glide path for 
additional time. See section II.A.3.b. of this final rule for comment 
summaries concerning the automatic progression along the BASIC track's 
glide path. We did not receive any comments specifically addressing the 
proposed one-time exception to the automatic advancement policy, 
applicable to the second performance year of the BASIC track's glide 
path for an ACO entering an agreement period beginning July 1, 2019.
    Final Action: We are finalizing as proposed a one-time exception to 
be specified at Sec.  425.600(a)(4)(i)(B)(2)(i), whereby the automatic 
advancement policy will not apply to the second performance year for an 
ACO entering the BASIC track's glide path for an agreement period 
beginning on July 1, 2019. For performance year 2020, the ACO will 
remain in the same level of the BASIC track's glide path it entered for 
the 6-month performance year beginning on July 1, 2019, unless the ACO 
chooses to advance to a higher level of risk and potential reward more 
quickly. The ACO will automatically advance to the next level of the 
BASIC track's glide path at the start of performance year 2021 and all 
subsequent performance years of the agreement period, unless the ACO 
chooses to advance more quickly.
(8) Interactions With the Quality Payment Program
    As described in section II.A.7.c.(8). of the August 2018 proposed 
rule (83 FR 41859), we took into consideration how the proposed July 1, 
2019 start date could interact with other Medicare initiatives, 
particularly the Quality Payment Program timelines relating to 
participation in APMs. In the CY 2018 Quality Payment Program final 
rule with comment period, we finalized a policy for APMs that start or 
end during the QP Performance Period. Specifically, under Sec.  
414.1425(c)(7)(i), for Advanced APMs that start during the QP 
Performance Period and are actively tested for at least 60 continuous 
days during a QP Performance Period, CMS will make QP determinations 
and Partial QP determinations for eligible clinicians in the Advanced 
APM. CMS makes QP determinations for eligible clinicians in an Advanced 
APM three times during the QP Performance Period using claims data for 
services furnished from January 1 through each of the respective QP 
determination dates: March 31, June 30, and August 31 (Sec.  
414.1425(b)(1)) (sometimes referred to as snapshot dates). We explained 
that an Advanced APM (such as a two-sided model of the Shared Savings 
Program) would need to begin operations by July 1 of a given 
performance year in order to be actively tested for at least 60 
continuous days before August 31--the last date on which QP 
determinations are made during a QP Performance Period (as specified in 
Sec.  414.1425(b)(1)). Therefore, we believed that our proposed July 1, 
2019 start date for the proposed new participation options under the 
Shared Savings Program would align with Quality Payment Program rules 
and requirements for participation in Advanced APMs.
    Further, as described in section II.A.7.c.(4) of the August 2018 
proposed rule (see 83 FR 41856), our proposal to use a 12-month period 
for quality measure assessment for either 6-month performance year (or 
the 6-month performance period) during 2019 would maintain alignment 
with the program's existing quality measurement approach.

[[Page 67965]]

This approach would also continue to align the program's quality 
reporting period with policies under the Quality Payment Program. We 
explained that ACO professionals that are MIPS eligible clinicians (not 
QPs based on their participation in an Advanced APM or otherwise 
excluded from MIPS) would continue to be scored under MIPS using the 
APM scoring standard that covers all of 2019.
    In the November 2018 final rule (83 FR 59956 and 59957), we 
responded to comments on QP determinations for eligible clinicians 
participating in an ACO whose agreement period expires on December 31, 
2018, that elects a voluntary extension for the 6-month performance 
year from January 1, 2019, through June 30, 2019, and does not continue 
in the program past June 30, 2019. We also clarified what happens to an 
eligible clinician's QP status if they are participating in an ACO that 
is in a track that meets the Advanced APM criteria and elects to extend 
for the 6-month performance year from January 1, 2019, through June 30, 
2019, and either voluntarily terminates or is involuntarily terminated 
prior to June 30, 2019. Further, we responded to comments on the 
proposal to require ACOs in a 6-month performance year from January 1, 
2019, through June 30, 2019, to report on quality based on 12-months of 
data for 2019, and the MIPS quality reporting requirements for MIPS 
eligible clinicians in ACOs that elect to extend their participation 
agreement for the 6-month performance year from January 1, 2019, 
through June 30, 2019.
    Comment: One commenter raised the possibility for confusion around 
the applicability of the APM scoring standard under the MIPS or the 
availability of APM incentive payments for eligible clinicians in ACOs 
that move from lower risk in the 6-month performance year (or 
performance period) from January 1, 2019, through June 30, 2019, to an 
Advanced APM for the 6-month performance year from July 1, 2019, 
through December 31, 2019. One commenter requested that CMS consider 
ACOs that enter two-sided risk models that meet the Advanced APM 
criteria for agreement periods beginning on July 1, 2019, to be 
participating in the Advanced APM for the entire calendar year for 
purposes of computing the QP thresholds for participating eligible 
clinicians. One commenter expressed concern that the July 1, 2019 start 
date will create confusion among some providers, due to the likely 
interaction with the snapshots that are used to determine QP status 
under the Quality Payment Program. For example, the commenter stated 
that for eligible clinicians in an ACO that transitions from Track 1 to 
the ENHANCED track for an agreement period beginning on July 1, 2019, 
there would only be a single snapshot period upon which to base the QP 
determination. One commenter recommended that CMS make it clear that 
``renewing'' Track 2 and Track 3 ACOs may move into the new ENHANCED 
track without jeopardizing their participation in an Advanced APM and 
potential QP status for their eligible clinicians for that year of the 
transition.
    Response: We believe these comments reflect the need for 
clarification about whether an ACO's participation in Level E of the 
BASIC track or the ENHANCED track for the 6-month performance year from 
July 1, 2019, through December 31, 2019, would allow its eligible 
clinicians to potentially attain QP status and earn an APM Incentive 
Payment, as well as be excluded from the MIPS reporting requirements 
and payment adjustment for 2019. An eligible clinician participating in 
an Advanced APM who is determined to be a QP based on any of the three 
snapshot dates for QP determinations will receive the full APM 
Incentive Payment in the corresponding payment year. Eligible 
clinicians in ACOs that elect to participate in Level E of the BASIC 
track or the ENHANCED track for the 6-month performance year from July 
1, 2019, through December 31, 2019, may earn the APM Incentive Payment 
and be excluded from the MIPS reporting requirements and payment 
adjustment for 2019 if they meet the requisite QP payment amount (50 
percent) or patient count (35 percent) thresholds on the third QP 
snapshot (August 31, 2019) during the QP performance period. When 
conducting QP determinations for the third snapshot (August 31, 2019) 
for ACOs that elect to participate in Level E of the BASIC track or the 
ENHANCED track for the 6-month performance year from July 1, 2019, 
through December 31, 2019, we will continue to use the entire QP 
performance period (that is, January 1, 2019, through August 31, 2019) 
rather than conducting QP determinations from July 1, 2019, through 
August 31, 2019.
    We also believe there is a need to clarify what happens to an 
eligible clinician's QP status if they are participating in an ACO that 
is in a track that meets the Advanced APM criteria for the 6-month 
performance year from July 1, 2019, through December 31, 2019, and 
either voluntarily terminates or is involuntarily terminated on or 
before August 31, 2019. If their ACO terminates or is involuntarily 
terminated on or before August 31, 2019, then eligible clinicians will 
lose the opportunity to attain QP status as a result of the 
termination. In addition, the eligible clinicians would not be scored 
under MIPS using the APM Scoring Standard because they would not be 
captured as participants in a MIPS APM on one of the four snapshots 
used to determine APM participation. If the ACO is in an active 
agreement period on August 31, 2019, then eligible clinicians who are 
determined to be QPs based on the third QP snapshot will maintain their 
QP status and be considered MIPS APM participants, even if the ACO's 
agreement is terminated after that date.
    Comment: Some commenters requested clarification on how quality 
reporting for a 6-month performance year based on 12-months of data for 
2019 will satisfy the MIPS quality reporting requirements for MIPS 
eligible clinicians in ACOs that participate in a 6-month performance 
year from July 1, 2019, through December 31, 2019.
    Response: We believe the comments reflect the need for 
clarification about whether 2019 quality performance for a 6-month 
performance year from July 1, 2019, through December 31, 2019, under 
the Shared Savings Program will count the same as a full year of 
performance for purposes of the APM scoring standard. That is, would 
the 2019 quality reporting for the 6-month performance year count 
toward the final MIPS score in the same way that it would for an ACO 
that is participating in a full 12-month performance year in the 
program.
    As discussed in section II.A.7.c.(4). of this final rule, we are 
finalizing a policy of using a 12-month period for quality performance 
assessment for the 6-month performance year from July 1, 2019, through 
December 31, 2019, in order to maintain alignment with the program's 
existing quality measurement approach, and with policies under the 
Quality Payment Program. ACO professionals that are MIPS eligible 
clinicians (not QPs based on their participation in an Advanced APM or 
otherwise excluded from MIPS) participating in an ACO that completes a 
6-month performance year from July 1, 2019, through December 31, 2019, 
would be scored under MIPS using the APM Scoring Standard for 2019, 
based on quality data submitted for all of 2019 during the regular 
submission period in early 2020.
(9) Sharing CY 2019 Aggregate Data With ACOs in 6-Month Performance 
Period From January 2019 Through June 2019
    As established in the November 2018 final rule (83 FR 59957), we 
will

[[Page 67966]]

continue to provide ACOs participating in a 6-month performance year 
from January 1, 2019, through June 30, 2019, with aggregate reports for 
all four quarters of CY 2019 based on the ACO participant list in 
effect for that 6-month performance year. This policy is specified in 
revisions to Sec.  425.702. In the August 2018 proposed rule (83 FR 
41859), we proposed to apply this same policy for ACOs that participate 
in the first 6 months of a 12-month performance year in 2019 but then 
terminate their participation agreement with an effective date of 
termination of June 30, 2019, and enter a new agreement period 
beginning July 1, 2019. We explained that this would give ACOs a more 
complete understanding of the Medicare FFS beneficiary population that 
is the basis for reconciliation for the 6 month period from January 1, 
2019, through June 30, 2019, by allowing them to continue to receive 
data, including demographic characteristics and expenditure/utilization 
trends for this assigned beneficiary population for the entire calendar 
year. We believed this proposed approach would allow us to maintain 
transparency by providing ACOs with data that relates to the entire 
period for which the expenditures for the beneficiaries assigned to the 
ACO for this 6-performance period would be compared to the ACO's 
benchmark (before pro-rating any shared savings or shared losses to 
reflect the length of the performance year), and maintain consistency 
with the reports delivered to ACOs that participate in a 12-month 
performance year in 2019. Otherwise, we could be limited to providing 
ACOs with aggregate reports only for the first and second quarters of 
2019, even though under our proposed methodology for assessing the 
financial performance of ACOs in a 6-month performance period would 
involve consideration of expenditures from outside this period during 
2019.
    Comment: One commenter believed ACOs participating in both 6-month 
performance years (or the 6-month performance period) will be burdened 
by having two sets of aggregate program reports from CMS (such as 
assignment summary reports, and expenditure/utilization trend reports), 
and incorrectly asserted that ACOs will receive two sets of monthly 
beneficiary-identifiable claim and claim line feed data files.
    Response: We believe many ACOs participating in the 6-month 
performance years (or the 6-month performance period) during 2019 will 
seek an in-depth understanding of their performance trends during each 
of the 6-month performance years (or the 6-month performance period) 
and will also want to assess how their financial performance compares 
between the two 6-month periods (if applicable). We believe these ACOs 
would be supported by the availability of quarterly and annual program 
reports on their assigned beneficiary population for each performance 
year (or performance period), including demographic information and 
expenditure/utilization trends for the applicable assigned beneficiary 
population. We also recognize, however, that how an ACO uses these data 
is often specific to the individual circumstances of the organization 
and its data analysis capacity, among other factors.
    Further, we provide monthly beneficiary-identifiable data, in claim 
and claim line feed files, to eligible ACOs based on the requirements 
specified in Sec.  425.704. We provide ACOs with beneficiary 
identifiable claims data for prospectively assigned beneficiaries, and 
for assignable beneficiaries who receive primary care services from an 
ACO participant that submits claims for primary care services used to 
determine the ACO's assigned population during the performance year. We 
note that these files include Parts A, B, and D data, and support the 
ACO's quality assessment and improvement activities, and population-
based activities relating to improved health. Under the program's 
current policies, we would deliver the monthly claim and claim line 
feed files to the ACO for the relevant population within each 
performance year, determined based on the certified ACO participant 
list in effect for that performance year. Operationally, this means 
eligible ACOs participating in the 6-month performance year (or 
performance period) from January 1, 2019, through June 30, 2019 will 
receive claim and claim line feed files each month based on the ACO 
participant list certified prior to the start of their performance year 
beginning on January 1, 2019. These ACOs will receive data files 
containing claims with dates of service through June 2019. Eligible 
ACOs participating in the 6-month performance year from July 1, 2019, 
through December 31, 2019 will receive claim and claim line feed files 
each month based on the ACO participant list certified prior to the 
start of July 1, 2019. These ACOs will receive data files containing 
claims with dates of service through December 2019.
    In the November 2018 final rule (83 FR 59957), we also summarized 
and addressed comments requesting additional guidance and education on 
whether there will be disruptions in sharing claims files with ACOs 
participating in a 6-month performance year in CY 2019. We refer 
readers to that discussion for additional information on this issue.
    Final Action: After considering the comments we received on our 
data sharing proposal, we are finalizing our proposal to provide ACOs 
participating in a 6-month performance period from January 1, 2019, 
through June 30, 2019, with aggregate reports for all four quarters of 
CY 2019 based on the ACO participant list in effect for the first 6 
months of the year. In section II.A.7.b.(3) of this final rule we 
describe modifications that we are making to Sec.  425.609(b) in order 
to extend this provision to the determination of pro-rated shared 
savings and shared losses for the performance period from January 1, 
2019, through June 30, 2019, for ACOs that terminate their agreement 
effective June 30, 2019, and enter a new agreement period starting on 
July 1, 2019. The policy for sharing aggregate data with ACOs in a 6-
month performance year from January 1, 2019, through June 30, 2019, is 
specified in the existing provision at Sec.  425.702, as revised by the 
November 2018 final rule, which applies to ``an ACO eligible to be 
reconciled under Sec.  425.609(b).'' Therefore, with the policies 
established in this final rule, this existing provision on sharing CY 
2019 aggregate data will apply not only to ACOs in a 6-month 
performance year from January 1, 2019, through June 30, 2019, but also 
to ACOs that terminate their current agreement effective June 30, 2019, 
and enter a new agreement period starting on July 1, 2019.
(10) Technical or Conforming Changes To Allow for 6-Month Performance 
Years
    In the August 2018 proposed rule (83 FR 41859 and 41860), we 
proposed to make certain technical, conforming changes to provisions of 
the Shared Savings Program regulations to reflect our proposal to add a 
new provision at Sec.  425.609 to govern the calculation of the 
financial results for the 6-month performance years within CY 2019. In 
the November 2018 final rule, we finalized a subset of the proposed 
technical, conforming changes as necessary to reflect the addition of 
the new provision at Sec.  425.609 to govern the calculation of the 
financial results for the 6-month performance year from January 1, 
2019, through June 30, 2019 (83 FR 59957 through 59958).
    There were no comments directed specifically at our proposed 
technical and conforming changes to allow for a

[[Page 67967]]

6-month performance year from July 1, 2019, through December 31, 2019.
    The following changes finalized in the November 2018 final rule for 
purposes of the 6-month performance year from January 1, 2019, through 
June 30, 2019, will also apply to the 6-month performance year from 
July 1, 2019, through December 31, 2019.
    Our revisions to Sec.  425.315 (the policies on reopening 
determinations of shared savings and shared losses to correct financial 
reconciliation calculations) to incorporate a reference to notification 
of shared savings and shared losses for ACOs in a 6-month performance 
year within CY 2019, as specified in Sec.  425.609(e).
    Our revisions to Sec.  425.100 to add a reference to Sec.  425.609 
in order to include ACOs that participate in a 6-month performance year 
during 2019 in the general description of ACOs that are eligible to 
receive payments for shared savings under the program.
    Our revisions to Sec.  425.400(a)(1)(ii), describing the step-wise 
process for determining beneficiary assignment for each performance 
year, to specify that this process applies to ACOs participating in a 
6-month performance year within CY 2019, and that assignment is 
determined based on the beneficiary's utilization of primary care 
services during the entirety of CY 2019, as specified in Sec.  425.609.
    In this final rule, we are finalizing the remaining proposed 
modifications to the Shared Savings Program regulations to incorporate 
additional technical and conforming changes that are necessary to 
ensure that the policies previously finalized for ACOs in a 6-month 
performance year from January 1, 2019, through June 30, 2019, will also 
apply to ACOs in a 6-month performance year from July 1, 2019, through 
December 31, 2019.
    In Sec.  425.401(b), describing the exclusion of beneficiaries from 
an ACO's prospective assignment list at the end of a performance year 
or benchmark year and quarterly each performance year, we proposed to 
specify that these exclusions would occur at the end of CY 2019 for 
purposes of determining assignment to an ACO in a 6-month performance 
year in accordance with Sec. Sec.  425.400(a)(3)(ii) and 425.609. In 
the November 2018 final rule, we finalized the applicability of this 
policy to determining prospective assignment for ACOs participating in 
a 6-month performance year from January 1, 2019, through June 30, 2019. 
With this final rule, we are further modifying Sec.  425.401(b) to add 
a cross-reference to Sec.  425.609(c)(1)(ii), which governs the 
determination of prospective assignment for ACOs participating in a 6-
month performance year from July 1, 2019, through December 31, 2019.
    We proposed to incorporate references to Sec.  425.609 in the 
regulations that govern establishing, adjusting, and updating the 
benchmark, including proposed Sec.  425.601, and the existing 
provisions at Sec.  425.602, and Sec.  425.603, to specify that the 
annual risk adjustment and update to the ACO's historical benchmark for 
the 6-month performance years during 2019 would use factors based on 
the entirety of CY 2019. For clarity and simplicity, we proposed to add 
a paragraph to each of these sections to explain the following: (1) 
Regarding the annual risk adjustment applied to the historical 
benchmark, when CMS adjusts the benchmark for the 6-month performance 
years described in Sec.  425.609, the adjustment will reflect the 
change in severity and case mix between benchmark year 3 and CY 2019; 
(2) Regarding the annual update to the historical benchmark, when CMS 
updates the benchmark for the 6-month performance years described in 
Sec.  425.609, the update to the benchmark will be based on growth 
between benchmark year 3 and CY 2019. In the November 2018 final rule, 
we finalized these amendments, as applicable to the January 1, 2019, 
through June 30, 2019 performance year with the addition of provisions 
Sec.  425.602(c) and Sec.  425.603(g).
    In a new section of the regulations at Sec.  425.601(g), on 
establishing, adjusting, and updating the benchmark for agreement 
periods beginning on July 1, 2019, and in subsequent years (as 
discussed in section II.D. of this final rule), we are specifying that 
the annual risk adjustment and update to the ACO's historical benchmark 
for the 6-month performance year from July 1, 2019, through December 
31, 2019, will use factors based on the entirety of CY 2019. The 
provision explains the following: (1) Regarding the annual risk 
adjustment applied to the historical benchmark, when CMS adjusts the 
benchmark for the 6-month performance year described in Sec.  
425.609(c), the adjustment will reflect the change in severity and case 
mix between benchmark year 3 and CY 2019; (2) Regarding the annual 
update to the historical benchmark, when CMS updates the benchmark for 
the 6-month performance year described in Sec.  425.609(c), the update 
to the benchmark will be based on growth between benchmark year 3 and 
CY 2019.
    We also proposed to incorporate references to Sec.  425.609 in the 
following provisions regarding the calculation of shared savings and 
shared losses, Sec.  425.604, proposed Sec.  425.605, Sec.  425.606, 
and Sec.  425.610. For clarity and simplicity, we proposed to add a 
paragraph to each of these sections explaining that shared savings or 
shared losses for the 6-month performance years are calculated as 
described in Sec.  425.609. That is, all calculations will be performed 
using CY 2019 data in place of performance year data. In the November 
2018 final rule, we finalized these amendments, as applicable to the 
January 1, 2019, through June 30, 2019 performance year with the 
addition of provisions at Sec.  425.604(g), Sec.  425.606(j), and Sec.  
425.610(j).
    We are now finalizing the proposal to apply the same approach to 
determining shared savings and shared losses for the 6-month 
performance year from July 1, 2019, through December 31, 2019. 
Therefore, in a new section of the regulations at Sec.  425.605(g), we 
are specifying that shared savings or shared losses for the 6-month 
performance year from July 1, 2019, through December 31, 2019, are 
calculated as described in Sec.  425.609 for ACOs participating under 
the BASIC track (as discussed in sections II.A.2. and II.A.3. of this 
final rule). In addition, we are also finalizing our proposal to add a 
new section of the regulations at Sec.  425.610(k), on the calculation 
of shared savings and losses for the 6-month performance year from July 
1, 2019, through December 31, 2019, for ACOs participating under the 
ENHANCED track (as discussed in section II.A.2 of this final rule).
    In the August 2018 proposed rule, we proposed to add a reference to 
Sec.  425.609 in Sec.  425.204(g) to allow for consideration of claims 
billed under merged and acquired entities' TINs for purposes of 
establishing an ACO's benchmark for an agreement period that includes a 
6-month performance year. Upon further consideration, we do not believe 
it is necessary at this time to revise Sec.  425.204(g) to incorporate 
a reference to Sec.  425.609. The provision at Sec.  425.204(g) 
describes the use of certain claims in establishing an ACO's benchmark. 
However, Sec.  425.609 only makes changes to the way in which the 
benchmark is adjusted and updated to allow for a 6-month performance 
year. For ACOs participating in a 6-month performance year (or 
performance period) in 2019, the ACO's benchmark would already be 
established under Sec. Sec.  425.601 (as finalized in this final rule), 
425.602 or 425.603 (as applicable).

B. Fee-for-Service Benefit Enhancements

1. Background
    As discussed in earlier rulemaking (for example, 80 FR 32759), we 
believe

[[Page 67968]]

that models where ACOs bear a degree of financial risk have the 
potential to induce more meaningful systematic change than one-sided 
models. We explained that two-sided performance-based risk provides 
stronger incentives for ACOs to achieve savings and, as discussed in 
detail in the Regulatory Impact Analysis (see section V. of this final 
rule), our experience with the program indicates that ACOs in two-sided 
models generally perform better than ACOs that participate under a one-
sided model. ACOs that bear financial risk have a heightened incentive 
to restrain wasteful spending by their ACO participants and ACO 
providers/suppliers. This, in turn, may reduce the likelihood of over-
utilization of services. Relieving these ACOs of the burden of certain 
statutory and regulatory requirements may provide ACOs with additional 
flexibility to innovate further, which could in turn lead to even 
greater cost savings, without inappropriate risk to program integrity.
    In the December 2014 proposed rule (79 FR 72816 through 72826), we 
discussed in detail a number of specific payment rules and other 
program requirements for which we believed waivers could be necessary 
under section 1899(f) of the Act to permit effective implementation of 
two-sided performance-based risk models in the Shared Savings Program. 
We invited comments on how these waivers could support ACOs' efforts to 
increase quality and decrease costs under two-sided risk arrangements. 
Based on review of these comments, in the June 2015 final rule (80 FR 
32800 through 32808), we finalized a waiver of the requirement in 
section 1861(i) of the Act for a 3-day inpatient hospital stay prior to 
the provision of Medicare-covered post-hospital extended care services 
for beneficiaries who are prospectively assigned to ACOs that 
participate in Track 3 (Sec.  425.612). We refer to this waiver as the 
SNF 3-day rule waiver. We established the SNF 3-day rule waiver to 
provide an additional incentive for ACOs to take on risk by offering 
greater flexibility for ACOs that have accepted the higher level of 
performance-based risk under Track 3 to provide necessary care for 
beneficiaries in the most appropriate care setting.
    Section 50324 of the Bipartisan Budget Act added section 1899(l) of 
the Act (42 U.S.C. 1395jjj(l)) to provide certain Shared Savings 
Program ACOs the ability to provide telehealth services. Specifically, 
beginning January 1, 2020, for telehealth services furnished by a 
physician or practitioner participating in an applicable ACO, the home 
of a beneficiary is treated as an originating site described in section 
1834(m)(4)(C)(ii) and the geographic limitation under section 
1834(m)(4)(C)(i) of the Act does not apply with respect to an 
originating site described in section 1834(m)(4)(C)(ii), including the 
home of the beneficiary.
    In the August 2018 proposed rule (83 FR 41861-41867), we proposed 
modifications to the existing SNF 3-day rule waiver and proposed to 
establish regulations to govern telehealth services furnished in 
accordance with section 1899(l) of the Act to prospectively assigned 
beneficiaries by physicians and practitioners participating in certain 
applicable ACOs. We also proposed to use our authority under section 
1899(f) of the Act to waive the requirements of section 
1834(m)(4)(C)(i) and (ii) of the Act as necessary to provide for a 90-
day grace period to allow for payment for telehealth services furnished 
to a beneficiary who was prospectively assigned to an applicable ACO, 
but was subsequently excluded from assignment to the ACO. We also 
proposed to require that ACO participants hold beneficiaries 
financially harmless for telehealth services that are not provided in 
compliance with section 1899(l) of the Act or during the 90-day grace 
period, as previously discussed.
2. Proposed Revisions
a. Shared Savings Program SNF 3-Day Rule Waiver
(1) Background
    The SNF 3-day rule waiver under Sec.  425.612 allows for Medicare 
payment for otherwise covered SNF services when ACO providers/suppliers 
participating in eligible Track 3 ACOs admit eligible prospectively 
assigned beneficiaries, or certain excluded beneficiaries during a 
grace period, to an eligible SNF affiliate without a 3-day prior 
inpatient hospitalization. All other provisions of the statute and 
regulations regarding Medicare Part A post-hospital extended care 
services continue to apply. This waiver became available starting 
January 1, 2017, and all ACOs participating under Track 3 or applying 
to participate under Track 3 are eligible to apply for the waiver.
    We limited the waiver to ACOs that elect to participate under Track 
3 because these ACOs are participating under two-sided risk and, under 
the prospective assignment methodology used in Track 3, beneficiaries 
are assigned to the ACO at the start of the performance year and remain 
assigned for the entire year, unless they are excluded. Thus it is 
clearer to the ACO which beneficiaries are eligible to receive services 
under the waiver than it would be to an ACO under Track 1 or Track 2, 
which use a preliminary prospective assignment methodology with 
retrospective reconciliation (80 FR 32804). As we explained in the 
August 2018 proposed rule (83 FR 41861), we continue to believe that it 
is appropriate to limit the waiver to ACOs participating under a two-
sided risk model because, as discussed in the background to this 
section, models under which ACOs bear a degree of financial risk hold 
greater potential than one-sided models to induce more meaningful 
systematic change, promote accountability for a patient population and 
coordination of patient medical care, and encourage investment in 
redesigned care processes. As a result, models under which ACOs bear a 
degree of financial risk provide a stronger incentive for ACOs not to 
over utilize services than do one-sided models. It is important to 
establish clear policies as to the availability of the SNF 3-day rule 
waiver for coverage of SNF services furnished to a particular 
beneficiary without a prior 3 day inpatient stay to permit the ACOs and 
their SNF affiliates to comply with the conditions of the waiver and to 
facilitate our ability to monitor for misuse. It would also be feasible 
to establish such clarity for ACOs electing to participate in a two-
sided risk model under a preliminary prospective assignment methodology 
with retrospective reconciliation.
    Under preliminary prospective assignment with retrospective 
reconciliation, ACOs are given up-front information about their 
preliminarily assigned FFS beneficiary population. This information is 
updated quarterly to help ACOs refine their care coordination 
activities. Under the revised criteria for sharing data with ACOs 
finalized in the June 2015 final rule, beginning with performance year 
2016, we have provided ACOs under preliminary prospective assignment 
with quarterly and annual assignment lists that identify the 
beneficiaries who are preliminarily prospectively assigned, as well as 
beneficiaries who have received at least one primary care service in 
the most recent 12-month period from an ACO participant that submits 
claims for services used in the assignment methodology (see Sec.  
425.702(c)(1)(ii)(A), and related discussion in 80 FR 32734 through 
32737). The specific beneficiaries preliminarily assigned to an ACO 
during each quarter can vary.
(2) Proposals
    As described in section II.A.4.c. of the August 2018 proposed rule 
(83 FR

[[Page 67969]]

41811) and again in this final rule, we proposed to allow ACOs to 
select the beneficiary assignment methodology to be applied at the 
start of their agreement period (prospective assignment or preliminary 
prospective assignment with retrospective reconciliation) and the 
opportunity to elect to change this selection prior to the start of 
each performance year. Further, as described in sections II.A.3. and 
II.A.4.b. of the August 2018 proposed rule (83 FR 41801 & 41810) and 
again in this final rule, we proposed that BASIC track ACOs entering 
the track's glide path under a one-sided model would be automatically 
transitioned to a two-sided model during their agreement period and 
could elect to enter two-sided risk more quickly (prior to the start of 
their agreement period or as part of an annual election to move to a 
higher level of risk within the BASIC track).
    As described in the August 2018 proposed rule (83 FR 41861), in 
light of these proposed flexibilities for program participation, as 
well as our experience in providing ACOs under preliminary prospective 
assignment with data on populations of beneficiaries, we stated that it 
would be appropriate to expand eligibility for the SNF 3-day rule 
waiver to include ACOs participating in a two-sided model under 
preliminary prospective assignment. As explained in the August 2018 
proposed rule and again in this section, we originally excluded Track 2 
ACOs, which participate under two-sided risk, from eligibility for the 
SNF 3-day rule waiver because beneficiaries are assigned to Track 2 
ACOs using a preliminary prospective assignment methodology with 
retrospective reconciliation and thus it could be unclear to ACOs which 
beneficiaries would be eligible to receive services under the waiver. 
We proposed that risk-bearing ACOs selecting preliminary prospective 
assignment with retrospective reconciliation should be offered the same 
tools and flexibility to increase quality and decrease costs that are 
available to ACOs electing prospective assignment, to the maximum 
extent possible. We stated that it would be possible to provide ACOs 
that select preliminary prospective assignment with retrospective 
reconciliation with more clarity regarding which beneficiaries may be 
eligible to receive services under the waiver if we were to establish a 
cumulative list of beneficiaries preliminarily assigned to the ACO 
during the performance year. It would be appropriate to establish such 
a cumulative list because the beneficiaries preliminarily assigned to 
an ACO may vary during each quarter of a performance year.
    Under preliminary prospective assignment with retrospective 
reconciliation, once a beneficiary receives at least one primary care 
service furnished by an ACO participant, the ACO has an incentive to 
coordinate care of the Medicare beneficiary, including SNF services, 
for the remainder of the performance year because of the potential for 
the beneficiary to be assigned to the ACO for the performance year. 
Under our proposed approach, we would not remove preliminarily 
prospectively assigned beneficiaries from the list of beneficiaries 
eligible to receive SNF services under the waiver on a quarterly basis. 
Instead, once a beneficiary is listed as preliminarily prospectively 
assigned to an eligible ACO for the performance year, according to the 
assignment lists provided by CMS to an ACO at the beginning of each 
performance year and for quarters 1, 2, and 3 of each performance year, 
then the SNF 3-day rule waiver would remain available with respect to 
otherwise covered SNF services furnished to that beneficiary by a SNF 
affiliate of the ACO, consistent with the requirements of Sec.  
425.612(a), for the remainder of the performance year.
    We proposed that the waiver would be limited to SNF services 
provided after the beneficiary first appeared on the preliminary 
prospective assignment list for the performance year, and that a 
beneficiary would no longer be eligible to receive covered services 
under the waiver if he or she subsequently enrolls in a Medicare group 
(private) health plan or is otherwise no longer enrolled in Part A and 
Part B. In other words, ACOs participating in a performance-based risk 
track and under preliminary prospective assignment with retrospective 
reconciliation would receive an initial performance year assignment 
list followed by assignment lists for quarters 1, 2, and 3 of each 
performance year, and the SNF 3-day rule waiver would be available with 
respect to all beneficiaries who have been identified as preliminarily 
prospectively assigned to the ACO on one or more of these four 
assignment lists, unless they enroll in a Medicare group health plan or 
are no longer enrolled in both Part A and Part B. Providers and 
suppliers are expected to confirm a beneficiary's health insurance 
coverage to determine if they are eligible for FFS benefits. In 
addition, we noted that under existing Medicare payment policies, 
services furnished to Medicare beneficiaries outside the U.S. are not 
payable except under very limited circumstances. Therefore, in general, 
a waiver-eligible beneficiary who resides outside the U.S. during a 
performance year would technically remain eligible to receive SNF 
services furnished in accordance with the waiver, but SNF services 
furnished to the beneficiary outside the U.S. would not be payable.
    We note that our proposal to allow preliminarily prospectively 
assigned beneficiaries to remain eligible for the SNF 3-day rule waiver 
until the end of the performance year may include beneficiaries who 
ultimately are excluded from assignment to the ACO based upon their 
assignment to another Shared Savings Program ACO or their alignment 
with an entity participating in another shared savings initiative. 
Thus, a beneficiary may be eligible for admission under a SNF 3-day 
rule waiver based on being preliminarily prospectively assigned to more 
than one ACO during a performance year. As previously discussed, we 
believe ACOs that bear a degree of financial risk have a strong 
incentive to manage the care for all beneficiaries who appear on any 
preliminary prospective assignment list during the year and to continue 
to focus on furnishing appropriate levels of care because they do not 
know which beneficiaries ultimately will be assigned to the ACO for the 
performance year. Further, because there remains the possibility that a 
beneficiary could be preliminarily prospectively assigned to an ACO at 
the beginning of the year, not preliminarily assigned in a subsequent 
quarter, but then retrospectively assigned to the ACO at the end of the 
performance year, we believe it is appropriate that preliminarily 
prospectively assigned beneficiaries remain eligible to receive 
services under the SNF 3-day rule waiver for the remainder of the 
performance year to aid ACOs in coordinating the care of their entire 
beneficiary population. Because the ACO will ultimately be held 
responsible for the quality and costs of the care furnished to all 
beneficiaries who are assigned at the end of the performance year, we 
believe the ACO should have the flexibility to use the SNF 3-day rule 
waiver to permit any beneficiary who has been identified as 
preliminarily prospectively assigned to the ACO during the performance 
year to receive covered SNF services without a prior 3 day hospital 
stay when clinically appropriate. For this reason, we do not believe it 
is necessary to extend the 90-day grace period that applies to 
beneficiaries assigned to waiver-approved ACOs participating under the 
prospective assignment

[[Page 67970]]

methodology to include beneficiaries who are preliminarily 
prospectively assigned to a waiver-approved ACO. Rather, beneficiaries 
who are preliminarily prospectively assigned to a waiver-approved ACO 
will remain eligible to receive services furnished in accordance with 
the SNF 3-day rule waiver for the remainder of that performance year 
unless they enroll in a Medicare group health plan or are otherwise no 
longer enrolled in Part A and Part B. In addition, in order to help 
protect beneficiaries from incurring significant financial liability 
for SNF services received without a prior 3-day inpatient stay after an 
ACO's termination date, we would also like to clarify that an ACO must 
include, as a part of the notice of termination to ACO participants 
under Sec.  425.221(a)(1)(i), a statement that its ACO participants, 
ACO providers/suppliers, and SNF affiliates may no longer use the SNF 
3-day rule waiver after the ACO's date of termination. We would also 
like to clarify that if a beneficiary is admitted to a SNF prior to an 
ACO's termination date, and all requirements of the SNF 3-day rule 
waiver are met, the SNF services furnished without a prior 3-day stay 
would be covered under the SNF 3-day rule waiver.
    In summary, we proposed to revise the regulations at Sec.  
425.612(a)(1) to expand eligibility for the SNF 3-day rule waiver to 
include ACOs participating in a two-sided model under preliminary 
prospective assignment with retrospective reconciliation. The SNF 3-day 
rule waiver would be available for such ACOs with respect to all 
beneficiaries who have been identified as preliminarily prospectively 
assigned to the ACO on the initial performance year assignment list or 
on one or more assignment lists for quarters 1, 2, and 3 of the 
performance year, for SNF services provided after the beneficiary first 
appeared on one of the assignment lists for the applicable performance 
year. The beneficiary would remain eligible to receive SNF services 
furnished in accordance with the waiver unless he or she is no longer 
eligible for assignment to the ACO because he or she is no longer 
enrolled in both Part A and Part B or has enrolled in a Medicare group 
health plan.
    Finally, as described in the August 2018 proposed rule (83 FR 
41862), stakeholders representing rural health providers have pointed 
out that the SNF 3-day rule waiver is not currently available for SNF 
services furnished by critical access hospitals and other small, rural 
hospitals operating under a swing bed agreement. Section 1883 of the 
Act permits certain small, rural hospitals to enter into a swing bed 
agreement, under which the hospital can use its beds, as needed, to 
provide either acute or SNF care. As defined in the regulations at 42 
CFR 413.114, a swing bed hospital is a hospital or CAH participating in 
Medicare that has CMS approval to provide post-hospital SNF care and 
meets certain requirements. These stakeholders indicate that because 
there are fewer SNFs in rural areas, there are fewer opportunities for 
rural ACOs to enter into agreements with SNF affiliates. These 
stakeholders also believe that the current policy may disadvantage 
beneficiaries living in rural areas who may not be in close proximity 
to a SNF and would need to travel longer distances to benefit from the 
SNF 3-day rule waiver. The stakeholders requested that we revise the 
regulations to permit providers that furnish SNF services under a swing 
bed agreement to be eligible to partner with ACOs for purposes of the 
SNF 3-day rule waiver.
    In order to furnish SNF services under a swing bed agreement, 
hospitals must be substantially in compliance with the SNF 
participation requirements specified at 42 CFR 482.58(b), whereas CAHs 
must be substantially in compliance with the SNF participation 
requirements specified at 42 CFR 485.645(d). However, currently, 
providers furnishing SNF services under a swing bed agreement are not 
eligible to partner and enter into written agreements with ACOs for 
purposes of the SNF 3-day rule waiver because: (1) The SNF 3-day rule 
waiver under the Shared Savings Program regulations at Sec.  
425.612(a)(1) waives the requirement for a 3-day prior inpatient 
hospitalization only with respect to otherwise covered SNF services 
furnished by an eligible SNF and does not extend to otherwise covered 
post-hospital extended care services furnished by a provider under a 
swing bed agreement; and (2) CAHs and other rural hospitals furnishing 
SNF services under swing bed agreements are not included in the CMS 5-
star Quality Rating System and, therefore, cannot meet the requirement 
at Sec.  425.612(a)(1)(iii)(A) that, to be eligible to partner with an 
ACO for purposes of the SNF 3-day rule waiver, the SNF must have and 
maintain an overall rating of 3 or higher under the CMS 5-star Quality 
Rating System.
    For the reasons described in the June 2015 final rule (80 FR 
32804), we believe it is necessary to offer ACOs participating under 
two-sided risk models additional tools and flexibility to manage and 
coordinate care for their assigned beneficiaries, including the 
flexibility to admit a beneficiary for SNF-level care without a prior 
3-day inpatient hospital stay. We agree with stakeholders that there 
are fewer SNFs in rural areas. Therefore, we agree with rural 
stakeholders that risk-bearing ACOs in rural areas would be better able 
to coordinate and manage care, and thus to control unnecessary costs, 
if the SNF 3-day rule waiver extended to otherwise covered SNF services 
provided by a hospital or CAH under a swing bed agreement. We believe 
this proposal would primarily benefit ACOs located in rural areas 
because most CAHs and hospitals that are approved to furnish post-acute 
SNF-level care via a swing bed agreement are located in rural areas. 
Consistent with this proposal, we also proposed to revise the 
regulations governing the SNF 3-day rule waiver at Sec.  425.612(a)(1) 
to indicate that, for purposes of determining eligibility to partner 
with an ACO for the SNF 3-day rule waiver, SNFs include providers 
furnishing SNF services under swing bed arrangements. In addition, we 
proposed to revise Sec.  425.612(a)(1)(iii)(A) to specify that the 
minimum 3-star rating requirement applies only if the provider 
furnishing SNF services is eligible to be included in the CMS 5-star 
Quality Rating System. We do not have a comparable data element to the 
CMS 5-star Quality Rating System for hospitals and CAHs under swing bed 
agreements; however, under Sec.  425.612(d)(2), we monitor and audit 
the use of payment waivers in accordance with Sec.  425.316. We will 
continue to monitor the use of the SNF 3-Day Rule Waiver and reserve 
the right to terminate an ACO's SNF 3-day rule waiver if the waiver is 
used inappropriately or beneficiaries are not receiving appropriate 
care.
    Additionally, we note the possibility that a beneficiary could be 
admitted to a hospital or CAH, have an inpatient stay of less than 3 
days, and then be admitted to the same hospital or CAH under its swing 
bed agreement. As previously discussed, we believe ACOs that bear a 
degree of financial risk have a stronger incentive not to over utilize 
services and have an incentive to recommend a beneficiary for admission 
to a SNF only when it is medically appropriate. We also note this 
scenario could occur when a beneficiary meets the generally applicable 
3-day stay requirement. Thus, we do not believe extending the SNF 3-day 
rule waiver to include services furnished by a hospital or CAH under a 
swing bed agreement would create a new gaming opportunity.
    To reduce burden and confusion for eligible ACOs not currently 
approved for a SNF 3-day rule waiver, we

[[Page 67971]]

proposed that these revisions would be applicable for SNF 3-day rule 
waivers approved for performance years beginning on July 1, 2019, and 
in subsequent years. This would allow for one, as opposed to multiple, 
application deadlines thus reducing the overall burden for ACOs 
applying for the waiver and prevent confusion over ACO outreach and 
communication materials related to application deadlines. Because we 
are forgoing the application cycle for a January 1, 2019 start date, we 
proposed to apply the revisions to ACOs approved to use the SNF 3-day 
rule waiver for performance years beginning on July 1, 2019, and in 
subsequent years. This includes both ACOs that start a new agreement 
period under the proposed new participation options on July 1, 2019, 
and those ACOs that are applying for a waiver during the term of an 
existing participation agreement. For ACOs currently participating in 
the Shared Savings Program with an agreement period beginning in 2017 
or 2018, that have previously been approved for a SNF 3-day rule 
waiver, the proposed revisions to the SNF 3-day rule waiver would be 
applicable starting on July 1, 2019, and for all subsequent performance 
years. ACOs with an approved SNF 3-day rule waiver would be able to 
modify their 2019 SNF affiliate list for the performance year beginning 
on January 1, 2019; however, they would not be able to add a hospital 
or CAH operating under a swing bed agreement to their SNF affiliate 
list until the July 1, 2019 change request review cycle. CMS would 
notify all ACOs, including ACOs with a 12 month performance year 2019, 
of the schedule for this change request review cycle.
    Consistent with these proposed revisions to the SNF 3-day rule 
waiver, we proposed to add a new provision at Sec.  425.612(a)(1)(vi) 
to allow ACOs participating in performance-based risk within the BASIC 
track or ACOs participating in Track 3 or the ENHANCED track to request 
to use the SNF 3-day rule waiver. We did not propose to make the 
revisions to the SNF 3-day rule waiver applicable for Track 2 ACOs 
because we proposed to phase out Track 2, as discussed at section 
II.A.2. of this final rule. ACOs currently participating under Track 2 
that choose to terminate their existing participation agreement and 
reapply to the Shared Savings Program under the ENHANCED track or BASIC 
track, at the highest level of risk and potential reward, as described 
under section II.A.2. of this final rule, would be eligible to apply 
for the SNF 3-day rule waiver.
    For the reasons discussed in this section, we believe that the 
proposed modifications of the SNF 3-day rule waiver would provide 
additional incentives for ACOs to participate in the Shared Savings 
Program under performance-based risk and are necessary to support ACO 
efforts to increase quality and decrease costs under performance-based 
risk arrangements. We invited comments on these proposals and related 
issues.
    Comment: Many commenters supported our proposed changes to the SNF 
3-day rule waiver. In particular, some reasons commenters stated that 
they were supportive of the proposed changes to the SNF 3-day rule 
waiver were that it supports patient engagement, care coordination, and 
aids ACOs in increasing quality and reducing unnecessary costs. Many 
commenters were particularly supportive of our proposal to allow two-
sided ACOs that selected the preliminary prospective with retrospective 
reconciliation assignment methodology to apply for the SNF 3-day rule 
waiver as well as our proposal to allow facilities under a swing bed 
agreement to partner with ACOs as SNF affiliates.
    Response: We appreciate commenters' support for the proposed 
policies regarding the SNF 3-day rule waiver.
    Comment: One commenter opposed allowing ACOs under the preliminary 
prospective with retrospective reconciliation assignment methodology 
the opportunity to apply for a SNF 3-day rule waiver. The commenter 
stated there is potential for mishaps related to cost sharing and 
benefit availability for beneficiaries who ultimately are not assigned 
to an ACO.
    Response: We proposed that beneficiaries who appear on the initial, 
Q1, Q2, and Q3 preliminary prospective assignment list reports will 
remain eligible for the SNF-3 day rule waiver for the performance year, 
unless they are no longer eligible for both Part A and Part B or enroll 
in a Medicare group health plan, in order to minimize confusion 
concerning beneficiary eligibility. We also note that FFS eligibility 
status for all beneficiaries, regardless of assignment methodology, may 
change; therefore, beneficiary insurance coverage and cost sharing 
responsibilities should be verified at the time they receive services. 
Therefore, we disagree with the commenter that there are special 
concerns related to whether a beneficiary is ultimately assigned to an 
ACO under preliminary prospective assignment with retrospective 
reconciliation with respect to the SNF 3-day rule waiver, and we 
decline to modify the proposal based on this comment.
    Comment: A few commenters opposed the proposal to allow facilities 
under a swing bed agreements to partner with ACOs as SNF affiliates. 
Specifically, some commenters stated it would represent an unfair trade 
practice and would be inconsistent with restrictions applied to 
traditional SNFs. One commenter suggested continuously monitoring SNF 
affiliates under swing bed agreements to ensure they maintain a high-
level of care. Other commenters suggested requiring facilities under 
swing bed agreements to provide a sufficient demonstration of hardship 
in placement of discharging patients with adequate post-acute care in 
order to be eligible to partner with an ACO as a SNF affiliate.
    Response: As we noted previously, in order to furnish SNF services 
under a swing bed agreement, hospitals must be substantially in 
compliance with the SNF participation requirements specified at 42 CFR 
482.58(b), and CAHs must be substantially in compliance with the SNF 
participation requirements specified at 42 CFR 485.645(d). While we 
believe the CMS 5-Star Quality Rating System is a good measure to help 
assure beneficiaries that the SNF affiliate provides quality care, 
there are instances when the Star Quality Rating System does not apply, 
and we believe it is important to provide beneficiaries with the 
opportunity to be admitted to a SNF if their health care providers 
believe they do not require a 3-day inpatient stay. In order to provide 
beneficiaries in rural areas the opportunity to use the SNF 3-day rule 
waiver, we believe it is necessary to provide an exception to the CMS 
5-Star Quality Rating System requirement for SNF providers furnishing 
SNF services under a swing bed arrangement. We will monitor the use of 
the SNF 3-Day Rule Waiver and reserve the right to terminate an ACO's 
SNF 3-day rule waiver if the waiver is used inappropriately or 
beneficiaries are not receiving appropriate care. We do not believe it 
is necessary to require hospitals or CAHs under a swing bed agreements 
to demonstrate hardship in placement of discharging patients with 
adequate post-acute care as they have already sufficiently demonstrated 
to CMS they meet the requirements to operate under a swing bed 
agreement. Beneficiaries in rural areas have fewer post-acute care 
facility options, therefore we do not believe it is necessary to 
require facilities in rural areas to provide further documentation 
demonstrating the number of facilities

[[Page 67972]]

located near their rural beneficiary populations.
    Comment: Some commenters disagreed with limiting the SNF 3-day rule 
waiver to ACOs participating under performance-based risk tracks. These 
commenters suggested allowing all Shared Savings Program ACOs to apply 
for the SNF-3-day rule waiver. One commenter provided the following 
reasons in support of this suggestion: (1) ACOs should have the ability 
to reform their practice patterns before they are required to take on 
financial risk, (2) beneficiaries may experience ``iatrogenic harm'' 
from a hospital stay longer than they need, and (3) the Shared Savings 
Program has experienced reductions in SNF utilizations demonstrating 
that ACOs are not interested in over utilizing SNF care.
    Response: We agree with commenters that ACOs participating in the 
Shared Savings Program have incentives to not over utilize care and 
reform their practice patterns; however, based on our experience with 
Track 1 we have learned that a SNF 3-day rule waiver is not a necessary 
incentive to encourage ACOs to participate under a one-sided model. We 
continue to believe that using the authority under section 1899(f) of 
the Act to waive certain payment or other program requirements may be 
necessary to permit effective implementation of two-sided performance-
based risk tracks under the Shared Savings Program (80 FR 32799).
    Comment: One commenter opposed further modifications to the SNF 3-
day rule waiver until CMS evaluates the impact the waiver has had on 
patient outcomes in the program.
    Response: We continue to monitor the use of the SNF 3-day rule 
waiver and reserve the right to terminate an ACO's SNF 3-day rule 
waiver if the waiver is used inappropriately or beneficiaries are not 
receiving appropriate care. To date, we have not observed misuse of the 
SNF 3-day rule waiver, nor have we received complaints from (or about) 
beneficiaries negatively impacted by the SNF 3-day rule waiver. We will 
continue to monitor the implementation of this waiver.
    Comment: Several commenters submitted suggestions concerning our 
requirement that SNF affiliates have and maintain an overall rating of 
3 or higher under the CMS 5-star Quality Rating System (Sec.  
425.612(a)(1)(iii)(A)). Commenters report that the measure is difficult 
to attain, which limits the SNFs eligible to partner with ACOs, reduces 
the effectiveness of the waiver, and limits beneficiary choice. Some 
commenters suggested modifying this requirement to use only one star 
rating data element instead of the overall score. One commenter 
suggested that as APMs, ACOs are self-regulated to provide low-cost, 
high-quality care; therefore; the star rating requirement is not 
necessary. Some commenters suggested we provide a list of SNFs that are 
eligible SNF affiliates for ACOs to partner with.
    Response: We did not propose to change the requirement for SNF 
affiliates that are not operating under a swing bed arrangement to have 
and maintain an overall rating of 3 or higher under the CMS 5-star 
Quality Rating System in the proposed rule. We decline at this time to 
remove the star rating requirement for facilities eligible for a rating 
under the CMS 5-star Quality Rating System because, as stated in 
earlier rulemaking, we believe this requirement provides beneficiaries 
with evidence that the SNF provides quality care (80 FR 32805). We will 
continue to evaluate the requirements of the SNF 3-day rule waiver and 
will propose any modifications we believe may be necessary to aid ACOs 
in successfully coordinating and delivering high quality beneficiary 
care in future rulemaking. We do not believe it is necessary to produce 
a list of SNF affiliates for ACOs to partner with since the CMS 5-star 
Quality Rating System is publicly available for both ACOs and 
beneficiaries to view the overall quality score for Medicare enrolled 
SNFs.
    Comment: A few commenters suggested we modify the beneficiary 
eligibility requirement which limits the SNF 3-day rule waiver to 
beneficiaries that do not currently reside in a SNF or other long-term 
care facility (Sec.  425.602(a)(1)(ii)(B)). Commenters stated these 
beneficiaries also provide the opportunity to lower costs if they 
become eligible for the SNF 3-day rule waiver. One commenter suggested 
all beneficiaries seen at a hospital on an ACO participant list should 
be eligible for the SNF 3-day rule waiver. Another commenter suggested 
all assignable beneficiaries for ACOs under the prospective assignment 
methodology should become eligible for the SNF 3-day rule waiver as 
this would be equitable to the proposal to include quarterly 
beneficiaries assigned under the preliminary prospective with 
retrospective reconciliation assignment methodology.
    Response: We did not propose any modifications to Sec.  
425.602(a)(1)(ii)(B) at this time. However, we have concerns that long-
term care facilities might have an incentive to inappropriately apply 
the SNF 3-day rule waiver to beneficiaries residing in their facility 
as the payment rate is different between the two types of facility 
stays. Consistent with the approach taken under the Pioneer ACO Model 
and Next Generation ACO Model, we do not consider independent or 
assisted living facilities to be long-term care settings for purposes 
of determining a beneficiary's eligibility to receive SNF services 
pursuant to the SNF 3-day rule waiver. We do not believe it is 
appropriate to extend the SNF 3-day rule waiver to all beneficiaries 
who are seen at a hospital on an ACO's participant list or 
beneficiaries assignable to an ACO under the prospective assignment 
methodology. Under Sec.  425.702(c)(1)(ii)(C), we provide ACOs that 
have selected the prospective assignment methodology with a list of 
their prospectively assigned beneficiaries so that the ACO knows the 
universe of beneficiaries who could be assigned to the ACO for the 
performance year, and we believe it is appropriate for the waiver to be 
used with respect to those beneficiaries. Additionally, ACOs under the 
prospective assignment methodology have their assignment list set at 
the start of each performance year and no beneficiaries are added to 
the list. Assignable beneficiaries will not be added during the 
performance year to the assigned beneficiary population for an ACO 
under the prospective assignment methodology for purposes of either the 
quality reporting sample or financial reconciliation. Therefore, we do 
not believe it is appropriate to extend the SNF-3-day rule waiver to 
beneficiaries who cannot be included on the final list of assigned 
beneficiaries for an ACO. We do not believe these suggested 
modifications to the SNF 3-day rule waiver would be necessary to permit 
effective implementation of two-sided performance-based risk tracks 
under the Shared Savings Program (80 FR 32799).
    Comment: Some commenters suggested we revise Sec.  
425.612(a)(1)(ii)(G) which requires a beneficiary to ``have been 
evaluated and approved for admission to the SNF within 3 days prior to 
the SNF admission by an ACO provider/supplier who is a physician'' to 
be eligible for the SNF 3-day rule waiver. Commenters suggested we 
allow other qualified clinicians to evaluate the beneficiary. A few 
commenters stated that this requirement creates additional burden and 
sometimes additional billable services when a physician must evaluate a 
beneficiary who has already been evaluated by an ACO provider/supplier 
who is a NP, PA, or CNS.
    Response: In order to be eligible to receive covered SNF services 
under the

[[Page 67973]]

SNF 3-day rule waiver, a beneficiary must have been evaluated and 
approved for admission to the SNF within 3 days prior to the admission 
by an ACO provider/supplier who is a physician, consistent with the 
beneficiary evaluation and admission plan. We do not believe that this 
criterion precludes review and approval by an ACO provider/supplier who 
is a physician of an evaluation conducted by another provider/supplier, 
for example, approval by the ACO medical director or other ACO 
provider/supplier who is a physician involved in the beneficiary's care 
of a recommendation for SNF admission by an NP, PA, of CNS who has 
directly evaluated the beneficiary. Additionally, under Sec.  425.613, 
ACO providers/suppliers in risk-bearing ACOs under the prospective 
assignment methodology may be able to conduct the evaluation via a 
telehealth service, if all applicable requirements are met.
    Comment: One commenter recommended we require ACOs to enhance 
communication and interoperability of EHRs with SNFs. The commenter 
suggested that improving the dissemination of electronic health records 
among providers will result in improved coordination of services and 
reduced inefficiencies as patients' transition from one care setting to 
another. The commenter further supported this suggestion stating it 
aligns with CMS' goal of improved interoperability and would result in 
improved services.
    Response: While we believe EHRs are mutually beneficial for ACOs 
and SNFs, and we encourage their use among health care providers, we 
decline to require SNF affiliates to implement EHRs to align with the 
ACOs they partner with. We are concerned such a requirement could 
create inefficiencies or have other unintended consequences, as SNF 
affiliates are not required to remain exclusive to a single ACO. SNF 
affiliates can partner with more than one Shared Savings Program ACO as 
well as with ACOs participating in other Medicare shared savings 
initiatives. In addition, such a requirement would be beyond the scope 
of the policies proposed in the August 2018 proposed rule.
    Final Action: After considering the comments received in response 
to the proposals to revise the SNF 3-day rule waiver, we are finalizing 
the policies as proposed. Specifically, we are finalizing the revisions 
to Sec.  425.612(a)(1) to expand eligibility for the SNF 3-day rule 
waiver to include ACOs participating in a two-sided model under 
preliminary prospective assignment with retrospective reconciliation. 
We are finalizing revisions to Sec.  425.612(a)(1) to indicate that, 
for purposes of determining eligibility to partner with an ACO for the 
SNF 3-day rule waiver, SNFs include providers furnishing SNF services 
under swing bed arrangements. Additionally, we are finalizing revisions 
to Sec.  425.612(a)(1)(iii)(A) to specify that the minimum 3-star 
rating requirement applies only if the provider furnishing SNF services 
is eligible to be included in the CMS 5-star Quality Rating System. 
Lastly, we are finalizing a new provision at Sec.  425.612(a)(1)(vi) to 
allow ACOs participating in performance-based risk within the BASIC 
track or ACOs participating in Track 3 or the ENHANCED track to request 
to use the SNF 3-day rule waiver.
b. Billing and Payment for Telehealth Services
(1) Background
    Under section 1834(m) of the Act, Medicare pays for certain Part B 
telehealth services furnished by a physician or practitioner under 
certain conditions, even though the physician or practitioner is not in 
the same location as the beneficiary. As of 2018, the telehealth 
services must be furnished to a beneficiary located in one of the types 
of originating sites specified in section 1834(m)(4)(C)(ii) of the Act 
and the originating site must satisfy at least one of the requirements 
of section 1834(m)(4)(C)(i)(I) through (III) of the Act. An originating 
site is the location at which a beneficiary who is eligible to receive 
a telehealth service is located at the time the service is furnished 
via a telecommunications system.
    Generally, for Medicare payment to be made for telehealth services 
under the PFS, several conditions must be met (Sec.  410.78(b)). 
Specifically, the service must be on the Medicare list of telehealth 
services and must meet all of the following requirements for payment:

    <bullet> The telehealth service must be furnished via an 
interactive telecommunications system, as defined at Sec.  
410.78(a)(3). CMS pays for telehealth services provided through 
asynchronous (that is, store and forward) technologies, defined at 
Sec.  410.78(a)(1), only for Federal telemedicine demonstration 
programs conducted in Alaska or Hawaii.
    <bullet> The service must be furnished to an eligible 
beneficiary by a physician or other practitioner specified at Sec.  
410.78(b)(2) who is licensed to furnish the service under State law 
as specified at Sec.  410.78(b)(1).
    <bullet> The eligible beneficiary must be located at an 
originating site at the time the service being furnished via a 
telecommunications system occurs. The eligible originating sites are 
specified in section 1834(m)(4)(C)(ii) of the Act and Sec.  
410.78(b)(3) and, for telehealth services furnished during 2018, 
include the following: The office of a physician or practitioner, a 
CAH, RHC, FQHC, hospital, hospital-based or CAH-based renal dialysis 
center (including satellites), SNF, and community mental health 
center.
    <bullet> As of 2018, the originating site must be in a location 
specified in section 1834(m)(4)(C)(i) of the Act and Sec.  
410.78(b)(4). The site must be located in a health professional 
shortage area that is either outside of a Metropolitan Statistical 
Area (MSA) or within a rural census tract of an MSA, located in a 
county that is not included in an MSA, or be participating in a 
Federal telemedicine demonstration project that has been approved 
by, or receives funding from, the Secretary of Health and Human 
Services as of December 31, 2000.

    When these conditions are met, Medicare pays a facility fee to the 
originating site and provides separate payment to the distant site 
practitioner for the service.
    Section 1834(m)(4)(F)(i) of the Act defines Medicare telehealth 
services to include professional consultations, office visits, office 
psychiatry services, and any additional service specified by the 
Secretary, when furnished via a telecommunications system. A list of 
Medicare telehealth services is available through the CMS website (at 
https://www.cms.gov/Medicare/Medicare-General-Information/Telehealth/Telehealth-Codes.html). Under section 1834(m)(4)(F)(ii) of the Act, CMS 
has an annual process to consider additions to and deletions from the 
list of telehealth services. CMS does not include any services as 
telehealth services when Medicare does not otherwise make a separate 
payment for them.
    Under the Next Generation ACO Model, the Innovation Center has been 
testing a Telehealth Expansion Benefit Enhancement under which CMS has 
waived the geographic and originating site requirements for services 
that are on the list of telehealth services when furnished to aligned 
beneficiaries by eligible telehealth practitioners (see the CMS website 
at https://innovation.cms.gov/Files/x/nextgenaco-telehealthwaiver.pdf). 
The purpose of this waiver is to test whether giving participating ACOs 
the flexibility to furnish telehealth services in more geographic areas 
and from the beneficiary's home will lower costs, improve quality, and 
better engage beneficiaries in their care.
(2) Provisions of the Bipartisan Budget Act for Telehealth in the 
Shared Savings Program
    Section 50324 of the Bipartisan Budget Act amends section 1899 of 
the Act to add a new subsection (l) to provide certain ACOs the ability 
to expand the use of telehealth. The Bipartisan Budget Act provides 
that,

[[Page 67974]]

with respect to telehealth services for which payment would otherwise 
be made that are furnished on or after January 1, 2020 by a physician 
or practitioner participating in an applicable ACO to a Medicare FFS 
beneficiary prospectively assigned to the applicable ACO, the following 
shall apply: (1) The home of a beneficiary shall be treated as an 
originating site described in section 1834(m)(4)(C)(ii) of the Act, and 
(2) the geographic limitation under section 1834(m)(4)(C)(i) of the Act 
shall not apply with respect to an originating site, including the home 
of a beneficiary, subject to State licensing requirements. The 
Bipartisan Budget Act defines the home of a beneficiary as the place of 
residence used as the home of a Medicare FFS beneficiary.
    The Bipartisan Budget Act defines an ``applicable ACO'' as an ACO 
participating in a two-sided model of the Shared Savings Program (as 
described in Sec.  425.600(a)) or a two-sided model tested or expanded 
under section 1115A of the Act, for which FFS beneficiaries are 
assigned to the ACO using a prospective assignment method.
    The Bipartisan Budget Act also provides that, in the case where the 
home of the beneficiary is the originating site, there shall be no 
facility fee paid to the originating site. It further provides that no 
payment may be made for telehealth services furnished in the home of 
the beneficiary when such services are inappropriate to furnish in the 
home setting, such as services that are typically furnished in 
inpatient settings such as a hospital.
    Lastly, the Bipartisan Budget Act requires the Secretary to conduct 
a study on the implementation of section 1899(l) of the Act that 
includes an analysis of the utilization of, and expenditures for, 
telehealth services under section 1899(l). No later than January 1, 
2026, the Secretary must submit a report to Congress containing the 
results of the study, together with recommendations for legislation and 
administrative action as the Secretary determines appropriate.
(3) Proposals
    We proposed to add a new section of the Shared Savings Program 
regulations at Sec.  425.613 to govern the payment for certain 
telehealth services furnished, in accordance with section 1899(l) of 
the Act, as added by the Bipartisan Budget Act. As required by section 
1899(l) of the Act, we proposed to treat the beneficiary's home as an 
originating site and not to apply the originating site geographic 
restrictions under section 1834(m)(4)(C)(i) of the Act for telehealth 
services furnished by a physician or practitioner participating in an 
applicable ACO. Thus, we proposed to make payment to a physician or 
practitioner billing though the TIN of an ACO participant in an 
applicable ACO for furnishing otherwise covered telehealth services to 
beneficiaries prospectively assigned to the applicable ACO, including 
when the originating site is the beneficiary's home and without regard 
to the geographic limitations under section 1834(m)(4)(C)(i) of the 
Act. As we note in section II.A.4.c. of the August 2018 proposed rule 
(83 FR 41811) and again in this final rule, the Shared Savings Program 
offers two similar, but distinct, assignment methodologies, prospective 
assignment and preliminary prospective assignment with retrospective 
reconciliation. We proposed to apply these policies regarding payment 
for telehealth services to ACOs under a two-sided model that 
participate under the prospective assignment method. We believed that 
these ACOs meet the definition of applicable ACO under section 
1899(l)(2)(A) of the Act. Because final assignment is not performed 
under the preliminary prospective assignment methodology until after 
the end of the performance year, we do not believe it is ``a 
prospective assignment method'' as required under section 
1899(l)(2)(A)(ii). Although we do not believe that ACOs that 
participate under the preliminary prospective assignment with 
retrospective reconciliation method meet the definition of an 
applicable ACO, we welcomed comments on our interpretation of this 
provision.
    We proposed that the policies governing telehealth services 
furnished in accordance with section 1899(l) of the Act would be 
effective for telehealth services furnished in performance years 
beginning in 2020 and subsequent years by physicians or practitioners 
participating in ACOs that are operating under a two-sided model with a 
prospective assignment methodology for the applicable performance year. 
This would include physicians and practitioners participating in ACOs 
with a prospective assignment method for a performance year in the 
ENHANCED track (including Track 3 ACOs with an agreement period 
starting in 2018 or on January 1, 2019), or in levels C, D, or E of the 
BASIC track. Because ACOs participating in the Track 1+ Model are 
participating in a two-sided model tested under section 1115A and use 
prospective assignment, we note that physicians and practitioners 
participating in Track 1+ ACOs would also be able to furnish and be 
paid for telehealth services in accordance with section 1899(l) of the 
Act. Physicians and practitioners participating in Track 2 ACOs would 
not be able to furnish and be paid for telehealth services in 
accordance with section 1899(l) of the Act because Track 2 ACOs do not 
participate under a prospective assignment methodology. Additionally, 
the ability to furnish and be paid for telehealth services in 
accordance with section 1899(l) of the Act would not extend beyond the 
term of the ACO's participation agreement. If CMS terminates an ACO's 
participation agreement under Sec.  425.218, then the ability of 
physicians and other practitioners billing through the TIN of an ACO 
participant to furnish and be paid for telehealth services in 
accordance with section 1899(l) of the Act will end on the date 
specified in the notice of termination. Further, to help protect 
beneficiaries from potential exposure to significant financial 
responsibility. we would also like to clarify that an ACO must include, 
as a part of its notice of termination to ACO participants under Sec.  
425.221(a)(1)(i), a statement that physicians and other practitioners 
who bill through the TIN of an ACO participant can no longer furnish 
and be paid for telehealth services in accordance with section 1899(l) 
of the Act after the ACO's date of termination.
    As discussed in section II.A.4. of the August 2018 proposed rule 
(83 FR 41810) and again in this final rule, we proposed to allow ACOs 
in the BASIC and ENHANCED tracks the opportunity to change their 
beneficiary assignment methodology on an annual basis. As a result, the 
ability of physicians and other practitioners billing through the TIN 
of an ACO participant in these ACOs to furnish and be paid for 
telehealth services in accordance with section 1899(l) of the Act could 
change from year to year depending on the ACO's choice of assignment 
methodology. Should an ACO in the BASIC track or ENHANCED track change 
from the prospective assignment methodology to preliminary prospective 
assignment methodology with retrospective reconciliation for a 
performance year, the ACO would no longer satisfy the requirements to 
be an applicable ACO for that year and physicians and other 
practitioners billing through the TIN of an ACO participant in that ACO 
could only furnish and be paid for telehealth services if the services 
meet all applicable requirements, including the

[[Page 67975]]

originating site requirements, under section 1834(m)(4)(C) of the Act.
    We proposed that the beneficiary's home would be a permissible 
originating site type for telehealth services furnished by a physician 
or practitioner participating in an applicable ACO. Under this 
proposal, in addition to being eligible for payment for telehealth 
services when the originating site is one of the types of originating 
sites specified in section 1834(m)(4)(C)(ii) of the Act, a physician or 
other practitioner billing through the TIN of an ACO participant in an 
applicable ACO could also furnish and be paid for such services when 
the originating site is the beneficiary's home (assuming all other 
requirements are met). As discussed earlier, section 1899(l)(1)(A) of 
the Act, as added by section 50324 of the Bipartisan Budget Act, 
defines a beneficiary's home to be the place of residence used as the 
home of the beneficiary. In addition, we proposed that Medicare would 
not pay a facility fee when the originating site for a telehealth 
service is the beneficiary's home.
    Further, we proposed that the geographic limitations under section 
1834(m)(4)(C)(i) of the Act would not apply to any originating site, 
including a beneficiary's home, for telehealth services furnished by a 
physician or practitioner billing through the TIN of an ACO participant 
in an applicable ACO. This would mean that a physician or practitioner 
billing through the TIN of an ACO participant in an applicable ACO 
could furnish and be paid for telehealth services when the beneficiary 
receives those services while located at an originating site in an 
urban area that is within an MSA, assuming all other requirements are 
met. We also proposed to require that, consistent with section 
1899(l)(1)(B) of the Act, the originating site must comply with State 
licensing requirements.
    We proposed that the treatment of the beneficiary's home as an 
originating site and the non-application of the originating site 
geographic restrictions would be applicable only to payments for 
services on the list of Medicare telehealth services. The approved list 
of telehealth services is maintained on our website and is subject to 
annual updates (https://www.cms.gov/Medicare/Medicare-General-Information/Telehealth/Telehealth-Codes.html). However, as provided in 
section 1899(l)(3)(B) of the Act, in the case where the beneficiary's 
home is the originating site, Medicare will not pay for telehealth 
services that are inappropriate to be furnished in the home even if the 
services are on the approved list of telehealth services. Therefore, we 
proposed that ACO participants must not submit claims for services 
specified as inpatient only when the service is furnished as a 
telehealth service and the beneficiary's home is the originating site. 
For example, CPT codes G0406, G0407, G0408, G0425, G0426, and G0427 are 
used for reporting inpatient hospital visits and are included on the 
2018 approved telehealth list. As described in Chapter 12, section 
190.3.1, of the Medicare Claims Processing Manual,\21\ Medicare pays 
for inpatient or emergency department telehealth services furnished to 
beneficiaries located in a hospital or SNF; therefore, consistent with 
the current FFS telehealth requirements, we believe it would be 
inappropriate for an ACO participant to submit a claim for an inpatient 
telehealth visit when the originating site is the beneficiary's home.
---------------------------------------------------------------------------

    \21\ https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c12.pdf.
---------------------------------------------------------------------------

    As described in the August 2018 proposed rule (83 FR 41865), we are 
concerned about potential beneficiary financial liability for 
telehealth services provided to beneficiaries excluded from assignment 
under the Shared Savings Program. A beneficiary prospectively assigned 
to an applicable ACO at the beginning of a performance year can 
subsequently be excluded from assignment if he or she meets the 
exclusion criteria specified under Sec.  425.401(b). To address delays 
in communicating beneficiary exclusions from the assignment list, the 
Telehealth Expansion Benefit Enhancement under the Next Generation ACO 
Model provides for a 90-day grace period that functionally acts as an 
extension of beneficiary eligibility to receive services under the 
Benefit Enhancement and permits some additional time for the ACO to 
receive quarterly exclusion lists from CMS and communicate beneficiary 
exclusions to its participants. We also provide for a 90-day grace 
period with respect to the Shared Savings Program SNF 3-day rule waiver 
under Sec.  425.612(a)(1), which allows for coverage of qualifying SNF 
services furnished to a beneficiary who was prospectively assigned to 
an ACO that has been approved for the waiver at the beginning of the 
performance year, but was excluded in the most recent quarterly update 
to the ACO's prospective assignment list.
    Based upon the experience in the Next Generation ACO Model, we 
believe it would be inadvisable not to provide some protection for 
beneficiaries who are prospectively assigned to an applicable ACO at 
the start of the year, but are subsequently excluded from assignment. 
It is not operationally feasible for CMS to notify the ACO and for the 
ACO, in turn, to notify its ACO participants and ACO providers/
suppliers immediately of the beneficiary's exclusion. The lag in 
communication may then cause a physician or practitioner billing under 
the TIN of an ACO participant to unknowingly furnish a telehealth 
service to a beneficiary who no longer qualifies to receive telehealth 
services under section 1899(l) of the Act. Therefore, we proposed to 
use our waiver authority under section 1899(f) of the Act to waive the 
originating site requirements in section 1834(m)(4)(C) of the Act as 
necessary to provide for a 90-day grace period for payment of otherwise 
covered telehealth services, to allow sufficient time for CMS to notify 
an applicable ACO of any beneficiary exclusions, and for the ACO then 
to inform its ACO participants and ACO providers/suppliers of those 
exclusions. We believe it is necessary, to protect beneficiaries from 
potential financial liability related to use of telehealth services 
furnished by physicians and other practitioners billing through the TIN 
of an ACO participant in an applicable ACO, to establish this 90-day 
grace period in the case of a prospectively assigned beneficiary who is 
later excluded from assignment to an applicable ACO.
    More specifically, we proposed to waive the originating site 
requirements in section 1834(m)(4)(C) of the Act to allow for coverage 
of telehealth services furnished by a physician or practitioner billing 
through the TIN of an ACO participant in an applicable ACO to an 
excluded beneficiary within 90 days following the date that CMS 
delivers the relevant quarterly exclusion list under Sec.  425.401(b). 
We proposed to amend Sec.  425.612 to add a new paragraph (f) 
establishing the terms and conditions of this waiver. This waiver would 
permit us to make payment for otherwise covered telehealth services 
furnished during a 90 day grace period to beneficiaries who were 
initially on an applicable ACO's list of prospectively assigned 
beneficiaries for the performance year, but were subsequently excluded 
during the performance year. Under the terms of this waiver, CMS would 
make payments for telehealth services furnished to such a beneficiary 
as if they were telehealth services authorized under section

[[Page 67976]]

1899(l) of the Act if the following conditions are met:

    <bullet> The beneficiary was prospectively assigned to an 
applicable ACO at the beginning of the relevant performance year, 
but was excluded in the most recent quarterly update to the 
assignment list under Sec.  425.401(b);
    <bullet> The telehealth services are furnished to the 
beneficiary by a physician or practitioner billing through the TIN 
of an ACO participant in an applicable ACO within 90 days following 
the date that CMS delivers the quarterly exclusion list to the 
applicable ACO.
    <bullet> But for the beneficiary's exclusion from the applicable 
ACO's assignment list, CMS would have made payment to the ACO 
participant for such services under section 1899(l) of the Act.

    In addition, as described in the August 2018 proposed rule (83 FR 
41865) we are concerned that there could be scenarios where a 
beneficiary could be charged for non-covered telehealth services that 
were a result of an inappropriate attempt to furnish and be paid for 
telehealth services under section 1899(l) of the Act by a physician or 
practitioner billing through the TIN of an ACO participant in an 
applicable ACO. Specifically, we are concerned that a beneficiary could 
be charged for non-covered telehealth services if a physician or 
practitioner billing through the TIN of an ACO participant in an 
applicable ACO were to attempt to furnish a telehealth service that 
would be otherwise covered under section 1899(l) of the Act to a FFS 
beneficiary who is not prospectively assigned to the applicable ACO, 
and payment for the telehealth service is denied because the 
beneficiary is not eligible to receive telehealth services furnished 
under section 1899(l) of the Act. We believe this situation could occur 
as a result of a breakdown in one or more processes of the applicable 
ACO and its ACO participants. For example, the ACO participant may not 
verify that the beneficiary appears on the ACO's prospective assignment 
list, as required under section 1899(l) of the Act, prior to furnishing 
a telehealth service. In this scenario, Medicare would deny payment of 
the telehealth service claim because the beneficiary did not meet the 
requirement of being prospectively assigned to an applicable ACO. We 
are concerned that, once the claim is rejected, the beneficiary may not 
be protected from financial liability, and thus could be charged by the 
ACO participant for non-covered telehealth services that were a result 
of an inappropriate attempt to furnish telehealth services under 
section 1899(l), potentially subjecting the beneficiary to significant 
financial liability. In this circumstance, we proposed to assume that 
the physician or other practitioner's intent was to rely upon section 
1899(l) of the Act. We believe this is a reasonable assumption because, 
as a physician or practitioner billing under the TIN of an ACO 
participant in an applicable ACO, the healthcare provider should be 
well aware of the rules regarding furnishing telehealth services and, 
by submitting the claim, demonstrated an expectation that CMS would pay 
for telehealth services that would otherwise have been rejected for 
lack of meeting the originating site requirements in section 
1834(m)(4)(C) of the Act. We believe that in this scenario, the 
rejection of the claim could easily have been avoided if the ACO and 
the ACO participant had procedures in place to confirm that the 
requirements for furnishing such telehealth services were satisfied. 
Because each of these entities is in a better position than the 
beneficiary to know the requirements of the Shared Savings Program and 
to ensure that they are met, we believe that the applicable ACO and/or 
its ACO participants should be accountable for such denials and the ACO 
participant should be prevented from charging the beneficiary for the 
non-covered telehealth service. Therefore, we proposed that in the 
event that CMS makes no payment for telehealth services furnished to a 
FFS beneficiary and billed through the TIN of an ACO participant in an 
applicable ACO and the only reason the claim was non-covered is because 
the beneficiary was not prospectively assigned to the ACO or was not in 
the 90 day grace period, all of the following beneficiary protections 
would apply:

    <bullet> The ACO participant must not charge the beneficiary for 
the expenses incurred for such services;
    <bullet> The ACO participant must return to the beneficiary any 
monies collected for such services; and
    <bullet> The ACO may be subject to compliance actions, including 
being required to submit a corrective action plan (CAP) under Sec.  
425.216(b) for CMS approval. If the ACO is required to submit a CAP 
and, after being given an opportunity to act upon the CAP, the ACO 
fails to implement the CAP or demonstrate improved performance upon 
completion of the CAP, we may terminate the participation agreement 
as specified under Sec.  425.216(b)(2). These proposed beneficiary 
protections are reflected in the proposed new regulation at Sec.  
425.613, which implements the requirements of section 1899(l) of the 
Act and establishes the policies governing the use of telehealth 
services by applicable ACOs and their ACO participants and ACO 
providers/suppliers.

    Lastly, in the August 2018 proposed rule, we included a proposed 
change to the public reporting requirements under Sec.  425.308 to 
include an ACO's use of payment rule waivers under Sec.  425.612, if 
applicable, or telehealth services under Sec.  425.613, if applicable, 
or both.
    We welcomed comments on these proposals for implementing the 
requirements of section 1899(l) of the Act, as added by the Bipartisan 
Budget Act, and related issues. Our proposed policies concerning the 
applicability of the SNF 3-day rule waiver and expanded coverage for 
telehealth services in accordance with section 1899(l) of the Act by 
track are summarized in Table 10.

[[Page 67977]]

[GRAPHIC] [TIFF OMITTED] TR31DE18.014

    Comment: A number of commenters expressed their support for the 
proposals to make payments to physicians or practitioners for 
furnishing otherwise covered telehealth services, including when the 
originating site is the beneficiary's home. Several commenters wrote 
that the telehealth proposals would specifically help those who are 
home bound, or lack transportation, to have access to primary care 
services that would otherwise be unavailable. A few commenters 
supported the proposal to allow the beneficiary's home to be the 
originating site, and encouraged CMS to remove all originating site 
requirements.
    Response: We appreciate commenters' support for the proposed 
policies for implementing the telehealth requirements of section 
1899(l) of the Act, as added by the Bipartisan Budget Act.
    Comment: A few commenters generally supported our telehealth 
proposals, but expressed uncertainty about how this new provision would 
impact FQHCs and encouraged CMS to clarify the language in the proposed 
rule to clearly allow FQHCs to provide telehealth services through 
their participation in an ACO.
    Response: Although RHCs and FQHCs are authorized to serve as an 
originating site for telehealth services, RHCs and FQHCs are not 
authorized to serve as a distant site for telehealth consultations. We 
also wish to clarify that RHCs and FQHCs may not share space, staff, 
supplies, equipment, and/or other resources with an onsite Medicare 
Part B FFS practice operated by the same RHC or FQHC physician(s) and/
or non-physician(s) practitioners. Additionally, RHC and FQHC 
practitioners may not furnish or separately bill for RHC or FQHC-
covered professional services as a Part B provider in the RHC or FQHC. 
Additional details about these prohibitions are available in Chapter 13 
of the Medicare Benefit Policy Manual (https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/bp102c13.pdf). Therefore, 
practitioners furnishing services in a RHC or FQHC facility cannot 
furnish telehealth services, though a beneficiary may use an RHC/FQHC 
facility as an originating site.
    Comment: One commenter requested a real time benefit eligibility 
system for physician offices.
    Response: The Shared Savings Program regulations do not prohibit 
ACOs from creating a beneficiary eligibility system to aid their ACO 
providers and suppliers in identifying prospectively assigned 
beneficiaries. Beneficiary FFS coverage should be verified at the time 
they receive services to determine eligibility.
    Comment: One ACO commenter stated rural populations do not have 
access to the proper technology to effectively implement telehealth 
services, which would limit the practical usage of the proposal for 
this ACO.
    Response: The Bipartisan Budget Act and this final rule do not 
impose any new limitations on delivery of telehealth services, instead 
the new provisions allow for a greater number of beneficiaries to be 
eligible to receive covered telehealth services. Eligible beneficiaries 
without the proper technology to receive telehealth services from their 
home remain eligible to receive such services from other originating 
sites such as a practitioner's office or an RHC or FQHC.
    Comment: Commenters generally supported the proposal to apply the 
proposed telehealth policies to ACOs under a two-sided model. However, 
they encouraged CMS to expand the coverage to include ACOs under the 
preliminary prospective with retrospective reconciliation assignment 
methodology in order to create consistency with the SNF waiver, and 
make the proposals more streamlined for CMS to manage. A few commenters 
suggested that CMS allow ACOs to apply the telehealth proposals to 
voluntary aligned beneficiaries who are assigned to an ACO under the 
preliminary prospective with retrospective reconciliation assignment 
methodology. One commenter suggested that telehealth coverage be 
extended to ACOs under one-sided tracks, stating that ACOs in shared 
savings only

[[Page 67978]]

models have generated more savings than ACOs in two-sided models.
    Response: We appreciate the commenters' support; however, CMS does 
not believe it is necessary to implement the Shared Savings Program to 
use its waiver authority to broaden the expansion of coverage for 
telehealth services beyond what Congress has specified for the Shared 
Savings Program. Section 1899(l)(2)(A) of the Act specifies in the 
definition of applicable ACO the requirements that an ACO must operate 
under a two-sided model under which beneficiaries are assigned using a 
prospective assignment methodology. Therefore, in view of Congress' 
decision to limit the expansion of coverage of telehealth services 
under section 1899(l) of the Act to physicians and practitioners in 
applicable ACOs, we do not believe it would be necessary for purposes 
of carrying out the Shared Savings Program to use our authority under 
section 1899(f) of the Act to issue a waiver allowing ACO providers/
suppliers participating in ACOs operating under a one-sided model or to 
which beneficiaries are preliminary prospectively assigned to receive 
payment for expanded telehealth services in the same manner as for 
telehealth services furnished under 1899(l).
    Comment: Several commenters suggested the implementation of a 
waiver under section 1899(f) to allow the proposed telehealth policies 
to begin on July 1, 2019.
    Response: We proposed that the policies governing telehealth 
services furnished in accordance with section 1899(l) of the Act would 
be effective for telehealth services furnished in performance years 
beginning in 2020 and subsequent years in accordance with the 
Bipartisan Budget Act. Therefore, consistent with the effective date 
specified by Congress, we decline to use our authority under section 
1899(f) of the Act to issue a waiver to allow physicians and 
practitioners participating in applicable ACOs to furnish telehealth 
services pursuant to section 1899(l) of the Act in the 6 months between 
July 1, 2019, and December 31, 2019.
    Comment: One commenter requested that CMS clarify how we would 
determine a ``telehealth service must not be inappropriate to furnish 
in the home setting'' (Sec.  425.613(a)(1)(iv)) and define the 
``inappropriate use of telehealth services'' (Sec.  425.613(d)(2)). 
Additionally, the commenter asked whether there would be different 
coding requirements for telehealth services delivered where the 
beneficiary's home is the originating site.
    Response: As we previously detailed, we have determined CPT codes 
G0406, G0407, G0408, G0425, G0426, and G0427 are inappropriate to 
furnish in the home setting. We identified these codes because they are 
specific to an inpatient setting and we believe it is inappropriate to 
deliver any service identified as an inpatient service in the home of a 
beneficiary. ACO providers/suppliers furnishing telehealth services 
must comply with all applicable Shared Savings Program and FFS 
regulations concerning furnishing telehealth services. Telehealth 
originating site claims are submitted independently from the physician 
services claims; beneficiaries and practitioners must refrain from 
submitting claims for an originating site facility fee when the 
services is furnished in the beneficiary's home.
    Comment: One commenter agreed with the 90-day grace period for 
beneficiaries, and that ACO TINs should not charge beneficiaries if 
they inappropriately furnish a telehealth service to a beneficiary. 
Another commenter suggested waiving cost-sharing obligations for 
beneficiaries receiving telehealth services wherever possible.
    Response: We thank commenters for their support. We proposed 
telehealth services furnished in accordance with section 1899(l) of the 
Act in accordance with the Bipartisan Budget Act. The Bipartisan Budget 
Act does not include provisions allowing providers and suppliers to 
waive cost-sharing obligations; therefore, we decline to create 
additional provisions addressing telehealth service cost-sharing 
requirements.
    Comment: One commenter suggested that telepsychiatry plays an 
important role in the health care system through improving patient 
outcomes and reducing costs for patients with undiagnosed mental 
illness and substance use disorders. Another commenter suggested CMS 
allow beneficiaries to receive telehealth services from their home or 
residence from an emergency physician. The commenter cited the shortage 
of hospitals and emergency departments in rural communities as the 
reason they believed this would be an appropriate service.
    Response: The list of telehealth services is updated through the 
annual physician fee schedule. The public has the opportunity to submit 
requests to add or delete services on an ongoing basis. We invite the 
commenter to make suggestions for additions to the Medicare list of 
telehealth services through this process.
    Comment: One commenter expressed concern that requiring ACO 
providers/suppliers to preview quarterly beneficiary assignment lists 
prior to delivering telehealth services, and not receiving payment if 
the beneficiary was not eligible to receive telehealth services, would 
be an administrative burden for ACOs.
    Response: Section 1899(l) of the Act requires that physicians and 
practitioners must be participating in an ACO to which beneficiaries 
are assigned using a prospective assignment method to be eligible to 
furnish covered telehealth services under that subsection, which 
services must be furnished to an assigned beneficiary. Shared Savings 
Program ACOs and their ACO providers/suppliers are not required to 
provide telehealth services, but if they chose to, the beneficiaries to 
whom they furnish such services must appear on the ACO's prospective 
assignment list.
    Comment: One commenter suggested that ACOs should publicly report 
their delivery of telehealth services via their participation in the 
Shared Savings Program; the commenter suggested that this would prevent 
ACO participants from misusing benefit enhancements provided by CMS.
    Response: We agree that transparency is important for reducing 
misuse of telehealth service delivery. In the August 2018 proposed 
rule, we proposed modifications to Sec.  425.308 to include public 
reporting of an ACO's use of payment rule waivers under Sec.  425.612, 
if applicable, or telehealth services under Sec.  425.613, if 
applicable, or both.
    Comment: One commenter suggested that any application to bill for 
telehealth services furnished pursuant to Sec.  1899(l) needs to be 
concise for risk-bearing ACOs.
    Response: Our proposed policies under Sec.  425.613 did not include 
any application process.
    Final Action: After considering the comments received in response 
to the proposed policies for implementing the telehealth requirements 
of section 1899(l) of the Act, as added by the Bipartisan Budget Act, 
we are finalizing the proposed policies for ACOs participating under 
performance-based risk that has elected the prospective assignment 
methodology under Sec.  425.400(a)(3). Accordingly, we are also 
finalizing the addition of Sec.  425.613. Lastly, we are finalizing the 
proposed modifications to Sec.  425.308(b)(6) to include a requirement 
for public reporting of an ACO's use of payment

[[Page 67979]]

rule waivers under Sec.  425.612, if applicable, or telehealth services 
under Sec.  425.613, if applicable, or both.

C. Providing Tools To Strengthen Beneficiary Engagement

1. Background on Beneficiary Engagement
    Section 1899(b)(2)(G) of the Act requires an ACO to ``define 
processes to promote . . . patient engagement.'' Strengthening 
beneficiary engagement is one of CMS' goals to help transform our 
health care system into one that delivers better care, smarter spending 
and healthier people, and that puts the beneficiary at the center of 
care. We stated in the November 2011 final rule that the term ``patient 
engagement'' means the active participation of patients and their 
families in the process of making medical decisions (76 FR 67828). The 
regulation at Sec.  425.112 details the patient-centeredness criteria 
for the Shared Savings Program, and requires that ACOs implement 
processes to promote patient engagement (Sec.  425.112(b)(2)).
    In addition, section 50341 of the Bipartisan Budget Act, which 
amends section 1899 of the Act, allows certain ACOs to each establish a 
beneficiary incentive program for assigned beneficiaries who receive 
qualifying primary-care services in order to encourage Medicare FFS 
beneficiaries to obtain medically necessary primary care services. In 
order to implement the amendments to section 1899 of the Act, and 
consistent with our goal to strengthen beneficiary engagement, we 
proposed policies in the August 2018 proposed rule to allow any ACO in 
Track 2, levels C, D, or E of the BASIC track, or the ENHANCED track to 
establish a CMS-approved beneficiary incentive program to provide 
incentive payments to eligible beneficiaries who receive qualifying 
services.
    Furthermore, we proposed to revise our policies related to 
beneficiary notifications. Specifically, we proposed to require 
additional content for beneficiary notifications and that beneficiaries 
receive such notices at the first primary care visit of each 
performance year. Finally, we sought comment on whether we should 
create an alternative beneficiary assignment methodology, in order to 
promote beneficiary free choice, under which a beneficiary would be 
assigned to an ACO if the beneficiary has ``opted-in'' to assignment to 
the ACO.
2. Beneficiary Incentives
a. Overview
    As we indicated in the August 2018 proposed rule, we believe that 
patient engagement is an important part of motivating and encouraging 
more active participation by beneficiaries in their health care. We 
continue to believe that ACOs that engage beneficiaries in the 
management of their health care may experience greater success in the 
Shared Savings Program. In the November 2011 final rule (see 76 FR 
67958), we noted that some commenters had suggested that beneficiary 
engagement and coordination of care could be enhanced by providing 
additional incentives to beneficiaries that would potentially motivate 
and encourage beneficiaries to become actively involved in their care. 
One commenter gave the example of supplying scales to beneficiaries 
with congestive heart failure to help them better manage this chronic 
disease. Other commenters were concerned that certain beneficiary 
incentives such as gifts, cash, or other remuneration could be 
inappropriate incentives for receiving services or remaining assigned 
to an ACO or with a particular ACO participant or ACO provider/
supplier.
    In the November 2011 final rule, we finalized a provision at Sec.  
425.304(a)(1) that prohibits ACOs, ACO participants, ACO providers/
suppliers, and other individuals or entities performing functions or 
services related to ACO activities from providing gifts or other 
remuneration to beneficiaries as incentives for (i) receiving items and 
services from or remaining in an ACO or with ACO providers/suppliers in 
a particular ACO, or (ii) receiving items or services from ACO 
participants or ACO providers/suppliers. However, in response to 
comments, we finalized a provision at Sec.  425.304(a)(2) to provide 
that, subject to compliance with all other applicable laws and 
regulations, an ACO, ACO participants, and ACO providers/suppliers, and 
other individuals or entities performing functions or services related 
to ACO activities may provide in-kind items or services to 
beneficiaries if there is a reasonable connection between the items or 
services and the medical care of the beneficiary, and the items or 
services are preventive care items or services, or advance a clinical 
goal of the beneficiary, including adherence to a treatment regime; 
adherence to a drug regime; adherence to a follow-up care plan; or 
management of a chronic disease or condition. For example, an ACO 
provider may give a blood pressure monitor to a beneficiary with 
hypertension in order to encourage regular blood pressure monitoring 
and thus educate and engage the beneficiary to be more proactive in his 
or her disease management. In this instance, such a gift would not be 
considered an improper incentive to encourage the beneficiary to remain 
with an ACO, ACO participant, or ACO provider/supplier.
    We noted in the August 2018 proposed rule that nothing precludes 
ACOs, ACO participants, or ACO providers/suppliers from offering a 
beneficiary an incentive to promote his or her clinical care if the 
incentive does not violate the Federal anti-kickback statute (section 
1128B(b) of the Act), the civil monetary penalties law provision 
relating to beneficiary inducements (section 1128A(a)(5) of the Act, 
known as the Beneficiary Inducements CMP), or other applicable law. For 
additional information on beneficiary incentives that may be 
permissible under the Federal anti-kickback statute and the Beneficiary 
Inducements CMP, see the final rule published by the Office of 
Inspector General (OIG) on December 7, 2016 titled ``Medicare and State 
Health Care Programs: Fraud and Abuse; Revisions to the Safe Harbors 
Under the Anti-Kickback Statute and Civil Monetary Penalty Rules 
Regarding Beneficiary Inducements'' (81 FR 88368), as well as other 
resources that can be found on the OIG website at oig.hhs.gov.
    In addition, as we explained in the August 2018 proposed rule, we 
believe that the existing regulation at Sec.  425.304(a)(2) already 
provides ACOs with a considerable amount of flexibility to offer 
beneficiary incentives to encourage patient engagement, promote care 
coordination, and achieve the objectives of the Shared Savings Program. 
Further, ACOs, ACO participants, and ACO providers/suppliers need not 
furnish beneficiary incentives under the existing regulation at Sec.  
425.304(a)(2) to every beneficiary; they have the flexibility to offer 
incentives on a targeted basis to beneficiaries who, for example, are 
most likely to achieve the clinical goal that the incentive is intended 
to advance. Although the appropriateness of any in-kind beneficiary 
incentives must be determined on a case-by-case basis, we believe a 
wide variety of incentives could be acceptable under the existing 
regulation under Sec.  425.304(a)(2), including, for example, the 
following:

    <bullet> Vouchers for over-the-counter medications recommended 
by a health care provider.
    <bullet> Prepaid, non-transferable vouchers that are redeemable 
for transportation services

[[Page 67980]]

solely to and from an appointment with a health care provider.
    <bullet> Items and services to support management of a chronic 
disease or condition, such as home air-filtering systems or bedroom 
air-conditioning for asthmatic patients, and home improvements such 
as railing installation or other home modifications to prevent re-
injury.
    <bullet> Wellness program memberships, seminars, and classes.
    <bullet> Electronic systems that alert family caregivers when a 
family member with dementia wanders away from home.
    <bullet> Vouchers for those with chronic diseases to access 
chronic disease self-management, pain management and falls 
prevention programs.
    <bullet> Vouchers for those with malnutrition to access meals 
programs.
    <bullet> Phone applications, calendars or other methods for 
reminding patients to take their medications and promote patient 
adherence to treatment regimes.

    As the previously stated examples indicate, we consider vouchers, 
that is, certificates that can be exchanged for particular goods or 
services (for example, a certificate for one free gym class at a local 
gym), to be ``in-kind items or services'' under existing Sec.  
425.304(a)(2) (redesignated as Sec.  425.304(b) in this final rule). 
Accordingly, an ACO may offer vouchers as beneficiary incentives under 
Sec.  425.304(a)(2) so long as the vouchers meet all the other 
requirements of Sec.  425.304(a)(2).
    In addition, we explained in the August 2018 proposed rule that, 
for purposes of the Shared Savings Program, we consider gift cards that 
are in the nature of a voucher, that is, gift cards that can be used 
only for particular goods or services, to be ``in-kind items or 
services'' that can be offered under existing Sec.  425.304(a)(2), 
provided that the requirements are satisfied. A gift card that is not 
in the nature of a voucher, however, such as a gift card to a general 
store, would not meet the requirements for ``in-kind item or service'' 
under existing Sec.  425.304(a)(2). Furthermore, we consider a gift 
card that can be used like cash, for example, a VISA or Amazon ``gift 
card,'' to be a ``cash equivalent'' that can be offered only as an 
incentive payment under an approved beneficiary incentive program, 
provided that all of the criteria set forth in Sec.  425.304(c), as 
finalized, are satisfied. We emphasized that, as previously stated, the 
determination and appropriateness of any in-kind beneficiary incentive 
must be determined on a case-by-case basis.
    Although we believe that ACOs, ACO participants, ACO providers/
suppliers and other individuals or entities performing functions or 
services related to ACO activities are already permitted to furnish a 
broad range of beneficiary incentives under existing Sec.  
425.304(a)(2) (including the previously stated examples), we noted that 
stakeholders have advocated that ACOs be permitted to offer a more 
flexible, and extensive range of beneficiary incentives that are not 
currently allowable under Sec.  425.304. In particular, stakeholders 
have sought to offer monetary incentives that beneficiaries could use 
to purchase retail items, which would not qualify as in-kind items or 
services under Sec.  425.304.
b. Provisions of the Bipartisan Budget Act for ACO Beneficiary 
Incentive Programs
    As previously noted, and as explained in the August 2018 proposed 
rule, in order to encourage Medicare FFS beneficiaries to obtain 
medically necessary primary care services, the recent amendments to 
section 1899 of the Act permit certain ACOs to establish beneficiary 
incentive programs to provide incentive payments to assigned 
beneficiaries who receive qualifying primary care services. We believe 
that such amendments will empower individuals and caregivers in care 
delivery. Specifically, the Bipartisan Budget Act added section 
1899(m)(1)(A) of the Act, which allows ACOs to apply to operate an ACO 
beneficiary incentive program. The Bipartisan Budget Act also added a 
new subsection (m)(2) to section 1899 of the Act, which provides 
clarification regarding the general features, implementation, duration, 
and scope of approved ACO beneficiary incentive programs. In addition, 
the Bipartisan Budget Act added section 1899(b)(2)(I) of the Act, which 
requires ACOs that seek to operate a beneficiary incentive program to 
apply to operate the program at such time, in such manner, and with 
such information as the Secretary may require.
    Section 1899(m)(1)(A) of the Act, as added by the Bipartisan Budget 
Act, allows ACOs participating in certain payment models described in 
section 1899(m)(2)(B) of the Act to apply to establish an ACO 
beneficiary incentive program to provide incentive payments to Medicare 
FFS beneficiaries who are furnished qualifying services. Section 
1899(m)(1)(A) of the Act also specifies that the Secretary shall permit 
an ACO to establish such a program at the Secretary's discretion and 
subject to such requirements, including program integrity requirements, 
as the Secretary determines necessary.
    Section 1899(m)(1)(B) of the Act requires the Secretary to 
implement the ACO beneficiary incentive program provisions under 
section 1899(m) of the Act on a date determined appropriate by the 
Secretary, but no earlier than January 1, 2019 and no later than 
January 1, 2020. In addition, section 1899(m)(2)(A) of the Act, as 
added by the Bipartisan Budget Act, specifies that an ACO beneficiary 
incentive program shall be conducted for a period of time (of not less 
than 1 year) as the Secretary may approve, subject to the termination 
of the ACO beneficiary incentive program by the Secretary.
    Section 1899(m)(2)(H) of the Act provides that the Secretary may 
terminate an ACO beneficiary incentive program at any time for reasons 
determined appropriate by the Secretary. In addition, the Bipartisan 
Budget Act amended section 1899(g)(6) of the Act to provide that there 
shall be no administrative or judicial review under section 1869 or 
1878 of the Act, or otherwise, of the termination of an ACO beneficiary 
incentive program.
    Section 1899(m)(2)(B) of the Act requires that an ACO beneficiary 
incentive program provide incentive payments to all of the following 
Medicare FFS beneficiaries who are furnished qualifying services by the 
ACO: (1) Medicare FFS beneficiaries who are preliminarily prospectively 
or prospectively assigned (or otherwise assigned, as determined by the 
Secretary) to an ACO in a Track 2 or Track 3 payment model described in 
Sec.  425.600(a) (or in any successor regulation) and (2) Medicare FFS 
beneficiaries who are assigned to an ACO, as determined by the 
Secretary, in any future payment models involving two-sided risk.
    Section 1899(m)(2)(C) of the Act, as added by the Bipartisan Budget 
Act, defines a qualifying service, for which incentive payments may be 
made to beneficiaries, as a primary care service, as defined in Sec.  
425.20 (or in any successor regulation), with respect to which 
coinsurance applies under Medicare part B. Section 1899(m)(2)(C) of the 
Act also provides that a qualifying service is a service furnished 
through an ACO by: (1) An ACO professional described in section 
1899(h)(1)(A) of the Act who has a primary care specialty designation 
included in the definition of primary care physician under Sec.  425.20 
(or any successor regulation) (2) an ACO professional described in 
section 1899(h)(1)(B) of the Act; or (3) a FQHC or RHC (as such terms 
are defined in section 1861(aa) of the Act).
    As added by the Bipartisan Budget Act, section 1899(m)(2)(D) of the 
Act provides that an incentive payment made by an ACO under an ACO 
beneficiary incentive program shall be in an amount up to $20, with the

[[Page 67981]]

maximum amount updated annually by the percentage increase in the 
consumer price index for all urban consumers (United States city 
average) for the 12-month period ending with June of the previous year. 
Section 1899(m)(2)(D) of the Act also requires that an incentive 
payment be in the same amount for each Medicare FFS beneficiary 
regardless of the enrollment of the beneficiary in a Medicare 
supplemental policy (described in section 1882(g)(1) of the Act), in a 
State Medicaid plan under Title XIX or a waiver of such a plan, or in 
any other health insurance policy or health benefit plan. Finally, 
section 1899(m)(2)(D) of the Act requires that an incentive payment be 
made for each qualifying service furnished to a beneficiary during a 
period specified by the Secretary and that an incentive payment be made 
no later than 30 days after a qualifying service is furnished to the 
beneficiary.
    Section 1899(m)(2)(E) of the Act, as added by the Bipartisan Budget 
Act, provides that no separate payment shall be made to an ACO for the 
costs, including the costs of incentive payments, of carrying out an 
ACO beneficiary incentive program. The section further provides that 
this requirement shall not be construed as prohibiting an ACO from 
using shared savings received under the Shared Savings Program to carry 
out an ACO beneficiary incentive program. In addition, section 
1899(m)(2)(F) of the Act provides that incentive payments made by an 
ACO under an ACO beneficiary incentive program shall be disregarded for 
purposes of calculating benchmarks, estimated average per capita 
Medicare expenditures, and shared savings for purposes of the Shared 
Savings Program.
    As added by the Bipartisan Budget Act, section 1899(m)(2)(G) of the 
Act provides that an ACO conducting an ACO beneficiary incentive 
program shall, at such times and in such format as the Secretary may 
require, report to the Secretary such information and retain such 
documentation as the Secretary may require, including the amount and 
frequency of incentive payments made and the number of Medicare FFS 
beneficiaries receiving such payments. Finally, section 1899(m)(3) of 
the Act excludes payments under an ACO beneficiary incentive program 
from being considered income or resources or otherwise taken into 
account for purposes of: (1) Determining eligibility for benefits or 
assistance under any Federal program or State or local program financed 
with Federal funds; or (2) any Federal or State laws relating to 
taxation.
c. Beneficiary Incentive Programs
    In order to implement the changes set forth in section 1899(b)(2) 
and (m) of the Act, we proposed to add regulation text at Sec.  
425.304(c) that would allow ACOs participating under certain two-sided 
models to establish beneficiary incentive programs to provide incentive 
payments to assigned beneficiaries who receive qualifying services. In 
developing such proposed policy, we considered the statutory provisions 
set forth in section 1899(b)(2) and (m) of the Act, as amended, as well 
as the following: The application process for establishing a 
beneficiary incentive program; who can furnish an incentive payment; 
the amount, timing, and frequency of an incentive payment; how an 
incentive payment may be financed, and necessary program integrity 
requirements. We addressed each of these considerations in the August 
2018 proposed rule.
    As previously explained, section 1899(m)(1)(A) of the Act 
authorizes ``an ACO participating under this section under a payment 
model described in clause (i) or (ii) of paragraph (2)(B)'' to 
establish an ACO beneficiary incentive program. In turn, section 
1899(m)(2)(B)(i) of the Act describes ACOs participating in ``Track 2 
and Track 3 payment models as described in section 425.600(a) . . . (or 
in any successor regulation).'' Section 1899(m)(2)(B)(ii) of the Act 
describes ACOs participating in ``any future payment models involving 
two-sided risk.'' As discussed in section II.A.2. of the August 2018 
proposed rule, we proposed to (1) discontinue Track 2 as a 
participation option and limit its availability to agreement periods 
beginning before July 1, 2019; (2) rename Track 3 the ``ENHANCED 
track''; and (3) require ACOs with agreement periods beginning July 1, 
2019 and in subsequent years to enter either the ENHANCED track (which 
entails two-sided risk) or the new BASIC track (in which Levels A and B 
have one-sided models and Levels C, D, and E have two-sided risk). As 
noted in proposed Sec.  425.600(a)(3), for purposes of the Shared 
Savings Program, all references to the ENHANCED track would be deemed 
to include Track 3; the terms are synonymous. As discussed in section 
II.A.2. and II.A.3. of this final rule, we are finalizing these 
policies as proposed. Accordingly, Track 2 and ENHANCED track ACOs are 
described under section 1899(m)(2)(B)(i) of the Act, and ACOs in Levels 
C, D, or E of the BASIC track are described under section 
1899(m)(2)(B)(ii) of the Act. As a result, Track 2 ACOs, ENHANCED track 
ACOs, and ACOs in Levels, C, D, or E of the BASIC track are authorized 
to establish beneficiary incentive programs under section 1899(m)(1)(A) 
of the Act.
    Section 1899(m)(1)(B) of the Act states that the ``Secretary shall 
implement this subsection on a date determined appropriate by the 
Secretary. Such date shall be no earlier than January 1, 2019, and no 
later than January 1, 2020.'' We proposed to allow ACOs to establish a 
beneficiary incentive program beginning no earlier than July 1, 2019. 
As discussed later in this section, ACOs that are approved to operate a 
beneficiary incentive program shall conduct the program for at least 1 
year, as required by section 1899(m)(2)(A) of the Act, unless CMS 
terminates the ACO's beneficiary incentive program. As we explained in 
the August 2018 proposed rule (83 FR 41870), this means, for example, 
that an ACO currently participating in the Shared Savings Program under 
Track 2 or Track 3 whose agreement period expires on December 31, 2019 
would be ineligible to operate a beneficiary incentive program starting 
on July 1, 2019 because the ACO would have only 6 months of its 
agreement remaining as of July 1, 2019. Under our proposed policy, the 
ACO would, however, be permitted to start a beneficiary incentive 
program on January 1, 2020 (assuming it renews its agreement to 
participate in the Shared Savings Program).
    We considered the operational impact of having both a midyear 
beneficiary incentive program cycle (for ACOs that seek to establish a 
beneficiary incentive program beginning on July 1, 2019) and a calendar 
year beneficiary incentive program cycle (for ACOs that seek to 
establish a beneficiary incentive program beginning on January 1, 2020, 
or a later January 1 start date). We stated our belief that it could be 
confusing for ACOs, and difficult for CMS to monitor approved 
beneficiary incentive programs, if some ACOs begin their beneficiary 
incentive programs in July 2019 and other ACOs begin their beneficiary 
incentive programs in January 2020. We explained in the August 2018 
proposed rule that, under this approach, annual certifications 
regarding intent to continue a beneficiary incentive program (as 
further discussed herein) would be provided by ACOs at different times 
of the year, depending on when each ACO established its beneficiary 
incentive program. To address this, we believe it is necessary to 
require ACOs that establish a beneficiary incentive

[[Page 67982]]

program on July 1, 2019 to commit to an initial beneficiary incentive 
program term of 18 months (with certifications required near the 
conclusion of the 18-month period and for each consecutive 12-month 
period thereafter). However, we proposed that any ACO that establishes 
a beneficiary incentive program beginning on January 1 of a performance 
year would be required to commit to an initial beneficiary incentive 
program term of 12 months. This would allow the term cycles of all ACO 
beneficiary incentive programs to later ``sync'' so that they all 
operate on a calendar year beginning on January 1, 2021. As an 
alternative, we considered permitting all ACOs to establish a 
beneficiary incentive program beginning January 1, 2020. However, we 
expressed our belief that some ACOs may prefer to establish a 
beneficiary incentive program on July 1, 2019, rather than delay until 
January 1, 2020.
    The statute does not prescribe procedures that ACOs must adhere to 
in applying to establish a beneficiary incentive program. In addition, 
beyond the requirement that ACOs participate in Track 2, Track 3 
(which, as we previously discussed, will be renamed the ``ENHANCED 
track'') or a ``future payment model involving two-sided risk'' 
(sections 1899(m)(2)(B)(i) and (ii) of the Act), the new provisions do 
not describe what factors we should consider in evaluating whether an 
ACO should be permitted to establish a beneficiary incentive program. 
Instead, section 1899(m)(1)(A) of the Act states that the ``Secretary 
shall permit such an ACO to establish such a program at the Secretary's 
discretion and subject to such requirements . . . as the Secretary 
determines necessary.'' We proposed that the application for the 
beneficiary incentive program be in a form and manner specified by CMS, 
which may be separate from the application to participate in the Shared 
Savings Program. We explained that in our proposal that we would 
provide additional information regarding the application on our 
website.
    We proposed to permit eligible ACOs to apply to establish a 
beneficiary incentive program during the July 1, 2019 application cycle 
or during a future annual application cycle for the Shared Savings 
Program. In addition, we proposed to permit an eligible ACO that is 
mid-agreement to apply to establish a beneficiary incentive program 
during the application cycle prior to the performance year in which the 
ACO chooses to begin implementing its beneficiary incentive program. We 
explained that this proposed policy would apply to ACOs that enter a 
two-sided model at the start of an agreement period but that do not 
apply to establish a beneficiary incentive program at the time of their 
initial or renewal application to the Shared Savings Program. This 
means, for example, that an ACO that enters the Shared Savings Program 
under a two-sided model but that does not seek to offer a beneficiary 
incentive program until its second performance year could apply to 
offer a beneficiary incentive program during the application cycle in 
advance of its second performance year. This would also apply to ACOs 
that enter the BASIC track's glide path under a one-sided model and 
that apply to establish a beneficiary incentive program beginning with 
a performance year under a two-sided model (see discussion in sections 
II.A.3.b. and II.A.4.b. of this final rule).
    We proposed that an ACO be required to operate its beneficiary 
incentive program effective at the beginning of the performance year 
following CMS' approval of the ACO's application to establish the 
beneficiary incentive program. The ACO would then be required to 
operate the approved beneficiary incentive program for the entirety of 
such 12-month performance year (for ACOs that establish a beneficiary 
incentive program on January 1, 2020, or a later January 1 start date) 
or for an initial 18-month period (for ACOs that establish a 
beneficiary incentive program on July 1, 2019).
    We proposed that an ACO with an approved beneficiary incentive 
program application be permitted to operate its beneficiary incentive 
program for any consecutive performance year if it complies with 
certain certification requirements. Specifically, we proposed that an 
ACO that seeks to continue to offer its beneficiary incentive program 
beyond the initial 12-month or 18-month term (as previously discussed) 
be required to certify, in the form and manner and by a deadline 
specified by CMS, its intent to continue to operate its beneficiary 
incentive program for the entirety of the next performance year, and 
that its beneficiary incentive program continues to meet all applicable 
requirements. We explained in the August 2018 proposed rule that CMS 
may terminate a beneficiary incentive program, in accordance with Sec.  
425.304(c)(7), as proposed, if an ACO fails to provide such 
certification. We believe this certification requirement is necessary 
for CMS to monitor beneficiary incentive programs. We explained that we 
would provide further information regarding the annual certification 
process through subregulatory guidance.
    In addition to the application and certification requirements 
previously described, we considered whether an ACO that offers a 
beneficiary incentive program should be required to notify CMS of any 
modification to its beneficiary incentive program prior to implementing 
such modification. We solicited comments on this issue.
    With respect to who may receive an incentive payment, we stated in 
the August 2018 proposed rule that a FFS beneficiary would be eligible 
to receive an incentive payment if the beneficiary is assigned to an 
ACO through either preliminary prospective assignment with 
retrospective reconciliation, as described in Sec.  425.400(a)(2), or 
prospective assignment, as described in Sec.  425.400(a)(3). We noted 
that Track 2 is under preliminary prospective assignment with 
retrospective reconciliation under Sec.  425.400(a)(2). In addition, as 
discussed in section II.A.4. of the proposed rule, we proposed to 
permit BASIC track and ENHANCED track ACOs to enter an agreement period 
under preliminary prospective assignment, as described in Sec.  
425.400(a)(2), or under prospective assignment, as described in Sec.  
425.400(a)(3). Further, we explained that a beneficiary may choose to 
voluntarily align with an ACO, and, if eligible for assignment, the 
beneficiary would be prospectively assigned to the ACO (regardless of 
track) for the performance year under Sec.  425.402(e)(1). Therefore, 
consistent with our proposed policy regarding which ACOs may establish 
a beneficiary incentive program, we explained that any beneficiary 
assigned to an ACO that is participating under Track 2; Levels C, D, or 
E of the BASIC track; or the ENHANCED track would be eligible to 
receive an incentive payment under that ACO's CMS-approved beneficiary 
incentive program.
    Section 1899(m)(2)(C) of the Act sets forth the definition of a 
qualifying service for purposes of the beneficiary incentive program. 
We mirrored the language in the proposed regulation text noting that 
``a qualifying service is a primary care service,'' as defined in Sec.  
425.20, ``with respect to which coinsurance applies under part B,'' 
furnished through an ACO by ``an ACO professional who has a primary 
care specialty designation included in the definition of primary care 
physician'' under Sec.  425.20; an ACO professional who is a physician 
assistant, nurse practitioner, or clinical nurse specialist; or a FQHC 
or RHC. Accordingly, we explained that, under our proposal, any service 
furnished by an ACO professional who is a physician but does

[[Page 67983]]

not have a specialty designation included in the definition of primary 
care physician would not be considered a qualifying service for which 
an incentive payment may be furnished.
    With respect to the amount of any incentive payment, we stated that 
section 1899(m)(2)(D)(i) of the Act provides that an incentive payment 
made by an ACO in accordance with a beneficiary incentive program shall 
be ``in an amount up to $20.'' Accordingly, we proposed to incorporate 
a $20 incentive payment limit into the regulation. We also proposed to 
adopt the provision at section 1899(m)(2)(D)(i) of the Act, which 
provides that the $20 maximum amount must be ``updated annually by the 
percentage increase in the consumer price index for all urban consumers 
(United States city average) for the 12-month period ending with June 
of the previous year.'' To avoid minor changes in the updated maximum 
amount, however, we expressed our belief that it would be necessary to 
round the updated maximum incentive payment amount to the nearest whole 
dollar. We explained that we would post the updated maximum payment 
amount on the Shared Savings Program website and/or in a guidance 
document regarding beneficiary incentive programs.
    We also proposed to adopt the requirement that the incentive 
payment be ``in the same amount for each Medicare fee-for-service 
beneficiary'' without regard to enrollment of such a beneficiary in a 
Medicare supplemental policy, in a State Medicaid plan, or a waiver of 
such a plan, or in any other health insurance policy or health plan. 
(Section 1899(m)(2)(D)(ii) of the Act.) Accordingly, under our 
proposal, all incentive payments distributed by an ACO under its 
beneficiary incentive program must be of equal monetary value. In other 
words, an ACO would not be permitted to offer higher-valued incentive 
payments for particular qualifying services or to particular 
beneficiaries. However, we explained that an ACO would be able to 
provide different types of incentive payments (for example, a gift card 
to some beneficiaries and a check to others) depending on a 
beneficiary's preference, so long as all incentive payments offered by 
the ACO under its beneficiary incentive program were of equal monetary 
value.
    Furthermore, as required by section 1899(m)(2)(D)(iii) of the Act, 
we proposed that an ACO furnish an incentive payment to an eligible 
beneficiary each time the beneficiary receives a qualifying service. In 
addition, in accordance with section 1899(m)(2)(D)(iv) of the Act, we 
proposed to require that each incentive payment be ``made no later than 
30 days after a qualifying service is furnished to such a 
beneficiary.''
    We considered the individuals and entities that should be permitted 
to offer incentive payments to beneficiaries under a beneficiary 
incentive program. We noted in the August 2018 proposed rule that 
section 1899(m)(2)(D) of the Act, which addresses incentive payments, 
contemplates that incentive payments be furnished directly by an ACO to 
a beneficiary. In addition, we expressed our belief that this 
requirement would be necessary because the ACO is in the best position 
to ensure that any incentive payments offered are distributed only to 
eligible beneficiaries and that other program requirements are met. We 
therefore proposed to require that the ACO legal entity, and not ACO 
participants or ACO providers/suppliers, furnish the incentive payments 
directly to beneficiaries. We sought comment, however, on other 
potential methods for distributing an incentive payment to a 
beneficiary.
    As previously explained, section 1899(m)(1)(A) of the Act allows 
the Secretary to establish ``program integrity requirements, as the 
Secretary deems necessary.'' Given the significant fraud and abuse 
concerns associated with offering cash incentives, we expressed our 
belief that it would be necessary to prohibit ACOs from distributing 
incentive payments to beneficiaries in the form of cash. Cash incentive 
payments would be inherently difficult to track for reporting and 
auditing purposes since they would not necessarily be tied to documents 
providing written evidence that a cash incentive payment was furnished 
to an eligible beneficiary for a qualifying service. The inability to 
trace a cash incentive would make it difficult for CMS to ensure that 
an ACO has uniformly furnished incentive payments to all eligible 
beneficiaries and has not made excessive payments or otherwise used 
incentive payments to improperly attract ``healthier'' beneficiaries 
while disadvantaging beneficiaries who are less healthy or have a 
disability. Therefore, we proposed to require that incentive payments 
be in the form of a cash equivalent, which includes instruments 
convertible to cash or widely accepted on the same basis as cash, such 
as checks and debit cards.
    In addition, we considered record retention requirements related to 
beneficiary incentive programs. Section 1899(m)(2)(G) of the Act 
provides that an ACO ``conducting an ACO Beneficiary Incentive Program 
. . . shall, at such times and in such format as the Secretary may 
require . . . retain such documentation as the Secretary may require, 
including the amount and frequency of incentive payments made and the 
number of Medicare fee-for-service beneficiaries receiving such 
payments.'' We explained our belief that it is important for an ACO to 
be accountable for its beneficiary incentive program and to mitigate 
any gaming, fraud, or waste that may occur as a result of its 
beneficiary incentive program. Accordingly, we proposed that any ACO 
that implements a beneficiary incentive program maintain records that 
include the following information: Identification of each beneficiary 
that received an incentive payment, including name and HICN or Medicare 
beneficiary identifier; the type (such as check or debit card) and 
amount (that is, the value) of each incentive payment made to each 
beneficiary; the date each beneficiary received a qualifying service 
and the HCPCS code for the corresponding service; the identification of 
the ACO provider/supplier that furnished the qualifying service; and 
the date the ACO provided each incentive payment to each beneficiary. 
We proposed that an ACO that establishes a beneficiary incentive 
program be required to maintain and make available such records in 
accordance with Sec.  425.314(b). In addition to these record retention 
proposals, we explained that any ACO that establishes a beneficiary 
incentive program would be expected to update its compliance plan (as 
required under Sec.  425.300(b)(2)), to address any finalized 
regulations that address beneficiary incentive programs.
    Furthermore, we proposed that an ACO be required to fully fund the 
costs associated with operating a beneficiary incentive program, 
including the cost of any incentive payments. We further proposed to 
prohibit ACOs from accepting or using funds furnished by an outside 
entity, including, but not limited to, an insurance company, 
pharmaceutical company, or any other entity outside of the ACO, to 
finance its beneficiary incentive program. We explained our belief that 
these requirements are necessary to reduce the likelihood of undue 
influence resulting in inappropriate steering of beneficiaries to 
specific products or providers/suppliers. We sought comments on this 
issue.
    We also proposed to incorporate language in section 1899(m)(2)(E) 
of the Act, which provides that ``[t]he Secretary shall not make any 
separate payment to an ACO for the costs, including incentive payments, 
of

[[Page 67984]]

carrying out an ACO Beneficiary Incentive Program . . . Nothing in this 
subparagraph shall be construed as prohibiting an ACO from using shared 
savings received under this section to carry out an ACO Beneficiary 
Incentive Program.'' Specifically, we proposed under Sec.  
425.304(a)(2) that the policy regarding use of shared savings apply 
with regard to both in-kind items and services furnished under Sec.  
425.304(b) and incentive payments furnished under Sec.  425.304(c).
    Further, we proposed to prohibit ACOs from shifting the cost of 
establishing or operating a beneficiary incentive program to a Federal 
health care program, as defined at section 1128B(f) of the Act. 
Essentially, ACOs would not be permitted to bill the cost of an 
incentive payment to any plan or program that provides health benefits, 
whether directly, through insurance, or otherwise, which is funded 
directly, in whole or in part, by the United States Government. We 
expressed our belief this requirement is necessary because billing 
another Federal health care program for the cost of a beneficiary 
incentive program would potentially violate section 1899(m)(2)(E) of 
the Act which prohibits the Secretary from making any separate payment 
to an ACO for the costs of carrying out a beneficiary incentive 
program, including the costs of incentive payments. We sought comments 
on all of our proposed program integrity requirements.
    In addition, we proposed to implement the language in section 
1899(m)(2)(F) of the Act that ``incentive payments made by an ACO . . . 
shall be disregarded for purposes of calculating benchmarks, estimated 
average per capita Medicare expenditures, and shared savings under this 
section.'' We also proposed to disregard incentive payments made by an 
ACO for purposes of calculating shared losses under this section given 
that that shared savings would be disregarded.
    Furthermore, we proposed to implement the language set forth in 
section 1899(m)(3) of the Act, which provides that ``any payment made 
under an ACO Beneficiary Incentive Program . . . shall not be 
considered income or resources or otherwise taken into account for the 
purposes of determining eligibility for benefits or assistance (or the 
amount or extent of benefits or assistance) under any Federal program 
or any State or local program financed in whole or in part with Federal 
funds; or any Federal or state laws relating to taxation.'' We included 
this in our proposal at Sec.  425.304(c)(6).
    With regard to termination of a beneficiary incentive program, 
section 1899(m)(2)(H) of the Act provides that the ``Secretary may 
terminate an ACO Beneficiary Incentive Program . . . at any time for 
reasons determined appropriate by the Secretary.'' We explained our 
belief that it would be appropriate for CMS to terminate an ACO's use 
of the beneficiary incentive program for failure to comply with the 
requirements of our finalized proposals at Sec.  425.304, in whole or 
in part, and for the reasons set forth in Sec.  425.218(b), and we 
proposed this policy at Sec.  425.304(c)(7). We solicited comment on 
whether it would be appropriate for the Secretary to terminate a 
beneficiary incentive program in other circumstances as well, or 
whether an ACO should have the ability to terminate its beneficiary 
incentive program early. In addition, we proposed to require any ACO 
that wishes to reestablish a beneficiary incentive program after 
termination to reapply in accordance with the procedures established by 
CMS. We also proposed to modify our regulations at Sec.  425.800 to 
implement the language set forth in section 1899(g)(6) of the Act, 
which provides that there shall be no administrative or judicial review 
under section 1869 or 1878 of the Act or otherwise of the termination 
of an ACO beneficiary incentive program.
    With regard to evaluation of beneficiary incentive programs, we 
noted that section 50341(c) of the Bipartisan Budget Act requires that, 
no later than October 1, 2023, the Secretary evaluate and report to 
Congress an analysis of the impact of implementing beneficiary 
incentive programs on health expenditures and outcomes. We welcomed 
comments on whether there might be information that we should require 
ACOs to maintain (in addition to the information that would be 
maintained as part of record retention requirements set forth at 
proposed Sec.  425.304(c)(4)(i)) to support such an evaluation of 
beneficiary incentive programs. We noted, however, that we do not want 
to discourage participation by imposing overly burdensome data 
management requirements on ACOs. We therefore sought comment on 
reporting requirements for ACOs that are approved to establish a 
beneficiary incentive program.
    In addition, we noted that under the existing regulations for 
monitoring ACO compliance with program requirements, CMS may employ a 
range of methods to monitor and assess ACOs, ACO participants and ACO 
providers/suppliers to ensure that ACOs continue to satisfy Shared 
Savings Program eligibility and program requirements (Sec.  425.316). 
We explained that the scope of this provision would include monitoring 
ACO, ACO participant, and ACO provider/supplier compliance with the 
requirements for establishing and operating a beneficiary incentive 
program.
    We considered whether beneficiaries should be notified of the 
availability of a beneficiary incentive program. Because beneficiary 
incentives may be subject to abuse, we expressed our belief that it is 
necessary, and we proposed, to prohibit the advertisement of a 
beneficiary incentive program. We explained that we were considering, 
however, whether ACOs should be required to make beneficiaries aware of 
the incentive via approved outreach material from CMS. For example, 
under the program's existing regulations (Sec.  425.312(a)), including 
as revised in section II.C.3.a. of this final rule, all ACO 
participants are required to notify beneficiaries that their ACO 
providers/suppliers are participating in the Shared Savings Program. We 
solicited comment on whether the notifications required under Sec.  
425.312(a) should include information regarding the availability of an 
ACO's beneficiary incentive program, and, if so, whether CMS should 
supply template language on the topic. We also sought comment on how 
and when an ACO might otherwise notify its beneficiaries that its 
beneficiary incentive program is available, without inappropriately 
steering beneficiaries to voluntarily align with the ACO or to seek 
care from specific ACO participants, and, whether it would be 
appropriate to impose restrictions regarding advertising a beneficiary 
incentive program. We noted that we would expect any beneficiary 
notifications regarding incentive payments to be maintained and made 
available for inspection in accordance with Sec.  425.314.
    To ensure transparency and to meet the requirements of section 
1899(m)(2)(G) of the Act requiring that an ACO ``conducting an ACO 
Beneficiary Incentive Program. . . shall, at such times and in such 
format as the Secretary may require, report to the Secretary such 
information. . .as the Secretary may require, including the amount and 
frequency of incentive payments made and the number of Medicare fee-
for-service beneficiaries receiving such payments,'' we further 
proposed to revise the program's public reporting requirements in Sec.  
425.308 to require any ACO that has been approved to implement a 
beneficiary incentive program to publicly report certain information 
about incentive payments

[[Page 67985]]

on its public reporting web page. Specifically, we proposed to require 
ACOs to publicly report, for each performance year, the total number of 
beneficiaries who receive an incentive payment, the total number of 
incentive payments furnished, HCPCS codes associated with any 
qualifying payment for which an incentive payment was furnished, the 
total value of all incentive payments furnished, and the total type of 
each incentive payment (for example, check or debit card) furnished. We 
noted that this proposed policy would require reporting for the 6-month 
performance year that begins on July 1, 2019. We sought comment on 
whether information about a beneficiary incentive program should be 
publicly reported by the ACO or simply reported to CMS annually or upon 
request.
    In summary, we proposed to revise the regulation at Sec.  425.304 
to enable an ACO participating in Track 2, levels C, D, or E of the 
BASIC track, or the ENHANCED track, to establish a beneficiary 
incentive program to provide incentive payments to beneficiaries for 
qualifying primary care services in compliance with the requirements 
outlined in the revised regulations.
    Our proposed policies concerning an ACO's ability to establish a 
beneficiary incentive program are summarized in Table 11.
[GRAPHIC] [TIFF OMITTED] TR31DE18.015

    Comment: Commenters generally supported our proposed policies 
regarding beneficiary incentive programs. Commenters stated that the 
provision of beneficiary incentive payments may lead to more patient 
engagement opportunities. Some commenters specifically expressed that 
our proposed policy is not overly restrictive and is instead attentive 
to minimizing provider and beneficiary burden.
    A few commenters who generally supported the proposal expressed 
that CMS should ensure that each ACO that implements a beneficiary 
incentive program has maximum flexibility to tailor the program so that 
it fits the needs of the ACO's beneficiaries. One commenter expressed 
support for our proposal because it would give ACOs the flexibility to 
determine what types of incentives to use (that is, in-kind incentives 
or incentive payments under a CMS-approved beneficiary incentive 
program).
    However, several commenters expressed concern about the potential 
administrative burden and operational costs associated with 
implementing a beneficiary incentive program and expressed that such 
programs should remain optional. One commenter expressed that, because 
an ACO must bear the costs of any incentive payment and furnish an 
incentive payment to each assigned beneficiary for each qualifying 
service, the costs to an ACO that serves high-risk patients may be 
greater than the costs to an ACO that serves low-risk patients (because 
high-risk patients may need receive more qualifying services). The 
commenter indicated that our proposed policy would therefore likely 
discourage ACOs from transitioning to performance-based risk. Other 
commenters stated generally that a beneficiary incentive program would 
create additional frustration for staff and add expense to office 
operations.
    Response: While we appreciate the concerns raised by commenters 
regarding the administrative and operational costs associated with 
operating a beneficiary incentive program, we emphasize that ACOs are 
not required to establish a beneficiary incentive program. Instead, 
each eligible ACO has the discretion to decide

[[Page 67986]]

whether to apply to offer such a program. We believe it is important to 
provide certain ACOs under two-sided risk with the option to establish 
a CMS-approved beneficiary incentive program as an additional tool for 
managing the care of assigned beneficiaries. Thus, pursuant to and 
consistent with the requirements in section 1899(m) of the Act, we will 
permit certain ACOs to apply to establish a beneficiary incentive 
program. Any ACO that wishes to establish a beneficiary incentive 
program should evaluate the costs and potential administrative burden 
and whether it has the resources to successfully implement a 
beneficiary incentive program prior to submitting an application 
because an ACO that submits an application to establish a beneficiary 
incentive program would be required to implement the program if its 
application is approved.
    In terms of flexibility for ACOs to design their beneficiary 
incentive program to fit the needs of its beneficiaries, we are 
providing ACOs with some flexibility to determine the value of the 
incentive payments that they will furnish under a beneficiary incentive 
program (that is, a value of up to $20 per incentive payment to each 
assigned beneficiary for each qualifying service received) and the form 
of incentive payments (that is, whether an incentive payments will be 
made as a check, debit card, or a traceable cash equivalent). However, 
due to various restrictions in section 50341 of the Bipartisan Budget 
Act and the potential for fraud and abuse, we are otherwise limiting an 
ACO's flexibility with regard to how it may implement a beneficiary 
incentive program. We intend to monitor beneficiary incentive programs 
to determine whether it may be appropriate to afford ACOs additional 
flexibility in implementing a beneficiary incentive program in future 
rulemaking.
    Comment: One commenter recommended that CMS extend the window in 
which an ACO must provide an incentive payment to beneficiary from 30 
to 45 days from the date the qualifying service is furnished. Another 
commenter suggested that CMS allow ACOs to provide beneficiaries with a 
$40 incentive payment once annually, similar to the Next Generation ACO 
Model.
    Response: As we previously explained, section 1899(m)(2)(D) of the 
Act requires that an incentive payment be made for each qualifying 
service furnished to a beneficiary be made no later than 30 days after 
a qualifying service is furnished to the beneficiary. Therefore, in 
order to comply with section 1899(m)(2)(D) of the Act, we decline to 
extend the payment window for a qualifying service beyond 30 days or to 
allow ACOs to provide beneficiaries with a $40 incentive payment once 
annually.
    Comment: One commenter requested that CMS clarify whether incentive 
payments furnished under an approved beneficiary incentive program 
could implicate the federal fraud and abuse laws, such as the civil 
monetary penalties law provision relating to beneficiary inducements.
    Response: Section 1128B(b)(3)(K) of the Act states that ``illegal 
remuneration'' under the anti-kickback statute does not include ``an 
incentive payment made to a Medicare fee-for-service beneficiary by an 
ACO under an ACO Beneficiary Incentive Program established under 
subsection (m) of section 1899, if the payment is made in accordance 
with the requirements of such subsection and meets such other 
conditions as the Secretary may establish.'' Further, pursuant to 
section 1128(A)(i)(6)(B) of the Act, a practice permissible under the 
anti-kickback statute, whether through statutory exception or 
regulations issued by the Secretary, is also excepted from the 
beneficiary inducements CMP. Parties are encouraged to consult legal 
counsel as needed.
    Comment: Several commenters raised program integrity concerns 
regarding beneficiary incentive programs and suggested that CMS closely 
monitor any approved beneficiary incentive program. A few commenters 
stated that CMS should be mindful of inadvertently allowing ACOs to use 
beneficiary incentive programs to cherry-pick patients. For example, 
one ACO suggested that CMS implement safeguards to ensure that high-
revenue ACOs do not inadvertently attract healthier patients, which 
could potentially skew quality metrics. Another commenter expressed 
similar concerns regarding the lack of safeguards applicable to 
beneficiary incentive programs, which could present opportunities for 
gaming. The commenter suggested that CMS implement an audit process, 
issue guidance, and impose additional requirements designed to minimize 
beneficiary cherry-picking and to mitigate MA parity concerns to ensure 
that ACOs would be unable to specifically target and engage certain 
individuals to selectively control their risk profile. Another 
commenter recommended that CMS evaluate beneficiary incentive programs 
prior to the date required by section 50341 of the Bipartisan Budget 
Act, on the basis that such programs are subject to abuse and may have 
unintended consequences.
    Response: We appreciate the commenters' concerns that some ACOs may 
attempt to target a beneficiary incentive program toward beneficiaries 
with certain health profiles and we agree that program safeguards 
should prohibit an ACO from cherry-picking beneficiaries. We note that 
we have proposed, and we are finalizing, several safeguards at Sec.  
425.304(c) to help mitigate the program integrity risks associated with 
beneficiary incentive programs. For example, under Sec.  
425.304(c)(4)(iv) ACOs will be prohibited from offering an incentive 
payment as part of an advertisement or solicitation to beneficiaries. 
In addition, under Sec.  425.304(c)(3)(iv)(C) an ACO will be required 
to furnish incentive payments in the same amount to each eligible 
beneficiary. We believe these safeguards will prevent larger, high 
revenue ACOs with a beneficiary incentive program from steering 
beneficiaries from smaller, low revenue ACOs that do not have a 
beneficiary incentive program and will also limit the ability of ACOs 
to cherry-pick certain beneficiaries.
    In addition, we are also finalizing proposed revisions to the audit 
and record retention requirements set forth at Sec.  425.314(a)(4) and 
(b)(1) to ensure that we will have the ability to effectively audit an 
ACO's operation of its beneficiary incentive program. Furthermore, we 
note that, under the existing regulations for monitoring ACO compliance 
with program requirements, we may employ a range of methods to monitor 
and assess ACOs, ACO participants and ACO providers/suppliers to ensure 
that ACOs continue to satisfy Shared Savings Program eligibility and 
program requirements (Sec.  425.316). The scope of this provision would 
allow us to monitor ACO, ACO participant, and ACO provider/supplier 
compliance with the requirements for establishing and operating a 
beneficiary incentive program. We believe that the finalized program 
integrity requirements at Sec.  425.304(c)(4) and our existing 
regulatory safeguards will mitigate the commenters' concerns.
    Comment: We received several comments related to our proposed bases 
for termination of an ACO's beneficiary incentive program. One 
commenter expressed that CMS should have the option to terminate an 
ACO's beneficiary incentive program when the ACO uses its program to 
improperly steer or influence beneficiaries, fails to maintain records 
regarding its program or make such records available to CMS, or 
otherwise fails to meet the

[[Page 67987]]

requirements of the program. The commenter recommended that CMS 
establish clear standards with which an ACO must comply in order to 
operate a beneficiary incentive program. The commenter also indicated 
that termination should be a last resort and suggested that, when a 
beneficiary incentive program is terminated for noncompliance with 
program requirements, beneficiaries, the public, and other ACOs, should 
receive advanced notice of the termination and the opportunity to 
submit to CMS comments regarding the termination, including CMS's basis 
for termination.
    Response: We plan to issue guidance regarding the bases for which 
we may require an ACO to terminate its beneficiary incentive program 
under Sec.  425.304(c)(7). We agree with the commenter that an ACO 
should notify its assigned beneficiaries that its beneficiary incentive 
program is terminated in cases where CMS requires such termination due 
to the ACO's noncompliance with program requirements. However, we 
disagree with the commenter's suggestion that the public should have 
advanced notice of the termination and the opportunity to submit 
comments to CMS. Our bases for termination relate to noncompliance with 
CMS regulations, accordingly, we believe that providing the public with 
an opportunity to comment on a proposed termination would be 
inappropriate. We will monitor ACO implementation of beneficiary 
incentive programs and we will determine whether termination is 
appropriate, without public comment, in cases where an ACO is 
noncompliant with program requirements.
    Comment: Some commenters do not believe that the $20 maximum amount 
for an incentive payment is sufficient to encourage beneficiaries to 
receive qualifying services. Commenters cited various reasons such as 
the cost associated with long distance travel. Some of these commenters 
suggested that CMS permit ACOs to reimburse beneficiaries for 
transportation costs in addition to furnishing a $20 monetary incentive 
payment for each qualifying service. One commenter suggested that CMS 
allow ACOs to share a percentage of savings with its beneficiaries and 
provide a higher percentage of savings to high-risk patients, so that 
ACOs can better engage riskier populations. Another commenter expressed 
that a one-size-fits-all approach to incentive payment amounts might 
not serve all ACO participants well because ACO participants may 
operate in different environments and may want to offer incentive 
payments in different amounts, as appropriate for their region.
    Response: We recognize the commenters' concerns regarding setting 
the maximum value of the incentive payment amount to $20 (as adjusted 
annually) for each qualifying service. However, this $20 maximum value 
for any monetary incentive payment is consistent with the requirements 
in section 1899(m)(2)(D) of the Act. Earlier in the preamble, we 
explained that, under existing Sec.  425.304(a), an ACO may furnish to 
beneficiaries prepaid, non-transferable vouchers that are redeemable 
for transportation services solely to and from an appointment with a 
health care provider. We believe this addresses the concerns of 
commenters who believe that CMS should allow ACOs to reimburse 
beneficiaries for transportation costs in addition to furnishing a $20 
monetary incentive payment for each qualifying service. In addition, we 
explained that Section 1899(m)(2)(D) of the Act requires that an 
incentive payment offered under a beneficiary incentive program be in 
the same amount for each Medicare FFS beneficiary. Accordingly, we 
decline to adopt the suggestion that we allow ACOs to share a 
percentage of savings with its beneficiaries and provide a higher 
percentage of savings to high-risk patients. Furthermore, while we 
understand the commenter's concern about a one-size-fits-all approach 
to incentive payment amounts, we believe that requiring ACOs to provide 
a uniform incentive amount for each qualifying service mitigates the 
potential for abuse, including the potential that ACOs will provide 
higher incentives in some areas to attract healthier beneficiaries and/
or excluding some beneficiaries from receiving an incentive due to 
their location and/or health status.
    Comment: One commenter sought clarification as to whether a 
beneficiary can receive more than one incentive payment per year, 
whether a beneficiary can deny receipt of an incentive payment, and 
what an ACO would need to do if a beneficiary denied an incentive 
payment.
    Response: We reiterate that an ACO approved to operate a 
beneficiary incentive program is required to furnish an incentive 
payment to each beneficiary each time a beneficiary receives a 
qualifying service. Thus, if a beneficiary is prospectively assigned to 
an ACO participating in the ENHANCED track and receives two primary 
care services that are considered qualifying services, the ACO 
operating a beneficiary incentive program would be required to furnish 
two incentive payments to the beneficiary. Although we do not believe 
that it will be likely, a beneficiary may deny receipt of an incentive 
payment, we will provide additional clarification on how ACOs should 
handle such situations in sub-regulatory guidance.
    Comment: Some commenters expressed that an ACO should not be 
required to finance a beneficiary incentive program and that they 
should be allowed to finance a program using funds from organizations 
outside of the ACO. One commenter stated that CMS's concerns regarding 
undue influence could be mitigated by establishing appropriate 
safeguards, including accounting mechanisms for outside funds and 
public disclosure of funding sources.
    A few commenters believe that CMS should fund beneficiary incentive 
programs, including incentive payments. Other commenters proposed that 
CMS should pay in full for any qualifying service included as part of 
the Shared Savings Program attribution methodology. These same 
commenters expressed that CMS should also be responsible for any 
beneficiary copayment for a qualifying service, rather than requiring 
an ACO to fund an incentive payment, which a beneficiary may then use 
to pay for a part of the beneficiary's copayment.
    Response: We decline to reconsider our proposed ban on allowing 
ACOs to use funds from an outside entity to establish or operate a 
beneficiary incentive program. We are concerned that non-ACO entities 
would offer remuneration to ACOs in order to influence them to order 
items or services from the outside entity, which may ultimately affect 
a beneficiary's care coordination through the ACO. Although this 
concern may be mitigated by program requirements that further promote 
transparency, we would still be concerned that ACOs would not 
accurately disclose outside funding sources and that it would be 
difficult to track such funding sources. Thus, we decline to reconsider 
our prohibition on ACOs using funding from entities outside of the ACO 
to finance a beneficiary incentive programs.
    In addition, we disagree with the recommendation that CMS fund 
beneficiary incentive programs. Section 1899(m)(2)(E) of the Act 
specifically prohibits the Secretary from making any separate payment 
to an ACO for the costs of carrying out a beneficiary incentive 
program, including the costs of incentive payments. In addition, we 
note that beneficiary incentive programs are voluntary and that any ACO 
that is concerned about the potential costs

[[Page 67988]]

associated with implementing a beneficiary incentive program can choose 
to refrain from offering such a program. We emphasize that ACOs that 
choose to refrain from offering a beneficiary incentive program may 
still choose to offer certain in-kind items and services to 
beneficiaries in accordance with Sec.  425.304(b).
    Comment: A few commenters recommended that CMS consider the 
significant financial investment required by ACOs that establish a 
beneficiary incentive program when rebasing benchmarks. One commenter 
recommended that CMS consider positively adjusting an ACO's performance 
year financial results based on the ACO's beneficiary incentive program 
expenses, which will add to the ACO's operational costs and limit the 
ACO's resources.
    Response: Section 1899(m)(2)(F) of the Act provides that 
``incentive payments made by an ACO . . . shall be disregarded for 
purposes of calculating benchmarks, estimated average per capita 
Medicare expenditures, and shared savings.'' Thus, we decline to adopt 
suggestions that we consider an ACO's costs associated with 
establishing or implementing a beneficiary incentive program in 
rebasing benchmarks or in adjusting an ACO's financial results.
    Comment: Some commenters recommended that CMS explore additional 
tools similar to beneficiary incentive programs to encourage 
beneficiaries to seek and receive preventative and care management 
services that ultimately lower costs and reduce unnecessary 
utilization. One commenter requested that CMS provide descriptive 
examples of permissible beneficiary incentive programs and implement a 
system to respond to ACOs' questions regarding such programs. A few 
commenters suggested that we allow ACOs to furnish beneficiary 
incentives similar to those provided under Medicare Advantage (MA). One 
of the commenters specifically expressed that CMS should incorporate 
aspects of the MA Value-Based Insurance Design Model into the Shared 
Savings Program, by allowing ACOs to offer supplemental benefits such 
as food vouchers or reduced cost sharing to align beneficiaries with 
specified chronic conditions. Another commenter urged CMS to consider 
allowing ACOs to use patient engagement tools (including those provided 
by MA), such as allowing NPI-level participation, providing ACOs with 
upfront funding for transportation services, and waiving certain post-
discharge home supervision requirements.
    A few commenters proposed that CMS allow ACOs to waive copayments. 
One of these commenters recommended that CMS, OIG, and the Innovation 
Center allow ACOs to waive co-payments and deductibles in the ACO's 
first performance year and then conditionally based on an ACO's 
achievement of minimum quality scores in subsequent years. Another 
commenter encouraged CMS to waive patient cost sharing for certain 
health services that have been shown to successfully provide 
beneficiaries with preventative care services such as care management 
(including annual wellness visits and chronic care management 
services), stating that the administrative burden associated with 
collecting cost sharing leads many health care providers to simply not 
offer certain services.
    Response: We will take the commenters' suggestions under 
consideration for future rulemaking, however, at this time, we are 
implementing beneficiary incentive programs in accordance with the 
provisions as set forth in section 1899(m) of the Act. We direct 
commenters to our discussion in the preamble to the August 2018 
proposed rule (see 83 FR 41868 through 41874), where we explained the 
wide variety of incentives that could be acceptable under our existing 
regulation at Sec.  425.304(a).
    Comment: Some commenters suggested that entities other than an ACO 
should be permitted to distribute incentive payments to beneficiaries. 
One commenter recommended that we modify our proposed policy to allow 
ACO participants to furnish incentive payments on the basis that ACO 
participants will likely share in an ACO's savings and losses. Another 
commenter stated that it would be more effective if ACO provider/
suppliers, and not the ACO legal entity, furnish inventive payments at 
the point of care. These commenters noted that this would help prevent 
incentives from being used as a recruitment tool. Another commenter 
recommended that we permit each individual ACO to determine the best 
method for distributing incentive payments under its beneficiary 
incentive program. Other commenters suggested that we allow an ACO to 
implement its beneficiary incentive program through select ACO 
participants instead of on an ACO-wide basis.
    Response: Section 1899(m)(1)(A) of the Act provides that ``an ACO . 
. . may apply to establish an ACO Beneficiary Incentive Program to 
provide incentive payments to such beneficiaries who are furnished 
qualifying services.'' Additionally, 1899(m)(2)(D) of the Act refers to 
``an incentive payment made by an ACO pursuant to an ACO Beneficiary 
Incentive Program.'' We interpreted these two statements to mean that 
only an ACO, not an ACO participant or ACO provider/supplier, may 
furnish incentive payments to beneficiaries. We also believe that ACOs 
are better equipped to deal with tracking incentives because they 
receive claims data that they can use to identify beneficiaries who 
received a qualifying service and must be offered an incentive payment. 
In addition, we believe that ACOs are better equipped to handle 
reporting, record retention, and audit requirements associated with 
beneficiary incentive programs. For example, in most instances, ACOs 
are better equipped to implement and standardize the necessary 
reporting structure and record keeping requirements set forth in Sec.  
425.304(c). ACO participants are less likely to have the technology 
necessary to appropriately track and report on the distribution of 
incentive payments. Allowing ACO participants to furnish incentive 
payments may result in ACO participants incurring additional cost to 
update their reporting systems. For these reasons, we decline to permit 
entities other than an ACO to distribute incentive payments to 
beneficiaries.
    Comment: A few commenters suggested that CMS permit ACOs other than 
those participating under Track 2, Levels C, D, or E of the BASIC 
track, or the ENHANCED track to establish beneficiary incentive 
programs. One of these commenters asserted that allowing additional 
types of ACOs the opportunity to provide beneficiary incentive programs 
could provide CMS with better information about the types of incentive 
payments that work best for different kinds of beneficiaries (such as 
beneficiaries from different backgrounds or with different conditions). 
The commenter believes that this type of information could provide CMS 
with valuable lessons learned and model practices that could later be 
used to expand and strengthen beneficiary incentive programs across 
other healthcare settings. Another commenter strongly believed that 
high-value patient care is dependent upon clinicians having the tools 
to effectively manage beneficiary care and therefore recommended that 
we allow ACOs in one-sided model arrangements to provide incentives.
    Response: While we appreciate the commenters' concerns, we decline 
to permit ACOs other than those participating under Track 2, Levels C, 
D,

[[Page 67989]]

or E of the BASIC track, or the ENHANCED track to establish beneficiary 
incentive programs. Section 1899(m)(2)(B) of the Act authorizes only 
``an ACO participating . . . under a payment model described in clause 
(i) or (ii) of paragraph (2)(B)'' to establish an ACO beneficiary 
incentive program. As we previously discussed, Track 2 and ENHANCED 
track ACOs are described under section 1899(m)(2)(B)(i) of the Act, and 
ACOs in Levels C, D, or E of the BASIC track are described under 
section 1899(m)(2)(B)(ii) of the Act. As a result, Track 2 ACOs, 
ENHANCED track ACOs, and ACOs in Levels, C, D, or E of the BASIC track 
are the only types of ACOs that are authorized to establish beneficiary 
incentive programs. For these reasons, we decline to permit ACOs 
participating in one-sided models to establish beneficiary incentive 
programs.
    Comment: In the August 2018 proposed rule, we sought comment on 
whether beneficiary notifications required under Sec.  425.312(a) 
should include information regarding the availability of an ACO's 
beneficiary incentive program, and, if so, whether CMS should supply 
template language on the topic. We received a variety of comments on 
this issue. A few commenters supported CMS supplying template language 
on the basis that it would limit the potential for fraud and abuse. 
These commenters recommended that CMS test its template language to 
ensure it is accurate, neutral, and not misleading. One ACO commenter 
expressed that ACOs should be allowed to develop marketing and outreach 
materials to explain the program and the terms under which a 
beneficiary could receive an incentive payment. Another commenter 
opposed a beneficiary notification requirement for beneficiary 
incentive programs because not all ACOs have sufficient funding to 
implement a beneficiary incentive program. The same commenter 
recommended that CMS provide standardized language only to ACOs that 
implement a beneficiary incentive program. A few other commenters 
opposed beneficiary notification requirements and supported a 
prohibition on advertisements on the basis that notifications and 
advertisement may be used to inappropriately steer beneficiaries toward 
an ACO. One commenter believed that advertising of beneficiary 
incentive programs would be too fraught with program integrity risks 
but stated that CMS should supply ACOs with template language for 
beneficiary notifications on the topic.
    Response: We have modified our policy to require that an ACO or its 
ACO participants notify beneficiaries of the availability of the 
beneficiary incentive program in accordance with Sec.  425.312(b). We 
continue to believe that patient engagement is an important part of 
motivating and encouraging more active participation by beneficiaries 
in their health care and that notifying beneficiaries of their ability 
to receive an incentive payment may encourage beneficiaries to obtain 
medically necessary primary care services. We also agree with 
commenters who believe that ACOs that operate a beneficiary incentive 
program should use a standardized template, developed by CMS, to inform 
beneficiaries of the availability of a beneficiary incentive program.
    Thus, as detailed in II.C.3.a, under Sec.  425.304(c)(4)(iii) and 
as set forth in Sec.  425.312, we will require that an ACO or its ACO 
participants notify assigned beneficiaries of the availability of a 
beneficiary incentive program using the standardized beneficiary notice 
template provided by CMS. In Sec.  425.312 we provide the requirements 
regarding how an ACO must furnish such notifications, specifically, 
that the notification must be carried out by an ACO or its ACO 
participants during each relevant performance year by providing each 
assigned beneficiary with a standardized written notice prior to or at 
the first primary care visit of the performance year in the form and 
manner specified by CMS.
    We believe it is important that ACOs and/or their ACO participants 
provide beneficiaries with a standardized, CMS-developed beneficiary 
notice in order to limit the potential for fraud and abuse. In 
addition, in an effort to prevent ``cherry-picking'' and ``lemon-
dropping'' of beneficiaries, or other types of beneficiary steering, we 
are finalizing our proposal to prohibit ACOs from offering an incentive 
payment as part of marketing materials and activities, including but 
not limited to, an advertisement or solicitation, to a beneficiary. We 
believe this prohibition is necessary to prevent large, high revenue 
ACOs that have the necessary capital to establish and operate a 
beneficiary incentive program from steering beneficiaries away from 
smaller, low revenue ACOs. We note that the beneficiary incentive 
program notification required under Sec.  425.304(c)(4)(iii) will be 
exempt from the prohibition on marketing a beneficiary incentive 
program.
    Upon publication of the rule, CMS will publish guidance regarding 
beneficiary notifications that include education and outreach materials 
that an ACO must use to notify beneficiaries' about its beneficiary 
incentive program. Finally, we agree with commenters' suggestions that 
we test the template language to ensure it is accurate, neutral, and 
not misleading. We plan to work with our internal partners to conduct 
beneficiary focus groups to test the template language.
    Comment: We received conflicting commenter feedback regarding our 
proposed record retention and reporting requirements related to 
beneficiary incentive programs. A few commenters supported our proposal 
to require ACOs to maintain and make available to CMS records that 
identify each beneficiary that received an incentive payment, the ACO 
provider/supplier that furnished the qualifying service, the amount of 
each incentive payment made to each beneficiary, the date of service 
each beneficiary received a qualifying service, and date the ACO 
provided each incentive payment. These commenters suggested that ACOs 
should be permitted to publically report this information to enable 
interested beneficiaries to find more information on beneficiary 
incentive programs. One of the commenters encouraged CMS to reduce 
administrative burden by adopting a policy that requires ACOs to 
maintain records related to their beneficiary incentive programs but 
does not require ACOs to publicly report information under Sec.  
425.308.
    Other commenters were opposed to our proposed record retention 
requirements for approved beneficiary incentive programs, arguing that 
they impose overly burdensome data managing requirements that will 
result in additional uncompensated operating expenses that CMS would 
not reimburse. One commenter stated that our proposal would discourage 
ACOs from implementing a beneficiary incentive program because it would 
require them to develop a database to track and annually report on the 
results of a beneficiary incentive program. Another commenter 
recommended that CMS reduce burden on ACOs by instead relying on 
existing claims or other available data for such information.
    Response: We appreciate the commenters' concerns regarding the 
potential burden of our proposed reporting requirements, however, we 
believe it is important for an ACO to be accountable for its 
beneficiary incentive program and that such requirements are necessary 
to help mitigate any fraud, waste, or abuse that may occur under a 
beneficiary incentive program. In addition, we note that section 
1899(m)(2)(G) of the Act provides that

[[Page 67990]]

an ACO conducting a beneficiary incentive program ``shall, at such 
times and in such format as the Secretary may require . . . retain such 
documentation as the Secretary may require, including the amount and 
frequency of incentive payments made and the number of Medicare fee-
for-service beneficiaries receiving such payments.'' Accordingly, we 
are finalizing without modification our proposal to require that an ACO 
that implements a beneficiary incentive program must, in accordance 
with Sec.  425.314(b), maintain and make available the records 
described in our proposal at Sec.  425.304(c)(4). We believe that the 
transparency associated with our proposed reporting requirements is 
necessary to help mitigate the potential for fraud and program 
integrity concerns. In addition, we disagree with the suggestion that 
CMS use its claims data to determine whether a beneficiary received a 
qualifying service. We cannot safely assume that an ACO distributed an 
incentive payment for a qualifying service to a beneficiary solely 
based on claims data.
    Comment: A few commenters opposed a policy that we considered in 
our proposed rule that would require an ACO that offers a beneficiary 
incentive program to notify CMS of any modification to its beneficiary 
incentive program prior to implementing such modification. The 
commenters expressed their belief that this requirement would be too 
broad and would unnecessarily delay an ACO's ability to implement 
changes to its operational processes because the ACO would need to 
await CMS' decision on the ACO's proposed modification to its 
beneficiary incentive program. One commenter expressed concern that 
this sort of notification could prevent ACOs from making changes to the 
program that would ultimately help beneficiaries.
    Response: We have revisited whether to require an ACO to notify CMS 
of any modification to its beneficiary incentive program prior to 
implementing such modification. After additional consideration, we 
believe such a policy would support program integrity because it would 
allow us to ensure that the requested modification meets program 
requirements. In addition, this policy would allow us to evaluate 
beneficiary incentive programs as required under Sec.  50341(c) of the 
BBA. Therefore, we are finalizing at Sec.  425.304(c)(2)(iii) a 
provision that requires an ACO to submit to CMS a description of any 
proposed material change to its CMS-approved beneficiary incentive 
program. Such notice must be submitted in the form and manner and by 
the deadline specified by CMS. The new provision further states that 
CMS will promptly evaluate the proposed material change and approve or 
reject it. We anticipate requiring 30 days advance notice of the 
proposed changes, which should allow us sufficient time to review the 
changes and thereby allow ACOs to make the approved changes on a timely 
basis.
    We anticipate providing additional guidance on what constitutes a 
``material change'' to a beneficiary incentive program. As an example, 
because we anticipate that the beneficiary incentive program 
application will require ACOs to specify the value of the incentive 
payment that the ACO is planning to issue for each qualifying service, 
we would consider a material change to include any change in the dollar 
amount of the incentive.
    Comment: Some commenters recommended that CMS expand the definition 
of qualifying service to include additional services. One commenter 
suggested that we include annual wellness visits in the definition of 
qualifying service to promote annual wellness visits as a best practice 
for beneficiary engagement. One commenter suggested that CMS allow each 
ACO to select which qualifying services it would incentivize under its 
beneficiary incentive program. Another commenter suggested that 
transportation services should be included in the definition of a 
qualifying service.
    Response: CMS appreciates the commenters' feedback. Section 
1899(m)(2)(C) of the Act defines ``qualifying service,'' for which 
incentive payments may be made to beneficiaries, as a primary care 
service, as defined in Sec.  425.20 (or in any successor regulation), 
with respect to which coinsurance applies under part B. Section 
1899(m)(2)(C) of the Act also provides that a qualifying service is a 
service furnished through an ACO by: (1) An ACO professional described 
in section 1899(h)(1)(A) of the Act who has a primary care specialty 
designation included in the definition of primary care physician under 
Sec.  425.20 (or any successor regulation); (2) an ACO professional 
described in section 1899(h)(1)(B) of the Act; or (3) a FQHC or RHC (as 
such terms are defined in section 1861(aa) of the Act). For this 
reason, we decline to allow ACOs to select the qualifying services that 
they would incentivize under a beneficiary incentive program or to 
include transportation services in the definition of a qualifying 
service. However, we will consider expanding the definition of primary 
care service (as defined in Sec.  425.20) in future rulemaking so that 
additional services, such as wellness visits, may be considered 
``qualifying services.''
    Comment: One commenter recommended that CMS make available summary 
information about the use of beneficiary incentive programs by 
beneficiaries when ACO program results are released to help ACOs 
determine whether to implement a beneficiary incentive program.
    Response: We will consider the commenter's suggestion to provide 
ACOs with analyses of the use of the beneficiary incentive programs in 
future years, after we have gathered sufficient program data.
    Comment: A few commenters recommended that CMS permit ACOs to use 
targeted beneficiary incentive payments as tool in population health 
management. One commenter suggested that enabling ACOs to leverage 
beneficiary incentives to target certain high-risk populations while 
excluding lower-risk populations, may maximize an ACO's ability to make 
the most of limited resources and address the needs of high-risk 
beneficiaries.
    Response: Section 1899(m) of the Act does not differentiate between 
high- and low-risk beneficiaries and does not authorize CMS to do so. 
Rather, section 1899(m)(2)(B) requires that an ACO that establishes a 
beneficiary incentive program provide incentive payments to each 
assigned Medicare fee-for-service beneficiary who is furnished a 
qualifying service. Furthermore, we believe it would be unfair to 
prohibit certain beneficiaries from receiving an incentive payment 
under an approved beneficiary incentive program and we would not want 
to dissuade low-risk beneficiaries from receiving preventative care in 
the form of a primary care service. Accordingly, we decline to adopt 
the commenters' suggestions.
    Final Action: We are finalizing our proposals regarding beneficiary 
incentive program as follows:

    <bullet> We are finalizing Sec.  425.304(c)(1) to state that for 
performance years beginning on July 1, 2019 and for subsequent 
performance years, an ACO that is participating under Track 2, 
Levels C, D, or E of the BASIC track, or the ENHANCED track may 
establish a beneficiary incentive program to provide monetary 
incentive payments to Medicare fee-for-service beneficiaries who 
receive a qualifying service.
    <bullet> We are finalizing our application procedures policy at 
Sec.  425.304(c)(2) to state that to establish or reestablish a 
beneficiary incentive program, an ACO must submit a complete 
application in the form and manner and by a deadline specified by 
CMS. CMS will evaluate an ACO's application to

[[Page 67991]]

determine whether the ACO satisfies the requirements of this 
section, and approve or deny the application. If an ACO wishes to 
make a material change to its CMS approved beneficiary incentive 
program, the ACO must submit a description of the material change to 
CMS in a form and manner and by a deadline specified by CMS. CMS 
will promptly evaluate the proposed material change and approve or 
reject it.
    <bullet> We are finalizing beneficiary incentive program 
requirements at Sec.  425.304(c)(3). Under section Sec.  
425.304(c)(3) an ACO must begin to operate its approved beneficiary 
incentive program beginning on July 1, 2019 or January 1 of the 
relevant performance year. In addition, we are finalizing Sec.  
425.304(c)(3)(i) to state that, subject to the termination 
provisions we are finalizing at Sec.  425.304(c)(7), an ACO must 
operate its approved beneficiary incentive program for an initial 
period of 18 months in the case of an ACO approved to operate a 
beneficiary incentive program beginning on July 1, 2019, or 12 
months in the case of an ACO approved to operate a beneficiary 
incentive program beginning on January 1 of a performance year. For 
each consecutive year that an ACO wishes to operate its beneficiary 
incentive program after the CMS-approved initial period, it must 
certify its intent to continue to operate the beneficiary incentive 
program for the entirety of the relevant performance year and that 
the beneficiary incentive program meets all applicable requirements. 
Furthermore, we are finalizing provisions at Sec.  425.304(c)(3)(ii) 
to state that a fee-for-service beneficiary is eligible to receive 
an incentive payment under a beneficiary incentive program if the 
beneficiary is assigned to the ACO through either preliminary 
prospective assignment, as described in Sec.  425.400(a)(2), or 
prospective assignment, as described in Sec.  425.400(a)(3). We are 
finalizing Sec.  425.304(c)(3)(iii) to state that a qualifying 
service for the program is a primary care service (as defined in 
Sec.  425.20) with respect to which coinsurance applies under Part 
B, if the service is furnished through an ACO by either an ACO 
professional who has a primary care specialty designation included 
in the definition of primary care physician under Sec.  425.20, an 
ACO professional who is a physician assistant, nurse practitioner, 
or certified nurse specialist, or a FQHC or RHC. In addition, we are 
finalizing Sec.  425.304(c)(3)(iv) to state that an ACO that 
establishes a beneficiary incentive program must furnish an 
incentive payment for each qualifying service furnished to an 
eligible beneficiary. Each such incentive payment must: (1) Be in 
the form of a check, debit card, or a traceable cash equivalent; (2) 
not exceed $20, as adjusted annually by the percentage increase in 
the consumer price index for all urban consumers (United States city 
average) for the 12-month period ending with June of the previous 
year, rounded to the nearest whole dollar amount; and (3) be 
provided by the ACO to the beneficiary no later than 30 days after a 
qualifying service is furnished. An ACO must furnish incentive 
payments in the same amount to each eligible Medicare fee-for-
service beneficiary without regard to enrollment of such beneficiary 
in a Medicare supplemental policy (described in section 1882(g)(1) 
of the Act), in a State Medicaid plan under title XIX or a waiver of 
such a plan, or in any other health insurance policy or health 
benefit plan.
    <bullet> We are finalizing program integrity requirements at 
Sec.  425.304(c)(4). Specifically, we are finalizing Sec.  
425.304(c)(4)(i) to state that an ACO that establishes a beneficiary 
incentive program must maintain records related to the beneficiary 
incentive program that include: The identification of each 
beneficiary that received an incentive payment, including 
beneficiary name and HICN or Medicare beneficiary identifier; the 
type and amount of each incentive payment made to each beneficiary; 
the date each beneficiary received a qualifying service, the 
corresponding HCPCS code for the qualifying service, and 
identification of the ACO provider/supplier that furnished the 
qualifying service; and the date the ACO provided each incentive 
payment to each beneficiary. In addition, we are finalizing Sec.  
425.304(c)(4)(ii) to state that An ACO must not use funds from any 
entity or organization outside of the ACO to establish or operate a 
beneficiary incentive program and must not directly, through 
insurance, or otherwise, bill or otherwise shift the cost of 
establishing or operating a beneficiary incentive program to a 
Federal health care program. Furthermore, under Sec.  
425.304(c)(4)(iii) we are requiring that an ACO or its ACO 
participants notify assigned beneficiaries of the availability of 
the beneficiary incentive program in accordance with Sec.  
425.312(b). We are finalizing Sec.  425.304(c)(4)(iv) to state that, 
except for the beneficiary notifications required under Sec.  
425.304(c) section, the beneficiary incentive program must not be 
the subject of marketing materials and activities, including but not 
limited to, an advertisement or solicitation to a beneficiary or any 
potential patient whose care is paid for in whole or in part by a 
Federal health care program (as defined at 42 U.S.C. 1320a-7b(f)).
    <bullet> We are finalizing Sec.  425.304(c)(5) to state that CMS 
disregards incentive payments made by an ACO under Sec.  
425.304(c)(1) in calculating an ACO's benchmarks, estimated average 
per capita Medicare expenditures, and shared savings and losses.
    <bullet> We are finalizing Sec.  425.304(c)(6) to state that 
incentive payments made under a beneficiary incentive program are 
not considered income or resources or otherwise taken into account 
for purposes of determining eligibility for benefits or assistance 
(or the amount or extent of benefits or assistance) under any 
Federal program or under any State or local program financed in 
whole or in part with Federal funds, or for purposes of any Federal 
or State laws relating to taxation.
    <bullet> We are finalizing Sec.  425.304(c)(7) to state that CMS 
may require an ACO to terminate its beneficiary incentive program at 
any time for either failure to comply with the requirements set 
forth in Sec.  425.304 or any of the grounds for ACO termination set 
forth in Sec.  425.218(b).
d. Clarification of Existing Rules
    As explained in the preamble to the August 2018 proposed rule, we 
are also taking this opportunity to add regulation text at renumbered 
Sec.  425.304(b)(3) to clarify that the in-kind items or services 
provided to a Medicare FFS beneficiary under Sec.  425.304 must not 
include Medicare-covered items or services, meaning those items or 
services that would be covered under Title XVIII of the Act on the date 
the in-kind item or service is furnished to the beneficiary. It was 
always our intention that the in-kind items or services furnished under 
existing Sec.  425.304(a) be non-Medicare-covered items and services so 
that CMS can accurately monitor the cost of medically necessary care in 
the Shared Savings Program and to minimize the potential for fraud and 
abuse. We also clarify that the provision of in-kind items and services 
is available to all Medicare FFS beneficiaries and is not limited 
solely to beneficiaries assigned to an ACO. Finally, we proposed a 
technical change to the title and structure of Sec.  425.304. 
Specifically, we proposed to replace the title of Sec.  425.304 with 
``Beneficiary incentives'' and to add a new section Sec.  425.305, with 
a title ``Other program safeguards'', by redesignating paragraphs Sec.  
425.304(b) and (c) as Sec.  425.305(a) and (b), and to make conforming 
changes to regulations that refer to section Sec.  425.304. 
Specifically, we proposed to make the following conforming changes: 
amending Sec.  425.118 in paragraph (b)(1)(iii) by removing ``Sec.  
425.304(b)'' and adding in its place ``Sec.  425.305(a)''; amending 
Sec.  425.224 in newly redesignated paragraph (b)(1)(v) by removing 
``Sec.  425.304(b)'' and adding in its place ``Sec.  425.305(a)''; 
amending Sec.  425.310 in paragraph (c)(3) by removing ``Sec.  
425.304(a)'' and adding in its place ``Sec.  425.304''; and amending 
Sec.  425.402 in paragraph (e)(3)(i) by removing ``Sec.  
425.304(a)(2)'' and adding in its place ``Sec.  425.304(b)(1).''
    Final Action: We did not receive any comments specifically 
addressing our proposed technical changes to the title and structure of 
Sec.  425.304. Therefore, we are finalizing our proposed technical 
changes without modification.
3. Empowering Beneficiary Choice
a. Beneficiary Notifications
(1) Background on Beneficiary Notifications
    To ensure full transparency between providers participating in 
Shared Savings Program ACOs and the beneficiaries they serve, the 
November 2011 final rule established requirements for how a Shared 
Savings Program ACO must notify Medicare FFS beneficiaries receiving 
primary care services at the

[[Page 67992]]

point of care that the physician, hospital, or other provider is 
participating in a Shared Savings Program ACO (76 FR 67945 through 
67946). Specifically, the November 2011 final rule established a 
requirement that ACO participants provide standardized written notices 
to beneficiaries of both their ACO provider's/supplier's participation 
in the Shared Savings Program and the potential for CMS to share 
beneficiary identifiable data with the ACO.
    We initially established the beneficiary notification requirements 
for ACOs to protect beneficiaries by ensuring patient engagement and 
transparency, including requirements related to beneficiary 
notification, since the statute does not mandate that ACOs provide 
information to beneficiaries about the Shared Savings Program (76 FR 
67945 through 67946). The beneficiary information notices included 
information on whether a beneficiary was receiving services from an ACO 
participant or ACO provider/supplier, and whether the beneficiary's 
expenditure and quality data would be used to determine the ACO's 
eligibility to receive a shared savings payment.
    In the June 2015 final rule, we amended the beneficiary 
notification requirement and sought comment on simplifying the process 
of disseminating the beneficiary information notice. We received 
numerous comments from ACOs that the beneficiary notification 
requirement was too burdensome and created some confusion amongst 
beneficiaries about the Shared Savings Program (80 FR 32739). As a 
result, we revised the rule so that ACO providers/suppliers would be 
required to provide the notification by simply posting signs in their 
facilities and by making the notice available to beneficiaries upon 
request.
    We also amended our rule to streamline the beneficiary notification 
process by which beneficiaries may decline claims data sharing and 
finalized the requirement that ACO participants use CMS-approved 
template language to notify beneficiaries regarding participation in an 
ACO and the opportunity to decline data sharing. In order to streamline 
operations, reduce burden and cost on ACOs and their providers, and 
avoid creating beneficiary confusion, we also streamlined the process 
for beneficiaries to decline data sharing by consolidating the data opt 
out process through 1-800-MEDICARE in the June 2015 final rule (80 FR 
32737 through 32743). Beneficiaries must contact 1-800-MEDICARE to 
decline sharing their Medicare claims data or to reverse that decision.
    As we explained in the August 2018 proposed rule, under the 
program's current requirements, an ACO participant (for example 
physician practices and hospitals) must notify beneficiaries in writing 
of its participation in an ACO by posting signs in its facilities and, 
in settings in which beneficiaries receive primary care services, by 
making a standardized written notice (the ``Beneficiary Information 
Notice'') available to beneficiaries upon request (Sec.  425.312). We 
provide ACOs with templates, in English and Spanish, to share with 
their ACO participants for display or distribution. To summarize:

    <bullet> The poster language template indicates the providers' 
participation in the Shared Savings Program; describes ACOs and what 
they mean for beneficiary care; highlights that a beneficiary's 
freedom to choose his or her doctors and hospitals is maintained; 
and indicates that beneficiaries have the option to decline to have 
their Medicare Part A, B, and D claims data shared with their ACO or 
other ACOs. The poster must be in a legible format for display and 
in a place where beneficiaries can view it.
    <bullet> The Beneficiary Information Notice template covers the 
same topics and includes details on how beneficiaries can select 
their primary clinician via MyMedicare.gov and voluntarily align to 
the ACO.
    In addition to these two templates, there are currently two 
other ways that beneficiaries can learn about ACOs and of their 
option to decline Medicare claims data sharing with ACOs:
    <bullet> Medicare & You handbook. The language in the ACO 
section of the handbook (available at https://www.medicare.gov/pubs/pdf/10050-Medicare-and-You.pdf) describes ACOs and tells 
beneficiaries they will be notified at the point of care if their 
doctor participates in the Shared Savings Program. It explains what 
doctor participation in an ACO means for a beneficiary's care and 
that beneficiaries have the right to receive care from any doctor 
that accepts Medicare. The ACO section of the handbook also explains 
that beneficiaries must call 1-800-MEDICARE (1-800-633-4227) to 
decline sharing their health care information with ACOs or to 
reverse that decision.
    <bullet> 1-800-MEDICARE. Customer service representatives are 
equipped with scripted language about the Shared Savings Program, 
including background about ACOs. The customer service 
representatives also can collect information from beneficiaries 
about declining or reinstating Medicare claims data sharing.

    Further, beginning in July 2017, Medicare FFS beneficiaries have 
been able to login to MyMedicare.gov to select the primary clinician 
whom they believe is most responsible for their overall care 
coordination (a process we refer to as voluntary alignment). The 
instructions for selecting a primary clinician are also included in the 
Medicare & You handbook, issued by CMS annually to Medicare 
beneficiaries. The Shared Savings Program uses a beneficiary's 
selection of a primary clinician for assignment purposes, when 
applicable, for ACOs in all tracks beginning in performance year 2018 
(Sec.  425.402(e)).
    We have made information about the Shared Savings Program publicly 
available to educate ACOs, providers/suppliers, beneficiaries and the 
general public, and to further program transparency. This includes fact 
sheets, program guidance and specifications, program announcements and 
data available through the Shared Savings Program website (see https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/index.html). This material includes resources 
designed to educate beneficiaries about the Shared Savings Program and 
ACOs,\22\ and specifically on the voluntary alignment process.\23\
---------------------------------------------------------------------------

    \22\ Accountable Care Organizations & You, available at https://www.medicare.gov/Pubs/pdf/11588-Accountable-Care-Organizations-FAQs.pdf.
    \23\ Empowering Patients to Make Decisions About Their 
Healthcare: Register for MyMedicare.gov and Select Your Primary 
Clinician, available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/vol-alignment-bene-fact-sheet.pdf.
---------------------------------------------------------------------------

(2) Proposed Revisions
    In the August 2018 proposed rule, we proposed to revisit the 
program's existing requirements at Sec.  425.312 to ensure 
beneficiaries have a sufficient opportunity to be informed about the 
program and how it may affect their care and their data (83 FR 41875). 
We also proposed changes in response to section 50331 of the Bipartisan 
Budget Act, which amends section 1899(c) of the Act to require that the 
Secretary establish a process by which Medicare FFS beneficiaries are 
(1) ``notified of their ability'' to identify an ACO professional as 
their primary care provider (for purposes of assigning the beneficiary 
to an ACO, as described in Sec.  425.402(e)) and (2) ``informed of the 
process by which they may make and change such identification.''
    In proposing revisions to Sec.  425.312 we considered how to make 
the notification a comprehensive resource that compiles certain 
information about the program and what participation in the program 
means for beneficiary care. We were concerned that, while there are 
many sources of information on the program that are available to 
beneficiaries, the existing information exists in separate resources, 
which may be time

[[Page 67993]]

consuming for beneficiaries to compile, and, as a result, may be 
underutilized.
    In the August 2018 proposed rule, we also considered methods of 
notification that would better ensure that beneficiaries receive the 
comprehensive notification at the point of care. Our existing 
regulations emphasize use of posted signs in facilities and, in 
settings where beneficiaries receive primary care services, 
standardized written notices as a means to notify beneficiaries at the 
point of care that ACO providers/suppliers are participating in the 
program and of the beneficiary's opportunity to decline data sharing. 
We expressed our concern that, although standardized written notices 
must be made available upon request, few beneficiaries, or others who 
accompany beneficiaries to their medical appointments, may initiate 
requests for this information and, in turn, beneficiaries may not have 
the information they need to make informed decisions about their health 
care and their data.
    Finally, in the August 2018 proposed rule, we considered how to 
minimize burden on the ACO providers/suppliers that would provide the 
notification. We sought to balance the requirements of the notification 
to beneficiaries with the increased burden on health care providers 
that could draw their attention away from patient care.
    With these considerations in mind, and to further facilitate 
beneficiary access to information on the Shared Savings Program, we 
proposed to modify Sec.  425.312(a) to require additional content for 
beneficiary notices. We proposed that, beginning July 1, 2019, the ACO 
participant must notify beneficiaries at the point of care about 
voluntary alignment in addition to notifying beneficiaries that its ACO 
providers/suppliers are participating in the Shared Savings Program and 
that the beneficiary has the opportunity to decline claims data 
sharing. Specifically, the ACO participant must notify the beneficiary 
of his or her ability to, and the process by which, he or she may 
identify or change identification of a primary care provider for 
purposes of voluntary alignment.
    We proposed to modify Sec.  425.312(b) to require that, beginning 
July 1, 2019, ACO participants must provide the information specified 
in Sec.  425.312(a) to each Medicare FFS beneficiary at the first 
primary care visit of each performance year. Under our proposal, an ACO 
participant would be required to provide this notice during a 
beneficiary's first primary care visit in the 6-month performance year 
from July 1, 2019 through December 31, 2019, as well as the first 
primary care visit in the 12-month performance year that begins on 
January 1, 2020 (and in all subsequent performance years). We proposed 
that this notice would be in addition to the existing requirement that 
an ACO participant must post signs in its facilities and make 
standardized written notices available upon request.
    To mitigate the burden of this additional notification, we proposed 
to require ACO participants to use a template notice that we would 
prepare and make available to ACOs. We explained that the template 
notice would contain all of the information required to be disclosed 
under Sec.  425.312(a), including information on voluntary alignment. 
With respect to voluntary alignment, we explained that the template 
notice would provide details regarding how a beneficiary may select his 
or her primary care provider on MyMedicare.gov, and the step-by-step 
process by which a beneficiary could designate an ACO professional as 
his or her primary care provider, and how the beneficiary could change 
such designation. We also explained that the CMS-developed template 
notice would encourage beneficiaries to check their ACO professional 
designation regularly and to update such designation when they change 
care providers or move to a new area. We stated that the template 
notice could be provided to beneficiaries at their first primary care 
visit during a performance year, and the same template notice could be 
furnished upon request in accordance with our existing regulation at 
Sec.  425.312(b)(2).
    We expressed our belief that this proposed approach would 
appropriately balance the factors we described and achieve our desired 
outcome of more consistently educating beneficiaries about the program 
while mitigating burden of additional notification on ACO participants. 
In addition, we believed this approach would provide detailed 
information on the program to beneficiaries more consistently at a 
point in time when they may be inclined to review the notice and have 
an opportunity to ask questions and address their concerns. 
Furthermore, we believed this approach would pose relatively little 
additional burden on ACO participants, since they are already required 
to provide written notices to beneficiaries upon request.
    We sought comment as to alternative means of dissemination of the 
beneficiary notice, including the frequency with which and by whom the 
notice should be furnished. For example, we sought comment on whether a 
beneficiary should receive the written notice at the beneficiary's 
first primary care visit of the performance year, or during the 
beneficiary's first visit of the performance year with any ACO 
participant. We also sought comment on whether there are alternative 
media for disseminating the beneficiary notice that might be less 
burdensome on ACOs, such as dissemination via email.
    In addition, we solicited comment on whether the template notice 
should include other information outlining ACO activities that may be 
related to or affect a Medicare FFS beneficiary. We explained that such 
activities could include: ACO quality reporting and improvement 
activities, ACO financial incentives to lower growth in expenditures, 
ACO care redesign processes (such as use of care coordinators), the 
ACO's use of payment rule waivers (such as the SNF 3-day rule waiver), 
and the availability of an ACO's beneficiary incentive program.
    We also welcomed feedback on the format, content, and frequency of 
our proposed additional notice to beneficiaries about the Shared 
Savings Program, the benefits and drawbacks to requiring additional 
notification about the program at the point of care, and the degree of 
additional burden this notification activity could place on ACO 
participants. More specifically, we welcomed feedback on the timing of 
providing the proposed annual notice to the beneficiary, particularly 
what would constitute the appropriate point of care for the beneficiary 
to receive the notice.
    We also took the opportunity to propose regulation text at 
renumbered Sec.  425.312(a) to clarify our longstanding requirement 
that beneficiary notification obligations apply with regard to all 
Medicare FFS beneficiaries, not only to beneficiaries who have been 
assigned to an ACO (76 FR 67945 through 67946). We sought comment on 
whether an ACO that elects prospective assignment should be required to 
disseminate the beneficiary notice at the point of care only to 
beneficiaries who are prospectively assigned to the ACO, rather than to 
all Medicare FFS beneficiaries.
    Finally, we proposed technical changes to the title and structure 
of Sec.  425.312. For example, we proposed to replace the title of 
Sec.  425.312 with ``Beneficiary notifications.''
    Comment: Although a few commenters supported our proposed changes 
to the beneficiary notice requirements, most commenters did not support 
them. One commenter, a national, nonprofit consumer service 
organization that works to ensure access to affordable health care for 
older adults and people with disabilities, supported

[[Page 67994]]

the revised beneficiary notice requirements. This commenter stated that 
CMS templates--especially those that have been consumer-tested for 
clarity and effectiveness--are appropriate when there is a risk of 
beneficiary steering, such as with voluntary alignment. A few 
commenters, including two national non-profit legal senior citizen 
advocacy organizations and a provider advocacy group, generally 
supported our proposal but urged us to do consumer testing on the 
standardized notice that we would develop to ensure relevant 
information is conveyed accurately and objectively, in a manner that 
beneficiaries can use and understand.
    Some commenters supported our proposal to require that the notice 
address a beneficiary's ability to, and the process by which a 
beneficiary may, identify a primary care provider for purposes of 
voluntary alignment. One commenter expressed the belief that the 
proposed notice requirements would encourage ACO participants to engage 
patients in conversations describing patient rights; give beneficiaries 
critical information about possible consequences of receiving care in 
an ACO, including whether ACO participants are incentivized in ways 
that could affect service delivery; and better enable beneficiaries to 
select the best ACO for their needs. One commenter stated its support 
for the proposal and believed that beneficiaries are more likely to 
review the information and ask questions if the notice is provided at 
the point of care. This commenter suggested that the beneficiary notice 
should not simply be included with other routine forms.
    However, in contrast, a majority of commenters stated that the new 
notification requirements would be burdensome on practices from a 
workflow, efficiency, and supply cost perspective. Some commenters 
opined that it would be challenging to add another notice to the 
important documents that patients are already asked to review with each 
visit. Several commenters specifically stated that this proposal was in 
direct contrast to our Patients over Paperwork initiative. Some 
commenters stated that the administrative burden imposed by our 
proposed notification requirements would especially burden ACOs 
comprised of independent physician practices, which would have 
difficulty ensuring that beneficiaries do not receive duplicative 
notices if the beneficiaries see clinicians at different practices 
during the year.
    Some commenters stated that clinical workflows and electronic 
record systems would require reconfiguration for scheduling additional 
visit time, incorporating reminder prompts, and documentation of 
required notice delivery. Some of these commenters also indicated that 
our proposed policy would require a large investment by ACOs in 
building out electronic health records (EHR) system workflows, 
educating providers and staff, and tracking compliance with 
requirements, taking away from the beneficiaries' care and taking away 
from limited IT resources.
    Many commenters requested that we refrain from implementing 
mandatory written annual notifications. Several commenters suggested 
that, if CMS believes that beneficiaries receive the notification, then 
CMS should instead disseminate the notice to beneficiaries.
    Many commenters expressed their belief that our proposed changes 
would fail to improve the beneficiary notification process and 
suggested that we continue with our existing beneficiary notification 
requirements. Some commenters stated that CMS has not provided any 
evidence that beneficiaries are inadequately notified. Other commenters 
suggested that, rather than creating a new notice requirement, we 
should strengthen the existing notifications that ACO participants 
deliver to beneficiaries. In addition, many commenters noted that we 
previously tried a similar notification policy that was later removed 
in the 2015 Shared Savings Program final rule (80 FR 32740) after 
stakeholders explained that the beneficiary notification template was 
confusing to beneficiaries.
    One commenter disagreed with the proposal while also describing our 
existing notification requirements as too burdensome for ACO 
participants. This commenter expressed its belief that it is costly for 
an ACO to keep up with new templates and replace signs in its 
facilities every year.
    Response: We appreciate the support that we have received for our 
proposed beneficiary notification requirements. In addition, while we 
understand the apprehension that many commenters have regarding our 
proposed beneficiary notification requirements, we believe that it is 
important to revise our existing notification requirements to ensure 
that beneficiaries receive information that puts them in the driver's 
seat and provides them with the information they need to make decisions 
about their care. The notifications will allow beneficiaries to more 
fully engage in their health care by helping them better understand 
their care options and make informed decisions regarding their health 
care. We believe that this is especially important as the program has 
made changes to the ways in which beneficiaries may be assigned to an 
ACO (such as through voluntary alignment) and extended the beneficiary 
enhancements that are available to ACOs and their assigned 
beneficiaries.
    For these reasons, we believe that it is important that 
beneficiaries are informed that they are part of an ACO. Again, this 
information will help beneficiaries better understand their care 
options and make better-informed decisions regarding their health care. 
For example, we believe that notifying beneficiaries about an ACO's 
goals and objectives (for example, improving the health of 
populations), and each ACO's strategy for achieving such goals and 
objectives, can serve as a catalyst for educating beneficiaries about 
the importance of preventive services such as annual wellness visits.
    Furthermore, we note that we are required under section 1899(c) of 
the Act to establish a process by which Medicare fee-for-service 
beneficiaries are (1) ``notified of their ability'' to identify an ACO 
professional as their primary care provider (for purposes of assigning 
the beneficiary to an ACO), and (2) ``informed of the process by which 
they may make and change such identification.'' We proposed changes to 
our beneficiary notification requirements in part to address this 
requirement.
    We seek to balance the need to better engage beneficiaries in their 
health care with the potential for increased burden on ACO 
participants. Although many sources of information on the program are 
already available to beneficiaries, as noted in the preamble to the 
August 2018 proposed rule (80 FR 41875) we are concerned that the 
existing information exists in separate resources, which may be time 
consuming for beneficiaries to compile, and as a result, may be 
underutilized. Moreover, although we appreciate commenters' concerns 
that our proposed beneficiary notification requirements may require 
ACOs or ACO participants to bare additional costs, implement system and 
EHR changes, or allocate additional time for patient visits (so that 
participants can explain the content of the notice to beneficiaries), 
we believe that it is necessary to ensure that beneficiaries are aware 
of the existence of the ACO to which they are assigned, the choice of 
the ACO participant and its ACO providers/suppliers to participate in 
the ACO, the beneficiary's alignment options, and, if applicable, 
information on a beneficiary incentive program.

[[Page 67995]]

    We believe that the use of CMS-developed templates, which would be 
developed and tested with stakeholder feedback, will reduce the overall 
burden on providers. In addition, after evaluating commenters' 
concerns, we have decided to modify some of our proposed requirements 
regarding the beneficiary notice to help further reduce the potential 
for burden on ACOs and ACO participants.
    First, we are modifying our proposed policy to allow an ACO or its 
ACO participants to disseminate the beneficiary notifications. We 
believe this change may help mitigate the potential for administrative 
and operational burden on providers. We note that, in accordance with 
Sec.  425.314(c), it is the ACO that will ultimately be accountable for 
compliance with the beneficiary notification requirements.
    Second, we will not require that the notification be provided to 
beneficiaries at the point of care during a beneficiary's first primary 
care visit of each performance year. Instead, we will require that an 
ACO or its ACO participants disseminate the beneficiary notification at 
a beneficiary's first primary care service visit of the performance 
year or at some point earlier in the performance year. We believe that 
this change will alleviate some of the operational burdens that may be 
associated with tracking whether a beneficiary received a notice at its 
first primary care service visit of a performance year.
    Third, although we still encourage ACO participants to distribute 
the notice to beneficiaries at the point of care to address any 
beneficiary questions or concerns, we would permit an ACO or its ACO 
participants to distribute beneficiary notifications through electronic 
transmission (such as email) or mail. We note that regardless of the 
method of notification used, under Sec.  425.314, the ACO must maintain 
and make available evidence that a notification was distributed to each 
beneficiary.
    Finally, we note that we have also restructured the beneficiary 
notification provision at Sec.  425.312 for clarity. Paragraph (a) of 
that section now relates to the general notification requirement, which 
applies with regard to all FFS beneficiaries. In addition, paragraph 
(b) of that section relates to notifications regarding the availability 
of a beneficiary incentive program, which applies only with regard to 
assigned beneficiaries in an ACO that operates a beneficiary incentive 
program. (As explained in section II.C.2.c. of this final rule, such 
notifications will be required under Sec.  425.304(c)(4)(iii).) We 
believe that beneficiary incentive program notification should apply 
only with regard to assigned beneficiaries (the only types of 
beneficiaries who can receive an incentive payment under a beneficiary 
incentive program) because requiring an ACO to provide notice of the 
availability of a beneficiary incentive program to all FFS 
beneficiaries would essentially amount to marketing of a beneficiary 
incentive program. We intend to issue subregulatory guidance regarding 
the two notifications (the general notification and the beneficiary 
incentive program notification) and anticipate providing two 
notification templates: One that addresses the general notification 
requirements at Sec.  425.312(a) and another that addresses only the 
beneficiary incentive program requirements at Sec.  425.312(b).
    Comment: We received many comments and feedback on the means of 
dissemination of this additional notice to beneficiaries about the 
Shared Savings Program, including the drawbacks to requiring additional 
notification about the program at the point of care and the degree of 
additional burden this notification activity may place on ACO 
participants. A few commenters stated that ACO participants should be 
allowed to decide the means of dissemination. Some commenters suggested 
that CMS allow for the use of recorded telephone messages to 
disseminate the beneficiary notifications. Many other commenters 
suggested that CMS allow ACOs and/or ACO participants to distribute 
beneficiary notices through electronic mediums. Some commenters 
believed that ACOs should have the option to provide the beneficiary 
notice in an electronic or paper format. Several commenters suggested 
that ACOs be given the option to distribute beneficiary notices to 
Medicare beneficiaries through means such as patient portal messages or 
letters instead of being required to physically hand out the notices 
during a face-to-face visit. These commenters believe that ACOs should 
be permitted to take advantage of EHR capabilities that allow ACOs to 
identify and send communications to beneficiaries. One commenter stated 
that ACOs should provide the notice to beneficiaries via email. Another 
commenter recommended that CMS consider providing ACOs with talking 
points they can share with their ACO participants and ACO providers/
suppliers to guide verbal notifications to beneficiaries, rather than 
requiring a written beneficiary notice requirement. Finally, one 
commenter requested that CMS provide ACOs with beneficiary addresses 
and phone numbers so that ACOs can contact beneficiaries with the 
standardized notices on the primary care providers' behalf to 
streamline the process and reduce the administrative burden.
    Response: We understand the commenters concerns and, although we 
still encourage ACO participants to distribute the notice to patients 
at the point of care to address any questions or concerns that a 
beneficiary may have, we plan to require an ACO (directly or through 
its ACO participants) to distribute beneficiary notifications in 
writing through electronic transmission (such as email) or mail. We 
decline to allow for the use of non-written notifications (such as 
recorded telephone messages) because we believe that such notifications 
would be difficult for us to monitor and for beneficiaries to retrieve 
for future reference. We will provide additional information regarding 
permissible methods of notification in guidance, which we will issue 
prior to the July 1, 2019 effective date.
    Comment: Many commenters did not support CMS' proposal to require 
ACO participants to disseminate the beneficiary notice at the point of 
care during a beneficiary's first primary care visit of the performance 
year and provided alternatives to reduce potential administrative and 
operational burdens. A few commenters suggested that any ACO provider/
supplier should be able to disseminate the notice on the beneficiary's 
first service visit of the year. Some commenters believed that CMS 
should instead allow ACOs to provide the notice to beneficiaries at any 
point during a performance year, and not specifically at a 
beneficiary's first primary care service visit of the performance year. 
A few commenters stated that there should not be any restrictions on 
when the notification must be provided to beneficiaries. Some 
commenters provided suggestions related to the timing of the notice and 
coordination across CMS programs. For example, one commenter 
recommended that beneficiary notifications be aligned between the 
Shared Savings Program and the Next Generation ACO Model.
    Response: Based on the feedback we received from commenters and as 
previously discussed, we will require an ACO or its ACO participants to 
disseminate the beneficiary notification at a beneficiary's first 
primary care service visit of the performance year or at some point 
earlier in the performance year. In this way, we hope to balance the 
requested flexibility from ACOs and

[[Page 67996]]

ACO participants with the need to provide useful and important 
information to beneficiaries.
    In addition, we note that there are substantial differences between 
the beneficiary notification requirements for the Shared Savings 
Program, which is a permanent program established under section 1899 of 
the Act, and the Next Generation ACO Model, which is being tested by 
the Innovation Center under section 1115A of the Act. We plan, however, 
to leverage lessons learned and, where possible, align the 
notifications as we develop the Shared Savings Program beneficiary 
notification templates.
    Comment: Some commenters expressed concern about the content of the 
beneficiary notice and whether the information contained in the notice 
would be accessible to beneficiaries. Many commenters suggested that 
CMS consider beneficiaries' perspective of the notification and 
simplify the language in the template notice. Several commenters 
suggested that we work with stakeholders and beneficiary focus groups 
on developing the notice and determining the best method for 
dissemination. Some of these commenters suggested that no new or 
revised notifications should be implemented without input from these 
groups.
    Several commenters stated that ACOs should be allowed to develop 
the notification language on their own based on guidance from CMS. 
These commenters believe that allowing ACOs to develop the notification 
language would help ensure that the notifications account for the 
culture of the ACO's region and allow ACOs and ACO participants to 
engage beneficiaries in a more meaningful way.
    Several commenters believe that our proposed changes to the content 
of the beneficiary notice would cause tremendous beneficiary confusion. 
A number of commenters opined that ACOs would need to dedicate staff to 
address beneficiary questions regarding the notifications. One 
commenter stated that, based on its experience, our previous 
beneficiary notification requirements (which required that an ACO 
provide such notification at the point of care) added ten minutes per 
visit so that providers or staff could explain the template notice to 
beneficiaries. The commenter also criticized the content of our 
existing template notice, stating that it is not beneficiary friendly 
nor written at an appropriate literacy level. The commenter stated its 
belief that the template notice content causes beneficiaries to become 
concerned that the government has their data and, as a result, opt-out 
of data sharing, which limits ACOs from receiving data that would help 
them coordinate beneficiary care. In addition, a few commenters stated 
that when we previously instituted beneficiary notice requirements that 
required notice at the point of care, many beneficiaries were confused 
and expressed fear that their benefits and/or network would be changed, 
believed the beneficiary notice was a ``Medicare, Social Security and 
Internal Revenue scam.'' A few commenters stated that some 
beneficiaries believed that the data-sharing notification was an 
attempt by the ACO to steal their identities. These commenters also 
stated that many ACOs had to reassign staff members from clinical 
duties to answering beneficiary questions about the notifications.
    Several commenters expressed their belief that a comprehensive 
written notice furnished at the time of a planned primary care visit is 
likely to overwhelm beneficiaries with information about topics that 
are only tangentially related to that visit, which would impair 
clinical efficiency and experience of care for that visit. These 
commenters also expressed that it is unlikely that the information 
would be retained or retrieved by beneficiaries for later review. One 
commenter asserted that the notification should provide clear 
information about ACO activities that have a tangible impact on care 
experience including care coordination, beneficiary incentive programs, 
and the SNF 3-day rule waiver. Finally, a few commenters suggested 
keeping the notice regarding voluntary alignment separate from all 
other beneficiary notifications.
    Response: We appreciates commenters' concerns that the beneficiary 
notification may cause confusion among beneficiaries. We plan to work 
with our internal partners to conduct beneficiary focus groups to 
ensure that the content of the template notice is written in plain 
language and is easy for beneficiaries to understand. We will also 
consider working with focus groups in the future to include information 
regarding an ACO's use of a SNF 3-day rule waiver and other benefit 
enhancements. We believe that soliciting beneficiary input during 
development of the template and testing the template will mitigate 
concerns over the content of the notice.
    In addition, we believe that consolidating the general Shared 
Savings Program notices to Medicare fee-for-service beneficiaries, 
including the notification regarding voluntary alignment, into a single 
template will assist ACO participants in informing beneficiaries about 
their coordination of care. We invite ACO input through established 
modes of communication with CMS on any templates that we develop and 
intend to take such comments into consideration during any future 
revisions of the templates.
    We appreciate that some commenters would like to develop the 
notification language on their own based on guidance from CMS, however, 
as stated above, we believe that using template language is important 
to reduce operational burden and to ensure that beneficiaries receive 
consistent information regarding the program.
    Further, we note that the policy we are finalizing will allow ACOs 
to choose whether to furnish the notifications (directly or through 
their ACO participants) prior to or at a beneficiary's first primary 
care visit of the performance year. This additional flexibility 
addresses commenter concerns that beneficiaries could be overwhelmed by 
receiving the notifications during the first primary care visit and 
that furnishing the notice during such visit would impair clinical 
efficiency and experience of care.
    Finally, we will ensure that the notices comply with any applicable 
Sections 504 and 508 of the Rehabilitation Act of 1973. Section 508 
requires Federal agencies to ensure that people with disabilities have 
comparable access to and use of electronic information technology. 
Section 504 requires, among other things, that Federal agencies and 
recipients of Federal financial assistance provide individuals with 
disabilities with appropriate auxiliary aids where necessary to ensure 
effective communication.
    Final Action: After considering the comments received, we are 
finalizing with modification our revisions at Sec.  425.312 regarding 
beneficiary notifications as follows:

    <bullet> We are finalizing Sec.  425.312(a)(1) to state that an 
ACO shall ensure that Medicare fee-for-service beneficiaries are 
notified about all of the following: (1) That each ACO participant 
and its ACO providers/suppliers are participating in the Shared 
Savings Program; (2) the beneficiary's opportunity to decline claims 
data sharing under Sec.  425.708; and (3) beginning July 1, 2019, 
the beneficiary's ability to, and the process by which, he or she 
may identify or change identification of the individual he or she 
designated for purposes of voluntary alignment (as described in 
Sec.  425.402(e)). Such notification must be carried out through all 
of the following methods: (1) By an ACO participant posting signs in 
its facilities and, in settings in which beneficiaries receive 
primary care services, making standardized

[[Page 67997]]

written notices available upon request; and (2) during the 
performance year beginning on July 1, 2019 and each subsequent 
performance year, by an ACO or ACO participant providing each 
beneficiary with a standardized written notice prior to or at the 
first primary care visit of the performance year in the form and 
manner specified by CMS.
    <bullet> We are finalizing Sec.  425.312(b)(1) to state that, 
beginning July 1, 2019, an ACO that operates a beneficiary incentive 
program under Sec.  425.304(c) shall ensure that the ACO or its ACO 
participants notify assigned beneficiaries of the availability of 
the beneficiary incentive program, including a description of the 
qualifying services for which an assigned beneficiary is eligible to 
receive an incentive payment (as described in Sec.  425.304(c)). We 
are finalizing Sec.  425.312(b)(2) to state that notification of 
such information must be carried out by an ACO or ACO participant 
during each relevant performance year by providing each assigned 
beneficiary with a standardized written notice prior to or at the 
first primary care visit of the performance year in the form and 
manner specified by CMS.
b. Beneficiary Opt-In Based Assignment Methodology
    In the November 2011 final rule establishing the Shared Savings 
Program (76 FR 67865), we discussed comments that we had received in 
response to our proposed assignment methodology suggesting alternative 
beneficiary assignment methodologies in order to promote beneficiary 
free choice. For example, some commenters suggested that a beneficiary 
should be assigned to an ACO only if the beneficiary ``opted-in'' or 
enrolled in the ACO. We did not adopt an opt-in or enrollment 
requirement for several reasons, including our belief that such a 
prospective opt-in approach that allows beneficiaries to voluntarily 
elect to be assigned to an ACO would completely sever the connection 
between assignment and actual utilization of primary care services. A 
patient could choose to be assigned to an ACO from which he or she had 
received very few or no primary care services at all. However, more 
recently, some stakeholders have suggested that we reconsider whether 
it might be feasible to incorporate a beneficiary ``opt-in'' 
methodology under the Shared Savings Program. These stakeholders 
believe that under the current beneficiary assignment methodology, it 
can be difficult for an ACO to effectively manage a beneficiary's care 
when there is little or no incentive or requirement for the beneficiary 
to cooperate with the patient management practices of the ACO, such as 
making recommended lifestyle changes or taking medications as 
prescribed. The stakeholders noted that in some cases, an assigned 
beneficiary may receive relatively few primary care services from ACO 
professionals in the ACO and the beneficiary may be unaware that he or 
she has been assigned to the ACO. These stakeholders suggested we 
consider an alternative assignment methodology under which a 
beneficiary would be assigned to an ACO if the beneficiary ``opted-in'' 
to the ACO in order to reduce the reliance on the existing assignment 
methodology under subpart E and as a way to make the assignment 
methodology more patient-centered, and strengthen the engagement of 
beneficiaries in their health care. These stakeholders believe that 
using such an approach to assignment could empower beneficiaries to 
become better engaged and empowered in their health care decisions.
    Although arguably beneficiaries ``opt-in'' to assignment to an ACO 
under the existing claims-based assignment methodology in the sense 
that claims-based assignment is based on each beneficiary's exercise of 
free choice in seeking primary care services from ACO providers/
suppliers, in the August 2018 proposed rule (83 FR 41876) we explained 
our belief that incorporating an opt-in based assignment methodology, 
and de-emphasizing the claims-based assignment methodology, could have 
merit as a way to assign beneficiaries to ACOs. Therefore, we noted 
that we are exploring options for developing an opt-in based assignment 
methodology to further encourage and empower beneficiaries to become 
better engaged and empowered in their health care decisions. This 
approach to beneficiary assignment might also allow ACOs to better 
target their efforts to manage and coordinate care for those 
beneficiaries for whose care they will ultimately be held accountable. 
As discussed in section II.V.2.b. of the November 2018 final rule (83 
FR 59959 through 59964), we have recently implemented a voluntary 
alignment process, which is an electronic process that allows 
beneficiaries to designate a primary clinician as responsible for 
coordinating their overall care. If a beneficiary designates an ACO 
professional as responsible for their overall care and the requirements 
for assignment under Sec.  425.402(e) are met, the beneficiary will be 
prospectively assigned to that ACO. For 2018, the first year in which 
beneficiaries could be assigned to an ACO based on their designation of 
a primary clinician in the ACO as responsible for coordinating their 
care, 4,314 beneficiaries voluntarily aligned to 339 ACOs, and 338 
beneficiaries were assigned to an ACO based solely on their voluntary 
alignment. Ninety-two percent of the beneficiaries who voluntarily 
aligned were already assigned to the same ACO under the claims-based 
assignment algorithm.
    Voluntary alignment is based upon the relationship between the 
beneficiary and a single practitioner in the ACO. In contrast, as we 
described in the August 2018 proposed rule, an opt-in based assignment 
methodology would be based on an affirmative recognition of the 
relationship between the beneficiary and the ACO, itself. Under an opt-
in based assignment methodology, a beneficiary would be assigned to an 
ACO if the beneficiary opted into assignment to the ACO. Therefore, 
under an opt-in approach, ACOs might have a stronger economic incentive 
to compete against other ACOs and healthcare providers not 
participating in an ACO because to the extent the ACO is able to 
increase quality and reduce expenditures for duplicative and other 
unnecessary care, it could attract a greater number of beneficiaries to 
opt-in to assignment the ACO. There are a number of policy and 
operational issues, including the issues previously identified in the 
November 2011 final rule that would need to be addressed in order to 
implement an opt-in based methodology to assign beneficiaries to ACOs. 
These issues include the process under which beneficiaries could opt-in 
to assignment to an ACO, ACO marketing guidelines, beneficiary 
communications, system infrastructure to communicate beneficiary opt-
ins, and how to implement an opt-in based assignment methodology that 
responds to stakeholder requests while conforming with existing 
statutory and program requirements under the Shared Savings Program. We 
discussed these issues in Section II.C.3.b of the August 2018 proposed 
rule.
    As we explained in the August 2018 proposed rule, we believe under 
an opt-in based assignment methodology, it would be important for ACOs 
to manage notifying beneficiaries, collecting beneficiary opt-in data, 
and reporting the opt-in data to CMS. On an annual basis, ACOs would 
notify their beneficiary population about their participation in the 
Shared Savings Program and provide the beneficiaries a window during 
which time they could notify the ACO of their decision to opt-in and be 
assigned to the ACO, or to withdraw their opt-in to the ACO. Opting-in 
to a Shared Savings Program ACO could be similar to enrolling in a MA 
plan. MA election periods define when an individual may enroll or

[[Page 67998]]

disenroll from a MA plan. An individual (or his/her legal 
representative) must complete an enrollment request (using an 
enrollment form approved by CMS, an online application mechanism, or 
through a telephone enrollment) to enroll in a MA plan and submit the 
request to the MA plan during a valid enrollment period. MA plans are 
required by 42 CFR 422.60 to submit a beneficiary's enrollment 
information to CMS within the timeframes specified by CMS, using a 
standard IT transaction system. Subsequently, CMS validates the 
beneficiary's eligibility, at which point the MA plan must meet the 
remainder of its enrollment-related processing requirements (for 
example, sending a notice to the beneficiary of the acceptance or 
rejection of the enrollment within the timeframes specified by CMS). 
Procedures have been established for disenrolling from a MA plan during 
MA election periods. (For additional details about the enrollment 
process under MA, see the CMS website at https://www.cms.gov/Medicare/Eligibility-and-Enrollment/MedicareMangCareEligEnrol/index.html, and 
the Medicare Managed Care Manual, chapter 2, section 40 at https://www.cms.gov/Medicare/Eligibility-and-Enrollment/MedicareMangCareEligEnrol/Downloads/CY_2018_MA_Enrollment_and_Disenrollment_Guidance_6-15-17.pdf).
    Because opting-in or withdrawing an opt-in to assignment to a 
Shared Savings Program ACO could be similar to enrolling or 
disenrolling in a MA plan, we would need to establish the ACO opt-in 
process and timing in a way to avoid beneficiary confusion as to the 
differences between the Shared Savings Program and MA, and whether the 
beneficiary is opting-in to assignment to an ACO or enrolling in a MA 
plan. We would also need to determine how frequently beneficiaries 
would be able to opt-in or withdraw an opt-in to an ACO, and whether 
there should be limits on the ability to change an opt-in after the end 
of the opt-in window, in order to reduce possible beneficiary 
assignment ``churn''. We noted that beneficiaries opting-in to 
assignment to an ACO would still retain the freedom to choose to 
receive care from any Medicare-enrolled provider or supplier, including 
providers and suppliers outside the ACO. The ACO would be responsible 
for providing the list of beneficiaries who have opted-in to assignment 
to the ACO, along with each beneficiary's Medicare number, address, and 
certain other demographic information, to CMS in a form and manner 
specified by CMS. After we receive this information from the ACO, we 
would verify that each of the listed beneficiaries meets the 
beneficiary eligibility criteria set forth in Sec.  425.401(a) before 
finalizing the ACO's assigned beneficiary population for the applicable 
performance year. To perform these important opt-in related functions, 
ACOs might need to acquire new information technology systems, along 
with additional support staff, to track, monitor and transmit opt-in 
data to CMS, including effective dates for beneficiaries who opt-in or 
withdraw an opt-in to the ACO. Furthermore, changes in an ACO's 
composition of ACO participants and ACO providers/suppliers could 
affect a beneficiary's interest in maintaining his or her alignment 
with the ACO through an opt-in approach. As a result, we explained that 
we believe it would also be critical for an ACO participating under 
opt-in based assignment to inform beneficiaries of their option to 
withdraw their opt-in to the ACO, generally, and specifically, in the 
event that an ACO participant or ACO provider/supplier, from which the 
beneficiary has received primary care services is no longer 
participating in the ACO.
    MA has marketing guidelines and requirements that apply to 
enrollment activities to prevent selective marketing or discrimination 
based on health status. (See 42 CFR 422.2260 through 422.2276 and 
section 30.4 of the Medicare Marketing Guidelines located at https://www.cms.gov/Medicare/Health-Plans/ManagedCareMarketing/FinalPartCMarketingGuidelines.html.) We explained that if we were to 
adopt an opt-in process for the Shared Savings Program, we would impose 
similar requirements to ensure ACOs are providing complete and accurate 
information to beneficiaries to inform their decision-making regarding 
opting-in to assignment to an ACO, and not selectively marketing or 
discriminating based on health status or otherwise improperly 
influencing beneficiary choice. Additionally, ACOs would be required to 
establish a method for tracking the beneficiaries they have notified 
regarding the opportunity to opt-in to assignment to the ACO, and the 
responses received. Under Sec.  425.314, ACOs agree and must require 
their ACO participants, ACO providers/suppliers, and other individuals 
or entities performing functions or services related to ACO activities 
to agree that CMS has the right to audit, inspect, investigate, and 
evaluate records and other evidence that pertain to the ACO's 
compliance with the requirements of the Shared Savings Program. We 
noted that we believe this provision would authorize CMS to conduct 
oversight regarding ACOs' records documenting the beneficiaries who 
received such a notification and the beneficiary responses.
    As we stated in the August 2018 proposed rule (83 FR 41877 and 
41878), we are also considering how we would implement an opt-in based 
assignment methodology that addresses stakeholder requests, while 
conforming to existing program requirements. First, the requirement at 
section 1899(b)(2)(D) of the Act, that an ACO have at least 5,000 
assigned beneficiaries, would continue to apply. Thus, under an opt-in 
based assignment methodology, an ACO still would be required to have at 
least 5,000 FFS beneficiaries, who meet our beneficiary eligibility 
criteria, assigned to the ACO at the time of application and for the 
entirety of the ACO's agreement period. We indicated that we are 
concerned that using an opt-in based assignment methodology as the sole 
basis for assigning beneficiaries to an ACO could make it difficult for 
many ACOs to meet the 5,000 assigned beneficiary requirement under 
section 1899(b)(2)(D) of the Act. In particular, we noted that we were 
considering how an opt-in based assignment methodology would be 
implemented for new ACOs that have applied to the Shared Savings 
Program, but have not yet been approved by CMS to participate in the 
program. It could be difficult for a new ACO to achieve 5,000 
beneficiary opt-ins prior to the start of its first performance year 
under the program, as required by the statute in order to be eligible 
for the program. It could also be difficult for certain established 
ACOs, such as ACOs located in rural areas, to achieve and maintain 
5,000 beneficiary opt-ins. Smaller assigned beneficiary populations 
would also significantly increase the minimum savings rate and minimum 
loss rate (MSR and MLR) thresholds used to determine eligibility for 
shared savings and accountability for shared losses when these rates 
are based on the size of the ACO's assigned population as described in 
section II.A.6.b. of this final rule. Smaller assigned beneficiary 
populations would also be a potential concern if ACOs and their ACO 
participants were to target care management to a small subset of 
patients at the expense of a more comprehensive transformation of care 
delivery with benefits that would have otherwise extended to a wider 
mix of

[[Page 67999]]

patients regardless of whether they are assigned to the ACO.
    Second, under an opt-in assignment approach, we could allow 
beneficiaries to opt-in before they have received a primary care 
service from a physician in the ACO, or any service from an ACO 
provider/supplier. This would be similar to the situation that can 
sometimes occur under MA, where a beneficiary enrolls in a MA plan 
without having received services from any of the plan's providers. That 
means a beneficiary could be assigned to an ACO based solely on his or 
her opting-in to the ACO, and the ACO would be accountable for the 
total cost and quality of care provided to the opted-in beneficiary, 
including care from providers/suppliers that are not participating in 
the ACO. Section 1899(c) of the Act requires that beneficiaries be 
assigned to an ACO based on their use of primary care services 
furnished by physicians in the ACO, or beginning January 1, 2019, 
services provided in FQHCs/RHCs. In the August 2018 proposed rule, we 
noted that in order to meet this requirement under an opt-in based 
assignment methodology, we were considering whether we would need to 
continue to require that a beneficiary receive at least one primary 
care service from an ACO professional in the ACO who is a primary care 
physician or a physician with a specialty used in assignment (similar 
to our current requirement under Sec.  425.402(b)(1)), in order for the 
beneficiary to be eligible to opt-in to assignment to the ACO.
    Third, we explained that we were considering whether any changes 
would need to be made to our methodology for establishing an ACO's 
historical benchmark if we were to implement an opt-in based assignment 
methodology. Under the current assignment methodology used in the 
Shared Savings Program, we assign beneficiaries to ACOs for a 
performance year based upon either voluntary alignment or the claims-
based assignment methodology. Because the vast majority of 
beneficiaries are assigned using the claims-based assignment 
methodology, we are able to use the same claims-based assignment 
methodology to assign beneficiaries for purposes of either a 
performance year or a benchmark year. The expenditures of the 
beneficiaries assigned to the ACO for a benchmark year are then used in 
the determination of the benchmark. However, the same approach would 
not be possible under an assignment methodology based solely on a 
beneficiary opt-in approach. If we were to adopt an entirely opt-in 
based assignment methodology, we would need to consider if any changes 
would need to be made to our methodology for establishing an ACO's 
historical benchmark to address selection bias and/or variation in 
expenditures because beneficiaries would not have opted-in to 
assignment to the ACO during the 3 prior years included in the 
historical benchmark under Sec.  425.602, Sec.  425.603, or proposed 
new Sec.  425.601. Thus, under an entirely opt-in based assignment 
methodology there could be a large disconnect between the beneficiaries 
who have opted-in to assignment to the ACO for a performance year and 
the beneficiaries who are assigned to the ACO on the basis of claims 
for the historical benchmark years. An adjustment to the benchmark 
would be necessary to address these discrepancies. Alternatively, if we 
were to adopt a methodology under which we use expenditures from the 3 
historical benchmark years only for beneficiaries who have opted-in to 
assignment to the ACO in the applicable performance year, it could 
create an imbalance because the expenditures for the years that 
comprise the historical benchmark would not include expenditures for 
decedents because beneficiaries necessarily would have survived through 
the baseline period in order to opt-in for the given performance year. 
A similar approach was initially applied in the Pioneer ACO Model, but 
it required complex adjustments to ACOs' benchmarks to account for 
significantly lower spending in historical base years for assigned 
beneficiaries, who necessarily survived for the one or more years 
between the given base year and the applicable performance year in 
which they were assigned to the ACO. It would likely be even more 
difficult and complex to consistently and accurately adjust the 
benchmark in the context of our proposal to change to 5 year agreement 
periods (or a 6 year agreement period for agreement periods starting on 
July 1, 2019) because the historical benchmarks would eventually rely 
on an even smaller subset of base year claims available for 
beneficiaries who were enrolled in both Medicare Parts A and B during 
the base year and have survived long enough to cover the up to 7-year 
gap between the historical base year and the performance year for which 
they have opted-in to assignment to the ACO.
    In light of these issues, we stated that we were considering 
implementing an opt-in based assignment methodology that would address 
stakeholder requests that we incorporate such an approach to make the 
assignment methodology more patient-centered, while also addressing 
statutory requirements and other Shared Savings Program requirements. 
Specifically, we explained our belief that it may be feasible to 
incorporate an opt-in based assignment methodology into the Shared 
Savings Program in the following manner. We would allow, but not 
require, ACOs to elect an opt-in based assignment methodology. Under 
this approach, at the time of application to enter or renew 
participation in the Shared Savings Program, an ACO could elect an opt-
in based assignment methodology that would apply for the length of the 
agreement period. Under this approach, we would use the assignment 
methodology under subpart E of the regulations, including the 
provisions at Sec. Sec.  425.400, 425.401, 425.402 and 425.404 (herein 
referred to as the ``existing assignment methodology'' which would be 
comprised of a claims-based assignment methodology and voluntary 
alignment), to determine whether an ACO applicant meets the initial 
requirement under section 1899(b)(2)(D) of the Act to be eligible to 
participate in the program. We would use this approach because the ACO 
applicant would not be able to actively seek Medicare beneficiary opt-
ins until the next opt-in window. That is, we would continue to 
determine an ACO's eligibility to participate in the program under the 
requirement that an ACO have at least 5,000 assigned beneficiaries 
using the program's existing assignment methodology. Therefore, an ACO 
that elects to participate under opt-in based assignment could be 
eligible to enter an agreement period under the program if we determine 
that it has at least 5,000 assigned beneficiaries in each of the 3 
years prior to the start of the ACO's agreement period, based on the 
claims-based assignment methodology and voluntarily aligned 
beneficiaries.
    If an ACO chooses not to elect the opt-in based assignment 
methodology during the application or renewal process, then 
beneficiaries would continue to be assigned to the ACO based on the 
existing assignment methodology (claims-based assignment with voluntary 
alignment). As an alternative to allowing ACOs to voluntarily elect 
participation in an opt-in based assignment methodology we noted that 
we were also considering discontinuing the existing assignment 
methodology and applying an opt-in based assignment methodology 
program-wide (described herein as a hybrid assignment approach which 
includes beneficiary opt-in, modified

[[Page 68000]]

claims-based assignment, and voluntary alignment). As described in the 
August 2018 proposed rule, ACOs could face operational challenges in 
implementing opt-in based assignment, and this approach to assignment 
could affect the size and composition of the ACO's assigned population, 
specifically to narrow the populations served by ACO. In light of these 
factors, we stated that we believe it would be important to gain 
experience with opt-in based assignment as a voluntary participation 
option before modifying the program to allow only this participation 
option.
    In the August 2018 proposed rule (83 FR 41879 through 41881), we 
described a hybrid approach under which, for ACOs electing to 
participate under an opt-in based assignment methodology, we would 
assign beneficiaries to the ACO based on beneficiary opt-ins, 
supplemented by voluntary alignment and a modified claims-based 
methodology. Notwithstanding the assignment methodology under Sec.  
425.402(b), under this hybrid approach, a beneficiary would be 
prospectively assigned to an ACO that has elected the opt-in based 
assignment methodology if the beneficiary opted in to assignment to the 
ACO or voluntarily aligned with the ACO by designating an ACO 
professional as responsible for their overall care. If a beneficiary 
was not prospectively assigned to such an ACO based on either 
beneficiary opt-in or voluntary alignment, then the beneficiary would 
be assigned to such ACO only if the beneficiary received the plurality 
of his or her primary care services from the ACO and received at least 
seven primary care services from one or more ACO professionals in the 
ACO during the applicable assignment window. If a beneficiary did not 
receive at least seven primary care services from one or more ACO 
professionals in the ACO during the applicable assignment window, then 
the beneficiary would not be assigned to the ACO on the basis of claims 
even if the beneficiary received the plurality of their primary care 
services from the ACO. We noted that this threshold of seven primary 
care services would be consistent with the threshold established by an 
integrated healthcare system in a prior demonstration that targeted 
intervention on chronic care, high risk patients in need of better 
coordinated care due to their frequent utilization of health care 
services. A threshold for assignment of seven primary care services 
would mean that up to 25 percent of an ACO's beneficiaries who would 
have been assigned to the ACO under the existing assignment methodology 
under Sec.  425.402(b) could continue to be assigned to the ACO based 
on claims. We explained that we believed it could be appropriate to 
establish a minimum threshold of seven primary care services for 
assigning beneficiaries to ACOs electing an opt-in based assignment 
methodology because it would enable such ACOs to focus their care 
coordination activities on beneficiaries who have either opted-in to 
assignment to the ACO or voluntarily aligned with the ACO, or who are 
receiving a high number of primary care services from ACO professionals 
and may have complex conditions requiring care coordination. We sought 
comment on whether to use a higher or lower minimum threshold for 
determining beneficiaries assigned to the ACO under a modified claims-
based assignment approach.
    Under this hybrid approach to assignment, we would allow the ACO a 
choice of claims-based beneficiary assignment methodology as discussed 
in section II.A.4.c. of this final rule. Therefore, ACOs that elect to 
participate under opt-in based assignment for their agreement period 
would also have the opportunity to elect either prospective or 
preliminary prospective claims-based assignment prior to the start of 
their agreement period, and to elect to change this choice of 
assignment methodology annually.
    More generally, we stated that we believe this hybrid assignment 
methodology, which would incorporate claims-based and opt-in based 
assignment methods, as well as voluntary alignment, could be preferable 
to an opt-in only approach. A hybrid assignment methodology would 
increase the number of beneficiaries for whom the ACO would be 
accountable for quality and cost of care delivery and thereby provide 
stronger statistical confidence for shared savings or shared losses 
calculations and provide a stronger incentive for ACOs and their ACO 
participants and ACO providers/suppliers to improve care delivery for 
every FFS beneficiary rather than focusing only on beneficiaries who 
happen to have opted-in to assignment to the ACO.
    For ACOs that enter an agreement period in the Shared Savings 
Program under an opt-in based assignment methodology, we would allow 
for a special election period during the first calendar year quarter of 
the ACO's first performance year for beneficiaries to opt-in to 
assignment to the ACO. For each subsequent performance year of an ACO's 
agreement period, the opt-in period would span the first three calendar 
year quarters (January through September) of the prior performance 
year. Beneficiaries that opt-in, and are determined eligible for 
assignment to the ACO, would be prospectively assigned to the ACO for 
the following performance year. Under this approach, there would be no 
floor or minimum number of opt-in beneficiaries required. Rather, we 
would consider whether, in total, the ACO's assigned beneficiary 
population (comprised of beneficiaries who opt-in, beneficiaries 
assigned under the modified claims-based assignment approach, and 
beneficiaries who have voluntarily aligned) meets the minimum 
population size of 5,000 assigned beneficiaries each performance year 
to comply with the requirements for continued participation in the 
program. To illustrate this hybrid assignment approach in determining 
performance year assignment: If an ACO has 2,500 beneficiaries assigned 
under the modified claims-based assignment approach who have not 
otherwise opted-in to assignment to the ACO, and 50 voluntarily aligned 
beneficiaries who have not otherwise opted-in to assignment to the ACO, 
then the ACO would be required to have at least 2,450 beneficiaries who 
have opted-in to assignment to remain in compliance with the program 
eligibility requirement to have at least 5,000 assigned beneficiaries.
    Consistent with current program policy, ACOs electing the opt-in 
based assignment methodology with a performance year assigned 
population below the 5,000-minimum may be subject to the pre-
termination actions in Sec.  425.216 and termination of their 
participation agreement under Sec.  425.218. Under the proposals for 
modifying the MSR/MLR to address small population sizes described in 
section II.A.6.b.(3). of this final rule, if an ACO that elects an opt-
in based assignment methodology has an assigned population below 5,000 
beneficiaries, the ACO's MSR/MLR would be set at a level consistent 
with the number of assigned beneficiaries to provide assurance that 
shared savings and shared losses represent meaningful changes in 
expenditures rather than normal variation.
    As an alternative approach, we also considered requiring ACOs that 
have elected an opt-in based assignment methodology to maintain at 
least a minimum number of opt-in beneficiaries assigned in each 
performance year of its agreement period. We explained our belief that 
any minimum population requirement should be proportional to the size 
of ACO's population, to recognize differences in the population sizes 
of

[[Page 68001]]

ACOs across the program. We also considered whether we should require 
incremental increases in the size of the ACO's opt-in assigned 
population over the course of the ACO's agreement period, recognizing 
that it may take time for ACOs to implement the opt-in approach and for 
beneficiaries to opt-in. Another factor we considered is the 
possibility that the size of an ACO's population, and therefore the 
proportion of opt-in beneficiaries, could be affected by ACO 
participant list changes, and changes in the ACO providers/suppliers 
billing through ACO participant TINs, which could affect claims-based 
assignment, and the size of the ACO's voluntarily aligned population. 
Changes in the size of the ACO's claims-based assigned and voluntarily 
aligned populations could cause the ACO to fall out of compliance with 
a required proportion of opt-in assigned beneficiaries, even if there 
has been no reduction in the number of opt-in assigned beneficiaries.
    We anticipated that under opt-in based assignment, we would not 
establish restrictions on the geographic locations of the ACOs from 
which a beneficiary could select. This would be consistent with the 
program's voluntary alignment process, under which a beneficiary could 
choose to designate a primary clinician as being responsible for his or 
her care even if this clinician is geographically distant from the 
beneficiary's place of residence. Also, currently under the program's 
existing claims-based assignment methodology, beneficiaries who receive 
care in different parts of the country during the assignment window can 
be assigned to an ACO that is geographically distant from the 
beneficiary's place of residence. This approach also recognizes that a 
beneficiary could be assigned to a geographically distant ACO as a 
result of his or her individual circumstances, such as a beneficiary's 
change in place of residence, the beneficiary spending time in and 
receiving care in different parts of the country during the year 
(sometimes referred to as being a ``snowbird''), or the beneficiary 
receiving care from a tertiary care facility that is geographically 
distant from his or her home. Further, we noted that this approach is 
in line with the expanded telehealth policies discussed in section 
II.B.2.b. of this final rule under which certain geographic and other 
restrictions would be removed. We welcomed comment on whether to 
establish geographic limitations on opt-in based assignment such that a 
beneficiary's choice of ACOs for opt-in would be limited to ACOs 
located near the beneficiary's place of residence, or where the 
beneficiary receives his or her care, or a combination of both.
    When considering the options for incorporating an opt-in based 
assignment methodology, we considered if such a change in assignment 
methodology would also require changes to the proposed benchmarking 
methodology under Sec.  425.601. A hybrid assignment approach could 
potentially require modifications to the benchmarking methodology to 
account for factors such as: Differences in beneficiary 
characteristics, including health status, between beneficiaries who may 
be amenable to opting-in to assignment to an ACO, beneficiaries who 
voluntarily align, and beneficiaries assigned under a modified claims-
based assignment methodology who must have received at least seven 
primary care services from the ACO; differences between the existing 
claims-based assignment methodology and the alternative claims-based 
approach under which a minimum of seven primary care services would be 
required for assignment; and discrepancies caused by the use of the 
existing claims-based assignment methodology to perform assignment for 
historical benchmark years and the use of a hybrid assignment 
methodology for performance years. We explained that, for simplicity, 
we prefer an approach that would use, to the greatest extent possible, 
the program's benchmarking methodology, as proposed to be modified as 
discussed in section II.D. of this final rule. This would allow us to 
more rapidly implement an opt-in based assignment approach, and may be 
easier to understand for ACOs and other program stakeholders 
experienced with the program's benchmarking methodology. We considered 
the following approach to establishing and adjusting the historical 
benchmark for ACOs that elect an opt-in based assignment methodology.
    As explained in the August 2018 proposed rule (83 FR 41880 through 
41882), in establishing the historical benchmark for ACOs electing an 
opt-in based beneficiary assignment methodology, we would follow the 
benchmarking approach described in the provisions of the proposed new 
regulation at Sec.  425.601. In particular, we would continue to 
determine benchmark year assignment based on the population of 
beneficiaries that would have been assigned to the ACO under the 
program's existing assignment methodology in each of the 3 most recent 
years prior to the start of the ACO's agreement period. However, we 
would take a different approach to annually risk adjusting the 
historical benchmark expenditures than the one we had proposed in 
Section II.D of the proposed rule and in the proposed provisions at 
Sec. Sec.  425.605(a)(1) and 425.610(a)(2).
    In risk adjusting the historical benchmark for each performance 
year, we would maintain the current approach of categorizing 
beneficiaries by Medicare enrollment type; however, we would further 
stratify the benchmark year 3 and performance year assigned populations 
into groups that we anticipate would have comparable expenditures and 
risk score trends. That is, we would further stratify the performance 
year population into two categories: (1) Beneficiaries who are assigned 
using the modified claims-based assignment methodology and must have 
received seven or more primary care services from ACO professionals and 
who have not also opted-in to assignment to the ACO; and (2) 
beneficiaries who opt-in and beneficiaries who voluntarily align. A 
beneficiary who has opted-in to assignment to the ACO would continue to 
be stratified in the opted in population throughout the agreement 
period regardless of whether the beneficiary would have been assigned 
using the modified claims-based assignment methodology because the 
beneficiary received seven or more primary care services from the ACO.
    We would also further stratify the BY3 population, determined using 
the existing assignment methodology, into two categories: (1) 
Beneficiaries who received seven or more primary care services from the 
ACO; and (2) beneficiaries who received six or fewer primary care 
services from the ACO.
    We explained that we anticipate that beneficiaries who opt-in would 
likely be a subset of beneficiaries who would have been assigned under 
the existing claims-based assignment methodology. As previously 
described, 92 percent of voluntarily aligned beneficiaries were already 
assigned to the same ACO using the existing claims-based assignment 
methodology. Further, based on our experience with the program, about 
75 percent of ACOs' assigned beneficiaries receive six or fewer primary 
care service visits annually. Similar to the trend we have observed 
with voluntarily aligned beneficiaries, we believe the opt-in 
beneficiaries would tend to resemble in health status and acuity a 
subset of the ACO's typical claims-based assigned population; that is, 
we anticipate opt-in beneficiaries, as with voluntarily aligned 
beneficiaries, would resemble the population of beneficiaries assigned

[[Page 68002]]

in the benchmark year that received six or fewer primary care services.
    We would determine ratios of risk scores for the comparable 
populations of performance year and BY3 assigned beneficiaries. We 
would calculate these risk ratios by comparing the risk scores for the 
BY3 population with seven or more primary care services with the risk 
scores for the performance year population with seven or more primary 
care services who have not otherwise opted-in or voluntarily aligned. 
We would also calculate risk ratios for the remaining beneficiary 
population by comparing risk scores for the BY3 population with six or 
fewer primary care services with the risk scores for the performance 
year population of opt-in and voluntarily aligned beneficiaries. We 
would use these ratios to risk adjust the historical benchmark 
expenditures not only by Medicare enrollment type, but also by these 
stratifications. That is, for each Medicare enrollment type, we would 
apply risk ratios comparing the risk scores of the BY3 population with 
seven or more primary care services and the risk scores of the 
performance year population with seven or more primary care services to 
adjust the historical benchmark expenditures for the population with 
seven or more primary care services in the benchmark period. Similarly, 
we would apply risk ratios comparing the risk scores of the BY3 
population with six or fewer primary care services and the risk scores 
of the performance year opt-in or voluntarily aligned population to 
adjust the historical benchmark expenditures for the population with 
six or fewer primary care services in the benchmark period. We presumed 
this would be a reasonable approach based on our expectation that opt-
in beneficiaries will resemble the population of beneficiaries, 
assigned under the existing claims-based assignment methodology, who 
have 6 or fewer primary care services with the ACO annually. This 
presumption was supported by the assumptions that ACOs may selectively 
market opt-in to lower cost beneficiaries, and beneficiaries that 
require less intensive and frequent care may be more inclined to opt-
in. However, since we lack experience with an opt-in based assignment 
approach, we indicated that we would monitor the effects of this policy 
to determine if it is effective in addressing the differences in 
characteristics between the population assigned for purposes of 
establishing the ACO's benchmark under the existing assignment 
methodology and the population assigned for the performance year under 
the hybrid assignment approach, and if further adjustments may be 
warranted such as additional adjustments to the historical benchmark to 
account for such differences.
    In rebasing the ACO's benchmark, which occurs at the start of each 
new agreement period, we would include in the benchmark year assigned 
population beneficiaries who had opted in to the ACO in a prior 
performance year that equates to a benchmark year for the ACO's new 
agreement period. For example, if an ACO elected opt-in for a 5-year 
agreement period beginning on January 1, 2020, and concluding on 
December 31, 2024, and a beneficiary opted in and was assigned for 
performance year 2023 and remained opted in and assigned for 
performance year 2024, we would include this beneficiary in the 
benchmark year assigned population for BY2 (2023) and BY3 (2024) when 
we rebase the ACO for its next agreement period beginning January 1, 
2025. We considered that the health status of an opt-in beneficiary may 
continue to change over time as the beneficiary ages, which would be 
accounted for in our use of full CMS-HCC risk scores in risk adjusting 
the rebased historical benchmark. We considered approaches to further 
adapt the rebasing methodology to account for the characteristics of 
the ACO's opt-in beneficiaries, and the ACO's experience with 
participating in an opt-in based assignment methodology.
    We considered an approach under which we could determine the 
assigned population for the ACO's rebased benchmark using the program's 
existing assignment methodology and incorporate opt-in assigned 
beneficiaries in the benchmark population. In risk adjusting the ACO's 
rebased benchmark each performance year, we could use a stratification 
approach similar to the approach previously described in this 
discussion. That is we would stratify the BY3 population into two 
categories: (1) Beneficiaries who received seven or more primary care 
services from the ACO; and (2) beneficiaries who received six or fewer 
primary care services from the ACO. We would categorize opt-in 
beneficiaries, assigned in BY3, into either one of these categories 
based on the number of primary care services they received from ACO 
during BY3. We could continue to stratify the performance year 
population assigned under the hybrid assignment methodology into two 
categories: (1) Beneficiaries who are assigned using the modified 
claims-based assignment methodology and must have received seven or 
more primary care services from ACO professionals and who have not also 
opted-in to assignment to the ACO; and (2) beneficiaries who opt-in and 
beneficiaries who voluntarily align. We would apply risk ratios 
comparing the risk scores of the BY3 population with seven or more 
primary care services and the risk scores of the performance year 
population with seven or more primary care services to adjust the 
historical benchmark expenditures for the population with seven or more 
primary care services in the benchmark period. Similarly, we would 
apply risk ratios comparing the risk scores of the BY3 population with 
six or fewer primary care services and the risk scores of the 
performance year opt-in or voluntarily aligned population to adjust the 
historical benchmark expenditures for the population with six or fewer 
primary care services in the benchmark period.
    An alternative approach to rebasing the benchmark for an ACO that 
elected opt-in assignment in their most recent prior agreement period 
and continues their participation in an opt-in based assignment 
methodology in their new agreement period, would be to use the hybrid 
assignment approach to determine benchmark year assignment. To risk 
adjust the benchmark for each performance year we could then stratify 
the BY3 and the performance year assigned populations into two 
categories: (1) Beneficiaries assigned through the modified claims-
based assignment methodology who received seven or more primary care 
services from the ACO; or (2) beneficiaries who opt-in and 
beneficiaries who voluntarily align. This approach would move ACOs to 
participation under a purely hybrid assignment approach since we would 
no longer use the existing assignment methodology in establishing the 
benchmark. However, this approach could result in smaller benchmark 
year assigned populations compared to populations determined based on 
the more inclusive, existing assignment methodology. In turn, this 
approach could result in ACOs that were successful at opting-in 
beneficiaries being ineligible to continue their participation in the 
program under an opt-in assignment methodology because they do not meet 
the program's eligibility requirement to have at least 5,000 
beneficiaries assigned in each benchmark year.
    As described in section II.D. of this final rule, as part of the 
proposed changes to our benchmarking methodology, we proposed that 
annual adjustments in prospective CMS-HCC risk scores would be subject 
to a symmetrical cap of positive or negative 3 percent that would apply 
for the

[[Page 68003]]

agreement period, such that the adjustment between BY3 and any 
performance year in the agreement period would never be more than 3 
percent in either direction. We explained that we were considering 
whether a modified approach to applying these caps would be necessary 
for ACOs that elect opt-in based assignment methodology. For example, 
for the first performance year an opted-in beneficiary is assigned to 
an ACO, we could allow for full upward or downward CMS-HCC risk 
adjustment, thereby excluding these beneficiaries from the symmetrical 
risk score caps. This would allow us to account for newly opted-in 
beneficiaries' full CMS-HCC scores in risk adjusting the benchmark. In 
each subsequent performance year, the opted-in beneficiaries remain 
aligned to the ACO, we could use an asymmetrical approach to capping 
increases and decreases in risk scores. We would cap increases in the 
opt-in beneficiaries' CMS-HCC risk scores to guard against changes in 
coding intensity, but we would apply no cap to decreases in their CMS-
HCC risk scores. That is, the risk scores for these opt-in 
beneficiaries would be subject to the positive 3 percent cap, but not 
the negative 3 percent cap. We believed this approach would safeguard 
against ACOs trying to enroll healthy beneficiaries, who would likely 
be less expensive than their benchmark population, in order to benefit 
from having a limit on downward risk adjustment. Beneficiaries who have 
not otherwise opted-in who are assigned to the ACO based on the 
modified claims-based assignment methodology and those that voluntarily 
align would be subject to the proposed symmetrical 3 percent cap. We 
also noted that we do not apply caps to risk scores when we rebase an 
ACO's historical benchmark, which allows the historical benchmark to 
reflect the current health status of the beneficiary populations 
assigned for the benchmark years.
    As indicated in the alternatives considered section of the 
Regulatory Impact Analysis at Section V.D. of the proposed rule, there 
is limited information presently available to model the behavioral 
response to an opt-in based assignment methodology, for example in 
terms of ACOs' willingness to elect such an approach and beneficiaries' 
willingness to opt-in. However, we noted that for some policies we can 
draw upon our initial experience with implementing voluntary alignment. 
As we stated in the August 2018 proposed rule (83 FR 41882), we believe 
the approach to adjusting benchmarks to address an opt-in based 
assignment methodology that we described in the proposed rule, could 
address our concerns about the comparability of benchmark and 
performance year populations. We noted that if such a policy were to be 
finalized we would monitor the impact of these adjustments on ACOs' 
benchmarks, and we would also monitor to determine ACOs' and 
beneficiaries' response to the opt-in based assignment participation 
option, characteristics of opt-in beneficiaries and the ACOs they are 
assigned to, and the cost and quality trends of opt-in beneficiaries to 
determine if further development to the program's financial methodology 
would be necessary to account for this approach.
    We also anticipated that if we were to establish an opt-in based 
assignment methodology, we would need to establish program integrity 
requirements similar to the program integrity requirements with respect 
to voluntary alignment at Sec.  425.402(e)(3). The ACO, ACO 
participants, ACO providers/suppliers, ACO professionals, and other 
individuals or entities performing functions and services related to 
ACO activities would be prohibited from providing or offering gifts or 
other remuneration to Medicare beneficiaries as inducements to 
influence their decision to opt-in to assignment to the ACO. The ACO, 
ACO participants, ACO providers/suppliers, ACO professionals, and other 
individuals or entities performing functions and services related to 
ACO activities would also be prohibited from directly or indirectly, 
committing any act or omission, or adopting any policy that coerces or 
otherwise influences a Medicare beneficiary's decision to opt-in to 
assignment to an ACO. Offering anything of value to a Medicare 
beneficiary as an inducement to influence the Medicare beneficiary's 
decision to opt-in (or not opt-in) to assignment to the ACO would not 
be considered to have a reasonable connection to the medical care of 
the beneficiary, as required under the proposed provision at Sec.  
425.304(b)(1).
    Finally, we emphasized that, as is the case for all FFS 
beneficiaries currently assigned to an ACO on the basis of claims or 
voluntary alignment, under an opt-in based assignment methodology, 
beneficiaries who opt-in to assignment to an ACO would retain their 
right to seek care from any Medicare-enrolled provider or supplier of 
their choosing, including providers and suppliers outside the ACO.
    We solicited comment on whether we should offer ACOs an opportunity 
to voluntarily choose an alternative beneficiary assignment methodology 
under which an ACO could elect to have beneficiaries assigned to the 
ACO based on a beneficiary opt-in methodology supplemented by voluntary 
alignment and a modified claims-based assignment methodology. We 
welcomed comments as to whether it would be appropriate to establish a 
minimum threshold number of primary care services, such as seven 
primary care services, for purposes of using claims to assign 
beneficiaries to ACOs electing an opt-in based assignment methodology 
to enable these ACOs to focus their care coordination efforts on those 
beneficiaries who have either opted-in to assignment to or voluntarily 
aligned with the ACO, or who are receiving a high number of primary 
care services from ACO professionals, and may have complex conditions 
requiring a significant amount of care coordination. We sought comment 
on whether this minimum threshold for use in determining modified 
claims-based assignment should be set at a higher or lower. We also 
welcomed comments on an appropriate methodology for establishing and 
adjusting an ACO's historical benchmark under an opt-in based 
assignment methodology. Further, we sought comment on how to treat opt-
in beneficiaries when rebasing the historical benchmark for renewing 
ACOs. Additionally, we welcomed comments on any other considerations 
that might be relevant to adopting a methodology under which 
beneficiaries may opt-in to assignment to an ACO, including ways to 
minimize burden on beneficiaries, ACOs, ACO participants, and ACO 
providers/suppliers and avoid beneficiary confusion.
    In the August 2018 proposed rule (83 FR 41882 and 41883), we 
explained that we envisioned that if we were to incorporate such an 
opt-in based assignment methodology, the election by ACOs would be 
entirely voluntary. ACOs that did not elect this beneficiary assignment 
option would continue to have their beneficiaries assigned using the 
existing claims-based assignment methodology with voluntary alignment 
under Sec.  425.402. However, we also sought comment on whether we 
should discontinue the existing assignment methodology under subpart E 
and instead assign beneficiaries to all ACOs using a hybrid assignment 
methodology, which would incorporate opt-in based assignment and the 
modified claims-based assignment methodology, as well as voluntary 
alignment. Under such an approach, the use of a modified benchmarking 
methodology could help

[[Page 68004]]

to ensure that an appropriate weight would be placed on the risk-
adjusted expenditures of the ACO's opt-in population as this population 
increases in size.
    Comment: A majority of commenters did not support the idea of an 
opt-in based assignment methodology. Many commenters preferred that CMS 
maintain the existing claims-based assignment methodology with 
voluntary alignment and not replace it with an opt-in or a hybrid 
assignment methodology. One commenter stated that, as described in the 
proposed rule, the beneficiary opt-in would move the program away from 
its fundamental purpose and that ACOs should focus on recruiting the 
right doctors and other health care providers to improve the health of 
their patients, not recruiting patients to opt-in to the ACO.
    Another commenter expressed concerns about the small number of 
beneficiaries that would opt into an ACO, stating that it is extremely 
unlikely that many beneficiaries who were not already assigned through 
claims or by designating a primary care provider would choose to opt 
into an ACO. One commenter believed that because there is no connection 
between opt-in enrollment and actual utilization of primary care 
services, an opt-in based assignment methodology is not the answer to 
stakeholder concerns about the current beneficiary assignment 
methodology or changes in the assigned beneficiary population from year 
to year. A few commenters expressed concerns that establishing an ACO's 
benchmark under an opt-in methodology would become more complicated 
(due to opt-in beneficiaries potentially having different expected cost 
growth than the average beneficiary) and difficult (due to the 5,000 
minimum beneficiary threshold requirement). One commenter expressed 
concerns about the hybrid approach, stating that the seven-claim 
threshold is high enough to fundamentally change the Shared Savings 
Program, because the vast majority of potentially attributable ACO 
beneficiaries are not high-risk and, therefore, may never need seven 
primary care services in a given period of time. One commenter 
suggested that beneficiary assignment would fall dramatically under an 
opt-in assignment methodology and CMS would have to implement a much 
higher shared savings rate in order to support the large ACO 
investments that a beneficiary enrollment process would require.
    Several commenters were concerned that an opt-in assignment 
methodology could have significant operational impact on ACOs. One 
commenter stated that if the opt-in assignment methodology involved 
active outreach by providers, it would impose additional work streams 
and resource use on practices. Another commenter stated that although 
opt-in based enrollment is a valuable idea utilized by health plans, 
many ACOs do not have the infrastructure, including staff, to operate 
such a process. Another commenter stated that altering the assignment 
methodology to require beneficiaries to actively elect an ACO would 
create insurmountable administrative complexities and would be 
confusing to beneficiaries. One commenter stated that the process is 
likely to increase administrative burdens for ACOs, particularly those 
which are made up of independent physicians. The commenter recommended 
that, CMS should ensure that ACOs that do not have the resources 
available to actively pursue beneficiary opt-in are not inadvertently 
punished through additional changes to the claims-based assignment 
methodology.
    One commenter stated that beneficiary opt-in would effectively end 
physician participation in the Shared Savings Program and that 
physician practices, especially those that are unaffiliated with a 
health system or a health plan, do not have the resources needed to 
develop and implement the complex, continuous enrollment and reporting 
processes described in the proposed rule. The commenter believed that a 
requirement that beneficiaries opt-in to assignment to an ACO would 
significantly increase the costs of administering and running an ACO, 
skewing the cost-benefit analysis that many physician practices 
consider before joining the program.
    Response: We appreciate the commenters' feedback regarding our 
considerations in relation to the possible development of an opt-in 
based assignment methodology. These comments will help to inform any 
future consideration of an opt-in based assignment methodology.
    Comment: Several commenters supported CMS in exploring options for 
developing a voluntary opt-in based assignment methodology to 
complement the existing assignment methodology under subpart E. These 
commenters suggested that such an approach may make the assignment 
methodology more patient-centered and further encourage and empower 
beneficiaries to become better engaged in their healthcare decisions. 
Some commenters were supportive of an opt-in based assignment 
methodology to support beneficiary engagement. These commenters 
provided a variety of reasons for their support:

    <bullet> To give beneficiaries greater agency in directing their 
care choices. Beneficiaries should know how to navigate the system 
in which they receive care, understand the sets of incentives that 
may drive health care decisions, and appreciate their own role 
within an ACO to ensure they have the best opportunity to attain 
their health goals.
    <bullet> To provide ACOs with the ability to ``market'' their 
quality statistics for increased awareness of their network, similar 
to employee annual healthcare enrollment.
    <bullet> To help drive demand for coordinated, value-based care 
within Medicare FFS.
    <bullet> To supplement the current measures of quality and value 
under the Shared Savings Program.

    One commenter supported a hybrid approach with a modified claims-
based assignment approach that focuses on the most complex patients, 
such as high risk patients or those receiving care for chronic 
conditions. Another commenter supported a hybrid approach that would 
enable beneficiaries to either voluntarily align with an ACO-
participating physician or nurse practitioner of their choice or to 
opt-in to the ACO directly. The commenter stated that the hybrid 
approach could be extended universally to all ACOs by default provided 
claims-based assignment continued to be based on the plurality of 
primary care services as opposed to a minimum threshold (for example, 
seven qualified primary care services) for those who do not opt-in. 
Another commenter suggested that CMS release additional information and 
data on the possible seven-primary care service threshold, as they are 
concerned that this threshold is too high and could have the unintended 
consequence of significantly lowering several ACOs' assigned 
beneficiary counts. One commenter supported the potential opt-in based 
assignment methodology, as long as ACOs can voluntarily participate but 
believed that there should be geographic limits placed in assigning ACO 
beneficiaries.
    Response: We thank commenters for their comments. As we have 
indicated, we will share these comments with the Innovation Center for 
consideration as part of the development of any future opt-in based 
assignment methodology.
    Comment: Several commenters recommended that further research and 
testing is needed on the implications of an opt-in approach before 
implementing such an alternative assignment methodology in the Shared 
Savings Program. For example, several commenters suggested that CMS 
test alternative approaches in smaller models in a variety of markets 
to determine whether they meet

[[Page 68005]]

programmatic goals. One commenter recommended testing appropriate 
marketing opportunities for ACOs, analogous to those in Medicare 
Advantage. Another commenter suggested that any changes to the 
assignment methodology should be incremental and first be pilot-tested. 
One commenter recommended that, before offering a pure opt-in 
assignment methodology or a hybrid approach, CMS should continue to 
explore the potential burdens ACOs could encounter if beneficiaries are 
permitted to opt-in to assignment to an ACO and how the option would be 
explained to beneficiaries.
    Many commenters were concerned with the level of beneficiary 
outreach and education that would be necessary to implement an opt-in 
approach. One commenter stated that through yearly focus groups, they 
found that most beneficiaries are not familiar with ACOs and any policy 
that would allow beneficiaries to opt-in would require a great deal of 
beneficiary education and generate a large amount of beneficiary 
unease. One commenter suggested that if CMS were to move forward with 
an opt-in assignment approach, ACOs would need to provide beneficiaries 
with timely, easily accessible, and clear information about which 
providers are a part of the ACO, the ACO's quality rating, the number 
and types of complaints filed against the ACO (if any), and any other 
information that will help beneficiaries make the best decision given 
their healthcare needs. The commenter also recommended that the 
information should be presented in a standardized format that is easy 
to understand as well as culturally and linguistically appropriate. One 
commenter suggested that CMS develop informational materials in a 
variety of modalities, formats, and languages to ensure Medicare 
beneficiaries have a clear understanding of the benefits and potential 
risks/compromises associated with ACOs. The commenter also recommended 
that CMS develop beneficiary informational materials and instructions 
that contain enough information for beneficiaries to provide informed 
consent and understand what their election means. Finally, one 
commenter suggested allowing beneficiaries to opt-in by telephone, 
mailing, and at the point of care in the physician's office in addition 
to the current electronic method.
    Several commenters expressed concern that the opt-in for 
beneficiaries is redundant with voluntary alignment as beneficiaries 
already have the option to choose a primary clinician and thus opt-in 
to an ACO in which the clinician participates. One commenter expressed 
concern that the similarity between the opt-in option and the voluntary 
alignment option may cause confusion among beneficiaries. One commenter 
suggested CMS should continue to monitor the effectiveness of voluntary 
alignment before implementing an opt-in policy and that the benefits of 
beneficiary opt-in versus beneficiary voluntary alignment are not 
clear. Some commenters recommended that before moving towards the 
development of an opt-in methodology, CMS focus on making improvements 
to increase the use of the voluntary alignment option, which would 
serve as an incremental improvement in response to the broader 
challenge of educating Medicare beneficiaries about ACOs. One commenter 
suggested aligning an opt-in based assignment methodology with the 
voluntary alignment option so that the beneficiary can essentially 
``opt-in'' to the ACO by selecting their primary clinician.
    Response: We appreciate the commenters' feedback regarding our 
considerations in relation to the possible development of an opt-in 
based assignment methodology. We will consider the feedback provided by 
the commenters as part of any future consideration of an opt-in based 
assignment methodology.
    Comment: Some commenters compared an opt-in based assignment 
methodology to Medicare Advantage. One commenter stated that the opt-in 
based assignment methodology discussed in the proposed rule seems 
contrary to the goals of beneficiary engagement and the beneficiary 
freedom of choice offered under FFS Medicare and would be significantly 
similar to managed care plans, which could create confusion between the 
Shared Savings Program and Medicare Advantage. Another commenter raised 
concerns based on its current Medicare Advantage experience, which 
strongly suggests that beneficiaries do not actively make plan choices 
for themselves. This commenter stated that adding a requirement that 
beneficiaries choose to be part of an ACO does not seem like an 
assignment method that will result in the long-term stabilization and 
success of the program, while creating administrative burden and 
confusion for beneficiaries. One commenter stated that the shared 
savings economic model simply does not support the type of investments 
that Medicare Advantage plans make in enrolling beneficiaries.
    A commenter stated that one primary advantage of ACOs over Medicare 
Advantage plans is their lower administrative costs. The commenter 
contends that once an opt-in based assignment methodology is 
implemented, ACO administrative costs would increase. Another commenter 
stated that beneficiaries and providers already require constant 
reminders of the differences between a Shared Savings Program ACO and a 
Medicare Advantage Plan and an opt-in based assignment methodology into 
the Shared Savings Program would provide further confusion. One 
commenter believed that, unlike in Medicare Advantage, beneficiaries 
would not have a clear financial incentive to enroll in an ACO because 
doing so would have no effect on their premium or cost-sharing 
arrangements. The commenter further contends that Medicare FFS 
beneficiaries often place a high value on their freedom of choice and 
may be concerned that enrollment in an ACO would restrict them to a 
particular network. Another commenter expressed concerns that an opt-in 
methodology for ACOs could overlap and interfere with Medicare 
Advantage enrollment and expressed concern that there would not be 
appropriate regulations in place, such as those that apply in Medicare 
Advantage, and as a result providers could ``cherry-pick'' patients who 
are more likely to help performance or ``lemon-drop'' patients who may 
be more costly.
    Response: We thank the commenters for their feedback and will share 
these comments with the Innovation Center to further inform the 
development of a model testing an opt-in based assignment methodology.
    Final Action: We are not finalizing an opt-in assignment 
methodology for the Shared Savings Program at this time; however, we 
will work with the Innovation Center to develop a model to determine 
the viability of an opt-in assignment methodology and may consider 
adopting such an approach in the Shared Savings Program through future 
rulemaking.

D. Benchmarking Methodology Refinements

1. Background
    An ACO's historical benchmark is calculated based on expenditures 
for beneficiaries that would have been assigned to the ACO in each of 
the 3 calendar years prior to the start of the agreement period 
(Sec. Sec.  425.602(a), 425.603(b) and (c)). For ACOs that have 
continued their participation for a second or subsequent agreement 
period, the benchmark years for their current agreement period are the 
3 calendar

[[Page 68006]]

years of their previous agreement period.
    There are currently differences between the methodology used to 
establish the ACO's first agreement period historical benchmark (Sec.  
425.602) and the methodology for establishing the ACO's rebased 
historical benchmark in its second or subsequent agreement period 
(Sec.  425.603). We refer readers to discussions of the benchmark 
calculations in earlier rulemaking for details on the development of 
the current policies (see November 2011 final rule, 76 FR 67909 through 
67927; June 2015 final rule, 80 FR 32785 through 32796; June 2016 final 
rule, 81 FR 37953 through 37991). For example, in resetting (or 
rebasing) an ACO's historical benchmark, we replace the national trend 
factor (used in in the first agreement period methodology) with 
regional trend factors, and we use a phased approach to adjust the 
rebased benchmark to reflect a percentage of the difference between the 
ACO's historical expenditures and FFS expenditures in the ACO's 
regional service area. This rebasing methodology incorporating factors 
based on regional FFS expenditures was finalized in the June 2016 final 
rule and is used to establish the benchmark for ACOs beginning a second 
or subsequent agreement period in 2017 and later years. An interim 
approach was established in the June 2015 final rule under which we 
adjusted the rebased benchmarks for ACOs that entered a second 
agreement period beginning in 2016 to account for savings generated in 
their first agreement period (Sec.  425.603(b)(2)).
    In developing the June 2016 final rule, we considered the weight 
that should be applied in calculating the regional adjustment to an 
ACO's historical expenditures. We finalized a phased approach to 
transition to a higher weight in calculating the regional adjustment, 
where we determine the weight used in the calculation depending on 
whether the ACO is found to have lower or higher spending compared to 
its regional service area (Sec.  425.603(c)(9)). For ACOs that have 
higher spending compared to their regional service area, the weight 
placed on the regional adjustment is reduced to 25 percent (compared to 
35 percent) in the first agreement period in which the regional 
adjustment is applied, and 50 percent (compared to 70 percent) in the 
second agreement period in which the adjustment is applied. Ultimately 
a weight of 70 percent will be applied in calculating the regional 
adjustment for all ACOs beginning no later than the third agreement 
period in which the ACO's benchmark is rebased using this methodology, 
unless the Secretary determines that a lower weight should be applied.
    The annual update to the ACO's historical benchmark also differs 
for ACOs in their first versus second or subsequent agreement periods. 
In an ACO's first agreement period, the benchmark is updated each 
performance year based solely on the absolute amount of projected 
growth in national FFS spending for assignable beneficiaries (Sec.  
425.602(b)). Although section 1899(d)(1)(B)(ii) of the Act requires us 
to update the benchmark using the projected absolute amount of growth 
in national per capita expenditures for Medicare Parts A and B 
services, we used our authority under section 1899(i)(3) of the Act to 
adopt an alternate policy under which we calculate the national update 
based on assignable beneficiaries, a subset of the Medicare FFS 
population as defined under Sec.  425.20. For ACOs in a second or 
subsequent agreement period (beginning in 2017 and later years), we 
update the rebased benchmark annually to account for changes in FFS 
spending for assignable beneficiaries in the ACO's regional service 
area (Sec.  425.603(d)). We also used our authority under section 
1899(i)(3) of the Act to adopt this alternate update factor based on 
regional FFS expenditures.
    For all ACOs, at the time of reconciliation for each performance 
year, we further adjust the benchmark to account for changes in the 
health status and demographic factors of the ACO's performance year 
assigned beneficiary population (Sec. Sec.  425.602(a)(9), 
425.603(c)(10)). We use separate methodologies to risk-adjust the 
benchmark for populations of newly assigned and continuously assigned 
beneficiaries. For newly assigned beneficiaries, we use CMS-HCC 
prospective risk scores to adjust for changes in severity and case mix. 
We use demographic factors to adjust for changes in the health status 
of beneficiaries continuously assigned to the ACO. However, if the CMS-
HCC prospective risk scores for the ACO's continuously assigned 
population decline, CMS will adjust the benchmark to reflect changes in 
severity and case mix for this population using the lower CMS-HCC 
prospective risk score. CMS-HCC prospective risk scores are based on 
diagnoses from the prior calendar year, as well as demographic factors.
    In section II.D. of the August 2018 proposed rule (83 FR 41883) we 
proposed several changes to the program's benchmarking methodology. We 
proposed to replace the current risk adjustment methodology that 
separately considers newly and continuously assigned beneficiaries with 
an approach that uses changes in CMS-HCC prospective risk scores for 
all beneficiaries, subject to a symmetrical cap. We also proposed to 
incorporate regional expenditures into benchmarks starting in an ACO's 
first agreement period, to modify the regional adjustment to the 
historical benchmark by revising the schedule of weights that are 
applied to the adjustment and imposing a cap on the dollar amount of 
the adjustment, and to use a blend of regional and national trend 
factors to trend and update the benchmark. These proposals are 
described in more detail in sections II.D.2 and II.D.3 of this final 
rule.
    Comment: A few commenters provided general support for the proposed 
changes to the program's benchmarking methodologies, with one commenter 
noting they could lead to more accurate determinations of savings and 
losses. This commenter also believed that the benchmarking proposals 
would help to encourage high performing ACOs to remain in the program 
and not be forced out due to inaccurate and unfair benchmarks. However, 
the commenter did not specify which elements of the current approach 
they believe to be inaccurate or unfair.
    Response: We appreciate the general support offered for the 
proposed modifications to the benchmarking methodologies. We believe 
our proposals to allow for more complete upward risk adjustment and to 
incorporate regional factors into benchmarks during an ACO's first 
agreement period, which we are finalizing in this final rule, will help 
to improve benchmark accuracy by making an ACO's historical benchmark 
more reflective of the health status of its assigned beneficiary 
population and the local circumstances the ACO faces.
    Comment: A few commenters called for improving the transparency and 
predictability and reducing the complexity of the program's 
benchmarking methodology. One commenter stated that greater 
transparency would allow ACOs to perform enhanced analytics and to 
better forecast their future performance. Several other commenters 
urged CMS to provide ACOs with additional data, including the data used 
by the agency to develop benchmarks. One commenter explained that this 
would allow ACOs to replicate CMS' methodology and improve their 
understanding of their own benchmarks. This commenter noted further 
that the current lack of clarity regarding the determination of

[[Page 68007]]

the benchmark is a serious financial risk that may deter continued 
participation. Other commenters generally called for greater alignment 
between the Shared Savings Program and Medicare Advantage in terms of 
spending targets or rates of growth in benchmarks, noting this would 
add predictability, reduce complexity, and create a more level playing 
field with respect to spending targets for the health care providers in 
a region. Another commenter suggested that staff in CMS regional 
offices representing the Shared Savings Program develop more expertise 
in the benchmarking methodology so that they could provide ACO leaders 
with one-on-one technical assistance in the place of more generalized 
webinars.
    Response: We believe that the policies we are finalizing in this 
rule, including simplifying the risk adjustment methodology and 
adopting a more consistent benchmarking methodology across agreement 
periods, will promote both transparency and predictability. We 
appreciate commenters' input on how to further improve transparency and 
will consider these suggestions as we develop future education and 
outreach plans. We also note that we will continue to make data 
available, such as the county expenditure and county assigned 
beneficiary public use files and ACO public use files containing ACO-
level financial and quality results for each performance year, which 
will allow stakeholders to perform their own analyses. We also 
appreciate commenters' interest in fostering greater alignment between 
the Shared Savings Program and Medicare Advantage. We will continue to 
explore opportunities to align the requirements of the two programs.
    Comment: One commenter requested that CMS refrain from making any 
changes to the benchmarking or financial performance methodology during 
an existing agreement period. Further, they requested that CMS provide 
ACOs with sufficient data to assess the impact of such changes on their 
performance and allow them to elect whether to adopt the change 
immediately or defer to the next agreement period.
    Response: We would like to note that the changes to the program's 
benchmarking methodology and to the financial risk models being 
finalized in this rule will be effective for new agreement periods 
beginning on July 1, 2019, and in subsequent years. ACOs that start a 
12-month performance year on January 1, 2019, will have the option to 
complete the remaining years of their agreement period under their 
current track and subject to their existing benchmarking methodology. 
However, with the elimination of the required ``sit-out period'' being 
finalized in this rule (see section II.A.5.c.(4).(b) of this final 
rule), ACOs that wish to transition to the new policies sooner may do 
so by terminating their current participation agreement and immediately 
beginning a new agreement period. We believe that this approach will 
provide ACOs that are partway through an agreement period with more 
flexibility around the speed at which they transition to the new 
policies. As noted in the response to the previous comment, we will 
continue to make public use data available that can be used by ACOs to 
inform their decision-making.
2. Risk Adjustment Methodology for Adjusting Historical Benchmark Each 
Performance Year
a. Background
    When establishing the historical benchmark, we use the CMS-HCC 
prospective risk adjustment model to calculate beneficiary risk scores 
to adjust for changes in the health status of the population assigned 
to the ACO. The effect of this policy is to apply full CMS-HCC risk 
adjustment to account for changes in case mix in the assigned 
beneficiary population between the first and third benchmark years and 
between the second and third benchmark years. For consistency, this 
approach is also used in adjusting the historical benchmark to account 
for changes to the ACO's certified ACO participant list for performance 
years within an agreement period and when resetting the ACO's 
historical benchmark for its second or subsequent agreement period. See 
Sec. Sec.  425.602(a)(3) and (8), 425.603(c)(3) and (8); see also 
Medicare Shared Savings Program, Shared Savings and Losses and 
Assignment Methodology Specifications (May 2018, version 6) available 
at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/program-guidance-and-specifications.html. Further, 
we use full CMS-HCC risk adjustment when risk adjusting county level 
FFS expenditures and to account for differences between the health 
status of the ACO's assigned population and the assignable beneficiary 
population in the ACO's regional service area as part of the 
methodology for adjusting the ACO's rebased historical benchmark to 
reflect regional FFS expenditures in the ACO's regional service area 
(see Sec.  425.603(c)(9)(i)(C), (e)).
    To account for changes in beneficiary health status between the 
historical benchmark period and the performance year, we perform risk 
adjustment using a methodology that differentiates between newly 
assigned and continuously assigned beneficiaries, as defined in Sec.  
425.20. As specified under Sec. Sec.  425.604(a), 425.606(a), and 
425.610(a), we use CMS-HCC prospective risk scores to account for 
changes in severity and case mix for newly assigned beneficiaries 
between the third benchmark year (BY3) and the performance year. We use 
demographic factors to adjust for these changes in continuously 
assigned beneficiaries. However, if the CMS-HCC prospective risk scores 
for the continuously assigned population are lower in the performance 
year, we use the lower CMS-HCC prospective risk scores to adjust for 
changes in severity and case mix in this population. As we described in 
earlier rulemaking, this approach provides a balance between accounting 
for actual changes in the health status of an ACO's population while 
limiting the risk due to coding intensity shifts--that is, efforts by 
ACOs, ACO participants, and/or ACO providers/suppliers to find and 
report additional beneficiary diagnoses so as to increase risk scores--
that would artificially inflate ACO benchmarks (see for example, 81 FR 
38008).
    As described in the Shared Savings and Losses and Assignment 
Methodology specifications referenced previously in this section, all 
CMS-HCC and demographic beneficiary risk scores used in financial 
calculations for the Shared Savings Program are renormalized to ensure 
that the mean risk score among assignable beneficiaries in the national 
FFS population is equal to one. Renormalization helps to ensure 
consistency in risk scores from year to year, given changes made to the 
underlying risk score models. All risk adjustment calculations for the 
Shared Savings Program, including risk score renormalization, are 
performed separately for each Medicare enrollment type (ESRD, disabled, 
aged/dual eligible for Medicare and Medicaid, and aged/non-dual 
eligible for Medicare and Medicaid).
    In practice, to risk adjust expenditures from one year to another, 
we multiply the expenditures that are to be adjusted by the quotient of 
two renormalized risk scores, known as the risk ratio. For example, to 
risk adjust the expenditures for an ACO's assigned beneficiary 
population from the first benchmark year to the third, we multiply 
benchmark year 1 (BY1) expenditures, by a risk ratio equal to the mean 
renormalized risk score among the ACO's assigned beneficiaries in 
benchmark year 3 (BY3) divided by the

[[Page 68008]]

mean renormalized risk score among the ACO's assigned beneficiaries in 
BY1. One percent growth in renormalized risk scores between 2 years 
would be expressed by a risk ratio of 1.010. This ratio reflects growth 
in risk for the ACO's assigned beneficiary population relative to that 
of the national assignable population.
    ACOs and other program stakeholders have expressed various concerns 
about the methodology for risk adjusting an ACO's benchmark each 
performance year, as described in comments on previous rulemaking (see 
76 FR 67916 through 67919, 80 FR 32777 through 32778, 81 FR 37962 
through 37968). We refer readers to these earlier rules for more 
detailed discussions of the issues raised by stakeholders. A common 
concern raised is that the current risk adjustment methodology does not 
adequately adjust for changes in health status among continuously 
assigned beneficiaries between the benchmark and performance years. 
Commenters have argued that the lack of upward CMS-HCC risk adjustment 
in response to increased patient acuity makes it harder for ACOs to 
realize savings and serves as a barrier to more ACOs taking on 
performance-based risk.
    Stakeholders have also raised concerns that the current 
methodology, under which risk adjustment is performed separately for 
newly and continuously assigned beneficiaries, creates uncertainty 
around benchmarks. One commenter in prior rulemaking described the 
policy as rendering the role of risk scores ``opaque'', making it 
difficult for ACOs to anticipate how risk scores may affect their 
financial performance (81 FR 37968). We have attempted to increase 
transparency around the program's risk adjustment process by providing 
beneficiary-level risk score information in quarterly and annual 
reports, as well as by providing detailed explanations of the risk 
adjustment calculations to ACOs through webinars. However, despite 
these efforts, concerns about transparency remain, as evidenced by the 
many requests for technical assistance from ACOs related to risk 
adjustment.
b. Proposed Revisions
    We appreciate the concerns regarding our current risk adjustment 
methodology raised by stakeholders, who have indicated that the current 
approach may not adequately recognize negative changes in health status 
that occur at the individual beneficiary level, particularly among 
continuously assigned beneficiaries who have experienced an acute 
event, such as a heart attack, stroke, or hip fracture, between the 
third benchmark year and the applicable performance year. We recognize 
that such acute events, which almost always require a hospitalization, 
are likely to have an upward impact on CMS-HCC risk scores that is not 
attributable to provider coding initiatives.
    At the same time, we remain concerned that CMS-HCC risk scores, in 
general, are susceptible to increased diagnostic coding efforts. As 
noted previously, we employ full CMS-HCC risk adjustment when 
establishing an ACO's historical benchmark for its first agreement 
period, when adjusting the benchmark to account for participant list 
changes within an agreement period, and when resetting the benchmark 
for a second or subsequent agreement period, as we believe that doing 
so improves the accuracy of the benchmark. We have observed evidence of 
a modest increase in diagnostic coding completeness in the benchmark 
period for ACOs in their second agreement period (rebased ACOs). 
Simulation results suggest that rebased ACOs were more likely to 
benefit from full CMS-HCC risk adjustment in the benchmark period than 
were ACOs in a first agreement period. For rebased ACOs, the benchmark 
period coincides with their first agreement period in the Shared 
Savings Program, a time when these ACOs and their ACO participants and 
ACO providers/suppliers had an incentive to engage in increased coding 
so as to maximize their performance year risk scores, as well as their 
rebased benchmark in the next agreement period. ACOs in a first 
agreement period would have had less incentive to encourage their ACO 
participants and ACO providers/suppliers to engage in coding 
initiatives during the benchmark period as it took place before they 
entered the program. We recognize, however, that increased coding by 
ACO participants and ACO providers/suppliers may also reflect efforts 
to facilitate care coordination, quality improvement, and population 
management activities which require more complete clinical information 
at the point of care.
    We also acknowledge that our current approach to risk adjustment 
for the performance year makes it difficult for ACOs to predict how 
their financial performance may be affected by risk adjustment. The 
current approach involves multiple steps including identifying newly 
and continuously assigned beneficiaries for each ACO for both the 
performance year and BY3, computing mean CMS-HCC risk scores for both 
populations and mean demographic risk scores for the continuously 
assigned beneficiary population by Medicare enrollment type, conducting 
a test to determine whether an ACO will receive CMS-HCC or demographic 
risk adjustment for its continuously assigned population, and 
determining and applying the risk ratios used to adjust benchmark 
expenditures for the performance year. Although we have made efforts to 
explain these steps in detail through our program specifications, 
report documentation, and webinars, and have made beneficiary-level 
risk score data available, we frequently receive requests for technical 
assistance in this area suggesting that the methodology is still not 
entirely clear to ACOs.
    To balance these competing concerns, during the development of the 
proposed rule we considered policies that would allow for some upward 
growth in CMS-HCC risk scores between the benchmark period and the 
performance year, while still limiting the impact of ACO coding 
initiatives, and also provide greater clarity for ACOs than the current 
methodology. In contemplating alternative policies, we also considered 
lessons learned from other CMS initiatives, including models tested by 
the Innovation Center. Finally, as we wished to encourage ACOs to take 
on higher levels of risk, we considered the importance of adopting a 
balanced risk adjustment methodology that would provide ACOs with some 
protection against decreases in risk scores.
    In the August 2018 proposed rule (83 FR 41885), we explained that 
our preferred approach would be to eliminate the distinction between 
newly and continuously assigned beneficiaries. We would use full CMS-
HCC risk adjustment for all assigned beneficiaries between the 
benchmark period and the performance year, subject to a symmetrical cap 
of positive or negative 3 percent for the agreement period, which would 
apply such that the adjustment between BY3 and any performance year in 
the agreement period would never be more than 3 percent in either 
direction. In other words, the risk ratios applied to historical 
benchmark expenditures to capture changes in health status between BY3 
and the performance year would never fall below 0.970 nor be higher 
than 1.030 for any performance year over the course of the agreement 
period. As is the case under the current policy, risk adjustment 
calculations would still be carried out separately for each of the four 
Medicare enrollment types (ESRD, disabled, aged/dual eligible, aged/
non-dual eligible) and CMS-HCC prospective risk scores for

[[Page 68009]]

each enrollment type would still be renormalized to the national 
assignable beneficiary population for that enrollment type before the 
cap is applied. Table 12 provides an illustrative example of how the 
cap would be applied to the risk ratio used to adjust historical 
benchmark expenditures to reflect changes in health status between BY3 
and the performance year, for any performance year in the agreement 
period:
[GRAPHIC] [TIFF OMITTED] TR31DE18.016

    In the example, the decrease in the disabled risk score and the 
increase in the aged/dual risk score would both be subject to the 
positive or negative 3 percent cap. Changes in the ESRD and aged/non-
dual risk scores would not be affected by the cap; the ACO would 
receive full upward and downward adjustment, respectively, for these 
enrollment types.
    As we explained in the August 2018 proposed rule, this approach 
would provide full CMS-HCC risk adjustment for ACOs with changes in 
CMS-HCC risk below the cap, and a partial adjustment for ACOs with 
changes in CMS-HCC risk above the cap. Initial modeling suggested that 
among the 239 ACOs that received demographic risk adjustment for their 
continuously assigned population under the current policy in PY 2016 
(55 percent of the 432 total ACOs reconciled), around 86 percent would 
have received a larger positive adjustment to their benchmark had this 
policy been in place. Therefore, as we stated in the August 2018 
proposed rule, we believed this approach would more consistently 
account for worsening health status of beneficiaries compared to the 
current policy. This could reduce the incentive for ACOs to avoid 
complex patients and potentially lead more ACOs to accept higher levels 
of performance-based risk. However, because of the cap on the increase 
in CMS-HCC risk, we believed that this policy would continue to provide 
protection to the Medicare Trust Funds against unwarranted increases in 
CMS-HCC prospective risk scores that are due to increased coding 
intensity, by limiting the impact of such increases on ACO benchmarks.
    By instituting a symmetrical cap, this approach would also limit 
large decreases in CMS-HCC prospective risk scores across all assigned 
beneficiaries. We believed that such an approach would provide ACOs 
with a greater incentive to assume performance-based risk than the 
current methodology, which provides ACOs with no protection from risk 
score decreases. Among the 193 ACOs that received CMS-HCC risk 
adjustment under the current policy for their continuously assigned 
population in PY 2016, 69 percent would have received a smaller 
negative adjustment with the symmetrical 3 percent cap. We also 
believed that this approach, which mirrors one of the risk adjustment 
methodologies tested in the Next Generation ACO Model, would have an 
advantage over the current Shared Savings Program policy in that it 
would be more straightforward, making it easier for ACOs to understand 
and determine the impact of risk adjustment on their benchmark. ACOs 
would be subject to risk adjustment within a clearly defined range, 
allowing them to more easily predict their performance.
    Our proposed choice of 3 percent as the preferred level for the 
symmetrical cap was influenced by program experience. A review of CMS-
HCC risk score trends among Shared Savings Program ACOs found that a 3 
percent cap on changes in aged/non-dual CMS-HCC risk scores (the 
enrollment category that represents the majority of assigned 
beneficiaries for most ACOs) would limit positive risk adjustment for 
less than 30 percent of ACOs, even when there is a 5-year lapse between 
BY3 and the performance year, which would be the case in the final year 
of a 5 year agreement period under the proposal discussed in section 
II.A.2. of this final rule (or a 6-year lapse for the final performance 
year of the agreement period for ACOs that start a new agreement period 
on July 1, 2019, under the proposal discussed in section II.A.2. of 
this final rule). A 3-percent symmetrical cap was also advocated by 
some commenters on the 2016 proposed rule, who encouraged the Shared 
Savings Program to adopt a risk adjustment model similar to the one 
being used by the Next Generation ACO Model (see 81 FR 37968). Although 
we stated that we believed that a 3 percent cap on changes in CMS-HCC 
risk scores would be reasonable and appropriate, we also considered 
alternate levels for a cap or allowing full CMS-HCC risk adjustment 
with no cap at all. However, we were concerned that a lower cap would 
not offer enough ACOs meaningfully greater protection against health 
status changes relative to the current approach. At the same time, we 
were concerned that adopting a higher cap, or allowing for full, 
uncapped risk adjustment would not provide sufficient protection 
against potential coding initiatives.
    After consideration of these alternatives, we proposed to change 
the program's risk adjustment methodology to use CMS-HCC prospective 
risk scores to adjust the historical benchmark for changes in severity 
and case mix for all assigned beneficiaries, subject to a symmetrical 
cap of positive or negative 3 percent for the agreement period for 
agreement periods beginning on July 1, 2019, and in subsequent years. 
The cap would reflect the maximum change in risk scores allowed in an 
agreement period between BY3 and any

[[Page 68010]]

performance year in the agreement period. For ACOs participating in a 5 
year and 6-month agreement period beginning on July 1, 2019, as 
discussed in section II.A.7. of this final rule, the cap would 
represent the maximum change in risk scores for the agreement period 
between BY3 and CY 2019 in the context of determining financial 
performance for the 6-month performance year from July 1, 2019, through 
December 31, 2019, as well as the maximum change in risk scores between 
BY3 and any of the subsequent five performance years of the agreement 
period. We would apply this approach to ACOs participating under the 
proposed BASIC track, as reflected in the proposed new section of the 
regulations at Sec.  425.605, and to ACOs participating under the 
proposed ENHANCED track, as reflected in the proposed modifications to 
Sec.  425.610. We sought comment on this proposal, including the level 
of the cap.
    Comment: Many of the stakeholders that commented on the proposed 
changes to the risk adjustment methodology applauded the proposed 
discontinuation of the current methodology, which distinguishes between 
newly and continuously assigned beneficiaries, and generally supported 
CMS' efforts to better recognize changes in beneficiary risk scores 
during an agreement period. A few commenters noted that the current 
policy creates unnecessary confusion and complexity, while another 
commenter believed that not allowing for upward CMS-HCC adjustment for 
all beneficiaries was unreasonable. Another commenter described the 
proposed approach as being simpler than the current methodology while 
being more protective of changes in patient mix.
    Unlike other commenters, MedPAC encouraged CMS to continue to 
distinguish between newly and continuously assigned beneficiaries, but 
to modify the current methodology to adjust benchmarks based on only 
demographic factors for continuously assigned beneficiaries and based 
on CMS-HCC scores for newly assigned beneficiaries. Under this approach 
we would no longer use CMS-HCC risk scores to perform downward 
adjustments for continuously assigned beneficiaries, which would remove 
the asymmetry of the current methodology. MedPAC expressed concern that 
the proposed methodology would allow ACO benchmarks to increase due to 
either more aggressive coding efforts or the worsening health status of 
assigned beneficiaries and that an ACO would potentially be penalized 
when patients' health is maintained or better managed, which they noted 
is a key objective of the program. They believe that their recommended 
alternative would improve the alignment of ACO financial incentives 
with beneficiary health status, allowing ACOs to benefit financially 
when they do a good job of maintaining patient's health.
    Response: We appreciate commenters' support of our proposal to 
eliminate the current methodology used to risk adjust historical 
benchmark expenditures and our desire to better recognize changes in 
beneficiary health status while still protecting the Medicare Trust 
Funds from increases in coding intensity. We agree with commenters that 
the elimination of the current methodology, which distinguishes between 
newly and continuously assigned beneficiaries, should provide a less 
complex and more transparent risk adjustment approach.
    We believe that MedPAC's suggested approach would not accomplish 
one of the goals of our proposed modification to the risk adjustment 
methodology, which was to provide better recognition for changes in 
beneficiary health status between the benchmark period and the 
performance year. We are also concerned that by limiting downward 
adjustments in risk scores for continuously assigned beneficiaries to 
the changes in demographic risk scores for this population, MedPAC's 
recommended methodology could create windfall gains for an ACO if 
average CMS-HCC risk scores for the ACO's continuously assigned 
beneficiaries decrease more (or increase less) between the benchmark 
period and the performance year than the national average.
    Comment: Several commenters appeared to support the proposed 
symmetrical 3 percent cap on changes in risk scores, with one 
requesting that it be allowed to go into effect for performance years 
beginning on January 1, 2019. They suggested that the proposed change 
would reduce the uncertainty regarding the impact of risk adjustment on 
ACO financial results due to the 6-month agreement period extension for 
some ACOs. Other commenters who supported this proposal requested that 
CMS provide greater transparency regarding the expected impacts of the 
proposed cap and encouraged CMS to monitor the cap to ensure that it is 
providing proper balance between CMS's concerns about increases in 
coding intensity and the desire for health care providers to accurately 
capture beneficiary health status. However, most of the commenters who 
offered general support for the proposed changes to the risk adjustment 
methodology, as well as other commenters, opposed the proposed 
symmetrical 3 percent cap.
    Several commenters, including commenters representing academic and 
research institutions, physician associations, health care alliances 
and task forces, and individual ACOs, expressed concern that that the 
proposed symmetrical cap on risk score changes may have unintended 
consequences by introducing incentives for ACO to engage in favorable 
risk selection; that is, to avoid sicker beneficiaries or to seek out 
healthier beneficiaries. A few commenters recommended that, at a 
minimum, CMS eliminate the proposed downside cap.
    Many commenters expressed concerns that the proposed cap would not 
be sufficient to adequately capture health status changes over a 5-year 
agreement period. A number of commenters representing the same 
organization stated that the proposed cap would not protect health care 
providers who serve the most medically complicated patients and would 
make shared savings unattainable by continuing to incorrectly capture 
the health status of beneficiaries. Several other commenters described 
the 3 percent cap as arbitrary and insufficient when applied across a 
five-year agreement period. Others called for increasing the cap on 
upward adjustments over the length of the agreement period in order to 
account for the aging of the population and natural progression of 
disease over the agreement period and to best capture acuity increases 
in years farthest from the benchmark. Another commenter noted that an 
upward cap on risk adjustment would limit the ability to capture random 
changes in patient mix which, in turn, would reduce the predictability 
of an ACO's financial performance and make the program less attractive. 
Another commenter suggested that artificially capping risk scores 
denies ACOs access to information that provides an accurate picture of 
patient health status. One commenter pointed out that a symmetrical 3 
percent cap would leave both ACOs and CMS vulnerable to significant 
changes in population demographics. Another commenter liked that the 
proposed cap was more consistent with policies used in the Next 
Generation ACO Model but was concerned that, when applied over a 5-year 
agreement period, the 3 percent cap would penalize ACOs that treat high 
risk patients or patients whose burden of illness increases over time.
    While the perceived inability of the proposed cap to capture health 
status changes over a five year agreement

[[Page 68011]]

period was the most commonly cited concern among commenters, many 
commenters also had concerns about the potential impact of the proposed 
cap on upward benchmark adjustments for ACOs whose providers are new to 
the concept of risk adjustment, ACOs that are engaged in efforts to 
improve their diagnostic coding to better reflect the acuity of their 
patients, or ACOs that are working to manage care for complex patients 
who were previously receiving only episodic services. One commenter 
expressed the belief that limiting increases in CMS-HCC risk scores 
punishes ACOs that are attempting to accurately capture the conditions 
of their patients and suggested that the proposed cap would lead to 
greater restrictions on changes in risk scores than the current policy. 
Other commenters had similar concerns, indicating that the proposed 
upward limit on risk score growth would discourage efforts by ACOs to 
improve diagnostic coding. One commenter stated that accurate risk 
adjustment based on patients' complete CMS-HCC) classification was one 
of the key components to organizational success in a Shared Savings 
Program ACO and expressed the belief that the proposed cap would not 
provide sufficient incentives for health care providers to make 
investments in improving their documentation and coding practices. 
Another commenter noted that as patients receive better, more 
coordinated care, their risk profile will also increase and that health 
care providers should be encouraged to continue to care for complex 
patients who could benefit from comprehensive care management.
    One commenter did not offer a suggestion for a specific alternative 
to the proposed symmetrical 3 percent cap but requested that CMS 
provide the modeling upon which it based its proposal so that ACOs can 
analyze the same data that CMS used and provide recommendations for a 
higher cap that would meet the needs of both CMS and ACOs. However, 
many other commenters offered a variety of alternatives to the proposed 
cap. The most common recommendation was for a symmetrical 5 percent cap 
over the agreement period. One commenter stated that this cap would be 
more accurate over a 5-year term. Another commenter justified this 
higher cap for the agreement period by noting that ACOs may experience 
changes in the population that affect the risk score by more than 1 
percent per year. Another suggestion offered by several commenters was 
to allow risk scores to change by 3 percent annually over the course of 
the agreement period, such that an ACO's risk score would be allowed to 
change by 3 percent in the first year of the agreement period, by an 
additional 3 percent in the second year, and so on. One commenter 
suggested that a 3 percent annual cap would preserve stability and 
better reflect the clinical complexity and patient characteristics of 
an ACO's population. Commenters also suggested other alternatives 
including fixed caps for the agreement period above 5 percent, caps 
that increase for each subsequent year of the agreement period, or caps 
that vary based on ACO size or ACO track.
    Alternatively, several commenters called for full, uncapped CMS-HCC 
risk adjustment. A few commenters suggested that using risk scores that 
are renormalized to the national population would protect the Medicare 
Trust Funds from increased coding without the need for caps. Another 
commenter noted that uncapped risk adjustment would be consistent with 
risk adjustment in Medicare Advantage. Others suggested that full risk 
adjustment would help organizations that serve higher acuity patient 
populations and would protect small and medium size ACOs from changes 
in risk profiles that can result from patient churn. One commenter 
expressed the belief that capping risk adjustment would harm ACOs that 
have been affected by an extreme and uncontrollable circumstance, as 
such events can have negative impacts on beneficiary mental and 
physical health that would not be present in the benchmark years.
    Response: We appreciate all of the comments we received on these 
proposals. After considering the comments received in response to our 
proposed changes to the risk adjustment methodology, we are finalizing 
our proposal to use CMS-HCC risk scores to adjust the historical 
benchmark for all beneficiaries. While we are finalizing our proposal 
to cap positive risk score changes at 3 percent, we are not finalizing 
our proposal to limit negative risk score changes. Although we 
originally believed that a symmetrical cap would offer a balanced 
approach and provide an incentive for ACOs to accept performance-based 
risk by protecting them from large negative adjustments to their 
benchmark expenditures, we ultimately share the concern raised by some 
commenters that this approach would encourage favorable risk selection. 
If ACOs seek to attract low-cost beneficiaries or avoid high-cost 
beneficiaries, they could lower their performance year expenditures 
without any corresponding adjustment to their benchmark due to the cap 
on negative risk adjustments. We believe that this effect would be 
detrimental to medically complex patients, who may miss the opportunity 
to receive better coordinated care through an ACO, as well as to the 
Medicare Trust Funds.
    However, after additional consideration, we are finalizing our 
proposal to apply a 3 percent cap on upward risk adjustment. We remain 
concerned that adopting a higher cap on risk score increases, or 
adopting no cap, would provide insufficient protection against efforts 
to increase coding intensity.
    We disagree with the premise implied by some commenters that the 
overall disease burden of an ACO's assigned beneficiary population will 
necessarily increase over a longer agreement period. The cap on risk 
score increases will be applied to changes in an ACO's mean 
renormalized CMS-HCC risk score between benchmark year 3 and the 
performance year. The changes in the mean risk scores will reflect both 
changes in health status among beneficiaries that are assigned to the 
ACO in both periods and the impact of beneficiaries exiting and 
entering the ACO's assigned beneficiary population between the two 
periods. We might expect disease burden to increase among the stable 
component of the ACO's assigned beneficiary population because, by 
default, this population will be older during the performance year than 
during the third benchmark year. However, the impact of the churn in 
the ACO's beneficiary population is indeterminate, meaning that it 
could increase or decrease the ACO's average risk score. For example, 
an ACO's overall mean risk score could decrease if a disproportionately 
large number of new Medicare enrollees are assigned to the ACO in the 
performance year, even if the mean risk score for the stable component 
of the population has increased. We continue to believe that a positive 
3 percent cap represents a reasonable balance between recognizing 
potential differences in health status between an ACO's benchmark year 
3 and performance year populations and protecting the Trust Funds 
against excessive coding.
    We recognize that changes in risk scores can occur when providers 
and suppliers increase the completeness and accuracy of their 
diagnostic coding, even if these efforts are not made with an intention 
of gaming. We do not believe that the proposed 3 percent cap in upward 
risk adjustment that we are finalizing would necessarily harm or reduce 
incentives for ACOs that are attempting to more accurately capture

[[Page 68012]]

the conditions of their patients. As we described in the August 2018 
proposed rule, our analysis based on performance year 2016 found that 
the proposed 3 percent cap on risk score increases would have been less 
restrictive than the current approach for ACOs that received 
demographic risk adjustment for their continuously assigned population 
and would have the added benefit of being simpler and more transparent.
    We also noted in the proposed rule that in a review of risk score 
trends among Shared Savings Program ACOs, a 3 percent cap on changes in 
aged/non-dual risk scores would limit positive risk adjustment for less 
than 30 percent of ACOs over a 5- or 6-year period. This analysis, 
which was based on CMS-HCC risk score trends between 2009 and 2015 and 
between 2010 and 2015 (using benchmark and performance year risk score 
data from performance year 2015 results) and trends between 2011 and 
2016 (using benchmark and performance year risk score data from 
performance year 2016 results), found generally comparable results for 
the other three Medicare enrollment types. The aged/dual category 
showed the highest percentage of ACOs that would be bound by a positive 
3 percent cap over a 5- or 6-year period at 30 to 33 percent. We have 
since performed additional analysis that looked at 5-year trends in ACO 
CMS-HCC risk scores using benchmark and performance year data from 
results for performance years 2014 through 2017. This expanded analysis 
found similar results, with the share of ACOs with 5-year risk score 
increases exceeding 3 percent ranging from 20 percent for ESRD to 32 
percent for aged/dual. We would like to note, however, that even for 
ACOs affected by the cap, there will most often be a varying mix of 
risk ratios across the four enrollment types. Furthermore, capping will 
not limit a potential benchmark increase related to shifts in 
beneficiaries from lower to higher-cost enrollment types (for example, 
growth in the proportion of aged/dual beneficiaries between benchmark 
year 3 and the performance year). We would like to note that for 
stakeholders interested in conducting their own analyses of risk score 
trends, the Shared Savings Program ACO public use files, available on 
the CMS website for performance years 2013 through 2017, include ACO-
level CMS-HCC risk scores for each benchmark year and performance year.
    We appreciate the concern raised by one commenter about the 
implications of the risk adjustment cap on ACOs whose assigned 
beneficiaries reside in areas impacted by an extreme and uncontrollable 
circumstance. We believe that the 3 percent cap that we are finalizing 
will allow for greater growth in risk scores for continuously assigned 
beneficiaries relative to the current policy. Thus, we believe the 
policy will better recognize any negative health status changes 
experienced by ACO assigned beneficiaries residing in disaster-affected 
areas than our current approach, while still guarding against increases 
in coding intensity.
    Although we believe that the 3 percent cap on positive risk 
adjustment that we are finalizing in this rule is reasonable, we will 
monitor the impacts of the cap as we gain experience with the new 
policy and, if appropriate, will propose modifications through future 
notice and comment rulemaking.
    Comment: Several commenters recommended that any cap be applied at 
the aggregate level rather than the enrollment type level. One 
commenter suggested that capping the risk ratios in the aggregate 
across the four beneficiary enrollment types to account for smaller 
sample sizes and resulting higher volatility for certain enrollment 
types. Another commenter noted that applying the cap at the aggregate 
level would be more appropriate to accurately reflect the changing risk 
and mix of an ACO's population. An additional commenter expressed the 
belief that ACOs should not be penalized if they have low risk score 
growth overall but high growth in any one given eligibility category.
    Response: We appreciate the perspectives offered by commenters on 
whether the risk score cap should be applied at the enrollment type 
level or the aggregate level. Although an aggregate approach could 
potentially address concerns about greater volatility among enrollment 
types with fewer beneficiaries, we believe that the proposed approach 
of applying the cap separately for each enrollment type would be more 
consistent with other benchmarking calculations, which are also 
performed for each enrollment type, and would also be more transparent. 
We therefore are finalizing our proposal to apply the cap on risk 
adjustment increases at the enrollment type level.
    Comment: Several commenters acknowledged that excessive coding was 
a potential concern but encouraged CMS to consider an approach other 
than capping CMS-HCC risk score growth to address this issue. One 
commenter suggested implementing a coding intensity adjustment like the 
one used in Medicare Advantage, creating audit mechanisms to detect 
inappropriate coding, and introducing harsh penalties for ACOs found to 
engage in these practices. Some of these ideas were echoed by other 
commenters who suggested that CMS consider approaches used by Medicare 
Advantage or make greater use of auditing. Another commenter suggested 
using ACO Consumer Assessment of Healthcare Providers and Systems 
(CAHPS) survey data to determine the extent to which increases in CMS-
HCC scores reflect changes in coding versus changes in health status 
and to use that information to limit benchmark increases in a more 
refined, ACO-specific manner after an initial grace period.
    One commenter recommended using a prospectively-determined annual 
coding factor adjustment that CMS could, with advance regulatory notice 
to ACOs, retroactively modify if the final observed risk trend for the 
applicable performance years deviates significantly from what was 
projected. The commenter noted that this approach is currently used in 
the Next Generation ACO Model and that it would be preferable to the 
renormalization approach currently employed in the Shared Savings 
Program because it would allow ACOs more predictability in their 
financial forecasting.
    Response: We did not propose or seek comment on alternative 
mechanisms for addressing coding concerns in the proposed rule and are 
therefore not adopting any of these suggestions at this time. We 
believe the cap we are finalizing on positive growth in renormalized 
risk scores provides a transparent approach to limiting the potential 
adverse effects of ACO-level coding initiatives. However, we will 
continue to monitor this issue and, if necessary, we will make 
appropriate refinements to the risk adjustment methodology to address 
coding concerns through future rulemaking.
    Comment: Some commenters offered other criticisms of the program's 
current risk adjustment methodology or the CMS-HCC model, with a number 
suggesting refinements. For example, several commenters recommended 
that risk adjustment should account for social and economic factors, 
with one commenter suggesting that CMS use clinical and social 
characteristics included in the CAHPS survey to further adjust ACO 
benchmarks. One commenter recommended including a frailty adjustment 
such as is used in the Programs for All-Inclusive Care for the Elderly 
(PACE) program to better reflect the true cost of caring for patients 
near the end of life. Another commenter suggested that CMS explore 
changes to the risk adjustment model to lower the influence of 
provider-reported risk

[[Page 68013]]

factors and rely more on demographic factors and beneficiary-reported 
diagnoses, functional status, and other factors that can provide equal 
or greater explanatory statistical power than the current model. A 
different commenter also noted that the program's risk adjustment 
methodology still does not account for important factors such as 
functional status and severity or stage of illness. Another commenter 
requested that CMS refine the CMS-HCC risk adjustment methodology to 
better account for the unique characteristics and needs of the SNF 
population.
    One commenter noted that the CMS-HCC risk adjustment model does not 
recognize all chronic conditions using chronic ischemic heart disease 
without angina pectoris as an example. This commenter noted that 
individuals with heart disease (with or without angina) require on-
going care management for this chronic condition and health care 
providers need the resources to do so. The same commenter also noted 
that the current annual adjustment to the historical benchmark for 
changes in beneficiary health status at the time of reconciliation does 
not take into consideration disease progression and/or unforeseen 
circumstances or changes in health status and/or acuity. They believed 
that an increase in adjustment frequency would assist ACOs in being 
more successful. A separate commenter also suggested that CMS fully 
recalculate benchmarks more frequently, but did not explain what they 
perceived as the benefits of this option.
    Another commenter recommended that risk scores for ACO 
beneficiaries should mirror risk scoring for Medicare Advantage 
patients but did not provide further context for this suggestion. A 
different commenter suggested that CMS adopt a rolling risk adjustment 
methodology similar to the one that is used in the Next Generation ACO 
Model in place of the current approach that compares each performance 
year to benchmark year 3.
    A few other commenters recommended that CMS modify the current 
methodology to use the same CMS-HCC risk score model to calculate risk 
scores for both the benchmark years and the performance year. Another 
commenter requested that CMS make adjustments to ACO baseline scores, 
not just benchmarks, as many conditions that may be newly documented 
when patients are assigned to an ACO are not new diagnoses for the 
patient. A few commenters requested that CMS implement the same risk 
adjustment policy for the Shared Savings Program and Medicare Advantage 
or across all Medicare programs to ensure parity, while another 
recommended that CMS consider policies that equalize current actuarial 
disparities that result from risk adjustment across Medicare programs.
    Response: We appreciate the concerns raised by commenters and the 
suggestions offered for refining the Shared Savings Program's general 
risk adjustment methodology, which for each benchmark or performance 
year, relies on the national CMS-HCC prospective risk adjustment model 
used in Medicare Advantage for that same calendar year. Using the CMS-
HCC prospective risk adjustment model allows the Shared Savings Program 
to align with Medicare Advantage and allows us to incorporate risk 
adjustment enhancements and refinements, such as future adjustments for 
beneficiaries with multiple conditions, as they are incorporated into 
the CMS-HCC model over time. We will share the feedback received on the 
CMS-HCC model with our CMS colleagues that administer that model.
    We decline at this time to adopt commenters' suggestions for 
further refinements to the risk adjustment methodology for the Shared 
Savings Program. We believe that the modifications to the risk 
adjustment methodology that we are finalizing will better recognize 
changes in health status in an ACO's assigned beneficiary population 
than the current methodology, while still providing a degree of 
protection against intensive coding practices. We also note that our 
current practice of using risk scores that are renormalized to the 
national assignable FFS population adjusts for changes in the 
underlying CMS-HCC models that may occur between benchmark years or 
between benchmark years and the performance year.
    Final Action: After considering the comments received and 
additional internal analysis, we are finalizing some, but not all, of 
our proposed changes to the program's risk adjustment methodology. 
Specifically, we will use CMS-HCC prospective risk scores to adjust the 
historical benchmark for changes in severity and case mix for all 
assigned beneficiaries, subject to a cap of positive 3 percent for the 
agreement period for agreement periods beginning on July 1, 2019, and 
in subsequent years. This cap will reflect the maximum increase in risk 
scores allowed between BY3 and any performance year in the agreement 
period. For ACOs participating in a 5 year and 6-month agreement period 
beginning on July 1, 2019, as discussed in section II.A.7. of this 
final rule, the cap will represent the maximum change in risk scores 
for the agreement period between BY3 and CY 2019 in the context of 
determining financial performance for the 6-month performance year from 
July 1, 2019, through December 31, 2019, as well as the maximum change 
in risk scores between BY3 and any of the subsequent five performance 
years of the agreement period. The cap will be applied separately for 
each of the four enrollment types. We will apply this approach for ACOs 
participating under the BASIC track through a new provision of the 
regulations at Sec.  425.605(a), and for ACOs participating under the 
proposed ENHANCED track through modifications to the existing provision 
at Sec.  425.610(a). We are not finalizing our proposal to apply a 3 
percent cap on negative risk score changes.
3. Use of Regional Factors When Establishing and Resetting ACOs' 
Benchmarks
a. Background
    As described in the background for this section, we apply a 
regional adjustment to the rebased historical benchmark for ACOs 
entering a second or subsequent agreement period in 2017 or later 
years. This adjustment reflects a percentage of the difference between 
the regional FFS expenditures in the ACO's regional service area and 
the ACO's historical expenditures. The percentage used in calculating 
the adjustment is phased in over time, ultimately reaching 70 percent, 
unless the Secretary determines a lower weight should be applied and 
such lower weight is specified through additional notice and comment 
rulemaking.
    In the June 2016 final rule, we laid out the steps used to 
calculate and apply the regional adjustment (see 81 FR 37963). These 
steps are recapped here:

    <bullet> First, we calculate the ACO's rebased historical 
benchmark and regional average expenditures for the most recent 
benchmark year for each Medicare enrollment type (ESRD, disabled, 
aged/dual eligible, aged/non-dual eligible), resulting in average 
per capita expenditure values for each of the Medicare enrollment 
types. The regional average expenditure amounts are adjusted for 
differences between the health status of the ACO's assigned 
beneficiary population and that of the assignable population in the 
ACO's regional service area.
    <bullet> For each Medicare enrollment type, we then determine 
the difference between the average per capita regional amount and 
the average per capita amount of the ACO's rebased historical 
benchmark. These values may be positive or negative. For example, 
the difference between these values for a particular Medicare 
enrollment type will be

[[Page 68014]]

expressed as a negative number if the value of the ACO's rebased 
historical benchmark expenditure for that Medicare enrollment type 
is greater than the regional average amount.
    <bullet> Next, we multiply the resulting difference for each 
Medicare enrollment type by the applicable percentage weight used to 
calculate the amount of the regional adjustment for that agreement 
period. The products (one for each Medicare enrollment type) 
resulting from this step are the amounts of the regional adjustments 
that will be applied to the ACO's historical benchmark.
    <bullet> We then apply the adjustment to the ACO's rebased 
historical benchmark by adding the adjustment amount for the 
Medicare enrollment type to the ACO's rebased historical benchmark 
expenditure for the same Medicare enrollment type.
    <bullet> We next multiply the regionally-adjusted value of the 
ACO's rebased historical benchmark for each Medicare enrollment type 
by the proportion of the ACO's assigned beneficiary population for 
that Medicare enrollment type, based on the ACO's assigned 
beneficiary population for benchmark year 3.
    <bullet> Finally, we sum expenditures across the four Medicare 
enrollment types to determine the ACO's regionally-adjusted rebased 
historical benchmark.

    In the June 2016 final rule, we also detailed how the percentage 
weight used to calculate the regional adjustment will be phased in over 
time (see 81 FR 37971 through 37974). For the first agreement period in 
which this methodology applies, ACOs for which the weighted average 
adjustment across the enrollment types is positive (net positive 
adjustment) will receive a weight of 35 percent for all enrollment 
types (including individual enrollment types for which the adjustment 
is negative) and ACOs for which the weighted average adjustment is 
negative (net negative adjustment) will receive a weight of 25 percent 
for all enrollment types (including individual enrollment types for 
which the adjustment is positive). For the second agreement period in 
which the methodology applies, ACOs with a net positive adjustment will 
receive a weight of 70 percent for all enrollment types and ACOs with a 
net negative adjustment will receive a weight of 50 percent for all 
enrollment types. By the third agreement period in which the 
methodology applies, ACOs with either a net positive or a net negative 
adjustment will receive a weight of 70 percent for all enrollment 
types, unless the Secretary determines that a lower weight should be 
applied.
    This regional adjustment is one of three ways in which regional 
expenditures are currently incorporated into the program's methodology 
for resetting the historical benchmark for an ACO's second or 
subsequent agreement period. We also use regional, instead of national, 
trend factors for each enrollment type to restate BY1 and BY2 
expenditures in BY3 terms when calculating the rebased benchmark, and 
we use regional update factors to update the regionally-adjusted 
rebased historical benchmark to the performance year at the time of 
financial reconciliation. As described in the June 2016 final rule (81 
FR 37977 through 37981), we used our statutory authority under section 
1899(i)(3) of the Act to adopt a policy under which we update the 
benchmark using regional factors in lieu of the projected absolute 
amount of growth in national per capita expenditures for Parts A and B 
services under the original Medicare FFS program as required under 
section 1899(d)(1)(B)(ii) of the Act.
    The regional trend factors used to calculate an ACO's rebased 
benchmark and the regional update factors used to update the benchmark 
to the performance year represent growth rates in risk-adjusted FFS 
expenditures among assignable beneficiaries in the ACO's regional 
service area, including beneficiaries assigned to the ACO. An ACO's 
regional service area is defined at Sec.  425.20 as all counties in 
which at least one of the ACO's assigned beneficiaries resides. To 
calculate expenditures used in determining the regional adjustment and 
the trend and update factors, we first calculate risk-adjusted FFS 
expenditures among assignable beneficiaries for each county in the 
ACO's regional service area and then weight these amounts by the 
proportion of the ACO's assigned beneficiaries residing in each county, 
with all calculations performed separately by Medicare enrollment type 
(ESRD, disabled, aged/dual, aged/non-dual).
    In the June 2016 final rule, we discussed the benefits that we 
believe to be associated with incorporating regional expenditures into 
ACO benchmarks. We explained, for example, that the incorporation of 
regional expenditures provides an ACO with a benchmark that is more 
reflective of FFS spending in the ACO's region than a benchmark based 
solely on the ACO's own historical expenditures (see 81 FR 37955). We 
believe that this approach creates stronger financial incentives for 
ACOs that have been successful in reducing expenditures to remain in 
the program, thus improving program sustainability. Many commenters 
expressed support for the approach, citing it as an improvement over 
the existing rebasing methodology (see 81 FR 37956). In the June 2016 
final rule, we also discussed how using regional trend and update 
factors would allow us to better capture the cost experience in the 
ACO's region, the health status and socio-economic dynamics of the 
regional population, and location-specific Medicare payments when 
compared to using national FFS expenditures (see 81 FR 37976 through 
37977). In that rule, we stated our intention to explore the 
possibility of incorporating regional expenditures, including the 
regional adjustment and regional trend and update factors, in the 
benchmark established for an ACO's first agreement period (see 81 FR 
37973). In section II.D.3.b. of this final rule, we discuss our 
proposals for incorporating regional expenditures into the benchmarks 
for ACOs in their first agreement period under the program.
    We also acknowledged in the June 2016 final rule that the 
incorporation of regional expenditures into ACO benchmarks can have 
differential effects depending on an ACO's individual circumstances 
(see 81 FR 37955). For example, ACOs with low historical expenditures 
relative to their regional service area will see their rebased 
historical benchmark increase due to the regional adjustment, whereas 
the benchmarks for higher spending ACOs will be reduced. One concern is 
that, as the higher weights for the regional adjustment are phased in 
over time, the benchmarks for low-spending ACOs may become overly 
inflated to the point where these organizations need to do little to 
maintain or change their practices to generate savings. For higher-
spending ACOs, there is the concern that a negative regional adjustment 
will discourage program participation or discourage these ACOs from 
caring for complex, high-cost patients. There is also concern about the 
longer-term effects on participation resulting from lower trend and 
update factors among ACOs that have had past success in reducing 
expenditures and that serve a high proportion of the beneficiaries 
within certain counties in their regional service area. In sections 
II.D.3.c. and II.D.3.d. of this final rule, we discuss our proposals in 
the August 2018 proposed rule designed to mitigate these concerns.
b. Applying Regional Expenditures in Determining the Benchmark for an 
ACO's First Agreement Period
    A number of stakeholders offering comments on the February 2016 
proposed rule advocated for extending the policies incorporating 
regional expenditures proposed for determining the rebased benchmarks 
for ACOs entering a second or subsequent

[[Page 68015]]

agreement period under the program to the methodology for establishing 
the benchmarks for ACOs in their first agreement period under the 
program (see 81 FR 37971). While we declined to modify the methodology 
used to establish benchmarks for ACOs in a first agreement period to 
incorporate regional expenditures as part of the June 2016 final rule, 
we did signal our intention to explore this matter further after 
gaining experience with the new rebasing methodology (see 81 FR 37973).
    Since the publication of the June 2016 final rule we have employed 
the new methodology to determine rebased benchmarks for ACOs starting 
second agreement periods in 2017 and 2018. This experience has 
reinforced our belief that a benchmarking methodology that incorporates 
regional expenditures, in addition to an ACO's own historical 
expenditures, is important for the sustainability of the program. For 
agreement periods starting in 2017, for example, we found that around 
80 percent of ACOs receiving a rebased benchmark benefitted from 
receiving a regional adjustment. Having observed variation across ACO 
regional service areas, we also maintain that the incorporation of 
regional expenditure trends can lead to more accurate benchmarks that 
better reflect experience in ACOs' individual regions than benchmarks 
computed solely using national factors. As we explained in the August 
2018 proposed rule (83 FR 41887), we believe that introducing regional 
expenditures into the benchmarking methodology for ACOs in a first 
agreement period, as has been recommended by stakeholders, would serve 
to further strengthen the incentives under the program, improve program 
sustainability, and increase the accuracy of benchmark calculations for 
new ACOs by making their benchmarks more reflective of the regional 
environment in which these organizations operate. We also believe that 
adopting a more consistent benchmarking methodology would provide 
greater simplicity and more predictability for ACOs. Under this 
approach, ACOs entering the program would only be required to 
familiarize themselves with a single benchmarking methodology that 
would apply for all agreement periods under the program.
    For the previously stated reasons, we proposed to incorporate 
regional expenditures into the benchmarking methodology for ACOs in a 
first agreement period for all ACOs entering the program beginning on 
July 1, 2019, and in subsequent years. Under this proposal, we would 
use almost the same methodology for determining the historical 
benchmarks for ACOs in their first agreement period as would apply for 
ACOs in their second or subsequent agreement period, including all 
policies proposed in the August 2018 proposed rule, should they be 
finalized, regarding establishing the historical benchmark at the start 
of the agreement period, adjusting the historical benchmark for each 
performance year within an agreement period, and updating the benchmark 
for each performance year (or for CY 2019 in the context of determining 
the financial performance of ACOs during the 6-month performance year 
from July 1, 2019, through December 31, 2019, as discussed in section 
II.A.7. of this final rule). The only distinction between the 
methodology that would be used to determine the historical benchmark 
for ACOs in their first agreement period and those in a second or 
subsequent agreement period would be the weights that are applied to 
the 3 benchmark years. Under this proposal, we would continue to use 
weights of 10 percent, 30 percent, and 60 percent to weight the 3 
benchmark years, respectively, when calculating the historical 
benchmark for an ACO in its first agreement period, rather than the 
equal weights that are used in resetting the benchmark for ACOs 
entering a second or subsequent agreement period. As described in the 
June 2015 final rule (80 FR 32787 through 32788), the use of equal 
weights when calculating the rebased benchmark was motivated by the 
concern that placing higher weights on the later benchmark years would 
reduce the incentive for ACOs that generate savings or that are 
trending positive in their first agreement period to participate in the 
program over the longer run, or reduce incentives for ACOs to achieve 
savings in the final year of their first agreement period. This concern 
is not relevant for ACOs in a first agreement period. Therefore, for 
these ACOs, we favored maintaining the existing weights, which we 
believe are more accurate because they capture the ACO's most recent 
experience in the benchmark period.
    We proposed to add a new provision to the regulations at Sec.  
425.601 that would describe how we would establish, adjust, update and 
reset historical benchmarks using factors based on regional FFS 
expenditures for all ACOs for agreement periods beginning on July 1, 
2019, and in subsequent years. We sought comment on this proposal.
    Comment: The majority of comments we received on the proposal to 
incorporate regional expenditures in an ACO's first agreement period 
were generally supportive of the idea. One commenter also offered 
support for the proposed implementation timeline and a few commenters 
noted that they agreed with using weights of 25 and 35 for the regional 
adjustment for ACOs in their initial agreement period. Some commenters, 
while providing general support for the proposal, did not necessarily 
agree with CMS' proposals to modify the regional adjustment or the 
trend and update factors used in benchmarking discussed in sections 
II.D.3.c and II.D.3.d of this final rule, respectively. One commenter 
supported the proposal to incorporate regional expenditures into an 
ACO's benchmark starting in its first agreement period and our proposal 
to continue using weights of 10 percent, 30 percent, and 60 percent for 
the first, second, and third benchmark years in an ACO's first 
agreement period, respectively, but requested that CMS provide 
additional clarification on how these proposals would impact the 
majority of ACOs participating in the program.
    Commenters provided various justifications for their support of 
incorporating regional expenditures into an ACO's initial benchmark:

    <bullet> Several commenters noted that incorporating regional 
trends would allow the benchmark to better reflect an ACO's local 
environment, with a few stating such benchmarks would be more 
accurate and fairer.
    <bullet> A few commenters noted their belief that using a blend 
of ACO historical expenditures and regional expenditure data is 
preferable to relying on only one or the other and supported 
implementing the regional adjustment when an ACO first enters the 
program rather than waiting until at least the second agreement 
period. Other commenters remarked that the earlier incorporation of 
regional factors into benchmarks was particularly important given 
the proposed longer five-year agreement periods.
    <bullet> Several commenters suggested that incorporating 
regional expenditures into the benchmark for an ACO's first 
agreement period could improve incentives for participation among 
low-cost ACOs, with some noting it could incentivize participation 
among low cost providers without necessarily discouraging less 
efficient providers from entering the program.
    <bullet> One commenter expressed the belief that incorporating a 
regional adjustment in an ACO's first agreement period can correct 
for issues stemming from mean reversion. They noted that a modest 
positive regional adjustment could provide an incentive for 
participation for low spending ACOs whose expenditure growth is 
likely to increase as they regress to the mean and that a modest 
negative regional adjustment could reduce potential windfall gains 
that would otherwise go to high spending ACOs that are likely to

[[Page 68016]]

see slower expenditure growth without entirely removing their 
incentive to participate.
    <bullet> Several commenters supported moving towards regional 
benchmarks because it accelerated the process of aligning the Shared 
Savings Program with Medicare Advantage.
    <bullet> One commenter generally supported inclusion of regional 
expenditures in Shared Savings Program benchmarks because the Next 
Generation ACO Model incorporates regional expenditures in its 
benchmarking methodology.
    <bullet> One commenter noted that the proposed policy would 
provide predictability and simplicity for ACOs as they seek to 
understand the nuances of the regulatory environment.
    <bullet> One commenter appeared to misunderstand the proposal, 
noting that it might force an ACO to ``use national trending for the 
first contract rather than regional.'' They stated that using 
national growth rates was a disadvantage to most ACOs and has a 
disparate impact on urban and rural ACOs. The commenter urged CMS to 
incorporate regional factors in determining the benchmark for an 
ACO's first agreement period as well as subsequent agreement 
periods.

    Response: We thank commenters for their support of the proposal to 
apply regional expenditures in determining the benchmark for an ACO's 
first agreement period, which we are finalizing, along with the 
proposed policies described in sections II.D.3.c and II.D.3.d of this 
final rule. We believe that this policy will provide a greater 
incentive for lower cost ACOs to participate in the program, allow 
benchmarks to better reflect the local environment in which an ACO 
operates, and reduce complexity by using a comparable benchmarking 
methodology across all agreement periods.
    Comment: Several commenters opposed incorporating regional 
expenditures into an ACO's first agreement period benchmark due to 
concerns about how the policy would impact incentives for higher cost 
ACOs. One commenter opposed the use of a regional adjustment in an 
ACO's first agreement period and recommended eliminating such 
adjustments from the program's benchmarking methodology entirely. This 
commenter expressed the belief that these adjustments, particularly if 
implemented in an ACO's first agreement period, would lead to exit by 
ACOs with spending above their region's average given the program's 
voluntary nature. In their view, there is a significant risk that the 
Shared Saving Program ``will degenerate into a program that is viable 
only for providers that are already more efficient for their region or 
serve patients who are healthier and lower-risk in ways not captured by 
the HCC score.'' A few other commenters also expressed concerns that 
the policy would harm ACOs that serve patients with special needs, 
threatening the viability of such ACOs or making it unattractive for 
ACOs to include providers and suppliers that treat such patients, with 
one providing hypothetical examples to demonstrate how difficult it 
would be for an ACO with costs notably higher than its region to 
achieve share savings--or avoid shared losses--even if the ACO was 
successful in reducing spending. Other commenters offering general 
support for the proposal still warned that incorporating regionally-
adjusted benchmarks too quickly could discourage participation by high 
spending health care providers, causing CMS to miss the opportunity to 
realize savings while at the same time subsidizing already low-spending 
providers. They urged CMS to proceed with this policy in a way that 
encourages participation by high spending providers and suppliers in 
this voluntary program. Another commenter encouraged CMS to monitor the 
impact of the regional benchmarking methodology on participation by 
provider/supplier type, and to make refinements if necessary to ensure 
participation.
    Response: We appreciate the concerns raised by the commenters that 
incorporating regional adjustments into ACO historical benchmarks too 
quickly could reduce the attractiveness of the Shared Savings Program 
to ACOs that have been historically inefficient compared to their 
region or that treat high cost, special needs patients. As described in 
the next section, we are finalizing a modification to the schedule of 
weights used in calculating the regional adjustment, which will reduce 
the weight that is applied to the regional adjustment in the first 
agreement period for ACOs that have higher costs than their region. We 
believe that using a lower weight to determine the regional adjustment 
in these circumstances will improve the business case for more higher-
cost ACOs to participate in the program.
    Comment: One commenter expressed the belief that changing the 
regional benchmarking methodology may deter new entrants and drive 
existing ACOs to leave the program. However, it was somewhat unclear as 
to whether they were opposed to the proposed changes or to the 
incorporation of regional expenditures into ACOs' benchmarks in 
general. They noted that ACOs in regions where spending and benchmarks 
are low have little incentive to participate in the program because 
they have less opportunity to reduce costs and increase savings for 
CMS; however, they did not suggest an alternative approach that would 
ameliorate their concerns.
    Response: We believe that the extension of regional adjustments to 
ACOs in their first agreement period will tend to increase incentives 
for ACOs that are low cost relative to their region compared to the 
current benchmarking methodology. For ACOs in a second or subsequent 
agreement period, the modifications to the regional adjustment 
described in section II.D.3.c. of this final rule will tend to limit 
the absolute size of adjustments for ACOs that are efficient relative 
to their region compared to the current policy. However, we believe 
that these adjustments will continue to be generous enough to retain 
participation by many existing ACOs that are efficient relative to 
their region and should improve the business case for participation 
among ACOs that have higher costs than their regions, especially 
considering our decision in this final rule to lower the weight of the 
regional adjustment for such higher cost ACOs to 15 percent in the 
first agreement period (compared to 25 percent in the proposed rule). 
For ACOs operating in low-cost regions whose historical costs are 
comparable to their region, we believe that the modifications we are 
finalizing will have a limited impact relative to the current policy.
    Comment: A few commenters raised concerns about the implications of 
incorporating regional factors into the calculation of benchmarks for 
ACOs in rural areas. One commenter noted that regional benchmarking did 
not make sense for many rural clinics because they are competing 
against themselves and they quickly arrive at the limit of expenditures 
they can control. Another commenter expressed concern that regional 
adjustments are not accurate for rural-based health care systems. They 
believe that in rural areas served by one health care system most 
primary care visits are with a specialist and the assignable 
beneficiary population tends to be skewed towards more costly and 
complex patients. They requested that CMS expand the definition of 
region to include nearby markets where physician access is more evenly 
distributed and also exclude rural areas from regional adjustment, 
though it was unclear whether the commenter was requesting that CMS 
exclude rural counties from regional expenditure calculations or 
requesting that rural ACOs be exempt from receiving a regional 
adjustment to their benchmark. A different commenter perceived the 
program's benchmarking

[[Page 68017]]

methodology to be flawed, explaining that it is structured to provide 
bonuses to high cost providers who reduce spending while not rewarding 
cost-efficient providers who enter the program and keep costs down. 
They believe that the current proposals do not go far enough to address 
these perceived flaws, particularly for beneficiaries in rural areas 
and environments with cost-based reimbursement, such as Critical Access 
Hospitals; but they did not explain why they believed the proposed 
changes to be inadequate. The commenter advocated for broader changes 
to Medicare payment policy for rural providers and requested that CMS 
engage with rural stakeholders to further explore a benchmarking 
methodology that would reflect such changes.
    Response: As we have acknowledged, the incorporation of regional 
factors into ACO benchmarks would have varying effects on ACOs 
depending on each organization's individual circumstances. We believe 
that this is also the case for ACOs operating in rural areas. As 
described in section II.D.3.d of this final rule, we are finalizing our 
proposed policy of using blended national and regional trend and update 
factors for all ACOs, which we believe will help to mitigate concerns 
about ACOs, including rural ACOs, that are dominant in their region 
driving regional trends. For such ACOs, the national component of the 
blend would tend to receive a high weight. For a rural ACO whose 
assigned beneficiaries comprise a large share of assignable 
beneficiaries in its region, we would expect the impact of the regional 
adjustment on an historical benchmark to be small because the ACOs' 
historical expenditures would be similar to regional expenditures. In 
practice, we have observed that few of the ACOs that have received 
benchmarks that incorporate regional factors under the methodology at 
Sec.  425.603(c) for second agreement periods starting in 2017 and 2018 
have had penetration rates higher than 50 percent and those ACOs whose 
beneficiaries reside primarily in non-metropolitan areas (a proxy for 
rural ACOs) have received a mix of positive and negative regional 
adjustments.
    We decline to modify our policies for defining an ACO's regional 
service area to encompass nearby markets or to exclude counties in 
which some of an ACO's assigned beneficiaries reside. We believe that 
such modifications could lead to a regional expenditure value that is 
not reflective of the area in which an ACO operates or may simply add 
complexity to the methodology without materially changing its outcome. 
We also decline to provide an exemption to the regional adjustment for 
ACOs operating in rural areas or any other ACOs as we favor a 
consistent, program-wide policy. We appreciate one commenter's 
recommendation that we seek to better address issues related to 
reimbursement of rural providers; however, we believe such issues would 
require further study and are outside the scope of this final rule.
    Comment: One commenter noted that while the proposed policy to 
incorporate regional expenditures into the calculation of the benchmark 
starting in an ACO's first agreement period might make sense in some 
areas of the country, there are many areas in the state of California 
where they believe that additional efficiencies cannot be realized. 
They believe that providers in California are at a significant 
disadvantage under this program due to the state's historically low 
spending growth compared to other areas of the country. The commenter 
urged CMS to consider changes for providers in such markets but did not 
specify which changes they believe would remedy this issue.
    Response: We have acknowledged that the program's benchmarking 
methodology can have different effects on ACOs depending on whether 
they are located in a high or low growth region and how their own 
historical spending compares with that of their region. While the 
introduction of blended national and regional trend and update factors 
may reduce the first agreement period benchmark of ACOs located in 
regions with below average growth compared to the current methodology 
that uses only national trends, all else being equal, the blend should 
help these ACOs in subsequent agreement periods in which they would 
have been subject to purely regional trends under current policy.
    Final Action: After considering the comments received, we are 
finalizing our proposal to incorporate regional expenditures into the 
benchmarking methodology starting in an ACO's first agreement period 
for all ACOs entering the program for an agreement period beginning on 
July 1, 2019, and in subsequent years. Under this policy we will use 
almost the same methodology to determine the historical benchmarks for 
ACOs in their first agreement period as for ACOs in their second or 
subsequent agreement period, including the policies described in 
sections II.D.3.c and II.D.3.d. that we are adopting in this final 
rule. The only distinction between the methodology that will be used to 
determine the historical benchmark for ACOs in their first agreement 
period and those in a second or subsequent agreement period will be the 
weights that are applied to the three benchmark years. We will continue 
to use weights of 10 percent, 30 percent, and 60 percent to weight the 
three benchmark years, respectively, when calculating the historical 
benchmark for an ACO in its first agreement period, rather than the 
equal weights that are used in resetting the benchmark for ACOs 
entering a second or subsequent agreement period. These policies are 
included in the new provision at Sec.  425.601, which will govern the 
determination of historical benchmarks for all ACOs for agreement 
periods starting on July 1, 2019, or in subsequent agreement periods. 
We are also finalizing conforming changes to Sec. Sec.  425.602 and 
425.603 to indicate that these provisions will now apply to the 
determination of the historical benchmark for ACOs entering a first 
agreement period on or before January 1, 2018, or ACOs entering a 
second or subsequent agreement period on or before January 1, 2019, 
respectively. We note that we originally proposed changes to the 
regulations to indicate that Sec.  425.602 would apply to ACOs entering 
a first agreement on or before January 1, 2019. However, given our 
decision to forgo the application cycle for a January 1, 2019 start 
date, there will be no ACOs beginning a first agreement period on that 
date.
c. Modifying the Regional Adjustment
    In finalizing the phase-in structure for the original regional 
adjustment in the June 2016 final rule, we acknowledged that it might 
be necessary to reevaluate the effects of the regional adjustment on 
the Shared Savings Program and, if warranted, to modify the adjustment 
through additional rulemaking. Therefore, we adopted a policy under 
which the maximum weight to be applied to the adjustment would be 70 
percent, unless the Secretary determines that a lower weight should be 
applied, as specified through future rulemaking (see 81 FR 37969 
through 32974). Relevant considerations in determining the appropriate 
weight to be applied to the adjustment include, but are not limited to, 
effects on net program costs; the extent of participation in the 
program; and the efficiency and quality of care received by 
beneficiaries.
    In the August 2018 proposed rule (83 FR 41888), we noted that we 
had revaluated the effects of the regional adjustment as part of the 
regulatory impact analysis required for the proposed rule (see section 
IV. of the proposed rule) and had also taken into consideration our 
experience in applying the regional adjustment under

[[Page 68018]]

the policies established in the June 2016 final rule. We noted that 
while we continued to believe that it is necessary to employ a 
benchmarking methodology that incorporates expenditures in an ACO's 
regional service area in addition to the ACO's own historical 
expenditures in order to maintain or improve program sustainability, we 
were concerned that, if unaltered, the regional adjustment will have 
unintended consequences and adverse effects on ACO incentives as 
discussed in the Regulatory Impact Analysis for the proposed rule.
    By design, the regional adjustment results in more generous 
benchmarks for ACOs that spend below their regions. We noted in section 
II.D.3.c. of the proposed rule that our initial experience with the 
regional adjustment found that 80 percent of ACOs that renewed for a 
second agreement period starting in 2017 received a positive 
adjustment. These ACOs saw their benchmarks increase by 1.8 percent, on 
average, when the adjustment was applied with the 35 percent weight, 
with several ACOs seeing increases of over 5 percent, and one over 7 
percent. We also noted that preliminary results for ACOs that renewed 
for a second agreement period starting in 2018 showed a similar share 
of ACOs receiving a positive adjustment and one ACO seeing an 
adjustment of over 10 percent. We noted our concern that as the weight 
applied to the regional adjustment increases, benchmarks for the ACOs 
with the lowest spending relative to their region would become overly 
inflated to the point where they would need to do little to change 
their care practices to generate savings, which could reduce incentives 
for these ACOs to improve the efficiency of care provided to 
beneficiaries.
    We noted that, on the other hand, the regional adjustment reduces 
benchmarks for ACOs with higher spending compared to their region. 
Among 14 ACOs that received a net negative regional adjustment to their 
benchmark in 2017, the average reduction was 1.6 percent, with one ACO 
seeing a reduction of over 7 percent. These adjustments were calculated 
using only a 25 percent weight. Although preliminary results for ACOs 
that started a second agreement period in 2018 showed slightly smaller 
negative adjustments, on average, we were concerned that the ACOs with 
the highest relative costs, some of which have targeted specific 
beneficiary populations that are inherently more complex and costly 
than the regional average, would find little value in remaining in the 
Shared Savings Program when faced with a significantly reduced 
benchmark as the weight applied to the adjustment increases.
    To reduce the likelihood that the regional adjustment will have 
these undesired effects, we proposed policies that would limit the 
magnitude of the adjustment by reducing the weight that is applied to 
the adjustment and imposing an absolute dollar limit on the adjustment. 
We explained that we believe moderating the regional adjustment would 
lower potential windfall gains to lower-cost ACOs and could help to 
improve the incentive for higher-cost ACOs to continue to participate 
in the program.
    First, we proposed to amend the schedule of weights used to phase 
in the regional adjustment. Consistent with our current policy, the 
first time that an ACO is subject to a regional adjustment, we would 
apply a weight of 35 percent if the ACO's historical spending was lower 
than its region and a weight of 25 percent if the ACO's historical 
spending was higher than its region. The second time that an ACO is 
subject to a regional adjustment, we would apply a weight of 50 percent 
if the ACO's historical spending was lower than its region and 35 
percent if the ACO's historical spending was higher than its region. 
The third or subsequent time that an ACO is subject to a regional 
adjustment we would apply a weight of 50 percent in all cases.
    We sought to make two points related to the proposed schedule of 
weights clear. First, consistent with our current policy under Sec.  
425.603(c)(8) for determining the adjusted benchmark for the second or 
subsequent performance year of an ACO's agreement period, in 
calculating an adjusted benchmark for an ACO that makes changes to its 
ACO participant list or assignment methodology, we would use the same 
set of weights as was used for the first performance year in the 
agreement period. For example, an ACO that is subject to a weight of 25 
percent in its first performance year of an agreement period would 
continue to be subject to a weight of either 35 or 25 percent, 
depending on whether the ACO's historical expenditures, as adjusted, 
are higher or lower than its region, for any subsequent years in the 
same agreement period.
    Second, for renewing or re-entering ACOs (see section II.A.5.c. of 
this final rule) that previously received a rebased historical 
benchmark under the current benchmarking methodology adopted in the 
June 2016 final rule, we would consider the agreement period the ACO is 
entering upon renewal or re-entry in combination with the weight 
previously applied to calculate the regional adjustment to the ACO's 
benchmark in the ACO's most recent prior agreement period to determine 
the weight that would apply in the new agreement period. We included 
several examples of the application of these policies (83 FR 41889). In 
the final action statement for this section of the final rule we 
provide updated examples based on the policies we are finalizing.
    The weights included in the proposed new schedule were chosen in 
part to maintain consistency with the current schedule, which already 
includes the 25, 35, and 50 percent values. Furthermore, we stated our 
belief that using 50 percent as the maximum weight would be appropriate 
because it strikes an even balance between rewarding an ACO for 
attainment (efficiencies already demonstrated at the start of the 
agreement period) versus improvement during the agreement period over 
its past historical performance.
    We also noted that while this proposal would reduce the maximum 
regional adjustment as compared to current regulations, our proposal to 
extend the regional adjustment to ACOs in their first agreement period 
in the program would increase the number of years that an ACO would be 
subject to the adjustment. Thus, the lower maximum weight in later 
years would be balanced to some extent by an earlier phase-in.
    Based on the magnitude of regional adjustments observed in the 
first 2 years under the existing rebasing methodology, which were 
calculated using the lowest weights under the current phase-in 
schedule, we were concerned that reducing the maximum weight on the 
adjustment may not be sufficient to guard against the undesired effects 
of large positive or negative regional adjustments on incentives faced 
by individual ACOs. Therefore, to complement the proposed changes to 
the schedule of weights used to phase-in the regional adjustment, we 
also considered options for imposing a cap on the dollar amount of the 
regional adjustment. We believed that limiting regional adjustments for 
ACOs that are particularly low- or high-cost relative to their regions, 
would better align incentives for these ACOs with program goals, while 
continuing to reward ACOs that have already attained efficiency 
relative to their regional service areas.
    We thus also proposed to cap the regional adjustment amount using a 
flat dollar amount equal to 5 percent of national per capita 
expenditures for Parts A and B services under the original Medicare FFS 
program in BY3 for assignable beneficiaries identified

[[Page 68019]]

for the 12-month calendar year corresponding to BY3 using data from the 
CMS OACT. The cap would be calculated and applied by Medicare 
enrollment type (ESRD, disabled, aged/dual eligible, aged/non-dual 
eligible) and would apply for both positive and negative adjustments.
    We explained our belief that defining the cap based on national per 
capita expenditures would offer simplicity and transparency in that, 
for each enrollment type, a single value would be applicable for all 
ACOs with the same agreement start date. When selecting the level of 
the proposed cap, we aimed to choose a level that would only constrain 
the adjustment for the most extreme ACOs. When looking at the 
distribution of observed final regional adjustments among the 73 ACOs 
that received a rebased benchmark in 2017, we found that the amount of 
the regional adjustment calculated for around 95 percent of these ACOs 
would fall under a symmetrical cap equal to 5 percent of national FFS 
expenditures. We also noted our belief that capping the amount of the 
regional adjustment at this level would continue to provide a 
meaningful reward for ACOs that are efficient relative to their region, 
while reducing windfall gains for the ACOs with the lowest relative 
costs. Similarly, capping the amount of a negative regional adjustment 
at this level would continue to impose a penalty on ACOs that are less 
efficient relative to their region, but by guarding against extremely 
high negative adjustments, should increase the program's ability to 
retain ACOs that serve complex patients and that may need some 
additional time to lower costs.
    We explained that to implement the cap, we would continue to 
calculate the difference between the average per capita regional amount 
and the per capita rebased benchmark amount for each Medicare 
enrollment type. We would continue to multiply the difference for each 
enrollment type by the appropriate weight (determined using the 
schedule described previously) in order to determine the uncapped 
adjustment for each Medicare enrollment type. For positive adjustments, 
the final adjustment amount for a particular enrollment type would be 
set equal to the lesser of the uncapped adjustment or a dollar amount 
equal to 5 percent of the national per capita FFS expenditures for 
assignable beneficiaries in that enrollment type for BY3. For negative 
adjustments, the final adjustment amount for a particular enrollment 
type would be set equal to the greater (that is, the smaller negative 
value) of either the uncapped adjustment or the negative of 5 percent 
of the national per capita FFS expenditures for assignable 
beneficiaries in that enrollment type for BY3. We would then apply the 
final adjustment for each enrollment type to the benchmark expenditures 
for that enrollment type in the same manner that we currently apply the 
uncapped regional adjustment. Table 13 provides an illustrative example 
of how the final adjustment would be determined.
[GRAPHIC] [TIFF OMITTED] TR31DE18.017

    In this example, the ACO's positive adjustment for ESRD would be 
constrained by the cap because the uncapped adjustment amount exceeds 5 
percent of the national assignable FFS expenditure for the ESRD 
population. Likewise, the ACO's negative adjustment for the disabled 
population would also be reduced by the cap. The adjustments for aged/
dual and aged/non-dual eligible populations would not be affected.
    We also considered an alternative approach under which the cap 
would be applied at the aggregate level rather than at the Medicare 
enrollment type level. Under this approach, we would calculate regional 
adjustments by Medicare enrollment type as we do currently and then 
determine the weighted average of these adjustments, using the 
enrollment distribution in the ACO's BY3 assigned beneficiary 
population, to arrive at a single aggregate regional adjustment. We 
would then determine a weighted average of national per capita FFS 
expenditures for assignable beneficiaries across the four enrollment 
types, again using the enrollment distribution in the ACO's BY3 
assigned beneficiary population, to arrive at a single aggregate 
national expenditure value. We would calculate a symmetrical aggregate 
cap equal to positive or negative 5 percent of the aggregate national 
expenditure value and compare this cap to the uncapped aggregate 
regional adjustment amount to determine the final aggregate regional 
adjustment. Specifically, if the uncapped aggregate regional adjustment 
amount is above the aggregate cap, then the final aggregate regional 
adjustment would equal the cap. However, if the uncapped aggregate 
regional adjustment amount is below the aggregate cap, then the final 
aggregate regional adjustment would equal the uncapped regional 
adjustment amount. The regional adjustment calculated for each Medicare 
enrollment type would then be multiplied by the ratio of the final 
aggregate regional adjustment to the uncapped aggregate regional 
adjustment. If the uncapped aggregate regional adjustment exceeds the

[[Page 68020]]

aggregate cap, this ratio will be less than one and the regional 
adjustment for each Medicare enrollment type would be reduced by the 
same percentage. If the uncapped aggregate regional adjustment is less 
than or equal to the aggregate cap, the ratio will equal one and the 
regional adjustment would not be reduced for any Medicare enrollment 
type.
    For example, if the uncapped aggregate regional adjustment amount 
was $550 and the aggregate cap was $500, the final aggregate regional 
adjustment would be $500. The regional adjustment for each Medicare 
enrollment type would be multiplied by a ratio of $500 to $550 or 
0.909. This is equivalent to reducing the adjustment for each 
enrollment type by 9.1 percent. As another example, if the uncapped 
aggregate regional adjustment was $450 and the aggregate cap remained 
at $500, the final aggregate regional adjustment would be $450 because 
it is less than the aggregate cap. The regional adjustment for each 
Medicare enrollment type would be multiplied by a ratio equal to 1, and 
thus would not be reduced.
    Initial modeling found the two methods to be comparable for most 
ACOs but suggested that our proposed approach (capping the regional 
adjustment at the Medicare enrollment type level) is somewhat more 
effective at limiting larger upside or downside adjustments. We 
explained that this was likely because the aggregate approach smooths 
out variation in adjustments across individual enrollment types. For 
example, for some ACOs, large positive adjustments in one enrollment 
type may be offset by smaller positive adjustments, or negative 
adjustments in other enrollment types under the aggregate approach. We 
explained that the proposed approach also aligns with our current 
benchmark calculations, which are done by Medicare enrollment type, and 
provides greater accuracy and transparency. Under this approach, the 
cap would only reduce the magnitude of the adjustment for a particular 
enrollment type if the original uncapped value of the adjustment is 
relatively large. This would not necessarily be the case under the 
aggregate approach, where adjustments for all enrollment types, large 
or small, would be reduced if the aggregate regional adjustment exceeds 
the aggregate cap.
    In the August 2018 proposed rule (83 FR 41890), we expressed our 
belief that imposing a cap on the magnitude of the adjustment, coupled 
with the proposed changes to the schedule of weights used in applying 
the regional adjustment, would help to reduce windfall gains to low-
spending ACOs and would also help to reduce the incentive for higher 
spending ACOs to leave the program by limiting the negative adjustments 
these ACOs will experience. We anticipated that the proposed cap on the 
regional adjustment would provide stronger incentives for higher 
spending ACOs to remain in the program (by reducing the magnitude of 
the benchmark decrease associated with negative regional adjustments) 
than disincentives for lower spending ACOs. We noted that we expected 
this latter group would still be sufficiently rewarded by the regional 
adjustment under the proposed approach to encourage their continued 
participation in the program. However, we also noted our belief that by 
reducing the windfall gains for these ACOs, the proposed constraints on 
the regional adjustment would lead to greater incentives for these ACOs 
to further reduce spending in order to increase their shared savings 
payments.
    In summary, we proposed both to modify the schedule of weights used 
to phase in the regional adjustment and to impose a cap on the dollar 
amount of the adjustment. For the first agreement period that an ACO is 
subject to the regional adjustment, we proposed to apply a weight of 35 
percent if the ACO's historical spending was lower than its region and 
a weight of 25 percent if the ACO's historical spending was higher than 
its region. For the second agreement period, we proposed to apply 
weights of 50 percent and 35 percent for lower and higher spending 
ACOs, respectively. For the third or subsequent agreement period, we 
proposed to apply a weight of 50 percent for all ACOs. Additionally, we 
would impose a symmetrical cap on the regional adjustment equal to 
positive or negative 5 percent of the national per capita FFS 
expenditures for assignable beneficiaries for each enrollment type. We 
proposed to apply the modified schedule of weights and the cap on the 
regional adjustment for agreement periods beginning on July 1, 2019, 
and in subsequent years. The policies proposed in section II.D.3.c of 
the proposed rule were included in the proposed new provision at Sec.  
425.601, which would govern the determination of historical benchmarks 
for all ACOs for agreement periods starting on July 1, 2019, and in 
subsequent years. We sought comment on these proposals, as well as the 
alternative capping methodology considered. We also sought comment on 
the proposed timeline for application of these proposals.
    Comment: One commenter supported the proposed maximum weight of 50 
percent on the regional adjustment, stating that they agreed with CMS' 
reasoning behind the proposed policy and noted that it would also help 
to ensure that smaller Medicare markets and larger markets with greater 
ACO concentration would sustain competitive pressure, both between ACOs 
within a particular market and between the Shared Savings Program and 
traditional Medicare FFS payment polices, across multiple agreement 
periods.
    However, nearly all of the other commenters that addressed our 
proposals to modify the regional adjustment opposed reducing the 
maximum weight on the regional adjustment from 70 percent to 50 
percent. One commenter described the proposal to lower the maximum 
weight as premature. They noted that the current policy was only 
finalized two years ago and, given the existing phase-in schedule, no 
ACO has yet reached a weight of 70 percent. Several commenters 
expressed the belief that this policy would penalize ACOs that have 
performed well or put them at a competitive disadvantage, with some 
commenters disputing CMS' characterization of large positive regional 
adjustments as potential windfalls. One commenter suggested that 
lowering the maximum weight could reduce recruitment and retention of 
high value and experienced ACOs. Another commenter stated that this 
proposal, combined with the proposal to cap the regional adjustment, 
would make it more difficult for ACOs to earn shared savings that they 
could then use to cover the incremental costs of accountable care. One 
commenter favored retaining the 70 percent maximum adjustment because 
they believe it would lead to greater alignment between the Shared 
Savings Program and Medicare Advantage given the regional nature of the 
benchmarking and bid process in that program. A few commenters 
suggested that this proposal was an example of CMS ``changing the 
rules,'' which, one commenter noted, can erode confidence in the 
program. Another commenter stated they did not support the proposed 
modifications to the regional adjustment; but, in their justification 
of this position they appeared to be conflating the proposed 
modifications the regional adjustment with the proposal to use a blend 
of national and regional factors to establish and update the benchmark.
    Response: We appreciate commenters' feedback related to our 
proposal to reduce the maximum weight of the regional adjustment from 
70 percent to 50 percent. We view the regional

[[Page 68021]]

adjustment as providing a more accurate benchmark that recognizes ACOs 
that have attained efficiency relative to their region as well as a 
means of incentivizing these ACOs to participate in the program and 
further reduce spending. We also recognize that greater alignment of 
the Shared Savings Program with Medicare Advantage is a shared goal 
among a number of commenters. However, based on our first two years of 
experience in applying regional adjustments in the calculation of ACO 
historical benchmarks, we continue to believe that the proposed limit 
on the regional adjustment for ACOs that are low cost relative to their 
region will help to ensure that these ACOs are not in a position where 
they can earn shared savings with little to no additional reductions in 
cost, a situation that we believe would arise if the weight placed on 
the adjustment is permitted to rise to 70 percent, as provided under 
the current schedule.
    We also continue to believe that many ACOs would still have an 
incentive to participate in the program with a maximum weight of 50 
percent on the regional adjustment. This belief is influenced by our 
experience with the Next Generation ACO Model. The model provided for 
up to a 1 percent increase to benchmarks for ACOs with lower spending 
compared to their region. ACOs with lower spending than their region 
elected to participate in the model, and overall, the model showed that 
beneficiaries aligned to Next Generation ACOs had lower spending than 
other fee-for-service beneficiaries who were not aligned with an ACO in 
their region, as noted by the first year evaluation (https://innovation.cms.gov/Files/reports/nextgenaco-firstannrpt.pdf). The 
policies we are finalizing in this rule will provide a significantly 
larger adjustment than that tested by the Next Generation ACO Model, 
even when accounting for the maximum 50 percent weight applied to the 
regional adjustments in future agreement periods and the symmetrical 
cap equal to 5 percent of national per capita expenditures for Parts A 
and B services for assignable beneficiaries.
    Comment: A number of commenters suggested alternative phase-in 
schedules or levels for the weights applied to the regional adjustment:

    <bullet> Several commenters suggested the following schedule of 
weights for ACOs that have lower or higher expenditures, 
respectively, relative to their region: 30 or 25 percent in first 
agreement period in which the ACO is subject to the regional 
adjustment, 50 or 35 percent in second agreement period receiving 
adjustment; 70 or 50 percent in third agreement period receiving 
adjustment; and 70 for all ACOs in the fourth and subsequent 
agreement periods. Another commenter also recommended using weights 
of 70 or 50 percent in the third agreement period in which an ACO is 
subject to the regional adjustment but did not comment on which 
weights should be applied for other agreement periods;
    <bullet> One commenter recommended that CMS implement a more 
gradual phase-in than the proposed approach and provide maximum 
flexibility and choices for ACOs. They suggested applying a weight 
that increases over the course of an ACO's first five-year agreement 
period with a regional adjustment, such as a 10 percent weight in 
the first two years, 20 percent in the second two years, and 30 
percent in the final year;
    <bullet> A few commenters recommended that CMS adopt the 
following phase-in schedule: 35 or 25 percent in the first agreement 
period with a regional adjustment, 60 or 45 percent in the second 
agreement with a regional adjustment, and 70 percent in the third 
and all subsequent agreement periods with a regional adjustment. The 
same commenters also recommended that CMS consider an alternative 
under which an ACO would have an option to gradually incorporate 
regional expenditure data into their benchmarks, with an increase of 
10 percent annually during an agreement period.
    <bullet> A few commenters recommended raising the maximum weight 
on the adjustment to 75 percent.

    As described in section II.D.3.b of this final rule, several 
commenters had concerns that incorporating regional adjustments in an 
ACO's first agreement period would disincentivize participation among 
ACOs whose costs have historically been high relative to their region, 
with some advising CMS not to incorporate such adjustments too quickly. 
MedPAC noted its belief that blending ACO-specific historical costs 
with regional FFS costs through the application of the regional 
adjustment is a reasonable approach, but also suggested that the share 
of the benchmark attributed to regional costs should start low and be 
refined as program results are evaluated over time. Another commenter 
also called for gradually incorporating regional data into benchmarks 
in order to better account for the specific characteristics of the 
patient population of each individual ACO.
    One commenter recommended eliminating regional adjustments that 
blend ACO historical spending with regional spending. The commenter 
presented evidence to suggest that regional adjustments led to the exit 
from the program of ACOs with a first agreement period ending on 
December 31, 2016, and spending above their region's average. They 
expressed concern that the pattern of selective participation would 
grow only worse if ACOs are required to assume downside risk as 
negative regional adjustments would cause some higher cost ACOs to face 
certain shared losses. They believe that the proposals to reduce the 
maximum weight on the regional adjustment to 50 percent and to cap the 
amount of the adjustment at 5 percent of national Medicare FFS 
expenditures would do little to mitigate the risk that the program 
would become viable only for ACOs serving healthier patients. In lieu 
of a regional adjustment, the commenter recommended incentivizing 
efficiency relative to an ACO's region by increasing the sharing rates 
for lower cost ACOs.
    Response: We appreciate commenters' suggestions for alternatives to 
the proposed phase-in schedule and weight levels for the regional 
adjustment. We also appreciate the recommendation that we incentivize 
efficiency among lower cost ACOs through modifications to the sharing 
rate as opposed to through a regional adjustment, but we believe this 
suggestion falls outside the scope of policies contemplated in the 
August 2018 proposed rule.
    We continue to believe that reducing the maximum weight of the 
regional adjustment from 70 percent to 50 percent is appropriate in 
order to promote continuous improvement and prevent potential windfall 
gains to lower cost ACOs. Further, and as previously described based on 
our experience with a more modest positive adjustment tested in the 
Next Generation ACO Model for ACOs shown to be efficient relative to 
their region, we are not convinced by the comments that reducing the 
weight to this level would significantly deter lower cost ACOs from 
participating in the program.
    However, based on comments received on the proposals described in 
this section and in section II.D.3.b of this final rule, we are 
concerned that our proposed policies for modifying the regional 
adjustment may not sufficiently improve incentives for ACOs that are 
high cost relative to their region to enter or remain in the program. 
In particular, we are concerned by evidence presented by one commenter 
regarding the selective exit by certain ACOs with a first agreement 
period ending on December 31, 2016, and by the possibility raised by a 
few commenters that a negative regional adjustment could, by itself, 
cause some ACOs to owe shared losses. We believe that it is important 
to maintain incentives for participation among higher cost ACOs, as 
these ACOs can offer high potential for savings for the Trust Funds 
and, in some cases, may serve complex, high-risk patients who would 
benefit from improved care management. To that

[[Page 68022]]

end, we are therefore finalizing a modified schedule of weights that 
would slow the phase-in of the regional adjustment for these ACOs 
relative to our original proposal. Specifically, for the first 
agreement period that an ACO is subject to a regional adjustment, we 
will apply a weight of 15 percent if the ACO's historical spending was 
higher than its region, for the second agreement period that an ACO is 
subject to a regional adjustment we will apply a weight of 25 percent 
if the ACO was higher than its region, for the third agreement period 
that an ACO is subject to a regional adjustment we will apply a weight 
of 35 percent if the ACO was higher than its region, and for the fourth 
and all subsequent agreement periods that an ACO is subject to a 
regional adjustment we will apply a weight of 50 percent. In the final 
action statement for this section we provide examples of how this 
policy would be applied for renewing or re-entering ACOs that were 
previously subject to a regional adjustment under the current 
methodology.
    We selected 15 percent as the initial weight of the regional 
adjustment for ACOs that are higher spending than their region in order 
to balance our concerns about maintaining participation incentives with 
maintaining incentives to reduce spending. In making this selection, we 
performed an analysis in which we examined, ex post facto, what level 
of weight applied to regional adjustments for higher cost ACOs entering 
the program in performance year 2014 would have produced roughly 
comparable average shared savings payments to those earned on average 
by lower cost ACOs entering the program in same performance year. A 
simulated 15 percent weight for higher cost ACOs resulted in the 
desired balance with shared savings to lower cost ACOs. This analysis 
supports our belief that reducing the weight that will be applied to a 
negative regional adjustment in an ACO's first agreement period will 
preserve a reasonable business case for participation by higher cost 
ACOs and improve the incentive for higher cost ACOs to enter the 
program and that slowing the phase-in of the weights will help to 
retain these ACOs in subsequent agreement periods. We believe increased 
participation among such ACOs will lead to coordinated care for more 
Medicare beneficiaries and generate additional savings for the Medicare 
Trust Funds.
    Comment: Commenters had mixed reactions to the proposed symmetrical 
cap on the regional adjustment, with a majority requesting that CMS 
impose a higher cap or no cap at all. Among commenters that opposed 
capping the adjustment, one commenter described the proposed 5 percent 
level as arbitrary and a few others expressed the belief that CMS 
should not intervene in the market in this manner and should allow 
competition among ACOs and other providers to address and eventually 
mitigate outlier situations. Several commenters suggested that limiting 
the magnitude of the regional adjustment would undermine policy goals, 
with one noting that the cap could reduce the incentive for ACOs to 
drive costs lower. One commenter expressed the belief that the proposed 
cap on the regional adjustment is based on the false assumption that 
low Medicare expenditures are due to an inordinately healthy population 
or extremely efficient healthcare delivery system, when they may in 
fact be due to a lack of patient access to appropriate services as they 
explain is the case in the state of Hawaii. This commenter believes 
that the program's current regional benchmarking methodology would 
appropriately assist ACOs in Hawaii with achieving savings and reward 
these ACOs for seeking to improve upon the already low cost of care per 
beneficiary.
    A few commenters that opposed limiting the regional adjustment 
recommended that if CMS decides to move forward with the proposed cap, 
the agency should increase the level of the cap. Some suggested using a 
cap of positive or negative 7 percent. Another commenter recommended an 
8 percent cap applied at the aggregate level rather than at the 
enrollment type level. They noted that this higher cap would allow for 
an efficiency return similar to what Medicare Advantage plans can 
receive net of their administrative costs for administering the plan 
(around 7 percent). This commenter also noted that if CMS were choosing 
between a policy to cap the regional adjustment at 5 percent and a 
policy to limit the weights on the adjustment, they would prefer that 
CMS limit the weight on the adjustment and either eliminate or raise 
the cap. Several other commenters appeared to support the idea of a cap 
on the regional adjustment, but also recommended that CMS consider 
raising the level of the cap with specific suggestions ranging from 7 
percent to 10 percent. One commenter noted that they understood CMS' 
rationale in wanting to mitigate the effects of excessive regional 
adjustments but believe that such adjustments can benefit a region by 
leveling costs across health care providers within the region as more 
organizations transition to value-based care and can provide an 
incentive for high-cost ACOs to decrease costs and for low-cost 
organizations to join efforts towards furnishing value-based care. 
Others believed a higher cap would be sufficient to ``control for 
outliers.''
    By contrast, other commenters supported the proposed 5 percent cap 
on the regional adjustment or requested that the cap be made even more 
stringent. One commenter expressed the belief that the proposed cap 
would reduce the current disincentive for ACOs serving complex, frail, 
and functionally limited populations to continue in the program and 
another noted that it would ``control for outliers.'' One commenter 
recommended that CMS adopt a lower cap than 5 percent, stating that 
this lower cap would be beneficial for ACOs serving complex and costly 
populations whose expenditures are not fully predicted by risk scores.
    Several commenters agreed with the proposed symmetrical cap of 5 
percent of national Medicare FFS expenditures but requested that CMS 
incentivize ACOs to take on more risk by providing ACOs in two sided 
models with an option to use national benchmarks instead of benchmarks 
that incorporate regional factors. They believe this option would be 
desirable for ACOs in historically low-cost regions that would 
otherwise not be willing to take on risk. A few other commenters that 
did not necessarily support the proposed 5 percent cap also suggested 
that CMS allow use of national rather than regional factors to 
determine the benchmark for physician-led ACOs or ACOs in small markets 
dominated by one or two health systems.
    Response: We are finalizing our proposal to implement a symmetrical 
cap equal to 5 percent of national per capita FFS expenditures for 
assignable beneficiaries for each enrollment type. We recognize that 
there are tradeoffs in adopting any cap and that limiting the magnitude 
of positive adjustments could reduce incentives for participation or 
further cost reduction efforts among ACOs that have low costs, whether 
due to efficiency, patient mix, or limited patient access to services. 
However, we continue to believe that a symmetrical 5 percent cap on the 
regional adjustment will protect the Medicare Trust Funds from 
excessive positive adjustments and will improve incentives for 
participation among higher-cost ACOs, particularly when combined with 
the modified schedule of weights that we are adopting in this rule, 
which slows the phase-in of the regional adjustment for ACOs with 
historical costs above their region.

[[Page 68023]]

    Additionally, we are not contemplating policies that would allow 
certain ACOs to move to a benchmark that incorporates national rather 
than regional factors at this time. Given the existing variations in 
expenditures between regions, we believe that the use of regional 
factors in determining the benchmarks for all ACOs, will ensure that 
these benchmarks better reflect the specific circumstances each ACO 
faces.
    Comment: One commenter asserted that CMS did not provide convincing 
evidence that the proposed modifications to the regional adjustment 
would strike the appropriate balance between competing objectives, 
including providing incentives for ACOs to reduce spending (by reducing 
the impact of current spending on future benchmarks) and for efficient 
ACOs to extend participation, addressing mean reversion, and reducing 
disincentives for higher cost ACOs to participate. The commenter noted 
that the appropriate size of the adjustment may vary over time, just as 
the primary rationale for an adjustment changes over time. The 
commenter explained that in an ACO's first agreement period the primary 
rationale for an adjustment is to address mean reversion and in later 
agreement periods the primary rationale is to reduce the link between 
an ACO's current performance and future benchmarks, thus providing an 
incentive for ACOs to continue to reduce spending. Furthermore, the 
commenter encouraged CMS to conduct additional analysis and offered 
suggestions for what that analysis might entail and recommended that 
the agency refine its proposals for modifying the regional adjustment, 
if warranted.
    Response: We appreciate this commenter's input on the factors that 
should be considered when determining the appropriate magnitude of the 
regional adjustment, as well as the suggestions for additional 
analyses. We agree with the commenter that determining the appropriate 
magnitude of the regional adjustment involves weighing different 
considerations such as how to incentivize both high and low cost ACOs 
to participate in the program and reduce spending and how to avoid 
making windfall payments to ACOs. We believe that the changes we are 
adopting in this rule attempt to balance these various concerns. We 
will monitor and evaluate the impact of the changes that we are making 
the regional adjustment in this final rule, and as we gain experience 
may propose additional refinements through future notice and comment 
rulemaking, if warranted.
    Comment: We received few comments on our proposal to apply the 
proposed cap at the enrollment type level. One commenter expressed 
support for this proposal, stating that this approach would best serve 
to limit the most extreme adjustments to ACO benchmarks and also aligns 
with the current method for calculating ACO benchmarks. Another 
commenter would prefer CMS to apply the proposed 5 percent cap at the 
aggregate level. This commenter noted that when applied at the 
enrollment type level, the proposed approach would effectively apply a 
cap of less than 5 percent, in aggregate, if any one of the four 
categories is below the 5 percent cap. The commenter believes this 
result would reduce incentives for ACOs to perform well.
    Response: As we described in the proposed rule, our analysis found 
that implementing the cap at the aggregate level rather than by 
enrollment type as proposed would have little impact for most ACOs, but 
we acknowledge that for some ACOs the proposed approach would be 
somewhat more stringent. We continue to prefer the enrollment type-
level approach for this reason as we believe it will better allow us to 
meet of our goals of reducing potential windfalls and improving 
incentives for higher cost ACOs. This approach also aligns more closely 
with other benchmark calculations, as noted by one commenter. We are 
finalizing our proposal to apply the cap separately for each enrollment 
type.
    Comment: A few commenters stressed the importance of careful risk 
adjustment when combining an ACO's historical expenditures with 
regional average expenditures through a regional adjustment; however, 
one commenter noted that risk adjustment will always be inadequate to 
some degree. While this commenter did not agree with using regional 
adjustments at the current time, they suggested that if regional 
adjustments are used in the future, CMS should implement additional 
measures to ensure that ACOs are not penalized for serving higher-risk 
patients. In particular, the commenter suggested offering ACOs a per-
beneficiary care management fee that is higher for higher-risk 
patients.
    Response: We agree with these commenters that it is important to 
adjust for differences in health status between an ACO's assigned 
beneficiary population and the assignable beneficiary population in its 
region when calculating and applying the regional adjustment to the 
historical benchmark, which is why in the June 2016 final rule (81 FR 
37967) we finalized a policy of using full CMS-HCC risk adjustment for 
this purpose. We appreciate the commenter's suggestion that we adopt 
further measures to ensure that ACOs are not penalized for serving 
higher risk patients; however, we believe that their recommendation of 
offering a per-beneficiary care management fee is outside the scope of 
the policies addressed in the proposed rule.
    Comment: Several commenters recommended modifying the regional 
adjustment by removing an ACO's own assigned beneficiaries from the 
regional expenditure amount used to calculate the adjustment. One 
commenter recommended revising the definition of an ACO's regional 
service area to include only counties where at least one percent of an 
ACO's assigned beneficiaries reside to reduce complexity and provide a 
better reflection of an ACO's regional service area. Another commenter 
requested that the regional comparison be based on the FFS population 
because they note that their ACO drives their regional market.
    Response: In the June 2016 final rule, CMS made the policy decision 
to calculate regional expenditures based on all assignable FFS 
beneficiaries in an ACO's regional service area, including 
beneficiaries assigned to that ACO or any ACO (see 81 FR 37960). We 
discussed in the August 2018 proposed rule some of our ongoing concerns 
about a policy that would exclude ACO-assigned beneficiaries from these 
calculations (see section II.D.3.d of the proposed rule). These 
concerns include the potential for bias due to small sample sizes or 
differences in the spending and utilization patterns between ACO-
assigned and non-assigned beneficiaries, the potential incentive for 
ACOs to avoid high risk beneficiaries, and greater operational 
complexity. In the June 2016 final rule, we also discussed our 
rationale for including in the definition an ACO's regional service 
area all counties in which at least one assigned beneficiary resides 
(81 FR 37959). We believe this approach is necessary to accurately 
reflect the diversity of the ACO's assigned beneficiary population and 
provide a complete picture of the ACO's regional service area. We are 
unclear if the commenter requesting a comparison based on the FFS 
population is requesting that the regional adjustment be based on a 
comparison between the ACO's own historical expenditures and national 
FFS expenditures or between the ACO's own historical expenditures and 
regional expenditures based on all FFS beneficiaries rather than 
assignable beneficiaries. We did not contemplate either approach in the 
proposed rule, as we did not propose any changes to the population used 
in the regional

[[Page 68024]]

adjustment calculation. Accordingly, we decline to make any changes to 
our current policy of calculating regional expenditures based on all 
assignable beneficiaries in an ACO's regional service area, including 
beneficiaries assigned to that ACO or any other ACO. However, as 
described in section II.D.3.d. of this final rule, ACOs whose assigned 
beneficiaries comprise a large share of their regional assignable 
populations will receive a higher weight on the national component of 
the blended trend and update factors used in benchmark calculations.
    Final Action: After considering the comments received, we are 
finalizing with modification our proposal to modify the schedule of 
weights used to phase in the regional adjustment and are finalizing, as 
proposed, the proposal to impose a cap on the dollar amount of the 
adjustment. For the first agreement period that an ACO is subject to 
the regional adjustment, we will apply a weight of 35 percent if the 
ACO's historical spending was lower than its region and a weight of 15 
percent if the ACO's historical spending was higher than its region. 
For the second agreement period, we will apply weights of 50 percent 
and 25 percent for lower and higher spending ACOs, respectively. For 
the third agreement period, we will apply weights of 50 percent and 35 
percent, respectively. For the fourth or subsequent agreement period, 
we will apply a weight of 50 percent for all ACOs. Additionally, we 
will impose a symmetrical cap on the regional adjustment equal to 
positive or negative 5 percent of the national per capita FFS 
expenditures for assignable beneficiaries for each enrollment type.
    We proposed to apply the modified schedule of weights and the cap 
on the regional adjustment for agreement periods beginning on July 1, 
2019, and in subsequent years. These policies will be included in a new 
provision of the regulations at Sec.  425.601, which will govern the 
determination of historical benchmarks for all ACOs for agreement 
periods starting on July 1, 2019, and in subsequent years.
    We note that for renewing or re-entering ACOs (see section 
II.A.5.c. of this final rule) that previously received a rebased 
historical benchmark under the current benchmarking methodology set 
forth in Sec.  425.603, we will consider the agreement period the ACO 
is entering upon renewal or re-entry in combination with the weight 
previously applied to calculate the regional adjustment to the ACO's 
benchmark in the ACO's most recent prior agreement period to determine 
the weight that will apply in the new agreement period. For example, an 
ACO that was subject to a weight of 35 or 25 percent in its second 
agreement period in the Shared Savings Program (first agreement period 
subject to a regional adjustment) under the current benchmarking 
methodology that enters its third agreement period in the program 
(second agreement period subject to a regional adjustment) would, under 
the policies we are adopting in this final rule, be subject to a weight 
of 50 or 25 percent. By contrast, if the same ACO terminated during its 
second agreement period and subsequently re-enters the program, the ACO 
would face a weight of 35 or 15 percent until the start of its next 
agreement period. For a new ACO identified as a re-entering ACO because 
greater than 50 percent of its ACO participants have recent prior 
participation in the same ACO, we will consider the weight most 
recently applied to calculate the regional adjustment to the benchmark 
for the ACO in which the majority of the new ACO's participants were 
participating previously.
d. Modifying the Methodology for Calculating Growth Rates Used in 
Establishing, Resetting, and Updating the Benchmark
    As discussed previously, we believe that using regional 
expenditures to trend forward BY1 and BY2 to BY3 in the calculation of 
the historical benchmark and to update the benchmark to the performance 
year has the advantage of producing more accurate benchmarks. Regional 
trend and update factors allow us to better capture the cost experience 
in the ACO's region, the health status and socio-economic dynamics of 
the regional population, and location-specific Medicare payments when 
compared to using national FFS expenditures. However, in the August 
2018 proposed rule (83 FR 41891) we acknowledged the concern raised by 
stakeholders that the use of regional trend or update factors may 
affect ACOs' incentives to reduce spending growth or to continue 
participation in the program, particularly in circumstances where an 
ACO serves a high proportion of beneficiaries in select counties making 
up its regional service area. For such an ACO, a purely regional trend 
will be more influenced by the ACO's own expenditure patterns, making 
it more difficult for the ACO to outperform its benchmark and 
conflicting with our goal to move ACOs away from benchmarks based 
solely on their own historical costs. We therefore considered options 
that would continue to incorporate regional expenditures into trend and 
update factors while still protecting incentives for ACOs that serve a 
high proportion of the Medicare FFS beneficiaries in their regional 
service area.
    One approach, supported by a number of stakeholders commenting on 
the 2016 proposed rule, would be to exclude an ACO's own assigned 
beneficiaries from the population used to compute regional 
expenditures. However, as we explained in the June 2016 final rule (81 
FR 37959 through 37960), we believe that such an approach would create 
potential bias due to the potential for small sample sizes and 
differences in the spending and utilization patterns between ACO-
assigned and non-assigned beneficiaries. The latter could occur, for 
example, if an ACO tends to focus on a specialized beneficiary 
population. We are also concerned that excluding an ACO's own assigned 
beneficiaries from the population could provide ACOs with an incentive 
to influence the assignment process by seeking to provide more care to 
healthy beneficiaries and less care to more costly beneficiaries. Given 
these concerns, in developing the proposals for the August 2018 
proposed rule we chose to focus on alternative options that would 
address stakeholder concerns by using a combination of national and 
regional factors.
    The first approach we considered would use a blend of national and 
regional growth rates to trend forward BY1 and BY2 to BY3 when 
establishing or resetting an ACO's historical benchmark (referred to as 
the national-regional blend). By incorporating a national trend factor 
that is more independent of an ACO's own performance, we believe that 
the national-regional blend would reduce the influence of the ACO's 
assigned beneficiaries on the ultimate trend factor applied. It would 
also lead to greater symmetry between the Shared Savings Program and 
Medicare Advantage which, among other adjustments, applies a national 
projected trend to update county-level expenditures.
    Under this approach, the national-regional blend would be 
calculated as a weighted average of national FFS and regional trend 
factors, where the weight assigned to the national component would 
represent the share of assignable beneficiaries in the ACO's regional 
service area that are assigned to the ACO, calculated as described in 
section II.D.3.d of the proposed rule. The weight assigned to the 
regional component would be equal to 1 minus the national weight. As an 
ACO's penetration in its region increases, a higher weight would be 
placed on the national component of the national-regional blend and a 
lower

[[Page 68025]]

weight on the regional component, reducing the extent to which the 
trend factors reflect the ACO's own expenditure history.
    The national component of the national-regional blend would be 
trend factors computed for each Medicare enrollment type using per 
capita FFS expenditures for the national assignable beneficiary 
population. These trend factors would be calculated in the same manner 
as the national trend factors used to trend benchmark year expenditures 
for ACOs in a first agreement period under the current regulations. For 
example, the national trend factor for the aged/non-dual population for 
BY1 would be equal to BY3 per capita FFS expenditures among the 
national aged/non-dual assignable population divided by BY1 per capita 
FFS expenditures among the national aged/non-dual assignable 
population. Consistent with our current approach, the per capita FFS 
expenditures used in these calculations would not be explicitly risk-
adjusted. By using risk ratios based on risk scores renormalized to the 
national assignable population, as described in section II.D.2. of this 
final rule, we are already controlling for changes in risk in the 
national assignable population elsewhere in the benchmark calculations, 
rendering further risk adjustment of the national trend factors 
unnecessary.
    The regional component of the national-regional blend would be 
trend factors computed for each Medicare enrollment type based on the 
weighted average of risk-adjusted county FFS expenditures for 
assignable beneficiaries, including assigned beneficiaries, in the 
ACO's regional service area. These trend factors would be computed in 
the same manner as the regional trend factors used to trend benchmark 
year expenditures for ACOs that enter a second or subsequent agreement 
period in 2017 or later years under the current regulations. The 
regional trend factors reflect changes in expenditures within given 
counties over time, as well shifts in the geographic distribution of an 
ACO's assigned beneficiary population. This is due to the fact that 
regional expenditures for each year are calculated as the weighted 
average of county-level expenditures for that year where the weight for 
a given county is the proportion of the ACO's assigned beneficiaries 
residing in that county in that year.
    The weights used to blend the national and regional components 
would be calculated separately for each Medicare enrollment type using 
data for BY3. To calculate the national weights, we would first 
calculate for each enrollment type the share of assignable 
beneficiaries that are assigned to the ACO in each county in the ACO's 
regional service area. We would then weight each county's share by the 
proportion of the ACO's total assigned beneficiary population in that 
enrollment type residing in that county to obtain the regional share. 
This weighting approach mirrors the methodology used to calculate 
regional expenditures, as it gives higher precedence to counties where 
more of the ACO's assigned beneficiaries reside when determining the 
ACO's overall penetration in its region.
    As an example, assume an ACO has 11,000 assigned beneficiaries with 
aged/non-dual eligible enrollment status and the ACO's regional service 
area consists of two counties, County A and County B. There were 10,000 
assignable aged/non-dual beneficiaries residing in County A in BY3, 
with 9,000 assigned to the ACO in that year. There were 12,000 
assignable aged/non-dual beneficiaries residing in County B with 2,000 
assigned to the ACO. The weight for the national component of the 
blended trend factor for the aged/non-dual enrollment type would be: 
[(Assigned Beneficiaries in County A/Assignable Beneficiaries in County 
A) x (Assigned Beneficiaries in County A/Total Assigned Beneficiaries)] 
+ [(Assigned Beneficiaries in County B/Assignable Beneficiaries in 
County B) x (Assigned Beneficiaries in County B/Total Assigned 
Beneficiaries)] or [(9,000/10,000) x (9,000/11,000)] + [(2,000/12,000) 
x (2,000/11,000)], or 76.7 percent. The weight given to the regional 
component of the blended trend factor for aged/non-dual enrollment type 
in this example would be 23.3 percent. Because this hypothetical ACO 
has high penetration in its regional service area, the national 
component of the blended trend factor would receive a much higher 
weight than the regional component.
    Initial modeling among 73 ACOs that renewed for a second agreement 
period in 2017 found that the weighted average share of assignable 
beneficiaries in an ACO's regional service area that are assigned to 
the ACO ranged from under 1 percent to around 60 percent, when looking 
at all four enrollment types combined, with a median of 12.3 percent 
and a mean of 15.1 percent. Among the 73 ACOs, 8 (11 percent) had 
regional shares above 30 percent. We found similar distributions when 
looking at the four enrollment types individually. Among ACOs with 
overall regional shares above 30 percent, the simulated use of blended 
trend factors caused changes in benchmarks (relative to current policy) 
of -0.8 percent to 0.3 percent, with half seeing a slight negative 
impact and the other half seeing a slight positive impact. Based on 
these statistics, it appears that most ACOs currently do not have 
significant penetration in their regional service areas. As a result, 
we would expect that for most ACOs the regional component of the 
blended trend factor would receive a higher weight than the national 
component and that the overall impact of the national-regional blend on 
benchmarks relative to current policy would be small. Should 
penetration patterns change over time, the blended formula would 
automatically shift more weight to the national component of the trend 
factor.
    We would also use a national-regional blend when updating the 
historical benchmark for each performance year. That is, we would 
multiply historical benchmark expenditures for each Medicare enrollment 
type by an update factor that blends national and regional expenditure 
growth rates between BY3 and the performance year. The national 
component for each update factor would equal performance year per 
capita FFS expenditures for the national assignable beneficiary 
population for that enrollment type divided by BY3 per capita FFS 
expenditures for the national assignable beneficiary population for 
that enrollment type. As described above, the FFS expenditures for the 
national population would not be risk-adjusted. The regional component 
for each update factor would equal the weighted average of risk-
adjusted county FFS expenditures among assignable beneficiaries, 
including the ACO's assigned beneficiaries, in the ACO's regional 
service area in the performance year divided by the weighted average of 
risk-adjusted county FFS expenditures among assignable beneficiaries, 
including the ACO's assigned beneficiaries, in the ACO's regional 
service area in BY3. This regional component would be computed in the 
same manner as the regional updates used to update the rebased 
benchmark for ACOs that enter a second or subsequent agreement period 
in 2017 or later years under the current regulations. The weights used 
to blend the national and regional components of the update factor 
would be calculated in the same manner as the weights that we proposed 
to use in calculating the blended trend factors for the historical 
benchmark, except they would be based on performance year rather than 
BY3 data. That is, the weight assigned to the national component would 
represent the share of assignable beneficiaries in

[[Page 68026]]

ACO's regional service area that are assigned to the ACO (based on a 
weighted average of county-level shares) in the performance year and 
the weight assigned to the regional component would be equal to 1 minus 
that share.
    In addition to the national-regional blend, we considered an 
alternate approach that would incorporate national trends at the county 
level instead of at the regional service area level (national-county 
blend). Under this alternative, for each county that is in an ACO's 
regional service area in BY3, we would calculate trend factors to 
capture growth in county-level risk-adjusted expenditures for 
assignable beneficiaries from BY1 to BY3 and from BY2 to BY3. Each 
county-level trend factor would be blended with the national trend 
factor. The blended trend factor for each county would be a weighted 
average of the national and county-level trends where the weight 
applied to the national component would be the share of assignable 
beneficiaries in the county that are assigned to the ACO in BY3. The 
weight applied to the county component of the blend would be 1 minus 
the national weight.
    After computing the blended trend factor for each county, we would 
determine the weighted average across all counties in the ACO's 
regional service area in BY3, using the proportion of assigned 
beneficiaries residing in each county in BY3 as weights to obtain an 
overall blended trend factor. We would then apply this overall blended 
trend factor to the expenditures for the ACO's assigned beneficiary 
population for the relevant benchmark year. All calculations would be 
done separately for each Medicare enrollment type. A similar approach 
would be used to compute update factors between BY3 and the performance 
year, but using weights based on share of assignable beneficiaries in 
each county that are assigned to the ACO in the performance year.
    Returning to the hypothetical ACO from above, under the national-
county blend we would calculate separate blended trend factors for 
County A and County B. For County A, the national component would 
receive a weight of 90.0 percent (9,000/10,000) and the county 
component would receive a weight of 1 minus 90.0 percent, or 10.0 
percent. For County B, the national component would receive a weight of 
16.7 percent (2,000/12,000) and the county component would receive a 
weight of 1 minus 16.7 percent, or 83.3 percent. After computing the 
blended trend factor for each county, we would take the weighted 
average across the two counties, with County A's blended trend factor 
receiving a weight of 81.8 percent (9,000/11,000) and County B's 
blended trend factor receiving a weight of 18.2 percent (2,000/11,000).
    Our modeling suggested that, for most ACOs, applying the blend at 
the county-level would yield similar results to the national-regional 
blend. However, for ACOs that have experienced shifts in the geographic 
distribution of their assigned beneficiaries over time, we found the 
two methods to diverge. This is because the national-regional blend 
reflects not only changes in expenditures within specific counties over 
time, but also changes in the geographic distribution of the ACO's own 
assigned beneficiaries. The national-county blend, by contrast, holds 
the geographic distribution of an ACO's assigned beneficiaries fixed at 
the BY3 distribution (for trend factors) or at the performance year 
distribution (for update factors), potentially reducing accuracy.
    In the August 2018 proposed rule, we also expressed the concern 
that calculating trends at the county rather than regional level, in 
addition to being less accurate, would be less transparent to ACOs. 
While national and regional trends are both used under our current 
benchmarking policies, and are thus familiar to ACOs, county-level 
trends would present a new concept. For these reasons, we explained 
that we favored the approach that incorporates national trends at the 
regional rather than county level.
    Finally, we considered yet another approach that would simply 
replace regional trend and update factors with national factors for 
ACOs above a certain threshold of penetration in their regional service 
area. Specifically, if the share of assignable beneficiaries in an 
ACO's regional service area that are assigned to that ACO (computed as 
described above as a weighted average of county-level shares) is above 
the 90th percentile among all currently active ACOs for a given 
enrollment type in BY3, we would use national trend factors to trend 
forward BY1 and BY2 expenditures to BY3. For ACOs that are below the 
90th percentile for a given enrollment type, we would continue to use 
regional factors as we do under the current policy. We would use a 
similar approach for the update factors, except the threshold would be 
based on the share of assignable beneficiaries that are assigned to the 
ACO in the performance year rather than BY3. Among the 73 ACOs that 
entered a second agreement period in 2017, the 90th percentile for the 
four enrollment types ranged between 25 and 30 percent of assignable 
beneficiaries in the ACO's regional service area. We noted that one 
drawback of this approach relative to the blended approaches previously 
described is that it would treat ACOs that are just below the threshold 
and just above the threshold very differently, even though they may be 
similarly influencing expenditure trends in their regional service 
areas.
    We also noted that as we had previously indicated with respect to 
regional trends (see, for example, 81 FR 37976) and as suggested by our 
modeling, the national-regional blend, as well as the other options 
considered, would have mixed effects on ACOs depending on how the 
expenditure trends in an ACO's regional service area differ from the 
national trend. ACOs that have high penetration in their regional 
service area and that have helped to drive lower growth in their region 
relative to the national trend would benefit from this policy. ACOs 
that have contributed to higher growth in their regions would likely 
have lower benchmarks as a result of this policy than under current 
policy, helping to protect the Medicare Trust Fund and providing 
increased incentives for these ACOs to lower costs.
    Based on the considerations previously discussed, we proposed to 
use a blend of national and regional trend factors (that is, the 
national-regional blend) to trend forward BY1 and BY2 to BY3 when 
determining the historical benchmark. We also proposed to use a blend 
of national and regional update factors, computed as described in 
section II.D.3.d of the proposed rule, to update the historical 
benchmark to the performance year (or to CY 2019 in the context of 
determining the financial performance of ACOs for the 6-month 
performance year from July 1, 2019 through December 31, 2019, as 
proposed in section II.A.7. of the proposed rule). The blended trend 
and update factors would apply to determine the historical benchmark 
for all agreement periods starting on July 1, 2019, or in subsequent 
years, regardless of whether it is an ACO's first, second, or 
subsequent agreement period. We also made clear that in the event an 
ACO makes changes to its certified ACO participant list for a given 
performance year or its assignment methodology selection, the weight 
that would be applied to the national and regional components of the 
blended trend and update factors would be recomputed to reflect changes 
in the composition of the ACO's assigned beneficiary population in BY3.

[[Page 68027]]

    Because the proposed blended update factor would be used in place 
of an update factor based on the projected absolute amount of growth in 
national per capita expenditures for Parts A and B services under the 
original FFS program as called for in section 1899(d)(1)(B)(ii) of the 
Act, we noted that this proposal would require us to use our authority 
under section 1899(i)(3) of the Act. This provision grants the 
Secretary the authority to use other payment models, including payment 
models that use alternative benchmarking methodologies, if the 
Secretary determines that doing so would improve the quality and 
efficiency of items and services furnished under Title XVIII and the 
alternative methodology would result in program expenditures equal to 
or lower than those that would result under the statutory payment 
model.
    In the August 2018 proposed rule (83 FR 41893), we expressed our 
belief that by combining a national component that is more independent 
of an ACO's own experience with a regional component that captures 
location-specific trends, the proposed blended update factor would 
mitigate concerns about ACO influence on regional trend factors, 
improving the accuracy of the benchmark update and potentially 
protecting incentives for ACOs that may have high penetration in their 
regional service areas. As such, we believed that this proposed change 
to the statutory benchmarking methodology would improve the quality and 
efficiency of the program. As discussed in the Regulatory Impact 
Analysis for the August 2018 proposed rule (section IV. of the proposed 
rule), we projected that this proposed approach, in combination with 
other changes to the statutory payment model proposed elsewhere in the 
proposed rule, as well as current policies established using the 
authority of section 1899(i)(3) of the Act, would not increase program 
expenditures relative to those under the statutory payment model.
    In summary, we proposed to use a blend of national and regional 
trend factors to trend forward BY1 and BY2 to BY3 when determining the 
historical benchmark and a blend of national and regional update 
factors to update the historical benchmark to the performance year (or 
to CY 2019 in the context of determining the financial performance of 
ACOs for the 6-month performance year from July 1, 2019 through 
December 31, 2019, as proposed in section II.A.7. of the proposed 
rule). The national component of the blended trend and update factors 
would receive a weight equal to the share of assignable beneficiaries 
in the regional service area that are assigned to the ACO, computed as 
described in section II.D.3.d of the proposed rule by taking a weighted 
average of county-level shares. The regional component of the blended 
trend and update factors would receive a weight equal to 1 minus the 
national weight. The proposed blended trend and update factors would 
apply to all agreement periods starting on July 1, 2019, or in 
subsequent years, regardless of whether it is an ACO's first, second, 
or subsequent agreement period. These proposed policies were included 
in the proposed new provision at Sec.  425.601, which would govern the 
determination of historical benchmarks for all ACOs for agreement 
periods starting on July 1, 2019, or in subsequent years. We sought 
comment on these proposals, as well as the alternatives considered, 
including incorporating national trends at the county rather than 
regional level or using national trend factors for ACOs with 
penetration in their regional service area exceeding a certain 
threshold.
    Comment: One commenter strongly supported the use of blended 
regional and national trend factors when calculating the historical 
benchmark. This commenter expressed the belief that this policy would 
ensure that ACOs whose assigned beneficiaries comprise a large 
percentage of the region's Medicare FFS beneficiaries are not adversely 
impacted by their successful efforts to reduce the total cost of care. 
The commenter believes that this policy will encourage large ACOs to 
remain in the program and increases the likelihood that they will 
continue to generate savings over multiple agreement periods. Another 
commenter supported the use of blended national and regional trend 
factors as long as the regional trend factor is based on FFS 
beneficiaries and does not include beneficiaries enrolled in Medicare 
Advantage.
    Several other commenters generally agreed with the concept of 
blending national and regional growth rates to trend or update 
benchmarks with greater weight given to national trends for ACOs that 
serve a large share of the FFS population in their areas but requested 
that CMS exclude ACO assigned beneficiaries from the regional component 
of the blend. A few commenters suggested excluding ACO assigned 
beneficiaries from the national component as well. A larger number of 
commenters recommended using purely regional trend factors based on a 
regional population that excludes ACO assigned beneficiaries to trend 
and update benchmarks instead of a blend. Other commenters were also in 
favor of excluding ACO assigned beneficiaries in regional trends but 
did not specify whether they believed this should occur in addition to 
or in place of a blend. Commenters also appeared to have mixed views on 
whether the exclusion should be limited to a particular ACO's own 
assigned beneficiaries, all Shared Savings Program assigned 
beneficiaries, or beneficiaries assigned to any Medicare shared savings 
initiative. One commenter did not specifically call for removing ACO 
assigned beneficiaries from regional calculations but requested that 
CMS take additional steps to address the problem of regionally 
significant ACOs driving expenditures in their service areas. As noted 
in section II.D.3.c. of this final rule, some commenters also called 
for excluding ACO assigned beneficiaries from the regional expenditures 
used to calculate an ACO's regional adjustment.
    One commenter noted that while the proposed blending of national 
and regional growth rates would likely be an improvement over the 
current approach used in the rebasing methodology adopted in the June 
2016 final rule, it would only partially improve the incentive for ACOs 
that are dominant in their region to reduce spending and that by 
placing a significant weight on the national component in these 
situations, the blend would do a worse job of capturing the local 
spending trends facing an ACO. Another commenter expressed similar 
views, noting that the proposed national-regional blend was ``a step in 
the right direction'' but could over-emphasize the national trend 
component, which ignores local market dynamics. The commenter believes 
that the blend would diminish the incentive that ACOs have to 
concentrate in high trend areas of the country and to control trend at 
the local level. In addition, this commenter believes that excluding 
ACO assigned beneficiaries from the regional reference population is a 
simpler solution that eliminates the situation where an ACO is being 
directly evaluated against itself. Several other commenters also raised 
concerns about ACOs competing against themselves or influencing 
regional trends when assigned beneficiaries are included in regional 
expenditure calculations, which could make it more difficult for an ACO 
to realize savings or to be comfortable taking on increasing amounts of 
risk. Other commenters suggested that including ACO assigned 
beneficiaries in regional trends reduced incentives for ACOs to 
participate or to reduce expenditures, particularly among rural ACOs. 
Several other commenters

[[Page 68028]]

suggested that removing ACO assigned beneficiaries was necessary to 
obtain a true comparison between an ACO and its region or would produce 
more accurate benchmarks.
    Several commenters also provided suggestions for how to address 
potential small sample size issues that could result from removing ACO 
assigned beneficiaries from regional expenditure calculations including 
expanding the geographic area to include adjacent or otherwise similar 
counties, using Hospital Referral Regions in place of counties, 
averaging over multiple years, increasing weights on counties with 
lower proportions of assigned beneficiaries, or employing other 
statistical techniques. One commenter noted that if the Shared Savings 
Program grows to the point where the non-ACO FFS population is very 
small, CMS should select a desirable rate at which benchmarks should 
grow and apply it to all ACOs.
    Response: We appreciate the comments we received on our proposal to 
use a blend of national and regional growth rates to trend and update 
the historical benchmark. We agree with commenters that our proposed 
approach of using a blend of national and regional growth rates to 
trend and update the historical benchmark would help to address 
concerns about ACOs with high penetration driving the trends in their 
regions and are finalizing this proposal. For the reasons described in 
the June 2016 final rule (81 FR 37960), we did not propose to remove 
ACO assigned beneficiaries from the regional or national populations 
used to compute growth rates or the regional adjustment and are not 
adopting commenters' recommendations regarding this approach at this 
time. As we noted in the June 2016 final rule, we believe that removing 
assigned beneficiaries could lead to biased calculations, particularly 
in the case of ACOs serving higher cost beneficiaries within their 
regions and we have significant concerns about the complexity of the 
customized calculations that would be necessary to remove each ACO's 
own assigned beneficiaries from the calculation of growth rates, as 
suggested by some commenters. We believe such calculations would be 
operationally burdensome and less transparent. As we are not modifying 
our proposal in order to remove ACO assigned beneficiaries from the 
determination of either regional or national growth rates, we do not 
believe it is necessary to adopt commenters' various recommendations 
for addressing small sample size issues.
    National and regional expenditures will continue to be based on 
assignable beneficiaries in the FFS population during the applicable 
benchmark or performance year. Beneficiaries with months of Medicare 
Advantage enrollment during a particular benchmark or performance year 
may be included in the assignable beneficiary population for that year, 
but we would only consider the months in which those beneficiaries were 
enrolled in both Parts A and B and not enrolled in Medicare Advantage 
in making expenditure calculations.
    Comment: One commenter disagreed with the proposed approach of 
using a blend of national and regional growth rates, stating that this 
holds organizations in areas with historically low spending growth to a 
higher standard than those who are in high spending growth areas by 
assuming that regions with slower growth will be able to maintain these 
low trends when, in fact, the opposite may be true. The commenter 
believes that CMS should incentivize organizations in low growth areas 
to participate by using national trends only and by applying a more 
dramatic increase in their trend. Specifically, the commenter 
recommended that organizations that are in regions with growth trends 
below the national average and that have had historical spending at or 
below 85 percent of the national average should receive a 3 percent 
increase to their growth factor based national trends. Organizations 
with historical spending at or below 90 percent or 95 percent of the 
national average could receive a 2 percent or 1 percent added to their 
trend, respectively. Another commenter stated that he supported the 
move towards a national-regional blend, but also believes that the 
current proposal penalizes organizations with historically low spending 
growth. This commenter also supported a 3 percent increase to the trend 
factor for ACOs in regions with below average cost growth that have 
historical spending at or below 85 percent of the national average. 
Both commenters expressed the belief that this approach would encourage 
organizations in California and other efficient areas to transition to 
a risk-based APM instead of continuing in MIPS. Another commenter 
recommended that CMS consider using a prospectively determined trend 
rate, which would allow for greater predictability of financial results 
by ACOs, noting that such trend rates are used in the Next Generation 
ACO Model and Medicare Advantage program. Similarly, one commenter 
called for using a ``pre-determined inflation adjustment''.
    Response: We do not agree with one commenter's assertion that the 
proposed policy of using a blend of national and regional growth rates 
to trend or update the benchmark assumes that regions with slow growth 
will continue to have slow growth, because the proposed policy relies 
on retrospective growth rates, which reflect actual growth rates. In 
contrast, we believe that using prospectively determined trend rates or 
adjustments, as suggested by some commenters, could have this problem, 
even if this approach may offer other advantages.
    We do recognize that, all else being equal, ACOs in regions with 
slower than average growth would fare worse under the blended approach 
than they would under a policy that relies on purely national growth 
rates. However, we believe that it is important to balance the goal of 
creating incentives for participation with the desire to reflect the 
local circumstances of an ACO's region, in order to avoid windfall 
gains to ACOs that are located in low growth areas.
    We also believe that providing a growth rate ``add on'' for 
efficient ACOs in such areas could help to increase participation by 
ACOs in these areas, but could similarly lead to windfall gains to the 
detriment of the Trust Funds.
    Comment: One commenter suggested that the proposed policies would 
not adequately solve the disparity in regional trend factors. They 
noted that ACOs in some areas of the country are faced with trying to 
beat national trends while regional trends are much higher.
    Response: We believe that our proposal to incorporate regional 
factors into an ACO's benchmark for its first agreement period, which 
we are finalizing, helps to address the concern raised by this 
commenter that ACOs in areas with high cost growth are at a 
disadvantage when national factors are used to trend or update the 
benchmark. Under the new policy that we are adopting in this final 
rule, all ACOs, including those in their first agreement period, will 
receive a blend of national and regional trend and update factors. 
Furthermore, for most ACOs, the weight applied to the regional growth 
rate will likely be higher than the weight applied to the national 
growth rate.
    Comment: Several commenters did not agree with our proposal for 
weighting the regional and national components of growth rates. One 
commenter expressed the belief that this weighting should be based on 
multilevel statistical modeling approaches rather than what the 
commenter described as an arbitrary weighting scheme. Another

[[Page 68029]]

commenter expressed concern about weighting the regional benchmark in 
inverse proportion to an ACO's market share, noting that the better an 
ACO performs, the more it reduces its regional benchmark, effectively 
reducing the opportunity for future savings. Another commenter also 
opposed applying a greater weight to the national trend factor based on 
market penetration stating that an assessment of an ACO's effectiveness 
should not be tied to the size of market penetration and that CMS 
should be able to set a financial target in a market that determines 
whether or not an ACO was effective in generating savings, rather than 
creating a moving target based on an ACO's individual circumstances. 
One additional commenter, while not specifically addressing the 
proposed weighting methodology, expressed the belief that regional 
factors should be a bigger percentage of the formulas as healthcare is 
a local phenomenon.
    Response: We are finalizing our proposed methodology for blending 
regional and national factors, which automatically adjusts the weight 
of the two components to reflect the percentage of an ACO's assigned 
beneficiaries relative to its region. We believe this approach will be 
more transparent and familiar to ACOs than an approach that relies on 
statistical modeling, while still reducing the extent to which the 
overall blended trend factor reflects an individual ACO's performance 
for ACOs that are highly penetrated in their region. As we noted in the 
proposed rule, we observed a median penetration rate for ACOs of around 
12 percent. Therefore, we anticipate that for the majority of ACOs this 
weighing approach will provide a higher weight for regional factors 
(for example, 88 percent based on the median) as opposed to national 
factors.
    We disagree with commenters that basing the weights of the national 
growth factor on an ACO's market penetration constitutes an assessment 
of an ACO's performance. The rationale behind using an ACO's market 
penetration to determine the national weight is meant to reduce the 
impact that an ACO's own expenditure patterns will have on the growth 
rates used to trend and update its benchmark.
    Comment: A few commenters recommended modifying the update that is 
applied to an ACO's benchmark for a performance year that is affected 
by an extreme an uncontrollable circumstance. For example, these 
commenters recommended that CMS apply a growth rate that is the higher 
of the national growth rate for assignable beneficiaries or the 
regional growth rate for assignable beneficiaries (excluding an ACO's 
own assigned beneficiaries). A few other commenters recommended that 
CMS use the proposed blend of national and regional expenditure growth 
rates to update the benchmark in ``normal times'' but use a purely 
regional growth rate in the event of an extreme and uncontrollable 
circumstance.
    Response: In the November 2018 final rule (83 FR 59968 through 
59979) we finalized policies to extend, with minor modifications, the 
performance year 2017 extreme and uncontrollable circumstances policies 
to performance year 2018 and subsequent years. These policies include 
an alternate quality scoring methodology for ACOs that are affected by 
extreme and uncontrollable circumstances and an adjustment to shared 
losses based on the percentage of the total months in the performance 
year affected by extreme and uncontrollable circumstances and the 
percentage of the ACO's assigned beneficiaries residing in an affected 
area. In that final rule, we explained our belief that the use of 
regional growth rates in determining benchmark update factors for all 
ACOs, as we are finalizing in this final rule, would provide an 
inherent adjustment to the historical benchmark for expenditure changes 
resulting from extreme and uncontrollable circumstances during the 
agreement period.
    We appreciate commenters' suggestions for additional approaches to 
providing relief for ACOs impacted by extreme and uncontrollable 
circumstances. We are concerned that the suggestion offered by some 
commenters of using the higher of the national or regional rate 
implicitly assumes that expenditures will always rise in a year 
affected by an extreme and uncontrollable circumstance, which may not 
always be the case. We therefore believe this approach would not 
appropriately address instances where expenditures for an ACO declined 
between the benchmark period and the performance year due to an extreme 
and uncontrollable event occurring during the performance year. It also 
may not appropriately address circumstances where expenditures are 
higher in the benchmark period than they otherwise would have been due 
to an extreme and uncontrollable event and then show a decline between 
the benchmark period and the performance year. We believe that a 
blended national-regional trend factor will better correct for such 
variations than a national trend factor alone, because regional 
expenditures are more likely than national expenditures to share the 
expenditure impacts of a natural disaster experienced by an individual 
ACO. We also decline to adopt the suggestion of using a purely regional 
growth rate in place of a blended growth rate in cases where there is 
an extreme and uncontrollable event in the benchmark period or the 
performance year as we believe that even following an extreme and 
uncontrollable event, it is still important to use a national-regional 
blend to address concerns about ACOs with high market penetration 
driving the expenditure growth rate in their own regions.
    Final Action: After considering the comments received, we are 
finalizing our proposal to use a blend of national and regional trend 
factors to trend forward BY1 and BY2 to BY3 when determining the 
historical benchmark and a blend of national and regional update 
factors to update the historical benchmark to the performance year (or 
to CY 2019 in the context of determining the financial performance of 
ACOs for the 6-month performance year from July 1, 2019, through 
December 31, 2019, as finalized in section II.A.7. of this the final 
rule). The national component of the blended trend and update factors 
will receive a weight equal to the share of assignable beneficiaries in 
the regional service area that are assigned to the ACO, computed by 
taking a weighted average of county-level shares. The regional 
component of the blended trend and update factors will receive a weight 
equal to 1 minus the national weight. The proposed blended trend and 
update factors will apply for all agreement periods starting on July 1, 
2019, or in subsequent years, regardless of whether it is an ACO's 
first, second, or subsequent agreement period. These policies are 
included in the new provision at Sec.  425.601, which will govern the 
determination of historical benchmarks for all ACOs for agreement 
periods starting on July 1, 2019, or in subsequent years.
    As explained in the August 2018 proposed rule, the use of a blended 
update factor requires us to use our authority under section 1899(i)(3) 
of the Act. This provision grants the Secretary the authority to use 
other payment models, including payment models that use alternative 
benchmarking methodologies, if the Secretary determines that doing so 
would improve the quality and efficiency of items and services 
furnished under Title XVIII and the alternative methodology would 
result in program expenditures equal to or lower than those that would 
result under the statutory payment model. As discussed in the 
Regulatory Impact Analysis (section V. of this final rule),

[[Page 68030]]

we continue to believe that using a blend of national and regional 
growth rates to update the benchmark, in combination with the other 
changes to the statutory payment model being finalized in this final 
rule, as well as current policies established using the authority of 
section 1899(i)(3) of the Act, would not increase program expenditures 
beyond the expenditures that would otherwise occur under the statutory 
payment methodology in section 1899(d) of the Act. Specifically, we 
believe that these policies together will result in more accurate and 
predictable benchmarks for use over longer agreement periods during 
which ACOs will be required to participate under performance-based 
risk. We believe policies that encourage ACOs to take greater 
accountability for the cost of the care furnished to their assigned 
beneficiaries offer greater incentives for ACOs to invest in effective 
care management efforts that lead to improved coordination of 
beneficiary care and to continue to improve quality of care and out-
perform other Medicare fee-for-service providers on related quality of 
care and outcome measures. As a result, we believe the policies that we 
are adopting in this final rule using our authority under section 
1899(i)(3) of the Act, including the modifications to the methodology 
for updating the historical benchmark discussed in this section, will 
lead to continued improvement in the quality of care furnished to 
Medicare fee-for-service- beneficiaries.
4. Technical Changes To Incorporate References to Benchmark Rebasing 
Policies
    We proposed to make certain technical, conforming changes to the 
following provisions to reflect our proposal to add a new section of 
the regulations at Sec.  425.601 to govern the calculation of the 
historical benchmark for all agreement periods starting on July 1, 
2019, and in subsequent years. We also proposed to make conforming 
changes to these provisions to incorporate the policies on resetting, 
adjusting, and updating the benchmark that were adopted in the June 
2016 final rule, and codified in the regulations at Sec.  425.603.

    <bullet> Under subpart C, which governs application procedures, 
add references to Sec. Sec.  425.601 and 425.603 in Sec.  
425.204(g);
    <bullet> Under subpart D, which governs the calculation of 
shared savings and losses, add references to Sec.  425.603 in 
Sec. Sec.  425.604 (Track 1) and 425.606 (Track 2); and add 
references to Sec. Sec.  425.601 and 425.603 in Sec.  425.610 
(ENHANCED track);
    <bullet> As part of the modifications to Sec.  425.610, make a 
wording change to the paragraph currently numerated as (a)(2)(ii) 
that could not be completed with the June 2016 final rule due to a 
typographical error. In this paragraph, we would remove the phase 
``adjusts for changes'', and in its place add the phrase ``CMS 
adjusts the benchmark for changes''; and
    <bullet> Under subpart I, which governs the reconsideration 
review process, add references to Sec. Sec.  425.601 and 425.603 to 
Sec.  425.800(a)(4). In addition, as previously described, we have 
used our authority under section 1899(i)(3) of the Act to modify 
certain aspects of the statutory payment and benchmarking 
methodology under section 1899(d) of the Act. Accordingly, we also 
proposed to amend Sec.  425.800(a)(4) to clarify that the preclusion 
of administrative and judicial review applies only to the extent 
that a specific calculation is performed in accordance with section 
1899(d) of the Act.

    Final Action: We did not receive any comments regarding these 
proposed technical changes to incorporate references to benchmark 
rebasing policies. We are finalizing the changes described in this 
section as proposed. We also received no comments specifically 
addressing our proposal to revise Sec.  425.800 to clarify that the 
preclusion of administrative and judicial review with respect to 
certain financial calculations applies only to the extent that a 
specific calculation is performed in accordance with section 1899(d) of 
the Act. We are finalizing these modifications as proposed.

E. Updating Program Policies

1. Overview
    In section II.E of the proposed rule, we proposed revisions 
designed to update certain policies under the Shared Savings Program. 
The policies discussed in sections II.E.2. through II.E.6 of the August 
2018 proposed rule were addressed in the November 2018 final rule (83 
FR 59959 through 59988). In section II.E.7 of the proposed rule, we 
solicited comments on how Medicare ACOs and Part D sponsors could be 
encouraged to collaborate so as to improve the coordination of pharmacy 
care for Medicare FFS beneficiaries. We discuss the comments received 
in response to this solicitation in section II.E.2 of this final rule.
2. Coordination of Pharmacy Care for ACO Beneficiaries
    Medicare ACOs and other stakeholders have indicated an interest in 
collaborating to enhance the coordination of pharmacy care for Medicare 
FFS beneficiaries to reduce the risk of adverse events and improve 
medication adherence. For example, areas where ACOs and the sponsors of 
stand-alone Part D PDPs might collaborate to enhance pharmacy care 
coordination include establishing innovative approaches to increase 
clinician formulary compliance (when clinically appropriate) and 
medication compliance; providing pharmacy counseling services from 
pharmacists; and implementing medication therapy management. Part D 
sponsors may be able to play a greater role in coordinating the care of 
their enrolled Medicare FFS beneficiaries and having greater 
accountability for their overall health outcomes, such as for 
beneficiaries with chronic diseases where treatment and outcome are 
highly dependent on appropriate medication use and adherence. Increased 
collaboration between ACOs and Part D sponsors may facilitate better 
and more affordable drug treatment options for beneficiaries by 
encouraging the use of generic prescription medications, where 
clinically appropriate, or reducing medical errors through better 
coordination between health care providers and Part D sponsors.
    As we explained in the August 2018 proposed rule, we believe that 
Medicare ACOs and Part D sponsors may be able to enter into appropriate 
business arrangements to support improved pharmacy care coordination, 
provided such arrangements comply with all applicable laws and 
regulations. However, challenges may exist in forming these 
arrangements. Under the Pioneer ACO Model, an average of 54 percent of 
the beneficiaries assigned to Pioneer ACOs in 2012 were also enrolled 
in a PDP in that year, with the median ACO having at most only 13 
percent of its assigned beneficiaries enrolled in a plan offered by the 
same PDP parent organization. For performance year 2016, we found that 
approximately 70 percent of the beneficiaries assigned to Shared 
Savings Program ACOs had continuous Part D coverage.
    We believe timely access to data could improve pharmacy care 
coordination. Although CMS already provides Medicare ACOs with certain 
Part D prescription drug event data, it may be useful for both Medicare 
ACOs and Part D sponsors to share certain clinical data and pharmacy 
data with each other to support coordination of pharmacy care. Any data 
sharing arrangements between ACOs and Part D sponsors should comply 
with all applicable legal requirements regarding the privacy and 
confidentiality of such data, including the Health Insurance 
Portability and Accountability Act of 1996 (HIPAA) Privacy and Security 
Rules.

[[Page 68031]]

    In the August 2018 proposed rule, we solicited comment on how 
Medicare ACOs, and specifically Shared Savings Program ACOs, and Part D 
sponsors could work together and be encouraged to improve the 
coordination of pharmacy care for Medicare FFS beneficiaries to achieve 
better health outcomes, better health care, and lower per-capita 
expenditures for Medicare beneficiaries. In addition, we sought comment 
on what kind of support would be useful for Medicare ACOs and Part D 
sponsors in establishing new, innovative business arrangements to 
promote pharmacy care coordination to improve overall health outcomes 
for Medicare beneficiaries. We also sought comment on issues related to 
how CMS, Medicare ACOs and Part D sponsors might structure the 
financial terms of these arrangements to reward Part D sponsors' 
contributions towards achieving program goals, including improving the 
beneficiary's coordination of care. Lastly, we sought comment on 
whether ACOs are currently partnering with Part D sponsors, if there 
are any barriers to developing these relationships (including, but not 
limited to, data and information sharing), and if there are any 
recommendations for how CMS can assist, as appropriate, with reducing 
barriers and enabling more robust data sharing.
    Comment: Many commenters were supportive of CMS' request for 
comments on how Medicare ACOs, and specifically Shared Savings Program 
ACOs, and Part D sponsors could work together and be encouraged to 
improve the coordination of pharmacy care for Medicare FFS 
beneficiaries. Several commenters stated that improved collaboration 
between Medicare ACOs and Part D Plans (PDPs) would provide more 
comprehensive care and improve overall quality, by enhancing care 
coordination, medication adherence, potentially reducing the risk of 
adverse drug events, and offering pharmacy counseling services that 
could ensure that patients receive timely access to the most 
appropriate form of treatment for their given condition. A commenter 
suggested that the timing of data sharing between CMS, ACOs, and PDPs 
would be important for successful collaboration. Another commenter 
suggested that data sharing between PDPs and ACOs could create pathways 
for achieving efficiencies in drug expenditures and reduce burden. 
Another commenter suggested that CMS should provide Part D claims data 
that would assist ACOs in addressing crucial care management issues and 
improve outcomes. In addition, the commenter stated that they believed 
there should be financial incentives for PDPs and ACOs to coordinate 
and align care.
    Many commenters offered suggestions for improving the coordination 
between PDPs and ACOs. A few commenters suggested CMS should 
investigate ways to make pharmacy data more readily available to ACOs 
so they can share this information with their ACO providers/suppliers. 
The commenters indicated that the use of enabling technology, such as 
secure data access portals and data sets accessible using Application 
Programming Interfaces, could provide ACOs timely access to claims data 
for their aligned beneficiaries. Commenters suggested that timely 
access to these data could allow ACOs to develop provider alert 
processes that could improve care. In addition, one commenter suggested 
that CMS should consider developing a Shared Savings Program voluntary 
demonstration that incorporates ACO accountability for Part D costs. 
Another commenter suggested CMS explore opportunities to allow waivers 
that would allow lower prescription drug copayments for ACO assigned 
beneficiaries. Another commenter suggested CMS incorporate community 
pharmacies that provide coordinated patient care into the Shared 
Savings Program to improve outcomes for patients who are high risk or 
are in underserved areas. Another commenter encouraged CMS to consider 
medication management as a critical potential modifier of health 
status, encourage the use of pharmacists as a primary point of 
intersection between ACOs and Part D plans, improve access to clinical 
and pharmacy data, and adopt performance-based payments to reflect 
pharmacists' contributions to cost reduction and improved coordination. 
A few commenters expressed concerns about Shared Savings Program ACOs 
and PDPs working together to improve pharmacy coordination. One 
commenter expressed concern regarding the differences between Part D 
Medication Management Therapy (MTM) and medication management services 
provided through coordinated care models, and specifically noted 
variation in beneficiary eligibility for MTM services, depending on 
their Part D plan. The commenter asked that CMS address current 
barriers to beneficiary eligibility for MTM before making any 
additional changes to policies under the Shared Savings Program to 
improve care coordination with pharmacies. One commenter requested more 
details on CMS' plan to promote information sharing, and along with 
another commenter, expressed concern regarding the capability of PDPs 
and ACOs to undertake information sharing and the costs that they 
believed would be incurred.
    Response: We thank the commenters for their input on the 
coordination of pharmacy care for ACO assigned beneficiaries. As we 
plan for any future updates and changes to the Shared Savings Program, 
we will consider this feedback from commenters before making any 
proposals related to the coordination of pharmacy care.

F. Applicability of Final Policies to Track 1+ Model ACOs

1. Background
    In section II.F. of the August 2018 proposed rule (83 FR 41912), we 
discussed the applicability of our proposed policies to Track 1+ Model 
ACOs, and in the November 2018 final rule (83 FR 59988 through 59990) 
we described the applicability of certain policies adopted in that 
final rule to Track 1+ Model ACOs.
    In these earlier rules, we explained that the Track 1+ Model was 
established under the Innovation Center's authority at section 1115A of 
the Act, to test innovative payment and service delivery models to 
reduce program expenditures while preserving or enhancing the quality 
of care for Medicare, Medicaid, and Children's Health Insurance Program 
beneficiaries. We noted that 55 Shared Savings Program Track 1 ACOs 
entered into the Track 1+ Model beginning on January 1, 2018. This 
includes 35 ACOs that entered the model within their current agreement 
period (to complete the remainder of their agreement period under the 
model) and 20 ACOs that entered into a new 3-year agreement under the 
model.
    To enter the Track 1+ Model, ACOs must be approved to participate 
in the model and are required to agree to the terms and conditions of 
the model by executing a Track 1+ Model Participation Agreement 
available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/track-1plus-model-par-agreement.pdf. Track 1+ Model ACOs are also required to have been 
approved to participate in the Shared Savings Program (Track 1) and to 
have executed a Shared Savings Program Participation Agreement. As 
indicated in the Track 1+ Model Participation Agreement, in accordance 
with our authority under section 1115A(d)(1) of the Act, CMS has waived 
certain requirements of the Shared Savings Program that otherwise would

[[Page 68032]]

be applicable to ACOs participating in Track 1 of the Shared Savings 
Program, as necessary for purposes of testing the Track 1+ Model, and 
established alternative requirements for the ACOs participating in the 
Track 1+ Model.
    We explained that, unless stated otherwise in the Track 1+ Model 
Participation Agreement, the requirements of the Shared Savings Program 
under 42 CFR part 425 continue to apply. Consistent with Sec.  425.212, 
Track 1+ Model ACOs are subject to all applicable regulatory changes, 
including but not limited to, changes to the regulatory provisions 
referenced within the Track 1+ Model Participation Agreement, that 
become effective during the term of the ACO's Shared Savings Program 
Participation Agreement and Track 1+ Model Participation Agreement, 
unless otherwise specified through rulemaking or amendment to the Track 
1+ Model Participation Agreement. We also noted that the terms of the 
Track 1+ Model Participation Agreement permit the parties (CMS and the 
ACO) to amend the agreement at any time by mutual written agreement.
2. Unavailability of Application Cycles for Entry Into the Track 1+ 
Model in 2019 and 2020
    In the August 2018 proposed rule (83 FR 41912 through 41913), we 
discussed the unavailability of application cycles for entry into the 
Track 1+ Model in 2019 and 2020. We explained that an ACO's opportunity 
to join the Track 1+ Model aligns with the Shared Savings Program's 
application cycle. The original design of the Track 1+ Model included 3 
application cycles for ACOs to apply to enter or, if eligible and if 
applicable, to renew their participation in the Track 1+ Model for an 
agreement period start date of 2018, 2019, or 2020. We noted that the 
2018 application cycle had closed, and that 55 ACOs began participating 
in the Track 1+ Model on January 1, 2018. As discussed in section 
II.A.7. of the August 2018 proposed rule (83 FR 41847) and section 
V.B.1.a of the November 2018 final rule (83 FR 59942 through 59946), we 
are not offering an application cycle for a January 1, 2019 start date 
for new agreement periods under the Shared Savings Program. Therefore, 
we explained that we would similarly not offer a start date of January 
1, 2019, for participation in the Track 1+ Model.
    In the August 2018 proposed rule (83 FR 41912 through 41913), we 
explained that we had re-evaluated the need for continuing the Track 1+ 
Model as a participation option for 2019 and 2020 in light of the 
proposal to offer the BASIC track (including a glide path for eligible 
ACOs) as a participation option beginning in 2019. Like the Track 1+ 
Model, the BASIC track would offer relatively lower levels of risk and 
potential reward than Track 2 and the ENHANCED track. The BASIC track's 
glide path would allow the flexibility for eligible ACOs to enter a 
one-sided model and to automatically progress through levels of risk 
and reward that end at a comparable level of risk and reward (Level E) 
to that offered in the Track 1+ Model and also to qualify as 
participating in an Advanced APM. ACOs in the glide path could also 
elect to more quickly enter higher levels of risk and reward within the 
BASIC track. We stated that if the proposed approach to adding the 
BASIC track were finalized and made available for agreement periods 
beginning in 2019 and subsequent years, we would discontinue future 
application cycles for the Track 1+ Model. In that case, the Track 1+ 
Model would not accept new model participants for start dates of July 
1, 2019, or January 1, 2020, or in subsequent years.
    As described in section II.A.2. and II.A.3. of this final rule, we 
are finalizing the BASIC track to include Level E, with a level of risk 
and reward that is comparable to the Track 1+ Model. Therefore, we will 
forgo future application cycles for the Track 1+ Model, as we believe 
offering both the BASIC track and the Track 1+ Model would create 
unnecessary redundancy in participation options within CMS' Medicare 
ACO initiatives. As we explained in the August 2018 proposed rule (83 
FR 41912 through 41913), the high level of interest in the Track 1+ 
Model indicates a positive response to its design, and therefore we 
believe we have met an important goal of testing the Track 1+ Model. We 
have also incorporated lessons learned from our initial experience with 
the Track 1+ Model in the design of the BASIC track, including the 
levels of risk and reward under the BASIC track, and by allowing for 
potentially lower, and therefore less burdensome, repayment mechanism 
amounts for ACOs with relatively lower estimated ACO participant 
Medicare FFS revenue compared to estimated benchmark expenditures for 
their assigned Medicare FFS beneficiary population. Further, we will 
evaluate the quality and financial performance of the Track 1+ Model 
ACOs and consider the results of this evaluation in the development of 
future policies for the Shared Savings Program.
    Existing Track 1+ Model ACOs will be able to complete the remainder 
of their current agreement period in the model, or terminate their 
current participation agreements (for the Track 1+ Model and the Shared 
Savings Program) and apply to enter a new Shared Savings Program 
agreement period under either the BASIC track (Level E) or the ENHANCED 
track (as described in section II.A.5. of this final rule).
    Additionally, as discussed in section II.A.7.c.(1). of the August 
2018 proposed rule (83 FR 41854 through 41855) and section V.B.1.c.(1). 
of the November 2018 final rule (83 FR 59951), ACOs currently 
participating in the Track 1+ Model will not have the opportunity to 
apply to use a SNF 3-day rule waiver starting on January 1, 2019, as a 
result of our decision to forgo an annual application cycle for a 
January 1, 2019 start date in the Shared Savings Program. However, as 
discussed in section II.A.7.c.(1). of this final rule, we are making an 
exception to the January 1 start date for use of a SNF 3-day rule 
waiver to allow for a July 1, 2019 start date for eligible Track 1+ 
Model ACOs that apply for and are approved to use a SNF 3-day rule 
waiver.
    Comment: Some commenters supported the proposed approach to 
incorporating Level E into the Shared Savings Program under a new BASIC 
track, to make a participation option with the same level of risk and 
potential reward as the Track 1+ Model a permanent part of the program.
    However, a few commenters expressed concern about our plan to 
discontinue the Track 1+ Model if we finalize the BASIC track design to 
include a participation option with an equivalent level of risk and 
potential reward as the Track 1+ Model. For example, one commenter 
stated that some ACOs went into the Track 1+ Model in 2018 in the 
middle of their current agreement period with the expectation that 
Track 1+ would be available as a renewal option for a full 3-year 
agreement period. Another commenter suggested, as an alternative 
approach to redesigning the program's participation options, that CMS 
eliminate downside risk requirements for low revenue ACOs by retaining 
Track 1, eliminating the BASIC track, and allowing voluntary 
participation in the Track 1+ Model (among other suggestions).
    Response: We appreciate commenters' support for the BASIC track 
design, which as discussed in section II.A.3. of this final rule, we 
are finalizing to include Level E that is comparable to the level of 
risk and reward as offered in the Track 1+ Model. We are therefore 
discontinuing future application cycles for the Track 1+ Model, and we 
will not accept new model participants for start

[[Page 68033]]

dates of July 1, 2019, or in subsequent years. Further, under our final 
policies for determining participation options, discussed in section 
II.A.5.c. of this final rule, an ACO with a first or second agreement 
period beginning in 2016 or 2017 identified as a high revenue ACO and 
experienced with performance-based risk Medicare ACO initiatives based 
on prior participation in the Track 1+ Model may renew for its next 
agreement period beginning on July 1, 2019, or January 1, 2020 
(respectively) under Level E of the BASIC track. Further, eligible ACOs 
identified as low revenue ACOs and experienced with performance-based 
risk Medicare ACO initiatives (including based on the participation of 
the ACO or its ACO participants in the Track 1+ Model) may also 
participate for up to two agreement periods under Level E of the BASIC 
track.
3. Applicability of Final Policies To Track 1+ Model ACOs Through 
Revised Program Regulations or Revisions to Track 1+ Model 
Participation Agreements
    In section II.F. of the August 2018 proposed rule (83 FR 41913 
through 41914), we provided a comprehensive discussion of the 
applicability of the proposed policies to Track 1+ Model ACOs to allow 
these ACOs to better prepare for their future years of participation in 
the program and the Track 1+ Model. We explained that there are two 
ways in which the proposed policies would become applicable to Track 1+ 
Model ACOs: (1) Through revisions to existing regulations that 
currently apply to Track 1+ Model ACOs, and (2) through revisions to 
the ACO's Track 1+ Model Participation Agreement. In the November 2018 
final rule, we described the applicability of certain final policies 
adopted in that final rule to Track 1+ Model ACOs (83 FR 59988 through 
59990).
    Generally, comments regarding the application of specific proposals 
to Track 1+ Model ACOs have been addressed as part of the discussion of 
comments in the relevant section of this final rule. Accordingly, in 
this section of this final rule, we are not repeating comments related 
to the applicability of the proposed policies to ACOs participating in 
the Track 1+ Model.
    Therefore, unless specified otherwise, the changes to the program's 
regulations finalized in this final rule that are applicable to Shared 
Savings Program ACOs within a current agreement period will apply to 
ACOs in the Track 1+ Model in the same way that they apply to ACOs in 
Track 1, so long as the applicable regulation has not been waived under 
the Track 1+ Model. Similarly, to the extent that certain requirements 
of the regulations that apply to ACOs under Track 2 or Track 3 have 
been incorporated for ACOs in the Track 1+ Model under the terms of the 
Track 1+ Model Participation Agreement, any changes to those 
regulations as finalized in this final rule will also apply to ACOs in 
the Track 1+ Model in the same way that they apply to ACOs in Track 2 
or Track 3. For example, the following final policies will apply to 
Track 1+ Model ACOs:

    <bullet> Changes to the repayment mechanism requirements (see 
section II.A.6.c. of this final rule). We believe these requirements 
are similar to the requirements under which Track 1+ Model ACOs 
established their repayment mechanisms, such that no revision to 
those arrangements will be required. Further, pursuant to the 
changes to the repayment mechanism requirements that we are adopting 
in this final rule, we note that any Track 1+ Model ACO that seeks 
to renew its Shared Savings Program participation agreement will be 
permitted to use its existing repayment mechanism arrangement to 
support its continued participation in the Shared Savings Program 
under a two-sided model in its next agreement period, provided that 
the amount and duration of the repayment mechanism arrangement are 
updated as specified by CMS.
    <bullet> For the performance year beginning on July 1, 2019 and 
each subsequent performance year, the requirement to notify Medicare 
FFS beneficiaries regarding voluntary alignment by providing each 
beneficiary with a standardized written notice prior to or at the 
first primary care visit of each performance year (section 
II.C.3.a.(2). of this final rule).
    We also intend to apply the following policies finalized in this 
final rule to Track 1+ Model ACOs through an amendment to the Track 
1+ Model Participation Agreement executed by CMS and the ACO:
    <bullet> Monitoring for and consequences of poor financial 
performance (section II.A.5.d. of this final rule).
    <bullet> Revising the MSR/MLR to address small population sizes 
(section II.A.6.b.(3). of this final rule).
    <bullet> Payment consequences of early termination for ACOs 
under performance-based risk (section II.A.6.d. of this final rule).
    <bullet> Certain requirements related to the furnishing of 
telehealth services beginning on January 1, 2020, as provided under 
section 1899(l) of the Act (see section II.B.2.b.(2). of this final 
rule). As previously described, the Bipartisan Budget Act provides 
for coverage of certain telehealth services furnished by physicians 
and practitioners in ACOs participating in a model tested or 
expanded under section 1115A of the Act that operate under a two-
sided model and for which beneficiaries are assigned to the ACO 
using a prospective assignment method. ACOs participating in the 
Track 1+ Model meet these criteria. We believe it is appropriate to 
apply the same requirements under the Track 1+ Model with respect to 
telehealth services furnished under section 1899(l) of the Act that 
apply to other Shared Savings Program ACOs that are applicable ACOs 
for purposes of that subsection. This will ensure consistency across 
program operations, payments, and beneficiary protection 
requirements for Track 1+ Model ACOs and other Shared Savings 
Program ACOs with respect to telehealth services furnished under 
section 1899(l) of the Act.

III. Provisions of the December 2017 Interim Final Rule With Comment 
Period and Analysis of and Response to Public Comments

A. Background

    In December 2017, we issued an interim final rule with comment 
period titled ``Medicare Shared Savings Program: Extreme and 
Uncontrollable Circumstances Policies for Performance Year 2017'' 
(hereinafter referred to as the December 2017 interim final rule with 
comment period''), which appeared in the Federal Register on December 
26, 2017 (82 FR 60912). In the December 2017 interim final rule with 
comment period, we established policies for assessing the financial and 
quality performance of Medicare Shared Savings Program (Shared Savings 
Program) Accountable Care Organizations (ACOs) affected by extreme and 
uncontrollable circumstances during performance year 2017, including 
the applicable quality reporting period for the performance year. Under 
the Shared Savings Program, providers of services and suppliers that 
participate in ACOs continue to receive traditional Medicare FFS 
payments under Parts A and B, but the ACO may be eligible to receive a 
shared savings payment if it meets specified quality and savings 
requirements. ACOs in performance-based risk tracks may also share in 
losses. The December 2017 interim final rule with comment period 
established extreme and uncontrollable circumstances policies for the 
Shared Savings Program that applied to ACOs subject to extreme and 
uncontrollable events, such as Hurricanes Harvey, Irma, and Maria, and 
the California wildfires, during performance year 2017, including the 
applicable quality data reporting period for the performance year.
    We received 11 timely pieces of correspondence in response to the 
December 2017 interim final rule with comment period. In the following 
sections of this final rule, we summarize and respond to these public 
comments.

[[Page 68034]]

B. Shared Savings Program Extreme and Uncontrollable Circumstances 
Policies for Performance Year 2017

    In the December 2017 interim final rule with comment period we 
expressed our agreement with stakeholders that the financial and 
quality performance of ACOs located in areas subject to extreme and 
uncontrollable circumstances could be significantly and adversely 
affected. We also agreed that due to the widespread disruptions that 
occurred during 2017 in areas affected by Hurricanes Harvey, Irma, and 
Maria, and the California wildfires, new policies were warranted for 
assessing quality and financial performance of Shared Savings Program 
ACOs in the affected areas. We believed it was appropriate to adopt 
policies to address stakeholder concerns that displacement of 
beneficiaries may make it difficult for ACOs to access medical record 
data required for quality reporting, and might reduce the beneficiary 
response rate on survey measures. In addition, medical records needed 
for quality reporting may have been inaccessible. We also believed it 
was appropriate to adopt policies to address stakeholders' concerns 
that ACOs might be held responsible for sharing losses with the 
Medicare program resulting from catastrophic events outside the ACO's 
control given the increase in utilization, migration of patient 
populations leaving the impacted areas, and the mandatory use of 
natural disaster payment modifiers making it difficult to identify 
whether a claim would otherwise have been denied under normal Medicare 
fee-for-service (FFS) rules.
    Prior to the issuance of the December 2017 interim final rule with 
comment period, we did not have policies under the Shared Savings 
Program for addressing ACO quality performance scoring and the 
determination of the shared losses owed by ACOs participating under 
performance-based risk tracks in the event of an extreme or 
uncontrollable circumstance. In the interim final rule with comment 
period titled Medicare Program; Quality Payment Program: Extreme and 
Uncontrollable Circumstance Policy for the Transition Year that 
appeared in the Federal Register on November 16, 2017 (hereinafter 
referred to as the Quality Payment Program IFC) (82 FR 53895), we 
established an automatic policy to address extreme and uncontrollable 
circumstances, including Hurricanes Harvey, Irma, and Maria, for the 
Merit-based Incentive Payment System (MIPS) for the 2017 performance 
year. (The specific regions identified as being affected by Hurricanes 
Harvey, Irma, and Maria for the 2017 MIPS performance year are provided 
in detail in section III.B.1.e. of the Quality Payment Program IFC (82 
FR 53898)). In the Quality Payment Program IFC, we stated that should 
additional extreme and uncontrollable circumstances arise for the 2017 
MIPS performance period that trigger the automatic extreme and 
uncontrollable circumstance policy under the Quality Payment Program, 
we would communicate that information through routine communication 
channels, including but not limited to issuing program memoranda, 
emails to stakeholders, and notices on the Quality Payment Program 
website, qpp.cms.gov (82 FR 53897). For example, in the December 2017 
interim final rule with comment period we noted that we had recently 
issued guidance to stakeholders indicating that the MIPS Extreme and 
Uncontrollable Circumstance Policy would also apply to MIPS eligible 
clinicians affected by the California wildfires (see https://www.cms.gov/Medicare/Quality-Payment-Program/Resource-Library/Interim-Final-Rule-with-Comment-fact-sheet.pdf).
    In the December 2017 interim final rule with comment period, we 
expressed the belief that it was also appropriate to establish 
automatic extreme and uncontrollable circumstances policies under the 
Shared Savings Program for performance year 2017 due to the urgency of 
providing relief to Shared Savings Program ACOs impacted by Hurricanes 
Harvey, Irma, and Maria, and the California wildfires, because their 
quality scores could have been adversely affected by these disasters 
and some ACOs could have been at risk for additional shared losses due 
to the costs associated with these extreme and uncontrollable events. 
Therefore, given the broad impact of the three hurricanes and the 
wildfires, and to address any additional extreme and uncontrollable 
circumstances that could have arisen during 2017 or the quality data 
reporting period for the performance year, we explained that we were 
establishing the policies described in the December 2017 interim final 
rule with comment period for the Shared Savings Program for performance 
year 2017.
    For program clarity and to reduce unnecessary burdens on affected 
ACOs, we aligned the automatic extreme and uncontrollable circumstances 
policies under the Shared Savings Program with the policy established 
under the Quality Payment Program. Specifically, the Shared Savings 
Program extreme and uncontrollable circumstances policies would apply 
when we determine that an event qualifies as an automatic triggering 
event under the Quality Payment Program. We would use the determination 
of an extreme and uncontrollable circumstance under the Quality Payment 
Program, including the identification of affected geographic areas and 
applicable time periods, for purposes of determining the applicability 
of the extreme and uncontrollable circumstances policies with respect 
to both financial performance and quality reporting under the Shared 
Savings Program. These policies would also apply with respect to the 
determination of an ACO's quality performance in the event that an 
extreme and uncontrollable event occurred during the applicable quality 
data reporting period for performance year 2017 and the reporting 
period was not extended. We believed it was appropriate to extend these 
policies to encompass the quality reporting period, unless the 
reporting period was extended, because we would not have the quality 
data necessary to measure an ACO's quality performance for 2017 if the 
ACO was unable to submit its quality data as a result of a disaster 
occurring during the submission window. We noted, for example, that if 
an extreme and uncontrollable event were to occur in February 2018, 
which would be during the quality data reporting period for performance 
year 2017 that was then scheduled to end on March 16, 2018 at 8 p.m. 
eastern daylight time, then the extreme and uncontrollable 
circumstances policies would apply for quality data reporting for 
performance year 2017, if the reporting period was not extended. We did 
not believe it was appropriate to extend this policy to encompass the 
quality data reporting period if the reporting period is extended 
because affected ACOs would have an additional opportunity to submit 
their quality data, enabling us to measure their quality performance in 
2017. However, we noted that, because a disaster that occurs after the 
end of the performance year would have no impact on the determination 
of an ACO's financial performance for performance year 2017, we would 
make no adjustment to shared losses in the event an extreme or 
uncontrollable event occurred during the quality data reporting period.
    Comment: Almost all stakeholders that submitted a comment in 
response to the December 2017 interim final rule with comment period 
expressed general support for addressing extreme and uncontrollable 
circumstances in the Shared Savings Program, and no

[[Page 68035]]

commenters expressed general opposition. Most commenters also addressed 
one or more of the specific policies described in that rule.
    Response: We appreciate the comments that were offered and have 
since implemented the policies finalized in the December 2017 interim 
final rule with comment period when determining quality scores used in 
performance year 2017 financial reconciliation and in determining 
shared losses owed for performance year 2017 by ACOs in two-sided 
models.
    We considered the comments received in response to the December 
2017 interim final rule with comment period in developing our proposals 
to extend the extreme and uncontrollable circumstances policies that 
were established for performance year 2017 to performance year 2018 and 
subsequent performance years. These proposals were included in the 
August 2018 proposed rule (83 FR 41900-41906). In the November 2018 
final rule (83 FR 59968-59979), we adopted final policies for 
determining the quality performance of and mitigating shared losses 
owed by Shared Savings Program ACOs affected by extreme and 
uncontrollable circumstances in performance year 2018 and subsequent 
performance years.
    In the remainder of this section, we will summarize and respond to 
public comments submitted in response to the December 2017 interim 
final rule with comment period.
    Comment: Several commenters supported aligning Shared Savings 
Program policies surrounding extreme and uncontrollable circumstances 
with the policies established under the Quality Payment Program for 
performance year 2017, including the identification of an automatic 
triggering event and affected geographic areas, with a commenter 
expressing the belief that such alignment should also apply for future 
performance years. A few commenters supporting alignment across these 
programs urged CMS to be more transparent and to improve communication 
to ACOs regarding affected areas and applicable time periods, as well 
as options available to affected ACOs.
    A commenter supported the goal of alignment across programs, but 
urged CMS to monitor, evaluate, and modify, if necessary, the policies 
included in the December 2017 interim final rule with comment period to 
ensure that Shared Savings Program participants do not experience 
unintended consequences from use of Quality Payment Program 
determinations regarding triggering events and affected counties. This 
commenter raised the possibility that a triggering event determined 
under Quality Payment Program could have a different impact in terms of 
scope and severity on ACOs participating in the Shared Savings program. 
A commenter did not opine on whether program policies should be aligned 
with the Quality Payment Program but expressed the belief that any 
determination of affected counties should include both Federal 
Emergency Management Agency (FEMA)-designated ``Public Assistance'' and 
FEMA-designated ``Individual Assistance'' areas. Another commenter 
recommended that the determination of the time period for an extreme 
and uncontrollable event be made consistent with the timelines for the 
emergency declarations by the Federal government.
    Response: We appreciate the comments supporting the alignment of 
the extreme and uncontrollable circumstances policies under the Shared 
Savings Program with policies under the Quality Payment Program with 
respect to identifying automatic triggering events and the affected 
geographic areas. We continue to believe, as we described in the 
December 2017 interim final rule with comment period, that this 
approach avoids confusion and reduces unnecessary burdens on affected 
ACOs. Accordingly, we finalized the extension of this policy for 
performance year 2018 and future years in the November 2018 final rule 
(83 FR 59969-59973).
    In the Quality Payment Program IFC we explained that we anticipated 
that the types of events that could trigger the extreme and 
uncontrollable circumstances policies would be events designated by a 
FEMA major disaster or a public health emergency declared by the 
Secretary, although we indicated that we would review each situation on 
a case-by-case basis (82 FR 53897). While we favor alignment across the 
two programs for the aforementioned reasons and expect to consider 
declarations made by other Federal government agencies, we continue to 
believe that it is important to maintain a degree of flexibility to 
best respond to the circumstances of an individual emergency and 
decline to adopt fixed criteria for determining triggering events and 
affected areas. We note that for performance year 2017 information on 
triggering events and affected areas was made available through 
publicly available QPP fact sheets (for example: https://www.cms.gov/Medicare/Quality-Payment-Program/Resource-Library/Interim-Final-Rule-with-Comment-fact-sheet.pdf). Additionally, we used the time periods 
associated with public health emergencies declared by the Secretary. 
Following the declaration of a public health emergency, the Secretary 
may temporarily modify or waive certain Medicare requirements to 
support the ability of health care providers to provide timely care to 
people impacted by an emergency or disaster to the maximum extent 
feasible. For consistency, we believe that it is appropriate to use the 
same time periods when implementing the Shared Savings Program extreme 
and uncontrollable circumstances policies. We also believe that this 
approach is transparent as the dates of such emergencies are publicly 
available on the CMS Emergency Response and Recovery website (now 
renamed the Emergency Preparedness & Response Operations website, 
https://www.cms.gov/About-CMS/Agency-Information/Emergency/EPRO/EPRO-Home.html). Accordingly, we anticipate continuing to follow this 
approach going forward.
1. Determination of Quality Performance Scores for ACOs in Affected 
Areas
    ACOs and their ACO participants and ACO providers/suppliers are 
frequently located across several different geographic regions or 
localities, serving a mix of beneficiaries who may be differentially 
impacted by hurricanes, wildfires, or other triggering events. 
Therefore, we needed to establish a policy for determining when an ACO, 
which may have ACO participants and ACO providers/suppliers located in 
multiple geographic areas, should qualify for the automatic extreme and 
uncontrollable circumstance policies for the determination of quality 
performance. We explained that we would determine whether an ACO had 
been affected by an extreme and uncontrollable circumstance by 
determining whether 20 percent or more of the ACO's assigned 
beneficiaries resided in counties designated as an emergency declared 
area in performance year 2017, as determined under the Quality Payment 
Program as discussed in section III.B.1.e. of the Quality Payment 
Program IFC (82 FR 53898) or the ACO's legal entity was located in such 
an area. An ACO's legal entity location would be based on the address 
on file for the ACO in CMS' ACO application and management system. We 
used 20 percent of the ACO's assigned beneficiary population as the 
minimum threshold to establish an ACO's eligibility for the policies 
regarding quality reporting and quality performance scoring included in 
the December 2017 interim final rule with comment period because we 
believed the 20 percent threshold provided a reasonable way to identify 
ACOs whose

[[Page 68036]]

quality performance may have been adversely affected by an extreme or 
uncontrollable circumstance, while excluding ACOs whose performance 
would not likely be significantly affected. The 20 percent threshold 
was selected to account for the effect of an extreme or uncontrollable 
circumstance on an ACO that has the minimum number of assigned 
beneficiaries to be eligible for the program (5,000 beneficiaries), and 
in consideration of the average total number of unique beneficiaries 
for whom quality information is required to be reported in the combined 
CAHPS survey sample (860 beneficiaries) and the CMS web interface 
sample (approximately 3,500 beneficiaries). (There may be some overlap 
between the CAHPS sample and the CMS web interface sample.) Therefore, 
we estimated that an ACO with an assigned population of 5,000 
beneficiaries typically would be required to report quality information 
on a total of 4,000 beneficiaries. Thus, we believed that the 20-
percent threshold would ensure that an ACO with the minimum number of 
assigned beneficiaries would have an adequate number of beneficiaries 
across the CAHPS and CMS web interface samples in order to fully report 
on these measures. However, we also understood that some ACOs that have 
fewer than 20 percent of their assigned beneficiaries residing in 
affected areas have a legal entity that is located in an emergency 
declared area. Consequently, their ability to quality report may have 
been equally impacted since the ACO legal entity may have been unable 
to collect the information from the ACO participants or may have 
experienced infrastructure issues related to capturing, organizing and 
reporting the data to CMS. If less than 20 percent of the ACO's 
assigned beneficiaries resided in an affected area and the ACO's legal 
entity was not located in a county designated as an affected area, then 
we noted that we believed that there was unlikely to be a significant 
impact upon the ACO's ability to report or on the representativeness of 
the quality performance score that would be determined for the ACO.
    We noted that we would determine what percentage of the ACO's 
performance year assigned population was affected by a disaster based 
on the final list of beneficiaries assigned to the ACO for the 
performance year. Although beneficiaries are assigned to ACOs under 
Track 1 and Track 2 based on preliminary prospective assignment with 
retrospective reconciliation after the end of the performance year, we 
noted that these ACOs would be able to use their quarterly assignment 
lists, which include beneficiaries' counties of residence, for early 
insight into whether they are likely to meet the 20 percent threshold. 
For purposes of the December 2017 interim final rule with comment 
period, we used preliminary information on beneficiary assignment for 
the 2017 performance year to estimate the number of ACOs that were 
affected by the hurricanes and the California wildfires in 2017. We 
estimated that 105 of the 480 ACOs (approximately 22 percent) would 
meet the minimum threshold of having 20 percent or more of their 
assigned beneficiaries residing in an area designated as impacted by 
Hurricanes Harvey, Irma, and Maria, and the California wildfires or 
have their legal entity located in one of these areas. Of the ACOs that 
we originally estimated would be impacted by the disasters in 2017, 92 
percent had more than 20 percent of their assigned beneficiaries 
residing in emergency declared areas.
    For purposes of determining quality performance scoring for 
performance year 2017, we noted that if 20 percent or more of an ACO's 
assigned beneficiaries resided in an area impacted by the disaster or 
the ACO's legal entity was located in such an area, the ACO's minimum 
quality score would be set to equal the mean Shared Savings Program ACO 
quality score for all ACOs for performance year 2017. We would set the 
minimum quality score equal to the mean quality score for all Shared 
Savings Program ACOs nationwide, because the mean reflects the full 
range of quality performance across all ACOs in the Shared Savings 
Program. More specifically, the mean ACO quality score is equal to the 
combined ACO quality score for all ACOs meeting the quality performance 
standard for the performance year divided by the total number of ACOs 
meeting the quality performance standard for the performance year. To 
illustrate, we noted that the mean Shared Savings Program ACO quality 
performance score for all participating ACOs for performance year 2016 
was approximately 95 percent. We also explained that in the event an 
affected ACO is able to complete quality reporting for performance year 
2017, and the ACO's calculated quality score is higher than the mean 
Shared Savings Program ACO quality score, we would apply the higher 
score.
    In earlier rulemaking, we finalized a policy under which ACOs that 
demonstrate quality improvement on established quality measures from 
year-to-year will be eligible for up to 4 bonus points per domain (79 
FR 67927 through 67931, Sec.  425.502(e)(4)). To earn bonus points, an 
ACO must demonstrate a net improvement in performance on measures 
within a domain. We noted in the December 2017 interim final rule with 
comment period that if an ACO was not able to complete quality 
reporting for performance year 2017, it would not be possible for us to 
assess the ACO's improvement on established quality measures since 
performance year 2016. Therefore, if an ACO receives a quality score 
for performance year 2017 based on the mean quality score, the ACO 
would not be eligible for bonus points awarded based on quality 
improvement.
    We noted our belief that it was appropriate to adjust the quality 
performance scores for ACOs in affected areas because we anticipated 
that these ACOs would likely be unable to collect or report the 
necessary information to CMS as a result of the extreme and 
uncontrollable circumstance, and/or the ACO's quality performance score 
would be significantly and adversely affected. Section 1899(b)(3)(C) of 
the Act gives us the authority to establish the quality performance 
standards used to assess the quality of care furnished by ACOs. 
Accordingly, we modified the quality performance standard specified 
under Sec.  425.502 by amending paragraph (e)(4) and adding a new 
paragraph (f) to address potential adjustments to the quality 
performance score for performance year 2017 of ACOs determined to be 
affected by extreme and uncontrollable circumstances. We stated that 
for performance year 2017, including the applicable quality data 
reporting period for the performance year if the reporting period is 
not extended, in the event that we determined that 20 percent or more 
of an ACO's final list of assigned beneficiaries for the performance 
year, as determined under subpart E of the Shared Savings Program 
regulations, resided in an area that is affected by an extreme and 
uncontrollable circumstance as determined under the Quality Payment 
Program, or that the ACO's legal entity was located in such an area, we 
would use the following approach to calculate the ACO's quality 
performance score instead of the methodology specified in Sec.  
425.502(a) through (e).
    <bullet> The ACO's minimum quality score would be set to equal the 
mean Shared Savings Program ACO quality score for performance year 
2017.
    <bullet> If the ACO is able to completely and accurately report all 
quality measures, we would use the higher of the ACO's

[[Page 68037]]

quality score or the mean Shared Savings Program ACO quality score.
    <bullet> If the ACO receives a quality score based on the mean, the 
ACO would not be eligible for bonus points awarded based on quality 
improvement.
    We would apply determinations made under the Quality Payment 
Program with respect to whether an extreme and uncontrollable 
circumstance has occurred and the affected areas. We would have sole 
discretion to determine the time period during which an extreme and 
uncontrollable circumstance occurred, the percentage of the ACO's 
assigned beneficiaries residing in the affected areas, and the location 
of the ACO legal entity.
    We also stated that, for purposes of the MIPS APM scoring standard, 
MIPS eligible clinicians in Medicare Shared Savings Program ACOs that 
did not completely report quality for 2017; and therefore, received the 
mean ACO quality score under the Shared Savings Program would receive a 
score of zero percent in the MIPS quality performance category. 
However, these MIPS eligible clinicians would receive a score of 100 
percent in the improvement activities (IAs) performance category, which 
would be sufficient for them to receive a 2017 MIPS final score above 
the performance threshold. This would result in at least a slight 
positive MIPS payment adjustment in 2019. Additionally, if the ACO 
participants were able to report advancing care information (ACI) (now 
referred to as the promoting interoperability category), the MIPS 
eligible clinicians in the ACO would receive an ACI performance 
category score under the APM scoring standard, which would further 
increase their final score under MIPS.
    Comment: Several commenters supported considering ACOs to be 
impacted by an extreme and uncontrollable circumstance if 20 percent or 
more of their assigned beneficiaries reside in an affected area or if 
the ACO's legal entity is located in such an area. However, a commenter 
requested that CMS continue to monitor the effects of this policy for 
each new triggering event to determine whether the 20 percent threshold 
is appropriate. The commenter explained that it could be necessary to 
lower the threshold if it is observed that ACOs with a smaller 
percentage of beneficiaries residing in an affected area display 
significantly reduced performance compared to prior years. Another 
commenter recommended that CMS analyze test cases to determine if 
quality performance could be affected at lower thresholds. The same 
commenter also suggested that CMS apply the extreme and uncontrollable 
circumstance policy to ACOs for which 50 percent of NPIs billing under 
the ACO are located in an impacted area. Another commenter noted it was 
unclear whether 20 percent is the appropriate threshold and believes 
that CMS should observe the effect of the 2017 events on ACOs and 
develop more flexible permanent policies to fully capture ACOs for 
which quality performance might have been affected. Another commenter, 
while agreeing with the criteria described in the December 2017 interim 
final rule with comment period, urged CMS to also provide an option for 
ACOs that do not meet the criteria to submit a hardship request if they 
believe that they were significantly affected by an extreme and 
uncontrollable event. They explained that CMS could review and approve 
such requests on a case-by-case basis.
    Response: We continue to believe that the criteria that we adopted 
for performance year 2017 in the December 2017 interim final rule with 
comment period, and which we used for determining performance year 2017 
quality scores, are reasonable and offer predictability. We believe 
that using a threshold that may change with each triggering event would 
provide less certainty, especially if such a threshold could not be 
determined until after the disaster has occurred. We believe that the 
20 percent threshold, which was influenced by population size 
considerations, remains a reasonable level. At this level, the 
threshold helps to ensure that an ACO with the minimum number of 
assigned beneficiaries to be eligible to participate in the program 
(5,000 beneficiaries) would still have an adequate number of non-
affected beneficiaries on which to report on CAHPS and CMS web 
interface measures. Furthermore, based on our experience from 
performance year 2017, we do not believe that this threshold is too 
high as we observed that over 40 percent of ACOs with more than 20 
percent of beneficiaries residing in disaster-affected areas received 
their own quality score because it was higher than the average score. 
We will continue to monitor this statistic for events occurring in 
future performance years to gauge whether the threshold remains 
appropriate.
    In the November 2018 final rule, we modified the policy adopted in 
the December 2017 interim final rule with comment period of using an 
ACO's final assigned beneficiary list for performance year 2017 to 
determine the percentage of assigned beneficiaries residing in an 
affected area, and finalized a policy for performance year 2018 and 
subsequent performance years of using an ACO's assignment list used for 
the Web Interface sample (typically the quarter 3 assignment list) to 
determine the percentage of assigned beneficiaries residing in an 
affected area. This refinement to our approach, which was based on our 
experience in applying the extreme and uncontrollable circumstances 
policies for performance year 2017, will allow ACOs to determine before 
the end of the quality reporting period whether they meet this 
criterion based on triggering events that have occurred up until that 
time. Given the timing of December 2017 interim final rule with comment 
period, this type of advance notice was not feasible. This modification 
of the policy for future performance years was also influenced by 
comments that we received in response to the December 2017 interim 
final rule with comment period, described earlier in this section, 
which requested that CMS provide better communication to affected ACOs 
regarding their options.
    While we considered a commenter's suggestion to expand the criteria 
for determining impacted ACOs to include those ACOs for which 50 
percent or more of the NPIs billing under the TINs of the ACO 
participants are located in an impacted area, we believed that 
including this additional criterion would create additional operational 
complexity and less transparency as we do not currently provide 
information on the location of ACO providers/suppliers in program 
reports. We therefore elected not to propose this option in the August 
2018 proposed rule and, in response to a similar recommendation from a 
commenter, declined to adopt this approach in the November 2018 final 
rule (83 FR 59972). In response to the commenters that suggested we 
create a hardship exceptions process, we note that in the December 2017 
interim final rule with comment period and the November 2018 final 
rule, we have elected to adopt automatic policies to address extreme 
and uncontrollable circumstances in lieu of hardship requests that must 
be considered on a case-by-case basis in order to increase certainty 
and reduce administrative burden for both ACOs and CMS.
    Comment: We received several comments that supported using the 
higher of the ACO's own quality score or the mean quality score. A 
commenter agreed that an ACO should not be eligible for bonus points 
based on quality improvement if the ACO receives the mean quality 
score. A few others that supported using the higher of the ACO's own 
score or the national mean were concerned that there would

[[Page 68038]]

be no way for ACOs receiving the mean score to demonstrate quality 
improvement or receive bonus points. They recommended that CMS consider 
alternative mechanisms by which these ACOs could demonstrate quality 
improvement with a commenter suggesting that CMS recognize and account 
for quality improvement efforts made by ACOs outside the time period 
affected by an extreme and uncontrollable event. Another commenter did 
not opine on the use of the mean quality score but requested 
clarification on how bonus points would be determined when a state of 
emergency crossed years.
    Response: We implemented the policy of using the higher of the 
ACO's own quality score or the mean quality score that was finalized in 
the December 2017 interim final rule with comment period in determining 
quality performance for affected ACOs for performance year 2017. In the 
August 2018 proposed rule (83 FR 41900-41903), we proposed to extend 
this policy for performance year 2018 and subsequent performance years, 
and in the November 2018 final rule (83 FR 59969-59974), we finalized 
this proposal. We appreciate the support offered for this policy among 
stakeholders that submitted comments in response to the December 2017 
interim final rule with comment period.
    In the November 2018 final rule, we also adopted for performance 
year 2018 and subsequent performance years the policy under which an 
ACO that receives the mean Shared Savings Program quality performance 
score for a given performance year will not be eligible for bonus 
points awarded based on quality performance during that year. However, 
it is worth noting that in calculating the mean quality score we 
include the scores of ACOs that earned bonus points for quality 
improvement as well as the scores of 100 percent earned by ACOs in 
their first performance year for which the quality performance standard 
is based on complete and accurate reporting of all quality measures. 
ACOs that failed to meet the quality performance standard are excluded 
from the mean.
    In the November 2018 final rule (83 FR 59969-59974) we finalized a 
policy under which, if an ACO receives the mean score for a performance 
year, in the next performance year for which the ACO reports quality 
data and receives a quality performance score based on its own 
performance, we will measure quality improvement based on a comparison 
between the ACO's performance in that year and in the most recently 
available prior performance year in which the ACO reported quality. We 
explained that under this approach, the comparison will continue to be 
between consecutive years of quality reporting, but these years may not 
be consecutive calendar years. If an ACO reports quality data in a year 
in which it is affected by an extreme and uncontrollable circumstance, 
but receives the national mean quality score, we will use the ACO's own 
quality performance to determine quality improvement bonus points in 
the following year. For example, if an ACO reported quality data in 
years 1, 2, and 3 of an agreement period, but received the national 
mean quality score in year 2 as the result of an extreme or 
uncontrollable circumstance, we would determine quality improvement 
bonus points for year 3 by comparing the ACO's year 3 quality 
performance with its year 2 performance. In contrast, if the ACO 
received the mean score in year 2 because it did not report quality, we 
would compare year 3 with year 1 to determine the bonus points for year 
3.
    For events for which the applicable time period for includes 
multiple calendar years, we intend to treat the portion of the period 
falling within each year as if it were a separate event for purposes of 
identifying ACOs eligible for the alternative quality scoring 
methodology and for computing any adjustment to shared losses. Consider 
for example a hypothetical event for which the applicable time period 
spanned from September 2017 to March 2018. An ACO would be deemed to be 
affected by this event in performance year 2017 for purposes of quality 
scoring if 20 percent or more of the ACO's final performance year 2017 
assigned beneficiaries resided in an affected geographic area or the 
ACO's legal entity was located in such an area, and we would use the 
alternative quality performance scoring policy finalized in the 
December 2017 interim final rule with comment period for performance 
year 2017 to determine its quality performance score for that 
performance year. The same ACO would be deemed affected by the disaster 
in performance year 2018 if 20 percent or more of the ACO's quarter 3 
assigned beneficiary population (that is, the population used for Web 
Interface sampling) resided in an affected area or the ACO's legal 
entity was located in such an area. We would determine the quality 
performance score for the ACO for performance year 2018 using the 
alternative quality performance scoring policy adopted in the November 
2018 final rule for performance year 2018. An ACO receiving the mean 
quality score in either year would not be eligible for bonus points for 
quality improvement in that year although, as previously noted, the 
mean score would include the scores of ACOs that earned bonus points 
for quality improvement as well as scores of 100 percent earned by ACOs 
in their first performance year. If a disaster-affected ACO receives 
its own quality score for performance year 2017 it would be eligible 
for bonus points based on a comparison of its 2017 quality performance 
and 2016 quality performance. If the ACO receives its own quality score 
for performance year 2018 it would be eligible for bonus points based 
on a comparison of its 2018 quality performance and its quality 
performance in the most recent prior year in which it reported quality.
    Comment: A commenter believed that the quality performance scores 
for disaster-affected ACOs could be set to the mean, but these scores 
should not be used to calculate future benchmarks or subsequent year 
thresholds until complete and accurate reporting can be achieved.
    Response: We appreciate this commenter's support of the policy to 
set an ACO's quality score to the higher of its own calculated score or 
the national mean. We would like to clarify that ACOs' quality 
performance scores are not used to calculate quality measure 
benchmarks. Rather, the quality measure benchmarks are calculating 
using actual ACO performance and all other available and applicable 
Medicare FFS data.
    Comment: A commenter expressed the belief that an ACO that achieved 
above-average quality performance in the prior performance year but is 
unable to report quality data due to an extreme and uncontrollable 
event in 2017, should not be penalized with a much lower quality score 
for 2017. They recommended that in instances where an ACO is unable to 
report quality data due to an extreme or uncontrollable event, CMS 
should use the higher of the ACO's quality score from the prior 
performance year or the mean quality score for all Shared Savings 
Program ACOs for the current performance year.
    Response: We acknowledge that the mean quality score could be 
lower, or higher, than the score disaster-affected ACOs would have 
received in the absence of a disaster. However, we have concerns with 
the commenter's recommendation that we apply the higher of the ACO's 
quality score from the prior year or the mean quality score. ACO 
quality performance can vary from year-to-year and the fact that an ACO 
had a high quality score in prior years does not necessarily guarantee 
that the

[[Page 68039]]

ACO would have had an above average score in the affected year in the 
absence of the natural disaster. This is particularly true for ACOs in 
their early years of participation in the Shared Savings Program for 
which the prior year's performance score may have included a higher 
number of pay-for-reporting measures, thus making the quality scores 
incomparable. Lastly, we would remind stakeholders that the national 
mean quality score includes the quality scores of 100 percent earned by 
ACOs in their first performance year, thus increasing the mean. For 
these reasons, we did not employ this approach for performance year 
2017 and neither proposed nor finalized this approach for performance 
year 2018 and subsequent years.
    Comment: A commenter sought clarification on whether an ACO would 
have the opportunity to either opt-in or opt-out of the finalized 
quality scoring policy for performance year 2019.
    Response: The final policies for determining an ACO's quality 
performance score in the event of an extreme and uncontrollable 
circumstance are automatic, meaning that ACOs are not required to opt-
in and are not permitted to opt-out. As noted elsewhere in this 
section, our intention in adopting automatic policies was to increase 
certainty and reduce burden associated with optional or case-dependent 
policies. Additionally, the policies are designed such that ACOs can 
only benefit from the application of them. That is, if the ACO's 
calculated quality score is higher than the mean quality score, the 
ACO's higher calculated quality score will be used.
    Comment: A commenter noted that impacted ACOs that are unable to 
collect or report necessary quality information would also be very 
likely to trigger the audit process. This commenter recommended that 
any ACO for which quality performance was determined under the interim 
final rules established in the December 2017 interim final rule with 
comment period should not be subject to the Quality Measures Validation 
(QMV) Audit Process if a high number of Medical Record Not Found (MRNF) 
``skips'' are present.
    Response: For performance year 2017, we considered whether an ACO 
was affected by an extreme and uncontrollable circumstance when 
identifying which ACOs would be subject to a Quality Measures 
Validation Audit of their CMS Web Interface data and we did not include 
disaster-affected ACO that skipped an anomalously high number of 
beneficiaries in the audit sample. We anticipate taking a similar 
approach for performance year 2018 and future years.
    Comment: We received several comments related to the interaction of 
the extreme and uncontrollable circumstances policy for quality 
performance scoring and MIPS. We explained in the December 2017 interim 
final rule with comment period that MIPS eligible clinicians in 
Medicare Shared Savings Program ACOs that do not completely report 
quality for 2017 and therefore receive the mean ACO quality score would 
receive a score of zero percent in the MIPS quality performance 
category. However, these MIPS eligible clinicians would receive a score 
of 100 percent in the improvement activities (IAs) performance 
category, which would be enough for them to receive a 2017 MIPS final 
score above the performance threshold. This would result in at least a 
slight positive MIPS payment adjustment in 2019. We explained further 
that if the ACO participants were able to report advancing care 
information (ACI), the MIPS eligible clinicians in the ACO would 
receive an ACI performance category score under the APM scoring 
standard, which would further increase their final score under MIPS.
    A commenter strongly opposed this approach and recommended that CMS 
instead use the higher of the mean quality performance category score 
or the organization's performance year 2016 quality performance 
category score to determine the ACO's quality performance category 
score under the MIPS APM scoring standard. They went on to note that 
this would be particularly important in future years when the MIPS 
minimum performance threshold will increase. A few other commenters 
also expressed the belief that the approach used for performance year 
2017 should not be used for future performance years. For example, a 
commenter supported the approach used for performance year 2017 because 
it would still allow MIPS eligible clinicians to receive a final score 
above the performance threshold, but noted that, in future years, 
receiving 100 percent for the improvement activities performance 
category would not be sufficient to allow MIPS eligible clinicians in 
the ACO to avoid a negative payment adjustment. They recommended that, 
in this case, CMS should set the MIPS score equal to the performance 
threshold. Another commenter suggested that CMS consider redistributing 
the weights of the performance categories under the MIPS program as an 
alternative, nothing that that under the Quality Payment Program, CMS 
has policies allowing for redistribution of the weights of the 
performance categories when warranted. A third commenter encouraged CMS 
to automatically assign a neutral payment adjustment to eligible 
clinicians in a MIPS APM ACO that is unable to report due to extreme 
and uncontrollable circumstances. This commenter also recommended that 
in a case in which the ACO is unable to report but the component 
eligible clinician or TIN reports separately, CMS apply the higher of 
the two scores.
    Response: As we described in the December 2017 interim final rule 
with comment period, and as commenters noted, for performance year 
2017, for purposes of the APM scoring standard, MIPS eligible 
clinicians in a disaster-affected ACO that did not report quality for 
the performance year, and therefore received the mean quality score 
under the Shared Savings Program, received a score of zero percent in 
the MIPS quality performance category. In the August 2018 proposed rule 
(83 FR 41902) and in the November 2018 final rule (83 FR 59974), we 
clarified that for performance year 2018 and subsequent years, such 
clinicians, would have the MIPS quality performance category reweighted 
to zero percent, regardless of whether or not any of the ACO 
participant TINs reported quality outside the ACO. This reweighting 
under MIPS results in MIPS performance category weighting of 75 percent 
for the Promoting Interoperability (PI) performance category and 25 
percent for Improvement Activities performance category consistent with 
our policy at Sec.  414.1370(h)(5)(i)(B). If, for any reason, the PI 
performance category is also reweighted to zero, which could be more 
likely when there is a disaster, there would be only one performance 
category, triggering the policy under which the ACO would receive a 
neutral (threshold) MIPS score, as provided in Sec.  414.1380(c). 
However, if any of the ACO participant TINs do report PI, then the ACO 
participant TIN or TINs' PI performance category scores would be used 
to score the ACO under the MIPS scoring standard, the PI performance 
category would not be reweighted, and the policy of assigning a neutral 
(threshold) MIPS score would not be triggered. We believe that this 
approach should mitigate the concerns raised by commenters as MIPS 
eligible clinicians in a disaster-affected ACO receiving the mean 
quality score under the Shared Savings Program will no longer receive a 
zero percent score in the MIPS quality performance category as they 
would have done under the performance year

[[Page 68040]]

2017 policy. Instead, this category would be reweighted to zero 
percent.
2. Mitigating Shared Losses for ACOs Participating in a Performance-
Based Risk Track
    In the December 2017 interim final rule with comment period, we 
also modified the payment methodology under Tracks 2 and 3 established 
under the authority of section 1899(i) of the Act to mitigate shared 
losses owed by ACOs affected by extreme and uncontrollable 
circumstances during performance year 2017. We explained that under 
this policy, we would reduce the ACO's shared losses, if any, 
determined to be owed under the existing methodology for calculating 
shared losses in part 425, subpart G of the regulations by an amount 
determined by multiplying the shared losses by two factors: (1) The 
percentage of the total months in the performance year affected by an 
extreme and uncontrollable circumstance; and (2) the percentage of the 
ACO's assigned beneficiaries who resided in an area affected by an 
extreme and uncontrollable circumstance. We would determine the 
percentage of the ACO's performance year assigned beneficiary 
population that was affected by the disaster based on the final list of 
beneficiaries assigned to the ACO for the performance year. For 
example, assume that an ACO is determined to owe shared losses of 
$100,000 for performance year 2017, a disaster was declared for October 
through December during the performance year, and 25 percent of the 
ACO's assigned beneficiaries resided in the disaster area. In this 
scenario, we would adjust the ACO's losses in the following manner:
    $100,000-($100,000 x 0.25 x 0.25) = $100,000-$6,250 = $93,750.
    We believed it was appropriate to adopt this policy to address 
stakeholders' concerns that ACOs could be held responsible for sharing 
losses with the Medicare program resulting from catastrophic events 
outside the ACO's control given the increase in utilization, difficulty 
of coordinating care for patient populations leaving the impacted 
areas, and the mandatory use of natural disaster payment modifiers 
making it difficult to identify whether a claim would otherwise have 
been denied under normal Medicare FFS rules. Absent this relief, we 
believed ACOs that were then participating in Tracks 2 and 3 might 
reconsider whether they would be able to continue their participation 
in the Shared Savings Program under a performance-based risk track. We 
noted that the approach we were adopting in the December 2017 interim 
final rule with comment period would balance the need to offer relief 
to affected ACOs with the need to continue to hold those ACOs 
accountable for losses incurred during the months in which there was no 
applicable disaster declaration and for the assigned beneficiary 
population that was outside the area affected by the disaster. We also 
noted that these policies would not change the status of Track 2 or 
Track 3 of the Shared Savings Program as an Advanced Alternative 
Payment Model (APM) for purposes of the Quality Payment Program or 
prevent an eligible clinician in a performance-based risk ACO from 
becoming a Qualifying APM Participant for purposes of the APM incentive 
under the Quality Payment Program.
    We also explored an alternative approach for mitigating the 
potential losses for ACOs in performance-based risk tracks that were 
affected by extreme and uncontrollable circumstances. Under this 
approach, we would remove claims for services furnished to assigned 
beneficiaries in the impacted areas by an ACO participant that are 
submitted with a natural disaster modifier before calculating financial 
performance. However, we believed that this alternative approach could, 
for some affected ACOs, result in the exclusion of a significant amount 
of their total claims at financial reconciliation, making it very 
difficult to measure the ACOs' financial performance.
    We also emphasized that all ACOs would continue to be entitled to 
share in any savings they may achieve for performance year 2017. The 
calculation of savings and the determination of shared savings payment 
amounts would not be affected by the policies to address extreme and 
uncontrollable circumstances. ACOs in all three tracks of the program 
would receive shared savings payments, if any, as determined under part 
425 subpart G.
    We also considered the possible impact of extreme and 
uncontrollable circumstances on an ACO's expenditures for purposes of 
determining the benchmark (Sec.  425.602 and Sec.  425.603). The 
additional costs incurred as a result of an extreme or uncontrollable 
circumstance would likely impact the benchmark determined for the ACO's 
subsequent agreement period in the Shared Savings Program, as 
performance years of the current agreement period become the historical 
benchmark years for the subsequent agreement period. We noted our 
belief that the increase in expenditures for a particular calendar year 
would result in a higher benchmark value when the same calendar year is 
used to determine the ACO's historical benchmark, and in calculating 
adjustments to the rebased benchmark based on regional FFS expenditures 
(Sec.  425.603). We also noted our belief that any effect of including 
these additional expenditures in determining the ACO's benchmark for 
the subsequent agreement period could be mitigated somewhat because the 
ACO's expenditures during the three base years included in the 
benchmark are weighted equally, and regional expenditures would also 
increase as a result of the disaster. Therefore, we anticipated the 
effect on the regional adjustment under Sec.  425.603(c)(9) would be 
minimal. Although we did not modify the program's historical benchmark 
methodology in the December 2017 interim final rule with comment 
period, we noted that we planned to observe the impact of the 2017 
hurricanes and wildfires on ACO expenditures, and that we might revisit 
the need to make adjustments to the methodology for calculating the 
benchmark in future rulemaking.
    We explained that to exercise our authority under section 
1899(i)(3) of the Act to use other payment models, we must demonstrate 
that the payment model--(1) does not result in program expenditures 
that are higher than those that would have resulted under the statutory 
payment model under section 1899(d) of the Act and (2) will improve the 
quality and efficiency of items and services furnished under Medicare. 
In assessing the impacts of the policy for mitigating shared losses for 
Track 2 and Track 3 ACOs affected by extreme and uncontrollable 
circumstances in 2017, we considered: The impact of the potential loss 
of participation in the program by ACOs affected by disasters should we 
not implement the policy described in the December 2017 interim final 
rule with comment period, and the anticipated minimal impact of 
adjusting losses for ACOs affected by disasters, as described in the 
regulatory impact statement for the December 2017 interim final rule 
with comment period. On the basis of this assessment, we believed that 
incorporating this extreme and uncontrollable circumstances policy for 
performance year 2017 into the payment methodologies for Tracks 2 and 3 
would meet the requirements of section 1899(i) of the Act by not 
increasing expenditures above the costs that would be incurred under 
the statutory payment methodology under section 1899(d) of the Act and 
by encouraging affected ACOs to remain in the program, which we 
believed would

[[Page 68041]]

increase the quality and efficiency of the items and services furnished 
to the beneficiaries they serve. We also noted that to the extent the 
policies in the December 2017 interim final rule with comment period 
constituted a change to the Shared Savings Program payment methodology 
for 2017 after the start of the performance year, we believed that, 
consistent with section 1871(e)(1)(A)(ii) of the Act, and for reasons 
discussed in section III of the IFC, it would be contrary to the public 
interest not to adjust the shared losses calculated for ACOs in Tracks 
2 and 3 to reflect the impact of the extreme and uncontrollable 
circumstances during 2017.
    We invited comments on the policies being finalized in the December 
2017 interim final rule with comment period for performance year 2017, 
including the applicable quality data reporting period for performance 
year 2017 under the Shared Savings Program. We noted our belief that 
these automatic extreme and uncontrollable circumstance policies would 
reduce burden and financial uncertainty for ACOs, ACO participants, and 
ACO providers/suppliers affected by catastrophes, including ACOs 
affected by Hurricanes Harvey, Irma, and Maria, and the California 
wildfires, and would also align with existing Medicare policies under 
the Quality Payment Program for 2017.
    We also noted that in future rulemaking, we intended to propose 
permanent policies under the Shared Savings Program to address extreme 
and uncontrollable circumstances in future performance years. 
Therefore, we also invited public comment on policies and issues that 
we should consider when developing proposals for these permanent 
policies.
    We also welcomed comments on how to address the impact of extreme 
and uncontrollable events on historical benchmark calculations, which 
we would consider in developing any future proposals. In particular, we 
sought comments as to whether and how the historical benchmark should 
be adjusted to reflect extreme and uncontrollable events that occur 
during a benchmark year, how to establish the threshold for determining 
whether a significant change in expenditures occurred, whether and how 
to account for changes in expenditures that have an aggregate positive 
or negative impact on the historical benchmark, and whether and how to 
reweight the benchmark years when calculating the historical benchmark 
if one or more benchmark years is impacted by an extreme and 
uncontrollable event.
    Comment: The majority of stakeholders that submitted comments in 
response to the December 2017 interim final rule with comment period 
expressed support for the concept of mitigating shared losses for ACOs 
in two-sided models that were affected by extreme and uncontrollable 
circumstances, though several offered suggestions for modifying the 
approach finalized for performance year 2017 or expanding its scope. 
For example, a commenter recommended that should extreme and 
uncontrollable circumstances affect ACOs in future years, CMS should 
compare the expenditures for Track 2 and Track 3 ACOs in impacted areas 
to the 2017 benchmarks to determine an approach that is fair and 
statistically reliable; however, it was unclear whether the commenter 
was suggesting that CMS compare expenditures to the historical 
benchmarks computed for purposes of Shared Savings Program financial 
calculations or to some other measure of expected 2017 spending. A 
commenter noted that extreme and uncontrollable circumstances can 
result in long-term disruptions in care beyond the time period during 
which an area is declared a natural disaster area and recommended that 
CMS consider a process for establishing a time period beyond the 
timeframe of the disaster declaration during which CMS will continue to 
mitigate an ACO's losses. Several commenters expressed the belief that 
the policy adopted in the December 2017 interim final rule with comment 
period did not go far enough and suggested that CMS consider waiving 
shared losses completely or allowing two-sided ACOs to temporarily 
convert to a one-sided model for affected years. One of these 
commenters noted that this alternative would likely affect an ACO's 
status as participating in an advanced APM but could prevent 
organizations from terminating their participation in the Shared 
Savings Program altogether and could provide an incentive for more 
providers to take on downside risk. Another commenter also suggested 
using a modifier to adjust shared losses but did not provide further 
details on this approach. Another commenter agreed with CMS' decision 
not to exclude claims submitted with a natural disaster modifier when 
mitigating shared losses, noting that it is uncertain whether providers 
submit claims with a modifier. This same commenter questioned what 
would happen for shared losses mitigation in the event that a state of 
emergency spans two calendar years.
    Response: We appreciate the support commenters offered for taking 
steps to mitigate the impacts of extreme and uncontrollable 
circumstances on ACOs in two-sided models. We implemented the policy 
finalized in the December 2017 interim final rule with comment period 
for performance year 2017. There were 11 ACOs with shared losses for 
the performance year. Because ACOs are not required to meet a minimum 
threshold number of assigned beneficiaries in an affected area to 
qualify for this policy, all eleven ACOs received an adjustment to 
their shared losses ranging from $980 to over $400,000. While we are 
sympathetic to the challenges faced by ACOs impacted by natural 
disasters, we decline at this time to consider eliminating shared 
losses for impacted ACOs or allowing ACOs to temporarily switch to a 
one-sided model as we still believe that it is important for ACOs that 
have taken on risk to be held accountable for shared losses incurred 
during months in which there was no applicable disaster declaration and 
for the assigned beneficiary population that was outside the area 
affected by the disaster.
    We also decline to adopt the other suggestions made by commenters, 
such as continuing to mitigate shared losses over a longer time period 
or to use payment modifier codes to adjust shared losses. For 
performance year 2017, we used the time periods associated with public 
health emergencies declared by the Secretary in applying the adjustment 
to shared losses and we expect to continue this practice moving 
forward. As described earlier in this section, we believe this approach 
provides consistency with the time periods during which waivers of 
other Medicare requirements are in place, as well as transparency. We 
are concerned that an approach that would mitigate shared losses over 
an extended period beyond the public health emergency declaration would 
potentially need to be applied on a case-by-case basis to account for 
the circumstances surrounding individual disasters. We wish to avoid 
this type of policy as we are concerned that it would lead to delays in 
determining whether relief would be available and create uncertainty 
for ACOs. With respect to the suggestion that we use payment modifier 
codes to adjust shared losses, as we describe later in this section, we 
have concerns that, in practice, the payment modifier codes are not 
used consistently and therefore would not provide an appropriate means 
for adjusting shared losses.
    In the November 2018 final rule, we extended the policy used to 
mitigate shared losses for performance year 2017

[[Page 68042]]

to performance year 2018 and subsequent years. Accordingly, we would 
like to clarify what would happen if the applicable time period for an 
extreme and uncontrollable event spans two calendar years. Consider an 
event with an applicable time period that spans from October in Year 1 
through January in Year 2. In determining the adjustment to shared 
losses in Year 1, we would use the percentage of the final Year 1 
assigned beneficiary population residing in the affected area and the 
percentage of Year 1 that was affected (2 of 12 months). In determining 
the adjustment to shared losses in Year 2, we would use the percentage 
of the Year 2 final assigned beneficiary population residing in the 
affected area and the percentage of Year 2 that was affected (1 out of 
12 months).
    Comment: Several commenters encouraged CMS to also address the 
financial impact of extreme and uncontrollable circumstances on the 
determination of shared savings for ACOs in all tracks. A few noted 
that all ACOs have invested significant resources to participate in the 
Shared Savings Program and they are at risk of not being able to recoup 
their investment if a natural disaster jeopardizes their opportunity to 
share in savings.
    Response: We appreciate the comments regarding the potential 
impacts of extreme and uncontrollable circumstances on shared savings 
payments. Some of the policies we have considered, such as using 
natural disaster payment modifiers to identify and remove claims for 
beneficiaries in affected areas when computing ACO expenditures, would 
have the potential to address adverse impacts on both shared savings 
and shared losses. However, based an analysis we performed of 2017 
claims data for ACO assigned beneficiaries (see the November 2018 final 
rule (83 FR 59976) for more details), we are concerned that natural 
disaster payment modifier codes would not serve as a useful means for 
comprehensively identifying relevant claims. We also have concerns that 
removing claims for affected beneficiaries and time periods would add 
considerable complexity and could lead to biased expenditure estimates.
    Although we did not adopt an explicit adjustment to the shared 
savings payment for disaster-affected ACOs in either the December 2017 
interim final rule with comment period or the November 2018 final rule, 
we note that our alternative methodology for quality scoring can 
indirectly increase an ACO's shared savings payment. In performance 
year 2017, 62 of 117 disaster-affected ACOs received the national mean 
quality score, as it was higher than the score the ACO would have 
received in the absence of the policy. A higher quality score increases 
the final sharing rate that is applied to an ACO's total savings, and 
thus can increase the ACO's shared savings payment.
    Comment: A few stakeholders offered comments on whether or how CMS 
should account for extreme and uncontrollable circumstances when 
setting financial benchmarks for ACOs. A commenter supported the policy 
of not making any changes to the benchmark but requested that CMS 
continually monitor the impact of triggering events on an ACO's 
benchmark for subsequent agreement periods, noting that it was possible 
that some ACOs may have much lower costs in benchmark years as the 
result of certain types of events and it would be unfair to penalize 
these ACOs. Another commenter acknowledged the challenges of 
appropriately adjusting benchmarks to reflect numerous possible 
situations and the potential for unintended consequences. This 
commenter requested that CMS provide more data on affected ACOs to 
allow for the evaluation of potential benchmark adjustments. Another 
commenter requested an example to demonstrate our view that the 
anticipated effect of extreme and uncontrollable circumstances on 
benchmarks that incorporate regional factors would be minimal. The same 
commenter requested clarification of how benchmark calculations would 
be affected in cases where an emergency spans two calendar years.
    Response: We appreciate the comments and questions raised by 
stakeholders regarding possible approaches for addressing extreme and 
uncontrollable circumstances when calculating ACOs' historical 
benchmarks. In the December 2017 interim final rule with comment 
period, we declined to modify the program's historical benchmark 
methodology for extreme and uncontrollable circumstances. In the August 
2018 proposed rule (83 FR 41904-41906), we explained that we believed 
our proposal to incorporate regional trend factors in our calculations 
to establish and update the historical benchmark for all ACOs would 
provide an inherent adjustment to the benchmark for expenditure 
variations related to extreme and uncontrollable circumstances. In 
section II.D. of this final rule, we are finalizing our proposals to 
incorporate regional expenditures into the calculation of benchmark 
trend and update factors for all ACOs, including those in their first 
agreement period. We continue to believe that this methodology will 
provide an inherent adjustment to the benchmark to account for the 
impact of extreme and uncontrollable circumstances on ACO expenditures 
without suffering from the drawbacks of some of other methods 
considered, such as removing claims with disaster payment modifiers or 
claims for beneficiaries in affected areas and time periods. However, 
we will continue to monitor this approach and would propose 
adjustments, if needed, through future rulemaking.
    Comment: A commenter requested that CMS consider the impact on ACOs 
when a triggering event reduces the number of assigned beneficiaries 
below 5,000. The commenter suggested that CMS establish policies 
ensuring that an ACO whose assigned beneficiary population decreases 
below the threshold of 5,000 as the result of an extreme and 
uncontrollable event be given adequate time to rebuild its patient 
population prior to the next agreement period. Another commenter 
questioned whether ACOs falling below the threshold as the result of a 
disaster would be subject to a penalty. The same commenter requested 
clarification on how the percentage of ACO population affected by a 
disaster would be determined for a Track 3 ACO when assigned 
beneficiaries have moved out of the area.
    Response: ACOs that are subject to the prospective beneficiary 
assignment methodology will continue to be held accountable for their 
prospectively assigned population for the performance year, regardless 
of whether the beneficiaries remain in the same geographic area, as 
long as they continue to reside in the United States, do not enroll in 
Medicare Advantage, and have at least one month of Parts A and B 
coverage and no months of Part A only or Part B only coverage. Thus, 
for an ACO that is subject to the prospective assignment methodology, 
the impact of a disaster on the size of its beneficiary population for 
the performance year should be small. However, we appreciate the fact 
that extreme and uncontrollable events could lead to out-migration from 
the affected area, which could, in turn, have negative effects on an 
ACO's prospectively assigned beneficiary population for future periods 
or on the current performance year (or future benchmark year) 
assignment for an ACO that is subject to preliminary prospective 
assignment with retrospective reconciliation.
    Under section 1899(b)(2)(D) of the Act, in order to be eligible to 
participate

[[Page 68043]]

in the Shared Savings Program an ACO must have at least 5,000 
beneficiaries. CMS deems an ACO to have initially satisfied the 
requirement to have at least 5,000 assigned beneficiaries if 5,000 or 
more beneficiaries are historically assigned to the ACO participants in 
each of the 3 benchmark years as calculated using the program's 
assignment methodology (Sec.  425.110(a)). We decline to modify our 
policy for determining whether a renewing ACO has satisfied the 
statutory requirement to make a special exception for ACOs that have 
been affected by an extreme and uncontrollable circumstance as we 
cannot be certain whether a below-threshold population during the 
benchmark years is due to out-migration resulting from the disaster or 
to other factors. Furthermore, there would be no assurance that an 
ACO's assigned beneficiary population would sufficiently increase 
during the performance period to comply with the statutory requirement. 
We note that as part of their application to renew their participation 
in the program for a new agreement period, all ACOs can modify their 
ACO participant list to try to expand their assigned beneficiary 
population to meet the threshold. ACOs that are unable to meet the 
5,000 assigned beneficiary threshold would have the opportunity to re-
enter the program after the size of their patient population has 
recovered.
    Furthermore, we want to note that ACOs that fall below the 5,000 
assigned beneficiary threshold during an agreement period are not 
automatically terminated from the program. As specified in Sec.  
425.110(b), if at any time during the performance year an ACO's 
assigned population falls below 5,000, the ACO may be subject to the 
predetermination actions described in Sec.  425.216 and termination of 
the participation agreement by CMS under Sec.  425.218. Because ACOs 
have the opportunity to modify their ACO participant lists prior to the 
start of each performance year, such ACOs may have time to sufficiently 
rebuild their assigned population before they must be terminated from 
the program, and in time for renewal. We also note that under the 
policies being finalized in section II.A.5.c. of this final rule, ACOs 
that are involuntarily terminated from the program under Sec.  425.218 
or that voluntarily terminate under Sec.  425.220 may apply to re-enter 
without the previously required ``sit-out'' period.
    Following consideration of the comments received in response to the 
December 2017 interim final rule with comment period, we are not making 
any changes to the extreme and uncontrollable circumstances policies 
that were adopted for performance year 2017. In the November 2018 final 
rule, we finalized policies for providing relief for ACOs impacted by 
extreme and uncontrollable circumstances in performance year 2018 and 
subsequent years. In that final rule, we amended the provisions at 
Sec. Sec.  425.502(e)(4) and (f); 425.606(i) and 425.610(i) that were 
originally adopted in the December 2017 interim final rule with comment 
period in order to reflect these revised policies.

IV. 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. Consequently, the information collection requirements 
contained in this final rule need not be reviewed by the Office of 
Management and Budget.

V. Regulatory Impact Analysis

A. Statement of Need

    This final rule is necessary in order to make certain payment and 
policy changes to the Medicare Shared Savings Program established under 
section 1899 of the Social Security Act. The Shared Savings Program 
promotes accountability for a patient population, fosters the 
coordination of 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 need for the policies is summarized in the statement of the 
rule's purpose in section I. of this final rule and described in 
greater detail throughout the discussion of the policies in section II. 
of this final rule. As we have previously explained in this final rule, 
ACOs in two-sided models have shown significant savings to the Medicare 
program and are advancing quality. However, the majority of ACOs remain 
under a one-sided model. Some of these ACOs are increasing Medicare 
spending (and therefore generating losses) while benefiting from 
waivers of certain federal requirements in connection with their 
participation in the program. These ACOs may also be encouraging 
consolidation in the market place and reducing competition and choice 
for Medicare FFS beneficiaries. Under the redesign of the Shared 
Savings Program we are adopting in this final rule, ACOs of different 
compositions, and levels of experience with the accountable care model 
may continue to participate in the program, but the provisions included 
in this final rule will put the program on a path towards achieving a 
more measureable move to value and lead to savings for the Medicare 
program, while promoting a competitive and accountable marketplace.
    In summary, this final rule will redesign the participation 
options, including the payment models, available to Shared Savings 
Program ACOs to encourage their transition to performance-based risk. 
As part of this approach, CMS will extend the length of ACOs' agreement 
periods from 3 to 5 years as well as make changes to the program's 
benchmarking methodology to allow for benchmarks that better reflect 
the ACO's regional service area expenditures beginning with its first 
agreement period, while also mitigating the effects of factors based on 
regional FFS expenditures on ACO benchmarks more generally. These 
policies are necessary to improve the value proposition of the program 
for currently participating ACOs considering continuing their 
participation, as well as for organizations considering entering the 
program. Further, these changes are timely as large cohorts of the 
program's early entrants, the vast majority of which are currently 
participating in the program's one-sided model (Track 1), face a 
required transition to performance-based risk at the start of their 
next agreement period.
    Other key changes to the program's regulations are also necessary, 
including to implement new requirements established by the Bipartisan 
Budget Act, which generally allow for additional flexibilities in 
payment and program policies for ACOs and their participating providers 
and suppliers. Specifically, we are finalizing policies to implement 
provisions of the Bipartisan Budget Act that allow certain ACOs to 
establish CMS-approved beneficiary incentive programs to provide 
incentive payments to assigned beneficiaries who receive qualifying 
primary care services; permit payment for expanded use of telehealth 
services furnished by physicians or other practitioners participating 
in an applicable ACO that is subject to a prospective assignment 
methodology; and provide greater flexibility in the assignment of 
Medicare FFS beneficiaries to ACOs by allowing ACOs in tracks under a 
retrospective beneficiary assignment methodology a choice of 
prospective assignment for the agreement period. Additionally, this 
final rule will extend the availability of the program's existing SNF 
3-day rule waiver to all ACOs participating under performance-based 
risk to support these ACOs in coordinating care across

[[Page 68044]]

settings to meet the needs of their patient populations.
    To provide ACOs time to consider the new participation options and 
prepare for program changes, make investments and other business 
decisions about participation, obtain buy-in from their governing 
bodies and executives, and complete and submit a Shared Savings Program 
application for a performance year beginning in 2019, we elected to 
forgo the application cycle in 2018 for an agreement start date of 
January 1, 2019, and instead in the November 2018 final rule (83 FR 
59946) we finalized a voluntary 6-month extension for ACOs with a 
participation agreement ending on December 31, 2018, to allow these 
ACOs an opportunity to extend their current agreement period for an 
additional 6-month performance year. Under the policies we are adopting 
in this final rule, these ACOs will be able to apply for a new 
agreement period under the BASIC track or ENHANCED track beginning on 
July 1, 2019. ACOs entering a new agreement period on July 1, 2019, 
will have the opportunity to participate in the program under an 
agreement period spanning 5 years and 6 months, where the first 
performance year is the 6-month period between July 1, 2019, and 
December 31, 2019. This final rule includes the methodology for 
determining ACO financial performance for the 6-month performance year 
from July 1, 2019, through December 31, 2019.

B. Overall Impact

    We examined the impacts of this final 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), Executive Order 13771 on Reducing Regulation and 
Controlling Regulatory Costs (January 30, 2017), the Regulatory 
Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 
1102(b) of the Social Security Act, section 202 of the Unfunded 
Mandates Reform Act of 1995 (March 22, 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). Section 
3(f) of Executive Order 12866 defines a ``significant regulatory 
action'' as an action that is likely to result in a rule: (1) Having an 
annual effect on the economy of $100 million or more in any 1 year, or 
adversely and materially affecting a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or state, local or tribal governments or communities (also 
referred to as ``economically significant''); (2) creating a serious 
inconsistency or otherwise interfering with an action taken or planned 
by another agency; (3) materially altering the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raising novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order. Executive Order 13771 
directs agencies to categorize all impacts which generate or alleviate 
costs associated with regulatory burden and to determine the action's 
net incremental effect.
1. Medicare Program; Medicare Shared Savings Program; Accountable Care 
Organizations--Pathways to Success (CMS-1701-F2)
    A regulatory impact analysis (RIA) must be prepared for major rules 
with economically significant effects ($100 million or more in any 1 
year). We estimate that this rulemaking is ``economically significant'' 
as measured by the $100 million threshold, and hence also a major rule 
under the Congressional Review Act. Accordingly, we have prepared a 
RIA, which to the best of our ability presents the costs and benefits 
of the rulemaking.
    In keeping with our standard practice, the main analysis presented 
in this RIA compares the expected outcomes under the policies included 
in this final rule to the expected outcomes under current regulations. 
We provide our analysis of the expected costs of the final payment 
model under section 1899(i)(3) of the Act to the costs that would be 
incurred under the statutory payment model under section 1899(d) of the 
Act in section V.E. of this final rule.
2. Medicare Program; Medicare Shared Savings Program; Accountable Care 
Organizations--Extreme and Uncontrollable Circumstances Policies (CMS-
1701-F)
    We noted in the December 2017 IFC (82 FR 60918) that the policies 
for addressing extreme and uncontrollable circumstances are unlikely to 
have a significant economic impact on the Shared Savings Program. For 
purposes of the December 2018 interim final rule with comment, we 
estimated the impact of these policies by simulating their effect on 
actual 2016 financial and quality performance results, the most recent 
available reconciled financial and quality results, for the ACOs 
participating in the program in performance year 2017 that were 
potentially impacted by these policies. The total increase in shared 
savings payments and total reduction in shared loss payments 
anticipated for ACOs impacted by the policies in this rule in 2017 was 
estimated to be approximately $3.5 million. Performance year 2017 
results were available in August of 2018, and we found that all 11 of 
the performance-based risk ACOs that owed shared losses received an 
adjustment, reducing aggregate shared losses by $640,000 to reflect the 
impact of extreme and uncontrollable circumstances. In addition, 31 
ACOs received the mean ACO quality score of 92 percent as a result of 
having at least 20 percent of their assigned beneficiaries or the ACO's 
legal entity in a county designated as a natural disaster emergency 
area.

C. Anticipated Effects

1. Effects on the Medicare Program
a. Background
    The Shared Savings Program is a voluntary program operating since 
2012 that provides financial incentives for demonstrating quality of 
care and efficiency gains within FFS Medicare. In developing the 
policies finalized in this rule, we evaluated the impact of the quality 
and financial results of the first 4 performance years of the program. 
We also considered our earlier projections of the program's impacts as 
described in the November 2011 final rule (see Table 8, 76 FR 67963), 
the June 2015 final rule (80 FR 32819), and June 2016 final rule (81 FR 
38002).
(1) ACO Performance 2012 Through 2016
    We have analyzed financial performance from the first four 
performance years for the Shared Savings Program.\24\ Table 14 
describes performance year 2016 results for ACOs segmented by track. 
These results show that in performance year 2016, the 410 Track 1 ACOs 
spent more on average

[[Page 68045]]

relative to their financial benchmarks, resulting in a net loss of $49 
million, or $7 per beneficiary. Because these ACOs were in a one-sided 
shared savings only model, CMS did not recoup any portion of these 
losses. Further, in performance year 2016, the 6 Track 2 and 16 Track 3 
ACOs spent less on average relative to their financial benchmarks. 
Track 2 ACOs produced net savings of $18 million or $308 per 
beneficiary, and Track 3 ACOs produced net savings of $14 million or 
$39 per beneficiary. These results (albeit from a relatively small 
sample of ACOs that in a number of cases moved to a performance-based 
risk track only after showing strong performance in a first agreement 
period under Track 1) indicate that ACOs under performance-based risk 
were more successful at lowering expenditures in performance year 2016 
than ACOs under Track 1.
---------------------------------------------------------------------------

    \24\ The first performance year for the program concluded 
December 31, 2013, which included a 21-period for April 2012 
starters, an 18-month period for July 2012 starters, and a 12-month 
period for January 2013 starters. Thereafter, results have been 
determined for the calendar year performance year for 2014 through 
2017 for all ACOs that participated in the program for the relevant 
year. The study conducted for this rule reviewed results through 
2016.
---------------------------------------------------------------------------

    The same performance year 2016 data also show that ACOs produce a 
higher level of net savings and more optimal financial performance 
results the longer they have been in the Shared Savings Program and 
with additional participation experience. In performance year 2016, 42 
percent of ACOs that started participating in the Shared Savings 
Program in 2012 and remained in the program in 2016 shared in savings 
and 36 percent of both 2013 and 2014 starters shared in savings. In 
contrast, 26 percent of 2015 starters shared in savings and 18 percent 
of 2016 starters shared in savings in performance year 2016.
[GRAPHIC] [TIFF OMITTED] TR31DE18.018

    Table 15 indicates that when analyzing the performance of ACOs in 
Track 1, which is the track in which the majority of Shared Savings 
Program ACOs participated as of performance year 2016, it becomes clear 
that low revenue ACOs are saving CMS money while high revenue ACOs are 
resulting in additional spending by CMS before accounting for market-
wide and potential spillover effects. Low revenue Track 1 ACOs produced 
net savings of $182 million relative to their benchmarks or $73 per 
beneficiary, and high revenue Track 1 ACOs produced a net loss of $231 
million or $46 per beneficiary. For the purpose of this analysis, an 
ACO whose ACO participants' Medicare FFS revenue for assigned 
beneficiaries was less than 10 percent of the ACO's assigned 
beneficiary population's Parts A and B expenditures, was identified as 
a ``low revenue ACO,'' while an ACO whose ACO participants' Medicare 
FFS revenue for assigned beneficiaries was at least 10 percent of the 
ACO's assigned beneficiary population's Parts A and B expenditures, was 
identified as a ``high revenue ACO''. Nationally, evaluation and 
management spending accounts for about 10 percent of total Parts A and 
B per capita spending. Because ACO assignment focuses on evaluation and 
management spending, applying a 10 percent limit to identify low 
revenue ACOs will capture all ACOs that participated in the Shared 
Savings Program in performance year 2016 that were solely comprised of 
providers and suppliers billing for physician fee schedule services and 
generally exclude ACOs with providers and suppliers that bill for 
inpatient services for their assigned beneficiaries. The use of a 
threshold of 10 percent of the Parts A and B expenditures for the ACO's 
assigned beneficiary population to classify ACOs as either ``low 
revenue'' or ``high revenue'' also showed the most significant 
difference in performance between the two types of ACOs. We note that 
this approach differs from the definitions for low revenue ACO and high 
revenue ACO discussed in section II.A.5.b. and finalized in this final 
rule. However, our analysis has confirmed that the simpler and more 
practical policy that we are adopting in this final rule of identifying 
low revenue ACOs using a 35-percent threshold in terms of the ratio of 
ACO participants' total Medicare Parts A and B FFS revenue relative to 
total Medicare Parts A and B expenditures for the ACO's assigned 
beneficiary population produces a comparable subgroup of ACOs with 
similarly-elevated average financial performance and ACO participant 
composition as the methods used in this study, as well as the lower 25 
percent threshold proposed in the August 2018 proposed rule.

[[Page 68046]]

[GRAPHIC] [TIFF OMITTED] TR31DE18.019

    With respect to ACO quality, the Shared Savings Program's quality 
measure set includes both process and outcome measures that evaluate 
preventive care, clinical care for at-risk populations, patient 
experience of care, and care coordination. ACOs have consistently 
achieved higher average performance rates compared to group practices 
reporting similar quality measures. In addition, ACOs that have 
participated in the program over a longer time period have shown 
greater improvement in quality performance. For example, across all 
Shared Savings Program ACOs that reported quality in both performance 
year 2013 and performance year 2016, average quality performance 
improved by 15 percent across 25 measures used consistently across the 
performance years. Further, for performance year 2016, 93 percent of 
Shared Savings Program ACOs received bonus points for improving quality 
performance in at least one of the four quality measure domains with an 
average quality score increase for the applicable domain of 3 
percentage points.
    Comment: Several commenters expressed support for Track 1 of the 
Shared Savings Program and the value of one-sided models. Several 
commenters cited the positive performance of Track 1 ACOs during 
performance year 2017 and past performance years referencing publically 
available CMS data and other publically available studies and citing 
the wide range of potential savings generated by Track 1 ACOs. Several 
commenters expressed their belief that Shared Savings Program 
performance should not be measured against ACO benchmarks, as financial 
benchmarks do not serve as valid counterfactuals and also fail to 
account for spillover effects, leading to misinterpretations of the 
value of one-sided models.
    A few commenters stated that they believed there is limited 
evidence available that shows downside risk elicits stronger 
performance, and one commenter suggested CMS should revise its 
statements that suggest ACOs participating in Track 1 of the Shared 
Savings Program have increased spending. A few commenters indicated 
that as ACOs gain experience with participation in the Shared Savings 
Program, these experienced ACOs also have demonstrated greater rates of 
savings, suggesting that ACOs should continue to have additional time 
to participate in one-sided models and the opportunity for slower 
transitions to performance-based risk.
    Response: We agree with commenters' suggestions that there is value 
in one-sided models, and we want to reiterate this belief for those 
commenters who suggested we have not recognized the benefits of 
participation in a one-sided model. As discussed in detail in this 
Regulatory Impact Analysis, the program results indicate that ACOs in 
one-sided models have indeed contributed to significant overall net 
program savings. We also agree with commenters, that performance in 
one-sided models should be evaluated using a variety of performance 
measures, such as comparing ACO markets to non-ACO markets. This type 
of comparison has shown spending trend reductions supporting the 
benefits of ACO participation in one-sided models, implying gross 
savings are likely several times the magnitude measured by program 
benchmarks. We also agree that ACOs need an opportunity to participate 
in a one-sided model to gain experience in the Shared Savings Program 
before moving to performance-based risk, and we believe the glide path 
provided in the BASIC Track offers the flexibility needed for ACOs to 
gain experience in the program, while also offering options for ACOs 
that are ready to accelerate their move to higher risk within an 
agreement period.
    We disagree with commenters that suggested that ACOs should have 
more time and a slower transition to two-sided models, as we have found 
ACOs in two-sided models consistently have generated greater savings 
and have shown higher performance than ACOs in one-sided models, and we 
believe the glide path provided in the BASIC track strikes the 
appropriate balance in incentives to improve performance and 
appropriately transitions ACOs to greater levels of risk and reward.
    Comment: Several commenters agreed with the discussion in the 
August 2018 proposed rule regarding the data that show physician-led 
ACOs are more successful in producing savings. Some other commenters 
disagreed with CMS' conclusion that low revenue ACOs (typically 
physician-led ACOs) perform better than high revenue ACOs (typically 
ACOs that include a hospital). MedPAC commented that although the 
August 2018 proposed rule described greater savings relative to 
benchmarks for low revenue ACOs in 2016, this analysis may not present 
the full picture because it did not take into account the fact that 
physician-only ACOs are more common in markets where service use per 
beneficiary has been historically high. According to MedPAC, even if 
physician-only ACOs generate some small degree of additional savings on 
average compared to hospital-based ACOs, the magnitude of these 
additional savings is not large enough for the Medicare program to 
favor physician-only ACOs over integrated physician-hospital ACOs for 
payment purposes. Rather, Medicare should be neutral with respect to 
the specific configuration of ACOs and their ACO participants and ACO 
providers/suppliers, and instead design and implement policies to 
reward the most effective ACOs in a given market.
    A few commenters argued that one of CMS' premises for 
distinguishing between hospital-based and physician-led ACOs is flawed, 
explaining based on a commenter's own analysis, that at least 20 
percent of health system-led ACOs would be designated as

[[Page 68047]]

``physician led,'' and more generally that some of the highest 
performing individual ACOs are hospital-based ACOs.
    Response: We believe that factors related to ACO composition, 
including the relationship between ACO participant revenues and the 
ACO's benchmark, are reflected in program participation trends and 
program results, including results from performance years 2016 and 
2017. Financial results vary at the ACO level and there are both 
significant savings and losses represented in the subsets of low and 
high revenue ACOs, but the finding that low revenue ACOs have higher 
mean savings is generally consistent even when filtering for specific 
cohorts of ACOs, specific years of performance, and track selection. 
Furthermore, the changes we are finalizing in this rule will not 
preclude high revenue ACOs from succeeding in the program, but instead 
they will require such ACOs to take a more aggressive path toward 
performance-based risk--a path that is naturally better suited to 
entities with higher revenue, as evidenced by the successful 
participation of high revenue ACOs in Track 2 and Track 3. While early 
adopters of performance-based risk have included both low revenue ACOs 
and high revenue ACOs, a larger percentage of high revenue ACOs have 
elected to participate in two-sided models. For example, in performance 
year 2017, there were 6 percent more high revenue ACOs participating in 
Track 2 and Track 3 than in Track 1. However, analyses of performance 
year 2017 results show that low revenue ACOs continue to have stronger 
performance overall than high revenue ACOs, and low revenue ACOs in 
two-sided risk models outperform all other ACOs. While high revenue 
ACOs with greater experience in the program participating under two-
sided models outperformed ACOs with these characteristics in Track 1, 
high revenue ACOs in two-sided models in their first performance year 
in the program showed a net loss. Generally, the vast majority of ACOs 
in two-sided models that have owed shared losses have been high revenue 
ACOs.
    We believe this experience and the program results to date 
demonstrate that high revenue ACOs generally have a greater capacity to 
take on higher risk and that higher levels of risk can help serve as 
catalyst for these organizations to improve quality of care and lower 
growth in FFS expenditures for their assigned beneficiary populations 
even more quickly. Further, high revenue ACOs that have not already 
moved to two-sided risk are not performing as well as low revenue ACOs, 
although we believe they have the financial means to move to greater 
risk, and may be taking advantage of program flexibilities that can 
lead to increased program spending or are not serious about redesigning 
their care processes to improve quality and lower expenditure growth. 
As a consequence, we believe high revenue ACOs without a sufficient 
incentive to change their practice patterns, including through the 
transition to performance-based risk, may not only lead to higher 
Medicare spending, but also pose a risk of crowding out participation 
by low revenue ACOs with stronger potential to improve the quality and 
efficiency of care delivery.
(2) ACO Market-Wide Effects and Potential Spillover
    Analysis of wider program claims data indicates Medicare ACOs have 
considerable market-wide impact, including significant spillover 
effects not directly measurable by ACO benchmarks. Whereas spending 
relative to benchmark (Tables 14 and 15) indicates Shared Savings 
Program ACOs as a group are not producing net savings for the Medicare 
FFS program, a study of wider claims data indicates significant net 
savings are likely being produced. Table 16 includes data through 
performance year 2016 on the cumulative per capita Medicare FFS 
expenditure trend (on a price-standardized and risk-adjusted basis) in 
markets that include Medicare ACOs, including ACOs participating in the 
Shared Savings Program as well as in the Pioneer and Next Generation 
ACO Models. Table 16 illustrates that, compared to the results in 
relation to ACOs' historical benchmarks discussed previously (see Table 
14), more savings are likely being generated when both the spillover 
effects on related populations and the feedback effect of growing ACO 
participation on the national average FFS program spending growth, 
which in turn has been used to update ACO benchmarks, are factored in. 
Table 16 expresses combined market average per capita spending growth 
since 2011 relative to a baseline FFS per capita trend observed for 
hospital referral regions continuing to have less than 10 percent of 
total assignable FFS beneficiaries assigned to Medicare ACOs through 
2016. Markets that have been ``ACO active'' longer (defined by the year 
a market first reached at least 10 percent assignment of assignable FFS 
beneficiaries to Medicare ACOs) show the greatest relative reduction in 
average adjusted growth in per capita Medicare FFS spending. Markets 
that have included Medicare ACOs since 2012, particularly the 
relatively small subset of 10 hospital referral regions reaching 
significant ACO participation in risk (defined as at least 30 percent 
assignment by 2016 to ACOs participating in a Shared Savings Program 
track or Medicare ACO model with performance-based risk), show the most 
significant reductions in Medicare FFS spending through 2016.

[[Page 68048]]

[GRAPHIC] [TIFF OMITTED] TR31DE18.020

    Based on an analysis of Medicare Shared Savings Program and Pioneer 
ACO Model performance data, we observe that the sharpest declines in 
spending are for post-acute facility services (particularly skilled 
nursing facility services), with smaller rates of savings (but more 
dollars saved overall) from prevented hospital admissions and reduced 
spending for outpatient hospital episodes. These findings become 
apparent when assessing hospital referral regions both with (>10 
percent of assignable Medicare FFS beneficiaries assigned to ACOs in 
2012) and without (<10 percent through 2016) a significant portion of 
assignable Medicare FFS beneficiaries assigned to ACOs. Comparing 
price-standardized per capita changes in spending from 2011 to 2016, 
regions with significant ACO penetration yielded larger declines in 
expenditures in the following areas relative to those without 
significant ACO penetration: Post-acute care facilities (relative 
decrease of 9.0 percent), inpatient (1.6 percent relative decrease), 
and outpatient (3.5 percent relative decrease). These relative 
decreases were accompanied by declines in evaluation and management 
services (2.5 percent relative decrease), emergency department (ED) 
utilization (1.6 percent relative decrease), hospital admissions (1.9 
percent decrease), and hospital readmissions (3.5 percent decrease). 
There also appears to be substitution of higher cost services with 
lower cost services. For example, during the same period, home health 
expenditures increased by 5.0 percent and ambulatory surgery center 
expenditures increased by 1.4 percent, indicating that some 
beneficiaries could be forgoing care in institutional and inpatient 
settings in favor of lower cost sites of care.
    These findings are supported by outside literature and research. 
For example, a study conducted by J. Michael McWilliams and colleagues 
(JAMA, 2017) found that Shared Savings Program ACOs that began 
participating in 2012 reduced post-acute care spending by 9 percent by 
2014.\25\ Another study by Ulrika Winblad and colleagues (Health 
Affairs, 2017) determined that ACO-affiliated hospitals reduced 
readmissions from skilled nursing facilities at a faster rate than non-
ACO-affiliated hospitals through 2013.\26\ In addition, a study by John 
Hsu and colleagues (Health Affairs, 2017) concluded that using care 
management programs, large Pioneer ACOs generated 6 percent fewer ED 
visits, 8 percent fewer hospitalizations, and overall 6 percent less 
Medicare spending relative to a comparison group through 2014.\27\
---------------------------------------------------------------------------

    \25\ McWilliams JM, et al. Changes in Postacute Care in the 
Medicare Shared Savings Program. JAMA Intern Med. 2017; 177(4):518-
526. doi:10.1001/jamainternmed.2016.9115.
    \26\ Winblad U, et al. ACO-Affiliated Hospitals Reduced 
Rehospitalizations from Skilled Nursing Facilities Faster than Other 
Hospitals. Health Affairs. 2017 January; 36(1): 67-73. doi:10.1377/
hlthaff.2016.0759.
    \27\ Hsu J, et al. Bending The Spending Curve By Altering Care 
Delivery Patterns: The Role Of Care Management Within A Pioneer ACO. 
Health Affairs. 2017 May 1; 36(5):876-884. doi:10.1377/
hlthaff.2016.0922.
---------------------------------------------------------------------------

    Assuming Medicare ACOs were responsible for all relative deviations 
in trend from non-ACO markets produces an optimistic estimate that 
total combined Medicare ACO efforts potentially reduced total FFS 
Medicare Parts A and B spending in 2016 by about 1.2 percent, or $4.2 
billion (after accounting for shared savings payments but before 
accounting for the potential impact on MA plan payment). However, it is 
likely that ACOs are not the only factor responsible for lower spending 
growth found in early-ACO-active markets. Health care providers in such 
markets are likely to be more receptive to other models and/or 
interventions, potentially including the following, for example: (1) 
Health Care Innovation Award payment and service delivery models funded 
by the Innovation Center; (2) advanced primary care functionality 
promoted by other payers, independent organizations like the National 
Committee for Quality Assurance, and/or through Innovation Center 
initiatives including the Multi-Payer Advanced Primary Care Practice 
Demonstration and Comprehensive Primary Care Initiative; and (3) care 
coordination funded through other Medicare initiatives, including, for 
example, the Community-based Care Transitions Program. Furthermore, the 
markets making up the non-ACO comparison group only cover about 10 
percent of the national assignable FFS population in 2016 and may offer 
an imperfect counterfactual from which to estimate ACO effects on other 
markets.
    An alternative (and likely more precise) estimate for the overall 
Medicare ACO effect on spending through 2016 involves assuming a 
spillover multiplier mainly for savings on non-assigned beneficiaries 
whose spending is not explicitly included in benchmark calculations and 
combining primary and spillover effects to estimate the degree to which 
ACO benchmarks were reduced by the feedback such efficiency gains would 
have had on

[[Page 68049]]

national average spending growth. Analysis of claims data indicates an 
average ACO's providers and suppliers provide services to roughly 40 to 
50 percent more beneficiaries than are technically assigned to the ACO 
in a given year. In addition, savings will potentially extend to 
spending greater than the large claims truncation amount, IME payments, 
DSH payments, and other pass-through payments that are excluded from 
ACO financial calculations. Assuming proportional savings accrue for 
non-assigned beneficiaries and the excluded spending categories, as 
previously described, supports a spillover savings assumption of 1.6 
(that is, 60 cents of savings on non-benchmark spending for every 
dollar of savings on benchmark spending). Total implied savings, 
including the assumed spillover savings, suggest that Medicare ACOs 
were responsible for about 50 percent of the lower spending growth in 
ACO markets (after becoming ACO active), or roughly 0.5 percent lower 
total FFS Parts A and B spending in 2016 after accounting for shared 
savings payments.
    The latest results recently published for ACOs participating in a 
2017 performance year show continued overall progress in terms of the 
magnitude of combined program savings relative to combined benchmarks 
and relative to the net combined dollars returned to ACOs as shared 
savings payments net of shared loss receipts. For the first time in 
2017, ACOs in Track 1 showed combined savings relative to benchmark 
exceeding the combined dollars returned to such ACOs via shared savings 
payments. However, the greatest difference in terms of gross savings 
relative to benchmark outpacing shared savings payments continues to be 
exhibited by the subgroup of low-revenue ACOs in performance based 
risk.
    There are several other key takeaways from the available evidence 
and literature regarding the performance of Medicare ACOs, including 
the following:
    Independent Research Finds ACOs Reduce Medicare Trust Fund Outlays. 
The implications from studying market-level trends described in the 
previous section are compatible with findings reported by independent 
researchers. J. Michael McWilliams (JAMA, 2016) found that in 2014, 
Shared Savings Program ACOs generated estimated program savings of $628 
million, or about 2.5 times higher than the savings in relation to 
participating ACOs' historical benchmarks and nearly twice the total 
shared savings payments of $341 million.\28\ Another study by 
McWilliams and colleagues (JAMA, 2013) on a commercial ACO initiative, 
the Alternative Quality Contract, estimated a net 3.4 percent reduction 
in spending on Medicare beneficiaries due to spillover from a 
commercial non-Medicare ACO initiative.\29\ A study funded by the 
National Association of Accountable Care Organizations estimated that 
Shared Savings Program ACOs generated savings of $1.84 billion during 
through the 2015 performance year, or roughly double the gross savings 
measured relative to the ACOs' combined benchmark over such period.\30\ 
This research supports the hypothesis that changes in care delivery 
implemented by Medicare ACO clinicians will, in turn, cause efficiency 
gains in the wider Medicare FFS population. In another study supporting 
this hypothesis, Madeleine Phipps-Taylor and Stephen Shortell (NEJM, 
2016) conducted a set of case studies which concluded that ACOs were 
making system and process changes that will improve the value of 
services provided to all patients, regardless of payer.\31\
---------------------------------------------------------------------------

    \28\ McWilliams JM. Changes in Medicare Shared Savings Program 
Savings From 2013 to 2014. JAMA. 2016; 316(16):1711-1713. 
doi:10.1001/jama.2016.12049.
    \29\ McWilliams JM, et al. Changes in Health Care Spending and 
Quality for Medicare Beneficiaries Associated With a Commercial ACO 
Contract. JAMA. 2013; 310(8):829-836. doi:10.1001/jama.2013.276302.
    \30\ Dobson, A, et al. Estimates of Savings by Medicare Shared 
Savings Program Accountable Care Organizations. (August 30, 2018); 
available at https://www.naacos.com/assets/docs/pdf/Study_of_MSSP_Savings_2012-2015.pdf
    \31\ Madeleine Phipps-Taylor & Stephen M. Shortell. ACO 
Spillover Effects: An Opportunity Not to Be Missed, NEJM Catalyst 
(September 21, 2016); available at https://catalyst.nejm.org/aco-spillover-effects-opportunity-not-missed/.
---------------------------------------------------------------------------

    Low revenue ACOs (including small and physician-only ACOs) have 
produced stronger average benchmark savings to date than high revenue 
ACOs (likely including institutional providers). We also find lower 
spending growth in the handful of markets that happen to be virtually 
exclusively populated by low revenue ACOs; however, the sample size of 
such markets is too small for us to confidently estimate relative 
performance but does offer some corroboration of the stronger results 
observed for low revenue ACOs on average relative to their historical 
benchmarks. Further, evidence suggests that overall payment reform has 
been associated with little acceleration in consolidation of health 
care providers that surpasses trends already underway (Post et al., 
2017),\32\ although there is some evidence of potential defensive 
consolidation in response to new payment models (Neprash et al., 
2017).\33\ Anecdotally, ACOs provide physician practices with a way to 
stay independent and offer a viable alternative to merging with a 
hospital (Mostashari, 2016).\34\
---------------------------------------------------------------------------

    \32\ See for example, Brady Post, Tom Buchmueller, and Andrew M. 
Ryan. Vertical Integration of Hospitals and Physicians: Economic 
Theory and Empirical Evidence on Spending and Quality. Medical Care 
Research and Review. August 2017. https://doi.org/10.1177/1077558717727834. See also, Liaw WR, et al. Solo and Small 
Practices: A Vital, Diverse Part of Primary Care. Ann Fam Med. 
2016;14(1):8-15. doi:10.1370/afm.1839.
    \33\ Neprash HT, Chernew ME & McWilliams JM. Little Evidence 
Exists to Support the Expectation That Providers Will Consolidate to 
Enter New Payment Models. Health Affairs. 2017; 36(2): 346-354. 
doi:10.1377/hlthaff.2016.0840.
    \34\ See for example, Mostashari, F. The Paradox of Size: How 
Small, Independent Practices Can Thrive in Value-Based Care. Ann Fam 
Med. 2016; 14(1):5-7. doi:10.1370/afm.1899.
---------------------------------------------------------------------------

    Generating savings is difficult for ACOs. It may take time as well 
as trial and error for ACOs to build more efficient care delivery 
infrastructure. Small absolute savings compound over time in an 
incremental fashion. This gradual change is evidenced by ACOs' 
financial performance results to date, which indicate that ACOs produce 
more net savings the longer they participate in programs such as the 
Shared Savings Program.
    Shared savings are not profits. Program experience since 2012 
indicates that ACOs make upfront investments in care delivery 
infrastructure, including data analytics and staffing, with the intent 
of saving money through improvements in care management and 
coordination. ACOs that do not achieve savings must still fund these 
operational costs.
    Sustainably rewarding attained efficiency and continued improvement 
is the central challenge. Therefore, optimizing program design elements 
for ACO initiatives such as the Shared Savings Program is key to 
ensuring that both of these goals are attained. Such elements include 
the methodology used to set and reset the ACO's historical benchmark, 
the approach used to calculate the ACO's shared savings and/or shared 
losses, the level of performance-based risk for ACOs, and the 
methodology for assigning beneficiaries to the ACOs. Striking this 
balance correctly will foster increased participation in ACO 
initiatives, which is required to produce higher levels of net savings.
    Comment: Several commenters suggested CMS incorporate a broader set 
of measurement approaches to

[[Page 68050]]

determine ACO and Shared Savings Program performance, to better 
identify spillover and other effects on non-ACO assigned populations. A 
few commenters believed that improved accuracy in identifying and 
measuring spillover effects would improve determinations of the overall 
performance of the Shared Savings Program and better identify actual 
savings to the Medicare Trust Funds.
    Response: We agree with commenters that reviewing the wider impacts 
and accounting for the spillover effects related to ACO participation 
in the Shared Savings Program is important, and this was discussed in 
detail in the Regulatory Impact Analysis for the August 2018 proposed 
rule. Our analysis of wider program claims data indicates that Medicare 
ACOs have considerable market-wide impact, including significant 
spillover effects not directly measurable by ACO benchmarks. Table 16 
includes data through PY 2016 on the cumulative per capita Medicare FFS 
expenditure trend (on a price-standardized and risk-adjusted basis) in 
markets that include Medicare ACOs, including ACOs participating in the 
Shared Savings Program as well as in the Pioneer and Next Generation 
ACO Models. Table 16 illustrates that more savings are likely being 
generated when both the spillover effects on related populations and 
the feedback effect of growing ACO participation on the national 
average FFS program spending growth are factored in. Additionally, 
analysis of markets that have been ``ACO active'' longer (defined by 
the year a market first reached at least 10 percent assignment of 
assignable FFS beneficiaries to Medicare ACOs) shows that these markets 
have the greatest relative reduction in average adjusted growth in per 
capita Medicare FFS spending. CMS will continue to use a variety of 
methods to evaluate the impact of Shared Savings Program participation 
in future years.
    Comment: Several commenters suggested that CMS' statements that 
ACOs are a potential driver of consolidation in the healthcare industry 
are not supported by studies or publically available data. One 
commenter described their belief that consolidation had been occurring 
before the Shared Savings Program and has generally continued for other 
reasons, and that the Shared Savings Program may even contribute to 
greater competition in provider markets, as long as its incentive 
structure continues to favor lower-revenue organizations. One commenter 
suggests ACOs provide physician practices with a way to stay 
independent and offer an alternative to merging with a hospital. One 
commenter described the program redesign outlined in the August 2018 
proposed rule as more complex and expensive than the existing program 
requirements, and was concerned that it would potentially limit 
opportunities for smaller companies, such that larger entities will 
prevail.
    Response: As explained earlier in this impact analysis, evidence 
suggests that overall payment reform has been associated with little 
acceleration in consolidation of health care providers that surpasses 
trends already underway (Post et al., 2017) \35\, but there is some 
evidence of potential defensive consolidation in response to new 
payment models (Neprash et al., 2017) \36\. Anecdotally, ACOs provide 
physician practices with a way to remain independent and offer a viable 
alternative to merging with a hospital (Mostashari, 2016).\37\ However, 
we also agree with commenters that additional investigation and 
research on consolidation is needed.
---------------------------------------------------------------------------

    \35\ See for example, Brady Post, Tom Buchmueller, and Andrew M. 
Ryan. Vertical Integration of Hospitals and Physicians: Economic 
Theory and Empirical Evidence on Spending and Quality. Medical Care 
Research and Review. August 2017. https://doi.org/10.1177/1077558717727834. See also, Liaw WR, et al. Solo and Small 
Practices: A Vital, Diverse Part of Primary Care. Ann Fam Med. 
2016;14(1):8-15. doi:10.1370/afm.1839.
    \36\ Neprash HT, Chernew ME & McWilliams JM. Little Evidence 
Exists to Support the Expectation That Providers Will Consolidate to 
Enter New Payment Models. Health Affairs. 2017; 36(2): 346-354. 
doi:10.1377/hlthaff.2016.0840.
    \37\ See for example, Mostashari, F. The Paradox of Size: How 
Small, Independent Practices Can Thrive in Value-Based Care. Ann Fam 
Med. 2016; 14(1):5-7. doi:10.1370/afm.1899.
---------------------------------------------------------------------------

    We disagree with the commenter's suggestion that the program 
redesign under the ``Pathways to Success'' will encourage larger 
entities to form, as our incentives for low revenue ACOs will likely 
continue to support smaller physician-driven organizations to 
participate in the Shared Savings Program and reduce incentives for 
consolidation. Rather, we believe that the redesign of the Shared 
Savings Program offers ACOs of different compositions opportunities to 
move to value and achieve savings for the Medicare program, while 
promoting a competitive and accountable marketplace.
    Comment: Two commenters disputed CMS' assertion that Shared Savings 
Program ACOs are not generating significant savings due to ACOs' 
reluctance to undertake risk. These commenters believe that Shared 
Savings Program ACOs are improving quality and achieving significantly 
higher savings for Medicare than CMS originally calculated. One 
commenter requested that CMS re-examine its data and re-evaluate the 
effectiveness of the Shared Savings Program. Other commenters expressed 
disappointment with ACO progress toward significantly improving 
efficiency of care
    Response: We disagree with the assertions made by these commenters 
that we have underestimated the overall impact of the program. As 
discussed in detail in this Regulatory Impact Analysis, our analysis of 
the program indicates that ACOs (the majority of which participated in 
one-sided Track 1 during our study period) have produced significant 
overall net program savings as evidenced by reductions in spending 
trends in ACO markets compared to non-ACO markets, which imply that 
gross savings from ACO participation in the program are likely at least 
several times the magnitude measured by program benchmarks. We also 
note, however, that high revenue ACOs on average are not showing 
positive net savings relative to their benchmarks. We believe replacing 
Track 1 with a BASIC track featuring a more gradual, but ultimately 
quicker, transition to performance-based risk, in conjunction with 
benchmark refinements, will promote stronger performance by both high 
revenue and low revenue ACOs remaining in or joining the program.
b. Assumptions and Uncertainties
    The changes to the Shared Savings Program finalized in this rule 
could result in a range of possible outcomes. In assessing the impact 
of these changes, we considered a number of uncertainties related to 
determining future participation and performance by ACOs in the Shared 
Savings Program.
    Changes to the existing benchmark calculations described previously 
will benefit program cost savings by producing benchmarks with improved 
accuracy (most notably by limiting the effect of the regional benchmark 
adjustment to positive or negative 5 percent of the national per capita 
spending amount). However, such savings will be partly offset by 
increased shared savings payments to ACOs that will benefit from the 
changes to our benchmarking methodology to incorporate factors based on 
regional FFS expenditures beginning with the ACO's first agreement 
period, revise risk adjustment to include up to a 3 percent increase in 
average HCC risk score over the course of an agreement period, and 
blend national trend with regional trend when calculating ACO 
benchmarks. Such trade-offs reflect our intention to strengthen the 
balance between

[[Page 68051]]

rewarding ACOs for attainment of efficiency in an absolute sense in 
tandem with incentivizing continual improvement relative to an ACO's 
recent baseline.
    More predictable relationships, that is, an ACO's knowledge of its 
costs relative to the FFS expenditures in its region used to adjust its 
benchmark, can allow risk-averse ACOs to successfully manage 
significant exposure to performance-based risk. However, the policies 
we are adopting in this final rule will limit regional adjustments so 
that they still incentivize low cost ACOs to take on risk while 
mitigating excessive windfall payments to ACOs that, for a variety of 
reasons, may be very low cost at baseline. The finalized policies--
notably the reduction in the weight used to determine the regional 
adjustment for high cost ACOs to 15 percent and 25 percent, 
respectively, in the first 2 agreement periods in which the regional 
adjustment is applied--also increase the possibility that higher cost 
ACOs will find a reasonable business case to remain in the program and 
thereby continue to lower their cost over time.
    We also considered the possibility that providers and suppliers 
will have differing responses to changing financial incentives offered 
by the program, including for example the varying levels of savings 
sharing rates and/or loss sharing limits defined for the BASIC and 
ENHANCED tracks. Participation decisions are expected to continue to be 
based largely on an ACO's expectation of the effect of rebasing and the 
regional adjustment on its ability to show spending below an expected 
future benchmark. We also considered the incentive for ACOs to 
participate under the highest level of risk and reward in the BASIC 
track or in the ENHANCED track in order to participate in an Advanced 
APM for purposes of the Quality Payment Program. Eligible clinicians in 
an ACO that is participating in an Advanced APM may become Qualifying 
APM Participants for a year if they receive a sufficient percentage of 
their payments for Part B covered professional services or a sufficient 
percentage of Medicare patients through the ACO.
    We also gave consideration to the effect on program entry and 
renewal as a result of discontinuing Track 1 and Track 2, and offering 
instead the BASIC track (including the glide path for eligible ACOs) 
and ENHANCED track, including the option for ACOs currently under 3-
year agreements for participation in Track 1, Track 2, and Track 3 to 
terminate their agreement to quickly enter a new agreement period under 
the BASIC track or the ENHANCED track. For example, if 2014 starters 
complete a second 3-year agreement period under Track 1 and are 
eligible to enter the BASIC track's glide path under a one-sided model 
in 2020, these ACOs could have 7 performance years under a one-sided 
model. Modeling indicates that while such allowance could slow the 
transition to risk for some ACOs that might otherwise have enough of a 
business case to make an immediate transition to performance-based 
risk, the longer glide path will likely result in greater overall 
program participation by the end of the projection period and 
marginally increase overall program savings. We also considered the 
effect on participation from the final policies that will permit ACOs 
to change their beneficiary assignment method selection prior to the 
start of each performance year, and allow ACOs in the BASIC track's 
glide path the option annually to elect to transition to a higher level 
of risk and reward within the glide path.
    We also considered the potential effects of the final policies to 
promote participation by low revenue ACOs. By allowing new, low revenue 
ACOs to enter the BASIC track with several options for progressing 
under the BASIC track (for example taking 3 years with up to 40 percent 
sharing in savings without performance-based risk or immediately 
entering the maximum level of risk and potential reward under such 
track) and to continue their participation in the BASIC track for a 
subsequent agreement period (under the highest level of risk and 
potential reward), the new participation options that we are adopting 
in this final rule will offer low revenue ACOs a longer period under a 
more acceptable degree of risk given their revenue constraints, before 
transitioning to more significant risk exposure under the ENHANCED 
track.
    Low revenue ACOs can still choose to enter the ENHANCED track, and 
take on additional downside risk in exchange for the opportunity to 
share in a higher percentage of any savings. Such migration is 
likeliest for low revenue ACOs expecting a favorable regional 
adjustment to their rebased historical benchmark. The finalized policy 
of including the regional adjustment in the methodology for determining 
an ACO's benchmark for its first agreement period should help provide 
such ACOs the degree of certainty necessary for earlier election of 
performance-based risk, while capping the amount of the regional 
adjustment at positive or negative 5 percent of national per capita 
expenditures for Parts A and B services for assignable beneficiaries 
will help CMS to avoid unnecessarily large windfall payments for ACOs 
that have already been properly incentivized to aggressively 
participate with a regional adjustment set at the level of the cap.
    In addition, we considered related impacts of the changes to the 
program's benchmarking methodology, as used to establish, adjust, 
update and reset the ACO's benchmark. For renewing ACOs--especially 
ACOs that are concerned about competition from operating in a highly 
competitive ACO market or ACOs that make up a large portion of their 
market--several changes are likely to help mitigate concerns about the 
long term business case of the model. Most notably, the use of a 
regional/national blend to determine the growth rates for the trend and 
update factors should reduce the degree to which ACO savings (and/or 
neighboring ACO savings) affect an ACO's own benchmark updates. 
Furthermore, the final policy of using full HCC risk ratios (with any 
increase capped at positive 3 percent but uncapped for decreases) 
regardless of the assignment status of a beneficiary should help to 
assuage concerns that risk adjustment could adversely affect an ACO 
that increasingly serves a higher morbidity population in its market.
    To best reflect these uncertainties, we continue to utilize a 
stochastic model that incorporates assumed probability distributions 
for each of the key variables that will impact participation, changes 
in care delivery, and the overall financial impact of the Shared 
Savings Program. The model continues to employ historical baseline 
variation in trends for groups of beneficiaries assigned using the 
program's claim-based assignment methodology to simulate the effect of 
benchmark calculations as described in the June 2016 final rule (81 FR 
38005 through 38007). We used several unique assumptions and assumption 
ranges in the updated model.
    To estimate the number of ACOs that will participate in the 
program, we assumed that up to approximately 250 existing 2018 ACOs 
will be affected by the changing policies starting with a potential 
third agreement period beginning on July 1, 2019, or in 2020 or 2021. 
We also assumed that up to approximately 300 existing 2018 ACOs will be 
affected by the changing policies starting with a potential second 
agreement period beginning on July 1, 2019, in 2020, or 2021. In 
addition, between 20 and 50 new ACOs were assumed to form annually from 
2019 through 2028.

[[Page 68052]]

    We assumed ACO decision making regarding participation will reflect 
each ACO's updated circumstances including prior year performance as 
well as expected difference in spending in relation to future 
anticipated adjusted benchmark spending. Specific related assumptions 
are as follows:
    For one, the potential that existing ACOs will renew under the 
policies in this final rule are related to expectations regarding the 
effect of the changes to the regional adjustment on the ACO's rebased 
benchmark. ACOs expecting adjusted historical benchmarks from 2 to 10 
percent higher than actual per capita cost are assumed to select the 
highest-risk option (Track 3 in the baseline or the ENHANCED track 
under this final rule); such range is reduced for second or later 
rebasing under the policies in the final rule to 1 to 5 percent higher 
than actual per capita cost. Otherwise, ACOs expecting adjusted rebased 
benchmarks from 0 to 3 percent higher than actual per capita cost are 
assumed to select the Track 1+ Model (baseline) or Level E of the BASIC 
track (final rule). ACOs expecting adjusted rebased historical 
benchmarks from 0 to 5 percent lower than actual per capita cost are 
expected not to renew unless another agreement in Track 1 is allowed 
(baseline), or are assumed to have between 15 and 65 percent chance of 
electing the BASIC track (final rule).
    Second, all other renewal decisions are expected to follow the same 
assumptions as the preceding description except for the following 
cases. For the baseline scenario, a Track 1 ACO eligible for a second 
Track 1 agreement period during the projection period that does not 
otherwise select renewal in Track 3 or the Track 1+ Model will only 
renew in Track 1 if the ACO had earned shared savings in either of the 
first 2 years of the existing agreement period or if the ACO 
anticipates an adjusted historical benchmark no lower than 3 percent 
below actual cost. For the final rule scenario, an ACO not otherwise 
choosing the ENHANCED track will only renew in the BASIC track if the 
following conditions were met: (1) The ACO expects an adjusted 
historical benchmark no lower than 0 to 3 percent below actual cost; 
(2) the ACO did not experience a loss in the existing agreement period; 
and (3) the ACO is low revenue (as high revenue ACOs will be precluded 
from renewing for a second agreement period in the BASIC track).
    Third, we used the following approach to make assumptions about 
participation decisions for ACOs encountering a shared loss. An 
adjusted shared loss (L) was calculated by netting out the total 
expected incentive payments that will be made under the Quality Payment 
Program to ACO providers/suppliers who are Qualifying APM Participants 
during the payment year that is 2 years after the performance year for 
which the ACO is accountable for shared losses. In each trial a random 
variable (X) was chosen from a skewed distribution ranging from zero to 
3 percent of benchmark (mode 1 percent of benchmark) for determining 
participation decisions affecting years prior to 2023 (alternatively X 
was sampled from the range zero to 2 percent of benchmark with mode of 
0.5 percent of benchmark for participation decisions for 2023 and 
subsequent years when the incentive to participate in an Advanced APM 
as a Qualifying APM Participant is reduced). If L>X then the ACO is 
assumed to drop out. Otherwise, if L>X/2 then the ACO is assumed to 
have a 50 to 100 percent chance of leaving the program. Otherwise, the 
ACO has a relatively smaller loss (L<X/2) and the ACO is assumed to 
have roughly double the chance of persisting relative to the prior 
scenario.
    Fourth, we used the following approach to make assumptions about 
the potential that ACOs in the BASIC track will elect early transition 
to Level E of the BASIC track. An adjusted shared savings (S) was 
calculated by adding the total potential incentive payments expected 
under the Quality Payment Program (2 years after the potential 
transition to Level E) to ACO providers/suppliers who will expect to 
become Qualifying APM Participants (due to the transition to Level E) 
to the ACO's most recent shared savings--with such sum expressed as a 
percentage of benchmark. In each trial a random variable (Y) was chosen 
from a skewed distribution ranging from 1 to 4 percent of benchmark 
(mode 2 percent of benchmark). If S>Y, then the ACO is assumed to elect 
immediate transition to Level E of the BASIC track for the following 
performance year.
    Assumptions for ACO effects on claims costs reflect a combination 
of factors. First, ACO revenue is assumed to be inversely proportional 
to historical savings achieved prior to implementation of the 
provisions of this final rule. This is because, as noted earlier, low 
revenue ACOs (that tend to have low ACO participant Medicare FFS 
revenue relative to the ACO's benchmark spending) have generally shown 
stronger financial performance over the first 5 years of the program 
than high revenue ACOs. For existing low revenue ACOs, baseline savings 
immediately prior to renewal under the policies in this final rule are 
estimated to range from 1 to 4 percent of spending accounted for by the 
program benchmark, with an additional spillover effect on extra-
benchmark spending accounting for an additional 25 to 75 percent 
savings relative to the directly assumed savings on benchmark spending. 
Conversely, existing high revenue ACOs are assumed to have baseline 
savings of only 25 percent of the assumed baseline savings for low 
revenue ACOs, as previously enumerated.
    Residual baseline savings are then potentially assumed to gradually 
diminish if participation ends. Specifically, zero to 100 percent of 
baseline savings are assumed to erode by the fifth year after an 
existing ACO drops out of participation as a Medicare ACO.
    Alternatively, future savings for each type of ACO are assumed to 
scale according to the incentive presented by each potential track of 
participation. Future savings in Track 3 or the ENHANCED track during 
the projection period for low revenue ACOs are assumed to range from 
zero to 4 percent of benchmark spending for existing ACOs and 1 to 5 
percent of benchmark spending for new ACOs. High revenue ACOs are 
assumed to have zero to 100 percent of the savings assumed for low 
revenue ACOs. Ultimate savings are assumed to phase in over 5 to 10 
years for all types of ACOs. Savings for the Track 1+ Model or the 
BASIC track, Levels with downside risk, are assumed to be 50 to 100 
percent of the savings assumed for Track 3/ENHANCED track (as 
previously described). Savings for the BASIC track performance years 
without downside risk, or Track 1 are assumed to be 30 to 70 percent of 
the savings assumed for Track 3/ENHANCED track.
    We also assumed that selection effects will implicitly include the 
renewal decisions of ACOs simulated in the model. Further assumptions 
included the following: (1) The adoption in this final rule of full HCC 
adjustment (capped at positive 3 percent) allows each ACO to increase 
its benchmark according to a skewed distribution from -0.5 to 3 percent 
with mode 0.5 percent (where the lower bound has been marginally 
decreased to -0.5 percent from the proposed rule assumption of a 0.0 
percent to account for our decision not to finalize the proposed floor 
on downward HCC adjustment in this final rule); and (2) for both the 
baseline and final rule scenarios, each ACO is assumed to be able to 
influence its comparable

[[Page 68053]]

spending to region by zero to 5 percent (skewed with mode 1 percent) 
for example via changes in ACO participant TIN composition or other 
methods to direct assignment in a favorable manner given the financial 
incentive from the regional adjustment to the benchmark.
    Comment: A few commenters stated that CMS has provided no citations 
or other details as to the source of the data used in the proposed 
rule. One commenter suggested that in the future CMS should conduct a 
formal evaluation of the Shared Savings Program, and share the 
evaluation with stakeholders in advance of rulemaking to aid in the 
preparation of comments.
    Response: CMS makes data publically available on CMS websites in 
several formats to provide ACOs, providers, and researchers with 
information to evaluate the Shared Savings Program. CMS provides Public 
Use Files describing Shared Savings Program Quality and Finance 
Performance, ACO participation, and Regional FFS expenditures, 
assignment, and CMS-Hierarchical Condition Category (HCC) prospective 
risk scores. CMS also makes Research Identifiable Files that include 
information for every beneficiary assigned to a Shared Savings Program 
ACO and for all providers participating in a Shared Savings Program 
ACO, available for a fee through the Research Data Assistance Center 
(www.resdac.org) to researchers who have obtained an appropriate Data 
Use Agreement. CMS also included summaries of several program 
evaluations in the Regulatory Impact Analysis for the August 2018 
proposed rule. We will continue to consider making additional data and 
evaluation results publically available during future rulemaking and at 
such other times as may be appropriate.
c. Detailed Stochastic Modeling Results
    A simulation model involving the assumptions and assumption ranges 
described in the previous section was constructed and a total of 1,000 
randomized trials were produced. Table 17 summarizes the annual 
projected mean impact (projected differences under the changes to the 
program finalized in this rule relative to the current baseline 
program) on ACO participation, federal spending on Parts A and B 
claims, ACO earnings from shared savings net of shared losses, and the 
net federal impact (effect on claims net of the change in shared 
savings/shared losses payments). The overall average projection of the 
impact of the final program changes is approximately $2.9 billion in 
lower overall federal spending over 10 years from 2019 through 2028 
relative to a baseline that assumes the prior program regulations 
remain in effect through this ten year period. The 10th and 90th 
percentiles from the range of projected 10-year impacts range from -
$5.14 billion to -$680 million in lower spending, respectively. The 
mean impact is comprised of about -$950 million in lower claims 
spending, $2.43 billion in reduced shared savings payments, net of 
shared loss receipts, and approximately $490 million in additional 
incentive payments made under the Quality Payment Program to additional 
ACO providers/suppliers expected to become Qualifying APM Participants 
(mainly for performance years prior to 2023 where the Quality Payment 
Program incentive made during the corresponding payment year is 5 
percent of Physician Fee Schedule revenue).

[[Page 68054]]

[GRAPHIC] [TIFF OMITTED] TR31DE18.021

    The overall drop in expected participation is mainly due to the 
expectation that the program will be less likely to attract new ACO 
formation in future years as the number of risk-free years available to 
new ACOs will be reduced from 6 years (two, 3-year agreement periods in 
current Track 1) to up to 3 years for low revenue ACOs or 2 years for 
high revenue ACOs in the BASIC track. However, the changes are expected 
to increase continued participation from existing ACOs, especially 
those currently facing mandated transition to risk in a third agreement 
period starting in 2019, 2020, or 2021 under the existing regulations, 
as well as certain other higher cost ACOs for which the moderated 
capped regional adjustment will not reduce their benchmark as 
significantly as prescribed by current regulation.
    Relatively small increases in spending in years 2019 through 2021 
are largely driven by expectations for more favorable risk adjustment 
to ACOs' updated benchmarks and a temporary delay in migration of 
certain existing ACOs to performance-based risk. Savings grow 
significantly in the out years as a greater share of existing ACOs 
eventually transition to higher levels of risk and the savings from 
capping the regional adjustment to the benchmark grow because ACOs 
would increasingly have become eligible for higher uncapped adjustments 
under the baseline in the later years of the projection period.
    This final rule includes changes from the proposed rule that 
improve the business case for certain ACOs to renew or join the 
program. Such changes include higher shared savings rates in certain 
years of the BASIC track, reduced weights on regional adjustments to 
benchmarks for ACOs with per capita spending above their region, and 
the option for new low-revenue ACOs to participate in 3 risk-free years 
under the BASIC track before moving to BASIC level E for the last 2 
years of their first agreement period. Relative to the proposed rule 
projection, these changes are estimated to increase participation by 
existing and new ACOs and thereby increase the projected savings on 
claims to a greater extent than we anticipate overall shared savings 
payments will grow. Such changes account for most of the difference 
(roughly $500 million greater net program savings) between the proposed 
rule projection of $2.24 billion in net savings and the final rule 
projected net savings of $2.9 billion. The remainder of the difference 
(about $150 million in increased net program savings) results from our 
decision not to finalize the proposed negative 3 percent cap on risk 
adjustment if an ACO's assigned population average HCC risk score 
declined beyond such point over the course of its agreement period.
    The mean projection of $2.9 billion reduced overall federal 
spending is a reasonable point estimate of the impact of the changes to 
the Shared Savings Program included in this final rule during the 
period between 2019 through 2028. However, we emphasize the possibility 
of outcomes differing substantially from the median estimate, as 
illustrated by the estimate

[[Page 68055]]

distribution. Accordingly, this RIA presents the costs and benefits of 
this final rule to the best of our ability. As further data emerges and 
is analyzed, we may improve the precision of future financial impact 
estimates.
    To the extent that the changes to the Shared Savings Program being 
made through the final rule will result in net savings or costs to Part 
B of Medicare, revenues from Part B beneficiary premiums will also be 
correspondingly lower or higher. In addition, because MA payment rates 
depend on the level of spending within traditional FFS Medicare, 
savings or costs arising from these changes to the Shared Savings 
Program will result in corresponding adjustments to MA payment rates. 
Neither of these secondary impacts has been included in the analysis 
shown.
    Comment: A number of comments highlighted the proposed reduced 25 
percent maximum savings sharing rates in certain performance years 
under the glide path in the BASIC track and/or the use of regional 
spending to adjust ACO benchmarks in their first agreement period as 
problematic for generating optimal program participation.
    Response: The proposed changes were intended to move more ACOs into 
performance-based risk and thereby promote stronger efforts to improve 
the efficiency of care delivery. We have noted other proposed (and now 
final) changes that many commenters support, like the change in the 
risk adjustment methodology and the extended 5-year agreement periods, 
as changes that are expected to help many ACOs to manage such 
transition successfully. Furthermore, the final rule increases the 
sharing rate in one-sided models under the BASIC track to 40 percent 
and in all two-sided models under the BASIC track to 50 percent, 
thereby improving the incentive for ACOs to begin such transition along 
the glide path under the BASIC track. Additionally, the final rule 
moderates the regional adjustment applied in the first and second 
agreement periods when determining the benchmark for ACOs with average 
spending higher than their region by reducing the applicable adjustment 
weight from 25 percent to 15 percent in the first agreement period and 
from 35 percent to 25 percent in the second agreement period. This 
change is also anticipated to improve the likelihood a wider mix of 
ACOs will successfully make the transition to performance-based risk.
    Comment: One commenter was concerned by projections that many ACOs 
would leave the program, and fewer would choose to enter it.
    Response: The final rule includes changes that are expected to 
improve the likelihood of participation from ACOs that may not 
otherwise have joined the program or renewed their participation, 
including ACOs already reaching the end of their 6 years of Track 1 
participation that would, without the changes in this rule, face higher 
risk in Track 2 or Track 3 than what will be required under the BASIC 
track glide path. Other changes including implementing HCC risk 
adjustment with a 3 percent cap on increases, reducing the weight of 
the regional adjustment for ACOs that are higher cost than their 
region, and extending the agreement period from 3 years to 5 years, are 
expected to offer a more appealing business case for certain ACOs to 
participate. As a result we are now projecting only 36 fewer ACOs 
participating by the end of the 10 year projection period compared to 
the projection of 109 fewer in the proposed rule, and we actually 
expect higher overall participation in the first half of the projection 
period when many existing ACOs would have already faced the end of 
their available time in the one-sided model under Track 1 under the 
prior participation options.
2. Effects on Beneficiaries
    Earlier in this analysis we describe evidence for the Shared 
Savings Program's positive effects on the efficiency of care delivered 
by ACO providers/suppliers over the first 5 years of the program. 
Reduced unnecessary utilization can lead to financial benefits for 
beneficiaries by way of lower Part B premiums or reduced out of pocket 
cost sharing or both. Certain beneficiaries may also benefit from the 
provision of in-kind items and services by ACOs that are reasonably 
connected to the beneficiary's medical care and are preventive care 
items or services or advance a clinical goal for the beneficiary. The 
value of care delivered to beneficiaries also depends on the quality of 
that care. Evidence indicates there have been incremental improvements 
in quality of care reported for ACO providers/suppliers. As previously 
noted in the Background section of this RIA, for all ACOs that 
participated during performance year 2016 that had four or more years 
of experience in the program, average quality performance improved by 
15 percent across the 25 measures used consistently across PYs 2013 to 
2016.
    As explained in more detail previously, we believe the changes we 
are making in this final rule will provide additional incentives for 
ACOs to improve care management efforts and maintain program 
participation. In addition, ACOs with low baseline expenditures 
relative to their region are more likely to transition to and sustain 
participation in a risk track (either the BASIC track (Level E) or the 
ENHANCED track) in future agreement periods. Consequently, the changes 
in this rule will also benefit beneficiaries through greater 
beneficiary engagement and active participation in their care (via 
beneficiary incentives) and broader improvements in accountability and 
care coordination (such as through expanded use of telehealth services 
and extending eligibility for the waiver of the SNF 3-day rule to all 
ACOs accepting performance-based risk) than would occur in the absence 
of these changes. Lastly, we estimate that the net impacts on federal 
spending, as previously detailed, will correspond to savings to 
beneficiaries in the form of reductions in Part B premium payments of 
approximately $380 million over the 10 year projection period through 
2028.
    We intend to continue to analyze emerging program data to monitor 
for any potential unintended effect that the use of a regional 
adjustment (as modified in this final rule) to determine the historical 
benchmarks for additional cohorts of ACOs could potentially have on the 
incentive for ACOs to serve vulnerable populations (and for ACOs to 
maintain existing partnerships with providers and suppliers serving 
such populations).
3. Effects on Providers and Suppliers
    As noted previously, the changes in this final rule aim to improve 
the ability for ACOs to transition to performance-based risk and 
provide higher value care. We believe the contemporaneous growth of ACO 
agreements with other payers is sufficiently mature (and invariably 
heterogeneous in structure) that it will not be materially affected by 
the changes to specific features of the Shared Savings Program that we 
are adopting in this final rule. Although the elimination of Track 1 is 
expected to ultimately reduce the overall number of ACOs participating 
in the program, this change might also create opportunities for more 
effective ACOs to step in and serve the beneficiaries who were 
previously assigned to other ACOs that leave the program. In addition, 
other new policies (including changes to HCC risk adjustment, longer 5-
year agreement periods, gradual expansion of exposure to risk in the 
BASIC track, and allowing eligible low revenue ACOs to renew for a 
second agreement period in Level E of the BASIC track) are expected to 
increase the number of existing and new ACOs that ultimately make a 
sustained

[[Page 68056]]

transition to performance-based risk. Such transition is expected to 
help ACOs more effectively engage with their ACO participants and ACO 
providers/suppliers in transforming care delivery.
    Changes to the methodology for making regional adjustments to the 
historical benchmark are expected to affect ACOs differently depending 
on their circumstances. Similar to observations described in the June 
2016 final rule, certain ACOs that joined the program from a high 
expenditure baseline relative to their region and that showed savings 
under the first and/or second agreement period benchmark methodology 
that did not include a regional adjustment will likely expect lower 
benchmarks and greater likelihood of shared losses under a methodology 
that includes a 15 percent weight on the regional expenditure 
adjustment in the first agreement period in which the adjustment is 
applied, and higher weights in subsequent agreement periods. 
Additionally, certain ACOs that joined the program with relatively low 
expenditures relative to their region might expect significant shared 
savings payments even if they failed to generate shared savings in 
their first agreement period prior to the application of the regional 
adjustment to the benchmark. Limiting the weight of the regional 
adjustment to the benchmark to 50 percent, reducing the weight for high 
cost ACOs to 15 percent in the first agreement period and 25 percent in 
the second agreement period, and capping the adjustment at positive or 
negative 5 percent of national average per capita FFS spending for 
assignable beneficiaries, will serve to preserve the incentive for low 
cost ACOs to maintain participation and accept performance-based risk 
while also improving the business case for high cost ACOs to continue 
to participate and drive their costs down toward parity with or even 
below their regional average. Therefore, the changes to the regional 
adjustment are expected to increase participation by ACOs in risk 
tracks by broadening the mix of ACOs with plausible business cases for 
participation without creating excessive residual windfall payments to 
ACOs with very low baseline costs or unreasonably punitive decreases to 
benchmarks for ACOs serving very high cost populations at baseline. The 
increase in sustained participation in performance-based risk is 
evidenced by the projection of $490 million in increased incentive 
payments under the Quality Payment Program to ACO providers/suppliers 
achieving status as Qualifying APM Participants due to increased ACO 
participation in risk-based tracks of the Shared Savings Program. 
Conversely, the projected $2.43 billion in lower overall 10-year shared 
savings payments to ACOs reflects the prudent limitations that will be 
placed on the regional adjustment to the benchmark for ACOs that are 
very low cost relative to their region prior to rebasing.
    Several other changes are expected to provide certain ACOs with 
stronger business cases for participating in the program. Transition to 
full HCC risk adjustment (capped at positive 3 percent) regardless of 
beneficiary assignment status is expected to increase the resulting 
adjusted updated benchmark for the average ACO and better reflect 
actual shifts in assigned patient morbidity. Blending national with 
regional trend for ACO benchmark calculations is also expected to 
mitigate some ACOs' concerns regarding the problem of hyper competition 
against other ACOs in highly-saturated markets, as well as the 
potential that large ACOs will drive the regional trend they are 
ultimately measured against. These factors contribute to the expanded 
participation expected in performance-based risk and the resulting 
increase in savings on claims through more efficient care delivery. In 
this final rule we are making modifications to certain elements of the 
proposed rule, including increasing the shared savings rates in certain 
years of the BASIC track and reducing the weight on the regional 
adjustment for high cost ACOs; such changes are estimated to increase 
overall program net savings by bolstering participation and thereby 
reducing claims costs more significantly than the resulting increases 
in overall shared savings payments to ACOs.
    We have made program data available that can help stakeholders 
evaluate the impact the final rule changes, as previously described, 
may have on individual ACOs in various markets. The Center for Medicare 
(CM) has created standard analytical files incorporating factors based 
on regional FFS expenditures (currently available for CYs 2014, 2015, 
2016, and 2017) that specifically tabulate--(1) aggregate expenditure 
and risk score data for assignable beneficiaries by county; and (2) the 
number of beneficiaries assigned to ACOs, by county. These public use 
files can be obtained at the following website https://www.cms.gov/Research-Statistics-Data-and-Systems/Downloadable-Public-Use-Files/SSPACO/SSP_Benchmark_Rebasing.html.
    CM has also created standard analytical files that contain ACO-
specific metrics as well as summarized beneficiary and provider 
information for each performance year of the Shared Savings Program. 
These files include ACO-specific annual data on financial and quality 
performance, person years and demographic characteristics of assigned 
beneficiaries, aggregate expenditure and utilization, and participant 
composition of the ACO. The public use files for 2013 through 2017 can 
be obtained at the following website https://www.cms.gov/Research-Statistics-Data-and-Systems/Downloadable-Public-Use-Files/SSPACO/index.html.
    Comment: Several commenters expressed concern about the potential 
negative impact on Medicare beneficiaries and entire communities that 
depend on hospitals and health systems to treat all patients, including 
uninsured and underinsured populations, of the proposed requirement 
that high revenue ACOs participate under an accelerated path to 
performance-based risk. In particular, one commenter explained that 
not-for-profit providers may be challenged to provide the same level of 
charity care to their indigent patients under this approach.
    Response: We acknowledge the particular challenges faced by safety 
net providers and the considerations these organizations must weigh in 
assessing their readiness for program participation in general, and 
participation under performance-based risk more specifically. We note 
that all ACO providers/suppliers continue to receive traditional 
Medicare FFS payments under Parts A and B, and may receive from 
additional payments the ACO if the ACO meets specified quality and 
savings requirements of the Shared Savings Program. We have observed 
that ACOs that serve high rates of dual eligible Medicare and Medicaid 
beneficiaries have shared savings at higher rate than other ACOs. As a 
result, we believe the dually eligible Medicare and Medicaid population 
represents a significant opportunity for ACOs to generate savings 
through care coordination and quality improvement. We also note that 
clinicians, including safety net clinicians that participate in 
Advanced APMs may qualify for incentive payments, which could provide 
additional resources to safety net providers.
    We believe that the combination of policies included as part of the 
redesign of the Shared Savings Program we are finalizing with this 
final rule will support ACOs, including ACOs that serve the most 
complex patients and ACOs with safety net providers as ACO 
participants, as they transition to

[[Page 68057]]

performance-based risk. In particular, we believe the availability of 
the BASIC track's glide path for ACOs inexperienced with performance-
based risk Medicare ACO initiatives, longer agreement periods (of at 
least 5 years instead of 3-year agreements) which could allow for more 
predictable historical benchmarks and therefore greater opportunity for 
ACOs to achieve savings against these benchmarks, a new coding 
intensity adjustment that permits moderate risk score growth, and lower 
regional adjustments to historical benchmarks for ACOs that are 
determined to be higher spending compared to their regional service 
area will support ACOs as they transition to performance-based risk. 
Further, additional program flexibilities we are finalizing with this 
final rule, such as broader access to a SNF 3-day rule waiver and 
expanded use of telehealth services for eligible ACOs under a two-sided 
model (see section II.B. of this final rule) could also support care 
coordination and the delivery of care by safety net providers and the 
populations they serve.
4. Effect on Small Entities
    The RFA requires agencies to analyze options for regulatory relief 
of small entities, if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, small entities 
include small businesses, nonprofit organizations, and small 
governmental jurisdictions. Most physician practices, hospitals, and 
other providers are small entities either by virtue of their nonprofit 
status or by qualifying as a small business under the Small Business 
Administration's size standards (revenues of less than $7.5 to $38.5 
million in any 1 year; NAIC Sector-62 series). States and individuals 
are not included in the definition of a small entity. For details, see 
the Small Business Administration's website at http://www.sba.gov/content/small-business-size-standards. For purposes of the RFA, 
approximately 95 percent of physicians are considered to be small 
entities. There are over 1 million physicians, other practitioners, and 
medical suppliers that receive Medicare payment under the Physician Fee 
Schedule.
    Although the Shared Savings Program is a voluntary program and 
payments for individual items and services will continue to be made on 
a FFS basis, we acknowledge that the program can affect many small 
entities and have developed our rules and regulations accordingly in 
order to minimize costs and administrative burden on such entities as 
well as to maximize their opportunity to participate. (For example: 
Networks of individual practices of ACO professionals are eligible to 
form an ACO; the use of an MSR under Level A and Level B of the BASIC 
track, and, if elected by the ACO, under the ENHANCED track and Levels 
C through E of the BASIC track, that varies by the size of the ACO's 
population and is calculated based on confidence intervals so that 
smaller ACOs have relatively lower MSRs; and low revenue ACOs may 
remain under reduced downside risk in a second agreement period under 
Level E of the BASIC track).
    Small entities are both allowed and encouraged to participate in 
the Shared Savings Program, provided the ACO has a minimum of 5,000 
assigned beneficiaries, thereby potentially realizing the economic 
benefits of receiving shared savings resulting from the utilization of 
enhanced and efficient systems of care and care coordination. 
Therefore, a solo, small physician practice or other small entity may 
realize economic benefits as a function of participating in this 
program and the utilization of enhanced clinical systems integration, 
which otherwise may not have been possible. We believe the policies 
included in this final rule may further encourage participation by 
small entities in existing ACOs that may otherwise not find it possible 
to quickly assume the much higher exposure to downside risk required 
under the ENHANCED track. Specifically, we believe our policy of 
allowing eligible low revenue ACOs up to 2 agreement periods in the 
BASIC track (with the second agreement period at the highest level of 
risk and potential reward) where downside risk exposure is limited to a 
percentage of ACO participants' Medicare FFS revenue (capped at a 
percentage of the ACO's benchmark), and the option for new, low revenue 
ACOs to participate under one-sided risk for 3 performance years (or 4 
performance years in the case of ACOs entering an agreement period 
beginning on July 1, 2019) in exchange for moving to the highest level 
of risk and potential reward under the BASIC track for the final two 
performance years in the agreement period, will support low revenue 
ACOs by permitting a gradual transition to performance-based risk.
    As detailed in this RIA, total expected incentive payments made 
under the Quality Payment Program to Qualifying APM Participants are 
expected to increase by $490 million over the 2019 to 2028 period as a 
result of changes that will increase participation in the Shared 
Savings Program by certain ACOs and therefore increase the average 
small entity's earnings from such incentives. We also note that the 
final policy under which each agreement period will be extended to 5 
years (or 6 years for ACOs entering a new agreement period on July 1, 
2019) offers greater certainty to ACOs, including small entities, 
regarding their benchmark as they approach the higher levels of risk 
required in the higher levels of the BASIC track and under the ENHANCED 
track.
5. Effect on Small Rural Hospitals
    Section 1102(b) of the Act requires us to prepare a regulatory 
impact analysis if a rule may have a significant impact on the 
operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a metropolitan 
statistical area and has fewer than 100 beds. Although the Shared 
Savings Program is a voluntary program, this final rule will have a 
significant impact on the operations of a substantial number of small 
rural hospitals. In the proposed rule, we sought comment from small 
rural hospitals on the proposed changes, with special focus on the 
impact of the proposed changes to the adjustment to the benchmark to 
reflect regional FFS expenditures. (We noted that the data currently 
available on the CMS website, as described in the Effects on Providers 
and Suppliers section, may be useful for commenters to estimate the 
effects of the proposed changes for their particular ACO and/or 
market.) We discuss comments related to the phase-in of regional 
adjustment weights in section II.D.3 of this final rule.
    As discussed in section II.D of this final rule, we are finalizing 
changes to our regulations such that benchmark adjustments for regional 
spending are limited to at most a 50 percent weight, with reduced 
weights in initial agreement periods for ACOs that are high cost 
relative to their region. The amount of the regional adjustment will be 
capped for all ACOs at positive or negative 5 percent of national 
average per capita FFS spending for assignable beneficiaries. Given the 
variation that can exist across regions, the schedule of weights we are 
finalizing should recognize efficient rural providers, while providing 
more time for those rural providers and suppliers that care for high 
risk patients to come into line with regional spending and move to 
shared savings. Additionally, in this final rule we are revising our 
risk adjustment methodology to allow for full HCC risk adjustment (with 
a

[[Page 68058]]

positive 3 percent cap) regardless of beneficiary assignment status and 
making changes to the benchmarking methodology to provide for the use 
of a blend of national and regional trends in benchmark calculations. 
Such changes could help to provide a stronger business case for ACOs 
built around rural hospitals that may have otherwise been concerned 
about serving a higher-risk population in their region or driving the 
local trends in the region against which they will be compared.
    In this final rule, we are also making revisions to our original 
proposal for determining ACO participation options based on a 
combination of factors (ACO participants' Medicare FFS revenue, and the 
ACO's experience with performance-based risk Medicare ACO initiatives) 
to allow use of a higher percentage in determining whether an ACO is a 
low revenue ACO versus high revenue ACO. As we discuss in section 
II.A.5.b of this final rule, under this approach we believe more ACOs 
will be identified as low revenue ACOs and therefore potentially 
eligible to remain in lower risk for longer, specifically to 
participate in the BASIC track for up to two, 5-year agreement periods, 
with the second agreement period in Level E. We believe these changes, 
in addition to the alternative participation option we are finalizing 
under which low revenue ACOs, that are legal entities without prior 
experience in the Shared Savings Program, may elect an additional year 
under a one-sided model of the BASIC track's glide path prior to 
transitioning to Level E (the highest level of risk and potential 
reward in the BASIC track), will provide a gentler pathway to 
performance-based risk for small, rural and physician-only ACOs.
6. Unfunded Mandates
    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 2018, that 
is approximately $150 million. This final rule does not include any 
mandate that will result in spending by state, local or tribal 
governments, in the aggregate, or by the private sector in the amount 
of $150 million in any 1 year. Further, participation in this program 
is voluntary and is not mandated.
7. Regulatory Review Cost Estimation
    We assume all 561 ACOs that participated in the Medicare Shared 
Savings Program during performance year 2018 will review on average 
half of this final rule. For example, it is possible that certain ACOs 
may limit review to issues related only to the BASIC track and not the 
ENHANCED track or rely on a partnership with a management company, 
health plan, trade association or other entity that reviews the final 
rule and advises multiple ACO partners. We used a similar approach to 
estimate the burden of reviewing the proposed rule. However, we 
acknowledged that this approach may understate or overstate the costs 
of reviewing this rule. We welcomed comments on the approach in 
estimating the number of entities reviewing the rule and the scope of 
the average review, but did not receive any comments on this issue.
    Using the wage information from the Bureau of Labor Statistics for 
medical and health service managers (Code 11-9111), we estimate that 
the cost of reviewing this rule is $107.38 per hour, where the assumed 
hourly wage of $53.69 has been increased by a factor of 2 to account 
for fringe benefits.\38\ Assuming an average reading speed of 250 words 
per minute, we estimate it will take approximately 9 hours for the 
staff to review half of this final rule. For each ACO the estimated 
cost is $966 (9 hours x $107.38 per hour). Therefore, we estimate the 
total cost of reviewing this final regulation is approximately $542,000 
($966.42 x 561 ACOs).
---------------------------------------------------------------------------

    \38\ Occupational Employment Statistics available online at 
https://www.bls.gov/oes/current/oes_nat.htm.
---------------------------------------------------------------------------

8. Other Impacts on Regulatory Burden
    We estimate that extending the agreement period to 5 years may 
reduce certain administrative costs incurred by ACOs. In its review of 
the Physician Group Practice demonstration, GAO estimated the average 
entity spent $107,595 on initial startup for administrative processes. 
We assume roughly one-tenth of such total startup amount will represent 
the administrative expenses of renewal for an ACO entering a renewed 
agreement period ($10,760 per ACO). Therefore, we estimate extending 
the agreement period to 5 years will reduce ACO administrative burden 
by approximately $6 million over 10 years ($10,760 x 561 ACOs).
    As we explained in the Regulatory Impact Analysis for the proposed 
rule, we did not believe that the proposed policies would otherwise 
materially impact the burden on ACOs for compliance with the 
requirements of the Shared Savings Program. We stated that the annual 
certification and application process would remain comparable to the 
existing program requirements (setting aside the change to 5-year 
agreement periods as noted in the previous paragraph). We also 
anticipate at most a modest additional burden for the modified 
beneficiary notification requirements under Sec.  425.312, because ACOs 
and ACO participants will be able to utilize low cost options for 
notification, including, for example, email or electronic patient 
portals. To the extent that individual beneficiary notification causes 
additional beneficiaries to request personalized explanations from ACO 
representatives or participating providers and suppliers (beyond any 
such questions that would have arisen under the prior notification 
requirement), we assume on average 10 percent of assigned 
beneficiaries, once per agreement period, require five minute 
conversations that involve an ACO or ACO provider/supplier employee 
with hourly wage averaging $20, implying a total net added burden of 
approximately $3.3 million over ten years. We sought comment if 
stakeholders had reason to believe the proposed changes would 
materially change the burden of participation in the program that 
surpassed what we have estimated, as described previously.
    Comment: Some comments cited the reduced sharing rates (as low as 
25 percent) that were proposed for certain performance years in the 
BASIC track as problematic for ACOs estimating whether the cost of 
participation would be worth the potential return. Also cited as a 
barrier for continued participation was the cost of taking on 
performance-based risk for ACOs that may not have the experience or 
capital available for such transition.
    Response: Elements of the proposed program redesign that were 
intended to help ACOs manage the transition to performance-based risk 
are bolstered by modifications to our original proposals that we are 
making in this final rule, including increasing the BASIC track maximum 
sharing rate percentages to 40 percent (Level A and B) and 50 percent 
(Level C, D, E), respectively, and allowing new legal entities that are 
determined to be low revenue ACOs participating in the BASIC track's 
glide path, to elect to remain in a one-sided model for up to 3 
performance years (or 4 performance years in the case of ACOs entering 
an agreement period beginning on July 1, 2019) before transitioning to 
Level E for the final 2 performance years of their agreement period. 
Additionally, in this final rule we have increased the threshold used 
to determine low revenue ACOs (by comparing ACO participants' total 
Medicare Parts A and B FFS revenue to total Medicare Parts A

[[Page 68059]]

and B FFS expenditures for the ACO's assigned beneficiaries) from 25 to 
35 percent. Increasing the threshold will allow additional ACOs the 
option to remain in lower levels of performance-based risk for a second 
agreement period. Additionally, as described in section II.A.6.c. of 
this final rule, we are finalizing our proposed requirements regarding 
repayment mechanism arrangement amounts with modifications that are 
designed to reduce the burden of these arrangements on ACOs 
participating in Level C, Level D, or Level E of the BASIC track and 
the ENHANCED track, including any low-revenue ACOs in those tracks. 
Lastly, the benchmarks for ACOs that are high cost in relation to their 
region will not be reduced as quickly as originally proposed because a 
lower regional adjustment weight of 15 percent (compared to the 25 
percent weight originally proposed) will be used to calculate the 
historical benchmark for such an ACO in the first agreement period in 
which the regional adjustment applies.
    Comment: We received several comments suggesting that CMS does not 
fully recognize the administrative and upfront investment required to 
participate in the Shared Savings Program. One commenter urged CMS to 
allow ACOs additional time under a one-sided model in order to ensure 
that they have an opportunity in which to earn a return on their 
initial investments. One commenter suggested CMS place a proportionate 
emphasis on both quality and financial improvements when evaluating 
when ACOs are ready to undertake additional risk and allow time for 
ACOs to experience a return on initial investments.
    Response: We acknowledge that ACOs make upfront investments such as 
in care delivery infrastructure, data analytics and staffing, with the 
intent of saving money through improvements in care management and 
coordination. In developing our policies for the Shared Savings 
Program, including the new policies we are adopting in this final rule, 
we have sought to minimize costs and administrative burden as well as 
to maximize opportunities to participate. For example, we estimate that 
extending the agreement period to 5 years may reduce certain 
administrative costs incurred by ACOs. Additionally, we expect certain 
other policies will help to offset upfront investments and bolster the 
business case for ACOs to continue participation in the Shared Savings 
Program, including the ability for ACO providers/suppliers to qualify 
for Advanced APM incentive payments, the application of a positive 
adjustment to the ACO's benchmark if its spending is below regional 
spending, and the use of risk adjustment methodology that allows for 
limited upward adjustments if the average HCC risk score rises for the 
ACO assigned population.

D. Alternatives Considered

    A particularly significant element of the changes to the 
benchmarking methodology included in this final rule is the final 
policy that limits the effect of regional adjustments on rebased ACO 
historical benchmarks via a cap of positive or negative 5 percent of 
national average per capita FFS expenditures for assignable 
beneficiaries. If the final policy were amended to remove this cap then 
shared savings payments to low cost ACOs and selective participation 
decisions would increase the cost of the final rule by roughly $4.4 
billion such that the estimated $2.9 billion savings relative to 
current regulation baseline (as estimated for this final rule in the 
previous sections) would instead be projected as a $1.5 billion cost.
    Another alternative considered would have been to push back the 
first agreement periods under the proposed new participation options 
and all other applicable changes to a January 1, 2020 start date. This 
would avoid the complexity of a July 1, 2019 midyear start date. ACOs 
otherwise eligible to renew their participation in the program in 2019 
would be offered a 1-year extension under their current agreement 
periods. This alternative would have had differing impacts on federal 
spending.
    Forgoing the proposed July 1, 2019 start date and providing for the 
next available start date of January 1, 2020, would have likely 
marginally increased spending on claims through a combination of 
factors. In addition, this approach would have delayed, by 6 months, 
the transition into performance-based risk for certain ACOs whose 
current agreement periods will end on December 31, 2018. Forgoing the 
proposed July 1, 2019 start date likely also would have caused a 
temporary increase in overall shared savings payments to such ACOs 
during 2019 because of the additional year lag between the historical 
baseline expenditures and the 2019 performance year expenditures under 
the extended agreement period. However, this alternative would also 
have had a slightly greater effect in reducing Federal spending in 
later years through a combination of factors. Under this approach, the 
third historical benchmark year of the subsequent agreement period for 
such ACOs would have been CY 2019 rather than CY 2018, as will be the 
case under the finalized July 1, 2019 start date. The use of historical 
expenditures from 2017 through 2019, rather than 2016 through 2018, to 
determine the benchmark for these ACOs would have marginally reduced 
the cumulative variation affecting benchmark accuracy in 2024, the 
final year of these ACOs' first agreement period under the policies in 
this final rule. We would have also anticipated a reduction in 
incentive payments made under the Quality Payment Program in 2021 
(which are based on participation by eligible clinicians in Advanced 
APMs during 2019) by delaying the transition to performance-based risk 
for certain ACOs to 2020 instead of July 1, 2019.
    We also considered the potential impact of adopting the alternative 
beneficiary assignment methodology that was discussed in the proposed 
rule, under which ACOs would be allowed to elect a beneficiary opt-in 
based assignment methodology supplemented by a modified claims-based 
assignment methodology for beneficiaries who have received the 
plurality of their primary care and at least seven primary care 
services, from one or more ACO professionals in the ACO during the 
applicable assignment window and voluntary alignment. However, 
significant uncertainties potentially impacting the program in 
offsetting ways made projecting the impact difficult, and we chose not 
to adopt a beneficiary opt-in assignment methodology at this time. 
Although it is possible that ACOs electing such methodology could more 
effectively target care management to more engaged and/or needier 
subpopulations of patients, it is also possible that such targeting 
could deter ACOs from deploying more comprehensive care delivery reform 
across a wider mix of patients served by ACO providers/suppliers. It is 
also unclear if many ACOs would see value in a more restrictive 
assignment approach as they may be hesitant to voluntarily reduce their 
overall number of assigned beneficiaries and consequently lower their 
total benchmark spending and the magnitude of potential shared savings. 
Furthermore, it is not currently empirically possible to determine if 
the potential method for adjusting benchmark expenditures that was 
described in the proposed rule would provide sufficient accuracy in 
setting spending targets or if it could be vulnerable to higher claims 
variation and/or bias because of the selective

[[Page 68060]]

nature of beneficiaries who opt in, voluntarily align, or meet the 
modified claims-based assignment criteria in order to be assigned to 
the ACO. Such uncertainties and challenges may be likely to dissuade 
ACOs from electing such alternative assignment methodology over the 
existing options rooted in a broader claims-based assignment 
methodology supplemented by voluntary alignment, which current 
experience shows generally duplicates assignment for a subset of 
beneficiaries that would have been assigned via the existing claims-
based assignment methodology. We note that although some commenters 
supported a hybrid assignment approach using opt-in and claims-based 
assignment (often confusing opt-in with the current voluntary alignment 
process), most commenters disagreed with this approach. Most of the 
commenters raised operational and administrative concerns in recruiting 
beneficiaries and putting in place the systems (both IT support systems 
and personnel) to support this approach. If few ACOs were to elect this 
potential alternative assignment methodology then the impact on program 
spending would also be minimal.

E. Compliance With Requirements of Section 1899(i)(3)(B) of the Act

    Certain policies, including both existing policies and the new 
policies we are adopting in this final rule, rely upon the authority 
granted in section 1899(i)(3) of the Act to use other payment models 
that the Secretary determines will improve the quality and efficiency 
of items and services furnished to Medicare FFS beneficiaries. Section 
1899(i)(3)(B) of the Act requires that such other payment model must 
not result in additional program expenditures. Policies falling under 
the authority of section 1899(i)(3) of the Act include--(1) 
performance-based risk; (2) refining the calculation of national 
expenditures used to update the historical benchmark to reflect the 
assignable subpopulation of total FFS enrollment; (3) updating 
benchmarks with a blend of regional and national trends as opposed to 
the national average absolute growth in per capita spending; (4) 
reconciling the two 6-month performance years during 2019 based on 
expenditures for all of CY 2019, and pro-rating any resulting shared 
savings or shared losses; and (5) adjusting performance year 
expenditures to remove IME, DSH, and uncompensated care payments.
    A comparison was constructed between the projected impact of the 
payment methodology that incorporates all changes and a hypothetical 
baseline payment methodology that excludes the elements described 
previously that require section 1899(i)(3) of the Act authority--most 
importantly performance-based risk in the ENHANCED track and Levels C, 
D, and E of the BASIC track and updating benchmarks using a blend of 
regional and national trends. The hypothetical baseline was assumed to 
include adjustments allowed under section 1899(d)(1)(B)(ii) of the Act 
including the up to 50 percent weight used in calculating the regional 
adjustment to the ACO's rebased historical benchmark, as finalized in 
this rule (depending on the number of rebasings and the direction of 
the adjustment), capped at positive or negative 5 percent of national 
average per capita FFS expenditures for assignable beneficiaries. The 
stochastic model and associated assumptions described previously in 
this section were adapted to reflect a higher range of potential 
participation given the perpetually sharing-only incentive structure of 
the hypothetical baseline model. Such analysis estimated approximately 
$4 billion greater average net program savings under the alternative 
payment model that includes all policies that require the authority of 
section 1899(i)(3) of Act than will be expected under the hypothetical 
baseline in total over the 2019 to 2028 projection period. The 
alternative payment model, as finalized in this rule, is projected to 
result in greater savings on benefit costs and reduced net payments to 
ACOs. In the final projection year, the alternative payment model is 
estimated to have 10 percent greater savings on benefit costs, 15 
percent lower spending on net shared savings payments to ACOs, with 39 
percent reduced overall ACO participation compared to the hypothetical 
baseline model.
    Participation in performance-based risk in the ENHANCED track and 
the higher levels of the BASIC track is assumed to improve the 
incentive for ACOs to increase the efficiency of care for beneficiaries 
(similar to the assumptions used in the modeling of the impacts, 
described previously). Such added savings are partly offset by lower 
participation associated with the requirement to transition to 
performance-based risk. Despite the higher maximum sharing rate of 75 
percent in the ENHANCED track under the alternative payment model under 
section 1899(i)(3) of the Act, relative to the 50 percent maximum 
sharing rate assumed for the single one-sided risk track under the 
hypothetical baseline, shared savings payments are expected to be 
reduced relative to the hypothetical baseline because of lower expected 
participation resulting from the elimination of Track 1, more accurate 
benchmarks due to the incorporation of regional factors into the 
calculation of benchmark updates for all ACOs, and the cap on the 
regional benchmark adjustment of positive or negative 5 percent of the 
national average per capita FFS spending amount for assignable 
beneficiaries.
    We will reexamine this projection in the future to ensure that the 
requirement under section 1899(i)(3)(B) of the Act that an alternative 
payment model not result in additional program expenditures continues 
to be satisfied. In the event that we later determine that the payment 
model established under section 1899(i)(3) of the Act no longer meets 
this requirement, we will undertake additional notice and comment 
rulemaking to make adjustments to the payment model to assure continued 
compliance with the statutory requirements.

F. Accounting Statement and Table

    As required by OMB Circular A-4 under Executive Order 12866, in 
Table 18, we have prepared an accounting statement showing the change 
in--(1) net federal monetary transfers; (2) shared savings payments to 
ACOs net of shared loss payments from ACOs; and (3) incentive payments 
made under the Quality Payment Program to additional ACO providers/
suppliers expected to become Qualifying APM Participants from 2019 to 
2028 who would not have been expected to achieve such status absent the 
changes we are adopting in this final rule.

[[Page 68061]]

[GRAPHIC] [TIFF OMITTED] TR31DE18.022

G. Regulatory Reform Analysis Under Executive Order 13771

    Executive Order 13771, entitled Reducing Regulation and Controlling 
Regulatory Costs (82 FR 9339), was issued on January 30, 2017. The 
modifications in this final rule are expected to primarily have effects 
on transfers via lower claims spending and shared savings outlays as 
described previously in this regulatory impact analysis. However these 
modifications are also anticipated to marginally reduce the 
administrative burden on participating ACOs by roughly $2.16 million 
over 10 years (as detailed previously in this RIA) which corresponds to 
an annualized net cost savings of $126,000 when discounted at 7 percent 
relative to year 2016; therefore this final rule, will be considered a 
deregulatory action under Executive Order 13771.

H. Conclusion

    The analysis in this section, together with the remainder of this 
preamble, provides a regulatory impact analysis. As a result of this 
final rule, the median estimate of the financial impact of the Shared 
Savings Program for CYs 2019 through 2028 will be net federal savings 
of $2.9 billion greater than the expected savings if no changes were 
made. Although this is the best estimate of the financial impact of the 
Shared Savings Program during CYs 2019 through 2028, a relatively wide 
range of possible outcomes exists. While a small fraction of trials 
projected significant increases in program spending, over 90 percent of 
the stochastic trials resulted in significant overall spending 
decreases over 10 years, with the 10th and 90th percentiles of the 
estimated distribution showing a net decrease in spending of $680 
million and $5.14 billion, respectively.
    Overall, our analysis projects that faster transition from one-
sided model agreements--tempered by the option for eligible ACOs of a 
gentler exposure to downside risk calculated as a percentage of ACO 
participants' total Medicare Parts A and B FFS revenue and capped at a 
percentage of the ACO's benchmark--can affect broader participation in 
performance-based risk in the Shared Savings Program and reduce overall 
claims costs. A second key driver of estimated net savings is the 
reduction in shared savings payments from the new limitation on the 
amount of the regional adjustment to the ACO's historical benchmark. 
Such reduction in overall shared savings payments is projected to 
result despite the benefit of higher net adjustments expected for a 
larger number of ACOs from the use of a simpler HCC risk adjustment 
methodology, the blending of national and regional trends for benchmark 
calculations, and longer 5-year agreement periods that allow ACOs a 
longer horizon from which to benefit from efficiency gains before 
benchmark rebasing.
    Therefore, the final changes are expected to improve the incentive 
for ACOs to invest in effective care management efforts, increase the 
number of ACOs participating under performance-based risk by 
discontinuing Track 1 and Track 2, and offering instead a BASIC track 
(which includes a glide path from a one-sided model to performance-
based risk for eligible ACOs) or the ENHANCED track (based on the 
current design of Track 3), reduce the number of ACOs with poor 
financial and quality performance (by eliminating Track 1, requiring 
faster transition to performance-based risk, limiting high revenue ACOs 
to 1 agreement period in the BASIC track and low revenue ACOs to 2 
agreement periods in the BASIC track (second agreement period at Level 
E), and increasing the monitoring of ACO financial performance), and 
result in greater overall gains in savings on FFS benefit claims costs 
while decreasing expected shared savings payments to ACOs.
    We intend to monitor emerging results for ACO effects on claims 
costs, changing participation (including risk for increased costs due 
to high performing ACOs selecting to participate in a track (or a 
payment model within a track) with greater rewards), and unforeseen 
bias in benchmark adjustments due to diagnosis coding intensity shifts.
    In accordance with the provisions of Executive Order 12866, this 
final rule was reviewed by the Office of Management and Budget.

VI. Effective Date Exception

    According to 5 U.S.C. 801, a major rule may be effective 60 days 
after the date of publication in the Federal Register which allows for 
Congressional review, unless there is good cause for an earlier 
effective date under section 808(2). Good cause can be found when the 
procedures within section 801 are impracticable, unnecessary, or 
contrary to the public interest, in which case the rule shall take 
effect at a time as determined by the Federal agency promulgating the 
rule.
    In this final rule we are finalizing a July 1, 2019 agreement start 
date for the redesigned participation options. This allows ACOs whose 
agreement periods expire December 31, 2018 and who extended their 
agreement for a 6-month performance year from January 1, 2019, through 
June 30, 2019, to renew for a new agreement period beginning July 1, 
2019 to continue their participation in the program without 
interruption.
    CMS will offer an application cycle for a one-time new agreement 
period

[[Page 68062]]

start date of July 1, 2019. To ensure ACOs have sufficient time to 
apply, and for CMS to adequately review these applications, the 
application cycle activities must begin in January 2019 with a notice 
of intent to apply, and application submission must occur by February 
22, 2019.
    Allowing for the final policies to become effective 60 days after 
the publication of this final rule would provide ACOs with less time to 
submit their applications and correct deficiencies, contract their 
provider networks, and establish repayment mechanisms. We may need to 
delay and shorten the application review period, allowing less time for 
applicants to correct deficiencies and bring their organizations into 
compliance with new program rules and requirements. This delay as a 
result of a March 1, 2019 effective date would be impracticable because 
it could prevent ACOs whose agreement periods expire June 30, 2019 from 
completing the renewal process and as a result may leave no other 
option for these organizations than to conclude their participation in 
the program.
    We also acknowledged that a delayed application due date for an 
agreement period beginning in 2019 could affect parties planning to 
participate in the Shared Savings Program for performance year 2019 and 
that are relying on the pre-participation waiver.
    As a result we find the delay in the effective date of the rule 
until March 1, 2019 to be impracticable and unnecessary. We therefore 
find there is good cause for an exception to the effective date to be 
45 days from the date of publication in the Federal Register.

List of Subjects in 42 CFR 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 amends 42 CFR part 425 as set forth below:

PART 425--MEDICARE SHARED SAVINGS PROGRAM

0
1. The authority citation for part 425 continues to read as follows:

    Authority:  42 U.S.C. 1302, 1306, 1395hh, and 1395jjj.


0
2. Section 425.20 is amended by adding in alphabetical order 
definitions for ``Experienced with performance-based risk Medicare ACO 
initiatives'', ``High revenue ACO'', ``Inexperienced with performance-
based risk Medicare ACO initiatives'', ``Low revenue ACO''; 
``Performance-based risk Medicare ACO initiative'', ``Re-entering 
ACO'', and ``Renewing ACO'' to read as follows:


Sec.  425.20   Definitions.

* * * * *
    Experienced with performance-based risk Medicare ACO initiatives 
means an ACO that CMS determines meets the criteria in either paragraph 
(1) or (2) of this definition.
    (1) The ACO is the same legal entity as a current or previous ACO 
that is participating in, or has participated in, a performance-based 
risk Medicare ACO initiative as defined under this section, or that 
deferred its entry into a second Shared Savings Program agreement 
period under a two-sided model under Sec.  425.200(e).
    (2) Forty percent or more of the ACO's ACO participants 
participated in a performance-based risk Medicare ACO initiative, as 
defined under this section, or in an ACO that deferred its entry into a 
second Shared Savings Program agreement period under a two-sided model 
under Sec.  425.200(e), in any of the 5 most recent performance years 
prior to the agreement start date.
* * * * *
    High revenue ACO means an ACO whose total Medicare Parts A and B 
fee-for-service revenue of its ACO participants based on revenue for 
the most recent calendar year for which 12 months of data are 
available, is at least 35 percent of the total Medicare Parts A and B 
fee-for-service expenditures for the ACO's assigned beneficiaries based 
on expenditures for the most recent calendar year for which 12 months 
of data are available.
* * * * *
    Inexperienced with performance-based risk Medicare ACO initiatives 
means an ACO that CMS determines meets all of the following:
    (1) The ACO is a legal entity that has not participated in any 
performance-based risk Medicare ACO initiative as defined under this 
section, and has not deferred its entry into a second Shared Savings 
Program agreement period under a two-sided model under Sec.  
425.200(e).
    (2) Less than 40 percent of the ACO's ACO participants participated 
in a performance-based risk Medicare ACO initiative, as defined under 
this section, or in an ACO that deferred its entry into a second Shared 
Savings Program agreement period under a two-sided model under Sec.  
425.200(e), in each of the 5 most recent performance years prior to the 
agreement start date.
    Low revenue ACO means an ACO whose total Medicare Parts A and B 
fee-for-service revenue of its ACO participants based on revenue for 
the most recent calendar year for which 12 months of data are 
available, is less than 35 percent of the total Medicare Parts A and B 
fee-for-service expenditures for the ACO's assigned beneficiaries based 
on expenditures for the most recent calendar year for which 12 months 
of data are available.
* * * * *
    Performance-based risk Medicare ACO initiative means, for purposes 
of this part, an initiative implemented by CMS that requires an ACO to 
participate under a two-sided model during its agreement period, 
including the following options and initiatives:
    (1) Participation options within the Shared Savings Program as 
follows:
    (i) BASIC track (Levels A through E).
    (ii) ENHANCED track.
    (iii) Track 2.
    (2) The Innovation Center ACO models under which an ACO accepts 
risk for shared losses as follows:
    (i) Pioneer ACO Model.
    (ii) Next Generation ACO Model.
    (iii) Comprehensive ESRD Care Model two-sided risk tracks.
    (iv) Track 1+ Model.
    (3) Other initiatives involving two-sided risk as may be specified 
by CMS.
* * * * *
    Re-entering ACO means an ACO that does not meet the definition of a 
renewing ACO and meets either of the following conditions:
    (1) Is the same legal entity as an ACO, as defined in this section, 
that previously participated in the program and is applying to 
participate in the program after a break in participation, because it 
is either--
    (i) An ACO whose participation agreement expired without having 
been renewed; or
    (ii) An ACO whose participation agreement was terminated under 
Sec.  425.218 or Sec.  425.220.
    (2) Is a new legal entity that has never participated in the Shared 
Savings Program and is applying to participate in the program and more 
than 50 percent of its ACO participants were included on the ACO 
participant list under Sec.  425.118, of the same ACO in any of the 5 
most recent performance years prior to the agreement start date.
    Renewing ACO means an ACO that continues its participation in the 
program for a consecutive agreement period, without a break in 
participation, because it is either--
    (1) An ACO whose participation agreement expired and that 
immediately

[[Page 68063]]

enters a new agreement period to continue its participation in the 
program; or
    (2) An ACO that terminated its current participation agreement 
under Sec.  425.220 and immediately enters a new agreement period to 
continue its participation in the program.
* * * * *


Sec.  425.100   [Amended]

0
3. Section 425.100 is amended--
0
a. In paragraph (b) by removing the phrase ``under Sec.  425.604, Sec.  
425.606, Sec.  425.609 or Sec.  425.610'' and adding in its place the 
phrase ``under Sec.  425.604, Sec.  425.605, Sec.  425.606, Sec.  
425.609 or Sec.  425.610''; and
0
b. In paragraph (c) by removing the phrase ``under Sec.  425.606, Sec.  
425.609 or Sec.  425.610'' and adding in its place the phrase ``under 
Sec.  425.605, Sec.  425.606, Sec.  425.609 or Sec.  425.610''.

0
4. Section 425.110 is amended by revising paragraph (b) to read as 
follows:


Sec.  425.110   Number of ACO professionals and beneficiaries.

* * * * *
    (b) If at any time during the performance year, an ACO's assigned 
population falls below 5,000, the ACO may be subject to the actions 
described in Sec. Sec.  425.216 and 425.218.
    (1) While under a CAP, the ACO remains eligible for shared savings 
and liable for shared losses.
    (2) If the ACO's assigned population is not at least 5,000 by the 
end of the performance year specified by CMS in its request for a CAP, 
CMS terminates the participation agreement and the ACO is not eligible 
to share in savings for that performance year.
    (3) In determining financial performance for an ACO with fewer than 
5,000 assigned beneficiaries, the MSR/MLR is calculated as follows:
    (i) For ACOs with a variable MSR and MLR (if applicable), the MSR 
and MLR (if applicable) are set at a level consistent with the number 
of assigned beneficiaries.
    (ii) For performance years starting before July 1, 2019, for ACOs 
with a fixed MSR/MLR, the MSR/MLR remains fixed at the level consistent 
with the choice of MSR and MLR that the ACO made at the start of the 
agreement period.
    (iii) For performance years starting on July 1, 2019 and in 
subsequent years, for ACOs that selected a fixed MSR/MLR at the start 
of the agreement period or prior to entering a two-sided model during 
their agreement period, the MSR/MLR is calculated as follows:
    (A) The MSR/MLR is set at a level based on the number of 
beneficiaries assigned to the ACO.
    (1) The MSR is the same as the MSR that would apply in a one-sided 
model under Sec.  425.604(b) (for Track 2 ACOs) or Sec.  425.605(b)(1) 
(for BASIC track and ENHANCED track ACOs) and is based on the number of 
assigned beneficiaries.
    (2) The MLR is equal to the negative MSR.
    (B) The MSR and MLR revert to the fixed level previously selected 
by the ACO for any subsequent performance year in the agreement period 
in which the ACO's assigned beneficiary population is 5,000 or more.


Sec.  425.118   [Amended]

0
5. Section 425.118 is amended in paragraph (b)(1)(iii) by removing the 
phrase ``screening performed under Sec.  425.304(b)'' and adding in its 
place the phrase ``screening performed under Sec.  425.305(a)''.

0
6. Section 425.200 is amended--
0
a. By revising the heading for paragraph (b)(3), and revising paragraph 
(b)(3)(ii);
0
b. By adding paragraphs (b)(4) and (5);
0
c. By adding paragraph (c)(3);
0
d. By redesignating paragraphs (e)(1)(i) through (v) as paragraphs 
(e)(1)(ii) through (vi); and
0
e. By adding a new paragraph (e)(1)(i).
    The revisions and additions read as follows:


Sec.  425.200   Participation agreement with CMS.

* * * * *
    (b) * * *
    (3) For 2017 and 2018.* * *
    (ii) The term of the participation agreement is 3 years, except for 
an ACO whose first agreement period in Track 1 began in 2014 or 2015, 
in which case the term of the ACO's initial agreement period under 
Track 1 (as described under Sec.  425.604) may be extended, at the 
ACO's option, for an additional year for a total of 4 performance years 
if the conditions specified in paragraph (e) of this section are met.
    (4) For 2019. (i) The start date is January 1, 2019, and the term 
of the participation agreement is 3 years for ACOs whose first 
agreement period began in 2015 and who deferred renewal of their 
participation agreement under paragraph (e) of this section; or
    (ii) The start date is July 1, 2019, and the term of the 
participation agreement is 5 years and 6 months.
    (5) For 2020 and subsequent years. (i) The start date is January 1 
of that year; and
    (ii) The term of the participation agreement is 5 years.
    (c) * * *
    (3) For an ACO that entered an agreement period with a start date 
of July 1, 2019, the ACO's first performance year of the agreement 
period is defined as the 6-month period between July 1, 2019, and 
December 31, 2019.
* * * * *
    (e) * * *
    (1) * * *
    (i) The ACO's first agreement period in the Shared Savings Program 
under Track 1 began in 2014 or 2015.
* * * * *

0
7. Section 425.202 is amended by adding introductory text after the 
heading of paragraph (b) to read as follows:


Sec.  425.202   Application procedures.

* * * * *
    (b) Condensed application form. For determining eligibility for 
agreement periods beginning before July 1, 2019:
* * * * *

0
8. Section 425.204 is amended--
0
a. By revising paragraph (f); and
0
b. In paragraph (g) introductory text by removing the phrase ``under 
Sec.  425.602'' and adding in its place the phrase ``under Sec.  
425.601, Sec.  425.602, or Sec.  425.603''.
    The revision reads as follows:


Sec.  425.204   Content of the application.

* * * * *
    (f) Assurance of ability to repay. (1) An ACO must have the ability 
to repay all shared losses for which it may be liable under a two-sided 
model.
    (2) An ACO that will participate in a two-sided model must 
establish one or more of the following repayment mechanisms in an 
amount and by a deadline specified by CMS in accordance with this 
section:
    (i) An escrow account with an insured institution.
    (ii) A surety bond from a company included on the U.S. Department 
of Treasury's List of Certified Companies.
    (iii) A line of credit at an insured institution (as evidenced by a 
letter of credit that the Medicare program can draw upon).
    (3) An ACO that will participate under a two-sided model of the 
Shared Savings Program must submit for CMS approval documentation that 
it is capable of repaying shared losses that it may incur during its 
agreement period, including details supporting the adequacy of the 
repayment mechanism.
    (i) An ACO participating in Track 2 must demonstrate the adequacy 
of its repayment mechanism at such times as requested by CMS.

[[Page 68064]]

    (ii) An ACO entering an agreement period in Levels C, D, or E of 
the BASIC track or the ENHANCED track must demonstrate the adequacy of 
its repayment mechanism prior to the start of its agreement period and 
at such other times as requested by CMS.
    (iii) An ACO entering an agreement period in Level A or Level B of 
the BASIC track must demonstrate the adequacy of its repayment 
mechanism prior to the start of any performance year in which it either 
elects to participate in, or is automatically transitioned to a two-
sided model, Level C, Level D, or Level E, of the BASIC track, and at 
such other times as requested by CMS.
    (iv) An ACO that has submitted a request to renew its participation 
agreement must submit as part of the renewal request documentation 
demonstrating the adequacy of the repayment mechanism that could be 
used to repay any shared losses incurred for performance years in the 
next agreement period. The repayment mechanism applicable to the new 
agreement period may be the same repayment mechanism currently used by 
the ACO, provided that the ACO submits documentation establishing that 
the amount and duration of the existing repayment mechanism have been 
revised to comply with paragraphs (f)(6)(i) and (ii) of this section.
    (4) CMS calculates the amount of the repayment mechanism as 
follows:
    (i) For a Track 2 ACO, the repayment mechanism amount must be equal 
to at least 1 percent of the total per capita Medicare Parts A and B 
fee-for-service expenditures for the ACO's assigned beneficiaries, 
based on expenditures used to calculate the benchmark for the 
applicable agreement period, as estimated by CMS at the time of 
application.
    (ii) For a BASIC track or ENHANCED track ACO, the repayment 
mechanism amount must be equal to the lesser of the following:
    (A) One percent of the total per capita Medicare Parts A and B fee-
for-service expenditures for the ACO's assigned beneficiaries, based on 
expenditures for the most recent calendar year for which 12 months of 
data are available.
    (B) Two percent of the total Medicare Parts A and B fee-for-service 
revenue of its ACO participants, based on revenue for the most recent 
calendar year for which 12 months of data are available.
    (iii) For agreement periods beginning on or after July 1, 2019, CMS 
recalculates the ACO's repayment mechanism amount before the second and 
each subsequent performance year in the agreement period in accordance 
with this section based on the certified ACO participant list for the 
relevant performance year.
    (A) If the recalculated repayment mechanism amount exceeds the 
existing repayment mechanism amount by at least 50 percent or 
$1,000,000, whichever is the lesser value, CMS notifies the ACO in 
writing that the amount of its repayment mechanism must be increased to 
the recalculated repayment mechanism amount.
    (B) Within 90 days after receipt of such written notice from CMS, 
the ACO must submit for CMS approval documentation that the amount of 
its repayment mechanism has been increased to the amount specified by 
CMS.
    (iv) In the case of an ACO that has submitted a request to renew 
its participation agreement and wishes to use its existing repayment 
mechanism to establish its ability to repay any shared losses incurred 
for performance years in the new agreement period, the amount of the 
repayment mechanism must be equal to the greater of the following:
    (A) The amount calculated by CMS in accordance with paragraph 
(f)(4)(ii) of this section.
    (B) The repayment mechanism amount that the ACO was required to 
maintain during the last performance year of the participation 
agreement it seeks to renew.
    (5) After the repayment mechanism has been used to repay any 
portion of shared losses owed to CMS, the ACO must replenish the amount 
of funds available through the repayment mechanism within 90 days.
    (6) The repayment mechanism must be in effect for the duration of 
the ACO's participation under a two-sided model plus 12 months 
following the conclusion of the agreement period, except as otherwise 
specified in this section.
    (i) For an ACO that is establishing a new repayment mechanism to 
meet this requirement, the repayment mechanism must satisfy one of the 
following criteria:
    (A) The repayment mechanism covers the entire duration of the ACO's 
participation under a two-sided risk model plus 12 months following the 
conclusion of the agreement period.
    (B) The repayment mechanism covers a term of at least the first two 
performance years in which the ACO is participating under a two-sided 
model and provides for automatic, annual 12-month extensions of the 
repayment mechanism such that the repayment mechanism will eventually 
remain in effect for the duration of the agreement period plus 12 
months following the conclusion of the agreement period.
    (ii) For a renewing ACO that wishes to use its existing repayment 
mechanism to establish its ability to repay any shared losses incurred 
for performance years in the new agreement period, the existing 
repayment mechanism must be amended to meet one of the following 
criteria.
    (A) The duration of the existing repayment mechanism is extended by 
an amount of time that covers the duration of the new agreement period 
plus 12 months following the conclusion of the new agreement period.
    (B) The duration of the existing repayment mechanism is extended, 
if necessary, to cover a term of at least the first two performance 
years of the new agreement period and provides for automatic, annual 
12-month extensions of the repayment mechanism such that the repayment 
mechanism will eventually remain in effect for the duration of the new 
agreement period plus 12 months following the conclusion of the new 
agreement period.
    (iii) CMS may require the ACO to extend the duration of the 
repayment mechanism if necessary to ensure that the ACO fully repays 
CMS any shared losses for each of the performance years of the 
agreement period.
    (iv) The repayment mechanism may be terminated at the earliest of 
the following conditions:
    (A) The ACO has fully repaid CMS any shared losses owed for each of 
the performance years of the agreement period under a two-sided model.
    (B) CMS has exhausted the amount reserved by the ACO's repayment 
mechanism and the arrangement does not need to be maintained to support 
the ACO's participation under the Shared Savings Program.
    (C) CMS determines that the ACO does not owe any shared losses 
under the Shared Savings Program for any of the performance years of 
the agreement period.
* * * * *


Sec.  425.220   [Amended]

0
9. Section 425.220 is amended in paragraph (a) by removing the phrase 
``60 days'' and adding in its place the phrase ``30 days''.

0
10. Section 425.221 is amended by revising paragraph (b) to read as 
follows:


Sec.  425.221   Close-out procedures and payment consequences of early 
termination.

* * * * *

[[Page 68065]]

    (b) Payment consequences of early termination. (1) Receipt of 
shared savings. (i) Except as set forth in paragraph (b)(3)(i) of this 
section, an ACO that terminates its participation agreement under Sec.  
425.220 is eligible to receive shared savings for the performance year 
during which the termination becomes effective only if all of the 
following conditions are met:
    (A) CMS designates or approves an effective date of termination of 
the last calendar day of the performance year.
    (B) The ACO has completed all close-out procedures by the deadline 
specified by CMS.
    (C) The ACO has satisfied the criteria for sharing in savings for 
the performance year.
    (ii) If the participation agreement is terminated at any time by 
CMS under Sec.  425.218, the ACO is not eligible to receive shared 
savings for the performance year during which the termination becomes 
effective.
    (2) Payment of shared losses. (i) Except as set forth in paragraph 
(b)(3)(i) of this section, for performance years beginning before July 
1, 2019, an ACO under a two-sided model is not liable for any shared 
losses if its participation agreement is terminated effective before 
the last calendar day of a performance year.
    (ii) Except as set forth in paragraph (b)(3)(ii) of this section, 
for performance years beginning on July 1, 2019 and subsequent 
performance years, an ACO under a two-sided model is liable for a pro-
rated share of any shared losses, as calculated in paragraph 
(b)(2)(iii) of this section, if its participation agreement is 
terminated effective before the last calendar day of a performance 
year.
    (A) An ACO under a two-sided model that terminates its 
participation agreement under Sec.  425.220 with an effective date of 
termination after June 30th of a 12-month performance year is liable 
for a pro-rated share of any shared losses determined for the 
performance year during which the termination becomes effective.
    (B) An ACO under a two-sided model whose participation agreement is 
terminated by CMS under Sec.  425.218 is liable for a pro-rated share 
of any shared losses determined for the performance year during which 
the termination becomes effective.
    (iii) The pro-rated share of losses described in paragraph 
(b)(2)(ii) of this section is calculated as follows:
    (A) In the case of a 12-month performance year, the shared losses 
incurred during the 12 months of the performance year are multiplied by 
the quotient equal to the number of months of participation in the 
program during the performance year, including the month in which the 
termination was effective, divided by 12.
    (B) In the case of a 6-month performance year beginning July 1, 
2019, the shared losses incurred during CY 2019 are multiplied by the 
quotient equal to the number of months of participation in the program 
during the performance year, including the month in which the 
termination was effective, divided by 12.
    (3) Exceptions. (i) An ACO starting a 12-month performance year on 
January 1, 2019, that terminates its participation agreement with an 
effective date of termination of June 30, 2019, and that enters a new 
agreement period beginning on July 1, 2019, is eligible for pro-rated 
shared savings or liable for pro-rated shared losses for the 6-month 
period from January 1, 2019, through June 30, 2019, as determined in 
accordance with Sec.  425.609.
    (ii) An ACO under a two-sided model that terminates its 
participation agreement under Sec.  425.220 during the 6-month 
performance year beginning July 1, 2019, with an effective date of 
termination prior to the last calendar day of the performance year is 
not liable for shared losses incurred during the performance year.

0
11. Section 425.222 is amended by revising the section heading and 
paragraphs (a), (b), and (c) introductory text to read as follows:


Sec.  425.222  Eligibility to re-enter the program for agreement 
periods beginning before July 1, 2019.

    (a) For purposes of determining the eligibility of a re-entering 
ACO to enter an agreement period beginning before July 1, 2019, the ACO 
may participate in the Shared Savings Program again only after the date 
on which the term of its original participation agreement would have 
expired if the ACO had not been terminated.
    (b) For purposes of determining the eligibility of a re-entering 
ACO to enter an agreement period beginning before July 1, 2019, an ACO 
whose participation agreement was previously terminated 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 remains in compliance with the 
terms of the new participation agreement.
    (c) For purposes of determining the eligibility of a re-entering 
ACO to enter an agreement period beginning before July 1, 2019, an ACO 
whose participation agreement was previously terminated or expired 
without having been renewed may re-enter the program for a subsequent 
agreement period.
* * * * *

0
12. Section 425.224 is amended--
0
a. By revising the section heading and paragraph (a);
0
b. By revising paragraph (b) heading and paragraphs (b)(1) introductory 
text and (b)(1)(ii);
0
c. By removing paragraphs (b)(1)(iv) and (v);
0
d. By redesignating paragraphs (b)(1)(iii) and (vi) as paragraphs 
(b)(1)(iv) and (v);
0
e. By adding a new paragraph (b)(1)(iii);
0
f. By revising newly redesignated paragraphs (b)(1)(iv) and (v);
0
g. In paragraph (b)(2) introductory text by removing the phrase 
``Renewal requests'' and adding in its place the phrase 
``Applications'';
0
h. In paragraph (b)(2)(i) by removing the phrase ``renewal request'' 
and adding in its place the phrase ``application''; and
0
i. In paragraphs (c)(1) and (2) introductory text by removing the 
phrase ``renewal request'' and adding in its place the phrase 
``application''.
    The revisions and addition read as follows:


Sec.  425.224   Application procedures for renewing ACOs and re-
entering ACOs.

    (a) General rules. A renewing ACO or a re-entering ACO may apply to 
enter a new participation agreement with CMS for participation in the 
Shared Savings Program.
    (1) In order to obtain a determination regarding whether it meets 
the requirements to participate in the Shared Savings Program, the ACO 
must submit a complete application in the form and manner and by the 
deadline specified by CMS.
    (2) An ACO executive who has the authority to legally bind the ACO 
must certify to the best of his or her knowledge, information, and 
belief that the information contained in the application is accurate, 
complete, and truthful.
    (3) An ACO that seeks to enter a new participation agreement under 
the Shared Savings Program and was newly formed after March 23, 2010, 
as defined in the Antitrust Policy Statement, must agree that CMS can 
share a copy of its application with the Antitrust Agencies.
    (4) The ACO must select a participation option in accordance with 
the requirements specified in Sec.  425.600. Regardless of the date of 
termination or expiration of the participation agreement, a renewing 
ACO or re-entering ACO that was previously under a two-sided model, or 
a one-sided

[[Page 68066]]

model of the BASIC track's glide path (Level A or Level B), may only 
reapply for participation in a two-sided model.
    (b) Review of application. (1) CMS determines whether to approve a 
renewing ACO's or re-entering ACO's application based on an evaluation 
of all of the following factors:
* * * * *
    (ii) The ACO's history of noncompliance with the requirements of 
the Shared Savings Program, including, but not limited to, the 
following factors:
    (A)(1) For an ACO that entered into a participation agreement for a 
3-year period, we consider whether the ACO failed to meet the quality 
performance standard during 1 of the first 2 performance years of the 
previous agreement period.
    (2) For an ACO that entered into a participation agreement for a 
period longer than 3 years, we consider whether the ACO failed to meet 
the quality performance standard in either of the following:
    (i) In 2 consecutive performance years and was terminated as 
specified in Sec.  425.316(c)(2).
    (ii) For 2 or more performance years of the previous agreement 
period, regardless of whether the years are in consecutive order.
    (B) For 2 performance years of the ACO's previous agreement period, 
regardless of whether the years are in consecutive order, whether the 
average per capita Medicare Parts A and B fee-for-service expenditures 
for the ACO's assigned beneficiary population exceeded its updated 
benchmark by an amount equal to or exceeding either of the following:
    (1) The ACO's negative MSR, under a one-sided model.
    (2) The ACO's MLR, under a two-sided model.
    (C) Whether the ACO failed to repay shared losses in full within 90 
days as required under subpart G of this part for any performance year 
of the ACO's previous agreement period in a two-sided model.
    (D) For an ACO that has participated in a two-sided model 
authorized under section 1115A of the Act, whether the ACO failed to 
repay shared losses for any performance year as required under the 
terms of the ACO's participation agreement for such model.
    (iii) Whether the ACO has demonstrated in its application that it 
has corrected the deficiencies that caused any noncompliance identified 
in paragraph (b)(1)(ii) of this section to occur, and any other factors 
that may have caused the ACO to be terminated from the Shared Savings 
Program, and has processes in place to ensure that it remains in 
compliance with the terms of the new participation agreement.
    (iv) Whether the ACO has established that it is in compliance with 
the eligibility and other requirements of the Shared Savings Program to 
enter a new participation agreement, including the ability to repay 
losses by establishing an adequate repayment mechanism under Sec.  
425.204(f), if applicable.
    (v) The results of a program integrity screening of the ACO, its 
ACO participants, and its ACO providers/suppliers (conducted in 
accordance with Sec.  425.305(a)).
* * * * *

0
13. Section 425.226 is added to subpart C to read as follows:


Sec.  425.226   Annual participation elections.

    (a) General. This section applies to ACOs in agreement periods 
beginning on July 1, 2019, and in subsequent years. Before the start of 
a performance year, an ACO may make elections related to its 
participation in the Shared Savings Program, as specified in this 
section, effective at the start of the applicable performance year and 
for the remaining years of the agreement period, unless superseded by a 
later election in accordance with this section.
    (1) Selection of beneficiary assignment methodology. An ACO may 
select the assignment methodology that CMS employs for assignment of 
beneficiaries under subpart E of this part. An ACO may select either of 
the following:
    (i) Preliminary prospective assignment with retrospective 
reconciliation, as described in Sec.  425.400(a)(2).
    (ii) Prospective assignment, as described in Sec.  425.400(a)(3).
    (2) Selection of BASIC track level. An ACO participating under the 
BASIC track in the glide path may select a higher level of risk and 
potential reward, as provided in this section.
    (i) An ACO participating under the BASIC track's glide path may 
elect to transition to a higher level of risk and potential reward 
within the glide path than the level of risk and potential reward that 
the ACO would be automatically transitioned to in the applicable year 
as specified in Sec.  425.605(d)(1). The automatic transition to higher 
levels of risk and potential reward within the BASIC track's glide path 
continues to apply to all subsequent years of the agreement period in 
the BASIC track.
    (ii) An ACO transitioning to a higher level of risk and potential 
reward under paragraph (a)(2)(i) of this section must meet all 
requirements to participate under the selected level of performance-
based risk, including both of the following:
    (A) Establishing an adequate repayment mechanism as specified under 
Sec.  425.204(f).
    (B) Selecting a MSR/MLR from the options specified under Sec.  
425.605(b).
    (b) Election procedures. (1) All annual elections must be made in a 
form and manner and according to the timeframe established by CMS.
    (2) ACO executive who has the authority to legally bind the ACO 
must certify the elections described in this section.

0
14. Section 425.304 is revised to read as follows:


Sec.  425.304   Beneficiary incentives.

    (a) General. (1) Except as set forth in this section, or as 
otherwise permitted by law, ACOs, ACO participants, ACO providers/
suppliers, and other individuals or entities performing functions or 
services related to ACO activities are prohibited from providing gifts 
or other remuneration to beneficiaries as inducements for receiving 
items or services from or remaining in, an ACO or with ACO providers/
suppliers in a particular ACO or receiving items or services from ACO 
participants or ACO providers/suppliers.
    (2) Nothing in this section shall be construed as prohibiting an 
ACO from using shared savings received under this part to cover the 
cost of an in-kind item or service or incentive payment provided to a 
beneficiary under paragraph (b) or (c) of this section.
    (b) In-kind incentives. ACOs, ACO participants, ACO providers/
suppliers, and other individuals or entities performing functions or 
services related to ACO activities may provide in-kind items or 
services to Medicare fee-for-service beneficiaries if all of the 
following conditions are satisfied:
    (1) There is a reasonable connection between the items and services 
and the medical care of the beneficiary.
    (2) The items or services are preventive care items or services or 
advance a clinical goal for the beneficiary, including adherence to a 
treatment regime, adherence to a drug regime, adherence to a follow-up 
care plan, or management of a chronic disease or condition.
    (3) The in-kind item or service is not a Medicare-covered item or 
service for the beneficiary on the date the in-kind item or service is 
furnished to the beneficiary.

[[Page 68067]]

    (c) Monetary incentives--(1) General. For performance years 
beginning on July 1, 2019 and for subsequent performance years, an ACO 
that is participating under Track 2, Levels C, D, or E of the BASIC 
track, or the ENHANCED track may, in accordance with this section, 
establish a beneficiary incentive program to provide monetary incentive 
payments to Medicare fee-for-service beneficiaries who receive a 
qualifying service.
    (2) Application procedures. (i) To establish or reestablish a 
beneficiary incentive program, an ACO must submit a complete 
application in the form and manner and by a deadline specified by CMS.
    (ii) CMS evaluates an ACO's application to determine whether the 
ACO satisfies the requirements of this section, and approves or denies 
the application.
    (iii) If an ACO wishes to make a material change to its CMS-
approved beneficiary incentive program, the ACO must submit a 
description of the material change to CMS in a form and manner and by a 
deadline specified by CMS. CMS will promptly evaluate the proposed 
material change and approve or reject it.
    (3) Beneficiary incentive program requirements. An ACO must begin 
to operate its approved beneficiary incentive program beginning on July 
1, 2019 or January 1 of the relevant performance year.
    (i) Duration. (A) Subject to the termination provision at paragraph 
(c)(7) of this section, an ACO must operate its approved beneficiary 
incentive program for an initial period of 18 months in the case of an 
ACO approved to operate a beneficiary incentive program beginning on 
July 1, 2019, or 12 months in the case of an ACO approved to operate a 
beneficiary incentive program beginning on January 1 of a performance 
year.
    (B) For each consecutive year that an ACO wishes to operate its 
beneficiary incentive program after the CMS-approved initial period, it 
must certify all of the following by a deadline specified by CMS:
    (1) Its intent to continue to operate the beneficiary incentive 
program for the entirety of the relevant performance year.
    (2) That the beneficiary incentive program meets all applicable 
requirements.
    (ii) Beneficiary eligibility. A fee-for-service beneficiary is 
eligible to receive an incentive payment under a beneficiary incentive 
program if the beneficiary is assigned to the ACO through either of the 
following:
    (A) Preliminary prospective assignment, as described in Sec.  
425.400(a)(2).
    (B) Prospective assignment, as described in Sec.  425.400(a)(3).
    (iii) Qualifying service. For purposes of this section, a 
qualifying service is a primary care service (as defined in Sec.  
425.20) with respect to which coinsurance applies under Part B, if the 
service is furnished through an ACO by one of the following:
    (A) An ACO professional who has a primary care specialty 
designation included in the definition of primary care physician under 
Sec.  425.20.
    (B) An ACO professional who is a physician assistant, nurse 
practitioner, or certified nurse specialist.
    (C) A FQHC or RHC.
    (iv) Incentive payments. (A) An ACO that establishes a beneficiary 
incentive program must furnish an incentive payment for each qualifying 
service furnished to a beneficiary described in paragraph (c)(3)(ii) of 
this section in accordance with this section.
    (B) Each incentive payment made by an ACO under a beneficiary 
incentive program must satisfy all of the following conditions:
    (1) The incentive payment is in the form of a check, debit card, or 
a traceable cash equivalent.
    (2) The value of the incentive payment does not exceed $20, as 
adjusted annually by the percentage increase in the consumer price 
index for all urban consumers (United States city average) for the 12-
month period ending with June of the previous year, rounded to the 
nearest whole dollar amount.
    (3) The incentive payment is provided by the ACO to the beneficiary 
no later than 30 days after a qualifying service is furnished.
    (C) An ACO must furnish incentive payments in the same amount to 
each eligible Medicare fee-for-service beneficiary without regard to 
enrollment of such beneficiary in a Medicare supplemental policy 
(described in section 1882(g)(1) of the Act), in a State Medicaid plan 
under title XIX or a waiver of such a plan, or in any other health 
insurance policy or health benefit plan.
    (4) Program integrity requirements--(i) Record retention. An ACO 
that establishes a beneficiary incentive program must maintain records 
related to the beneficiary incentive program that include the 
following:
    (A) Identification of each beneficiary that received an incentive 
payment, including beneficiary name and HICN or Medicare beneficiary 
identifier.
    (B) The type and amount of each incentive payment made to each 
beneficiary.
    (C) The date each beneficiary received a qualifying service, the 
corresponding HCPCS code for the qualifying service, and identification 
of the ACO provider/supplier that furnished the qualifying service.
    (D) The date the ACO provided each incentive payment to each 
beneficiary.
    (ii) Source of funding. (A) An ACO must not use funds from any 
entity or organization outside of the ACO to establish or operate a 
beneficiary incentive program.
    (B) An ACO must not directly, through insurance, or otherwise, bill 
or otherwise shift the cost of establishing or operating a beneficiary 
incentive program to a Federal health care program.
    (iii) Beneficiary notifications. An ACO or its ACO participants 
shall notify assigned beneficiaries of the availability of the 
beneficiary incentive program in accordance with Sec.  425.312(b).
    (iv) Marketing prohibition. Except for the beneficiary 
notifications required under this section, the beneficiary incentive 
program is not the subject of marketing materials and activities, 
including but not limited to, an advertisement or solicitation to a 
beneficiary or any potential patient whose care is paid for in whole or 
in part by a Federal health care program (as defined at 42 U.S.C. 
1320a-7b(f)).
    (5) Effect on program calculations. CMS disregards incentive 
payments made by an ACO under paragraph (c) of this section in 
calculating an ACO's benchmarks, estimated average per capita Medicare 
expenditures, and shared savings and losses.
    (6) Income exemptions. Incentive payments made under a beneficiary 
incentive program are not considered income or resources or otherwise 
taken into account for purposes of either of the following:
    (i) Determining eligibility for benefits or assistance (or the 
amount or extent of benefits or assistance) under any Federal program 
or under any State or local program financed in whole or in part with 
Federal funds.
    (ii) Any Federal or State laws relating to taxation.
    (7) Termination. CMS may require an ACO to terminate its 
beneficiary incentive program at any time for either of the following:
    (i) Failure to comply with the requirements of this section.
    (ii) Any of the grounds for ACO termination set forth in Sec.  
425.218(b).

0
15. Section 425.305 is added to read as follows:

[[Page 68068]]

Sec.  425.305   Other program safeguards.

    (a) Screening of ACO applicants. (1) ACOs, ACO participants, and 
ACO providers/suppliers are reviewed during the Shared Savings Program 
application process and periodically thereafter with regard to their 
program integrity history, including any history of Medicare program 
exclusions or other sanctions and affiliations with individuals or 
entities that have a history of program integrity issues.
    (2) ACOs, ACO participants, or ACO providers/suppliers whose 
screening reveals a history of program integrity issues or affiliations 
with individuals or entities that have a history of program integrity 
issues may be subject to denial of their Shared Savings Program 
applications or the imposition of additional safeguards or assurances 
against program integrity risks.
    (b) Prohibition on certain required referrals and cost shifting. 
ACOs, ACO participants, and ACO providers/suppliers are prohibited from 
doing the following:
    (1) Conditioning the participation of ACO participants, ACO 
providers/suppliers, other individuals or entities performing functions 
or services related to ACO activities in the ACO on referrals of 
Federal health care program business that the ACO, its ACO 
participants, or ACO providers/suppliers or other individuals or 
entities performing functions or services related to ACO activities 
know or should know is being (or would be) provided to beneficiaries 
who are not assigned to the ACO.
    (2) Requiring that beneficiaries be referred only to ACO 
participants or ACO providers/suppliers within the ACO or to any other 
provider or supplier, except that the prohibition does not apply to 
referrals made by employees or contractors who are operating within the 
scope of their employment or contractual arrangement to the employer or 
contracting entity, provided that the employees and contractors remain 
free to make referrals without restriction or limitation if the 
beneficiary expresses a preference for a different provider, 
practitioner, or supplier; the beneficiary's insurer determines the 
provider, practitioner, or supplier; or the referral is not in the 
beneficiary's best medical interests in the judgment of the referring 
party.

0
16. Section 425.308 is amended by revising paragraph (b)(6) and adding 
paragraph (b)(7) to read as follows:


Sec.  425.308   Public reporting and transparency.

* * * * *
    (b) * * *
    (6) Use of payment rule waivers under Sec.  425.612, if applicable, 
or telehealth services under Sec.  425.613, if applicable, or both.
    (7) Information about a beneficiary incentive program established 
under Sec.  425.304(c), if applicable, including the following, for 
each performance year:
    (i) Total number of beneficiaries who received an incentive 
payment.
    (ii) Total number of incentive payments furnished.
    (iii) HCPCS codes associated with any qualifying service for which 
an incentive payment was furnished.
    (iv) Total value of all incentive payments furnished.
    (v) Total of each type of incentive payment (for example, check or 
debit card) furnished.
* * * * *

0
17. Section 425.310 is amended by revising paragraph (c)(3) to read as 
follows:


Sec.  425.310   Marketing requirements.

* * * * *
    (c) * * *
    (3) Comply with Sec.  425.304 regarding beneficiary incentives.
* * * * *

0
18. Section 425.312 is amended by revising the section heading and 
paragraph (a) and adding paragraph (b) to read as follows:


Sec.  425.312   Beneficiary notifications.

    (a) Notifications to fee-for-service beneficiaries. (1) An ACO 
shall ensure that Medicare fee-for-service beneficiaries are notified 
about all of the following in the manner set forth in paragraph (a)(2) 
of this section:
    (i) That each ACO participant and its ACO providers/suppliers are 
participating in the Shared Savings Program.
    (ii) The beneficiary's opportunity to decline claims data sharing 
under Sec.  425.708.
    (iii) Beginning July 1, 2019, the beneficiary's ability to, and the 
process by which, he or she may identify or change identification of 
the individual he or she designated for purposes of voluntary alignment 
(as described in Sec.  425.402(e)).
    (2) Notification of the information specified in paragraph (a)(1) 
of this section must be carried out through the following methods:
    (i) By an ACO participant posting signs in its facilities and, in 
settings in which beneficiaries receive primary care services, making 
standardized written notices available upon request.
    (ii) During the performance year beginning on July 1, 2019 and each 
subsequent performance year, by an ACO or ACO participant providing 
each beneficiary with a standardized written notice prior to or at the 
first primary care visit of the performance year in the form and manner 
specified by CMS.
    (b) Beneficiary incentive program notifications. (1) Beginning July 
1, 2019, an ACO that operates a beneficiary incentive program under 
Sec.  425.304(c) shall ensure that the ACO or its ACO participants 
notify assigned beneficiaries of the availability of the beneficiary 
incentive program, including a description of the qualifying services 
for which an assigned beneficiary is eligible to receive an incentive 
payment (as described in Sec.  425.304(c)).
    (2) Notification of the information specified in paragraph (b)(1) 
of this section must be carried out by an ACO or ACO participant during 
each relevant performance year by providing each assigned beneficiary 
with a standardized written notice prior to or at the first primary 
care visit of the performance year in the form and manner specified by 
CMS.
* * * * *

0
19. Section 425.314 is amended by adding paragraph (a)(4) and revising 
paragraph (b)(1) to read as follows:


Sec.  425.314   Audits and record retention.

    (a) * * *
    (4) The ACO's operation of a beneficiary incentive program.
    (b) * * *
    (1) To maintain and give CMS, DHHS, the Comptroller General, the 
Federal Government 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, information related to operation of a 
beneficiary incentive program, and other financial arrangements related 
to ACO activities) sufficient to enable the audit, evaluation, 
investigation, 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.
* * * * *


Sec.  425.315   [Amended]

0
20. Section 425.315 is amended in paragraph (a)(1)(ii) by removing the 
phrase ``Sec.  425.604(f), Sec.  425.606(h), Sec.  425.609(e) or Sec.  
425.610(h)'' and adding in its place the phrase ``Sec.  425.604(f), 
Sec.  425.605(e), Sec.  425.606(h), Sec.  425.609(e) or Sec.  
425.610(h)''.

[[Page 68069]]


0
21. Section 425.316 is amended by adding paragraph (d) to read as 
follows:


Sec.  425.316   Monitoring of ACOs.

* * * * *
    (d) Monitoring ACO financial performance. (1) For performance years 
beginning on July 1, 2019 and subsequent performance years, CMS 
determines whether the Medicare Parts A and B fee-for-service 
expenditures for the ACO's assigned beneficiaries for the performance 
year exceed the ACO's updated benchmark by an amount equal to or 
exceeding either the ACO's negative MSR under a one-sided model, or the 
ACO's MLR under a two-sided model.
    (2) If the Medicare Parts A and B fee-for-service expenditures for 
the ACO's assigned beneficiaries for the performance year exceed the 
ACO's updated benchmark as specified in paragraph (d)(1) of this 
section, CMS may take any of the pre-termination actions set forth in 
Sec.  425.216.
    (3) If the Medicare Parts A and B fee-for-service expenditures for 
the ACO's assigned beneficiaries for the performance year exceed the 
ACO's updated benchmark as specified in paragraph (d)(1) of this 
section for another performance year of the agreement period, CMS may 
immediately or with advance notice terminate the ACO's participation 
agreement under Sec.  425.218.

0
22. Section 425.400 is amended--
0
a. By revising the headings for paragraphs (a)(2) and (3);
0
b. In paragraph (a)(3)(i) by removing the phrase ``under Track 3''; and
0
c. By adding paragraph (a)(4).
    The revisions and addition read as follows:


Sec.  425.400   General.

    (a) * * *
    (2) Preliminary prospective assignment with retrospective 
reconciliation. * * *
    (3) Prospective assignment. * * *
    (4) Assignment methodology applied to ACO. (i) For agreement 
periods beginning before July 1, 2019, the applicable assignment 
methodology is determined based on track as specified in Sec.  
425.600(a).
    (A) Preliminary prospective assignment with retrospective 
reconciliation as described in paragraph (a)(2) of this section applies 
to Track 1 and Track 2 ACOs.
    (B) Prospective assignment as described in paragraph (a)(3) of this 
section applies to Track 3 ACOs.
    (ii) For agreement periods beginning on July 1, 2019 and in 
subsequent years, an ACO may select the assignment methodology that CMS 
employs for assignment of beneficiaries under this subpart.
    (A) An ACO may select either of the following:
    (1) Preliminary prospective assignment with retrospective 
reconciliation, as described in paragraph (a)(2) of this section.
    (2) Prospective assignment, as described in paragraph (a)(3) of 
this section.
    (B) This selection is made prior to the start of each agreement 
period, and may be modified prior to the start of each performance year 
as specified in Sec.  425.226.
* * * * *


Sec.  425.401   [Amended]

0
23. Section 425.401 is amended in paragraph (b) introductory text by 
removing the phrase ``or at the end of CY 2019 as specified in Sec.  
425.609(b)(1)(ii)'' and adding in its place the phrase ``or at the end 
of CY 2019 as specified in Sec.  425.609(b)(1)(ii) and (c)(1)(ii)''.

0
24. Section 425.402 is amended by revising paragraph (e)(3)(i) to read 
as follows:


Sec.  425.402   Basic assignment methodology.

* * * * *
    (e) * * *
    (3) * * *
    (i) Offering anything of value to the Medicare beneficiary as an 
inducement to influence the Medicare beneficiary's decision to 
designate or not to designate an ACO professional as responsible for 
coordinating their overall care under paragraph (e) of this section. 
Any items or services provided in violation of paragraph (e)(3) of this 
section are not considered to have a reasonable connection to the 
medical care of the beneficiary, as required under Sec.  425.304(b)(1).
* * * * *


Sec.  425.502   [Amended]

0
25. Section 425.502 is amended in paragraph (e)(4)(v) by removing the 
phrase ``in the third year of the previous agreement period'' and 
adding in its place the phrase ``in the last year of the previous 
agreement period''.

0
26. Section 425.600 is amended--
0
a. In paragraph (a) introductory text by removing the phrase ``For its 
initial agreement period, an ACO'' and adding in its place ``An ACO'';
0
b. By revising paragraphs (a)(1), (2) and (3);
0
c. By adding paragraph (a)(4);
0
d. By revising paragraphs (b) introductory text and (c); and
0
e. By adding paragraphs (d), (e) and (f).
    The revisions and additions read as follows:


Sec.  425.600   Selection of risk model.

    (a) * * *
    (1) Track 1. For agreement periods beginning before July 1, 2019, 
an ACO in Track 1 operates under the one-sided model (as described 
under Sec.  425.604) for the agreement period.
    (2) Track 2. For agreement periods beginning before July 1, 2019, 
an ACO in Track 2 operates under a two-sided model (as described under 
Sec.  425.606), sharing both savings and losses with the Medicare 
program for the agreement period.
    (3) ENHANCED track. An ACO in the ENHANCED track operates under a 
two-sided model (as described under Sec.  425.610), sharing both 
savings and losses with the Medicare program for the agreement period. 
For purposes of this part, all references to the ENHANCED track are 
deemed to include Track 3.
    (4) BASIC track. For agreement periods beginning on July 1, 2019, 
and in subsequent years, an ACO in the BASIC track operates under 
either a one-sided model or a two-sided model (as described under Sec.  
425.605), either sharing savings only or sharing both savings and 
losses with the Medicare program, as specified in this paragraph 
(a)(4).
    (i) Levels of the BASIC track's glide path--(A) Phase-in of levels 
of the risk and reward. Under the BASIC track's glide path, the level 
of risk and potential reward phases in over the course of the agreement 
period in the following order:
    (1) Level A. The ACO operates under a one-sided model as described 
under Sec.  425.605(d)(1)(i).
    (2) Level B. The ACO operates under a one-sided model as described 
under Sec.  425.605(d)(1)(ii).
    (3) Level C. The ACO operates under a two-sided model as described 
under Sec.  425.605(d)(1)(iii).
    (4) Level D. The ACO operates under a two-sided model as described 
under Sec.  425.605(d)(1)(iv).
    (5) Level E. The ACO operates under a two-sided model as described 
under Sec.  425.605(d)(1)(v).
    (B) Glide path progression. (1) Experience in Track 1. (i) Except 
for an ACO that previously participated in Track 1 under paragraph 
(a)(1) of this section or a new ACO identified as a re-entering ACO 
because more than 50 percent of its ACO participants have recent prior 
experience in a Track 1 ACO, an ACO eligible to enter the BASIC track's 
glide path as determined

[[Page 68070]]

under paragraphs (d)(1)(i) and (d)(2)(i) of this section may elect to 
enter its agreement period at any of the levels of risk and potential 
reward available under paragraphs (a)(4)(i)(A)(1) through (5) of this 
section.
    (ii) An ACO that previously participated in Track 1 under paragraph 
(a)(1) of this section or a new ACO identified as a re-entering ACO 
because more than 50 percent of its ACO participants have recent prior 
experience in a Track 1 ACO may elect to enter its agreement period at 
any of the levels of risk and potential reward available under 
paragraphs (a)(4)(i)(A)(2) through (5) of this section.
    (2) Automatic advancement. Unless the ACO elects to transition to a 
higher level of risk and potential reward within the BASIC track's 
glide path as provided in Sec.  425.226(a)(2)(i), the ACO is 
automatically advanced to the next level of the BASIC track's glide 
path at the start of each subsequent performance year of the agreement 
period, if a higher level of risk and potential reward is available 
under the BASIC track.
    (i) Exception for ACO entering the BASIC track's glide path for an 
agreement period beginning on July 1, 2019. The automatic advancement 
does not apply at the start of the second performance year for an ACO 
entering the BASIC track's glide path for an agreement period beginning 
on July 1, 2019. For performance year 2020, the ACO remains in the same 
level of the BASIC track's glide path that it entered for the July 1, 
2019 through December 31, 2019 performance year, unless the ACO chooses 
to advance more quickly in accordance with Sec.  425.226(a)(2)(i). The 
ACO is automatically advanced to the next level of the BASIC track's 
glide path at the start of performance year 2021 and all subsequent 
performance years of the agreement period.
    (ii) Exception for new legal entity identified as a low revenue 
ACO. An exception is available for a low revenue ACO that is a new 
legal entity and is not identified as a re-entering ACO that enters the 
BASIC track's glide path at Level A under paragraph (a)(4)(i)(A)(1) of 
this section, and is automatically advanced to Level B under paragraph 
(a)(4)(i)(A)(2) of this section for performance year 2 (or performance 
3 in the case of ACOs entering an agreement period beginning on July 1, 
2019). Prior to the automatic advancement of the ACO to Level C under 
paragraph (a)(4)(i)(A)(3) of this section, the ACO may elect to remain 
in Level B under paragraph (a)(4)(i)(A)(2) of this section for 
performance year 3 (performance year 4 in the case of ACOs entering an 
agreement period beginning on July 1, 2019). In the case of an ACO that 
elects to remain in Level B for an additional performance year pursuant 
to the second sentence of paragraph (a)(4)(i)(B)(2)(ii) of this 
section, the ACO is automatically advanced to Level E under paragraph 
(a)(4)(i)(A)(5) of this section at the start of performance year 4 (or 
performance year 5 in the case of ACOs entering an agreement period 
beginning on July 1, 2019).
    (iii) Prior to entering performance-based risk, an ACO must meet 
all requirements to participate under performance-based risk, including 
establishing an adequate repayment mechanism as specified under Sec.  
425.204(f) and selecting a MSR/MLR from the options specified under 
Sec.  425.605(b).
    (3) If the ACO fails to meet the requirements to participate under 
performance-based risk under paragraph (a)(4)(i)(B)(2)(iii) of this 
section, the agreement is terminated.
    (4) If, in accordance with Sec.  425.226(a)(2)(i), the ACO elects 
to transition to a higher level of risk and reward available under 
paragraphs (a)(4)(i)(A)(3) through (5) of this section, then the 
automatic transition to levels of higher risk and reward specified in 
paragraph (a)(4)(i)(B)(2) of this section applies to all subsequent 
performance years of the agreement period.
    (ii) Agreement period under Level E of the BASIC track. If an ACO 
enters the BASIC track and is ineligible to participate under the glide 
path described in paragraph (a)(4)(i) of this section, as determined 
under paragraph (d) of this section, Level E as described in paragraph 
(a)(4)(i)(A)(5) of this section applies to all performance years of the 
agreement period.
    (b) For agreement periods beginning before July 1, 2019, ACOs may 
operate under the one-sided model for a maximum of 2 agreement periods. 
An ACO may not operate under the one-sided model for a second agreement 
period unless the--
* * * * *
    (c) For agreement periods beginning before July 1, 2019, an ACO 
experiencing a net loss during a previous agreement period may reapply 
to participate under the conditions in Sec.  425.202(a), except the ACO 
must also identify in its application the cause(s) for the net loss and 
specify what safeguards are in place to enable the ACO to potentially 
achieve savings in its next agreement period.
    (d) For agreement periods beginning on July 1, 2019, and in 
subsequent years, CMS determines an ACO's eligibility for the Shared 
Savings Program participation options specified in paragraph (a) of 
this section as follows:
    (1) If an ACO is identified as a high revenue ACO, the ACO is 
eligible for the participation options indicated in paragraph (a) of 
this section as follows:
    (i) If the ACO is determined to be inexperienced with performance-
based risk Medicare ACO initiatives, the ACO may enter either the BASIC 
track's glide path at any of the levels of risk and potential reward 
available under paragraphs (a)(4)(i)(A)(1) through (5) of this section, 
except as provided in paragraph (a)(4)(i)(B) of this section, or the 
ENHANCED track under paragraph (a)(3) of this section.
    (ii) If the ACO is determined to be experienced with performance-
based risk Medicare ACO initiatives:
    (A) The ACO may enter the ENHANCED track under paragraph (a)(3) of 
this section except as provided in paragraph (d)(1)(ii)(B) of this 
section.
    (B) An ACO in a first or second agreement period beginning in 2016 
or 2017 identified as experienced with performance-based risk Medicare 
ACO initiatives based on participation in the Track 1+ Model may renew 
for a consecutive agreement period beginning on July 1, 2019, or 
January 1, 2020 (respectively), under either the BASIC track Level E 
under paragraph (a)(4)(i)(A)(5) of this section, or the ENHANCED track 
under paragraph (a)(3) of this section.
    (2) If an ACO is identified as a low revenue ACO, the ACO is 
eligible for the participation options indicated in paragraph (a) of 
this section as follows:
    (i) If the ACO is determined to be inexperienced with performance-
based risk Medicare ACO initiatives, the ACO may enter either the BASIC 
track's glide path at any of the levels of risk and potential reward 
available under paragraphs (a)(4)(i)(A)(1) through (5) of this section, 
except as provided in paragraph (a)(4)(i)(B) of this section, or the 
ENHANCED track under paragraph (a)(3) of this section.
    (ii) If the ACO is determined to be experienced with performance-
based risk Medicare ACO initiatives, the ACO may enter under either the 
BASIC track Level E under paragraph (a)(4)(i)(A)(5) of this section, 
except as provided in paragraph (d)(3) of this section, or the ENHANCED 
track under paragraph (a)(3) of this section.
    (3) Low revenue ACOs may participate under the BASIC track for a 
maximum of two agreement periods. A low revenue ACO may only 
participate in the BASIC track for a second agreement period if it 
satisfies either of the following:

[[Page 68071]]

    (i) The ACO is the same legal entity as a current or previous ACO 
that previously entered into a participation agreement for 
participation in the BASIC track only one time.
    (ii) For a new ACO identified as a re-entering ACO, the ACO in 
which the majority of the new ACO's participants were participating 
previously entered into a participation agreement for participation in 
the BASIC track only one time.
    (e) CMS monitors low revenue ACOs identified as experienced with 
performance-based risk Medicare ACO initiatives, during an agreement 
period in the BASIC track, for changes in the revenue of ACO 
participants that would cause the ACO to be considered a high revenue 
ACO and ineligible for participation in the BASIC track. If the ACO 
meets the definition of a high revenue ACO (as specified in Sec.  
425.20)--
    (1) The ACO is permitted to complete the remainder of its current 
performance year under the BASIC track, but is ineligible to continue 
participation in the BASIC track after the end of that performance year 
if it continues to meet the definition of a high revenue ACO; and
    (2) CMS takes compliance action as specified in Sec. Sec.  425.216 
and 425.218, up to and including termination of the participation 
agreement, to ensure the ACO does not continue in the BASIC track for 
subsequent performance years of the agreement period if it continues to 
meet the definition of a high revenue ACO.
    (f) For agreement periods beginning on July 1, 2019, and in 
subsequent years, CMS determines the agreement period an ACO is 
entering for purposes of applying program requirements that phase-in 
over multiple agreement periods, as follows:
    (1) An ACO entering an initial agreement period is considered to be 
entering a first agreement period in the Shared Savings Program.
    (2) A re-entering ACO is considered to be entering a new agreement 
period in the Shared Savings Program as follows--
    (i) An ACO whose participation agreement expired without having 
been renewed re-enters the program under the next consecutive agreement 
period in the Shared Savings Program;
    (ii) An ACO whose participation agreement was terminated under 
Sec.  425.218 or Sec.  425.220 re-enters the program at the start of 
the same agreement period in which it was participating at the time of 
termination from the Shared Savings Program, beginning with the first 
performance year of that agreement period; or
    (iii) A new ACO identified as a re-entering ACO enters the program 
in an agreement period that is determined based on the prior 
participation of the ACO in which the majority of the new ACO's 
participants were participating.
    (A) If the participation agreement of the ACO used in this 
determination expired without having been renewed or was terminated, 
the agreement period of the re-entering ACO is determined in accordance 
with paragraph (f)(2)(i) or (ii) of this section, as applicable.
    (B) If the ACO used in this determination is currently 
participating in the program, the new ACO is considered to be entering 
into the same agreement period as this currently participating ACO, 
beginning with the first performance year of that agreement period.
    (3) A renewing ACO is considered to be entering the next 
consecutive agreement period in the Shared Savings Program.
    (4) For purposes of this paragraph (f), program requirements that 
phase in over multiple agreement periods are as follows:
    (i) The quality performance standard as described in Sec.  
425.502(a).
    (ii) The weight used in calculating the regional adjustment to the 
ACO's historical benchmark as described in Sec.  425.601(f).
    (iii) The use of equal weights to weight each benchmark year as 
specified in Sec.  425.601(e).

0
27. Section 425.601 is added to read as follows:


Sec.  425.601   Establishing, adjusting, and updating the benchmark for 
agreement periods beginning on July 1, 2019, and in subsequent years.

    (a) Computing per capita Medicare Part A and Part B benchmark 
expenditures for an ACO's first agreement period. For agreement periods 
beginning on July 1, 2019, and in subsequent years, in computing an 
ACO's historical benchmark for its first agreement period under the 
Shared Savings Program, CMS determines the per capita Parts A and B 
fee-for-service expenditures for beneficiaries that would have been 
assigned to the ACO in any of the 3 most recent years prior to the 
start of the agreement period using the ACO participant TINs identified 
before the start of the agreement period as required under Sec.  
425.118(a) and the beneficiary assignment methodology selected by the 
ACO for the first performance year of the agreement period as required 
under Sec.  425.226(a)(1). CMS does all of the following:
    (1) Calculates the payment amounts included in Parts A and B fee-
for-service claims using a 3-month claims run out with a completion 
factor.
    (i) This calculation excludes indirect medical education (IME) and 
disproportionate share hospital (DSH) payments.
    (ii) This calculation includes individually beneficiary 
identifiable final payments made under a demonstration, pilot or time 
limited program.
    (2) Makes separate expenditure calculations for each of the 
following populations of beneficiaries: ESRD, disabled, aged/dual 
eligible Medicare and Medicaid beneficiaries and aged/non-dual eligible 
Medicare and Medicaid beneficiaries.
    (3) Adjusts expenditures for changes in severity and case mix using 
prospective HCC risk scores.
    (4) Truncates an assigned beneficiary's total annual Parts A and B 
fee-for-service per capita expenditures at the 99th percentile of 
national Medicare fee-for-service expenditures for assignable 
beneficiaries identified for the 12-month calendar year corresponding 
to each benchmark year in order to minimize variation from 
catastrophically large claims.
    (5) Trends forward expenditures for each benchmark year (BY1 and 
BY2) to the third benchmark year (BY3) dollars using a blend of 
national and regional growth rates.
    (i) To trend forward the benchmark, CMS makes separate calculations 
for expenditure categories for each of the following populations of 
beneficiaries:
    (A) ESRD.
    (B) Disabled.
    (C) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (D) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (ii) National growth rates are computed using CMS Office of the 
Actuary national Medicare expenditure data for each of the years making 
up the historical benchmark for assignable beneficiaries identified for 
the 12-month calendar year corresponding to each benchmark year.
    (iii) Regional growth rates are computed using expenditures for the 
ACO's regional service area for each of the years making up the 
historical benchmark as follows:
    (A) Determine the counties included in the ACO's regional service 
area based on the ACO's assigned beneficiary population for the 
relevant benchmark year.

[[Page 68072]]

    (B) Determine the ACO's regional expenditures as specified under 
paragraphs (c) and (d) of this section.
    (iv) The national and regional growth rates are blended together by 
taking a weighted average of the two. The weight applied to the--
    (A) National growth rate is calculated as the share of assignable 
beneficiaries in the ACO's regional service area for BY3 that are 
assigned to the ACO in BY3, as calculated in paragraph (a)(5)(v) of 
this section; and
    (B) Regional growth rate is equal to 1 minus the weight applied to 
the national growth rate.
    (v) CMS calculates the share of assignable beneficiaries in the 
ACO's regional service area that are assigned to the ACO by doing all 
of the following:
    (A) Calculating the county-level share of assignable beneficiaries 
that are assigned to the ACO for each county in the ACO's regional 
service area.
    (B) Weighting the county-level shares according to the ACO's 
proportion of assigned beneficiaries in the county, determined by the 
number of the ACO's assigned beneficiaries residing in the county in 
relation to the ACO's total number of assigned beneficiaries.
    (C) Aggregating the weighted county-level shares for all counties 
in the ACO's regional service area.
    (6) Restates BY1 and BY2 trended and risk adjusted expenditures 
using BY3 proportions of ESRD, disabled, aged/dual eligible Medicare 
and Medicaid beneficiaries and aged/non-dual eligible Medicare and 
Medicaid beneficiaries.
    (7) Weights each year of the benchmark for an ACO's initial 
agreement period using the following percentages:
    (i) BY3 at 60 percent.
    (ii) BY2 at 30 percent.
    (iii) BY1 at 10 percent.
    (8) Adjusts the historical benchmark based on the ACO's regional 
service area expenditures, making separate calculations for the 
following populations of beneficiaries: ESRD, disabled, aged/dual 
eligible Medicare and Medicaid beneficiaries, and aged/non-dual 
eligible Medicare and Medicaid beneficiaries. CMS does all of the 
following:
    (i) Calculates an average per capita amount of expenditures for the 
ACO's regional service area as follows:
    (A) Determines the counties included in the ACO's regional service 
area based on the ACO's BY3 assigned beneficiary population.
    (B) Determines the ACO's regional expenditures as specified under 
paragraphs (c) and (d) of this section for BY3.
    (C) Adjusts for differences in severity and case mix between the 
ACO's assigned beneficiary population and the assignable beneficiary 
population for the ACO's regional service area identified for the 12-
month calendar year that corresponds to BY3.
    (ii) Calculates the adjustment as follows:
    (A) Determines the difference between the average per capita amount 
of expenditures for the ACO's regional service area as specified under 
paragraph (a)(8)(i) of this section and the average per capita amount 
of the ACO's historical benchmark determined under paragraphs (a)(1) 
through (7) of this section, for each of the following populations of 
beneficiaries:
    (1) ESRD.
    (2) Disabled.
    (3) Aged/dual eligible for Medicare and Medicaid.
    (4) Aged/non-dual eligible for Medicare and Medicaid.
    (B) Applies a percentage, as determined in paragraph (f) of this 
section.
    (C) Caps the per capita dollar amount for each Medicare enrollment 
type (ESRD, Disabled, Aged/dual eligible Medicare and Medicaid 
beneficiaries, Aged/non-dual eligible Medicare and Medicaid 
beneficiaries) calculated under paragraph (a)(8)(ii)(B) of this section 
at a dollar amount equal to 5 percent of national per capita 
expenditures for Parts A and B services under the original Medicare 
fee-for-service program in BY3 for assignable beneficiaries in that 
enrollment type identified for the 12-month calendar year corresponding 
to BY3 using data from the CMS Office of the Actuary.
    (1) For positive adjustments, the per capita dollar amount for a 
Medicare enrollment type is capped at 5 percent of the national per 
capita expenditure amount for the enrollment type for BY3.
    (2) For negative adjustments, the per capita dollar amount for a 
Medicare enrollment type is capped at negative 5 percent of the 
national per capita expenditure amount for the enrollment type for BY3.
    (9) For the second and each subsequent performance year during the 
term of the agreement period, the ACO's benchmark is adjusted in 
accordance with Sec.  425.118(b) for the addition and removal of ACO 
participants or ACO providers/suppliers, for a change to the ACO's 
beneficiary assignment methodology selection under Sec.  425.226(a)(1), 
or both. To adjust the benchmark, CMS does the following:
    (i) Takes into account the expenditures of beneficiaries who would 
have been assigned to the ACO under the ACO's most recent beneficiary 
assignment methodology selection in any of the 3 most recent years 
prior to the start of the agreement period using the most recent 
certified ACO participant list for the relevant performance year.
    (ii) Redetermines the regional adjustment amount under paragraph 
(a)(8) of this section, according to the ACO's assigned beneficiaries 
for BY3 resulting from the ACO's most recent certified ACO participant 
list, the ACO's beneficiary assignment methodology selection under 
Sec.  425.226(a)(1) for the relevant performance year, or both.
    (10) The historical benchmark is further adjusted at the time of 
reconciliation for a performance year to account for changes in 
severity and case mix of the ACO's assigned beneficiary population as 
described under Sec. Sec.  425.605(a), 425.609(c), and 425.610(a).
    (b) Updating the benchmark. For all agreement periods beginning on 
July 1, 2019, and in subsequent years, CMS updates the historical 
benchmark annually for each year of the agreement period using a blend 
of national and regional growth rates.
    (1) To update the benchmark, CMS makes separate calculations for 
expenditure categories for each of the following populations of 
beneficiaries:
    (i) ESRD.
    (ii) Disabled.
    (iii) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (iv) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (2) National growth rates are computed using CMS Office of the 
Actuary national Medicare expenditure data for BY3 and the performance 
year for assignable beneficiaries identified for the 12-month calendar 
year corresponding to each year.
    (3) Regional growth rates are computed using expenditures for the 
ACO's regional service area for BY3 and the performance year, computed 
as follows:
    (i) Determine the counties included in the ACO's regional service 
area based on the ACO's assigned beneficiary population for the year.
    (ii) Determine the ACO's regional expenditures as specified under 
paragraphs (c) and (d) of this section.
    (4) The national and regional growth rates are blended together by 
taking a weighted average of the two. The weight applied to the--
    (i) National growth rate is calculated as the share of assignable 
beneficiaries in the ACO's regional service area that are assigned to 
the ACO for the applicable performance year as specified in paragraph 
(a)(5)(v) of this section; and

[[Page 68073]]

    (ii) Regional growth rate is equal to 1 minus the weight applied to 
the national growth rate.
    (c) Calculating county expenditures. For all agreement periods 
beginning on July 1, 2019, and in subsequent years, CMS does all of the 
following to determine risk adjusted county fee-for-service 
expenditures for use in calculating the ACO's regional fee-for-service 
expenditures:
    (1)(i) Determines average county fee-for-service expenditures based 
on expenditures for the assignable population of beneficiaries in each 
county in the ACO's regional service area, where assignable 
beneficiaries are identified for the 12-month calendar year 
corresponding to the relevant benchmark or performance year.
    (ii) Makes separate expenditure calculations for each of the 
following populations of beneficiaries:
    (A) ESRD.
    (B) Disabled.
    (C) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (D) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (2) Calculates assignable beneficiary expenditures using the 
payment amounts included in Parts A and B fee-for-service claims with 
dates of service in the 12-month calendar year for the relevant 
benchmark or performance year, using a 3-month claims run out with a 
completion factor. The calculation--
    (i) Excludes IME and DSH payments; and
    (ii) Considers individually beneficiary identifiable final payments 
made under a demonstration, pilot or time limited program.
    (3) Truncates a beneficiary's total annual Parts A and B fee-for-
service per capita expenditures at the 99th percentile of national 
Medicare fee-for-service expenditures for assignable beneficiaries 
identified for the 12-month calendar year that corresponds to the 
relevant benchmark or performance year, in order to minimize variation 
from catastrophically large claims.
    (4) Adjusts fee-for-service expenditures for severity and case mix 
of assignable beneficiaries in the county using prospective HCC risk 
scores. The calculation is made according to the following populations 
of beneficiaries:
    (i) ESRD.
    (ii) Disabled.
    (iii) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (iv) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (d) Calculating regional expenditures. For all agreement periods 
beginning on July 1, 2019, and in subsequent years, CMS calculates an 
ACO's risk adjusted regional expenditures by--
    (1) Weighting the risk-adjusted county-level fee-for-service 
expenditures determined under paragraph (c) of this section according 
to the ACO's proportion of assigned beneficiaries in the county, 
determined by the number of the ACO's assigned beneficiaries in the 
applicable population (according to Medicare enrollment type) residing 
in the county in relation to the ACO's total number of assigned 
beneficiaries in the applicable population (according to Medicare 
enrollment type) for the relevant benchmark or performance year for 
each of the following populations of beneficiaries:
    (i) ESRD.
    (ii) Disabled.
    (iii) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (iv) Aged/non-dual eligible Medicare and Medicaid beneficiaries;
    (2) Aggregating the values determined under paragraph (d)(1) of 
this section for each population of beneficiaries (according to 
Medicare enrollment type) across all counties within the ACO's regional 
service area; and
    (3) Weighting the aggregate expenditure values determined for each 
population of beneficiaries (according to Medicare enrollment type) 
under paragraph (d)(2) of this section by a weight reflecting the 
proportion of the ACO's overall beneficiary population in the 
applicable Medicare enrollment type for the relevant benchmark or 
performance year.
    (e) Resetting the benchmark. (1) An ACO's benchmark is reset at the 
start of each subsequent agreement period.
    (2) For second or subsequent agreements periods beginning on July 
1, 2019, and in subsequent years, CMS establishes, adjusts, and updates 
the rebased historical benchmark in accordance with paragraphs (a) 
through (d) of this section with the following modifications:
    (i) Rather than weighting each year of the benchmark using the 
percentages provided in paragraph (a)(7) of this section, each 
benchmark year is weighted equally.
    (ii) For a renewing ACO or re-entering ACO whose prior agreement 
period benchmark was calculated according to Sec.  425.603(c), to 
determine the weight used in the regional adjustment calculation 
described in paragraph (f) of this section, CMS considers the agreement 
period the ACO is entering into according to Sec.  425.600(f) in 
combination with either of the following--
    (A) The weight previously applied to calculate the regional 
adjustment to the ACO's benchmark under Sec.  425.603(c)(9) in its most 
recent prior agreement period; or
    (B) For a new ACO identified as a re-entering ACO, CMS considers 
the weight previously applied to calculate the regional adjustment to 
the benchmark under Sec.  425.603(c)(9) in its most recent prior 
agreement period of the ACO in which the majority of the new ACO's 
participants were participating previously.
    (f) Phase-in of weights used in regional adjustment calculation. 
(1) The first time that an ACO's benchmark is adjusted based on the 
ACO's regional service area expenditures, CMS calculates the regional 
adjustment as follows:
    (i) Using 35 percent of the difference between the average per 
capita amount of expenditures for the ACO's regional service area and 
the average per capita amount of the ACO's initial or rebased 
historical benchmark, if the ACO is determined to have lower spending 
than the ACO's regional service area.
    (ii) Using 15 percent of the difference between the average per 
capita amount of expenditures for the ACO's regional service area and 
the average per capita amount of the ACO's initial or rebased 
historical benchmark, if the ACO is determined to have higher spending 
than the ACO's regional service area.
    (2) The second time that an ACO's benchmark is adjusted based on 
the ACO's regional service area expenditures, CMS calculates the 
regional adjustment as follows:
    (i) Using 50 percent of the difference between the average per 
capita amount of expenditures for the ACO's regional service area and 
the average per capita amount of the ACO's rebased historical benchmark 
if the ACO is determined to have lower spending than the ACO's regional 
service area.
    (ii) Using 25 percent of the difference between the average per 
capita amount of expenditures for the ACO's regional service area and 
the average per capita amount of the ACO's rebased historical benchmark 
if the ACO is determined to have higher spending than the ACO's 
regional service area.
    (3) The third time that an ACO's benchmark is adjusted based on the 
ACO's regional service area expenditures, CMS calculates the regional 
adjustment as follows:
    (i) Using 50 percent of the difference between the average per 
capita amount of expenditures for the ACO's regional service area and 
the average per capita amount of the ACO's rebased historical benchmark 
if the ACO is determined to

[[Page 68074]]

have lower spending than the ACO's regional service area.
    (ii) Using 35 percent of the difference between the average per 
capita amount of expenditures for the ACO's regional service area and 
the average per capita amount of the ACO's rebased historical benchmark 
if the ACO is determined to have higher spending than the ACO's 
regional service area.
    (4) The fourth or subsequent time that an ACO's benchmark is 
adjusted based on the ACO's regional service area expenditures, CMS 
calculates the regional adjustment to the historical benchmark using 50 
percent of the difference between the average per capita amount of 
expenditures for the ACO's regional service area and the average per 
capita amount of the ACO's rebased historical benchmark.
    (5) To determine if an ACO has lower or higher spending compared to 
the ACO's regional service area, CMS does the following:
    (i) Multiplies the difference between the average per capita amount 
of expenditures for the ACO's regional service area and the average per 
capita amount of the ACO's historical benchmark for each population of 
beneficiaries (ESRD, Disabled, Aged/dual eligible Medicare and Medicaid 
beneficiaries, Aged/non-dual eligible Medicare and Medicaid 
beneficiaries) as calculated under either paragraph (a)(8)(ii)(A) or 
(e) of this section by the applicable proportion of the ACO's assigned 
beneficiary population (ESRD, Disabled, Aged/dual eligible Medicare and 
Medicaid beneficiaries, Aged/non-dual eligible Medicare and Medicaid 
beneficiaries) for BY3 of the historical benchmark.
    (ii) Sums the amounts determined in paragraph (f)(4)(i) of this 
section across the populations of beneficiaries (ESRD, Disabled, Aged/
dual eligible Medicare and Medicaid beneficiaries, Aged/non-dual 
eligible Medicare and Medicaid beneficiaries).
    (iii) If the resulting sum is a net positive value, the ACO is 
considered to have lower spending compared to the ACO's regional 
service area. If the resulting sum is a net negative value, the ACO is 
considered to have higher spending compared to the ACO's regional 
service area.
    (iv) If CMS adjusts the ACO's benchmark for the addition or removal 
of ACO participants or ACO providers/suppliers during the term of the 
agreement period or a change to the ACO's beneficiary assignment 
methodology selection as specified in paragraph (a)(9) of this section, 
CMS redetermines whether the ACO is considered to have lower spending 
or higher spending compared to the ACO's regional service area for 
purposes of determining the percentage in paragraphs (f)(1) and (2) of 
this section used in calculating the adjustment under either paragraph 
(a)(8) or (e) of this section.
    (g) July 1, 2019 through December 31, 2019 performance year. In 
determining performance for the July 1, 2019 through December 31, 2019 
performance year described in Sec.  425.609(c), CMS does all of the 
following:
    (1) When adjusting the benchmark using the methodology set forth in 
paragraph (a)(10) of this section and Sec.  425.609(c), CMS adjusts for 
severity and case mix between BY3 and CY 2019.
    (2) When updating the benchmark using the methodology set forth in 
paragraph (b) of this section and Sec.  425.609(c), CMS updates the 
benchmark based on growth between BY3 and CY 2019.


0
28. Section 425.602 is amended--
0
a. By revising the section heading and paragraph (a) introductory text;
0
b. In paragraph (a)(1)(ii)(B) by removing the phrase ``For agreement 
periods beginning in 2018 and subsequent years'' and adding in its 
place the phrase ``For agreement periods beginning in 2018''; and
0
c. In paragraphs (a)(4)(ii) and (a)(5)(ii) by removing the phrase ``For 
agreement periods beginning in 2017 and subsequent years'' and adding 
in its place the phrase ``For agreement periods beginning in 2017 and 
2018''.
    The revisions read as follows:


Sec.  425.602   Establishing, adjusting, and updating the benchmark for 
an ACO's first agreement period beginning on or before January 1, 2018.

    (a) Computing per capita Medicare Part A and Part B benchmark 
expenditures. For agreement periods beginning on or before January 1, 
2018, in computing an ACO's fixed historical benchmark that is adjusted 
for historical growth and beneficiary characteristics, including health 
status, CMS determines the per capita Parts A and B fee-for-service 
expenditures for beneficiaries that would have been assigned to the ACO 
in any of the 3 most recent years prior to the agreement period using 
the ACO participants' TINs identified at the start of the agreement 
period. CMS does all of the following:
* * * * *

0
29. Section 425.603 is amended--
0
a. By revising the section heading;
0
b. In paragraph (c) introductory text by removing the phrase ``For 
second or subsequent agreement periods beginning in 2017 and subsequent 
years'' and adding in its place the phrase ``For second or subsequent 
agreement periods beginning in 2017, 2018 and on January 1, 2019'';
0
c. In paragraph (c)(1)(ii)(B) by removing the phrase ``For agreement 
periods beginning in 2018 and subsequent years'' and adding in its 
place the phrase ``For agreement periods beginning in 2018 and on 
January 1, 2019'';
0
d. In paragraphs (d) introductory text and (e) introductory text by 
removing the phrase ``For second or subsequent agreement periods 
beginning in 2017 and subsequent years'' and adding in its place the 
phrase ``For second or subsequent agreement periods beginning in 2017, 
2018 and on January 1, 2019'';
0
e. In paragraph (e)(2)(ii)(B) by removing the phrase ``For agreement 
periods beginning in 2018 and subsequent years'' and adding in its 
place the phrase ``For agreement periods beginning in 2018 and on 
January 1, 2019''; and
0
f. In paragraph (f) introductory text by removing the phrase ``For 
second or subsequent agreement periods beginning in 2017 and subsequent 
years'' and adding in its place the phrase ``For second or subsequent 
agreement periods beginning in 2017, 2018, and on January 1, 2019''.
    The revision reads as follows:


Sec.  425.603   Resetting, adjusting, and updating the benchmark for a 
subsequent agreement period beginning on or before January 1, 2019.

* * * * *

0
30. Section 425.604 is amended--
0
a. In paragraph (a) introductory text by removing the phrase ``under 
Sec.  425.602'' and adding in its place the phrase ``under Sec.  
425.602 or Sec.  425.603'';
0
b. In paragraph (a)(3) introductory text by removing the phrase 
``described in Sec.  425.602(a)'' and adding in its place the phrase 
``described in Sec.  425.602(a) or Sec.  425.603(c)''; and
0
c. In paragraph (b) by revising the table.
    The revision reads as follows:


Sec.  425.604   Calculation of savings under the one-sided model.

* * * * *
    (b) * * *

[[Page 68075]]

[GRAPHIC] [TIFF OMITTED] TR31DE18.023

* * * * *

0
31. Section 425.605 is added to read as follows:


Sec.  425.605   Calculation of shared savings and losses under the 
BASIC track.

    (a) General rules. For each performance year, CMS determines 
whether the estimated average per capita Medicare Parts A and B fee-
for-service expenditures for Medicare fee-for-service beneficiaries 
assigned to the ACO are above or below the updated benchmark determined 
under Sec.  425.601. In order to qualify for a shared savings payment 
under the BASIC track, or to be responsible for sharing losses with 
CMS, an ACO's average per capita Medicare Parts A and B fee-for-service 
expenditures for its assigned beneficiary population for the 
performance year must be below or above the updated benchmark, 
respectively, by at least the minimum savings or loss rate under 
paragraph (b) of this section.
    (1) CMS uses an ACO's prospective HCC risk score to adjust the 
benchmark for changes in severity and case mix in the assigned 
beneficiary population between BY3 and the performance year.
    (i) Positive adjustments in prospective HCC risk scores are subject 
to a cap of 3 percent.
    (ii) This cap is the maximum increase in risk scores for each 
agreement period, such that any positive adjustment between BY3 and any 
performance year in the agreement period cannot be larger than 3 
percent.
    (2) In risk adjusting the benchmark as described in Sec.  
425.601(a)(10), CMS makes separate adjustments for each of the 
following populations of beneficiaries:
    (i) ESRD.
    (ii) Disabled.
    (iii) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (iv) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (3) To minimize variation from catastrophically large claims, CMS 
truncates an assigned beneficiary's total annual Medicare Parts A and B 
fee-for-service per capita expenditures at the 99th percentile of 
national Medicare Parts A and B fee-for-service expenditures as 
determined for the applicable performance year for assignable 
beneficiaries identified for the 12-month calendar year corresponding 
to the performance year.
    (4) CMS uses a 3-month claims run out with a completion factor to 
calculate an ACO's per capita expenditures for each performance year.
    (5) Calculations of the ACO's expenditures include the payment 
amounts included in Medicare Parts A and B fee-for-service claims.
    (i) These calculations exclude indirect medical education (IME) and 
disproportionate share hospital (DSH) payments.
    (ii) These calculations take into consideration individually 
beneficiary identifiable final payments made under a demonstration, 
pilot or time limited program.
    (6) In order to qualify for a shared savings payment, the ACO's 
average per capita Medicare Parts A and B fee-for-service expenditures 
for the performance year must be below the applicable updated benchmark 
by at least the minimum savings rate established for the ACO under 
paragraph (b) of this section.
    (b) Minimum savings or loss rate. (1) For ACOs under a one-sided 
model of the BASIC track's glide path, as specified under paragraphs 
(d)(1)(i) and (ii) of this section, CMS uses a sliding scale, based on 
the number of beneficiaries assigned to the ACO under subpart E of this 
part, to establish the MSR for the ACO as follows:

[[Page 68076]]

[GRAPHIC] [TIFF OMITTED] TR31DE18.024

    (2) Prior to entering a two-sided model of the BASIC track, the ACO 
must select the MSR/MLR. For an ACO making this selection as part of an 
application for, or renewal of, participation in a two-sided model of 
the BASIC track, the selection applies for the duration of the 
agreement period under the BASIC track. For an ACO making this 
selection during an agreement period, as part of the application cycle 
prior to entering a two-sided model of the BASIC track, the selection 
applies for the remaining duration of the applicable agreement period 
under the BASIC track.
    (i) The ACO must choose from the following options for establishing 
the MSR/MLR:
    (A) Zero percent MSR/MLR.
    (B) Symmetrical MSR/MLR in a 0.5 percent increment between 0.5 and 
2.0 percent.
    (C) Symmetrical MSR/MLR that varies, based on the number of 
beneficiaries assigned to the ACO under subpart E of this part. The MSR 
is the same as the MSR that would apply under paragraph (b)(1) of this 
section for an ACO under a one-sided model of the BASIC track's glide 
path, and is based on the number of assigned beneficiaries. The MLR 
under the BASIC track is equal to the negative MSR.
    (ii) The ACO selects its MSR/MLR as part of one the following:
    (A) Application for, or renewal of, program participation in a two-
sided model of the BASIC track.
    (B) Election to participate in a two-sided model of the BASIC track 
during an agreement period under Sec.  425.226.
    (C) Automatic transition from Level B to Level C of the BASIC 
track's glide path under Sec.  425.600(a)(4)(i).
    (D) Automatic transition from Level B to Level E of the BASIC 
track's glide path under Sec.  425.600(a)(4)(i)(B)(2)(ii).
    (3) To qualify for shared savings under the BASIC track, an ACO's 
average per capita Medicare Parts A and B fee-for-service expenditures 
for its assigned beneficiary population for the performance year must 
be below its updated benchmark costs for the year by at least the MSR 
established for the ACO.
    (4) To be responsible for sharing losses with the Medicare program, 
an ACO's average per capita Medicare Parts A and B fee-for-service 
expenditures for its assigned beneficiary population for the 
performance year must be above its updated benchmark costs for the year 
by at least the MLR established for the ACO.
    (c) Qualification for shared savings payment. To qualify for shared 
savings, an ACO must meet the minimum savings rate requirement 
established under paragraph (b) of this section, meet the minimum 
quality performance standards established under Sec.  425.502, and 
otherwise maintain its eligibility to participate in the Shared Savings 
Program under this part.
    (d) Levels of risk and potential reward. (1) The following levels 
of risk and potential reward apply to an ACO in the BASIC track, as 
permitted under Sec.  425.600(d).
    (i) Level A (one-sided model)--(A) Final sharing rate. An ACO that 
meets all the requirements for receiving shared savings payments under 
the BASIC track, Level A, receives a shared savings payment of up to 40 
percent of all the savings under the updated benchmark, as determined 
on the basis of its quality performance under Sec.  425.502 (up to the 
performance payment limit described in paragraph (d)(1)(i)(B) of this 
section).
    (B) Performance payment. (1) If an ACO qualifies for savings by 
meeting or exceeding the MSR, the final sharing rate specified in 
paragraph (d)(1)(i)(A) of this section applies to an ACO's savings on a 
first dollar basis.
    (2) The amount of shared savings an eligible ACO receives under the 
BASIC track, Level A, may not exceed 10 percent of its updated 
benchmark.
    (ii) Level B (one-sided model)--(A) Final sharing rate. An ACO that 
meets all the requirements for receiving shared savings payments under 
the BASIC track, Level B, receives a shared savings payment of up to 40 
percent of all the savings under the updated benchmark, as determined 
on the basis of its quality performance under Sec.  425.502 (up to the 
performance payment limit described in paragraph (d)(1)(ii)(B) of this 
section).
    (B) Performance payment. (1) If an ACO qualifies for savings by 
meeting or exceeding the MSR, the final sharing rate specified in 
paragraph (d)(1)(ii)(A) of this section applies to an ACO's savings on 
a first dollar basis.
    (2) The amount of shared savings an eligible ACO receives under the 
BASIC track, Level B, may not exceed 10 percent of its updated 
benchmark.
    (iii) Level C (two-sided model)--(A) Final sharing rate. An ACO 
that meets all the requirements for receiving shared savings payments 
under the BASIC track, Level C, receives a shared savings payment of up 
to 50 percent of all the savings under the updated benchmark,

[[Page 68077]]

as determined on the basis of its quality performance under Sec.  
425.502 (up to the performance payment limit described in paragraph 
(d)(1)(iii)(B) of this section).
    (B) Performance payment. (1) If an ACO qualifies for savings by 
meeting or exceeding the MSR, the final sharing rate specified in 
paragraph (d)(1)(iii)(A) of this section applies to an ACO's savings on 
a first dollar basis.
    (2) The amount of shared savings an eligible ACO receives under the 
BASIC track, Level C may not exceed 10 percent of its updated 
benchmark.
    (C) Shared loss rate. For an ACO that is required to share losses 
with the Medicare program for expenditures over the updated benchmark, 
the amount of shared losses is determined based on a fixed 30 percent 
loss sharing rate.
    (D) Loss recoupment limit. (1) Except as provided in paragraph 
(d)(1)(iii)(D)(2) of this section, the amount of shared losses for 
which an eligible ACO is liable may not exceed 2 percent of total 
Medicare Parts A and B fee-for-service revenue of the ACO participants 
in the ACO.
    (2) Instead of the revenue-based loss recoupment limit determined 
under paragraph (d)(1)(iii)(D)(1) of this section, the loss recoupment 
limit for the ACO is 1 percent of the ACO's updated benchmark as 
determined under Sec.  425.601, if the amount determined under 
paragraph (d)(1)(iii)(D)(1) of this section exceeds the amount that is 
1 percent of the ACO's updated benchmark as determined under Sec.  
425.601.
    (iv) Level D (two-sided model)--(A) Final sharing rate. An ACO that 
meets all the requirements for receiving shared savings payments under 
the BASIC track, Level D, receives a shared savings payment of up to 50 
percent of all the savings under the updated benchmark, as determined 
on the basis of its quality performance under Sec.  425.502 (up to the 
performance payment limit described in paragraph (d)(1)(iv)(B) of this 
section).
    (B) Performance payment. (1) If an ACO qualifies for savings by 
meeting or exceeding the MSR, the final sharing rate specified in 
paragraph (d)(1)(iv)(A) of this section applies to an ACO's savings on 
a first dollar basis.
    (2) The amount of shared savings an eligible ACO receives under the 
BASIC track, Level D, may not exceed 10 percent of its updated 
benchmark.
    (C) Shared loss rate. For an ACO that is required to share losses 
with the Medicare program for expenditures over the updated benchmark, 
the amount of shared losses is determined based on a fixed 30 percent 
loss sharing rate.
    (D) Loss recoupment limit. (1) Except as provided in paragraph 
(d)(1)(iv)(D)(2) of this section, the amount of shared losses for which 
an eligible ACO is liable may not exceed 4 percent of total Medicare 
Parts A and B fee-for-service revenue of the ACO participants in the 
ACO.
    (2) Instead of the revenue-based loss recoupment limit determined 
under paragraph (d)(1)(iv)(D)(1) of this section, the loss recoupment 
limit for the ACO is 2 percent of the ACO's updated benchmark as 
determined under Sec.  425.601, if the amount determined under 
paragraph (d)(1)(iv)(D)(1) of this section exceeds the amount that is 2 
percent of the ACO's updated benchmark as determined under Sec.  
425.601.
    (v) Level E (two-sided model)--(A) Final sharing rate. An ACO that 
meets all the requirements for receiving shared savings payments under 
the BASIC track, Level E, receives a shared savings payment of up to 50 
percent of all the savings under the updated benchmark, as determined 
on the basis of its quality performance under Sec.  425.502 (up to the 
performance payment limit described in paragraph (d)(1)(v)(B) of this 
section).
    (B) Performance payment. (1) If an ACO qualifies for savings by 
meeting or exceeding the MSR, the final sharing rate specified in 
paragraph (d)(1)(v)(A) of this section applies to an ACO's savings on a 
first dollar basis.
    (2) The amount of shared savings an eligible ACO receives under the 
BASIC track, Level E, may not exceed 10 percent of its updated 
benchmark.
    (C) Shared loss rate. For an ACO that is required to share losses 
with the Medicare program for expenditures over the updated benchmark, 
the amount of shared losses is determined based on a fixed 30 percent 
loss sharing rate.
    (D) Loss recoupment limit. (1) Except as provided in paragraph 
(d)(1)(v)(D)(2) of this section, the amount of shared losses for which 
an eligible ACO is liable may not exceed the percentage, as specified 
in Sec.  414.1415(c)(3)(i)(A) of this chapter, of total Medicare Parts 
A and B fee-for-service revenue of the ACO participants in the ACO.
    (2) Instead of the revenue-based loss recoupment limit determined 
under paragraph (d)(1)(v)(D)(1) of this section, the loss recoupment 
limit for the ACO is 1 percentage point higher than the percentage, as 
specified in Sec.  414.1415(c)(3)(i)(B) of this chapter, based on the 
ACO's updated benchmark as determined under Sec.  425.601, if the 
amount determined under paragraph (d)(1)(v)(D)(1) of this section 
exceeds this percentage of the ACO's updated benchmark as determined 
under Sec.  425.601.
    (2) Level E risk and reward as specified in paragraph (d)(1)(v) of 
this section applies to an ACO eligible to enter the BASIC track that 
is determined to be experienced with performance-based risk Medicare 
ACO initiatives as specified under Sec.  425.600(d).
    (e) Notification of savings and losses. (1) 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.
    (2) CMS provides written notification to an ACO of the amount of 
shared losses, if any, that it must repay to the program.
    (3) If an ACO has shared losses, the ACO must make payment in full 
to CMS within 90 days of receipt of notification.
    (f) Extreme and uncontrollable circumstances. The following 
adjustment is made in calculating the amount of shared losses, after 
the application of the shared loss rate and the loss recoupment limit.
    (1) CMS determines the percentage of the ACO's performance year 
assigned beneficiary population affected by an extreme and 
uncontrollable circumstance.
    (2) CMS reduces the amount of the ACO's shared losses by an amount 
determined by multiplying the shared losses by the percentage of the 
total months in the performance year affected by an extreme and 
uncontrollable circumstance, and the percentage of the ACO's assigned 
beneficiaries who reside in an area affected by an extreme and 
uncontrollable circumstance.
    (i) For an ACO that is liable for a pro-rated share of losses under 
Sec.  425.221(b)(2)(ii), the amount of shared losses determined for the 
performance year during which the termination becomes effective is 
adjusted according to this paragraph (f)(2).
    (ii) [Reserved]
    (3) CMS applies determinations made under the Quality Payment 
Program with respect to--
    (i) Whether an extreme and uncontrollable circumstance has 
occurred; and
    (ii) The affected areas.
    (4) CMS has sole discretion to determine the time period during 
which an extreme and uncontrollable circumstance occurred and the 
percentage of the ACO's assigned beneficiaries residing in the affected 
areas.
    (g) July 1, 2019 through December 31, 2019 performance year. Shared 
savings or shared losses for the July 1, 2019 through December 31, 2019 
performance year are calculated as described in Sec.  425.609.

0
32. Section 425.606 is amended--

[[Page 68078]]

0
a. In paragraph (a) introductory text by removing the phrase ``under 
Sec.  425.602'' and adding in its place the phrase ``under Sec.  
425.602 or Sec.  425.603'';
0
b. In paragraph (a)(3) introductory text by removing the phrase 
``described in Sec.  425.602(a)'' and adding in its place the phrase 
``described in Sec.  425.602(a) or Sec.  425.603(c)'';
0
c. In paragraph (g) introductory text by removing the phrase ``under 
Sec.  425.602'' and adding in its place the phrase ``under Sec.  
425.602 or Sec.  425.603''; and
0
d. By adding paragraph (i)(2)(i), and reserved paragraph (i)(2)(ii).
    The additions read as follows:


Sec.  425.606  Calculation of shared savings and losses under Track 2.

* * * * *
    (i) * * *
    (2) * * *
    (i) For an ACO that is liable for a pro-rated share of losses under 
Sec.  425.221(b)(2)(ii) or (b)(3)(i), the amount of shared losses 
determined for the performance year during which the termination 
becomes effective is adjusted according to this paragraph (i)(2).
    (ii) [Reserved]
* * * * *
0
33. Section 425.609 is amended by:
0
a. Revising the section heading and paragraphs (b) introductory text 
and (b)(2);
0
b. Adding paragraph (c); and
0
c. Revising paragraphs (d)(1), and (e).
    The revisions and addition read as follows:


Sec.  425.609  Determining performance for 6-month performance years 
during CY 2019.

* * * * *
    (b) January 2019 through June 2019. For ACOs participating in a 6-
month performance year from January 1, 2019, through June 30, 2019, 
under Sec.  425.200(b)(2)(ii)(B) and for ACOs eligible for pro-rated 
shared savings or liable for pro-rated shared losses in accordance with 
Sec.  425.221(b)(3)(i) for the performance period from January 1, 2019, 
through June 30, 2019, CMS reconciles the ACO for the period from 
January 1, 2019, through June 30, 2019, after the conclusion of CY 
2019, based on the 12-month calendar year and pro-rates shared savings 
or shared losses to reflect the ACO's participation from January 1, 
2019, through June 30, 2019. CMS does all of the following to determine 
financial and quality performance:
* * * * *
    (2) Uses the ACO's quality performance for the 2019 reporting 
period to determine the ACO's quality performance score as specified in 
Sec.  425.502.
    (i) The ACO participant list finalized for the first performance 
year of the ACO's agreement period beginning on July 1, 2019, is used 
to determine the quality reporting samples for the 2019 reporting year 
for the following ACOs:
    (A) An ACO that extends its participation agreement for a 6-month 
performance year from January 1, 2019, through June 30, 2019, under 
Sec.  425.200(b)(2)(ii)(B), and enters a new agreement period beginning 
on July 1, 2019.
    (B) An ACO that participates in the program for the first 6 months 
of a 12-month performance year during 2019 and is eligible for pro-
rated shared savings or liable for pro-rated shared losses in 
accordance with Sec.  425.221(b)(3)(i).
    (ii) The ACO's latest certified ACO participant list is used to 
determine the quality reporting samples for the 2019 reporting year for 
an ACO that extends its participation agreement for the 6-month 
performance year from January 1, 2019, through June 30, 2019, under 
Sec.  425.200(b)(2)(ii)(B), and does not enter a new agreement period 
beginning on July 1, 2019.
* * * * *
    (c) July 2019 through December 2019. For ACOs entering an agreement 
period beginning on July 1, 2019, the ACO's first performance year is 
from July 1, 2019, through December 31, 2019, as specified in Sec.  
425.200(c)(3). CMS reconciles the ACO for the period from July 1, 2019, 
through December 31, 2019, after the conclusion of CY 2019, based on 
the 12-month calendar year and pro-rates shared savings or shared 
losses to reflect the ACO's participation from July 1, 2019, through 
December 31, 2019. CMS does all of the following to determine financial 
and quality performance:
    (1) Uses the ACO participant list in effect for the performance 
year beginning on July 1, 2019, to determine beneficiary assignment, 
using claims for the entire calendar year, consistent with the 
methodology the ACO selected at the start of its agreement period under 
Sec.  425.400(a)(4)(ii).
    (i) For ACOs under preliminary prospective assignment with 
retrospective reconciliation the assignment window is CY 2019.
    (ii) For ACOs under prospective assignment--
    (A) The assignment window is the same as the assignment window that 
applies under paragraph (b)(1)(ii)(A) of this section for ACOs under 
prospective assignment for the 6-month performance year from January 1, 
2019, through June 30, 2019; and
    (B) Beneficiaries remain prospectively assigned to the ACO at the 
end of CY 2019 if they do not meet any of the exclusion criteria under 
Sec.  425.401(b) during the calendar year.
    (2) Uses the ACO's quality performance for the 2019 reporting 
period to determine the ACO's quality performance score as specified in 
Sec.  425.502. The ACO participant list finalized for the first 
performance year of the ACO's agreement period beginning on July 1, 
2019, is used to determine the quality reporting samples for the 2019 
reporting year for all ACOs.
    (3) Uses the methodology for calculating shared savings or shared 
loses applicable to the ACO for its first performance year under its 
agreement period beginning on July 1, 2019.
    (i) The ACO's historical benchmark is determined according to Sec.  
425.601 except as follows:
    (A) The benchmark is adjusted for changes in severity and case mix 
between BY3 and CY 2019 based on growth in prospective HCC risk scores, 
subject to a cap of positive 3 percent as described under Sec.  
425.605(a)(1) or Sec.  425.610(a)(2).
    (B) The benchmark is updated to CY 2019 according to the 
methodology described under Sec.  425.601(b).
    (ii) The ACO's financial performance is determined based on the 
track the ACO is participating under during the performance year 
starting on July 1, 2019 (Sec.  425.605 (BASIC track) or Sec.  425.610 
(ENHANCED track)), unless otherwise specified. In determining ACO 
financial performance, CMS does all of the following:
    (A) Average per capita Medicare Parts A and B fee-for-service 
expenditures for CY 2019 are calculated for the ACO's performance year 
assigned beneficiary population identified in paragraph (c)(1) of this 
section.
    (B) Expenditures calculated in paragraph (c)(3)(ii)(A) of this 
section are compared to the ACO's updated benchmark determined 
according to paragraph (c)(3)(i) of this section.
    (C)(1) The ACO's performance year assigned beneficiary population 
identified in paragraph (c)(1) of this section is used to determine the 
MSR for ACOs in BASIC track Level A or Level B, and the variable MSR/
MLR for ACOs in a two-sided model that selected this option at the 
start of their agreement period. In the event a two-sided model ACO 
selected a fixed MSR/MLR at the start of its agreement period, and the 
ACO's performance year assigned population identified in paragraph 
(c)(1) of this section is below 5,000 beneficiaries, the MSR/MLR is 
determined based on the number of

[[Page 68079]]

assigned beneficiaries as specified in Sec.  425.110(b)(3)(iii).
    (2) To qualify for shared savings an ACO must do all of the 
following:
    (i) Have average per capita Medicare Parts A and B fee-for-service 
expenditures for its assigned beneficiary population for CY 2019 below 
its updated benchmark costs for the year by at least the MSR 
established for the ACO based on the track the ACO is participating 
under during the performance year starting on July 1, 2019 (Sec.  
425.605 or Sec.  425.610) and paragraph (c)(3)(ii)(C)(1) of this 
section.
    (ii) Meet the minimum quality performance standards established 
under Sec.  425.502 and according to paragraph (c)(2) of this section.
    (iii) Otherwise maintain its eligibility to participate in the 
Shared Savings Program under this part.
    (3) To be responsible for sharing losses with the Medicare program, 
an ACO's average per capita Medicare Parts A and B fee-for-service 
expenditures for its assigned beneficiary population for CY 2019 must 
be above its updated benchmark costs for the year by at least the MLR 
established for the ACO based on the track the ACO is participating 
under during the performance year starting on July 1, 2019 (Sec.  
425.605 or Sec.  425.610) and paragraph (c)(3)(ii)(C)(1) of this 
section.
    (D) For an ACO that meets all the requirements to receive a shared 
savings payment under paragraph (c)(3)(ii)(C)(2) of this section--
    (1) The final sharing rate, determined based on the track the ACO 
is participating under during the performance year starting on July 1, 
2019 (Sec.  425.605 or Sec.  425.610), is applied to all savings under 
the updated benchmark specified under paragraph (c)(3)(i) of this 
section, not to exceed the performance payment limit for the ACO based 
on its track; and
    (2) After applying the applicable performance payment limit, CMS 
pro-rates any shared savings amount determined under paragraph 
(c)(3)(ii)(D)(1) of this section by multiplying the amount by one-half, 
which represents the fraction of the calendar year covered by the July 
1, 2019 through December 31, 2019 performance year.
    (E) For an ACO responsible for shared losses under paragraph 
(c)(3)(ii)(C)(3) of this section--
    (1) The shared loss rate, determined based on the track the ACO is 
participating under during the performance year starting on July 1, 
2019 (Sec.  425.605 or Sec.  425.610), is applied to all losses under 
the updated benchmark specified under paragraph (c)(3)(i) of this 
section, not to exceed the loss recoupment limit for the ACO based on 
its track; and
    (2) After applying the applicable loss recoupment limit, CMS pro-
rates any shared losses amount determined under paragraph 
(c)(3)(ii)(E)(1) of this section by multiplying the amount by one-half, 
which represents the fraction of the calendar year covered by the July 
1, 2019 through December 31, 2019 performance year.
    (d) * * *
    (1) In calculating the amount of shared losses owed, CMS makes 
adjustments to the amount determined in paragraph (b)(3)(ii)(E)(1) or 
(c)(3)(ii)(E)(1) of this section, as specified in Sec.  425.605(f), 
Sec.  425.606(i), or Sec.  425.610(i), as applicable; and
* * * * *
    (e) Notification of savings and losses. (1) CMS notifies the ACO of 
shared savings or shared losses separately for the January 1, 2019 
through June 30, 2019 performance year (or performance period) and the 
July 1, 2019 through December 31, 2019 performance year, consistent 
with the notification requirements specified in Sec. Sec.  425.604(f), 
425.605(e), 425.606(h), and 425.610(h), as applicable:
    (i) 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.
    (ii) CMS provides written notification to an ACO of the amount of 
shared losses, if any, that it must repay to the program.
    (iii) If an ACO has shared losses, the ACO must make payment in 
full to CMS within 90 days of receipt of notification.
    (2) If an ACO is reconciled for both the January 1, 2019 through 
June 30, 2019 performance year (or performance period) and the July 1, 
2019 through December 31, 2019 performance year, CMS issues a separate 
notice of shared savings or shared losses for each performance year (or 
performance period), and if the ACO has shared savings for one 
performance year (or performance period) and shared losses for the 
other performance year (or performance period), CMS reduces the amount 
of shared savings by the amount of shared losses.
    (i) If any amount of shared savings remains after completely 
repaying the amount of shared losses owed, the ACO is eligible to 
receive payment for the remainder of the shared savings.
    (ii) If the amount of shared losses owed exceeds the amount of 
shared savings earned, the ACO is accountable for payment of the 
remaining balance of shared losses in full.


0
34. Section 425.610 is amended--
0
a. By revising the section heading;
0
b. In paragraph (a) introductory text by removing the phrase ``under 
Sec.  425.602'' and adding in its place the phrase ``under Sec.  
425.601, Sec.  425.602 or Sec.  425.603'' and by removing the phrase 
``Track 3'' and adding in its place the phrase ``the ENHANCED track'';
0
c. By revising paragraph (a)(1) through (3);
0
d. In paragraph (b)(1)(iii) by removing the phrase ``Track 3'' each 
time it appears and adding in its place the phrase ``the ENHANCED 
track'' and by removing the phrase ``Sec.  425.604(b)'' and adding in 
its place the phrase ``either Sec.  425.604(b) (for ACOs entering an 
agreement period on or before January 1, 2019) or Sec.  425.605(b)(1) 
(for ACOs entering an agreement period on July 1, 2019, and in 
subsequent years)'';
0
e. In paragraphs (b)(2), (d), (e)(2) by removing the phrase ``Track 3'' 
and adding in its place the phrase ``the ENHANCED track'';
0
f. In paragraph (g) by removing the phrase ``under Sec.  425.602'' and 
adding in its place the phrase ``under Sec.  425.601, Sec.  425.602 or 
Sec.  425.603'';
0
g. By adding paragraph (i)(2)(i), and reserved paragraph (i)(2)(ii); 
and
0
h. By adding paragraph (k).
    The revisions and additions read as follows:


Sec.  425.610  Calculation of shared savings and losses under the 
ENHANCED track.

    (a) * * *
    (1) Risk adjustment for ACOs in agreement periods beginning on or 
before January 1, 2019. CMS does the following to adjust the benchmark 
each performance year:
    (i) Newly assigned beneficiaries. CMS uses an ACO's prospective HCC 
risk score to adjust the benchmark for changes in severity and case mix 
in this population.
    (ii) Continuously assigned beneficiaries. (A) CMS uses demographic 
factors to adjust the benchmark for changes in the continuously 
assigned beneficiary population.
    (B) If the prospective HCC risk score is lower in the performance 
year for this population, CMS adjusts the benchmark for changes in 
severity and case mix for this population using this lower prospective 
HCC risk score.
    (2) Risk adjustment for ACOs in agreement periods beginning on July 
1, 2019, and in subsequent years. CMS uses an ACO's prospective HCC 
risk score to adjust the benchmark for changes in severity and case mix 
in the assigned beneficiary population between BY3 and the performance 
year.

[[Page 68080]]

    (i) Positive adjustments in prospective HCC risk scores are subject 
to a cap of 3 percent.
    (ii) This cap is the maximum increase in risk scores for each 
agreement period, such that any positive adjustment between BY3 and any 
performance year in the agreement period cannot be larger than 3 
percent.
    (3) In risk adjusting the benchmark as described in Sec. Sec.  
425.601(a)(10), 425.602(a)(9) and 425.603(c)(10), CMS makes separate 
adjustments for each of the following populations of beneficiaries:
    (i) ESRD.
    (ii) Disabled.
    (iii) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (iv) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
* * * * *
    (i) * * *
    (2) * * *
    (i) For an ACO that is liable for a pro-rated share of losses under 
Sec.  425.221(b)(2)(ii) or (b)(3)(i), the amount of shared losses 
determined for the performance year during which the termination 
becomes effective is adjusted according to this paragraph (i)(2).
    (ii) [Reserved]
* * * * *
    (k) July 1, 2019 through December 31, 2019 performance year. Shared 
savings or shared losses for the July 1, 2019 through December 31, 2019 
performance year are calculated as described in Sec.  425.609.

0
35. Section 425.612 is amended--
0
a. By revising paragraphs (a)(1) introductory text and (a)(1)(ii)(A);
0
b. By redesignating paragraphs (a)(1)(ii)(B) through (G) as paragraphs 
(a)(1)(ii)(C) through (H);
0
c. By adding new paragraph (a)(1)(ii)(B);
0
d. By revising paragraphs (a)(1)(iii)(A), (a)(1)(iv), and (a)(1)(v) 
introductory text;
0
e. Redesignating paragraphs (a)(1)(v)(A) through (C) as paragraphs 
(a)(1)(v)(C) through (E);
0
f. Adding new paragraphs (a)(1)(v)(A) and (B);
0
g. Revising newly redesignated paragraph (a)(1)(v)(D); and
0
h. By adding paragraphs (a)(1)(vi) and (f).
    The revisions and additions read as follows:


Sec.  425.612  Waivers of payment rules or other Medicare requirements.

    (a) * * *
    (1) SNF 3-day rule. For performance year 2017 and subsequent 
performance years, CMS waives the requirement in section 1861(i) of the 
Act for a 3-day inpatient hospital stay prior to a Medicare-covered 
post-hospital extended care service for eligible beneficiaries assigned 
to ACOs participating in a two-sided model and as provided in paragraph 
(a)(1)(iv) of this section during a grace period for beneficiaries 
excluded from prospective assignment to an ACO in a two-sided model, 
who receive otherwise covered post-hospital extended care services 
furnished by an eligible SNF that has entered into a written agreement 
to partner with the ACO for purposes of this waiver. Eligible SNFs 
include providers furnishing SNF services under swing bed agreements. 
All other provisions of the statute and regulations regarding Medicare 
Part A post-hospital extended care services continue to apply. ACOs 
identified under paragraph (a)(1)(vi) of this section may request to 
use the SNF 3-day rule waiver for performance years beginning on July 
1, 2019, and in subsequent years.
* * * * *
    (ii) * * *
    (A) In the case of a beneficiary who is assigned to an ACO that has 
selected preliminary prospective assignment with retrospective 
reconciliation under Sec.  425.400(a)(2), the beneficiary must appear 
on the list of preliminarily prospectively assigned beneficiaries at 
the beginning of the performance year or on the first, second, or third 
quarterly preliminary prospective assignment list for the performance 
year in which they are admitted to the eligible SNF, and the SNF 
services must be provided after the beneficiary first appeared on the 
preliminary prospective assignment list for the performance year.
    (B) In the case of a beneficiary who is assigned to an ACO that has 
selected prospective assignment under Sec.  425.400(a)(3), the 
beneficiary must be prospectively assigned to the ACO for the 
performance year in which they are admitted to the eligible SNF.
* * * * *
    (iii) * * *
    (A) Providers eligible to be included in the CMS 5-star Quality 
Rating System must have and maintain an overall rating of 3 or higher.
* * * * *
    (iv) For a beneficiary who was included on the ACO's prospective 
assignment list or preliminary prospective assignment list at the 
beginning of the performance year or on the first, second, or third 
quarterly preliminary prospective assignment list for the performance 
year, for an ACO for which a waiver of the SNF 3-day rule has been 
approved under paragraph (a)(1) of this section, but who was 
subsequently removed from the assignment list for the performance year, 
CMS makes payment for SNF services furnished to the beneficiary by a 
SNF affiliate if the following conditions are met:
    (A)(1) The beneficiary was prospectively assigned to an ACO that 
selected prospective assignment under Sec.  425.400(a)(3) at the 
beginning of the applicable performance year, but was excluded in the 
most recent quarterly update to the assignment list under Sec.  
425.401(b), and the beneficiary was admitted to a SNF affiliate within 
90 days following the date that CMS delivered the quarterly exclusion 
list to the ACO; or
    (2) The beneficiary was identified as preliminarily prospectively 
assigned to an ACO that has selected preliminary prospective assignment 
with retrospective reconciliation under Sec.  425.400(a)(2) in the 
report provided under Sec.  425.702(c)(1)(ii)(A) at the beginning of 
the performance year or for the first, second, or third quarter of the 
performance year, the SNF services were provided after the beneficiary 
first appeared on the preliminary prospective assignment list for the 
performance year, and the beneficiary meets the criteria to be assigned 
to an ACO under Sec.  425.401(a)(1) and (2).
    (B) But for the beneficiary's removal from the ACO's assignment 
list, CMS would have made payment to the SNF affiliate for such 
services under the waiver under paragraph (a)(1) of this section.
    (v) The following beneficiary protections apply when a beneficiary 
receives SNF services without a prior 3-day inpatient hospital stay 
from a SNF affiliate that intended to provide services under a SNF 3-
day rule waiver under paragraph (a)(1) of this section, the SNF 
affiliate services were non-covered only because the SNF affiliate stay 
was not preceded by a qualifying hospital stay under section 1861(i) of 
the Act, and in the case of a beneficiary where the ACO selected one of 
the following:
    (A) Prospective assignment under Sec.  425.400(a)(3), the 
beneficiary was not prospectively assigned to the ACO for the 
performance year in which they received the SNF services, or was 
prospectively assigned but was later excluded and the 90-day grace 
period, described in paragraph (a)(1)(iv)(A) of this section, has 
lapsed.
    (B) Preliminary prospective assignment with retrospective 
reconciliation under Sec.  425.400(a)(2), the beneficiary was not 
identified as preliminarily prospectively assigned to

[[Page 68081]]

the ACO for the performance year in the report provided under Sec.  
425.702(c)(1)(ii)(A) at the beginning of the performance year or for 
the first, second, or third quarter of the performance year before the 
SNF services were provided to the beneficiary.
* * * * *
    (D) CMS makes no payments for SNF services to a SNF affiliate of an 
ACO for which a waiver of the SNF 3-day rule has been approved when the 
SNF affiliate admits a FFS beneficiary who was not prospectively or 
preliminarily prospectively assigned to the ACO prior to the SNF 
admission or was prospectively assigned but was later excluded and the 
90-day grace period under paragraph (a)(1)(iv)(A) of this section has 
lapsed.
* * * * *
    (vi) The following ACOs may request to use the SNF 3-day rule 
waiver:
    (A) An ACO participating in performance-based risk within the BASIC 
track under Sec.  425.605.
    (B) An ACO participating in the ENHANCED track under Sec.  425.610.
* * * * *
    (f) Waiver for payment for telehealth services. For performance 
year 2020 and subsequent performance years, CMS waives the originating 
site requirements in section 1834(m)(4)(C)(i) and (ii) of the Act and 
makes payment for telehealth services furnished to a beneficiary, if 
the following conditions are met:
    (1) The beneficiary was prospectively assigned to an ACO that is an 
applicable ACO for purposes of Sec.  425.613 at the beginning of the 
applicable performance year, but the beneficiary was excluded in the 
most recent quarterly update to the prospective assignment list under 
Sec.  425.401(b).
    (2) The telehealth services are provided by a physician or 
practitioner billing under the TIN of an ACO participant in the ACO 
within 90 days following the date CMS delivers the quarterly exclusion 
list to the ACO.
    (3) But for the beneficiary's exclusion from the ACO's prospective 
assignment list, CMS would have made payment to the ACO participant for 
such services under Sec.  425.613.

0
36. Section 425.613 is added to subpart G to read as follows:


Sec.  425.613   Telehealth services.

    (a) General. Payment is available for otherwise covered telehealth 
services furnished on or after January 1, 2020, by a physician or other 
practitioner billing through the TIN of an ACO participant in an 
applicable ACO, without regard to the geographic requirements under 
section 1834(m)(4)(C)(i) of the Act, in accordance with the 
requirements of this section.
    (1) For purposes of this section:
    (i) An applicable ACO is an ACO that is participating under a two-
sided model under Sec.  425.600 and has elected prospective assignment 
under Sec.  425.400(a)(3) for the performance year.
    (ii) The home of the beneficiary is treated as an originating site 
under section 1834(m)(4)(C)(ii) of the Act.
    (2) For payment to be made under this section, the following 
requirements must be met:
    (i) The beneficiary is prospectively assigned to the ACO for the 
performance year in which the beneficiary received the telehealth 
service.
    (ii) The physician or practitioner who furnishes the telehealth 
service must bill under the TIN of an ACO participant that is included 
on the certified ACO participant list under Sec.  425.118 for the 
performance year in which the service is rendered.
    (iii) The originating site must comply with applicable State 
licensing requirements.
    (iv) When the originating site is the beneficiary's home, the 
telehealth services must not be inappropriate to furnish in the home 
setting. Services that are typically furnished in an inpatient setting 
may not be furnished as a telehealth service when the originating site 
is the beneficiary's home.
    (v) CMS does not pay a facility fee when the originating site is 
the beneficiary's home.
    (b) Beneficiary protections. (1) When a beneficiary who is not 
prospectively assigned to an applicable ACO or in a 90-day grace period 
under Sec.  425.612(f) receives a telehealth service from a physician 
or practitioner billing through the TIN of an ACO participant 
participating in an applicable ACO, CMS makes no payment for the 
telehealth service to the ACO participant.
    (2) In the event that CMS makes no payment for a telehealth service 
furnished by a physician or practitioner billing through the TIN of an 
ACO participant, and the only reason the claim was non-covered is 
because the beneficiary is not prospectively assigned to the ACO or in 
the 90-day grace period under Sec.  425.612(f), all of the following 
beneficiary protections apply:
    (i) The ACO participant must not charge the beneficiary for the 
expenses incurred for such service.
    (ii) The ACO participant must return to the beneficiary any monies 
collected for such service.
    (iii) The ACO may be required to submit a corrective action plan 
under Sec.  425.216(b) for CMS approval. If the ACO is required to 
submit a corrective action plan and, after being given an opportunity 
to act upon the corrective action plan, the ACO fails to implement the 
corrective action plan or demonstrate improved performance upon 
completion of the corrective action plan, CMS may terminate the 
participation agreement as specified under Sec.  425.216(b)(2).
    (c) Termination date for purposes of payment for telehealth 
services. (1) Payment for telehealth services under paragraph (a) of 
this section does not extend beyond the end of the applicable ACO's 
participation agreement.
    (2) If CMS terminates the participation agreement under Sec.  
425.218, payment for telehealth services under paragraph (a) of this 
section is not made with respect to telehealth services furnished 
beginning on the date specified by CMS in the termination notice.
    (3) If the ACO terminates the participation agreement, payment for 
telehealth services under paragraph (a) of this section is not made 
with respect to telehealth services furnished beginning on the 
effective date of termination as specified in the written notification 
required under Sec.  425.220.
    (d) Monitoring of telehealth services. (1) CMS monitors and audits 
the use of telehealth services by the ACO and its ACO participants and 
ACO providers/suppliers, in accordance with Sec.  425.316.
    (2) CMS reserves the right to take compliance action, up to and 
including termination of the participation agreement, as specified in 
Sec. Sec.  425.216 and 425.218, with respect to an applicable ACO for 
non-compliance with program requirements, including inappropriate use 
of telehealth services.

0
37. Section 425.702 is amended by revising paragraphs (c)(1)(ii)(A) 
introductory text, (c)(1)(ii)(B) introductory text and (c)(1)(ii)(C) to 
read as follows:


Sec.  425.702  Aggregate reports.

* * * * *
    (c) * * *
    (1) * * *
    (ii) * * *
    (A) For an ACO participating under preliminary prospective 
assignment with retrospective reconciliation as specified under Sec.  
425.400(a)(2), the following information is made available regarding 
preliminarily prospectively assigned beneficiaries and beneficiaries 
that received a primary care service during the previous 12 months from 
one of the ACO participants that submits

[[Page 68082]]

claims for primary care services used to determine the ACO's assigned 
population under subpart E of this part:
* * * * *
    (B) For an ACO participating under preliminary prospective 
assignment with retrospective reconciliation as specified under Sec.  
425.400(a)(2), information in the following categories, which 
represents the minimum data necessary for ACOs to conduct health care 
operations work, is made available regarding preliminarily 
prospectively assigned beneficiaries:
* * * * *
    (C) The information under paragraphs (c)(1)(ii)(A) and (B) of this 
section is made available to ACOs participating under prospective 
assignment as specified under Sec.  425.400(a)(3), but is limited to 
the ACO's prospectively assigned beneficiaries.
* * * * *

0
38. Section 425.704 is amended by revising paragraph (d)(1) to read as 
follows:


Sec.  425.704  Beneficiary-identifiable claims data.

* * * * *
    (d) * * *
    (1) For an ACO participating under--
    (i) Preliminary prospective assignment with retrospective 
reconciliation as specified under Sec.  425.400(a)(2), the 
beneficiary's name appears on the preliminary prospective assignment 
list provided to the ACO at the beginning of the performance year, 
during each quarter (and in conjunction with the annual reconciliation) 
or the beneficiary has received a primary care service from an ACO 
participant upon whom assignment is based (under subpart E of this 
part) during the most recent 12-month period; or
    (ii) Prospective assignment as specified under Sec.  425.400(a)(3), 
the beneficiary's name appears on the prospective assignment list 
provided to the ACO at the beginning of the performance year.
* * * * *

0
39. Section 425.800 is amended--
0
a. In paragraph (a)(4) by removing the phrase ``under Sec. Sec.  
425.602, 425.604, 425.606, and 425.610'' and adding in its place the 
phrase ``in accordance with section 1899(d) of the Act, as implemented 
under Sec. Sec.  425.601, 425.602, 425.603, 425.604, 425.605, 425.606, 
and 425.610'';
0
b. In paragraph (a)(5) by removing the phrase ``established under 
Sec. Sec.  425.604, 425.606, and 425.610'' and adding in its place the 
phrase ``established under Sec. Sec.  425.604, 425.605, 425.606, and 
425.610''; and
0
c. By adding paragraph (a)(7).
    The addition reads as follows:


Sec.  425.800  Preclusion of administrative and judicial review.

    (a) * * *
    (7) The termination of a beneficiary incentive program established 
under Sec.  425.304(c).
* * * * *

    Dated: December 14, 2018.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: December 18, 2018.
Alex M. Azar II,
Secretary, Department of Health and Human Services.
[FR Doc. 2018-27981 Filed 12-21-18; 8:45 am]
 BILLING CODE 4120-01-P


</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>