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 Pr ogram: Accountable Care Organizations

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

ACTION: Proposed rule.

SUMMARY: This proposed rule addr esses changes to the Medica re Shared Savings Program (Shared Savings Program), incl uding provisions relating to the payment of Accountable Care Organizations (ACOs) part icipating in the Shared Savings Pr ogram. Under the Shared Savings Program, providers of services and suppliers that participate in an ACO continue to receive

traditional Medicare fee-for-ser vice (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 mu st be received at one of the addresses provided below, no later than 5 p.m. on [insert date 60 days after da te of publication in the Federal Register]

. ADDRESSES: In commenting, please refer to file code CMS-1461-P. Because of staff and resource limitations, we ca nnot 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 elec tronic 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 comment s 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 prio r to the close of the comment period: a. For delivery in Washington, DC--CMS-1461-P 3

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 H ubert 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 lo cated in the main lobby of the building. A stamp-in clock is available for persons wishing to retain a proof of f iling 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 addres ses indicated as appr opriate 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 persona lly 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 fo llowing 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 av ailable for public inspection as they are received, generally beginning approximately 3 w eeks 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 referenc ing 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. Definiti on 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 ServicesCMS-1461-P 5

g. Definitions of Continuously Assigne d Beneficiary and Newl y Assigned Beneficiary h. Definition of Agreement Period B. ACO Eligibility Requirements 1. Agreement Requirements a. Overview b. Proposed Revisions 2. Sufficient Number of Prim ary 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 AC O Participants and ACO Providers/Suppliers (2) Managing Changes to ACO Participants (3) Managing Ch anges 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 Proce ss 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. OverviewCMS-1461-P 6

b. Proposed Revisions 3. Renewal of Participation Agreements a. Overview b. Proposed Revisions 4. Changes to Program Requi rements During the 3-Year Agreement a. Overview b. Proposed Revisions D. Provision of Aggregate a nd 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 Bene ficiary 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 Practitio ners in the Assignment Process a. Overview b. Proposed Revisions 5. Assignment of Benefi ciaries to ACOs that Include FQHCs, RHCs, CAHs, or ETA Hospitals a. Assignment of Beneficiarie s to ACOs that Include FQHCs and RHCs (1) Overview (2) Proposed Revisions b. Assignment of Beneficiar ies to ACOs that Include CAHs c. Assignment of Beneficiarie s 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 Modificati ons 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 A ssigned Beneficiaries d. Proposed Timing of Prospective AssignmentCMS-1461-P 7

e. Proposals for Addressing Interactions Between Prospective and Retrospective Assignment Models f. Proposals for Determining Benchmar k 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 Saving s 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 Paym ent 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 Tran sition To Two-Sided Performance-Based Risk Arrangements (1) Beneficiary Attestation (2) Seeking Comment on a Step-Wise Progr ession 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 Pe rmissible Repayment Mechanisms 6. Seeking Comment on Methodology fo r Establishing, Updating, and Resetting the Benchmark a. Background on Establishing, Updating, and Resetting the Benchmark (1) Background on use of National Grow th Rate as a Benchmark Trending Factor (2) Background on use of National FFS Grow th 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’ C oncerns about Benchm arking Methodology b. Factors to Use in Resetting AC O 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 Me thodology: 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 PeriodsCMS-1461-P 8

(6) Seeking Comment on the Benchmarking A lternatives Considered and the Applicability of These Approaches 7. Seeking Comment on Technical Adjust ments to the Benchmark and Performance Year Expenditures G. Additional Program Require ments 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. Alterna tives Considered E. Accounting Statement and Table F. Conclusion Regulations Text

Acronyms ACO Accountable Care Organization BIPA Medicare, Medicaid, and SCHIP Be nefits Improvement and Protection Act of 2000 (Pub. L. 106-554) CAHs Critical Access HospitalsCMS-1461-P 9

CCM Chronic Care Management CEHRT Certified Electronic Health Record Technology CG-CAHPS Clinician and Group Consumer As sessment 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 Term inology (CPT codes, descriptions and other data only are copyright 2013 Amer ican 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 Pr actice 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 Portabi lity 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 GeneralCMS-1461-P 10

PA Physician Assistant PACE Program of All Inclus ive 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 T erminology) Copyright Notice Throughout this proposed rule, we use CPT codes and descriptions to re fer to a variety of

services. We note that CPT codes and desc riptions are copyright 2013 American Medical Association. All Rights Reserv ed. CPT is a registered trademark of the American Medical Association (AMA). A pplicable Federal Acquisition Regulat ions (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, fo sters coordination of items and services under parts A and B, and en courages investment in infrastructure and redesigned care processes for high quality and efficient health care service delivery. This proposed rule would make changes to the regula tions that were promulgated in November 2011CMS-1461-P 11

to implement the Shared Savings Program in orde r to make refinements based on our experience with the program and to respond to concerns ra ised by stakeholders. Unless otherwise noted, these changes would be effective 60 days after publication of th e final rule. Application or implementation dates may vary, depending on the na ture 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 organi zations unless otherwise noted. 2. Summary of the Major Provisions This proposed rule is designe d 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 particip ant 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 numb er of beneficiaries, required processes, the ACO's legal struct ure and governing body, and its leadership and management structure; (5) modification to assi gnment methodology; (6) repayment mechanisms for ACOs in two-sided performance-based risk track s; (7) alternatives to encourage participation in risk-based models; (8) AC O public reporting and transparency; (9) the ACO termination process; and (10) the reconsideration review pr ocess. 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 AC O participation agreement.

● Add a process for ACOs to renew the participation agreement for an additional agreement period.CMS-1461-P 12

● Add, clarify, and revise the beneficiary as signment algorithm, including the following- ++ Update the CPT codes that would be consid ered to be primary care services as well as changing the treatment of certain physicia n specialties in the assignment process; ++ Include the claims for primary care servic es furnished by NP, PAs, and CNSs in Step 1 of the assignment algorithm; and ++ Clarify how primary care services furnis hed in federally qualified health centers (FQHCs), rural health clinics (R HCs), and electing teaching amendment (ETA) hospitals will be considered in the assignment process.

● Expand the kinds of benefici ary-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 time liness of access to claims data.

● Add or change policies to encourage grea ter ACO participation in risk-based models by-- ++Offering the opportunity for ACOs to c ontinue participating under a one-sided participation agreement after their first 3-year agreement; ++Reducing risk under Track 2; and ++ Adopting an alternative risk-based m odel referred to as Track 3 which includes proposals for a higher sharing rate and prospective assignm ent 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 pe rformance-based risk under the Shared Savings Program. We also seek comment on issues relate d to resetting the benc hmark in a subsequent performance year and the use of statutory waiver authority to im prove participation in two-sided

risk models.CMS-1461-P 13

3. Summary of Costs and Benefits We assume that our proposals to ease the tr ansition to risk, reduce risk under Track 2, and adopt an alternative risk-based model (Track 3) would result in increase d 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 con tinues to expand, we anticipate

there would be a broader focus on care coordina tion and quality improvement among providers and suppliers within the Medicare program that would lead to both increased efficiency in the provision of care and improve d quality of the care provide d 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 ne t 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 lo ss dollars by $140 million and an increase in the median shared savings payments by $320 million dollars relative to th e baseline for CYs 2016 through 2018. The estimated aggregate average star t 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, whic h amended certain provisions of Pub. L. 111-148. Collectively known as the Affordab le Care Act, these public laws include a number of provisions designed to improve the quality of Me dicare services, support innovationCMS-1461-P 14

and the establishment of new payment models, better align Medicare pa yments with provider costs, strengthen Medicare program integrity, an d 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 addi ng new section 1899 to the Act to establish a Shared Savings Program. This program is a key component of th e 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, impr ove the coordination of FFS ite ms and services, encourage investment in infrastructure and redesigned care processes for high qualit y and efficient service delivery, and promote higher value care. ACOs that successfully meet quality and savings requirements share a percentage of the achieve d savings with Medicare. Under the Shared Savings Program, ACOs share in savings onl y if they meet both the quality performance standards and generate shareable savings. Co nsistent with the purpose of the Shared Savings Program, we focused on developing poli cies 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 view ed 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 subseque nt rulemaking for the Shared Savings Program would be informed by lessons learned from our experience with the program as well as fromCMS-1461-P 15

testing through the Pioneer ACO Model and ot her initiatives conducted by the Center for

Medicare and Medicaid Innova tion (Innovation Center) under sect ion 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 Innova tion Center to determine how well they were working and if there were any modifications th at would enhance them. As evidenced by the high degree of interest in participation in th e 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 Savi ngs Program, and in response to stakeholder suggestions, we worked very closely with agen cies across the federal government to develop policies to encourage participation in the progr am 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 re levant laws and regulations to ACOs. These

documents are described in more detail in s ection II.C.5. of the November 2011 final rule (76 FR 67840) and include: (1) a joint CMS a nd DHHS OIG interim fina l rule with comment period establishing waiver s 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 (Notic e 2011-20) and fact sheet (FS-2011-11) issued in response to comments regarding the need fo r additional tax guidance for tax-exemptCMS-1461-P 16

organizations, including tax-exem pt hospitals, that may partic ipate 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 c ontinued working with these agencies as we have implemented this program a nd 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 partic ipate 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-Se rvice-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 pr opose revisions to some key policies adopted in the November 2011 final rule (76 FR 67802), to in corporate 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 growt h. Our intent is to encourage continued and enhanced stakeholder participa tion, to reduce administ rative 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 read ers 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 re quired under § 425.208(a) between the ACO and CMS that, along with the regulations at part 425, governs the ACO’ s participation in the Sh ared 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 defi nition of “ACO participant agreement.” Specifically, we propose to define “ACO particip ant agreement” to mean the written agreement between an ACO and an ACO participant requi red at § 425.116 in whic h the ACO participant agrees to participate in, and comply with, the requirements of the Shared Savings Program. Third, as discussed in greater detail in sect ion 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 provi der(s)/supplier(s), that is id entified 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 si nce the publication of November 2011 final rule, we believe that

there has been some confusion as to the dis tinction 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-ser vice beneficiaries). An ACO pa rticipant may be composed of one or more ACO providers/suppliers whose servi ces 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 i ndividuals and entities that have reassigned the right to receive Medicare payment to the TIN of the ACO pa rticipant have also agreed to be ACO providers/suppliers.CMS-1461-P 19

We propose to revise the definition of “A CO participant” to clarify that an ACO participant is an entity identified by a Medicare -enrolled TIN. Additiona lly, 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 change s 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 eith er 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 (a s 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 re vise the definition of ACO professional to indicate that an ACO profes sional is an individual who bills for items or

services he or she furnishes to Medicare fee-fo r-service beneficiaries und er a Medicare billing number assigned to the TIN of an ACO participan t in accordance with Medi care regulations. We are proposing these modifications because ther e may be ACO professionals who furnished services billed through an ACO participant’s TI N in the benchmarking years but are no longer affiliated with the ACO particip ant and therefore are not furnis hing services billed through theCMS-1461-P 20

TIN of the ACO participant during the performa nce 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 fo r items and services it furnishes to Medicare

fee-for-service beneficiaries unde r a Medicare billing number a ssigned 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 en tity is an ACO provider/ supplier only wh en 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/suppl iers that is required under th e proposed regulation at § 425.118.

We do not believe that an individu al or entity that ma y 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 benefi ciaries that is billed through the TIN of an ACO participant during the ACO’s agreement pe riod, should be considered to be an ACO provider/supplier. Thus, this modification is inte nded to clarify that a provider or supplier must

bill for items or services furnished to Medica re FFS beneficiaries th rough the TIN of an ACO participant during the ACO’s agreement period in order to be an ACO provider/supplier. d. Definition of AssignmentCMS-1461-P 21

Under the current definition at § 425.20, “a ssignment” 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 designa ted as exercising basic responsib ility for that beneficiary’s care.” As discussed previously in this secti on, we are proposing to modify the definition of “ACO professional” to remove the requireme nt 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 profe ssional,” 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 a nd services through the TIN of an ACO participant during the ACO’s agreement period and is incl uded 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 particip ant’s TIN during the performance years and therefore cannot be consid ered 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 par ticipant, and therefore was not included on the ACO provider/supplier list is not an ACO provider/supplier. Nevert heless, the services furnished by this ACO professional and billed through the TIN of an ACO participant would be considered for purposes of determining beneficiary assignmen t 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 prim ary care services furnished byCMS-1461-P 22

physicians in the ACO. This revision will en sure 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 car e service furnished by a physician in the ACO in order to be eligible for assignment to the AC O, and this is reflected in the assignment methodology articulated under subpart E of the Sh ared Savings Program regulations. Once a beneficiary is determined to be eligible for assi gnment, the beneficiary is then assigned to the ACO if its ACO professionals have rendered th e plurality of primary care services for the beneficiary as determined under the stepwi se assignment methodology in § 425.402. Thus, we believe the proposed modification to the defi nition of “assignment” would more accurately reflect the use of claims for primary care serv ices 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 re ad “ACO professional.” e. Definition of Hospital We are proposing a technical re vision to the definition of “hospital” for purposes of the Shared Savings Program. Section 1899(h)(2) of the Act provides th at, 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 th e 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 in patient prospective payment syst em (IPPS).” Consistent withCMS-1461-P 23

this interpretation, we proposed and finalized th e following definition of “hospital” for purposes of the Shared Savings Program at § 425.20: “Hospital means a hospi tal subject to the prospective payment system specified in § 412.1(a)(1) of th is chapter.” Under this regulatory definition, Maryland acu te care hospitals woul d not be considered to be hospitals for purposes of the Shared Savi ngs Program because hospi tals in the state of Maryland are subject to a waiver from the Me dicare payment methodologies under which they would otherwise be paid. However, we have ta ken 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 Maryla nd acute care hospitals remain subsection (d) hospitals. This is because these hos pitals are “located in one of the fifty states or the District of Columbia” (as provided in the de finition of subsection (d) hospita ls at section 1886(d)(1)(B) of the Act) and are not hospitals that are specifica lly excluded from that category, such as cancer hospitals and psychiatric hospitals. Therefore, we propose to revise the definiti on of “hospital” for purposes of the Shared Savings Program to provide that a “hospita l” means a hospital as defined in section 1886(d)(1)(B) of the Act. The pr oposed regulation text is cons istent with both the statutory definition of “hospital” for purposes of the Shar ed Savings Program in section 1899(h)(2) of the Act and the position we have taken in other contexts in referring to subsec tion (d) hospitals. The effect of this change is to cl arify that a Maryland acute care ho spital is a “hospital” for purposes of the Shared Savings Program. f. Definition of Primary Care ServicesCMS-1461-P 24

We propose to modify the defi nition 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 Bene ficiary” and “Newly Assigned Beneficiary As discussed in greater detail in sect ion 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 appli cability of certain cha nges 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 Ac t 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 Saving s Program, an executive who has the ability to legally bind the ACO must sign and submit a part icipation agreement to CMS (§ 425.208(a)(1)). Under the participation agreement with CMS, th e 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, a nd other individuals or entities performingCMS-1461-P 25

functions or services related to the ACO’s activit ies to agree to comply with the Shared Savings Program regulations and all other applicab le laws and regulations (§ 425.208(b) and § 425.210(b)). The ACO must provide a copy of its participation agreem ent with CMS to all ACO participants, ACO providers/suppliers, and other individuals and en tities involved in ACO governance (§ 425.210(a)). As part of its applicat ion, we currently require each ACO to submit a sample of the agreement it execu tes with each of its ACO partic ipants (the “ACO participant agreement”). Also, as part of its applica tion and when requesting the addition of new ACO participants, we require an ACO to submit evid ence that it has a signed written agreement with each of its ACO participants. (See guidance on our website athttp://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Downloads/M emo_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 particip ants 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 participat e 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 prohibiti on on certain required referrals and cost shifting. When we identified such agreements, ACOs experienced pr ocessing 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 guida nce for ACO applicants in which we reiteratedCMS-1461-P 26

the required elements for ACO participant ag reements 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/Me dicare-Fee-for-ServicePayment/sharedsavingsprogram/Downloa ds/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 shar ed 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 pa rticipant 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 ag reement 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 th e 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 a nd 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 pa rticipant agreements be made directly between the ACO and the ACO participant. We be lieve it is important that the parties enteringCMS-1461-P 27

into the agreement have a direct legal relati onship 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 th at 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 agre ement with the ACO according to the terms of the agreement without inte rrupting 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 practic e association (IPA) or management company that in turn has an agre ement with one or more ACO participants. Similarly, existing contracts betw een ACOs and ACO participants that include third parties

should not be used. We recognize that there ar e existing contractual agreem ents between entities (for example, contracts that permit or ganizations like IPAs to negotia te contracts with health care payers on behalf of individual practitioners). Ho wever, 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 (tha t is, there is no negotiation fo r payment under the program) we believe that typical IPA contra cts 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 sa tisfy 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 agreemen t using their correct legal names, specifies the term of the agreement, and is signed by both part ies 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 par ticipant’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 th at 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 u ltimate responsibility fo r 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 part icipant) have also agreed to participate in the Shared Savings Program and comply with our pr ogram regulations. The ACO may ensure this by directly contracting with each ACO provider/ supplier (NPI) or by cont ractually requiring the ACO participant to ensure that all ACO providers /suppliers that bill thro ugh its TIN have agreed to participate in, and comply with the requireme nts of, the Shared Saving Program. If the ACO chooses to contract directly w ith 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 pr oviders/suppliers (NPIs), it must still have the required ACO participant agreement. In other wo rds, the ACO must be able to produce valid written agreements for each ACO participant an d each ACO provider/supplier. Furthermore, since we use TINs (and not merely some of the NP Is 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 agre ed to participate in the ACO as ACO providers/suppliers. To illustrate the requirement that all ACO pr oviders/suppliers must agree to participate in and comply with the terms of the Shared Savi ngs 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 ma y not be included on the applicant’s ACO participant list: Correct: A large group practi ce (Medicare-enrolled TIN) d ecides 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 pr ogram 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 progr am regulations. Therefore, the ACO may include this group practice TIN on its li st of ACO participants. Incorrect: A large group practi ce (Medicare-enrolled TIN) de cides 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 prac titioners that have r eassigned their right to receive Medicare payment to the group practice TI N have agreed to participate in the ACO and follow Shared Savings Program regulations. Th erefore, the ACO may not include this group practice TIN on its list of ACO participants. Incorrect: Several practitione rs in a large group practice (Med icare-enrolled TIN) decide to participate in an ACO. However, the group pract ice as a whole has not ag reed to participate inCMS-1461-P 30

the program. Therefore, the ACO may not incl ude 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 se t 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 under standing of the Shared Savings Program and transparency for ACO participants and ACO provid ers/suppliers. It is our intent to provide requirements that would facilitate and enha nce the relationships between ACOs and ACO participants, and reduce uncertainties and mis understandings leading to rejection of ACO participant agreements during ap plication review. Specifically, we propose to require that ACO participant agreements satisfy the following criteria:

● The ACO and the ACO participant ar e 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 pa rticipant, respectively.

● The agreement must expressl y require the ACO participant to agree, and to ensure that each ACO provider/supplier billing through the TIN of the ACO partic ipant 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 re gulations (including, but not limited to, those specified at § 425.208(b)).

● The agreement must set forth the ACO pa rticipant’s rights and obligations in, and representation by, the ACO, including without lim itation, the quality repo rting requirements setCMS-1461-P 31

forth in Subpart F, the beneficiary notific ation requirements set forth at § 425.312, and how participation in the Shared Savings Program aff ects the ability of the ACO participant and its ACO providers/suppliers to partic ipate in other Medicare demons tration projects or programs that involve shared savings.

● The agreement must describe how the opportu nity to receive shared savings or other financial arrangements will encourage the ACO partic ipant to adhere to the quality assurance and improvement program and evidence-based medi cine guidelines established by the ACO.

● The agreement must require the ACO par ticipant 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 AC O participant, on a timely basis in accordance with Medicare program requirements. The Agre ement must also require ACO participants to notify the ACO within 30 days after any additi on 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 particip ant to take remedial action against its ACO providers/suppliers, including impos ition of a corrective action plan, denial of shared savings payments (that is, the ability of the ACO par ticipant or ACO provider/supplier to receive a distribution of the ACO’s shared savings) and term ination 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 furnishCMS-1461-P 32

data necessary to complete the annual assessmen t of the ACO’s quality of care and addresses

other relevant matters. Although we propose that the term of an AC O participant agreement be for at least 1 performance year, we do not intend to prohibi t early termination of the agreement. We recognize that there may be legitimate reasons to terminate an ACO participant agreement. However, because care coordination and quali ty improvement requires commitment from ACO participants, we believe this re quirement would improve the like lihood of success in the Shared Savings Program. We are also considering wh ether 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 cont ract 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/supplie rs would not be required to be for a term of 1 year, because we do not want to impede indi vidual 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 partic ipants 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 pr oviders/suppliers, and other indi viduals or entities performing

functions or services related to ACO activities ar e required to comply with the requirements ofCMS-1461-P 33

the Shared Savings Program. In the case of AC O 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) pa ge 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 conf irm that it conforms to the sample form agreement submitted by the ACO. We furthe r propose at § 425.116(c) that executed ACO participant agreements must also be submitte d 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 rou tinely request an ACO to submit copies of executed agreements with its ACO providers/suppliers or other indi viduals 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 requirement s regarding agreements between ACOs and ACO participants, together with our earlier gu idance regarding good contracting practices, would enhance transparency between the ACO, ACO participants, and ACO professionals, reduce turnover among ACO participants, prevent misunders tandings 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 th ese requirements would assist the ACO, ACO participants, and ACO providers /suppliers in better understanding the program and their rights and responsibilities while partic ipating in the program. We solicit comment on the proposed new requirements and on whether there are additional elements that should beCMS-1461-P 34

considered for inclusion in the agreements th e 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 Ac t requires participating ACOs to “include primary care ACO professionals that are suffi cient for the number of Medicare fee-for-service beneficiaries assigned to the ACO ...” and th at 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 requi rement to have at least 5,000 assi gned beneficiaries if the number

of Medicare beneficiaries historic ally assigned to the ACO particip ants in each of the 3 years before the start of the agr eement period is 5,000 or more. Under the beneficiary assignment methodology se t forth in the regulations at part 425, subpart E, the assignment of bene ficiaries to a particular ACO fo r a calendar year is dependent upon a number of factors, includ ing where the beneficiary elec ted 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 whethe r 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 benchmar k years (BY1 and BY2, respectively) for an ACO applying to particip ate 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 peri od) because application reviewCMS-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-ye ar period and the preliminary prospective assignment for PY1 must be dete rmined 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 Sept ember, 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 th e timeframes (that is, 12 m onth 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 allowe d to continue in the program, but CMS must issue a warning letter and place th e ACO on a CAP. The purpose of this provision is to ensure that the ACO is aware that its number of assigne d beneficiaries is below 5,000, is notified of the consequences of remaining under 5,000, and that th e 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 assigne d 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 benefici aries historically assign ed in each of the 3 years of the benchmarking period. Specificall y, we propose that the number of assigned

beneficiaries would be calcul ated for each benchmark year using the assignment methodology set forth in Subpart E of part 425, and in the ca se 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 curren t 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 usin g claims with dates of service for the last 3 months of BY2 and the first 9 months of BY3, w ith 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 previousl y, we believe that using this appr oach 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 usi ng 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 be neficiaries 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 hi storical benchmark period. If based upon these estimates, we determine that an ACO had at l east 5,000 assigned beneficiaries in each of the benchmark years, it would be deemed to have in itially satisfied the elig ibility requirement that the ACO have at least 5,000 assigned beneficiaries. The specific data to be used for computing these initial estimates during th e ACO application review pro cess would be designated through program instructions and guidance. Although unlik ely, it is possible that when final benchmark year assignment numbers are generated after th e 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 subj ect to the actions set forth in § 425.110(b). Second, given our experience with the progr am and the timing of performance year determinations regarding beneficiary assignmen t 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. Sp ecifically, 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 curr ently 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 beneficiar y population had fallen below 5,000. Under our current regulations, we would send the ACO a wa rning letter and place th e ACO on a CAP. If the ACO were to fail to increase its assigned be neficiary population to at least 5,000 by the end of the next performance year (PY2), it would be terminated. We note that increasing the numberCMS-1461-P 38

of assigned beneficiaries gene rally involves adding new AC O 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 benefi ciaries, 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 spec ify in its request for a CAP the performance year during which the ACO’s assigned population mu st meet or exceed 5,000 beneficiaries. This modification would permit some flexibility for ACOs whose assigned po pulations 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 perfor mance year and CMS has a reasonable expectation that the addition of these new ACO participan ts would increase the assigned beneficiary population above the 5,000 minimum beneficiary th reshold. Therefore, we propose to revise § 425.110(b) to indicate that we have the discreti on 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 AC O “may” be subject to any of the actions described in § 425.216 (actions prior to termination, includi ng a warning letter or request for CAP) and § 425.218 (termination). Ho wever, 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 anCMS-1461-P 39

ACO have at least 5,000 assigned bene ficiaries is a condition of elig ibility to participate in the Shared Savings Program under § 1899(b)(2)(D), and would exerci se 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-enr olled TINs associated with ACO participants (see § 425.20). The Medicare-enroll ed 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 physic ian has reassigned to the TIN of the ACO participant his or her right to receive Medica re payments, and their services to Medicare beneficiaries are billed by the ACO participant un der a billing number assi gned to the TIN of the ACO participant). As part of the applicatio n process and annually thereaf ter, the ACO must submit a certified list identifying all of its ACO particip ants and their Medicare-e nrolled TINs (the “ACO participant list”) (§ 425.204(c)(5)(i)). Additi onally, for each ACO participant, the ACO must submit a list identifying all ACO providers/supplie rs (including their NP Is or other provider identifiers) that bill Medicare during the agreemen t period under a billing number assigned to the TIN of an ACO participant (the “ACO provide r/supplier list”) (§ 425.204(c)(5)(i)(A)). Our regulations require the ACO to indicate on the ACO provider/supp lier list whether an individual is a primary care physician as defined at § 425.20. All Medicare enrolled i ndividuals 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 su ch 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 assignmen t of Medicare fee-for-service beneficiaries to the ACO, the implementation of quality and other reporting requ irements, 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 participan t list to: identify parties subj ect to the screenings under § 425.304(b); determine whether the ACO satisfies the requirement to have a minimum of 5,000 assigned beneficiaries; establis h the historical benchmark; pe rform financial calculations associated with quarterly and annual reports; de termine preliminary prospective assignment for and during the performance year; determine a sample of beneficiaries for quality reporting; and coordinate participation in th e Physician Quality Reporting Sy stem (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 athttp://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Upda ting-ACO-Participant-List.html for more information. In this section, we discuss cu rrent policy and procedures re garding the identification and required reporting of ACO participants and AC O providers/suppliers. In addition, we propose revisions to our regulations to improve pr ogram transparency by ensuring that all ACO participants and ACO providers/supp liers are accurately identified. b. Proposed RevisionsCMS-1461-P 41

In order to administer the Shared Savings Program, we need to identify accurately the ACO participants and ACO providers/suppliers associ ated with each ACO that participates in the program. An accurate understanding of the ACO participants is critic al for assignment of beneficiaries to the ACO as well as assessing th e quality of care provided by the ACO to its assigned beneficiaries. An accurate understanding of the ACO providers/supplie rs is also critical for ensuring compliance with program rules. We be lieve 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 understand ing of the individuals and en tities that comprise the ACO participants and ACO providers/s uppliers in the ACO. We obtain this common understanding by requiring the ACO to certify the acc uracy of its ACO participant and ACO provider/supplier lists prior to the start of each perfor mance 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 th at 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/supp lier 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 Partic ipants 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 a nd processes for maintaining, updating, andCMS-1461-P 42

submitting the required ACO participant and ACO provider/supplier lists. New § 425.118 would consolidate and revise provi sions at § 425.204(c)(5), § 425.214( a) and § 425.304(d) regarding the ACO participant and ACO pr ovider/supplier lists. Specifica lly, 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 certif ied list of its ACO participants and their

Medicare-enrolled TINs. We w ould use this ACO participant list to identify the Medicareenrolled individuals and entities that are affilia ted with the ACO participant’s TIN in PECOS, the CMS enrollment system. Because these indivi duals 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 woul d provide the ACO with a list of all ACO providers/suppliers (NPIs) that we have identi fied 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 an d NPIs) as true, accurate, and complete. In addition, we propose that an ACO must s ubmit 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 pa rticipant must be on the certified list of ACO providers/suppliers and must agr ee to be ACO providers/suppliers . We propose to clarify this point in regulations te xt at § 425.118(a)(4). Finally, in accordance with developi ng and certifying the ACO participant and provider/supplier lists, we propos e 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 re port changes in an AC O provider’s/supplier’sCMS-1461-P 43

reassignment of the right to receive Medicare pa yment or revocation of billing rights). This requirement corresponds with our longstanding policy that requires en rolled providers and suppliers to notify their Medica re contractors through PECOS with in specified timeframes for certain reportable events. We recognize that PECOS is generally not accessible to ACOs to make these changes directly becau se 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 requi red information directly in PECOS within 30 days after the change, provided that the AC O participant actually submits the required information within 30 days. We propose to requ ire 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 cons istent 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 w ithin the Shared Savings Program. We further propose to remove § 425.304(d) because the re quirements, 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/supp liers and to ensure compliance with Shared Savings Program requirements. Currently, we al so 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 submitte d 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 ce ssation of ACO participant operations or exclusion from the Medicare program, we expect AC O 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 par ticipants. Moreover, as noted previously, we utilize the ACO participant list , among other things, for assigni ng beneficiaries to the ACO, determining the ACO’s benchmark and performan ce year expenditures, and drawing the sample for ACO quality reporting. Nevertheless, we unde rstand that there are legitimate reasons why an ACO may need to update its list of ACO particip ants during the 3-year agreement period. Thus, under current § 425.214(a), an ACO may add or rem ove ACO participants (identified by TINs) throughout a performance year, provided that it notif ies 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 arti culated the timing of these changes in our guidance ( http://cms.gov/Medicare/Med icare-Fee-for-ServicePayment/sharedsavingsprogram/Upda ting-ACO-Participant-List.html ), which states that we adjust the ACO’s historical benc hmark at the start of a performa nce year if the ACO participant list that the ACO certified at the start of that perf ormance 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 prio r 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 certifiedCMS-1461-P 45

list of ACO participants and the adjusted be nchmark for the following program operations: the new performance year’s assignment; quality measurement and sampling; reports for the new performance year; and financial r econciliation. We provide ACOs with the adjusted Historical Benchmark Report reflecti ng these changes. However, our guidance stated that abse nt 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, fina ncial 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 circumst ance that could result in midyear changes to assignment and other matters. Finally, our guida nce 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 agre ement 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 additiona l 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 par ticipant 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 th at the entity has a history of program integrity issues, orCMS-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 savi ngs initiative (§ 425.114). If CMS denies the request to add an enti ty 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 th e request, the entity will be added to the ACO participant list at the beginning of the follo wing performance year. Th at 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 th e 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 appr oves the entity’s addition. Third, we propose that an ACO must notify CM S no later than 30 days after the date of termination of the entity’s ACO participant agre ement. 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 woul d be effective on the date of termination of the ACO participation agreement. We propose at § 425.118(b)(3)(i) th at 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 annua lly adjust the ACO’s be nchmark calculations to include (or exclude) the claims submitted duri ng the benchmark years by the newly added (orCMS-1461-P 47

removed) ACO participants. In other words, th e annually certified ACO pa rticipant list is used under Subparts E (assignment of beneficiaries), F (quality performance assessment), and G (calculation of shared sa vings/losses) for the performance year . For example, if an ACO began program participation in 2013, the PY1 certified list generates an hi storical benchmark calculated from claims submitted by the TINs on the PY 1 certified list during CY 2010, 2011, and 2012. If the ACO adds ACO participants during 2013 and certifies an updated li st for PY2 reflecting those additions, we would adjust the historic al 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 AC O composition and performance year calculations retain a consistent comparison between benc hmark 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 ma y move the benchmark upward or downward. We

would use the annual certified AC O participant list and the ad justed benchmark for the new performance year’s beneficiary assignment, quali ty measurement and other operations that are dependent on the ACO participant list as outlin ed in our guidance. We would provide ACOs with an adjusted Historical Benchmark Report th at reflects the new certified ACO participant list. We propose to add this re quirement 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 certa in program calculations for the remainder of theCMS-1461-P 48

performance year in which the removal becomes e ffective. Namely, the removal of an entity from the ACO participant list during the perf ormance year would not affect the ACO’s beneficiary assignment or, by extension, such program operations as the calculation of the

ACO’s historical benchm ark, financial calculations for qua rterly 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 in itiatives. 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 change s include the midyear removal of an ACO participant due to avoidan ce of at-risk beneficiar ies 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 no tifies CMS of the termin ation of the entity’s ACO participant agreement effective June 30 th of PY2, the ACO participant would be removed from the ACO participant list effective June 30 th of PY2. However, the former ACO participant’s TIN would still be used for purposes of cal culating the quality reporting requirements, financial reports, benchmarking, a ssignment 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 asse ssment of the ACO’s financial and quality performance for that year, regardless of change s 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 programCMS-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 informati on (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 AC Os to communicate effectively with ACO participants that seek to join an ACO so that they understand th e 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 y ear. 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 m onths. The ACO must work with the former ACO participant to obtain the necessary quality reporting data. Additio nally, 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 togeth er 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 aff iliation 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 AC O 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 theCMS-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 provi der/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 o ccur during the performance year . Under proposed § 425.118(c), ACOs will continue to be require d to report these changes within 30 days. As discussed later in this section, we would require the ACO to ensu re that changes in AC O 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 pr ovided by the Secret ary on the CMS website and/or through the ACO intranet portal. We propose that an ACO may add an individu al or entity to the ACO provider/supplier list if it notifies CMS within 30 days after the i ndividual 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 numb er 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 furn ished 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 AC O provider/supplier list, then the addition becomes effective on the

date CMS receives notice from the ACO. Howeve r, we note that when an individual has begunCMS-1461-P 51

billing through the TIN of an ACO participant bu t is not on the ACO provider/supplier list, the

individual satisfies the definiti on of an ACO professional, in wh ich case his or her claims for

services furnished to Medicare fee-for-service beneficiaries are consider ed for assignment and other operational purposes previously described. Each potential ACO provider/supplier that re assigns his or her bi lling rights under the TIN of an ACO participant is screened by CMS through the enrollment process and PECOS system. Additionally, the Shared Savings Progr am 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 pr oposed effective date for the addi tion 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. Ther efore, we are consideri ng whether to delay the effective date of any additions to the ACO provider/s upplier list until after we have completed a program integrity screening of the individuals or en tities that the ACO wishes to add to the list. For example, we are considering whether to dela y 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 en forcement 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 ha s 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 partic ipant. Thus, any claims billed by the ACO professional through the TIN of the ACO participant would be used for assignment and relate d activities during theCMS-1461-P 52

performance year in which the change takes place, regardless of whether the individual or entity subsequently becomes an ACO provider/supplie r. We seek comment on this proposal. We propose that to remove an ACO provi der/supplier from the ACO provider/supplier list, an ACO must notify CMS no la ter than 30 days after the indivi dual 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 provide r/supplier list effective as of the date the individual or entity terminates its affiliation with th e 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 st atus are reported in PECOS consistent with § 424.516 (for example, changes in an ACO provider ’s/supplier’s reassignme nt of the right to receive Medicare payment or revocati on of billing rights). As previ ously discussed in detail, this requirement corresponds with our longstanding policy that requires en rolled providers and suppliers to notify their Medica re contractors through PECOS with in specified timeframes for certain reportable events. 4. Significant Changes to an ACO

a. Overview Section 425.214(b) requires an ACO to notif y 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 eligib ility to continue participating in the Shared Savings Program and, if necessary, may terminat e the ACO’s participation agreement (§ 425.214CMS-1461-P 53

(c)). In addition, § 425.214(c)(2) pr ovides 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 re quirements. Under such circumstances, CMS would terminate the ACO’s participation agreement, and permit the ACO to submit a new application for program particip ation. 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 a ssigned beneficiaries to fall below 5,000. b. Proposed Revisions In light of changes proposed in the previ ous 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 natu re 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 th e actions outlined under § 425.214(b). Therefore, we are proposing to specify at § 425.214(a) that a signifi cant change occurs when the ACO is no longer able to meet the elig ibility or other requirements of the Shared Savings Program, or when the number or iden tity of ACO participants included on the ACOCMS-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, fi ve of which gradually le ft 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 unde rgone a significant change with the addition of the 10 th new ACO participant. Upon notice that an ACO has experienced a si gnificant 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 pr opose 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 dete rmination 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 wh ether we should consider amending our regulations to clarify that the AC O’s notice of a significant change must be furnished prior to the occurrence of the significant chan ge. We believe some significan t 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 ACOsCMS-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 par ticipant list should constitute a significant change. 5. Consideration of Claims Billed by Me rged/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 s uppliers 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 stru ctures, 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 i ndustry stakeholders regarding how previous mergers and acquisitions of entities with Medica re enrolled billing TINs will be treated for purposes of the Shared Savings Program. In part icular, some applicants have inquired whether the claims billed to Medicare in pr evious 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 histori cal benchmark and preliminary prospective assignment. To illustrate, suppose a large group pr actice that is a prospective ACO participant recently purchased two small primary care practi ces, and the primary care practitioners from those small practices have reassi gned 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 pati ent 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 benefici aries at the end of the performance year. Therefore, applicants and esta blished 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 th e 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 stak eholders, we provided additional guidance on our website to all Shared Savings Program appli cants about the requireme nts related to mergers and acquisitions (see http://www.cms.gov/Medicare/Me dicare-Fee-for-ServicePayment/sharedsavingsprogram/Dow nloads/Merger-Acquisitions-FAQ.pdf ). In this guidance, we indicated that under the following circumstan ces, we may take the claims billed under TINs of entities acquired through purchase or merg er 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 reas signed the right to receive Medicare payment to that acquired entity’s TIN.

● All the providers and suppliers that previ ously reassigned the right to receive Medicare payment to the acquired entity’s TIN must reas sign 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 billi ngs 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 provider s and/suppliers that previously bill ed under the acqui red entity’s TIN have reassigned their right to receive Medica re payment to an ACO participant’s TIN;

● Indicate the acquired entity’s TIN a nd which ACO participant acquired it; and

● Submit supporting documentation demonstra ting that the entity’s TIN was acquired by an ACO participant through a sale or merger and submit a letter atte sting that the acquired entity’s TIN will no longer be used to bill Medicare. We note that we require an applicant’s li st of ACO providers/supp liers 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 n ecessary 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 pa tient 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 thei r ACO professionals billed during application or updates to the ACO participant list. b. Proposal We believe the current criteria and processe s have been working well and have benefited both CMS (for example, by providing assurance th at an entity’s Medicare-enrolled billing TIN have actually been acquired through sale or merg er) and the affected ACOs (for example, by allowing for an increase in the ACO’s number of appropriately assi gned beneficiaries andCMS-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 opti on 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. Al though this provision is added in a section regarding the content of the initial application, we propos e to permit ACOs to annually request consideration of claims subm itted 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 Ac t 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 organi zation 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 clarificati ons 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 w ho 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 moni es determined to be owed to CMS.

● Establishing, reporting, and ensuring provi der 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 spec ify that when an ACO comprises “multiple, otherwise independent ACO partic ipants,” the governi ng 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, incl uding provisions regarding the fiduciary duties of governing body members, the composition of the governin g body, and conflict of interest policies (§ 425.106(b)(5)). Some applicants have questioned when an AC O needs to be formed as a separate legal entity, particularly the meani ng in § 425.104(b) of “otherwise i ndependent” ACO participants. Specifically, applicants have questioned whethe r multiple prospective ACO participants are “otherwise independent” when they have a prior relationship through, for example, an integratedCMS-1461-P 60

health system. In addition, we received so me questions regarding compliance with the governing body requirements set forth in § 425.106(b )(4) and (5). For ex ample, 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 govern ing body. In some cases, the IPA represented many group practices, but not ever y 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 govern ing body to ensure that the go verning 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 regul ation text regarding when an ACO must be formed as a separate legal entity. Specifically, we propos e to remove the reference to “otherwise independent ACO participants” in § 425.104(b). The revised regul ation 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 whic h belongs to the same health system or IPA, the ACO must be a legal entity se parate 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 w ith the authority to ex ecute the functions of an ACO. Specifically, we propose that the governing body must satisf y 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 a nd must not be the same as the governing bodyCMS-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 requirem ent. We note that the second criterion incorporates the requirement that currently appe ars at § 425.106(b)(4), wh ich 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), wh ich provides that if an ACO is an existing legal entity, its governing body may be the same as the governin g 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 deci sion-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 gove rning body of the ACO. We al so recognize that a parent organization may wish to retain certain authorities to protect th e parent company and ensure the subsidiary’s success; however, the ACO’s governi ng 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 implementi ng 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 appoint ment and removal of members of the governing body, leadership, and management, and determining how shared savings are used and distributedCMS-1461-P 62

among ACO participants and ACO pr oviders/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 th e governing body of the ACO from being the same as the governing body of an ACO participan t is to ensure that decisions made on behalf of the ACO are not improperly infl uenced by the interests of indi viduals 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 re presenting the intere sts of any entity participating in the ACO or any en tity that is not part icipating 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 th at the governing body members have a fiduciary duty to the ACO and must act consistent with that fiduciary du ty. 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 athttp://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Downloads/M emo_Additional_Guidance_ on_ACO_Participants .pdf ). For example, in the case of an IPA that a pplies as an ACO to the Shared Savings Program,

we believe it would be difficult for the member s of the IPA’s governing body to make decisionsCMS-1461-P 63

in the best interests of the ACO if only some of the group practices th at compose the IPA are ACO participants; decisions affecting the ACO ma y be improperly influenced by the interests of group practices that are part of the IPA but are not ACO partic ipants. 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 i ndividual or entity. We wish to emphasize that the ACO’s govern ing body decisions must be free from the influence of interests that may conf lict with the ACO’s interests. (2) Proposed Revisions We propose to clarify in § 425.106(b)(3) that th e fiduciary duty owed to an ACO by its governing body members includes th e duty of loyalty. This proposal does not represent a change in policy and is simply intended to emphasize th at 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 interest s of ACO participants, ACO professionals, ACO providers/suppliers, or othe r individuals or entities. c. Composition of the Governing Body (1) Overview Section 1899(b)(1) requires an ACO to ha ve a “mechanism for shared governance” among ACO participants. Secti on 425.106(c)(1) of the regulations requires an ACO to provide for meaningful participation in the compos ition and control of th e ACO’s governing body for ACO participants or their desi gnated representatives. As we explained in the November 2011 final rule (76 FR 67819), we believe that an AC O should be operated a nd directed by Medicareenrolled entities that directly provide health care services to beneficiaries. However, weCMS-1461-P 64

acknowledged, that small groups of providers of ten 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 partnershi ps with non-Medicare enrolled entities. For this reason, we proposed (76 FR 19541) that to be e ligible 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 explaine d 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 involve ment in the ACO governing process, we specified at § 425.106(c)(2) that an ACO’s govern ing 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 representati on on an ACO’s governing body may not always be feasible. For example, commenters raised concerns that re quiring a beneficiary on th e governing body could conflict with State corporate pract ice of medicine laws or other local laws regarding governing body requirements for public health or higher edu cation institutions (76 FR 67821). As a result, we believed it was appropriate to provide some fl exibility 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, offe rs 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 requi rement 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 be neficiary representation,CMS-1461-P 65

it must describe in its application how th e 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 Medi cine restrictions to structur e beneficiary representation accordingly. We contemplated that this provisi on could also be used by an existing entity to explain why it should not be requir ed to reconfigure its board if it had other means of addressing the requirement to include a consumer pe rspective 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 contro l 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 m eeting 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 f ound 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 repr esentation of Medicare beneficiaries on ACO governing bodies. Based on our experience, so me ACOs have been unable to include a beneficiary on their governing body, and thes e entities have used the process underCMS-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 th e governing body. We believe it w ould be very difficult for an ACO provider/supplier who is Medicare benefi ciary to represent only the interests of beneficiaries, rather than his or her own intere sts as an ACO provider/su pplier, the interests of other ACO providers/suppliers, or the interests of the ACO part icipant through which he or she bills Medicare. Finally, we ar e 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 pa rticipant be a member of the ACO’s governing body (76 FR 67818), the governing body must nevert heless 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 sh ould 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 partic ipants on the governing body. Our proposal to reiterate the stat utory standard for shared gove rnance in our regulations at § 425.106(c)(1) does not constitute a subs tantive 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 clinic al and administrative systems.” Under this authority, we incorporated certa in leadership and management requirements into the Shared Savings Program, as part of the eligibility re quirements 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 supp ort the goals of the Shared Savings Program and the three-part aim of better care for indivi duals, better health fo r 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, o fficer, 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 physic ally present on a regular basis in an established ACO location (clinic, office or other location particip ating 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 a nd 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 ma nagement structures. In accordance with § 425.108(e), we reserve the right to give consid eration to an innovative ACO leadership and management structure that does not comply w ith 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 fo r 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 ex ception to the medical director requirements. In that case, the ACO sought the exception in or der 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 AC O provider/supplier because he was no longer billing for physician services fu rnished during the agreement period, he was closely associated with the clinical operat ions of the ACO, familiar with the ACO’s organizational culture, and dedi cated to this one ACO. In addition, we have received a number of questions from ACO app licants regarding the other types of roles for which CMS requires doc umentation under § 425.204(c)(1 )(iii) to evaluate whether an applicant has a “. . . leadership a nd management structure th at 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 popul ations, and lower growth in expenditures, as articulated at § 425.108(a)). In response to such inquiries regard, we ha ve indicated that weCMS-1461-P 69

consider an ACO’s “. . . leadership and mana gement 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 th e 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 so me additional flexibility regarding the qualifications of the ACO medical director and to eliminate the provision permitting some ACOs to enter the program without sa tisfying the requirements at § 425.108(b) and (c) for operations and clinical management. In addition, we propose to amend § 425.204(c)(i ii) to clarify that applicants must submit materials regarding the qua lified health care professional responsible for the ACO’s quality assurance and improvement progr am. We discuss each proposal later in this

section. We believe that it is appropriate to am end the medical director requirement at § 425.108(c) to allow some additional flexibility. Specifically, we propose to remove the requirement that the medical dire ctor be an ACO provider/supplie r. 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 provi der/supplier because he or she does not bill through the TIN of an ACO par ticipant and is not on the list of ACO pr oviders/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 asso ciated with the ACO

and satisfies all of the other me dical director requirements. We seek comment on whether anCMS-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 recen t past. In addition, we propose to clarify that the medical director must be physi cally present on a regular basis “at any clinic, office, or other location of the ACO, ACO participant or AC O provider/supplier.” Currently, the provision incorrectly refers only to locati ons “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 me dical directors to be physically present on a regular basis at any c linic, office, or other ACO location. A close working relationship with the ACO and its clinic al operations is necessary in order for the

medical director to lead the ACO’ s efforts to achieve quality improve ment and cost efficiencies. We propose to eliminate § 425.108(e), which permits us to approve applications from innovative ACOs that do not satisfy the leader ship 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 contin ue to allow ACOs the flexibility to request an exception to the leadership and management requi rements 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 particip ation in the Shared Savings Program; in fact, in only one instance has an ACO requested an exce ption to the operations management criterion (§ 425.108(b)). We are unaware of any alternativ e operations management structure that might be considered acceptable, and we have modi fied § 425.108(c) to accommodate the one exception we have granted to date. Accordingly, we propose to revise the re gulations by strikingCMS-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 th at 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 documen tation 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 th e 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 m onitoring, and other such enabling technologies." In the November 2011 final ru le (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 met hods and processes to co ordinate care throughout an episode of care and during its transitions. In its application to par ticipate in the Shared Savings Program, the ACO must submit a descrip tion of its individualiz ed 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 ch ronic 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 Saving s Program. Commenters stressed the importance of health information excha nges 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. Ot her commenters suggested that the proposed rule anticipated a level of functional health inform ation 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 desc ribe, how the ACO will implement the required processes and patient-centeredness criteriaunder § 425.112, including descriptions of the remedial processes and penalties (including the potential for expulsi on) that will a pply 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 proc esses to accomplish the following: promote evidence-based medicine; promote patient engageme nt; develop an infrastructure to internally report on quality and cost metrics required fo r monitoring and feedback ; and coordinate care across and among primary care physicians, specialis ts and acute and postacute providers and suppliers. In addition to the processes de scribed previously, we believe it is important for applicants to explain how they will develop the health in formation technology tools and infrastructure to accomplish care coordination across and among physic ians and providers Adoption of health information technology is important for supporti ng care coordination by ACO participants and other providers outside the ACO in the followi ng ways: secure, private sharing of patientCMS-1461-P 73

information; reporting on quality data and aggreg ating data across provid ers and sites to track quality measures; and deploying clinical decision support tools that provide access to alerts and evidence based-guidelines. As AC Os establish more mature processes for risk management, information technology infrastructure allows AC Os 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 w ould 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 inform ation 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 St rategies 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 includ ing: (1) alignment of incentives and payment adjustments to encourage provi der adoption and optimization of HIT and HIE services through Medicare and Medicaid payment policies; (2) adopti on of common standards and certification requirements for interoperable HIT; (3) support fo r privacy and security of patient information

across all HIE-focused in itiatives; and (4) governan ce of health information networks. These initiatives are designed to encourage HIE among health care providers, including professionals and hospitals eligible for the Medicare and Me dicaid EHR Incentive Programs and those who areCMS-1461-P 74

not eligible for the EHR Incentive programs as we ll as those providers that are participating in the Medicare Shared Savings Program as an AC O and those that are not, and are designed to improve care delivery and coordi nation across the enti re 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 fo r at least 10 percent of care transitions.

We believe that HIE and the use of certifie d EHRs can effectively and efficiently help ACOs and participating providers improve internal care delive ry practices, support management of patient care across the continuum, and support the reporting of electronica lly specified clinical quality measures (eCQMs). c. Proposed Revisions

We continue to believe that ACOs should c oordinate care between all types of providers and across all services, a nd 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 hea lth information exchange technologies, but we continue to underscore the importance of robust h ealth information exchange tools in effective

care coordination. ACOs have reported how important access to r eal 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 essentia l partners to physicians in the management of patient care. ACOs participatin g 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 andCMS-1461-P 75

plan in place to coordinate a beneficiary’s ca re 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 informati on in a timely manner. It also can also be used to engage

beneficiaries in their own care. We further be lieve that Shared Savings Program applicants should provide, as part of the application, their plans for improvi ng care coordination by developing, encouraging, and usi ng enabling technologies and electr onic health records to make health information electronically available to a ll practitioners involved in a beneficiary’s care. Therefore, we propose to add a new require ment to the eligibi lity 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 tech nologies for improving care coordination for beneficiaries. Such enabling technologies and se rvices may include electronic health records and other health IT tools (such as population health management and data aggregation and analytic tools), telehealth services (inc luding remote patient monitoring), health information exchange services, or other electronic tool s 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 post acute care providers to improve care coordination for the ACO’s assigned beneficiaries. Fina lly, we propose to add a provisi on under § 425.112(b)(4)(ii)(E) to require that an ACO define and submit major m ilestones 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 inst ance, providers would be required to submit milestones and targets such as: projected dates for implementation of an electronic quality reporting infrastructure for partic ipants; the number of providers expected to be connected to health information exchange services by year; or the projected dates for implementing elementsCMS-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 info rmation from ACOs and other stak eholders about the use of such technologies. We seek comment on the specific se rvices and functions of this technology that might be appropriately adopted by ACOs. For exam ple, does the use of te lehealth 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 partic ular 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 I nnovation Center) at CMS was established by section 1 115A 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 preservi ng or enhancing the quality of care” for those individuals who receive Medicare, Medicaid, or Children’s Hea lth Insurance Program (CHIP) benefits. The

Pioneer ACO Model is an Innovation Center in itiative designed for organizations with experience operating as ACOs or in similar ar rangements. The Pioneer ACO Model is testing the impact of using different payment arrangeme nts in helping these experienced organizationsCMS-1461-P 77

achieve the goals of providing better care to patients, and redu cing Medicare costs. Under section 1899(b)(4) of the Act, to be eligible to par ticipate 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 th e Pioneer ACO Model. Thus, Pioneer ACOs are not permitted to participate concurrently in th e 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 unneces sary burdens on these ACOs and on CMS. b. Proposed Revisions In order to do this, we propose to use a transi tion process that is similar to the transition process we established previously for P hysician Group Practice (PGP) demonstration participants applying to participate in the Sh ared Savings Program. The PGP demonstration,

authorized under section 1866A of the Act, was our first experi ence 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 participatio n in the Shared Savings Program will be given the opportunity to complete a c ondensed application form. This condensed application form requires a PGP site to provide the information th at was required for the standard Shared Savings Program application but that was not already obt ained through its applic ation 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 participan ts qualified to use aCMS-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 dem onstration. 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 la titude with regard to the process for applying to the Shared Savings Program for these ACOs. Thus, we propose to revise § 425.202(b) to o ffer Pioneer ACOs the opportunity to apply to the Shared Savings Program using a condensed app lication if three criteria are satisfied. First, the applicant ACO must be the sa me legal entity as the Pioneer ACO. Second, all of the TINs on the applicant’s ACO participan t list must have appeared on the “Confirmed Annual TIN/NPI List” (as defined in the Pioneer ACO Model Inno vation 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, cons istent with the statute and our regulation at § 425.114, any Pioneer ACO transitioning to the Sh ared 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 fu rther note that Pioneer ACOs transitioning to the Shared Savings Program woul d be subject to the standard program integrity screening and an evaluati on of their history of compliance wi th the requirements of the Pioneer

ACO Model. Regarding the second criterion, we recognize th ere are differences between the Pioneer ACO Model and the Shared Savings Program, and that only some of the NPIs within a TINCMS-1461-P 79

might have participated in the Pioneer ACO. Therefore, for purposes of determining whether a condensed application will be appropriate unde r the Shared Savings Program, we will only compare the TINs and not NPIs. We also recogn ize 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 Pione er 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 agre ements with ACO participants and ACO providers/suppliers).

Because the Pioneer ACO Model is a risk-bea ring model designed for more experienced organizations, the third proposed criterion woul d 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 fina ncial 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 rule s and methodologies used under the Pioneer ACO Model to assess performance-base d risk are different than under the Shared Savings Program.CMS-1461-P 80

Therefore, we encourage former Pioneer Model AC Os to carefully consider the risk-based track to which they apply under the Shared Savings Progr am, and to be cognizant of the differences in rules and methodologies. We seek comments on this proposal to esta blish a condensed application process for Pioneer ACOs applying to participate in the Shar ed 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 applica tion would have to appl y 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 proc edures for applying to participate in the Shared Savings Program, including the need to su bmit a complete applica tion, the content of the application, and CMS’s criteria for evalua ting applications (s ee § 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 rela ted to these requirements. In addition, while the current re gulations address certain issues with respect to ACOs that wish to reapply after termination or experien cing a loss during their initial agreement period (§ 425.222 and § 425.600(c), respectively). The regula tions are generally sile nt with respect to the procedures that apply to ACOs that successf ully complete a 3-year agreement and would like to reapply for a subsequent agreement period in th e 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 pros pective 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 manne r required by CMS by the deadline established by CMS. Information on the required content of applications can be f ound 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 mustCMS-1461-P 82

include certain information such as an ACO’s pr ior participation in or termination from the program (§ 425.204(b)); documents su ch as participation agreements, employment contracts and operating policies (§ 425.204(c)(1 )(i)); and a list of all ACO partic ipants and their

Medicare-enrolled TINs (§ 425.204(c)(5)(i)). We determine and publish in advance on our webs ite 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 opportu nity 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 CM S are denied. It is incumbent upon the ACO applicant to submit the information that is requi red for CMS to decide whether the applicant is eligible to participate in the program. b. Proposed Revisions In implementing the Shared Savings Pr ogram, we found that some applicants misunderstood our application process and the n eed 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 fo rth at § 425.206(a) to bett er reflect our review procedures.CMS-1461-P 83

First, we propose to consolidate at § 425.206 tw o similar provisions regarding application review. Currently, § 425.202(c)(1) regarding appl ication review provides that CMS determines whether an applicant sati sfies 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 bett er 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 inform ation 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 in formation 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 assi gned to the ACO, screening prospective ACOCMS-1461-P 84

participants and ACO providers or suppliers, identifying the pr eliminary prospective list of assigned beneficiaries, and calculating the ACO’s historical benchmark). These proposed changes are cons istent with our current regu lations and practice. For example, as part of the applic ation review process, CMS provide s feedback to the ACO applicant regarding its list of ACO particip ants, and the number of assigne d beneficiaries is determined using this list of ACO participants. If the num ber of assigned beneficiar ies based on the list of ACO participants submitted with the applica tion is under 5,000, which is the threshold for eligibility under § 425.110(a), we give the ACO applicant an opport unity 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 partic ipating in the Shared Savings Program after the expiration of their current agreement period, we propose a pr ocess for renewing their existing participation agreements, rather than requiring su bmission of a new or condensed application for continued program participation. Therefore, we propose to add new § 425.224 to establish procedures for renewing the par ticipation agreements of ACOs. In addition, we propose to modify the definition of “agreement period” at § 425.20 to clarify its mean ing in the context of participation agreement renewals. b. Proposed RevisionsCMS-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 ha s the authority to legally bind the ACO must certify that the information contained in the rene wal request is accurate, complete, and truthful. Further, an ACO that seeks renewal of its par ticipation 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 re quests 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 opportuni ty 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 operati ons, we anticipate specifying a timeframe for submission and supplementation of renewal reques ts that would generall y coincide with the deadlines applicable to submission and supplementation of a pplications by new ACO applicants under § 425.202. Under proposed § 425.224(b), we propose to dete rmine whether to renew a participation agreement based on an evaluation of all of the following factors:

● Whether the ACO satisfies the criteria fo r 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, includi ng the ability to repay losses, if applicable.CMS-1461-P 86

● Whether the ACO met the quality performan ce standards during at least 1 of the first 2 years of the previous agreement period.

● Whether an ACO under a two-sided model ha s repaid losses owed to the program that it generated during the first 2 years of the previous agreement period.

● The results of a program in tegrity 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 av ailable 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 th e deficiency. The ACO must submit both the renewal request and any additional information need ed 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 AC O in writing of our determination to approve or deny the ACO’s renewa l request. If we deny the rene wal request, the notice would specify the reasons for the denial and inform th e 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 w ould reduce the burden for ACOs that wish to continue in the program and minimize the admini strative 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 deadline s and other operational details for this renewal process through guidance and instructions. Fina lly, we note that under our proposal to modifyCMS-1461-P 87

the definition of the participa tion “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 regul ations that would become effective while participating ACOs are in the middle of an agre ement 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 peri od. Specifically, we fina lized § 425.212(a)(2), which provides that ACOs are subject to all regulatory changes with the exception of changes to the eligibility requirements concerni ng ACO structure and governance, th e 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. Fo r example, we did not exempt changes such as those related to quality measur es because we believed that requiring ACOs to adhere to changes related to qual ity measures would ensure that th ey keep pace with changes in clinical practices and developments in evidence-based medicine. The November 2011 final rule did not requir e ACOs to be subject to any regulatory changes regarding beneficiary assignment that become effective during an agreement period because we recognized that changes in th e beneficiary assignment methodology could necessitate changes to ACOs’ financial benchmar ks. At the time we published the November 2011 final rule (76 FR 67838), we had not deve loped a methodology for adjusting an ACO’s benchmark to reflect changes in the benefi ciary assignment methodology during an agreementCMS-1461-P 88

period. We anticipated that ACOs would comp lete their 3-year agreement period with a relatively stable set of ACO participants, and th erefore they would all ha ve stable benchmarks during the 3-year agreement period that would require updates only to reflect annual national FFS trends and changes in beneficiary characteris tics, consistent with st atutory 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 imp act 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 tw o performance years, the significant effect that these changes have had upon beneficiary assign ment, 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/Upda ting-ACO-Participant-List.html ), we wish to revisit the types of regulatory changes an ACO would beco me 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 durin g the agreement period,” except for regulations regarding certain specified progr am areas, “unless otherwise requi red by statute.” This proposed

revision corrects the omission of temporal language in the re quirement regarding regulatory changes. In addition, it clarifie s that ACOs would be subject to regulatory changes regarding ACO structure and governance, and calculation of the sharing rate during an agreement period ifCMS-1461-P 89

CMS is mandated by statute to implement su ch changes by regulation in the middle of a performance year. Second, we propose to modify the definiti on 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 referenc e 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 regardin g ACO structure and governance or calculation of the sharing rate. Therefore, we propose to am end the definition to provi de that the agreement period would be 3 performance years, unless otherw ise 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 structur e 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 s ubject to any regulato ry changes regarding beneficiary assignment that become effective during an agreement period. Specifically, we propose to remove beneficiary a ssignment 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 factor s as the Secretary determines appropriate,” we have now developed operational policies under which we ar e able to adjust the benchmark on a yearly basis to account for changes in beneficiary assi gnment resulting from changes in the ACO’s listCMS-1461-P 90

of ACO participants. For more detailed information on these policies seehttp://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Upda ting-ACO-Participant-List.html . Given that these operational policies enable annual adjustments to ACO benchmarks to account for changes in beneficiary assignment resulting fr om 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 duri ng an agreement period. Accordingly, we do not believe our proposal to make regulatory chan ges regarding beneficiary assignment applicable to ACOs during an agreement period would inappr opriately affect the ca lculation of an ACO’s benchmark or shared savings for a given perfor mance year. Rather, our adjustment methodology would ensure continued and appropriate compar ison between benchmark and performance year expenditures. Under this proposal, regulatory changes rega rding 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 th is proposed rule, we also prop ose that any final policies that affect beneficiary assignment would not be app licable until the start of the next performance year. We believe that implementing any re visions to the assign ment 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 w ould adjust all benchmarks at the start of the first performance year in which the new assignmen t rules are applied so that the benchmark for an ACO reflects the use of the same assignment rule s that would apply in th e performance year.CMS-1461-P 91

We also note that we carefully consider th e timing and effect on both current and future ACOs of any new regulatory proposal, and wh en promulgating new regulatory changes, we

intend to solicit comment on these matters. Addi tionally, when implementi ng a final rule that changes our processes and methodologies, we inte nd 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 a nd 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 partic ipate in the Shared Savings Program, section 1899(b)(2)(G) of the Act states an "ACO shall defi ne 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 AC Os will have, or are working towards having, processes in place to independen tly identify and produce the data they believe are necessary to best evaluate the health needs of their pati ent population, improve he alth 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 pro cesses. Moreover, we continue to believe this ability to independently identify and produce data for eval uating, improving, and monitoring the health of their patient population is a criti cal 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 patientCMS-1461-P 93

population, it can work toward redesigning approp riate care processes to address the specific needs of its patient population. However, as we noted previously (76 FR 67844), while an ACO typi cally should have, or at least be moving towards having complete information for the services its ACO providers/suppliers furnish to Medicare FFS bene ficiaries, 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 – in formation 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 po licy: (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 prospectiv ely assigned to the ACO and whose information serves as the basis for the aggregate reports; a nd (3) upon request from the ACO, to share certain beneficiary identifiable claims data with the AC O to enable it to conduct quality assessment and improvement activities and/or c onduct care coordination, on its ow n behalf as a covered entity, or on behalf of its ACO partic ipants and ACO provide rs/suppliers that ar e covered entities, unless the beneficiary chooses to decline to share his or her claims data.

As we stated in the November 2011 final ru le (76 FR 67844), we be lieve that access to beneficiary identifiable information would provide ACOs with a more complete picture about the care their assigned beneficiaries re ceive, both within and outside the ACO. Further, it is our view that this information would help ACOs ev aluate providers'/suppliers' performance, conduct quality assessment and improvement activities, perform care coordination activities, and conduct population-based activities rela ting 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 Ru le would permit our disclosure of certain Medicare Part A and B data to ACOs participa ting in the Shared Savings Program. Specifically, under the Shared Savings Program statute and regulations, ACOs ar e tasked with working with their ACO participants and ACO providers/suppl iers to evaluate their performance, conduct quality assessment and improvement activities, perform care coordination activities, and conduct population-based activities relating to improved h ealth 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 op erations" 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 covere d 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 "heal th 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 en tities 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 th at falls within the first two pa ragraphs of the definition ofCMS-1461-P 95

"health care operations" in the HIPAA Privacy Rule and that the data requested are the "minimum necessary" to carry ou t those health care operations. (See, the HIPAA Privacy Rule at 45 CFR 164.502(b) and 164.506(c)(4)). The first tw o paragraphs of the definition of health care operations under 45 CFR 164.501 include evalua ting a provider's or supplier's performance, conducting quality assessment and improvement ac tivities, care coordi nation activities, and conducting population-based activitie s relating to improved health. With respect to the relati onship 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 AC O has a relationship with such i ndividuals, either as a covered entity itself or on behalf of its covered entity ACO participan ts and ACO providers/suppliers as a business associate, because the individuals are eith er 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 bot h CMS and the ACO, in that we provide health care coverage

for Medicare FFS beneficiaries and have an intere st 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 AC O’s assigned benefi ciary population. Beneficiary identifiable Medicare prescripti on drug information could also be used by ACOs to improve the care coordination of thei r patient populations. Ac cordingly, consistent with the regulations governing th e release of Part D data, in the April 2011 proposed rule (76 FR 19559), we also proposed to make availabl e the minimum Part D data necessary to allow for the evaluation of the performance of ACO participants and ACO providers/suppliers, toCMS-1461-P 96

conduct quality assessment and improvement, to perform care coordination, and to conduct population-based activities rela ting 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 iden tifiable information (i ncluding Part A and B claims data and Part D prescr iption drug event data) for preliminarily prospectively assigned

beneficiaries and those be neficiaries who have a primary care vi sit 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 iden tifiable 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" activit ies that fall within the first or second paragraph of the definition of h ealth 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, a nd that the requested da ta reflects the minimum necessary for the ACO to conduct health care opera tions either on its own be half 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 us e agreement (DUA) with CMS. If all of these conditions are satisfied, CMS ma kes available certain limited PHI regarding the preliminarily prospectively assigned beneficiarie s whose data were used to gene rate 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 a ssignment is based. In orderCMS-1461-P 97

to enhance transparency and beneficiary engage ment, we also finalized a policy that before ACOs may start receiving PHI in th e form of beneficiary identifiabl e 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 fina l rule, we have gained further experience with sharing data with ACOs participating in the Shared Savings Program. We continue to believe that distributing aggreg ate reports, paired with making available certain beneficiary identifiable information related to preliminarily prospectively assigned beneficiaries, as well as making available the claims data for preliminar ily 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 inform ation related to prelim inarily prospectively assigned beneficiaries give ACOs valuable inform ation 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 Sh ared Savings Program have reported that the beneficiary identifiable claims data that they rece ive 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 in to patterns of care for their beneficiary population; enable them to impr ove care coordination among and across providers and suppliers and sites of care, including provide rs and suppliers and sites of care not affiliated with the ACO; and allow them to identif y and address gaps in patient care. However, based upon our experiences admini stering the Shared Savings Program and feedback from stakeholders, we believe that we can improve our data sharing policies andCMS-1461-P 98

processes to streamline access to such data to better support program and ACO function and goals and better serve Medicare be neficiaries. It is with this in mind that we propose the following modifications to our da ta sharing policies and procedures under the Shared Savings Program. 2. Aggregate Data Reports a nd 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 certa in de-identified beneficiary information including all of the following:

● Aggregated metrics on the ACO's prelim inarily prospectively assigned beneficiary population, including characterist ics of the assigned benefi ciary population, the number of primary care services provided to the assigne d beneficiary population by the ACO, and the proportion of primary care servic es provided to the assigned be neficiary population by ACO participants upon whom assignment is based.

● Expenditure data for the ACO's assi gned beneficiary popul ation by Medicare enrollment type (ESRD, disable d, aged/dual eligible, aged/non-dual eligible) and type of service (for example, inpatient hos pital, physician, etc.).

● Utilization data on select metrics for the assigned populat ion, such as ambulatory care sensitive conditions discharge rates per 1,000 bene ficiaries 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 th e beneficiaries who are prelimin arily 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 benefi ciary identifiable data are made available to an ACO that has met the conditions previously discussed in deta il for purposes of carry ing out population-based activities related to improving h ealth or reducing growth in health care costs, process development (such as care coordination processe s), 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 bene ficiaries 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, c onfirms there is a strong desire among ACOs and their ACO participants and ACO providers/s uppliers 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 th eir health care operations work with the expectation that it will result in higher quality and more efficient care for their assigned be neficiary populations. However, ACOs and their ACO participants and ACO providers/suppliers al so 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 nece ssary in order to conduct health care operations work under the first or second paragraph of th e definition of health care operations atCMS-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 benefi ciaries were hospitalized and in which specific hospitals would better enable it to iden tify the effectiveness and outcomes of its post-hospitalization care c oordination processes. Some stake holders have made suggestions for beneficiary identifiable data that should be includ ed in the quarterly reports in addition to the current four data elements, such as risk profile s or information on whether the beneficiary had a hospital visit in the past year. Some stakehol ders suggested that th e report be expanded to include information not only for th e 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 ye ar. These stakeholders argue that understanding the entire FFS patient population served by th e ACO and its ACO participants would improve their ability to redesign care, and reduce the uncer tainty associated with a list of preliminarily prospectively assigned beneficiar ies that fluctuates from qua rter to quarter, based on the population's use of prim ary 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 a nd ACO providers/suppliers, we be lieve that making additional

information available to ACOs about the FFS bene ficiaries 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 info rmation made available to ACOs under § 425.702(c)

to include certain additional bene ficiary identifiable data subject to the existing requirements of § 425.702(c)(2), which incorporates the requirem ents under HIPAA governing the disclosure ofCMS-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 prelimin arily prospectively assi gned beneficiaries, we propose to expand the beneficiary identifiable information that is made available under § 425.702(c)(1) to include these data elements (nam e, 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 assignm ent process in the most recent 12-month period. Additionally, we propose to expand the bene ficiary identifiable information made available for preliminarily prospectively assigned be neficiaries to include a dditional data points.

The information would be derived from the same claims used to determine the preliminary prospective assigned beneficiary lis t. Specifically, we propose that we would make available the minimum data set necessary for purposes of th e ACO’s population-based activities related to improving health or reducing health care cost s, required process development (under § 425.112), care management, and care coordination for its pr eliminarily 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 ar ticulate the data elements asso ciated with the minimum data set in operational guidance, a nd update as needed to reflect changes in the minimum data necessary for ACOs to perform these activities. The informa tion would fall under the following categories:

● Demographic data such as enrollment status.

● Health status information such as risk profile, and ch ronic 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 relate d 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 asso ciate of their covered entity ACO participants and ACO providers/suppliers, to ev aluate providers’ and suppliers ’ performance, conduct quality assessment and improvement activities, and c onduct population-based ac tivities relating to improved health. Finally, we note that these pr oposals for expansion of the data reports provided under § 425.702(c) to include each FFS beneficiary th at 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 participa ting in Tracks 1 and 2, where beneficiaries are assigned in a preliminarily prosp ective manner with retrospective re conciliation. 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 retros pective reconciliation. Unde r 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 ope rations as defined under the first and second paragraphs of the definition of health car e operations at 45 CFR 164.501, would not extend beyond data needed for health operat ions 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, ra ther 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 operati ons work would be limited to the data forCMS-1461-P 103

beneficiaries that are prospect ively assigned for a performance year. Thus, for Track 3, we propose to limit the beneficiary identifiable da ta 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. Speci fically, Track 3 ACOs would have access to beneficiary identifiable data elements associat ed with the list of cat egories under § 425.702(c) for beneficiaries prospectively assigned to th e ACO but would not be able to request any

information related to other Medicare FFS benefici aries who receive primar y care services that are considered in the assignment process from AC O participants. We believe this limitation is reasonable because, under Track 3, the prospectiv ely assigned beneficiary list would encompass

all beneficiaries for whom the ACO would be he ld accountable in a given performance year, in

contrast to ACOs in Tracks 1 a nd 2 that would be held accountab le for any FFS beneficiaries that choose to receive a plurality of their primary care services from ACO professionals billing through the TINs of AC O participants. We seek comment on our proposal to expand th e 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 benefici ary identifiable information th at 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 c overed entity ACO participants and ACO providers/suppliers to conduct health care operations work under paragraphs one or two of the de finition of health care operations at 45 CFR 164.501. We also specific ally 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 al l beneficiaries that had a primary care serviceCMS-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 AC O participants and ACO providers/suppliers often receive care from other providers and suppliers that are not affiliat ed with the ACO. As a result, ACOs and their ACO participants and ACO provid ers/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 th e end of each performance year to determine an ACO's assigned beneficiary population base d 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 prelimin ary prospective assigned benefici ary list would not be complete

and would not include all the beneficiaries that w ould 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 se rvices delivered outside of the ACO. As we stated at that time, we believed that it would be important to gi ve ACOs appropriate access to a beneficiary's identifiable claims data when th e beneficiary has received a primary care service billed through the TIN of an ACO participant, a nd is thus a candidate fo r assignment at the time of retrospective reconciliation fo r the performance year. We believed that sharing beneficiaryCMS-1461-P 105

identifiable claims data would enable ACOs to better coordinate and ta rget care strategies

towards the individual benefici aries seen by ACO participants and ACO providers/suppliers. We ultimately concluded that the bases fo r 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 cond itions 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 prescrip tion 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 th e minimum Medicare Parts A, B, and D data necessary to allow ACOs to conduct the health care operations activit ies that fall into the first or second paragraph of the definition of health car e 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 AC O providers/suppliers. Accordi ngly, in the November 2011 final rule (76 FR 67851), we adopted a policy under wh ich an ACO may request Part A and Part B claims data and Part D prescr iption drug event data for prelim inarily prospectively assigned

beneficiaries and other beneficiar ies who receive primary care serv ices 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 un der 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, a nd provider incentive design and implementation. In providing the claims data subject to thes e limitations, we believed that we would ensure compliance with the requirements of the HIPAA Privacy Rule and the re gulations 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 im plemented 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 requesti ng access to the beneficiary’ s data and as part of its broader activities to notify patients that thei r health care provider or supplier is participating in an ACO, the ACO is required to inform benefi ciaries that the ACO may request access to their claims data, and give benefici aries 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 applicati on process, enters into a DUA with CMS, and begins its first performance year , the ACO must supply beneficiar ies with a written notification explaining their opportunity to decline claims data sharing. Offe ring beneficiaries the opportunity to decline claims data sharing may take two forms under current § 425.708. First, if the ACO has formally requested beneficiary identif iable claims data as pa rt of the application process, the ACO must notify each FFS beneficiary of the opportuni ty 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 par ticipation in the ACO and that the ACO may request claims information from CMS in order to better coordina te the beneficiary's care and for other health operations activities. This written notific ation contains templa te language created by CMS with the assistance of the Medicare Ombudsman’s office and with input fromCMS-1461-P 107

beneficiaries, and explains the beneficiary's op tion to decline claims data sharing. Once the beneficiary has expressed a preference at the poi nt of care, the ACO ma y 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 identifiabl e claims data. Under the alternative option, ACOs may contact beneficiaries via a mailed notification that is sent to all preliminarily prospectively assigned beneficiarie s to notify them of their health care provider's participation in an ACO under the Shared Savings Program, a nd the ACO's intent to request beneficiary

identifiable claims data. The mailed notificati on contains template langua ge that was developed in conjunction with the Medicare Ombudsman’s offi ce with input from beneficiaries. If the beneficiary wishes to decline clai ms data sharing, the beneficiary is instructed to sign the mailed

notification and return it to th e 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 subm itting 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 b ack the notification or

to call 1-800-MEDICARE before the ACO receives access to their claims da ta. In addition, in order to ensure transparency, beneficiary enga gement 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 partic ipant upon whom assignment is based (76 FR 67850 and 67851). Finally, in addition to the point of care and mailed notificatio ns provided by ACOs, all MedicareCMS-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 submit s the beneficiaries’ preferences to CMS. Beneficiary preferences submitted by ACOs are combined with preferences received by CMS through 1-800-MEDICARE. Based on these benefici ary preferences, we generate a claims file containing the beneficiary identifia ble claims data of beneficiarie s 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 beneficiar y 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 dir ectly. We then include the beneficiary’s claims data in the claims f ile 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 cl aims data shared with an ACO but would choose to continue to receive care from ACO participan ts and ACO providers/supp liers. 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 notif ied 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 indi cated that the requirement that an ACO provider/supplier engage patients in a discussion about the inhere nt benefits, as well as theCMS-1461-P 109

potential risks, of claims data sharing provided an opportunity fo r true patient-centered care and would create incentives for ACOs, ACO particip ants, and ACO providers/suppliers to develop positive relationships with each beneficiary under th eir 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 Savi ngs Program and its pote ntial 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 th e 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 th e following from this feedback:

● The option for ACOs to ma il notifications and then conduct in-office follow-up adds

to ACOs' financial costs and dela ys 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 su bmit 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 informa tion for preliminarily prospectively assigned beneficiaries, which can delay the mailing of not ifications to later in the performance year. Thus, the earliest opportunity for AC Os to receive claims data is mid-February, and that is only the claims data for beneficiaries who visited pr imary care providers in early January and were given the opportunity to d ecline claims data sharing at the point of care.

● Stakeholders, including ACOs, ACO pa rticipants, and ACO providers/suppliers, continually confuse the notificati on regarding the ACO's intent to request access to claims dataCMS-1461-P 110

with the separate requirement that all FFS benefi ciaries must be notified of ACO participants' and ACO providers/suppliers' particip ation in the program. Benefici aries must be notified at the point of care of the ACO partic ipants’ and ACO providers/supplie rs’ participation in an ACO, regardless of whether the ACO has or inte nds 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-provide r relationship. Beneficiaries often assume their providers have all the information they need to ca re 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 sh aring from more than one ACO. This is most likely to occur in markets with high ACO penetr ation where a beneficiary may receive primary care services from several different ACO profes sionals, each participating in different ACOs. Beneficiaries report confusion, concern, and a nnoyance over receiving multiple mailings from ACOs, and question why their health care provide rs do not already have the information they need to appropriately co ordinate 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 oppor tunity to decline clai ms data sharing often mistakenly believe that these letters are fraudul ent and do not know what to do. Many ACOs areCMS-1461-P 111

entities that have been newly fo rmed by providers and suppliers for purposes of participating in the Shared Savings Program. While the benefici ary may have a strong re lationship 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 ques tion the legitimacy of the notification.

● Our data indicate that approximately 2 perc ent of beneficiaries have declined claims data sharing. This is consistent with other CMS initiatives that have incl uded data sharing, such as the Medicare Health Support demonstration, th e Multi-Payer Advanced Primary Care Practice demonstration, the Physician Gr oup Practice demonstrat ion, and the Physician Group Practice

Transition demonstration. As discussed previously, beneficiaries curren tly have the opportunity to decline claims data sharing by responding to the letters that AC Os send to their preliminarily prospectively assigned beneficiaries, by informing an ACO pr ovider/supplier during a face-to-face primary care service visit, or by contact ing 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. Ho wever, in light of the feedback we have received, we were motivated to review our cl aims 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 regardi ng claims data sharing under the program such as: mailed notifications to the list of prelim inarily 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 AC Os when those data are necessary for purposes of certain health care operations. HIPAA does not requi re that beneficiaries be pres ented with an opportunity to decline claims data sharing before their PHI can be shared. Moreove r, several other CMS initiatives, including the Medicare Health S upport demonstration, the Multi-Payer Advanced Primary Care Practice demonstration, the P hysician Group Practice demonstration, and the Physician Group Practice Transition demonstration, ha ve successfully shared claims data with providers in the absence of an opportunity for be neficiaries 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 tran sparent 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 ma intain claims data sharing transparency and a

mechanism for beneficiaries to de cline 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 sharingCMS-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 li st of beneficiar ies 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 provid e 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 su ch as the Medicare & You Handbook. The Handbook would include information about the purpos e of the program, describe the opportunity for ACOs to request beneficiary identifiable claims data for hea lth care operations purposes, and provide instructions on how bene ficiaries may decline claims data sharing by contacting CMS directly through 1-800-MEDICARE. The Handbook w ould 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 be neficiaries and ACOs, we propose to remove the option for ACOs to mail notifications to benefi ciaries and for beneficiar ies to sign and return

the forms to the ACO in order to decline claims data sharing. This pro cess would be replaced by a simpler, direct process through notification at the point of care a nd through 1-800-MEDICARE as described previously. We also propose to continue to require th at ACO participants notify beneficiaries in writing at the point of care that their providers and suppliers ar e participating in the Shared Savings Program as required under § 425.312(a). We propose that ACO participants would continue to be required to post si gns in their facilities using re quired template language. Rather than requiring ACO participants furnishing prim ary care services to provide a written form regarding claims data sharing to all beneficiarie s who have a primary care service office visit, weCMS-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 AC O participants and ACO pr oviders/suppliers. The signs would likewise include in structions for how beneficiar ies may reverse their opt-outs through 1-800-MEDICARE, if they determine in th e future they would prefer to have their

claims data made available to ACOs and thei r ACO participants and ACO providers/suppliers. Because ACO participants are requ ired to post these signs in thei r facilities at all times, this written notification through the signs would occu r at each visit, including the first visit the beneficiary has with an ACO partic ipant during a performance year. We also anticipate that some beneficiaries ma y 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 si gns, 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 notif ication 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 ma ke beneficiary identifiable claims data available in accordance with applicable law on a m onthly 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 be nefit from access to bene ficiary 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 bene ficiary 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 pe rformance year. Consis tent with the existing requirements at § 425.704, in order to request bene ficiary identifiable clai ms 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 benefici ary 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 be neficiary identifiable claims data for such beneficiaries at the time of application to the Shared Savings Program; a nd (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 s econd paragraph of the defi nition of health care operations at 45 CFR 164.501 or health care operati ons work on behalf of its ACO participants and ACO providers/suppliers that ar e covered entities (as the busin ess associate of these coveredCMS-1461-P 116

entities) that falls within the first or second para graph of the definition of health care operations

at 45 CFR 164.501. We believe these proposed modifications to our data sharing rule s would significantly improve the claims data sharing process. Firs t, we believe the modified process would reduce

burden for beneficiaries who woul d no longer have to mail back forms. In addition, it would minimize beneficiary confusion in situations wh ere an ACO may be newly formed and may not yet have established a relationship with the bene ficiary. Instead, the beneficiary would be able decline claims data sharing, and reverse a deci sion to decline claims sharing, by contacting CMS directly using 1-800-MEDICARE. We believe beneficiaries would be more comfortable expressing their claims data sh aring preferences directly thro ugh 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 cu rrent policies. Beneficiary

identifiable claims data would still be availabl e on a monthly basis, but the new process would be operationally more efficient and less expens ive for ACOs. By removing the 30-day delay before ACOs may request beneficiary identifi able claims data for their preliminarily prospectively assigned beneficiaries under Tracks 1 and 2 and prospectively assigned beneficiaries under Track 3, and reducing operati onal complexities associated with providing these data, ACOs would have access to benefici ary identifiable claims data in a more timely fashion. This may allow ACOs to intervene in the care of beneficiar ies 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 th at furnish primary care services and theirCMS-1461-P 117

patients, we now realize that this policy unintentionally crea ted burden and confusion for both ACOs and beneficiaries, as many beneficiaries assume that their health care providers already have the information needed to optimally coordina te their care, even tho ugh this is not always the case. We believe that the proposed revisions to our claims data sharing policy would reduce beneficiary confusion about the Sh ared Savings Program and the ro le 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 oppor tunity to decline claims data sharing. We note that, since implementation of th e 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 e ffect 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 Track s 1 and 2 that request

claims data on beneficiaries that are include d on their preliminary prospective assigned beneficiary list or that have received a primary care serv ice from an ACO participant upon whom assignment is based during the most recent 12-mont h period, at the start of the ACO’s agreement period, provided all other requirements for cl aims data sharing under the Shared Savings Program and HIPAA regulations are met. We al so propose to share bene ficiary identifiableCMS-1461-P 118

claims data with ACOs particip ating under Track 3 that request be neficiary identifiable claims

data on beneficiaries that are in cluded on their prospectively assigne d beneficiary list. We also propose to revise § 425.312(a) and § 425.708 to refl ect our policy that AC O participants use CMS approved template language to notify benefici aries regarding particip ation in an ACO and the opportunity to declin e claims data sharing. In addi tion, we propose to modify § 425.708 to reflect the streamlined process by which beneficiarie s 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 inform ation related to the diagnosis and treatment of alc ohol 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 disc losure of patient records by fe derally conducted or assisted substance abuse programs. Such data may be disc losed 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 existi ng 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 requi res 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 practitione rs described in section 1842(b)(1 8)(C)(i) of the Act, such as physician assistants (PAs) and nur se practitioners (NPs). As we explained in the November 2011 fina l rule (76 FR 67851) the term “assignment” refers only to an operational process by which Me dicare 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 AC O may be appropriately designated as exercising basic responsibility for that bene ficiary'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 theCMS-1461-P 120

rights of Medicare FFS beneficiarie s to exercise freedom of choi ce in the physicians and other health care providers and suppliers from whom they receive their services. In developing the process for assigning Medica re beneficiaries to ACOs, we considered

several other elements in addition to the defi nition of an ACO profe ssional (76 FR 67851): (1) the operational definition of an ACO (see the disc ussion of the formal and operational definitions of an ACO in section II.B. of this proposed ru le) 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 as sign beneficiaries to ACOs pros pectively, 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 benefi ciaries to ACOs for purposes of the Shared Savings Program. Beneficiarie s are assigned to a participa ting ACO using the assignment methodology in Part 425, subpart E of our regula tions. In addition, since the final rule was issued, we have provided additi onal guidance and more detailed specifications regarding the beneficiary assignment process in operational in structions which are av ailable to the public on the CMS website. ( http://www.cms.gov/Medicar e/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Financi al-and-Assignment-Specifications.html )

In this section of this proposed rule, we summari ze several key policies and methodological issues to provi de background for several revisions to the assignmentCMS-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 assi gnment to an ACO which we propose to codify in a new provision at § 425.401. We belie ve 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 w ith the current assi gnment methodology under § 425.400 and § 425.402 as well as the discussi on of the assignment methodology in the preamble to the November 2011 final rule and operat ional instructions that we have issued since the publication of the final rule (76 FR 67851). First, to determine whether a beneficiary is e ligible to be assigned to an ACO, we must have information about the beneficiary’s Medica re 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 enroll ed 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 object ive of this program is to help align incentives between Part A and Part B, bene ficiaries who have coverage u nder only one of these parts are not eligible to be assigned to an ACO. Benefi ciaries enrolled in a gr oup health plan—including

beneficiaries enrolled in Medica re Advantage (MA) plans under Pa rt C, eligible organizations under section 1876 of the Act, and Programs of All Inclusive Care for the Elderly (PACE) underCMS-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 th at providers of services or suppliers that participat e in certain programs that involve sh ared 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 implemen t this requirement and to adopt a process for ensuring that providers and suppliers particip ating in the Shared Savings Program do not concurrently participate in another Medicare pr ogram or demonstration involving shared savings at § 425.114. Specifically, applications for part icipation in the Shared Savings Program are reviewed to assess for overlapp ing ACO participant TINs. ACO participants that are already participating in another Medicare program, model or demonstrati on involving shared savings are prohibited from participating in the Medicare Shared Savings Program. An ACO application that contains ACO participants that are alrea dy participating in anothe r Medicare program or demonstration involving shared savings is rejected. The statutory prohibition against providers and suppliers participating in multiple programs and initiatives that invol ve shared savings limits but does not prevent the possibility for a beneficiary to be assigned to more than one shar ed savings initiative. However, we believe it is important that beneficiaries are not assigned to mo re 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 ca re, but uses an alternate beneficiary assignmentCMS-1461-P 123

methodology, we will work with the developers of the respective demonstrations and initiatives to devise an appropriate met hod 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 Medicar e shared savings initiativ e 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. te rritories or possessions from assi gnment to an ACO. We make

this determination based on the most recent availa ble 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 requi red under the Shared Savings Program, or to hold ACOs accountable for the care provided to benefici aries that reside outs ide the United States because ACOs may have limited ability to intera ct with overseas providers and suppliers. In most situations, Medicare does not pay for heal th 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 avai lable to ACOs. United States (U.S.) residence includes the 50 states, the Distri ct of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, and the Northern Marianas. (See guidance athttp://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Downloads/S hared-Savings-Losses-Assignment-Spec-v2.pdf ). We believe it is appropriate to amend the re gulations governing the assignment process to incorporate these limitations. Thus, we propos e to add a new provision at § 425.401(a) of theCMS-1461-P 124

regulations to outline the criteria that a benefici ary must meet in order to be eligible to be assigned to an ACO. Specifica lly, a beneficiary would be el igible to be assigned to a participating ACO, for a performance year or benc hmark 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 Me dicare shared savings initiative.

● Lives in the U.S. or U.S. territories a nd 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 accordan ce with the two-step beneficiary assignment methodology in § 425.402 and § 425.404. We also pr opose to make a conforming change to § 425.400 to reflect the addition of this new provision. We request comment on this proposal to ame nd 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 Secr etary to assign beneficiaries to an ACO

“based on their utiliza tion of primary care services” provided by a physician. However, theCMS-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 ru le (76 FR 67853), that we intended to monitor this issue and would consider making changes to th e definition of primary care services to add or delete codes, if there is sufficient ev idence that revisions are warranted. We currently define “primary care services” for purposes of the Shared Savings Program in § 425.20 as the set of servic es identified by the following HC PCS/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 thes e 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 approxi mation of the kinds of servic es 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 assi gnment process. In addition, we selected this list to be largely c onsistent with the definition of “primary careCMS-1461-P 126

services” in section 5501 of the Affordable Care Act. That section establishes the Primary Care Incentive Payment Program (PCIP) to expand ac cess 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 assignm ent process under the Shar ed Savings Program. We slightly expanded the list of codes found in section 5501 of the Affordable Care Act to

include the Welcome to Medica re visit (HCPCS code G0402) and the annual we llness 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 physic ian or qualifying nonphysician practitioner transitional care manageme nt (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 c odes were established to pay a patient’s physician or practitione r 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 practitio ners in treating a patient following discharge from a hospital or nursing facility would ensure better continuity of care for these patients andCMS-1461-P 127

help reduce avoidable readmissions. We discus sed this policy in the CY 2013 Physician Fee Schedule (PFS) final rule with comment peri od 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 establis h a separate payment for HCPCS code GXXX1 under the PFS for chronic care management (CCM) services furn ished 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 c oding, elements of service, and payment rates (79 FR 67715 through 67728). Chronic care manage ment services generally include regular development and revision of a plan of car e, communication with other treating health professionals, and medication management. Accordingly, as part of our broader mu ltiyear strategy to appr opriately recognize and value primary care and care management servic es, effective January 1, 2015, we will make a separate payment for CCM services under the PF S. We believe that successful efforts to improve chronic care management for these pati ents could improve the quality of care while simultaneously decreasing costs, such as through reductions in hospitaliza tions, 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 inCMS-1461-P 128

SNFs requested this change so that their ACO pa rticipant TIN need not be exclusive to only one ACO based on the exclusivity po licy 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 proce ss. However, ACO participant TINs upon which beneficiary assignment is not depe ndent (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 comment ers 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 evaluati on 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 de finition of primary care for the Shared Savings Program. They suggest that including the c odes for evaluation and management services furnished in SNFs in the assignment process co uld help provide important incentives for ACOs to manage and coordinate the care of these vu lnerable patients because ACOs would be held accountable for these patients if they receive the plura lity of their primary care services from ACO professionals during a performance year. In the November 2011 final rule, we discu ssed 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 incl ude these codes. We continue to believe that including the codes for SNF and ot her nursing facility visits in the list of codes that constitute primary care serv ices for purposes of assignment to an ACO is appropriate for a

number of reasons. As we st ated in the November 2011 final rule (76 FR 67853), beneficiaries often stay for long periods of time in SNFs (Med icare covers up to 100 days of SNF services in each benefit period) and it is reasonable to conc lude that these codes represent basic evaluation and management services that would ordinar ily be provided in physician offices if the

beneficiaries were not residi ng in nursing homes. If these services are performed by ACO professionals, we continue to be lieve 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 wa s established to expand access to “primary care services”. Under this program, begi nning 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 cer tain 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 ca re services” in section 5501 of th e Affordable Care Act, which established this incentive program. We w ould also note that CPT codes 99304 through 99318 do

not differentiate between evalua tion 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 furn ished by ACOs. We believe the addition of thisCMS-1461-P 130

measure helps to fill a gap in the current Shar ed 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 serv ices that would ordinarily be provided in physician offices if the beneficiar ies were not residing in nursi ng homes and should continue to be included in the definition of primary car e services used for purposes of beneficiary assignment to an ACO participating in the Sh ared 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 re presented by CPT codes 99495 and 99496 represent primary care services that should be consid ered in the beneficiary assignment methodology under the Shared Savings Program. In order to r eceive payment for these codes, the physician or non-physician practitioner is require d to accept care of the beneficiary post-discharge from an inpatient hospital or SNF without a gap and must take responsibil ity for the beneficiary’s overall care for a period of 30 days following the disc harge. Likewise, we believe that the CCM services represented by HCPCS code GXXX1 are pr imary care services that should also be considered in the beneficiary assignment meth odology under the Shared Savings Program. The CCM service includes continuity of care with a designated practi tioner 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 serv ices 24-hours-a-day, 7-days-a-week, which means providing beneficiaries with a means to make timely contact with health care providers toCMS-1461-P 131

address the patient’s urgent chronic care needs rega rdless of the time-of-day or day of the week. Additional explanation of these a nd 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 bene ficiary assignment methodology under § 425.402. Further, in order to promot e 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 an nual 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 pur poses 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 Pr ogram to be more flexible and responsive to incorporate any changes to primary care orie nted codes that are made through the PFS rulemaking process. We believe this proce ss 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 th e Shared Savings Program properly reflects the full range of primary care services that benefi ciaries may receive under Medicare and that the assignment methodology accurately aligns beneficiarie s 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 th rough the annual rulemaking for the PFS wouldCMS-1461-P 132

enable us to efficiently upda te and revise primary care serv ice codes used for purposes of beneficiary assignment under the Shared Savi ngs Program to reflect any administrative HCPCS/CPT coding changes, such as changes to reflect su ccessive coding changes. Accordingly, we also propose to amend the defi nition 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 co des that we should consider adding to the definition of primary care services in futu re rulemaking for purposes of assignment of

beneficiaries to ACOs under the Shared Savings Program. It w ould 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 define d based on the type of service provided, the type of provider specialty that provides the serv ice, 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 rec ognizing 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 pr imary care service with a physician who is an ACO professional (and who ar e thus eligible for assignment to the ACO under the statutory requirement to base assignm ent on “utilization of primary care services” furnished by physicians), we employ a step-wis e 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 speci alist 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 primar y care and specialist physicians and certain non-phys ician practitioners, in determining which ACO is truly responsible for a beneficiary's primary care in th e 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 be neficiary by primary care physicians who are ACO professionals are greater than the allowed charge s for primary care services furnished by primary care physicians who are ACO prof essionals in any other ACOs, and greater than the allowed charges for primary care services billed to Me dicare 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 allo wed charges for primary ca re 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 furnis hed by primary care physi cians that are billed through other Medicare-enrolled TINs (or through a collection of ACO part icipant TINs in the case of another ACO). If the allowed charges fo r the services furnished by ACO participants are greater than the allowed charges for services furnished by the part icipants 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 benefici aries 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 phys ician 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 AC O professionals in any other ACO or solo practice/group of practitioners id entified by a Medicare-enrolled TI N 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 th at, on average, about 92 percent of the beneficiaries assigned to ACOs are assi gned in step 1, with only about 8 percent of the beneficiaries being assigned in step 2. We have adopted a similar beneficiary assi gnment approach for some other programs, such as the PQRS Group Practice Reporting Op tion 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 methodol ogy and the PQRS GPRO web inte rface beneficiary assignment methodology to make them slightly different from the Medicare Shared Savings Program assignment methodology, namely-- (1) eliminating th e primary care service pre-step that is statutorily required for the Shared Savings Progr am; and (2) including NPs, PAs, and CNSs in step 1 rather than in step 2 of the attr ibution process (see 79 FR 67790 and 79 FR 67962).CMS-1461-P 136

b. Proposed Revisions

We continue to believe that the curren t 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 ba sis of how they actually receive their primary care services. However, we have received seve ral suggestions for possible improvements to the assignment methodology for consideration. Some stakeholders have suggested th at primary care serv ices by non-physician practitioners (NPs, PAs, and CN Ss) should be included in step 1 of the assignment methodology rather than only in step 2 as they are under the current process. Th ese stakeholders have indicated that non-physician practiti oners very often serve as a beneficiary’s sole primary care provider, based on beneficiary pref erences or other factors, especi ally 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 Novemb er 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 special ties in step 1 of the assignment methodology and the definition of pr imary care physician under § 425.20) to align with other Affordable Care Act provisions th at place a strong emphasis on primary care. In particular, we referred to sect ion 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 design ation 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 assignmentCMS-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 practi tioners in step 1 of the assignment process. Further, we believe th at including these non-physi cian 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 ca re 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 in clude primary services furnished by NPs, PAs, and CNSs in step 1 of the beneficiar y assignment methodology (a fter satisfying the statutory criterion that assignmen t be based on primary care services by physicians). Under section 1899(b)(2)(D), the ACO is required to have sufficien t primary care ACO professionals to

care for the number of FFS benefi ciaries 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 managi ng and coordinating the care of Medicare FFS

beneficiaries. We believe including these practitioners in st ep one of the assignment process could also further strengthen our current assignment pr ocess, 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 ca re 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 phys icians in step 2. Including services furnished by NPs, PAs, and CNSs in determining the plurality of prim ary care services in step 1 of the assignment process may help ensure that beneficiaries are assigned to the ACO (or non-ACO entity) that isCMS-1461-P 138

actually providing the plurality of primary car e for that beneficiary and thus, should be responsible for managing the pati ent’s overall care. In this wa y, 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 collabor ation 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 allo w practitioners to indi cate whether they are typically functioning as primary car e 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 inappropria tely 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-physic ian practitioners provide non-primary care services and whether there are ways to dis tinguish between primary care services and nonprimary care services billed by th ese non-physician practitioners. Some other stakeholders have suggested that certain physician specialties are inappropriately included in the a ssignment process and therefore re quest that we exclude certain physician specialties from step 2 of the assignmen t process. These stak eholders are concernedCMS-1461-P 139

that by being included in step 2 of the assignm ent 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 require ment under § 425.306(b) of the regulations. This requirement is discussed in the Novemb er 2011 final rule (76 FR 67810 through 67811). Further, some stakeholders have indicated that they are confused by the current exclusivity requirement and inappropriately be lieve that an ACO participant can participate in more than one ACO as long as none of the beneficiaries for wh om 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 requireme nt 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 ex clusive 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. Additi onally, the current exclusivity re quirement 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, sp ecialist physicians, or NPs, PAs, and CNSs. Furthermore, this exclusivity requirement a pplies only to the ACO participant and not to individual practitioners. Individual practiti oners 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). Fo r example, there may be practitioners whoCMS-1461-P 140

work in multiple settings and bill Medicare fo r primary care services through several different TINs, depending on the setting. If each of thes e TINs represents an ACO participant in a different ACO, then the practitioner would be an ACO professional in mo re than one ACO. Some stakeholders have argued that certain specialties that bill for some of the evaluation and management services designated as prim ary 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 car e” but in actual practic e these surgeons do not perform primary care when they report these code s. 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 de finition of “primary care practitioners” under that statute. In other words, to identify true pr imary 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 su ch as surgeons and certain others bill Medicare for some of the Shared Savings Program “primary care” codes, in actual practice the services such specialists perf orm 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 id entify primary care services more accurately, the CPT codes for primary care services should be paired with the specialties of the practitioners thatCMS-1461-P 141

render those services and that it would be appropriate to exclude services provided by certain physician specialties from the bene ficiary assignment process. Therefore, we are proposing to exclude services provided by certain CMS physician specialties from the beneficiary assi gnment 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 exclude d 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 servic es typically performed by physicians and nonphysician practitioners. However, we note that given the many requests and comments from specialists and specialty societies asking to ha ve their services incl uded in the assignment methodology that we received during the original rulemaking to establish the Shared Savings Program, we attempted to limit the list of physicia n specialty types that would be excluded from the assignment process to those physician specialties that would ve ry 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 fr equently be providing primary care to their patients. Especially for beneficiaries w ith certain chronic conditions (for example, certain heart conditions, cancer or diabetes) bu t who are otherwise healthy, we expect that these specialist physicians often take the role of primary ca re physicians in the ove rall treatment of the

beneficiaries if there is no fam ily practitioner or other primary car e 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 prim ary care, if any, and therefore we propose to

exclude their services from th e assignment process.CMS-1461-P 142

More specifically, the following 4 tables display the specific CM S physician specialty codes that we are proposing to include and ex clude for beneficiary assignment purposes under the Shared Savings Program.

● Table 1 shows the CMS physician specialty c odes that would continue to be included in step 1.

● Table 2 lists the physician specialties th at 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 exclude d for purposes of determining if a beneficiary has received a primary care service from a phys ician 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 be neficiary assignment step 1.

Table 1-- CMS Physician Specialty Codes Th at 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 CardiologyCMS-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 UrologyCMS-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 th at 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 furn ished by a surgeon who had not provided primary care but had provided a number of consultations for a specific clinic al condition. Another important benefit of this proposal is that the ACO participants that s ubmit claims solely for services performed by the categor ies of specialists that we ar e proposing to exclude from the assignment process would have grea ter flexibility to participate in more than one ACO if the ACO participant does not submit claims for a ny primary care services performed by otherCMS-1461-P 145

physicians or non-physician practitioners that are in cluded in the assignment process. This could especially be the case for small physician pr actices 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 s upport our goal of facili tating 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 AC O because we believe most of the specialties that we propose to exclude from the assignment methodology provid e a relatively modest number of services under the codes included in the definition of primar y care services or ar e not typically the only physician that a beneficiary sees. For example, patients that are furnished consultations by a thoracic surgeon would typically also concurre ntly receive care from a primary care physician, cardiologist or other me dical specialist. We propose to amend § 425.402 to reflect th ese 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 c onsidered in step 1 of the assi gnment process. In addition, we propose to amend § 425.402 by adding a new paragra ph (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 requireme nt at § 425.306(b) to clarify how the exclusivity rules would be affected by this proposal to exclude certain specialists fr om step 2 of the assignment methodology. Specifically, we propose to revi se § 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 render ed 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 severa l conforming and technical changes to § 425.402(a). First, we propose a modification to provide that for pur poses of determining whether a beneficiary has received a primary care service from a physician who is an ACO professional, we would consider only servic es furnished by primary care physicians or physicians with a specialty lis ted 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 pr ospective 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 reviewi ng both recommendations discussed previously,

we considered another alternativ e 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 es tablishing an assignment process that involves only a single step. More speci fically, 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 a ll be considered in a single ste p. 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, beneficiar ies receiving concurrent care from both primary care physicians and specialists coul d inappropriately be assigned to an ACO or other entity that is not responsible for managing their overall ca re. To illustrate, under an assignment processCMS-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 th e 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 al lergist. Under our current two step assignment methodology, this beneficiary would be consiste ntly and appropriately assigne d to the ACO in which the beneficiary’s family practitioner participates. We believe this result would be appropriate because, in this example, the family practitione r is responsible for mana ging the overall care of this patient whereas the allergist is providing mo re specialized care. A similar problem would exist for some other beneficiaries, such as t hose who temporarily require specialty care for an acute condition during a performan ce year. Therefore, we are c oncerned 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 assign ment methodology. Although we are not proposing this change at th is time, we seek comments as to whether it would be preferable, after ex cluding the physician specialties listed in Table 3 from the assignment process, to further simplify th e assignment methodol ogy by establishing an assignment process that involves only a single st ep. 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 possi ble 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 GP RO reporting via the GPRO web interface and

VM in the CY 2015 PFS final rule with commen t 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 regulato ry policies in § 425.404 for assignment of beneficiaries to ACOs that include FQHCs a nd RHCs as ACO participants and subsequent operational procedures and instruct ions that we have establishe d in order to allow FQHCs and RHCs as well as CAHs billing under section 1834( g)(2) of the Act (refer red to as Method II), and ETA hospitals to fully participate in the Sh ared Savings Program. Th ese types of providers may submit claims for physician and other professi onal services when certa in requirements are met, but they do not submit their claims through the standard Part B claims payment system. Accordingly, we have established operational pr ocesses 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 provide r types (that is, FQHC s, 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 join tly, 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 typi cally furnished in an outpatient clinic setting. They ar e currently paid an all-inclusive rate (AIR) per visit for qualified primary and preventive health services furnishe d to Medicare beneficiar ies. On October 1, 2014, FQHCs began to transition to a new FQHC pros pective payment system (PPS). FQHCs have been required to use HCPCS coding on all thei r claims since January 1, 2011, to inform the development of the PPS and for limited other pu rposes, 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 encounte r with a beneficiary an d receive an interim payment based on their AIR for qualifying visits . The claims contai n revenue codes that distinguish general classe s 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 informati on 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 professiona l (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 benefi ciary assignment proce ss 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 pa rticipant. This process is codified in theCMS-1461-P 150

regulations at § 425.404. (This assignment process also enab les FQHCs and RHCs to form ACOs independently, without the pa rticipation 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 manne r generally consistent with how we assign beneficiaries to other ACOs based on primar y 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 prim ary care services furnished by physicians, we require ACOs that include FQHCs or RHCs to identify, through an attestation (see § 425.404(a)), the physicians th at provide direct patient prim ary 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 car e 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 iden tifying information for the physic ians 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 par ticipant TIN (and other unique identifier such as CCN, where appropriate) and the NPIs of the FQHC or RHC physicians provided to us through the attesta tion process to identify those beneficiaries that received a primary care service from a physician in the FQHC or RHC and who are ther efore 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 me thodology under § 425.402(a)(3) and (4), if they received the plurality of their primary care services, as determined based on allowed charges forCMS-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 cen ter 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 th ese revenue center codes, when reported by FQHCs/RHCs, represent primary care services a nd not more specialized care. This crosswalk

allows us to use the available revenue center code s as part of the beneficiary assignment process for RHC services (and for FQHC services furnis hed 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 ha ve updated this crosswalk through contractor instructions. For claims submitted by FQHCs on or after Janua ry 1, 2011, we use the HCPCS codes which are

included on the claims to identi fy the service provided. To summarize, the special procedures that we have established in the November 2011 final rule and through operational program in structions (see program specifications on our

website at http://www.cms.gov/Medicare/Me dicare-Fee-for-ServicePayment/sharedsavingsprogram/Downloads/S hared-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 Shar ed 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 benefi ciary assignment process. In general, ACO participants are identif ied through their TIN(s). However, the TINs for FQHCs and RHCs areCMS-1461-P 152

not included in the CMS claims file s. 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 AC Os 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/Dow nloads/HowTo-Participant-List-Template.pdf

.

● For FQHCs/RHCs that are ACO particip ants, we treat a FQHC or RHC service reported on an institutio nal claim as a primary care serv ice performed by a primary care physician if the claim includes a HCPCS or revenue center code that is incl uded in the definition of a primary care service at § 425.20 and the se rvice was furnished by a physician that was identified as providing direct primary care services in the attestation subm itted as part of the ACO’s application. All such physicians are cons idered 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 list ed on the attestation, we treat the service as a primary care service furnished by a non-physicia n 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 servicesCMS-1461-P 153

represented by the primary care HCPCS or revenue center code s would primarily represent services furnished by a non-physician ACO professi onal, if not by a primary care physician. We

would note that covered services in RHCs or FQHCs include serv ices furnished by certain other professionals who are not ACO professionals (t hat is, a certified nurse midwife, clinical psychologist, clinical social work er 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 § 425.2 0 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-Guidanc e/Guidance/Manuals/Downloads/clm104c09.pdf ).

● For FQHCs/RHCs that are not ACO partic ipants, we treat a FQHC or RHC service reported on an institutio nal claim as a primary care serv ice 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, fo r non-ACO participant FQHCs and RHCs, we assume a primary care physician performed a ll primary care services. As we explained previously in the November 2011 final rule (7 6 FR 67860), FQHC/RHC claims contain limited information as to the type of practitioner provi ding a service because such information is not necessary to determine payment rates for servic es in FQHCs/RHCs. Further, the attestation requirement at § 425.404(a) does not, of course, a pply to FQHCs/RHCs that are not participating in an ACO. As a result, for non-ACO particip ant 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 sp ecialist physician or NP/PA/CNS, and thus should be considered under step 2 of the assignment methodology. We chose to assume such primaryCMS-1461-P 154

care services were furnished by primary care phys icians so that these services would be considered in step 1 of the assignment methodol ogy. We established this operational procedure to help make sure we do not di srupt established relationships be tween beneficiaries and their care providers in non-ACO participant FQHCs and RH Cs, by inappropriately assigning beneficiaries to ACOs that are not primarily responsibl e for coordinating thei r overall care. To illustrate, we offer the following example: assume Medicare is billed for five primary care services (all with equal allowable charge s) for a particular be neficiary 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 wi th an FQHC. Four of the services were provided by an FQHC that is not an ACO participant. In this cas e, if we had assumed that the FQHC services were performed by NPs/PAs/CN Ss, then the beneficiary would have been assigned to the ACO under step 1 of the a ssignment methodology and not the FQHC. Instead, by assuming the non-ACO participant FQHC se rvices were performed by primary care physicians, this beneficiary would be assigned to the FQHC under st ep 1 and not to the ACO. In

this scenario we believe it woul d be more appropriate for the be neficiary to be assigned to the FQHC since the FQHC is the entity that is prim arily responsible for overseeing the care for this beneficiary. Also, we do not be lieve it would be appropriate to hold the ACO accountable for the beneficiary in this example given that the AC O is not providing the plurality of primary care. (2) Proposed Revisions As currently drafted, § 425.404(b) conflates the question of wh ether 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 serv ice as defined under § 425.20, but the NPI reportedCMS-1461-P 155

on the claim is not the NPI of a physician included in the atte station submitted under § 425.404(a). As with other types of ACO pa rticipants, under the step-wise assignment methodology we believe it is approp riate to separately address the questions of whether the service is a primary care servic e, whether the service is a primary care service provided by an ACO professional who is a primary care physicia n, 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 pract ices as previously out lined. 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 proposal s, 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 prim ary care services furnished by physicians, we would continue to require ACOs that incl ude 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. Previousl y, we used this attest ation information both for purposes of determining whether a benefici ary was “assignable” to an ACO and also for purposes of assigning beneficiaries to the ACO u nder step 1. However, we now propose to use this attestation information only for purposes of determining whether a be neficiary is assignable

to an ACO. We refer to this determin ation 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 ca re services furnished by all ACO professionals submitted by the FQHC or RHC to determine whether the beneficiary received a plurality of hisCMS-1461-P 156

or her primary care services from the ACO unde r Step 1. We propose to make revisions to § 425.404(b) to reflect these policies. To illustra te the assignment methodology for an ACO that includes FQHCs/RHCs we offer the following exampl e. Assume Medicare is billed for five primary care services (all with equal allowable charges) for a particul ar beneficiary during a given performance year. One of those primar y 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 servi ces are assumed to have been pr ovided by NPs, PAs, or CNSs in the FQHC. The remaining two services were pr ovided 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 be neficiary would be assigned to the ACO in Step 1 because two of the beneficiary’s five primary care services during the performance year we re 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 CN S primary care services in step 1 of the assignment methodology. In this hypothe tical example, if we did not consider the FQHC claims for the services performed by NPs, PAs, or CNSs, the benefi ciary 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 cl aim 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 specialis t 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, orCMS-1461-P 157

CNSs who are ACO professionals, in contrast to the two claims for pr imary care services furnished by specialist physic ians outside the ACO.

We have also encountered instances wh ere 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 thei r primary care services are performed by primary care physicians. We believe that this assumption, which we established in operational guidance as noted pr eviously, has helped to assure that while beneficiaries are appropriately assigned to AC Os, we do not disrupt es tablished relationships between beneficiaries and their care provide rs 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 NP s, PAs, and CNSs in step 1 of the assignment methodology rather than step 2 because: (1) as i ndicated earlier we believ e that when a physician provides a service in an FQHC or RHC, the phys ician 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 se rvices performed by physicians and primary care services furnished by NPs, PAs, and CNSs fo r non-ACO FQHCs/RHCs b ecause 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 subm itted by the ACO under § 425.404(a) as a service furnished by an NP, PA or CNS. Therefor e, all primary care servicesCMS-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 a ssuring access to health care. FQHCs, RHCs and other rural providers play an important role in the nation’s health care deliv ery system by serving as safety net providers of primary care and other health car e services in rural and othe r 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 certai n issues regarding ACOs that include CAHs in both the proposed rule (76 FR 19538 through 19539) a nd 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 ge nerally support the partic ipation of CAHs in ACOs. However, we explained th at 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 Ac t (referred to as method I) can participate in the Shared Savings Program by establishing pa rtnerships or joint ve nture 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 AC Os if they meet the eligibility requirements specified in the regulations. Professional serv ices billed by method II CAHs are reported using HCPCS/CPT codes and are paid using a methodol ogy 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 in clude 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 maki ng any proposals at this time regarding the use of services billed by method II CAHs in the a ssignment 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/M edicare-Fee-for-ServicePayment/sharedsavingsprogram/Downloads/S hared-Savings-Losses-Assignment-Spec-v2.pdf (see section 3.3.) These technical specifications allow in terested parties to understand how these claims are considered in the assignmen t methodology under § 425.402 and to compare the manner in which claims submitted by method II C AHs 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 belie ve this additional inform ation 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 methodol ogy under § 425.402, we use the CCN as the unique

identifier for an indivi dual method II CAH. c. Assignment of Beneficiaries to ACOs that Include ETA Hospitals After finalizing the beneficiary assign ment 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 pr imary care services performed by physicians at ETA hospitals would be included in the assignmen t of beneficiaries to ACOs. ETA hospitals are hospitals that, under section 1861(b)(7) of the Ac t 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 receiv e separate claims for such physician services furnished in ETA hospitals. However, ETA hosp itals 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 operatio nal instructions and processes (available at Section 3.5 of the specification docum ent available on our website athttp://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Downloads/Sha red-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 pro cess 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 pa id for physician professional services on a reasonable cost basis through their cost reports a nd 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 hosp ital and the institutional claims submitted by ETA hospitals include the HCPCS code for the servic es provided. We use th e HCPCS code included on this institutional claim to identify whet her 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 plural ity of primary care services as part of the assignment process. Accordingly, we use the am ount that would otherwise be payable under the PFS for the applicable HCPCS code, in the applic able 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 en tity that is actually managing the beneficiary’s care. ETA hospitals are often located in unders erved 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 para graph (c) to provide that when considering services furnished by physicians in ETA hospita ls in the assignment methodology, we would use the amount payable under the PFS for the specif ied HCPCS code as a proxy for the amount of the allowed charges for the service. In addi tion, 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 AC O 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 fu rnished 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 servi ces that CMS should also consid er including in (or excluding from) its methodology for assigning beneficiaries to ACOs participating in the Shared Savings Program.

6. Effective Date for Finalization of Pr oposals Affecting Beneficiary AssignmentCMS-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 a pplicable starting at the beginning of the next performance year. We believe that implemen ting any revisions to the assignment methodology at the beginning of a performance year is reas onable and appropriate because it would permit

time for us to make the necessa ry 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 th e new assignment rules are applied so that the

benchmark for the ACO reflects the use of the sa me assignment rules as would apply in the performance year. For example, any new benefi ciary assignment policies that might be included in a final rule issued in early 2015 would a pply to beneficiary assi gnment starting at the beginning of the following performance year, wh ich in this example would be January 1, 2016. In this hypothetical example, we would also ad just performance benchmarks that apply for the 2016 and subsequent performance years, as appli cable, to reflect changes in our assignment methodology. In addition, we would not retr oactively apply any new benefi ciary 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 reco ncile the 2015 performa nce year. In other words, the assignment methodology used at the start of a performance year would also be used to

conduct the final reconciliation fo r that performance year.CMS-1461-P SP 11/25/14 164

F. Shared Savings and Losses 1. Background Section 1899(d) of the Ac t establishes the general requirements for payments to participating ACOs. Specifically, secti on 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 provi ded 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, secti on 1899(i)(3) of the Ac t authorizes the Secr etary 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 mode ls will improve the quali ty and efficiency of

items and services furnished to Medicare benefici aries without additional pr ogram 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 cons ider such options as ble nded 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 paym ent models at that time, noting that many of the suggested payment models were untested. We expresse d concern that immediat ely adopting untested and/or unproven models with which we had little experience on a national scale could lead toCMS-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 th e Affordable Care Act had estab lished a new Center for Medicare and Medicaid Innovation (Innovation Center) at CMS. The Innova tion Center is charged with developing, testing, and evalua ting 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 Innovati on Center. In the November 2011 final rule (76 FR 67905), we noted that wh ile we did not yet have enou gh 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 mode ls might be incorporated into the program in

the future.

In the November 2011 final rule establishi ng the Shared Savings Program (76 FR 67909),

we created two tracks from which ACOs could choos e to participate: a one-sided risk model (Track 1) that incorporates the statutory pa yment methodology under section 1899(d) of the Act and a two-sided model (Track 2) that is al so based on the payment methodology under section 1899(d) of the Act, but incorpor ates performance-based risk us ing 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 losse s. 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 attr act 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 woul d have the potential toCMS-1461-P SP 11/25/14 166

attract a large number of participants to th e 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 a nd attract smaller group participation. Indeed, commenters persuaded us that ACOs new to the accountable care model— particularly small, rural, safety net, a nd physician-only ACOs—would benefit from spending time under a one-sided model before being re quired to accept performance-based risk (76 FR 67907). We also noted, however, that while a one-s ided model could provi de 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 Ac t to create a performance-base d 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 m eaningful systematic change. This input from commenters underscored our own views regardi ng 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 o ffered the two-sided model under Track 2 to ACOs willing and able to take on performance-based ri sk in exchange for a greater share of anyCMS-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 subs equent agreement periods. We not ed our belief that offering the two tracks, but requiring a transition to Track 2 in subsequent agreemen t 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 enteri ng the program (76 FR 67907). Therefore, as specified in the November 2011 fi nal 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-ye ar 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 met hodology was designed so that ACOs that accept performance-based risk under Track 2 would ha ve the opportunity to ear n a greater share of savings. Thus, the same eligib ility criteria, beneficiary assi gnment methodology, benchmark and update methodology, quality performance standards, data reporting requir ements, data sharing provisions, monitoring for avoidance of at-r isk beneficiaries, pr ovider 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-basedCMS-1461-P SP 11/25/14 168

risk. Specific differences between the two trac ks 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 exis ting one-sided and tw o-sided models. In this section, we discuss various proposals for modificatio ns 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 wh ere 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 pr ogram, but also to progre ss to increased risk. Therefore, as discussed previ ously, we established a requirem ent that an ACO entering the program under Track 1 may only operate under the one-s ided model for it s first agreement period. For subsequent agreement periods, an AC O would not be permitted to operate under the one-sided model (§ 425.600(b)). If the ACO wish es to participate in the program for a second agreement period, it must do so under Track 2 (sha red savings/losses). Additionally, an ACO experiencing a net loss during it s initial agreement period may r eapply to participate in the program, but the ACO must identify in its appli cation 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, th is 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 pr ogram participation byCMS-1461-P SP 11/25/14 169

small, rural, or physician-only ACOs with the n eed to ensure that ACOs quickly transition to taking downside risk. We are encouraged by the popul arity of the Shared Savings Program, particularly the popularity of the one-sided model. Over 98 percent of ACOs partic ipating in the Shared Savings Program (over 330 ACOs) have chosen Track 1, with only 5 ACOs par ticipating 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 le ss 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 pe rformance-based risk. We also continue to believe, as discussed in the November 2011 fi nal 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' be havior, 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 organizati ons that are currently participating in the program are risk averse and lack the infras tructure 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 th eir operational capacities rather than on the implementation of care redesign processes. Theref ore, we have some concerns about the slope of the on-ramp to performance-based risk create d 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 particul arly concerned that the current transition from one- to two-sided risk may be too steep for so me organizations, putting them into a situationCMS-1461-P SP 11/25/14 170

where they must choose between taking on more ri sk than they can manage or dropping out of program participation altogether. For instan ce, 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 chance s that shared losses could result from normal variation. Also, we ar e aware of the concern among some stakeholders that one agreement period under the one-sided m odel may be not be a sufficient amount of time for some ACOs to gain the level of expe rience with population management or program participation needed for them to be comfortable taking on performance-based risk. For some organizations, having additional experience in th e Shared Savings Program under Track 1 could help them be in a better position to take on pe rformance-based risk over time. We are also concerned that the existing feat ures of Track 2 may not be su fficiently 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 coul d be used to implement the care processes necessary to succeed in the program. We con tinue to believe the requirement that ACOs entering the two-sided model demonstrate an ad equate repayment mechanism is important for protecting the Medicare program. Ho wever, as discussed in more de tail later in this section, we are proposing certain modifications to the repa yment mechanism requirements applicable to ACOs under the program's two-sided model(s) (T rack 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 removeCMS-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 AC Os 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 potenti ally 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 tw o-sided model would encourage earlier adoption of the shared savings model by organizations co ncerned about being required to transition to performance-based risk before realizing savi ngs 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 w ith respect to the care that benefi ciaries 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 coordina ted 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 particip ate 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 accep t financial responsibili ty for the care of beneficiaries have the greatest beneficial effects for the Medicare program and its beneficiaries. Therefore, we expect that ACOs participati ng in the Shared Savings Program move in the direction of accepting performance-ba sed 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 additi onal financial risk. There should also be disincentives to discourage orga nizations 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 dr opping the sharing rate in Track 1 for ACOs participating in Track 1 for a subsequent agreem ent 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 ente r 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 ag reement 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 effici ency of health care service delivery. b. Proposals Related to Transition fro m the One-sided to Two-sided Model We considered several options to better ba lance 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 af ter 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 fo llowing options: (1) revi sing the regulations toCMS-1461-P SP 11/25/14 173

allow ACOs that enter the program under the one-sided model to co ntinue particip ation in Track 1 for more than one agreement period; (2) extend ing the initial 3-year agreement period for an additional 2 years for ACOs that enter the progr am 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, bu t 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 transi tion to a two-sided model. Among these options, we believe the third option offers a good balance of encouraging continued participation in addition to en couraging progression along the on-ramp to performance-based risk. Theref ore, 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 re vise the regulation to permit ACOs that have completed a 3-year agreement under Track 1 to en ter into one additional 3-year agreement under Track 1. We believe that continued participa tion in the Shared Savings Program, generally,

should be made available to ACOs that demonstr ate they have been compliant with the program requirements, or are working through correc tive action plans to CMS' satisfaction, with safeguards in place to ensure they will meet pr ogram requirements in the future. In section II.C.3. of this proposed rule, we proposed criter ia for determining whether to allow ACOs that are currently participating in the program to rene w 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, weCMS-1461-P SP 11/25/14 174

propose to make the option of participating in Tr ack 1 for a second agreement period available to only those Track 1 ACOs that--(1) meet the criteri a 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 th e quality performance requirements under Subpart F such that they were eligible to share in savings in at least one of the first two performan ce years of the previous agreement period) and (2) in at least one of th e 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 beneficiar ies 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 pe rformers 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 AC Os 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 y ears of data, we would not have a complete picture of the ACO's performan ce during the agreement period. Th at is, an ACO may financiallyCMS-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 u ltimately 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 mode l to gain experience a nd start improving. We

therefore seek comment on whether we shoul d also consider the direction the ACO's performance is trending when determining whethe r to permit renewal of an ACO's participation agreement under Track 1. We also seek commen t 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 w ould not be precluded from renewing their participation agreement in order to participate under a two-sided risk tr ack, consistent with § 425.600(c). We also emphasize that in addition to m eeting the specific criter ia 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 re quirements of the Shared Savings Program. In addition, as part of our proposal to allow ACOs to par ticipate in a second agreement period under the one-sided model, we propose to re duce 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 forwar d along the risk continuum. As a result, the maximum sharing rate for an ACO in a second agreement peri od under Track 1 would be 40 percent. Accordingly, in addition to our propose d change to § 425.600(b) to allow ACOs to participate under Track 1 for a second agreem ent period, we propose to modify § 425.604(d) toCMS-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 un der 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 an d 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 part icipation of ACOs that are successful and have the potential to move toward accepting greater responsibility for the care of their beneficiaries, but also en courage their progression along the risk continuum. However, as

discussed later in this secti on, we also recognize that limiting ACOs to only two agreement periods under Track 1 may encourage ACOs to pr ogress 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 particip ate under the one-sided model agreement in a subsequent agreement period is onl y 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 pa rticular, we request input on whether a 40 percent sharing rate in a sec ond agreement period under the one-s ided 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 Savi ngs Program under a two-sided model. We also considered other variations and op tions for allowing ACOs additional time in the one-sided model. For example, we considered allowing ACOs to continue under Track 1 for aCMS-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); ho wever, we do not believe this approach would provide sufficient incentive for ACOs to be moving in the direction of adopting performance-based risk. We conti nue 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 AC Os are able to continue to receive up to 50 percent of savings in a sec ond agreement period there may be insufficient incentive for many ACOs that may be ready to ta ke on two-sided risk to move to a track with

two-sided risk after their firs t agreement period. As a resu lt, under our proposal we would reduce the sharing rate for ACOs participating in Track 1 for a second ag reement period in order to discourage prolonged participation under Tr ack 1 and encourage progression along the on ramp to risk where an ACO may qua lify for a higher sharing rate. We also considered permitting ACOs to participate in multiple agreement periods under Track 1 and reducing the maximu m sharing rate by 10 percentage points for each subsequent agreement. Such a policy may encourage more AC Os to continue to par ticipate in the program, but also may reduce the urgency for ACOs to progr ess 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 part icipation agreement under Track 1 by an additional 2 years. However, we note that under this option, we woul d not be able to rebase the benchmark, making it more likely that organizations would achieve savings without furthe r improvements in care redesign; yet at the same time, it would be mo re difficult for ACOs with losses to turn aroundCMS-1461-P SP 11/25/14 178

their performance. Moreover, we are concerne d 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 maxi mum sharing rate to 40 percent for ACOs participating under Track 1 for a second agreement period. We also specif ically seek comments on the other options we considered, including ex tending 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 agre ement 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 a ddressed the possibility that an ACO may terminate or be terminated from participat ion 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 participat e in the program again only after the date on which the term of their original partic ipation 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 wi ll remain in compliance with the terms of the new participation agreement. We note that, all appl icants undergo screening with regard to their program integrity history that may result in deni al of the application (§ 425.304(b)). We also provided that an ACO under the one-sided model whose participation agreement was previouslyCMS-1461-P SP 11/25/14 179

terminated may reenter the program only under th e two-sided model, unl ess 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 ar e proposing to make conforming changes to § 425.222(c) to permit previously terminated Tr ack 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 th rough the term of its pa rticipation 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 unde r the one-sided model, we pr opose 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 agreem ent period under Track 1. Thus, if the ACO is approved to participate in the progr am again, the reduced sharing rate of 40 percent would apply. An ACO whose prior agreemen t 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 th e 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 toCMS-1461-P SP 11/25/14 180

modify the threshold that Track 2 ACOs must meet or exceed in orde r to share in savings (minimum savings rate (MSR)) or losses (min imum loss rate (MLR)). We believe this modification would improve the track's attractiven ess for ACOs, particularly for ACOs that may be cautious about entering a performance-based pa yment arrangement such as some ACOs with smaller assigned beneficiary popula tions or those with less experi ence with managing the health of populations across sites of care. Track 2 was designed to allow more advan ced ACOs the opportunity to take on greater performance-based risk in exchange for greate r 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 participat e immediately in a risk-based arrangement. Specifically, ACOs might try to av oid 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 reconciliat ion and the program's be neficiary notification requirements would be sufficient safeguards against the prospect that ACOs participating in the two-sided model might try to avoid at-risk benefi ciaries (76 FR 67904). Fu rther, 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 shar e 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 peri od 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 toCMS-1461-P SP 11/25/14 181

share in savings or additional expenditures that m eet 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 recogni tion of the Track 2 ACOs' willingness to assume the risk of incurring shared losses (76 FR 67929). In c ontrast, 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 confiden ce 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 additi on, 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 ach ieve 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 es tablishing the Shared Savings Program (76 FR 67927), the MSR thresholds that apply un der Track 1 were established on the basis of standard inferential statistics and provide conf idence 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 th at some ACOs, partic ularly ACOs with small assigned populations or thos e with less experience, are hesitant to el ect Track 2 given the risk of losses and their inexperi ence with population management. Therefore, we have explored ways to reduce financial risk fo r 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 orde r to share in savings. In expl oring potential modifications to the MSR and MLR under Track 2, we also consider ed 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 partic ipating in Track 2. After considering these options, we conclude d that using the same methodology currently

used to establish the MSR unde r 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 comp arison 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 of fering further protection to the Medicare programCMS-1461-P SP 11/25/14 183

from paying for shared savings likely due to nor mal variation. The methodology that we used to establish the MSRs for Track 1 based upon the si ze of the assigned beneficiary population was intended to provide confidence that shared savi ngs 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 serv e to statistically protect AC Os 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 wi lling to take on performance-based risk under

Track 2. Therefore, we are proposing to retain the ex isting features of Track 2 with the exception of revising § 425.606(b) to allow the MSR and ML R to vary based on the ACO's number of assigned beneficiaries according to the me thodology outlined for setting the MSR under the one-sided model in § 425.604(b) as shown in Tabl e 6. We believe that by building in greater downside protection, this proposal may help smoot h the on-ramp to performance-based risk for ACOs, particularly ACOs with smaller as signed populations, making the transition to a

two-sided model more attractive. Table 6 – Proposed Minimum Savings Ra te 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 th e 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 protectiv e of ACOs may attract greater participation in performance-based risk under Track 2, particul arly 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 attract ive to ACOs. We request that commenters indicate why they believe an alternative option would be more a ttractive 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 implem ented 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 prospec tive 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 Pa rticipate 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 in crease 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 assu ming greater financial risk for their assigned

beneficiaries. In January 2012, the Innovation Center be gan testing the Pioneer ACO Model. The Shared Savings Program and the Pioneer AC O Model incorporate th e same fundamentalCMS-1461-P SP 11/25/14 185

structure with a group of healthcare providers an d suppliers coming together to form an ACO that agrees to be accountable for the car e provided to a population of Medicare FFS beneficiaries. The quality re porting requirements are the same for Shared Savings Program ACOs and Pioneer ACOs. However, the Pione er ACO Model and Shar ed 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 ba sed on quality performance in perf ormance 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 Pi oneer ACO Model, benefi ciaries are aligned to a Pioneer ACO prospectively at the start of each performance year and can only be removed from the list of aligned benefici aries retrospectively based on cer tain exclusion criteria. In contrast, under the Shared Savings Program, bene ficiaries are assigned to an ACO under Track 1 or Track 2 based upon a preliminary prospect ive assignment methodology with retrospective

reconciliation after the e nd of the performance year that ultim ately assigns a beneficiary to the ACO based on whether ACO professionals provided th e plurality of primary ca re 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 th e 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 explaine d in the Request for Application

available online at http://innovation.cms.gov/Files/x/Pi oneer-ACO-Model-Request-For-CMS-1461-P SP 11/25/14 186

Applications-document.pdf , and an updated table on payment a rrangements is available online

at http://innovation.cms.gov/Files/x/Pioneer-ACO -Model-Alternative-Pa yment-Arrangementsdocument.pdf

. In the November 2011 final rule (76 FR 67907), we expressed our intent to gain experience with alternative pa yment models through the Innova tion Center before potentially adopting them more widely in the Shared Savi ngs 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 st akeholders that there are cert ain 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 stakeholde rs, and early responses to the Pioneer ACO Model, we have

considered certain modifications to the financia l models and arrangemen ts available under the Shared Savings Program that might encourage orga nizations to take on in creasing financial risk in order to motivate even greate r 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 modify ing 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 authorit y under section 1899(i)(3) of the Act to create an additional risk-based op tion for ACOs ready to take on increased performance-based risk. To exercise our authority unde r section 1899(i)(3) of the Act, we must demonstrate that this policy; (1) '' . . . does not result in spendi ng more for such ACO for such beneficiaries thanCMS-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 se rvices 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 believe d 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 greate r responsibility. We believe th at proposed Track 3 would offer an additional opportunity for ACOs to accept gr eater responsibility fo r beneficiary care in exchange for the possibility of greater reward. Moreover, we do not believe that adding a second

two-sided risk model would re sult in an increase in spendi ng 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 al ong 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 th e quality of care furnished to Medicare FFS beneficiaries because ACOs participating under Track 3 would ha ve an even greater in centive to perform well on the quality measures in order to maximize the percentage of savings they may receive, while limiting their liability for any lo sses that might be incurred. Hence, we are proposing to develop a ne w risk-based Track 3 under § 425.610, which would be based on the current payment methodol ogy under Track 2, but woul d also incorporate some different elements that may make it mo re attractive for entities to accept increased performance-based risk.CMS-1461-P SP 11/25/14 188

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 pa yment 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 me thodology that is describe d 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 particip ant list and drives a variety of program operations described

in more detail in section II.B. of this proposed rule. An a ssigned 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, base d on the most recent 12 months of available claims data, to provide the ACO with informa tion about the FFS population it has served in the past and that is likely to be a ssigned to the ACO at the end of the performance year. After the end of each performance year, we perform a fina l retrospective reconciliation to generate the final list of beneficiaries that chose to receive the plurality of their primary care services fromCMS-1461-P SP 11/25/14 189

ACO professionals applying the assignment me thodology established unde r Subpart E of the regulations. Under this methodology, in developing the final list of assigned beneficiaries for the performance year, beneficiaries are both a dded to and removed from the preliminary prospectively assigned beneficiary lists provid ed to ACOs. This final list of assigned

beneficiaries becomes the basis for calculati ng the average per capita expenditures for the performance year, and is used for financial reconciliation. In this section, we discus s our proposals to apply a met hodology to assign beneficiaries prospectively to Track 3 ACOs. However, si nce 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. Specif ically, we discuss our proposals for: (1) a prospective assignment methodology; (2) the timi ng 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 prosp ective assignment for Track 3 ACOs and the preliminary prospective assignmen t and retrospective reco nciliation for Track 1

and Track 2 ACOs. (2) Proposal for prospective assignment under Track 3

In the November 2011 final rule that es tablished the Shared Savings Program, we adopted a preliminary prospectiv e assignment model with retros pective reconci liation because we believed it would provide ACOs with adequate information to redesign their care processes while also encouraging ACOs to standardiz e these care processes for all Medicare FFS

beneficiaries instead of focusi ng care management activities on a small subset of their FFS population. Further, we expre ssed our view that this appr oach would provide sufficientCMS-1461-P SP 11/25/14 190

incentives for each ACO to provide quality care to its entire beneficiary population (76 FR 67864).

We continue to believe that the curren t Shared Savings Program assignment methodology offers strong incentives for health system redesi gn 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 beneficiar ies for avoidance. This methodology may also improve care for beneficiaries who are newly diagnosed with hi gh cost health problem s during a performance year. For example, a FFS beneficiary diagnosed with cancer during a pe rformance year would benefit from interacting with AC O providers/suppliers that have incentives to be vigilant for beneficiaries who are likely to be assigned to their ACO retrospect ively. Intervening early in the care of such patients may improve the quality and coordination of their ca re and reduce the cost of that care compared to what it might have b een without the early in tervention by the ACO and its ACO providers/suppliers. On the other hand, while many beneficiarie s 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 patien ts 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 professiona ls during the performance year. Thus, there can potentially be differences between the prelim inary assigned benefici ary list that the ACO receives at the start of the pe rformance year, and every quarter thereafter, and the final assigned beneficiary list that is generated at the time of retrospective reconcilia tion, which is based on theCMS-1461-P SP 11/25/14 191

actual utilization of primary care services by be neficiaries 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 unantic ipated result of the methodology used to assign FFS

beneficiaries who retain their fr eedom to choose providers under traditional FFS Medicare. That being said, the need to account for both the e bb and flow of assigned beneficiaries under the preliminary prospective assignment methodology with retrospective reconc iliation used in the Shared Savings Program may discou rage participation in risk-bas ed 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 prospectivel y 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 alignm ent 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 mo re detail on the Innovation Center website: http://innovation.cms.gov/initia tives/Pioneer-ACO-Model/ A prospective assignment methodology may offe r 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 willingne ss to take on greater performance-based risk because the ACO may be better positioned to make decisions regardingCMS-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 w ith the Pioneer ACO Model, the Innovation Center elected to use a prospective assignment methodol ogy specifically to provide participating ACOs with greater certainty regarding their assigned beneficiary populati ons in order to allow them to better target thei r 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 enc ourage 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 br oadly 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 th e subset of their patients for which their performance will be measured. However, despite these concerns, we ac knowledge that a pros pective 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 provi de their prospectively assigne d beneficiaries high-quality, low-cost care in order to discourage them fr om 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 provid ers. Under the Shared Savings Program, there is no lock in for beneficiaries, therefore, we believe a prospective assignm ent methodology under the SharedCMS-1461-P SP 11/25/14 193

Savings Program presents limited risks to FFS be neficiaries. Thus, having considered the relative advantages and disadvantages of prospective and retr ospective assignment methodologies for FFS beneficiaries, we are proposing to implement a prospective assignment methodology for Track 3 ACOs. This prospect ive assignment methodology would use the same stepwise assignment methodology under § 425.402 to a ssign beneficiaries to ACOs in Track 3 as is currently used to assign be neficiaries to ACOs participatin g under Track 1 and Track 2. The major difference would be that beneficiaries woul d 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 beneficiar ies at the end of the performa nce year. The only adjustments that would be made at the end of the performan ce year would be to excl ude beneficiaries that appeared on the prospective assignment list provi ded to the ACO at the start of the performance year that no longer meet eligib ility criteria. For the reasons discussed in the November 2011 final rule (76 FR 67851), we believe that this proposed prospectiv e 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 th e regulations at § 425.400(a)(3). In summary, while we have concerns th at 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 Sh ared Savings Program policies and procedures such as risk-adjusting expenditures and monitori ng 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 "cherr y pick" or avoid at-risk beneficiaries during theCMS-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 financ ial risk for the care provided to their patients in return for the possi bility 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, a nd whether there are ad ditional programmatic

considerations that should be ta ken into account as a result of our proposal to apply a prospective assignment methodology in Track 3.

Because of the differences between the Sh ared Savings Program and the Pioneer ACO Model, we emphasize that the proposed pros pective assignment methodology under Track 3 is not identical to the methodology used under the Pi oneer 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 al gorithm that is specified in Subpart E of the Shared Savings Program regulati ons, 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 pr ospective beneficiary assignment list at the conclusion of the performance year. We rec ognize that changes in circumstances may cause prospectively assigned beneficiarie s to no longer be eligible for a ssignment 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 assignmen t exclusion criteria sp ecified in proposedCMS-1461-P SP 11/25/14 195

§ 425.401(b). The proposed exclusion criteria , found at § 425.401(b), mirror the proposed eligibility criteria unde r § 425.401(a) with the exception of assignment to another Medicare initiative involving shared savings. This is be cause we believe it is a ppropriate to exclude only those prospectively assigned benefi ciaries 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 initiativ e because we intend to adopt procedures to ensure that a beneficiary who is prospectivel y assigned to an ACO participa ting under Track 3 would not be assigned to another Medicare init iative involving shared savings . Therefore, we propose to perform a limited reconciliation where benefi ciaries 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 pr ospectively assigned beneficiary chose to enroll in Medicare Advant age (MA) at the beginning of the performance year, that beneficiary would be removed from th e beneficiary assignment li st at the end of the year and the beneficiary's expe nditures would not be used in determining the ACO's financial performance for that year. We note that under this proposal, beneficiar ies 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, unlik e the preliminary prospective assignment methodology with retrospective reco nciliation used in Tracks 1 a nd 2, we note that under this proposal, similar to the methodology used under th e Pioneer ACO Model, beneficiaries would not be removed from the prospective beneficiary assignment list because the beneficiary chose to receive primary care services dur ing 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 beneficiariesCMS-1461-P SP 11/25/14 196

who are not eligible for assignm ent at the time of reconciliat ion 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 furn ished to these beneficiaries even if the ACO providers/suppliers are not directly involved in their care. Howeve r, we note that this may mean

that ACOs will be held accountable for benefici aries with whom their ACO providers/suppliers have had little contact during th e year, and therefore may have lim ited opportunity to affect their care. We seek comment on our proposal to assi gn FFS beneficiaries pros pectively 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 coordina tion 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. Ho wever, 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 produ ce and deliver prospectiv e assignment lists to Track 3 ACOs as near as possible to the start of each performance year w ith our desire to base prospective assignment on the most recent avai lable data. For Tracks 1 and 2, we assign beneficiaries based on a 12 month period. We si milarly 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 toCMS-1461-P SP 11/25/14 197

determine the list of preliminarily prospectivel y 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 pros pective assignment for an ACO's performance year based on complete data for the most recen t prior calendar year, for example, the third benchmark year or the previous performance y ear. 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 be neficiaries to Track 3 ACOs befo re the start of the performance year. In performing benefici ary assignment, we determin e 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 practi tioners or groups of practitioners identified by TINs that are not pa rticipating in an ACO. We treat ACOs as a collection of TINs for the purpose of determinin g 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 participa tion agreement start date of Ja nuary 1 of the following year. To most accurately and fairly prospectively assi gn beneficiaries, it is important to perform assignment by taking into consideration existing AC Os 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 prospect ive assignment lists for Track 3 ACOs must

factor in the time frames associated with th e program's application cycle (which typically concludes in late November/early De cember of each calendar year).CMS-1461-P SP 11/25/14 198

We considered several options for esta blishing 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 ar e available. That is, we would use a 12-month assignment window that is offset from the cal endar year. For instance, to establish the assignment list for the performance year begi nning January 1, 2016, we could use an assignment window from October 1, 2014 through September 30, 2015. We also consid ered the option of using complete claims data for the calendar y ear 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 th ese parameters Track 3 ACOs would receive their prospective assignment lists well into the first quarter of each performance year. We believe Track 3 ACOs woul d find such a delay in their receipt of their prospective assignment list burdensome for ca rrying out the ACO's h ealth care operations, including care coordination processes and data analysis. We believe the first option best balances the availability of claims data with ou r 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 prospe ctive assignment on a 12-month assignment window (off-set from the calendar year) pr ior to the start of th e 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 fr om 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 Betw een Prospective and Retr ospective Assignment

Models

Because there are markets in which there ar e multiple ACOs, we antic ipate that there will be interactions between prosp ective 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 prospect ively assigned to a Track 3 ACO would remain assigned to the Track 3 ACO for the performance y ear 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 r eceived the plurality of his or her primary care from ACO professionals participa ting 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 pr ofessionals 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 3CMS-1461-P SP 11/25/14 200

As specified in the November 2011 final rule , we establish the hist orical benchmark for ACOs in Tracks 1 and 2 by determining the per ca pita 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 agreemen t period using the ACO participant TINs identified at the start of the agreement period (§ 425.602(a)). For each be nchmark year that corresponds to a calendar year, this includes calculating the payment am ounts included in Parts A and B fee-for-service claims using claims received within 3 months fo llowing the end of the calendar year (referred to as a "3 month claims run out") with a comple tion factor, excluding IME and DSH payments and considering individually benefi ciary-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 perf ormance year expenditures include the payment amounts of Part

A and B fee-for- service claims. These calculat ions similarly exclude IME and DSH payments, and take into consideration individually be neficiary identifiable payments made under a demonstration, pilot or time limited program. We believe this appro ach 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 shar ed savings and losses under Track 3. In establishing the historical benchmark fo r Track 3 ACOs, we propose to determine the beneficiaries that would have been prospectivel y 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 calenda r year prior to the start of each benchmarkCMS-1461-P SP 11/25/14 201

year. However, we propose that we would s till 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 acc ount for individually be neficiary-identifiable payments made under a demonstration, pilot or ti me limited program during the calendar year that corresponds to the benchmar k 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 previousl y. 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 expendi tures for BY2 and BY3. We would apply the same pattern going forward to ca lculate per capita expenditures for the performance years. We believe this methodology is advantage ous for several reasons. First, this methodology would remove actuarial bias betwee n the benchmarking and performance years for assignment and financial calculatio ns, since the same method would be used to determine the assignment and financial calculations for each be nchmark 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 ge nerating these reports for ACOs in Tracks 1 and 2. That is, for an ACO that be gins Track 3 in 2016, the prospective beneficiary assignment list would be availabl e immediately at the beginning of the performance year and the historical benchmark report would be available following the 3 month clai ms 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 us ed under the Shared Savings Program that we considered when developing Track 3 is our methodology for risk adju sting 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 ne wly and continuously assigned beneficiaries, as defined under § 425.20. A newly assigned benefi ciary is a beneficiary assigned in the current performance year who was neither assigned to no r 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 assi gned to the ACO in the current performance year who was either assigned to or received a primar y 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 demogr aphic factors to adjust for these changes in severity and case mix for continuously assigned beneficiaries. Howe ver, if the CMS-HCC prospective risk scores for th e continuously assigned population show a decline, we use the lower risk score to adjust for changes in seve rity and case mix for this population. As weCMS-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 ch anges 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 me thodology has been effective in achieving this balance under Tracks 1 and 2, which use a retros pective assignment methodology for purposes of financial reconciliation, and that it would be appropriate to appl y 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 participati ng under the proposed Track 3 are not encouraged to modify their coding practices in order to increase the likeli hood of earning shared savings; rather, shared savings should result from actual re ductions 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 metho dology under Track 3. We determined that while the same general risk adjustment methodol ogy could be used, there are certain minor

modifications that must be made to accomm odate the prospective assignment approach. Specifically, we determined that the existing definitions of newly and continuously assigned beneficiaries must be adju sted for Track 3 ACOs. Both definitions refer to determining whethe r the beneficiary was a ssigned to the ACO or received primary care services from an ACO partic ipant in the "prior calendar year". However, our proposal for Track 3 assignment does not corr espond to the 12 months in a calendar year.CMS-1461-P SP 11/25/14 204

Instead, as proposed in the secti on, we would use an off-set 12-mont h period prior to the relevant performance or benchmark year to prospectively a ssign beneficiaries. If we continue to use a calendar year as the basis for determining contin uously and newly assigned beneficiaries, very

few beneficiaries would be desi gnated as newly assigned for e ach performance year and we would expect that the majority of assigned be neficiaries would be de signated as continuously assigned. As a consequence, the major risk ad justment applied under Track 3 would be based on demographic factors only. We do not believe this policy would st rike the same balance achieved when applied under a model with retrospect ive assignment (Track 1 and Track 2). Therefore, we propose refi ning our definitions of newly and continuously assigned beneficiaries at § 425.20 to also be consiste nt 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 assignm ent window for the most recent prior benchmark or performance year." Thus, for Track 3 th e reference period for determining whether a beneficiary is newly or conti nuously assigned will be most r ecent prior prospective assignment window (the off-set 12 months) before the assign ment window for the current performance year and the reference period for determining whethe r a Track 1 or 2 bene ficiary is newly or continuously assigned will continue to be the mo st recent prior assignment window (the most recent calendar year). Our proposed risk adjust ment methodology for Track 3 is reflected in the proposed new regulation at § 425.610(a). h. Proposals for Final Sharing/Loss Rate a nd Performance Payment/Loss Recoupment Limit

under Track 3 Currently, an ACO that meets all the require ments for receiving shared savings payments under the one-sided (Track 1) model can qualify to receive a shared savings payment of up to 50CMS-1461-P SP 11/25/14 205

percent of all savings under its updated benchm ark, not to exceed 10 percent of its updated benchmark, as determined on the basis of its qua lity performance. Likewise, a Track 2 ACO can potentially receive a shared savings payment of up to 60 percent of a ll savings under its updated benchmark, not to exceed 15 percent of its upda ted 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 accountab le 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, how ever, may not exceed 5 percent of its updated benchmark in the first performance year, 7.5 pe rcent 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 st ated that we believe these progressively higher caps on losses "achieve an appropriate balan ce between providing AC Os with security about the limit of their accountability for losse s while encouraging ACOs to take increasing responsibility for their costs and protecting the Medicare Trust F unds." 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 savi ngs, not to exceed 15 percent of its benchmark. Under this payment arrangement, Pioneer ACOs ma y also be responsible for shared losses of up to 15 percent of th eir benchmark. Currently, only five of the ACOs participa ting in the Medicare Shared Savings Program are participating under Track 2. Given this leve l of ACO participation under this model, we considered options for improving the attractivene ss of the final sharing rate and performance payment limit in a risk model. For example, we considered whether the current sharing rateCMS-1461-P SP 11/25/14 206

under Track 2 is insufficient to encourage AC O participation under a risk-based model and whether increasing the sharing ra te would better attract organizat ions to take on performancebased risk. We also observed that the highe r sharing rates availabl e under the Pioneer ACO model have appeared to be helpfu l in encouraging ACO pa rticipation. 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 sect ion, 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. Accordingl y, we are proposing to se t the sharing rate under Track 3 at 75 percent. Likewise, we consid ered whether the current 15 percent performance payment limit for Track 2 ACOs may discourage part icipation 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 hi gher payment limits for both models, with limits as high as 25 percent. We explained that re taining the performance payment limits is necessary to comply with the statute and important for ensuring against providing an overly large incenti ve that may encourage ACOs to generate savings through inappropriate limits on necessary care . As was the case when we issu ed that rule, we continue to believe that retaining a performance payment lim it 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 wh ile increasing the attractiv eness of the model. Accordingly, for Track 3 ACOs, we are proposin g a performance payment limit not to exceed 20 percent of the ACO's updated benchmark. We note that the shared loss rate would similarlyCMS-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 fo r encouraging ACOs to assume greater responsibility for the quality and co st of the care furnished to thei r assigned beneficiaries, we are also considering variations on the previous prop osals. 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 ma y be responsible for repaying Medicare up to 60 percent of losses while an ACO with very hi gh 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 qu ality 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 th e potential reward without similarly increasing risk. Therefore, we considered other options fo r increasing potential shared savings while also increasing risk, or holding risk constant compar ed to Track 2. Under one option we considered, Track 3 ACOs would be responsible for the maximu m 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 th e 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 in creased 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 ma y qualify for up to 75 percent of all savings under their updated benchmark in conjunc tion with accepting risk for up to 75 percent of all losses, depending on the quality performance of the organi zation for the reasons ar ticulated previously. We are also proposing under new § 425.610(e)(2) to increase the performa nce payment limit to 20 percent of an ACO's updated benchmark. Add itionally, 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 fo r 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 adequa te protection to the Medicare Trust Funds while limiting risk to ACOs, thereb y 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 downs ide risk as Track 2 ACOs. We seek comment on whether this percentage is high enough to prot ect the Trust Funds or whether it should be increased, for example, to 50 percent or 60 per cent. 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 av ailable 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 savi ngs, the minimum guaranteed amount of shared savings would be 40 percent with a maximum of 75 percent. We seek comments on these proposals and th e proposed new regulation at § 425.610. In particular, we request comment on the appropriate minimum percen tage 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 thes e at 15 percent and 10 percent respectively, rather than our proposal of 20 percent a nd 15 percent respectively. Finally, we are also proposing to make certain technical, co nforming changes to § 425.606, which governs the calculation of shared savings and losses under Track 2, to reflect our proposal to incorporate a sec ond two-sided risk model into the Shared Savings Program. We seek comments on these proposed changes and on any other technical cha nges to our regulations that may be necessary in order to reflect the proposal to a dd 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 a ssigned to the ACO, mirroring the methodology currently used to determine th e MSR under Track 1. We proposed this change as a way to reduce financial risk and thereby increase the attractiveness of Tr ack 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 w ould provide additional protection to these ACOs agai nst incurring losses as a resu lt of normal variations inCMS-1461-P SP 11/25/14 210

expenditures. Moreover, while reducing financ ial risk for Track 2 ACOs, the proposal would also offer greater protection to the Medicare pr ogram 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 establis h 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 thei r beneficiaries. Hence, for Track 3 ACOs, we are proposing to apply the same fixed 2 percen t 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 us e of an MSR and MLR remains important under a two-sided risk model to guard against normal varia tions in costs, so that ACOs share savings or losses with the program only under those circumstan ces 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 organizatio ns to participate under th e model. Second, there is greater protection for the Me dicare Trust Fund from normal va riation under a two-sided model because ACOs accept the risk of repaying the Medica re 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 AC O. We believe this change would improve the attractiveness of Track 2 by offering ACOs that may be less ex perienced with performa nce-based risk greaterCMS-1461-P SP 11/25/14 211

protection against shared losses. However, b ecause Track 3 is intended for ACOs that are willing to accept a greater degree of risk in exchange for the o pportunity to share in a greater percentage of shared savings, we believe it is appropriate to use a fixe d 2 percent MSR and MLR

under this track. We believe th at 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 Trus t 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 esta blishing the MSR and MLR for Track 3 ACOs, including an option that would remove the MSR and MLR en tirely. Under this option, ACOs would be subject to normal variation around thei r benchmark so that they would be held responsible for all losses when performance y ear expenditures were above the benchmark in addition to sharing in any savi ngs if performance year expend itures 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 lo sses and savings, but not as much as doing away with the MSR and MLR entirely. We specifi cally seek comment on whether it would be

desirable to remove the MSR a nd MLR entirely under Track 3 as we ll as alternative levels at which to set the MSR and MLR for ACOs par ticipating under Track 3. We will considerCMS-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 AC O 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 AC Os 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-si ded 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 attractiv e alternative to Track

2. The incentive for ACOs to achieve hi gh quality and avoid unn ecessary costs under a two-sided performance-based risk model is supp orted by the impact analyses performed by the CMS actuary provided in section V. of this propo sed 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 AC Os 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 impr ove 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 cr itical issues that warrant further discussion and consideration for ensuring the continued succ ess of ACOs in the Medicare Program. See "Issue Brief: How to Improve the Medicare Ac countable Care Organizat ion (ACO) Program" at: http://www.brookings.edu/~/media/research/fil es/papers/2014/06/16%20medicare%20aco%20ch allenges%20and%20alternatives/2%20mcclel lan%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 AC Os represent an opportunity to transform the delivery system, but MedPAC believes that realiz ing that opportunity woul d 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 evolve s. MedPAC's recommendations are based on discussions with representative s 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 provide rs/suppliers who they have spoken with have patients in both MA plans and FFS Medicare. U nder MA, providers can furnish services and use techniques that are not available under FFS Me dicare or, by extension, under the current rules governing the Shared Savings Program. For exam ple, pursuant to sectio n 1861(i) of the Act, FFS Medicare requires a 3-day inpatient hospital stay before a SNF services will be coveredCMS-1461-P SP 11/25/14 214

under Medicare Part A, but MA plans can o ffer a waiver of the 3 day prior inpatient hospitalization requirement as a supplemental bene fit. ACOs have indicated that they like the flexibility that capitated payments would give th em 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 curre nt 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 perf ormance-based risk under the Shared Savings Program would provide st rong incentives for organi zations to control cost s, which should, in turn, open up the opportunity for regulatory re lief across a broad range of issues. Removing certain regulatory requirements may provide ACOs with additional flex ibility 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 Medi care payment and other rules under two-sided performance-based risk models in the Shared Savings Program. In the sections that follow, we solicit comme nt on several options th at are currently under

consideration for inclusion in th e Shared Savings Program. We fi rst consider options that would implicate the waiver authority und er section 1899(f) of the Act a nd then consider other options that could be implemented independent of waiv er authority. Although we are not specifically proposing these options at this time, we will cons ider 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 Re quirements 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 performa nce-based risk. In addition to the elements designed to enhance participation in a two- sided performance-based risk tr ack 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 increas e 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 . . . titl e XVIII of this Act as may be necessary to carry out the provisions of this section." This provi sion 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 se ction 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 waiver s, and we are not soliciting comment on such waivers.) As noted previously, we are encouraged by the robust participa tion of organizations under the one-sided model of the Shared Savings Program. However, we continue to believeCMS-1461-P SP 11/25/14 216

that the long term effectiveness and sustainabi lity of the program depe nd on encouraging ACOs to progress along the performance-based risk cont inuum. 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 un der 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 circumst ances, 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 consid ering these waiver issues under the Shared Savings Program, we are also actively moving fo rward 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 wa iver of the SNF 3-day rule under the Pioneer ACO Model, and we are in the pro cess of testing beneficiary a ttestation under the Pioneer ACO Model. In addition, under the demonstration au thority in section 402 of Public Law 90-248, as amended (42 U.S.C. 1395b-1), we granted Massac husetts General Hospital (MGH) the ability to admit certain patients enrolled in its Care Management for High Cost BeneficiariesCMS-1461-P SP 11/25/14 217

Demonstration directly into a SNF without a 3-day prior inpati ent 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, w e expect that the waiv er 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 identif y issues that neither we nor stakeholders had previously identified. Developing and implem enting 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 furthe r fine tune the operations. We welcome comments on possible waivers und er section 1899(f) of the Act of certain Medicare payment or other program requirement s suggested by stakeholders that might be necessary to permit effective implementation of tw o-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 fina l rule may consider waiving certain requirements

if we conclude that such a waiv er is necessary in order to carry out the Shared Savings Program. We are especially interested in comments e xplaining 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 inte grity and beneficiary protection risks could be introduced by waivers of the payment and program rules described later in this section of this proposed rule andCMS-1461-P SP 11/25/14 218

how could we mitigate those risks? Would a waiv er of these requirements impact notification to beneficiaries of participation in the Shared Sa vings Program as required under § 425.312? What operational issues do ACOs and CMS need to cons ider and what processes would ACOs need to have in place to implement these alternativ e payment and other program policies? What implications would there be for ACO infras tructure including IT and other systems and processes? What provider educa tion would be needed? What othe r 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-base d 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 Shar ed Savings Program? For example, should waivers be limited to the use of orga nizations participati ng 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 Tr ack 2 who would agree to be held accountable for up to 60 percent

of shared losses? Should the waivers be made av ailable to all organizatio ns participating in the applicable risk tracks or only to those ACOs that have successfully partic ipated in the Shared Savings Program or anothe r 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 AC Os under those Tracks. We are considering whether a waiver that applies only to beneficiar ies assigned to the ACO would pe rhaps be more appropriately implemented under a model in which there is pros pective 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 waiverCMS-1461-P SP 11/25/14 219

applied. Having clarity as to th e beneficiary to which a waiver applies may be important for the ACO to comply with the conditions of the waiv er 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 eligib le ACO. Then the waiver c ould be available to all ACOs participating in a two-sided risk track, regard less of whether the assignment is prospective or retrospective. Another option woul d be to apply such waivers to beneficiaries that appear on the quarterly lists of preliminarily prospectively assigned beneficiar ies. Under this approach, the population for whom the waiver is available woul d 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 bene ficiary assignment, versus Track 2 in which beneficiaries are assigned using a preliminar y prospective assignmen t methodology with final retrospective reconciliation. Sp ecifically, 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 issu es 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 arrangement s 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 reha bilitation care. Pursuant to section 1861(i) of the Act, beneficiaries must have a prior inpati ent hospital stay of no fe wer than 3 consecutiveCMS-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 te rm effectiveness and sustainability of the Shared Savings Program depend on encouraging ACOs to progress along the performance-based risk continuum. Given the ve ry limited ACO interest thus far in two-sided performance-based risk, and the comments and sugge stions 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 pr ovisions of the Shared Savings Program and to permit effective implementation of two-sided perf ormance-based risk tracks under the program. Models where ACOs bear a degree of financial ri sk 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 effici ent for some patients to receive skilled nursing

care and or skilled rehabilita tion 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 accep t two-sided risk, which we beli eve is required to promote the long term effectiveness a nd sustainability of the Shared Savings Program. We note that the SNF 3-day rule has been wa ived or is not a requirement for Medicare SNF coverage under a few CMS models or program s. 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 unde r the Pioneer Model are

accountable for the total costs of care furnishe d to their assigned be neficiary population, and must accept performance-based risk in the event that costs exceed their benchmark. This type ofCMS-1461-P SP 11/25/14 221

performance-based risk arrangement has the poten tial 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 tota l cost of patient care. As in the case of the MA program, the Pioneer ACO Model's use of shar ed risk arrangements is expected to deter unnecessary referral of patients to SNFs, as Pion eer ACOs are accountable for the total cost of care furnished to their assigned bene ficiaries. 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 th e Pioneer ACO Model went into effect on April 7, 2014, for Pioneer ACOs that demonstrate through an application pr ocess that they have the capacity and infrastructure to identify a nd manage clinically eligible beneficiaries prospectively assigned to Pioneer ACOs who ma y be admitted to a SNF without the required 3- day inpatient hospital stay. A ll other requirements for coverage of the Medicare SNF benefit remain unchanged under the Pioneer ACO Model. On ly beneficiaries that require skilled nursing

and/or skilled rehabilita tion care are eligible for SNF covera ge without a prior 3-day inpatient hospitalization under the Pioneer ACO Model waiver . All Pioneer ACOs ar e eligible to apply for a waiver of the SNF 3-day rule for their prospectively assigned be neficiaries, but must demonstrate that they have the capacity to iden tify 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 invo lved 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 prospe ctively aligned to a Pioneer ACO who do not reside in nursing homes for long-term custodial ca re 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 tes ting, not require an inpatient eval uation 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/supplie rs. 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 th e 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. Wh en Congress enacted the original Medicare legislation in 1965, it created SNF coverage as a less expensive altern ative 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 "p ost-hospital extended care" to se rve as a relatively brief and skilled "extension" of an acute care stay in a hospital. Thus, the requi rement for a prior 3-day qualifying stay in an inpatient hospital was includ ed to effectively targ et 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 so me patients to receive skilled nursing care and or rehabilitation services provided by SNFs without a prior inpatient hospitalization, or with an inpatient hospital leng th 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 ha ve 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 furnis hed at a SNF. Therefore, we do not believe that application of such a waiver s hould 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 Mode l or a two-sided risk track under the Shared Savings Program, the gr eatest savings would most likely be achieved by permitting the elimination, where appropriate, of th e 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 w ould not necessarily prod uce significant savings to the Medicare Trust Funds, as Medicare would s till pay the applicable MS-DRG amount to theCMS-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, co uld still produce cost savings for hospitals that improve their financial performance, and could contribute to ACOs' su ccess and continued participation in the Shared Savings Program. We believe it could be necessary to waiv e the SNF 3-day rule for ACOs participating under a two-sided risk track in the Shared Saving s Program because the financial incentives for such ACOs to control total patient costs for their prospectively assi gned beneficiaries are arguably similar to certain incentives that curren tly exist for MA plans a nd Pioneer ACOs. If we

were to conclude that a waiver of the requirement for a prior 3-da y 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 AC O participants and ACO providers/suppliers under proposed Track 3. Under Track 3 beneficiaries w ould be prospectively assigned to the ACO for the entire year and it would t hus be clear as to which benefi ciaries 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 organizatio ns 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 repres ent the limit of risk organizations are willing to take on without wa iving the SNF 3-day rule. As me ntioned previously, we believe a prospective assignment approach creates a poten tial pathway for improving the appropriate use of waivers by ACOs and a method for CMS to mon itor its use, in addition to offering a higher sharing rate. For these reasons, we believe Tr ack 3 may make it a better candidate for theseCMS-1461-P SP 11/25/14 225

waivers than Track 2. However, we seek commen t on whether such a waiver should apply to all performance-based risk tracks. Another option woul d be to allow the waiver to apply to any FFS beneficiary cared for by the ACO and then th e waiver could be available to all ACOs participating in a two-sided risk track, rega rdless of whether assignm ent is prospective or retrospective. Another option w ould 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 bei ng 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 requi red to submit to CMS for approval of a SNF or group of SNFs with which they wish to pa rtner. The designated SNFs must have the appropriate staff capacity and necessary infrastructu re to carry out the activities described in the ACO's application for the waiver. The SNF woul d 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/supp liers, because we believ e these entities would

have incentives that are most dire ctly 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 woul d anticipate establishing additi onal requirements to ensure program transparency and help reduce the possibili ty for abuse of the waiver. For example, we would anticipate requiring ACOs to indicate their intent to use the waiver as part of theirCMS-1461-P SP 11/25/14 226

applications or requests for renewal of their pa rticipation 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 it s application documenta tion 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 w ith 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 bene ficiaries. We would reserve the right to deny or re voke 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 su ccessfully 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 documente d 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 ex tend beyond the end of the ACO’s participation in the Shared Savings Program. However, if CM S terminates the participation agreement, then

the waiver would end on the date of the termina tion notice. We also re serve the authority to

withdraw the waiver in the event we determine th at 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 ot her applicable laws. We note that we would retain the right to m onitor and audit the use of such waivers. We would anticipate implementing heightened monitori ng of entities that bill under payment waiversCMS-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 item s and services are properl y delivered to eligible patients, that patients are not bei ng discharged prematurely to SNFs, and that patients are able to exercise freedom of choice and are not being st eered inappropriately. We would also likely consider monitoring ACOs’ marketing of servic es subject to paymen t waivers to prevent coercive or misleading marketing and to asse ss 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 Sect ion 1899(f) of the Act for ACOs that choose to participate in the Shared Savings Program under two-sided perfor mance-based risk financial arrangements. If so, what criteria would be appropriate to determ ine waiver eligibility under the Shared Savings Program? We note that any waiver under the Sh ared Savings Program for this purpose would have to be implemented consistent ly across all eligible ACOs. In other words, application of the waiver would be uniformly applied, and there w ould not be customization of the waiver or conditions for the waiver for particular elig ible ACOs. With this in mind, would it be appropriate to apply the same cr iteria discussed earlier that are currently being used under the Pioneer ACO Model? If not, how would the criteri a have to be modified? What assurances should ACOs have to make in order to be eligib le 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 benefici ary be admitted to a SNF that is an ACO participant or ACO provider/supplier in order for the waiver to appl y? We invite comment on whether or not the SNF should be required to be an ACO provide r/supplier. Would a waiver under certain conditions create any unexpected concerns abou t access to SNF services for the patients who need them most (that is, those beneficiaries adm itted 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 w ith 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 suffici ent beneficiary protections from inappropriate care or withheld ca re? Are there other quality sta ndards that should apply to ACOs or post-acute care facilities that use this waiv er? What other monito ring activities should be considered to guard against unintended consequen ces of a waiver of the SNF 3-day rule? What other criteria, operational issues or other concerns should we c onsider? We invite comment on

these issues. (2) Billing and Payment fo r Telehealth Services Under section 1834(m) of the Act, Medicare pays for telehealth services furnished by a physician or practitioner under cert ain conditions even though the phys ician 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 type s of originating sites specified in section 1834(m)(4)(C)(ii) of the Act and the site must sati sfy at least one of the requirements of section 1834(m)(4)(C)(i)(I) through (III) of th e Act. Generally, for Medicare payment to be made for telehealth services under the Physician F ee 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 dist ant site practitione r for the service. Section 1834(m)(4)(F)(i) of th e Act defines Medicare telehealth services to include professional consultations, office visits, office psychiatry servi ces, 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 pr ocess 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 ma ke a separate payment for them.

We also note that a number of CMS demonstr ations include or have included testing of

interventions that use electroni c health records, remote mon itoring, 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/Medica re/Medicare-GeneralInformation/CCIP/index.html ), participants utilized a vari ety 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 encour age self-care and self-m anagement of chronic health conditions and medications, and health promotion and diseas e prevention coaching. Likewise, under the Independence at Home De monstration, physician and nurse practitioner directed home-based primary care teams use elect ronic health records, remote monitoring, and mobile diagnostic technology to help reduce ex penditures and improve health outcomes for Medicare beneficiaries with multiple chronic conditions (see CMS website atCMS-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 he alth care providers to deliver care to patients in locations remote from provide rs are being increasingly used to complement face-to-face patient-provider encounters in both urba n and rural areas. In these cases, the use of remote access technologies may improve the accessibi lity and timeliness of needed care, increase communication between providers and patients, enhance care coordination, and improve the efficiency of care. ACOs a nd other commenters have suggest ed that a waiver of certain Medicare telemedicine payment requirements woul d 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 th e 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 practit ioner when they are furnished ar e covered and paid in the same way as services delivered without the us e 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 practitione r is able to visualize some aspect of the patient's condition without the patient being pr esent and without the interposition of a third person's judgment. Visualization by the prac titioner can be possible by means of x-rays, electrocardiogram or electroencephalogram tracing s, tissue samples, etc. For example, theCMS-1461-P SP 11/25/14 231

interpretation by a physician of an actual electroc ardiogram or electroence phalogram tracing that has been transmitted via telephone (that is, elec tronically, rather than by means of a verbal description) is a covered physicia n's service. These remote serv ices are not Medicare telehealth services as defined under section 1834(m)(4)(F)(i) of the Act. Rather, these remote services that

utilize telecommunications techno logy 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-per son 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 tec hnologies, such as telehealth, as an example of a process to coordinate care, and th e statute does not limit ACOs to being in rural or shortage areas where Medicare payment is available for teleheal th 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 telehea lth requirements under sectio n 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 Fe deral 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 Ac t that specify the par ticular sites at which the eligible telehealth individual must be locat ed at the time the service is furnished via a telecommunications system. Waiver of this re quirement could allow ACOs to realize costCMS-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 a nd 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 assi gned 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 popula tion. In other words, the waivers would be limited to ACOs participating in Track 3. Prospectively assign ed 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 a pplied. As mentioned prev iously, we believe a prospective assignment approach creates a poten tial pathway for improving the appropriate use of waivers by ACOs and a method for CMS to mon itor its use. In addi tion, under Track 3 there would be greater opportunity for risk. For these r easons, 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 tr acks. Another option would be for the waivers would apply to any FFS benefici ary cared for by an ACO and then the waiver could be available to ACOs participating in a ny two-sided risk track, re gardless of whether the assignment is prospective or retrospective. A nother option would be to apply such waivers to beneficiaries that appear on the quarterly lis ts of preliminarily prospectively assigned beneficiaries. Under this approach, the populatio n for whom the waiver is available would likely change from quarter to quarter. Under a waiver of the telehealth requ irements, we would anticipate establishing additional requirements to ensure program transpar ency and help reduce the possibility for abuseCMS-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 part icipation 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 docum entation 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 th e 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 assigne d beneficiaries. We w ould 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 applicat ion, or if it does not successfully meet the quality reporting standard. ACOs w ith approved waivers would be required to post their use of the waivers as part of public repor ting (see § 425.308) on the dedicated ACO webpage. Use of the waiver and its authorization by th e governing body would be required to be documented, and the documen tation retained, consistent with § 425.314. We would anticipate that any waiver would be effect ive on the start date of the ACO’s participation agreement and would not extend beyond the end of the ACO’s particip ation 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 auth ority 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 othe r individuals or entities prov iding 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 m onitor and audit the use of such waivers. We would anticipate implementing heightened monitori ng 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 item s and services are properl y delivered to eligible patients. We would also likely consider mon itoring ACOs’ marketing of services subject to payment waivers to prevent coercive or mislead ing marketing and to a ssess 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 Me dicare telehealth rules, especially for those ACOs that have elected to participate under a two-sided performa nce-based risk arrangement. We seek comment

on the telehealth rules that would require a waiver and th e circumstances under which a waiver would be necessary. Specifically, what aspects of current Medicare telehe alth payment and other rules would it be necessary to wa ive in order to effectively in corporate two-sided performancebased risk into the Shared Savings Program? Wh at factors should CMS c onsider if it were to provide for such a waiver to allow ACOs additional flexibility to provide a broader range of

telehealth services or servi ces in a broader range of geogr aphic areas? Also, how should

telehealth be defined? While "telehealth" is no t consistently defined acr oss payers, "telehealth" typically refers to a broader set of services, including "store and forward" services, which are not currently covered by Medicare outsi de 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 capa bilities or additionalCMS-1461-P SP 11/25/14 235

criteria should ACOs meet in order to qualify fo r payments for telehealth services under such a waiver? In your comments, please consider quality and outcomes metrics, ot her requirements to ensure protection of beneficiaries and the Medi care Trust Funds, and any other design factors you think may be important. (3) Homebound Requirement Unde r 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 serv ices under the Medicare home health benefit, such services are or were required because th e individual is or was

"confined to the home" and needs or needed sk illed 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 abil ity to leave home except with the assistance of another individual or the aid of a supportive device (such as crutches, a ca ne, a wheelchair, or a walker), or if the beneficiary has a condition su ch that leaving his or her home is medically

contraindicated. While a beneficiar y 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 consid erable and taxing effort by the beneficiary. Absent this condition, it would be expected that the beneficiar y could typically get the same services in an outpatient or other setting. Thus, the homeboun d requirement provides a way to help differentiate between patien ts that require medical care at home versus patients who could more appropriately receive care in a less costly outpatient setting. Additional informationCMS-1461-P SP 11/25/14 236

regarding the homebound requirement is availa ble in the Medicare Benefit Manual (Pub 100-02); Chapter 7, "Home Health Services", Secti on 30.1.1, "Patient Confined to the Home".

Some ACOs and other commen ters have suggested that a waiver of this requirement would be appropriate under the Shared Savings Pr ogram, especially for ACOs that have elected to participate under a two-sided performance-based risk arrangem ent. They suggest that home health care would be appropriate for additional beneficiaries a nd 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 a llowed 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 appr oach we discussed above for a waiver of the SNF 3-day rule for ACOs in Track 3. Specifi cally, ACOs participati ng under Track 3 have a significant financial ince ntive to control total patient costs. In addition, under Track 3 beneficiaries would be prospectiv ely assigned to the ACO for the en tire 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 poten tial pathway for improving the appropriate use of waivers by ACOs and a method for CMS to mon itor its use. In addi tion, 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 prospectivelyCMS-1461-P SP 11/25/14 237

assigned beneficiaries; however, we seek comment on whether thes e waivers should apply to all performance-based risk tracks. Another option would be that the waiv ers would apply to any FFS beneficiary cared for by the ACO and then th e waiver could be available to all ACOs participating in a two-sided risk track, rega rdless of whether assignm ent is prospective or retrospective. Another option w ould 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 hom ebound 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 th e capacity and infrastructure to identify and manage clinically beneficiaries who are not hom ebound, but are otherwise e ligible 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 re quire 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 bene ficiaries that otherw ise meet all program requirements to receive home health services w ould be eligible for cove rage 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 belie ve it would be appropriate to limit such a waiver to home health agencies that are ACO participants or ACO providers/suppliers, because we believe theseCMS-1461-P SP 11/25/14 238

entities would have incentives that are most direc tly 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 agen cy 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 Qu ality Rating System as reported on the Home Health Compare we bsite. (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 woul d anticipate establishing additi onal requirements to ensure program transparency and help reduce the possibili ty 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 ap plications 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 applica tion documentation showing that its governing body has made and duly

authorized a bona fide determination that the AC O 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 meetCMS-1461-P SP 11/25/14 239

the clinical needs of its assigne d beneficiaries. We would rese rve the right to deny or revoke a waiver to an ACO if it is not in compliance w ith 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 thei r use of the waivers as part of public reporting (see § 425.308) on the dedicated ACO webpage. Use of the waiv er and its authorization by the governing body would be required to be documented, and docum entation 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 bey ond the end of the ACO’s participation in the Shared Savings Program. However, if CMS term inates the participation agreement, then the

waiver would end on the date of the termination no tice. We would also reserve the authority to

withdraw the waiver in the event we determine th at 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 ot her applicable laws. We note that we would retain the right to m onitor and audit the use of such waivers. We would anticipate implementing heightened monitori ng 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 item s and services are properl y 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 misl eading 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 n ecessary 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 Pr ogram under two-sided performance risk financial arrangements. We also welcome comments on the potential waiver requirements discussed previously. For example, what cr iteria would be appropriate to determine eligibility for such a waiver under the Shared Savings Program? Ar e there specific categories of providers or beneficiaries to whom the waiver should (o r should not) apply? If implemented under a two-sided performance-based risk model, are th ere 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 hom ebound in applying them to services furnished to a non-homebound population? What quality metric s should be incorporat ed into the quality measure framework for ACOs and our monitoring program to measure the quality of care for non-homebound home health recipien ts? When should the waiver be applied? Would there be specific circumstances when home health services should be availa ble at any point without first being triggered by some health event? If so, wh at 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 to ward 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 bene ficiaries would remain free toCMS-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 Independen ce at Home (IAH) Demonstration builds on existing Medicare benefits by provid ing chronically ill patients with a complete range of primary care services in the home setting. Medical prac tices led by physicians or nurse practitioners provide primary care home visits tailored to th e needs of beneficiaries with multiple chronic

conditions and functional limitati ons. See the CMS website at http://innovation.cms.gov/initia tives/independence-at-home/ . How could the findings from Independence at Home demonstration apply to th e 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 Me dicare, a hospital must have in effect a discharge planning process that applies to all patients, as required under § 482.43. The Interpretative Guidelines for th is 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 hospita l 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 "c ommunity 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 ca re settings that may be involved at various points in the treatment of a given patient. This approach recognizes the shared responsibility ofCMS-1461-P SP 11/25/14 242

health care professionals and f acilities as well as patients a nd 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 speci fically addresses the role of the patient, or the patient's representative, by requiring the hospital to develop a discharg e planning evaluation at the patient's request and to discuss th e 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 develo pment 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 representativ es throughout the discharge planning process. Further, the specific discharge pl anning evaluation requirement to assess a patient's capability for post-discharge self-care requires th e hospital, as needed, to activ ely 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 discharg e plan, when applicable in terms of the types of post-discharge care needs iden tified, a list of home health agencies (HHAs) or SNFs that are available to the patient, that are participati ng 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 detail s). Further, under th e CoP regulations at § 482.43(c)(7), a hospital, as part of the discharg e planning process, must inform the patient or the patient's family of their freedom to c hoose among participating Medicare providers of post-hospital care services and must, when possible, respect pa tient and family preferences whenCMS-1461-P SP 11/25/14 243

they are expressed. The hospital must not specif y or otherwise limit the qualified providers that are available to the patient. The discharge pl an must identify any HHA or SNF to which the patient is referred in which the hospital has a disclosable financia l interest, as specified by the Secretary, and any HHA or SNF that has a disclo sable financial interest in a hospital under Medicare (See § 482.43(c)(8)). The State Operations Manual (SOM), Appe ndix A at Section A- 0823, provides additional guidance for these requirements. During the disc harge planning process the hospital must inform the patient of his or her freedom to choose am ong Medicare-participatin g 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 ei ther to develop their own lists or to print a list of skilled nursing faci lities and home health agencies in the applicable geographic areas from the CMS we bsites, Nursing Home Compare (www.medicare.gov/NHcompare) and Home Health Compare ( www.medicare.gov/homehealthcompare ). If hospitals develop thei r 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 Ho me Health Compare websites for additional information regarding Medicare-certified SNFs and HHAs, as well as Medicaid-participating nursing facilities. The data on the Nursi ng 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 a bout every Medicare-certified home health agency in the country. Included on the website are quality indicators such as managing daily activities, managing pain and tr eating symptoms, treating wounds a nd 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 repr esentatives to individual State agency websites, the Long-Term Care Ombudsman Program, Protection and Advo cacy Organizations, Citizen Advocacy Groups, Area Agencies on Aging, Centers for Independent Living, and Aging and Disability Resource

Centers for additional informati on on long term care faci lities and other type s of providers of post-hospital care. Having access to the info rmation 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 th e patient's family has expressed a preference, the hospital must attempt to arrange post-hosp ital care with an HHA or SNF, as applicable, consistent with that preference. If the hospital is unable to ma ke 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 reas on to the patient.

ACOs and MedPAC have indica ted that as ACOs have starte d to analyze claims data on their beneficiaries, they are recognizing that certain providers may de liver 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 hosp itals. ACOs have indicated that they would like to have the ability to reco mmend high-quality SNF and HHA provi ders with whom they have established relationships, rather than presenting all options equa lly. In particular, ACOs and their ACO providers/suppliers woul d like to have the ability to clearly state to beneficiaries which providers they believe are best and why. Ho wever, it is not clear to them that they have the authority to do so, especially for referrals to po st-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 asCMS-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 bene ficiaries and what represents clear notification of the beneficiary’s freedom to choose among participating Me dicare 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 prefer red providers can be represente d to beneficiaries and what represents clear notifica tion of beneficiary freedom of choice of providers, we believe we have identified one requirement that might be need to be waived. Specifica lly, we are considering whether it might be necessary to waive the re quirement under section 186 1(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 18 99(f) of the Act for ACOs participating in two-sided risk tracks under the Shared Savi ngs Program. If we were to implement such a waiver, we would anticipate ma king it a very narrow waiver. In addition, we are considering whether such a waiver would be most appropri ately implemented under Track 3 in which there is prospective assignment of benefi ciaries. 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 applie d. As mentioned previously, we believe a prospective assignment approach creates a potential pathway for improvi ng the appropriate use of waivers by ACOs and

a method for CMS to monitor its use. In a ddition, 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 opti on is that the waiver would apply to any FFS beneficiary cared for by the ACO and then th e waiver could be available to all ACOsCMS-1461-P SP 11/25/14 246

participating in a two-sided risk track, regard less of whether the assignment is prospective or retrospective. Another option w ould 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 docum entation 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 benefici aries' right to choose their providers under FFS Medicare, we are not consideri ng a complete waiver of the requirement that a hospital, as part of the discharge planning pr ocess, not specify or otherwise limit the qualified providers that are available to th e 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-hosp ital 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 specifica tion of qualified providers, discharge planners in hospitals that are ACO partic ipants 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 continu ity of care across sites of care.

Such a waiver would not cove r a situation in which a post- acute provider paid the ACO participant or ACO provider/supplie r to be included as a recomme nded post-acute provider. We believe it would be appropriate to limit such a wa iver to hospitals that are ACO participants or ACO providers/suppliers because we believe these entities would have incentives that are mostCMS-1461-P SP 11/25/14 247

directly aligned with those of the ACO. ACOs also have stronger c ontrol and oversight over such entities and such entities are subject to Shared Savings Program requirements. We anticipate that under a su ch waiver discharge planners woul d 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 pa rticipating Medica re providers of post-hospital care services as well as inform ation regarding the Medicare provider of post-hospital care services recomme nded 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 speci fic provider of post-hos pital services. If implemented across all risk tracks, we anticipate it would apply to all FFS beneficiaries receiving services from hospitals participating in the AC O. We would additionall y 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 th e 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 clini cal and/or financial re lationship 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 establ ishing additional requirements to ensure program transparency and help reduce the possibility for abuse of th e waiver. For example, we would anticipate requiring ACOs to indicate their intent to us e the waiver in a form and manner specified byCMS-1461-P SP 11/25/14 248

CMS, as part of either their ap plications 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 requiri ng that the ACO submit as part of its applica tion 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) a nd will comply with all requirements of the waiver. As part of its application for the waiv er, 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 waiv er 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 re quired 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 governi ng 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 agr eement 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 woul d 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 i ndividuals 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 specif ic activities should be

monitored to ensure that items a nd services are properly delivered to eligible patients, and that patients are able to exercise fr eedom of choice and are not bei ng steered inappropriately. We would also likely consider monitoring ACOs’ ma rketing of services subject to payment waivers to prevent coercive or misleading marketing and to assess the effect on th e 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 co mment on the criteria discussed above. Are there other cost and quality criteria th at 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 ava ilable only to those hospitals that are ACO participants or ACO provider/supp liers, since these entities would have incentives that are most directly aligned with those of the ACO? S hould a hospital be permitted to recommend any post-hospital provider or only post-hospital prov iders that are ACO participants or ACO provider/suppliers? We an ticipate that if a waiver is found to be necessary, we would establish a waiver that would apply to all hospitals that are ACO particip ants or ACO providers/suppliers and that these hospitals would have the abil ity to recommend any post-hospital provider; however, we would be interested to recei ve comments on alternative approaches. Overall, we are supportive of hospitals recommending certain post-hospital providers based on quality and a beneficiar y'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 estab lished 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 informati on 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 pr oviders based on quality informa tion that has not been properly vetted. Also, we would be concerned if hospita ls recommended only thei r partnering providers, when there may be other providers of equal or better quality. Since th e CoP requirements apply to all patients of a participating hospital regardless of their insure r or insured status, we are also seeking comment on whether it would be feasib le to implement a system where the CoP requirement to not make recommendations is waiv ed 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-Me dicare 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 wh ether such a waiver should be available more broadly to all ACOs participating in the Shar ed Savings Program. Alternatively, should the waiver apply only to beneficiarie s that are prospectivel y assigned to ACOs pa rticipating in Track 3? What operational considerations/concerns wo uld implementation of such a waiver raise? What additional beneficiary protections and safe guards 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 he lpful to CMS in developing future proposals regarding the waiver of any Medicare FFS rule s 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 Transiti on 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 base d on the beneficiary's utilization of primary care services rendered by physicians. Thus, beneficiar y 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. Therefor e, we developed a methodology for assigning

beneficiaries based on whether th e 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 th ey retain the right to seek treatment from anyCMS-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 te rm "assignment" in this context refers only to an opera tional process by which we determ ine whether a beneficiary has chosen to receive a sufficient level of the requisi te 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 perf ormance 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 th e assignment of Medicare FFS beneficiaries. Additionally, we noted that the statute requires that assi gnment be based on beneficiary utilization of primary care services furnished by physicians. We explor ed several options for assigning beneficiaries to an AC O based on whether the beneficiar y received the plurality of primary care services from provi ders and suppliers participating in the ACO. The primary options we considered were whether to assign be neficiaries 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 appr oach, the ACO would be held accountable for beneficiaries that chose to receive the plurality of their prim ary care services from practitioners in the ACO during the course of the performance year. These beneficiarie s necessarily would be identified at the end of the performance year. The advantage of th is approach is that the ACO is assessed based on beneficiaries with whom its providers and suppliers had vi sits 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 haveCMS-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 ta rget specific FFS beneficiaries for enhanced care improvement activities, and be c onfident that those specific bene ficiaries 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 quali ty of the care furnished to beneficiaries on the prospective assignment list would be used at th e 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 car e coordination activities to the specific FFS beneficiaries that appear on the prospective as signment 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 broa der Medicare FFS population served by the ACO and its ACO participants and AC O providers/suppliers. We stat ed that since the goal of the Shared Savings Program is to change the ca re experience for all FFS beneficiaries, ACO participants and ACO provider/s uppliers should have incentives to treat all pa tients 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 th at some prospectively assigned beneficiaries would choose not to obtain the plurality of their primary care servicesCMS-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 th e care furnished to those beneficiaries. After considering stakeholder comments on thes e main approaches, we finalized a hybrid policy that provided for a preliminary pr ospective assignment methodology with final retrospective reconciliation (76 FR 67867). We finalized this hybrid approach in an effort to realize the most positive aspect s of both prospective and retros pective assignment and avoid, to the extent possible, the major disadvantages of each. Therefore, we finalized a policy in which we prospectively assign benefici aries to ACOs in a preliminar y 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. Fi nal 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 Sh ared Savings Program based on a statistical determination of a beneficiary's utilization of primary care servi ces, rather than on a process of enrollment or "voluntary selectio n" by beneficiaries. Beneficiar ies are assigned to no more than one ACO, and the specific methodology (the "ste p-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 w ith the ACO's desire to have information

about the FFS beneficiaries that were likely to be assigned at th e end of the performance year. We also felt this approach would provide ade quate incentives for each ACO to redesign care processes for and provide high quality care to it s entire FFS beneficiary population instead of just focusing on a subset of patients. Finall y, the ACO's performance would be assessed on the

basis of the care furnished to those beneficiaries that chose to receive the plurality of primaryCMS-1461-P SP 11/25/14 255

care services from ACO professionals during th e 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 benefici aries 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 Phys ician Group Practice Demons tration (which used a similar retrospective assignm ent 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 benefi ciaries were no longer as signed 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 practi tioners. This statistic was recently confirmed when evaluating "churn" in the Shared Savings Pr ogram context. On average, 76 percent (range = 58 percent to 88 percent) of beneficiaries assi gned 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 quart erly updates to the assi gned 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 percen t to 95 percent). These data indi cate that "churn" varies from ACO to ACO, and that our hybrid assi gnment methodology performed according to expectations, that is, the quarterly assignment re ports provide the ACO with relevant information during the performance year a bout 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 in eligible to be assigned or chose not to receive the plurality of their primary care services from ACO profe ssionals. Beneficiaries who were assigned in one performance year, but fall off th e assignment list at the end of the subsequent performance year may do so for a va riety of reasons including:

● Beneficiary did not seek primary care serv ices from any Medica re-enrolled physicians during the subsequent performance year.

● Beneficiary chose to receive all primary car e services or the plurality of his or her primary care services from pr oviders 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 earlie r 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 (t hat 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 car e 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 th e next. However, the retention rate variesCMS-1461-P SP 11/25/14 257

from 58 percent to 88 percent across ACOs, an d correspondingly, the tu rnover varies from 12 percent to 42 percent. On av erage, 7 percent of previously assigned beneficiaries are no longer eligible for assignment to an ACO and 17 percen t of previously assigne d 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 perfo rmance year. Of the 17 percent of previously assigned beneficiaries who rema in eligible for assignment--

● Six percent had at least one primary car e physician visit with a physician who is an ACO professional, but the plurality of their pr imary care services we re 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-phys ician 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 primar y care services from ACO professionals. As suggested by these statistics, some percen tage of beneficiaries may believe a certain primary care practitioner affiliated with an ACO has ultimate res ponsibility for coordinating their care, even when it is necessary for them to receive primary care services from other practitioners, including practitioners w ho 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 serviceCMS-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 ca re service visit during a performance year with a primary care provider who is an ACO profe ssional with whom the beneficiary has a longstanding relationship and the bene ficiary believes this ACO professional is responsible for coordinating his/her care. If this beneficiary chooses to go to a la rge health system in the next town for primary care services and receives prim ary care services from practitioners that are unaffiliated with the ACO during the performance y ear, at the end of the performance year it may be determined that ACO professionals di d not render the plurality of the primary care services for that beneficiary a nd 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 de signate which providers (and by extension, the ACOs with which they are affiliate d) are responsible for overseeing their overall care, regardless of where the beneficiary recei ved the plurality of his or her primary care services. These commenters argue that creat ing a methodology that ta kes 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 benefici aries. 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 expr essed interest in a nd 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 in formation and giving beneficiaries the opportunityCMS-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 perfor mance year. Specifically, the Innovation Center has designed a test in which participating ACOs ma il cover letters to beneficiaries aligned to the Pioneer ACO in either the 2013 or 2014 performa nce 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 docto r". In the form the beneficiary is asked to confirm whether or not the listed provider or su pplier is their "main doc tor." Beneficiaries who confirm a care relationship with the provider/s upplier 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 fo r the following performance year, regardless of whether or not the practitioners participating in the Pioneer AC O rendered the plurality of the beneficiary's primary care services during the performance year. The Innovation Center will conduct claims-based attribution using the met hodology established for the Pioneer ACO Model, but will include in the Pioneer's aligned bene ficiary population not only those beneficiaries aligned through claims, but also those beneficiaries who returned the form confirming that a Pioneer ACO provider/supplier is th eir 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 assigne d through the existing claims-based attribution methodology. This mean s that if the benefici ary does not return theCMS-1461-P SP 11/25/14 260

form and the beneficiary is not assigned to th e 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 th e additional administrative burden for ACOs participating in the Pioneer Model, discussions of beneficiary attest ation or receipt of confirmation forms at the point of care were precluded under this firs t test of beneficiary attestation. Rather, in this initial test, the Innovation Center seeks only to evaluate the effectiveness of different types of mailed forms w ith respect to beneficiary willingness to attest that a particular practitioner ha s the primary responsibility for th eir care. Additional testing in the future is planned under the Pioneer ACO M odel 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 regardi ng the nature of the care relationship. Although we are not making any specific propos als related to benefi ciary attestation, we welcome comments on whether it would be appropria te to offer a beneficiary attestation process to ACOs that choose to participate in the Shar ed Savings Program under tw o-sided risk financial arrangements. We intend to carefully c onsider any comments on this issue during the development of the final rule, and will make an a ssessment 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 suggestio ns on a wide variety of policy and operational issues related to beneficiary atte station. For example, which bene ficiaries should be eligible to

attest into an ACO? Should this option be available to all benefi ciaries or only to currently or previously aligned beneficiaries? What impli cations would attestati on or voluntary alignment have for the assignment of beneficiaries to an ACO under a prospective versus a preliminary prospective method? Which types of care rela tionships should be considered--those withCMS-1461-P SP 11/25/14 261

primary care physicians, specialists or other types of providers? Ho w 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 circumst ances and how could beneficiaries reverse their decisions? Although we believe the option sugg ested would protect be neficiary freedom to choose, we seek comment on whether there are ad ditional ways to protect beneficiaries from coercion and ensure proper monitoring and safe guards under the Shared Savings Program. What implications would there be for ACO informa tion or other administrative systems? What provider education would be need ed? Should there be additiona l application or eligibility requirements for ACOs in tracks under which benefi ciary attestation is o ffered? We would note

that if we were to offer a bene ficiary 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 th e 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 duri ng the performance year, as might be the case under Track 3 under the proposed prospective as signment 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 anticip ate 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 implem enting this beneficiary

attestation in a manner consistent with the curr ent beneficiary attesta tion under the Pioneer ACOCMS-1461-P SP 11/25/14 262

Model. We believe this would be an appropria te starting point for bene ficiary 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 Pione er 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 prospectiv ely assigning beneficiaries. Ho wever, beneficiary attestation may have a minor impact on “churn” during a performance year related to the preliminary prospective with retros pective reconciliation approach su ch as the methodology employed under Track 2. This process may also have a minor im pact 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 attesta tion process under the Shared Savings Program could bias performa nce year results compared to the ACO’s benchmark. For example, we believe that such bi ases could occur because the beneficiaries used to establish performance benchmarks would not ha ve had the same opportunity to designate their "main doctor." Rather, for purposes of the benchm ark years, all beneficiaries would be assigned using the established claims-based assignment methodology. Would it be a ppropriate 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 be neficiary attestation, we would revise our regulations as necessary, to protect beneficiarie s from undue coercion or influence in connection with whether they choose to attest or not. Benefi ciary attestation is not in tended to be used as a mechanism for ACOs (or ACO participants, ACO providers/suppliers, ACO professionals, or others) to target potentially lucr ative beneficiaries or avoid those less likel y to produce savings. To this end, we do not believe ACOs or others should be permitted to offer gifts or otherCMS-1461-P SP 11/25/14 263

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) pr ohibit ACOs, ACO pa rticipants, ACO providers/suppliers, and other indi viduals or entities performing func tions or services related to ACO activities from providing gifts or other re muneration to beneficiaries as inducements for receiving items or services from, or remaini ng in, an ACO. The re gulation 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 th e 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 provide rs/suppliers from providing a beneficiary with accurate descriptive information about the potentia l patient care benefits of aligning with an ACO. We are also soliciting comments on this issue. (2) Seeking Comment on a Step-Wise Progressi on for ACOs to Take on Performance-Based

Risk Under the current Shared Savings Program ru les, an ACO may not include an entity on its list of ACO participants unless all ACO providers/suppliers billi ng through the entity's Medicare-enrolled TIN have agreed to participat e in the program and comply with the program rules (see discussion in section II. B. of this proposed rule). Fu rthermore, it is not possible under our current regulations for some ACO providers/s uppliers to participate in Track 1, while other ACO providers/suppliers that may be more rea dy to accept performance-based risk participate

under Track 2. Some stakeholders have commen ted that requiring all ACO providers/suppliersCMS-1461-P SP 11/25/14 264

billing through an ACO participant TIN to partic ipate in the same risk track could deter some ACOs from entering higher risk ar rangements (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 h eard from other stakeholde rs that requiring all ACO providers/suppliers billing t hough 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 incentive s within an organizati on are aligned among all providers and suppliers in that organization. Gi ven our policy objectives to encourage ACOs to redesign their care processes and move to incr easing levels of financ ial risk, we are not proposing at this time to change our regulations in order to allo w providers and suppliers billing through the same ACO partic ipant TIN to participate in differe nt tracks under the Shared Savings Program. However, we are interested in stak eholder opinion on this issue and seek comment on what options the program might consider in the fu ture to encourage organi zations to participate in the program while permitting the providers an d suppliers within that organization to accept varying degrees of risk. In particular, we are in terested in stakeholders' input on the advantages and disadvantages of allowing Shared Savings Pr ogram ACOs that wish to enter a track with increased risk to split their ACO participants into different tracks or sp lit ACO provider/suppliers billing through a given Medicare-enr olled TIN so that a subset partic ipate in a track that offers a higher sharing rate in exchange for taking on a gr eater 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 devel opment of the final rule and will make anCMS-1461-P SP 11/25/14 265

assessment at that time as to whether any ch ange 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 appr opriate to use the Me dicare-enrolled TINs that make up each ACO as the basis for a numb er of operational processes under the Shared Savings Program, including beneficiary assignmen t, and that, as a resu lt, all providers and suppliers billing through the TIN of an ACO participant must ag ree to particip ate 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 w ould be necessary or idea l to adopt an approach under which ACOs would be permitted to pi ck and choose ACO pr ovider/suppliers for participation. However, we are considering ways to encourage organizati ons 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 cu rrent policies to permit organizations to split their ACO participant TI N 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 Tr ack 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 specifie d by CMS, which ACO participants would continue under Track 1 a nd which would participate under a performancebased risk track. We would consider this list to be a "segmented list" of ACO participants.CMS-1461-P SP 11/25/14 266

● The ACO as a whole would be required to meet the eligibility requirements to participate in the program, incl uding 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 partic ipants. On the other hand, if each segmented list was required to report qualit y separately, we may be able to get a more accurate assessment of the quality of care by ea ch segmented list leading to a more accurate determination of shared savings or losses.

● Regarding benchmarking and assignment of be neficiaries, we considered whether each half of the segmented list of ACO participan ts would have its own benchmark and list of assigned beneficiaries. Under this option, th e two groups of ACO participants would each receive their own performance reports from CM S 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 w ould 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 particip ant lists during the agreement period, we considered whether an ACO would be permitted to add or delete ACO participants from theCMS-1461-P SP 11/25/14 267

segmented list of ACO participan ts. One option considered woul d be to permit an ACO to add or delete ACO participants from the segmente d 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 m odel. In this way, the ACO and its ACO participants would be better pr epared 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 consider ations should be made with regards to organizations that may choose to create two diffe rent ACO participant lists in an effort to advantage the part of the organiza tion that is participating in th e 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 hi story of program integrity. We intend to carefully review any comments that are received on these issues during the development of the final rule and willCMS-1461-P SP 11/25/14 268

make an assessment at that time as to whether any change to our curren t 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 fina l rule established a requirement that ACOs applying to participate in the tw o-sided model must establish a repayment mechanism to assure CMS that they can repay losses for which they ma y be liable (§ 425.204(f)). For an ACO's first performance year, the repayment me chanism 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 establis h 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 mechan ism 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 Me dicare 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 abil ity to repay losses, or othe r monies determined to be owed upon first year reconciliati on, by obtaining reinsurance, pl acing 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 progr am (§ 425.204(f)(2)). Given our experience inCMS-1461-P SP 11/25/14 269

implementing the program, we are proposing to revi sit our requirements to simplify them and to

address stakeholder concerns re garding 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 regu lations, 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 mu st be equal to at least 1 percent of the ACO's total per capita Medicare Parts A and B F FS 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 perfor mance year. This amount is estimated by CMS and reported to the ACO so that it can set up it s 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 consid ered whether it would be feasible for an organization to establish a single repayment mech anism to cover the entire 3-year agreement period. Initially we were concerned that re quiring an organization to establish a single repayment mechanism to cover 3 performance year s 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 requir ing 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 ne w performance year and settlement of the previous performance year,CMS-1461-P SP 11/25/14 270

the repayment mechanism that is established for the first performance year of an agreement period under a two-sided risk model can be rolle d over for subsequent performance years. Thus, we propose to require an ACO to demons trate at the time of its application to the Shared Savings Program or part icipation 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 performan ce year reconciliation during the agreement period. Thus, an ACO would be required to es tablish a repayment mechanism for the required

amount as discussed in this sec tion to cover the entir e 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 losse s that may be owed by the ACO and to collect this amount from the ACO. The length of th e tail period shall be established by CMS in guidance. Under this approach, an ACO would be re quired to establish a repayment mechanism once at the beginning of a 3-year agreement peri od. We propose that an ACO must demonstrate the adequacy of its repayment mechanism and ma intain 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 av ailable 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 toCMS-1461-P SP 11/25/14 271

adjust an ACO's benchmark annually to account fo r changes in the ACO pa rticipant 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 agre ement 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 require ment 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 incr ease 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 de termined to be owed" in the current provision directly relates to the interim payments that were available in the fi rst 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 Permi ssible Repayment Mechanisms Under our current rules, ACOs may demonstrat e 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 th at the Medicare program can draw upon), or establishing another appropriate repayment mechanis m 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 abi lity to pay using reinsurance or an alternative mechanism. First, no Shared Savings Program ACOs have obtained reinsurance for the purposeCMS-1461-P SP 11/25/14 272

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, a nd because Shared Savings Program ACOs take on performance-based risk not insurance risk. Additionally, the terms of reinsurance policies obtained by ACOs could vary gr eatly and prove difficult for CMS to effectively evaluate. Second, based on our experience to date, a request to use an a lternative repayment mechanism increases administrative complexity for both AC Os 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 § 4 25.204(f)(2) to limit the types of repayment mechanisms ACOs may use to demonstrate their ab ility 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 flexibi lity 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 po licies 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 mech anisms, which tends to be highly variable. In addition, we propose to clarify that AC Os may use a combination of the designated repayment mechanisms, if needed, such as placi ng certain funds in escrow, obtaining a surety bond for a portion of remaining funds, and establis hing 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 lo sses owed by placing funds in escrow, obtaining surety bonds, establishing a line of credit, or by using a combination of these mechanisms. We seek commentCMS-1461-P SP 11/25/14 273

on our proposed modifications to the repaym ent mechanism requirements and also welcome comments on the availability and adequacy of reinsurance as a repayment mechanism. 6. Seeking Comment on Methodology for Estab lishing, Updating, and Resetting the Benchmark a. Background on Establishing, Upda ting, and Resetting the Benchmark Section 1899(d)(1)(B )(ii) of the Act addresses ho w ACO benchmarks are to be established and updated. This provision specifies that the Secr etary shall estimate a benchmark for each agreement period for each ACO using the most recent available 3 years of per beneficiary expenditures for part s A and B services for Medicare FFS beneficiaries assigned to the ACO. Such benchmark shall be adjusted for beneficiary characte ristics and such other factors as the Secretary determ ines appropriate and updated by th e projected absolute amount of growth in national per capita expenditures for part s A and B services under the original Medicare fee-for-service program, as estimated by the Secret ary. 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, updati ng and resetting ACO benchmarks at § 425.602. As described later in this section, unde r this methodology, we establish ACO-specific benchmarks th at 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 th e FFS program, as estimated by the Secretary. In the April 2011 proposed rule (76 FR 19609 through 19611)., we considered a variety ofCMS-1461-P SP 11/25/14 274

options for establishing the trend factors used in establishing the histor ical benchmark and for accounting for FFS trends in updating the be nchmark during the agreement period. In addition to the statutory benchmarki ng methodology established in section 1899(d), section 1899(i)(3) of the Act gr ants the Secretary the authority to use other payment models, including payment models that would use al ternative 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 altern ative 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 sect ion, in the November 2011 final ru le, we considered whether to invoke this authority to modify certain aspe cts 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 trendi ng the benchmark. We explained that using the national growth rate in Medicare A and B FFS expenditures appeared to be more consiste nt with the statutory methodology for updating an ACO's benchmark. Furt her, a national growth rate would allow a single growth factor to be appl ied to all ACOs regardless of their size or geographic area. However, a national rate could also disproportio nately encourage the development of ACOs in areas with historical growth rates below the na tional average that would benefit from having a relatively higher base, which increases the chan ces for shared savings, while discouraging theCMS-1461-P SP 11/25/14 275

development of ACOs in areas wi th historically higher growth rates above the national average that would have a relatively lower base. In contrast, we explained in April 2011 pr oposed 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 diffe rential 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 St ate 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 woul d instill strong saving in centives for ACOs in both high-cost growth and lo w-cost growth areas. We proposed to employ the national growth ra te in Medicare Part s 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 ha ve 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 calc ulate and measure ACO financial performance. We sought comment on this proposal and on the alte rnatives 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 us ing national growth rates for rationalizing overall spending across regions nationwide. Many more fa vored the use of either local, regional, or State growth rates, and some favored our proposal to use the lo wer of either the national or StateCMS-1461-P SP 11/25/14 276

or local growth rates. Commenters also offere d 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 forw ard the historical benchmark

data.

● Account for local varia tion 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 benefi ciaries for trending forward the most recent 3 years of per beneficiary expenditures for Part s 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 beneficiarie s: ESRD, disabled, aged/dual eligible and aged/non-dual eligible. We stat ed our belief that implementing a historical benchmark trending factor using the national growth rate for Parts A and B FFS expe nditures appropria tely balanced

commenters' concerns that be nchmark trending should encourag e participation among providers that are already efficient or operating in low cost regions without undul y rewarding ACOs in high-cost areas. We further stated that we anti cipated the net effect of using the same trending factor for all ACOs would be to provide a re latively higher expenditure benchmark for lowgrowth/low spending ACOs and a relatively lo wer benchmark for high growth/high spending ACOs. ACOs in high cost, high growth areas w ould therefore have an incentive to reduce their rate of growth more to bring th eir costs more in line with the national average; while ACOs in low cost low, growth areas would have an incenti ve to continue to maintain or improve their overall lower spending levels.CMS-1461-P SP 11/25/14 277

Over 330 ACOs entered the Shared Sa vings Program between 2012 and 2014 and are located throughout the country – ac ross diverse geographies – in a mix of high-cost/high-growth and low-cost/low-growth areas. Further, with in 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 ar e encouraged by the continued in terest 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 elig ible 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 ba seline years 2009 and 2010 to 2011 by applying the growth in expenditures for the reference popu lation. The reference population is defined as alignment-eligible beneficiaries with the same stat e of residence, eligibility status, age and sex as the ACO's aligned beneficiaries. The 3 histor ical 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 update d to the appropriate performance year using a 50/50 blend of the na tional 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 y ears 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.CMS-1461-P SP 11/25/14 278

(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 be nchmark 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-s ervice 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 Ac t, Congress demonstrated intere st 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 sp ending/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 2 nd and 3 rd 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 spen ding ACOs and a relatively lower benchmark for high growth, high spending ACOs. All else be ing equal, an ACO can more likely share in savings when its actual expenditures are judged ag ainst a higher, rather th an a lower benchmark. Thus, with a flat dollar increase to the benchm ark, 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 appro ach to updating the benchmark could contribute to selective program participation by participan ts in low growth areas, as well as result in Medicare costs due to an increase in the amount of perfor mance 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 am ount of growth in national pe r capita expenditures or the local/State projected absolute amount of growth in per capita expenditures. We explained our belief that this option could inst ill 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 th e 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 efficien cies, while still offering a strong incentive for those in high cost/high gr owth areas to reduce their spending. Commenters were mixed in their preferen ce 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/S tate 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 qual ity issues. However, another commenter favored this approach because this adjustment would afford ACOs the greatest potential for achieving shared savings and minimi ze the threat of an ACO being disadvantaged by virtue of pricing within its geographic locatio n. Along these lines, one commenter stated the proposed approach offered insufficient incentives fo r efficient providers to form an ACO. More generally, many commenters urged CMS to a dopt policies to encourage participation byCMS-1461-P SP 11/25/14 280

organizations that are already e fficient 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 pr ojected 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 th e 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 benc hmark for high growth/high spending ACOs. Further, with a flat dollar increas e 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 ab solute amount of gr owth in national FFS expenditures offers sufficient incentives for effi cient 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 comparab le ACO in a higher cost area. Moreover, we

stated we believed that a benc hmark 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 goa l of lowering Medicare expenditu res. 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 benchmar k. We stated that we believed this alignment could facilitateCMS-1461-P SP 11/25/14 281

analysis of trends in ACO financial perfor mance relative to national trends in Medicare expenditures. For these reasons, we finalized a po licy of using the flat dollar amount equivalent of the projected absolute am ount of growth in national FFS expenditures to update the

benchmark. In applying these policies for ACOs th at joined the program in 2012 and 2013, we observed that the national growth factors used to trend the histor ical benchmark were declining, highlighted by negative annual per capita expend iture growth in three of four Medicare eligibility categories in 2012. We also found during the firs t 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 rest ore the effect of sequestration on 2013 claim payments. These updates reflected th e slow or negative FFS growth environment due to a number of factors, including demogr aphic changes in program enrollment, low price updates for physician, skilled nursing, and other se rvices, and a broad decrease in inpatient

utilization. This resulted in AC Os having very low or even nega tive updates to their historical benchmarks. Recent projections estimate total Medi care 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 Progr am regulations addresses the circumstance under which an ACO adds or removes ACO partic ipants 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 scor es, and preliminary prospective assignment may be adjusted for this change at CMS' discreti on (§ 425.214(a)(3)). Subreg ulatory guidance furtherCMS-1461-P SP 11/25/14 282

describes our use of this discretion. S ee "Changes in ACO participants and ACO providers/suppliers during the Agre ement Period" available online athttp://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Updating-ACO-Part icipant-List.html. This guidance explains: After acceptance into the program and upon execution of the participation agreement with CMS, the ACO must certif y 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 Particip ant List certified by the ACO. The ACO must submit a new certified ACO Par ticipant List at the start of each new performance year. CMS will adjust the ACO's historical be nchmark 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 update d certified ACO Participant List to assign beneficiaries to the ACO in the be nchmark 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 hist orical benchmark upward or downward. We’ll use the new certified list of ACO pa rticipants 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 year s, we experienced a high volume of change requests from ACOs, both adding and removing AC O participants. For example, cumulatively ACOs with 2012 and 2013 start dates requested th e addition of over 2,800 ACO participants and removal of over 1,200 ACO participants. The AC O’s composition of ACO participant TINs is used to determine the ACO’s assigned beneficiar y population. Changes to an ACO’s participant list will result in changes to the ACO’s assigne d 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 th e historical benchmarks for 162 of 220 ACOs

with 2012 and 2013 start dates for their second performance year to reflect changes in ACOCMS-1461-P SP 11/25/14 283

participants. When an ACO adds new ACO par ticipants 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 forecas ting 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 prio r to the start of the ACO's agreement period) remains the same. For instance, if an ACO w ith an agreement start date of January 1, 2013, added ACO participants for its second performa nce year, then the adjustments made to the

historical benchmark to reflect the ACO's certif ied 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 AC O participant TINs that compose ACOs are relevant to determining beneficiary assignment across the progr am. 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 pr ofessionals billing under the TINs of ACO participants in other ACOs, indi vidual providers, or provider organizations). We perform the assignment process for ACOs simultaneously, incl uding all eligible organi zations. To determine where a beneficiary got the plural ity 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 charge s for primary care services provided by ACO participants in other ACOs and by non-ACO provi ders and suppliers. See "Medicare SharedCMS-1461-P SP 11/25/14 284

Savings Program: Shared Savings and Lo sses and Assignment Methodology Specifications"

available online at http://www.cms.gov/Medicar e/Medicare-Fee-for-ServicePayment/sharedsavingsprogram/Financi al-and-Assignment-Specifications.html . Therefore, in the case where a beneficiary is receiving prim ary 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 determin ing 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 AC O participant list changes: th e historical benchmark period remains constant, but beneficiary assignment re flects the influence of ACO participant list changes. Under this methodology, the historical benchmarks for ACOs w ith participant list changes from one performance year to the next c ontinue to reflect the AC Os' historical costs in

relation to their cu rrent 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 diffic ult to attain and eventually make savings unattainable by ACOs. Stakeholders have conti nued 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 dur ing 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.CMS-1461-P SP 11/25/14 285

During the initial rulemaking, commenters suggest ed 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 re set at the start of eac h agreement period, as required under section 1899( d)(1)(B)(ii) of the Act. In fina lizing this policy, we explained our belief that resetting the benchmark at the be ginning of each agreement period would most accurately account for changes in an ACO's bene ficiary population over time . We explained that because of turnover in an ACO's assigned bene ficiary population, by the end of the agreement period, an ACO's assigned population may be sign ificantly different from the historically assigned beneficiary population used to calculate the ACO's initial benchmark. Further, resetting the benchmark at the beginning of subsequent ag reement 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 commente rs' 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 belie f that one of the fundamental purposes of the Shared Savings Program is to provi de incentives for ACOs to strive continually to make further advances in the quality and effi ciency of the care they provide (76 FR 67916). Under § 425.602(c) of the rule, an ACO’s benc hmark would be reset at the start of its second or subsequent agreement period usi ng the same methodology for establishing the historical benchmark under § 425.602(a). The exis ting regulations do not sp ecify any alternative methodology for rebasing the benchmarks for ACOs that have completed one or more agreement periods in the Shared Savings Program. Fo r example, for an ACO with a January 2013 agreement start date that continues in the pr ogram for a second agreement period beginningCMS-1461-P SP 11/25/14 286

January 1, 2016, we would establish the ACO's hi storical benchmark for its second agreement period according to the methodol ogy set forth in § 425.602(a). In particular, we would compute the ACO's benchmark for its second agreement pe riod 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 AC O's historical benchmark for its second agreement period would be based on the histor ical years of 2013, 2014 and 2015. In resetting the benchmark, the time period for the benchm ark 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 be tween 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 perf ormance year of ACOs with 2012 and 2013 start dates. However, we anticipate that the tre nd 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 pe rformance year of the PGP Demonstr ation, two sites were eligibleCMS-1461-P SP 11/25/14 287

for shared savings payments. As the demonstr ation progressed, more PGP sites demonstrated savings. Over the course of the 5-year demons tration, 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 Saving s Program, the benchmarks used in the PGP demonstration were updated using regional factor s, 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 s ites were reset as they moved from the PGP

demonstration to the PGP Transition Demonstrat ion, 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 vol untary participation under these shared savings models, even though their be nchmarks would be reset under the applicable benchmarking methodology. Based on this experien ce, we conclude that these organizations must have believed there was a sufficient opport unity to share in savings as well as other strategic and competitive advantages to warrant th eir continued participation in a shared savings initiative, even under a rebased benchmark that reflected the cost savi ngs achieved by the site

under the PGP demonstration. However, while the PGP experience establishe s that the current approach to rebasing is consistent with continued partic ipation, at least in some cases , it is possible that additional organizations would have continued into the Pi oneer ACO Model or the Shared Savings Program under an alternative rebasing methodology. The PG P experience cannot rule out the possibilityCMS-1461-P SP 11/25/14 288

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’ Con cerns about Benchmarking Methodology Since the initial rulemaking, stakeholders ha ve continued to expre ss their concern that resetting ACO benchmarks at the start of each agreement period, as required under the existing methodology, may disadvantage ACOs, particularly t hose 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 pe riods, achieving savings could hypothetically be financially unattractive for ACOs in some ci rcumstances. Under the existing benchmarking methodology, an ACO that performs well in its first agreement period as a result of its effective strategies for lowering Medica re expenditures may have a si gnificantly 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 con cerned 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 e fficiencies (hence savings) when judged against decreasing benchmarks. Further, some stakeholders have expre ssed 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 perf ormance. In particular, some stakeholders voiced concerns about the low or negative updat e amounts used during first performance year reconciliation under the existing benchmarking methodology, and favor alternative approaches,CMS-1461-P SP 11/25/14 289

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 benchmar ks are set at a level ACOs perceive to be sufficient to make program par ticipation financially viable. We believe it is timely to consider these issues in the context of encouraging continued participation by ACOs in the program and c ontinued improvement in ACO performance, particularly as ACOs with 2012 and 2013 start dates begin to contemplate wh ether to continue in the program for a second agreement period. Fu rther, we believe there may be important interactions between the way in which the be nchmarks for ACOs are set in their initial agreement period and reset in th eir subsequent agreement periods and encouraging participation by ACOs in the program's two-si ded 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 perf ormance-based risk track. b. Factors to Use in Resetting ACO Benchmar ks and Alternative Benc hmarking Methodologies We considered whether modifying the me thodology used for establishing, updating, and resetting ACO benchmarks to account for factors rele vant to ACOs that have participated in the program for 3 or more years would help ensu re that the Shared Savings Program remains attractive to ACOs and continues to encourage AC Os to improve their performance, particularly those that have achieved shared savings. As di scussed later in this se ction, we considered a range of modifications to the benchmarki ng methodology in order to expand the methodology for resetting benchmarks to accoun t for factors relevant to con tinued participation by ACOs inCMS-1461-P SP 11/25/14 290

subsequent agreement periods and to increase incentives to achieve savings in a current agreement period, specifically: (1) equally weight ing the 3-benchmark years; (2) accounting for shared savings payments in benchmarks; (3) using regional FFS expenditures (as opposed to national FFS expenditures) to tre nd 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 relati ve 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 be nchmarks 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 modify ing 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 Medi care Trust Funds. Although we are not proposing any change s to our benchmarking methodology at this time, we are seeking comment on these alternativ es for how we approach establishing, updating and resetting benchmarks, as well as suggestions regarding alternative a pproaches 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 underCMS-1461-P SP 11/25/14 291

section 1899(i)(3) of the Act to adopt alternate payment models mu st 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 benc hmarks 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 th e November 2011 final rule (76 FR 67915), this weighting helps ensure that the benchmark reflec ts more accurately the latest expenditures and

health status of the ACO's assi gned beneficiary populat ion. We indicated th at giving BY3 the greatest weight would most accurate ly reflect recent cost trends for the Medicare beneficiaries who receive the plurality of thei r 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 expend itures for beneficiaries that w ould 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 agreem ent period (§ 425.602(a)). Therefore, an ACO's benchmark under a second or subsequent agreemen t period will reflect, to some degree, its previous performance under the program. For ex ample, 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 we re 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 (per formance year 2) and BY3 will be based on assignment for CY 2015 (performance year 3). We note, however, that a number of factors willCMS-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 correspondi ng 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 fo r the purpose of resetting the ACO's benchmark for the next agreement period, leading to change s in the ACO's assigned beneficiary population for purposes of establishing its benchmark for th e new agreement period. The impact of these kinds of changes in the assigned beneficiary pop ulation between the performance year and the time the benchmark is established for a subseque nt agreement is uncertain, and could result in either upward or downward adjustments to e xpenditures for purposes of establishing the

benchmark. Among ACOs whose assigned beneficiary popul ations 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 th ese assigned beneficiarie s. 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 a ll three performance years. This hypothesis is supported by following factors:CMS-1461-P SP 11/25/14 293

● 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 ga in 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 ma nagement 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 th e 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 fo r 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 methodol ogy for weighting the benchmark years when resetting benchmarks could reduc e the incentive for ACOs that ge nerate 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 thei r 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 duri ng 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 benc hmark 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 be nchmark 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 populat ion during the three pe rformance 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 prot ective of the Trust Funds, sinc e it may not sufficiently account for an ACO's most recent historical cost experien ce, 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 benefici ary population in the subsequent agreement period is significantly di fferent from the beneficiary population in the early years of its prior ag reement 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 Savi ngs Payments in Benchmarks We also considered revising the methodology for resetting ACO benchmarks to account for shared savings earned by an ACO in its pr ior 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 wei ghting the benchmark years disc ussed above, accounting for anCMS-1461-P SP 11/25/14 295

ACO's shared savings during its prior agreem ent period would more gradually lower the benchmarks of ACOs that perform we ll 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 expenditu res for parts A and B

services for Medicare fee-for-ser vice beneficiaries assigned to th e ACO." This provision of the Act further specifies: "Such benchmark shall be ad justed for beneficiary characteristics and such other factors as the Secretary determines a ppropriate." 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 assi gned Medicare fee-for-s ervice beneficiaries, including payments made under a demonstration, pilot or time limited program when computing average per capita Medicare expenditures under th e 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 Me dicare Trust Funds for th e beneficiary population assigned to an ACO and are inte nded to recognize th e costs incurred by the ACO and its ACO participants and ACO providers/suppliers in co ordinating care and improving the quality of care for the assigned beneficiaries. Accordingly, we are considering whether it would be appropriate to revise our methodology unde r § 425.602(a)(1) for establishing an ACO's benchmark to incorporate the ACO's share of savings for thos e 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 beenCMS-1461-P SP 11/25/14 296

truncated and annualized and weighted by the propor tion of assigned beneficiaries in each of the four Medicare enrollment types: ESRD, disabled, aged/dual and aged/non-dua l. For instance, we could develop a per-benefic iary 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 assigne d population for the corresponding benchmark year. We also considered whether to make a symmetric adjustme nt in benchmarks for ACOs that owed losses in a previous agreement period. We believe there are merits to upwardly ad justing benchmarks for ACOs in a second or subsequent agreement period to reflect any shar ed 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 quali ty 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 st akeholders (described previously) that under the existing benchmarking methodology achieving savings may so metimes be financially unattractive for ACOs because of the potential impact on their benchmarks in future agreement periods. There are clear advantages of this adjustme nt for ACOs and the Medicare program. In particular, ACOs would have an increased incentive to continue to genera te shared savings and improve quality because of the prospect of having a higher benchmark in future agreement periods. Consequently, ACOs may demonstr ate 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 duringCMS-1461-P SP 11/25/14 297

one agreement period may improve their potentia l to receive shared savings in the next agreement period. Other implications of this adju stment 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 agreem ent 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 expe nditures by an amount th at did not meet or exceed their MSR, and ACOs that generated savings outside their MSRs, but that failed to satisfy the quality reporting standard, woul d not receive the adjustment.

● Availability of performance data relati ve 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 pe rformance 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 historic al benchmark for its first perform ance year during its subsequent agreement period. (3) Use of Regional Factors (as Opposed to National Factors) in Establishing and Updating

Benchmarks

Some stakeholders have e xpressed concern that the ex isting benchmarking methodology does not sufficiently account for the influence of co st trends in the surrounding region or local market on the ACO's financial pe rformance. We considered a ddressing these concerns by using regional FFS expenditures, instead of national F FS expenditures, to trend forward the most recent 3 years of per beneficiary expenditures for Pa rts A and B services in order to establish theCMS-1461-P SP 11/25/14 298

historical benchmark for each ACO under section 1899( d)(1)(B)(ii) of the Act. In addition, we considered making this modification in combin ation with an alternative payment model under section 1899(i)(3) of the Act under which we w ould use regional FFS expenditures, instead of national FFS expenditures, to update the benc hmark for each performance year during an agreement period. We also considered other appr oaches to address this concern, as discussed later in this section describing al ternative benchmar king methodologies. In considering how to establish and update benchmarks based on regional factors, we favor use of an approach similar to the me thod for updating benchmarks used under the PGP demonstration, which has been tested and valid ated with physician gr oups across the country, including groups in rural, urban and suburban area s. Under this approac h, much of the Shared Savings Program's existing benchmarking methodology would remain the same. Instead of using national Medicare FFS expenditu re data to trend expenditures in establishing the historical benchmark (§ 425.602(a)(5)) and to update th e benchmark for each performance year (§ 425.602(b)(1)), we would use regional FFS expenditu re data to make these adjustments. We would calculate the ACO's regional expenditure tr end and update factors according to the cost experience of a reference population. Specifical ly, 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 wa s calculated and used as the growth rate for updating the PGP's benchmark. Specifically, we used each PG P's annual assigned beneficiary population to

determine the PGP's service area. A PGP's serv ice area was defined as all counties where one percent or more of assigned PG P beneficiaries reside. We iden tified which beneficiaries residing in each service area met the comparison group assi gnment criteria and assigned them to the PGP comparison group. The service area and comparis on group for the PGP were re-determined eachCMS-1461-P SP 11/25/14 299

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 perfor mance 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 demo nstration, 7 of 10 sites were eligible for shared savings payments in one or more performance years. Taking these

factors into consideratio n, 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 be neficiaries in all compar ison group counties. For example, for an ACO in a rural or suburban coun ty near a large metropolit an area: on a weighted basis, the large metropolitan area would contri bute 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 significantl y 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 comparis on 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-repr esentative compared to the ACO’s patient population. These factors would seem to support the use of a minimum sample size threshold.CMS-1461-P SP 11/25/14 300

Based on statistical modeling for an effective sa mple 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 market s where the ACO’s assigned beneficiaries represent a substantial sh are (for example, more than 40 perc ent) of Medicare FFS beneficiaries, should the region be expanded—perhaps to in clude the entire corre sponding metropolitan statistical area (MSA), hospital referral region (HRR), or another region al grouping approach? Similarly, in markets where multiple ACOs represent a substantial share (for example, more than 50 percent) of Medicare FFS benefi ciaries, 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 agreem ent period, since over the course of the agreement the counties where one percent or more of assigned ACO benefici aries reside may fluctuat e (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 addr ess the concerns described previously. For example, some stakeholders have suggested th at 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 bene ficiary spending constant relative to its local market so that improvements in efficiency th at the ACO achieved during an agreement period

would not lower its benchmark for a subsequent agreement period.CMS-1461-P SP 11/25/14 301

Accordingly, we considered using the aut hority under section 1899( i)(3) of the Act to establish an approach to resetting an ACO’s be nchmark 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, th e trend in regional costs would be calculated using an approach based on the PGP demonstrat ion, described previously , and the historical benchmark would be updated by increasing it by a per centage equal to the pe rcentage increase in regional costs. This approach would prev ent an ACO’s improved efficiency during an agreement period from lowering its benchmark in a future agreement period. We also considered a similar approach th at would use informati on regarding the ACO’s historical costs under its first ag reement period to adjust region al FFS benchmarks developed for future agreement periods by developing a scaling f actor. The scaling fact or could be calculated as the ratio of-- (1) an ACO’s historical benc hmark 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 th e 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 differe nce originally exhibited between the ACO expenditures and the regional FFS benchmark expend itures in the year prio r to the beginning of the ACO’s first agreement period. The regi onal FFS benchmark for an ACO in a given performance year would be computed using an approach based on the PGP demonstrationCMS-1461-P SP 11/25/14 302

described above. For example, if the ACO’s a ssigned beneficiaries expenditures were 10 percent higher than what its regional FFS be nchmark 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 thos e described in the previ ous paragraph and thus

have a similar effect on an ACO’s incentives to improve efficiency. Under both of these approaches, we consid ered 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 adjustme nts off our current method of adjusting the benchmark on an annual basis to reflect ACO par ticipant changes. Unde r the second approach, we considered an adjustment method to refl ect 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 si milar to our existing me thod for adjusting the ACO’s benchmark during the course of its agr eement 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 initia l historical benchmark or scaling f actor using cost information from the benchmark period corresponding to the ACO’s initial agreemen t period. This approach hasCMS-1461-P SP 11/25/14 303

the advantage that it is similar to the appro ach we have used successfully to adjust ACO benchmarks within an agreement period in res ponse to changes in ACO participant lists. However, we recognize that not all ACO particip ants joining the ACO in subsequent agreement periods may have historical claims data during th e 3 years prior to the start of the ACO’s first agreement period. Therefore, we considered th e need to expand this approach to include adjustments to the benchmark or scaling factor to account for ACO par ticipant list changes. Second, we considered an approach that w ould adjust an ACO’s benchmark (or scaling factor) after each a nnual change in the ACO par ticipant list based on the re lative 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 m easured during a period im mediately preceding the change in the ACO participan t 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. Th erefore, under this alternative approach, we would develop a methodology for associating assigned be neficiary costs to individual ACO participant TINs that continue in the program so as not to incorporate updated cost information for the patient populations associ ated 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 part icipant TINs that were not active during the ACO’s initial agreement period. However, this approach could be more complicated toCMS-1461-P SP 11/25/14 304

implement and could reintroduce a limited ability for ACOs to influence future benchmarks through current decisions. A potential disadvantage of approaches thatdetermine benchmarks by holding an ACO’s

costs constant relative to its re gion is that future benchmarks ar e influenced to a large degree by holding the cost experience for the AC O 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 popula tions assigned to the ACO in future agreement periods. By holding costs stat ic for existing ACO partic ipants, there would be

incentives for successful ACOs to continue to participate in the progr am (with the same ACO participant composition) against more favorab le benchmarks. Moreover, some ACOs may “shop” for a particularly advantageous benchmar k, for instance by delaying program entry, and only improving their expenditure and utilization tr ends in later years. As a result, these approaches might continue to yi eld 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 re setting 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 be nchmark according to regional FFS costs based on the PGP demonstration approach de scribed above, we would need to determine what criteria to use in establishing the comparison group. Fu rther, 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 modifie d, in this case to account for changes in each ACO’s risk profile relative to th e risk profile of its regional co mparison population. The types ofCMS-1461-P SP 11/25/14 305

approaches described in this se ction would require use of our au thority under se ction 1899(i)(3) of the Act because we would be deviating from the requirement at sect ion 1899(d)(1)(B)(ii) of

the Act that the benchmark be reset at the st art of each agreement pe riod. 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 beneficiar ies that were assigned to the ACO during the preceding agreement period. (5) Alternative Benchmark Methodology: Tr ansitioning ACOs to Benchmarks based only on Regional FFS Costs Over the Course of Multiple Agreement Periods We also considered using our authority unde r section 1899(i)(3) of the Act to transition

ACOs from benchmarks based on their histor ical 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 de pending on the historical expenditures for the

beneficiaries that receive care fr om the ACO participants in e ach 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 traditi onally 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 shar ed savings by bringing costs down compared to their historical cost perf ormance. ACOs with historically low costs may be less likely to enter and continue in the program because of thei r perceived difficulty in further reducing their assigned benefici aries’ costs relative to a benchmark based on their assigned beneficiaries populations' past experiences. However, as noted previously, the current benchmarking methodology may provide additional oppor tunity for increased shared savings forCMS-1461-P SP 11/25/14 306

ACOs with low costs relative to the national average th rough the use of a flat dollar update for growth in national FFS expend itures, assuming program expe nditure trends return to historically-familiar positive rate s as compared to the unusually low growth experienced in the first several year s of the program. Under this alternative appro ach, over the course of several agreement periods, we would transition to using regional FFS co st data to make ACO benchmar ks 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 mark et. 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 th e calculation of regional FFS costs and the definition of an ACO's region w ould require careful cons ideration 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 w ould 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 de termination 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 AC O-specific benchmarks based on each ACO’s historical costs to benchmarks based on regi onal FFS spending may be at tractive to low-costCMS-1461-P SP 11/25/14 307

ACOs in high-cost regions because they would li kely 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 AC Os in low-cost regions may find a regional benchmark unattractive because they would be requi red to create new efficiencies to fully offset their higher costs relativ e to their region in order to show savings under the benchmark. To mitigate the cost of any resulting selective part icipation by favored low-cost ACOs in high cost regions we considered whether a benchmark tr ansition process could be employed over a number of agreement periods involving a gradual sh ift 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 th e regional FFS benchmark is gradually increased over several agreement periods). Using regiona l FFS spending to establish benchmarks could reward low-cost, high-quality ACOs, and fu rther encourage them to attract more ACO participants and Medicare FFS bene ficiaries over the course of time. We would also expect that a gradual transition may at least initially mainta in an incentive for existi ng ACOs with high costs relative to their region to remain in the progr am 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 th ey transition to a benchmark based on regional FFS spending, these ACOs' benchmarks would likely decline (giv en the overall experience of the market), encouraging these ACOs to continue to reduce th eir costs, while mainta ining 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 be nchmark would result in selective participation regardless of how the transition is performed. For instance, an ACO that perceives its patientCMS-1461-P SP 11/25/14 308

population as having high relative costs may pe rceive 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 popula tion, 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 re presentative of the ACO’s assigned patient population, particularly in the ca ses where ACOs make up a signifi cant portion of their regional

market. We also considered whether the risk adju stment methodology would need to be modified to account for changes in the ri sk profile of the regional popul ation rather than the national population. For instance, it may be necessary to a ccount 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 th e four Medicare enrollment type s (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.CMS-1461-P SP 11/25/14 309

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 ma naging changes to ACO participants during the agreement period. We also considered the pace for trans itioning ACOs from ACO-specific to regional benchmarks, including th e 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 perfor mance during a prior agreement period in determining the pace of its tran sition to regional FFS benchmarks. For example, should we delay downward adjustments to an ACO's benchmar k if the ACO fails to achieve shared savings.

● Whether to consider the ACO's histori cal costs, relative to regional Medicare FFS average per capita costs, in de termining the pace of its transi tion to regional FFS benchmarks. For example, should low-cost ACOs (those be low 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 me thodology 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 cost s) 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 approachesCMS-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 Altern atives 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 appro aches, as opposed to any one approach. Specifically, we considered revising the methodol ogy for resetting ACO benchmarks by equally weighting the three benchmark years, and/or ac counting for shared savings payments received by an ACO in its prior agreement period, and/or us ing regional FFS expenditure s instead of national FFS expenditures in establishing and updating the benchmark. We also considered and seek comment on revising the benchmarking methodol ogy more broadly, shifting either to a methodology that resets ACOs’ benchmarks betw een 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 cost s toward benchmarks based only on regional FFS costs, potentially in combination with some or a ll 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 envisi oned that the revisions in the benchmarking methodology under section 1899(d)(1)(B)(ii) of the Ac t. (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 wh en resetting the benchmarks for all ACOs,CMS-1461-P SP 11/25/14 311

regardless of the model they pa rticipate under (Tracks 1, 2, and 3) . We envisioned applying the approaches requiring use of our authority und er 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 ensu ring the program remains sustainable over time, and we e nvision ACOs would be transitioning to the performance-based risk models over time, specifically given our pr oposal to limit the number of agreement periods

an ACO can remain under Track 1. We also co nsidered and seek comment on applying these alternative benchmarking methodologies more broadl y, specifically to all ACOs participating in a risk-based model (Tracks 2 and 3), or to a ll ACO financial models (Tracks 1, 2, and 3).

● Whether to use regional FFS expenditure s instead of national FFS expenditures in establishing and updating the benchmark and/or a methodology for transitioning ACOs from

benchmarks based on their histor ical costs toward benchmarks based only on regional FFS costs only when resetting ACO benchmarks under thei r second or subsequent agreement period, or when establishing the benchmark for all particip ating ACOs (regardless of agreement start date) the next full performance year afte r 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 benchmar k 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 par ticular we welcome comments on the criteria we described previous ly and welcome commenters’ sugge stions for different criteria.

● We believe the concerns about risk adjustme nt raised in this sec tion in the context of the alternative benchmarking methodology for es tablishing, updating and/or transitioning fromCMS-1461-P SP 11/25/14 312

ACO-specific benchmarks to regionally based be nchmarks are also relevant to the approach where we would use regional FFS expenditures (a s 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 regiona l normalization or coding intensity adjustments to guard against regional or othe r coding differences that may aff ect 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 a lternative benchmark methodology; as well as

considerations or concerns not described; and suggestions fo r 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 pa rticipation by existing low-cost and high-cost

ACOs. We also request commenters' input on alte rnatives not describe d here for resetting benchmarks to encourage ongoing participation by ACOs who perform well in the program and are successful in reducing expenditures for thei r assigned beneficiaries. We seek comment on whether these alterative benchmarking approach es would have unintended consequences for ACO participation in the program, for the Me dicare Trust Funds, or for Medicare FFS

beneficiaries. We intend to carefully review any comments th at 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.CMS-1461-P SP 11/25/14 313

7. Seeking Comment on Technical Adjustment s 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 adjust ments 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 th at taking into consideration payment changes could affect ACOs' financial performance and their ability to r ealize 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 variou s differences in payment rates among providers and suppliers. We explained that while secti on 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 expe nditures, 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 pe rformance could adversely affect the care of beneficiaries byCMS-1461-P SP 11/25/14 314

creating an incentive for ACOs to avoid making appr opriate referrals to t eaching 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 agen cy "determines will improve the quality and efficiency of items and services" furnished under Medicare. Specifically we considered whether it would be appropriate to use th is authority to include an ad justment 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 th at 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 u tilization of healthcare services, rather than decreases arising from changes in referral pattern s. In addition, we belie ved that excluding these payments from our financial calculations woul d help to ensure par ticipation in ACOs by hospitals that receive these payments. Taken in combination, we belie ved these factors could result in Medicare beneficiaries receiving hi gher 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 wo uld result in greater payments to ACOs thanCMS-1461-P SP 11/25/14 315

would otherwise have been made. We also found that excl uding these amounts was operationally feasible since they are included in separate fields on claims allowing them to be more easily excluded from financia l calculations than certain othe r payments that are included on Part A and B claims. Therefore, we finali zed a policy of excluding IME and DSH payments from both the benchmark and performance year e xpenditure calculations. We stated that we

intended to monitor this issue a nd 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 allevi ate concerns resulting from changes in the Medicare payment systems. However, in light of the numerous payment adjustments included throughout th e Medicare payment systems, we were concerned about the complexity resulting from standardizing pa yments and whether standardized payment information would provide meaningful and consis tent 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 comme nters 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 IP PS 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 cost s of providing care in different areas of the country. We further noted that there have been a number of temporary le gislative adjustments toCMS-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 adjustment s could result in changes being made during an ACO's agreement period and between the benc hmark 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 St ates policy adjustment. Some commenters, however, expressed concerns that variations in cost growth acro ss 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 mark ets but not in others. Others suggested that inclusion of these geographic payment adjustme nts could have unintended consequences for referral patterns by ACOs, such as driving referral s based on geographic wage adjustments rather than performance. Yet others were genera lly concerned that making geographic payment adjustments would disproportionate ly 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 a nd inconsistent picture of ACO spending and may limit innovations in ACOs' redesign of care proce sses or cost reduction strategi es (76 FR 67920). Unlike theCMS-1461-P SP 11/25/14 317

IME/DSH adjustments, we stated we did not be lieve these other payment adjustments that are made to Part A and B payments (such as geogr aphic payment adjustments) would result in a significant incentive to steer patients away from pa rticular hospitals or providers since an ACO's financial performance would be compared to its own historical expe nditure 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 consideratio n certain payment change s 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 stakehol ders have some experience with our policies, we are interested in seeking fu rther comment from stakeholders on this issue that we could potentially consider in future rulemaking. We ar e particularly interested in comments regarding standardization of payments, including which elem ents 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 318TABLE 7. SHARED SAVINGS FINANCIAL MODEL OVERVIEWTrack 1; One-Sided RiskModel Tracks 2 and 3:Two-Sided Risk ModelsIssue Current Proposed Current Track 2 ProposedTrack 2Proposed Track 3Transition to TwoSided ModelFirst agreementperiod under onesided model.Subsequentagreement periodsunder two-sidedmodelRemoverequirementto transition totwo-sidedmodel for asecondagreementperiod.ACOs may electTrack 2 withoutcompleting a prioragreement periodunder a one-sidedmodel. Onceelected, ACOscannot go intoTrack 1 forsubsequentagreement periods.No change Same as Track 2Assignment Preliminaryprospectiveassignment forreports; retrospectiveassignment forfinancialreconciliationNo change Preliminaryprospectiveassignment forreports;retrospectiveassignment forfinancialreconciliationNo change Prospectiveassignment for reportsand financialreconciliationBenchmark Reset at the start ofeach agreementperiodSeekingcomment onalternativemethodologySame as Track 1 Seekingcomment onalternativemethodologySame as Tracks 1 and2 and seekingcomment onalternativemethodologyCMS-1461-P SP 11/25/14 319Track 1; One-Sided RiskModel Tracks 2 and 3:Two-Sided Risk ModelsIssue Current Proposed Current Track 2 ProposedTrack 2Proposed Track 3Adjustments forhealth status anddemographicchangesHistoricalbenchmarkexpendituresadjusted based onCMS-HCC model.Updated historicalbenchmark adjustedrelative to the riskprofile of theperformance year.Performance year:newly assignedbeneficiariesadjusted using CMSHCC model;continuouslyassignedbeneficiariesadjusted usingdemographic factorsalone unless CMSHCC risk scoresresult in a lower riskscore.No change Same as Track 1. No change Same as Tracks 1 and2.CMS-1461-P SP 11/25/14 320Track 1; One-Sided RiskModel Tracks 2 and 3:Two-Sided Risk ModelsIssue Current Proposed Current Track 2 ProposedTrack 2Proposed Track 3Adjustments forIME and DSHIME and DSHexcluded frombenchmark andperformance yearexpenditures.No change Same as Track 1 No change Same as Tracks 1 and2Other paymentadjustmentsInclude otherpayment adjustmentsincluded in Part Aand B claims suchas, geographicpayment adjustmentsand HVBPpayments, inbenchmark andperformance yearexpendituresSeekingcomment onothertechnicaladjustmentsSame as Track 1 Seekingcomment onothertechnicaladjustmentsSame as Tracks 1 and2CMS-1461-P SP 11/25/14 321Track 1; One-Sided RiskModel Tracks 2 and 3:Two-Sided Risk ModelsIssue Current Proposed Current Track 2 ProposedTrack 2Proposed Track 3Quality Sharing Rate Up to 50 percentbased on qualityperformanceUp to 50percent basedon qualityperformancefor firstagreementperiod,reduced by 10percentagepoints foreachsubsequentagreementperiod underthe one-sidedmodelUp to 60 percentbased on qualityperformanceNo change Up to 75 percentbased on qualityperformanceMinimum SavingsRate2.0 percent to 3.9percent dependingon number ofassignedbeneficiaries.No change Fixed 2.0 percent 2.0 percentto 3.9percentdependingon numberof assignedbeneficiariesFixed 2.0 percentCMS-1461-P SP 11/25/14 322Track 1; One-Sided RiskModel Tracks 2 and 3:Two-Sided Risk ModelsIssue Current Proposed Current Track 2 ProposedTrack 2Proposed Track 3Minimum Loss Rate Not applicable Nochange Fixed 2.0 percent 2.0 percentto 3.9percentdependingon numberof assignedbeneficiariesFixed 2.0 percentPerformancePayment Limit10 percent No change 15 percent No change 20 percentShared Savings First dollar sharingonce MSR is met orexceeded.No change Same as Track 1. No change Same as Tracks 1 and2.Shared Loss Rate Not applicable No change One minus finalsharing rate appliedto first dollar lossesonce minimum lossrate is met orexceeded; sharedloss rate not toexceed 60 percentNo change One minus finalsharing rate applied tofirst dollar losses onceminimum loss rate ismet or exceeded;shared loss rate maynot be less than 40percent or exceed 75percentCMS-1461-P SP 11/25/14 323Track 1; One-Sided RiskModel Tracks 2 and 3:Two-Sided Risk ModelsIssue Current Proposed Current Track 2 ProposedTrack 2Proposed Track 3Loss Sharing Limit Not applicable No change Limit on theamount of losses tobe shared in phasesin over 3-yearsstarting at 5 percentin year 1; 7.5percent in year 2;and 10 percent inyear 3 and anysubsequent year.Losses in excess ofthe annual limitwould not beshared.No change 15 percent. Losses inexcess of the annuallimit would not beshared.CMS-1461-P SP 11/25/14 324 G. Additional Program Requireme nts and Beneficiary Protections 1. Background Section 1899(a)(1)(A) of the Act authorizes the Secretar y 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 finali zed policies regarding how ACOs will be monitored with respect to program requirement s and what actions will be taken against ACOs that are not in compliance with the re quirements of the Shared Savings Program. Based on our initial experience with the Shared Savings Program, we propose several

refinements and clarifica tions to our policies on—

● Public reporting (§ 425.308);

● Termination of the particip ation agreement (§§ 425.218 and 425.220);

● Enforcement of ACO compliance w ith quality performance standards (§ 425.316(c)); and

● Reconsideration review pr ocedures (§§ 425.802 and 425.804)). 2. Public Reporting and Transparency

a. Overview

Section 1899 of the Act sets forth a numb er 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 pati ent engagement and transparency. Increasingly, transparency of information in th e health care sector is seen as a means to help patients become more active in their he alth care choices and to generate feedback that may improve the quality of care and lower the cost of care. In addition, transparencyCMS-1461-P SP 11/25/14 325 may improve oversight and program integrit y. 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 c ontribute 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 requi rements specified at § 425.308 that ACOs must make certain information publicly ava ilable. 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). Fo r purposes of the Shared Savings Program, each ACO is currently required at § 425.308 to publicly report certain organizational information (such as the identificatio n of ACO participants and governing body members), the amount of any shared savings or shared losses incu rred, the proportion of shared savings invested in resources that support the three-part ai m and certain quality performance information. (Specifically, ACOs are required to repor t the results of the claims-based quality measures while CM S will report the CAHPS and GPRO measure results on Physician Compare.) We recommen d 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-fo r-Service-Payment/sharedsavingsprogram /Statutes_Regulations_Guidance.html. Our guidance recommended that ACOs report the required information on a website that complie s with the marketing requirements set forth at § 425.310. Because webpages used to public ly 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 particip ant 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 transpar ency 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 in itial 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 re flect these new requirements. In § 425.308(a), we propose to require that each ACO maintain a dedicated webpage on which the ACO must publicly re port 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 a nd 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 inform ation uniformly. This would minimize the compliance burden on ACOs, enhance transpar ency 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 in formation 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 repor ting 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 revi ew and approval under § 425.310. ACOs should keep in mind that although information reporte d 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 th is information publicly available. First, using a template would improve the useful ness of this information for the public by standardizing the way the info rmation is made available across ACOs. Second, using a template would minimize the compliance burde n on ACOs by ensuring the information is reported in the way we intend. Finally, the us e 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 pa rt of the public reporting requi rements. ACOs are already required to identify the members of thei r 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 administra tive leadership is an eligib ility requirement for program participation, we believe that requiring the ACO to publicly report its clinical andCMS-1461-P SP 11/25/14 329 administrative leadership would lend additiona l 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 AC O 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 prac tices of ACO professionals.

● Partnerships or joint venture ar rangements 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 pu blicly report the types of ACO participants or combinations of ACO participants, as listed in § 425.102(a),

that form the ACO. Stakeholders have re quested information about the composition of ACOs. Providing the types and combinati ons 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 pos t 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 comm ents 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 transp arency, 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 add ition to information we already post on our website and Physician Compare, we pr opose at § 425.308(d) to post ACO-specific information, including information the AC O is required to pu blicly report under § 425.308, as is necessary to support program goals and transparency. We solicitCMS-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 fo r future use. We intend to continue reporting ACO quality measure performance on Physician Compare in the same way as for group practi ces 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 requir ements 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 particip ation 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 ot her 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 in terim 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 immediat ely 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 term inate its participation agreement. Such an ACO is required to provide CMS and all of its ACO partic ipants with a 60-day

advance written notice of its d ecision to terminate its participation in the Shared Savings Program. An ACO is not required to notif y 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 perfor mance year during which it notifies CMS of its decision to terminate the participation ag reement (§ 425.220(b)). This is because an ACO that terminates its participation agr eement 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 re gulations 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 pro cedures upon termination and nonrenewal. Finally, we propose to address in ne w § 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 comp ly with CMS requests for submission ofCMS-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 specifi ed due date is im portant for program operations. For example, we require each AC O 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 a nd information to the best of his or her knowledge and belief. However, circumstan ces 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 CM S 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 submi ssion of false or fraudulent data. We noteCMS-1461-P SP 11/25/14 334 that ACOs are obligated to repay shared savi ngs 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 addre ss close-out procedures and payment consequences of early termination. First, we believe it is importa nt to establish an orderly close-out process wh en an ACO's participation agreement is terminated. Therefore, we are proposing in § 425.221(a) that an ACO whose pa rticipation agreement is terminated prior to its expiration e ither 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 issu es such as data de struction, beneficiary notification issues (for exam ple removal of marketing materials and ensuring beneficiary care is not interrupted), compliance with qua lity 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 addres s 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 theCMS-1461-P SP 11/25/14 335 performance year during which it notifies CMS of its decision to terminate the participation agreement. However, stakehol ders 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 provi ders/suppliers, and to CMS. Specifically, stakeholders have suggested th at 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). Add itionally, by completing quality reporting as part of the close-out process, the ACO par ticipants 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 th e ACO under § 425.220 to qualify for shared savings, if—

● The effective date of term ination is December 31; and

● By a date specified by CMS, it co mpletes its close-out process for the performance year in which the termination becomes effective. In order to effectively manage this opti on in the case of voluntary termination, the ACO must specify in its termination noti ce, and CMS must a pprove, a termination

effective date of December 31 for the curre nt performance year. Because the proposed new provision at § 425.221 will address the cons equences of termination, including theCMS-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 paym ent 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 participa tion 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 perfor mance 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 Savi ng Program is a pre-requisite for sharing in savings (see §§ 425.604(c) and 425.606(c)). In su ch 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 provi ders/suppliers are not undul y penalized by the ACO's decision. However, even if the ACO comple tes quality reporting on behalf of its ACO participants and ACO provider/ suppliers, if the ACO terminat es 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 satisf ied all requirements for sharing in savings for that performance year. (3) Reconsideration Review Process (A) OverviewCMS-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 admini strative or judicial review (see section 1899(g) of the Act). Specifi cally, the following determina tions are not subject to administrative or judicial review:

● The specification of quality and pe rformance 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 fo r beneficiaries assi gned to the ACO and the average benchmark for the ACO).

● The percent of shared savings specifi ed 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 failu re to meet the quality performance

standards. Initial determinations that are not preclude d from administrative or judicial review would include the denial of an ACO applica tion 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 request ing reconsideration review byCMS-1461-P SP 11/25/14 338 a CMS official. The request for review mu st be submitted for receipt by CMS within 15 days of the notice of the initial determination. Sec tion 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 submitte d 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-reco rd reviews. We believe th at 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 narro w 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. A dditionally, we propose to similarly modify § 425.804 and also clarify that the reconsider ation process allows both ACOs and CMS to submit one brief each in support of its pos ition 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 requiredCMS-1461-P SP 11/25/14 339 actions the ACO must perform if it fails to repo rt one or more quality measures or fails to report completely and accurately on all m easures 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 no tice to resubmit. The actions identified in § 425.316(c)(3) and (4) include request for missi ng 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 re gulations, we propose to modify § 425.316(c) to remove § 425.316(c)(3) and (c)(4). In addition, we propose a technical cha nge 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 performa nce measures." We propose to redesignate this paragraph as § 425.316(c)(3 ) and replace "fully and co mpletely" 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 Afford able Care Act, Chapter 35 of title 44, United States Code, shall not apply to the Sh ared 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 CommentsCMS-1461-P SP 11/25/14 340 Because of the large number of public comments we normally receive on Federal Register documents, we are not able to acknowle dge or respond to them individually. We will consider all comments we receive by th e 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 establis hed under section 1899 of the Act. The Shared Savings Program promotes accountab ility for a patient population, coordinates items and services under parts A and B, and en courages investment in infrastructure and redesigned care processes for high quali ty 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 (Sep tember 30, 1993), Executive Order 13563 on Improving Regulation and Re gulatory 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 agenci es to assess all costs and benefits of available regulatory alterna tives and, if regulation is n ecessary, to select regulatory approaches that maximize net benefits (inc luding potential economi c, environmental, public health and safety effects, distributiv e impacts, and equity). Section 3(f) of Executive Order 12866 defines a "sig nificant regulatory action" as an action that is likely to result in a rule: (1) having an annual e ffect on the economy of $100 million or more in any 1 year, or adversely and materially aff ecting a sector of th e economy, productivity,CMS-1461-P SP 11/25/14 342 competition, jobs, the environment, public hea lth or safety, or stat e, local or tribal governments or communities (also referred to as "economically significant"); (2) creating a serious inconsistency or otherwise interf ering with an action taken or planned by another agency; (3) materially altering the budg etary impacts of entitlement grants, user fees, or loan programs or the rights and obliga tions of recipients th ereof; or (4) raising novel legal or policy issues arising out of lega l 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 significan t" as measured by the $100 million threshold, and hence also a major rule under the Congre ssional 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 volunt ary 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 Shar ed Savings Program could result in a range of possible outcomes. In previous ru lemaking (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.CMS-1461-P SP 11/25/14 343 Conversely, if in that first ag reement period, ACOs come to re liably predict a bias that

ensures an outcome – whether favorable or unf avorable – the program would be at risk for increasingly selective participation from favored ACOs and any real program savings could be overwhelmed by outsized shared-s avings payments (76 FR 67964). Further, even ACOs that opt for a two-sided arra ngement could eventually terminate their agreements if they anticipate that efforts to improve efficiency ar e overshadowed by their particular market circumstances. This scenario could also contribute to selective program participation by ACOs favored by the national flat-dollar growth ta rget, or favored by other unforeseen biases affecting performance. However, as we indicated in the prev ious rulemaking, even with the optional liability for a portion of exce ss expenditures, which offers less incentive to reduce costs than a model involving full capitation, the oppor tunity 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 lo sses) will have varying degrees of influence on hospitals, primary care physicians, specia lty physicians, and other providers and suppliers. Moreover, while certain care im provements 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 organizati ons care for nearly 5 million assigned FFS beneficiaries living in 47 states, plus Puerto Rico and the Dist rict of Columbia. Half ofCMS-1461-P SP 11/25/14 344

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 perf ormance 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 firs t performance year. They held spending $705 million below their targets and earned shar ed 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 quali ty 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 w ould raise questions a bout 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 par ticipation 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.CMS-1461-P SP 11/25/14 345 First, as is currently the case, an ACO w ould be able to appl y to participate in Track 1 for its initial agreement period dur ing which the ACO could be eligible for shared savings payments in all 3 performan ce 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 requiri ng 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 sh ared-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. Sp ecifically, in this proposed rule, we are proposing that Track 1 ACOs may elect to continue participati on under Track 1 for a subsequent agreement period, albeit with a lo wer sharing rate, provided that they meet the eligibility requirements to con tinue in the program under Track 1. Second, we are proposing to reduce the cu rrent 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 ag reement years if annual expenditures exceed the benchmark. Specifically, in this propos ed rule, we are proposing to replace the current flat 2 percent MSR and MLR under Tr ack 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. Simila rly, we are proposing to vary a Track 2 ACO's MSR and MLR based on the number of assigne d beneficiaries. This proposal wouldCMS-1461-P SP 11/25/14 346 reduce risk for many Track 2 ACOs by increasi ng 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 proposi ng to establish an additional risk-based option (Track 3) that offers a higher maxi mum shared savings per centage (75 percent) and performance payment limit (20 percent) th an 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 th at 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 adva nce 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 tota l 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 fo r ACOs electing a second agreement period starting in January 2016. The 10 th and 90 th 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 repr esent 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 eff ects 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 incr ease in savings is due to multiple factors

related to maturation of the program, including continued ph ase-in of assumed savingsCMS-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 particip ation under downside risk in Tr ack 2 as required under the current regulations. Further, we estimate appr oximately one in three of such re-enrolling ACOs would ultimately drop out of the progr am 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 10 th and 90 th 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 anticip ated increase in net savings is through improved ACO participation leve ls 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 e xpansion in the number of ACOs willing to continue their participation in the progra m is estimated to result in additional improvements in care efficiency of a magn itude significantly greater than the reduced shared loss receipts estimated from baseli ne (median shared loss dollars reduced byCMS-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 continue d one-sided sharing available in Track 1 (median shared savings payments increas ed 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 re taining 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 re vising our assumption for av erage 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 Novemb er 2011 final rule (76 FR 67969). This revision is related to the lower average numbe r of beneficiaries currently observed to be assigned to existing Shared Sa vings Program ACOs compared to the larger organizations participating in the Physician Group Pract ice Demonstration upon which the original assumption was based. We also believ e that our proposals to streamline the administrative requirements for the progr am could further assist in lowering

administrative costs. For our analysis, we are comparing the e ffects of the proposed changes in this proposed rule for a cohort of ACOs that either continued their partic ipation, beginning in 2016 or newly began participation in that same year. For purposes of our analysis, we assume that roughly one quarter of ACOs w ill 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. Aggr egate ongoing operating costs are estimated to range from $43 milli on under the baseline scenario to $181 millionCMS-1461-P SP 11/25/14 349

under the alternative scenario. Both st art-up investment and ongoing operating cost ranges assume an anticipated average participa tion level of 50 (baseline scenario) to 210 (alternative scenario) new or currently par ticipating 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 operati ng cost estimate also reflect s our assumption that, under the baseline scenario, there woul d be a greater propensity for ACOs that have completed the full term of their initial agreement peri od, and that would be required to participate under Track 2 in their second agreement pe riod, to drop out of the program after receiving poor results from their final sett lement 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 loss es 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 me dian ACO shared savings payments of $630 million, offset by $30 million in shared loss es, coupled with the aggregate average start-up investment and ongoing operating cost s of $562 million, result in an estimated net private benefit of $38 million. By proposi ng to no longer require ACOs to accept riskCMS-1461-P SP 11/25/14 350 in their second agreement period, our proposed changes also provide the benefit of reducing the per-ACO average shared loss liab ility 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 Saving s Program participation, the changes proposed in this rule will also benefit beneficiaries through broader improvements in accountability and care coor dination than would occur under current regulations. Accordingly, we have prepared a regulatory im pact analysis (RIA) that to the best of our ability presents the costs and bene fits 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 10 th Percentile $200 million $150 million $20 million $380 million Median $340 million $270 m illion $110 million $730 million 90 th Percentile $510 million $430 million $240 million $1160 million ACO Shared Savings 10 th Percentile $40 million $60 million $70 million $180 million Median $80 million $110 million $120 million $310 million 90 th Percentile $130 million $170 million $190 million $480 million ACO Shared Losses 10 th Percentile $20 million $40 million $10 million $80 million Median $60 million $80 million $30 million $170 million 90 th 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 nece ssarily 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.CMS-1461-P SP 11/25/14 351

TABLE 9: ALTERNATIVE SCENARIO ASSUMING ALL PROPOSED CHANGES ESTIMATED NET FEDERAL S AVINGS, COSTS AND BENEFITS, CYs 2016 THROUGH 2018

CY 2016 CY 2017 CY 2018 CYs (2016-2018) Net Federal Savings 10 th Percentile $190 million $150 million $80 million $430 million Median $380 million $350 million $280 million $1,010 million 90 th Percentile $590 million $570 million $510 million $1650 million ACO Shared Savings 10 th Percentile $90 million $150 million $220 million $470 million Median $140 million $210 million $280 million $630 million 90 th Percentile $200 million $280 million $350 million $820 million ACO Shared Losses 10 th Percentile $0 million $0 million $0 million $10 million Median $10 million $20 million $0 million $30 million 90 th Percentile $30 million $40 million $20 million $70 million Costs The estimated aggregate average star t-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 a nd 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 particip ation as well as changes in the mix of new and continuing ACOs. There remains uncertainty as to the numb er of ACOs that will continue to participate in the program, provider and s upplier 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 potentialCMS-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 con tinue to utilize a stochastic model that incorporates assumed probability distributi ons 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 cova riance 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, tabul ating the resulting individual cost or savings estimates to produce a distribution of potential outcome s 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 outcom es 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 th at these indications do not represent formal statistical probabilities in th e usual sense, since the underlying assumptions for each of

the factors in the model are based on reas onable judgments, using independent expert opinion when available.

The median result from the distributi on of simulated outcomes represents the

"best estimate" of the financial effect of the proposed changes to the Shared Savings Program. The full distribution illustrates th e 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 expenditure s 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 me dian projected total at baseline without the changes proposed in this rule. This net Federal savings estimate, detaile d 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 e xpected 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 pa yments of earned and unearned shared savings (less shared losses collected) resulting from: (1) reductions in spending; (2) care redesign; and (3) random group claim fluctuatio n, in total are less than (greater than) assumed savings from reductions in expenditures. As continued emerging data become availa ble 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 r easonable indication of the likely range of financial outcomes, given the chosen variable s and their assumed di stributions at this time in the program's operation. a. Assumptions and UncertaintiesCMS-1461-P SP 11/25/14 354 We continue to rely on input gathered as part of the analysis for the existing regulation from a wide range of external ex perts, 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 em erging evidence from current participation in this program, the Pioneer ACO Model, and related published evidence where available.

The factors that we are conti nuing to consider for modeling include all of the following:

• Number of participating ACOs, in cluding 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 s uppliers 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 implem ented by CMS and/or other payers.CMS-1461-P SP 11/25/14 355

We assumed that overall between 0.8 million Medicare beneficiaries (under baseline) and 3.3 million Medicare benefici aries (with all proposed changes) would annually be assigned to betw een 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 nati onal average. In addition, we assumed the level of savings generated by an ACO to pos itively correlate to the achieved quality performance score and resu lting sharing percentage. For estimating the impact of the proposed changes, we assume that most ACOs (approximately 9 out of 10, on average) will ch oose 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 le ss effective than planned; and (2) continue to build organizational experien ce 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 progr am 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 agreem ent period in this program, and motivated by the provision for prospectiv e assignment of beneficiar ies and the greater sharing percentage as proposed for this new opti on. A particularly important cause for uncertainty in our estimate is the high degr ee of variability observed for local per-capitaCMS-1461-P SP 11/25/14 356 cost growth rates relative to the national average "flat dollar" growth (used to update ACO benchmarks). The benchmark or expenditu re target effectively serves as the chief measure of efficiency for participating AC Os. 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 fi nd that factors, such as pr evailing per-capita expenditure growth in their service area th at 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 es timated net financial impact for the 2,500 stochastically generated tr ials under the scenario wher e 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 gene rated 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 Savi ngs Program financial impact for ACOs potentially entering a second agreement peri od 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 Sh ared Savings Program during the applicableCMS-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 st ochastic trials resulted in net program savings, the 10 th and

90 th percentiles of the estimated distributi on 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 financ ial estimates were prepared by the CMS Office of the Actuary (OACT). The medi an 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 propos ed in this proposed rule are finalized and implemented. However, we emphasi ze 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 addi tion, because MA payment rates depend on the level of spending within trad itional FFS Medicare, savings or costs arising from the Shared Savings Program would result in corresponding adjustments to MA payment

rates. Neither of these s econdary impacts has been incl uded 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 fina ncial effects for the Shared Savings Program of ACOs entering in a new agreemen t period starting in 2016 and the associated

10 th and 90 th percentile ranges, assuming all ch anges in this proposed rule are implemented. Net savings (characterized by a negative net impact on federal outlays) are expected to moderately cont ract over the 3-year period, from a median of $380 million in 2016 to $270 million in 2018. This progressi on is related to the maturation of efficiencies achieved by renewi ng ACOs contrasted by progre ssive increases in shared savings payments due to increasing variability in expenditures in la ter performance years relative to a static benchmark expenditure base line. To similar effe ct, the potential thatCMS-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 saving s 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 ES TIMATED 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 po tentially available for the up to nearly 220 ACOs that will complete their first ag reement 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 engage ment with program goals and incentives, especially for providers who fa il to generate shared savings revenue comparable to theCMS-1461-P SP 11/25/14 361 cost of effective participati on in the program. It is po ssible that, notwithstanding the enhancements proposed in this rule, a si gnificant 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 Medi caid programs, priv ate insurers, and employer-sponsored plans. Moreover, we woul d also note that the number of providers and suppliers participating in these models and in the existin g ACOs continues to grow. Therefore, providers may view continued partic ipation 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 pa yments from the Medicare Shared Savings Program. Therefore, there remains a potential for broad gains in effi ciency and quality of care delivery across all populations served by ACOs participa ting 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 th e 2016 through 2018 agreement period would likely entail a significantly wider range of po ssible outcomes. However, emerging results of the first performance cycle will help info rm estimates of the ongoing financial effects of the Shared Savings Program.

2. Effects on BeneficiariesCMS-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 jo in together to form ACOs that will be accountable for the care provided to an assi gned population of Medica re beneficiaries;

● Improve the coordination of FFS items and services; and

● Encourage investment in infrastructu re and redesigned care processes for high quality and efficient service delivery that demonstrates a dedication to, and focus on, patient-centered care that resu lts in higher quality care. The benefits of a payment model that encourages providers and suppliers to

become accountable for the overall care fu rnished to Medicare beneficiaries were evidenced by the PGP demonstration, upon whic h many features of the Shared Savings Program are based. Under the PGP demonstra tion, 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 ta rgets active in their fi rst 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 Demonstra tion, physician groups increased their quality scores an average of 10 percentage point s on the ten diabetes measures , 13 percentage points on the ten congestive heart failure measures, 6 percen tage points on the seven coronary artery disease measures, 9 percentage points on the 2 cancer screening measures, and 3CMS-1461-P SP 11/25/14 363 percentage points on the 3 hypertension measures . Further analysis is provided in the Physician Group Practice Demonstration Eval uation Report (Report to Congress, 2009; http://www.cms.gov/DemoProjectsEva lRpts/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 examin e 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 thei r CGs on all but one measure between the BY and PY2. Even after adjusting for pre-demons tration trends in the claims-based quality indicators, the PGP sites improved their clai ms-based quality process indicators more than their comparison groups. Further, for the first year of the Pi oneer ACO Model, all 32 Pioneer ACOs successfully reported quality measures a nd achieved the maximum quality score for complete and accurate reporting, earning incentive payments for their reporting accomplishments. Overall, Pioneer ACOs pe rformed better than published rates in FFS Medicare for all 15 clinical quality meas ures for which comparable data are available. For example,

● Twenty-five of 32 Pioneer ACOs ge nerated lower risk-a djusted readmission rates for their aligned benefi ciaries than the benchmark rate for all Medicare FFS

beneficiaries.CMS-1461-P SP 11/25/14 364

● Pioneer ACOs performed better on c linical 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 clin ical quality measures that assess low density lipoprotein (LDL) control for patien ts with diabetes. The median rate among Pioneer ACOs for LDL control among benefi ciaries with diabetes was 57 percent compared to 48 percent in an adult diabet ic population in 10 managed care plans across 7

states from 2000 to 2001. Additionally, under the Shared Savings Progr am, 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 ge nerated by participating organizations,

we have anecdotal evidence that illustrates th e importance of encourag ing 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 o ffering extended office hours, including weekend hours, and ensuring timely appointments and ac cess to clinical staff. Using the data shared by CMS, ACOs are able to identify high risk beneficiaries that require additionalCMS-1461-P SP 11/25/14 365 clinical attention, assi gn 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 interven tion that avoided an unnecessary hospital readmission. Active id entification and management of these patients has uncovered previously unaddressed is sues that factored into patient inability to adhere to treatment plans. For exam ple, one ACO reported that it has uncovered several psycho-social issues that were re sulting in avoidable readmissions such as—

● The inability to self-medicate (the AC O arranged for home health services);

● Lack of transportation to clinical pract ices (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 res ources (the ACO worked with community

stakeholders to have meals delive red to the patient's home). Additionally, ACOs are using claims data to identify diagnoses prevalent in the assigned population and develop best prac tice guidelines for those conditions, and educating and alerting ACO participants a nd ACO providers/suppliers to standardize

care. We expect that the changes proposed in this proposed rule, specifically those easing administrative requirements, smoothing th e 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 beneficiariesCMS-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 beneficiar ies assigned to an ACO continue to be in the traditional Medicare program. Thus, bene ficiaries may continue to choose providers and suppliers that do not participate in AC Os 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 fi rst performance year in the Shared Savings Program, we know that ACOs are busy implemen ting a variety of strategies designed to improve care coordination for beneficiaries and lo wer the rate of growth in expenditures.

Most of these ACOs consider themselves to be "physician-based" organizations, rather than "hospital-based", although many state th at a strong collaboration between inpatient and outpatient facilities is cri tical to better care coordination across site s of care. ACOs mentioned several strategies they beli eved were important such as careful pre-participation planning, transparency between the ACO leadership and its ACO participants and ACO provi ders/suppliers, education of ACO providers/suppliers regarding the ACO's care processes, str ong physician leadership, and working to streamline and transform practices for highly efficient coordinated care across sites of

care. Several clinicians in ACOs have re ported 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 ea rly in the process of implementing theirCMS-1461-P SP 11/25/14 367 strategies to improve care coordination and re duce the rate of growth in expenditures and have plans to refine and improve ba sed upon their early lessons learned.

We realize that ACOs bear costs in build ing the organizational, financial and legal infrastructure that is necessary to par ticipate in the Shared Savings Program and implementing the strategies previously arti culated, as well as performing the tasks required of an ACO, such as: quality reporting, conducting patient surveys, and investing

in infrastructure for e ffective 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 associat ed with the infrastructure, start-up and ongoing annual operating costs for participating ACOs in th e Shared Savings Progr am. These proposals include simplifying the application proce ss for certain ACOs with experience under

either Pioneer ACO Model or the Shared Savings Program streamlining sharing of beneficiary data. These signi ficant proposed policy modifications are discussed in detail in sections II.B., C., and D. of this proposed rule. The Shared Savings Program is still re latively new, and the initial group of organizations that applied to participat e has only recently completed the first performance year. Because of this limited experience with the pr ogram and flexibility regarding the composition of providers and s uppliers within an ACO and the strategies that the provider community will pursue in order to improve quality and reduce cost ofCMS-1461-P SP 11/25/14 368 care, precise estimates of expected provider co sts or changes to thei r 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 operati ng 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 a nd 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 milli on 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 beneficiarie s). 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 es timated aggregate star t-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 rangi ng 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 include s two-sided performance-based risk will in certain cases drop out of the program after re ceiving poor results for the first performance period beginning in 2016. Such drop out act ivity is assumed to affect a greater proportion of ACOs at baseli ne than under the all changes scenario because of the requirement that all renewing ACOs participat e 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 y ears that ACOs may participate for such agreement period, this yields estimated a ggregate 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 incr eased 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 th at will be paid to pa rticipating ACOs is a median of $630 million during CYs 2016 through 2018, with $470 million and $820 million reflecting the 10 th and 90 th percentiles, respective ly. (Similar to theCMS-1461-P SP 11/25/14 370 previously presented stochastic distributions, the distribution represents uncertainty given the range of expert opinion, ra ther than a true statistical probability distribution.) Compared to shared savings paymen ts, under our proposed changes to the program, we anticipate collection from par ticipating ACOs of a relatively moderate $30 million in shared losses duri ng the same period, with our 10 th and 90 th percentiles projecting $10 million and $70 million in shared losses collected, respectively. Shared losses decrease relative to the baseline (m edian of $170 million over the same 3 years) because, in contrast to the baseline re quirement, not all renewing ACOs would be required to enter Track 2 and take on downsid e risk. Modeling indi cates that not all ACOs choosing downside risk in a second ag reement period, whether required, as under the current regulation or as an alternative op tion under the proposed changes, will achieve shared savings and some may incur a financia l 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 attributab le to the proposed option for eligible ACOs to be able to renew under a modified Track 1, and illustrate s a key reason why the program would be anticipated to see signifi cantly stronger continued participation under the proposed changes than at baseline. Assuming the proposed changes in this pr oposed 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, c oupled with the aggregate average start-upCMS-1461-P SP 11/25/14 371 investment and ongoing operating cost of $562 million, incurr ed 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 ba seline average start-up investment and ongoing operating costs of $121 million, yields a net pr ivate benefit of $19 million. We expect that a significant portion of Tr ack 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 liabi lity by over 95 percent compared to the baseline, and increase the chance an ACO re newing 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 as sumptions that could vary in practice and thus result in a very different actual result than what was esti mated. First, we assume that savings realized by existing ACOs during thei r first agreement period are built into their

benchmarks and our baseline for their succes sive 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 thes e ACOs actually exceed or fall short of ourCMS-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 a ssume a large proportion of existing Track 1 ACOs will continue participating under Tr ack 1 for 2016 to 2018, albeit at the lower 40 percent sharing rate. This assumption has th e 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 act ual ACO quality performance exceeds or falls short of our estimates, the net private benefits could be resp ectively higher or lower than

what we estimated. We also note that the net private benef its actually experienced by a given ACO may increase as a result of other benefits a ssociated 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. Su ch potential benefits are not considered in our analysis because they are not readily quantifiable. Ther efore, we limit our benefit-cost estimate to shared savings and shared loss dollars r eceived under the Shared Savings Program relative to estimated operational costs associat ed with participating in the program as previously described.CMS-1461-P SP 11/25/14 373

TABLE 12—STOCHASTIC DISTRIBUTION FOR ES TIMATED 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 num ber 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 qua lifying 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; NAICCMS-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/sma ll-business-size-standards

. For purposes of the RFA, approximately 95 percent of physicians are cons idered to be small entities. There are over 1 million physicians, other practiti oners, and medical suppliers th at 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 par ticipate. Small entities are both allowed and encouraged to participate in the Shared Savi ngs 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 en hanced and efficient systems of care and care coordination. Therefore, a solo, small physic ian 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 otherw ise 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 detaile d 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 th e cost of participation for the subset of ACOs that achieve shared savings in a given year, a nd no downside risk of significant shared losses forCMS-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 hosp ital 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, additiona l opportunities to potentially share in savings under proposed new Track 3, and streamlined admi nistrative requirements. As detailed in this RIA, the estimated aggregate median impact of sh ared savings payments to participating ACOs is approximately 107 percent of the average costs bor ne by entities that voluntarily participate in the Shared Savings Program, with an offset significantl y 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 be fore issuing any rule whose mandates require spending in any 1 year of $100 million in 1995 do llars, 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 governme nts, in the aggregate, or by the private sectorC

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the concerns of ACOs that were successful in achieving savings in their first agreement period but are concerned that their new expenditure b aseline 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 mode l 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 sh aring 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 cons idered 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 limite d to participating unde r Track 2 as required under the current regulations. This alternative was assume d to boost ACO participation in 2016 and 2017 comparable to the participatio n level expected for such years in the all-changes scenario. However, we woul d anticipate a significant contraction in participation in 2018 similar to th e rate of participation assume d 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 th is rule, driven mainly by reduced program participation in the third year and by incr eased 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 unde r Executive Order 12866, in Table 13, we have prepared an accounting statement showi ng the change in (A) net federal monetary transfers, (B) shared savings payments to AC Os net of shared loss payments from ACOs and (C) the aggregate cost of ACO oper ations 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 379TABLE 13: ACCOUNTING STATEMENTESTIMATED IMPACTS(CYs 2016–2018)Category Primary Estimate Minimum Estimate Maximum Estimate Source Citation(RIA, preamble, etc.)BENEFITSAnnualized monetized transfers:Discount rate: 7%-$76.3 million -$12.0 million -$129.7 million Change from baseline(Table 8) to proposedchanges (Table 9)Annualized monetized transfers:Discount rate: 3%-$83.8 million -$13.7 million -$142.0 millionFrom whom to whom? Negative values reflect reduction infederal net cost resulting from care management by ACOsBENEFITSAnnualized monetized transfers:Discount rate: 7%$124.1 million $96.5 million $152.0million Change from baseline(Table 8) to proposedchanges (Table 9)Annualized monetized transfers:Discount rate: 3%$134.8 million $105.1 million $164.7 millionFrom whom to whom? Positive values reflect increase inaggregate shared savings net of shared lossesOPERATIONAL COSTAnnualized monetized transfers:Discount rate: 7%$121.3 million Change from baseline(Table 8) to proposedchanges (Table 9)Annualized monetized transfers:Discount rate: 3%$130.7 millionFrom whom to whom? Positive values reflect increase in aggregate ACO operating costs largely attributable to assumedincreased participation as a result of the proposals included in this proposed rule compared to baselineCMS-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 th is proposed rule, the median estimate of the financial impact of the Shared Savings Pr ogram for CYs 2016 through 2018 would be net federal savings (after shared savings paymen ts) of $1,010 million. Unde r this proposed rule, median savings would be about $280 million hi gher 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 th rough 2018, a relatively wide range of possible outcomes exists. While over 99 percent of the stoc hastic trials resulted in net program savings,

the 10 th and 90 th percentiles of the estimated distribu tion show net savings of $430 million to net savings of $1,650 million, respec tively. In the extreme scenario s, 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 Savi ngs Program for CYs 2016 through 2018. The 10 th and

90 th percentiles of the estimate distribution, fo r the same time period, yield shared savings payments to ACOs of $470 milli on and $820 million, respectively. Therefore, the total median ACO shared savings payments of $630 milli on during CYs 2016 through 2018, net of a median $30 million shared losses, coupled with the a ggregate 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 tr ansition from Track 1 to Track 2, reduce risk under Track 2, and adopt an alternative risk-bas ed model—Track 3. This resulted in total shared savings increasing significantly, while shar ed losses decreased due to these changes. Moreover, as participation in the Shared Savings Program con tinues 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 qua lity of the care that is provided to beneficiaries. In accordance with the provisions of Executiv e Order 12866, this rule was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 425 Administrative practice and pro cedure, Health facilities, H ealth professions, Medicare, Reporting and recordkeeping requirements.

For the reasons set forth in the preamb le, 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 42 5 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]CMS-1461-P 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 defini tion of "ACO participant". B. By adding the definition of "ACO part icipant 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 "Assi gnment window" in alphabetical order. E. By revising the definitions of "Conti nuously assigned beneficiary", "Hospital", and "Newly assigned beneficiary". F. By adding the definition of "Particip ation 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 phr ase "in the particip ation 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 additio ns 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/supplie rs bill Medicare, that alone or together with one or more other ACO participants comp ose an ACO, and that is included on the list of ACO participants that is required under §425.118.CMS-1461-P ACO participant agreement means the wr itten agreement (as required at § 425.116) between the ACO and ACO participant in which th e 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 Me dicare billing number assigned to the TIN of an ACO participant in acc ordance with applicable Medicare regulations and who is either of the following: (1) A physician legally authorized to pract ice 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 define d at § 410.74(a)(2) of this chapter). (ii) A nurse practitioner (as defi ned at § 410.75(b) of this chapter). (iii) A clinical nurse spec ialist (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 b illing 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 re quired under § 425.118.CMS-1461-P Agreement period means the term of the participation agreement, which is 3 performance years unless otherwise specifi ed in the participation agreement.

* * * * * Assignment means the operational pro cess by which CMS determines whether a beneficiary has chosen to receive a suffi cient level of the re quisite primary care services from ACO professiona ls so that the ACO may be appropriately designated as exercising basic responsibility for that bene ficiary'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 be neficiary assigned to the ACO in the current performance year who was either assigne d to or received a primary care service from any of the ACO participants during the assignm ent 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 benefici ary 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 a ssignment window for the most recent prior benchmark or performance year.

* * * * *CMS-1461-P Participation agreement means the wr itten 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 HC PCS/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 refere nce "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 "e ligible participate" a nd adding in its place the phrase "eligible to participate".CMS-1461-P The addition reads as follows: § 425.102 Eligible providers and suppliers. (a) * * * (8) Teaching hospitals that have electe d under § 415.160 of this chapter to receive payment on a reasonable cost basis for the dire ct medical and surgical services of their physicians.

* * * * * § 425.104 [Amended]

6. Amend § 425.104(b), by removing the phrase "o therwise 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 main tain 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 unde r § 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 sa tisfy 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.CMS-1461-P (iii) Satisfy all other requirements of this section. (b) * * * (3) The governing body members must have a fi duciary duty to the ACO, including the duty of loyalty, and must act consis tent with that fiduciary duty.

* * * * * (c) * * * (1) The ACO must--(i) Establish a mech anism 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 compos ition and control of the ACO's governing body for ACO participants or their designated representatives. (2) The ACO governing body must incl ude 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 immedi ate family member who has a c onflict 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 th is section, the AC O must describe-- (i) Why it seeks to differ from this requirement; and (ii) How it will provide meaningful repres entation of Medicare beneficiaries in ACO

governance.CMS-1461-P * * * * * 8. Amend §425.108 by removing paragraph (e) a nd revising paragraph (c) to read as

follows: § 425.108 Leadership and management.

* * * * * (c) Clinical management and oversight mu st 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 sa tisfied the requirement to have at least 5,000 assigned beneficiaries as specified in para graph (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 as signment methodology set forth in subpart E of this part. In the case of the third benchmark year, CMS uses th e most recent data available to estimate the number of assigned beneficiaries. (b) If at any time during the performan ce 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.CMS-1461-P (1) While under a CAP, the ACO remains e ligible 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 sh are in savings for that performance year. 10. Amend §425.112 by adding paragraphs (b)(4)(i i)(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 record s and other health IT tools. (2) Telehealth services, incl uding remote patient monitoring. (3) Electronic exchange of health information. (4) Other electronic tools to enga ge beneficiaries in their care. (D) Describe how the ACO intends to pa rtner with long-term and post-acute care providers, both inside and outsi de the ACO, to improve care coordination for their assigned

beneficiaries.CMS-1461-P (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 paragra ph (b)(4) of this section. 11. Add §425.116 to subpart B to read as follows: § 425.116 Agreements with ACO particip ants and ACO providers/suppliers (a) ACO participant agreements. The AC O must have an ACO participant agreement with each ACO participant that complies with the following criteria: (1) The only parties to the agreemen t are the ACO and the ACO participant. (2) The agreement must be signed on be half of the ACO and the ACO participant by

individuals who are authorized to bind the ACO and the ACO pa rticipant, respectively. (3) The agreement must expressly require th e 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 lim itation, the quality repo rting requirements set forth in subpart F of this part, the benefici ary notification requirem ents set forth at §425.312, and how participation in the Shared Savings Progr am affects the ability of the ACO participant and its ACO providers/suppliers to participate in other Medicare demons tration projects or programs that involve shared savings. (5) The agreement must describe how th e opportunity to receive shared savings or other financial arrangements will encourage th e ACO participant to adhere to the qualityCMS-1461-P assurance and improvement program and evidence -based medicine guidelines established by

the ACO. (6) The agreement must require the AC O participant to update its enrollment information, including the addition and deletion of ACO prof essionals 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 particip ant to take remedial action against its ACO providers/suppliers, including imposition of a co rrective action plan, de nial of incentive payments, and termination of the ACO particip ant agreement, to address noncompliance with the requirements of the Shared Savings Program and other program inte grity 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 AC O participant to furnish all data necessary to complete the annual assessment of the ACO's qu ality of care and addresses other relevant

matters. (b) Agreements with ACO providers/suppliers . ACOs have the option of contracting directly with its ACO provide rs/suppliers regarding items and services furnished to beneficiaries aligned to the ACO. An AC O's agreement with an ACO provider/supplier regarding such items and services must satisfy the following criteria:CMS-1461-P (1) The only parties to the agreement ar e the ACO and the ACO provider/supplier. (2) The agreement must be signed by th e 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 AC O provider's/supplier's rights and obligations in, and representation by, the ACO, includi ng without limitation, the quality reporting requirements set forth in subpart F of this pa rt, the beneficiary notif ication requirements set forth at §425.312, and how participation in the Sh ared Savings Program affects the ability of the ACO provider/supplier to participate in othe r Medicare demonstration projects or programs that involve shared savings. (5) The agreement must describe how th e 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 cha nges within 30 days after the change. (7) The agreement must permit the ACO to take remedial action including the following against the ACO provide r/supplier to address noncomp liance with the requirementsCMS-1461-P of the Shared Savings Program and other progra m integrity issues, including those identified by

CMS: (i) Imposition of a co rrective 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 th e time of its initial application, participation agreement renewal pr ocess, 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 part icipants and ACO providers/suppliers. (a) List requirements. (1) The ACO mu st 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 identifi er) 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 lis ts in accordance w ith § 425.302(a)(2). (4) All Medicare enrolled indi viduals and entities that ha ve 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 pa rticipate in the ACO and comply with theCMS-1461-P requirements of the Shared Savings Program befo re 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 scr eening performed under § 425.304(b). (2) Deletions. (i) An ACO must notif y 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 ad justs an ACO's assi gnment, historical

benchmark , the quality reporting sample, and the obliga tion of the ACO to report on behalf of ACO providers/suppliers for certain CMS quality initiatives to re flect 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, CM S does not make adjustments during the performance year to the ACO's assignment, hist orical benchmark, performance year financial calculations, the quality reporting sample, or the obligation of th e ACO to report on behalf ofCMS-1461-P ACO providers/suppliers for certain CMS quality initiatives to re flect 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 un usual 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 become s a Medicare-enrolled provider or supplier that bills for items and services it fu rnishes to Medicare fee-fo r-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 indi vidual or entity to the ACO provider/supplier list is e ffective 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 th e 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 Medica re-enrolled provider or supplier th at 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 AC O provider/supplier from the AC O provider/supplier list is

effective on the date the individu al 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 th e TIN of an ACO participant.CMS-1461-P (d) Update of Medicare enrollment informa tion. The ACO must ensu re that all changes to enrollment information for ACO participan ts and ACO providers/ suppliers, including changes to reassignment of the right to rece ive 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 "t hree" and adding in its place the figure "3". C. In the heading of paragraph (b), and pa ragraphs (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 appl ication 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.CMS-1461-P (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 no t 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 term s "ACO agreement" and adding in its place the terms "participation agreement". B. In paragraph (b)(3) by removing the te rm "agreement" and adding in its place the terms "participation agreement". C. By revising paragraphs (c)(1) introduc tory 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 phr ase "among two or more ACO participants". G. By revising pa ragraph (c)(5)(i). H. By adding paragraph (c)(6). I. In paragraph (e)(1), removing the phr ase "an ACO must specify whether it is applying to participate in Track 1 or Track 2" and adding in it s place the phrase "an ACO must specify the Track for which it is applying" J. By revising paragraph (f).CMS-1461-P K. By adding paragraph (g).

The revisions and additio ns 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 partic ipant agreements, agreements with ACO providers/suppliers, employment contracts, and op erating 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 rece ive shared savings or other financial arrangements will encourage ACO participants a nd ACO providers/suppliers to adhere to the quality assurance and improvement program and evidence-based clinical guidelines.

* * * * * (iii) Materials documenting the ACO's or ganization and management structure, including an organizational ch art, 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 id entifiable body; (B) Represents a mechanism for shar ed governance for ACO participants; (C) Is composed of representativ es of its ACO participants; andCMS-1461-P (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 m eaningful 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 par ticipants, ACO providers/suppliers, and other individuals or entities performi ng 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 signatu re 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.

* * * * *CMS-1461-P (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 particip ation 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 paragra ph (f)(1)(i) of this section must include details supporting the adequacy of the mechanism for repaying shar ed 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 expenditure s used to calculate the benchmark for the applicable agreement period, as estimated by CMS at the time of appli cation 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 es tablishing a combination of such repayment mechanisms, that will ensure its abili ty to repay the Medicare program. (3) An ACO participating under a two-sided model must demonstrat e 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 mech anism has been used to repay any portion of shared losses owed to CMS, the ACO must repl enish the amount of fund s available through the repayment mechanism within 60 days.CMS-1461-P (4) The repayment mechanism must be in e ffect for a sufficient period of time after the conclusion of the agreement period to permit CM S to calculate the amount of shared losses

owed and to collect this amount from the ACO. (g) Consideration of claims billed under me rged and acquired Medicare-enrolled TINs. An ACO may request that CM S consider, for purposes of beneficiary assignment and establishing the ACO's benchmark under § 425.6 02, claims billed by Medicare-enrolled entities' TINs that have been acquired thr ough sale or merger by an ACO participant. (1) The ACO may include an acquired Me dicare-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 th at reassigned their right to receive Medicare payment to the acquired entity 's Medicare-enrolled TIN. (ii) Each provider or supplier that previ ously 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 pa ragraph (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;CMS-1461-P (B) Specifies that all the pr oviders and suppliers that prev iously reassigne d their right to receive Medicare payment to the acquired ent ity's TIN have reassigned such right to the TIN of the identified ACO participant and have b een added to the ACO pr ovider/supplier list under paragraph (c)(5) of this section; and (C) Specifies that the acqui red entity's TIN is no longe r used to bill Medicare. (ii) Documentation sufficient to demonstrat e 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 determin ation. (1) CMS evaluates an ACO's application to determine whether an applicant satisfies the requirements of this part and is qualified to participate in th e 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 informati on available to CMS. (2) CMS notifies an ACO applicant when supplemental information is required for CMS to make such determination and pr ovides an opportunity fo r 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 head ing and paragraph (a) to read as

follows: § 425.212 Changes to program requirem ents 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 fo llowing program areas, unless otherwise required by statute: (1) Eligibility requirements concerning the structure and gover nance 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) a nd (b), respectively. D. By revising newly re designated paragraph (a). E. In newly redesignated paragraph (b ) introductory text, re moving the phrase "Upon receiving" and adding in its pl ace the phrase "Upon becoming awar e 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 term s "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.CMS-1461-P (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 rem oving the term "ACO's agreement" and adding in its place the terms "participation agreement". 20. Amend §425.218 by revising the section he ading 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:CMS-1461-P § 425.221 Close-out procedures and payment consequences of early termination. (a) Close-out procedures. (1) An ACO w hose 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 a nd 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 termin ation. (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 te rmination becomes ef fective only if-- (i) CMS designates or approves an effec tive date of termination of December 31 st 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 pa rticipation agreement under §425.220 before December 31 of a performance year or whose pa rticipation agreement is terminated by CMSCMS-1461-P under §425.218 at any time is not eligible to recei ve 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 terminati on, an ACO that was previously under a twosided model may only reapply for part icipation 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 re newal of its participation agreement for a second or subsequent agreement period.CMS-1461-P (1) In order to obtain a determination rega rding 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, a nd belief that the information contained in the renewal request is accurate, complete, and truthful. (3) An ACO that seeks renewal of its part icipation agreement and was newly formed after March 23, 2010, as defined in the Antitrust Policy Statemen t, must agree that CMS can share a copy of its renewal requ est with the Antitrust Agencies. (b) Review of renewal request . (1) CMS determines whet her to renew a participation agreement based on an evaluation of all of the following factors: (i) Whether the ACO satisfies the criteria fo r operating under the se lected 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 prev ious agreement period. (v) For ACOs under a two-sided model, wh ether the ACO has repaid losses owed to the program that it generated during the firs t 2 years of the previous agreement period. (vi) The results of a program integrity scre ening of the ACO, its ACO participants, and its ACO providers/suppliers (conducte d in accordance with § 425.304(b)).CMS-1461-P (2) Renewal requests are approved or denied on the basis of the following information: (i) Information contained in and submitte d 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 supplemen tal information is required for CMS to make such a determination and provides an opport unity 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 re quest, 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 th e 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 sect ion, ACO participants are not required to be exclusive to one Shared Savings Program ACO.CMS-1461-P (2) Each ACO participant that submits claims for primary care services used to determine the ACO's assigned popula tion 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 report s 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 AC O 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 clini cal and administrative leadership. (v) Identification of associated committees and committee leadership. (vi) Identification of the types of AC O participants or combinations of ACO participants (as listed in § 425.102(a)) that formed the ACO.CMS-1461-P (4) Shared savings and losses in formation, 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 lowe r growth in expenditures, including the proportion distri buted 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 complia nce 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. CM S may publicly report ACO-specific information, including but not limited to th e ACO public reporting webpage address and the information required to be publicly repor ted 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 pa rticipation in the shared savings program. (a) ACO participants must notify beneficiaries at the point of care that their ACO providers/suppliers are particip ating in the Shared Savings Pr ogram and of the opportunity to decline claims data sharing under § 425.708.CMS-1461-P (1) Notification is carried out when an ACO pa rticipant posts signs in its facilities and, in settings in which beneficiaries receive prim ary care services, by making standardized written notices available upon request. (2) The ACO must use template langua ge developed by CMS for notifications described in paragraph (a )(1) of this section.

* * * * * § 425.314 [Amended] 29. Amend §425.314 in paragraph (c) by removi ng the word "agreement" and adding in its place the words "par ticipation 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 phr ase "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).CMS-1461-P E. By adding paragraph (a)(3).

The additions read as follows: § 425.400 General. (a)(1) General. (i) A Medicare fee-for-ser vice beneficiary is a ssigned to an ACO for a performance year if the-- (A) Beneficiary meets the eligib ility criteria under §425.401(a); and (B) Beneficiary's utilization of primary ca re services meets the criteria established under the assignment methodol ogy described in §425.402 and §425.404.

* * * * * (2) Assignment under Tracks 1 and 2.

* * * * * (3) Prospective assignment under Track 3. (i ) Medicare fee-for-s ervice beneficiaries are prospectively assigned to an ACO under Trac k 3 at the beginning of each performance year based on the beneficiary's use of primary care se rvices in the most recent 12 months for which data are available, using the assignm ent methodology described in §425.402 and §425.404. (ii) Beneficiaries that are pr ospectively assigned to an AC O 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 exclusio n criteria under §425.401(b).

* * * * * 32. Add §425.401 to read as follows:CMS-1461-P § 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 Medica re group (private) heal th plan enrollment. (3) Is not assigned to any other Medicare shared savings initiative. (4) Lives in the United States or U.S. territories and possessi ons, 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 assign ment list of an ACO participating under Track 3 at the end of a perf ormance or benchmark year, if the beneficiary meets any of the following criteria du ring the performance or benchmark year: (1)(i) Does not have at least 1 mont h 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 gr oup (private) health plan enrollment. (3) Did not live in the United States or U. S. territories and po ssessions, based on the

most recent available data in our beneficiary records regarding th e beneficiary's residency at the end of the year. 33. Revise §425.402 to read as follows: § 425.402 Basic assignment methodology.CMS-1461-P (a) For purposes of benchmarking, prel iminary prospective assignment (including quarterly updates) and retrospe ctive reconciliation, and prospective assignment, CMS employs the following step-wise methodology to assign Me dicare fee-for-service beneficiaries to an

ACO: (1) Identify all beneficiaries that had at le ast one primary care se rvice 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 desi gnations included in paragraph (b) of this

section. (2) Identify all primary care se rvices furnished to beneficiar ies 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 phys icians with specialty designations included in paragraph (b) of this section during the applicable assignment window. (3) Under the first step, a beneficiary identi fied 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 th e 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 servi ce rendered by any primary careCMS-1461-P physician, nurse practitioner, physician assistant, or clinical nurse speciali st, 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 bene ficiary by physicians who are ACO professionals with specialty designations as sp ecified in paragraph (b) of this section are greater than the allowed charges for primary care services furn ished by physicians with specialty designations as specified in paragraph (b) of this section --

(i) Who are ACO professiona ls 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 th e second step of the assignment methodology in paragraph (a)(4) of this section include phys icians 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 medici ne and rehabilitation. (9) Pulmonary disease. (10) Pediatric medicine.CMS-1461-P (11) Nephrology. (12) Infectious disease. (13) Endocrinology. (14) Rheumatology. (15) Multispecialty c linic 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 paymen t on a reasonable cost basis for the direct medical and surgical services of their phys icians 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 paragra ph (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 in cludes a HCPCS or reve nue center code that meets the definition of prim ary care services under §425.20;CMS-1461-P (2) A primary care service performed by a primary care physicia n if the NPI of a physician identified in the attest ation provided under paragraph (a ) of this section is reported on the claim for a primary care service (as describe d 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 servi ce (as described in para graph (b)(1) of this section) as the attending pr ovider is an ACO professional but is not identified in the attestation provided under para graph (a) of this section. 36. Amend §425.600 as follows: A. In paragraph (a)(2), by removing the phr ase "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 AC O 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;CMS-1461-P (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 establis hed for ACOs seeking to renew their agreements under §425.224(b).

* * * * * §425.602 [Amended] 37. Amend §425.602 (a)(8), by removing the ph rase "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 "durin g 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 pa yment of up to 40 percent of all savings under the updatedCMS-1461-P 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 phr ase "under the two-sided model" and adding in its place the phrase "under Track 2". F. In paragraph (g)(1), by removing the phr ase "in a two-sided mode l" 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 AC O under subpart E of this part , to establish the MSR and MLR for an ACO participating under Track 2. The MS R 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.CMS-1461-P (1) To qualify for shared savings under Tr ack 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 loss es 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 y ear, CMS determines whether the estimated average per capita Medicare expenditures unde r 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-fo r-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 prosp ective 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.CMS-1461-P (ii) If the prospective HCC risk score is lower in the performance year for this population, CMS adjusts for change s in severity and case mix fo r this population using this lower prospective HCC risk score. (3) Assigned beneficiary changes in demogr aphics and health status are used to adjust benchmark expenditures as described in §425.602(a). In adjusti ng 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 Medica re and Medicaid beneficiaries. (iv) Aged/non-dual eligible Medi care and Medicaid beneficiaries. (4) To minimize variation from catastrophically large claims, CMS truncates an assigned beneficiary's total annu al Parts A and B fee-for-service per capita expenditures at the

99 th percentile of national Medicare fee-for-ser vice expenditures as determined for each performance year. (5) CMS uses a 3-month claims run out w ith a completion factor to calculate an ACO's per capita expenditures for each performance year. (6) Calculations of the ACO's expend itures 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 ho spital (DSH) payments. (ii) These calculations will take into consideration individually beneficiary identifiable payments made under a demons tration, pilot or time limited program.CMS-1461-P (7) In order to qualify for a shared sa vings 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 leas t 2 percent. (2) To be responsible for sharing losses with the Medicare program under Track 3, an ACO's average per capita Medicare expendi tures for the performance year must be at least 2 percent above its updated benchmark costs for the year. (c) Qualification for shared savings paymen t. To qualify for shared savings, an ACO must meet the minimum savings rate requireme nt established under pa ragraph (b) of this section, meet the minimum quality performa nce standards established under §425.502, and otherwise maintain its eligibility to participat e in the Shared Savings Program under this part. (d) Final sharing rate. An ACO that meet s 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 appl y 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.CMS-1461-P (f) Shared loss rate. The shared loss rate-- (1) For an ACO that is required to sh are 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 desc ribed 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 agreem ent 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 th e data for purposes of population-basedCMS-1461-P activities relating to improving health or reduc ing growth in health care costs, process development, care management, and care coordination, will provide the ACO with

information about its fe e-for-service population. (i) Under Tracks 1 and 2, the following in formation is made available regarding preliminarily prospectively assigned benefi ciaries and beneficiar ies that received a primary care service during the previous 12 mont hs from one of the ACO participants that submits claims for primary ca re services used to determ ine 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, informati on in the following categories, which represents the minimum data necessary for AC Os to conduct health care operations work is made available regarding preliminarily prospectively assign ed 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-acu te services, including the dates and place

of service. (D) Expenditure information rela ted to utilization of services.CMS-1461-P (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 w ill 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 addi ng in its place the phrase "claims data for preliminarily prospectively and pros pectively assigned beneficiaries". C. In the introductory text, by removing the phrase "upon whom assignment is based during the agreement period" and adding in its pl ace the phrase "that submits claims for primary

care services used to determine the ACO's a ssigned population under subpart E of this part during the performance year". D. In paragraph (a) by removing the phras e "ACOs may request data as often" and adding in its place "ACOs may acce ss 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) * * *CMS-1461-P (1) For an ACO participating -- (i) In Track 1 or 2, the be neficiary'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 redesignate d paragraphs (b) and (c).

The revisions read as follows: § 425.708 Beneficiaries may decline claims data sharing. (a) Beneficiaries must recei ve notification about the Shar ed Savings Program and the opportunity to decline claims data sharing and in structions 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.CMS-1461-P (2) The notifications provided under § 425.312 must state that the ACO may have requested beneficiary identifiabl e claims data about the benefi ciary for purposes of its care coordination and quality improvement work, and inform the beneficiary how to decline having

his or her claims information sh ared with the ACO in the form and manner specified by CMS. (3) Beneficiary requests to decline claims da ta 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 declin e 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 benefi ciary identifiable claims data relating to the diagnosis and

treatment of alcohol and substan ce abuse without the explicit writt en 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).CMS-1461-P 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 cons ideration by the reconsiderati on 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-PCMS-1461-P [FR Doc. 2014-28388 Filed 12/01/2014 at 4:15 pm; Publication Date: 12/08/2014]