DEPARTMENT OF HEALTH AND HUMAN SERVICES 

Centers for Medicare & Medicaid Services 

42 CFR Part 425 

[CMS-1461-P] 

RIN 0938-AS06 

Medicare Program; Medicare Shared Savings Program: Accountable Care Organizations 

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

ACTION: Proposed rule. 

SUMMARY: This proposed rule addresses changes to the Medicare Shared Savings Program 

(Shared Savings Program), including provisions relating to the payment of Accountable Care 

Organizations (ACOs) participating in the Shared Savings Program. Under the Shared Savings 

Program, providers of services and suppliers that participate in an 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. 

DATES: To be assured consideration, comments must be received at one of the addresses 

provided below, no later than 5 p.m. on [insert date 60 days after date of publication in the 

Federal Register]. 

ADDRESSES: In commenting, please refer to file code CMS-1461-P. Because of staff and 

resource limitations, we cannot accept comments by facsimile (FAX) transmission. 

 You may submit comments in one of four ways (please choose only one of the ways 

listed): 
CMS-1461-P 2 

 1. Electronically. You may submit electronic comments on this regulation to 

http://www.regulations.gov. Follow the "Submit a comment" instructions. 

 2. By regular mail. You may mail written comments to the following address ONLY: 

 Centers for Medicare & Medicaid Services, 

Department of Health and Human Services, 

Attention: CMS-1461-P, 

P.O. Box 8013, 

Baltimore, MD 21244-8013. 

 Please allow sufficient time for mailed comments to be received before the close of the 

comment period. 

 3. By express or overnight mail. You may send written comments to the following 

address ONLY: 

 Centers for Medicare & Medicaid Services, 

 Department of Health and Human Services, 

 Attention: CMS-1461-P, 

 Mail Stop C4-26-05, 

 7500 Security Boulevard, 

 Baltimore, MD 21244-1850. 

 4. By hand or courier. Alternatively, you may deliver (by hand or courier) your written 

comments ONLY to the following addresses prior to the close of the comment period: 

 a. For delivery in Washington, DC-- 
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 Centers for Medicare & Medicaid Services, 

Department of Health and Human Services, 

Room 445-G, Hubert H. Humphrey Building, 

200 Independence Avenue, SW., 

 Washington, DC 20201 

 (Because access to the interior of the Hubert H. Humphrey Building is not readily 

available to persons without Federal government identification, commenters are encouraged to 

leave their comments in the CMS drop slots located in the main lobby of the building. A 

stamp-in clock is available for persons wishing to retain a proof of filing by stamping in and 

retaining an extra copy of the comments being filed.) 

 b. For delivery in Baltimore, MD-- 

 Centers for Medicare & Medicaid Services, 

Department of Health and Human Services, 

7500 Security Boulevard, 

Baltimore, MD 21244-1850. 

 If you intend to deliver your comments to the Baltimore address, call telephone number 

(410) 786-7195 in advance to schedule your arrival with one of our staff members. 

 Comments erroneously mailed to the addresses indicated as appropriate for hand or 

courier delivery may be delayed and received after the comment period. 

For information on viewing public comments, see the beginning of the "SUPPLEMENTARY 

INFORMATION" section. 

FOR FURTHER INFORMATION CONTACT: 

Dr. Terri Postma or Rick Ensor, 410-786-8084, E-mail address: aco@cms.hhs.gov. 
CMS-1461-P 4 

SUPPLEMENTARY INFORMATION: 

 Inspection of Public Comments: All comments received before the close of the comment 

period are available for viewing by the public, including any personally identifiable or 

confidential business information that is included in a comment. We post all comments received 

before the close of the comment period on the following Web site as soon as possible after they 

have been received: http://www.regulations.gov. Follow the search instructions on that Web site 

to view public comments. 

 Comments received timely will also be available for public inspection as they are 

received, generally beginning approximately 3 weeks after publication of a document, at the 

headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To 

schedule an appointment to view public comments, phone 1-800-743-3951. 

Table of Contents 

 To assist readers in referencing sections contained in this preamble, we are providing a 

table of contents. 

I. Executive Summary and Background 

 A. Executive Summary 

 1. Purpose 

 2. Summary of the Major Provisions 

 3. Summary of Costs and Benefits 

 B. Background 

II. Provisions of this Proposed Rule 

 A. Definitions 

 1. Proposed Definitions 

 2. Proposed Revisions to Existing Definitions 

 a. Definition of ACO Participant 

 b. Definition of ACO Professional 

 c. Definition of ACO Provider/Supplier 

 d. Definition of Assignment 

 e. Definition of Hospital 

 f. Definition of Primary Care Services 
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 g. Definitions of Continuously Assigned Beneficiary and Newly Assigned Beneficiary 

 h. Definition of Agreement Period 

 B. ACO Eligibility Requirements 

 1. Agreement Requirements 

 a. Overview 

 b. Proposed Revisions 

 2. Sufficient Number of Primary Care Providers and Beneficiaries 

 a. Overview 

 b. Proposed Revisions 

 3. Identification and Required Reporting of ACO Participants and ACO Providers/Suppliers 

 a. Overview 

 b. Proposed Revisions 

 (1) Certified List of ACO Participants and ACO Providers/Suppliers 

 (2) Managing Changes to ACO Participants 

 (3) Managing Changes to ACO Providers/Suppliers 

 (4) Update of Medicare Enrollment Information 

 4. Significant Changes to an ACO 

 a. Overview 

 b. Proposed Revisions 

 5. Consideration of Claims Billed by Merged/Acquired Medicare-Enrolled Entities 

 a. Overview 

 b. Proposal 

 6. Legal Structure and Governance 

 a. Legal Entity and Governing Body 

 (1) Overview 

 (2) Proposed Revisions 

 b. Fiduciary Duties of Governing Body Members 

 (1) Overview 

 (2) Proposed Revisions 

 c. Composition of the Governing Body 

 (1) Overview 

 (2) Proposed Revisions 

 7. Leadership and Management Structure 

 a. Overview 

 b. Proposed Revisions 

 8. Required Process to Coordinate Care 

 a. Overview 

 b. Accelerating Health Information Technology 

 c. Proposed Revisions 

 9. Transition of Pioneer ACOs into the Shared Savings Program 

 a. Overview 

 b. Proposed Revisions 

 C. Establishing and Maintaining the Participation Agreement with the Secretary 

 1. Background 

 2. Application Deadlines 

 a. Overview 
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 b. Proposed Revisions 

 3. Renewal of Participation Agreements 

 a. Overview 

 b. Proposed Revisions 

 4. Changes to Program Requirements During the 3-Year Agreement 

 a. Overview 

 b. Proposed Revisions 

 D. Provision of Aggregate and Beneficiary Identifiable Data 

 1. Background 

 2. Aggregate Data Reports and Limited Identifiable Data 

 a. Overview 

 b. Proposed Revisions 

 3. Claims Data Sharing and Beneficiary Opt-out 

 a. Overview 

 b. Proposed Revisions 

 E. Assignment of Medicare FFS Beneficiaries 

 1. Background 

 2. Basic Criteria for a Beneficiary to be Assigned to an ACO 

 3. Definition of Primary Care Services 

 a. Overview 

 b. Proposed Revisions 

 4. Consideration of Physician Specialties and Non-Physician Practitioners in the Assignment 

Process 

 a. Overview 

 b. Proposed Revisions 

 5. Assignment of Beneficiaries to ACOs that Include FQHCs, RHCs, CAHs, or ETA 

Hospitals 

 a. Assignment of Beneficiaries to ACOs that Include FQHCs and RHCs 

 (1) Overview 

 (2) Proposed Revisions 

 b. Assignment of Beneficiaries to ACOs that Include CAHs 

 c. Assignment of Beneficiaries to ACOs that Include ETA Hospitals 

 6. Effective Date for Finalization of Proposals Affecting Beneficiary Assignment 

 F. Shared Savings and Losses 

 1. Background 

 2. Modifications to the Existing Payment Tracks 

 a. Overview 

 b. Proposals Related to Transition from the One-sided to Two-sided Model 

 c. Proposals for Modifications to the Track 2 Financial Model 

 3. Creating Options for ACOs that Participate in Risk-Based Arrangements 

 a. Overview 

 b. Proposals for Assignment of Beneficiaries Under Track 3 

 (1) Background 

 (2) Proposal for Prospective Assignment under Track 3 

 c. Proposed Exclusion Criteria for Prospectively Assigned Beneficiaries 

 d. Proposed Timing of Prospective Assignment 
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 e. Proposals for Addressing Interactions Between Prospective and Retrospective Assignment 

Models 

 f. Proposals for Determining Benchmark and Performance Year Expenditures Under 

Track 3 

 g. Proposals for Risk Adjusting the Updated Benchmark for Track 3 ACOs 

 h. Proposals for Final Sharing/Loss Rate and Performance Payment/Loss Recoupment Limit 

under Track 3 

 i. Proposals for Minimum Savings Rate and Minimum Loss Rate in Track 3 

 4. Seeking Comment on Ways to Encourage ACOs Participation in Performance-based Risk 

Arrangements 

 a. Payment Requirements and Program Requirements that May Need to be Waived in Order 

to Carry out the Shared Savings Program 

 (1) SNF 3-Day Rule 

 (2) Billing and Payment for Telehealth Services 

 (3) Homebound Requirement Under the Home Health Benefit 

 (4) Waivers for Referrals to Postacute Care Settings 

 (5) Waiver of Other Payment Rules 

 b. Other Options for Improving The Transition To Two-Sided Performance-Based Risk 

Arrangements 

 (1) Beneficiary Attestation 

 (2) Seeking Comment on a Step-Wise Progression for ACOs to Take on Performance-Based 

Risk 

 5. Modifications to Repayment Mechanism Requirements 

 a. Overview 

 b. Proposals for Amount and Duration of the Repayment Mechanism 

 c. Proposals Regarding Permissible Repayment Mechanisms 

 6. Seeking Comment on Methodology for Establishing, Updating, and Resetting the 

Benchmark 

 a. Background on Establishing, Updating, and Resetting the Benchmark 

 (1) Background on use of National Growth Rate as a Benchmark Trending Factor 

 (2) Background on use of National FFS Growth Factors in Updating the Benchmark During 

the Agreement Period 

 (3) Background on Managing Changes to ACOs During the Agreement Period 

 (4) Background on Resetting the Benchmark 

 (5) Background on Stakeholders’ Concerns about Benchmarking Methodology 

 b. Factors to Use in Resetting ACO Benchmarks and Alternative Benchmarking 

Methodologies 

 (1) Equally Weighting the Three Benchmark Years 

 (2) Accounting For Shared Savings Payments In Benchmarks 

 (3) Use of Regional Factors (as opposed to national factors) in Establishing and Updating 

Benchmarks 

 (4) Alternative Benchmark Resetting Methodology: Hold the ACO's Historical Costs 

Constant Relative to its Region 

 (5) Alternative Benchmark Methodology: Transition ACOs to Benchmarks Based Only on 

Regional FFS Costs Over the Course of Multiple Agreement Periods 
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 (6) Seeking Comment on the Benchmarking Alternatives Considered and the Applicability of 

These Approaches 

 7. Seeking Comment on Technical Adjustments to the Benchmark and Performance Year 

Expenditures 

 G. Additional Program Requirements and Beneficiary Protections 

 1. Background 

 2. Public Reporting and Transparency 

 a. Overview 

 b. Proposed Revisions 

 3. Terminating Program Participation 

 a. Overview 

 b. Proposed Revisions 

 (1) Grounds for Termination 

 (2) Close-out Procedures and Payment Consequences of Early Termination 

 (3) Reconsideration Review Process 

 (A) Overview 

 (B) Proposed Changes 

 (4) Monitoring ACO Compliance with Quality Performance Standards 

III. Collection of Information Requirements 

IV. Response to Comments 

V. Regulatory Impact Analysis 

 A. Statement of Need 

 B. Overall Impact 

 C. Anticipated Effects 

 1. Effects on the Medicare Program 

 a. Assumptions and Uncertainties 

 b. Detailed Stochastic Modeling Results 

 c. Further Considerations 

 2. Effects on Beneficiaries 

 3. Effect on Providers and Suppliers 

 4. Effect on Small Entities 

 5. Effect on Small Rural Hospitals 

 6. Unfunded Mandates 

 D. Alternatives Considered 

 E. Accounting Statement and Table 

 F. Conclusion 

Regulations Text 

Acronyms 

ACO Accountable Care Organization 

BIPA Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act 

of 2000 (Pub. L. 106-554) 

CAHs Critical Access Hospitals 
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CCM Chronic Care Management 

CEHRT Certified Electronic Health Record Technology 

CG-CAHPS Clinician and Group Consumer Assessment of Health Providers and 

 Systems 

CHIP Children's Health Insurance Program 

CMP Civil Monetary Penalties 

CMS Centers for Medicare & Medicaid Services 

CNM Certified Nurse Midwife 

CMS-HCC CMS Hierarchal Condition Category 

CPT [Physicians] Current Procedural Terminology (CPT codes, descriptions and 

other data only are copyright 2013 American Medical Association. All rights 

reserved.) 

CWF Common Working File 

DHHS Department of Health and Human Services 

DOJ Department of Justice 

DRA Deficit Reduction Act of 2005 (Pub. L. 109-171) 

DSH Disproportionate Share Hospital 

DUA Data Use Agreement 

EHR Electronic Health Record 

ESRD End Stage Renal Disease 

ETA hospital Electing Teaching Amendment Hospital 

FFS Fee-for-service 

FQHCs Federally Qualified Health Centers 

FTC Federal Trade Commission 

GPCI Geographic Practice Cost Index 

GPRO Group Practice Reporting Option 

HCC Hierarchal Condition Category 

HCPCS Healthcare Common Procedure Coding System 

HICN Health Insurance Claim Number 

HIPAA Health Insurance Portability and Accountability Act of 1996 

(Pub. L. 104-191) 

HVBP Hospital Value-based Purchasing 

IPA Independent Practice Association 

IPPS Inpatient Prospective Payment System 

IRS Internal Revenue Service 

MA Medicare Advantage 

MedPAC Medicare Payment Advisory Commission 

MLR Minimum Loss Rate 

MSP Medicare Secondary Payer 

MSR Minimum Savings Rate 

MU Meaningful Use 

NCQA National Committee for Quality Assurance 

NP Nurse Practitioner 

NPI National Provider Identifier 

NQF National Quality Forum 

OIG Office of Inspector General 
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PA Physician Assistant 

PACE Program of All Inclusive Care for the Elderly 

PECOS Provider Enrollment, Chain, and Ownership System 

PFS Physician Fee Schedule 

PGP Physician Group Practice 

PHI Protected Health Information 

PPS Prospective Payment System 

PQRS Physician Quality Reporting System 

PRA Paperwork Reduction Act 

PSA Primary Service Areas 

RHCs Rural Health Clinics 

RIA Regulatory Impact Analysis 

SNFs Skilled Nursing Facilities 

SSA Social Security Act 

SSN Social Security Number 

TIN Taxpayer Identification Number 

VM Value Modifier 

CPT (Current Procedural Terminology) Copyright Notice 

 Throughout this proposed rule, we use CPT codes and descriptions to refer to a variety of 

services. We note that CPT codes and descriptions are copyright 2013 American Medical 

Association. All Rights Reserved. CPT is a registered trademark of the American Medical 

Association (AMA). Applicable Federal Acquisition Regulations (FARs) and Defense Federal 

Acquisition Regulations (DFARs) apply. 

I. Executive Summary and Background 

A. Executive Summary 

1. Purpose 

 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 parts A and B, and encourages investment in infrastructure and 

redesigned care processes for high quality and efficient health care service delivery. This 

proposed rule would make changes to the regulations that were promulgated in November 2011 
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to implement the Shared Savings Program in order to make refinements based on our experience 

with the program and to respond to concerns raised by stakeholders. Unless otherwise noted, 

these changes would be effective 60 days after publication of the final rule. Application or 

implementation dates may vary, depending on the nature of the policy; however, we anticipate 

all of the final policies and methodological changes would be applied for the 2016 performance 

year for all participating organizations unless otherwise noted. 

2. Summary of the Major Provisions 

 This proposed rule is designed to codify existing guidance, reduce administrative burden 

and improve program function and transparency in the following areas: (1) data-sharing 

requirements; (2) requirements for ACO participant agreements, the ACO application process, 

and our review of applications; (3) identification and reporting of ACO participants and ACO 

providers/suppliers, including managing changes to the list of ACO participants and ACO 

providers/suppliers; (4) eligibility requirements related to the ACO's number of beneficiaries, 

required processes, the ACO's legal structure and governing body, and its leadership and 

management structure; (5) modification to assignment methodology; (6) repayment mechanisms 

for ACOs in two-sided performance-based risk tracks; (7) alternatives to encourage participation 

in risk-based models; (8) ACO public reporting and transparency; (9) the ACO termination 

process; and (10) the reconsideration review process. To achieve these goals, we make the 

following proposed modifications to our current program rules: 

● Clarify existing and establish new definitions of terms including an ACO participant, 

ACO provider/supplier, and ACO participation agreement. 

● Add a process for ACOs to renew the participation agreement for an additional 

agreement period. 
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● Add, clarify, and revise the beneficiary assignment algorithm, including the following- 

++ Update the CPT codes that would be considered to be primary care services as well 

as changing the treatment of certain physician specialties in the assignment process; 

++ Include the claims for primary care services furnished by NP, PAs, and CNSs in Step 

1 of the assignment algorithm; and 

++ Clarify how primary care services furnished in federally qualified health centers 

(FQHCs), rural health clinics (RHCs), and electing teaching amendment (ETA) hospitals will be 

considered in the assignment process. 

● Expand the kinds of beneficiary-identifiable data that would be provided to ACOs in 

various reports under the Shared Savings Program as well as simplify the claims data sharing 

opt-out process to improve the timeliness of access to claims data. 

● Add or change policies to encourage greater ACO participation in risk-based models 

by-- 

++Offering the opportunity for ACOs to continue participating under a one-sided 

participation agreement after their first 3-year agreement; 

++Reducing risk under Track 2; and 

++ Adopting an alternative risk-based model referred to as Track 3 which includes 

proposals for a higher sharing rate and prospective assignment of beneficiaries. 

 In addition, we seek comment on a number of options that we have been considering in 

order to encourage ACOs to take on two-sided performance-based risk under the Shared Savings 

Program. We also seek comment on issues related to resetting the benchmark in a subsequent 

performance year and the use of statutory waiver authority to improve participation in two-sided 

risk models. 
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3. Summary of Costs and Benefits

 We assume that our proposals to ease the transition to risk, reduce risk under Track 2, and 

adopt an alternative risk-based model (Track 3) would result in increased participation in the 

Shared Savings Program. As shown in our impact analysis, we expect the proposed changes to 

result in a significant increase in total shared savings, while shared losses would decrease. 

Moreover, as participation in the Shared Savings Program continues to expand, we anticipate 

there would be a broader focus on care coordination and quality improvement among providers 

and suppliers within the Medicare program that would lead to both increased efficiency in the 

provision of care and improved quality of the care provided to beneficiaries. 

The proposed changes detailed in this rule would result in median estimated federal savings of 

$280 million greater than the $730 million median net savings estimated at baseline for calendar 

years (CYs) 2016 through 2018. We estimate that the provisions of this proposed rule would 

result in a reduction in the median shared loss dollars by $140 million and an increase in the 

median shared savings payments by $320 million dollars relative to the baseline for CYs 2016 

through 2018. The estimated aggregate average start up investment and 3 year operating costs if 

all proposals are finalized is approximately $441 million. 

B. 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 

Pub. L. 111-148. Collectively known as the Affordable Care Act, these public laws include a 

number of provisions designed to improve the quality of Medicare services, support innovation 
CMS-1461-P 14 

and the establishment of new payment models, better align Medicare payments with provider 

costs, strengthen Medicare program integrity, and put Medicare on a firmer financial footing. 

 Section 3022 of the Affordable Care Act amended Title XVIII of the Act 

(42 U.S.C. 1395 et seq.) by adding new section 1899 to the Act to establish a Shared Savings 

Program. This program is a key component of the Medicare delivery system reform initiatives 

included in the Affordable Care Act and is a new approach to the delivery of health care. The 

purpose of the Shared Savings Program is to promote accountability for a population of 

Medicare beneficiaries, improve the coordination of FFS items and services, encourage 

investment in infrastructure and redesigned care processes for high quality and efficient service 

delivery, and promote higher value care. ACOs that successfully meet quality and savings 

requirements share a percentage of the achieved savings with Medicare. Under the Shared 

Savings Program, ACOs share in savings only if they meet both the quality performance 

standards and generate shareable savings. Consistent with the purpose of the Shared 

Savings Program, we focused on developing policies aimed at achieving the three-part aim 

consisting of: (1) better care for individuals; (2) better health for populations; and (3) lower 

growth in expenditures. 

 In the November 2, 2011 Federal Register (76 FR 67802), we published the final rule 

entitled "Medicare Program; Medicare Shared Savings Program: Accountable Care 

Organizations" (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. We anticipated that subsequent rulemaking for the Shared Savings Program 

would be informed by lessons learned from our experience with the program as well as from 
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testing through the Pioneer ACO Model and other initiatives conducted by the Center for 

Medicare and Medicaid Innovation (Innovation Center) under section 1115A of the Act. 

Over 330 organizations are now participating in the Shared Savings Program. We are 

gratified by stakeholder interest in this program. In the November 2011 final rule 

(76 FR 67805), we stated that we intended to assess the policies for the Shared Savings 

Program and models being tested by the Innovation Center to determine how well they were 

working and if there were any modifications that would enhance them. As evidenced by the 

high degree of interest in participation in the Shared Savings Program, we believe that the 

policies adopted in the November 2011 final rule are generally well-accepted. However, we 

have identified several policy areas we would like to revisit in light of the additional 

experience we have gained during the first 2 years of program implementation. 

 We note that in developing the Shared Savings Program, and in response to stakeholder 

suggestions, we worked very closely with agencies across the federal government to develop 

policies to encourage participation in the program and to ensure a coordinated inter- and 

intra-agency program implementation. The result of this effort was the release of several 

documents regarding the application of other relevant laws and regulations to ACOs. These 

documents are described in more detail in section II.C.5. of the November 2011 final rule 

(76 FR 67840) and include: (1) a joint CMS and DHHS OIG interim final rule with comment 

period establishing waivers of the application of the physician self-referral law, the Federal 

anti-kickback statute, and certain civil monetary penalties (CMP) law provisions for specified 

arrangements involving ACOs participating in the Shared Savings Program (76 FR 67992); (2) 

an Internal Revenue Service (IRS) notice (Notice 2011-20) and fact sheet (FS-2011-11) issued in 

response to comments regarding the need for additional tax guidance for tax-exempt 
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organizations, including tax-exempt hospitals, that may participate in the Shared Savings 

Program (see Notice 2011-20 at www.irs.gov//pub/irs-drop/n-11-20.pdf and FS-2011-11 at 

www.irs.gov/pub/irs-news/fs-2011-11.pdf); and (3) a final Statement of Antitrust Enforcement 

Policy Regarding Accountable Care Organizations Participating in the Shared Savings Program 

issued jointly by the FTC and DOJ (collectively, the Antitrust Agencies) and published in the 

October 28, 2011 Federal Register (76 FR 67026). We have continued working with these 

agencies as we have implemented this program and believe that these materials continue to offer 

valuable information regarding a number of issues of great importance both to our 

implementation of the Shared Savings Program and to the entities that participate in the program. 

We encourage ACOs and other stakeholders to review and comply with the referenced 

documents. Documents can be accessed through the links on our website at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Statut

es_Regulations_Guidance.html.
CMS-1461-P 17 

II. Provisions of this Proposed Rule 

 The purpose of this proposed rule is to propose revisions to some key policies adopted in 

the November 2011 final rule (76 FR 67802), to incorporate in our regulations certain guidance 

that we have issued since the Shared Savings Program was established, and to propose regulatory 

additions to support program compliance and growth. Our intent is to encourage continued and 

enhanced stakeholder participation, to reduce administrative burden for ACOs while facilitating 

their efforts to improve care outcomes, and to maintain excellence in program operations while 

bolstering program integrity. 

A. Definitions 

 In the November 2011 final rule (76 FR 67802), we adopted definitions of key terms for 

purposes of the Shared Savings Program at § 425.20. These terms are used throughout this 

proposed rule. We encourage readers to review these definitions. Based on our experiences thus 

far with the Shared Savings Program and inquiries we received regarding the defined terms, we 

propose some additions to the definitions and a few revisions to the existing definitions. 

1. Proposed Definitions 

 We propose to add several new terms to the definitions in § 425.20. First, we propose to 

add a definition of “participation agreement.” Specifically, we propose to define the term to 

mean the written agreement required under § 425.208(a) between the ACO and CMS that, along 

with the regulations at part 425, governs the ACO’s participation in the Shared Savings Program. 

We further propose to make conforming changes throughout part 425, replacing references to an 

ACO’s agreement with CMS with the defined term “participation agreement.” In addition, we 

propose to make a conforming change in § 425.204(c)(1)(i) to remove the incorrect reference to 

“participation agreements” and replace it with “ACO participant agreements.” 
CMS-1461-P 18 

 Second, we propose to add the related definition of “ACO participant agreement.” 

Specifically, we propose to define “ACO participant agreement” to mean the written agreement 

between an ACO and an ACO participant required at § 425.116 in which the ACO participant 

agrees to participate in, and comply with, the requirements of the Shared Savings Program. 

 Third, as discussed in greater detail in section II.F. of this proposed rule, we propose to 

add a definition for “assignment window,” to mean the 12-month period used to assign 

beneficiaries to an ACO. 

2. Proposed Revisions to Existing Definitions 

a. Definition of ACO Participant 

 The current definition of “ACO participant” states that an “ACO participant means an 

individual or group of ACO provider(s)/supplier(s), that is identified by a Medicare-enrolled 

TIN, that alone or together with one or more other ACO participants comprise(s) an ACO, and 

that is included on the list of ACO participants that is required under § 425.204(c)(5).” Based on 

inquiries we have received since the publication of November 2011 final rule, we believe that 

there has been some confusion as to the distinction between an ACO participant and an ACO 

provider/supplier. The key point is that an ACO participant is an entity, not a practitioner, 

identified by a Medicare-enrolled TIN (that is, a TIN that is used to bill Medicare for services 

furnished to Medicare fee-for-service beneficiaries). An ACO participant may be composed of 

one or more ACO providers/suppliers whose services are billed under a Medicare billing number 

assigned to the TIN of the ACO participant. Additionally, we emphasize that the ACO is 

responsible for ensuring that all individuals and entities that have reassigned the right to receive 

Medicare payment to the TIN of the ACO participant have also agreed to be ACO 

providers/suppliers. 
CMS-1461-P 19 

 We propose to revise the definition of “ACO participant” to clarify that an ACO 

participant is an entity identified by a Medicare-enrolled TIN. Additionally, we are correcting a 

grammatical error by revising the definition to indicate that one or more ACO participants 

“compose,” rather than “comprise” an ACO. We note that a related grammatical error is 

corrected at § 425.204(c)(iv). These proposed changes to the definition of “ACO participant” are 

not intended to alter the way the Shared Savings Program currently operates. 

b. Definition of ACO Professional 

 Under the current definition at § 425.20, an “ACO professional” means an ACO 

provider/supplier who is either of the following: 

● A physician legally authorized to practice medicine and surgery by the State in which 

he performs such function or action. 

● A practitioner who is one of the following: 

 ++ A physician assistant (as defined at § 410.74(a)(2)). 

 ++ A nurse practitioner (as defined at § 410.75(b)). 

 ++ A clinical nurse specialist (as defined at § 410.76(b)). 

 We propose to revise the definition of ACO professional to remove the requirement that 

an ACO professional be an ACO provider/supplier. We also propose to revise the definition of 

ACO professional to indicate that an ACO professional is an individual who bills for items or 

services he or she furnishes to Medicare fee-for-service beneficiaries under a Medicare billing 

number assigned to the TIN of an ACO participant in accordance with Medicare regulations. We 

are proposing these modifications because there may be ACO professionals who furnished 

services billed through an ACO participant’s TIN in the benchmarking years but are no longer 

affiliated with the ACO participant and therefore are not furnishing services billed through the 
CMS-1461-P 20 

TIN of the ACO participant during the performance years. These proposed changes to the 

definition of “ACO professional” are not intended to alter the way the Shared Savings Program 

currently operates. 

c. Definition of ACO Provider/Supplier 

 Under the current definition at § 425.20, an “ACO provider/supplier” means an 

individual or entity that-- (1) is a provider (as defined at § 400.202) or a supplier (as defined at 

§ 400.202); (2) is enrolled in Medicare; (3) bills for items and services it furnishes to Medicare 

fee-for-service beneficiaries under a Medicare billing number assigned to the TIN of an ACO 

participant in accordance with applicable Medicare regulations; and (4) is included on the 

certified list of ACO providers/suppliers that is submitted by the ACO. We propose to modify 

the definition to clarify that an individual or entity is an ACO provider/supplier only when it bills 

for items and services furnished to Medicare FFS beneficiaries during the agreement period 

under a Medicare billing number assigned to the TIN of an ACO participant and is included on 

the list of ACO providers/suppliers that is required under the proposed regulation at § 425.118. 

We do not believe that an individual or entity that may previously have reassigned the right to 

receive Medicare payment to an ACO participant, but that is not participating in the activities of 

the ACO by furnishing care to Medicare FFS beneficiaries that is billed through the TIN of an 

ACO participant during the ACO’s agreement period, should be considered to be an ACO 

provider/supplier. Thus, this modification is intended to clarify that a provider or supplier must 

bill for items or services furnished to Medicare FFS beneficiaries through the TIN of an ACO 

participant during the ACO’s agreement period in order to be an ACO provider/supplier. 

d. Definition of Assignment 
CMS-1461-P 21 

 Under the current definition at § 425.20, “assignment” means “the operational process by 

which CMS determines whether a beneficiary has chosen to receive a sufficient level of the 

requisite primary care services from a physician who is an ACO provider/supplier so that the 

ACO may be appropriately designated as exercising basic responsibility for that beneficiary’s 

care.” As discussed previously in this section, we are proposing to modify the definition of 

“ACO professional” to remove the requirement that an ACO professional be an ACO 

provider/supplier. Similarly, we believe that for purposes of defining assignment, it is more 

appropriate to use the term “ACO professional,” as revised, than the term “ACO 

provider/supplier” because a physician or other practitioner can only be an ACO 

provider/supplier if he or she bills for items and services through the TIN of an ACO participant 

during the ACO’s agreement period and is included on the list of ACO providers/suppliers 

required under our regulations. However, as we discussed previously, there may be an ACO 

professional who furnished services billed through an ACO participant’s TIN in the 

benchmarking years but is no longer billing through the ACO participant’s TIN during the 

performance years and therefore cannot be considered an ACO provider/supplier. For example, 

a practitioner that retired before the ACO entered into a participation agreement with CMS and is 

no longer billing through the TIN of an ACO participant, and therefore was not included on the 

ACO provider/supplier list is not an ACO provider/supplier. Nevertheless, the services furnished 

by this ACO professional and billed through the TIN of an ACO participant would be considered 

for purposes of determining beneficiary assignment to the ACO during the benchmarking period. 

 In the interests of clarity, we therefore propose to modify the definition of assignment to 

reflect that our assignment methodology takes into account claims for primary care services 

furnished by ACO professionals, not solely claims for primary care services furnished by 
CMS-1461-P 22 

physicians in the ACO. This revision will ensure consistency with program operations and 

alignment with the definition of “ACO professional” since it is the aggregation of the ACO 

professionals’ claims that impacts assignment. Consistent with section 1899(c) of the Act, a 

beneficiary must have at least one primary care service furnished by a physician in the ACO in 

order to be eligible for assignment to the ACO, and this is reflected in the assignment 

methodology articulated under subpart E of the Shared Savings Program regulations. Once a 

beneficiary is determined to be eligible for assignment, the beneficiary is then assigned to the 

ACO if its ACO professionals have rendered the plurality of primary care services for the 

beneficiary as determined under the stepwise assignment methodology in § 425.402. Thus, we 

believe the proposed modification to the definition of “assignment” would more accurately 

reflect the use of claims for primary care services furnished by ACO professionals that are 

submitted through an ACO participant’s TIN in determining beneficiary assignment in the 

ACO’s benchmark and performance years. 

Additionally, we propose to make conforming changes as necessary to the regulations 

governing the assignment methodology in subpart E of part 425, to revise the references to 

“ACO provider/supplier” to read “ACO professional.” 

e. Definition of Hospital 

 We are proposing a technical revision to the definition of “hospital” for purposes of the 

Shared Savings Program. Section 1899(h)(2) of the Act provides that, for purposes of the Shared 

Savings Program, the term “hospital” means a subsection (d) hospital as defined in section 

1886(d)(1)(B) of the Act. In the November 2011 final rule (76 FR 67812), we stated that this 

statutory definition of hospital thus limits: “ . . . the definition to include only acute care 

hospitals paid under the hospital inpatient prospective payment system (IPPS).” Consistent with 
CMS-1461-P 23 

this interpretation, we proposed and finalized the following definition of “hospital” for purposes 

of the Shared Savings Program at § 425.20: “Hospital means a hospital subject to the 

prospective payment system specified in § 412.1(a)(1) of this chapter.” 

 Under this regulatory definition, Maryland acute care hospitals would not be considered 

to be hospitals for purposes of the Shared Savings Program because hospitals in the state of 

Maryland are subject to a waiver from the Medicare payment methodologies under which they 

would otherwise be paid. However, we have taken the position in other contexts, for example, 

for purposes of electronic health record (EHR) incentive payments (75 FR 44448) and in the 

FY 2014 IPPS final rule (78 FR 50623), that Maryland acute care hospitals remain subsection (d) 

hospitals. This is because these hospitals are “located in one of the fifty states or the District of 

Columbia” (as provided in the definition of subsection (d) hospitals at section 1886(d)(1)(B) of 

the Act) and are not hospitals that are specifically excluded from that category, such as cancer 

hospitals and psychiatric hospitals. 

 Therefore, we propose to revise the definition of “hospital” for purposes of the Shared 

Savings Program to provide that a “hospital” means a hospital as defined in section 

1886(d)(1)(B) of the Act. The proposed regulation text is consistent with both the statutory 

definition of “hospital” for purposes of the Shared Savings Program in section 1899(h)(2) of the 

Act and the position we have taken in other contexts in referring to subsection (d) hospitals. The 

effect of this change is to clarify that a Maryland acute care hospital is a “hospital” for purposes 

of the Shared Savings Program. 

f. Definition of Primary Care Services 
CMS-1461-P 24 

 We propose to modify the definition of “primary care services.” We refer the reader to 

section II.E.3. of this proposed rule for a more detailed discussion of the proposed revision to 

this definition, which is relevant to the assignment of a Medicare beneficiary to an ACO. 

g. Definitions of Continuously Assigned Beneficiary” and “Newly Assigned Beneficiary 

 As discussed in greater detail in section II.F.3.b. of this proposed rule, we propose 

revisions to the definitions of “continuously assigned beneficiary” and “newly assigned 

beneficiary.” These definitions relate to risk adjustment for the assigned population and require 

minor modification to accommodate the newly proposed Track 3. 

h. Definition of Agreement Period 

 In connection with our discussion of the applicability of certain changes that are made to 

program requirements during the agreement period, we propose revisions to the definition of 

“agreement period.” Readers should refer to section II.C.4. of this proposed rule for a discussion 

of the proposed changes to the definition. 

B. ACO Eligibility Requirements 

1. Agreement Requirements 

a. Overview 

 Section 1899(b)(2)(B) of the Act requires participating ACOs to “enter into an agreement 

with the Secretary to participate in the program for not less than a 3-year period.” If the ACO is 

approved for participation in the Shared Savings Program, an executive who has the ability to 

legally bind the ACO must sign and submit a participation agreement to CMS (§ 425.208(a)(1)). 

Under the participation agreement with CMS, the ACO agrees to comply with the regulations 

governing the Shared Savings Program (§ 425.208(a)(2)). In addition, the ACO must require its 

ACO participants, ACO providers/suppliers, and other individuals or entities performing 
CMS-1461-P 25 

functions or services related to the ACO’s activities to agree to comply with the Shared Savings 

Program regulations and all other applicable laws and regulations (§ 425.208(b) and 

§ 425.210(b)). The ACO must provide a copy of its participation agreement with CMS to all 

ACO participants, ACO providers/suppliers, and other individuals and entities involved in ACO 

governance (§ 425.210(a)). As part of its application, we currently require each ACO to submit 

a sample of the agreement it executes with each of its ACO participants (the “ACO participant 

agreement”). Also, as part of its application and when requesting the addition of new ACO 

participants, we require an ACO to submit evidence that it has a signed written agreement with 

each of its ACO participants. (See guidance on our website at 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Downloads/Memo_Additional_Guidance_on_ACO_Participants

.pdf ) An ACO’s application to participate in the Shared Savings Program and any subsequent 

request to add new ACO participants will not be approved if the ACO does not have an 

agreement in place with each of its ACO participants in which each ACO participant agrees to 

participate in the Shared Savings Program and to comply with the requirements of the Shared 

Savings Program. 

 In our review of applications to participate in the Shared Savings Program, we received 

many ACO participant agreements that were not properly executed, were not between the correct 

parties, lacked the required provisions, contained incorrect information, or failed to comply with 

§ 425.304(c) relating to the prohibition on certain required referrals and cost shifting. When we 

identified such agreements, ACOs experienced processing delays, and in some cases, we were 

unable to approve the ACO applicant and/or its ACO participant to participate in the Shared 

Savings Program. Consequently, we issued guidance for ACO applicants in which we reiterated 
CMS-1461-P 26 

the required elements for ACO participant agreements and strongly recommended that ACOs 

employ good contracting practices to ensure that each of their ACO participant agreements met 

our requirements (see http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Downloads/Tips-ACO-Developing-ParticipantAgreements.pdf). 

 The ACO participant agreements are necessary for purposes of program transparency and 

to ensure an ACO’s compliance with program requirements. Moreover, many important 

program operations (including calculation of shared savings, assignment of beneficiaries, and 

financial benchmarking), use claims and other information that are submitted to CMS by the 

ACO participant. Our guidance clarified that ACO participant agreements and any agreements 

with ACO providers/suppliers must contain the following: 

● An explicit requirement that the ACO participant or the ACO provider/supplier will 

comply with the requirements and conditions of the Shared Savings Program (part 425), 

including, but not limited to, those specified in the participation agreement with CMS. 

● A description of the ACO participants’ and ACO providers’/suppliers’ rights and 

obligations in and representation by the ACO. 

● A description of how the opportunity to get shared savings or other financial 

arrangements will encourage ACO participants and ACO providers/suppliers to follow the 

quality assurance and improvement program and evidence-based clinical guidelines. 

● Remedial measures that will apply to ACO participants and ACO providers/suppliers 

who do not comply with the requirements of their agreements with the ACO. 

 Our guidance also requires that the ACO participant agreements be made directly 

between the ACO and the ACO participant. We believe it is important that the parties entering 
CMS-1461-P 27 

into the agreement have a direct legal relationship to ensure that the requirements of the 

agreement are fully and directly enforceable by the ACO, including the ability of the ACO to 

terminate an agreement with an ACO participant that is not complying with the requirements of 

the Shared Savings Program. Additionally, a direct legal relationship ensures that the ACO 

participant may, if necessary, terminate the agreement with the ACO according to the terms of 

the agreement without interrupting other contracts or agreements with third parties. Therefore, 

the ACO and the ACO participant must be the only parties to an ACO participant agreement; the 

agreements may not include a third party to the agreement. For example, the agreement may not 

be between the ACO and another entity, such as an independent practice association (IPA) or 

management company that in turn has an agreement with one or more ACO participants. 

Similarly, existing contracts between ACOs and ACO participants that include third parties 

should not be used. 

 We recognize that there are existing contractual agreements between entities (for 

example, contracts that permit organizations like IPAs to negotiate contracts with health care 

payers on behalf of individual practitioners). However, because it is important to ensure that 

there is a direct legal relationship between the ACO and the ACO participant evidenced by a 

written agreement, and because ACO participants continue to bill and receive payments as usual 

under the Medicare FFS rules (that is, there is no negotiation for payment under the program) we 

believe that typical IPA contracts are generally inappropriate and unnecessary for purposes of 

participation in the Shared Savings Program. An ACO and ACO participant may use a contract 

unrelated to the Shared Savings Program as an ACO participant agreement only when it is 

between the two parties and is amended to satisfy the requirements for ACO participant 

agreements under the Shared Savings Program. 
CMS-1461-P 28 

 It is the ACO’s responsibility to make sure that each ACO participant agreement 

identifies the parties entering into the agreement using their correct legal names, specifies the 

term of the agreement, and is signed by both parties to the agreement. We validate the legal 

names of the parties based on information the ACO submitted in its application and the legal 

name of the entity associated with the ACO participant’s TIN in the Provider Enrollment Chain 

& Ownership System (PECOS). We reject an ACO participant agreement if the party names do 

not match our records. It may be necessary for the ACO to execute a new or amended ACO 

participant agreement. 

 Although the ACO participant must ensure that each of its ACO providers/suppliers (as 

identified by a National Provider Identifier (NPI)) has agreed to participate in the ACO and will 

comply with program rules, the ACO has the ultimate responsibility for ensuring that all the 

ACO providers/suppliers that bill through the TIN of the ACO participant (that is, reassign their 

right to receive Medicare payment to the ACO participant) have also agreed to participate in the 

Shared Savings Program and comply with our program regulations. The ACO may ensure this 

by directly contracting with each ACO provider/supplier (NPI) or by contractually requiring the 

ACO participant to ensure that all ACO providers/suppliers that bill through its TIN have agreed 

to participate in, and comply with the requirements of, the Shared Saving Program. If the ACO 

chooses to contract directly with the ACO providers/suppliers, the agreements must meet the 

same requirements as the agreements with ACO participants. We emphasize that even if an 

ACO chooses to contract directly with the ACO providers/suppliers (NPIs), it must still have the 

required ACO participant agreement. In other words, the ACO must be able to produce valid 

written agreements for each ACO participant and each ACO provider/supplier. Furthermore, 

since we use TINs (and not merely some of the NPIs that make up the entity identified by a TIN) 
CMS-1461-P 29 

as the basis for identifying ACO participants, and we use all claims submitted under an ACO 

participant’s TIN for financial calculations and beneficiary assignment, an ACO may not include 

an entity as an ACO participant unless all Medicare enrolled providers and suppliers billing 

under that entity’s TIN have agreed to participate in the ACO as ACO providers/suppliers. 

 To illustrate the requirement that all ACO providers/suppliers must agree to participate in 

and comply with the terms of the Shared Savings Program before the ACO can include the ACO 

participant’s TIN on its list of ACO participants, we offer the following scenarios that describe 

when an ACO participant’s TIN may and may not be included on the applicant’s ACO 

participant list: 

 Correct: A large group practice (Medicare-enrolled TIN) decides to participate in an 

ACO as an ACO participant. Its owner signs an agreement with the ACO on behalf of the 

practice to participate in the program and follow program regulations. Also, all practitioners that 

have reassigned their right to receive Medicare payments to the TIN of the large group practice 

have also agreed to participate and follow program regulations. Therefore, the ACO may include 

this group practice TIN on its list of ACO participants. 

 Incorrect: A large group practice (Medicare-enrolled TIN) decides to participate in an 

ACO as an ACO participant. Its owner signs an agreement to participate in the program and 

follow program regulations. However, not all practitioners that have reassigned their right to 

receive Medicare payment to the group practice TIN have agreed to participate in the ACO and 

follow Shared Savings Program regulations. Therefore, the ACO may not include this group 

practice TIN on its list of ACO participants. 

 Incorrect: Several practitioners in a large group practice (Medicare-enrolled TIN) decide 

to participate in an ACO. However, the group practice as a whole has not agreed to participate in 
CMS-1461-P 30 

the program. Therefore, the ACO may not include this group practice TIN on its list of ACO 

participants. 

 We propose to codify much of our guidance regarding the content of the ACO participant 

and ACO provider/supplier agreements. 

b. Proposed Revisions 

 First, we propose to add new § 425.116 to set forth the requirements for agreements 

between an ACO and an ACO participant or ACO provider/supplier. We believe the new 

provision would promote a better general understanding of the Shared Savings Program and 

transparency for ACO participants and ACO providers/suppliers. It is our intent to provide 

requirements that would facilitate and enhance the relationships between ACOs and ACO 

participants, and reduce uncertainties and misunderstandings leading to rejection of ACO 

participant agreements during application review. Specifically, we propose to require that ACO 

participant agreements satisfy the following criteria: 

● The ACO and the ACO participant are the only parties to the agreement. 

● The agreement must be signed on behalf of the ACO and the ACO participant by 

individuals who are authorized to bind the ACO and the ACO participant, respectively. 

● The agreement must expressly require the ACO participant to agree, and to ensure that 

each ACO provider/supplier billing through the TIN of the ACO participant agrees, to participate 

in the Shared Savings Program and to comply with the requirements of the Shared Savings 

Program and all other applicable laws and regulations (including, but not limited to, those 

specified at § 425.208(b)). 

● The agreement must set forth the ACO participant’s rights and obligations in, and 

representation by, the ACO, including without limitation, the quality reporting requirements set 
CMS-1461-P 31 

forth in Subpart F, the beneficiary notification requirements set forth at § 425.312, and how 

participation in the Shared Savings Program affects the ability of the ACO participant and its 

ACO providers/suppliers to participate in other Medicare demonstration projects or programs 

that involve shared savings. 

● The agreement must describe how the opportunity to receive shared savings or other 

financial arrangements will encourage the ACO participant to adhere to the quality assurance and 

improvement program and evidence-based medicine guidelines established by the ACO. 

● The agreement must require the ACO participant to update enrollment information 

with its Medicare contractor using the PECOS, including the addition and deletion of ACO 

professionals billing through the TIN of the ACO participant, on a timely basis in accordance 

with Medicare program requirements. The Agreement must also require ACO participants to 

notify the ACO within 30 days after any addition or deletion of an ACO provider/supplier. 

● The agreement must permit the ACO to take remedial action against the ACO 

participant, and must require the ACO participant to take remedial action against its ACO 

providers/suppliers, including imposition of a corrective action plan, denial of shared savings 

payments (that is, the ability of the ACO participant or ACO provider/supplier to receive a 

distribution of the ACO’s shared savings) and termination of the ACO participant agreement, to 

address noncompliance with the requirements of the Shared Savings Program and other program 

integrity issues, including those identified by CMS. 

● The term of the agreement must be for at least 1 performance year and must articulate 

potential consequences for early termination from the ACO. 

● The agreement must require completion of a close-out process upon the termination or 

expiration of the ACO’s participation agreement that requires the ACO participant to furnish 
CMS-1461-P 32 

data necessary to complete the annual assessment of the ACO’s quality of care and addresses 

other relevant matters. 

 Although we propose that the term of an ACO participant agreement be for at least 1 

performance year, we do not intend to prohibit early termination of the agreement. We 

recognize that there may be legitimate reasons to terminate an ACO participant agreement. 

However, because care coordination and quality improvement requires commitment from ACO 

participants, we believe this requirement would improve the likelihood of success in the Shared 

Savings Program. We are also considering whether and how ACO participant agreements should 

encourage participation to continue for subsequent performance years. We seek comment on this 

issue. 

 In the case of an ACO that chooses to contract directly with its ACO providers/suppliers, 

we propose virtually identical requirements for its agreements with ACO providers/suppliers. 

We note that agreements with ACO providers/suppliers would not be required to be for a term of 

1 year, because we do not want to impede individual practitioners from activities such as 

retirement, reassignment of billing rights, or changing employers. In the case of ACO 

providers/suppliers that do not have a contract directly with the ACO, we are considering 

requiring each ACO to ensure that its ACO participants contract with or otherwise arrange for 

the services of its ACO providers/suppliers on the same or similar terms as those required for 

contracts made directly between the ACO and ACO providers/suppliers. 

 In addition, we propose to add at § 425.204(c)(6) a requirement that, as part of the 

application process and upon request thereafter, the ACO must submit documents demonstrating 

that its ACO participants, ACO providers/suppliers, and other individuals or entities performing 

functions or services related to ACO activities are required to comply with the requirements of 
CMS-1461-P 33 

the Shared Savings Program. In the case of ACO participants, the evidence to be submitted 

must, consistent with our past guidance, include executed agreements or sample form agreements 

together with the first and last (signature) page of each form agreement that has been fully 

executed by the parties to the agreement. However, we reserve the right, to request all pages of 

an executed ACO participant agreement to confirm that it conforms to the sample form 

agreement submitted by the ACO. We further propose at § 425.116(c) that executed ACO 

participant agreements must also be submitted when an ACO seeks approval to add new ACO 

participants. The agreements may be submitted in the same form and manner as set forth in 

§ 425.204(c)(6). Finally, although we would not routinely request an ACO to submit copies of 

executed agreements with its ACO providers/suppliers or other individuals or entities performing 

functions or services related to ACO activities as part of the ACO’s application or continued 

participation in each performance year, we reserve our right to request this information during 

the application or renewal process and at any other time for audit or monitoring purposes in 

accordance with § 425.314 and § 425.316. 

 We believe that the proposed requirements regarding agreements between ACOs and 

ACO participants, together with our earlier guidance regarding good contracting practices, would 

enhance transparency between the ACO, ACO participants, and ACO professionals, reduce 

turnover among ACO participants, prevent misunderstandings related to participation in the 

Shared Savings Program, and assist prospective ACOs in submitting complete applications and 

requests for adding ACO participants. We believe that codifying these requirements would assist 

the ACO, ACO participants, and ACO providers/suppliers in better understanding the program 

and their rights and responsibilities while participating in the program. We solicit comment on 

the proposed new requirements and on whether there are additional elements that should be 
CMS-1461-P 34 

considered for inclusion in the agreements the ACO has with its ACO participants and ACO 

providers/suppliers. 

2. Sufficient Number of Primary Care Providers and Beneficiaries

a. Overview 

Section 1899(b)(2)(D) of the Act requires participating ACOs to “include primary care 

ACO professionals that are sufficient for the number of Medicare fee-for-service beneficiaries 

assigned to the ACO ...” and that at a minimum, “the ACO must have at least 5,000 such 

beneficiaries assigned to it . . . .” Under § 425.110(a)(2) of the regulations, an ACO is deemed to 

have initially satisfied the requirement to have at least 5,000 assigned beneficiaries if the number 

of Medicare beneficiaries historically assigned to the ACO participants in each of the 3 years 

before the start of the agreement period is 5,000 or more. 

Under the beneficiary assignment methodology set forth in the regulations at part 425, 

subpart E, the assignment of beneficiaries to a particular ACO for a calendar year is dependent 

upon a number of factors, including where the beneficiary elected to receive primary care 

services and whether the beneficiary received primary care services from ACO professionals 

participating in one or more Shared Savings Program ACOs. We note that to ensure no 

duplication in shared savings payments for care provided to the same beneficiaries, assignment 

of a beneficiary may also be dependent on whether the beneficiary has been assigned to another 

initiative involving shared savings, such as the Pioneer ACO Model (§ 425.114(c)). While a 

final assignment determination can be made for the first 2 benchmark years (BY1 and BY2, 

respectively) for an ACO applying to participate in the Shared Savings Program, it is not 

possible to determine the final assignment for the third benchmark year (BY3) (that is, the 

calendar year immediately prior to the start of the agreement period) because application review 
CMS-1461-P 35 

and determination of whether the ACO has met the required 5,000 assignment must take place 

during BY3 before all claims are submitted for the calendar year. Further, there is a lag period 

after the end of a calendar year during which additional claims for the year are billed and 

processed. Therefore, the final historical benchmark for the 3-year period and the preliminary 

prospective assignment for PY1 must be determined after the ACO’s agreement period has 

already started. We note that we currently estimate the number of historically assigned 

beneficiaries for the third benchmark year for Tracks 1 and 2 by using claims with dates of 

service for the last 3 months of benchmark year 2 (October through December) and the first 9 

months of benchmark year 3 (January through September, with up to 3 months claims run out, as 

available). We use this approach to calculate the number of assigned beneficiaries for BY3 in 

order to be as consistent as possible with the timeframes (that is, 12 month period) and claims 

run out used for the BY1 and BY2 calculations. 

Section 425.110(b) provides that an ACO that falls below 5,000 assigned beneficiaries at 

any time during the agreement period will be allowed to continue in the program, but CMS must 

issue a warning letter and place the ACO on a CAP. The purpose of this provision is to ensure 

that the ACO is aware that its number of assigned beneficiaries is below 5,000, is notified of the 

consequences of remaining under 5,000, and that the ACO is taking appropriate steps to correct 

the deficiency. 

Section 425.110(b)(1) provides that, while under the CAP, the ACO will remain eligible 

to share in savings for the performance year in which it fell below the 5,000, and the MSR will 

be adjusted according to the number of assigned beneficiaries determined at the time of 

reconciliation. For example, according to Table 6 in the November 2011 final rule 

(42 FR 67928), a Track 1 ACO with an assigned population of 5,000 would have an MSR of 3.9. 
CMS-1461-P 36 

If the ACO’s number of assigned beneficiaries falls below 5,000, we would work with the CMS 

Office of the Actuary to determine the MSR for the number of beneficiaries below 5,000, set at 

the same 90 percent confidence interval that is used to determine an ACO’s MSR when the ACO 

has a smaller assigned beneficiary population. If the number of beneficiaries assigned to the 

ACO remains less than 5,000 by the end of the next performance year, the ACO is terminated 

and is not be permitted to share in savings for that performance year (§425.110(b)(2)). 

b. Proposed Revisions 

First, we propose to revise § 425.110(a)(2) to clarify the data used during the application 

review process to estimate the number of beneficiaries historically assigned in each of the 3 

years of the benchmarking period. Specifically, we propose that the number of assigned 

beneficiaries would be calculated for each benchmark year using the assignment methodology 

set forth in Subpart E of part 425, and in the case of BY3, we would use the most recent data 

available with up to a 3-month claims run out to estimate the number of assigned beneficiaries. 

This proposed revision would reflect current operational processes under which we assign 

beneficiaries to ACOs using complete claims data for BY1 and BY2 but must rely on incomplete 

claims data for BY3. We would likely continue to estimate the number of historically assigned 

beneficiaries for the third benchmark year by using claims with dates of service for the last 3 

months of BY2 and the first 9 months of BY3, with up to 3 months claims run out. However, 

that could vary from year to year depending on data availability during the application review 

process. As discussed previously, we believe that using this approach to calculate the number of 

assigned beneficiaries for BY3 is consistent with the timeframes and claims run out used for 

BY1 and BY2 calculations because we would be using a full 12 months of claims, rather than the 

only available claims for the calendar year, which would be less than 12 months. 
CMS-1461-P 37 

The estimates of the number of assigned beneficiaries would be used during the ACO 

application review process to determine whether the ACO exceeds the 5,000 assigned 

beneficiary threshold for each year of the historical benchmark period. If based upon these 

estimates, we determine that an ACO had at least 5,000 assigned beneficiaries in each of the 

benchmark years, it would be deemed to have initially satisfied the eligibility requirement that 

the ACO have at least 5,000 assigned beneficiaries. The specific data to be used for computing 

these initial estimates during the ACO application review process would be designated through 

program instructions and guidance. Although unlikely, it is possible that when final benchmark 

year assignment numbers are generated after the ACO has been accepted into the program, the 

number of assigned beneficiaries could be below 5,000. In this event, the ACO will be allowed 

to continue in the program, but may be subject to the actions set forth in § 425.110(b). 

Second, given our experience with the program and the timing of performance year 

determinations regarding beneficiary assignment provided during reconciliation, we wish to 

modify our rules to provide greater flexibility to address situations in which an ACO’s assigned 

beneficiary population falls below 5,000 assigned beneficiaries. Specifically, we have concerns 

that in some cases it may be very difficult for an ACO to increase its number of assigned 

beneficiaries by the end of the next performance year, as currently required by § 425.110(b)(2). 

For example, assume an ACO with a start date of January 2013 were to get its third quarterly 

report for PY1 in November or December 2013, and the report indicated that the ACO’s 

preliminary prospectively assigned beneficiary population had fallen below 5,000. Under our 

current regulations, we would send the ACO a warning letter and place the ACO on a CAP. If 

the ACO were to fail to increase its assigned beneficiary population to at least 5,000 by the end 

of the next performance year (PY2), it would be terminated. We note that increasing the number 
CMS-1461-P 38 

of assigned beneficiaries generally involves adding new ACO participants and/or ACO 

providers/suppliers. However, in the previous example, by the time the ACO had been notified 

that its assigned beneficiary population had fallen below 5,000 beneficiaries, it would have been 

too late for the ACO to add new ACO participants for PY2, leaving the ACO with more limited 

options for timely correction of the deficit. We believe that § 425.110(b) should be modified to 

provide ACOs with adequate time to successfully complete a CAP. Therefore, we propose to 

revise § 425.110(b)(2) to state that CMS will specify in its request for a CAP the performance 

year during which the ACO’s assigned population must meet or exceed 5,000 beneficiaries. This 

modification would permit some flexibility for ACOs whose assigned populations fall below 

5,000 late in a performance year to take appropriate actions to address the deficit. 

Additionally, we do not believe it is necessary to request a CAP from every ACO whose 

assigned beneficiary population falls below 5,000. For example, we should have the discretion 

not to impose a CAP when the ACO has already submitted a request to add ACO participants 

effective at the beginning of the next performance year and CMS has a reasonable expectation 

that the addition of these new ACO participants would increase the assigned beneficiary 

population above the 5,000 minimum beneficiary threshold. Therefore, we propose to revise 

§ 425.110(b) to indicate that we have the discretion whether to impose any remedial measures or 

to terminate an ACO for failure to satisfy the minimum assigned beneficiary threshold. 

Specifically, we propose to revise § 425.110(b) to state that the ACO “may” be subject to any of 

the actions described in § 425.216 (actions prior to termination, including a warning letter or 

request for CAP) and § 425.218 (termination). However, we note that although we are proposing 

to retain discretion as to whether to impose remedial measures or terminate an ACO whose 

assigned beneficiary population falls below 5,000, we recognize that the requirement that an 
CMS-1461-P 39 

ACO have at least 5,000 assigned beneficiaries is a condition of eligibility to participate in the 

Shared Savings Program under § 1899(b)(2)(D), and would exercise our discretion accordingly 

and consistently. 

3. Identification and Required Reporting of ACO Participants and ACO Providers/Suppliers 

a. Overview 

 For purposes of the Shared Savings Program, an ACO is an entity that is identified by a 

TIN and comprised of one or more Medicare-enrolled TINs associated with ACO participants 

(see § 425.20). The Medicare-enrolled TINs of ACO participants, in turn, are associated with 

Medicare enrolled individuals and entities that bill through the TIN of the ACO participant. (For 

example, in the case of a physician, the physician has reassigned to the TIN of the ACO 

participant his or her right to receive Medicare payments, and their services to Medicare 

beneficiaries are billed by the ACO participant under a billing number assigned to the TIN of the 

ACO participant). 

As part of the application process and annually thereafter, the ACO must submit a 

certified list identifying all of its ACO participants and their Medicare-enrolled TINs (the “ACO 

participant list”) (§ 425.204(c)(5)(i)). Additionally, for each ACO participant, the ACO must 

submit a list identifying all ACO providers/suppliers (including their NPIs or other provider 

identifiers) that bill Medicare during the agreement period under a billing number assigned to the 

TIN of an ACO participant (the “ACO provider/supplier list”) (§ 425.204(c)(5)(i)(A)). Our 

regulations require the ACO to indicate on the ACO provider/supplier list whether an individual 

is a primary care physician as defined at § 425.20. All Medicare enrolled individuals and entities 

that bill through an ACO participant’s TIN during the agreement period must be on the certified 

ACO provider/supplier list and agree to participate in the ACO. ACOs are required to maintain, 
CMS-1461-P 40 

update, and annually furnish the ACO participant and ACO provider/supplier lists to CMS at the 

beginning of each performance year and at such other times as may be specified by CMS 

(§ 425.304(d)). 

We use TINs identified on the ACO participant list to identify claims billed to Medicare 

in order to support the assignment of Medicare fee-for-service beneficiaries to the ACO, the 

implementation of quality and other reporting requirements, and the determination of shared 

savings and losses (see section 1899(b)(2)(E) of the Act). We also use the ACO’s initial (and 

annually updated) ACO participant list to: identify parties subject to the screenings under 

§ 425.304(b); determine whether the ACO satisfies the requirement to have a minimum of 5,000 

assigned beneficiaries; establish the historical benchmark; perform financial calculations 

associated with quarterly and annual reports; determine preliminary prospective assignment for 

and during the performance year; determine a sample of beneficiaries for quality reporting; and 

coordinate participation in the Physician Quality Reporting System (PQRS) under the Shared 

Savings Program. Both the ACO participant and ACO provider/supplier lists are used to ensure 

compliance with program requirements. We refer readers to our guidance at 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Updating-ACO-Participant-List.html for more information. 

In this section, we discuss current policy and procedures regarding the identification and 

required reporting of ACO participants and ACO providers/suppliers. In addition, we propose 

revisions to our regulations to improve program transparency by ensuring that all ACO 

participants and ACO providers/suppliers are accurately identified. 

b. Proposed Revisions 
CMS-1461-P 41 

 In order to administer the Shared Savings Program, we need to identify accurately the 

ACO participants and ACO providers/suppliers associated with each ACO that participates in the 

program. An accurate understanding of the ACO participants is critical for assignment of 

beneficiaries to the ACO as well as assessing the quality of care provided by the ACO to its 

assigned beneficiaries. An accurate understanding of the ACO providers/suppliers is also critical 

for ensuring compliance with program rules. We believe that this information is equally critical 

to the ACO for its own operational and compliance purposes. Thus, both CMS and the ACO 

need to have a common understanding of the individuals and entities that comprise the ACO 

participants and ACO providers/suppliers in the ACO. We obtain this common understanding by 

requiring the ACO to certify the accuracy of its ACO participant and ACO provider/supplier lists 

prior to the start of each performance year and to update the lists as changes occur during the 

performance year. Because we rely on these lists for both operational and program integrity 

purposes, we must have a transparent process that results in the accurate identification of all 

ACO participants and ACO providers/suppliers that compose each ACO in the Shared Savings 

Program. 

 We propose to add a new § 425.118 to reflect with more specificity the requirements for 

submitting ACO participant and ACO provider/supplier lists and the reporting of changes to 

those lists. In addition, we propose to revise § 425.204(c)(5) and to remove § 425.214(a) and 

§ 425.304(d) because these provisions are addressed in new § 425.118. 

(1) Certified Lists of ACO Participants and ACO Providers/Suppliers 

 We intend to continue to require ACOs to maintain, update and submit to CMS accurate 

and complete ACO participant and ACO provider/supplier lists, but are proposing to establish 

new § 425.118 to set forth the requirements and processes for maintaining, updating, and 
CMS-1461-P 42 

submitting the required ACO participant and ACO provider/supplier lists. New § 425.118 would 

consolidate and revise provisions at § 425.204(c)(5), § 425.214(a) and § 425.304(d) regarding 

the ACO participant and ACO provider/supplier lists. Specifically, we propose at § 425.118(a) 

that prior to the start of the agreement period and before each performance year thereafter, the 

ACO must provide CMS with a complete and certified list of its ACO participants and their 

Medicare-enrolled TINs. We would use this ACO participant list to identify the Medicareenrolled individuals and entities that are affiliated with the ACO participant’s TIN in PECOS, 

the CMS enrollment system. Because these individuals and entities are currently billing through 

the Medicare enrolled TIN identified by the ACO as an ACO participant, they must be included 

on the ACO provider/supplier list. We would provide the ACO with a list of all ACO 

providers/suppliers (NPIs) that we have identified as billing through each ACO participant’s 

Medicare-enrolled TIN. In accordance with § 425.118(a), the ACO would be required to review 

the list, make any necessary corrections, and certify the lists of all of its ACO participants and 

ACO providers/suppliers (including their TINs and NPIs) as true, accurate, and complete. In 

addition, we propose that an ACO must submit certified ACO participant and ACO 

provider/supplier lists at any time upon CMS request. We note that all NPIs that reassign their 

right to receive Medicare payment to an ACO participant must be on the certified list of ACO 

providers/suppliers and must agree to be ACO providers/suppliers. We propose to clarify this 

point in regulations text at § 425.118(a)(4). 

 Finally, in accordance with developing and certifying the ACO participant and 

provider/supplier lists, we propose at § 425.118(d) to require the ACO to report changes in ACO 

participant and ACO provider/supplier enrollment status in PECOS within 30 days after such 

changes have occurred (for example, to report changes in an ACO provider’s/supplier’s 
CMS-1461-P 43 

reassignment of the right to receive Medicare payment or revocation of billing rights). This 

requirement corresponds with our longstanding policy that requires enrolled providers and 

suppliers to notify their Medicare contractors through PECOS within specified timeframes for 

certain reportable events. We recognize that PECOS is generally not accessible to ACOs to 

make these changes directly because most ACOs are not enrolled in Medicare. Therefore, an 

ACO may satisfy the requirement to update PECOS throughout the performance year by 

requiring its ACO participants to submit the required information directly in PECOS within 30 

days after the change, provided that the ACO participant actually submits the required 

information within 30 days. We propose to require ACOs to include language in their ACO 

participant agreements (discussed in section II.B.1. of this proposed rule) to ensure compliance 

with this requirement. We are not proposing to change the current 30-day timeframe required for 

such reporting in PECOS. These changes are consistent with the current requirements regarding 

ACO participant and ACO provider/supplier list updates under § 425.304(d) and we believe that 

they would enhance transparency and accuracy within the Shared Savings Program. We further 

propose to remove § 425.304(d) because the requirements, although not modified, would be 

incorporated into new § 425.118(d). 

 This revised process should afford the ACO the opportunity to work with its ACO 

participants to identify its ACO providers/suppliers and to ensure compliance with Shared 

Savings Program requirements. Currently, we also require the ACO to indicate whether the 

ACO provider/supplier is a primary care physician as defined in § 425.20. Because this 

information is derived from the claims submitted under the ACO participant’s TINs (FQHCs and 

RHCs being the exception), we have found this unnecessary to implement the program, so we 

are proposing to remove this requirement, which currently appears in § 425.204(c)(5)(i)(A). 
CMS-1461-P 44 

(2) Managing Changes to ACO Participants 

 Except for rare instances, such as the cessation of ACO participant operations or 

exclusion from the Medicare program, we expect ACO participants to remain in the ACO for the 

entire 3 year agreement period. This is due to our belief that care coordination and quality 

improvement require the commitment of ACO participants. Moreover, as noted previously, we 

utilize the ACO participant list, among other things, for assigning beneficiaries to the ACO, 

determining the ACO’s benchmark and performance year expenditures, and drawing the sample 

for ACO quality reporting. Nevertheless, we understand that there are legitimate reasons why an 

ACO may need to update its list of ACO participants during the 3-year agreement period. Thus, 

under current § 425.214(a), an ACO may add or remove ACO participants (identified by TINs) 

throughout a performance year, provided that it notifies CMS within 30 days of such addition or 

removal. 

 If such changes occur, we may, at our discretion, adjust the ACO’s benchmark, risk 

scores, and preliminary prospective assignment (§ 425.214(a)(3)). We articulated the timing of 

these changes in our guidance (http://cms.gov/Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Updating-ACO-Participant-List.html), which states that we 

adjust the ACO’s historical benchmark at the start of a performance year if the ACO participant 

list that the ACO certified at the start of that performance year differs from the one it certified at 

the start of the prior performance year. We use the updated certified ACO participant list to 

assign beneficiaries to the ACO in the benchmark period (the 3 years prior to the start of the 

ACO’s agreement period) in order to determine the ACO’s adjusted historical benchmark. Our 

guidance provides that, as a result of changes to the ACO’s certified ACO participant list, we 

may adjust the historical benchmark upward or downward. We use the new annually certified 
CMS-1461-P 45 

list of ACO participants and the adjusted benchmark for the following program operations: the 

new performance year’s assignment; quality measurement and sampling; reports for the new 

performance year; and financial reconciliation. We provide ACOs with the adjusted Historical 

Benchmark Report reflecting these changes. 

 However, our guidance stated that absent unusual circumstances, changes in ACO 

participants that occur in the middle of a performance year will not result in midyear changes to 

assignment, sampling for quality reporting, financial reconciliation, or other matters. As 

indicated in our guidance, the midyear removal of an entity from the ACO participant list due to 

program integrity issues is one unusual circumstance that could result in midyear changes to 

assignment and other matters. Finally, our guidance states that we do not make adjustments 

upon Medicare payment changes such as wage-index adjustments, or the addition or deletion of 

ACO participants during the course of the performance year made by the ACO and ACO 

participants. 

We propose to add new provisions at § 425.118(b) to address the procedures for adding 

and removing ACO participants during the agreement period. These proposals revise the 

regulations to incorporate some of the important policies that we have implemented through our 

operational guidance as well as some additional proposals to ease the administrative burden 

generated by the magnitude of changes made to ACO participant lists to date. 

First, we propose under § 425.118(b)(1) that an ACO must submit a request to add a new 

entity to its ACO participant list in the form and manner specified by CMS and that CMS must 

approve additions to the ACO participant list before they can become effective. We do not 

believe ACO participants should be admitted into the program if, for example, the screening 

conducted under § 425.304(b) reveals that the entity has a history of program integrity issues, or 
CMS-1461-P 46 

if the ACO participant agreement with the entity does not comply with program requirements, or 

if the entity is participating in another Medicare shared savings initiative (§ 425.114). If CMS 

denies the request to add an entity to the ACO participant list, then the entity is not eligible to 

participate in the ACO for the upcoming performance year. 

 Second, we propose that, if CMS approves the request, the entity will be added to the 

ACO participant list at the beginning of the following performance year. That is, entities that are 

approved for addition to the ACO participant list will not become ACO participants, and their 

claims would not be considered for purposes of benchmarking, assignment and other operational 

purposes, until the beginning of the next performance year. For example, if an ACO notifies 

CMS of the addition of an entity in June of the second performance year (PY2), the entity would 

not become an ACO participant and its claims would not be included in program operations until 

January 1 of PY3 if CMS approves the entity’s addition. 

Third, we propose that an ACO must notify CMS no later than 30 days after the date of 

termination of the entity’s ACO participant agreement. The ACO may notify CMS in advance of 

such termination. The ACO must submit the notice of removal, which must include the date of 

termination, in the form and manner specified by CMS. We propose that the removal of the 

ACO participant from the ACO participant list would be effective on the date of termination of 

the ACO participation agreement. 

We propose at § 425.118(b)(3)(i) that changes made by an ACO to its annually certified 

ACO participant list would result in adjustments to its historical benchmark, assignment, quality 

reporting sample, and the obligation of the ACO to report on behalf of eligible professionals for 

certain CMS quality initiatives. We would annually adjust the ACO’s benchmark calculations to 

include (or exclude) the claims submitted during the benchmark years by the newly added (or 
CMS-1461-P 47 

removed) ACO participants. In other words, the annually certified ACO participant list is used 

under Subparts E (assignment of beneficiaries), F (quality performance assessment), and G 

(calculation of shared savings/losses) for the performance year. For example, if an ACO began 

program participation in 2013, the PY1 certified list generates an historical benchmark calculated 

from claims submitted by the TINs on the PY1 certified list during CY 2010, 2011, and 2012. If 

the ACO adds ACO participants during 2013 and certifies an updated list for PY2 reflecting 

those additions, we would adjust the historical benchmark to accommodate those changes by 

recalculating the benchmark using the claims submitted by the PY2 list of certified ACO 

participants during the ACO’s same benchmark years (CYs 2010, 2011, and 2012). In this way, 

the ACO’s benchmark continues to be based on the same 3 years prior to the start of the ACO’s 

agreement, but ensures that the changes in ACO composition and performance year calculations 

retain a consistent comparison between benchmark and performance during the agreement 

period. 

 As noted previously, adjustment to the ACO’s historical benchmark as a result of changes 

to the ACO’s certified ACO participant list may move the benchmark upward or downward. We 

would use the annual certified ACO participant list and the adjusted benchmark for the new 

performance year’s beneficiary assignment, quality measurement and other operations that are 

dependent on the ACO participant list as outlined in our guidance. We would provide ACOs 

with an adjusted Historical Benchmark Report that reflects the new certified ACO participant 

list. We propose to add this requirement at § 425.118(b)(3). 

We propose at § 425.118(b)(3)(ii) to codify the policy we established in guidance that, 

absent unusual circumstances, the removal of an ACO participant from the ACO participant list 

during the performance year must not affect certain program calculations for the remainder of the 
CMS-1461-P 48 

performance year in which the removal becomes effective. Namely, the removal of an entity 

from the ACO participant list during the performance year would not affect the ACO’s 

beneficiary assignment or, by extension, such program operations as the calculation of the 

ACO’s historical benchmark, financial calculations for quarterly and annual reporting, the 

sample of beneficiaries for quality reporting, or the obligation of the ACO to report on behalf of 

eligible professionals for certain quality initiatives. In other words, absent unusual 

circumstances, CMS uses only the ACO participant list that is certified at the beginning of a 

performance year to assign beneficiaries to the ACO under Subpart E and to determine the 

ACO’s quality and financial performance for that performance year under Subparts F and G. 

Examples of unusual circumstances that might justify midyear changes include the midyear 

removal of an ACO participant due to avoidance of at-risk beneficiaries or another program 

integrity issue. 

For example, if an ACO participant is on the ACO’s certified list of ACO participants for 

the second performance year, and the ACO timely notifies CMS of the termination of the entity’s 

ACO participant agreement effective June 30th of PY2, the ACO participant would be removed 

from the ACO participant list effective June 30th of PY2. However, the former ACO 

participant’s TIN would still be used for purposes of calculating the quality reporting 

requirements, financial reports, benchmarking, assignment and reporting of PQRS, meaningful 

use of EHR, and the value-based modifier. The ACO participant list that was certified at the 

start of the performance year governs the assessment of the ACO’s financial and quality 

performance for that year, regardless of changes to the list during the performance year. We 

believe this is necessary to help create some stability in the assessment of the ACO’s quality and 

financial performance for each performance year. If CMS had to modify underlying program 
CMS-1461-P 49 

operations each time an ACO added or removed a TIN from its list of ACO participants, the 

ACO would not be able to rely on information (such as the calculation of the historical 

benchmark) that we provide before the beginning of the performance year. We would not make 

adjustments upon Medicare payment changes such as wage index adjustments. 

We further believe it is important for ACOs to communicate effectively with ACO 

participants that seek to join an ACO so that they understand the potential impact to the ACO, 

the ACO participant, and the ACO providers/suppliers affiliated with the ACO participant when 

an ACO participant leaves during a performance year. For example, it is likely that the ACO 

would be required to report quality data for beneficiaries that were seen by the former ACO 

participant in the previous 12 months. The ACO must work with the former ACO participant to 

obtain the necessary quality reporting data. Additionally, the ACO participant would not be able 

to qualify for PQRS incentive payment or avoid the PQRS payment adjustment apart from the 

ACO for that performance year. Therefore, it is in the best interest of both parties to understand 

this in advance and to commit to working together to fulfill the obligations for the performance 

year. To assist ACO and ACO participants, we have proposed criteria for ACO participant 

agreements addressing this issue (see section II.B.1. of this proposed rule). 

(3) Managing Changes to ACO Providers/Suppliers 

 We recognize that ACO providers/suppliers may terminate their affiliation with an ACO 

participant or affiliate with new or additional Medicare-enrolled TINs (which may or may not be 

ACO participants) on a frequent basis. Thus, the annual certified ACO provider/supplier list 

may quickly become outdated. In order to ensure that CMS and the ACO have a common 

understanding of which NPIs are part of the ACO at any particular point in time, our regulations 

at § 425.214 set forth requirements for managing changes to the ACO during the term of the 
CMS-1461-P 50 

participation agreement. Specifically, § 425.214(a)(2) and § 425.304(d)(2) require an ACO to 

notify CMS within 30 days of the addition or removal of an ACO provider/supplier from the 

ACO provider/supplier list. 

 We are proposing new § 425.118(c) on how to report changes to the ACO 

provider/supplier list that occur during the performance year. Under proposed § 425.118(c), 

ACOs will continue to be required to report these changes within 30 days. As discussed later in 

this section, we would require the ACO to ensure that changes in ACO participant and ACO 

provider/supplier enrollment status are reported in PECOS. However, because the lists of ACO 

providers/suppliers cannot be maintained in PECOS, we propose to require ACOs to notify 

CMS’ Shared Savings Program separately, in the form and manner specified by CMS, of the 

addition or removal of an ACO provider/supplier. At this time, we anticipate that ACOs will be 

required to send such notifications via electronic mail; however, specific guidance regarding this 

notification process would be provided by the Secretary on the CMS website and/or through the 

ACO intranet portal. 

 We propose that an ACO may add an individual or entity to the ACO provider/supplier 

list if it notifies CMS within 30 days after the individual or entity became a Medicare-enrolled 

provider or supplier that bills for items and services it furnishes to Medicare fee-for-service 

beneficiaries under a billing number assigned to the TIN of an ACO participant. If the ACO 

provides such notice by the 30-day deadline, the addition of an ACO provider/supplier would be 

effective on the date specified in the notice furnished to CMS but no earlier than 30 days before 

the date of notice. If the ACO fails to provide timely notice to CMS regarding the addition of an 

individual or entity to the ACO provider/supplier list, then the addition becomes effective on the 

date CMS receives notice from the ACO. However, we note that when an individual has begun 
CMS-1461-P 51 

billing through the TIN of an ACO participant but is not on the ACO provider/supplier list, the 

individual satisfies the definition of an ACO professional, in which case his or her claims for 

services furnished to Medicare fee-for-service beneficiaries are considered for assignment and 

other operational purposes previously described. 

 Each potential ACO provider/supplier that reassigns his or her billing rights under the 

TIN of an ACO participant is screened by CMS through the enrollment process and PECOS 

system. Additionally, the Shared Savings Program conducts additional screening on a biannual 

basis for each ACO provider/supplier through the CMS Fraud Prevention System. In spite of 

this, we are concerned that our proposed effective date for the addition of an individual or entity 

to the ACO provider/supplier list will prevent us from conducting a robust program integrity 

screening of such individuals and entities. Therefore, we are considering whether to delay the 

effective date of any additions to the ACO provider/supplier list until after we have completed a 

program integrity screening of the individuals or entities that the ACO wishes to add to the list. 

For example, we are considering whether to delay the effective date of additions to the ACO 

provider/supplier list until the start of the next performance year, similar to the timing for adding 

TINs of ACO participants to the list of ACO participants. In this way, a complete yearly 

screening, including screening with the assistance of our law enforcement partners, could occur 

at one time for both the ACO participant list and the ACO provider/supplier list. As noted 

previously, until the individual or entity has been officially designated as an ACO 

provider/supplier, that individual or entity would be an ACO professional because of its billing 

relationship with the ACO participant. Thus, any claims billed by the ACO professional through 

the TIN of the ACO participant would be used for assignment and related activities during the 
CMS-1461-P 52 

performance year in which the change takes place, regardless of whether the individual or entity 

subsequently becomes an ACO provider/supplier. We seek comment on this proposal. 

 We propose that to remove an ACO provider/supplier from the ACO provider/supplier 

list, an ACO must notify CMS no later than 30 days after the individual or entity ceases to be a 

Medicare-enrolled provider or supplier that bills for items and services it furnishes to Medicare 

fee-for-service beneficiaries under a billing number assigned to the TIN of an ACO participant. 

The individual or entity would be removed from the ACO provider/supplier list effective as of 

the date the individual or entity terminates its affiliation with the ACO participant. 

(4) Update of Medicare Enrollment Information 

 We propose at § 425.118(d) to require the ACO to ensure that changes in ACO 

participant and ACO provider/supplier enrollment status are reported in PECOS consistent with 

§ 424.516 (for example, changes in an ACO provider’s/supplier’s reassignment of the right to 

receive Medicare payment or revocation of billing rights). As previously discussed in detail, this 

requirement corresponds with our longstanding policy that requires enrolled providers and 

suppliers to notify their Medicare contractors through PECOS within specified timeframes for 

certain reportable events. 

4. Significant Changes to an ACO 

a. Overview 

 Section 425.214(b) requires an ACO to notify CMS within 30 days of any significant 

change. A significant change occurs when an ACO is no longer able to meet the Shared Savings 

Program eligibility or program requirements (§ 425.214(b)). Upon receiving an ACO’s notice of 

a significant change, CMS reviews the ACO’s eligibility to continue participating in the Shared 

Savings Program and, if necessary, may terminate the ACO’s participation agreement (§ 425.214 
CMS-1461-P 53 

(c)). In addition, § 425.214(c)(2) provides that CMS may determine that a significant change has 

caused the ACO’s structure to be so different from what was approved in the ACO’s initial 

application that it is no longer able to meet the eligibility or program requirements. Under such 

circumstances, CMS would terminate the ACO’s participation agreement, and permit the ACO to 

submit a new application for program participation. In the November 2011 final rule 

(76 FR 67840), we noted that changes to an ACO participant list could constitute a significant 

change to an ACO if, for example, the removal of a large primary care practice from the list of 

ACO participants caused the number of assigned beneficiaries to fall below 5,000. 

b. Proposed Revisions 

In light of changes proposed in the previous section of this preamble, we propose to 

redesignate § 425.214(b) and (c) as § 425.214(a) and (b). Second, we propose to describe when 

certain changes to the ACO constitute a significant change to the ACO. We believe that a 

change in ownership of an ACO or the addition or deletion of ACO participants could affect an 

ACO’s compliance with the governance requirements in § 425.106 or other eligibility 

requirements. We note that some changes to the ACO participant list may be of such a 

magnitude that the ACO is no longer the entity that was originally approved for program 

participation. In addition, depending on the nature of the change in ownership, the ACO would 

need to execute a new participation agreement with CMS if the existing participation agreement 

is no longer with the correct legal entity. We believe that such changes constitute significant 

changes and should be subject to the actions outlined under § 425.214(b). 

Therefore, we are proposing to specify at § 425.214(a) that a significant change occurs 

when the ACO is no longer able to meet the eligibility or other requirements of the Shared 

Savings Program, or when the number or identity of ACO participants included on the ACO 
CMS-1461-P 54 

participant list, as updated in accordance with § 425.118, changes by 50 percent or more during 

an agreement period. For example, in the case of an ACO whose initial certified ACO 

participant list contained ten ACO participants, five of which gradually left the ACO and either 

were not replaced or were replaced with five different ACO participants, the ACO would have 

undergone a significant change because the number or identity of its ACO participants changed 

by 50 percent. Similarly, if an ACO’s initial certified ACO participant list contains 20 ACO 

participants, and the ACO incrementally adds 10 new ACO participants for a total of 30 ACO 

participants, it would have undergone a significant change with the addition of the 10th new ACO 

participant. 

Upon notice that an ACO has experienced a significant change, we would evaluate the 

ACO’s eligibility to continue participating in the Shared Savings Program and make one of the 

determinations listed in the provision we propose to redesignate as § 425.214(b). We may 

request additional information to determine whether and under what terms the ACO may 

continue in the program. We note that a determination that a significant change has occurred 

would not necessarily result in the termination of the ACO’s participation agreement. We 

further propose to modify § 425.214 to provide that an ACO’s failure to notify CMS of a 

significant change must not preclude CMS from determining that the ACO has experienced a 

significant change. 

In addition, we are seeking comment on whether we should consider amending our 

regulations to clarify that the ACO’s notice of a significant change must be furnished prior to the 

occurrence of the significant change. We believe some significant changes could benefit from a 

longer notice period, particularly in the case of a change of ownership that causes the ACO to be 

unable to comply with program requirements. Therefore, we seek comment on whether ACOs 
CMS-1461-P 55 

should be required to provide 45 or 60 days’ advance notice of a significant change. We also 

seek comment on what changes in the ACO participant list should constitute a significant 

change. 

5. Consideration of Claims Billed by Merged/Acquired Medicare-Enrolled Entities 

a. Overview 

 As discussed in the November 2011 final rule (76 FR 67843), we do not believe that 

mergers and acquisitions by ACO providers and suppliers are the only way for an entity to 

become an ACO. The statute and our regulations permit ACO participants that form an ACO to 

use a variety of collaborative organizational structures, including collaborations other than 

merger. We reject the proposition that an entity under single control, that is, an entity formed 

through a merger, would be more likely to meet the goals of improved health at a lower cost. 

However, we have received questions from industry stakeholders regarding how previous 

mergers and acquisitions of entities with Medicare enrolled billing TINs will be treated for 

purposes of the Shared Savings Program. In particular, some applicants have inquired whether 

the claims billed to Medicare in previous years by an entity that has since been merged with, or 

acquired by, a different entity could be used to determine whether an applicant meets the 

requirement to have at least 5,000 beneficiaries assigned to it in each of the benchmark years 

(§ 425.110) and to establish the ACO’s historical benchmark and preliminary prospective 

assignment. To illustrate, suppose a large group practice that is a prospective ACO participant 

recently purchased two small primary care practices, and the primary care practitioners from 

those small practices have reassigned the right to receive Medicare payment to the larger group 

practice Medicare-enrolled TIN. In this instance, it is likely that the primary care providers will 

continue to serve the same patient population they served before the practices were purchased, 
CMS-1461-P 56 

and that their patients may appear on the ACO’s list of assigned beneficiaries at the end of the 

performance year. Therefore, applicants and established ACOs have inquired whether there is a 

way to take into account the claims billed by the Medicare-enrolled TINs of practices acquired 

by sale or merger for purposes of meeting the minimum assigned beneficiary threshold and 

creating a more accurate benchmark and preliminary prospective list of assigned beneficiaries for 

the upcoming performance year. Similarly, an established ACO may request consideration of 

the claims billed by the Medicare-enrolled TINs of entities acquired during the course of a 

performance year for the same purposes. 

In response to questions from industry stakeholders, we provided additional guidance on 

our website to all Shared Savings Program applicants about the requirements related to mergers 

and acquisitions (see http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Downloads/Merger-Acquisitions-FAQ.pdf). In this guidance, 

we indicated that under the following circumstances, we may take the claims billed under TINs 

of entities acquired through purchase or merger into account for purposes of beneficiary 

assignment and the ACO’s historical benchmark: 

● The ACO participant must have subsumed the acquired entity’s TIN in its entirety, 

including all the providers and suppliers that reassigned the right to receive Medicare payment to 

that acquired entity’s TIN. 

● All the providers and suppliers that previously reassigned the right to receive Medicare 

payment to the acquired entity’s TIN must reassign that right to the TIN of the acquiring ACO 

participant. 

● The acquired entity’s TIN must no longer be used to bill Medicare. 
CMS-1461-P 57 

In order to attribute the billings of merged or acquired TINs to the ACO’s benchmark, the 

ACO applicant must-- 

● Submit the acquired entity’s TIN on the ACO participant list, along with an attestation 

stating that all providers and/suppliers that previously billed under the acquired entity’s TIN 

have reassigned their right to receive Medicare payment to an ACO participant’s TIN; 

● Indicate the acquired entity’s TIN and which ACO participant acquired it; and 

● Submit supporting documentation demonstrating that the entity’s TIN was acquired by 

an ACO participant through a sale or merger and submit a letter attesting that the acquired 

entity’s TIN will no longer be used to bill Medicare. 

 We note that we require an applicant’s list of ACO providers/suppliers to include all 

individuals who previously billed under the acquired entity’s TIN to have reassigned their right 

to receive Medicare payment to an ACO participant’s TIN. 

 We believe that these requirements are necessary to ensure that these entities have 

actually been completely merged or acquired and that it would be likely that the primary care 

providers will continue to serve the same patient population. In this way, the beneficiary 

assignments and the benchmarks would be more accurate for ACOs that include merged or 

acquired Medicare-enrolled TINs under which their ACO professionals billed during application 

or updates to the ACO participant list. 

b. Proposal 

 We believe the current criteria and processes have been working well and have benefited 

both CMS (for example, by providing assurance that an entity’s Medicare-enrolled billing TIN 

have actually been acquired through sale or merger) and the affected ACOs (for example, by 

allowing for an increase in the ACO’s number of appropriately assigned beneficiaries and 
CMS-1461-P 58 

providing for a more accurate financial benchmark). To avoid uncertainty and to establish a 

clear and consistent process for the recognition of the claims previously billed by the TINs of 

acquired entities, we propose to codify the current operational guidance on this topic at 

§ 425.204(g) with some minor revisions to more precisely and accurately describe our proposed 

policy. Proposed § 425.204(g) would add the option for ACOs to request consideration of 

claims submitted by the Medicare-enrolled TINs of acquired entities as part of their application, 

and would address the documentation requirements for such requests. Although this provision is 

added in a section regarding the content of the initial application, we propose to permit ACOs to 

annually request consideration of claims submitted by the TINs of entities acquired through sale 

or merger upon submission of the ACO’s updated list of ACO participants. 

6. Legal Structure and Governance

Section 1899(b)(1) of the Act requires ACO participants to have established a 

“mechanism for shared governance” in order to be eligible to participate as ACOs in the Shared 

Savings Program. In addition, section 1899(b)(2)(C) of the Act requires the ACO to have a 

formal legal structure that allows the organization to receive and distribute shared savings 

payments to ACO participants and ACO providers/suppliers. We believe this requirement is 

important because a formal legal structure can ensure the ACO is protected against improper 

influence. In this section, we propose clarifications to our rules related to the ACO’s legal entity 

and governing body. The purpose of these changes is to clarify our regulations and to ensure that 

ACO decision making is governed by individuals who have a fiduciary duty, including a duty of 

loyalty, to the ACO alone and not to any other individuals or entities. We believe these 

clarifications are relatively minor and would not significantly impact the program as currently 

implemented. 
CMS-1461-P 59 

a. Legal Entity and Governing Body 

(1) Overview 

 As specified in the November 2011 final rule (76 FR 67816) and at § 425.104(a), an 

ACO must be a legal entity, formed under applicable state, federal, or tribal law, and authorized 

to conduct business in each state in which it operates for purposes of the following: 

● Receiving and distributing shared savings. 

● Repaying shared losses or other monies determined to be owed to CMS. 

● Establishing, reporting, and ensuring provider compliance with health care quality 

criteria, including quality performance standards. 

● Fulfilling other ACO functions identified in this part. 

 Additionally, under § 425.104(b), an ACO formed by two or more “otherwise 

independent” ACO participants must be a legal entity separate from any of its ACO participants. 

Our regulations at § 425.106(b)(4) further specify that when an ACO comprises “multiple, 

otherwise independent ACO participants,” the governing body of the ACO must be “separate and 

unique to the ACO”. In contrast, if the ACO is an “existing legal entity,” the ACO governing 

body may be the same as the governing body of that existing legal entity, provided it satisfies all 

other requirements of § 425.106, including provisions regarding the fiduciary duties of governing 

body members, the composition of the governing body, and conflict of interest policies 

(§ 425.106(b)(5)). 

 Some applicants have questioned when an ACO needs to be formed as a separate legal 

entity, particularly the meaning in § 425.104(b) of “otherwise independent” ACO participants. 

Specifically, applicants have questioned whether multiple prospective ACO participants are 

“otherwise independent” when they have a prior relationship through, for example, an integrated 
CMS-1461-P 60 

health system. In addition, we received some questions regarding compliance with the 

governing body requirements set forth in § 425.106(b)(4) and (5). For example, we received 

questions from some IPAs, each of which wanted to apply to the Shared Savings Program as an 

ACO using its existing legal structure and governing body. In some cases, the IPA represented 

many group practices, but not every group practice represented by an IPA had agreed to be an 

ACO participant. We believe that such an IPA would need to organize its ACO as a separate 

legal entity with its own governing body to ensure that the governing body members would have 

a fiduciary duty to the ACO alone, as required by § 425.106(b)(3), and not to an entity comprised 

in part by entities that are not ACO participants. 

(2) Proposed Revisions 

We propose to clarify our regulation text regarding when an ACO must be formed as a 

separate legal entity. Specifically, we propose to remove the reference to “otherwise 

independent ACO participants” in § 425.104(b). The revised regulation would provide that an 

ACO formed by “two or more ACO participants, each of which is identified by a unique TIN,” 

must be a legal entity separate from any of its ACO participants. For example, if an ACO is 

composed of three ACO participants, each of which belongs to the same health system or IPA, 

the ACO must be a legal entity separate and distinct from any one of the three ACO participants. 

In addition, we propose to clarify § 425.106(a), which sets forth the general requirement 

that an ACO have an identifiable governing body with the authority to execute the functions of 

an ACO. Specifically, we propose that the governing body must satisfy three criteria. First, the 

governing body of the ACO must be the same as the governing body of the legal entity that is the 

ACO. Second, in the case of an ACO that comprises multiple ACO participants the governing 

body must be separate and unique to the ACO and must not be the same as the governing body 
CMS-1461-P 61 

of any ACO participant. Third, the governing body must satisfy all other requirements set forth 

in § 425.106, including the fiduciary duty requirement. We note that the second criterion 

incorporates the requirement that currently appears at § 425.106(b)(4), which provides that the 

governing body of the ACO must be separate and unique to the ACO in cases where there are 

multiple ACO participants. Accordingly, we propose to remove § 425.106(b)(4). We further 

propose to remove § 425.106(b)(5), which provides that if an ACO is an existing legal entity, its 

governing body may be the same as the governing body of that existing entity, provided that it 

satisfies the other requirements of § 425.106. In light of our proposed revision to § 425.106(a), 

we believe this provision is unnecessary and should be removed to avoid confusion. 

In proposing that the governing body be the same as the governing body of the legal 

entity that is the ACO, we intend to preclude delegation of all ACO decision-making authority to 

a committee of the governing body or retention of ACO decision-making authority by a parent 

company; ultimate authority for the ACO must still reside with the governing body. We 

recognize that the governing body of the legal entity that is the ACO may wish to organize 

committees that address certain matters pertaining to the ACO, but we do not believe that such 

committees can constitute the governing body of the ACO. We also recognize that a parent 

organization may wish to retain certain authorities to protect the parent company and ensure the 

subsidiary’s success; however, the ACO’s governing body must retain the ultimate authority to 

execute the functions of an ACO. As stated in the regulations, we believe such functions include 

such things as developing and implementing the required processes under § 425.112 and holding 

leadership and management accountable for the ACO’s activities. We also believe this authority 

extends to such activities including the appointment and removal of members of the governing 

body, leadership, and management, and determining how shared savings are used and distributed 
CMS-1461-P 62 

among ACO participants and ACO providers/suppliers. We seek comments on this proposal that 

the ultimate authority for the ACO to carry out its activities must reside with the governing body 

of the ACO. 

The purpose of the new provision precluding the governing body of the ACO from being 

the same as the governing body of an ACO participant is to ensure that decisions made on behalf 

of the ACO are not improperly influenced by the interests of individuals and entities other than 

the ACO. In order to comply with the requirement that the governing body be separate and 

unique to the ACO, it must not be responsible for representing the interests of any entity 

participating in the ACO or any entity that is not participating in the ACO. Thus, we propose the 

requirement that an ACO’s governing body must not be the same as the governing body of any 

of the ACO participants. 

b. Fiduciary Duties of Governing Body Members 

(1) Overview 

Our current regulations at § 425.106(b)(3) require that the governing body members have 

a fiduciary duty to the ACO and must act consistent with that fiduciary duty. We have clarified 

in guidance that the governing body members cannot meet the fiduciary duty requirement if the 

governing body is also responsible for governing the activities of individuals or entities that are 

not part of the ACO (See “Additional Guidance for Medicare Shared Savings Program 

Accountable Care Organization (ACO) Applicants” located online at 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Downloads/Memo_Additional_Guidance_on_ACO_Participants

.pdf). For example, in the case of an IPA that applies as an ACO to the Shared Savings Program, 

we believe it would be difficult for the members of the IPA’s governing body to make decisions 
CMS-1461-P 63 

in the best interests of the ACO if only some of the group practices that compose the IPA are 

ACO participants; decisions affecting the ACO may be improperly influenced by the interests of 

group practices that are part of the IPA but are not ACO participants. For this reason, our 

regulations require the IPA to establish the ACO as a separate legal entity. This new legal entity 

must have a governing body whose members have a fiduciary responsibility to the ACO alone 

and not to any other individual or entity. 

We wish to emphasize that the ACO’s governing body decisions must be free from the 

influence of interests that may conflict with the ACO’s interests. 

(2) Proposed Revisions 

We propose to clarify in § 425.106(b)(3) that the fiduciary duty owed to an ACO by its 

governing body members includes the duty of loyalty. This proposal does not represent a change 

in policy and is simply intended to emphasize that members of an ACO governing body must not 

have divided loyalties; they must act only in the best interests of the ACO and not another 

individual or entity, including the individual interests of ACO participants, ACO professionals, 

ACO providers/suppliers, or other individuals or entities. 

c. Composition of the Governing Body

(1) Overview 

Section 1899(b)(1) requires an ACO to have a “mechanism for shared governance” 

among ACO participants. Section 425.106(c)(1) of the regulations requires an ACO to provide 

for meaningful participation in the composition and control of the ACO’s governing body for 

ACO participants or their designated representatives. As we explained in the November 2011 

final rule (76 FR 67819), we believe that an ACO should be operated and directed by Medicareenrolled entities that directly provide health care services to beneficiaries. However, we 
CMS-1461-P 64 

acknowledged, that small groups of providers often lack both the capital and infrastructure 

necessary to form an ACO and to administer the programmatic requirements of the Shared 

Savings Program and could benefit from partnerships with non-Medicare enrolled entities. For 

this reason, we proposed (76 FR 19541) that to be eligible for participation in the Shared Savings 

Program, the ACO participants must have at least 75 percent control of the ACO’s governing 

body. In the November 2011 final rule, we explained that this requirement would ensure that 

ACOs remain provider-driven, but also leave room for nonproviders to participate in the 

program. 

In addition, to provide for patient involvement in the ACO governing process, we 

specified at § 425.106(c)(2) that an ACO’s governing body must include a Medicare beneficiary 

served by the ACO who does not have a conflict of interest with the ACO. We acknowledged 

that beneficiary representation on an ACO’s governing body may not always be feasible. For 

example, commenters raised concerns that requiring a beneficiary on the governing body could 

conflict with State corporate practice of medicine laws or other local laws regarding governing 

body requirements for public health or higher education institutions (76 FR 67821). As a result, 

we believed it was appropriate to provide some flexibility for us to permit an ACO to adopt an 

alternative structure for its governing body, while still ensuring that ACO participants and 

Medicare FFS beneficiaries are involved in ACO governance. 

Accordingly, the November 2011 final rule, offers some flexibility to permit an ACO to 

participate in the Shared Savings Program even if its governing body fails to include a 

beneficiary or satisfy the requirement that 75 percent of the governing body be controlled by 

ACO participants. Specifically, § 425.106(c)(5) provides that if an ACO’s governing body does 

not meet either the 75 percent threshold or the requirement regarding beneficiary representation, 
CMS-1461-P 65 

it must describe in its application how the proposed structure of its governing body would 

involve ACO participants in innovative ways in ACO governance or provide a meaningful 

opportunity for beneficiaries to participate in the governance of the ACO. For example, under 

this provision, we anticipated that exceptions might be needed for ACOs that operate in states 

with Corporate Practice of Medicine restrictions to structure beneficiary representation 

accordingly. We contemplated that this provision could also be used by an existing entity to 

explain why it should not be required to reconfigure its board if it had other means of addressing 

the requirement to include a consumer perspective in governance (see 76 FR 67821). 

(2) Proposed Revisions 

We propose to revise § 425.106(c)(5) to remove the flexibility for ACOs to deviate from 

the requirement that at least 75 percent control of an ACO’s governing body must be held by 

ACO participants. Based on our experience to date with implementing the program, we have 

learned that ACO applicants do not have difficulty meeting the requirement under 

§ 425.106(c)(3) that ACO participants maintain 75 percent control of the governing body. We 

have not denied participation to any ACO applicants on the basis of failure to comply with this 

requirement, and it has not been necessary to grant any exceptions to this rule under 

§ 425.106(c)(5). To the contrary, we have found the 75 percent control requirement to be 

necessary and protective of the ACO participant’s interests. Accordingly, we believe there is no 

reason to continue to offer an exception to the rule. 

We continue to believe it is important to maintain the flexibility for ACOs to request 

innovative ways to provide meaningful representation of Medicare beneficiaries on ACO 

governing bodies. Based on our experience, some ACOs have been unable to include a 

beneficiary on their governing body, and these entities have used the process under 
CMS-1461-P 66 

§ 425.106(c)(5) to establish that they satisfy the requirement for meaningful beneficiary 

representation through the use of patient advisory bodies that report to the governing body of the 

ACO. 

We also propose to revise § 425.106(c)(2) to explicitly prohibit an ACO 

provider/supplier from being the beneficiary representative on the governing body. Some ACO 

applicants have proposed that one of their ACO providers/suppliers would serve as the 

beneficiary representative on the governing body. We believe it would be very difficult for an 

ACO provider/supplier who is Medicare beneficiary to represent only the interests of 

beneficiaries, rather than his or her own interests as an ACO provider/supplier, the interests of 

other ACO providers/suppliers, or the interests of the ACO participant through which he or she 

bills Medicare. Finally, we are proposing to revise § 425.106(c)(1) to reiterate the statutory 

standard in section 1899(b)(1) of the Act requiring an ACO to have a “mechanism for shared 

governance” among ACO participants. Although we declined in the November 2011 final rule 

to promulgate a requirement that each ACO participant be a member of the ACO’s governing 

body (76 FR 67818), the governing body must nevertheless represent a mechanism for shared 

governance among ACO participants. To that end, the governing body of an ACO that is 

composed of more than one ACO participant should not, for example, include representatives 

from only one ACO participant. For ACOs that have extensive ACO participant lists, we would 

expect to see representatives from many different ACO participants on the governing body. Our 

proposal to reiterate the statutory standard for shared governance in our regulations at 

§ 425.106(c)(1) does not constitute a substantive change to the program. 
CMS-1461-P 67 

7. Leadership and Management Structure

a. Overview 

 Section 1899(b)(2)(F) of the Act requires an eligible ACO to “have in place a leadership 

and management structure that includes clinical and administrative systems.” Under this 

authority, we incorporated certain leadership and management requirements into the Shared 

Savings Program, as part of the eligibility requirements for program participation. In the 

November 2011 final rule (76 FR 67822), we stated that we believed an ACO’s leadership and 

management structure should align with and support the goals of the Shared Savings Program 

and the three-part aim of better care for individuals, better health for populations, and lower 

growth in expenditures. 

 In the November 2011 final rule (76 FR 67825), we established the requirement that the 

ACO’s operations be managed by an executive, officer, manager, general partner, or similar 

party whose appointment and removal are under the control of the ACO’s governing body and 

whose leadership team has demonstrated the ability to influence or direct clinical practice to 

improve efficiency, processes, and outcomes (see § 425.108(b)). In addition, under 

§ 425.108(c), clinical management and oversight must be managed by a senior-level medical 

director who is one of the ACO providers/suppliers, who is physically present on a regular basis 

in an established ACO location (clinic, office or other location participating in the ACO), and 

who is a board-certified physician licensed in a State in which the ACO operates. In 

§ 425.204(c)(1)(iii), we require ACO applicants to submit materials documenting the ACO’s 

organization and management structure, including senior administrative and clinical leaders 

specified in § 425.108. 
CMS-1461-P 68 

 In the November 2011 final rule (76 FR 67825), we provided flexibility for ACOs to 

request an exception to the leadership and management requirements set forth under 

§ 425.108(b) and (c). We believed that affording this flexibility was appropriate in order to 

encourage innovation in ACO leadership and management structures. In accordance with 

§ 425.108(e), we reserve the right to give consideration to an innovative ACO leadership and 

management structure that does not comply with the requirements of § 425.108(b) and (c). 

 We continue to believe that having these key leaders (operational manager and clinical 

medical director) is necessary for a well-functioning and clinically integrated ACO. We have 

learned from our experience with the program, over four application cycles, that ACO applicants 

generally do not have difficulty in meeting the operational manager and clinical medical director 

requirements. Only one ACO has requested an exception to the medical director requirements. 

In that case, the ACO sought the exception in order to allow a physician, who had retired after a 

long tenure with the organization to serve as the medical director of the ACO. We approved this 

request because, although the retired physician was not an ACO provider/supplier because he 

was no longer billing for physician services furnished during the agreement period, he was 

closely associated with the clinical operations of the ACO, familiar with the ACO’s 

organizational culture, and dedicated to this one ACO. 

 In addition, we have received a number of questions from ACO applicants regarding the 

other types of roles for which CMS requires documentation under § 425.204(c)(1)(iii) to evaluate 

whether an applicant has a “. . . leadership and management structure that includes clinical and 

administrative systems” that support the purposes of the Shared Savings Program and the aims of 

better care for individuals, better health for populations, and lower growth in expenditures, as 

articulated at § 425.108(a)). In response to such inquiries regard, we have indicated that we 
CMS-1461-P 69 

consider an ACO’s “. . . leadership and management structure that includes clinical and 

administrative systems” to be comprised of the operational manager and clinical medical director 

(referenced under § 425.108(b) and (c)) as well as the qualified healthcare professional that is 

required under § 425.112(a) to be responsible for the ACO’s quality assurance and improvement 

program. 

b. Proposed Revisions 

 We propose to amend § 425.108 to provide some additional flexibility regarding the 

qualifications of the ACO medical director and to eliminate the provision permitting some ACOs 

to enter the program without satisfying the requirements at § 425.108(b) and (c) for operations 

and clinical management. In addition, we propose to amend § 425.204(c)(iii) to clarify that 

applicants must submit materials regarding the qualified health care professional responsible for 

the ACO’s quality assurance and improvement program. We discuss each proposal later in this 

section. 

We believe that it is appropriate to amend the medical director requirement at 

§ 425.108(c) to allow some additional flexibility. Specifically, we propose to remove the 

requirement that the medical director be an ACO provider/supplier. This change would permit 

an ACO to have a medical director who was, for example, previously closely associated with an 

ACO participant but who is not an ACO provider/supplier because he or she does not bill 

through the TIN of an ACO participant and is not on the list of ACO providers/suppliers. 

Alternatively, we may retain the requirement that an ACO’s medical director be an ACO 

provider/supplier, but permit ACOs to request CMS approval to designate as its medical director 

a physician who is not an ACO provider/supplier but who is closely associated with the ACO 

and satisfies all of the other medical director requirements. We seek comment on whether an 
CMS-1461-P 70 

ACO medical director who is not an ACO provider/supplier must have been closely associated 

with the ACO or an ACO participant in the recent past. In addition, we propose to clarify that 

the medical director must be physically present on a regular basis “at any clinic, office, or other 

location of the ACO, ACO participant or ACO provider/supplier.” Currently, the provision 

incorrectly refers only to locations “participating in the ACO.” 

However, we continue to strongly believe that the medical director of the ACO should be 

directly associated with the ACO’s clinical operations and familiar with the ACO’s 

organizational culture. This is one purpose of the provision requiring medical directors to be 

physically present on a regular basis at any clinic, office, or other ACO location. A close 

working relationship with the ACO and its clinical operations is necessary in order for the 

medical director to lead the ACO’s efforts to achieve quality improvement and cost efficiencies. 

We propose to eliminate § 425.108(e), which permits us to approve applications from 

innovative ACOs that do not satisfy the leadership and management requirements related to 

operations management and clinical management and oversight set forth at § 425.108(b) and (c). 

Based on our experience with the program and the proposed change to the medical director 

requirement, we believe it is unnecessary to continue to allow ACOs the flexibility to request an 

exception to the leadership and management requirements related to operations management and 

clinical management and oversight (§425.108(b) and (c)). These requirements are broad and 

flexible and have not posed a barrier to participation in the Shared Savings Program; in fact, in 

only one instance has an ACO requested an exception to the operations management criterion 

(§ 425.108(b)). We are unaware of any alternative operations management structure that might 

be considered acceptable, and we have modified § 425.108(c) to accommodate the one exception 

we have granted to date. Accordingly, we propose to revise the regulations by striking 
CMS-1461-P 71 

§ 425.108(e) to eliminate the flexibility for ACOs to request an exception to the leadership and 

management requirements at § 425.108(b) and (c). 

Finally, to clarify questions that have been raised by ACO applicants and to reduce the 

need for application corrections, we propose to modify § 425.204(c)(1)(iii) to require a Shared 

Savings Program applicant to submit documentation regarding the qualified healthcare 

professional responsible for the ACO’s quality assurance and improvement program (as required 

by § 425.112(a)). 

We seek comment on these changes to the requirements for ACO leadership and 

management. 

8. Required Process to Coordinate Care 

a. Overview 

 Section 1899(b)(2)(G) of the Act requires an ACO to "define processes to ... coordinate 

care, such as through the use of telehealth, remote patient monitoring, and other such enabling 

technologies." In the November 2011 final rule (76 FR 67829 through 67830), we established 

requirements under § 425.112(b)(4) that ACOs define their care coordination processes across 

and among primary care physicians, specialists, and acute and postacute providers. As part of 

this requirement, an ACO must define its methods and processes to coordinate care throughout 

an episode of care and during its transitions. In its application to participate in the Shared 

Savings Program, the ACO must submit a description of its individualized care program, along 

with a sample care plan, and explain how this program is used to promote improved outcomes 

for, at a minimum, its high-risk and multiple chronic condition patients. In addition, an ACO’s 

application must describe target populations that would benefit from individualized care plans. 
CMS-1461-P 72 

In developing these policies for the November 2011 final rule (76 FR 67819), we 

received comments acknowledging that requiring ACOs to define processes to promote 

coordination of care is vital to the success of the Shared Savings Program. Commenters stressed 

the importance of health information exchanges in coordination of care activities and 

recommended that CMS allow ACOs the flexibility to use any standards-based electronic care 

coordination tools that meet their needs. Other commenters suggested that the proposed rule 

anticipated a level of functional health information exchange and technology adoption that may 

be too aggressive. 

As stated in § 425.204(c)(1)(ii), applicants to the Shared Savings Program must provide a 

description, or documents sufficient to describe, how the ACO will implement the required 

processes and patient-centeredness criteria under § 425.112, including descriptions of the 

remedial processes and penalties (including the potential for expulsion) that will apply if an ACO 

participant or an ACO provider/supplier fails to comply with and implement these processes. 

Under § 425.112(b), an ACO must establish processes to accomplish the following: promote 

evidence-based medicine; promote patient engagement; develop an infrastructure to internally 

report on quality and cost metrics required for monitoring and feedback; and coordinate care 

across and among primary care physicians, specialists and acute and postacute providers and 

suppliers. 

 In addition to the processes described previously, we believe it is important for applicants 

to explain how they will develop the health information technology tools and infrastructure to 

accomplish care coordination across and among physicians and providers Adoption of health 

information technology is important for supporting care coordination by ACO participants and 

other providers outside the ACO in the following ways: secure, private sharing of patient 
CMS-1461-P 73 

information; reporting on quality data and aggregating data across providers and sites to track 

quality measures; and deploying clinical decision support tools that provide access to alerts and 

evidence based-guidelines. As ACOs establish more mature processes for risk management, 

information technology infrastructure allows ACOs and providers to conduct robust financial 

management of beneficiary populations, deliver cost and quality feedback reporting to individual 

providers, and streamline the administration of risk based contracts across multiple payers. We 

believe that requiring ACOs to address health information technology infrastructure in their 

application to the Shared Savings program would support more careful planning and increased 

focus on this issue. 

b. Accelerating Health Information Technology 

 HHS believes all patients, their families, and their healthcare providers should have 

consistent and timely access to their health information in a standardized format that can be 

securely exchanged between the patient, providers, and others involved in the patient’s care. 

(HHS August 2013 Statement, “Principles and Strategies for Accelerating Health Information 

Exchange”) HHS is committed to accelerating health information exchange (HIE) through the 

use of EHRs and other types of health information technology (HIT) across the broader care 

continuum through a number of initiatives including: (1) alignment of incentives and payment 

adjustments to encourage provider adoption and optimization of HIT and HIE services through 

Medicare and Medicaid payment policies; (2) adoption of common standards and certification 

requirements for interoperable HIT; (3) support for privacy and security of patient information 

across all HIE-focused initiatives; and (4) governance of health information networks. These 

initiatives are designed to encourage HIE among health care providers, including professionals 

and hospitals eligible for the Medicare and Medicaid EHR Incentive Programs and those who are 
CMS-1461-P 74 

not eligible for the EHR Incentive programs as well as those providers that are participating in 

the Medicare Shared Savings Program as an ACO and those that are not, and are designed to 

improve care delivery and coordination across the entire care continuum. For example, the 

Transition of Care Measure #2 in Stage 2 of the Medicare and Medicaid EHR Incentive 

Programs requires HIE to share summary records for at least 10 percent of care transitions. 

 We believe that HIE and the use of certified EHRs can effectively and efficiently help 

ACOs and participating providers improve internal care delivery practices, support management 

of patient care across the continuum, and support the reporting of electronically specified clinical 

quality measures (eCQMs). 

c. Proposed Revisions 

 We continue to believe that ACOs should coordinate care between all types of providers 

and across all services, and that the secure, electronic exchange of health information across all 

providers in a community is of the utmost importance for both effective care coordination 

activities and the success of the Shared Savings Program. We understand that ACOs will differ 

in their ability to adopt the appropriate health information exchange technologies, but we 

continue to underscore the importance of robust health information exchange tools in effective 

care coordination. 

 ACOs have reported how important access to real time data is for providers to improve 

care coordination across all sites of care, including outpatient, acute, and postacute sites of care. 

We believe that providers across the continuum of care are essential partners to physicians in the 

management of patient care. ACOs participating in the program indicate that they are actively 

developing the necessary infrastructure and have been encouraging the use of technologies that 

enable real time data sharing among and between sites of care. We believe having a process and 
CMS-1461-P 75 

plan in place to coordinate a beneficiary’s care by electronically sharing health information 

improves care, and that this helps all clinicians involved in the care of a patient to securely 

access the necessary health information in a timely manner. It also can also be used to engage 

beneficiaries in their own care. We further believe that Shared Savings Program applicants 

should provide, as part of the application, their plans for improving care coordination by 

developing, encouraging, and using enabling technologies and electronic health records to make 

health information electronically available to all practitioners involved in a beneficiary’s care. 

 Therefore, we propose to add a new requirement to the eligibility requirements under 

§ 425.112(b)(4)(ii)(C) which would require an ACO to describe in its application how it will 

encourage and promote the use of enabling technologies for improving care coordination for 

beneficiaries. Such enabling technologies and services may include electronic health records and 

other health IT tools (such as population health management and data aggregation and analytic 

tools), telehealth services (including remote patient monitoring), health information exchange 

services, or other electronic tools to engage patients in their care. We also propose to add a new 

provision at § 425.112(b)(4)(ii)(D) to require the applicant to describe how the ACO intends to 

partner with long-term and postacute care providers to improve care coordination for the ACO’s 

assigned beneficiaries. Finally, we propose to add a provision under § 425.112(b)(4)(ii)(E) to 

require that an ACO define and submit major milestones or performance targets it will use in 

each performance year to assess the progress of its ACO participants in implementing the 

elements required under § 425.112(b)(4). For instance, providers would be required to submit 

milestones and targets such as: projected dates for implementation of an electronic quality 

reporting infrastructure for participants; the number of providers expected to be connected to 

health information exchange services by year; or the projected dates for implementing elements 
CMS-1461-P 76 

of their care coordination approach, such as alert notifications on emergency department and 

hospital visits or e-care plan tools for virtual care teams. We believe this information would 

allow us to better understand and support ACOs’ plans to put into place the systems and 

processes needed to deliver high quality care to beneficiaries. 

 We also note that ACOs have flexibility to use telehealth services as they deem 

appropriate for their efforts to improve care and avoid unnecessary costs. Some ACOs have 

already reported that they are actively using telehealth services to improve care for their 

beneficiaries. We welcome information from ACOs and other stakeholders about the use of such 

technologies. We seek comment on the specific services and functions of this technology that 

might be appropriately adopted by ACOs. For example, does the use of telehealth services and 

other technologies necessitate any additional protections for beneficiaries? Are these 

technologies necessary for care coordination or could other methods be used for care 

coordination? If a particular technology is necessary, under what circumstances? 

9. Transition of Pioneer ACOs into the Shared Savings Program 

a. Overview 

The Center for Medicare and Medicaid Innovation (the Innovation Center) at CMS was 

established by section 1115A of the Act (as added by section 3021 of the Affordable Care Act) 

for the purpose of testing “innovative payment and service delivery models to reduce program 

expenditures . . . while preserving or enhancing the quality of care” for those individuals who 

receive Medicare, Medicaid, or Children’s Health Insurance Program (CHIP) benefits. The 

Pioneer ACO Model is an Innovation Center initiative designed for organizations with 

experience operating as ACOs or in similar arrangements. The Pioneer ACO Model is testing 

the impact of using different payment arrangements in helping these experienced organizations 
CMS-1461-P 77 

achieve the goals of providing better care to patients, and reducing Medicare costs. Under 

section 1899(b)(4) of the Act, to be eligible to participate in the Shared Savings Program, a 

provider of services or supplier may not also be participating in a program or demonstration 

project that involves shared savings, such as the Pioneer ACO Model. Thus, Pioneer ACOs are 

not permitted to participate concurrently in the Shared Savings Program. As Pioneer ACOs 

complete the model test (the agreement is for a minimum of 3 years with an option to participate 

for an additional 2 years), they would have an opportunity to transition to the Shared Savings 

Program. We believe it would be appropriate to establish an efficient process to facilitate this 

transition in a way that minimizes any unnecessary burdens on these ACOs and on CMS. 

b. Proposed Revisions 

In order to do this, we propose to use a transition process that is similar to the transition 

process we established previously for Physician Group Practice (PGP) demonstration 

participants applying to participate in the Shared Savings Program. The PGP demonstration, 

authorized under section 1866A of the Act, was our first experience with a shared savings 

program in Medicare and served as a model for many aspects of the Shared Savings Program. 

In the November 2011 final rule (76 FR 67834), we finalized § 425.202(b), which 

provides that PGP sites applying for participation in the Shared Savings Program will be given 

the opportunity to complete a condensed application form. This condensed application form 

requires a PGP site to provide the information that was required for the standard Shared Savings 

Program application but that was not already obtained through its application for or via its 

participation in the PGP demonstration. Also, a PGP participant would be required to update any 

information contained in its application for the PGP demonstration that was also required on the 

standard Shared Savings Program application. Former PGP participants qualified to use a 
CMS-1461-P 78 

condensed application form if their ACO legal entity and TINs of ACO participant were the 

same as those that participated under the PGP demonstration. 

As we continue to implement the Shared Savings program, we will likely have a similar 

situation with regard to Pioneer ACOs that have completed their current agreement and wish to 

transition to the Shared Savings Program. Given that we have been working with and have a 

level of familiarity with these organizations similar to that with the PGP participants, we believe 

it is also appropriate to consider offering some latitude with regard to the process for applying to 

the Shared Savings Program for these ACOs. 

Thus, we propose to revise § 425.202(b) to offer Pioneer ACOs the opportunity to apply 

to the Shared Savings Program using a condensed application if three criteria are satisfied. First, 

the applicant ACO must be the same legal entity as the Pioneer ACO. Second, all of the TINs on 

the applicant’s ACO participant list must have appeared on the “Confirmed Annual TIN/NPI 

List” (as defined in the Pioneer ACO Model Innovation Agreement with CMS) for the applicant 

ACO’s last full performance year in the Pioneer ACO Model. Third, the applicant must be 

applying to participate in a two-sided model. We note that, consistent with the statute and our 

regulation at § 425.114, any Pioneer ACO transitioning to the Shared Savings Program must 

apply to participate in the Shared Savings Program for an agreement period that would start after 

its participation in the Pioneer ACO Model has ceased. We further note that Pioneer ACOs 

transitioning to the Shared Savings Program would be subject to the standard program integrity 

screening and an evaluation of their history of compliance with the requirements of the Pioneer 

ACO Model. 

Regarding the second criterion, we recognize there are differences between the Pioneer 

ACO Model and the Shared Savings Program, and that only some of the NPIs within a TIN 
CMS-1461-P 79 

might have participated in the Pioneer ACO. Therefore, for purposes of determining whether a 

condensed application will be appropriate under the Shared Savings Program, we will only 

compare the TINs and not NPIs. We also recognize that some TINs may not be able to obtain 

the consent of all NPIs billing through the TIN to participate in the Shared Savings Program, 

which disqualifies the TIN from participating in the program. Therefore, unlike with the PGP 

demonstration sites, we propose to allow the ACO applicant to complete a condensed application 

form even if it drops TINs that participated in its Pioneer ACO. However, if the applicant ACO 

includes TINs that were not on the Pioneer ACO’s Confirmed Annual TIN/NPI List for its last 

full performance year in the Pioneer ACO Model, the applicant must use the standard application 

for the Shared Savings Program. A Pioneer ACO applying to the Shared Savings Program using 

a condensed application form will be required to include a narrative description of the 

modifications they need to make to fulfill our requirements (for example, making changes to the 

governing body and obtaining or revising agreements with ACO participants and ACO 

providers/suppliers). 

Because the Pioneer ACO Model is a risk-bearing model designed for more experienced 

organizations, the third proposed criterion would permit Pioneer ACOs to use the condensed 

application only if they apply to participate in the Shared Savings Program under a two-sided 

model. We established Track 1 of the Shared Savings Program as an on-ramp for ACOs while 

they gain experience and become ready to accept risk. In this case, the Pioneer ACOs are 

already experienced and will have already accepted significant financial risk. Therefore, under 

this proposal, former Pioneer ACOs would not be permitted to enter the Shared Savings Program 

under Track 1. We further note that the rules and methodologies used under the Pioneer ACO 

Model to assess performance-based risk are different than under the Shared Savings Program. 
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Therefore, we encourage former Pioneer Model ACOs to carefully consider the risk-based track 

to which they apply under the Shared Savings Program, and to be cognizant of the differences in 

rules and methodologies. 

 We seek comments on this proposal to establish a condensed application process for 

Pioneer ACOs applying to participate in the Shared Savings Program and to require such Pioneer 

ACOs to participate under a track that includes performance-based risk. Pioneer ACOs that do 

not meet criteria for the condensed application would have to apply through the regular 

application process. 
CMS-1461-P 81 

C. Establishing and Maintaining the Participation Agreement with the Secretary 

1. Background 

The November 2011 final rule established procedures for applying to participate in the 

Shared Savings Program, including the need to submit a complete application, the content of the 

application, and CMS’s criteria for evaluating applications (see § 425.202 through § 425.206). 

In addition, § 425.212 specifies which changes to program requirements will apply during the 

term of an ACO’s participation agreement. In this section we discuss our proposals to clarify 

and to supplement the rules related to these requirements. 

In addition, while the current regulations address certain issues with respect to ACOs that 

wish to reapply after termination or experiencing a loss during their initial agreement period 

(§ 425.222 and § 425.600(c), respectively). The regulations are generally silent with respect to 

the procedures that apply to ACOs that successfully complete a 3-year agreement and would like 

to reapply for a subsequent agreement period in the Shared Savings Program. In this section, we 

discuss our proposal to establish the procedure for an ACO to renew its participation agreement 

for a subsequent agreement period. 

2. Application Deadlines 

a. Overview 

To obtain a determination on whether a prospective ACO meets the requirements to 

participate in the Shared Savings Program, our rules at § 425.202(a) require that an ACO submit 

a complete application in the form and manner required by CMS by the deadline established by 

CMS. Information on the required content of applications can be found in § 425.204, as well as 

in guidance published at http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Application.html. Among other requirements, applications must 
CMS-1461-P 82 

include certain information such as an ACO’s prior participation in or termination from the 

program (§ 425.204(b)); documents such as participation agreements, employment contracts and 

operating policies (§ 425.204(c)(1)(i)); and a list of all ACO participants and their 

Medicare-enrolled TINs (§ 425.204(c)(5)(i)). 

We determine and publish in advance on our website the relevant due dates for the initial 

submission of applications for each application cycle. While ACOs must submit a completed 

application by the initial application due date specified on our website, we recognize that there 

may be portions of the application where additional information is necessary for CMS to make a 

determination. Therefore, according to § 425.206(a)(2), we notify an applicant when its 

application is incomplete and provide an opportunity to submit information to complete the 

application by the deadline specified by CMS. 

As stated in § 425.206(a), CMS evaluates an ACO’s application on the basis of the 

information contained in and submitted with the application. Applications that remain 

incomplete after the deadline specified by CMS are denied. It is incumbent upon the ACO 

applicant to submit the information that is required for CMS to decide whether the applicant is 

eligible to participate in the program. 

b. Proposed Revisions 

In implementing the Shared Savings Program, we found that some applicants 

misunderstood our application process and the need to submit all required information by the 

specified deadline for submission of applications and supporting information. Thus, we propose 

to revise our application review process set forth at § 425.206(a) to better reflect our review 

procedures. 
CMS-1461-P 83 

First, we propose to consolidate at § 425.206 two similar provisions regarding application 

review. Currently, § 425.202(c)(1) regarding application review provides that CMS determines 

whether an applicant satisfies the requirements of Part 425 and is qualified to participate in the 

Shared Savings Program, and § 425.202(c)(2) provides that CMS approves or denies applications 

accordingly. We propose to amend § 425.206(a)(1) to address the concept of application review 

currently set forth at § 425.202(c)(1), and we propose to amend § 425.202(c) by replacing the 

existing text with language clarifying that CMS reviews applications in accordance with 

§ 425.206. 

Second, we propose to revise § 425.206(a) to better reflect our application review process 

and the meaning of the reference to “application due date.” Specifically, we propose to revise 

§ 425.206(a)(1) to clarify that CMS approves or denies an application on the basis of the 

following: information contained in and submitted with the application by the deadline specified 

by CMS; any supplemental information submitted by a deadline specified by CMS in response to 

CMS’ request for information; and other information available to CMS (including information 

on the ACO’s program integrity history). In addition, we propose to amend § 425.206(a)(2) to 

clarify our process for requesting supplemental information and to add a new paragraph (a)(3) to 

specify that CMS may deny an application if an ACO applicant fails to submit information by 

the deadlines specified by CMS. We believe that additional clarity may result in more timely 

submission of the information necessary to evaluate applications. Moreover, it is critical that 

ACOs submit information on a timely basis so that we can perform other necessary operational 

processes before the start of the approved ACO’s first performance year (for example, 

determining the number of beneficiaries assigned to the ACO, screening prospective ACO 
CMS-1461-P 84 

participants and ACO providers or suppliers, identifying the preliminary prospective list of 

assigned beneficiaries, and calculating the ACO’s historical benchmark). 

These proposed changes are consistent with our current regulations and practice. For 

example, as part of the application review process, CMS provides feedback to the ACO applicant 

regarding its list of ACO participants, and the number of assigned beneficiaries is determined 

using this list of ACO participants. If the number of assigned beneficiaries based on the list of 

ACO participants submitted with the application is under 5,000, which is the threshold for 

eligibility under § 425.110(a), we give the ACO applicant an opportunity to add ACO participant 

TINs. However, the ACO applicant must do so by the deadline indicated by CMS or the 

application is denied. Similarly, CMS denies an application if an ACO applicant fails to timely 

submit additional information that is required for CMS to determine whether the ACO applicant 

meets program requirements. 

3. Renewal of Participation Agreements 

a. Overview 

For ACOs that would like to continue participating in the Shared Savings Program after 

the expiration of their current agreement period, we propose a process for renewing their existing 

participation agreements, rather than requiring submission of a new or condensed application for 

continued program participation. Therefore, we propose to add new § 425.224 to establish 

procedures for renewing the participation agreements of ACOs. In addition, we propose to 

modify the definition of “agreement period” at § 425.20 to clarify its meaning in the context of 

participation agreement renewals. 

b. Proposed Revisions 
CMS-1461-P 85 

Under proposed § 425.224(a), an ACO would be permitted to request renewal of its 

participation agreement prior to its expiration in a form and manner and by the deadline specified 

by CMS in guidance. An ACO executive who has the authority to legally bind the ACO must 

certify that the information contained in the renewal request is accurate, complete, and truthful. 

Further, an ACO that seeks renewal of its participation agreement 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 renewal request with the Antitrust Agencies. We anticipate that our operational 

guidance will outline a process permitting renewal requests during the last performance year of 

an ACO’s participation agreement. For example, an ACO with a participation agreement ending 

on December 31, 2015 would be offered the opportunity to renew its participation agreement 

sometime during the 2015 calendar year in preparation to begin a new 3-year agreement period 

on January 1, 2016. To streamline program operations, we anticipate specifying a timeframe for 

submission and supplementation of renewal requests that would generally coincide with the 

deadlines applicable to submission and supplementation of applications by new ACO applicants 

under § 425.202. 

Under proposed § 425.224(b), we propose to determine whether to renew a participation 

agreement based on an evaluation of all of the following factors: 

● Whether the ACO satisfies the criteria for operating under the selected risk model. 

● The ACO’s history of compliance with the requirements of the Shared Savings 

Program. 

● 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 losses, if applicable. 
CMS-1461-P 86 

● Whether the ACO met the quality performance standards during at least 1 of the first 2 

years of the previous agreement period. 

● Whether an ACO under a two-sided model has repaid losses owed to the program that 

it generated during the first 2 years of the previous agreement period. 

● The results of a program integrity screening of the ACO, its ACO participants, and its 

ACO providers/suppliers (conducted in accordance with §425.304(b)). 

 We solicit comments on these criteria and any additional criteria that would help ensure 

the success of the program. 

We further propose to approve or deny a renewal request based on the information 

submitted in the request and other information available to CMS. We propose to notify the ACO 

when the request is incomplete or inadequate and to provide an opportunity for the ACO to 

submit supplemental information to correct the deficiency. The ACO must submit both the 

renewal request and any additional information needed to evaluate the request in the form and 

manner and by the deadlines specified by CMS. 

Under § 425.224(c), we propose to notify each ACO in writing of our determination to 

approve or deny the ACO’s renewal request. If we deny the renewal request, the notice would 

specify the reasons for the denial and inform the ACO of any rights to request reconsideration 

review in accordance with the procedures specified in part 425 subpart I. 

 We believe that a simple renewal process would reduce the burden for ACOs that wish to 

continue in the program and minimize the administrative burden on CMS, which would allow us 

to focus our attention on new applicants that have not yet established their eligibility to 

participate. We intend to establish the deadlines and other operational details for this renewal 

process through guidance and instructions. Finally, we note that under our proposal to modify 
CMS-1461-P 87 

the definition of the participation “agreement period” (section II.C.4 of this proposed rule), a 

new agreement period would begin upon the start of the first performance year of the renewed 

participation agreement. 

4. Changes to Program Requirements During the 3-Year Agreement 

a. Overview 

 In the November 2011 final rule (76 FR 67838), we recognized that we might promulgate 

changes to the Shared Savings Program regulations that would become effective while 

participating ACOs are in the middle of an agreement period. Therefore, we promulgated a rule 

to specify under what conditions an ACO would be subject to regulatory changes that become 

effective after the start of its agreement period. Specifically, we finalized § 425.212(a)(2), which 

provides that ACOs are subject to all regulatory changes with the exception of changes to the 

eligibility requirements concerning ACO structure and governance, the calculation of the sharing 

rate, and the assignment of beneficiaries (§ 425.212(a)(2)). We did not exempt ACOs from 

becoming immediately subject to other regulatory changes. For example, we did not exempt 

changes such as those related to quality measures because we believed that requiring ACOs to 

adhere to changes related to quality measures would ensure that they keep pace with changes in 

clinical practices and developments in evidence-based medicine. 

The November 2011 final rule did not require ACOs to be subject to any regulatory 

changes regarding beneficiary assignment that become effective during an agreement period 

because we recognized that changes in the beneficiary assignment methodology could 

necessitate changes to ACOs’ financial benchmarks. At the time we published the November 

2011 final rule (76 FR 67838), we had not developed a methodology for adjusting an ACO’s 

benchmark to reflect changes in the beneficiary assignment methodology during an agreement 
CMS-1461-P 88 

period. We anticipated that ACOs would complete their 3-year agreement period with a 

relatively stable set of ACO participants, and therefore they would all have stable benchmarks 

during the 3-year agreement period that would require updates only to reflect annual national 

FFS trends and changes in beneficiary characteristics, consistent with statutory requirements. 

Without a methodology for adjusting benchmarks to reflect changes in the beneficiary 

assignment methodology during the agreement period, we were reluctant to subject ACOs to 

immediate regulatory changes that could impact their benchmarks during the term of a 

participation agreement. However, in light of the extensive changes that ACOs have made to 

their lists of ACO participants during the first two performance years, the significant effect that 

these changes have had upon beneficiary assignment, and our subsequent development of 

additional policies regarding benchmark adjustment at the start of each performance year to 

reflect such changes (see http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Updating-ACO-Participant-List.html), we wish to revisit the 

types of regulatory changes an ACO would become subject to during its agreement period. We 

also propose to clarify §425.212(a) regarding the applicability of certain regulatory changes and 

to clarify the definition of “agreement period” under § 425.20. 

b. Proposed Revisions 

First, we propose to modify § 425.212(a) to provide that ACOs are subject to all 

regulatory changes “that become effective during the agreement period,” except for regulations 

regarding certain specified program areas, “unless otherwise required by statute.” This proposed 

revision corrects the omission of temporal language in the requirement regarding regulatory 

changes. In addition, it clarifies that ACOs would be subject to regulatory changes regarding 

ACO structure and governance, and calculation of the sharing rate during an agreement period if 
CMS-1461-P 89 

CMS is mandated by statute to implement such changes by regulation in the middle of a 

performance year. 

Second, we propose to modify the definition of “agreement period” at § 425.20. The 

term “agreement period” is currently defined at § 425.20 to mean “the term of the participation 

agreement which begins at the start of the first performance year and concludes at the end of the 

final performance year.” However, the reference to “final performance year” in the existing 

definition is ambiguous in light of our proposal to renew participation agreements (see section 

II.C.4. of this proposed rule). For example, if the “final performance year” of the agreement 

period includes the last performance year of a renewed participation agreement, an ACO would 

never be subject to regulatory changes regarding ACO structure and governance or calculation of 

the sharing rate. Therefore, we propose to amend the definition to provide that the agreement 

period would be 3 performance years, unless otherwise specified in the participation agreement. 

Thus, an ACO whose participation agreement is renewed for a second or subsequent agreement 

period would be subject, beginning at the start of that second or subsequent agreement period, to 

any regulatory changes regarding ACO structure and governance that became effective during 

the previous 3 years (that is, during the preceding agreement period). 

Third, we propose to require ACOs to be subject to any regulatory changes regarding 

beneficiary assignment that become effective during an agreement period. Specifically, we 

propose to remove beneficiary assignment as an exception under § 425.212(a). Consistent with 

our authority under section 1899(d)(1)(B)(ii) of the Act to adjust the benchmark “for beneficiary 

characteristics and other factors as the Secretary determines appropriate,” we have now 

developed operational policies under which we are able to adjust the benchmark on a yearly 

basis to account for changes in beneficiary assignment resulting from changes in the ACO’s list 
CMS-1461-P 90 

of ACO participants. For more detailed information on these policies see 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Updating-ACO-Participant-List.html. Given that these 

operational policies enable annual adjustments to ACO benchmarks to account for changes in 

beneficiary assignment resulting from changes in ACO participants, we believe we would also be 

able to adjust an ACO’s benchmark to account for regulatory changes regarding beneficiary 

assignment methodology that become effective during an agreement period. Accordingly, we do 

not believe our proposal to make regulatory changes regarding beneficiary assignment applicable 

to ACOs during an agreement period would inappropriately affect the calculation of an ACO’s 

benchmark or shared savings for a given performance year. Rather, our adjustment methodology 

would ensure continued and appropriate comparison between benchmark and performance year 

expenditures. 

Under this proposal, regulatory changes regarding beneficiary assignment would apply to 

all ACOs, including those ACOs that are in the middle of an agreement period. However, as 

discussed in section II.E.6. of this proposed rule, we also propose that any final policies that 

affect beneficiary assignment would not be applicable until the start of the next performance 

year. We believe that implementing any revisions to the assignment methodology at the 

beginning of a performance year is reasonable and appropriate because it would permit time for 

us to make the necessary programming changes and would not disrupt the assessment of ACOs 

for the current performance year. Moreover, we would adjust all benchmarks at the start of the 

first performance year in which the new assignment rules are applied so that the benchmark for 

an ACO reflects the use of the same assignment rules that would apply in the performance year. 
CMS-1461-P 91 

We also note that we carefully consider the timing and effect on both current and future 

ACOs of any new regulatory proposal, and when promulgating new regulatory changes, we 

intend to solicit comment on these matters. Additionally, when implementing a final rule that 

changes our processes and methodologies, we intend to alert current and prospective ACOs of 

such changes via CMS communications and updates to guidance. We request comment on this 

proposed change to § 425.212(a). 
CMS-1461-P 92 

D. Provision of Aggregate and Beneficiary Identifiable Data 

1. Background 

Under section 1899(b)(2)(A) of the Act, an ACO must "be willing to become accountable 

for the quality, cost, and overall care of the Medicare fee-for-service beneficiaries assigned to it." 

Further, in order to be eligible to participate in the Shared Savings Program, section 

1899(b)(2)(G) of the Act states an "ACO shall define processes to . . . report on quality and cost 

measures, and coordinate care . . .". However, section 1899 of the Act does not address what 

data, if any, we should make available to ACOs on their assigned beneficiary populations to 

support them in evaluating the performance of ACO participants and ACO providers/suppliers, 

conducting quality assessment and improvement activities, or conducting population-based 

activities relating to improved health. 

As we explained in the November 2011 final rule (76 FR 67844), in agreeing to become 

accountable for a group of Medicare beneficiaries, and as a condition of participation in the 

Shared Savings Program, we expect that ACOs will have, or are working towards having, 

processes in place to independently identify and produce the data they believe are necessary to 

best evaluate the health needs of their patient population, improve health outcomes, monitor 

provider/supplier quality of care and patient experience of care, and produce efficiencies in 

utilization of services. Therefore, it is our expectation that ACOs are actively working on 

developing and refining these processes. Moreover, we continue to believe this ability to 

independently identify and produce data for evaluating, improving, and monitoring the health of 

their patient population is a critical skill for each ACO to develop, leading to an understanding of 

the patient population that it serves. Once the ACO achieves an understanding of its patient 
CMS-1461-P 93 

population, it can work toward redesigning appropriate care processes to address the specific 

needs of its patient population. 

However, as we noted previously (76 FR 67844), while an ACO typically should have, or 

at least be moving towards having complete information for the services its ACO 

providers/suppliers furnish to Medicare FFS beneficiaries, we recognize that the ACO may not 

have access to information about services provided to its assigned beneficiaries by health care 

providers and suppliers outside the ACO – information that may be key to the ACO's 

coordination of care efforts. Therefore, during the original rulemaking process for the Shared 

Savings Program, we proposed and made final a policy: (1) to distribute aggregate-level data 

reports to ACOs; (2) upon request from the ACO, to share limited identifying information about 

beneficiaries who are preliminarily prospectively assigned to the ACO and whose information 

serves as the basis for the aggregate reports; and (3) upon request from the ACO, to share certain 

beneficiary identifiable claims data with the ACO to enable it to conduct quality assessment and 

improvement activities and/or conduct care coordination, on its own behalf as a covered entity, 

or on behalf of its ACO participants and ACO providers/suppliers that are covered entities, 

unless the beneficiary chooses to decline to share his or her claims data. 

As we stated in the November 2011 final rule (76 FR 67844), we believe that access to 

beneficiary identifiable information would provide ACOs with a more complete picture about the 

care their assigned beneficiaries receive, both within and outside the ACO. Further, it is our 

view that this information would help ACOs evaluate providers'/suppliers' performance, conduct 

quality assessment and improvement activities, perform care coordination activities, and conduct 

population-based activities relating to improved health. 
CMS-1461-P 94 

In the April 2011 proposed rule (76 FR 19558), we described the circumstances under 

which we believed that the HIPAA Privacy Rule would permit our disclosure of certain 

Medicare Part A and B data to ACOs participating in the Shared Savings Program. Specifically, 

under the Shared Savings Program statute and regulations, ACOs are tasked with working with 

their ACO participants and ACO providers/suppliers to evaluate their performance, conduct 

quality assessment and improvement activities, perform care coordination activities, and conduct 

population-based activities relating to improved health for their assigned beneficiary population. 

When done by or on behalf of a covered entity, these are functions and activities that would 

qualify as "health care operations" under the first and second paragraphs of the definition of 

health care operations at 45 CFR 164.501. As such, these activities can be done by an ACO 

either on its own behalf, if it is itself a covered entity, or on behalf of its covered entity ACO 

participants and ACO providers/suppliers, in which case the ACO would be acting as the 

business associate of its covered entity ACO participants and ACO providers/suppliers. 

Accordingly we concluded that the disclosure of Part A and B claims data would be permitted by 

the HIPAA Privacy Rule provisions governing disclosures for "health care operations," provided 

certain conditions are met. 

As we also discussed, upon receipt of a request for protected health information (PHI), a 

covered entity or its business associate is permitted to disclose PHI to another covered entity or 

its business associate for the requestor's health care operations if both entities have or had a 

relationship with the subject of the records to be disclosed (which is true in the Shared Savings 

Program), the records pertain to that relationship (which is also true in the Shared Savings 

Program), and the recipient asserts in its request for the data that it plans to use the records for a 

"health care operations" function that falls within the first two paragraphs of the definition of 
CMS-1461-P 95 

"health care operations" in the HIPAA Privacy Rule and that the data requested are the 

"minimum necessary" to carry out those health care operations. (See, the HIPAA Privacy Rule 

at 45 CFR 164.502(b) and 164.506(c)(4)). The first two paragraphs of the definition of health 

care operations under 45 CFR 164.501 include evaluating a provider's or supplier's performance, 

conducting quality assessment and improvement activities, care coordination activities, and 

conducting population-based activities relating to improved health. 

With respect to the relationship requirements in 45 CFR 164.506(c)(4), we have a 

relationship with the individuals who are the subjects of the requested PHI because they are 

Medicare beneficiaries. The ACO has a relationship with such individuals, either as a covered 

entity itself or on behalf of its covered entity ACO participants and ACO providers/suppliers as a 

business associate, because the individuals are either preliminarily prospectively assigned to the 

ACO or have received a primary care service during the past 12 month period from an ACO 

participant upon whom assignment is based. In addition, the requested PHI pertains to the 

individuals’ relationship with both CMS and the ACO, in that we provide health care coverage 

for Medicare FFS beneficiaries and have an interest in ensuring that they receive high quality 

and efficient care, and the ACO is responsible for managing and coordinating the care of these 

individuals, who are part of the ACO’s assigned beneficiary population. 

Beneficiary identifiable Medicare prescription drug information could also be used by 

ACOs to improve the care coordination of their patient populations. Accordingly, consistent 

with the regulations governing the release of Part D data, in the April 2011 proposed rule 

(76 FR 19559), we also proposed to make available the minimum Part D data necessary to allow 

for the evaluation of the performance of ACO participants and ACO providers/suppliers, to 
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conduct quality assessment and improvement, to perform care coordination, and to conduct 

population-based activities relating to improved health. 

In the November 2011 final rule (76 FR 67846 and 67851), we adopted a policy that 

defined when we would share beneficiary identifiable information (including Part A and B 

claims data and Part D prescription drug event data) for preliminarily prospectively assigned 

beneficiaries and those beneficiaries who have a primary care visit with an ACO participant that 

is used to assign beneficiaries to the ACO. As a basic requirement, in order to receive such data 

an ACO that chooses to access beneficiary identifiable data is required under 42 CFR 425.704 to 

request the minimum data necessary for the ACO to conduct health care operations work, either 

as a HIPAA-covered entity in its own right, or as the business associate of one or more 

HIPAA-covered entities (where such covered entities are the ACO participants and ACO 

providers/suppliers), for "health care operations" activities that fall within the first or second 

paragraph of the definition of health care operations at 45 CFR 164.501. We note that as part of 

their application to participate in the Shared Savings Program, ACOs certify whether they intend 

to request beneficiary identifiable information, and that the requested data reflects the minimum 

necessary for the ACO to conduct health care operations either on its own behalf or on behalf of 

its covered entity ACO participants and ACO provider/suppliers. Thus, the ACO's formal 

request to receive data is accomplished at the time of its application to the Shared Savings 

Program. The ACO must also enter into a data use agreement (DUA) with CMS. If all of these 

conditions are satisfied, CMS makes available certain limited PHI regarding the preliminarily 

prospectively assigned beneficiaries whose data were used to generate the aggregate data reports 

provided to the ACO under § 425.702(b) and other beneficiaries who have a primary care visit 

during the performance year with an ACO participant upon whom assignment is based. In order 
CMS-1461-P 97 

to enhance transparency and beneficiary engagement, we also finalized a policy that before 

ACOs may start receiving PHI in the form of beneficiary identifiable claims data, they must give 

beneficiaries the opportunity to decline sharing of their claims data as required under § 425.708. 

Since the publication of the November 2011 final rule, we have gained further experience 

with sharing data with ACOs participating in the Shared Savings Program. We continue to 

believe that distributing aggregate reports, paired with making available certain beneficiary 

identifiable information related to preliminarily prospectively assigned beneficiaries, as well as 

making available the claims data for preliminarily prospectively assigned FFS beneficiaries and 

other FFS beneficiaries that have primary care service visits with ACO participants that submit 

claims for primary care services that are used to determine the ACO’s assigned population, is 

worthwhile and consistent with the goals of the Shared Savings Program. The aggregate data 

reports and the beneficiary identifiable information related to preliminarily prospectively 

assigned beneficiaries give ACOs valuable information that can be used to better understand 

their patient population, redesign care processes, and better coordinate the care of their 

beneficiaries. ACOs participating in the Shared Savings Program have reported that the 

beneficiary identifiable claims data that they receive from us are being used effectively to better 

understand the FFS beneficiaries that are served by their ACO participants and ACO 

providers/suppliers. These data give ACOs valuable insight into patterns of care for their 

beneficiary population; enable them to improve care coordination among and across providers 

and suppliers and sites of care, including providers and suppliers and sites of care not affiliated 

with the ACO; and allow them to identify and address gaps in patient care. 

However, based upon our experiences administering the Shared Savings Program and 

feedback from stakeholders, we believe that we can improve our data sharing policies and 
CMS-1461-P 98 

processes to streamline access to such data to better support program and ACO function and 

goals and better serve Medicare beneficiaries. It is with this in mind that we propose the 

following modifications to our data sharing policies and procedures under the Shared Savings 

Program. 

2. Aggregate Data Reports and Limited Identifiable Data 

a. Overview 

Under § 425.702, we share aggregate reports with ACOs at the beginning of the 

agreement period based on beneficiary claims used to calculate the benchmark, at each quarter 

thereafter on a rolling 12-month basis, and in conjunction with the annual reconciliation. The 

aggregate reports provided under § 425.702(a) and (b) contain certain de-identified beneficiary 

information including all of the following: 

● Aggregated metrics on the ACO's preliminarily prospectively assigned beneficiary 

population, including characteristics of the assigned beneficiary population, the number of 

primary care services provided to the assigned beneficiary population by the ACO, and the 

proportion of primary care services provided to the assigned beneficiary population by ACO 

participants upon whom assignment is based. 

● Expenditure data for the ACO's assigned beneficiary population by Medicare 

enrollment type (ESRD, disabled, aged/dual eligible, aged/non-dual eligible) and type of service 

(for example, inpatient hospital, physician, etc.). 

● Utilization data on select metrics for the assigned population, such as ambulatory care 

sensitive conditions discharge rates per 1,000 beneficiaries for conditions such as congestive 

heart failure (CHF) or uncontrolled diabetes, and utilization rates for imaging, emergency 

department visits, hospitalizations, and primary care services. 
CMS-1461-P 99 

In addition, under § 425.702(c), we also provide a report that includes certain beneficiary 

identifiable information about the beneficiaries who are preliminarily prospectively assigned to 

the ACO and whose data were used to generate the de-identified aggregate data reports. The 

information currently contained in this assignment report includes the beneficiary name, date of 

birth, HICN, and sex. These beneficiary identifiable data are made available to an ACO that has 

met the conditions previously discussed in detail for purposes of carrying out population-based 

activities related to improving health or reducing growth in health care costs, process 

development (such as care coordination processes), case management, and care coordination for 

the beneficiary population assigned to the ACO. Under § 425.708(d) these data points are not 

subject to the requirement that an ACO give beneficiaries an opportunity to decline claims data 

sharing. 

Feedback we have received since the November 2011 final rule was issued and during 

implementation of the Shared Savings Program, confirms there is a strong desire among ACOs 

and their ACO participants and ACO providers/suppliers to have as much information about 

their patients as is possible, in as timely a manner as possible, to better coordinate care and target 

care strategies toward individual beneficiaries. Moreover, ACOs are actively using the reports 

provided under § 425.702 to conduct their health care operations work with the expectation that 

it will result in higher quality and more efficient care for their assigned beneficiary populations. 

However, ACOs and their ACO participants and ACO providers/suppliers also report that the 

four data elements currently made available on the assignment reports under § 425.702(c) —that 

is, beneficiary name, date of birth, HICN, and sex—severely limit their care redesign efforts. 

They assert that additional data elements are necessary in order to conduct health care operations 

work under the first or second paragraph of the definition of health care operations at 
CMS-1461-P 100 

45 CFR 164.501. For example, an ACO reported that having data not only on the frequency of 

hospitalizations but also on which specific beneficiaries were hospitalized and in which specific 

hospitals would better enable it to identify the effectiveness and outcomes of its 

post-hospitalization care coordination processes. Some stakeholders have made suggestions for 

beneficiary identifiable data that should be included in the quarterly reports in addition to the 

current four data elements, such as risk profiles or information on whether the beneficiary had a 

hospital visit in the past year. Some stakeholders suggested that the report be expanded to 

include information not only for the beneficiaries that received a plurality of their primary care 

services from ACO professionals, but also for all FFS beneficiaries that received a primary care 

service from an ACO participant in the past year. These stakeholders argue that understanding 

the entire FFS patient population served by the ACO and its ACO participants would improve 

their ability to redesign care, and reduce the uncertainty associated with a list of preliminarily 

prospectively assigned beneficiaries that fluctuates from quarter to quarter, based on the 

population's use of primary care services. 

b. Proposed Revisions 

We considered what additional beneficiary identifiable data might be the minimum 

necessary to support the ACOs' health care operations work. Based on our discussions with 

ACOs and ACO participants and ACO providers/suppliers, we believe that making additional 

information available to ACOs about the FFS beneficiaries they serve, including for example, on 

whether a beneficiary visited an emergency room or was hospitalized, would help support such 

efforts. Thus, we propose to expand the information made available to ACOs under § 425.702(c) 

to include certain additional beneficiary identifiable data subject to the existing requirements of 

§ 425.702(c)(2), which incorporates the requirements under HIPAA governing the disclosure of 
CMS-1461-P 101 

PHI. Specifically, in addition to the four data elements (name, date of birth, HICN, and sex) 

which are currently made available for preliminarily prospectively assigned beneficiaries, we 

propose to expand the beneficiary identifiable information that is made available under 

§ 425.702(c)(1) to include these data elements (name, date of birth, HICN, and sex) for each 

beneficiary that has a primary care service visit with an ACO participant that bills for primary 

care services that are considered in the assignment process in the most recent 12-month period. 

Additionally, we propose to expand the beneficiary identifiable information made 

available for preliminarily prospectively assigned beneficiaries to include additional data points. 

The information would be derived from the same claims used to determine the preliminary 

prospective assigned beneficiary list. Specifically, we propose that we would make available the 

minimum data set necessary for purposes of the ACO’s population-based activities related to 

improving health or reducing health care costs, required process development (under § 425.112), 

care management, and care coordination for its preliminarily prospectively assigned beneficiary 

population, at the following times: (1) at the beginning of the agreement period; (2) at the 

beginning of each performance year and quarterly thereafter; and (3) in conjunction with the 

annual reconciliation. We would articulate the data elements associated with the minimum data 

set in operational guidance, and update as needed to reflect changes in the minimum data 

necessary for ACOs to perform these activities. The information would fall under the following 

categories: 

● Demographic data such as enrollment status. 

● Health status information such as risk profile, and chronic condition subgroup. 

● Utilization rates of Medicare services such as the use of evaluation and management, 

hospital, emergency, and post-acute services, including dates and place of service. 
CMS-1461-P 102 

● Expenditure information related to utilization of services. 

 We believe that under this approach the data made available in the aggregate data reports 

under § 425.702(c) would generally constitute the minimum data necessary for covered entity 

ACOs or for ACOs serving as the business associate of their covered entity ACO participants 

and ACO providers/suppliers, to evaluate providers’ and suppliers’ performance, conduct quality 

assessment and improvement activities, and conduct population-based activities relating to 

improved health. 

Finally, we note that these proposals for expansion of the data reports provided under 

§ 425.702(c) to include each FFS beneficiary that has a primary care visit with an ACO 

participant that submits claims for primary care services that are considered in the assignment 

process, would apply only to ACOs participating in Tracks 1 and 2, where beneficiaries are 

assigned in a preliminarily prospective manner with retrospective reconciliation. This is because 

ACOs in Tracks 1 and 2 have an incentive to redesign care processes for all FFS beneficiaries 

that receive care from their ACO participants, due to the nature of the preliminarily prospective 

assignment methodology with retrospective reconciliation. Under our proposed Track 3, which 

is discussed in detail in section II.F.3.a. of this proposed rule, we believe that the minimum data 

necessary for ACOs to perform health care operations as defined under the first and second 

paragraphs of the definition of health care operations at 45 CFR 164.501, would not extend 

beyond data needed for health operations related to the prospective list of assigned beneficiaries. 

We believe a prospective assignment approach incentivizes targeting of the specific FFS 

beneficiaries on the list for care improvement, rather than redesigning care processes for all FFS 

beneficiaries seen by the ACO participants. As such, the minimum data necessary required for 

Track 3 ACOs to perform health care operations work would be limited to the data for 
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beneficiaries that are prospectively assigned for a performance year. Thus, for Track 3, we 

propose to limit the beneficiary identifiable data included in the reports made available under 

§ 425.702(c) to only those beneficiaries that appear on the ACO's prospective list of beneficiaries 

at the beginning of a performance year. Specifically, Track 3 ACOs would have access to 

beneficiary identifiable data elements associated with the list of categories under § 425.702(c) 

for beneficiaries prospectively assigned to the ACO but would not be able to request any 

information related to other Medicare FFS beneficiaries who receive primary care services that 

are considered in the assignment process from ACO participants. We believe this limitation is 

reasonable because, under Track 3, the prospectively assigned beneficiary list would encompass 

all beneficiaries for whom the ACO would be held accountable in a given performance year, in 

contrast to ACOs in Tracks 1 and 2 that would be held accountable for any FFS beneficiaries that 

choose to receive a plurality of their primary care services from ACO professionals billing 

through the TINs of ACO participants. 

 We seek comment on our proposal to expand the data set made available to ACOs under 

§ 425.702(c). We seek comment on the categories of information that we have proposed to 

include and on any other beneficiary identifiable information that should be offered in the 

aggregate reports provided under § 425.702(c) in order to allow ACOs as covered entities or as 

the business associate of their covered entity ACO participants and ACO providers/suppliers to 

conduct health care operations work under paragraphs one or two of the definition of health care 

operations at 45 CFR 164.501. We also specifically seek comment on our proposal to expand 

the list of beneficiaries for which data are made available under § 425.702(c) to ACOs 

participating in Track 1 and Track 2 to include all beneficiaries that had a primary care service 
CMS-1461-P 104 

visit with an ACO participant that submits claims for primary care services that are considered in 

the assignment process. 

3. Claims Data Sharing and Beneficiary Opt-out 

a. Overview 

Because Medicare FFS beneficiaries have the freedom to choose their health care 

providers and suppliers, and are not required to receive services from providers and suppliers 

participating in the ACO, the patients of ACO participants and ACO providers/suppliers often 

receive care from other providers and suppliers that are not affiliated with the ACO. As a result, 

ACOs and their ACO participants and ACO providers/suppliers may not be aware of all of the 

services an assigned beneficiary is receiving. Furthermore, under Tracks 1 and 2, we perform a 

retrospective reconciliation at the end of each performance year to determine an ACO's assigned 

beneficiary population based on beneficiaries' use of primary care services using the assignment 

algorithm described at § 425.402 of the regulations. Therefore, under Tracks 1 and 2, it is 

possible that an ACO's preliminary prospective assigned beneficiary list would not be complete 

and would not include all the beneficiaries that would ultimately be assigned to the ACO at the 

end of the performance year – that is, all of the beneficiaries for which the ACO ultimately 

would be held accountable. As we discussed in the April 2011 proposed rule (76 FR 19558) and 

in the November 2011 final rule (76 FR 67844), we were concerned about ACOs' ability to do 

their work in the absence of information about services delivered outside of the ACO. As we 

stated at that time, we believed that it would be important to give ACOs appropriate access to a 

beneficiary's identifiable claims data when the beneficiary has received a primary care service 

billed through the TIN of an ACO participant, and is thus a candidate for assignment at the time 

of retrospective reconciliation for the performance year. We believed that sharing beneficiary 
CMS-1461-P 105 

identifiable claims data would enable ACOs to better coordinate and target care strategies 

towards the individual beneficiaries seen by ACO participants and ACO providers/suppliers. 

We ultimately concluded that the bases for disclosure under the HIPAA Privacy Rule 

were broad enough to cover CMS’s disclosure of Medicare Parts A and B claims data to ACOs 

for health care operations work when certain conditions are met. Similarly, we concluded that 

the Part D regulations governing the release of Part D data on prescription drug use would permit 

the release of Part D prescription drug event data to ACOs for purposes of supporting care 

coordination, quality improvement, and performance measurement activities. Thus, we 

concluded that we are permitted to disclose the minimum Medicare Parts A, B, and D data 

necessary to allow ACOs to conduct the health care operations activities that fall into the first or 

second paragraph of the definition of health care operations under the HIPAA Privacy Rule when 

such data is requested by the ACO as a covered entity or as the business associate of its covered 

entity ACO participants and ACO providers/suppliers. Accordingly, in the November 2011 final 

rule (76 FR 67851), we adopted a policy under which an ACO may request Part A and Part B 

claims data and Part D prescription drug event data for preliminarily prospectively assigned 

beneficiaries and other beneficiaries who receive primary care services from an ACO participant 

upon whom assignment is based. In accordance with the terms of the DUA that the ACO must 

enter into with CMS, data received from CMS under the data sharing provisions of the Shared 

Savings Program may only be used for the purposes of clinical treatment, care management and 

coordination, quality improvement activities, and provider incentive design and implementation. 

In providing the claims data subject to these limitations, we believed that we would ensure 

compliance with the requirements of the HIPAA Privacy Rule and the regulations governing the 

release of Part D data. 
CMS-1461-P 106 

While the disclosure of claims data in this manner is within the bounds of the applicable 

laws, we also noted concerns about beneficiaries' interests in controlling access to their 

individually identifiable health information. Thus, even though we believed that we had legal 

authority to make the contemplated disclosures without the consent of beneficiaries, in the 

November 2011 final rule (76 FR 67849) we implemented the additional requirement at 

§ 425.708 that ACOs offer beneficiaries an opportunity to decline to have their claims data 

shared with the ACO. As such, before requesting access to the beneficiary’s data and as part of 

its broader activities to notify patients that their health care provider or supplier is participating 

in an ACO, the ACO is required to inform beneficiaries that the ACO may request access to their 

claims data, and give beneficiaries an opportunity to decline such claims data sharing. 

Under the current opt-out system, once the ACO formally requests beneficiary 

identifiable claims data through the application process, enters into a DUA with CMS, and 

begins its first performance year, the ACO must supply beneficiaries with a written notification 

explaining their opportunity to decline claims data sharing. Offering beneficiaries the 

opportunity to decline claims data sharing may take two forms under current § 425.708. First, if 

the ACO has formally requested beneficiary identifiable claims data as part of the application 

process, the ACO must notify each FFS beneficiary of the opportunity to decline data sharing 

when the beneficiary has his or her first visit with an ACO participant upon whom assignment is 

based. During this visit, the beneficiary must be provided with written notification informing 

him or her of the ACO provider/supplier's participation in the ACO and that the ACO may 

request claims information from CMS in order to better coordinate the beneficiary's care and for 

other health operations activities. This written notification contains template language created 

by CMS with the assistance of the Medicare Ombudsman’s office and with input from 
CMS-1461-P 107 

beneficiaries, and explains the beneficiary's option to decline claims data sharing. Once the 

beneficiary has expressed a preference at the point of care, the ACO may immediately inform 

CMS of the beneficiary’s data sharing preference. If the beneficiary has not declined data 

sharing, CMS makes that beneficiary’s data available to the ACO. 

We recognized, however, that beneficiaries may not seek primary care services until later 

in the performance year. Because of this, we offered an alternative option to ACOs who met 

requirements for receiving beneficiary identifiable claims data. Under the alternative option, 

ACOs may contact beneficiaries via a mailed notification that is sent to all preliminarily 

prospectively assigned beneficiaries to notify them of their health care provider's participation in 

an ACO under the Shared Savings Program, and the ACO's intent to request beneficiary 

identifiable claims data. The mailed notification contains template language that was developed 

in conjunction with the Medicare Ombudsman’s office with input from beneficiaries. If the 

beneficiary wishes to decline claims data sharing, the beneficiary is instructed to sign the mailed 

notification and return it to the ACO or call 1-800-MEDICARE directly. If the ACO chooses to 

contact beneficiaries via a mailed notification, rather than waiting to notify them at the point of 

care, the ACO must wait 30 days before submitting the beneficiary’s preference and receiving 

access to the data for those beneficiaries that have chosen not to decline claims data sharing. The 

30-day waiting period provides beneficiaries with an opportunity to mail back the notification or 

to call 1-800-MEDICARE before the ACO receives access to their claims data. In addition, in 

order to ensure transparency, beneficiary engagement and meaningful choice, the notification 

and opportunity to decline claims data sharing must be repeated at the beneficiary's first primary 

care visit with an ACO participant upon whom assignment is based (76 FR 67850 and 67851). 

Finally, in addition to the point of care and mailed notifications provided by ACOs, all Medicare 
CMS-1461-P 108 

FFS beneficiaries are notified through the Medicare & You Handbook about ACOs and the 

opportunity to decline claims data sharing by contacting CMS directly at 1-800-MEDICARE. 

Once the ACO has notified the beneficiaries according to program rules, and any 

applicable wait periods are over, the ACO submits the beneficiaries’ preferences to CMS. 

Beneficiary preferences submitted by ACOs are combined with preferences received by CMS 

through 1-800-MEDICARE. Based on these beneficiary preferences, we generate a claims file 

containing the beneficiary identifiable claims data of beneficiaries that have not declined data 

sharing. These claims files are then made available for ACO access on a monthly basis. 

Once a beneficiary has declined data sharing, the beneficiary may choose to reverse the 

decision by signing another form and sending it to the ACO (who in turn notifies CMS of the 

beneficiary’s updated preference) or by calling 1-800-MEDICARE directly. We then include the 

beneficiary’s claims data in the claims file provided to the ACO the following month. 

In the November 2011 final rule (76 FR 67849), we acknowledged that it is possible that 

a beneficiary may decline to have his or her claims data shared with an ACO but would choose 

to continue to receive care from ACO participants and ACO providers/suppliers. In such a case, 

the ACO would still be responsible for that beneficiary's care, and, as such, although the 

beneficiary's claims data would not be shared with the ACO, CMS would continue to use the 

beneficiary’s claims data in its assessment of the ACO's quality and financial performance. 

In the November 2011 final rule (76 FR 67849 through 67850) we expressed our view 

that beneficiaries should be notified of their health care provider's participation in an ACO in 

order to have some control over who has access to their health information for purposes of the 

Shared Savings Program. Further, we indicated that the requirement that an ACO 

provider/supplier engage patients in a discussion about the inherent benefits, as well as the 
CMS-1461-P 109 

potential risks, of claims data sharing provided an opportunity for true patient-centered care and 

would create incentives for ACOs, ACO participants, and ACO providers/suppliers to develop 

positive relationships with each beneficiary under their care. Additionally, we stated that this 

policy would provide ACO participants and ACO providers/suppliers the opportunity to engage 

with beneficiaries by explaining the Shared Savings Program and its potential benefits for both 

the beneficiaries and the health care system as a whole. 

Since implementation of the Shared Savings Program, we have shared claims data on 

over 5 million beneficiaries with over 300 Shared Savings Program ACOs. We have received 

informal feedback from ACOs that are putting the opt-out requirement into practice, and from 

beneficiaries who have received notifications from an ACO that wanted to request access to their 

claims data. We have learned the following from this feedback: 

● The option for ACOs to mail notifications and then conduct in-office follow-up adds 

to ACOs' financial costs and delays their ability to access claims data in a timely manner. ACOs 

must wait until January 1 of the first performance year to send out mailings. After waiting the 

requisite 30 days, the earliest the ACO may submit beneficiary preferences to CMS is in 

February. The first set of claims data is then available in mid-March. In addition, some ACOs 

struggle with obtaining current mailing information for preliminarily prospectively assigned 

beneficiaries, which can delay the mailing of notifications to later in the performance year. 

Thus, the earliest opportunity for ACOs to receive claims data is mid-February, and that is only 

the claims data for beneficiaries who visited primary care providers in early January and were 

given the opportunity to decline claims data sharing at the point of care. 

● Stakeholders, including ACOs, ACO participants, and ACO providers/suppliers, 

continually confuse the notification regarding the ACO's intent to request access to claims data 
CMS-1461-P 110 

with the separate requirement that all FFS beneficiaries must be notified of ACO participants' 

and ACO providers/suppliers' participation in the program. Beneficiaries must be notified at the 

point of care of the ACO participants’ and ACO providers/suppliers’ participation in an ACO, 

regardless of whether the ACO has or intends to request access to claims data. 

● ACOs have commented that beneficiaries are confused about why their providers do 

not already have access to information regarding other care they may receive, which potentially 

erodes rather than strengthens the patient-provider relationship. Beneficiaries often assume their 

providers have all the information they need to care for them. However, as noted previously, the 

ACO, its ACO participants, and ACO providers/suppliers would not have claims data for 

services rendered outside the ACO, and would not necessarily have knowledge about that care. 

● Beneficiaries can choose to receive care from providers outside an ACO, so 

beneficiaries may receive notices regarding data sharing from more than one ACO. This is most 

likely to occur in markets with high ACO penetration where a beneficiary may receive primary 

care services from several different ACO professionals, each participating in different ACOs. 

Beneficiaries report confusion, concern, and annoyance over receiving multiple mailings from 

ACOs, and question why their health care providers do not already have the information they 

need to appropriately coordinate their care. 

● Beneficiaries receiving the notifications giving them the opportunity to decline claims 

data sharing may mistakenly believe they are being asked to "opt-out" of ACO care and/or 

Medicare FFS, or that they have been placed in a managed care plan without their consent. 

● Beneficiaries that receive the letters in the mail notifying them of their provider’s 

participation in an ACO and offering them the opportunity to decline claims data sharing often 

mistakenly believe that these letters are fraudulent and do not know what to do. Many ACOs are 
CMS-1461-P 111 

entities that have been newly formed by providers and suppliers for purposes of participating in 

the Shared Savings Program. While the beneficiary may have a strong relationship with his or 

her primary care provider, the beneficiary may not recognize the name of the newly formed ACO 

and therefore may have concerns and question the legitimacy of the notification. 

● Our data indicate that approximately 2 percent of beneficiaries have declined claims 

data sharing. This is consistent with other CMS initiatives that have included data sharing, such 

as the Medicare Health Support demonstration, the Multi-Payer Advanced Primary Care Practice 

demonstration, the Physician Group Practice demonstration, and the Physician Group Practice 

Transition demonstration. 

 As discussed previously, beneficiaries currently have the opportunity to decline claims 

data sharing by responding to the letters that ACOs send to their preliminarily prospectively 

assigned beneficiaries, by informing an ACO provider/supplier during a face-to-face primary 

care service visit, or by contacting 1-800-MEDICARE directly. We continue to be committed to 

offering beneficiaries some control over ACO access to their beneficiary identifiable information 

for purposes of the Shared Savings Program. However, in light of the feedback we have 

received, we were motivated to review our claims data sharing policies and processes to 

determine what refinements could be made to mitigate the concerns raised by stakeholders 

regarding the burden imposed on both beneficiaries and those entities participating in the Shared 

Savings Program. We considered several aspects of our claims data sharing policies, including 

the use of various formats to communicate with beneficiaries regarding claims data sharing 

under the program such as: mailed notifications to the list of preliminarily prospectively 

assigned beneficiaries by the ACO; face-to-face discussions with healthcare providers during 

primary care visits; and CMS's use of 1-800-MEDICARE and the Medicare & You Handbook. 
CMS-1461-P 112 

As discussed in the April 2011 proposed rule (76 FR 19558) and the November 2011 final rule 

(76 FR 67846), we are convinced by stakeholders that Medicare claims data provide an 

important supplement to the data to which the ACO and its ACO participants and ACO 

providers/suppliers already have access. Current law allows CMS to share certain beneficiary 

identifiable claims data with ACOs when those data are necessary for purposes of certain health 

care operations. HIPAA does not require that beneficiaries be presented with an opportunity to 

decline claims data sharing before their PHI can be shared. Moreover, several other CMS 

initiatives, including the Medicare Health Support demonstration, the Multi-Payer Advanced 

Primary Care Practice demonstration, the Physician Group Practice demonstration, and the 

Physician Group Practice Transition demonstration, have successfully shared claims data with 

providers in the absence of an opportunity for beneficiaries to decline claims data sharing. 

Therefore, we considered how to retain meaningful beneficiary choice in claims data sharing 

while reducing the confusion and burden caused by our current claims data sharing policies. We 

believe meaningful beneficiary choice in claims data sharing is maintained when the purpose and 

rationale for such claims data sharing are transparent and communicated to beneficiaries, and 

there is a mechanism in place for beneficiaries to decline claims data sharing. Thus, in revisiting 

our claims data sharing policies, we sought to maintain claims data sharing transparency and a 

mechanism for beneficiaries to decline claims data sharing. 

b. Proposed Revisions 

Based on our experiences with data sharing under the Shared Savings Program to date, 

we are proposing to modify our processes and policy for claims data sharing while remaining 

committed to retaining meaningful beneficiary choice over claims data sharing with ACOs. 

First, we propose to provide beneficiaries with the opportunity to decline claims data sharing 
CMS-1461-P 113 

directly through 1-800-MEDICARE, rather than through the ACO. We note that 1-800-

MEDICARE has the capability for beneficiaries to use accessible alternative or appropriate 

assistive technology, if needed. We would continue to maintain a list of beneficiaries that have 

declined data sharing and ensure that their claims information is not included in the claims files 

shared with ACOs. Second, we propose to provide advance notification to all FFS beneficiaries 

about the opportunity to decline claims data sharing with ACOs participating in the Shared 

Savings Program through CMS materials such as the Medicare & You Handbook. The 

Handbook would include information about the purpose of the program, describe the opportunity 

for ACOs to request beneficiary identifiable claims data for health care operations purposes, and 

provide instructions on how beneficiaries may decline claims data sharing by contacting CMS 

directly through 1-800-MEDICARE. The Handbook would also contain instructions on how a 

beneficiary may reverse his or her preference to decline claims data sharing by contacting 1-800-

MEDICARE. Third, to reduce burden for both beneficiaries and ACOs, we propose to remove 

the option for ACOs to mail notifications to beneficiaries and for beneficiaries to sign and return 

the forms to the ACO in order to decline claims data sharing. This process would be replaced by 

a simpler, direct process through notification at the point of care and through 1-800-MEDICARE 

as described previously. 

We also propose to continue to require that ACO participants notify beneficiaries in 

writing at the point of care that their providers and suppliers are participating in the Shared 

Savings Program as required under § 425.312(a). We propose that ACO participants would 

continue to be required to post signs in their facilities using required template language. Rather 

than requiring ACO participants furnishing primary care services to provide a written form 

regarding claims data sharing to all beneficiaries who have a primary care service office visit, we 
CMS-1461-P 114 

propose to update the required notification template language for these signs to include 

information regarding claims data sharing. We would update the template language with the 

assistance of the Medicare Ombudsman’s Office and beneficiary input to inform beneficiaries 

about both the Shared Savings Program and also that the ACO may request access to beneficiary 

identifiable claims data from CMS in order to perform health care operations as defined under 

the first and second paragraphs of the definition of health care operations at 45 CFR 164.501. 

The signs would also provide beneficiaries with information about their opportunity to decline 

this data sharing and instructions to call 1-800-MEDICARE if they would prefer that we not 

share their claims data with an ACO and its ACO participants and ACO providers/suppliers. The 

signs would likewise include instructions for how beneficiaries may reverse their opt-outs 

through 1-800-MEDICARE, if they determine in the future they would prefer to have their 

claims data made available to ACOs and their ACO participants and ACO providers/suppliers. 

Because ACO participants are required to post these signs in their facilities at all times, this 

written notification through the signs would occur at each visit, including the first visit the 

beneficiary has with an ACO participant during a performance year. 

We also anticipate that some beneficiaries may continue to want to have the ability to 

take the information home or into their visit with their primary care provider for further 

discussion. Therefore, in addition to the signs, we propose to retain our policy that ACO 

participants that submit claims for primary care services used to determine the ACO’s assigned 

beneficiary population be required to make a separate written notification form available to the 

beneficiary upon request. 

We propose to modify § 425.312 and § 425.708 for clarity and to reflect these revised 

notification policies. 
CMS-1461-P 115 

Finally, under Tracks 1 and 2, we propose to make beneficiary identifiable claims data 

available in accordance with applicable law on a monthly basis for beneficiaries that are either 

preliminarily prospectively assigned to the ACO or who have received a primary care service 

during the past 12-month period from an ACO participant upon whom assignment is based. 

Because Tracks 1 and 2 use a preliminary prospective assignment methodology with 

retrospective reconciliation, we believe that ACOs, ACO participants, and ACO 

providers/suppliers in Tracks 1 and 2 would benefit from access to beneficiary identifiable 

claims information for all FFS beneficiaries that may be assigned to the ACO at the end of the 

performance year. In contrast, under Track 3, we propose to make beneficiary identifiable 

claims data available only for beneficiaries that are prospectively assigned to an ACO, because 

the beneficiaries on the prospective assignment list are the only beneficiaries for whom the ACO 

would be held accountable at the end of the performance year. Consistent with the existing 

requirements at § 425.704, in order to request beneficiary identifiable claims data, and regardless 

of track, an ACO must: (1) certify that it is a covered entity or the business associate of a 

covered entity that has provided a primary care service to the beneficiary in the previous 

12 months; (2) enter into a DUA with CMS prior to the receipt of these beneficiary identifiable 

data; (3) submit a formal request to receive beneficiary identifiable claims data for such 

beneficiaries at the time of application to the Shared Savings Program; and (4) certify that the 

request reflects the minimum data necessary for the ACO to conduct either its own health care 

operations work that falls within the first or second paragraph of the definition of health care 

operations at 45 CFR 164.501 or health care operations work on behalf of its ACO participants 

and ACO providers/suppliers that are covered entities (as the business associate of these covered 
CMS-1461-P 116 

entities) that falls within the first or second paragraph of the definition of health care operations 

at 45 CFR 164.501. 

We believe these proposed modifications to our data sharing rules would significantly 

improve the claims data sharing process. First, we believe the modified process would reduce 

burden for beneficiaries who would no longer have to mail back forms. In addition, it would 

minimize beneficiary confusion in situations where an ACO may be newly formed and may not 

yet have established a relationship with the beneficiary. Instead, the beneficiary would be able 

decline claims data sharing, and reverse a decision to decline claims sharing, by contacting CMS 

directly using 1-800-MEDICARE. We believe beneficiaries would be more comfortable 

expressing their claims data sharing preferences directly through CMS, an agency with which 

beneficiaries have an existing relationship. Moreover, we believe our proposals would 

streamline ACO operations and would allow ACOs to access beneficiary identifiable claims data 

earlier in the performance year than is possible under our current policies. Beneficiary 

identifiable claims data would still be available on a monthly basis, but the new process would 

be operationally more efficient and less expensive for ACOs. By removing the 30-day delay 

before ACOs may request beneficiary identifiable claims data for their preliminarily 

prospectively assigned beneficiaries under Tracks 1 and 2 and prospectively assigned 

beneficiaries under Track 3, and reducing operational complexities associated with providing 

these data, ACOs would have access to beneficiary identifiable claims data in a more timely 

fashion. This may allow ACOs to intervene in the care of beneficiaries earlier during the 

performance year. In addition, as discussed previously, while we initially believed that requiring 

ACOs to notify beneficiaries of the opportunity to decline claims data sharing would improve 

engagement between ACO providers/suppliers that furnish primary care services and their 
CMS-1461-P 117 

patients, we now realize that this policy unintentionally created burden and confusion for both 

ACOs and beneficiaries, as many beneficiaries assume that their health care providers already 

have the information needed to optimally coordinate their care, even though this is not always 

the case. We believe that the proposed revisions to our claims data sharing policy would reduce 

beneficiary confusion about the Shared Savings Program and the role an ACO plays in assisting 

the beneficiary's health care providers to improve their health and health care experience, while 

still retaining a beneficiary’s meaningful opportunity to decline claims data sharing. 

We note that, since implementation of the program, a small percentage of FFS 

beneficiaries have requested that their identifiable claims data not be shared and have done so 

either by notifying the ACO or by contacting 1-800-MEDICARE to decline claims data sharing. 

None of our proposed revisions would have any effect on any existing beneficiary preferences. 

Previously recorded beneficiary preferences would continue to be honored, unless and until a 

beneficiary changes his or her preference by contacting 1-800-MEDICARE. Accordingly, our 

proposal not only preserves the beneficiary's ability to decline claims data sharing by directly 

contacting CMS, but also has no effect on existing beneficiary claims data sharing preferences, 

unless the beneficiary subsequently amends his or her preferences to allow claims data sharing. 

 In summary, we propose to amend § 425.704 to reflect our proposal to begin sharing 

beneficiary identifiable claims data with ACOs participating under Tracks 1 and 2 that request 

claims data on beneficiaries that are included on their preliminary prospective assigned 

beneficiary list or that have received a primary care service from an ACO participant upon whom 

assignment is based during the most recent 12-month period, at the start of the ACO’s agreement 

period, provided all other requirements for claims data sharing under the Shared Savings 

Program and HIPAA regulations are met. We also propose to share beneficiary identifiable 
CMS-1461-P 118 

claims data with ACOs participating under Track 3 that request beneficiary identifiable claims 

data on beneficiaries that are included on their prospectively assigned beneficiary list. We also 

propose to revise § 425.312(a) and § 425.708 to reflect our policy that ACO participants use 

CMS approved template language to notify beneficiaries regarding participation in an ACO and 

the opportunity to decline claims data sharing. In addition, we propose to modify § 425.708 to 

reflect the streamlined process by which beneficiaries may decline claims data sharing. We also 

propose to add a new paragraph (c) to § 425.708 to reflect our proposal to honor any beneficiary 

request to decline claims data sharing that is received under § 425.708 until such time as the 

beneficiary may reverse his or her claims data sharing preference to allow data sharing. 

 We note that the beneficiary identifiable information that is made available under 

§ 425.704 would include Parts A, B and D data, but would exclude any information related to the 

diagnosis and treatment of alcohol or substance abuse. As we discussed in the April 2011 

proposed rule (76 FR 19557), 42 U.S.C. 290dd-2 and the implementing regulations at 

42 CFR Part 2 restrict the disclosure of patient records by federally conducted or assisted 

substance abuse programs. Such data may be disclosed only with the prior written consent of the 

patient, or as otherwise provided in the statute and regulations. We note that we may revisit this 

approach as technology in the area of consent management advances. 

We seek comment on these proposals. We also seek comment on other specific 

modifications that could be made to our existing policies on data sharing to improve the ability 

of ACOs to access beneficiary identifiable claims data, and to reduce burden and confusion for 

ACOs, ACO participants, ACO providers/suppliers, and beneficiaries. 
CMS-1461-P 119 

E. Assignment of Medicare FFS Beneficiaries 

1. Background 

Section 1899(c) of the Act requires the Secretary to “determine an appropriate method to 

assign Medicare fee-for-service beneficiaries to an ACO based on their utilization of primary 

care services provided under this title by an ACO professional described in paragraph (h)(1)(A).” 

Section 1899(h)(1)(A) of the Act constitutes one element of the definition of the term “ACO 

professional.” Specifically, this provision establishes that “a physician (as defined in section 

1861(r)(1) of the Act)” is an “ACO professional” for purposes of the Shared Savings Program. 

Section 1861(r)(1) of the Act in turn defines the term physician as “. . . a doctor of medicine or 

osteopathy legally authorized to practice medicine and surgery by the State in which he performs 

such function or action . . . ” In addition, section 1899(h)(1)(B) of the Act defines “ACO 

professional” to include practitioners described in section 1842(b)(18)(C)(i) of the Act, such as 

physician assistants (PAs) and nurse practitioners (NPs). 

As we explained in the November 2011 final rule (76 FR 67851) the term “assignment” 

refers only to an operational process by which Medicare determines whether a beneficiary has 

chosen to receive a sufficient level of the requisite primary care services from physicians 

associated with a specific ACO so that the ACO may be appropriately designated as exercising 

basic responsibility for that beneficiary's care. Consistent with section 1899(b)(2)(A) of the Act, 

an ACO is held accountable “for the quality, cost, and overall care of the Medicare fee-for 

service beneficiaries assigned to it.” The ACO may also qualify to receive a share of any savings 

that are realized in the care of these assigned beneficiaries due to appropriate efficiencies and 

quality improvements that the ACO may be able to achieve. The term “assignment” for purposes 

of the Shared Savings Program in no way implies any limits, restrictions, or diminishment of the 
CMS-1461-P 120 

rights of Medicare FFS beneficiaries to exercise freedom of choice in the physicians and other 

health care providers and suppliers from whom they receive their services. 

In developing the process for assigning Medicare beneficiaries to ACOs, we considered 

several other elements in addition to the definition of an ACO professional (76 FR 67851): (1) 

the operational definition of an ACO (see the discussion of the formal and operational definitions 

of an ACO in section II.B. of this proposed rule) so that ACOs can be efficiently identified, 

distinguished, and associated with the beneficiaries for whom they are providing services; (2) the 

definition of primary care services for purposes of determining the appropriate assignment of 

beneficiaries; (3) whether to assign beneficiaries to ACOs prospectively, at the beginning of a 

performance year on the basis of services rendered prior to the performance year, or 

retrospectively, on the basis of services actually rendered by the ACO during the performance 

year; and (4) the proportion of primary care services that is necessary for a beneficiary to receive 

from an ACO in order to be assigned to that ACO for purposes of this program. 

In the November 2011 final rule (76 FR 67851 through 67870), we finalized the 

methodology that we currently use to assign beneficiaries to ACOs for purposes of the Shared 

Savings Program. Beneficiaries are assigned to a participating ACO using the assignment 

methodology in Part 425, subpart E of our regulations. In addition, since the final rule was 

issued, we have provided additional guidance and more detailed specifications regarding the 

beneficiary assignment process in operational instructions which are available to the public on 

the CMS website. (http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Financial-and-Assignment-Specifications.html) 

In this section of this proposed rule, we summarize several key policies and 

methodological issues to provide background for several revisions to the assignment 
CMS-1461-P 121 

methodology that we are proposing based on our initial experiences with the program and 

questions from stakeholders. 

2. Basic Criteria for a Beneficiary to be Assigned to an ACO 

In order to develop operational procedures needed to implement the Shared Savings 

Program, and to respond to inquiries from ACOs and other stakeholders, we developed specific 

criteria to govern beneficiary eligibility for assignment to an ACO which we propose to codify in 

a new provision at § 425.401. We believe that revising the regulations to include these eligibility 

criteria would help promote understanding of the assignment methodology. The proposed 

criteria in new § 425.401 are consistent with the current assignment methodology under 

§ 425.400 and § 425.402 as well as the discussion of the assignment methodology in the 

preamble to the November 2011 final rule and operational instructions that we have issued since 

the publication of the final rule (76 FR 67851). 

 First, to determine whether a beneficiary is eligible to be assigned to an ACO, we must 

have information about the beneficiary’s Medicare enrollment status. As required by section 

1899(h)(3) of the Act, and consistent with the definition of Medicare FFS beneficiary in 

§ 425.20, only beneficiaries enrolled in traditional Medicare FFS under Parts A and B are 

eligible to be assigned to an ACO participating in the Shared Savings Program. Because of this 

statutory definition and because an important objective of this program is to help align incentives 

between Part A and Part B, beneficiaries who have coverage under only one of these parts are 

not eligible to be assigned to an ACO. Beneficiaries enrolled in a group health plan—including 

beneficiaries enrolled in Medicare Advantage (MA) plans under Part C, eligible organizations 

under section 1876 of the Act, and Programs of All Inclusive Care for the Elderly (PACE) under 
CMS-1461-P 122 

section 1894 of the Act—are also not eligible to be assigned. However, we note that Medicare 

Secondary Payer (MSP) status does not exclude a beneficiary from assignment to an ACO. 

 The statute includes a provision that precludes duplication in participation in initiatives 

involving shared savings. Section 1899(b)(4) of the Act states that providers of services or 

suppliers that participate in certain programs that involve shared savings are not eligible to 

participate in the Shared Savings Program. In the November 2011 final rule (76 FR 67830 

through 67833), we finalized a proposal to implement this requirement and to adopt a process for 

ensuring that providers and suppliers participating in the Shared Savings Program do not 

concurrently participate in another Medicare program or demonstration involving shared savings 

at § 425.114. Specifically, applications for participation in the Shared Savings Program are 

reviewed to assess for overlapping ACO participant TINs. ACO participants that are already 

participating in another Medicare program, model or demonstration involving shared savings are 

prohibited from participating in the Medicare Shared Savings Program. An ACO application 

that contains ACO participants that are already participating in another Medicare program or 

demonstration involving shared savings is rejected. 

 The statutory prohibition against providers and suppliers participating in multiple 

programs and initiatives that involve shared savings limits but does not prevent the possibility for 

a beneficiary to be assigned to more than one shared savings initiative. However, we believe it is 

important that beneficiaries are not assigned to more than one initiative involving shared savings 

because we do not believe it is appropriate to make multiple shared savings payments for the 

same beneficiaries. Therefore, at § 425.114(c), we provide that if the other program or 

demonstration involving shared savings does not assign beneficiaries based upon the TINs of the 

health care providers from whom they receive care, but uses an alternate beneficiary assignment 
CMS-1461-P 123 

methodology, we will work with the developers of the respective demonstrations and initiatives 

to devise an appropriate method to ensure no duplication in shared savings payments. For 

example, beneficiaries cannot be assigned to a Shared Savings Program ACO for a performance 

year if they are associated with another Medicare shared savings initiative at the start of the 

Shared Savings Program ACO’s performance year. 

 We have also implemented procedures to exclude beneficiaries whose residence is 

outside the United States, U.S. territories or possessions from assignment to an ACO. We make 

this determination based on the most recent available data in our beneficiary records regarding 

the beneficiary’s residence at the end of the assignment window. We do not believe it is 

appropriate to expect ACOs to be responsible for coordinating the care provided to beneficiaries 

that reside outside the United States, as required under the Shared Savings Program, or to hold 

ACOs accountable for the care provided to beneficiaries that reside outside the United States 

because ACOs may have limited ability to interact with overseas providers and suppliers. In 

most situations, Medicare does not pay for health care or supplies furnished outside the United 

States. (Additional guidance about this policy is available at 

http://www.medicare.gov/Pubs/pdf/11037.pdf). As a result, claims information regarding 

services received in other countries is not available to ACOs. United States (U.S.) residence 

includes the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, 

American Samoa, and the Northern Marianas. (See guidance at 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Downloads/Shared-Savings-Losses-Assignment-Spec-v2.pdf). 

We believe it is appropriate to amend the regulations governing the assignment process to 

incorporate these limitations. Thus, we propose to add a new provision at § 425.401(a) of the 
CMS-1461-P 124 

regulations to outline the criteria that a beneficiary must meet in order to be eligible to be 

assigned to an ACO. Specifically, a beneficiary would be eligible to be assigned to a 

participating ACO, for a performance year or benchmark year, if the beneficiary meets all of the 

following criteria during the assignment window (defined in section II.F. of this proposed rule as 

the 12-month period used for assignment): 

● Has at least 1 month of Part A and Part B enrollment and does not have any months of 

Part A only or Part B only enrollment. 

● Does not have any months of Medicare group (private) health plan enrollment. 

● Is not assigned to any other Medicare shared savings initiative. 

● Lives in the U.S. or U.S. territories and possessions as determined based on the most 

recent available data in our beneficiary records regarding the beneficiary’s residence at the end 

of the assignment window. 

 If a beneficiary meets all of the criteria in § 425.401(a), then the beneficiary would be 

eligible to be assigned to an ACO in accordance with the two-step beneficiary assignment 

methodology in § 425.402 and § 425.404. We also propose to make a conforming change to 

§ 425.400 to reflect the addition of this new provision. 

 We request comment on this proposal to amend the regulations to address specifically the 

criteria that would be used to determine whether a beneficiary is eligible to be assigned to an 

ACO. 

3. Definition of Primary Care Services 

a. Overview 

Section 1899(c) of the Act requires the Secretary to assign beneficiaries to an ACO 

“based on their utilization of primary care services” provided by a physician. However, the 
CMS-1461-P 125 

statute does not specify which kinds of services may be considered “primary care services” for 

this purpose, nor the amount of those services that would be an appropriate basis for making 

assignments. In this section of this proposed rule, we summarize how we currently identify the 

appropriate primary care services on which we base assignment. In addition, we propose several 

revisions to our current policies for defining primary care services for this purpose, consistent 

with our statement in the November 2011 final rule (76 FR 67853), that we intended to monitor 

this issue and would consider making changes to the definition of primary care services to add or 

delete codes, if there is sufficient evidence that revisions are warranted. 

We currently define “primary care services” for purposes of the Shared Savings Program 

in § 425.20 as the set of services identified by the following HCPCS/CPT codes: 99201 through 

99215, 99304 through 99340, 99341 through 99350, the Welcome to Medicare visit (G0402), 

and the annual wellness visits (G0438 and G0439). In addition, as we will discuss later in this 

section, we have established a cross-walk for these codes to certain revenue center codes used by 

FQHCs (prior to January 1, 2011) and RHCs so that their services can be included in the 

beneficiary assignment process. 

In the November 2011 final rule (76 FR 67853), we established the current list of codes 

that constitute primary care services for several reasons. First, we believed the listed codes 

represented a reasonable approximation of the kinds of services that are described by the 

statutory language which refers to assignment of “Medicare fee-for-service beneficiaries to an 

ACO based on their utilization of primary care services” furnished by physicians. Because the 

statute requires that assignment be based upon the utilization of primary care services furnished 

by physicians, only primary care services can be considered in the assignment process. In 

addition, we selected this list to be largely consistent with the definition of “primary care 
CMS-1461-P 126 

services” in section 5501 of the Affordable Care Act. That section establishes the Primary Care 

Incentive Payment Program (PCIP) to expand access to primary care services, and thus its 

definition of “primary care services” provides a compelling precedent for adopting a similar list 

of codes for purposes of the beneficiary assignment process under the Shared Savings Program. 

We slightly expanded the list of codes found in section 5501 of the Affordable Care Act to 

include the Welcome to Medicare visit (HCPCS code G0402) and the annual wellness visits 

(HCPCS codes G0438 and G0439) as primary care services for purposes of the Shared Savings 

Program. These codes clearly represent primary care services frequently received by Medicare 

beneficiaries, and in the absence of the special G codes the services provided during these visits 

would be described by one or more of the regular office visit codes that are included in the list 

under section 5501 of the Affordable Care Act. 

Since the publication of the November 2011 final rule, we have received several 

suggestions from ACOs and others regarding specific codes that we would consider adding to the 

definition of primary care services so that they could be considered when assigning beneficiaries 

to ACOs. For example, commenters have noted that effective January 1, 2013, Medicare pays 

for two CPT codes (99495 and 99496) that are used to report physician or qualifying nonphysician practitioner transitional care management (TCM) services for a patient following a 

patient’s discharge to a community setting from an inpatient hospital or SNF or from outpatient 

observation status in a hospital or partial hospitalization. These codes were established to pay a 

patient’s physician or practitioner to coordinate the patient’s care in the 30 days following a 

hospital or skilled nursing facility (SNF) stay. We believe that providing separate payment for 

the work of community physicians and practitioners in treating a patient following discharge 

from a hospital or nursing facility would ensure better continuity of care for these patients and 
CMS-1461-P 127 

help reduce avoidable readmissions. We discussed this policy in the CY 2013 Physician Fee 

Schedule (PFS) final rule with comment period that appeared in the November 16, 2012 Federal 

Register (77 FR 68978 through 68994). 

 Further, in the CY 2014 PFS final rule with comment period that appeared in the 

December 10, 2013 Federal Register (78 FR 74414 through 74427), we indicated that for 

CY 2015, we planned to establish a separate payment for HCPCS code GXXX1 under the PFS 

for chronic care management (CCM) services furnished to patients with multiple (two or more) 

chronic conditions. Subsequently, in the CY 2015 PFS final rule with comment period that 

appeared in the November 13, 2014 Federal Register, we provided more details relating to the 

implementation of the new PFS policy, including coding, elements of service, and payment rates 

(79 FR 67715 through 67728). Chronic care management services generally include regular 

development and revision of a plan of care, communication with other treating health 

professionals, and medication management. 

 Accordingly, as part of our broader multiyear strategy to appropriately recognize and 

value primary care and care management services, effective January 1, 2015, we will make a 

separate payment for CCM services under the PFS. We believe that successful efforts to 

improve chronic care management for these patients could improve the quality of care while 

simultaneously decreasing costs, such as through reductions in hospitalizations, use of post-acute 

care services and emergency department visits. 

 We have also received a few suggestions from hospitalists and others that certain 

evaluation and management codes used for services furnished in SNFs and other nursing facility 

settings (CPT codes 99304 through 99318) should be excluded from the definition of primary 

care services. In some cases, hospitalists that perform evaluation and management services in 
CMS-1461-P 128 

SNFs requested this change so that their ACO participant TIN need not be exclusive to only one 

ACO based on the exclusivity policy established in the November 2011 final rule (76 FR 67810 

through 67811). The requirement under § 425.306(b) that an ACO participant TIN be exclusive 

to a single ACO applies when the ACO participant TIN submits claims for primary care services 

that are considered in the assignment process. However, ACO participant TINs upon which 

beneficiary assignment is not dependent (that is, ACO participant TINs that do not submit claims 

for primary care services that are considered in the assignment process) are not required to be 

exclusive to a single ACO. 

 These requests from hospitalists and others were based on drawing a distinction between 

evaluation and management services performed in SNFs and those that are performed in other 

nursing facilities. Specifically, these commenters believe that evaluation and management 

services furnished in SNFs are more likely to be acute in nature and should not be considered 

primary care services. In contrast, the evaluation and management services performed in other 

nursing facilities, where patients tend to stay for longer periods, are arguably more likely to 

include primary care services. We have also received comments, however, from others who 

support the inclusion of these services in the definition of primary care for the Shared Savings 

Program. They suggest that including the codes for evaluation and management services 

furnished in SNFs in the assignment process could help provide important incentives for ACOs 

to manage and coordinate the care of these vulnerable patients because ACOs would be held 

accountable for these patients if they receive the plurality of their primary care services from 

ACO professionals during a performance year. 

 In the November 2011 final rule, we discussed comments both for and against including 

the codes for SNF visits in the definition of primary care services (76 FR 67852 through 67853). 
CMS-1461-P 129 

However, we ultimately concluded that it was appropriate to include these codes. We continue 

to believe that including the codes for SNF and other nursing facility visits in the list of codes 

that constitute primary care services for purposes of assignment to an ACO is appropriate for a 

number of reasons. As we stated in the November 2011 final rule (76 FR 67853), beneficiaries 

often stay for long periods of time in SNFs (Medicare covers up to 100 days of SNF services in 

each benefit period) and it is reasonable to conclude that these codes represent basic evaluation 

and management services that would ordinarily be provided in physician offices if the 

beneficiaries were not residing in nursing homes. If these services are performed by ACO 

professionals, we continue to believe that it is reasonable to hold the ACO accountable for the 

care of these beneficiaries. In addition, as we noted previously, the PCIP program established 

under section 5501 of the Affordable Care Act was established to expand access to “primary care 

services”. Under this program, beginning January 1, 2011 and continuing through 

December 31, 2015, we pay an incentive payment of 10 percent of Medicare program payments 

to qualifying primary care physicians and certain non-physician practitioners who furnish 

specified primary care services. We believe it is compelling that these SNF codes are included 

in the definition of “primary care services” in section 5501 of the Affordable Care Act, which 

established this incentive program. We would also note that CPT codes 99304 through 99318 do 

not differentiate between evaluation and management services performed in SNFs and other 

nursing facilities. Thus, services furnished in SNFs and other nursing facilities are included in 

the definition of "primary care services" for purposes of section 5501. Finally, in the CY 2015 

PFS final rule with comment period (79 FR 67910 through 67911), we added the Skilled Nursing 

Facility 30-Day All-Cause Readmission Measure (SNFRM) to the quality performance measure 

set used to evaluate the quality of the care furnished by ACOs. We believe the addition of this 
CMS-1461-P 130 

measure helps to fill a gap in the current Shared Savings Program measure set and provides a 

focus on an area where ACOs are targeting redesign. Therefore, we continue to believe that it is 

reasonable to conclude that services provided in SNFs with CPT codes 99304 through 99318 

represent basic evaluation and management services that would ordinarily be provided in 

physician offices if the beneficiaries were not residing in nursing homes and should continue to 

be included in the definition of primary care services used for purposes of beneficiary 

assignment to an ACO participating in the Shared Savings Program. Although we are not 

making a proposal at this time regarding CPT codes 99304 through 99318, we welcome 

comment from stakeholders on the implications of retaining these codes in the definition of 

primary care services. 

b. Proposed Revisions 

 We believe that the TCM services represented by CPT codes 99495 and 99496 represent 

primary care services that should be considered in the beneficiary assignment methodology 

under the Shared Savings Program. In order to receive payment for these codes, the physician or 

non-physician practitioner is required to accept care of the beneficiary post-discharge from an 

inpatient hospital or SNF without a gap and must take responsibility for the beneficiary’s overall 

care for a period of 30 days following the discharge. Likewise, we believe that the CCM 

services represented by HCPCS code GXXX1 are primary care services that should also be 

considered in the beneficiary assignment methodology under the Shared Savings Program. The 

CCM service includes continuity of care with a designated practitioner or member of the care 

team with whom the patient is able to get successive routine appointments. The CCM service 

also includes access to care management services 24-hours-a-day, 7-days-a-week, which means 

providing beneficiaries with a means to make timely contact with health care providers to 
CMS-1461-P 131 

address the patient’s urgent chronic care needs regardless of the time-of-day or day of the week. 

Additional explanation of these and the other required elements for billing CCM services can be 

found in the CY 2015 PFS final rule with comment period (79 FR 67715 through 67728). 

Therefore, we propose to update the definition of primary care services at § 425.20 to include 

both TCM codes (CPT codes 99495 and 99496) and the CCM code (HCPCS code GXXX1) and 

to include these codes in our beneficiary assignment methodology under § 425.402. 

 Further, in order to promote flexibility for the Shared Savings Program and to allow the 

definition of primary care services used in the Shared Savings Program to respond more quickly 

to HCPCS/CPT coding changes made in the annual PFS rulemaking process, we propose to 

make any future revisions to the definition of primary care service codes through the annual PFS 

rulemaking process. If we intend to add any proposed new HCPCS/CPT or revenue center codes 

to the definition of primary care services for purposes of the Shared Savings Program, we would 

include a discussion of the proposed addition in the preamble to the PFS proposed rule to allow 

an opportunity for comment before we announce our final decision in the PFS final rule. Such 

an approach would enable the Shared Savings Program to be more flexible and responsive to 

incorporate any changes to primary care oriented codes that are made through the PFS 

rulemaking process. We believe this process for making changes to the Shared Savings 

Program’s definition of primary care services under § 425.20 would help to ensure that the 

definition of primary care services used under the Shared Savings Program properly reflects the 

full range of primary care services that beneficiaries may receive under Medicare and that the 

assignment methodology accurately aligns beneficiaries with the entities that are responsible for 

managing their overall care. In addition, revising the definition of primary care services for 

purposes of the Shared Savings Program through the annual rulemaking for the PFS would 
CMS-1461-P 132 

enable us to efficiently update and revise primary care service codes used for purposes of 

beneficiary assignment under the Shared Savings Program to reflect any administrative 

HCPCS/CPT coding changes, such as changes to reflect successive coding changes. 

Accordingly, we also propose to amend the definition of primary care services at § 425.20 to 

include additional codes designated by CMS as primary care services for purposes of the Shared 

Savings Program, including new HCPCS/CPT codes or revenue codes and any subsequently 

modified or replacement codes. 

 We seek comments on these proposals. In addition, we seek comments as to whether 

there are any additional existing HCPCS/CPT codes that we should consider adding to the 

definition of primary care services in future rulemaking for purposes of assignment of 

beneficiaries to ACOs under the Shared Savings Program. It would be most helpful if such 

comments include a detailed discussion of the basis for such an addition. 
CMS-1461-P 133 

4. Consideration of Physician Specialties and Non-Physician Practitioners in the Assignment 

Process 

a. Overview 

Primary care services can generally be defined based on the type of service provided, the 

type of provider specialty that provides the service, or both. In the November 2011 final rule 

establishing the Shared Savings Program (76 FR 67853 through 67856), we adopted a balanced 

assignment process that simultaneously maintains the requirement to focus on primary care 

services in beneficiary assignment, while recognizing the necessary and appropriate role of 

specialists in providing primary care services, such as in areas with primary care physician 

shortages. 

Under § 425.402, after identifying all patients that had a primary care service with a 

physician who is an ACO professional (and who are thus eligible for assignment to the ACO 

under the statutory requirement to base assignment on “utilization of primary care services” 

furnished by physicians), we employ a step-wise approach as the basic assignment methodology. 

This step-wise assignment process takes into account two particular decisions that we described 

in the November 2011 final rule (76 FR 67853 through 67858): (1) our decision to base 

assignment on the primary care services of specialist physicians in the second step of the 

assignment process; and (2) our decision also to take into account the plurality of all primary 

care services provided by ACO professionals, including both primary care and specialist 

physicians and certain non-physician practitioners, in determining which ACO is truly 

responsible for a beneficiary's primary care in the second step of the assignment process. Our 

current step-wise assignment process thus occurs in the following two steps: 
CMS-1461-P 134 

 Step 1: In this step, the beneficiary would be assigned to the ACO if the allowed charges 

for primary care services furnished to the beneficiary by primary care physicians who are ACO 

professionals are greater than the allowed charges for primary care services furnished by primary 

care physicians who are ACO professionals in any other ACOs, and greater than the allowed 

charges for primary care services billed to Medicare by any other solo practice/group containing 

primary care physicians, identified by a Medicare-enrolled TIN, that is unaffiliated with any 

ACO. In other words, first we add up the allowed charges for primary care services billed by 

primary care physicians through the TINs of ACO participants in the ACO. Next, we add up the 

allowed charges for primary care services furnished by primary care physicians that are billed 

through other Medicare-enrolled TINs (or through a collection of ACO participant TINs in the 

case of another ACO). If the allowed charges for the services furnished by ACO participants are 

greater than the allowed charges for services furnished by the participants in any other ACO or 

by any non-ACO participating Medicare-enrolled TIN, then the beneficiary is assigned to the 

ACO in the first step of the assignment process. 

Step 2: This step applies only for beneficiaries who have not received any primary care 

services from a primary care physician. We assign a beneficiary to an ACO in this step if the 

beneficiary received at least one primary care service from a physician participating in the ACO, 

and more primary care services (measured by Medicare allowed charges) from ACO 

professionals (physician regardless of specialty, nurse practitioner, physician assistant or clinical 

nurse specialist) at the ACO than from ACO professionals in any other ACO or solo 

practice/group of practitioners identified by a Medicare-enrolled TIN or other unique identifier, 

as appropriate, that is unaffiliated with any ACO. 
CMS-1461-P 135 

Since publication of the November 2011 final rule (76 FR 67853 through 67858), we 

have gained further experience with this assignment methodology. We have learned from its 

application for the first 220 ACOs participating in the program that, on average, about 92 percent 

of the beneficiaries assigned to ACOs are assigned in step 1, with only about 8 percent of the 

beneficiaries being assigned in step 2. 

We have adopted a similar beneficiary assignment approach for some other programs, 

such as the PQRS Group Practice Reporting Option via the GPRO web interface (77 FR 69195 

through 69196). We would note that in the CY 2015 PFS final rule with comment period that 

appeared in the November 13, 2014 Federal Register, we revised the Value Modifier (VM) 

beneficiary attribution methodology and the PQRS GPRO web interface beneficiary assignment 

methodology to make them slightly different from the Medicare Shared Savings Program 

assignment methodology, namely-- (1) eliminating the primary care service pre-step that is 

statutorily required for the Shared Savings Program; and (2) including NPs, PAs, and CNSs in 

step 1 rather than in step 2 of the attribution process (see 79 FR 67790 and 79 FR 67962). 
CMS-1461-P 136 

b. Proposed Revisions 

We continue to believe that the current step-wise assignment methodology generally 

provides a balance between maintaining a strong emphasis on primary care while ultimately 

allowing for assignment of beneficiaries on the basis of how they actually receive their primary 

care services. However, we have received several suggestions for possible improvements to the 

assignment methodology for consideration. 

Some stakeholders have suggested that primary care services by non-physician 

practitioners (NPs, PAs, and CNSs) should be included in step 1 of the assignment methodology 

rather than only in step 2 as they are under the current process. These stakeholders have 

indicated that non-physician practitioners very often serve as a beneficiary’s sole primary care 

provider, based on beneficiary preferences or other factors, especially in rural areas and other 

areas where there is a shortage of primary care physicians. We considered this recommendation 

for a number of reasons. 

As previously explained in the November 2011 final rule (76 FR 67853 through 67858), 

in establishing the Shared Savings Program, we adopted certain key features of the Shared 

Savings Program (for example, the decision not to include physician specialties in step 1 of the 

assignment methodology and the definition of primary care physician under § 425.20) to align 

with other Affordable Care Act provisions that place a strong emphasis on primary care. In 

particular, we referred to section 5501 of the Affordable Care Act which established the PCIP. 

For purposes of section 5501 of the Affordable Care Act, a “primary care practitioner” is defined 

as a physician who has a primary specialty designation of family medicine, internal medicine, 

geriatric medicine, or pediatric medicine or as a “nurse practitioner, clinical nurse specialist, or 

physician assistant.” Therefore, we believe it would be appropriate to better align the assignment 
CMS-1461-P 137 

methodology under the Shared Savings Program with the primary care emphasis in other 

provisions of the Affordable Care Act by including these non-physician practitioners in step 1 of 

the assignment process. Further, we believe that including these non-physician practitioners in 

step 1 would be supported by the statute as long as we continue under § 425.402 to first identify 

all patients that have received a primary care service from a physician who is an ACO 

professional and who are thus eligible for assignment to the ACO under the statutory 

requirement to base assignment on “utilization of primary care services” furnished by physicians. 

Finally, we believe that it would be appropriate to include primary services furnished by NPs, 

PAs, and CNSs in step 1 of the beneficiary assignment methodology (after satisfying the 

statutory criterion that assignment be based on primary care services by physicians). Under 

section 1899(b)(2)(D), the ACO is required to have sufficient primary care ACO professionals to 

care for the number of FFS beneficiaries assigned to the ACO. The statute includes NPs, PAs, 

and CNSs in its definition of ACO professional; thus recognizing the important role played by 

these non-physician practitioners in managing and coordinating the care of Medicare FFS 

beneficiaries. 

We believe including these practitioners in step one of the assignment process could also 

further strengthen our current assignment process, which we designed to simultaneously 

maintain a primary care centric approach to beneficiary assignment, by including services 

furnished by physicians from all of the primary care specialties in step 1, while also recognizing 

the necessary and appropriate role of specialists in providing primary care services by including 

services furnished by specialist physicians in step 2. Including services furnished by NPs, PAs, 

and CNSs in determining the plurality of primary care services in step 1 of the assignment 

process may help ensure that beneficiaries are assigned to the ACO (or non-ACO entity) that is 
CMS-1461-P 138 

actually providing the plurality of primary care for that beneficiary and thus, should be 

responsible for managing the patient’s overall care. In this way, all primary care services 

furnished by ACO professionals, including the entire primary care physician and practitioner 

team (including NPs, PAs, and CNSs working in clinical teams in collaboration with or under the 

supervision of physicians), would be considered for purposes of determining where a beneficiary 

received the plurality of primary care services under step 1 of the assignment methodology. 

Accordingly, we are proposing to amend the assignment methodology to include primary care 

services furnished by NPs, PAs, and CNSs in step 1 of the assignment process. 

However, we would note that there could also be some concerns about adding NPs, PAs, 

and CNSs to step 1 of the assignment methodology. Unlike for physicians, the CMS selfreported specialty codes reported on claims for NPs, PAs, and CNSs are not further broken down 

by specific specialty areas and therefore do not allow practitioners to indicate whether they are 

typically functioning as primary care providers or as specialists. Therefore, we are concerned 

that by considering services furnished by NPs, PAs, and CNSs in step 1, we may ultimately 

assign some beneficiaries to an ACO inappropriately based on specialty care over true primary 

care. Thus, while we invite comments on our proposal to include primary care services 

furnished by NPs, PAs, and CNSs in step 1 of the assignment methodology, we also seek 

comment on the extent to which these non-physician practitioners provide non-primary care 

services and whether there are ways to distinguish between primary care services and nonprimary care services billed by these non-physician practitioners. 

Some other stakeholders have suggested that certain physician specialties are 

inappropriately included in the assignment process and therefore request that we exclude certain 

physician specialties from step 2 of the assignment process. These stakeholders are concerned 
CMS-1461-P 139 

that by being included in step 2 of the assignment process, the ACO participants that submit 

claims for services furnished by these specialists are inappropriately limited to participating in 

only one ACO because of the exclusivity requirement under § 425.306(b) of the regulations. This 

requirement is discussed in the November 2011 final rule (76 FR 67810 through 67811). 

Further, some stakeholders have indicated that they are confused by the current exclusivity 

requirement and inappropriately believe that an ACO participant can participate in more than one 

ACO as long as none of the beneficiaries for whom the ACO participant has submitted claims for 

primary care services have been assigned to the ACO. 

We would like to emphasize that under § 425.306(b), the requirement that an ACO 

participant must be exclusive to a single ACO applies whenever primary care service claims 

submitted by the ACO participant are considered in the beneficiary assignment process. The 

application of the current exclusivity requirement to an ACO participant is not affected by 

whether or not a FFS beneficiary for whom an ACO participant has submitted claims for primary 

care services is ultimately assigned to the ACO. Rather, an ACO participant that submits claims 

to Medicare for primary care services must be exclusive to a single ACO because the claims for 

primary care services submitted by the ACO participant are used to determine beneficiary 

assignment to the ACO. Additionally, the current exclusivity requirement is not affected by 

whether or not the primary care services for which the ACO participant submits claims are 

services furnished by primary care physicians, specialist physicians, or NPs, PAs, and CNSs. 

Furthermore, this exclusivity requirement applies only to the ACO participant and not to 

individual practitioners. Individual practitioners are free to participate in multiple ACOs, 

provided they are billing under a different Medicare-enrolled TIN for each ACO in which they 

participate. (See 76 FR 67810 through 67811). For example, there may be practitioners who 
CMS-1461-P 140 

work in multiple settings and bill Medicare for primary care services through several different 

TINs, depending on the setting. If each of these TINs represents an ACO participant in a 

different ACO, then the practitioner would be an ACO professional in more than one ACO. 

Some stakeholders have argued that certain specialties that bill for some of the evaluation 

and management services designated as primary care services under § 425.20 do not actually 

perform primary care services. This is because most of the CPT and other HCPCS codes that are 

included in the definition of primary care services under § 425.20 are actually more general 

purpose codes used for a wide variety of clinical practices that are not specific to primary care, 

such as CPT office visit codes. For example, cataract surgeons bill for some of the office visit 

codes included in the definition of “primary care” but in actual practice these surgeons do not 

perform primary care when they report these codes. These commenters believe that the wide 

spread use of these codes is the reason that for purposes of PCIP, the CPT code-based definition 

of “primary care services” is paired with the definition of “primary care practitioners” under that 

statute. In other words, to identify true primary care services, the CPT codes for primary care 

services must be billed by practitioners that render primary care services. 

We agree that although some specialties such as surgeons and certain others bill 

Medicare for some of the Shared Savings Program “primary care” codes, in actual practice the 

services such specialists perform when reporting these codes do not typically represent primary 

care services because the definitions of HCPCS/CPT codes for office visits and most other 

evaluation and management services are not based on whether primary care is provided as part of 

the service. Accordingly, we agree that to identify primary care services more accurately, the 

CPT codes for primary care services should be paired with the specialties of the practitioners that 
CMS-1461-P 141 

render those services and that it would be appropriate to exclude services provided by certain 

physician specialties from the beneficiary assignment process. 

Therefore, we are proposing to exclude services provided by certain CMS physician 

specialties from the beneficiary assignment process. The net effect of this proposal would be to 

exclude certain claims from determining the ACO’s assigned population. The proposed lists of 

physician specialties that would be included in and excluded from the assignment process 

(provided in Tables 1 through 4 of this proposed rule) are based on recommendations by CMS 

medical officers knowledgeable about the services typically performed by physicians and nonphysician practitioners. However, we note that given the many requests and comments from 

specialists and specialty societies asking to have their services included in the assignment 

methodology that we received during the original rulemaking to establish the Shared Savings 

Program, we attempted to limit the list of physician specialty types that would be excluded from 

the assignment process to those physician specialties that would very rarely, if ever, provide 

primary care to beneficiaries. As a general rule, for example, we expect that physicians with an 

internal medicine subspecialty such as nephrology, oncology, rheumatology, endocrinology, 

pulmonology, and cardiology would frequently be providing primary care to their patients. 

Especially for beneficiaries with certain chronic conditions (for example, certain heart 

conditions, cancer or diabetes) but who are otherwise healthy, we expect that these specialist 

physicians often take the role of primary care physicians in the overall treatment of the 

beneficiaries if there is no family practitioner or other primary care physician serving in that role. 

In contrast we expect that most surgeons, radiologists, and some other types of specialists would 

not typically provide a significant amount of primary care, if any, and therefore we propose to 

exclude their services from the assignment process. 
CMS-1461-P 142 

More specifically, the following 4 tables display the specific CMS physician specialty 

codes that we are proposing to include and exclude for beneficiary assignment purposes under 

the Shared Savings Program. 

● Table 1 shows the CMS physician specialty codes that would continue to be included 

in step 1. 

● Table 2 lists the physician specialties that we are proposing would continue to be 

included in step 2. 

● Table 3 lists the physician specialties that we are proposing to exclude from the 

beneficiary assignment methodology under step 2. Under this proposal, services furnished by 

these physician specialties would also be excluded for purposes of determining if a beneficiary 

has received a primary care service from a physician who is an ACO professional, which under 

§ 425.402(a) is a precondition for assignment to an ACO. 

● Table 4 shows the CMS specialty codes for NPs, PAs, and CNSs that under our 

proposal would be included in beneficiary assignment step 1. 

Table 1-- CMS Physician Specialty Codes That Would Continue to Be Included In 

Assignment Step 1 

Code Specialty Name 

01 General Practice 

08 Family Practice 

11 Internal Medicine 

38 Geriatric Medicine 

Table 2--CMS Physician Specialty Codes That Would Continue To Be Included In 

Assignment Step 2 

Code Specialty Name 

03 Allergy/immunology 

06 Cardiology 
CMS-1461-P 143 

Code Specialty Name 

10 Gastroenterology 

13 Neurology 

16 Obstetrics/gynecology 

17 Hospice and palliative care 

23 Sports medicine 

25 Physical medicine and rehabilitation 

29 Pulmonary disease 

37 Pediatric medicine 

39 Nephrology 

44 Infectious disease 

46 Endocrinology 

66 Rheumatology 

70 Multispecialty clinic or group practice 

82 Hematology 

83 Hematology/oncology 

84 Preventive medicine 

90 Medical oncology 

98 Gynecology/oncology 

 

Table 3- CMS Physician Specialty Codes That We Propose To Exclude from Assignment 

Step 2 

Code Specialty Name 

02 General surgery 

04 Otolaryngology 

05 Anesthesiology 

07 Dermatology 

09 Interventional pain management 

12 Osteopathic manipulative therapy 

14 Neurosurgery 

18 Ophthalmology 

20 Orthopedic surgery 

21 Cardiac electrophysiology 

22 Pathology 

24 Plastic and reconstructive surgery 

26 Psychiatry 

27 Geriatric psychiatry 

28 Colorectal surgery 

30 Diagnostic radiology 

33 Thoracic surgery 

34 Urology 
CMS-1461-P 144 

Code Specialty Name 

36 Nuclear medicine 

40 Hand surgery 

72 Pain management 

76 Peripheral vascular disease 

77 Vascular surgery 

78 Cardiac surgery 

79 Addiction medicine 

81 Critical care (intensivists) 

85 Maxillofacial surgery 

86 Neuro-psychiatry 

91 Surgical oncology 

92 Radiation oncology 

93 Emergency medicine 

94 Interventional radiology 

99 Unknown physician specialty 

C0 Sleep medicine 

Table 4-- CMS Non-Physician Specialty Codes that Would Be Included In Assignment Step 

1 

Code Specialty Name 

50 Nurse practitioner 

89 Clinical nurse specialist 

97 Physician assistant 

The primary benefit of this proposal is that it could help ensure that beneficiaries are 

correctly assigned to the ACO or other entity that is actually providing primary care and 

managing the patient’s overall care. Otherwise, for example, a beneficiary could inadvertently 

be assigned to an ACO based on services furnished by a surgeon who had not provided primary 

care but had provided a number of consultations for a specific clinical condition. Another 

important benefit of this proposal is that the ACO participants that submit claims solely for 

services performed by the categories of specialists that we are proposing to exclude from the 

assignment process would have greater flexibility to participate in more than one ACO if the 

ACO participant does not submit claims for any primary care services performed by other 
CMS-1461-P 145 

physicians or non-physician practitioners that are included in the assignment process. This could 

especially be the case for small physician practices which only submit claims for specialty 

services. Allowing such ACO participants that are composed solely of excluded specialists to 

participate in more than one ACO would support our goal of facilitating competition among 

ACOs by increasing the number of specialists that can participate in more than one ACO. This 

proposal would not be expected to have a significant impact on the overall number of 

beneficiaries assigned to each ACO because we believe most of the specialties that we propose 

to exclude from the assignment methodology provide a relatively modest number of services 

under the codes included in the definition of primary care services or are not typically the only 

physician that a beneficiary sees. For example, patients that are furnished consultations by a 

thoracic surgeon would typically also concurrently receive care from a primary care physician, 

cardiologist or other medical specialist. 

We propose to amend § 425.402 to reflect these proposed changes to the assignment 

methodology. Specifically, we propose to revise § 425.402(a) to include NPs, PAs, and CNSs as 

ACO professionals that would be considered in step 1 of the assignment process. In addition, we 

propose to amend § 425.402 by adding a new paragraph (b) to identify the physician specialty 

designations that would be considered in step 2 of the assignment process. We also propose to 

modify the exclusivity requirement at § 425.306(b) to clarify how the exclusivity rules would be 

affected by this proposal to exclude certain specialists from step 2 of the assignment 

methodology. Specifically, we propose to revise § 425.306(b) to indicate that each ACO 

participant that submits claims for primary care services used to determine the ACO’s assigned 

population (that is, services rendered by the primary care physicians or ACO professionals listed 

in Tables 1, 2, and 4) must be exclusive to one Medicare Shared Savings Program ACO. 
CMS-1461-P 146 

In addition, we propose to make several conforming and technical changes to 

§ 425.402(a). First, we propose a modification to provide that for purposes of determining 

whether a beneficiary has received a primary care service from a physician who is an ACO 

professional, we would consider only services furnished by primary care physicians or 

physicians with a specialty listed in new paragraph (b). Second, we propose to make 

modifications to conform with changes in the definitions of "assignment", "ACO professional", 

and "ACO provider/supplier" in addition to our proposal to adopt a prospective assignment 

approach under proposed Track 3 in section II.F. of this proposed rule. We seek comment on 

these proposals. 

Finally, as part of our process of reviewing both recommendations discussed previously, 

we considered another alternative approach to assignment. We considered whether it might be 

preferable, after excluding the specialties listed in Table 3 from step 2 of the assignment process, 

to further simplify beneficiary assignment by establishing an assignment process that involves 

only a single step. More specifically, we considered whether we should replace the current two 

step assignment methodology with a new one step assignment process in which the plurality of 

primary care services provided by the physicians listed in Tables 1 and 2, and the non-physician 

practitioners in Table 4, would all be considered in a single step. Arguably, this approach could 

at least partially address the comments we have received about the current assignment 

methodology and also help further simplify the assignment process. 

However, while it has some attractive features, we also have some important concerns 

about this approach. For example, beneficiaries receiving concurrent care from both primary 

care physicians and specialists could inappropriately be assigned to an ACO or other entity that 

is not responsible for managing their overall care. To illustrate, under an assignment process 
CMS-1461-P 147 

with only one step, if a beneficiary has a long term, continuing relationship with a family 

practitioner who is an ACO professional but also requires specialty care for a chronic allergy 

condition from an allergist who is not participating in an ACO, then in any given performance 

year the beneficiary could be assigned to the ACO or not depending merely on the allowed 

charges for primary care services furnished by the family practitioner versus the allowed charges 

for services furnished by the allergist. Under our current two step assignment methodology, this 

beneficiary would be consistently and appropriately assigned to the ACO in which the 

beneficiary’s family practitioner participates. We believe this result would be appropriate 

because, in this example, the family practitioner is responsible for managing the overall care of 

this patient whereas the allergist is providing more specialized care. A similar problem would 

exist for some other beneficiaries, such as those who temporarily require specialty care for an 

acute condition during a performance year. Therefore, we are concerned that by establishing an 

assignment methodology based on a single step, we may reduce our focus on primary care and 

ultimately assign some beneficiaries to an ACO inappropriately based on specialty care over true 

primary care. A one-step assignment methodology could also introduce additional instability 

into the assignment process. Therefore, we are not proposing to combine the two steps used 

under the current assignment methodology. 

Although we are not proposing this change at this time, we seek comments as to whether 

it would be preferable, after excluding the physician specialties listed in Table 3 from the 

assignment process, to further simplify the assignment methodology by establishing an 

assignment process that involves only a single step. We will consider comments on this issue 

during the development of the final rule. 
CMS-1461-P 148 

We also welcome any comments about the possible impact these potential changes to the 

assignment methodology might have on other CMS programs that use an assignment 

methodology that is generally aligned with the Shared Savings Program, such as PQRS GPRO 

reporting via the GPRO web interface and VM. We note that as previously discussed, we 

revised the assignment methodology for PQRS GPRO reporting via the GPRO web interface and 

VM in the CY 2015 PFS final rule with comment period that appeared in the November 13, 2014 

Federal Register (79 FR 67790 and 79 FR 67962). 

5. Assignment of Beneficiaries to ACOs that include FQHCs, RHCs, CAHs, or ETA Hospitals 

In this section, we summarize the regulatory policies in § 425.404 for assignment of 

beneficiaries to ACOs that include FQHCs and RHCs as ACO participants and subsequent 

operational procedures and instructions that we have established in order to allow FQHCs and 

RHCs as well as CAHs billing under section 1834(g)(2) of the Act (referred to as Method II), 

and ETA hospitals to fully participate in the Shared Savings Program. These types of providers 

may submit claims for physician and other professional services when certain requirements are 

met, but they do not submit their claims through the standard Part B claims payment system. 

Accordingly, we have established operational processes so that we can consider claims for 

professional services submitted by these providers in the process for assigning beneficiaries to 

ACOs. However, each of these four provider types (that is, FQHCs, RHCs, CAHs, ETA 

hospitals) generally have differing circumstances with respect to their provider and medical 

service code reporting requirements, claims forms used, and the payment methodology that 

applies to professional services. Although there are important differences between the payment 

policy and claims processing for FQHCs and RHCs, they do share some key characteristics. 
CMS-1461-P 149 

Therefore, we will discuss FQHCs and RHCs jointly, and then address CAHs and ETA hospitals 

separately. 

a. Assignment of Beneficiaries to ACOs that Include FQHCs and RHCs 

(1) Overview 

 FQHCs and RHCs are facilities that furnish services that are typically furnished in an 

outpatient clinic setting. They are currently paid an all-inclusive rate (AIR) per visit for qualified 

primary and preventive health services furnished to Medicare beneficiaries. On October 1, 2014, 

FQHCs began to transition to a new FQHC prospective payment system (PPS). FQHCs have 

been required to use HCPCS coding on all their claims since January 1, 2011, to inform the 

development of the PPS and for limited other purposes, and would be required to use HCPCS 

coding for payment purposes under the FQHC PPS. Under the current payment methodology, 

FQHCs and RHCs submit claims for each encounter with a beneficiary and receive an interim 

payment based on their AIR for qualifying visits. The claims contain revenue codes that 

distinguish general classes of services (for example, clinic visit, home visit or mental health 

service). Claims submitted by FQHCs and RHCs also identify the beneficiary to whom the 

service was provided, and include other information relevant to determining whether the AIR can 

be paid for the service. The claims contain very limited information regarding the individual 

practitioner, or the type of health professional (for example, physician, PA or NP) who provided 

the service. 

 Based on detailed comments from some FQHC and RHC representatives, in the 

November 2011 final rule, we established a beneficiary assignment process that allows primary 

care services furnished in FQHCs and RHCs to be considered in the assignment process for any 

ACO that includes an FQHC or RHC as an ACO participant. This process is codified in the 
CMS-1461-P 150 

regulations at § 425.404. (This assignment process also enables FQHCs and RHCs to form 

ACOs independently, without the participation of other types of eligible entities, provided they 

meet all other eligibility requirements (76 FR 67814)). Operationally we assign beneficiaries to 

ACOs that include FQHCs or RHCs in a manner generally consistent with how we assign 

beneficiaries to other ACOs based on primary care services performed by physicians as 

described previously. However, to address the requirement under section 1899(c) of the Act that 

beneficiaries be assigned to an ACO based on their use of primary care services furnished by 

physicians, we require ACOs that include FQHCs or RHCs to identify, through an attestation 

(see § 425.404(a)), the physicians that provide direct patient primary care services in their ACO 

participant FQHCs or RHCs. This additional step is not necessary in the case of other types of 

ACO participants that bill Medicare for primary care services because the claims clearly identify 

the practitioner furnishing the service. The attestation must be submitted to CMS as part of the 

application process for all ACOs that include FQHCs or RHCs as ACO participants and must 

include the NPIs and other identifying information for the physicians that directly provide 

primary care services in the ACO participant FQHCs or RHCs (see § 425.204(c)(5)(iii)(A)). 

Subsequently, we use the combination of the FQHC or RHC ACO participant TIN (and other 

unique identifier such as CCN, where appropriate) and the NPIs of the FQHC or RHC physicians 

provided to us through the attestation process to identify those beneficiaries that received a 

primary care service from a physician in the FQHC or RHC and who are therefore eligible to be 

assigned to the ACO as provided under § 425.402(a)(1). Then, we assign those beneficiaries to 

the ACO, using the step-wise assignment methodology under § 425.402(a)(3) and (4), if they 

received the plurality of their primary care services, as determined based on allowed charges for 
CMS-1461-P 151 

the HCPCS codes and revenue center codes included in the definition of primary care services at 

§ 425.20, from ACO professionals. 

 We are able to crosswalk the revenue center codes reported by RHCs (and FQHCs for 

services performed prior to January 1, 2011) to comparable "primary care" HCPCS codes based 

on their code definitions. For example, CPT codes 99201 through 99215 (office/outpatient 

visits) are cross-walked to revenue center code 0521. Because the focus of FQHCs and RHCs is 

on primary care, we continue to believe these revenue center codes, when reported by 

FQHCs/RHCs, represent primary care services and not more specialized care. This crosswalk 

allows us to use the available revenue center codes as part of the beneficiary assignment process 

for RHC services (and for FQHC services furnished prior to January 1, 2011, when FQHCs were 

required to start submitting HCPCS codes) in place of the HCPCS codes which are used more 

generally. We established and have updated this crosswalk through contractor instructions. For 

claims submitted by FQHCs on or after January 1, 2011, we use the HCPCS codes which are 

included on the claims to identify the service provided. 

 To summarize, the special procedures that we have established in the November 2011 

final rule and through operational program instructions (see program specifications on our 

website at http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Downloads/Shared-Savings-Losses-Assignment-Spec-v2.pdf) 

for processing FQHC and RHC claims in order to allow these services to be considered in the 

beneficiary assignment process for the Shared Savings Program are as follows: 

● FQHC and RHC services are billed on an institutional claim form and require special 

handling to incorporate them into the beneficiary assignment process. In general, ACO 

participants are identified through their TIN(s). However, the TINs for FQHCs and RHCs are 
CMS-1461-P 152 

not included in the CMS claims files. Therefore, we require that the CCNs also be reported for 

FQHCs and RHCs that are ACO participants. We use the CCN as the unique identifier for an 

individual FQHC or RHC. We require ACOs to include the CCN, the TIN, and the 

organizational NPI for FQHCs and RHCs that are participating in the ACO on their ACO 

participant lists. For example, the instructions for entities applying to the Shared Savings 

Program for 2015 were provided on our website at http://www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/sharedsavingsprogram/Downloads/HowTo-Participant-List-Template.pdf . 

● For FQHCs/RHCs that are ACO participants, we treat a FQHC or RHC service 

reported on an institutional claim as a primary care service performed by a primary care 

physician if the claim includes a HCPCS or revenue center code that is included in the definition 

of a primary care service at § 425.20 and the service was furnished by a physician that was 

identified as providing direct primary care services in the attestation submitted as part of the 

ACO’s application. All such physicians are considered primary care physicians for purposes of 

the assignment methodology and no specialty code is required for these claims. 

● A primary care physician is any physician NPI included in the attestation provided as 

part of the application submitted by an ACO that includes an FQHC or RHC as an ACO 

participant. 

● For FQHCs/RHCs that are ACO participants, if the claim is for a primary care service 

furnished by someone other than a physician listed on the attestation, we treat the service as a 

primary care service furnished by a non-physician ACO professional. We established this 

operational policy in order to be able to include these FQHC/RHC primary care services in step 2 

of the current beneficiary assignment methodology, as long as all other assignment requirements 

are met. We believe this is a reasonable assumption because FQHC/RHC covered services 
CMS-1461-P 153 

represented by the primary care HCPCS or revenue center codes would primarily represent 

services furnished by a non-physician ACO professional, if not by a primary care physician. We 

would note that covered services in RHCs or FQHCs include services furnished by certain other 

professionals who are not ACO professionals (that is, a certified nurse midwife, clinical 

psychologist, clinical social worker or, in very limited situations, a visiting nurse). However, 

such services are not reported under the HCPCS codes and revenue center codes that we have 

defined as being primary care services at § 425.20 for purposes of the Shared Savings Program. 

(See RHC/FQHC general billing requirements in the Medicare Claims Processing Manual, 

Chapter 9 - Rural Health Clinics/Federally Qualified Health Centers, section 100 at 

http://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c09.pdf). 

● For FQHCs/RHCs that are not ACO participants, we treat a FQHC or RHC service 

reported on an institutional claim as a primary care service performed by a primary care 

physician if the claim includes a HCPCS or revenue center code that meets the definition of a 

primary care service at § 425.20. That is, for non-ACO participant FQHCs and RHCs, we 

assume a primary care physician performed all primary care services. As we explained 

previously in the November 2011 final rule (76 FR 67860), FQHC/RHC claims contain limited 

information as to the type of practitioner providing a service because such information is not 

necessary to determine payment rates for services in FQHCs/RHCs. Further, the attestation 

requirement at § 425.404(a) does not, of course, apply to FQHCs/RHCs that are not participating 

in an ACO. As a result, for non-ACO participant FQHCs/RHCs we are not able to determine 

whether a primary care service was furnished by a primary care physician, and thus should be 

considered in step 1, or was furnished by a specialist physician or NP/PA/CNS, and thus should 

be considered under step 2 of the assignment methodology. We chose to assume such primary 
CMS-1461-P 154 

care services were furnished by primary care physicians so that these services would be 

considered in step 1 of the assignment methodology. We established this operational procedure 

to help make sure we do not disrupt established relationships between beneficiaries and their care 

providers in non-ACO participant FQHCs and RHCs, by inappropriately assigning beneficiaries 

to ACOs that are not primarily responsible for coordinating their overall care. 

 To illustrate, we offer the following example: assume Medicare is billed for five primary 

care services (all with equal allowable charges) for a particular beneficiary during a given 

performance year. One of those primary care services was provided by a primary care physician 

who is an ACO provider/supplier not affiliated with an FQHC. Four of the services were 

provided by an FQHC that is not an ACO participant. In this case, if we had assumed that the 

FQHC services were performed by NPs/PAs/CNSs, then the beneficiary would have been 

assigned to the ACO under step 1 of the assignment methodology and not the FQHC. Instead, 

by assuming the non-ACO participant FQHC services were performed by primary care 

physicians, this beneficiary would be assigned to the FQHC under step 1 and not to the ACO. In 

this scenario we believe it would be more appropriate for the beneficiary to be assigned to the 

FQHC since the FQHC is the entity that is primarily responsible for overseeing the care for this 

beneficiary. Also, we do not believe it would be appropriate to hold the ACO accountable for 

the beneficiary in this example given that the ACO is not providing the plurality of primary care. 

(2) Proposed Revisions 

 As currently drafted, § 425.404(b) conflates the question of whether a service billed by an 

FQHC or RHC is provided by a physician with the question of whether the service is a primary 

care service. As a consequence, the provision arguably does not address situations where the 

FQHC/RHC claim is for a primary care service as defined under § 425.20, but the NPI reported 
CMS-1461-P 155 

on the claim is not the NPI of a physician included in the attestation submitted under 

§ 425.404(a). As with other types of ACO participants, under the step-wise assignment 

methodology we believe it is appropriate to separately address the questions of whether the 

service is a primary care service, whether the service is a primary care service provided by an 

ACO professional who is a primary care physician, and whether the service is a primary care 

service provided by another ACO professional. Therefore, we propose to revise § 425.404(b) to 

better reflect the program rules and operational practices as previously outlined. In addition, we 

propose to revise § 425.404(b) to reflect the proposal discussed earlier to revise § 425.402(a)(1) 

to include services furnished by NPs, PAs, and CNSs as services that will be considered in step 1 

of the assignment process. Under these proposals, we would assign beneficiaries to ACOs that 

include FQHCs and RHCs in the following manner. 

 To address the requirement under section 1899(c) of the Act that beneficiaries be 

assigned to an ACO based on their use of primary care services furnished by physicians, we 

would continue to require ACOs that include FQHCs and RHCs to identify, through an 

attestation (see § 425.404(a)), the physicians that provide direct patient primary care services in 

their ACO participant FQHCs or RHCs. Previously, we used this attestation information both 

for purposes of determining whether a beneficiary was “assignable” to an ACO and also for 

purposes of assigning beneficiaries to the ACO under step 1. However, we now propose to use 

this attestation information only for purposes of determining whether a beneficiary is assignable 

to an ACO. We refer to this determination under § 425.402(a)(1) as being the assignment 

“pre-step”. If a beneficiary is identified as an “assignable” beneficiary in the assignment 

pre-step, then we would use claims for primary care services furnished by all ACO professionals 

submitted by the FQHC or RHC to determine whether the beneficiary received a plurality of his 
CMS-1461-P 156 

or her primary care services from the ACO under Step 1. We propose to make revisions to 

§ 425.404(b) to reflect these policies. To illustrate the assignment methodology for an ACO that 

includes FQHCs/RHCs we offer the following example. Assume Medicare is billed for five 

primary care services (all with equal allowable charges) for a particular beneficiary during a 

given performance year. One of those primary care services was provided by a specialist 

physician who is an ACO professional not affiliated with the FQHC. Two of the services were 

provided in an FQHC that is an ACO participant in the same ACO. Under the presumption 

discussed previously, these services are assumed to have been provided by NPs, PAs, or CNSs in 

the FQHC. The remaining two services were provided by specialist physicians billing under a 

common TIN but unaffiliated with the ACO. In this case, the beneficiary would be assignable to 

the ACO because the beneficiary had at least one primary care service with a physician who is an 

ACO professional. The beneficiary would be assigned to the ACO in Step 1 because two of the 

beneficiary’s five primary care services during the performance year were provided by NPs, 

PAs, or CNSs who are ACO professionals in the ACO. These two services would be considered 

in step 1, consistent with the proposal to include NP, PA, and CNS primary care services in step 

1 of the assignment methodology. In this hypothetical example, if we did not consider the 

FQHC claims for the services performed by NPs, PAs, or CNSs, the beneficiary would appear to 

have had only three valid claims to be used for assignment and would be assigned outside the 

ACO under Step 2 because there is only one claim for primary care services furnished by the 

specialist physician who is an ACO professional in the ACO but two of the claims were for 

services furnished by specialist physicians outside the ACO. However, by considering the 

FQHC claims, the beneficiary would have five claims for primary care services and would be 

assigned to the ACO under step 1 because two of the services were rendered by NPs, PAs, or 
CMS-1461-P 157 

CNSs who are ACO professionals, in contrast to the two claims for primary care services 

furnished by specialist physicians outside the ACO. 

 We have also encountered instances where an assignable beneficiary has received 

primary care services from FQHCs or RHCs that are not participants in an ACO. For non-ACO 

participant FQHCs and RHCs, we have previously assumed that all of their primary care services 

are performed by primary care physicians. We believe that this assumption, which we 

established in operational guidance as noted previously, has helped to assure that while 

beneficiaries are appropriately assigned to ACOs, we do not disrupt established relationships 

between beneficiaries and their care providers in FQHCs and RHCs that are not ACO 

participants. However, we note that this special assumption for non-ACO FQHCs/RHCs would 

no longer be necessary under the proposed revision to the assignment methodology at § 425.402 

to consider primary care services furnished by NPs, PAs, and CNSs in step 1 of the assignment 

methodology rather than step 2 because: (1) as indicated earlier we believe that when a physician 

provides a service in an FQHC or RHC, the physician is functioning as a primary care physician, 

regardless of his or her specialty designation in the CMS enrollment records, and (2) there is no 

need to differentiate between primary care services performed by physicians and primary care 

services furnished by NPs, PAs, and CNSs for non-ACO FQHCs/RHCs because the requirement 

under section 1899(c) of the Act that beneficiaries be assigned to an ACO based on their use of 

primary care services furnished by physicians does not apply to entities that are not participating 

in an ACO. Instead, for all FQHCs/RHCs regardless of whether or not they are ACO 

participants, we would we treat all such claims for primary care services that are furnished by 

someone other than a physician listed on the attestation submitted by the ACO under 

§ 425.404(a) as a service furnished by an NP, PA or CNS. Therefore, all primary care services 
CMS-1461-P 158 

furnished by non-ACO FQHCs/RHCs would be considered in step 1 of the assignment 

methodology, and there would no longer be a need to assume such primary care services were 

provided by primary care physicians in order to achieve this result. 

We recognize the unique needs and challenges of rural communities and the importance 

of rural providers in assuring access to health care. FQHCs, RHCs and other rural providers play 

an important role in the nation’s health care delivery system by serving as safety net providers of 

primary care and other health care services in rural and other underserved areas and for lowincome beneficiaries. We have attempted to develop and implement regulatory and operational 

policies to facilitate full participation of rural providers in the Shared Savings Program, within 

the statutory requirements for the program. We welcome comments on our proposed revisions to 

§ 425.404(b) and our current procedures for using claims submitted by FQHCs and RHCs in the 

assignment methodology and suggestions on how we might further support participation of 

FQHCs and RHCs in the Shared Savings Program in a manner that is consistent with the 

statutory requirements. 

b. Assignment of Beneficiaries to ACOs that Include CAHs 

 We briefly addressed certain issues regarding ACOs that include CAHs in both the 

proposed rule (76 FR 19538 through 19539) and final rule (76 FR 67812 through 67814) 

establishing the Shared Savings Program. We indicated that we determined that current 

Medicare payment and billing policies could generally support the participation of CAHs in 

ACOs. However, we explained that the situation is somewhat complicated with regard to CAHs 

because section 1834(g) of the Act provides for two different payment methods for outpatient 

CAH services. 
CMS-1461-P 159 

 CAHs billing under section 1834(g)(1) of the Act (referred to as method I) can participate 

in the Shared Savings Program by establishing partnerships or joint venture arrangements with 

ACO professionals, just like other hospitals. CAHs billing under section 1834(g)(2) of the Act 

(referred to as method II) may form independent ACOs if they meet the eligibility requirements 

specified in the regulations. Professional services billed by method II CAHs are reported using 

HCPCS/CPT codes and are paid using a methodology based on the PFS. As a result, it is 

possible to use claims submitted by method II CAHs in the assignment methodology under 

§ 425.402. However, method II CAH claims that include professional services require special 

processing because they are submitted as part of institutional claims. Therefore, we have 

developed operational procedures that allow these claims to be considered in the assignment 

process under § 425.402. Although we are not making any proposals at this time regarding the 

use of services billed by method II CAHs in the assignment process, we note that our procedures 

for incorporating claims billed by method II CAHs into the assignment methodology are 

available on our website at http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Downloads/Shared-Savings-Losses-Assignment-Spec-v2.pdf

(see section 3.3.) These technical specifications allow interested parties to understand how these 

claims are considered in the assignment methodology under § 425.402 and to compare the 

manner in which claims submitted by method II CAHs are processed with the processing of 

claims submitted by other providers that also require special processing before they can be 

considered in the assignment process. We believe this additional information in the technical 

specifications allows for a better understanding of the differences in our procedures, and the 

reasons for these differences. 
CMS-1461-P 160 

 One question we frequently receive from ACO applicants is about the identification 

numbers we use for different provider types. In general, ACO participants are identified by 

Medicare-enrolled TINs. However, the TINs for method II CAHs are not included in the CMS 

claims files. Therefore, in accordance with § 425.204(c)(5)(ii), we require that as part of their 

application, ACO applicants also include the CCNs for any CAHs that are included as ACO 

participants. In the assignment methodology under § 425.402, we use the CCN as the unique 

identifier for an individual method II CAH. 

c. Assignment of Beneficiaries to ACOs that Include ETA Hospitals 

 After finalizing the beneficiary assignment rules established at § 425.400 through 

§ 425.404 in the November 2011 final rule (76 FR 67851 through 76 FR 67870), we received 

inquiries regarding whether primary care services performed by physicians at ETA hospitals 

would be included in the assignment of beneficiaries to ACOs. ETA hospitals are hospitals that, 

under section 1861(b)(7) of the Act and § 415.160 of our regulations, have voluntarily elected to 

receive payment on a reasonable cost basis for the direct medical and surgical services of their 

physicians in lieu of Medicare PFS payments that might otherwise be made for these services. 

As a result of this election, we do not receive separate claims for such physician services 

furnished in ETA hospitals. However, ETA hospitals do bill separately for their outpatient 

hospital facility services, and these bills include the information needed to assign beneficiaries to 

an ACO. Therefore, we have developed operational instructions and processes (available at 

Section 3.5 of the specification document available on our website at 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Downloads/Shared-Savings-Losses-Assignment-Spec-v2.pdf ) 
CMS-1461-P 161 

that enable us to include primary care services performed by physicians at ETA hospitals in the 

assignment of beneficiaries to ACOs under § 425.402. 

● We include TINs and other identifiers (including the hospital CCN) for ETA hospitals 

in the assignment algorithm in both steps 1 and 2 of the assignment process using claims from 

the outpatient (institutional) file. 

● It is necessary for us to use institutional claims submitted by ETA hospitals in the 

assignment process because ETA hospitals are paid for physician professional services on a 

reasonable cost basis through their cost reports and no other claim is submitted for such services. 

However, ETA hospitals bill us for their separate facility services when physicians and other 

practitioners provide services in the ETA hospital and the institutional claims submitted by ETA 

hospitals include the HCPCS code for the services provided. We use the HCPCS code included 

on this institutional claim to identify whether a primary care service was rendered to a 

beneficiary in the same way as for any other claim. 

● To determine the rendering physician for ETA institutional claims, we use the NPI 

listed in the "other provider" NPI field. 

● Then we use PECOS to obtain the CMS specialty for the NPI listed on the ETA 

institutional claim. 

● These institutional claims do not include allowed charges, which are necessary to 

determine where a beneficiary received the plurality of primary care services as part of the 

assignment process. Accordingly, we use the amount that would otherwise be payable under the 

PFS for the applicable HCPCS code, in the applicable geographic area as a proxy for the allowed 

charges for the service. 
CMS-1461-P 162 

 We believe it is appropriate to use ETA institutional claims for purposes of identifying 

primary care services furnished by physicians in ETA hospitals in order to allow these services 

to be included in the stepwise methodology for assigning beneficiaries to ACOs. We believe 

including these claims increases the accuracy of the assignment process by helping ensure that 

beneficiaries are assigned to the ACO or other entity that is actually managing the beneficiary’s 

care. ETA hospitals are often located in underserved areas and serve as providers of primary 

care for the beneficiaries they serve. We believe it is appropriate that their patients benefit from 

the opportunity for ETA hospitals to fully participate in the Shared Savings Program. Therefore, 

we propose to revise § 425.402 by adding a new paragraph (c) to provide that when considering 

services furnished by physicians in ETA hospitals in the assignment methodology, we would use 

the amount payable under the PFS for the specified HCPCS code as a proxy for the amount of 

the allowed charges for the service. In addition, because we are able to consider claims 

submitted by ETA hospitals as part of the assignment process, we also propose to amend 

§ 425.102(a) to add ETA hospitals to the list of ACO participants that are eligible to form an 

ACO that may apply to participate in the Shared Savings Program. 

 We invite comments on the use of institutional claims submitted by ETA hospitals for 

purposes of identifying primary care services furnished by physicians in order to allow these 

services to be considered in the assignment of beneficiaries to ACOs. We also invite comments 

on whether there are any other types of potential ACO participants that submit claims 

representing primary care services that CMS should also consider including in (or excluding 

from) its methodology for assigning beneficiaries to ACOs participating in the Shared Savings 

Program. 

6. Effective Date for Finalization of Proposals Affecting Beneficiary Assignment 
CMS-1461-P 163 

 As indicated in section II.A. of this proposed rule, the effective date for the final rule 

would be 60 days after the final rule is published. However, we propose that any final policies 

that affect beneficiary assignment would be applicable starting at the beginning of the next 

performance year. We believe that implementing any revisions to the assignment methodology 

at the beginning of a performance year is reasonable and appropriate because it would permit 

time for us to make the necessary programming changes and would not disrupt the assessment of 

ACOs for the current performance year. Moreover, we propose to adjust all benchmarks at the 

start of the first performance year in which the new assignment rules are applied so that the 

benchmark for the ACO reflects the use of the same assignment rules as would apply in the 

performance year. For example, any new beneficiary assignment policies that might be included 

in a final rule issued in early 2015 would apply to beneficiary assignment starting at the 

beginning of the following performance year, which in this example would be January 1, 2016. 

In this hypothetical example, we would also adjust performance benchmarks that apply for the 

2016 and subsequent performance years, as applicable, to reflect changes in our assignment 

methodology. 

 In addition, we would not retroactively apply any new beneficiary assignment policies to 

a previous performance year. For example, if the assignment methodology is applied beginning 

in 2016, we would not use it in mid-2016 to reconcile the 2015 performance year. In other 

words, the assignment methodology used at the start of a performance year would also be used to 

conduct the final reconciliation for that performance year. 
CMS-1461-P SP 11/25/14 164 

F. Shared Savings and Losses 

1. Background 

 Section 1899(d) of the Act establishes the general requirements for payments to 

participating ACOs. Specifically, section 1899(d)(1)(A) of the Act provides that ACO 

participants will continue to receive payment "under the original Medicare fee-for-service 

program under parts A and B in the same manner as they would otherwise be made," and that an 

ACO is eligible to receive payment for shared Medicare savings provided that the ACO meets 

both the quality performance standards established by the Secretary, and demonstrates that it has 

achieved savings against a benchmark of expected average per capita Medicare FFS 

expenditures. Additionally, section 1899(i)(3) of the Act authorizes the Secretary to use other 

payment models in place of the one-sided model outlined in section 1899(d) of the Act as long as 

the Secretary determines these other payment models will improve the quality and efficiency of 

items and services furnished to Medicare beneficiaries without additional program expenditures. 

 In our November 2011 final rule (76 FR 67904 through 67909) establishing the Shared 

Savings Program, we considered a number of options for using this authority. For example, 

commenters suggested we consider such options as blended FFS payments, prospective 

payments, episode/case rate payments, bundled payments, patient centered medical homes or 

surgical homes payment models, payments based on global budgets, full or partial capitation, and 

enhanced FFS payments for care management. However, in the November 2011 final rule 

(76 FR 67905), we opted not to use our authority under section 1899(i) of the Act to integrate 

these kinds of alternative payment models at that time, noting that many of the suggested 

payment models were untested. We expressed concern that immediately adopting untested 

and/or unproven models with which we had little experience on a national scale could lead to 
CMS-1461-P SP 11/25/14 165 

unintended consequences for the FFS beneficiaries we serve or for the health care system more 

broadly. We also noted that the Affordable Care Act had established a new Center for Medicare 

and Medicaid Innovation (Innovation Center) at CMS. The Innovation Center is charged with 

developing, testing, and evaluating innovative payment and service delivery models in 

accordance with the requirements of section 1115A of the Act. Many of the approaches 

suggested by stakeholders and commenters on the Shared Savings Program rule are the subject 

of ongoing testing and evaluation by the Innovation Center. In the November 2011 final rule 

(76 FR 67905), we noted that while we did not yet have enough experience with novel payment 

models to be comfortable integrating them into the Shared Savings Program at the time, we 

anticipated that what we learned from these models might be incorporated into the program in 

the future. 

 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: a one-sided risk model 

(Track 1) that incorporates 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 qualify to 

share in savings but are not responsible for losses. Under the two-sided model, ACOs qualify to 

share in savings with an increased sharing rate, but also must take on risk for sharing in losses. 

 In the November 2011 final rule (76 FR 67904), we discussed our belief that offering 

these two 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 in losses. We expressed our belief that a one-sided model would have the potential to 
CMS-1461-P SP 11/25/14 166 

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. Another reason we included the option for a one-sided track with 

no downside risk was our belief that this model would be accessible to and attract smaller group 

participation. Indeed, commenters persuaded us that ACOs new to the accountable care model—

particularly small, rural, safety net, and physician-only ACOs—would benefit from spending 

time under a one-sided model before being required to accept performance-based risk 

(76 FR 67907). 

We also noted, however, that while 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). Therefore, we used our authority 

under section 1899(i)(3) of the Act to create a performance-based risk option, Track 2, where 

ACOs would not only be eligible to share in savings, but also must share in losses. We believed 

a performance-based risk option would have the advantage of providing more experienced ACOs 

an opportunity to enter a sharing arrangement that provides greater reward for greater 

responsibility. Commenters supported our belief that models where ACOs bear a degree of 

financial risk hold the potential to induce more meaningful systematic change. This input from 

commenters underscored our own views regarding the importance of offering a pathway for 

ACOs to transition from the one-sided model to risk-based arrangements. These comments 

persuaded us that having Track 1 as a shared savings only option, while offering Track 2 as a 

shared savings/losses model, would be the most appropriate means to achieve our objectives. 

Thus, we made final these two tracks which offered the two-sided model under Track 2 to ACOs 

willing and able to take on performance-based risk in exchange for a greater share of any 
CMS-1461-P SP 11/25/14 167 

savings, and also a shared savings only model under Track 1 for the duration of an ACO's first 

3-year agreement period for entities needing more experience before taking on risk. In the final 

rule, we required that ACOs that participate in Track 1 during their first agreement period must 

transition to Track 2 for all subsequent agreement periods. We noted our belief that offering the 

two tracks, but requiring a transition to Track 2 in subsequent agreement periods, would increase 

interest in the Shared Savings Program by providing a gentler "on ramp" while maintaining the 

flexibility for more advanced ACOs to take on greater performance-based risk in return for a 

greater share of savings immediately upon entering the program (76 FR 67907). Therefore, as 

specified in the November 2011 final rule (76 FR 67909), ACOs may enter the program in one of 

two tracks: 

Track 1: Under Track 1, the ACO operates under the one-sided shared savings only 

model for its initial 3-year agreement period. 

Track 2: Under Track 2, the ACO operates under the two-sided shared savings/losses 

model for the 3-year agreement period. 

 Although most of the program requirements that apply to ACOs in Track 1 and Track 2 

are the same, the financial reconciliation methodology was designed so that ACOs that accept 

performance-based risk under Track 2 would have the opportunity to earn a greater share of 

savings. Thus, the same eligibility criteria, beneficiary assignment methodology, benchmark and 

update methodology, quality performance standards, data reporting requirements, data sharing 

provisions, monitoring for avoidance of at-risk beneficiaries, provider screening, and 

transparency requirements apply to ACOs under both models. However, the financial 

reconciliation methodology was modified for Track 2 in order to allow an opportunity for ACOs 

to earn a greater share of savings, in exchange for their willingness to accept performance-based 
CMS-1461-P SP 11/25/14 168 

risk. Specific differences between the two tracks include the minimum savings rate (MSR), the 

sharing rate based on quality performance, and the performance payment limit. Table 7 

summarizes the differences between the existing one-sided and two-sided models. 

 In this section, we discuss various proposals for modifications to the program tracks and 

the financial model based on our experience to date, and propose to offer organizations an 

additional two-sided model (Track 3) as a further option for participation. 

2. Modifications to the Existing Payment Tracks 

a. Overview 

 Because we believe that payment models where ACOs bear a degree of financial risk 

have the potential to induce more meaningful systematic change in the behavior of providers and 

suppliers, it was our intent in the November 2011 final rule to establish the Shared Savings 

Program to encourage ACOs not only to enter the program, but also to progress to increased risk. 

Therefore, as discussed previously, we established a requirement that an ACO entering the 

program under Track 1 may only operate under the one-sided model for its first agreement 

period. For subsequent agreement periods, an ACO would not be permitted to operate under the 

one-sided model (§ 425.600(b)). If the ACO wishes to participate in the program for a second 

agreement period, it must do so under Track 2 (shared savings/losses). Additionally, an ACO 

experiencing a net loss during its initial agreement period may reapply to participate in the 

program, but the ACO must 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 (§ 425.600(c)). In our view, this allowance for a full first agreement period 

under the one-sided model and required transition to performance-based risk in the subsequent 

agreement period struck a balance between our intent to encourage program participation by 
CMS-1461-P SP 11/25/14 169 

small, rural, or physician-only ACOs with the need to ensure that ACOs quickly transition to 

taking downside risk. 

 We are encouraged by the popularity of the Shared Savings Program, particularly the 

popularity of the one-sided model. Over 98 percent of ACOs participating in the Shared Savings 

Program (over 330 ACOs) have chosen Track 1, with only 5 ACOs participating under Track 2 

as a starting option. About half of the ACOs participating in the program are small, 

provider-based, or rural ACOs, each having less than 10,000 assigned beneficiaries. We 

continue to believe that one 3-year agreement period under Track 1 is sufficient for many 

organizations to progress along the on-ramp to performance-based risk. We also continue to 

believe, as discussed in the November 2011 final rule (76 FR 67907), 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, so it remains our intent to continue to 

encourage forward movement up the ramp. However, based on our experience with the 

program, we recognize that many of the organizations that are currently participating in the 

program are risk averse and lack the infrastructure and readiness to manage increased 

performance-based risk. Given the short time period between finalization of the November 2011 

final rule and the first application cycles, is it our impression that many ACOs, particularly 

smaller ACOs, focused initially on developing their operational capacities rather than on the 

implementation of care redesign processes. Therefore, we have some concerns about the slope 

of the on-ramp to performance-based risk created by the two existing tracks and the policy that 

requires ACOs in Track 1 (shared savings only) to transition to Track 2 (shared savings/losses) 

for their second agreement period. We are particularly concerned that the current transition from 

one- to two-sided risk may be too steep for some organizations, putting them into a situation 
CMS-1461-P SP 11/25/14 170 

where they must choose between taking on more risk than they can manage or dropping out of 

program participation altogether. For instance, we believe that some smaller and less 

experienced ACOs are likely to drop out of the program when faced with this choice, because the 

smaller an ACO's assigned beneficiary population, the greater the chances that shared losses 

could result from normal variation. Also, we are aware of the concern among some stakeholders 

that one agreement period under the one-sided model may be not be a sufficient amount of time 

for some ACOs to gain the level of experience with population management or program 

participation needed for them to be comfortable taking on performance-based risk. For some 

organizations, having additional experience in the Shared Savings Program under Track 1 could 

help them be in a better position to take on performance-based risk over time. We are also 

concerned that the existing features of Track 2 may not be sufficiently attractive to ACOs 

contemplating entering a risk-based arrangement. Finally, some ACOs have reported that 

establishing the repayment mechanism required to participate under the two-sided model is 

difficult and ties up capital that otherwise could be used to implement the care processes 

necessary to succeed in the program. We continue to believe the requirement that ACOs 

entering the two-sided model demonstrate an adequate repayment mechanism is important for 

protecting the Medicare program. However, as discussed in more detail later in this section, we 

are proposing certain modifications to the repayment mechanism requirements applicable to 

ACOs under the program's two-sided model(s) (Track 2 and proposed Track 3). These proposed 

modifications are based on our experience with the repayment mechanism requirements and are 

intended to reduce the burden of these requirements on ACOs. 

 Hence, we are revisiting our policies related to Tracks 1 and 2 in order to smooth the on 

ramp for organizations participating in the Shared Savings Program. First, we propose to remove 
CMS-1461-P SP 11/25/14 171 

the requirement at § 425.600(b) for Track 1 ACOs to transition to Track 2 after their first 

agreement period. Second, we propose to modify the financial thresholds under Track 2 to 

reduce the level of risk that ACOs must be willing to accept. Taken together, we believe there 

are a number of advantages to smoothing the on ramp by implementing these proposed policies. 

We believe that removing the requirement that ACOs transition to a two-sided model in their 

second agreement period will provide organizations, especially newly formed, less experienced, 

and smaller organizations, more time to gain experience in the program before accepting 

performance-based risk. In particular, we believe the proposed changes would encourage 

continued participation in the program by potentially successful ACOs that would otherwise drop 

out because of the requirement to transition to the two-sided model in their second agreement 

period. We further believe the proposal to allow organizations to gain more experience under a 

one-sided model before moving forward to a two-sided model would encourage earlier adoption 

of the shared savings model by organizations concerned about being required to transition to 

performance-based risk before realizing savings under a one-sided model. We believe 

incorporating the opportunity for ACOs to remain in Track 1 beyond their first agreement period 

could have a beneficial effect with respect to the care that beneficiaries receive. Specifically, to 

the extent that more ACOs are able to remain in the program, a potentially broader group of 

beneficiaries will have access to better coordinated care through an ACO. In addition, allowing 

ACOs additional time to make the transition to performance-based risk would reduce the chances 

that a high-performing ACO, which believes that it is not yet ready to assume greater financial 

risk, will either cease to participate in the program to avoid risk or find it necessary to engage in 

behaviors primarily intended to minimize that risk rather than improve patient care. 
CMS-1461-P SP 11/25/14 172 

 Further, we believe that ACOs that accept financial responsibility for the care of 

beneficiaries have the greatest beneficial effects for the Medicare program and its beneficiaries. 

Therefore, we expect that ACOs participating in the Shared Savings Program move in the 

direction of accepting performance-based risk. Thus, while we believe it is appropriate to offer 

additional time for ACOs under a one-sided model, we also believe there should be incentives 

for participants to voluntarily take on additional financial risk. There should also be 

disincentives to discourage organizations from persisting in a shared savings only risk track 

indefinitely. Therefore, we believe that distinguishing the financial attractiveness of the 

one-sided model from the two-sided model by dropping the sharing rate in Track 1 for ACOs 

participating in Track 1 for a subsequent agreement period and modifying the risk inherent in 

Track 2 would signal to ACOs the importance of moving toward performance-based risk and 

encourage ACOs to voluntarily enter the two-sided model as soon as they are able. Finally, we 

believe that adopting restrictions to prevent organizations that have not achieved certain 

minimum performance requirements with respect to cost and quality of care, based on their 

experience to date, from obtaining additional agreement periods under Track 1 can serve as an 

appropriate program safeguard against entities remaining in the program that are not fully 

committed to improving the quality and efficiency of health care service delivery. 

b. Proposals Related to Transition from the One-sided to Two-sided Model 

 We considered several options to better balance both our intent to encourage continued 

participation by ACOs that entered the program under the one-sided model but that are not ready 

to accept performance-based risk after 3 years of program participation with our concern that 

allowing a shared savings only option will discourage ACOs capable of taking risk from moving 

to a two-sided model. We considered the following options: (1) revising the regulations to 
CMS-1461-P SP 11/25/14 173 

allow ACOs that enter the program under the one-sided model to continue participation in Track 

1 for more than one agreement period; (2) extending the initial 3-year agreement period for an 

additional 2 years for ACOs that enter the program under Track 1, but that do not believe that 

they are ready to advance to a risk-based track; and (3) allowing ACOs to continue participation 

in Track 1 for more than one agreement period, but revising the one-sided model to decrease the 

financial attractiveness of the model, so as to encourage ACOs ready to accept 

performance-based risk to transition to a two-sided model. 

 Among these options, we believe the third option offers a good balance of encouraging 

continued participation in addition to encouraging progression along the on-ramp to 

performance-based risk. Therefore, we propose to remove the requirement at § 425.600(b) that 

ACOs that enter the program under Track 1 (one-sided model) must transition to Track 2 

(two-sided model) after one agreement period, if they wish to continue participating in the 

Shared Savings Program. Instead, we propose to revise the regulation to permit ACOs that have 

completed a 3-year agreement under Track 1 to enter into one additional 3-year agreement under 

Track 1. We believe that continued participation in the Shared Savings Program, generally, 

should be made available to ACOs that demonstrate they have been compliant with the program 

requirements, or are working through corrective action plans to CMS' satisfaction, with 

safeguards in place to ensure they will meet program requirements in the future. In section 

II.C.3. of this proposed rule, we proposed criteria for determining whether to allow ACOs that 

are currently participating in the program to renew their participation agreements for subsequent 

agreement periods. We seek to encourage the continued participation of ACOs that are 

successful and have the potential to move toward accepting greater responsibility for the care of 

their beneficiaries, but also encourage their progression along the risk continuum. Thus, we 
CMS-1461-P SP 11/25/14 174 

propose to make the option of participating in Track 1 for a second agreement period available to 

only those Track 1 ACOs that--(1) meet the criteria established for ACOs seeking to renew their 

agreements (as proposed in section II.C.3 of this proposed rule, including demonstrating to CMS 

that they satisfied the quality performance requirements under Subpart F such that they were 

eligible to share in savings in at least one of the first two performance years of the previous 

agreement period) and (2) in at least one of the first two performance years of the previous 

agreement period, they did not generate losses in excess of the negative MSR. For example, 

assume a Track 1 ACO has 15,000 assigned beneficiaries with an MSR of 2.7 percent. If we 

calculate that this ACO's expenditures exceeded the ACO's benchmark by 2.7 percent or more in 

both of the first two performance years, then CMS would not accept this ACO's request to renew 

its agreement under the one-sided model. If the ACO's financial performance results in 

expenditures in excess of the negative MSR in only one of the first two performance years, then 

we would accept this ACO's request to renew its participation agreement under the one-sided 

model, provided all other requirements for renewal were satisfied. 

 We believe that requiring ACOs to meet these requirements in order to remain in Track 1 

will prevent consistently poor performers from being able to seamlessly continue in program 

participation under the one-sided model while permitting some leeway for ACOs that are new to 

the program and may have had some difficulty in cost or quality performance in one of the two 

first performance years. We also believe that these additional eligibility criteria serve as an 

important safeguard to reduce the potential for ACOs to participate in the program for reasons 

other than a commitment to improving the value of health care services. We recognize that 

because our assessment would be based on only 2 years of data, we would not have a complete 

picture of the ACO's performance during the agreement period. That is, an ACO may financially 
CMS-1461-P SP 11/25/14 175 

perform very poorly, exceeding the negative MSR in its first and second performance years, but 

demonstrate a trend in a direction that could ultimately lead to better performance in the third 

year. Under our proposal this ACO would not be permitted to renew its agreement under Track 

1 for a second agreement period. However, an argument could be made that this ACO simply 

needed the additional time under a one-sided model to gain experience and start improving. We 

therefore seek comment on whether we should also consider the direction the ACO's 

performance is trending when determining whether to permit renewal of an ACO's participation 

agreement under Track 1. We also seek comment on whether other options for such ACOs, short 

of refusing their participation in a second agreement period under Track 1, would better serve 

program goals. We note that such ACOs would not be precluded from renewing their 

participation agreement in order to participate under a two-sided risk track, consistent with 

§ 425.600(c). We also emphasize that in addition to meeting the specific criteria to be eligible to 

continue in Track 1, the ACO must also demonstrate that it meets the requirements to renew its 

agreement under proposed § 425.224, which would include the requirement that the ACO 

establish that it is in compliance with the eligibility and other requirements of the Shared Savings 

Program. 

 In addition, as part of our proposal to allow ACOs to participate in a second agreement 

period under the one-sided model, we propose 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. As a result, the maximum sharing 

rate for an ACO in a second agreement period under Track 1 would be 40 percent. 

 Accordingly, in addition to our proposed change to § 425.600(b) to allow ACOs to 

participate under Track 1 for a second agreement period, we propose to modify § 425.604(d) to
CMS-1461-P SP 11/25/14 176 

provide that the maximum sharing rate during a second agreement period under Track 1 will be 

40 percent. As a result, ACOs that continue to participate under the one-sided model and are 

eligible for shared savings will receive a smaller share of those savings compared to ACOs 

participating under the one-sided model in their first agreement period and ACOs participating 

under a two-sided model. We believe permitting one additional agreement period under Track 1, 

but at a reduced sharing rate, will encourage the continued participation of ACOs that are 

successful and have the potential to move toward accepting greater responsibility for the care of 

their beneficiaries, but also encourage their progression along the risk continuum. However, as 

discussed later in this section, we also recognize that limiting ACOs to only two agreement 

periods under Track 1 may encourage ACOs to progress along the on-ramp to risk earlier than 

they otherwise might if they were permitted to remain under the one-sided model for several 

agreement periods. 

 We further note that this option to participate under the one-sided model agreement in a 

subsequent agreement period is only available to ACOs that have completed or are in the process 

of completing an agreement under the one-sided model. That is, we will not permit an ACO 

under a two-sided model to subsequently participate under a one-sided model. 

 We seek comment on this proposal. In particular, we request input on whether a 40 

percent sharing rate in a second agreement period under the one-sided model is sufficient to 

incentivize an ACO that may need more time to prepare to take on two-sided performance-based 

risk while also encouraging ACOs that are ready to take on performance –based risk to choose to 

continue participation in the Shared Savings Program under a two-sided model. 

 We also considered other variations and options for allowing ACOs additional time in the 

one-sided model. For example, we considered allowing ACOs to continue under Track 1 for a 
CMS-1461-P SP 11/25/14 177 

second agreement period without any changes to the sharing rate (that is, retaining the 50 percent 

sharing rate in the second agreement period); however, we do not believe this approach would 

provide sufficient incentive for ACOs to be moving in the direction of adopting 

performance-based risk. We continue to believe that participating in a model with two-sided risk 

offers stronger incentives for ACOs to improve the quality of care and reduce costs. Currently, 

ACOs in their first agreement period under Track 1 may share in up to 50 percent of the savings 

generated for the Medicare program. We are concerned that if ACOs are able to continue to 

receive up to 50 percent of savings in a second agreement period there may be insufficient 

incentive for many ACOs that may be ready to take on two-sided risk to move to a track with 

two-sided risk after their first agreement period. As a result, under our proposal we would 

reduce the sharing rate for ACOs participating in Track 1 for a second agreement period in order 

to discourage prolonged participation under Track 1 and encourage progression along the on 

ramp to risk where an ACO may qualify for a higher sharing rate. 

 We also considered permitting ACOs to participate in multiple agreement periods under 

Track 1 and reducing the maximum sharing rate by 10 percentage points for each subsequent 

agreement. Such a policy may encourage more ACOs to continue to participate in the program, 

but also may reduce the urgency for ACOs to progress quickly along the on-ramp to risk if they 

are permitted to remain under the one-sided model for several agreement periods. 

 We also considered offering the opportunity to ACOs participating under Track 1 to 

extend their initial 3-year participation agreement under Track 1 by an additional 2 years. 

However, we note that under this option, we would not be able to rebase the benchmark, making 

it more likely that organizations would achieve savings without further improvements in care 

redesign; yet at the same time, it would be more difficult for ACOs with losses to turn around 
CMS-1461-P SP 11/25/14 178 

their performance. Moreover, we are concerned that limiting ACOs to only 2 additional years 

under Track 1 may not be sufficient for all ACOs to take the steps necessary to prepare to move 

to performance-based risk. 

 We seek comment on our proposal to permit ACOs to participate under Track 1 for a 

second agreement period and to reduce the maximum sharing rate to 40 percent for ACOs 

participating under Track 1 for a second agreement period. We also specifically seek comments 

on the other options we considered, including extending an ACO's Track 1 agreement period for 

an additional 2-years rather than permitting two 3-year agreement periods under Track 1, 

permitting ACOs to participate in a second agreement period under Track 1 with no change to 

the sharing rate, and offering multiple agreement periods under Track 1 while reducing the 

sharing rate by 10 percentage points for each subsequent agreement. 

In the November 2011 final rule, we also addressed the possibility that an ACO may 

terminate or be terminated from participation in the Shared Savings Program, and the 

consequences for the ACO's choice of tracks in the event it reapplies to the program. We 

finalized a policy that would permit such ACOs to reapply to participate in the program again 

only after the date on which the term of their original participation agreement would have 

expired if the ACO had not been terminated (§ 425.222(a)). Under § 425.222(b), to be eligible 

to participate in the Shared Savings Program after a previous termination, the ACO must 

demonstrate in its application that it has corrected the deficiencies that caused it to be terminated 

and that it has processes in place to ensure it will remain in compliance with the terms of the new 

participation agreement. We note that, all applicants undergo screening with regard to their 

program integrity history that may result in denial of the application (§ 425.304(b)). We also 

provided that an ACO under the one-sided model whose participation agreement was previously 
CMS-1461-P SP 11/25/14 179 

terminated may reenter the program only under the two-sided model, unless it was terminated 

less than half–way through its agreement period under the one-sided model, in which case the 

ACO would be allowed to reenter the one-sided model (§ 425.222(c)). An ACO under Track 2 

whose agreement was terminated may only re-apply to participate in Track 2 (§ 425.222(c)). 

 In light of our proposed revisions to § 425.600 to permit an ACO to participate under 

Track 1 for a second agreement period, we are proposing to make conforming changes to 

§ 425.222(c) to permit previously terminated Track 1 ACOs to reapply under the one-sided 

model. We propose that, consistent with our existing policy under § 425.222(c), an ACO whose 

agreement was terminated less than half way through the term of its participation agreement 

under Track 1 would be permitted to reapply to the one-sided model as if it were applying for its 

first agreement period. If the ACO is accepted to reenter the program, the maximum sharing rate 

would be 50 percent. However, in the case of an ACO that was terminated more than half way 

through its initial agreement under the one-sided model, we propose to revise § 425.222(c) to 

permit this ACO to reapply for participation under the one-sided model, but to provide that the 

ACO would be treated as if it were applying for a second agreement period under Track 1. Thus, 

if the ACO is approved to participate in the program again, the reduced sharing rate of 40 percent 

would apply. An ACO whose prior agreement under Track 2 was terminated would still be 

precluded from applying to participate under Track 1. 

 We seek comment on this proposal. 

c. Proposals for Modifications to the Track 2 Financial Model 

 To complement the proposals to smooth the on ramp to risk, we are also proposing to 

modify the financial model under Track 2 for ACOs choosing this two-sided option to further 

encourage ACOs to accept increased performance-based risk. Specifically, we are proposing to 
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modify the threshold that Track 2 ACOs must meet or exceed in order to share in savings 

(minimum savings rate (MSR)) or losses (minimum loss rate (MLR)). We believe this 

modification would improve the track's attractiveness for ACOs, particularly for ACOs that may 

be cautious about entering a performance-based payment arrangement such as some ACOs with 

smaller assigned beneficiary populations or those with less experience with managing the health 

of populations across sites of care. 

 Track 2 was designed to allow more advanced ACOs the opportunity to take on greater 

performance-based risk in exchange for greater reward immediately, as early as their first 

agreement period. In the November 2011 final rule (76 FR 67904 through 67905), we discussed 

concerns that had been raised about allowing ACOs to participate immediately in a risk-based 

arrangement. Specifically, ACOs might try to avoid at-risk beneficiaries in order to minimize 

the possibility of realizing losses against their benchmarks or might be unable to repay the 

Medicare program if they have losses. We explained our belief that the use of retrospective 

beneficiary assignment for financial reconciliation and the program's beneficiary notification 

requirements would be sufficient safeguards against the prospect that ACOs participating in the 

two-sided model might try to avoid at-risk beneficiaries (76 FR 67904). Further, the requirement 

that ACOs participating in Track 2 establish an adequate repayment mechanism provides further 

assurance about their ability to repay shared losses to the Medicare program. 

 Currently, ACOs participating in Track 2 are eligible to share in a greater percentage of 

savings than ACOs participating in Track 1, but are also accountable for a share of losses 

compared to their benchmark. ACOs may elect to enter Track 2 in their first 3-year agreement 

period, or after completing one agreement period under Track 1. Under the Track 2 financial 

model, an ACO must have savings that meet or exceed a 2 percent threshold to be eligible to 
CMS-1461-P SP 11/25/14 181 

share in savings or additional expenditures that meet or exceed a 2 percent threshold to be held 

accountable for sharing in losses (§ 425.606(b)). As compared to the MSR used for Track 1, this 

fixed percentage generally offers a lower savings threshold for Track 2 ACOs to meet in order to 

share in savings, and was established in recognition of the Track 2 ACOs' willingness to assume 

the risk of incurring shared losses (76 FR 67929). In contrast, although organizations 

participating under the Track 1 financial model must also meet or exceed a MSR in order to be 

eligible to share in savings (§ 425.604(b)), the MSR under the one-sided model is established for 

each ACO using increasing nominal confidence intervals (CI) based on the size of the 

beneficiary population assigned to the ACO. Thus, an ACO with the minimum 5,000 assigned 

beneficiaries would have a MSR based on a 90 percent CI; an ACO with 20,000 assigned 

beneficiaries would have a MSR based on a 95 percent CI and an ACO with 50,000 assigned 

beneficiaries would have an MSR based on a 99 percent CI. In addition, the MSR under the onesided model is not allowed to fall under 2 percent for larger ACOs. Table 5 displays the MSR an 

ACO participating under Track 1 would have to achieve before savings could be shared based on 

its number of assigned beneficiaries. 

Table 5 –Minimum Savings Rate for Track 1 

Number of Beneficiaries 

MSR (low end of 

assigned beneficiaries) 

MSR (high end of 

assigned beneficiaries) 

5,000 - 5,999 3.9% 3.6% 

6,000 - 6,999 3.6% 3.4% 

7,000 - 7,999 3.4% 3.2% 

8,000 - 8,999 3.2% 3.1% 

9,000 - 9,999 3.1% 3.0% 

10,000 - 14,999 3.0% 2.7% 

15,000 - 19,999 2.7% 2.5% 

20,000 – 49,999 2.5% 2.2% 

50,000 – 59,999 2.2% 2.0% 

60,000 + 2.0% 

 
CMS-1461-P SP 11/25/14 182 

 As we described in the rulemaking establishing the Shared Savings Program 

(76 FR 67927), the MSR thresholds that apply under Track 1 were established on the basis of 

standard inferential statistics and provide confidence that, once the savings achieved by the ACO 

meet or exceed the MSR, the change in expenditures represents actual performance 

improvements by the ACO as opposed to normal variations. 

 Our experience with the program suggests that some ACOs, particularly ACOs with 

small assigned populations or those with less experience, are hesitant to elect Track 2 given the 

risk of losses and their inexperience with population management. Therefore, we have explored 

ways to reduce financial risk for ACOs participating under Track 2. One way to reduce financial 

risk under Track 2 would be to modify the current MSR and MLR under this track. By 

increasing the MSR and MLR thresholds beyond the current 2 percent, financial risk would be 

reduced for Track 2 ACOs because they would have to incur higher losses in order to be held 

accountable for shared losses. However, an ACO would also have to achieve a greater level of 

savings under a higher MSR in order to share in savings. In exploring potential modifications to 

the MSR and MLR under Track 2, we also considered increasing them using a fixed percent. 

For example, we considered using an MSR and MLR threshold of 3 or 4 percent that would 

apply to all ACOs participating in Track 2. 

 After considering these options, we concluded that using the same methodology currently 

used to establish the MSR under the one-sided model, which is based upon the size of the 

beneficiary population assigned to the ACO, to establish both the MSR and MLR under Track 2, 

would serve two purposes. Specifically, in comparison with the existing fixed 2 percent MSR 

and MLR that currently apply to ACOs in Track 2, it would further protect ACOs against the risk 

of losses likely due to normal variation while offering further protection to the Medicare program 
CMS-1461-P SP 11/25/14 183 

from paying for shared savings likely due to normal variation. The methodology that we used to 

establish the MSRs for Track 1 based upon the size of the assigned beneficiary population was 

intended to provide confidence that shared savings would not be earned by random chance alone 

(76 FR 67928). Similarly, basing the MLR under Track 2 on the size of an ACO's assigned 

beneficiary population would serve to statistically protect ACOs with smaller assigned 

populations from losses that result from normal variation, and we believe this change would 

make it more likely that such ACOs will be willing to take on performance-based risk under 

Track 2. 

 Therefore, we are proposing to retain the existing features of Track 2 with the exception 

of revising § 425.606(b) to allow the MSR and MLR to vary based on the ACO's number of 

assigned beneficiaries according to the methodology outlined for setting the MSR under the 

one-sided model in § 425.604(b) as shown in Table 6. We believe that by building in greater 

downside protection, this proposal may help smooth the on-ramp to performance-based risk for 

ACOs, particularly ACOs with smaller assigned populations, making the transition to a 

two-sided model more attractive. 

Table 6 – Proposed Minimum Savings Rate and Minimum Loss Rate for Track 2 

Number of Beneficiaries 

MSR/MLR (low end of 

assigned beneficiaries) 

MSR/MLR (high end of 

assigned beneficiaries) 

5,000 - 5,999 3.9% 3.6% 

6,000 - 6,999 3.6% 3.4% 

7,000 - 7,999 3.4% 3.2% 

8,000 - 8,999 3.2% 3.1% 

9,000 - 9,999 3.1% 3.0% 

10,000 - 14,999 3.0% 2.7% 

15,000 - 19,999 2.7% 2.5% 

20,000 – 49,999 2.5% 2.2% 

50,000 – 59,999 2.2% 2.0% 

60,000 + 2.0% 
CMS-1461-P SP 11/25/14 184 

 With the proposed addition of Track 3 to the program, discussed later in this section, 

Track 2 can be viewed as a first step for some organizations to accepting performance-based risk. 

As such, providing an MLR that is more protective of ACOs may attract greater participation in 

performance-based risk under Track 2, particularly by ACOs with smaller assigned populations 

or those with less experience managing populations. 

 We seek comments on this proposal as well as other options that could potentially make 

Track 2 more financially attractive to ACOs. We request that commenters indicate why they 

believe an alternative option would be more attractive to ACOs than the one proposed and the 

specific reason why the option would be beneficial. We also request that commenters consider 

whether additional safeguards should be implemented to appropriately protect the Medicare 

Trust Fund, if an alternative approach were to be adopted. We also seek comment on whether 

we should consider implementing the prospective assignment approach proposed for Track 3 

under Track 2 and whether doing so would enhance or erode the incentives for organizations to 

take on risk. 

3. Creating Options for ACOs that Participate in Risk-Based Arrangements 

a. Overview 

 As noted previously, we are pleased with the overall interest in the Shared Savings 

Program. However, we would also like to increase interest in the program by expanding the 

range of opportunities and models for organizations to improve the cost and quality of care 

delivered to Medicare FFS beneficiaries by assuming greater financial risk for their assigned 

beneficiaries. 

 In January 2012, the Innovation Center began testing the Pioneer ACO Model. The 

Shared Savings Program and the Pioneer ACO Model incorporate the same fundamental 
CMS-1461-P SP 11/25/14 185 

structure with a group of healthcare providers and suppliers coming together to form an ACO 

that agrees to be accountable for the care provided to a population of Medicare FFS 

beneficiaries. The quality reporting requirements are the same for Shared Savings Program 

ACOs and Pioneer ACOs. However, the Pioneer ACO Model and Shared Savings Program 

differ on several key elements, including the methodologies used for benchmarking, payment 

reconciliation, and assignment. For instance, the Pioneer ACO Model offers ACOs a greater 

sharing rate (up to 70 percent based on quality performance in performance year 2 of the model) 

compared to the Shared Savings Program, which currently offers a maximum sharing rate of 60 

percent for ACOs choosing Track 2. Under the Pioneer ACO Model, beneficiaries are aligned to 

a Pioneer ACO prospectively at the start of each performance year and can only be removed 

from the list of aligned beneficiaries retrospectively based on certain exclusion criteria. In 

contrast, under the Shared Savings Program, beneficiaries are assigned to an ACO under Track 1 

or Track 2 based upon a preliminary prospective assignment methodology with retrospective 

reconciliation after the end of the performance year that ultimately assigns a beneficiary to the 

ACO based on whether ACO professionals provided the plurality of primary care services to that 

beneficiary during the performance year. All Pioneer ACOs must agree to accept 

performance-based risk, and the financial risk increases over the course of their agreement 

period, whereas ACOs participating in the Shared Savings Program have an option to participate 

in a shared savings only model (Track 1) and for those ACOs that choose to accept 

performance-based risk (Track 2), the shared loss rate for which the ACO is at risk remains same 

throughout the agreement period. There are also a number of other differences between the two 

initiatives. Key features of the Pioneer ACO Model are explained in the Request for Application 

available online at http://innovation.cms.gov/Files/x/Pioneer-ACO-Model-Request-For-
CMS-1461-P SP 11/25/14 186 

Applications-document.pdf , and an updated table on payment arrangements is available online 

at http://innovation.cms.gov/Files/x/Pioneer-ACO-Model-Alternative-Payment-Arrangementsdocument.pdf . 

 In the November 2011 final rule (76 FR 67907), we expressed our intent to gain 

experience with alternative payment models through the Innovation Center before potentially 

adopting them more widely in the Shared Savings Program. Currently, testing of the Pioneer 

ACO Model is still underway, and we do not yet have a completed evaluation of that test. 

However, we have heard from stakeholders that there are certain aspects of the Pioneer ACO 

Model that may be appealing to some organizations and that we might consider incorporating 

into the Shared Savings Program. Therefore, in light of our experience with the Shared Savings 

Program, comments from stakeholders, and early responses to the Pioneer ACO Model, we have 

considered certain modifications to the financial models and arrangements available under the 

Shared Savings Program that might encourage organizations to take on increasing financial risk 

in order to motivate even greater improvements in care, and also minimize the barriers faced by 

some ACOs that limit their willingness to accept performance-based risk. 

 In evaluating what features might encourage ACOs to take on increasing financial risk, 

we considered several options, including modifying Track 1, modifying or eliminating Track 2, 

adding a Track 3 to supplement the existing ones, or a combination of these options. After 

reviewing these options, we are proposing to use our authority under section 1899(i)(3) of the 

Act to create an additional risk-based option for ACOs ready to take on increased 

performance-based risk. 

To exercise our authority under section 1899(i)(3) of the Act, we must demonstrate that 

this policy; (1) '' . . . does not result in spending more for such ACO for such beneficiaries than 
CMS-1461-P SP 11/25/14 187 

would otherwise be expended . . . if the model were not implemented . . . .'' and (2) ''. . . will 

improve the quality and efficiency of items and services furnished under this title." We applied 

this authority when proposing a two-sided risk-based model in our April 2011 proposed rule 

(76 FR 19603), which was modified and made final in in our November 2011 final rule 

(76 FR 67909). As discussed in our final rule (76 FR 67904), we believed that Track 2 would 

provide an opportunity for organizations more experienced with care coordination and risk 

models that are ready to accept performance-based risk to enter a sharing arrangement that 

provides greater reward for greater responsibility. We believe that proposed Track 3 would offer 

an additional opportunity for ACOs to accept greater responsibility for beneficiary care in 

exchange for the possibility of greater reward. Moreover, we do not believe that adding a second 

two-sided risk model would result in an increase in spending beyond what would otherwise 

occur. To the contrary, as discussed later in our Regulatory Impact Analysis, our initial 

estimates suggest that the inclusion of Track 3 along with the other proposals made in this rule 

would improve savings for the Trust Funds resulting from this program. Further, we believe that 

adding Track 3 would improve the quality of care furnished to Medicare FFS beneficiaries 

because ACOs participating under Track 3 would have an even greater incentive to perform well 

on the quality measures in order to maximize the percentage of savings they may receive, while 

limiting their liability for any losses that might be incurred. 

Hence, we are proposing to develop a new risk-based Track 3 under § 425.610, which 

would be based on the current payment methodology under Track 2, but would also incorporate 

some different elements that may make it more attractive for entities to accept increased 

performance-based risk. 
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 In general, unless otherwise stated, we are proposing to model Track 3 off the current 

provisions governing Track 2, which in turn are modeled on Track 1, to have the same general 

eligibility requirements, quality performance standards, data sharing requirements, monitoring 

rules, and transparency requirements. However, as we discuss later in this section, we are 

proposing certain discrete features for Track 3 that will differentiate it from Track 2. 

Specifically, we propose to make modifications to the beneficiary assignment methodology, 

sharing rate, MSR and MLR, and performance payment and loss sharing limits. These proposals 

are discussed in detail in the following sections. 

b. Proposals for Assignment of Beneficiaries Under Track 3 

(1) Background 

 Currently, beneficiaries are assigned to Shared Savings Program ACOs participating 

under Track 1 and Track 2 based on the assignment methodology that is described in detail in the 

November 2011 final rule and in section II.E. of this proposed rule. Beneficiary assignment is 

based on the certified ACO participant list and drives a variety of program operations described 

in more detail in section II.B. of this proposed rule. An assigned beneficiary population is 

determined for each of the benchmark years as well as each performance year and used to 

determine the average per capita costs of the ACO's assigned FFS population in each of those 

years. Additionally, when an ACO enters the program, and on a quarterly basis thereafter, we 

perform a preliminary prospective assignment, based on the most recent 12 months of available 

claims data, to provide the ACO with information about the FFS population it has served in the 

past and that is likely to be assigned to the ACO at the end of the performance year. After the 

end of each performance year, we perform a final retrospective reconciliation to generate the 

final list of beneficiaries that chose to receive the plurality of their primary care services from 
CMS-1461-P SP 11/25/14 189 

ACO professionals applying the assignment methodology established under Subpart E of the 

regulations. Under this methodology, in developing the final list of assigned beneficiaries for the 

performance year, beneficiaries are both added to and removed from the preliminary 

prospectively assigned beneficiary lists provided to ACOs. This final list of assigned 

beneficiaries becomes the basis for calculating the average per capita expenditures for the 

performance year, and is used for financial reconciliation. 

 In this section, we discuss our proposals to apply a methodology to assign beneficiaries 

prospectively to Track 3 ACOs. However, since the program's operations currently center on 

retrospective assignment, we also considered a number of issues important to implementing 

prospective assignment for Track 3 ACOs. Specifically, we discuss our proposals for: (1) a 

prospective assignment methodology; (2) the timing for performing prospective assignment; (3) 

exclusion criteria to be applied to the prospective list at the end of the benchmark or performance 

year; and (4) addressing overlap and interactions between prospective assignment for Track 3 

ACOs and the preliminary prospective assignment and retrospective reconciliation for Track 1 

and Track 2 ACOs. 

(2) Proposal for prospective assignment under Track 3 

 In the November 2011 final rule that established the Shared Savings Program, we 

adopted a preliminary prospective assignment model with retrospective reconciliation because 

we believed it would provide ACOs with adequate information to redesign their care processes 

while also encouraging ACOs to standardize these care processes for all Medicare FFS 

beneficiaries instead of focusing care management activities on a small subset of their FFS 

population. Further, we expressed our view that this approach would provide sufficient 
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incentives for each ACO to provide quality care to its entire beneficiary population 

(76 FR 67864). 

 We continue to believe that the current Shared Savings Program assignment methodology 

offers strong incentives for health system redesign to impact the care for all FFS beneficiaries 

that receive care from ACO professionals. As a result, we believe the assignment methodology 

currently used for the Shared Savings Program limits the potential for gaming and reduces the 

motivation to target beneficiaries for avoidance. This methodology may also improve care for 

beneficiaries who are newly diagnosed with high cost health problems during a performance 

year. For example, a FFS beneficiary diagnosed with cancer during a performance year would 

benefit from interacting with ACO providers/suppliers that have incentives to be vigilant for 

beneficiaries who are likely to be assigned to their ACO retrospectively. Intervening early in the 

care of such patients may improve the quality and coordination of their care and reduce the cost 

of that care compared to what it might have been without the early intervention by the ACO and 

its ACO providers/suppliers. 

 On the other hand, while many beneficiaries routinely see the same providers and 

suppliers from year to year, FFS beneficiaries that are assigned to an ACO have freedom to 

choose their healthcare providers and, unlike patients enrolled in many managed care plans, are 

not locked into seeing only ACO providers/suppliers. As a result, there is no absolute certainty 

that preliminarily prospectively assigned beneficiaries will continue to receive the plurality of 

their primary care services from ACO professionals during the performance year. Thus, there 

can potentially be differences between the preliminary assigned beneficiary list that the ACO 

receives at the start of the performance year, and every quarter thereafter, and the final assigned 

beneficiary list that is generated at the time of retrospective reconciliation, which is based on the 
CMS-1461-P SP 11/25/14 191 

actual utilization of primary care services by beneficiaries during the performance year. Given 

our experience with the Shared Savings Program and Physician Group Practice Demonstration 

before it, this is not an unexpected or unanticipated result of the methodology used to assign FFS 

beneficiaries who retain their freedom to choose providers under traditional FFS Medicare. That 

being said, the need to account for both the ebb and flow of assigned beneficiaries under the 

preliminary prospective assignment methodology with retrospective reconciliation used in the 

Shared Savings Program may discourage participation in risk-based arrangements by ACOs that 

seek greater certainty about the population on whom they will be assessed. 

 As an alternative, beneficiaries could be prospectively assigned to an ACO prior to the 

start of the performance year. An example of prospective alignment can be found in the Pioneer 

ACO Model, where beneficiaries are aligned to Pioneer ACOs prior to the start of each 

performance year. Under the Pioneer ACO Model, the list of prospectively aligned beneficiaries 

is reconciled at the end of the year to exclude certain beneficiaries from the list, for example, 

beneficiaries who were not eligible for alignment during the performance year; however, no new 

beneficiaries are added to the list. This alternative assignment methodology arguably provides 

Pioneer ACOs with a more targeted set of FFS beneficiaries on whom to focus their care 

redesign efforts during the performance year. The beneficiary alignment methodology used 

under the Pioneer Model can be reviewed in more detail on the Innovation Center website: 

http://innovation.cms.gov/initiatives/Pioneer-ACO-Model/

 A prospective assignment methodology may offer ACOs a more narrowly defined target 

population and greater certainty about where to focus their care redesign processes. This 

improved certainty may be an important factor in an ACO's willingness to take on greater 

performance-based risk because the ACO may be better positioned to make decisions regarding 
CMS-1461-P SP 11/25/14 192 

where to make investments in infrastructure to deliver enhanced services. Given the higher 

levels of performance-based risk associated with the Pioneer ACO Model, the Innovation Center 

elected to use a prospective assignment methodology specifically to provide participating ACOs 

with greater certainty regarding their assigned beneficiary populations in order to allow them to 

better target their care coordination efforts to those patients. 

 Potential disadvantages of a prospective assignment methodology, such as the one used 

under the Pioneer ACO Model, are that it may encourage ACOs to narrowly focus on a subset of 

FFS beneficiaries in the care of their ACO providers/suppliers while not doing as much to 

incentivize organizations to broadly redesign care processes to improve the care for all FFS 

beneficiaries under the care of providers and suppliers participating in the ACO. These 

incentives arise because ACOs know in advance the subset of their patients for which their 

performance will be measured. 

 However, despite these concerns, we acknowledge that a prospective assignment 

methodology may offer greater certainty and a more narrowly defined target population for some 

ACOs, and these may be important factors in an ACO's willingness to take on greater 

performance-based risk where the ACO must make decisions regarding where to make 

investments in infrastructure to deliver enhanced services. We further believe that ACOs will 

have strong incentives to provide their prospectively assigned beneficiaries high-quality, 

low-cost care in order to discourage them from seeking care outside of the ACO and that 

beneficiaries that are prospectively assigned to an ACO will continue to be protected from 

concerns related to inappropriate limitations on care under traditional FFS Medicare because of 

their ability to choose their providers. Under the Shared Savings Program, there is no lock in for 

beneficiaries, therefore, we believe a prospective assignment methodology under the Shared 
CMS-1461-P SP 11/25/14 193 

Savings Program presents limited risks to FFS beneficiaries. Thus, having considered the 

relative advantages and disadvantages of prospective and retrospective assignment 

methodologies for FFS beneficiaries, we are proposing to implement a prospective assignment 

methodology for Track 3 ACOs. This prospective assignment methodology would use the same 

stepwise assignment methodology under § 425.402 to assign beneficiaries to ACOs in Track 3 as 

is currently used to assign beneficiaries to ACOs participating under Track 1 and Track 2. The 

major difference would be that beneficiaries would be assigned to Track 3 ACOs prospectively, 

at the start of the performance year, and there would be no retrospective reconciliation resulting 

in the addition of new beneficiaries at the end of the performance year. The only adjustments 

that would be made at the end of the performance year would be to exclude beneficiaries that 

appeared on the prospective assignment list provided to the ACO at the start of the performance 

year that no longer meet eligibility criteria. For the reasons discussed in the November 2011 

final rule (76 FR 67851), we believe that this proposed prospective assignment methodology 

meets the requirement under section 1899(c) of the Act that assignment be based on the 

"utilization of primary care services" provided by physicians that are ACO professionals. We 

propose to codify this methodology in the regulations at § 425.400(a)(3). 

 In summary, while we have concerns that prospective assignment may inadvertently 

increase incentives for gaming and avoidance of at-risk beneficiaries, we have taken steps to 

minimize these incentives by retaining other Shared Savings Program policies and procedures 

such as risk-adjusting expenditures and monitoring ACOs to ensure they are not engaging in 

gaming or avoidance of at-risk beneficiaries. Moreover, our proposal to exclude only those 

beneficiaries that no longer meet the eligibility criteria for assignment to an ACO should reduce 

the probability that attempts by the ACO to "cherry pick" or avoid at-risk beneficiaries during the 
CMS-1461-P SP 11/25/14 194 

performance year would succeed. Therefore, we believe the concerns associated with a 

prospective assignment methodology are balanced by the potential that establishing a new 

Track 3 has to encourage ACOs to accept greater responsibility and financial risk for the care 

provided to their patients in return for the possibility of achieving greater rewards. We seek 

comment on these proposals. In particular, we seek comment on ways to mitigate concerns 

regarding gaming and avoidance of at-risk beneficiaries under a prospective assignment 

methodology, whether implementing a prospective approach to assignment will dilute the 

program goals of delivery system redesign, and whether there are additional programmatic 

considerations that should be taken into account as a result of our proposal to apply a prospective 

assignment methodology in Track 3. 

 Because of the differences between the Shared Savings Program and the Pioneer ACO 

Model, we emphasize that the proposed prospective assignment methodology under Track 3 is 

not identical to the methodology used under the Pioneer ACO Model, but is tailored to the 

Shared Savings Program. Specifically, we propose to assign beneficiaries to an ACO 

participating under Track 3 using the assignment algorithm that is specified in Subpart E of the 

Shared Savings Program regulations, and described in more detail in section II.E. of this 

proposed rule. 

c. Proposed Exclusion Criteria for Prospectively Assigned Beneficiaries 

 Next we considered how to reconcile the prospective beneficiary assignment list at the 

conclusion of the performance year. We recognize that changes in circumstances may cause 

prospectively assigned beneficiaries to no longer be eligible for assignment to an ACO at the end 

of a performance year. For instance, during the course of a benchmark or performance year a 

beneficiary may fall under one of the assignment exclusion criteria specified in proposed 
CMS-1461-P SP 11/25/14 195 

§ 425.401(b). The proposed exclusion criteria, found at § 425.401(b), mirror the proposed 

eligibility criteria under § 425.401(a) with the exception of assignment to another Medicare 

initiative involving shared savings. This is because we believe it is appropriate to exclude only 

those prospectively assigned beneficiaries that are no longer eligible to be assigned to an ACO. 

We do not believe, however, that it will be necessary to exclude beneficiaries that are assigned to 

another shared savings initiative because we intend to adopt procedures to ensure that a 

beneficiary who is prospectively assigned to an ACO participating under Track 3 would not be 

assigned to another Medicare initiative involving shared savings. Therefore, we propose to 

perform a limited reconciliation where beneficiaries would only be removed from the 

prospective assignment list at the end of the year if they were not eligible for assignment at that 

time under the criteria in proposed § 425.401(b). For example, if a prospectively assigned 

beneficiary chose to enroll in Medicare Advantage (MA) at the beginning of the performance 

year, that beneficiary would be removed from the beneficiary assignment list at the end of the 

year and the beneficiary's expenditures would not be used in determining the ACO's financial 

performance for that year. We note that under this proposal, beneficiaries would be removed 

from the prospective list, but would not be added as they are in the retrospective reconciliation 

used under Tracks 1 and 2. Additionally, unlike the preliminary prospective assignment 

methodology with retrospective reconciliation used in Tracks 1 and 2, we note that under this 

proposal, similar to the methodology used under the Pioneer ACO Model, beneficiaries would 

not be removed from the prospective beneficiary assignment list because the beneficiary chose to 

receive primary care services during the performance year from practitioners other than those 

participating in the ACO. In other words, the ACO will be held accountable for all beneficiaries 

that appear on the prospective assignment list, with the narrow exception of those beneficiaries 
CMS-1461-P SP 11/25/14 196 

who are not eligible for assignment at the time of reconciliation based on the limited set of 

proposed exclusion criteria under proposed § 425.401(b). We believe that this methodology will 

help to mitigate concerns that ACOs may attempt to avoid caring for high risk beneficiaries that 

appear on their prospective beneficiary assignment list because the ACO will continue to be held 

accountable for the quality and cost of the care furnished to these beneficiaries even if the ACO 

providers/suppliers are not directly involved in their care. However, we note that this may mean 

that ACOs will be held accountable for beneficiaries with whom their ACO providers/suppliers 

have had little contact during the year, and therefore may have limited opportunity to affect their 

care. We seek comment on our proposal to assign FFS beneficiaries prospectively to ACOs and 

to apply limited exclusion criteria to reconcile the beneficiary assignment list at the end of the 

performance year. 

d. Proposed Timing of Prospective Assignment 

 We believe it is important to provide Track 3 ACOs with their lists of prospectively 

assigned beneficiaries close to the start of each performance year so that these ACOs may begin 

to target their care coordination processes and to support ACO operations. Ideally, the 

prospective list of assigned beneficiaries would be generated based on the 12 months 

immediately preceding the performance year. However, we need a certain amount of time to 

generate and validate assignment lists and provide the information to the ACOs. Therefore, we 

must find a balance between allowing time to produce and deliver prospective assignment lists to 

Track 3 ACOs as near as possible to the start of each performance year with our desire to base 

prospective assignment on the most recent available data. For Tracks 1 and 2, we assign 

beneficiaries based on a 12 month period. We similarly propose to use a 12-month assignment 

period for Track 3. Under Tracks 1 and 2, we use the most recent available 12 months of data to 
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determine the list of preliminarily prospectively assigned beneficiaries and data from the 12 

months of the performance year to determine final assignment at the time of reconciliation. 

Ideally, under Track 3, we would determine prospective assignment for an ACO's performance 

year based on complete data for the most recent prior calendar year, for example, the third 

benchmark year or the previous performance year. For instance, in prospectively assigning 

beneficiaries to a Track 3 ACO for the performance year that begins in January 1, 2016, we 

would ideally have complete claims data for 2015. However, if we were to wait to obtain 

complete claims data for the prior calendar year, we would not be able to produce and deliver 

lists of prospectively assigned beneficiaries to Track 3 ACOs before the start of the performance 

year. In performing beneficiary assignment, we determine whether ACO professionals 

participating in an ACO have provided the plurality of a beneficiary's primary care services as 

compared to ACO professionals in all other ACOs and individual practitioners or groups of 

practitioners identified by TINs that are not participating in an ACO. We treat ACOs as a 

collection of TINs for the purpose of determining whether the ACO provided the plurality of the 

beneficiary's primary care services. Further, we accept new ACOs into the Shared Savings 

Program annually, with a participation agreement start date of January 1 of the following year. 

To most accurately and fairly prospectively assign beneficiaries, it is important to perform 

assignment by taking into consideration existing ACOs as well as new entrants to the program. 

Therefore, to assure that we can accurately prospectively assign beneficiaries to ACOs under 

Track 3, our timeline for producing the prospective assignment lists for Track 3 ACOs must 

factor in the time frames associated with the program's application cycle (which typically 

concludes in late November/early December of each calendar year). 
CMS-1461-P SP 11/25/14 198 

 We considered several options for establishing the 12-month period for prospective 

assignment under Track 3. One option would be to use the most recent 12-month period prior to 

the relevant performance year for which data are available. That is, we would use a 12-month 

assignment window that is offset from the calendar year. For instance, to establish the 

assignment list for the performance year beginning January 1, 2016, we could use an assignment 

window from October 1, 2014 through September 30, 2015. We also considered the option of 

using complete claims data for the calendar year prior to the performance year (this would 

synchronize with the timing of the financial calculations for setting the ACO's benchmark, as 

discussed in more detail in II.F.3.f. of this section); however, under these parameters Track 3 

ACOs would receive their prospective assignment lists well into the first quarter of each 

performance year. We believe Track 3 ACOs would find such a delay in their receipt of their 

prospective assignment list burdensome for carrying out the ACO's health care operations, 

including care coordination processes and data analysis. We believe the first option best 

balances the availability of claims data with our belief that it is important to produce and deliver 

these prospective beneficiary assignment lists near the start of each performance year. 

Therefore, we are proposing to base prospective assignment on a 12-month assignment window 

(off-set from the calendar year) prior to the start of the performance year. We further propose to 

define an "assignment window" at § 425.20 as the 12-month period used to assign beneficiaries 

to an ACO. The assignment window for Tracks 1 and 2 would be based on a calendar year while 

the assignment window for Track 3 would be based on the most recent 12 months for which data 

are available, and which would be off-set from the calendar year. We propose to make 

conforming changes to the regulations to refer to the assignment window where appropriate. 
CMS-1461-P SP 11/25/14 199 

e. Proposals for Addressing Interactions Between Prospective and Retrospective Assignment 

Models 

 Because there are markets in which there are multiple ACOs, we anticipate that there will 

be interactions between prospective assignment for Track 3 ACOs and preliminary prospective 

assignment with retrospective reconciliation for Track 1 and Track 2 ACOs. Under the Shared 

Savings Program, a beneficiary may only be assigned to a single ACO for purposes of 

determining the ACO's financial and quality performance during a performance year. 

Accordingly, a beneficiary that is prospectively assigned to a Track 3 ACO would remain 

assigned to the Track 3 ACO for the performance year even if the beneficiary chose to receive a 

plurality of his or her care outside the ACO. Furthermore, we propose that the beneficiary would 

remain assigned to the Track 3 ACO even if we determine as part of the retrospective 

reconciliation for Track 1 and Track 2 ACOs that the beneficiary actually received the plurality 

of his or her care from ACO professionals in another ACO. Similarly, a beneficiary 

prospectively assigned to a Track 3 ACO would remain assigned to that ACO even if we 

subsequently determine the beneficiary actually received the plurality of his or her primary care 

from ACO professionals participating in another Track 3 ACO. In other words, we propose that 

once a beneficiary is prospectively assigned to a Track 3 ACO, the beneficiary will not be 

eligible for assignment to a different ACO, even if the beneficiary chose to receive a plurality of 

his or her primary care services from ACO professionals in that ACO during the relevant 

performance year. As an aside, we note that it is unlikely that such a beneficiary would be 

assigned prospectively to that same Track 3 ACO for the next performance year. 

f. Proposals for Determining Benchmark and Performance Year Expenditures Under Track 3 
CMS-1461-P SP 11/25/14 200 

 As specified in the November 2011 final rule, we establish the historical benchmark for 

ACOs in Tracks 1 and 2 by determining 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 at the start of 

the agreement period (§ 425.602(a)). For each benchmark year that corresponds to a calendar 

year, this includes calculating the payment amounts included in Parts A and B fee-for-service 

claims using claims received within 3 months following the end of the calendar year (referred to 

as a "3 month claims run out") with a completion factor, excluding IME and DSH payments and 

considering individually beneficiary-identifiable payments made under a demonstration, pilot or 

time limited program (§ 425.602(a)(1)). Similarly in determining shared savings and losses for 

Tracks 1 and 2 (under § 425.604 and § 425.606), we use a 3-month claims run out with a 

completion factor to calculate an ACO's per capita expenditures for each performance year. 

Calculations of the ACO's performance year expenditures include the payment amounts of Part 

A and B fee-for- service claims. These calculations similarly exclude IME and DSH payments, 

and take into consideration individually beneficiary identifiable payments made under a 

demonstration, pilot or time limited program. We believe this approach is well accepted and 

therefore propose to use the same general methodology for determining benchmark and 

performance year expenditures under Track 3. We also propose to add a new regulation at 

§ 425.610 to address the calculation of shared savings and losses under Track 3. 

 In establishing the historical benchmark for Track 3 ACOs, we propose to determine the 

beneficiaries that would have been prospectively assigned to the ACO during each of the 3 most 

recent years prior to the start of the agreement period; basing benchmark year assignment on a 

12-month assignment window offset from the calendar year prior to the start of each benchmark 
CMS-1461-P SP 11/25/14 201 

year. However, we propose that we would still determine the Parts A and B fee-for-service 

expenditures for each calendar year, whether it is a benchmark year or a performance year, using 

a 3-month claims run out with a completion factor for these prospectively assigned beneficiaries. 

We would exclude IME and DSH payments and account for individually beneficiary-identifiable 

payments made under a demonstration, pilot or time limited program during the calendar year 

that corresponds to the benchmark or performance year. For example, for an ACO entering 

Track 3 beginning January 1, 2016, we would determine the benchmark based on CYs 2013, 

2014, and 2015. We would determine a prospective list of beneficiaries using the assignment 

window for each year (based on an off-set 12 month period such as October 1, 2011 through 

September 30, 2012 for BY1) as discussed previously. However, the claims used to determine 

the per capita expenditures for BY1 would be based on claims submitted during the calendar 

year from January 1, 2013 through December 31, 2013. The same pattern would be used to 

determine the assignment and per capita expenditures for BY2 and BY3. We would apply the 

same pattern going forward to calculate per capita expenditures for the performance years. 

 We believe this methodology is advantageous for several reasons. First, this 

methodology would remove actuarial bias between the benchmarking and performance years for 

assignment and financial calculations, since the same method would be used to determine the 

assignment and financial calculations for each benchmark and performance year. Second, basing 

the financial calculations on the calendar year is necessary to align with actuarial analyses with 

respect to risk score calculations and data inputs based on national FFS expenditures used in 

program financial calculations that depend on the calendar year (for example, national FFS trend 

factors for the historical benchmark, national FFS growth factors used in creating the updated 

benchmark, and truncation points). 
CMS-1461-P SP 11/25/14 202 

 We note that the timing of the generation of historical benchmark reports for Track 3 

ACOs would also be consistent with the current schedule for generating these reports for ACOs 

in Tracks 1 and 2. That is, for an ACO that begins Track 3 in 2016, the prospective beneficiary 

assignment list would be available immediately at the beginning of the performance year and the 

historical benchmark report would be available following the 3 month claims run out, sometime 

after the first quarter of 2016. 

g. Proposals for Risk Adjusting the Updated Benchmark for Track 3 ACOs 

 Another aspect of the financial models used under the Shared Savings Program that we 

considered when developing Track 3 is our methodology for risk adjusting an ACO's updated 

benchmark expenditures to account for changes in severity and case mix for beneficiaries 

assigned in the current performance year. Currently, under Track 1 and Track 2, the risk 

adjustment methodology differentiates between newly and continuously assigned beneficiaries, 

as defined under § 425.20. A newly assigned beneficiary is a beneficiary assigned in the current 

performance year who was neither assigned to nor received a primary care service from any of 

the ACO participants during the most recent prior calendar year. A continuously assigned 

beneficiary is a beneficiary assigned to the ACO in the current performance year who was either 

assigned to or received a primary care service from any of the ACO participants during the most 

recent prior calendar year. As specified under § 425.604(a), and § 425.606(a), we use updated 

CMS-HCC prospective risk scores to account for changes in severity and case mix for 

newly-assigned beneficiaries. We use demographic factors to adjust for these changes in 

severity and case mix for continuously assigned beneficiaries. However, if the CMS-HCC 

prospective risk scores for the continuously assigned population show a decline, we use the 

lower risk score to adjust for changes in severity and case mix for this population. As we 
CMS-1461-P SP 11/25/14 203 

explained in the November 2011 final rule (76 FR 67918), we believe that this approach to risk 

adjustment strikes a fair balance between accounting for changes in the health status of an ACO's 

population while not encouraging changes in coding practices for care provided to beneficiaries 

who remain continuously assigned to the ACO or avoidance of high risk beneficiaries. We 

believe that the existing risk adjustment methodology has been effective in achieving this 

balance under Tracks 1 and 2, which use a retrospective assignment methodology for purposes of 

financial reconciliation, and that it would be appropriate to apply a similar approach to risk 

adjusting the updated benchmark for Track 3 ACOs, even though we are proposing a prospective 

beneficiary assignment methodology. We believe that this risk adjustment methodology is 

relevant to updating ACO benchmarks under both a retrospective assignment model and a 

prospective assignment model. We believe that as in the existing Tracks, it is important to 

ensure that ACOs participating under the proposed Track 3 are not encouraged to modify their 

coding practices in order to increase the likelihood of earning shared savings; rather, shared 

savings should result from actual reductions in Medicare expenditures for assigned beneficiaries. 

 Therefore, we carefully considered the risk adjustment methodology in the context of our 

proposal to use a prospective assignment methodology under Track 3. We determined that while 

the same general risk adjustment methodology could be used, there are certain minor 

modifications that must be made to accommodate the prospective assignment approach. 

Specifically, we determined that the existing definitions of newly and continuously assigned 

beneficiaries must be adjusted for Track 3 ACOs. 

 Both definitions refer to determining whether the beneficiary was assigned to the ACO or 

received primary care services from an ACO participant in the "prior calendar year". However, 

our proposal for Track 3 assignment does not correspond to the 12 months in a calendar year. 
CMS-1461-P SP 11/25/14 204 

Instead, as proposed in the section, we would use an off-set 12-month period prior to the relevant 

performance or benchmark year to prospectively assign beneficiaries. If we continue to use a 

calendar year as the basis for determining continuously and newly assigned beneficiaries, very 

few beneficiaries would be designated as newly assigned for each performance year and we 

would expect that the majority of assigned beneficiaries would be designated as continuously 

assigned. As a consequence, the major risk adjustment applied under Track 3 would be based on 

demographic factors only. We do not believe this policy would strike the same balance achieved 

when applied under a model with retrospective assignment (Track 1 and Track 2). 

 Therefore, we propose refining our definitions of newly and continuously assigned 

beneficiaries at § 425.20 to also be consistent with our proposed prospective assignment 

approach for Track 3. Specifically, we propose to replace the reference to "most recent prior 

calendar year" with a reference to "the assignment window for the most recent prior benchmark 

or performance year." Thus, for Track 3 the reference period for determining whether a 

beneficiary is newly or continuously assigned will be most recent prior prospective assignment 

window (the off-set 12 months) before the assignment window for the current performance year 

and the reference period for determining whether a Track 1 or 2 beneficiary is newly or 

continuously assigned will continue to be the most recent prior assignment window (the most 

recent calendar year). Our proposed risk adjustment methodology for Track 3 is reflected in the 

proposed new regulation at § 425.610(a). 

h. Proposals for Final Sharing/Loss Rate and Performance Payment/Loss Recoupment Limit 

under Track 3 

 Currently, an ACO that meets all the requirements for receiving shared savings payments 

under the one-sided (Track 1) model can qualify to receive a shared savings payment of up to 50 
CMS-1461-P SP 11/25/14 205 

percent of all savings under its updated benchmark, not to exceed 10 percent of its updated 

benchmark, as determined on the basis of its quality performance. Likewise, 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. The higher sharing rate and 

performance payment limit under Track 2 were established as incentives for ACOs to accept 

greater financial risk for their assigned beneficiaries in exchange for potentially higher financial 

rewards. Additionally, a Track 2 ACO is accountable for between 40 to 60 percent of all losses 

under its updated benchmark, depending on the ACO's quality performance. The amount of 

shared losses for which an ACO is liable, however, may not exceed 5 percent of its updated 

benchmark in the first performance year, 7.5 percent in the second performance year, and 10 

percent in the third performance year and any subsequent performance year (§ 425.606(g)). In 

the November 2011 final rule (76 FR 67937), we stated that we believe these progressively 

higher caps on losses "achieve an appropriate balance between providing ACOs with security 

about the limit of their accountability for losses while encouraging ACOs to take increasing 

responsibility for their costs and protecting the Medicare Trust Funds." We note that under one 

of the payment arrangements available under the Pioneer ACO Model, a Pioneer ACO can 

qualify to receive up to 75 percent of shared savings, not to exceed 15 percent of its benchmark. 

Under this payment arrangement, Pioneer ACOs may also be responsible for shared losses of up 

to 15 percent of their benchmark. 

 Currently, only five of the ACOs participating in the Medicare Shared Savings Program 

are participating under Track 2. Given this level of ACO participation under this model, we 

considered options for improving the attractiveness of the final sharing rate and performance 

payment limit in a risk model. For example, we considered whether the current sharing rate 
CMS-1461-P SP 11/25/14 206 

under Track 2 is insufficient to encourage ACO participation under a risk-based model and 

whether increasing the sharing rate would better attract organizations to take on performancebased risk. We also observed that the higher sharing rates available under the Pioneer ACO 

model have appeared to be helpful in encouraging ACO participation. Further, we believe it is 

important to draw a distinction between the sharing rates available under Track 2 and the 

proposed Track 3. As discussed later in this section, we are proposing that ACOs participating in 

Track 3 would be subject to a fixed 2 percent MLR (compared to the proposed revisions that 

would allow the MSR and MLR under Track 2 to vary between 2.0 percent and 3.9 percent). 

Thus, we believe it is important to reward Track 3 ACOs with a greater level of savings for 

taking on this greater level of risk. Accordingly, we are proposing to set the sharing rate under 

Track 3 at 75 percent. Likewise, we considered whether the current 15 percent performance 

payment limit for Track 2 ACOs may discourage participation under a risk-based model. In our 

November 2011 final rule (76 FR 67935 through 67936), we noted a range of commenters had 

urged us either to eliminate the limits on shared savings or to apply higher payment limits for 

both models, with limits as high as 25 percent. We explained that retaining the performance 

payment limits is necessary to comply with the statute and important for ensuring against 

providing an overly large incentive that may encourage ACOs to generate savings through 

inappropriate limits on necessary care. As was the case when we issued that rule, we continue to 

believe that retaining a performance payment limit is necessary. However, we believe that a 

modest increase in the performance payment limit for ACOs willing to take on the greater level 

of risk under Track 3 may balance our concerns while increasing the attractiveness of the model. 

Accordingly, for Track 3 ACOs, we are proposing a performance payment limit not to exceed 20 

percent of the ACO's updated benchmark. We note that the shared loss rate would similarly 
CMS-1461-P SP 11/25/14 207 

increase to a maximum of 75 percent to retain symmetry within the model which is comparable 

to the approach we used to establish the shared loss rate for Track 2 ACOs. 

To establish even stronger incentives for encouraging ACOs to assume greater 

responsibility for the quality and cost of the care furnished to their assigned beneficiaries, we are 

also considering variations on the previous proposals. Currently, under the two-sided model, an 

ACO's quality score is taken into account when calculating the ACO's final sharing rate. Under 

Track 2, an ACO with poor quality performance may be responsible for repaying Medicare up to 

60 percent of losses while an ACO with very high quality performance may be responsible for 

repaying Medicare only 40 percent of the losses incurred (see § 425.606(f)). If we retain 

symmetry between the shared savings and shared losses methodologies under Track 3, an ACO 

with very low quality performance could be responsible for repaying Medicare up to 75 percent 

of losses while a Track 3 ACO with very high quality performance would only be responsible for 

25 percent of losses. 

 However, it may not be desirable under Track 3 to allow such a broad range for shared 

losses, which could be viewed as increasing the potential reward without similarly increasing 

risk. Therefore, we considered other options for increasing potential shared savings while also 

increasing risk, or holding risk constant compared to Track 2. Under one option we considered, 

Track 3 ACOs would be responsible for the maximum percentage of losses, that is, 75 percent, 

but quality performance would only protect them to the same extent it protects Track 2 ACOs, 

such that ACOs with very high quality scores would limit their percentage of losses to 40 

percent. Alternatively, we could retain the minimum and maximum shared loss rates found 

under Track 2 (that is, the range of 40 percent to 60 percent, depending on quality performance) 
CMS-1461-P SP 11/25/14 208 

but the maximum shared savings rate would be increased to 75 percent in order to encourage 

participation in a model with increased risk. 

 After considering these options, in § 425.610(d) and (f) we are proposing to increase the 

sharing rate for Track 3 ACOs so that they may qualify for up to 75 percent of all savings under 

their updated benchmark in conjunction with accepting risk for up to 75 percent of all losses, 

depending on the quality performance of the organization for the reasons articulated previously. 

We are also proposing under new § 425.610(e)(2) to increase the performance payment limit to 

20 percent of an ACO's updated benchmark. Additionally, rather than gradually increasing the 

cap on shared losses for Track 3 ACOs (as is done under Track 2), in § 425.610(g), we are 

proposing that the amount of shared losses for which an ACO may be liable may not exceed 15 

percent of its updated benchmark in each year of the ACO's 3-year agreement period. We 

believe that capping losses at 15 percent would provide adequate protection to the Medicare 

Trust Funds while limiting risk to ACOs, thereby encouraging them to progress along the risk 

continuum. We also propose that ACOs with high quality performance would not be permitted 

to reduce the percentage of shared losses for which they would be responsible for each year of 

the agreement period below 40 percent. We believe it is important for Track 3 ACOs to be held 

responsible for at least the same amount of downside risk as Track 2 ACOs. We seek comment 

on whether this percentage is high enough to protect the Trust Funds or whether it should be 

increased, for example, to 50 percent or 60 percent. We also seek comment on whether our 

proposal to establish a range of 40 percent to 75 percent for shared losses should, in turn, impact 

the amount of shared savings available to Track 3 ACOs. For example, should we permit Track 

3 ACOs to earn a parallel range of 40 percent to 75 percent of shared savings. In other words, 
CMS-1461-P SP 11/25/14 209 

once the ACO has met criteria for sharing in savings, the minimum guaranteed amount of shared 

savings would be 40 percent with a maximum of 75 percent. 

We seek comments on these proposals and the proposed new regulation at § 425.610. In 

particular, we request comment on the appropriate minimum percentage of shared losses under 

Track 3. We also seek comment on the appropriate percentage for the performance payment 

limit and loss recoupment limit and whether there are reasons to set these at 15 percent and 10 

percent respectively, rather than our proposal of 20 percent and 15 percent respectively. 

Finally, we are also proposing to make certain technical, conforming changes to 

§ 425.606, which governs the calculation of shared savings and losses under Track 2, to reflect 

our proposal to incorporate a second two-sided risk model into the Shared Savings Program. We 

seek comments on these proposed changes and on any other technical changes to our regulations 

that may be necessary in order to reflect the proposal to add a new Track 3. 

i. Proposals for Minimum Savings Rate and Minimum Loss Rate in Track 3 

 In this proposed rule, we are proposing to replace the current fixed 2 percent minimum 

savings rate (MSR) and minimum loss rate (MLR) under Track 2 with a MSR and MLR that will 

vary based on the number of beneficiaries assigned to the ACO, mirroring the methodology 

currently used to determine the MSR under Track 1. We proposed this change as a way to 

reduce financial risk and thereby increase the attractiveness of Track 2 to prospective ACOs and 

ACOs continuing in the program for a second or subsequent agreement period. Specifically, we 

believe it is important to offer a risk-based option attractive to smaller ACOs that may be 

hesitant to take on performance-based risk. Under the proposed modifications to Track 2, 

smaller ACOs would have an MLR greater than 2 percent, which would provide additional 

protection to these ACOs against incurring losses as a result of normal variations in 
CMS-1461-P SP 11/25/14 210 

expenditures. Moreover, while reducing financial risk for Track 2 ACOs, the proposal would 

also offer greater protection to the Medicare program by raising the savings threshold that must 

be achieved before an ACO would be eligible to share in savings for all but the largest ACOs. 

 As discussed previously in this section, we are proposing to establish a new Track 3 as an 

additional option for participation in the Shared Savings Program with stronger incentives to 

encourage ACOs to accept greater responsibility and risk for their beneficiaries. Hence, for 

Track 3 ACOs, we are proposing to apply the same fixed 2 percent MSR and MLR that currently 

apply to Track 2 ACOs. As we discussed in the November 2011 final rule (76 FR 67929), 

establishing the Shared Savings Program, the use of an MSR and MLR remains important under 

a two-sided risk model to guard against normal variations in costs, so that ACOs share savings or 

losses with the program only under those circumstances in which we can be confident that those 

savings and losses are the result of the ACOs' actions rather than normal variation. As we noted 

in that final rule, it is more appropriate to employ a fixed MSR under a two-sided model than 

under the one-sided model. First, given the potential for shared loss, the greater predictability of 

a fixed MSR is more likely to attract organizations to participate under the model. Second, there 

is greater protection for the Medicare Trust Fund from normal variation under a two-sided model 

because ACOs accept the risk of repaying the Medicare program for shared losses. Therefore, in 

the November 2011 final rule (76 FR 67929), we adopted a fixed 2 percent MSR and MLR for 

ACOs participating under Track 2. We selected 2 percent because this is the lowest MSR under 

the one-side model and was also the MSR that was used in the PGP demonstration. As discussed 

previously in this section, we are now proposing to modify the MSR and MLR under Track 2 to 

vary based upon the size of the ACO. We believe this change would improve the attractiveness 

of Track 2 by offering ACOs that may be less experienced with performance-based risk greater 
CMS-1461-P SP 11/25/14 211 

protection against shared losses. However, because Track 3 is intended for ACOs that are 

willing to accept a greater degree of risk in exchange for the opportunity to share in a greater 

percentage of shared savings, we believe it is appropriate to use a fixed 2 percent MSR and MLR 

under this track. We believe that setting the MSR and MLR at this level would offer greater 

predictability, which may attract more ACOs to participate in Track 3. In addition, as we 

discussed in the November 2011 final rule (76 FR 67929), the requirement that ACOs repay 

shared losses offers additional protection to the Medicare Trust Funds, which allows for the 

application of a lower, fixed MSR. Accordingly, we propose to apply the same fixed 2 percent 

MSR and MLR that currently apply to Track 2 ACOs to ACOs that elect to participate in Track 

3. This proposal is reflected in paragraph (b) of the proposed new regulation at § 425.610. We 

seek comments on this proposal. 

 Although we are proposing to apply a fixed MSR and MLR of 2 percent under Track 3, 

we also considered other options for establishing the MSR and MLR for Track 3 ACOs, 

including an option that would remove the MSR and MLR entirely. Under this option, ACOs 

would be subject to normal variation around their benchmark so that they would be held 

responsible for all losses when performance year expenditures were above the benchmark in 

addition to sharing in any savings if performance year expenditures fell below the benchmark. 

Another option could be to set both the MSR and MLR to 1 percent instead of 2 percent. This 

would serve to increase both risk of sharing losses and savings, but not as much as doing away 

with the MSR and MLR entirely. We specifically seek comment on whether it would be 

desirable to remove the MSR and MLR entirely under Track 3 as well as alternative levels at 

which to set the MSR and MLR for ACOs participating under Track 3. We will consider 
CMS-1461-P SP 11/25/14 212 

comments that are received regarding these alternatives in determining the final MSR and MLR 

that would apply under Track 3. 

4. Seeking Comment on Ways to Encourage ACO Participation in Performance-Based Risk 

Arrangements 

 We are encouraged by stakeholder interest in the Shared Savings Program. Since 

implementation of the Shared Savings Program in 2012, there are now more than 330 

organizations participating. Based on the initial experience we have gained with the Shared 

Savings Program, however, we believe ACOs are very reluctant to accept two-sided 

performance-based risk arrangements in which ACOs would share in both Medicare savings and 

losses because only a small number of ACOs have agreed to participate in the Shared Savings 

Program under Track 2, which provides for two-sided performance-based risk. Ninety-eight 

percent of the ACOs participating in the Shared Savings Program have elected to participate 

under Track 1 (shared savings only). We believe that under a two-sided performance-based risk 

model, ACOs have much stronger incentives to achieve high quality and to avoid unnecessary 

costs, which is why we are proposing Track 3 as a possibly more attractive alternative to Track 

2. The incentive for ACOs to achieve high quality and avoid unnecessary costs under a 

two-sided performance-based risk model is supported by the impact analyses performed by the 

CMS actuary provided in section V. of this proposed rule. Accordingly, in order for the Shared 

Savings Program to be effective and sustainable over the long term, we believe we may need to 

further strengthen our efforts to transition the Shared Savings Program to a two-sided 

performance-based risk program in which ACOs would share in both Medicare savings and 

losses. 
CMS-1461-P SP 11/25/14 213 

 We received a wide range of suggestions from ACOs, the Brookings Institution, 

MedPAC, and other stakeholders of ways to improve the Shared Savings Program and to address 

ACO concerns that they believe are essential to the longer term success of the program. The 

Brookings Institution has identified a number of critical issues that warrant further discussion 

and consideration for ensuring the continued success of ACOs in the Medicare Program. See 

"Issue Brief: How to Improve the Medicare Accountable Care Organization (ACO) Program" at: 

http://www.brookings.edu/~/media/research/files/papers/2014/06/16%20medicare%20aco%20ch

allenges%20and%20alternatives/2%20mcclellan%20et%20al%20%20medicare%20aco%20prog

ram%2062014.pdf. 

 In a June 16, 2014 letter to CMS 

(http://www.medpac.gov/documents/06162014_ACO_issue_letter_2014_COMMENT.pdf), 

MedPAC raises several issues for consideration in connection with CMS ACO models in the 

short and long term. MedPAC indicates that ACOs represent an opportunity to transform the 

delivery system, but MedPAC believes that realizing that opportunity would require providers to 

change their practices and take a risk on this new payment system, and that we would need to be 

flexible and responsive as the program evolves. MedPAC's recommendations are based on 

discussions with representatives from many ACOs, structured interviews and case studies with 

Pioneer ACOs, analysis of early data on ACO performance, and reviewing progress with CMS 

staff. MedPAC reports that many ACO providers/suppliers who they have spoken with have 

patients in both MA plans and FFS Medicare. Under MA, providers can furnish services and use 

techniques that are not available under FFS Medicare or, by extension, under the current rules 

governing the Shared Savings Program. For example, pursuant to section 1861(i) of the Act, 

FFS Medicare requires a 3-day inpatient hospital stay before a SNF services will be covered 
CMS-1461-P SP 11/25/14 214 

under Medicare Part A, but MA plans can offer a waiver of the 3 day prior inpatient 

hospitalization requirement as a supplemental benefit. ACOs have indicated that they like the 

flexibility that capitated payments would give them to redesign care and benefits to meet the 

needs of their patient populations. 

 Under the current Medicare FFS system, providers have a financial incentive to increase 

their volume of services. As a result, many current Medicare regulations are designed to prevent 

overuse of services and the resulting increase in Medicare spending in this context. In brief, 

MedPAC believes that moving to two-sided performance-based risk under the Shared Savings 

Program would provide strong incentives for organizations to control costs, which should, in 

turn, open up the opportunity for regulatory relief across a broad range of issues. Removing 

certain regulatory requirements may provide ACOs with additional flexibility to innovate further, 

which could in turn lead to even greater cost savings. These views are supported by analyses 

performed by CMS actuaries that suggest two-sided performance-based risk provides stronger 

incentives for ACOs to achieve savings. Thus, ACOs and MedPAC have encouraged us to 

consider relaxing certain specific FFS Medicare payment and other rules under two-sided 

performance-based risk models in the Shared Savings Program. 

 In the sections that follow, we solicit comment on several options that are currently under 

consideration for inclusion in the Shared Savings Program. We first consider options that would 

implicate the waiver authority under section 1899(f) of the Act and then consider other options 

that could be implemented independent of waiver authority. Although we are not specifically 

proposing these options at this time, we will consider the comments that are received regarding 

these options during the development of the final rule, and may consider adopting one or more of 

these options in the final rule. 
CMS-1461-P SP 11/25/14 215 

a. Payment Requirements and Other Program Requirements that May Need to be Waived in 

Order to Carry Out the Shared Savings Program 

 As noted previously, few organizations have chosen to participate in the Shared Savings 

Program under two-sided performance-based risk. In addition to the elements designed to 

enhance participation in a two-sided performance-based risk track under the proposed new Track 

3, we believe it may be necessary and appropriate to provide for additional program flexibilities 

to increase ACOs' willingness to participate in the Shared Savings Program under two-sided 

performance-based risk arrangements to increase quality and decrease cost growth. These 

possible additional flexibilities could include use of our waiver authority to waive certain 

Medicare Program rules under section 1899(f) of the Act, which provides authority for the 

Secretary to waive "such requirements of . . . title XVIII of this Act as may be necessary to carry 

out the provisions of this section." This provision affords broad authority for the Secretary to 

waive statutory program requirements as necessary to carry out the provisions of section 1899 of 

the Act. In order to waive FFS payment or other program rules, the waiver must be determined 

to be necessary for CMS to carry out the provisions of section 1899 of the Act, which govern the 

Shared Savings Program. (The authority at section 1899(f) of the Act has been used by the 

Office of Inspector General and CMS to issue an interim final rule with comment period setting 

forth waivers of certain fraud and abuse authorities (76 FR 67992), which was published 

concurrently with the November 2011 final rule establishing the Shared Savings Program. This 

rulemaking does not address fraud and abuse waivers, and we are not soliciting comment on such 

waivers.) 

 As noted previously, we are encouraged by the robust participation of organizations 

under the one-sided model of the Shared Savings Program. However, we continue to believe 
CMS-1461-P SP 11/25/14 216 

that the long term effectiveness and sustainability of the program depend on encouraging ACOs 

to progress along the performance-based risk continuum. Given the very limited ACO interest 

thus far in two-sided performance-based risk, and the comments and suggestions by 

stakeholders, we now believe that the authority under section 1899(f) of the Act to waive certain 

payment or other program requirements may be necessary to carry out the provisions of the 

Shared Savings Program and to permit effective implementation of two-sided performance-based 

risk tracks under the program. As discussed previously, on the April 2011 proposed rule, both 

we and many commenters believe that models where ACOs bear a degree of financial risk hold 

the potential to induce more meaningful systematic change than one-sided models. We believe 

that ACOs that bear financial risk would 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. In these circumstances, waiver of certain payment and other 

programmatic rules for ACOs with two-sided risk may be appropriate to give providers more 

flexibility under FFS Medicare to provide appropriate care for beneficiaries. 

 We would point out that while we are considering these waiver issues under the Shared 

Savings Program, we are also actively moving forward with testing certain payment rule and 

other waivers as part of models tested by the Innovation Center under section 1115A of the Act, 

including the Pioneer ACO Model. For example, as explained below, we already have a few 

months of data from our initial test of the waiver of the SNF 3-day rule under the Pioneer ACO 

Model, and we are in the process of testing beneficiary attestation under the Pioneer ACO 

Model. In addition, under the demonstration authority in section 402 of Public Law 90-248, as 

amended (42 U.S.C. 1395b-1), we granted Massachusetts General Hospital (MGH) the ability to 

admit certain patients enrolled in its Care Management for High Cost Beneficiaries 
CMS-1461-P SP 11/25/14 217 

Demonstration directly into a SNF without a 3-day prior inpatient hospitalization, and we intend 

to release a report evaluating this waiver later this year. Based on our experience with the waiver 

of the SNF 3-day rule in the MA program, and an initial, limited assessment of the MGH waiver 

performed by CMS actuaries, we expect that the waiver of the SNF 3-day rule under the Pioneer 

ACO Model will result in savings for the Medicare Trust Funds. 

 We are learning from these tests and would seek to refine our policies as we move 

forward. Through such testing we frequently identify issues that neither we nor stakeholders had 

previously identified. Developing and implementing such policies in a test environment 

provides an opportunity for us to better understand the effects on providers, beneficiaries, and 

Medicare as well as to further fine tune the operations. 

 We welcome comments on possible waivers under section 1899(f) of the Act of certain 

Medicare payment or other program requirements suggested by stakeholders that might be 

necessary to permit effective implementation of two-sided performance-based risk in the Shared 

Savings Program. As noted previously, we will consider the comments that are received during 

the development of the final rule, and in the final rule may consider waiving certain requirements 

if we conclude that such a waiver is necessary in order to carry out the Shared Savings Program. 

We are especially interested in comments explaining how such waivers may be necessary to 

encourage ACOs to accept performance-based risk arrangements under the Shared Savings 

Program, and how such waivers could provide ACOs with additional ways to increase quality of 

care and reduce unnecessary costs that are not permitted under FFS Medicare, but that could be 

appropriately used in the context of an ACO model that incorporates two-sided performancebased risk. What program integrity and beneficiary protection risks could be introduced by 

waivers of the payment and program rules described later in this section of this proposed rule and 
CMS-1461-P SP 11/25/14 218 

how could we mitigate those risks? Would a waiver of these requirements impact notification to 

beneficiaries of participation in the Shared Savings Program as required under § 425.312? What 

operational issues do ACOs and CMS need to consider and what processes would ACOs need to 

have in place to implement these alternative payment and other program policies? What 

implications would there be for ACO infrastructure including IT and other systems and 

processes? What provider education would be needed? What other issues should be considered 

when making use of waiver authority with respect to payment and program rules? Should any 

waivers apply to all two-sided performance-based risk tracks or should they be limited to a 

specific two-sided risk track? Should waivers be available only for those organizations willing 

to take on the greatest performance-based risk under the Shared Savings Program? For example, 

should waivers be limited to the use of organizations participating in Track 3 because 

participants in Track 3 would agree to be held accountable for up to 75 percent of shared losses 

compared to participants in Track 2 who would agree to be held accountable for up to 60 percent 

of shared losses? Should the waivers be made available to all organizations participating in the 

applicable risk tracks or only to those ACOs that have successfully participated in the Shared 

Savings Program or another ACO model previously? 

 We also note that the ability to implement any waivers of payment or program rules may 

vary for ACOs participating under Track 2 and Track 3 because of the differences in how 

beneficiaries are assigned to ACOs under those Tracks. We are considering whether a waiver 

that applies only to beneficiaries assigned to the ACO would perhaps be more appropriately 

implemented under a model in which there is prospective assignment of beneficiaries, such as 

proposed Track 3. Under prospective assignment, beneficiaries would be assigned to the ACO 

for the entire performance year, and it would thus be clear as to which beneficiaries the waiver 
CMS-1461-P SP 11/25/14 219 

applied. Having clarity as to the beneficiary to which a waiver applies may be important for the 

ACO to comply with the conditions of the waiver and could also improve CMS’ ability to 

monitor waivers for misuse. Another option would be to apply the waivers to any FFS 

beneficiary cared for by an eligible ACO. Then the waiver could be available to all ACOs 

participating in a two-sided risk track, regardless of whether the assignment is prospective or 

retrospective. Another option would be to apply such waivers to beneficiaries that appear on the 

quarterly lists of preliminarily prospectively assigned beneficiaries. Under this approach, the 

population for whom the waiver is available would likely change from quarter to quarter. We 

seek comment on whether any waivers of payment or program rules would be more viable under 

proposed Track 3, which includes prospective beneficiary assignment, versus Track 2 in which 

beneficiaries are assigned using a preliminary prospective assignment methodology with final 

retrospective reconciliation. Specifically, would a waiver require a fully prospective list of 

assigned beneficiaries for the performance year or would it be feasible to use a preliminary 

prospective list of beneficiaries that is likely to change at the end of the performance year? What 

are the other operational issues we should consider? 

 Specific payment and program rules for which we believe waivers could be necessary 

under the Shared Savings Program to support ACO efforts to increase quality and decrease costs 

under two-sided performance-based risk arrangements and for which we invite comments are as 

follows: 

(1) SNF 3-Day Rule 

 The Medicare SNF benefit is for beneficiaries who require a short-term intensive stay in a 

SNF, requiring skilled nursing and/or skilled rehabilitation care. Pursuant to section 1861(i) of 

the Act, beneficiaries must have a prior inpatient hospital stay of no fewer than 3 consecutive 
CMS-1461-P SP 11/25/14 220 

days in order to be eligible for Medicare coverage of inpatient SNF care. We refer to this as the 

SNF 3-day rule. As discussed previously, we believe that the long term effectiveness and 

sustainability of the Shared Savings Program depend on encouraging ACOs to progress along the 

performance-based risk continuum. Given the very limited ACO interest thus far in two-sided 

performance-based risk, and the comments and suggestions by stakeholders, we now believe that 

the authority under section 1899(f) of the Act to waive certain payment or other program 

requirements may be necessary to carry out the provisions of the Shared Savings Program and to 

permit effective implementation of two-sided performance-based risk tracks under the program. 

Models where ACOs bear a degree of financial risk hold the potential to induce more meaningful 

systematic change. We believe that under a two-sided performance-based risk ACO model it 

could be medically appropriate and more efficient for some patients to receive skilled nursing 

care and or skilled rehabilitation services provided at SNFs without a prior inpatient 

hospitalization or with an inpatient hospital length of stay of less than 3 days. A waiver of this 

requirement could allow ACOs to realize cost savings and improve care coordination, such that 

they could be more willing to accept two-sided risk, which we believe is required to promote the 

long term effectiveness and sustainability of the Shared Savings Program. 

 We note that the SNF 3-day rule has been waived or is not a requirement for Medicare 

SNF coverage under a few CMS models or programs. For instance, the Pioneer ACO Model has 

recently started testing whether a tailored waiver of the SNF 3-day rule will enable the Pioneer 

ACOs to improve quality of care for a subset of beneficiaries requiring skilled nursing and/or 

skilled rehabilitation care while also reducing expenditures. ACOs under the Pioneer Model are 

accountable for the total costs of care furnished to their assigned beneficiary population, and 

must accept performance-based risk in the event that costs exceed their benchmark. This type of 
CMS-1461-P SP 11/25/14 221 

performance-based risk arrangement has the potential to mitigate the incentive to overuse SNF 

benefits. MA plans already have the flexibility not to apply the SNF 3-day rule, and we believe 

this flexibility is appropriate because of the financial incentives for MA plans, which operate 

under a capitated payment arrangement, to control total cost of patient care. As in the case of the 

MA program, the Pioneer ACO Model's use of shared risk arrangements is expected to deter 

unnecessary referral of patients to SNFs, as Pioneer ACOs are accountable for the total cost of 

care furnished to their assigned beneficiaries. While the financial incentive to control total cost 

of care in a shared savings model is not as great as in a capitated model, all Pioneer ACOs are at 

significant performance-based risk for exceeding their expenditure benchmarks and are clearly 

focused on reducing total cost of care. 

 The waiver of the SNF 3-day rule under the Pioneer ACO Model went into effect on 

April 7, 2014, for Pioneer ACOs that demonstrate through an application process that they have 

the capacity and infrastructure to identify and manage clinically eligible beneficiaries 

prospectively assigned to Pioneer ACOs who may be admitted to a SNF without the required 3-

day inpatient hospital stay. All other requirements for coverage of the Medicare SNF benefit 

remain unchanged under the Pioneer ACO Model. Only beneficiaries that require skilled nursing 

and/or skilled rehabilitation care are eligible for SNF coverage without a prior 3-day inpatient 

hospitalization under the Pioneer ACO Model waiver. All Pioneer ACOs are eligible to apply 

for a waiver of the SNF 3-day rule for their prospectively assigned beneficiaries, but must 

demonstrate that they have the capacity to identify and manage patients who would be either 

directly admitted to a SNF or admitted to a SNF after an inpatient hospitalization of fewer than 3 

days, by describing the staff and processes involved in the clinical management of these 

beneficiaries. 
CMS-1461-P SP 11/25/14 222 

 Further, patients eligible for coverage of SNF admissions under the terms of the waiver 

include only FFS Medicare beneficiaries prospectively aligned to a Pioneer ACO who do not 

reside in nursing homes for long-term custodial care at the time of the decision to admit to a 

SNF. Patients must be medically stable, have certain and confirmed diagnoses and thus not 

require additional diagnostic testing, not require an inpatient evaluation or treatment, and have a 

skilled nursing or rehabilitation need that could not be provided as an outpatient. Eligible 

beneficiaries must be admitted to SNFs at the direction of admitting Pioneer providers/suppliers 

and not at the direction of SNFs or non-Pioneer providers/suppliers. Pioneer ACOs are required 

to submit to CMS for approval a SNF or group of SNFs with which they wish to partner for 

purposes of this waiver. The designated SNFs must have the appropriate staff capacity and 

necessary infrastructure to carry out the activities proposed in the Pioneer ACO's application. 

The SNF may be, but is not required to be, a Pioneer provider/supplier. The SNF must also 

have, at the time of application submission, a quality rating of 3 or more stars under the CMS 

5-Star Quality Rating System as reported on the Nursing Home Compare website. Commenters 

suggest that a similar waiver of the SNF 3-day rule would be appropriate for certain ACOs under 

the Shared Savings Program. When Congress enacted the original Medicare legislation in 1965, 

it created SNF coverage as a less expensive alternative to what would otherwise be the final, 

convalescent portion of a beneficiary's inpatient hospital stay. Accordingly, the Medicare SNF 

benefit was narrowly focused on "post-hospital extended care" to serve as a relatively brief and 

skilled "extension" of an acute care stay in a hospital. Thus, the requirement for a prior 3-day 

qualifying stay in an inpatient hospital was included to effectively target the limited population 

that the SNF benefit was designed to cover: beneficiaries who require a short-term, intensive 

stay in a SNF, requiring skilled care. 
CMS-1461-P SP 11/25/14 223 

 Because of changes in medical care over the half century since enactment of the original 

Medicare legislation, it may now be medically appropriate for some patients to receive skilled 

nursing care and or rehabilitation services provided by SNFs without a prior inpatient 

hospitalization, or with an inpatient hospital length of stay of less than 3 days. It may be 

medically appropriate for patients to go to SNFs earlier, due to changes in medical care, given 

that hospital lengths of stay are shorter than they were decades ago, and the types of patients that 

were staying 3 days in an inpatient hospital in 1965 are no longer staying 3 days in an inpatient 

hospital now. Because of this, over time, we have repeatedly expressed interest in testing 

alternatives to the SNF 3-day rule. We have found that financial incentives need to properly 

align so that the appropriate patients receive SNF care. That is, we believe care must be 

coordinated in a manner that allows for control of total patient cost and mitigates the incentive to 

overutilize the SNF benefit. If alternatives to the SNF 3-day rule were to be implemented, we 

believe that most treatment would continue to be appropriately furnished in a hospital, either on 

an inpatient or outpatient basis, rather than furnished at a SNF. Therefore, we do not believe that 

application of such a waiver should result in overutilization of SNF care at the expense of 

appropriate acute hospital care. We would also note that under a model of accountability for 

total costs of care for assigned beneficiaries such as the Pioneer ACO Model or a two-sided risk 

track under the Shared Savings Program, the greatest savings would most likely be achieved by 

permitting the elimination, where appropriate, of the entire prior hospital stay (and therefore the 

hospital DRG payment) and improving quality of care for patients who can instead receive 

appropriate care through direct admission to a SNF. Permitting a shortened (less than 3 days) 

inpatient hospital stay prior to SNF admission would not necessarily produce significant savings 

to the Medicare Trust Funds, as Medicare would still pay the applicable MS-DRG amount to the 
CMS-1461-P SP 11/25/14 224 

hospital. Commenters, however, suggested that allowing ACOs to carefully identify 

beneficiaries with a prior hospital stay of less than 3 days, for whom SNF care would be 

clinically appropriate, could still produce cost savings for hospitals that improve their financial 

performance, and could contribute to ACOs' success and continued participation in the Shared 

Savings Program. 

 We believe it could be necessary to waive the SNF 3-day rule for ACOs participating 

under a two-sided risk track in the Shared Savings Program because the financial incentives for 

such ACOs to control total patient costs for their prospectively assigned beneficiaries are 

arguably similar to certain incentives that currently exist for MA plans and Pioneer ACOs. If we 

were to conclude that a waiver of the requirement for a prior 3-day qualifying stay in an inpatient 

hospital under waiver authority in section 1899(f) of the Act is necessary for purposes of 

implementing two-sided performance-based risk models under the Shared Savings Program, we 

would likely initially limit this waiver to ACO participants and ACO providers/suppliers under 

proposed Track 3. Under Track 3 beneficiaries would be prospectively assigned to the ACO for 

the entire year and it would thus be clear as to which beneficiaries the waiver applied. In 

addition, under Track 3 as proposed, organizations would agree to be held accountable for up to 

75 percent of any losses compared to organizations participating under Track 2 who agree to be 

held accountable for up to 60 percent of any losses. Since a few organizations have been willing 

to participant under Track 2 without waivers, this may represent the limit of risk organizations 

are willing to take on without waiving the SNF 3-day rule. As mentioned previously, we believe 

a prospective assignment approach creates a potential pathway for improving the appropriate use 

of waivers by ACOs and a method for CMS to monitor its use, in addition to offering a higher 

sharing rate. For these reasons, we believe Track 3 may make it a better candidate for these 
CMS-1461-P SP 11/25/14 225 

waivers than Track 2. However, we seek comment on whether such a waiver should apply to all 

performance-based risk tracks. Another option would be to allow the waiver to apply to any FFS 

beneficiary cared for by the ACO and then the waiver could be available to all ACOs 

participating in a two-sided risk track, regardless of whether assignment is prospective or 

retrospective. Another option would be to apply any waiver to beneficiaries that appear on the 

quarterly lists of preliminarily prospectively assigned beneficiaries. In this case, the 

beneficiaries to whom the waiver applies would likely change from quarter to quarter. We 

anticipate that we would offer the opportunity to apply for such a waiver to ACOs using a 

framework similar to the one currently being tested under the Pioneer ACO Model, with 

appropriate revisions as necessary to accommodate the differences in beneficiary assignment 

methodology, as needed. 

 Under such a waiver, ACOs would be required to submit to CMS for approval of a SNF 

or group of SNFs with which they wish to partner. The designated SNFs must have the 

appropriate staff capacity and necessary infrastructure to carry out the activities described in the 

ACO's application for the waiver. The SNF would likely be required to be an ACO participant 

or ACO provider/supplier. We believe it would be appropriate to limit such a waiver to SNFs 

that are ACO participants or ACO providers/suppliers, because we believe these entities would 

have incentives that are most directly aligned with those of the ACO. ACOs also have stronger 

control and oversight over such entities because such entities are subject to Shared Savings 

Program requirements. 

 Under such a waiver, we would anticipate establishing additional requirements to ensure 

program transparency and help reduce the possibility for abuse of the waiver. For example, we 

would anticipate requiring ACOs to indicate their intent to use the waiver as part of their 
CMS-1461-P SP 11/25/14 226 

applications or requests for renewal of their participation agreement, and remain in compliance 

with program rules. To further substantiate an ACO’s intent to use the waiver, we anticipate 

requiring that the ACO submits as part of its application documentation showing that its 

governing body has made and duly authorized a bona fide determination that the ACO will use 

the waiver (if approved by CMS) and will comply with all requirements of the waiver. As part 

of its application for the waiver, we would require the ACO to submit a written plan describing 

how it would use the waiver to meet the clinical needs of its assigned beneficiaries. We would 

reserve the right to deny or revoke a waiver to an ACO if it is not in compliance with 

requirements under the Shared Savings Program, if it does not use the waiver as described in its 

application, or if it does not successfully meet the quality reporting standard. ACOs with 

approved waivers would be required to post their use of the waivers as part of public reporting 

(see § 425.308) on the dedicated ACO webpage. Use of the waiver and its authorization by the 

governing body would be required to be documented and the documentation retained, consistent 

with § 425.314. We would anticipate that any waiver would be effective on the start date of the 

ACO’s participation agreement and would not extend beyond the end of the ACO’s participation 

in the Shared Savings Program. However, if CMS terminates the participation agreement, then 

the waiver would end on the date of the termination notice. We also reserve the authority to 

withdraw the waiver in the event we determine that there has been an abuse of the waiver. The 

proposed payment waivers would not protect financial arrangements between ACOs, ACO 

participants, ACOs providers/suppliers, or other individuals or entities providing services to 

ACO patients from liability under the fraud and abuse laws or any other applicable laws. 

 We note that we would retain the right to monitor and audit the use of such waivers. We 

would anticipate implementing heightened monitoring of entities that bill under payment waivers 
CMS-1461-P SP 11/25/14 227 

to help reduce the possibility for abuse of the waiver. We seek comment on what specific 

activities should be monitored to ensure that items and services are properly delivered to eligible 

patients, that patients are not being discharged prematurely to SNFs, and that patients are able to 

exercise freedom of choice and are not being steered inappropriately. We would also likely 

consider monitoring ACOs’ marketing of services subject to payment waivers to prevent 

coercive or misleading marketing and to assess the effect on the delivery of care. 

 We invite comments on whether it is necessary to provide for a waiver of the SNF 3-day 

rule using our authority under Section 1899(f) of the Act for ACOs that choose to participate in 

the Shared Savings Program under two-sided performance-based risk financial arrangements. If 

so, what criteria would be appropriate to determine waiver eligibility under the Shared Savings 

Program? We note that any waiver under the Shared Savings Program for this purpose would 

have to be implemented consistently across all eligible ACOs. In other words, application of the 

waiver would be uniformly applied, and there would not be customization of the waiver or 

conditions for the waiver for particular eligible ACOs. With this in mind, would it be 

appropriate to apply the same criteria discussed earlier that are currently being used under the 

Pioneer ACO Model? If not, how would the criteria have to be modified? What assurances 

should ACOs have to make in order to be eligible to use the waiver? Are there current Shared 

Savings Program rules and requirements that would have to be modified to permit this waiver? 

Should we require that a beneficiary be admitted to a SNF that is an ACO participant or ACO 

provider/supplier in order for the waiver to apply? We invite comment on whether or not the 

SNF should be required to be an ACO provider/supplier. Would a waiver under certain 

conditions create any unexpected concerns about access to SNF services for the patients who 

need them most (that is, those beneficiaries admitted following a 3-day or longer hospital stay). 
CMS-1461-P SP 11/25/14 228 

Would a waiver of the SNF 3-day rule align with our policy of including primary care services 

furnished in SNFs in the beneficiary assignment process? Would the ACO quality measures 

such as the new Skilled Nursing Facility 30-Day All-Cause Readmission Measure (79 FR 67910) 

and the other measures used in establishing the quality performance standards that ACOs must 

meet in order to be eligible for shared savings provide sufficient beneficiary protections from 

inappropriate care or withheld care? Are there other quality standards that should apply to ACOs 

or post-acute care facilities that use this waiver? What other monitoring activities should be 

considered to guard against unintended consequences of a waiver of the SNF 3-day rule? What 

other criteria, operational issues or other concerns should we consider? We invite comment on 

these issues. 

(2) Billing and Payment for Telehealth Services 

 Under section 1834(m) of the Act, Medicare pays for 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. The telehealth services must be furnished to a 

beneficiary located in one of the eight types of originating sites specified in section 

1834(m)(4)(C)(ii) of the Act and the site must satisfy at least one of the requirements of section 

1834(m)(4)(C)(i)(I) through (III) of the Act. Generally, for Medicare payment to be made for 

telehealth services under the Physician Fee Schedule several conditions must be met 

(§ 410.78(b)). Specifically, the service must be on the Medicare list of telehealth services and 

meet all of the following other requirements for payment: 

• The service must be furnished via an interactive telecommunications system. 

• The service must be furnished to an eligible telehealth individual. 

• The individual receiving the services must be in an eligible originating site. 
CMS-1461-P SP 11/25/14 229 

 When all of 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. For the list of 

Medicare telehealth services, see the CMS Web site at www.cms.gov/teleheath/. 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. 

 We also note that a number of CMS demonstrations include or have included testing of 

interventions that use electronic health records, remote monitoring, and mobile diagnostic 

technology as part of strategies to increase quality of care and decrease costs. For example, for 

the Medicare Health Support Programs (see https://www.cms.gov/Medicare/Medicare-GeneralInformation/CCIP/index.html), participants utilized a variety of telephonic care management 

services and related interventions. These services included nurse-based health advice for the 

management and monitoring of symptoms, health education (via health information, videos, 

online information), health coaching to encourage self-care and self-management of chronic 

health conditions and medications, and health promotion and disease prevention coaching. 

Likewise, under the Independence at Home Demonstration, physician and nurse practitioner 

directed home-based primary care teams use electronic health records, remote monitoring, and 

mobile diagnostic technology to help reduce expenditures and improve health outcomes for 

Medicare beneficiaries with multiple chronic conditions (see CMS website at 
CMS-1461-P SP 11/25/14 230 

http://www.cms.gov/Medicare/Demonstration-Projects/DemoProjectsEvalRpts/MedicareDemonstrations-Items/CMS1240082.html). 

 As discussed previously in section II.B.8.a of this proposed rule, section 1899(b)(2)(G) of 

the Act requires a Shared Savings Program ACO to "define processes to ... coordinate care, such 

as through the use of telehealth, remote patient monitoring, and other such enabling 

technologies." Commenters suggest that technologies that enable health care providers to deliver 

care to patients in locations remote from providers are being increasingly used to complement 

face-to-face patient-provider encounters in both urban and rural areas. In these cases, the use of 

remote access technologies may improve the accessibility and timeliness of needed care, increase 

communication between providers and patients, enhance care coordination, and improve the 

efficiency of care. ACOs and other commenters have suggested that a waiver of certain 

Medicare telemedicine payment requirements would help encourage a broader range of ACOs to 

more fully utilize telehealth, remote patient monitoring, and other such enabling technologies. 

 We note that certain professional services that are commonly furnished remotely using 

telecommunications technology are paid under the same conditions as in- person physicians' 

services, and thus do not require a waiver. Such services that do not require the patient to be 

present in person with the practitioner when they are furnished are covered and paid in the same 

way as services delivered without the use of telecommunications technology when the 

practitioner is in-person at the medical facility furnishing care to the patient. Such services 

typically involve circumstances where a practitioner is able to visualize some aspect of the 

patient's condition without the patient being present and without the interposition of a third 

person's judgment. Visualization by the practitioner can be possible by means of x-rays, 

electrocardiogram or electroencephalogram tracings, tissue samples, etc. For example, the 
CMS-1461-P SP 11/25/14 231 

interpretation by a physician of an actual electrocardiogram or electroencephalogram tracing that 

has been transmitted via telephone (that is, electronically, rather than by means of a verbal 

description) is a covered physician's service. These remote services are not Medicare telehealth 

services as defined under section 1834(m)(4)(F)(i) of the Act. Rather, these remote services that 

utilize telecommunications technology are considered physicians' services in the same way as 

services that are furnished in person without the use of telecommunications technology, and they 

are paid under the same conditions as in-person physicians' services, with no requirements 

regarding permissible originating sites. 

 A waiver of certain Medicare telehealth requirements could be supported by section 

1899(b)(2)(G) of the Act in that it gives the use of enabling technologies, such as telehealth, as 

an example of a process to coordinate care, and the statute does not limit ACOs to being in rural 

or shortage areas where Medicare payment is available for telehealth services. As we indicated 

in section II.B.8.a. of this proposed rule, we welcome information from ACOs and other 

stakeholders about the use of such technologies to coordinate care for assigned beneficiaries. If 

we conclude that a waiver of certain telehealth requirements under section 1899(f) of the Act is 

necessary in order to carry out the Shared Savings Program, we would likely provide for a 

waiver of the originating site requirements of section 1834(m)(4)(C)(i)(I) through (III) of the Act 

that limit telehealth payment to services furnished within specific types of geographic areas or in 

an entity participating in a Federal telemedicine demonstration project approved as of December 

31, 2000, and would also likely provide for a waiver of the originating site requirements of 

section 1834(m)(4)(C)(ii)(I) through (VIII) of the Act that specify the particular sites at which 

the eligible telehealth individual must be located at the time the service is furnished via a 

telecommunications system. Waiver of this requirement could allow ACOs to realize cost 
CMS-1461-P SP 11/25/14 232 

savings and improve care coordination, such that they would more willing to take on two-sided 

risk which we believe is required to promote the long term effectiveness and sustainability of the 

Shared Savings Program. 

 If we were to implement a waiver then we believe it would be appropriate to limit the use 

of such waivers to beneficiaries that are assigned to the ACO during the applicable performance 

year. We believe this would be best accomplished by permitting ACOs to use these waivers 

when they have a prospectively assigned population. In other words, the waivers would be 

limited to ACOs participating in Track 3. Prospectively assigned beneficiaries under Track 3 

would be assigned to the ACO for the entire year and it would thus be clear to ACOs and CMS 

as to the beneficiaries for which a waiver applied. As mentioned previously, we believe a 

prospective assignment approach creates a potential pathway for improving the appropriate use 

of waivers by ACOs and a method for CMS to monitor its use. In addition, under Track 3 there 

would be greater opportunity for risk. For these reasons, we believe that Track 3 is potentially a 

better candidate for such a waiver than Track 2. However, we seek comment on whether these 

waivers should apply to all two-sided performance-based risk tracks. Another option would be 

for the waivers would apply to any FFS beneficiary cared for by an ACO and then the waiver 

could be available to ACOs participating in any two-sided risk track, regardless of whether the 

assignment is prospective or retrospective. Another option would be to apply such waivers to 

beneficiaries that appear on the quarterly lists of preliminarily prospectively assigned 

beneficiaries. Under this approach, the population for whom the waiver is available would likely 

change from quarter to quarter. 

 Under a waiver of the telehealth requirements, we would anticipate establishing 

additional requirements to ensure program transparency and help reduce the possibility for abuse 
CMS-1461-P SP 11/25/14 233 

of the waiver. For example, we would anticipate requiring ACOs to indicate their intent to use 

the waiver in a form and manner specified by CMS, as part of either their applications or 

requests for renewal of their participation agreement, and to remain in compliance with program 

rules. To further substantiate an ACO’s intent to use the waiver, we anticipate requiring that the 

ACO submit as part of its application documentation showing that its governing body has made 

and duly authorized a bona fide determination that the ACO will use the waiver (if approved by 

CMS) and will comply with all requirements of the waiver. As part of its application for the 

waiver, we would require the ACO to submit a written plan describing how it would use the 

waiver to meet the clinical needs of its assigned beneficiaries. We would reserve the right to 

deny or revoke a waiver to an ACO if it is not in compliance with requirements under the Shared 

Savings Program, if it does not use the waiver as described in its application, or if it does not 

successfully meet the quality reporting standard. ACOs with approved waivers would be 

required to post their use of the waivers as part of public reporting (see § 425.308) on the 

dedicated ACO webpage. Use of the waiver and its authorization by the governing body would 

be required to be documented, and the documentation retained, consistent with § 425.314. We 

would anticipate that any waiver would be effective on the start date of the ACO’s participation 

agreement and would not extend beyond the end of the ACO’s participation in the Shared 

Savings Program. However, if CMS terminates the participation agreement, then the waiver 

would end on the date of the termination notice. We also reserve the authority to withdraw the 

waiver in the event we determine that there has been an abuse of the waiver. The proposed 

payment waivers would not protect financial arrangements between ACOs, ACO participants, 

ACOs providers/suppliers, or other individuals or entities providing services to ACO patients 

from liability under the fraud and abuse laws or any other applicable laws. 
CMS-1461-P SP 11/25/14 234 

 We note that we would retain the right to monitor and audit the use of such waivers. We 

would anticipate implementing heightened monitoring of entities that bill under payment waivers 

to help reduce the possibility for abuse of the waiver. We seek comment on what specific 

activities should be monitored to ensure that items and services are properly delivered to eligible 

patients. We would also likely consider monitoring ACOs’ marketing of services subject to 

payment waivers to prevent coercive or misleading marketing and to assess the effect on the 

delivery of care. 

 In addition to welcoming comments related to the questions we raised in section II.B.8.a 

of this proposed rule, we also welcome specific comments on whether it is necessary to use our 

authority under Section 1899(f) of the Act to provide for a waiver for ACOs participating in the 

Shared Savings Program of any Medicare telehealth rules, especially for those ACOs that have 

elected to participate under a two-sided performance-based risk arrangement. We seek comment 

on the telehealth rules that would require a waiver and the circumstances under which a waiver 

would be necessary. Specifically, what aspects of current Medicare telehealth payment and other 

rules would it be necessary to waive in order to effectively incorporate two-sided performancebased risk into the Shared Savings Program? What factors should CMS consider if it were to 

provide for such a waiver to allow ACOs additional flexibility to provide a broader range of 

telehealth services or services in a broader range of geographic areas? Also, how should 

telehealth be defined? While "telehealth" is not consistently defined across payers, "telehealth" 

typically refers to a broader set of services, including "store and forward" services, which are not 

currently covered by Medicare outside of demonstration projects. Under what circumstances 

should payment for telehealth and related services be made? What types of services should be 

included – remote monitoring, remote visits and/or e-consults? What capabilities or additional 
CMS-1461-P SP 11/25/14 235 

criteria should ACOs meet in order to qualify for payments for telehealth services under such a 

waiver? In your comments, please consider quality and outcomes metrics, other requirements to 

ensure protection of beneficiaries and the Medicare Trust Funds, and any other design factors 

you think may be important. 

(3) Homebound Requirement Under the Home Health Benefit 

 In order for Medicare to pay for home health services, a beneficiary must be determined 

to be "home-bound." Specifically, sections 1835(a) and 1814(a) of the Act require that a 

physician certify (and recertify) that in the case of home health services under the Medicare 

home health benefit, such services are or were required because the individual is or was 

"confined to the home" and needs or needed skilled nursing care on an intermittent basis, or 

physical or speech therapy or has or had a continuing need for occupational therapy. A 

beneficiary is considered to be confined to the home if the beneficiary has a condition, due to an 

illness or injury, that restricts his or her ability to leave home except with the assistance of 

another individual or the aid of a supportive device (such as crutches, a cane, a wheelchair, or a 

walker), or if the beneficiary has a condition such that leaving his or her home is medically 

contraindicated. While a beneficiary does not have to be bedridden to be considered confined to 

the home, the condition of the beneficiary must be such that there exists a normal inability to 

leave home and leaving home requires a considerable and taxing effort by the beneficiary. 

Absent this condition, it would be expected that the beneficiary could typically get the same 

services in an outpatient or other setting. Thus, the homebound requirement provides a way to 

help differentiate between patients that require medical care at home versus patients who could 

more appropriately receive care in a less costly outpatient setting. Additional information 
CMS-1461-P SP 11/25/14 236 

regarding the homebound requirement is available in the Medicare Benefit Manual (Pub 100-02); 

Chapter 7, "Home Health Services", Section 30.1.1, "Patient Confined to the Home". 

 Some ACOs and other commenters have suggested that a waiver of this requirement 

would be appropriate under the Shared Savings Program, especially for ACOs that have elected 

to participate under a two-sided performance-based risk arrangement. They suggest that home 

health care would be appropriate for additional beneficiaries and could result in lower overall 

costs of care in some instances. For example, commenters suggest, based on their experiences 

outside of the Medicare FFS program, that if a beneficiary is allowed to have home health care 

visits, even if the beneficiary is not considered home-bound, the beneficiary may avoid a hospital 

admission. 

 If we conclude that a waiver of the homebound requirement under section 1899(f) of the 

Act is necessary in order to carry out the Shared Savings Program, we would expect to offer the 

opportunity to provide home health services to additional beneficiaries to ACOs participating 

under Track 3 using a process similar to the approach we discussed above for a waiver of the 

SNF 3-day rule for ACOs in Track 3. Specifically, ACOs participating under Track 3 have a 

significant financial incentive to control total patient costs. In addition, under Track 3 

beneficiaries would be prospectively assigned to the ACO for the entire year, and it would thus 

be clear as to which beneficiaries the waiver applied. As mentioned previously, we believe a 

prospective assignment approach creates a potential pathway for improving the appropriate use 

of waivers by ACOs and a method for CMS to monitor its use. In addition, under Track 3 there 

would be greater opportunity for risk. For these reasons, we believe that Track 3 is potentially 

making a better candidate for such a waiver than Track 2. All ACOs participating under Track 3 

would be eligible to apply for a waiver of the home-bound requirement for their prospectively 
CMS-1461-P SP 11/25/14 237 

assigned beneficiaries; however, we seek comment on whether these waivers should apply to all 

performance-based risk tracks. Another option would be that the waivers would apply to any 

FFS beneficiary cared for by the ACO and then the waiver could be available to all ACOs 

participating in a two-sided risk track, regardless of whether assignment is prospective or 

retrospective. Another option would be to apply any waiver to beneficiaries that appear on the 

quarterly lists of preliminarily prospectively assigned beneficiaries. In this case, the 

beneficiaries to whom the waiver applies would likely change from quarter to quarter. We 

believe we could authorize waiver of the homebound requirement under the home health benefit 

for those ACOs that demonstrate through the application process or in a request for renewal of 

their participation agreement that they have the capacity and infrastructure to identify and 

manage clinically beneficiaries who are not homebound, but are otherwise eligible for services 

under the home health benefit, and would benefit from receiving these services. As part of the 

application for the waiver, we would expect to require ACOs to describe the staff and processes 

that would be involved in the clinical management of beneficiaries receiving services pursuant to 

the waiver. All other requirements for the Medicare home health benefit would remain 

unchanged. Thus, under such a waiver, only beneficiaries that otherwise meet all program 

requirements to receive home health services would be eligible for coverage of home health 

services without being homebound. 

 In addition, we would require that home health services provide pursuant to the waiver at 

the direction of an ACO provider/supplier that is not a home health agency, to help ensure that 

the waiver is used appropriately. The home health agency would also likely be required to be an 

ACO provider/supplier. We believe it would be appropriate to limit such a waiver to home 

health agencies that are ACO participants or ACO providers/suppliers, because we believe these 
CMS-1461-P SP 11/25/14 238 

entities would have incentives that are most directly aligned with those of the ACO. ACOs also 

have stronger control and oversight over such entities and such entities are subject to Shared 

Savings Program requirements. We invite comment on whether or not the home health agency 

should be required to be an ACO provider/supplier. In either case, an ACO would be required to 

submit to CMS for approval the home health agency or group of home health agencies with 

which it wishes to partner in providing services pursuant to this waiver. The designated home 

health agency or agencies would be required to have the appropriate staff capacity and necessary 

infrastructure to carry out the processes described in the ACO's application for the waiver. In 

addition, a designated home health agency would be required to have, at the time of application 

submission, a quality rating of 3 or more stars under the CMS 5-Star Quality Rating System as 

reported on the Home Health Compare website. (For detailed information, see 

http://blog.cms.gov/2014/06/18/star-quality-ratings-coming-soon-to-compare-sites-on-medicaregov/.) 

 Under such a waiver, we would anticipate establishing additional requirements to ensure 

program transparency and help reduce the possibility for abuse of the waiver. For example, we 

would anticipate requiring ACOs to indicate their intent to use the waiver in a form and manner 

specified by CMS, as part of either their applications or requests for renewal of their 

participation agreement, and to remain in compliance with program rules. To further 

substantiate an ACO’s intent to use the waiver, we anticipate requiring that the ACO submit as 

part of its application documentation showing that its governing body has made and duly 

authorized a bona fide determination that the ACO will use the waiver (if approved by CMS) and 

will comply with all requirements of the waiver. As part of its application for the waiver, we 

would require the ACO to submit a written plan describing how it would use the waiver to meet 
CMS-1461-P SP 11/25/14 239 

the clinical needs of its assigned beneficiaries. We would reserve the right to deny or revoke a 

waiver to an ACO if it is not in compliance with requirements under the Shared Savings Program 

or if it does not successfully meet the quality reporting standard. ACOs with approved waivers 

would be required to post their use of the waivers as part of public reporting (see § 425.308) on 

the dedicated ACO webpage. Use of the waiver and its authorization by the governing body 

would be required to be documented, and documentation retained, consistent with § 425.314. 

We would anticipate that any waiver would be effective on the start date of the ACO’s 

participation agreement and would not extend beyond the end of the ACO’s participation in the 

Shared Savings Program. However, if CMS terminates the participation agreement, then the 

waiver would end on the date of the termination notice. We would also reserve the authority to 

withdraw the waiver in the event we determine that there has been an abuse of the waiver. The 

proposed payment waivers would not protect financial arrangements between ACOs, ACO 

participants, ACOs providers/suppliers, or other individuals or entities providing services to 

ACO patients from liability under the fraud and abuse laws or any other applicable laws. 

 We note that we would retain the right to monitor and audit the use of such waivers. We 

would anticipate implementing heightened monitoring of entities that bill under payment waivers 

to help reduce the possibility for abuse of the waiver. We seek comment on what specific 

activities should be monitored to ensure that items and services are properly delivered to eligible 

patients, and that patients are able to exercise freedom of choice and are not being steered 

inappropriately. We would also likely consider monitoring ACOs’ marketing of services subject 

to payment waivers to prevent coercive or misleading marketing and to assess the effect on the 

delivery of care. 
CMS-1461-P SP 11/25/14 240 

 We invite comments on whether it is necessary to waive the homebound requirement 

under the home health benefit using our authority under Section 1899(f) of the Act for ACOs that 

choose to participate in the Shared Savings Program under two-sided performance risk financial 

arrangements. We also welcome comments on the potential waiver requirements discussed 

previously. For example, what criteria would be appropriate to determine eligibility for such a 

waiver under the Shared Savings Program? Are there specific categories of providers or 

beneficiaries to whom the waiver should (or should not) apply? If implemented under a 

two-sided performance-based risk model, are there additional protections for the Medicare Trust 

Funds or for beneficiaries that should be considered? How would a waiver complement 

Medicare payment for physician home visits for medically complex patients? What 

considerations, if any, should we take into account when adapting current 60-day episode 

payment amounts that require patients to be homebound in applying them to services furnished 

to a non-homebound population? What quality metrics should be incorporated into the quality 

measure framework for ACOs and our monitoring program to measure the quality of care for 

non-homebound home health recipients? When should the waiver be applied? Would there be 

specific circumstances when home health services should be available at any point without first 

being triggered by some health event? If so, what criteria would be necessary to differentiate 

these circumstances from non-covered custodial care? What other criteria or operational issues 

or other concerns should we also consider? We are also concerned that under a homebound 

waiver, beneficiaries may, in effect, be steered toward those agencies that can provide enhanced 

home health services to patients who are not homebound. Any such homebound waiver would 

not override Medicare patients’ freedom of choice and that beneficiaries would remain free to 
CMS-1461-P SP 11/25/14 241 

select any eligible home health agency. We seek comments on ways to ensure that beneficiaries 

retain their freedom of choice in practice under a waiver. 

 We would also note that the Independence at Home (IAH) Demonstration builds on 

existing Medicare benefits by providing chronically ill patients with a complete range of primary 

care services in the home setting. Medical practices led by physicians or nurse practitioners 

provide primary care home visits tailored to the needs of beneficiaries with multiple chronic 

conditions and functional limitations. See the CMS website at 

http://innovation.cms.gov/initiatives/independence-at-home/. How could the findings from 

Independence at Home demonstration apply to the population of beneficiaries assigned to ACOs 

or receiving care furnished by ACO providers/suppliers? 

(4) Waivers for Referrals to Postacute Care Settings 

 As a condition of participation (CoP) in Medicare, a hospital must have in effect a 

discharge planning process that applies to all patients, as required under § 482.43. The 

Interpretative Guidelines for this requirement found in the State Operations Manual, Publication 

100-07, Appendix A - Survey Protocol, Regulations and Interpretive Guidelines for Hospitals, 

section A-0799, define hospital discharge planning as a process that involves determining the 

appropriate post-hospital discharge destination for a patient; identifying what the patient requires 

for a smooth and safe transition from the hospital to his or her discharge destination; and 

beginning the process of meeting the patient's identified postdischarge needs. Alternative 

terminology, such as "transition planning" or "community care transitions" is preferred by some, 

since it moves away from a focus primarily on a patient's hospital stay to consideration of 

transitions among the multiple types of patient care settings that may be involved at various 

points in the treatment of a given patient. This approach recognizes the shared responsibility of 
CMS-1461-P SP 11/25/14 242 

health care professionals and facilities as well as patients and their support persons throughout 

the continuum of care, and the need to foster better communication among the various groups. 

At the same time, the term "discharge planning" is used both in section 1861(ee) of the Act as 

well as in § 482.43. 

 The discharge planning CoP specifically addresses the role of the patient, or the patient's 

representative, by requiring the hospital to develop a discharge planning evaluation at the 

patient's request and to discuss the evaluation and plan with the patient. This is consistent with 

the hospital patient's rights CoP regulations at § 482.13(b)(1) and (2), which provide that the 

patient has the right to participate in the development and implementation of his or her plan of 

care, and to make informed decisions regarding his or her care. Accordingly, hospitals must 

actively involve patients or their representatives throughout the discharge planning process. 

Further, the specific discharge planning evaluation requirement to assess a patient's capability for 

post-discharge self-care requires the hospital, as needed, to actively solicit information not only 

from the patient or the patient's representative, but also from family, friends, or other support 

persons. The hospital must include in the discharge plan, when applicable in terms of the types 

of post-discharge care needs identified, a list of home health agencies (HHAs) or SNFs that are 

available to the patient, that are participating in the Medicare program and that serve the 

geographic area (as defined by the HHA) in which the patient resides, or in the case of a SNF, in 

the geographic area requested by the patient. HHAs must request to be listed by the hospital as 

available (see § 482.43(c)(6)) for further details). Further, under the CoP regulations at 

§ 482.43(c)(7), a hospital, as part of the discharge planning process, must inform the patient or 

the patient's family of their freedom to choose among participating Medicare providers of 

post-hospital care services and must, when possible, respect patient and family preferences when 
CMS-1461-P SP 11/25/14 243 

they are expressed. The hospital must not specify or otherwise limit the qualified providers that 

are available to the patient. The discharge plan must identify any HHA or SNF to which the 

patient is referred in which the hospital has a disclosable financial interest, as specified by the 

Secretary, and any HHA or SNF that has a disclosable financial interest in a hospital under 

Medicare (See § 482.43(c)(8)). 

 The State Operations Manual (SOM), Appendix A at Section A-0823, provides additional 

guidance for these requirements. During the discharge planning process the hospital must inform 

the patient of his or her freedom to choose among Medicare-participating post-hospital providers 

and must not direct the patient to specific provider(s) or otherwise limit which qualified 

providers the patient may choose among. Hospitals have the flexibility either to develop their 

own lists or to print a list of skilled nursing facilities and home health agencies in the applicable 

geographic areas from the CMS websites, Nursing Home Compare 

(www.medicare.gov/NHcompare) and Home Health Compare 

(www.medicare.gov/homehealthcompare). If hospitals develop their own lists, they are expected 

to update them at least annually (69 FR 49226). Hospitals may also refer patients and their 

families to the Nursing Home Compare and Home Health Compare websites for additional 

information regarding Medicare-certified SNFs and HHAs, as well as Medicaid-participating 

nursing facilities. The data on the Nursing Home Compare website include an overall 

performance rating, nursing home characteristics, performance on quality measures, inspection 

results, and nursing staff information. 

 Home Health Compare provides details about every Medicare-certified home health 

agency in the country. Included on the website are quality indicators such as managing daily 

activities, managing pain and treating symptoms, treating wounds and preventing pressure sores, 
CMS-1461-P SP 11/25/14 244 

preventing harm, and preventing unplanned hospital admissions. The hospital might also refer 

the patient and his or her representatives to individual State agency websites, the Long-Term 

Care Ombudsman Program, Protection and Advocacy Organizations, Citizen Advocacy Groups, 

Area Agencies on Aging, Centers for Independent Living, and Aging and Disability Resource 

Centers for additional information on long term care facilities and other types of providers of 

post-hospital care. Having access to the information found at these sources may assist 

beneficiaries and their families and other caregivers in the decision making process regarding 

post-hospital care options. When the patient or the patient's family has expressed a preference, 

the hospital must attempt to arrange post-hospital care with an HHA or SNF, as applicable, 

consistent with that preference. If the hospital is unable to make the preferred arrangement, (for 

example, if there is no bed available in the preferred SNF), it must document the reason the 

patient's preference could not be fulfilled and explain that reason to the patient. 

 ACOs and MedPAC have indicated that as ACOs have started to analyze claims data on 

their beneficiaries, they are recognizing that certain providers may deliver higher-quality and 

lower-cost care than others. For example, some SNFs may deliver higher-quality care and thus 

appropriately lower rates of readmissions to hospitals. ACOs have indicated that they would like 

to have the ability to recommend high-quality SNF and HHA providers with whom they have 

established relationships, rather than presenting all options equally. In particular, ACOs and 

their ACO providers/suppliers would like to have the ability to clearly state to beneficiaries 

which providers they believe are best and why. However, it is not clear to them that they have 

the authority to do so, especially for referrals to post-acute care. ACOs suggest that the ability to 

make more specific recommendations would enable them to build robust networks across the 

continuum of care, and thus help them to give beneficiaries as much continuity as possible as 
CMS-1461-P SP 11/25/14 245 

they move across sites of care. Therefore, ACOs have asked that we provide clear direction on 

how preferred providers can be presented to beneficiaries and what represents clear notification 

of the beneficiary’s freedom to choose among participating Medicare providers. 

 Based on these comments from ACOs and MedPAC, we have reviewed the relevant 

statutory provisions, regulations, and guidance. While we believe these materials make clear the 

requirements regarding how preferred providers can be represented to beneficiaries and what 

represents clear notification of beneficiary freedom of choice of providers, we believe we have 

identified one requirement that might be need to be waived. Specifically, we are considering 

whether it might be necessary to waive the requirement under section 1861(ee)(2)(H) of the Act 

that a hospital "not specify or otherwise limit the qualified provider which may provide posthospital home services" and the portions of the hospital discharge planning CoP at § 482.43 that 

implement this requirement, using our waiver authority under Section 1899(f) of the Act for 

ACOs participating in two-sided risk tracks under the Shared Savings Program. If we were to 

implement such a waiver, we would anticipate making it a very narrow waiver. In addition, we 

are considering whether such a waiver would be most appropriately implemented under Track 3 

in which there is prospective assignment of beneficiaries. Under Track 3 beneficiaries would be 

prospectively assigned to the ACO for the entire year and it would thus be clear as to which 

beneficiaries the waiver applied. As mentioned previously, we believe a prospective assignment 

approach creates a potential pathway for improving the appropriate use of waivers by ACOs and 

a method for CMS to monitor its use. In addition, under Track 3 there would be greater 

opportunity for risk. For these reasons, we believe that Track 3 is potentially a better candidate 

for such a waiver than Track 2. Another option is that the waiver would apply to any FFS 

beneficiary cared for by the ACO and then the waiver could be available to all ACOs 
CMS-1461-P SP 11/25/14 246 

participating in a two-sided risk track, regardless of whether the assignment is prospective or 

retrospective. Another option would be to apply any waiver to beneficiaries that appear on the 

quarterly lists of preliminarily prospectively assigned beneficiaries. In this case, the 

beneficiaries to whom the waiver applies would likely change from quarter to quarter. We 

would also anticipate imposing additional documentation requirements upon those ACOs that 

seek to use the waiver. Specifically, because the Shared Savings Program is built on FFS 

Medicare, and because we continue to support and protect beneficiaries' right to choose their 

providers under FFS Medicare, we are not considering a complete waiver of the requirement that 

a hospital, as part of the discharge planning process, not specify or otherwise limit the qualified 

providers that are available to the patient. This requirement is reflected in the hospital CoPs at 

§ 482.43(c)(7). In other words, under the terms of any waiver, hospitals still would be required 

to inform the patient or the patient's family of their freedom to choose among participating 

Medicare providers of post-hospital care services and must, when possible, respect patient and 

family preferences when they are expressed. In addition, the hospital must also present a 

complete list and may not limit the qualified providers that are available to the patient. However, 

under a waiver of the prohibition on the specification of qualified providers, discharge planners 

in hospitals that are ACO participants or ACO providers/suppliers would have the flexibility to 

recommend high quality post-acute providers with whom they have relationships (either 

financial and/or clinical) for the purpose of improving continuity of care across sites of care. 

Such a waiver would not cover a situation in which a post-acute provider paid the ACO 

participant or ACO provider/supplier to be included as a recommended post-acute provider. We 

believe it would be appropriate to limit such a waiver to hospitals that are ACO participants or 

ACO providers/suppliers because we believe these entities would have incentives that are most 
CMS-1461-P SP 11/25/14 247 

directly aligned with those of the ACO. ACOs also have stronger control and oversight over 

such entities and such entities are subject to Shared Savings Program requirements. We 

anticipate that under a such waiver discharge planners would be required to document that the 

patient or the patient's family was informed of their freedom to choose a provider of 

post-hospital services and presented with a complete list of participating Medicare providers of 

post-hospital care services as well as information regarding the Medicare provider of 

post-hospital care services recommended by the discharge planner. We also anticipate that under 

such a waiver discharge planners would be required to document the data and the rationale they 

used as the basis for recommending any specific provider of post-hospital services. If 

implemented across all risk tracks, we anticipate it would apply to all FFS beneficiaries receiving 

services from hospitals participating in the ACO. We would additionally anticipate requiring the 

use of certain quality criteria for recommended providers (such as requiring that SNFs meet a 

minimum Star rating of 3 or more stars under the CMS 5-Star Quality Rating System as reported 

on the Home Health Compare website. For detailed information, see 

http://blog.cms.gov/2014/06/18/star-quality-ratings-coming-soon-to-compare-sites-on-medicaregov/.) and documentation that the patient or the patient's family was informed of the 

recommended provider's quality of care, the clinical and/or financial relationship that the ACO 

has with the recommended provider, and any other reasons why the provider is being 

recommended. Furthermore, we would continue to require that the ACO respect the patient or 

the patient's family's preference regarding the choice of post-acute provider. Under such a 

waiver, we would anticipate establishing additional requirements to ensure program transparency 

and help reduce the possibility for abuse of the waiver. For example, we would anticipate 

requiring ACOs to indicate their intent to use the waiver in a form and manner specified by 
CMS-1461-P SP 11/25/14 248 

CMS, as part of either their applications or requests for renewal of their participation agreement, 

and to remain in compliance with program rules. To further substantiate an ACO’s intent to use 

the waiver, we anticipate requiring that the ACO submit as part of its application documentation 

showing that its governing body has made and duly authorized a bona fide determination that the 

ACO will use the waiver (if approved by CMS) and will comply with all requirements of the 

waiver. As part of its application for the waiver, we would require the ACO to submit a written 

plan describing how it would use the waiver to meet the clinical needs of its assigned 

beneficiaries. We would reserve the right to deny or revoke a waiver to an ACO if it is not in 

compliance with other requirements under the Shared Savings Program, if it does not use the 

waiver as described in its application, or if it does not successfully meet the quality reporting 

standard. ACOs with approved waivers would be required to post their use of the waivers as part 

of public reporting (see §425.308) on the dedicated ACO webpage. Use of the waiver and its 

authorization by the governing body would be required to be documented, and the 

documentation retained, consistent with §425.314. We would anticipate that any waiver would 

be effective on the start date of the ACO’s participation agreement and would not extend beyond 

the end of the ACO’s participation in the Shared Savings Program. However, if CMS terminates 

the participation agreement, then the waiver would end on the date of the termination notice. We 

also reserve the authority to withdraw the waiver in the event we determine that there has been 

an abuse of the waiver. The proposed payment waivers would not protect financial arrangements 

between ACOs, ACO participants, ACOs providers/suppliers, or other individuals or entities 

providing services to ACO patients from liability under the fraud and abuse laws or any other 

applicable laws. 
CMS-1461-P SP 11/25/14 249 

 We would retain the right to monitor and audit the use of such waivers. We would 

implement heightened monitoring of entities that bill under payment waivers to help reduce the 

possibility for abuse of the waiver. We seek comment on what specific activities should be 

monitored to ensure that items and services are properly delivered to eligible patients, and that 

patients are able to exercise freedom of choice and are not being steered inappropriately. We 

would also likely consider monitoring ACOs’ marketing of services subject to payment waivers 

to prevent coercive or misleading marketing and to assess the effect on the delivery of care. 

 We seek comment on this potential approach to using our waiver authority to permit 

ACOs flexibility in specifying certain Medicare providers of post-hospital care services to 

patients and their families. We further seek comment on the criteria discussed above. Are there 

other cost and quality criteria that should be considered? Specifically to what hospitals and posthospital providers should the waiver apply? For example, as discussed above, should the ability 

to recommend a post-hospital provider be available only to those hospitals that are ACO 

participants or ACO provider/suppliers, since these entities would have incentives that are most 

directly aligned with those of the ACO? Should a hospital be permitted to recommend any 

post-hospital provider or only post-hospital providers that are ACO participants or ACO 

provider/suppliers? We anticipate that if a waiver is found to be necessary, we would establish a 

waiver that would apply to all hospitals that are ACO participants or ACO providers/suppliers 

and that these hospitals would have the ability to recommend any post-hospital provider; 

however, we would be interested to receive comments on alternative approaches. 

 Overall, we are supportive of hospitals recommending certain post-hospital providers 

based on quality and a beneficiary's specific needs, as long as the beneficiaries understand their 

other options and retain their freedom of choice. In the event a waiver is found to be necessary, 
CMS-1461-P SP 11/25/14 250 

are there other parameters that should be established around how hospitals formulate their lists of 

post-acute providers and what information would be shared with beneficiaries? Under such a 

waiver would it be appropriate for hospitals to share only information on quality that is 

publically reported, such as on Home Health Compare, or would it be appropriate for hospitals to 

also share information that they have generated internally? We would be concerned if hospitals 

might steer beneficiaries to providers based on quality information that has not been properly 

vetted. Also, we would be concerned if hospitals recommended only their partnering providers, 

when there may be other providers of equal or better quality. Since the CoP requirements apply 

to all patients of a participating hospital regardless of their insurer or insured status, we are also 

seeking comment on whether it would be feasible to implement a system where the CoP 

requirement to not make recommendations is waived for the ACO participating hospitals only in 

the case of certain Medicare FFS beneficiaries. We are further seeking comments on whether it 

might be necessary for purposes of carrying out the Shared Savings Program and what benefits 

and risks might arise for non-Medicare inpatients if we were to waive this portion of the 

regulation for ACO participating hospitals with respect to all of their patients. We welcome 

comments on whether it would be appropriate to limit any such a waiver to ACOs participating 

under two-sided risk financial arrangements, or whether such a waiver should be available more 

broadly to all ACOs participating in the Shared Savings Program. Alternatively, should the 

waiver apply only to beneficiaries that are prospectively assigned to ACOs participating in Track 

3? What operational considerations/concerns would implementation of such a waiver raise? 

What additional beneficiary protections and safeguards should be considered and put in place to 

prevent abuse of such a waiver? 
CMS-1461-P SP 11/25/14 251 

(5) Waiver of Other Payment Rules 

 We welcome suggestions on whether there are any additional Medicare FFS payment 

rules that it may be necessary to waive using our authority under section 1899(f) of the Act in 

order to effectively implement two-sided risk financial arrangements under the Shared Savings 

Program by providing additional mechanisms for ACOs to increase quality and decrease costs. 

We would establish any such waivers through the rulemaking process. As a result, any 

suggestions submitted by commenters would be helpful to CMS in developing future proposals 

regarding the waiver of any Medicare FFS rules that might be necessary to carry out the 

provisions of the Shared Savings Program, and in particular to implement two-sided risk models 

under the program. 

b. Other Options for Improving The Transition To Two-Sided Performance-Based Risk 

Arrangements. 

(1) Beneficiary Attestation 

 Under 1899(c) of the Act, beneficiaries are required to be assigned to an ACO 

participating in the Shared Savings Program based on the beneficiary's utilization of primary care 

services rendered by physicians. Thus, beneficiary choice, as indicated by their utilization of 

primary care service furnished by physicians, must determine beneficiary assignment to an ACO 

under the Shared Savings Program. Therefore, we developed a methodology for assigning 

beneficiaries based on whether the ACO provided the plurality of the beneficiary's primary care 

during a particular performance year. In the November 2011 final rule (76 FR 67851 through 

67870), we outlined the major considerations in beneficiary assignment to an ACO. 

 First, we emphasized that unlike managed care programs, Medicare FFS beneficiaries do 

not enroll in the Shared Savings Program, and they retain the right to seek treatment from any 
CMS-1461-P SP 11/25/14 252 

Medicare-enrolled provider of their choosing. Thus, the "assignment" methodology in no way 

implies a lock-in or enrollment process. To the contrary, the statutory term "assignment" in this 

context refers only to an operational process by which we determine whether a beneficiary has 

chosen to receive a sufficient level of the requisite primary care services from a specific ACO so 

that the ACO may be appropriately designated as being accountable for that beneficiary's care, 

and we can measure its quality and financial performance on patients for whom it is in the best 

position to direct and influence their care. No exclusions or restrictions based on health 

conditions or similar factors are applied in the assignment of Medicare FFS beneficiaries. 

 Additionally, we noted that the statute requires that assignment be based on beneficiary 

utilization of primary care services furnished by physicians. We explored several options for 

assigning beneficiaries to an ACO based on whether the beneficiary received the plurality of 

primary care services from providers and suppliers participating in the ACO. The primary 

options we considered were whether to assign beneficiaries to an ACO prospectively, at the 

beginning of the performance year, or whether to assign beneficiaries to an ACO retrospectively, 

at the end of the performance year. 

 Under the retrospective approach, the ACO would be held accountable for beneficiaries 

that chose to receive the plurality of their primary care services from practitioners in the ACO 

during the course of the performance year. These beneficiaries necessarily would be identified at 

the end of the performance year. The advantage of this approach is that the ACO is assessed 

based on beneficiaries with whom its providers and suppliers had visits with during the 

performance year and had the greatest opportunity to impact care. Another advantage is that this 

methodology encourages organizations to improve care for all Medicare FFS patients seen by 

ACO professionals during a performance year. The disadvantage that some ACOs have 
CMS-1461-P SP 11/25/14 253 

articulated is that retrospective assignment can pose challenges when an organization has limited 

resources. Such organizations may prefer to target specific FFS beneficiaries for enhanced care 

improvement activities, and be confident that those specific beneficiaries will be the population 

used to determine the ACO's performance on cost and quality at the end of the year. 

 Under a prospective assignment approach, a beneficiary's utilization of primary care 

services during a timeframe prior to the start of the performance year would be used to assign a 

list of beneficiaries to the ACO at the beginning of a particular performance year (as we have 

proposed under Track 3). The total cost and quality of the care furnished to beneficiaries on the 

prospective assignment list would be used at the end of the performance year to determine the 

ACO's performance. As some ACOs have articulated, an advantage to this approach is that the 

organization can target its resources and care coordination activities to the specific FFS 

beneficiaries that appear on the prospective assignment list, confident that these are the 

beneficiaries that will determine the ACO's quality and efficiency performance at the end of the 

year. However, in the November 2011 final rule, we discussed several disadvantages to this 

approach. First, we believed that such an approach would erode the incentive for ACOs to 

improve their care processes to benefit the broader Medicare FFS population served by the ACO 

and its ACO participants and ACO providers/suppliers. We stated that since the goal of the 

Shared Savings Program is to change the care experience for all FFS beneficiaries, ACO 

participants and ACO provider/suppliers should have incentives to treat all patients equally; 

using standardized evidence-based care processes, to improve the quality and efficiency of the 

care they provide to all FFS beneficiaries (76 FR 67861). Second, we noted that since FFS 

beneficiaries retain the freedom to choose their providers, it was likely that some prospectively 

assigned beneficiaries would choose not to obtain the plurality of their primary care services 
CMS-1461-P SP 11/25/14 254 

from ACO professionals during the performance year; however, the ACO would still be held 

accountable for the total cost and quality of the care furnished to those beneficiaries. 

 After considering stakeholder comments on these main approaches, we finalized a hybrid 

policy that provided for a preliminary prospective assignment methodology with final 

retrospective reconciliation (76 FR 67867). We finalized this hybrid approach in an effort to 

realize the most positive aspects of both prospective and retrospective assignment and avoid, to 

the extent possible, the major disadvantages of each. Therefore, we finalized a policy in which 

we prospectively assign beneficiaries to ACOs in a preliminary manner at the beginning of a 

performance year based on most recent 12 months of data. We then update this information 

quarterly, based on a rolling 12 months of data. Final assignment is determined after the end of 

each performance year based on the 12 months of data from the performance year. This policy 

determines assignment to an ACO under the Shared Savings Program based on a statistical 

determination of a beneficiary's utilization of primary care services, rather than on a process of 

enrollment or "voluntary selection" by beneficiaries. Beneficiaries are assigned to no more than 

one ACO, and the specific methodology (the "step-wise" approach) is described in § 425.402. 

We finalized this policy because we believed that the methodology would balance beneficiary 

freedom to choose providers under FFS Medicare with the ACO's desire to have information 

about the FFS beneficiaries that were likely to be assigned at the end of the performance year. 

We also felt this approach would provide adequate incentives for each ACO to redesign care 

processes for and provide high quality care to its entire FFS beneficiary population instead of 

just focusing on a subset of patients. Finally, the ACO's performance would be assessed on the 

basis of the care furnished to those beneficiaries that chose to receive the plurality of primary 
CMS-1461-P SP 11/25/14 255 

care services from ACO professionals during the performance year, and for whom the ACO had 

the greatest opportunity to impact care. 

 A retrospective claims-based assignment methodology necessarily creates more year-toyear variability or "churn" in the list of assigned beneficiaries compared to managed care 

programs where patients enroll in and are locked in at the beginning of the year. Based on our 

experience and the data generated from the Physician Group Practice Demonstration (which used 

a similar retrospective assignment methodology), approximately 75 percent of beneficiaries 

assigned at the end of one performance year remained assigned at the end of the next 

performance year. The other 25 percent of beneficiaries were no longer assigned to the PGP site 

because they either were no longer eligible to be assigned or chose not to receive the plurality of 

their primary care services from the PGP practitioners. This statistic was recently confirmed 

when evaluating "churn" in the Shared Savings Program context. On average, 76 percent (range 

= 58 percent to 88 percent) of beneficiaries assigned to a Shared Savings Program ACO at the 

end of one year are assigned to the same ACO at the end of the subsequent performance year. In 

other words, ACOs experience a "churn rate" of 24 percent on average. However, when 

combined with the information provided on quarterly updates to the assigned beneficiary list, 

"churn" from quarter to quarter decreases to an average of 10 percent. In other words, on 

average, 91 percent of the beneficiaries assigned in one quarter appear on the next quarter's 

assignment list (range = 77 percent to 95 percent). These data indicate that "churn" varies from 

ACO to ACO, and that our hybrid assignment methodology performed according to 

expectations, that is, the quarterly assignment reports provide the ACO with relevant information 

during the performance year about its patient population for purposes of more effectively 

planning and coordinating care. 
CMS-1461-P SP 11/25/14 256 

 As in the PGP demonstration, the 24 percent "churn rate" found in the Shared Savings 

Program reflects beneficiaries that either became ineligible to be assigned or chose not to receive 

the plurality of their primary care services from ACO professionals. Beneficiaries who were 

assigned in one performance year, but fall off the assignment list at the end of the subsequent 

performance year may do so for a variety of reasons including: 

● Beneficiary did not seek primary care services from any Medicare-enrolled physicians 

during the subsequent performance year. 

● Beneficiary chose to receive all primary care services or the plurality of his or her 

primary care services from providers outside the ACO during the subsequent performance 

year. Reasons for this could include: 

 ++ The beneficiary received short term care (for example, referral care, SNF care) from 

ACO professionals during the earlier performance year but did not continue the relationships in 

the subsequent year. 

 ++ Beneficiary moved his/her residence and now seeks care from practitioners 

unaffiliated with the ACO. 

● Beneficiary chose to enroll in MA or is otherwise no longer a FFS Medicare 

beneficiary in the subsequent performance year (that is, the beneficiary is no longer eligible for 

assignment). 

● A new ACO entered the market in the subsequent performance year and its ACO 

professionals furnish the plurality of primary care services to the beneficiary compared to the 

established ACO. 

 We estimate that on average, 76 percent of beneficiaries assigned to a Shared Savings 

Program ACO remain assigned from one year to the next. However, the retention rate varies 
CMS-1461-P SP 11/25/14 257 

from 58 percent to 88 percent across ACOs, and correspondingly, the turnover varies from 12 

percent to 42 percent. On average, 7 percent of previously assigned beneficiaries are no longer 

eligible for assignment to an ACO and 17 percent of previously assigned beneficiaries remain 

eligible to be assigned, but do not receive the plurality of their primary care services from ACO 

professionals the ACO during the subsequent performance year. Of the 17 percent of previously 

assigned beneficiaries who remain eligible for assignment-- 

● Six percent had at least one primary care physician visit with a physician who is an 

ACO professional, but the plurality of their primary care services were rendered outside the 

ACO; 

● Three percent had no physician or non-physician primary care visits during the 

subsequent year; 

● Seven percent had at least one physician or non-physician primary care visit, but none 

with ACO professionals; 

● One percent had at least one non-physician primary care visit with an ACO 

professional, but had no primary care visits with physicians who are ACO professionals in the 

ACO; and 

● Seven percent had at least one primary care visit with a physician in the ACO, but did 

not receive the plurality of their primary care services from ACO professionals. 

 As suggested by these statistics, some percentage of beneficiaries may believe a certain 

primary care practitioner affiliated with an ACO has ultimate responsibility for coordinating their 

care, even when it is necessary for them to receive primary care services from other practitioners, 

including practitioners who are not participating in the same ACO with which the practitioner is 

affiliated. Such a beneficiary could become unassigned if his or her primary care service 
CMS-1461-P SP 11/25/14 258 

utilization shifted away from practitioners in the ACO in a year. For example, a beneficiary 

living in a small town may have had a primary care service visit during a performance year with 

a primary care provider who is an ACO professional with whom the beneficiary has a longstanding relationship and the beneficiary believes this ACO professional is responsible for 

coordinating his/her care. If this beneficiary chooses to go to a large health system in the next 

town for primary care services and receives primary care services from practitioners that are 

unaffiliated with the ACO during the performance year, at the end of the performance year it 

may be determined that ACO professionals did not render the plurality of the primary care 

services for that beneficiary and therefore the ACO would not be held accountable for the total 

quality and cost of the beneficiary's care for that performance year. However, commenters have 

suggested that beneficiaries should have the ability to designate which providers (and by 

extension, the ACOs with which they are affiliated) are responsible for overseeing their overall 

care, regardless of where the beneficiary received the plurality of his or her primary care 

services. These commenters argue that creating a methodology that takes into account what 

provider a beneficiary believes has ultimate responsibility for his or her care could reduce 

"churn" from year to year, and increase the chances that an ACO would see a return on the 

investments it makes in the care of specific beneficiaries. Commenters argue this is particularly 

important in two-sided models where ACOs face amplified levels of performance-based risk. 

 Patient advocacy groups and ACOs have expressed interest in and support for enhancing 

claims-based assignment of beneficiaries to ACOs by taking into account beneficiary attestation 

regarding the provider that they consider to be responsible for coordinating their overall care. 

Stakeholders believe that incorporating this information and giving beneficiaries the opportunity 
CMS-1461-P SP 11/25/14 259 

to voluntarily "align" with the ACO in which their primary healthcare provider participates will 

improve the patient-centeredness of the assignment methodology. 

 To begin to address these concerns, the Pioneer ACO Model is currently conducting a 

test of beneficiary attestation for the 2015 performance year. Specifically, the Innovation Center 

has designed a test in which participating ACOs mail cover letters to beneficiaries aligned to the 

Pioneer ACO in either the 2013 or 2014 performance years, explaining the process by which a 

beneficiary may indicate whom they consider to be their "main doctor", each with a form that 

asks the beneficiary to confirm their "main doctor". In the form the beneficiary is asked to 

confirm whether or not the listed provider or supplier is their "main doctor." Beneficiaries who 

confirm a care relationship with the provider/supplier listed on the form (who is an ACO 

participating provider/supplier identified by the Pioneer ACO) and meet all other eligibility 

criteria for alignment (or example, they did not drop either Part A or B coverage or join a MA 

plan), would be aligned to the Pioneer ACO for the following performance year, regardless of 

whether or not the practitioners participating in the Pioneer ACO rendered the plurality of the 

beneficiary's primary care services during the performance year. The Innovation Center will 

conduct claims-based attribution using the methodology established for the Pioneer ACO Model, 

but will include in the Pioneer's aligned beneficiary population not only those beneficiaries 

aligned through claims, but also those beneficiaries who returned the form confirming that a 

Pioneer ACO provider/supplier is their main doctor. Beneficiaries who do not return the form or 

who return the form, but indicate the provider listed is not their main doctor, will not be included 

in the ACO's assigned beneficiary population unless they are assigned through the existing 

claims-based attribution methodology. This means that if the beneficiary does not return the 
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form and the beneficiary is not assigned to the Pioneer ACO through the claims-based attribution 

methodology, then the beneficiary would not be assigned to the Pioneer ACO. 

 Due to program integrity concerns and the additional administrative burden for ACOs 

participating in the Pioneer Model, discussions of beneficiary attestation or receipt of 

confirmation forms at the point of care were precluded under this first test of beneficiary 

attestation. Rather, in this initial test, the Innovation Center seeks only to evaluate the 

effectiveness of different types of mailed forms with respect to beneficiary willingness to attest 

that a particular practitioner has the primary responsibility for their care. Additional testing in 

the future is planned under the Pioneer ACO Model that will build upon lessons learned from 

this initial test and in which we would seek to enhance the meaningfulness of dialogue between 

beneficiaries and their providers regarding the nature of the care relationship. 

 Although we are not making any specific proposals related to beneficiary attestation, we 

welcome comments on whether it would be appropriate to offer a beneficiary attestation process 

to ACOs that choose to participate in the Shared Savings Program under two-sided risk financial 

arrangements. We intend to carefully consider any comments on this issue during the 

development of the final rule, and will make an assessment at that time as to whether any change 

to our assignment methodology to include beneficiary attestation would be appropriate. We are 

interested in receiving comments and suggestions on a wide variety of policy and operational 

issues related to beneficiary attestation. For example, which beneficiaries should be eligible to 

attest into an ACO? Should this option be available to all beneficiaries or only to currently or 

previously aligned beneficiaries? What implications would attestation or voluntary alignment 

have for the assignment of beneficiaries to an ACO under a prospective versus a preliminary 

prospective method? Which types of care relationships should be considered--those with 
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primary care physicians, specialists or other types of providers? How should beneficiaries 

receive communications about claims-based and voluntary alignment and who would provide the 

information? What method or process should be used to obtain beneficiary confirmation and 

when would this occur? Under what circumstances and how could beneficiaries reverse their 

decisions? Although we believe the option suggested would protect beneficiary freedom to 

choose, we seek comment on whether there are additional ways to protect beneficiaries from 

coercion and ensure proper monitoring and safeguards under the Shared Savings Program. What 

implications would there be for ACO information or other administrative systems? What 

provider education would be needed? Should there be additional application or eligibility 

requirements for ACOs in tracks under which beneficiary attestation is offered? We would note 

that if we were to offer a beneficiary attestation process for ACOs that choose to participate in 

the Shared Savings Program under two-sided risk financial arrangements, such beneficiaries 

would be eligible to be included in the sample for GPRO quality reporting by ACOs 

participating in the Shared Savings Program (76 FR 67900), even if the beneficiary did not chose 

to receive care from the ACO professionals during the performance year, as might be the case 

under Track 3 under the proposed prospective assignment methodology. Also, we are concerned 

about creating additional administrative burdens for ACOs that might discourage them from 

accepting two-sided risk arrangements. Are there ways that beneficiary attestation could be 

operationally implemented to reduce administrative burdens on ACOs and CMS and limit 

beneficiary confusion? We anticipate that if we were to offer a beneficiary attestation process 

for ACOs that choose to participate in the Shared Savings Program under two-sided risk 

financial arrangements, then at least initially we would anticipate implementing this beneficiary 

attestation in a manner consistent with the current beneficiary attestation under the Pioneer ACO 
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Model. We believe this would be an appropriate starting point for beneficiary attestation under 

the Shared Savings Program because it allows us to take advantage of the policies and processes 

that have already been developed for the Pioneer ACO Model. Additionally, we believe it is 

unlikely that such a policy would impact “churn” for Track 3 ACOs during a performance year, 

given our proposals for prospectively assigning beneficiaries. However, beneficiary attestation 

may have a minor impact on “churn” during a performance year related to the preliminary 

prospective with retrospective reconciliation approach such as the methodology employed under 

Track 2. This process may also have a minor impact in stabilizing the beneficiary assignment 

list from one performance year to the next for all ACOs. 

 In addition, we seek comments on whether a beneficiary attestation process under the 

Shared Savings Program could bias performance year results compared to the ACO’s 

benchmark. For example, we believe that such biases could occur because the beneficiaries used 

to establish performance benchmarks would not have had the same opportunity to designate their 

"main doctor." Rather, for purposes of the benchmark years, all beneficiaries would be assigned 

using the established claims-based assignment methodology. Would it be appropriate for us to 

use our authority to adjust an ACO's benchmark to account for "beneficiary characteristics" to 

address any such potential biases? 

 In connection with any implementation of beneficiary attestation, we would revise our 

regulations as necessary, to protect beneficiaries from undue coercion or influence in connection 

with whether they choose to attest or not. Beneficiary attestation is not intended to be used as a 

mechanism for ACOs (or ACO participants, ACO providers/suppliers, ACO professionals, or 

others) to target potentially lucrative beneficiaries or avoid those less likely to produce savings. 

To this end, we do not believe ACOs or others should be permitted to offer gifts or other 
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inducements to beneficiaries, nor should they be allowed to withhold or threaten to withhold 

items or services, for the purpose of coercing or influencing their alignment decisions. The 

current regulations at § 425.304(a)(1) prohibit 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 inducements for 

receiving items or services from, or remaining in, an ACO. The regulation at § 425.304(a)(2) 

permits certain in-kind items or services to be provided to beneficiaries if there is a reasonable 

connection between the items and services and the medical care of the beneficiary and certain 

other conditions are met. We would consider any inducement intended to coerce or influence a 

beneficiary attestation decision to be prohibited under § 425.304(a)(1) and not be considered 

reasonably connected to medical care under § 425.304(a)(2). We would not, however, prohibit 

an ACO or its ACO participants and ACO providers/suppliers from providing a beneficiary with 

accurate descriptive information about the potential patient care benefits of aligning with an 

ACO. We are also soliciting comments on this issue. 

(2) Seeking Comment on a Step-Wise Progression for ACOs to Take on Performance-Based 

Risk 

 Under the current Shared Savings Program rules, an ACO may not include an entity on 

its list of ACO participants unless all ACO providers/suppliers billing through the entity's 

Medicare-enrolled TIN have agreed to participate in the program and comply with the program 

rules (see discussion in section II.B. of this proposed rule). Furthermore, it is not possible under 

our current regulations for some ACO providers/suppliers to participate in Track 1, while other 

ACO providers/suppliers that may be more ready to accept performance-based risk participate 

under Track 2. Some stakeholders have commented that requiring all ACO providers/suppliers 
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billing through an ACO participant TIN to participate in the same risk track could deter some 

ACOs from entering higher risk arrangements (Tracks 2 or 3) if they do not believe that all of the 

ACO providers/suppliers billing through a given ACO participant TIN are prepared to operate 

under high levels of risk. Conversely, we have heard from other stakeholders that requiring all 

ACO providers/suppliers billing though an ACO participant TIN to enter the same risk track can 

motivate an organization to work toward a common performance goal and implement uniform 

care processes that streamline patient care within and between various sites of care. We believe 

that the program works best when the incentives within an organization are aligned among all 

providers and suppliers in that organization. Given our policy objectives to encourage ACOs to 

redesign their care processes and move to increasing levels of financial risk, we are not 

proposing at this time to change our regulations in order to allow providers and suppliers billing 

through the same ACO participant TIN to participate in different tracks under the Shared Savings 

Program. However, we are interested in stakeholder opinion on this issue and seek comment on 

what options the program might consider in the future to encourage organizations to participate 

in the program while permitting the providers and suppliers within that organization to accept 

varying degrees of risk. In particular, we are interested in stakeholders' input on the advantages 

and disadvantages of allowing Shared Savings Program ACOs that wish to enter a track with 

increased risk to split their ACO participants into different tracks or split ACO provider/suppliers 

billing through a given Medicare-enrolled TIN so that a subset participate in a track that offers a 

higher sharing rate in exchange for taking on a greater degree of performance-based risk, while 

the remainder participate in a lower risk track. We intend to carefully review any comments that 

are received on these issues during the development of the final rule and will make an 
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assessment at that time as to whether any change to our current policy is necessary and 

appropriate. 

 For reasons already stated in the November 2011 final rule 

(76 FR 67808 through 67811), we believe it is appropriate to use the Medicare-enrolled TINs 

that make up each ACO as the basis for a number of operational processes under the Shared 

Savings Program, including beneficiary assignment, and that, as a result, all providers and 

suppliers billing through the TIN of an ACO participant must agree to participate in the ACO 

and comply with program regulations in order for the ACO to include the entity on its ACO 

participant list. Therefore, we do not believe it would be necessary or ideal to adopt an approach 

under which ACOs would be permitted to pick and choose ACO provider/suppliers for 

participation. However, we are considering ways to encourage organizations to move in a stepwise progression to taking on performance-based risk when some entities on its ACO participant 

list are ready. Therefore, if we were to make modifications to our current policies to permit 

organizations to split their ACO participant TIN list into different risk tracks, we would 

anticipate the following: 

● The ACO must have completed a full agreement period under Track 1 and meet 

requirements for renewing its agreement under Track 1 as proposed in this proposed rule. 

● The ACO must submit an ACO participant list in the form and manner designated by 

CMS and by a deadline established by us. 

● The ACO must indicate, in the form and manner specified by CMS, which ACO 

participants would continue under Track 1 and which would participate under a performancebased risk track. We would consider this list to be a "segmented list" of ACO participants. 
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● The ACO as a whole would be required to meet the eligibility requirements to 

participate in the program, including the requirement that the ACO have at least 5,000 assigned 

beneficiaries and the governance requirements. 

● Regarding quality measures submission, we considered whether the ACO as a whole 

would be responsible for submitting quality data in accordance with subpart F of the Shared 

Savings Program regulations. On the one hand, the ability of the ACO to report quality measures 

once on behalf of both segmented lists would reduce quality reporting burden with the same 

aggregate quality score applying to each segment of the ACO participants. On the other hand, if 

each segmented list was required to report quality separately, we may be able to get a more 

accurate assessment of the quality of care by each segmented list leading to a more accurate 

determination of shared savings or losses. 

● Regarding benchmarking and assignment of beneficiaries, we considered whether each 

half of the segmented list of ACO participants would have its own benchmark and list of 

assigned beneficiaries. Under this option, the two groups of ACO participants would each 

receive their own performance reports from CMS and be subject to the data sharing rules 

appropriate for their track, and the determination of shared savings would occur according to the 

rules of the chosen track. Another option would be to develop one benchmark and list of 

assigned beneficiaries for the ACO as a whole. This option would require a uniform assignment 

methodology to be applied, regardless in which track the segmented lists are participating. 

Alternatively, we could limit segmented lists to participation in only Tracks 1 and 2 because 

these tracks have an assignment methodology that does not conflict. 

● Regarding changes in the ACO participant lists during the agreement period, we 

considered whether an ACO would be permitted to add or delete ACO participants from the 
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segmented list of ACO participants. One option considered would be to permit an ACO to add 

or delete ACO participants from the segmented lists pursuant to the proposed regulation at 

§ 425.118(b), but ACO participants would not be permitted to change risk tracks during the 

agreement period. Another option we considered and seek specific comments on is the option to 

require such organizations to articulate and carry out the transition of their Track 1 ACO 

participants to the list of ACO participants that are under a risk-based arrangement during the 

course of the agreement period. For example, in each year of the agreement period, the ACO 

would be required to remove ACO participants from the Track 1 list and add them to the list of 

ACO participants under the two-sided risk model. In this way, the ACO and its ACO 

participants would be better prepared to reapply to the Shared Savings Program under a twosided risk model in its third agreement period. 

 Although we are not specifically proposing to allow for different risk tracks within the 

same ACO, we seek comments on these options and other considerations for permitting 

organizations to move forward to performance-based risk in a step-wise manner. We specifically 

seek comment on ways to mitigate selection bias when considering these options, in other words, 

we seek comment on whether additional considerations should be made with regards to 

organizations that may choose to create two different ACO participant lists in an effort to 

advantage the part of the organization that is participating in the two-sided model at the expense 

of the part of the organization participating in the one-sided model. We believe the concern is 

minimized by the option we considered that we would only make this option available under an 

ACO’s second agreement period. Moreover, we note that our proposed criteria for renewal 

include a review of the ACO’s history of program integrity. We intend to carefully review any 

comments that are received on these issues during the development of the final rule and will 
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make an assessment at that time as to whether any change to our current policy is necessary and 

appropriate. 

5. Modifications to Repayment Mechanism Requirements 

a. Overview 

 In the November 2011 final rule (76 FR 67937), we discussed the importance of a 

program requirement that ensures ACOs entering the two-sided model will be capable of 

repaying Medicare for shared losses. The final rule established a requirement that ACOs 

applying to participate in the two-sided model must establish a repayment mechanism to assure 

CMS that they can repay losses for which they may be liable (§ 425.204(f)). For an ACO's first 

performance year, the repayment mechanism must be equal to at least 1 percent of its total per 

capita Medicare Parts A and B FFS expenditures for its assigned beneficiaries, as determined 

based on expenditures used to establish the ACO's benchmark (§ 425.204(f)). 

 Further, to continue participation in the program, each Track 2 ACO must annually 

demonstrate the adequacy of its repayment mechanism before the start of each performance year 

in which it takes risk (§ 425.204(f)(3)). The repayment mechanism for each performance year 

must be equal to at least 1 percent of the ACO's total per capita Medicare Parts A and B FFS 

expenditures for its assigned beneficiaries, as determined based on expenditures for the ACO's 

most recent performance year. 

An ACO may demonstrate its ability to repay losses, or other monies determined to be 

owed upon first year reconciliation, by obtaining reinsurance, placing funds in escrow, obtaining 

surety bonds, establishing a line of credit (as evidenced by a letter of credit that the Medicare 

program can draw upon), or establishing another appropriate repayment mechanism that will 

ensure its ability to repay the Medicare program (§ 425.204(f)(2)). Given our experience in 
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implementing the program, we are proposing to revisit our requirements to simplify them and to 

address stakeholder concerns regarding the transition to risk, as discussed in the previous 

sections. 

b. Proposals for Amount and Duration of the Repayment Mechanism 

 As noted previously, under the current regulations, ACOs entering a two-sided risk track 

must submit an adequate repayment mechanism at the time of application and again at the 

beginning of each performance year. The amount must be equal to at least 1 percent of the 

ACO's total per capita Medicare Parts A and B FFS expenditures for its assigned beneficiaries, 

as determined based either on expenditures used to establish the ACO's benchmark or 

expenditures for the ACO's most recent performance year. This amount is estimated by CMS 

and reported to the ACO so that it can set up its required mechanism. We have heard from 

stakeholders that establishing multiple repayment mechanisms during the agreement period can 

be very burdensome and ties up capital that could otherwise be used to support ACO operations. 

Therefore, we have considered whether it would be possible to streamline the repayment 

mechanism requirements. Specifically, we considered whether it would be feasible for an 

organization to establish a single repayment mechanism to cover the entire 3-year agreement 

period. Initially we were concerned that requiring an organization to establish a single 

repayment mechanism to cover 3 performance years would involve repayment amounts that were 

excessive and overly burdensome for organizations. However, our actuaries have determined 

that this may not be the case. We believe that rather than requiring ACOs to create and maintain 

two separate repayment mechanisms for two consecutive performance years, which would 

effectively double the amount of the repayment mechanism during the overlapping time period 

between the start of a new performance year and settlement of the previous performance year, 
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the repayment mechanism that is established for the first performance year of an agreement 

period under a two-sided risk model can be rolled over for subsequent performance years. 

 Thus, we propose to require an ACO to demonstrate at the time of its application to the 

Shared Savings Program or participation agreement renewal for a two-sided risk model and upon 

request thereafter that it would be able to repay shared losses incurred at any time within the 

agreement period, that is, upon each performance year reconciliation during the agreement 

period. Thus, an ACO would be required to establish a repayment mechanism for the required 

amount as discussed in this section to cover the entire agreement period under a two-sided risk 

model (that is, under Track 2 or under proposed Track 3) and a reasonable period of time after 

the end of the agreement period (the "tail period"). The tail period shall 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. The length of the tail period shall be established by CMS in 

guidance. 

 Under this approach, an ACO would be required to establish a repayment mechanism 

once at the beginning of a 3-year agreement period. We propose that an ACO must demonstrate 

the adequacy of its repayment mechanism and maintain the ability to repay 1 percent of the 

ACO's total per capita Medicare Parts A and B FFS expenditures for its assigned beneficiaries 

based on the expenditures used to establish the benchmark for the applicable agreement period, 

as estimated by CMS at the time of application or participation agreement renewal. If the 

repayment mechanism is used to repay any portion of shared losses owed to CMS, the ACO 

must promptly replenish the amount of funds available through the repayment mechanism within 

60 days. This would ensure continued availability of funds to cover any shared losses generated 

in subsequent performance years. Given that we propose in section II.B. of this proposed rule to 
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adjust an ACO's benchmark annually to account for changes in the ACO participant list, it is 

possible that an ACO's benchmark could change such that the repayment mechanism amount 

established at the beginning of the 3-year agreement period no longer represents one percent of 

the ACO's benchmark expenditures. Therefore, we are considering whether we should require 

the ACO to adjust the repayment mechanism to account for this change, or whether a threshold 

should be established that triggers a requirement for the ACO to add to its repayment 

mechanism. We seek comment on this issue, including the appropriate threshold that should 

trigger a requirement that the ACO increase the amount guaranteed by the repayment 

mechanism. 

 These proposals are reflected in the proposed modifications to § 425.204(f). We note that 

the reference to "other monies determined to be owed" in the current provision directly relates to 

the interim payments that were available in the first performance year only for ACOs that started 

participating in the program in 2012. Because interim payments are no longer offered to ACOs, 

we also propose to remove the reference to "other monies determined to be owed" from 

§ 425.204(f). 

c. Proposals Regarding Permissible Repayment Mechanisms 

 Under our current rules, ACOs may demonstrate their ability to repay shared losses by 

obtaining reinsurance, placing funds in escrow, obtaining surety bonds, establishing a line of 

credit (as evidenced by a letter of credit that the Medicare program can draw upon), or 

establishing another appropriate repayment mechanism that will ensure their ability to repay the 

Medicare program. Based on our experience with the program, we are proposing to remove the 

option that permits ACOs to demonstrate their ability to pay using reinsurance or an alternative 

mechanism. First, no Shared Savings Program ACOs have obtained reinsurance for the purpose 
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of establishing their repayment mechanism. ACOs that have explored this option have told us 

that it is 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 not insurance risk. Additionally, the terms of reinsurance policies 

obtained by ACOs could vary greatly and prove difficult for CMS to effectively evaluate. 

Second, based on our experience to date, 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 rejected by CMS than one of the specified repayment mechanisms. 

 Therefore, we propose to revise § 425.204(f)(2) to limit the types of repayment 

mechanisms ACOs may use to demonstrate their ability to repay shared losses to the following: 

placing funds in escrow; establishing a line of credit; or obtaining a surety bond. Under this 

proposed revision, ACOs would retain the flexibility to choose a repayment mechanism that best 

suits their organization. We also believe that CMS would be more readily able to evaluate the 

adequacy of these three types of arrangements, as compared to reinsurance policies and other 

alternative repayment mechanisms. For instance, escrow account agreements, letters of credit, 

and surety bonds typically have standard terms, that CMS can more readily assess as compared 

to the documentation for alternative repayment mechanisms, which tends to be highly variable. 

 In addition, we propose to clarify that ACOs may use a combination of the designated 

repayment mechanisms, if needed, such as placing certain funds in escrow, obtaining a surety 

bond for a portion of remaining funds, and establishing a line of credit for the remainder. Thus, 

we are proposing to revise our rule at § 425.204(f)(2) to indicate that an ACO may demonstrate 

its ability to repay shared losses owed by placing funds in escrow, obtaining surety bonds, 

establishing a line of credit, or by using a combination of these mechanisms. We seek comment 
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on our proposed modifications to the repayment mechanism requirements and also welcome 

comments on the availability and adequacy of reinsurance as a repayment mechanism. 

6. Seeking Comment on Methodology for Establishing, Updating, and Resetting the Benchmark 

a. Background on Establishing, Updating, and Resetting the Benchmark 

 Section 1899(d)(1)(B)(ii) of the Act addresses how ACO benchmarks are to be 

established and updated. 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 and updated by the projected absolute amount of 

growth in national per capita expenditures for parts A and B services under the original Medicare 

fee-for-service program, as estimated by the Secretary. Such benchmark shall be reset at the 

start of each agreement period. Accordingly, through the initial rulemaking establishing the 

Shared Savings Program, we adopted policies for establishing, updating and resetting ACO 

benchmarks at § 425.602. As described later in this section, under this methodology, we 

establish ACO-specific benchmarks that account for national FFS trends. 

 As the statute requires the use of historical expenditures to establish an ACO's 

benchmark, the per capita costs for each benchmark year must be trended forward to current year 

dollars and then a weighted average is used to obtain the ACO's historical benchmark for the first 

agreement period. The statute further requires that we update the benchmark for each year of the 

agreement period based on the projected absolute amount of growth in national per capita 

expenditures for parts A and B services under the FFS program, as estimated by the Secretary. 

In the April 2011 proposed rule (76 FR 19609 through 19611)., we considered a variety of 
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options for establishing the trend factors used in establishing the historical benchmark and for 

accounting for FFS trends in updating the benchmark during the agreement period. 

 In addition to the statutory benchmarking methodology established in section 1899(d), 

section 1899(i)(3) of the Act grants the Secretary the authority to use other payment models, 

including payment models that would use alternative benchmarking methodologies, if the 

Secretary determines that doing so would improve the quality and efficiency of items and 

services furnished under this title and the alternative methodology would result in program 

expenditures equal to or lower than those that would result under the statutory payment model. 

As described later in this section, in the November 2011 final rule, we considered whether to 

invoke this authority to modify certain aspects of the statutory benchmarking methodology, but 

elected not to do so. We note that we did invoke this authority to help create two-sided risk 

under Track 2. 

(1) Background on use of National Growth Rate as a Benchmark Trending Factor 

 The statute does not specify the trending factor to be used in establishing the benchmark. 

In the April 2011 proposed rule (76 FR 19610), we considered use of either national, or state or 

local growth factors for trending the benchmark. We explained that using the national growth 

rate in Medicare A and B FFS expenditures appeared to be more consistent with the statutory 

methodology for updating an ACO's benchmark. Further, a national growth rate would allow a 

single growth factor to be applied to all ACOs regardless of their size or geographic area. 

However, a national rate could also disproportionately encourage the development of ACOs in 

areas with historical growth rates below the national average that would benefit from having a 

relatively higher base, which increases the chances for shared savings, while discouraging the 
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development of ACOs in areas with historically higher growth rates above the national average 

that would have a relatively lower base. 

 In contrast, we explained in April 2011 proposed rule that trending expenditures based on 

State or local area growth rates in Medicare A and B expenditures may more accurately reflect 

the experience in an ACO's area and mitigate differential incentives for participation based on 

location. Therefore, we considered an option to trend the benchmark by the lower of the national 

projected growth rate or the State or the local growth rate. This option balanced providing a 

more accurate reflection of local experience with not rewarding historical growth higher than the 

national average. We believed this method would instill strong saving incentives for ACOs in 

both high-cost growth and low-cost growth areas. 

 We proposed to employ the national growth rate in Medicare Parts A and B expenditures 

for FFS beneficiaries for trending forward the most recent 3 years of per beneficiary 

expenditures for Parts A and B services in order to establish the historical benchmark for each 

ACO. We believed this approach would help to ensure that ACOs in both high spending, high 

growth and low spending, low growth areas would have appropriate incentives to participate in 

the Shared Savings Program. We further indicated that this approach would allow us to move 

toward establishing a national standard to calculate and measure ACO financial performance. 

We sought comment on this proposal and on the alternatives to using a national growth rate to 

establish the benchmark. 

 Some commenters supported our proposal to employ a national growth rate for setting the 

benchmark and recognized the importance of using national growth rates for rationalizing overall 

spending across regions nationwide. Many more favored the use of either local, regional, or 

State growth rates, and some favored our proposal to use the lower of either the national or State 
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or local growth rates. Commenters also offered a number of alternative approaches for trending 

benchmark expenditures, including the following: 

● Use a blend of national average growth and absolute dollar growth. 

● Use the ACO's own percentage growth rate to trend forward the historical benchmark 

data. 

● Account for local variation after analyzing national and local growth rates. 

(76 FR 67925). 

 In the end, we finalized our policy under § 425.602 of using the national growth rate in 

Medicare Parts A and B expenditures for FFS beneficiaries for trending forward the most recent 

3 years of per beneficiary expenditures for Parts A and B services in order to establish the 

benchmark for each ACO. In doing so, we make calculations for separate cost categories for 

each of the following populations of beneficiaries: ESRD, disabled, aged/dual eligible and 

aged/non-dual eligible. We stated our belief that implementing a historical benchmark trending 

factor using the national growth rate for Parts A and B FFS expenditures appropriately balanced 

commenters' concerns that benchmark trending should encourage participation among providers 

that are already efficient or operating in low cost regions without unduly rewarding ACOs in 

high-cost areas. We further stated that we anticipated the net effect of using the same trending 

factor for all ACOs would be to provide a relatively higher expenditure benchmark for lowgrowth/low spending ACOs and a relatively lower benchmark for high growth/high spending 

ACOs. ACOs in high cost, high growth areas would therefore have an incentive to reduce their 

rate of growth more to bring their costs more in line with the national average; while ACOs in 

low cost low, growth areas would have an incentive to continue to maintain or improve their 

overall lower spending levels. 
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 Over 330 ACOs entered the Shared Savings Program between 2012 and 2014 and are 

located throughout the country – across diverse geographies – in a mix of high-cost/high-growth 

and low-cost/low-growth areas. Further, within local markets where multiple ACOs have 

formed, we have observed that ACOs can be a mix of both high- and low-cost and high- and 

low-growth organizations. We are encouraged by the continued interest in the program: of the 

ACOs that entered the program, only two voluntarily terminated at the end of the performance 

year concluding December 31, 2013. (One was eligible for a performance payment of shared 

savings and the other merged with another participating ACO.) In addition, we continue to see 

strong interest in new entrants for the January 2015 start date. 

 Under the Pioneer ACO model, we adopted a different methodology for establishing an 

ACO's historical expenditure baseline for its first three performance years. See 

http://innovation.cms.gov/Files/x/PioneerACOBmarkMethodology.pdf. The Pioneer model 

benchmarking methodology trends forward baseline years 2009 and 2010 to 2011 by applying 

the growth in expenditures for the reference population. The reference population is defined as 

alignment-eligible beneficiaries with the same state of residence, eligibility status, age and sex as 

the ACO's aligned beneficiaries. The 3 historical baseline years under the Pioneer ACO Model 

also correspond to the 3 years prior to when ACOs entered the model, specifically 2009, 2010, 

and 2011. Further, baseline expenditures in 2011 dollars are updated to the appropriate 

performance year using a 50/50 blend of the national growth rate and the absolute dollar 

equivalent of that national growth rate. However, the benchmarking methodology used in the 

Pioneer ACO Model was revised for performance years four and five of the model to be more 

consistent with the benchmarking approach used in the Shared Savings Program, in part due to 

stakeholder feedback. 
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(2) Background on use of National FFS Growth Factors in Updating the Benchmark During the 

Agreement Period 

 Section 1899(d)(1)(B)(ii) of the Act states that the benchmark shall be updated by the 

projected absolute amount of growth in national per capita expenditures for parts A and B 

services under the original Medicare fee-for-service program, as estimated by the Secretary. 

 In the April 2011 proposed rule (76 FR 19610 through 19611), we proposed to use a flat 

dollar amount equivalent of the absolute amount of growth in the national FFS expenditures to 

update the benchmark during an agreement period. We explained our view that in enacting 

section 1899(d)(1)(B)(ii) of the Act, Congress demonstrated interest in mitigating some of the 

regional differences in Medicare spending among ACOs and that this approach would help to 

ensure that ACOs in both high spending/high growth and low spending/low growth areas would 

have appropriate incentives to participate in the Shared Savings Program. We described the 

effect this update methodology might have in the 2nd and 3rd years of an agreement period: using 

a flat dollar increase, which would be the same for all ACOs, provides a relatively higher 

expenditure benchmark for low growth, low spending ACOs and a relatively lower benchmark 

for high growth, high spending ACOs. All else being equal, an ACO can more likely share in 

savings when its actual expenditures are judged against a higher, rather than a lower benchmark. 

Thus, with a flat dollar increase to the benchmark, ACOs in high cost/high growth areas must 

reduce their rate of growth more to bring their costs more in line with the national average. We 

acknowledged that this approach to updating the benchmark could contribute to selective 

program participation by participants in low growth areas, as well as result in Medicare costs due 

to an increase in the amount of performance payments for unearned savings. 
CMS-1461-P SP 11/25/14 279 

 We also considered and sought comment on a second option, which would be to use our 

authority under section 1899(i)(3) of the Act to update the benchmark by the lower of the 

national projected absolute amount of growth in national per capita expenditures or the 

local/State projected absolute amount of growth in per capita expenditures. We explained our 

belief that this option could instill strong saving incentives for ACOs in low-cost areas, as well 

as for those in high-cost areas. Incorporating more localized growth factors reflects the 

expenditure and growth patterns within the geographic area served by ACO participants, 

potentially providing a more accurate estimate of the updated benchmark based on the area from 

which the ACO derives its patient population. Capping the update at the projected absolute 

amount of growth in national per capita expenditures, however, can advantage ACOs in low 

cost/low growth areas that have already achieved greater efficiencies, while still offering a strong 

incentive for those in high cost/high growth areas to reduce their spending. 

 Commenters were mixed in their preference for either the proposed policy of updating 

the benchmark by absolute growth in national FFS expenditures, or use of the lower of the 

national projected absolute amount or the local/State projected absolute amount. For example, 

one commenter disagreed with the option to use the lower of the national projected absolute 

amount or the local/State projected absolute amount, suggesting it negatively prejudges all high 

growth sectors without regard to the underlying clinical or quality issues. However, another 

commenter favored this approach because this adjustment would afford ACOs the greatest 

potential for achieving shared savings and minimize the threat of an ACO being disadvantaged 

by virtue of pricing within its geographic location. Along these lines, one commenter stated the 

proposed approach offered insufficient incentives for efficient providers to form an ACO. More 

generally, many commenters urged CMS to adopt policies to encourage participation by 
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organizations that are already efficient or in low cost areas. Several commenters urged use of 

regional or market-specific expense data for calculating the benchmark update. 

 In the November 2011 final rule (76 FR 67926 through 67927), we finalized a policy of 

using the flat dollar amount equivalent of the projected absolute amount of growth in national 

per capita FFS expenditures to update the benchmark. We stated our belief that this method for 

updating the benchmark could best address the program's goals and commenters' overall 

concerns about the participation of efficient/low cost ACOs. The net effect of using the same 

update for all ACOs is to provide a relatively higher expenditure benchmark for low growth/low 

spending ACOs and a relatively lower benchmark for high growth/high spending ACOs. 

Further, with a flat dollar increase to the benchmark equivalent to the absolute amount of growth 

in the national FFS expenditures, ACOs in high cost, high growth areas must reduce their rate of 

growth more (compared to ACOs in low cost, low growth areas) to bring their costs in line with 

the national average. We stated that in light of the alternatives we considered, we believed that 

the policy of updating benchmarks by the absolute amount of growth in national FFS 

expenditures offers sufficient incentives for efficient providers to form ACOs. Thus, under the 

final update methodology, ACOs in low cost areas would achieve a greater amount of savings, 

based on the same performance, than a comparable ACO in a higher cost area. Moreover, we 

stated we believed that a benchmark methodology that encourages providers in higher cost areas 

to bring their spending more in line with the national average is a desirable outcome in 

furtherance of the program's goal of lowering Medicare expenditures. Finally, we noted that 

updating the benchmark during the agreement period using a national growth factor aligns with 

our approach of using a national growth rate to trend forward base year expenditures when 

establishing the historical benchmark. We stated that we believed this alignment could facilitate 
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analysis of trends in ACO financial performance relative to national trends in Medicare 

expenditures. For these reasons, we finalized a policy of using the flat dollar amount equivalent 

of the projected absolute amount of growth in national FFS expenditures to update the 

benchmark. 

 In applying these policies for ACOs that joined the program in 2012 and 2013, we 

observed that the national growth factors used to trend the historical benchmark were declining, 

highlighted by negative annual per capita expenditure growth in three of four Medicare 

eligibility categories in 2012. We also found during the first performance year reconciliation 

that the national update amounts applied to the historical benchmark continued to reflect 

historically low growth in cost even after an adjustment to restore the effect of sequestration on 

2013 claim payments. These updates reflected the slow or negative FFS growth environment 

due to a number of factors, including demographic changes in program enrollment, low price 

updates for physician, skilled nursing, and other services, and a broad decrease in inpatient 

utilization. This resulted in ACOs having very low or even negative updates to their historical 

benchmarks. Recent projections estimate total Medicare per capita expenditure trends are likely 

to remain historically low through 2015 followed by a gradual return to historically-familiar 

positive trend rates starting in 2016. 

(3) Background on Managing Changes to ACOs During the Agreement Period 

 Section 425.214 of the Shared Savings Program regulations addresses the circumstance 

under which an ACO adds or removes ACO participants or ACO providers/suppliers (identified 

by TINs and NPIs, respectively) during the term of the participation agreement. The regulation 

specifies that The ACO's benchmark, risk scores, and preliminary prospective assignment may 

be adjusted for this change at CMS' discretion (§ 425.214(a)(3)). Subregulatory guidance further 
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describes our use of this discretion. See "Changes in ACO participants and ACO 

providers/suppliers during the Agreement Period" available online at 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Updating-ACO-Participant-List.html. This guidance explains: 

After acceptance into the program and upon execution of the participation 

agreement with CMS, the ACO must certify the completeness and accuracy of its 

list of ACO participants. We set the ACO's historical benchmark at the start of the 

agreement period based on the assigned population in each of the three 

benchmark years by using the ACO Participant List certified by the ACO. The 

ACO must submit a new certified ACO Participant List at the start of each new 

performance year. 

CMS will adjust the ACO's historical benchmark at the start of a performance 

year if the ACO Participant List that the ACO certified at the start of that 

performance year differs from the one it certified at the start of the prior 

performance year. CMS will use the updated certified ACO Participant List to 

assign beneficiaries to the ACO in the benchmark period (the 3 years prior to the 

start of the ACO's agreement period) in order to determine the ACO's adjusted 

historical benchmark. As a result of changes to the ACO's certified ACO 

Participant List, we may adjust the historical benchmark upward or downward. 

We’ll use the new certified list of ACO participants and the adjusted benchmark 

for the new performance year's assignment, quality measurement and sampling, 

reports for the new performance year, and financial reconciliation. We will 

provide ACOs with the adjusted Historical Benchmark Report. 

 During the program's first performance years, we experienced a high volume of change 

requests from ACOs, both adding and removing ACO participants. For example, cumulatively 

ACOs with 2012 and 2013 start dates requested the addition of over 2,800 ACO participants and 

removal of over 1,200 ACO participants. The ACO’s composition of ACO participant TINs is 

used to determine the ACO’s assigned beneficiary population. Changes to an ACO’s participant 

list will result in changes to the ACO’s assigned beneficiary population. As a result, it is 

necessary to make adjustments to the ACO’s historical benchmark to account for these changes. 

In accordance with our guidance, we adjusted the historical benchmarks for 162 of 220 ACOs 

with 2012 and 2013 start dates for their second performance year to reflect changes in ACO 
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participants. When an ACO adds new ACO participants or deletes existing ACO participants, 

the adjustments that are made to its historical benchmark will impact the ACO’s performance in 

subsequent years, and can make forecasting performance more challenging. 

 As noted in the guidance, when we adjust historical benchmarks during the agreement 

period to account for changes in beneficiary assignment arising from ACO participant list 

changes, the benchmark period (the 3 years prior to the start of the ACO's agreement period) 

remains the same. For instance, if an ACO with an agreement start date of January 1, 2013, 

added ACO participants for its second performance year, then the adjustments made to the 

historical benchmark to reflect the ACO's certified ACO participant list for performance year 2 

would have been based on the same three benchmark years (2010, 2011, and 2012) originally 

used to calculate the historical benchmark for the ACO based on its ACO participant list certified 

when it entered the program (for its first performance year). 

 Further, changes in the ACO participant TINs that compose ACOs are relevant to 

determining beneficiary assignment across the program. A beneficiary is assigned to an ACO if 

the beneficiary received the plurality of his or her primary care services (measured in allowed 

charges) from ACO professionals billing under the TINs of ACO participants in the ACO rather 

than outside the ACO (such as from ACO professionals billing under the TINs of ACO 

participants in other ACOs, individual providers, or provider organizations). We perform the 

assignment process for ACOs simultaneously, including all eligible organizations. To determine 

where a beneficiary got the plurality of his or her primary care services, we compare the total 

allowed charges for each beneficiary for primary care services provided by the ACO (in total for 

all ACO participants) to the allowed charges for primary care services provided by ACO 

participants in other ACOs and by non-ACO providers and suppliers. See "Medicare Shared 
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Savings Program: Shared Savings and Losses and Assignment Methodology Specifications" 

available online at http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Financial-and-Assignment-Specifications.html. Therefore, in 

the case where a beneficiary is receiving primary care services from ACO participants in 

multiple ACOs or from both ACO participants and non-ACO providers and suppliers, an ACO's 

participant composition is important in determining whether the beneficiary is assigned to the 

ACO at all, and in determining to which (among several) ACO the beneficiary may be assigned. 

 In summary, in making adjustments to the historical benchmarks for ACOs within an 

agreement period to account for ACO participant list changes: the historical benchmark period 

remains constant, but beneficiary assignment reflects the influence of ACO participant list 

changes. Under this methodology, the historical benchmarks for ACOs with participant list 

changes from one performance year to the next continue to reflect the ACOs' historical costs in 

relation to their current composition. 

(4) Background on Resetting the Benchmark 

 In the November 2011 final rule (see 76 FR 67915) establishing the Shared Savings 

Program, some commenters expressed concerns that rebasing the benchmark at the start of each 

agreement period would make savings more difficult to attain and eventually make savings 

unattainable by ACOs. Stakeholders have continued to express concerns about this methodology 

for rebasing the benchmark. They assert that the current methodology may also reduce the 

incentive for ACOs to achieve savings since any savings achieved during a given agreement 

period would result in lower future benchmarks, generating an offsetting reduction in the shared 

savings payments the ACO would receive in those future agreement periods. 
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 During the initial rulemaking, commenters suggested a variety of alternatives to rebasing 

the benchmark for each agreement period, as well as technical suggestions on how to reset the 

benchmark (76 FR 67915 through 76 FR 67916). In the November 2011 final rule, we adopted a 

policy under which an ACO's benchmark would be reset at the start of each agreement period, as 

required under section 1899(d)(1)(B)(ii) of the Act. In finalizing this policy, we explained our 

belief that resetting the benchmark at the beginning of each agreement period would most 

accurately account for changes in an ACO's beneficiary population over time. We explained that 

because of turnover in an ACO's assigned beneficiary population, by the end of the agreement 

period, an ACO's assigned population may be significantly different from the historically 

assigned beneficiary population used to calculate the ACO's initial benchmark. Further, resetting 

the benchmark at the beginning of subsequent agreement periods would allow the benchmark to 

more accurately reflect the composition of an ACO's population, and therefore protect both the 

Trust Funds and ACOs. We acknowledged commenters' concerns that resetting the benchmark 

after 3 years could ultimately make it more challenging for ACOs to achieve savings, 

particularly for low-cost ACOs. However, we explained our belief that one of the fundamental 

purposes of the Shared Savings Program is to provide incentives for ACOs to strive continually 

to make further advances in the quality and efficiency of the care they provide (76 FR 67916). 

 Under § 425.602(c) of the rule, an ACO’s benchmark would be reset at the start of its 

second or subsequent agreement period using the same methodology for establishing the 

historical benchmark under § 425.602(a). The existing regulations do not specify any alternative 

methodology for rebasing the benchmarks for ACOs that have completed one or more agreement 

periods in the Shared Savings Program. For example, for an ACO with a January 2013 

agreement start date that continues in the program for a second agreement period beginning 
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January 1, 2016, we would establish the ACO's historical benchmark for its second agreement 

period according to the methodology set forth in § 425.602(a). In particular, we would compute 

the ACO's benchmark for its second agreement period based on per capita Parts A and B fee-forservice 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 (§ 425.602(a)). In the example of an ACO with an initial 

agreement period beginning January 1, 2013 and a second agreement beginning January 1, 2016: 

the ACO's historical benchmark for its first agreement period would have been based on the 

historical years of 2010, 2011 and 2012 and the ACO's historical benchmark for its second 

agreement period would be based on the historical years of 2013, 2014 and 2015. In resetting 

the benchmark, the time period for the benchmark shifts forward to capture the ACOs 

participants' more recent historical spending. As noted previously, we adjust an ACO's 

benchmark based on the ACO participant list that it certifies at the start of each performance 

year, which may reflect changes during the course of the prior performance year. Similarly, in 

resetting the ACO's benchmark at the start of a second agreement period, we would effectively 

account for any ACO participant list changes between the ACO's third performance year under 

its first agreement period and its first performance year under its second agreement period. 

 Early experience for ACOs participating in the Shared Savings Program is limited to 

financial performance results for the first performance year of ACOs with 2012 and 2013 start 

dates. However, we anticipate that the trend for ACOs participating in the Shared Savings 

Program will be similar to the trend for sites in the Physician Group Practice (PGP) 

demonstration, with more organizations generating savings as they gain experience in a shared 

savings model. In the initial performance year of the PGP Demonstration, two sites were eligible 
CMS-1461-P SP 11/25/14 287 

for shared savings payments. As the demonstration progressed, more PGP sites demonstrated 

savings. Over the course of the 5-year demonstration, 7 of the 10 PGP sites were eligible for 

shared savings payments in one or more performance years. 

 The experience of PGP demonstration sites is also an indication that resetting ACO 

benchmarks at the start of the second and each subsequent agreement period would not deter 

ongoing participation in the program by ACOs. We note, however, that unlike the update 

methodology currently used in the Shared Savings Program, the benchmarks used in the PGP 

demonstration were updated using regional factors, as opposed to national factors. This 

approach is similar to some of the alternatives discussed later in this section, on which we are 

seeking comment. The benchmarks for the PGP sites were reset as they moved from the PGP 

demonstration to the PGP Transition Demonstration, and again when they transitioned into the 

Pioneer ACO Model or the Shared Savings Program. We note that most of the organizations 

participating in the PGP demonstration elected to continue their voluntary participation under 

these shared savings models, even though their benchmarks would be reset under the applicable 

benchmarking methodology. Based on this experience, we conclude that these organizations 

must have believed there was a sufficient opportunity to share in savings as well as other 

strategic and competitive advantages to warrant their continued participation in a shared savings 

initiative, even under a rebased benchmark that reflected the cost savings achieved by the site 

under the PGP demonstration. 

 However, while the PGP experience establishes that the current approach to rebasing is 

consistent with continued participation, at least in some cases, it is possible that additional 

organizations would have continued into the Pioneer ACO Model or the Shared Savings Program 

under an alternative rebasing methodology. The PGP experience cannot rule out the possibility 
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that an alternative rebasing methodology could induce ACOs to achieve greater savings, 

particularly as providers gain more familiarity with the payment model, or could prove more 

sustainable over time. 

(5) Background on Stakeholders’ Concerns about Benchmarking Methodology 

 Since the initial rulemaking, stakeholders have continued to express their concern that 

resetting ACO benchmarks at the start of each agreement period, as required under the existing 

methodology, may disadvantage ACOs, particularly those that have generated shared savings. A 

closely related concern is that because savings achieved during one agreement period would lead 

to a lower benchmark in future agreement periods, achieving savings could hypothetically be 

financially unattractive for ACOs in some circumstances. Under the existing benchmarking 

methodology, an ACO that performs well in its first agreement period as a result of its effective 

strategies for lowering Medicare expenditures may have a significantly lower historical 

benchmark in its subsequent agreement period. Consequently, some stakeholders believe that 

achieving savings may sometimes be financially unattractive for ACOs because these savings 

would reduce their benchmarks for future periods. They are concerned that the value proposition 

of the program may diminish over time as ACOs become lower-cost entities, and, as a result, 

face increased difficulty in achieving additional efficiencies (hence savings) when judged against 

decreasing benchmarks. 

 Further, some stakeholders have expressed concern that the existing benchmarking 

methodology does not sufficiently account for the influence of cost trends in the surrounding 

region or local market on the ACO's financial performance. In particular, some stakeholders 

voiced concerns about the low or negative update amounts used during first performance year 

reconciliation under the existing benchmarking methodology, and favor alternative approaches, 
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which they believe are more certain to yield positive updates to ACOs' historical benchmarks. 

Others have suggested that we move away from an approach for setting ACO-specific 

benchmarks and toward an approach for setting regionally-specific benchmarks for ACOs. These 

concerns, as with those raised regarding the methodology for resetting benchmarks in subsequent 

agreement periods, center on whether the benchmarks are set at a level ACOs perceive to be 

sufficient to make program participation financially viable. 

 We believe it is timely to consider these issues in the context of encouraging continued 

participation by ACOs in the program and continued improvement in ACO performance, 

particularly as ACOs with 2012 and 2013 start dates begin to contemplate whether to continue in 

the program for a second agreement period. Further, we believe there may be important 

interactions between the way in which the benchmarks for ACOs are set in their initial 

agreement period and reset in their subsequent agreement periods and encouraging participation 

by ACOs in the program's two-sided models (particularly ACOs that entered the program under 

Track 1 and are contemplating moving to a risk based track); namely in terms of the value 

proposition of moving to a performance-based risk track. 

b. Factors to Use in Resetting ACO Benchmarks and Alternative Benchmarking Methodologies 

 We considered whether modifying the methodology used for establishing, updating, and 

resetting ACO benchmarks to account for factors relevant to ACOs that have participated in the 

program for 3 or more years would help ensure that the Shared Savings Program remains 

attractive to ACOs and continues to encourage ACOs to improve their performance, particularly 

those that have achieved shared savings. As discussed later in this section, we considered a 

range of modifications to the benchmarking methodology in order to expand the methodology 

for resetting benchmarks to account for factors relevant to continued participation by ACOs in 
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subsequent agreement periods and to increase incentives to achieve savings in a current 

agreement period, specifically: (1) equally weighting the 3-benchmark years; (2) accounting for 

shared savings payments in benchmarks; (3) using regional FFS expenditures (as opposed to 

national FFS expenditures) to trend and update the benchmarks; (4) implementing an alternative 

methodology for resetting ACO benchmarks that would hold an ACO's historical costs, as 

determined for purposes of establishing the ACO’s initial historical benchmark for its first 

agreement period, constant relative to costs in its region for all of the ACO’s subsequent 

agreement periods; and (5) implementing an alternative methodology for resetting ACO 

benchmarks that would transition ACOs to benchmarks based only on regional FFS costs, as 

opposed to the ACO’s own historical costs, over the course of multiple agreement periods. 

Further, we considered whether to apply these changes broadly to all ACOs or to apply these 

changes only when resetting benchmarks for ACOs entering their second or subsequent 

agreement periods. We also considered whether to apply these changes to a subset of ACOs, 

such as ACOs participating under a two-sided model (Tracks 2 and 3) or Track 3 ACOs only. In 

considering these potential options for modifying the benchmarking methodology, it is necessary 

to balance the desire to make the program more financially attractive to ACOs, against the need 

to protect the Medicare Trust Funds. 

 Although we are not proposing any changes to our benchmarking methodology at this 

time, we are seeking comment on these alternatives for how we approach establishing, updating 

and resetting benchmarks, as well as suggestions regarding alternative approaches not described 

here. We will carefully consider the comments that are received regarding these options during 

the development of the final rule, and may consider adopting one or more of these options in the 

final rule. We note, however, that any option that relies upon the use of the authority under 
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section 1899(i)(3) of the Act to adopt alternate payment models must be determined to improve 

quality and efficiency and not to increase program spending. 

(1) Equally Weighting the 3 Benchmark Years 

 Pursuant to section 1899(d)(1)(B)(ii) of the Act, in the November 2011 final rule, we 

adopted a methodology for establishing ACO benchmarks under which we weight benchmark 

expenditures at 60 percent for Benchmark Year (BY) 3, 30 percent for BY2, and 10 percent for 

BY1 (§ 425.602(a)(7)). As we explained in the November 2011 final rule (76 FR 67915), this 

weighting helps ensure that the benchmark reflects more accurately the latest expenditures and 

health status of the ACO's assigned beneficiary population. We indicated that giving BY3 the 

greatest weight would most accurately reflect recent cost trends for the Medicare beneficiaries 

who receive the plurality of their primary care from ACO providers/suppliers, and thus result in a 

more accurate benchmark. 

 To establish an ACO's benchmark for an agreement period, we determine 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 (§ 425.602(a)). Therefore, an ACO's 

benchmark under a second or subsequent agreement period will reflect, to some degree, its 

previous performance under the program. For example, for ACOs with 2013 start dates that 

continue in the program for a second agreement period beginning January 1, 2016, BY1 will be 

based on expenditures for beneficiaries who were assigned to the ACO based on CY 2013 (the 

timeframe corresponding to performance year 1 under the first agreement period). Likewise, 

BY2 will be based on assignment for CY 2014 (performance year 2) and BY3 will be based on 

assignment for CY 2015 (performance year 3). We note, however, that a number of factors will 
CMS-1461-P SP 11/25/14 292 

affect beneficiary assignment for purposes of establishing ACO benchmarks in subsequent 

agreement periods, which may cause an ACO's benchmark year assigned population to deviate 

from its assigned population for the corresponding performance year. For example, an ACO 

may add or remove ACO participant TINs in its second or subsequent agreement period. Further, 

participation in the program by other organizations in an ACO's market may also change in the 

time between when we performed assignment for the performance year under the prior 

agreement and when we assign beneficiaries for the purpose of resetting the ACO's benchmark 

for the next agreement period, leading to changes in the ACO's assigned beneficiary population 

for purposes of establishing its benchmark for the new agreement period. The impact of these 

kinds of changes in the assigned beneficiary population between the performance year and the 

time the benchmark is established for a subsequent agreement is uncertain, and could result in 

either upward or downward adjustments to expenditures for purposes of establishing the 

benchmark. 

 Among ACOs whose assigned beneficiary populations for purposes of resetting the 

benchmark closely match their assigned beneficiary population for the corresponding 

performance years, those ACOs that generated savings during a prior agreement period will have 

comparatively lower benchmarks for their next agreement period. This is because the ACOs 

were effective in lowering expenditures for these assigned beneficiaries. We assume, for 

example, that if an ACO generates savings in its first agreement period it is likely that the impact 

on claims would be most significant in the second or third performance year as opposed to being 

uniformly distributed across all three performance years. This hypothesis is supported by 

following factors: 
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● There may be a lag between when an ACO starts care management activities and when 

these activities have a measurable impact upon expenditures for the ACO's assigned beneficiary 

population. 

● ACOs may improve their effectiveness over time as they gain experience with 

population management and improve processes. 

● There may be higher care costs during the early period of performance to treat or 

stabilize certain patients, as the ACO's care management activities involving these patients 

commence. Once stabilized, these patients may show relatively lower care costs over the course 

of time due to more effective, coordinated and quality care. 

 Under these circumstances, resetting the benchmark for ACOs starting a second or 

subsequent agreement period under the Shared Savings Program becomes a trade-off between 

the accuracy gained by weighting the benchmark years at 60 percent for BY3, 30 percent for 

BY2 and 10 percent for BY1 and the potential for further reducing the benchmarks for these 

ACOs by giving greater weight to the later performance years of the preceding agreement period. 

Unchanged, the application of this methodology for weighting the benchmark years when 

resetting benchmarks could 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 to reduce incentives for ACOs to achieve savings in their first agreement period. For instance, 

ACOs that have previously performed well under the program may be discouraged from 

continuing to participate in the program if their rebased benchmark is so low that they would 

have difficulty continuing to lower expenditures sufficiently to exceed their MSR in order to be 

eligible for shared savings during their next agreement period. 
CMS-1461-P SP 11/25/14 294 

 We considered an alternative methodology for resetting benchmarks where we would 

weigh the benchmark years equally (ascribing a weight of one-third to each benchmark year). 

We believe that equally weighting the benchmark years could more gradually lower the 

benchmarks of ACOs that perform well in their first agreement period, in contrast to giving the 

greatest weight to the most recent prior benchmark year, which, for the reasons discussed 

previously, is likely to be the year in which an ACO would have been most effective in lowering 

expenditures for its assigned population. This alternative approach would have the most 

significant impact upon ACOs whose assigned population during the three performance years of 

the preceding agreement period most closely approximates the assigned population used to 

determine their benchmark for the subsequent agreement period. This approach may be less 

accurate, and therefore less protective of the Trust Funds, since it may not sufficiently account 

for an ACO's most recent historical cost experience, particularly in the case of an ACO whose 

ACO participant composition (and therefore its assigned beneficiary population) changed over 

the course of the agreement period, such that its assigned beneficiary population in the 

subsequent agreement period is significantly different from the beneficiary population in the 

early years of its prior agreement period; this effect could be counteracted to the extent that this 

approach encourages greater participation in the Shared Savings Program or encourages ACOs to 

achieve greater shared savings. 

(2) Accounting for Shared Savings Payments in Benchmarks 

 We also considered revising the methodology for resetting ACO benchmarks to account 

for shared savings earned by an ACO in its prior agreement period, as a way to encourage 

ongoing participation by successful ACOs and improve the incentive to achieve savings. Similar 

to the option of equally weighting the benchmark years discussed above, accounting for an 
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ACO's shared savings during its prior agreement period would more gradually lower the 

benchmarks of ACOs that perform well in their prior agreement period. 

 The statute outlines the scope of Medicare expenditures to be used in calculating ACO 

benchmarks. Section 1899(d)(1)(B)(ii) of the Act specifies that the benchmark is established " . . 

. using the most recent available 3 years of per-beneficiary expenditures for parts A and B 

services for Medicare fee-for-service beneficiaries assigned to the ACO." This provision of the 

Act further specifies: "Such benchmark shall be adjusted for beneficiary characteristics and such 

other factors as the Secretary determines appropriate." In the November 2011 final rule 

establishing the Shared Savings Program, we explained that in implementing section 

1899(d)(1)(B)(ii) of the Act, we would take into account payments made from the Medicare 

Trust Funds for Parts A and B services, for assigned Medicare fee-for-service beneficiaries, 

including payments made under a demonstration, pilot or time limited program when computing 

average per capita Medicare expenditures under the ACO. Our policies for determining per 

capita expenditures for purposes of establishing the benchmark are specified at § 425.602(a)(1). 

Shared savings payments are paid from the Medicare Trust Funds for the beneficiary population 

assigned to an ACO and are intended to recognize the costs incurred by the ACO and its ACO 

participants and ACO providers/suppliers in coordinating care and improving the quality of care 

for the assigned beneficiaries. Accordingly, we are considering whether it would be appropriate 

to revise our methodology under § 425.602(a)(1) for establishing an ACO's benchmark to 

incorporate the ACO's share of savings for those ACOs that receive shared savings payments 

under the prior agreement period. We considered how to account for these payments in ACOs' 

3-year weighted average per capita benchmarks since ACO shared savings payments are 

determined at the population-level, reflecting aggregated per capita expenditures that have been 
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truncated and annualized and weighted by the proportion of assigned beneficiaries in each of the 

four Medicare enrollment types: ESRD, disabled, aged/dual and aged/non-dual. For instance, we 

could develop a per-beneficiary average based on the shared savings payment for the particular 

performance year under the prior agreement period and apply this adjustment on a per 

beneficiary basis to the assigned population for the corresponding benchmark year. We also 

considered whether to make a symmetric adjustment in benchmarks for ACOs that owed losses 

in a previous agreement period. 

 We believe there are merits to upwardly adjusting benchmarks for ACOs in a second or 

subsequent agreement period to reflect any shared savings payments in the most recent prior 

agreement period. An adjustment that reflects the ACO's share of savings – based on its final 

sharing rate, which is a function of its quality performance – in the computation of the 

benchmark would increase the ACO’s benchmark for the subsequent agreement period. This 

increase in the benchmark, relative to the ACO's prior success in the program, may address 

concerns expressed by some stakeholders (described previously) that under the existing 

benchmarking methodology achieving savings may sometimes be financially unattractive for 

ACOs because of the potential impact on their benchmarks in future agreement periods. 

 There are clear advantages of this adjustment for ACOs and the Medicare program. In 

particular, ACOs would have an increased incentive to continue to generate shared savings and 

improve quality because of the prospect of having a higher benchmark in future agreement 

periods. Consequently, ACOs may demonstrate improved performance over longer term 

participation in the program. Further, ACOs may be encouraged to enter the program's twosided models (such as the proposed Track 3), which offer higher final sharing rates because 

making an adjustment to the benchmark for these ACOs to reflect successful participation during 
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one agreement period may improve their potential to receive shared savings in the next 

agreement period. Other implications of this adjustment for consideration include the following: 

● Not all ACOs would benefit. By making the adjustment only for ACOs that receive 

shared savings payments in their prior agreement period, some ACOs that reduce expenditures 

would not receive the benefit of this adjustment. Specifically, ACOs whose performance year 

expenditures are lower than their benchmark expenditures by an amount that did not meet or 

exceed their MSR, and ACOs that generated savings outside their MSRs, but that failed to satisfy 

the quality reporting standard, would not receive the adjustment. 

● Availability of performance data relative to timely creation of benchmarks. We 

anticipate completing financial reconciliation for an ACO's most recent prior performance year 

(for example, PY3 under the first agreement period which corresponds to BY3 for the second 

agreement period) mid-way through its current performance year (for example, PY1 under the 

second agreement period). As a result, one downside of relying on the availability of 

performance data from the most recent prior performance year is that it would delay the 

finalization of an ACO's historical benchmark for its first performance year during its subsequent 

agreement period. 

(3) Use of Regional Factors (as Opposed to National Factors) in Establishing and Updating 

Benchmarks 

 Some stakeholders have expressed concern that the existing benchmarking methodology 

does not sufficiently account for the influence of cost trends in the surrounding region or local 

market on the ACO's financial performance. We considered addressing these concerns by using 

regional FFS expenditures, instead of national FFS expenditures, to trend forward the most 

recent 3 years of per beneficiary expenditures for Parts A and B services in order to establish the 
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historical benchmark for each ACO under section 1899(d)(1)(B)(ii) of the Act. In addition, we 

considered making this modification in combination with an alternative payment model under 

section 1899(i)(3) of the Act under which we would use regional FFS expenditures, instead of 

national FFS expenditures, to update the benchmark for each performance year during an 

agreement period. We also considered other approaches to address this concern, as discussed 

later in this section describing alternative benchmarking methodologies. 

 In considering how to establish and update benchmarks based on regional factors, we 

favor use of an approach similar to the method for updating benchmarks used under the PGP 

demonstration, which has been tested and validated with physician groups across the country, 

including groups in rural, urban and suburban areas. Under this approach, much of the Shared 

Savings Program's existing benchmarking methodology would remain the same. Instead of 

using national Medicare FFS expenditure data to trend expenditures in establishing the historical 

benchmark (§ 425.602(a)(5)) and to update the benchmark for each performance year 

(§ 425.602(b)(1)), we would use regional FFS expenditure data to make these adjustments. We 

would calculate the ACO's regional expenditure trend and update factors according to the cost 

experience of a reference population. Specifically, in establishing benchmarks under the PGP 

demonstration, a comparison group was created using the PGP's service area. The growth rate of 

the comparison group expenditures was calculated and used as the growth rate for updating the 

PGP's benchmark. Specifically, we used each PGP's annual assigned beneficiary population to 

determine the PGP's service area. A PGP's service area was defined as all counties where one 

percent or more of assigned PGP beneficiaries reside. We identified which beneficiaries residing 

in each service area met the comparison group assignment criteria and assigned them to the PGP 

comparison group. The service area and comparison group for the PGP were re-determined each 
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year to account for changes in the PGP's assigned beneficiaries. The expenditure growth rate for 

the PGP's comparison group was calculated and used to update the PGP's historical benchmark 

for purposes of determining each PGP's performance under the shared savings calculation 

methodology used in the demonstration. This benchmarking methodology was used over the 

course of the 5-year PGP demonstration. Given that we have already tested and refined this 

methodology, we believe that a similar approach could be implemented within the Shared 

Savings Program. As noted previously, over the course of the PGP demonstration, 7 of 10 sites 

were eligible for shared savings payments in one or more performance years. Taking these 

factors into consideration, we believe stakeholders may welcome this approach to revising the 

program's benchmarking methodology. 

 However, we have also identified a number of additional factors that must be considered 

in using this approach in the Shared Savings Program: 

● Whether the comparison group counties should be weighted by the percent of assigned 

beneficiaries in the county out of all assigned beneficiaries in all comparison group counties. For 

example, for an ACO in a rural or suburban county near a large metropolitan area: on a weighted 

basis, the large metropolitan area would contribute less to the comparison group than on an 

unweighted basis. Alternatively, an ACO with high penetration in a specific county would have 

its regional factors significantly influenced by that county. 

● Whether to establish a minimum sample size for the comparison group, such as equal 

to or greater than 25,000. Smaller comparison groups are more likely to demonstrate 

idiosyncratic expenditure trends, for instance, if an ACO has a high penetration in its service 

area, the remaining population may be non-representative compared to the ACO’s patient 

population. These factors would seem to support the use of a minimum sample size threshold. 
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Based on statistical modeling for an effective sample size, we anticipate that the minimum 

sample size threshold would be set not lower than 25,000 beneficiaries. In turn, a minimum 

sample size raises a question of what criteria should be used to ensure the ACO’s comparison 

group is large enough. For instance, in markets where the ACO’s assigned beneficiaries 

represent a substantial share (for example, more than 40 percent) of Medicare FFS beneficiaries, 

should the region be expanded—perhaps to include the entire corresponding metropolitan 

statistical area (MSA), hospital referral region (HRR), or another regional grouping approach? 

Similarly, in markets where multiple ACOs represent a substantial share (for example, more than 

50 percent) of Medicare FFS beneficiaries, should the region be similarly expanded as described 

previously? We also considered whether to lock-in the counties composing the comparison 

group at the start of the agreement period, since over the course of the agreement the counties 

where one percent or more of assigned ACO beneficiaries reside may fluctuate (for example, just 

above or just below 1 percent). 

(4) Alternative Benchmark Resetting Methodology: Holding the ACO's Historical Costs 

Constant Relative to its Region. 

 Some stakeholders have also expressed a preference for further changes in the 

methodology used to reset ACO benchmarks to address the concerns described previously. For 

example, some stakeholders have suggested that ACOs would have stronger incentives to 

achieve shared savings during a given agreement period and to continue to participate in the 

program in subsequent agreement periods if we used a methodology for resetting benchmarks 

that held the ACO's historical per assigned beneficiary spending constant relative to its local 

market so that improvements in efficiency that the ACO achieved during an agreement period 

would not lower its benchmark for a subsequent agreement period. 
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 Accordingly, we considered using the authority under section 1899(i)(3) of the Act to 

establish an approach to resetting an ACO’s benchmark at the start of a new agreement period 

under which the ACO’s benchmark from the prior agreement period would be updated according 

to trends in FFS costs in the ACO’s region, effectively holding a portion of the ACO’s 

benchmark constant relative to its region. Under this approach, an ACO’s benchmark for its 

initial agreement period would be set according to an approach similar to the existing 

methodology. For subsequent agreement periods, the trend in regional costs would be calculated 

using an approach based on the PGP demonstration, described previously, and the historical 

benchmark would be updated by increasing it by a percentage equal to the percentage increase in 

regional costs. This approach would prevent an ACO’s improved efficiency during an 

agreement period from lowering its benchmark in a future agreement period. 

 We also considered a similar approach that would use information regarding the ACO’s 

historical costs under its first agreement period to adjust regional FFS benchmarks developed for 

future agreement periods by developing a scaling factor. The scaling factor could be calculated 

as the ratio of-- (1) an ACO’s historical benchmark under its first agreement period (computed 

using an approach similar to the existing methodology) divided by; (2) the regional FFS 

benchmark that would have been calculated for the ACO for the third benchmark year of its first 

agreement period. We would compute an ACO’s benchmark for each subsequent performance 

year by multiplying this scaling factor by the ACO’s regional FFS benchmark for that 

performance year to account for the difference originally exhibited between the ACO 

expenditures and the regional FFS benchmark expenditures in the year prior to the beginning of 

the ACO’s first agreement period. The regional FFS benchmark for an ACO in a given 

performance year would be computed using an approach based on the PGP demonstration 
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described above. For example, if the ACO’s assigned beneficiaries expenditures were 10 percent 

higher than what its regional FFS benchmark would have been in its most recent base year of its 

initial agreement period, the ACO’s future benchmark based on regional FFS expenditures 

would be adjusted by 10 percent to account for this baseline difference. This approach would 

likely generate benchmarks very similar to those described in the previous paragraph and thus 

have a similar effect on an ACO’s incentives to improve efficiency. 

 Under both of these approaches, we considered whether to adjust the benchmark or 

scaling factor to reflect changes in the list of ACO participant TINs over time, as we do now 

based on our authority under § 425.602((a)(8). We considered two approaches to making such 

adjustments, each of which could be used with either of the basic approaches to holding 

benchmarks constant relative to an ACO’s region that were previously described. Under the first 

approach, we considered basing such adjustments off our current method of adjusting the 

benchmark on an annual basis to reflect ACO participant changes. Under the second approach, 

we considered an adjustment method to reflect the historical cost experience of any ACO 

participant TINs that are added to the ACO and to remove the influence of the cost experience of 

those ACO participant TINs that leave the ACO, but not incorporate updated cost information 

for ACO participants that have continued in the ACO. 

 First, we considered using an approach similar to our existing method for adjusting the 

ACO’s benchmark during the course of its agreement period to account for changes in its ACO 

participant list as described previously. 

 Under this approach, each performance year that the ACO’s participant list changed, we 

would recompute its initial historical benchmark or scaling factor using cost information from 

the benchmark period corresponding to the ACO’s initial agreement period. This approach has 
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the advantage that it is similar to the approach we have used successfully to adjust ACO 

benchmarks within an agreement period in response to changes in ACO participant lists. 

However, we recognize that not all ACO participants joining the ACO in subsequent agreement 

periods may have historical claims data during the 3 years prior to the start of the ACO’s first 

agreement period. Therefore, we considered the need to expand this approach to include 

adjustments to the benchmark or scaling factor to account for ACO participant list changes. 

 Second, we considered an approach that would adjust an ACO’s benchmark (or scaling 

factor) after each annual change in the ACO participant list based on the relative cost experience 

of patient populations associated with the new performance year’s set of TINs relative to the 

prior performance year’s set of TINs, as measured during a period immediately preceding the 

change in the ACO participant list. We note that under our current benchmarking methodology, 

assigned beneficiaries and benchmark expenditures are determined in aggregate at the ACO level 

rather than at the individual ACO participant TIN level. Therefore, under this alternative 

approach, we would develop a methodology for associating assigned beneficiary costs to 

individual ACO participant TINs that continue in the program so as not to incorporate updated 

cost information for the patient populations associated with the continuing ACO participants, as 

well as to incorporate updated cost information for the patient populations associated with new 

ACO participants or remove the influence of cost information for patient populations associated 

with departing ACO participants. 

 The advantage of this type of approach is that it could generate more accurate 

benchmarks in cases where an ACO adds many participant TINs that were not active during the 

ACO’s initial agreement period. However, this approach could be more complicated to 
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implement and could reintroduce a limited ability for ACOs to influence future benchmarks 

through current decisions. 

 A potential disadvantage of approaches that determine benchmarks by holding an ACO’s 

costs constant relative to its region is that future benchmarks are influenced to a large degree by 

holding the cost experience for the ACO participants that continue in the ACO static. This static 

cost experience would become dated and would not necessarily reflect the evolving complex 

factors that influence the cost profile of the beneficiary populations assigned to the ACO in 

future agreement periods. By holding costs static for existing ACO participants, there would be 

incentives for successful ACOs to continue to participate in the program (with the same ACO 

participant composition) against more favorable benchmarks. Moreover, some ACOs may 

“shop” for a particularly advantageous benchmark, for instance by delaying program entry, and 

only improving their expenditure and utilization trends in later years. As a result, these 

approaches might continue to yield shared savings for some ACOs despite marginal effort to 

improve efficiency, and push out ACOs for whom cumulative variation creates a predictable and 

unrealistically low expenditure target. 

 To the extent that this approach for resetting ACO benchmarks also incorporates 

elements of the other approaches described in this section, we would be faced with related 

concerns. For instance, when trending the benchmark according to regional FFS costs based on 

the PGP demonstration approach described above, we would need to determine what criteria to 

use in establishing the comparison group. Further, as discussed under the alternative 

benchmarking methodology later in this section, we may need to consider whether the risk 

adjustment methodology would need to be modified, in this case to account for changes in each 

ACO’s risk profile relative to the risk profile of its regional comparison population. The types of 
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approaches described in this section would require use of our authority under section 1899(i)(3) 

of the Act because we would be deviating from the requirement at section 1899(d)(1)(B)(ii) of 

the Act that the benchmark be reset at the start of each agreement period. Specifically, the 

benchmark would not be reset using the most recent available 3 years of per beneficiary 

expenditures for parts A and B services for those Medicare FFS beneficiaries that were assigned 

to the ACO during the preceding agreement period. 

(5) Alternative Benchmark Methodology: Transitioning ACOs to Benchmarks based only on 

Regional FFS Costs Over the Course of Multiple Agreement Periods 

 We also considered using our authority under section 1899(i)(3) of the Act to transition 

ACOs from benchmarks based on their historical costs toward benchmarks based only on 

regional FFS costs, an approach suggested by stakeholders, including MedPAC. We recognize 

that under the existing benchmarking methodology, ACOs in the same market would have 

unique benchmarks, which may vary widely depending on the historical expenditures for the 

beneficiaries that receive care from the ACO participants in each ACO. As a result, ACOs 

within the same market may have substantially different benchmarks, such as the case of a 

historically low-cost ACO within a traditionally high cost market. Under the existing 

benchmarking methodology, the program may be more attractive (initially) to historically 

high-cost ACOs able to enter the program and achieve substantial shared savings by bringing 

costs down compared to their historical cost performance. ACOs with historically low costs may 

be less likely to enter and continue in the program because of their perceived difficulty in further 

reducing their assigned beneficiaries’ costs relative to a benchmark based on their assigned 

beneficiaries populations' past experiences. However, as noted previously, the current 

benchmarking methodology may provide additional opportunity for increased shared savings for 
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ACOs with low costs relative to the national average through the use of a flat dollar update for 

growth in national FFS expenditures, assuming program expenditure trends return to 

historically-familiar positive rates as compared to the unusually low growth experienced in the 

first several years of the program. 

 Under this alternative approach, over the course of several agreement periods, we would 

transition to using regional FFS cost data to make ACO benchmarks gradually more independent 

of the ACO's past performance and gradually more dependent on the ACO's success in being 

more cost efficient relative to its local market. For example, for the ACO's first agreement 

period, we may use the existing benchmarking methodology or one of the options described 

previously, which accounts for regional FFS expenditures. Starting in an ACO's second 

agreement period, we would calculate each ACO's benchmark as a weighted average of the ACO 

benchmark using the existing approach or one of the alternative approaches described above and 

risk adjusted regional FFS costs. The weight placed on risk adjusted regional FFS costs would 

increase over time. ACOs' assigned beneficiaries would be counted in the calculation of regional 

FFS costs and the definition of an ACO's region would require careful consideration so that the 

ACO’s assigned beneficiary population would not be allowed to make up an unreasonable 

proportion of the region itself. This benchmarking methodology would help ensure the program 

remains attractive to ACOs, particularly those who have achieved shared savings in previous 

agreement periods, and strengthen the connection between the determination of the amount of 

shared savings earned by the ACO and an ACO's actual success in achieving savings relative to 

its region and local market. 

 An approach where we transition from ACO-specific benchmarks based on each ACO’s 

historical costs to benchmarks based on regional FFS spending may be attractive to low-cost 
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ACOs in high-cost regions because they would likely transition to a relatively higher (regional) 

benchmark over time against which they could likely show more savings because they have 

lower relative costs. However, high-cost ACOs in low-cost regions may find a regional 

benchmark unattractive because they would be required to create new efficiencies to fully offset 

their higher costs relative to their region in order to show savings under the benchmark. To 

mitigate the cost of any resulting selective participation by favored low-cost ACOs in high cost 

regions we considered whether a benchmark transition process could be employed over a number 

of agreement periods involving a gradual shift from the current methodology to one where 

benchmarks are set based on regional FFS spending (for example, using a weighted average of 

the two approaches whereby the weight for the regional FFS benchmark is gradually increased 

over several agreement periods). Using regional FFS spending to establish benchmarks could 

reward low-cost, high-quality ACOs, and further encourage them to attract more ACO 

participants and Medicare FFS beneficiaries over the course of time. We would also expect that 

a gradual transition may at least initially maintain an incentive for existing ACOs with high costs 

relative to their region to remain in the program because the initial ACO-specific benchmark 

would allow the ACOs to achieve shared savings for lowering their costs compared to their own 

historical performance. As they transition to a benchmark based on regional FFS spending, these 

ACOs' benchmarks would likely decline (given the overall experience of the market), 

encouraging these ACOs to continue to reduce their costs, while maintaining high quality care 

under the program. However, we also note that some ACOs may not perceive an ability to 

reduce their beneficiary expenditures below the regional average and therefore there remains a 

risk that the eventual transition to a regional benchmark would result in selective participation 

regardless of how the transition is performed. For instance, an ACO that perceives its patient 
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population as having high relative costs may perceive itself as disadvantaged under this 

approach. 

 Therefore, to further mitigate selective participation and improve the accuracy of the 

benchmarks, we considered whether the regional FFS benchmark should be adjusted to reflect a 

regional or local reference population, similar to the method used in the PGP demonstration. 

However, as described previously, additional adjustment may be necessary to ensure the 

comparison population is sufficiently large and representative of the ACO’s assigned patient 

population, particularly in the cases where ACOs make up a significant portion of their regional 

market. 

 We also considered whether the risk adjustment methodology would need to be modified 

to account for changes in the risk profile of the regional population rather than the national 

population. For instance, it may be necessary to account for coding intensity differences relative 

to the ACO's region rather than just the change in coding intensity by the ACO. As we explained 

in the November 2011 final rule (see 76 FR 67916), it may be necessary to guard against changes 

that result from more specific or comprehensive coding as opposed to improvements in the 

coordination and quality of health care. Thus, we considered the need for normalization of risk 

scores for ACO assigned beneficiaries and the comparison group beneficiaries relative to the 

regionally based comparison group. For instance, the benchmark could be normalized to the mix 

of beneficiaries assigned across the four Medicare enrollment types (ESRD, disabled, aged/dual, 

aged/non-dual) to the same strata within the regional comparison population. We also 

considered risk adjusting the growth rates, for example based upon risk scores for the 

comparison group, in combination with using a regional coding intensity adjustment or 

independently. 
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 We also considered how to account for ACO participant TIN changes, over time, under a 

methodology where we transition ACOs from ACO-specific to regionally based benchmarks. 

For instance, we considered whether to continue to adjust the benchmark at the start of each 

performance year to reflect changes in the set of ACO participant TINs that constitutes the ACO, 

perhaps similar to our current approach to managing changes to ACO participants during the 

agreement period. 

 We also considered the pace for transitioning ACOs from ACO-specific to regional 

benchmarks, including the following factors: 

● The period of time for transitioning to regional FFS benchmarks: for instance, should 

the transition occur over two agreement periods, or five agreement periods, or longer. 

● Whether to consider the ACO's performance during a prior agreement period in 

determining the pace of its transition to regional FFS benchmarks. For example, should we 

delay downward adjustments to an ACO's benchmark if the ACO fails to achieve shared savings. 

● Whether to consider the ACO's historical costs, relative to regional Medicare FFS 

average per capita costs, in determining the pace of its transition to regional FFS benchmarks. 

For example, should low-cost ACOs (those below the risk adjusted regional Medicare FFS 

average per capita costs) transition more quickly to regional FFS benchmarks than high-cost 

ACOs. 

 Another consideration was whether this kind of benchmarking methodology would allow 

the Shared Savings Program to maintain a fiscal balance. For instance, would the shared savings 

paid to low-cost ACOs (treating beneficiaries at below average costs) be more than offset with 

savings from lower than expected spending in high-cost ACOs and further control of spending 

growth in low-cost ACOs. We also recognize that more customized benchmarking approaches 
CMS-1461-P SP 11/25/14 310 

make it more difficult to provide ACOs with information they can use to predict their 

performance. 

(6) Seeking Comment on the Benchmarking Alternatives Considered and the Applicability of 

these Approaches 

 In general we seek comment on the approaches to adjusting the methodology for 

establishing, updating and resetting ACO benchmarks discussed in detail above. In particular, we 

seek comment on the following: 

● Using combinations of these approaches, as opposed to any one approach. 

Specifically, we considered revising the methodology for resetting ACO benchmarks by equally 

weighting the three benchmark years, and/or accounting for shared savings payments received by 

an ACO in its prior agreement period, and/or using regional FFS expenditures instead of national 

FFS expenditures in establishing and updating the benchmark. We also considered and seek 

comment on revising the benchmarking methodology more broadly, shifting either to a 

methodology that resets ACOs’ benchmarks between agreement periods by holding an ACO’s 

historical costs constant relative to costs in its region or to a methodology that transitions ACOs 

from benchmarks based on their historical costs toward benchmarks based only on regional FFS 

costs, potentially in combination with some or all of the other revisions we are considering to the 

benchmarking methodology. 

● How broadly or narrowly to apply these alternative benchmarking approaches to the 

program's Tracks. Specifically, we envisioned that the revisions in the benchmarking 

methodology under section 1899(d)(1)(B)(ii) of the Act. (for example, equally weighing the 

three benchmark years, and accounting for shared savings payments received by an ACO in its 

prior agreement period) would be applied when resetting the benchmarks for all ACOs, 
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regardless of the model they participate under (Tracks 1, 2, and 3). We envisioned applying the 

approaches requiring use of our authority under section 1899(i)(3) of the Act to ACOs 

participating under performance-based risk models (Tracks 2 and Track 3) because stakeholders’ 

concerns about resetting the benchmarks were closely related to ensuring the program remains 

sustainable over time, and we envision ACOs would be transitioning to the performance-based 

risk models over time, specifically given our proposal to limit the number of agreement periods 

an ACO can remain under Track 1. We also considered and seek comment on applying these 

alternative benchmarking methodologies more broadly, specifically to all ACOs participating in 

a risk-based model (Tracks 2 and 3), or to all ACO financial models (Tracks 1, 2, and 3). 

● Whether to use regional FFS expenditures instead of national FFS expenditures in 

establishing and updating the benchmark and/or a methodology for transitioning ACOs from 

benchmarks based on their historical costs toward benchmarks based only on regional FFS costs 

only when resetting ACO benchmarks under their second or subsequent agreement period, or 

when establishing the benchmark for all participating ACOs (regardless of agreement start date) 

the next full performance year after the effective date of the final rule. In other words, if a final 

rule adopting a revised benchmarking methodology is issued in early 2015, should the revised 

methodology be used to determine the benchmark that will apply during the 2016 performance 

year for all ACOs. 

● The criteria for defining the comparison group for using regional FFS expenditure data 

to establish, update or reset the historical benchmark. In particular we welcome comments on 

the criteria we described previously and welcome commenters’ suggestions for different criteria. 

● We believe the concerns about risk adjustment raised in this section in the context of 

the alternative benchmarking methodology for establishing, updating and/or transitioning from 
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ACO-specific benchmarks to regionally based benchmarks are also relevant to the approach 

where we would use regional FFS expenditures (as opposed to national FFS expenditures) in 

establishing or in updating the benchmark. We welcome comments on these concerns and 

commenters' suggestions about the use of regional normalization or coding intensity adjustments 

to guard against regional or other coding differences that may affect the characteristics of the 

ACOs' assigned beneficiary population in relation to the comparison group. 

● We welcome commenters' detailed suggestions on our considerations of factors to use 

in resetting ACO benchmarks and for the alternative benchmark methodology; as well as 

considerations or concerns not described; and suggestions for alternative approaches for a 

benchmarking methodology that transition to use of regional benchmarks over the course of 

time. In particular, we seek commenters' input on whether an approach that transitions ACOs to 

regional benchmarks would encourage continued participation by existing low-cost and high-cost 

ACOs. 

 We also request commenters' input on alternatives not described here for resetting 

benchmarks to encourage ongoing participation by ACOs who perform well in the program and 

are successful in reducing expenditures for their assigned beneficiaries. We seek comment on 

whether these alterative benchmarking approaches would have unintended consequences for 

ACO participation in the program, for the Medicare Trust Funds, or for Medicare FFS 

beneficiaries. We intend to carefully review any comments that are received on these issues 

during the development of the final rule and will make an assessment at that time as to whether 

any change to our current methodology for establishing benchmarks is necessary and 

appropriate. 
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7. Seeking Comment on Technical Adjustments to the Benchmark and Performance Year 

Expenditures 

When computing average per capita Medicare expenditures for an ACO during both the 

benchmark period and performance years under § 425.602, § 425.604, and § 425.606, we take 

into account all Parts A and B expenditures, including payments made under a demonstration, 

pilot or time limited program, with the exception of IME and DSH adjustments, which are 

excluded from these calculations. In the November 2011 final rule (76 FR 67919 through 

67923), we considered whether to make adjustments to benchmark and performance year 

expenditures to exclude certain adjustments to Part A and B expenditures, including IME and 

DSH payments, geographic payment adjustments and some bonus payments and penalties. In 

the final rule, we acknowledged that taking into consideration payment changes could affect 

ACOs' financial performance and their ability to realize savings. However, with the exception of 

the adjustment to account for IME and DSH payments, we ultimately declined to make any 

adjustments to account for various differences in payment rates among providers and suppliers. 

We explained that while section 1899(d)(1)(B)(ii) of the Act provides a way of adjusting an 

ACO's benchmark for such payments, the statute does not include similar authority to adjust 

performance year expenditures. Therefore, we noted that while we could make adjustments to 

the ACO's benchmark to exclude certain payments under our authority in section 

1899(d)(1)(B)(ii) of the Act, we did not have a similar authority to make adjustments in our 

calculation of an ACO's performance year expenditures, which would create a mismatch in 

expenditure calculations. 

However, we were persuaded by commenters that not excluding IME and DSH payments 

in determining ACO financial performance could adversely affect the care of beneficiaries by 
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creating an incentive for ACOs to avoid making appropriate referrals to teaching hospitals in an 

effort to demonstrate savings. Therefore, we considered using our authority under section 

1899(i)(3) of the Act, which authorizes us to use other payment models for making payments 

under the Shared Savings Program that the agency "determines will improve the quality and 

efficiency of items and services" furnished under Medicare. Specifically we considered whether 

it would be appropriate to use this authority to include an adjustment to performance year 

expenditures to exclude IME and DSH payments. To exercise our authority under section 

1899(i)(3) of the Act, we must also determine that the alternative payment model ". . . does not 

result in spending more for such ACO for such beneficiaries than would otherwise be expended 

. . . if the model were not implemented . . . " 

In the November 2011 final rule (76 FR 67921 through 67922), we stated that we 

believed excluding IME and DSH payments would be consistent with the requirements under 

section 1899(i)(3) of the Act. That is, excluding these payments would both improve the care for 

beneficiaries while also not resulting in greater payments to ACOs than would otherwise have 

been made if these payments were included. Specifically, we stated that removing IME and 

DSH payments from benchmark and performance year expenditures would allow us to more 

accurately reward actual decreases in unnecessary utilization of healthcare services, rather than 

decreases arising from changes in referral patterns. In addition, we believed that excluding these 

payments from our financial calculations would help to ensure participation in ACOs by 

hospitals that receive these payments. Taken in combination, we believed these factors could 

result in Medicare beneficiaries receiving higher quality, better coordinated, and more costefficient care. As a result, we did not expect that excluding IME and DSH payments from the 

determination of ACOs' financial performance would result in greater payments to ACOs than 
CMS-1461-P SP 11/25/14 315 

would otherwise have been made. We also found that excluding these amounts was 

operationally feasible since they are included in separate fields on claims allowing them to be 

more easily excluded from financial calculations than certain other payments that are included on 

Part A and B claims. Therefore, we finalized a policy of excluding IME and DSH payments 

from both the benchmark and performance year expenditure calculations. We stated that we 

intended to monitor this issue and would revisit it if we determine that excluding these payments 

has resulted in additional program expenditures (76 FR 67922). 

In addition to IME and DSH payments, we also considered whether standardizing 

payments to account for other types of payment adjustments would alleviate concerns resulting 

from changes in the Medicare payment systems. However, in light of the numerous payment 

adjustments included throughout the Medicare payment systems, we were concerned about the 

complexity resulting from standardizing payments and whether standardized payment 

information would provide meaningful and consistent feedback regarding ACO performance. 

We stated that we intended to evaluate this issue and would potentially address it in future 

rulemaking. 

We also considered requests from commenters that we make adjustments to ACO 

benchmark and performance year expenditures to account for a number of other payments 

(76 FR 67922). We specifically considered how geographic payment adjustments, applied under 

Medicare payment systems (for example, the IPPS wage index adjustments and the physician fee 

schedule geographic practice cost index (GPCI) adjustments) could affect an ACO's ability to 

realize savings. These adjustments increase and decrease payments under the applicable 

payment systems to account for the different costs of providing care in different areas of the 

country. We further noted that there have been a number of temporary legislative adjustments to 
CMS-1461-P SP 11/25/14 316 

the wage indexes for various parts of the country during recent years. In some cases these have 

been extended on virtually an annual basis while others have been updated more intermittently. 

We recognized that the timing of these adjustments could result in changes being made during an 

ACO's agreement period and between the benchmark and the performance years, thus 

influencing an ACO's ability to realize savings under the program. Additionally, there have been 

cases where hospitals have moved in and out of reclassification status which can either increase 

or decrease the wage index in the state. 

Of the comments received, most favored excluding geographic payments from 

benchmark and performance year expenditures (76 FR 67923). Commenters suggested specific 

adjustments, such as exclusion of payments based on the area wage index, low cost county 

payment adjustments, GPCI, and the frontier States policy adjustment. Some commenters, 

however, expressed concerns that variations in cost growth across geographic areas as well as the 

current CMS methods for accounting for differences in local input and practice costs may create 

incentives that reward ACO formation in some markets but not in others. Others suggested that 

inclusion of these geographic payment adjustments could have unintended consequences for 

referral patterns by ACOs, such as driving referrals based on geographic wage adjustments rather 

than performance. Yet others were generally concerned that making geographic payment 

adjustments would disproportionately disadvantage some ACOs. 

 Ultimately, we disagreed with commenters' suggestions that we adjust expenditures to 

account for various differences in cost and payment. We stated that we believed that making 

such extensive adjustments, or allowing for benchmark adjustments on a case-by-case basis, 

would create an inaccurate and inconsistent picture of ACO spending and may limit innovations 

in ACOs' redesign of care processes or cost reduction strategies (76 FR 67920). Unlike the 
CMS-1461-P SP 11/25/14 317 

IME/DSH adjustments, we stated we did not believe these other payment adjustments that are 

made to Part A and B payments (such as geographic payment adjustments) would result in a 

significant incentive to steer patients away from particular hospitals or providers since an ACO's 

financial performance would be compared to its own historical expenditure benchmark, as 

updated. 

 Since the publication of the November 2011 final rule, some questions have persisted 

regarding the most appropriate way to handle payment differences and changes under Medicare 

FFS; including whether to take into consideration certain payment changes that could affect 

ACO financial performance. We are not proposing to make any further adjustments at this time. 

However, now that both CMS and external stakeholders have some experience with our policies, 

we are interested in seeking further comment from stakeholders on this issue that we could 

potentially consider in future rulemaking. We are particularly interested in comments regarding 

standardization of payments, including which elements to adjust for, the impact of value-based 

payment adjustments on payments to physicians and hospitals, and the value of providing 

feedback on nonstandardized results while using standardized results to perform financial 

reconciliation. 

 Table 7 summarizes certain provisions of the current regulations and our proposals to 

change them as discussed in this section. 
CMS-1461-P SP 11/25/14 318 

TABLE 7. SHARED SAVINGS FINANCIAL MODEL OVERVIEW 

 Track 1; One-Sided Risk Model Tracks 2 and 3: Two-Sided Risk 

Issue Current Proposed Current Track 2 Proposed 

Track 2 

Pro

Transition to TwoSided Model First agreement period under onesided model. 

Subsequent agreement periods under two-sided model 

Remove requirement to transition to two-sided model for a second agreement period. 

ACOs may elect Track 2 without completing a prior agreement period under a one-sided model. Once elected, ACOs cannot go into Track 1 for subsequent agreement periods. 

No change Same 

Assignment Preliminary 

prospective assignment for reports; retrospective assignment for financial reconciliation 

No change Preliminary 

prospective assignment for reports; retrospective assignment for financial reconciliation 

No change Prosp

assignand firecon

Benchmark Reset at the start of 

each agreement period 

Seeking comment on alternative methodology 

Same as Track 1 Seeking 

comment on alternative methodology 

Same 2 and commalternmetho
CMS-1461-P SP 11/25/14 319 

 Track 1; One-Sided Risk Model Tracks 2 and 3: Two-Sided Risk 

Issue Current Proposed Current Track 2 Proposed 

Track 2 

Pro

Adjustments for health status and demographic changes 

Historical benchmark expenditures adjusted based on CMS-HCC model. Updated historical benchmark adjusted relative to the risk profile of the performance year. Performance year: newly assigned beneficiaries adjusted using CMSHCC model; continuously assigned beneficiaries adjusted using demographic factors alone unless CMSHCC risk scores result in a lower risk score. 

No change Same as Track 1. No change Same 

2. 
CMS-1461-P SP 11/25/14 320 

 Track 1; One-Sided Risk Model Tracks 2 and 3: Two-Sided Risk 

Issue Current Proposed Current Track 2 Proposed 

Track 2 

Pro

Adjustments for IME and DSH 

IME and DSH excluded from benchmark and performance year expenditures. 

No change Same as Track 1 No change Same 

2 

Other payment adjustments 

Include other payment adjustments included in Part A and B claims such as, geographic payment adjustments and HVBP payments, in benchmark and performance year expenditures 

Seeking comment on other technical adjustments 

Same as Track 1 Seeking 

comment on other technical adjustments 

Same 2 
CMS-1461-P SP 11/25/14 321 

 Track 1; One-Sided Risk Model Tracks 2 and 3: Two-Sided Risk 

Issue Current Proposed Current Track 2 Proposed 

Track 2 

Pro

Quality Sharing Rate Up to 50 percent 

based on quality performance 

Up to 50 percent based on quality performance for first agreement period, reduced by 10 percentage points for each subsequent agreement period under the one-sided model 

Up to 60 percent based on quality performance 

No change Up to 

based perfor

Minimum Savings Rate 

2.0 percent to 3.9 percent depending on number of assigned beneficiaries. 

No change Fixed 2.0 percent 2.0 percent 

to 3.9 percent depending on number of assigned beneficiaries 

Fixed 
CMS-1461-P SP 11/25/14 322 

 Track 1; One-Sided Risk Model Tracks 2 and 3: Two-Sided Risk 

Issue Current Proposed Current Track 2 Proposed 

Track 2 

Pro

Minimum Loss Rate Not applicable No change Fixed 2.0 percent 2.0 percent 

to 3.9 percent depending on number of assigned beneficiaries 

Fixed 

Performance Payment Limit 

10 percent No change 15 percent No change 20 pe

Shared Savings First dollar sharing 

once MSR is met or exceeded. 

No change Same as Track 1. No change Same 

2. 

Shared Loss Rate Not applicable No change One minus final 

sharing rate applied to first dollar losses once minimum loss rate is met or exceeded; shared loss rate not to exceed 60 percent 

No change One m

sharinfirst dminimmet oshared not be percenpercen
CMS-1461-P SP 11/25/14 323 

 Track 1; One-Sided Risk Model Tracks 2 and 3: Two-Sided Risk 

Issue Current Proposed Current Track 2 Proposed 

Track 2 

Pro

Loss Sharing Limit Not applicable No change Limit on the 

amount of losses to be shared in phases in over 3-years starting at 5 percent in year 1; 7.5 percent in year 2; and 10 percent in year 3 and any subsequent year. Losses in excess of the annual limit would not be shared. 

No change 15 pe

exceslimit wshared
CMS-1461-P SP 11/25/14 324 

G. Additional Program Requirements and Beneficiary Protections 

1. Background 

Section 1899(a)(1)(A) of the Act authorizes the Secretary to specify criteria that 

ACOs must satisfy in order to be eligible to participate in the Shared Savings Program. 

In the November 2011 final rule, we finalized policies regarding how ACOs will be 

monitored with respect to program requirements and what actions will be taken against 

ACOs that are not in compliance with the requirements of the Shared Savings Program. 

Based on our initial experience with the Shared Savings Program, we propose several 

refinements and clarifications to our policies on— 

● Public reporting (§ 425.308); 

● Termination of the participation agreement (§§ 425.218 and 425.220); 

● Enforcement of ACO compliance with quality performance standards 

(§ 425.316(c)); and 

● Reconsideration review procedures (§§ 425.802 and 425.804)). 

2. Public Reporting and Transparency 

a. Overview 

Section 1899 of the Act sets forth a number of requirements for ACOs. Section 

1899(b)(2)(H) of the Act requires ACOs to demonstrate that they meet 

patient-centeredness criteria specified by the Secretary. We believe that one important 

aspect of patient-centeredness is patient engagement and transparency. 

Increasingly, transparency of information in the health care sector is seen as a means to 

help patients become more active in their health care choices and to generate feedback 

that may improve the quality of care and lower the cost of care. In addition, transparency 
CMS-1461-P SP 11/25/14 325 

may improve oversight and program integrity. Public reporting also supports the 

mandate for ACOs to be willing to "become accountable for the quality, cost, and overall 

care" of the Medicare beneficiaries assigned to them. Reports on ACO quality and 

cost-performance hold ACOs accountable and contribute to the dialogue on how to drive 

improvement and innovation in health care. Public reporting of ACO cost and quality 

data may improve a beneficiary's ability to make informed health care choices and 

facilitate an ACO's ability to improve the quality and efficiency of its care. 

 Therefore, for these reasons, which are described in more detail in the 

November 2011 final rule, we finalized requirements specified at § 425.308 that ACOs 

must make certain information publicly available. Since publication of the Shared 

Savings Program final rule, minor updates were made to § 425.308(e) in the 2013 PFS 

final rule with comment period (77 FR 69164 through 69170) and in the 2015 PFS final 

rule with comment period (79 FR 67769). For purposes of the Shared Savings Program, 

each ACO is currently required at § 425.308 to publicly report certain organizational 

information (such as the identification of ACO participants and governing body 

members), the amount of any shared savings or shared losses incurred, the proportion of 

shared savings invested in resources that support the three-part aim and certain quality 

performance information. (Specifically, ACOs are required to report the results of the 

claims-based quality measures while CMS will report the CAHPS and GPRO measure 

results on Physician Compare.) We recommend that ACOs publicly report the specified 

information in a standardized format that we have made available to ACOs through 

guidance at: 
CMS-1461-P SP 11/25/14 326 

http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram

/Statutes_Regulations_Guidance.html. Our guidance recommended that ACOs report the 

required information on a website that complies with the marketing requirements set forth 

at § 425.310. Because webpages used to publicly report the information specified in 

§ 425.308 constitute "marketing materials and activities," as defined at § 425.20, any 

changes to such webpages must be submitted for CMS review in accordance with 

§ 425.310. Thus, if an ACO changes any of the information on its public reporting 

webpage, such as adding an ACO participant or replacing a member of the governing 

body, the ACO must submit its webpage to us for marketing review. We believe this 

policy creates undue burden on the ACO as well as on CMS. 

b. Proposed Revisions 

We continue to believe that publicly reporting the information identified in 

§ 425.308 supports our goals of program transparency and patient centeredness. We also 

continue to believe that it is important for the ACO to be responsible for making this 

information available to the public. We believe that the best way to do this is via an 

ACO-maintained website, the mechanism through which most ACOs have chosen to 

publicly report. However, based on our initial experience with the Shared Savings 

Program and requests from some ACOs, we propose some refinements to the 

requirements related to public reporting and transparency. 

We propose to modify § 425.308 to reflect these new requirements. 

In § 425.308(a), we propose to require that each ACO maintain a dedicated webpage on 

which the ACO must publicly report the information listed in paragraph (b). In addition, 
CMS-1461-P SP 11/25/14 327 

we propose that an ACO must report to us the address of the webpage on which it 

discloses the information set forth in § 425.308 and apprise us of changes to that website 

address in the form and manner specified by CMS. We solicit comment on when an 

ACO should be required to inform us of such changes (for example, within 30 days after 

the change has occurred). 

In § 425.308(b), we require ACOs to report certain information in a standardized 

format to be specified by CMS. Although we currently set forth a recommended 

standardized format in guidance, we intend to make a specific template available that 

ACOs must use so that ACOs report information uniformly. This would minimize the 

compliance burden on ACOs, enhance transparency for the public, and improve our 

oversight of ACO compliance with the public reporting requirement. We envision that 

the template would have fields in which the ACO must insert the applicable public 

reporting information. Additionally, because the ACOs would report information using a 

standard template, we do not believe the information would require marketing review 

each time the information is updated. Therefore, we propose in § 425.308(c) that 

information reported on an ACO's public reporting webpage which is in compliance with 

the requirements of the standardized format specified by CMS, (that is, through use of the 

template) is not subject to marketing review and approval under § 425.310. ACOs should 

keep in mind that although information reported using the template would not be subject 

to marketing review, we intend to monitor both the use of the template and the 

information inserted by ACOs into the template as part of our ongoing program 

monitoring and compliance oversight efforts. 
CMS-1461-P SP 11/25/14 328 

Using a standardized format, such as a template, for this purpose has several 

advantages over the way ACOs currently make this information publicly available. First, 

using a template would improve the usefulness of this information for the public by 

standardizing the way the information is made available across ACOs. Second, using a 

template would minimize the compliance burden on ACOs by ensuring the information is 

reported in the way we intend. Finally, the use of a standardized format also affords 

CMS a more streamlined approach for our monitoring and compliance oversight 

activities. We seek comment on the proposal to use a standardized format for public 

reporting purposes. 

We also propose to make a few changes to the information that must be publicly 

reported. In § 425.308(b), we propose to add two categories of organizational 

information that must be publicly reported. First, we propose to add a requirement at 

§ 425.308(b)(3)(iv) that ACOs publicly identify key clinical and administrative leaders 

within their organization as part of the public reporting requirements. ACOs are already 

required to identify the members of their governing body, associated committees and 

committee leadership. However, key members of the ACO's clinical and administrative 

leadership might not be members of the governing body or committee leadership. For 

example, the ACO's medical director may be a stand-alone leadership position but not 

hold a committee leadership position or be a member on the ACO's governing body. 

Because clinical and administrative leadership is an eligibility requirement for program 

participation, we believe that requiring the ACO to publicly report its clinical and 
CMS-1461-P SP 11/25/14 329 

administrative leadership would lend additional transparency and insight into the ACO's 

organization. 

Second, we believe it would be helpful for the public to have a better 

understanding of the types of ACO participants or combinations of ACO participants that 

have joined to form the ACO. At § 425.102(a), we articulate the following types of ACO 

participants or combinations of ACO participants that are eligible to form an ACO: 

● ACO professionals in group practice arrangement. 

● Networks of individual practices of ACO professionals. 

● Partnerships or joint venture arrangements between hospitals and ACO 

professionals. 

● Hospitals employing ACO professionals. 

● CAHs that bill under Method II. 

● RHCs and FQHCs. 

 We note that if revised by our proposals in section II.E. of this proposed rule, this 

list would also include teaching hospitals. On the application to the Shared Savings 

Program, each ACO must indicate the types of entities that formed the ACO. We 

propose to add a provision at § 425.308(b)(3)(vi) requiring ACOs to publicly report the 

types of ACO participants or combinations of ACO participants, as listed in § 425.102(a), 

that form the ACO. Stakeholders have requested information about the composition of 

ACOs. Providing the types and combinations of ACO participants would assist 

stakeholders in understanding the composition of ACOs. 
CMS-1461-P SP 11/25/14 330 

In addition, we propose at § 425.308(b)(5) to require each ACO to publicly report 

its performance on all quality measures used to assess the quality of care furnished by the 

ACO. We currently require ACOs to post only the results of their performance on 

claims-based measures. The results of quality measures are reported by CMS on 

Physician Compare. We agree with the comments made by stakeholders that requiring an 

ACO to publicly report its performance on all quality measures (as defined at § 425.20) 

would assist stakeholders in getting a more accurate picture of the ACO's performance. 

Therefore, we propose to broaden the public reporting requirement to require ACOs to 

publicly report performance on all quality measures. 

We also note a technical modification to our rules. Currently, we require ACOs 

to report the amount of any "shared savings performance payment" (§ 425.308(d)(1)). 

However, to conform this provision to the definition of "shared savings" at § 425.20, we 

propose to remove the term "performance payment" from the phrase. The new language 

is found at revised § 425.308(b)(4)(i). 

Finally, for purposes of program transparency, we find it useful to post on 

Physician Compare and our website (www.cms.gov/sharedsavingsprogram/) certain 

information about ACOs, such as ACO public contact information, ACO public reporting 

webpage addresses, the amount of any shared savings or losses incurred, and quality 

performance results. Therefore, in addition to information we already post on our 

website and Physician Compare, we propose at § 425.308(d) to post ACO-specific 

information, including information the ACO is required to publicly report under 

§ 425.308, as is necessary to support program goals and transparency. We solicit 
CMS-1461-P SP 11/25/14 331 

comment on what other information should be published on our website. Because 

proposed § 425.308(d) encompasses our ability to publicly report ACO performance on 

all quality measures, we propose to remove § 425.308(e) or reserve it for future use. We 

intend to continue reporting ACO quality measure performance on Physician Compare in 

the same way as for group practices that report under PQRS. 

3. Terminating Program Participation 

a. Overview 

 Section 425.218 of our regulations sets forth the grounds for terminating an ACO 

for failure to comply with the requirements of the Shared Savings Program 

(§ 425.218(a)). For example, an ACO's or ACO participant's failure to notify 

beneficiaries of their provider's participation in the program as required under § 425.312 

would constitute grounds for terminating the ACO. In addition, we may terminate an 

ACO for a number of other violations, such as those related to certain fraud and abuse 

laws, the antitrust laws, or other applicable Medicare laws and regulations relevant to 

ACO operations, or if certain sanctions have been imposed on the ACO by an accrediting 

organization or a federal, state or local government agency (§ 425.218(b)). 

 Prior to termination, we may take interim steps such as issuing the ACO a 

warning notice or placing the ACO on a corrective action plan (CAP) (§ 425.216). 

However, we reserve the right to immediately terminate a participation agreement if 

necessary (§ 425.218(c)). We notify the ACO in writing if the decision is made to 

terminate the participation agreement. 
CMS-1461-P SP 11/25/14 332 

 Under § 425.220, an ACO may voluntarily terminate its participation agreement. 

Such an ACO is required to provide CMS and all of its ACO participants with a 60-day 

advance written notice of its decision to terminate its participation in the Shared Savings 

Program. An ACO is not required to notify beneficiaries of the ACO's decision to 

terminate from the Shared Savings Program. Under current regulations, an ACO that 

terminates its participation agreement before completion of the participation agreement 

does not share in any savings for the performance year during which it notifies CMS of 

its decision to terminate the participation agreement (§ 425.220(b)). This is because an 

ACO that terminates its participation agreement during a performance year will have 

failed to complete the entire performance year and will therefore have failed to meet the 

requirements for shared savings. 

b. Proposed Revisions 

We propose several modifications to the regulations related to termination of a 

participation agreement. First, we propose to permit termination for failure to timely 

comply with requests for documents and other information and for submitting false or 

fraudulent data. In addition, we propose to add a new regulation at § 425.221 requiring 

ACOs to implement certain close-out procedures upon termination and nonrenewal. 

Finally, we propose to address in new § 425.221 the payment consequences upon 

termination of a participation agreement. 

(1) Grounds for Termination 

First, at § 425.218(b) we propose to modify the grounds for termination to 

specifically include the failure to comply with CMS requests for submission of 
CMS-1461-P SP 11/25/14 333 

documents and other information by the CMS specified deadline. At times, we may 

request certain information from the ACO in accordance with program rules. The 

submission of those documents by the specified due date is important for program 

operations. For example, we require each ACO to submit to us, on an annual basis, its 

list of ACO participants and their TINs (existing § 425.304 and proposed § 425.118). 

When ACOs do not submit these lists by the due date specified, it prevents us from 

applying the assignment methodology (which is dependent on having accurate lists of 

ACO participants for all ACOs) and impacts the timelines for the program, such as the 

calculation of the benchmarks for all ACOs. Missing such deadlines is very disruptive to 

the program and other ACOs. Therefore, we propose to modify § 425.218(b) to permit 

termination of an ACO agreement for failure to comply with requests for information and 

documentation by the due date specified by CMS. 

Additionally, under § 425.302, an individual with the authority to legally bind the 

individual or entity submitting data or information to CMS must certify the accuracy, 

completeness, and truthfulness of the data and information to the best of his or her 

knowledge and belief. However, circumstances could arise in which the data and 

information submitted was falsified or erroneous. Submission of false or fraudulent data, 

(for example, data submitted through the CMS web interface used to determine an ACO’s 

quality performance) could impact the amount of shared savings calculated for the ACO 

and cause CMS to overpay the ACO. Because of the severity of the consequences of 

submitting false or fraudulent data, we propose to modify § 425.218(b) to permit 

termination of an ACO agreement for submission of false or fraudulent data. We note 
CMS-1461-P SP 11/25/14 334 

that ACOs are obligated to repay shared savings payments to which they are not entitled, 

including, by way of example only, any overpayment to the ACO based on the 

submission of false or fraudulent data. 

(2) Close-Out Procedures and Payment Consequences of Early Termination 

We propose to add new § 425.221 to address close-out procedures and payment 

consequences of early termination. First, we believe it is important to establish an 

orderly close-out process when an ACO's participation agreement is terminated. 

Therefore, we are proposing in § 425.221(a) that an ACO whose participation agreement 

is terminated prior to its expiration either voluntarily or by CMS must implement 

close-out procedures in a form, manner, and deadline specified by CMS. These close-out 

procedures shall address data sharing issues such as data destruction, beneficiary 

notification issues (for example removal of marketing materials and ensuring beneficiary 

care is not interrupted), compliance with quality reporting, record retention issues, and 

other issues established through guidance. We note that the close-out procedures would 

also apply to those ACOs that have elected not to renew their agreements upon expiration 

of the participation agreement. We further propose in § 425.221(a)(2) that any ACO that 

fails to complete the close-out procedures in the form and manner and by the deadline 

specified by CMS would not be eligible for shared savings. We solicit comments on 

other strategies that would ensure compliance with close-out procedures. 

Second, we propose in § 425.221(b) to address certain payment consequences of 

early termination. Currently under § 425.220(b), an ACO that voluntarily terminates its 

agreement at any time during a performance year will not share in any savings for the 
CMS-1461-P SP 11/25/14 335 

performance year during which it notifies CMS of its decision to terminate the 

participation agreement. However, stakeholders have suggested that completion of the 

performance year, as part of an orderly close-out process, could be mutually beneficial to 

the ACO, its ACO participants and ACO providers/suppliers, and to CMS. Specifically, 

stakeholders have suggested that an ACO should be entitled to receive shared savings if 

the ACO completes a performance year through December 31 and satisfies all 

requirements for sharing in savings for that performance year (for example, the quality 

reporting for the performance year). Additionally, by completing quality reporting as 

part of the close-out process, the ACO participants would not be penalized by the ACO's 

decision to terminate its participation agreement. For example, eligible professionals that 

bill through the TIN of an ACO participant could satisfy the reporting requirement to 

avoid the downward payment adjustment under the PQRS in a subsequent year. 

Therefore, we propose in § 425.221(b) to permit an ACO whose participation 

agreement is voluntarily terminated by the ACO under § 425.220 to qualify for shared 

savings, if— 

● The effective date of termination is December 31; and 

● By a date specified by CMS, it completes its close-out process for the 

performance year in which the termination becomes effective. 

 In order to effectively manage this option in the case of voluntary termination, the 

ACO must specify in its termination notice, and CMS must approve, a termination 

effective date of December 31 for the current performance year. Because the proposed 

new provision at § 425.221 will address the consequences of termination, including the 
CMS-1461-P SP 11/25/14 336 

payment consequences, we also propose to make a conforming change to § 425.220 to 

remove paragraph (b) addressing the payment consequences of early termination. 

We note that the opportunity to share in savings for a performance year would not 

extend to ACOs that terminate their participation agreement with effective dates prior to 

December 31 or to ACOs that CMS terminates under § 425.218. Those ACOs that 

terminate prior to December 31 will not have completed the performance year and thus 

would not qualify for shared savings. ACOs terminated by CMS under § 425.218 would 

not qualify for shared savings irrespective of the termination date because maintaining 

eligibility to participate in the Shared Saving Program is a pre-requisite for sharing in 

savings (see §§ 425.604(c) and 425.606(c)). In such cases, we strongly encourage ACOs 

to fulfill their obligations to their ACO participants and ACO providers/suppliers by 

reporting quality for the performance year in which it terminates so that their ACO 

participants and ACO providers/suppliers are not unduly penalized by the ACO's 

decision. However, even if the ACO completes quality reporting on behalf of its ACO 

participants and ACO provider/suppliers, if the ACO terminates its participation midyear 

or is terminated by CMS under § 425.218 (prior to December 31), it would not be eligible 

to share in savings for the performance year. The ACO would not be eligible to share in 

savings because the ACO would not have satisfied all requirements for sharing in savings 

for that performance year. 

(3) Reconsideration Review Process 

(A) Overview 
CMS-1461-P SP 11/25/14 337 

 Under § 425.802(a), an ACO may appeal an initial determination that is not 

subject to the statutory preclusion on administrative or judicial review (see section 

1899(g) of the Act). Specifically, the following determinations are not subject to 

administrative or judicial review: 

● The specification of quality and performance standards under §§ 425.500 and 

425.502. 

● The assessment of the quality of care furnished by an ACO under the 

performance standards. 

● The assignment of beneficiaries. 

● The determination of whether the ACO is eligible for shared savings and the 

amount of such shared savings (including the determination of the estimated average per 

capita Medicare expenditures under the ACO for beneficiaries assigned to the ACO and 

the average benchmark for the ACO). 

● The percent of shared savings specified by the Secretary and the limit on the 

total amount of shared savings established under §§ 425.604 and 425.606. 

● The termination of an ACO for failure to meet the quality performance 

standards. 

 Initial determinations that are not precluded from administrative or judicial review 

would include the denial of an ACO application or the involuntary termination of an 

ACO's participation agreement by CMS. 

 Under § 425.802(a), an ACO may appeal an initial determination that is not 

prohibited from administrative or judicial review by requesting reconsideration review by 
CMS-1461-P SP 11/25/14 338 

a CMS official. The request for review must be submitted for receipt by CMS within 

15 days of the notice of the initial determination. Section 425.802(a)(2) provides that 

reconsiderations may be heard orally (that is, in person, by telephone or other electronic 

means) or on the record (review of submitted documentation) at the discretion of the 

reconsideration official. 

(B) Proposed Changes 

 To date, CMS reconsideration official(s) have reviewed all reconsideration 

requests received as on-the-record reviews. We believe that on-the-record reviews are 

fair to both parties. Experience to date has demonstrated that a robust oral review is not 

necessary in light of the narrow scope of review. The issues eligible for review can be 

easily communicated in a detailed writing by both parties and do not require in-person 

witness testimony. Finally, we believe that on-the-record reviews do not require as many 

agency resources and can therefore ensure that decisions are made in a timely manner. 

 Accordingly, we propose to modify § 425.802 to permit only on-the-record 

reviews of reconsideration requests. Additionally, we propose to similarly modify 

§ 425.804 and also clarify that the reconsideration process allows both ACOs and CMS 

to submit one brief each in support of its position by the deadline established by the CMS 

reconsideration official. 

4. Monitoring ACO Compliance with Quality Performance Standards 

 We propose a technical revision to § 425.316(c) to clarify our administrative 

enforcement authority when ACOs fail to meet the quality reporting requirements. 

Specifically, we propose to remove § 425.316(c)(3), which sets forth various required 
CMS-1461-P SP 11/25/14 339 

actions the ACO must perform if it fails to report one or more quality measures or fails to 

report completely and accurately on all measures in a domain. We also propose to 

remove § 425.316(c)(4), which sets forth the administrative action we may take against 

an ACO if it exhibits a pattern of inaccurate or incomplete reporting of quality measures 

or fails to make timely corrections following notice to resubmit. The actions identified in 

§ 425.316(c)(3) and (4) include request for missing or corrected information, request for 

a written explanation for the noncompliance, and termination. All of these actions are 

already authorized under § 425.216 and § 425.218. Therefore, to reduce redundancy, 

prevent confusion, and to streamline our regulations, we propose to modify § 425.316(c) 

to remove § 425.316(c)(3) and (c)(4). 

In addition, we propose a technical change to § 425.316(c)(5), which currently 

provides that an ACO "will not qualify to share in savings in any year it fails to report 

fully and completely on the quality performance measures." We propose to redesignate 

this paragraph as § 425.316(c)(3) and replace "fully and completely" with "accurately, 

completely, and timely" to align with § 425.500(f) and to emphasize the importance of 

timely submission of measures. 

III. Collection of Information Requirements 

As stated in section 3022 of the Affordable Care Act, Chapter 35 of title 44, 

United States Code, shall not apply to the Shared Savings Program. Consequently, the 

information collection requirements contained in this proposed rule need not be reviewed 

by the Office of Management and Budget. 

IV. Response to Comments 
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Because of the large number of public comments we normally receive on Federal 

Register documents, we are not able to acknowledge or respond to them individually. 

We will consider all comments we receive by the date and time specified in the "DATES" 

section of this proposed rule, and, when we proceed with a subsequent document, we will 

respond to the comments in the preamble to that document. 
CMS-1461-P SP 11/25/14 341 

V. Regulatory Impact Analysis 

A. Statement of Need 

 This proposed rule is necessary to propose payment and policy changes to the 

Medicare Shared Savings Program established under section 1899 of the Act. The 

Shared Savings Program promotes accountability for a patient population, coordinates 

items and services under parts A and B, and encourages investment in infrastructure and 

redesigned care processes for high quality and efficient service delivery. 

B. Overall Impact 

We have examined the impacts of this rule as required by Executive Order 12866 

on Regulatory Planning and Review (September 30, 1993), Executive Order 13563 on 

Improving Regulation and Regulatory Review (January 18, 2011), the Regulatory 

Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the 

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, 
CMS-1461-P SP 11/25/14 342 

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. 

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 Regulatory Impact Analysis, which to the best of our ability presents the costs 

and benefits of the rulemaking. 

C. Anticipated Effects 

1. Effects on the Medicare Program 

The Shared Savings Program is a voluntary program involving an innovative mix 

of financial incentives for quality of care and efficiency gains within FFS Medicare. As a 

result, the changes being proposed to the Shared Savings Program could result in a range 

of possible outcomes. In previous rulemaking (76 FR 67904), we indicated that 

participation in Track 1 might enable ACOs to gain the experience necessary to take on 

risk in a subsequent agreement period under a two-sided arrangement, possibly enhancing 

the opportunity for greater program savings in years beyond the first agreement period. 
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Conversely, if in that first agreement period, ACOs come to reliably predict a bias that 

ensures an outcome – whether favorable or unfavorable – the program would be at risk 

for increasingly selective participation from favored ACOs and any real program savings 

could be overwhelmed by outsized shared-savings payments (76 FR 67964). Further, 

even ACOs that opt for a two-sided arrangement could eventually terminate their 

agreements if they anticipate that efforts to improve efficiency are overshadowed by their 

particular market circumstances. This scenario could also contribute to selective program 

participation by ACOs favored by the national flat-dollar growth target, or favored by 

other unforeseen biases affecting performance. 

However, as we indicated in the previous rulemaking, even with the optional 

liability for a portion of excess expenditures, which offers less incentive to reduce costs 

than a model involving full capitation, the opportunity to share in FFS Medicare savings 

still represents an incentive for efficiency. The actual effects of shared savings (and 

potential liabilities in the form of shared losses) will have varying degrees of influence on 

hospitals, primary care physicians, specialty physicians, and other providers and 

suppliers. Moreover, while certain care improvements might be achieved relatively 

quickly (for example, prevention of hospital readmissions and emergency-room visits for 

certain populations with chronic conditions), some ACOs might need more than 3 years 

to achieve comprehensive efficiency gains. 

As of the spring of 2014, over 330 organizations have chosen to participate in the 

Shared Savings Program. These organizations care for nearly 5 million assigned FFS 

beneficiaries living in 47 states, plus Puerto Rico and the District of Columbia. Half of 
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all ACOs characterize themselves as networks of individual practices and the other half 

include hospitals. In the fall of 2014, CMS announced the final financial reconciliation 

and quality performance results for performance year 1 for ACOs with 2012 and 2013 

agreement start dates. Of the 220 ACOs with 2012 and 2013 start dates, 58 ACOs 

generated shared savings during their first performance year. They held spending 

$705 million below their targets and earned shared savings payments of more than $315 

million as their share of program savings. One ACO in Track 2 overspent its target by 

$10 million and owed shared losses of $4 million. Total net savings to Medicare is close 

to $383 million, including repayment of shared losses by one Track 2 ACO. An 

additional 60 ACOs reduced health costs compared to their benchmark, but did not 

qualify for shared savings, as they did not meet the minimum savings threshold. While 

evaluation of the program's overall impact is ongoing, the performance year 1 final 

financial reconciliation and quality results are within the range originally projected for 

the program's first year. Also, at this point, we have seen no evidence of systematic bias 

in ACO participation or performance that would raise questions about the savings that 

have been achieved. 

Earlier in this proposed rule, we proposed additions to or changes in policy that 

are intended to better encourage ACO participation in risk-based models by-- 

● Easing the transition from Track 1 to Track 2; 

● Reducing risk under Track 2; and 

● Adopting an alternative risk-based model—Track 3. 
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First, as is currently the case, an ACO would be able to apply to participate in 

Track 1 for its initial agreement period during which the ACO could be eligible for 

shared savings payments in all 3 performance years of the agreement period without the 

risk of being responsible for repayment of any losses if actual expenditures exceed the 

benchmark. However, rather than requiring all Track 1 ACOs to transition to a 

risk-based model in their second agreement period, as is currently required, we are 

proposing to improve the transition from the shared-savings only model to a risk-based 

model for Track 1 ACOs that might require additional experience with the program 

before taking on performance-based risk. Specifically, in this proposed rule, we are 

proposing that Track 1 ACOs may elect to continue participation under Track 1 for a 

subsequent agreement period, albeit with a lower sharing rate, provided that they meet 

the eligibility requirements to continue in the program under Track 1. 

Second, we are proposing to reduce the current level of risk for ACOs that 

participate in Track 2, which provides an opportunity for an ACO to receive a higher 

percentage of shared savings for all years of the agreement period, but with potential 

liability for shared losses in each of the agreement years if annual expenditures exceed 

the benchmark. Specifically, in this proposed rule, we are proposing to replace the 

current flat 2 percent MSR and MLR under Track 2 with a variable MSR and MLR using 

the same methodology as is currently used to establish the MSRs for ACOs under Track 

1. Under this methodology an ACO's MSR varies based on the number of assigned 

beneficiaries using a sliding scale. Similarly, we are proposing to vary a Track 2 ACO's 

MSR and MLR based on the number of assigned beneficiaries. This proposal would 
CMS-1461-P SP 11/25/14 346 

reduce risk for many Track 2 ACOs by increasing the threshold before they would have 

to share in additional costs that they had incurred for the program. 

Third, in this proposed rule, we are proposing to establish an additional risk-based 

option (Track 3) that offers a higher maximum shared savings percentage (75 percent) 

and performance payment limit (20 percent) than is available under Track 2 (60 percent 

and 15 percent respectively), a fixed MSR and MLR of 2 percent, and a cap on the 

amount of losses for which an ACO is liable that is fixed at 15 percent of its updated 

benchmark in each year. Also, under this model, beneficiaries would be assigned 

prospectively so an ACO would know in advance those beneficiaries for which it would 

be responsible. 

As detailed in Table 8, we estimate at baseline (that is, without the proposed 

changes detailed in this proposed rule) a total aggregate median impact of $730 million in 

net federal savings for calendar years (CY) 2016 through 2018 from the continued 

operation of the Shared Savings Program for ACOs electing a second agreement period 

starting in January 2016. The 10th and 90th percentiles of the estimate distribution, for 

this same time period, yield a net savings of $380 million and $1,160 million, 

respectively. These estimated impacts represent the effect on federal transfers of 

payments to Medicare providers and suppliers. The median estimated federal savings are 

higher than the estimate for the program effects over the preceding calendar years (CY) 

2012 through 2015 published in the previous final rule (estimated median net savings of 

$470 million for such 4 year period). This increase in savings is due to multiple factors 

related to maturation of the program, including continued phase-in of assumed savings 
CMS-1461-P SP 11/25/14 347 

potentials, lowered effective sharing rates due in part to rebased benchmarks, and 

increased collection of shared losses due to mandatory enrollment in Track 2 in a second 

agreement period. However, absent changes to improve the viability of participation for 

ACOs considering a second agreement period, we estimate fewer than one in four ACOs 

will opt for continued participation under downside risk in Track 2 as required under the 

current regulations. Further, we estimate approximately one in three of such re-enrolling 

ACOs would ultimately drop out of the program by 2018 to avoid future shared loss 

liability. 

Alternatively, as detailed in Table 9, by including the proposed changes detailed 

in this rule, the total aggregate median impact would increase to $1,010 million in net 

federal savings for calendar years (CY) 2016 through 2018. The 10th and 90th percentiles 

of the estimate distribution, for the same time period, would also be higher, yielding net 

savings of $430 million and $1,650 million, respectively. Such median estimated federal 

savings are $280 million greater than the $730 million median net savings estimated at 

baseline absent proposed changes. A key driver of an anticipated increase in net savings 

is through improved ACO participation levels in a second agreement period. We 

estimate that at least 90 percent of eligible ACOs will renew their participation in the 

Shared Savings Program if presented with the new options, primarily under Track 1 and, 

to a lesser extent, under Track 3. This expansion in the number of ACOs willing to 

continue their participation in the program is estimated to result in additional 

improvements in care efficiency of a magnitude significantly greater than the reduced 

shared loss receipts estimated from baseline (median shared loss dollars reduced by 
CMS-1461-P SP 11/25/14 348 

$140 million relative to baseline) and the added shared savings payments flowing from a 

higher sharing rate in Track 3 and continued one-sided sharing available in Track 1 

(median shared savings payments increased by $320 million relative to baseline). 

With respect to costs incurred by ACOs, as discussed later in this section, for 

purposes of this analysis, we are retaining our assumption included in our 

November 2011 final rule (76 FR 67969) of an average of $0.58 million for start-up 

investment costs but are revising our assumption for average ongoing annual operating 

costs for an ACO participating in the Shared Savings Program to $0.86 million, down 

from the $1.27 million assumed in our November 2011 final rule (76 FR 67969). This 

revision is related to the lower average number of beneficiaries currently observed to be 

assigned to existing Shared Savings Program ACOs compared to the larger organizations 

participating in the Physician Group Practice Demonstration upon which the original 

assumption was based. We also believe that our proposals to streamline the 

administrative requirements for the program could further assist in lowering 

administrative costs. 

For our analysis, we are comparing the effects of the proposed changes in this 

proposed rule for a cohort of ACOs that either continued their participation, beginning in 

2016 or newly began participation in that same year. For purposes of our analysis, we 

assume that roughly one quarter of ACOs will incur aggregate start-up investment costs 

in 2016, ranging from $7 million under the baseline scenario to $30 million under the 

alternative (all proposed changes) scenario in aggregate. Aggregate ongoing operating 

costs are estimated to range from $43 million under the baseline scenario to $181 million 
CMS-1461-P SP 11/25/14 349 

under the alternative scenario. Both start-up investment and ongoing operating cost 

ranges assume an anticipated average participation level of 50 (baseline scenario) to 210 

(alternative scenario) new or currently participating ACOs that establish or renew 

participation agreements in 2016. For purposes of this analysis, we assume that some 

portion of ACOs currently participating in the program will not renew their participation 

agreement for a subsequent agreement period. As a result, under our baseline scenario, 

we assume 50 ACOs will either renew or begin an agreement period in 2016—far fewer 

than the 100 new ACOs that have entered the program in each of the last 2 years. The 

3-year aggregate ongoing operating cost estimate also reflects our assumption that, under 

the baseline scenario, there would be a greater propensity for ACOs that have completed 

the full term of their initial agreement period, and that would be required to participate 

under Track 2 in their second agreement period, to drop out of the program after 

receiving poor results from their final settlement for the first performance year under 

Track 2 in the new agreement period. Therefore, as illustrated in Table 8 for the baseline 

scenario, for CYs 2016 through 2018, total median ACO shared savings payments of 

$310 million offset by $170 million in shared losses coupled with the aggregate average 

start-up investment and ongoing operating cost of $121 million result in an estimated net 

private benefit of $19 million. Alternatively, as illustrated in Table 9 for the all changes 

scenario, for CYs 2016 through 2018 the total median ACO shared savings payments of 

$630 million, offset by $30 million in shared losses, coupled with the aggregate average 

start-up investment and ongoing operating costs of $562 million, result in an estimated 

net private benefit of $38 million. By proposing to no longer require ACOs to accept risk 
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in their second agreement period, our proposed changes also provide the benefit of 

reducing the per-ACO average shared loss liability by over 95 percent compared to the 

baseline. Therefore, the proposed changes would likely prevent a significant number of 

ACOs that would renew their participation agreements in 2016 from leaving the program 

prior to 2018. 

By encouraging greater Shared Savings Program participation, the changes 

proposed in this rule will also benefit beneficiaries through broader improvements in 

accountability and care coordination than would occur under current regulations. 

Accordingly, we have prepared a regulatory impact analysis (RIA) that to the best of our 

ability presents the costs and benefits of this proposed rule. 

TABLE 8: BASELINE (ABSENT ALL PROPOSED CHANGES) 

ESTIMATED NET FEDERAL SAVINGS, COSTS AND BENEFITS, 

CYs 2016 THROUGH 2018 

CY 2016 CY 2017 CY 2018 CYs (2016-2018)

Net Federal Savings 

10th Percentile $200 million $150 million $20 million $380 million 

Median $340 million $270 million $110 million $730 million 

90th Percentile $510 million $430 million $240 million $1160 million 

ACO Shared Savings 

10th Percentile $40 million $60 million $70 million $180 million 

Median $80 million $110 million $120 million $310 million 

90th Percentile $130 million $170 million $190 million $480 million 

ACO Shared Losses 

10th Percentile $20 million $40 million $10 million $80 million 

Median $60 million $80 million $30 million $170 million 

90th Percentile $100 million $150 million $60 million $290 million 

Costs The estimated aggregate average start-up investment and 3-year operating 

costs is $121 million. The total estimated start-up investment costs average 

$7 million, with ongoing costs averaging $43 million, for the anticipated 

mean baseline participation of 50 ACOs 

Benefits Improved healthcare delivery and quality of care and better communication 

to beneficiaries through patient-centered care. 

*Note that the percentiles for each individual year do not necessarily sum to equal the corresponding percentiles estimated for the 

total 3-year impact, in the column labeled CYs 2016 through 2018, due to the annual and overall distributions being constructed

independently. 
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TABLE 9: ALTERNATIVE SCENARIO ASSUMING ALL PROPOSED 

CHANGES ESTIMATED NET FEDERAL SAVINGS, COSTS AND BENEFITS, 

CYs 2016 THROUGH 2018 

CY 2016 CY 2017 CY 2018 CYs 

(2016-2018)

Net Federal Savings 

10th Percentile $190 million $150 million $80 million $430 million 

Median $380 million $350 million $280 million $1,010 million 

90th Percentile $590 million $570 million $510 million $1650 million 

ACO Shared Savings 

10th Percentile $90 million $150 million $220 million $470 million 

Median $140 million $210 million $280 million $630 million 

90th Percentile $200 million $280 million $350 million $820 million 

ACO Shared Losses 

10th Percentile $0 million $0 million $0 million $10 million 

Median $10 million $20 million $0 million $30 million 

90th Percentile $30 million $40 million $20 million $70 million 

Costs The estimated aggregate average start-up investment and 3-year operating 

costs is $562 million. The total estimated start-up investment costs 

average $30 million, with ongoing costs averaging $181 million, for the 

anticipated mean baseline participation of 210 ACOs.

Benefits Improved healthcare delivery and quality of care and better 

communication to beneficiaries through patient-centered care. 

Note that the percentiles for each individual year do not necessarily sum to equal the corresponding 

percentiles estimated for the total 3-year impact in the column labeled CYs 2016 through 2018, due to the 

annual and overall distributions being constructed independently. Also, the cost estimates for this table 

reflect our assumptions for increased ACO participation as well as changes in the mix of new and 

continuing ACOs. 

There remains uncertainty as to the number of ACOs that will continue to 

participate in the program, provider and supplier response to the financial incentives 

offered by the program in the medium and long run, and the ultimate effectiveness of the 

changes in care delivery that may result as ACOs work to improve the quality and 

efficiency of patient care. These uncertainties continue to complicate efforts to assess the 

financial impacts of the Shared Savings Program and result in a wide range of potential 
CMS-1461-P SP 11/25/14 352 

outcomes regarding the net impact of the proposed changes in this proposed rule on 

Medicare expenditures. 

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 

affect the overall financial impact of the Shared Savings Program. Using a Monte Carlo 

simulation approach, the model randomly draws a set of specific values for each variable, 

reflecting the expected covariance among variables, and calculates the program's 

financial impact based on the specific set of assumptions. We repeated the process for a 

total of 2,500 random trials, tabulating the resulting individual cost or savings estimates 

to produce a distribution of potential outcomes that reflects the assumed probability 

distributions of the incorporated variables, as shown in Table 9. In this way, we can 

evaluate the full range of potential outcomes based on all combinations of the many 

factors that will affect the financial impact, and with an indication of the likelihood of 

these outcomes. It is important to note that these indications do not represent formal 

statistical probabilities in the usual sense, since the underlying assumptions for each of 

the factors in the model are based on reasonable judgments, using independent expert 

opinion when available. 

The median result from the distribution of simulated outcomes represents the 

"best estimate" of the financial effect of the proposed changes to the Shared Savings 

Program. The full distribution illustrates the uncertainty surrounding the mean or median 

financial impact from the simulation. 

The median estimate involves a combination of-- 
CMS-1461-P SP 11/25/14 353 

● Reduced actual Medicare expenditures due to more efficient care; 

● Shared savings payments to ACOs; and 

● Payments to CMS for shared losses when actual expenditures exceed the 

benchmark, resulting in a projected total of $1,010 million in net savings over CYs 2016 

through 2018, or $280 million greater than the median projected total at baseline without 

the changes proposed in this rule. 

This net Federal savings estimate, detailed at the top of Table 9, can be summed 

with the projected ACO shared savings less projected ACO shared losses-- both also 

detailed in Table 9-- to show the median expected effect on Medicare claim expenditures 

before accounting for shared savings payments (that is, the reduction in actual Medicare 

expenditures due to more efficient care). 

A net savings (cost) occurs when payments of earned and unearned shared 

savings (less shared losses collected) resulting from: (1) reductions in spending; (2) care 

redesign; and (3) random group claim fluctuation, in total are less than (greater than) 

assumed savings from reductions in expenditures. 

As continued emerging data become available on the differences between actual 

expenditures and the target expenditures reflected in ACO benchmarks, it may be 

possible to evaluate the financial effects with greater certainty. The estimate distribution 

shown in Table 10 provides an objective and reasonable indication of the likely range of 

financial outcomes, given the chosen variables and their assumed distributions at this 

time in the program's operation. 

a. Assumptions and Uncertainties 
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We continue to rely on input gathered as part of the analysis for the existing 

regulation from a wide range of external experts, including credentialed actuaries, 

consultants, and academic researchers, to identify the pertinent variables that could 

determine the efficacy of the program, and to identify the reasonable ranges for each 

variable. We also continue to monitor emerging evidence from current participation in 

this program, the Pioneer ACO Model, and related published evidence where available. 

The factors that we are continuing to consider for modeling include all of the following: 

• Number of participating ACOs, including the sensitivity to burdens of 

participation and the generosity of the sharing arrangement. 

• Size mix of participating ACOs. 

• Type of ACO that would consider accepting risk. 

• Participating ACOs' current level of integration and preparedness for improving 

the quality and efficiency of care delivery. 

• Baseline per-capita costs for ACOs, relative to the national average. 

• Number and profile of providers and suppliers available to participate in the 

Shared Savings Program as a result of Innovation Center model initiatives. 

• Range of gross savings achieved by ACOs, and the time required for full 

phase-in. 

• Local variation in expected claims cost growth relative to the national average. 

• Quality reporting scores and resulting attained sharing (or loss) percentages. 

• Potential 'spillover' effects between the Shared Savings Program and other 

value-based incentive programs implemented by CMS and/or other payers. 
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We assumed that overall between 0.8 million Medicare beneficiaries (under 

baseline) and 3.3 million Medicare beneficiaries (with all proposed changes) would 

annually be assigned to between 50 and 210 ACOs beginning a new agreement period in 

2016. Given data on current participation, we anticipate the program will continue to 

garner comparable levels of participation from markets exhibiting baseline per-capita 

FFS expenditures above, at, or below the national average. In addition, we assumed the 

level of savings generated by an ACO to positively correlate to the achieved quality 

performance score and resulting sharing percentage. 

For estimating the impact of the proposed changes, we assume that most ACOs 

(approximately 9 out of 10, on average) will choose Track 1 despite a proposed decrease 

in the savings sharing percentage. This is because the ACOs will seek to simultaneously: 

(1) avoid the potential for financial loss if expenditures experience a significant upward 

fluctuation or efficiency improvements are less effective than planned; and (2) continue 

to build organizational experience to achieve a per-capita cost target as determined under 

the program's benchmark methodology. 

In contrast, we assume that a minority of ACOs – disproportionately represented 

from a more capable subset of the total program participation – will opt for Track 3 in the 

second agreement period. These ACOs will be enabled by experience accepting risk 

and/or achieving success in their first agreement period in this program, and motivated by 

the provision for prospective assignment of beneficiaries and the greater sharing 

percentage as proposed for this new option. A particularly important cause for 

uncertainty in our estimate is the high degree of variability observed for local per-capita 
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cost growth rates relative to the national average "flat dollar" growth (used to update 

ACO benchmarks). The benchmark or expenditure target effectively serves as the chief 

measure of efficiency for participating ACOs. Factors such as lower-than-average 

baseline per-capita expenditure and variation in local growth rates relative to the national 

average can trigger shared savings payments even in the absence of any efficiency gains. 

Similarly, some ACOs could find that factors, such as prevailing per-capita expenditure 

growth in their service area that is higher than the national average, limit efficiency gains 

and reduce or prevent shared savings. 

b. Detailed Stochastic Modeling Results 

Table 10 shows the distribution of the estimated net financial impact for the 2,500 

stochastically generated trials under the scenario where all proposed changes are 

implemented. (The amounts shown are in millions, with negative net impacts 

representing Medicare savings). The net impact is defined as the total cost of shared 

savings less-- (1) any amount of savings generated by reductions in actual expenditures; 

and (2) any shared losses collected from ACOs that accepted risk and have actual 

expenditures exceeding their benchmark. 

The median estimate of the Shared Savings Program financial impact for ACOs 

potentially entering a second agreement period as proposed in this rule and covering 

calendar years 2016 through 2018 is a net federal savings of $1,010 million, which is 

$280 million higher than our estimate for the same period assuming a baseline scenario, 

which excludes the changes proposed in this rule. This amount represents the "best 

estimate" of the financial impact of the Shared Savings Program during the applicable 
CMS-1461-P SP 11/25/14 357 

period. However, it is important to note the relatively wide range of possible outcomes. 

While over 99 percent of the stochastic trials resulted in net program savings, the 10th and 

90th percentiles of the estimated distribution show net savings of $430 million to net 

savings of $1,650 million, respectively. In the extreme scenarios, the results were as 

large as $2.9 billion in savings or $200 million in costs. 

The stochastic model and resulting financial estimates were prepared by the CMS 

Office of the Actuary (OACT). The median result of $1,010 million in savings is a 

reasonable "point estimate" of the impact of the Shared Savings Program during the 

period between 2016 and 2018 if the changes proposed in this proposed rule are finalized 

and implemented. However, we emphasize the possibility of outcomes differing 

substantially from the median estimate, as illustrated by the estimate distribution. As we 

analyze additional data on ACO performance in the first agreement period, we may likely 

improve the precision of future financial impact estimates. 

To the extent that the Shared Savings Program will result in net savings or costs 

to Part B of Medicare, revenues from Part B beneficiary premiums would also be 

correspondingly lower or higher. In addition, because MA payment rates depend on the 

level of spending within traditional FFS Medicare, savings or costs arising from the 

Shared Savings Program would result in corresponding adjustments to MA payment 

rates. Neither of these secondary impacts has been included in the analysis shown. 
CMS-1461-P SP 11/25/14 358 

TABLE 10—SCENARIO ASSUMING ALL PROPOSED CHANGES 

STOCHASTIC DISTRIBUTION FOR THE ESTIMATED 

 NET SAVINGS (–) OR COSTS (+), CYs 2016 THROUGH 2018 

($ millions) 

Table 11 shows the median estimated financial effects for the Shared Savings 

Program of ACOs entering in a new agreement period starting in 2016 and the associated 

10th and 90th percentile ranges, assuming all changes in this proposed rule are 

implemented. Net savings (characterized by a negative net impact on federal outlays) are 

expected to moderately contract over the 3-year period, from a median of $380 million in 

2016 to $270 million in 2018. This progression is related to the maturation of 

efficiencies achieved by renewing ACOs contrasted by progressive increases in shared 

savings payments due to increasing variability in expenditures in later performance years 

relative to a static benchmark expenditure baseline. To similar effect, the potential that 
CMS-1461-P SP 11/25/14 359 

Track 3 ACOs experiencing losses may elect to voluntarily terminate their participation 

in the program could work to decrease net savings in the last year of the period relative to 

prior years. We note that the percentiles are tabulated for each year separately. 

Therefore, the overall net impact distribution (Table 9) will not necessarily exactly match 

the sum of distributions for each distinct year. 
CMS-1461-P SP 11/25/14 360 

TABLE 11—STOCHASTIC DISTRIBUTION FOR ESTIMATED FEDERAL NET 

SAVINGS (–) OR COSTS (+), CYs 2016 THROUGH 2018 

($ millions) 

c. Further Consideration 

The impact analysis shown is only for the 3 years 2016 through 2018 

corresponding to the second agreement period potentially available for the up to nearly 

220 ACOs that will complete their first agreement period in 2015. As of January 1, 2014, 

123 additional ACOs have joined the program and would potentially be eligible for a 

second agreement period beginning in 2017. For both groups of ACOs, uncertainties 

exist regarding providers' continued engagement with program goals and incentives, 

especially for providers who fail to generate shared savings revenue comparable to the 
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cost of effective participation in the program. It is possible that, notwithstanding the 

enhancements proposed in this rule, a significant drop-off in participation could 

materialize from ACOs failing to achieve significant revenue from shared savings in the 

short run. On the other hand, value-based payment models are showing significant 

growth in arrangements from state Medicaid programs, private insurers, and 

employer-sponsored plans. Moreover, we would also note that the number of providers 

and suppliers participating in these models and in the existing ACOs continues to grow. 

Therefore, providers may view continued participation in this program as part of a wider 

strategy for care redesign rather than be driven only by the potential for receiving 

incentives in the form of shared savings payments from the Medicare Shared Savings 

Program. Therefore, there remains a potential for broad gains in efficiency and quality of 

care delivery across all populations served by ACOs participating in the Shared Savings 

Program with possible additional "spillover" effects on federal savings potentially 

traceable to momentum originally created by this program. The stochastic model for 

estimating future program impacts starting in 2016 does not incorporate either of these 

divergent longer-run scenarios, but both remain possibilities. An impact estimate 

expanded to include performance beyond the 2016 through 2018 agreement period would 

likely entail a significantly wider range of possible outcomes. However, emerging results 

of the first performance cycle will help inform estimates of the ongoing financial effects 

of the Shared Savings Program. 

2. Effects on Beneficiaries 
CMS-1461-P SP 11/25/14 362 

This program is still in the early stages of implementation. However, we continue 

to believe that the Shared Savings Program will benefit beneficiaries because the intent of 

the program is to— 

● Encourage providers and suppliers to join together to form ACOs that will be 

accountable for the care provided to an assigned population of Medicare beneficiaries; 

● Improve the coordination of FFS items and services; and 

● Encourage investment in infrastructure and redesigned care processes for high 

quality and efficient service delivery that demonstrates a dedication to, and focus on, 

patient-centered care that results in higher quality care. 

The benefits of a payment model that encourages providers and suppliers to 

become accountable for the overall care furnished to Medicare beneficiaries were 

evidenced by the PGP demonstration, upon which many features of the Shared Savings 

Program are based. Under the PGP demonstration, all of the PGP participants achieved 

improvements in their scores for most of the quality measures over time. While only 2 

PGP participants met all 10 quality measure targets active in their first performance year, 

by the fifth performance year, seven sites met all 32, or 100 percent of their targets, and 

the remaining 3 PGP participants met over 90 percent of the targets. More specifically, 

as we previously discussed in our November 2011 final rule (76 FR 67968), over the first 

4 years of the PGP Demonstration, physician groups increased their quality scores an 

average of 10 percentage points on the ten diabetes measures, 13 percentage points on the 

ten congestive heart failure measures, 6 percentage points on the seven coronary artery 

disease measures, 9 percentage points on the 2 cancer screening measures, and 3 
CMS-1461-P SP 11/25/14 363 

percentage points on the 3 hypertension measures. Further analysis is provided in the 

Physician Group Practice Demonstration Evaluation Report (Report to Congress, 2009; 

http://www.cms.gov/DemoProjectsEvalRpts/downloads/PGP_RTC_Sept.pdf). 

As we have also previously discussed (76 FR 67968), in addition to the overall 

increases in quality scores, we can examine the impact of the PGP Demonstration on 

quality by comparing the values of the seven claims-based quality measures for each PGP 

site and its comparison group. Our analysis found that, on the claims-based measures, 

PGP performance exceeded that of the comparison groups (CGs) on all measures 

between the base year (BY) and performance year 2 (PY2). It also found that the PGP 

sites exhibited more improvement than their CGs on all but one measure between the BY 

and PY2. Even after adjusting for pre-demonstration trends in the claims-based quality 

indicators, the PGP sites improved their claims-based quality process indicators more 

than their comparison groups. 

Further, for the first year of the Pioneer ACO Model, all 32 Pioneer ACOs 

successfully reported quality measures and achieved the maximum quality score for 

complete and accurate reporting, earning incentive payments for their reporting 

accomplishments. Overall, Pioneer ACOs performed better than published rates in FFS 

Medicare for all 15 clinical quality measures for which comparable data are 

available. For example, 

● Twenty-five of 32 Pioneer ACOs generated lower risk-adjusted readmission 

rates for their aligned beneficiaries than the benchmark rate for all Medicare FFS 

beneficiaries. 
CMS-1461-P SP 11/25/14 364 

● Pioneer ACOs performed better on clinical quality measures that assess 

hypertension control for patients. The median rate among Pioneer ACOs on blood 

pressure control among beneficiaries with diabetes was 68 percent compared to 

55 percent as measured in adult diabetic population in 10 managed care plans across 7 

states from 2000 to 2001. 

● Pioneer ACOs performed better on clinical quality measures that assess low 

density lipoprotein (LDL) control for patients with diabetes. The median rate among 

Pioneer ACOs for LDL control among beneficiaries with diabetes was 57 percent 

compared to 48 percent in an adult diabetic population in 10 managed care plans across 7 

states from 2000 to 2001. 

Additionally, under the Shared Savings Program, all but 6 organizations fully and 

completely reported quality measures for the 2013 reporting period, providing important 

information on current performance that can be used to improve patient engagement and 

make meaningful positive impacts on patient care. 

Above and beyond the early quality data generated by participating organizations, 

we have anecdotal evidence that illustrates the importance of encouraging participation in 

the Shared Savings Program. For example, ACO providers/suppliers report very 

meaningful changes in patient engagement through beneficiary participation on the 

governing body of the ACO and on patient advisory committees. In response to 

beneficiary input, clinical practices are offering extended office hours, including weekend 

hours, and ensuring timely appointments and access to clinical staff. Using the data 

shared by CMS, ACOs are able to identify high risk beneficiaries that require additional 
CMS-1461-P SP 11/25/14 365 

clinical attention, assign case managers, and actively work to improve care for these 

beneficiaries. One ACO reported that it has implemented a process for performing 

in-home medication reconciliation and review of care plans as a follow up to hospital 

discharge and for one third of those patients, discovered an intervention that avoided an 

unnecessary hospital readmission. Active identification and management of these 

patients has uncovered previously unaddressed issues that factored into patient inability 

to adhere to treatment plans. For example, one ACO reported that it has uncovered 

several psycho-social issues that were resulting in avoidable readmissions such as— 

● The inability to self-medicate (the ACO arranged for home health services); 

● Lack of transportation to clinical practices (the ACO's affiliated hospitals had a 

taxi service voucher program that the ACO was able to expand to the beneficiary 

population assigned to the ACO): 

● Inadequate access to healthy food resources (the ACO worked with community 

stakeholders to have meals delivered to the patient's home). 

Additionally, ACOs are using claims data to identify diagnoses prevalent in the 

assigned population and develop best practice guidelines for those conditions, and 

educating and alerting ACO participants and ACO providers/suppliers to standardize 

care. 

We expect that the changes proposed in this proposed rule, specifically those 

easing administrative requirements, smoothing the transition to a risk-based model, and 

expanding opportunities to share in a higher level of savings will encourage greater 

program participation by ACOs, which will in turn increase the number of beneficiaries 
CMS-1461-P SP 11/25/14 366 

that can potentially benefit from high quality and more coordinated care. Nonetheless, 

this program does not affect beneficiaries' freedom of choice regarding which providers 

and suppliers they see for care since beneficiaries assigned to an ACO continue to be in 

the traditional Medicare program. Thus, beneficiaries may continue to choose providers 

and suppliers that do not participate in ACOs under the Shared Savings Program. 

3. Effect on Providers and Suppliers 

Based on discussions with ACOs that generated interim shared savings and 

demonstrated high quality care during their first performance year in the Shared Savings 

Program, we know that ACOs are busy implementing a variety of strategies designed to 

improve care coordination for beneficiaries and lower the rate of growth in expenditures. 

Most of these ACOs consider themselves to be "physician-based" organizations, rather 

than "hospital-based", although many state that a strong collaboration between inpatient 

and outpatient facilities is critical to better care coordination across sites of care. ACOs 

mentioned several strategies they believed were important such as careful 

pre-participation planning, transparency between the ACO leadership and its ACO 

participants and ACO providers/suppliers, education of ACO providers/suppliers 

regarding the ACO's care processes, strong physician leadership, and working to 

streamline and transform practices for highly efficient coordinated care across sites of 

care. Several clinicians in ACOs have reported to us that the ACO is providing them 

with the support and structure needed to practice "how [they] always hoped [they] could". 

All of the ACOs recognize that they are early in the process of implementing their 
CMS-1461-P SP 11/25/14 367 

strategies to improve care coordination and reduce the rate of growth in expenditures and 

have plans to refine and improve based upon their early lessons learned. 

We realize that ACOs bear costs in building the organizational, financial and legal 

infrastructure that is necessary to participate in the Shared Savings Program and 

implementing the strategies previously articulated, as well as performing the tasks 

required of an ACO, such as: quality reporting, conducting patient surveys, and investing 

in infrastructure for effective care coordination. While provider and supplier 

participation in the Shared Savings Program is voluntary, we have examined the potential 

costs of continued program participation. 

 In this proposed rule, we are proposing to revise several program policies in order 

to reduce the burden associated with the infrastructure, start-up and ongoing annual 

operating costs for participating ACOs in the Shared Savings Program. These proposals 

include simplifying the application process for certain ACOs with experience under 

either Pioneer ACO Model or the Shared Savings Program streamlining sharing of 

beneficiary data. These significant proposed policy modifications are discussed in detail 

in sections II.B., C., and D. of this proposed rule. 

The Shared Savings Program is still relatively new, and the initial group of 

organizations that applied to participate has only recently completed the first 

performance year. Because of this limited experience with the program and flexibility 

regarding the composition of providers and suppliers within an ACO and the strategies 

that the provider community will pursue in order to improve quality and reduce cost of 
CMS-1461-P SP 11/25/14 368 

care, precise estimates of expected provider costs or changes to their costs due to this 

proposed rule are difficult to create. 

In our November 2011 final rule (76 FR 67968), we discussed a Government 

Accountability Office analysis of the PGP demonstration. The GAO study showed that 

both start-up and annual operating costs varied greatly across the participating practices. 

Thus, as we indicated in the November 2011 final rule (76 FR 67968), we use GAO's 

analysis not to predict cost investment and operating expenditures, but to demonstrate 

that we expect the range of investment to vary greatly across ACOs and to provide the 

potential scope for aspiring participants. 

For purposes of our current impact analysis, we are retaining the assumption 

included in our November 2011 final rule (76 FR 67969) of $0.58 million in average 

start-up investment cost but are revising our assumption for average ongoing annual 

operating costs for an ACO from $1.27 million to $0.86 million to reflect the lower 

average number of beneficiaries assigned to existing Shared Savings Program ACOs 

(approximately 14,700 beneficiaries) compared to the ten PGP sites examined by GAO 

(average size approximately 22,400 beneficiaries). Therefore, our cost estimates for 

purposes of this proposed rule reflect an average estimate of $0.58 million for the start-up 

investment costs and $0.86 million in ongoing annual operating costs for an ACO 

participating in the Shared Savings Program. Assuming an expected range of ACOs 

participating in the Shared Savings Program of 50 to 210 ACOs (baseline scenario and all 

changes scenario, respectively) yields an estimated aggregate start-up investment cost 

ranging from $7 million to $30 million (assuming 1 in 4 ACOs will incur start-up costs), 
CMS-1461-P SP 11/25/14 369 

with aggregate ongoing operating costs ranging from $43 million to $181 million for the 

agreement period coinciding with CYs 2016 through 2018. We are also assuming that 

ACOs participating in a track that includes two-sided performance-based risk will in 

certain cases drop out of the program after receiving poor results for the first performance 

period beginning in 2016. Such drop out activity is assumed to affect a greater 

proportion of ACOs at baseline than under the all changes scenario because of the 

requirement that all renewing ACOs participate in Track 2 under the baseline scenario. 

When utilizing the anticipated mean participation rate of ACOs in the Shared Savings 

Program for such agreement period coupled with the average start-up investment and 

ongoing annual operating costs for the up to 3 years that ACOs may participate for such 

agreement period, this yields estimated aggregate average start-up investment and 

ongoing operating costs of $121 million for 50 ACOs (assuming no regulatory changes) 

to $562 million for 210 ACOs (assuming the proposed regulatory changes) for the 

agreement period covering CYs 2016 through 2018. 

While there will be a financial cost placed on ACOs that participate, there will be 

benefits to the respective organizations in the form of increased operational and 

healthcare delivery efficiency. Furthermore, as discussed previously, and explained in 

more detail in the preamble of this proposed rule, there will be an opportunity for 

financial reward for success in the program in the form of shared savings. As shown in 

Table 12, the estimate of the shared savings that will be paid to participating ACOs is a 

median of $630 million during CYs 2016 through 2018, with $470 million and 

$820 million reflecting the 10th and 90th percentiles, respectively. (Similar to the 
CMS-1461-P SP 11/25/14 370 

previously presented stochastic distributions, the distribution represents uncertainty given 

the range of expert opinion, rather than a true statistical probability distribution.) 

Compared to shared savings payments, under our proposed changes to the 

program, we anticipate collection from participating ACOs of a relatively moderate 

$30 million in shared losses during the same period, with our 10th and 90th percentiles 

projecting $10 million and $70 million in shared losses collected, respectively. Shared 

losses decrease relative to the baseline (median of $170 million over the same 3 years) 

because, in contrast to the baseline requirement, not all renewing ACOs would be 

required to enter Track 2 and take on downside risk. Modeling indicates that not all 

ACOs choosing downside risk in a second agreement period, whether required, as under 

the current regulation or as an alternative option under the proposed changes, will achieve 

shared savings and some may incur a financial loss, due to the requirement to repay a 

share of actual expenditures in excess of their benchmark as shared losses. The 

significantly reduced level of shared losses anticipated under the all proposed changes 

scenario is largely attributable to the proposed option for eligible ACOs to be able to 

renew under a modified Track 1, and illustrates a key reason why the program would be 

anticipated to see significantly stronger continued participation under the proposed 

changes than at baseline. 

Assuming the proposed changes in this proposed rule, total median ACO shared 

savings payments ($630 million) net of median shared losses ($30 million) to ACOs with 

agreement periods covering CYs 2016 through 2018 are $600 million in net payments. 

Such median total net payment amount, coupled with the aggregate average start-up 
CMS-1461-P SP 11/25/14 371 

investment and ongoing operating cost of $562 million, incurred by the mean 

participation rate of ACOs in the Shared Savings Program during the same time period, 

yields a net private benefit of $38 million. At baseline, absent the proposed changes, the 

median net payments to ACOs over the same time period would be only $140 million 

($310 million in shared savings payments less $170 million in shared losses). Such lower 

net sharing at baseline, combined with baseline average start-up investment and ongoing 

operating costs of $121 million, yields a net private benefit of $19 million. We expect 

that a significant portion of Track 1 ACOs that are assumed to be unwilling to renew 

under the program without the protection from downside risk will welcome the 

opportunity to continue under Track 1 for a second agreement period, albeit with a lower 

maximum sharing rate of 40 percent. Moreover, the proposed changes reduce the 

estimated per-ACO average shared loss liability by over 95 percent compared to the 

baseline, and increase the chance an ACO renewing in 2016 will continue to participate 

for all 3 years of the new agreement period. 

We would note that our estimates of net private benefits under the baseline and all 

proposed changes scenarios are influenced by assumptions that could vary in practice and 

thus result in a very different actual result than what was estimated. First, we assume that 

savings realized by existing ACOs during their first agreement period are built into their 

benchmarks and our baseline for their successive agreement period. This means that 

these ACOs may have to achieve greater efficiencies and quality improvements during 

their successive agreement period compared to their prior one in order to share in 

savings. Moreover, the extent to which these ACOs actually exceed or fall short of our 
CMS-1461-P SP 11/25/14 372 

assumed baseline savings will result in higher or lower actual net private benefits relative 

to our estimate. Second, our estimates assume a large proportion of existing Track 1 

ACOs will continue participating under Track 1 for 2016 to 2018, albeit at the lower 

40 percent sharing rate. This assumption has the effect of diminishing estimated benefits 

under our model. Thus, all else being equal, the extent to which a smaller or larger 

percentage of these ACOs remain under Track 1 for their second agreement period will 

also respectively increase or decrease the actual net private benefits relative to what we 

estimated. Finally, to the extent that actual ACO quality performance exceeds or falls 

short of our estimates, the net private benefits could be respectively higher or lower than 

what we estimated. 

We also note that the net private benefits actually experienced by a given ACO 

may increase as a result of other benefits associated with participation in the Shared 

Savings Program. For example, an ACO that is participating in the Shared Savings 

Program and simultaneously receives value-based contracts from other payers may 

receive additional benefits. Such potential benefits are not considered in our analysis 

because they are not readily quantifiable. Therefore, we limit our benefit-cost estimate to 

shared savings and shared loss dollars received under the Shared Savings Program 

relative to estimated operational costs associated with participating in the program as 

previously described. 
CMS-1461-P SP 11/25/14 373 

TABLE 12—STOCHASTIC DISTRIBUTION FOR ESTIMATED ACO SHARED 

SAVINGS PAYMENTS, CYs 2016 THROUGH 2018

($ millions) 

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 small businesses under the Small Business 

Administration's size standards (revenues of less than $7.5 to $38.5 million in any 1 year; NAIC 
CMS-1461-P SP 11/25/14 374 

Sector- 62 series). States and individuals are not included in the definition of a small entity. For 

details, see the Small Business Administration's Web site 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 (PFS). 

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 drafted the proposed changes to 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. Small entities are both allowed and 

encouraged to participate in the Shared Savings Program, provided they have 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 have determined that this proposed rule will have a significant impact on a substantial 

number of small entities and we present more detailed analysis of these impacts, including costs 

and benefits to small entities and alternative policy considerations throughout this RIA. 

However, as detailed in this RIA, total median shared savings payments net of shared losses will 

offset about 107 percent of the average costs borne by entities participating in the Shared Savings 

Program, with an offset significantly greater than the cost of participation for the subset of ACOs 

that achieve shared savings in a given year, and no downside risk of significant shared losses for 
CMS-1461-P SP 11/25/14 375 

ACOs choosing to remain under Track 1 for a second agreement period. As a result, this 

regulatory impact section, together with the remainder of the preamble, constitutes our 

preliminary Regulatory Flexibility Analysis. 

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 proposed rule will have a significant impact on the operations of a 

substantial number of small rural hospitals. We have proposed changes to our regulations such 

that rural hospitals will have stronger incentives to participate in the program through offering a 

smoother transition to risk-based models, additional opportunities to potentially share in savings 

under proposed new Track 3, and streamlined administrative requirements. As detailed in this 

RIA, the estimated aggregate median impact of shared savings payments to participating ACOs is 

approximately 107 percent of the average costs borne by entities that voluntarily participate in the 

Shared Savings Program, with an offset significantly greater than the cost of participation for the 

subset of ACOs that achieve shared savings in a given year, and no downside risk of significant 

shared loss penalties for ACOs choosing to remain under Track 1 for a second agreement period. 

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 2014, 

that is approximately $141 million. This proposed rule does not include any mandate that would 

result in spending by state, local or tribal governments, in the aggregate, or by the private sector 
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Track 3 may boost efforts to build capacity for accepting downside risk while potentially 

accelerating activities related to improving the efficiency of care. Also, the opportunity under 

Track 3 to share in a greater percentage of the savings that are achieved could assist in addressing 

the concerns of ACOs that were successful in achieving savings in their first agreement period 

but are concerned that their new expenditure baseline for the agreement period starting in 2016 

will be lower as a result of their prior success in reducing the cost of care for their assigned 

beneficiaries, thus making it more difficult to achieve savings. 

Another alternative scenario we considered included all proposed changes except for 

lowering the Track 1 sharing rate from 50 percent to 40 percent for Track 1 ACOs that elect to 

renew for a second agreement period under this model starting in 2016. Similar to the previous 

scenario, this change would not be expected to materially change overall assumed participation. 

However, relative to the all changes model, the net effect of this alternative would be to increase 

median shared savings payments by $110 million over 3 years. Furthermore, because a portion of 

ACOs that would have otherwise chosen Track 3 under the all changes scenario would now be 

expected to choose Track 1 given the higher sharing rate, overall median gross savings would 

decline by $30 million under this alternative, resulting in an overall reduction of 

$140 million in median net federal savings compared to the all changes scenario. 

Lastly, an alternative scenario was considered where no changes were proposed 

other than to allow current Track 1 ACOs a 2-year extension to their current agreement 

period, after which they would then be limited to participating under Track 2 as required 

under the current regulations. This alternative was assumed to boost ACO participation 

in 2016 and 2017 comparable to the participation level expected for such years in the 

all-changes scenario. However, we would anticipate a significant contraction in 

participation in 2018 similar to the rate of participation assumed at baseline for that year. 
CMS-1461-P SP 11/25/14 378 

The net impact of this alternative would be $220 million in reduced net federal savings 

compared to all changes as proposed in this rule, driven mainly by reduced program 

participation in the third year and by increased shared savings payments in 2016 and 

2017 because ACO benchmarks would not be rebased until 2018. 

E. Accounting Statement and Table 

 As required by OMB Circular A-4 under Executive Order 12866, in Table 13, we 

have prepared an accounting statement showing the change in (A) net federal monetary 

transfers, (B) shared savings payments to ACOs net of shared loss payments from ACOs 

and (C) the aggregate cost of ACO operations for ACO participants and ACO 

providers/suppliers from 2016 to 2018 that are associated with the provisions of this 

proposed rule as compared to baseline. 
CMS-1461-P SP 11/25/14 379 

TABLE 13: ACCOUNTING STATEMENT 

ESTIMATED IMPACTS 

(CYs 2016–2018) 

Category Primary Estimate Minimum Estimate Maximum Estimate S

(RI

BENEFITS Annualized monetized transfers: Discount rate: 7% 

-$76.3 million -$12.0 million -$129.7 million Chan

(Tabl

Annualized monetized transfers: changDiscount rate: 3% 

-$83.8 million -$13.7 million -$142.0 million 

From whom to whom? Negative values reflect reduction in federal net cost resulting from care management BENEFITS Annualized monetized transfers: Discount rate: 7% 

$124.1 million $96.5 million $152.0 million Chan

(Tabl

Annualized monetized transfers: changDiscount rate: 3% 

$134.8 million $105.1 million $164.7 million 

From whom to whom? Positive values reflect increase in aggregate shared savings net of shared losses OPERATIONAL COST Annualized monetized transfers: Discount rate: 7% 

$121.3 million Chan

(Tabl

Annualized monetized transfers: changDiscount rate: 3% 

$130.7 million 

From whom to whom? Positive values reflect increase in aggregate ACO operating costs largely attributable 

increased participation as a result of the proposals included in this proposed rule com
CMS-1461-P 

F. Conclusion 

The analysis in this section, together with the remainder of this preamble, provides a 

Regulatory Impact Analysis. As a result of this proposed rule, the median estimate of the 

financial impact of the Shared Savings Program for CYs 2016 through 2018 would be net 

federal savings (after shared savings payments) of $1,010 million. Under this proposed rule, 

median savings would be about $280 million higher than we estimate assuming none of the 

proposed changes for this period. Although this is the "best estimate" of the financial impact of 

the Shared Savings Program during CYs 2016 through 2018, a relatively wide range of possible 

outcomes exists. While over 99 percent of the stochastic trials resulted in net program savings, 

the 10th and 90th percentiles of the estimated distribution show net savings of $430 million to 

net savings of $1,650 million, respectively. In the extreme scenarios, the results were as large 

as $2.9 billion in savings or $200 million in costs. 

In addition, at the anticipated mean participation rate of ACOs in the Shared Savings 

Program, participating ACOs may experience an estimated aggregate average start-up 

investment and ongoing operating cost of $815 million for CYs 2016 through 2018. Lastly, we 

estimate an aggregate median impact of $630 million in shared savings payments to 

participating ACOs in the Shared Savings Program for CYs 2016 through 2018. The 10th and 

90th percentiles of the estimate distribution, for the same time period, yield shared savings 

payments to ACOs of $470 million and $820 million, respectively. Therefore, the total median 

ACO shared savings payments of $630 million during CYs 2016 through 2018, net of a median 

$30 million shared losses, coupled with the aggregate average start-up investment and ongoing 

operating cost of $562 million yields a net private benefit of $38 million. 
CMS-1461-P 

Overall, we assumed greater participation by ACOs under the policies contained in this 

proposed rule due to our proposals to ease the transition from Track 1 to Track 2, reduce risk 

under Track 2, and adopt an alternative risk-based model—Track 3. This resulted in total 

shared savings increasing significantly, while shared losses decreased due to these changes. 

Moreover, as participation in the Shared Savings Program continues to expand, we anticipate 

there will be a broader focus on care coordination and quality improvement among providers 

and suppliers within the Medicare program that will lead to both increased efficiency in the 

provision of care and improved quality of the care that is provided to beneficiaries. 

In accordance with the provisions of Executive Order 12866, this rule was reviewed by 

the Office of Management and Budget. 

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 proposes to amend 42 CFR part 425 as follows: 

PART 425--MEDICARE SHARED SAVINGS PROGRAM

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

Authority: Secs. 1102, 1106, 1871, and 1899 of the Social Security Act (42 U.S.C. 

1302 and 1395hh). 

§ 425.10 [Amended] 
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2. Amend §425.10 (b)(6) by removing the phrase "two-sided model" and adding in its 

place the phrase "two-sided models". 

3. Amend §425.20 as follows: 

A. By revising the definition of "ACO participant". 

B. By adding the definition of "ACO participant agreement" in alphabetical order. 

C. By revising the definitions of "ACO professional", "ACO provider/supplier", 

"Agreement period", and "Assignment". 

D. By adding the definition of "Assignment window" in alphabetical order. 

E. By revising the definitions of "Continuously assigned beneficiary", "Hospital", and 

"Newly assigned beneficiary". 

F. By adding the definition of "Participation agreement" in alphabetical order. 

G. In the definition of "Performance year" by removing the phrase "in the ACO's 

agreement" and adding in its place the phrase "in the participation agreement". 

H. In paragraph (2) of the definition of "Primary care services", by removing the ";" 

and adding in its place ".". 

I. By adding paragraphs (4) and (5) to the definition of "Primary care services". 

 The revisions and additions read as follows: 

§ 425.20 Definitions. 

* * * * * 

ACO participant 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 §425.118. 
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ACO participant agreement means the written agreement (as required at § 425.116) 

between the ACO and ACO participant in which the ACO participant agrees to participate in, 

and comply with, the requirements of the Shared Savings Program. 

ACO professional means an individual who is Medicare-enrolled and bills for items and 

services furnished to Medicare fee-for-service beneficiaries under a Medicare billing number 

assigned to the TIN of an ACO participant in accordance with applicable Medicare regulations 

and who is either of the following: 

(1) A physician legally authorized to practice medicine and surgery by the State in 

which he or she performs such function or action. 

(2) A practitioner who is one of the following: 

(i) A physician assistant (as defined at § 410.74(a)(2) of this chapter). 

(ii) A nurse practitioner (as defined at § 410.75(b) of this chapter). 

(iii) A clinical nurse specialist (as defined at § 410.76(b) of this chapter) 

ACO provider/supplier means an individual or entity that meets all of the following: 

(1) Is a-- 

(i) Provider (as defined at § 400.202 of this chapter); or 

(ii) Supplier (as defined at § 400.202 of this chapter). 

(2) Is enrolled in Medicare. 

(3) Bills for items and services furnished to Medicare fee-for-service beneficiaries 

during the agreement period under a Medicare billing number assigned to the TIN of an ACO 

participant in accordance with applicable Medicare regulations. 

(4) Is included on the list of ACO providers/suppliers that is required under § 425.118. 
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Agreement period means the term of the participation agreement, which is 3 

performance years unless otherwise specified in the participation agreement. 

* * * * * 

Assignment means the operational process by which CMS determines whether 

a beneficiary has chosen to receive a sufficient level of the requisite primary care 

services from ACO professionals so that the ACO may be appropriately designated as 

exercising basic responsibility for that beneficiary's care during a given benchmark or 

performance year. 

Assignment window means the 12-month period used to assign beneficiaries to an 

ACO. 

 * * * * * 

Continuously assigned beneficiary means a beneficiary assigned to the ACO in the 

current performance year who was either assigned to or received a primary care service from 

any of the ACO participants during the assignment window for the most recent prior benchmark 

or performance year. 

* * * * * 

Hospital means a hospital as defined in section 1886(d)(1)(B) of the Act. 

* * * * * 

Newly assigned beneficiary means a beneficiary that is assigned to the ACO in the 

current performance year who was neither assigned to nor received a primary care service from 

any of the ACO participants during the assignment window for the most recent prior 

benchmark or performance year. 

* * * * * 
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Participation agreement means the written agreement required under §425.208(a) 

between the ACO and CMS that, along with the regulations in this part, govern the ACO's 

participation in the Shared Savings Program. 

* * * * * 

Primary care services * * *

(4) CPT codes 99495 and 99496 and HCPCS code GXXX1. 

(5) Additional codes designated by CMS as primary care services for purposes of 

the Shared Savings Program, including new HCPCS/CPT and revenue center codes and any 

subsequently modified or replacement codes for the HCPCS/CPT and revenue center codes 

identified in paragraphs (1) through (4) of this definition. 

* * * * *

§ 425.100 [Amended] 

 4. Amend §425.100 as follows: 

A. In paragraph (b) by removing the reference "under §425.604 or §425.606" and 

adding in its place the reference "under §425.604, §425.606 or §425.610". 

B. In paragraph (c) by removing the phrase "under the two-sided model" and adding in 

its place the phrase "under a two-sided model". 

C. In paragraph (c) by removing the reference "under §425.606" and adding in its place 

the reference "under §425.604, §425.606 or §425.610". 

5. Amend §425.102 as follows: 

A. By adding paragraph (a)(8). 

B. In paragraph (b) by removing the phrase "eligible participate" and adding in its place 

the phrase "eligible to participate". 
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The addition reads as follows: 

§ 425.102 Eligible providers and suppliers.

(a) * * *

(8) Teaching hospitals that have elected under § 415.160 of this chapter to receive 

payment on a reasonable cost basis for the direct medical and surgical services of their 

physicians. 

* * * * * 

§ 425.104 [Amended] 

 6. Amend §425.104(b), by removing the phrase "otherwise independent ACO 

participants must" and adding in its place the phrase "ACO participants, each of which is 

identified by a unique TIN, must". 

7. Amend §425.106 by revising paragraphs (a), (b)(3), (c)(1), (c)(2), and (c)(5) to read 

follows: 

§ 425.106 Shared governance.

(a) General rule. (1) An ACO must maintain of an identifiable governing body with 

ultimate authority to execute the functions of an ACO as defined under this part, including 

but not limited to the processes defined under § 425.112 to promote evidence-based medicine 

and patient engagement, to report on quality and cost measures, and to coordinate care. 

(2) The governing body of the ACO must satisfy all of the following criteria: 

(i) Be the same as the governing body of the legal entity that is the ACO. 

(ii) Be separate and unique to the ACO and must not be the same as the governing 

body of any ACO participant, in the case of an ACO that comprises two or more ACO 

participants. 
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(iii) Satisfy all other requirements of this section. 

(b) * * * 

(3) The governing body members must have a fiduciary duty to the ACO, including the 

duty of loyalty, and must act consistent with that fiduciary duty. 

* * * * *

(c) * * * 

(1) The ACO must--(i) Establish a mechanism for shared governance among the ACO 

participants or combinations of ACO participants (as identified in § 425.102(a)) that formed 

the ACO; and 

(ii) Provide for meaningful participation in the composition and control of the ACO's 

governing body for ACO participants or their designated representatives. 

(2) The ACO governing body must include a Medicare beneficiary who-- 

(i) Is served by the ACO; 

(ii) Is not an ACO provider/supplier; 

(iii) Does not have a conflict of interest with the ACO; and 

(iv) Does not have an immediate family member who has a conflict of interest with the 

ACO. 

* * * * * 

(5) In cases in which the composition of the ACO's governing body does not meet the 

requirements of paragraphs (c)(2) of this section, the ACO must describe-- 

(i) Why it seeks to differ from this requirement; and 

(ii) How it will provide meaningful representation of Medicare beneficiaries in ACO 

governance. 
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* * * * * 

8. Amend §425.108 by removing paragraph (e) and revising paragraph (c) to read as 

follows: 

§ 425.108 Leadership and management.

* * * * * 

(c) Clinical management and oversight must be managed by a senior-level medical 

director. The medical director must be-- 

(1) A board-certified physician; 

(2) Licensed in a State in which the ACO operates; and 

(3) Physically present on a regular basis at any clinic, office or other location of the 

ACO, ACO participant or ACO provider/supplier. 

* * * * * 

 9. Amend §425.110 by revising paragraphs (a)(2) and (b) to read as follows: 

§ 425.110 Number of ACO professionals and beneficiaries.

(a) * * *

(2) CMS deems an ACO to have initially satisfied the requirement to have at least 

5,000 assigned beneficiaries as specified in paragraph (a)(1) of this section if 5,000 or more 

beneficiaries are historically assigned to the ACO participants in each of the 3 benchmark 

years, as calculated using the assignment methodology set forth in subpart E of this part. In 

the case of the third benchmark year, CMS uses the most recent data available to estimate the 

number of assigned 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 §§ 425.216 and 425.218. 
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(1) While under a CAP, the ACO remains eligible for shared savings and losses and 

the MSR is set at a level consistent with the number of assigned beneficiaries. 

(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. 

10. Amend §425.112 by adding paragraphs (b)(4)(ii)(C), (D), and (E) to read as 

follows: 

§ 425.112 Required processes and patient-centeredness criteria. 

* * * * * 

(b) * * *

(4) * * *

(ii) * * *

(C) Describe how the ACO will encourage and promote use of enabling technologies 

for improving care coordination for beneficiaries. Enabling technologies may include one or 

more of the following: 

(1) Electronic health records and other health IT tools. 

(2) Telehealth services, including remote patient monitoring. 

(3) Electronic exchange of health information. 

(4) Other electronic tools to engage beneficiaries in their care. 

(D) Describe how the ACO intends to partner with long-term and post-acute care 

providers, both inside and outside the ACO, to improve care coordination for their assigned 

beneficiaries. 
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(E) Define and submit a set of major milestones or performance metrics the ACO will 

use in each performance year to assess the progress of its ACO participants in implementing the 

processes described in paragraph (b)(4) of this section. 

11. Add §425.116 to subpart B to read as follows: 

§ 425.116 Agreements with ACO participants and ACO providers/suppliers 

 (a) ACO participant agreements. The ACO must have an ACO participant agreement 

with each ACO participant that complies with the following criteria: 

 (1) The only parties to the agreement are the ACO and the ACO participant. 

 (2) The agreement must be signed on behalf of the ACO and the ACO participant by 

individuals who are authorized to bind the ACO and the ACO participant, respectively. 

 (3) The agreement must expressly require the ACO participant to agree, and to ensure 

that each ACO provider/supplier billing through the TIN of the ACO participant agrees, to 

participate in the Shared Savings Program and to comply with the requirements of the Shared 

Savings Program and all other applicable laws and regulations (including, but not limited to, 

those specified at §425.208(b)). 

 (4) The agreement must set forth the ACO participant's rights and obligations in, and 

representation by, the ACO, including without limitation, the quality reporting requirements set 

forth in subpart F of this part, the beneficiary notification requirements set forth at §425.312, 

and how participation in the Shared Savings Program affects the ability of the ACO participant 

and its ACO providers/suppliers to participate in other Medicare demonstration projects or 

programs that involve shared savings. 

 (5) The agreement must describe how the opportunity to receive shared savings or 

other financial arrangements will encourage the ACO participant to adhere to the quality 
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assurance and improvement program and evidence-based medicine guidelines established by 

the ACO. 

(6) The agreement must require the ACO participant to update its enrollment 

information, including the addition and deletion of ACO professionals and ACO 

providers/suppliers billing through the TIN of the ACO participant, on a timely basis in 

accordance with Medicare program requirements and to notify the ACO of any such changes 

within 30 days after the change. 

(7) The agreement must permit the ACO to take remedial action against the ACO 

participant, and must require the ACO participant to take remedial action against its ACO 

providers/suppliers, including imposition of a corrective action plan, denial of incentive 

payments, and termination of the ACO participant agreement, to address noncompliance with 

the requirements of the Shared Savings Program and other program integrity issues, including 

those identified by CMS. 

(8) The agreement must be for a term of at least one performance year and must 

articulate potential consequences for early termination from the ACO. 

(9) The agreement must require completion of a close-out process upon termination or 

expiration of the agreement that requires the ACO participant to furnish all data necessary to 

complete the annual assessment of the ACO's quality of care and addresses other relevant 

matters. 

(b) Agreements with ACO providers/suppliers. ACOs have the option of contracting 

directly with its ACO providers/suppliers regarding items and services furnished to 

beneficiaries aligned to the ACO. An ACO's agreement with an ACO provider/supplier 

regarding such items and services must satisfy the following criteria: 
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(1) The only parties to the agreement are the ACO and the ACO provider/supplier. 

 (2) The agreement must be signed by the ACO provider/supplier and by an individual 

who is authorized to bind the ACO. 

(3) The agreement must expressly require the ACO provider/supplier to agree to 

participate in the Shared Savings Program and to comply with the requirements of the Shared 

Savings Program and all other applicable laws and regulations (including, but not limited to, 

those specified at §425.208(b)). 

 (4) The agreement must set forth the ACO provider's/supplier's rights and obligations 

in, and representation by, the ACO, including without limitation, the quality reporting 

requirements set forth in subpart F of this part, the beneficiary notification requirements set 

forth at §425.312, and how participation in the Shared Savings Program affects the ability of 

the ACO provider/supplier to participate in other Medicare demonstration projects or programs 

that involve shared savings. 

 (5) The agreement must describe how the opportunity to receive shared savings or 

other financial arrangements will encourage the ACO provider/supplier to adhere to the quality 

assurance and improvement program and evidence-based medicine guidelines established by 

the ACO. 

 (6) The agreement must require the ACO provider/supplier to-- 

(i) Update its enrollment information on a timely basis in accordance with Medicare 

program requirements; and 

(ii) Notify the ACO of any such changes within 30 days after the change. 

(7) The agreement must permit the ACO to take remedial action including the 

following against the ACO provider/supplier to address noncompliance with the requirements 
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of the Shared Savings Program and other program integrity issues, including those identified by 

CMS: 

(i) Imposition of a corrective action plan. 

(ii) Denial of incentive payments. 

(iii) Termination of the ACO participant agreement. 

(c) Submission of agreements. The ACO must submit an executed ACO participant 

agreement in accordance with CMS guidance for each ACO participant at the time of its initial 

application, participation agreement renewal process, and when adding to its list of ACO 

participants in accordance with § 425.118. The agreements may be submitted in the form and 

manner set forth in §425.204(c)(6). 

12. Add new §425.118 to subpart B to read as follows: 

§ 425.118 Required reporting of ACO participants and ACO providers/suppliers.

(a) List requirements. (1) The ACO must maintain, update, and submit to CMS an 

accurate and complete list identifying each ACO participant (including its Medicare-enrolled 

TIN) and each ACO provider/supplier (including its NPI or other identifier) in accordance with 

this section. 

(2) Before the start of an agreement period, before each performance year thereafter, 

and at such other times as specified by CMS, the ACO must submit to CMS an ACO 

participant list and an ACO provider/supplier list. 

(3) The ACO must certify the submitted lists in accordance with § 425.302(a)(2). 

(4) All Medicare enrolled individuals and entities that have reassigned their right to 

receive Medicare payment to the TIN of the ACO participant must be included on the ACO 

provider/supplier list and must agree to participate in the ACO and comply with the 
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requirements of the Shared Savings Program before the ACO submits the ACO participant list 

and the ACO provider/supplier list. 

(b) Changes to the ACO participant list. (1) Additions. (i) An ACO must submit to 

CMS a request to add an entity and its Medicare enrolled TIN to its ACO participant list. This 

request must be submitted at such time and in the form and manner specified by CMS. 

(ii) If CMS approves the request, the entity and its Medicare enrolled TIN is added to 

the ACO participant list effective January 1 of the following performance year. 

(iii) CMS may deny the request on the basis that the entity is not eligible to be an ACO 

participant or on the basis of the results of the screening performed under § 425.304(b). 

(2) Deletions. (i) An ACO must notify CMS no later than 30 days after the 

termination of an ACO participant agreement. Such notice must be submitted in the form and 

manner specified by CMS and must include the termination date of the ACO participant 

agreement. 

(ii) The entity is deleted from the ACO participant list as of the termination date of the 

ACO participant agreement. 

(3) Adjustments. (i) CMS annually adjusts an ACO's assignment, historical 

benchmark, the quality reporting sample, and the obligation of the ACO to report on behalf of 

ACO providers/suppliers for certain CMS quality initiatives to reflect the addition or deletion 

of entities from the list of ACO participants that is submitted to CMS before the start of a 

performance year in accordance with paragraph (a) of this section. 

(ii) Absent unusual circumstances, CMS does not make adjustments during the 

performance year to the ACO's assignment, historical benchmark, performance year financial 

calculations, the quality reporting sample, or the obligation of the ACO to report on behalf of 
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ACO providers/suppliers for certain CMS quality initiatives to reflect the addition or deletion 

of entities from the ACO participant list that become effective during the performance year. 

CMS has sole discretion to determine whether unusual circumstances exist that would warrant 

such adjustments. 

(c) Changes to the ACO provider/supplier list. (1) Additions. (i) An ACO must 

notify CMS within 30 days after an individual or entity becomes a Medicare-enrolled provider 

or supplier that bills for items and services it furnishes to Medicare fee-for-service beneficiaries 

under a billing number assigned to the TIN of an ACO participant. The notice must be 

submitted in the form and manner specified by CMS. 

(ii) If the ACO timely submits notice to CMS, the addition of an individual or entity to 

the ACO provider/supplier list is effective on the date specified in the notice furnished to CMS, 

but no earlier than 30 days before the date of the notice. If the ACO fails to submit timely 

notice to CMS, the addition of an individual or entity to the ACO provider/supplier list is 

effective on the date of the notice. 

(2) Deletions. (i) An ACO must notify CMS no later than 30 days after an individual 

or entity ceases to be a Medicare-enrolled provider or supplier that bills for items and services 

it furnishes to Medicare fee-for-service beneficiaries under a billing number assigned to the 

TIN of an ACO participant. The notice must be submitted in the form and manner specified by 

CMS. 

(ii) The deletion of an ACO provider/supplier from the ACO provider/supplier list is 

effective on the date the individual or entity ceased to be a Medicare-enrolled provider or 

supplier that bills for items and services it furnishes to Medicare fee-for-service beneficiaries 

under a billing number assigned to the TIN of an ACO participant. 
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(d) Update of Medicare enrollment information. The ACO must ensure that all changes 

to enrollment information for ACO participants and ACO providers/suppliers, including 

changes to reassignment of the right to receive Medicare payment, are reported to CMS 

consistent with §424.516. 

13. Amend §425.200 as follows: 

A. By revising the section heading. 

B. In paragraph (a), by removing the term "three" and adding in its place the figure "3". 

C. In the heading of paragraph (b), and paragraphs (b)(1) introductory text, (b)(1)(i), 

(b)(1)(ii), (b)(2)(ii), and (c)(1) by removing the term "agreement" each time it appears and 

adding in its place the terms "participation agreement". 

 The revision reads as follows: 

§ 425.200 Participation agreement with CMS. 

* * * * * 

14. Amend §425.202 by revising paragraphs (b) and (c) to read as follows: 

§ 425.202 Application procedures. 

* * * * * 

(b) Condensed application form. (1) PGP demonstration sites applying to participate 

in the Shared Savings Program will have an opportunity to complete a condensed application 

form. 

 (2) A Pioneer ACO may use a condensed application form to apply for participation in 

the Shared Savings Program if it satisfies all of the following criteria: 

(i) The applicant is the same legal entity as the Pioneer ACO. 
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(ii) ACO participant list does not contain any ACO participant TINs that did not appear 

on the "Confirmed Annual TIN/NPI List" (as defined in the Pioneer ACO Model Innovation 

Agreement with CMS) for the applicant ACO's last full performance year in the Pioneer ACO 

Model. 

(iii) The applicant is not applying to participate in the one-sided model. 

(c) Application review. CMS reviews applications in accordance with § 425.206. 

15. Amend §425.204 as follows: 

A. In paragraph (b)(2) by removing the terms "ACO agreement" and adding in its place 

the terms "participation agreement". 

B. In paragraph (b)(3) by removing the term "agreement" and adding in its place the 

terms "participation agreement". 

C. By revising paragraphs (c)(1) introductory text and (c)(1)(i), (iii), and (iv). 

D. In paragraph (c)(1)(vi) by removing the terms "ACO's agreement" and adding in its 

place the terms "participation agreement". 

E. By revising paragraph (c)(3). 

F. In paragraph (c)(4)(ii), by removing the phrase " among multiple, independent ACO 

participants" and adding in its place the phrase "among two or more ACO participants". 

G. By revising paragraph (c)(5)(i). 

H. By adding paragraph (c)(6). 

I. In paragraph (e)(1), removing the phrase "an ACO must specify whether it is 

applying to participate in Track 1 or Track 2" and adding in its place the phrase "an ACO must 

specify the Track for which it is applying" 

 J. By revising paragraph (f). 
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K. By adding paragraph (g). 

 The revisions and additions read as follows: 

§ 425.204 Content of the application.

* * * * * 

(c) * * * 

(1) As part of its application, and upon request thereafter, an ACO must submit to 

CMS the following supporting materials to demonstrate that the ACO satisfies the 

requirements set forth in this part: 

(i) Documents (for example, ACO participant agreements, agreements with ACO 

providers/suppliers, employment contracts, and operating policies) sufficient to describe the 

ACO participants' and ACO providers'/suppliers' rights and obligations in and representation 

by the ACO, and how the opportunity to receive shared savings or other financial 

arrangements will encourage ACO participants and ACO providers/suppliers to adhere to the 

quality assurance and improvement program and evidence-based clinical guidelines. 

* * * * * 

(iii) Materials documenting the ACO's organization and management structure, 

including an organizational chart, a list of committees (including names of committee 

members) and their structures, and job descriptions for senior administrative and clinical 

leaders specifically noted in § 425.108 and § 425.112(a)(2). 

(iv) Evidence that the governing body-- 

(A) Is an identifiable body; 

(B) Represents a mechanism for shared governance for ACO participants; 

(C) Is composed of representatives of its ACO participants; and 
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(D) Is at least 75 percent controlled by its ACO participants. 

* * * * * 

(3) If an ACO requests an exception to the governing body 

requirement in §425.106(c)(2), the ACO must describe-- 

(i) Why it seeks to differ from this requirement; and 

(ii) How the ACO will provide meaningful representation in ACO 

governance by Medicare beneficiaries. 

* * * * * 

(5) * * *

(i) The ACO must submit a list of all ACO participants and ACO 

providers/suppliers in accordance with §425.118. 

* * * * * 

(6) As part of the application process and upon request by CMS, the ACO must submit 

documents demonstrating that its ACO participants, ACO providers/suppliers, and other 

individuals or entities performing functions or services related to ACO activities are required to 

comply with the requirements of the Shared Savings Program. The evidence to be submitted 

must include, without limitation, sample or form agreements and, in the case of ACO 

participant agreements, the first and signature page(s) of each executed ACO participant 

agreement. CMS may request all pages of an executed ACO participant agreement to confirm 

that it conforms to the sample form agreement submitted by the ACO. The ACO must certify 

that all of its ACO participant agreements comply with the requirements of this part. 

* * * * * 
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(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. 

(i) As part of the application or participation agreement renewal process, an ACO that 

is seeking to 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 the agreement period. 

(ii) The documentation specified in paragraph (f)(1)(i) of this section must include 

details supporting the adequacy of the mechanism for repaying shared losses equal to at least 1 

percent of the ACO's total per capita Medicare parts A and B fee-for-service expenditures for 

its assigned beneficiaries based on expenditures used to calculate the benchmark for the 

applicable agreement period, as estimated by CMS at the time of application or participation 

agreement renewal. 

(2) An ACO may demonstrate its ability to repay shared losses by placing funds in 

escrow, obtaining a surety bond, establishing a line of credit (as evidenced by a letter of credit 

that the Medicare program can draw upon), or establishing a combination of such repayment 

mechanisms, that will ensure its ability to repay the Medicare program. 

(3) An ACO participating under a two-sided model must demonstrate the adequacy of 

this repayment mechanism prior to the start of each agreement period in which it takes risk, and 

upon request thereafter. 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 60 days. 
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(4) 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. 

(g) Consideration of claims billed under merged and acquired Medicare-enrolled TINs. 

An ACO may request that CMS consider, for purposes of beneficiary assignment and 

establishing the ACO's benchmark under § 425.602, claims billed by Medicare-enrolled 

entities' TINs that have been acquired through sale or merger by an ACO participant. 

(1) The ACO may include an acquired Medicare-enrolled entity's TIN on its ACO 

participant list under the following circumstances: 

(i) The ACO participant has subsumed the acquired entity's TIN in its entirety, 

including all of the providers and suppliers that reassigned their right to receive Medicare 

payment to the acquired entity's Medicare-enrolled TIN. 

(ii) Each provider or supplier that previously reassigned his or her right to receive 

Medicare payment to the acquired entity's TIN has reassigned his or her right to receive 

Medicare payment to the TIN of the acquiring ACO participant and has been added to the 

ACO provider/supplier list under paragraph (c)(5) of the section. 

(iii) The acquired entity's TIN is no longer used to bill Medicare. 

(2) The ACO must submit the following supporting documentation in the form and 

manner specified by CMS. 

(i) An attestation that -- 

 (A) Identifies by Medicare-enrolled TIN both the acquired entity and the ACO 

participant that acquired it; 
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(B) Specifies that all the providers and suppliers that previously reassigned their right 

to receive Medicare payment to the acquired entity's TIN have reassigned such right to the TIN 

of the identified ACO participant and have been added to the ACO provider/supplier list under 

paragraph (c)(5) of this section; and 

(C) Specifies that the acquired entity's TIN is no longer used to bill Medicare. 

(ii) Documentation sufficient to demonstrate that the acquired entity's TIN was merged 

with or purchased by the ACO participant. 

16. Amend §425.206 by revising paragraph (a) to read as follows: 

§ 425.206 Evaluation procedures for applications.

(a) Basis for evaluation and determination. (1) CMS evaluates an ACO's 

application to determine whether an applicant satisfies the requirements of this part and is 

qualified to participate in the Shared Savings Program. Applications are approved or 

denied on the basis of the following: 

(i) Information contained in and submitted with the application by a deadline 

specified by CMS. 

(ii) Supplemental information that was submitted by a deadline specified by CMS 

in response to CMS' request for information. 

(iii) Other information available to CMS. 

(2) CMS notifies an ACO applicant when supplemental information is required 

for CMS to make such determination and provides an opportunity for the ACO to submit 

the information. 

(3) CMS may deny an application if an ACO applicant fails to submit information 

by the deadlines established by CMS. 
CMS-1461-P 

* * * * *

17. Amend §425.212 by revising the section heading and paragraph (a) to read as 

follows: 

§ 425.212 Changes to program requirements during the agreement period.

(a) 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. 

(2) Calculation of sharing rate. 

* * * * * 

18. Amend §425.214 as follows: 

 A. By revising the section heading. 

 B. By removing paragraph (a). 

 C. By redesignating paragraphs (b) and (c) as paragraphs (a) and (b), respectively. 

 D. By revising newly redesignated paragraph (a). 

 E. In newly redesignated paragraph (b) introductory text, removing the phrase "Upon 

receiving" and adding in its place the phrase "Upon becoming aware of a significant change or 

receiving". 

 F. In newly redesignated paragraphs (b)(2) and (4) by removing the term "agreement" 

and adding in its place the terms "participation agreement". 

 The revisions read as follows: 

§ 425.214 Managing changes to the ACO during the agreement period.

(a)(1) An ACO must notify CMS within 30 days of any significant change. 
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(2) An ACO's failure to notify CMS of a significant change shall not preclude CMS 

from determining that the ACO has experienced a significant change. 

(3) A "significant change" occurs when -- 

(i) An ACO is no longer able to meet the eligibility or program requirements of this 

part; or 

(ii) The number or identity of the ACO participants on the ACO's list of ACO 

participants has changed by 50 percent or more. 

* * * * * 

§425.216 [Amended] 

 19. Amend §425.216 in paragraph (b) by removing the term "ACO's agreement" and 

adding in its place the terms "participation agreement". 

 20. Amend §425.218 by revising the section heading and adding paragraphs (b)(4) and 

(5) to read as follows: 

§ 425.218 Termination of the participation agreement by CMS.

* * * * * 

(b) * * * 

(4) Failure to comply with CMS requests for documentation or other information by 

the deadline specified by CMS. 

(5) Submitting false or fraudulent data or information. 

* * * * * 

§ 425.220 [Amended]

21. Amend §425.220 by removing and reserving paragraph (b). 

22. Add §425.221 to read as follows: 
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§ 425.221 Close-out procedures and payment consequences of early termination. 

 (a) Close-out procedures. (1) An ACO whose participation agreement has expired or is 

terminated by CMS under §425.218 or by the ACO under §425.220 must implement close-out 

procedures regarding the following in a form and manner and by a deadline specified by CMS: 

 (i) Notice to ACO participants of termination. 

 (ii) Record retention. 

 (iii) Data sharing. 

 (iv) Quality reporting. 

 (v) Beneficiary continuity of care 

 (vi) Other relevant operational matters established through guidance. 

 (2) ACOs that fail to complete close-out procedures in the form and manner and by the 

deadline specified by CMS will not be eligible to share in savings. 

(b) Payment consequences of early termination. (1) An ACO whose participation 

agreement is terminated by the ACO under §425.220 is eligible to receive shared savings for 

the performance year during which the termination becomes effective only if-- 

(i) CMS designates or approves an effective date of termination of December 31st of 

such performance year; 

(ii) The ACO has completed all close-out procedures by the deadline specified by 

CMS; and 

(iii) The ACO has satisfied the criteria for sharing in savings for the performance year. 

(2) An ACO that terminates its participation agreement under §425.220 before 

December 31 of a performance year or whose participation agreement is terminated by CMS 
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under §425.218 at any time is not eligible to receive shared savings for the performance year 

during which the termination becomes effective. 

 23. Amend §425.222 by revising paragraph (c) to read as follows: 

§ 425.222 Reapplication after termination. 

* * * * * 

(c) An ACO whose participation agreement was previously terminated may reenter the 

program under a subsequent agreement period. 

(1) If the termination occurred less than half way through the agreement period, an 

ACO that was previously under a one-sided model may reenter the program under the onesided model or a two-sided model. If the ACO reenters the program under the one-sided 

model, the ACO will be considered to be in its first agreement period under the one-sided 

model. 

(2) If the termination occurred more than half way through the agreement period, an 

ACO that was previously under a one-sided model may reenter the program under the onesided model or a two-sided model. If the ACO reenters the program under the one-sided 

model, the ACO will be considered to be in its second agreement period under the one-sided 

model. 

(3) Regardless of the date of termination, an ACO that was previously under a twosided model may only reapply for participation in a two-sided model. 

24. Add §425.224 to subpart C to read as follows: 

§ 425.224 Renewal of participation agreements. 

(a) General rules. An ACO may request renewal of its participation agreement for a 

second or subsequent agreement period. 
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(1) In order to obtain a determination regarding whether it meets the requirements for 

renewal of its participation agreement, the ACO must submit a complete renewal request 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 

renewal request is accurate, complete, and truthful. 

(3) An ACO that seeks renewal of its participation agreement 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 renewal request with the Antitrust Agencies. 

(b) Review of renewal request. (1) CMS determines whether to renew a participation 

agreement based on an evaluation of all of the following factors: 

(i) Whether the ACO satisfies the criteria for operating under the selected risk track. 

(ii) The ACO's history of compliance with the requirements of the Shared Savings 

Program. 

(iii) 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 losses, if 

applicable. 

(iv) Whether the ACO met the quality performance standard during at least one of the 

first 2 years of the previous agreement period. 

(v) For ACOs under a two-sided model, whether the ACO has repaid losses owed to 

the program that it generated during the first 2 years of the previous agreement period. 

(vi) The results of a program integrity screening of the ACO, its ACO participants, and 

its ACO providers/suppliers (conducted in accordance with § 425.304(b)). 
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(2) Renewal requests are approved or denied on the basis of the following information: 

(i) Information contained in and submitted with the renewal request by a deadline 

specified by CMS. 

(ii) Supplemental information that was submitted by a deadline specified by CMS 

in response to CMS' request for information. 

(iii) Other information available to CMS. 

(3) CMS notifies the ACO when supplemental information is required for CMS to 

make such a determination and provides an opportunity for the ACO to submit the information. 

(c) Notice of determination. (1) CMS notifies in writing each ACO of its 

determination to approve or deny the ACO's renewal request. 

(2) If CMS denies the renewal request, the notice of determination-- 

(i) Specifies the reasons for the denial; and 

(ii) Informs the ACO of its right to request reconsideration review in accordance with 

the procedures specified in subpart I of this part. 

§ 425.304 [Amended] 

25. Amend §425.304 by removing paragraph (d). 

26. Revise §425.306 to read as follows: 

§ 425.306 Participant agreement and exclusivity of ACO participants.

(a) Each ACO participant must commit to the term of the participation agreement and 

sign an ACO participant agreement that complies with the requirements of this part. 

(b)(1) Except as specified in paragraph (b)(2) of this section, ACO participants are not 

required to be exclusive to one Shared Savings Program ACO. 
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(2) Each ACO participant that submits claims for primary care services used to 

determine the ACO's assigned population under subpart E of this part must be exclusive to one 

Shared Savings Program ACO. 

27. Revise §425.308 to read as follows: 

§ 425.308 Public reporting and transparency.

(a) ACO public reporting webpage. Each ACO must create and maintain a 

dedicated webpage on which it publicly reports the information set forth in paragraph 

(b) of this section. The ACO must report the address of such webpage to CMS in a 

form and manner specified by CMS and must notify CMS of changes to the web address 

in the form and manner specified by CMS. 

(b) Information to be reported. The ACO must report the following information 

in a standardized format specified by CMS: 

(1) Name and location. 

(2) Primary contact. 

(3) Organizational information, including all of the following: 

(i) Identification of ACO participants. 

(ii) Identification of participants in joint ventures between ACO professionals 

and hospitals. 

(iii) Identification of the members of its governing body. 

(iv) Identification of key clinical and administrative leadership. 

(v) Identification of associated committees and committee leadership. 

(vi) Identification of the types of ACO participants or combinations of ACO 

participants (as listed in § 425.102(a)) that formed the ACO. 
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(4) Shared savings and losses information, including the following: 

(i) Amount of any payment of shared savings received by the ACO or shared 

losses owed to CMS. 

(ii) Total proportion of shared savings invested in infrastructure, redesigned 

care processes and other resources required to support the three-part aim goals of better 

health for populations, better care for individuals and lower growth in expenditures, 

including the proportion distributed among ACO participants. 

(5) The ACO's performance on all quality measures. 

(c) Approval of public reporting information. Information reported on an 

ACO's public reporting webpage in compliance with the requirements of the 

standardized format specified by CMS is not subject to marketing review and approval 

under §425.310. 

(d) Public reporting by CMS. CMS may publicly report ACO-specific 

information, including but not limited to the ACO public reporting webpage address and 

the information required to be publicly reported under paragraph (b) of this section. 

28. Amend §425.312 by removing and reserving paragraph (b) and revising paragraph 

(a) to read as follows: 

§ 425.312 Notification to beneficiaries of participation in the shared savings program. 

(a) ACO participants must notify beneficiaries at the point of care that their ACO 

providers/suppliers are participating in the Shared Savings Program and of the opportunity to 

decline claims data sharing under § 425.708. 
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(1) Notification is carried out when an ACO participant posts signs in its facilities and, 

in settings in which beneficiaries receive primary care services, by making standardized written 

notices available upon request. 

(2) The ACO must use template language developed by CMS for notifications 

described in paragraph (a)(1) of this section. 

* * * * * 

§ 425.314 [Amended] 

29. Amend §425.314 in paragraph (c) by removing the word "agreement" and adding in 

its place the words "participation agreement". 

§ 425.316 [Amended] 

30. Amend §425.316 as follows: 

A. By removing paragraphs (c)(3) and (4). 

B. By redesignating paragraph (c)(5) as (c)(3). 

C. In newly redesignated paragraph (c)(3) by removing the phrase "fully and 

completely" and adding in its place the phrase "accurately, completely, and timely". 

31. Amend § 425.400 as follows: 

A. By adding paragraph (a)(1) introductory text. 

B. By revising paragraph (a)(1)(i). 

C. In paragraph (a)(1)(ii), by removing the phrase "by a physician who is an ACO 

provider/supplier during the performance year" and adding in its place the phrase "by a 

physician who is an ACO professional during each benchmarking year and during each 

performance year". 

D. By adding a subject heading to paragraph (a)(2). 
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E. By adding paragraph (a)(3). 

The additions read as follows: 

§ 425.400 General.

 (a)(1) General. (i) A Medicare fee-for-service beneficiary is assigned to an ACO for a 

performance year if the-- 

(A) Beneficiary meets the eligibility criteria under §425.401(a); and 

(B) Beneficiary's utilization of primary care services meets the criteria established 

under the assignment methodology described in §425.402 and §425.404. 

* * * * * 

(2) Assignment under Tracks 1 and 2. 

* * * * * 

(3) Prospective assignment under Track 3. (i) Medicare fee-for-service beneficiaries 

are prospectively assigned to an ACO under Track 3 at the beginning of each performance year 

based on the beneficiary's use of primary care services in the most recent 12 months for which 

data are available, using the assignment methodology described in §425.402 and §425.404. 

(ii) Beneficiaries that are prospectively assigned to an ACO under paragraph (a)(3)(i) of 

this section will remain assigned to the ACO at the end of the performance year unless they 

meet any of the exclusion criteria under §425.401(b). 

* * * * * 

 32. Add §425.401 to read as follows: 
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§ 425.401 Criteria for a beneficiary to be assigned to an ACO. 

(a) A beneficiary may be assigned to an ACO under the assignment methodology in 

§§425.402 and 425.404, for a performance or benchmark year, if the beneficiary meets all of 

the following criteria during the assignment window: 

(1)(i) Has at least 1 month of Part A and Part B enrollment; and 

(ii) Does not have any months of Part A only or Part B only enrollment. 

 (2) Does not have any months of Medicare group (private) health plan enrollment. 

 (3) Is not assigned to any other Medicare shared savings initiative. 

 (4) Lives in the United States or U.S. territories and possessions, based on the most 

recent available data in our beneficiary records regarding the beneficiary's residence at the end 

of the assignment window. 

(b) A beneficiary will be excluded from the prospective assignment list of an ACO 

participating under Track 3 at the end of a performance or benchmark year, if the beneficiary 

meets any of the following criteria during the performance or benchmark year: 

(1)(i) Does not have at least 1 month of Part A and Part B enrollment; and 

(ii) Has any months of Part A only or Part B only enrollment. 

 (2) Has any months of Medicare group (private) health plan enrollment. 

(3) Did not live in the United States or U.S. territories and possessions, based on the 

most recent available data in our beneficiary records regarding the beneficiary's residency at the 

end of the year. 

 33. Revise §425.402 to read as follows: 

§ 425.402 Basic assignment methodology.
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(a) For purposes of benchmarking, preliminary prospective assignment (including 

quarterly updates) and retrospective reconciliation, and prospective assignment, CMS employs 

the following step-wise methodology to assign Medicare fee-for-service beneficiaries to an 

ACO: 

(1) Identify all beneficiaries that had at least one primary care service with a physician 

who is an ACO professional in the ACO and who is a primary care physician as defined under 

§425.20 or who has one of the primary specialty designations included in paragraph (b) of this 

section. 

(2) Identify all primary care services furnished to beneficiaries identified in paragraph 

(a)(1) by ACO professionals of that ACO who are primary care physicians as defined under 

§425.20, non-physician ACO professionals, and physicians with specialty designations 

included in paragraph (b) of this section during the applicable assignment window. 

(3) Under the first step, a beneficiary identified in paragraph (a)(1) of this section is 

assigned to an ACO if the allowed charges for primary care services furnished to the 

beneficiary by primary care physicians who are ACO professionals and non-physician ACO 

professionals in the ACO are greater than the allowed charges for primary care services 

furnished by primary care physicians, nurse practitioners, physician assistants, and clinical 

nurse specialists who are -- 

(i) ACO professionals in any other ACO; or 

(ii) Not affiliated with any ACO and identified by a Medicare-enrolled billing TIN. 

(4) The second step considers the remainder of the beneficiaries identified in paragraph 

(a)(1) of this section who have not had a primary care service rendered by any primary care 
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physician, nurse practitioner, physician assistant, or clinical nurse specialist, either inside the 

ACO or outside the ACO. The beneficiary will be assigned to an ACO if the allowed charges 

for primary care services furnished to the beneficiary by physicians who are ACO professionals 

with specialty designations as specified in paragraph (b) of this section are greater than the 

allowed charges for primary care services furnished by physicians with specialty designations 

as specified in paragraph (b) of this section -- 

(i) Who are ACO professionals in any other ACO; or 

(ii) Who are unaffiliated with an ACO and are identified by a Medicare-enrolled billing 

TIN. 

(b) ACO professionals considered in the second step of the assignment methodology 

in paragraph (a)(4) of this section include physicians who have one of the following primary 

specialty designations: 

(1) Allergy/immunology. 

(2) Cardiology. 

(3) Gastroenterology. 

(4) Neurology. 

(5) Obstetrics/gynecology. 

(6) Hospice and palliative care. 

(7) Sports medicine. 

(8) Physical medicine and rehabilitation. 

(9) Pulmonary disease. 

(10) Pediatric medicine. 
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(11) Nephrology. 

(12) Infectious disease. 

(13) Endocrinology. 

(14) Rheumatology. 

(15) Multispecialty clinic or group practice. 

(16) Hematology. 

(17) Hematology/oncology. 

(18) Preventive medicine. 

(19) Medical oncology. 

(20) Gynecology/oncology. 

(c) When considering services furnished by ACO professionals in teaching hospitals 

that have elected under §415.160 to receive payment on a reasonable cost basis for the direct 

medical and surgical services of their physicians in the assignment methodology under 

paragraph (a) of this section, CMS uses the amount payable under the physician fee schedule 

for the specified HCPCS code as a proxy for the amount of the allowed charges for the 

service. 

 34. Amend §425.404 by revising paragraph (b) to read as follows: 

§ 425.404 Special assignment conditions for ACOs including FQHCs and RHCs.

* * * * * 

(b) Under the assignment methodology in §425.402, CMS treats a service reported on an 

FQHC/RHC claim as -- 

(1) A primary care service if the claim includes a HCPCS or revenue center code that 

meets the definition of primary care services under §425.20; 
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(2) A primary care service performed by a primary care physician if the NPI of a 

physician identified in the attestation provided under paragraph (a) of this section is reported 

on the claim for a primary care service (as described in paragraph (b)(1) of this section) as the 

attending provider; and 

(3) A primary care service performed by a non-physician ACO professional if the NPI 

reported on the claim for a primary care service (as described in paragraph (b)(1) of this 

section) as the attending provider is an ACO professional but is not identified in the 

attestation provided under paragraph (a) of this section. 

36. Amend §425.600 as follows: 

A. In paragraph (a)(2), by removing the phrase "under the two-sided model" and adding 

in its place the phrase "under a two-sided model". 

B. By adding paragraph (a)(3). 

C. By revising paragraph (b). 

The addition and revision read as follows: 

§ 425.600 Selection of risk model.

 (a) * * *

(3) Track 3. Under Track 3, the ACO operates under a two-sided model (as 

described under §425.610), sharing both savings and losses with the Medicare program for 

the agreement period. 

(b) An ACO may not operate under the one-sided model for a second agreement 

period unless the-- 

(1) Immediately preceding agreement period was under the one-sided model; 
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(2) The ACO did not generate losses in excess of its negative MSR in both of the 

first 2 performance years of the previous agreement period; and 

(3) The ACO meets the criteria established for ACOs seeking to renew their 

agreements under §425.224(b). 

* * * * * 

§425.602 [Amended] 

 37. Amend §425.602 (a)(8), by removing the phrase "The ACO's benchmark may be 

adjusted" and adding in its place the phrase "The ACO's benchmark will be adjusted in 

accordance with §425.118(b)". 

 38. Amend §425.604 as follows: 

A. By redesignating the text of paragraph (d) as paragraph (d)(1). 

 B. In newly redesignated paragraph (d)(1), removing the phrase "under the one-sided 

model" and adding in its place the phrase "during a performance year in its first agreement 

period under the one-sided model". 

 D. By adding a paragraph (d)(2). 

The addition reads as follows: 

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

* * * * * 

(d) * * * 

(2) An ACO that meets all the requirements for receiving shared savings payments 

during a performance year in its second agreement period under the one-sided model will 

receive a shared savings payment of up to 40 percent of all savings under the updated 
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benchmark, as determined on the basis of its quality performance under §425.502 (up to the 

performance payment limit described in paragraph (e)(2) of this section). 

* * * * * 

39. Amend §425.606 as follows: 

A. By revising the section heading. 

B. In paragraph (a) introductory text, by removing the phrase "under the two-sided 

model," and adding in its place the phrase "under Track 2,". 

C. By revising paragraph (b). 

D. In paragraph (d), by removing the phrase "under the two-sided model" and adding in 

its place the phrase "under Track 2". 

E. In paragraph (e)(2), by removing the phrase "under the two-sided model" and adding 

in its place the phrase "under Track 2". 

F. In paragraph (g)(1), by removing the phrase "in a two-sided model" and adding in its 

place the phrase "in Track 2". 

The revisions read as follows:

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

* * * * * 

(b) Minimum savings or loss rate. 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 and MLR 

for an ACO participating under Track 2. The MSR under Track 2 is the same as the MSR that 

would apply in the one-sided model under § 425.604(b) and is based on the number of assigned 

beneficiaries. The MLR under Track 2 is equal to the negative MSR. 
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(1) To qualify for shared savings under Track 2, an ACO's average per capita Medicare 

expenditures for the performance year must be below its updated benchmark costs for the year 

by at least the MSR established for the ACO. 

(2) To be responsible for sharing losses with the Medicare program, an ACO's 

average per capita Medicare expenditures for the performance year must be above its 

updated benchmark costs for the year by at least the MLR established for the ACO. 

* * * * * 

40. Add §425.610 to subpart G to read as follows: 

§ 425.610 Calculation of shared savings and losses under Track 3. 

(a) General rule. For each performance year, CMS determines whether the estimated 

average per capita Medicare expenditures under the ACO for Medicare fee-for-service 

beneficiaries for Parts A and B services are above or below the updated benchmark 

determined under §425.602. In order to qualify for a shared savings payment under Track 3, 

or to be responsible for sharing losses with CMS, an ACO's average per capita Medicare 

expenditures under the ACO for Medicare fee-for-service beneficiaries for Parts A and B 

services 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) Newly assigned beneficiaries. CMS uses an ACO's HCC prospective risk score to 

adjust for changes in severity and case mix in this population. 

(2) Continuously assigned beneficiaries. (i) CMS uses demographic factors to adjust 

for changes in the continuously assigned beneficiary population. 
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(ii) If the prospective HCC risk score is lower in the performance year for this 

population, CMS adjusts for changes in severity and case mix for this population using this 

lower prospective HCC risk score. 

(3) Assigned beneficiary changes in demographics and health status are used to 

adjust benchmark expenditures as described in §425.602(a). In adjusting for health status 

and demographic changes 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. 

(4) To minimize variation from catastrophically large claims, CMS 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 as determined for each 

performance year. 

(5) CMS uses a 3-month claims run out with a completion factor to calculate an 

ACO's per capita expenditures for each performance year. 

(6) Calculations of the ACO's expenditures will include the payment amounts 

included in Part A and B fee-for-service claims. 

(i) These calculations will exclude indirect medical education (IME) and 

disproportionate share hospital (DSH) payments. 

(ii) These calculations will take into consideration individually beneficiary 

identifiable payments made under a demonstration, pilot or time limited program. 
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(7) In order to qualify for a shared savings payment, the ACO's average per capita 

Medicare expenditures for the performance year must be below the applicable 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) To qualify for shared savings under Track 3 an 

ACO's average per capita Medicare expenditures for the performance year must be below its 

updated benchmark costs for the year by at least 2 percent. 

(2) To be responsible for sharing losses with the Medicare program under Track 3, 

an ACO's average per capita Medicare expenditures for the performance year must be at 

least 2 percent above its updated benchmark costs for the year. 

(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 §425.502, and 

otherwise maintain its eligibility to participate in the Shared Savings Program under this part. 

(d) Final sharing rate. An ACO that meets all the requirements for receiving shared 

savings payments under Track 3 will receive a shared savings payment of up to 75 percent of 

all the savings under the updated benchmark, as determined on the basis of its quality 

performance under §425.502 (up to the performance payment limit described in paragraph 

(e)(2) of this section). 

(e) Performance payment. (1) If an ACO qualifies for savings by meeting or 

exceeding the MSR, the final sharing rate will apply to an ACO's savings on a first dollar basis. 

(2) The amount of shared savings an eligible ACO receives under Track 3 may not 

exceed 20 percent of its updated benchmark. 
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(f) Shared loss rate. The shared loss rate--

(1) 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 the inverse of its final sharing rate described in §425.610(d) (that is, 1 minus the final 

shared savings rate determined under §425.610(d)); 

(2) May not exceed 75 percent; and 

(3) May not be less than 40 percent 

(g) Loss recoupment limit. The amount of shared losses for which an eligible ACO 

is liable may not exceed 15 percent of its updated benchmark as determined under §425.602. 

(h) 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. 

 41. Amend §425.702 by revising paragraph (c)(1) to read as follows: 

§ 425.702 Aggregate reports.

* * * * * 

(c) * * * 

(1) At the beginning of the agreement period, during each quarter (and in 

conjunction with the annual reconciliation), and at the beginning of each performance 

year, CMS, upon the ACO's request for the data for purposes of population-based 
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activities relating to improving health or reducing growth in health care costs, process 

development, care management, and care coordination, will provide the ACO with 

information about its fee-for-service population. 

(i) Under Tracks 1 and 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 claims for primary care services used to determine the ACO's assigned population 

under subpart E of this part: 

(A) Beneficiary name. 

(B) Date of birth. 

(C) Health Insurance Claim Number (HICN). 

(D) Sex. 

(ii) Under Tracks 1 and 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: 

(A) Demographic data such as enrollment status. 

(B) Health status information such as risk profile and chronic condition subgroup. 

(C) Utilization rates of Medicare services such as the use of evaluation and 

management, hospital, emergency, and post-acute services, including the dates and place 

of service. 

(D) Expenditure information related to utilization of services. 
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(iii) The information under paragraphs (c)(1)(i) and (c)(1)(ii) of this section will be 

made available to ACOs in Track 3, but will be limited to the ACO's prospectively 

assigned beneficiaries. 

* * * * * 

 42. Amend §425.704 as follows: 

 A. By revising the section heading. 

B. In the introductory text, by removing the phrase "claims data for preliminary 

prospectively assigned beneficiaries" and adding in its place the phrase "claims data for 

preliminarily prospectively and prospectively assigned beneficiaries". 

C. In the introductory text, by removing the phrase "upon whom assignment is based 

during the agreement period" and adding in its place the phrase "that submits claims for primary 

care services used to determine the ACO's assigned population under subpart E of this part 

during the performance year". 

D. In paragraph (a) by removing the phrase "ACOs may request data as often" and 

adding in its place "ACOs may access requested data as often". 

E. By revising paragraph (d)(1). 

F. In paragraph (d)(2) by removing the phrase "has been notified in writing how the 

ACO intends to use" and adding in its place the phrase "has been notified in compliance with 

§ 425.708 that the ACO has requested access to". 

The revisions read as follows: 

§ 425.704 Beneficiary-identifiable claims data.

* * * * * 

(d) * * * 
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(1) For an ACO participating -- 

(i) In Track 1 or 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. 

(ii) In Track 3, the beneficiary's name appears on the prospective assignment list 

provided to the ACO at the beginning of the performance year. 

* * * * * 

43. Amend §425.708 as follows: 

 A. Revising the section heading and paragraph (a). 

B. Removing paragraphs (b) and (c). 

C. Redesignating paragraphs (d) through (f) as paragraphs (b) through (d), respectively. 

D. Revising newly redesignated paragraphs (b) and (c). 

The revisions read as follows: 

§ 425.708 Beneficiaries may decline claims data sharing.

(a) Beneficiaries must receive notification about the Shared Savings Program and the 

opportunity to decline claims data sharing and instructions on how to inform CMS directly of 

their preference. 

(1) FFS beneficiaries are notified about the opportunity to decline claims data sharing 

through CMS materials such as the Medicare & You Handbook and through the notifications 

required under §425.312. 
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(2) The notifications provided under § 425.312 must state that the ACO may have 

requested beneficiary identifiable claims data about the beneficiary for purposes of its care 

coordination and quality improvement work, and inform the beneficiary how to decline having 

his or her claims information shared with the ACO in the form and manner specified by CMS. 

(3) Beneficiary requests to decline claims data sharing will remain in effect unless and 

until a beneficiary subsequently contacts CMS to amend that request to permit claims data 

sharing with ACOs. 

(b) The opportunity to decline having claims data shared with an ACO under paragraph 

(a) of this section does not apply to the information that CMS provides to ACOs under 

§425.702(c). 

(c) In accordance with 42 U.S.C. 290dd-2 and the implementing regulations at 42 CFR 

Part 2, CMS does not share beneficiary identifiable claims data relating to the diagnosis and 

treatment of alcohol and substance abuse without the explicit written consent of the beneficiary. 

* * * * *

44. Amend §425.802 by revising paragraph (a)(2) to read as follows: 

§ 425.802 Request for review. 

(a) * * *

(2) The reconsideration review must be held on the record (review of submitted 

documentation). 

* * * * *

45. Amend §425.804 as follows: 

A. By revising paragraph (a)(3). 

B. By removing paragraph (d). 
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C. Redesignating paragraphs (e) and (f) as paragraphs (d) and (e), respectively. 

The revision reads as follows: 

§ 425.804 Reconsideration review process. 

(a) * * *

(3) A briefing schedule that permits each party to submit only one written brief, 

including any evidence, for consideration by the reconsideration official in support of the 

party's position.* * * * * 

Dated: November 20, 2014 

 _______________________________________ 

Marilyn Tavenner, 

Administrator, 

 Centers for Medicare & Medicaid Services. 

Dated: November 21, 2014 

 _______________________________________ 

Sylvia M. Burwell, 

Secretary, 

Department of Health and Human Services. 

BILLING CODE 4120-01-P 
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[FR Doc. 2014-28388 Filed 12/01/2014 at 4:15 pm; Publication Date: 12/08/2014]